FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
__________to____________
______________________________________________
Commission file number 1-7737
ARROW AUTOMOTIVE INDUSTRIES, INC.
________________________________________________________________________
(Exact name of registrant as specified in its charter)
____________MASSACHUSETTS_________ ___________04-1449115__________
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3 SPEEN STREET, FRAMINGHAM, MASSACHUSETTS ___01701____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,873,083 shares of the
Company's Common Stock ($.10 par value) were outstanding as of May 6, 1996.
Page 1 of 18
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Balance Sheets -
March 30, 1996 and June 24, 1995 ................. 3
Condensed Statements of Operations -
Three Months Ended March 30, 1996 and
March 25, 1995 ................................... 4
Nine Months Ended March 30, 1996 and
March 25, 1995 ................................... 5
Condensed Statements of Cash Flows -
Nine Months Ended March 30, 1996 and
March 25, 1995 ................................... 6
Notes to Condensed Financial Statements ........... 7
ITEM 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations .... 8 - 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................. 11
ITEM 2. Changes in Securities ............................. 11
ITEM 3. Default upon Senior Securities .................... 11
ITEM 4. Submission of Matters to a Vote of Security
Holders .......................................... 11
ITEM 5. Other Information ................................. 11
ITEM 6. Exhibits and Reports on Form 8-K .................. 11
SIGNATURES .................................................... 12
Page 2
<PAGE>
PART I. - ITEM 1 -- FINANCIAL INFORMATION
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 30, June 24,
1996 1995
<S> <C> <C>
_____________ _____________
ASSETS
CURRENT ASSETS
Cash and equivalents $ 446,352 $ 753,010
Accounts receivable, less
allowances 14,875,271 12,535,646
Inventories - Note B 37,841,565 36,307,861
Prepaid expenses and other
current assets 3,283,367 4,200,578
____________ ____________
TOTAL CURRENT ASSETS 56,446,555 53,797,095
PROPERTY, PLANT AND EQUIPMENT 36,062,131 35,459,351
Less allowances for depreciation 23,163,715 22,174,393
____________ ____________
12,898,416 13,284,958
OTHER ASSETS 2,028,662 1,923,519
____________ ____________
TOTAL ASSETS $ 71,373,633 $ 69,005,572
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of advances under
revolving line of credit $ 1,519,152 $ 2,729,975
Accounts payable 6,488,540 3,089,034
Cash overdrafts 2,778,378 1,216,348
Other current liabilities 5,428,634 5,237,342
Current portion of long-term debt 1,379,342 1,372,486
____________ ____________
TOTAL CURRENT LIABILITIES 17,594,046 13,645,185
LONG-TERM DEBT 18,321,009 19,265,190
DEFERRED INCOME TAXES 1,634,000 1,634,000
ACCRUED RETIREMENT BENEFITS 1,905,467 1,721,867
STOCKHOLDERS' EQUITY
Common stock 296,887 296,887
Other stockholders' equity 32,071,548 32,891,767
Less cost of Common Stock in treasury 449,324 449,324
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 31,919,111 32,739,330
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 71,373,633 $ 69,005,572
============ ============
</TABLE>
See accompanying notes to the condensed financial statements.
Page 3
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
_____________________________
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
<S> <C> <C>
1996 1995
(13 weeks) (12 weeks)
_____________ _____________
Net sales $ 26,226,073 $ 19,820,409
Cost and expenses:
Cost of products sold 20,742,553 15,037,720
Selling, administrative and general 5,486,176 5,524,400
Interest 532,587 467,885
____________ ____________
26,761,316 21,030,005
____________ ____________
Loss before income taxes (535,243) (1,209,596)
Benefit from income taxes (176,000) (461,000)
____________ ____________
NET LOSS $ (359,243) $ (748,596)
============ ============
Weighted average number of shares
outstanding 2,873,083 2,872,395
============ ============
NET LOSS PER SHARE $(0.13) $(0.26)
====== ======
</TABLE>
See accompanying notes to the condensed financial statements.
