-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kk1HcWvJrqQ4BDiQjMfWihRQXEzKoFBauar/koxvyUoc7iheHzl4nEAk+K2ach8s IzwyeNf2KpC8RCgYTZLjLg== 0000950168-96-000567.txt : 19960402 0000950168-96-000567.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950168-96-000567 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATHEY PRODUCTS CORP CENTRAL INDEX KEY: 0000008109 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 360753480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12649 FILM NUMBER: 96543203 BUSINESS ADDRESS: STREET 1: RTE 1A NORTH STREET 2: P O BOX 669 CITY: RALEIGH STATE: NC ZIP: 27602 BUSINESS PHONE: 9195565171 MAIL ADDRESS: STREET 1: ROUTE 1A NORTH STREET 2: P O BOX 669 CITY: RALEIGH STATE: NC ZIP: 27602 10-K405 1 ATHEY PRODUCTS 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File No. 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.) Route 1A North, P. O. Box 669, Raleigh, North Carolina 27602 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number including area code: 919-556-5171 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $2 par value (Title of Class) NASDAQ (Name of Each Exchange on Which Registered) 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 ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X. On March 15, 1996, there were 3,973,459 shares of common stock outstanding. On March 15, 1996, the aggregate market value of voting stock held by nonaffiliates (based upon the average bid and ask price of such stock) was approximately $10,303,541. Exhibit Index located at Sequential Page 11. DOCUMENTS INCORPORATED BY REFERENCE Part I None Part II
Item 5 - Market for Registrant's Common Equity Page 7 of the Annual Report to the and Related Stockholder Matters Shareholders for the year ended December 31, 1995 Item 6 - Selected Financial Data Page 6 of the Annual Report to Shareholders for the year ended December 31, 1995 Item 7 - Management's Discussion & Analysis of Financial Condition and Results of Pages 5 - 7 of the Annual Report to Operations Shareholders for the year ended December 31, 1995 Item 8 - Financial Statements and Supplementary Data Pages 8 - 13 and 16 of the Annual Report to Shareholders for the year ended December 31, 1995 Part III Item 10 (a) - Directors and Executive Officers of the Registrant Registrant's Proxy Statement to be filed in connection with its Annual Meeting to be held May 16, 1996 Item 11 - Executive Compensation Registrant's Proxy Statement to be filed in connection with its Annual Meeting to be held May 16, 1996 Item 12 - Security Ownership of Certain Beneficial Owners and Management Registrant's Proxy Statement to be filed in connection with its Annual Meeting to be held May 16, 1996 Item 13 - Certain Relationships and Related Transactions Registrant's Proxy Statement to be filed in connection with its Annual Meeting to Part IV be held May 16, 1996 Exhibits as specified in Item 14 of this Report
2 ATHEY PRODUCTS CORPORATION PART 1 Item 1. Business General Development of Business. Athey Products Corporation ("Registrant") was incorporated in the State of Illinois on September 29, 1922. In May, 1988, the Registrant's corporate domicile was changed from Illinois to Delaware by reincorporating the Registrant in the latter state. The Registrant is a manufacturer of heavy duty equipment and parts. Its principal products include street sweepers, conveyors, and force feed loaders. The Registrant also manufactures other equipment and replacement parts for its products. The principal users of the Registrant's products are municipalities, contractors, other governmental bodies or agencies, miners and others who have need of heavy duty, large capacity equipment. The following is brief description of the principal products manufactured by the Registrant. Mobil Street Sweepers. The Mobil street sweepers are of the four-wheel mechanical bottom dump and high-lift type and of the three-wheel mechanical high-lift type which offers flexibility in the street cleaning operation. The four-wheel type may be gasoline, diesel, or compressed natural gas powered with an automatic transmission. The three-wheel type is diesel powered with hydrostatic drive. All units have variable speed, hydraulically driven brooms and elevators for cleaner pickup of hard-to-sweep material. Conveyors & Systems. The Registrant manufactures a broad range of different types and sizes of conveyors, vibrating screens and pug mill mixing plants. Types of conveyors include portable belt loader conveyors, stationary and portable conveyors, folding stacker conveyors, wash plants and rotary stacking conveyors for use in mining, quarries and material processing plants. Force-feed loaders. Force-feed loaders combine the continuous flow capabilities of a belt conveyor with wheel loader mobility, and are produced with either gasoline or diesel engines. They are used to pick up or load dirt, snow or any flowable material from windrow or roadside and drop it into a trailing truck. Force-feed loaders can also be used for loading sand, coal, salt, top soil and gravel from stockpiles; assisting in cleanup jobs or paving projects; picking up windrows on road shoulders and ditch trimming; or clearing snow-choked roads. The newest model includes a swivel discharge conveyor and right angle side discharge to either side. Other Products (a) Trailers. The trailers manufactured by the Registrant, also called "wagons", are generally pneumatic tired, and are for large volume, off-highway use. The trailers, which are themselves pulled by tractors manufactured by others, are used for the hauling of earth, sand, stone, coal or any other bulk material. Trailers are manufactured to 3 handle capacities of from 33 to 100 tons and are classified by the manner in which they discharge materials; for example, rear dump, bottom dump and side dump trailers. Trailers are typically used on projects such as the construction of large dams, road building, mining, land fill, and other specialized uses where the large volume capacities of the trailers are needed. During 1995, the Company phased-out the manufacture of this product in connection with its organizational restructuring. (b) Graders. This unit, called the "Maintenance Master, Model 600", is a small, maneuverable maintenance machine designed to handle jobs where larger, less efficient equipment is not required. This unit can be used for site preparation on small jobs such as parking lots and driveways. Graders are produced with diesel engines, hydrostatic transmission and a wide range of attachments. (c) Track Assemblies. Track assemblies are used for the hauling of trailers or other heavy duty equipment, as distinguished from drive track which is used on powered equipment. Track assemblies can haul any load that a track type tractor can pull, and can be especially useful in refuse operations, oil fields, quarries, pipelines and various construction industry functions where the land condition makes use of wheeled vehicles impracticable. During 1995, the Company phased-out the manufacture of this product in connection with its organizational restructuring. (d) Refuse Collection Products. The Registrant also manufactures refuse collection truck bodies of front and side loading design for manual, semiautomatic and automated collection. The side loader can also be configured as a leaf loader for high compaction pick up of leaves. During 1995, the Company phased-out the manufacture of this product in connection with its organizational restructuring. (e) Replacement Parts. The Registrant also manufactures and distributes replacement parts for its product lines. The Registrant's products are distributed through an equipment dealer network that covers the entire United States and certain foreign countries. Its agreements with its dealers are terminable, by either party, upon 30 days written notice. As is common in the industry, almost all such dealers also sell complementary products produced by other manufacturers, and all of them operate as independent contractors. Set forth below, for each of the Registrant's last three years, is the percentage of total sales contributed by each class of similar products which contributed 10% or more of total sales during any of the last three years: Year Ended December, 31 Class of Product 1995 1994 1993 -------------------------- ---- ---- ---- Mobil Street Sweepers 84% 89% 85% Raw Materials and Component Parts. The principal materials and components used by the Registrant in its manufacturing