<PAGE>
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 March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to____
Commission file number 1-5530
ALLIED PRODUCTS CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0292230
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020
Not Applicable
--------------
(former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes No X
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 11,847,046 common shares, $.01
par value, as of June 30, 1999.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION
CONDENSED CONSOLIDATED BALANCE SHEETS-
March 31, 1999 and December 31, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended March 31, 1999 and 1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-
Three Months Ended March 31, 1999 and 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
-----------------
ITEM 1. 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 March 31, 1999 and for the three months ended March 31, 1999 and 1998)
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments which are, in the opinion of management, necessary to present
fairly the condensed consolidated financial information required therein. All
such adjustments are of a normal, recurring nature. The information as of
December 31, 1998 is derived from the audited year end balance sheet for that
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K.
The results of operations for the three month periods ended March 31,
1999 and 1998 are not necessarily indicative of the results to be expected for
the full year.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
---------------- -------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 413,000 $ 727,000
--------------- ------------------
Notes and accounts receivable, less allowances of
$837,000 and $519,000, respectively $ 84,758,000 $ 68,827,000
--------------- ------------------
Inventories:
Raw materials $ 11,048,000 $ 11,529,000
Work in process 48,727,000 68,296,000
Finished goods 15,094,000 17,019,000
---------------- -------------------
$ 74,869,000 $ 96,844,000
---------------- -------------------
Deferred tax asset $ 15,060,000 $ 15,060,000
---------------- -------------------
Prepaid expenses $ 312,000 $ 406,000
---------------- -------------------
Total current assets $ 175,412,000 $ 181,864,000
---------------- -------------------
Plant and Equipment, at cost:
Land $ 2,423,000 $ 2,430,000
Building and improvements 59,694,000 57,022,000
Machinery and equipment 70,810,000 69,196,000
---------------- -------------------
$ 132,927,000 $ 128,648,000
Less-Accumulated depreciation and amortization 50,137,000 48,181,000
---------------- -------------------
$ 82,790,000 $ 80,467,000
---------------- -------------------
Other Assets:
Deferred tax asset $ 4,165,000 $ 4,165,000
Deferred charges (goodwill), net of amortization 6,043,000 6,154,000
Other 4,661,000 3,154,000
--------------- ------------------
$ 14,869,000 $ 13,473,000
--------------- ------------------
$ 273,071,000 $ 275,804,000
=============== ==================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
---------------- -------------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement $ 121,200,000 $ 119,300,000
Current portion of long-term debt 627,000 627,000
Accounts payable 60,098,000 52,634,000
Accrued expenses 25,507,000 24,258,000
--------------- -----------------
Total current liabilities $ 207,432,000 $ 196,819,000
--------------- -----------------
Long-term debt, less current portion shown above $ 2,051,000 $ 2,298,000
--------------- -----------------
Other long-term liabilities $ 4,993,000 $ 4,957,000
--------------- -----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares at March 31,
1999 and December 31, 1998; none issued $ - $ -
Common Stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at March 31,
1999 and December 31, 1998 140,000 140,000
Additional paid-in capital 98,377,000 98,377,000
Retained earnings 2,996,000 16,131,000
--------------- -----------------
$ 101,513,000 $ 114,648,000
Less: Treasury stock, at cost: 2,228,640
shares at March 31, 1999 and December 31, 1998 (42,918,000) (42,918,000)
--------------- -----------------
Total shareholder's equity $ 58,595,000 $ 71,730,000
--------------- -----------------
$ 273,071,000 $ 275,804,000
=============== ===================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
Restated
1999 1998
-------------- --------------
<S> <C> <C>
Net sales $ 82,240,000 $ 62,831,000
Cost of products sold 82,249,000 43,676,000
------------- -------------
Gross profit $ (9,000) $ 19,155,000
------------- -------------
Other costs and expenses:
Selling and administrative expense $ 10,737,000 $ 9,790,000
Interest expense 2,361,000 1,090,000
Other (income) expense, net (441,000) (128,000)
------------- -------------
$ 12,657,000 $ 10,752,000
------------- -------------
Income (loss) before taxes $ (12,666,000) $ 8,403,000
Provision for income taxes - 3,073,000
------------- -------------
Net income (loss) $ (12,666,000) $ 5,330,000
============= =============
Earning (loss) per common share:
Basic $ (1.07) $ 0.45
============= =============
Diluted $ (1.07) $ 0.44
============= =============
Weighted average shares outstanding:
Basic 11,819,000 11,925,000
============= =============
Diluted 11,819,000 12,112,000
============= =============
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>
Three Months Ended March 31,
------------------------------------
1999 1998
---------------- -------------
