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, 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.
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 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 September 23, 1997:
1,245,931
Number of Shares
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
August 31, August 31,
1997 1996
NET SALES $5,590,236 $3,955,730
COST OF GOODS SOLD 3,743,072 2,978,084
GROSS PROFIT 1,847,164 977,646
EXPENSES:
Engineering 112,313 64,103
Selling 417,892 321,306
General and administrative 543,497 457,181
Total 1,073,702 842,590
INCOME FROM OPERATIONS 773,462 135,056
OTHER DEDUCTIONS:
Interest expense (144,111) (122,612)
Other (56,375) (665)
Other deductions (200,486) (123,277)
INCOME BEFORE INCOME TAXES 572,976 11,779
INCOME TAX EXPENSE 200,543 4,123
NET INCOME $ 372,433 $ 7,656
INCOME PER SHARE (NOTE 2) $ $0.30 $ $0.01
See accompanying notes to financial statements.
Memo:
Earnings (loss) before interest, taxes, $ 874,323 $ 269,789
depreciation and amortization
Earnings (loss) before interest and taxes $ 717,087 $ 134,391
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
August 31, May 31,
1997 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,375 $25,297
Accounts receivable-customers,
net of allowance for doubtful
accounts of $28,000 in August
and $25,000 in May,
respectively 4,016,325 2,943,404
Inventories (Note 4) 8,895,056 8,437,569
Deferred income taxes 644,053 644,053
Other current assets 252,013 160,669
Total current assets 13,810,822 12,210,992
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,365,057 10,340,107
Less accumulated depreciation 7,494,346 7,337,110
Net property, plant and equipment 2,870,711 3,002,997
TOTAL $16,681,533 $15,213,989
See accompanying notes to consolidated financial statements.
August 31, May 31,
1997 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $4,150,125 $2,652,433
Current portion of long-term debt (Note 6) 462,146 462,146
Accounts payable 1,889,772 2,130,946
Customer deposits (Note 3) 268,500 810,780
Income Taxes Payable 200,450 -
Accrued expenses (Note 5) 999,646 765,220
Total current liabilities 7,970,639 6,821,525
LONG-TERM DEBT, excluding current portion
(Note 6) 1,601,354 1,707,854
DEFERRED INCOME TAXES 94,101 94,101
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 1,637,887
Retained earnings 6,293,326 5,920,893
7,925,187 7,572,188
Less cost of common shares in treasury of
94,847 in August and 102,347 in May 909,748 981,679
Total stockholders' equity 7,015,439 6,590,509
TOTAL $16,681,533 $15,213,989
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
August 31, August 31,
1997 1996
CASH FLOW FROM OPERATIONS:
Net Income $ 372,433 $ 7,656
Adjustment to reconcile net loss to net cash
provided (used) by operations:
Depreciation and amortization 157,236 135,398
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,072,921) 121,584
Inventories (457,487) 1,037,345
Sundry (91,344) (7,797)
Increase (Decrease) in:
Accounts payable (241,174) (26,874)
Customer deposits (542,280) (333,448)
Accrued expenses 234,426 (79,125)
Income taxes, net 200,450 (11,943)
Total adjustments (1,813,094) 835,140
Net cash provided (used) by operations (1,440,661) 842,796
CASH USED IN INVESTING ACTIVITIES -
Purchases of property, plant and equipment (24,950) (8,290)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
from treasury 52,497 -
Increase (decrease) in short-term loan 1,497,692 (935,418)
Increase (decrease) in long-term loan (106,500) (106,500)
Net cash provided (used) by financing
activities 1,443,689 (1,041,918)
Net decrease in cash and temporary cash
investments (21,922) (207,412)
Cash and temporary cash investments at
beginning of period 25,297 91,513
Cash and temporary cash investments at end
of the period $3,375 $(115,899)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $129,323 $107,825
Income taxes 92 16,066
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 fiscal year ended May 31, 1997.
The results of operations for the first quarter ended August 31,
1997 are not necessarily indicative of the results for the six
months ending November 30, 1997.
