SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 1-5530
Allied Products Corporation
(Exact name of Registrant as specified in its charter)
Delaware 38-0292230
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.
10 South Riverside Plaza, Chicago, Illinois 60606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020
Securities registered pursuant to Section12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock-$.01 par value New York and Pacific
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.
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 27, 1998, 10,150,152 shares of common stock were outstanding, and
the aggregate market value of the shares of common stock (based upon the
<PAGE>
closing price on the New York Stock Exchange) held by nonaffiliates of the
Company was approximately $232,819,111. 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 20, 1998 and
Annual Report to security holders for the year ended December 31, 1997 are
incorporated by reference in Part III and Part IV herein.
The Exhibit Index is located on page 37.
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, in accordance
with the provisions of Statement of Financial Accounting Standard (SFAS) No.
14-Financial Reporting for Segments of a Business Enterprise.
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.
Approximately 6%, 16% and 11% of the Company's net sales in 1997, 1996
and 1995, respectively, were exported principally to Canada and Mexico.
PRODUCT LINES
Implements and Machinery
Products. The Bush Hog division offers a comprehensive line of implements and
machinery used by farmers, ranchers, large estate owners, commercial turf mowing
and landscape contractors, golf courses and municipalities. Implements and
machinery sold by Bush Hog include rotary cutters, tractor mounted loaders, hay
mowers, tillers, cultivators, back hoes, Zero-Turn mowers, landscape tools, and
turf and golf course mowing equipment.
Bush Hog(R) 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 (approximately 38%) of rotary cutters sold in North America.
Front end loaders are used by farmers and ranchers for material
handling. Cultivators are used for weed control after crops have been planted.
<PAGE>
Implements tend to have a shorter life than tractors and other
self-propelled machines, and purchases of implements are less likely to be
deferred in times of economic uncertainty, somewhat dampening cyclical swings in
demand. Sales of replacement parts accounted for almost one sixth of Bush Hog's
total revenue in 1997.
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.
Bush Hog introduced several new product models which contributed to its
record sales in 1997. Products of major significance were a series of five, six,
seven, and eight-foot agricultural rotary cutters which received wide spread
customer acceptance. In addition to the introduction of new agricultural
products, Bush Hog also introduced a revolutionary new mulching mower to the
golf industry for golf course rough maintenance. Early acceptance of this new
mower exceeded the Company's expectations. A network of thirty turf distributors
has been established to market this new mower and other turf care products.
Plans for 1998 include the addition of an eight-foot mulching mower and other
products targeted specifically to the golf course and turf care industry.
Bush Hog is planning to introduce its own line of Zero-Turn mowers to
replace a line of this product which was previously outsourced. A pilot run is
expected to be released by midyear with full production by early 1999. Zero-Turn
mowers are used by commercial mowing contractors and homeowners with large
acreage to maintain.
Marketing. Bush Hog markets its products, except for commercial turf and golf
course mowing equipment, through 58 commissioned manufacturer's representatives
operating as independent contractors within defined territories. The
manufacturer's representatives call on dealers located within their territories
which have been approved to carry the Bush Hog(R) line. In all, there are
approximately 2,650 Bush Hog(R) dealers. In general, the dealers 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(R) brand name is
particularly strong in the southeastern and southwestern states. Bush Hog has
also contracted with independent distributors to market commercial turf and golf
course mowing equipment within defined territories.
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 the type of equipment sold by Bush Hog includes
the major line manufacturers of tractors and landscape equipment, along with
several hundred companies producing one or more models of shortline farm or
landscape implements and machinery. 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 continues to modernize its
facilities to improve efficiency.
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.
Economic conditions in the U.S. farm sector remained positive in 1997
although commodity prices retreated from the record or near record highs of
1996. As a result, 1997 net farm income declined to $45.9 billion from the
record high of $52.2 billion in 1996. Although net farm income declined,
farmer's balance sheet equity improved in 1997 as land values continued to
increase.
Although commodity prices and net farm income declined in 1997, it was
encouraging that the price of stocker cattle improved dramatically which allowed
the cow/calf operator, Bush Hog's largest customer, to return to profitability.
Herd liquidation continued in 1997 and will probably continue at a declining
rate through the first quarter of 1998. Stocker prices are expected to remain
strong and even strengthen in 1998 as the cattle sector moves from liquidation
to the herd rebuilding phase. Traditionally, herd rebuilding results in tighter
supply of cattle and increased profits for the cow/calf producer.
The U.S. grain and commodity situation continues to be favorable
although pricing levels in 1998 will be below the 1996 record levels. Favorable
conditions are expected to continue through 2001 with normal adjustments
resulting from weather and other factors.
While the overall farm sector situation remains relatively strong and
financially sound, 1998 prices for commodities and finished livestock are
expected to be weaker than anticipated due to the deepening of the Asian
financial crisis which is expected to depress agricultural exports in 1998. The
Asian situation is not expected to negatively impact stocker cattle prices nor
profitability of the cow/calf producer.
Industrial Products And Equipment
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 initial draw 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
stamp. Investment in a large transfer press can range from $15-$35 million.
Approximately 10-15% of Verson's revenue was generated by customer
special services. Items included in the special services area are: repair parts,
complete remanufacturing of used presses, contract machining and manufacturing,
die consultation and training. In addition to the fabrication and machining of
components, Verson provides complete tooling and engineering services necessary
for turnkey systems.
Complimenting the manufacturing of presses by Verson, a new division of
Allied Products, Precision Press Industries (PPI), began operation in November
1997. PPI is engaged in the fabrication of large components weighing up to
240,000 pounds and is located in a 40,000 square foot facility in Hobart,
Indiana. PPI uses the most sophisticated welding machinery and processes
available. Supplier agreements, production scheduling and control methods enable
PPI to work in a just-in-time format. Extensive employee training and ongoing
process documentation activities are intended to provide that PPI operates in
accordance with ISO9000 guidelines. The division currently does work exclusively
for the Verson division, but retains the capability to perform custom
fabrication work for third party customers.
Marketing. Verson's Marketing Group is headed by a Director of Marketing and
Sales, with responsibility for all Verson products and services. Verson sells
and promotes its products by using a direct sales force that concentrates in
strategically significant markets and contract representatives which focus on
lower volume potential markets.
Verson's major customers are the U.S. automobile manufacturers (both
U.S. and foreign owned) and first and second tier automotive parts producing
companies, which, on average, account for the largest part of Verson's annual
revenue. The other major market served by Verson is the appliance industry where
the division's 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, a cross bar
feed in 1992 which significantly improves production, and most recently, a
Dynamic Orientation(TM) system which further improves production and saves
space.
Competition. There are only a few companies in the entire world 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
barriers to entry for new competitors are high due to the large capital
expenditures required.
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, redesigning cost out of automobiles,
and restructuring and automating their manufacturing processes.
Demand 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 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 as the major suppliers to the automakers convert
to new technology. 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 in 1995. The division is currently in the
process of further expanding its assembly facility by approximately 117,000
square feet. The expansion is scheduled to be completed by the end of 1998.
These additions have and will significantly expand the division's capacity for
manufacturing large transfer presses.
Thermoplastic Resins
Products and Services. On October 14, 1997, the Company sold its Coz division.
Coz provided a complete line of thermoplastic resins and related services to the
plastic molding and extrusion industry.
Sales Backlog
Sales backlog as of December 31, 1997 was $204,988,000 compared to
$142,304,000 at December 31, 1996. Over 65% of the backlog orders are expected
to be filled prior to the end of 1998.
Employees
Allied Products currently employs approximately 1,500 individuals.
Approximately 30% of Allied Products' employees are represented by a union.
Raw Materials and Sources of Supply
The principal raw materials used by the Bush Hog, Verson and PPI
operations include steel and other metals and purchased components. During 1997,
the materials needed by Allied Products generally were 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,"
which is used on its agricultural, landscape, and turf and golf course
equipment, "Verson," which is used on its metal forming presses, and "ETF,"
which is used on the electronically controlled transfer feeds manufactured by
the Verson division. Allied Products has also filed an application for
registration of the name "MultiMode," which is also used on electronically
controlled transfer feeds, with the United States Patent and Trademark Office.
Allied Products considers each of the above registered trademarks and the
"MultiMode" trade name to be material to its business. While Allied Products
believes that the other trademarks used by each of its operations are important,
none of the patents, licenses, franchises or such other trademarks are
considered material to the operation of its business.
Major Customers
Net sales to the three major U.S. automobile manufacturers accounted for
approximately 31% of total consolidated sales in 1997. Approximately 39% and
29% of Allied Products' consolidated net sales in 1996 and 1995,
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.
Forward-looking Statements
Some of the information contained in the above discussion may contain
forward-looking statements that are subject to certain risks, uncertainties and
assumptions. Such forward-looking statements are intended to be identified in
this document by the words "anticipate," "expect," "estimate," "objective,"
"possible" and similar expressions. Actual results may vary. Reference is made
to the "Safe Harbor Statement" contained under Item 7-Management Discussion and
Analysis of Financial Condition and Results of Operations.
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 28, 1998.
<TABLE>
<CAPTION>
Name Position with Allied Products Age
---- ----------------------------- ---
<S> <C> <C>
Richard A. Drexler......... Chairman, President and Chief Executive Officer 50
Bobby M.Middlebrooks........Senior Vice President 62
Robert J. Fleck.............Vice President-Accounting, Chief Accounting and
Administrative Officer 50
Richard W. Metzger......... Vice President 43
Mark C. Standefer...........Vice President, General Counsel and Secretary 43
</TABLE>
No family relationships exist among the executive officers, however,
Mr. Richard A. Drexler is the son of Lloyd A. Drexler, a director of the
Company. During 1997, Messrs. Kenneth B. Light, Martin A. German, Patrick J.
Riley and David B. Corwine retired as Executive Officers of the Company.
Each executive officer, except Mr. Metzger, 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 and has been Chief Executive Officer
since 1986. Mr. Drexler served as 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. 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. Fleck has been Vice President-Accounting since 1985, Chief
Accounting Officer since 1986 and Chief Administrative Officer since 1997. 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. Metzger was elected Vice President of Allied Products Corporation
in 1997 and has been President of the Verson division since 1996. Prior to that,
he was Vice President-Operations in 1996, Vice President-Marketing & Sales from
1994 to 1996 and Director of Marketing & Sales of the Verson division from 1990
to 1994. Prior to joining the Verson division in 1990, he was responsible for
Domestic and International Development for Ferranti Sceaky, Inc., an aerospace
machinery supplier.
Mr. Standefer was elected Vice President, General Counsel and Secretary
in 1997. From 1995 to 1997 he was Staff Vice President, Assistant General
Counsel and Assistant Secretary, and from 1986 to 1995 Assistant General Counsel
and Assistant Secretary. Mr. Standefer joined Allied Products in 1984 as Staff
Attorney. Prior to joining Allied Products, he was Staff Attorney for Sun
Electric Corporation.
<PAGE>
ITEM 2. PROPERTIES
Allied Products owns 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 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
(including PPI) are conducted in Chicago, Illinois and Hobart, Indiana in owned
facilities containing approximately 440,000 square feet. The Company is in the
process of expanding its Chicago facility by approximately 117,000 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.
<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,
as adjusted for the three-for-two stock split effected on August 15, 1997, is as
follows:
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Beginning End of 1997
1997 of Year Year Qtr High Low Dividend
- - -------------------------------------------------------------------------------
Common $1913/16 $24 1 $2113/16 $181/2 $.0333
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2 235/16 189/16 .0333
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3 26 213/16 .0400
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4 27 231/4 .0400
================================================================================
Beginning End of 1996
1996 of Year Year Qtr High Low Dividend
- - --------------------------------------------------------------------------------
Common $16 $1913/16 1 $163/16 $133/4 $.0333
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2 20 3/4 1413/16 .0333
- - --------------------------------------------------------------------------------
3 1815/16 163/16 .0333
- - --------------------------------------------------------------------------------
4 201/4 1513/16 .0333
- - --------------------------------------------------------------------------------
As of February 28, 1998, the approximate number of holders of record of
the Company's common stock ($.01 par value) was 2,200.
