UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 10-Q
/X/ QUARTERLY REPORT Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended December 24, 1994
Commission File No. 1-6485
________________________________________________________________
or
/ / TRANSITION REPORT Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
________________________________________________________________
ACTION INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________
Pennsylvania
(State or other jurisdiction of incorporation or organization)
________________________________________________________________
25-0918682
(I.R.S. Employer Identification No.)
________________________________________________________________
Allegheny Industrial Park, Cheswick, Pennsylvania 15024-1098
(Address of principal executive offices) (Zip Code)
________________________________________________________________
Registrant's telephone number, including area code: (412) 782-4800
_________________________________________________________________
The number of shares of the Registrant's common stock outstanding
at February 6, 1995 was 5,539,458.
_________________________________________________________________
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 (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
<PAGE>
INDEX
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements (Unaudited) and
Independent Accountants' Review Report
Consolidated Balance Sheets -
December 24, 1994, December 25, 1993,
and June 25, 1994
Consolidated Statements of Operations -
Thirteen and Twenty-Six Weeks Ended
December 24, 1994 and December 25, 1993
Consolidated Statements of Shareholders'
Equity - Twenty-Six Weeks Ended
December 24, 1994 and December 25, 1993
Consolidated Statements of Cash Flows -
Twenty-Six Weeks Ended December 24, 1994
and December 25, 1993
Notes to Consolidated Financial Statements
Review by Independent Accountants
Independent Accountants' Review Report
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands)
<CAPTION>
December December June
24, 1994 25, 1993 25, 1994
-------- -------- --------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $902 $737 $800
Trade accounts receivable, less allowances
of $877, $1,606, and $1,134 19,239 18,535 8,862
Inventories 19,853 23,597 20,629
Other current assets 1,098 529 799
------- ------- -------
Total Current Assets 41,092 43,398 31,090
Investment in Affiliate -- Held for Sale 1,197 1,136 1,224
Property, Plant and Equipment 8,097 9,158 8,456
Other Assets 46 34 46
------- ------- -------
$50,432 $53,726 $40,816
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $12,760 $13,569 $5,439
Accounts payable 8,390 8,269 5,766
Restructuring and discontinued operations 230 884 699
Other accrued liabilities 1,939 2,239 1,570
------- ------- -------
Total Current Liabilities 23,319 24,961 13,474
Long-Term Liabilities
Financing obligation - sale/leaseback 8,068 8,651 8,372
Long-term debt 115 115 115
Deferred compensation 2,249 2,612 2,012
------- ------- -------
Total Long-Term Liabilities 10,432 11,378 10,499
Shareholders' Equity
Common stock, $0.10 par value;
authorized 20,000,000 shares;
issued 7,187,428 shares 719 719 719
Capital in excess of par 25,498 25,498 25,498
Retained earnings 2,038 2,744 2,200
------- ------- -------
28,255 28,961 28,417
Less treasury shares, at cost 11,574 11,574 11,574
------- ------- -------
Total Shareholders' Equity 16,681 17,387 16,843
------- ------- -------
$50,432 $53,726 $40,816
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands except per share data)
<CAPTION>
Twenty-Six Weeks Ended Thirteen Weeks Ended
--------------------------- -------------------------
December 24, December 25, December 24, December 25,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $34,268 $43,652 $21,093 $23,852
Costs and Expenses
Cost of products sold 26,538 33,267 16,623 18,498
Operating expenses 6,891 8,275 3,738 4,142
Interest expense 1,003 1,331 540 629
------- ------- ------- -------
34,432 42,873 20,901 23,269
Other Income (Expense), Net 2 (110) (2) (71)
------- ------- ------- -------
Earnings (Loss) Before Income Taxes (162) 669 190 512
Provision For Income Taxes - - - -
------- ------- ------- -------
Net Earnings (Loss) ($162) $669 $190 $512
======= ======= ======= =======
Earnings (Loss) Per Share ($0.03) $0.12 $0.03 $0.09
======= ======= ======= =======
Weighted Average Shares Outstanding 5,539 5,548 5,547 5,552
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNAUDITED
(In thousands except share amounts)
<CAPTION>
Twenty-Six Weeks Ended December 24, 1994 and December 25, 1993
----------------------------------------------------------------------------------
Capital
