1-800 ATTORNEY INC (ATTY) - Description of business

Company Description
Allied Products Corporation (Allied Products) was organized under Delaware law in 1967 as the successor to a Michigan corporation which was formed in 1928. Its principal executive offices are at 10 South Riverside Plaza, Chicago, Illinois 60606 and its telephone number is (312) 454-1020. As used herein, the term "Allied Products" and the "Company" means Allied Products Corporation and its consolidated subsidiaries, unless the context otherwise requires. The Company's operations involve a single industry segment, the manufacturing and sale of agricultural and industrial machinery and other products. The operations of the Company were realigned into one business segment in 1993 to reflect the sale of the Smith Energy Services and White-New Idea divisions and the closing of the Richard Brothers Die & Prototype, Charles City, International Agro and Kewanee Farm Equipment divisions. The restated financial statements also reflect the discontinuation of the Cooper division as, subsequent to the end of 1993, the Company entered into a letter of intent to sell all the assets and business of this operation. Reference is made to Note 2 of Notes to Consolidated Financial Statements for a more complete description of closures and dispositions. Approximately 4%, 6% and 8% of the Company's net sales from continuing operations in 1991, 1992 and 1993, respectively, were exported. The majority of export sales were shipped to Canada in 1991 and Mexico in 1992 and 1993.PRODUCT LINES FARM IMPLEMENTS -- PRODUCTS. The Bush Hog division offers a comprehensive line of farm implements including rotary cutters, tractor mounted loaders, hay mowers, peanut combines, tillers, and cultivators. These products are marketed under two well established brand names, Bush Hog and Lilliston. The Kewanee brand name will continue to be used for supplying the ongoing repair part requirements of its customers. Bush Hog was acquired by Allied in 1968, Lilliston was purchased in 1986, and all production was consolidated into the Bush Hog facilities in Selma, Alabama. Bush Hog rotary cutters are used to shred stalks after the crop has been harvested, to mow pasture, for land maintenance and for governmental right-of-way mowing. In some crops such as cotton, rotary cutters are used as a mechanical means of pest control causing less reliance on chemical applications. The use season for rotary cutter is quite long, extending from early spring to late fall, and even beyond in warmer climates. Bush Hog has a major market share (35%) of rotary cutters sold in North America. Front end loaders are used by farmers and ranchers for material handling, and cultivators are used for weed control after crops have been planted. Lilliston peanut combines are used in harvesting peanuts, and command approximately 45% of the market. The use season for peanut combines is from late summer to late fall. Bush Hog's hay mower is a patented design that enables the farmer to cut hay, prior to baling, faster and more economically than conventional type mowers. Hay is a self renewing crop if cut on a timely basis and this implement may be used as many as five times during the season on the same field. Several other implements are sold under the Bush Hog name, including rotary tillers, post hole diggers, flail mowers and rear mounted tractor blades. These tools offer a variety of applications, and are sold to farmers, ranchers, landscape contractors, large estate owners and municipalities. The retail price of implements produced by Bush Hog range from $600 for a small rotary cutter, primarily used for grass clipping, to peanut combines, which sell for $28,000 (2 row model) to almost $49,000 (4 row model). Implements tend to have a shorter life than tractors and grain combines and purchases of implements are less likely to be deferred in times of economic uncertainty, somewhat dampening cyclical swings in demand. Parts accounted for almost one sixth of Bush Hog's total revenue in 1993. Technology does change and to maintain and expand its market position, Bush Hog continually updates and improves its product offerings. This is done through a combination of internal development and external acquisition of technology. MARKETING. Bush Hog implements are marketed through approximately 2,650 farm equipment dealers which play the primary role in sales of farm equipment. In general, they are independent, local businessmen who have an established local clientele developed over the years and represent more than 35% of the total farm equipment dealerships in the United States and Canada. The Bush Hog and Lilliston brand names are particularly strong in the southeastern and southwestern states. Most dealers offer shortline products to complement or compete with products of major product line manufacturers.2 Marketing and sales activities in Canada and the United States are carried out by 58 commissioned manufactures' representatives or representative organizations who operate as independent contractors and who, for the most part, are exclusive. Commissions are payable when receivables are collected rather than when sales are made. To even out the seasonal variations in its production cycles, Bush Hog provides incentives for off-season purchases, including extended payment terms to dealers in the form of floor plan financing. Bush Hog retains a security interest in this floor plan equipment. Under certain state