Page 4
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED
_____________________________
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
<S> <C> <C>
1996 1995
(39 weeks) (39 weeks)
_____________ _____________
Net sales $ 79,101,309 $ 81,800,935
Cost and expenses:
Cost of products sold 62,842,821 62,243,079
Selling, administrative and general 15,971,539 18,363,833
Interest 1,567,500 1,413,353
____________ ____________
80,381,860 82,020,265
____________ ____________
Loss before income taxes (1,280,551) (219,330)
Benefit from income taxes (460,000) (84,000)
____________ ____________
NET LOSS $ (820,551) $ (135,330)
============ ============
Weighted average number of shares
outstanding 2,873,083 2,872,201
============ ============
NET LOSS PER SHARE $(0.29) $(0.05)
====== ======
</TABLE>
See accompanying notes to the condensed financial statements.
Page 5
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
_____________________________
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
<S> <C> <C>
1996 1995
(39 weeks) (39 weeks)
_____________ _____________
Operating Activities
Net cash provided by operating
activities $ 2,618,020 $ 2,808,215
____________ ____________
Investing Activities
Purchase of property, plant and
equipment (502,409) (1,456,023)
Other (174,081) (79,759)
____________ ____________
Net cash used in investing activities (676,490) (1,535,782)
____________ ____________
Financing Activities
Payment of long-term debt and capital
lease obligations (1,037,697) (1,024,138)
Decrease in advances under revolving
line of credit (1,210,823) (393,070)
Proceeds from exercise of stock option 332 5,188
____________ ____________
Net cash provided by financing
activities (2,248,188) (1,412,020)
____________ ____________
Decrease in cash and equivalents (306,658) (139,587)
____________ ____________
Cash and equivalents at beginning of
period 753,010 445,320
____________ ____________
CASH AND EQUIVALENTS AT END OF PERIOD $ 446,352 $ 305,733
============ ============
</TABLE>
See accompanying notes to the condensed financial statements.
Page 6
<PAGE>
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 nine month period
ended March 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending June 29, 1996. 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 24, 1995. The balance
sheet at June 24, 1995 has been derived from the audited financial statements
at that date.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 30, June 24,
1996 1995
<S> <C> <C>
_____________ _____________
Stated at cost on first-in, first-out
(FIFO) method:
Finished goods $ 11,906,751 $ 10,471,077
Work in process and materials 32,749,814 32,651,784
____________ ____________
44,656,565 43,122,861
Less reserve required to state
inventory on the last-in, first-out
(LIFO) method 6,815,000 6,815,000
____________ ____________
$ 37,841,565 $ 36,307,861
============ ============
</TABLE>
Page 7
<PAGE>
PART I
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales in the first nine months of fiscal year 1996 were $79,101,000, down
3.3% from net sales for the first nine months of fiscal 1995. Net sales in
fiscal 1996 were $29,137,000, $23,738,000 and $26,226,000, for the first,
second and third quarters, respectively. Net sales dipped in the second
quarter of the current fiscal year due to a sudden downturn in orders early in
the quarter. The Company attributes the lower demand during the period, at
least in part, to restrained purchasing by our customers in anticipation of a
mild winter similar to fiscal 1995. The return of more typical weather
patterns saw net sales increase in the third quarter of fiscal 1996 compared
to the previous quarter and, more significantly, compared to the third quarter
of fiscal 1995.
The third quarter of fiscal 1996 contained thirteen weeks, in comparison to
the third quarter of fiscal 1995, which contained twelve weeks. When adjusted
for the one week differential, third quarter net sales in the current year of
$26,226,000 still represented a significant increase (22%) over the same
period last year. Approximately 45% of the increase in net sales was due to
the acquisition of new customers. The remaining increase is primarily the
result of the prior year's third quarter sales level being lower than normal
because of the unseasonably warm winter of 1995.
The results of operations for the third quarter, while improved over the same
period last year, did not achieve management's expectations. For the three
months ended March 30, 1996, operations resulted in a net loss of $359,000,
compared to a net loss of $749,000 for the third quarter in the prior year.
The current fiscal year's third quarter operating results contributed to the
year to date net loss of $821,000, compared to fiscal 1995's year to date net
loss of $135,000.
The gross profit margin on net sales in the third quarter of the current
fiscal year was 20.9%, down from the same period last year of 24.1%. Numerous
factors contributed to the lower gross profit percentage in the quarter.
