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 March 3, 1996 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 11, 1996.
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PART I FINANCIAL INFORMATION
Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
March 3, December 3,
1996 1995
(Unaudited) (Audited)
(Thousands of dollars)
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ASSETS
Current assets:
Cash and cash equivalents $ 722 $ 676
Accounts receivable, less allowances
(1996--$870; 1995--$824) 21,198 16,453
Inventories:
Finished products 4,263 3,524
Work-in-process 5,594 3,956
Raw materials 2,765 2,926
12,622 10,406
Other current assets 2,897 2,621
Total current assets 37,439 30,156
Property, plant and equipment:
Cost 39,854 39,230
Accumulated depreciation (22,409) (21,662)
17,445 17,568
Other assets:
Intangible assets, less accumulated
amortization (1996--$6,072; 1995--$5,797) 13,618 13,892
Prepaid pension costs 7,031 6,875
Other 497 498
21,146 21,265
$76,030 $68,989
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March 3, December 3,
1996 1995
(Unaudited) (Audited)
(Thousands of dollars)
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $18,845 $16,878
Long-term debt 50,679 46,365
Other noncurrent liabilities 6,146 6,145
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 10,447 9,688
Deficit arising from restructuring
transactions (deduct) (14,108) (14,108)
360 (399)
$76,030 $68,989
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
March 3, February 26,
1996 1995
(Thousands of dollars,
except per share data)
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Net sales $38,124 $32,370
Cost of products sold 24,853 21,318
Gross margin 13,271 11,052
Selling, administrative and general expenses 10,374 8,863
Operating income 2,897 2,189
Other expense (income):
Interest expense 1,611 1,685
Other (3) (820)
1,608 865
Earnings before income taxes 1,289 1,324
Income taxes 530 188
Net earnings $ 759 $ 1,136
Net earnings per share $ .64 $ .99
See accompanying notes to consolidated condensed financial statements.
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Harrow Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
Thirteen weeks ended
March 3, February 26,
1996 1995
(Thousands of dollars)
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OPERATING ACTIVITIES
Net earnings $ 759 $ 1,136
Adjustments necessary to reconcile
net earnings to net cash
used in operating activities:
Depreciation and amortization 1,038 935
Gain on sale of business (800)
Other (76) (369)
Changes in operating assets and liabilities:
Accounts receivable (4,745) (2,484)
Inventories (2,216) (1,442)
Other current assets (351) (666)
Accounts payable and accrued expenses 1,967 1,586
Net cash used in operating activities (3,624) (2,104)
INVESTING ACTIVITIES
Additions to property, plant and equipment (643) (645)
Purchase of business (9,556)
Proceeds from sale of business 5,998
Other (274)
Net cash used in investing activities (643) (4,477)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 4,313 12,442
Payments of long-term debt (6,487)
Net cash provided by financing activities 4,313 5,955
Increase (decrease) in cash and cash equivalents 46 (626)
Cash and cash equivalents at beginning of year 676 919
Cash and cash equivalents at end of period $ 722 $ 293
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated condensed financial statements.
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Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
March 3, 1996
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 $9,556,000. RSI manufactures and markets biometric identifi-
cation 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 and other intangible assets recognized in
connection with the purchase approximated $9,734,000.
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. Results of operations
of the Leigh businesses for the 1995 period prior to the sale are included
in other income as a part of the gain of $800,000 recognized in the first
quarter of 1995. This gain was revised downward to $270,000 in subsequent
quarters of fiscal 1995.
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Harrow Industries, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (continued)
March 3, 1996
Note D - Net Earnings Per Share
A summary of the computation of net earnings per share is as follows:
Thirteen weeks ended
March 3, February 26,
1996 1995
(Thousands of dollars, except shares
shares outstanding and per share data)
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Weighted average shares outstanding 1,100,000 1,100,000
Net earnings $ 759 $1,136
Dividend requirements of junior
preferred stock (50) (50)
Net earnings applicable to
common stock $ 709 $1,086
Net earnings per share $ .64 $ . 99
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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, purchase of property, plant and equipment,
business acquisition opportunities, servicing 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 $3.6 million in the 1996 period
as compared to $2.1 million in the 1995 period. The use of cash during the
first quarter of both fiscal 1996 and 1995 results from increases in accounts
receivable and inventories and follows the normal seasonal pattern of
business activity. Accounts receivable increases are due primarily to the
seasonal sales of pruning and harvesting tools and other volume increases.
