FORM 10-Q/A
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 September 30, 1998
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: 11,818,609 common shares, $.01
par value, as of October 31, 1998.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION
CONDENSED CONSOLIDATED BALANCE SHEETS-
September 30, 1998 and December 31, 1997
CONDENSED CONSOLIDATED STATEMENTS OF INCOME- Three
and Nine Months Ended September 30, 1998 and 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-
Nine Months Ended September 30, 1998 and 1997
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. NOT APPLICABLE
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
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during 1996, 1997 and
interim reporting periods for 1998 was incorrect. Non-cash compensation expense
for certain option exercises during the above periods which was not recognized
in previously issued 10-Q's is now reflected in the accompanying restated
financial statements. The Company also determined that gross profit margins at
the Verson division were incorrectly reported in 1997 and interim reporting
periods in 1998. Reference is made to Note 13 of the Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K regarding the
reconciliation of the amounts previously reported to the amounts currently being
reported in the quarterly consolidated statements of income (loss) for the
periods ended September 30, 1998 and 1997. It was further determined that the
Company should have accrued for product liability claims incurred but not
reported prior to 1996. The product liability adjustment ($1,040,000 net of tax)
had no impact on operating results reported on within this report and is
reflected as an adjustment to retained earnings at December 31, 1995.
The condensed consolidated financial statements included herein (as of
September 30, 1998 and for the three and nine months ended September 30, 1998
and 1997) 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, 1997 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 nine month periods ended
September 30, 1998 and 1997 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>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 428,000 $ 609,000
------------------ -----------------
Notes and accounts receivable, less allowances of
$699,000 and $531,000, respectively ........... $ 64,928,000 $ 54,729,000
------------------ -----------------
Inventories:
Raw materials .................................. $ 10,015,000 $ 6,193,000
Work in process ................................ 107,855,000 52,811,000
Finished goods ................................. 16,155,000 14,419,000
------------------ -----------------
$ 134,025,000 $ 73,423,000
------------------ -----------------
Deferred tax asset ................................ $ 12,773,000 $ 12,773,000
------------------ -----------------
Prepaid expenses .................................. $ 540,000 $ 415,000
------------------ -----------------
Total current assets ........................ $ 212,694,000 $ 141,949,000
------------------ -----------------
Plant and Equipment, at cost:
Land ........................................... $ 2,366,000 $ 2,243,000
Buildings and improvements ..................... 56,589,000 40,750,000
Machinery and equipment ........................ 62,088,000 51,339,000
------------------ -----------------
$ 121,043,000 $ 94,332,000
Less-Accumulated depreciation and amortization .. 47,792,000 48,811,000
------------------ -----------------
$ 73,251,000 $ 45,521,000
------------------ -----------------
Other Assets:
Deferred tax asset ............................. $ 4,631,000 $ 4,631,000
Deferred charges (goodwill), net of amortization 6,173,000 1,491,000
Other .......................................... 2,629,000 1,472,000
------------------ -----------------
$ 13,433,000 $ 7,594,000
------------------ -----------------
$ 299,378,000 $ 195,064,000
================== =================
</TABLE>
The accompanying notes to 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>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement ........................ $ 116,000,000 $ 50,400,000
Current portion of long-term debt ................. 388,000 268,000
Accounts payable .................................. 50,560,000 19,923,000
Accrued expenses .................................. 26,493,000 25,145,000
------------------ -----------------
Total current liabilities .................. $ 193,441,000 $ 95,736,000
------------------ -----------------
Long-term debt, less current portion shown above .... $ 1,168,000 $ 670,000
------------------ -----------------
Other long-term liabilities ......................... $ 12,246,000 $ 10,105,000
------------------ -----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares
at September 30, 1998 and December 31,
1997; none issued ............................ $ -- $ --
Common Stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at
September 30, 1998 and December 31, 1997 ...... 140,000 140,000
Additional paid-in capital ....................... 98,845,000 98,518,000
Retained earnings ................................ 36,002,000 32,148,000
------------------ -----------------
$ 134,987,000 $ 130,806,000
Less: Treasury stock, at cost: 2,160,740 and
2,144,263 shares at September 30, 1998 and
December 31, 1997, respectively ................ (42,464,000) (42,253,000)
------------------ -----------------
Total shareholder's equity ................. $ 92,523,000 $ 88,553,000
------------------ ------------------
$ 299,378,000 $ 195,064,000
================== =================
</TABLE>
The accompanying notes to 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 September 30, Nine Months Ended September 30,
------------------------------ -------------------------------
1998 1997 1998 1997
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 77,184,000 $ 63,714,000 $ 229,000,000 $ 213,497,000
Cost of products sold ............... 76,228,000 47,093,000 189,674,000 160,281,000
------------- ------------- ------------- -------------
Gross profit(loss) ................ $ 956,000 $ 16,621,000 $ 39,326,000 $ 53,216,000
------------- ------------- ------------- -------------
Other costs and expenses:
Selling and administrative expenses $ 9,571,000 $ 9,217,000 $ 28,220,000 $ 26,572,000
Interest expense .................. 1,802,000 847,000 4,339,000 2,499,000
Other (income) expense, net ....... 379,000 (1,623,000) (1,485,000) (1,082,000)
------------- ------------- ------------- -------------
$ 11,752,000 $ 8,441,000 $ 31,074,000 $ 27,989,000
------------- ------------- ------------- -------------
