<PAGE>
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, 2000
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)
1355 EAST 93RD STREET, CHICAGO, ILLINOIS 60619
----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (773) 933-8200
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 the 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: 11,891,664 common shares, $.01
par value, as of July 31,2000 .
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION
CONDENSED CONSOLIDATED BALANCE SHEETS-
June 30, 2000 and December 31, 1999
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three and Six Months Ended June 30, 2000 and 1999
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-
Six Months Ended June 30, 2000 and 1999
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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. NOT APPLICABLE
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, 2000 and for the three and six months ended June 30, 2000 and 1999)
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, 1999 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, 2000 and 1999 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, 2000 DECEMBER 31, 1999
------------------ ------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,590,000 $ 1,054,000
------------------ ------------------
Restricted Cash $ 5,576,000 $ --
------------------ ------------------
Notes and accounts receivable, less allowances of
$875,000 and $1,130,000, respectively $ 18,723,000 $ 20,460,000
------------------ ------------------
Inventories:
Raw materials $ 3,419,000 $ 3,571,000
Work in process 33,701,000 43,094,000
------------------ ------------------
$ 37,120,000 $ 46,665,000
------------------ ------------------
Deferred tax asset $ 3,400,000 $ 8,995,000
------------------ ------------------
Prepaid expenses $ 1,371,000 $ 228,000
------------------ ------------------
Current assets associated with discontinued operations $ -- $ 84,073,000
------------------ ------------------
Total current assets $ 68,780,000 $ 161,475,000
------------------ ------------------
Plant and Equipment, at cost:
Land $ 1,691,000 $ 1,671,000
Building and improvements 53,719,000 52,435,000
Machinery and equipment 39,394,000 36,603,000
------------------ ------------------
$ 94,804,000 $ 90,709,000
Less-Accumulated depreciation and amortization 34,749,000 32,023,000
------------------ ------------------
$ 60,055,000 $ 58,686,000
------------------ ------------------
Other Assets:
Deferred tax asset $ 4,256,000 $ 4,165,000
Deferred charges (goodwill), net of amortization 1,045,000 1,134,000
Other 3,349,000 2,853,000
Noncurrent assets associated with discontinued
operations -- 28,298,000
------------------ ------------------
$ 8,650,000 $ 36,450,000
------------------ ------------------
$ 137,485,000 $ 256,611,000
================== ==================
</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, 2000 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreements $ 9,012,000 $ 130,700,000
Current portion of long-term debt 860,000 1,023,000
Accounts payable 22,423,000 32,659,000
Accrued expenses 20,881,000 22,648,000
Current liabilities associated with discontinued operations -- 17,877,000
----------------- -----------------
Total current liabilities $ 53,176,000 $ 204,907,000
----------------- -----------------
Long-term debt, less current portion shown above $ 2,900,000 $ 378,000
----------------- -----------------
Other long-term liabilities $ 5,347,000 $ 5,442,000
----------------- -----------------
Noncurrent liabilities associated with discontinued operations $ -- $ 2,814,000
----------------- -----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 2,000,000 shares at June 30,
2000 and December 31, 1999; none issued $ -- $ --
Common Stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at
June 30, 2000 and December 31, 1999 140,000 140,000
Additional paid-in capital 97,281,000 97,971,000
Retained earnings (deficit) 20,336,000 (12,524,000)
----------------- -----------------
$ 117,757,000 $ 85,587,000
Less: Treasury stock, at cost: 2,155,585 and 2,200,203
shares at June 30, 2000 and December 31, 1999,
respectively (41,695,000) (42,517,000)
----------------- -----------------
Total shareholder's equity $ 76,062,000 $ 43,070,000
----------------- -----------------
$ 137,485,000 $ 256,611,000
================= =================
</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 JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales from continuing operations $ 13,740,000 $ 37,491,000 $ 32,757,000 $ 82,829,000
Cost of products sold 10,280,000 34,300,000 29,231,000 89,119,000
------------ ------------ ------------ ------------
Gross profit (loss) $ 3,460,000 $ 3,191,000 $ 3,526,000 $ (6,290,000)
------------ ------------ ------------ ------------
Other costs and expenses:
Selling and administrative expense $ 5,423,000 $ 5,875,000 $ 10,689,000 $ 11,742,000
Interest expense 689,000 1,429,000 2,369,000 2,592,000
Other (income) expense, net 35,000 351,000 482,000 (154,000)
------------ ------------ ------------ ------------
$ 6,147,000 $ 7,655,000 $ 13,540,000 $ 14,180,000
------------ ------------ ------------ ------------
(Loss) before taxes from continuing operations $ (2,687,000) $ (4,464,000) $(10,014,000) $(20,470,000)
Provision for income taxes:
Current -- -- -- --
Deferred -- -- 5,650,000 --
------------ ------------ ------------ ------------
(Loss) from continuing operations $ (2,687,000) $ (4,464,000) $(15,664,000) $(20,470,000)
------------ ------------ ------------ ------------
Discontinued operations (net of tax):
Income (loss) from operations $ -- $ 3,139,000 $ 1,687,000 $ 6,479,000
Gain on disposition of discontinued operations 8,739,000 -- 46,837,000 --
------------ ------------ ------------ ------------
Income from discontinued operations $ 8,739,000 $ 3,139,000 $ 48,524,000 $ 6,479,000
------------ ------------ ------------ ------------
Net income (loss) $ 6,052,000 $ (1,325,000) $ 32,860,000 $(13,991,000)
============ ============ ============ ============
Earning (loss) per common share:
Basic:
Continuing operations $ (0.23) $ (0.38) $ (1.32) $ (1.73)
Discontinued operations 0.74 0.27 4.09 0.55
------------ ------------ ------------ ------------
Income (loss) per common share $ 0.51 $ (0.11) $ 2.77 $ (1.18)
============ ============ ============ ============
Diluted:
Continuing operations $ (0.23) $ (0.38) $ (1.32) $ (1.73)
Discontinued operations 0.74 0.27 4.09 0.55
------------ ------------ ------------ ------------
Income (loss) per common share $ 0.51 $ (0.11) $ 2.77 $ (1.18)
============ ============ ============ ============
Weighted average shares outstanding:
Basic 11,870,000 11,838,000 11,861,000 11,828,000
============ ============ ============ ============
Diluted 11,870,000 11,838,000 11,861,000 11,828,000
============ ============ ============ ============
Dividends per common share $ -- $ 0.04 $ -- $ 0.04
============ ============ ============ ============
</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,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
(Loss) from continuing operations $ (15,664,000) $ (20,470,000)
Income from discontinued operations 48,524,000 6,479,000
-------------- --------------
Net income (loss) $ 32,860,000 $ (13,991,000)
Adjustments to reconcile (loss) from continuing operations
