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 June 30, 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
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-0753480
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1839 South Main Street, Wake Forest, NC 27587-9289
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) 919-556-5171
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark (a) a 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 that the registrant was
required to file such reports), and (2) has shorter period been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark (a) whether the registrant has filed all documents
and reports required to be filed by Sections 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____ No _____
Number of Common Shares Outstanding as of June 30, 1998: 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 June 30, 1998
(unaudited) and December 31, 1997. 3 - 4
Statements of Operations for the six
months ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited). 5
Statements of Operations for the three
months ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited). 6
Statements of Cash Flows for the six
months ended June 30, 1998 (unaudited)
and June 30, 1997 (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
- --------------------------------------------------------------------------------
June 30, 1998 December 31,1997
------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,048,410 $ 6,880
Accounts receivable (less allowances
for doubtful accounts of $225,000 and
$200,000 for 1998 and 1997, respectively) 4,826,664 2,865,872
Inventories 17,716,301 18,108,545
Prepaid expenses 58,505 357,828
Refundable income taxes 749,045 749,045
Deferred income taxes 804,864 227,072
------------ ------------
Total current assets 27,203,789 22,315,242
------------ ------------
OTHER ASSETS:
Marketable securities -- 1,681,224
Other 26,586 26,586
------------ ------------
Total other assets 26,586 1,707,810
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings 3,792,307 3,777,922
Machinery and equipment 5,746,739 5,606,727
------------ ------------
9,586,831 9,432,434
Less accumulated depreciation (6,027,059) (5,790,493)
------------ ------------
Total property, plant and equipment, net 3,559,772 3,641,941
------------ ------------
$ 30,790,147 $ 27,664,993
============ ============
See notes to financial statements.
3
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, 1998 December 31,1997
------------- ----------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowing $ 4,023,000 $ --
Excess of outstanding checks
over bank balance -- 949,800
Current portion of obligations
under capital lease -- 14,507
Accounts payable 271,540 1,518,743
Employee compensation and amounts withheld 236,133 217,755
Other accrued expenses 266,628 129,917
Income taxes payable 425,189 --
Warranty reserve 1,710,190 1,276,000
------------ ------------
Total current liabilities 6,932,680 4,106,722
------------ ------------
NONCURRENT LIABILITIES:
Deferred income taxes 340,297 476,904
------------ ------------
Total noncurrent liabilities 340,297 476,904
------------ ------------
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 (deficit) 186,416 (734,798)
Unrealized gain on marketable
securities available-for-sale,
net of related tax effect -- 485,411
Less cost of 214,851 common shares
in treasury (928,558) (928,558)
------------ ------------
Total shareholders' equity 23,517,170 23,081,367
------------ ------------
$ 30,790,147 $ 27,664,993
============ ============
See notes to financial statements.
4
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
(Unaudited) (Unaudited)
NET SALES $ 15,093,061 $ 13,969,758
Cost of goods sold 12,888,159 10,507,392
------------ ------------
Gross profit 2,204,902 3,462,366
Selling, administrative and
engineering expenses 3,379,294 3,671,882
------------ ------------
Loss from operations (1,174,392) (209,516)
Other income 2,109,030 15,116
Other expenses (52,573) (35,518)
------------ ------------
Earnings (loss) before income tax
expense (benefit) 882,065 (229,918)
Income tax expense (benefit) (39,149) 279,326
------------ ------------
NET EARNINGS (LOSS) $ 921,214 $ (509,244)
============ ============
NET EARNINGS (LOSS) PER SHARE $ 0.24 $ (0.13)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,811,221
============ ============
See notes to financial statements.
5
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
(Unaudited) (Unaudited)
NET SALES $ 8,044,593 $ 6,197,383
Cost of goods sold 7,369,171 4,071,012
------------ ------------
Gross profit 675,422 2,126,371
Selling, administrative and
engineering expenses 1,817,086 2,061,447
------------ ------------
Earnings (loss) from operations (1,141,664) 64,924
Other income 2,101,897 9,865
Other expenses (51,488) (24,677)
------------ ------------
Earnings before income tax
expense (benefit) 908,745 50,112
Income tax expense (benefit) (30,149) 310,526
------------ ------------
NET EARNINGS (LOSS) $ 938,894 $ (260,414)
============ ============
NET EARNINGS (LOSS) PER SHARE $ 0.24 $ (0.07)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,811,221
============ ============
See notes to financial statements.
