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 March 25, 1995
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 May 8, 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 -
March 25, 1995, March 26, 1994,
and June 25, 1994
Consolidated Statements of Operations -
Thirteen and Thirty-Nine Weeks Ended
March 25, 1995 and March 26, 1994
Consolidated Statements of Shareholders'
Equity - Thirty-Nine Weeks Ended
March 25, 1995 and March 26, 1994
Consolidated Statements of Cash Flows -
Thirty-Nine Weeks Ended March 25, 1995
and March 26, 1994
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 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
ACTION INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands)
<CAPTION>
March March June
25, 1995 26, 1994 25, 1994
-------- -------- --------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $809 $448 $800
Trade accounts receivable, less allowances
of $714, $1,445, and $1,134 6,707 9,801 8,862
Inventories 21,601 21,540 20,629
Other current assets 600 881 799
------- ------- -------
Total Current Assets 29,717 32,670 31,090
Property, Plant and Equipment 8,343 8,715 8,456
Other Assets 1,266 1,192 1,270
------- ------- -------
$39,326 $42,577 $40,816
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $7,532 $5,497 $5,439
Accounts payable 5,057 6,267 5,766
Restructuring and discontinued operations 290 527 699
Other accrued liabilities 1,802 1,626 1,570
------- ------- -------
Total Current Liabilities 14,681 13,917 13,474
Long-Term Liabilities
Financing obligation - sale/leaseback 7,907 8,514 8,372
Long-term debt 115 115 115
Deferred compensation 1,971 2,563 2,012
------- ------- -------
Total Long-Term Liabilities 9,993 11,192 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 9 2,825 2,200
------- ------- -------
26,226 29,042 28,417
Less treasury shares, at cost 11,574 11,574 11,574
------- ------- -------
Total Shareholders' Equity 14,652 17,468 16,843
------- ------- -------
$39,326 $42,577 $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>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
----------------------- -----------------------
March 25, March 26, March 25, March 26,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $42,355 $57,514 $8,087 $13,862
Costs and Expenses
Cost of products sold 33,195 43,453 6,657 10,186
Operating expenses 10,133 11,293 3,242 3,018
Interest expense 1,573 1,884 570 553
44,901 56,630 10,469 13,757
------- ------- ------- -------
Other Income (Expense), Net 355 (134) 353 (24)
------- ------- ------- -------
Earnings (Loss) Before Income Taxes (2,191) 750 (2,029) 81
Provision For Income Taxes - - - -
------- ------- ------- -------
Net Earnings (Loss) ($2,191) $750 ($2,029) $81
======= ======= ======= =======
Earnings (Loss) Per Share: ($0.39) $0.14 ($0.37) $0.01
======= ======= ======= =======
Weighted Average Shares Outstanding 5,568 5,552 5,543 5,558
</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>
Thirty-Nine Weeks Ended March 25, 1995 and March 26, 1994
----------------------------------------------------------------------------------
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 - - - 750 - - 750
----------------------------------------------------------------------------------
BALANCE - MARCH 26, 1994 7,187,428 $719 $25,498 $2,825 1,647,970 ($11,574) $17,468
==================================================================================
BALANCE - JUNE 25, 1994 7,187,428 $719 $25,498 $2,200 1,647,970 ($11,574) $16,843
Net Loss - - - (2,191) - - (2,191)
----------------------------------------------------------------------------------
BALANCE - MARCH 25, 1995 7,187,428 $719 $25,498 $9 1,647,970 ($11,574) $14,652
==================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
<CAPTION>
Thirty-Nine Weeks Ended
March 25, 1995 March 26, 1994
-------------- --------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) ($2,191) $750
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 872 983
Changes in operating assets and liabilities:
Trade accounts receivable 2,155 7,112
Inventories (972) 6,379
Other current assets 199 1,859
Accounts payable and accrued expenses (886) (6,169)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (823) 10,914
======= =======
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (759) (69)
------- -------
NET CASH USED IN INVESTMENT ACTIVITIES (759) (69)
======= =======
FINANCING ACTIVITIES:
Notes and acceptances payable 2,093 (10,943)
Principal payments on long-term obligations (465) (393)
Other, net (37) 209
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,591 (11,127)
======= =======
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9 (282)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 800 730
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $809 $448
======= =======
</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 which was derived from the
audited financial statements 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 thirty-nine week
periods ended March 25, 1995 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 March 25, 1995 outstanding borrowings under
the credit agreement were $7.5 million and outstanding letters
of credit were $1.2 million. The unused borrowing capacity was
$1.6 million as of March 25, 1995. Subsequent to March 25,
1995, availability under the credit agreement decreased as a
result of decreased accounts receivable due to the low level of
sales in the third quarter. The Company has amended the credit
agreement to provide a temporary increase in available credit
which is believed to be sufficient to meet operating needs
until sufficient sales are made to develop adequate credit
availability under the borrowing formula. The Company's cost
of borrowing under the credit agreement has increased from
1.75% to 3.5% over the prime rate of interest as a result of
the amendment. The Company has met all of the restrictive
covenants under the credit agreement as of March 25, 1995.
