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, 1997
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.)
1839 South Main Street, Wake Forest, North Carolina 27587-9289
- - ---------------------------------------------------- ---------------
(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, 1997 3,805,608
------------------ ----------
<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, 1997
(unaudited) and December 31, 1996. 3 - 4
Statements of Operations for the nine
months ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited). 5
Statements of Operations for the three
months ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited). 6
Statements of Cash Flows for the nine
months ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited). 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 13
PART II. OTHER INFORMATION 14 - 15
- 2 -
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,880 $ 6,984
Accounts receivable (less allowances for doubtful accounts
of $350,000 in 1997 and 1996) 3,985,652 3,738,103
Insurance settlement receivable -- 564,380
Inventories 20,845,353 18,949,568
Prepaid expenses 282,640 723,535
Refundable income taxes 90,695 544,457
Deferred income taxes 376,346 331,000
------------- ------------
Total current assets 25,587,566 24,858,027
------------- ------------
OTHER ASSETS:
Marketable securities 1,753,071 1,450,650
Other 109,800 115,223
------------ ------------
Total other assets 1,862,871 1,565,873
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings 3,725,350 3,574,941
Machinery and equipment 5,490,897 5,270,958
------------ ------------
9,264,032 8,893,684
Less accumulated depreciation (5,739,359) (5,390,353)
------------ ------------
Total property, plant and equipment, net 3,524,673 3,503,331
------------ ------------
$ 30,975,110 $ 29,927,231
============ ============
</TABLE>
See notes to financial statements.
-3-
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,732,000 $ --
Checks issued in excess of bank balance 469,112 --
Current portion of obligations under capital lease 10,813 42,912
Accounts payable 802,144 2,951,507
Employee compensation and amounts withheld 268,767 357,641
Other accrued expenses 75,209 280,379
Warranty reserve 1,295,120 690,000
------------ ------------
Total current liabilities 5,653,165 4,322,439
------------ ------------
NONCURRENT LIABILITIES:
Obligations under capital lease 14,507 14,507
Deferred income taxes 519,517 454,040
------------ ------------
Total noncurrent liabilities 534,024 468,547
------------ ------------
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 927,815 1,234,514
Unrealized gain on marketable securities
available-for-sale, net of related tax effect 529,351 333,233
Less cost of 214,851 and 158,751 common shares
in treasury in 1997 and 1996, respectively (928,557) (690,814)
------------ ------------
Total shareholders' equity 24,787,921 25,136,245
------------ ------------
$ 30,975,110 $ 29,927,231
============ ============
</TABLE>
See notes to financial statements.
-4-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
- - -----------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ --------------
(Unaudited) (Unaudited)
NET SALES $ 22,661,881 $ 24,486,078
Cost of goods sold 17,473,509 20,292,613
------------ ------------
Gross profit 5,188,372 4,193,465
Selling, administrative and engineering expenses 5,177,010 4,621,396
------------ ------------
Net earnings (loss) from operations 11,361 (427,931)
Other income 24,379 407,327
Other expenses (92,482) (12,210)
------------ ------------
Loss before income taxes (56,741) (32,814)
Income tax expense (benefit) 249,958 (87,813)
------------ ------------
NET EARNINGS (LOSS) $ (306,699) $ 54,999
============ ============
NET EARNINGS (LOSS) PER SHARE $ (0.08) $ 0.01
============= ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,809,535 3,973,269
============ ============
See notes to financial statements.
-5-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
- - -------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
----------------------- --------------
(Unaudited) (Unaudited)
NET SALES $ 8,692,123 $ 7,410,849
Cost of goods sold 6,966,117 5,998,775
----------- -----------
Gross profit 1,726,006 1,412,074
Selling, administrative and engineering expenses 1,505,128 1,474,847
----------- -----------
Earnings (loss) from operations 220,877 (62,773)
Other income 9,262 26,297
Other expenses (56,963) (4,060)
----------- -----------
Earnings (loss) before income taxes 173,177 (40,536)
Income tax expense (benefit) (29,368) (13,782)
----------- -----------
NET EARNINGS (LOSS) $ 202,545 $ (26,754)
=========== ===========
NET EARNINGS (LOSS) PER SHARE $ 0.05 $ (0.01)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,972,894
=========== ===========
See notes to financial statements.