<S> <C> <C>
Net income (loss) $ (12,666,000) $ 5,330,000
Adjustments to reconcile net income (loss) to net cash provided from (used
for) operating activities:
Gains on sales of operating and nonoperating assets (82,000) (15,000)
Depreciation and amortization 2,144,000 1,350,000
Amortization of deferred charges 111,000 44,000
Deferred income tax provision - 2,602,000
Provision for inventory valuation 6,926,000 -
Stock option compensation - 1,119,000
Changes in noncash assets and liabilities, net of noncash transactions:
(Increase) in accounts receivable (16,266,000) (19,851,000)
(Increase) decrease in inventories 15,049,000 (25,055,000)
(Increase) decrease in prepaid expenses 94,000 (42,000)
Increase in accounts payable and accrued expenses 8,713,000 14,415,000
Other,net (1,041,000) (551,000)
------------ ------------
Net cash provided from (used for) operating activities $ 2,982,000 $(20,654,000)
------------ ------------
Cash Flows from Investing Activities:
Additions to plant and equipment $ (4,486,000) $ (7,077,000)
Proceeds from sales of plant and equipment 6,000 15,000
------------ ------------
Net cash used for investing activities $ (4,480,000) $ (7,062,000)
------------ ------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreement $ 49,000,000 $ 38,000,000
Payments under revolving credit agreement (47,100,000) (8,800,000)
Payments of short and long-term debt (247,000) (68,000)
Purchase of treasury stock - (776,000)
Dividends paid (469,000) -
Stock option transactions - 24,000
------------ ------------
Net cash provided from financing activities $ 1,184,000 $ 28,380,000
------------ ------------
Net increase (decrease) in cash and cash equivalents $ (314,000) $ 664,000
Cash and cash equivalents at beginning of year 727,000 609,000
------------ ------------
Cash and cash equivalents at end of period $ 413,000 $ 1,273,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
Allied Products Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) Restatement of Previously Issued Financial Statements
-----------------------------------------------------
Operating results for the first quarter of 1998 have been
restated to reflect the effect of (a) compensation expenses which
should have been recognized in relation to certain stock option
exercise transactions and (b) the correction of gross profit margins at
the Verson division. See Note 13 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report for a more detailed
explanation of the restatement.
The following table reconciles the amounts previously reported
to the amounts currently being reported in the Condensed Consolidated
Statement of Income (Loss) for the quarter ended March 31, 1998:
<TABLE>
<CAPTION>
Income Tax Earning (Loss) Earning (Loss)
Before Provision Net Per Common Per Common
Taxes (Benefit) Income Share-Basic Share-Diluted
----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
As previously reported $9,224,000 $3,359,000 $5,865,000 $ 0.49 $ 0.48
Restatement associated with
Verson gross profit margin 298,000 106,000 192,000 $ 0.02 $ 0.02
Restatement associated with
stock option compensation (1,119,000) (392,000) (727,000) (0.06) (0.06)
---------- ---------- ---------- ------------ -----------
As restated $8,403,000 $3,073,000 $5,330,000 $ 0.45 $ 0.44
========== ========== ========== ============ ===========
</TABLE>
(2) Accrued Expenses
- -------------------------
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
3/31/99 12/31/98
------------ ------------
<S> <C> <C>
Salaries and wages $ 7,258,000 $ 6,573,000
Warranty 6,154,000 5,794,000
Self insurance accruals 2,341,000 2,905,000
Pensions, including retiree health 4,222,000 4,644,000
Taxes, other than income taxes 831,000 888,000
Environmental matters 1,195,000 1,225,000
Other 3,506,000 2,229,000
------------ ------------
$ 25,507,000 $ 24,258,000
============ ============
</TABLE>
<PAGE>
(3) Earnings Per Common Share
-------------------------
Basic earnings per common share is based on the average number
of common shares outstanding - 11,819,000 and 11,925,000 for the three
months ended March 31, 1999 and 1998, respectively. Diluted earnings
per common share is based on the average number of common shares
outstanding, as noted above, increased by the dilutive effect of
outstanding stock options 187,000 for the three months ended March 31,
1998. For the quarter ended March 31, 1999, dilutive securities were
excluded from the calculation of diluted loss per share as their effect
would have been antidilutive.
(4) Contingent Liabilities
----------------------
The Company is involved in a number of legal proceedings as a
defending party, including product liability and environmental matters
for which additional liability is reasonably possible. For all matters
excluding one recently asserted claim, after consideration of relevant
data, including insurance coverage and accruals, management believes
that the eventual outcome of these matters will not have a material
<PAGE>
adverse effect on the Company's financial position or its ongoing
results of operations. For one recently asserted product liability
claim, the amount of damages claimed against all defendants exceeds the
Company liability insurance limits. No estimate can currently be made
as to whether the ultimate outcome of this claim against the Company
could exceed such limits, therefore changes in the estimate in the near
term could be material to the financial position and results of
operations if an unfavorable outcome were to occur.
