<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 June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to____
Commission file number 1-5530
ALLIED PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-0292230
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020
Not Applicable
--------------
(former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 11,847,046 common shares, $.01
par value, as of July 31, 1999.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
INTRODUCTION
CONDENSED CONSOLIDATED BALANCE SHEETS-
June 30, 1999 and December 31, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(LOSS)-Three and Six Months Ended June 30, 1999 and
1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-Six
Months Ended June 30, 1999 and 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
ITEM 2 NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
----------
EXHIBIT INDEX
--------------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INTRODUCTION
The condensed consolidated financial statements included herein (as of
June 30, 1999 and for the three and six months ended June 30, 1999 and 1998)
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the condensed consolidated financial information required therein. All such
adjustments are of a normal, recurring nature. The information as of December
31, 1998 is derived from the audited year end balance sheet for that year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's latest annual report on Form 10-K.
The results of operations for the three and six month periods ended
June 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year .
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 684,000 $ 727,000
------------- -----------------
Notes and accounts receivable, less allowances of
$1,138,000 and $519,000, respectively ......... $ 77,463,000 $ 68,827,000
------------- -----------------
Inventories:
Raw materials .................................. $ 10,985,000 $ 11,529,000
Work in process ................................ 62,833,000 68,296,000
Finished goods ................................. 13,644,000 17,019,000
------------- -----------------
$ 87,462,000 $ 96,844,000
------------- -----------------
Deferred tax asset ................................ $ 15,060,000 $ 15,060,000
------------- -----------------
Prepaid expenses .................................. $ 212,000 $ 406,000
------------- -----------------
Total current assets ........................ $ 180,881,000 $ 181,864,000
------------- -----------------
Plant and Equipment, at cost:
Land ........................................... $ 2,412,000 $ 2,430,000
Building and improvements ...................... 59,864,000 57,022,000
Machinery and equipment ........................ 71,252,000 69,196,000
------------- -----------------
$ 133,528,000 $ 128,648,000
Less-Accumulated depreciation and amortization .. 52,269,000 48,181,000
------------- -----------------
$ 81,259,000 $ 80,467,000
------------- -----------------
Other Assets:
Deferred tax asset ............................. $ 4,165,000 $ 4,165,000
Deferred charges (goodwill), net of amortization 5,931,000 6,154,000
Other .......................................... 4,115,000 3,154,000
------------- -----------------
$ 14,211,000 $ 13,473,000
------------- -----------------
$ 276,351,000 $ 275,804,000
============= =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement ................................ $ 124,900,000 $ 119,300,000
Current portion of long-term debt ......................... 627,000 627,000
Accounts payable .......................................... 60,369,000 52,634,000
Accrued expenses .......................................... 26,563,000 24,258,000
------------- -----------------
Total current liabilities .......................... $ 212,459,000 $ 196,819,000
------------- -----------------
Long-term debt, less current portion shown above ............ $ 1,924,000 $ 2,298,000
------------- -----------------
Other long-term liabilities ................................. $ 5,058,000 $ 4,957,000
------------- -----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares at June 30,
1999 and December 31, 1998; none issued ........... $ -- $ --
Common Stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at June 30,
1999 and December 31, 1998 ........................... 140,000 140,000
Additional paid-in capital ............................... 98,090,000 98,377,000
Retained earnings ........................................ 1,197,000 16,131,000
------------- -----------------
$ 99,427,000 $ 114,648,000
Less: Treasury stock, at cost: 2,200,203 and 2,228,640
shares at June 30, 1999 and December 31, 1998,
respectively ........................................... (42,517,000) (42,918,000)
------------- -----------------
Total shareholder's equity ......................... $ 56,910,000 $ 71,730,000
------------- -----------------
$ 276,351,000 $ 275,804,000
============= =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(LOSS)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 74,624,000 $ 88,985,000 $ 156,864,000 $ 151,816,000
Cost of products sold ............... 62,088,000 69,770,000 144,337,000 113,446,000
------------- ------------- ------------- -------------
Gross profit ...................... $ 12,536,000 $ 19,215,000 $ 12,527,000 $ 38,370,000
------------- ------------- ------------- -------------
Other costs and expenses:
Selling and administrative expenses $ 10,624,000 $ 8,859,000 $ 21,361,000 $ 18,649,000
Interest expense .................. 2,837,000 1,447,000 5,198,000 2,537,000
Other (income) expense, net ....... 400,000 (1,736,000) (41,000) (1,864,000)
------------- ------------- ------------- -------------
$ 13,861,000 $ 8,570,000 $ 26,518,000 $ 19,322,000
------------- ------------- ------------- -------------
Income(loss) before taxes ........... $ (1,325,000) $ 10,645,000 $ (13,991,000) $ 19,048,000
Provision for income taxes .......... -- 3,544,000 -- 6,617,000
------------- ------------- ------------- -------------
Net income(loss) .................... $ (1,325,000) $ 7,101,000 $ (13,991,000) $ 12,431,000
============= ============= ============= =============
Earnings (loss) per common share:
Basic ............................. $ (0.11) $ 0.60 $ (1.18) $ 1.04
============= ============= ============= =============
Diluted ........................... $ (0.11) $ 0.59 $ (1.18) $ 1.03
============= ============= ============= =============
Weighted average shares outstanding:
Basic ............................. 11,838,000 11,923,000 11,828,000 11,924,000
============= ============= ============= =============
Diluted ........................... 11,838,000 12,099,000 11,828,000 12,105,000