operations are steel, paint, castings, axles, tires, hydraulic parts, engines, transmissions, small parts and welding supplies. These materials and components are available from and are purchased from many suppliers, none of whom the 4 Registrant is substantially dependent upon and none of whom receive a disproportionate amount of the Registrant's business. In the experience of the Registrant, it has been generally able to receive its supplies as required, though delays in deliveries have occurred. Patents, Trademarks, Licenses. Although the Registrant owns certain patents, trademarks and licenses, none is of material importance to its business, with the exception of the trademark "Mobil Sweeper" owned by the Registrant and used in connection with its mobile street sweepers. Seasonality. With respect to conveyors, it has been the experience of the Registrant that its heavy shipping period begins in the spring of the year and continues through the late fall of the year. Sales of other products manufactured by the Registrant are not significantly seasonal. Working Capital. The Registrant generates working capital from operations and borrowings under a bank line of credit. Because the Registrant does not generally provide extended payment terms to its customers and because its business, as a whole, is not generally subject to seasonal variations in demand, working capital requirements are not subject to material fluctuation. Customers. In 1995, the Company's largest customer, a dealer selling to a local government entity, accounted for approximately 25% of the Company's net sales. No other customer accounted for more than 10% of the Company's net sales. The Company believes that the loss of any customer that accounts for 10% or more of the Company's net sales would have a material adverse effect on its business. As is customary in the industry, the Company does not have a significant amount of long term sales agreements with its customers. However, it believes that it enjoys excellent relationships with its customers. The Company follows customary industry practices regarding terms of sale and does not provide extended payment terms to any significant extent. Backlog. The dollar amount of the backlog of orders believed to be firm as of December 31, 1995 and December 31, 1994 was approximately $7,452,000 and $8,860,000, respectively. Mobil street sweepers accounted for 100% and 89%, respectively, of the backlogs as of such dates. The Registrant expects to complete all orders related to the December 31, 1995 backlog during the current year. Government Contracts. The Registrant has no material contracts with the Federal Government; however, the Company has a contract with a dealer for sales to the city of Los Angeles, California, which the Company expects to complete during 1996. Competition. The Registrant competes in the street sweeper, conveyor, trailer, grader and refuse collection truck markets with a number of other companies which are larger and have greater financial resources than the Registrant. To the knowledge of the Registrant, it is one of the largest manufacturers of four-wheel sweepers; however, there is substantial competition from other manufacturers in the functional sweeper market, which includes three-wheel and vacuum type sweepers. 5 Conveyors manufactured by the Registrant are priced similarly to machinery of competitors, with competition being primarily on the basis of quality and service. To the knowledge of the Registrant, no one manufacturer, or small group of manufacturers, has a dominant share of the market. To the knowledge of the Registrant, it is one of the primary manufacturers of force-feed loaders. However, front-end loaders, which are manufactured by many other companies, provide substantial functional competition. The Registrant is not a significant manufacturer of trailers and graders. Trailers face functional competition from heavy duty trucks. The Registrant commenced the manufacture and sale of refuse collection truck bodies in 1981, and competes with several other established manufacturers in such market. The Registrant is a manufacturer of track assemblies for hauling purposes. This product also faces functional competition from improved heavy duty rubber tires. Research and Development. The Registrant spent approximately $418,000 in 1995, $485,000 in 1994, and $286,000 in 1993, to improve existing products and to consider new product lines. Environment. Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had no material effects upon the capital expenditures, results of operations, and competitive position of the Registrant and its subsidiaries. Due to the nature of its business, the Registrant does not anticipate any material capital expenditures for environmental control facilities for the remainder of its current fiscal year or for the succeeding fiscal year. Employees. As of December 31, 1995, the Registrant employed 258 persons, of which 157 employees are subject to a collective bargaining agreement. The Registrant considers its relationship with its employees to be excellent. Export Sales. Sales to customers in foreign countries approximated $984,500 in 1995, $1,393,800 in 1994 and $1,725,400 in 1993. During 1995, such customers were located in North America, the Middle East and the Pacific Rim. Item 2. Properties. The Registrant owns two manufacturing plants, both of which, in the Registrant's opinion, are suitable and adequate for the manufacture of its products. The Registrant's Raleigh Division (where all of the Registrant's products, except its force-feed loader, grader and conveyor lines, are produced) operates from its plant located in Wake Forest (outside of Raleigh), North Carolina (the "Raleigh Plant"). The Raleigh Plant, which was completed in 1965, is situated on approximately 39 acres, and is of prestressed concrete construction with steel crane ways and supports. The Raleigh Plant 6 is believed to be one of the finest heavy duty plants of its type in the southeastern part of the United States. During the fourth quarter of 1985, the Company completed an addition of approximately 29,000 square feet to the assembly area of the Raleigh Plant. During 1989, the Company completed an additional building as its new paint shop. This paint shop is 4,800 square feet, and is designed to be environmentally state-of-the-art. It uses filtered air both in and out of the paint room, and substantially reduces the possibility of contaminants in the painting process. During the first quarter of 1995, the Company added a 1,755 square foot Inspection Building. Of the approximately 206,935 square feet in the Raleigh Plant, approximately 186,415 square feet is devoted to manufacturing and assembly facilities, and to stockroom, shipping, and receiving facilities; approximately 16,360 square feet is used for general and executive offices; and approximately 4,160 square feet is an engineering department balcony area. The equipment in the Raleigh Plant includes various boring, drilling and milling machines, lathes, grinders, punches, shears, press brakes and other presses, hydraulic testing equipment, saws, machine shop equipment, layout equipment, heavy duty metal working and robotic welding equipment and appropriately large material handling cranes. The Registrant's Kolman/Athey Division (where the Registrant's graders, force-feed loader and conveyor product lines are produced) operates from seven separate buildings, of an aggregate of approximately 68,000 square feet, located on approximately 9.6 acres in Sioux Falls, South Dakota (the "Kolman Plant"). The largest of such buildings contains approximately 57,100 square feet, is of cement block construction, and is a single story structure. Approximately 52,700 square feet of this building is used for manufacturing functions, and approximately 4,400 square feet is used for general offices. The Kolman plant was sold subsequent to year-end, in February, 1996, as part of the Company's organizational restructuring. Item 3. Legal Proceedings. The Company is involved in litigation regarding several product liability claims. The Company believes that it has substantial meritorious defenses available and intends to defend the cases vigorously. The Company also believes that the ultimate resolution of these proceedings is not likely to have a materially adverse impact on its financial position, as the Company has insurance coverage it deems adequate. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of shareholders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 1995. 7 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The stock price and trading data on page 7 of the Registrant's 1995 Annual Report to Shareholders are hereby incorporated by reference as Item 5 of this report. No cash dividends have been paid to shareholders during the last five years. Item 6. Selected Financial Data. The selected financial data for the years 1991 through 1995 on page 6 of the Registrant's 1995 Annual Report to Shareholders is hereby incorporated by reference as Item 6 of this report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's discussion and analysis on pages 5 through 7 of the Registrant's 1995 Annual Report to Shareholders is hereby incorporated by reference as Item 7 of this report. Item 8. Financial Statements and Supplementary Data. The Financial Statements and Supplementary Data on pages 8 through 13 and the Independent Auditor's Report on page 16 of the Registrant's 1995 Annual Report to Shareholders are hereby incorporated by reference as Item 8 of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There were no changes in or disagreements with accountants on accounting or financial disclosures matters. 8 PART III Item 10. Directors and Executive Officers of the Registrant. (a) Information concerning the directors and persons to be nominated for election as directors of the Registrant will be set forth in the Registrant's Proxy Statement in connection with its Annual Meeting to be held May 16, 1996, which Proxy Statement will be filed with the Commission within 120 days after the end of the Registrant's last fiscal year, and is hereby incorporated herein by reference. (b) Set forth below are the names and ages of all of the executive officers of the Registrant, none of whom has any family relationship with any other executive officer or any director of the Registrant, and all positions and offices with the Registrant presently held by such persons, together with a brief account of business experience during the past 5 years of each person: Positions, Offices Held and Business Experience for the Name Age Past 5 Years James H. Stumpo 57 In May, 1995, Mr. Stumpo was elected President and Chief Executive Officer and Director of the Company. From May, 1992 to May, 1995 he was Vice President Finance with Benton Harbor Engineering, Benton Harbor, Michigan. From May, 1987 to May, 1992, Mr. Stumpo served as Chief Financial Officer for Koehring Cranes & Excavators, Waverly, Iowa, a Division of Terex Corporation. Franz M. Ahting 48 In May, 1995, Mr. Ahting was elected Vice President Finance, Chief Financial Officer and Director of the Company. In May, 1994, Mr. Ahting became Treasurer of the Company. From November, 1993 to May, 1995, Mr. Ahting served as Controller and Assistant Secretary. Mr. Ahting was Assistant Treasurer of Carolina Steel Corporation from 1988 to 1990 and practiced public accounting from 1991 to November, 1993. 9 Officers are elected annually by the Registrant's Board of Directors at the first meeting of the Board of Directors held after each Annual Meeting of Shareholders. The terms of all of the foregoing officers are from May 18, 1995 to May 16, 1996. Item 11. Executive Compensation. Information concerning executive compensation will be set forth in the Registrant's Proxy Statement in connection with its Annual Meeting to be held May 16, 1996, which Proxy Statement will be filed with the Commission within 120 after the end of the Registrants last fiscal year, and is hereby incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. (a)-(b) Information concerning security ownership of certain beneficial owners and management will be set forth in the Registrant's Proxy Statement in connection with its Annual Meeting to be held May 16, 1996, which Proxy Statement will be filed with the Commission within 120 days after the end of the last fiscal year, and is hereby incorporated herein by reference. (c) The Registrant knows of no arrangements which may at a subsequent date result in a change in control of the Registrant. Item 13. Certain Relationships and Related Transactions. Information concerning certain relationships and related transactions will be set forth in the Registrant's Proxy Statement in connection with its Annual Meeting to be held May 16, 1996 which Proxy Statement will be filed within 120 days after the end of the last fiscal year, and is hereby incorporated herein by reference. 10 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K. (a) 1. FINANCIAL STATEMENTS The following Financial Statements of the Registrant are included in its Annual Report to Shareholders for the year ended December 31, 1995, which statements are incorporated herein by reference: Independent Auditor's Report Balance Sheets - December 31, 1995 and 1994 Statements of Operations - years ended December 31, 1995, 1994, and 1993 Statements of Shareholders' Equity - years ended December 31, 1995, 1994, and 1993 Statements of Cash Flows - years ended December 31, 1995, 1994, and 1993 Notes to Financial Statements 2. FINANCIAL STATEMENT SCHEDULES The following schedules are included in Part IV of this Report: Independent Auditors' Reports, located at sequential pages 13 and 14 of this report. Schedule II - Valuation and qualifying accounts located at sequential page 16 of this report. Schedules not listed above have been omitted because they are either not applicable or the required information has been included in the financial statements or the notes thereto. (b) REPORTS ON FORM 8-K. On October 9, 1995, the Registrant announced that it would close its Kolman plant located at Sioux Falls, South Dakota. (c) EXHIBITS. Exhibit Number: 13.1 1995 Annual Report to Shareholders of Athey Products Corporation. 21.1 Subsidiaries of the Registrant, attached at end of this Report. 27.1 Financial Data Schedule. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATHEY PRODUCTS CORPORATION (Registrant) By: /s/ James H. Stumpo James H. Stumpo President and Chief Executive Officer By: /s/ Franz M. Ahting Franz M. Ahting Vice President Finance and Chief Financial Officer Date: March 28, 1996. Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ John F. McCullough /s/ Martin W. McCullough John F. McCullough, Chairman Martin W. McCullough, Director of the Board of Directors March 28, 1996 March 28, 1996 /s/ Henry W. Gron, Jr. /s/Richard A.Rosenthal Henry W. Gron, Jr., Director Richard A. Rosenthal, Director March 28, 1996 March 28, 1996 /s/ James H. Stumpo /s/ Franz M. Ahting James H. Stumpo, Director Franz M. Ahting , Director March 28, 1996 March 28, 1996 12 (McGladrey & Pullen, LLP logo appears here) INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES Board of Directors Athey Products Corporation Our audits were made for the purpose of forming an opinion on the basic 1995 and 1994 financial statements taken as a whole. Supplemental Schedule II - Valuation and Qualifying Accounts, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. This schedule for 1995 and 1994 have been subjected to the auditing procedures applied in our audit of the basic 1995 and 1994 financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic 1995 and 1994 financial statements taken as a whole. /s/ McGladrey & Pullen, LLP Raleigh, North Carolina February 23, 1996 13 Deloitte & Touche LLP Suite 1800 Telephone: (919) 546-8000 Logo First Union Capitol Center Telex: 4995716 appears 150 Fayetteville Street Mall Facsimile: (919)833-3276 here) P.O. Box 2778 Raleigh, North Carolina 27602-2778 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Athey Products Corporation Raleigh, North Carolina We have audited the balance sheet of Athey Products Corporation (the "Company") as of December 31, 1993, and the related statments of operations, shareholders' equity and cash flows for the year then ended; such statements of operations, stockholders' equity and cash flows are included in your 1995 Annual Report to Shareholders and are incorporated herein by reference. Our audit also included the 1993 financial statement schedule listed in Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstate- ment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Athey Products Corporation as of December 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, such 1993 financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Raleigh, North Carolina March 8, 1994 Deloitte Touche Tohmatsu International 14 ATHEY PRODUCTS CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E - -------- -------- -------- -------- -------- Additions Balance at Charged to Deductions Balance at Beginning Profit and From End of of Year Loss Reserves Year Year Ended December 31, 1995: Allowance for doubtful accounts-trade $250,000 $ 52,966 $ 2,966 $300,000 Allowance for doubtful receivable-other 110,954 - - 110,954 Provision for obsolete and slow moving inventory 950,000 286,610 586,610 (a) 650,000 Provision for warranty costs 780,000 705,553 850,053 (b) 635,500 Year Ended December 31, 1994: Allowance for doubtful accounts-trade $225,000 $ 50,095 $ 25,095 $250,000 Allowance for doubtful receivable-other 150,000 60,954 100,000 110,954 Provision for obsolete and slow moving inventory 796,396 193,811 40,207(a) 950,000 Provision for warranty costs 370,000 1,303,078 893,078(b) 780,000 Year Ended December 31, 1993: Allowance for doubtful accounts-trade $200,000 $ 90,037 $ 65,037 $225,000 Allowance for doubtful receivable-other 300,000 - 150,000 150,000 Provision for obsolete and slow moving inventory 825,300 120,333 149,237(a) 796,396 Provision for warranty costs 262,899 883,742 776,641(b) 370,000
