SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1994
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 number 0-11427
HART HOLDING COMPANY INCORPORATED
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 23-1467390
_______________________________ ______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1120 Boston Post Road
Darien, Connecticut 06820
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)655-6855
Common stock, par value $.01 per share
_________________________________________________________________
(Title of class)
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
12,895,100 shares of $.01 par value common stock of the Registrant
were outstanding at the close of business on May 17, 1994.
<PAGE>
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of
December 31, 1993 and April 3, 1994 3
Condensed Consolidated Statement of Income
for the quarters ended March 28, 1993
and April 3, 1994 5
Condensed Consolidated Statement of Changes
in Stockholders' Equity for the quarter
ended April 3, 1994 6
Condensed Consolidated Statement of Cash
Flows for the quarters ended March 28,
1993 and April 3, 1994 7
Notes to Condensed Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(in thousands, except share data)
December 31, April 3,
1993 1994
------------ --------
ASSETS
Current assets
Cash and cash equivalents of $7,222
and $380 $ 12,149 $ 4,945
Accounts receivable, less allowance for
doubtful accounts of $1,467 and $1,567 45,925 49,562
Inventories (Note A) 33,969 38,531
Deferred income taxes 5,442 5,442
Other current assets 3,487 4,948
-------- --------
Total current assets 100,972 103,428
-------- --------
Property, plant and equipment, at cost
less accumulated depreciation 51,415 55,397
Unamortized financing costs, less
accumulated amortization of $1,177
and $1,340 3,946 3,783
Goodwill, less accumulated amortization
of $9,695 and $10,049 45,664 45,310
Deferred income taxes 2,153 1,806
Other assets 2,225 2,334
-------- --------
Total assets $206,375 $212,058
======== ========
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(in thousands, except share data)
December 31, April 3,
1993 1994
------------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 22,810 $ 21,212
Accrued expenses and other
liabilities 25,661 23,737
-------- --------
Total current liabilities 48,471 44,949
Long-term debt (Note B) 132,677 138,402
Deferred income taxes 4,254 4,244
Other liabilities 564 522
-------- --------
Total liabilities 185,966 188,117
-------- --------
Stockholders' equity (Note C)
Common stock, $.01 par value, 40,000,000
shares authorized; 15,987,495 shares
issued and 12,895,100 shares outstanding 160 160
Capital in excess of par value 14,783 14,783
Retained earnings 15,341 17,655
Equity adjustments from translation (3,892) (2,674)
Common stock held in treasury, at cost,
3,092,395 shares (5,983) (5,983)
-------- --------
20,409 23,941
-------- --------
Commitments and contingencies
-------- --------
Total liabilities and
stockholders' equity $206,375 $212,058
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(in thousands, except per share data)
Quarter Ended
---------------------
March 28, April 3,
1993 1994
--------- --------
Net sales $63,780 $72,997
Cost of sales 50,269 58,317
------- -------
Gross profit on sales 13,511 14,680
Selling, general and
administrative expenses 7,341 7,130
------- -------
Operating income 6,170 7,550
Other income (expense)
Other income, net 23 30
Interest expense and amortization of
financing costs and debt discounts (4,152) (4,085)
------- -------
(4,129) (4,055)
------- -------
Income before income taxes 2,041 3,495
Income taxes 439 1,181
Minority interest 19
------- -------
Net income $ 1,583 $ 2,314
======= =======
Earnings per common share (Exhibit 11)
Primary and fully diluted
Net income $ .11 $ .18
======= =======
Weighted average number of common
shares outstanding
Primary and fully diluted 14,913 13,103
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(in thousands)
Common Stock
Common Stock Capital Equity Held in
$0.01 Par Value in Excess Adjustments Treasury
--------------- of Retained From ---------------
Shares Amount Par Value Earnings Translation Shares Amount Total
------ ------ --------- -------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993 15,987 $160 $14,783 $15,341 $(3,892) 3,092 $(5,983) $20,409
Net income 2,314 2,314
Translation
adjustments 1,218 1,218
------ ---- ------- ------- ------- ----- ------- -------
