-----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, HvJqjQQApQWijok4DPbfLxoJsigRaopnmrtmfz0A1lsUPja65dPSk2Fts6FkmH8G OCyra79HwmpJDRCJo8ZJAA== 0000007623-98-000005.txt : 19980717 0000007623-98-000005.hdr.sgml : 19980717 ACCESSION NUMBER: 0000007623-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980716 SROS: NASD 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: 98667416 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 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 May 31, 1998 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 filling 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 July 6, 1998: 1,245,931 Number of Shares Appendix A to Item 601(c) of Regulation S-K Article 5 of Regulation S-X Quarter Ended May 31, 1998 Item Number Item Description Amount 5-02(1) cash and cash items 48,506 5-02(3)(a)(1) notes and accounts receivable-trade 5,390,398 5-02(4) allowances for doubtful accounts 37,000 5-02(6) inventory 9,522,536 5-02(9) total current assets 15,734,521 5-02(13) property, plant and equipment 10,436,737 5-02(14) accumulated depreciation 7,721,260 5-02(18) total assets 18,449,998 5-02(21) total current liabilities 8,952,787 5-02(30) common stock 13,408 5-02(31) other stockholders' equity 7,015,406 5-02(32) total liabilities and stockholders' equity 18,449,998 5-03(b)1(a) net sales of tangible products 6,872,111 5-03(b)1 total revenues 6,872,111 5-03(b)2(a) cost of tangible goods sold 5,689,300 5-03(b)2 total costs and expenses applicable to sales and revenues 1,094,779 5-03(b)3 other costs and expenses 177,783 5-03(b)5 provision for doubtful accounts and notes 3,000 5-03(b)8 interest and amortization of debt discount 144,987 5-03(b)10 income before taxes and other items - 5-03(b)11 income tax expense - 5-03(b)14 loss continuing operations 58,338 5-03(b)19 net loss 58,338 5-03(b)20 earnings per share - basic - 5-03(b)20 earnings per share - diluted - ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Year To Date May 31 May 31 May 31 May 31 1998 1997 1998 1997 NET SALES $ 6,872,111 $ 4,599,307 $11,660,133 $ 9,164,509 COST OF GOODS SOLD 5,689,300 3,043,916 9,338,285 6,541,452 GROSS PROFIT 1,182,811 1,555,391 2,321,848 2,623,057 EXPENSES: Selling 338,215 401,344 687,698 752,366 General and administrative 612,085 534,249 1,197,547 1,114,483 Total 1,094,779 1,060,499 2,151,531 2,083,385 INCOME FROM OPERATIONS 88,032 494,892 170,317 539,672 OTHER DEDUCTIONS: Interest expense (144,987) (53,022) (273,950) (124,088) Other (32,796) (97,789) (57,720) (107,176) Other deductions (177,783) (150,811) (331,670) (231,264) INCOME (LOSS) BEFORE INCOME TAXES (89,751) 344,081 (161,353) 308,408 INCOME TAX EXPENSE (BENEFIT) (31,413) 121,814 (56,473) 109,328 NET INCOME (LOSS) $ (58,338) $ 222,267 $ (104,880) $ 199,080 INCOME (LOSS) PER SHARE (NOTE 2): Basic $ (0.04) $ 0.18 $ (0.08) $ 0.16 Diluted $ (0.04) $ 0.18 $ (0.08) $ 0.16 COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,245,931 1,238,405 1,245,931 1,238,022 Diluted 1,245,931 1,246,132 1,245,931 1,243,274 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS May 31 November 30, 1998 1997 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 48,506 $ 8,692 Accounts receivable-customers, net of allowance for doubtful accounts of $37,000 and $31,000 in May and November, respectively 5,353,398 3,005,837 Inventories (Note 4) 9,522,536 8,754,469 Deferred income taxes 464,426 464,426 Income tax receivable 155,872 99,000 Other current assets 189,783 154,175 Total current assets 15,734,521 12,486,599 PROPERTY, PLANT AND EQUIPMENT, at cost 10,436,737 10,323,374 Less accumulated depreciation 7,721,260 7,488,142 Net property, plant and equipment 2,715,477 2,835,232 TOTAL $ 18,449,998 $ 15,321,831 See accompanying notes to consolidated financial statements. May 31 November 30, 1998 1997 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 4,470,512 $ 3,172,296 Current portion of long-term debt (Note 6) 341,586 483,157 Accounts payable 2,741,582 2,069,584 Customer deposits (Note 3) 725,231 106,793 Accrued expenses (Note 5) 673,876 789,384 Total current liabilities 8,952,787 6,621,214 LONG-TERM DEBT, excluding current portion (Note 6) 2,353,268 1,451,794 DEFERRED INCOME TAXES 115,129 115,129 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 1,618,453 1,618,453 Retained earnings 6,306,702 6,411,582 7,938,563 8,043,443 Less cost of common shares in treasury of 94,847 in May and November 909,749 909,749 Total stockholders' equity 7,028,814 7,133,694 TOTAL $18,449,998 $ 15,321,831 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) SIX MONTHS ENDED May 31 May 31 1998 1997 CASH FLOW FROM OPERATIONS: Net Income (Loss) $ (104,880) $ 