<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 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
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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
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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 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 June 30, 2000: 3,805,608
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ATHEY PRODUCTS CORPORATION
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I N D E X
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 3 - 4
(unaudited) and December 31, 1999.
Statements of Operations for the six
months ended June 30, 2000 (unaudited) 5
and June 30, 1999 (unaudited).
Statements of Operations for the three
months ended June 30, 2000 (unaudited) 6
and June 30, 1999 (unaudited).
Statements of Cash Flows for the six
months ended June 30, 2000 (unaudited) 7
and June 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 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
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<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 43,412 $ 33,211
Certificate of deposit, restricted - 190,408
Accounts receivable (less allowances for doubtful accounts
of $168,844 and $157,031 for 2000 and 1999, respectively) 3,424,526 3,376,826
Inventories 17,577,473 17,458,679
Prepaid expenses 293,462 202,506
Deferred income taxes 373,133 373,133
-------------------------------------
Total current assets 21,712,006 21,634,763
-------------------------------------
OTHER ASSETS:
Other 96,397 98,230
-------------------------------------
Total other assets 96,397 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 5,121,620 5,121,620
-------------------------------------
9,251,063 9,251,063
Less accumulated depreciation (5,870,729) (5,691,232)
-------------------------------------
Total property, plant and equipment, net 3,380,334 3,559,831
-------------------------------------
$ 25,188,737 $ 25,292,824
=====================================
</TABLE>
See notes to financial statements.
3
<PAGE>
ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
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<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 3,647,262 $ 3,938,679
Current portion of obligations under financing agreements 8,945 17,732
Accounts payable 5,616,764 4,231,834
Accrued salaries, wages, and payroll withheld 421,912 398,618
Other accrued expenses 241,136 244,157
Warranty reserve 1,099,266 1,100,000
------------- -------------
Total current liabilities 11,035,285 9,931,020
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NONCURRENT LIABILITIES:
Obligations under financing agreements 58,900 59,633
Long-term borrowings 1,545,966 1,749,383
Deferred income taxes 373,133 373,133
------------- -------------
Total noncurrent liabilities 1,977,999 2,182,149
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SHAREHOLDERS' EQUITY:
Common stock, par value $2 per share:
Authorized 10,000,000 shares;
Issued 4,020,459 shares 8,040,918 8,040,918
Additional paid-in capital 16,218,394 16,218,394
Accumulated deficit (11,155,301) (10,151,099)
Less cost of 214,851 common shares
in treasury (928,558) (928,558)
------------- -------------
Total shareholders' equity 12,175,453 13,179,655
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$ 25,188,737 $ 25,292,824
============= =============
</TABLE>
See notes to financial statements.
4
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 17,441,781 $ 20,493,974
Cost of goods sold 15,307,834 16,917,902
---------------- ----------------
Gross profit 2,133,947 3,576,072
Selling, administrative and engineering expenses 2,789,679 3,382,224
---------------- ----------------
Income (loss) from operations (655,732) 193,848
Other income 7,330 38,755
Other expenses (355,800) (221,808)
---------------- ----------------
Income (loss) before income taxes (1,004,202) 10,795
Income taxes - -
---------------- ----------------
NET INCOME (LOSS) $ (1,004,202) $ 10,795
================ ================
NET INCOME (LOSS) PER SHARE $ (0.26) $ 0.00
================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,805,608
================ ================
</TABLE>
See notes to financial statements.
5
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30,2000 June 30,1999
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 8,916,601 $ 10,925,928
Cost of goods sold 7,344,864 8,792,877
------------------ ------------------
Gross profit 1,571,737 2,133,051
Selling, administrative and engineering expenses 1,360,654 1,717,706
------------------ ------------------
Income from operations 216,083 415,345
Other income 6,307 24,979
Other expenses (182,130) (122,246)
------------------ ------------------
Income before income taxes 35,260 318,078
Income taxes - -
------------------ ------------------
NET INCOME $ 35,260 $ 318,078
================== ==================
NET INCOME PER SHARE $ 0.01 $ 0.08
================== ==================
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,608 3,805,608
================== ==================
</TABLE>
See notes to financial statements.
6
<PAGE>
ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30,2000 June 30,1999
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss) $ (1,004,202) $ 10,795
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 179,497 184,209
Provision for doubtful accounts 11,813 46,082
Changes in operating assets and liabilities:
Accounts receivable (59,513) (902,439)
Inventories (118,794) 225,914
Prepaid expenses (90,956) (159,452)
Accounts payable 1,384,930 319,245
Accrued salaries, wages, and payroll withheld 23,294 20,224
Other accrued expenses (3,021) 39,361
Warranty reserve (734) 109,086
---------------- ----------------
Net cash provided by (used in) operating activities 322,314 (106,975)
---------------- ----------------
INVESTING ACTIVITIES:
Purchase of plant equipment - (38,028)
Certificate of deposit released from restriction 190,408 -
Other 1,833 -
---------------- ----------------
Net cash provided by (used in) investing activities 192,241 (38,028)
---------------- ----------------
FINANCING ACTIVITIES:
Net proceeds from (payments on) credit facility (494,834) 609,000
Principal paid on obligations under financing agreements (9,520) -
---------------- ----------------
Net cash provided by (used in) financing activities (504,354) 609,000
---------------- ----------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 10,201 463,997
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,211 143,391
---------------- ----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 43,412 $ 607,388
================ ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 355,800 $ 221,782
================ ================
</TABLE>
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, 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 six month periods ended June 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
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Six Months Ended June 30, 2000
------------------------------
as compared to
Six Months Ended June 30, 1999
------------------------------
The Company's net sales for the six months ended June 30, 2000 were $17,441,781,
a 14.9% or $3,052,193 decrease from the $20,493,974 recorded for the same period
in 1999. The sales decrease reflects a 19.3% decrease in the number of sweepers
shipped d uring the period as compared to the same period of 1999. Unseasonably
bad weather in the first quarter of 2000 and delays in receiving key parts in
the second quarter of 2000 contributed to production delays and the reduction in
the number of sweeper units shipped. This volume decrease was partially offset
by a 4.0% increase in average realized price. Replacement parts sales decreased
6.6% from the six-month period in 1999.