There can be no assurance that the Company can continue to meet
such covenants as of June 24, 1995, the next measurement date,
and subsequently.
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 thirty-nine weeks
ended March 25, 1995 because realization of such
benefits is not reasonably assured. No income tax expense was
provided on earnings in the thirty-nine weeks ended March 26,
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 auditors, have performed a limited
review of the consolidated financial statements for the thirteen
and thirty-nine week periods ended March 25, 1995 and March 26,
1994, 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 March 25,
1995 and March 26, 1994, and the related condensed consolidated
statements of operations, for the thirteen and thirty-nine week
periods ended March 25, 1995 and March 26, 1994, and the condensed
consolidated statements of shareholders' equity and cash flows, for
the thirty-nine week periods ended March 25, 1995 and March 26,
1994. 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
May 5, 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 three quarters of fiscal 1995 principally due to
significantly reduced business ($9.5 million) with the Company's
largest customer of fiscal year 1994. 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 $6.4
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 is implementing marketing plans for the remainder of
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 sources of cash during the nine months ended March 25,
1995 were accounts receivable collections and short-term
borrowings. Operating losses and increased inventories were the
primary uses of cash. Working capital of $15.0 million at March
25, 1995 decreased from $17.6 million at June 25, 1994, and $18.8
million at March 26, 1994. As a result, the current ratio at March
26, 1995 was 2.02, decreased from 2.31 at June 25, 1994, and 2.35
at March 26, 1994. The long-term debt to equity ratio (including
the sale/leaseback financing obligation) of 0.55 at March 25, 1995
increased from 0.50 at June 25, 1994 and 0.49 at March 26, 1994.
Cash and cash equivalents were $809,000 at March 25, 1995 as
compared to $800,000 at June 25, 1994 and $448,000 at March 26,
1994. Cash balances fluctuate daily to meet operating
requirements.
Accounts receivable of $6.7 million at March 25, 1995 decreased
from $9.8 million at March 26, 1994 as a result of decreased sales
in the third quarter in the current year and improved collections,
in part the result of decreased guaranteed sales. Receivables
decreased from $8.9 million at June 25, 1994.
Inventories of $21.6 million were comparable to $20.6 million at
June 25, 1994, and $21.5 million at March 26, 1994. Lower than
anticipated sales in the current year, particularly in the third
quarter, have resulted in inventory levels higher than originally
planned. The Company has updated its inventory plan for the
remainder of the current fiscal year and for fiscal 1996, to
continue to aggressively reduce inventory levels and improve its
turnover rate.
Aggregate borrowings (long-term debt and notes payable) increased
from $14.1 million at March 26, 1994 and $13.9 million at June 25,
1994 to $15.6 million at March 25, 1995, primarily as a result of
operating losses incurred. Letters of credit outstanding were $1.3
million at March 25, 1995, $862,000 at March 26, 1994 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.
Subsequent to March 25, 1995, availability under the credit
agreement decreased as a result of decreased accounts receivable
due to the low level of sales in the third quarter. The Company
has amended the credit agreement to provide a temporary increase in
available credit which is believed to be sufficient to meet
operating needs until sufficient sales are made to develop adequate
credit availability under the borrowing formula. The Company's
cost of borrowing under the credit agreement has increased from
1.75% to 3.5% over the prime rate of interest as a result of the
amendment. The Company has met all of the restrictive covenants
under the credit agreement as of March 25, 1995. There can be no
assurance that the Company can continue to meet such covenants as
of June 24, 1995, the next measurement date, and subsequently.
The Company's capital expenditures were $759,000 in the thirty-nine
week period ended March 25, 1995. Total capital expenditures of
approximately $800,000 are planned for fiscal 1995, primarily for
core systems replacement, lamp production molds and a package
design computer system. The Company 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.
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
THIRD QUARTER FISCAL 1995 COMPARED WITH THIRD QUARTER FISCAL 1994
Net Sales. Aggregate net sales for the fiscal 1995 third quarter
were $8,087,000, a decrease of $5,775,000 (41.7%) compared to
$13,862,000 in the prior year third quarter.
The Company's largest customer last year accounted for $3.5 million
in decreased sales in the current year quarter. In addition, over
$1.5 million in anticipated third quarter sales to Mexican
customers were lost as a result of the devaluation of the peso.
