QUARTERLY REPORT UNDER SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________________________________
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 25, 1995
or
( ) Transition Report Pursuant to Section 13 of 15(d) of
the Securities Exchange Act of 1934
For the transition period from
__________ to __________
___________________________________________
Commission file number 1-7737
I.R.S. Employer Identification Number 04-1449115
ARROW AUTOMOTIVE INDUSTRIES, INC.
(a Massachusetts Corporation)
3 Speen Street
Framingham, MA 01701
Telephone: (508) 872-3711
Indicate by check mark whether the registrant (1) has filed
all reports 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 _____
Indicated the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date: 2,872,395 shares of the Company's Common
Stock ($.10 par value) were outstanding as of March 25,
1995.
PAGE 1 of 46
ARROW AUTOMOTIVE INDUSTRIES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Balance Sheets -
March 25, 1995 and June 25, 1994 3
Condensed Statements of Operations -
Three Months Ended March 25, 1995 and
March 26, 1994 4
Nine Months Ended March 25, 1995 and
March 26, 1994 5
Condensed Statements of Cash Flows -
Nine Months Ended March 25, 1995 and
March 26, 1994 6
Notes to Condensed Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of the
Financial Condition and Results of
Operations 9 - 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities 11
ITEM 3. Default upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Securities
Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2
PART I.
ITEM 1. FINANCIAL INFORMATION
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
MARCH 25, JUNE 25,
1995 1994
____________ ____________
ASSETS
CURRENT ASSETS
Cash and equivalents $ 305,733 $ 445,320
Accounts receivable, less allowances 10,968,916 15,661,427
Inventories - Note B 37,367,358 37,433,020
Prepaid expenses and other current
assets 2,689,989 3,292,477
____________ ____________
TOTAL CURRENT ASSETS 51,331,996 56,832,244
PROPERTY, PLANT AND EQUIPMENT 34,611,137 33,186,481
Less allowances for depreciation 22,078,357 21,134,125
____________ ____________
12,532,780 12,052,356
OTHER ASSETS 1,985,572 2,236,194
____________ ____________
TOTAL ASSETS $ 65,850,348 $71,120,794
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of advances under
revolving line of credit - Note C $ 9,826,376 $ 10,219,446
Accounts payable 1,927,574 3,951,308
Cash overdrafts 1,605,227 907,095
Other current liabilities 3,964,301 6,680,146
Current portion of long-term debt 1,367,278 1,372,538
____________ ____________
TOTAL CURRENT LIABILITIES 18,690,756 23,130,533
LONG-TERM DEBT - Note C 10,713,357 11,732,234
DEFERRED INCOME TAXES 1,631,000 1,631,000
ACCRUED OTHER 1,971,637 1,653,287
STOCKHOLDERS' EQUITY
Common stock 296,817 296,767
Other stockholders' equity 32,996,029 33,126,221
Less cost of Common Stock in treasury 449,248 449,248
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 32,843,598 32,973,740
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 65,850,348 $ 71,120,794
============ ============
See accompanying notes to the condensed financial statements.
Page 3.
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
_________________________
MARCH 25, MARCH 26,
1995 1994
(12 weeks) (13 weeks)
____________ ____________
Net sales $ 19,820,409 $ 25,199,362
Interest income 11,310 7,762
____________ ____________
19,831,719 25,207,124
Costs and expenses:
Cost of products sold 15,037,720 18,525,081
Selling, administrative and general
operating expenses 5,524,400 5,707,380
Interest expense 479,195 400,808
____________ ____________
21,041,315 24,633,269
____________ ____________
Income (loss) before income taxes (1,209,596) 573,855
Provision (benefit) for income taxes (461,000) 219,000
____________ ____________
NET INCOME (LOSS) $ (748,596) $ 354,855
============ =============
Weighted average number of shares 2,872,395 2,818,477
outstanding ============ =============
Income (loss) per share $ (.26) $ 0.13
======= ======
See accompanying notes to the condensed financial statements.
Page 4.