(a) Deductions for obsolete inventory scrapped and obsolete inventory sold at reduced selling price. (b) Warranty expenses incurred 15 EX-13 2 EXHIBIT 13 ATHEY PRODUCTS CORPORATION 1995 Annual Report [photo] 1 Letter to Shareholders 5 Management's Discussion and Analysis 8 Balance Sheets 9 Statements of Operations 9 Statements of Shareholders' Equity 10 Statements of Cash Flows 11 Notes To Financial Statements 16 Independent Auditor's Report 17 Corporate Information Cover: Athey's new RA-730, AIRBOSS vacuum-type street sweeper. The AIRBOSS is the only regenerative air sweeper in the world with its major components fabricated from stainless steel. ATHEY PRODUCTS CORPORATION TO OUR SHAREHOLDERS [photo] James H. Stumpo President and Chief Executive Officer Nineteen ninety-five was a year of transition for Athey Products. Sales decreased 24% from $39.9 million to $30.4 million. The decrease in sales was primarily due to the lack of major contracts from large municipalities. Net earnings decreased from $1.4 million in 1994 to a break-even level in 1995 and were negatively impacted by reduced sales volume and one-time charges associated with the Company's organizational restructuring. Although sales were flat during the last six months of the year, we believe solid fourth quarter bookings have provided momentum for 1996. An integral part of the Company's restructuring plan included the closing of the Kolman facility in Sioux Falls, South Dakota. This closing eliminated redundant expenses and combined all manufacturing operations at our facility in Raleigh, North Carolina. Selected products transferred from Sioux Falls are already being manufactured on two new production lines with shipments scheduled as early as January 1996. In May 1995, the Company launched an aggressive two-phase cost reduction program. Results of the first phase exceeded anticipated goals. The second phase is currently in process and we expect, once again to meet or exceed established goals. We believe our cost reduction programs, coupled with high quality product line offerings, will further strengthen our competitive position in an industry where Athey products is considered to have the lowest product life cycle cost. We have expanded our domestic sales force to increase product demonstrations. We have also signed an agreement with a company that will assist in marketing our products to both military and civilian agencies. In 1996, we will enter the U.S. Air Force Mobile Equipment Evaluation Program to qualify our AV445 High Speed Runway Sweeper for Air Force use. We see a tremendous opportunity for growth in international markets. We plan to increase market penetration in North America and expand our distribution network in South America, the Middle East and the Pacific Rim. Our targeted goals are designed to improve the balance between domestic and international sales. New and upgraded product offerings should support market penetration both domestically and internationally. Our new "Air Boss" regenerative air sweeper was recently displayed at the American Public Works Association show in Dallas, Texas, where it received significant interest. This machine has unique features we consider superior to the competition. The "Air Boss" opens a new market for the Company as its application is separate from our traditional sweeper line. The primary markets for this product are in the southern and western regions of the U.S., as well as several international countries. The "Air Boss" is in the final stages of field test, with customer demonstrations scheduled to begin in late March 1996. Our most popular product line, the M9D 4-wheel sweeper, has been upgraded to provide additional sweeping power. We expect increased demand for this product line during 1996 and continuation of our leadership in the four-wheel sweeper market. The past year has been exciting and challenging. We expect that the improvements made to our manufacturing operations and to our product line offerings will dramatically improve your Company's profitability in 1996. James H. Stumpo /s/ JAMES H. STUMPO President and Chief Executive Officer [photo] The 7-20 Composter - used by the solid waste industry to turn, mix, load and process residential, industrial and agricultural waste. The reuse of these by-products results in a safer environment. [photo] The advanced design, model RA-730, AIRBOSS(Registration Mark) opens up new markets for Mobil sweepers. Innovative features of the AIRBOSS(Registration Mark) include stainless steel construction of its major components, high/low dump option, and only one engine for efficiency and quiet operation. -3- [photo] MOBIL SWEEPER MODEL AV-445 Used by commercial and military airports worldwide to efficiently clean runways and tarmacs. - 4 - ATHEY PRODUCTS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS ORGANIZATIONAL RESTRUCTURING During 1995, plans were developed to significantly reduce the Company's cost structure and to improve productivity. This restructuring program involved reductions in the number of employees, consolidation of manufacturing facilities, and disposition of assets that were no longer productive. The Company also phased-out the manufacture of nonstrategic product lines, including Trailers, Track Assemblies and Refuse Collection Products. The restructuring program is expected to enable the Company to improve its competitive position in its core business, reduce costs, increase efficiency and improve profitability. The statement of operations for 1995 includes approximately $1,135,000 of pretax charges relating to this program. Approximately $119,000 of this amount related to severance and associated benefits for staff reductions, approximately $452,000 of this amount related to the disposal and write-down of certain assets, and approximately $564,000 of this amount related to the streamlining of operations and administrative functions and the closing of the production facility in Sioux Falls, South Dakota. The effect of these expenditures was a decrease in net earnings after tax of $749,000 or $.19 per common share. Subsequent to year-end, in February 1996, as part of this restructuring program, the Company sold its South Dakota land, building and certain inventory and manufacturing equipment. The remaining inventory and equipment were transferred to the Company's Raleigh, North Carolina manufacturing plant. 