As described in Note 1 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K, the
Verson division may not be able to meet delivery schedules for
certain presses currently on order or in production. Certain
customers of this division have advised the Company that they will
seek to recover damages for late delivery, which could include
downtime, lost sales and lost profit. The Company cannot at this
time determine the amount of any potential claim that may be
asserted due to late delivery, however, such claims could have a
material adverse effect on the financial position and results of
operations in the near term, if an unfavorable outcome were to
occur.
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, in the 4th
quarter of 1999 the Company and General Motors agreed to amend the General
Motors purchase orders. The aggregate sales price of the presses covered by
these purchase orders exceeds $75 million. Under the terms of the amended
purchase orders, the Company and General Motors agreed to revised shipping,
payment and testing schedules that allow 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 amended purchase orders,
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. Among the conditions set forth in the amended purchase orders was the
requirement that the Company complete the sale of the Agricultural Products
Group by the earlier of the expiration of the Company's financing
arrangements with its secured lenders or December 31, 1999. Final shareholder
approval and closing of the sale of the Agricultural Products Group is not
expected to occur until the first quarter of 2000. The Company has recently
amended the Second Amended and Restated Credit Agreement to extend the
maturity date of this agreement to the earlier of the termination of the
Purchase Agreement or March 7, 2000. Therefore, in the first quarter of 2000,
the Company and General Motors again amended their purchase orders to reflect
the change in the projected closing date of the sale of the Agricultural
Products Group. The amendment requires the Company to complete the sale and
establish a commitment for sufficient working capital by March 7, 2000.
At March 31, 1999, the Company was contingently liable for
approximately $1,734,000 primarily relating to outstanding letters of credit.
(5) Income Taxes
------------
The provision for income taxes in the first quarter of 1998 is
based upon the Federal statutory rate adjusted for items that are not
subject to taxes. No tax benefit was recorded
<PAGE>
in the first quarter of 1999 as the Company had no tax benefits
available to record against the pre tax loss. See Note 4 of Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report
on Form 10-K for a further discussion related to income taxes.
(6) Operations By Industry Segment
------------------------------
During 1998, the Company adopted SFAS 131-- Disclosures about
Segments of a Business Enterprise and Related Information. The
determination of business segments is based upon the nature of the
products manufactured and current management and internal financial
reporting. The segment information for 1998 has been restated to
reflect the business segments noted below.
Information relating to operations by industry segment follows
(in thousands of dollars):
<TABLE>
<CAPTION>
Agricultural Industrial
Products Products Corporate Consolidated
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
1999
----
Net sales to unaffiliated customers $ 36,902 $ 45,338 $ - $ 82,240
Income (loss) before taxes (a) 5,083 (b) (12,999) ( 4,750)(d) (12,666)
Total assets 120,266 130,301 22,504 (C) 273,071
1998
----
Net sales to unaffiliated customers $ 34,268 $ 28,563 $ - $ 62,831
Income (loss) before taxes (a) 6,767 (b) 5,632 (3,996)(d) 8,403
Total assets 94,472 129,385 22,912 (C) 246,769
</TABLE>
-------------------
(a) Segment income (loss) before taxes does not reflect an allocation
or charge for general corporate income or expenses, or interest
expense.
(b) Includes interest income of $32,000 in 1999 and $31,000 in 1998.
(C) Corporate assets consist principally of cash, deferred income
taxes, other assets, properties not used in operations and
investment in a unconsolidated joint venture.
(d) Corporate income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
General corporate income and expense $(2,414) $(1,802)
Stock option compensation (Note 1) - (1,119)
Interest expense (2,361) (1,090)
Interest income 25 15
------- -------
Total $(4,750) $(3,996)
======= =======
</TABLE>
<PAGE>
(7) Summary of Other (Income) Expense
---------------------------------
Other (income) expense for the three month period ended March 31,
1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
For the three months ended
---------------------------
3/31/99 3/31/98
----------- -----------
<S> <C> <C>
Interest income $ (57,000) $ (46,000)
Goodwill amortization 112,000 44,000
Net (gain) on sales of operating
and non-operating assets (81,000) (15,000)
Legal settlement (389,000) -
Credit for recovery of long-term
note receivable - (195,000)
Other miscellaneous (26,000) 84,000
---------- ----------
$ (441,000) $ (128,000)
========== ==========
</TABLE>
(8) Financial Arrangements
----------------------
During the first quarter of 1999, the Company entered into
a Second Amended and Restated Credit Agreement replacing the former
Amended and Restated Credit Agreement. This new agreement was
amended in April 1999. The loan agreement as amended obligates the
Company to repay all outstanding borrowings on expiration of the
agreement on February 28, 2000 (subsequently extended to March 7,
2000). Before that date the Company must either negotiate an
extension of the loan with its current lenders, refinance the loan
with other lenders or develop other sources of liquidity to repay
the loan. The Company's ability to achieve any of these three
options may depend upon the results of its operations during 1999.
See Note 5 of Notes to Consolidated Financial Statements in the
Company's 1998 Annual Report on Form 10-K for more detailed
explanation on Financial Arrangements.
