<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<S> <C>
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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
</TABLE>
ALLIED PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 38-0292230
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (312) 454-1020
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
COMMON STOCK--$.01 PAR VALUE NEW YORK AND PACIFIC
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
_X_
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No ___
As of February 28, 1994, 9,098,336 shares of common stock, 180,800 shares of
Series B Variable Rate Cumulative Preferred Stock and 129,000 shares of $10.81
Series C Cumulative Preferred Stock were outstanding, and the aggregate market
value of the shares of common stock (based upon the closing price on the New
York Stock Exchange) and of the Preferred Stock (based upon such stock's stated
value) held by nonaffiliates of the Company was approximately $136,714,251.
Determination of common stock ownership by affiliates was made solely for the
purpose of responding to this requirement, and the Registrant is not bound by
this determination for any other purpose.
The Company's definitive Proxy Statement (which will be filed at a later date)
for the Annual Meeting of Stockholders scheduled to be held May 27, 1994 and
Annual Report to security holders for the year ended December 31, 1993 are
incorporated by reference in Part III and Part IV herein.
The Exhibit Index is located on page 41.
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<PAGE>
PART I
ITEM 1. BUSINESS
Allied Products Corporation (Allied Products) was organized under Delaware
law in 1967 as the successor to a Michigan corporation which was formed in 1928.
Its principal executive offices are at 10 South Riverside Plaza, Chicago,
Illinois 60606 and its telephone number is (312) 454-1020. As used herein, the
term "Allied Products" and the "Company" means Allied Products Corporation and
its consolidated subsidiaries, unless the context otherwise requires.
The Company's operations involve a single industry segment, the
manufacturing and sale of agricultural and industrial machinery and other
products.
The operations of the Company were realigned into one business segment in
1993 to reflect the sale of the Smith Energy Services and White-New Idea
divisions and the closing of the Richard Brothers Die & Prototype, Charles City,
International Agro and Kewanee Farm Equipment divisions. The restated financial
statements also reflect the discontinuation of the Cooper division as,
subsequent to the end of 1993, the Company entered into a letter of intent to
sell all the assets and business of this operation. Reference is made to Note 2
of Notes to Consolidated Financial Statements for a more complete description of
closures and dispositions.
Approximately 4%, 6% and 8% of the Company's net sales from continuing
operations in 1991, 1992 and 1993, respectively, were exported. The majority of
export sales were shipped to Canada in 1991 and Mexico in 1992 and 1993.
PRODUCT LINES
FARM IMPLEMENTS --
PRODUCTS. The Bush Hog division offers a comprehensive line of farm
implements including rotary cutters, tractor mounted loaders, hay mowers, peanut
combines, tillers, and cultivators. These products are marketed under two well
established brand names, Bush Hog and Lilliston. The Kewanee brand name will
continue to be used for supplying the ongoing repair part requirements of its
customers.
Bush Hog was acquired by Allied in 1968, Lilliston was purchased in 1986,
and all production was consolidated into the Bush Hog facilities in Selma,
Alabama.
Bush Hog rotary cutters are used to shred stalks after the crop has been
harvested, to mow pasture, for land maintenance and for governmental
right-of-way mowing. In some crops such as cotton, rotary cutters are used as a
mechanical means of pest control causing less reliance on chemical applications.
The use season for rotary cutter is quite long, extending from early spring to
late fall, and even beyond in warmer climates. Bush Hog has a major market share
(35%) of rotary cutters sold in North America.
Front end loaders are used by farmers and ranchers for material handling,
and cultivators are used for weed control after crops have been planted.
Lilliston peanut combines are used in harvesting peanuts, and command
approximately 45% of the market. The use season for peanut combines is from late
summer to late fall.
Bush Hog's hay mower is a patented design that enables the farmer to cut
hay, prior to baling, faster and more economically than conventional type
mowers. Hay is a self renewing crop if cut on a timely basis and this implement
may be used as many as five times during the season on the same field.
Several other implements are sold under the Bush Hog name, including rotary
tillers, post hole diggers, flail mowers and rear mounted tractor blades. These
tools offer a variety of applications, and are sold to farmers, ranchers,
landscape contractors, large estate owners and municipalities.
The retail price of implements produced by Bush Hog range from $600 for a
small rotary cutter, primarily used for grass clipping, to peanut combines,
which sell for $28,000 (2 row model) to almost $49,000 (4 row model). Implements
tend to have a shorter life than tractors and grain combines and purchases of
implements are less likely to be deferred in times of economic uncertainty,
somewhat dampening cyclical swings in demand. Parts accounted for almost one
sixth of Bush Hog's total revenue in 1993.
Technology does change and to maintain and expand its market position, Bush
Hog continually updates and improves its product offerings. This is done through
a combination of internal development and external acquisition of technology.
MARKETING. Bush Hog implements are marketed through approximately 2,650
farm equipment dealers which play the primary role in sales of farm equipment.
In general, they are independent, local businessmen who have an established
local clientele developed over the years and represent more than 35% of the
total farm equipment dealerships in the United States and Canada. The Bush Hog
and Lilliston brand names are particularly strong in the southeastern and
southwestern states. Most dealers offer shortline products to complement or
compete with products of major product line manufacturers.
2
<PAGE>
Marketing and sales activities in Canada and the United States are carried
out by 58 commissioned manufactures' representatives or representative
organizations who operate as independent contractors and who, for the most part,
are exclusive. Commissions are payable when receivables are collected rather
than when sales are made.
To even out the seasonal variations in its production cycles, Bush Hog
provides incentives for off-season purchases, including extended payment terms
to dealers in the form of floor plan financing. Bush Hog retains a security
interest in this floor plan equipment. Under certain state and provincial
statutes, a dealer may return floor plan equipment to a manufacturer upon
termination of his relationship.
Bush Hog services its network of dealers through two manufacturing
facilities and eight service parts distribution centers, strategically located
in the United States and Canada.
COMPETITION. Competition for farm equipment includes the major line
manufacturers of tractors and several hundred companies producing one or more
models of shortline implements. Price, quality, service and availability are all
factors in brand selection, and, in some cases, a product will enjoy a unique
technological advantage. Bush Hog's objective is to be the lowest cost producer
of high quality products. To do this it must, among other things, continue to
modernize its facilities to improve efficiency. Bush Hog enjoys a significant
labor rate advantage at its facilities when compared to rates at the major line
manufacturers.
INDUSTRY. The agricultural equipment industry in North America is a mature
industry engaged in producing replacement equipment for a declining number of
farmers. It is dominated by a small number of major line manufacturers, which
market a full range of farm machinery, including tractors, grain combines and
various implements through their own dealer organizations and account for
approximately 60% of the dollar volume of industry shipments. The remaining 40%
of the market is shared by approximately 700 companies which generally
concentrate their production on shortline implements such as plows, harrows,
cultivators, livestock equipment, grain handling equipment or hay equipment.
During the 1980's the farm economy was in decline and this led to a
deterioration in farmers' financial condition. Capital expenditures by farmers
reached a low in 1986. Since then, commodity exports have improved due to
changes in governmental programs and foreign exchange rates. Individual farmers
have reduced their debt load and are much less leveraged after several years of
good earnings.
In 1993, crop production was generally down due to the abnormal weather
conditions such as the flooding in the midwest and a drought in the southeast;
however, net cash farm income for 1993 exceeded 1992 by $1.2 billion due to
increased prices. Generally , the crop surplus at the end of 1993 was at a
twenty year low. Therefore, planted acres will increase in 1994, indicating a
continued positive outlook for farm equipment sales.
Future prospects of the industry depend largely on factors outside of
industry participants' control. These include the value of the U.S. dollar, the
relative level of interest rates between countries, the variations in the world
demand for supplies of farm commodities and U.S. government agricultural,
foreign and fiscal policies. Neither NAFTA nor the proposed GATT agreement will
have any effect until 1995 and it is too early to accurately determine the
impact.
METAL FORMING PRESSES --
PRODUCTS. The Verson division, acquired by Allied Products in 1986,
manufactures a broad line of both medium and large technologically advanced
mechanical and hydraulic forming presses. These products are used in the
manufacture of components for the automotive, appliance, office equipment, farm
equipment, ordnance, aerospace and general metal working industries. A transfer
press is a specialized mechanical press which combines a series of operations by
transferring a work piece from one station to another inside of one press. Each
station in the press has a separate die which is individually adjustable. This
process allows all operations from blank to finished product to take place in
one press, resulting in increased output and reduced labor expense. Prices vary
by type and size; a large transfer press may sell for in excess of $15 million.
Approximately one fifth of Verson's revenue is generated by customer special
services. Items included in the special services area are: repair parts,
complete remanufacturing capability for used presses, and contract machining and
manufacturing. In addition to the fabrication and machining of components,
Verson provides complete tooling and engineering services necessary for turnkey
systems. Verson also designs and supplies tools for metal forming, including
metal stamping and cold extrusion.
MARKETING. Verson's Marketing Group is headed by a Director of Marketing
and Sales, with responsibility
3
<PAGE>
for all Verson products and services. Three Sales Managers, reporting to the
Director, are responsible for press sales, tooling sales, and press rebuilding
and contract services, respectively.
Verson's major customers are the U.S. automobile manufacturers including
U.S. and Japanese owned, and first and second tier automotive parts producing
companies, which in total amount to approximately 60% of Verson's annual
revenue. Verson's other major industry served is the appliance industry and
customers include all major brand names.
Verson offers the market many benefits through engineering, design and
experience. Verson designed the world's first transfer press in 1939, the
world's first electronic feed in 1981 and most recently introduced a cross bar
feed which significantly improves production.
COMPETITION. There are only a few companies world-wide that supply large
transfer press systems similar to those provided by Verson. The largest of these
is Japanese. With foreign alliances having been formed with other domestic
companies, Verson is now the only wholly American owned company competing in
this upper end segment. Press manufacturers compete on the basis of technology,
capability, reliability and price. The larger presses are huge pieces of
machinery standing over three stories tall and weighing as much as 3 1/2 million
pounds. Consequently, the barriers to entry for new competitors are almost
impossible due to required capital.
INDUSTRY. Verson operates principally in North America and is part of the
U.S. machine tool industry. Shipments in the machine tool industry during 1993
exceeded $3 billion. The American automotive industry, which has a significant
impact on the machine tool industry, has lost a substantial portion of the U.S.
market to Japanese and other importers. Domestic automobile manufacturers have
reduced their total manufacturing capacity by closing marginal assembly and
stamping plants. They are seeking to become more cost-effective by requiring
quality parts, implementing Just-In-Time concepts, obtaining price reductions
from suppliers, as well as redesigning cost out of automobiles, and
restructuring and automating their manufacturing processes.
Automotive industry studies identify automation as the number one strategy
for cost reduction. The Verson division of Allied Products is in a strong
position to capitalize on major retooling and modernization programs as they
become available. The second wave of this demand is being felt now with major
suppliers to the automakers converting to new technology. Demand from the
appliance industry continues to grow, more than offsetting declines in aerospace
and ordnance.
THERMOPLASTIC RESINS --
PRODUCTS AND SERVICES. The Coz division (acquired in 1967) of Allied
Products provides a complete line of thermoplastic resins and related services
to the plastic molding and extrusion industry. Coz offers a full line of
materials supply to include specialty thermoplastic compounds and compounding
services, color and additive concentrates, the reprocessing of scrap
thermoplastic resins, and the brokering of prime and secondary materials.
Coz purchases unmodified thermoplastic resins from major basic resin
suppliers and combines or alloys these resins with various additives to achieve
certain desired properties such as color and/or heat resistance. The resins Coz
purchases are generally in the form of small plastic pellets as are the finished
products supplied by Coz to its customers.
Coz's brokerage operation provides its customers with prime and
off-specification materials at competitive prices in large or small quantities
as required. Substantial on-site inventories facilitate short delivery cycles.
As an additional service to its customers, Coz also reprocesses scrap
generated in molding or extrusion activities, thereby economically turning scrap
into useful materials.
MARKETING. All sales are handled on a direct basis by salaried employees
who receive a significant part of their compensation from commissions. The sales
staff is strongly supported by technical personnel, both in product development
and in customer start-ups, applications, or training. Plant-to-plant visits and
technical conferences are commonplace. The bulk of Coz's sales activity is in
the northeastern United States.
COMPETITION. Coz's competition comes from several different levels in the
plastics industry, including basic resin producers, plastic distributors,
brokers, concentrate suppliers and independent thermoplastic compounders.
Coz differentiates itself from its competition by covering all aspects of
plastics material supply to include compounding, color and additives
concentrates, toll processing customers' materials, reprocessing scrap
materials, and brokering both prime and off-spec materials.
Over its thirty-five year business life, Coz has developed significant
technical capabilities supported by excellent laboratory and production
equipment which results in Coz being positioned as a high end co-developer for
special customer applications.
4
<PAGE>
INDUSTRY. The thermoplastic compounding industry is expected to have 1994
sales of about $19 billion and is experiencing real growth at a rate of about 5
per cent annually.
Independent compounders such as Coz are numerous and generally focus on a
relatively small geographic area.
Industry consolidation is occurring as some larger companies have been
attracted to the growth opportunities in thermoplastic compounding.
SALES BACKLOG
Sales backlog from continuing operations as of December 31, 1993 was
$68,722,000 compared to $94,841,000 at December 31, 1992. The difference is
attributable to a large press order at the Verson division for which production
was completed in 1993.
EMPLOYEES
Allied Products currently employs approximately 1,500 individuals.
Approximately 23% of Allied Products' employees are represented by unions.
Allied Products has encouraged ownership of its stock by employees. As of
December 31, 1993 approximately 488 employees participated in the SMART plan
which owns approximately 630,000 shares of Allied Products' Common Stock or
approximately 7% of the total shares outstanding. However, an amendment to the
Plan has caused the discontinuance of purchases of Allied Products stock by the
plan.
RAW MATERIALS AND SOURCES OF SUPPLY
The principal raw material used by the farm implement and metal press
operations include steel and other metals and purchased components. The
thermoplastic division uses thermoplastics resins and other chemicals. During
1993, the materials needed by Allied Products have generally been available from
a variety of sources in adequate quantities and at prevailing market prices. No
one supplier is responsible for supplying more than 10% of the principal raw
materials used by Allied Products.
PATENTS, TRADEMARKS AND LICENSES
Allied Products owns the federally registered trademarks "Bush Hog" and
"Lilliston" used on its agricultural equipment products and "Verson" on its
metal forming presses, all of which it considers material to its business. While
Allied Products believes that the other trademarks used by each of its
operations are important, none of the patents, licenses, franchises or such
other trademarks are considered material to the operation of its business.
MAJOR CUSTOMERS
Net sales from continuing operations to the three major U.S. automobile
manufacturers accounted for approximately 25% of total consolidated sales from
continuing operations in 1993. Approximately 3% and 24% of Allied Products'
consolidated net sales from continuing operations in 1991 and 1992,
respectively, were derived from sales to the major U.S. automobile
manufacturers. With the exception of the three major automobile manufacturers,
no material part of Allied Products' business is dependent upon a single
customer.
SEASONALITY
Retail sales of and cash collected for farm equipment tend to occur during
or just preceding the use seasons previously described. Sales and cash receipts
for the other divisions are not effected by seasonality.
ENVIRONMENTAL FACTORS
Reference is made to Note 10 of Notes to Consolidated Financial Statements
regarding environmental factors and matters.
