FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to____
Commission file number 1-5530
ALLIED PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-0292230
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020
Not Applicable
--------------
(former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 11,847,046 common shares, $.01
par value, as of July 31, 1999.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
INTRODUCTION
CONDENSED CONSOLIDATED BALANCE SHEETS-
June 30, 1999 and December 31, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)-
Three and Six Months Ended June 30, 1999 and
1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-
Six Months Ended June 30, 1999 and 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
ITEM 2 NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
----------
EXHIBIT INDEX
--------------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INTRODUCTION
The condensed consolidated financial statements included herein (as of
June 30, 1999 and for the three and six months ended June 30, 1999 and 1998)
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the condensed consolidated financial information required therein. All such
adjustments are of a normal, recurring nature. The information as of December
31, 1998 is derived from the audited year end balance sheet for that year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's latest annual report on Form 10-K.
The results of operations for the three and six month periods ended
June 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year .
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 684,000 $ 727,000
------------- -----------------
Notes and accounts receivable, less allowances of
$1,138,000 and $519,000, respectively ......... $ 77,463,000 $ 68,827,000
------------- -----------------
Inventories:
Raw materials .................................. $ 10,985,000 $ 11,529,000
Work in process ................................ 62,833,000 68,296,000
Finished goods ................................. 13,644,000 17,019,000
------------- -----------------
$ 87,462,000 $ 96,844,000
------------- -----------------
Deferred tax asset ................................ $ 15,060,000 $ 15,060,000
------------- -----------------
Prepaid expenses .................................. $ 212,000 $ 406,000
------------- -----------------
Total current assets ........................ $ 180,881,000 $ 181,864,000
------------- -----------------
Plant and Equipment, at cost:
Land ........................................... $ 2,412,000 $ 2,430,000
Building and improvements ...................... 59,864,000 57,022,000
Machinery and equipment ........................ 71,252,000 69,196,000
------------- -----------------
$ 133,528,000 $ 128,648,000
Less-Accumulated depreciation and amortization .. 52,269,000 48,181,000
------------- -----------------
$ 81,259,000 $ 80,467,000
------------- -----------------
Other Assets:
Deferred tax asset ............................. $ 4,165,000 $ 4,165,000
Deferred charges (goodwill), net of amortization 5,931,000 6,154,000
Other .......................................... 4,115,000 3,154,000
------------- -----------------
$ 14,211,000 $ 13,473,000
------------- -----------------
$ 276,351,000 $ 275,804,000
============= =================
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement ................................ $ 124,900,000 $ 119,300,000
Current portion of long-term debt ......................... 627,000 627,000
Accounts payable .......................................... 60,369,000 52,634,000
Accrued expenses .......................................... 26,563,000 24,258,000
------------- -----------------
Total current liabilities .......................... $ 212,459,000 $ 196,819,000
------------- -----------------
Long-term debt, less current portion shown above ............ $ 1,924,000 $ 2,298,000
------------- -----------------
Other long-term liabilities ................................. $ 5,058,000 $ 4,957,000
------------- -----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares at June 30,
1999 and December 31, 1998; none issued ........... $ -- $ --
Common Stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at June 30,
1999 and December 31, 1998 ........................... 140,000 140,000
Additional paid-in capital ............................... 98,090,000 98,377,000
Retained earnings ........................................ 1,197,000 16,131,000
------------- -----------------
$ 99,427,000 $ 114,648,000
Less: Treasury stock, at cost: 2,200,203 and 2,228,640
shares at June 30, 1999 and December 31, 1998,
respectively ........................................... (42,517,000) (42,918,000)
------------- -----------------
Total shareholder's equity ......................... $ 56,910,000 $ 71,730,000
------------- -----------------
$ 276,351,000 $ 275,804,000
============= =================
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(LOSS)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 74,624,000 $ 88,985,000 $ 156,864,000 $ 151,816,000
Cost of products sold ............... 62,088,000 69,770,000 144,337,000 113,446,000
------------- ------------- ------------- -------------
Gross profit ...................... $ 12,536,000 $ 19,215,000 $ 12,527,000 $ 38,370,000
------------- ------------- ------------- -------------
Other costs and expenses:
Selling and administrative expenses $ 10,624,000 $ 8,859,000 $ 21,361,000 $ 18,649,000
Interest expense .................. 2,837,000 1,447,000 5,198,000 2,537,000
Other (income) expense, net ....... 400,000 (1,736,000) (41,000) (1,864,000)
------------- ------------- ------------- -------------
$ 13,861,000 $ 8,570,000 $ 26,518,000 $ 19,322,000
------------- ------------- ------------- -------------
Income(loss) before taxes ........... $ (1,325,000) $ 10,645,000 $ (13,991,000) $ 19,048,000
Provision for income taxes .......... -- 3,544,000 -- 6,617,000
------------- ------------- ------------- -------------
Net income(loss) .................... $ (1,325,000) $ 7,101,000 $ (13,991,000) $ 12,431,000
============= ============= ============= =============
Earnings (loss) per common share:
Basic ............................. $ (0.11) $ 0.60 $ (1.18) $ 1.04
============= ============= ============= =============
Diluted ........................... $ (0.11) $ 0.59 $ (1.18) $ 1.03
============= ============= ============= =============
Weighted average shares outstanding:
Basic ............................. 11,838,000 11,923,000 11,828,000 11,924,000
============= ============= ============= =============
Diluted ........................... 11,838,000 12,099,000 11,828,000 12,105,000
============= ============= ============= =============
Dividends per common share .......... $ 0.04 $ 0.04 $ 0.08 $ 0.08
============= ============= ============= =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income(loss) ......................................................... $(13,991,000) $ 12,431,000
Adjustments to reconcile net income(loss) to net cash
provided from (used for) operating activities:
Gains on sales of operating and nonoperating assets ................... (93,000) (1,972,000)
Depreciation and amortization ......................................... 4,276,000 2,743,000
Amortization of deferred charges ...................................... 223,000 132,000
Deferred income tax provision ......................................... -- 5,661,000
Provision for inventory valualtion .................................... 7,695,000 --
Stock option compensation ............................................. -- 1,119,000
Changes in noncash assets and liabilities, net of noncash transactions:
(Increase) in accounts receivable .................................. (9,342,000) (10,448,000)
(Increase) decrease in inventories ................................. 1,687,000 (48,830,000)
(Increase) decrease in prepaid expenses ............................ 194,000 (100,000)
Increase in accounts payable and accrued expenses ................. 10,154,000 13,070,000
Other,net ............................................................. (59,000) (1,455,000)
------------ ------------
Net cash provided from (used for) operating activities ................... $ 744,000 $(27,649,000)
------------ ------------
Cash Flows from Investing Activities:
Additions to plant and equipment ......................................... $ (5,087,000) $(22,060,000)
Payment for businesses acquired .......................................... -- (11,290,000)
Proceeds from sales of plant and equipment ............................... 17,000 3,383,000
------------ ------------
Net cash used for investing activities ................................... $ (5,070,000) $(29,967,000)
------------ ------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreement .............................. $ 78,200,000 $ 92,400,000
Payments under revolving credit agreement ................................ (72,600,000) (33,600,000)
Payments of short and long-term debt ..................................... (374,000) (135,000)
Purchase of treasury stock ............................................... -- (776,000)
Dividends paid ........................................................... (943,000) (478,000)
Stock option transactions ................................................ -- 85,000
------------ ------------
Net cash provided from financing activities ................................. $ 4,283,000 $ 57,496,000
------------ ------------
Net (decrease) in cash and cash equivalents ................................. $ (43,000) $ (120,000)
Cash and cash equivalents at beginning of year .............................. 727,000 609,000
------------ ------------
Cash and cash equivalents at end of period .................................. $ 684,000 $ 489,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
Allied Products Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) Restatement of Previously Issued Financial Statements
-----------------------------------------------------
Operating results for the three and six month periods ended
June 30, 1998 have been restated to reflect the effect of (a)
compensation expenses which should have been recognized in relation to
certain stock option exercise transactions and (b) the correction of
gross profit margins at the Verson division. See Note 13 of Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report
for a more detailed explanation of the restatement.
