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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________________ to ___________________
Commission File Number 1-2723
ATHEY PRODUCTS CORPORATION
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(Exact name of registrant as specified in charter)
Delaware 36-0753480
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1839 South Main Street, Wake Forest, North Carolina 27587-9289
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 919-556-5171
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Not Applicable
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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 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, 1998: 3,805,608
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ATHEY PRODUCTS CORPORATION
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I N D E X
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Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997. 3 - 4
Statements of Operations for the three
months ended March 31, 1998 (unaudited)
and March 31, 1997 (unaudited). 5
Statements of Cash Flows for the three
months ended March 31, 1998
(unaudited) and March 31, 1997 (unaudited). 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10 - 11
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2
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ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
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March 31, 1998 December 31,1997
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(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,880 $ 6,880
Accounts receivable (less allowances for doubtful accounts
of $200,000) 3,598,542 2,865,872
Inventories 17,655,454 18,108,545
Prepaid expenses 183,083 357,828
Refundable income taxes 749,045 749,045
Deferred income taxes 227,072 227,072
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Total current assets 22,420,076 22,315,242
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OTHER ASSETS:
Marketable securities 1,689,843 1,681,224
Other 26,586 26,586
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Total other assets 1,716,429 1,707,810
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PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings 3,792,307 3,777,922
Machinery and equipment 5,654,385 5,606,727
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9,494,477 9,432,434
Less accumulated depreciation (5,907,745) (5,790,493)
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Total property, plant and equipment net 3,586,732 3,641,941
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$ 27,723,237 $ 27,664,993
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See notes to financial statements.
3
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<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
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March 31, 1998 December 31, 1997
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(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowing $ 716,000 $ -
Excess of outstanding checks over bank balance 492,262 949,800
Current portion of obligations under capital lease 3,636 14,507
Accounts payable 969,982 1,518,743
Employee compensation and amounts withheld 256,425 217,755
Accrued pension and other expenses 374,273 129,917
Warranty reserve 1,370,449 1,276,000
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Total current liabilities 4,183,027 4,106,722
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NONCURRENT LIABILITIES:
Deferred income taxes 470,834 476,904
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Total noncurrent liabilities 470,834 476,904
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SHAREHOLDERS' EQUITY:
Common stock, par value $2 per share:
Authorized 10,000,000 shares;
Issued 4,020,459 shares 8,040,918 8,040,918
Additional paid-in capital 16,218,394 16,218,394
Retained earnings (752,478) (734,798)
Unrealized gain on marketable securities
available-for-sale, net of related tax effect 491,100 485,411
Less cost of 214,851 common shares
in treasury (928,558) (928,558)
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Total shareholders' equity 23,069,376 23,081,367
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$ 27,723,237 $ 27,664,993
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See notes to financial statements.
4
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<CAPTION>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
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Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
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(Unaudited) (Unaudited)
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NET SALES $ 7,048,468 $ 7,772,375
Cost of goods sold 5,518,988 6,436,380
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Gross profit 1,529,480 1,335,995
Selling, administrative and engineering expenses 1,562,208 1,610,435
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Loss from operations (32,728) (274,440)
Other income 7,133 5,251
Other expenses 1,085 10,841
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Loss before income tax benefit (26,680) (280,030)
Income tax benefit (9,000) (31,200)
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NET LOSS $ (17,680) $ (248,830)
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NET EARNINGS (LOSS) PER SHARE $ - $ (0.06)
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WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,917,684
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See notes to financial statements.
5
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ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
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Three Months Ended Three Months Ended
March 31,1998 March 31,1997
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(Unaudited) (Unaudited)
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OPERATING ACTIVITIES:
Net loss $ (17,680) $ (248,830)
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation and amortization 117,252 115,919
Provision for deferred income tax (9,000) 64,000
Changes in operating assets and liabilities:
Accounts receivable (732,670) 86,583
Insurance settlement receivable - 564,380
Inventories 453,091 (788,743)
Prepaid expenses 174,745 15,025
Refundable income taxes - (95,200)
Other assets - 5,423
Accounts payable (548,761) (736,971)
Employee compensation and amounts withheld 38,670 63,802
Accrued pension and other expenses 244,356 104,690
Warranty reserve 94,449 56,007
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Net cash used in operating activities (185,548) (793,915)
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INVESTING ACTIVITIES:
Purchase of plant equipment (62,043) (83,550)
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Net cash used in investing activities (62,043) (83,550)
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FINANCING ACTIVITIES:
Proceeds from line of credit 2,237,000 1,850,000
Repayment of line of credit (1,521,000) (1,100,000)
Excess of outstanding checks over bank balance (457,538) 375,852
Principal paid on obligations under capital lease (10,871) (10,643)
Purchase of common stock for treasury - (237,744)
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Net cash provided by financing activities 247,591 877,465
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NET CHANGE IN CASH
AND CASH EQUIVALENTS - -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,880 6,984
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CASH AND CASH EQUIVALENTS
END OF PERIOD $ 6,880 $ 6,984
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 5,244 $ 10,841
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</TABLE>
See notes to financial statements.