-6-
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30,1997 September 30,1996
--------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ (306,699) $ 54,999
Adjustments to reconcile net earnings
(loss) to net cash used in operating activities:
Depreciation and amortization 349,006 324,714
Provision for doubtful accounts -- 25,070
Provision for deferred income tax (86,172) (234,674)
Gain on sale of equipment -- (237,141)
Changes in operating assets and liabilities:
Accounts receivable (247,549) (2,027,132)
Insurance settlement receivable 564,380 --
Inventories (1,895,785) (168,256)
Prepaid expenses 440,895 26,371
Refundable income taxes 453,762 377,886
Other assets 5,423 --
Accounts payable (2,149,363) 117,392
Employee compensation and amounts withheld (88,874) 2,651
Other accrued expenses (205,170) 160,682
Warranty reserves 605,120 10,357
------------ ------------
Net cash used in operating activities (2,561,026) (1,562,081)
------------ ------------
INVESTING ACTIVITIES:
Purchase of plant and equipment (370,348) (292,238)
Proceeds from disposal of assets -- 928,231
-------------- ------------
Net cash provided by (used in) investing activities (370,348) 635,993
------------ ------------
FINANCING ACTIVITIES:
Proceeds from line of credit 12,551,000 --
Repayment of line of credit (9,819,000) --
Checks issued in excess of bank balance 469,112 --
Principal paid on obligations under capital lease (32,099) (31,426)
Purchase of common stock for treasury (237,743) (16,000)
------------- ------------
Net cash provided by (used in) financing activities 2,931,270 (47,426)
------------ ------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (104) (973,514)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,984 3,072,088
------------ ------------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 6,880 $ 2,098,574
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 78,680 $ 10,851
============ ============
Income taxes paid (recoveries) $ (117,826) $ (231,000)
============ ============
</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, 1996.
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 amounts are computed on the basis of the
weighted average number of shares outstanding during the nine month period,
which were 3,809,535 and 3,973,269 in 1997 and 1996, respectively. Certain
1996 financial statement amounts have been reclassified to conform with the
1997 presentation with no effect on net income.
- 8 -
ATHEY PRODUCTS CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
--------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
------------------------------------
RESULTS OF OPERATIONS
Significant Events Affecting Comparability
The comparability of statement of operations data has been affected by the
following significant items.
| | In late 1996, the Company's Board of Directors adopted a resolution to
terminate the Company's two defined benefit pension plans and replace them with
a 401(k) plan which took effect January 1, 1997. Under the provision of
Statement of Financial Accounting Standards No. 88, "Employers' Accounting for
Settlements and Curtailment of Defined Benefit Pension Plans and for Termination
of Benefits", the Company recognized a pretax curtailment gain of $1,016,651 in
the fourth quarter of 1996 due to benefit freezes.
In June 1997, the Company recognized a pretax settlement gain of $1,308,200 on
the reversion of assets due to the termination of the pension plan.
Approximately $565,227 of this amount resulted in a reduction in cost of goods
sold and approximately $742,973 of this amount resulted in a reduction in
selling, administrative and engineering expenses. However, this favorable impact
on selling, administrative and engineering expenses was offset by a $369,044
increase in excise tax expense associated with the termination of the pension
plan. The effect was a decrease in net loss after tax of $619,843 or $ .16 per
share.
| | During late 1995 and early 1996, 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 plan is expected to enable the Company to
improve its competitive position in its core business, reduce costs, increase
efficiency and improve profitability.
During the first nine months of 1996, as a part of this restructuring plan, the
Company incurred approximately $495,975 of expenses. Approximately $284,579 of
this amount related to the disposal and write-down to net realizable values of
certain assets. Approximately $211,396 of this amount was primarily attributable
to the additional expenses which were incurred during 1996 relating to the
closure of operations of the
- 9 -
<PAGE>
manufacturing facility in Sioux Falls, South Dakota. The effect was a decrease
in net earnings after tax of $327,344 or $ .08 per share.
| | In February 1996, the Company sold its South Dakota land, building and
certain inventory and manufacturing equipment. The statement of operations for
1996 includes in other income a pretax gain of $234,355 in connection with this
sale. The remaining inventory and equipment were transferred to the Company's
Wake Forest, North Carolina manufacturing plant. The effect was an increase in
net earnings after tax of $154,674 or $ .04 per share.