1995 COMPARED WITH 1994 The Company generated net sales of $30,424,588 in 1995, as compared to $39,894,940 in 1994. This $9,470,352 or 23.7% decrease in sales was primarily attributable to a decline in the number of units shipped during the period. The lower sales volume was partially offset by slightly higher average unit selling prices. The higher volume in the number of units sold in 1994 stemmed from a major contract originally executed with the City of New York in 1993 that expired in late 1994. Cost of sales as a percentage of net sales was 81.4% in 1995 as compared to 78.2% experienced in 1994. The increase in cost of sales was primarily due to manufacturing inefficiencies resulting from lower unit volume, introduction of a new regenerative air sweeper product line, removal and installation of equipment, and rearrangement of the plant layout in Raleigh to facilitate a diverse product flow. Operating inefficiencies were also incurred between the October 9, 1995 announcement of the Sioux Falls closing and December 31, 1995, as product lines and assets were transferred from the Sioux Falls plant to Raleigh, North Carolina. In addition, cost of sales in 1995 reflected expenditures associated with the disposal and write-down to net realizable values of certain assets. The Company's selling, administrative and engineering expenses increased from 17.8% to 19.9% of net sales, while in dollar terms they decreased $1,049,792 to $6,061,601. In addition to savings from the Company's cost reduction program, this decline reflects lower legal and professional fees and a decrease in warranty reserves stemming from a lower sales volume. These decreases were partially offset by higher advertising and sales incentive programs and an increase in the allowance for doubtful accounts. Other income for 1995 was $350,591 as compared to $524,768 in 1994. Interest income increased from $126,968 in 1994 to $286,405 in 1995 due primarily to rising interest rates and higher average investment in cash and cash equivalents. Included in other income for the year ended December 31, 1994 was $150,000 which represented the final payment of the Company's insurance claim in a litigation settlement reached in a product liability case in which the insurance company had been placed in rehabilitation. The Company also received $210,000 in 1994 as full and final payment from the Company's insurance carrier in a separate product liability claim. Other expenses were $37,282 for 1995 as compared to $114,732 recorded in 1994. Other expenses in 1994 included the effect of the early termination, and associated write-down, of the unamortized portion of a licensing and distributor agreement. The 102.7% income tax benefit rate for 1995 includes a 13.6% research and development credit and a 35.6% credit from the reduction in the valuation allowance. The 30.9% income tax expense rate for 1994 reflects a 1.6% research and development credit and a 3.6% income tax benefit associated with a reduction in the valuation allowance. Net earnings for 1995 were $2,743 as compared to net earnings of $1,388,194 or $.35 per share for 1994. -5- 1994 COMPARED WITH 1993 Net sales in 1994 increased $7,254,683 to $39,894,940, a 22.2% increase. The sales growth resulted from an increase in the number of units shipped and was complemented by volume increases in replacement parts. The volume gain in the number of units sold was principally attributable to a major contract executed with the City of New York in 1993. Cost of sales as a percentage of net sales declined from 83.6% in 1993 to 78.2% in 1994. The resulting improvement in gross margin was due to continuing sales volume gains and the associated improvement in manufacturing efficiencies and overall stable raw material and purchased parts costs. Selling, administrative and engineering expenses increased from $5,549,315 in 1993 to $7,111,393 in 1994, representing 17.0% and 17.8% of net sales, respectively. Several factors contributed to this increase in expenses, including higher payroll and related employee benefit expenses associated with the growth in sales volume, as well as general inflationary increases. The sales growth also led to an associated increase in normal service warranty reserves, as well as, extended service warranty plan reserves. The Company continued its commitment to new product development by increasing its research and development expenses to $485,000 in 1994 as compared to $286,000 in 1993. In order to resolve a number of outstanding legal issues the Company incurred higher than normal legal and professional fees during 1994. The Company was involved in a product liability case in which Counsel advised that it was probable that the Company would be held liable to some extent. The Company's potential liability was fully reserved in 1994 and final settlement was reached in February, 1995. Other income in 1994 was $524,768 as compared to $385,926 in 1993. Included in other income for the year ended December 31, 1994 was $150,000 which represented the final payment in a litigation settlement reached in a product liability case and $210,000 received as final payment in a separate product liability claim. The remainder of other income was primarily comprised of equipment rental and interest income. The increase in interest income was mainly due to substantially improved cash management practices and slightly higher interest rates. Other expenses in 1994 were $114,732 as compared to $353,520 recorded in 1993. Other expenses in 1994 included the effect of the early termination, and associated write-down, of the unamortized portion of a licensing and distributor agreement. In 1993, the Company adopted the Statement of Financial Accounting Standards No. 115 - Accounting for Certain Investments in Debt and Equity Securities (SFAS115). SFAS 115 changed the accounting and the reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. During the second quarter of 1993, a charge of $261,273 before taxes was made to other expenses in the statement of operations to reflect the Company's decision ________________________________________________________________________________ SELECTED FINANCIAL DATA YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------- Net Sales $30,424,588 $39,894,940 $32,640,257 $21,838,601 $23,417,547 - ------------------------------------------------------------------------------------------------------------- Earnings (Loss) before cumulative effect of accounting change 2,743 1,388,194 (285,349) (2,211,156) (2,524,008) Net Earnings (Loss) 2,743 1,388,194 (285,349) (2,275,314) (2,524,008) Earnings (Loss) Per Share before cumulative effect of accounting change -- 0.35 (.08) (.58) (.66) Net Earnings (Loss) Per Share -- 0.35 (.08) (.60) (.66) At Year-End: Total Assets $29,325,917 $30,422,767 $28,013,857 $27,653,732 $31,554,079 Long-Term Obligations 57,419 99,431 240,156 199,595 299,595 - -------------------------------------------------------------------------------------------------------------
-6- that the lower-than-cost market price of the available-for-sale noncurrent marketable equity security as of June 30, 1993 was considered to be other than temporary. The effective income tax expense rate was 66.5% in 1993 and 30.9% in 1994. In 1993, the Company increased its valuation reserve allowance by $125,000 against recorded deferred tax assets. Excluding the special charge in 1993, the effective income tax rate was 6.5%. The 30.9% income tax rate in 1994 reflects a 1.6% research and development credit. Net earnings after tax for 1994 was $1,388,194 or $.35 per share, as compared to a loss of $285,349 or $.08 per share for 1993. 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 December 31, 1995 the Company had working capital of $20,451,939; the ratio of current assets to current liabilities was 6.8 to 1; and the debt to equity ratio was .16 to 1. This compares to working capital of $20,273,562; a ratio of current assets to current liabilities of 5.3 to 1; and a debt to equity ratio of .20 to 1 at December 31, 1994. At December 31, 1995, cash and cash equivalents were $3,072,088, up $426,447 from $2,645,641 at December 31, 1994. The Company utilized and repaid $1,600,000 of its short-term credit line during the six months ended June 30, 1994 to assist in financing the production of units associated with executed orders received from New York in 1993. No borrowings occurred during 1995. Other than utilizing the available line of credit as needed, the Company does not presently plan to borrow long-term funds or sell securities. Capital expenditures were $445,149 in 1995 as compared to $542,386 in 1994 and were primarily used to further upgrade the Company's management information system and machinery and equipment. The Company expects capital expenditures in 1996 to approximate $400,000. In 1996, the Company expects to continue its capital expenditure program by improving or expanding existing facilities and upgrading equipment. The timing of capital expenditures is anticipated to coincide generally with its operating cash flow. The Company believes that existing working capital, cash flow from future operations, and the available bank line of credit provide adequate resources to finance the cash requirements of future capital expenditures. __________________________________________________________________________ MARKET PRICE DATA 1995 1994 1993 - -------------------------------------------------------------------------- QUARTER ENDED High Low High Low High Low - -------------------------------------------------------------------------- March 31 6 1\2 5 1\2 8 3\4 5 3\4 7 3\4 6 1\4 June 30 6 1\4 5 1\2 8 1\4 7 1\4 7 1\2 6 3\4 September 30 6 1\8 4 7\8 8 5\8 7 7 3\4 6 1\2 December 31 5 1\2 4 9 1\2 5 1\4 7 3\4 6 The Company's common shares are traded in the Over-The Counter market on the NASDAQ System under the symbol ATPC. The above quotations were received from the NASDAQ System. The number of shareholders of the Company's common shares as of March 18, 1996 was 524. -7- ATHEY PRODUCTS CORPORATION BALANCE SHEETS