5
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the Company's Executive
Officers, together with all positions and offices held with the Company by such
officers as of March 26, 1994.
<TABLE>
<CAPTION>
NAME POSITION WITH ALLIED PRODUCTS AGE
- --------------------------------------------- ----------------------------------------------------------------- ---
<S> <C> <C>
Richard A. Drexler........................... Chairman, President and Chief Executive Officer 46
James J. Hayden.............................. Executive Vice President and Chief Financial Officer 58
Kenneth B. Light............................. Executive Vice President, Chief Administrative Officer and
Secretary 61
Martin A. German............................. Senior Vice President 57
Bobby M. Middlebrooks........................ Senior Vice President 58
Robert J. Fleck.............................. Vice President-Accounting and Chief Accounting Officer 46
Patrick J. Riley............................. Vice President and Treasurer 58
</TABLE>
No family relationships exist among the executive officers.
Each executive officer, except Messrs. Hayden and German, has been employed
by Allied Products for over ten years. Pursuant to Allied Products' By-laws,
each officer is elected annually by the Board of Directors.
Mr. Drexler, who became Chairman in 1993, has been President and a Director
of Allied Products since 1982, has been Chief Executive Officer since 1986 and
was Acting Chief Financial Officer from 1991 to 1992, Chief Financial Officer
from 1989 to 1990 and Chief Operating Officer from 1981 to 1986. He was also
Chief Financial Officer from 1977 to 1987. Prior to becoming President, Mr.
Drexler served as Executive Vice President, Senior Vice President of
Administration, Vice President of Administration, Staff Vice
President-Development, and Director of Planning.
Mr. Hayden has been Executive Vice President and Chief Financial Officer
since 1993 and was Senior Vice President and Chief Financial Officer from 1992
to 1993. He was Executive Vice President and Chief Financial Officer from 1987
to 1989, at which time he left to pursue private interests. Prior to joining
Allied Products in 1987, he was President of Rexnord Automation, a subsidiary of
Rexnord Inc., since 1983. He became a Director of Allied Products in 1993.
Mr. Light has been Executive Vice President and Chief Administrative Officer
since 1982 and has also served as Secretary since 1972. From 1980 to 1982, he
was Senior Vice President-Administration, from 1976 to 1980 he was Vice
President-General Counsel and prior to that he was General Counsel and Director
of the Corporate Law Department. He became a Director of Allied Products in
1993.
Mr. German was elected Senior Vice President in 1991 and was Vice President
from 1989. Since joining Allied Products in 1986, he has been President of the
Verson Allsteel Press division. Prior to joining Allied Products, he was Vice
President and General Manager of the Turning Division of Warner & Swasey
Company.
Mr. Middlebrooks has been Senior Vice President since 1985 and Vice
President of Allied Products since 1984 in charge of the former Agricultural
Equipment Group. Prior to that, he was President-Bush Hog Implements Division.
He joined Bush Hog in 1955.
Mr. Fleck has been Vice President-Accounting since 1985 and Chief Accounting
Officer since 1986. From 1983 to 1985 he was Staff Vice President-Accounting and
prior to that he served as Corporate Controller and in various other accounting
positions for Allied Products. Prior to joining Allied Products in 1974, he was
an internal auditor with Marquette Cement Company, a national cement
manufacturing company.
Mr. Riley has been Vice President & Treasurer since 1993. Prior to that he
has been Treasurer of Allied Products since 1976. Prior to that he was Assistant
Treasurer and Director of Cash Management of Allied Products since 1969.
6
<PAGE>
ITEM 2. PROPERTIES
Allied Products owns or leases four manufacturing facilities in three states
for the production of its various products and maintains warehouses facilities
in various locations throughout the United States and Canada.
Management is of the opinion that all facilities are of sound construction,
in good operating condition and are adequately equipped for carrying on the
business of the Company.
Operations at the Bush Hog division are conducted in Selma, Alabama in two
owned (mortgaged) facilities containing approximately 700,000 square feet in
total. The division also maintains several leased facilities in various states
and Canada which are used as warehouses and parts depots. Operations at the
Verson division are conducted in Chicago, Illinois in an owned facility
containing approximately 350,000 square feet. Operations at the Coz division are
conducted in Northbridge, Massachusetts in a leased facility containing
approximately 150,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 10 of Notes to Consolidated Financial Statements
with respect to the Company's involvement in legal proceedings as a defending
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is listed on the New York and Pacific Stock
Exchanges. The price range of the common stock on the New York Stock Exchange is
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
BEGINNING
OF END OF
1992 YEAR YEAR 1992 QTR HIGH LOW DIVIDEND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common $ 3 1/8 $ 3 1 $ 4 $ 2 7/8 $--
- -----------------------------------------------------------------------------------------------------
2 3 1 7/8 --
- -----------------------------------------------------------------------------------------------------
3 2 3/4 1 3/4 --
- -----------------------------------------------------------------------------------------------------
4 3 3/8 1 1/2 --
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
BEGINNING
OF END OF
1993 YEAR YEAR 1993 QTR HIGH LOW DIVIDEND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common $ 3 $12 1/2 1 $ 8 1/4 $ 2 3/4 $--
- -----------------------------------------------------------------------------------------------------
2 15 7/8 7 1/4 --
- -----------------------------------------------------------------------------------------------------
3 15 1/8 9 1/2 --
- -----------------------------------------------------------------------------------------------------
4 13 3/8 10 1/4 --
- -----------------------------------------------------------------------------------------------------
</TABLE>
As of April 8, 1994, the approximate number of holders of record of the
Company's common stock ($.01 par value) was 2,800.
Reference is made to Note 4 of Notes to Consolidated Financial Statements
regarding dividend restrictions. The Company has paid no dividend since fiscal
year 1982. The Company does not expect to pay cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
-------------------- ---------------- ---------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales from continuing
operations (A)................... $ 189,464,000 $ 172,506,000 $ 159,023,000 $ 195,341,000 $ 217,988,000
Income (loss) from continuing
operations (A).................. $ (15,423,000)(B) $ (9,763,000) $ (4,500,000) $ 1,774,000(C) $ 5,951,000
Earnings (loss) per common share
from continuing operations
(A)............................. $(3.73)(B) $(2.43) $(1.12) $(.08) (C) $.43
Total assets...................... $ 487,048,000 $ 439,526,000 $ 326,702,000 $ 284,612,000 $ 192,040,000
Long-term debt (including
capitalized leases and
redeemable preferred stock)..... $ 230,001,000 $ 53,750,000 $ 37,799,000 $ 117,833,000 $ 23,522,000
Cash dividend declared per common
share........................... $-- $-- $-- $-- $--
<FN>
- ------------------------
(A) Restated prior to 1993 to reflect the effects of discontinued operations.
(B) Excludes a charge of $2,141,000 ($.43 per common share) relating to a
change in method of recognizing expenses associated with certain dealer
costs.
(C) Excludes a charge of $1,739,000 ($.21 per common share) relating to the
transition effect of adopting SFAS No. 106--Employers' Accounting for
Postretirement Benefits Other Than Pensions--on an immediate recognition
basis.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this summary.
8
<PAGE>
ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OPERATING RESULTS
Reference is made to Note 2 of Notes to Consolidated Financial Statements
regarding the sale/ shutdown and restructuring of operations from 1991 through
the end of 1993 and a letter of intent signed subsequent to the end of 1993
related to the Cooper division.
With all of the operation changes that have taken place during 1993 (the
close down of Kewanee Farm Equipment, International Agro, R/B Die and Prototype
and the Charles City operation, the sale of Smith Energy Services and White-New
Idea Farm Equipment divisions and the contemplated sale of the Cooper division),
the Company has included all of these operations and a pro rata allocation of
financing costs and administrative and interest expense (based upon these
operation's proportionate share of consolidated invested capital) under the
caption "Discontinued operations--Income (loss) from operations" in the
accompanying Consolidated Statements of Income (Loss). Previously issued
Consolidated Statements of Income (Loss) have been restated to reflect the
effect of these discontinued operations. With the completion of the sale of the
Cooper division, the Company will have completed its operations divestiture
program.
1993 COMPARED TO 1992
Net sales from continuing operations in 1993 were $217,988,000 compared to
net sales from continuing operations of $195,341,000 in 1992. Net sales at all
continuing operations in 1993 increased over levels reported in 1992. Income
from continuing operations in 1993 was $5,951,000 compared to income from
continuing operations of $1,774,000 in the previous year.
At the Bush Hog division, net sales increased by over 10% in the current
year. Despite the significant flooding in the late spring and early summer
months in the midwest and summer drought in the southeast portion of the
country, the Bush Hog division did not feel any long-term negative impact and,
in some product lines, experienced increased sales volume due to the wetter than
normal weather conditions. The majority of the increase in net sales was
associated with increased unit sales within the cutter and loader product lines.
Service parts sales also increased with the addition of the Kewanee Farm
Equipment service parts. These increases were partially offset by the effect of
lower peanut combine sales in 1993. Unit sales decreased due to a larger than
anticipated carryover of dealer stock from the prior year. Production was
reduced in relation to this product in 1993. Gross profits and gross profit
margins improved at the Bush Hog division in 1993 compared to 1992. The increase
in gross profits was primarily related to the effects of increased sales volume
in 1993 as discussed above. The increase in gross profit margins was primarily
associated with increased efficiencies and facility utilization in the current
year. The division was operating at very close to 100% capacity in 1993 and,
based upon the current outlook and backlog of orders, should continue to produce
at this capacity level in 1994.
At the Verson division, net sales increased by almost 14% in 1993 over that
reported in 1992. During 1993, the division completed production on a large
press order received in the latter portion of 1991. The division also benefitted
from the large carryover of orders received in 1992 on which production was
completed in the current year. In addition, the rebuild press market has
provided additional opportunities for the Verson division in 1993 and should
continue to provide more opportunities in 1994 and beyond. Receipt of new orders
in 1993 remained strong. While gross profits at the Verson division in 1993
increased, due primarily to increased sales volume as discussed above, gross
profit margins decreased slightly. This decrease related to the mix of products
sold in the current year compared to that of the prior year.
At the Coz division, net sales increased by almost 13% in the current year
compared to net sales of 1992. The increase was related primarily to increased
volume of shipments and, to a lesser degree, mix of products sold. Gross profits
increased, principally due to the increase in sales volume. Gross profit margins
also improved slightly due to increased facility utilization in the current
year.
Selling and administrative expenses increased in 1993 to $31,427,000 (14.4%
of net sales from continuing operations) from $31,117,000 (15.9% of net sales
from continuing operation). All manufacturing operations experienced slight
increases in these expenses in 1993, with most of the increases related to
normal cost changes in salaries and other employee related costs (fringe
benefits, etc.). These increases were partially offset by decreases in
administrative costs at the Corporate Office. These decreases were primarily
represented by lower professional fees and bank costs, most of which related to
costs incurred in 1992 associated with the restructuring of the Company's
finances in January 1993 as described in Note 4 of Notes to Consolidated
Financial Statements. Other costs savings at the Corporate Office included the
elimination of the centralized Management Information Systems operation during
the third quarter of 1993.
Interest expense decreased to $6,376,000 in 1993 from $6,864,000 reported on
a restated basis in 1992.
9
<PAGE>
These interest expense balances are net of amounts ($4,450,000 in 1993 and
$7,558,000 in 1992) allocated to "Discontinued operations--Income (loss) from
operations" based upon the proportionate share of invested capital of
discontinued operations to total consolidated invested capital. The overall
cause of the decrease in interest expense relates primarily to decreased debt
levels and, to a lesser extent, lower interest rates in 1993. The majority of
the cash generated from operations either shut down or sold in 1993 was used to
reduce outstanding debt, primarily under the amended and restated credit and
debt restructuring agreement entered into during the first quarter of 1993.
Other expense in 1993 was $4,614,000 compared to other expense of $3,494,000
in 1992. Reference is made to Note 12 of Notes to Consolidated Financial
Statements for an analysis of other (income) expense in 1993 and 1992.
In 1993, the Company made a provision of $700,000 for additional
restructuring costs, all of which was charged to "Discontinued operation--Income
(loss) from operations." In 1992, the Company made a provision of $7,800,000 for
restructuring costs as previously disclosed. Of this amount, $7,044,000 was
charged to "Discontinued operations--Income (loss) from operations." The
remaining balance in 1992 was associated with provisions for elimination of the
centralized MIS operation at the Corporate Office and the consolidation of the
Kewanee service parts operation into Bush Hog.
Income from discontinued operations in 1993 totaled $11,385,000 compared to
a loss from discontinued operations of $24,989,000 in 1992. Operating income
related to discontinued operations increased by over $19,000,000 (before
allocation of the provision for restructuring costs, financing costs and
administrative and interest expense) due primarily to improved results at the
White-New Idea and Charles City divisions in 1993. Production levels were
significantly reduced 1992 in order to reduce the Company's investment in
receivables at the White-New Idea division. Increased production in 1993 as well
as the effect of cost reduction measures implemented, resulted in an increase of
over $12,500,000 in operating income. At the Charles City division, operating
income related to discontinued operations increased by over $3,000,000 (before
allocation of costs described above) in 1993. In the early part of 1993, the
Company announced the closing of the operation. Upon notification of the
closure, customers ordered more than normal quantities of products from the
division to bridge their manufacturing needs until another source of product
could be identified, resulting in above normal sales and production at this
division in 1993. Interest expense allocation to discontinued operations in 1993
was $4,450,000 in 1993 compared to $7,558,000 in the prior year. The
restructuring reserve charged to discontinued operations ($700,000 in 1993,
$7,044,000 in 1992 and $6,200,000 in 1991) included provisions for 1993
operating losses subsequent to the respective closure of the operations for
which the reserve was set up. Operating losses charged to the reserve in 1993
totaled approximately $4,600,000. The gain on disposition of discontinued
operations in 1993 represents the gain (net of related expenses) associated with
the disposition of the White-New Idea division in the last quarter of 1993. The
gain on disposition of discontinued operations in 1992 was principally related
to the reversal of a reserve established in the prior year for the estimated
loss on the anticipated sale of the remaining receivables related to the tractor
business. The anticipated sale and loss did not take place; instead, the
receivables were collected without significant loss. Reference is made to Note 4
of Notes to Consolidated Financial Statements relating to the $2,052,000
extraordinary loss on the early extinguishment of debt in 1993.
1992 COMPARED TO 1991
Net sales from continuing operations in 1992 were $195,341,000 compared to
net sales from continuing operations of $159,023,000 in 1991. Net sales at all
continuing operations in 1992 increased over levels reported in the prior year.
Income from continuing operations in 1992 was $1,774,000 compared to a loss from
continuing operations of $4,500,000 in 1991.
At the Bush Hog division, net sales increased by 10% in 1992 over 1991 net
sales levels. The most significant increases were noted within the rotary cutter
and disk mower product lines. Weather conditions were generally favorable in the
market areas where these products were sold. These increases were partially
offset by lower peanut combine sales in 1992. Gross profits increased in 1992
primarily from the effect of increased sales volume. Gross profit margins
increased slightly in 1992, principally from the favorable effects of cost
reduction measures, resulting in decreased overhead costs.
