<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1995
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 29, 1996, 9,364,844 shares of common 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) held by nonaffiliates of the Company was
approximately $195,807,000. 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 23, 1996 and
Annual Report to security holders for the year ended December 31, 1995 are
incorporated by reference in Part III and Part IV herein.
The Exhibit Index is located on page 40.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Allied Products Corporation (Company) 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.
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 reflecting the sale or closure of several operating divisions. This
restructuring of the Company, which began in 1991, was completed in 1994 with
the sale of the Cooper division. Reference is made to Note 3 of Notes to
Consolidated Financial Statements for a more complete description of these
closures and dispositions.
Approximately 11%, 2% and 8% of the Company's net sales from continuing
operations in 1995, 1994 and 1993, respectively, were exported.
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.
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. The use season for rotary cutters extends from early spring
to late fall, and even longer in warmer climates. Bush Hog has a major market
share (38%) 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 32% of the market. The use season for peanut combines is from late
summer to late fall.
Several other implements are sold under the Bush Hog name, including disc
mowers, 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.
Implements tend to have a shorter life than tractors and self-propelled
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 1995.
In order 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.
Marketing and sales activities in Canada and the United States are carried
out by 58 commissioned manufacturers' representatives or representative
organizations. They operate as independent contractors and, 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 the dealership.
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. Bush Hog's objective is to be a low cost producer of
high quality products. To do this it must continue to modernize its facilities
to improve efficiency.
2
<PAGE>
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 that 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.
Higher worldwide demand for agricultural commodities, coupled with lower
than expected 1995 harvest yields, have resulted in substantially higher
commodity prices. According to recent estimates by the United States Department
of Agriculture, world grain inventories are at historically low levels, and
exports are projected to increase again in 1996.
Net farm income in 1995 was less than in 1994 due to lower yields and a
decline in beef cattle prices. Beef cattle prices will remain low due to
excessive inventories, and little improvement is expected in 1996. Overall, net
farm income is projected to increase in 1996, as additional acres will be
planted due to changes in government programs.
METAL FORMING PRESSES
PRODUCTS. The Verson division manufactures a broad line of both medium and
large technologically advanced mechanical and hydraulic metal 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
that combines a series of operations by transferring a work piece from one
station to another inside of a single press. Each station in the press has a
separate die that 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. Size categories for transfer presses range from "A" (largest) to "D"
(smallest). An "A" transfer press is generally 13 to 15 feet wide, 80 to 90 feet
long and stands four stories tall. By comparison, a "B" transfer press is
approximately 10 feet wide, 60 feet long and four stories tall. The difference
between these machines is the component part size they can stamp. An "A"
transfer press may sell for in excess of $25 million.
Approximately 15% 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 Vice President of
Marketing and Sales, with responsibility for all Verson products and services.
Three Sales Managers, reporting to the Vice President, are responsible for press
sales, tooling sales, and press rebuilding and contract services, respectively.
Verson's major customers are the U.S. automobile manufacturers (both U.S.
and Japanese owned) and first and second tier automotive parts producing
companies, which, on average, account for the largest part of Verson's annual
revenue. Verson's other major market served is the appliance industry and
customers include all major brand names.
Verson is the technology leader, having designed the world's first transfer
press in 1939, the world's first electronic feed in 1981 and, most recently, 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. Verson is now the
only American owned company competing in this upper end segment. Principal
competition comes from German and Japanese manufacturers. Press manufacturers
compete on the basis of technology, capability, reliability and price. The
larger presses are huge pieces of machinery standing more than three stories
tall and weighing up to 2,000 tons. Consequently, the barriers to entry for new
competitors are very difficult to overcome due to required capital.
INDUSTRY. Domestic automobile manufacturers 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.
Demand
3
<PAGE>
from the appliance industry remains strong as the major manufacturers seek to
increase capacity, reduce costs and gear up to produce water conserving clothes
washers.
The Verson division of Allied Products is in a strong position to capitalize
on major retooling and modernization programs as they come on stream. 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. In response to
these market factors and an unprecedented incoming order rate in 1994, the
Verson division completed a 40,000 square foot expansion of its assembly
facilities. This addition has significantly expanded the division's capacity for
manufacturing large transfer presses.
THERMOPLASTIC RESINS
PRODUCTS AND SERVICES. The Coz division 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, including 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, heat resistance, fire retardancy, etc.
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. 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, including compounding, color and additives,
concentrates, toll processing customers' materials, reprocessing scrap
materials, and brokering both prime and off-spec materials.
Over its 35-year business life, Coz has developed significant technical
capabilities supported by excellent laboratory and production equipment. As a
result, Coz is positioned as a high-end co-developer for special customer
applications.
INDUSTRY. The thermoplastic compounding industry sales approximate $5
billion and are 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 as of December 31, 1995 was $173,361,000 compared to
$176,403,000 at December 31, 1994. Over 90% of the backlog orders will be filled
prior to the end of 1996.
EMPLOYEES
Allied Products currently employs approximately 1,600 individuals.
Approximately 29% of Allied Products' employees are represented by unions.
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
1995, the materials needed by Allied Products generally have 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
4
<PAGE>
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 29% of total consolidated sales from
continuing operations in 1995. Approximately 14% and 25% of Allied Products'
consolidated net sales from continuing operations in 1994 and 1993,
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 affected 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 February 29, 1996.
<TABLE>
<CAPTION>
NAME POSITION WITH ALLIED PRODUCTS AGE
- --------------------------------------------- ----------------------------------------------------------------- ---
<S> <C> <C>
Richard A. Drexler........................... Chairman, President and Chief Executive Officer 48
Kenneth B. Light............................. Executive Vice President, Chief Financial and Administrative
Officer 63
Martin A. German............................. Senior Vice President 59
Bobby M. Middlebrooks........................ Senior Vice President 60
David B. Corwine............................. Vice President, General Counsel and Secretary 58
Robert J. Fleck.............................. Vice President-Accounting and Chief Accounting Officer 48
Patrick J. Riley............................. Vice President and Treasurer 60
</TABLE>
No family relationships exist among the executive officers.
Each executive officer, except Mr. German, has been employed by Allied
Products for over 10 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. Light, who became Chief Financial Officer in 1995, has been Executive
Vice President and Chief Administrative Officer since 1982 and has also served
as Secretary from 1972 to 1995. 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 to 1991. 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 was Vice
President of Allied Products from 1984 to 1985 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. Corwine was elected Vice President, General Counsel and Secretary in
1995. From 1980 to 1995, he was General Counsel and Assistant Secretary, and
prior to that he was Director of the Corporate Law Department and Assistant
Secretary. Prior to joining Allied Products in 1979, he was General Attorney for
Santa Fe Industries, Inc.
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 warehouse 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 (one of which is 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 400,000 square feet. Operations at the Coz
division are conducted in Northbridge, Massachusetts in a leased facility
containing approximately 231,000 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 END OF
1995 OF YEAR YEAR 1995 QTR HIGH LOW DIVIDEND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common $14 3/8 $24 1 $17 1/8 $13 3/8 $--
- -----------------------------------------------------------------------------------------------------
2 19 7/8 16 3/4 .025
- -----------------------------------------------------------------------------------------------------
3 23 1/4 18 3/4 .025
- -----------------------------------------------------------------------------------------------------
4 24 1/8 20 1/8 .025
- -----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
BEGINNING END OF
1994 OF YEAR YEAR 1994 QTR HIGH LOW DIVIDEND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common $12 1/2 $14 3/8 1 $17 3/8 $12 5/8 $--
- -----------------------------------------------------------------------------------------------------
2 15 12 1/4 --
- -----------------------------------------------------------------------------------------------------
3 14 7/8 12 1/2 --
- -----------------------------------------------------------------------------------------------------
4 15 1/8 12 --
- -----------------------------------------------------------------------------------------------------
</TABLE>
As of February 12, 1996, the approximate number of holders of record of the
Company's common stock ($.01 par value) was 2,400.
The Company paid no dividends from 1982 until 1995. Restrictions from paying
dividends were removed in 1995. Subsequent to the end of 1995, the Company
increased its quarterly dividend from $.025 per share to $.05 per share.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales from continuing operations (A).......... $260,861,000 $215,529,000 $217,988,000 $195,341,000 $159,023,000
Income (loss) from continuing operations (A)...... $ 33,989,000 $ 19,687,000 $ 5,951,000 $ 1,774,000(B) $ (4,500,000)
Earnings (loss) per common share from continuing
operations (A).................................. $3.48 $1.96 $.43 $(.08)(B) $(1.12)
Total assets...................................... $166,743,000 $150,555,000 $192,040,000 $284,612,000 $326,702,000
Long-term debt (including capitalized leases and
redeemable preferred stock)..................... $ 315,000 $ 12,130,000 $ 23,522,000 $117,833,000 $ 37,799,000
Cash dividend declared per common share........... $.075 $-- $-- $-- $--
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(A) Restated prior to 1993 to reflect the effects of discontinued operations.
(B) 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>
8
<PAGE>
ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OPERATING RESULTS
Reference is made to Note 3 of Notes to Consolidated Financial Statements
regarding the sale/shutdown and restructuring of operations prior to the end of
1994.
During 1993, the Company sold the Smith Energy Services and White-New Idea
Farm Equipment divisions for cash. The Company also closed down and liquidated
the R/B Die & Prototype, International Agro, Kewanee Farm Equipment and Charles
City Foundry and Machining operations during 1993. During 1994, the Company sold
the business and certain assets of the Cooper division. The Company has included
the results of these operations and, in the years prior to 1994, an allocation
of financing costs, administrative and interest expenses and related
restructuring cost provisions under the caption "Discontinued operations (net of
tax)--Income from operations" in the accompanying Consolidated Statements of
Income.
1995 COMPARED TO 1994
Net sales from continuing operations in 1995 increased 21% to $260,861,000
compared to net sales from continuing operations of $215,529,000 in 1994. Income
before taxes from continuing operations was $18,330,000 in 1995 compared to
$20,564,000 in 1994. Excluding the effects of a $7,699,000 reserve for a long-
term receivable in 1995 (see Note 10 of Notes to Consolidated Financial
Statements), income before taxes from continuing operations would have been
$26,029,000, an increase of over 26% from the prior year. Net income in 1995 was
$33,989,000 compared to net income of $14,333,000 reported in 1994. Excluding
the effects of the above mentioned reserve and the income statement effect from
a reduction in the valuation allowance associated with the Company's net
deferred tax asset (see Note 4 of Notes to Consolidated Financial Statements),
net income would have been $25,040,000 in 1995.
Net sales at the Bush Hog division decreased by approximately 2% in 1995
compared to 1994. The majority of the decrease was associated with the disc
mower and peanut combine product lines. During 1995, portions of the Midwest
were affected by spring floods, resulting in lower crop plantings. In the
southern portion of the country, extreme drought and insect infestation affected
the cotton, corn and peanut crop. Cattle prices dropped during 1995 affecting
the sales of larger cutters at the Bush Hog division. Cattle ranchers use these
large cutters for grazing pasture maintenance. Decreases in sales noted above
were partially offset by the effects of new products introduced in the current
year. Gross profits and gross profit margins decreased in 1995 compared to 1994.
The decreases were primarily related to the effects of decreased labor
efficiencies and the mix of products sold. New product sales in the current year
were generally not manufactured by the Bush Hog division but were purchased from
outside sources under OEM (original equipment manufacturing) agreements,
resulting in lower gross profit margins. Lower sales volume noted above also
resulted in lower gross profits.
At the Verson division, net sales increased by almost 60% in 1995 compared
to the net sales level of 1994. During 1995, production began on an order for
three "A" size transfer presses. The total value of the order was in excess of
$85,000,000. Production and shipment of these presses will be completed in 1996.
Revenues and profits are recognized on a percentage of completion basis for
press production at the Verson division. Production on other press orders as
well as parts sales also increased in 1995. Although profit margins decreased in
1995, gross profits increased, principally the result of increased production
(sales) volume noted above. Gross profit margins decreased slightly in relation
to press sales due to a mix of presses manufactured in 1995 compared to 1994.
Margins on parts sales also decreased in 1995. Some parts business was
subcontracted out in 1995 due to manufacturing requirements associated with the
"A" presses. Warranty provisions increased in 1995 due to the increase in sales
volume. Provisions for warranty in 1994 included the reversal of excess
provisions in the prior year.
Net sales at the Coz division increased 11% in 1995 compared to net sales of
the prior year. The majority of the increase was associated with increased sale
prices in the current year. During 1994 and the first half of 1995, the price of
basic raw materials increased significantly. Sales prices were adjusted to
partially offset the effect of these cost increases. In the last half of 1995,
raw material prices decreased. Gross profits increased slightly in 1995 compared
to 1994, principally from the effects of increased sales as noted above. Gross
profit margins decreased slightly in the current year due to the mix of products
sold and the difficulty in passing on material cost increases to customers.
Manufacturing costs increased in 1995 due to a slight increase in employment
levels and normal cost increases in labor, rent and supplies.
Selling and administrative expenses were $34,452,000 (13.2% of net sales
from continuing operations) in 1995 compared to $31,072,000 (14.4% of net sales
from continuing operations) in 1994. In terms of actual dollars, selling
expenses increased slightly in 1995. Increased costs at the Verson division
associated
9
<PAGE>
with increased sales efforts were partially offset by decreased costs at the
Bush Hog division related to changes within the commission structure at this
operation. The increases in administrative expenses relate primarily to
provisions ($932,000) for the new Target Benefit pension plan (effective January
1, 1995) and expenses totaling approximately $1,500,000 related to the
termination/retirement of certain individuals. Normal cost increases (salaries,
rent, utilities, insurance, etc.) also impacted both selling and administrative
costs in 1995.
The decrease in interest expense ($1,052,000 in 1995 compared to $1,859,000
in 1994) was directly related to reduced borrowing levels in the current year.
In March 1994, the Company terminated certain financing arrangements and
replaced them with a Revolving Credit Agreement. This agreement was amended in
the first quarter of 1995 providing for reduced interest rates. Borrowing levels
have been reduced due to the improved internal cash flow of the Company from its
continuing operations.
Other expense was $7,483,000 in 1995 compared to other expense of $1,198,000
in 1994. Reference is made to Note 12 of Notes to Consolidated Financial
Statements for an analysis of other (income) expense in 1995 and 1994.
Reference is made to Note 4 of Notes to Consolidated Financial Statements
for an explanation of the current and deferred provision (credit) for income
taxes in 1995 and 1994.
1994 COMPARED TO 1993
Net sales from continuing operations in 1994 were $215,529,000 compared to
net sales from continuing operations of $217,988,000 for the prior year. Income
from continuing operations in 1994 was $19,687,000 compared to income from
continuing operations of $5,951,000 reported in 1993. Net income in 1994 was
$14,333,000 compared to net income of $15,284,000 reported in 1993.
Net sales at the Bush Hog division increased by over 11% in 1994 compared to
1993. The most significant increases in net sales occurred within the loader and
disc mower product lines in 1994. In general, the agricultural equipment
industry experienced improvement over the prior year due to a number of factors.
The year of 1994 was a record year for corn, soybean and cotton production.
Planted acreage also increased in 1994 over 1993 levels. The most significant
increase in net sales at the Bush Hog division was within the loader product
line. The overall market for the front end loaders increased this past year. The
division manufactures adaptor kits so that loaders can be mounted on more than
1200 different tractor models. Disc mower and parts sales also increased in
1994. These increases were partially offset by decreased rotary cutter sales.
This decrease was primarily related to the effects of lower cattle prices. Gross
profits and gross profit margins improved in 1994 at the Bush Hog division.
Approximately 60% of the increase in gross profits was directly related to the
increased sales volume as discussed above. The effects of sales price increases
during 1994 resulted in improved margins and increased gross profits. On an
overall basis, manufacturing variances increased slightly in 1994. Increases in
direct manufacturing inefficiencies (resulting from increased facility
utilization and late receipt of purchased components) were mostly offset by the
effects of manufacturing cost reductions and decreased warranty claims in 1994.
At the Verson division, net sales decreased by approximately 17% in 1994
compared to 1993. In late 1991, the division had received a large press order.
During 1993, production was completed on this order. Orders for production in
1994 to replace the work completed did not materialize in sufficient amounts.
During the last half of 1994 and the early part of 1995, the division received a
significant number of new press orders, including orders for three "A" size
transfer presses with a sales value of over $85,000,000. While gross profits
remained approximately equal to those of the prior year, gross profit margins
improved in 1994. The increase was the result of several factors, including
improved margins on parts sales (prices were increased in the early part of
1994), improved mix of products sold and lower warranty expenses.
Net sales at the Coz division increased by approximately 6% in 1994 compared
to 1993. Processed compounds represent the largest product line increase due to
expansion of the customer base and increased selling prices. Gross profits at
the Coz division increased, due primarily to the effect of increased selling
prices and, to a lesser extent, the mix of products sold. Partially offsetting
this increase was the effect of increased material costs in 1994. Prices of
certain raw materials increased significantly during the past year. Selling
prices were increased to offset these cost increases. Prices continued to
escalate in the early part of 1995. Shipping costs also increased in 1994 due to
the effects of increased sales volume and increased shipping container costs.
Utility expenses increased in 1994 due to additional space being leased for
offices with the old office space now being utilized for manufacturing purposes.
Gross profit margins of the Coz division remained constant in 1994 compared to
1993.
10
<PAGE>
Selling and administrative expenses decreased to $31,072,000 (14.4% of net
sales from continuing operations) from $31,427,000 (also 14.4% of net sales from
continuing operations) in 1993. On an overall basis, selling expenses increased
in 1994 compared to 1993. The most significant increase was related to
commissions, primarily at the Bush Hog division where sales increased in 1994.
The Coz division increased the employment level of its sales force in 1994
resulting in increased costs. These increases were offset by lower commission
expenses at the Verson division as this operation is phasing out the use of
commissioned brokers in the sale of presses. The increase in selling expenses
was more than offset by lower administrative expenses, primarily in the areas of
professional fees and insurance costs. Office related costs were also reduced
with the relocation of the Corporate Office during 1994. Staffing levels were
reduced from 1993 levels. These decreases were partially offset by a provision
of $450,000 as a supplemental contribution to the SMART pension plan, a $400,000
provision for the new Executive Retirement Plan and other normal increases
experienced in operations throughout the Company.
The decrease in interest expenses ($1,859,000 for 1994 compared to
$6,376,000 in 1993 after an allocation to discontinued operations) was directly
related to a significantly reduced borrowing level and the effects of lower
average interest rates associated with outstanding debt in 1994.
Other expense in 1994 was $1,198,000 compared to $4,614,000 in 1993.
Reference is made to Note 12 of Notes to Consolidated Financial Statements for
an analysis of other (income) expense in 1994 and 1993.
Loss from discontinued operations totaled $5,354,000 in 1994. Approximately
half of the loss was related to the operating results of the Cooper division
which was sold at the end of the second quarter following the termination of a
proposed sale earlier in the year. Other significant items included
environmental related issues (see Note 10 of Notes to Consolidated Financial
Statements) and insurance costs associated with discontinued operations, and the
final settlement of the disposition of the White-New Idea operation (see Note 3
of Notes to Consolidated Financial Statements).
FINANCIAL CONDITION
1995
Working capital at December 31, 1995 was $54,947,000 and the current ratio
was 1.84 to 1.0. Net accounts receivable decreased by approximately $2,000,000
in 1995. The majority of the decrease was related to the Verson division.
