SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 29, 1996
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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 No. 1-7737
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ARROW AUTOMOTIVE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-1449115
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3 Speen Street, Framingham, Massachusetts 01701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 872-3711
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.10 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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
-- --
Exhibit Index begins on Page 43 of this Report.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ x ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 23, 1996: $7,756,463
Number of shares of Common Stock, $.10 Par Value, outstanding as of September
23, 1996: 2,873,083
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
2
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PART 1
ITEM 1. BUSINESS.
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General
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Arrow Automotive Industries, Inc. (the "Company") was founded in 1929,
incorporated in 1946 as a Massachusetts corporation and became a public
company in 1972. The Company's Common Stock has been traded on the American
Stock Exchange since 1978 under the symbol AI.
The Company is primarily engaged in the remanufacture of automotive
parts, which includes replacement parts for domestic and imported passenger
cars, light and heavy duty trucks, farm vehicles and heavy duty industrial and
construction equipment. Products are manufactured at and distributed from the
Company's three manufacturing facilities, located in Spartanburg, South
Carolina, Morrilton, Arkansas and Santa Maria, California. The Company also
maintains distribution facilities in Hammond, Indiana and in Toronto and
Vancouver, Canada. The Company's corporate headquarters are in Framingham,
Massachusetts, and its operations headquarters are in Conway, Arkansas.
The Company operates in one industry segment as a remanufacturer and
distributor of replacement parts for automotive vehicles and trucks.
Recent Developments
-------------------
On September 26, 1996, the Company announced a restructuring plan to
consolidate its manufacturing operations. The plan contemplates the closing of
the Company's California production facility effective December 6, 1996, and
the relocation of the manufacturing operations presently conducted at that
facility to the Company's Morrilton, Arkansas facility. The action was taken
to enhance profit margins by streamlining the Company's productive capacity to
better match its production requirements. A discussion of the financial
impact to the Company of the restructuring appears in Item 7 (Management's
Discussion and Analysis) of this report under the caption "Management's Plan
and Subsequent Event".
Product Information
-------------------
The Company remanufactures and distributes a broad range of electrical
and mechanical automotive parts, such as alternators, starters, water pumps,
clutches, master brake cylinders, power steering pumps, power brakes, smog
pumps, brake calipers, distributors, wiper motors, blower motors, crankshafts,
rack and pinion steering units, radiator cooling motors, generators and
carburetors. The Company also distributes new clutch kits which complement
its existing line of remanufactured clutches. The Company does not consider
its business to be seasonal, however, demand for certain products may be
affected by extreme weather.
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Manufacturing Operations
------------------------
The Company's manufacturing operations consist principally of the
collection, disassembly, cleaning, examination and reconditioning of used
parts (referred to in the industry as "cores") and the reassembly of their
components, together with new replacement components where necessary, into
remanufactured products. The principal raw materials used by the Company in
its operations are cores, which are obtained primarily from customers on a
trade-in basis and to a lesser extent from concerns which sell cores, and new
component parts which are obtained from a wide variety of suppliers. The
Company's raw materials are available in adequate supply in the open market.
Production of remanufactured parts is carried on in an assembly-line
operation. When first received, cores are sorted and disassembled into their
component parts. The major components are then further sorted and examined
for suitability for further processing, and, if suitable, are cleaned,
reconditioned and refinished. Components that are not reconditioned are
replaced with new materials which are purchased from outside vendors. The
metal components of cores not utilized in the manufacturing process are sold
for scrap.
Distribution
------------
The Company sells its products nationwide primarily through its own
direct sales force. The Company currently maintains a direct sales force of
39 full-time salesmen. The Company also employs sales agencies in certain
market areas. The majority of the Company's sales (approximately 72 percent
in fiscal 1996) are to warehouse distributors. The balance of the Company's
sales are to retailers (approximately 22 percent in fiscal 1996) and other
customers. During fiscal 1996, sales to the Company's largest customer,
General Parts, Inc., accounted for 20% of net sales. No other customer
accounted for more than 10% of the Company's net sales.
Substantially all of the Company's warehouse distributor customers are
members of program distribution associations. These associations use the
collective buying power of their members to negotiate price and other terms
with vendors, which has the effect of encouraging competition in the
automotive aftermarket. The associations do not purchase directly from
vendors, and members of these associations are not obligated to purchase
solely from association approved vendors. The evolution of these associations
and the emergence of high volume retail chains in the automotive aftermarket
have combined to create additional price competition among manufacturers.
The Company utilizes its own truck fleet, and to a lesser extent
independent trucking services, to handle most of its product deliveries and
other shipping requirements. Special order and delivery options are also made
available to customers, such as overnight direct parts service.
Marketing
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The Company markets its products under its Arrow( and Lance( labels, as
well as under a variety of private labels. The Arrow( line consists of the
Company's premium quality parts often containing a number of new components.
The Lance( line consists of higher volume units whereby manufacturing
economies of scale permit reduced pricing to customers. The Lance( line is
available in starters and alternators. In fiscal 1996, approximately 57
percent of the Company's sales were
made under various private labels, and the balance were made under the
Company's own labels.
The Company markets its remanufactured products with frequent contact by
sales representatives, merchandising bulletins, direct mailing campaigns,
advertising, participation in trade shows and complete catalog coverage. The
Company also offers a subscription basis service bulletin program, which
provides periodic technical information.
The Company receives the majority of its product orders through an
automated communication system called TRANSNET(, which enables customers to
submit orders to the Company directly by computer. The TRANSNET( computerized
system is made available through the Motor Equipment Manufacturers
Association. The Company can also accept orders through other proprietary
electronic data interchange (EDI) networks for its customers' convenience upon
request.
Working Capital Items
---------------------
Inventories are kept at a sufficient level to service customer orders.
The Company provides customers with the right to return goods where the
conditions of the Company's obsolescence and warranty return policies are met.
These policies are consistent with industry practice, whereby under certain
circumstances when the conditions of the return policies are met,
remanufacturers accept product returns from current customers regardless of
whether the product was actually purchased from the remanufacturer. Also,
consistent with industry practice, the Company does not accept product returns
from customers that no longer purchase from the Company.
Competition
-----------
The Company competes with other national, regional and local
remanufacturers, with rebuilders of automotive parts and with manufacturers of
new parts, including the leading automobile manufacturers. The Company
believes it is one of the largest companies engaged primarily in the
production and sale of remanufactured automotive parts, although there may be
other companies whose sales of such products exceed those of the Company. The
automotive aftermarket is highly competitive. The Company considers the key
factors determining the ability to compete in this highly competitive industry
to be product quality, a complete product offering, current product catalogs,
direct factory sales service, price and serving customers with a high order
fill rate.
Employees
---------
On June 29, 1996, the Company employed 1,512 full-time employees and 71
part-time employees.
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ITEM 2. PROPERTIES.
--------------------
The Company's corporate headquarters are located in Framingham,
Massachusetts; its operations headquarters are located in Conway, Arkansas;
and it occupies industrial and warehouse space in Spartanburg, South Carolina,
Morrilton, Arkansas, Santa Maria, California, Hammond, Indiana, and Toronto
and Vancouver, Canada.
The Company leases approximately 15,000 square feet of office space in
Framingham, Massachusetts, for its corporate headquarters under a lease
expiring in 1998. Approximately 9,500 square feet of this space is subleased
under an agreement which also expires in 1998. The Company also leases
approximately 7,000 square feet of office space for its operations
headquarters in Conway, Arkansas, under a lease expiring in November of 1996.
The Company operates manufacturing facilities in Spartanburg, South
Carolina (occupying approximately 315,000 square feet of floor space),
Morrilton, Arkansas (occupying approximately 209,000 square feet of floor
space) and Santa Maria, California (occupying approximately 98,000 square feet
of floor space). The Spartanburg, Morrilton and Santa Maria facilities are
all owned by the Company, subject to mortgages which, together with other
collateral, secure the Company's obligations to its principal lender.
As discussed above under the caption "Recent Developments", the Company
recently announced its plan to close its Santa Maria, California production
facility and transfer the manufacturing operations presently conducted at that
facility to its Morrilton, Arkansas plant. Following its termination of
manufacturing operations at the Santa Maria, California facility, the Company
plans to use the property as a distribution warehouse until the property is
sold.
In addition, the Company leases warehouse space of approximately 11,000
square feet in Hammond, Indiana, 51,000 square feet in Morrilton, Arkansas,
45,000 square feet in Spartanburg, South Carolina, and 10,000 square feet in
Toronto, Canada.
All facilities are well maintained and in good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
---------------------------
The Company is, from time to time, party to routine litigation
incidental to the business. The amounts claimed in these matters are either
covered by insurance or are not, in the aggregate, material in amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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The Company did not submit any matters to a vote of security holders
during the fourth quarter of fiscal 1996.
5
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS.
--------------------
The common stock of the Company is traded on the American Stock Exchange
under the trading symbol AI. The approximate number of holders of record of
the Company's common stock at September 23, 1996 was 305. The following table
sets forth the high and low sale price on the American Stock Exchange of the
Company's common stock, at the end of each fiscal quarter during the last two
fiscal years:
<TABLE>
<CAPTION>
Fiscal Fiscal
1996 1995
------------------- ---------------------
<CAPTION>
High Low High Low
<S> <C> <C> <C> <C>
--------- -------- --------- --------
First Quarter $ 7 3/8 $ 5 1/2 $ 8 3/8 $ 7
Second Quarter 6 7/8 4 3/4 8 1/2 7
Third Quarter 7 1/2 5 3/4 8 5 5/8
Fourth Quarter 6 1/8 5 1/16 6 9/16 5 1/2
</TABLE>
The Company did not pay any dividends during the 1996 or 1995 fiscal
years. Operating covenants in the Company's loan agreement with its principal
lender prohibits the Company from paying dividends unless the following
conditions are met: (i) the Company is not then in default, and after giving
effect to the dividend would not be in default, under the loan agreement; (ii)
the aggregate amount of such dividends does not exceed the greater of (a)
during any period of four (4) consecutive fiscal quarters an amount equal to
fifty percent (50%) of the net income of the Company for the immediately
preceding four (4) consecutive fiscal quarter periods, or (b) an amount equal
to the excess of (i) twenty-five percent (25%) of the net income of the
Company for the period commencing June 27, 1993 and ending with the last day
of the fiscal quarter next preceding the proposed date of the dividend,
treated as a single accounting period, over (ii) all dividends made subsequent
to June 27, 1993.