The following table reconciles the amounts previously reported
to the amounts currently being reported in the Condensed Consolidated
Statement of Income (Loss) for the three and six month periods ended
June 30, 1998:
<TABLE>
<CAPTION>
Income Tax
Before Provision Net
Taxes (Benefit) Income
----------- ----------- -----------
<S> <C> <C> <C>
For The Three Months
--------------------
As previously reported $10,507,000 $3,497,000 $ 7,010,000
Restatement associated with Verson
gross profit margin 138,000 47,000 91,000
Restatement associated with stock
option compensation - - -
----------- ---------- -----------
As restated $10,645,000 $3,544,000 $ 7,101,000
=========== ========== ===========
For Six Months Ended
--------------------
As previously reported $19,731,000 $6,856,000 $12,875,000
Restatement associated with Verson
gross profit margin 436,000 153,000 283,000
Restatement associated with stock
option compensation (1,119,000) (392,000) (727,000)
----------- ---------- -----------
As restated $19,048,000 $6,617,000 $12,431,000
=========== ========== ===========
</TABLE>
<PAGE>
(2) Accrued Expenses
----------------
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
6/30/99 12/31/98
------------ ------------
<S> <C> <C>
Salaries and wages $ 7,414,000 $ 6,573,000
Warranty 6,545,000 5,794,000
Self insurance accruals 2,367,000 2,905,000
Pensions, including retiree health 4,557,000 4,644,000
Taxes, other than income taxes 860,000 888,000
Interest 1,187,000 309,000
Environmental matters 1,163,000 1,225,000
Other 2,470,000 1,920,000
------------ -------------
$ 26,563,000 $24,258,000
============ ===========
</TABLE>
(3) Earnings Per Common Share
-------------------------
Basic earnings per common share for the periods in 1999 is
based on the average number of common shares outstanding (11,838,000
and 11,828,000 for the three and six months ended June 30, 1999,
respectively). For the three and six months ended June 30, 1999,
dilutive securities were excluded from the calculation of diluted loss
per share as their effect would have been antidilutive. Basic earnings
per common share for the same periods in 1998 is based on the average
number of common shares outstanding (11,923,000 and 11,924,000 for the
three and six months ended June 30, 1998, respectively). Diluted
earnings per common share for the same periods in 1998 is based on the
average number of common shares outstanding, as noted above, increased
by the dilutive effect of outstanding options (176,000 and 181,000 for
the three and six months ended June 30, 1998, respectively).
(4) Legal Proceedings
-----------------
During the second quarter of 1999, the Company received notice
asserting that it was in default under the terms of a lease agreement
due to the failure by the assignee of the lease to pay rent when due.
The facility associated with this notice was formerly leased by the Coz
division of the Industrial Products Group. The lease was assigned by
the Company in 1997 to the purchaser of the assets of the former Coz
division. The lessor consented to the assignment but did not release
the Company from liabilities as lessee. The assignee has announced its
intent to vacate the facility and filed a lawsuit seeking a declaration
of the rights of the respective parties under the lease. The lease
provides for rental payments of approximately $1,000,000 over the
remaining term. The Company is in the process of evaluating its options
under the terms of the lease.
In May 1999 and June 1999, the Company was served with two
complaints purporting to be class action lawsuits on behalf of
shareholders who purchased Allied Products' common stock between
February 6, 1997 and March 11, 1999. The two complaints, which were
<PAGE>
filed in the United States District Court for the Northern District of
Illinois, appear to be virtually identical. They allege various
violations of the federal securities laws, including misrepresentation
or failure to disclose material information about the Company's results
of operations, financial condition, weaknesses in its financial
internal controls, accounting for long-term construction contracts and
employee stock option compensation expense.
(5) Contingent Liabilities
----------------------
In addition to the items described in Note 4, the Company is
involved in a number of legal proceedings as a defending party,
including product liability and environmental matters for which
additional liability is reasonably possible. For all these additional
matters excluding one recently asserted claim, 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. For one recently asserted product
liability claim, the amount of damages claimed against all defendants
exceeds the Company's liability insurance limits. No estimate can
currently be made as to whether the ultimate outcome of this claim
against the Company could exceed such limits, therefore changes in the
estimate in the near term could be material to the financial position
and results of operations if an unfavorable outcome were to occur.
As described in Note 1 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K, the Verson
division may not be able to meet delivery schedules for certain presses
currently on orders in production. Certain customers of this division
have advised the Company that they will seek to exercise remedies for
alleged breach of contract by the Company. The remedies could include
partial or complete cancellation of orders and recovery of damages for
late delivery, which may include downtime, lost sales and lost
profit. The Company cannot at this time determine the amount of any
potential claim that may be asserted due to late delivery, however,
such claims could have a material adverse effect on the financial
position and results of operations in the near term, if an unfavorable
outcome were to occur.
At June 30, 1999, the Company was contingently liable for
approximately $1,587,000 primarily relating to outstanding letters of
credit.
(6) Income Taxes
------------
The provision for income taxes in the three and six month
periods of 1998 is based upon the Federal statutory rate adjusted for
items that are not subject to taxes. No tax benefit was recorded in the
three and six month periods ended June 30, 1999 as a result of the
Company's pretax loss. See Note 4 of Notes to Consolidated Financial
Statements in the
<PAGE>
Company's 1998 Annual Report on Form 10-K for a further discussion
related to income taxes.
(7) Operations By Industry Segment
------------------------------
During 1998, the Company adopted SFAS 131-- Disclosures about
Segments of a Business Enterprise and Related Information. The
determination of business segments is based upon the nature of the
products manufactured and current management and internal financial
reporting. The segment information for 1998 has been restated to
reflect the business segments noted below. Information relating to
operations by industry segment follows (in thousands of dollars):
<TABLE>
<CAPTION>
Agricultural Industrial
Products Products Corporate Consolidated
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
1999
----
For the three months:
Net sales to unaffiliated customers $ 37,133 $ 37,491 $ - $ 74,624
Income (loss) before taxes (a) 5,075 (b) (267) (c) (6,133) (e) (1,325)
For the six months:
Net sales to unaffiliated customers $ 74,035 $ 82,829 $ - $ 156,864
Income (loss) before taxes (a) 10,158 (b) (13,266) (c) (10,883) (e) (13,991)
Total assets 115,787 142,109 18,455 (d) 276,351
1998
----
For the three months
Net sales to unaffiliated customers $ 40,952 $ 48,033 $ - $ 88,985
Income (loss) before taxes (a) 8,019 (b) 4,385 (c) (1,759) (e) 10,645
For the six months
Net sales to unaffiliated customers $ 75,220 $ 76,596 $ - $ 151,816
Income (loss) before taxes (a) 14,786 (b) 10,017 (c) (5,755) (e) 19,048
Total assets 104,331 161,055 21,487 (d) 286,873
</TABLE>
-------------------
(a) Segment income (loss) before taxes does not reflect an allocation
or charge for general corporate income or expenses, or interest
expense.
