UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 1-2723
ATHEY PRODUCTS CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 36-0753480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 1A North, P. O. Box 669, Raleigh, North Carolina 27602
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: 919-556-5171
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2 par value
(Title of Class)
NASDAQ
(Name of Each Exchange on Which Registered)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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
requirements for the past 90 days. Yes X. No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X.
On March 15, 1996, there were 3,973,459 shares of common stock outstanding.
On March 15, 1996, the aggregate market value of voting stock held by
nonaffiliates (based upon the average bid and ask price of such stock) was
approximately $10,303,541.
Exhibit Index located at Sequential Page 11.
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DOCUMENTS INCORPORATED BY REFERENCE
Part I None
Part II
<TABLE>
<CAPTION>
<S> <C>
Item 5 - Market for Registrant's Common Equity Page 7 of the Annual Report to the
and Related Stockholder Matters Shareholders for the year ended December
31, 1995
Item 6 - Selected Financial Data
Page 6 of the Annual Report to
Shareholders for the year ended December
31, 1995
Item 7 - Management's Discussion & Analysis of
Financial Condition and Results of Pages 5 - 7 of the Annual Report to
Operations Shareholders for the year ended December
31, 1995
Item 8 - Financial Statements and Supplementary
Data Pages 8 - 13 and 16 of the Annual Report
to Shareholders for the year ended
December 31, 1995
Part III
Item 10 (a) - Directors and Executive Officers of the
Registrant Registrant's Proxy Statement to be filed
in connection with its Annual Meeting to
be held May 16, 1996
Item 11 - Executive Compensation Registrant's Proxy Statement to be
filed in connection with its Annual
Meeting to be held May 16, 1996
Item 12 - Security Ownership of Certain Beneficial
Owners and Management Registrant's Proxy Statement to be filed
in connection with its Annual Meeting to
be held May 16, 1996
Item 13 - Certain Relationships and Related
Transactions
Registrant's Proxy Statement to be filed
in connection with its Annual Meeting to
Part IV be held May 16, 1996
Exhibits as specified in Item 14 of this
Report
</TABLE>
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ATHEY PRODUCTS CORPORATION
PART 1
Item 1. Business
General Development of Business. Athey Products Corporation ("Registrant") was
incorporated in the State of Illinois on September 29, 1922. In May, 1988, the
Registrant's corporate domicile was changed from Illinois to Delaware by
reincorporating the Registrant in the latter state. The Registrant is a
manufacturer of heavy duty equipment and parts. Its principal products include
street sweepers, conveyors, and force feed loaders. The Registrant also
manufactures other equipment and replacement parts for its products. The
principal users of the Registrant's products are municipalities, contractors,
other governmental bodies or agencies, miners and others who have need of heavy
duty, large capacity equipment.
The following is brief description of the principal products manufactured by the
Registrant.
Mobil Street Sweepers. The Mobil street sweepers are of the four-wheel
mechanical bottom dump and high-lift type and of the three-wheel mechanical
high-lift type which offers flexibility in the street cleaning operation. The
four-wheel type may be gasoline, diesel, or compressed natural gas powered with
an automatic transmission. The three-wheel type is diesel powered with
hydrostatic drive. All units have variable speed, hydraulically driven brooms
and elevators for cleaner pickup of hard-to-sweep material.
Conveyors & Systems. The Registrant manufactures a broad range of different
types and sizes of conveyors, vibrating screens and pug mill mixing plants.
Types of conveyors include portable belt loader conveyors, stationary and
portable conveyors, folding stacker conveyors, wash plants and rotary stacking
conveyors for use in mining, quarries and material processing plants.
Force-feed loaders. Force-feed loaders combine the continuous flow capabilities
of a belt conveyor with wheel loader mobility, and are produced with either
gasoline or diesel engines. They are used to pick up or load dirt, snow or any
flowable material from windrow or roadside and drop it into a trailing truck.
Force-feed loaders can also be used for loading sand, coal, salt, top soil and
gravel from stockpiles; assisting in cleanup jobs or paving projects; picking up
windrows on road shoulders and ditch trimming; or clearing snow-choked roads.
The newest model includes a swivel discharge conveyor and right angle side
discharge to either side.
Other Products
(a) Trailers. The trailers manufactured by the Registrant, also called
"wagons", are generally pneumatic tired, and are for large volume, off-highway
use. The trailers, which are themselves pulled by tractors manufactured by
others, are used for the hauling of earth, sand, stone, coal or any other bulk
material. Trailers are manufactured to
3
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handle capacities of from 33 to 100 tons and are classified by the manner in
which they discharge materials; for example, rear dump, bottom dump and side
dump trailers. Trailers are typically used on projects such as the construction
of large dams, road building, mining, land fill, and other specialized uses
where the large volume capacities of the trailers are needed. During 1995, the
Company phased-out the manufacture of this product in connection with its
organizational restructuring.
(b) Graders. This unit, called the "Maintenance Master, Model 600", is
a small, maneuverable maintenance machine designed to handle jobs where larger,
less efficient equipment is not required. This unit can be used for site
preparation on small jobs such as parking lots and driveways. Graders are
produced with diesel engines, hydrostatic transmission and a wide range of
attachments.
(c) Track Assemblies. Track assemblies are used for the hauling of
trailers or other heavy duty equipment, as distinguished from drive track which
is used on powered equipment. Track assemblies can haul any load that a track
type tractor can pull, and can be especially useful in refuse operations, oil
fields, quarries, pipelines and various construction industry functions where
the land condition makes use of wheeled vehicles impracticable. During 1995, the
Company phased-out the manufacture of this product in connection with its
organizational restructuring.
(d) Refuse Collection Products. The Registrant also manufactures refuse
collection truck bodies of front and side loading design for manual,
semiautomatic and automated collection. The side loader can also be configured
as a leaf loader for high compaction pick up of leaves. During 1995, the Company
phased-out the manufacture of this product in connection with its organizational
restructuring.
(e) Replacement Parts. The Registrant also manufactures and distributes
replacement parts for its product lines.
The Registrant's products are distributed through an equipment dealer network
that covers the entire United States and certain foreign countries. Its
agreements with its dealers are terminable, by either party, upon 30 days
written notice. As is common in the industry, almost all such dealers also sell
complementary products produced by other manufacturers, and all of them operate
as independent contractors.
Set forth below, for each of the Registrant's last three years, is the
percentage of total sales contributed by each class of similar products which
contributed 10% or more of total sales during any of the last three years:
Year Ended December, 31
Class of Product 1995 1994 1993
-------------------------- ---- ---- ----
Mobil Street Sweepers 84% 89% 85%
Raw Materials and Component Parts. The principal materials and components used
by the Registrant in its manufacturing operations are steel, paint, castings,
axles, tires, hydraulic parts, engines, transmissions, small parts and welding
supplies. These materials and components are available from and are purchased
from many suppliers, none of whom the
4
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Registrant is substantially dependent upon and none of whom receive a
disproportionate amount of the Registrant's business. In the experience of the
Registrant, it has been generally able to receive its supplies as required,
though delays in deliveries have occurred.
Patents, Trademarks, Licenses. Although the Registrant owns certain patents,
trademarks and licenses, none is of material importance to its business, with
the exception of the trademark "Mobil Sweeper" owned by the Registrant and used
in connection with its mobile street sweepers.
Seasonality. With respect to conveyors, it has been the experience of the
Registrant that its heavy shipping period begins in the spring of the year and
continues through the late fall of the year. Sales of other products
manufactured by the Registrant are not significantly seasonal.