At the Verson division, net sales increased by over 47% in 1992 compared to
net sales reported in 1991. In general, the division benefitted from the
improvement in the automotive, appliance and office furniture economy here in
the United States. More specifically, the operation received a large press order
from an automotive manufacturer in the last half of 1991 on which work began in
the early part of 1992. In addition, numerous other press orders were received
in late 1991 and early 1992 on which work was completed in 1992. Gross profits
and gross profit margins improved significantly in
10
<PAGE>
1992 when compared to 1991. Approximately 40% of the increase in gross profits
was related to increased sales volume as discussed above. Gross profits and
gross profit margins also increased due to the favorable mix of products sold
and the implementation of cost reduction measures. Increased facility
utilization also played an important role in these profit and margin
improvements.
At the Coz division, net sales increased in 1992 by over 8% of the prior
year's level. Sales increased throughout all product lines. Gross profits and
gross profit margins increased in 1992 at this division. Approximately 60% of
the increase in gross profits was associated with increased sales volume. The
remaining portion of the increase in gross profits and the improvement in
margins was related to the mix of products sold. During 1992, product sales
contained a lower material content offset in part by increased labor and
overhead content. These favorable changes were partially offset by increased
shipping expenses, primarily related to the increased sales volume.
Selling and administrative expenses in 1992 increased to $31,117,000 (15.9%
of net sales from continuing operations) from $27,369,000 (17.2% of net sales
from continuing operations) in 1991. At the Bush Hog division, the increase in
selling expense was primarily related to increased sales commissions. At the
Verson division, selling expense increases were associated with the expansion of
staff levels and other employee related costs. Increases within administrative
expenses were generally related to normal cost increases (wages, fringe
benefits, insurance, etc.) which were incurred over the period of time noted.
Increases were partially offset by management of these costs throughout the
Company.
Interest expense associated with continuing operations for 1992 ($6,864,000)
approximated that reported in the prior year ($6,889,000). These interest
expense balances are net of amounts ($7,558,000 in 1992 and $9,872,000 in 1991)
allocated to "Discontinued operations--Income (loss) from operations" based upon
the proportionate share of invested capital of discontinued operations to total
consolidated invested capital. Approximately half of the overall decrease in
interest expense was associated with lower average borrowing levels during the
year. The effect of lower interest rates also resulted in a decrease in the
overall interest expense.
Other expenses in 1992 was $3,494,000 compared to other expenses of
$1,173,000 in 1991. Reference is made to Note 12 of Notes to Consolidated
Financial Statements for an analysis of other (income) expense in 1992 and 1991.
Prior to 1991, the Company recorded a $6,258,000 charge for the write down
of inventories to the lower of cost or market value and the estimated shutdown
expenses of the Loadcraft division of the former Industrial Products/Energy
Services Group. During 1991, the Company completed the shutdown of the Loadcraft
operation. The actual costs of this project was $885,000 less than originally
anticipated. This excess provision was credited to income in 1991 under the
caption "Reversal of provision for writedown of inventory" in the accompanying
Consolidated Statements of Income (Loss).
FINANCIAL CONDITION
1993
The working capital at December 31, 1993 was $31,664,000 and the current
ratio was 1.31 to 1.0. Net accounts receivable decreased by over $56,000,000 in
1993. Of that amount, approximately $29,000,000 was associated with the sale of
the White-New Idea division in December 1993 and approximately $27,000,000 was
associated with the winding down of other discontinued operations during 1993.
There were no other significant changes in receivable levels during 1993.
Inventories decreased by over $52,000,000 since the end of 1992. Approximately
half of the decrease was related to the sale of the White-New Idea division
discussed above. An additional reduction of over $8,000,000 was associated with
the wind down of other discontinued operations. The Bush Hog division reduced
their net inventory levels by over $3,000,000 in 1993 due to improved purchasing
and manufacturing management and the effects of increased sales volume.
Inventories also decreased significantly at the Verson division. At the end of
1992, a large press order was in process. By the end of 1993, most of this order
was shipped to the customer.
The decrease in Other Assets reflects the collection of notes taken in
exchange for fixed assets and operation dispositions in prior years and the
amortization of deferred charges (goodwill). Fixed asset additions of $8,128,000
were financed primarily through internally generated funds.
Reduction in debt and accounts payable were primarily the result of funds
generated from the sale of businesses (Smith Energy Services and White-New Idea)
and the liquidation of assets (primarily receivables and inventories) associated
with other discontinued operations. During the year, the Company had made an
additional provision of $700,000 to the restructuring reserve. In addition,
amounts totaling $9,515,000 were charged against the reserve. Charges included
operating results subsequent to the date of shutdown or disposition,
losses/gains on the disposition of assets associated
11
<PAGE>
with these operations, severance costs and expenses associated with the moving
of inventory and fixed assets from discontinued operations to continuing
operations. At December 31, 1993, the Company had a remaining reserve of
$5,097,000 for additional future costs associated with certain discontinued
operations.
1992
The working capital at December 31, 1992 was $92,195,000 and the current
ratio was 1.80 to 1.0. Net accounts receivable decreased by almost $27,000,000
in 1992. Net receivables associated with farm implements decreased by over
$39,000,000 in 1992. The entire decrease was associated with the White-New Idea
division where production and shipments to dealers decreased significantly,
especially during the second and third quarters when the operation was shut
down. The decrease was planned so as to reduce the division's investment in
receivables. Cash collections associated with farm implements are generally
dependent upon the retail sale of the product by the dealer. Extended payment
terms are offered in the form of floor plan financing which is customary within
the agricultural equipment industry. This decrease in receivables was partially
offset by increased net receivables in the former Industrial Products/Energy
Services Group, primarily at the Verson and R/B Die and Prototype operations. At
the Verson division, a large shipment against a press order was made in the
latter part of the fourth quarter, resulting in increased receivable levels. The
R/B Die and Prototype division has been invoicing several customers against
large orders in process during the last half of 1992.
Net inventories have increased by approximately $4,000,000 in 1992. The most
significant increase was at the Verson division where production continued on a
large press order. This increase was partially offset by lower inventory levels
at the White-New Idea division. As noted earlier, production methods have been
changed at this division so that the time between the manufacturing and retail
selling of the product is decreased. Besides reducing receivable levels, this
has resulted in decreased inventory levels.
The decrease in Other Assets reflects the collection of notes taken in
exchange for fixed asset and operation dispositions in prior years, the
amortization of deferred charges (goodwill) and the reclassification of certain
assets held for sale to fixed assets. Fixed asset additions of $4,189,000 were
financed primarily through internally generated funds.
Reductions in debt and accounts payable were the result of funds generated
from decreased receivables levels, as discussed above, and additional borrowings
from a financial institution independent of the senior secured lenders. Under
this borrowing agreement, the Coz division of the former Industrial
Products/Energy Services Group was set up as a wholly-owned subsidiary with
separate borrowing capacity. The increase in accrued expenses reflects an
accrual of $7,800,000 for the continued restructuring of the Company (as
discussed above) and an accrual of $1,739,000 associated with transition effect
of adopting SFAS No. 106 during 1992.
LIQUIDITY AND CAPITAL RESOURCES
Reference is made to Note 4 of Notes to Consolidated Financial Statements
regarding financing arrangements entered into during 1993 and the first quarter
of 1994.
In December 1992, the Company's shareholders approved amendments to the
Certificates of Designation of its Series B and Series C Preferred Stocks which
accelerated the mandatory redemption schedules of both series. In January 1993,
the Company issued 329,984 shares of its common stock to the holders of the
preferred stocks in payment of past due dividends which were due on or before
October 2, 1992. The payments in common stock were pursuant to outstanding
agreements with the holders of the preferred stocks which agreements had been
extended in 1991 to dividends payable on or before October 2, 1992.
Effective January 29, 1993, the Company entered into agreements with the
holders of the Series B and Series C Preferred Stock pursuant to which the
Company agreed to pay cash and subordinated notes for the past due redemption of
Series B Preferred Stock as well as scheduled dividends and redemptions from
January 2, 1993 to January 2, 1995. Subordinated notes issued to the preferred
stockholders provide for quarterly payments of interest in cash. Subsequent to
the end of 1993, all amounts due under the subordinated notes issued to the
holders of the Series C Preferred Stock were paid in cash. Amounts due to the
holders of the Series B Preferred Stock are due in June 1994.
The Company's failure to pay when due the October 2, 1992 dividend on its
Series C Cumulative Preferred Stock constituted a default in the payment of a
dividend pursuant to the Series C Preferred Stock Certificate of Designation. If
the Company defaults in the payment of two additional quarterly dividends or any
mandatory redemption, the Series C Preferred Stockholders shall have the right
to convert the Series C Preferred Stock into shares of common stock at a ratio
determined by reference to the lowest market price of the Company's Common Stock
during the calendar quarter preceding the date of such default. If the holders
became entitled to exercise such conversion rights, shares of common stock
issuable upon conversion could represent a significant portion of the total
outstanding
12
<PAGE>
Company Common Stock. During 1993, the Company has been in compliance with all
provisions of loan agreements in effect.
IMPACT FROM NOT YET EFFECTIVE RULES
In November 1992, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 112 -- Employers'
Accounting for Postemployment Benefits -- which requires the recognition of the
obligation to provide post-
employment benefits if the obligation is attributable to employees' services
already rendered, employees' rights to those benefits accumulate or vest,
payment of the benefits is probable, and the amount of the benefits can be
reasonably estimated. The Company does not have any such formal program for
employees and has expensed such costs as incurred in instances where such
benefits have been provided. Adoption of this statement is required for fiscal
years beginning after December 15, 1993. The Company anticipates that the
cumulative adjustment from the application of this accounting principle will not
have a material effect on its financial position.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Allied Products Corporation
We have audited the consolidated balance sheets of Allied Products
Corporation and consolidated subsidiaries as of December 31, 1992 and 1993, and
the related consolidated statements of income (loss), shareholders' investment
and cash flows for each of the three years in the period ended December 31,
1993. We have also audited the financial statement schedules listed in Part IV
of Form 10-K, Item 14(a)2 for each of the three years in the period ended
December 31, 1993. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Allied Products
Corporation and consolidated subsidiaries as of December 31, 1992 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 1, the Company changed its method of accounting for
postretirement benefits other than pensions in 1992.
COOPERS & LYBRAND
Chicago, Illinois
April 13, 1994
14
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1991 1992 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales from continuing operations........................ $ 159,023,000 $ 195,341,000 $ 217,988,000
Cost of products sold....................................... 128,977,000 151,336,000 169,184,000
---------------- ---------------- ----------------
Gross profit.............................................. $ 30,046,000 $ 44,005,000 $ 48,804,000
---------------- ---------------- ----------------
Other costs and expenses--
Selling and administrative expenses....................... $ 27,369,000 $ 31,117,000 $ 31,427,000
Interest expense.......................................... 6,889,000 6,864,000 6,376,000
Other (income) expense, net............................... 1,173,000 3,494,000 4,614,000
Reversal of provision for writedown of inventory (885,000) -- --
Provision for restructuring costs......................... -- 756,000 --
---------------- ---------------- ----------------
$ 34,546,000 $ 42,231,000 $ 42,417,000
---------------- ---------------- ----------------
Income (loss) before taxes from continuing operations before
extraordinary item and change in accounting principle..... $ (4,500,000) $ 1,774,000 $ 6,387,000
Provision for income taxes.................................. -- -- 436,000
---------------- ---------------- ----------------
Income (loss) from continuing operations before ex-
traordinary charge and change in accounting principle..... $ (4,500,000) $ 1,774,000 $ 5,951,000
---------------- ---------------- ----------------
Discontinued operations (net of tax):
Income (loss) from operations............................. $ (23,896,000) $ (25,814,000) $ 5,847,000
Gain (loss) on disposition of discontinued operations..... (5,647,000) 825,000 5,538,000
---------------- ---------------- ----------------
Income (loss) from discontinued operations................ $ (29,543,000) $ (24,989,000) $ 11,385,000
---------------- ---------------- ----------------
Income (loss) before extraordinary charge and change in
accounting principle...................................... $ (34,043,000) $ (23,215,000) $ 17,336,000
Extraordinary loss on early extinguishment of debt, less
applicable income tax benefit............................. -- -- (2,052,000)
---------------- ---------------- ----------------
Income (loss) before change in accounting principle......... $ (34,043,000) $ (23,215,000) $ 15,284,000
Effect of change in accounting principle.................... -- (1,739,000) --
---------------- ---------------- ----------------
Net income (loss)........................................... $ (34,043,000) $ (24,954,000) $ 15,284,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income (loss) applicable to common stock................ $ (36,887,000) $ (27,356,000) $ 13,211,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Earnings (loss) per common share
Continuing operations..................................... $(1.12) $(.08) $ .43
Discontinued operations................................... (4.50) (3.03) 1.27
Extraordinary loss........................................ -- -- (.23)
Effect of change in accounting principle.................. -- (.21) --
------ ------ ------
Income (loss) per common share............................ $(5.62) $(3.32) $1.47
------ ------ ------
------ ------ ------
Average number of common shares outstanding................. 6,558,000 8,247,000 8,999,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1992 1993
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 5,446,000 $ 44,416,000
---------------- ----------------
Notes and accounts receivable, less allowances of $2,914,000 and
$1,996,000, respectively................................................ $ 101,054,000 $ 44,415,000
---------------- ----------------
Inventories:
Raw materials.......................................................... $ 16,908,000 $ 9,407,000
Work in process........................................................ 44,540,000 18,161,000
Finished goods......................................................... 35,715,000 17,156,000
---------------- ----------------
$ 97,163,000 $ 44,724,000
---------------- ----------------
Prepaid expenses......................................................... $ 3,187,000 $ 1,915,000
---------------- ----------------
Total current assets............................................. $ 206,850,000 $ 135,470,000
---------------- ----------------
Plant and Equipment, at cost:
Land..................................................................... $ 2,781,000 $ 2,454,000
Buildings and improvements............................................... 34,510,000 34,573,000
Machinery and equipment.................................................. 82,875,000 37,946,000
---------------- ----------------
$ 120,166,000 $ 74,973,000
Less--Accumulated depreciation and amortization.......................... 71,800,000 43,923,000
---------------- ----------------
$ 48,366,000 $ 31,050,000
---------------- ----------------
Other Assets:
Notes receivable, due after one year..................................... $ 9,366,000 $ 8,465,000
Deferred charges (goodwill), net of amortization......................... 18,760,000 16,693,000
Other.................................................................... 1,270,000 362,000
---------------- ----------------
$ 29,396,000 $ 25,520,000
---------------- ----------------
$ 284,612,000 $ 192,040,000
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1992 1993
---------------- ----------------
<S> <C> <C>
Current Liabilities:
Revolver loan........................................................... $ 3,614,000 $ 4,382,000
Current portion of long-term debt....................................... 38,391,000 39,343,000
Accounts payable........................................................ 21,721,000 13,957,000
Accrued expenses........................................................ 50,929,000 46,124,000
---------------- ----------------
Total current liabilities................................... $ 114,655,000 $ 103,806,000
---------------- ----------------
Long-term debt, less current portion shown above.......................... $ 97,933,000 $ 10,622,000
---------------- ----------------
Deferred credits and other long-term liabilities.......................... $ 5,889,000 $ 2,701,000
---------------- ----------------
Redeemable preferred stock: $10.81 Series C Cumulative Preferred Stock;