Common Stock In Excess Retained Treasury Stock
Shares Amount of Par Earnings Shares Amount Total
------ ------ --------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 26, 1993 7,187,428 $719 $25,498 $2,075 1,647,970 ($11,574) $16,718
Net Earnings - - - 669 - - 669
----------------------------------------------------------------------------------
BALANCE - DECEMBER 25, 1993 7,187,428 $719 $25,498 $2,744 1,647,970 ($11,574) $17,387
==================================================================================
BALANCE - JUNE 25, 1994 7,187,428 $719 $25,498 $2,200 1,647,970 ($11,574) $16,843
Net Loss - - - (162) - - (162)
----------------------------------------------------------------------------------
BALANCE - DECEMBER 24, 1994 7,187,428 $719 $25,498 $2,038 1,647,970 ($11,574) $16,681
==================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<CAPTION>
Twenty-Six Weeks Ended
December 24, 1994 December 25, 1993
----------------- -----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) ($162) $669
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 614 762
Changes in operating assets and liabilities:
Trade accounts receivable (10,377) (1,622)
Inventories 776 4,322
Other current assets (299) 2,211
Accounts payable and accrued expenses 2,524 (3,146)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,924) 3,196
======= =======
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (255) (61)
------- -------
NET CASH USED IN INVESTMENT ACTIVITIES (255) (61)
======= =======
FINANCING ACTIVITIES:
Notes and acceptances payable 7,321 (2,871)
Principal payments on long-term obligations (304) (256)
Other, net 264 (1)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,281 (3,128)
======= =======
INCREASE IN CASH AND CASH EQUIVALENTS 102 7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 800 730
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $902 $737
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
A. The consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations
of the Securities and Exchange Commission. With the exception
of the consolidated balance sheet as of June 25, 1994, such
statements have not been audited. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest Annual
Report on Form 10-K.
B. The accompanying financial statements reflect all adjustments
(consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation.
C. The results of operations for the thirteen and twenty-six week
periods ended December 24, 1994 are not necessarily indicative
of the results to be expected for the full year.
D. Inventories consist primarily of merchandise held for resale.
Inventories are valued at the lower of first-in, first-out
(FIFO) cost or market.
E. In January 1994 the Company entered into a credit agreement
which provides for up to $17 million in committed credit lines
through January of 1996. Availability under the line is
limited by the level of eligible accounts receivable and
inventories. At December 24, 1994 outstanding borrowings under
the credit agreement were $12.8 million and outstanding letters
of credit were $2.3 million. The unused borrowing capacity was
$1.9 million.
F. Effective June 27, 1993 (the first day of its fiscal year
ending June 25, 1994) the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109. The Company
previously accounted for income taxes under the provisions of
SFAS No. 96. The adoption of SFAS No. 109 had no material
impact on the Company's financial statements.
No income tax benefits were provided on the loss in the first
and second quarter of fiscal 1995 because realization of such
benefits is not reasonably assured. No income tax expense was
provided on earnings in the first and second quarter of fiscal
1994 because previously unrecognized deferred income tax
benefits and net operating loss deductions were available to
offset income taxes on current earnings.
Net operating loss carryforwards available to offset future
taxable income and thereby reduce income taxes payable in
fiscal 1995 and beyond are approximately $17 million for income
tax reporting purposes.
<PAGE>
REVIEW BY INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, independent accountants, have performed a
limited review of the consolidated financial statements for the
thirteen and twenty-six week periods ended December 24, 1994 and
December 25, 1993, as indicated in their report on the limited
review included on page 10. Since they did not perform an audit,
they express no opinion on the financial statements referred to
above. Management has given effect to any significant adjustments
and disclosures proposed in the course of the limited review.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors
Action Industries, Inc.
