-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oogq/VIznQz5eOuyj08gPVjcTM7E4uuWw+s1k7951bKGyalMY3Ym1UusYZ2oESUW N07/+0Y0pfR5ZLenNoD1TA== 0000007533-97-000009.txt : 19971114 0000007533-97-000009.hdr.sgml : 19971114 ACCESSION NUMBER: 0000007533-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971112 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARROW AUTOMOTIVE INDUSTRIES INC CENTRAL INDEX KEY: 0000007533 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 041449115 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07737 FILM NUMBER: 97712451 BUSINESS ADDRESS: STREET 1: 3 SPEEN ST CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5088723711 MAIL ADDRESS: STREET 1: 3 SPEEN STREET CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 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 SEPTEMBER 27, 1997 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 incorporation or organization) (I.R.S. Employer I.D. No.) 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 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 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 November 7, 1997. ARROW AUTOMOTIVE INDUSTRIES, INC. INDEX
Page NUMBER PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited): Condensed Balance Sheets - September 27, 1997 and June 28, 3 1997.................................................................... Condensed Statements of Operations - Three Months Ended September 27, 1997 and September 28, 4 1996......................... Condensed Statements of Cash Flows - Three Months Ended September 27, 1997 and September 28, 1996 5 ........................ Notes to Condensed Financial 6 -7 Statements................................. ITEM 2. Management's Discussion and Analysis of the Financial Condition and Results of 8 - 11 Operations....................................... PART II OTHER INFORMATION ITEM 1. Legal 12 Proceedings...................................................................... ITEM 2. Changes in 12 Securities................................................................. ITEM 3. Default upon Senior 12 Securities................................................... ITEM 4. Submission of Matters to a Vote of Security 12 Holders.................. ITEM 5. Other 12 Information........................................................................ ITEM 6. Exhibits and Reports on Form 8- 12 K.............................................. SIGNATURES .................................................................................................... 13
1 of 14 PART I - ITEM 1 -- FINANCIAL INFORMATION ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS September 27, June 28, 1997 1997 CURRENT ASSETS Cash and equivalents $ 551,357 $ 240,291 Accounts receivable, less allowances 15,196,092 12,538,853 Inventories 31,685,032 30,920,184 Prepaid expenses and other current assets 1,628,726 1,705,746 TOTAL CURRENT ASSETS 49,061,207 45,405,074 PROPERTY, PLANT AND EQUIPMENT 34,027,150 33,989,146 Less allowances for depreciation 22,626,170 22,362,518 11,400,980 11,626,628 OTHER ASSETS 2,482,270 2,300,956 TOTAL ASSETS $ 62,944,457 $ 59,332,658 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of advances under revolving line of credit $ 2,452,309 $ 3,836,680 Accounts payable 13,868,794 8,523,743 Cash overdrafts 722,085 764,113 Other current liabilities 4,696,564 4,864,374 Current portion of long-term debt 1,165,616 1,166,111 TOTAL CURRENT LIABILITIES 22,905,368 19,155,021 LONG-TERM DEBT 16,477,823 16,819,166 OTHER NONCURRENT LIABILITIES 3,400,605 3,315,105 STOCKHOLDERS' EQUITY Common stock 296,887 296,887 Other stockholders' equity 20,313,098 20,195,803 Less cost of common stock in treasury 449,324 449,324 TOTAL STOCKHOLDERS' EQUITY 20,160,661 20,043,366 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,944,457 $ 59,332,658
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED September 27, 1997 September 28, 1996 Net sales $ 24,341,252 $ 24,481,148 Cost and expenses: Cost of products sold 18,831,022 19,026,978 Selling, administrative and general 4,744,720 4,652,418 Restructuring charge 1,200,000 Interest 648,215 544,049 24,223,957 25,423,445 Income (loss) before income taxes 117,295 (942,297) Benefit from income taxes (358,100) NET INCOME (LOSS) $ 117,295 $ (584,197) Weighted average number of shares outstanding 2,873,083 2,873,083 EARNINGS (LOSS) PER SHARE $ 0.04 $ (0.20)
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED September 27, 1997 September 28, 1996 OPERATING ACTIVITIES Net cash provided by operating activities $ 2,142,000 $ 3,148,487 INVESTING ACTIVITIES Net cash used in investing activities (104,725) (155,618) FINANCING ACTIVITIES Payment of long-term debt and capital lease obligations (341,838) (346,239) Decrease in advances under revolving line of credit (1,384,371) (3,275,904) Net cash used in financing activities (1,726,209) (3,622,143) INCREASE (DECREASE) IN CASH AND EQUIVALENTS 311,066 (629,274) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 240,291 850,537 CASH AND EQUIVALENTS AT END OF PERIOD $ 551,357 $ 221,263