stated value $100 per share, authorized 150,000 shares; issued and
outstanding 150,000 and 129,000 shares at December 31, 1992 and 1993,
respectively............................................................ $ 15,000,000 $ 12,900,000
---------------- ----------------
Series B Variable Rate Cumulative Preferred Stock, redeemable in cash and
subordinated notes...................................................... $ 4,900,000 $ --
---------------- ----------------
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 244,800
and 180,800 shares at December 31, 1992 and 1993, respectively, net
of amount shown above................................................ $ 7,340,000 $ 9,040,000
Undesignated--authorized 1,500,000 shares at December 31, 1992 and
1993; none issued.................................................... -- --
Common stock, par value $.01 per share; authorized 25,000,000 shares;
issued 8,626,249 and 9,089,748 shares at December 31, 1992 and 1993,
respectively........................................................... 86,000 91,000
Additional paid-in capital.............................................. 90,930,000 92,395,000
Retained earnings (deficit)............................................. (52,121,000) (39,515,000)
---------------- ----------------
$ 46,235,000 $ 62,011,000
---------------- ----------------
$ 284,612,000 $ 192,040,000
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1991 1992 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................... $ (34,043,000) $ (24,954,000) $ 15,284,000
Adjustments to reconcile net income (loss) to net cash
provided from (used for) operating activities:
Income (loss) on disposition of discontinued opera-
tions.................................................... 5,647,000 (825,000) (5,538,000)
Extraordinary loss on early extinguishment of debt........ -- -- 2,052,000
Reversal of provision for writedown of inventory and other
consolidation costs...................................... (1,124,000) -- --
Effect of provision for restructuring costs............... 6,200,000 7,800,000 700,000
Effect of change in accounting principle.................. -- 1,739,000 --
Depreciation and amortization............................. 11,722,000 11,020,000 7,402,000
Amortization of deferred charges and (credits), net....... 200,000 (216,000) (216,000)
Amortization of noncash deferred loans costs.............. -- 1,657,000 --
Changes in noncash assets and liabilities, net of effects
of assets/businesses sold and noncash transactions:
Decrease in accounts receivable......................... 44,299,000 26,411,000 29,581,000
(Increase) decrease in inventories...................... 5,778,000 (4,739,000) 22,034,000
(Increase) decrease in prepaid expenses................. (1,871,000) 919,000 784,000
Decrease in notes receivable, due after one year........ 3,121,000 3,788,000 997,000
(Decrease) in accounts payable and accrued expense...... (5,591,000) (12,280,000) (5,219,000)
Other, net................................................ 183,000 1,763,000 (107,000)
--------------- --------------- ---------------
Net cash provided from operating activities................. $ 34,521,000 $ 12,083,000 $ 67,754,000
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Additions to plant and equipment............................ $ (5,379,000) $ (3,856,000) $ (7,741,000)
Proceeds from sales of plant and equipment.................. 1,986,000 611,000 8,311,000
Proceeds from sales of assets/businesses.................... 30,957,000 2,098,000 62,834,000
--------------- --------------- ---------------
Net cash provided from (used for) investing activities...... $ 27,564,000 $ (1,147,000) $ 63,404,000
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt................... $ 13,057,000 $ 7,975,000 $ 33,348,000
Borrowings under the revolver loan agreements............... -- 26,559,000 145,081,000
Payments under the revolver loan agreements................. -- (22,945,000) (129,777,000)
Payments of short and long-term debt........................ (80,323,000) (24,637,000) (139,769,000)
Payment of preferred stock redemptions and dividends........ -- -- (1,782,000)
Stock option transactions................................... -- -- 711,000
--------------- --------------- ---------------
Net cash used for financing activities...................... $ (67,266,000) $ (13,048,000) $ (92,188,000)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents........ $ (5,181,000) $ (2,112,000) $ 38,970,000
Cash and cash equivalents at beginning of year.............. 12,739,000 7,558,000 5,446,000
--------------- --------------- ---------------
Cash and cash equivalents at end of year.................... $ 7,558,000 $ 5,446,000 $ 44,416,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1991 1992 1993
-------------- -------------- --------------
<C> <S> <C> <C> <C>
Supplemental Information:
(A) Noncash investing and financing activities:
1. Assets acquired through the assumption of debt........ $ 1,096,000 $ 333,000 $ 387,000
-------------- -------------- --------------
-------------- -------------- --------------
2. Series B Preferred stock dividends paid/payable
through the issuance of common stock................ $ 1,223,000 $ 596,000 $ 398,000
-------------- -------------- --------------
-------------- -------------- --------------
3. Series B Preferred stock redemptions ($3,200,000) and
dividends ($666,000) paid through the issuance of
subordinated debt, net of $722,000 cash paid........ $ -- $ -- $ 3,144,000
-------------- -------------- --------------
-------------- -------------- --------------
4. Redemption of Series B Preferred stock paid through
the issuance of common stock........................ $ 1,660,000 $ -- $ --
-------------- -------------- --------------
-------------- -------------- --------------
5. Series C Preferred stock dividends paid/payable
through the issuance of common stock................ $ 1,621,000 $ 1,216,000 $ 405,000
-------------- -------------- --------------
-------------- -------------- --------------
6. Series C Preferred stock redemptions ($2,100,000) and
dividends ($1,527,000) paid through the issuance of
subordinated debt, net of $1,060,000 cash paid...... $ -- $ -- $ 2,567,000
-------------- -------------- --------------
-------------- -------------- --------------
7. Interest expense paid through the issuance of
subordinated debt................................... $ -- $ -- $ 161,000
-------------- -------------- --------------
-------------- -------------- --------------
8. Debt payments through use of funds held by trustee.... $ -- $ 437,000 $ --
-------------- -------------- --------------
-------------- -------------- --------------
9. Payment of subordinated debt through the issuance of
common stock........................................ $ 632,000 $ -- $ --
-------------- -------------- --------------
-------------- -------------- --------------
10. Debt assumed by purchasers of businesses
sold................................................ $ -- $ -- $ 760,000
-------------- -------------- --------------
-------------- -------------- --------------
11. Reversal of recognition of minimum pension liability
requirement......................................... $ (2,381,000) $ -- $ --
-------------- -------------- --------------
-------------- -------------- --------------
12. Proceeds (primarily long-term Notes Receivable)
received from the sales of discontinued
operations.......................................... $ 10,230,000 $ 900,000 $ 100,000
-------------- -------------- --------------
-------------- -------------- --------------
13. Deferred financing costs paid through the issuance of
common stock........................................ $ 253,000 $ 1,657,000 $ --
-------------- -------------- --------------
-------------- -------------- --------------
14. Common stock issued in lieu of salary and other
miscellaneous liabilities........................... $ -- $ 74,000 $ --
-------------- -------------- --------------
-------------- -------------- --------------
(B) Interest paid during year............................. $ 19,482,000 $ 14,368,000 $ 10,311,000
-------------- -------------- --------------
-------------- -------------- --------------
(C) Income/franchise taxes paid during year, net of
refunds............................................. $ 543,000 $ 778,000 $ 812,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
PREFERRED AND COMMON STOCK
<TABLE>
<CAPTION>
SERIES B
PREFERRED ($50 COMMON ($.01
STATED VALUE PAR VALUE
PER SHARE) PER SHARE)
--------------- ---------------
<S> <C> <C>
Balance at December 31, 1990................................................ $ 13,900,000 $ 60,000
Issuance of 358,354 common shares for payment of Series B preferred
dividends................................................................ -- 3,000
Issuance of 418,934 common shares for payment of Series C preferred
dividends................................................................ -- 4,000
Issuance of 105,376 common shares for payment of subordinated debt........ -- 1,000
Issuance of 487,214 common shares for redemption of 33,200 Series B
preferred shares......................................................... (1,660,000) 5,000
Issuance of 75,000 common shares for payment of deferred financing
costs.................................................................... -- 1,000
--------------- ---------------
Balance at December 31, 1991................................................ $ 12,240,000 $ 74,000
Issuance of 165,011 common shares for payment of Series B preferred
dividends................................................................ -- 2,000
Issuance of 422,999 common shares for payment of Series C preferred
dividends................................................................ -- 4,000
Issuance of 570,686 common shares for payment of deferred
financing costs.......................................................... -- 6,000
Issuance of 19,200 common shares in connection with the Company's
incentive stock and bonus plan........................................... -- --
Issuance of 3,728 common shares for payment to the Company's SMART plan... -- --
--------------- ---------------
Balance at December 31, 1992................................................ $ 12,240,000 $ 86,000
Redemption of 64,000 Series B preferred shares through the issuance of
subordinated notes and cash.............................................. (3,200,000) --
Issuance of 127,296 common shares for payment of Series B preferred
dividends................................................................ -- 1,000
Issuance of 202,688 common shares for payment of Series C preferred
dividends................................................................ -- 2,000
Issuance of 133,515 common shares in connection with the exercises of
stock options............................................................ -- 2,000
--------------- ---------------
Balance at December 31, 1993................................................ $ 9,040,000 $ 91,000
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
20
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN CAPITAL (DEFICIT)
--------------- ---------------
<S> <C> <C>
Balance at December 31, 1990................................................................ $ 82,145,000 $ 11,532,000
Net loss for the year..................................................................... -- (34,043,000)
Preferred dividends paid/declared:
Series B through the issuance of 358,354 common shares (variable based on prime
rate--$4.6875 per share)............................................................... 1,322,000 (956,000)
Series B declared payable in January 1992--$1.00 per share.............................. -- (267,000)
Series C through the issuance of 418,934 common shares--$10.81 per share................ 1,617,000 (1,216,000)
Series C declared payable in January 1992--$2.7025 per share............................ -- (405,000)
Issuance of 105,376 common shares for payment of subordinated debt........................ 631,000 --
Issuance of 487,214 common shares for redemption of 33,200 Series B preferred shares...... 1,655,000 --
Issuance of 75,000 common shares for payment of deferred financing costs.................. 252,000 --
Excess of cost ($62,000) over fair market value of 2,667 common shares purchased and
reissued in connection with the Company's incentive stock plan........................... (48,000 ) --
--------------- ---------------
Balance at December 31, 1991................................................................ $ 87,574,000 $ (25,355,000)
Net loss for the year..................................................................... -- (24,954,000)
Preferred dividends paid/declared:
Series B through the issuance of 165,011 common shares (variable based on prime
rate--$.8125 per share)................................................................ 442,000 (198,000)
Series B declared payable in January 1993--$1.625 per share............................. -- (398,000)
Series C through the issuance of 422,999 common shares--$5.405 per share................ 1,212,000 (811,000)
Series C declared payable in January 1993--$2.7025 per share............................ -- (405,000)
Issuance of 570,686 common shares for payment of deferred financing costs................. 1,651,000 --
Issuance of 19,200 common shares in connection with the Company's incentive stock and
bonus plan............................................................................... 60,000 --
Issuance of 3,728 common shares for payment to the Company's SMART plan................... 14,000 --
Excess of cost ($33,000) over fair market value of 4,571 common shares purchased and
reissued in connection with the Company's incentive stock plan........................... (23,000 ) --
--------------- ---------------
Balance at December 31, 1992................................................................ $ 90,930,000 $ (52,121,000)
Net profit for the year................................................................... -- 15,284,000
Preferred dividends paid/declared:
Series B paid through the issuance of 127,296 common shares (variable based on prime
rate -- $1.625 per share).............................................................. 397,000 --
Series B paid through the issuance of subordinated notes and cash (variable based on
prime rate -- $3.00 per share)......................................................... -- (666,000)
Series B declared payable in January 1994 -- $.75 per share............................. -- (136,000)
Series C paid through the issuance of 202,688 common shares -- $2.7025 per share........ 403,000 --
Series C paid through the issuance of subordinated notes and cash -- $10.81 per share... -- (1,527,000)
Series C declared payable in January 1994 -- $2.7025 per share.......................... -- (349,000)
Excess of proceeds received over cost for common shares purchased and reissued in
connection with the exercise of stock options to purchase 17,710 common shares........... 22,000 --
Issuance of 133,515 common shares in connection with exercises of stock options........... 643,000 --
--------------- ---------------
Balance at December 31, 1993................................................................ $ 92,395,000 $ (39,515,000)
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
21
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING CHANGES--
Effective January 1, 1992, the Company implemented on an immediate
recognition basis Statement of Financial Accounting Standards (SFAS) No.
106--Employers' Accounting for Postretirement Benefits Other Than Pensions. The
transition effect of adopting SFAS No. 106 on the immediate recognition basis,
as of the above noted date, resulted in a charge of $1,739,000 ($.21 per common
share) to 1992 operating results and is reflected in the accompanying
Consolidated Statements of Income (Loss) as "Effect of change in accounting
principle."
Effective January 1, 1993, the Company implemented on an immediate
recognition basis SFAS No. 109--Accounting for Income Taxes. The adoption of
SFAS No. 109 did not have an effect on 1993 financial statements. Prior to 1993,
the Company accounted for income taxes under SFAS No. 96.
PRINCIPLES OF CONSOLIDATION--
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany items and
transactions have been eliminated.
REVENUE RECOGNITION--
Sales of agricultural equipment and service parts at the Bush Hog division
are recorded when they are shipped to independent dealers in accordance with
industry practices. Provisions for sales incentives and other sales related
expenses are made at the time of the sale. Revenues and profits are recognized
on a percentage of completion basis for major contracts at the Verson division.
ACCOUNTS RECEIVABLE--
Agricultural equipment current accounts receivable are net of provisions for
sales incentive programs and returns and allowances. Extended payment terms (up
to one year) are offered to dealers in the form of floor plan financing which is
customary within the industry. Agricultural equipment receivables (with the
exception of receivables associated with service parts and original equipment
manufacturing--OEM--arrangements) are generally not collected until the dealer
sells the related piece of equipment to a retail customer. The Company maintains
a security interest in the equipment related to such receivables to minimize the
risk of loss.
Included in accounts receivable are accumulated costs of $7,522,000 at
December 31, 1992 (none at December 31, 1993) associated with contracts under
which the Company recognizes revenue on a percentage of completion basis. At
December 31, 1992, this balance included unbilled actual production costs
incurred plus a measure of profit recognized in relation to the sales recorded,
less customer payments associated with the receivable. Actual billings were
rendered at the time of shipment.
INVENTORIES--
At December 31, 1992 and 1993, the basis of all of the Company's inventories
is determined by using the lower of FIFO cost or market method.
Included in work in process inventory are accumulated costs ($28,720,000 at
December 31, 1992 and $15,397,000 at December 31, 1993) associated with
contracts under which the Company recognizes revenue on a percentage of
completion basis. These balances include unbilled actual production costs
incurred plus a measure of profit recognized in relation to the sales recorded,
less customer payments ($13,080,000 at December 31, 1992 and $7,750,000 at
December 31, 1993) associated with the work in process inventory. A significant
portion of the work in process inventory has been/will be completed, shipped and
invoiced prior to the end of the following year.
22
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PLANT AND EQUIPMENT--
Expenditures for the maintenance and repair of plant and equipment are
charged to expense as incurred. Expenditures for major replacement or betterment
are capitalized. The cost and related accumulated depreciation of plant and
equipment replaced, retired or otherwise disposed of is removed from the
accounts and any gain or loss is reflected in earnings.
DEPRECIATION--
Depreciation of the original cost of plant and equipment is charged to
expense over the estimated useful lives of such assets calculated under the
straight-line method. Estimated useful lives are 20 to 40 years for buildings
and improvements and 3 to 12 years for machinery and equipment.