and provincial statutes, a dealer may return floor plan equipment to a manufacturer upon termination of his relationship. Bush Hog services its network of dealers through two manufacturing facilities and eight service parts distribution centers, strategically located in the United States and Canada. COMPETITION. Competition for farm equipment includes the major line manufacturers of tractors and several hundred companies producing one or more models of shortline implements. Price, quality, service and availability are all factors in brand selection, and, in some cases, a product will enjoy a unique technological advantage. Bush Hog's objective is to be the lowest cost producer of high quality products. To do this it must, among other things, continue to modernize its facilities to improve efficiency. Bush Hog enjoys a significant labor rate advantage at its facilities when compared to rates at the major line manufacturers. INDUSTRY. The agricultural equipment industry in North America is a mature industry engaged in producing replacement equipment for a declining number of farmers. It is dominated by a small number of major line manufacturers, which market a full range of farm machinery, including tractors, grain combines and various implements through their own dealer organizations and account for approximately 60% of the dollar volume of industry shipments. The remaining 40% of the market is shared by approximately 700 companies which generally concentrate their production on shortline implements such as plows, harrows, cultivators, livestock equipment, grain handling equipment or hay equipment. During the 1980's the farm economy was in decline and this led to a deterioration in farmers' financial condition. Capital expenditures by farmers reached a low in 1986. Since then, commodity exports have improved due to changes in governmental programs and foreign exchange rates. Individual farmers have reduced their debt load and are much less leveraged after several years of good earnings. In 1993, crop production was generally down due to the abnormal weather conditions such as the flooding in the midwest and a drought in the southeast; however, net cash farm income for 1993 exceeded 1992 by $1.2 billion due to increased prices. Generally , the crop surplus at the end of 1993 was at a twenty year low. Therefore, planted acres will increase in 1994, indicating a continued positive outlook for farm equipment sales. Future prospects of the industry depend largely on factors outside of industry participants' control. These include the value of the U.S. dollar, the relative level of interest rates between countries, the variations in the world demand for supplies of farm commodities and U.S. government agricultural, foreign and fiscal policies. Neither NAFTA nor the proposed GATT agreement will have any effect until 1995 and it is too early to accurately determine the impact.METAL FORMING PRESSES -- PRODUCTS. The Verson division, acquired by Allied Products in 1986, manufactures a broad line of both medium and large technologically advanced mechanical and hydraulic forming presses. These products are used in the manufacture of components for the automotive, appliance, office equipment, farm equipment, ordnance, aerospace and general metal working industries. A transfer press is a specialized mechanical press which combines a series of operations by transferring a work piece from one station to another inside of one press. Each station in the press has a separate die which is individually adjustable. This process allows all operations from blank to finished product to take place in one press, resulting in increased output and reduced labor expense. Prices vary by type and size; a large transfer press may sell for in excess of $15 million. Approximately one fifth of Verson's revenue is generated by customer special services. Items included in the special services area are: repair parts, complete remanufacturing capability for used presses, and contract machining and manufacturing. In addition to the fabrication and machining of components, Verson provides complete tooling and engineering services necessary for turnkey systems. Verson also designs and supplies tools for metal forming, including metal stamping and cold extrusion. MARKETING. Verson's Marketing Group is headed by a Director of Marketing and Sales, with responsibilityfor all Verson products and services. Three Sales Managers, reporting to the Director, are responsible for press sales, tooling sales, and press rebuilding and contract services, respectively. Verson's major customers are the U.S. automobile manufacturers including U.S. and Japanese owned, and first and second tier automotive parts producing companies, which in total amount to approximately 60% of Verson's annual revenue. Verson's other major industry served is the appliance industry and customers include all major brand names. Verson offers the market many benefits through engineering, design and experience. Verson designed the world's first transfer press in 1939, the world's first electronic feed in 1981 and most recently introduced a cross bar feed which significantly improves production. COMPETITION. There are only a few companies world-wide that supply large transfer press systems similar to those provided by Verson. The largest of these is Japanese. With foreign alliances having been formed with other domestic companies, Verson is now the only wholly American owned company