-----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, KOyNZRCmsnaDNeOi5fQV70n/e/I/SBrYN1IfWtQrnMySuywACjpN8ZFLhRsYeAJA gaFCAwfbekqda2snJyb5vQ== 0000007623-01-000004.txt : 20010417 0000007623-01-000004.hdr.sgml : 20010417 ACCESSION NUMBER: 0000007623-01-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARTS WAY MANUFACTURING CO INC CENTRAL INDEX KEY: 0000007623 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 420920725 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05131 FILM NUMBER: 1603070 BUSINESS ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 BUSINESS PHONE: 7128643131 MAIL ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 10-Q 1 0001.txt Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X Quarter Ended February 28, 2001 Item Number Item Description Amount 5-02(1) Cash and cash items 12,306 5-02(2) Marketable securities - 5-02(3)(a)(1) Notes and accounts receivable-trade 2,074,518 5-02(4) Allowances for doubtful accounts 80,803 5-02(6) Inventory 6,722,485 5-02(9) Total current assets 8,811,160 5-02(13) Property, plant and equipment 10,603,061 5-02(14) Accumulated depreciation 8,697,296 5-02(18) Total assets 10,779,825 5-02(21) Total current liabilities 6,686,557 5-02(22) Bonds, mortgages and similar debt 4,307,017 5-02(28) Preferred stock-mandatory redemption 0 5-02(29) Preferred stock-no mandatory redemption 0 5-02(30) Common stock 13,408 5-02(31) Other stockholders' equity 3,754,213 5-02(32) Total liabilities and stockholders' equity 10,779,825 5-03(b)1(a) Net sales of tangible products 2,990,487 5-03(b)1 Total revenues 2,990,487 5-03(b)2(a) Cost of tangible goods sold 2,516,176 5-03(b)2 Total costs and expenses applicable to sales and revenues 581,439 5-03(b)3 Other costs and expenses 52,340 5-03(b)5 Provision for doubtful accounts and notes 4,500 5-03(b)8 Interest and amortization of debt discount 122,824 5-03(b)10 Loss before taxes and other items 286,792 5-03(b)11 Income tax benefit - 5-03(b)14 Loss continuing operations 286,792 5-03(b)(15) Discontinued operations 0 5-03(b)(17) Extraordinary items 0 5-03(b)(18) Cumulative effect-changes in accounting principles 0 5-03(b)19 Net loss 286,792 5-03(b)20 Loss per share-primary 0.23 5-03(b)20 Loss per share-fully diluted 0.23 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended February 28, 2001 Commission File No. 0-5131 ART'S-WAY MANUFACTURING CO., INC. (Exact name of registrant as specified in its charter) DELAWARE 42-0920725 State of Incorporation I.R.S. Employer Identification No. Hwy 9 West, Armstrong, Iowa 50514 Address of principal executive offices Zip Code Registrant's telephone number, including area code: (712) 864-3131 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 Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of April 5, 2001: 1,256,351 Number of Shares ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended February 28, February 29, 2001 2000 NET SALES $2,990,487 $2,434,011 COST OF GOODS SOLD 2,516,176 1,904,128 GROSS PROFIT 474,311 529,883 EXPENSES: Engineering 84,458 93,930 Selling 93,305 176,254 General and Administrative 408,176 433,486 Total 585,939 703,670 LOSS FROM OPERATIONS (111,628) (173,787) OTHER DEDUCTIONS: Interest expense (122,824) (137,118) Other (52,340) (35,764) Other deductions (175,164) (172,882) LOSS BEFORE INCOME TAXES (286,792) (346,669) INCOME TAX BENEFIT - - NET LOSS $(286,792) $(346,669) LOSS PER SHARE (NOTE 2): Basic $ (0.23) $ (0.28) Diluted $ (0.23) $ (0.28) COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,256,351 1,256,351 Diluted 1,256,351 1,256,351 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS February 28, November 30, 2001 2000 (Unaudited) ASSETS CURRENT ASSETS Cash $ 12,306 $ 4,375 Accounts receivable-customers, net of allowance for doubtful accounts of $80,803 and $76,303 in February and November, respectively 1,993,715 1,331,308 Inventories 6,722,485 7,184,324 Other current assets 82,654 90,669 Total current assets 8,811,160 8,610,676 PROPERTY, PLANT AND EQUIPMENT, at cost 10,603,061 10,603,061 Less accumulated depreciation 8,697,296 8,569,234 Net property, plant and equipment 1,905,765 2,033,827 DEFERRED INCOME TAXES 62,900 62,900 TOTAL $ 10,779,825 $ 10,707,403 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 2,697,448 $ 2,552,183 Current portion of long-term debt 1,283,922 1,355,023 Accounts payable 1,776,679 1,286,643 Customer deposits 163,693 127,196 Accrued expenses 764,815 987,336 Total current liabilities 6,686,557 6,308,381 LONG-TERM DEBT, excluding current portion 325,647 344,609 STOCKHOLDERS' EQUITY: Common stock - $.01 par value. Authorized 5,000,000 shares; issued 1,340,778 shares 13,408 13,408 Additional paid-in capital 1,559,037 1,559,037 Retained earnings 3,004,990 3,291,782 4,577,435 4,864,227 Less cost of common shares in treasury of 84,427 in February and November, 809,814 809,814 Total stockholders' equity 3,767,621 4,054,413 TOTAL $ 10,779,825 $ 10,707,403 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED February 28, February 29, 2001 2000 CASH FLOW FROM OPERATIONS: Net Loss $ (286,792) $ (346,669) Adjustment to reconcile net loss to net cash provided (used) by operations: Depreciation and amortization 128,062 117,845 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (662,407) 