============= ============= ============= =============
Dividends per common share .......... $ 0.04 $ 0.04 $ 0.08 $ 0.08
============= ============= ============= =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income(loss) ......................................................... $(13,991,000) $ 12,431,000
Adjustments to reconcile net income(loss) to net cash
provided from (used for) operating activities:
Gains on sales of operating and nonoperating assets ................... (93,000) (1,972,000)
Depreciation and amortization ......................................... 4,276,000 2,743,000
Amortization of deferred charges ...................................... 223,000 132,000
Deferred income tax provision ......................................... -- 5,661,000
Provision for inventory valualtion .................................... 7,695,000 --
Stock option compensation ............................................. -- 1,119,000
Changes in noncash assets and liabilities, net of noncash transactions:
(Increase) in accounts receivable .................................. (9,342,000) (10,448,000)
(Increase) decrease in inventories ................................. 1,687,000 (48,830,000)
(Increase) decrease in prepaid expenses ............................ 194,000 (100,000)
Increase in accounts payable and accrued expenses ................. 10,154,000 13,070,000
Other,net ............................................................. (59,000) (1,455,000)
------------ ------------
Net cash provided from (used for) operating activities ................... $ 744,000 $(27,649,000)
------------ ------------
Cash Flows from Investing Activities:
Additions to plant and equipment ......................................... $ (5,087,000) $(22,060,000)
Payment for businesses acquired .......................................... -- (11,290,000)
Proceeds from sales of plant and equipment ............................... 17,000 3,383,000
------------ ------------
Net cash used for investing activities ................................... $ (5,070,000) $(29,967,000)
------------ ------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreement .............................. $ 78,200,000 $ 92,400,000
Payments under revolving credit agreement ................................ (72,600,000) (33,600,000)
Payments of short and long-term debt ..................................... (374,000) (135,000)
Purchase of treasury stock ............................................... -- (776,000)
Dividends paid ........................................................... (943,000) (478,000)
Stock option transactions ................................................ -- 85,000
------------ ------------
Net cash provided from financing activities ................................. $ 4,283,000 $ 57,496,000
------------ ------------
Net (decrease) in cash and cash equivalents ................................. $ (43,000) $ (120,000)
Cash and cash equivalents at beginning of year .............................. 727,000 609,000
------------ ------------
Cash and cash equivalents at end of period .................................. $ 684,000 $ 489,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
Allied Products Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) Restatement of Previously Issued Financial Statements
-----------------------------------------------------
Operating results for the three and six month periods ended
June 30, 1998 have been restated to reflect the effect of (a)
compensation expenses which should have been recognized in relation to
certain stock option exercise transactions and (b) the correction of
gross profit margins at the Verson division. See Note 13 of Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report
for a more detailed explanation of the restatement.
The following table reconciles the amounts previously reported
to the amounts currently being reported in the Condensed Consolidated
Statement of Income (Loss) for the three and six month periods ended
June 30, 1998:
<TABLE>
<CAPTION>
Income Tax Earning (Loss) Earning (Loss)
Before Provision Net Per Common Per Common
Taxes (Benefit) Income Share-Basic Share-Diluted
----------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
For The Three Months
--------------------
As previously reported $10,507,000 $3,497,000 $ 7,010,000 $ 0.59 $ 0.58
Restatement associated with Verson
gross profit margin 138,000 47,000 91,000 $ 0.01 $ 0.01
Restatement associated with stock
option compensation -- -- -- -- --
----------- ---------- ----------- ----------- -----------
As restated $10,645,000 $3,544,000 $ 7,101,000 $ 0.60 $ 0.59
=========== ========== =========== =========== ===========
For Six Months Ended
--------------------
As previously reported $19,731,000 $6,856,000 $12,875,000 $ 1.08 $ 1.07
Restatement associated with Verson
gross profit margin 436,000 153,000 283,000 $ 0.02 $ 0.02
Restatement associated with stock
option compensation (1,119,000) (392,000) (727,000) (0.06) (0.06)
----------- ---------- ----------- ----------- -----------
As restated $19,048,000 $6,617,000 $12,431,000 $ 1.04 $ 1.03
=========== ========== =========== =========== ===========
</TABLE>
<PAGE>
(2) Accrued Expenses
----------------
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
6/30/99 12/31/98
------------ ------------
<S> <C> <C>
Salaries and wages $ 7,414,000 $ 6,573,000
Warranty 6,545,000 5,794,000
Self insurance accruals 2,367,000 2,905,000
Pensions, including retiree health 4,557,000 4,644,000
Taxes, other than income taxes 860,000 888,000
Interest 1,187,000 309,000
Environmental matters 1,163,000 1,225,000
Other 2,470,000 1,920,000
------------ ------------
$ 26,563,000 $ 24,258,000
============ ===========
</TABLE>
(3) Earnings Per Common Share
-------------------------
Basic earnings per common share for the periods in 1999 is
based on the average number of common shares outstanding (11,838,000
and 11,828,000 for the three and six months ended June 30, 1999,
respectively). For the three and six months ended June 30, 1999,
dilutive securities were excluded from the calculation of diluted loss
per share as their effect would have been antidilutive. Basic earnings
per common share for the same periods in 1998 is based on the average
number of common shares outstanding (11,923,000 and 11,924,000 for the
three and six months ended June 30, 1998, respectively). Diluted
earnings per common share for the same periods in 1998 is based on the
average number of common shares outstanding, as noted above, increased
by the dilutive effect of outstanding options (176,000 and 181,000 for
the three and six months ended June 30, 1998, respectively).