Lamp sales increased 44.5% compared to the third quarter last year,
and a minor increase was also achieved in the Company's
Replenishment business (3.8%).
The Company's sales volume has declined materially in each of the
last several years. 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 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, 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
March March Increase
25, 1995 26, 1994 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Dollar Days $ 3,965,000 $10,251,000 $ (6,286,000)
Replenishment 2,018,000 1,945,000 73,000
Retail 123,000 123,000 --
----------- ----------- -------------
Core Promotional Business 6,106,000 12,319,000 (6,213,000)
Lamp 1,886,000 1,305,000 581,000
Gift -- 113,000 (113,000)
Other Specialty Products 95,000 125,000 (30,000)
----------- ----------- ------------
$ 8,087,000 $13,862,000 $(5,775,000)
=========== =========== ============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit
margins (as a percentage of sales) decreased from 26.5% in fiscal
1994 to 17.7% in the current year, principally due to increased
Lamp sales at lower margins and increased cost of merchandise sold
in core business programs, related primarily to the mix of programs
sold.
Operating Expenses. Operating expenses increased from $3,018,000
(21.8% of sales) in the fiscal 1994 third quarter to $3,242,000
(40.0% of sales) in fiscal 1995. The increase in costs was
primarily the result of increased selling and merchandising costs
related to the development of programs for the future.
Interest Expense. The increase of $17,000 was due to increased
interest rates and other borrowing costs, net of decreased average
borrowing levels in the current year.
Other Income (Expense), Net. Other income of $353,000 in the third
quarter of fiscal 1995 resulted from the sale of surplus equipment.
The prior year other expense amount of $24,000 was comprised of
miscellaneous items.
Earnings (Loss) Before Income Taxes. The decrease of $2,110,000
reflects the combined effect of all the above.
Provision for Income Taxes. No income tax benefits were provided
on the loss in the third quarter of fiscal 1995 because realization
of such benefits is not reasonably assured. No income tax expense
was provided on earnings in the third quarter 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 $2,110,000 reflects the
combined effect of all the above.
THIRTY-NINE WEEK PERIOD OF FISCAL 1995 COMPARED WITH THIRTY-NINE
WEEK PERIOD OF FISCAL 1994
Net Sales. Aggregate net sales for the fiscal 1995 nine month
year-to-date period were $42,355,000, a decrease of $15,159,000
(26.4%) compared to $57,514,000 in the prior year-to-date period.
The Company's largest customer last year accounted for $9.5 million
in decreased sales in the current year. 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 $6.4 million. While a new and different Gift program for
1996 is currently being sold, the Company does not intend to
significantly expand this business in the future, given its
seasonal nature and the associated inventory and financial risks.
Replenishment sales increased 16.5% compared to last year, and Lamp
sales increased 12.8%.
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 third 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
Thirty-Nine Weeks Ended
March March Increase
25, 1995 26, 1994 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Dollar Days $23,698,000 $33,978,000 $(10,280,000)
Replenishment 6,626,000 5,686,000 940,000
Retail 582,000 623,000 (41,000)
----------- ----------- -------------
Core Promotional Business 30,906,000 40,287,000 (9,381,000)
Gift 2,085,000 8,458,000 (6,373,000)
Lamps 8,624,000 7,644,000 980,000
Other Specialty Products 740,000 1,125,000 (385,000)
----------- ----------- -------------
$42,355,000 $57,514,000 $(15,159,000)
=========== =========== =============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit
margins (as a percentage of sales) decreased from 24.4% in fiscal
1994 to 21.6% in the current year, principally due to increased
Lamp sales at lower margins in the current year, and increased cost
of merchandise sold in core programs, 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 $11,293,000
(19.6% of sales) in the first nine months of fiscal 1994 to
$10,133,000 (23.9% 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.
Interest Expense. The decrease of $311,000 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 $355,000 in fiscal
1995 resulted from the sale of surplus equipment. The prior year
other expense amount of $134,000 was comprised of miscellaneous
items.
Earnings (Loss) Before Income Taxes. The decrease of $2,941,000
reflects the combined effect of all the above.
Provision for Income Taxes. No income tax benefits were provided
on the loss in the first nine months of fiscal 1995 because
realization of such benefits is not reasonably assured. No income
tax expense was provided on earnings in the first nine 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 $2,941,000 reflects the
combined effect of all the above.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
Page
(a) Exhibits:
24 Acknowledgment 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 March 25, 1995.
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: May 8, 1995 R. Craig Kirsch
----------------------------
R. Craig Kirsch
Chairman of the Board
Date: May 8, 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, February 6, 1995, and May 5, 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, December 24,
1994, and March 25, 1995.
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
May 5, 1995
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