Income (loss) before taxes .......... $ (10,796,000) $ 8,180,000 $ 8,252,000 $ 25,227,000
Provision (credit) for income taxes . (3,648,000) 2,893,000 2,969,000 9,035,000
------------- ------------- ------------- -------------
Net income (loss) and comprehensive
net income(loss) .................. $ (7,148,000) $ 5,287,000 $ 5,283,000 $ 16,192,000
============= ============= ============= =============
Earnings (loss) per common share:
Basic ............................. $ (0.60) $ 0.44 $ 0.44 $ 1.33
============= ============= ============= =============
Diluted ........................... $ (0.60) $ 0.43 $ 0.44 $ 1.30
============= ============= ============= =============
Weighted average shares outstanding:
Basic ............................. 11,914,000 12,091,000 11,920,000 12,165,000
============= ============= ============= =============
Diluted ........................... 11,914,000 12,358,000 12,069,000 12,412,000
============= ============= ============= =============
Dividends per common share .......... $ 0.04 $ 0.04 $ 0.12 $ 0.11
============= ============= ============= =============
</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>
Nine Months Ended September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ............................................................... $ 5,283,000 $ 16,192,000
Adjustments to reconcile net income to net cash provided from
(used for) provided from operating activities:
Gains on sales of operating and nonoperating assets ................... (1,962,000) (151,000)
Depreciation and amortization ......................................... 4,406,000 3,840,000
Amortization of deferred charges ...................................... 240,000 133,000
Deferred income tax provision ......................................... 2,414,000 7,959,000
Provision for inventory valuation ..................................... 1,906,000 --
Stock option compensation ............................................. 1,119,000 87,000
Changes in noncash assets and liabilities, net of noncash transactions:
(Increase) in accounts receivable .................................. (7,710,000) (9,572,000)
(Increase) in inventories .......................................... (59,572,000) (11,862,000)
(Increase) decrease in prepaid expenses ............................ (107,000) 16,000
Increase (decrease) in accounts payable and accrued expenses ...... 30,143,000 2,418,000
Other,net ............................................................. (713,000) 65,000
------------- -------------
Net cash provided from (used for) operating activities ................... $ (24,553,000) $ 9,125,000
------------- -------------
Cash Flows from Investing Activities
Additions to plant and equipment ......................................... $ (31,411,000) $ (10,165,000)
Payment for businesses acquired .......................................... (10,953,000) --
Proceeds from sales of plant and equipment ............................... 3,373,000 414,000
------------- -------------
Net cash used for investing activities ................................... $ (38,991,000) $ (9,751,000)
------------- -------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreement .............................. $ 131,400,000 $ 83,100,000
Payments under revolving credit agreement ................................ (65,800,000) (67,000,000)
Payments of short and long-term debt ..................................... (202,000) (145,000)
Purchase of treasury stock ............................................... (1,171,000) (15,995,000)
Dividends paid ........................................................... (955,000) (811,000)
Stock option transactions ................................................ 91,000 1,147,000
------------- -------------
Net cash provided from financing activities ................................. $ 63,363,000 $ 296,000
------------- -------------
Net (decrease) in cash and cash equivalents ................................. $ (181,000) $ (330,000)
Cash and cash equivalents at beginning of year .............................. 609,000 833,000
------------- -------------
Cash and cash equivalents at end of period .................................. $ 428,000 $ 503,000
============= =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the statements
<PAGE>
Allied Products Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) Accrued Expenses
----------------
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
9/30/98 12/31/97
----------- -----------
<S> <C> <C>
Salaries and wages ............... $ 7,726,000 $ 5,560,000
Warranty ......................... 5,290,000 4,938,000
Self insurance accruals .......... 1,576,000 2,858,000
Pensions, including retiree health 5,642,000 6,439,000
Taxes, other than income taxes ... 1,812,000 1,158,000
Environmental matters ............ 1,403,000 1,810,000
Other ............................ 3,044,000 2,382,000
----------- -----------
$26,493,000 $25,145,000
=========== ===========
</TABLE>
(2) 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 and weighted
average shares outstanding for the three and nine months ended
September 30, 1997 have been restated to reflect the effect of adopting
the provisions of this accounting standard. Basic earnings per common
share for the periods in 1998 is based on the average number of common
shares outstanding (11,914,000 and 11,920,000 for the three and nine
months ended September 30, 1998, respectively). Diluted earnings per
common share for the same periods is based on the average number of
common shares outstanding, as noted above, increased by the dilutive
effect of outstanding stock options (82,000 and 149,000 for the three
and nine months ended September 30, 1998, respectively). Basic earnings
per common share for the periods in 1997 is based on the average number
of common shares outstanding (12,091,000 and 12,165,000 for the three
and nine months ended September 30, 1997, respectively). Diluted
earnings per common share for the same periods in 1997 is based on the
average number of common shares outstanding, as noted previously,
increased by the dilutive effect of outstanding options (267,000 and
247,000 for the three and nine months ended September 30, 1997,
respectively).
(3) Treasury Shares
---------------
During the third quarter of 1998, the Company's Board of
Directors authorized the purchase of up to 500,000 additional shares of
the Company's outstanding common stock subject to prevailing market
conditions. See Note 10 regarding an Amendment to the Amended and
Restated Credit Agreement and the availability of funds related to
these future treasury stock purchases.