(b) Includes interest income of $30 in the three months and $62 in six
months of 1999 and $29 in the three months and $60 in the six
months of 1998.
(c) Includes interest income of $213 in the six months of 1999 and $0
in 1998.
(d) Corporate assets consist principally of cash,
deferred income taxes, other assets, properties not used in
operations and investment in a unconsolidated joint venture.
(e) Corporate income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/99 6/30/98 6/30/99 6/30/98
--------- -------- -------- --------
<S> <C> <C> <C> <C>
General corporate income and expense $ (3,313) $ (324) $ (5,727) $ (2,126)
Stock option compensation (Note 1) - - - (1,119)
Interest expense (2,837) (1,447) (5,198) (2,537)
Interest income 17 12 42 27
--------- -------- -------- --------
Total $ (6,133) $ (1,759) $(10,883) $ (5,755)
========= ======== ========= ========
</TABLE>
<PAGE>
(8) Summary of Other (Income) Expense
---------------------------------
Other (income) expense for the three and six month periods
ended June 30, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
6/30/99 6/30/98 6/30/99 6/30/98
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Interest income $ (260,000) $ (41,000) $(317,000) $ (87,000)
Goodwill amortization 111,000 87,000 223,000 132,000
Loan costs amortization 151,000 - 199,000 -
Net (gain) loss on sales of
operating and non-operating
assets - (1,957,000) (93,000) (1,972,000)
Loss on investment in non
consolidated subsidiary 187,000 48,000 210,000 81,000
Litigation
settlements/insurance
provision - 569,000 - 569,000
Legal settlement - - (389,000) -
Credit for recovery of
long-term note receivable - (195,000) - (390,000)
Other miscellaneous 211,000 (247,000) 126,000 (197,000)
---------- ---------- --------- -----------
$ 400,000 $(1,736,000) $ (41,000) $(1,864,000)
========== =========== ========= ===========
</TABLE>
(9) Financial Arrangements
----------------------
During the first quarter of 1999, the Company entered into a
Second Amended and Restated Credit Agreement replacing the former
Amended and Restated Credit Agreement. This new agreement was amended
in April 1999. Effective July 31, 1999, the Company entered into a
Second Amendment and Waiver to the Second Amended and Restated Credit
Agreement ("Second Amendment"). Under the terms of the Second
Amendment, the maximum indebtedness under the agreement may remain at
$135,000,000 from July 31 through November 29, 1999 rather than
decrease on specific dates to $110,000,000 as originally scheduled.
Interest rates related to amounts outstanding under this amendment have
also been increased. The final maturity date of the agreement was
accelerated from February 28, 2000 to November 30, 1999. The Second
Amendment refers to the below noted letter of intent between CC
Industries, Inc. and the Company. The Second Amendment specifies that
termination of or a materially adverse change in the letter of intent
or in any succeeding agreement will constitute an event of default
under the credit agreement. The Second Amendment also provides for a
waiver of noncompliance by the Company as of June 30, 1999 with the
minimum consolidated operating cash flow provision of the agreement.
See Note 5 of Notes to Consolidated Financial Statements in the
Company's 1998 Annual Report on Form 10-K for more detailed explanation
on Financial Arrangements.
<PAGE>
(10) Subsequent Events
-----------------
On July 15, 1999, the Company and CC Industries, Inc. of
Chicago signed a letter of intent to form a joint venture for the
ownership and operation of the Company's Agricultural Products Group.
The letter of intent contemplates that the Company will transfer the
business, assets and liabilities of the Agricultural Products Group to
a newly formed limited liability company and then will sell an 80.1%
interest in the new entity to CC Industries for approximately
$120,700,000, subject to adjustment. The transaction is subject to,
among other things, satisfactory completion of due diligence inquiries
by CC Industries, the execution of definitive agreements, the approval
of the respective boards of the two companies and the approval of
Allied's shareholders.
On July 29, 1999, the Company announced that its Board of
Directors approved the redemption of its current Common Share Purchase
Rights and adopted a new Stockholder Rights Plan. The new plan is
designed to continue the assurance of fair and equal treatment of all
stockholders in the event of any proposed takeover. The plan involves
the distribution of the new rights and a redemption payment for current
rights to all common stockholders of record as of July 30, 1999. Those
stockholders will receive one purchase right for a new series of junior
preferred stock for each outstanding share of the Company's common
stock and a redemption payment on August 10, 1999 of $0.01 per share
for the Common Share Purchase Rights declared under a 10-year rights
agreement adopted in January 1990. Each Preferred Share Purchase Right
entitles the holder to purchase from the Company under certain
circumstances one one-thousandth of a share of the new junior preferred
stock. The rights may be exercised if a person or group announces its
intention to acquire or acquires 15 percent or more of Allied Products'
common stock. However, an exception is made for certain significant
stockholders of the Company who are holding the Company's common stock
for investment purposes. They may acquire up to 20 percent of Allied
Product's common stock without triggering the Rights Plan. Under
certain circumstances, the holders of the rights will be entitled to
purchase at below market value either shares of common stock of Allied
Products Corporation or the common stock of the acquiring company.
Unless redeemed or exchanged earlier, the Preferred Share Purchase
Rights will expire in 10 years.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
- - -----------------
First Half of 1999 Compared to First Half of 1998
- - -------------------------------------------------
Consolidated net sales for the first half of 1999 were $156,864,000
compared to consolidated net sales of $151,816,000 reported in the first half of
1998. Loss before taxes in the first half of 1999 was $13,991,000 compared to
income before taxes (on a restated basis) of $19,048,000 in the first half of
the prior year. Net loss in the first half of 1999 was $13,991,000 ($1.18 per
common share-diluted) compared to net income (on a restated basis) of
$12,431,000 ($1.03 per common share-diluted) in the first half of 1998.
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during the first
quarter of 1998 was incorrect. Compensation expense for certain option exercises
in the first quarter of 1998 which was not recognized in the statement of income
issued at that time is now reflected in the accompanying restated statement of
income (loss). The Company also determined that gross profit margins at the
Verson division of the Industrial Products Group were incorrectly reported in
the first and second quarters of 1998. Corrected amounts are now reflected in
the accompanying restated statements of income (loss). Reference is made to Note
13 of Notes to Consolidated Financial Statements in the Company's recently filed
Annual Report on Form 10-K regarding the reconciliation of amounts previously
reported in the first two quarters of 1998 to the amounts currently being
reported in the accompanying restated statement of income (loss).
Within the Agricultural Products Group, net sales decreased to
$74,035,000 in the first half of 1999 compared to $75,220,000 reported in the
first half of 1998. The majority of the decrease was related to the cutter and
disc mower product lines. External financial conditions in the U.S. agricultural
sector have weakened since the early part of 1998 and are expected to remain
weak for the remainder of 1999 and on into 2000. Commodity prices are lower for
most major crops and for most livestock segments compared to twelve months ago.