(4) Legal Proceedings
-----------------
During the second quarter of 1999, the Company received notice
asserting that it was in default under the terms of a lease agreement
due to the failure by the assignee of the lease to pay rent when due.
The facility associated with this notice was formerly leased by the Coz
division of the Industrial Products Group. The lease was assigned by
the Company in 1997 to the purchaser of the assets of the former Coz
division. The lessor consented to the assignment but did not release
the Company from liabilities as lessee. The assignee has announced its
intent to vacate the facility and filed a lawsuit seeking a declaration
of the rights of the respective parties under the lease. The lease
provides for rental payments of approximately $1,000,000 over the
remaining term. The Company is in the process of evaluating its options
under the terms of the lease.
In May 1999 and June 1999, the Company was served with two
complaints purporting to be class action lawsuits on behalf of
shareholders who purchased Allied Products' common stock between
February 6, 1997 and March 11, 1999. The two complaints, which were
<PAGE>
filed in the United States District Court for the Northern District of
Illinois, appear to be virtually identical. They allege various
violations of the federal securities laws, including misrepresentation
or failure to disclose material information about the Company's results
of operations, financial condition, weaknesses in its financial
internal controls, accounting for long-term construction contracts and
employee stock option compensation expense.
(5) Contingent Liabilities
----------------------
In addition to the items described in Note 4, the Company is
involved in a number of legal proceedings as a defending party,
including product liability and environmental matters for which
additional liability is reasonably possible. For all these additional
matters excluding one recently asserted claim, after consideration of
relevant data, including insurance coverage and accruals, management
believes that the eventual outcome of these matters will not have a
material adverse effect on the Company's financial position or its
ongoing results of operations. For one recently asserted product
liability claim, the amount of damages claimed against all defendants
exceeds the Company's liability insurance limits. No estimate can
currently be made as to whether the ultimate outcome of this claim
against the Company could exceed such limits, therefore changes in the
estimate in the near term could be material to the financial position
and results of operations if an unfavorable outcome were to occur.
As described in Note 1 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K, the Verson
division may not be able to meet delivery schedules for certain presses
currently on orders in production. Certain customers of this division
have advised the Company that they will seek to exercise remedies for
alleged breach of contract by the Company. The remedies could include
partial or complete cancellation of orders and recovery of damages for
late delivery, which may include downtime, lost sales and lost profit.
The Company cannot at this time determine the amount of any potential
claim that may be asserted due to late delivery, however, such claims
could have a material adverse effect on the financial position and
results of operations in the near term, if an unfavorable outcome were
to occur.
<PAGE>
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 June 30, 1999, the Company was contingently liable for
approximately $1,587,000 primarily relating to outstanding letters of credit.
(6) Income Taxes
------------
The provision for income taxes in the three and six month
periods of 1998 is based upon the Federal statutory rate adjusted for
items that are not subject to taxes. No tax benefit was recorded in the
three and six month periods ended June 30, 1999 as a result of the
Company's pretax loss. See Note 4 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K for a
further discussion related to income taxes.
(7) Operations By Industry Segment
------------------------------
During 1998, the Company adopted SFAS 131--Disclosures about
Segments of a Business Enterprise and Related Information. The
determination of business segments is based upon the nature of the
products manufactured and current management and internal financial
reporting. The segment information for 1998 has been restated to
reflect the business segments noted below. Information relating to
operations by industry segment follows (in thousands of dollars):
<TABLE>
<CAPTION>
Agricultural Industrial
Products Products Corporate Consolidated
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
1999
----
For the three months:
Net sales to unaffiliated customers $ 37,133 $ 37,491 $ -- $ 74,624
Income (loss) before taxes (a) 5,075 (b) (267) (c) (6,133) (e) (1,325)
For the six months:
Net sales to unaffiliated customers $ 74,035 $ 82,829 $ -- $ 156,864
Income (loss) before taxes (a) 10,158 (b) (13,266) (c) (10,883) (e) (13,991)
Total assets 115,787 142,109 18,455 (d) 276,351
1998
----
For the three months
Net sales to unaffiliated customers $ 40,952 $ 48,033 $ -- $ 88,985
Income (loss) before taxes (a) 8,019 (b) 4,385 (c) (1,759) (e) 10,645
For the six months
Net sales to unaffiliated customers $ 75,220 $ 76,596 $ -- $ 151,816
Income (loss) before taxes (a) 14,786 (b) 10,017 (c) (5,755) (e) 19,048
Total assets 104,331 161,055 21,487 (d) 286,873
</TABLE>
-------------------
(a) Segment income (loss) before taxes does not reflect an allocation
or charge for general corporate income or expenses, or interest
expense.
(b) Includes interest income of $30 in the three months and $62 in six
months of 1999 and $29 in the three months and $60 in the six
months of 1998.
(c) Includes interest income of $213 in the six months of 1999 and $0
in 1998.
(d) Corporate assets consist principally of cash, deferred income
taxes, other assets, properties not used in operations and
investment in a unconsolidated joint venture.
