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
March 31, 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 March 31, 1997: 3,805,608
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<PAGE>
ATHEY PRODUCTS CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996. 3 & 4
Statements of Operations for the three
months ended March 31, 1997 (unaudited)
and March 31, 1996 (unaudited). 5
Statements of Cash Flows for the three
months ended March 31, 1997
(unaudited) and March 31, 1996 (unaudited). 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION 11
2
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ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997 December 31,1996
------------------ -------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,984 $ 6,984
Accounts receivable (less allowances for doubtful accounts
of $350,000 and $350,000 in 1997 and 1996, respectively) 3,651,520 3,738,103
Insurance settlement receivable - 564,380
Inventories 19,738,311 18,949,568
Prepaid expenses 708,510 723,535
Refundable income taxes 639,657 544,457
Deferred income taxes 267,000 331,000
------------------ -------------------
Total current assets 25,011,982 24,858,027
------------------ -------------------
OTHER ASSETS:
Marketable securities 1,465,693 1,450,650
Other 109,800 115,223
------------------ -------------------
Total other assets 1,575,493 1,565,873
------------------ -------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings 3,589,821 3,574,941
Machinery and equipment 5,339,628 5,270,958
------------------ -------------------
8,977,234 8,893,684
Less accumulated depreciation (5,506,272) (5,390,353)
------------------ -------------------
Total property, plant and equipment net 3,470,962 3,503,331
------------------ -------------------
$ 30,058,437 $ 29,927,231
================== ===================
</TABLE>
See notes to financial statements
3
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------- --------------------
<S> <C>
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowing $ 750,000 $ -
Checks issued in excess of bank balance 375,852 -
Current portion of obligations under capital lease 32,269 42,912
Accounts payable 2,214,536 2,951,507
Employee compensation and amounts withheld 421,443 357,641
Accrued pension and other expenses 385,069 280,379
Warranty reserve 746,007 690,000
---------------- --------------------
Total current liabilities 4,925,176 4,322,439
---------------- --------------------
NONCURRENT LIABILITIES:
Obligations under capital lease 14,507 14,507
Deferred income taxes 448,919 454,040
---------------- --------------------
Total noncurrent liabilities 463,426 468,547
---------------- --------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $2 per share:
Authorized 10,000,000 shares;
Issued 4,020,469 shares 8,040,918 8,040,918
Additional paid-in capital 16,218,394 16,218,394
Retained earnings 985,684 1,234,514
Unrealized gain on marketable securities
available-for-sale, net of related tax effect 353,397 333,233
Less cost of 214,851 and 158,751 common shares
in treasury in 1997 and 1996, respectively (928,558) (690,814)
---------------- --------------------
Total shareholders' equity 24,699,835 25,136,245
---------------- --------------------
$ 30,058,437 $ 29,927,231
================ ====================
</TABLE>
See notes to financial statements.
4
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 7,772,375 $ 9,021,033
Cost of goods sold 6,436,380 7,557,489
------------------- --------------------
Gross profit 1,335,995 1,463,544
Selling, administrative and engineering expenses 1,610,435 1,538,699
------------------- --------------------
Loss from operations (274,440) (75,155)
Other income 5,251 367,406
Other expenses 10,841 4,502
------------------- --------------------
Earnings (loss) before income taxes (280,030) 287,749
Income tax expense (benefit) (31,200) 16,710
------------------- --------------------
NET EARNINGS (LOSS) (248,830) 271,039
=================== ====================
NET EARNINGS (LOSS) PER SHARE $ (0.06) $ 0.07
=================== ====================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,917,684 3,973,459
=================== ====================
See notes to financial statements.
5
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31,1997 March 31,1996
----------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ (248,830) $ 271,039
Adjustments to reconcile net earnings
(loss) to net cash provided by operating activities:
Depreciation and amortization 115,919 107,001
Provision for deferred income tax 64,000 (217,966)
Gain on sale of equipment - (237,144)
Changes in operating assets & Liabilities
Accounts receivable 86,583 (3,874,665)
Insurance settlement receivable 564,380 -
Inventories (788,743) 305,006
Prepaid expenses 15,025 (29,907)
Refundable income taxes (95,200) 517
Other assets 5,423 -
Accounts payable (736,971) (237,186)
Employee compensation and amounts withheld 63,802 15,094
Accrued pension and other expenses 104,690 (17,299)
Warranty reserve 56,007 34,920
Income taxes payable - 234,185
----------------- -------------------
Net cash used in operating activities (793,915) (3,646,405)
----------------- -------------------
INVESTING ACTIVITIES:
Purchase of plant equipment (83,550) (163,325)
Proceeds from disposal of assets - 928,231
----------------- -------------------
Net cash provided by (used in) investing activities (83,550) 764,906
----------------- -------------------
FINANCING ACTIVITIES:
Proceeds from line of credit 1,850,000 -
Repayment of line of credit (1,100,000) -
Checks issued in excess of bank balance 375,852 -
Principal paid on obligations under capital lease (10,643) (10,420)
Purchase of common stock for treasury (237,744) -
----------------- -------------------
Net cash provided by (used in) financing activities 877,465 (10,420)
----------------- -------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS - (2,891,919)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,984 3,072,088
----------------- -------------------
CASH AND CASH EQUIVALENTS
----------------- -------------------
END OF PERIOD $ 6,984 $ 180,169
================= ===================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 10,841 $ 3,649
================= ===================
</TABLE>
See notes to financial statements.