Receivables at this division are a function of shipments (revenues recognized on
a percentage of completion basis are accumulated in inventory). Press shipments
in the last few months of 1995 decreased compared to the end of the prior year.
This decrease was partially offset by the effects of increased receivables at
the Bush Hog division. The increase reflects decreased retail sales of large
cutters and peanut combines due to market conditions described earlier. On a
consolidated basis, inventory levels increased by approximately $4,000,000 in
1995. The entire increase was related to the Verson division where production
continues on an order for three "A" size transfer presses discussed earlier. A
portion of the increase in accumulated costs of presses in progress has been
offset by increased customer deposits and progress payments related to the
contracts in process. Inventories at the Bush Hog and Coz divisions decreased in
1995.
Major fixed asset additions in 1995 include building additions at the Verson
division (primarily to expand the press assembly area) and a new paint system at
the Bush Hog division. Other fixed asset additions at all divisions were for
equipment to improve productivity and quality in the products manufactured.
Funds to finance these additions include current operating cash flow and
borrowings (subsequently repaid) under the Revolving Credit Agreement. During
1995, the Company sold for cash certain idle facilities and other operating and
nonoperating assets which resulted in gains of approximately $2,000,000.
The decrease in notes receivable due after one year was related to a reserve
of $7,699,000 established in 1995 for the remaining unreserved amount due the
Company from the sale of an operation in 1991. See Note 10 of Notes to
Consolidated Financial Statements.
The deferred tax asset results from the reversal of the valuation allowance
associated with certain net operating loss carryforwards, tax credits and timing
differences in 1995. The recent earnings history of the Company and prospects
for the future makes it more likely than not that the Company will utilize the
benefits arising from the items noted above. See Note 4 of Notes to Consolidated
Financial Statements.
Borrowings under the Revolving Credit Agreement at the end of 1995 were
primarily related to the "A" size transfer presses in production at the Verson
division and the normal seasonal needs at the Bush Hog division associated with
inventory build schedules prior to the spring selling season.
During 1995, the Company retired all outstanding Series B and C preferred
shares through the use of internally generated funds.
11
<PAGE>
1994
Working capital at December 31, 1994 was $33,531,000 and the current ratio
was 1.53 to 1.0. Net accounts receivable increased by almost $2,000,000 in 1994.
The majority of the increase was related to the Bush Hog division where sales
increased in 1994 as noted above. Coz division receivables also increased at the
end of 1994. This increase was associated primarily with strong sales in the
fourth quarter of 1994. Receivables at the end of 1994 also included a
short-term secured note taken by the Company as part of the proceeds from the
sale of the Cooper division. This note was paid in full subsequent to the end of
1994. These increases were partially offset by the effects of lower press
shipments at the Verson division in 1994 and the effects of the disposition of
the Cooper division.
On a consolidated basis, inventories increased by approximately $3,700,000
at the end of 1994 compared to the end of 1993. The majority of the increase was
related to the Bush Hog division. Production was increased in the fourth quarter
of 1994 to avoid capacity limitations in the first half of 1995. Coz inventory
levels also increased due to increased orders and the effects of increased
material prices. These increases were offset partially by the effects of the
sale of the Cooper division and lower net inventory levels at the Verson
division due to the effects of increased customer deposits for jobs in progress.
Fixed asset additions of $7,072,000 were financed primarily through
internally generated funds.
The increase in payables and borrowings under the Revolving Credit Agreement
at the end of 1994 reflects the effects of increased production at all operating
divisions of the Company. Reference is made to Note 2 of Notes to Consolidated
Financial Statements for an analysis of accrued expenses.
LIQUIDITY AND CAPITAL RESOURCES
At the end of 1995, the Company's sales backlog was in excess of
$173,000,000. The majority of the amount is related to the Verson division and
is represented principally by orders for new presses. Accumulated production
costs are not invoiced until shipment. In order to fund the cost of production,
the Verson division receives deposits from customers at the time the press order
is accepted. Many press orders also require periodic progress payments from the
customer during the production process, which minimizes the Company's cash
requirements during the manufacturing cycle.
At the Bush Hog division, cash collections associated with machine sales
generally are dependant 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. With the exception of the
cattle industry, the overall farm economy is sound. It is anticipated that farm
cash income will be up slightly in 1995 and will increase in 1996 due to higher
crop prices, increased demand and more acres being planted. Debate on a new farm
bill continues in Congress.
As discussed earlier, the Company completed major fixed asset additions
during 1995. These additions were financed through the use of internally
generated funds and borrowings under the Revolving Credit Agreement. The Company
currently has no major commitments for fixed asset additions.
As noted above, the Company reversed its previous valuation allowance
associated with certain net operating loss carryforwards, tax credits and timing
differences. In years subsequent to 1995, the Company will be recording a tax
provision based principally upon the Federal statutory rate in effect and
anticipates no reductions in future tax provisions from additional tax credits
at this time. However, the Company projects that future Federal income tax
payments will be based upon the Alternative Minimum Tax rate as the Company
continues to utilize its substantial tax loss carryforwards for tax reporting
purposes.
Reference is made to Note 10 of Notes to Consolidated Financial Statements
for a current discussion on outstanding environmental and legal issues and other
contingent liabilities.
As of December 31, 1995, the Company had cash and cash equivalents of
$744,000 and additional funds of $23,800,000 available under its Revolving
Credit Agreement. The Company believes that its expected operating cash flow and
funds available under its Revolving Credit Agreement are adequate to finance its
operations and capital expenditures in the near future. During 1995 the Company
has been in compliance with all provisions of loan agreements in effect.
Subsequent to the end of 1995, the Company issued 211,500 new common shares
to certain officers of the Company for the exercise of stock options previously
issued. The Company repurchased these shares from the officers for treasury
stock purposes. The Company's Board of Directors also authorized the purchase by
the Company of up to an additional 250,000 shares of the Company's common stock
from time to time on the open market, subject to prevailing market conditions.
On February 2, 1996, the Company announced an increase in the quarterly
dividend from $.025 per share
12
<PAGE>
to $.05 per share, effective with the first quarter dividend payable on March
31, 1996 to shareholders of record on February 23, 1996.
IMPACT FROM NOT YET EFFECTIVE RULES
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123--Accounting for Stock
Based Compensation. Under the provisions of this statement, the fair value of
stock options issued may be determined by using an option-pricing model that
takes into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock and the
expected dividends on it, and the risk-free interest rate over the expected life
of the option. The statement also provides for valuation of nonvested stock
(usually referred to as restricted stock) and employee stock purchase plans.
Valuation for stock issued under these various plans using the fair value based
method described above may result in compensation costs to the issuer at the
grant date and is recognized over the service period, which is usually the
vesting period. Reporting compensation for these plans under this statement is
optional. Companies choosing not to value stock options or similar equity
instruments under the fair value based method must provide pro forma disclosure
amounts that reflect the difference between compensation cost included in net
income and the related cost measured by the fair value based method defined in
SFAS No. 123, including tax effects, if any, that would have been recognized in
the income statement if the fair value based method had been used. Adoption of
this statement is required for transactions entered into in years that begin
after December 15, 1995.
The Company is in the process of reviewing the effects of this statement and
has not decided whether or not to adopt the preferable fair value based method
of accounting for stock-based compensation as it relates to the issuance of
stock options.
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, 1995 and 1994, and
the related consolidated statements of income, shareholders' investment and cash
flows for each of the three years in the period ended December 31, 1995. We have
also audited the financial statement schedule listed in Part IV of Form 10-K,
Item 14(a)2 for each of the three years in the period ended December 31, 1995.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L. L. P.
Chicago, Illinois
February 2, 1996
14
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales from continuing operations........................ $ 260,861,000 $ 215,529,000 $ 217,988,000
Cost of products sold....................................... 199,544,000 160,836,000 169,184,000
---------------- ---------------- ----------------
Gross profit.............................................. $ 61,317,000 $ 54,693,000 $ 48,804,000
---------------- ---------------- ----------------
Other costs and expenses:
Selling and administrative expenses....................... $ 34,452,000 $ 31,072,000 $ 31,427,000
Interest expense.......................................... 1,052,000 1,859,000 6,376,000
Other (income) expense, net............................... 7,483,000 1,198,000 4,614,000
---------------- ---------------- ----------------
$ 42,987,000 $ 34,129,000 $ 42,417,000
---------------- ---------------- ----------------
Income before taxes from continuing operations before
extraordinary charge....................................... $ 18,330,000 $ 20,564,000 $ 6,387,000
Provision (credit) for income taxes:
Current................................................... 989,000 877,000 436,000
Deferred.................................................. (16,648,000) -- --
---------------- ---------------- ----------------
Income from continuing operations before extraordinary
charge..................................................... $ 33,989,000 $ 19,687,000 $ 5,951,000
---------------- ---------------- ----------------
Discontinued operations (net of tax):
Income from operations.................................... $ -- $ -- $ 5,847,000
Gain (loss) on disposition of discontinued operations and
other costs.............................................. -- (5,354,000) 5,538,000
---------------- ---------------- ----------------
Income (loss) from discontinued operations................ $ -- $ (5,354,000) $ 11,385,000
---------------- ---------------- ----------------
Income before extraordinary charge.......................... $ 33,989,000 $ 14,333,000 $ 17,336,000
Extraordinary loss on early extinguishment of debt, less
applicable income tax benefit.............................. -- -- (2,052,000)
---------------- ---------------- ----------------
Net income.................................................. $ 33,989,000 $ 14,333,000 $ 15,284,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income applicable to common stock....................... $ 32,789,000 $ 12,440,000 $ 13,211,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Earnings (loss) per common share:
Primary --
Continuing operations..................................... $3.48 $1.96 $0.43
Discontinued operations................................... -- (0.59) 1.27
Extraordinary loss........................................ -- -- (0.23)
----- ----- -----
Income per common share................................... $3.48 $1.37 $1.47
----- ----- -----
----- ----- -----
Fully diluted --
Continuing operations..................................... $3.45 $1.96 $0.43
Discontinued operations................................... -- (0.59) 1.27
Extraordinary loss........................................ -- -- (0.23)
----- ----- -----
Income per common share................................... $3.45 $1.37 $1.47
----- ----- -----
----- ----- -----
Weighted average shares outstanding:
Primary................................................... 9,414,000 9,102,000 8,999,000
--------- --------- ---------
--------- --------- ---------
Full diluted.............................................. 9,494,000 9,102,000 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
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 744,000 $ 1,654,000
---------------- ----------------
Notes and accounts receivable, less allowances of $948,000 and
$1,521,000, respectively................................................ $ 44,293,000 $ 46,267,000
---------------- ----------------
Inventories:
Raw materials.......................................................... $ 12,037,000 $ 11,556,000
Work in process........................................................ 20,438,000 16,437,000
Finished goods......................................................... 19,931,000 20,462,000
---------------- ----------------
$ 52,406,000 $ 48,455,000
---------------- ----------------
Deferred tax asset....................................................... $ 22,538,000 $ --
---------------- ----------------
Prepaid expenses......................................................... $ 323,000 $ 456,000
---------------- ----------------
Total current assets................................................. $ 120,304,000 $ 96,832,000
---------------- ----------------
Plant and Equipment, at cost:
Land..................................................................... $ 2,172,000 $ 2,311,000
Buildings and improvements............................................... 36,269,000 34,252,000
Machinery and equipment.................................................. 47,078,000 40,126,000
---------------- ----------------
$ 85,519,000 $ 76,689,000
Less--Accumulated depreciation and amortization.......................... 47,083,000 46,128,000
---------------- ----------------
$ 38,436,000 $ 30,561,000
---------------- ----------------
Other Assets:
Notes receivable, due after one year, less allowance of $7,699,000 at
December 31, 1995....................................................... $ 40,000 $ 7,658,000
Deferred tax asset....................................................... 4,823,000 --
Deferred charges (goodwill), net of amortization......................... 1,845,000 14,626,000
Other.................................................................... 1,295,000 878,000
---------------- ----------------
$ 8,003,000 $ 23,162,000
---------------- ----------------
$ 166,743,000 $ 150,555,000
---------------- ----------------
---------------- ----------------
</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
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement............................................... $ 11,200,000 $ 10,300,000
Current portion of long-term debt........................................ 621,000 689,000
Accounts payable......................................................... 21,152,000 20,475,000
Accrued expenses......................................................... 32,384,000 31,837,000
---------------- ----------------
Total current liabilities............................................ $ 65,357,000 $ 63,301,000
---------------- ----------------
Long-term debt, less current portion shown above........................... $ 315,000 $ 630,000
---------------- ----------------
Other long-term liabilities................................................ $ 2,806,000 $ 2,622,000
---------------- ----------------
Redeemable preferred stock: $10.81 Series C Cumulative Preferred Stock;
stated value $100 per share, authorized 150,000 shares; issued and
outstanding, none and 115,000 shares at December 31, 1995 and 1994,
respectively.............................................................. $ -- $ 11,500,000
---------------- ----------------
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, none and
146,800 shares at December 31, 1995 and 1994, respectively............ $ -- $ 7,340,000
Undesignated--authorized 1,500,000 shares at December 31, 1995 and
1994; none issued..................................................... -- --
Common stock, par value $.01 per share; authorized 25,000,000 shares;
issued 9,138,344 and 9,103,344 shares at December 31, 1995 and 1994,
respectively............................................................ 91,000 91,000
Additional paid-in capital............................................... 93,143,000 92,146,000
Retained earnings (deficit).............................................. 5,031,000 (27,075,000)
---------------- ----------------
$ 98,265,000 $ 72,502,000
---------------- ----------------
$ 166,743,000 $ 150,555,000
---------------- ----------------
---------------- ----------------
</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 FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993
---------------- -------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income............................................................. $ 33,989,000 $ 14,333,000 $ 15,284,000
Adjustments to reconcile net income to net cash provided from operating
activities:
Income on disposition of discontinued operations..................... -- (50,000) (5,538,000)
Gains on sales of operating and non-operating assets................. (2,000,000) (214,000) (497,000)
Extraordinary loss on early extinguishment of debt................... -- -- 2,052,000
Effect of provision for restructuring costs.......................... -- -- 700,000
Depreciation and amortization........................................ 5,033,000 5,159,000 7,402,000
Amortization of deferred charges and (credits), net.................. 2,068,000 2,067,000 (216,000)
Deferred tax credit.................................................. (16,648,000) -- --
Provision for collectability of long-term receivable................. 7,699,000 -- --
Changes in noncash assets and liabilities, net of effects of
assets/businesses sold and noncash transactions:
(Increase) decrease in accounts receivable......................... 99,000 (100,000) 29,581,000
(Increase) decrease in inventories................................. (3,951,000) (5,596,000) 22,034,000
Decrease in prepaid expenses....................................... 133,000 1,459,000 784,000
Decrease in notes receivable, due after one year................... 423,000 807,000 997,000
Increase (decrease) in accounts payable and accrued expenses....... 1,349,000 (8,490,000) (5,219,000)
Other, net........................................................... 802,000 (431,000) 390,000
---------------- -------------- ----------------
Net cash provided from operating activities............................ $ 28,996,000 $ 8,944,000 $ 67,754,000
---------------- -------------- ----------------
Cash Flows from Investing Activities:
Additions to plant and equipment....................................... $ (14,378,000) $ (6,957,000) $ (7,741,000)
Proceeds from sales of plant and equipment............................. 3,611,000 2,452,000 8,311,000
Proceeds from sales of assets/businesses............................... -- 343,000 62,834,000
---------------- -------------- ----------------
Net cash provided from (used for) investing activities................. $ (10,767,000) $ (4,162,000) $ 63,404,000
---------------- -------------- ----------------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt.............................. $ -- $ -- $ 33,348,000
Borrowings under the revolving loan agreements......................... -- 29,246,000 145,081,000
Payments under the revolving loan agreements........................... -- (48,508,000) (129,777,000)
Borrowings under revolving credit agreement............................ 110,300,000 52,100,000 --
Payments under revolving credit agreement.............................. (109,400,000) (41,800,000) --
Payments of short and long-term debt................................... (827,000) (33,881,000) (139,769,000)
Payments of preferred stock redemptions................................ (17,997,000) (3,100,000) (66,000)
Dividends paid......................................................... (1,883,000) (1,893,000) (1,716,000)
Stock option transactions.............................................. 668,000 292,000 711,000
---------------- -------------- ----------------
Net cash used for financing activities................................. $ (19,139,000) $ (47,544,000) $ (92,188,000)
---------------- -------------- ----------------
Net increase (decrease) in cash and cash equivalents..................... $ (910,000) $ (42,762,000) $ 38,970,000
Cash and cash equivalents at beginning of year........................... 1,654,000 44,416,000 5,446,000
---------------- -------------- ----------------
Cash and cash equivalents at end of year................................. $ 744,000 $ 1,654,000 $ 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 FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
----------- ------------- --------------
<C> <S> <C> <C> <C>
Supplemental Information:
(A) Noncash investing and financing activities:
1. Assets acquired through the assumption of debt............ $ 444,000 $ 115,000 $ 387,000
----------- ------------- --------------
----------- ------------- --------------
2. Series B Preferred stock dividends paid/payable through
the issuance of common stock............................ $ -- $ -- $ 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. Series C Preferred stock dividends paid/payable through
the issuance of common stock............................ $ -- $ -- $ 405,000
----------- ------------- --------------
----------- ------------- --------------
5. 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
----------- ------------- --------------
----------- ------------- --------------
6. Interest expense paid through the issuance of sub-
ordinated debt.......................................... $ -- $ -- $ 161,000
----------- ------------- --------------
----------- ------------- --------------
7. Debt assumed by purchasers of businesses sold............. $ -- $ -- $ 760,000
----------- ------------- --------------
----------- ------------- --------------
8. Proceeds (primarily notes receivable) received from the
sales of discontinued operations........................ $ -- $ 2,011,000 $ 100,000
----------- ------------- --------------
----------- ------------- --------------
(B) Interest paid during year................................. $ 939,000 $ 2,657,000 $ 10,311,000
----------- ------------- --------------
----------- ------------- --------------
(C) Income/franchise taxes paid during year, net of
refunds................................................. $ 471,000 $ 522,000 $ 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
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, 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
Redemption of 34,000 Series B preferred shares............................. (1,700,000) --
Issuance of 14,734 common shares in connection with the exercises of stock
options................................................................... -- --
--------------- ---------------
Balance at December 31, 1994................................................. $ 7,340,000 $ 91,000
Redemption of 146,800 Series B preferred shares............................ (7,340,000) --
Issuance of 35,000 common shares in connection with the exercises of stock
options................................................................... -- --
--------------- ---------------
Balance at December 31, 1995................................................. $ -- $ 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
ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT)
-------------- ---------------
<S> <C> <C>
Balance at December 31, 1992.................................................................. $ 90,930,000 $ (52,121,000)
Net income 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 of 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)
Net income for the year..................................................................... -- 14,333,000
Preferred dividends declared and paid:
Series B (variable based on prime rate--$3.375 per share)................................. -- (574,000)
Series C--$10.81 per share................................................................ -- (1,319,000)
Excess of cost ($843,000) over fair market value of 59,979 common shares purchased and
reissued in connection with the Company's incentive stock plan............................. (375,000) --
Issuance of 14,734 common shares in connection with the exercises of stock options.......... 126,000 --
-------------- ---------------
Balance at December 31, 1994.................................................................. $ 92,146,000 $ (27,075,000)
Net income for the year..................................................................... -- 33,989,000
Preferred dividends declared and paid:
Series B (variable based on prime rate--$1.825 per share)................................. -- (268,000)
Series C--$8.1075 per share............................................................... -- (932,000)
Common dividends declared and paid--$.075 per share......................................... -- (683,000)
Issuance of 35,000 common shares in connection with the exercise of stock options........... 205,000 --
Excess of cost ($589,000) over fair market value of 41,961 common shares purchased and
reissued in connection with the Company's contribution to the Employee Stock Plan.......... (30,000) --
Excess of cost ($614,000) over fair market value of 42,500 common shares purchased and
reissued in connection with the Company's incentive stock plan............................. (151,000) --
Excess of stated value over cost ($5,516,000) in connection with the early retirement of the
Series B preferred stock................................................................... 973,000 --
-------------- ---------------
Balance at December 31, 1995.................................................................. $ 93,143,000 $ 5,031,000
-------------- ---------------
-------------- ---------------
</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:
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.
