1
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
SEPTEMBER 30, 1996
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.)
23000 EUCLID AVENUE 44117
CLEVELAND, OHIO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including 216/692-7200
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 October 31, 1996: 10,995,498 including 562,500 shares held in
escrow.
The Exhibit Index is located on page 15.
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INDEX
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - September 30, 1996 and
December 31, 1995
Consolidated condensed statements of income - Nine months and
three months ended September 30, 1996 and 1995
Consolidated condensed statements of cash flows - Nine months
ended September 30, 1996 and 1995
Notes to consolidated condensed financial statements - September 30,
1996
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
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FINANCIAL INFORMATION
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CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
September 30 December 31
1996 1995
------------ -----------
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 2,232 $ 2,662
Accounts receivable, less allowances for
doubtful accounts of $1,128,000 at September 30,
1996 and $787,000 at December 31, 1995 59,761 55,121
Inventories 80,128 80,702
Deferred taxes 8,000 8,000
Other current assets 4,967 3,935
-------- --------
Total Current Assets 155,088 150,420
Property, Plant and Equipment 102,605 94,117
Less accumulated depreciation 53,690 49,691
-------- --------
48,915 44,426
Other Assets
Excess purchase price over net assets acquired, net 41,756 41,991
Net assets of discontinued operations -0- 33,694
Deferred taxes 5,700 15,400
Other 21,169 15,816
-------- --------
$272,628 $301,747
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 25,098 $ 30,859
Accrued expenses 17,895 17,013
Current portion of long-term liabilities 6,955 5,829
-------- --------
Total Current Liabilities 49,948 53,701
Long-Term Liabilities, less current portion
Long-term debt 49,847 92,450
Other postretirement benefits 28,718 30,562
Other 6,983 6,845
-------- --------
85,548 129,857
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock -0- -0-
Common Stock 10,408 10,402
Additional paid-in capital 49,234 49,184
Retained earnings 55,255 36,368
-------- --------
114,897 95,954
-------- --------
$272,628 $301,747
======== ========
Note: The balance sheet at December 31, 1995 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. Certain amounts have been reclassified for
comparative purposes.
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 Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $ 79,750 $77,164 $ 261,297 $207,806
Cost of products sold 66,706 65,616 217,293 173,104
-------- ------- --------- --------
Gross profit 13,044 11,548 44,004 34,702
Selling, general and administrative
expenses 9,482 7,522 28,314 21,244
Interest expense 1,627 1,772 5,478 4,046
Investment (Income) (1,521) -0- (1,521) -0-
-------- ------- --------- --------
Income from continuing operations
before income taxes 3,456 2,254 11,733 9,412
Income taxes 1,343 195 4,488 436
-------- ------- --------- --------
Income from continuing operations 2,113 2,059 7,245 8,976
Income from discontinued operations,
net of tax in 1996 8,817 956 11,642 2,600
-------- ------- --------- --------
Net Income $ 10,930 $ 3,015 $ 18,887 $ 11,576
======== ======= ========= ========
Primary earnings per share:
Continuing operations $ .19 $ .19 $ .66 $ .89
Discontinued operations .81 .09 1.06 .26
-------- ------- --------- --------
Net income $ 1.00 $ .28 $ 1.72 $ 1.15
======== ======= ========= ========
Common shares used in the computation 10,924 10,799 10,977 10,040
======== ======= ========= ========
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)
Nine Months Ended
September 30
-----------------
1996 1995
---- ----
OPERATING ACTIVITIES
Net income $ 18,887 $ 11,576
Adjustments to reconcile net income to net
cash provided (used) by continuing operations:
Discontinued operations (11,642) (2,600)
Depreciation and amortization 5,512 4,859
Deferred taxes from continuing operations 4,000 -0-
Gain on sales of investments (1,521) -0-
-------- --------
15,236 13,835
Changes in operating assets and liabilities of continuing
operations excluding acquisitions of businesses:
Accounts receivable (1,524) (4,214)
Inventories and other current assets (346) (13,787)
Accounts payable and accrued expenses (8,320) (1,665)
Other (6,755) (3,459)
-------- --------
Net Cash(Used) by Continuing Operations (1,709) (9,290)
Net Cash Provided by Discontinued Operations 1,474 1,325
-------- --------
Net Cash (Used) by Operations (235) (7,965)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (8,600) (10,045)
Cost of acquisitions, net of cash acquired -0- (33,383)
Investments (4,763) -0-
Proceeds from sales of investments 6,065 -0-
Proceeds from sale of discontinued operation 48,522 -0-
-------- --------
Net Cash Provided (Used) by Investing Activities 41,224 (43,428)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions -0- 66,202
Proceeds from bank arrangements for operations 9,500 18,765
Payments on bank borrowings (50,976) (216)
Payments on acquired debt -0- (32,819)
Issuance of common stock under stock option plan 57 -0-
-------- --------
Net Cash (Used) Provided by Financing
Activities (41,419) 51,932
(Decrease) Increase in Cash and Cash
Equivalents (430) 539
Cash and Cash Equivalents at Beginning
of Period 2,662 2,172
-------- --------
Cash and Cash Equivalents at End of
Period $ 2,232 $ 2,711
======== ========
See notes to consolidated condensed financial statements
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
September 30, 1996
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 and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. 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, 1995.