(9) Subsequent Event
----------------
Subsequent to the end of the first quarter of 1999, the
Company received notice asserting that it was in default under the
terms of a lease agreement due to the failure by the assignee of the
lease to pay rent when due. The facility associated with this notice
was formerly leased by the Coz division of the Industrial Products
Group. The lease was assigned by the Company in 1997 to the purchaser
of the assets of the former Coz division. The lessor consented to the
assignment but did not release the Company from liabilities as lessee.
The assignee has announced its intent to vacate the facility. The lease
provides for rental payments of approximately $1,000,000 over the
remaining term. The Company is in the process of evaluating its options
under the terms of the lease.
<PAGE>
During the months of May and June, the Company was served with
two complaints purporting to be a class lawsuit on behalf of
shareholders who purchased Allied Products' common stock between
February 6, 1997 and March 11, 1999. The complaints, which appear to be
virtually identical, allege various violations of the federal
securities laws and seek unspecified damages. The Company believes that
the actions are without merit and intends to vigorously defend against
the actions. The Company has notified its insurance carrier of the
actions. The Company cannot at this time determine the amount of any
potential claim that may be asserted in relation to these class action
lawsuits. However, such claims could have a material adverse effect on
the financial position and results of operations if an unfavorable
outcome were to occur.
On July 15, 1999, the Company and CC Industries, Inc., a
privately held firm headquartered in Chicago, signed a letter of intent
to form a joint venture for the ownership and operation of the
Company's Agricultural Products Group. On October 26, 1999 the Company
announced that it had signed a definitive agreement to sell 80.1% of
the Agricultural Products Group for approximately $120,000,000,
which was reduced on February 10, 2000 to approximately $112,000,000.
If the transaction is approved by the Company's shareholders, Bush
Hog L.L.C., a new joint-venture company, will acquire the business,
assets and certain liabilities of the division within the Agricultural
Products Group. Under the final agreement, the Company will sell an
80.1% interest in Bush Hog L.L.C. to an affiliate of C.C. Industries,
Inc. Final shareholder approval and closing of the transaction is not
expected to occur until the first quarter of 2000.
If this transaction is completed, the Company's remaining
operations will consist solely of the operations of the Industrial
Products Group and the 19.9% interest in Bush Hog L.L.C. To complete
these transactions, the Company must obtain the consent of its banks
under the Second Amended and Restated Credit Agreement and the release
of outstanding security interests held by the banks in the assets of
the Agricultural Products Group. The banks have consented to such
transaction and have agreed to release the security interests, subject
to the Company's repayment of its entire indebtedness owing to the
banks on the closing. Simultaneous with the closing of this
transaction, the Company expects to borrow additional funds, secured by
its 19.9% membership interest in Bush Hog L.L.C. All or a portion of
those new borrowings, together with the cash proceeds received from the
affiliate of CC Industries, net of fees and expenses, will be applied
to repay the Company's then current bank indebtedness. If the Company
terminates the purchase agreement in order to accept another third
party acquisition, the Company is required to pay a termination fee
of $5,000,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
- -------------------
Consolidated net sales for the first quarter of 1999 were
$82,240,000 compared to consolidated net sales of $62,831,000 reported in the
first quarter of 1998. Loss before taxes in the first quarter of 1999 was
$12,666,000 compared to income before taxes (on a restated basis) of
$8,403,000 in the first quarter of the prior year. Net loss in the first
quarter of 1999 was $12,666,000 compared to net income (on a restated basis)
of $5,330,000 in the first quarter of 1998.
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during the first
quarter of 1998 was incorrect. Compensation expense for certain option
exercises in the first quarter of 1998 which was not recognized in the
statement of income issued at that time is now reflected in the accompanying
restated statement of income (loss). The Company also determined that gross
profit margins at the Verson division of the Industrial Products Group were
incorrectly reported in the first quarter of 1998. Corrected amounts are now
reflected in the accompanying restated statement of income (loss). Reference
is made to Note 13 of Notes to Consolidated Financial Statements in the
Company's recently filed Annual Report on Form 10-K regarding the
reconciliation of amounts previously reported in the first quarter of 1998 to
the amounts currently being reported in the accompanying restated statement
of income (loss).
Within the Agricultural Products Group, net sales increased to
$36,902,000 compared to net sales of $34,268,000 reported in the first
quarter of 1998. The entire increase was associated with the acquisition of
the Great Bend operation in the second quarter of 1998. Bush Hog sales
decreased slightly in the first quarter of 1999. The majority of this
decrease was related to the cutter product line (approximately $2,500,000)
and was partially offset by the effect of increased loader and turf and
landscape product sales (approximately $5,200,000). Operating results of the
Bush Hog division includes results of the Universal Turf operation acquired
in the second quarter of 1998. External financial conditions in the U.S.
agricultural sector have weakened since the first quarter of 1998 and are
expected to remain weak for the balance of the current year and on into 2000.
