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, 1997 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.
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 March 18, 1997:
1,238,431
Number of Shares
ART'S-WAY MANUFACTURING CO., INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Statement of Earnings....................2
Condensed Balance Sheet.......................... 3,4
Condensed Statement of Cash Flows..................5
Notes to Condensed Financial Statements........... 6,7
Item 2. Management's Discussion and Analysis............. 8,9
PART II - Other Information
Item 1. Legal Proceedings ................................ 10
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
February 28, February 29, February 28,February 29,
1997 1996 1997 1996
NET SALES $4,565,202 $2,804,518 $11,840,887 $9,118,805
COST OF GOODS SOLD 3,497,536 2,001,869 9,031,572 6,846,311
GROSS PROFIT 1,067,666 802,649 2,809,315 2,272,494
EXPENSES:
Engineering 91,630 65,320 228,908 226,185
Selling 351,022 322,429 971,566 1,091,720
General and 580,234 484,075 1,534,366 1,491,973
administrative
Total 1,022,886 871,824 2,734,840 2,809,878
INCOME(LOSS)FROM
OPERATIONS 44,780 (69,175) 74,475 (537,384)
OTHER DEDUCTIONS:
Interest expense (71,066) (97,233) (274,067) (357,359)
Other (9,387) (4,152) (19,244) (24,946)
Total other
(deductions) (80,453) (101,385) (293,311) (382,305)
LOSS BEFORE INCOME
TAXES (35,673) (170,560) (218,836) (919,689)
INCOME TAX BENEFIT (12,485) (59,695) (76,592) (321,890)
NET LOSS (23,188) (110,865) (142,244) (597,799)
LOSS PER SHARE
(NOTE 2) ($0.02) ($0.10) ($0.12) ($0.56)
See accompanying notes to consolidated financial statements.
Memo:
Earnings (loss) before
interest, taxes,
depreciation and
amortization 238,902 68,494 546,138 (132,047)
Earnings (loss)
before interest
and taxes 35,393 (73,327) 55,231 (562,330)
2
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
February 28, May 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $44,475 $91,513
Accounts receivable-customers,
net of allowance for doubtful accounts
of $33,614 in February and $26,975
in May, respectively 3,079,469 2,464,241
Inventories (Note 4) 5,767,558 6,200,743
Current recoverable income taxes 155,920 -
Deferred income taxes 734,522 734,522
Other current assets 292,740 87,475
Total current assets 10,074,684 9,578,494
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,193,066 9,091,255
Less accumulated depreciation 7,274,848 6,783,941
Net property, plant and equipment 2,918,218 2,307,314
TOTAL $12,992,902 $11,885,808
See accompanying notes to consolidated financial statements.
3
February 28, May 31,
1997 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $1,586,355 $2,281,809
Current portion of long-term
debt (Note 6) 426,000 426,000
Accounts payable 1,599,686 506,912
Customer deposits (Note 3) 640,702 371,801
Accrued expenses (Note 5) 515,896 1,007,326
Total current liabilities 4,768,639 4,593,848
LONG-TERM DEBT, excluding current
portion (Note 6) 1,700,500 1,420,000
DEFERRED INCOME TAXES 160,038 160,038
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 1,641,042 2,295,089
Retained earnings 5,698,626 5,840,870
7,353,076 8,149,367
Less cost of common shares in
treasury of 103,147 in February
and 254,147 in May 989,351 2,437,445
Total stockholders' equity 6,363,725 5,711,922
TOTAL $12,992,902 $11,885,808
See accompanying notes to financial statements.
4
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
February 28, February 29,
1997 1996
CASH FLOW FROM OPERATIONS:
Net loss $(142,244) $(597,799)
Adjustment to reconcile net loss
to net cash provided (used)
by operations:
Depreciation 490,907 430,283
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (615,228) 1,617,774
Inventories 433,185 (61,437)
Sundry (205,265) (61,507)
Increase (decrease) in:
Accounts payable 1,092,774 (807,742)
Customer deposits 268,901 757,409
Accrued expenses (491,430) (59,947)
Income taxes, net (155,920) 325,445
Total adjustments 817,924 2,140,278
Net cash provided by operations 675,680 1,542,479
CASH USED IN INVESTING ACTIVITIES -
Purchases of property, plant
and equipment (1,101,811) (16,314)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock from treasury 794,047 30,895
Decrease in short term loan (695,454) (2,002,077)
Increase in long-term loan 280,500 343,666
Net cash provided (used) by
financing activities 379,093 (1,627,516)
Net decrease in cash and temporary
cash investments (47,038) (101,351)
Cash and temporary cash investments
at beginning of period 91,513 86,051
Cash and temporary cash investments
at end of the period $44,475 $(15,300)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $229,705 $393,491
Income taxes 20,869 6,992
See accompanying notes to consolidated financial statements.
5
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 fiscal year ended May 31, 1996. The results of
operations for the third quarter ended February 28, 1997
are not necessarily indicative of the results for the entire
fiscal year ending May 31, 1997.
2. LOSS PER SHARE
Loss per common share is based on the weighted average number
of shares outstanding of 1,237,631 for the quarter and
1,183,770 for the nine months in 1997; and 1,078,631 for
the quarter and 1,076,523 for the six months in 1996.