NATURE OF OPERATIONS--
Allied Products Corporation manufactures agricultural equipment and large
metal stamping presses, and supplies thermoplastic compounds and additives. All
manufacturing operations are within the United States. Agricultural equipment
manufactured by the Bush Hog division is primarily sold through dealerships in
the United States with some limited export sales to Canada. Metal stamping
presses produced by the Verson division are sold directly to the end users which
include automobile manufacturers, first and second tier automotive parts
producing companies and the appliance industry. Automobile manufacturers and
automotive parts producing companies account for approximately 80% of the Verson
division's revenues. Press sales generally are concentrated in the United States
and Mexico. The Coz division provides a complete line of thermoplastic resins
and related services to the plastic molding and extrusion industry. Sales are
concentrated in the northeastern portion of the United States.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 receivables 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.
INVENTORIES--
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 ($15,983,000 at
December 31, 1995 and $11,055,000 at December 31, 1994) 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 ($55,381,000 at December 31, 1995 and $11,672,000 at
December 31, 1994) associated with the work in process inventory. A significant
portion of the work in process inventory 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.
DEFERRED CHARGES (GOODWILL)--
Deferred charges (goodwill) associated with the 1986 acquisition of Verson
(approximately $13,113,000) are amortized on a straight line basis over a period
of 20 years. The Company assesses at each balance sheet date whether there has
been a permanent impairment in the value of goodwill. Such assessment includes
obsolescence, demand, new technology, competition and other pertinent economic
factors and trends that may have an impact on the value of remaining useful life
of goodwill.
EARNINGS (LOSS) PER COMMON SHARE--
Earnings per common share is based on the average number of common shares
outstanding (9,126,000, 9,102,000 and 8,999,000 for the years ended December 31,
1995, 1994 and 1993, respectively) after decreasing net income for preferred
dividend requirements ($1,200,000, $1,893,000 and $2,073,000 for the years ended
December 31, 1995, 1994 and 1993, respectively). For 1995, the average number of
common shares outstanding was increased by the dilutive effect of outstanding
stock options (288,000 shares as it relates to weighted average shares
outstanding--primary and 368,000 shares as it relates to weighted average shares
outstanding--fully diluted). The assumed exercise of stock options would not
result in a material dilution for the years ended December 31, 1994 and 1993.
INCOME TAXES--
Income taxes are accounted for under the asset and liability method in
accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 109 (SFAS 109)--Accounting for Income Taxes.
See Note 4.
STATEMENT OF CASH FLOWS--
For purposes 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 Series B and C Preferred Stocks at December 31, 1994 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.
RECENTLY ISSUED ACCOUNTING STANDARD--
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123--Accounting for Stock
Based Compensation. Under the provisions of this statement, the fair value of
stock options issued may be determined by using an option-pricing model that
takes into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock and the
expected dividends on it, and the risk-free interest rate over the expected life
of the option. The statement also provides for
23
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
valuation of nonvested stock (usually referred to as restricted stock) and
employee stock purchase plans. Valuation for stock issued under these various
plans using the fair value based method described above may result in
compensation costs to the issuer at the grant date and is recognized over the
service period, which is usually the vesting period. Reporting compensation for
these plans under this statement is optional. Companies choosing not to value
stock options or similar equity instruments under the fair value based method
must provide pro forma disclosure amounts that reflect the difference between
compensation cost included in net income and the related cost measured by the
fair value based method defined in SFAS No. 123, including tax effects, if any,
that would have been recognized in the income statement if the fair value based
method had been used. Adoption of this statement is required for transactions
entered into in years that begin after December 15, 1995.
The Company is in the process of reviewing the effects of this statement and
has not decided whether or not to adopt the preferable fair value based method
of accounting for stock-based compensation as it relates to the issuance of
stock options.
RECLASSIFICATIONS--
Certain amounts in the 1994 and 1993 consolidated financial statements and
related notes have been reclassified to conform with the 1995 presentation.
2. ACCRUED EXPENSES:
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Salaries and wages.......................................................... $ 5,542,000 $ 4,678,000
Warranty.................................................................... 9,077,000 5,817,000
Self insurance accruals..................................................... 4,411,000 6,522,000
Restructuring and other costs, primarily related to discontinued
operations................................................................. 1,494,000 3,373,000
Pensions, including retirees' health........................................ 5,901,000 4,985,000
Taxes, other than income taxes.............................................. 738,000 1,288,000
Environmental matters....................................................... 3,019,000 3,045,000
Other....................................................................... 2,202,000 2,129,000
-------------- --------------
$ 32,384,000 $ 31,837,000
-------------- --------------
-------------- --------------
</TABLE>
3. DISCONTINUED OPERATIONS:
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.
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 also was 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. In connection with the sale of the
White-New Idea division, the purchaser is required to purchase the real estate
located in Coldwater, Ohio pending a favorable review of environmental matters.
The Company is in the process of completing an evaluation of the status of
environmental conditions at this location--see Note 10. During 1995, the Company
and the purchaser of the White-New Idea division agreed to a five-year lease of
the Coldwater, Ohio facility while the Company completes the evaluation. Sale of
the facility to the purchaser of the White-New Idea division will occur after
completion of the evaluation and after resolution of any issues raised by the
evaluation.
24
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995 and 1994, the Company provided additional amounts (based upon an
independent review) for the environmental clean up of this facility. The Company
also sold in 1994 the business and certain assets of the Cooper division for
cash and a collateralized short-term note. In 1994, discontinued operations
include operating losses at the Cooper division related to the delayed sale of
this business and additional provisions primarily related to environmental
issues and a dispute resolution on a business sold in 1993, net of an income tax
benefit allocation of $211,000. During 1993, the Company also included 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
this same caption.
Summarized operating results of discontinued operations for the year ended
December 31, 1993 are as follows:
<TABLE>
<S> <C>
Net sales............................................................ $ 152,592,000
-------------
-------------
Operating income..................................................... $ 11,851,000
Provision for restructuring costs.................................... (700,000)
Finance costs, administrative and interest expense allocation........ (5,304,000)
-------------
Income from operations............................................... $ 5,847,000
-------------
-------------
</TABLE>
RESTRUCTURING COSTS--
Prior to 1993, the Company provided $14,000,000 for the impact of an
operational restructuring plan designed to reduce operating losses by closing,
consolidating or scaling back certain operations. During 1993, an additional
$700,000 was provided for restructuring costs. The restructuring of operations
called 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 sale of the Smith Energy Services division. The provision for
restructuring 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.
In addition, the Company phased out its centralized Management Information
Services operation at the Corporate Office in 1993. The reserve for
restructuring included 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 1995, 1994 and 1993 were
$1,879,000, $3,931,000 and $9,515,000, respectively.
As of December 31, 1995, the accompanying consolidated balance sheet
includes real estate with a net book value of $2,833,000, which is held for
sale, including $1,979,000 related to real estate under lease to the purchaser
of the White-New Idea division as discussed above.
25
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES:
Provision (credit) for income taxes in 1995, 1994 and 1993 consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
--------------- ----------- -----------
<S> <C> <C> <C>
Federal--current................................................ $ 756,000 $ 422,000 $ 514,000
Federal--deferred............................................... (16,648,000) -- --
State--current.................................................. 233,000 244,000 232,000
--------------- ----------- -----------
Total provision (credit)...................................... $ (15,659,000) $ 666,000 $ 746,000
--------------- ----------- -----------
--------------- ----------- -----------
</TABLE>
Allocation of the provision (credit) for income taxes in the 1995, 1994 and
1993 Consolidated Statements of Income include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
--------------- ------------ -----------
<S> <C> <C> <C>
Continuing operations........................................... $ (15,659,000) $ 877,000 $ 436,000
Discontinued operations--income from operations................. -- -- 182,000
Discontinued operations--gain (loss) on disposition of
discontinued operations and other costs........................ -- (211,000) 200,000
Extraordinary loss on early extinguishment of debt.............. -- -- (72,000)
--------------- ------------ -----------
Total provision (credit)...................................... $ (15,659,000) $ 666,000 $ 746,000
--------------- ------------ -----------
--------------- ------------ -----------
</TABLE>
The provision (credit) for income taxes in 1995, 1994 and 1993 differs from
amounts computed by applying the statutory rate to pre-tax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Income tax at statutory rate................................ $ 6,416,000 $ 5,250,000 $ 5,450,000
Utilization of net operating loss carryforwards............. (5,997,000) (5,547,000) (4,972,000)
State income tax, net of federal tax benefit................ 151,000 159,000 153,000
Permanent book over tax, net of tax over book, differences
on acquired assets......................................... 910,000 910,000 108,000
Stock option transactions................................... (296,000) (137,000) --
Adjustment to deferred tax asset valuation allowance........ (16,648,000) -- --
Other, net.................................................. (195,000) 31,000 7,000
--------------- -------------- --------------
Total provision (credit).................................. $ (15,659,000) $ 666,000 $ 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 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994
-------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credits carryforwards......................... $ 6,887,000 $ 40,742,000
Self-insurance accruals.................................................. 1,894,000 2,941,000
Inventories.............................................................. 1,899,000 2,636,000
Receivables.............................................................. 3,026,000 593,000
Sale/leaseback transaction............................................... 1,493,000 3,730,000
Restructuring reserve.................................................... 523,000 1,316,000
Employee benefits, including pensions.................................... 4,239,000 4,150,000
Warranty................................................................. 3,177,000 2,269,000
Sales allowances......................................................... 2,079,000 2,000,000
Environmental matters.................................................... 1,056,000 1,120,000
Other.................................................................... 1,456,000 307,000
-------------- ---------------
Total deferred tax asset............................................... $ 27,729,000 $ 61,804,000
-------------- ---------------
Deferred tax liabilities:
Depreciation............................................................. $ 327,000 $ 3,510,000
Other.................................................................... 41,000 --
-------------- ---------------
Total deferred tax liabilities......................................... $ 368,000 $ 3,510,000
-------------- ---------------
Net deferred tax asset before valuation allowance...................... $ 27,361,000 $ 58,294,000
Valuation allowance.................................................... -- (58,294,000)
-------------- ---------------
Net deferred tax asset................................................. $ 27,361,000 $ --
-------------- ---------------
-------------- ---------------
</TABLE>
During 1995, the Company evaluated its net operating loss carryforwards and
other deferred tax assets in relation to its earnings history over the past few
years and the estimated projected future earnings over the next few years. As a
result of this review, the Company recorded a deferred tax asset ($27,361,000)
which represents a reversal of the valuation allowance noted above. The related
credit to income taxes was reduced by $10,713,000 representing the elimination
of goodwill associated with certain acquisitions which included net operating
loss carryforwards. In addition to the above noted tax asset, the Company has
available net operating loss carryforwards of up to $166,019,000 (of which
$85,304,000 results from various acquisitions) which expire between 1997 and
2008, and investment tax credit carryforwards of $2,258,000 (which expire
between 1996 and 2004) including up to $329,000 resulting from acquisitions.
In years subsequent to 1995, the Company will be recording a tax provision
based upon the Federal statutory rate in effect and anticipates no reductions in
future tax provisions from additional tax credits at this time. However, the
Company projects that future Federal income tax payments will be based upon the
Alternative Minimum Tax rate as substantial tax loss carryforwards still exist
for tax reporting purposes.
Tax returns for the years subsequent to 1991 are potentially subject to
audit by the Internal Revenue Service.
27
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. FINANCIAL ARRANGEMENTS:
The Company's debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -------------
<S> <C> <C>
Capitalized lease obligations, at interest rates from 7.5% to 12% (weighted
average of 10.1%), due in varying amounts through 2002 (Note 6)................ $ 882,000 $ 1,215,000
Notes/mortgages payable......................................................... 54,000 104,000
----------- -------------
$ 936,000 $ 1,319,000
Less current portion............................................................ 621,000 689,000
----------- -------------
$ 315,000 $ 630,000
----------- -------------
----------- -------------
</TABLE>
Scheduled maturities of the noncurrent portion of long-term debt at December
31, 1995 are due as follows:
<TABLE>
<S> <C>
1997................................................ $ 139,000
1998................................................ 80,000
1999................................................ 51,000
2000................................................ 24,000
2001-2005........................................... 21,000
---------
$ 315,000
---------
---------
</TABLE>
In March 1994, the Company terminated previous financing agreements 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 provides for up
to $35,000,000 in working capital related loans (of which $11,200,000 and
$10,300,000 has been borrowed at December 31, 1995 and 1994, respectively) and
up to $15,000,000 in standby letters of credit required for the Company's
self-insurance programs and for other commercial purposes, of which
approximately $13,000,000 is outstanding at December 31, 1995 and 1994. Interest
is at prime rate or at other alternate variable rates as provided within the
agreement. This facility was collateralized principally by the Company's
receivables and inventories; however, all collateral was released as the Company
attained certain financial results for the first nine months of 1994. The
weighted average interest rate on borrowings outstanding at December 31, 1995
and 1994 was 7.8% and 8.5%, respectively. 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.
During 1995, the Company entered into an amendment of the Revolving Credit
Agreement. Under the terms of the amendment, interest rates have been reduced.
In addition, the amendment provided for an increase in permitted capital
expenditures for 1995 and allowed the Company to accelerate preferred stock
redemptions, pay dividends on Common Stock, repurchase Common Stock and permit
limited acquisitions.
28
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES:
CAPITAL LEASES--
The Company conducts a portion of its business in leased facilities, one of
which is leased from a municipal agency under an Industrial Revenue Bond
arrangement. 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,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Land............................................... $ 396,000 $ 396,000
Buildings and improvements......................... 1,111,000 2,013,000
Machinery and equipment............................ 4,233,000 4,533,000
------------- -------------
$ 5,740,000 $ 6,942,000
Less--Accumulated amortization..................... 3,378,000 4,353,000
------------- -------------
$ 2,362,000 $ 2,589,000
------------- -------------
------------- -------------
</TABLE>
See Note 5 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,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Minimum rentals.................. $ 1,922,000 $ 2,165,000 $ 4,062,000
Contingent rentals............... 89,000 657,000 1,084,000
------------- ------------- -------------
$ 2,011,000 $ 2,822,000 $ 5,146,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
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, 1995, 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 SUBLEASE NET MINIMUM
ANNUAL RENTAL RENTAL ANNUAL RENTAL
PAYMENTS INCOME PAYMENTS
------------- ------------ -------------
<S> <C> <C> <C>
Year ending December 31,
1996.................................. $ 1,692,000 $ (147,000) $ 1,545,000
1997.................................. 1,736,000 (147,000) 1,589,000
1998.................................. 1,624,000 (122,000) 1,502,000
1999.................................. 1,286,000 -- 1,286,000
2000.................................. 1,111,000 -- 1,111,000
Later................................. 1,209,000 -- 1,209,000
------------- ------------ -------------
$ 8,658,000 $ (416,000) $ 8,242,000
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
29
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PREFERRED STOCK:
The Company has 2,000,000 shares of authorized preferred stock of which
350,000 shares are designated as Series B Variable Rate Cumulative Preferred
Stock and 150,000 shares are designated as Series C Cumulative Preferred Stock.
The remaining 1,500,000 shares of authorized preferred stock are undesignated
and unissued at December 31, 1995.
SERIES B--
The holder of the Series B Preferred Stock was entitled to receive
cumulative 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. At December 31, 1994, there were 146,800 shares of the Series
B Preferred Stock outstanding. In addition to the scheduled redemption of 17,000
shares, the Company redeemed the remaining 129,800 shares at a discount of
$973,000 during 1995. The discount was credited to Additional Paid-in Capital.
SERIES C--
Holders of the Series C Cumulative Preferred Stock were entitled to receive
cumulative quarterly dividends at the annual rate of $10.81 per share. At
December 31, 1994, there were 115,000 shares of the Series C Cumulative
Preferred Stock outstanding. In addition to the permitted redemption of 50,000
shares, the Company redeemed the remaining 65,000 shares at a premium of
$130,000 during 1995.
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 10 years from the date of grant. There were no stock awards issued under
this plan in 1995, 1994 or 1993. No stock appreciation rights have been granted
to date under this plan. There are 145,799 options outstanding under this plan
at December 31, 1995 and are included in the table below. Additional stock
incentives will not be issued under this 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 authorizes
stock incentives for key employees in the form of stock awards and stock
options. The 1990 plan, as amended, 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 has issued options to purchase 876,251 shares of the Company's Common
Stock at prices between $1.50 and $14.25 per share. There are 546,551 options
outstanding under this plan at December 31, 1995 and are included in the table
below. At December 31, 1995, the Company has the capacity to issue an additional
215,749 stock incentives under the 1990 plan.
In 1994, shareholders approved a new incentive plan, the 1993 Directors
Incentive Plan (the 1993 plan) which authorizes the issuance of stock options to
members of the Board of Directors who are not employees of the Company. Options
under the 1993 plan, which are granted at fair market value at date of grant,
are granted as 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 1993 plan, the Company has issued
options to purchase 73,000 shares of the Company's Common Stock at prices
between $12.50 and $19.375 per share. All options issued are
30
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
outstanding under this plan at December 31, 1995 and are included in the table
below. At December 31, 1995, the Company has the capacity to issue an additional
47,000 stock options under the 1993 plan.
Stock option transactions for 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING (SHARES)
---------------------------------------- AVERAGE OPTION
NOT PRICE AT DATE OF
EXERCISABLE EXERCISABLE TOTAL GRANT
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993....................... 174,250 345,387 519,637 $ 9.45
Granted............................................ 318,500 -- 318,500 12.50
Became exercisable................................. (124,750) 124,750 -- 3.61
Exercised.......................................... -- (74,713) (74,713) 7.96
Expired............................................ -- (375) (375) 12.25
Terminated......................................... (7,000) (11,700) (18,700) 11.81
------------ ------------ ------------ -------
Outstanding, December 31, 1994....................... 361,000 383,349 744,349 $ 10.85
Granted............................................ 127,001 -- 127,001 14.48
Became exercisable................................. (203,750) 203,750 -- 10.86
Exercised.......................................... -- (77,500) (77,500) 8.62
Expired............................................ -- -- -- --
Terminated......................................... (23,500) (5,000) (28,500) 13.84
------------ ------------ ------------ -------
Outstanding, December 31, 1995....................... 260,751 504,599 765,350 $ 11.56
------------ ------------ ------------ -------
------------ ------------ ------------ -------
</TABLE>
31
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
10 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 10 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 10 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.
Effective January 1, 1994, the Company instituted an unfunded deferred
compensation defined benefit pension plan called the Executive Retirement Plan.
