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, 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
- --------------------------------------------------------------------------------
(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, 2000: 3,805,608
<PAGE>
ATHEY PRODUCTS CORPORATION
--------------------------
I N D E X
---------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999. 3 - 4
Statements of Operations for the three
months ended March 31, 2000 (unaudited)
and March 31, 1999 (unaudited). 5
Statements of Cash Flows for the three
months ended March 31, 2000 (unaudited)
and March 31, 1999 (unaudited). 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10
PART II. OTHER INFORMATION 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
--------------------- -------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 382,392 $ 33,211
Certificate of deposit, restricted 191,933 190,408
Accounts receivable (less allowances for doubtful accounts
of $170,459 and $157,031 for 2000 and 1999, respectively) 3,852,584 3,376,826
Inventories 18,278,913 17,458,679
Prepaid expenses 255,389 202,506
Deferred income taxes 373,133 373,133
-----------------------------------------------
Total current assets 23,334,344 21,634,763
-----------------------------------------------
OTHER ASSETS:
Other 98,230 98,230
-----------------------------------------------
Total other assets 98,230 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 5,121,880 5,121,620
-----------------------------------------------
9,251,323 9,251,063
Less accumulated depreciation (5,777,185) (5,691,232)
-----------------------------------------------
Total property, plant and equipment, net 3,474,138 3,559,831
-----------------------------------------------
$ 26,906,712 $ 25,292,824
===============================================
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
-------------------- --------------------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 5,456,971 $ 3,938,679
Current portion of obligations under financing agreement 13,753 17,732
Accounts payable 5,559,423 4,231,834
Accrued salaries, wages, and payroll withheld 430,740 398,618
Other accrued expenses 90,688 244,157
Warranty reserve 1,114,534 1,100,000
-------------------- ---------------------
Total current liabilities 12,666,109 9,931,020
-------------------- ---------------------
NONCURRENT LIABILITIES:
Obligations under financing agreements 59,260 59,633
Long-term borrowings 1,668,017 1,749,383
Deferred income taxes 373,133 373,133
-------------------- ---------------------
Total noncurrent liabilities 2,100,410 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) (11,190,561) (10,151,099)
Less cost of 214,851 common shares
in treasury (928,558) (928,558)
-------------------- ---------------------
Total shareholders' equity 12,140,193 13,179,655
-------------------- ---------------------
$ 26,906,712 $ 25,292,824
==================== =====================
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
---------------------- -----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 8,525,180 $ 9,568,046
Cost of goods sold 7,962,970 8,125,025
---------------------- -----------------------
Gross profit 562,210 1,443,021
Selling, administrative and engineering expenses 1,429,025 1,664,518
---------------------- -----------------------
Loss from operations (866,815) (221,497)
Other income 1,023 13,776
Other expenses (173,670) (99,562)
---------------------- -----------------------
Loss before income tax benefit (1,039,462) (307,283)
Income tax benefit - -
---------------------- -----------------------
NET LOSS $ (1,039,462) $ (307,283)
====================== =======================
NET LOSS PER SHARE $ (0.27) $ (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 31,2000 March 31,1999
-------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,039,462) (307,283)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 85,953 91,897
Provision for doubtful accounts 13,428 -
Changes in operating assets and liabilities:
Accounts receivable (489,186) (284,326)
Inventories (820,234) 1,292,239
Prepaid expenses (52,883) (178,699)
Accounts payable 1,327,589 (697,237)
Accrued salaries, wages, and payroll withheld 32,122 18,488
Other accrued expenses (153,469) (31,713)
Warranty reserve 14,534 61,778
-------------------- --------------------
Net cash used in operating activities (1,081,608) (34,856)
-------------------- --------------------
INVESTING ACTIVITIES:
Purchase of plant equipment (260) (24,000)
Interest on certificate of deposit (1,525) -
-------------------- -------------------
Net cash used in investing activities (1,785) (24,000)
-------------------- -------------------
FINANCING ACTIVITIES:
Net proceeds from line of credit 1,436,926 609,000
Principal paid on obligations under financing agreements (4,352) -
-------------------- -------------------
Net cash provided by financing activities 1,432,574 609,000
-------------------- -------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 349,181 550,144
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,211 143,391
-------------------- -------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 382,392 $ 693,535
==================== ===================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 173,670 $ 100,032
==================== ===================
</TABLE>
See notes to financial statements.
6
<PAGE>
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 month period ended March 31, 2000
should not necessarily be taken as indicative of the results that might be
expected for the entire year 2000.
