Add
HRSH to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| HRSH > SEC Filings for HRSH > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
The following discussion and analysis contains forward-looking statements which involve risks and uncertainties. When used herein, the words "anticipate", "believe", "estimate" and "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company's actual results, performance or achievements could differ materially from the results expressed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, without limitation, the risks and uncertainties discussed under the caption "Risk Factors" in the Company's Form 10K for the year ending December 31, 2007 and in the Company's other filings made with the Securities and Exchange Commissions from time to time. The discussion and analysis should be read in conjunction with, and is qualified in its entirety by, the Company's Consolidated Financial Statements, including the Notes thereto. Historical results are not necessarily indicative of trends in operating results for any future period.
Three and nine months ended September 30, 2008 as compared to September 30, 2007.
Net sales. Net sales for the three months ended September 30, 2008 were $10.6 million, a decrease of $1.3 million, or 10.9%, compared to $11.9 million for the three months ended September 30, 2007, and for the nine months ended September 30, 2008 were $32.4 million, a decrease of $5.7 million, or 15.0%, compared to $38.1 million for the nine months ended September 30, 2007. The decrease in sales for the three and nine months ended September 30, 2008 is primarily attributable to a decrease in new embroidery of machines of $3.3 million and $8.2 million respectively, due to the general slowdown in demand for capital goods. The decrease in new embroidery machines is offset by an increase in sales of MHM Screen Printing, Kornit Digital Printers, SEIT Lasers, all other products and sales of US Graphics of $1.9 million for the three months ended September 30, 2008 and $2.5 million for the nine months ended September 30, 2008.
Cost of sales. For the three months ended September 30, 2008, cost of sales decreased $0.1 million to $7.3 million from $7.4 million for the three months ended September 30, 2007 and decreased $1.8 million to $21.9 million from $23.7 million for the nine months ended September 30, 2007. The decrease for the three and nine month periods ended September 30, 2008 is the result of lower sales volume combined with higher costs in the new machine categories. The Company's gross margin decreased to 30.4% for the three months ended September 30, 2008 as compared to 38% for the three months ended September 30, 2007, and decreased to 32.5% for the nine months ended September 30, 2008 from 37.8% for the nine months ended September 30, 2007. For the three month period ended September 30, 2008 compared to the three month period ended September 30, 2007, the Company experienced a decrease in sales for the new embroidery machine category which lowered gross margin by $1.6 million offset by increases in MHM Screen Printing , Kornit digital, U.S. Graphics and all other products of $0.1 million. For the nine month period ended September 30, 2008 compared to the nine month period ended September 30, 2007, the Company experienced a decrease in the new embroidery machine category which decreased gross margin by $4.4 million offset by increases in gross margin in the used machine, parts, service, U.S. Graphics and other categories of $0.5 million. The fluctuation of the dollar against the yen, which is the currency the Company's embroidery machines are purchased in, has affected and is likely to continue to affect the Company's machine sales pricing competitiveness and gross margins. Yen fluctuations amounted to an increase in gross profit of $55,000 for the three months ended September 30, 2008, versus an increase in gross profit of $87,000 for the three months ended
Operating Expenses. For the three months ended September 30, 2008 operating expenses were $5.2 million, an increase of $0.5 million, or 10.6% as compared to $ 4.7 million for the three months ended September 30, 2007, and for the nine months ended September 30, 2008, operating expenses were $14.3 million, an increase of $1.2 million, or 9.2%, as compared to $13.1 million for the nine months ended September 30, 2007. The increase in operating expenses for the three and nine months ended September 30, 2008 is additional expenses of U.S. Graphic's of $0.8 million, a non recurring charge of $0.2 million for severance associated with a reduction in operating personnel offset by the reduction in operating expenses for the three and nine months ended September 30, 2007. Included in the September 30, 2007 nine month results is the recognition of $450,000 in income associated with the settlement agreement with Sheridan Square.
