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 second thirteen week accounting Commission File
period ended May 28, 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 officers) (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 July 5, 1995.
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PART I - FINANCIAL INFORMATION
Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
May 28, November 27,
1995 1994
(Unaudited) (Audited)
(Thousands of dollars)
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ASSETS
Current assets:
Cash and cash equivalents $ 369 $ 919
Accounts receivable, less allowances
(1995--$618; 1994--$614) 15,611 17,484
Inventories:
Finished products 3,482 3,585
Work-in-process 6,061 4,139
Raw materials 2,031 3,737
11,574 11,461
Other current assets 2,101 1,366
Total current assets 29,655 31,230
Property, plant and equipment:
Cost 37,551 41,196
Less accumulated depreciation 20,577 22,422
16,974 18,774
Other assets:
Intangible assets, less accumulated
amortization (1995--$5,459; 1994--$4,985) 14,201 4,942
Prepaid pension costs 6,564 5,623
Other 909 809
21,674 11,374
$68,303 $61,378
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Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets--Continued
May 28, November 27,
1995 1994
(Unaudited) (Audited)
(Thousands of dollars)
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $13,964 $14,771
Long-term debt 50,039 45,005
Other noncurrent liabilities 6,207 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 $0.01 a share--
1,100,000 shares authorized,
issued and outstanding 11 11
Additional paid-in capital 4,006 4,006
Retained earnings 8,180 6,485
Accumulated translation adjustments (deduct) (128)
Deficit arising from restructuring
transactions (deduct) (14,108) (14,108)
(1,907) (3,730)
$68,303 $61,378
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See accompanying notes to consolidated condensed financial statements.
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Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations (Unaudited)
Thirteen weeks ended Twenty-six weeks ended
May 28, May 29, May 28, May 29,
1995 1994 1995 1994
(Thousands of dollars, except per share data)
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Net sales $33,517 $36,042 $65,887 $67,481
Cost of products sold 21,301 24,000 42,619 45,467
Gross margin 12,216 12,042 23,268 22,014
Selling, administrative and
general expenses 9,236 9,669 18,099 18,859
Operating income 2,980 2,373 5,169 3,155
Other expense (income):
Interest expense 1,691 1,599 3,376 3,200
Gain on sale of businesses (801)
Other 5 64 (14) 15
1,696 1,663 2,561 3,215
Earnings (loss) before
income taxes 1,284 710 2,608 (60)
Income taxes (credit) 524 407 712 (32)
Net earnings (loss) 760 303 1,896 (28)
Net earnings (loss) per share $.64 $.23 $1.63 $(.12)
See accompanying notes to consolidated condensed financial statements.
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Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
Twenty-six weeks ended
May 28, May 29,
1995 1994
(Thousands of dollars)
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OPERATING ACTIVITIES
Net earnings (loss) $1,896 $ (28)
Adjustments necessary to reconcile
net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,888 1,835
Gain on sale of businesses (801)
Other (534) (82)
Changes in operating assets and liabilities:
Accounts receivable (132) 48
Inventories (2,185) (1,349)
Other current assets (380) (199)
Accounts payable and accrued expenses 420 457
Net cash provided by operating activities 172 682
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,762) (1,386)
Purchase of business (9,555)
Proceeds from sale of businesses 5,998
Other (269) 1
Net cash used in investing activities (5,588) (1,385)
FINANCING ACTIVITIES
Proceeds from revolving credit borrowings 12,442 3,402
Payments on revolving credit debt (7,376) (3,402)
Cash dividends paid on preferred stock (200) (200)
Net cash provided (used in) by financing activities 4,866 (200)
Decrease in cash and cash equivalents (550) (903)
Cash and cash equivalents at beginning of year 919 2,303
Cash and cash equivalents at end of period $369 $1,400
( ) 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
May 28, 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 - Purchase of Business
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 a cash purchase price (net of cash
acquired) of $9,555,000. RSI manufactures and markets biometric
identification devices and had net sales of $3,300,000 in 1994. Operating
results of RSI are included in the Company's consolidated results beginning
December 1, 1994. Goodwill recognized in connection with the purchase
approximated $7,800,000.
