FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the first thirteen week accounting Commission File
period ended February 26, 1995 Number 1-9440
HARROW INDUSTRIES. INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1499045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2627 East Beltline S.E., Grand Rapids, Michigan 49546
(Address of principal executive offices) (Zip Code)
(616) 942-1440
(Registrant's telephone number
including area code)
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 twelve (12) months and; (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No
The Company has 1,100,000 shares of common stock, par value $.01 a share, issued
and outstanding as of April 5, 1995.
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<CAPTION> PART I -FINANCIAL INFORMATION
Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
February 26, November 27,
1995 1994
(Unaudited) (Audited)
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 293 $ 919
Accounts receivable, less allowances
(1995--$610; 1994--$614) 17,963 17,484
Inventories:
Finished products 2,798 3,585
Work-in-process 5,537 4,139
Raw materials 2,496 3,737
10,831 11,461
Other current assets 2,387 1,366
Total current assets 31,474 31,230
Property, plant and equipment:
Cost 36,804 41,196
Less accumulated depreciation 19,904 22,422
16,900 18,774
Other assets:
Intangible assets, less accumulated
amortization (1995--$5,222; 1994--$4,985) 14,438 4,942
Prepaid pension costs 6,396 5,623
Other 590 809
21,424 11,374
$ 69,798 $ 61,378
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<CAPTION> Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets--Continued
February 26, November 27,
1995 1994
(Unaudited) (Audited)
(Thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $15,130 $14,771
Long-term debt 50,927 45,005
Other noncurrent liabilities 6,208 5,332
Stockholders' equity (deficit):
Junior preferred stock,
par value $.01 a share--470,000 shares
authorized, 399,964 shares issued
and outstanding 4 4
Common stock, par value $.01 a share--
1,100,00 shares authorized,
issued and outstanding 11 11
Additional paid-in capital 4,006 4,006
Retained earnings 7,620 6,485
Accumulated translation adjustments (deduct) (128)
Deficit arising from restructuring
transactions (deduct) (14,108) (14,108)
(2,467) (3,730)
$69,798 $61,378
See accompanying notes to consolidated condensed financial statements.
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<CAPTION> Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations (Unaudited)
Thirteen weeks ended
February 26, February 27,
1995 1994
(Thousands of dollars,
except per share data)
<S> <C> <C>
Net sales $32,370 $31,439
Cost of products sold 21,318 21,467
Gross margin 11,052 9,972
Selling, administrative and
general expenses 8,863 9,190
Operating income 2,189 782
Other expense (income):
Interest expense 1,685 1,601
Interest income (16) (10)
Gain on sale of businesses (801)
Other (3) (39)
865 1,552
Earnings (loss) before income taxes 1,324 (770)
Income taxes (credit) 188 (439)
Net earnings (loss) $ 1,136 $ (331)
Net earnings (loss) per share $ .99 $ (.35)
See accompanying notes to consolidated condensed financial statements.
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<CAPTION> Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
Thirteen weeks ended
February 26, February 27,
1995 1994
(Thousands of dollars)
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OPERATING ACTIVITIES
Net earnings (loss) $1,136 $ (331)
Adjustments necessary to reconcile
net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 935 910
Gain on sale of business (801)
Other (368) (64)
Changes in operating assets and liabilities:
Accounts receivable (2,484) (1,154)
Inventories (1,442) (1,425)
Other current assets (666) (842)
Accounts payable and accrued expenses 1,586 358
Net cash used in operating activities (2,104) (2,548)
INVESTING ACTIVITIES
Additions to property, plant and equipment (645) (563)
Purchase of business (9,555)
Proceeds from sale of business 5,998
Other (275) (29)
Net cash used in investing activities (4,477) (592)
FINANCING ACTIVITIES
Proceeds from revolving credit borrowings 12,442 3,005
Payments on revolving credit debt (6,487) (1,777)
Net cash provided by financing activities 5,955 1,228
Decrease in cash and cash equivalents (626) (1,912)
Cash and cash equivalents at beginning of year 919 2,303
Cash and cash equivalents at end of period $293 $391
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated condensed financial statements.
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Notes to Consolidated Condensed Financial Statements
Harrow Industries, Inc. and Subsidiaries
February 26, 1995
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included in the consolidated condensed
financial statements. For further information, refer to the consolidated
financial statements and footnotes included in the Annual Report on Form 10-K
filed by the Company with the Securities and Exchange Commission.
Note B - Net Earnings (Loss) Per Share
A summary of the computation of net earnings (loss) per share is as follows:
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Thirteen Weeks Ended
February 26, February 27,
1995 1994
(Thousands of dollars,
except per share data
and shares outstanding)
<S> <C> <C>
Weighted average shares outstanding 1,100,000 1,086,685
Net earnings (loss) $1,136 $ (331)
Dividend requirements of junior
preferred stock (50) (50)
Net earnings (loss) applicable to common stock $1,086 $ (381)
Net earnings (loss) per share $ .99 $ (.35)
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's cash requirements relate primarily to the seasonal financing
of working capital, the purchase of property, plant and equipment, business
acquisition opportunities, the servicing of outstanding debt and cash
dividends. Cash provided by operating activities continues to be the major
source of the Company's funds and is expected to satisfy a substantial
portion of future cash needs. These funds have been augmented by long-term
borrowings under a revolving credit agreement.