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 $.0167 per share to $.0333 per
share. During the third quarter of 1997, the Company increased its quarterly
dividend to $.04 per share.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales from continuing operations... $270,562,000 $274,414,000 $260,861,000 $215,529,000 $217,988,000
Income from continuing operations....... $ 19,971,000 $ 19,004,000 $ 33,989,000 $ 19,687,000 $ 5,951,000
Earnings per common share (basic) from
continuing operations (A)(B).......... $1.65 $1.41 $2.39 $1.31 $.29
Total assets......................... $199,783,000 $171,949,000 $166,743,000 $150,555,000 $192,040,000
Long-term debt (including
capitalized leases and redeemable
preferred stock).................. $ 670,000 $ 489,000 $ 315,000 $ 12,130,000 $ 23,522,000
Cash dividend declared per common
share (A).................. $.147 $.133 $.05 $- $-
</TABLE>
- - -----------
(A) Restated prior to 1997 to reflect the effect of a three-for-two stock
split in 1997.
(B) Restated prior to 1997 to reflect the effect of adopting SFAS
128-Earnings per Share - in 1997.
The accompanying Notes to Consolidate Financial Statements
are an integral part of this summary.
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 of the Coz division in the last quarter of 1997.
1997 Compared to 1996
The Company's net sales in 1997 were $270,562,000 compared to net sales
of $274,414,000 in 1996. The decrease in consolidated net sales in 1997 was
associated with the effects of the sale of the Coz division as noted above. Net
sales of the Coz division for 1997 were $11,000,000 less than net sales of the
prior year. Income before taxes in 1997 was $31,489,000 compared to income
before taxes of $29,708,000 for the prior year. Net income in 1997 was
$19,971,000 ($1.65 per common share) compared to net income of $19,004,000
($1.41 per common share) in 1996. Earnings per common share and weighted average
shares outstanding for 1996 have been adjusted to reflect the effects of a
three-for-two stock split which occurred during the third quarter of 1997. These
amounts have also been restated for 1996 to reflect the provisions of Statement
of Financial Accounting Standards (SFAS) No. 128-Earnings per Share. The impact
of this restatement on previously issued earnings per share computations was not
considered significant.
Net sales at the Bush Hog division increased to a record level by over
10% in 1997 compared to net sales of 1996. The majority of the increase was
associated with the cutter and loader product lines. Sales increases in the
cutter and loader product lines were associated with the upturn in cow/calf
prices in the spring of 1997. Cattle ranchers use the cutters and loaders for
grazing pasture and feed lot maintenance, respectively. Cutter sales were also
favorably affected by new/redesigned products introduced in prior years aimed at
the turf and landscaping market for utilization by commercial turf (sod) growers
and for golf course maintenance. Service parts sales also increased in 1997, but
at a lesser rate. Gross profits and gross profit margins increased at the Bush
Hog division in 1997 compared to the prior year. Approximately half of the
increase in the gross profit was associated with the increased sales volume
discussed above. The improved gross profit margin was related to continued
improvements in the manufacturing process resulting in greater direct labor
efficiencies and better control of overhead costs. The division also benefitted
from increased facility utilization during 1997.
At the Verson division, net sales decreased 3% in 1997 compared to net
sales of 1996. The entire decrease was related to press production and
associated with the mix of jobs in production. Revenue and profits are
recognized on a percentage of completion basis for press production at this
division. During the first quarter of 1997, production was completed on the last
press of an order for three "A" size transfer presses for Chrysler. The first
two presses related to this order were produced and shipped in 1996. Production
in 1997 reflects a smaller portion of production against this order and a larger
portion of production related to smaller presses with lower margins. Production
was also affected in 1997 by a four week strike in the middle of the year.
Production continued on a limited basis through the use of supervisory
employees. Gross profits and gross profit margins decreased at the Verson
division in 1997 compared to 1996. The decrease in gross profits and gross
profit margins was primarily associated with decreased facility utilization in
1997. Production hours decreased by 14% in the current year due to the effects
of the impact of outsourced production, a four week strike and the mix of
products manufactured as noted above. Also impacting gross profits and margins
were increased overtime costs necessary to meet delivery schedules following the
strike and costs associated with a program undertaken to identify improvements
in the manufacturing process. These cost increases were offset in part by the
recovery of a claim associated with prior periods and lower warranty costs.
Sales, gross profits and gross profit margins at the former Coz
division decreased in 1997 compared to the prior year. The division was sold for
cash in the early part of the fourth quarter of 1997.
Selling and administrative expenses were $34,124,000 (12.6% of net
sales) in 1997 compared to $33,400,000 (12.2% of net sales) in 1996. Selling
expenses increased slightly (less than 1%) in the current year. Decreases
related to lower commissions at the Bush Hog division (where the commission rate
was changed in 1997) were offset by costs incurred at the Verson division for a
new international marketing effort, also in 1997. Increases in administrative
costs included the effects of small staffing increases at the manufacturing
operations and normal cost increases (salaries, fringe benefits, etc.)
associated with the operations of the Company.
Interest expense in 1997 increased to $3,306,000 from $1,557,000 in the
prior year. Increased borrowing needs were associated with the Verson division
where the number of presses in process has increased and the division is
awaiting final payment on presses currently being installed. The Company also
purchased over $21,500,000 of treasury stock during 1997 as a part of a program
to purchase up to 2,250,000 shares of the Company's common stock.
Other income was $3,111,000 in 1997 compared to other expense of
$631,000 in 1996. Reference is made to Note 12 of Notes to Consolidated
Financial Statements for an analysis of other (income) expense in 1997 and 1996.
Reference is made to Note 4 of Notes to Consolidated Financial
Statements for an analysis and explanation of the current and deferred
provisions for income taxes in 1997 and 1996.
1996 Compared to 1995
Net sales in 1996 were $274,414,000 compared to net sales of
$260,861,000 for 1995. Income before taxes in 1996 was $29,708,000 compared to
income before taxes of $18,330,000 for the prior year. Net income in 1996 was
$19,004,000 compared to net income of $33,989,000 reported in 1995. During 1995,
the Company evaluated its net operating loss carryforwards and other deferred
tax assets in relation to its earnings history over the prior few years and the
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 represented a
reversal of the valuation allowance associated with the net deferred tax asset.
The 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. The net effect of these two items resulted in a
credit to income taxes of $16,648,000 in 1995.
Net sales at the Bush Hog division decreased by less than 2% in 1996
compared to 1995. On an overall basis, no single product line was responsible
for any significant increase or decrease in sales comparing 1996 to 1995.
Decreases were primarily related to disc mowers and loaders. These products, as
well as certain models of rotary cutters, were adversely impacted by the
continued effects of the widespread liquidation of cattle herds resulting in
lower cattle prices. Cattle ranchers use the cutters and loaders for grazing
pasture and feed lot maintenance, respectively. Peanut combine sales also
decreased in 1996. Subsequent to the end of 1996, the division announced that it
would no longer manufacture peanut combines. These decreases were partially
offset by the effect of increased overall rotary cutter sales and the full year
impact of new products introduced in the last half of 1995. New products were
primarily related to the turf and landscaping market for utilization by
commercial turf (sod) growers and for golf course maintenance. Gross profits and
gross profit margins improved in 1996 compared to 1995. The majority of these
increases were related to improved direct labor efficiencies and management of
overhead costs. A program was initiated in the last half of 1995 and completed
at the end of the first half of 1996 to help recognize areas and means of
improvement in the manufacturing process. Management believes that further
implementation of these changes should result in additional savings in the
future.
At the Verson division, net sales increased by over 12% in 1996
compared to the prior year. The entire increase was related to press production.
During the last half of 1995, production began on an order for three "A" size
transfer presses from Chrysler. During 1996, production (and shipment) was
completed on two of these presses with significant production completed on the
third. Shipment of the last press is expected to occur in the first half of
1997. During 1995, the press assembly area was expanded to accommodate the
continuing increase in press orders and production. Product sales other than
presses decreased slightly in 1996. Gross profits increased in 1996 compared to
1995. The increase was principally associated with increased sales (production)
volume as noted above. Gross profit margins decreased slightly
in 1996 due to the effects of increased employment levels (direct and indirect)
in order to meet production and delivery schedules. Absorption of engineering
costs decreased in 1996. Absorption in 1995 was related primarily to the order
for the three "A" presses discussed above. Two of these presses were shipped in
1996 with the third in production. Engineering activities are expected to
increase in 1997 as the division has received an order to design and build two
large transfer presses for Ford.
At the Company's former Coz division, net sales in 1996 decreased by 2%
over net sales of the prior year. Sales by product line indicated no significant
changes between the two years. Gross profits and gross profit margins decreased
in 1996. The decrease reflected the effects of increased material costs which
were not being passed on to customers in order to remain competitive with other
manufacturers. The division was selling older inventory stock, which was no
longer in demand, at prices that generated less than normal margins. The
majority of this inventory was eventually sold.
Selling and administrative expenses were $33,400,000 (12.2% of net
sales) in 1996 compared to $34,452,000 (13.2% of net sales) in 1995. The
majority of the increase in selling expenses was associated with the Bush Hog
division. Commissions (which are based on cash collections) increased in 1996
due to strong retail activity in the last quarter of the year. Additional costs
were also incurred at this division related to the introduction of new products
at turf and lawn shows during 1996. Administrative expenses decreased in 1996
compared to 1995. The majority of the decrease was associated with costs of
$1,543,000 incurred in 1995 for the termination/retirement of certain
individuals.
The increase in interest expense ($1,557,000 in 1996 compared to
$1,052,000 in 1995) was directly associated with increased average borrowing
levels ($17,201,000 in 1996 compared to $7,998,000 in 1995) under credit
agreements in effect. The effect of increased borrowing levels was partially
offset by lower average borrowing rates in 1996 (7.16%) compared to 1995
(8.88%). The majority of the increased borrowings was associated with the
Company's common stock purchase program described below. Reference is made to
Note 5 of Notes to Consolidated Financial Statements for a description of
borrowing arrangements in effect during 1996 and 1995.
Other expense was $631,000 in 1996 compared to $7,483,000 in 1995.
Reference is made to Note 12 of Notes to Consolidated Financial Statements for
an analysis of other (income) expense in 1996 and 1995.
Reference is made to Note 4 of Notes to Consolidated Financial
Statements for an analysis and explanation of the current and deferred provision
(credit) for income taxes in 1996 and 1995.
FINANCIAL CONDITION
1997
Working capital at December 31, 1997 was $51,492,000 and the current
ratio was 1.54 to 1.0. Net accounts receivables increased by $1,815,000 in 1997.
At the Bush Hog division, net receivables increased by approximately $7,000,000
in 1997. Net sales levels increased to record levels in 1997, including an
increase in net sales of over 20% in the fourth quarter, resulting in increased
receivable levels at the end of 1997. At the Verson division, net receivables
decreased slightly in 1997. The above noted increase in consolidated net
receivables was partially offset by the effects of the sale of the Coz division
in the early part of the fourth quarter of 1997. On a consolidated basis, net
inventories increased by $21,912,000 in 1997. Inventories at the Bush Hog
division decreased slightly in 1997. At the
Verson division, inventories increased by over $28,000,000 from year end 1996
levels. While the level of accumulated costs of presses in process has decreased
at the end of 1997, the level of customer deposits and progress payments has
decreased by a greater amount (over $36,000,000) at the end of 1997, resulting
in a net increase in the work in process inventory level. The above noted
increase was partially offset by the effects of the sale of the Coz division as
noted above.
