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)