to cash provided from (used for) operating activities:
Gains on sales of assets/business (47,945,000) (93,000)
Depreciation and amortization 2,729,000 2,395,000
Amortization of deferred charges 89,000 89,000
Deferred income tax provision 5,650,000 --
Provision for inventory valuation -- 7,695,000
Changes in noncash assets and liabilities, net of
businesses sold and noncash transactions:
Decrease in accounts receivable 1,442,000 1,905,000
(Increase) decrease in inventories 9,545,000 (839,000)
Decrease in prepaid expenses 698,000 176,000
Increase (decrease) in accounts payable and accrued expenses (12,575,000) 8,560,000
Other, net (311,000) (297,000)
Adjustment to reconcile income from discontinued operations
to cash used for discontinued operations (16,326,000) (4,856,000)
-------------- --------------
Net cash provided from (used for) operating activities $ (24,144,000) $ 744,000
-------------- --------------
Cash Flows from Investing Activities:
Additions to plant and equipment $ (881,000) $ (4,284,000)
Proceeds from sale of business 154,945,000 --
Proceeds from sales of plant and equipment 12,000 17,000
Restricted Cash (5,576,000) --
Net cash used in discontinued operations (270,000) (803,000)
-------------- --------------
Net cash provided from (used for) investing activities $ 148,230,000 $ (5,070,000)
-------------- --------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreements $ 18,100,000 $ 78,200,000
Proceeds from issuance of debt 51,145,000 --
Payments under revolving credit agreements (148,800,000) (72,600,000)
Payments of short and long-term debt (42,995,000) (112,000)
Dividends paid -- (943,000)
Net cash used in discontinued operations -- (262,000)
-------------- --------------
Net cash provided from (used for) financing activities $ (122,550,000) $ 4,283,000
-------------- --------------
Net increase (decrease) in cash and cash equivalents $ 1,536,000 $ (43,000)
Cash and cash equivalents at beginning of year 1,054,000 727,000
-------------- --------------
Cash and cash equivalents at end of period $ 2,590,000 $ 684,000
============== ==============
</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) DISCONTINUED OPERATIONS
On March 7, 2000, the Company transferred substantially all of
the assets and certain liabilities of the Bush Hog and Great Bend
divisions constituting the Agricultural Products Group to Bush Hog,
L.L.C., a Delaware limited liability company ("New Bush Hog") in
exchange for all of the outstanding membership interests of New Bush
Hog. The Company then sold the membership interests of New Bush Hog to
Bush Hog Investors, L.L.C., a Delaware limited liability company ("Bush
Hog Investors"), in two transactions: 80.1% on March 7 and 19.9% on June
24. See Note 1 of Notes to Consolidated Financial Statements in the
Company's report on Form 10-Q for the quarter ended March 31, 2000.
Following the completion of the sale of the 80.1% membership
interest the Company received a distribution of $3,582,000 from New
Bush Hog, which the Company recorded as a return of capital reducing
the cost basis of its 19.9% interest in New Bush Hog to $17,532,000.
On March 24, 2000, the Company signed a definitive agreement to sell
its remaining 19.9% interest in New Bush Hog to Bush Hog Investors.
On June 26, 2000 the Company consummated the sale of the remaining
19.9% interest in its former Agricultural Products Group for an
estimated sale price of $28,451,000. The sale proceeds were than
reduced by an estimated adjustment to the 80.1% interest Selling
Price of $1,550,000 and payments to be held in escrow until
resolution of certain contingencies associated with the sale totaling
$5,576,000. After repaying the $18,000,000 LaSalle Bank loan, the net
cash proceeds to the Company were approximately $3,000,000. The
Company recorded a gain net of taxes on the sale of $8,739,000 for
the second quarter of 2000, as described in Note 4 of Notes to
Condensed Consolidated Financial Statements. This amount is reduced
for costs associated with the sale and net of an additional provision
of $1,318,000 related to liabilities assumed in connection with the
sales.
The Company has included in the operations of the Agricultural
Products Group through March 7, 2000 an allocation of all direct
financing, administrative, other expenses and income taxes and a pro
rata allocation of interest expense (based upon the group's
proportionate share of consolidated invested capital) under the caption
"Discontinued operations, income from operations" in the accompanying
Condensed Consolidated Statements of Income (Loss). Previously issued
Condensed Consolidated Statements of Income (Loss) have been revised to
reflect the effect of the discontinued operations. In addition, current
and noncurrent assets and liabilities associated with the above noted
discontinued operations have been reclassified in the accompanying
balance sheets.
<PAGE>
Summarized operating results of discontinued operations for the
three and six months ended June 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .................... $ -- $ 37,133,000 $ 28,608,000 $ 74,035,000
============ ============ ============ ============
Income before taxes .......... $ -- $ 3,139,000 $ 1,687,000 $ 6,479,000
Provision (benefit) for
income taxes ............... -- -- -- --
------------ ------------ ------------ ------------
Discontinued
operations income
from operations ............ $ -- $ 3,139,000 $ 1,687,000 $ 6,479,000
============ ============ ============ ============
</TABLE>
Allocated interest expense was $1,078,000 (none in the second
quarter of 2000) and $2,529,000 ($1,369,000 in the second quarter of
1999) for the six months ended June 30, 2000 and 1999, respectively.
(2) ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
6/30/00 12/31/99
------------ ------------
<S> <C> <C>
Salaries and wages $ 2,201,000 $ 1,943,000
Warranty 4,362,000 5,563,000
Self insurance accruals 1,797,000 2,871,000
Pensions, including retiree health 2,956,000 5,362,000
Taxes, other than income taxes 1,119,000 949,000
Environmental matters 2,376,000 2,376,000
Other 6,070,000 3,584,000
------------ ------------
$ 20,881,000 $ 22,648,000
============ ============
</TABLE>
(3) EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share is based on the
average number of common shares outstanding (11,870,000 and 11,861,000
for the three and six months ended June 30, 2000 and 1999,
respectively). For the three and six months ended June 30, 2000 and
1999, dilutive securities were excluded from the calculation of diluted
loss per share as their effect would have been antidilutive.
(4) FINANCIAL ARRANGEMENTS
As of December 31, 1999, the Second Amended and Restated Credit
Agreement ("Credit Agreement"), as amended, provided for up to
$135,000,000 of borrowings and/or letters of credit at either a floating
prime (prime plus 250 basis points) or fixed LIBOR (LIBOR plus 400 basis
points) rate. The Company granted a lien upon and security interests in
all of the assets (except real estate) of the Company and its
subsidiaries to the lenders and was required to meet certain periodic
financial tests. Effective February 11, 2000, the Company entered into a
Fifth Amendment and Consent to the Credit Agreement. The
<PAGE>
amended agreement provided for up to $138,000,000 of borrowings and/or
letters of credit and extended the termination date of the agreement to
March 7, 2000.