(e) Corporate income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/99 6/30/98 6/30/99 6/30/98
--------- -------- -------- --------
<S> <C> <C> <C> <C>
General corporate income and expense $ (3,313) $ (324) $ (5,727) $ (2,126)
Stock option compensation (Note 1) -- -- -- (1,119)
Interest expense (2,837) (1,447) (5,198) (2,537)
Interest income 17 12 42 27
--------- -------- -------- --------
Total $ (6,133) $ (1,759) $(10,883) $ (5,755)
========= ======== ======== ========
</TABLE>
<PAGE>
(8) Summary of Other (Income) Expense
---------------------------------
Other (income) expense for the three and six month periods ended
June 30, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
6/30/99 6/30/98 6/30/99 6/30/98
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Interest income $ (260,000) $ (41,000) $(317,000) $ (87,000)
Goodwill amortization 111,000 87,000 223,000 132,000
Loan costs amortization 151,000 -- 199,000 --
Net (gain) loss on sales of
operating and non-operating
assets -- (1,957,000) (93,000) (1,972,000)
Loss on investment in non
consolidated subsidiary 187,000 48,000 210,000 81,000
Litigation
settlements/insurance
provision -- 569,000 -- 569,000
Legal settlement -- -- (389,000) --
Credit for recovery of
long-term note receivable -- (195,000) -- (390,000)
Other miscellaneous 211,000 (247,000) 126,000 (197,000)
---------- ---------- --------- -----------
$ 400,000 $(1,736,000) $ (41,000) $(1,864,000)
========== =========== ========= ===========
</TABLE>
(9) Financial Arrangements
----------------------
During the first quarter of 1999, the Company entered into a
Second Amended and Restated Credit Agreement replacing the former
Amended and Restated Credit Agreement. This new agreement was
amended in April 1999. Effective July 31, 1999, the Company entered
into a Second Amendment and Waiver to the Second Amended and
Restated Credit Agreement ("Second Amendment"). Under the terms of
the Second Amendment, the maximum indebtedness under the agreement
may remain at $135,000,000 from July 31 through November 29, 1999
rather than decrease on specific dates to $110,000,000 as originally
scheduled. Interest rates related to amounts outstanding under this
amendment have also been increased. The final maturity date of the
agreement was accelerated from February 28, 2000 to November 30,
1999 (subsequently extended to March 7, 2000). The Second Amendment
refers to the below noted letter of intent between CC Industries,
Inc. and the Company. The Second Amendment specifies that
termination of or a materially adverse change in the letter of
intent or in any succeeding agreement will constitute an event of
default under the credit agreement. The Second Amendment also
provides for a waiver of noncompliance by the Company as of June 30,
1999 with the minimum consolidated operating cash flow provision of
the agreement. See Note 5 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K for more
detailed explanation on Financial Arrangements.
(10) Subsequent Events
-----------------
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.
On July 29, 1999, the Company announced that its Board of
Directors approved the redemption of its current Common Share Purchase
Rights and adopted a new Stockholder Rights Plan. The new plan is
designed to continue the assurance of fair and equal treatment of all
stockholders in the event of any proposed takeover. The plan involves
the distribution of the new rights and a redemption payment for current
rights to all common stockholders of record as of July 30, 1999. Those
stockholders will receive one purchase right for a new series of junior
preferred stock for each outstanding share of the Company's common
stock and a redemption payment on August 10, 1999 of $0.01 per share
for the Common Share Purchase Rights declared under a 10-year rights
agreement adopted in January 1990. Each Preferred Share Purchase Right
entitles the holder to purchase from the Company under certain
circumstances one one-thousandth of a share of the new junior preferred
stock. The rights may be exercised if a person or group announces its
intention to acquire or acquires 15 percent or more of Allied Products'
common stock. However, an exception is made for certain significant
stockholders of the Company who are holding the Company's common stock
for investment purposes. They may acquire up to 20 percent of Allied
Product's common stock without triggering the Rights Plan. Under
certain circumstances, the holders of the rights will be entitled to
purchase at below market value either shares of common stock of Allied
Products Corporation or the common stock of the acquiring company.
Unless redeemed or exchanged earlier, the Preferred Share Purchase
Rights will expire in 10 years.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Agricultural Products Group Disposition
- ---------------------------------------
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 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 this 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, Inc., 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.
OPERATING RESULTS
- -----------------
First Half of 1999 Compared to First Half of 1998
- -------------------------------------------------
Consolidated net sales for the first half of 1999 were $156,864,000
compared to consolidated net sales of $151,816,000 reported in the first half of
1998. Loss before taxes in the first half of 1999 was $13,991,000 compared to
income before taxes (on a restated basis) of $19,048,000 in the first half of
the prior year. Net loss in the first half of 1999 was $13,991,000 ($1.18 per
common share-diluted) compared to net income (on a restated basis) of
$12,431,000 ($1.03 per common share-diluted) in the first half of 1998.
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during the first
quarter of 1998 was incorrect. Compensation expense for certain option exercises
in the first quarter of 1998 which was not recognized in the statement of income
issued at that time is now reflected in the accompanying restated statement of
income (loss). The Company also determined that gross profit margins at the
Verson division of the Industrial Products Group were incorrectly reported in
the first and second quarters of 1998. Corrected amounts are now reflected in
the accompanying restated statements of income (loss). Reference is made to Note
13 of Notes to Consolidated Financial Statements in the Company's recently filed
Annual Report on Form 10-K regarding the reconciliation of amounts previously
reported in the first two quarters of 1998 to the amounts currently being
reported in the accompanying restated statement of income (loss).