Working Capital. The Registrant generates working capital from operations and
borrowings under a bank line of credit. Because the Registrant does not
generally provide extended payment terms to its customers and because its
business, as a whole, is not generally subject to seasonal variations in demand,
working capital requirements are not subject to material fluctuation.
Customers. In 1995, the Company's largest customer, a dealer selling to a local
government entity, accounted for approximately 25% of the Company's net sales.
No other customer accounted for more than 10% of the Company's net sales.
The Company believes that the loss of any customer that accounts for 10% or more
of the Company's net sales would have a material adverse effect on its business.
As is customary in the industry, the Company does not have a significant amount
of long term sales agreements with its customers. However, it believes that it
enjoys excellent relationships with its customers. The Company follows customary
industry practices regarding terms of sale and does not provide extended payment
terms to any significant extent.
Backlog. The dollar amount of the backlog of orders believed to be firm as of
December 31, 1995 and December 31, 1994 was approximately $7,452,000 and
$8,860,000, respectively. Mobil street sweepers accounted for 100% and 89%,
respectively, of the backlogs as of such dates. The Registrant expects to
complete all orders related to the December 31, 1995 backlog during the current
year.
Government Contracts. The Registrant has no material contracts with the Federal
Government; however, the Company has a contract with a dealer for sales to the
city of Los Angeles, California, which the Company expects to complete during
1996.
Competition. The Registrant competes in the street sweeper, conveyor, trailer,
grader and refuse collection truck markets with a number of other companies
which are larger and have greater financial resources than the Registrant.
To the knowledge of the Registrant, it is one of the largest manufacturers of
four-wheel sweepers; however, there is substantial competition from other
manufacturers in the functional sweeper market, which includes three-wheel and
vacuum type sweepers.
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Conveyors manufactured by the Registrant are priced similarly to machinery of
competitors, with competition being primarily on the basis of quality and
service. To the knowledge of the Registrant, no one manufacturer, or small group
of manufacturers, has a dominant share of the market.
To the knowledge of the Registrant, it is one of the primary manufacturers
of force-feed loaders. However, front-end loaders, which are manufactured by
many other companies, provide substantial functional competition.
The Registrant is not a significant manufacturer of trailers and graders.
Trailers face functional competition from heavy duty trucks.
The Registrant commenced the manufacture and sale of refuse collection truck
bodies in 1981, and competes with several other established manufacturers in
such market.
The Registrant is a manufacturer of track assemblies for hauling purposes. This
product also faces functional competition from improved heavy duty rubber tires.
Research and Development. The Registrant spent approximately $418,000 in 1995,
$485,000 in 1994, and $286,000 in 1993, to improve existing products and to
consider new product lines.
Environment. Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, have had no material
effects upon the capital expenditures, results of operations, and competitive
position of the Registrant and its subsidiaries. Due to the nature of its
business, the Registrant does not anticipate any material capital expenditures
for environmental control facilities for the remainder of its current fiscal
year or for the succeeding fiscal year.
Employees. As of December 31, 1995, the Registrant employed 258 persons, of
which 157 employees are subject to a collective bargaining agreement. The
Registrant considers its relationship with its employees to be excellent.
Export Sales. Sales to customers in foreign countries approximated $984,500 in
1995, $1,393,800 in 1994 and $1,725,400 in 1993. During 1995, such customers
were located in North America, the Middle East and the Pacific Rim.
Item 2. Properties.
The Registrant owns two manufacturing plants, both of which, in the Registrant's
opinion, are suitable and adequate for the manufacture of its products.
The Registrant's Raleigh Division (where all of the Registrant's products,
except its force-feed loader, grader and conveyor lines, are produced) operates
from its plant located in Wake Forest (outside of Raleigh), North Carolina (the
"Raleigh Plant"). The Raleigh Plant, which was completed in 1965, is situated on
approximately 39 acres, and is of prestressed concrete construction with steel
crane ways and supports. The Raleigh Plant
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is believed to be one of the finest heavy duty plants of its type in the
southeastern part of the United States. During the fourth quarter of 1985, the
Company completed an addition of approximately 29,000 square feet to the
assembly area of the Raleigh Plant. During 1989, the Company completed an
additional building as its new paint shop. This paint shop is 4,800 square feet,
and is designed to be environmentally state-of-the-art. It uses filtered air
both in and out of the paint room, and substantially reduces the possibility of
contaminants in the painting process. During the first quarter of 1995, the
Company added a 1,755 square foot Inspection Building. Of the approximately
206,935 square feet in the Raleigh Plant, approximately 186,415 square feet is
devoted to manufacturing and assembly facilities, and to stockroom, shipping,
and receiving facilities; approximately 16,360 square feet is used for general
and executive offices; and approximately 4,160 square feet is an engineering
department balcony area.
The equipment in the Raleigh Plant includes various boring, drilling and milling
machines, lathes, grinders, punches, shears, press brakes and other presses,
hydraulic testing equipment, saws, machine shop equipment, layout equipment,
heavy duty metal working and robotic welding equipment and appropriately large
material handling cranes.
The Registrant's Kolman/Athey Division (where the Registrant's graders,
force-feed loader and conveyor product lines are produced) operates from seven
separate buildings, of an aggregate of approximately 68,000 square feet, located
on approximately 9.6 acres in Sioux Falls, South Dakota (the "Kolman Plant").
The largest of such buildings contains approximately 57,100 square feet, is of
cement block construction, and is a single story structure. Approximately 52,700
square feet of this building is used for manufacturing functions, and
approximately 4,400 square feet is used for general offices. The Kolman plant
was sold subsequent to year-end, in February, 1996, as part of the Company's
organizational restructuring.
Item 3. Legal Proceedings.
The Company is involved in litigation regarding several product liability
claims. The Company believes that it has substantial meritorious defenses
available and intends to defend the cases vigorously. The Company also believes
that the ultimate resolution of these proceedings is not likely to have a
materially adverse impact on its financial position, as the Company has
insurance coverage it deems adequate.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders, through the solicitation of
proxies or otherwise, during the fourth quarter of the year ended December 31,
1995.
7
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PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The stock price and trading data on page 7 of the Registrant's 1995 Annual
Report to Shareholders are hereby incorporated by reference as Item 5 of this
report. No cash dividends have been paid to shareholders during the last five
years.
Item 6. Selected Financial Data.
The selected financial data for the years 1991 through 1995 on page 6 of the
Registrant's 1995 Annual Report to Shareholders is hereby incorporated by
reference as Item 6 of this report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's discussion and analysis on pages 5 through 7 of the Registrant's
1995 Annual Report to Shareholders is hereby incorporated by reference as Item 7
of this report.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements and Supplementary Data on pages 8 through 13 and the
Independent Auditor's Report on page 16 of the Registrant's 1995 Annual Report
to Shareholders are hereby incorporated by reference as Item 8 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There were no changes in or disagreements with accountants on accounting or
financial disclosures matters.
8
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PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Information concerning the directors and persons to be
nominated for election as directors of the Registrant will be set forth in the
Registrant's Proxy Statement in connection with its Annual Meeting to be held
May 16, 1996, which Proxy Statement will be filed with the Commission within 120
days after the end of the Registrant's last fiscal year, and is hereby
incorporated herein by reference.
(b) Set forth below are the names and ages of all of the
executive officers of the Registrant, none of whom has any family relationship
with any other executive officer or any director of the Registrant, and all
positions and offices with the Registrant presently held by such persons,
together with a brief account of business experience during the past 5 years of
each person:
Positions, Offices Held and
Business Experience for the
Name Age Past 5 Years
James H. Stumpo 57 In May, 1995, Mr. Stumpo
was elected President and Chief
Executive Officer and
Director of the Company. From May,
1992 to May, 1995 he was Vice
President Finance with Benton
Harbor Engineering, Benton Harbor,
Michigan. From May, 1987 to May,
1992, Mr. Stumpo served as Chief
Financial Officer for Koehring
Cranes & Excavators, Waverly,
Iowa, a Division of Terex Corporation.