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED
_________________________
MARCH 25, MARCH 26,
1995 1994
(39 weeks) (39 weeks)
____________ ___________
Net sales $ 81,800,935 $ 79,884,244
Interest income 26,737 23,453
____________ ____________
81,827,672 79,907,697
Costs and expenses:
Cost of products sold 62,243,079 59,826,229
Selling, administrative and general
operating expenses 18,363,833 16,675,604
Interest expense 1,440,090 1,227,934
____________ ____________
82,047,002 77,729,767
____________ ____________
Income (loss) before income taxes and
extraordinary item (219,330) 2,177,930
Provision (benefit) for income taxes (84,000) 828,000
____________ ____________
Income (loss) before extraordinary item (135,330) 1,349,930
Extraordinary charge from refinancing
of debt, net of income tax benefit
of $169,000 0 275,985
____________ ____________
Net income (loss) $ (135,330) $ 1,073,945
============ ============
Weighted average number of shares 2,872,201 2,815,416
outstanding ============ ============
PER SHARE DATA
- --------------
Income (loss) before extraordinary item $ (.05) $ 0.48
Extraordinary charge from refinancing
of debt, net of income tax benefit of
$.06 0.00 0.10
______ ______
NET INCOME (LOSS) $ (.05) $ 0.38
====== ======
See accompanying notes to the condensed financial statements.
Page 5.
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
_________________________
MARCH 25, MARCH 26,
1995 1994
(39 weeks) (39 weeks)
____________ ____________
OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 2,808,215 $ (1,863,711)
____________ ____________
INVESTING ACTIVITIES
Net cash used in investing activities (1,535,782) (473,344)
____________ ____________
FINANCING ACTIVITIES
Proceeds from excercise of stock
options and related tax benefits 5,188 82,587
Payments of long-term debt and capital
lease obligations (1,024,138) (914,526)
Indebtedness repaid, principally with
the proceeds from the replacement
financing (20,134,246)
Replacement financing proceeds 21,456,514
Net increase (decrease) in advances
under revolving line of credit (393,070) 1,890,496
____________ ____________
Net cash provided by (used in)
financing activities (1,412,020) 2,380,825
____________ ____________
Increase (decrease) in cash and
equivalents (139,587) 43,770
____________ ____________
Cash and equivalents at beginning of
period 445,320 439,466
____________ ____________
CASH AND EQUIVALENTS AT END OF PERIOD $ 305,733 $ 483,236
============ ============
See accompanying notes to the condensed financial statements.
Page 6.
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
- -------------------------------
The accompanying unaudited 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. Operating results for the
nine month period ended March 25, 1995 are not necessarily
indicative of the results that may be expected for the year
ending June 24, 1995. For further information, refer to the
financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June
25, 1994. The balance sheet at June 25, 1994 has been
derived from the audited financial statements at that date.
NOTE B -- INVENTORIES
- ---------------------
The components of inventory consist of the following:
MARCH 25, JUNE 25,
1995 1994
------------ ------------
Stated at cost on first-in, first-out
(FIFO) method:
Finished goods $ 9,781,847 $ 11,027,263
Work in process and materials 33,605,511 32,425,757
____________ ____________
43,387,358 43,453,020
Less reserve required to state
inventory on the last-in,
first-out (LIFO) method 6,020,000 6,020,000
____________ ____________
$ 37,367,358 $ 37,433,020
============ ============
Page 7.
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTE C -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
- ------------------------------------------------
On December 29, 1993, the Company entered into an agreement
with a commercial bank to provide replacement financing of
its existing credit line and term loan. The replacement
financing consists of a $20 million revolving line of credit
and a $9 million term loan. The difference between amounts
paid to retire the existing indebtedness and the related
carrying amounts, principally the unamortized balance of
debt issue costs and early payment of penalties which
totalled $275,985, net of an income tax benefit of $169,000,
has been reflected as an extraordinary charge in the
accompanying statements of income.
Page 8.
PART I
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company sustained a net loss for the third quarter of
fiscal 1995 of $748,596 on net sales of $19,820,409. This
compares to net income for the comparable period of the
prior fiscal year of $354,855 on net sales of $25,199,362.
Operating results for the nine months ended March 25, 1995,
were a net loss of $135,330 on net sales of $81,800,935
compared to net income of $1,073,945 on net sales of
$79,884,244 for the same period in fiscal 1994. The prior
year's net income included an extraordinary charge to income
of $275,985, net of tax benefit of $169,000. The net loss
in the third quarter and the first nine months of the
current year was primarily due to the decline in net sales
in the third quarter and an increase in selling, general and
administrative expenses in the current fiscal year, which
are discussed below.