We have reviewed the accompanying condensed consolidated balance
sheets of Action Industries, Inc. and Subsidiaries as of December
24, 1994 and December 25, 1993, and the related condensed
consolidated statements of operations, for the thirteen and
twenty-six week periods ended December 24, 1994 and December 25,
1993, and the condensed consolidated statements of shareholders'
equity, and cash flows for the twenty-six week periods ended
December 24, 1994 and December 25, 1993. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of
expressing an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Action
Industries, Inc. for the year ended June 25, 1994, and the related
consolidated statements of operations, shareholders' equity and
cash flows for the year then ended (not presented herein) and in
our report dated September 9, 1994, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 25, 1994, is fairly stated,
in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 6, 1995
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The organization and business of the Registrant and its
Subsidiaries (collectively, the "Company") have undergone
significant changes in recent years, continuing through fiscal
1994, in connection with a major restructuring effort.
The Company has experienced declining sales in its traditional
promotional business in recent years. The decline continued in the
first and second quarters of fiscal 1995 principally due to
significantly reduced business ($6.0 million) with the Company's
largest customer of fiscal year 1994, as that customer has narrowed
the scope of business it is doing with the Company. Also
contributing to the decrease in sales is the Company's
implementation last year of a "downsizing to profitability"
strategy involving the reduction of low margin and/or guaranteed
sale business. This strategy is particularly applicable to the
Company's Gift business, which has historically had a high
incidence of guaranteed sale provisions, and which is also highly
seasonal. Gift sales decreased $6.3 million in the current year.
The historical decline in sales is the result of many factors,
including the increasing complexity of the promotional business
itself, a changing retail marketplace, a weak economy at times,
and strategic decisions to exit/downsize unprofitable product
lines.
The Company's current strategy is focused on sales growth, while
maintaining effective levels of gross margin and operating costs,
thereby attaining consistent, meaningful profitability.
The Company is implementing marketing plans for 1995 and beyond
which are designed to revitalize the core promotional business with
new, improved product and new, exciting display alternatives. A
new "Store-Within-a-Store" Replenishment concept has been
developed, including the addition of in-store service and new
display vehicles. New promotions are being developed based on
specific product categories and expanded theme and seasonal
concepts to add to the alternatives the Company can offer its
customers.
The major source of cash during the six months ended December 24,
1994 came from short-term borrowings and increased accounts
payable. Cash generated was applied to fund seasonally increased
accounts receivable. Working capital of $17.8 million at December
24, 1994 was comparable to $17.6 million at June 25, 1994, and
moderately decreased from $18.4 million at December 25, 1993. As
a result, the current ratio at December 24, 1994 was 1.76,
seasonally decreased from 2.31 at June 25, 1994, and comparable to
1.74 at December 25, 1993. The long-term debt to equity ratio
(including the sale/leaseback financing obligation) of 0.49 at
December 24, 1994 was unchanged from 0.50 at June 25, 1994 and at
December 25, 1993.
Cash and cash equivalents were $902,000 at December 24, 1994 as
compared to $800,000 at June 25, 1994 and $737,000 at December 25,
1993. Cash balances fluctuate daily to meet operating
requirements.
Accounts receivable of $19.2 million at December 24, 1994 increased
from $18.5 million at December 25, 1993 as a result of increased
sales in the month of December in the current year, net of improved
collections, in part the result of decreased guaranteed sales.
Receivables were seasonally increased from $8.9 million at June 25,
1994.
Inventories of $19.9 million decreased from $20.6 million at June
25, 1994, and decreased significantly (16%) compared to $23.6
million at December 25, 1993. Further reductions of inventories
are anticipated as the Company pursues its continuing inventory
reduction plan through the remainder of its 1995 fiscal year and
beyond.
Aggregate borrowings (long-term debt and notes payable) decreased
from $22.3 million at December 25, 1993 to $20.9 million at
December 24, 1994, primarily as a result of the reduction of
inventories. Aggregate borrowings were seasonally increased from
$13.9 million at June 25, 1994. Letters of credit outstanding were
$2.3 million at December 24, 1994, $1.3 million at December 25,
1993 and $1.6 million at June 25, 1994.
In January 1994 the Company entered into a credit agreement which
provides for up to $17 million in committed credit lines through
January of 1996. Availability under the line is further limited by
the level of eligible accounts receivable and inventories.