Balance at
April 3,
1994 15,987 $160 $14,783 $17,655 $(2,674) 3,092 $(5,983) $23,941
====== ==== ======= ======= ======= ===== ======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(in thousands)
Quarter Ended
--------------------
March 28, April 3,
1993 1994
--------- --------
OPERATING ACTIVITIES
Net income $ 1,583 $ 2,314
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,388 2,515
Change in minority interest (5)
Changes in operating assets and
liabilities (8,038) (12,572)
Translation adjustments (673) 327
------- -------
NET CASH USED BY OPERATING ACTIVITIES (4,745) (7,416)
------- -------
INVESTING ACTIVITIES
Purchases of property, plant,
and equipment (2,051) (5,686)
Other 892
------- -------
NET CASH USED BY INVESTING ACTIVITIES (1,159) (5,686)
------- -------
FINANCING ACTIVITIES
Net borrowings on revolving loan 7,300 5,700
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,300 5,700
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (175) 198
------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,221 (7,204)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,668 12,149
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,889 $ 4,945
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
APRIL 3, 1994
GENERAL
Hart Holding Company Incorporated ("Hart Holding") is a holding
company whose principal asset is 100% of the outstanding common
stock of its wholly-owned subsidiary, Reeves Industries, Inc.
("Reeves"). Hart Holding acquired Reeves on May 6, 1986. Reeves is
a holding company whose principal asset is the common stock of its
wholly-owned subsidiary, Reeves Brothers, Inc. ("Reeves Brothers").
Reeves Brothers is a diversified industrial company engaged in two
business segments: industrial coated fabrics, conducted through its
Industrial Coated Fabrics Group ("ICF"), and apparel textiles,
conducted through its Apparel Textile Group ("ATG").
Effective September 30, 1991, the Company formed Hart
Investment Properties Corporation ("HIPC"), a wholly-owned
subsidiary. HIPC was incorporated for the purpose of investing in
real estate properties. In addition, during 1992 Hart Holding
formed Hart Capital Corporation, a wholly-owned subsidiary whose
primary business will be the investment of its own equity and that
of outside investors in buy-outs, build-ups, leveraged minority
positions and restructurings. Hart Capital Corporation had no
activity during 1993 or the first quarter of 1994.
On March 9, 1994, Hart Holding organized Reeves Holdings, Inc.
as a wholly-owned subsidiary (the "Issuer") through a capital
contribution of $1,000. The Issuer was formed for the purpose of
holding all of the outstanding common stock of Reeves. On March 31,
1994, the Issuer filed a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended, for the purpose of offering
Senior Discount Debentures due 2006 anticipated to yield proceeds
of approximately $100,000,000. As of May 17, 1994, Reeves' common
stock has not been contributed to the Issuer.
The accompanying unaudited condensed consolidated financial
statements of Hart Holding have been prepared in accordance 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. For such information, refer to the
consolidated financial statements and footnotes thereto included in
Hart Holding's annual report on Form 10-K for the year ended
December 31, 1993, as filed with the Securities and Exchange
Commission on March 31, 1994. The condensed consolidated financial
statements so presented are, in the opinion of management, inclusive
of all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of financial position
as of April 3, 1994, and the results of operations and cash flows
for the quarters ended March 28, 1993 and April 3, 1994.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
APRIL 3, 1994
NOTE A - INVENTORIES
Inventories at December 31, 1993 and April 3, 1994, were
comprised of the following (in thousands):
December 31, April 3,
1993 1994
------------ --------
Raw materials $ 6,815 $ 7,833
Work in process 8,792 11,925
Manufactured and finished goods 18,362 18,773
------- -------
$33,969 $38,531
======= =======
Approximately 27% and 25% of Hart Holding's inventories at
December 31, 1993 and April 3, 1994, are valued using the last-in,
first-out ("LIFO") method. Interim LIFO determinations, including
those as of April 3, 1994, are based on management's estimates of
expected year end inventory levels and costs.