Fixed asset additions ($15,334,000) included the purchase of a 40,000
square foot facility for the PPI division (for manufacturing capabilities and
the opportunity to expand the Verson business with the manufacturing of other
related equipment), the upgrade of the Verson engineering area and new machinery
and equipment at the Bush Hog and Verson operations (to reduce manufacturing
costs and improve product quality). During the fourth quarter of 1997, the
Company announced a $28,000,000 capital expansion project as a part of a
three-year program to increase production capacity at the Verson division. This
phase of the project will more than double the size of Verson's assembly
facility and will increase the division's capacity by approximately 35%. This
phase of the expansion is scheduled to be completed by the end of 1998. Funds to
finance these additions include current operating cash flow and borrowings under
the Amended and Restated Credit Agreement. Other than the sale of the Coz
division (cash proceeds in excess of $14,700,000), there were no major asset
dispositions in 1997.
The changes in the deferred tax assets (classified as both current and
other assets) were associated with changes in timing differences between book
and tax income. The continued earnings history of the Company and prospects for
future earnings makes it more likely than not that the Company will utilize the
benefits arising from the deferred tax assets noted above. See Note 4 of Notes
to Consolidated Financial Statements.
Net borrowings under the Amended and Restated Credit Agreement
increased by $23,400,000 since the end of 1996. These borrowings, along with the
proceeds from the sale of the Coz division and internally generated cash, were
used to finance working capital needs and fixed asset additions described above
and the purchase of approximately 975,000 treasury shares during 1997. Through
the end of 1997, the Company has purchased approximately 2,182,000 shares of its
common stock since the inception of the plan in 1996 to repurchase up to
2,250,000 shares of the common stock. Some treasury shares purchased have been
reissued upon the exercise of stock options.
During the third quarter of 1997, the Company's Board of Directors
authorized a three-for-two stock split for stockholders of record on August 15,
1997. The Board also authorized a dividend increase of 20% over the second
quarter's dividend.
1996
Working capital at December 31, 1996 was $50,800,000 and the current
ratio was 1.68 to 1.0. Net accounts receivables increased by $8,621,000 in 1996.
The entire increase was associated with the Verson division, of which $6,000,000
cash was in transit at the end of 1996. The remaining portion of the increase
was related to two "A" presses which were shipped to Chrysler facilities for
installation. Under the terms of the agreement with Chrysler, a portion of the
amounts due are held back until installation and die tryout of each press is
complete. Receivables at the Bush Hog division decreased in 1996. Strong retail
activity and cash collections occurred in the last quarter of 1996 resulting in
this decrease in receivables. Additional decreases were associated with the
collection of amounts due on the sale of an idle facility at the end of 1995.
Inventory levels increased by $4,384,000
at the end of 1996 compared to the end of the prior year. This increase was also
related to the Verson division. While the level of accumulated costs of presses
in process decreased at the end of 1996 (primarily due to the shipment of two
"A" presses noted above), the level of customer deposits and progress payments
has decreased by a greater amount at the end of 1996, resulting in a net
increase in the work in process inventory level. Inventory levels at the Bush
Hog division decreased due primarily to improved inventory management in 1996.
Coz division inventory levels also decreased in 1996. The division successfully
increased its efforts to eliminate excess raw material levels and better manage
production quantities.
Fixed asset additions were primarily associated with equipment
necessary to improve productivity and quality at all manufacturing divisions.
Funds to finance these additions include current operating cash flow and
borrowings under loan agreements in effect. There were no major fixed asset
dispositions in 1996.
The changes in the deferred tax assets (classified as both current and
other assets) were associated with changes in timing differences between book
and tax income and the utilization of net operating loss carryforwards
recognized in 1995.
During the first quarter of 1996, the Company increased the quarterly
dividend from $.0167 per share to $.0333 per share effective with the first
quarter dividend of 1996 paid at the end of that quarter. Quarterly dividend
rates remained at this level for the remainder of 1996.
During 1996, the Company issued 317,250 new common shares to certain
officers of the Company upon exercise of stock options. The Company repurchased
these shares from the officers for treasury stock purposes. The Company's Board
of Directors authorized the purchase of up to 2,250,000 shares of the Company's
common stock from time to time on the open market, subject to prevailing market
conditions. Of this amount, approximately 1,200,000 shares were purchased
through the end of 1996. Funds to finance these treasury share purchases
included current operating cash flow and borrowings under loan agreements in
effect. Some treasury shares purchased have been reissued upon the exercise of
stock options.
LIQUIDITY AND CAPITAL RESOURCES
At the end of 1997, the Company's sales backlog was approximately
$205,000,000. The majority of this amount is related to the Verson division and
is represented by orders for new presses. Production against these orders
extends out to the early part of 2000. Accumulated production costs of these
orders are not invoiced until shipment of the related press. During 1997, the
number of orders for new presses accompanied by significant deposits and/or
progress payments decreased. As a result, cash requirements for press production
have become more dependent upon internally generated cash and borrowings under
the Amended and Restated Credit Agreement.
At the Bush Hog division, cash collections associated with machine
sales generally are dependent upon the retail sale of the product by the dealer.
Extended payment terms are offered in the form of floor plan financing which is
customary within the agricultural equipment industry. Net farm cash income
decreased in 1997 as crop prices were lower. During 1997, cow/calf prices
increased significantly as the liquidation of cattle herds decreased during the
year. It is anticipated that net farm income and commodity prices during 1998
will not change significantly from 1997 levels.
During 1995, the Company reversed its previous valuation allowance
associated with certain net operating loss carryforwards, tax credits and timing
differences. In 1997 and future years, the Company has and 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.
At the end of 1997, the Company entered into an amendment to the
Amended and Restated Credit Agreement. Reference is made to Note 5 of Notes to
Consolidated Financial Statements for a description of the major terms of this
amended agreement.
As of December 31, 1997, the Company had cash and cash equivalents of
$609,000 and additional funds of $72,153,000 available under its Amended and
Restated Credit agreement of which $47,153,000 is available for general
corporate and operating purposes (including costs incurred by the Verson
division in connection with new press orders from the major U. S. automotive
manufacturers) and an additional $25,000,000 which is available for new Verson
business as noted above. The Company believes that its expected operating cash
flow and funds available under the Amended and Restated Credit Agreement are
adequate to finance its operations and capital expenditures in the near future.
During 1997, the Company has been in compliance with all provisions of loan
agreements in effect.
IMPACT FROM NOT YET EFFECTIVE RULES
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130-Reporting Comprehensive Income. This statement establishes
standards for the reporting and display of comprehensive income and its
components and is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods for comparative
purpose is also required. Also in June 1997, the FASB issued SFAS
131-Disclosures about Segments of an Enterprise and Related Information. This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. Comparative
information for earlier years is also to be presented. In relation to SFAS Nos.
130 and 131, the Company is in the process of evaluating the impact of these
statements on its financial reporting.
YEAR 2000 COMPLIANCE
The Company has reviewed the Year 2000 Compliance issue in relation to
its operations including relationships with customers and suppliers. In house
modifications of software began in 1996 and continued throughout 1997 at no
significant additional cost to the Company. Testing of some systems began in
1997 and will continue throughout 1998. Financial and manufacturing systems are
currently being upgraded with software which is Year 2000 Compliant. The Company
does not anticipate incurring significant additional costs in 1998
and 1999 in becoming Year 2000 Compliant and does not foresee any significant
problem affecting its business operations and relationships with customers and
suppliers in becoming Year 2000 Compliant.
SAFE HARBOR STATEMENT
Statements contained within the description of the business of the
Company contained in Item 1, the Management Discussion and Analysis of Financial
Conditions and Results of Operations as well as within the non 10-K portion of
the 1997 Annual Report that relate to future operating periods are subject to
risks and uncertainties that could cause actual results to differ from
management's projections. Operations of the Company include the manufacturing
and sale of agricultural and industrial machinery. In relation to the Bush Hog
division, forward-looking statements involve certain factors that are subject to
change. These elements encompass interrelated factors that affect farmers and
cattle ranchers' confidence, including demand for agricultural products, grain
stock levels, commodity prices, weather conditions, crop and animal diseases,
crop yields, farm land values and government farm programs. Other factors
affecting all operations of the Company include actions of competitors in the
industries served by the Company, production difficulties including capacity and
supply constraints, labor relations, interest rates and other risks and
uncertainties. The Company's outlook is based upon assumptions relating to the
factors discussed above.
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, 1997 and 1996, and
the related consolidated statements of income, shareholders' investment and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997.