The noncontributory plan is designed to provide supplemental retirement benefits
to certain executive officers of the Company as determined by the Board of
Directors. Retirement benefits will be reduced by benefits received under the
Target Benefit Plan described below.
Net periodic pension costs as they relate to defined benefit plans for
continuing operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Service cost............................................ $ 673,000 $ 652,000 $ 411,000
Interest cost........................................... 2,284,000 2,260,000 2,152,000
Actual loss (gain) on plan assets....................... (7,989,000) 327,000 (7,903,000)
Net amortization and deferral........................... 6,038,000 (2,422,000) 6,090,000
Curtailment (income).................................... (64,000) -- --
-------------- -------------- --------------
Net periodic pension cost............................... $ 942,000 $ 817,000 $ 750,000
-------------- -------------- --------------
-------------- -------------- --------------
</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 approximately 7% in 1995 and 7.25% in 1994 and 1993. The rate of
compensation increase used to measure the projected benefit obligation in two
plans was approximately 5%. All other plans are based on current compensation
levels.
32
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Plan assets at fair value....................... $ 36,455,000 $ -- $ 19,724,000 $ 10,971,000
-------------- -------------- -------------- --------------
Actuarial present value of benefit obligations:
Vested benefits............................... $ 28,970,000 $ 604,000 $ 16,730,000 $ 12,522,000
Nonvested benefits............................ 1,555,000 51,000 819,000 776,000
-------------- -------------- -------------- --------------
Accumulated benefit obligation.................. $ 30,525,000 $ 655,000 $ 17,549,000 $ 13,298,000
Effect of projected future compensation
increases...................................... 2,326,000 481,000 1,933,000 --
-------------- -------------- -------------- --------------
Projected benefit obligation.................... $ 32,851,000 $ 1,136,000 $ 19,482,000 $ 13,298,000
-------------- -------------- -------------- --------------
Plan assets in excess of (less than) projected
benefit obligation............................. $ 3,604,000 $ (1,136,000) $ 242,000 $ (2,327,000)
Unrecorded net (gain) loss from past experience
different from that assumed and effect of
changes in assumptions......................... (4,651,000) (52,000) 1,568,000 (300,000)
Unrecorded prior service cost................... 249,000 538,000 1,000 700,000
Unrecognized net (asset) at date of initial
application.................................... (1,900,000) -- (1,405,000) (968,000)
-------------- -------------- -------------- --------------
Prepaid (accrued) pension costs................. $ (2,698,000) $ (650,000) $ 406,000 $ (2,895,000)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The plans' assets include common stocks, fixed income securities, short-term
investments and cash. Common stock investments at December 31, 1995 and 1994
include approximately 314,000 shares of the Company's Common Stock.
The Company also has a defined contribution retirement plan which covers
certain employees. There are no prior service costs associated with this plan.
The Company follows the policy of funding retirement contributions under this
plan as accrued. Contributions to this plan for continuing operations were
$206,000 in 1995, $255,000 in 1994 and $252,000 in 1993.
The Company employees are also eligible to become participants in the Save
Money and Reduce Taxes (SMART) plan. Under terms of the plan, the trustee is
directed by each employee on how to invest the employee's deposit. Investment
alternatives include a money market fund, two mutual funds and a fixed income
fund. Effective January 1, 1993, the Company terminated its matching
contribution to the SMART plan. As of December 31, 1995 and 1994, assets of the
SMART plan include approximately 524,000 and 532,000 shares, respectively, of
the Company's Common Stock.
The Company has a noncontributory defined contribution plan (the Employee
Stock Plan). All non-union employees not covered by pension plans are covered
under the Employee Stock Plan. Company contributions were $450,000 in 1994. No
contribution was made in 1995 and 1993.
Effective January 1, 1995, the Company instituted a noncontributory defined
contribution retirement plan called the Target Benefit Plan. All employees
covered by the Employee Stock Plan are covered under the Target Benefit Plan.
Under the terms of the Target Benefit Plan, the Company will make an actuarially
determined annual contribution based upon each eligible employee's years of
33
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
service and earnings as defined. Employee investment alternatives include a
money market fund, two mutual funds and a fixed income fund. Employees become
vested in the Company contribution after five years of service. Provisions for
the contribution to this plan in 1995 were $932,000.
The Company provides medical benefits for retirees and their spouses at one
operating division and certain other individuals related to several discontinued
operations. Accruals for such costs are recognized in the financial statements
over the service lives of these employees. Contributions are required of most
retirees for medical coverage. 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 8.6% for retirees under age 65 (7.6% for retirees age 65 and older)
in 1996 to 5.5% over 26 years. The effect of a 1% annual increase in these
assumed cost trend rates would increase the accumulated postretirement benefit
obligation by approximately $68,000. The annual service costs would not be
materially affected.
The following table provides information on the status of these plans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and their dependents................................. $ (287,000) $ (266,000)
Fully eligible active plan participants....................... (43,000) (26,000)
Active employees not fully eligible........................... (464,000) (395,000)
------------ ------------
Accumulated postretirement benefit obligation................... $ (794,000) $ (687,000)
Plan assets..................................................... -- --
Unrecognized prior service costs................................ 13,000 15,000
Unamortized net (gain) loss..................................... (139,000) (236,000)
------------ ------------
Accrued postretirement benefit costs............................ $ (920,000) $ (908,000)
------------ ------------
------------ ------------
</TABLE>
Net periodic postretirement benefit costs include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
---------- --------- --------------
<S> <C> <C> <C>
Service cost.......................................... $ 33,000 $ 31,000 $ 58,000
Interest cost......................................... 56,000 53,000 154,000
Amortization of unrecognized net (gain) loss.......... (18,000) (3,000) 11,000
Amortization of prior plan amendment.................. 1,000 1,000 --
Curtailment (gain).................................... -- -- (1,000,000)
Settlement (gain)..................................... -- -- (5,000)
---------- --------- --------------
Net periodic postretirement benefit cost (benefit).... $ 72,000 $ 82,000 $ (782,000)
---------- --------- --------------
---------- --------- --------------
</TABLE>
Measurement of the accumulated postretirement benefit obligation was based
on a discount rate of 7.0% in 1995, 8.0% in 1994 and 7.5% in 1993.
During 1995, the Company made provisions totaling $1,543,000 for the
termination/retirement of certain individuals. During 1993, the Company provided
$1,261,000 (included in "Other (income) expense, net"--see Note 12) for deferred
compensation related to the retirement of certain executive officers of the
Company.
34
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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
absentee ownership of four parcels of land from 1967 to 1969 which may have held
part or all of one or more settling ponds operated by a tenant business. 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 has sought payment from the
PRP's of an additional $572,000 in response costs. The EPA has ordered the
Company and one other PRP to undertake the design and construction of the
remediation project. All PRP's have agreed to undertake the design and
construction of the remediation project pursuant to a financial participation
agreement. The EPA estimates the present value of the cost to implement its
selected cleanup method to be approximately $1,869,000. The Company has accrued
its estimated share of the remaining cleanup cost which is not considered
significant. The Company has also filed a claim against its insurers.
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. Prior to 1993, the
Company provided for remediation costs associated with this landfill. During
1995, remedial action required by the consent decree was completed, and the EPA
approved the Remedial Action Report submitted by the Company. The Company's
remaining obligations under the consent decree include periodic inspections,
monitoring and maintenance as needed.
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 an action where a private party seeks recovery
of costs associated with an environmental cleanup at a site formerly owned by
the Company. At this 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 estimated present value
of a remediation plan proposed by the state environmental agency is
approximately $1,900,000. The Company has denied liability and asserted a
counter-claim against plaintiff and cross-claims against the co-defendants.
The Company is in the process of investigating or has determined the need to
perform environmental remediation or clean up at certain manufacturing sites
formerly operated and still owned by the Company. At the sites where the Company
has determined that some remediation or cleanup will be required, the Company
has provided for the estimated cost for such remediation or cleanup.
One site, located in Coldwater, Ohio, is under contract to be sold to the
purchaser of the White-New Idea business. That sale is contingent on completion
of an environmental study (now in progress), remediation, if any, determined by
the Company's independent consultant to be necessary, and
35
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the issuance of a covenant not to sue and related no further action letters by
the State of Ohio under the Ohio Voluntary Action Program. Following the
completion of the sale of the White-New Idea business in 1993, an independent
consultant retained by the Company indicated cleanup costs at the site could
range from $500,000 to $5,300,000. The Company provided in 1994 and 1993 for
amounts equal to the lower value of this range. The Company is discussing
financial contribution with the prior owner of the facility for any cleanup
costs as a significant portion of the environmental conditions under review
existed prior to the Company's ownership of the facility.
During 1995, 1994 and 1993, the Company made provisions of approximately
$921,000, $1,383,000 and $3,136,000, respectively, toward various environmental
matters discussed above. At December 31, 1995, the Company has accruals,
including those discussed above, of $3,079,000 (including amounts provided for
within the restructuring reserve) for the estimated cost to resolve its
potential liability with the above and other, less significant, matters.
Additional liabilities are possible and the ultimate outcome of these matters
may have an effect on the financial position or results of operations in a
future period. However, the Company believes that the above accruals are
adequate for the resolution of known environmental matters and the outcome of
these matters is not expected to have a material adverse effect on the Company's
financial position or its ongoing results of operations.
OTHER--
In connection with the sale of the business and assets of the Littell
division in 1991, the Company entered into a "License Agreement" pursuant to
which the Company licensed certain technology to the purchaser for which the
purchaser agreed to pay royalties totaling $8,063,000 plus interest, in minimum
quarterly installments of $312,500 commencing in November 1992, with a final
lump sum payment ($7,342,000) due May 22, 1996. The purchaser's payment
obligation is secured by the technology licensed and is guaranteed by the
purchaser's parent. The Company initially recorded this agreement as a long-term
note receivable. In 1995, however, the Company established a reserve of
$7,699,000 against the receivable, due to recently published adverse financial
information about the purchaser and its parent which raises serious concerns
about the collectability of the receivable.
The license agreement contains a non-compete covenant by the Company as well
as a covenant to refer to the purchaser relevant customer inquiries. The
agreement provides that in the event of a violation of the covenant not to
compete, the purchaser's royalty payments are reduced by approximately
$8,000,000 and the purchaser is also entitled to actual damages. Through the end
of the third quarter of 1994, the Company had received the required minimum
quarterly payments, usually 30 days after the due date. During the fourth
quarter of 1994, the purchaser withheld payment of the minimum quarterly payment
beyond 30 days and asserted that the Company had violated the non-compete and
non-referral covenants noted above. On March 10, 1995, an action was filed by
the purchaser in the Circuit Court of Cook County, Illinois. At December 31,
1995, the amounts due the Company under this agreement, including accrued and
unaccrued interest, is approximately $8,240,000. During 1995 as noted above, the
Company has made provisions against the collectability of this receivable. After
taking into consideration counsel's evaluation of the above facts, the Company
is of the opinion that the outcome of this action would not have a significant
adverse effect on the Company's consolidated financial statements.
The Company is involved in a number of other 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 ($2,342,000 and $2,790,000 at December 31, 1995 and 1994, respectively)
determined in consultation with independent insurance companies and legal
counsel. Payment of these claims may take place over the next several years.
Additional liabilities are possible and the ultimate outcome of these matters
may have an effect on the financial position or results of operations in a
future period.
36
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
However, after consideration of relevant data, including insurance coverage and
accruals, management believes that the eventual outcome of these matters will
not have a material adverse effect on the Company's financial position or its
ongoing results of operations.
At December 31, 1995, the Company was contingently liable for approximately
$1,849,000 primarily relating to outstanding letters of credit.
During 1994, the Company entered into agreements with certain executive
officers of the Company which provide that, if within one year following a
defined change in ownership or control of the Company there shall be an
involuntary termination of such executive's employment, or if there shall be
defined patterns of activity during such period by the Company causing such
executive to resign, then, subject to prevailing tax laws and regulations, the
executive shall be entitled to payments equal to approximately three years'
compensation.
11. OPERATIONS BY INDUSTRY SEGMENT:
The Company's operations involve a single industry segment as described in
Note 1.
Approximately 11%, 2% and 8% of the Company's net sales from continuing
operations in 1995, 1994 and 1993, respectively, were exported principally to
Canada and Mexico.
Approximately 29%, 14% and 25% of the Company's net sales from continuing
operations in 1995, 1994 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,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income................................................... $ (437,000) $ (1,293,000) $ (1,832,000)
Goodwill amortization............................................. 2,068,000 2,067,000 2,067,000
Loan cost expenses/amortization................................... 440,000 563,000 988,000
Environmental related expenses.................................... 1,110,000 410,000 1,486,000
Net gain on sales of operating and non-operating assets........... (2,000,000) (222,000) (462,000)
Provision for collectability of long-term note receivable (Note
10).............................................................. 7,699,000 -- --
Deferred compensation (Note 9).................................... -- -- 1,261,000
Litigation settlements............................................ (1,125,000) -- 650,000
Other miscellaneous............................................... (272,000) (327,000) 456,000
-------------- -------------- --------------
$ 7,483,000 $ 1,198,000 $ 4,614,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
13. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS:
Operating results in the fourth quarter of 1995 include the effects of the
following adjustments:
A. A credit of $16,648,000 to the provision for income taxes resulting from
a reduction in the valuation allowance associated with the Company's net
deferred tax asset--see Note 4.
B. A charge of $7,699,000 related to a reserve for a long-term receivable
due the Company from the 1991 sale of an operation--see Note 10.
37
<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" 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 "Principal Stockholders and Management
Ownership" for information with respect to the ownership of certain beneficial
owners of Common 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 "Principal Stockholders and
Management Ownership" 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 for the years ended December 31, 1995,
1994 and 1993
Consolidated balance sheets as of December 31, 1995 and 1994
Consolidated statements of cash flows for the years ended December 31,
1995, 1994 and 1993
Consolidated statements of shareholders' investment for the years ended
December 31, 1995,
1994 and 1993
Notes to consolidated financial statements
(a) 2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule II--Valuation and qualifying accounts for the years ended
December 31, 1995, 1994 and 1993
38
<PAGE>
(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).
10(a) 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(b) 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(c) 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(d) 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(e) 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).
10(f) The Registrant's Allied Products Corporation Executive Retirement Plan dated
April 4, 1994 is incorporated by reference to Exhibit 10(a) of the
Company's 1994 Annual Report on Form 10-K (File No. 1-5530).
10(g) The Registrant's Executive Officer's Agreement in Event of Change in Control
or Ownership of Allied Products Corporation dated April 1, 1994 is
incorporated by reference to Exhibit 10(b) of the Company's 1994 Annual
Report on Form 10-K (File No. 1-5530).
10(h) The Registrant's Second Amendment to Credit Agreement dated February 15,
1995 is incorporated by reference to Exhibit 10(c) of the Company's 1994
Annual Report on Form 10-K (File No. 1-5530).
10(i) The Registrant's Allied Products Corporation Retirement Plan dated as of
December 31, 1993 is incorporated by reference to Exhibit 10(d) of the
Company's 1994 Annual Report on Form 10-K (File No. 1-5530).
10(j) The Registrant's Bush Hog Segment of the Allied Products Corporation
Combined Retirement Plan effective December 31, 1993 is incorporated by
reference to Exhibit 10(e) of the Company's 1994 Annual Report on Form 10-K
(File No. 1-5530).
10(k) The Registrant's Verson Segment of the Allied Products Corporation Combined
Retirement Plan effective December 31, 1993 is incorporated by reference to
Exhibit 10(f) of the Company's 1994 Annual Report on Form 10-K (File No.
1-5530).
10(l) The Registrant's Littell Segment of the Allied Products Corporation Combined
Retirement Plan effective December 31, 1993 is incorporated by reference to
Exhibit 10(g) of the Company's 1994 Annual Report on Form 10-K (File No.
1-5530).
</TABLE>
39
<PAGE>
The following exhibits are attached only to the copies of this report filed
with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------
<C> <S>
10 Material Contract--Allied Products Corporation Target Benefit Plan.
11 Computation of Earnings per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
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, 1995.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Allowance for doubtful accounts--
Current receivables:
Balance at beginning of year.......... $ 1,521,000 $ 1,996,000 $ 2,914,000
Add (deduct)--
Provision charged to income......... 451,000 256,000 229,000
Receivables charged off as bad
debts, net of recoveries........... (1,024,000) (731,000) (1,147,000)
-------------- ------------- --------------
Balance at end of year................ $ 948,000 $ 1,521,000 $ 1,996,000
-------------- ------------- --------------
-------------- ------------- --------------
Long-term receivables:
Balance at beginning of year.......... $ -- $ -- $ --
Add (deduct)--
Provision charged to income......... 7,699,000 -- --
Receivables charged off as bad
debts, net of recoveries........... -- -- --
-------------- ------------- --------------
Balance at end of year................ $ 7,699,000 $ -- $ --
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
40
<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)
By: /s/ RICHARD A. DREXLER
---------------------------------------
Richard A. Drexler, CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
March 11, 1996
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>
* /s/ [RICHARD A. DREXLER]
----------------------------------------------
Richard A. Drexler, CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER; DIRECTOR
* /s/ [KENNETH B. LIGHT]
----------------------------------------------
Kenneth B. Light, EXECUTIVE VICE PRESIDENT,
CHIEF
FINANCIAL AND ADMINISTRATIVE OFFICER; DIRECTOR
* /s/ [ROBERT J. FLECK]
----------------------------------------------
Robert J. Fleck, VICE PRESIDENT--ACCOUNTING AND
CHIEF ACCOUNTING OFFICER
March 11, 1996
* /s/ [LLOYD DREXLER]
----------------------------------------------
Lloyd Drexler,
DIRECTOR
* /s/ [WILLIAM D. FISCHER]
----------------------------------------------
William D. Fischer,
DIRECTOR
* /s/ [STANLEY J. GOLDRING]
----------------------------------------------
Stanley J. Goldring,
DIRECTOR
* /s/ [JOHN E. JONES]
----------------------------------------------
John E. Jones,
DIRECTOR
* /s/ [JOHN W. PUTH]
----------------------------------------------
John W. Puth,
DIRECTOR
* /s/ [MITCHELL I. QUAIN]
----------------------------------------------
Mitchell I. Quain,
DIRECTOR
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
* /s/ [S. S. SHERMAN]
----------------------------------------------
S. S. Sherman,
DIRECTOR
* By: /s/ [DAVID B. CORWINE]
-------------------------------------------
David B. Corwine,
ATTORNEY-IN-FACT
</TABLE>
42
<PAGE>
EXHIBIT 10
ALLIED PRODUCTS CORPORATION
TARGET BENEFIT PLAN
EFFECTIVE JANUARY 1, 1995
<PAGE>
CONTENTS
PAGE
PREAMBLE iv
ARTICLE I DEFINITIONS 1
ARTICLE II ELIGIBILITY AND PARTICIPATION
2.01 Eligibility 10
2.02 Termination and Reemployment 11
ARTICLE III CONTRIBUTIONS
3.01 Employer Contributions 12
3.02 Participant Contributions 13
ARTICLE IV ALLOCATIONS, ACCOUNTING AND ADJUSTMENTS
4.01 Composition of Trust Fund 14
4.02 Allocation of Earnings to Accounts 14
4.03 Eligibility for Allocation of Employer Contributions 14
4.04 Maximum Annual Additions 15
4.05 Participation in Defined Benefit Plan 19
4.06 Allocation of Employer Contributions 20
4.07 Participant Election of Investment Funds 20
ARTICLE V VESTING
5.01 Employer Contribution Account 22
5.02 Termination of Employment 22
5.03 Disposition of Forfeitures 24
5.04 Effect of Periods of Severance 24
ARTICLE VI TIME AND METHOD OF PAYMENT
6.01 Manner of Payment 25
6.02 Optional Forms of Payment 25
6.03 Time of Payment 28
6.04 Payments to Beneficiaries 29
6.05 Distribution of Unallocated Contributions 33
6.06 Certain Retroactive Payments 33
6.07 Administrative Powers Relating to Payments 33
ii
<PAGE>
CONTENTS
(continued)
6.08 Direct Rollovers 34
ARTICLE VII ROLLOVERS AND TRANSFERS
7.01 Rollovers and Transfers 36
ARTICLE VIII TOP-HEAVY PROVISIONS
8.01 Effective Date 37
8.02 Definitions 37
8.03 Special Code Section 415 Limitations 41
8.04 Minimum Allocation Requirements 42
8.05 Vesting Requirements 43
ARTICLE IX MANAGEMENT OF FUNDS
9.01 Appointment of Trustee 44
9.02 Assets of Trust 44
9.03 Reversion of Employer Contributions 44
ARTICLE X ADMINISTRATION OF PLAN
10.01 Plan Administrator 46
10.02 Rights, Powers and Duties of Plan Administrator 46
10.03 Committee 48
10.04 Exercise of Duties 49
10.05 Indemnification of Fiduciaries 49
10.06 Expenses 50
ARTICLE XI CLAIMS PROCEDURES
11.01 Claims Procedure 51
ARTICLE XII AMENDMENT AND TERMINATION
12.01 Termination 52
12.02 Right to Amend, Modify, Change or Revise Plan 53
iii
<PAGE>
CONTENTS
(continued)
12.03 Merger and Consolidation of Plan; Transfer 54
of Plan Assets
ARTICLE XIII MISCELLANEOUS
13.01 No Contract of Employment 55
13.02 Restrictions Upon Assignments and Creditors' Claims 55
13.03 Restriction of Claims Against Trust 55
13.04 Benefits Payable by Trust 56
13.05 Successor to Company 56
13.06 Applicable Law 56
13.07 Data 56
13.08 Internal Revenue Service Approval 57
EXHIBIT A Actuarial Assumptions and Factors
iv
<PAGE>
ALLIED PRODUCTS CORPORATION
TARGET BENEFIT PLAN
PREAMBLE
WHEREAS, Allied Products Corporation, a Delaware corporation (the "Company"),
and certain of its affiliated corporations (collectively referred to as the
"Participating Employers") desire to establish a target benefit money purchase
pension plan for the exclusive benefit of their employees;
NOW, THEREFORE, the Company hereby adopts the Allied Products Corporation Target
Benefit Plan (the "Plan"), effective January 1, 1995, to read as follows:
v
<PAGE>
ARTICLE I
DEFINITIONS
Whenever used herein with the initial letter capitalized, words and phrases
shall have the meanings stated below unless a different meaning is plainly
required by context. For purposes of construction of this Plan, the masculine
term shall include the feminine and the singular shall include the plural in all
cases in which they could thus be applied.