Commodity prices are lower for most major crops and for most livestock
segments. Net farm income decreased in 1998 and is projected to decline
further in 1999 and 2000. The Agricultural Products Group has been affected
by these factors, but has lessened their impact on the group through the
continued expansion of the turf and landscape products. Income before taxes
for this segment in the first quarter of 1999 decreased to $5,083,000
compared to income before taxes of $6,767,000 in the first quarter of the
prior year. Gross profit margin decreases were primarily related to the
effects of lower production levels in the current year. Production levels
were affected by decreased demand by farmers and ranchers and increased
dealer inventory levels. Increases in selling and adminstrative expense
(approximately $450,000)were related to the acquisition of the Great Bend
division as noted above (approximately $650,000). The increase was offset in
part by lower commission expenses (approximately $370,000) at the Bush Hog
division due to lower sales subject to commissions and the mix of products
sold.
In the Industrial Products Group net sales increased to $45,338,000
in the first quarter of 1999 compared to net sales of $28,563,000 in the
first quarter of 1998. The entire increase was related to increase press
sales (production) at the Verson division. Revenues and profits are
recognized on a percentage of completion basis at the Verson division. This
division is currently working on orders for eight large transfer presses from
two of the major U.S. automobile manufacturers. The division also has a
greater number of small presses in production compared to the prior year.
The Industrial Products Group reported a loss before taxes of
$12,999,000 in the first quarter of 1999 compared to income before taxes (on
a restated basis) of $5,632,000 in the first quarter of 1998. In 1998, the
Industrial Products Group recorded a loss of $12,079,000 on several jobs in
process including reserves of $8,813,000 (none in the first quarter) for
estimated future losses on those jobs. The Company indicated in its annual
report that it was reasonably possible that additional losses would occur. In
the first quarter of 1999, the Company revised its cost estimates on these
jobs and increased the reserves for future losses by $7,515,000. The excess
of costs over revenues in the first quarter of 1999 (approximately
$9,500,000) is primarily attributable to the increase in the reserve for
future losses on these jobs. Two factors described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Company's 1998 Annual Report on Form 10-K affected the low margins
reported in the first quarter of 1999. First, the Industrial Products Group's
opening backlog included revenues of approximately $50 million to be
recognized in 1999 and 2000 on the loss jobs described above. No gross
margins are expected to be recognized on those revenues. The backlog also
included future revenues of approximately $95 million to be recorded
principally in 1999 for which anticipated gross margins will be lower than
historical levels prior to 1998.
Second, the Industrial Products Group is reporting no gross profit
on any press manufactured during 1999 until a point in production when all
manufacturing costs can be reasonably estimated. Currently, that point is
when the press is in final assembly. This method of recognition of gross
profits adversely affected first quarter 1999 results.
Gross profits within the Industrial Products Group were favorably
affected in the first quarter of 1998 by the amount of approximately
$2,900,000 from a payment relating to the recovery of a claim
associated with a prior period. Selling and administrative expenses increased
in the first quarter of 1999. Most increases were related to salary and
fringe cost increases (approximately $150,000) and an additional
provision for doubtful accounts (approximately $275,000).
<PAGE>
The Industrial Products Group backlog as of March 31, 1999, composed of
revenues to be recorded in future years on orders received, included revenues of
approximately $41,000,000 on orders for which estimated losses were recorded
in 1998 and 1999 and on which no gross margin is expected to be recognized in
1999 and 2000. Uncertainties associated with these contracts make it
reasonably possible that additional losses could occur. The March 31, 1999
backlog for the Industrial Products Group also included future revenues of
approximately $89,000,000 to be recorded principally in 1999 for which the
group anticipates gross margins lower than levels prior to 1998.
The backlog of low margin and no margin work in process at March 31,
1999 will have a substantial negative effect on the Industrial Products Group
earnings in 1999 and, to a lesser extent, in 2000. In addition, the method of
recognition of gross margins until the later stages of the production of a
press may result in fluctuations in quarter-to-quarter results.
Because of the difficulties the Industrial Products Group
encountered in 1998, the group failed to meet delivery date requirements
provided in several press orders. The group incurred penalties of
approximately $1,200,000 in 1998 (none in the first quarter) as a result of
delays in shipments and expects that it may receive additional claims for
significant penalty payments or damages in the remainder of 1999 and 2000.
Reference is made to Note 10 of Notes to Consolidated Financial Statements in
the Company's 1998 Annual Report on Form 10-K. The Company's difficulties in
completing orders during 1998 and 1999 could adversely affect its
relationship with one or more of its customers and could have a negative
impact on the Company's ability to obtain future business from such customers.