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ITEM 6. SELECTED FINANCIAL DATA.
---------------------------------
FOR THE FISCAL YEARS ENDED IN JUNE
(Amounts in Thousands Except Per Share Amounts and Financial
Ratio Data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
(53 wks) (52 wks) (52 wks) (52 wks) (52 wks)
-------- --------- -------- -------- -------
Net sales $103,603 $106,574 $108,055 $100,654 $95,282
Gross profit 21,441 25,092 27,861 26,622 26,447
Selling, administrative
& general expense 21,597 23,505 23,334 23,147 21,890
Interest expense - net 2,113 1,935 1,614 1,830 2,014
(Loss) income before
income taxes and
extraordinary items (2,269) (348) 2,914 1,654 4,413 (1)
(Benefit) provision for
income taxes (825) (103) 1,113 628 1,765
(Loss) income before
extraordinary items (1,444) (245) 1,801 1,017 2,648
Loss on refinancing of
debt, net of income tax
benefit -- -- (276) -- --
Utilization of income tax
net operating loss
carryforwards -- -- -- -- 400
Net (loss) income (1,444) (245) 1,525 1,017 3,048 (1)
(Loss) income per share
before extraordinary
items (.50) (.09) .64 .36 .95 (1)
Loss per share on
refinancing of debt,
net of income tax
benefit -- -- (.10) -- --
Utilization of income
tax net operating loss
carryforwards per share -- -- -- -- .15
Net (loss) income per
share (.50) (.09) .54 .36 1.10 (1)
Cash dividends declared
per share -- -- -- -- --
Capital expenditures 828 2,574 670 648 657
Depreciation and
amortization $ 1,373 $ 1,412 $ 1,546 $ 1,692 $1,918
Average shares
outstanding 2,873 2,872 2,821 2,814 2,777
</TABLE>
(1) Includes the gain on termination of supplemental benefit
arrangements with certain executives, which increased income before
income taxes and extraordinary items by $1,871,000 and increased
net income by $1,104,000 or $.40 per share.
FOR THE FISCAL YEARS ENDED IN JUNE
(Amounts in Thousands Except Per Share Amounts and
Financial Ratio Data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
(53 wks) (52 wks) (52 wks) (52 wks) (52 wks)
</TABLE>
<TABLE>
<CAPTION>
--------- --------- --------- -------- ---------
<S> <C>
AT YEAR END
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Working capital $ 38,126 $ 40,152 $ 33,702 $ 31,675 $ 30,175
Total assets 73,112 68,778 71,121 62,026 62,990
Long-term debt 17,969 19,265 11,732 12,487 12,418
Stockholders' equity 31,296 32,739 32,974 31,175 30,155
Equity per common share $ 10.89 $11.40 $ 11.69 $ 11.08 $ 10.86
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL RATIOS (%)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gross profit 20.70 23.54 25.78 26.45 27.76
Net profit margin (1.39) (.23) 1.41 1.01 3.20
Return on equity (4.51) (.74) 4.75 3.32 10.72
Current ratio (to 1) 2.94 3.99 2.46 3.04 2.76
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATION.
-------------------------
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto. All forward looking statements
contained in the following discussion and analysis and elsewhere in this
report are qualified in their entirety by the cautionary statement appearing
at the end of this discussion and analysis.
MANAGEMENT'S PLAN AND SUBSEQUENT EVENT
During the first quarter of fiscal 1997, after completing an evaluation
of the Company's historical operating results, sales forecast and cost
structure, the Board of Directors of the Company approved a plan to
restructure its operations by closing its Santa Maria, California production
facility and transferring its manufacturing operations formerly conducted at
that facility to the Morrilton, Arkansas plant. As a result, a $1.2 million
restructuring charge will be recorded in the first quarter of fiscal 1997. Of
the total charge, $300,000 relates to termination benefits for displacement of
its 350-employee workforce and $900,000 relates to closing of the facility.
The action was taken to enhance profit margins by streamlining the Company's
productive capacity to better match its production requirements.
In addition to recording the restructuring charge, the Company
anticipates that during fiscal 1997 it will incur non-recurring period costs
relating to the restructuring estimated to range from $1.0 to $1.5 million.
These costs relate to ongoing operations and include such costs as the
shipment of inventory and equipment, employee relocation and anticipated
initial labor and production inefficiencies as a result of the consolidation
of production operations from three to two plant facilities.
The consolidation of manufacturing operations is consistent with the
Company's efforts begun in fiscal 1996 to streamline its operations. In
fiscal 1996, product line consolidations were completed as well as the
consolidation of the customer service function. In fiscal 1997, customer
billing and vendor payment functions will also be centralized. These actions
are being taken to enhance operating efficiencies and the financial
performance of the Company.
RESULTS OF OPERATIONS
The Company incurred net losses of $1,444,000 and $245,000 for the
respective fiscal years ended June 29, 1996 and June 24, 1995. For the fiscal
year ended June 25, 1994, the Company earned net income of $1,525,000. Fiscal
1994 net income included an extraordinary charge of $276,000 (net of a tax
benefit of $169,000) relating to the refinancing of the Company's bank debt.
8
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SALES
Net sales for fiscal 1996 (53 weeks) declined $3.0 million or 2.8% to
$103,603,000, from net sales for fiscal 1995 (52 weeks). This compares with a
decrease in net sales of $1.5 million, or 1.4% in fiscal 1995 from fiscal
1994 and an increase in net sales of $7.4 million, or 7.4% in fiscal 1994 from
fiscal 1993. Unit sales for fiscal 1996 declined 5.8% from fiscal 1995. This
compares with unit sales declines of 4.9% in fiscal 1995 from fiscal 1994 and
9.9% in fiscal 1994 from fiscal 1993.
The decline in net sales in fiscal 1996 is attributable to several
factors. In recent years, consolidations and mergers have been common within
the distribution sector of the industry as it continues its turbulent
evolution. This activity has generated excess inventory levels in the
distribution sector of the industry, negatively impacting the Company's unit
sales and resulting in increased product returns.
During fiscal 1996, the Company sustained a higher level of customer
deductions for product returns than in previous years. These returns, which
are deductions in calculating net sales, are for re-usable "cores" (our basic
raw material), warranty and stock adjustments received in the normal course of
business. While over longer periods of time the relationship of returns to
sales remains relatively constant, occasional fluctuations do occur. Due to
the consolidation/merger activity noted above, many of our customers found
themselves with excess inventories. To rectify their inventory surplus these
businesses returned as much of the excess inventory as possible to their
vendors.
The adverse impact of the lower unit sales volume and the high level of
customer returns was mitigated somewhat by a favorable mix of products sold
and a price increase implemented in fiscal 1996. Furthermore, new business
acquisitions during fiscal 1996 mitigated the impact of customer accounts lost
in fiscal 1995 and the first quarter of fiscal 1996.
The decline in net sales in fiscal 1995 compared to fiscal 1994 occurred
primarily in the latter half of the year. The most significant factor was the
mild winter weather pattern experienced throughout most of the country in
fiscal 1995 which resulted in fewer part failures and reduced the demand for
many of the Company's products. In addition, the Company lost several
customer accounts during fiscal 1995, as noted above.
The increase in net sales in fiscal 1994 over fiscal 1993 was due
primarily to the mix of products sold, as the Company experienced increased
demand for its higher-priced, late model electrical products.
CHANGING PRICES
Management is conscious of the impact of inflation and, when possible,
will compensate by increasing selling prices. Retail outlets have become a
significant factor in the distribution of automotive parts, while at the same
time most traditional warehouse distributors have joined large buying groups.
These "power buyers" have dramatically increased pricing pressures at a time
when over-capacity of manufacturers and distributors throughout the industry
remains prevalent. Price increases on the Company's products in the last
several years have been limited due to the competitive pricing pressures of
the automotive aftermarket. In spite of these pressures the Company's average
selling price in fiscal 1996 increased over fiscal 1995. This increase was
primarily due to the mix of products sold reflecting higher proportionate
sales of electrical products, which typically have a higher average selling
price than the mechanical product offering. Also, the Company implemented an
overall 4% price increase in its electrical product offering in the first
quarter of fiscal 1996.
The Company refrained from passing on all of the increased costs in
fiscal 1995 and fiscal 1994 through pricing because of the competitive
climate. In both fiscal 1995 and 1994, the overall average gross price of
products sold increased over the respective prior fiscal years due primarily
to the mix of products sold.
COST OF GOODS SOLD
Net sales generated a gross margin of 20.7% in fiscal 1996, compared to
23.5% in fiscal 1995 and 25.8% in fiscal 1994. Several factors contributed to
the decline in the gross margin in fiscal 1996. Beginning in the second
quarter of fiscal 1996, the Company started the process of consolidating the
production of certain product lines to specific manufacturing facilities,
changing the previous practice of manufacturing most product lines at all
manufacturing facilities. This consolidation process resulted in temporary
labor inefficiencies as each product line was moved. Four product lines were
consolidated between the second and fourth quarters of fiscal 1996.
In the third quarter, increased expenses resulted from start-up costs
incurred to service a new customer which was anticipated to provide additional
annualized volume approximating 5% of the Company's total sales. Increased
material sourcing expenses were incurred to properly service the large initial
orders of this new business. Freight expenses increased as initial shipments
for this new west coast business were supplemented by shipments from the
Company's other manufacturing facilities. Further, it was necessary to add a
second shift at the Company's west coast manufacturing facility. The second
shift represented a 20% increase in that location's labor requirements, which
resulted in temporary labor inefficiencies and additional costs during the
training period.
Throughout the current fiscal year, labor efficiency and the ability to
absorb overhead costs were adversely impacted by swings in sales volume. A
sudden downturn in sales volume occurred in the second quarter, specifically
October and November. The Company believes that cautious inventory management
practices were applied by our customers and their customers, in order to avoid
investing heavily in a large winter season inventory and then repeating the
fiscal 1995 experience of having inventory surpluses due to the low sales
caused by a mild winter. In the fourth quarter of fiscal 1996, sales volume
dropped again. The decline in sales was largely due to reduced orders from
the customer newly acquired in the third quarter of the current year. Because
purchases by this customer were substantially less than anticipated and future
demand could not be reasonably predicted, the Company terminated the second
shift at its west coast production facility that had been added to support
this customer in the fourth quarter of fiscal 1996.
Throughout most of the year, the Company experienced additional costs due
to down time and inefficient output from certain new manufacturing related
equipment and the necessity of running parallel systems. The start-up issues
related to this equipment concluded in the third quarter of the fiscal year.