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENT (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 the fair presentation have been included. Operating results for the three month period ended September 27, 1997 are not necessarily indicative of the results that may be expected for the year ending June 27, 1998. 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 28, 1997. The balance sheet at June 28, 1997 has been derived from the audited financial statements at that date. NOTE B -- INVENTORIES The components of inventory consist of the following:
September 27, 1997 June 28, 1997 Stated at cost on the first-in, first-out (FIFO) method: Finished goods $ 11,128,441 $ 10,507,186 Work in process and materials 25,793,591 25,649,998 36,922,032 36,157,184 Less reserve required to state inventory on the last-in, first-out (LIFO) method (5,237,000) (5,237,000) $ 31,685,032 $ 30,920,184
NOTE C -- RESTRUCTURING CHARGE In fiscal 1996, the Company restructured its operations by closing its Santa Maria, California production facility and transferring its manufacturing operations formerly conducted at that facility to its remaining manufacturing facilities. The action was taken to enhance profit margins by streamlining the Company's productive capacity to better match its production requirements. As a result, a $1.2 million restructuring charge was recorded in the first quarter of fiscal 1997. For the 1997 fiscal year, the restructuring charge amounted to $1.1 million, consisting of $413,000 of employee termination benefits and $687,000 related to the facility closing. NOTE D -- LONG TERM DEBT On October 7, 1997, the Company restructured its bank agreements (Prior Credit Agreements) via an amendment ("Replacement Credit Agreements"). This amendment was effective as of June 28, 1997. The Replacement Credit Agreements consist of a replacement $7,500,000 term loan and continuation of a $20 million revolving line of credit Under the Replacement Credit Agreements, the interest rate on amounts outstanding under the revolving line of credit will change depending upon the achieved debt service coverage ratio and can range from the lender's base rate to 1.50% over the lender's base rate, as compared to rates at September 27, 1997 under the Prior Credit Agreements of lender's base rate plus 3%. The revolving credit loan maturity date is July 31, 2000. Similarly, the interest rate on the replacement term loan on a given date can range from 0.25% to 1.75% over the lender's base rate depending upon the achieved debt service coverage ratio. Under the Prior Credit Agreements at September 27, 1997, the Company was paying interest on the term loan equal to the lender's base rate plus 3.25%. The term loan has a maturity date of July 31, 2000. The outstanding balance of the term loan as of the refinancing date was $4,179,000. The $3,321,000 incremental cash proceeds of the replacement term loan over the outstanding balance of the prior term loan will be used for working capital purposes, primarily to reduce accounts payable to vendors. The balance sheet as of September 27, 1997, reflects the current and long term portion payable under the Replacement Credit Agreements. The Company's obligations under these agreements continue to be secured by substantially all of its assets. 7 of 14 PART 1 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and notes thereto. All forward looking statements contained in the following discussion and analysis and elsewhere in this report are qualified in their entirety by the cautionary statement appearing at the end of the discussion and analysis. BANK REFINANCING On October 7, 1997, the Company restructured its bank agreements ("Prior Credit Agreements") via amendment ("Replacement Credit Agreements"). The amendment was effective as of June 28, 1997. The Replacement Credit Agreements resulted in $3,321,000 of incremental cash proceeds over the outstanding balance of the Prior Credit Agreements. The proceeds will be used for working capital purposes, primarily to reduce accounts payable to vendors. The Replacement Credit Agreements provide a lower interest rate than the Prior Credit Agreements. RESULTS OF OPERATIONS Operations for the first quarter of fiscal 1998 resulted in net income of $117,000. Operating results for the first quarter of fiscal 1997 were a loss of $584,000. The prior fiscal year's operating results included a pretax restructuring charge of $1,200,000, which had an after tax effect of $800,000. The restructuring charge resulted from the closure of the Company's California manufacturing facility and the transfer of the manufacturing operations formerly conducted at that location to its two remaining manufacturing facilities. This restructuring was implemented to reduce the Company's operating break-even point. Net sales of $24,341,000 for the first quarter of fiscal 1998 declined slightly from net sales of $24,481,000 for the first quarter of fiscal 1997, but increased $5,032,000 or 26.1% over net sales of the fourth quarter of fiscal 1997. Unit sales for the first quarter of the current fiscal year were 7.8% lower than unit sales of the same period in fiscal 1997. One-third of the unit decline was due to the loss of two customers with the remaining decline attributable to a general decline in customer demand. The decline in unit sales did not translate into a similar decline in net sales dollars because of two factors. The current fiscal quarter