Corporate expenses consisted primarily of administrative charges and
other (income) expense. Administrative expenses decreased slightly (less than
$100,000) in the first quarter of 1999. First quarter 1998 administrative
expenses included $1,119,000 of compensation expenses (none in the first
quarter of 1999) related to the exercise of certain stock options as
previously discussed. This decrease was offset by the effects of costs in
1999 related to a matching provision now provided for the Company's 401(k)
pension plans and normal salary and fringe cost increases since the first
quarter of 1998. Reference is made to Note 7 of Notes to Consolidated
Condensed Financial Statements for an analysis of other (income) expense in
the first quarter of 1999 and 1998.
Interest expense in the first quarter of 1999 was $2,361,000
compared to interest expense of $1,090,000 reported in the first quarter of
1998. The increase was primarily associated with increased borrowings related
to greater receivable levels, fixed asset additions and the acquisition of
the Great Bend and Universal Turf operations in the second quarter of 1998.
No current or deferred tax benefit was recorded in the first quarter
of 1999 as the Company had no expected tax benefits available to record
against the pretax loss. Reference is made to Note 5 of Notes to Condensed
Consolidated Financial Statements. No valuation allowance has been provided
for the net deferred tax assets associated with temporary deductible
differences that existed at the beginning of 1999 as the Company believes it
is more likely than not that such assets will be utilized.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Working capital at March 31, 1999 was $(32,020,000) and the current
ratio was .85 to 1.0 compared to working capital of $(14,955,000) and a current
ratio of .92 to 1.00 at December 31, 1998. Net receivables increased by
$15,931,000 since the end of 1998. The entire increase was associated with the
Agricultural Products Group where cash collections are dependent upon the retail
sale of the product by the dealer. The majority of sales to dealers are
typically strong in the first quarter of the year or just prior to the use
season by the farmer. Extended payment terms are offered to dealers in the form
of floor plan financing which is customary in the industry. Receivable levels
within this group have also been impacted by the overall downturn in the
agricultural economy in the United States brought about by lower commodity
prices, excess grain inventory levels and decreased exports of grain,
particularly to the far eastern countries. These economic factors have led to
decreased agricultural equipment sales by dealers and, in turn, increased dealer
receivable levels. Net inventory levels have decreased by $21,975,000 since the
end of 1998. The majority of the decrease was related to the Industrial Products
Group. As noted above, the Verson division recorded reserves of $7,515,000 in
the first quarter of 1999 for estimated additional costs associated with certain
press orders currently in production on which losses are anticipated. In
addition, customer payments on presses in process have increased by
approximately $11,700,000 since the end of 1998. Agricultural Products Group
inventory levels have also decreased by approximately $2,500,000 due to normal
seasonal product demand as noted above.
Fixed asset additions in the first quarter of 1999 totaled
$4,486,000. Approximately $2,700,000 represented building costs associated
with the assembly facility addition at the Verson division. There were no
major fixed asset dispositions in the first quarter of 1999.
Net increases in accounts payable ($7,464,000) and accrued expenses
($1,249,000) were primarily related to the increased production levels at the
Verson division. Borrowings under the Company's revolving credit agreement
increased by $1,900,000 since the end of 1998.
During the first quarter of 1999, the Company entered into a Second
Amended and Restated Credit Agreement replacing the former Amended and
Restated Credit Agreement. This new agreement was amended in April 1999.
Reference is made to Note 8 of Notes to Condensed Consolidated Financial
Statements for a description of the major terms of this agreement. The loan
agreement as amended obligates the Company to repay all outstanding
borrowings on expiration of the agreement on February 28, 2000 (subsequently
extended to March 7, 2000). Before that date the Company must either
negotiate an extension of the loan with its current lenders, refinance the
loan with other lenders or develop other sources of liquidity to repay the
loan. The Company's ability to achieve any of these three options may depend
upon the results of its operations during 1999.
As of March 31, 1999, the Company had cash and cash equivalents of
$413,000 and additional funds of $16,963,000 available under the Second
Amended and Restated Credit Agreement and the related amendment. The Company
believes that its expected operating cash flow and funds available under the
Second Amended and Restated Credit Agreement and the related amendment may
not be adequate to finance its operations and capital expenditures in 1999.
The Company is exploring additional or alternate sources of financing
necessary to continue operations in a normal manufacturing environment and to
finance necessary capital expenditures. During the first quarter of 1999, the
Company was not in compliance with certain provisions of the Amended and
Restated Credit Agreement. This agreement was replaced by the Second Amended
and Restated Credit Agreement which contained waivers for noncompliance of
certain provisions of the Amended and Restated Credit Agreement.
Reference is made to Note 9 of Notes to Condensed Financial
Statements as it relates to the Company's involvement in legal proceedings as
a defending party.
