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 September 30, 2000
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
--------------------------------- ------------------------------
(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
------------
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 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, 2000: 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 September 30, 2000 3 - 4
(unaudited) and December 31, 1999.
Statements of Operations for the nine
months ended September 30, 2000 (unaudited) 5
and September 30, 1999 (unaudited).
Statements of Operations for the three
months ended September 30, 2000 (unaudited) 6
and September 30, 1999 (unaudited).
Statements of Cash Flows for the nine
months ended September 30, 2000 (unaudited) 7
and September 30, 1999 (unaudited).
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 9 - 13
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 13
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
------------------- --------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 587,730 $ 33,211
Certificate of deposit, restricted - 190,408
Accounts receivable (less allowances for doubtful accounts
of $168,980 and $157,031 for 2000 and 1999, respectively) 1,954,387 3,376,826
Inventories 16,984,008 17,458,679
Prepaid expenses 182,200 202,506
Deferred income taxes 373,133 373,133
----------------- --------------------
Total current assets 20,081,458 21,634,763
----------------- --------------------
OTHER ASSETS:
Other 64,000 98,230
----------------- --------------------
Total other assets 64,000 98,230
----------------- --------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings and building improvements 4,081,658 4,081,658
Machinery and equipment 5,112,499 5,121,620
----------------- --------------------
9,241,942 9,251,063
Less accumulated depreciation (5,943,894) (5,691,232)
----------------- --------------------
Total property, plant and equipment, net 3,298,048 3,559,831
----------------- --------------------
$ 23,443,506 $ 25,292,824
================= ====================
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
--------------------- ---------------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings 4,815,057 $ 3,938,679
Current portion of obligations under financing agreements 4,130 17,732
Accounts payable 5,780,846 4,231,834
Accrued salaries, wages, and payroll withheld 487,978 398,618
Other accrued expenses 247,781 244,157
Warranty reserve 1,063,385 1,100,000
--------------------- ---------------------
Total current liabilities 12,399,177 9,931,020
--------------------- ---------------------
NONCURRENT LIABILITIES:
Obligations under financing agreements 59,260 59,633
Long-term borrowings - 1,749,383
Deferred income taxes 373,133 373,133
--------------------- ---------------------
Total noncurrent liabilities 432,393 2,182,149
--------------------- ---------------------
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
Accumulated deficit (12,718,818) (10,151,099)
Less cost of 214,851 common shares
in treasury (928,558) (928,558)
--------------------- ---------------------
Total shareholders' equity 10,611,936 13,179,655
--------------------- ---------------------
$ 23,443,506 $ 25,292,824
===================== =====================
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
--------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 23,771,215 $ 30,123,280
Cost of goods sold 21,355,210 24,954,185
------------------ ----------------------
Gross profit 2,416,005 5,169,095
Selling, administrative and engineering expenses 4,195,824 4,816,792
------------------ ----------------------
Income (loss) from operations (1,779,819) 352,303
Other income 29,785 37,531
Other expenses 817,685 362,655
------------------ ----------------------
Income (loss) before income taxes (2,567,719) 27,179
Income taxes -
------------------ ----------------------
NET INCOME (LOSS) $ (2,567,719) $ 27,179
================== ======================
NET INCOME (LOSS) PER SHARE $ (0.67) $ 0.01
================== ======================
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 OPERATIONS
------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 6,329,434 $ 9,629,306
Cost of goods sold 6,047,376 8,036,283
---------------------- ----------------------
Gross profit 282,058 1,593,023
Selling, administrative and engineering expenses 1,406,145 1,434,568
---------------------- ----------------------
Income (loss) from operations (1,124,087) 158,455
Other income 22,455 (1,224)
Other expenses 461,885 140,847
---------------------- ----------------------
Income (loss) before income tax expense (1,563,517) 16,384
Income taxes - -
---------------------- ----------------------
NET INCOME (LOSS) $ (1,563,517) $ 16,384
====================== ======================
NET INCOME (LOSS) PER SHARE $ (0.41) $ 0.00
====================== ======================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,805,608
====================== ======================
</TABLE>
See notes to financial statements
6
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2000 September 30,1999
-------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss) $ (2,567,719) $ 27,179
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization 252,662 266,562
Provision for doubtful accounts 11,949 320
Changes in operating assets and liabilities:
Accounts receivable 1,410,490 (979,932)
Inventories 474,671 (324,302)
Prepaid expenses 20,306 (327,631)
Accounts payable 1,549,012 (751,362)
Accrued salaries, wages, and payroll withheld 89,360 (13,881)
Other accrued expenses 3,624 (129,661)
Warranty reserve (36,615) (87,596)
-------------------- --------------------
Net cash provided by (used in) operating activities 1,207,740 (2,320,304)
-------------------- --------------------
INVESTING ACTIVITIES:
Purchase of plant equipment - (37,354)
Certificate of deposit released from restriction 190,408 -
Other 43,351 -
-------------------- --------------------
Net cash provided by (used in) investing activities 233,759 (37,354)
-------------------- --------------------
FINANCING ACTIVITIES:
Net proceeds from (payments on) credit facility (873,005) 2,394,323
Principal paid on obligations under financing agreements (13,975) -
-------------------- --------------------
Net cash provided by (used in) financing activities (886,980) 2,394,323
-------------------- --------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 554,519 36,665
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,211 143,391
-------------------- --------------------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 587,730 $ 180,056
==================== ====================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 503,621 $ 356,485
==================== ====================
</TABLE>
See notes to financial statements
7
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, 1999.