In contemplation of the sale of an 80.1% interest in the
Agricultural Products Group and to help finance the build up of
receivables and inventories within this group during December and the
first quarter of 2000, an affiliate of Bush Hog Investors agreed, under
the Loan and Security Agreement ("Bush Hog Investors Loan") dated as of
December 16, 1999, to loan the Company up to $5,000,000, secured by the
group's real property in Selma, Alabama. During the first quarter of
2000, the Company borrowed the maximum amount available under this
agreement at an interest rate of prime plus 400 basis points.
On March 7, 2000, the Company entered into a Loan and Security
Agreement with LaSalle Bank National Association ("LaSalle"). Under the
terms of the agreement, the Company was permitted to borrow $18,000,000
at a floating rate (prime less 100 basis points) within three months
after the closing of the agreement. The loan was secured by a first lien
on the Company's then remaining 19.9% interest in New Bush Hog. These
proceeds, combined with the proceeds received from the sale of the 80.1%
interest in New Bush Hog, were applied to repay the Company's
indebtedness outstanding under the Second Amended and Restated Credit
Agreement and the Bush Hog Investors Loan, and to costs associated with
the sale.
The Company also entered into a new credit facility with Foothill
Capital Corporation ("Foothill") effective March 29, 2000. The Foothill
credit facility has a three year term, maturing in March 2003, and
consists of a term loan of $10,600,000 and a revolving credit facility
which may be drawn upon from time to time up to the lower of $19,400,000
or an amount based upon a percentage of eligible accounts receivable and
eligible inventories relating to presses which are within sixty (60)
days of shipment, as determined by Foothill, subject to reserves as
determined by Foothill (the "Borrowing Base"). The amount available
under the term loan sub-line is to be reduced by $176,667 monthly
commencing in September 2000. The maximum remaining amount due at
maturity in March 2003 is $5,123,323. Interest is payable monthly at a
floating prime rate (prime plus 200 basis points on the term loan and
prime plus 125 basis points on the revolver). In the event of a default,
the interest rate increases by 300 basis points. Foothill received a
closing fee of $300,000 and will receive a monthly fee of $50,000 for
each month a balance is outstanding under the revolving credit facility.
With certain exceptions, the penalty for prepayment is $900,000 (3% of
the maximum credit available) in the first year, declining to 2% and 1%
in the second and third years. Certain portions of the Borrowing Base
are to be determined, following Foothill's review and determination of
eligible receivables.
<PAGE>
In connection with the Foothill loan, the Company granted a lien
upon and security interests in substantially all of its assets (except
its membership interest in New Bush Hog). The loan agreement requires
that the Company sell its remaining interest in New Bush Hog on or
before June 30, 2000, with the Company receiving net proceeds of not
less than $6,000,000. On June 26, 2000 the Company satisfied this
obligation and closed on the sale of its remaining 19.9% interest in New
Bush Hog. Net proceeds of the sale were approximately $3,000,000. The
Company received a waiver from Foothill of the requirement that it
receive not less than $6,000,000 in net proceeds from the sale. The
proceeds from the sale were used to pay off the entire balance of the
LaSalle Loan and Security Agreement, provide for existing indemnity
obligations to New Bush Hog, and for working capital.
Restrictions in the Foothill loan agreement include, among other
things, limitations on capital expenditures, restrictions on liens and
the making of guarantees, and restrictions on acquisitions and
investments. The loan agreement also prohibits the payment of cash
dividends. Additionally, Foothill can accelerate repayment in the event
of a material adverse change in the business, as defined in the
agreement. Financial covenants include a covenant that earnings before
interest, taxes, depreciation and amortization ("EBITDA"), exclusive of
extraordinary gains, exceed the amounts listed below as of the dates and
for the periods indicated:
<TABLE>
<S> <C> <C>
June 30, 2000 ................ last three months $ (1,300,000)
September 30, 2000 ........... last six months $ (3,500,000)
December 31, 2000 ............ last nine months $ (4,600,000)
March 31, 2001 ............... last twelve months $ (3,900,000)
June 30, 2001 ................ last twelve months $ (3,000,000)
September 30, 2001 ........... last twelve months $ 1,300,000
December 31, 2001 ............ last twelve months $ 7,600,000
</TABLE>
Because the borrowing base is limited solely to a percentage of
eligible accounts receivable and eligible inventories relating to
presses which are within sixty (60) days of shipment (and not to a
percentage of total inventories as well), the credit facility is not a
source of financing for the substantial work in process inventories
frequently required in the Company's business. This will limit the
Company's ability to accept press orders which do not include customer
deposits.
Since the Company's estimated EBITDA for future periods is
predicated, among other things, upon projections of the receipt of new
press orders in appropriate sequences and bearing appropriate margins,
the Company cannot predict EBITDA with a reasonable degree of certainty.
The rate of new orders is currently lagging behind the projections on
which the EBITDA covenants were based. The Company has advised Foothill
that it is likely that it will ultimately be unable to comply with the
EBITDA covenants and has requested a modification of the EBITDA
covenants. If the Company is unable to negotiate
<PAGE>
a modification of the credit facility and is not in compliance with the
covenants, the rate of interest on the Company's indebtedness could
increase by 3% per annum and the Company will be required either to
attempt to negotiate a waiver or amendment of its agreement with
Foothill or to pursue alternative financing sources. A failure to
obtain a revised agreement with Foothill or alternative financing
could result in a cancellation of the last two presses on the General
Motors order - see Note 5.
Reference is made to Note 14 of Notes to Consolidated Financial
Statements in the Company's 1999 Annual Report on Form 10-K for a
discussion of the challenges facing the Company.
(5) CONTINGENT LIABILITY
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 the Company's common stock between February
6, 1997 and March 11, 1999. The complaints, which were filed in the
United States District Court for the Northern District of Illinois, were
virtually identical. They alleged various violations of the federal
securities laws, including misrepresentations or failure to disclose
material information about the Company's results of operations,
financial condition, weakness in its financial internal controls,
accounting for long-term construction contracts and employee stock
option compensation expense. In August 1999, the District Court ordered
that the two cases be consolidated for all purposes. A Consolidated
Amended Complaint was filed on October 12, 1999. The Company filed a
Motion to Dismiss on December 13, 1999. The action was dismissed,
without prejudice, by order dated March 13, 2000, with leave to amend
the complaint. On April 27, 2000, a Second Consolidated Amended
Complaint was filed. The Company filed a motion to dismiss the second
consolidated amended complaint on June 14, 2000. No estimate can
currently be made as to the claim. However, should the Second
Consolidated Amended Complaint survive the Company's motion to dismiss,
such claim 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.
