10-Q 1 0001.txt FORM 10-Q 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 ------ 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 June 30, 2000: 3,805,608 ------------- --------- ATHEY PRODUCTS CORPORATION -------------------------- I N D E X --------- Page Number ------ 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 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ATHEY PRODUCTS CORPORATION BALANCE SHEETS --------------------------------------------------------------------------------
June 30, 2000 December 31, 1999 ------------- ----------------- (Unaudited) (Audited) 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 =====================================
See notes to financial statements. 3 ATHEY PRODUCTS CORPORATION BALANCE SHEETS --------------------------------------------------------------------------------
June 30, 2000 December 31, 1999 ------------- ----------------- (Unaudited) (Audited) 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 ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- $ 25,188,737 $ 25,292,824 ============= =============
See notes to financial statements. 4 ATHEY PRODUCTS CORPORATION STATEMENTS OF OPERATIONS --------------------------------------------------------------------------------
Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 ---------------- ---------------- (Unaudited) (Unaudited) 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 ================ ================
See notes to financial statements. 5 ATHEY PRODUCTS CORPORATION STATEMENTS OF OPERATIONS --------------------------------------------------------------------------------
Three Months Ended Three Months Ended June 30,2000 June 30,1999 ------------------ ------------------ (Unaudited) (Unaudited) 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 ================== ==================
See notes to financial statements. 6 ATHEY PRODUCTS CORPORATION STATEMENTS OF CASH FLOWS --------------------------------------------------------------------------------
Six Months Ended Six Months Ended June 30,2000 June 30,1999 ---------------- ---------------- (Unaudited) (Unaudited) 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 ================ ================
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 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 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 RESULTS OF OPERATIONS --------------------- 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 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 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 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.
Name Votes For Votes Withheld ---- --------- -------------- 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 --------- ------------- ---------------- 3,425,800 1,812 166,336
Item 5. Other Information. None. ----------------- 13 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 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