As previously mentioned, the Company experienced higher than usual levels
of customer product returns throughout most of fiscal 1996. In addition, the
Company was inefficient in the "recovery" of good product from product returns
and returning them to finished goods inventory. Recovery of returned product
is an integral part of remanufacturing and significantly mitigates the
negative financial impact of product returns. In the fourth quarter of fiscal
1996, the recovery departments at all manufacturing locations were expanded to
maximize the recovery of product returns.
Finally, the Company realized a 13% increase in the cost to provide
medical benefits to its employees in fiscal 1996 compared to fiscal 1995, of
which approximately 85%, or $445,000, was reported as increased cost of goods
sold.
The gross margin percentage declined to 23.5% in fiscal 1995 from 25.8%
in fiscal 1994. A change in the mix of products sold contributed to the
margin decline. Customer sales migrated to the Company's
Lance<reg-trade-mark> product lines, which generate lower margins than the
Company's traditional premium lines. Also, the Company's mix of products sold
reflected proportionately more unit sales in newer vehicle applications.
While generating higher sales dollars, these newer vehicle applications
provided lower gross margins due to the higher costs to produce a product in
the early stage of its product cycle. During fiscal 1995, the product mix was
impacted by the decline in the sales of certain products which tend to have
higher failure rates in severe winter weather. These products on average
generate a gross profit margin percentage that exceeds the Company's average
gross profit margin percentage. Finally, in fiscal 1995, the Company
experienced increases in the cost of certain basic raw materials (e.g.,
copper, aluminum and linerboard products), increased unit costs due to lower
plant utilization caused by the decline in sales volume and inefficiencies
incurred during the installation of the new raw material cleaning systems
mandated by environmental laws and regulations.
IMPACT OF INFLATION
The Company follows the LIFO method of determining inventory costs to
better match current costs with current revenues. In fiscal 1996, the impact
of deflation and operating factors, primarily improved material sourcing and
usage, decreased cost of goods sold over the prior year by $345,000. In
fiscal 1995 and 1994, the impact of inflation and operating factors increased
cost of goods sold over the respective prior years by $795,000 and $121,000.
Charges to operations for depreciation represent the allocation of
historical cost incurred in prior years and are significantly less than if
they were based on current or replacement cost of the Company's production
capacity. In the normal course of business, the Company will replace its
productive capacity over an extended period of time. Decisions concerning
such replacements will be made in light of economic, regulatory and
competitive conditions existing from time to time. These new assets will
result in additional depreciation charges. In many cases, however, there will
be offsetting cost savings from technological advances.
9
<PAGE>
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses as a percentage of sales
were 20.8%, 22.1% and 21.6% for fiscal years 1996, 1995 and 1994,
respectively. Spending in these areas of $21,597,000 declined $1.9 million in
the current year compared to fiscal 1995. In comparison, spending in these
areas increased $170,000 in fiscal 1995 over fiscal 1994 and $513,000 in
fiscal 1994 over fiscal 1993.
The Company's business acquisition costs in fiscal 1996 were $1.1 million
less than similar expenses incurred in fiscal 1995. Further, in fiscal 1995,
the Company incurred approximately $340,000 to develop marketing programs.
These expenses were not repeated in fiscal 1996. The Company has implemented
various cost reduction measures that have contributed to the reduced expenses
in the current fiscal year. These measures included the discontinuation of
certain administrative functions and a 10% reduction in administrative staff,
as well as strict controls over discretionary spending.
Beginning late in fiscal 1994 and continuing into the first three
quarters of fiscal 1995, the Company incurred increased business acquisition
costs. Such costs incurred in fiscal 1995 exceeded similar costs in fiscal
1994 by $357,000. Also during fiscal 1995, the Company invested in the
development of new marketing programs which resulted in additional expense of
approximately $340,000.
NET INTEREST EXPENSE
Net interest expense in fiscal 1996 of $2,113,000 increased $178,000, or
9%, over fiscal 1995. Net interest expense increased $321,000, or 20%, in
fiscal 1995 over fiscal 1994. Fiscal 1994 net interest expense decreased
$217,000, or 11.9%, compared to fiscal 1993. In both fiscal years 1996 and
1995, higher borrowing levels and higher interest rates resulted in the
additional net interest expense. The reduction in net interest expense in
fiscal year 1994 in comparison to fiscal 1993 was due primarily to the lower
interest rates available under replacement financing obtained in the third
quarter of fiscal 1994.
INCOME TAXES
The Company recorded a tax benefit in 1996 and 1995 which represented
36.4% and 29.6% of the pretax loss in 1996 and 1995, respectively. In 1994,
the Company recorded a tax provision at an effective tax rate of 38.2%. The
effective tax rate used to determine the 1995 tax benefit was lower than the
1996 effective tax rate due to the effect of certain nondeductible items in
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $851,000 as of
June 29, 1996, with a corresponding balance of $753,000 as of June 24, 1995.
Working capital was reduced to $38.1 million from $40.2 million as of those
same dates and cash provided by operations was reduced to $67,000 during
fiscal 1996 from $2,871,000 during fiscal 1995. The decrease in cash
generated from operating activities in fiscal 1996 compared to fiscal 1995 is
attributable to net operating losses in fiscal 1996, coupled with increases in
accounts receivable and inventories. Accounts receivable increased as a
result of higher sales late in the fourth quarter of fiscal 1996 compared to
the same period in the prior fiscal year. Inventories increased primarily at
the Company's west coast manufacturing facility and at its Canadian
distribution facility in anticipation of increased demand.
Cash used for investing activities for fiscal 1996 was $958,000 and was
used primarily to purchase property, plant and equipment. Capital
expenditures were $725,000 in fiscal 1996 compared to $2,552,000 in fiscal
1995. The Company continues to invest in capital improvements and other long-
term assets to enhance operations so as to maintain the highest standards of
overall quality.
During fiscal 1996, net cash provided by financing activities was
approximately $1 million and consisted of advances under a revolving line of
credit. Repayments of long-term debt and capital lease obligations in fiscal
1996 were $1.4 million.
The Company has a revolving line of credit with a commercial bank which
permits the Company to borrow up to $20 million ($18,100,000 outstanding at
June 29, 1996). The Company's availability under this line of credit is based
upon a formula applied to the balance of the Company's inventory and accounts
receivable. In addition, the Company has a term loan with an outstanding
balance of $6,100,000 with the same commercial bank. The Company's
obligations under the line of credit and the term loan are secured by
substantially all of its assets. The financing agreement contains certain
provisions and covenants which, among other things restrict future
indebtedness, cash dividends and capital expenditures, and require the Company
to maintain specified levels of tangible net worth, operating performance and
debt service and liabilities to worth ratios. Compliance with the debt
service covenant of this financing agreement was waived during the second,
third and fourth quarters of fiscal 1996 such that the loss sustained by the
Company during those periods did not result in a default under the agreement.
Compliance with the liabilities to worth covenant and limitations on capital
expenditures under this financing agreement were also waived during the fourth
quarter of fiscal 1996. The revolving line of credit expires on June 30,
1997. Effective June 29, 1996, the revolving line of credit was 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 .5% over the
lender's base rate to 3.0% over such base rate. If the Company achieves
specified debt service ratios, a lending rate becomes available at 3.0% above
the Eurodollar rate. Similarly, the term loan, which had outstanding
borrowings as of June 29, 1996, of $6,100,000 was also 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 0.75%
over the lender's base rate to 3.25% over such base rate. At specific debt
service levels, a lending rate is available 3.25% above the Eurodollar rate.
All of the foregoing rates are adjusted quarterly based on the Company's debt
service ratio.
The Company believes that existing cash balances, cash generated from
operations, and borrowing ability under the Company's financing agreements
will be sufficient to meet the Company's cash requirements for operations for
the next twelve months and to complete the planned restructuring efforts.
10
<PAGE>
OUTLOOK
Arrow Automotive Industries' business objective is to be the leader in
supplying a broad line of quality remanufactured automotive products to the
automotive aftermarket. The Company announced, subsequent to the year ended
June 29, 1996, a restructuring plan that it believes will result in a stronger
foundation for profitable growth. The plan is to consolidate the Company's
manufacturing facilities from three to two, providing a more streamlined and
efficient production capability. This restructuring is consistent with the
consolidation of certain administrative functions and the consolidation of the
production of certain product lines that have occurred within the Company
throughout the year. These changes will help the Company compete in today's
highly competitive automotive aftermarket.
During the last two fiscal years, the Company has experienced large
swings in its quarterly sales volume. Furthermore, the timing of a customer's
product return (which will reduce reported net sales) is beyond the control of
the Company. These factors make revenue forecasting unpredictable, and could
subject the Company to fluctuations in both revenues and earnings. While over
longer periods of time the relationship of returns to sales remains relatively
constant, occasional fluctuations do occur. Fluctuations in channel mix
(retail versus traditional warehouse distributors, for example) and product
mix in product sales can also be significant. All of these factors can have a
significant impact on gross margins as a percentage of revenue and therefore
earnings per share. Management believes that the streamlining of its
manufacturing operations will position the Company competitively in the
marketplace. Management believes that the industry will become increasingly
competitive, creating downward pressures on gross margins, including those of
the Company. The Company's goal is to offset this trend by decreasing unit
costs, focusing on profitable business relationships and being the industry
leader in providing a broad line of quality products with superior service to
our customers.
CAUTIONARY STATEMENT
All statements made in the foregoing discussion and analysis and
elsewhere in this report which are not historical fact are forward looking
statements. In connection with the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is providing the
following cautionary statement to identify some (but not necessarily all) of
the important factors that could cause its actual results to differ materially
from those anticipated in any forward looking statements made in this report
or otherwise by or on behalf of the Company.
Actual results of the Company may differ from those anticipated in any
forward looking statement made by or on behalf of the Company due to the
following factors, among other risks and uncertainties affecting the Company's
business: the inability to realize the cost savings as estimated in the
Company's plan to restructure its operations, lack of availability to the
Company of adequate funding sources and cash from operations, reduced product
demand and industry over-capacity, the loss of or a material reduction in
orders from the Company's largest customer or other material loss of business,
new business acquisition costs, unseasonably mild weather patterns, the impact
of inflation, and the various other factors identified in the discussion
appearing under the heading "Outlook" above and elsewhere in this report.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-----------------------------------------------------
The response to this item is included as part of Item 14 of this report.