The Company is involved in a number of other legal proceedings
as a defending party, including product liability claims for which
additional liability is reasonably possible. It is the Company's
policy to reserve on a non-discounted basis for all known and
estimated unreported product liability claims. The products to which
the claims primarily relate are products currently manufactured by
the Company's Industrial Products Group and products related to
discontinued operations for which the Company contractually retained
liability for certain claims generally arising prior to the sale of the
related business. For one product liability claim the amount of
damages claimed against all defendants exceeds the Company's
liability insurance limits. Although there is no guarantee that the
ultimate
<PAGE>
outcome of this claim against the Company will not exceed such limits,
the Company currently believes that the ultimate outcome of this claim
will not exceed its insurance coverage. However, 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. For all other
matters, 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.
In response to General Motors' concerns that the Company's cash
flow problems would further delay or preclude the Company from
completing four presses that were in various stages of production, the
Company entered into amendments to purchase orders with General Motors
during the fourth quarter of 1999 and first quarter of 2000. The
aggregate sales price of the presses covered by these purchase orders
exceeds $75,000,000. Under the terms of the amendments, the Company and
General Motors agreed to revised shipping, payment and testing schedules
that allowed the Company to ship components of, and receive payments
for, the first two of the four presses earlier than it would have been
able to under the terms of the original purchase orders. Payment terms
for the third and fourth presses were largely unchanged from the
original order (i.e., 90% upon completion, testing and shipment),
however, delivery dates (and related payments) have been extended so
that the last press will not be shipped until the first quarter of 2001
and final payment will not be received until the first quarter of 2002.
Upon fulfillment of certain conditions set forth in the amendments,
General Motors will waive and release the Company from all claims
arising from or attributable to the Company's alleged late delivery
defaults on all presses and will accept delivery of the last two (2)
presses covered by this order. Until such time as these conditions are
satisfied, General Motors reserves the right to cancel the purchase
orders associated with the third and fourth presses until the Company
has demonstrated that it has the financial ability to complete these
presses on a timely basis. Such cancellation, should it occur, could
have a material adverse effect on the financial position and results of
operations in the near term.
At June 30, 2000, the Company was contingently liable for
approximately $1,358,000 primarily relating to outstanding letters of
credit.
(6) INCOME TAXES
No tax benefit was recorded with respect to operating losses
associated with continuing operations in the three and six month periods
ended June 30, 2000 and 1999 as a 100% valuation allowance has been
provided on the related benefit. The provision for deferred income taxes
($5,650,000) in the first half of 2000 related to certain temporary
differences associated with continuing operations. This charge is for a
valuation allowance
<PAGE>
for certain temporary differences that are expected to reverse and
become, in the near term, net operating loss carryforwards subject to
expiration. The valuation allowance was based on management's belief
that unless the Industrial Products Group is able to reduce production
costs and return to profit levels experienced prior to 1997, the sale of
the Agricultural Products Group will further decrease the likelihood of
the Company being able to utilize all of its remaining tax loss
carryforwards.
The provision for income taxes of $1,405,000 and $6,459,000
related to the gain on the disposition of discontinued operations in the
three and six months ended June 30 2000 was based on the application of
the Alternative Minimum Tax rate for the current tax provision
($1,108,000) and the reversal of deferred tax assets ($5,351,000)
specifically associated with the sale of the Agricultural Products
Group-see Note 1. There was no current tax associated with the income
from discontinued operations of $1,687,000 (none in the second
quarter of 2000) and $6,479,000 ($3,139,000 in the second quarter of
1999) in the three and six month periods ended June 30, 2000 and
1999, respectively. See Note 4 of Notes to Consolidated Financial
Statements in the Company's 1999 Annual Report on Form 10-K for a
further discussion related to income taxes.
(7) SUMMARY OF OTHER (INCOME) EXPENSES
Other (income) expense for the three and six month periods ended
June 30, 2000 and 1999 consists of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ (62,000) $ (229,000) $ (107,000) $ (255,000)
Goodwill amortization 45,000 45,000 90,000 90,000
Loan costs amortization 72,000 141,000 396,000 189,000
Net gain on sales of
operating and non-operating
assets (9,000) -- (9,000) (81,000)
Loss on investment in non-
consolidated subsidiary (211,000) 187,000 (164,000) 210,000
Legal settlement -- -- -- (389,000)
Idle Facility expense 264,000 225,000 400,000 116,000
Other miscellaneous (64,000) 211,000 (124,000) (34,000)
------------ ------------ ------------ ------------
$ 35,000 $ 351,000 $ (482,000) $ (154,000)
============ ============ ============ ============
</TABLE>
<PAGE>
(8) SUBSEQUENT EVENT
On July 20, 2000 the Company entered into an Equipment Lease
Agreement ("Agreement") with MDFC Equipment Leasing Corporation ("MDFC"). The
purpose of the Agreement was to finance the purchase of a horizontal boring
mill (the "Boring Mill") installed at the Company's Verson facility in
Chicago, Illinois. Prior to the execution of the Agreement, the Company had
made payments totaling $2,287,500 to purchase the Boring Mill under the terms
of an installment purchase agreement with the manufacturer of the Boring
Mill which have been treated as a non-cash financing activity as a result of
the subsequent lease. Following execution of Agreement, MDFC paid $2,287,500
to the Company and the balance of the purchase price of $934,111 to the
manufacturer of the Boring Mill. Under the terms of the Agreement the Company
will make 60 payments of $68,620 to MDFC. As additional security for its
obligations the Company was required to establish a letter of credit in favor
of MDFC in the amount of 20% of the outstanding balance under the Agreement.
The Company is required to purchase the Boring Mill for $1.00 at the end of
the 60 month Agreement term.
(9) OUTLOOK
See Note 14 of Notes to Consolidated Financial Statements in the
Company's report on Form 10-K for the year ended December 31, 1999.
Currently, the Company is carrying work-in-process inventories of
$21,572,000 (58% of total inventories net of contract losses) representing
the remaining two presses under construction for the four-press General
Motors order and anticipates that it will be required to incur costs of an
additional $13,550,000 to complete the two presses. Upon completion and
testing of these presses, a total of approximately $35,000,000 will become
payable to the Company. The first two presses of the order have been
completed and are in the process of assembly and customer acceptance at
General Motors. Upon final acceptance of the first two presses, scheduled for
late this year, final payments of approximately $12 million will be due.
Consequently, the Company anticipates receiving payments under the General
Motors order through February, 2001 totaling approximately $47,000,000, which
would be applied to reduce accounts payable, other indebtedness and fund
operations as needed.