<PAGE>
(4) Acquisitions
------------
During the second quarter of 1998, the Company acquired
substantially all of the assets and assumed certain liabilities of
Great Bend Manufacturing Company (Great Bend) located in Great Bend,
Kansas. Great Bend manufactures and sells tractor-mounted front-end
loaders which are used principally in agricultural applications. The
Company also acquired in the second quarter of 1998 substantially all
of the assets of Universal Turf Equipment Corporation (Universal Turf)
located in Opp, Alabama. Universal Turf manufactures and sells turf
maintenance implements including reel mowers, verti-cut mowers, reel
grinders and spraying equipment. The impact of these acquisitions on
the consolidated operating results of the Company in the third quarter
and nine month periods of 1998 is not considered significant.
(5) Dispositions/Sales of Assets
----------------------------
"Other (income) expense, net" for the nine months ended
September 30, 1998 includes gains of approximately $1,962,000 ($10,000
loss in the third quarter) primarily related to the sale of idle
facilities.
(6) Revised Cost Estimate
---------------------
During the latter part of the third quarter of 1998, the
Company recorded a pretax charge of $11,180,000. This charge stems
primarily from revised cost estimates for several newly designed,
automated, multi-station transfer presses currently in production at
the Verson division. The need for the revised cost estimates was
identified in the third quarter 1998 and reflects the impact of
production bottlenecks in the assembly process as well as greater than
anticipated increases in subcontracting costs. These factors are all
directly attributable to the strain on engineering and manufacturing
resources caused by Verson's recent significant increase in orders. In
addition to the impact on third quarter earnings, the revised cost
estimates are expected to result in lower margins at the Verson
division until the presses currently in production are completed.
Completion of production for the majority of these presses is
anticipated to occur by the end of the second quarter of 1999. The
Company, as part of the estimate revision process, has reviewed all
work currently in process, all committed press orders and all future
business currently being quoted.
(7) Contingent Liabilities
----------------------
The Company is involved in a number of legal proceedings as a
defending party, including product liability and environmental matters
for which liability is reasonably possible. However, after
consideration of relevant data (consultation with legal counsel and
review of insurance coverage, accruals, etc.), management believes that
the eventual outcome of these matters will not have a material adverse
effect on the Company's financial position
<PAGE>
or its ongoing results of operations.
Reference is made to Note 10 of Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report on Form 10-K
as it relates to a note receivable taken in connection with the sale of
the business and assets of the former Littell division. Collections
from this note in the nine months ended September 30, 1998 totaled
$520,000 ($130,000 in the third quarter) and were included in "Other
(income) expense."
Reference is made to Note 10 of Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report on Form 10-K
as it relates to the sale by the Company of a site in Coldwater, Ohio
that was contingent on the issuance by the State of Ohio, Ohio
Environmental Protection Agency, of a covenant not to sue. On March 31,
1998, the Ohio Environmental Protection Agency issued the covenant not
to sue. The Company closed on the sale of this facility for cash in the
amount of $3,156,000 on May 13, 1998.
At September 30, 1998, the Company was contingently liable for
approximately $938,000 primarily relating to outstanding letters of
credit.
(8) Income Taxes
------------
The provision (credit) for income taxes in the nine months
ended September 30, 1998 and 1997 is based upon the Federal statutory
rates adjusted for items that are not subject to taxes. See Note 4 of
Notes to Consolidated Financial Statements in the Company's 1997 Annual
Report on Form 10-K for a further discussion related to income taxes.
<PAGE>
(9) Summary of Other (Income) Expense
---------------------------------
Other (income) expense for the three and nine month periods
ended September 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
9/30/98 9/30 97 9/30/98 9/30/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income ......... $ (59,000) $ (46,000) $ (146,000) $ (86,000)
Goodwill amortization ... 108,000 44,000 240,000 133,000
Net (gain) loss on sales
of operating and non-
operating assets ...... 10,000 (8,000) (1,962,000) (151,000)
Litigation
settlements/insurance
provision ............. 314,000 81,000 883,000 638,000
Payments received on
long-term notes
receivable reserved for
as uncollectible ...... (130,000) (1,695,000) (520,000) (2,195,000)
Other miscellaneous .... 136,000 1,000 20,000 579,000
----------- ----------- ----------- -----------
$ 379,000 $(1,623,000) $(1,485,000) $(1,082,000)
=========== =========== =========== ===========
</TABLE>
(10) Financial Arrangements
----------------------
On June 30, 1998 the Company entered into Amendment No. 3 to
the Amended and Restated Credit Agreement. The amendment provides for
an increase to $145,000,000 (from $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. The funds may be used for future working capital needs of the
Company, fixed asset additions and possible acquisitions. On August 21,
1998, the Company entered into Amendment No. 4 to the Amended and
Restated Credit Agreement. The Amendment provides for up to
$152,500,000 (from $145,000,000) of borrowings and/or letters of credit
at either a floating prime or fixed LIBOR (with rate dependent on the
ratio of Funded Debt to Operating Cash Flow) rate. The funds associated
with this increase will be used for the additional purchases of the
Company's stock.