ACCRUED EXPENSES--
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1992 1993
-------------- --------------
<S> <C> <C>
Salaries and wages.......................................................... $ 7,495,000 $ 7,051,000
Warranty.................................................................... 6,144,000 9,658,000
Insurance................................................................... 9,379,000 9,096,000
Restructuring and other facility close down costs........................... 13,912,000 6,141,000
Pensions, including retirees' health........................................ 5,330,000 3,712,000
Taxes, other than income taxes.............................................. 2,374,000 1,742,000
Environmental matters....................................................... 1,672,000 4,354,000
Other....................................................................... 4,623,000 4,370,000
-------------- --------------
$ 50,929,000 $ 46,124,000
-------------- --------------
-------------- --------------
</TABLE>
EARNINGS (LOSS) PER COMMON SHARE--
Earnings (loss) per common share is based on the average number of common
shares outstanding (6,558,000, 8,247,000 and 8,999,000 for the years ended
December 31, 1991, 1992 and 1993, respectively) after decreasing net income or
increasing the net loss for preferred dividend requirements ($2,844,000,
$2,402,000 and $2,073,000 for the years ended December 1991, 1992 and 1993,
respectively). The assumed exercise of stock options would not result in
dilution for the years ended December 31, 1991 and 1992, and would not result in
a material dilution for the year ended December 31, 1993.
INCOME TAXES--
During 1993, the Company adopted SFAS No. 109--Accounting for Income
Taxes--as noted above. Under both SFAS No. 96 and 109, income taxes are provided
on income for financial reporting purposes, after adjustment for income and
expense items that will never enter into the computation of taxes payable.
Investment tax credits were accounted for as a reduction of the provision for
income taxes during the year the applicable assets were placed in service or
when realized.
STATEMENT OF CASH FLOWS--
For purpose of the Consolidated Statements of Cash Flows, the Company
considers investments with original maturities of three months or less to be
cash equivalents.
FINANCIAL INSTRUMENTS--
The fair value of cash and cash equivalents is assumed to approximate the
carrying value of these assets due to the short maturity of these instruments.
The fair value of the Company's debt, current and long-term, is estimated to
approximate the carrying value of these liabilities based upon borrowing rates
currently available to the Company for borrowings with similar terms. The fair
value of the
23
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Series B and C Preferred Stocks is estimated to approximate the carrying value
of these securities based upon the redemption features within the Certificate of
Designation on each series of preferred stock.
2. ACQUISITIONS AND DISPOSITIONS:
ACQUISITIONS--
Amortization of deferred charges (goodwill) associated with the 1986
acquisition of Lilliston (approximately $8,900,000 with a ten year amortization
period) and the 1986 acquisition of Verson (approximately $23,491,000 with a
twenty year amortization period) was $2,067,000 for each of the years ended
December 31, 1991, 1992 and 1993, and is included in "Other (income) expense,
net" in the accompanying Consolidated Statements of Income (Loss).
Included in the assets sold with discontinued operations in 1991 were
unamortized deferred charges (goodwill) of $7,523,000 related to the Littell
division and $537,000 related to the Acme division. Included in the net assets
sold with discontinued operations in 1993 were unamortized deferred credits of
$1,332,000 related to the White-New Idea division.
DISPOSITIONS--
During 1991, the Company sold two divisions of the former
Transportation/Industrial Products Group, the South Bend Stamping division,
which manufactured major automotive stampings, and the Littell division, which
manufactured material handling systems. Also during 1991, the Company sold the
assets of the tractor business of its White-New Idea division of the former
Agricultural Equipment Group. This disposition included tractor technology,
certain trademarks, patents, production capability of tractors, parts
inventories and the assignment of dealer agreements as they relate to the
tractor and tractor parts business. Also during 1991, the Company entered into
negotiations to sell certain operating assets and the business of its Acme
division which manufactured flexible electrical insulating materials and was a
part of the former Materials Technology Group. A final agreement was reached in
1992. During 1992, the Company announced the closing of manufacturing operations
at the Kewanee Farm Equipment division and the Charles City machining and
foundry division. Production was discontinued at these operations during 1993.
The Kewanee facility was converted to the central parts warehouse of the
White-New Idea Farm Equipment division. During 1993, the Company discontinued
manufacturing operations at the R/B Die and Prototype division. All machinery
and equipment associated with these operations were sold for cash during 1993.
Also during 1993, the Company sold for cash the majority of the assets of the
Smith Energy Services division. The resulting gains (approximately $1,400,000)
from these asset dispositions were credited to the restructuring reserve as
discussed below. The Company's International Agro division was also closed
during 1993. 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. Real
estate used in connection with this business, specifically, plants located in
Coldwater, Ohio and Kewanee, Illinois, is being leased by the Company to the
purchaser of the business. The purchaser is required to exercise an option to
purchase the real estate pending a favorable review of environmental matters at
each location. The Company is not aware of any significant environmental issues
at either location. Subsequent to the end of 1993, the Company signed a letter
of intent to sell all of the assets and the business of its Cooper division. It
is anticipated that a final agreement will be reached in the second quarter of
1994. The Company has included the results of these operations, an allocation of
financing costs and administrative and interest expense (the latter based upon
these operations' proportionate share of consolidated invested capital) and
related restructuring cost provisions (as discussed below) under the caption
"Discontinued operations--Income (loss) from operations" in the accompanying
Consolidated Statements of Income (Loss). Previously issued Consolidated
Statements of Income (Loss) were restated to reflect the effect of these
discontinued operations.
24
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1991 1992 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales.............................................. $ 238,800,000 $ 144,305,000 $ 152,592,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Operating income (loss)................................ $ (5,252,000) $ (8,131,000) $ 11,851,000
Provision for restructuring costs...................... (6,200,000) (7,044,000) (700,000)
Finance costs, administrative and interest expense
allocation............................................ (12,444,000) (10,639,000) (5,304,000)
---------------- ---------------- ----------------
Income (loss) from operations.......................... $ (23,896,000) $ (25,814,000) $ 5,847,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
Also during 1991, the Company's wholly-owned consolidated finance
subsidiary, Allied Products Financial Services Corporation (APFSC) sold a
substantial portion of its farm related financing assets. The proceeds from this
disposition approximated the net book value of the related assets sold.
Proceeds from the disposition of discontinued operations and the financing
assets of APFSC in 1991 were $41,187,000 (including $30,957,000 of cash) and
resulted in a loss of $5,647,000. The Company has reported this loss in 1991
under the caption "Discontinued operations--Gain (loss) on disposition of
discontinued operations" in the accompanying Consolidated Statements of Income
(Loss).
Gain on disposition of discontinued operations in 1992 was principally
related to the reversal of a reserve established in 1991 for the estimated loss
on the anticipated sale of the remaining receivables related to the tractor
business. The anticipated sale and estimated loss did not take place. Instead,
the receivables were collected without significant loss.
In 1989, the Company made a complete evaluation of the status of the chassis
industry in relation to its Loadcraft division. A provision of $6,258,000 was
charged against 1989 consolidated operating results to recognize the proper
valuation of the assets of this division and the estimated cost of closing the
operation down. In the third quarter of 1990, chassis production was terminated
and the operation was closed. Also in 1989, the Company made an evaluation of
the Cooper Manufacturing (workover oil rigs) operation. A provision of
$3,450,000 was recognized in 1989 for the proper valuation of this division's
inventories on an on-going basis. During 1991, the Company completed the
shutdown of the Loadcraft operation. The actual costs of this project were
$1,124,000 less than originally anticipated. The reversal of the excess
provision related to the Loadcraft division ($885,000) has been included in the
Consolidated Statements of Income (Loss) in 1991 as "Reversal of provision for
writedown of inventory."
RESTRUCTURING COSTS--
During 1991, the Company provided $6,200,000 for the impact of an
operational restructuring plan designed to reduce operating losses by closing,
consolidating or scaling back certain operations. During 1992 and 1993, an
additional $7,800,000 and $700,000, respectively, was provided for additional
restructuring costs. The restructuring of operations calls for several
significant changes within various operations of the Company.
The changes included the closing of manufacturing operations at the Kewanee
Farm Equipment division, the phase out of the operation at the Charles City,
Iowa machining and foundry division (production was completed in the third
quarter of 1993), the phase out of the manufacturing operations at the R/B Die
and Prototype division (production was completed in the second quarter of 1993)
and the contemplated sale of the Smith Energy Services division. The provision
for restructuring for
25
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
these operations included non-recurring, non-operating costs subsequent to the
completion of production, including severance and other employee benefits, costs
associated with the relocation of machinery and equipment from Charles City to
other facilities, costs associated with preparation for the auctions and other
facility related costs into 1994.
In addition, the Company phased out its centralized Management Information
Services operation at the Corporate Office in 1993. The reserve for
restructuring includes a provision for severance and other employee related
expenses and the estimated costs of the termination of lease agreements for the
MIS facility and hardware/software.
Net charges to the restructuring reserve in 1992 and 1993 were $88,000 and
$9,515,000, respectively.
As of December 31, 1993, the accompanying consolidated balance sheet
includes real estate with a net book value of $6,868,000 which is held for sale,
including real estate with a net book value of $4,599,000 related to the
White-New Idea Farm Equipment and Cooper division dispositions. Remaining assets
at other discontinued operations are not considered significant at December 31,
1993.
3. INCOME TAXES:
Provision for income tax in 1993 consists of the following:
<TABLE>
<S> <C>
Federal (current)............................................................ $ 514,000
State (current).............................................................. 232,000
---------
Total provision............................................................ $ 746,000
---------
---------
</TABLE>
The Company recorded no benefit for income taxes in 1991 and 1992 as the
Company had no tax loss carrybacks available to reduce the pre-tax loss of those
years.
Allocation of the provision for income taxes in the 1993 Consolidated
Statement of Income include the following:
<TABLE>
<S> <C>
Continuing operations........................................................ $ 436,000
Discontinued operations - income from operations............................. 182,000
Discontinued operations - gain on disposition of discontinued operations..... 200,000
Extraordinary loss on early extinguishment of debt........................... (72,000)
---------
Total provision............................................................ $ 746,000
---------
---------
</TABLE>
The provision for income taxes in 1993 differs from amounts computed by
applying the statutory rate to pre-tax income as follows:
<TABLE>
<S> <C>
Income tax at statutory rate............................................... $ 5,450,000
Utilization of net operating loss carryforwards............................ (4,972,000)
State income tax, net of federal tax benefit............................... 153,000
Permanent book over tax, net of tax over book, differences on acquired
assets.................................................................... 108,000
Other, net................................................................. 7,000
-----------
Total provision.......................................................... $ 746,000
-----------
-----------
</TABLE>
26
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The significant components of deferred tax assets and liabilities as of
December 31, 1993 were as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss and investment tax credits carryforward............. $ 92,319,000
Insurance reserves..................................................... 3,731,000
Inventories............................................................ 2,983,000
Sale/leaseback transaction............................................. 3,629,000
Restructuring reserves................................................. 1,998,000
Employee benefits, including pensions.................................. 3,759,000
Warranty............................................................... 3,337,000
Sales allowances....................................................... 1,588,000
Other.................................................................. 1,088,000
-------------
Total deferred tax asset............................................. $ 114,432,000
-------------
Deferred tax liabilities:
Depreciation........................................................... $ 4,044,000
Other.................................................................. 366,000
-------------
Total deferred tax liabilities....................................... $ 4,410,000
-------------
Net deferred tax asset before valuation allowance.................... $ 110,022,000
Valuation allowance.................................................. (110,022,000)
-------------
Net deferred tax asset............................................... $ --
-------------
-------------
</TABLE>
The valuation allowance is associated primarily with net operating loss
carryforwards. Such valuation allowance has been provided based on the inherent
uncertainty of predicting the taxable income necessary to realize net deferred
tax assets considering the Company's recent loss history and the cyclical nature
of the businesses in which the Company operates. At December 31, 1993, the
Company has available net operating loss carryforwards of up to $255,677,000 (of
which $166,436,000 results from various acquisitions) which expire between 1994
and 2008 and investment tax credit carryforwards of $2,832,000 (which expire
between 1994 and 2004) including up to $524,000 resulting from acquisitions.
The Company's consolidated Federal income tax returns through 1988 have been
examined by the Internal Revenue Service.
27
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FINANCIAL ARRANGEMENTS:
The Company's debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1993
----------- ---------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
SENIOR DEBT
Credit and debt restructuring agreement, interest at prime (6.0%) plus 3.5%
payable monthly................................................................. $ 114,469 $ --
Capitalized lease obligations, at interest rates from 5.3% to 12% (weighted
average of 8.1%), due in varying amounts through 1998 (Note 5).................. 17,781 7,090
6.4% capitalized lease obligation associated with IRB properties sold, paid in
1993............................................................................ 135 --
Long-term portion of revolving credit, interest at prime plus 2.0%, due 1996..... -- 14,883
Amortizing note with interest at prime plus 2.0%, due 1997....................... -- 10,000
Non-amortizing loan with interest at prime plus 2.8%, due 1998................... -- 10,000
Notes/mortgages payable at various interest rates................................ 2,078 392
Other notes payable at various interest rates.................................... 23 --
----------- ---------
$ 134,486 $ 42,365
SUBORDINATED DEBT
Subordinated notes with interest at the prime rate plus 13%, due January 1995.... 1,838 1,838
Subordinated notes with interest at 10.8%, due January 1995...................... -- 3,062
Subordinated notes with interest at 13.5%, due January 1995...................... -- 2,700
----------- ---------
$ 136,324 $ 49,965
Less current portion............................................................. 38,391 39,343
----------- ---------
$ 97,933 $ 10,622
----------- ---------
----------- ---------
</TABLE>
On January 22, 1990, the Company entered into an eighteen-month credit and
debt restructuring agreement with its then unsecured bank creditors and an
insurance company. The agreement was collateralized by all of the Company's
assets, except real estate, which were not otherwise encumbered.
The credit and debt restructuring agreement was amended as of July 25, 1991,
to extend the final due date to July 21, 1992, provide for modest interim
principal payments, and to establish procedures for funding the Company's
working capital requirements in the latter half of 1991 and the first half of
1992. The credit and debt restructuring agreement was further amended in
December 1991, first to permit the Company to use a substantial portion of the
proceeds from certain future asset sales and receivable collections for future
working capital requirements, and then to allow the Company to use existing
accumulated funds for working capital needs. During 1992, the credit and debt
restructuring agreement was further amended to defer certain payments due under
the agreement. Additional amendments were entered into in 1992 ultimately
extending the maturity date to January 29, 1993.
Also in 1992, the Company entered into an agreement with a financial
institution independent of the senior secured lenders. Under this agreement, the
Coz division was set up as a wholly-owned subsidiary. Separate borrowings
(approximately $4,200,000) were obtained from this financial institution, with
certain assets of the subsidiary collateralizing the loan. A portion of these
proceeds were applied against the existing credit and debt restructuring
agreement, with the remaining portion being used for working capital
requirements of the Company. Subsequent to the end of 1993, the
28
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company paid all amounts due under this loan agreement. The Coz subsidiary was
liquidated and the operation is now a division of the Company. The borrowing
agreement was also terminated subsequent to the end of 1993.