Net farm income decreased in 1998 and is projected to decline further in 1999
and 2000. The above noted product line sales decreases within the Agricultural
Products Group were partially offset by the impact of the acquisition of the
Great Bend Manufacturing Company in the second quarter of 1998 and the expansion
of sales within the turf and landscape product line, including the effects of
the
<PAGE>
acquisition of the Universal Turf assets in the second quarter of 1998. Income
before taxes decreased to $10,158,000 in the first half of 1999 compared to
$14,786,000 reported in the first half of the prior year. Gross profit margins
decreased slightly in 1999 due to the effects of lower production levels. Lower
production levels were the result of decreased demand by large farming
operations which have been impacted most by the overall agricultural economy
described above. Additional cash discounts have been offered in 1999 to dealers
to help reduce the amount of dealer inventory levels. Increases in selling and
administrative expenses were related to the acquisition of the Great Bend
division as noted above. The increase was offset in part by lower commission
expenses at the Bush Hog division due to the effects of lower sales volume and
the mix of products sold.
Within the Industrial Products Group, net sales increased to
$82,829,000 in the first half of 1999 compared to $76,596,000 reported in the
first half of 1998. The increase was related to increased press sales
(production) at the Verson division. The division is currently working on orders
for a total of eight transfer presses from two of the major U.S. automobile
manufacturers. The division also has a greater number of small presses in
production compared to the prior year.
The Industrial Products Group reported a loss before taxes of
$13,266,000 in the first half of 1999 compared to income before taxes (on a
restated basis) of $10,017,000 in the first half of 1998. In 1998, the
Industrial Products Group recorded a loss of $12,079,000 on certain jobs in
process including reserves of $8,813,000 (none in the first half) for estimated
future losses on those jobs. The Company indicated in its annual report that it
was reasonably possible that additional losses would occur. In the first half of
1999, the Company revised its cost estimates on these jobs and increased the
reserves for future losses by $8,289,000. The excess of costs over revenues in
the first half of 1999 (approximately $6,300,000) was attributable to the
increase in the reserve for future losses on these jobs.
Two factors described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1998 Annual
Report on Form 10-K affected the low margins reported in the first half of 1999.
First, the Industrial Products Group's opening backlog included revenues of
approximately $50,000,000 to be recognized in 1999 and 2000 on the loss jobs
described above. No gross margins are expected to be recognized on those
revenues. The backlog also included future revenues of approximately $95,000,000
to be recorded principally in 1999 for which anticipated gross margins will be
lower than historical levels prior to 1998.
<PAGE>
Second, the Industrial Products Group is reporting no gross profit on
any press manufactured during 1999 until a point in production when all
manufacturing costs can be reasonably estimated. Currently, that point is when
the press is in final assembly. This method of recognition of gross profits
adversely affected first half 1999 results.
Gross profits within the Industrial Products Group were favorably
affected in the first half of 1999 and 1998 by the Company's recovery of a claim
associated with a prior period. Selling and administrative expenses increased in
the first half of 1999. Most increases were related to salary and fringe cost
increases and an additional provision for doubtful accounts.
The Industrial Products Group backlog as of June 30, 1999, composed of
revenues to be recorded in future years on orders received, included revenues of
approximately $29,000,000 on orders for which estimated losses were recorded in
1998 and 1999 and on which no gross margin is expected to be recognized in 1999
and 2000. Uncertainties associated with these contracts make it reasonably
possible that additional losses could occur. The June 30, 1999 backlog for the
Industrial Products Group also included future revenues of approximately
$73,000,000 to be recorded principally in 1999 for which the group anticipates
gross margins lower than levels prior to 1998. The backlog of low margin and no
margin work in process at June 30, 1999 will have a substantial negative effect
on the Industrial Products Group earnings in 1999 and, to a lesser extent, in
2000. In addition, the deferral of the recognition of gross margins until the
later stages of the production of a press may result in fluctuations in
quarter-to-quarter results.
Because of the difficulties the Industrial Products Group encountered
in 1998, the group failed to meet delivery date requirements provided in several
press orders. The group incurred penalties of approximately $1,200,000 in 1998
(none in the first half) as a result of delays in shipments and expects that it
may receive additional claims for significant penalty payments or damages in the
remainder of 1999 and 2000. Reference is made to Note 10 of Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report on Form
10-K. The Company's difficulties in completing orders during 1998 and 1999 could
adversely affect its relationship with one or more of its customers and could
have a negative impact on the Company's ability to obtain future business from
such customers. Reference is made to Note 5 of Notes to Condensed Consolidated
Financial Statements regarding the possibility of the Verson division not being
able to meet delivery schedules for certain presses currently on orders in
production.
Corporate expenses consisted primarily of administrative charges and
other (income) expense. Administrative expenses increased in the first half of
1999. The majority of the increase was related to the effects of a matching
provision now provided by the Company for its 401(k)
<PAGE>
pension plans and increased professional fees related to the extended 1998 audit
and refinancing efforts of the Company In the first half of 1998, administrative
expenses included $1,119,000 of compensation expense (none in the first half of
1999) related to the exercise of certain stock options previously discussed.
Reference is made to Note 8 of Notes to Condensed Consolidated Financial
Statements for an analysis of other (income) expense in the first half of 1999
and 1998.
Interest expense in the first half of 1999 was $5,198,000 compared to
interest expense of $2,537,000 reported in the first half of 1998. The increase
was primarily associated with increased borrowings related to greater receivable
levels, fixed asset additions and the acquisition of the Great Bend and
Universal Turf operations in the second quarter of 1998. Interest rates on
borrowings outstanding have also increased slightly in the current year.
No current or deferred tax benefit was recorded in the first half of
1999 as a result of the Company's pretax loss. Reference is made to Note 5 of
Notes to Condensed Consolidated Financial Statements. No valuation allowance has
been provided for the net deferred tax assets associated with temporary
deductible differences that existed at the beginning of 1999 as the Company
believes it is more likely than not that such assets will be utilized.
Second Quarter of 1999 Compared to Second Quarter of 1998
- - ---------------------------------------------------------
Consolidated net sales for the second quarter of 1999 were $74,624,000
compared to consolidated net sales of $88,985,000 reported in the second quarter
of 1998. Loss before taxes in the second quarter of 1999 was $1,325,000 compared
to income before taxes (on a restated basis) of $10,645,000 in the second
quarter of the prior year. Net loss for the second quarter of 1999 was
$1,325,000 ($0.11 per common share-diluted) compared to net income (on a
restated basis) of $7,101,000 ($0.59 per common share-diluted) in the second
quarter of 1998.
Within the Agricultural Products Group, sales decreased by
approximately $3,800,000 in the second quarter of 1999 compared to the second
quarter of the prior year. The entire decrease was related to the Bush Hog
division and was primarily associated with lower rotary cutter sales. The
economic conditions affecting the agricultural equipment industry described
above continued to affect the operations of the Bush Hog division. This decrease
was offset by improved turf and landscape product sales (primarily associated
with new products developed in the past twelve months) and the impact of the
acquisition of the Great Bend division in the second quarter of 1998. Income
before taxes within the Agricultural Products Group decreased to $5,075,000 in
the second quarter of 1999 from $8,019,000 reported for the second quarter of
the prior year. Gross profits and gross profit margins have decreased in the
second quarter of 1999. The
<PAGE>
decrease in gross profit margins was primarily related to increased cash
discounts, the mix of products sold during each respective quarter, and
decreased facility utilization associated with lower production levels in the
second quarter of 1999. The decreases in gross profits also included the effects
of lower sales volume in the second quarter of 1999. Selling and administrative
expenses within the Agricultural Products Group increased slightly (less than
3%) in the second quarter of 1999 compared to the same quarter of the prior
year. The most significant increase was related to the effects of the
acquisition of the Great Bend division in the second quarter of 1998. Sales
commissions decreased in 1999 due to the impact of lower sales volume noted
above.