Nine Months Ended September 30, 1997
- - -------------------------------------
as compared to
Nine Months Ended September 30, 1996
- - -----------------------------------
The Company's net sales for the nine months ended September 30, 1997 were
$22,661,881, a 7.4% or $1,824,197 decrease from the $24,486,078 recorded for the
same period in 1996. The sales decline reflects a 16.3% decrease in the number
of sweepers shipped during the period as compared to the prior year. Most of the
year-to-date decline in shipments occurred during the first six months of 1997.
This volume decline was partially offset by slightly higher average unit selling
prices and a 15.9% increase in replacement part sales.
The decline in sweeper sales during the first six months of the year was
attributable to several factors, including the severe winter weather followed by
floods affecting the Company's dealers located in the upper midwest markets.
Recently approved legislation in Southern California, an important market for
the Company's products, which now requires all cities and counties in the region
to improve their street sweeping and to control dust on improved roads, caused
local governments to delay their budgeted purchases until these regulations
could be clarified. In addition, a recently passed tire tread weight law in the
state of Washington caused some unexpected delays in bids for orders. The
Company also continues to experience competitive pricing pressures in certain
product lines.
Cost of goods sold as a percentage of net sales was 77.1% in the nine months
ended September 30, 1997 as compared to 82.9% during the same period in 1996.
The cost of goods sold was favorably impacted in the second quarter of 1997 by
the $565,227 settlement gain relating to the pension plan. Cost of goods sold in
1997 also reflected an increase in the reserve for excess and obsolete inventory
of $100,000. In addition, cost of sales in 1997 reflected expenditures
associated with the disposal and write-down to net realizable values of certain
assets. The cost of goods sold in 1996 included approximately $284,579 in
expenditures associated with the disposal and write down to
- 10 -
<PAGE>
net realizable values of certain assets. Excluding these items, cost of goods
sold would have increased to $17,938,736 or 79.2% of net sales in 1997 and
decreased to $20,008,034 or 81.7% of net sales in 1996.
The higher level of cost of goods sold in the nine months ending September 30,
1996, was primarily due to manufacturing inefficiencies resulting from the
introduction of the new regenerative air sweeper and M-9D Mobil Street Sweeper
product lines and commencement of the production of certain products in the
Company's Wake Forest, North Carolina facility that were transferred from the
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 cost of goods sold in the first nine months of
ending September 10, 1997 was adversely impacted by manufacturing inefficiencies
during the first half of 1997 stemming from a substantially lower volume of
shipments.
The Company's selling, administrative and engineering expenses increased from
18.9% to 22.8% of net sales, while in dollar terms increasing $555,614 to
$5,177,010. Selling, administrative and engineering expenses were favorably
impacted in 1997 by the $742,973 settlement gain relating to the pension plan.
However, this favorable impact was offset by a $369,044 increase in excise tax
expense associated with the termination of the pension plan and an approximately
$605,000 increase in warranty reserves. Approximately $514,000 of the increase
in warranty reserves related to charges for future field service campaigns and
approximately $91,000 related to an increase in the Company's warranty
experience. In addition, the Company continued to expand its domestic and
international marketing initiatives and increased its engineering and field
service staff. As a result, salaries, related employee benefits and travel
expenditures were higher. These increases were partially offset by lower
insurance premiums. Also, approximately $211,396 of expenses were incurred
during the first nine months of 1996 relating to the closure of operations of
the manufacturing facility in Sioux Falls, South Dakota.
Other income for the nine months ended September 30, 1997 was $24,379 as
compared to $407,327 recorded in the first nine months of 1996. Included in
other income for 1996 was $234,355 which represents the gain from the Company's
sale in February, 1996 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. Interest income declined from $71,634 in 1996 to $11,108 in 1997. The
Company is currently utilizing $2,732,000 of its bank line of credit, reflecting
in part the Company's extended terms on certain accounts receivable and higher
inventory levels. Higher inventory levels are partially attributable to an
increase in the Company's field equipment demonstration fleet.