Franz M. Ahting 48 In May, 1995, Mr. Ahting
was elected Vice President Finance,
Chief Financial Officer and Director
of the Company. In May, 1994, Mr.
Ahting became Treasurer of the Company.
From November, 1993 to May, 1995,
Mr. Ahting served as Controller
and Assistant Secretary. Mr. Ahting
was Assistant Treasurer of Carolina
Steel Corporation from 1988 to 1990
and practiced public accounting from
1991 to November, 1993.
9
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Officers are elected annually by the Registrant's Board of Directors at the
first meeting of the Board of Directors held after each Annual Meeting of
Shareholders. The terms of all of the foregoing officers are from May 18, 1995
to May 16, 1996.
Item 11. Executive Compensation.
Information concerning executive compensation will be set forth in the
Registrant's Proxy Statement in connection with its Annual Meeting to be held
May 16, 1996, which Proxy Statement will be filed with the Commission within 120
after the end of the Registrants last fiscal year, and is hereby incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a)-(b) Information concerning security ownership of certain beneficial
owners and management will be set forth in the Registrant's Proxy Statement in
connection with its Annual Meeting to be held May 16, 1996, which Proxy
Statement will be filed with the Commission within 120 days after the end of the
last fiscal year, and is hereby incorporated herein by reference.
(c) The Registrant knows of no arrangements which may at a subsequent
date result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions
will be set forth in the Registrant's Proxy Statement in connection with its
Annual Meeting to be held May 16, 1996 which Proxy Statement will be filed
within 120 days after the end of the last fiscal year, and is hereby
incorporated herein by reference.
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PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. FINANCIAL STATEMENTS
The following Financial Statements of the Registrant
are included in its Annual Report to Shareholders for
the year ended December 31, 1995, which statements
are incorporated herein by reference:
Independent Auditor's Report
Balance Sheets - December 31, 1995 and 1994
Statements of Operations - years ended
December 31, 1995, 1994, and 1993
Statements of Shareholders' Equity - years ended
December 31, 1995, 1994, and 1993
Statements of Cash Flows - years ended
December 31, 1995, 1994, and 1993
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
The following schedules are included in Part IV of this
Report:
Independent Auditors' Reports, located at sequential pages 13
and 14 of this report.
Schedule II - Valuation and qualifying accounts located at
sequential page 16 of this report.
Schedules not listed above have been omitted because they are either not
applicable or the required information has been included in the financial
statements or the notes thereto.
(b) REPORTS ON FORM 8-K.
On October 9, 1995, the Registrant announced that it would
close its Kolman plant located at Sioux Falls, South Dakota.
(c) EXHIBITS.
Exhibit Number:
13.1 1995 Annual Report to Shareholders of Athey Products
Corporation.
21.1 Subsidiaries of the Registrant, attached at end of
this Report.
27.1 Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ATHEY PRODUCTS CORPORATION
(Registrant)
By: /s/ James H. Stumpo
James H. Stumpo
President and Chief Executive Officer
By: /s/ Franz M. Ahting
Franz M. Ahting
Vice President Finance and Chief Financial Officer
Date: March 28, 1996.
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ John F. McCullough /s/ Martin W. McCullough
John F. McCullough, Chairman Martin W. McCullough, Director
of the Board of Directors March 28, 1996
March 28, 1996
/s/ Henry W. Gron, Jr. /s/Richard A.Rosenthal
Henry W. Gron, Jr., Director Richard A. Rosenthal, Director
March 28, 1996 March 28, 1996
/s/ James H. Stumpo /s/ Franz M. Ahting
James H. Stumpo, Director Franz M. Ahting , Director
March 28, 1996 March 28, 1996
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(McGladrey & Pullen, LLP logo appears here)
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Athey Products Corporation
Our audits were made for the purpose of forming an opinion on the basic 1995 and
1994 financial statements taken as a whole. Supplemental Schedule II -
Valuation and Qualifying Accounts, is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule for 1995 and 1994 have been subjected to the
auditing procedures applied in our audit of the basic 1995 and 1994 financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic 1995 and 1994 financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
Raleigh, North Carolina
February 23, 1996
13
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Deloitte &
Touche LLP Suite 1800 Telephone: (919) 546-8000
Logo First Union Capitol Center Telex: 4995716
appears 150 Fayetteville Street Mall Facsimile: (919)833-3276
here) P.O. Box 2778
Raleigh, North Carolina 27602-2778
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Athey Products Corporation
Raleigh, North Carolina
We have audited the balance sheet of Athey Products Corporation (the "Company")
as of December 31, 1993, and the related statments of operations, shareholders'
equity and cash flows for the year then ended; such statements of operations,
stockholders' equity and cash flows are included in your 1995 Annual Report
to Shareholders and are incorporated herein by reference. Our audit also
included the 1993 financial statement schedule listed in Item 14. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Athey Products Corporation as of December
31, 1993, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles. Also,
in our opinion, such 1993 financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
March 8, 1994
Deloitte Touche
Tohmatsu
International
14
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ATHEY PRODUCTS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Balance at Charged to Deductions Balance at
Beginning Profit and From End of
of Year Loss Reserves Year
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for doubtful
accounts-trade $250,000 $ 52,966 $ 2,966 $300,000
Allowance for doubtful
receivable-other 110,954 - - 110,954
Provision for obsolete
and slow moving
inventory 950,000 286,610 586,610 (a) 650,000
Provision for warranty
costs 780,000 705,553 850,053 (b) 635,500
Year Ended December 31, 1994:
Allowance for doubtful
accounts-trade $225,000 $ 50,095 $ 25,095 $250,000
Allowance for doubtful
receivable-other 150,000 60,954 100,000 110,954
Provision for obsolete
and slow moving
inventory 796,396 193,811 40,207(a) 950,000
Provision for warranty
costs 370,000 1,303,078 893,078(b) 780,000
Year Ended December 31, 1993:
Allowance for doubtful
accounts-trade $200,000 $ 90,037 $ 65,037 $225,000
Allowance for doubtful
receivable-other 300,000 - 150,000 150,000
Provision for obsolete
and slow moving
inventory 825,300 120,333 149,237(a) 796,396
Provision for warranty
costs 262,899 883,742 776,641(b) 370,000
</TABLE>
(a) Deductions for obsolete inventory scrapped and obsolete inventory sold at
reduced selling price.
(b) Warranty expenses incurred
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ATHEY PRODUCTS CORPORATION
1995 Annual Report
[photo]
<PAGE>
1 Letter to Shareholders
5 Management's Discussion and Analysis
8 Balance Sheets
9 Statements of Operations
9 Statements of Shareholders' Equity
10 Statements of Cash Flows
11 Notes To Financial Statements
16 Independent Auditor's Report
17 Corporate Information
Cover:
Athey's new RA-730, AIRBOSS
vacuum-type street sweeper. The
AIRBOSS is the only regenerative
air sweeper in the world with its major
components fabricated from stainless steel.
<PAGE>
ATHEY PRODUCTS CORPORATION
TO OUR SHAREHOLDERS
[photo]
James H. Stumpo
President and
Chief Executive Officer
Nineteen ninety-five was a year of transition for Athey Products.