Within the Industrial Products Group, net sales decreased to
$37,491,000 in the second quarter of 1999 compared to net sales of $48,033,000
reported in the second quarter of 1998. Revenues have decreased due to a
decreasing number of presses currently in production compared to the prior year.
Orders for large presses have decreased significantly as the Verson division is
concentrating on completing current press orders in a timely manner to avoid
late delivery penalties. The division is actively bidding on numerous press
orders from both automobile manufacturers and tier one and two suppliers. The
division is not pursuing orders which would cause delays on presses currently in
production. This decrease in obtaining production orders has resulted in
decreased revenue recognition. Loss before taxes in the second quarter of 1999
was $267,000 compared to income before taxes (on a restated basis) of $4,385,000
reported for the second quarter of 1998. As previously noted, no gross profit on
any press manufactured during 1999 will be recognized until the press reaches a
point in production when all manufacturing costs can be reasonably estimated. It
was also previously noted that the backlog of low margin and no margin work in
process at the beginning of 1999 would have a substantial effect on the
operating results of the Industrial Products Group. As a result of the impact of
these items, the Industrial Products Group's gross profit margins have decreased
significantly in the second quarter of 1999 compared to the second quarter of
1998. The group also recorded an additional reserve of approximately $775,000
for estimated future losses on certain press orders currently in production.
These decreases in gross profits were partially offset by the effect of a
recovery of a claim associated with a prior period. Selling and administrative
expenses have increased in the second quarter of 1999 compared to the second
quarter of the prior year within the Industrial Products Group. Increases were
primarily associated with the increase of the provision for doubtful accounts,
increased costs related to improved operating systems (hardware and software)
and costs related to a joint venture (Verson Pressentechnik GmbH) formed in the
fourth quarter of 1998. Normal salary and fringe benefit cost increases also
<PAGE>
impacted selling and administrative expenses in the second quarter of 1999.
As noted above, corporate expenses consisted primarily of
administrative charges and other (income) expense. Administrative expense
increases in the second quarter of 1999 were principally associated with
increased pension costs and professional fees. Reference is made to Note 8 of
Notes to Condensed Consolidated Financial Statements for an analysis of other
(income) expense in the second quarter of 1999 and 1998.
Interest expense in the second quarter of 1999 was $2,837,000 compared
to interest expense of $1,447,000 reported in the second quarter of 1998. The
increase was primarily related to increased borrowing levels associated with
fixed asset additions and the acquisition of the Great Bend and Universal Turf
operations in the second quarter of 1998. Interest rates have also increased
slightly in the current year.
FINANCIAL CONDITION AND LIQUIDITY
- - ---------------------------------
Working capital at June 30, 1999 was $(31,578,000) and the current
ratio was .85 to 1.00 compared to working capital of $(14,955,000) and a current
ratio of .92 to 1.00 at December 31, 1998. Net receivables increased by
$8,636,000 since the end of 1998. The entire increase was associated with the
Agricultural Products Group where cash collections are dependent upon the retail
sale of the product by the dealer. The majority of sales to the dealer are
typically strong in the first quarter of the year or just prior to the use
season by the farmer. Extended payment terms are offered to dealers in the form
of floor plan financing which is customary in the industry. Receivable levels
within this group have also been impacted by the overall downturn in the
agricultural economy in the United States brought about by lower commodity
prices, excess grain inventory levels and decreased exports of grain,
particularly to the far eastern countries. These economic factors have led to
decreased agricultural equipment sales by dealers and, in turn, increased dealer
receivable levels. Net inventory levels have decreased by $9,382,000 since the
end of 1998. The majority of the decrease was related to the Industrial Products
Group. Verson has recorded reserves of $7,700,000 in the first half of 1999 for
estimated additional costs associated with certain press orders currently in
production on which losses are anticipated. In addition, customer payments on
presses in process have increased by approximately $10,353,000 since the end of
1998. Inventories within the Agricultural Products Group have also decreased
since the end of 1998. This decrease was associated with normal seasonal
production and shipment schedules.
<PAGE>
Fixed asset additions in the first half of 1999 totaled $5,087,000.
Over $3,000,000 of this amount represent building costs at the Verson division,
primarily associated with the assembly facility addition. The majority of the
remaining fixed asset additions in 1999 were related to manufacturing machinery
and equipment purchases at both the Agricultural Products and Industrial
Products Group. There were no major fixed asset dispositions in the first half
of 1999.
Net increases in accounts payables ($7,735,000) and accrued expenses
($2,305,000) were primarily related to increased production levels at the Verson
division. Borrowings under the Company's revolving credit agreement increased by
$5,600,000 in the first half of 1999.
Subsequent to June 30, 1999, the Company and CC Industries, Inc. of
Chicago signed a letter of intent to form a joint venture for the ownership and
operation of the Company's Agricultural Products Group. The letter of intent
contemplates that the Company will transfer the business, assets and liabilities
of the Agricultural Products Group to a newly formed limited liability company
and then will sell an 80.1% interest in the new entity to CC Industries for
approximately $120,700,000 subject to adjustment. The transaction is subject to,
among other things, satisfactory completion of due diligence inquiries by CC
Industries, the execution of definitive agreements, the approval of the
respective boards of the two companies and the approval of Allied's
shareholders.
On July 31, 1999, the Company entered into a Second Amendment and
Waiver to the Second Amended and Restated Credit Agreement ("Second Amendment").
Under the terms of the Second Amendment, the maximum indebtedness under the
agreement may remain at $135,000,000 from July 31 through November 29, 1999
rather than decrease on specific dates to $110,000,000 as originally scheduled.
Interest rates related to amounts outstanding under this amendment have also
been increased. The final maturity date of the agreement was accelerated from
February 28, 2000 to November 30, 1999. The Second Amendment refers to the above
noted letter of intent between CC Industries, Inc. and the Company. The Second
Amendment specifies that termination of or a materially adverse change in the
letter of intent or in any succeeding agreement will constitute an event of
default under the credit agreement. The Second Amendment also provides for a
waiver of noncompliance by the Company as of June 30, 1999 with the minimum
consolidated operating cash flow provision of the agreement.
Reference is made to Note 10 of Notes to Condensed Consolidated
Financial Statements in relation to the Company's announcement on July 29, 1999
of a New Stockholders' Right Plan
<PAGE>
and the redemption of the Common Share Purchase Rights currently outstanding.
As of June 30, 1999, the Company had cash and cash equivalents of
$684,000 and additional funds of $8,263,000 available under the Second Amended
and Restated Credit Agreement and related amendments. The Company believes that
its expected operating cash flow and funds available under the Second Amended
and Restated Credit Agreement and related amendments may not be adequate to
finance its operations and capital expenditures in 1999. The above noted letter
of intent regarding the Agricultural Equipment Group should result in the
Company receiving cash proceeds which would significantly reduce the amounts
outstanding under this agreement. Additional financing will be necessary to
maintain operations of the Industrial Products Group. The Company is exploring
additional or alternate sources of financing necessary to continue these
remaining operations in a normal manufacturing environment and to finance
necessary capital expenditures. During the second quarter of 1999, the Company
was not in compliance with certain provisions of the Second Amended and Restated
Credit Agreement. As noted above, subsequent to the end of the second quarter of
1999, the Company entered into a Second Amendment to the agreement which
provided for a waiver of this noncompliance.
Reference is made to Note 9 of Notes to Condensed Consolidated
Financial Statements as it relates to the Company's involvement in legal
proceedings as a defending party.
