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 November 30, 1996 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. Employee 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 __
Number of shares of common stock outstanding on
January 11, 1997: 1,237,631
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
ART'S-WAY MANUFACTURING CO., INC.
STATEMENTS OF OPERATIONS
QUARTERS AND YEAR TO DATE NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
(Unaudited)
QUARTER YEAR TO DATE
1996 1995 1996 1995
NET SALES $3,319,955 $3,514,267 $7,275,685 $6,314,287
COST OF GOODS SOLD 2,555,952 2,684,581 5,534,036 4,844,443
GROSS PROFIT 764,003 829,686 1,741,649 1,469,844
EXPENSES:
Engineering 73,175 79,277 137,278 160,865
Selling 299,238 372,205 620,544 765,001
General and 496,951 508,596 954,132 1,012,187
administrative
Total 869,364 960,078 1,711,954 1,938,053
INCOME (LOSS) FROM (105,361) (130,392) 29,695 (468,209)
OPERATIONS
OTHER DEDUCTIONS:
Interest expense (80,389) (109,201) (203,001) (260,126)
Other (9,192) (20,725) (9,857) (20,794)
Total other (deductions)(89,581) (129,926) (212,858) (280,920)
LOSS BEFORE INCOME TAXES(194,942) (260,318) (183,163) (749,129)
INCOME TAX BENEFIT (68,230) (91,111) (64,107) (262,195)
NET LOSS (126,712) (169,207) (119,056) (486,934)
LOSS PER SHARE(NOTE 2) ($0.10) ($0.15) ($0.10) ($0.45)
See accompanying notes to consolidated financial statements.
Memo:
Earnings(loss) before
interest, taxes,
depreciation and
amortization 37,447 (6,886) 307,236 (200,541)
Earnings(loss) before
interest and taxes (114,553) (151,117) 19,838 (489,003)
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ART'S-WAY MANUFACTURING CO., INC.
BALANCE SHEETS
November 30, May 31,
1996 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $8,995 $91,513
Accounts receivable-customers,
net of allowance for doubtful accounts
of $31,359 in November and $26,975 in
May, respectively 1,512,902 2,464,241
Inventories (Note 4) 4,888,759 6,200,743
Current recoverable income taxes 142,500 -
Deferred income taxes 734,522 734,522
Other current assets 277,375 87,475
Total current assets 7,565,053 9,578,494
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,175,664 9,091,255
Less accumulated depreciation 7,071,339 6,783,941
Net property, plant and equipment 3,104,325 2,307,314
TOTAL $ 10,669,378 $ 11,885,808
See accompanying notes to consolidated financial statements.
3
November 30, May 31,
1996 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $521,423 $2,281,809
Current portion of long-term
debt (Note 6) 426,000 426,000
Accounts payable 590,006 506,912
Customer deposits (Note 3) 96,070 371,801
Accrued expenses (Note 5) 681,929 1,007,326
Total current liabilities 2,315,428 4,593,848
LONG-TERM DEBT, excluding current
portion (Note 6) 1,807,000 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 5,721,813 5,840,870
7,376,263 8,149,367
Less cost of common shares in treasury of
103,147 in November and 254,147 in May 989,351 2,437,445
Total stockholders' equity 6,386,912 5,711,922
TOTAL $10,669,378 $11,885,808
See accompanying notes to financial statements.
4
ART'S-WAY MANUFACTURING CO., INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
QUARTERS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
(Unaudited)
YEAR TO DATE
1996 1995
CASH FLOW FROM OPERATIONS:
Net loss $ (119,056) $(486,934)
Adjustment to reconcile net loss
to net cash provided (used) by operations:
Depreciation 287,398 288,462
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 951,339 2,045,480
Inventories 1,311,984 1,387,424
Sundry (189,900) (67,994)
Increase (decrease) in:
Accounts payable 83,094 (1,347,836)
Customer deposits (275,731) 64,218
Accrued expenses (325,397) (114,372)
Income taxes, net (142,500) 379,186
Total adjustments 1,700,287 2,634,568
Net cash provided by operations 1,581,231 2,147,634
CASH USED IN INVESTING ACTIVITIES -
Purchasesof property,plantandequipment (1,084,409) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock from treasury 794,046 30,895
Increase (decrease) in short term loan (1,760,386) (2,578,399)
Increase (decrease) in long-term loan 387,000 450,166
Net cash provided by financing activities (579,340) (2,097,338)
Net increase (decrease) in cash and
temporary cash investments (82,518) 50,296
Cash and temporary cash investments
at beginning of period 91,513 86,051
Cash and temporary cash investments at
end of the period $8,995 $136,347
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $173,426 $311,046
Income taxes 20,339 6,327
See accompanying notes to consolidated financial statements.