During the third quarter of 1998, the Company entered into an
interest rate lock in conjunction with a $75,000,000 private placement
agreement that was in process. The Company anticipated that by entering
into a private placement agreement, favorable fixed interest rates
could be obtained on a long-term basis and that exposure to floating
interest rates under the Amended and Restated Credit Agreement (which
would be reduced by the principal amount of the private placement)
would be reduced. After entering into the interest rate lock, interest
rates continued to decrease. Hedging losses totaling $4,136,000
associated with the interest rate lock agreement have been deferred at
September 30, 1998 as the agreement was designed as a hedge with
respect to the private placement in process. The interest rate lock
agreement has been extended and now expires on November 20, 1998. The
Company has the right to further extend this agreement or to make a
payment (based on then current interest rates) in settlement of this
agreement. Subsequent to the end of the third quarter of 1998, the
Company decided to suspend it efforts to secure financing through a
private placement. Hedging losses at the point of suspension were
reduced to approximately $2,352,000 and will be recorded in the fourth
quarter of 1998. The Company will record additional charges or credits
monthly based on changes in current interest rates until a final
settlement of the agreement is effective.
Also, during 1998, the Company entered into an interest rate
swap agreement for $50,000,000 as part of the Amended and Restated
Credit Agreement. Under the terms of this swap agreement, which expires
on May 14, 2001, the Company has fixed the interest rate on that
portion of the Amended and Restated Credit Agreement. Remaining
balances under the Amended and Restated Credit Agreement bear interest
at either a floating prime or fixed LIBOR (with the rate dependent on
the ratio of Funded Debt to Operating Cash Flow) rate. The interest
rate under the swap agreement exceeds the average borrowing rate under
the portion of the Amended and Restated Credit Agreement not covered by
the swap agreement by .61% as of September 30, 1998. This rate
differential is being recorded as interest expense on a monthly basis.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
- -----------------
During the latter part of the third quarter of 1998, the Company
recorded a pretax charge of $11,180,000. This charge stems primarily from
revised cost estimates for several newly designed, automated, multi-station
transfer presses currently in production at the Verson division. The need for
the revised cost estimates was identified in the third quarter of 1998 and
reflects the impact of production bottlenecks in the assembly process as well as
greater than anticipated increases in subcontracting costs. These factors are
all directly attributable to the strain on engineering and manufacturing
resources caused by Verson's recent significant increase in orders. In addition
to the impact on third quarter earnings, the revised cost estimates are expected
to result in lower margins at the Verson division until the presses currently in
production are completed. Completion of production for the majority of these
presses is anticipated to occur by the end of the second quarter of 1999. The
Company, as part of the estimate revision process, has reviewed all work
currently in process, all committed press orders and all future business
currently being quoted.
During the second quarter of 1998, the Company acquired substantially
all of the assets and assumed certain liabilities of Great Bend Manufacturing
Company (Great Bend) located in Great Bend, Kansas. Great Bend manufactures and
sells tractor-mounted front-end loaders which are used principally in
agricultural applications. The Company also acquired in the second quarter of
1998 substantially all of the assets of Universal Turf Equipment Corporation
(Universal Turf) located in Opp, Alabama. Universal Turf manufactures and sells
turf maintenance implements including reel mowers, verti-cut mowers, reel
grinders and spraying equipment. The impact of these acquisitions on the
consolidated operating results of the Company in the third quarter and first
nine months of 1998 is not considered significant. The Universal Turf product
lines were integrated into the operations of the Bush Hog division.
During the fourth quarter of 1997, the Company sold for cash
substantially all of the assets of its Coz division. The purchaser also assumed
certain specified liabilities associated with this division.
"Earnings (loss) per common share" and "Weighted average shares
outstanding" have been restated for the three and nine months ended September
30, 1997 to reflect the effect of adopting Statement of Financial Accounting
Standards No. 128 - Earnings per Share.
<PAGE>
First Nine Months of 1998 Compared to First Nine Months of 1997
- ---------------------------------------------------------------
Net sales for the nine-month period ending September 30, 1998 were
$229,000,000 compared to net sales of $213,497,000 reported in the first nine
months of 1997. Increased sales at all of the Company's operating divisions more
than offset the loss of revenue associated with the Company's former Coz
division, which was sold in the fourth quarter of 1997. Income before taxes in
the first nine months of 1998 was $8,252,000 compared to income before taxes of
$25,227,000 reported in the same nine-month period of the prior year. The
majority of the decrease in 1998 was related to the $11,180,000 charge for
revised cost estimates described above. Net income was $5,283,000 ($.44 per
common share-diluted) in the first nine months of 1998 compared to net income of
$16,192,000 ($1.30 per common share-diluted) in the first nine months of 1997.
At the Bush Hog and Great Bend divisions, combined net sales increased
over 15% in the first nine months of 1998 compared to the first nine months of
the prior year. Approximately 40% of this increase was related to the
acquisition of the Great Bend and Universal Turf operations in the second
quarter of 1998. The remainder of the increase was principally associated with
increased cutter sales at the Bush Hog division which benefitted from increased
demand in the first half of 1998. Cutter sales during this period benefitted
from a reduction of the cattle herd liquidation cycle. Cattle ranchers use the
cutters for grazing pasture maintenance. Cutter sales in 1998 were also
favorably affected by new/redesigned products for the turf and landscaping
market for utilization by commercial turf (sod) growers and for golf course
maintenance. Since the end of the second quarter of the current year, cutter
sales have been negatively affected by lower prices for major crops (corn,
wheat, soybeans) and livestock commodities. Strong crop yields in the Midwest
and fewer exports are expected to keep crop and live stock commodity prices at a
low level for the next several months. Loader sales have also increased in the
current year, with the majority of the increase related to the acquisition of
the Great Bend division as noted above. Gross profits increased in the first
nine months of 1998 compared to the first nine months of the prior year. This
increase was primarily related to the effects of increased sales as discussed
above. Gross profit margins remained constant between the two nine-month
periods. Margin improvements related to favorable manufacturing variances
(resulting from increased facility utilization and increased labor efficiencies)
were offset by the effect of the mix of products sold in each period.