Note C - Sale of Business
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 pre-tax gain of $800,000 which
includes 1995 operating results of the Leigh businesses for the period from
November 28, 1994 to February 6, 1995. Amounts related to the Leigh
operations are otherwise excluded from reported amounts for the 1995 period.
The cash generated from the sale totalled $5,998,000, after deducting
transaction expenses and the amount of cash used in fiscal 1995 operations
for the period prior to sale.
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Notes to Consolidated Condensed Financial Statements - continued
Harrow Industries, Inc. and Subsidiaries
May 28, 1995
Note D - Net Earnings (Loss) Per Share
A summary of the computation of net earnings (loss) per share is as follows:
Thirteen weeks ended Twenty-six weeks ended
May 28, May 29, May 28, May 29,
1995 1994 1995 1994
(Thousands of dollards, except per share data
and weighted average shares outstanding)
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Shares outstanding 1,100,000 1,100,000 1,100,000 1,093,343
Net earnings (loss) $760 $303 $1,896 $ (28)
Dividend requirements of
junior preferred stock (50) (50) (100) (100)
Net earnings (loss)
applicable to common stock $ 710 $253 $1,796 $(128)
Net earnings (loss) per share $.64 $.23 $1.63 $(.12)
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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 provided by operating activities totaled $172,000 in the 1995
period as compared to $682,000 in the 1994 period. Operating assets increased
during the first half of 1995 by approximately $2.7 million compared to
$1.5 million during the similar 1994 period. The increase in operating
assets follows a normal seasonal pattern resulting from inventory build-ups
in anticipation of higher second half sales. The 1995 increase also reflects
longer lead times in certain purchased components and temporary seasonal
increases in certain inventories. This additional increase in cash used for
operating assets in fiscal 1995 was partially offset primarily by increases
in net earnings. Working capital at May 28, 1995 was $15.7 million compared
to $16.5 million at November 27, 1994. The Company's current ratio of 2.1
to 1 at May 28, 1995 remains unchanged from the current ratio at November 27,
1994.
Capital expenditures were $1.8 million in the 1995 period and $1.4 million
in the 1994 period. Capital additions for all of 1995 are expected to
approximate $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 May 28,
1995, the available unused credit approximated $8 million under the
asset-based formula of the agreement.
Results of Operations - Thirteen weeks ended May 28, 1995 compared to thirteen
weeks ended May 29, 1994
The comparability of operating results is affected by the acquisition of
Recognition Systems, Inc. (RSI) (see Note B to the consolidated condensed
financial statements) and the sale of Leigh businesses (see Note C).
Operating results of the Leigh businesses are included in consolidated
results for 1994 and excluded from 1995 consolidated results. Operating
results of RSI are included in consolidated results effective as of
December 1, 1994.
Consolidated net sales decreased from $36 million in the 1994 period to
$33.5 million in the 1995 period. Sales of continuing operations (excluding
the Leigh businesses from 1994 amounts) increased by $2.5 million from
$29.8 million in the 1994 period to $32.3 million in the 1995 period. All
product lines experienced increases. Sales for the 1995 quarter were
strongest in commercial security products and systems, custom cabinetry
and water source heat pumps. RSI added net sales of $1.2 million in the 1995
period.
Gross margin increased from $12.0 million in the 1994 period to $12.2
million in the 1995 period. As a percentage of net sales, gross margin
increased from 33.4% in the 1994 period to 36.4% in the 1995 period. The
elimination of the lower margin 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 improved labor efficiency also contributed to the gross
margin improvement. Offsetting these factors were aluminum, brass and copper
cost increases which effected builder and consumer hardware gross margins.
Selling, administrative and general expenses decreased $400,000 (4.5%)
from $9.6 million in the 1994 period to $9.2 million in the 1995 period.
As a percentage of net sales, selling, administrative and general expenses
increased from 26.8% in the 1994 period to 27.5% in the 1995 period.
Selling, administrative and general 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.
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 RSI.
The 1995 provision for income taxes exceeds the amount expected using the
statutory federal income rate of 34% due to primarily to state taxes and the
tax effect of nondeductible goodwill amortization. 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 were $760,000 ($.64 per share) in the 1995 period compared to
$303,000 ($.23 per share) in the 1994 period.