competing in this upper end segment. Press manufacturers compete on the basis of technology, capability, reliability and price. The larger presses are huge pieces of machinery standing over three stories tall and weighing as much as 3 1/2 million pounds. Consequently, the barriers to entry for new competitors are almost impossible due to required capital. INDUSTRY. Verson operates principally in North America and is part of the U.S. machine tool industry. Shipments in the machine tool industry during 1993 exceeded $3 billion. The American automotive industry, which has a significant impact on the machine tool industry, has lost a substantial portion of the U.S. market to Japanese and other importers. Domestic automobile manufacturers have reduced their total manufacturing capacity by closing marginal assembly and stamping plants. They are seeking to become more cost-effective by requiring quality parts, implementing Just-In-Time concepts, obtaining price reductions from suppliers, as well as redesigning cost out of automobiles, and restructuring and automating their manufacturing processes. Automotive industry studies identify automation as the number one strategy for cost reduction. The Verson division of Allied Products is in a strong position to capitalize on major retooling and modernization programs as they become available. The second wave of this demand is being felt now with major suppliers to the automakers converting to new technology. Demand from the appliance industry continues to grow, more than offsetting declines in aerospace and ordnance.THERMOPLASTIC RESINS -- PRODUCTS AND SERVICES. The Coz division (acquired in 1967) of Allied Products provides a complete line of thermoplastic resins and related services to the plastic molding and extrusion industry. Coz offers a full line of materials supply to include specialty thermoplastic compounds and compounding services, color and additive concentrates, the reprocessing of scrap thermoplastic resins, and the brokering of prime and secondary materials. Coz purchases unmodified thermoplastic resins from major basic resin suppliers and combines or alloys these resins with various additives to achieve certain desired properties such as color and/or heat resistance. The resins Coz purchases are generally in the form of small plastic pellets as are the finished products supplied by Coz to its customers. Coz's brokerage operation provides its customers with prime and off-specification materials at competitive prices in large or small quantities as required. Substantial on-site inventories facilitate short delivery cycles. As an additional service to its customers, Coz also reprocesses scrap generated in molding or extrusion activities, thereby economically turning scrap into useful materials. MARKETING. All sales are handled on a direct basis by salaried employees who receive a significant part of their compensation from commissions. The sales staff is strongly supported by technical personnel, both in product development and in customer start-ups, applications, or training. Plant-to-plant visits and technical conferences are commonplace. The bulk of Coz's sales activity is in the northeastern United States. COMPETITION. Coz's competition comes from several different levels in the plastics industry, including basic resin producers, plastic distributors, brokers, concentrate suppliers and independent thermoplastic compounders. Coz differentiates itself from its competition by covering all aspects of plastics material supply to include compounding, color and additives concentrates, toll processing customers' materials, reprocessing scrap materials, and brokering both prime and off-spec materials. Over its thirty-five year business life, Coz has developed significant technical capabilities supported by excellent laboratory and production equipment which results in Coz being positioned as a high end co-developer for special customer applications.4 INDUSTRY. The thermoplastic compounding industry is expected to have 1994 sales of about $19 billion and is experiencing real growth at a rate of about 5 per cent annually. Independent compounders such as Coz are numerous and generally focus on a relatively small geographic area. Industry consolidation is occurring as some larger companies have been attracted to the growth opportunities in thermoplastic compounding.SALES BACKLOG Sales backlog from continuing operations as of December 31, 1993 was $68,722,000 compared to $94,841,000 at December 31, 1992. The difference is attributable to a large press order at the Verson division for which production was completed in 1993.EMPLOYEES Allied Products currently employs approximately 1,500 individuals. Approximately 23% of Allied Products' employees are represented by unions. Allied Products has encouraged ownership of its stock by employees. As of December 31, 1993 approximately 488 employees participated in the SMART plan which owns approximately 630,000 shares of Allied Products' Common Stock or approximately 7% of the total shares outstanding. However, an amendment to the Plan has caused the discontinuance of purchases of Allied Products stock by the plan.RAW MATERIALS AND SOURCES OF SUPPLY The principal raw material used by the farm implement and metal press operations include steel and other metals and purchased components. The thermoplastic division uses thermoplastics resins and other chemicals. During 1993, the materials needed by Allied Products have generally