- 11 -
<PAGE>
The income tax expense for the nine month period ended September 30, 1997 varies
from the customary relationship of 34% primarily due to an increase of
approximately $259,000 in the Company's valuation reserve allowance against
recorded deferred tax assets. 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 an approximately $77,000 credit from a
reduction in the deferred tax asset valuation allowance.
The net loss after tax for the nine months ended September 30, 1997, was
$306,699 or $.08 per share, as compared to net earnings after tax of $54,999
or $.01 per share recorded in 1996.
Three Months Ended September 30, 1997 ("Third Quarter 1997")
as compared to
Three Months Ended September 30, 1996 ("Third Quarter 1996")
The Company's net sales for the Third Quarter 1997 were $8,692,123, representing
a 17.3% or $1,281,274 increase from net sales of $7,410,849 achieved in the
Third Quarter 1996. The increase in sales primarily reflects an increase in unit
sales volume, a 15.5% increase in replacement part sales and slightly higher
average unit selling prices. These improvements were partially offset by
continuing competitive price pressures on certain product lines.
The cost of goods sold as a percentage of net sales was 80.1% in the Third
Quarter 1997 compared with 80.9% in the Third Quarter 1996. Cost of goods sold
in 1997 included an increase in the reserves for excess and obsolete inventory
of $100,000. In addition, cost of sales in 1997 reflected expenditures
associated with the disposal and write-down to net realizable values of certain
assets.
The Company's selling, administrative, and engineering expenses decreased from
19.9% to 17.3% of net sales, while in dollar terms they increased $30,281 to
$1,505,128. This dollar increase in large part reflects an increase in
litigation reserves as well as higher engineering salaries and related employee
benefits associated with the Company's research and development program and was
offset by lower warranty reserve requirements.
The income tax expense for the three month period ended September 30, 1997
varies from the customary relationship of 34% primarily due to a decrease in the
Company's valuation reserve allowance against recorded deferred tax assets.
- 12 -
<PAGE>
The net earnings after tax for the three months ended September 30, 1997 were
$202,545 or $.05 per share, as compared to a net loss after tax of $26,754 or
$.01 per share for the three months ended September 30, 1996.
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 September 30, 1997 the Company had working capital of $19,934,401, the ratio
of current assets to current liabilities was 4.5 to 1; and the debt to equity
ratio was .25 to 1.
This compares to working capital of $20,535,588; a ratio of current assets to
current liabilities of 5.8 to 1; and a debt to equity ratio of .19 to 1 at
December 31, 1996.
As part of its authorized stock repurchase program the Company used $237,743 for
financing activities in 1997 to repurchase its common stock.
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 had available an unsecured line of credit of $5,000,000 of which
$2,732,000 was outstanding at September 30, 1997. 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.
- 13 -
<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.
- 14 -
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
ATHEY PRODUCTS CORPORATION
Date: November 05, 1997 /s/ James H. Stumpo
- - --------------------------- --------------------
James H. Stumpo
President and Chief Executive Officer
Date: November 05, 1997 /s/ Franz M. Ahting
- - --------------------------- -------------------
Franz M. Ahting
Vice President Finance and
Chief Financial Officer
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,880
<SECURITIES> 0
<RECEIVABLES> 3,985,652
<ALLOWANCES> 0
<INVENTORY> 20,845,353
<CURRENT-ASSETS> 25,587,566
<PP&E> 9,264,032
<DEPRECIATION> 5,739,354
<TOTAL-ASSETS> 30,975,110
<CURRENT-LIABILITIES> 5,653,165
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 16,218,394
<TOTAL-LIABILITY-AND-EQUITY> 30,995,110
<SALES> 22,661,881
<TOTAL-REVENUES> 0
<CGS> 17,473,509
<TOTAL-COSTS> 5,177,010
<OTHER-EXPENSES> 92,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,680
<INCOME-PRETAX> (56,741)
<INCOME-TAX> 249,958
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (306,699)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
