-----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, A8TS0opYoJV3JHWbPsTboqPciuEPcqphJEl2NSgWqXeIW1eyt1DTDySotwZkCcgl HlQ+Lu1zKZ48qVm8ls8hHQ== 0000007623-99-000008.txt : 19990416 0000007623-99-000008.hdr.sgml : 19990416 ACCESSION NUMBER: 0000007623-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990415 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: 99594333 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 February 28, 1999 Item Number Item Description Amount 5-02(1) Cash and cash items 23,495 5-02(2) Marketable securities 5-02(3)(a)(1) Notes and accounts receivable-trade 3,948,528 5-02(4) Allowances for doubtful accounts 208,000 5-02(6) Inventory 9,379,860 5-02(9) Total current assets 14,214,737 5-02(13) Property, plant and equipment 10,433,792 5-02(14) Accumulated depreciation 7,655,037 5-02(18) Total assets 16,993,492 5-02(21) Total current liabilities 8,174,599 5-02(22) Bonds, mortgages and similar debt 5,835,998 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 6,594,742 5-02(32) Total liabilities and stockholders' equity 16,993,492 5-03(b)1(a) Net sales of tangible products 4,668,191 5-03(b)1 Total revenues 4,668,191 5-03(b)2(a) Cost of tangible goods sold 3,741,961 5-03(b)2 Total costs and expenses applicable to sales and revenues 1,043,181 5-03(b)3 Other costs and expenses 72,450 5-03(b)5 Provision for doubtful accounts and notes 3,000 5-03(b)8 Interest and amortization of debt discount 117,839 5-03(b)10 Loss before taxes and other items 310,240 5-03(b)11 Income tax benefit 108,584 5-03(b)14 Loss continuing operations 201,656 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 201,656 5-03(b)20 Loss per share-primary 0.16 5-03(b)20 Loss per share-fully diluted 0.16 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, 1999 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, 1999: 1,245,931 Number of Shares ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended February 28 February 28 1999 1998 NET SALES $4,668,191 $4,788,022 COST OF GOODS SOLD 3,741,961 3,648,985 GROSS PROFIT 926,230 1,139,037 EXPENSES: Engineering 120,177 121,807 Selling 303,928 349,483 General and administrative 622,076 585,462 Total 1,046,181 1,056,752 INCOME (LOSS) FROM OPERATIONS (119,951) 82,285 OTHER DEDUCTIONS: Interest expense (117,839) (128,963) Other (72,450) (24,924) Other deductions (190,289) (153,887) LOSS BEFORE INCOME TAXES (310,240) (71,602) INCOME TAX BENEFIT (108,584) (25,061) NET LOSS $(201,656) $(46,541) LOSS PER SHARE (NOTE 2): Basic $ (0.16) $ (0.04) Diluted $ (0.16) $ (0.04) COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,245,931 1,245,931 Diluted 1,245,931 1,245,931 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS February 28, November 30 1999 1998 (Unaudited) ASSETS CURRENT ASSETS: Cash $ 23,495 $ 13,743 Accounts receivable-customers, net of allowance for doubtful accounts of $208,000 and $205,000 in February and November, respectively 3,740,528 3,755,831 Inventories 9,379,860 9,388,261 Deferred income taxes 649,391 649,391 Income tax receivable 161,472 49,000 Other current assets 259,991 275,144 Total current assets 14,214,737 14,131,370 PROPERTY, PLANT AND EQUIPMENT, at cost 10,433,792 10,418,307 Less accumulated depreciation 7,655,037 7,554,454 Net property, plant and equipment 2,778,755 2,863,853 TOTAL $ 16,993,492 $ 16,995,223 See accompanying notes to consolidated financial statements. February 28 November 30, 1999 1998 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 3,406,342 $ 4,368,303 Current portion of long-term debt 359,862 359,862 Accounts payable 2,394,271 1,880,398 Customer deposits 815,152 111,902 Accrued expenses 1,198,972 1,164,271 Total current liabilities 8,174,599 7,884,736 LONG-TERM DEBT, excluding current portion (Note 6) 2,069,794 2,159,732 DEFERRED INCOME TAXES 140,949 140,949 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 5,886,038 6,087,694 7,517,899 7,719,555 Less cost of common shares in treasury of 94,847 in February and November 909,749 909,749 Total stockholders' equity 6,608,150 6,809,806 TOTAL $ 16,993,492 $ 16,995,223 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED February 28 February 28 1999 1998 CASH FLOW FROM OPERATIONS: Net Income $ (201,656) $ (46,541) Adjustment to reconcile net loss to net cash provided (used) by operations: Depreciation and amortization 100,583 117,177 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 15,303 (1,701,623) Inventories 8,401 (846,872) Sundry 15,153 882 Increase (Decrease) in: Accounts payable 513,873 1,338,658 Customer deposits 703,250 320,680 Accrued expenses 34,701 (127,565) Income taxes, net (112,472) (26,511) Total adjustments 1,278,792 (925,174) Net cash provided by (used in) operations 1,077,136 (971,715) CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment (15,485) (81,397) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock from treasury - - Increase (decrease) in short-term loan (961,961) 1,235,821 Increase (decrease) in long-term loan (89,938) (118,548) Net cash provided by (used in) financing activities (1,051,899) 1,117,273 Net increase in cash 9,752 64,161 Cash at beginning of period 13,743 8,692 Cash at end of the period $ 23,495 $ 72,853 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 117,839 $ 128,963 Income taxes 3,888 1,450 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 year ended November 30, 1998. The results of operations for the first quarter ended February 28, 1999 are not necessarily indicative of the results for the fiscal year ending November 30, 1999. 