An index to the financial statements and schedules filed as a part of this
report appears on page 18 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
--------------------------------------------------------------------
AND FINANCIAL DISCLOSURE.
-------------------------
The Company has not reported on Form 8-K any disagreement with its public
accountants on any matter of accounting principles or practices or financial
statement disclosure.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
-------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION;
---------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------------------------------------------------------------
MANAGEMENT;
-----------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
---------------------------------------------------------
Information required under these items has been omitted, as the Company
intends to file with the Securities and Exchange Commission not later than 120
days after the close of its fiscal year a definitive proxy statement pursuant
to Regulation 14A. The information concerning directors and executive
officers of the Company, executive compensation, security ownership of certain
beneficial owners and management, and certain relationships and related
transactions is incorporated by reference to the Company's Annual Proxy
Statement for its 1996 Annual Meeting of Stockholders.
12
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-----------------------------------------------------------------
FORM 8-K.
---------
(a) 1. Financial Statements. The following financial
---------------------
statements of the Company are included in Item 8:
<TABLE>
<CAPTION>
Page
<S> <C>
----
Report of Independent Auditors 20
Balance Sheets - June 29, 1996 and 21
June 24, 1995
Statements of Operations - Years 23
ended June 29, 1996, June 24, 1995, and
June 25, 1994
Statements of Changes in Stockholders' 24
Equity - Years ended June 29, 1996,
June 24, 1995, and June 25, 1994
Statements of Cash Flows - Years 25
ended June 29, 1996, June 24, 1995,
and June 25, 1994
Notes to Financial Statements 27
</TABLE>
2. Financial Statement Schedules. The following
------------------------------
financial statement schedules of the Company
are included in Item 14(d):
<TABLE>
<CAPTION>
Page
<S> <C>
----
Schedule II - Valuation and Qualifying Accounts 42
</TABLE>
All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements or
the notes thereto.
3. Listing of Exhibits. A listing of exhibits filed as
--------------------
part of this Form 10-K begins on page 43 hereof.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1996.
(c) The Company hereby files as a part of this Form 10-K the exhibits
listed in Item 14(a)(3) above.
(d) The Company hereby files as a part of this Form 10-K the financial
statements and schedules listed in Items 14(a)(1) and (2) above.
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) 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.
---------------------------------
Dated: September 27, 1996 By: /s/ Jim L. Osment
---------------------------------
Jim L. Osment, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
President, Chief Executive
/s/ Jim L. Osment Officer, (Principal September 27, 1996
------------------------- Executive Officer) and
Jim L. Osment Director
Executive Vice President, September 27, 1996
/s/ James F. Fagan Chief Financial Officer
------------------------- (Principal Financial
James F. Fagan Officer), Treasurer and
Director
/s/ Harry A. Holzwasser Chairman of the Board and September 27, 1996
------------------------- Director
Harry A. Holzwasser
------------------------- Director September 27, 1996
Mary S. Holzwasser
/s/ Robert A. Holzwasser Director September 27, 1996
-------------------------
Robert A. Holzwasser
/s/ Joel D. Holzwasser Director September 27, 1996
-------------------------
Joel D. Holzwasser
/s/ Lawrence M. Levinson Director September 27, 1996
-------------------------
Lawrence M. Levinson
------------------------- Director September 27, 1996
Winthrop P. Rockefeller
------------------------- Director September 27, 1996
Alan Steinert, Jr.
/s/ Kathaleen M. Vice President and September 27, 1996
Carroll-Coelho Controller
-------------------------
Kathaleen M. Carroll-Coelho
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To The Stockholders and Board of Directors
Arrow Automotive Industries, Inc.
We have audited the accompanying balance sheets of Arrow Automotive
Industries, Inc. (the Company) as of June 29, 1996 and June 24, 1995, and the
related statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 29, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arrow Automotive Industries,
Inc. at June 29, 1996 and June 24, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended June 29,
1996, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in Notes 10 and 11 to the financial statements in 1994, the
Company changed its method of accounting for postretirement benefits and
income taxes.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Boston, Massachusetts
September 5, 1996, except
for Notes 1 and 6, as to which the date
is September 27, 1996
13
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, June 24,
<S> <C> <C>
1996 1995
------------- -------------
Assets (Notes 1 and 6)
Current assets:
Cash and equivalents $ 850,537 $ 753,010
Accounts receivable, less allowance
($524,401 in 1996 and $477,286
in 1995) for doubtful accounts 16,468,224 12,535,646
Inventories (Note 3) 37,312,671 36,307,861
Deferred income taxes (Note 11) 2,291,000 1,778,000
Refundable income taxes 310,315 617,523
Other current assets 563,346 1,577,578
------------ ------------
Total current assets 57,796,093 53,569,618
Property, plant and equipment (Note 9):
Land 952,087 952,087
Buildings and building improvements 15,780,776 15,656,256
Leasehold improvements 247,670 258,221
Machinery and equipment 18,661,470 18,567,735
Construction in progress 85,253 25,052
------------ ------------
35,727,256 35,459,351
Less allowances for depreciation and
amortization 22,912,356 22,174,393
------------ ------------
Net property, plant and equipment 12,814,900 13,284,958
Other assets 2,500,718 1,923,519
------------ ------------
$ 73,111,711 $ 68,778,095
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
ARROW AUTOMOTIVE INDUSTRIES, INC.
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
June 29, June 24,
<S> <C> <C>
1996 1995
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of advances under
revolving line of credit (Note 6) $ 5,104,715 $ 2,729,975
Cash overdraft (Note 4) 1,260,165 1,216,348
Trade accounts payable 6,647,237 3,089,034
Accrued expenses (Note 5) 5,272,737 5,009,865
Current portion of long-term debt 1,385,672 1,372,486
------------ ------------
Total current liabilities 19,670,526 13,417,708
Long-term debt, net of current portion
(Note 6) 17,969,339 19,265,190
Deferred income taxes (Note 11) 1,748,000 1,634,000
Accrued retirement benefits (Note 10) 2,428,226 1,721,867
Stockholders' equity (Notes 7 and 8):
Preferred stock, par value $.01 per
share--authorized 1,000,000 shares,
none issued
Common stock, par value $.10 per
share--authorized 5,000,000 shares,
issued 2,968,870 in 1996 and
2,968,870 in 1995 296,887 296,887
Capital in excess of par value 7,428,586 7,428,254
Retained earnings 24,019,471 25,463,513
------------ ------------
31,744,944 33,188,654
Less cost of common stock in treasury
(95,787 shares in 1996 and 95,787
in 1995) 449,324 449,324
------------ ------------
Total stockholders' equity 31,295,620 32,739,330
Commitments and Contingency (Note 9)
------------ ------------
$ 73,111,711 $ 68,778,095
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Arrow Automotive Industries, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Fiscal Year Ended
<S> <C>
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 29, June 24, June 25,
<S> <C> <C> <C>
1996 1995 1994
(53 weeks) (52 weeks) (52 weeks)
------------ ------------ -------------
Net sales $103,602,534 $106,574,023 $108,054,720
------------ ------------ -------------
Cost and expenses:
Cost of products sold 82,161,642 81,482,460 80,193,327
Selling, administrative
and general 21,597,047 23,504,545 23,334,056
Interest 2,112,887 1,934,722 1,613,508
------------ ------------ -------------
105,871,576 106,921,727 105,140,891
------------ ------------ -------------
(Loss) income before income
taxes and extraordinary
item (2,269,042) (347,704) 2,913,829
(Benefit) provision for
income taxes (Note 11) (825,000) (103,000) 1,113,000
------------ ------------ -------------
extraordinary item (1,444,042) (244,704) 1,800,829
Extraordinary charge from
refinancing of debt, net
of income tax benefit of
$169,000 (Note 6) (275,985)
------------ ------------ -------------
Net (loss) income $(1,444,042) $ (244,704) $ 1,524,844
============ ============ =============
(Loss) income per share
before extraordinary item $ (.50) $ (.09) $ .64
Extraordinary charge per
share from refinancing of
debt, net of income tax
benefit of $.06 per share (.10)
------------ ------------ -------------
Net (loss) income per share $ (.50) $ (.09) $ .54
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Arrow Automotive Industries, Inc.
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Capital in
<S> <C> <C> <C> <C>
Common Excess of Retained Treasury
Stock Par Value Earnings Stock
---------- ----------- ----------- -----------
Balance at June 26,
1993 $ 290,957 $ 7,149,871 $24,183,373 $ 449,128
Income tax benefit
resulting from
disqualifying
disposition of
shares under stock
option plans 20,780
Purchase of
treasury stock 120
Exercise of stock
options 5,810 247,353
Net income for the
year 1,524,844
---------- ----------- ----------- ----------
Balance at June 25,
1994 296,767 7,418,004 25,708,217 449,248
Income tax benefit
resulting from
disqualifying
disposition of
shares under stock
option plans 3,920
Purchase of
treasury stock 76
Exercise of stock
options 120 6,330
Net loss for the
year (244,704)
---------- ----------- ----------- ----------
Balance at June 24,
1995 296,887 7,428,254 25,463,513 449,324
Income tax benefit
resulting from
disqualifying
disposition of
shares under stock
option plans 332
Net loss for the
year (1,444,042)
---------- ----------- ----------- ----------
Balance at June 29,
1996 $ 296,887 $ 7,428,586 $24,019,471 $ 449,324
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Arrow Automotive Industries, Inc.
Statements of Cash Flows
<CAPTION>
Fiscal Year Ended
----------------------------------------
<CAPTION>
June 29, June 24, June 25,
<S> <C> <C> <C>
1996 1995 1994
(53 weeks) (52 weeks) (52 weeks)
------------ ------------ ------------
Operating activities
Net (loss) income $(1,444,042) $ (244,704) $ 1,524,844
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 1,373,132 1,411,722 1,546,047
Write off of deferred
financing costs (Note 6) 344,985
Deferred income taxes
(credits) (399,000) 144,000 (271,000)
Provision for bad debts 109,840 41,376 105,008
(Increase) decrease in
assets:
Accounts receivable (4,042,418) 3,084,405 (3,003,313)
Inventories (1,004,810) 1,125,159 (6,190,209)
Refundable income taxes 307,208 (567,523)
Other current assets 595,634 31,402 (366,993)
Increase (decrease) in
liabilities:
Accounts payable, accrued
expenses and other
current liabilities 3,864,892 (1,261,460) 934,558
Income taxes payable (961,842) 765,106
Accrued retirement
benefits 706,359 68,580 480,294
------------ ------------ ------------
Cash provided by (used for)
operating activities 66,795 2,871,115 (4,130,673)
Investing activities
Purchase of property, plant
and equipment (724,744) (2,551,563) (437,563)
Increase in net cash
surrender value of life
insurance policies (268,296) (139,599) (223,174)
Other 34,735 84,898 (143,155)
------------ ------------ ------------
Cash used for investing
activities $ (958,305) $(2,606,264) $ (803,892)
</TABLE>
<TABLE>
<CAPTION>
Arrow Automotive Industries, Inc.