Inventory increases in fiscal 1996 and 1995 reflect both the higher current
level of business activity and, for most operations, anticipated increases in
sales during subsequent quarters. Working capital at March 3, 1996 was $18.6
million compared to $13.3 million at December 3, 1995. The Company's
current ratio of 2.0 to 1 at March 3, 1996 improved from the current ratio of
1.8 to 1 at December 3, 1995.
Capital expenditures were $643,000 in the 1996 period and $645,000 in the
1995 period. Total capital expenditures for 1996 are expected to approximate
$5.0 million and will be primarily for new products, profit improvement and
replacement.
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 March 3,
1996, the balance outstanding under the agreement was $5.7 million and the
available unused credit under the asset-based limitation formula approximated
$12.9 million.
Results of Operations - Thirteen weeks ended March 3, 1996 compared to
thirteen weeks ended February 26, 1995.
Consolidated net sales increased by $5.7 million (17.8%) from $32.4
million in the 1995 period to $38.1 million in the 1996 period. All product
lines experienced increases, however, sales for the 1996 quarter were
particularly strong in pruning and harvesting tools, commercial security
products and systems, and water source heat pumps. Severe winter weather in
the northeast adversely affected the sales of builder and consumer hardware
and custom cabinetry.
Gross margin increased $2.2 million (20.1%) from $11.1 million in the 1995
period to $13.3 million in the 1996 period. As a percentage of net sales,
gross margin improved modestly to 34.8% in the 1996 period compared to 34.1%
in the 1995 period. The improvement is due primarily to a favorable product
mix with higher margin product lines experiencing the largest volume
increases.
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Selling, administrative and general expenses increased by $1.5 million
(17.0%) from $8.9 million in the 1995 period to $10.4 million in the 1996
period. Higher commission, freight and other volume related expenses
comprised a significant portion of the increase. Engineering and product
development costs and an additional provision related to postemployment
benefits for the Company's former president and chief executive and its
former chairman also contributed to the increase. As a percentage of net
sales, selling, administrative and general expenses decreased from 27.4% in
the 1995 period to 27.2% in the 1996 period.
Interest expense decreased slightly from $1.7 million in the 1995 period
to $1.6 million in the 1996 period due to lower borrowings under the
revolving credit agreement.
Other income in the 1995 period included a gain of $800,000 on the sale of
the Company's Leigh business. This gain was revised downward to $270,000 in
subsequent quarters of fiscal 1995.
The 1996 provision for income taxes exceeds the amount expected using the
statutory rate of 34% due primarily to state income taxes and the tax effect
of nondeductible goodwill amortization. The 1995 provision for income taxes
is less than the expected amount due to a tax benefit from the sale of the
Leigh businesses.
Net earnings of $759,000 ($.64 per share) in the 1996 period compares to
net earnings of $1.1 million ($.99 per share) in the 1995 period.
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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.
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 11, 1996 By: /s/ John S. Hogan
John S. Hogan
Vice President and Chief Financial Officer
Date: April 11, 1996 By: /s/ Gary L. Humphreys
Gary L. Humphreys
Vice President, Corporate Controller and
Chief Accounting Officer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-04-1995
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAR-03-1996
<CASH> 676
<SECURITIES> 0
<RECEIVABLES> 22,068
<ALLOWANCES> 870
<INVENTORY> 12,622
<CURRENT-ASSETS> 37,439
<PP&E> 39,854
<DEPRECIATION> 22,409
<TOTAL-ASSETS> 76,030
<CURRENT-LIABILITIES> 18,845
<BONDS> 50,679
0
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<TOTAL-LIABILITY-AND-EQUITY> 76,030
<SALES> 38,124
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<CGS> 24,853
<TOTAL-COSTS> 24,853
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,611
<INCOME-PRETAX> 1,289
<INCOME-TAX> 530
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<NET-INCOME> 759
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
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