Sales decreased 24% from $39.9 million to $30.4 million. The decrease in
sales was primarily due to the lack of major contracts from large
municipalities. Net earnings decreased from $1.4 million in 1994 to a
break-even level in 1995 and were negatively impacted by reduced sales
volume and one-time charges associated with the Company's organizational
restructuring. Although sales were flat during the last six months
of the year, we believe solid fourth quarter bookings have provided
momentum for 1996.
An integral part of the Company's restructuring plan included the
closing of the Kolman facility in Sioux Falls, South Dakota. This closing
eliminated redundant expenses and combined all manufacturing operations at
our facility in Raleigh, North Carolina. Selected products transferred from
Sioux Falls are already being manufactured on two new production lines with
shipments scheduled as early as January 1996.
In May 1995, the Company launched an aggressive two-phase cost
reduction program. Results of the first phase exceeded anticipated goals.
The second phase is currently in process and we expect, once again to meet
or exceed established goals. We believe our cost reduction programs, coupled
with high quality product line offerings, will further strengthen our
competitive position in an industry where Athey products is considered to
have the lowest product life cycle cost.
We have expanded our domestic sales force to increase product
demonstrations. We have also signed an agreement with a company that will
assist in marketing
<PAGE>
our products to both military and civilian agencies. In 1996, we will enter the
U.S. Air Force Mobile Equipment Evaluation Program to qualify our AV445 High
Speed Runway Sweeper for Air Force use.
We see a tremendous opportunity for growth in international
markets. We plan to increase market penetration in North America and expand
our distribution network in South America, the Middle East and the Pacific
Rim. Our targeted goals are designed to improve the balance between domestic
and international sales.
New and upgraded product offerings should support market penetration
both domestically and internationally. Our new "Air Boss" regenerative air
sweeper was recently displayed at the American Public Works Association show
in Dallas, Texas, where it received significant interest. This machine has
unique features we consider superior to the competition. The "Air Boss" opens
a new market for the Company as its application is separate from our
traditional sweeper line. The primary markets for this product are in the
southern and western regions of the U.S., as well as several international
countries. The "Air Boss" is in the final stages of field test, with customer
demonstrations scheduled to begin in late March 1996. Our most popular
product line, the M9D 4-wheel sweeper, has been upgraded to provide
additional sweeping power. We expect increased demand for this product line
during 1996 and continuation of our leadership in the four-wheel sweeper
market.
The past year has been exciting and challenging. We expect that the
improvements made to our manufacturing operations and to our product line
offerings will dramatically improve your Company's profitability in 1996.
James H. Stumpo
/s/ JAMES H. STUMPO
President and
Chief Executive Officer
<PAGE>
[photo]
The 7-20 Composter - used by
the solid waste industry to
turn, mix, load and process
residential, industrial and
agricultural waste. The reuse
of these by-products results in
a safer environment.
[photo]
The advanced design, model RA-730,
AIRBOSS(Registration Mark) opens up new markets
for Mobil sweepers.
Innovative features of the AIRBOSS(Registration Mark)
include stainless steel construction of its
major components, high/low dump option,
and only one engine for efficiency and
quiet operation.
-3-
<PAGE>
[photo]
MOBIL SWEEPER MODEL AV-445 Used by
commercial and military airports worldwide
to efficiently clean runways and tarmacs.
- 4 -
<PAGE>
ATHEY PRODUCTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
ORGANIZATIONAL RESTRUCTURING
During 1995, plans were developed to significantly reduce the Company's cost
structure and to improve productivity. This restructuring program involved
reductions in the number of employees, consolidation of manufacturing
facilities, and disposition of assets that were no longer productive. The
Company also phased-out the manufacture of nonstrategic product lines,
including Trailers, Track Assemblies and Refuse Collection Products.
The restructuring program is expected to enable the Company to improve its
competitive position in its core business, reduce costs, increase efficiency
and improve profitability. The statement of operations for 1995 includes
approximately $1,135,000 of pretax charges relating to this program.
Approximately $119,000 of this amount related to severance and associated
benefits for staff reductions, approximately $452,000 of this amount related
to the disposal and write-down of certain assets, and approximately $564,000
of this amount related to the streamlining of operations and administrative
functions and the closing of the production facility in Sioux Falls, South
Dakota. The effect of these expenditures was a decrease in net earnings
after tax of $749,000 or $.19 per common share.
Subsequent to year-end, in February 1996, as part of this restructuring
program, the Company sold its South Dakota land, building and certain
inventory and manufacturing equipment. The remaining inventory and equipment
were transferred to the Company's Raleigh, North Carolina manufacturing
plant.
1995 COMPARED WITH 1994
The Company generated net sales of $30,424,588 in 1995, as compared to
$39,894,940 in 1994. This $9,470,352 or 23.7% decrease in sales was
primarily attributable to a decline in the number of units shipped during the
period. The lower sales volume was partially offset by slightly higher
average unit selling prices. The higher volume in the number of units sold
in 1994 stemmed from a major contract originally executed with the City of
New York in 1993 that expired in late 1994.
Cost of sales as a percentage of net sales was 81.4% in 1995 as compared to
78.2% experienced in 1994. The increase in cost of sales was primarily due
to manufacturing inefficiencies resulting from lower unit volume, introduction
of a new regenerative air sweeper product line, removal and installation of
equipment, and rearrangement of the plant layout in Raleigh to facilitate a
diverse product flow. Operating inefficiencies were also incurred between
the October 9, 1995 announcement of the Sioux Falls closing and December 31,
1995, as product lines and assets were transferred from the Sioux Falls plant
to Raleigh, North Carolina. In addition, cost of sales in 1995 reflected
expenditures associated with the disposal and write-down to net realizable
values of certain assets.
The Company's selling, administrative and engineering expenses increased from
17.8% to 19.9% of net sales, while in dollar terms they decreased $1,049,792
to $6,061,601. In addition to savings from the Company's cost reduction
program, this decline reflects lower legal and professional fees and a
decrease in warranty reserves stemming from a lower sales volume. These
decreases were partially offset by higher advertising and sales incentive
programs and an increase in the allowance for doubtful accounts.
Other income for 1995 was $350,591 as compared to $524,768 in 1994. Interest
income increased from $126,968 in 1994 to $286,405 in 1995 due primarily to
rising interest rates and higher average investment in cash and cash
equivalents. Included in other income for the year ended December 31, 1994
was $150,000 which represented the final payment of the Company's insurance
claim in a litigation settlement reached in a product liability case in which
the insurance company had been placed in rehabilitation. The Company also
received $210,000 in 1994 as full and final payment from the Company's
insurance carrier in a separate product liability claim.
Other expenses were $37,282 for 1995 as compared to $114,732 recorded in
1994. Other expenses in 1994 included the effect of the early termination,
and associated write-down, of the unamortized portion of a licensing and
distributor agreement.
The 102.7% income tax benefit rate for 1995 includes a 13.6% research and
development credit and a 35.6% credit from the reduction in the valuation
allowance. The 30.9% income tax expense rate for 1994 reflects a 1.6%
research and development credit and a 3.6% income tax benefit associated with
a reduction in the valuation allowance.
Net earnings for 1995 were $2,743 as compared to net earnings of $1,388,194
or $.35 per share for 1994.
-5-
<PAGE>
1994 COMPARED WITH 1993
Net sales in 1994 increased $7,254,683 to $39,894,940, a 22.2%
increase. The sales growth resulted from an increase in the number of units
shipped and was complemented by volume increases in replacement parts. The
volume gain in the number of units sold was principally attributable to a
major contract executed with the City of New York in 1993.