In the interim, pursuant to the terms of the General Motors order the
Company is not entitled to receive progress payments from General Motors and
may not ship the next press to be completed until General Motors' "final"
acceptance, as defined, of the press currently going through the customer
acceptance process at General Motors, which is scheduled to occur in December
2000 or January 2001. Pursuant to the terms of the Foothill credit facility,
the Company may not obtain advances against the General Motors
work-in-process inventories until sixty days prior to the estimated shipment
dates of completed presses or press components to General Motors. As a
result, the Company projects that it will suffer a cash flow short fall of
approximately $10,000,000 commencing in September, 2000 and continuing
through February, 2001 unless it is able to obtain additional financing or
arrange for earlier payment by General Motors. If the Company does not have
sufficient cash resources to complete the General Motors presses, the terms
of the General Motors order provide that General Motors may elect to cancel
its order for the two presses under construction. In addition, Foothill could
elect to terminate its loan pursuant to the terms of the Foothill credit
facility.
To address its near term liquidity difficulties, the Company is
discussing with General Motors the possibility of receiving payments upon
early shipment of certain parts and components, and is also seeking
additional debt financing.
<PAGE>
The continued availability of borrowing under the Foothill credit
facility is conditioned upon the Company's compliance with other financial
covenants including a covenant that cumulative earnings before interest,
taxes, depreciation and amortization (EBITDA), exclusive of extraordinary
gains, exceed specified amounts as of the end of each seven calendar quarters
commencing with the quarter ended June 30, 2000. The Company was in
compliance with the EBITDA covenant for the quarter ended June 30, 2000
currently anticipates that it will not be in compliance with the cumulative
EBITDA covenant for the quarter ended September 30, 2000. Moreover, since the
Company's estimated EBITDA for future periods is predicated, among other
things, upon projections of the receipt of new press orders in appropriate
sequences and bearing appropriate margins, the Company cannot predict EBITDA
with a reasonable degree of certainty. The rate of new orders is currently
lagging behind the projections on which the original EBITDA covenants were
based. The Company has advised Foothill that it is likely that it will
ultimately be unable to comply with the EBITDA covenants and has requested a
modification of the EBITDA covenants. If the Company is unable to negotiate a
modification of the credit facility and is not in compliance with the
covenants, the rate of interest on the Company's indebtedness could increase
by 3% per annum. Foothill could also terminate its loan in which event the
Company could be required to pursue alternative financing sources and General
Motors could elect to cancel its order for the remaining two presses under
discussion.
The New York Stock Exchange has advised the Company that it is
assessing whether the Company's common stock will continue to satisfy the
requirements for listing on the Exchange. The Company has submitted
information requested by the Exchage to assist it inits assessment. However,
unless the market price of the Company's shares improves, the Company
beleives that it is likely that the Exchange will delist its common stock. In
such event the Company's common stock would be traded in the over-the-counter
market.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
FIRST HALF OF 2000 COMPARED TO FIRST HALF OF 1999
OPERATING RESULTS
Net sales from continuing operations decreased to $32,757,000 in
the first half of 2000 compared to net sales of $82,829,000 in the first half
of 1999. The loss from continuing operations in the first half of 2000 was
$15,664,000 (including a provision for deferred taxes of $5,650,000) compared
to a loss from continuing operations of $20,470,000 for the first half of
1999. Income from discontinued operations for the first half of 2000 was
$48,524,000 compared to $6,479,000 for the first half of 1999. Income from
discontinued operations includes estimated aggregate gains of $46,837,000
from the sales on March 7 of an 80.1% interest and then the remaining 19.9%
interest of Bush Hog, L.L.C. (the transferee owner of the former Agricultural
Products Group) on June 26. Net income for the first half of 2000 was
$32,860,000 ($2.77 per common share-diluted) compared to a net loss of
$13,991,000 ($1.18 per common share-diluted) in the first half of 1999.
CONTINUING OPERATIONS
The decrease in net sales from continuing operations in the first
half of 2000 reflected a significant decline in presses in production. In the
first half of 2000, the Company continued work on three large transfer presses.
The Company was working on orders for eight large transfer presses and a
substantial number of other smaller presses during the first half of 1999.
Revenues from parts sales, press rebuilds and field service increased by 11% in
the first half of 2000, and represented a much higher percentage of the reduced
level of total sales: 21.3% in the first half of 2000 compared to 7.5% in the
first half of 1999.
Gross profits were $3,526,000 in the first half of 2000 (10.8% of
sales). In the first half of 1999, costs exceeded sales by $6,290,000 (7.6% of
sales). The improvement in gross margins reflects the lessening impact of the
backlog of loss jobs and low margin jobs booked in 1998 and prior years.
Approximately 25% of the Company's press production during the first half of
2000 represented work on jobs on which the Company had previously established
reserves for losses. The Company recorded additional losses of $596,000 and no
gross margins during the first half of 2000 on these jobs. In the first half of
1999, the Company's press production involved relatively more work on loss jobs
and low margin jobs. The Company revised its cost estimates on certain loss jobs
during the first half of 1999 and the increase in the reserves for future losses
on those jobs ($7,515,000) was a major factor in the half's negative gross
margins. Negative gross margins in the first half of 1999 were partially offset
by the Company's recovery of a claim associated with a prior period. The Company
had no such recoveries in the first half of 2000.
Three other factors significantly affected margins in the first half
of 2000. The Company continued to report no gross profits with respect to
production on any press which had not reached a point in production when all
manufacturing costs could be reasonably estimated.
<PAGE>
Consequently gross profits on each press are not reported proportionately
over the term of its production, but instead are skewed toward the later
stages of production. Gross profits may vary significantly from period to
period both in absolute amounts and as a percentage of sales, depending upon
whether a relatively smaller or larger portion of production represents work
on presses which have reached the stage when manufacturing costs can be
reasonably estimated and gross profits are recorded. A relatively larger
portion of production in the first half of 2000 represented work on presses
in the latter stages of production during which gross profits are recorded.
Gross margins were also positively affected by the higher portion of total
work (21.3% compared to 7.5%) devoted to part sales, press rebuilds and field
service, which generally carry higher margins. The positive impact of these
two factors was partially offset by the effects of the allocation of fixed
costs (i.e., manufacturing overhead) over a smaller production level. Because
of the lower level of production in the first half of 2000, gross profit
margins were adversely affected by the underabsorption of manufacturing
overhead ($2,859,000). The Company anticipates that underabsorption will
continue to affect gross profit margins adversely as long as production
remains at current levels.
Interest expense in the first half of 2000 related to continuing
operations was $2,369,000 compared to interest expense of $2,592,000 related to
continuing operations reported in the first half of 1999. The decrease was
attributable to decreased borrowings during the second quarter of 2000, offset
in part by an increase in average interest rates.
Selling and administrative expense in the first half of 2000 declined
by $1,053,000, but represented a significantly higher percentage of the reduced
level of total sales: 32.6% compared to 14.2%. The reduction in these costs was
primarily associated with lower employment levels and a reduction of bank
charges. Professional fees also decreased in the first half of 2000.
