QUARTERLY REPORT UNDER SECTION 13 OF 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________________________________
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended December 31, 1994
or
( ) Transition Report Pursuant to Section 13 of 15(d) of
the Securities Exchange Act of 1934
For the transition period from
__________ to __________
___________________________________________
Commission file number 1-7737
I.R.S. Employer Identification Number 04-1449115
ARROW AUTOMOTIVE INDUSTRIES, INC.
(a Massachusetts Corporation)
3 Speen Street
Framingham, MA 01701
Telephone: (508) 872-3711
Indicate by check mark whether the registrant (1) has filed all reports
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 _____
Indicated the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 2,872,395
shares of the Company's Common Stock ($.10 par value) were outstanding
as of December 31, 1994.
Page 1
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Balance Sheets -
December 31, 1994 and June 25, 1994 3
Condensed Statements of Income -
Three Months Ended December 31, 1994 and
December 25, 1993 4
Six Months Ended December 31, 1994 and
December 25, 1993 5
Condensed Statements of Cash Flows -
Six Months Ended December 31, 1994 and
December 25, 1993 6
Notes to Condensed Financial Statements 7-8
ITEM 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities 12
ITEM 3. Default upon Senior Securities 12
ITEM 4. Submission of Matters to a Vote of Securities 12
Holders
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
PART I.
ITEM 1. FINANCIAL INFORMATION
<TABLE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
DECEMBER 31, JUNE 25,
1994 1994
____________ ____________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 360,709 $ 445,320
Accounts receivable, less allowances 16,800,121 15,661,427
Inventories - Note B 35,837,965 37,433,020
Prepaid expenses and other current
assets 2,737,430 3,292,477
____________ ____________
TOTAL CURRENT ASSETS 55,736,225 56,832,244
PROPERTY, PLANT AND EQUIPMENT 33,934,592 33,186,481
Less allowances for depreciation 21,800,167 21,134,125
____________ ___________
12,134,425 12,052,356
OTHER ASSETS 2,013,888 2,236,194
____________ ____________
TOTAL ASSETS $ 69,884,538 $ 71,120,794
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of advances under
revolving line of credit - Note C $ 12,108,917 $ 10,219,446
Accounts payable 1,572,055 3,951,308
Cash overdrafts 851,331 907,095
Other current liabilities 5,877,832 6,680,146
Current portion of long-term debt 1,372,132 1,372,538
____________ ____________
TOTAL CURRENT LIABILITIES 21,782,267 23,130,533
LONG-TERM DEBT - Note C 11,051,592 11,732,234
DEFERRED INCOME TAXES 1,631,000 1,631,000
ACCRUED RETIREMENT BENEFITS 1,829,987 1,653,287
STOCKHOLDERS' EQUITY
Common stock 296,817 296,767
Other stockholders' equity 33,742,123 33,126,221
Less cost of Common Stock in treasury 449,248 449,248
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 33,589,692 32,973,740
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 69,884,538 $ 71,120,794
============ ============
See accompanying notes to the condensed financial statements.
</TABLE>
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<TABLE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
____________________________
DECEMBER 31, DECEMBER 25,
1994 1993
(14 weeks) (13 weeks)
_____________ _____________
<S> <C> <C>
Net Sales $ 29,162,915 $ 25,841,649
Interest income 8,329 7,865
____________ ____________
29,171,244 25,849,514
Cost and expenses:
Cost of products sold 22,088,015 19,273,223
Selling, administrative and general
operating expenses 6,459,094 5,363,576
Interest expense 511,909 417,230
____________ ____________
29,059,018 25,054,029
____________ ____________
Income before income taxes and
extraordinary item 112,226 795,485
Provision for income taxes 43,000 302,000
____________ ____________
Income before extraordinary item 69,226 493,485
Extraordinary charge from refinancing
of debt, net of income tax benefit
of $169,000 - Note C 0 275,985
____________ _____________
NET INCOME $ 69,226 $ 217,500
============ =============
Weighted average number of shares 2,872,312 2,813,910
outstanding ============ =============
EARNINGS PER SHARE
- - - - - ------------------
Income before extraordinary item $ 0.02 $ 0.18
Extraordinary charge from refinancing
of debt, net of income tax benefit 0.00 0.10
of $.06 - Note C ______ ______
NET INCOME $ 0.02 $ 0.08
====== ======
See accompanying notes to the condensed financial statements.
</TABLE>
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<TABLE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
SIX MONTHS ENDED
_________________________
DECEMBER 31, DECEMBER 25,
1994 1993
(27 weeks) (26 weeks)
____________ ____________
<S> <C> <C>
Net Sales $ 61,980,526 $ 54,684,882
Interest income 15,427 15,691
____________ ____________
61,995,953 54,700,573
Cost and expenses:
Cost of products sold 47,205,359 41,301,148
Selling, administrative and general
operating expenses 12,839,433 10,968,224
Interest expense 960,895 827,126
____________ ____________
61,005,687 53,096,498
____________ ____________
Income before income taxes and
extraordinary item 990,266 1,604,075
Provision for income taxes 377,000 609,000
____________ ____________
Income before extraordinary item 613,266 995,075
Extraordinary charge from refinancing
of debt, net of income tax benefit
of $169,000 - Note C 0 275,985
____________ ____________
NET INCOME $ 613,266 $ 719,090
============ ============
Weighted average number of shares 2,872,104 2,813,885
outstanding ============ ============
EARNINGS PER SHARE
- - - - - ------------------
Income before extraordinary item $ 0.21 $ 0.36
Extraordinary charge from refinancing
of debt, net of income tax benefit 0.00 0.10
of $.06 - Note C ______ ______
NET INCOME $ 0.21 $ 0.26
====== ======
See accompanying notes to the condensed financial statements.