166,059 Inventories 461,839 (621,837) Sundry 8,015 36,707 Increase (Decrease) in: Accounts payable 490,036 395,906 Customer deposits 36,497 523,499 Accrued expenses (222,521) (200,839) Income taxes, net - - Total adjustments 239,521 417,340 Net cash provided by (used in) operating activities (47,271) 70,671 CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment - - CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments of) notes payable to bank 145,265 (226,438) Principal payments on long-term debt (90,063) ( 89,999) Net cash provided by (used in) financing activities 55,202 (316,437) Net increase (decrease) in cash 7,931 (245,766) Cash at beginning of the period 4,375 273,303 Cash at end of the period $ 12,306 $ 27,537 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 122,824 $ 137,118 Income taxes 300 330 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement Presentation The financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management,necessary for a fair presentation of the financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended November 30, 2000. The results of operations for the first quarter ended February 28, 2001, are not necessarily indicative of the results for the fiscal year ending November 30, 2001. 2. EARNINGS (LOSS) PER SHARE Basic income per common share is computed on the basis of weighted average number of common shares. Diluted income per share is computed on the basis of weighted average number of common shares plus equivalent shares assuming exercise of stock options. The difference in shares utilized in calculating basic and diluted earnings per share represents the number of shares issued under the Company's stock option plans less shares assumed to be purchased with proceeds from the exercise of the stock options. Due to the net loss in 2001 and 2000, the anti-dilutive effect of the Company's stock option plans is not included in the calculation of diluted earnings per share for those periods. 3. INVENTORIES Major classes of inventory are: February 28, November 30, 2001 2000 Raw material $ 1,251,136 $ 1,054,509 Work-in-process 1,660,980 2,070,323 Finished goods 3,810,369 4,059,492 Total $ 6,722,485 $ 7,184,324 4. ACCRUED EXPENSES Major components of accrued expenses are: February 28, November 30, 2001 2000 Salaries, wages and commissions $ 366,585 $ 419,941 Accrued warranty expense 81,351 106,667 Other 316,879 460,728 Total $ 764,815 $ 987,336 5. LOAN AND CREDIT AGREEMENTS Line of Credit The Company has a credit agreement with a bank which allows for borrowings up to $4,500,000, subject to borrowing base limitations on the Company's accounts receivable and inventory, and to allow for letters of credit for $100,000. At November 30, 2000 the Company had borrowed $2,552,183 and had $100,000 in outstanding letters of credit. At February 28, 2001 the Company has borrowed $2,697,448 and has $100,000 in out- standing leters of credit. At November 30, 2000 and February 28, 2001, $212,000 and $200,000 was available for borrowings, respectively. The interest rate is based on the bank's referenced rate and is variable based upon certain performance objectives with a maximum of plus 2.50% of the referenced rate and a minimum of plus zero (11.50% at February 28, 2001). The Company also has a long-term loan with the same bank with an original principal amount of $1,991,000. The principal amount is repayable in monthly installments of $23,700 with the final payment due April 15,2001. All loans, advances and other obligations, liabilities and indebtedness of the Company are secured by all present and future assets. The Company pays an unused line fee equal to three- eighths of one percent of the unused portion of the revolving line of credit. During 1999, the Company was notified by its lender that the Company does not fit the lender's customer profile and was requested to relocate its financing needs. The original term of the loan expired on August 31, 2000. The loan agreement has been amended on August 31, 2000, October 15, 2000, January 15, 2001, February 15, 2001 and April 15, 2001. In each of these amendments, the lender has agreed not to exercise its rights and remedies under the loan agreement unless there is a future event of default. The latest amendment extended the maturity date of the loan agreement to June 15, 2001. The Company is currently negotiating with another financial institution in order to establish a new credit facility. While the Company believes a new credit facility will be obtained, there is no assurance of such. If the Company is unable to obtain a new credit facility prior to the expiration of its existing facility on June 15, 2001, it will be unable to repay its outstanding balance due June 15, 2001. A summary of the Company's long-term debt is as follows: February 28, November 30, 2001 2000 Installment promissory note payable in monthly installments of $23,700 plus interest at three percent over the bank's national money market rate (11.50%), secured by the cash, accounts receivable, inventories and property, plant and equipment $1,208,900 $1,280,000 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments of $11,111 244,445 255,556 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 156,224 