ACCOUNT means the separate Account which is maintained for the benefit of each
Participant.
ACCOUNT BALANCE means, for each Participant, the total balance standing to his
Account under the date of reference determined in accordance with valuation
procedures described in Section 4.02.
ACTUARIAL ASSUMPTIONS AND FACTORS means the actuarial assumptions and interest
rate used in determining the Employer Contributions made to the Plan to provide
the targeted monthly retirement benefit and which are set forth in Exhibit A.
AFFILIATE means any corporation or other business entity which is included in a
controlled group of corporations within which the Company is also included, as
provided in Section 414(b) of the Code (as modified, for purposes of Sections
4.04 and 4.05 of the Plan, by Section 415(h) of the Code), or which is a trade
or business under common control with the Company, as provided in Section 414(c)
of the Code (as modified, for purposes of Sections 4.04 and 4.05 of the Plan, by
Section 415(h) of the Code), or which constitutes a member of an affiliated
service group within which the Company is also included, as provided in Section
414(m) of the Code, or which is required to be aggregated with the Company
pursuant to regulations issued under Section 414(o) of the Code.
ALTERNATE PAYEE means any spouse, former spouse, child or other dependent of a
Participant who is recognized by a Domestic Relations Order as having a right to
receive all or a portion of a Participant's benefits payable under the Plan.
1
<PAGE>
ANNUITY STARTING DATE means the first day of the first period for which an
amount is payable as an annuity or in any other form.
APPROVED ABSENCE means a paid absence from work approved by the Participating
Employer under uniform rules and conditions for all Employees, provided that the
Participant retires or returns to employment with the Participating Employer or
Affiliate within the period specified in the Approved Absence, and shall include
a military leave.
BENEFICIARY means the person or persons or other entity designated by a
Participant to receive any benefits under the Plan which may be due upon the
Participant's death.
BOARD means the Board of Directors of the Company or the Executive Committee of
the Board of Directors.
CODE means the Internal Revenue Code of 1986, as amended from time to time.
COMMITTEE means the Committee appointed pursuant to Article X to administer the
Plan.
COMPANY means Allied Products Corporation.
COMPENSATION means, for all purposes of the Plan except Sections 4.04 and 4.05,
the total amount of cash compensation paid to an Employee by the Participating
Employer in a Plan Year for Federal income tax purposes, including base salary,
overtime, bonuses, and commissions, and amounts of pay reduced in accordance
with an arrangement established by the Participating Employer which qualifies
under Section 125 or Section 401(k) of the Code, provided however, for highly
compensated employees (as defined in Code Section 414(q)), the amount of
commissions taken into account in any Plan Year shall be limited to fifty
thousand dollars ($50,000). Compensation shall exclude all noncash
remunerations (including but not limited to imputed income on group term life
insurance, auto allowance, moving allowances and other amounts of imputed
income).
2
<PAGE>
Notwithstanding anything herein to the contrary, the annual Compensation of each
Participant taken into account under the Plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is one
hundred fifty thousand dollars ($150,000), adjusted by the Commissioner for
increases in the cost of living in accordance with Section 401(a)(17)(B) of the
Code. The cost-of-living-adjustment in effect for a calendar year applies to
any period, not exceeding twelve (12) months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than twelve (12) months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is twelve (12). Any reference in this Plan to the limitation under
Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit
set forth in this provision. In determining the Compensation of a Participant
for purposes of this limitation, the rules of Section 414(q)(6) of the Code
relating to the treatment of certain family members shall apply, except that, in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age nineteen (19) before the close of the applicable Plan Year. If, as a result
of the application of such rules, the adjusted one hundred fifty thousand
dollars ($150,000) limitation is exceeded, then the limitation shall be prorated
among the affected Participants in proportion to each such Participant's
Compensation as determined under this provision prior to the application of this
limitation.
CREDITED SERVICE means, for Employees classified as full-time, the period of the
Participant's employment considered for purposes of determining the vested
portion of a Participant's Employer Contribution Account and in the
determination of the amount of contributions payable to or on behalf of the
Participant. A Participant shall accrue a year of Credited Service for each
full year of employment beginning on his Employment Commencement Date and ending
on his Severance from Service Date. For purposes of determining a Participant's
vested portion of his Employer Contribution Account, if a Participant terminates
his employment with the Company or is placed on an Approved Absence and is
reemployed, he shall be credited with Credited Service as follows:
(a) If he terminates by reason of retirement, resignation or dismissal and
returns within twelve (12) months from his Severance from Service
Date, he shall
3
<PAGE>
receive credit for Credited Service as if he had not terminated his
employment with the Participating Employer; and
(b) If he is placed on an Approved Absence and both terminates his
employment and returns to the employment of the Company prior to
the first anniversary of the date his leave of absence commenced,
then he shall receive credit for Credited Service as if he had
not so terminated his employment.
For purposes of determining the contributions to be made on a Participant's
behalf pursuant to Section 3.01, Credited Service will be calculated in years
and completed months.
Notwithstanding the foregoing, Employees who are classified as part-time shall
receive for each Plan Year a year or partial year of Credited Service in
accordance with the following schedule:
Percentages of a
Hours of Service Year of Credited Service
---------------- ------------------------
1,000 50
1,001 to 1,200 60
1,201 to 1,400 70
1,401 to 1,600 80
1,601 to 1,800 90
1,801 and above 100
DOMESTIC RELATIONS ORDER means any judgment, decree or order (including approval
of a property settlement agreement) that relates to the provision of child
support, alimony payments or marital property rights to an Alternate Payee and
is made pursuant to a state domestic relations law, including a community
property law.
4
<PAGE>
EFFECTIVE DATE means January 1, 1995. The Plan shall be effective with respect
to any individual Participating Employer as of the date determined by the
Company and the Participating Employer.
EMPLOYEE means a person employed by the Company or any Affiliate. Employee
shall not include an independent contractor, a nonresident alien or employees of
the Bush Hog Division of the Company.
EMPLOYER CONTRIBUTION ACCOUNT means the separate Account which shall be
maintained by the Trustee for each Participant to reflect all Employer
Contributions made on behalf of such Participant and any earnings thereon.
EMPLOYER CONTRIBUTIONS means the amount the Participating Employer may
contribute to the Trust on behalf of each Participant for each Plan Year, as set
forth in Section 3.01 of the Plan.
EMPLOYMENT COMMENCEMENT DATE means the day on which an Employee first completes
an Hour of Service for a Participating Employer or an Affiliate. For employees
of the Verson Division of the Company, the Employment Commencement date shall
not be earlier than November 1, 1986.
ENTRY DATE means the first day of the month coincident with or next following
the date the employee satisfies the eligibility provisions of Section 2.01 of
the Plan.
FINAL AVERAGE COMPENSATION means the average annual Compensation received by the
Participant during the five (5) completed calendar years of employment with the
Participating Employer prior to the Participant's termination of employment. If
a participant has fewer than five (5) years of employment, Final Average
Compensation will be based on his total completed years of employment with the
Participating Employer.
FORFEITURE means the portion of a Participant's Employer Contribution Account to
which he is not entitled, as determined under Section 5.02.
5
<PAGE>
HOUR OF SERVICE means:
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Company, Participating
Employer or an Affiliate. These hours shall be credited to the
Employee for the computation period or periods in which the
duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment,
by the Participating Employer, the Company or an Affiliate on
account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or
Approved Absence. No more than five hundred one (501) Hours of
Service shall be credited under this paragraph (b) for any single
continuous period (whether or not such period occurs in a single
computation period). Hours of Service under this paragraph (b)
shall be calculated and credited pursuant to Section 2530.200b-2
of the Department of Labor Regulations, which are incorporated
herein by this reference;
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Participating
Employer, the Company or an Affiliate. The same Hours of Service
shall not be credited both under paragraph (a) or paragraph (b),
as the case may be, and under this paragraph (c). These hours
shall be credited to the Employee for the computation period or
periods to which the award, agreement or payment pertains rather
than the computation period in which the award, agreement or
payment is made.
(d) In the event that records are not kept which accurately reflect
the number of hours worked, an Employee will be credited with
forty-five (45) Hours of Service for each week for which he is
paid or entitled to payment if paid on a weekly basis, or ninety
(90) Hours of Service if paid on a semimonthly basis, or one
hundred ninety (190) Hours of Service if paid on a monthly basis.
6
<PAGE>
LIFE ANNUITY means an annuity for the life of the Participant which is the
actuarial equivalent of the Participant's vested Account Balance.
LIMITATION YEAR means the Plan Year.
NORMAL RETIREMENT AGE means the date the Participant attains age sixty-five
(65).
PARTICIPANT means an Employee who fulfills the eligibility requirements as
provided in Article II and who continues to qualify as a Participant.
PARTICIPATING EMPLOYER means the Company and any Affiliate which adopts this
Plan with the approval of the Company.
PERIOD OF SEVERANCE means the period of time commencing on an Employee's
Severance from Service Date and ending on the date that the Employee again
performs an Hour of Service for the Participating Employer or Affiliate.
In the case of an individual who is absent from work for maternity or paternity
reasons, the twelve-consecutive month period beginning on the first anniversary
of the first date of such absence shall not be included in the Period of
Severance. For purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence: (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purpose of caring for such
child for a period beginning immediately following such birth or placement.
PERMANENT DISABILITY means the permanent incapacity of a Participant to perform
the usual duties of employment for the Participating Employer by reason of
physical or mental impairment, as determined by the Committee based upon a
written opinion of a licensed physician who has been approved by the Committee.
The Committee shall designate the date on which the Permanent Disability shall
be considered to exist. The final decisions of the Committee with respect to
Permanent Disability shall be conclusive for all purposes of the Plan.
7
<PAGE>
PLAN means the Allied Products Corporation Target Benefit Plan.
PLAN ADMINISTRATOR means the Company.
PLAN YEAR means the twelve (12) month period which begins on January 1 and which
ends on December 31.
REEMPLOYMENT COMMENCEMENT DATE means the date on which an Employee first
performs an Hour of Service for the Participating Employer or Affiliate after a
Period of Severance of at least twelve (12) consecutive months.
QUALIFIED DOMESTIC RELATIONS ORDER means any Domestic Relations Order that
creates, recognizes or assigns to an Alternate Payee the right to receive all or
a portion of a Participant's benefits payable hereunder and meets the
requirements of Section 414(p) of the Code.
QUALIFIED JOINT AND SURVIVOR ANNUITY means an annuity for the life of the
Participant with a survivor annuity for the life of the Participant's surviving
spouse equal to fifty percent (50%) of the amount of the annuity which is
payable during the joint lives of the Participant and his surviving spouse. The
Qualified Joint and Survivor Annuity shall be the actuarial equivalent of the
Participant's vested Account Balance.
QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY means an annuity for the life of the
surviving spouse of the Participant which is the actuarial equivalent of the
Participant's vested Account Balance.
SEVERANCE FROM SERVICE DATE means the first to occur of:
(a) A Participant's retirement;
(b) The date the Participant ceases to perform services for the
Participating Employers and Affiliates by reason of voluntary
resignation or involuntary termination;
8
<PAGE>
(c) The date of the Participant's death;
(d) The first anniversary of the date a Participant is excused from
the performance of services for the Participating Employer and
Affiliates for any reason other than resignation, retirement or
involuntary termination; or
(e) The end of an Approved Absence.
However, if the Employee's service terminates and he is thereafter employed by a
Participating Employer or Affiliate before he completes a Period of Severance of
at least twelve (12) consecutive months, such Period of Severance shall be
disregarded for all purposes of the Plan.
TRUST AGREEMENT or TRUST means, respectively, the trust agreement executed by
the Company for the purposes of the Plan, as provided under Section 9.01, as
amended from time to time, and the trust established thereunder.
TRUST FUND means all cash, securities, real estate or any other property held by
the Trustee pursuant to the terms of the Trust Agreement, together with income
therefrom.
TRUSTEE means the person, persons or entity appointed by the Company as provided
under Section 9.01 of the Plan to act as Trustee of the Trust.
VALUATION DATE means each March 31, June 30, September 30, and December 31 of
each Plan Year.
9
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY
Each Employee of a Participating Employer, who is classified as full-
time, on the date prior to the Effective Date shall become a
Participant on the Effective Date if still employed by the
Participating Employer and still eligible for Plan participation.
Each other Employee, of a Participating Employer, who is classified as
full-time, shall become a Participant in the Plan on the Entry Date
coincident with or next following his completion of twelve (12) months
of employment and his attainment of age twenty-one (21).
Each Employee of a Participating Employer, who is classified as part-
time, shall become a Participant on the later of the Effective Date or
the Entry Date coincident with or next following his completion of one
thousand (1,000) Hours of Service during the twelve (12) month period
beginning on the Participant's Date of Employment. If the Participant
does not complete one thousand (1,000) Hours of Service during his
first twelve (12) months of employment, he shall become a Participant
on the Entry Date coincident with or next following his completion of
(1,000) Hours of Service in any Plan Year and his attainment of age
twenty-one (21).
Notwithstanding the above, an Employee included in a unit of employees
covered by a collective bargaining agreement with the Participating
Employer where retirement benefits were the subject of good faith
bargaining between employee representatives and the Participating
Employer shall be eligible to participate in the Plan only if such
collective bargaining agreement specifically provides for their
participation herein.
Leased employees, as defined under Section 414(n) of the Code, shall
be excluded from participation in this Plan.
10
<PAGE>
2.02 TERMINATION AND REEMPLOYMENT
(a) A Participant who terminates employment and is reemployed by
a Participating Employer shall be a Participant immediately
upon his Reemployment Commencement Date.
(b) An Employee who terminates employment prior to becoming a
Participant and again is employed by a Participating
Employer shall become a Participant in the Plan on the first
Entry Date after he satisfies the requirements set forth in
Section 2.01, based on his Employment Commencement Date.
(c) An Employee who terminates employment prior to becoming a
Participant and again is employed by a Participating Employer
shall become a Participant in the Plan on the first Entry Date
after he satisfies the requirements set forth in Section 2.01,
based on his Reemployment Commencement Date.
11
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
For each Plan Year, each Participating Employer shall contribute to
the Trust Fund on behalf of each Participant employed by such
Participating Employer eligible to share in the Employer Contribution
for that Plan Year, as provided in Section 4.03, an amount, if any,
necessary to provide each Participant with a targeted monthly
retirement benefit commencing the first day of the month following
Normal Retirement Age and payable in the form of a Life Annuity equal
to one-twelfth (1/12th) of the following:
0.5% (Final Average Compensation) x (Years of Credited Service).
The benefit described above shall be determined in accordance with the
Actuarial Assumptions and Factors set forth in Exhibit A. For each
Plan Year, the amount of the Employer Contribution on behalf of a
Participant shall be equal to the Employer Contribution made on his
behalf for the immediately preceding Plan Year, plus or minus (as the
case may be) an adjustment to reflect any increase or decrease in the
Participant's targeted benefit.
The contribution for any Plan Year shall not exceed the maximum amount
deductible by the Participating Employer for such Plan Year for
Federal income tax purposes under Section 404 of the Code. Employer
Contributions for a Plan Year shall be paid to the Trust not later
than the time prescribed by law for the filing of the Participating
Employer's Federal income tax return for the applicable year,
including any extensions thereof. All Employer Contributions are
specifically conditioned on their deductibility under Section 404 of
the Code.
12
<PAGE>
3.02 PARTICIPANT CONTRIBUTIONS
Participants shall be neither required nor permitted to make
contributions to the Plan.
13
<PAGE>
ARTICLE IV
ALLOCATIONS, ACCOUNTING AND ADJUSTMENTS
4.01 COMPOSITION OF TRUST FUND
All amounts contributed to the Plan, as increased or decreased by
income, expenditure, appreciation and depreciation, shall constitute a
single fund known as the Trust Fund. A separate Employer Contribution
Account shall be maintained for each Participant.
4.02 ALLOCATION OF EARNINGS TO ACCOUNTS
As of each Valuation Date, prior to the allocation of contributions
described in Section 3.01, there shall be allocated to the Accounts of
all Participants by credit or deduction therefrom, as the case may be,
of a portion of the increase or decrease in the value of the
respective investment funds of the Trust Fund since the preceding
Valuation Date attributable to interest, dividends, changes in market
value, expenses and gains and losses realized from the sale of assets.
