UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended
September 30, 1996
Commission File Number 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 1-A 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
Not Applicable
Former name, former address and former fiscal year
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities 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 ___.
Number of Common Shares Outstanding as of September 30, 1996: 3,969,459
<PAGE>
ATHEY PRODUCTS CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995. 3 & 4
Statements of Operations for the nine
months ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited). 5
Statements of Operations for the three
months ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited). 6
Statements of Cash Flows for the nine
months ended September 30, 1996
(unaudited) and September 30, 1995 (unaudited). 7
Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9,10 & 11
PART II. OTHER INFORMATION 12 & 13
-2-
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,098,574 $ 3,072,088
Accounts receivable (less allowances for doubtful receivables
of $325,070 and $300,000 in 1996 and 1995, respectively) 4,371,169 2,369,107
Inventories 17,190,457 17,022,201
Prepaid expenses 150,454 179,054
Refundable income taxes 153,631 531,517
Deferred income taxes 818,505 834,100
------------------ ----------------
Total current assets 24,782,790 24,008,067
------------------ ----------------
OTHER ASSETS:
Marketable securities (including unrealized holding gain of
$545,944 and $5,699 in 1996 and 1995, respectively) 1,491,695 951,450
Goodwill 200,000 200,000
Other 26,587 24,358
------------------ ----------------
Total other assets 1,718,282 1,175,808
------------------ ----------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 319,769
Buildings 3,542,386 4,017,505
Machinery and equipment 5,196,800 6,359,255
------------------ ----------------
8,786,971 10,696,529
Less accumulated depreciation (5,368,495) (6,554,487)
------------------ ----------------
Total property, plant and equipment, net 3,418,476 4,142,042
------------------ ----------------
$ 29,919,548 $ 29,325,917
================== ================
</TABLE>
See notes to financial statements
-3-
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital lease $ 10,586 $ 42,012
Accounts payable 2,008,257 1,890,865
Employee compensation and amounts withheld 451,767 444,116
Accrued pension and other expenses 704,317 543,635
Warranty reserve 645,857 635,500
----------------- ------------------
Total current liabilities 3,820,784 3,556,128
----------------- ------------------
NONCURRENT LIABILITIES:
Obligations under capital lease 57,419 57,419
Deferred income taxes 397,850 464,500
----------------- ------------------
Total noncurrent liabilities 455,269 521,919
----------------- ------------------
SHAREHOLDERS' EQUITY:
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 1,244,358 1,189,359
Unrealized gain on marketable securities
available-for-sale, net of related tax effect 360,387 3,761
Less cost of 51,000 and 47,000 common shares
in treasury in 1996 and 1995, respectively (220,562) (204,562)
----------------- ------------------
Total shareholders' equity 25,643,495 25,247,870
----------------- ------------------
$ 29,919,548 $ 29,325,917
================= ==================
</TABLE>
See notes to financial statements.
-4-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 24,486,078 $ 25,307,860
Cost of Goods Sold 20,292,613 20,599,028
-------------------- -------------------
Gross profit 4,193,465 4,708,832
Selling, administrative and
engineering expenses 4,621,396 4,758,456
-------------------- -------------------
Loss from operations (427,931) (49,624)
Other income 407,327 256,196
Other expenses (12,210) (12,896)
-------------------- -------------------
Earnings (loss) before income taxes (32,814) 193,676
Income tax expense (benefit) (87,813) 123,400
-------------------- -------------------
NET EARNINGS $ 54,999 $ 70,276
==================== ===================
NET EARNINGS PER SHARE $ 0.01 $ 0.02
==================== ===================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,973,224 3,973,459
==================== ===================
</TABLE>
See notes to financial statements.
-5-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 7,410,849 $ 6,077,772
Cost of Goods Sold 5,998,775 5,158,227
------------------ ----------------
Gross profit 1,412,074 919,545
Selling, administrative and
engineering expenses 1,474,847 1,444,697
------------------ ----------------
Loss from operations (62,773) (525,152)
Other income 26,297 83,471
Other expenses (4,060) (4,186)
------------------ ----------------
Loss before income taxes (40,536) (445,867)
Income tax benefit (13,782) (94,100)
------------------ ----------------
NET LOSS $ (26,754) $ (351,767)
================== ================
NET LOSS PER SHARE $ (0.01) $ (0.09)
================== ================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,972,763 3,973,459
================== ================
</TABLE>
See notes to financial statements.