The Company's capital expenditures were $255,000 in the twenty-six
week period ended December 24, 1994. Total capital expenditures of
approximately $300,000 are planned for fiscal 1995, primarily for
lamp production molds and a package design computer system. In
addition, the Company has initiated a system replacement project
for all of its core information systems computer hardware and
software. Expenditures of $400,000 in fiscal 1995 and $500,000 to
$1 million in fiscal 1996 or later will be spent for system
reengineering and replacement, with the new systems expected to
become operational during fiscal 1996. The Company expects to
generate sufficient funds from operations to finance these
expenditures, although systems replacement may be separately
financed under leases or otherwise.
Inflation
The Company periodically discontinues or replaces in its
promotional programs items for which costs increase. In addition,
the Company strives to continually add new items to replace others
in its product offerings for the benefit of its customers. These
practices serve as offsets to the effects of inflation. The
Company believes its FIFO cost method of valuing inventories
provides for appropriate matching of current costs with current
revenues, and that the Company's buying practices and improving
inventory turnover reduce the appreciation in inventory values due
to inflation and other price increases.
Inflationary increases in the Company's costs of acquiring
merchandise may adversely affect the Company's operating margins,
since there is no assurance that the Company can pass such
increases along to its customers.
RESULTS OF OPERATIONS
SECOND QUARTER FISCAL 1995 COMPARED WITH SECOND QUARTER FISCAL 1994
Net Sales. Aggregate net sales for the fiscal 1995 second quarter
were $21,093,000, a decrease of $2,759,000 (11.6%) compared to
$23,852,000 in the prior year second quarter.
The Company's largest customer last year accounted for $1.7 million
in decreased sales in the current year quarter, as a result of that
customer's decision to narrow the scope of its business with the
Company.
In addition, the Company's holiday Gift program offering was
downsized in the current year as a result of poor performance in
the past several years. Gift sales decreased $4.8 million.
Development of a new and different Gift program for 1996 is
currently underway.
Lamp sales increased 35% compared to the second quarter last year,
and increases were also achieved in the Company's Dollar Days (7%)
and Replenishment (19%) businesses.
The Company developed a new residual inventory management program
(RIM) for 1995 to provide limited and managed guaranteed sales to
its customers. The Company does not believe its historical
experience with guaranteed sales is representative of sales under
RIM in the current year, and has postponed recognition of sales for
RIM program shipments (which would have aggregated approximately
$150,000 in net sales based on prior experience) from shipping date
to a later date when the amount of returned goods can be reasonably
determined. Sales under RIM have been modest to date, while other
guaranteed sales remain significant but reduced from historical
levels. Guaranteed sales other than those under the RIM program
are reported as sales upon shipment, at sell-through rates based
upon historical experience.
The Company's sales volume has declined materially in each of the
last several years. While all of the reasons for the sales decline
cannot be quantified with precision, planned Gift program
reductions and a significant reduction in the amount of guaranteed
sales were major contributors to the reduction in sales from fiscal
1993 to 1994, continuing into the second quarter of fiscal 1995.
It is the Company's belief that economic conditions and other
changes in the retail marketplace, along with increased ability on
the part of the Company's customers to create their own promotional
programs and a shifting customer base, have contributed to the
historical decline in sales volume. While the Company is
implementing marketing plans designed to refocus its business and
take advantage of this changing retail marketplace, there can be no
assurance that further sales declines will not occur for these or
other reasons. In addition, as discussed above, the decisions to
further reduce the Gift program business and to reduce the level of
guaranteed sale business will likely have a continuing adverse
impact on the Company's core promotional sales volume.
Following is a comparison of net sales by type of program:
<TABLE>
<CAPTION>
NET SALES
Thirteen Weeks Ended
December December Increase
24, 1994 25, 1993 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Dollar Days $12,534,000 $11,767,000 $ 767,000
Replenishment 2,116,000 1,771,000 345,000
Retail 237,000 292,000 (55,000)
----------- ----------- ------------
Core Promotional Business 14,887,000 13,830,000 1,057,000
Lamp 4,599,000 3,409,000 1,190,000
Gift 1,147,000 5,964,000 (4,817,000)
Other Specialty Products 460,000 649,000 (189,000)
----------- ----------- ------------
$21,093,000 $23,852,000 $(2,759,000)
=========== =========== ============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit
margins (as a percentage of sales) decreased from 22.4% in fiscal
1994 to 21.2% in the current year, principally due to increased
cost of merchandise sold, related primarily to the mix of programs
sold, net of reduced levels of customer returns, markdowns and
allowances related to improved order execution, fill rate and
inventory availability, and decreased guaranteed sales in the
current year.