had a greater percentage of higher- dollar, electrical product sales than the same period in fiscal 1997. Also, customer returns as a percentage of gross sales were lower in the current first quarter compared to the same period in fiscal 1997. Customer returns are for re-usable "cores" (our basic raw material), warranty and stock adjustments received in the normal course of business. These returns are deducted from gross sales in calculating net sales. Gross sales declined 3.8% for the comparative 1998 and 1997 first quarter periods. Gross margin as a percentage of net sales was 22.6% in the first quarter of fiscal 1998 compared to 22.3% for the same period last fiscal year. Increased cash requirements created by the closure of the Company's California manufacturing facility in fiscal 1997, resulted in an increase in cost of goods sold in excess of $400,000 during the first quarter of fiscal 1998 for materials and labor. Due to cash constraints, the Company lengthened payment terms with suppliers of component parts and cores which resulted in the Company paying premium prices or incurring additional freight charges for shorter delivery schedules. Labor costs per unit produced also increased during the period due to inefficiencies and overtime premium expenses, primarily related to the significant increase in customer demand during the first quarter. Selling, general and administrative expenses in the first quarter of fiscal 1998 of $4,745,000 or 19.5% of net sales, increased $92,000 compared to the same period in the prior fiscal year with expenses of $4,652,000, or 19.0% of net sales. The Company anticipated and achieved lower payroll and related costs due to its consolidation of manufacturing operations. However, additional non-payroll costs were incurred in the current quarter. In the first quarter of fiscal 1998, $136,000 was incurred related to the issuance of new electrical and clutch product catalogs and $63,000 was incurred related to acquisition costs for new customers. The increased selling, general and administrative expenses in the current fiscal year compared to the first quarter of fiscal 1997 are also due to a $210,000 one-time benefit related to the cost of employee benefits included in fiscal 1997. Interest expense in the current fiscal year increased approximately $100,000 or 19% over the corresponding period in fiscal 1997. The higher interest expense in the current fiscal quarter is due to higher interest rates and a higher average outstanding borrowing balance in the current fiscal year. The Replacement Credit Agreements have a favorable interest rate structure compared to the Prior Credit Agreements and should result in lower interest rates in future periods. CAPITAL RESOURCES Net cash of $2,142,000 was provided by operating activities during the three months ended September 27, 1997, compared to net cash provided by operations of $3,148,000 at the end of the first quarter of the prior fiscal year. Cash provided in the current fiscal period was primarily due to the increase in trade payables. Trade payables increased $5,135,000 during the three months ended September 27, 1997, due to the higher level of purchasing required to meet production demand in the first quarter of fiscal 1998 and also due to the lengthening of payment terms to the Company's vendors. An increase in accounts receivable of $2,657,000 and increase in inventory of $765,000 used cash from operations during the first quarter of fiscal 1998. Net cash provided by operations in the first quarter of fiscal 1997 was primarily due to the decrease in accounts receivable of $3,085,000 and the increase in other liabilities of $1,008,000, offset by an increase in inventory of $1,058,000. Net cash was used in investing activities of $105,000 and $156,000 as of the end of the first quarter of fiscal 1998 and 1997, respectively. Cash of $1,726,000 and $3,275,000 was used in financing activities, primarily to reduce the Company's advances under its revolving line of credit, as of the end of the first quarter of fiscal 1998 and 1997, respectively. The Company's Prior Credit Agreements, at September 27, 1997, consisted of a term loan in the original principal amount of $9 million and a revolving line of credit with a principal amount of up to $20 million. On October 7, 1997, the Company restructured the Prior Credit Agreements via an amendment effective as of June 28, 1997. The Replacement Credit Agreements consist of a replacement $7,500,000 term loan and continuation of the $20 million revolving line of credit. The Company's primary lender issued a one-third participation to a financial credit institution (the "Replacement Lenders") to replace the prior participant. Under the Replacement Credit Agreements, as in the Prior Credit Agreements, amounts available to the Company under the revolving line of credit are subject to a borrowing base formula based upon certain percentages of the Company's accounts receivable and inventories. The interest rate on amounts outstanding under the line will change depending upon the achieved debt service coverage ratio and can range from the lender's base rate to 1.50% over the lender's base rate, as compared to rates at September 27, 1997 under the Prior Credit Agreements of the