-6-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 54,999 $ 70,276
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 324,714 355,064
Provision for doubtful accounts 25,070 40,751
Provision for deferred income taxes (234,674) 200,693
(Gain) loss on sale of property and equipment (237,141) 961
Changes in operating assets and liabilities:
Accounts receivable (2,027,132) 3,819,851
Inventories (168,256) (192,177)
Prepaid expenses and other assets 26,371 (61,447)
Refundable income taxes 377,886 (296,132)
Accounts payable 117,392 (1,685,971)
Employee compensation and amounts withheld 7,651 (147,487)
Accrued pension and other expenses 160,682 70,232
Warranty reserve 10,357 (112,000)
Income taxes payable - (113,500)
----------------- ----------------
Net cash provided by (used in) operating activities (1,562,081) 1,949,114
----------------- ----------------
INVESTING ACTIVITIES:
Purchase of plant and equipment (292,238) (368,351)
Proceeds from sale of property and equipment 928,231 47,643
----------------- ----------------
Net cash provided by (used in) investing activities 635,993 (320,708)
----------------- ----------------
FINANCING ACTIVITIES:
Principal paid on obligations under capital lease (31,426) (34,214)
Principal paid on debt - (99,595)
Purchase of common stock for treasury (16,000) -
----------------- ----------------
Net cash used in financing activities (47,426) (133,809)
----------------- ----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (973,514) 1,494,597
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,072,088 2,645,641
----------------- ----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,098,574 $ 4,140,238
================= ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (recoveries) $ (231,000) $ 354,410
================= ================
Interest paid $ 10,851 $ 7,404
================= ================
</TABLE>
See notes to financial statements.
-7-
<PAGE>
ATHEY PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
I. The condensed financial statements included herein have been prepared by
Athey Products Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K for the year ended December 31, 1995.
II. The financial information reflects all adjustments which are, in the
opinion of Management, necessary to a fair presentation of the results for
the interim period presented.
III. Earnings per share are computed on the basis of the weighted average
number of shares outstanding during the period, which were 3,973,224 for
the nine month period and 3,972,763 for the three month period ended
September 30, 1996. Certain 1995 financial statement amounts have been
reclassified to conform with the 1996 presentation with no effect on net
income.
-8-
<PAGE>
ATHEY PRODUCTS CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
During 1995, a restructuring program was developed to significantly reduce the
Company's cost structure and 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. 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.
Nine Months Ended September 30, 1996
as compared to
Nine Months Ended September 30, 1995
The Company's net sales for the nine months ended September 30, 1996 were
$24,486,078, a 3.2% or $821,782 decrease from the $25,307,860 recorded for the
same period in 1995. The Company experienced a $1,901,000 reduction in sales
volume attributable to the Company's phasing out the manufacture of certain
product lines and the transfer of product lines from the Company's South Dakota
facility to its Raleigh, North Carolina plant. The Company also incurred a
decline in replacement parts sales during this period. These sales declines were
partially offset by a 13.2% increase in the number of sweepers shipped and
slightly higher average unit selling prices.
Cost of sales as a percentage of net sales was 82.9% in the nine months ended
September 30, 1996 as compared to 81.4% during the same period in 1995. The
increase in the cost of sales was primarily due to manufacturing inefficiencies
resulting from the introduction of a new regenerative air sweeper product line
and commencement of the production of certain products in the Company's Raleigh,
North Carolina facility transferred from the Company's former South Dakota
facility. In addition, cost of sales in 1996 reflected expenditures associated
with the disposal and write-down to net realizable values of certain assets.
The Company's selling, administrative and engineering expenses remained
relatively unchanged, increasing from 18.8% to 18.9% of net sales, while
decreasing $137,060 to $4,621,396. Approximately $127,000 of additional expenses
were incurred during the first quarter of 1996 which related to the closure of
operations of the manufacturing facility in Sioux Falls, South Dakota.
-9-
<PAGE>
Other income for the nine months ended June 30, 1996 was $407,327 as compared to
$256,196 recorded in the first nine months of 1995. Included in other income for
the first half of 1996 was $234,355 which represents the gain from the Company's
sale of its South Dakota land, building and certain related inventory and
manufacturing equipment.
The Company also received $85,343 in 1996 representing a prorata distribution of
reorganization proceeds in a bankruptcy case in which the Company was a
creditor. The Company had recorded $110,953 as a receivable, of which the entire
amount had been reserved at December 31, 1995. Interest income declined from
$227,199 in 1995 to $79,363 in 1996 due primarily to a lower average investment
in cash and cash equivalents.
The income tax benefit for the nine month period ended September 30, 1996 varies
from the customary relationship of a 34% income tax expense primarily because of
a approximately $77,000 credit from a reduction in the deferred tax asset
valuation allowance.