Other expense was $482,000 in the first half of 2000 compared to
other income of $154,000 in the first half of 1999. Reference is made to Note 7
of Notes to Condensed Consolidated Financial Statements for an analysis of other
(income) expense.
No tax benefit was recorded with respect to operating losses
associated with continuing operations in the first half of 2000 and 1999 as a
100% valuation allowance has been provided on the related benefit. The provision
for deferred income taxes ($5,650,000) in the first half of 2000 is the result
of a valuation allowance for certain temporary differences that are expected to
reverse and become, in the near term, net operating loss carryforwards subject
to expiration. The valuation allowance was based on management's belief that
unless the Company is able to reduce production costs and return to profit
levels experienced prior to 1997, the sale of the Agricultural Products Group
will further decrease the likelihood of the Company being able to utilize all of
its remaining tax loss carryforwards.
The provision for income taxes ($6,459,000) related to the gain on
the disposition of discontinued operations in the first half of 2000 was based
on the application of the Alternative Minimum Tax rate for the current tax
provision ($1,108,000), and the reversal of deferred tax assets ($5,351,000)
specifically associated with the sale of the Agricultural Products Group - see
Note 1 of Notes to Condensed Consolidated Financial Statements. There was no
current tax
<PAGE>
associated with the income from discontinued operations of $1,687,000 and
$6,479,000 in the six month period ended June 30, 2000 and 1999, respectively.
The sales backlog at June 30, 2000 was approximately $30,000,000,
which compares to $102,000,000 a year earlier. The Company recognizes that
the delays in press shipments and installations during 1998 and 1999 have
caused its relations with major customers to become strained. The Company is
working to regain the confidence of its customers. In addition, the global
demand for large metal forming presses appears to be in a down cycle. The
Company is competing with foreign manufacturers for the reduced number of
purchase orders currently available and suffers from unfavorable currency
exchange rates in such competition. The Company has reduced employment levels
from approximately 800 on January 1, 2000 to approximately 600 on July 31,
2000. The Company anticipates that additional reductions in other costs as
well as employment levels will be required. The Company successfully
negotiated a new three-year labor agreement during the second quarter of 2000.
DISCONTINUED OPERATIONS
Discontinued operations for the first half of 2000 and 1999
include the operations of the Agricultural Products Group, an allocation of
all direct financing, administrative and other expenses, income taxes and a
pro rata allocation of interest expense. Income net of taxes associated with
discontinued operations for the first half of 2000 ($48,524,000) includes an
estimated aggregate gain of $46,837,000 net of tax, subject to post-closing
adjustments on the sales of its interest in New Bush Hog and income net of
tax of the former Agricultural Products Group through March 7, 2000 of
$1,687,000.
SECOND QUARTER OF 2000 COMPARED TO SECOND QUARTER OF 1999
Net sales from continuing operations decreased to $13,740,000 in
the second quarter of 2000 compared to net sales from continuing operations
of $37,491,000 in the second quarter of 1999. The loss from continuing
operations in the second quarter of 2000 was $2,687,000 compared to a loss
from continuing operations of $4,464,000 for the second quarter of 1999.
Income from discontinued operations for the second quarter of 2000,
reflecting a gain from the sale of the Company's remaining 19.9% interest in
New Bush Hog was $8,739,000 compared to $3,139,000 for the second quarter of
1999. Net income for the second quarter of 2000 was $6,052,000 ($.51 per
common share-diluted) compared to a net loss of $1,325,000 ($.11 per common
share-diluted) in the second quarter of 1999.
CONTINUING OPERATIONS
The decrease in net sales from continuing operations in the second
quarter of 2000 reflected a significant decline in presses in production. In the
second quarter of 2000, the Company continued work on three large transfer
presses. The Company was working on orders for eight large transfer presses and
a substantial number of other smaller presses during the second quarter of 1999.
Revenues from parts sales, press rebuilds and field service increased by 21% in
the second quarter of 2000, and represented a much higher percentage of the
reduced
<PAGE>
level of total sales: 23% in the second quarter of 2000 compared to 7% in the
second quarter of 1999.
Gross profits were $3,460,000 in the second quarter of 2000 (25.2% of
sales), compared to $3,191,000 (8.5% of sales) in the second quarter of 1999.
The improvement in gross margins reflects the lessening impact of the backlog of
loss jobs and low margin jobs on which work began in 1998 and prior years.
Approximately 45% of the Company's press production during the second quarter of
2000 represented work on jobs on which the Company had previously established
reserves for losses. In the second quarter of 1999, the Company's press
production involved relatively more work on loss jobs and low margin jobs. The
Company's recovery of a claim from a prior period increased gross profits in the
second quarter of 1999. The Company had no such recoveries in the second quarter
of 2000.
Gross margins in the second quarter of 2000 were positively affected
because a relatively larger portion of production in the second quarter of 2000
represented work on presses in the later stages of production during which gross
profits were recorded and because a higher portion of total work in the quarter
(23.1% compared to 6.9%) was devoted to part sales, press rebuilds and field
service, which generally carry higher margins. These positive factors were
partially offset by the underabsorption of manufacturing overhead ($1,806,000)
caused by the lower level of production in the quarter. The Company anticipates
that underabsorption will continue to affect gross profit margins adversely as
long as production remains at current levels.
Interest expense in the second quarter of 2000 related to continuing
operations was $689,000 compared to interest expense of $1,429,000 related to
continuing operations reported in the second quarter of 1999. The decrease was
attributable to a combination of decreased borrowings following the sale of an
80.1% interest in the Agricultural Products Group on March 7, 2000, offset in
part by an increase in average interest rates.
Selling and administrative expense in the second quarter of 2000
declined by $452,000, but represented a significantly higher percentage of the
reduced level of total sales: 39.5% compared to 15.7%. The decrease of $452,000
represented a decrease in administrative expenses reflecting lower employee
benefit costs attributable to the decline in employment levels and lower outside
service costs.
Other expense was $35,000 in the second quarter of 2000 compared to
other expense of $351,000 in the second quarter of 1999. Reference is made to
Note 7 of Notes to Condensed Consolidated Financial Statements for an analysis
of other (income) expense.
DISCONTINUED OPERATIONS
Income from discontinued operations for the second quarter of 2000
of $8,739,000 consists of the estimated profit net of tax from the sale of
the Company's remaining 19.9% interest in New Bush Hog on June 26, 2000
reduced for costs associated with the sale and net of an additional provision
of $1,318,000 related to liabilities assumed in connection with the sales.
Income from discontinued operations for the second quarter 1999 of $3,139,000
includes the operations of the Agricultural Products
<PAGE>
Group, an allocation of all direct financing, administrative and other expenses,
income taxes and a pro rata allocation of interest expense.