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, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 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, 1998
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales........................................................ $270,562,000 $274,414,000 $260,861,000
Cost of products sold............................................ 204,754,000 209,118,000 199,544,000
------------ ------------ ------------
Gross profit................................................... $ 65,808,000 $ 65,296,000 $ 61,317,000
------------ ------------ ------------
Other costs and expenses:
Selling and administrative expenses............................ $ 34,124,000 $ 33,400,000 $ 34,452,000
Interest expense.............................................. 3,306,000 1,557,000 1,052,000
Other (income) expense, net................................... (3,111,000) 631,000 7,483,000
------------ ------------ ------------
$ 34,319,000 $ 35,588,000 $ 42,987,000
------------ ------------ ------------
Income before taxes.............................................. $ 31,489,000 $ 29,708,000 $ 18,330,000
Provision (credit) for income taxes:
Current....................................................... 1,195,000 921,000 989,000
Deferred...................................................... 10,323,000 9,783,000 (16,648,000)
------------ ------------ ------------
Net income....................................................... $ 19,971,000 $ 19,004,000 $ 33,989,000
------------ ------------ ------------
------------ ------------ ------------
Net income applicable to common stock............................ $ 19,971,000 $ 19,004,000 $ 32,789,000
------------ ------------ ------------
------------ ------------ ------------
Earnings per common share:
Basic......................................................... $1.65 $1.41 $2.39
Diluted....................................................... $1.62 $1.39 $2.34
Weighted average shares outstanding:
Basic......................................................... 12,107,000 13,505,000 13,692,000
------------ ------------ ------------
------------ ------------ ------------
Diluted....................................................... 12,353,000 13,718,000 14,011,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 609,000 $ 833,000
------------ ------------
Notes and accounts receivable, less allowances of
$531,000 and $629,000, respectively.................. $ 54,729,000 $ 52,914,000
------------ ------------
Inventories:
Raw materials........................................ $ 6,193,000 $ 9,524,000
Work in process...................................... 58,090,000 28,269,000
Finished goods....................................... 14,419,000 18,997,000
------------ ------------
$ 78,702,000 $ 56,790,000
------------ ------------
Deferred tax asset...................................... $ 12,773,000 $ 14,532,000
------------ ------------
Prepaid expenses........................................ $ 415,000 $ 191,000
------------ ------------
Total current assets............................... $147,228,000 $125,260,000
------------ ------------
Plant and Equipment, at cost:
Land.................................................... $ 2,243,000 $ 2,155,000
Buildings and improvements.............................. 40,750,000 37,196,000
Machinery and equipment................................. 51,339,000 50,083,000
------------ ------------
$ 94,332,000 $ 89,434,000
Less-Accumulated depreciation and amortization.......... 48,811,000 51,048,000
------------ ------------
$ 45,521,000 $ 38,386,000
------------ ------------
Other Assets:
Deferred tax asset...................................... $ 4,071,000 $ 5,282,000
Deferred charges (goodwill), net of amortization........ 1,491,000 1,668,000
Other................................................... 1,472,000 1,353,000
------------ ------------
$ 7,034,000 $ 8,303,000
------------ ------------
$199,783,000 $171,949,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
------------ - -----------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement.............................. $ 50,400,000 $ 27,000,000
Current portion of long-term debt....................... 268,000 193,000
Accounts payable........................................ 19,923,000 16,692,000
Accrued expenses........................................ 25,145,000 30,575,000
------------ ------------
Total current liabilities.......................... $ 95,736,000 $ 74,460,000
------------ ------------
Long-term debt, less current portion shown above........... $ 670,000 $ 489,000
------------ ------------
Other long-term liabilities................................ $ 10,353,000 $ 3,547,000
------------ ------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares at
December 31, 1997 and 1996; none issued............ $ - $ -
Common stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 and
9,364,844 shares at December 31, 1997 and 1996,
respectively......................................... 140,000 94,000
Additional paid-in capital.............................. 94,709,000 94,671,000
Retained earnings....................................... 40,428,000 22,227,000
------------ -----------
$135,277,000 $116,992,000
Less: Treasury stock, at cost: 2,144,263 and
905,071 at December 31, 1997 and 1996,
respectively......................................... (42,253,000) (23,539,000)
------------ ------------
Total shareholder's equity......................... $ 93,024,000 $ 93,453,000
------------ ------------
$199,783,000 $171,949,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................................... $ 19,971,000 $ 19,004,000 $ 33,989,000
Adjustments to reconcile net income to
net cash provided from (used for) operating activities:
Gains on sales of operating and
nonoperating assets...................................... (1,662,000) (106,000) (2,000,000)
Depreciation and amortization.............................. 5,026,000 5,075,000 5,033,000
Amortization of deferred charges........................... 177,000 177,000 2,068,000
Deferred income tax provision (benefit).................... 10,323,000 9,534,000 (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............... (5,976,000) (8,835,000) 99,000
(Increase) in inventories................................ (25,894,000) (4,384,000 (3,951,000)
(Increase) decrease in prepaid expenses.................. (294,000) 132,000 133,000
Decrease in notes receivable, due after one year......... - 40,000 423,000
Increase (decrease) in accounts payable and
accrued expenses........................................ (3,230,000) (6,621,000) 1,349,000
Other, net................................................. (456,000) 438,000 802,000
------------ ------------ ------------
Net cash provided from (used for)
operating activities....................................... $ (2,015,000) $ 14,454,000 $ 28,996,000
------------ ------------ -----------
Cash Flows from Investing Activities:
Additions to plant and equipment.............................. $(15,334,000) $ (4,684,000) $(14,378,000)
Proceeds from sales of plant and equipment.................... 504,000 207,000 3,611,000
Proceeds from sales of assets/businesses...................... 14,737,000 - -
------------ ------------ ------------
Net cash used for investing activities........................ $ (93,000) $ (4,477,000) $(10,767,000)
------------ ------------- -------------
Cash Flows from Financing Activities:
Borrowings under revolving loan and credit agreements......... $122,000,000 $119,650,000 $110,300,000
Payments under revolving loan and credit agreements........... (98,600,000) (103,850,000) (109,400,000)
Payments of short and long-term debt.......................... (270,000) (696,000) (827,000)
Redemptions of preferred stock................................ - - (17,997,000)
Common stock issued........................................... - 1,501,000 -
Purchases of treasury stock................................... (21,572,000) (25,993,000) -
Dividends paid................................................ (1,770,000) (1,808,000) (1,883,000)
Stock option transactions..................................... 2,096,000 1,308,000 668,000
------------ ------------ ------------
Net cash provided from (used for) financing activities....... $ 1,884,000 $ (9,888,000) $(19,139,000)
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents............ $ (224,000) $ 89,000 $ (910,000)
Cash and cash equivalents at beginning of year.................. 833,000 744,000 1,654,000
------------ ------------ ------------
Cash and cash equivalents at end of year........................ $ 609,000 $ 833,000 $ 744,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Information:
(A) Noncash investing and financing
activities:
1. Assets acquired through the assumption of debt......... $ 526,000 $ 442,000 $ 444,000
---------- ---------- ----------
---------- ---------- ----------
2. Treasury shares received in lieu of cash for stock
option exercise..................................... $ - $ 86,000 $ -
---------- ---------- ----------
---------- ---------- ----------
3. Treasury shares issued for non cash exercise of
stock options...................................... $ - $ 773,000 $ -
---------- ---------- ----------
---------- ---------- ----------
(B) Interest paid during year............................. $3,225,000 $1,636,000 $ 939,000
---------- ---------- ----------
---------- ---------- ----------
(C) Income/franchise taxes paid during year, net of
refunds............................................. $1,313,000 $1,291,000 $ 471,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Preferred, Common and Treasury Stock
<TABLE>
<CAPTION>
Series B
Preferred Common
($50 ($.01 Treasury
Stated Value Par Value Stock,
Per Share) Per Share) at Cost
------------- ---------- ------------
<S> <C> <C> <C>
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 $ -
Issuance of 226,500 common shares in connection with the
exercises of stock options................................ - 3,000 -
Purchase of 1,016,309 common shares for treasury purposes. - - (26,079,000)
Treasury shares issued (111,238) in connection with the
exercises of stock options............................... - - 2,540,000
-------------- ----------- ------------
Balance at December 31, 1996.................................... $ - $ 94,000 $(23,539,000)
Issuance of 4,682,405 common shares in connection with a
three-for-two stock split................................. - 46,000 -
Purchase of 974,930 common shares for treasury purposes...... - - (21,572,000)
Treasury shares issued (188,273) in connection with the
exercises of stock options................................. - - 2,858,000
-------------- ----------- ------------
Balance at December 31, 1997.................................... $ - $ 140,000 $(42,253,000)
-------------- ----------- ------------
-------------- ----------- ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF 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, 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 (pre-split basis) per share.......... - (683,000)
Issuance of 35,000 common shares in connection with the exercises 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
Net income for the year....................................................... - 19,004,000
Common dividends declared and paid-$.20 (pre-split basis) per share........... - (1,808,000)
Issuance of 226,500 common shares in connection with the exercises of
stock options............................................................... 1,584,000 -
Excess of cost of treasury shares issued over exercise price in connection
with the exercises of stock options......................................... (1,754,000) -
Tax benefit associated with stock option exercises............................ 1,698,000 -
----------- ------------
Balance at December 31, 1996..................................................... $94,671,000 $ 22,227,000
Net income for the year....................................................... - 19,971,000
Common dividends declared and paid-$.147 per share............................ - (1,770,000)
Issuance of 4,682,405 common shares in connection with a three-for-two
stock split................................................................. (46,000) -
Excess of cost of treasury shares issued over exercise price in connection
with the exercises of stock options......................................... (762,000) -
Tax benefit associated with stock option exercises............................ 846,000 -
----------- ------------
Balance at December 31, 1997..................................................... $94,709,000 $ 40,428,000
----------- ------------
----------- ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
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 large metal stamping presses
and implements and machinery used in agriculture, landscaping and ground
maintenance businesses. The Company's Coz division, which supplied thermoplastic
compounds and additives, was sold in the fourth quarter of 1997. All
manufacturing operations are within the United States. Implements and machinery
manufactured by the Bush Hog division are 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 85% of the Verson
division's revenues. Press sales generally are concentrated in the United States
and Mexico.
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 by the Bush Hog division are recorded when products 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. Changes in the Verson divison's
estimated sales, costs and profits are recognized over the remaining period of
production related to the particular order. Additionally, any anticipated losses
on contracts are charged to operations as soon as they are determinable. Other
products are recorded as sales when shipped.
Accounts Receivable-
Current accounts receivables for the Bush Hog division 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. Such receivables (with the
exception of receivables associated with service parts) 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
($52,535,000 at December 31, 1997 and $23,674,000 at December 31, 1996)
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 estimated profit ($19,162,000 at
December 31, 1997 and $15,674,000 at December 31, 1996) recognized in relation
to the sales recorded, less customer payments ($7,357,000 at December 31, 1997
and $43,579,000 at December 31, 1996) 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.
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 being 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.
Stock Split-
On July 24, 1997, the Company announced that the Board of Directors
authorized a three-for-two stock split effected by means of a stock dividend to
shareholders of record on August 15, 1997. A total of 4,682,405 additional
common shares were issued in conjunction with the stock split. The Company
distributed cash in lieu of fractional shares resulting from the stock split.
All applicable share and per share data have been adjusted for the stock split.
Earnings Per Common Share-
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)-Earnings per
Share. Earnings per common share for the years prior to 1997 have been restated
to reflect the provisions of this accounting standard. Basic earnings per common
share is based on the average number of common shares outstanding (12,107,000,
13,505,000 and 13,692,000 for the years ended December 31, 1997, 1996 and 1995,
respectively) after decreasing net income for preferred dividend requirements of
$1,200,000 for the year ended December 31, 1995. Diluted earnings per common
share is based on the average number of common shares outstanding, as noted
above, increased by the dilutive effect of outstanding stock options (246,000,
213,000 and 319,000 for the years ended December 31, 1997, 1996 and 1995,
respectively) after decreasing net income for preferred dividend requirements of
$1,200,000 for the year ended December 31, 1995.
Income Taxes-
Income taxes are accounted for under the asset and liability method in
accordance with FASB 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 approximates 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.
Recently Issued Accounting Standards-
In June 1997, the FASB issued SFAS 130-Reporting Comprehensive Income.
This statement establishes standards for the reporting and display of
comprehensive income and its components and is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods for comparative purpose is also required. Also in June 1997, the
FASB issued SFAS 131-Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement is
effective for financial statements for periods beginning after December 15,
1997. Comparative information for earlier years is also to be presented. In
relation to SFAS 130 and 131, the Company is in the process of evaluating the
impact of these statements on its financial reporting.
2. Accrued Expenses:
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Salaries and wages............................ $5,560,000 $6,026,000
Warranty...................................... 4,938,000 9,559,000
Self insurance accruals....................... 2,858,000 4,046,000
Pensions, including retirees' health.......... 6,439,000 6,417,000
Taxes, other than income taxes................ 1,158,000 811,000
Environmental matters......................... 1,810,000 2,020,000
Other......................................... 2,382,000 1,696,000
----------- ----------
$25,145,000 $30,575,000
----------- -----------
----------- -----------
</TABLE>
3. Dispositions:
During the fourth quarter of 1997, the Company sold for cash
(approximately $14,700,000) substantially all of the assets of its Coz division.
The purchaser also assumed certain specified liabilities associated with this
division. The sale resulted in a pretax gain of approximately $1,530,000 and is
included in Other (income) expense under the caption "Net gain on sales of
operating and non-operating assets"-see Note 12.
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 this sale, the purchaser is required to purchase the real estate
located in Coldwater, Ohio pending a favorable review of environmental matters.
The Company has completed necessary environmental remediation and is awaiting
the issuance of a covenant not to sue and related no further action letters by
the State of Ohio-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.
Restructuring Costs-
Prior to 1994, the Company provided $14,700,000 for the impact of an
operational restructuring plan designed to reduce operating losses by closing,
consolidating or scaling back certain operations. The restructuring of the
Company was substantially completed during 1996 with the remaining reserve being
allocated to accruals associated with certain noncontinuing businesses. Net
charges to the restructuring reserve in 1996 and 1995 were $748,000 and
$1,879,000, respectively.
As of December 31, 1997, the accompanying consolidated balance sheet
includes real estate with a net book value of $1,579,000, which is held for
sale, including $1,281,000 related to real estate under lease to the purchaser
of the White-New Idea division as discussed above.