Net earnings after tax for the nine months ended September 30, 1996 were $54,999
or $.01 per share, as compared to $70,276 or $.02 per share for the nine months
ended September 30, 1995.
Three Months Ended September 30, 1996 ("Third Quarter 1996")
as compared to
Three Months Ended September 30, 1995 ("Third Quarter 1995")
The Company's net sales for the Third Quarter 1996 were $7,410,849, representing
a 21.9% increase from net sales of $6,077,772 achieved in the Third Quarter
1995. The increase in sales reflects an increase in unit sales volume and
slightly higher average unit selling prices. The improvement in sales activity
was partially offset by the Company's phasing out the manufacture of certain
product lines and the transfer of other product lines from the Company's South
Dakota facility to its Raleigh, North Carolina plant.
The gross profit margin was 19.1% of net sales for the Third Quarter 1996
compared with 15.1% in the Third Quarter 1995. The Company's gross margins had
been negatively impacted in the Third Quarter 1995 by inefficiencies associated
with the lower overall sales volume levels experienced during that quarter.
Selling, administrative and engineering expenses remained relatively unchanged,
declining $30,150 or 2.1% to $1,474,847 in the Third Quarter 1996 as compared to
$1,444,697 recorded in the Third Quarter 1995. This decline is partially
attributable to the Company's continuing cost reduction programs.
-10-
<PAGE>
Other income was $26,297 in the Third Quarter 1996, down from $83,471 reported
for the Third Quarter 1995. The decrease in other income was mainly due to lower
interest income which is reflective of a lower average investment portfolio of
cash and cash equivalents.
The Company's effective tax benefit rate declined slightly to 34.0% of pre-tax
loss in the Third Quarter 1996 compared to 21.1% of pre-tax loss in the prior
year period. The change in rate primarily reflects a credit from the reduction
in valuation allowance.
The net loss after tax for the Third Quarter 1996 was $26,754 or $ .01 per
share, as compared to a net loss after tax of $351,767 or $.09 per share
recorded for the same period in 1995.
Effects of Inflation
The Company attempts to minimize the impact of inflation on production and
operating costs through cost control programs and productivity improvements. The
rate of inflation has not had significant impact on the Company's operations.
Prices paid for raw materials and other manufacturing inputs have remained
fairly stable throughout the periods indicated. 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 September 30, 1996 the Company had working capital of $20,962,006. The ratio
of current assets to current liabilities was 6.5 to 1 and the debt to equity
ratio was .17 to 1. This compares to working capital of $20,451,939; a ratio of
current assets to current liabilities of 6.8 to 1; and a debt to equity ratio of
.16 to 1 at December 31, 1995.
The Company generally relies upon internally generated funds to satisfy working
capital requirements and to fund capital expenditures. Other than utilizing the
available line of credit as needed, the Company does not presently plan to
borrow long-term funds or sell securities.
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.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
The following is included as an exhibit to this report:
27. Financial Data Schedule
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATHEY PRODUCTS CORPORATION
Date: November 13, 1996 /s/ James H. Stumpo
- - --------------------------- ------------------------------
James H. Stumpo, President
Date: November 13, 1996 /s/ Franz M. Ahting
------------------------------
Franz M. Ahting, V.P. Finance
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 2,098,574 3,072,088
<SECURITIES> 0 0
<RECEIVABLES> 4,371,169 2,369,107
<ALLOWANCES> 325,070 300,000
<INVENTORY> 17,190,457 17,022,201
<CURRENT-ASSETS> 24,782,790 24,008,067
<PP&E> 8,786,971 10,696,529
<DEPRECIATION> 5,368,495 6,554,487
<TOTAL-ASSETS> 29,919,548 29,325,917
<CURRENT-LIABILITIES> 3,820,784 3,556,128
<BONDS> 0 0
<COMMON> 8,040,918 8,040,918
0 0
0 0
<OTHER-SE> 17,602,577 17,206,952
<TOTAL-LIABILITY-AND-EQUITY> 29,919,548 29,325,917
<SALES> 24,486,078 25,307,860
<TOTAL-REVENUES> 0 0
<CGS> 20,292,613 20,599,028
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 4,621,396 4,758,456
<LOSS-PROVISION> 25,070 40,751
<INTEREST-EXPENSE> 10,851 7,404
<INCOME-PRETAX> (32,814) 193,676
<INCOME-TAX> (87,813) 123,400
<INCOME-CONTINUING> 54,999 70,276
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 54,999 70,276
<EPS-PRIMARY> 0.01 0.02
<EPS-DILUTED> 0 0
</TABLE>