Cash used in operating activities totaled $2.1 million in the 1995 period
as compared to $2.5 million in the 1994 period. The use of cash by
operations during the first quarter of both fiscal 1995 and 1994 follows
the normal seasonal pattern of business activity with net sales and operating
earnings generally at levels below other quarters. The 1995 improvement in
cash flow was a result of higher earnings. The increase in accounts
receivables in both periods is due primarily to seasonal sales of pruning and
harvesting tools. The larger increase in accounts receivable in the 1995
period was offset by a similar increase in accounts payable and accrued
expenses. The increase in inventories in both periods is in anticipation of
higher sales levels in subsequent quarters and, to a lesser extent, the need
in fiscal 1995 to compensate for longer vendor lead times on certain purchased
components. Working capital at February 26, 1995 was $16.3 million compared
to $16.5 million at November 27, 1994. The Company's current ratio of 2.1 to
1 at February 26, 1995 remains unchanged from the current ratio at
November 27, 1994.
Capital expenditures were $645,000 in the 1995 period and $563,000 in the
1994 period. Capital additions for 1995 are expected to approximate $4.5
million and will be primarily for profit improvement, replacement and
capacity expansion.
On January 4, 1995, the Company acquired all of the common stock of
Recognition Systems, Inc. (RSI) for a cash purchase price (net of cash
acquired) of $9.6 million. The acquisition was financed principally through
borrowings under the Company's revolving credit facility. Goodwill
recognized in connection with the purchase approximated $7.8 million.
On February 6, 1995, the Company completed the sale of substantially all
of the net assets of its Leigh Products Division and all of the issued and
outstanding capital stock of its wholly-owned Canadian subsidiary, Leigh
Metal Products, Ltd. The cash generated from the sale approximated $6.0
million after deducting transaction expenses and the amount used in fiscal
1995 operations for the period prior to sale.
The Senior Subordinated Debentures require annual sinking fund payments;
however, as a result of the repurchase of debentures in 1990 and 1991, no
principal maturities are due until 1999. Under the terms of the revolving
credit agreement, the Company can borrow up to $20 million. As of
February 26, 1995, the available unused credit approximated $10 million
under the asset-based limitation formula of the agreement.
Results of Operations - Thirteen weeks ended February 26, 1995 compared to
thirteen weeks ended February 27, 1994.
On January 4, 1995, pursuant to a definitive purchase agreement entered
into on November 30, 1994, the Company acquired all of the common stock of
Recognition Systems, Inc. ("RSI") for cash. RSI manufactures and markets
biometric identification devices and had net sales of $3,300,000 in 1994.
Operating results of RSI are included in consolidated results beginning
December 1, 1994.
On February 6, 1995, the Company completed the sale of substantially all
of the net assets of its Leigh Products Division and all of the capital stock
of its Canadian subsidiary, Leigh Metal Products Ltd. The sale, which was
initiated in November 1994, resulted in a pretax gain of $801,000 which
includes 1995 operating results of the Leigh businesses for the period prior
to the date of the sale. Amounts related to the Leigh operations are otherwise
excluded from reported amounts for the 1995 period.
Consolidated net sales increased from $31.4 million in the 1994 period to
$32.4 million in the 1995 period. Sales of continuing rations (excluding the
Leigh business from 1994 amounts) increased by $5.2 million (20.1%) from
$26.1 million in the 1994 period to $31.3 million in the 1995 period. All
product lines experienced increases, however, sales for the 1995 quarter were
particularly strong in consumer pruning and harvesting tools, commercial
security products and systems, custom cabinetry and water source heat pumps.
RSI added net sales of $1.1 million in the 1995 period.
Gross margin increased $1.1 million (10.8%) from $10.0 million in the
1994 period to $11.1 million in the 1995 period. As a percentage of net sales,
gross margin increased from 31.7% in the 1994 period to 34.1% in the 1995
period. The elimination of the lower margins of the Leigh businesses
combined with the acquisition of RSI contributed significantly to the
improvement in gross margin percentages. Higher sales volume of other
product lines, particularly custom cabinetry and consumer pruning tools, also
contributed to the gross margin improvement. Offsetting these factors were
aluminum and copper cost increases which adversely effected builder and
consumer hardware gross margins.
Selling, administrative and general expenses decreased $300,000 (3.6%)
from $9.2 million in the 1994 period to $8.9 million in the 1995 period. As
a percentage of net sales, selling, administrative and general expenses
decreased from 29.2% in the 1994 period to 27.3% in the 1995 period.
Selling, general and administrative expenses for the 1995 period reflect a
decrease due to the sale of Leigh businesses of $1.5 million partially offset by
volume-related increases for all other operations. Selling, general and
administrative expenses decreased as a percentage of sales for all continuing
business.
Interest expense increased slightly from $1.6 million in the 1994 period
to $1.7 million in the 1995 period. The higher interest expense is due to
borrowings under the revolving credit agreement required to finance the
acquisition of Recognition Systems, Inc.
The 1995 provision for income taxes is less than the amount expected using
the statutory federal income rate of 34% due to the tax effect of the gain on
the sale of the Leigh businesses. The 1994 provision for income taxes was
based on an estimated annual effective rate of approximately 57% which was
revised downward in subsequent quarters to an annual rate which approximated
the statutory rate.
Net earnings of $1.1 million ($.99 per share) in the 1995 period compared
to a net loss of $331,000 ($.35 per share) in the 1994 period.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
During the first quarter, registrant filed the following Form 8-Ks:
Date of Report Items Covered List of Financials
January 4, 1995 2 and 7 None filed
March 17, 1995 7 Financial statements of
(Form 8-K/A) business acquired.
Pro forma financial
information
February 6, 1995 2 and 7 None filed
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARROW INDUSTRIES, INC.
Date: April 12, 1995 By:
John S. Hogan
Vice President and
Chief Financial Officer
Date: April 12, 1995 By:
Gary L. Humphreys
Vice President,
Corporate Controller and
Chief Accounting Officer