Results of Operations - Twenty-six weeks ended May 28, 1995 compared to
twenty-six weeks ended May 29, 1994
The comparability of operating results if affected by the acquisition of
Recognition Systems, Inc. (RSI) (see Note B to the consolidated condensed
financial statements) and the sale of Leigh businesses (see Note C).
Operating results of the Leigh businesses are included in consolidated
results for 1994 and, except for the gain on the sale of $800,000, are
excluded from 1995 consolidated results. Operating results of RSI are
included in consolidated results effective as of December 1, 1994.
Consolidated net sales decreased from $67.5 million in the 1994 period
to $65.9 million in the 1995 period. Sales of continuing operations (excluding
the Leigh businesses from 1994 amounts) increased by $7.7 million from $55.9
million in the 1994 period to $63.6 million in the 1995 period. All product
lines experienced increases. Sales for the 1995 first half 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 $2.3 million in the 1995 period.
Gross margin increased $1.3 million (5.7%) from $22.0 million in the
1994 period to $23.3 million in the 1995 period. As a percentage of net
sales, gross margin increased from 32.6% in the 1994 period to 35.3% in the
1995 period. The elimination of the lower margin 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, and improved labor
efficiency, also contributed to the gross margin improvement. Offsetting
these factors were aluminum, brass and copper cost increases which effected
builder and consumer hardware gross margins.
Selling, administrative and general expenses decreased $800,000 (4.0%)
from $18.9 million in the 1994 period to $18.1 million in the 1995 period.
As a percentage of net sales, selling, administrative and general expenses
decreased from 27.9% in the 1994 period to 27.5% in the 1995 period.
Selling, administrative and general expenses for the 1995 period reflect a
decrease of $3.0 million due to the sale of the Leigh businesses partially
offset by volume-related increases for all other operations.
Interest expense increased from $3.2 million in the 1994 period to $3.4
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 in 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, which more than offsets the effect
of state income taxes and nondeductible items (principally goodwill
amortization). The 1994 provision for income taxes was based on an estimated
annual effective rate of approximately 53% which was revised downward
in subsequent quarters to an annual rate which approximated the statutory
rate.
Net earnings were $1.9 million ($1.63 per share) in the 1995 period
compared to a net loss of $28,000 ($(.12) per share) in the 1994 period.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The registrant filed a Form 8-K/A on April 12, 1995 to provide pro forma
financial information reflecting the effect of the February 6, 1995 sale of
the Leigh Products Division and Leigh Metal Products, Ltd. Pursuant to
Item 601(c) of Regulation SK, a financial data schedule is being submitted
as an exhibit to this Form 10Q.
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 : July 5, 1995 By: /s/ John S. Hogan
John S. Hogan
Vice President and
Chief Financial Officer
Date: July 5, 1995 By: /s/ Gary L. Humpreys
Gary L. Humphreys
Vice President,
Corporate Controller and
Chief Accounting Officer
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S>
<PERIOD-TYPE> 6-MOS
<PERIOD-START> NOV-28-1994
<FISCAL-YEAR-END> DEC-03-1995
<PERIOD-END> MAY-28-1995
<CASH> 369
<SECURITIES> 0
<RECEIVABLES> 16,229
<ALLOWANCES> 618
<INVENTORY> 11,574
<CURRENT-ASSETS> 29,655
<PP&E> 37,551
<DEPRECIATION> 20,577
<TOTAL-ASSETS> 68,303
<CURRENT-LIABILITIES> 13,964
<BONDS> 50,039
<COMMON> 11
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4
<OTHER-SE> (1,922)
<TOTAL-LIABILITY-AND-EQUITY> 68,303
<SALES> 65,887
<TOTAL-REVENUES> 65,887
<CGS> 42,619
<TOTAL-COSTS> 9,229
<OTHER-EXPENSES> 8,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,376
<INCOME-PRETAX> 2,608
<INCOME-TAX> 712
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<CHANGES> 0
<NET-INCOME> 1,896
<EPS-PRIMARY> 1.63
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