6
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ATHEY PRODUCTS CORPORATION
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NOTES TO FINANCIAL STATEMENTS
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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, 1997.
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 3,805,608 and 3,917,684
in 1998 and 1997, respectively. Certain 1997 financial statement amounts
have been reclassified to conform with the 1998 presentation with no effect
on net income.
7
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ATHEY PRODUCTS CORPORATION
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
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RESULTS OF OPERATIONS
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Three Months Ended March 31, 1998 ("First Quarter 1998")
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as compared to
Three Months Ended March 31, 1997 ("First Quarter 1997")
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The Company's net sales for the First Quarter 1998 were $7,048,468, a 9.3%
decrease from the $7,772,375 recorded in the First Quarter 1997. The sales
decline reflected an 8.6% decrease in the number of sweepers shipped, but was
partially offset by a 2% increase in unit sales prices and an increase in
replacement part sales. Although 1998 First Quarter sales orders increased over
1997, these orders were received during the last half of the Quarter and the
normal manufacturing cycle on these orders had not been completed by the end of
the Quarter.
Cost of Sales as a percentage of net sales was 78.3% in the First Quarter 1998
as compared to 82.8% in the First Quarter of 1997. This reduction in the cost of
sales percentage is primarily due to higher margins on a larger number of runway
sweepers shipped to foreign markets.
The Company's selling, administrative and engineering expenses increased from
20.7% to 22.2% of net sales, while in dollar terms they decreased $48,227 to
$1,562,208. This overall percentage increase was due to slightly higher warranty
expenses, which were partially offset by a decrease in salaries during the First
Quarter of 1998.
Other income for the First Quarter 1998 was $7,133 as compared to $5,251 in the
First Quarter 1997. In addition, interest income increased from $2,154 in 1997
to $5,647 in 1998 due to a higher average investment in cash and cash
equivalents.
The net loss after income tax for the First Quarter 1998 was $17,680 or $.- per
share, as compared to a net loss after income tax of $248,830 or $.06 per share
for the First Quarter 1997.
8
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Effects of Inflation
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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
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At March 31, 1998 the Company had working capital of $18,237,049; the ratio of
current assets to current liabilities was 5.4 to 1; and the debt to equity ratio
was .20 to 1.
This compares to working capital of $18,208,520; a ratio of current assets to
current liabilities of 5.4 to 1; and a debt to equity ratio of .20 to 1 at
December 31, 1997.
As part of its authorized stock repurchase program, the Company did not incur
any expenditures for financing activities in 1998 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
$716,000 had been utilized at March 31, 1998. 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.
9
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings. None
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Item 2. Changes in Securities and Use of Proceeds. None
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Item 3. Defaults upon Senior Securities. None.
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Item 4. Submission of Matters to a Vote of Security Holders. None.
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Item 5. Other Information.
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The Company has had various changes in executive management since April
30, 1998. The Company accepted the resignations of Franz M. Ahting and
James H. Stumpo as officers and directors effective April 30, 1998, and
May 7, 1998, respectively. Mr. Ahting was Vice-President Finance, Chief
Financial Officer, Corporate Treasurer and Secretary. Mr. Stumpo was
President and Chief Executive Officer.
Effective May 11, 1998, the Board of Directors of the Company elected
Wes O. Brant as Vice-President and Chief Operating Officer; Thomas N.
Nelson as Vice-President, Sales & Marketing; and Phyllis C. Pearce as
Assistant Secretary. Mr. Brant was formerly Director of Engineering;
Mr. Nelson was Director of Sales & Marketing; and Ms. Pearce continues
in her position as Executive Assistant.
On an interim basis, the Company's financial responsibilities will be
performed by internal personnel and Mr. Brant will direct the
operations of the Company until a new President is elected.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) No exhibits have been filed as part of this Report.
(b) No reports on Form 8-K have been filed during for the Quarter
for which this report is filed.
10
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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: 05/20/98 /s/ Wes O. Brant
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Wes O. Brant
Vice-President
Chief Operating Officer
Date: 05/20/98 /s/ Lawrence R. Phillips, Jr.
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Lawrence R. Phillips, Jr.
Supervisor, Accounting
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000008109
<NAME> Athey Products Corp
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,880
<SECURITIES> 0
<RECEIVABLES> 3,598,542
<ALLOWANCES> 200,000
<INVENTORY> 17,655,454
<CURRENT-ASSETS> 22,420,076
<PP&E> 9,494,477
<DEPRECIATION> 5,907,745
<TOTAL-ASSETS> 27,723,237
<CURRENT-LIABILITIES> 4,183,027
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 15,028,458
<TOTAL-LIABILITY-AND-EQUITY> 27,723,237
<SALES> 7,048,468
<TOTAL-REVENUES> 0
<CGS> 5,518,988
<TOTAL-COSTS> 1,562,208
<OTHER-EXPENSES> 1,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,244
<INCOME-PRETAX> (26,680)
<INCOME-TAX> (9,000)
<INCOME-CONTINUING> (17,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,680)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