Operating Expenses. Operating expenses decreased from $4,142,000
(17.4% of sales) in the fiscal 1994 second quarter to $3,738,000
(17.7% of sales) in fiscal 1995. The decrease was primarily the
result of reduced sales volume and overall operating cost
reductions in conjunction with the Company's continuing cost
reduction program. Further operating cost reductions are expected
as fiscal 1995 progresses.
Interest Expense. The decrease of $89,000 was due to decreased
average borrowing levels in the current year, net of increased
interest rates and other borrowing costs.
Other Income (Expense), Net. Other expense of $2,000 in the second
quarter of fiscal 1995 represented miscellaneous items. The prior
year other expense amount of $71,000 was also comprised of
miscellaneous items.
Earnings Before Income Taxes. The decrease of $322,000 reflects
the combined effect of all the above.
Provision for Income Taxes. No income tax expense was provided on
earnings in the second quarter of fiscal 1995 and fiscal 1994
because previously unrecognized deferred income tax benefits and
net operating loss deductions from prior years were available to
offset income taxes on current earnings. Net operating loss
carryforwards available to offset future taxable income and thereby
reduce income taxes payable in fiscal 1995 and beyond are
approximately $17 million for income tax reporting purposes.
Net Earnings. The decrease of $322,000 reflects the combined
effect of all the above.
TWENTY-SIX WEEK PERIOD OF FISCAL 1995 COMPARED WITH TWENTY-SIX WEEK
PERIOD OF FISCAL 1994
Net Sales. Aggregate net sales for the fiscal 1995 six month
year-to-date period were $34,268,000, a decrease of $9,384,000
(21.5%) compared to $43,652,000 in the prior year-to-date period.
The Company's largest customer last year accounted for $6.0 million
in decreased sales in the current year, as a result of that
customer's decision to narrow the scope of its business with the
Company.
In addition, the Company's holiday Gift program offering was
downsized in the current year as a result of poor performance in
the past several years. Gift sales decreased $6.3 million.
Development of a new and different Gift program for 1996 is
currently underway.
Replenishment sales increased 23% compared to last year, and Lamp
sales increased moderately (6%).
The Company developed a new residual inventory management program
(RIM) for 1995 to provide limited and managed guaranteed sales to
its customers. The Company does not believe its historical
experience with guaranteed sales is representative of sales under
RIM in the current year, and has postponed recognition of sales for
RIM program shipments (which would have aggregated approximately
$650,000 in net sales based on prior experience) from shipping date
to a later date when the amount of returned goods can be reasonably
determined. Sales under RIM have been modest to date, while other
guaranteed sales remain significant but reduced from historical
levels. Guaranteed sales other than those under the RIM program
are reported as sales upon shipment, at sell-through rates based on
historical experience.
The Company's sales volume has declined materially in each of the
last several years. While all of the reasons for the sales decline
cannot be quantified with precision, planned Gift program
reductions and a significant reduction in the amount of guaranteed
sales were major contributors to the reduction in sales from fiscal
1993 to 1994, continuing into the second quarter of fiscal 1995.
It is the Company's belief that economic conditions and other
changes in the retail marketplace, along with increased ability on
the part of the Company's customers to create their own promotional
programs and a shifting customer base, have contributed to the
historical decline in sales volume. While the Company is
implementing marketing plans designed to refocus its business and
take advantage of this changing retail marketplace, there can be no
assurance that further sales declines will not occur for these or
other reasons. In addition, as discussed above, the decisions to
further reduce the Gift program business and to reduce the level of
guaranteed sale business will likely have a continuing adverse
impact on the Company's core promotional sales volume.