199,079 Adjustment to reconcile net loss to net cash provided (used) by operations: Depreciation and amortization 233,118 298,754 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (2,347,561) (1,430,502) Inventories (768,067) (3,548,810) Sundry (35,608) 116,706 Increase (Decrease) in: Accounts payable 671,998 1,540,940 Customer deposits 618,438 714,710 Accrued expenses (115,508) 83,291 Income taxes, net (56,872) 167,032 Total adjustments (1,800,062) (2,057,879) Net cash used by operations (1,904,942) (1,858,800) CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment (113,363) (197,426) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock from treasury - 4,518 Increase in short-term loan 1,156,645 2,167,156 Increase in long-term loan 901,474 (99,146) Net cash provided by financing activities 2,058,119 2,072,528 Net increase in cash and cash equivalents 39,814 16,302 Cash and cash equivalents at beginning of period 8,692 8,995 Cash and cash equivalents at end of the period $ 48,506 $ 25,297 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 273,950 $ 159,682 Income taxes 1,794 1,928 See accompanying notes to consolidated 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 six months ended November 30, 1997. The results of operations for the second quarter ended May 31, 1998 are not necessarily indicative of the results for the fiscal year ending November 30, 1998. 2. EARNINGS (LOSS) PER SHARE Earnings (Loss) per share of common stock have been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to equivalent common shares from dilutive stock options. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share", which revised the calculation and presentation provisions of Accounting Principals Board (APB) Opinion 15 and related interpretations. SFAS 128, which is effective for periods ending after December 15, 1997, requires companies to present, both currently and retroactively, basic earnings per share and diluted earnings per share instead of primary and fully-diluted earnings per share which was previously required under APB Opinion 15. Accordingly, earnings per share for all periods presented have been restated to apply the provisions of SFAS No. 128. The calculation after applying the provisions of SFAS No. 128 did not change the earnings(loss) per share when compared to earnings(loss) per share calculated under APB Opinion 15. 3. CUSTOMER DEPOSITS The Company receives customer deposits for equipment to be delivered at a later date. As equipment is invoiced and shipped, customer deposits are applied to accounts receivable created by these invoices. 4. INVENTORIES Major classes of inventory are: May 31, November 30, 1998 1997 Raw material $1,972,595 $ 1,593,469 Work-in-process 3,960,470 3,340,641 Finished goods 3,687,471 3,916,359 Inventory market write-down (98,000) (96,000) Total $9,522,536 $8,754,469 5. ACCRUED EXPENSES May 31, November 30, 1998 1997 Major components of accrued expenses are: Salaries, wages and commissions $ 339,576 $ 285,806 Provision for pending claims 9,555 9,555 Other 324,745 494,023 Total $ 673,876 $ 789,384 6. LOAN AND CREDIT AGREEMENTS Line of Credit In April 1998, the Company amended its bank loan agreement. The amendment provides lower percentage borrowing rates on accounts receivable and inventory, a lower interest rate, a capital expenditure facility and a term loan amortized over a seven-year period. The amended agreement is for a revolving credit facility of up to $6,000,000 based upon a percentage of the Company's accounts receivable and inventory and allows within the revolving credit facility for the issuance of letters of credit in an aggregate amount not exceeding $300,000. The interest rate on this credit facility is based on the bank's referenced rate (8.5% at May 31, 1998) and is variable based upon certain performance objectives with a maximum of plus .50% of the referenced rate and a minimum of plus zero. The amendment also provides for a restructured long-term loan in the principal amount of $1,991,000. The principal amount is repayable in monthly installments of $23,700 with the final payment due August 2000 unless the revolving credit facility is renewed. In the event that the term of the revolving credit facility is subsequently extended, the term loan shall continue to amortize based upon the payment schedule outlined above. Other terms and conditions of the original agreement dated August 1995 remain unchanged. Notes Payable - Long-Term A summary of the Company's long-term debt at May 31, 1998 is as follows: Installment promissory note dated April 23, 1998, in the original principal sum of $1,991,000, payable in monthly installments of $23,700 plus interest at zero percent over the bank's national money market rate, secured $ 1,991,000 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments to begin October 1997 466,667 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006. Interest is payable quarterly beginning in November 1996 and principal payments begin in November 1997 237,187 Total long-term debt 2,694,854 Less current portion of long-term debt 341,586 Long-term debt, excluding current portion $ 2,353,268 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources At May 31, 1998, the Company's working capital was $6.8 million compared to $5.9 million at November 28, 1997. For the comparable period last year, the Company's working capital was $5.4 million at May 31, 1997, as compared to $5.2 million at November 28, 1996. Short-term bank borrowings are $1.8 million higher than a year ago. During the quarter, production continued to be disrupted by start-up problems on new products and vendor supply problems. These problems, now corrected, caused unbalanced material flow into the plant, which increased inventories, especially in raw materials, and work-in-process, resulting in increased bank borrowings. As of May 31, 1998, the Company had no material commitments for capital expenditures. The Company anticipates that funds which may be required for future working capital requirements, capital expenditures and business acquisitions will be obtained from future operations, long-term and short-term debt and short-term lines of credit. (b) Results of Operations For the second quarter ended May 31, 1998, overall sales were 49% higher than a year ago, due to a major contribution from our contract to manufacture a range of tillage equipment for a major OEM account. The total value of wholegoods, service parts and miscellaneous components sold under this contract was in excess of $3,300,000 - although approximately half of this amount represents sales that were delayed due to start-up problems encountered in the first quarter. Over $700,000 worth of Art's-Way branded products were shipped through this OEM. This $4,000,000 total sales of completely new business represented 60% of our second quarter sales. Demand for our grinder mixers was down sharply in the second quarter as the price of hogs weakened to the low thirties before recovering to around $40 per cwt in May. Similarly prices for potatoes grown in our sales areas were abysmal, with consequent demand for new potato equipment at low levels not seen for many years. Demand for our mower line was down significantly from last year because of a dealer over-stocking situation, and sales of our SupRaMix declined slightly along with some weakness in milk prices. Gross profits for the second quarter were down 24% from last year on the 49% higher sales. The ratio of cost of goods sold to net sales rose to 82.8% from 66.2% a year ago. This major deterioration was due entirely to the introduction of the new tillage line, which affected our profitability in two ways. The OEM business has inherently lower profit margins, and compounded by the concentration of tillage business in the second quarter, contributed approximately 2/3 of the 16.6 point deterioration. The remaining 1/3 of the variance, worth $407,000, was caused by continuing problems with delay in supply from new vendors which reduced labor efficiency, and cost increases on materials as we resourced our way around some of those vendor delays. Operating expenses were 3% higher, due mainly to a continuing increase in engineering expenditures and increased employee benefit costs. The operating expense to sales ratio continued to fall, standing at 15.9% vs. 23.0 a year ago. Interest costs were higher for the second quarter this year over last year due to higher inventory and accounts receivable levels. Year to date sales for this fiscal year are 27% over last year resulting from second quarter sales as explained above. The ratio of cost of goods sold to net sales rose from 71% last year to 80% this year. A higher percentage of OEM sales to total sales and the startup and efficiency problems involved with the new tillage business caused this increase. Interest costs increased due to the higher inventory and accounts receivable levels. Part II - Other Information ITEM 1. LEGAL PROCEEDINGS 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 consolidated 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_______July 13, 1998_________ /s/ J. David Pitt (J. David Pitt, President) Date_______July 13, 1998_________ /s/William T. Green (William T. Green, Executive Vice President, Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----