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
June 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 June 30, 1996: 3,973,459
<PAGE>
ATHEY PRODUCTS CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995. 3 & 4
Statements of Operations for the six
months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited). 5
Statements of Operations for the three
months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited). 6
Statements of Cash Flows for the six
months ended June 30, 1996 (unaudited)
and June 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
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<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 535,252 $ 3,072,088
Accounts receivable (less allowances for doubtful receivables
of $310,266 and $300,000 in 1996 and 1995, respectively) 6,408,974 2,369,107
Inventories 16,212,929 17,022,201
Prepaid expenses 141,610 179,054
Refundable income taxes - 531,517
Deferred income taxes 818,505 834,100
Total current assets 24,117,270 24,008,067
OTHER ASSETS:
Marketable securities (including unrealized holding gain of
$805,970 and $5,699 in 1996 and 1995, respectively) 1,751,721 951,450
Goodwill 200,000 200,000
Other 24,358 24,358
Total other assets 1,976,079 1,175,808
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 319,769
Buildings 3,468,837 4,017,505
Machinery and equipment 5,175,138 6,359,255
8,691,760 10,696,529
Less accumulated depreciation (5,259,024) (6,554,487)
Total property, plant and equipment, net 3,432,736 4,142,042
$29,526,085 $29,325,917
</TABLE>
See notes to financial statements.
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<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital lease $ 21,117 $ 42,012
Accounts payable 1,158,496 1,890,865
Employee compensation and amounts withheld 463,051 444,116
Accrued pension and other expenses 665,533 543,635
Warranty reserve 656,192 635,500
Income taxes payable 160,151 -
Total current liabilities 3,124,540 3,556,128
NONCURRENT LIABILITIES:
Obligations under capital lease 57,419 57,419
Deferred income taxes 486,260 464,500
Total noncurrent liabilities 543,679 521,919
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 1,271,112 1,189,359
Unrealized gain on marketable securities
available-for-sale, net of related tax effect 532,004 3,761
Less cost of 47,000 common shares in treasury (204,562) (204,562)
Total shareholders' equity 25,857,866 25,247,870
$29,526,085 $29,325,917
</TABLE>
See notes to financial statements.
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<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
Six Monts Ended Six Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
NET SALES $17,075,229 $19,230,088
Cost of Goods Sold 14,293,838 15,339,524
Gross profit 2,781,391 3,890,564
Selling, administrative and
engineering expenses 3,146,549 3,415,037
Earnings (loss) from operations (365,158) 475,527
Other income 381,030 172,725
Other expenses (8,150) (8,710)
Earnings before income taxes 7,722 639,542
Income tax expense (benefit) (74,031) 217,500
NET EARNINGS $ 81,753 $ 422,042
NET EARNINGS PER SHARE $ 0.02 $ 0.11
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,973,459 3,973,459
See notes to financial statements.
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<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENT OF OPERATIONS
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
NET SALES $8,054,196 $8,735,980
Cost of Goods Sold 6,736,349 7,116,019
Gross profit 1,317,847 1,619,961
Selling, administrative and
engineering expenses 1,607,850 1,766,565
Loss from operations (290,003) (146,604)
Other income 13,624 104,372
Other expenses (3,648) (607)
Loss before income taxes (280,027) (42,839)
Income tax benefit (90,741) (14,500)
NET LOSS $ (189,286) $ (28,339)
NET LOSS PER SHARE $ (0.05) $ (0.01)
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,973,459 3,973,459
See notes to financial statements.
-6-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net earnings $ 81,753 $ 422,042
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities;
Depreciation and amortization 215,243 221,674
Provision for doubtful accounts 10,266 36,498
Provision for deferred income taxes (234,673) 51,800
(Gain) loss on sale of property and
equipment (237,142) 960
Changes in operating assets and liabilities:
Accounts receivable (4,050,133) 2,914,743
Inventories 809,272 101,096
Prepaid expenses and other assets 37,444 192,243
Refundable income taxes 531,517 (53,139)
Accounts payable (732,369) (1,283,612)
Employee compensation and amounts withheld 18,935 (47,535)
Accrued pension and other expenses 121,898 43,893
Warranty reserve 20,692 (61,495)
Income taxes payable 160,151 (113,500)
Net cash provided by (used in) operating
activities (3,247,146) 2,425,668
INVESTING ACTIVITIES:
Purchase of plant and equipment (197,026) (253,004)
Proceeds from sale of property and equipment 928,231 47,643
Net cash provided by (used in) investing
activities 731,205 (205,361)
FINANCING ACTIVITIES:
Principal paid on obligations under capital
lease (20,895) (17,031)
Net cash used in financing activities (20,895) (17,031)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,536,836) 2,203,276
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,072,088 2,645,641
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 535,252 $4,848,917
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (recoveries) $ (531,000) $ 332,339
Interest paid $ 7,278 $ 4,899
See notes to financial statements.
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<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 (loss) per share are computed on the basis of the weighted
average number of shares outstanding during the periods indicated, which
was 3,973,459. 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.