lender's base rate plus 3%. The revolving credit loan maturity date is July 31, 2000. Similarly, the interest rate on the replacement term loan on a given date can range from 0.25% to 1.75% over the lender's base rate depending upon the achieved debt service coverage ratio. Under the Prior Credit Agreements at September 27, 1997, the Company was paying interest on the term loan equal to the lender's base rate plus 3.25%. The term loan has a maturity date of July 31, 2000. The outstanding balance of the term loan as of the refinancing date was $4,179,000. The $3,321,000 incremental cash proceeds of the replacement term loan over the outstanding balance of the prior term loan will be used for working capital purposes, primarily to reduce accounts payable to vendors. The balance sheet as of September 27, 1997, reflects the current and long term portion payable under the Replacement Credit Agreements. The Company's obligations under these agreements continue to be secured by substantially all of its assets. Both the Prior Credit Agreements and the Replacement Credit Agreements contain certain provisions and covenants which, among other things, restrict the amount of future indebtedness, amount of cash dividends and capital expenditures and require the Company to maintain levels of minimum profitability, tangible net worth, debt service coverage and liabilities to worth ratios. Certain of these covenants were modified in the Replacement Credit Agreements. The Company believes that based upon its current operating forecast for fiscal 1998, its existing cash balance and cash generated from operations combined with its borrowing ability under its financing agreements, the Company will have sufficient funds to meet its cash requirements for operations and other obligations over the next twelve months. OUTLOOK Consolidation of the Company's production capacity and the streamlining of administrative functions has been a key focus in the past fiscal year. These efforts were necessary to reduce operating costs. The Company views its ability to achieve profitable operations as primarily dependent on sales volume. The Company has prioritized its efforts to identify and obtain new sales opportunities. During the latter part of the first quarter of fiscal 1998, the Company has seen growth in its Canadian customer base, as well as additional business in the U.S. primarily as a result of merger and acquisition activity by its customers. However, large swings in the Company's quarterly sales, the timing of customer's returns and the mix of products sold in a given period are factors that can adversely impact the gross margin achieved on sales. Sales during the month of October, while higher than the previous fiscal year's October sales, were lower than expected. Higher than anticipated customers returns were a contributing factor. However, it is uncertain at this time if the lower sales in the month of October are indicative of the Company's performance for its second quarter of fiscal 1998. CAUTIONARY STATEMENT All statements in the foregoing discussion and analysis which are not historical fact are forward looking statements. In connection with the "Safe Harbor" provisions of the private Securities Litigation Reform Act of 1995, the Company is providing the following cautionary statement to identify some (but not necessarily all) of the important factors that could cause its actual results to differ materially from those anticipated in any forward looking statements made in this report or otherwise by or on behalf of the Company. Actual results of the Company may differ from those anticipated in any forward looking statement made by or on behalf of the Company due to the following factors, among other risks and uncertainties affecting the Company's business: lack of availability to the Company of adequate funding sources and cash from operations; reduced product demand and industry over-capacity; a change in product sales mix between electrical or mechanical products; the loss of or a material reduction in orders from either of the Company's two largest customers or other material loss of business; month-to-month volatility in sales volumes or customer returns which can result in additional labor and operating costs; new business acquisition costs, unseasonably mild weather patterns, the impact of inflation, and the various other factors identified in the discussion appearing under the heading "Outlook" above and elsewhere in this report. 11 of 14 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 27 Financial Data Schedule Page 14
12 of 14 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) November 10, 1997 /s/ Jim L. Osment Jim L. Osment President and Chief Executive Officer November 10, 1997 /s/ James F. Fagan James F. Fagan Executive Vice President, Treasurer and Chief Financial Officer
13 of 14 EX-27 2
5 This schedule contains summary financial information extracted from the balance sheet and statement of operations, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JUN-27-1998 SEP-27-1997 551 0 15,757 561 31,685 49,061 34,027 22,626 62,944 22,905 16,478 0 0 297 19,864 62,944 24,341 24,341 18,831 18,831 0 0 648 117 0 117 0 0 0 117 0.04 0.04
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