FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended December 30, 1995
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 1-7737
ARROW AUTOMOTIVE INDUSTRIES, INC.
________________________________________________________________________
(Exact name of registrant as specified in its charter)
____________MASSACHUSETTS_________ ___________04-1449115__________
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3 SPEEN STREET, FRAMINGHAM, MASSACHUSETTS ___01701____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,873,083 shares of the
Company's Common Stock ($.10 par value) were outstanding as of February 5,
1996.
Page 1 of 50
ARROW AUTOMOTIVE INDUSTRIES, INC.
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Balance Sheets -
December 30, 1995 and June 24, 1995 .............. 3
Condensed Statements of Operations -
Three Months Ended December 30, 1995 and
December 31, 1994 ................................ 4
Six Months Ended December 30, 1995 and
December 31, 1994 ................................ 5
Condensed Statements of Cash Flows -
Three Months Ended December 30, 1995 and
December 31, 1994 ................................ 6
Notes to Condensed Financial Statements ........... 7
ITEM 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations .... 8 - 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 Security
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)
December 30, June 24,
1995 1995
_____________ _____________
ASSETS
CURRENT ASSETS
Cash and equivalents $ 600,307 $ 753,010
Accounts receivable, less
allowances 14,723,778 12,535,646
Inventories - Note B 35,977,470 36,307,861
Prepaid expenses and other
current assets 3,327,510 4,200,578
____________ ____________
TOTAL CURRENT ASSETS 54,629,065 53,797,095
PROPERTY, PLANT AND EQUIPMENT 35,746,855 35,459,351
Less allowances for depreciation 22,837,252 22,174,393
____________ ____________
12,909,603 13,284,958
OTHER ASSETS 1,995,683 1,923,519
____________ ____________
TOTAL ASSETS $ 69,534,351 $ 69,005,572
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of advances under
revolving line of credit $ 3,645,336 $ 2,729,975
Accounts payable 1,985,138 3,089,034
Cash overdrafts 2,764,313 1,216,348
Other current liabilities 5,432,365 5,237,342
Current portion of long-term debt 1,363,309 1,372,486
____________ ____________
TOTAL CURRENT LIABILITIES 15,190,461 13,645,185
LONG-TERM DEBT 18,587,270 19,265,190
DEFERRED INCOME TAXES 1,634,000 1,634,000
ACCRUED RETIREMENT BENEFITS 1,844,267 1,721,867
STOCKHOLDERS' EQUITY
Common stock 296,887 296,887
Other stockholders' equity 32,430,790 32,891,767
Less cost of Common Stock in treasury 449,324 449,324
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 32,278,353 32,739,330
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 69,534,351 $ 69,005,572
============ ============
See accompanying notes to the condensed financial statements.
Page 3
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
_____________________________
DECEMBER 30, DECEMBER 31,
1995 1994
(13 weeks) (14 weeks)
_____________ _____________
Net sales $ 23,738,037 $ 29,162,915
Cost and expenses:
Cost of products sold 19,233,926 22,088,015
Selling, administrative and general 5,299,088 6,459,094
Interest 487,509 503,580
____________ ____________
25,020,523 29,050,689
____________ ____________
(Loss) income before income taxes (1,282,486) 112,226
(Benefit) provision for income taxes (489,000) 43,000
____________ ____________
NET (LOSS)INCOME $ (793,486) $ 69,226
============ ============
Weighted average number of shares
outstanding 2,873,083 2,872,312
============ ============
NET (LOSS) INCOME PER SHARE $(0.28) $ 0.02
====== ======
See accompanying notes to the condensed financial statements.