In addition, the softening in sales orders, which started in the Third Quarter
1999, continued during the first half of 2000. At June 30, 2000, the Company
had a backlog of orders it believed to be firm of approximately $6,555,000, as
compared with a backlog of $15,116,000 at June 30, 1999. Management expects the
softening of sales orders and the backlog reduction to further continue into the
Third Quarter 2000.
Cost of goods sold as a percentage of net sales was 87.8% for the six months
ended June 30, 2000 as compared to 82.6% during the same period for 1999.
Unabsorbed labor and burden variances adversely impacted cost of goods sold in
2000.
The Company's selling, administrative and engineering expenses decreased
$592,545 from $3,382,224 or 16.5% of net sales, to $2,789,679 or 16.0% of net
sales. Selling, administrative and engineering expenses in 2000 were favorably
impacted by headcount reductions and lower warranty expenses.
Other expenses for 2000 were $355,800 as compared to $221,808 recorded in 1999.
This increase is related to increased interest expense associated with higher
rates and borrowings on the Company's line of credit.
The net loss after tax for the six months ended June 30, 2000 was $1,004,202 or
$0.26 per share, as compared to a net income of $10,795 or $0.00 per share
recorded for the same period in 1999 for the reasons discussed above.
10
<PAGE>
Three Months Ended June 30, 2000 ("Second Quarter 2000")
--------------------------------------------------------
as compared to
Three Months Ended June 30, 1999 ("Second Quarter 1999")
--------------------------------------------------------
The Company's net sales for the Second Quarter 2000 were $8,916,601 representing
a 18.4%, or $2,009,327 decrease from net sales of $10,925,928 recorded in the
Second Quarter 1999. This sales decrease is attributable to a 19.3% decrease in
number of units shipped, and a 6.4% decline in replacement parts sales. Delays
in receiving key parts contributed to the reduction in the number of sweeper
units shipped in the Second Quarter. This volume decrease was partially offset
by a 4.0% increase in average realized prices.
The cost of goods sold, as a percentage of net sales, was 82.4% in the Second
Quarter 2000 compared with 80.5% in the Second Quarter 1999. Although
unabsorbed labor and burden variances improved in the Second Quarter 2000, these
factors continue to impact cost of goods sold.
The Company's selling, administrative, and engineering expenses decreased
$357,052 to $1,360,654 in the Second Quarter 2000 or 15.3% of net sales, from
$1,717,706 reported in the Second Quarter 1999 or 15.7% of net sales. The
decrease is the result of ongoing cost reduction efforts to lower head counts
and lower warranty expenses.
Other income for the Second Quarter 2000 was $6,307 as compared to $24,979
recorded in the Second Quarter of 1999.
Other expenses for the Second Quarter of 2000 were $182,130 as compared to
$122,246 recorded in the Second Quarter of 1999. This increase in other
expenses for the Second Quarter 2000 is related to increased interest expense
associated with the borrowings on the Company's line of credit.
The net income for the three months ended June 30, 2000 was $35,260 or $0.01 per
share, as compared to net income of $318,078 or $0.08 per share for the three
months ended June 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 June 30, 2000, the Company had working capital of $10,676,721; the ratio of
current assets to current liabilities was 2.0 to 1; and the debt to equity ratio
was 1.07 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
.92 to 1 at December 31, 1999. The decrease in working capital is primarily due
to an increase in accounts payable.
The Company did not authorize any common stock repurchases during 2000 or 1999.
At June 30, 2000, the Company had available a secured line of credit with a
financial institution of $9,000,000 of which $5,193,228 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 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 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.
At June 30, 2000, the Company had complied with all financial covenants.
To ensure an adequate supply of key inventory material, the Company has, in the
normal course of business, issued purchase order commitments at June 30, 2000 to
a major supplier for the purchase of chassis in the amount of $2,398,000. Such
commitments represent 6 - 12 months of supply for certain production models.
12
<PAGE>
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 June 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.
---------------------------------------------------
The annual meeting of shareholders for the Company was held on May 25,
2000 at which meeting the following matters were voted on by the
shareholders:
(i) Set the number of directors at five (5) (3,459,965 for, 0 against,
and 133,983 abstaining) and Election of Directors.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
John F. McCullough 3,459,965 133,983
Martin W. McCullough 3,460,045 133,903
Richard A. Rosenthal 3,583,765 10,183
Joseph L. Dindorf 3,583,855 10,093
Thomas N. Nelson 3,583,775 10,173
(ii) Ratification of the Appointment of McGladrey & Pullen, LLP as the
independent public accountants of the Company.
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
<S> <C> <C> <C>
3,425,800 1,812 166,336
</TABLE>
Item 5. Other Information. None.
-----------------
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) The following exhibits have been filed as part of this
report.
3.1 Bylaws
10.1 Employment Agreement
27.1 Financial Data Schedule
(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 2, 2000 /s/ Thomas N. Nelson
--------------------- -------------------------------------
Thomas N. Nelson
President and Chief Executive Officer
Date: August 2, 2000 /s/ William H. Warden
--------------------- -------------------------------------
William H. Warden
Vice President - Finance,
Chief Financial Officer,
Treasurer and Corporate
Secretary
15
