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, 1999___________________________
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 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 $2.00 par value Common Shares Outstanding as
of March 31, 1999: 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, 1999
(unaudited) and December 31, 1998 3 - 4
Statements of Operations for the three
months ended March 31, 1999 (unaudited)
and March 31, 1998 (unaudited) 5
Statements of Cash Flows for the three
months ended March 31, 1999
(unaudited) and March 31, 1998 (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 - 12
2
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 693,535 $ 143,391
Accounts receivable (less allowances for doubtful
accounts of $285,280 for 1999 and 1998) 3,258,506 2,974,180
Inventories 15,173,870 16,466,109
Prepaid expenses 221,852 43,153
Deferred income taxes 107,489 107,489
---------------------------------------
Total current assets 19,455,252 19,734,322
---------------------------------------
OTHER ASSETS:
Other 2,230 2,230
---------------------------------------
Total other assets 2,230 2,230
---------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings and building improvements 3,940,997 3,929,722
Machinery and equipment 5,056,004 5,043,279
---------------------------------------
9,044,786 9,020,786
Less accumulated depreciation (5,513,573) (5,421,676)
---------------------------------------
Total property, plant and
equipment net 3,531,213 3,599,110
---------------------------------------
$ 22,988,695 $ 23,335,662
=======================================
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
----------------- ---------------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowing $ 5,000,000 $ 4,391,000
Accounts payable 2,845,617 3,542,854
Employee compensation and amounts withheld 456,912 438,424
Other accrued expenses 289,020 320,733
Warranty reserve 1,807,944 1,746,166
----------------- -----------------
Total current liabilities 10,399,493 10,439,177
----------------- -----------------
NONCURRENT LIABILITIES:
Deferred income taxes 107,489 107,489
----------------- -----------------
Total noncurrent
liabilities 107,489 107,489
----------------- -----------------
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) (10,849,041) (10,541,758)
Less cost of 214,851 common shares
in treasury (928,558) (928,558)
----------------- -----------------
Total shareholders'
equity 12,481,713 12,788,996
----------------- -----------------
$ 22,988,695 $ 23,335,662
================= =================
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 9,568,046 $ 7,048,468
Cost of goods sold 8,125,025 5,518,988
------------------- -------------------
Gross profit 1,443,021 1,529,480
Selling, administrative and engineering expenses 1,664,518 1,562,208
------------------- -------------------
Loss from operations (221,497) (32,728)
Other income 13,776 7,133
Other expenses 99,562 1,085
------------------- -------------------
Loss before income tax benefit (307,283) (26,680)
Income tax benefit - (9,000)
------------------- -------------------
NET LOSS $ (307,283) $ (17,680)
=================== ===================
NET LOSS PER SHARE $ (0.08) $ -
=================== ===================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,805,608
=================== ===================
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31,1999 March 31,1998
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (307,283) $ (17,680)
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation and amortization 91,897 117,252
Provision for deferred income tax - (9,000)
Changes in operating assets and liabilities:
Accounts receivable (284,326) (732,670)
Inventories 1,292,239 453,091
Prepaid expenses (178,699) 174,745
Accounts payable (697,237) (548,761)
Employee compensation and amounts withheld 18,488 38,670
Other accrued expenses (31,713) 244,356
Warranty reserve 61,778 94,449
---------------- ----------------
Net cash used in operating activities (34,856) (185,548)
---------------- ----------------
INVESTING ACTIVITIES:
Purchase of plant equipment (24,000) (62,043)
---------------- ----------------
Net cash used in investing activities (24,000) (62,043)
---------------- ----------------
FINANCING ACTIVITIES:
Proceeds from line of credit 609,000 2,237,000
Repayment of line of credit - (1,521,000)
Excess of outstanding checks over bank balance - (457,538)
Principal paid on obligations under capital lease - (10,871)
---------------- ----------------
Net cash provided by financing activities 609,000 247,591
---------------- ----------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 550,144 -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 143,391 6,880
---------------- ----------------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 693,535 $ 6,880
================ ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 100,032 $ 5,244
================ ================
</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, 1998.
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 both
in 1999 and 1998.
7
<PAGE>
ATHEY PRODUCTS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The forward-looking statements included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section, which
reflect management's best judgment based on factors currently known, involve
risks and uncertainties. Words such as "expects", "anticipates", "believes",
"intends", and "hopes", variations of such words and similar expressions are
intended to identify such forward-looking statements. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including but not limited to, the factors
discussed in such section. Forward-looking information provided by the Company
in such section pursuant to the safe harbor established under the Private
Securities Litigation Reform Act of 1995 should be evaluated in the context of
these factors.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 ("First Quarter 1999")
as compared to
Three Months Ended March 31, 1998 ("First Quarter 1998")
The Company's net sales for the First Quarter of 1999 were $9,568,046, a 35.7%
increase from the $7,048,468 recorded in the First Quarter of 1998. The
$2,519,578 increase in net sales was primarily attributable to a 45.3% increase
in the number of sweeper units shipped. The Company entered into the First
Quarter of 1999 with an order backlog of approximately $12,700,000. Plant
productivity improvements started late in 1998 have begun to shorten the sweeper
manufacturing cycle, which also contributed to the increased production of
sweepers during the First Quarter. Sales orders remained strong during the First
Quarter of 1999 and at March 31 1999, the Company had a backlog of orders it
believed to be firm of approximately $14,532,000.