One factor that contributed to the higher costs in the current quarter, was
start-up costs incurred to service the new customers mentioned above. To
service properly the large initial orders of this new business, material
sourcing expenses were incurred. Freight expense increased as initial
shipments for new west coast business were supplemented by shipments from our
South Carolina and Arkansas facilities. Further, it was necessary to add a
second shift, at one location, to produce this new business. The second shift
represented an approximate 20% increase in labor requirements at this
location, which resulted in temporary labor inefficiencies and additional
costs during
Page 8
<PAGE>
the training period. Company-wide labor levels have not increased, but have
shifted among the three plant locations. The Company scrutinizes labor
requirements on a weekly basis and makes adjustments as necessary.
During the current quarter, the Company continued to experience additional
costs due to down time and inefficient output from certain new manufacturing
related equipment and the necessity of running parallel systems. While some
start-up issues remain with the new equipment, the operation of parallel
systems concluded by quarter end and more efficient operations are expected.
Continuing the efforts begun in the second quarter of the fiscal year to
improve manufacturing efficiencies, the Company has been in the process of
consolidating the production of certain product lines to specific
manufacturing facilities as opposed to the Company's previous practice of
manufacturing most product lines at all manufacturing facilities. This
consolidation process has resulted in temporary labor inefficiencies which to
some degree will continue into the fourth quarter of fiscal 1996.
Year to date, the current fiscal year's gross profit margin on net sales was
20.6%, down from 23.9% for the same period in fiscal 1995. The current year
has experienced lower profit margins throughout the entire year. The
previously mentioned product consolidation process adversely impacted the
second quarter as well as the third quarter. Furthermore, throughout most of
the fiscal year, the Company experienced higher than usual levels of customer
product returns. These returns are for warranty, stock adjustments and
rebuildable "cores" (our basic raw material) which are received in the normal
course of business. While over longer periods of time the relationship of
returns to gross sales remains relatively constant, occasional fluctuations do
occur. The softening of the market in the second quarter exacerbated this
situation when numerous customers "cleaned up" their inventory, by using the
means of returning inventory to the manufacturer to lower their inventory
levels. The Company has also determined that "recovery" from product returns
(i.e., restoration to finished goods inventory) has not been satisfactory.
Recovery of returned product is an integral part of remanufacturing and
significantly mitigates the negative financial impact of product returns.
Accordingly, the recovery departments at all plant locations are being
expanded to maximize recovery of product returns.
Selling, general and administrative expenses consistently declined both in
dollars and as a percentage of sales when compared to the prior year. For the
third quarter of fiscal 1996, selling, general and administrative expenses of
$5,486,000, or 20.9% of net sales are down from similar expenses in the
corresponding period last year of $5,524,000 or 27.87% of net sales. On a
year to date basis, the current
Page 9
<PAGE>
year's selling, general and administrative expenses were $15,972,000 or 20.2%
of net sales compared to the prior year of $18,364,000 or 22.4% of net sales.
Interest expense was $533,000 in the third quarter of fiscal 1996, up 13.8%
from the same period last year of $468,000. Year to date, fiscal 1996's
interest expense was $1,568,000, an increase of 10.9% over the comparable
period of the previous fiscal year. Higher interest rates and higher average
borrowing levels combined to generate the higher interest expense in the
current fiscal periods.
The Company's obligations under its financing agreement with a commercial bank
contains certain provisions and covenants which, among other things, restrict
the amount of future indebtedness, the amount of cash dividends and capital
expenditures and require the Company to maintain specified levels of tangible
net worth, debt service and net worth ratios. Compliance with the debt
service covenant of this financing agreement was waived during the second and
third quarters of fiscal 1996 such that the loss sustained by the Company
during those periods did not result in a default under the agreement. The
revolving line of credit which allows the Company to borrow up to $20 million
through January 31, 1996 has been extended to June 30, 1997. Further, the
revolving line of credit has been amended such that the interest rate borne on
a given date will change depending upon the achieved debt service ratio. The
rate charged can range from the lender's base rate to 2.0% over such base
rate. If the Company achieves specified debt service ratios, a lending rate
becomes available which ranges from 2.0% to 2.5% above the Eurodollar rate.
Similarly, the term loan, which had outstanding borrowings as of March 30,
1996, of $6,429,000, has been amended such that the interest rate borne on a
given date will change depending upon the debt service ratio achieved by the
Company. The rate charged can range from 0.25% over the lender's base rate to
2.25% over such base rate. At specific debt service levels, a lending rate is
available ranging from 2.25% to 2.75% above the Eurodollar rate. All of the
foregoing rates are adjusted quarterly based on the Company's debt service
ratio.