Within the Agricultural Products Group, net sales decreased to
$74,035,000 in the first half of 1999 compared to $75,220,000 reported in the
first half of 1998. The majority of the decrease was related to the cutter
and disc mower product lines (approximately $9,900,000). External financial
conditions in the U.S. agricultural sector have weakened since the early part
of 1998 and are expected to remain weak for the remainder of 1999 and on into
2000. Commodity prices are lower for most major crops and for most livestock
segments compared to twelve months ago. Net farm income decreased in 1998 and
is projected to decline further in 1999 and 2000. The above noted product
line sales decreases within the Agricultural Products Group were partially
offset by the impact of the acquisition of the Great Bend Manufacturing
Company in the second quarter of 1998 (approximately $4,700,000) and the
expansion of sales within the turf and landscape product line (approximately
$4,100,000), including the effects of the acquisition of the Universal Turf
assets in the second quarter of 1998. Income before taxes decreased to
$10,158,000 in the first half of 1999 compared to $14,786,000 reported in the
first half of the prior year. Gross profit margins decreased slightly in 1999
due to the effects of lower production levels. Lower production levels were
the result of decreased demand by large farming operations which have been
impacted most by the overall agricultural economy described above. Additional
cash discounts have been offered in 1999 to dealers to help reduce the amount
of dealer inventory levels. Increases in selling and administrative expenses
(approximately $550,000) were related to the acquisition of the Great Bend
division (approximately $900,000) as noted above. The increase was offset in
part by lower commission expenses (approximately $475,000) at the Bush Hog
division due to the effects of lower sales volume and the mix of products
sold.
Within the Industrial Products Group, net sales increased to
$82,829,000 in the first half of 1999 compared to $76,596,000 reported in the
first half of 1998. The increase was related to increased press sales
(production) at the Verson division. The division is currently working on
orders for a total of eight transfer presses from two of the major U.S.
automobile manufacturers. The division also has a greater number of small
presses in production compared to the prior year.
The Industrial Products Group reported a loss before taxes of
$13,266,000 in the first half of 1999 compared to income before taxes (on a
restated basis) of $10,017,000 in the first half of 1998. In 1998, the
Industrial Products Group recorded a loss of $12,079,000 on certain jobs in
process including reserves of $8,813,000 (none in the first half) for
estimated future losses on those jobs. The Company indicated in its annual
report that it was reasonably possible that additional losses would occur. In
the first half of 1999, the Company revised its cost estimates on these jobs
and increased the reserves for future losses by $8,289,000. The excess of
costs over revenues in the first half of 1999 (approximately $6,300,000) was
attributable to the increase in the reserve for future losses on these jobs.
Two factors described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1998 Annual
Report on Form 10-K affected the low margins reported in the first half of
1999. First, the Industrial Products Group's opening backlog included
revenues of approximately $50,000,000 to be recognized in 1999 and 2000 on
the loss jobs described above. No gross margins are expected to be recognized
on those revenues. The backlog also included future revenues of approximately
$95,000,000 to be recorded principally in 1999 for which anticipated gross
margins will be lower than historical levels prior to 1998.
<PAGE>
Second, the Industrial Products Group is reporting no gross profit on
any press manufactured during 1999 until a point in production when all
manufacturing costs can be reasonably estimated. Currently, that point is when
the press is in final assembly. This method of recognition of gross profits
adversely affected first half 1999 results.
Gross profits within the Industrial Products Group were favorably
affected in the first half of 1999 and 1998 the amount of $2,900,000 and
$5,000,000, respectively, from a payment relating to the recovery of a claim
associated with a prior period. Selling and administrative expenses increased
in the first half of 1999. Most increases were related to salary and fringe
cost increases (approximately $550,000) and an additional provision for
doubtful accounts (approximately $600,000).
The Industrial Products Group backlog as of June 30, 1999, composed
of revenues to be recorded in future years on orders received, included
revenues of approximately $29,000,000 on orders for which estimated losses
were recorded in 1998 and 1999 and on which no gross margin is expected to be
recognized in 1999 and 2000. Uncertainties associated with these contracts
make it reasonably possible that additional losses could occur. The June 30,
1999 backlog for the Industrial Products Group also included future revenues
of approximately $73,000,000 to be recorded principally in 1999 for which the
group anticipates gross margins lower than levels prior to 1998. The backlog
of low margin and no margin work in process at June 30, 1999 will have a
substantial negative effect on the Industrial Products Group earnings in 1999
and, to a lesser extent, in 2000. In addition, the deferral of the
recognition of gross margins until the later stages of the production of a
press may result in fluctuations in quarter-to-quarter results.
Because of the difficulties the Industrial Products Group
encountered in 1998, the group failed to meet delivery date requirements
provided in several press orders. The group incurred penalties of
approximately $1,200,000 in 1998 (none in the first half) as a result of
delays in shipments and expects that it may receive additional claims for
significant penalty payments or damages in the remainder of 1999 and 2000.
Reference is made to Note 10 of Notes to Consolidated Financial Statements in
the Company's 1998 Annual Report on Form 10-K. The Company's difficulties in
completing orders during 1998 and 1999 could adversely affect its
relationship with one or more of its customers and could have a negative
impact on the Company's ability to obtain future business from such
customers. Reference is made to Note 5 of Notes to Condensed Consolidated
Financial Statements regarding the possibility of the Verson division not
being able to meet delivery schedules for certain presses currently on orders
in production.