FINANCIAL CONDITION AND LIQUIDITY
Working capital at June 30, 2000 was $15,604,000 and the current
ratio was 1.29 to 1.00 compared to working capital of ($43,432,000) and a
current ratio of .79 to 1.00 at December 31, 1999. The improvement in working
capital of $59,000,000 is attributable to the application of the net proceeds of
the sale of the Agricultural Products Group to reduce short term indebtedness.
The decrease of $1,737,000 in net accounts receivable is attributable largely to
the decline in press production. A decrease of $9,545,000 in inventory levels
during the first half of 2000 is attributable in part to the shipment of six
presses during the half and in part to an increase of $5,126,000 in customer
progress payments accounted for as a reduction of inventories.
Fixed asset additions attributable to continuing operations
totaled $881,000 including approximately $587,000 associated with a
horizontal boring mill which is in the process of being installed.
Additionally, the Company had a non-cash financing activity related to a
capital lease of the same horizontal boring mill totaling $3,222,000. There
were no major fixed asset dispositions in the first quarter of 2000.
The net decrease in accounts payable and accrued expenses
($12,575,000) is attributable primarily to a reduction in customer deposits
or progress payments which are initially accounted for as accounts payable.
As production continues on an order the customer deposit is eliminated as an
account payable and is accounted for as a credit against inventories. The
decrease in customer deposits accounted for as accounts payable reflects the
slow down in new orders accompanied by customer down payments. Accounts
payable exclusive of customer deposits declined by $955,000 during the first
half of 2000 to $18,700,000. A substantial majority of the payables were more
than ninety days old.
Net cash used by the operating activities related to the Company's
continuing operations totaled $8,397,000 in the first half of 2000, compared
to net cash used of $879,000 in the first half of 1999. Cash used in
operating activities in the first half of 2000 consisted primarily of the
loss from continuing operations ($15,664,000) offset by depreciation and
amortization ($2,729,000) and a deferred tax provision ($5,650,000). Changes
in non-cash assets and liabilities substantially offset each other in the
first half of 2000. The relatively small negative cash flow in the first half
of 1999 occurred because depreciation and amortization changes plus changes
in non-cash assets and liabilities nearly equaled the loss from continuing
operations.
As of June 30, 2000, the Company had cash and cash equivalents of
$2,590,000. During the first half of 2000 the Company repaid all of its then
outstanding bank indebtedness, borrowed and subsequently repaid $18,000,000 from
LaSalle and entered into a new credit facility with Foothill Capital Corporation
("Foothill") effective March 29, 2000. Reference is made to Note 4 of Notes to
Condensed Consolidated Financial Statements and to "Management's Discussion and
<PAGE>
Analysis of Financial Condition and Results of Operation" in the Company's
Annual Report for 1999 on Form 10-K for a description of the terms of the
Foothill credit facility.
The Company is carrying work-in-process inventories of $21,572,000
(58% of total inventories net of contract losses) representing the remaining
two presses under construction for the four-press General Motors order and
anticipates that it will be required to incur costs of an additional
$13,550,000 to complete the two presses. Upon completion and testing of these
presses, a total of approximately $35,000,000 will become payable to the
Company. The first two presses of the order have been completed and are in
the process of assembly and customer acceptance at General Motors. Upon final
acceptance of the first two presses, scheduled for late this year, final
payments of approximately $12 million will be due. Consequently, the Company
anticipates receiving payments through the completion of the General Motors
order of approximately $47,000,000, which would be applied to reduce accounts
payable and other indebtedness and fund operations as needed.
In the interim, pursuant to the terms of the General Motors order,
the Company is not entitled to receive progress payments from General Motors
and may not ship the next press to be completed until General Motors' "final"
acceptance, as defined, of the press currently going through the customer
acceptance process at General Motors, which is scheduled to occur in December
2000 or January 2001. Pursuant to the terms of the Foothill credit facility,
the Company may not obtain advances against the General Motors
work-in-process inventories until sixty days prior to the estimated shipment
dates of completed presses or press components to General Motors. As a
result, the Company projects that it will suffer a cash flow short fall of
approximately $10,000,000 commencing in September, 2000 and continuing
through the completion of the General Motors order, unless it is able to
obtain additional financing or arrange for earlier payment by General Motors.
If the Company does not have sufficient cash resources to complete the
General Motors presses, the terms of the General Motors order provide that
General Motors may elect to cancel its order for the two presses under
construction. In addition, Foothill could elect to terminate its loan
pursuant to the terms of the Foothill credit facility.
To address its near term liquidity difficulties, the Company is
discussing with General Motors the possibility of receiving payments upon early
shipment of certain parts and components, and is also seeking additional debt
financing.
The Company covenanted in the Foothill credit facility that it
would sell its remaining 19.9% interest in the New Bush Hog and apply a part
of the proceeds to repay the LaSalle loan. The Company also covenanted that
the net cash proceeds to the Company of the sale of the 19.9% interest, after
repayment of the LaSalle loan and after a $4,000,000 hold back by the
purchaser, would be not less than $6,000,000. On June 26, 2000, the Company
sold its remaining 19.9% interest in
<PAGE>
New Bush Hog for an estimated sales price of $28,451,000. The sales proceeds
were then reduced by an estimated adjustment to the 80.1% interest sales
price of $1,550,000 and payments to be held in escrow until the resolution of
certain contingencies associated with the sales totaling $5,576,000 After
repaying the $18,000,000 LaSalle loan, the net cash proceeds to the Company
were approximately $3,000,000, an amount less than the amount covenanted in
the Foothill credit facility. On June 22, 2000, the Company received a waiver
of compliance with that covenant from Foothill.
The continued availability of borrowing under the Foothill credit
facility is conditioned upon the Company's compliance with other financial
covenants including a covenant that cumulative earnings before interest,
taxes, depreciation and amortization (EBITDA), exclusive of extraordinary
gains, exceed specified amounts as of the end of each seven calendar quarters
commencing with the quarter ended June 30, 2000. The Company was in
compliance with the EBITDA covenant for the quarter ended June 30, 2000, but
currently anticipates that it will not be in compliance with the cumulative
EBITDA convenant for the quarter ended September 30, 2000. Moreover, since
the Company's estimated EBITDA for future periods is predicated, among other
things, upon projections of the receipt of new press orders in appropriate
sequences and bearing appropriate margins, the Company cannot predict EBITDA
with a reasonable degree of certainty. The rate of new orders is currently
lagging behind the projections on which the original EBITDA covenants were
based. The Company has advised Foothill that it is likely that it will
ultimately be unable to comply with the EBITDA covenants and has requested a
modification of the EBITDA covenants. If the Company is unable to negotiate a
modification of the credit facility and is not in compliance with the
covenants, the rate of interest on the Company's indebtedness could increase
by 3% per annum. Foothill could also terminate its loan in which event the
Company could be required to pursue alternative financing sources and General
Motors could elect to cancel its order for the remaining two presses under
discussion.