Statements of Cash Flows-(continued)
<CAPTION>
Fiscal Year Ended
----------------------------------------
<CAPTION>
June 29, June 24, June 25,
<S> <C> <C> <C>
1996 1995 1994
(53 weeks) (52 weeks) (52 weeks)
------------ ------------ ------------
Financing activities
Replacement financing
proceeds $21,456,514
Indebtedness repaid,
principally with the
proceeds from the
replacement financing (20,134,246)
Increase in advances under
revolving line of credit $ 2,374,740 $ 1,410,529 4,763,770
Deferred financing costs of
replacement financing (281,964)
Repayments of other long-
term debt and capital
lease obligations (1,386,035) (1,377,984) (1,137,478)
Proceeds from exercise of
stock options and related
tax benefits 332 10,370 273,943
Purchase of treasury stock (76) (120)
------------ ------------ ------------
Cash provided by
financing activities 989,037 42,839 4,940,419
------------ ------------ ------------
Increase in cash and
equivalents 97,527 307,690 5,854
Cash and equivalents at
beginning of year 753,010 445,320 439,466
------------ ------------ ------------
Cash and equivalents at end
of year $ 850,537 $ 753,010 $ 445,320
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 1. Management's Plan and Subsequent Event
In fiscal 1996 and 1995, the Company has recorded operating losses caused by a
number of factors, including a decrease in net sales, unit shipments and gross
margins. During the first quarter of fiscal 1997, after completing an
evaluation of the Company's historical operating results, sales forecast and
cost structure, the Board of Directors of the Company approved a plan to
restructure its operations by closing its Santa Maria, California production
facility and transferring its manufacturing operations formerly conducted at
that facility to the Morrilton, Arkansas plant. As a result, a $1.2 million
restructuring charge will be recorded in the first quarter of fiscal 1997. Of
the total charge, $300,000 relates to termination benefits for displacement of
its 350-employee workforce and $900,000 relates to closing the facility. The
action was taken to enhance profit margins by streamlining the Company's
productive capacity to better match its production requirements.
In addition to recording the restructuring charge, the Company anticipates
that during fiscal 1997, it will incur non-recurring period costs relating to
the restructuring, estimated to range from $1.0 to $1.5 million. These costs
relate to ongoing operations and include such costs as the shipment of
inventory and equipment, employee relocation and anticipated initial labor and
production inefficiencies as a result of the consolidation of production
operations from three to two manufacturing facilities.
The Company's fiscal 1997 operating plan contemplates an improvement over the
fiscal 1996 operating results before considering costs associated with the
closure of the west coast manufacturing facility. This improvement is based
on operational changes instituted during fiscal 1996 and the restructuring
plan announced in September, 1996. Management believes that, based on the
1997 operating plan and the availability under its existing credit line, the
Company will have sufficient cash to support operations and remain in
compliance with the financial covenants of the credit agreement with its bank.
The Company's ability to continue to meet its obligations as they become due
is dependent upon achieving improved operating results and continued
compliance with the covenants under its credit agreement.
Note 2. Summary of Significant Accounting Policies
The principal accounting policies of Arrow Automotive Industries, Inc. (the
Company) are as follows:
Fiscal Year: The Company's fiscal year ends on the last Saturday of June.
Fiscal year 1996 contains 53 weeks and fiscal years 1995 and 1994 each contain
52 weeks. The number of weeks in fiscal quarters varies from twelve to
fourteen.
Business Segment: The Company is a remanufacturer and distributor of
replacement parts for automotive vehicles and trucks, which is considered to
be a single line of business. In fiscal 1996, sales to the Company's largest
customer represented 20% of net sales and no other customer accounted for more
than 10% of net sales.
18
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 2. Summary of Significant Accounting Policies (continued)
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Inventories: Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method.
Property, Plant and Equipment: Property, plant and equipment is recorded on
the basis of cost or, in the case of leased assets under certain capital
leases (see Note 9), at the present value of future lease payments.
Depreciation and amortization of plant and equipment are provided on a
straight-line basis, based upon the following estimated useful lives of the
assets:
Buildings and building improvements 10-33 years
Leasehold improvements 10-33 years
Machinery and equipment 2-10 years
The Company eliminates from its accounts the cost and accumulated depreciation
of the assets when they are retired, sold or abandoned. Gains and losses are
reflected in the statements of operations.
Income Taxes: Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". The amounts deductible in determining income
taxes may exceed amounts charged to income as a result of tax deductions
arising from disqualifying dispositions of stock acquired under the Company's
qualified stock option plans. Any reduction in income taxes as a result of
these differences is credited to capital in excess of par value.
Earnings (Loss) Per Share: Earnings (loss) per share is computed based upon
the weighted average number of common shares outstanding during each year,
plus the dilutive effect, if any, of the assumed exercise of outstanding stock
options. Weighted average shares used in the calculation of earnings (loss)
per share were 2,873,083 for 1996, 2,872,309 for 1995 and 2,821,063 for 1994.
Stock Based Compensation: The Company grants stock options for a fixed number
of shares at the date of grant. The Company accounts for stock option grants
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretation, and, accordingly,
recognizes no compensation expense for the stock option grants.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less at the date acquired to be cash equivalents.
19
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk: The Company sells its products nationwide,
primarily to warehouse distributors and to a lesser extent, to retailers. The
Company performs ongoing credit evaluations of its customers and when
appropriate registers UCC filings to provide a security interest in its
customers' inventory. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
Impact of Recently Issued Accounting Standards: In March 1995, the Financial
Accounting Standards Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-
lived assets that are expected to be disposed of. The Company will adopt
Statement No. 121 in the first quarter of fiscal 1997 and, based on current
circumstances, does not believe the effect of adoption with be material.
Reclassification: Certain amounts reported in prior years have been
reclassified to conform to the 1996 presentation.
Note 3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
------------ ------------
Stated at cost on first-in, first out
(FIFO) method (which approximates
replacement cost):
Finished goods $ 11,522,643 $ 10,471,077
Work in process and materials 32,260,028 32,651,784
------------ ------------
43,782,671 43,122,861
Less reserve required to state
inventory on the last-in, first-out
(LIFO) method (6,470,000) (6,815,000)
------------ ------------
$ 37,312,671 $ 36,307,861
============ ============
</TABLE>
20
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 4. Cash Management System
Daily, under the Company's cash management system, the bank notifies the
Company of checks presented for payment against imprest operating accounts.
The Company transfers funds from other sources, such as short-term investments
or available lines of credit, to cover the checks presented for payment. The
Company reflects a book cash overdraft as a result of the checks outstanding.
The cash (overdraft) balance consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
--------------- ---------------
Bank balance $ 30,591 $ 39,223
Less outstanding checks (1,290,756) (1,255,571)
--------------- ---------------
$(1,260,165) $ (1,216,348)
=============== ===============
</TABLE>
Note 5. Accrued Expenses
Accrued expenses consist of the
following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
--------------- ---------------
Compensation and taxes withheld
therefrom $ 3,358,507 $ 3,390,337
Promotional allowances 629,246 497,133
Other 1,284,984 1,122,395
--------------- ---------------
$ 5,272,737 $ 5,009,865
=============== ===============
</TABLE>
Note 6. Long-Term Debt and Credit Arrangements
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
--------------- ---------------
Term loans $ 6,107,143 $ 7,392,857
Noncurrent portion of advances under
revolving line of credit 13,000,000 13,000,000
Other 247,868 244,819
--------------- ---------------
19,355,011 20,637,676
Less current portion (1,385,672) (1,372,486)
--------------- ---------------
$17,969,339 $19,265,190
=============== ===============
</TABLE>
21
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 6. Long-Term Debt and Credit Arrangements (continued)
Maturities of amounts classified as long-term debt are as follows: 1998--
$14,378,521; 1999--$1,326,085; 2000--$1,300,560; 2001--$964,173.
Interest paid amounted to $2,034,098 during 1996, $1,960,718 during 1995 and
$1,681,952 during 1994.
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. In connection therewith, the Company
recorded an extraordinary charge of $275,985, net of income tax benefit of
$169,000. Of this amount, $215,985, net of income tax benefit of $131,000,
represents a non-cash charge to write off the unamortized balance of deferred
financing costs and the balance relates to charges arising from the early
termination of that debt.
At June 29, 1996, the revolving line of credit enables the Company to borrow
up to $20 million through June 30, 1997, based on a formula applied to the
balances of the Company's inventory and accounts receivable. The interest
rate borne on a given date on amounts outstanding under the line ($18,100,000
at June 29, 1996) will change depending upon the achieved debt service ratio.
The rate charged can range from 0.5% over the lender's base rate to 3.0% over
such base rate. If the Company achieves specified debt service ratios, a
lending rate becomes available at 3.0% above the Eurodollar rate. A
commitment fee of 0.25% per annum is due on the unused portion of the
borrowing facility. The interest rate at June 29, 1996 on outstanding
borrowings under the revolving line of credit was 9.25%. Optional prepayment
is permitted. At June 29, 1996, the Company has classified $13 million of
advances outstanding under the line as noncurrent, since it does not intend to
reduce its advances under the credit line below this amount during fiscal
1997.
Similarly, the term loan, which had outstanding borrowings as of June 29,
1996, of $6,100,000 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 0.75% over the lender's base rate to
3.25% over such base rate. At specific debt service levels, a lending rate is
available at 3.25% above the Eurodollar rate. The interest rate at June 29,
1996 on outstanding term loan borrowings was 9.5%. Principal is payable in
equal quarterly installments which are intended to extinguish the debt by
December 31, 2000. Optional prepayment is permitted.
All of the foregoing rates are adjusted quarterly based on the Company's debt
service ratio.
22
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 6. Long-Term Debt and Credit Arrangements (continued)
The Company's obligations under these agreements are secured by substantially
all of its assets.