4. Income Taxes:
Provision (credit) for income taxes in 1997, 1996 and 1995 consists of
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Federal-current......................... $ 617,000 $ 688,000 $ 756,000
Federal-deferred........................ 10,323,000 9,783,000 (16,648,000)
State-current........................... 578,000 233,000 233,000
----------- ----------- ------------
Total provision (credit)............... $11,518,000 $10,704,000 $(15,659,000)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The provision (credit) for income taxes in 1997, 1996 and 1995 differs
from amounts computed by applying the statutory rate to pretax income as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Income tax at statutory rate............. $11,021,000 $10,398,000 $ 6,416,000
Utilization of net operating loss
carryforward.......................... - - (5,997,000)
State income tax, net of federal tax
benefit............................... 376,000 151,000 151,000
Permanent book over tax differences on
acquired assets....................... 62,000 104,000 910,000
Adjustment to deferred tax asset
valuation allowance................... - - (16,648,000)
Other, net............................... 59,000 51,000 (491,000)
----------- ----------- ------------
Total provision (credit)............. $11,518,000 $10,704,000 $(15,659,000)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The significant components of deferred tax assets were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Self-insurance accruals............................... $ 1,840,000 $ 1,934,000
Inventories........................................... 2,421,000 1,999,000
Receivables........................................... 417,000 2,845,000
Sale/leaseback transaction............................ 1,557,000 1,557,000
Employee benefits, including pensions................. 4,928,000 4,696,000
Warranty.............................................. 1,803,000 3,489,000
Sales allowances...................................... 2,616,000 2,200,000
Environmental matters................................. 658,000 737,000
Other................................................. 604,000 357,000
---------- -----------
Total deferred tax asset............................. $16,844,000 $19,814,000
----------- -----------
----------- -----------
</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 represented a reversal of a valuation allowance recorded
prior to 1995. 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
$146,527,000 (of which $65,811,000 results from various acquisitions) which
expire between 1998 and 2008, and investment tax credit carryforwards of
$1,561,000 (which expire between 1998 and 2004) including up to $41,000
resulting from acquisitions.
The Company will continue to record 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. In addition, other long-term liabilities contain an
accrual related to deferred tax matters.
Tax returns for the years subsequent to 1993 are potentially subject to
audit by the Internal Revenue Service.
5. Financial Arrangements:
The Company's debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Capitalized lease obligations, at interest rates up to 12% (weighted average of
10.4% and 10.3% at December 31, 1997 and 1996, respectively), due in
varying amounts through 2002 (Note 6)........................................ $938,000 $682,000
Less current portion............................................................ 268,000 193,000
-------- --------
$670,000 $489,000
-------- --------
-------- --------
</TABLE>
Scheduled maturities of the noncurrent portion of long-term debt at
December 31, 1997 are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1999...................................................... $283,000
2000...................................................... 247,000
2001...................................................... 109,000
2002...................................................... 31,000
--------
$670,000
--------
--------
</TABLE>
During 1994, the Company entered into a Revolving Credit Agreement
(which was subsequently amended in 1995) with two banks providing for up to
$35,000,000 in working capital related loans and up to $15,000,000 in standby
letters of credit required for the Company's self-insurance program and for
other commercial purposes. During the last half of 1996, the Company entered
into an Amended and Restated Credit Agreement (which replaced the Revolving
Credit Agreement) with the same two banks. The Amended and Restated Credit
Agreement was amended at the end of 1997. The amended agreement provides for up
to $125,000,000 of borrowings and/or letters of credit at either a floating
prime or fixed LIBOR (with the rate dependent on the ratio of Funded Debt to
Operating Cash Flow) rate. Under the Amended and Restated Credit Agreement, the
Company must meet certain periodic financial tests, including minimum net worth
($89,790,000, as defined, at December 31, 1997), debt coverage and fixed charge
coverage ratio and maximum funded debt/operating cash flow ratio. Beginning in
1998, the Company must maintain revolving loans under this agreement to
$60,000,000 or less for thirty (30) consecutive days during each fiscal year
while the agreement remains in effect. Maximum amounts available under this
amended agreement are reduced by $5,000,000 per quarter beginning March 31,
1999. The agreement expires on September 30, 2000.
The weighted average interest rate on borrowings outstanding at
December 31, 1997 and 1996 was 6.9% and 7.4%, respectively.
6. Leases:
Capital Leases-
The Company leases various types of manufacturing, office and
transportation equipment.
Capital leases included in Machinery and equipment in the accompanying
balance sheets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
<S> <C> <C>
Capitalized cost............................................ $2,490,000 $2,558,000
Less-Accumulated amortization............................... 1,528,000 1,764,000
---------- ----------
$ 962,000 $ 794,000
---------- ----------
---------- ----------
</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,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals........................... $1,989,000 $1,943,000 $1,922,000
Contingent rentals........................ 41,000 79,000 89,000
---------- ---------- ----------
$2,030,000 $2,022,000 $2,011,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Contingent rentals are composed primarily of truck fleet unit 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, 1997, 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>
Net
Minimum Minimum
Annual Sublease Annual
Rental Rental Rental
Payments Income Payments
---------- ---------- ----------
<S> <C> <C> <C>
Year ending December 31,
1998.................................... $1,541,000 $ (602,000) $ 939,000
1999.................................... 1,561,000 (667,000) 894,000
2000.................................... 1,295,000 (731,000) 564,000
2001.................................... 473,000 - 473,000
2002.................................... 372,000 - 372,000
Later................................... 492,000 - 492,000
---------- ----------- ----------
$5,734,000 $(2,000,000) $3,734,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
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.
All shares of the Series B and Series C Preferred Stock have been redeemed. The
remaining 1,500,000 shares of authorized preferred stock are undesignated and
unissued at December 31, 1997.
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 1997, 1996 or 1995. No stock appreciation rights have been granted
to date under this plan. There are 50,835 options outstanding under this plan at
December 31, 1997 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
1,500,000 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 1,436,252 shares (net of
forfeitures) of the Company's Common Stock at prices between $1.00 and $19.00
per share. There are 429,775 options outstanding under this plan at December 31,
1997 and are included in the table below. At December 31, 1997, the Company has
the capacity to issue an additional 63,748 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 114,750 shares of the Company's Common Stock at prices
between $8.34 and $19.01 per share. All options issued are outstanding under
this plan at December 31, 1997 and are included in the table below.
In 1997, shareholders approved a new incentive stock plan, the 1997
Incentive Stock Plan (the 1997 Plan) to replace the 1990 Plan and the 1993 Plan
described above. The 1997 Plan permits a committee of the Company's Board of
Directors to grant incentive awards in the form of non-qualified stock options,
incentive stock options, stock awards including restricted stock, stock
appreciation rights and performance units to key employees and non-employee
directors. The 1997 Plan authorizes the issuance of up to 750,000 shares of the
Company's Common Stock pursuant to the grant or exercise of stock options, stock
appreciation rights, restricted stock and performance units. Non-qualified stock
options issued under this plan (105,000 shares in 1996 subject to shareholder
approval, which was received in 1997, and 110,000 shares in 1997) were granted
at fair market value at date of grant. Options granted become exercisable over a
period of up to three years from date of grant with no option exercisable prior
to one year from date of grant. Other than these noted options, no other
incentive awards have been granted under this plan since its inception. All
options issued under this plan are outstanding at December 31, 1997 and are
included in the table below.
Stock option transactions in 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year.................................... 931,758 $12.15 1,148,025 $ 7.71 1,116,523 $ 7.23
Granted.................................... 110,000 24.65 413,250 16.18 190,502 9.65
Exercised.................................. (188,273) 11.14 (627,018) 6.69 (116,250) 5.75
Expired.................................... (375) 16.09 - - - -
Forfeited.................................. (42,750) 15.87 (2,499) 9.50 (42,750) 9.23
------- ------ --------- ------ --------- -----
Outstanding at end of year.................... 810,360 $13.89 931,758 $12.15 1,148,025 $ 7.71
------- ------ --------- ------ --------- ------
------- ------ --------- ------ --------- ------
Options exercisable at end of year............. 523,529 $10.93 474,509 $ 9.60 756,899 $ 7.09
Weighted average fair value of options
granted during the year.. $ 6.60 $ 3.81 $ 3.85
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Risk free interest rate................... 6.10% 5.80% 7.70%
Dividend yield............................ 0.70% 0.80% 0.40%
Expected lives............................ 4 years 4 years 4 years
Volatility................................... 23.00% 22.00% 39.00%
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Ranges of Exercis Prices Shares Life Price Shares Price
------------------------ ------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1.75-3.84 37,775 3.4 years $ 2.58 37,775 $ 2.58
8.34-12.92 304,145 6.1 years 8.99 304,145 8.99
15.26-24.875 468,440 8.3 years 17.98 181,609 15.92
------- -------
$1.75-24.875 810,360 7.3 years $ 13.89 523,529 $ 10.93
------- -------
------- -------
</TABLE>
At December 31, 1997, the Company has four stock options plans, which
are described above. The Company applied Accounting Principles Board (APB)
Opinion 25 and related interpretations in accounting for these plans.
Accordingly, no compensation costs have been recognized for these plans. Had
compensation costs for the Company's stock option plans been determined based on
the fair value at the grant date for options granted under these plans
consistent with the method of SFAS 123-Accounting for Stock-Based Compensation,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income As reported $19,971,000 $19,004,000 $33,989,000
Pro forma 19,460,000 18,581,000 33,651,000
Basic earnings per share As reported $ 1.65 $ 1.41 $ 2.39
Pro forma 1.61 1.38 2.37
Diluted earnings per share As reported $ 1.62 $ 1.39 $ 2.34
Pro forma 1.58 1.35 2.32
</TABLE>
Under provisions of SFAS 123, the above pro forma disclosures are not
representative of the effects on reported net income of options issued during
the financial reporting phase in period as options vest over a two year period
from date of issuance and have, in some instances, been issued on several
occasions during each year.
On February 15, 1991, the Company declared a dividend distribution of
one right ("Right") to purchase an additional 1.5 shares of the Company's Common
Stock for $50 on each 1.5 shares 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 1.5 new shares 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.
Net periodic pension costs as they relate to defined benefit plans were
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost........................ $ 758,000 $ 658,000 $ 673,000
Interest cost....................... 2,717,000 2,438,000 2,284,000
Actual loss (gain) on plan assets... (7,320,000) (2,787,000) (7,989,000)
Net amortization and deferral....... 4,170,000 316,000 6,038,000
Curtailment expense (income)........ 210,000 - (64,000)
----------- ----------- -----------
Net periodic pension cost........... $ 535,000 $ 625,000 $ 942,000
----------- ----------- -----------
----------- ----------- -----------
</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 7.5%. The difference between the actual return and the expected
return is included in the "Net amortization and deferral" in the above table.
The actuarial present value of benefits was determined using a discount rate of
7.5% in 1997, 7.75% in 1996 and 7% in 1995. The rate of compensation increase
used to measure the projected benefit obligation in three plans was 5%. All
other plans are based on current compensation levels. Curtailment expense
(income) was related to the retirement of certain Corporate executives.
The following table sets forth the funded status of the Company's
defined benefit pension plans:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996
------------------------- ---------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Plan assets at fair value.............. $46,162,000 $ - $41,270,000 $ -
----------- ----------- ----------- ------------
Actuarial present value of benefit
obligations:
Vested benefits.................... $32,214,000 $ 1,815,000 $28,981,000 $ 843,000
Nonvested benefits................. 1,813,000 - 1,456,000 -
----------- ----------- ----------- ------------
Accumulated benefit obligation........ $34,027,000 $ 1,815,000 $30,437,000 $ 843,000
Effect of projected future
compensation increases.............. 2,380,000 385,000 1,750,000 382,000
----------- ----------- ----------- ------------
Projected benefit obligation.......... $36,407,000 $ 2,200,000 $32,187,000 $ 1,225,000
----------- ----------- ----------- ------------
Plan assets in excess of (less than)
projected benefit obligation........ $9,755,000 $(2,200,000) $9,083,000 $ (1,225,000)
Unrecorded net (gain) loss from past
experience different from that
assumed and effect of changes in
assumptions........................ (13,305,000) 111,000 (10,913,000) (115,000)
Unrecorded prior service cost........ 1,583,000 564,000 226,000 407,000
Unrecognized net (asset) at date
of initial application............. (954,000) - (1,427,000) -
Adjustment for minimum liability..... - (290,000) - -
----------- ---------- ----------- ------------
(Accrued) pension costs.............. $(2,921,000) $(1,815,000) $(3,031,000) $ (933,000)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The plans' assets include common stocks, fixed income securities,
short-term investments and cash. Common stock investments include approximately
246,000 shares of the Company's Common Stock at December 31, 1997 and 1996.