Page 4
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED
_____________________________
DECEMBER 30, DECEMBER 31,
1995 1994
(27 weeks) (27 weeks)
_____________ _____________
Net sales $ 52,875,236 $ 61,980,526
Cost and expenses:
Cost of products sold 42,100,268 47,205,359
Selling, administrative and general 10,485,363 12,839,433
Interest 1,034,913 945,468
____________ ____________
53,620,544 60,990,260
____________ ____________
(Loss) income before income taxes (745,308) 990,266
(Benefit) provision for income taxes (284,000) 377,000
____________ ____________
NET (LOSS)INCOME $ (461,308) $ 613,266
============ ============
Weighted average number of shares
outstanding 2,873,083 2,872,104
============ ============
NET (LOSS) INCOME PER SHARE $(0.16) $ 0.21
====== ======
See accompanying notes to the condensed financial statements.
Page 5
ARROW AUTOMOTIVE INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
_____________________________
DECEMBER 30, DECEMBER 31,
1995 1994
(27 weeks) (27 weeks)
_____________ _____________
Operating Activities
Net cash provided by (used in)
operating activities $ 24,406 $ (475,652)
____________ ____________
Investing Activities
Net cash used in investing activities (405,704) (820,070)
____________ ____________
Financing Activities
Payment of long-term debt and capital
lease obligations (687,098) (681,048)
Increase in advances under revolving
line of credit 915,362 1,889,471
Proceeds from exercise of stock option 331 2,688
____________ ____________
Net cash provided by financing
activities 228,595 1,211,111
____________ ____________
Decrease in cash and equivalents (152,703) (84,611)
____________ ____________
Cash and equivalents at beginning of
period 753,010 445,320
____________ ____________
CASH AND EQUIVALENTS AT END OF PERIOD $ 600,307 $ 360,709
============ ============
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 six month period
ended December 30, 1995 are not necessarily indicative of the results that may
be expected for the year ending June 29, 1996. 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 24, 1995. The balance
sheet at June 24, 1995 has been derived from the audited financial statements
at that date.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
December 30, June 24,
1995 1995
_____________ _____________
Stated at cost on first-in, first-out
(FIFO) method:
Finished goods $ 10,519,522 $ 10,471,077
Work in process and materials 32,272,948 32,651,784
____________ ____________
42,792,470 43,122,861
Less reserve required to state
inventory on the last-in, first-out
(LIFO) method 6,815,000 6,815,000
____________ ____________
$ 35,977,470 $ 36,307,861
============ ============
Page 7
PART I
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating results of the second quarter of fiscal 1996, ended December 30,
1995, resulted in a net loss of $793,000 compared to net income for the second
quarter of fiscal 1995 of $69,000. Results of operations for the first six
months of fiscal 1996 were a net loss of $461,000 compared to net income for
the comparable period in fiscal 1995 of $613,000.
Contributing significantly to the negative operating results was a sudden
downturn in sales volume. Net sales fell sharply in the second quarter of
fiscal 1996, down 18.5% from net sales in the first quarter of the same fiscal
year. Net sales in the first and second quarters of fiscal 1996 were
$29,137,000 and $23,738,000, respectively. The current quarter's net sales
were also down significantly from net sales in the second quarter of the prior
fiscal year which were $29,163,000. (Note: The first quarter for fiscal 1996
and the second quarter of fiscal 1995 contained 14 weeks, while the second
quarter of fiscal 1996 contained 13 weeks.) The months of October and
November were the periods most adversely impacted by the sales decline in the
current year's second quarter. The sales volume for the month of December,
while 6.7% lower than December of last year, represented an 11.6% increase
over November and a 20% increase over October. Net sales for the first six
months of fiscal 1996 were $52,875,000 down 14.7% from the same period in the
prior fiscal year.
Unit sales declined 17.5% and 12.3%, respectively, in the second quarter and
the first six months of fiscal 1996 from the comparable periods last fiscal
year.
Our customers have indicated that their reduced orders in the second quarter
of fiscal 1996 were the result of an overall softening in the marketplace
which they experienced in early fall. Furthermore, the Company believes that
cautious inventory management practices were applied by our customers and
their customers - not wanting to invest heavily in a large winter season
inventory and then repeating last year's experience of retaining high
inventory levels because of the low sales due to a mild winter.