IMPACT FROM NOT YET EFFECTIVE RULES
- - -----------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133-Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. This statement is effective for all
quarters of fiscal years beginning after June 15, 2000. The Company is in the
process of evaluating the impact of this statement on its financial reporting.
YEAR 2000 COMPLIANCE
- - --------------------
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, these programs could cause date-related
transaction failures. The Company's program to address this year 2000 compliance
issue is broken down into the following major categories:
<PAGE>
1. Financial related hardware/software.
2. Manufacturing/engineering process controls.
3. Equipment manufactured for sale.
4. Outside source suppliers.
The general phases of the year 2000 compliance program common to all of
the above categories are:
1. Identifying items that are not year 2000 complaint.
2. Assigning priorities to identified items, including
the assessment of items material to the operations of
the Company.
3. Repairing or replacing material items determined not
to be year 2000 complaint.
4. Testing of material items repaired or replaced.
The Company has completed the identification process in relation to the
four categories noted above. The Company recently purchased and installed
financial software which is year 2000 compliant. Outside service bureau
financial software currently in place has been determined and tested to be year
2000 compliant. Payroll services for the Company are currently being provided by
an outside service. The Company is currently in the process of upgrading this
service to year 2000 compliant software. One major location is already utilizing
this new software. Compliance certificates have been received for non personal
computer systems owned/leased by the Company. Compliance testing is currently
being conducted. The majority of all personal computers used within the Company
(both financial and non financial applications) have been purchased within the
last two years and have been successfully tested for compliancy. Remaining non
compliant personal computers will be replaced with year 2000 compliant units
during 1999 as a part of the Company's normal upgrade program.
Manufacturing/engineering process controls and equipment includes
equipment to manufacture and design products sold by the Company. Design
equipment used in the engineering of agricultural equipment has been tested and
determined to be year 2000 compliant. At the Verson division, year 2000
compliance certificates have been received on all major purchased hardware and
software applications for designing equipment and programs. The intent of the
division is to rely on these certificates (due to the quality of the information
received and the reputation of the vendors involved) although some testing has
been completed with no
<PAGE>
exceptions noted. The majority of internally developed design software at Verson
has been determined not to contain date fields. Programs which do contain date
fields have been determined to be year 2000 compliant. The Company does not have
a significant amount of manufacturing equipment with embedded computer chips or
hardware/software which would present a problem at the beginning of the year
2000. Compliancy certificates have been received from the majority of equipment
manufacturers and internal tests of production machinery has been completed with
no exceptions noted. Outside consultants have also evaluated the status of
production equipment at the Verson division and have determined that the
division would be unlikely to experience year 2000 problems in the area
reviewed.
None of the equipment manufactured by the Agricultural Products Group
include hardware/software or embedded computer chips. Stamping presses
manufactured by the Verson division contain software and embedded computer
chips. Compliance certificates have been received on all software included in
the presses sold. Some internal testing has also been performed. The Company
believes that it has little, if any, exposure related to equipment manufactured
by its divisions in relation to the year 2000 issue.
The Company has identified key outside vendors which provide services
which, if not year 2000 compliant, could have an effect on the operations of the
Company. Sources include banking, investment, pension obligations, insurance,
utilities, etc. businesses. During 1999, these service providers will be asked
to update the Company on the status of their year 2000 compliance. The Company
will then need to evaluate these responses and determine if a contingency plan
would be necessary should the vendor not be compliant.
The total cost associated with required modifications to become year
2000 compliant (both incurred to date and to be incurred in the future) is not
expected to be material to the Company's financial position. This total cost
does not include the cost of internal efforts to complete the project. The costs
associated with the replacement of computerized systems, substantially all of
which were capitalized, are not included in the above estimate as such
replacements or upgrades were necessary to operate efficiently and such costs
would have been incurred even if year 2000 compliance was not an issue. The
Company anticipates that additional amounts will be spent in completing the year
2000 compliance project. These costs are being funded through operating cash
flow. The Company's year 2000 compliance program is an ongoing process and the
estimates of costs and completion dates for various components of the program
described above are subject to change. Other major system projects have not been
<PAGE>
deferred due to the year 2000 compliance project.
The risk to the Company from the failure of suppliers of goods and
services (over which the Company does not have control) to attain year 2000
compliance is the same as to other business enterprises generally. Failure of
information systems by financial institutions (banks, service bureaus, insurance
companies, etc.) would disrupt the flow of funds to and from the Company until
systems can be remedied or replaced by these providers. Failure of delivery of
critical components by suppliers and subcontractors resulting from non year 2000
compliance could result in disruptions of manufacturing processes with delays in
the delivery of our products to our customers until non-compliant conditions or
components can be remedied or replaced. The Company has identified major
suppliers of goods and services and is in the process of determining their year
2000 compliance status. Alternate suppliers of critical components are also in
the process of being identified. Contingency plans are being developed on a case
by case basis and may include booking orders before anticipated business
disruption. Even so, judgments regarding contingency plans, such as how to
develop them and to what extent, are themselves subject to many variables and
uncertainties. There can be no assurance that the Company will correctly
anticipate the level, impact or duration of noncompliance by suppliers that
provide inadequate information. As a result, there is no certainty that the
Company's contingency plans will be sufficient to mitigate the impact of
noncompliance by suppliers, and some material adverse effect to the Company may
result from one or more third parties regardless of defensive contingency plans.
The Company believes it is taking the necessary steps to resolve year 2000
issues and that with the completion of the year 2000 project as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
SAFE HARBOR STATEMENT
- - ---------------------
Statements contained within the Management Discussion and Analysis of
Financial Conditions and Results of Operations 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 Agricultural Products Group, 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
<PAGE>
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
Reference is made to Note 4 of Notes to Condensed Consolidated
Financial Statements.
Item 5 Other Information
-----------------
Reference is made to Note 9 of Notes to Condensed
Consolidated Financial Statements and Exhibit 10 for
information related to the Amendment to the Amended and
Restated Credit Agreement.
Item 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibits - See Exhibit Index included herein.
(b) Reports on Form 8-K - there were no reports on Form 8-K
for the three months ended June 30, 1999.
<PAGE>
SIGNATURES
- - ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIED PRODUCTS CORPORATION
----------------------------------
(REGISTRANT)
August 16,1999 /s/ Robert J. Fleck
- - -------------- -----------------------------------------------
Robert J. Fleck
Vice President- Accounting and Chief Accounting
& Administrative Officer
August 16, 1999 /s/ Mark C. Standefer
- - --------------- -----------------------------------------------
Mark C. Standefer
Vice President, General Counsel & Secretary
<PAGE>
ALLIED PRODUCTS CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- - ----------- -----------------------
10 Material Contract - Second Amendment and Waiver
Dated as of July 31, 1999 to the Credit
Agreement Dated as of February 1, 1999.