NOTE B - LONG-TERM DEBT
Long-term debt at December 31, 1993 and April 3, 1994,
consisted of the following (in thousands):
December 31, April 3,
1993 1994
------------ --------
11% Senior Notes due July 15, 2002,
net of unamortized discount of
$747 and $725 $121,753 $121,775
13 3/4% Subordinated Debentures due
May 1, 2000, net of unamortized
discount of $76 and $73 10,924 10,927
Revolving loan payable to bank 5,700
-------- --------
$132,677 $138,402
======== ========
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
APRIL 3, 1994
In June 1992, Reeves completed a public offering of
$122,500,000 of 11% Senior Notes due 2002 (the "Senior Notes").
Proceeds of the offering were used to redeem all of Reeves' then
outstanding 12 1/2% Senior Notes and 13% Senior Subordinated
Debentures and to pay and terminate the revolving loan outstanding
under a prior loan agreement.
Reeves is required to make sinking fund payments with respect
to the remaining 13 3/4% Subordinated Debentures of $6,000,000 on
May 1, 1999 and $5,000,000 on May 1, 2000.
On August 7, 1992, Reeves and Reeves Brothers entered into a
credit agreement with a group of banks, which was amended in 1993,
and which provides Reeves and Reeves Brothers with an aggregate
$35,000,000 revolving line of credit (the "Revolving Loan") and
letter of credit facility. The Revolving Loan bears interest at the
Alternative Base Rate (defined below) plus 1 1/2% or Eurodollar Rate
plus 2 1/2%, at the election of the borrower. The Alternative Base
Rate is defined as the higher of the Prime Rate (6 1/4 % at April
3, 1994), Base CD Rate plus 1%, or the Federal Funds Effective Rate
plus 1/2%. The applicable rates above the Alternative Base Rate and
Eurodollar Rate decline based on a ratio of earnings to fixed
charges, as defined. The Revolving Loan is due December 31, 1995.
The Revolving Loan is secured by Reeves Brothers' accounts
receivable and inventories. As of April 3, 1994, Reeves had
available borrowings, net of $1,389,000 of outstanding letters of
credit, of $27,911,000. A commitment fee of 1/2% per annum is
required on the unused portion of the Revolving Loan.
The Senior Notes, Revolving Loan, and 13 3/4% Subordinated
Debentures contain certain restrictive covenants with respect to
Reeves and Reeves Brothers including, among other things,
maintenance of working capital, limitations on the payment of
dividends, the incurrence of additional indebtedness and certain
liens, restrictions on capital expenditures, mergers or
acquisitions, investments and transactions with affiliates, and
compliance with certain financial tests and limitations.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
APRIL 3, 1994
Refer to Hart Holding's Annual Report on Form 10-K for the year
ended December 31, 1993, as filed with the Securities and Exchange
Commission on March 31, 1994, for a more complete description of the
Senior Notes, the Revolving Loan and the 13 3/4% Subordinated
Debentures.