December 31, 1995 December 31, 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,072,088 $ 2,645,641 Accounts receivable (less allowances for doubtful receivables of $300,000 and $250,000 in 1995 and 1994, respectively) (Note 2) 2,369,107 6,478,847 Inventories (Note 3) 17,022,201 14,755,922 Prepaid expenses 179,054 205,915 Refundable income taxes 531,517 -- Deferred income taxes (Note 6) 834,100 902,000 - ------------------------------------------------------------------------------------------------- Total current assets 24,008,067 24,988,325 - ------------------------------------------------------------------------------------------------- OTHER ASSETS: Marketable securities (Note 7) 951,450 993,035 Goodwill 200,000 200,000 Other 24,358 26,653 - ------------------------------------------------------------------------------------------------- Total other assets 1,175,808 1,219,688 - ------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT (Note 5): Land and land improvements 319,769 319,769 Buildings 4,017,505 3,921,111 Machinery and equipment 6,359,255 6,163,978 - ------------------------------------------------------------------------------------------------- 10,696,529 10,404,858 Less accumulated depreciation (6,554,487) (6,190,104) - ------------------------------------------------------------------------------------------------- Total property, plant and equipment, net 4,142,042 4,214,754 - ------------------------------------------------------------------------------------------------- $29,325,917 $30,422,767 ================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ - $ 99,595 Current portion of obligations under capital lease (Note 5) 42,012 41,130 Accounts payable 1,890,865 2,412,884 Employee compensation and amounts withheld 444,116 635,655 Accrued pension and other expenses (Note 8) 543,635 631,999 Warranty reserve 635,500 780,000 Income taxes payable (Note 6) - 113,500 Total current liabilities 3,556,128 4,714,763 NONCURRENT LIABILITIES: Obligations under capital lease (Note 5) 57,419 99,431 Deferred income taxes (Note 6) 464,500 336,000 Total noncurrent liabilities 521,919 435,431 SHAREHOLDERS' EQUITY (Note 10): 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 1,189,359 1,186,616 Unrealized gain on marketable securities available-for-sale, net of related tax effect (Note 7) 3,761 31,207 Less cost of 47,000 common shares in treasury (204,562) (204,562) Total shareholders' equity 25,247,870 25,272,573 $29,325,917 $30,422,767
See notes to financial statements. -8- ATHEY PRODUCTS CORPORATION STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 1994 1993 NET SALES (Note 2) $30,424,588 $39,894,940 $32,640,257 Cost of Goods Sold (Note 13) 24,777,557 31,184,555 27,294,697 Gross Profit 5,647,031 8,710,385 5,345,560 Selling, administrative and engineering expenses (Notes 8,9 and 13) 6,061,601 7,111,393 5,549,315 Earnings (loss) from operations (414,570) 1,598,992 (203,755) Other income 350,591 524,768 385,926 Other expenses (Note 7) (37,282) (114,732) (353,520) Earnings (loss) before income taxes (101,261) 2,009,028 (171,349) Income tax expense (benefit) (Note 6) (104,004) 620,834 114,000 NET EARNINGS (LOSS) $ 2,743 $ 1,388,194 $ (285,349) NET EARNINGS (LOSS) PER SHARE $ - $ 0.35 $ (0.08) WEIGHTED AVERAGE SHARES OUTSTANDING 3,973,459 3,973,459 3,784,503
ATHEY PRODUCTS CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Additional Gain/(Loss) on Common Stock Paid-In Retained Treasury Stock Marketable Shares Par Value Capital Earnings Shares Cost Securities Balance, January 1, 1993 3,831,503 $7,663,006 $15,273,614 $1,406,459 47,000 $(204,562) $(166,699) Unrealized gain on marketable securities (Note 7) - - - - - - 40,202 Net loss for 1993 - - - (285,349) - - - Balance, December 31, 1993 3,831,503 7,663,006 15,273,614 1,121,110 47,000 (204,562) (126,497) 5% Stock dividend (Note 10) 188,956 377,912 944,780 (1,322,688) - - - Unrealized gain on marketable securities (Note 7) - - - - - - 157,704 Net earnings for 1994 - - - 1,388,194 - - - Balance, December 31, 1994 4,020,459 8,040,918 16,218,394 1,186,616 47,000 (204,562) 31,207 Unrealized loss on marketable securities (Note 7) - - - - - - (27,446) Net earnings for 1995 - - - 2,743 - - - Balance, December 31, 1995 4,020,459 $8,040,918 $16,218,394 $1,189,359 47,000 $(204,562) $ 3,761
See notes to financial statements. -9- ATHEY PRODUCTS CORPORATION STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 1993 OPERATING ACTIVITIES: Net earnings (loss) $ 2,743 $ 1,388,194 $ (285,349) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 495,135 528,298 444,957 Provision for doubtful accounts 53,244 25,000 150,629 Provision for deferred income taxes 210,564 (316,077) 439,000 (Gain) loss on sale of equipment 22,276 12,749 (11,156) Changes in operating assets and liabilities: Accounts receivable 4,056,496 (4,081,360) (242,209) Inventories (2,266,279) 1,002,368 898,268 Prepaid expenses 26,861 (79,181) 216,991 Refundable income taxes (531,517) 1,740,328 (877,785) Other assets 2,295 68,444 85,913 Accounts payable (522,019) 72,747 463,400 Employee compensation and amounts withheld (191,539) 86,647 55,716 Accrued pension and other expenses (88,389) 274,381 (91,774) Warranty reserve (144,500) 410,000 107,101 Income taxes payable (113,500) 113,500 - Net cash provided by operating activities 1,011,871 1,246,038 1,353,702 INVESTING ACTIVITIES: Purchase of plant and equipment (445,149) (542,386) (357,182) Proceeds from sale of equipment 450 4,087 20,826 Net cash used in investing activities (444,699) (538,299) (336,356) FINANCING ACTIVITIES: Proceeds from line of credit - 1,600,000 600,000 Repayment of line of credit - (1,600,000) (600,000) Principal paid on obligations under capital lease (41,130) (74,506) (26,375) Principal paid on debt (99,595) (100,000) (100,000) Net cash used in financing activities (140,725) (174,506) (126,375) NET INCREASE IN CASH AND CASH EQUIVALENTS 426,447 533,233 890,971 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,645,641 2,112,408 1,221,437 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,072,088 $ 2,645,641 $ 2,112,408 SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid (recoveries) $ 329,680 $ (916,917) $ 555,000 Interest paid $ 8,264 $ 30,870 $ 29,067 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Capital lease obligations incurred for use of equipment $ - $ 34,238 $ 207,210
See notes to financial statements. -10- ATHEY PRODUCTS CORPORATION NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS -- Athey Products Corporation is a manufacturer whose principal products are mobile street sweepers, conveyors, and force feed loaders. The Company also manufactures other equipment and replacement parts for these products. The primary users of the Company's products are contractors, municipalities, and other governmental agencies. Significantly all of the Company's sales are throughout the United States. SIGNIFICANT ACCOUNTING POLICIES - The significant accounting policies of the Company are summarized below: a. STATEMENTS OF CASH FLOWS - For the purpose of the statements of cash flows, the Company considers all short-term investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Short-term investments are recorded at cost, which approximates fair value. b. INVENTORIES - Inventories are stated at the lower of cost, determined on the first-in, first-out basis, or market. Obsolete and possible excess quantities of inventory are reduced to estimated net realizable values. c. PROPERTY AND DEPRECIATION - Property, plant and equipment are carried at cost. Depreciation is computed over estimated useful lives using the straight-line method in the financial statements and accelerated methods for income tax purposes. d. AMORTIZATION OF OTHER ASSETS - Goodwill arose in a purchase transaction prior to November 1, 1970 and is not being amortized as, in the opinion of management, there has been no diminution in value. e. MARKETABLE EQUITY SECURITIES - Marketable equity securities consist of an investment in equity securities which the Company has designated as available-for-sale. Such securities, while readily marketable, are not held solely in anticipation of short-term market gains. The securities are reported at fair value, with unrealized holding gains and losses, net of the related deferred tax effect, reported as a separate component of shareholders' equity. f. INCOME TAXES - Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for effects of changes in tax laws and rates on the date of enactment. g. TREASURY STOCK - Treasury stock is stated at cost. h. EARNINGS (LOSS) PER SHARE - Earnings (loss) per share amounts are computed on the basis of the weighted average number of shares outstanding during the year. i. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. j. RECLASSIFICATIONS - Certain previously reported amounts have been reclassified to conform with the year end 1995 presentation with no effect on net income. 2. MAJOR CUSTOMERS Net sales for the years ended December 31, 1995, 1994 and 1993 include sales to the following major customers (each of which accounted for 10% or more of the total net sales of the Company for those years): 1995 1994 1993 Nixon-Egli $7,602,597 * * City of New York * $16,953,844 $9,435,203 * The net sales to this customer were less than 10% of the total net sales for the year ended. Because of the nature of the Company's business, the major customers will vary between years. There were outstanding receivables from these customers of $555,213, $2,382,719, and $202,731, as of December 31, 1995, 1994 and 1993, respectively. 3. INVENTORIES Inventories are summarized below: December 31, 1995 1994 Finished goods $ 3,231,129 $ 873,578 Work-in-process 6,510,302 6,527,928 Raw materials 7,280,770 7,354,416 $ 17,022,201 $14,755,922 4. FINANCING ARRANGEMENTS At December 31, 1995, the Company had available an unsecured line of credit of $5,000,000. There were no outstanding borrowings under the line at December 31, 1995 or 1994. In addition, no amounts were borrowed during 1995. During 1995, 1994, and 1993, the Company incurred interest expense of $7,761, $30,870 and $29,067, respectively. 5. LEASE COMMITMENTS The Company is the lessee of computer equipment under a capital lease which started in 1993 and expires in 1998. The assets and liabilities under the capital lease were recorded at the present value of net minimum lease payments at inception, approximately $207,000. The assets are depreciated over their estimated productive lives. Depreciation of assets under the capital lease is included in depreciation expense for 1995, 1994 and 1993. Depreciation of assets under capital leases charged to expense in 1995, 1994 and 1993 was $41,441, $41,441 and $20,720, respectively. Minimum future lease payments under the capital lease as of December 31, 1995 for each of the next three years are: Year Ended December 31, Amount 1996 $ 43,637 1997 43,637 1998 14,545 Total minimum lease payments 101,819 Less: Imputed interest 2,388 Present value of net minimum lease payments 99,431 Less: Current portion 42,012 Obligations under capital lease $ 57,419 The interest rate on the capitalized lease is 6.6% and is imputed based on the lessor's implicit rate of return. -11- 6. INCOME TAXES At December 31, 1995, the Company has available State net economic loss carryforwards of approximately $1,905,000 expiring as follows: Year of Origination Expiration 1991 1996 $ 142,000 1992 1997 1,274,000 1993 1998 118,000 1995 2000 371,000 TOTAL $1,905,000 Components of the income tax expense (benefit) for 1995, 1994 and 1993 are as follows: 1995 1994 1993 Current: Federal $ (314,568) $ 936,911 $ (150,000) State - - - Total current $ (314,568) 936,911 (150,000) Deferred: Federal 210,564 (316,077) 264,000 State - - - Total deferred 210,564 (316,077) 264,000 TOTAL $ (104,004) $ 620,834 $ 114,000 Net deferred tax assets consist of the following components at December 31, 1995 and 1994: 1995 1994 Deferred tax assets: Accounts receivable $ 102,000 $ 85,000 Inventory allowance 434,000 621,000 Accrued vacation 118,000 158,000 Accrued pension 67,000 69,000 Warranty reserve 216,000 265,000 Allowance for marketable securities 87,000 73,000 Accrued litigation 17,000 69,000 Net economic loss carryforwards 148,000 120,000 Other 30,100 - $ 1,219,100 $ 1,460,000 Less valuation allowance (385,000) (421,000) $ 834,100 $ 1,039,000 Deferred tax liabilities: Property and equipment $ (464,500) $ (473,000) Net deferred tax assets $ 369,600 $ 566,000 The components giving rise to the net deferred tax assets described above have been included in the accompanying balance sheets as of December 31, 1995 and 1994 as follows: 1995 1994 Current assets $ 834,100 $ 902,000 Noncurrent assets - 137,000 Noncurrent liabilities (464,500) (473,000) (464,500) (336,000) Net deferred tax assets $ 369,600 $ 566,000 The current and noncurrent deferred tax assets are net of an allocation of the valuation allowance. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company has established a valuation allowance totaling $385,000 and $421,000 for certain deferred tax assets as of December 31, 1995 and 1994 respectively, which management feels meet this criteria. A reconciliation of the provision for income taxes to income tax expense (benefit), computed by applying the statutory federal income tax rate to pre-tax income (loss), is as follows: 1995 1994 1993 Amount % Amount % Amount % Tax expense (benefit) computed at statutory rate $ (34,429) (34.0)% $ 683,070 34.0% $ (58,300) (34.0)% Research and development credit (13,807) (13.6) (32,033) (1.6)% (10,500) (6.1)% Change in valuation allowance (36,000) (35.6) (72,000) (3.6)% 125,000 73.0 % Other (19,768) (19.5)% 41,797 2.1 % 57,800 33.6 % TOTAL $ (104,004) (102.7)% $ 620,834 30.9 % $ 114,000 66.5 % During 1994, the Company realized approximately a $103,000 tax benefit from the utilization of state net economic loss carryforwards. 7. MARKETABLE SECURITIES The cost, estimated market value and gross unrealized gains and losses of the Company's investment in available-for-sale marketable equity securities at December 31, 1995 and 1994 are as follows: 1995 1994 Cost $ 945,751 $ 945,751 Gross unrealized gain 5,699 47,284 Estimated market value $ 951,450 $ 993,035 There were no sales of marketable securities during 1995, 1994 or 1993. The change in net unrealized gains and losses reported as a separate component of equity for the years ended December 31, 1995, 1994 and 1993 is shown below: 1995 1994 1993 Balance in equity component, beginning $ 31,207 $(126,497) $ (166,699) Change in net unrealized gains (losses) (41,585) 173,781 40,202 Change in deferred income taxes 14,139 (16,077) - Balance in equity component, ending $ 3,761 $ 31,207 $ (126,497) During the second quarter ended June 30, 1993, a charge of $261,273 was made to other expenses in the statement of operations to reflect the Company's decision that the lower-than-cost market price of the available-for-sale marketable equity securities as of June 30, 1993 was considered to be other than temporary. Since the fair value of the marketable securities is based upon its quoted market price, fair value is the same as the carrying value at December 31, 1995 and 1994. 8. PENSION PLANS The Company has two noncontributory defined benefit pension plans for its hourly and salaried employees. All employees are covered by the plans upon completion of twelve months of service with 1,000 or more hours of service, subject to a minimum age of twenty-one. The Company's contributions to the plans are designed to annually fund service cost derived by the plans' actuaries using the frozen entry-age method. -12- The net periodic pension cost for the plans is computed as follows: 1995 1994 1993 Service cost $ 452,636 $ 408,200 $ 366,000 Interest cost 679,492 621,581 560,000 Actual return on plan assets (872,472) 220,000 (873,000) Net amortization and deferral 226,231 (927,800) 30,000 Net periodic pension cost $ 485,887 $ 321,981 $ 83,000 The funded status of the Company's pension plans is as follows: 1995 1994 Actuarial present value of benefit obligations: Vested benefits $ 8,112,575 $ 7,629,826 Nonvested benefits 78,931 23,815 Accumulated benefit obligation 8,191,506 7,653,641 Effect of assumed increase in compensation levels 1,796,558 1,469,738 Projected benefit obligation 9,988,064 9,123,379 Plan assets at fair value 9,870,424 8,929,877 Fair value of assets less than projected benefit obligation 117,640 193,502 Unrecognized net gain 422,788 352,594 Unrecognized transition obligation (194,707) (227,158) Unrecognized prior service costs (149,935) (114,689) Accrued pension cost $ 195,786 $ 204,249 Major assumptions at year-end: Discount rate 7.5% 7.5% Rate of increase in compensation levels 5.0% 5.0% Expected long-term rate of return on plan assets 8.0% 8.0% The Company's pension plans are separately funded and the plans' assets consist principally of investments in United States government securities and common stock. 