Both the term loan and revolving line of credit agreements contain certain
provisions and covenants which, among other things, restrict the amount of
future indebtedness, amount of cash dividends and capital expenditures and
require the Company to maintain specified levels of tangible net worth,
operating performance and debt service and liabilities to worth ratios.
On September 27, 1996 the Company reached an agreement with the bank effective
June 29, 1996, such that certain covenants under the Company's revolving line
of credit agreement were waived so that the Company was in compliance at June
29, 1996. In addition, the financial covenants for the remaining term of the
financing agreement were amended based on the Company's fiscal 1997 operating
plan, as revised to reflect the estimated impact of the restructuring plan
(see Note 1). Further, the Company is currently in discussion with its
principal lender to extend the agreement beyond June 30, 1997.
At June 29, 1996, the Company had $505,622 of outstanding letters of credit.
Note 7. Preferred Stock
The Board of Directors has the authority to issue Preferred Stock in one or
more series, and to fix the dividend, redemption, liquidation, conversion and
voting rights associated with each such series.
Note 8. Stock Options
Effective as of December 21, 1992, the Company adopted the 1993 Incentive
Stock Option Plan. The 1993 Plan provides for grants of options to key
employees to purchase up to 200,000 shares of common stock of the Company.
Options under the 1993 Plan may be granted during a period of ten years
beginning December 21, 1992, and are exercisable ratably over a period of five
years from date of grant.
The Company's Stock Option Plan for Non-Employee Directors provides for grants
of options to purchase up to 20,000 shares of Common Stock of the Company.
Options granted under the Non-Employee Directors' Plan become fully
exercisable six months after the date of grant, and expire ten years from the
date of grant. As of November 22, 1993, no further options could be granted
under the Stock Option Plan for Non-Employee Directors.
23
<PAGE>
Arrow Automotive Industries,
Inc.
Notes to Financial Statements
Note 8. Stock Options (continued)
Information with respect to stock options is as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------
<CAPTION>
Number of Shares Price Per Share Number of Shares Price Per Share
-----------------------------------------------------
<CAPTION>
Outstanding at
<S> <C> <C> <C>
beginning of
year 121,500 $6.125-$8.750 128,700 $5.375-$8.750
Options cancelled
or expired (6,000) $5.375-$6.625
Options exercised (1,200) $5.375
-------- --------
Outstanding
at year end 121,500 $6.125-$8.750 121,500 $6.125-$8.750
======== ========
Exercisable
at year end 99,200 76,900
======== ========
Available for
future grant 87,500 87,500
======== ========
</TABLE>
At June 29, 1996, 209,000 shares of Common Stock were reserved for issuance
under the Company's stock option plans. The weighted average exercise price
for stock options outstanding at June 29, 1996 was $6.69.
Note 9. Leases
Property, plant and equipment includes the following amounts for leases of
manufacturing facilities that have been capitalized:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
--------------- ---------------
Building, building improvements
and machinery and equipment $ 446,308 $ 342,937
Less accumulated amortization (217,949) (148,629)
--------------- ---------------
$ 228,359 $ 194,308
=============== ===============
</TABLE>
24
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 9. Leases (continued)
Lease amortization is included in depreciation expense and amounted to $69,320
in 1996, $72,643 in 1995 and $79,510 in 1994. During 1996 and 1995, the
Company acquired $103,371 and $10,888 respectively, of equipment under capital
lease arrangements.
The future minimum rental commitments as of June 29, 1996 for all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Trucks and Trailers
Total Real Estate
<S> <C> <C> <C>
------------ ------------ ------------
1997 $ 498,218 $ 303,201 $ 195,017
1998 314,816 270,536 44,280
1999 74,654 54,359 20,295
2000 10,278 10,278 0
2001 0 0 0
------------ ----------- ------------
Total $ 897,966 $ 638,374 $ 259,592
=========== ============ ============
</TABLE>
Total rental expense for all operating leases was:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
------------- ------------- -------------
Minimum rentals $ 1,322,209 $ 1,309,206 $ 1,267,108
Contingent rentals 616,760 592,707 690,606
Less: Sublease rentals (113,710) (114,629) (60,338)
------------- ------------- -------------
$ 1,825,259 $ 1,787,284 $ 1,897,376
============= ============= =============
</TABLE>
The contingent rentals are based on additional truck miles driven over a
specified minimum.
Note 10. Employee Benefit Plans
The Company maintains the Arrow Automotive Industries Hourly and Sales
Employees' Retirement Plan (Hourly Plan) for substantially all hourly paid
employees and contract salesmen. Monthly benefits are based on years of
benefit service multiplied by the applicable dollar rate. Annual Company
contributions to the Hourly Plan are determined using the entry age normal
actuarial cost method and are equal to or exceed the minimum required by law.
25
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 10. Employee Benefit Plans (continued)
Pension fund assets of the Hourly Plan are invested primarily in stocks, bonds
and cash by a financial institution that was hired as the investment manager
of the plan assets.
The Company maintains Supplemental Benefit Agreements (Supplemental
Agreements) which provide retirement and death benefits to certain executive
officers and their beneficiaries. The annual benefit is equal to a percentage
of the executive's average final salary. The benefits will be funded by the
proceeds of certain life insurance policies purchased by the Company on the
lives of these executives. The Company is the beneficiary under these life
insurance policies. The Company's obligation under the Supplemental
Agreements are limited in all events to an amount not greater than the
benefits available to the Company under these life insurance policies, less
the aggregate net outlay by the Company on such policies.
The following table sets forth the Hourly Plan and the Supplemental Agreements
(Plans) funded status and amounts recognized in the Company's balance sheet
at June 29, 1996 and June 24, 1995 (in thousands):
<TABLE>
<CAPTION>
Plans in Which Accumulated Benefits Exceed Assets
<S> <C>
----------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
------------- -------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligations,
including vested benefits of $5,531
in 1996 and $4,986 in 1995 $ (6,081) $ (5,515)
Recognition of future salary increases (349) (276)
------------ ------------
Projected benefit obligation for
service rendered to date (6,430) (5,791)
Plan assets of fair value 4,602 4,589
------------ -------------
Projected benefit obligation in excess
of plan assets (1,828) (1,202)
Unrecognized transition asset (650) (715)
Unrecognized net loss 382 194
Unrecognized prior service cost 517 313
Adjustment to record minimum liability (531) (65)
------------ ------------
Accrued pension cost included in the
balance sheet $ (2,110) $ (1,475)
============ ============
</TABLE>
26
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 10. Employee Benefit Plans (continued)
Net pension expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
--------- --------- ---------
Service cost--benefits earned during
the period $ 259 $ 237 $ 242
Interest cost on projected benefit
obligation 490 434 402
Return on plan assets (441) (412) 96
Deferred asset gain (loss) 95 78 (420)
Amortization of transition assets (65) (65) (65)
Amortization of unrecognized net gain (3) (22) (16)
Amortization of unrecognized prior
service costs 37 23 22
------- ------- -------
Total pension expense $ 372 $ 273 $ 261
======= ======= =======
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation for the Plans was 8%. The rate of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation under the Supplemental
Agreements was 6%. The expected long-term rate of return on plan assets of
the Hourly Plan was 8%.
The Company maintains The Arrow Automotive Industries, Inc. Salaried and
Clerical Employees' Profit Sharing Plan (Profit Sharing Plan) for
substantially all clerical and salaried employees. Under the terms of the
Profit Sharing Plan, the amount of the Company's contribution is determined at
the sole discretion of the Board of Directors. There were no amounts charged
to operations under the Plan in 1996 and 1995. During 1994, the Company
accrued a contribution of $107,000 to the Plan.
27
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 10. Employee Benefit Plans (continued)
The Company also maintains The Arrow Automotive Industries, Inc.'s 401(K)
Plan for all employees. Effective as of July 1, 1994, the Company instituted
a matching contribution based on participants' elective deferrals to the
401(K) Plan. The cost of providing the matching contributions for the year
ended June 29, 1996 was $45,314.
The Company provides for the continuation of health care and life insurance
benefits upon retirement for certain of its active and retired employees.
Effective June 27, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (FAS 106). The Company elected to recognize the FAS 106
liability of $2.4 million on a prospective basis to be amortized over 20 years
as a part of the future annual postretirement benefit cost. The effect of
adopting FAS 106 increased 1994 net periodic postretirement benefit cost by
approximately $65,000. The following represents the unfunded accumulated
postretirement benefit obligation reconciled with amounts recognized in the
Company's balance sheet on June 29, 1996 and June 24, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
---------- ----------
Accumulated postretirement benefit obligation:
Retirees $ (1,602) $ (1,388)
Fully eligible active plan participants (220) (266)
Other active plan participants (353) (378)
--------- ---------
Accumulated postretirement benefit obligation (2,175) (2,032)
Unrecognized transition obligation 2,048 2,169
Unrecognized net gain (316) (458)
--------- ---------
Accrued postretirement benefit cost $ (443) $ (321)
========= =========
</TABLE>
28
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 10. Employee Benefit Plans (continued)
Net periodic postretirement benefit cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
--------- --------- ---------
Service cost--benefits earned during
the period $ 19 $ 20 $ 20
Interest cost on projected benefit
obligation 168 156 191
Amortization of transition
obligation over 20 years 121 121 121
Amortization of unrecognized gain (7) (18)
-------- -------- --------
Net periodic postretirement
benefit cost $ 301 $ 279 $ 332
======== ======== ========
</TABLE>
The cost of covered health care benefits was assumed to increase 9.5% for
retirees less than 65 years old and 6.5% for retirees 65 years and older for
fiscal 1996. These rates are assumed to decrease incrementally to 5.75% in
2001 and remain at that level thereafter. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation was 8%.
An increase of 1% in the assumed medical trend rates would result in an
accumulated postretirement benefit obligation of $2.2 million at June 29, 1996
and a 1996 net periodic postretirement benefit cost of $172,000.
The Company maintains a severance pay plan for its clerical and salaried
employees. The Company's obligation for these postemployment benefits as of
June 29, 1996 is not currently material.
Note 11. Income Taxes
Effective June 27, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). The adoption of
FAS 109 in fiscal year 1994 did not have a material impact on the Company's
accounting for income taxes.
29
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 11. Income Taxes (continued)
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
------------- ------------- -------------
Current:
Federal $ (426,000) $ (225,000) $ 1,022,000
State (22,000) 193,000
Deferred (399,000) 144,000 (271,000)
------------- ------------- ------------
$ (825,000) $ (103,000) $ 944,000
============= ============= ============
</TABLE>
The Company recorded a current income tax benefit which will be realized with
the carry back of the 1996 net operating loss.