Page 8
The gross margin percentage generated in the second quarter of fiscal 1996 was
19.0% compared to 24.3% for the second quarter in fiscal 1995. Year to date,
the gross margin percentage in fiscal 1996 is 20.4% compared to the gross
margin percentage in the first six months of fiscal 1995 of 23.8%. Labor
efficiency and the ability to absorb overhead costs were adversely impacted by
the sudden drop in sales volume in the second quarter of fiscal 1996 thus
resulting in unfavorable manufacturing variances. Also, in an effort to
increase manufacturing efficiencies, the Company has been consolidating the
production of certain product lines to single plant locations. However, the
consolidation process results in temporary labor inefficiencies. Year to
date, the decline in the gross margin percentage reflects the labor and
overhead inefficiencies noted above as well as the mix of products sold, and a
higher than usual level of customer product returns in comparison to the prior
year. These returns occur in the normal course of business. While over
longer periods of time the relationship of returns to sales remains relatively
constant, occasional fluctuations do occur. These relationships are further
distorted in periods of low sales volumes. Year to date, the higher level of
product returns reduced the gross margin percentage by approximately 1.6
percentage points.
Selling, general and administrative expenses in the second quarter of fiscal
1996 declined $1,160,000 to $5,299,000 or 22.3% of net sales compared to
$6,459,000 or 22.1% of net sales for the same period in fiscal 1995. Year to
date, selling, general and administrative expenses declined to $10,485,000, or
19.8% of net sales, from levels incurred for the same period last year of
$12,839,000, or 20.7% of net sales. The prior year included customer
acquisition expenses that exceeded similar expenses in the current year's
second quarter and six month period by approximately $290,000 and $417,000,
respectively. The Company has implemented various cost reduction measures
that have contributed to the reduced expenses in the current fiscal year.
These measures included the discontinuation of certain administrative
functions, a 10% reduction in administrative staff as well as the
discontinuance of certain contracted services.
Interest expense reported in the second quarter of the current fiscal year of
$488,000 was less than the prior year of $504,000 due primarily to the
differential in the number of weeks between the two periods. On a year to
date basis, interest expense reported in fiscal 1996 was $1,035,000 up from
the same period last year of $945,000. Higher average borrowing in the
current year contributed to the increase.
The Company's obligations under its financing agreement with a commercial bank
contains certain provisions and covenants which, among other things, restrict
the amount of future indebtedness, the amount of cash dividends and capital
expenditures and require the Company to
Page 9
maintain specified levels of tangible net worth, debt service and net worth
ratios. Compliance with the debt service covenant of this financing agreement
was waived during the second quarter of fiscal 1996 such that the loss
sustained by the Company during that period did not result in a default under
the agreement. Further, the revolving line of credit which allows the Company
to borrow up to $20 million through December 31, 1996, has been extended to
January 31, 1997, enabling the Company to continue to classify $13 million of
advances outstanding under the line as noncurrent. The Company is currently
updating its banking agreement and expects to renew its long-term financing
during the third fiscal quarter.
The Company anticipates that cash generated from operations, combined with
available credit lines, will be adequate to provide for the Company's cash
requirements for fiscal 1996.
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 Third Amendment and Waiver Page 13
to Revolving Credit and Term
Loan Agreement with The
First National Bank of Boston
dated as of December 30, 1995
Exhibit 10.2 Director and Officer Liability Page 17
Insurance Policy and Excess
Policy
Exhibit 27. Financial Data Schedule Page 50
Page 11
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 hereunto duly authorized.
ARROW AUTOMOTIVE INDUSTRIES, INC.
(Registrant)
February 12, 1996 /s/ Jim L. Osment
_____________________________________
Jim L. Osment
President and Chief Executive Officer
February 12, 1996 /s/ James F. Fagan
_____________________________________
Executive Vice President, Treasurer
and Chief Financial Officer
Page 12