At the Verson division, sales increased 23% in the first nine months of
1998 compared to the first nine months of 1997. Revenue and profits are
recognized on a percentage of completion basis for press production at this
division. The increase in net sales was principally related to increased press
production in the current year. During the middle part of this year, the
division received a major order for presses totaling approximately $80,000,000.
Other significantly large press orders were received during 1997. During 1998,
all of these large press orders were in
<PAGE>
production, resulting in increased sales. Gross profits and gross profit margin
decreased during the 1998 nine-month period compared to the same nine months of
1997. The majority of the decrease was related to a $11,180,000 charge recorded
in the third quarter of the current year and discussed above. Additional
decreases were associated with the mix of presses in production (the majority of
revenue in 1998 was related to newly designed presses resulting in manufacturing
inefficiencies and increased engineering/design costs), increased subcontracting
costs, costs related to the hiring and training of manufacturing personnel and
lack of adequate assembly area. The division has identified these issues and,
during the fourth quarter of 1998, anticipates bringing on line a $28,000,000
assembly area expansion which will approximately double the division's current
assembly area. Warranty costs have also increased in the current year due to the
increased sales volume noted above. These increased costs were partially offset
by the settlement of a claim against a third party, which negatively impacted
periods prior to 1997.
Selling and administrative expenses increased in the first nine months
of 1998 to $28,220,000 from $26,572,000 reported in the first nine months of
1997. As a percent of net sales, these costs have decreased to 12.3% in 1998
compared to 12.4% in 1997. At the agricultural equipment divisions, selling
expenses increased due to the impact of increased sales (commissions) and the
acquisition of the Great Bend and Universal Turf operations. Selling expenses at
the Verson division increased due to the establishment of an international sales
and marketing department (primarily salaries and travel costs). On a
consolidated basis, administrative expenses have increased in 1998. Corporate
administrative costs increased in the 1998 nine month period primarily due to
the effect of compensation expense recognized ($1,119,000 in the first nine
months of 1998 compared to $87,000 in the first nine months of the prior year)
in relation to stock options exercised in each period. Other administrative cost
increases related to normal staff expenses, legal fees associated with the
settlement of a claim at the Verson division and the acquisition of the Great
Bend division were offset by the impact of certain Corporate Office retirements
in late 1997 and the sale of the Coz division.
Interest expense in the first nine months of 1998 was $4,339,000
compared to interest expense of $2,499,000 reported in the first nine months of
the prior year. Increased borrowing needs were related to higher consolidated
receivable levels (primarily associated with Bush Hog's increased sales volume)
and increased inventory levels (primarily associated with the Verson division
where orders for a total of 10 multi-station transfer presses are currently in
production and some shipment delays have occurred). Other borrowing needs
included fixed asset additions over the past twelve months, including the Verson
plant expansion, the impact of decreased customer deposits and progress payments
against press orders at the Verson division, and the acquisitions of Great Bend
and Universal Turf in the second quarter of 1998. Interest expense in the first
nine months of 1998 was partially offset by the capitalization of $637,000 of
<PAGE>
interest costs relating to the Company's building expansion project at the
Verson division.
Reference is made to Note 9 of Notes to Condensed Consolidated
Financial Statements for an analysis of Other (income) expense in the first nine
months of 1998 and 1997.
Third Quarter of 1998 Compared to Third Quarter of 1997
- -------------------------------------------------------
Net sales in the third quarter of 1998 were $77,184,000 compared to net
sales of $63,714,000 reported in the third quarter of 1997. Loss before income
taxes in the third quarter of 1998 was $10,796,000 compared to income before
taxes of $8,180,000 reported in the third quarter of the prior year. The
majority of the decrease related to a charge of $11,180,000 recorded in the
third quarter of 1998 for revised cost estimates at the Verson division as
described above. Net loss was $7,148,000 ($.60 per common share-diluted) in the
third quarter of 1998 compared to net income of $5,287,000 ($.43 per common
share-diluted) in the third quarter of 1997.
Agricultural equipment (Bush Hog and Great Bend) sales increased 10% in
the third quarter of 1998 compared to the same quarter of the prior year. The
increase was primarily related to the acquisitions of Great Bend and Universal
Turf as previously discussed. Rotary cutter sales decreased in the third quarter
of 1998 due to the impact of lower prices that farmers and ranchers are
receiving for major crop and livestock commodities. Parts sales also decreased
in the current year's third quarter. Other product line sales (loaders, tillers,
backhoes, etc.) increased slightly in the third quarter of the current year.
Gross profits and gross profit margins have decreased in the third quarter of
1998 compared to the third quarter of the prior year. Production levels have
been reduced in the current year's third quarter resulting in less favorable
manufacturing variances. The mix of products sold was also less favorable in the
third quarter of 1998.