27 Financial Data Schedules
SECOND AMENDMENT AND WAIVER DATED AS OF JULY 31, 1999
TO CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1999
This Second Amendment and Waiver (this "Amendment"), dated as
of July 31, 1999, is made by and among ALLIED PRODUCTS CORPORATION, a Delaware
corporation (the "Company"), the financial institutions party hereto (the
"Banks"), and Bank of America, N.A. (formerly known as Bank of America National
Trust and Savings Association), 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 Section 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 Second
Amended and Restated Credit Agreement, dated as of February 1, 1999 (as amended
or modified and in effect on the date hereof, the "Credit Agreement");
WHEREAS, the Company has requested that the Banks and the
Agent agree to amend or modify the Credit Agreement as described herein; and
WHEREAS, the Banks and the Agent are willing to amend and
modify the 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:
I. AMENDMENT
---------
1. Amendments. Subject to the satisfaction of the
----------
conditions precedent set forth in Section 3.2 below, the Credit Agreement is
hereby amended as follows:
Section 1.1.3(a) of the Credit Agreement is amended to read in
its entirety as follows:
SECTION 1.1.3 Commitment Limits. Notwithstanding any
-----------------
other provision of this Agreement (a) the aggregate principal
amount of the Revolving Loans which all Banks are committed to
lend to the Company together with the Stated Amount of all
Letters of Credit then outstanding shall not at any one time
exceed the lesser of (i) the Borrowing Base or (ii) the
following amounts (less in each case any reductions made
pursuant to Section 6.1 or Section 6.3) as at or during the
following dates or periods:
DATE OR PERIOD AMOUNT
-------------- ------
February 1, 1999 through March 31, 1999 $140,000,000
April 1, 1999 through November 29, 1999 $135,000,000
November 30, 1999 Zero
Section 6.3(b) of the Credit Agreement is amended by adding at
the end of such Section the following:
Without limitation of the foregoing, the Company
agrees that concurrent with any sale by the Company (directly
or indirectly) of any interest in any of the assets comprising
the Bush Hog and/or Great Bend Manufacturing Divisions of the
Company (whether pursuant to the Bush Bog Letter of Intent or
otherwise) the Company shall apply the Net Sale Proceeds
thereof to the mandatory prepayment of all Liabilities
whereupon the Commitments shall automatically be reduced by
the amount of such prepayment (it being understood, however,
that no such sale may be made without the written consent of
the Banks).
Section 10.3 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.3 Insurance. Maintain, and cause each
---------
Subsidiary to maintain, such insurance as may be required by
law and such other insurance, to such extent and against such
hazards and liabilities, as is customarily maintained by
companies similarly situated. Without limitation of the
foregoing:
(a) All policies of insurance (i) shall name the
Agent as loss payee, and as additional insured, as its
interests may appear, (ii) shall be maintained without cost to
the Agent or any Bank, (iii) shall provide that the Agent
shall receive at least 30 days' prior written notice of any
reduction, modification or cancellation (including without
limitation cancellation due to non-payment of premium), and
(iv) shall be reasonably satisfactory in form and substance to
the Agent.
(b) Upon request of the Agent, the Company shall
furnish to the Agent, at reasonable intervals (but not more
than once per calendar year) a certificate of its Chief
Accounting Officer (and, if requested by any Bank, any
insurance broker of the Company) setting forth the nature and
extent of all insurance maintained by the Company in
accordance with this Agreement or any Collateral Documents
(and which, in the case of a certificate of a broker, were
placed through such broker).
(c) If any of the Collateral shall be damaged or
destroyed, in whole or in part, by fire or other casualty, the
Company shall give, or cause to be given, notice thereof to
the Agent, promptly upon the Company's actual knowledge
thereof. All insurance proceeds shall be paid to the Agent for
application to the Liabilities, provided, however, that upon
-------- -------
request of the Company, so long as no Event of Default exists,
the Agent shall permit such proceeds to be applied to the
repair and/or restoration of the Collateral. The Company shall
periodically provide the Agent with such assurances as the
Agent shall reasonably request to evidence compliance by the
Company with the foregoing.
Section 10.5.2 of the Credit Agreement is amended to read in
its entirety as follows:
SECTION 10.5.2 Minimum Consolidated Operating Cash
--------------------------------------
Flow. As of the end of any calendar month, not permit its
----
Consolidated Operating Cash Flow (measured monthly on a
cumulative basis for the related calendar year), to be less
than the amount applicable to such calendar month as follows:
Calendar Month Ending Amount
--------------------- ------
August 31, 1999 $ 518,000
September 30, 1999 $ 3,284,000
October 31, 1999 $ 4,649,000
Section 10 of the Credit Agreement is further amended by
adding Section 10.23 as follows:
SECTION 10.23. Transfer of Assets Pursuant to the
------------------------------------
Bush Hog Letter of Intent. Without the written consent of the
-------------------------
Banks, not transfer or contribute any assets to any other
person or entity pursuant to the Bush Hog Letter of Intent or
the Bush Hog Definitive Agreement.
Section 12 of the Credit Agreement is amended by adding
thereto Sections 12.1.10 and 12.1.11 as follows:
SECTION 12.1.10 Bush Hog Letter of Intent. (i) The
-------------------------
Bush Hog Letter of Intent or the Bush Hog Definitive Agreement
shall cease to provide for the Company to receive on or before
November 30, 1999, in cash, the Bush Hog Purchase Price or
(ii) the Bush Hog Letter of Intent or the Bush Hog Definitive
Agreement shall be terminated or shall otherwise cease to be
in full force and effect (except to the extent that the Bush
Hog Definitive Agreement replaces the Bush Hog Letter of
Intent), or (iii) any event shall occur which materially
adversely affects the receipt by the Company in cash of the
Bush Hog Purchase Price on or before November 30, 1999.
SECTION 12.1.11 Security. (i) any representation or
--------
warranty made by the Company in any Collateral Document is
breached or is false or misleading in any material respect; or
(ii) the Company shall fail to comply with or to perform any
provision of any Collateral Document and such failure shall
continue for 15 days after notice thereof to the Company from
the Agent, any Bank, or the holder of any Revolving Note; or
(iii) any security interest purported to be created by any
Collateral Document shall cease to be, or shall be asserted by
the Company not to be, a valid, perfected, first priority
(except as otherwise expressly provided in this Agreement or
such Collateral Document) security interest in any material
portion of the assets or properties covered thereby.
Section 13 of the Credit Agreement is amended so that the
definition of Borrowing Base Overadvance shall read in its entirety as
follows:
Borrowing Base Overadvance shall for each month set
forth below mean an amount as follows:
Month Overadvance Amount
----- ------------------
January 1999 $40,000,000
February 1999 $40,000,000
March 1999 $40,000,000
April 1999 $40,000,000
May 1999 $46,700,000
June 1999 $47,600,000
July 1999 $52,114,000
August 1999 $54,734,000
September 1999 $50,494,000
October 1999 $60,754,000
November 1999 $60,754,000
Section 13 of the Credit Agreement (the definition of
Collateral Documents) is amended by adding thereto the following:
Without limitation of the foregoing, the Security Agreement
dated as of May 12, 1999 of the Company in favor of the Agent
and the Banks shall constitute a Collateral Document and a
Loan Document hereunder.
Section 13 of the Credit Agreement is amended so that the
definition of "Margin" shall read in its entirety as follows:
Margin shall mean (i) in the case of Eurodollar Loans
(and Letters of Credit) a rate equal to 3.5% per annum through
July 31, 1999 and 4% per annum thereafter and (ii) in the case
of Floating Rate Loans, a rate equal to 2% per annum through
July 31, 1999 and 2.5% per annum thereafter.
Section 13 of the Credit Agreement is further amended by
adding thereto a definition of "Bush Hog Definitive Agreement" and
"Bush Hog Letter of Intent" as follows:
Bush Hog Definitive Agreement means any definitive
-------------------------------
agreement which is executed pursuant to the Bush Hog Letter of
Intent.
Bush Hog Letter of Intent shall mean the letter
----------------------------
agreement dated July 15, 1999 among the Company, CC
Industries, Inc. and Henry Crown and Company.
