-----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, OJzqhz6YZX50pjmw8tgasJ+CfcAh9Cf4KOx1IOxlG4gO9AcG6pusf9CQ19rJTMcE iTTYQw7zY/wOH40k/ppU7A== 0000007623-99-000010.txt : 19991018 0000007623-99-000010.hdr.sgml : 19991018 ACCESSION NUMBER: 0000007623-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991015 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: 99728752 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, 1999 Item Number Item Description Amount 5-02(1) Cash and cash items 56,211 5-02(2) Marketable securities 5-02(3)(a)(1) Notes and accounts receivable-trade 3,726,230 5-02(4) Allowances for doubtful accounts 185,528 5-02(6) Inventory 9,443,172 5-02(9) Total current assets 14,069,493 5-02(13) Property, plant and equipment 10,669,311 5-02(14) Accumulated depreciation 7,843,027 5-02(18) Total assets 16,895,777 5-02(21) Total current liabilities 8,353,075 5-02(22) Bonds, mortgages and similar debt 6,599,130 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 6,598,490 5-02(32) Total liabilities and stockholders' equity 16,895,777 5-03(b)1(a) Net sales of tangible products 5,098,777 5-03(b)1 Total revenues 5,098,777 5-03(b)2(a) Cost of tangible goods sold 3,650,661 5-03(b)2 Total costs and expenses applicable to sales and revenues 1,011,611 5-03(b)3 Other costs and expenses 7,060 5-03(b)5 Provision for doubtful accounts and notes (19,472) 5-03(b)8 Interest and amortization of debt discount 130,180 5-03(b)10 Income before taxes and other items 314,766 5-03(b)11 Income tax expense 110,168 5-03(b)14 Income from continuing operations 204,598 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 204,598 5-03(b)20 Income per share-primary 0.16 5-03(b)20 Income 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 August 31, 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 September 15, 1999: 1,255,151 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 1999 1998 1999 1998 NET SALES $5,098,777 $5,686,348 $13,210,294 $17,346,481 COST OF GOODS SOLD 3,650,661 3,879,938 9,982,921 13,218,223 GROSS PROFIT 1,448,116 1,806,410 3,227,373 4,128,258 EXPENSES: Engineering 99,049 169,511 316,873 435,797 Selling 348,253 412,940 952,926 1,100,638 General and administrative 548,808 654,555 1,741,747 1,852,102 Total 996,110 1,237,006 3,011,546 3,388,537 INCOME FROM OPERATIONS 452,006 569,404 215,827 739,721 OTHER DEDUCTIONS: Interest expense (130,180) (136,922) (359,487) (410,872) Other (7,060) (48,963) (165,206) (106,683) Other deductions (137,240) (185,885) (524,693) (517,555) INCOME (LOSS) BEFORE INCOME TAXES 314,766 383,519 (308,866) 222,166 INCOME TAX EXPENSE (BENEFIT) 110,168 134,230 (108,013) 77,757 NET INCOME (LOSS) $ 204,598 $ 249,289 $ (200,853) $ 144,409 INCOME (LOSS) PER SHARE (NOTE 2): Basic $ 0.16 $ 0.20 $ (0.16) $ 0.12 Diluted $ 0.16 $ 0.20 $ (0.16) $ 0.12 COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,246,601 1,245,931 1,246,229 1,245,931 Diluted 1,246,601 1,267,303 1,246,229 1,270,403 See accompanying notes to consolidated financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS August 31, November 30 1999 1998 (Unaudited) ASSETS CURRENT ASSETS Cas $ 56,211 $ 13,743 Accounts receivable-customers, net of allowance for doubtful accounts of $185,528 and $205,000 in August and November, respectively 3,540,702 3,755,831 Inventories 9,443,172 9,388,261 Deferred income taxes 754,172 649,391 Income tax receivable - 49,000 Other current assets 275,236 275,144 Total current assets 14,069,493 14,131,370 PROPERTY, PLANT AND EQUIPMENT, at cost 10,669,311 10,418,307 Less accumulated depreciation 7,843,027 7,554,454 Net property, plant and equipment 2,826,284 2,863,853 TOTAL $ 16,895,777 $ 16,995,223 See accompanying notes to consolidated financial statements. August 31 November 30, 1999 1998 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 4,449,413 $ 4,368,303 Current portion of long-term debt 1,710,962 359,862 Accounts payable 2,361,884 1,880,398 Customer deposits 74,304 111,902 Accrued expenses 1,107,612 1,164,271 Total current liabilities 9,704,175 7,884,736 LONG-TERM DEBT, excluding current portion 438,755 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 1,617,726 1,618,453 Retained earnings 5,886,841 6,087,694 7,517,975 7,719,555 Less cost of common shares in treasury of 94,177 and 94,847 in August and November, respectively 906,077 909,749 Total stockholders' equity 6,611,898 6,809,806 TOTAL $ 16,895,777 $ 16,995,223 See accompanying notes to consolidated financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED August 31 August 31 1999 1998 CASH FLOW FROM OPERATIONS: Net income (loss) $ (200,853) $ 144,409 Adjustment to reconcile net loss to net cash provided (used) by operations: Depreciation and amortization 288,573 349,643 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 215,129 (1,787,944) Inventories (54,911) (1,241,220) Sundry (92) (70,773) Increase (Decrease) in: Accounts payable 481,486 556,744 Customer deposits (37,598) 19,825 Accrued expenses (56,659) (9,106) Income taxes, net (55,781) 206,316 Total adjustments 780,147 (1,976,515) Net cash provided by (used in) operations 579,294 (1,832,106) CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment (251,004) (454,908) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock from treasury 2,945 - Increase in short-term loan 1,432,210 1,628,722 Increase (decrease) in long-term loan (1,720,977) 674,567 Net cash provided by (used in) financing activities (285,822) 2,303,289 Net increase in cash 42,468 16,275 Cash at beginning of period 13,743 8,692 Cash at end of the period $ 56,211 $ 24,967 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 359,487 $ 410,872 Income taxes 3,952 1,794 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 third quarter ended August 31, 1999 are not necessarily indicative of the results for the fiscal year ending November 30, 1999. 2. EARNINGS (LOSS) PER SHARE The Company accounts for earnings per share in accordance with SFAS 128 Earnings Per Share (SFAS 128). 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 year to date August 31, 1999, the anti-dilutive effect of the Company's stock option plans is not included in the calculation of diluted earnings per share for this period. The only reconciling item between the shares used in the computation of basic and diluted earnings per share for the quarters ended August 31, 1999 and August 31, 1998 and year to date August 31, 1998, is the effect of stock options of 0, 21,372 and 24,472 respectively. 3. INVENTORIES Major classes of inventory are: August 31, November 30, 1999 1998 Raw material $1,179,937 $ 1,503,784 Work-in-process 3,916,324 4,147,554 Finished goods 4,346,911 3,736,923 Total $ 9,443,172 $9,388,261 4. ACCRUED EXPENSES Major components of accrued expenses are: August 31, November 30, 1999 1998 Salaries, wages and commissions $ 347,995 $ 337,682 Other 759,617 826,589 Total $1,107,612 $1,164,271 5. LOAN AND CREDIT AGREEMENTS A summary of the Company's long-term debt is as follows: August 31, 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 $1,635,500 $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 $ 311,111 $ 444,444 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 $ 203,106 $ 226,350 Total long-term debt $ 2,149,717 $2,519,594 Less current portion of long-term debt 1,710,962 359,862 Long-term debt, excluding current portion $ 438,755 $2,159,732 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Material Changes in Financial Condition At August 31, 1999, the Company's working capital was $5.7 million compared to $6.2 million at November 30, 1998. For the comparable period last year, the Company's working capital was $6.7 million at August 31, 1998, as compared to $5.9 million at November 30, 1997. Debt at August 31, 1999 was $289,000 lower than at November 30, 1998 and $811,000 lower than one year ago. The Company's improved cash flow from operations for the nine months ended August 31, 1999 resulted primarily from reduced inventory growth and reductions in accounts receivable. 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. At August 31, 1999, the Company is in default with a covenant, the fixed maturity coverage ratio, of their credit facility. The lender has notified the Company via letter dated September 15, 1999, that the current loan agreement provides that the lender may, as a result of any event of default, accelerate the payment of all obligations. The Company has continued to represent to the lender that they are in the process of obtaining alternate financing. As a result, the lender has decided not to accelerate the payment of all obligations at this time, even though the lender has the right to do so. The lender has decided to allow the company to proceed under the terms of the loan agreement. As a result, all long-term borrowing associated with this lender has been classified as current. The Company is currently negotiating with another financial institution in order to establish a new credit facility. The Company anticipates