NOTE C - STOCKHOLDERS' EQUITY
On January 26, 1994, the Board of Directors of Reeves approved
a non-qualified stock option agreement between Reeves and the
Chairman of the Board of Directors. The agreement grants an option
to purchase up to 3,800,000 shares of common stock of Reeves, par
value $.01 per share, and has an expiration date of December 31,
2023. Reeves is a wholly-owned subsidiary of Hart Holding; shares
subject to the option, if exercised, would represent approximately
10% of the outstanding shares of Reeves. The option is exercisable
at $.56 per share for 1,400,000 shares (exercisable immediately),
$.75 per share for 1,400,000 shares (exercisable one year from grant
date) and $1.00 per share for 1,000,000 shares (exercisable two
years from grant date).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table and the discussion which follows presents
Hart Holding's sales and operating income by segment for the
quarters ended March 28, 1993 and April 3, 1994 (in thousands):
Quarter Ended
----------------------
March 28, April 3,
1993 1994
--------- --------
Net Sales:
Industrial Coated Fabrics Group $31,066 $37,264
Apparel Textile Group 32,714 35,733
------- -------
Total Net Sales $63,780 $72,997
======= =======
Operating Income:
Industrial Coated Fabrics Group $ 6,641 $ 6,651
Apparel Textile Group 1,841 3,004
Corporate Expenses (2,312) (2,105)
------- -------
Total Operating Income $ 6,170 $ 7,550
======= =======
Operating Income as a Percent
of Net Sales 9.7% 10.3%
==== =====
THREE MONTHS ENDED MARCH 28, 1993 COMPARED WITH
THREE MONTHS ENDED APRIL 3, 1994
NET SALES
- ---------
Hart Holding's total net sales increased 14.5% for the first
quarter of 1994 compared to the first quarter of 1993. ICF's net sales
represented 51.0% of Hart Holding's total net sales for the first
quarter of 1994 compared to 48.7% for the comparable period in
1993. ATG net sales represented 49.0% of Reeves' total net sales for
the first quarter of 1994 compared to 51.3% for the comparable
period in 1993.
<PAGE>
ICF's net sales increased 20.0% during the first quarter of 1994
compared to the first quarter of 1993. ICF's net sales increased
primarily due to higher unit volume in the coated automotive airbag
material product line. This increase was offset by a decrease in
other coated fabric product lines, primarily less military business.
ATG's net sales increased 9.2% during the first quarter of 1994
compared to the first quarter of 1993. ATG's net sales increase
reflects growth in unit volume in the finished goods division.
OPERATING INCOME
- ----------------
Operating income for the first quarter of 1994 was $7.6 million
compared to $6.2 million for the first quarter of 1993. As a
percentage of net sales, operating income increased to 10.3% of net sales
for the first quarter of 1994 compared to 9.7% in the same period
of 1993.
ICF's operating income for the first quarter of 1994 was above
the operating income for the first quarter of 1993. Increases in
operating income generated by the coated automotive airbag material
product line were offset by: (i) lower volume in the other coated
fabrics product lines, (ii) foreign currency exchange losses
resulting from the strengthening of the Italian Lira against most
other currencies, and (iii) start-up costs associated with the
introduction of a new generation of printing blankets and new coated
fabrics product lines.
ATG's operating income for the first quarter of 1994 increased
by 63.2% as compared to the first quarter of 1993, primarily as a
result of increased sales volume in the finished goods division and
manufacturing cost reductions. The manufacturing cost reductions
resulted principally from prior capital investments.
Corporate expenses decreased 9.0% during the first quarter of
1994 compared to the first quarter of 1993. The decrease resulted
primarily from a gain related to the settlement of a pension
obligation of a previously discontinued operation.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In June 1992, Reeves completed a public offering of
$122,500,000 of 11% Senior Notes due 2002 (the "Senior Notes").
Proceeds of the offering were used to redeem all of Reeves' then
outstanding 12 1/2% Senior Notes and 13% Senior Subordinated
Debentures and to pay and terminate the revolving loan outstanding
under a prior loan agreement.
Reeves is required to make sinking fund payments with respect
to the remaining 13 3/4% Subordinated Debentures of $6,000,000 on
May 1, 1999 and $5,000,000 on May 1, 2000.
On August 7, 1992, Reeves and Reeves Brothers entered into a
credit agreement with a group of banks, which was amended in 1993,
and which provides Reeves and Reeves Brothers with an aggregate
$35,000,000 revolving line of credit (the "Revolving Loan") and
letter of credit facility. The Revolving Loan bears interest at the
Alternative Base Rate (defined below) plus 1 1/2% or Eurodollar Rate
plus 2 1/2%, at the election of the borrower. The Alternative Base
Rate is defined as the higher of the Prime Rate (6 1/4% at April 3,
1994), Base CD Rate plus 1%, or the Federal Funds Effective Rate
plus 1/2%. The applicable rates above the Alternative Base Rate and
Eurodollar Rate decline based on a ratio of earnings to fixed
charges, as defined. The Revolving Loan is due December 31, 1995.