A reconciliation of the statutory federal income tax rate to the annual
effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
------------- ------------- -------------
Income tax (benefit) at
statutory rate (34.0)% (34.0)% 34.0%
State income tax
benefit, net of federal
tax benefit (2.6) 4.0
Nondeductible portion of
travel and entertainment
expenses 0.2 4.4 0.3
Officers' life insurance
expense 0.3
Other (0.4)
------------- ------------- -------------
(36.4)% (29.6)% 38.2%
============= ============= =============
</TABLE>
30
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 11. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of June 29, 1996 and
June 24, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
---------------- ----------------
Deferred tax assets:
Inventory $ 1,543,000 $ 1,439,000
Accrued retirement benefits 653,000 643,000
Accrued medical benefits 376,000
Accounts receivable 210,000 191,000
Other 161,000 148,000
---------------- ----------------
Total deferred tax asset 2,943,000 2,421,000
---------------- ----------------
Deferred tax liabilities:
Book/tax depreciation 2,296,000 2,166,000
Other 104,000 111,000
---------------- ----------------
Total deferred tax liabilities 2,400,000 2,277,000
---------------- ----------------
Net deferred tax asset $ 543,000 $ 144,000
================ ================
</TABLE>
Income taxes paid (refunded) amounted to $(645,554) during 1996, $1,365,465
during 1995, and $429,115 during 1994.
31
<PAGE>
Arrow Automotive Industries, Inc.
Notes to Financial Statements
Note 12. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Fiscal Quarter 1996
<S> <C>
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
(14 wks) (13 wks) (13 wks) (13 wks)
<CAPTION>
--------- --------- --------- ---------
(Amounts in thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $29,137 $23,738 $26,226 $24,502
Gross margin 6,271 4,504 5,484 5,182
Net(loss) income 332 (793) (359) (624)
Net (loss) income per
share $ .12 $ (.28) $ (.13) $ (.22)
Weighted average
shares outstanding 2,873 2,873 2,873 2,873
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter 1995
<S> <C>
-------------------------------------------
<CAPTION>
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
(13 wks) (14 wks) (12 wks) (13 wks)
<CAPTION>
--------- --------- --------- --------
<CAPTION>
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $32,818 $29,163 $19,820 $24,773
Gross margin 7,700 7,075 4,783 5,534
Net(loss)income 544 69 (749) (109)
Net(loss) income per
share $ .19 $ .02 $ (.26) $ (.04)
Weighted average
shares outstanding 2,872 2,872 2,872 2,873
</TABLE>
32
<PAGE>
Arrow Automotive Industries, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDING JUNE 1996, 1995 AND 1994
ADDITIONS
---------------------
Charged Charged
Balance at to Costs to Other (1) Balance
Beginning and Accounts- Deductions- at End of
Description of Period Expenses Describe Describe Period
------------------------------------------------------------- ---------
Allowance for
Doubtful
Accounts-
Accounts
Receivable:
Year Ended
June 25, 1994 $ 479,312 $ 105,008 $ 0 $ 31,698 $ 552,622
Year Ended
June 24, 1995 $ 552,622 $ 41,376 $ 0 $ 116,712 $ 477,286
Year Ended
June 29, 1996 $ 477,286 $ 109,840 $ 0 $ 62,725 $ 524,401
(1) Uncollectible accounts written off, net of recoveries.
33
<PAGE>
LIST AND INDEX OF
EXHIBITS
<TABLE>
<CAPTION>
Filed with This
Item Incorporated by Form 10-K at
Number Description Reference To or Page Indicated
------- --------------------- --------------------- ----------------
<S> <C> <C> <C>
3.1 Restated Articles of Organization Form 10-Q for quarter ended
as amended to date December 31, 1983, Exhibit 3.1
3.2 By-Laws as amended to date Form 10-Q for quarter ended
December 31, 1983, Exhibit 3.2
4. Copies of Stock Certificates Form 10-K for year ended June
29, 1991, Exhibit 4
9.1 Arrow Automotive Industries, Inc. Form 10-K for year ended June
Voting Trust Agreement 29, 1991, Exhibit 9
9.2 Extension of Term of Arrow Form 10-K for year ended June
Automotive Industries, Inc. 27, 1992, Exhibit 9.2
Voting Trust Agreement Dated May
20, 1992
10.1 Agreement and Lease Amendment Form 10-K for year ended June
dated March 15, 1984 with 30, 1984, Exhibit 10.2
Holzwasser Realty Trust
10.2* Exec-U-Care Participation Form 10-K for year ended June
Agreement dated December 22, 1982 30, 1984, Exhibit 10.21
10.3* Arrow Automotive Industries, Inc. Proxy Statement for 1983 Special
Stock Option Plan for Non- Meeting of Stockholders in Lieu
Employee Directors of Annual Meeting
</TABLE>
<TABLE>
<CAPTION>
* Indicates management contract or compensation plan, contract or
arrangement.
<S> <C> <C> <C>
Filed with This
Item Incorporated by Form 10-K at
Number Description Reference To or Page Indicated
------- --------------------- --------------------- ----------------
10.4* Supplemental Benefit Form 10-K for year ended June 28, 1985
Plan Agreement Exhibit 10.15
10.5 $450,000 demand promissory note Form 10-K for year ended June
from Harry A. Holzwasser 29, 1985, Exhibit 10.25
10.6* Executive Life Insurance Plan Form 10-K for year ended June
Agreement 27, 1987, Exhibit 10.28
10.7 Lease with CFMS General Form 10-Q for quarter ended
Partnership dated July 14, 1987 December 30, 1995, Exhibit 10.2
re: 8000 New Jersey Avenue,
Hammond, Indiana
10.8 Lease Agreement with Point West Form 10-K for year ended June
Office Center Limited Partnership 25, 1988, Exhibit 10.29
Associates dated July 15, 1988
re: 3 Speen Street, Framingham,
Massachusetts
10.9* Employment Agreement with Jim L. Form 10-K for year ended June
Osment dated May 14, 1991 29, 1991, Exhibit 10.15
10.10* Employment Agreement with James Form 10-K for year ended June
F. Fagan dated May 14, 1991 29, 1991, Exhibit 10.16
10.11* Arrow Automotive Industries, Inc. Registration Statement No. 33-
1993 Incentive Stock Option Plan 64990 on Form S-8 filed June 25,
1993
10.12* Employment Agreement with William Form 10-K for year ended June
J. Ledbetter dated April 28, 1993 26, 1993, Exhibit 10.17
</TABLE>
* Indicates management contract or compensation plan, contract or
arrangement.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Filed with This
Item Incorporated by Form 10-K at
Number Description Reference To or Page Indicated
------- --------------------- --------------------- ----------------
10.13 Financing Agreement with The Form 10-Q for quarter ended
First National Bank of Boston December 25, 1993, Exhibit 10.1
dated December 29, 1993
10.14* Employment Agreement with Harry Form 10-Q for quarter ended
A. Holzwasser dated as of June December 25, 1993, Exhibit 10.2
28, 1993
10.15* Directors and Officers Liability Form 10-Q for quarter ended
Insurance Policy and Excess December 30, 1995, Exhibit 10.2
Policy
10.16* Amendment No. 1 to Employment Form 10-K for year ended June
Agreement with Jim L. Osment 25, 1994, Exhibit 10.17
dated May 3, 1994
10.17* Amendment No. 1 to Employment Form 10-K for year ended June
Agreement with James F. Fagan 25, 1994, Exhibit 10.18
dated May 3, 1994
10.18 First Amendment to Lease with Form 10-K for year ended June
Point West Office Center Limited 25, 1994, Exhibit 10.19
Partnership Associates dated
March 31, 1994 re: 3 Speen
Street, Framingham, MA
10.19 Sublease Agreement by and between Form 10-K for year ended June
Arrow Automotive Industries, Inc. 25, 1994, Exhibit 10.20
and Carlson Design/Construct Corp
dated October 28, 1993 re: 3
Speen Street, Framingham, MA
</TABLE>
* Indicates management contract or compensation plan, contract or
arrangement.
34
<PAGE>
<TABLE>
<CAPTION>
Filed with This
Item Incorporated by Form 10-K at
Number Description Reference To or Page Indicated
------- --------------------- --------------------- ----------------
<S> <C> <C> <C>
10.20 First Amendment to Form 10-Q for quarter
Financing Agreement ended March 25, 1995,
with The First National Exhibit 10.1
Bank of Boston dated
December 29, 1993
10.21 Amendment No. 1 to Form 10-K for year
Employment Agreement ended June 24, 1995,
with Harry A. Exhibit 10.21
Holzwasser dated
August, 1995
10.22 Second Amendment to Form 10-K for year
Revolving Credit and ended June 24, 1995,
Term Loan Agreement Exhibit 10.22
with The First National
Bank of Boston dated as
of June 24, 1995
10.23 Third Amendment and Form 10-Q for quarter
Waiver to Revolving ended December 30,
Credit and Term Loan 1995, Exhibit 10.1
Agreement with the
First National Bank of
Boston dated as of
December 30, 1995
10.24 Fourth Amendment and Form 10-Q for quarter
Waiver to Revolving ended March 30, 1996,
Credit and Term Loan Exhibit 10.1
Agreement with The
First National Bank of
Boston dated as of
March 30, 1996.
10.25 Fifth Amendment and
Waiver to Revolving
Credit and Term Loan
Agreement with The
First National Bank of
Boston dated as of June
29, 1996 Page 48
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Filed with This
Item Incorporated by Form 10-K at
Number Description Reference To or Page Indicated
------- --------------------- --------------------- ----------------
<S> <C> <C> <C>
11. Statement re Note 1 to Notes to
Computation of per Financial Statements
share earnings (loss) filed herewith
23. Consent of Independent Page 53
Auditors
99. Press Release dated
September 26, 1996
related to the
restructuring and plant Page 54
closing.
27. Financial Data Schedule Page 56
</TABLE>
36
2:08 PM
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
WE CONSENT TO THE INCORPORATION BY REFERENCE IN THE REGISTRATION STATEMENTS
(FORM S-8 NOS.2-76091, 2-89977, 33-47000 AND 33-64990 OF ARROW AUTOMOTIVE
INDUSTRIES, INC.OF OUR REPORT DATED SEPTEMBER 5, 1996, EXCEPT FOR NOTES 1 AND
6 AS TO WHICH THE DATE IS SEPTEMBER 27, 1996, WITH RESPECT TO THE FINANCIAL
STATEMENTS AND SCHEDULE OF ARROW AUTOMOTIVE INDUSTRIES, INC., INCLUDED IN THE
ANNUAL REPORT (FORM 10-K) FOR THE YEAR ENDED JUNE 29, 1996.