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 in 2000 and 1999. Basic and diluted earnings (loss) per share are
the same for both 2000 and 1999.
7
<PAGE>
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 "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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 ("First Quarter 2000")
as compared to
Three Months Ended March 31, 1999 ("First Quarter 1999")
The Company's net sales for the First Quarter 2000 were $8,525,180, a 10.9%
decrease from the $9,568,046 recorded for the First Quarter 1999. The $1,042,866
decrease in sales was primarily attributable to a 10.4% decrease in the number
of sweeper units shipped. During January 2000, the region experienced an
unseasonable snowstorm, which resulted in production and delivery delays.
In addition, a softening in sales orders, which started in the Third Quarter
1999, continued in the First Quarter 2000. At March 31, 2000, the Company had a
backlog of orders it believed to be firm of approximately $8,445,000, as
compared to a backlog of $10,146,000 on December 31, 1999. At March 31, 1999,
the Company had a backlog of orders of approximately $14,532,000.
Cost of goods sold as a percentage of net sales was 93.4% for the First Quarter
2000 as compared to 84.9% in the First Quarter 1999. Accounting for inventory
components of freight and consumables and the unabsorbed labor and burden
variances caused by January's snowstorm adversely impacted cost of goods sold in
the First Quarter 2000.
The Company's selling, administrative and engineering expenses decreased
$235,493 from $1,664,518 or 17.4% of net sales, to $1,429,025 or 16.8% of net
sales. Selling, administrative and engineering expenses in 2000 have been
favorably impacted by cost reduction initiatives.
8
<PAGE>
Other income was $1,023 for the First Quarter 2000 as compared to $13,776
recorded in the First Quarter 1999. Included in other income for 1999 was
interest income related to the proceeds from the sale of marketable securities.
Other expenses were $173,670 in the First Quarter 2000 compared to $99,562 in
the First Quarter 1999. This increase in other expenses for 2000 is related to
increased interest expense on the Company's larger borrowings, and also a higher
prime interest rate.
Income tax expense (benefit) for 2000 and 1999 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 loss after income tax benefit for the first quarter, 2000, was
$1,039,462 or $.27 per share, as compared to a net loss of $307,283 or $.08 per
share recorded for 1999.
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, 2000, the Company had working capital of $10,668,235; the ratio of
current assets to current liabilities was 1.8 to 1; and the debt to equity ratio
was 1.22 to 1 due to increased borrowings. 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 .92 to 1 at December 31, 1999.
The Company has generally relied upon internally generated funds and short-term
borrowings to satisfy working capital requirements and to fund capital
expenditures. At March 31, 2000, the Company had available a secured line of
credit with a financial institution of $9,000,000 of which $7,124,988 had been
utilized. At December 31, 1999, the Company had utilized $5,688,062 of the
credit line.
9
<PAGE>
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 facility has an initial maturity date of June
30, 2002 and bears an 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 as agreed, among other
things, not to: (i) 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) 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. At March 31, 2000, the Company had complied with all financial
covenants.
YEAR 2000 ISSUE
The Company did not experience any significant problems associated with the Year
2000 issue. The Company did not incur any material costs related to the Year
2000 issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company's market risk exposure at March 31, 2000 is consistent with the
types of market risk and amount of exposure presented in its Annual Report on
Form 10-K for the year ended December 31, 1999.
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 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) The following are included as exhibits to this report:
Exhibit No. Description
27.1 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the Quarter for
which this report is filed.
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, 2000 /s/ Thomas N. Nelson
- ------------------- ----------------------
Thomas N. Nelson
President and Chief Executive Officer
Date: May 15, 2000 /s/ William H. Warden
- ------------------- ----------------------
William H. Warden
Vice President - Finance,
Chief Financial Officer, Treasurer
and Corporate Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 382,392
<SECURITIES> 191,933
<RECEIVABLES> 4,023,043
<ALLOWANCES> 170,459
<INVENTORY> 18,278,913
<CURRENT-ASSETS> 23,334,344
<PP&E> 9,251,323
<DEPRECIATION> 5,777,185
<TOTAL-ASSETS> 26,906,712
<CURRENT-LIABILITIES> 12,666,109
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 4,099,275
<TOTAL-LIABILITY-AND-EQUITY> 26,906,712
<SALES> 8,525,180
<TOTAL-REVENUES> 0
<CGS> 7,962,970
<TOTAL-COSTS> 1,429,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,670
<INCOME-PRETAX> (1,039,462)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,039,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,039,462)
<EPS-BASIC> (.27)
<EPS-DILUTED> 0
</TABLE>