MARKET RISK
- -----------
The Company's market risk is the exposure to adverse changes in
interest rates. From time to time, the Company enters into interest rate swap
agreements as a vehicle to manage its exposure related to the ratio of fixed
to floating rate debt with the objective of achieving a mix that management
believes is appropriate. At March 31, 1999, the Company's total debt
outstanding (revolving credit agreement and capitalized leases) totaled
$123,878,000. Capitalized lease debt ($2,678,000) is represented by fixed
rate financing and is not subject to market rate fluctuations. The remaining
portion of the Company's debt at March 31, 1999 ($121,200,000) was subject to
the terms of the Amended and Restated Credit Agreement that provides for
interest rates at either a floating prime or fixed LIBOR rate, plus 1.5%. The
base interest rates are periodically agreed to with the lender for fixed
periods of 30 to 180 days. With the interest rate swap agreement entered into
during 1998, the Company effectively capped increases in LIBOR base interest
rates at 7.49% on $50,000,000 of its outstanding borrowings under the Credit
Agreement through May 2001. The swap fair market value at March 31, 1999 was
approximately $100,000. The remaining balance of the Credit Agreement debt
outstanding at March 31, 1999 of $71,200,000 was not covered by the swap
agreement and approximates fair market value. A hypothetical immediate 10%
increase in interest rates would adversely affect 1999 earnings and cash
flows by approximately $560,000 based on the composition of debt levels at
March 31, 1999.
The Company may enter into interest rate swap agreements from time
to time in the future to the extent management determines such agreements are
an appropriate vehicle to manage interest rate market risk.
<PAGE>
IMPACT FROM NOT YET EFFECTIVE RULES
- -----------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133-Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. This statement is
effective for all quarters of fiscal years beginning after June 15, 2000. The
Company is in the process of evaluating the impact of this statement on its
financial reporting.
YEAR 2000 COMPLIANCE
--------------------
Many older computer software programs refer to years in terms of
their final two digits only. Such programs may interpret the year 2000 to
mean the year 1900 instead. If not corrected, these programs could cause
date-related transaction failures. The Company's program to address this year
2000 compliance issue is broken down into the following major categories:
1. Financial related hardware/software.
2. Manufacturing/engineering process controls.
3. Equipment manufactured for sale.
4. Outside source suppliers.
The general phases of the year 2000 compliance program common to all
of the above categories are:
1. Identifying items that are not year 2000 complaint.
2. Assigning priorities to identified items, including
the assessment of items material to the operations of
the Company.
3. Repairing or replacing material items determined not to
be year 2000 complaint.
4. Testing of material items repaired or replaced.
The Company has completed the identification process in relation to the
four categories noted above. The Company recently purchased and installed
financial software which is year 2000 compliant. Outside service bureau
financial software currently in place has been determined and tested to be year
2000 compliant. Payroll services for the Company are currently being provided by
an outside service. The Company is currently in the process of upgrading this
service to year 2000 compliant software. One major location is already utilizing
this new software. Compliance certificates have been received for non personal
computer systems owned/leased by the Company. Compliance testing is currently
being conducted. The majority of all personal computers used within the Company
(both financial and non financial applications) have been purchased within the
last two years and have been successfully tested for compliancy. Remaining non
compliant personal computers will be replaced with year 2000 compliant units
during 1999 as a part of the Company's normal upgrade program.
Manufacturing/engineering process controls and equipment includes
equipment to manufacture and design products sold by the Company. Design
equipment used in the engineering of agricultural equipment has been tested
and determined to be year 2000 compliant. At the Verson division, year 2000
compliance certificates have been received on all major purchased hardware
and software applications for designing equipment and programs. While the
intent of the division is to rely on these certificates (due to the quality
of the information received and the reputation of the vendors involved), some
testing
<PAGE>
will take place in 1999. The Company is giving consideration to the use of
outside experts in the testing of the related software and hardware. The
process will be completed in 1999. The majority of internally developed
design software at Verson has been determined not to contain date fields.
Programs which do contain date fields have been determined to be year 2000
compliant. The Company does not have a significant amount of manufacturing
equipment with embedded computer chips or hardware/software which would
present a problem at the beginning of the year 2000. Compliancy certificates
have been received from the majority of equipment manufacturers and testing,
where necessary, should be completed by the end of the first half of 1999.
None of the equipment manufactured by the Agricultural Products
Group include hardware/software or embedded computer chips. Stamping presses
manufactured by the Verson division contain software and embedded computer
chips. Compliance certificates have been received on all software included in
the presses sold. Some internal testing has also been performed. The Company
believes that it has little, if any, exposure related to equipment
manufactured by its divisions in relation to the year 2000 issue.
The Company has identified key outside vendors which provide
services which, if not year 2000 compliant, could have an effect on the
operations of the Company. Sources include banking, investment, pension
obligations, insurance, utilities, etc. businesses. During 1999, these
service providers will be asked to update the Company on the status of their
year 2000 compliance. The Company will then need to evaluate these responses
and determine if a contingency plan would be necessary should the vendor not
be compliant.