Such allocation shall be made in the proportion that the opening
balance of each such Account invested in such investment fund reduced
by any distributions since the preceding Valuation Date bears to the
total of the opening balances of all such Accounts invested in the
investment fund, reduced by any distributions since the preceding
Valuation Date.
4.03 ALLOCATION OF EMPLOYER CONTRIBUTIONS
As of the last day of the Plan Year, after the allocation of earnings,
the Employer Contributions by each Participating Employer for such
Plan Year shall be allocated to the Employer Contribution Accounts of
all Participants who are actively employed by such Participating
Employer on the last day of such Plan Year.
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Notwithstanding the above, Participants who have terminated at or
after Normal Retirement Age, died or become Permanently Disabled
during the Plan Year also shall be eligible to share in the Employer
Contributions for such year.
An eligible Participant shall share in Employer Contributions
according to the allocation procedures in Section 4.06.
4.04 MAXIMUM ANNUAL ADDITIONS
(a) The Employer Contributions allocated to any Participant's
Employer Contribution Account in any Limitation Year shall
not exceed the lesser of:
(1) The greater of thirty thousand dollars ($30,000)
or one-fourth (1/4) of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code; or
(2) Twenty-five percent (25%) of the Participant's
compensation for such Limitation Year.
(b) If, as a result of a reasonable error in estimating a
Participant's compensation or such other facts and
circumstances to which Internal Revenue Service Regulation
Section 1.415-6 would be applicable, the additions to a
Participant's Account under Section 4.04(a) in any
Limitation Year would be in excess of the maximum annual
limits, amounts otherwise allocable to the Employer
Contribution Account of such Participant for such Limitation
Year shall be used to reduce Employer contributions for the
next Limitation Year (and succeeding Limitation Years, as
necessary) for that Participant if that Participant is
covered by the Plan as of the end of the Limitation Year.
If such Participant is not covered by the Plan as of the end
of the Limitation Year, the excess amounts shall be held
unallocated in a suspense account
15
<PAGE>
for the Limitation Year and allocated and
reallocated in the next Limitation Year to all of the remaining
Participants in the Plan in accordance with the provisions of
Section 4.03. In addition, the excess amounts shall be used to
reduce Employer contributions for the next Limitation year (and
succeeding Limitation Years, as necessary). Any such suspense
account will not share in the allocation of earnings under
Section 4.02.
(c) For purposes of this Section 4.04, this Plan and any other
qualified defined contribution plan maintained by the
Company, a Participating Employer or an Affiliate shall be
considered as a single defined contribution plan if a
Participant is a participant in more than one (1) defined
contribution plan. Amounts allocated to a Participant's
individual medical benefit account, as defined in Section
415(l)(2) of the Code, which is part of a defined benefit
plan maintained by the Company, a Participating Employer or
an Affiliate shall be treated as annual additions to a
defined contribution plan. Amounts derived from
contributions paid or accrued which are attributable to
post-retirement medical benefits allocated to the separate
account of a Participant who is a key employee, as defined
in Section 419A(d) of the Code, under a welfare benefit
fund, as defined in Section 419(e) of the Code, maintained
by the Company, a Participating Employer or an Affiliate,
shall be treated as annual additions to a defined
contribution plan. Notwithstanding the foregoing, the
compensation limit described above shall not apply to any
contribution for medical benefits (within the meaning of
Section 419A(f)(2) of the Code) after separation from
service which is otherwise treated as an annual addition
under Section 415(l)(1) of the Code.
(d) Solely for the purpose of applying the limitations of
Sections 4.04 and 4.05, the compensation of a Participant
includes:
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(1) A Participant's wages, salaries, fees for
professional services, and other amounts received
(without regard to whether or not an amount is
paid in cash) for personal services actually
rendered in the course of employment with the
Participating Employer or Affiliate to the extent
that the amounts are includable in gross income
(including, but not limited, to commissions paid
salesmen, compensation for services on the basis
of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe
benefits, reimbursements, and expense allowances);
(2) In the case of a Participant who is an employee
within the meaning of Section 401(c)(1) of the
Code and the regulations thereunder, the
Participant's earned income (as described in
Section 401(c)(2) of the Code and the regulations
thereunder);
(3) Amounts described in Sections 104(a)(3), 105(a),
and 105(h) of the Code, but only to the extent
these amounts are includable in the gross income
of the Participant;
(4) Amounts paid or reimbursed by the Participating
Employer or Affiliate for moving expenses incurred
by a Participant but only to the extent that these
amounts are not deductible by the Participant
under Section 217 of the Code;
(5) The value of a nonqualified stock option granted
to a Participant by the Participating Employer or
Affiliate, but only to the extent that the value
of the option is includable
17
<PAGE>
in the gross income of the Participant for the taxable year
in which granted; and
(6) The amount includable in the gross income of a
Participant upon making the election described in
Section 83(b) of the Code.
Solely for the purpose of applying the limitations of Sections
4.04 and 4.05, the compensation of a Participant excludes:
(1) Contributions made by the Participating Employer
or Affiliate to a plan of deferred compensation
which are not included in the Participant's gross
income for the taxable year in which contributed,
contributions made by the Participating Employer
or Affiliate under a simplified employee pension
plan to the extent such contributions are excluded
from the Participant's gross income, or any
distributions from a plan of deferred
compensation;
(2) Amounts realized from the exercise of a
nonqualified stock option, or when restricted
stock (or property) held by the Participant either
becomes freely transferable or is no longer
subject to substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange, or other
disposition of stock acquired under a qualified
stock option; and
(4) Other amounts which received special tax benefits,
or contributions made by the Participating
Employer or Affiliate (whether or not under a
salary reduction agreement) toward the purchase of
an annuity described
18
<PAGE>
in Code Section 403(b) (whether or not the amounts are
actually excludable from the gross income of the
Participant).
4.05 PARTICIPATION IN DEFINED BENEFIT PLAN
(a) If any Participant has also participated in any qualified
defined benefit plan maintained by the Company, a
Participating Employer or an Affiliate, the annual additions
under the defined benefit plans shall be reduced to the
extent necessary so that the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any
Limitation Year does not exceed 1.0.
(b) The defined contribution plan fraction for any Limitation
Year is a fraction, the numerator of which is the sum of the
annual additions to the Participant's Accounts as of the
close of the Limitation Year under this Plan and any other
defined contribution plan maintained by the Company, a
Participating Employer or an Affiliate, and the denominator
of which is the sum of the lesser of the following amounts
determined for such Limitation Year and each prior year of
service with the Company, Participating Employer or
Affiliate:
(1) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(c)(1)(A) of
the Code for such Limitation Year; or
(2) The product of 1.4 multiplied by the amount which
may be taken into account under Section
415(c)(1)(B) of the Code for such Limitation Year.
(c) The defined benefit plan fraction for any Limitation Year is
a fraction, the numerator of which is the projected annual
benefit of the Participant
19
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under such plan (determined as of the close of its limitation
year) and the denominator of which is the lesser of:
(1) The product of 1.25 multiplied by the maximum
dollar limitation in effect under Section
415(b)(1)(A) of the Code for such Limitation Year;
or
(2) The product of 1.4 multiplied by the amount which
may be taken into account under Section
415(b)(1)(B) of the Code for such Limitation Year.
4.06 ALLOCATION OF EMPLOYER CONTRIBUTIONS
A Participant eligible to share in Employer Contributions pursuant to
Section 4.03 shall share in such Employer Contributions in accordance
with the formula contained in Section 3.01 of the Plan.
4.07 PARTICIPANT ELECTION OF INVESTMENT FUNDS
The Company shall establish separate investment funds in which the
assets of the Trust shall be held. Each Participant in the Plan may
select the investment fund or funds in which his Account shall be
invested. Each such election shall be made in writing on forms to be
furnished by the Plan Administrator and shall specify that portion of
the Participant's Account Balance to be invested in each respective
investment fund established by the Company, in multiples of ten
percent (10%). Changes in the Account Balances invested in the
specified funds due to earnings and losses shall not require
reallocation of the Account Balances in the specified proportions
unless subsequently elected by the Participant.
The Participant may also elect the portion of future contributions
made on his behalf to be invested in the respective investment funds
established by the Company in multiples of ten percent (10%) of the
amount of such contributions. A Participant
20
<PAGE>
may, however, elect to have zero percent (0%) of such contributions
invested in the respective investment funds.
A Participant may change his investment fund elections regarding
existing Account Balances and/or future contributions twice each Plan
Year, effective as of January 1, April 1, July 1, or October 1 by
following the procedures established by the Plan Administrator.
If no election form has been executed by the Participant and submitted
to the Trustee by the Plan Administrator, the entire Account shall be
invested in the investment fund designated by the Plan Administrator.
21
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ARTICLE V
VESTING
5.01 EMPLOYER CONTRIBUTION ACCOUNT
A Participant shall have a fully vested, nonforfeitable interest in
his Employer Contribution Account on the first to occur of the
following events:
(a) His attainment of Normal Retirement Age;
(b) The date on which he shall be determined to have a Permanent
Disability;
(c) The date of his death; or
(d) Upon the completion of the number of years of Credited
Service required for full vesting.
5.02 TERMINATION OF EMPLOYMENT
(a) Upon a Participant's Severance from Service Date for any
reason other than Permanent Disability or death and before
his Normal Retirement Age, he shall be vested in the
percentage of his Employer Contribution Account set forth in
the following table:
Completed Years
of Credited Service Vested Percentage
------------------- -----------------
Less than 5 0%
5 or more 100%
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<PAGE>
All of a Participant's years of Credited Service shall be
taken into consideration in determining the vested
percentage of his Employer Contribution Account.
(b) The portion of the Participant's Employer Contribution
Account in which he is not vested at his Severance from
Service Date shall be declared a Forfeiture on the last day
of the Plan Year in which his Severance from Service Date
occurred. Such Forfeiture shall be used as set forth in
Section 5.03. Any person who terminates employment with no
vested interest in his Account shall be deemed to have an
immediate distribution of the vested portion (zero (0)) of
his Account at the time of his termination of employment and
the remainder of his Account (one hundred percent) shall be
treated as a Forfeiture.
If the Participant is reemployed before incurring five (5)
consecutive one-year Periods of Severance and again
terminates his employment under circumstances in which he is
not fully vested in his Employer Contribution Account, such
Participant's vested balance in his Employer Contribution
Account shall be determined by adding to the amount actually
held by the Trust any amount previously distributed to him.
The vested percentage shall be applied to this total, the
amount of any previous distributions shall be subtracted and
the remaining amount shall be his vested balance in his
Employer Contribution Account.
(c) If the Participant returns to the employ of a Participating
Employer or Affiliate before he incurs five (5) consecutive
one-year Periods of Severance, the portion of his Employer
Contribution Account that had been forfeited shall be
reinstated to his Employer Contribution Account in full,
unadjusted by any gains or losses occurring subsequent to
the date immediately preceding his Severance from Service
Date, by using the Forfeitures during the Plan Year in which
his reemployment occurred. If the Forfeitures in the year
of reemployment are insufficient to restore
23
<PAGE>
the forfeited amount, the remainder shall be restored by an
Employer Contribution. Such a Participant shall continue vesting
in such Account. If the Participant incurs five (5) consecutive
Periods of Severance, he shall not regain any interest in any
Forfeiture.
5.03 DISPOSITION OF FORFEITURES
Forfeitures occurring in a Plan Year shall be used to reinstate the
Employer Contribution Accounts of rehired Participants who previously
had a Severance from Service Date and suffered a Forfeiture. Any
remaining Forfeitures shall be used to reduce the contribution of the
Participating Employer who employed the Participant from whose Account
the Forfeiture arose in future Plan Years.
5.04 EFFECT OF PERIODS OF SEVERANCE
If a Participant or Employee incurs five (5) or more consecutive one-
year Periods of Severance and is thereafter reemployed by a
Participating Employer or Affiliate, he shall regain his years of
Credited Service earned before such Periods of Severance upon such
reemployment. However, he shall not regain any interest in any
Forfeiture. If a Participant or other Employee incurs fewer than five
(5) consecutive one-year Periods of Severance and is thereafter
reemployed by a Participating Employer or Affiliate, he shall regain
his years of Credited Service earned before such Periods of Severance
and any Forfeiture shall be restored pursuant to Section 5.02.
24
<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENT
6.01 MANNER OF PAYMENT
(a) Whenever the Plan Administrator shall direct the Trustee to
make payment to a Participant upon termination of the
Participant's employment (whether by reason of retirement,
Permanent Disability or for any other reason other than
death), the Plan Administrator shall direct the Trustee to
pay the Participant's vested Account Balance (determined as
of the Valuation Date preceding his distribution) to or for
the benefit of the Participant, in the normal form of
payment described in paragraph (b) below, unless an optional
form of payment is selected pursuant to a qualified
election, as described in Section 6.02.
(b) If a Participant is married on the Annuity Starting Date,
payment to the Participant shall be made in the form of a
Qualified Joint and Survivor Annuity, unless either an
optional form of payment or a Life Annuity is selected
pursuant to a qualified election, as described in Section
6.02.
If a Participant is not married on the Annuity Starting
Date, payment to the Participant shall be made in the form
of a Life Annuity, unless an optional form of payment is
selected pursuant to a qualified election, as described in
Section 6.02.
6.02 OPTIONAL FORMS OF PAYMENT
(a) By making a qualified election, as described in paragraph
(b) below, any Participant may choose to receive payment of
his Account Balance in a lump sum payment.
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<PAGE>
Notwithstanding the foregoing, if the vested value of the
Participant's Account Balance (determined as of the
Valuation Date preceding his Severance from Service Date) is
three thousand five hundred dollars ($3,500) or less, (or
such other amount as determined under the Code), payment
shall be made as soon as practicable in a lump sum.
(b) To make a qualified election, a married Participant must
waive his right to the Qualified Joint and Survivor Annuity
within the ninety (90) day period ending on the Annuity
Starting Date. An unmarried Participant must waive his
right to the Life Annuity in the same manner as if it were a
waiver of the Qualified Joint and Survivor Annuity. A
married Participant's spouse must consent to his waiver of
the Qualified Joint and Survivor Annuity. The spouse's
consent to the waiver must be in writing, must acknowledge
the effect of the waiver and must specify the optional form
of benefit selected.
In order to be valid, the spousal consent must be witnessed
by a Plan representative or a notary public. Such spousal
consent shall not be revocable by the spouse.
Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of the Plan Administrator
that such written consent may not be obtained because there
is no spouse or the spouse cannot be located, a waiver will
be deemed a qualified election. In the event that the
spouse of a Participant is legally incompetent to give
consent, such consent may be given by the spouse's legal
guardian, which shall include the Participant in the event
the Participant is the legal guardian of the spouse. In the
event the Participant is legally separated or has been
abandoned, as provided by a court order, spousal consent
shall not be required, except where otherwise provided by a
Qualified Domestic Relations Order.
26
<PAGE>
Any consent necessary under this provision will be valid
only with respect to the spouse who signs the consent or, in
the event of a deemed qualified election, the designated
spouse. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time
before the Annuity Starting Date. The number of revocations
shall not be limited.
(c) Not less than thirty (30) days and no more than ninety (90)
days prior to the Annuity Starting Date, the Plan
Administrator shall provide the Participant with a written
explanation of:
(1) The terms and conditions of a Qualified Joint and
Survivor Annuity or Life Annuity, as appropriate;
(2) The Participant's right to make and the effect of
an election to waive the Qualified Joint and
Survivor Annuity or Life Annuity form of payment,
as appropriate;
(3) The rights of the Participant's spouse;
(4) The right to make and the effect of a revocation
of a previous election to waive the Qualified
Joint and Survivor Annuity or Life Annuity, as
appropriate; and
(5) The relative values of the various optional forms
of benefit available under the Plan.
If a Participant dies after election of an optional form but
before the Annuity Starting Date, payment shall be made in
accordance with Section 6.04 of the Plan.
27
<PAGE>
(d) Any distribution, if not made in a lump sum, may not be in
any form that will provide for payments over a period
extending beyond either the life of the Participant (or the
lives of the Participant and his designated Beneficiary) or
the life expectancy of the Participant (or the life
expectancy of the Participant and his designated
Beneficiary). All distributions under the Plan shall meet
the minimum distribution incidental benefits requirements in
Section 401(a)(9) of the Code and regulations thereunder.
6.03 TIME OF PAYMENT
Subject to the provisions of Section 6.06, payment shall be made or
shall commence as of the later of: (1) the date the Participant
attains (or would have attained) Normal Retirement Age, or (2) sixty
(60) days after the close of the Plan Year in which the employment of
the Participant terminates, unless the Participant, or his Beneficiary
in the event of his death, requests payment at an earlier date. In
such event, payment shall be made or shall commence as of the date
requested. If the Participant's Account Balance exceeds three
thousand five hundred dollars ($3,500) (or such other amount as
determined under the Code) and payment is to be made prior to the
Participant's Normal Retirement Age, the Participant must consent in
writing to the distribution before payment of any portion of the
distribution commences. In such a case, the Participant's spouse also
must consent in writing to the timing of the distribution unless
payment is made in the form of a Qualified Joint and Survivor Annuity.
If the Account Balance determined at the time of distribution exceeds
three thousand five hundred dollars ($3,500), then the Account Balance
at any subsequent time shall be deemed to exceed three thousand five
hundred dollars ($3,500). Notwithstanding the foregoing, in all cases
payment shall be made or shall commence by the April 1 immediately
following the year in which the Participant attains the age of seventy
and one-half (70-1/2), even if he has not retired.
28
<PAGE>
6.04 PAYMENTS TO BENEFICIARIES
(a) If a Participant dies before the Annuity Starting Date,
payment of his Account Balance shall be made to the
surviving spouse of the Participant in the form of a
Qualified Pre-retirement Survivor Annuity unless the
Participant either has no spouse or has designated another
Beneficiary in the manner described in this Section 6.04, or
the spouse elects to receive payment in a single lump sum.
Payment of the Qualified Pre-retirement Survivor Annuity
shall commence on the first day of the month coincident with
or next following the date the Participant would have
reached Normal Retirement Age, unless the spouse consents in
writing to an earlier distribution. The surviving spouse
may elect to receive payment as soon as administratively
feasible after the Participant's death. Notwithstanding
anything to the contrary, if the Participant's Account
Balance is three thousand five hundred dollars ($3,500) (or
such other amount as determined under the Code) or less,
payment will be made to the surviving spouse in a single
lump sum as soon as administratively feasible following the
Participant's death. In order for the designation of a
Beneficiary other than the spouse to be valid, the
designation must have been made after the first day of the
Plan Year in which the Participant attains age thirty-five
(35), the designation must contain a waiver of the Qualified
Pre-retirement Survivor Annuity, the Participant's spouse
must consent in writing to the waiver of the Qualified Pre-
retirement Survivor Annuity and to the specific nonspouse
Beneficiary designation. A valid spousal consent shall be
witnessed by either a representative of the Plan or a notary
public and shall be revocable by the spouse at any time
prior to the Annuity Starting Date. The Plan Administrator
shall provide to each Participant a written explanation of
the Qualified Pre-retirement Survivor Annuity within the
applicable period. With respect to any Participant, the
applicable period means whichever of the following periods
ends last:
29
<PAGE>
(1) The period beginning with the first day of the
Plan Year in which the Participant attains age
thirty-two (32) and ending with the close of the
Plan Year preceding the Plan Year in which the
Participant attains age thirty-five (35);
(2) A reasonable period ending after the individual
becomes a Participant; or
(3) A reasonable period ending after Section
401(a)(11) of the Code first applies to the
Participant.
