-----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, B+Yj6/KKHGChL0+9w2r1xmwa7wv45YTl4b0dRlqc1oY0gYs8TyRXtZ6D9uOQyYSO sTPHyafpOrKj7y06c85ftQ== 0000007623-98-000007.txt : 19981016 0000007623-98-000007.hdr.sgml : 19981016 ACCESSION NUMBER: 0000007623-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981015 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: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05131 FILM NUMBER: 98726146 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 Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X Quarter Ended August 31, 1998 Item Number Item Description Amount 5-02(1) Cash and cash items 24,967 5-02(2) Marketable securities 5-02(3)(a)(1) Notes and accounts receivable-trade 4,833,781 5-02(4) Allowances for doubtful accounts 40,000 5-02(6) Inventory 9,995,689 5-02(9) Total current assets 15,503,811 5-02(13) Property, plant and equipment 10,778,282 5-02(14) Accumulated depreciation 7,837,785 5-02(18) Total assets 18,444,308 5-02(21) Total current liabilities 8,783,144 5-02(22) Bonds, mortgages and similar debt 7,410,536 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 7,264,695 5-02(32) Total liabilities and stockholders' equity 18,444,308 5-03(b)1(a) Net sales of tangible products 5,686,348 5-03(b)1 Total revenues 5,686,348 5-03(b)2(a) Cost of tangible goods sold 3,879,938 5-03(b)2 Total costs and expenses applicable to sales and revenues 1,234,006 5-03(b)3 Other costs and expenses 48,963 5-03(b)5 Provision for doubtful accounts and notes 3,000 5-03(b)8 Interest and amortization of debt discount 136,922 5-03(b)10 Income before taxes and other items 383,519 5-03(b)11 Income tax expense 134,230 5-03(b)14 Income/loss continuing operations - 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 income or loss 249,289 5-03(b)20 earnings per share-primary 0.20 5-03(b)20 earnings per share-fully diluted 0.20 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 August 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 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 October 6, 1998: 1,245,931 Number of Shares ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Year To Date August 31 August 31 August 31 August 31 1998 1997 1998 1997 NET SALES $5,686,348 $5,590,236 $17,346,481 $14,754,745 COST OF GOODS SOLD 3,879,938 3,743,072 13,218,223 10,284,524 GROSS PROFIT 1,806,410 1,847,164 4,128,258 4,470,221 EXPENSES: Engineering 169,511 112,313 435,797 328,849 Selling 412,940 417,892 1,100,638 1,170,258 General and administrative 654,555 543,497 1,852,102 1,657,980 Total 1,237,006 1,073,702 3,388,537 3,157,087 INCOME FROM OPERATIONS 569,404 773,462 739,721 1,313,134 OTHER DEDUCTIONS: Interest expense (136,922) (144,111) (410,872) (268,199) Other (48,963) (56,375) (106,683) (163,551) Other deductions (185,885) (200,486) (517,555) (431,750) INCOME BEFORE INCOME TAXES 383,519 572,976 222,166 881,384 INCOME TAX EXPENSE 134,230 200,543 77,757 309,871 NET INCOME $ 249,289 $ 372,433 $ 144,409 $ 571,513 INCOME PER SHARE (NOTE 2): Basic $ 0.20 $ 0.30 $ 0.12 $ 0.46 Diluted $ 0.20 $ 0.30 $ 0.12 $ 0.46 COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,245,931 1,243,322 1,245,931 1,239,802 Diluted 1,267,303 1,255,963 1,270,403 1,247,132 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS August 31 November 30 1998 1997 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 24,967 $ 8,692 Accounts receivable-customers, net of allowance for doubtful accounts of $40,000 and $31,000 in August and November, respectively 4,793,781 3,005,837 Inventories (Note 4) 9,995,689 8,754,469 Deferred income taxes 464,426 464,426 Income tax receivable - 99,000 Other current assets 224,948 154,175 Total current assets 15,503,811 12,486,599 PROPERTY, PLANT AND EQUIPMENT, at cost 10,778,282 10,323,374 Less accumulated depreciation 7,837,785 7,488,142 Net property, plant and equipment 2,940,497 2,835,232 TOTAL $ 18,444,308 $ 15,321,831 See accompanying notes to consolidated financial statements. August 31 November 30, 1998 1997 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 4,801,018 $ 3,172,296 Current portion of long-term debt (Note 6) 341,586 483,157 Accounts payable 2,626,328 2,069,584 Customer deposits (Note 3) 126,618 106,793 Income taxes payable 107,316 - Accrued expenses (Note 5) 780,278 789,384 Total current liabilities 8,783,144 6,621,214 LONG-TERM DEBT, excluding current portion (Note 6) 2,267,932 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 6,555,991 6,411,582 8,187,852 8,043,443 Less cost of common shares in treasury of 94,847 in August and November 909,749 909,749 Total stockholders' equity 7,278,103 7,133,694 TOTAL $ 18,444,308 $ 15,321,831 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED August 31 August 31 1998 1997 CASH FLOW FROM OPERATIONS: Net Income $ 144,409 $ 571,513 Adjustment to reconcile net loss to net cash provided (used) by operations: Depreciation and amortization 349,643 455,990 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (1,787,944) (2,503,423) Inventories (1,241,220) (4,006,297) Sundry (70,773) 25,362 