In the third quarter of fiscal 1995, net sales were down
21.3% from the net sales of the third quarter of the prior
fiscal year, and fell off sharply from the net sales
attained in the first and second quarters of the current
fiscal year. Unit sales declined correspondingly with the
decline in net sales dollars. The decline in net sales in
the third quarter of the current fiscal year relative to the
comparable period of the prior fiscal year was primarily
attributable to the impact of the mild winter, and a twelve
week current fiscal quarter compared to thirteen weeks in
the corresponding period last year. In addition, the
Company had a loss of several customer accounts, impacting
the current quarter's net sales by approximately $1.2
million. Also adversely impacting net sales for the third
quarter was the Company's installation of a new raw material
cleaning system in its Spartanburg, South Carolina
manufacturing facility, which reduced customer shipments
during the first week of January of 1995.
The gross margin percentage for the third quarter of fiscal
1995 was 24.1% of net sales, down from the gross margin
percentage of 26.5% for the same period last year. The
gross margin percentage for the first nine months of fiscal
1995 was 23.9%, compared to 25.1% for the same period last
fiscal year. The gross margin percentages in the first
three quarters of the current fiscal year were 23.5%, 24.3%
and 24.1%, respectively. Manufacturing inefficiencies
related to low sales volume contributed to the decline in
gross margin in the current year's third quarter. On a year
to date basis, the decline in the gross margin percentage
compared to the prior year was due to manufacturing
inefficiencies as noted above, as well as to higher material
costs which were incurred early in the fiscal year.
Page 9.
Selling, general and administrative expenses for the third
quarter of fiscal 1995 were $5,525,400, compared to
$5,707,380 in the comparable period in fiscal 1994. As a
percentage of sales, SG&A expense increased to 27.9% of net
sales for the third quarter of fiscaol 1995 from 22.6% in
the third quarter of fiscal 1994. Similarly, for the nine
months ended March 25, 1995, selling, general and
administrative expenses of $18,363,833, or 22.4% of net
sales, increased from the spending level of $16,675,604, or
20.9% of net sales in the prior fiscal year. During the
first nine months of the current fiscal year, the Company
experienced increased business acquisition costs relative to
the comparable period of the prior fiscal year of $867,000,
of which $187,000, was incurred in the third quarter. Also
during the current fiscal year, the Company invested in the
development of new marketing programs which resulted in
additional expense of $350,000, of which $157,000 was
incurred in the third quarter of the current fiscal year.
Net interest expense in the third quarter of fiscal 1995 was
$467,885, an increase of 19.0% over the same period in
fiscal 1994. On a year to date basis, net interest expense
increased 17.3% over the first nine months of the prior
fiscal year. Higher borrowing levels and higher interest
rates resulted in the additional net interest expense
incurred in the current year.
Accounts receivable declined during the third quarter of
fiscal 1995 consistent with reduced sales volume, while
inventory, particularly finished goods, increased during the
third quarter. Trade payables for the period declined with
tighter spending controls. Purchases of property, plant and
equipment continued as planned during the quarter. A
significant portion of capital expenditures relate to the
replacement of raw material cleaning systems at all three
manufacturing locations.
As previously reported in the Company's Annual Report on
Form 10-K for its fiscal year ended June 25, 1994, the
Company has a financing agreement with a commercial bank
relating to credit arrangements provided to the Company by
that institution consisting of a $20 million revolving line
of credit and a term loan which had a principal balance as
of March 25, 1995 of $7,714,286. The debt service covenant
of this financing agreement was amended during the third
quarter of fiscal 1995 such that the loss sustained by the
Company during the quarter did not result in a breach of
that covenant.
The Company anticipates that operating revenues and existing
credit lines will be adequate to finance its operations
through the completion of the fiscal year.
Page 10.
ARROW AUTOMOTIVE INDUSTRIES, INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Default upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits
Exhibit 10.1 First Amendment to Revolving
Credit and Term Loan Agreement with
The First National Bank of Boston
dated as of March 24, 1995 Page 13
Exhibit 10.2 Director and Officers Liability
Insurance Policy and Excess Policy Page 16
Exhibit 27. Financial Data Schedule Page 46
B. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
Page 11.
PART II. OTHER INFORMATION
ARROW AUTOMOTIVE INDUSTRIES, INC.
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.
ARROW AUTOMOTIVE INDUSTRIES, INC.
(Registrant)
May 5, 1995 /s/ Jim L. Osment
-------------------------------------
President and Chief Executive Officer
May 5, 1995 /s/ James F. Fagan
-------------------------------------
Executive Vice President and
Chief Financial Officer
Page 12.