Bush Hog Purchase Price shall mean (i) the purchase
------------------
price of $120,710,700 for approximately an 80.1% interest in
the assets comprising the Bush Hog and Great Bend Divisions of
the Company pursuant to the Bank Hog Letter of Intent (the
"Original Purchase Price") or (ii) such other purchase price
as may be agreed to by the Company pursuant to the Bush Hog
Letter of Intent or the Bush Hog Definitive Agreement,
provided that such other purchase price shall not be
materially less than the Original Purchase Price.
Section 13 of the Credit Agreement is amended so that the
definition of "Revolving Termination Date" shall read in its entirety
as follows:
Revolving Termination Date shall mean November 30,
---------------------
1999.
Section 13 of the Credit Agreement is amended so that the
definition of Subsidiary shall read in its entirety as follows.
"Subsidiary" shall mean, with respect to any person
(herein referred to as the "parent") any corporation,
partnership, association or other business entity (a) of which
securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests
are, at the time any determination is being made, owned,
controlled or held, or (b) that is, at the time any
determination is made, otherwise Controlled by the parent or
one or more subsidiaries of the parent or by the parent and
one or more subsidiaries of the parent. For purposes hereof,
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the
management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise, and
the terms "Controlling" and "Controlled" shall have meanings
correlative thereto.
II. WAIVER
------
2.1 Waiver. The Banks hereby waive noncompliance by the
Company as of June 30, 1999 with the minimum consolidated operating
consolidating cash flow provision of Section 10.5.2.
2.2 Limitation on Waiver. Except as specifically set forth in
--------------------
Section 2.1, the foregoing waiver is specific in time and in intent and does not
constitute, nor shall it be construed as, a waiver of any other right, power or
privilege under the Credit Agreement, or under any agreement, contract,
indenture, document or other instrument mentioned in the Credit Agreement; nor
does the foregoing waiver preclude other or further exercise hereof or the
exercise of any other right, power or privilege, nor shall the waiver of any
right, power, privilege or default hereunder, or under any agreement, contract,
indenture, document, or instrument mentioned in the Credit Agreement, constitute
a waiver of any other default of the same or of any other term or provision.
III. GENERAL
-------
3.1 Representations. The Company hereby represents and
---------------
warrants to the Banks and the Agent that:
(a) The execution, delivery and performance of this Amendment
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 constitutes the legal, valid, and binding
obligations of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
(c) Except for any Event of Default or Unmatured Event of
Default which will be cured by this Amendment becoming effective, no
Event of Default or Unmatured Event of Default has occurred and is
continuing or will result from this Amendment.
(d) The Company has furnished to the Banks a true and correct
copy of the Bush Hog Letter of Intent.
(e) Pursuant to Section 5(b) of the Security Agreement, the
Company is using its bests efforts to obtain from each person from whom
the Company leases any warehouse space or premises in or on which any
Collateral is located, a consent in form and substance satisfactory to
the Agent.
(f) The Company has no fixtures in any county except Cook
County, Illinois; Barton County, Kansas; Lake County, Indiana; and
Dallas County, Alabama.
3.2 Conditions Precedent to Effectiveness. This Amendment
---------------------------------------
shall become effective as of July 31, 1999 (the "Effective Date"), subject,
however, to the receipt by the Agent of all fees and expenses previously billed
to the Company in respect of the Credit Agreement as amended hereby, together
with each of the following, each appropriately completed and duly executed as
required and otherwise in form and substance reasonably satisfactory to the
Agent:
(a) counterparts of this Amendment, executed by the Company
and the Banks.
(b) 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;
(c) A certificate of the President or a Vice-President of the
Company to the effect that (i) all necessary consents or approvals with
respect to this Amendment have been obtained; and (ii) attached thereto
is a true and correct copy of the Bush Hog Letter of Intent;
(d) 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 and the documents related hereto on
behalf of the Company;
(e) An opinion of Mark Standefer covering those matters set
forth in Section 3.1(a) and 3.1(b) and such other legal matters as the
Agent or its counsel may request; and
(f) 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.
3.3 Documents Remain in Effect. Except as amended or modified
--------------------------
by this Amendment, the 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. References to the Credit
Agreement in any other document shall be deemed to include a reference to the
Credit Agreement as amended or modified hereby, whether or not reference is made
to this Amendment.
3.4 Expenses. The Company covenants to pay to or reimburse the
--------
Agent, upon demand, for all costs and expenses (including legal expenses) in
connection with the development, preparation, negotiation, execution and
delivery of this Amendment and the Loan Documents.
3.5 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 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.
(c) All obligations of the Company and rights of the Banks and
the Agent, that are expressed herein, shall be in addition to and not in
limitation of those provided by applicable law.
(d) Whenever possible, each provision of this Amendment shall
be interpreted in such manner as to be effective and valid under applicable law;
but if any provision of this Amendment 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.
(e) The Company acknowledges and agrees that the execution and
delivery by the Agent and the Banks of this Amendment shall not be deemed (i) to
create a course of dealing or otherwise obligate the Agent or the Banks to
forbear or execute similar amendments under the same or similar circumstances in
the future, or (ii) to amend, relinquish or impair any right of the Agent or the
Banks to receive any indemnity or similar payment from any Person or entity as a
result of any matter arising from or relating to this Amendment.
(f) This Amendment shall be binding upon and inure to the
benefit of the parties and thereto and their respective successors and assigns.
No third party beneficiaries are intended in connection with this Amendment.
(g) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Bank or the Company shall bind such Bank or the
Company, respectively, with the same force and effect as the delivery of a hard
copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(h) This Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with reference
to the matters discussed herein and therein. This Amendment supercedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 15.1 of the Credit
Agreement.
* * *
<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, CEO, President
--------------------------------------
BANK OF AMERICA NATIONAL, N.A.(formerly
known as Bank of America National Trust
and Savings Association), as Agent
By: /s/ David A. Johanson
-----------------------------------
Name: David A. Johanson
---------------------------------
Title: Vice President
--------------------------------
BANK OF AMERICA NATIONAL, N.A.(formerly
known as Bank of America National Trust
and Savings Association), in its
individual corporate capacity
By: /s/ Peter J. Gates, Jr.
-----------------------------------
Name: Peter J. Gates, Jr.
---------------------------------
Title:
--------------------------------
LASALLE NATIONAL BANK
By: /s/ Mary Lou Bartlett
-----------------------------------
Name: Mary Lou Bartlett
---------------------------------
Title: Vice President
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND THE CONSOLIDATED STATEMENT OF
INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000003941
<NAME> ALLIED PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 684
<SECURITIES> 0
<RECEIVABLES> 78,601
<ALLOWANCES> 1,138
<INVENTORY> 87,462
<CURRENT-ASSETS> 180,881
<PP&E> 133,528
<DEPRECIATION> 52,269
<TOTAL-ASSETS> 276,351
<CURRENT-LIABILITIES> 212,459
<BONDS> 1,924
0
0
<COMMON> 140
<OTHER-SE> 56,770
<TOTAL-LIABILITY-AND-EQUITY> 276,351
<SALES> 156,864
<TOTAL-REVENUES> 156,864
<CGS> 144,337
<TOTAL-COSTS> 144,337
<OTHER-EXPENSES> 26,518
<LOSS-PROVISION> 706
<INTEREST-EXPENSE> 5,198
<INCOME-PRETAX> (13,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,991)
<EPS-BASIC> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