At the Verson division, sales have increased by over 60% in the third
quarter of 1998 compared to the third quarter of the prior year. Production
continues on major press orders from each of the major U.S. automobile
manufacturers. Gross profits and gross profit margins have decreased in the
third quarter of 1998. The majority of the decrease in the gross profit was
related to a $11,180,000 charge recorded during the third quarter of this year
as discussed above. Margins on sales currently in process are lower than margins
on sales in process in the third quarter of the prior year. Margins were
impacted by several factors including increased manufacturing and engineering
subcontracting costs (compared to internal costs to manufacture and design),
lack of adequate assembly facilities (an assembly facility addition is currently
being constructed) and costs to hire and train qualified manufacturing employees
to handle the increased production levels.
<PAGE>
Selling and administrative expenses have increased slightly in the
third quarter of 1998 ($9,217,000) compared to the third quarter of 1997
($9,571,000). As a percent of net sales, these expenses decreased to 12.4% in
the 1998 third quarter compared to 14.5% in the third quarter of the prior year.
Over 90% of the increase in these costs was related to the acquisition of the
Great Bend and Universal Turf operations in 1998. Increases at the Verson
division in selling costs (due to the impact of the establishment of an
international sales and marketing department) and administrative costs (due to
the expanded operations including the upgrading of its management information
systems) were offset by the effect of the sale of the Coz division noted above.
Interest expense in the third quarter of 1998 was $1,802,000 compared
to interest expense of $847,000 reported in the third quarter of 1997. Increased
borrowing needs were related to increased receivable levels at the Bush Hog
division, increased inventory levels at the Verson division, fixed asset
additions at both the Bush Hog and Verson divisions and the acquisitions of
Great Bend and Universal Turf. Interest expense was partially offset by the
capitalization of $335,000 of interest costs relating to the Company's building
expansion project at the Verson division.
Reference is made to Note 9 of Notes to Condensed Consolidated
Financial Statements for an analysis of Other (income) expense in the third
quarter of 1998 and 1997.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Working capital at September 30, 1998 was $19,253,000 (current ratio of
1.10 to 1.0) compared to working capital of $46,213,000 (current ratio of 1.48
to 1.0) at December 31, 1997. Net receivables increased by $10,199,000 since the
end of 1997. The majority of the increase was related to the agricultural
equipment divisions where record nine month sales have been recorded by the Bush
Hog division. Cash collections are dependent upon the retail sale of the product
by dealers. Dealer sales have decreased in the third quarter of 1998 due to the
impact of lower prices the farmers/ranchers are receiving for major crops and
livestock commodities. Extended payment terms are offered to dealers in the form
of floor plan financing which is customary in the industry. Receivables also
increased with the acquisition of the Great Bend division. On a consolidated
basis, inventory levels have increased $60,602,000 since the end of 1997.
Approximately 90% of the increase was related to the Verson division and was the
direct result of the number and extent of jobs in process, the impact of
decreased customer deposits and progress payments against press orders and the
effects of delivery date extensions. The acquisitions of Great Bend and
Universal Turf also resulted in increased consolidated inventories. The
consolidated increase in the accounts payable level ($30,637,000) since the end
of 1997 was principally associated with the Verson division where production
levels have increased significantly during 1998.
<PAGE>
Fixed asset additions in the first nine months of 1998 (excluding
acquisitions) totaled $31,411,000. The majority of these additions were
represented by construction costs associated with a $28,000,000 expansion
project at the Verson division. This project will more than double the size of
Verson's assembly facility and increase the division's capacity by approximately
35%. This, combined with the division's focused factory concept and the overall
strengthening of its infrastructure, are intended to help alleviate capacity
constraints at this operation. Expenditures for production machinery and
equipment at all manufacturing divisions were also made in the first nine months
of 1998. It is anticipated that the equipment will result in reduced
manufacturing costs and improvements in product quality.
Net borrowings under the Company's Amended and Restated Credit
Agreement increased by $65,600,000 since the end of 1997. These borrows were
used to finance working capital needs and fixed asset additions noted above.
As of September 30, 1998, the Company had cash balances of $428,000 and
additional funds of $34,663,000 available under its Amended and Restated Credit
Agreement. Additional capital will be required to complete the expansion project
at the Vernon division as noted above. During the third quarter of 1998, the
Company entered into Amendment No. 4 to the Amended and Restated Credit
Agreement. The amendment provides for up to $152,500,000 (from $145,000,000) of
borrows and/or letters of credit at either a floating prime or fixed LABOR (with
the rate dependent on the ratio of Funded Debt to Operating Cash Flow) rate.
During the third quarter of 1998, the Company's Board of Directors authorized
the purchase of up to 500,000 additional shares of the Company's outstanding
common stock subject to prevailing market conditions. The funds associated with
the above noted amendment to the Amended and Restated Credit Agreement will be
used for these stock purchases. The Company believes the cash flow from
operations and funds available under the Amended and Restated Credit Agreement
are adequate to finance its operations and capital expenditures in the near
future. At September 30, 1998, the Company was not in compliance with two
provisions under the Amended and Restated Credit Agreement. Subsequent to the
end of the third quarter of 1998, the lenders waived compliance with the related
provisions solely for the quarter ended September 30, 1998. In addition, the
amount available under the Amend and Restated Credit Agreement was reduced to
$145,000,000.
Reference is made to Note 10 of Notes to Condensed Consolidated
Financial Statements regarding the Company's hedging activities in relation to a
private debt placement agreement which was in process at September 30, 1998 and
subsequently suspended November 11, 1998.