Cost of sales as a percentage of net sales declined from 83.6% in
1993 to 78.2% in 1994. The resulting improvement in gross margin was due to
continuing sales volume gains and the associated improvement in manufacturing
efficiencies and overall stable raw material and purchased parts costs.
Selling, administrative and engineering expenses increased from
$5,549,315 in 1993 to $7,111,393 in 1994, representing 17.0% and 17.8% of
net sales, respectively. Several factors contributed to this increase in
expenses, including higher payroll and related employee benefit expenses
associated with the growth in sales volume, as well as general inflationary
increases. The sales growth also led to an associated increase in normal
service warranty reserves, as well as, extended service warranty plan reserves.
The Company continued its commitment to new product development by
increasing its research and development expenses to $485,000 in 1994 as
compared to $286,000 in 1993.
In order to resolve a number of outstanding legal issues the Company
incurred higher than normal legal and professional fees during 1994. The
Company was involved in a product liability case in which Counsel advised
that it was probable that the Company would be held liable to some extent.
The Company's potential liability was fully reserved in 1994 and final
settlement was reached in February, 1995.
Other income in 1994 was $524,768 as compared to $385,926 in 1993.
Included in other income for the year ended December 31, 1994 was $150,000
which represented the final payment in a litigation settlement reached in a
product liability case and $210,000 received as final payment in a separate
product liability claim. The remainder of other income was primarily
comprised of equipment rental and interest income. The increase in interest
income was mainly due to substantially improved cash management practices and
slightly higher interest rates.
Other expenses in 1994 were $114,732 as compared to $353,520
recorded in 1993. Other expenses in 1994 included the effect of the early
termination, and associated write-down, of the unamortized portion of a
licensing and distributor agreement.
In 1993, the Company adopted the Statement of Financial Accounting
Standards No. 115 - Accounting for Certain Investments in Debt and Equity
Securities (SFAS115). SFAS 115 changed the accounting and the reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities.
During the second quarter of 1993, a charge of $261,273 before taxes
was made to other expenses in the statement of operations to reflect the
Company's decision
________________________________________________________________________________
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $30,424,588 $39,894,940 $32,640,257 $21,838,601 $23,417,547
- -------------------------------------------------------------------------------------------------------------
Earnings (Loss) before cumulative
effect of accounting change 2,743 1,388,194 (285,349) (2,211,156) (2,524,008)
Net Earnings (Loss) 2,743 1,388,194 (285,349) (2,275,314) (2,524,008)
Earnings (Loss) Per Share
before cumulative effect
of accounting change -- 0.35 (.08) (.58) (.66)
Net Earnings (Loss) Per Share -- 0.35 (.08) (.60) (.66)
At Year-End:
Total Assets $29,325,917 $30,422,767 $28,013,857 $27,653,732 $31,554,079
Long-Term Obligations 57,419 99,431 240,156 199,595 299,595
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
that the lower-than-cost market price of the available-for-sale noncurrent
marketable equity security as of June 30, 1993 was considered to be other than
temporary.
The effective income tax expense rate was 66.5% in 1993 and 30.9% in 1994.
In 1993, the Company increased its valuation reserve allowance by $125,000
against recorded deferred tax assets. Excluding the special charge in 1993, the
effective income tax rate was 6.5%. The 30.9% income tax rate in 1994 reflects a
1.6% research and development credit.
Net earnings after tax for 1994 was $1,388,194 or $.35 per share, as
compared to a loss of $285,349 or $.08 per share for 1993.
EFFECTS OF INFLATION
The Company attempts to minimize the impact of inflation on
production and operating costs through cost control programs and productivity
improvements. Over the past three years, the rate of inflation has not had a
significant impact on the Company's operations. Prices paid for raw materials
and other manufacturing inputs have remained fairly stable throughout this
period. On a longer-term basis, the Company has demonstrated an ability to
adjust the selling prices of its products in reaction to changing costs.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had working capital of $20,451,939;
the ratio of current assets to current liabilities was 6.8 to 1; and the debt
to equity ratio was .16 to 1.
This compares to working capital of $20,273,562; a ratio of current
assets to current liabilities of 5.3 to 1; and a debt to equity ratio of .20
to 1 at December 31, 1994.
At December 31, 1995, cash and cash equivalents were $3,072,088, up
$426,447 from $2,645,641 at December 31, 1994.
The Company utilized and repaid $1,600,000 of its short-term credit
line during the six months ended June 30, 1994 to assist in financing the
production of units associated with executed orders received from New York
in 1993. No borrowings occurred during 1995.
Other than utilizing the available line of credit as needed, the
Company does not presently plan to borrow long-term funds or sell securities.
Capital expenditures were $445,149 in 1995 as compared to $542,386 in
1994 and were primarily used to further upgrade the Company's management
information system and machinery and equipment.
The Company expects capital expenditures in 1996 to approximate
$400,000. In 1996, the Company expects to continue its capital expenditure
program by improving or expanding existing facilities and upgrading
equipment. The timing of capital expenditures is anticipated to coincide
generally with its operating cash flow.
The Company believes that existing working capital, cash flow from
future operations, and the available bank line of credit provide adequate
resources to finance the cash requirements of future capital expenditures.
__________________________________________________________________________
MARKET PRICE DATA
1995 1994 1993
- --------------------------------------------------------------------------
QUARTER ENDED High Low High Low High Low
- --------------------------------------------------------------------------
March 31 6 1\2 5 1\2 8 3\4 5 3\4 7 3\4 6 1\4
June 30 6 1\4 5 1\2 8 1\4 7 1\4 7 1\2 6 3\4
September 30 6 1\8 4 7\8 8 5\8 7 7 3\4 6 1\2
December 31 5 1\2 4 9 1\2 5 1\4 7 3\4 6
The Company's common shares are traded in the Over-The Counter market on the
NASDAQ System under the symbol ATPC. The above quotations were received from
the NASDAQ System. The number of shareholders of the Company's common shares
as of March 18, 1996 was 524.
-7-
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,072,088 $ 2,645,641
Accounts receivable (less allowances for doubtful receivables
of $300,000 and $250,000 in 1995 and 1994, respectively)
(Note 2) 2,369,107 6,478,847
Inventories (Note 3) 17,022,201 14,755,922
Prepaid expenses 179,054 205,915
Refundable income taxes 531,517 --
Deferred income taxes (Note 6) 834,100 902,000
- -------------------------------------------------------------------------------------------------
Total current assets 24,008,067 24,988,325
- -------------------------------------------------------------------------------------------------
OTHER ASSETS:
Marketable securities (Note 7) 951,450 993,035
Goodwill 200,000 200,000
Other 24,358 26,653
- -------------------------------------------------------------------------------------------------
Total other assets 1,175,808 1,219,688
- -------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT (Note 5):
Land and land improvements 319,769 319,769
Buildings 4,017,505 3,921,111
Machinery and equipment 6,359,255 6,163,978
- -------------------------------------------------------------------------------------------------
10,696,529 10,404,858
Less accumulated depreciation (6,554,487) (6,190,104)
- -------------------------------------------------------------------------------------------------
Total property, plant and equipment, net 4,142,042 4,214,754
- -------------------------------------------------------------------------------------------------
$29,325,917 $30,422,767
=================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 99,595
Current portion of obligations under capital lease (Note 5) 42,012 41,130
Accounts payable 1,890,865 2,412,884
Employee compensation and amounts withheld 444,116 635,655
Accrued pension and other expenses (Note 8) 543,635 631,999
Warranty reserve 635,500 780,000
Income taxes payable (Note 6) - 113,500
Total current liabilities 3,556,128 4,714,763
NONCURRENT LIABILITIES:
Obligations under capital lease (Note 5) 57,419 99,431
Deferred income taxes (Note 6) 464,500 336,000
Total noncurrent liabilities 521,919 435,431
SHAREHOLDERS' EQUITY (Note 10):
Common stock, par value $2 per share:
Authorized 10,000,000 shares;
Issued 4,020,459 shares 8,040,918 8,040,918
Additional paid-in capital 16,218,394 16,218,394
Retained earnings 1,189,359 1,186,616
Unrealized gain on marketable securities
available-for-sale, net of related tax effect (Note 7) 3,761 31,207
Less cost of 47,000 common shares in treasury (204,562) (204,562)
Total shareholders' equity 25,247,870 25,272,573
$29,325,917 $30,422,767
</TABLE>
See notes to financial statements.