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 were $222,000 in 1997, $217,000
in 1996 and $206,000 in 1995.
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, four mutual funds and a fixed income
fund. As of December 31, 1997 and 1996, assets of the SMART plan include
approximately 511,000 and 724,000 shares, respectively, of the Company's Common
Stock.
Effective January 1, 1995, the Company instituted a noncontributory
defined contribution retirement plan called the Target Benefit Plan. All non
union employees not covered by pension plans 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 service and earnings as defined. Employee investment
alternatives include a money market fund, four 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 1997, 1996 and 1995
were $664,000, $773,000 and $932,000, respectively.
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 7.8% for retirees under age 65 (7.2% for retirees age 65 and older)
in 1998 to 5.5% over 25 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,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and their dependents.................. $ (196,000) $ (265,000)
Fully eligible active plan participants........ (59,000) (55,000)
Active employees not fully eligible............ (544,000) (447,000)
----------- -----------
Accumulated postretirement benefit obligation..... $ (799,000) $ (767,000)
Plan assets....................................... - -
Unrecognized prior service costs.................. 11,000 12,000
Unamortized net (gain) loss....................... (241,000) (274,000)
----------- -----------
(Accrued) postretirement benefit costs............ $(1,029,000) $(1,029,000)
----------- -----------
----------- -----------
</TABLE>
Net periodic postretirement benefit costs include the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost........................................... $50,000 $37,000 $33,000
Interest cost.......................................... 56,000 40,000 56,000
Amortization of unrecognized net (gain)................ (11,000) (3,000) (18,000)
Amortization of prior plan amendment................... 1,000 1,000 1,000
------- ------- -------
Net periodic postretirement benefit cost............... $96,000 $75,000 $72,000
------- ------- -------
------- ------- -------
</TABLE>
Measurement of the accumulated postretirement benefit obligation was
based on a discount rate of 7.5% in 1997, 7.75% in 1996 and 7.0% in 1995.
During 1995, the Company made provisions totaling $1,543,000 for the
termination/retirement of certain individuals.
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
U.S. Department of Justice, the Company closed and remediated a landfill leased
by the Company and formerly used for the disposal of spent foundry sands. 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 $4,000,000, including attorney fees, from the
Company and other defendants. The Company has denied liability and asserted a
counter-claim against plaintiff and cross-claims against the co-defendants. The
Company has also filed claims against its insurers.
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 is 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 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. The Company has completed
all necessary investigation and remediation, and has expended approximately
$1,300,000 in this effort. The final report and request for a covenant not to
sue is currently under review by The Ohio Environmental Protection Agency. In
addition, the Company has entered into a series of agreements for financial
contribution with both the prior owner and the contract purchaser of the
facility, and has recovered approximately 50% of the $1,300,000 spent.
During 1997, 1996 and 1995, the Company recorded provisions (credits)
of approximately $(1,181,000), $(418,000) and $921,000, respectively, toward
various environmental matters discussed above. At December 31, 1997, the Company
has accruals, including those discussed above, of $1,810,000 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-
During 1994, the Company learned the United States Department of
Justice was investigating possible improper payments made in connection with a
foreign sale by the Company's former Cooper division in mid-1993. In August
1993, the Company announced that it had uncovered a diversion of funds to an
account opened by a former employee of the Cooper division in Brady, Texas, and
possible improper diversion of funds that might constitute violations of the
Foreign Corrupt Practices Act. At that time, the Company voluntarily turned its
findings over to the Department of Justice. The Company continues to cooperate
fully with the Department of Justice.
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 of approximately $7,300,000 due May 22, 1996. The purchaser's
payment obligation was secured by the technology license and was 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 (reduced to $7,165,000 at December 31, 1996) against the
receivable, due to published adverse financial information about the purchaser
and its parent which raised serious concerns about the
collectability of the receivable. During 1997, the Company entered into a
settlement agreement with the purchaser of the business. Under the terms of the
agreement, the purchaser agreed to pay the Company $3,000,000 ($2,390,000
collected through the end of 1997) and all parties agreed to the
dismissal/release of certain actions, claims and security
interests. Remaining amounts due under this agreement ($610,000) at December 31,
1997 and the related reserve are classified as "Other Assets-Other" in the
accompanying balance sheet.
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 ($2,600,000 and $3,168,000 at December 31, 1997 and 1996, 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. 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, 1997, the Company was contingently liable for
approximately $1,369,000 primarily relating to outstanding letters of credit.
The Company has 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 of up 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 6%, 16% and 11% of the Company's net sales in 1997, 1996
and 1995, respectively, were exported principally to Canada and Mexico.
Approximately 31%, 39% and 29% of the Company's net sales in 1997, 1996
and 1995, 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,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income........................................................ $ (127,000) $ (112,000) $ (437,000)
Goodwill amortization.................................................. 177,000 177,000 2,068,000
Loan cost expenses/amortization........................................ - 333,000 440,000
Environmental related expenses (credits)............................... (1,181,000) (418,000) 1,110,000
Net gain on sales of operating and non-operating assets................ (1,662,000) (106,000) (2,000,000)
Provision (credit) for collectability (recovery) of long-term
note receivable (Note 10)............................................ (2,390,000) (534,000) 7,699,000
Idle facility income................................................... (368,000) (147,000) (30,000)
Litigation settlements/insurance provisions............................ 2,125,000 1,512,000 (1,125,000)
Other miscellaneous.................................................... 315,000 (74,000) (242,000)
----------- ----------- -----------
$(3,111,000) $ 631,000 $ 7,483,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
13. Quarterly Financial Data (unaudited):
Summarized quarterly financial data for 1997 and 1996 are as follows
(in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
Quarter Ending
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997
Net sales........................................ $72,881 $76,902 $63,714 $57,065
Gross profit..................................... 17,655 19,579 16,199 12,375
Income before extraordinary items and
cumulative effect of change in accounting....... 5,171 6,206 5,013 3,581
Earnings per common share before
extraordinary items and cumulative
effect of change in accounting (a).............. .42 .51 .42 .30
Net income....................................... 5,171 6,206 5,013 3,581
Net income per common share-basic (a)............ .42 .51 .42 .30
1996
Net sales........................................ $75,243 $69,198 $72,273 $57,700
Gross profit..................................... 16,896 17,806 16,122 14,472
Income before extraordinary items and
cumulative effect of change in accounting....... 5,118 5,542 4,806 3,538
Earnings per common share before
extraordinary items and cumulative
effect of change in accounting (a)............ .37 .41 .36 .27
Net income....................................... 5,118 5,542 4,806 3,538
Net income per common share-basic (a)............ .37 .41 .36 .27
</TABLE>
(a) Restated to reflect the effect of a three-for-two stock split in 1997.
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 Common 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,
1997, 1996 and 1995
Consolidated balance sheets as of December 31, 1997 and 1996
Consolidated statements of cash flows for the years ended
December 31, 1997, 1996 and 1995
Consolidated statements of shareholders' investment for the years
ended December 31, 1997, 1996 and 1995
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, 1997, 1996 and 1995
(a) 3. Exhibits
The following exhibits are incorporated by reference as noted below:
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)(a)(i) of
the Company's report on Form 8-K dated January 14, 1994 (File
No. 1-5530).
10(e) 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(f) 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(g) 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(h) 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(i) 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(j) 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).
10(k) The Registrant's Amended and Restated Credit Agreement dated as of
August 23, 1996 among Allied Products Corporation, the banks named
herein and Bank of America Illinois, individually and as Agent is
incorporated by reference to Exhibit 10A of the Company's 1996
Annual Report on Form 10-K (File No. 1-5530).
10(l) The Registrant's Consent to Stock Repurchases dated as of November
27, 1996 is incorporated by reference to Exhibit 10B of the
Company's 1996 Annual Report on Form 10-K (File No. 1-5530).
10(m) The Registrant's 1997 Incentive Stock Plan is incorporated by
reference to Exhibit 10 of the Company's June 30, 1997 Quarterly
Report on Form 10-Q (File No. 1-5530).
The following exhibits are attached only to the copies of this report
filed with the Securities and Exchange Commission:
Exhibit No. Name of Exhibit
----------- ---------------
10A Material Contract-Amendment No. 2 to Credit Agreement.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney.
27 Financial Data Schedule.
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
On October 29, 1997, the Company filed a report under Item 5-Other
Events. This report was filed in connection with the completion of the sale of
the Coz division. No financial statements were filed with this report.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for doubtful accounts-
Current receivables:
Balance at beginning of year............... $ 629,000 $ 948,000 $ 1,521,000
Add (deduct)-
Provision charged to income.............. 114,000 214,000 451,000
Receivables charged off as bad debts,
net of recoveries....................... (212,000) (533,000) (1,024,000)
----------- ----------- -----------
Balance at end of year..................... $ 531,000 $ 629,000 $ 948,000
----------- ----------- -----------
----------- ----------- -----------
Long-term receivables:
Balance at beginning of year............... $ 7,165,000 $ 7,699,000 $ -
Add (deduct)-
Provision charged to income.............. - - 7,699,000
Receivables charged off as bad debts,
net of recoveries....................... (6,555,000) (534,000) -
------------ ----------- -----------
Balance at end of year..................... $ 610,000 $ 7,165,000 $ 7,699,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
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)
March 25, 1998 By: /s/ RICHARD A. DREXLER
---------------------------------
Richard A. Drexler, Chairman,
President and Chief Executive,Officer
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
March 25, 1998 * /s/ [ROBERT J. FLECK]
-------------------------------------------
Robert J. Fleck, Vice President-Accounting,
Chief Accounting and Administrative Officer
* /s/ [LLOYD DREXLER]
-------------------------------------------
Lloyd Drexler,
Director
-------------------------------------------
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
* /s/ [S. S. SHERMAN]
-------------------------------------------
S. S. Sherman,
Director
* By: /s/ [MARK C. STANDEFER]
-------------------------------------------
Mark C. Standefer,
Attorney-in-fact
</TABLE>
EXHIBIT 10A
AMENDMENT NO. 2 TO CREDIT AGREEMENT, DATED AS OF AUGUST 23, 1996
This Amendment No. 2 (this "Amendment"), dated as of December
31, 1997, is made by and among ALLIED PRODUCTS CORPORATION, a Delaware
corporation (the "Company"), the financial institutions party hereto (the
"Banks"), and Bank of America National Trust and Savings Association (as
successor by merger to Bank of America Illinois), as agent for the Banks (in
such capacity, the "Agent"). Terms defined in the Credit Agreement shall have
the same respective meanings when used herein and the provisions of Sections 13
of the Credit Agreement shall apply, mutatis mutandis, to this Amendment.
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain
Amended and Restated Credit Agreement, dated as of August 23, 1996, as amended
by letter agreement dated November 27, 1997 (as in effect on the date hereof,
the "Existing Credit Agreement" and as amended and modified by this Amendment,
the "Credit Agreement");
WHEREAS, the Company has requested that the Banks and the
Agent agree to amend and modify the Existing Credit Agreement as described
herein; and
WHEREAS, the Banks and the Agent are willing to amend and
modify the Existing Credit Agreement on the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration (the
receipt, adequacy and sufficiency of which is hereby acknowledged), the parties
hereto, intending legally to be bound, hereby agree as follows:
1. Amendments. Subject to the satisfaction of the
conditions precedent set forth in Section 5 below, the Existing
Credit Agreement is hereby amended as follows:
(a) Section 1.1.3 of the Existing Credit Agreement shall be
amended by deleting each reference to $100,000,000 contained therein
and replacing it with $125,000,000, and adding a new paragraph thereto
which shall read in its entirety as follows:
\25605\121\10AM2MBB.001
<PAGE>
"Notwithstanding anything contained in this Agreement
to the contrary, for a period of thirty (30) consecutive days
during each fiscal year of the Company while this Agreement
remains in effect, the aggregate outstanding principal amount
of all Revolving Loans shall not exceed $60,000,000."