Interest Expense. Interest expense for the three months ended September 30, 2008 increased to $23,000 from $4,000 for the three months ended September 30, 2007 and for the nine months ended September 30, 2007, increased to $23,000 from $10,000 for the nine months ended September 30, 2007. For the three months and nine months ended September 30, 2008, interest expense was related to the U.S Graphic's line of credit. For the three months ended September 30, 2007, interest expense was related to the financing of insurance premiums.
Other Income. Other income for the three months ended September 30, 2008 decreased by $78,000 to $20,000 from $98,000 for the three months ended September 30, 2007 primarily attributable to a decrease in interest income for the quarter due to lower cash balances. For the nine months ended September 30, 2008, other income decreased $47,000 to $167,000 from $214,000 for the nine months ended September 30, 2007, primarily due to decreases in interest income related to the lower cash balances.
Income tax expense. Income tax expense for the three months ended September 30, 2008 was $2,000 versus $9,000 for the three months ended September 30, 2007 and for the nine months ended September 30, 2008 was $11,000 versus $84,000 for the nine months ended September 30, 2007. For the three and nine months ended September 30, 2008 the amounts represent minimum AMT tax estimates for the current year. For the three and nine months ended September 30, 2007, these amounts represent taxes due on year end income for various state and local income taxes, for which the Net Operating Loss carry-forwards from prior years do not apply.
Net (Loss) Income. Net loss for the three months ended September 30, 2008 was $2.0 million an increase of $1.9 million as compared to net loss of $0.1 million for the three months ended September 30, 2007 and for the nine months ended September 30, 2008 was $3.6 million, a decrease of $5.1 million as compared to net income of $1.5 million for the nine months ended September 30, 2007. The decrease in both periods is primarily from an increase in operating loss due to the decrease in sales and the acquisition of Graphic Arts.
Liquidity and Capital Resources
Operating Activities and Cash Flows
The Company's working capital was $13.6 million at September 30, 2008, decreasing $5.5 million, or 28.8%, from $19.1 million at December 31, 2007.
During the nine months ended September 30, 2008, the Company's cash and cash equivalents decreased to $4.2 million from $14.4 million at December 31, 2007. Net cash of $8.6 million was used by the Company's operating activities primarily to increase inventory by $3.7 and pay down of accounts payable by $3.8. Cash of $0.6 million was used in funding the assumed liabilities in the U.S Graphic's acquisitions. Cash of $1.1 million was used in investing activities for capital expenditures primarily for a new computer system.
The Company purchases inventory in Yen and maintains bank accounts denominated in Yen in order to facilitate payments. The Company purchases yen in anticipation of current invoice maturities in order to mitigate the impact of currency fluctuations. As of September 30, 2008 the Company did not own any foreign currency futures contracts.
Revolving Credit Facility and Borrowings
The Company does not currently have a credit facility as it believes it has sufficient cash to fund current working capital needs. The Company, at this time, does not intend to enter into a new credit facility.
On April 4, 2007, the Company opened a standby letter of credit denominated in Japanese yen in the amount of ¥232,000,000 (or approximately $1,880,000). The standby letter of credit was opened with Wachovia Bank, National Association and the beneficiary is Tajima America Corp. The standby letter of credit is used to support purchases on open terms with Tajima and is collateralized by restricted cash denominated in Japanese yen of ¥232,000,000. Effective September 30, 2008, the Company reduced the standby letter of credit to ¥62,031,000 (or approximately $0.6 million as of September 30, 2008). The Company will open individual letters of credit for future purchases.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2007, other than the changes for the acquisition of U.S Graphics on August 4, 2008 (see Note 4 to the Financial Statements).
Future Capital Requirements
The Company believes that its existing cash and funds generated from operations will be sufficient to meet its working capital and capital expenditure requirements in the foreseeable future.
Backlog and Inventory
The ability of the Company to fill orders quickly is an important part of its customer service strategy. The embroidery machines held in inventory by the Company are generally shipped within a week from the date the customer's orders are received, and as a result, backlog is not meaningful as an indicator of future sales.
Inflation
The Company does not believe that inflation has had, or will have in the foreseeable future, a material impact upon the Company's operating results.
|
|