-8-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
NET SALES (Note 2) $30,424,588 $39,894,940 $32,640,257
Cost of Goods Sold (Note 13) 24,777,557 31,184,555 27,294,697
Gross Profit 5,647,031 8,710,385 5,345,560
Selling, administrative and
engineering expenses (Notes 8,9 and 13) 6,061,601 7,111,393 5,549,315
Earnings (loss) from operations (414,570) 1,598,992 (203,755)
Other income 350,591 524,768 385,926
Other expenses (Note 7) (37,282) (114,732) (353,520)
Earnings (loss) before income taxes (101,261) 2,009,028 (171,349)
Income tax expense (benefit) (Note 6) (104,004) 620,834 114,000
NET EARNINGS (LOSS) $ 2,743 $ 1,388,194 $ (285,349)
NET EARNINGS (LOSS) PER SHARE $ - $ 0.35 $ (0.08)
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,973,459 3,973,459 3,784,503
</TABLE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Additional Gain/(Loss) on
Common Stock Paid-In Retained Treasury Stock Marketable
Shares Par Value Capital Earnings Shares Cost Securities
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 3,831,503 $7,663,006 $15,273,614 $1,406,459 47,000 $(204,562) $(166,699)
Unrealized gain on marketable
securities (Note 7) - - - - - - 40,202
Net loss for 1993 - - - (285,349) - - -
Balance, December 31, 1993 3,831,503 7,663,006 15,273,614 1,121,110 47,000 (204,562) (126,497)
5% Stock dividend (Note 10) 188,956 377,912 944,780 (1,322,688) - - -
Unrealized gain on marketable
securities (Note 7) - - - - - - 157,704
Net earnings for 1994 - - - 1,388,194 - - -
Balance, December 31, 1994 4,020,459 8,040,918 16,218,394 1,186,616 47,000 (204,562) 31,207
Unrealized loss on marketable
securities (Note 7) - - - - - - (27,446)
Net earnings for 1995 - - - 2,743 - - -
Balance, December 31, 1995 4,020,459 $8,040,918 $16,218,394 $1,189,359 47,000 $(204,562) $ 3,761
</TABLE>
See notes to financial statements.
-9-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 2,743 $ 1,388,194 $ (285,349)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 495,135 528,298 444,957
Provision for doubtful accounts 53,244 25,000 150,629
Provision for deferred income taxes 210,564 (316,077) 439,000
(Gain) loss on sale of equipment 22,276 12,749 (11,156)
Changes in operating assets and liabilities:
Accounts receivable 4,056,496 (4,081,360) (242,209)
Inventories (2,266,279) 1,002,368 898,268
Prepaid expenses 26,861 (79,181) 216,991
Refundable income taxes (531,517) 1,740,328 (877,785)
Other assets 2,295 68,444 85,913
Accounts payable (522,019) 72,747 463,400
Employee compensation and amounts withheld (191,539) 86,647 55,716
Accrued pension and other expenses (88,389) 274,381 (91,774)
Warranty reserve (144,500) 410,000 107,101
Income taxes payable (113,500) 113,500 -
Net cash provided by operating activities 1,011,871 1,246,038 1,353,702
INVESTING ACTIVITIES:
Purchase of plant and equipment (445,149) (542,386) (357,182)
Proceeds from sale of equipment 450 4,087 20,826
Net cash used in investing activities (444,699) (538,299) (336,356)
FINANCING ACTIVITIES:
Proceeds from line of credit - 1,600,000 600,000
Repayment of line of credit - (1,600,000) (600,000)
Principal paid on obligations under capital lease (41,130) (74,506) (26,375)
Principal paid on debt (99,595) (100,000) (100,000)
Net cash used in financing activities (140,725) (174,506) (126,375)
NET INCREASE IN CASH
AND CASH EQUIVALENTS 426,447 533,233 890,971
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,645,641 2,112,408 1,221,437
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,072,088 $ 2,645,641 $ 2,112,408
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (recoveries) $ 329,680 $ (916,917) $ 555,000
Interest paid $ 8,264 $ 30,870 $ 29,067
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Capital lease obligations incurred
for use of equipment $ - $ 34,238 $ 207,210
</TABLE>
See notes to financial statements.
-10-
<PAGE>
ATHEY PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- Athey Products Corporation is a manufacturer whose
principal products are mobile street sweepers, conveyors, and force feed
loaders. The Company also manufactures other equipment and replacement parts
for these products. The primary users of the Company's products are
contractors, municipalities, and other governmental agencies. Significantly all
of the Company's sales are throughout the United States.
SIGNIFICANT ACCOUNTING POLICIES - The significant accounting policies of the
Company are summarized below:
a. STATEMENTS OF CASH FLOWS - For the purpose of the statements of cash
flows, the Company considers all short-term investments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
Short-term investments are recorded at cost, which approximates fair value.
b. INVENTORIES - Inventories are stated at the lower of cost, determined
on the first-in, first-out basis, or market. Obsolete and possible excess
quantities of inventory are reduced to estimated net realizable values.
c. PROPERTY AND DEPRECIATION - Property, plant and equipment are carried
at cost. Depreciation is computed over estimated useful lives using the
straight-line method in the financial statements and accelerated methods for
income tax purposes.
d. AMORTIZATION OF OTHER ASSETS - Goodwill arose in a purchase
transaction prior to November 1, 1970 and is not being amortized as, in the
opinion of management, there has been no diminution in value.
e. MARKETABLE EQUITY SECURITIES - Marketable equity securities consist
of an investment in equity securities which the Company has designated as
available-for-sale. Such securities, while readily marketable, are not held
solely in anticipation of short-term market gains. The securities are reported
at fair value, with unrealized holding gains and losses, net of the related
deferred tax effect, reported as a separate component of shareholders' equity.
f. INCOME TAXES - Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for effects of changes in tax laws and rates on the
date of enactment.
g. TREASURY STOCK - Treasury stock is stated at cost.
h. EARNINGS (LOSS) PER SHARE - Earnings (loss) per share amounts are
computed on the basis of the weighted average number of shares outstanding
during the year.
i. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
j. RECLASSIFICATIONS - Certain previously reported amounts have been
reclassified to conform with the year end 1995 presentation with no effect on
net income.
2. MAJOR CUSTOMERS
Net sales for the years ended December 31, 1995, 1994 and 1993 include sales to
the following major customers (each of which accounted for 10% or more of the
total net sales of the Company for those years):
1995 1994 1993
Nixon-Egli $7,602,597 * *
City of New York * $16,953,844 $9,435,203
* The net sales to this customer were less than 10% of the total net sales for
the year ended. Because of the nature of the Company's business, the major
customers will vary between years.
There were outstanding receivables from these customers of $555,213, $2,382,719,
and $202,731, as of December 31, 1995, 1994 and 1993, respectively.