6
<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 per share are computed on the basis of the weighted average number
of shares outstanding during the period, which were 3,917,684 and 3,973,459
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.
7
<PAGE>
ATHEY PRODUCTS CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
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 plan is expected to enable the Company to improve its competitive
position in its core business, reduce costs, increase efficiency and improve
profitability.
During 1996, as a continuation of its restructuring plan, the Company incurred
approximately $274,626 of additional charges in the first quarter of 1997.
Approximately $107,142 of this amount related to the disposal and write-down to
net realizable values of certain assets. Approximately $167,484 of this amount
is primarily attributable to the additional expenses which were incurred during
1996 relating to the closure of operations of the manufacturing facility in
Sioux Falls, South Dakota. The effect was a decrease in net earning after tax of
$181,253 or $ .05 per share.
In addition, in February 1996, the Company sold its South Dakota land, building
and certain inventory and manufacturing equipment. The statement of operations
for 1996 includes 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.
Three Months Ended March 31, 1997 ("First Quarter 1997")
as compared to
Three Months Ended March 31, 1996 ("First Quarter 1996")
The Company's net sales for the First Quarter 1997 were $7,772,375, a 13.8%
decrease from the $9,021,033 recorded in the First Quarter 1996. The sales
decline reflected a 26.4% decrease in the number of sweepers shipped, partially
offset by a increase in replacement part sales. The decline in sweeper sales was
attributable to several factors, including the severe winter weather followed by
floods affecting the Company's dealers in the upper midwest markets. Recently
approved legislation in southern California, which is an important market for
the Company's products, required all cities and counties in the region to
improve their street sweeping and to control dust on unpaved roads. The local
governments delayed 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.
8
<PAGE>
Cost of Sales as a percentage of net sales was 82.8% in the First Quarter 1997
as compared to 83.8% in the First Quarter 1996. Cost of goods sold in 1996
included approximately $ 107,142 in 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
17.1% to 20.7% of net sales, while in dollar terms they increased $71,736 to
$1,610,435 due to higher warranty expenses. In addition, the Company expanded
its domestic and international marketing initiatives and increased its sales and
field service personnel. As a result, salaries, related employee benefits and
travel expenditures were higher in 1997. Approximately $167,484 of additional
expenses were incurred during the First Quarter 1996 relating to the closure of
operations of the manufacturing facility in Sioux Falls, South Dakota.
Other income for the First Quarter 1997 was $5,251 as compared to $367,406 in
the First Quarter 1996. Included in other income for the First Quarter 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. In addition, interest income declined from $90,802 in
1996 to $2,154 in 1997 due to a lower average investment in cash and cash
equivalents.
The 11.1% income tax benefit rate for the First Quarter 1997 includes an
increase in the valuation reserve allowance of $64,000 against recorded deferred
tax assets.
The loss after tax for the First Quarter 1997 was $248,830 or $.06 per share, as
compared to net earnings after tax of $271,039 or $.07 per share for the First
Quarter 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 March 31, 1997 the Company had working capital of $20,086,806; the ratio of
current assets to current liabilities was 5.1 to 1; and the debt to equity ratio
was .22 to 1.
9
<PAGE>
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
$237,744 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
$750,000 had been utilized at March 31, 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.
10
<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. None.
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: May 15, 1997 /s/ James H. Stumpo
- --------------------------- --------------------
James H. Stumpo
President and Chief Executive Officer
Date: May 15, 1997 /s/ Franz M. Ahting
- --------------------------- -------------------
Franz M. Ahting
Vice President Finance
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,984
<SECURITIES> 0
<RECEIVABLES> 3,651,520
<ALLOWANCES> 350,000
<INVENTORY> 19,738,311
<CURRENT-ASSETS> 25,011,982
<PP&E> 8,977,234
<DEPRECIATION> 5,506,272
<TOTAL-ASSETS> 30,058,437
<CURRENT-LIABILITIES> 4,925,176
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 16,658,917
<TOTAL-LIABILITY-AND-EQUITY> 30,058,437
<SALES> 7,772,375
<TOTAL-REVENUES> 0
<CGS> 6,436,380
<TOTAL-COSTS> 6,436,380
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,841
<INCOME-PRETAX> (280,030)
<INCOME-TAX> (31,200)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (248,830)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
