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)