5
ART'S-WAY MANUFACTURING CO., INC.
NOTES TO 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 second quarterended November 30,
1996 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 1,228,708 for the quarter and
1,157,281 for the six months in 1996; and 1,077,288 for
the quarter and 1,075,475 for the six months in 1995.
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: November 30, May 31,
1996 1996
Raw material $ 531,952 $ 631,354
Work-in-process 1,868,018 2,235,737
Finished goods 2,765,789 3,683,652
Inventory market write-down (277,000) (350,000)
Total $4,888,759 $6,200,743
5. ACCRUED EXPENSES
Major components of accrued
expenses are: November 30, May 31,
1996 1996
Salaries, wages and commissions $ 163,824 $ 305,413
Provision for pending claims 135,000 160,000
Other 383,105 541,913
Total $ 681,929 $1,007,326
6. NOTES PAYABLE - LONG-TERM
A summary of the Company's long-term debt at November 30, 1996
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.
$1,633,000
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 2,233,000
Less current portion of long-term debt 426,000
Long-term debt, excluding current portion $1,807,000
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Liquidity and Capital Resources
At November 30, 1996, the Company's liquidity had increased
since fiscal year end, May 31, 1996. The quick ratio at
November 30, 1996, was .65:1 as compared to .56:1 at May 31,
1996. The current ratio was 3.26:1 at November 30, 1996,
as compared to 2.08:1 at May 31, 1996. This increase in
liquidity is partially the result of a reduction in customer
accounts receivable of $951,000 and inventories of $1,312,000,
a decrease in short term borrowings of $1,760,000 and a
decrease in customer deposits of $276,000.
As of November 30, 1996, 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 were 6% lower than a year ago, reflecting
management's intention to produce nearer the season of use,
increase profitability, and to optimize working capital.
Sales to our major OEM customer were down almost 50% as they
adjusted dealer inventories. Our beet equipment sales were
sharply lower than last year because our strong sales in the
first quarter cleared out our available inventory for post
season activity. Sales arising from our Logan acquisition
were over $300,000 as we caught the tail-end of the 1996
harvest with our own manufacture of potato handling equipment
and sold planting equipment for next year's crop. The
majority of Logan sales will occur in the fourth quarter of
the fiscal year. Business with our new OEM fiberglass
customer continues to exceed earlier expectations. We were
successful in reducing our inventory of aged wholegoods, and
dramatically increased sales of our SupRaMix product over
last year's levels. Sales arising from our acquisition of
the DMI grain wagon line will occur in the fourth quarter.
Second quarter gross profits were down 2% from last year on
the 6% lower sales. The ratio of cost of goods sold to net
sales declined to 77.0% from 77.8% a year ago as we continue
to improve manufacturing efficiencies and product mix.
Operating expenses were 4% lower and interest and financing
costs were down 31% on much lower debt levels. The company
achieved a $65,000 improvement at the pre-tax level, reducing
the pre-tax loss from $260,000 to $195,000.
In September, the Company consummated two product line
acquisitions. The first is a line of potato farm equipment,
including harvesters, windrowers, planters, bulk beds and
associated service parts. The product line was previously
owned by Logan Harvesters, Inc., based in Idaho Falls, Idaho.
The second acquisition is a line of grain wagons and
associated service parts previously owned by DMI, Inc.,
based in Goodfield Illinois. The acquisitions, which include
inventory, were financed by the issuance of 145,000 shares
of Art's-Way common stock, loans from the State of Iowa and
local sources obtained through the State of Iowa Community
Development Block Grant program and borrowings under the
Company's short term line of credit.
8
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.
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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___January 13, 1997_____ /s/J. David Pitt
(J. David Pitt, President)
Date__January 13, 1997_____ /s/ William T. Green
(William T. Green, Executive
Vice President, Chief
Financial Officer)
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