(b) Section 5.3 of the Existing Credit Agreement is amended by
deleting the reference to $50,000,000 contained therein and replacing
it with $75,000,000;
(c) Section 6.1 of the Existing Credit Agreement shall be
amended by (i) inserting "(a)" at the beginning thereof and replacing
the "." at the end thereof with "; and" and (ii) adding a new paragraph
thereto which shall read in its entirety as follows:
"(b) On each Commitment Reduction Date set forth
below (each called a "Commitment Reduction Date"), the
aggregate Commitments of the Banks shall be automatically and
permanently reduced, pro rata, in an amount sufficient to
reduce the aggregate Commitments of the Banks to the principal
amount set forth opposite such Commitment Reduction Date:
Commitment Maximum Commitments
Reduction Date
March 31, 1999 $120,000,000
June 30, 1999 $115,000,000
September 30, 1999 $110,000,000
December 31, 1999 $105,000,000
March 31, 2000 $100,000,000
On any date that the aggregate unpaid principal amount of the
Revolving Loans plus the aggregate Stated Amount of all
Letters of Credit exceeds the aggregate Commitment of the
Banks, the Company shall immediately repay the Revolving Loans
in an amount equal to such excess."
(d) Section 10.5 of the Existing Credit Agreement is deleted
in its entirety and replaced with the following:
"SECTION 10.5 Net Worth. Not permit the Company's
Consolidated Net Worth at any time to be less than (a) the
Company's Consolidated Net Worth as of the Fiscal Quarter
ended September 30, 1997, plus (b) fifty percent (50%) of the
Company's positive consolidated net income for each Fiscal
Quarter ended after September 30, 1997,
\25605\121\10AM2MBB.001
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\25605\121\10AM2MBB.001
<PAGE>
less (c) repurchases by the Company of its capital stock to
the extent such repurchases do not exceed $30,000,000 in the
aggregate, less (d) the amount of any cash dividends paid or
declared in an amount not to exceed $7,500,000; provided that
any deduction required by this clause (d) when aggregated with
the amounts deducted pursuant to clause (c) of this Section
10.5, if any, shall not exceed $30,000,000."
(e) Section 10.8 of the Existing Credit Agreement is deleted
in its entirety and replaced with the following:
"SECTION 10.8 Minimum Debt Coverage. Not permit the
ratio of (a) the sum of (i) the accounts receivable of the
Company and its Subsidiaries, plus (ii) the book value of
inventory of the Company and its Subsidiaries (provided that
the value of such inventory shall not exceed 150% of the net
amount of accounts receivable under clause (i) above), plus
(iii) cash and cash equivalents (determined according to GAAP)
of the Company and its Subsidiaries to (b) the aggregate
principal amount of all Indebtedness of the Company and its
Subsidiaries, to be less than 1:1 during the Fiscal Quarter
ended December 31, 1997 and during the fiscal years ended
December 31, 1998 and 1999, and less than 1.5:1 thereafter."
(f) The definition of Margin set forth in Section 13 of the
Existing Credit Agreement is amended by deleting the column with the
heading "Rate per annum" in its entirety and replacing it with the
following:
"Rate per annum
0.500%
0.625%
0.750%
1.000%
1.250%"
(g) The definition of Revolving Termination Date set forth in
Section 13 of the Existing Credit Agreement shall be deleted in its
entirety and replaced with the following:
"Revolving Termination Date shall mean September 30,
2000."
(h) Exhibit A to the Existing Credit Agreement is deleted in
its entirety and replaced with Exhibit A attached hereto.
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\25605\121\10AM2MBB.001
<PAGE>
(i) A new sentence shall be added at the end of the final
paragraph of Section 3.3 of the existing Credit Agreement and shall
read in its entirety as follows:
"After giving effect to any Revolving Loan, there may
not be more than eight (8) different Interest Periods in
effect for all Revolving Loans then outstanding."
2. Documents Remain in Effect. Except as amended and modified
by this Amendment, the Existing Credit Agreement remains in full force and
effect and the Company confirms that its representations, warranties, agreements
and covenants contained in, and obligations and liabilities under, the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as if made on the date hereof, except where such
representation, warranty, agreement or covenant speaks as of a specified date.
3. References in Other Documents. References to the Existing
Credit Agreement in any other document shall be deemed to include a reference to
the Credit Agreement, whether or not reference is made to this Amendment.
4. Representations. The Company hereby represents and warrants
to the Banks and the Agent that:
(a) The execution, delivery and performance of this Amendment
and the Restated Notes (as hereinafter defined) are within the
Company's corporate authority, have been duly authorized by all
necessary corporate action, have received all necessary consents and
approvals (if any shall be required), and do not and will not
contravene or conflict with any provision of law or of the Certificate
of Incorporation or By-laws of the Company or its Subsidiaries, or of
any other agreement binding upon the Company or its Subsidiaries or
their respective property;
(b) This Amendment and the Restated Notes constitute the
legal, valid, and binding obligations of the Company, enforceable
against the Company in accordance with its terms; and
(c) no Default has occurred and is continuing or will result
from this Amendment or the Restated Notes.
5. Conditions Precedent. The effectiveness of this Amendment
is subject to the receipt by the Agent of each of the following, each
appropriately completed and duly executed as required and otherwise in form and
substance satisfactory to the Agent:
\25605\121\10AM2MBB.001
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\25605\121\10AM2MBB.001
<PAGE>
(a) Certified copies of resolutions of the Board of Directors
of the Company authorizing or ratifying the execution, delivery and
performance by the Company of this Amendment and the Restated Notes;
(b) A certificate of the President or a VicePresident of the
Company that all necessary consents or approvals with respect to this
Amendment and the Restated Notes have been obtained;
(c) A certificate of the Secretary or Assistant Secretary of
the Company, certifying the name(s) of the officer(s) of the Company
authorized to sign this Amendment, the Restated Notes and the documents
related hereto on behalf of the Company;
(d) Restated Revolving Notes, in the form attached hereto as
Exhibit B, payable to the order of each Bank in principal amount equal
to such Bank's aggregate Commitment;
(d) An opinion of Mark Standefer covering those matters set
forth in clauses (a) and (b) of Section 4 and such other legal matters
as the Agent or its counsel may request; and
(e) Such other instruments, agreements and documents as the
Agent may reasonably request, in each case duly executed as required
and otherwise in form and substance satisfactory to the Banks.
6. Miscellaneous.
(a) Section headings used in this Amendment are for
convenience of reference only, and shall not affect the construction of this
Amendment.
(b) This Amendment and any amendment hereof or supplement
hereto may be executed in any number of counterparts and by the different
parties on separate counterparts and each such counterpart shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same agreement.
(c) This Amendment shall be a contract made under and governed
by the internal laws of the State of Illinois, without giving effect to
principles of conflicts of laws.
(d) All obligations of the Company and rights of the Banks and
the Agent, that are expressed herein, shall be in
\25605\121\10AM2MBB.001
-5-
\25605\121\10AM2MBB.001
<PAGE>
addition to and not in limitation to those provided by applicable
law.
(e) Whenever possible, each provision of this Amendment and
the Restated Notes shall be interpreted in such manner as to be effective and
valid under applicable law; but if any provision of this Amendment or the
Restated Notes shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Amendment or the Restated Notes.
(f) This Amendment and the Restated Notes shall be binding
upon the Company, the Banks and the Agent and their respective successors and
assigns, and shall inure to the benefit of the Company, the Banks and the Agent
and their respective successors and assigns.
* * *
\25605\121\10AM2MBB.001
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\25605\121\10AM2MBB.001
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the
execution and delivery hereof by their respective representatives thereunto duly
authorized as of the date first herein appearing.
ALLIED PRODUCTS CORPORATION
By: /s/ Richard A. Drexler
Name: Richard A. Drexler
Title: Chairman, President & CEO
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION (as successor
by merger to Bank of
America Illinois), as Agent
By: /s/ David A. Johanson
Name: David A. Johanson
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION (as successor
by merger to Bank of
America Illinois), in its
individual corporate capacity
By: /s/ Rob Ritter
Name: Rob Ritter
Title: Vice President
LASALLE NATIONAL BANK
By: /s/ Robert M. Swanson
Name: Robert M. Swanson
Title: First Vice President
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
COMMITMENT LIMITS AND PERCENTAGES
Column I: Column II: Column III: Column IV:
<S> <C> <C> <C>
Amount of Amount of Letter Total Amount of
Name of Bank Revolving Loan of Credit Commitments Percentage
Commitment Commitment
BANK OF AMERICA $ 87,500,000 $14,000,000 $87,500,000 70%
ILLINOIS
LASALLE NATIONAL BANK $ 37,500,000 $ 6,000,000 $37,500,000 30%
----------- ---------- ---------- --
TOTALS $125,000,000 $20,000,000 $125,000,000 100%
</TABLE>
<PAGE>
EXHIBIT B
FORM OF
RESTATED REVOLVING NOTE
$ __________________ December __, 1997
Chicago, Illinois
On or before the Revolving Termination Date (as defined in the Credit
Agreement referred to below), the undersigned, for value received, promises to
pay to the order of __________________ at the principal office of
__________________________ (the "Bank"), in Chicago, Illinois _______________
Dollars ($_______) or, if less, the aggregate unpaid amount of all Revolving
Loans made by the payee to the undersigned pursuant to the Credit Agreement (as
shown in the records of the payee or, at the payee's option, on the schedule
attached hereto and any continuation thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of each Revolving Loan evidenced hereby from the date of such
Revolving Loan until such Revolving Loan is paid in full, payable at the rate(s)
and at the time(s) set forth in the Credit Agreement. Payments of both principal
and interest are to be made in lawful money of the United States of America.
This Restated Revolving Note evidences indebtedness incurred under, and
is subject to the terms and provisions of, the Amended and Restated Credit
Agreement, dated as of August 23, 1996, as amended (herein, as further amended
or otherwise modified from time to time, called the "Credit Agreement"), between
the undersigned, various banks (including the payee) and Bank of America
National Trust and Savings Association, as agent for the Banks, to which Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Restated Revolving Note may or must be paid prior to its due
date or may have its due date accelerated. Terms used but not otherwise defined
herein are used herein as defined in the Credit Agreement.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Restated Revolving Note in endeavoring to collect any amounts payable
hereunder which are not paid when due, whether by acceleration or otherwise.
This Restated Revolving Note is made under and governed by the internal
laws of the State of Illinois.
<PAGE>
This Restated Revolving Note is issued in replacement of a Revolving
Note issued pursuant to the Credit Agreement. The indebtedness evidenced by this
Note represents an extension and renewal of indebtedness owing to the payee.
ALLIED PRODUCTS CORPORATION
By: ___________________________
Title: ________________________
<PAGE>
Schedule Attached to Restated Revolving Note dated December 31, 1997 of THE
COMPANY payable to the order of
Date and Amount Date and Amount
of Revolving of Repayment or
Loan or of of Conversion
Conversion from into another Unpaid Notation Made
another type of type of Interest Principal by
Revolving Loan Revolving Loan Period Balance
1. FLOATING RATE LOANS
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
2. EURODOLLAR LOANS
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
<PAGE>
RESTATED REVOLVING NOTE
$ 87,500,000 December 31, 1997
Chicago, Illinois
On or before the Revolving Termination Date (as defined in the Credit
Agreement referred to below), the undersigned, for value received, promises to
pay to the order of Bank of America National Trust and Savings Association (the
"Bank"), at its office located at 231 South LaSalle Street, Chicago, Illinois,
Eighty-Seven Million Five Hundred Thousand Dollars ($87,500,000) or, if less,
the aggregate unpaid amount of all Revolving Loans made by the payee to the
undersigned pursuant to the Credit Agreement (as shown in the records of the
payee or, at the payee's option, on the schedule attached hereto and any
continuation thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of each Revolving Loan evidenced hereby from the date of such
Revolving Loan until such Revolving Loan is paid in full, payable at the rate(s)
and at the time(s) set forth in the Credit Agreement. Payments of both principal
and interest are to be made in lawful money of the United States of America.