On January 28 and 29, 1993, the Company restructured the outstanding debt
under the 1990 credit and debt restructuring agreement. The restructuring
included the transfer of the business and assets of its Bush Hog and Verson
divisions to wholly-owned subsidiaries, arranging for separate debt financing at
these subsidiaries and applying most of the proceeds of the subsidiary
financings to reduce amounts due under the 1990 credit and debt restructuring
agreement. At the same time, the Company entered into an amended and restated
credit and debt restructuring agreement with the same group of lenders as under
the 1990 credit and debt restructuring agreement.
In general, the new agreement continued, in modified form, the restrictions
and financial covenants of the former agreement. However, unlike the former
agreement, the new agreement permitted the Company to pay dividends on, and
scheduled redemptions of, its outstanding Series B and C preferred stock partly
in cash and partly through the issuance of subordinated notes. The new agreement
provided for mandatory payments of $10,000,000 on November 1, 1993 and five
$3,000,000 quarterly payments commencing on December 1, 1993. The remaining
balance outstanding was scheduled to become due and payable on January 28, 1995.
With the sale of the White-New Idea division for cash in December 1993, the
Company paid all amounts due under this agreement prior to the end of 1993. In
addition, subsequent to the end of 1993, the Company terminated the separate
debt financing agreements at Bush Hog and Verson described above through the
completion of a new Revolving Credit Agreement. The termination of these
agreements resulted in the payment of termination fees and the write-off of
unamortized loan costs related to these agreements. These amounts, net of a tax
benefit of $72,000, have been included in the accompanying Consolidated
Statement of Income for 1993 under the caption "Extraordinary loss on early
extinguishment of debt, less applicable income tax benefit."
The new three year 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. As a result of this financing, the
Bush Hog Corporation, Verson Corporation and Coz Corporation subsidiaries were
dissolved and their assets were conveyed to the parent company, Allied Products
Corporation. 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.
The $1,838,000 subordinated notes payable in the above table were originally
due in September 1990. Payments of these notes in cash was prohibited under the
credit and debt restructuring agreement. Prior to the original due date, the
Company reduced the amount of subordinated debt outstanding through the issuance
of 180,000 shares of the Company's Common Stock. The Company also made
arrangements to transfer $1,963,000 of the remaining portion of this debt to a
group of new creditors. The interest rate on the balance outstanding was
increased from prime rate to prime rate plus 3%. The due date was extended to
the earlier of September 1, 1991 or ninety days after the Company refinances the
original credit and debt restructuring agreement. In July 1991, the Company
further reduced the outstanding principal of these notes through the issuance of
105,376 shares of the Company's Common Stock; extended the due date to May 1,
1993; gave the holders of these notes the option, exercisable between September
28, 1992 and October 2, 1992, to exchange the notes for the
29
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's Common Stock based on a stock price of 95% of the average closing
price from September 14, 1992 to October 2, 1992; and increased the interest
rate by 10% effective November 1, 1991. Effective January 29, 1993, the Company
entered into agreements with the holders of the remaining notes to eliminate
certain financial covenants and to extend the maturity date of the notes to July
28, 1995. The Company also made arrangements to transfer $1,105,000 of the
remaining portion of this debt to the remaining group of existing creditors. The
interest rate was adjusted on certain subordinated notes so that all
subordinated note holders receive the same interest rate. Subsequent to the end
of 1993, all amounts due under these subordinated notes were paid in cash.
Scheduled maturities of the noncurrent portion of long-term debt at December
31, 1993, reflecting the 1994 Revolving Credit Agreement, are due as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
CAPITALIZED
LEASE
OBLIGATIONS OTHER TOTAL
------------ --------- ---------
<S> <C> <C> <C>
1995.............................................. $ 646 $ 53 $ 699
1996.............................................. 488 55 543
1997.............................................. 47 9,332 9,379
1998.............................................. 1 -- 1
------------ --------- ---------
$ 1,182 $ 9,440 $ 10,622
------------ --------- ---------
------------ --------- ---------
</TABLE>
5. LEASES:
CAPITAL LEASES--
The Company conducts a portion of its business in leased facilities, several
of which are leased from municipal agencies under Industrial Revenue Bond
arrangements. The Company also leases various types of manufacturing, office and
transportation equipment.
Capital leases included in Plant and Equipment in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Land...................................................... $ 691 $ 605
Buildings and improvements................................ 7,443 4,806
Machinery and equipment................................... 17,759 9,589
--------- ---------
$ 25,893 $ 15,000
Less--Accumulated amortization............................ 18,423 9,595
--------- ---------
$ 7,470 $ 5,405
--------- ---------
--------- ---------
</TABLE>
See Note 4 for information as to future debt payments relating to the above
leases.
OPERATING LEASES--
Rent expense for operating leases, which is charged against income, was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Minimum rentals................................ $ 4,431 $ 4,251 $ 4,062
Contingent rentals............................. 1,229 916 1,084
--------- --------- ---------
$ 5,660 $ 5,167 $ 5,146
--------- --------- ---------
--------- --------- ---------
</TABLE>
30
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Contingent rentals are composed primarily of truck fleet mileage charges for
actual usage. Some leases contain renewal and purchase options. The leases
generally provide that the Company pay taxes, maintenance, insurance and certain
other operating expenses.
At December 31, 1993, future minimum rental payment commitments under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
MINIMUM NET MINIMUM
ANNUAL SUBLEASE ANNUAL
RENTAL RENTAL RENTAL
PAYMENTS INCOME PAYMENTS
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Year ending December 31,
1994.......................................... $ 1,610 $ (245) $ 1,365
1995.......................................... 1,539 (245) 1,294
1996.......................................... 688 (245) 443
1997.......................................... 502 (245) 257
1998.......................................... 427 (233) 194
Later......................................... 295 (295) --
----------- ----------- -----------
$ 5,061 $ (1,508) $ 3,553
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
6. SERIES B PREFERRED STOCK:
The Company has 2,000,000 shares of authorized preferred stock.
Of this amount, 350,000 shares were designated as Series B Variable Rate
Cumulative Preferred Stock, 244,800 and 180,800 shares of which were outstanding
at December 31, 1992 and 1993, respectively. The Series B Preferred Stock has a
stated value of $50 per share. The holder of the Series B Preferred Stock is
entitled to receive quarterly dividends at variable rates, computed by
multiplying $50 times 1/4 of the prime rate in effect on the first day of the
quarter preceding the dividend date. Dividends are cumulative. The shares of
Series B Preferred Stock are subject to redemption by the Company in whole or in
part at any time by payment of the price of $51.50 per share plus accrued and
unpaid dividends. Authorization was approved at the 1986 Annual Meeting of
Stockholders to issue such additional shares of the Company's Common Stock to
redeem the outstanding shares of the Company's Series B Variable Rate Cumulative
Preferred Stock as they become redeemable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, the holder of the
shares of Series B Preferred Stock shall be entitled to receive out of the
assets of the Company available for distribution to its shareholders a
liquidation preference in the amount of $50 per share, and no more, plus accrued
and unpaid cumulative dividends thereon, before any distribution is made on the
Common Stock of the Company. Each share of the Series B Preferred Stock is
entitled to one vote on all corporate matters upon which shareholders of the
Company are entitled to vote. In addition, the affirmative vote of the holder of
the Series B Preferred Stock is required for certain corporate transactions.
In 1990, the Company entered into an agreement with the holder of the Series
B Preferred Stock to revise the original schedule of redemption. The redemption
amounts were payable in cash or, at the Company's option, in shares of the
Company's Common Stock. If paid in shares of the Company's Common Stock, the
value per share will be (1) its average closing price for the last ten or two
trading days prior to the rescheduled redemption date (whichever average price
is less), less (2) the lower of 10% of such average closing price or $1.00. In
1992, the holder of the Series B Preferred Stock agreed to extend the terms of
this agreement and the Company agreed to amend and restate the certificate of
designation of the Series B Preferred Stock to accelerate the scheduled
mandatory redemption noted above. The terms of this agreement provide for the
redemption of the remaining outstanding shares as follows: 30,000 shares on
November 30, 1992; semi-annual installments of 17,000 shares beginning
31
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
May 31, 1993 through November 30, 1998; and 10,800 shares on May 31, 1999.
Concurrently with the execution of the amended and restated credit and debt
restructuring agreement, the Company entered into an agreement with the holder
of the Series B Preferred Stock pursuant to which the Company agreed to pay in
the form of cash and subordinated notes for the past due redemption of the
Series B Preferred Stock scheduled for November 30, 1992, as well as all
scheduled dividends and redemptions from January 2, 1993 through January 2,
1995. Redemptions of the Series B Preferred Stock to be satisfied through the
issuance of subordinated notes ($4,900,000) have been reclassified from
"Shareholders' Investment" to a separate line in the accompanying balance sheet
as of December 31, 1992. This agreement was terminated at the end of 1993.
Series B Preferred Stock redemptions subsequent to the end of 1993 may be
satisfied in accordance with the Certificate of Designation for this issue,
subject to the revised redemption schedule in the 1992 agreement described
above. Future dividends will be paid in cash. Subordinated notes issued provide
for quarterly payments of interest in cash and payment of principal upon
maturity of the notes on July 28, 1995. All dividend payments in 1992 were
satisfied through the issuance of Common Stock valued as described above under
the 1990 agreement. In January 1993, the Company issued 127,296 shares of Common
Stock to the holder of the Series B Preferred Stock in satisfaction of dividends
declared prior to December 31, 1992. During 1993, the Company also issued
subordinated notes ($3,145,000) and cash ($722,000) to satisfy redemptions of
the Series B Preferred Stock ($3,200,000) and dividends declared and paid
($666,000).
Under the terms of the certificate of designation of the Series B Preferred
Stock, holders of such stock are entitled to elect two members to the Board of
Directors of the Company if the Company is in default of six full quarterly
dividends or two mandatory redemptions.
An additional 150,000 shares were designated in 1988 as Series C Cumulative
Preferred Stock (see Note 7). The remaining 1,500,000 shares of authorized
preferred stock are undesignated and unissued at December 31, 1993.
7. SERIES C PREFERRED STOCK:
As noted in Note 6, 150,000 shares were designated in 1988 as Series C
Cumulative Preferred Stock, of which 150,000 and 129,000 shares were outstanding
as of December 31, 1992 and 1993, respectively. The Series C Cumulative
Preferred Stock has a stated value of $100 per share. Holders of the Series C
Cumulative Preferred Stock are entitled to receive quarterly dividends at the
annual rate of $10.81 per share. Dividends are cumulative. In 1992, the holders
of the Series C Cumulative Preferred Stock agreed to an amended redemption
schedule. The terms of this agreement provide for the redemption of the
outstanding shares as follows: 7,000 shares on January 2, 1993, May 2, 1993,
November 2, 1993, May 2, 1994 and October 2, 1994; 25,000 shares on October 2,
1995 and 30,000 shares in October of each year thereafter. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, the
holders of the shares of Series C Cumulative Preferred Stock shall be entitled
to receive out of the assets of the Company available for distribution to its
shareholders a liquidation preference in the amount of $100 per share plus
accrued and unpaid cumulative dividends thereon, before any distribution is made
on the Common Stock of the Company. Each share of the Series C Cumulative
Preferred Stock is entitled to one vote on all corporate matters upon which
shareholders of the Company are entitled to vote. In addition, the affirmative
vote of the holders of the majority of the Series C Cumulative Preferred Stock,
voting as a class, is required for certain corporate transactions. During 1991,
the Company obtained an extension of a waiver from the holders of the Series C
Cumulative Preferred Stock. Under the terms of this extension agreement,
quarterly dividends through October 2, 1992 would be paid in shares of the
Company's Common Stock which would be valued at the lower of (1) the current
market price as defined in the certificate of designation or (2) the average
market price, as defined, for each business day in the calendar quarter
immediately preceding such payment date.
32
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concurrently with the execution of the amended and restated credit and debt
restructuring agreement, the Company entered into an agreement with the holders
of the Series C Cumulative Preferred Stock pursuant to which the Company agreed
to pay in the form of cash and subordinated notes all scheduled dividends and
redemptions from January 2, 1993 through January 2, 1995. This agreement was
terminated at the end of 1993. Series C Cumulative Preferred Stock redemptions
subsequent to the end of 1993, as well as dividends, will be paid in cash.
Subordinated notes issued provide for quarterly payments of interest in cash and
payment of principal upon maturity of the notes on July 28, 1995. All dividend
payments in 1992 were satisfied through the issuance of Common Stock valued as
described above under the 1991 agreement. In January 1993, the Company issued
202,688 shares of Common Stock to the holders of the Series C Cumulative
Preferred Stock in satisfaction of dividends declared prior to December 31,
1992. During 1993, the Company also issued subordinated notes ($2,567,000) and
cash ($1,060,000) to satisfy redemptions of the Series C Cumulative Preferred
Stock ($2,100,000) and dividends declared and paid ($1,527,000).
The Company's failure to pay when due the October 2, 1992 dividend on its
Series C Cumulative Preferred Stock constituted a default in the payment of a
dividend pursuant to the Series C Cumulative Preferred Stock certificate of
designation. If the Company defaults in the payment of two additional quarterly
dividends or any mandatory redemption, the Series C Cumulative Preferred Stock
holders shall have the right to convert the Series C Cumulative Preferred Stock
into shares of common stock at a ratio determined by reference to the lowest
market price of the Company's Common Stock (as defined in the certificate of
designation) during the calendar quarter preceding the date of such default. If
the holders became entitled to exercise such conversion rights, shares of common
stock issuable upon conversion could represent a significant portion of the
total outstanding Company Common Stock. In addition, under the terms of the
certificate of designation of the Series C Cumulative Preferred Stock, holders
of such stock are entitled to elect two members to the Board of Directors of the
Company if the Company is in default of two additional quarterly dividends or
any mandatory redemption.
8. COMMON STOCK AND OPTIONS:
The Company has an incentive stock plan (the 1977 plan) which authorizes
stock incentives for key employees in the form of stock awards, stock
appreciation rights and stock options. Options under the 1977 plan, which are
granted at fair market value at date of grant, are non-qualified options (not
"incentive stock options" as defined by the Internal Revenue Code). Options
currently outstanding under the 1977 plan become exercisable to the extent of
25% one year from date of grant and 25% in each of the next three years, and
expire ten years from the date of grant. There were no stock awards issued under
this plan in 1991, 1992 or 1993. No stock appreciation rights have been granted
to date under this plan. At December 31, 1993, the Company has reserved 330,991
shares of Common Stock which may be issuable in the future under the 1977 plan.
In 1990, the Company's Board of Directors approved a new incentive stock
plan, the 1990 Long Term Incentive Stock Plan (the 1990 plan) which authorized
stock incentives for key employees in the form of stock awards and stock
options. The 1990 plan, as amended on March 1, 1993, authorizes the issuance of
up to 1,000,000 shares of the Company's Common Stock. Options under the 1990
plan, which are granted at fair market value at date of grant, may be granted as
either incentive stock options or non-statutory stock options. Options granted
become exercisable to the extent of 50% one year from date of grant and the
remaining 50% two years from date of grant. Since the inception of the 1990
Plan, the Company issued options to purchase 503,750 shares of the Company's
Common Stock at prices between $1.50 and $10.625 per share. There are 312,900
options outstanding under this plan at December 31, 1993 and are included in the
table below.