6
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net earnings (loss) $ 921,214 $ (509,244)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 236,566 232,462
Provision for doubtful acounts 25,000 --
Provision for deferred income tax (464,337) (163,452)
Gain on sale of marketable securities (2,095,965) --
Changes in operating assets and liabilities:
Accounts receivable (1,985,792) 1,019,275
Insurance settlement receivable -- 564,380
Inventories 392,244 (3,756,910)
Prepaid expenses 299,323 376,291
Refundable income taxes -- 544,457
Other assets -- 5,423
Accounts payable (1,247,203) (589,731)
Employee compensation and amounts withheld 18,378 (32,831)
Other accrued expenses 136,711 (96,261)
Warranty reserve 434,190 1,016,378
Income taxes payable 425,189 15,952
------------ ------------
Net cash used in operating activities (2,904,482) (1,373,811)
------------ ------------
INVESTING ACTIVITIES:
Purchase of plant equipment (154,397) (237,517)
Proceeds on sale of marketable securities 3,041,716 --
------------ ------------
Net cash provided by (used in)
investing activities 2,887,319 (237,517)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from line of credit 7,869,000 7,033,000
Repayment of line of credit (3,846,000) (5,602,000)
Excess of outstanding checks over bank balance (949,800) 439,309
Principal paid on obligations under
capital lease (14,507) (21,342)
Purchase of common stock for treasury -- (237,743)
------------ ------------
Net cash provided by financing activities 3,058,693 1,611,224
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,041,530 (104)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,880 6,984
------------ ------------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 3,048,410 $ 6,880
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 51,245 $ 27,263
============ ============
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, 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 (loss) per share amounts are computed on the basis of the weighted
average number of shares outstanding during the period, which were
3,805,608 and 3,811,221 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.
8
<PAGE>
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 June 1997, the Company recognized pretax net periodic pension income
under FASB No. 88 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 1997 net loss after tax of $619,843 or $ .16
per share.
|_| In May 1998, the Company sold its marketable securities for $3,041,716.
This sale resulted in a pre-tax gain of $2,095,965. The effect was an
increase in net earnings after tax of $1,383,337 or $.36 per share.
9
<PAGE>
Six Months Ended June 30, 1998 ("First Half 1998")
as compared to
Six Months Ended June 30, 1997 ("First Half 1997")
The Company's net sales for the six months ended June 30, 1998 were $15,093,061,
an 8.0% or $1,123,303 increase from the $13,969,758 recorded for the same period
in 1997.
The sales increase is attributable to slightly higher than average sales prices
for certain foreign units shipped, as well as, an increase of approximately
$493,000 in replacement parts sales. The number of units shipped during the
First Half 1998 was relatively constant with the number of units shipped during
the First Half 1997.
Cost of goods sold as a percentage of net sales was 85.4% in the six months
ended June 30, 1998 as compared to 75.2% during the same period in 1997. The
cost of goods sold was favorably impacted in the First Half 1997 by the $565,227
pre-tax net periodic pension income relating to the termination of the pension
plan. Excluding this item, cost of goods sold would have been $11,072,619 or
79.3% in the First Half 1997. Cost of goods sold in 1998 was adversely impacted
due to production inefficiencies resulting from delays in receiving
manufacturing parts.
The Company's selling, administrative and engineering expenses decreased
$292,588 from $3,671,882 or 26.3% of net sales, to $3,379,294 or 22.4% of net
sales. Selling, administrative and engineering expenses had been favorably
impacted in the First Half 1997 by the $742,973 pre-tax net periodic pension
income relating to the termination of the pension plan. However, this favorable
impact in 1997 was offset by a $369,044 increase in excise tax expense
associated with the termination of the pension plan. Excluding these items,
selling, administrative and engineering expenses would have been $4,045,811 or
29.0% of net sales. Selling, administrative and engineering expenses in the
First Half 1998 were favorably impacted due to a reduction in warranty expense
of $684,484 compared to the First Half 1997. Warranty expenses in the First Half
1997 were higher due to increased reserves relating to the beginning of various
field service campaigns.
Other income for the First Half 1998 was $2,109,030 as compared to $15,116
recorded in the First Half 1997. Included in other income for 1998 was a gain of
$2,095,965 on the sale of marketable securities.
10
<PAGE>
Other expenses for the First Half 1998 were $52,573 as compared to $35,518
recorded in the First Half 1997. This increase in other expenses for the First
Half 1998 is related to increased interest expense associated with larger
borrowings under the Company's line of credit.
Income tax expense (benefit) for the First Half 1998 and First Half 1997 varies
from the customary relationship of 34% primarily due to changes in the Company's
valuation reserve allowance against recorded deferred tax assets.
The net earnings after tax for the six months ended June 30, 1998, was $921,214
or $.24 per share, as compared to a net loss after tax of $509,244 or $.13 per
share recorded in 1997.