2. EARNINGS PER SHARE
Earnings per common share are based on the weighted average number
of shares outstanding of 1,243,322 at August 31, 1997 and 1,086,631
at August 31, 1996. Outstanding stock options have no material
dilutive effect upon earnings 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:
August 31, 1997 May 31,1997
Raw material $ 1,203,025 $ 1,691,733
Work-in-process 3,924,226 3,891,197
Finished goods 3,919,805 3,014,639
Inventory market write-down (152,000) (160,000)
Total $ 8,895,056 $ 8,437,569
5. ACCRUED EXPENSES
Major components of accrued expenses are:
August 31,1997 May 31, 1997
Salaries, wages and commissions $ 370,121 $ 303,388
Provision for pending claims 40,000 40,000
Other 589,525 421,832
Total $ 999,646 $ 765,220
6. NOTES PAYABLE - LONG-TERM
A summary of the Company's long-term debt at August 31, 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 at one and one-half
percent over the bank's national money market rate,
secured $ 1,313,500
State of Iowa Community Development Block Grant
promissory notes at zero percent interest, maturity 2006
with quarterly principal payments to begin
October 1997 500,000
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 1997 250,000
Total long-term debt 2,063,500
Less current portion of long-term debt 462,146
Long-term debt, excluding current portion $ 1,601,354
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Liquidity and Capital Resources
At August 31, 1997, the Company's working capital was $5.8 million
compared to $5.4 million at May 31, 1997. For the comparable period
last year, the Company's working capital was $5.0 million at August
31, 1996, as compared to $5.0 million at May 31, 1996. Short term
bank borrowings are $2.8 million higher than a year ago. The later
(and ongoing) shipment of beet equipment has temporarily raised both
receivables and inventories. Both assets will fall significantly
in the next three months.
Cash used by operations for the 3 month period ended August 31, 1997
was $1.4 million compared with cash provided by operations of $.8
million for the same period last year. This year's extremely low
cash flow is a result of increases in receivables and inventory
due to management's decision to manufacture beet equipment nearer
the season of use.
As of August 31, 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 were 41% higher than a year ago, due to very strong
sales of sugar beet harvesting equipment. The increase in sugar
beet sales was augmented by management's decision to produce beet
equipment nearer the season of use in order to give more time for
beet product development, make room in the production schedule for
the recent product acquisitions, and to conserve working capital.
Service parts sales were also significantly higher than last year
as we delivered in-season beet parts to our dealers with the
machines, and filled dealer service parts stock orders for our new
Logan potato line ahead of the season. Other areas of strength
included a meaningful contribution from our recent grain wagon
acquisition and continuing recovery in our feed processing products
- particularly grinder/mixers.
Sales of the Eversman land maintenance products were lower than
a year ago reflecting strong sales last year and our current lack
of inventory to fill dealer orders. We will be in production of
the in-demand land plane later this month, and will be producing
other Eversman products in the subsequent quarter. Our existing
OEM business was down sharply in both feed processing equipment
and in component fabrication as our major OEM customer continues
to balance its dealer inventories, and we turn away component
fabrication business in favor of our own higher margin branded
equipment.
First quarter gross profits were up 89% from last year on the 41%
higher sales. The ratio of costs of goods sold to net sales fell
to 67.0% from 75.3% a year ago, due to significantly improved
manufacturing efficiencies; a higher margin product mix; and
ongoing purchased material cost controls. Operating expenses
were 27% higher than a year ago, due to increased staffing in
engineering and sales to support our new product lines, and
additional resources added to our beet and feed processing
business. The operating expense ratio to sales still fell
to 19.2% from last year's 21.3%. Interest charges and other
expenses increased 63% based on higher assets to support the
increased volume. The Company achieved a $561,000 improvement
at the pre-tax level, increasing the pre-tax profit from $12,000
to $573,000.
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.
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 14, 1997 /s/ J. David Pitt
President
Date October 14, 1997 /s/ William T. Green
Executive Vice President,
Chief Financial Officer