This Restated Revolving Note evidences indebtedness incurred under, and
is subject to the terms and provisions of, the Amended and Restated Credit
Agreement, dated as of August 23, 1996, as amended (herein, as further amended
or otherwise modified from time to time, called the "Credit Agreement"), between
the undersigned, various banks (including the payee) and Bank of America
National Trust and Savings Association, as agent for the Banks, to which Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Restated Revolving Note may or must be paid prior to its due
date or may have its due date accelerated. Terms used but not otherwise defined
herein are used herein as defined in the Credit Agreement.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Restated Revolving Note in endeavoring to collect any amounts payable
hereunder which are not paid when due, whether by acceleration or otherwise.
This Restated Revolving Note is made under and governed by the internal
laws of the State of Illinois.
\25605\121\10AM2MBB.001
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<PAGE>
This Restated Revolving Note is issued in replacement of a Revolving
Note issued pursuant to the Credit Agreement. The indebtedness evidenced by this
Note represents an extension and renewal of indebtedness owing to the payee.
ALLIED PRODUCTS CORPORATION
By: ___________________________
Title: ________________________
<PAGE>
Schedule Attached to Restated Revolving Note dated December 31, 1997 of THE
COMPANY payable to the order of Bank of America National Trust and Savings
Association
Date and Amount Date and Amount
of Revolving of Repayment or
Loan or of of Conversion
Conversion from into another Unpaid Notation Made
another type of type of Interest Principal by
Revolving Loan Revolving Loan Period Balance
1. FLOATING RATE LOANS
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
2. EURODOLLAR LOANS
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
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<PAGE>
RESTATED REVOLVING NOTE
$ 37,500,000 December 31, 1997
Chicago, Illinois
On or before the Revolving Termination Date (as defined in the Credit
Agreement referred to below), the undersigned, for value received, promises to
pay to the order of LaSalle National Bank (the "Bank"), at its offices located
at 120 South LaSalle Street, Chicago, Illinois 60603, Thirty-Seven Million Five
Hundred Thousand Dollars ($37,500,000) or, if less, the aggregate unpaid amount
of all Revolving Loans made by the payee to the undersigned pursuant to the
Credit Agreement (as shown in the records of the payee or, at the payee's
option, on the schedule attached hereto and any continuation thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of each Revolving Loan evidenced hereby from the date of such
Revolving Loan until such Revolving Loan is paid in full, payable at the rate(s)
and at the time(s) set forth in the Credit Agreement. Payments of both principal
and interest are to be made in lawful money of the United States of America.
This Restated Revolving Note evidences indebtedness incurred under, and
is subject to the terms and provisions of, the Amended and Restated Credit
Agreement, dated as of August 23, 1996, as amended (herein, as further amended
or otherwise modified from time to time, called the "Credit Agreement"), between
the undersigned, various banks (including the payee) and Bank of America
National Trust and Savings Association, as agent for the Banks, to which Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Restated Revolving Note may or must be paid prior to its due
date or may have its due date accelerated. Terms used but not otherwise defined
herein are used herein as defined in the Credit Agreement.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Restated Revolving Note in endeavoring to collect any amounts payable
hereunder which are not paid when due, whether by acceleration or otherwise.
This Restated Revolving Note is made under and governed by the internal
laws of the State of Illinois.
<PAGE>
This Restated Revolving Note is issued in replacement of a Revolving
Note issued pursuant to the Credit Agreement. The indebtedness evidenced by this
Note represents an extension and renewal of indebtedness owing to the payee.
ALLIED PRODUCTS CORPORATION
By: ___________________________
Title: ________________________
<PAGE>
Schedule Attached to Restated Revolving Note dated December 31, 1997 of THE
COMPANY payable to the order of LaSalle national Bank
Date and Amount Date and Amount
of Revolving of Repayment or
Loan or of of Conversion
Conversion from into another Unpaid Notation Made
another type of type of Interest Principal by
Revolving Loan Revolving Loan Period Balance
1. FLOATING RATE LOANS
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
2. EURODOLLAR LOANS
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
\25605\121\10AM2MBB.001
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\25605\121\10AM2MBB.001
<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)
(1) Unnamed subsidiaries considered in the aggregate do not constitute
a significant subsidiary.
(2) Subsidiary included in consolidated financial statements.
03/18/98
<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 (File No. 33-60058) of our report, dated
February 2, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Allied Products Corporation and consolidated
subsidiaries as of December 31, 1997 and 1996 and for the three years in the
period ended December 31, 1997, which report is included in the 1997 Annual
Report of Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1998
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, 1997 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
Mark C. Standefer as 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
25 day of March, 1998.
Richard A. Drexler, Chairman of
the Board, President and Chief /s/Richard A. Drexler
Executive Officer; Director
Robert J. Fleck, Vice President -
Accounting, Chief Accounting /s/Robert J. Fleck
and Administrative Officer
Lloyd Drexler, Director /s/Lloyd A. Drexler
William D. Fischer, Director
Stanley J. Goldring, Director /s/Stanley J. Goldring
John E. Jones, Director /s/John E. Jones
John W. Puth, Director /s/John W. Puth
<PAGE>
Mitchell I. Quain, Director /s/Mitchell I. Quain
S. S. Sherman, Director /s/S. S. Sherman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRITY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003941
<NAME> ALLIED PRODUCTS CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 609
<SECURITIES> 0
<RECEIVABLES> 55,260
<ALLOWANCES> 531
<INVENTORY> 78,702
<CURRENT-ASSETS> 147,228
<PP&E> 94,332
<DEPRECIATION> 48,811
<TOTAL-ASSETS> 199,783
<CURRENT-LIABILITIES> 95,736
<BONDS> 670
0
0
<COMMON> 140
<OTHER-SE> 92,884
<TOTAL-LIABILITY-AND-EQUITY> 199,783
<SALES> 270,562
<TOTAL-REVENUES> 270,562
<CGS> 204,754
<TOTAL-COSTS> 204,754
<OTHER-EXPENSES> 34,319
<LOSS-PROVISION> 114
<INTEREST-EXPENSE> 3,306
<INCOME-PRETAX> 31,489
<INCOME-TAX> 11,518
<INCOME-CONTINUING> 19,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,971
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.62
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF
CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRITY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003941
<NAME> ALLIED PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<EXCHANGE-RATE> 1.000 1.000
<CASH> 833 744
<SECURITIES> 0 0
<RECEIVABLES> 53,543 45,241
<ALLOWANCES> 629 948
<INVENTORY> 56,790 52,406
<CURRENT-ASSETS> 125,260 120,304
<PP&E> 89,434 85,519
<DEPRECIATION> 51,048 47,083
<TOTAL-ASSETS> 171,949 166,743
<CURRENT-LIABILITIES> 74,460 65,357
<BONDS> 489 315
0 0
0 0
<COMMON> 94 91
<OTHER-SE> 93,359 98,174
<TOTAL-LIABILITY-AND-EQUITY> 171,949 166,743
<SALES> 274,414 260,861
<TOTAL-REVENUES> 274,414 260,861
<CGS> 209,118 199,544
<TOTAL-COSTS> 209,118 199,544
<OTHER-EXPENSES> 35,588 42,987
<LOSS-PROVISION> 214 451
<INTEREST-EXPENSE> 1,557 1,052
<INCOME-PRETAX> 29,708 18,330
<INCOME-TAX> 10,704 (15,659)
<INCOME-CONTINUING> 19,004 33,989
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,004 33,989
<EPS-PRIMARY> 1.41 2.39
<EPS-DILUTED> 1.39 2.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND JUNE 30, 1997 AND
SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE
CONSOLIDATED STATEMENT OF CASH FLOW FOR THE QUARTERS ENDED MARCH 31, 1997 AND
JUNE 30, 1997 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRITY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003941
<NAME> ALLIED PRODUCTS CORPORATION
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<EXCHANGE-RATE> 1.000 1.000 1.000
<CASH> 1,141 1,168 503
<SECURITIES> 0 0 0
<RECEIVABLES> 80,454 75,669 63,065
<ALLOWANCES> 637 680 685
<INVENTORY> 55,169 61,307 68,869
<CURRENT-ASSETS> 150,829 152,172 146,459
<PP&E> 90,703 94,698 97,225
<DEPRECIATION> 50,949 51,865 52,777
<TOTAL-ASSETS> 198,799 203,051 199,017
<CURRENT-LIABILITIES> 106,137 101,468 93,107
<BONDS> 441 393 344
0 0 0
0 0 0
<COMMON> 94 94 140
<OTHER-SE> 86,176 92,032 93,915
<TOTAL-LIABILITY-AND-EQUITY> 198,799 203,051 199,017
<SALES> 72,881 149,783 213,497
<TOTAL-REVENUES> 72,881 149,783 213,497
<CGS> 55,226 112,549 160,064
<TOTAL-COSTS> 55,226 112,549 160,064
<OTHER-EXPENSES> 9,616 19,461 27,902
<LOSS-PROVISION> 19 76 106
<INTEREST-EXPENSE> 694 1,652 2,499
<INCOME-PRETAX> 8,039 17,773 25,531
<INCOME-TAX> 2,868 6,396 9,141
<INCOME-CONTINUING> 5,171 11,377 16,390
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,171 11,377 16,390
<EPS-PRIMARY> .42 .93 1.35
<EPS-DILUTED> .41 .91 1.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND JUNE 30, 1996 AND
SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE
CONSOLIDATED STATEMENT OF CASH FLOW FOR THE QUARTERS ENDED MARCH 31, 1996 AND
JUNE 30, 1996 AND SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRITY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003941
<NAME> ALLIED PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<EXCHANGE-RATE> 1.000 1.000 1.000
<CASH> 1,005 8,699 314
<SECURITIES> 0 0 0
<RECEIVABLES> 66,332 51,293 54,329
<ALLOWANCES> 947 914 819
<INVENTORY> 57,238 65,030 53,341
<CURRENT-ASSETS> 144,347 143,417 123,855
<PP&E> 85,728 86,639 87,458
<DEPRECIATION> 47,883 49,150 50,088
<TOTAL-ASSETS> 190,039 188,625 168,864
<CURRENT-LIABILITIES> 88,985 82,213 59,608
<BONDS> 268 221 174
0 0 0
0 0 0
<COMMON> 94 94 94
<OTHER-SE> 97,912 103,342 106,260
<TOTAL-LIABILITY-AND-EQUITY> 190,039 188,625 168,864
<SALES> 75,243 144,441 216,714
<TOTAL-REVENUES> 75,243 144,441 216,714
<CGS> 58,347 109,739 165,890
<TOTAL-COSTS> 58,347 109,739 165,890
<OTHER-EXPENSES> 9,369 18,427 26,803
<LOSS-PROVISION> 67 127 195
<INTEREST-EXPENSE> 442 920 1,294
<INCOME-PRETAX> 7,527 16,275 24,021
<INCOME-TAX> 2,409 5,615 8,555
<INCOME-CONTINUING> 5,118 10,660 15,466
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,118 10,660 15,466
<EPS-PRIMARY> .37 .78 1.14
<EPS-DILUTED> .37 .77 1.12
</TABLE>