33
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock option transactions for 1992 and 1993 were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING (SHARES)
-------------------------------------- AVERAGE OPTION
NOT PRICE AT DATE
EXERCISABLE EXERCISABLE TOTAL OF GRANT
------------ ------------ ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1991............... 104,791 319,131 423,922 $ 11.55
Granted.................................... 182,500 -- 182,500 2.58
Became exercisable......................... (95,191) 95,191 -- 5.92
Exercised.................................. -- -- -- --
Expired.................................... -- -- -- --
Terminated................................. (4,225 ) (4,825 ) (9,050) 5.75
------------ ------------ ---------- -------
Outstanding, December 31, 1992............... 187,875 409,497 597,372 $ 8.90
Granted.................................... 103,000 -- 103,000 5.25
Became exercisable......................... (93,125 ) 93,125 -- 2.89
Exercised.................................. -- (151,225 ) (151,225) 5.19
Expired.................................... -- -- -- --
Terminated................................. (23,500 ) (6,010 ) (29,510) 5.33
------------ ------------ ---------- -------
Outstanding, December 31, 1993............... 174,250 345,387 519,637 $ 9.45
------------ ------------ ---------- -------
------------ ------------ ---------- -------
</TABLE>
On February 15, 1991, the Company declared a dividend distribution of one
right ("Right") to purchase an additional share of the Company's Common Stock
for $50 on each share of Common Stock outstanding. The Rights become exercisable
ten days after a person or group acquires, or tenders for, 20% or more of the
Company's Common Stock. The Company is entitled to redeem the Rights at $.01 per
Right at any time until ten days after any person or group has acquired 20% of
the Common Shares. If a person or group acquires 20% or more of the Company's
Common Stock (other than pursuant to an acquisition from the Company or pursuant
to a tender offer deemed fair by the board of directors), then each Right, other
than Rights held by the acquiring person or group, entitles the holder to
purchase for $50 that number of shares of the Company's Common Stock having a
current market value of $100. If a person or group acquires 20% or more of the
Company's Common Stock and prior to the person or group acquiring 50% of such
outstanding stock, the Company may convert each outstanding Right, other than
the Rights held by the acquiring person or group, into one new share of the
Company's Common Stock. If a person or group acquiring more than 20% of the
Company's Common Stock merges with the Company or engages in certain other
transactions with the Company, each Right, other than Rights held by the
acquiring person or group, entitles the holder to purchase shares of common
stock of the acquiring person or group having a current market value of $100 for
$50. The Rights attach to all of the Company's Common Stock outstanding as of
February 15, 1991, or subsequently issued, and have a term of ten years. The
Rights also expire upon a merger or acquisition of the Company undertaken with
the consent of the Company's board of directors.
9. RETIREMENT, PENSION AND POSTRETIREMENT HEALTH PLANS:
The Company sponsors several defined benefit pension plans which cover
certain union and office employees. Benefits under these plans generally are
based on the employee's years of service and compensation during the years
immediately preceding retirement. The Company's general funding policy is to
contribute amounts deductible for Federal income tax purposes.
34
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension costs as they relate to continuing operations for years
ended December 31, 1991, 1992 and 1993 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Service cost................................................ $ 397 $ 405 $ 411
Interest cost............................................... 2,079 2,113 2,152
Actual loss (gain) on plan assets........................... (5,044) (2,608) (7,903)
Net amortization and deferral............................... 3,021 609 6,090
--------- --------- ---------
Net periodic pension cost................................... $ 453 $ 519 $ 750
--------- --------- ---------
--------- --------- ---------
</TABLE>
Although the actual return on plan assets is shown, the expected long-term
rate of return used in determining the net periodic pension cost in all years
was approximately 7.5%. The difference between the actual return and the
expected return is included in the "Net amortization and deferral" in the above
table. The actuarial present value of benefits was determined using a discount
rate of 7.25% in 1993 (8% in prior years). The rate of compensation increase
used to measure the projected benefit obligation in one plan was 5%. All other
plans are based on current compensation levels.
The following table sets forth the funded status of the Company's defined
benefits plans as of December 31, 1992 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1992 1993
---------------------------- ----------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Plan assets at fair value........................... $ 13,725 $ 12,562 $ 17,173 $ 16,187
------------- ------------- ------------- -------------
Actuarial present value of benefit obligations:
Vested benefits................................... $ 12,115 $ 13,458 $ 12,587 $ 15,006
Nonvested benefits................................ 277 649 290 784
------------- ------------- ------------- -------------
Accumulated benefit obligation...................... $ 12,392 $ 14,107 $ 12,877 $ 15,790
Effect of projected future compensation increases... -- 1,430 -- 1,889
------------- ------------- ------------- -------------
Projected benefit obligation........................ $ 12,392 $ 15,537 $ 12,877 $ 17,679
------------- ------------- ------------- -------------
Plan assets in excess of (less than) projected
benefit obligation................................ $ 1,333 $ (2,975 ) $ 4,296 $ (1,492 )
Unrecorded net (gain) loss from past experience
different from that assumed and effect of changes
in assumptions.................................... 1,227 1,556 (2,041 ) 350
Unrecorded prior service cost....................... 2 -- 1 --
Unrecognized net (asset) at date of initial
application....................................... (1,554 ) (1,795 ) (1,249 ) (1,596 )
------------- ------------- ------------- -------------
Prepaid (accrued) pension costs..................... $ 1,008 $ (3,214 ) $ 1,007 $ (2,738 )
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The plans' assets include common stocks, fixed income securities, short-term
investments and cash. Common stock investments include approximately 479,000
shares of the Company's common stock.
35
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also has defined contribution retirement plans which cover
certain union employees. There are no prior service costs associated with these
plans. The Company follows the policy of funding retirement contributions under
these plans as accrued. Contributions to these plans for continuing operations
were $157,000 in 1991, $261,000 in 1992 and $252,000 in 1993.
The Company employees are also eligible to become participants in the Save
Money and Reduce Taxes (SMART) plan established in 1984 as a means of
supplementing other available profit-sharing and retirement plans. Under the
provisions of the SMART plan, voluntary deposits by employees (up to 6% of their
salaries) were matched by the Company on the basis of $1 for every $3 deposited.
A portion of the voluntary deposits and all of the matching funds were used by
the trustee of the plan to purchase the Company's Common Stock for the account
of the participating employees. The trustee is directed by each employee on how
to invest the portion of the employee's deposit which is not required by the
plan to be put toward the purchase of the Company's stock. These investment
alternatives include a money market fund, two mutual funds, a fixed income fund
and additional investment in the Company's stock. The Company's total
contribution under this plan amounted to approximately $428,000 in 1991 and
$365,000 in 1992. Effective January 1, 1993, the Company no longer matches any
portion of the employee contribution to the SMART plan. Under the revised
provisions of this plan, employees can no longer purchase Company stock with
their voluntary contributions. Employees may continue to invest their voluntary
contribution in any of the other investment alternatives noted above. As of
December 31, 1993, assets of the SMART plan include approximately 630,000 shares
of the Company's common stock.
During 1982, the Company instituted an Employee Stock Plan effective January
1, 1982. The noncontributory plan was instituted to provide long-term retirement
benefits for the Company's employees. All non-union employees not covered by
pension plans were covered under this plan. Company contributions ($760,000 in
1991 and $497,000 in 1992) were based upon a percentage of the earnings of the
employees covered by the plan. Effective January 1, 1993, the Company
discontinued contributions to the Employee Stock Plan.
At December 31, 1993, the Company provides medical benefits for retirees and
their spouses at one operating division and certain other individuals related to
several discontinued operations. Contributions are required of most retirees for
medical coverage. During 1993, the Company sold one division and shut down one
other division at which retiree medical benefits were provided prior to the sale
or shutdown. Effective January 1, 1992, the Company implemented on an immediate
recognition basis Statement of Financial Accounting Standards (SFAS) No.
106--Employers' Accounting for Postretirement Benefits Other Than Pensions. This
statement requires that the cost of these benefits, which are primarily for
health care, be recognized in the financial statements during the employee's
active working career. The Company's previous practice was to expense these net
costs as incurred. The transition effect of adopting SFAS No. 106 on an
immediate recognition basis as of January 1, 1992 resulted in a charge of
$1,739,000 ($.21 per common share) to 1992 operating results. The current
obligation was determined by application of the terms of the related medical
plans, including the effects of established maximums on covered costs, together
with relevant actuarial assumptions and health-care cost trend rates projected
at annual rates ranging ratably from 11.6% for retirees under age 65 (10.2% for
retirees age 65 and older) in 1994 to 6% over 33 years. The effect of a 1%
annual increase in these assumed cost trend rates would increase the accumulated
postretirement benefit obligation by approximately $74,000. The annual service
costs would not be materially affected. The total cost for all plans amounted to
$189,000 in 1992 and ($782,000) in 1993 (including a curtailment gain of
approximately $1,000,000 included in discontinued operations). In 1991, expenses
recorded for postretirement benefits were not significant as the majority of
actual costs to the Company for such benefits was offset by contributions from
the related employees.
36
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides information on the status of these plans as of
December 31, 1992 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and their dependents....................................... $ (586) $ (505)
Fully eligible active plan participants............................. (287) (19)
Active employees not fully eligible................................. (933) (423)
--------- ---------
Accumulated postretirement benefit obligation......................... $ (1,806) $ (947)
Plan assets........................................................... -- --
Unamortized plan amendments........................................... -- --
Unamortized net (gain) loss........................................... -- 55
--------- ---------
Accrued postretirement benefit costs.................................. $ (1,806) $ (892)
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit costs for 1992 and 1993 included the
following (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1992 1993
--------- ---------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Service cost........................................................... $ 55 $ 58
Interest cost.......................................................... 134 154
Amortization of unrecognized net loss.................................. -- 11
Curtailment (gain)..................................................... -- (1,000)
Settlement (gain)...................................................... -- (5)
--------- ---------
Net periodic postretirement benefit cost (benefit)..................... $ 189 $ (782)
--------- ---------
--------- ---------
</TABLE>
Measurement of the accumulated postretirement benefit obligation was based on a
discount rate of 7.5% in 1993 (8% in 1992).
During 1993, the Company provided $1,261,000 (included in "Other (income)
expenses, net" -- see Note 12) for deferred compensation related to the
retirement of certain executive officers of the Company.
10. ENVIRONMENTAL, LEGAL AND CONTINGENT LIABILITIES:
ENVIRONMENTAL MATTERS--
The Company's manufacturing plants generate both hazardous and nonhazardous
wastes, the treatment, storage, transportation and disposal of which are subject
to federal, state and local laws and regulations. The Company believes that its
manufacturing plants are in substantial compliance with the various federal,
state and local laws and regulations, and does not anticipate any material
expenditures to remain in compliance.
Under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended (CERCLA), and other statutes, the United States
Environmental Protection Agency (EPA) and the states have the authority to
impose liability on waste generators, site owners and operators, and others
regardless of fault or the legality of the original disposal activity.
Accordingly, the Company
37
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
has been named as a potentially responsible party (PRP), or may otherwise face
potential liability for environmental remediation or cleanup, in connection with
the sites described below that are in various stages of investigation or
remediation.
At one site, the Company is one of seven PRP's because of its apparent
ownership of four parcels of land from 1967 to 1969 which may have held part or
all of one or more settling ponds apparently operated by an adjacent business
from 1957 to 1973. The Company has already paid $85,000 as its share of a
settlement of an EPA demand for $415,000 in past response costs, and the EPA
currently seeks payment from the PRP's of an additional $572,000 in response
costs and has asked the PRP's to undertake the design and construction of the
remediation project. According to the EPA, the present value of the cost to
implement its preferred cleanup method is estimated to be $1,868,900.
Negotiations with the EPA and the other PRP's are ongoing.
Pursuant to a Consent Decree entered into in November 1991 with the EPA, the
Company has agreed to close and remediate a landfill leased by the Company and
formerly used for the disposal of spent foundry sands. The Company established a
reserve of $1,400,000 during 1990 and 1991 (of which approximately $500,000 for
remediation has been spent through December 31, 1993) which it believes is
adequate to cover the estimated cost of compliance with the Consent Decree.
The Company has also been named as a PRP, along with numerous parties, at
various hazardous waste sites undergoing cleanup or investigation for cleanup.
The Company believes that at each of these sites, it has been improperly named
or will be considered to be a "de minimis" party.
The Company is a defendant in two actions where a private party seeks
recovery of costs associated with an environmental cleanup at a site formerly
owned by the Company. At one site, which the Company or one of its subsidiaries
owned from 1968 until 1976, the plaintiff and current owner seeks to recover in
excess of $1,500,000 from the Company and other defendants. The Company has
denied liability and asserted a counter-claim against plaintiff and cross-claims
against the co-defendants. At the other site, which the Company owned from 1967
until 1978, the plaintiff, which owned the site from 1991 until 1993, seeks in
excess of $472,000 from the Company and other former owners and operators for
costs and damages allegedly incurred while cleaning up the property in
preparation for sale. The Company denies liability.
The Company is in the process of investigating the need to perform
environmental remediation or cleanup at certain manufacturing sites formerly
operated and still owned by the Company. At two of the sites, the Company has
determined that some remediation or cleanup will be required. The estimated cost
for such remediation or cleanup is not considered significant.
During 1991 and 1993 the Company made provisions of approximately $1,030,000
and $3,136,000, respectively, (no significant amounts in 1992) toward various
environmental matters discussed above. At December 31, 1993, the Company has
accruals, including those discussed above, of $4,354,000 for the estimated cost
to resolve its potential liability with the above and other, less significant,
matters. The above provisions and accruals exclude any potential recovery from
insurers or other third parties. The Company believes that the above accruals
are adequate for the resolution of known environmental matters.
JUSTICE DEPARTMENT INVESTIGATION--
Subsequent to the end of 1993, the Company was advised by the United States
Department of Justice that it intends to conduct an investigation into possible
improper payments made in connection with a foreign sale by the Company's Cooper
division in mid-1993. On August 5, 1993, the Company announced that a routine
internal audit had uncovered a diversion of $350,000 to an account opened by a
former employee of the Cooper division in Brady, Texas, and that up to $60,000
of
38
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
this sum may possibly constitute improper payments to a foreign government. At
that time, the Company voluntarily turned its findings over to the Department of
Justice. The Company intends to cooperate fully with the authorities in
resolving this matter.
OTHER--
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 December 31, 1993, the Company was contingently liable for approximately
$2,487,000 primarily relating to outstanding letters of credit.
11. OPERATIONS BY INDUSTRY SEGMENT:
The Company's operations involve a single industry segment, the
manufacturing and sale of agricultural and industrial machinery and other
products.
Approximately 4%, 6% and 8% of the Company's net sales from continuing
operations in 1991, 1992 and 1993, respectively, were exported. Approximately
two-thirds of the export sales in 1992 and 1993 were shipped to Mexico. In 1991,
more than 90% of the export sales were shipped to Canada. The remaining export
sales for these three years were shipped to various countries throughout the
world with no country other than Mexico and Canada being shipped more than 2% of
the net sales. Export sales consist primarily of agricultural equipment and
forming presses.
Approximately 3%, 24% and 25% of the Company's net sales from continuing
operations in 1991, 1992 and 1993, respectively, were derived from sales to the
three major U.S. automobile manufacturers.