The Revolving Loan is secured by Reeves Brothers' accounts
receivable and inventories. As of April 3, 1994, Reeves had
available borrowings, net of $1,389,000 of outstanding letters of
credit, of $27,911,000. A commitment fee of 1/2% per annum is
required on the unused portion of the Revolving Loan.
The Senior Notes, Revolving Loan, and 13 3/4% Subordinated
Debentures contain certain restrictive covenants with respect to
Reeves and Reeves Brothers including, among other things,
maintenance of working capital, limitations on the payment of
dividends, the incurrence of additional indebtedness and certain
liens, restrictions on capital expenditures, mergers or
acquisitions, investments and transactions with affiliates, and
compliance with certain financial tests and limitations.
Hart Holding believes that its cash flow from operations and
funds available under the Revolving Loan will be sufficient to fund
working capital needs, capital expenditure requirements, and debt
service obligations in future years.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 15, 1994, the Court of Chancery, Wilmington,
Delaware approved the settlement of two class action lawsuits
entitled Clare Lois Spark Loeb v. James W. Hart, et al., C.A. 12830,
and Rochelle Brooks v. James W. Hart, et al., C.A. 12831. The
lawsuits challenged the proposed 300 to one reverse stock split of
Hart Holding's common stock which was announced on December 18,
1992. The settlement terms approved by the Court provide for
increasing the consideration to be paid for fractional shares to
$2.25 per share and effecting the reverse split at a ratio of 600
to one. Stockholders will be given the opportunity (i) to purchase
at a price of $2.25 per pre-split share such number of additional
shares (on a first come - first served basis, limited to the total
number of fractional shares which would otherwise be redeemed) as
is necessary to make such holder's stock position divisible by 600,
in order to permit such holder to remain as a stockholder of Hart
Holding; or (ii) if such holder would continue to hold whole shares
after the reverse split is effected, and such stockholder does not
wish to continue as a stockholder of Hart Holding, to receive $2.25
for each pre-split share. Upon completion of the reverse stock
split, holders of less than 600 shares who do not elect or who are
unable to purchase additional shares would be redeemed at a purchase
price of $2.25 for each pre-split share.
The majority stockholder of Hart Holding has indicated
that he intends to execute a consent in favor of the reverse stock
split. Hart Holding anticipates consummating the reverse stock
split promptly. The transaction will result in Hart Holding's
becoming a private company which will no longer file periodic
reports with the Securities and Exchange Commission. Accordingly,
information concerning Hart Holding will cease to be readily
available to stockholders.
Except as noted above, Hart Holding believes that there
are no legal proceedings, other than ordinary routine litigation
incidental to the business of Hart Holding, to which Hart Holding
or any of its subsidiaries is a party. Management is of the opinion
that the ultimate outcome of existing legal proceedings would not
have a material adverse effect on Hart Holding's consolidated
financial position or results of operations.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Description Page
-------- ----------- ----
Exhibit 11 Computation of Earnings
Per Common Share 18
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
three months ended April 3, 1994.
<PAGE>
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.
HART HOLDING COMPANY INCORPORATED
DATE: May 17, 1994 By: \s\ James W. Hart
_____________________
James W. Hart
Chairman of the Board,
President, Chief Executive
Officer, Chief Operating
Officer, and Chief Financial
Officer
<PAGE>
EXHIBIT 11.
CALCULATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER COMMON SHARE
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(in thousands, except per share data)
Quarter Ended
--------------------
March 28, April 3,
1993 1994
--------- --------
Net income $ 1,583 $ 2,314
======= =======
Earnings per common share
Primary and fully diluted:
Net income $ .11 $ .18
======= =======
Weighted average number of common
shares outstanding
Primary and fully diluted 14,913 13,103
======= =======