Cost of goods sold as a percentage of net sales was 84.9% in the First Quarter
of 1999 as compared to 78.3% in the First Quarter of 1998. While the Company
continued to experience some of the production inefficiencies that impacted the
last three quarters of 1998, plant productivity was improved in the First
Quarter of 1999 due to fewer delays in receiving manufactured parts and other
production schedule adjustments.
The Company's selling, administrative and engineering expenses were $1,664,518,
and increase of $102,310 or 6.5% from the $1,562,208 recorded in the First
Quarter of 1998. However, as a percentage of net sales, these expenses decreased
to 17.4% of net sales in the First Quarter of 1999 from 22.2% of net sales for
the First Quarter of 1998. The overall increase was primarily due to higher
warranty expenses as the Company continued its Campaign warranty program.
8
<PAGE>
Other expenses were $99,562 in the First Quarter of 1999 compared to $1,085 in
the First Quarter of 1998. This increase is primarily due to increased interest
expense on the Company's larger short-term borrowings outstanding during the
quarter.
The net loss after income tax benefit for the First Quarter of 1999 was $307,283
or $.08 per share, as compared to a net loss after income tax benefit $17,680 or
$0.00 per share for the First Quarter of 1998.
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, 1999, the Company had working capital of $9,055,759; the ratio of
current assets to current liabilities was 1.9 to 1; and the debt to equity ratio
was .84 to 1. This compares to working capital of $9,295,145; a ratio of current
assets to current liabilities of 1.9 to 1; and a debt to equity ratio of .82 to
1 at December 31, 1998.
At March 31, 1999, cash and cash equivalents were $693,535, as compared to
$143,391 at December 31, 1998. During the First Quarter of 1999, the Company
experienced a higher level of usage of its credit line to support cash flow
requirements.
The Company has generally relied upon internally generated funds and short-term
bank borrowings to satisfy working capital requirements to fund capital
expenditures.
At March 31, 1999, the Company had fully utilized its $5,000,000 secured line of
credit with a financial institution. This secured line of credit is for general
working capital purposes and will expire June 15, 1999. This credit line bears
interest at the financial institution's prime rate plus one percent and is
secured by a first lien position on all accounts receivable, inventory,
equipment and other assets, as well as a security interest and deed of trust on
the Company's real estate located in Wake Forest, North Carolina.
At March 31, 1999, the Company was negotiating with a new lender for a new
credit facility that would increase the Company's available credit line. On
March 19, 1999, the Company had obtained an expression of interest from this new
potential lender. This expression of interest is subject to further negotiations
and due diligence procedures, and no assurance can be given that the Company
will obtain a new line of credit in the future. If the Company is unable to
obtain a new line of credit, its ability to finance its day to day operations
could be adversely affected.
9
<PAGE>
YEAR 2000 ISSUE
The Company has assessed its Year 2000 exposure and determined the consequences
that any Year 2000 problems might have on the Company's business, results of
operations or financial condition, or cause the Company to incur potential
liability to third parties if its computer systems are not Year 2000 compliant.
As part of its assessment, the Company canvassed its customers and suppliers and
reviewed the Year 2000 disclosures of certain publicly-traded entities that
provide or have provided the Company with computer and financial services,
including computer equipment and software, to determine whether Year 2000 issues
will have a material effect on the Company or such third parties. Based on the
results of its assessment, the Company believes its computer software and
equipment will be Year 2000 compliant. The Company has, however, developed a
contingency plan in the event its expectations regarding the Year 2000 problem
are incorrect. Because of the uncertainly surrounding the Year 2000 problem,
however, the Company can give no assurances that its assessment or its
contingency plan will avoid potential, material effects of the Year 2000
problem.
The Company does not anticipate that any incremental expenditures it may incur
as a result of Year 2000 issues will be material. The Company uses certain
accounting, word processing and inventory management software as part of its
day-to-day operations. Although a shutdown of all its computer systems could
cause delays in production or shipments of products to customers, the Company
does not expect such an interruption. In a worst case scenario, Year 2000
problems affecting the Company, the Company's bank accounts or the business
operations of the Company's customers could materially, adversely affect the
Company's production operation or its ability to meet its obligations to third
parties.
Nevertheless, in the event that Year 2000 problems have a material effect on the
Company, its customers or service providers, the Company expects to have
sufficient cash reserves and inventory to meet its payroll and various other
obligations pending resolution of any significant Year 2000 issues.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities and Use of Proceeds. 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.
(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.
11
<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: 04/27/99 /s/ Thomas N. Nelson
-------------------------------
Thomas N. Nelson
President and Treasurer
Date: 04/27/99 /s/ William H. Warden
-------------------------------
William H. Warden
Director of Finance
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 693,535
<SECURITIES> 0
<RECEIVABLES> 3,523,694
<ALLOWANCES> 285,280
<INVENTORY> 15,173,870
<CURRENT-ASSETS> 19,455,252
<PP&E> 9,044,786
<DEPRECIATION> 5,513,573
<TOTAL-ASSETS> 22,988,695
<CURRENT-LIABILITIES> 10,399,493
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 4,440,795
<TOTAL-LIABILITY-AND-EQUITY> 22,988,695
<SALES> 9,568,046
<TOTAL-REVENUES> 0
<CGS> 8,125,025
<TOTAL-COSTS> 1,664,518
<OTHER-EXPENSES> (14,246)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,032
<INCOME-PRETAX> (307,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (307,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (307,283)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