3. INVENTORIES
Inventories are summarized below:
December 31,
1995 1994
Finished goods $ 3,231,129 $ 873,578
Work-in-process 6,510,302 6,527,928
Raw materials 7,280,770 7,354,416
$ 17,022,201 $14,755,922
4. FINANCING ARRANGEMENTS
At December 31, 1995, the Company had available an unsecured line of credit of
$5,000,000. There were no outstanding borrowings under the line at December 31,
1995 or 1994. In addition, no amounts were borrowed during 1995.
During 1995, 1994, and 1993, the Company incurred interest expense of $7,761,
$30,870 and $29,067, respectively.
5. LEASE COMMITMENTS
The Company is the lessee of computer equipment under a capital lease which
started in 1993 and expires in 1998. The assets and liabilities under the
capital lease were recorded at the present value of net minimum lease payments
at inception, approximately $207,000. The assets are depreciated over their
estimated productive lives. Depreciation of assets under the capital lease is
included in depreciation expense for 1995, 1994 and 1993.
Depreciation of assets under capital leases charged to expense in 1995, 1994 and
1993 was $41,441, $41,441 and $20,720, respectively.
Minimum future lease payments under the capital lease as of December 31, 1995
for each of the next three years are:
Year Ended December 31, Amount
1996 $ 43,637
1997 43,637
1998 14,545
Total minimum lease payments 101,819
Less: Imputed interest 2,388
Present value of net minimum
lease payments 99,431
Less: Current portion 42,012
Obligations under capital lease $ 57,419
The interest rate on the capitalized lease is 6.6% and is imputed based on the
lessor's implicit rate of return.
-11-
<PAGE>
6. INCOME TAXES
At December 31, 1995, the Company has available State net economic loss
carryforwards of approximately $1,905,000 expiring as follows:
Year of
Origination Expiration
1991 1996 $ 142,000
1992 1997 1,274,000
1993 1998 118,000
1995 2000 371,000
TOTAL $1,905,000
Components of the income tax expense (benefit) for 1995, 1994 and 1993 are as
follows:
1995 1994 1993
Current:
Federal $ (314,568) $ 936,911 $ (150,000)
State - - -
Total current $ (314,568) 936,911 (150,000)
Deferred:
Federal 210,564 (316,077) 264,000
State - - -
Total deferred 210,564 (316,077) 264,000
TOTAL $ (104,004) $ 620,834 $ 114,000
Net deferred tax assets consist of the following components at December 31,
1995 and 1994:
1995 1994
Deferred tax assets:
Accounts receivable $ 102,000 $ 85,000
Inventory allowance 434,000 621,000
Accrued vacation 118,000 158,000
Accrued pension 67,000 69,000
Warranty reserve 216,000 265,000
Allowance for marketable securities 87,000 73,000
Accrued litigation 17,000 69,000
Net economic loss carryforwards 148,000 120,000
Other 30,100 -
$ 1,219,100 $ 1,460,000
Less valuation allowance (385,000) (421,000)
$ 834,100 $ 1,039,000
Deferred tax liabilities:
Property and equipment $ (464,500) $ (473,000)
Net deferred tax assets $ 369,600 $ 566,000
The components giving rise to the net deferred tax assets described above have
been included in the accompanying balance sheets as of December 31, 1995 and
1994 as follows:
1995 1994
Current assets $ 834,100 $ 902,000
Noncurrent assets - 137,000
Noncurrent liabilities (464,500) (473,000)
(464,500) (336,000)
Net deferred tax assets $ 369,600 $ 566,000
The current and noncurrent deferred tax assets are net of an allocation of the
valuation allowance.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. The Company has
established a valuation allowance totaling $385,000 and $421,000 for certain
deferred tax assets as of December 31, 1995 and 1994 respectively, which
management feels meet this criteria.
A reconciliation of the provision for income taxes to income tax expense
(benefit), computed by applying the statutory federal income tax rate to pre-tax
income (loss), is as follows:
1995 1994 1993
Amount % Amount % Amount %
Tax expense
(benefit)
computed at
statutory rate $ (34,429) (34.0)% $ 683,070 34.0% $ (58,300) (34.0)%
Research and
development
credit (13,807) (13.6) (32,033) (1.6)% (10,500) (6.1)%
Change in
valuation
allowance (36,000) (35.6) (72,000) (3.6)% 125,000 73.0 %
Other (19,768) (19.5)% 41,797 2.1 % 57,800 33.6 %
TOTAL $ (104,004) (102.7)% $ 620,834 30.9 % $ 114,000 66.5 %
During 1994, the Company realized approximately a $103,000 tax benefit from the
utilization of state net economic loss carryforwards.
7. MARKETABLE SECURITIES
The cost, estimated market value and gross unrealized gains and losses of the
Company's investment in available-for-sale marketable equity securities at
December 31, 1995 and 1994 are as follows:
1995 1994
Cost $ 945,751 $ 945,751
Gross unrealized gain 5,699 47,284
Estimated market value $ 951,450 $ 993,035
There were no sales of marketable securities during 1995, 1994 or 1993.
The change in net unrealized gains and losses reported as a separate component
of equity for the years ended December 31, 1995, 1994 and 1993 is shown below:
1995 1994 1993
Balance in equity
component, beginning $ 31,207 $(126,497) $ (166,699)
Change in net unrealized
gains (losses) (41,585) 173,781 40,202
Change in deferred
income taxes 14,139 (16,077) -
Balance in equity
component, ending $ 3,761 $ 31,207 $ (126,497)
During the second quarter ended June 30, 1993, a charge of $261,273 was made to
other expenses in the statement of operations to reflect the Company's decision
that the lower-than-cost market price of the available-for-sale marketable
equity securities as of June 30, 1993 was considered to be other than temporary.
Since the fair value of the marketable securities is based upon its quoted
market price, fair value is the same as the carrying value at December 31, 1995
and 1994.
8. PENSION PLANS
The Company has two noncontributory defined benefit pension plans for its hourly
and salaried employees. All employees are covered by the plans upon completion
of twelve months of service with 1,000 or more hours of service, subject to a
minimum age of twenty-one. The Company's contributions to the plans are designed
to annually fund service cost derived by the plans' actuaries using the frozen
entry-age method.
-12-
<PAGE>
The net periodic pension cost for the plans is computed as follows:
1995 1994 1993
Service cost $ 452,636 $ 408,200 $ 366,000
Interest cost 679,492 621,581 560,000
Actual return on
plan assets (872,472) 220,000 (873,000)
Net amortization
and deferral 226,231 (927,800) 30,000
Net periodic
pension cost $ 485,887 $ 321,981 $ 83,000
The funded status of the Company's pension plans is as follows:
1995 1994
Actuarial present value of
benefit obligations:
Vested benefits $ 8,112,575 $ 7,629,826
Nonvested benefits 78,931 23,815
Accumulated benefit obligation 8,191,506 7,653,641
Effect of assumed increase
in compensation levels 1,796,558 1,469,738
Projected benefit obligation 9,988,064 9,123,379
Plan assets at fair value 9,870,424 8,929,877
Fair value of assets less than
projected benefit obligation 117,640 193,502
Unrecognized net gain 422,788 352,594
Unrecognized transition obligation (194,707) (227,158)
Unrecognized prior service costs (149,935) (114,689)
Accrued pension cost $ 195,786 $ 204,249
Major assumptions at year-end:
Discount rate 7.5% 7.5%
Rate of increase in
compensation levels 5.0% 5.0%
Expected long-term rate of return
on plan assets 8.0% 8.0%
The Company's pension plans are separately funded and the plans' assets consist
principally of investments in United States government securities and common
stock.