Increase (Decrease) in: Accounts payable 556,744 1,299,766 Customer deposits 19,825 172,430 Accrued expenses (9,106) 317,717 Income taxes, net 206,316 367,482 Total adjustments (1,976,515) (3,870,973) Net cash used by operations (1,832,106) (3,299,460) CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment (454,908) (222,376) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock from treasury - 57,014 Increase in short-term loan 1,628,722 3,628,702 Increase (decrease) in long-term loan 674,567 (169,500) Net cash provided by financing activities 2,303,289 3,516,216 Net increase (decrease) in cash and cash equivalents 16,275 (5,620) Cash and cash equivalents at beginning of period 8,692 8,995 Cash and cash equivalents at end of the period $ 24,967 $ 3,375 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 410,872 $ 289,005 Income taxes 1,794 1,132 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 third quarter ended August 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: August 31, November 30, 1998 1997 Raw material $1,602,910 $ 1,593,469 Work-in-process 4,127,366 3,340,641 Finished goods 4,361,413 3,916,359 Inventory market write-down (96,000) (96,000) Total $9,995,689 $8,754,469 5. ACCRUED EXPENSES Major components of accrued expenses are: August 31, November 30, 1998 1997 Salaries, wages and commissions $ 405,797 $285,806 Provision for pending claims 9,555 9,555 Other 364,926 494,023 Total $ 780,278 $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 August 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 August 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 $ 1,919,900 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments of $11,111. 455,556 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly principal and interest payments of $5,493 234,062 Total long-term debt 2,609,518 Less current portion of long-term debt 341,586 Long-term debt, excluding current portion $ 2,267,932 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources At August 31, 1998, the Company's working capital was $6.7 million compared to $5.9 million at November 28, 1997. For the comparable period last year, the Company's working capital was $5.8 million at August 31, 1997, as compared to $5.2 million at November 28, 1996. Short-term bank borrowings are $.7 million higher than a year ago. As of August 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 third quarter August 31, 1998, overall sales were 1.7% higher than a year ago. Our contract to manufacture a range of tillage equipment for a major OEM account coupled with higher sales of beet equipment offset areas of sales weakness in some of our traditional product lines. Sales of service parts were up 15% with strong demand from our sugar beet dealers. Demand for potato equipment continues at low levels not seen for many years and sales of our SupraMix lines were seriously impacted by the dry weather in Texas. Gross profits for the third quarter were down 2.3% from last year on the 1.7% higher sales. The ratio of cost of goods sold to net sales rose to 68.2% from 67.0% a year ago. A larger proportion of OEM sales with inherently lower profit margins to total sales caused the lower total margin. The production problems that impacted our second quarter by $407,000 were less than $90,000 this quarter. Operating expenses were 15.2% higher, due mainly to a continuing increase in engineering expenditures, and costs incurred in restoring the company's contribution to the 401(k) pension plan. The operating expense to sales ratio was 21.8% compared to 19.2% a year ago. Year to date sales for this fiscal year are 17.5% over last year primarily resulting from the contract with a major OEM to manufacture tillage equipment. The ratio of cost of goods sold to net sales rose from 69.7% last year to 76.2% 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 that are necessary to support the higher level of sales. Year 2000 Issues The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Major system failures or erroneous calculations can result if computer systems are not year 2000 compliant. The Company continues to assess its year 2000 issues and is in the process of upgrading its manufacturing and financial information system to be Year 2000 compliant. The conversion is anticipated to be completed by the end of 1998 with the cost estimated to be between $300,000 and $400,000. These expenditures were planned and budgeted for in an effort to upgrade the quality of the Company's manufacturing and financial information system and not as a direct remediation of any Year 2000 issues, although that will be a valuable by-product of the upgrade. The Company has not yet initiated formal communications with all of its significant suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issue. 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 October 13, 1998 /s/ J. David Pitt (J. David Pitt, President) Date October 13, 1998 /s/William T. Green (William T. Green, Executive Vice President, Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----