that this new credit facility will be finalized during the fourth quarter. As of August 31, 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) Material Changes in Results of Operations For the quarter ended August 31, 1999, total sales were 10% lower than the quarter ended August 31, 1998. OEM sales were off 61% and domestic sales of Art's-Way branded equipment were off 3%. The reduction in OEM sales was due to anticipated inventory reduction strategies by our major customer in reaction to the continuing difficulties experienced in the agricultural industry. Art's-Way brand sales were relatively flat, despite the current disarray in the overall farm economy, primarily as a result of new product introductions. The new products included a range of grain drills, edible-bean cutters and multi-crop shredder/deviners recently acquired from UFT, plus a new 8 row sugar beet harvester, a new versatile potato harvester and a new one pass edible-bean windrower developed internally. Sales of sugar beet equipment were down 8% on much lower farm income expectations in the Red River Valley growing areas. This weakness was partially offset by continuing strength in the Company's other major sugar beet markets, and by a significant contribution from recent new product introductions. For year to date ended August 31, 1999, total sales were 24% below the previous year. Sales of Art's-Way branded equipment were 10% lower and OEM sales were 43% lower. Reduction in sales of OEM occurred for the reasons specified above. Domestic Art's-Way sales continue to be affected by the general weakness in the farm economy, particularly weakness in the livestock and grain markets. Gross profits for the quarter were down 20% from last year on the 10% lower sales. The ratio of cost of goods sold to net sales rose to 71.6% from 68.2% a year ago. Gross margins were adversely impacted by production cutbacks, particularly on sugar beet equipment and by start-up difficulties experienced on the new product introductions. Gross profits for the year were down 22% from last year on the 24% lower sales. The ratio of cost of goods sold to net sales declined from 76.2% in 1998 to 75.6% in 1999. The margin improve- ment resulted primarily from product mix change; i.e., a higher proportion of Art's-Way branded sales compared to OEM sales. Operating expenses for the quarter were 19% lower than for the same period one year ago, with major reductions in selling and administration costs. Selling expenses were lower, primarily in commissions and travel costs, due to the reduced Art's-Way branded equipment sales. The reduction in administrative expenses results primarily from staff reductions and the elimination of the Company's match on the employee 401(k) Savings plan. The operating expense to sales ratio was significantly lower, 19.5% vs 21.8% a year ago. Operating expenses year to date were 11% lower than the previous year. Significant savings have been achieved in all categories and engineering expenditures have been prioritized to maximize current income without critically damaging ongoing product development. Other expenses for the quarter decreased $42,000 over the same period one year ago. Higher costs on the Company's program to offer floor plan financing to our larger dealers through a third party was offset by a debt forgiveness on some of the Company's EDSA loans. The EDSA loan agreement provides that if the Company met certain contract obligations in regard to job creation/retention, demonstrating 51% benefit to low and moderate- income individuals and investment, $100,000 of the debt would be forgiven. Upon compliance with this provision in the third quarter ended August 31, 1999, the Company's long-term borrowings of $100,000 were forgiven and included in other income. Other expense year to date increased $59,000 primarily due to increased floor plan financing costs. The interest expense decrease of $51,000 reflects the lower borrowing levels on bank debt. (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 Y2K project and it is expected that all systems will function reliably or that any problems will not have any material inpact on the Company's operations. 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 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 October 12, 1999 /s/ J. David Pitt (J. David Pitt, President) Date October 12, 1999 /s/William T. Green (William T. Green, Executive Vice President, Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----