The total cost associated with required modifications to become year
2000 compliant (both incurred to date and to be incurred in the future) is
not expected to be material to the Company's financial position. This total
cost does not include the cost of internal efforts to complete the project.
The costs associated with the replacement of computerized systems,
substantially all of which were capitalized, are not included in the above
estimate as such replacements or upgrades were necessary to operate
efficiently and such costs would have been incurred even if year 2000
compliance was not an issue. The Company anticipates that additional amounts
will be spent in completing the year 2000 compliance project. These costs are
being funded through operating cash flow. The Company's year 2000 compliance
program is an ongoing process and the estimates of costs and completion dates
for various components of the program described above are subject to change.
Other major system projects have not been deferred due to the year 2000
compliance project.
The risk to the Company from the failure of suppliers of goods and
services (over which the Company does not have control) to attain year 2000
compliance is the same to other business enterprises generally. Failure of
information systems by financial institutions (banks, service bureaus,
insurance companies, etc.) would disrupt the flow of funds to and from the
Company until systems can be remedied or replaced by these providers. Failure
of delivery of critical components by suppliers and subcontractors resulting
from non year 2000 compliance could result in disruptions of manufacturing
processes with delays in the delivery of our products to our customers until
non- compliant conditions or components can be remedied or replaced. The
Company has identified major suppliers of goods and services and is in the
process of determining their year 2000 compliance status.
<PAGE>
Alternate suppliers of critical components are also in the process of being
identified. The Company believes it is taking the necessary steps to resolve
year 2000 issues. However, given the possible consequences of failure to
resolve significant year 2000 issues, there can be no assurance that any one
or more such failures would not have a material adverse effect on the
Company. The Company is currently assessing the need for contingency
planning. The Company believes, however, that with the completion of the year
2000 project as scheduled, the possibility of significant interruptions of
normal operations should be reduced.
SAFE HARBOR STATEMENT
- ---------------------
Statements contained within the Management Discussion and Analysis
of Financial Conditions and Results of Operations that relate to future
operating periods are subject to risks and uncertainties that could cause
actual results to differ from management's projections. Operations of the
Company include the manufacturing and sale of agricultural and industrial
machinery. In relation to the Agricultural Products Group, forward-looking
statements involve certain factors that are subject to change. These elements
encompass interrelated factors that affect farmers and cattle ranchers'
confidence, including demand for agricultural products, grain stock levels,
commodity prices, weather conditions, crop and animal diseases, crop yields,
farm land values and government farm programs. Other factors affecting all
operations of the Company include actions of competitors in the industries
served by the Company, production difficulties including capacity and supply
constraints, labor relations, interest rates and other risks and
uncertainties. The Company's outlook is based upon assumptions relating to
the factors discussed above.
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Votes of Security Holders
---------------------------------------------------- On
June 18, 1999 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 C Directors- Terms expire in 2002 - Mr. S. S. Sherman and
----------------------------------------------------------------
Mr. Stanley J. Goldring
-----------------------
For Mr. Sherman - 10,415.902; withheld from Mr. Sherman - 140,933.
For Mr. Goldring - 10,416,486; withheld from Mr. Goldring - 140,349
<PAGE>
The terms of the following directors continued after the meeting:
Class A Directors - Terms expire in 2000
----------------------------------------
Mr. Richard A. Drexler and Mr. Mitchell I. Quain
Class B Directors - Terms expire in 2001
----------------------------------------
Mr. John E. Jones and Mr. Lloyd A. Drexler
Approximately 1,397,000 shares held by brokers and nominees were not
voted in the election of directors.
2000 Annual Meeting. After April 24, 2000, notice to the Company of a
--------------------
Shareholder proposal submitted for consideration at the 2000 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.
<TABLE>
<CAPTION>
Item 6. Exhibit and Reports on Form 8-K
-------------------------------
<S> <C> <C> <C>
(a) Exhibits - EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
27 Financial Data Schedules*
99(a) The Registrant's Notification of Late
Filing as it relates to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998 is
Incorporated by reference to
Registrant's Form 12b-25 dated
March 31, 1999 (File No. 1-5530)
99(b) The Registrant's Notification of Late
Filing as it relates to the Registrant's
Quarterly Report on Form 10-Q for the
period ended March 31, 1999 is
Incorporated by reference to
Registrant's Form 12b-25 dated
May 17, 1999 (File No. 1-5530)
* Previously filed
(b) Reports on Form 8-K - there were no reports on Form 8-K for the three
months ended March 31, 1999.
</TABLE>
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIED PRODUCTS CORPORATION
---------------------------
(REGISTRANT)
------------
February 29, 2000 /s/ Robert J. Fleck
- ----------------- -----------------------------------------------
Robert J. Fleck
Vice President- Accounting and Chief Accounting
& Administrative Officer
February 29, 2000 /s/ Mark C. Standefer
- ----------------- -----------------------------------------------
Mark C. Standefer
Vice President, General Counsel & Secretary
