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 third thirteen week accounting Commission File
period ended August 27, 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 October 5, 1995.
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PART I - FINANCIAL INFORMATION
Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
August 27, November 27,
1995 1994
(Unaudited) (Audited)
(Thousand of dollars)
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ASSETS
Current assets:
Cash and cash equivalents $ 103 $ 919
Accounts receivable, less allowance
(1995--$597; 1994--$614) 15,913 17,484
Inventories:
Finished products 2,960 3,585
Work-in-process 6,003 4,139
Raw materials 2,374 3,737
11,337 11,461
Other current assets 2,125 1,366
Total current assets 29,478 31,230
Property, plant and equipment:
Cost 38,177 41,196
Less accumulated depreciation 21,195 22,422
16,982 18,774
Other assets:
Intangible assets, less accumulated
amortization (1995--$5,695;
1994--$4,985) 13,965 4,942
Prepaid pension costs 6,719 5,623
Other 901 809
21,585 11,374
$68,045 $61,378
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Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets - Continued
August 27, November 27,
1995 1994
(Unaudited) (Audited)
(Thousand of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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Current liabilities:
Accounts payable and accrued expenses $15,533 $14,771
Long-term debt 47,540 45,005
Other noncurrent liabilities 6,206 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--
1,100,000 shares authorized,
issued and outstanding 11 11
Additional paid-in capital 4,006 4,006
Retained earnings 8,853 6,485
Accumulated translation adjustments
(deduct) (128)
Deficit arising from restructuring
transactions (deduct) (14,108) (14,108)
(1,234) (3,730)
$68,045 $61,378
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 Thirty-Nine Weeks Ended
August 27, August 28, August 27, August 28,
1995 1994 1995 1994
(Thousands of Dollars, Except Per Share Data)
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Net sales $31,641 $35,824 $97,528 $103,305
Cost of products sold 19,601 23,709 62,220 69,176
Gross margin 12,040 12,115 35,308 34,129
Selling, administrative and
general expenses 9,232 9,588 27,331 28,447
Operating income 2,808 2,527 7,977 5,682
Other expenses (income):
Interest expense 1,651 1,556 5,027 4,756
Gain on sale of businesses 301 (500)
Other 17 (65) 3 (50)
1,969 1,491 4,530 4,706
Earnings before income taxes 839 1,036 3,447 976
Income taxes 166 552 879 520
Net earnings $ 673 $ 484 $ 2,568 $ 456
Net earnings per share $.57 $.39 $2.20 $.28
See accompanying notes to consolidated condensed financial statements.
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Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
Thirty-nine weeks ended
August 27, August 28,
1995 1994
(Thousands of dollars)
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OPERATING ACTIVITIES
Net earnings $ 2,568 $ 456
Adjustments necessary to reconcile
net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,812 2,670
Gain on sale of businesses (500)
Other (650) (166)
Changes in operating assets and
liabilities:
Accounts receivable (434) (1,187)
Inventories (1,948) (2,551)
Other current assets (404) 127
Accounts payable and accrued expenses 1,989 2,735
Net case provided by operating activities 3,433 2,124
INVESTING ACTIVITIES
Additions to property, plant and equipment (2,447) (3,287)
Purchase of business (9,555)
Proceeds from sale of business 5,650
Other (262) (184)
Net cash used in investing activities (6,614) (3,471)
FINANCING ACTIVITIES
Process from revolving credit borrowings 12,442 3,402
Payments on revolving credit debt (9,877) (3,402)
Cash dividends paid on preferred stock (200) (200)
Issuance of common stock 13
Net cash provided by (used in) financing
activities 2,265 (187)
Decrease in cash and equivalents (816) (1,534)
Cash and cash equivalents at beginning of year 919 2,303
Cash and cash equivalents at end of period $ 103 $ 769
( ) 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
August 27, 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, 1994, 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
approximately $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 $500,000, 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 totaled $5,650,000, 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
August 27, 1995
Note D - Net Earnings Per Share
A summary of the computation of net earnings per share is as follows:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
August 27, August 28, August 27, August 28,
1995 1994 1995 1994
(Thousands of Dollars, Except Per Share Data)
and Weighted Average Shares Outstanding)
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Shares outstanding 1,100,000 1,100,000 1,100,000 1,100,000
Net earnings $ 673 $ 484 $2,569 $ 465
Dividend requirements of
junior preferred stock (50) (50) (150) (150)
Net earnings applicable
to common stock $ 623 $ 434 $2,419 $ 306
Net earnings per share $.57 $.39 $2.20 $.28
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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 $3.4 million during
the thirty-nine weeks ended August 27, 1995, as compared to $2.1 million in
the 1994 period. The 1995 improvement in cash flow was primarily a result of
higher net earnings. Increases in accounts receivable and inventories during
both 1994 and 1995, partially offset by related increases in accounts payable
and accrued expenses, reflect a general acceleration in business activity
during both years. Working capital at August 27, 1995, was $13.9 million
compared to $16.5 million at November 27, 1994. The decrease is primarily
the result of the disposition of the Leigh businesses. The Company's current
ratio of 1.9 to 1 at August 27, 1995, declined slightly form the current
ratio of 2.1 to 1 at November 27, 1994.