been available from a variety of sources in adequate quantities and at prevailing market prices. No one supplier is responsible for supplying more than 10% of the principal raw materials used by Allied Products.PATENTS, TRADEMARKS AND LICENSES Allied Products owns the federally registered trademarks "Bush Hog" and "Lilliston" used on its agricultural equipment products and "Verson" on its metal forming presses, all of which it considers material to its business. While Allied Products believes that the other trademarks used by each of its operations are important, none of the patents, licenses, franchises or such other trademarks are considered material to the operation of its business.MAJOR CUSTOMERS Net sales from continuing operations to the three major U.S. automobile manufacturers accounted for approximately 25% of total consolidated sales from continuing operations in 1993. Approximately 3% and 24% of Allied Products' consolidated net sales from continuing operations in 1991 and 1992, respectively, were derived from sales to the major U.S. automobile manufacturers. With the exception of the three major automobile manufacturers, no material part of Allied Products' business is dependent upon a single customer.SEASONALITY Retail sales of and cash collected for farm equipment tend to occur during or just preceding the use seasons previously described. Sales and cash receipts for the other divisions are not effected by seasonality.ENVIRONMENTAL FACTORS Reference is made to Note 10 of Notes to Consolidated Financial Statements regarding environmental factors and matters.EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names and ages of the Company's Executive Officers, together with all positions and offices held with the Company by such officers as of March 26, 1994. NAME POSITION WITH ALLIED PRODUCTS AGE - --------------------------------------------- ----------------------------------------------------------------- --- Richard A. Drexler........................... Chairman, President and Chief Executive Officer 46 James J. Hayden.............................. Executive Vice President and Chief Financial Officer 58 Kenneth B. Light............................. Executive Vice President, Chief Administrative Officer and Secretary 61 Martin A. German............................. Senior Vice President 57 Bobby M. Middlebrooks........................ Senior Vice President 58 Robert J. Fleck.............................. Vice President-Accounting and Chief Accounting Officer 46 Patrick J. Riley............................. Vice President and Treasurer 58 No family relationships exist among the executive officers. Each executive officer, except Messrs. Hayden and German, has been employed by Allied Products for over ten years. Pursuant to Allied Products' By-laws, each officer is elected annually by the Board of Directors. Mr. Drexler, who became Chairman in 1993, has been President and a Director of Allied Products since 1982, has been Chief Executive Officer since 1986 and was Acting Chief Financial Officer from 1991 to 1992, Chief Financial Officer from 1989 to 1990 and Chief Operating Officer from 1981 to 1986. He was also Chief Financial Officer from 1977 to 1987. Prior to becoming President, Mr. Drexler served as Executive Vice President, Senior Vice President of Administration, Vice President of Administration, Staff Vice President-Development, and Director of Planning. Mr. Hayden has been Executive Vice President and Chief Financial Officer since 1993 and was Senior Vice President and Chief Financial Officer from 1992 to 1993. He was Executive Vice President and Chief Financial Officer from 1987 to 1989, at which time he left to pursue private interests. Prior to joining Allied Products in 1987, he was President of Rexnord Automation, a subsidiary of Rexnord Inc., since 1983. He became a Director of Allied Products in 1993. Mr. Light has been Executive Vice President and Chief Administrative Officer since 1982 and has also served as Secretary since 1972. From 1980 to 1982, he was Senior Vice President-Administration, from 1976 to 1980 he was Vice President-General Counsel and prior to that he was General Counsel and Director of the Corporate Law Department. He became a Director of Allied Products in 1993. Mr. German was elected Senior Vice President in 1991 and was Vice President from 1989. Since joining Allied Products in 1986, he has been President of the Verson Allsteel Press division. Prior to joining Allied Products, he was Vice President and General Manager of the Turning Division of Warner & Swasey Company. Mr. Middlebrooks has been Senior Vice President since 1985 and Vice President of Allied Products since 1984 in charge of the former Agricultural Equipment Group. Prior to that, he was President-Bush Hog Implements Division. He joined Bush Hog in 1955. Mr. Fleck has been Vice President-Accounting since 1985 and Chief Accounting Officer since 1986. From 1983 to 1985 he was Staff Vice President-Accounting and prior to that he served as Corporate Controller and in various other accounting positions for Allied Products. Prior to joining Allied Products in 1974, he was an internal auditor with Marquette Cement Company, a national cement manufacturing company. Mr. Riley has been Vice President & Treasurer since 1993. Prior to that he has been Treasurer of Allied Products since 1976. Prior to that he was Assistant Treasurer and Director of Cash Management of Allied Products since 1969.