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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-3134
March 31, 1995
PARK-OHIO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-6520107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 TOWER EAST 44122
20600 CHAGRIN BOULEVARD (Zip Code)
CLEVELAND, OHIO
(Address of principal executive offices)
Registrant's telephone number, including 216/991-9700
area code
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 twelve 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
--- ---
Number of shares outstanding of registrant's Common Stock, par value $1.00 per
share, as of April 30, 1995: 10,965,151 including 562,500 shares held in escrow.
The Exhibit Index is located on page 12.
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INDEX
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - March 31, 1995 and December
31, 1994
Consolidated condensed statements of income - Three months ended
March 31, 1995 and 1994
Consolidated condensed statements of cash flows - Three months ended
March 31, 1995 and 1994
Notes to consolidated condensed financial statements - March 31, 1995
Independent accountants' review report
Item 2. Management's Discussion
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
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PART I
FINANCIAL INFORMATION
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CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
March 31, December 31
1995 1994
----------- -----------
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 1,534 $ 2,172
Accounts receivable, less allowances for
doubtful accounts of $794,000 at March 31,
1995 and $394,000 at December 31, 1994 68,438 27,165
Inventories 65,234 25,651
Prepaid expenses 2,259 1,845
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Total Current Assets 137,465 56,833
Property, Plant and Equipment 123,145 111,881
Less accumulated depreciation 62,569 61,246
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60,576 50,635
Excess Purchase Price Over Net Assets Acquired, net 54,651 16,727
Other Assets 23,774 10,420
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$ 276,466 $ 134,615
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 40,284 $ 15,353
Accrued expenses 20,126 8,884
Current portion of long-term liabilities 2,560 2,469
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Total Current Liabilities 62,970 26,706
Long-Term Liabilities, less current portion
Long-term debt 75,536 9,513
Other postretirement benefits 33,454 27,800
Other 6,611 1,646
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115,601 38,959
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock -0- -0-
Common Stock 10,403 8,192
Additional paid-in capital 49,183 26,189
Retained earnings 16,074 12,334
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75,660 46,715
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$ 276,466 $ 134,615
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Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(In Thousands - Except Per Share Data)
Three Months Ended
March 31
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1995 1994
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Net sales $62,810 $52,288
Cost and expenses:
Cost of products sold 52,327 42,750
Selling, general and administrative expenses 6,042 5,919
Interest expense 651 428
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59,020 49,097
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Income before Federal Income Taxes 3,790 3,191
Federal income taxes 50 53
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Net Income $ 3,740 $ 3,138
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Net income per common share $ .43 $ .40
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Shares used in calculation 8,731 7,844
See notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(In Thousands)
Three Months Ended
March 31
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1995 1994
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OPERATING ACTIVITIES
Net income $ 3,740 $ 3,138
Adjustments to reconcile net income to net
cash provided (used):
Depreciation and amortization 1,981 1,587
Changes in noncurrent assets and liabilities (166) (338)
Changes in operating assets and liabilities (9,345) (2,926)
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Net Cash Provided (Used) by Operations (3,790) 1,461
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (2,377) (1,563)
Cost of acquisitions, net of cash acquired (33,394) -0-
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Net Cash Used by Financing Activities (35,771) (1,563)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions 33,894 -0-
Proceeds from bank arrangements for operations 5,075 2,150
Payments on bank borrowings (46) (481)
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Net Cash Provided from Financing Activities 38,923 1,669
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Increase (Decrease) in Cash and Cash Equivalents (638) 1,567
Cash and Cash Equivalents at Beginning
of Period 2,172 133
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Cash and Cash Equivalents at End of
Period $ 1,534 $ 1,700
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See notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
March 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 Article
10 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 three-month period ended March 31, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
NOTE B - ACQUISITION OF RB&W CORPORATION
On March 31, 1995, the Company acquired all of the shares of RB&W Corporation
in an exchange of 2,023,000 shares of the Company's common stock ($11.50 market
value as of March 31, 1995) and cash of $30,968,000. The transaction has been
accounted for as a purchase.
The following is the current value of the net assets acquired as of March 31,
1995:
(In thousands)
Cash $ 510
Accounts receivable 29,551
Inventories 36,731
Property, plant and equipment 5,591
Excess purchase price over net assets acquired 35,200
Other assets 15,620
Notes payable (28,739)
Trade accounts payable (21,524)
Accrued expenses (8,398)
Long-term liabilities (10,300)
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Total Cost of Acquisition $ 54,242
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The following unaudited pro forma results of operations assume the
acquisition occurred on January 1, 1994. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.
1995 1994
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Net sales $ 109,842 $ 94,025
Gross profit 15,978 15,210
Net income 2,724 3,131
Net income per common share $ .25 $ .32
NOTE C - INVENTORIES
The components of inventory consist of the following:
March 31 December 31
1995 1994
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(In thousands)
In Process and finished goods $48,535 $14,496
Raw materials and supplies 16,699 11,155
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$65,234 $25,651
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NOTE D - SHAREHOLDERS' EQUITY
Capital stock consists of the following:
Serial Preferred Stock:
Authorized - 632,470 shares; none issued
Common Stock:
Authorized - 20,000,000 shares
Issued and outstanding - 10,402,651 shares at March 31, 1995 and
8,191,810 at December 31, 1994. The increase in outstanding shares
results from the issuance of 2,023,000 shares as discussed in Note B
and 187,500 shares relating to the earn-out provision of the
acquisition of General Aluminum Mfg. Company.
NOTE E - NET INCOME PER COMMON SHARE
Net income per common share is based on the average number of common shares
outstanding and assumes the exercise of outstanding dilutive stock options and
the issuance of certain additional shares subject to earn-out provisions.