Due to the foregoing amendments to the Company's financing agreement,
effective May 13, 1996, interest charged under the Company's revolving line of
credit will increase to the lender's base rate plus 1.0% (previously the
lender's base rate plus 0.5%) and interest under the Company's term loan will
increase to the lender's base rate plus 1.25% (previously the lender's base
rate plus 0.75%).
During the month of April, 1996, the Company experienced lower unit sales than
expected. April's sales resulted in a loss from operations during that
period. However, it is uncertain at this time if the sales and operating
results for the month of April will be indicative of the Company's performance
for its fourth quarter.
The Company anticipates that cash available from operations, combined with
available credit lines, will be adequate to provide for the Company's cash
requirements for the next twelve months.
Page 10
<PAGE>
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 10.1 Fourth Amendment and Waiver Page 13
to Revolving Credit and Term
Loan Agreement with The
First National Bank of Boston
dated as of March 30, 1996
Exhibit 27. Financial Data Schedule Page 18
Page 11
<PAGE>
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)
May 14, 1996 /s/ Jim L. Osment
_____________________________________
Jim L. Osment
President and Chief Executive Officer
May 14, 1996 /s/ James F. Fagan
_____________________________________
Executive Vice President, Treasurer
and Chief Financial Officer
Page 12
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
FOURTH AMENDMENT AND WAIVER TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT
THIS FOURTH AMENDMENT AND WAIVER (this "Amendment"), dated as of March
30, 1996, by and between Arrow Automotive Industries, Inc. (the "Borrower")
and The First National Bank of Boston (the "Bank") as parties to a certain
Revolving Credit and Term Loan Agreement, dated as of December 29, 1993, as
amended by the First Amendment to Revolving Credit and Term Loan Agreement,
dated as of March 24, 1995, the Second Amendment to Revolving Credit and Term
Loan Agreement, dated as of June 24, 1995, and the Third Amendment to
Revolving Credit and Term Loan Agreement, dated as of December 30, 1995, (the
"Credit Agreement"). Capitalized terms not otherwise defined herein shall
have the same meanings ascribed thereto in the Credit Agreement.
WHEREAS, the Borrower has requested the Bank to make certain amendments
to the Credit Agreement;
WHEREAS, the Borrower has informed the Bank that for the fiscal quarter
ended March 30, 1996, the Borrower has failed to comply with the financial
covenant set forth in Section 11.2 of the Credit Agreement and has requested
that the Bank waive to the limited extent necessary to permit such non-
compliance as of March 30, 1996, the provisions of Section 11.2 of the Credit
Agreement; and
WHEREAS, the Bank is willing to make such amendments to, and grant such
waiver of, the Credit Agreement subject to the terms and conditions set forth
herein.
NOW THEREFORE, the Borrower and the Bank hereby covenant and agree as
follows:
1. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby
amended by:
(a) The definition of Borrowing Base contained in Section 1.1 of the
Credit Agreement is amended by deleting the percentage "55%" contained in
clause (d) of such definition and substituting the percentage "50%" therefor.
(b) The definition of Revolving Credit Loan Maturity Date is amended by
deleting the date "January 31, 1997" contained in such definition and
substituting the date "June 30, 1997" therefor.
(c) Section 1.1 of the Credit Agreement is further amended by adding
the following new definitions in the appropriate alphabetical order:
Adjustment Date. The first day of the fiscal quarter
immediately following the fiscal quarter in which a
certificate of compliance is to be delivered by the Borrower
pursuant to Section 9.4(d).
Applicable Margin. For each period commencing on an
Adjustment Date through the date immediately preceding the
next Adjustment Date (each a "Rate Adjustment Period"), the
Applicable Margin shall be the applicable margin set forth
below with respect to the Borrower's Debt Service coverage
ratio, as determined for the fiscal quarter specified in
the certificate of
<PAGE>
compliance delivered by the Borrower
during the fiscal quarter immediately preceding the
applicable Rate Adjustment Period.