Six Months Ended June 30, 1996
as compared to
Six Months Ended June 30, 1995
The Company's net sales for the six months ended June 30, 1996 were
$17,075,229, a 11.2% or $2,154,859 decrease from the $19,230,088
recorded for the same period in 1995. Approximately $1,515,000 of the
reduction in sales volume is 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 sales decline also reflects a 4.1% decease in the
number of sweepers shipped, as well as a decrease in replacement part
sales. This decline in sweeper sales was partially attributable to
the severe winter weather experienced in the Company's northeastern
markets. The lower sweeper sales volume was partly offset by a slightly
higher average unit selling price.
Cost of sales as a percentage of net sales was 83.7% in the six months
ended June 30, 1996 as compared to 79.8% during the same
period in 1995. The increase in the cost of sales was primarily due
to manufacturing inefficiencies resulting from lower unit volume,
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
increased from 17.8% to 18.4% of net sales, while in dollar terms they
decreased $268,488 to $3,146,549. 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 six months ended June 30, 1996 was $381,030 as
compared to $172,725 recorded in the first six 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 $155,905 in 1995 to $45,994
in 1996 due primarily to a lower average investment in cash and cash
equivalents.
The income tax benefit for the six month period ended June 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 six months ended June 30, 1996 were
$81,753 or $.02 per share, as compared to $422,042 or $.11 per share
for the six months ended June 30, 1995.
Three Months Ended June 30, 1996 ("Second Quarter 1996")
as compared to
Three Months Ended June 30, 1995 ("Second Quarter 1995")
The Company's net sales for the Second Quarter 1996 were $8,054,196,
representing a 7.8% decline from net sales of $8,735,980 achieved in
the Second Quarter 1995. The reduction in sales volume was primarily
attributable to 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 16.4% of net sales for the Second Quarter
1996 compared with 18.5% in the Second Quarter 1995. During the
Second Quarter 1996, the Company's gross margins were negatively
impacted as compared to the Second Quarter 1995 by a decline in average
selling prices due to continuing competitive pricing pressures in certain
product lines and a change in the mix of products shipped. The Company has
also experienced lower margins as it has directed its marketing
efforts internationally into new markets and sought growth in market share.
Selling, administrative and engineering expenses declined $158,715 or
9.0% to $1,607,850 in the Second Quarter 1996 as compared to
$1,766,565 recorded in the Second Quarter 1995. This decline is
partially attributable to the Company's continuing cost reduction
programs.
Other income was $13,624 in the Second Quarter 1996, down from
$104,372 reported for the Second 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.
-10-
<PAGE>
The Company's effective tax benefit rate declined slightly to 32.4% of
pre-tax loss in the Second Quarter 1996 compared to 33.8% of pre-tax
loss in the prior year period.
The net loss after tax for the Second Quarter 1996 was $189,286 or $
.05 per share, as compared to a net loss after tax of $28,339 or $.01
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 June 30, 1996 the Company had working capital of $20,992,730. The
ratio of current assets to current liabilities was 7.7 to 1 and the
debt to equity ratio was .14 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.
At June 30, 1996, cash and cash equivalents were $535,252, down
$2,536,836 from $3,072,088 at December 31, 1995, with a corresponding
increase in accounts receivable.
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.
The annual meeting of shareholders of the Company was held on
May 16, 1996, at which meeting the following matters were voted
on by the shareholders:
(i) Election of Directors
Name Votes For Votes Against
or Withheld
John F. McCullough 3,414,972 37,365
Martin W. McCullough 3,414,972 37,365
Richard A. Rosenthal 3,416,021 36,316
Henry W. Gron, Jr. 3,413,532 38,805
James H. Stumpo 3,416,021 36,316
Franz M. Ahting 3,414,972 37,365
(ii) Ratification of the Appointment of Auditors
Votes For Votes Against Votes Abstaining
and Broker Non-Votes
3,434,585 2,222 11,749
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
The following is included as an exhibit to this report:
27. Financial Data Schedule
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: August 12, 1996 /s/ James H. Stumpo
James H. Stumpo, President
Date: August 12, 1996 /s/ Franz M. Ahting
Franz M. Ahting, V.P. Finance
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 535,252
<SECURITIES> 0
<RECEIVABLES> 6,719,240
<ALLOWANCES> (310,266)
<INVENTORY> 16,212,929
<CURRENT-ASSETS> 24,117,270
<PP&E> 8,691,760
<DEPRECIATION> (5,259,024)
<TOTAL-ASSETS> 29,526,085
<CURRENT-LIABILITIES> 3,124,540
<BONDS> 0
0
0
<COMMON> 24,259,312
<OTHER-SE> 1,598,554
<TOTAL-LIABILITY-AND-EQUITY> 29,526,085
<SALES> 17,075,229
<TOTAL-REVENUES> 17,075,229
<CGS> 14,293,838
<TOTAL-COSTS> 3,146,549
<OTHER-EXPENSES> 872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,278
<INCOME-PRETAX> 7,722
<INCOME-TAX> (74,031)
<INCOME-CONTINUING> 81,753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,753
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