NOTE F - SUBSEQUENT EVENT
On April 11, 1995, the Company entered into a new credit agreement with a
group of banks under which it may borrow up to $100 million on an unsecured
basis. The agreement which replaced the Company's existing credit facility,
consists of a $65 million revolving credit and a $35 million term loan payable
over seven years. Interest is payable quarterly at the prime lending rate or at
a percentage over LIBOR which fluctuates based on specific financial ratios.
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Park-Ohio Industries, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of
Park-Ohio Industries, Inc. and subsidiaries as of March 31, 1995, and the
related consolidated condensed statements of income and cash flows for the
three-month periods ended March 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Park-Ohio Industries, Inc. and
subsidiaries as of December 31, 1994, and the related consolidated statements of
operations, shareholders equity, and cash flows for the year then ended, not
presented herein, and in our report dated February 22, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1994, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
April 24, 1995
Cleveland, Ohio /s/ Ernst & Young LLP
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MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
FIRST QUARTER 1995 VERSUS FIRST QUARTER 1994
On March 7, 1995, the shareholders of the Company and RB&W Corporation (RB&W)
approved the acquisition of RB&W by the Company . Effective March 31, 1995, the
Company acquired all of the shares of RB&W in an exchange of $31 million and
2.0 million of its common shares in a transaction valued at $54.2 million. The
combination will be accounted for as a purchase and, accordingly, the operations
of RB&W were consolidated as of that date.
Net sales increased by 20% in the first quarter of 1995 compared to the first
quarter of 1994. Sales increases were recorded in all business segments. Of the
total sales increase of $10.5 million, the Container group accounted for $7.6
million or 72% of the increase. Shipments of containers increased by 33% while
the average price per container increased by 22% largely offsetting dramatic
increases in raw material costs.
Gross profit rose to $10.5 million or 17% of sales in the quarter from $9.5
million (18% of sales) in the first quarter of 1994. The increase in gross
profit results from increased sales particularly in the Container group
offsetting lower margins in the Consumer group caused by increased raw material
costs and product mix changes.
Selling, general and administrative costs increased minimally in the quarter
even though net sales increased by 20%. As a percentage of sales, these costs
accounted for 9.6% of the sales dollar as compared to 11.3% in the first quarter
of 1994.
Interest expense increased by 52% to $651 thousand in the first quarter of
1995. This increase is a result of issuing $22.2 million principal amount of
7-1/4% convertible senior subordinated debentures in the second quarter of 1994
and to increased borrowings under the Company's revolving credit arrangements
necessitated by higher demands on the Company's working capital to support the
20% increase in net sales.
The Federal income tax provision primarily related to the alternative minimum
tax due as a result of utilizing available net operating loss carryforwards.
At December 31, 1994, the Company had net operating loss carryforwards for
tax purposes of $21.6 million available to offset future taxable income.
Additional net operating loss carryforwards amounting to $2.5 million relating
to a consolidated subsidiary are also available subject to certain limitations.
Also, a net operating loss carryforward of $21.1 million pertaining to RB&W is
available to offset future taxable income of RB&W subject to certain
limitations. For financial reporting purposes, the Company has additional net
operating loss carryforwards relating to deductible temporary differences, the
most significant of which relates to other postretirement benefits. Federal
income tax expense for the 1995 period has been reduced by approximately $1.3
million ($1.1 million in 1994) due to the utilization of net operating loss
carryforwards.
LIQUIDITY AND SOURCES OF CAPITAL
On April 11, 1995, the Company entered into a Credit Agreement with three
banks that replaced the Company's existing credit agreement with the same three
banks. The new agreement provides $100 million in unsecured credit consisting
of a $65 million revolving credit facility to be used for general
corporate purposes including working capital and acquisitions and a $35
million term facility to be used to replace RB&W's current lender. As of March
31, 1995, $73.1 million was deemed to be outstanding under this facility.
During the quarter, the Company used $3.8 million to fund operations,
primarily accounts receivable and inventories, invested $2.4 million in
machinery and equipment, and completed the acquisition of RB&W by issuing 2.0
million common shares and paying $31.0 million for all the outstanding common
stock of RB&W. The cash component was provided under the Company's $100 million
credit facility.
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at March 31, 1995, and for
the three-month period then ended have been reviewed, prior to filing, by Ernst
& Young, the Company's independent accountants, and their report is included
herein.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of shareholders was held on March 7, 1995.
(c) The following matter was voted upon at the special meeting of
shareholders:
Proposal to approve the issuance of up to an additional two
million two hundred fifty thousand shares of Common Stock in
connection with the acquisition of RB&W Corporation.
7,370,468 affirmative votes
71,861 negative votes
33,613 abstentions
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein:
(4) Credit agreement among Park-Ohio Industries, Inc., Society National
Bank, The Huntington National Bank, and NBD Bank, N.A., dated April
11, 1995
(11) Computation of net income per common share
(15) Letter re: unaudited financial information
(27) Financial data schedule (Electronic Filing Only)
The Company did not file any reports on Form 8-K during the three months ended
March 31, 1995. On April 17, 1995, the Company filed a Form 8-K regarding the
Company's acquisition of RB&W Corporation. See Management's discussion on page
10 herein.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARK-OHIO INDUSTRIES, INC.
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(Registrant)
By /s/ J.S. WALKER
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Name: J.S. Walker
Title: Vice President - Treasurer
and Controller
Dated May 12, 1995
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EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 1995
EXHIBIT
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4 Credit agreement among Park-Ohio Industries, Inc., Society
National Bank, The Huntington National Bank, and NBD Bank,
N.A., dated April 11, 1995.
11 Computation of net income per common share
15 Letter re: unaudited financial information
27 Financial data schedule (Electronic filing only)
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