Outstanding stock options have no material dilutive effect
upon loss per share.
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: February 28, May 31,
1997 1996
Raw material $ 1,010,460 $ 631,354
Work-in-process 2,292,609 2,235,737
Finished goods 2,721,489 3,683,652
Inventory market write-down (257,000) (350,000)
Total $5,767,558 $6,200,743
6
5. ACCRUED EXPENSES
Major components of accrued expenses are: February 28 May 31,
1997 1996
Salaries, wages and commissions $ 149,283 $ 305,413
Provision for pending claims 1,666 160,000
Other 364,947 541,913
Total $ 515,896 $1,007,326
6. NOTES PAYABLE - LONG-TERM
A summary of the Company's long-term debt at February 28, 1997
is as follows:
Installment promissory note dated August 31, 1995, in the
original principal sum of $2,130,000, payable in monthly
installments of $35,500 plus interest for twenty-four months
with the final payment due during the twenty-fourth month
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.
$1,526,500
State of Iowa Community Development Block Grant promissory
notes at zero percent interest, maturity 2006 with quarterly
principal payments to begin October, 1997.
350,000
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 1998.
250,000
Total long-term debt 2,126,500
Less current portion of long-term debt 426,000
Long-term debt, excluding current portion $1,700,500
7
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Liquidity and Capital Resources
At February 28, 1997, the Company's liquidity had increased
since fiscal year end, May 31, 1996. The quick ratio at
February 28, 1997, was .66:1 as compared to .56:1 at May 31,
1996. For the comparable periods last year,the Company's
quick ratio was .35:1 at February 29, 1996, as compared to
.48:1 at May 31, 1995.The current ratio was 2.11:1 at
February 28, 1997, as compared to 2.08:1 at May 31, 1996.
The Company's current ratio was 2.01:1 at February 29,
1996, as compared to 1.65:1 at May 31, 1995.
As of February 28, 1997, 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
Overall sales for the quarter ended February 28, 1997 were
63% higher than a year ago, as the benefits from the Company's
recent acquisitions began to contribute. For the nine months
ended February 28, 1997, sales were $11,840,887 compared to
$9,118,805 for the nine months ended February 29,1996. Sales
of Logan potato equipment and service parts exceeded
$1,400,000 for the third quarter and we continue to write
orders for fourth quarter delivery. Our SupRaMix sales
maintained the improvement noticed last quarter, particularly
in the eastern half of the country, while we successfully
demonstrated a new truck-mounted 710 cu. ft model for the
Californian market. Sales of our portable grinder-mixers
exhibited welcome strength after a protracted period of
decline, and we also did better with our Eversman Land
Planes and Preseeders. Our new OEM fibrebody customer
account is continuing to grow very satisfactorily.
Areas of sales shortfall from last year include our major
OEM account -down 30% from a year ago; and sales of vegetation
cutting and beet harvesting equipment -reflecting management's
decision to produce nearer the season of use for both
products. Orders for sugar beet equipment are exceeding
management's expectations, but will not be shipped until
the first quarter of our next fiscal year.
Third quarter gross profits were up 33% from last year on the
63% higher sales. For the nine months ended February 28, 1997
gross profits were $2,809,315, an increase of 24%, mainly due
to the higher sales. The ratio of costs of goods sold to net
sales when compared to last year rose to 76.6% from 71.4% for
the quarter and from 75.1% to 76.3% for the nine months,
due primarily to slightly lower margins on the Logan products
as we go through the learning process, and increased
manufacturing costs. Manufacturing costs have been severely
impacted by the protracted cold weather in Northwestern Iowa.
Our propane costs were significantly higher than a year ago,
and we were forced to close the plant three times during the
quarter because of the weather conditions. Operating expenses
were 17% higher than the quarter a year ago, reflecting
amortization of our aquisition costs. For the nine months
operating costs are 3% below last year. The operating expense
ratio to sales for the quarter fell to 22.4% from last year's
31.1%. For the nine months the operating ratio to sales
fell to 23.1% from 30.8%. Interest charges and other expenses
were reduced 21% and 24% from the quarter and nine months
a year ago on continued much lower debt levels.
The Company achieved a $135,000 improvement at the pre-tax
level, reducing the pre-tax loss from $171,000 to $36,000
for the quarter. For the nine months the Company has reduced
the pre-tax loss from $920,000 in 1996 to $219,000 in 1997,
an improvement of $701,000.
No product line acquisitions were consummated last quarter,
but the Company entered into an exciting marketing venture
with Easy Systems of Trimont, MN, in which Easy Systems takes
over the marketing and distribution of the Art's-Way
stationary feed processing line in return for Art's-Way
gaining the manufacturing contract for the Easy System
range of feed processing products. We already have orders
in excess of $200,000 of additional business.
9
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
Various legal actions and claims are pending against
the Company. In the opinion of management, appropriate
provisions have been made in the accompanying financial
statements for all pending legal actions and other claims.
10
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 14, 1997_____ /s/ J. David Pitt
(J. David Pitt, President)
Date_____April 14, 1997____ /s/ William T. Green
(William T. Green, Executive
Vice President,
Chief Financial Officer)
11