Corporate expenses consisted primarily of administrative charges and
other (income) expense. Administrative expenses increased (approximately
$800,000) in the first half of 1999. The majority of the increase was related
to the effects of a matching provision now provided by the Company for its
401(k) pension plans and increased professional fees related to the extended
1998 audit and refinancing efforts of the Company. In the first half of 1998,
administrative expenses included $1,119,000 of compensation expense (none in
the first half of 1999) related to the exercise of certain stock options
previously discussed. Reference is made to Note 8 of Notes to Condensed
Consolidated Financial Statements for an analysis of other (income) expense
in the first half of 1999 and 1998.
Interest expense in the first half of 1999 was $5,198,000 compared
to interest expense of $2,537,000 reported in the first half of 1998. The
increase was primarily associated with increased borrowings related to
greater receivable levels, fixed asset additions and the acquisition of the
Great Bend and Universal Turf operations in the second quarter of 1998.
Interest rates on borrowings outstanding have also increased slightly in the
current year.
No current or deferred tax benefit was recorded in the first half of
1999 as a result of the Company's pretax loss. Reference is made to Note 5 of
Notes to Condensed Consolidated Financial Statements. No valuation allowance
has been provided for the net deferred tax assets associated with temporary
deductible differences that existed at the beginning of 1999 as the Company
believes it is more likely than not that such assets will be utilized.
<PAGE>
Second Quarter of 1999 Compared to Second Quarter of 1998
- ---------------------------------------------------------
Consolidated net sales for the second quarter of 1999 were $74,624,000
compared to consolidated net sales of $88,985,000 reported in the second quarter
of 1998. Loss before taxes in the second quarter of 1999 was $1,325,000 compared
to income before taxes (on a restated basis) of $10,645,000 in the second
quarter of the prior year. Net loss for the second quarter of 1999 was
$1,325,000 ($0.11 per common share-diluted) compared to net income (on a
restated basis) of $7,101,000 ($0.59 per common share-diluted) in the second
quarter of 1998.
Within the Agricultural Products Group, sales decreased by
approximately $3,800,000 in the second quarter of 1999 compared to the second
quarter of the prior year. The entire decrease was related to the Bush Hog
division and was primarily associated with lower rotary cutter sales. The
economic conditions affecting the agricultural equipment industry described
above continued to affect the operations of the Bush Hog division. This
decrease was offset by improved turf and landscape product sales (primarily
associated with new products developed in the past twelve months) and the
impact of the acquisition of the Great Bend division in the second quarter of
1998. Income before taxes within the Agricultural Products Group decreased to
$5,075,000 in the second quarter of 1999 from $8,019,000 reported for the
second quarter of the prior year. Gross profits and gross profit margins have
decreased in the second quarter of 1999. The decrease in gross profit margins
was primarily related to increased cash discounts, the mix of products sold
during each respective quarter, and decreased facility utilization associated
with lower production levels in the second quarter of 1999. The decreases in
gross profits also included the effects of lower sales volume in the second
quarter of 1999. Selling and administrative expenses within the Agricultural
Products Group increased slightly (less than 3%) in the second quarter of
1999 compared to the same quarter of the prior year. The most significant
increase was related to the effects of the acquisition of the Great Bend
division in the second quarter of 1998. Sales commissions decreased in 1999
due to the impact of lower sales volume noted above.
Within the Industrial Products Group, net sales decreased to
$37,491,000 in the second quarter of 1999 compared to net sales of
$48,033,000 reported in the second quarter of 1998. Revenues have decreased
due to a decreasing number of presses currently in production compared to the
prior year. Orders for large presses have decreased significantly as the
Verson division is concentrating on completing current press orders in a
timely manner to avoid late delivery penalties. The division is actively
bidding on numerous press orders from both automobile manufacturers and tier
one and two suppliers. The division is not pursuing orders which would cause
delays on presses currently in production. This decrease in obtaining
production orders has resulted in decreased revenue recognition. Loss before
taxes in the second quarter of 1999 was $267,000 compared to income before
taxes (on a restated basis) of $4,385,000 reported for the second quarter of
1998. As previously noted, no gross profit on any press manufactured during
1999 will be recognized until the press reaches a point in production when
all manufacturing costs can be reasonably estimated. It was also previously
noted that the backlog of low margin and no margin work in process at the
beginning of 1999 would have a substantial effect on the operating results of
the Industrial Products Group. As a result of the impact of these items, the
Industrial Products Group's gross profit margins have decreased significantly
in the second quarter of 1999 compared to the second quarter of 1998. The
group also recorded an additional reserve of approximately $775,000 for
estimated future losses on certain press orders currently in production.
These decreases in gross profits were partially offset by the effect of a
recovery of a claim associated with a prior period. Selling and
administrative expenses have increased in the second quarter of 1999 compared
to the second quarter of the prior year within the Industrial Products Group.
Increases were primarily associated with the increase of the provision for
doubtful accounts, increased costs related to improved operating systems
(hardware and software) and costs related to a joint venture (Verson
Pressentechnik GmbH) formed in the fourth quarter of 1998. Normal salary and
fringe benefit cost increases also impacted selling and administrative
expenses in the second quarter of 1999.
As noted above, corporate expenses consisted primarily of
administrative charges and other (income) expense. Administrative expense
increases in the second quarter of 1999 were principally associated with
increased pension costs and professional fees. Reference is made to Note 8 of
Notes to Condensed Consolidated Financial Statements for an analysis of other
(income) expense in the second quarter of 1999 and 1998.