</TABLE>
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<TABLE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
SIX MONTHS ENDED
_________________________
DECEMBER 31, DECEMBER 25,
1994 1993
(27 weeks) (26 weeks)
_____________ ____________
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ (475,652) $ 10,450
____________ ____________
INVESTING ACTIVITIES
Net cash used in investing activities (820,070) (238,066)
____________ ____________
FINANCING ACTIVITIES
Payments of long-term debt and capital
lease obligations (681,048) (886,891)
Increase in advances under revolving
line of credit 1,889,471 1,140,413
Proceeds from exercise of stock option 2,688 412
____________ ____________
Net cash provided by financing
activities 1,211,111 253,934
____________ ____________
Increase (decrease) in cash and
equivalents (84,611) 26,318
___________ ____________
Cash and equivalents at beginning of
period 445,320 439,466
____________ ____________
CASH AND EQUIVALENTS AT END OF PERIOD $ 360,709 $ 465,784
============ ============
See accompanying notes to the condensed financial statements.
</TABLE>
Page 6.
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ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
- - - - - -------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six month period ended December 31, 1994 are
not necessarily indicative of the results that may be expected for the
year ending June 24, 1995. For further information, refer to the
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended June 25, 1994. The
balance sheet at June 25, 1994 has been derived from the audited
financial statements at that date.
NOTE B -- INVENTORIES
- - - - - ---------------------
<TABLE>
The components of inventory consist of the following:
<CAPTION>
DECEMBER 31, JUNE 25,
1994 1994
------------ ------------
<S> <C> <C>
Stated at cost on first-in, first-out
(FIFO) method:
Finished Goods $ 8,788,257 $11,027,263
Work in process and materials 33,069,708 32,425,757
____________ ____________
41,857,965 43,453,020
Less reserve required to state
inventory on the last-in,
first-out (LIFO) method 6,020,000 6,020,000
____________ ____________
$ 35,837,965 $ 37,433,020
============ ============
</TABLE>
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NOTE C -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
- - - - - ------------------------------------------------
On December 29, 1993, the Company entered into an agreement with a
commercial bank to provide replacement financing of its existing
credit line and term loan. The replacement financing consists of a
$20 million revolving line of credit and a $9 million term loan. The
balance sheet as of December 25, 1993 has been adjusted to reflect the
replacement financing. The difference between amounts paid to retire
the existing indebtedness and the related carrying amounts,
principally the unamortized balance of debt issue costs and early
payment penalties which totalled $275,985, net of an income tax
benefit of $169,000, has been reflected as an extraordinary charge in
the accompanying statements of income.
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PART I.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net income for the second quarter of fiscal 1995 was
$69,226, compared to net income for the second quarter of
fiscal 1994 of $217,500. During the prior year's second
quarter, the Company refinanced its existing debt
obligations and recorded an extraordinary charge to income
of $275,985 (net of a tax benefit of $169,000). This amount
included the write-off of the unamortized portion of
deferred financing costs and charges for the early
termination of debt that was refinanced. Net income for the
first six months of fiscal 1995 was $613,266, compared to
net income for the comparable period in fiscal 1994 of
$719,090. The decline in net income in the second quarter
and the first six months of the current year is primarily
due to a substantial increase in selling expenses, an
increase in net interest expense and a slight decline in
gross margin.
Net sales for the second quarter of fiscal 1995 were
$29,162,915, an increase of 12.8% over net sales generated
in the second quarter of fiscal 1994. Net sales for the
first six months of fiscal 1995 were $61,980,526, a 13.3%
increase over the same period in the prior fiscal year. Unit
sales increased 6.8% and 3.3%, respectively, in the second
quarter and the first six months of fiscal 1995 over the
comparable periods last fiscal year. These increases in
unit sales are primarily attributable to the fact that the
second quarter of the current fiscal year contains 14 weeks
versus 13 weeks.
The net sales increase in excess of the unit sales increase
is primarily attributable to the mix of products sold,
particularly, the demand for higher-priced, newer
applications within the electrical product line. The demand
for certain electrical products in the first quarter of both
fiscal 1995 and fiscal 1994 was enhanced by higher failure
rates due to warm weather conditions. Unit sales during the
second quarter of fiscal 1995 were adversely impacted by the
mild winter experienced throughout most of the country.
Because automotive parts have lower failure rates in mild
weather conditions, demand for many of the Company's
products fell in the second quarter of the current fiscal
year.