9. RESEARCH AND DEVELOPMENT Research and development costs relating to both future and present products are charged to selling, administrative and engineering expenses as incurred. The amounts charged in 1995, 1994 and 1993 were approximately $418,000, $485,000 and $286,000 respectively. 10. STOCK TRANSACTIONS On May 19, 1994, the Board of Directors declared a five percent common stock dividend payable on July 22, 1994 to shareholders of record as of the close of business on July 8, 1994. In November, 1995, the Board of Directors approved resolutions authorizing the Company to repurchase up to 200,000 shares of the Company's common stock. As of December 31, 1995, the Company had not repurchased any shares. 11. CONTINGENCIES The Company is involved in litigation regarding several product liability claims. The Company believes that it has substantial meritorious defenses available and intends to defend the cases vigorously. The Company also believes that the ultimate resolution of these proceedings is not likely to have a materially adverse impact on its financial position. 12. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 1993, the Company reduced pension and insurance expense by approximately $487,000 and income tax expense by $226,000. The effect of these adjustments was to increase fourth quarter earnings from operations by $487,000, decrease the net loss by $713,000, and decrease fourth quarter net loss per share by $.19. 13. ORGANIZATIONAL RESTRUCTURING During 1995, plans were developed to significantly reduce the Company's cost structure and to improve productivity. This restructuring program involved reductions in the number of employees, consolidation of manufacturing facilities, and disposition of assets that were no longer productive. The Company also phased-out the manufacture of non-strategic product lines, including Trailers, Track Assemblies and Refuse Collection Products. The restructuring program is expected to enable the Company to improve its competitive position in its core business, reduce costs, increase efficiency and improve profitability. The statement of operations for 1995 includes approximately $1,135,000 of pretax charges relating to this program. Approximately $119,000 of this amount related to severance and associated benefits for staff reductions, approximately $452,000 of this amount related to disposal and write-down of certain assets, and approximately $564,000 of this amount related to the streamlining of operations and administrative functions and the closing of the production facility in Sioux Falls, South Dakota. The effect of these expenditures was a decrease in net earnings after tax of $749,000 or $.19 per common share. Subsequent to year-end, in February 1996, as part of this restructuring program, the Company sold its South Dakota land, building and certain inventory and manufacturing equipment. The remaining inventory and equipment were transferred to the Company's Raleigh, North Carolina manufacturing plant. 14. FUTURE REPORTING REQUIREMENT The Financial Accounting Standards Board has issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which the Company has not been required to adopt as of December 31, 1995. The Statement, which will be in effect for the Company's year ending December 31, 1996, will require that entities review their long-lived assets, primarily property and equipment, and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If conditions indicate that the long-lived asset may be impaired, the entity must estimate the future cash flows to be generated by the asset and compare these cash flows with the carrying amount of the asset. If the future cash flows are less than the carrying amount, an impairment loss must be recognized based on the fair value of the asset. The Statement is not expected to have an impact on the Company's accounting for long-lived assets because management is not aware of any current conditions or circumstances that would lead it to believe that any long-lived asset has been impaired. PHOTO [Caption: THE ATHEY 7-12 FORCE-FEED LOADER The 7-12 continues to prove its ability with municipalities and state and local governments for loading any free-flowing and friable materials. Here, the Force-Feed Loader is shown loading berm into waiting trucks from a road shoulder and ditch maintenance project.] PHOTO [Caption: Right: Mobil Sweeper's H-10B, 3-wheel type street sweeper. Below: A mainstay of the sweeper group, the M-9 series mechanical type sweeper]. PHOTO [Caption: The Athey"Maintenance Master," shown with an optional front broom attachment, is great for pavement maintenance and finsh grading work.] ATHEY PRODUCTS CORPORATION INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders Athey Products Corporation Raleigh, North Carolina We have audited the accompanying balance sheets of Athey Products Corporation as of December 31, 1995 and 1994, and the related statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Athey Products Corporation for the year ended December 31, 1993 were audited by other auditor s whose report, dated March 8, 1994, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overal l financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1995 and 1994 financial statements referred to above present fairly, in all material respects, the financial position of Athey Products Corporation as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/MCGLADREY & PULLEN, LLP Raleigh, North Carolina February 23, 1996 SHAREHOLDER INFORMATION ATHEY PRODUCTS CORPORATION P.O. Box 669 Highway 1A, North Raleigh, NC 27602 Telephone: 919-556-5171 Fax: 919-556-7950 or 919-556-0122 ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of the Shareholders of the Company is scheduled to be held at 11:00 A.M. Daylight Savings Time, May 16, 1996 at the corporate offices of the Company. COMMON STOCK Athey Products Corporation common stock is traded under the symbol ATPC on the NASDAQ Stock Exchange. STOCK TRANSFER AGENT The First National Bank of Chicago Chicago, Illinois INQUIRIES Communications concerning stock transfer requirements should be directed to the transfer agent. REPORTS AVAILABLE Copies of the Company's 1995 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q to the Securities and Exchange Commission, and this Annual Report are available to shareholders upon written request to the Secretary at the Company's principal office or by calling 919-556-5171. ATTORNEYS Parker Poe Adams & Bernstein, L.L.P. Raleigh, NC AUDITORS McGladrey & Pullen, LLP Raleigh, NC DIRECTORS JOHN F. MCCULLOUGH Chairman of the Company President of Orton/McCullough Crane Co., Inc. Oak Brook, Illinois MARTIN W. MCCULLOUGH Vice President and General Manager of Orton/McCullough Crane Co., Inc. Huntington, Indiana RICHARD A. ROSENTHAL Retired Director of Athletics University of Notre Dame South Bend, Indiana HENRY W. GRON, JR. Senior Manager, International Tax Motorola, Inc. Schaumburg, Illinois JAMES H. STUMPO President and Chief Executive Officer of the Company FRANZ M. AHTING Vice President - Finance Chief Financial Officer Officer of the Company OFFICERS JAMES H. STUMPO President and Chief Executive Officer FRANZ M. AHTING Vice President - Finance Chief Financial Officer Treasurer and Assistant Secretary [OUTSIDE BACK COVER] EX-21 3 EXHIBIT 21.1 EXHIBIT 21.1 ATHEY PRODUCTS CORPORATION SUBSIDIARIES OF THE REGISTRANT Name State of Incorporation Athey Export Corporation Illinois Athey Products International, Inc. Barbados Athey International Sales Corporation Illinois EX-27 4 EXHIBIT 27
5 YEAR DEC-31-1995 DEC-31-1995 3,072,088 0 2,669,107 (300,000) 17,022,201 24,008,067 10,696,529 6,554,487 29,325,917 3,556,128 0 0 0 24,259,312 988,558 29,325,917 30,424,588 30,424,588 24,777,557 6,061,601 29,521 0 7,761 (101,261) (104,004) 2,743 0 0 0 2,743 0 0
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