Following is a comparison of net sales by type of program:
<TABLE>
<CAPTION>
NET SALES
Twenty-Six Weeks Ended
December December Increase
24, 1994 25, 1993 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Dollar Days $19,733,000 $23,726,000 $(3,993,000)
Replenishment 4,609,000 3,741,000 868,000
Retail 459,000 501,000 (42,000)
----------- ----------- ------------
Core Promotional Business 24,801,000 27,968,000 (3,167,000)
Gift 2,084,000 8,344,000 (6,260,000)
Lamps 6,739,000 6,339,000 400,000
Other Specialty Products 644,000 1,001,000 (357,000)
----------- ----------- ------------
$34,268,000 $43,652,000 $(9,384,000)
=========== =========== ============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit
margins (as a percentage of sales) decreased from 23.8% in fiscal
1994 to 22.6% in the current year, principally due to increased
cost of merchandise sold, related primarily to the mix of programs
sold, net of reduced levels of customer returns, markdowns and
allowances related to improved order execution, fill rate and
inventory availability, and decreased guaranteed sales in the
current year.
Operating Expenses. Operating expenses decreased from $8,275,000
(19.0% of sales) in the first six months of fiscal 1994 to
$6,891,000 (20.1% of sales) in the same period of fiscal 1995. The
decrease was primarily the result of reduced sales volume and
overall operating cost reductions in conjunction with the Company's
continuing cost reduction program. Further operating cost
reductions are expected as fiscal 1995 progresses.
Interest Expense. The decrease of $328,000 was due to decreased
average borrowing levels in the current year, net of increased
interest rates and other borrowing costs.
Other Income (Expense), Net. Other income of $2,000 in fiscal 1995
represented miscellaneous items. The prior year other expense
amount of $110,000 was also comprised of miscellaneous items.
Earnings (Loss) Before Income Taxes. The decrease of $831,000
reflects the combined effect of all the above.
Provision for Income Taxes. No income taxes benefits were provided
on the loss in the first six months of fiscal 1995 because
realization of such benefits is not reasonably assured. No income
tax expense was provided on earnings in the first six months of
fiscal 1994 because previously unrecognized deferred income tax
benefits and net operating loss deductions from prior years were
available to offset income taxes on current earnings. Net
operating loss carryforwards available to offset future taxable
income and thereby reduce income taxes payable in fiscal 1995 and
beyond are approximately $17 million for income tax reporting
purposes.
Net Earnings (Loss). The decrease of $831,000 reflects the
combined effect of all the above.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on December
2, 1994 to elect three directors for a term of three years. All
three directors were reelected pursuant to the following vote:
<TABLE>
For Withheld
<S> <C> <C>
Charles C. Cohen 4,150,261.5 30,583
James H. Knowles, Jr. 4,153,168.5 30,583
David S. Shapira 4,149,963 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Exhibits:
24 Acknowledgement of Independent Auditors, filed herein.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the
thirteen weeks ended December 24, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ACTION INDUSTRIES, INC.
(Registrant)
Date: February 6, 1995 R. Craig Kirsch
--------------------------
R. Craig Kirsch
Chairman of the Board
Date: February 6, 1995 Kenneth L. Campbell
--------------------------
Kenneth L. Campbell
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
EXHIBIT 24
----------
ACKNOWLEDGEMENT OF ERNST & YOUNG LLP
To the Shareholders and Board of Directors
Action Industries, Inc.
We are aware of the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-48361 and 33-48362) of Action
Industries, Inc. for the registration of 450,000 and 55,300 shares
of its common stock in connection with its Stock Option Plan and
Nonemployee Director Stock Option Plan, respectively, of our
reports dated November 3, 1994 and February 6, 1995, relating to
the unaudited condensed consolidated interim financial statements
of Action Industries, Inc. which are included in its Form 10-Q for
the quarters ended September 24, 1994 and December 24, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports
are not a part of the registration statement prepared or certified
by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 6, 1995
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-START> JUN-26-1994
<PERIOD-END> DEC-24-1994
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<BONDS> 8,183
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0
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<SALES> 34,268
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<NET-INCOME> (162)
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