The Company follows an interim closing procedure which utilizes a
13-week quarter rather than a calendar quarter. The end-year closing is
not affected by this procedure.
II. The accompanying financial information reflects all adjustments,
consisting only of normal adjustments, necessary to present fairly the
financial position, results of operations, and cash flows for the
interim period. The results of operations for the three and nine month
periods ended September 30, 2000 should not necessarily be taken as
indicative of the results that might be expected for the entire year
2000.
III. Income (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 in 2000 and 1999. Basic and diluted income (loss) per
share are the same for both 2000 and 1999.
8
<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 judgement based on factors currently known, involve
risks and uncertainties. Words such as "expect", "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.
9
<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000
as compared to
Nine Months Ended September 30, 1999
The Company's net sales for the nine months ended September 30, 2000 were
$23,771,215, a 21.1% or $6,352,065 decrease from the $30,123,280 recorded for
the same period in 1999. The sales decrease reflects a 27.3% decrease in the
number of sweepers shipped during the period as compared to the same period of
1999. Unseasonably bad weather early in the first quarter of 2000 and delays
in receiving key parts coupled with inconsistency in orders in the second and
third quarters resulted in production delays and the reduction in the number
of sweeper units shipped. This volume decrease was partially offset by a 5.0%
increase in average realized prices. Replacement parts sales decreased 6.5%
from the nine-month period in 1999.
In addition, the softening in sales orders, which started in the third quarter
of 1999 ("Third Quarter 1999"), continued during the first nine months of
2000. At September 30, 2000, the Company had a backlog of orders it believed
to be firm of approximately $6,022,000, as compared with a backlog of
$11,572,000 at September 30, 1999. Management expects that the general market
softness will continue through the fourth quarter of 2000 and that order input
will continue at levels consistent with the past twelve months. Management
believes that its markets have been negatively impacted by customer budget
constraints relating to interest rate and fuel cost increases. Additionally,
environmental regulations have delayed the release of bid documents from
customers in certain markets.
Cost of goods sold as a percentage of net sales was 89.8% for the nine months
ended September 30, 2000 as compared to 82.8% during the same period for 1999.
Unabsorbed labor and burden variances, principally resulting from the volume
decreases discussed above adversely, impacted cost of goods sold in 2000.
The Company's selling, administrative and engineering expenses decreased
$620,968 from $4,816,792, or 16% of net sales in 1999, to $4,195,824, or 17.7%
of net sales in 2000. Selling, administrative and engineering expenses in 2000
were favorably impacted by cost reduction programs and lower warranty
expenses. These expenses increased as a percentage of sales, however , due to
the sales decreases noted above.
Other expenses for 2000 were $817,685 as compared to $362,655 recorded in
1999. This increase is related principally to $148,000 in increased interest
expense associated with higher rates and borrowings on the Company's line of
credit , to $314,000 in refinancing and other consultant and professional fees
in the third quarter of 2000 ( "Third Quarter 2000").
The net loss after tax for the nine months ended September 30, 2000 was
$2,567,719, or $0.67 per share, as compared to a net income of $27,179, or
$0.01 per share recorded for the same period in 1999 for the reasons discussed
above.
10
<PAGE>
Three Months Ended September 30, 2000
as compared to
Three Months Ended September 30, 1999
The Company's net sales for the Third Quarter 2000 were $6,329,434 representing
a 34.3%, or $3,299,872 decrease from net sales of $9,629,306 recorded in the
Third Quarter 1999. This sales decrease is attributable to a 43.5% decrease in
number of units shipped, and a 6.4% decline in replacement parts sales. Delays
in receiving key parts and inconsistency in orders during the quarter resulted
in production delays and the reduction in the number of sweeper units shipped in
the Third Quarter 2000. This volume decrease was partially offset by a 8.7%
increase in average realized prices.