Three Months Ended June 30, 1998 ("Second Quarter 1998")
as compared to
Three Months Ended June 30, 1997 ("Second Quarter 1997")
The Company's net sales for the Second Quarter 1998 were $8,044,593,
representing a 29.8% or $1,847,210 increase from net sales of $6,197,383
achieved in the Second Quarter 1997. This sales increase is attributable to a
20% increase in number of units shipped, as well as, slightly higher than
average sales prices for certain foreign units shipped. In addition, there was
an increase of approximately $383,389 in replacement parts sales.
The cost of goods sold, as a percentage of net sales, was 91.6% in the Second
Quarter 1998 compared with 65.7% in the Second Quarter 1997. The cost of goods
sold was favorably impacted in the Second Quarter 1997 by the $565,227 pre-tax
net periodic pension income relating to the termination of the pension plan.
Excluding this item, cost of goods sold would have been $4,636,239 or 74.8% in
the Second Quarter 1997. During the Second Quarter 1998, the Company charged to
cost of goods sold approximately $1,493,000 or 18.6% of net sales to reflect
manufacturing inefficiencies resulting from delays in receiving manufacturing
parts.
11
<PAGE>
The Company's selling, administrative, and engineering expenses decreased
$244,361 from $2,061,447 or 33.3% of net sales, to $1,817,086 or 22.6% of net
sales. Selling, administrative and engineering expenses were favorably impacted
in the Second Quarter 1997 by the $742,973 pre-tax net periodic pension income
relating to the termination of the pension plan. However, this favorable impact
in 1997 was partially offset by a $369,044 increase in excise tax expense
associated with the termination of the pension plan. Excluding these items, the
Second Quarter 1997 would have been $2,435,376 or 39.3% of sales. Selling,
administrative, and engineering expenses for the Second Quarter 1998 were
favorably impacted due to a reduction in warranty expense of approximately
$709,507 compared to Second Quarter 1997. Warranty expenses in the Second
Quarter 1997 were higher due to increased reserves relating to the beginning of
various field service campaigns.
Other income for the Second Quarter 1998 was $2,101,897 as compared to $9,865
recorded in the Second Quarter 1997. Included in other income for Second Quarter
1998 was a gain of $2,095,965 on the sale of marketable securities.
Other expenses for the Second Quarter 1998 were $51,488 as compared to $24,677
recorded in the Second Quarter 1997. This increase in other expenses for the
Second Quarter 1998 is related to increased interest expense associated with the
Company's line of credit.
The income tax expense (benefit) for the Second Quarter 1998 and Second Quarter
1997 varies from the customary relationship of 34% primarily due to changes in
the Company's valuation reserve allowance against recorded deferred tax assets.
The net earnings after tax for the three months ended June 30, 1998 was $938,894
or $.24 per share, as compared to a net loss of $260,414 or $.07 per share for
the three months ended June 30, 1997.
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.
12
<PAGE>
Liquidity and Capital Resources
At June 30, 1998 the Company had working capital of $20,271,109; the ratio of
current assets to current liabilities was 3.9 to 1; and the debt to equity ratio
was .31 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 used $237,744 for
financing activities in 1997 to repurchase its common stock. There was no stock
repurchases in 1998.
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
$4,023,000 had been utilized at June 30, 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.
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 Company has not filed any reports on Form 8-K during this quarter
for which this report is filed.
(a) No exhibits have been filed as part of this Report.
(b) No reports on Form 8-K have been filed during the Quarter for
which this report is filed.
14
<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: August 14, 1998 /s/ Wes O. Brant
- -------------------------- ------------------------------------------
Wes O. Brant
Vice-President and
Chief Operating Officer
Date: August 14, 1998 /s/ Eugene R. Gardner
- -------------------------- ------------------------------------------
Eugene R. Gardner
Controller
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,048,410
<SECURITIES> 0
<RECEIVABLES> 5,051,664
<ALLOWANCES> 225,000
<INVENTORY> 17,716,301
<CURRENT-ASSETS> 27,203,789
<PP&E> 9,586,831
<DEPRECIATION> 6,027,059
<TOTAL-ASSETS> 30,790,147
<CURRENT-LIABILITIES> 6,932,680
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 15,476,252
<TOTAL-LIABILITY-AND-EQUITY> 30,790,147
<SALES> 15,093,061
<TOTAL-REVENUES> 17,202,091
<CGS> 12,888,159
<TOTAL-COSTS> 3,379,294
<OTHER-EXPENSES> 52,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,245
<INCOME-PRETAX> 882,065
<INCOME-TAX> (39,149)
<INCOME-CONTINUING> 921,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 921,214
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