<PAGE>
IMPACT FROM NOT YET EFFECTIVE RULES
- -----------------------------------
In June 1997, the Financial Accounting Standards Board (FAST) issued
Statement of Financial Accounting Standards (SAS) No. 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 interim financial reports issued to shareholders
subsequent to initial annual financial statements disclosure. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement is effective on an annual
basis for financial statements for periods beginning after December 15, 1997.
Interim reporting requirements begin in 1999. Comparative information for
earlier years is also to be presented.
In February 1998, the FAST issued SAS No. 132 -Employers' Disclosures
about Pensions and Other Postretirement Benefits. This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of these plans. It standardizes
the disclosure requirements for pension and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when other related SAS were issued. The Company is in the process of
evaluating the impact of these statements on its financial reporting.
In June 1998, the FAST issued SAS 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. 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 the year 2000 compliance
issue is broken down into the following major categories:
1. Financial related hardware/software.
2. Manufacturing/engineering process controls.
3. Equipment manufactured for sale.
4. Outside source suppliers.
The general phases common to all of the above categories are:
<PAGE>
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.
As of September 30, 1998, the Company has completed the identification
process in relation to three of the four categories noted above. Outside service
bureau financial software currently in place has been determined and tested to
be year 2000 compliant. The Company has recently purchased and installed
financial software which is year 2000 compliant. Divisions not currently using
year 2000 compliant software will be utilizing these new programs. Payroll
services for the Company are currently being provided by an outside service.
Payroll software is not year 2000 compliant. The Company is in the process of
having this software upgraded by the end of 1998. Financial hardware is
currently being tested for compliancy. The majority of the hardware has been
purchased within the last two years and is believed to be compliant.
Certification of compliance and subsequent testing needs to be completed. Older
hardware will be replaced over the next year as part of ongoing upgrade
programs.
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 determined
and tested to be year 2000 compliant. At the Vernon division, design equipment
not year 2000 compliant has yet to be identified and prioritized. The Company is
in the process of selecting outside experts to identify, repair or replace and
test the equipment (hardware and software) which is not compliant at this time.
This process should be completed by the first quarter of 1999. 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 equipment
manufacturers and all testing, where necessary, should be completed by the end
of the first quarter of 1999.
None of the equipment manufactured by Bush Hog and Great Bend include
hardware/software or embedded computer chips. Stamping presses manufactured by
the Vernon division contain software and embedded computer chips. However,
neither of these items effect the operation of the presses as it relates to year
2000 issues. 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 outside vendors which provide services
which, if not year
<PAGE>
2000 compliant, could have an effect on the operations of the Company. Sources
include banking, investment, pension obligations, insurance, etc. During the
fourth quarter of 1998, 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 is not expected to be material to the Company's financial
position. Through September 30, 1998, the Company has spent approximately
$250,000 on the project to become year 2000 compliant. This amount does not
include the cost of internal efforts to complete the project. The costs
associated with the replacement of computerized systems, hardware or equipment,
substantially all of which is 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 an additional $250,000 may 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.
The Company is in the process of developing contingency plans should
the year 2000 compliance not be achieved in a timely manner. The Company
believes its greatest risk of exposure to noncompliance (in relation to year
2000 issues over which the Company has control) is associated with financial
related hardware and software. While significant progress toward compliance has
been made over the past year, failure to obtain compliance could result in the
delay of the reporting of financial results. The Company, at this time, is
unable to determine the impact of non year 2000 compliance by outside vendors.
In many instances, the use of alternative vendors who are year 2000 compliant
would be considered.
The above expectations are subject to uncertainties. For example, if
the Company was affected by the inability of suppliers or major customers to
continue operations due to such a problem, the Company could experience
interruption in some aspects of its activities, which could materially impact
our results of operations or financial condition. The Company believes 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 Condition 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.
<PAGE>
Operations of the Company include the manufacturing and sale of agricultural and
industrial machinery. In relation to the Bush Hog and Great Bend divisions,
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, the ability of the Company to
identify and correct any year 2000 issues in a timely manner 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 5 Other Information
-----------------
Reference is made to Note 10 Financial Arrangements 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 September 30, 1998.
<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 3,1999 /s/ Robert J. Fleck
- ------------- -----------------------------------------------
Robert J. Fleck
Vice President- Accounting and Chief Accounting
& Administrative Officer
August 3, 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 - Amendment No. 4 to the Credit Agreement
27 Financial Data Schedules
AMENDMENT NO. 4 TO CREDIT AGREEMENT, DATED AS OF AUGUST 23, 1996
This Amendment No. 4 (this "Amendment"), dated as of August
21, 1998, 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 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
Amended and Restated Credit Agreement, dated as of August 23, 1996, (as amended
or modified and 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 $145,000,000 contained therein
and replacing it with $152,500,000.
(b) Clause (b) of Section 6.1 of the Existing Credit Agreement
shall be deleted in its entirety and replaced with the following:
"(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
--------------
October 31, 1998 $145,000,000
March 31, 1999 $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."