164,076 Total long-term debt 1,609,569 1,699,632 Less current portion of long-term debt 1,283,922 1,355,023 Long-term debt, excluding current portion $ 325,647 $ 344,609 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources The Company's main source of funds for the quarter ended February 28, 2001 was a reduction in inventory and an increase in accounts payable. These two main sources of funds were offset partially by an increase in accounts receivable and a reduction in accrued expenses. The negative cash flow from operations required an increased in bank borrowings. The conditions existing in the agriculture economy, in addition to adversely impacting sales, have also resulted in a deterioration of the Company's accounts receivable. The Company believes it has provided an adequate reserve for uncollectible accounts based on currently available information. As of February 28, 2001, the Company had no material commitments for capital expenditures. During 1999, the Company was notified by its lender that the Company does not fit the lender's customer profile and was requested to relocate its financing needs. The original term of the loan expired on August 31, 2000. The loan agreement has been amended on August 31, 2000, October 15, 2000, January 15, 2001, February 15, 2001 and April 15, 2001. In each of these amendments, the lender has agreed not to exercise its rights and remedies under the loan agreement unless there is an additional future event of default. The latest amendment extended the maturity date of the loan agreement to June 15, 2001. The Company is currently negotiating with another financial institution in order to establish a new credit facility. While the Company believes a new credit facility will be obtained, there is no assurance of such. If the Company is unable to obtain a new credit facility prior to the expiration of its existing facility on June 15, 2001, it will be unable to repay its outstanding balance due June 15, 2001, unless an extension is granted by its current lender. (b) Results of Operations Overall sales for the first quarter were up 23% over last year's first quarter. Sales of Art's-Way products were 41% lower than one year ago. However, the shortfall in Art's-Way products was more than offset by increased OEM sales, which included product for three original equipment manufacturers. Gross profit as a percent of sales was lower by six percentage points due to the sales product mix. Sales to OEM's traditionally carry a lower margin than our proprietary products, and for the first quarter of fiscal year 2001, these sales represented 63% of total sales compared to 23% for the same period one year ago. Manufacturing efficiencies improved by two percentage points due to favorable product mix and cost reductions implemented December 1, 1999 and January 15, 2001. Although the full impact of the cost reductions on January 15, 2001 was not effective for the entire first quarter, management expects this action to reduce manufacturing and operating expenses on an annual basis by approximately $1,200,000. Due to the continued distressed agricultural economy, the Company will not record any tax benefits until the Company returns to profitability. The order backlog as of February 28, 2001 is $1,409,000 compared to $5,200,000 one year ago. These orders primarily will be delivered by the end of the third quarter of the current fiscal year. Last year's backlog included $2,900,000 of orders for sugar beet equipment compared to $50,000 this year. The uncertainty in the sugar beet industry has caused growers to delay ordering equipment. Last year's order back- log also included $1,685,000 of product for OEM's which was produced in March last year. This year the equipment was produced and sold in February 2001. (c) Effect of New Accounting Standards The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities, as amended," which establishes accounting and reporting standards for derivative instruments. SFAS 133 requires that all derivatives be recognized in the balance sheet and measured at fair value. The Company believes there is no impact of this standard on its financial position or results of operations. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS 125 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS 125 without reconsideration. SFAS 140 is effective for transfers of financial assets occurring after March 30, 2001. The Company is in the process of evaluating the potential impact of this standard, but believes that it will be immaterial to its financial position and results of operations. Part II - Other Information ITEM 1. LITIGATION AND CONTINGENCIES Various legal actions and claims are pending against the Company consisting of ordinary routine litigation incidental to the business. In the opinion of management and outside counsel, appropriate provisions have been made in the accompanying financial statements for all pending legal actions and other claims. 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. ART'S-WAY MANUFACTURING CO., INC. Date April 16, 2001 /s/William T. Green (William T. Green, Chief Financial Officer) Date April 16, 2001 /s/John C. Breitung (John C. Breitung, President) -----END PRIVACY-ENHANCED MESSAGE-----