Capital expenditures were $2.4 million during the thirty-nine
weeks ended August 27, 1995, and $3.3 million in the 1994 period. Capital
additions for all of 1995 are expected to be less than the initial forecast
of $5 million. Expenditures 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 the issued and
outstanding capital stock of its wholly-owned Canadian subsidiary, Leigh Metal
Products, Ltd. The cash generated from the sale approximated $5.7 million
after deducting transaction expenses and the amount used in fiscal 1995
operations for the period prior to sale.
The Senior Subordinated Debentures required annual sinking fund
payments; however, as a result of the repurchase of debentures in 1990 and
1991, no principal maturities are due until 1999. The outstanding balance
under the terms of a revolving credit agreement, which provides for maximum
borrowings of $20 million, was $2.6 million at August 27, 1995. As of that
date the available unused credit approximated $11.3 million under the
asset-based formula of the agreement.
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Results of Operations - Thirteen weeks ended August 27, 1995, compared to
thirteen weeks ended August 28, 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, except for the gain on the sale, excluded in consolidated results
effective as of December 1, 1994.
Consolidated net sales decreased from $35.8 million in the 1994
period to $31.6 million in the 1995 period. Sales of continuing operations
(excluding the Leigh businesses from 1994 amounts) increased by $1.2 million
(4.1%) from $29.2 million in the 1994 period to $30.4 million in the 1995
period. Year to year sales increases moderated during the third quarter for
all product lines; however, sales of commercial security products and
systems, and pruning and harvesting tools remained strong during the current
quarter. RSI added net sales of $1.2 million in the 1995 period.
Gross margin declined slightly from $12.1 million in the 1994 period
to $12.0 million in the 1995 period. As a percentage of net sales, gross
margin increased from 33.8% in the 1994 period to 38.1% 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, a favorable
workers compensation insurance experience adjustment, and improved
manufacturing efficiencies, particularly for custom cabinetry and pruning
and harvesting tools, 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
(4.7%) 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 26.7% in the 1994 period to 29.2% in the 1995 period.
Selling, administrative and general expenses for the 1995 period reflect a
decrease due to the sale of Leigh businesses of $1.6 million partially offset
by the addition of RSI expenses and 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 gain on the sale of the Leigh businesses, previously recognized
in the first quarter of 1995, was adjusted downward by $300,000 in the current
quarter to reflect adverse experience adjustments for medical and workers
compensation self-insurance costs related to employees terminated in
connection with the sale.
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The 1995 provision for income taxes is less than the amount expected
using the statutory federal income rate of 34% due to an adjustment to reduce
prior years' estimated liabilities as a result of the expiration of statute
of limitation for fiscal 1991. This reduction more than offsets the provision
for state taxes and the tax effect of 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 the forth quarter to an annual rate which approximated the
statutory rate.
Net earnings were $673,000 ($.57 per share) in the 1995 period
compared to $484,000 ($.39 per share) in the 1994 period.
Results of Operations - Thirty-nine weeks ended August 27, 1995, compared to
thirty-nine weeks ended August 28, 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, except for the gain on the sale of $500,000, 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 $103.3 million in the 1994
period to $97.5 million in the 1995 period. Sales of continuing operations
(excluding the Leigh businesses from 1994 amounts) increased by $8.8 million
(10.3%) from $85.2 million in the 1994 period to $94.0 million in the 1995
period. All product lines experienced increases; however, sales for the 1995
period were strongest in consumer pruning and harvesting tools, and commercial
security products and systems. RSI added net sales of $3.5 million in the
1995 period.
Gross margin increased $1.2 million (3.5%) from $34.1 million in
the 1994 period to $35.3 million in the 1995 period. As a percentage of net
sales, gross margin increased from 33.0% in the 1994 period to 36.2% 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, a
favorable workers' compensation insurance experience adjustment, and improved
manufacturing efficiencies, particularly for custom cabinetry and pruning
and harvesting tools, also contributed to the gross margin improvement.
Offsetting these factors were aluminum, brass and copper cost increases
hich effected builder and consumer hardware gross margins.
Selling, administrative and general expenses decreased $1.1 million
(3.9%) from $28.4 million in the 1994 period to $27.3 million in the 1995
period. As a percentage of net sales, selling, administrative and general
expenses increased from 27.5% in the 1994 period to 28.0% in the 1995 period.
Selling, administrative and general expenses for the 1995 period reflect a
decrease of $4.6 million due to the sale of the Leigh businesses partially
offset by the addition of RSI expenses and volume-related increases for all
other operations.
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Interest expense increased from $4.8 million in the 1994 period
to $5.0 million in the 1995 period. The higher interest expenses 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 and an adjustment
to reduce prior years' estimated liabilities as a result of the expiration
of the statute of limitations for fiscal 1991. These reductions more than
offset 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 the fourth quarter to an annual rate which approximated the
statutory rate.
Net earnings were $2.6 million ($2.20 per share) in the 1995 period
compared to $456,000 ($.28 per share) in the 1994 period.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Pursuant to Item 601(c) of Regulation SK, a financial data
schedule is being submitted as an exhibit to this Form 10-Q.
Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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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: October 10, 1995 By:/s/ John S. Hogan
John S. Hogan
Vice President and
Chief Financial Officer
Date: October 10, 1995 By:/s/ Gary L. Humphreys
Gary L. Humphreys
Vice President,
Corporate Controller and
Chief Accounting Officer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<S>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> NOV-28-1994
<FISCAL-YEAR-END> DEC-03-1995
<PERIOD-END> AUG-27-1995
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<RECEIVABLES> 16,510
<ALLOWANCES> 597
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<PP&E> 38,177
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