2. EARNINGS (LOSS) PER SHARE The Company has adopted SFAS 128 Earnings Per Share (SFAS 128), which has changed the method for calculating income per share. SFAS 128 requires the presentation of "basic" and "diluted" income per share on the face of the income statement. Income per common share is computed by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during each period. The diffference 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 1999 and 1998, 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, 1999 1998 Raw material $1,459,062 $ 1,503,784 Work-in-process 4,258,626 4,147,554 Finished goods 3,662,172 3,736,923 Total $9,379,860 $9,388,261 4. ACCRUED EXPENSES Major components of accrued expenses are: February 28, November 30, 1999 1998 Salaries, wages and commissions $ 299,813 $ 337,682 Other 899,159 826,589 Total $1,198,972 $1,164,271 5. LOAN AND CREDIT AGREEMENTS A summary of the Company's long-term debt is as follows: February 28, November 30, 1999 1998 Installment promissory note payable in monthly installments of $23,700 plus interest at one-half percent over the bank's national money market rate (8.25%), secured $1,777,700 $1,848,800 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments of $11,111 $ 433,333 $ 444,444 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 $ 218,623 $ 226,350 Total long-term debt $ 2,429,656 $2,519,594 Less current portion of long-term debt 359,862 359,862 Long-term debt, excluding current portion $ 2,069,794 $2,159,732 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources At February 28, 1999, the Company's working capital was $6.0 million compared to $6.2 million at November 30, 1998. For the comparable period last year, the Company's working capital was $5.7 million at February 28, 1998, as compared to $5.9 million at November 30, 1997. Debt at February 28, 1999 was $1.1 million lower than at November 30, 1998 and $389,000 lower than one year ago. The Company's cash flow from operations increased primarily as a result of a reduction in inventory and increases in accounts payable and customer deposits. As of February 28, 1999, 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, short-term lines of credit, and long-term debt. (b) Results of Operations Overall sales were 2.5% lower than a year ago, with OEM accounts up $591,000 and sales of Art's-Way brands down $711,000. The increase in OEM business was all in the new contract to manufacture a range of tillage equipment for Case Corporation. Production of land planes was delayed to the second quarter to make production capacity available for the OEM. This caused Art's-Way brand sales to fall approximately $300,000 from last year. The remaining weakness was due to anticipated problems in the hog related grinder-mixer business, and lower out-of- season sales of sugar beet equipment. First quarter gross profits were down 18.7% from last year. The ratio of cost of goods sold to net sales rose to 80.2% from 76.2% a year ago, all due to the swing in mix from higher margin Art's-Way product to the lower margin OEM product. Operating expenses were 1.0% lower than last year, with significant savings in selling costs, partially offset by a $39,000 increase in employee health insurance costs. In 1997, the Company made floor plan financing available to our major dealers through a third party. This essential marketing program has proven to be very beneficial. As the program has become more popular, our share of the financing costs has risen, causing other expenses to increase $47,000. (c) Year 2000 Issues In 1998 the Company began preparing its computer-based systems for year 2000 ("Y2K") computer software compliance issues. Historically, certain computer programs were written using two digits rather than four to define the applicable year. As a result, software may recognize a date using the two digits "00" as 1900 rather than the year 2000. Computer programs that do not recognize the proper date could generate erroneous data or cause systems to fail. The Company's Y2K project covers its significant computer programs and certain equipment, which contain microprocessors and is divided into five major phases-assessment, planning, conversion, implementation and testing. The Company has completed the assessment and planning phases and is currently in the conversion, implementation and testing phases. Systems which have been determined not to be Y2K compliant are being either replaced or reprogrammed, and thereafter tested for Y2K compliance. The Company expects the conversion, implementation and testing phases to be complete by mid-1999. The Company's Y2K project also considers the readiness of significant customers and vendors. The Company is in the process of identifying and contacting critical suppliers and customers regarding their plans and progress in addressing their Y2K issues. The Company has received varying information from such parties on the state of compliance or expected compliance. The non-compliance of such vendors could impair the ability of the Company to obtain necessary products or to sell or provide services to its customers. Disruptions of the computer systems of the Company's vendors could have a material adverse effect on the Company's financial condition and results of operations for the period of such disruption. Contingency plans are being developed in the event that any critical supplier or customer is not compliant. The Company has incurred approximately $305,000 of Y2K project expense to date. Future expenses are estimated to be approximately $3,000. Such cost estimates are based upon presently available information and may change as the Company continues with its Y2K project. The Company believes that its internal operating systems will be Year 2000 compliant before December 31, 1999. Therefore, the Company believes that the most reasonably likely worst-case scenario will be that one or more of third parties with which the Company has a material business relationship will not have successfully dealt with its Year 2000 issues. A critical third party failure (such as telecommunication, utilities or financial institutions) could have a material adverse affect on the Company by eliminating the Company's ability to order and pay for products from suppliers and receive orders and payments from customers. It is also possible that one or more of the internal operating systems will not function properly and make it difficult to complete routine tasks, such as accounting and other record keeping duties. Based on information currently available, the Company does not believe there will be any long-term operating systems failures. However, the Company will continue to monitor these issues as part of its Year 2000 project and will concentrate its efforts on minimizing their impact. 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 April 13, 1999 /s/ J. David Pitt (J. David Pitt, President) Date April 13, 1999 /s/William T. Green (William T. Green, Executive Vice President, Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----