(c) Section 10.19 of the Existing Credit Agreement is deleted
in its entirety and replaced with the following:
"Section 10.19 Use of Proceeds. To the extent the
---------------
principal amount of Revolving Loans plus the Stated Amount of Letters
of Credit exceeds $100,000,000, cause an amount of proceeds at least
equal to such excess to be used by the Company's Verson Division
("Verson") for the purpose of funding working capital with respect to
active and outstanding binding purchase contracts (of at least
corresponding size in the aggregate) between Verson and Ford Motor
Company, Chrysler Corporation and General Motors, in each case for the
purchase of new steel presses, it being understood that (I) in the case
of contracts with Chrysler Corporation, such contracts shall be in
excess of $10,000,000 and shall not provide for progress payments, and
(ii) prior to the use of such proceeds, the Company shall furnish to
each Bank summaries of such contracts together with payment schedules
and such other information as either Bank may request in connection
therewith; provided that notwithstanding the foregoing, up to
$7,500,000 of the principal of such proceeds in excess of $100,000,000
may be used to repurchase common stock of the Company in accordance
with Section 10.9"
(d) Exhibit A to the Existing Credit Agreement is deleted in
its entirety and replaced with Exhibit A attached hereto.
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:
(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 Vice- President 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 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.
* * *
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
------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (as successor by
merger to Bank of America Illinois),
as Agent
By: /s/ Sean Grimes
---------------------------------
Name: Sean Grimes
-------------------------------
Title: Agency Officer
------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (as successor by
merger to Bank of America Illinois),
in its individual corporate capacity
By: /s/ Rhomes Ritter
--------------------------------------
Name: Rhomes Ritter
------------------------------------
Title: Vice President
-----------------------------------
LASALLE NATIONAL BANK
By: /s/ Mary Lou Bartlett
-------------------------------------
Name: Mary Lou Bartlett
-----------------------------------
Title: Vice President
----------------------------------
EXHIBIT A
COMMITMENT LIMITS AND PERCENTAGES
<TABLE>
<CAPTION>
Column I: Column II: Column III: Column IV:
Amount of Amount of Letter Total Amount of
Name of Bank Revolving Loan of Credit Commitments Percentage
Commitment Commitment
<S> <C> <C> <C> <C>
BANK OF AMERICA $106,750,000 $14,000,000 $106,750,000 70%
NATIONAL TRUST AND
SAVINGS ASSOCIATION
LASALLE NATIONAL BANK $ 45,7500,000 $ 6,000,000 $ 45,750,000 30%
TOTALS $152,500,000 $20,000,000 $152,500,000 100%
</TABLE>
EXHIBIT B
FORM OF
RESTATED REVOLVING NOTE
$ __________________ August __, 1998
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.
This Restated Revolving Note is issued in replacement of a Revolving
Note issued pursuant to the Credit Agreement on June 30, 1998. The indebtedness
evidenced by this Note represents an extension and renewal of indebtedness owing
to the payee.
ALLIED PRODUCTS CORPORATION
By: ___________________________
Title: ________________________
Schedule Attached to Restated Revolving Note dated August 21, 1998 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
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
RESTATED REVOLVING NOTE
$ 106,750,000 August 21, 1998
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,
One Hundred Six Million Seven Hundred Fifty Thousand Dollars ($106,750,000) 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.
This Restated Revolving Note is issued in replacement of a Restated
Revolving Note issued pursuant to the Credit Agreement on June 30, 1998. 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 August 21, 1998 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
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<PAGE>
RESTATED REVOLVING NOTE
$ 45,750,000 August 21, 1998
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, Forty-Five Million Seven
Hundred Fifty Thousand Dollars ($45,750,000) 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 Restated
Revolving Note issued pursuant to the Credit Agreement on June 30, 1998. The
indebtedness evidenced by this Note represents an extension and renewal of
indebtedness owing to the payee.
ALLIED PRODUCTS CORPORATION
By: ___________________________
Title: ________________________
Schedule Attached to Restated Revolving Note dated August 21, 1998 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
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 428
<SECURITIES> 0
<RECEIVABLES> 65,627
<ALLOWANCES> 699
<INVENTORY> 134,025
<CURRENT-ASSETS> 212,694
<PP&E> 121,043
<DEPRECIATION> 47,792
<TOTAL-ASSETS> 299,378
<CURRENT-LIABILITIES> 193,441
<BONDS> 1,168
0
0
<COMMON> 140
<OTHER-SE> 92,383
<TOTAL-LIABILITY-AND-EQUITY> 299,378
<SALES> 229,000
<TOTAL-REVENUES> 229,000
<CGS> 189,674
<TOTAL-COSTS> 189,674
<OTHER-EXPENSES> 31,074
<LOSS-PROVISION> 161
<INTEREST-EXPENSE> 4,339
<INCOME-PRETAX> 8,252
<INCOME-TAX> 2,969
<INCOME-CONTINUING> 5,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,283
<EPS-BASIC> .44
<EPS-DILUTED> .44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
***RESTATED FINANCIAL DATA SCHEDULE***
--------------------------------
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 503
<SECURITIES> 0
<RECEIVABLES> 63,065
<ALLOWANCES> 685
<INVENTORY> 68,652
<CURRENT-ASSETS> 146,242
<PP&E> 97,225
<DEPRECIATION> 52,777
<TOTAL-ASSETS> 199,360
<CURRENT-LIABILITIES> 93,107
<BONDS> 344
0
0
<COMMON> 140
<OTHER-SE> 92,734
<TOTAL-LIABILITY-AND-EQUITY> 199,360
<SALES> 213,497
<TOTAL-REVENUES> 213,497
<CGS> 160,281
<TOTAL-COSTS> 160,281
<OTHER-EXPENSES> 27,989
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 2,499
<INCOME-PRETAX> 25,227
<INCOME-TAX> 9,035
<INCOME-CONTINUING> 16,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,192
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.30
</TABLE>