Interest expense in the second quarter of 1999 was $2,837,000
compared to interest expense of $1,447,000 reported in the second quarter of
1998. The increase was primarily related to increased borrowing levels
associated with fixed asset additions and the acquisition of the Great Bend
and Universal Turf operations in the second quarter of 1998. Interest rates
have also increased slightly in the current year.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Working capital at June 30, 1999 was $(31,578,000) and the current
ratio was .85 to 1.00 compared to working capital of $(14,955,000) and a current
ratio of .92 to 1.00 at December 31, 1998. Net receivables increased by
$8,636,000 since the end of 1998. The entire increase was associated with the
Agricultural Products Group where cash collections are dependent upon the retail
sale of the product by the dealer. The majority of sales to the dealer are
typically strong in the first quarter of the year or just prior to the use
season by the farmer. Extended payment terms are offered to dealers in the form
of floor plan financing which is customary in the industry. Receivable levels
within this group have also been impacted by the overall downturn in the
agricultural economy in the United States brought about by lower commodity
prices, excess grain inventory levels and decreased exports of grain,
particularly to the far eastern countries. These economic factors have led to
decreased agricultural equipment sales by dealers and, in turn, increased dealer
receivable levels. Net inventory levels have decreased by $9,382,000 since the
end of 1998. The majority of the decrease was related to the Industrial Products
Group. Verson has recorded reserves of $7,700,000 in the first half of 1999 for
estimated additional costs associated with certain press orders currently in
production on which losses are anticipated. In addition, customer payments on
presses in process have increased by approximately $10,353,000 since the end of
1998. Inventories within the Agricultural Products Group have also decreased
since the end of 1998. This decrease was associated with normal seasonal
production and shipment schedules.
Fixed asset additions in the first half of 1999 totaled $5,087,000.
Over $3,000,000 of this amount represent building costs at the Verson
division, primarily associated with the assembly facility addition. The
majority of the remaining fixed asset additions in 1999 were related to
manufacturing machinery and equipment purchases at both the Agricultural
Products and Industrial Products Group. There were no major fixed asset
dispositions in the first half of 1999.
Net increases in accounts payables ($7,735,000) and accrued expenses
($2,305,000) were primarily related to increased production levels at the
Verson division. Borrowings under the Company's revolving credit agreement
increased by $5,600,000 in the first half of 1999.
Subsequent to June 30, 1999, the Company and CC Industries, Inc. of
Chicago signed a letter of intent to form a joint venture for the ownership
and operation of the Company's Agricultural Products Group. The letter of
intent contemplates that the Company will transfer the business, assets and
liabilities of the Agricultural Products Group to a newly formed limited
liability company and then will sell an 80.1% interest in the new entity to
CC Industries for approximately $120,700,000 (reduced to $112,100,000 on
February 10, 2000) subject to adjustment. The transaction is subject to,
among other things, satisfactory completion of due diligence inquiries by CC
Industries, the execution of definitive agreements, the approval of the
respective boards of the two companies and the approval of Allied's
shareholders.
On July 31, 1999, the Company entered into a Second Amendment and
Waiver to the Second Amended and Restated Credit Agreement ("Second
Amendment"). Under the terms of the Second Amendment, the maximum
indebtedness under the agreement may remain at $135,000,000 from July 31
through November 29, 1999 rather than decrease on specific dates to
$110,000,000 as originally scheduled. Interest rates related to amounts
outstanding under this amendment have also been increased. The final maturity
date of the agreement was accelerated from February 28, 2000 to November 30,
1999 (subsequently extended to March 7, 2000). The Second Amendment refers to
the above noted letter of intent between CC Industries, Inc. and the Company.
The Second Amendment specifies that termination of or a materially adverse
change in the letter of intent or in any succeeding agreement will constitute
an event of default under the credit agreement. The Second Amendment also
provides for a waiver of noncompliance by the Company as of June 30, 1999
with the minimum consolidated operating cash flow provision of the agreement.
Reference is made to Note 10 of Notes to Condensed Consolidated
Financial Statements in relation to the Company's announcement on July 29,
1999 of a New Stockholders' Right Plan and the redemption of the Common Share
Purchase Rights currently outstanding.
As of June 30, 1999, the Company had cash and cash equivalents of
$684,000 and additional funds of $8,263,000 available under the Second Amended
and Restated Credit Agreement and related amendments. The Company believes that
its expected operating cash flow and funds available under the Second Amended
and Restated Credit Agreement and related amendments may not be adequate to
finance its operations and capital expenditures in 1999. The above noted letter
of intent regarding the Agricultural Equipment Group should result in the
Company receiving cash proceeds which would significantly reduce the amounts
outstanding under this agreement. Additional financing will be necessary to
maintain operations of the Industrial Products Group. The Company is exploring
additional or alternate sources of financing necessary to continue these
remaining operations in a normal manufacturing environment and to finance
necessary capital expenditures. During the second quarter of 1999, the Company
was not in compliance with certain provisions of the Second Amended and Restated
Credit Agreement. As noted above, subsequent to the end of the second quarter of
1999, the Company entered into a Second Amendment to the agreement which
provided for a waiver of this noncompliance.
Reference is made to Note 9 of Notes to Condensed Consolidated
Financial Statements as it relates to the Company's involvement in legal
proceedings as a defending party.