Notwithstanding the foregoing, in the case of a Participant
who separates from service before attaining age thirty-five
(35), the applicable period means the period beginning one
(1) year before the separation from service and ending one
(1) year after such separation. The written explanation of
the Qualified Pre-retirement Survivor Annuity shall provide
comparable notice and information to that described in
Section 6.02 with respect to the Qualified Joint and
Survivor Annuity. A married Participant may designate a
nonspouse Beneficiary prior to the first day of the Plan
Year in which the Participant attains age thirty-five (35)
if a written explanation of the benefit provided under this
Section 6.04 is given to the Participant by the Plan
Administrator within a reasonable period prior to the time
of the designation. Such early nonspouse Beneficiary
designation shall become invalid as of the first day of the
Plan Year in which the Participant attains age thirty-five
(35). The designation of a nonspouse Beneficiary shall be
revoked automatically upon the marriage or remarriage of a
Participant. Notwithstanding the foregoing, the spousal
consent requirement shall not apply if it is established to
the satisfaction of the Plan Administrator either that the
spouse cannot be located or that other circumstances set
forth in regulations promulgated under Section 417 of the
Code which preclude the necessity of the spouse's consent
are present with respect to the Participant.
30
<PAGE>
(b) If a Participant is not married or if he has designated a
Beneficiary other than his spouse, upon his death, his
vested Account Balance shall be paid to his designated
Beneficiary in the form of a single lump sum payment as soon
as administratively feasible following the Participant's
death. If the Participant's surviving spouse is his
Beneficiary, his surviving spouse may elect to receive
payment in the form of a lump sum in lieu of the Qualified
Pre-retirement Survivor Annuity within a reasonable period
before benefits commence. If a designated Beneficiary shall
die before the Participant, his interest shall terminate,
and, unless otherwise provided in the Participant's
designation, such interest shall be paid in equal shares to
those Beneficiaries, if any, who survive the Participant.
Except as otherwise provided in paragraph (a), the
Participant shall have the right to revoke the designation
of any Beneficiary without the consent of the Beneficiary.
(c) If a Participant fails to designate a Beneficiary, if such
designation shall for any reason be illegal or ineffective
or if no Beneficiary survives the Participant, his death
benefits shall be paid to:
(1) His surviving spouse;
(2) His children in equal shares, and their
descendants, PER STIRPES;
(3) His parents in equal shares; or
(4) His brothers and sisters in equal shares, and
their descendants, PER STIRPES.
If no such person shall be living on the date of any
distribution, such amount shall be payable to the estate of
the last survivor of said persons.
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(d) Notwithstanding the foregoing provisions of this Section
6.04, in the event of the Participant's death prior to the
Annuity Starting Date, the entire interest of the
Participant shall be distributed within five (5) years after
the death of such Participant, unless one (1) of the
following exceptions is met:
(1) (A) Any portion of the Participant's Account
is payable to (or for the benefit of) a
designated Beneficiary;
(B) Such portion of the Participant's
Account shall be distributed over a
period not extending beyond the life or
life expectancy of the designated
Beneficiary; and
(C) Such distribution commences no later
than one (1) year after the date of the
Participant's death.
(2) (A) The portion of the Participant's Account
to which his surviving spouse is
entitled shall be distributed over a
period not extending beyond the life or
life expectancy of the surviving spouse;
and
(B) Such distribution commences no later
than the date on which the Participant
would have attained age seventy and one-
half (70-1/2).
If the Participant dies after the Annuity Starting Date, the
remaining portion of such interest will continue to be
distributed at least as rapidly
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<PAGE>
as under the method of distribution being used prior to the
Participant's death.
6.05 DISTRIBUTION OF UNALLOCATED CONTRIBUTIONS
If on the date of termination of a Participant's employment the
Participating Employer shall be holding contributions made by or on
behalf of the Participant but not yet allocated to his Accounts, the
Participating Employer shall pay such amounts either directly to the
Participant (or his Beneficiary, as the case may be) or to the
Trustee, to be distributed by the Trustee in accordance with the
method of distribution determined under this Article VI.
6.06 CERTAIN RETROACTIVE PAYMENTS
If the amount of the payment required to be made or commence on the
date determined in this Article VI cannot be ascertained by such date,
a payment retroactive to such date may be made no later than sixty
(60) days after the earliest date on which the amount of such payment
can be ascertained under the Plan.
6.07 ADMINISTRATIVE POWERS RELATING TO PAYMENTS
If a Participant or Beneficiary is under a legal disability and a
conservator or other person is judicially charged with the care of
such Participant or Beneficiary or his estate, all benefits to which
the Participant or Beneficiary is entitled shall be paid to such
conservator or other person.
Any payment made pursuant to this Section 6.07 shall be in complete
discharge of the obligation for such payment under the Plan.
33
<PAGE>
6.08 DIRECT ROLLOVERS
(a) A Distributee may elect, at the time and in the manner
prescribed by the Committee, to have any portion of an
Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan in the form of a Direct Rollover.
Notwithstanding the above, an Eligible Rollover Distribution
of less than two hundred dollars ($200) is not eligible for
a Direct Rollover. Further, if the Distributee elects to
have only a portion of the Eligible Rollover Distribution
paid to an Eligible Retirement Plan in the form of a Direct
Rollover, that portion must be equal to at least five
hundred dollars ($500).
(b) For purposes of this Section 6.08, the following definitions
apply:
(i) "Distributee" means a Participant or former
Participant, his surviving spouse, his spouse, or
his former spouse who is the Alternate Payee under
a Qualified Domestic Relations Order.
(ii) "Eligible Rollover Distribution" means any
distribution of all or any portion of the
Participant's vested Account Balance except that
an Eligible Rollover Distribution does not include
any distribution that is one (1) of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the Participant, or the joint
lives (or joint life expectancies) of the
Participant and his designated Beneficiary, or for
a specified period of ten (10) years or more; any
distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not
includable in gross income (determined without
34
<PAGE>
regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(iii) "Eligible Retirement Plan" means an
individual retirement account described in
Section 408(a) of the Code, an individual
retirement annuity described in Section
408(b) of the Code, an annuity plan described
in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the
Code, that accepts the Distributee's Eligible
Rollover Distribution. However, in the case
of an Eligible Rollover Distribution to the
surviving spouse, an Eligible Retirement Plan
is limited to an individual retirement
account or individual retirement annuity.
(iv) "Direct Rollover" means a payment by the Plan to
the Eligible Retirement Plan specified by the
Distributee.
35
<PAGE>
ARTICLE VII
ROLLOVERS AND TRANSFERS
7.01 ROLLOVERS AND TRANSFERS
Rollovers and transfers from other trusts, whether or not from a plan
maintained by the Participating Employer, shall not be permitted.
36
<PAGE>
ARTICLE VIII
TOP-HEAVY PROVISIONS
8.01 EFFECTIVE DATE
Notwithstanding anything herein to the contrary, the following
provisions shall apply and shall supersede any conflicting Plan
provisions with respect to any Plan Year in which this Plan is deemed
to be Top-heavy.
8.02 DEFINITIONS
DETERMINATION DATE means, with respect to any Plan Year, the last
calendar day of the immediately preceding Plan Year or, in the case of
the first Plan Year, the last calendar day of the first Plan Year.
KEY EMPLOYEE means any Employee or former Employee (or any Beneficiary
of such Employee) who, at any time during the Plan Year or any of the
four (4) immediately preceding Plan Years (or, if fewer, the total
number of Plan Years during which the Plan has been in effect) is or
was:
(a) An officer of the Participating Employer whose compensation
exceeds fifty percent (50%) of the amount in effect under
Section 415(b)(1)(A) of the Code for such Plan Year;
(b) One (1) of the ten (10) Employees whose compensation exceeds
the amount in effect under Section 415(c)(1)(A) of the Code
and who owns (or is considered to own under Section 318 of
the Code) one (1) of the largest interests in the
Participating Employer or an Affiliate;
(c) A five percent (5%) owner of the Participating Employer; or
37
<PAGE>
(d) A one percent (1%) owner of the Participating Employer whose
annual compensation from the Participating Employer and
Affiliates exceeds one hundred fifty thousand dollars
($150,000).
An officer is defined as an actual officer of the Participating
Employer or an Affiliate; provided, however, that not more than the
greater of three (3) Employees or ten percent (10%) of the Employees
(but in no event more than fifty (50) Employees) shall be considered
as officers in determining whether the Plan is Top-heavy.
NONKEY EMPLOYEE means any Employee who is not a Key Employee.
PERMISSIVE AGGREGATION GROUP means the Required Aggregation Group of
plans plus any other plan or plans of the Participating Employer or an
Affiliate which, when considered as a group with the Required
Aggregation Group, would continue to satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.
REQUIRED AGGREGATION GROUP means the group of:
(a) Each qualified plan of the Participating Employer or an
Affiliate in which at least one (1) Key Employee
participates; and
(b) Any other qualified plan of the Participating Employer or an
Affiliate which enables a plan described in paragraph (a)
above to meet the requirements of Section 401(a)(4) or
Section 410 of the Code.
TOP-HEAVY
The Plan shall be deemed to be Top-heavy for any Plan Year if, as of
the Determination Date for such Plan Year, any of the following
conditions exists:
38
<PAGE>
(a) If the Top-heavy Ratio for the Plan exceeds sixty percent
(60%) and the Plan is not part of a Required Aggregation
Group of plans or a Permissive Aggregation Group of plans;
(b) If the Plan is part of a Required Aggregation Group of plans
(but is not part of a Permissive Aggregation Group of plans)
and the Top-heavy Ratio for the group of plans exceeds sixty
percent (60%); or
(c) If the Plan is part of a Required Aggregation Group of plans
and part of a Permissive Aggregation Group of plans and the
Top-heavy Ratio for the Permissive Aggregation Group of
plans exceeds sixty percent (60%).
TOP-HEAVY RATIO
(a) If the Participating Employer or an Affiliate maintains one
(1) or more defined contribution plans (including any
simplified employee pension plan) and the Participating
Employer or Affiliate has not maintained any defined benefit
plan which during the five (5) Plan Year period ending on
the Determination Date has or has had any accrued benefits,
the Top-heavy Ratio for the Plan or for the Required
Aggregation Group or the Permissive Aggregation Group, as
appropriate, shall be a fraction, the numerator of which is
the sum of the account balances of all Key Employees under
the aggregated defined contribution plans as of the
Determination Date (including any part of any account
balance distributed in the five (5) Plan Year period ending
on the Determination Date) and the denominator of which is
the sum of all account balances (including any part of any
account balance distributed in the five (5) Plan Year period
ending on the Determination Date) of all Participants as of
the Determination Date, both computed in accordance with
Section 416 of the Code. The numerator and denominator of
the Top-heavy Ratio shall be adjusted to reflect any
contribution not actually made as of the
39
<PAGE>
Determination Date, but which is required to be taken into
account on that date under Section 416 of the Code.
(b) If the Participating Employer or an Affiliate maintains or
has maintained one (1) or more defined contribution plans
(including any simplified employee pension plan) and the
Participating Employer or Affiliate maintains or has
maintained one (1) or more defined benefit plans which
during the five (5) Plan Year period ending on the
Determination Date has or has had any accrued benefits, the
Top-heavy Ratio for the Required Aggregation Group or the
Permissive Aggregation Group, as appropriate, shall be a
fraction, the numerator of which is the sum of the account
balances of all Key Employees under the aggregated defined
contribution plans and the present value of the accrued
benefits of all Key Employees under the aggregated defined
benefit plans as of the Determination Date, and the
denominator of which is the sum of the account balances of
all Participants under the aggregated defined contribution
plans and the present value of the accrued benefits of all
Participants under the aggregated defined benefit plans as
of the Determination Date, determined in accordance with
Section 416 of the Code. The numerator and denominator of
the Top-heavy Ratio shall be adjusted for any distribution
of an account balance or accrued benefit made in the five
(5) Plan Year period ending on the Determination Date and
any contribution due but unpaid as of the Determination
Date.
(c) For purposes of paragraphs (a) and (b) above, the value of
the account balances and the present value of the accrued
benefits shall be determined as of the most recent Valuation
Date occurring within the twelve (12) month period ending on
the Determination Date, except as provided in Section 416 of
the Code for the first and second Plan Years of a defined
benefit plan. The accrued benefits of Nonkey Employees
shall be determined under the method which is used for
accrual purposes for all plans of the Participating
Employers and Affiliates or, if there is no such
40
<PAGE>
method, then as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
accrual rate of Code Section 411(b)(1)(C). The account
balances and the accrued benefits of a Participant who is
not a Key Employee but who was a Key Employee in a prior
Plan Year or who has not performed any services for the
Participating Employer under the Plan at any time during the
five (5) Plan Year period ending on the Determination Date
shall be disregarded. The calculation of the Top-heavy
Ratio and the extent to which distributions, and direct
transfers are taken into account shall be made in accordance
with Section 416 of the Code. When aggregating plans, the
value of the account balances and the present value of the
accrued benefits shall be calculated with reference to the
Determination Dates that fall within the same calendar year.
VALUATION DATE means the same valuation date used for computing plan
costs for minimum funding, regardless of whether an actuarial
valuation is performed that year.
8.03 SPECIAL CODE SECTION 415 LIMITATIONS
For purposes of Section 4.05, in any Plan Year during which the Plan
is deemed to be Top-heavy and in which the Participating Employer also
maintains a defined benefit plan which is deemed to be Top-heavy, the
number 1.25 shall be replaced by the number 1.0 to the extent required
under Section 416(h) of the Code; provided, however, that such
adjustment shall not occur if the Top-heavy Ratio does not exceed
ninety percent (90%) and additional contributions or benefits are
provided for Nonkey Employees in accordance with the provisions of
Sections 416(h)(2)(A) and (B) of the Code. In such case, the minimum
allocation described in Section 8.04(a) shall be equal to seven and
one-half percent (7 1/2%) of compensation for each Nonkey Employee
covered under both plans.
41
<PAGE>
8.04 MINIMUM ALLOCATION REQUIREMENTS
(a) The Employer Contributions allocated on behalf of any
Participant who is not a Key Employee shall not be less than
the lesser of three percent (3%) of such Participant's
compensation, or the largest percentage of Employer
Contributions allocated on behalf of any Key Employee for
that Plan Year, without, in either event, taking into
consideration any contributions or benefits under Social
Security or any similar legislation. The preceding
provisions shall not apply to any Participant who was not
employed by a Participating Employer on the last day of the
Plan Year.
(b) The minimum allocation in paragraph (a) shall be made even
though, under other Plan provisions, the Participant would
not otherwise be entitled to receive an allocation, or would
have received a lesser allocation for the Plan Year because
the Participant failed to complete at least one thousand
(1,000) Hours of Service, the Participant's compensation was
less than any stated amount or the Participant failed to
make mandatory contributions to the Plan. For purposes of
computing the minimum allocation, compensation shall mean
compensation as defined in Section 4.04(d) of the Plan. The
minimum allocation above shall not apply to a Participant
covered under another defined contribution plan of a
Participating Employer if such Participant receives the
minimum allocation under such other plan.
(c) The minimum allocation required (to the extent required to
be nonforfeitable under Section 416(b) of the Code) may not
be forfeited under Sections 411(a)(3)(B) or 411(a)(3)(D) of
the Code.
42
<PAGE>
8.05 VESTING REQUIREMENTS
With respect to any Plan Year that the Plan is a Top-heavy plan, the
Plan shall have the following vesting schedule:
Completed Years
of Credited Service Vested Percentage
------------------- -----------------
Less than 3 0%
3 or more 100%
No reduction in vested benefits may occur in the event the Plan's
status as Top-heavy changes for any Plan Year. However, this Section
does not apply to any Employee who does not have an Hour of Service
after the Plan has initially become Top-heavy.
43
<PAGE>
ARTICLE IX
MANAGEMENT OF FUNDS
9.01 APPOINTMENT OF TRUSTEE
A Trustee shall be appointed by the Company to administer the Trust
Fund. The Trustee shall serve at the pleasure of the Company and
shall have the rights, powers and duties set forth in the Trust
Agreement. All assets of the Trust Fund shall be held, invested and
reinvested by the Trustee.
9.02 ASSETS OF TRUST
All contributions under this Plan shall be paid to the Trustee and,
except as provided in Section 9.03, all assets of the Trust Fund,
including income from investments and from all other sources, shall be
retained for the exclusive benefit of Participants, former
Participants and their Beneficiaries, and shall be used to pay
benefits to such persons, or to pay expenses of administration of the
Plan and Trust to the extent not paid by the Company or Participating
Employer.
9.03 REVERSION OF EMPLOYER CONTRIBUTIONS
At no time shall any part of the corpus or income of the Trust Fund be
used for or diverted to purposes other than for the exclusive benefit
of Participants and their Beneficiaries.
Notwithstanding the above, contributions made by a Participating
Employer shall be returned to a Participating Employer in the
following cases:
(a) If a contribution is made by a Participating Employer by a
mistake in fact, such contribution shall be returned to such
Participating Employer within one (1) year after the payment
of the contribution to the Trust Fund.
44
<PAGE>
(b) Contributions are conditioned on initial qualification of
the Plan under Section 401(a) of the Code, and, if the Plan
does not qualify, then such contribution shall be returned
to the Participating Employer within one (1) year after the
date of denial of qualification of the Plan.
(c) Contributions are conditioned upon their deductibility under
Section 404(a) of the Code, and, to the extent the deduction
is disallowed, such a contribution shall be returned to the
Participating Employer within one (1) year after the
disallowance of the deduction if so requested by the
Participating Employer.
45
<PAGE>
ARTICLE X
ADMINISTRATION OF PLAN
10.01 PLAN ADMINISTRATOR
The Company shall be the Plan Administrator. The Company, by
resolution of the Board, shall appoint a Committee consisting of not
less than three (3) persons who may be officers, directors, Employees,
agents or shareholders of the Company. The Committee shall act as the
Company's agent or delegate in carrying out its administrative duties.
The Company may remove or replace any member of the Committee at any
time in its sole discretion, and any Committee member may resign by
delivering a written resignation to the remaining members of the
Committee or, if there are none, to the Company. The Committee shall
notify the Trustee promptly of any change in the composition of its
members. The Company shall be the "Named Fiduciary" for purposes of
ERISA and shall be subject to service of process on behalf of the
Plan.
10.02 RIGHTS, POWERS AND DUTIES OF PLAN ADMINISTRATOR
The Plan Administrator shall have such authority as may be necessary
to discharge its responsibilities under the Plan, including the
following rights, powers and duties:
(a) The Plan Administrator shall adopt rules governing its
procedures not inconsistent herewith, and shall keep a
permanent record of its meetings and actions. The Plan
Administrator shall administer the Plan uniformly and
consistently with respect to persons who are similarly
situated. The Plan Administrator shall maintain the
Accounts of Participants and Beneficiaries under the Plan or
shall cause them to be maintained under its direction.
46
<PAGE>
(b) The Plan Administrator shall direct the Trustee in writing
to make payments from the Trust Fund to persons who qualify
for such payments hereunder. Such written order to the
Trustee shall specify the name of the person, his address
and the amount and frequency of such payments.
(c) The Plan Administrator shall not take action or direct the
Trustee to take any action with respect to any of the
benefits provided hereunder which would be discriminatory in
favor of those Participants or Employees who are officers,
shareholders or highly compensated Employees of a
Participating Employer.