Term Revolving
Debt Service Revolving Base Credit/ Term
(Coverage See Credit/Base Rate Eurodollar Eurodollar
LEVEL SECTION 11.2) RATE LOANS LOANS RATE LOANS RATE LOANS
I Less than or
equal to Not Not
0.75:1.00 2.0% 2.25% Available Available
II Greater than or
equal to
0.76:1.00 but
less than Not Not
1.00:1.00 1.0% 1.25% Available Available
III Greater than or
equal to
1.01:1.00 but
less than Not Not
1.25:1.00 0.5% 0.75% Available Available
IV Greater than or
equal to
1.26:1.00 but
less than
1.50:1.00 0.0% 0.25% 2.5% 2.75%
V Greater than or
equal to
1.50:1.00 0.0% 0.25% 2.0% 2.25%
Notwithstanding the foregoing, (a) for Loans
outstanding during the period commencing on May 13, 1996
through the date immediately preceding the first Adjustment
Date to occur after the such date, the Applicable Margin
shall be as set forth in Level II above, and (b) if the
Borrower fails to deliver any certificate of compliance when
required by Section 9.4(d) hereof then, for the period
commencing on the next Adjustment Date to occur subsequent
to such failure through the date immediately following the
date on which such certificate of compliance is delivered,
the Applicable Margin shall be the highest Applicable Margin
set forth above.
(d) Effective as of May 13, 1996, clauses (a) and (b) of Section 2.5 of
the Credit Agreement are amended by deleting such clauses and restating them
in their entirety as follows:
(a) Each Base Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending
on the last day of the interest period with respect thereto
at the rate per annum equal to the Base Rate PLUS the
Applicable Margin;
(b) Each Eurodollar Rate Loan shall bear interest
for the period commencing with the Drawdown Date thereof
and ending on the last day of the Interest Period with
respect thereto at the rate per annum equal to the
Eurodollar Rate PLUS the Applicable Margin;
(e) Effective as of May 13, 1996, clauses (a) and (b) of Section 4.5 of
the Credit Agreement are amended by deleting such clauses and restating them
in their entirety as follows:
(a) To the extent that all or any portion of the
Term Loan bears interest during such Interest Period at
the Base Rate, the Term Loan or such portion shall bear
interest during such Interest Period at the rate per
annum equal to the Base Rate PLUS the Applicable Margin;
(b) To the extent that all or any portion of the
Term Loan bears interest during such Interest Period at
the Eurodollar Rate, the Term Loan or
<PAGE>
such portion shall
bear interest during such Interest Period at the rate
per annum equal to the Eurodollar Rate PLUS the Applicable
Margin.
(f) Clause (g) of Section 9.4 of the Credit Agreement is amended by
adding the following words at the end of such clause (g):
and within seven (7) days after the end of each two (2)
week period (the first such period commencing on June
10, 1996) or, after the occurrence and during the
continuance of a Default or an Event of Default at such
earlier time as the Bank may reasonably request, an
Accounts Receivable and sales report substantially in the
form set forth in the Borrowing Base Report with respect
thereto setting forth an accounting of Accounts Receivable
and sales at the end of such two (2) week period or other
date as requested by the Bank during the continuance of a
Default or Event of Default.
(g) Section 11.1 of the Credit Agreement is amended by deleting such
Section 11.1 and restating it in its entirety as follows:
Section 11.1 Capital Expenditures. The Borrower will not
make Capital Expenditures that exceed in the aggregate,
(a) $125,000 during the fiscal quarter ending on June 29,
1996, and (b) $500,000 during any fiscal year thereafter.
(h) Section 11.2 of the Credit Agreement is amended by deleting such
Section 11.2 and restating it in its entirety as follows:
Section 11.2 Debt Service. The Borrower will not permit,
as at the end of each fiscal period described in the table
set forth below, the ratio of (a) the sum of (i) Net
Income, plus (ii) Total Interest Expense, plus (iii)
depreciation, plus (iv) amortization to (b) Total Debt
Service to be less than the ratio set forth opposite such
period in such table:
FISCAL PERIOD RATIO
Q4, 1996 0.8:1.0
3 month period: Q1, 1997 1.2:1.0
6 month period: Q1, 1997 through
Q2, 1997 1.2:1.0
9 month period: Q1, 1997 through
Q3, 1997 1.2:1.0
12 month period: Q1, 1997 through
Q4, 1997 1.2:1.0
Each period of four consecutive
fiscal quarters thereafter,
commencing with the four
consecutive fiscal quarters
ending on the last day of
Q1, 1998 1.2:1.0
2. BORROWING BASE REPORT. Notwithstanding Section 9.4(g) as amended
by this Amendment, if the Borrower determines that for any two (2) week period
described in Section 9.4(g) as amended by this Amendment (the "Non-Compliance
Period") it can not deliver an Accounts Receivable and sales report, failure
to deliver such Accounts Receivable and sales report for such period shall not
constitute a Default or Event of Default under Section 9.4 so long as during
the Non-Compliance Period the Borrower maintains excess availability under the
Borrowing Base of $1,500,000 as set forth in the monthly Borrowing Base Report
delivered pursuant to Section 9.4 of the Credit Agreement.