The gross margin percentages reported in the current fiscal
year, both for the second quarter and for the first six
months, have declined from the prior fiscal year. The gross
margin percentage for the second quarter of fiscal 1995 was
24.3%, compared to the gross margin percentage for the
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second quarter of fiscal 1994 of 25.4%. Year to date, the
gross margin percentage was 23.8%, compared to 24.5% for the
comparable period last year. The declines in margin in the
first and the second quarter of the current fiscal year are
due primarily to a shift of sales to products that generate
lower gross margins. It should be noted that the gross
margin generated in the second quarter of the current fiscal
year of 24.3% has improved from the gross margin percentage
generated in the first quarter of fiscal 1995 of 23.5%. The
first quarter of the current fiscal year was adversely
affected by manufacturing inefficiencies related primarily
to material sourcing in the production of certain products
which experienced unusually heavy demand. During the second
quarter, the Company focused on improving its purchasing and
material sourcing practices. This resulted in reduced
spending levels and a more balanced inventory, defined as
having the proper proportions of component parts with which
to make a completed product. These efforts were a
contributing factor in the margin improvement over the first
quarter and the reduced inventory levels from the end of the
first quarter. The Company will continue to review its
purchasing and sourcing practices on an ongoing basis.
Selling, general and administrative expenses for the second
quarter of fiscal 1995 of $6,459,094, or 22.1% of net sales,
increased over similar expenses of $5,363,576, or 20.8% of
net sales, in the comparable period in fiscal 1994.
Similarly, for the six months ended December 31, 1994,
selling, general and administrative expenses of $12,839,433,
or 20.7% of net sales, increased from a spending level of
$10,968,224, or 20.0% of net sales, in the prior fiscal
year. During the first six months of the current fiscal
year, the Company experienced increased customer acquisition
costs of approximately $680,000, of which $245,000 was
incurred in the second quarter. These expenses were
incurred to obtain additional market penetration. It is
anticipated that sales will be enhanced from these efforts.
The Company anticipates that business acquisition costs will
continue, but it is not expected that they will continue at
the level that has been experienced in the first six months
of the current fiscal year. Also during the current fiscal
year, the Company invested in the development of a new
marketing program which resulted in additional expenses of
$216,000, of which $136,000 was incurred in the second
quarter. The roll out of this program, which is expected to
be met with enthusiasim in the marketplace, is scheduled for
late April, 1995.
Net interest expense in the second quarter of fiscal 1995
was $503,580, an increase of $94,215, or 18.7% over the same
period in fiscal 1994. On a year to date basis, net
interest expense increased $134,033, or 16.5%. The
additional expense is due to the increase in the Company's
borrowing rate that is tied to the prime lending rate which
continues to rise, as well as increased borrowings on the
Company's bank debt.
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During the first six months of the fiscal year, cash
provided by net income and by a reduction in inventory
levels was supplemented by an increase in borrowings on the
revolving line of credit. These additional borrowings were
used to support an increase in accounts receivable, a
decline in trade payables and accrued liabilities, the
reduction of long-term debt and investment in capital
equipment. The increase in accounts receivable is a
reflection of increased sales. The decline in trade
payables and accrued liabilities are the result of the
Company's efforts to reduce purchasing of goods and expedite
payment of trade payables to take advantage of cash discount
opportunities. The investment in capital expenditures is
primarily related to the successful implementation of a new
degreasing system at our Spartanburg, South Carolina plant.
As noted in management's discussion in the Company's 1994
Annual Report, the replacement cost of the Company's
degreasing systems will approximate $1,900,000. Additional
capital expenditures will be incurred in the next six months
to complete the project. It is anticipated that cash
generated from operations combined with existing financing
will be adequate to provide for the Company's cash
requirements for fiscal 1995.
Page 11
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ARROW AUTOMOTIVE INDUSTRIES, INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Default upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
Page 12
<PAGE>
PART II. OTHER INFORMATION
ARROW AUTOMOTIVE INDUSTRIES, INC.
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.
ARROW AUTOMOTIVE INDUSTRIES, INC.
(Registrant)
February 13, 1995 /s/ Jim L. Osment
Jim L. Osment
President and Chief Executive Officer
February 13, 1995 /s/ James F. Fagan
James F. Fagan
Executive Vice President and
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF INCOME, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-END> DEC-31-1994
<CASH> 361
<SECURITIES> 0
<RECEIVABLES> 16,800
<ALLOWANCES> 0
<INVENTORY> 35,838
<CURRENT-ASSETS> 55,736
<PP&E> 33,935
<DEPRECIATION> 21,800
<TOTAL-ASSETS> 69,885
<CURRENT-LIABILITIES> 21,782
<BONDS> 11,052
<COMMON> 297
0
0
<OTHER-SE> 33,293
<TOTAL-LIABILITY-AND-EQUITY> 69,885
<SALES> 61,981
<TOTAL-REVENUES> 61,996
<CGS> 47,205
<TOTAL-COSTS> 61,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 961
<INCOME-PRETAX> 990
<INCOME-TAX> 377
<INCOME-CONTINUING> 613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 613
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