ERNST & YOUNG LLP
BOSTON, MASSACHUSETTS
SEPTEMBER 27, 1996 \S\ ERNST & YOUNG LLP
ARROW AUTOMOTIVE INDUSTRIES, INC.
FIFTH AMENDMENT AND WAIVER TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT
THIS FIFTH AMENDMENT AND WAIVER (this "Amendment"), dated as of June 29,
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, the Third Amendment to Revolving
Credit and Term Loan Agreement, dated as of December 30, 1995, and the Fourth
Amendment and Waiver to Revolving Credit and Term Loan Agreement dated as of
March 30, 1996, (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 June 29, 1996, the Borrower has failed to comply with the financial
covenant set forth in Section 11.1 - 11.3 of the Credit Agreement and has
requested that the Bank waive to the limited extent necessary to permit such
non-compliance as of June 29, 1996, the provisions of Section 11.1 - 11.3 of
the Credit Agreement; and
WHEREAS, the Bank is willing to make such amendments to, and grant such
waivers 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 Applicable Margin contained in Section 1.1 of the
Credit Agreement is amended by deleting such definition in its entirety and
restating it as follows:
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 compliance delivered by the Borrower during
the fiscal quarter immediately preceding the applicable Rate
Adjustment Period.
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Term Revolving
Debt Service Revolving Base Credit/ Term
(Coverage See Credit/Base Rate Eurodollar Eurodollar
LEVEL SECTION 11.2) RATE LOANS LOANS LOANS RATE LOANS
I Less than or
equal to Not Not
0.50:1.00 3.00% 3.25% Available Available
II Greater than or
equal to
0.76:1.00 but
less than Not Not
1.00:1.00 2.00% 2.25% Available Available
III Greater than or
equal to
1.01:00 but
less than Not Not
1.25:1.00 1.00% 1.25% Available Available
IV Greater than or
equal to
1.25:1.00 0.50% 0.75% 3.00% 3.25%
Notwithstanding the foregoing, (a) for Loans
outstanding during the period commencing on September 27,
1996 through the date immediately preceding the first
Adjustment Date to occur after the fiscal quarter ending
December 31, 1996, 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.
(b) Section 11.1 of the Credit Agreement is amended by inserting
immediately after the words "$500,000 during any fiscal year thereafter" which
appears in Section 11.1 a comma and the words "but for the Borrower's 1997
fiscal year Capital Expenditures shall not include amounts capitalized in
connection with the closing of the Borrower's manufacturing facility located
in Santa Maria, California up to an aggregate amount of $250,000".
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(c) 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 (which, for purposes of this Section 11.2, shall
exclude all non-recurring restructuring charges and
period costs (as such period costs are described in the
Borrower's business plan dated as of September 13, 1996)
of the Borrower relating solely to the closing of the
Borrower's manufacturing facility located in Santa Maria,
California up to a maximum aggregate amount of
$2,200,000) 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
3 month period: Q1, 1997 1.0:1.0
6 month period: Q1, 1997 through
Q2, 1997 1.0:1.0
9 month period: Q1, 1997 through
Q3, 1997 1.0:1.0
12 month period: Q1, 1997 through
Q4, 1997 1.0:1.0
Each period of four consecutive
fiscal quarters thereafter,
commencing with the four
consecutive fiscal quarters
ending on the last day of
Q1, 1998 1.0:1.0
(d) Section 11.3 of the Credit Agreement is amended by deleting such
Section 11.3 and restating it in its entirety as follows:
Section 11.2 Liabilities to Worth Ratio. The Borrower will
not permit the ratio of Total Liabilities to Tangible
Net Worth to exceed (a) 1.50:1.00 as at the end of each
fiscal quarter for the fiscal quarters ending Q1, 1997,
Q2, 1997 and Q3, 1997 and (b) 1.30 as at the end of each
fiscal quarter ending thereafter.
(e) Inserting immediately after the text of Section 11.4 of the Credit
Agreement the following:
Section 11.5 Minimum Profitability. The Borrower will not
permit, as at the end of each fiscal period described in
the table set forth below, its Net Income (which, for
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purposes of this Section 11.5, shall include all
non-recurring restructuring charges and period costs of the
Borrower relating soley to the closing of the Borrower's
manufacturing facility located in Santa Maria, California)
to be less than the amount set forth opposite such period in
such table:
FISCAL PERIOD AMOUNT
3 month period: Q1, 1997 -$1,250,000
6 month period: Q1, 1997 through
Q2, 1997 -$1,350,000
9 month period: Q1, 1997 through
Q3, 1997 -$1,250,000
12 month period: Q1, 1997 through
Q4, 1997 -$1,000,000
2. WAIVER. The Bank hereby waives the provisions of Section 11.1 -
11.3 of the Credit Agreement solely to the extent necessary to permit non-
compliance with such Section 11.1 - 11.3, and only for the fiscal quarter
ended June 29, 1996.
3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective as
of June 29, 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
$10,000.
4. 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.
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(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.
5. 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.
6. 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 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.
7. 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.
8. 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 convenience of reference only
and shall not define or limit the provisions hereof.
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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/ MATTHEW A. ROSS
Names: Matthew A. Ross
Title: Vice President
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EXHIBIT 99.
FOR IMMEDIATE RELEASE:
CONTACT: HANK SHAFRAN
CONE COMMUNICATIONS
617-951-8193
CONTACT: JAMES F. FAGAN
ARROW AUTOMOTIVE INDUSTRIES, INC.
508-872-3711
ARROW AUTOMOTIVE INDUSTRIES TO STREAMLINE
PRODUCTION WITH CLOSING OF SANTA MARIA, CA PLANT
EXPANDED MANUFACTURING IN ARKANSAS FACILITY DESIGNED TO
IMPROVE OPERATING EFFICIENCIES AND CUSTOMER SERVICE
AGGRESSIVE RELOCATION PLAN TARGETS CALIFORNIA WORKFORCE
MORRILTON, AR (SEPTEMBER 26, 1996)- ARROW AUTOMOTIVE INDUSTRIES (ASE: AI), A
LEADER IN THE AUTOMOTIVE AFTERMARKET SINCE 1929, TODAY ANNOUNCED THAT IT WILL
BE CLOSING ITS SANTA MARIA, CA PRODUCTION FACILITY. PRODUCT LINES SERVICED AT
THE CALIFORNIA FACILITY WILL NOW BE MANUFACTURED AT ARROW'S PRODUCTION
FACILITY IN MORRILTON, ARKANSAS. ARROW WILL CONTINUE TO OPERATE A FULLY
STAFFED, FULL-INVENTORY DISTRIBUTION CENTER IN SANTA MARIA, CALIFORNIA FOR
CUSTOMERS IN SEVEN WEST COAST STATES, ALASKA AND HAWAII. THE COMPANY IS
OFFERING A RELOCATION PACKAGE TO MANY SANTA MARIA EMPLOYEES AND HOPES THEY
WILL CHOOSE TO RELOCATE TO ARKANSAS.
"CONSOLIDATING OPERATIONS AT OUR ARKANSAS FACILITY REPRESENTS A CONTINUATION
OF OUR EFFORTS TO IMPROVE OPERATING EFFICIENCIES AND CUSTOMER SERVICE," STATED
JIM OSMENT, ARROW PRESIDENT AND CEO. "WE WILL CONTINUE TO PRODUCE THE SAME
HIGH QUALITY PRODUCTS OUR CUSTOMERS HAVE COME TO DEPEND ON IN A MORE
STREAMLINED AND COST-EFFECTIVE MANNER".
EXHIBIT 99. (CONTINUED)
SIMILAR CONSOLIDATION EFFORTS HAVE BEEN INSTITUTED THIS YEAR BY ARROW, WITH
THE ESTABLISHMENT OF CENTRALIZED CUSTOMER SERVICE, PURCHASING AND BILLING
OPERATIONS AT THE ARKANSAS OFFICES. THE COMPANY'S SALES FORCE WILL REMAIN THE
SAME FOR CUSTOMERS IN THE WEST COAST REGION.
TO RESPOND TO EMPLOYEE NEEDS, ARROW IS WORKING TO CREATE AN ATTRACTIVE
RELOCATION PACKAGE WHICH WILL BE OFFERED TO MANY SANTA MARIA EMPLOYEES. AS AN
EMPLOYER IN SANTA MARIA, CA SINCE 1981, ARROW WILL ALSO BE WORKING WITH
SEVERAL JOB TRAINING AND RE-EMPLOYMENT GROUPS IN SANTA MARIA TO PROVIDE
APPROPRIATE SERVICES TO EMPLOYEES WHO DO NOT RELOCATE.
ARROW AUTOMOTIVE INDUSTRIES, WITH MANUFACTURING AND DISTRIBUTION CENTERS
LOCATED IN THE U.S. AND CANADA, IS ONE OF THE LARGEST INDEPENDENT
REMANUFACTURERS OF REPLACEMENT PARTS FOR DOMESTIC AND IMPORTED VEHICLES. NOW
IN ITS 67TH YEAR, ARROW AUTOMOTIVE INDUSTRIES REMAINS A LEADER IN THE
AUTOMOTIVE AFTERMARKET, WITH CURRENT SALES IN EXCESS OF $100 MILLION ANNUALLY.
<TABLE> <S> <C>
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> JUN-29-1996
<CASH> 851
<SECURITIES> 0
<RECEIVABLES> 16,992
<ALLOWANCES> 524
<INVENTORY> 37,313
<CURRENT-ASSETS> 57,769
<PP&E> 35,727
<DEPRECIATION> 22,912
<TOTAL-ASSETS> 73,112
<CURRENT-LIABILITIES> 19,670
<BONDS> 17,969
0
0
<COMMON> 297
<OTHER-SE> 30,999
<TOTAL-LIABILITY-AND-EQUITY> 73,112
<SALES> 103,603
<TOTAL-REVENUES> 103,603
<CGS> 82,162
<TOTAL-COSTS> 82,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,113
<INCOME-PRETAX> (2,269)
<INCOME-TAX> (825)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,444)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
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