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 June 30, 1999, the Company's total debt
outstanding (revolving credit agreement and capitalized leases) totaled
$127,451,000. Capitalized lease debt ($2,551,000) is represented by fixed
rate financing and is not subject to market rate fluctuations. The remaining
portion of the Company's debt at June 30, 1999 ($124,900,000) 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 June 30, 1999 was
approximately $1,000,000. The remaining balance of the Credit Agreement debt
outstanding at June 30, 1999 of $74,900,000 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 $650,000 based on the composition of debt levels at
June 30, 1999.
The interest rate swap was terminated subsequent to the end of the
second quarter of 1999 at no cost to the Company. 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.
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.
<PAGE>
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. The intent of
the division is to rely on these certificates (due to the quality of the
information received and the reputation of the vendors involved) although
some testing has been completed with no exceptions noted. The majority of
internally developed design software at Verson has been determined not to
contain date fields. Programs which do contain date fields have been
determined to be year 2000 compliant. The Company does not have a significant
amount of manufacturing equipment with embedded computer chips or
hardware/software which would present a problem at the beginning of the year
2000. Compliancy certificates have been received from the majority of
equipment manufacturers and internal tests of production machinery has been
completed with no exceptions noted. Outside consultants have also evaluated
the status of production equipment at the Verson division and have determined
that the division would be unlikely to experience year 2000 problems in the
area reviewed.
None of the equipment manufactured by the Agricultural Products
Group include hardware/software or embedded computer chips. Stamping presses
manufactured by the Verson division contain software and embedded computer
chips. Compliance certificates have been received on all software included in
the presses sold. Some internal testing has also been performed. The Company
believes that it has little, if any, exposure related to equipment
manufactured by its divisions in relation to the year 2000 issue.
The Company has identified key outside vendors which provide
services which, if not year 2000 compliant, could have an effect on the
operations of the Company. Sources include banking, investment, pension
obligations, insurance, utilities, etc. businesses. During 1999, these
service providers will be asked to update the Company on the status of their
year 2000 compliance. The Company will then need to evaluate these responses
and determine if a contingency plan would be necessary should the vendor not
be compliant.
The total cost associated with required modifications to become year
2000 compliant (both incurred to date and to be incurred in the future) is
not expected to be material to the Company's financial position. This total
cost does not include the cost of internal efforts to complete the project.
The costs associated with the replacement of computerized systems,
substantially all of which were capitalized, are not included in the above
estimate as such replacements or upgrades were necessary to operate
efficiently and such costs would have been incurred even if year 2000
compliance was not an issue. The Company anticipates that additional amounts
will be spent in completing the year 2000 compliance project. These costs are
being funded through operating cash flow. The Company's year 2000 compliance
program is an ongoing process and the estimates of costs and completion dates
for various components of the program described above are subject to change.
Other major system projects have not been deferred due to the year 2000
compliance project.
The risk to the Company from the failure of suppliers of goods and
services (over which the Company does not have control) to attain year 2000
compliance is the same as to other business enterprises generally. Failure of
information systems by financial institutions (banks, service bureaus,
insurance companies, etc.) would disrupt the flow of funds to and from the
Company until systems can be remedied or replaced by these providers. Failure
of delivery of critical components by suppliers and subcontractors resulting
from non year 2000 compliance could result in disruptions of manufacturing
processes with delays in the delivery of our products to our customers until
non-compliant conditions or components can be remedied or replaced. The
Company has identified major suppliers of goods and services and is in the
process of determining their year 2000 compliance status. Alternate suppliers
of critical components are also in the process of being identified.
Contingency plans are being developed on a case by case basis and may include
booking orders before anticipated business disruption. Even so, judgments
regarding contingency plans, such as how to develop them and to what extent,
are themselves subject to many variables and uncertainties. There can be no
assurance that the Company will correctly anticipate the level, impact or
duration of noncompliance by suppliers that provide inadequate information.
As a result, there is no certainty that the Company's contingency plans will
be sufficient to mitigate the impact of noncompliance by suppliers, and some
material adverse effect to the Company may result from one or more third
parties regardless of defensive contingency plans. The Company believes it is
taking the necessary steps to resolve year 2000 issues and that with the
completion of the year 2000 project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
SAFE HARBOR STATEMENT
- ---------------------
Statements contained within the Management Discussion and Analysis
of Financial Conditions and Results of Operations that relate to future
operating periods are subject to risks and uncertainties that could cause
actual results to differ from management's projections. Operations of the
Company include the manufacturing and sale of agricultural and industrial
machinery. In relation to the Agricultural Products Group, forward-looking
statements involve certain factors that are subject to change. These elements
encompass interrelated factors that affect farmers and cattle ranchers'
confidence, including demand for agricultural products, grain stock levels,
commodity prices, weather conditions, crop and animal diseases, crop yields,
farm land values and government farm programs. Other factors affecting all
operations of the Company include actions of competitors in the industries
served by the Company, production 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>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
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<S> <C>
Reference is made to Note 4 of Notes to Condensed Consolidated
Financial Statements.
Item 5 Other Information
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Reference is made to Note 9 of Notes to Condensed Consolidated
Financial Statements and Exhibit 10 for information related to
the Amendment to the Amended and Restated Credit Agreement.
</TABLE>
<TABLE>
<CAPTION>
Item 6. Exhibit and Reports on Form 8-K
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<S> <C> <C>
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBITS
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10 Material Contract--Second Amendment and Waiver
Dated as of July 31, 1999 to the Credit
Agreement Dated as of February 1, 1999. *
27 Financial Data Schedules *
* Previously filed
(b) Reports on Form 8-K - there were no reports on Form 8-K
for the three months ended June 30, 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