<PAGE>
3. WAIVER. The Bank hereby waives the provisions of Section 11.2 of
the Credit Agreement solely to the extent necessary to permit non-compliance
with such Section 11.2, and only for the fiscal quarter ended March 30, 1996.
4. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective as
of March 30, 1996, upon satisfaction of the following conditions:
(a) This Amendment shall have been duly and properly executed and
delivered to the Bank by the Borrower;
(b) All corporate action necessary for the valid execution,
delivery and performance by the Borrower of this Amendment and the Credit
Agreement as amended hereby shall have been duly and effectively taken, and
evidence thereof satisfactory to the Bank shall have been provided to the
Bank; and
(c) The Borrower shall have paid to the Bank an amendment fee of
$25,000.
5. REPRESENTATIONS AND WARRANTIES. The Borrower, hereby represents
and warrants to the Bank as follows:
(a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. The
representations and warranties of the Borrower contained in the Credit
Agreement (i) were true and correct in all material respects when made, and
(ii) except to the extent such representations and warranties by their terms
are made solely as of a prior date, continue to be true and correct in all
material respects on the date hereof.
(b) RATIFICATION, ETC. Except as expressly provided by this
Amendment, the Credit Agreement and all documents, instruments and agreements
related thereto, including, but not limited to the Security Documents, are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Credit Agreement and this Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended hereby.
(c) AUTHORITY, ETC. The execution and delivery by the Borrower
of this Amendment and the performance by the Borrower of all of its agreements
and obligations under the Credit Agreement as amended hereby are within the
corporate authority of the Borrower and have been duly authorized by all
necessary corporate action on the part of the Borrower.
(d) ENFORCEABILITY OF OBLIGATIONS. This Amendment and the Credit
Agreement as amended hereby constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their terms.
(e) NO DEFAULT. After giving effect to this Amendment, no
Default or Event of Default has occurred and is continuing.
6. NO OTHER AMENDMENTS OR WAIVERS. Except as expressly provided in
this Amendment, all of the terms and conditions of the Credit Agreement and
the other Loan Documents remain in full force and effect.
7. EXPENSES. Pursuant to Section 16 of the Credit Agreement, all
costs and expenses incurred or sustained by the Bank in connection with this
Amendment, including the fees and disbursements of
<PAGE>
legal counsel for the Bank
in producing, reproducing and negotiating the Amendment, will be for the
account of the Borrower whether or not the transactions contemplated by this
Amendment are consummated.
8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts, each of which shall be deemed an original, but which
together shall constitute one instrument.
9. MISCELLEANOUS. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW). The captions in this Amendment are for the convenience of reference
only and shall not define or limit the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
under seal as of the date first set forth above.
ARROW AUTOMOTIVE INDUSTRIES, INC.
By: /S/ JAMES F. FAGAN
Name: James F. Fagan
Title: Executive Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /S/ MATT A. ROSS, VP
Matthew A. Ross, Vice President
<PAGE>
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF OPERATIONS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] JUN-29-1996
[PERIOD-END] MAR-30-1996
[CASH] 446
[SECURITIES] 0
[RECEIVABLES] 15,464
[ALLOWANCES] 589
[INVENTORY] 37,842
[CURRENT-ASSETS] 56,447
[PP&E] 36,062
[DEPRECIATION] 23,164
[TOTAL-ASSETS] 71,374
[CURRENT-LIABILITIES] 17,594
[BONDS] 18,321
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 297
[OTHER-SE] 31,622
[TOTAL-LIABILITY-AND-EQUITY] 71,374
[SALES] 79,101
[TOTAL-REVENUES] 79,101
[CGS] 62,843
[TOTAL-COSTS] 62,843
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 1,568
[INCOME-PRETAX] (1,281)
[INCOME-TAX] (460)
[INCOME-CONTINUING] (821)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (821)
[EPS-PRIMARY] (0.29)
[EPS-DILUTED] (0.29)
</TABLE>