The New York Stock Exchange has advised the Company that it is
assessing whether the Company's common stock will continue to satisfy the
requirements for listing on the Exchange. The Company has submitted
information requested by the Exchange to assist it in its assessments .
However, unless the market price of the Company's shares improve, the Company
believes that it is likely that the Exchange will delist its common stock. In
such event the Company's common stock would be traded in the over-the-counter
market.
Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operation: Outlook" in the Company's
Annual Report and Note 14 of Notes to Consolidated Financial Statements for
1999 on Form 10-K also see Note 9, of Notes to Condensed Consolidated
Financial Statements for a discussion of the challenges facing the Company.
MARKET RISK
The Company's market risk is the exposure to adverse changes in
interest rates. At June 30, 2000, the Company's total debt outstanding
(including capitalized leases) totaled $12,772,000. Capitalized lease debt
($3,760,000) was represented by fixed rate financing and was not subject to
market rate fluctuations. The remaining portion of the Company's debt at June
30, 2000 ($9,012,000) was subject to interest rates determined by reference to a
floating prime rate (prime plus 200 basis points on the term loan portion of the
Foothill credit facility.) The balance outstanding at June 30, 2000 approximated
fair market value. A hypothetical immediate 1% increase in interest rates would
adversely affect 2000 earnings and cash flow by approximately $45,000 based on
the composition of debt levels at June 30, 2000.
<PAGE>
SAFE HARBOR STATEMENT
Statements contained in 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. The Company's outlook is based upon
assumptions relating to the factors discussed below.
The Company's principal continuing business involves designing,
manufacturing, marketing and servicing complex medium and large metal forming
presses. Significant periods of time are necessary to plan, design and build
these complex machines. With respect to new presses, there are risks of customer
acceptances and start-up or performance problems. Large amounts of capital are
required to be devoted by the Company's customers to purchase and install these
presses. The installation of the press may be an integral part of a customer's
program for the introduction and manufacture of a new model of an automobile or
appliance. The Company's success in obtaining and managing a relatively small
number of sales opportunities, including the Company's success in securing
progress payments for such sales and meeting the requirements of warranties and
guarantees associated with such sales, can affect the Company's financial
performance.
Other factors that could cause actual results to differ materially
from those contemplated include:
- Factors relating to the Company's ability to obtain financing and
refinancing, to comply with covenants in its loan agreements and to
maintain a satisfactory credit standing with its suppliers.
- Factors affecting customers' purchases of new equipment, rebuilds,
parts and services such as: the restructuring and automation of
customer manufacturing processes, the cash flows of customers;
consolidations in the automobile industry; work stoppages at
customers; and the timing, severity and duration of automotive
customer buying cycles.
- Factors affecting the Company's ability to capture available sales
opportunities, including: customers' perceptions of the quality and
value of the Company's products as compared to competitors' products;
customers' perceptions of the advantages of dealing with a single
press manufacturer; whether the Company has successful reference
installations to demonstrate the speed, efficiency and reliability of
new presses to customers; customers' perceptions of the health and
stability of the Company as compared to its competitors; the
availability of manufacturing capacity at the Company's factory and
changes in the value of the dollar relative to German, Japanese and
Canadian currencies.
- Factors affecting the Company's ability to successfully manage sales
it obtains, such as: the accuracy of the Company's cost and time
estimates for major projects; the adequacy of the Company's systems
to manage major projects and its success in completing projects on
time and within budget; the Company's success in recruiting and
retaining
<PAGE>
managers and key employees; wage stability and cooperative labor
relations; maintenance of a satisfactory collective bargaining
agreement and plant capacity and utilization.
- Factors affecting the Company's general business, such as: unforeseen
patent, tax, product, environmental, employee health or benefit, or
contractual liabilities; nonrecurring restructuring and other special
charges; changes in accounting or tax rules or regulations;
reassessments of asset valuations for such assets as receivables ,
inventories, fixed assets and intangible assets; and leverage and
debt service.
Reference is made to Note 14 of Notes to Consolidated Financial
Statements in the Company's 1999 Annual Report on Form 10-K.
<PAGE>
PART II - OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTES OF SECURITY HOLDERS
On May 24, 2000 the Registrant held its annual meeting of
shareholders. Copies of the related proxy statement have been
previously filed with the Securities and Exchange Commission.
The following item was voted on by the Company's shareholders:
ELECTION OF TWO DIRECTORS - Proxies for the meeting were
solicited pursuant to Regulation 14A. The nominees received the number
of votes:
CLASS A DIRECTORS-TERM EXPIRES IN 2003-MR. RICHARD A. DREXLER AND
MITCHELL A. QUAIN
For Mr. Drexler- 10,289,966; withheld from Mr. Drexler - 216,169
For Mr. Quain - 10,341,359; withheld from Mr. Quain - 164,776
The terms of the following directors continued after the meeting:
CLASS B DIRECTORS - TERMS EXPIRE IN 2001
Mr. John E. Jones and Mr. Lloyd A. Drexler
CLASS C DIRECTORS - TERMS EXPIRE IN 2002
Mr. S.Sherman and Mr. Stanley J. Goldring
Approximately 980,000 shares held by brokers and nominees were
not voted to approve the transaction.
2001 ANNUAL MEETING. After January 2, 2001, notice to the
Company of a Shareholder proposal submitted for consideration at the
2001 Annual Meeting of Shareholders which is not submitted for
inclusion in the Company's proxy statement and form of proxy, will
be considered untimely and the persons named in the proxies solicited
by the Company may exercise discretionary voting power with respect to
any such proposal.
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, 2000.
<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 14, 2000 /s/ Richard A. Drexler
--------------------------------------------
Chairman, President and Chief
Executive & Financial Officer
August 14, 2000 /s/ John J. Hinnendael Jr.
--------------- --------------------------------------------
John J. Hinnendael
Vice President and Chief Accounting Officer
August 14, 2000 /s/ Mark C. Standefer
---------------- --------------------------------------------
Mark C. Standefer
Senior Vice President and Chief
Administrative Officer
<PAGE>
ALLIED PRODUCTS CORPORATION
INDEX TO EXHIBITS
The following exhibit is attached to the copies of this report filed
with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
27.1 Financial Data Schedule
27.2 1999 Restated Financial Data Schedule
3 The registrant's By-Laws of the Company, as
amended.
10 Material Contract: Agreement dated June 24, 2000 between
Allied Products Corporation, as Seller, and Bush Hog
Investors, as buyer, regarding the sale of Registrant's
19.9% interest in Bush Hog, L.L.C.
</TABLE>