(d) The Plan Administrator shall have the sole responsibility
for the administration of the Plan; and, except as herein
expressly provided, the Plan Administrator shall have the
exclusive right to interpret the provisions of the Plan and
to determine any question arising hereunder or in connection
with the administration of the Plan, including the remedying
of any omission, inconsistency or ambiguity, and its
decision or action in respect thereof shall be conclusive
and binding upon any and all Participants, former
Participants, Beneficiaries, heirs, distributees, executors,
administrators and assigns, subject to the provisions of
Article XI. If challenged in court, such determination
shall not be subject to de novo review and shall not be
overturned unless proven to be arbitrary and capricious
based upon the evidence considered by the Plan Administrator
at the time of such determination.
(e) The Plan Administrator may employ such counsel and agents in
such clerical, medical, accounting and other services as it
may require in carrying out the provisions of the Plan.
(f) Participants, former Participants or their Beneficiaries
shall be notified by the Plan Administrator of their right
to receive benefits. The Plan Administrator shall establish
a uniform procedure for such notification.
47
<PAGE>
(g) The Plan Administrator shall establish reasonable procedures
to determine whether a Domestic Relations Order is a
Qualified Domestic Relations Order. Such procedures must be
in writing, must provide for the prompt notification of each
person specified in the order as being entitled to payment
of benefits under the Plan and must permit an Alternate
Payee to designate a representative for receipt of copies of
notices that are sent to the Alternate Payee with respect to
a Domestic Relations Order.
(h) The Plan Administrator may establish procedures which a
Participant must follow in verifying maternity or paternity
leave and the length thereof.
10.03 COMMITTEE
(a) The Committee shall hold meetings upon such notice and at
such times and places as its members may from time to time
deem appropriate, and may adopt from time to time such
bylaws and regulations for the conduct and transaction of
its business and affairs consistent with the terms of the
Plan and the delegation of duties and powers by the Company.
A majority of its members at the relevant time shall
constitute a quorum for the transaction of business. All
action taken by the Committee shall be by vote of the
majority of its members present at such meeting, except that
the Committee also may act without a meeting by a written
consent signed by a majority of its members. A member shall
not be disqualified from acting because of any personal
interest, benefit or advantage, inasmuch as a member may be
a director of the Company, an Employee or a Participant, but
no member shall vote or act in connection with an action of
the Committee relating exclusively to himself.
48
<PAGE>
(b) The Committee may allocate among its members such specific
responsibilities, obligations, powers or duties as shall be
deemed appropriate.
(c) A member of the Committee who is an Employee shall not be
entitled to receive any compensation for services rendered
but shall receive reimbursement for reasonable expenses.
Other members of the Committee may receive compensation for
services rendered and reimbursement for reasonable expenses.
(d) Except as otherwise required by ERISA, no bond or other
security shall be required of any member of the Committee.
10.04 EXERCISE OF DUTIES
The Plan Administrator and the Committee shall each discharge its
duties solely in the interest of Participants, former Participants and
their Beneficiaries:
(a) For the exclusive purposes of providing benefits to such
Participants, former Participants and Beneficiaries and, in
the discretion of the Company, defraying reasonable expenses
of Plan administration; and
(b) With the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with
like aims.
10.05 INDEMNIFICATION OF FIDUCIARIES
The Participating Employers shall indemnify all Committee members and
other officers or representatives of the Participating Employers and
Employees assigned fiduciary responsibility under Federal law to the
extent that such officers or representatives of
49
<PAGE>
the Participating Employers or Employees incur loss or damage
which may result from such officers' or representatives' or
Employees' duties, exercises of discretion under the Plan or any
other acts or omissions hereunder. Such duties, exercises of
discretion, acts or omissions shall not be indemnified by the
Participating Employers in the event that such loss or damage is
judicially determined or agreed by the officers or
representatives of the Participating Employers or Employees to be
due to their respective gross negligence or willful misconduct.
10.06 EXPENSES
All proper expenses incurred by an individual acting as agent of the
Plan Administrator incident to the functioning of the Plan shall be
paid by the Participating Employers.
50
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ARTICLE XI
CLAIMS PROCEDURES
11.01 CLAIMS PROCEDURE
A Participant or Beneficiary is not required to file a claim for
benefits under the Plan. However, if such a claim is filed, it should
be submitted in writing to the Committee which shall process it and
approve or disapprove it within ninety (90) days of the date that the
claim is received. If special circumstances arise and the Committee
cannot process the claim within ninety (90) days, the Committee shall
notify the claimant that the time for making the decision is extended
for up to ninety (90) additional days. If the Committee fails to
notify the claimant within the applicable period, the claim is
considered denied. If the Committee makes a determination to deny
benefits to a Participant, the denial shall be stated in writing and
delivered or mailed to the Participant or Beneficiary. Such notice
shall set forth the specific reasons for the denial, written in a
manner that may be understood by the Participant, and shall describe
the steps necessary for appeal. The Participant whose claim for
benefits has been denied shall have a period of sixty (60) days in
which to appeal to the Committee and submit additional information to
the Committee. The Committee shall consider the request at its next
scheduled meeting. If the claim is again denied in writing, the
Participant or Beneficiary may request a hearing within thirty (30)
days of the second denial, and the Committee shall afford a reasonable
opportunity for a hearing to any Participant or Beneficiary for a
review of its decision denying the claim, which hearing shall be held
within sixty (60) days following receipt of the request. The claimant
shall have an opportunity to present evidence and appear before the
Committee. The Committee shall review all evidence submitted by the
claimant, shall make its decision regarding the claim within one
hundred and twenty (120) days following the receipt of the request for
a hearing by the claimant and shall provide the claimant with a
written decision. The decision of the Committee regarding the claim
shall be final and conclusive.
51
<PAGE>
ARTICLE XII
AMENDMENT AND TERMINATION
12.01 TERMINATION
(a) It is the expectation of the Company and each Participating
Employer that it shall continue this Plan and the payment of
contributions hereunder indefinitely, but the continuation
of the Plan is not assumed as a contractual obligation of
the Company or of any Participating Employer, and the right
is reserved by the Company and each Participating Employer
at any time to permanently discontinue its contributions
hereunder. In the event that the Plan is terminated in
whole or in part or if contributions by the Company or any
Participating Employer are permanently discontinued, the
interest of all affected Participants shall be fully vested
and nonforfeitable.
(b) This Plan may be terminated by the Company by resolution of
its Board of Directors, at any time when, in its judgment,
business, financial or other good causes make such
termination necessary. In addition, each Participating
Employer may terminate the Plan by resolution of its Board
of Directors with respect to its Employees at any time. Any
such termination shall become effective upon the execution
and delivery by the Company or Participating Employer to the
Trustee of a written instrument signed on its behalf by its
authorized representative and stating the fact that the Plan
is terminated.
(c) Upon complete termination of the Plan, further payment of
Employer Contributions to the Trust shall cease. Upon
termination of the Plan with respect to a Participating
Employer, further payment of that Participating Employer's
contributions to the Trust shall cease. The Plan
Administrator shall notify each affected Participant of the
termination of the
52
<PAGE>
Plan. Each affected Participant shall be entitled to receive the
entire amount of his Account Balances and the Trustee shall make
payment to each such Participant of such amount in a form
permitted by the Plan and as elected by the Participant.
12.02 RIGHT TO AMEND, MODIFY, CHANGE OR REVISE PLAN
The Company, by resolution of its Board of Directors, may at any time
and from time to time amend, modify, change or revise this Plan in
whole or in part by notice thereof in writing delivered to the
Trustee, and each Participating Employer shall be bound thereby;
provided, however:
(a) That no amendment shall have the effect of vesting in the
Company or any Participating Employer any interest in or
control of any funds, securities or other property subject
to the terms of the Trust;
(b) That no amendment shall authorize or permit at any time any
part of the corpus or income of the Trust Fund to be used
for or diverted to purposes other than for the exclusive
benefit of Participants and their Beneficiaries, except as
provided in Section 9.03;
(c) That no amendment shall have any retroactive effect as to
deprive any Participant, former Participant or Beneficiary
of any benefit already accrued, save only that no amendment
made in conformance with the provisions of the Code or any
other statute relating to employees' trusts, or of any
official regulation or rulings issued pursuant thereto,
shall be considered prejudicial to the rights of any
Participant or Beneficiary; and
(d) That no amendment shall eliminate an optional form of
benefit or decrease an Account Balance.
53
<PAGE>
12.03 MERGER AND CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS
In the case of any merger or consolidation with or transfer of assets
and liabilities to any other plan, provisions shall be made so that
each Participant in the Plan on the date thereof (if the Plan then
terminated) would receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately prior to
the merger, consolidation or transfer (if the Plan had terminated).
54
<PAGE>
ARTICLE XIII
MISCELLANEOUS
13.01 NO CONTRACT OF EMPLOYMENT
Nothing herein contained shall be construed to constitute a contract
of employment between a Participating Employer and any Employee. The
employment records of the Participating Employer and the Trustee's
records shall be final and binding upon all Employees as to liability
and participation.
13.02 RESTRICTIONS UPON ASSIGNMENTS AND CREDITORS' CLAIMS
No interest of any person or entity in or right to receive
distributions from the Trust Fund shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment or other
alienation or encumbrance of any kind, nor may any such interest or
right to receive distributions be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of or other
obligations or claims against such person or entity. The preceding
sentence shall also apply to the creation, assignment or recognition
of a right to any benefit payable with respect to a Participant
pursuant to a Domestic Relations Order unless such order is determined
to be a Qualified Domestic Relations Order.
13.03 RESTRICTION OF CLAIMS AGAINST TRUST
The Trust under this Plan and the Trust Agreement from its inception
shall be a separate entity aside and apart from the Company and each
Participating Employer and its assets. The Trust and the corpus and
income thereof shall in no event and in no manner whatsoever be
subject to the rights or claims of any creditor of the Company or any
Participating Employer. Neither the establishment of the Trust, the
modification thereof, the creation of any fund or account nor the
payment of any benefits shall be construed as giving any Participant
or any other person whomsoever any legal or
55
<PAGE>
equitable rights against the Company, any other Participating Employer
or the Trustee unless the same shall be specifically provided for in
this Plan.
13.04 BENEFITS PAYABLE BY TRUST
All benefits payable under the Plan shall be paid or provided for
solely from the Trust, and the Company and the Participating Employers
do not assume any liability or responsibility therefor.
13.05 SUCCESSOR TO COMPANY
In the event that any successor to the Company or Participating
Employer, by merger, consolidation, purchase or otherwise, shall elect
to adopt the Plan, such successor shall be substituted hereunder for
the Company or for such Participating Employer upon filing in writing
with the Trustee of its election to do so, and in the case of a
Participating Employer, subject to the written consent of the Company.
13.06 APPLICABLE LAW
The Plan shall be construed and administered in accordance with ERISA,
and any judicial review thereunder shall be governed by the "arbitrary
and capricious" standard, and with the laws of the state of Illinois,
to the extent that such laws are not preempted by ERISA.
13.07 DATA
It shall be a condition precedent to the payment of all benefits under
the Plan that each Participant and surviving spouse must furnish to
the Plan Administrator such documents, evidence or information as the
Plan Administrator considers necessary or desirable for the purpose of
administering the Plan, or to protect the Company, the Participating
Employers or the Trustee.
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<PAGE>
13.08 INTERNAL REVENUE SERVICE APPROVAL
This Plan shall be effective as of the aforementioned Effective Date,
provided that the Company shall obtain a favorable determination
letter from the Internal Revenue Service that this Plan and the
related Trust Agreement qualify under Sections 401(a) and 501(a) of
the Code. Any modification or amendment of this Plan may be made
retroactive as necessary or appropriate in order to secure or maintain
such qualification.
* * * * * *
IN WITNESS WHEREOF, the undersigned certifies that Allied Products Corporation
duly adopted the Allied Products Corporation Target Benefit Plan effective
January 1, 1995 and caused such instrument to be executed by its duly authorized
officers on the 29th day of December, 1995, effective as of the 1st day of
January, 1995.
ATTEST: Allied Products Corporation
By: /s/ David B. Corwine By: /s/Kenneth B. Light
------------------------------- --------------------------------
David B. Corwine, Secretary Kenneth B. Light, Executive Vice
President
[Corporate Seal]
57
<PAGE>
ALLIED PRODUCTS CORPORATION
TARGET BENEFIT PLAN
EXHIBIT A
ACTUARIAL ASSUMPTIONS AND FACTORS
Mortality Table: GA 1983
Interest Rate: 7.5%
Salary Scale: 5%
58
<PAGE>
EXHIBIT 11
PAGE 1
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED NET
SHARES OPERATIONS OPERATIONS INCOME
------ ------------ ------------- --------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Income $ 33,989,000 $ - $ 33,989,000
Dividend requirements on Series B preferred
stock (268,000) - (268,000)
Dividend requirements on Series C preferred
stock (932,000) - (932,000)
Weighted average of outstanding shares of
common stock 9,126,000 - - -
Effect of assumed exercise of outstanding
stock options
288,000 - - -
---------- ------------ ---------- -----------
9,414,000 $ 32,789,000 $ - $32,789,000
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
Earnings per common share $ 3.48 $ - $ 3.48
------------ ---------- -----------
------------ ---------- -----------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1994
Income (loss) $ 19,687,000 $(5,354,000) $14,333,000
Dividend requirements on Series B preferred
stock (574,000) - (574,000)
Dividend requirements on Series C preferred
stock (1,319,000) - (1,319,000)
Weighted average of outstanding shares of
common stock 9,102,000 - - -
---------- ------------ ---------- -----------
9,102,000 $ 17,794,000 $ (5,354,000) $12,440,000
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
Earnings (loss) per common share $ 1.96 $ (.59) $ 1.37
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 2
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED EXTRAORDINARY NET
SHARES OPERATIONS OPERATIONS LOSS INCOME
--------- ----------- ------------ ------------ ------------
FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
Income (loss) $ 5,951,000 $ 11,385,000 $ (2,052,000) $ 15,284,000
Dividend requirements on Series B
preferred stock (603,000) - - (603,000)
Dividend requirements on Series C
preferred stock (1,470,000) - - (1,470,000)
Weighted average of outstanding
shares of common stock 8,999,000 - - - -
--------- ----------- ------------ ------------ ------------
8,999,000 $ 3,878,000 $ 11,385,000 $ (2,052,000) $ 13,211,000
--------- ----------- ------------ ------------ ------------
--------- ----------- ------------ ------------ ------------
Earnings (loss) per common share $ .43 $ 1.27 $ (.23) $ 1.47
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 3
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED NET
SHARES OPERATIONS OPERATIONS INCOME
----------- ------------ --------- ------------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Income $ 33,989,000 $ - $ 33,989,000
Dividend requirements on Series B preferred
stock (268,000) - (268,000)
Dividend requirements on Series C preferred
stock (932,000) - (932,000)
Weighted average of outstanding shares of
common stock 9,126,000 - - -
Effect of assumed exercise of outstanding
stock options 368,000 - - -
----------- ------------ --------- ------------
9,494,000 $ 32,789,000 $ - $ 32,789,000
----------- ------------ --------- ------------
----------- ------------ --------- ------------
Earnings per common share $ 3.45 $ - $ 3.45
------------ --------- ------------
------------ --------- ------------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1994
Income (loss) $ 19,687,000 $(5,354,000) $ 14,333,000
Dividend requirements on Series B preferred
stock (574,000) - (574,000)
Dividend requirements on Series C preferred
stock (1,319,000) (1,319,000)
-
Weighted average of outstanding shares of
common stock 9,102,000 - - -
----------- ------------ ------------- ------------
9,102,000 $ 17,794,000 $ (5,354,000) $ 12,440,000
----------- ------------ ------------- ------------
----------- ------------ ------------- ------------
Earnings (loss) per common share $ 1.96 $ (.59) $ 1.37
------------ --------- ------------
------------ --------- ------------
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 4
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED EXTRAORDINARY NET
SHARES OPERATIONS OPERATIONS LOSS INCOME
---------- ------------ ------------ ------------ ------------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
Income (loss) $ 5,951,000 $ 11,385,000 $ (2,052,000) $ 15,284,000
Dividend requirements on Series B
preferred stock (603,000) - - (603,000)
Dividend requirements on Series C
preferred stock (1,470,000) - - (1,470,000)
Weighted average of outstanding
shares of common stock 8,999,000 - - - -
---------- ------------ ------------ ------------ ------------
8,999,000 $ 3,878,000 $ 11,385,000 $ (2,052,000) $ 13,211,000
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
Earnings (loss) per common share $ .43 $ 1.27 $ (.23) $ 1.47
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 21
State or Other % Of
Jurisdiction Securities
In Which Owned by
Subsidiaries of Registrant (1) Incorporated Registrant
- -------------------------------------------------------------------------------
Allied Products Finance Corporation Delaware 100% (2)
Aurora Corporation of Illinois..... Illinois 100% (2)
Allied Products Financial Services
Corporation..................... Delaware 100% (2)
(1) Unnamed subsidiaries considered in the aggregate do not
constitute a significant subsidiary.
(2) Subsidiary included in consolidated financial statements.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Allied Products
Corporation registration statement on Form S-8 of our report, dated February
2, 1996, on our audits of the consolidated financial statements and financial
statement schedule of Allied Products Corporation and consolidated
subsidiaries as of December 31, 1995 and 1994 and for the three years in the
period ended December 31, 1995, which report is included in the 1995 Annual
Report of Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 22, 1996
<PAGE>
EXHIBIT 24
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, 1995 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
11th day of March, 1996.
<TABLE>
<S> <C>
Richard A. Drexler, Chairman of /s/ Richard A. Drexler
the Board, President and Chief -------------------------
Executive Officer; Director
Kenneth B. Light, Executive Vice
President and Chief Financial /s/ Kenneth B. Light
Officer, Chief Administrative -------------------------
Officer, Director
Robert J. Fleck, Vice President --
Accounting and Chief Accounting /s/ Robert J. Fleck
Officer -------------------------
Lloyd Drexler, Director /s/ Lloyd Drexler
-------------------------
William D. Fischer, Director /s/ William D. Fischer
-------------------------
Stanley J. Goldring, Director /s/ Stanley J. Goldring
-------------------------
John E. Jones, Director /s/ John E. Jones
-------------------------
John W. Puth, Director /s/ John W. Puth
-------------------------
Mitchell I. Quain, Director /s/ Mitchell I. Quain
-------------------------
S. S. Sherman, Director /s/ S. S. Sherman
-------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 744
<SECURITIES> 0
<RECEIVABLES> 45,241
<ALLOWANCES> 948
<INVENTORY> 52,406
<CURRENT-ASSETS> 120,304
<PP&E> 85,519
<DEPRECIATION> 47,083
<TOTAL-ASSETS> 166,743
<CURRENT-LIABILITIES> 65,357
<BONDS> 315
0
0
<COMMON> 91
<OTHER-SE> 98,174
<TOTAL-LIABILITY-AND-EQUITY> 166,743
<SALES> 260,861
<TOTAL-REVENUES> 260,861
<CGS> 199,544
<TOTAL-COSTS> 199,544
<OTHER-EXPENSES> 42,987
<LOSS-PROVISION> 451
<INTEREST-EXPENSE> 1,052
<INCOME-PRETAX> 18,330
<INCOME-TAX> (15,659)
<INCOME-CONTINUING> 33,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,989
<EPS-PRIMARY> 3.48
<EPS-DILUTED> 3.45
</TABLE>