The cost of goods sold, as a percentage of net sales, was 95.5% in the Third
Quarter 2000 compared with 83.5% in the Third Quarter 1999. Unabsorbed labor and
burden variances, principally resulting from the volume decreases discussed
above, continue to impact cost of goods sold.
The Company's selling, administrative, and engineering expenses decreased
$28,423 to $1,406,145 in the Third Quarter 2000 or 22.2% of net sales, from
$1,434,568 reported in the Third Quarter 1999 or 14.9% of net sales. The
decrease is the result of ongoing cost reduction programs. These expenses
increased as a percentage of sales, however, due to the sales decreases noted
above.
Other expenses for the Third Quarter 2000 were $461,885 as compared to $140,847
recorded in the Third Quarter 1999. This increase in other expenses for the
Third Quarter 2000 is related principally to a $15,000 increased interest
expense associated with the borrowings on Company's line of credit, to $314,000
in refinancing and other consultant and professional fees.
The net loss for the three months ended September 30, 2000 was $1,563,517, or
$0.41 per share, as compared to net income of $16,384, or $0.00 per share for
the three months ended September 30, 1999 for the reasons discussed above.
11
<PAGE>
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, 2000, the Company had working capital of $7,682,281; the ratio
of current assets to current liabilities was 1.6 to 1; and the debt to equity
ratio was 1.2 to 1. This compares to working capital of $11,703,743; a ratio of
current assets to current liabilities of 2.2 to 1; and a debt to equity ratio of
.9 to 1 at December 31, 1999. The decrease in working capital is primarily due
to an increase in accounts payable and a decrease in accounts receivable,
principally resulting from the sales decreases described above.
The Company did not authorize any common stock repurchases during 2000 or 1999.
To ensure an adequate supply of key inventory materials, the Company has, in the
normal course of business, issued purchase order commitments at September 30,
2000 to a major supplier for the purchase of chassis in the amount of
$1,782,000. Such commitments represent approximately a six month supply for
certain production models.
At September 30, 2000, the Company had available a secured line of credit with a
financial institution of $9,000,000 of which $4,815,057 had been utilized. At
December 31, 1999, the Company had utilized $5,688,062 of the credit line.
The credit facility, which was obtained in July 1999, is in the form of a
revolving and term loan credit facility and provides an aggregate principal
amount of up to $9 million. The availability under the revolving portion of the
credit facility is based on the various advance rates on eligible accounts
receivable and inventory subject to reserves and sublimits. The facility has an
initial maturity date of June 30, 2002 and bears an initial interest rate of
3/4% above the prime rate as quoted in the Wall Street Journal.
In connection with the credit facility, the Company has covenants, among others;
(i) not to incur a pre-tax cumulative loss of $850,000 for the period from June
30, 1999 through the end of the initial term and (ii) not to permit the ratio of
its total liabilities to its net worth to be greater than 2.0 to 1. The Company
also has restrictions on the disposal of assets and the payment of dividends.
The Company notified its primary lender that, as of the end of July 2000, the
Company was in violation of the cumulative net loss covenant in its Loan and
Security Agreement. Pursuant to the notice, the Company received a Waiver and
Amendment No.1 to its Loan and Security Agreement wherein the lender has waived
the violation until November 30, 2000. The Loan and Security Agreement has been
amended to increase the rate on the credit facility to 2 3/4 over the prime rate
as quoted in the Wall Street Journal.
12
<PAGE>
The Company is in the process of exploring various alternatives and developing a
comprehensive business and capital plan to address both its operational issues
and its capital and liquidity needs. Among other things in that regard, the
Company is discussing its alternatives with its lender and expects to seek,
prior to November 30, 2000, an additional waiver of covenant compliance and
negotiate other arrangements with its lender to provide for its ongoing
liquidity needs. However, there are no assurances that the foregoing
arrangements can be made by the Company with its lender. Therefore, as of
September 30, 2000, all the borrowings related to the credit facility have been
classified as a current liability.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure at September 30, 2000 is consistent with the
types of market risk and amount of exposures presented in its Annual Report on
Form 10-K for the year ended December 31, 1999.
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.
--------------------------------
(a)Exhibits have been filed as part of this report:
10.1 Waiver and Amendment NO. 1 to Loan and Security Agreement
dated October 31, 2000
27.1 Financial Data Schedule
(b)No reports on Form 8-K have been filed during the quarter for which this
report is filed.
13
<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: November 14, 2000 /s/ Thomas N. Nelson
-------------------------- ----------------------
Thomas N. Nelson
President and Chief Executive Officer
Date: November 14, 2000 /s/ William H. Warden
-------------------------- ------------------------
William H. Warden
Vice President - Finance,
Chief Financial Officer, Treasurer and
Corporate Secretary
14