12. SUMMARY OF OTHER INCOME (EXPENSE):
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest income............................................................. $ 2,197 $ 1,994 $ 1,832
Goodwill amortization....................................................... (2,067) (2,067) (2,067)
Loan cost expenses.......................................................... (1,654) (1,886) (988)
Rent income................................................................. 922 236 61
Environmental related expenses.............................................. -- (266) (1,486)
Net gain on sales of operating and non-operating assets..................... 90 397 462
Loss on loan guarantee to affiliated company................................ -- (1,098) --
Deferred compensation (Note 9).............................................. -- -- (1,261)
Litigation settlement....................................................... (850) -- (650)
Other miscellaneous......................................................... 189 (804) (517)
--------- --------- ---------
$ (1,173) $ (3,494) $ (4,614)
--------- --------- ---------
--------- --------- ---------
</TABLE>
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
See the Company's Proxy Statement incorporated by reference as part of this
Part III, under the caption "Proposal 1: Election of Directors" for information
with respect to the directors. In addition, see the information under the
caption "Executive Officers of the Company" as part of Part I, Item 1 of this
Report which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the captions "Management Compensation" and
"Functioning of the Board and Committees" for information with respect to
executive compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the captions "Outstanding Stock and Voting
Rights", "Beneficial Owners" and "Proposal 1: Election of Directors", for
information with respect to the ownership of certain beneficial owners of Common
Stock, Series B Variable Rate Cumulative Preferred Stock and $10.81 Series C
Cumulative Preferred Stock of the Company.
(b) Security Ownership of Management.
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the caption "Proposal 1: Election of
Directors" for information with respect to the beneficial ownership by
management of capital stock of the Company.
(c) Changes in Control.
There is no arrangement known to the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the captions "Proposal 1: Election of
Directors" and "Management Compensation" for information with respect to certain
relationships and related transactions with management.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Included in Part II of this report:
Report of Independent Accountants
Consolidated statements of income (loss) for the years ended December 31,
1991, 1992 and
1993
Consolidated balance sheets as of December 31, 1992 and 1993
Consolidated statements of cash flows for the years ended December 31,
1991,
1992 and 1993
Consolidated statements of shareholders' investment for the years ended
December 31, 1991,
1992 and 1993
Notes to consolidated financial statements
40
<PAGE>
(a) 2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule VIII--Allowance for losses in collection for the years ended
December 31, 1991,
1992 and 1993
Schedule X--Supplemental income statement information for the years ended
December 31,
1991, 1992 and 1993
(a) 3. EXHIBITS
The following exhibits are incorporated by reference as noted below:
<TABLE>
<S> <C>
3(a) The Registrant's Restated Certificate of Incorporation, as amended, is
incorporated by reference to Exhibit 3 of the Company's 1988 Annual Report
on Form 10-K (File No. 1-5530).
3(b) The Registrant's Amendments to Restated Certificate of Incorporation is
incorporated by reference to Exhibit 3 of the Company's 1990 Annual Report
on Form 10-K (File No. 1-5530).
3(c) The Registrant's By-Laws of the Company, as amended, are incorporated by
reference to Exhibit 3 of the Company's 1989 Annual Report on Form 10-K
(File No. 1-5530).
4(a) The Registrant's Certificate of Designation of a series of preferred stock as
Series B Variable Rate Cumulative Preferred Stock, as amended, is
incorporated by reference to Item 16, Exhibit 4.2 of the Company's
Registration Statement on Form S-1, Amendment No. 1 (Registration No.
33-4950).
4(b) The Registrant's Amendments to Certificate of Designation for Series B
Preferred Stock, are incorporated by reference to Exhibit 3(a) of the
Company's report on Form 8-K, dated February 10, 1993 (File No. 1-5530).
4(c) The Registrant's Series B Preferred Stock Agreement dated as of January 29,
1993 between Allied and the holder of Allied's Series B Preferred Stock is
incorporated by reference to Exhibit 4(a) of the Company's report on Form
8-K, dated February 10, 1993 (File No. 1-5530).
4(d) The Registrant's Form of Subordinated Note to be issued to Allied Series B
Preferred Stock holder is incorporated by reference to Exhibit 4(b) of the
Company's report on Form 8-K, dated February 10, 1993 (File No. 1-5530).
4(e) The Registrant's Certificate of Designation creating a series of preferred
stock as $10.81 Series C Cumulative Preferred Stock is incorporated by
reference to Exhibit 4 of the Company's report on Form 10-Q dated November
11, 1988 (File No. 1-5530).
4(f) The Registrant's Amendments of Certificate of Designation for Series C
Preferred Stock are incorporated by reference to Exhibit 3(b) of the
Company's report on Form 8-K dated February 10, 1993 (File No. 1-5530).
4(g) The Registrant's Series C Preferred Stock Agreement dated as of January 29,
1993 between Allied and the holders of Allied's Series C Preferred Stock is
incorporated by reference to Exhibit 4(c) of the Company's report on Form
8-K dated February 10, 1993 (File No. 1-5530).
4(h) The Registrant's Form of Subordinated Note issued to holders of Allied's
Series C Preferred Stock is incorporated by reference to Exhibit 4(d) of the
Company's report on Form 8-K, dated February 10, 1993 (File No. 1-5530).
4(i) The Registrant's Form of Amended and Restated Subordinated Note dated August
28, 1990 which are a part of a group of notes with the same terms and the
same date in the aggregate principal amount of $1,105,769 is incorporated by
reference to Exhibit 4(e) of the Company's report on Form 8-K dated February
10, 1993 (File No. 1-5530).
4(j) The Registrant's Form of Restated and Amended Subordinated Note dated
September 6, 1985 which is a part of a group of notes having the same terms
and same date in the aggregate principal amount of $733,000 is incorporated
by reference to Exhibit 4(f) of the Company's report on Form 8-K dated
February 10, 1993 (File No. 1-5530).
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
10(a) The Registrant's Credit and Debt Restructuring Agreement dated as of January
22, 1990 among Allied, Continental Bank N.A., as Agent, and the Lenders
named therein is incorporated by reference to Exhibit 10(a) of the Company's
report on Form 8-K dated February 6, 1990 (File No. 1-5530).
10(b) The Registrant's Amended and Restated Credit and Debt Restructuring Agreement
dated as of January 28, 1993 among Allied, Continental Bank N.A., as Agent,
and the Lenders named therein is incorporated by reference to Exhibit 10(a)
of the Company's report on Form 8-K dated February 10, 1993 (File No.
1-5530).
10(c) The Registrant's Credit Agreement dated as of January 28, 1993 among Verson
Corporation, Continental Bank N.A., as Agent, and the lenders named therein
is incorporated by reference to Exhibit 10(b) of the Company's report on
Form 8-K dated February 10, 1993 (File No. 1-5530).
10(d) The Registrant's Intercompany Service Agreement dated as of January 29, 1993
between Allied and Verson Corporation is incorporated by reference to
Exhibit 10(c) of the Company's report on Form 8-K dated February 10, 1993
(File No. 1-5530).
10(e) The Registrant's Tax Sharing Agreement dated as of January 29, 1993 between
Allied and Verson Corporation is incorporated by reference to Exhibit 10(d)
of the Company's report on Form 8-K dated February 10, 1993 (File No.
1-5530).
10(f) The Registrant's Accounts Financing Agreement dated as of January 29, 1993
between Congress Financial Corporation (Southern) and Bush Hog Corporation
is incorporated by reference to Exhibit 10(e) of the Company's report on
Form 8-K dated February 10, 1993 (File No. 1-5530).
10(g) The Registrant's Letter Agreement dated as of January 29, 1993 between Bush
Hog Corporation and Congress Financial Corporation (Southern) entitled
"Additional Representations, Covenants and Other Terms -- Supplement to
Accounts Financing Agreement . . ." is incorporated by reference to Exhibit
10(f) of the Company's report on Form 8-K dated February 10, 1993 (File No.
1-5530).
10(h) The Registrant's Letter Agreement dated as of January 29, 1993 between Bush
Hog Corporation and Congress Financial Corporation (Southern) regarding
Inventory Loans is incorporated by reference to Exhibit 10(g) of the
Company's report on Form 8-K dated February 10, 1993 (File No. 1-5530).
10(i) The Registrant's Intercompany Service Agreement dated as of January 29, 1993
between Allied and Bush Hog Corporation is incorporated by reference to
Exhibit 10(h) of the Company's report on Form 8-K dated February 10, 1993
(File No. 1-5530).
10(j) The Registrant's Tax Sharing Agreement dated as of January 29, 1993 between
Allied and Bush Hog Corporation is incorporated by reference to Exhibit
10(i) of the Company's report on Form 8-K dated February 10, 1993 (File No.
1-5530).
10(k) The Registrant's 1977 Incentive Stock Plan is incorporated by reference to
Exhibit 10(a) of the Company's 1980 Annual Report on Form 10-K (File No.
1-5530).
10(l) The Registrant's SMART Plan is incorporated by reference to Exhibit 10(d) of
the Company's 1984 Annual Report on Form 10-K (File No. 1-5530).
10(m) The Registrant's 1990 Long-Term Incentive Stock Plan is incorporated by
reference to Exhibit 10 of the Company's 1991 Annual Report on Form 10-K
(File No. 1-5530).
10(n) The Registrant's Agreement for the sale of the assets of the White-New Idea
Farm Equipment Division of Allied Products Corporation is incorporated by
reference to Exhibit (c)(2)(w)(i) of the Company's report on Form 8-K dated
January 14, 1994 (File No. 1-5530).
10(o) The Registrant's Credit Agreement dated as of March 17, 1994 among Allied
Products Corporation, the Banks Named Herein and Continental Bank N.A.,
individually and as agent is incorporated by reference to Exhibit 10(i) of
the Company's report on Form 8-K dated April 8, 1994 (File No. 1-5530).
</TABLE>
42
<PAGE>
The following exhibits are attached only to the copies of this report filed
with the Securities and Exchange Commission:
<TABLE>
<C> <S>
EXHIBIT NO. NAME OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------
22 Subsidiaries of the Registrant.
24 Consent of Independent Accountants.
25 Powers of Attorney.
</TABLE>
Reference is made to Note 1 of Notes to Consolidated Financial Statements
regarding the computation of earnings per share. Other financial statements,
schedules and exhibits not included above have been omitted as inapplicable or
because the required information is included in the consolidated financial
statements or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of the year ended December 31, 1993.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--ALLOWANCE FOR LOSSES IN COLLECTION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1991 1992 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year............... $ 2,937 $ 3,108 $ 2,914
Add (deduct)--
Provision charged to income.............. 1,220 1,346 229
Receivables charged off as bad debts, net
of recoveries........................... (1,049) (1,540) (1,147)
--------- --------- ---------
Balance at end of year..................... $ 3,108 $ 2,914 $ 1,996
--------- --------- ---------
--------- --------- ---------
</TABLE>
SCHEDULE X--SUPPLEMENTAL INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1991 1992 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs......... $ 7,487 $ 6,110 $ 4,705
</TABLE>
Taxes (other than payroll and income taxes), royalty, advertising, and
amortization of intangible assets or operating costs are not set forth above as
such costs and expenses individually did not exceed one percent of net sales in
the applicable years.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
RICHARD A. DREXLER
BY:
------------------------------------------
RICHARD A. DREXLER, CHAIRMAN,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: April 13, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
* [RICHARD A. DREXLER]
----------------------------------------------
Richard A. Drexler, CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER; DIRECTOR
* [JAMES J. HAYDEN]
----------------------------------------------
James J. Hayden, EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER; DIRECTOR
* [ROBERT J. FLECK]
----------------------------------------------
Robert J. Fleck, VICE PRESIDENT
--ACCOUNTING AND CHIEF
ACCOUNTING OFFICER
April 13, 1994
* [KENNETH B. LIGHT]
----------------------------------------------
Kenneth B. Light, EXECUTIVE VICE PRESIDENT,
CHIEF ADMINISTRATIVE OFFICER AND SECRETARY;
DIRECTOR
* [LLOYD DREXLER]
----------------------------------------------
Lloyd Drexler,
DIRECTOR
* [WILLIAM D. FISCHER]
----------------------------------------------
William D. Fischer,
DIRECTOR
* [STANLEY J. GOLDRING]
----------------------------------------------
Stanley J. Goldring,
DIRECTOR
* [JOHN E. JONES]
----------------------------------------------
John E. Jones,
DIRECTOR
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C>
* [JOHN W. PUTH]
----------------------------------------------
John W. Puth,
DIRECTOR
* [S. S. SHERMAN]
----------------------------------------------
S. S. Sherman,
DIRECTOR
* By: [KENNETH B. LIGHT]
-------------------------------------------
Kenneth B. Light,
ATTORNEY-IN-FACT
</TABLE>
45
<PAGE>
EXHIBIT 22
<TABLE>
<CAPTION>
State or Other % of
Jurisdiction Securities
in which Owned by
Subsidiaries of Registrant (2) Incorporated Registrant
- -------------------------------------------------------------------------------
<S> <C> <C>
Allied Products Finance Corporation Delaware 100% (1)
Aurora Corporation of Illinois....... Illinois 100% (1)
Allied Products Financial Services
Corporation..................... Delaware 100% (1)
Bush Hog Corporation................. Delaware 100% (1)(3)
Coz Corporation...................... Delaware 100% (1)(3)
Verson Corporation................... Delaware 100% (1)(3)
<FN>
(1) Subsidiary included in consolidated financial statements.
(2) Unnamed subsidiaries considered in the aggregate do not
constitute a significant subsidiary.
(3) Effective March 18, 1994 these subsidiaries were dissolved
</TABLE>
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Allied Products
Corporation registration statement (File No. 33-60058) on Form S-8 of our
report dated April 13, 1994, on our audits of the consolidated financial
statements and financial statement schedules of Allied Products Corporation
and consolidated subsidiaries as of December 31, 1992 and 1993 and for each
of the three years in the period ended December 31, 1993, which report is
included in this 1993 Annual Report of Form 10-K.
Coopers & Lybrand
Chicago, Illinois
April 13, 1994
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
WHEREAS, ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein
referred to as the "Company"), is about to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, its annual report on Form 10-K for the year ended December 31, 1993 and
WHEREAS, each of the undersigned holds the office or offices in the Company
hereinbelow set opposite his name, respectively;
NOW THEREFORE, each of the undersigned hereby constitutes and appoints
KENNETH B. LIGHT and DAVID B. CORWINE, and each of them individually, his
attorney, with full power to act for him and in his name, place and stead, to
sign his name in the capacity or capacities set forth below to said Form 10-K
and to any and all amendments thereto, and hereby ratifies and confirms all said
attorney may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 31st
day of March, 1993.
Richard A. Drexler, Chairman of
the Board, President and Chief Richard A. Drexler
Executive Officer; Director ---------------------
James J. Hayden, Executive Vice
President and Chief Financial James J. Hayden
Officer; Director ---------------------
Kenneth B. Light, Executive Vice
President and Chief Administrative Kenneth B. Light
Officer; Director ---------------------
Robert J. Fleck, Vice President -
Accounting and Chief Accounting Robert J. Fleck
Officer ---------------------
Lloyd Drexler, Director Lloyd Drexler
---------------------
William D. Fischer, Director William D. Fischer
---------------------
Stanley J. Goldring, Director Stanley J. Goldring
---------------------
John E. Jones, Director John E. Jones
---------------------
John W. Puth, Director John W. Puth
---------------------
S. S. Sherman, Director S. S. Sherman
---------------------