9. RESEARCH AND DEVELOPMENT
Research and development costs relating to both future and present products are
charged to selling, administrative and engineering expenses as incurred. The
amounts charged in 1995, 1994 and 1993 were approximately $418,000, $485,000 and
$286,000 respectively.
10. STOCK TRANSACTIONS
On May 19, 1994, the Board of Directors declared a five percent common stock
dividend payable on July 22, 1994 to shareholders of record as of the close of
business on July 8, 1994. In November, 1995, the Board of Directors approved
resolutions authorizing the Company to repurchase up to 200,000 shares of the
Company's common stock. As of December 31, 1995, the Company had not repurchased
any shares.
11. CONTINGENCIES
The Company is involved in litigation regarding several product liability
claims. The Company believes that it has substantial meritorious defenses
available and intends to defend the cases vigorously. The Company also believes
that the ultimate resolution of these proceedings is not likely to have a
materially adverse impact on its financial position.
12. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1993, the Company reduced pension and insurance
expense by approximately $487,000 and income tax expense by $226,000. The effect
of these adjustments was to increase fourth quarter earnings from operations by
$487,000, decrease the net loss by $713,000, and decrease fourth quarter net
loss per share by $.19.
13. ORGANIZATIONAL RESTRUCTURING
During 1995, plans were developed to significantly reduce the Company's cost
structure and to improve productivity. This restructuring program involved
reductions in the number of employees, consolidation of manufacturing
facilities, and disposition of assets that were no longer productive. The
Company also phased-out the manufacture of non-strategic product lines,
including Trailers, Track Assemblies and Refuse Collection Products.
The restructuring program is expected to enable the Company to improve its
competitive position in its core business, reduce costs, increase efficiency and
improve profitability. The statement of operations for 1995 includes
approximately $1,135,000 of pretax charges relating to this program.
Approximately $119,000 of this amount related to severance and associated
benefits for staff reductions, approximately $452,000 of this amount related to
disposal and write-down of certain assets, and approximately $564,000 of this
amount related to the streamlining of operations and administrative functions
and the closing of the production facility in Sioux Falls, South Dakota. The
effect of these expenditures was a decrease in net earnings after tax of
$749,000 or $.19 per common share.
Subsequent to year-end, in February 1996, as part of this restructuring program,
the Company sold its South Dakota land, building and certain inventory and
manufacturing equipment. The remaining inventory and equipment were transferred
to the Company's Raleigh, North Carolina manufacturing plant.
14. FUTURE REPORTING REQUIREMENT
The Financial Accounting Standards Board has issued SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
which the Company has not been required to adopt as of December 31, 1995.
The Statement, which will be in effect for the Company's year ending December
31, 1996, will require that entities review their long-lived assets, primarily
property and equipment, and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If conditions indicate that the long-lived
asset may be impaired, the entity must estimate the future cash flows to be
generated by the asset and compare these cash flows with the carrying amount of
the asset. If the future cash flows are less than the carrying amount, an
impairment loss must be recognized based on the fair value of the asset. The
Statement is not expected to have an impact on the Company's accounting for
long-lived assets because management is not aware of any current conditions or
circumstances that would lead it to believe that any long-lived asset has been
impaired.
<PAGE>
PHOTO
[Caption: THE ATHEY 7-12 FORCE-FEED LOADER The 7-12 continues to prove its
ability with municipalities and state and local governments for loading any
free-flowing and friable materials. Here, the Force-Feed Loader is shown
loading berm into waiting trucks from a road shoulder and ditch maintenance
project.]
<PAGE>
PHOTO
[Caption: Right: Mobil Sweeper's H-10B, 3-wheel type street sweeper. Below: A
mainstay of the sweeper group, the M-9 series mechanical type sweeper].
PHOTO
[Caption: The Athey"Maintenance Master," shown with an optional front broom
attachment, is great for pavement maintenance and finsh grading work.]
<PAGE>
ATHEY PRODUCTS CORPORATION
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Athey Products Corporation
Raleigh, North Carolina
We have audited the accompanying balance sheets of Athey Products
Corporation as of December 31, 1995 and 1994, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Athey Products Corporation for the year
ended December 31, 1993 were audited by other auditor s whose report, dated
March 8, 1994, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overal l financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 financial statements referred to above
present fairly, in all material respects, the financial position of Athey
Products Corporation as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/MCGLADREY & PULLEN, LLP
Raleigh, North Carolina
February 23, 1996
<PAGE>
SHAREHOLDER INFORMATION
ATHEY PRODUCTS CORPORATION
P.O. Box 669
Highway 1A, North
Raleigh, NC 27602
Telephone: 919-556-5171
Fax: 919-556-7950 or 919-556-0122
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the
Shareholders of the Company is
scheduled to be held at 11:00 A.M.
Daylight Savings Time, May 16, 1996
at the corporate offices of the Company.
COMMON STOCK
Athey Products Corporation
common stock is traded under
the symbol ATPC on the
NASDAQ Stock Exchange.
STOCK TRANSFER AGENT
The First National Bank of Chicago
Chicago, Illinois
INQUIRIES
Communications concerning stock
transfer requirements should be
directed to the transfer agent.
REPORTS AVAILABLE
Copies of the Company's 1995
Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q to
the Securities and Exchange Commission,
and this Annual Report are
available to shareholders upon written
request to the Secretary at the
Company's principal office or by
calling 919-556-5171.
ATTORNEYS
Parker Poe Adams & Bernstein, L.L.P.
Raleigh, NC
AUDITORS
McGladrey & Pullen, LLP
Raleigh, NC
DIRECTORS
JOHN F. MCCULLOUGH
Chairman of the Company
President of
Orton/McCullough Crane Co., Inc.
Oak Brook, Illinois
MARTIN W. MCCULLOUGH
Vice President and
General Manager of
Orton/McCullough Crane Co., Inc.
Huntington, Indiana
RICHARD A. ROSENTHAL
Retired Director of Athletics
University of Notre Dame
South Bend, Indiana
HENRY W. GRON, JR.
Senior Manager, International Tax
Motorola, Inc.
Schaumburg, Illinois
JAMES H. STUMPO
President and Chief Executive
Officer of the Company
FRANZ M. AHTING
Vice President - Finance
Chief Financial Officer
Officer of the Company
OFFICERS
JAMES H. STUMPO
President and Chief Executive Officer
FRANZ M. AHTING
Vice President - Finance
Chief Financial Officer
Treasurer and Assistant Secretary
<PAGE>
[OUTSIDE BACK COVER]
EXHIBIT 21.1
ATHEY PRODUCTS CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
Athey Export Corporation Illinois
Athey Products International, Inc. Barbados
Athey International Sales Corporation Illinois
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,072,088
<SECURITIES> 0
<RECEIVABLES> 2,669,107
<ALLOWANCES> (300,000)
<INVENTORY> 17,022,201
<CURRENT-ASSETS> 24,008,067
<PP&E> 10,696,529
<DEPRECIATION> 6,554,487
<TOTAL-ASSETS> 29,325,917
<CURRENT-LIABILITIES> 3,556,128
<BONDS> 0
0
0
<COMMON> 24,259,312
<OTHER-SE> 988,558
<TOTAL-LIABILITY-AND-EQUITY> 29,325,917
<SALES> 30,424,588
<TOTAL-REVENUES> 30,424,588
<CGS> 24,777,557
<TOTAL-COSTS> 6,061,601
<OTHER-EXPENSES> 29,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,761
<INCOME-PRETAX> (101,261)
<INCOME-TAX> (104,004)
<INCOME-CONTINUING> 2,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,743
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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