Certain amounts for the prior periods have been reclassified for comparative
purposes.
NOTE B - ACQUISITION OF RB&W CORPORATION
On March 31, 1995, the Company acquired all of the shares of RB&W
Corporation ( RB&W )in exchange for 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 table below reflects the fair value of the net assets acquired of RB&W:
(In thousands)
Cash $ 510
Accounts receivable 29,551
Inventories 36,131
Property, plant and equipment 5,591
Excess purchase price over net assets acquired 25,596
Deferred tax assets 13,300
Other assets 12,620
Notes payable (28,739)
Trade accounts payable (21,524)
Accrued expenses (9,172)
Long-term liabilities (9,622)
--------
Total Cost of Acquisition $ 54,242
========
The following unaudited pro forma results of continuing operations assume
the acquisition occurred on January 1, 1995. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of continuing operations which actually would have resulted had the
acquisition occurred on the date indicated.
Nine Months Ended
September 30, 1995
------------------
(In thousands- Except
Per share data)
Net sales $ 254,838
Gross Profit 38,655
Income from continuing operations 7,960
Income from continuing operations per common share $ .73
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NOTE C - INVENTORIES
The components of inventory consist of the following:
September 30 December 31
1996 1995
------------ -----------
(In thousands)
In process and finished goods $59,603 $58,215
Raw materials and supplies 20,525 22,487
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$80,128 $80,702
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NOTE D - INCOME TAXES
Effective December 31, 1995, the Company recorded the deferred tax assets
relating to anticipated future income tax benefits from utilization of net
operating loss carryforwards. As a result, as of January 1, 1996, the Company
began to fully provide for Federal income taxes. Income tax expense from
continuing operations for the three and nine-months periods ended September 30,
1995 was reduced by $766,000 and $3,200,000, respectively due to the utilization
of net operating loss carryforwards.
NOTE E - 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 - 10,407,998 shares at September 30, 1996 and
10,401,831 at December 31, 1995. The increase in outstanding
shares results from the issuance of 6,167 common shares upon the
exercise of stock options.
NOTE F - 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. On a
fully diluted basis, both net income and common shares outstanding are adjusted
to assume the conversion of the convertible senior subordinated debentures.
Fully diluted earnings per share were as follows for the three and nine-month
periods ended September 30, 1996 and September 30, 1995, respectively.
Three Months Ended Nine Months Ended
September 30 Septmeber 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Continuing operations $ .20 $ .20 $ .66 $ .91
Discontinued operations .73 .08 .96 .23
------ ------ ------ ------
Net Income $ .93 $ .28 $ 1.62 $ 1.14
====== ====== ====== ======
Common shares used in the
computation 12,075 11,950 12,128 11,191
====== ====== ====== ======
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NOTE G - SALE OF BENNETT INDUSTRIES
On July 31, 1996, the Company completed the sale of substantially all of the
assets of Bennett Industries, Inc. ("Bennett"), a wholly-owned subsidiary which
manufactures plastic containers, to North American Packaging Corporation, an
indirect wholly-owned subsidiary of Southcorp Holdings Limited , an Australian
company, for approximately $50 million in cash, resulting in a pretax gain of
approximately $14 million recognized in the third quarter of 1996. The results
of operations and changes in cash flows for Bennett have been classified as
discontinued operations for all periods presented in the related consolidated
condensed statements of income and the consolidated condensed statements of cash
flows, respectively. Interest expense has been allocated to discontinued
operations based on the ratio of net assets discontinued to the total net assets
of the consolidated entity plus consolidated debt. The assets and liabilities of
Bennett have been classified in the consolidated condensed balance sheets as net
assets of discontinued operations at December 31, 1995. The Company now operates
in two industry segments: manufactured products and logistics.
Summary operating results of the discontinued operations,excluding the above
gain, for the three and nine-month periods ended September 30, 1996 and
September 30, 1995 were as follows:
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Sales $ 7,897 $21,452 $49,448 $63,040
Costs and Expenses 7,481 20,496 44,502 60,440
------- ------- ------- -------
Income from discontinued operations
before income taxes 416 956 4,946 2,600
Income taxes 115 -0- 1,820 -0-
------- ------- ------- -------
Net income from discontinued
operations $ 301 $ 956 $ 3,126 $ 2,600
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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 September 30, 1996, and the
related consolidated condensed statements of income for the three-month and
nine-month periods ended September 30, 1996 and 1995, and the consolidated
condensed statements of cash flows for the nine-month periods ended September
30, 1996 and 1995. 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, 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended, not
presented herein, and in our report dated February 22, 1996, 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, 1995, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
October 18, 1996
Cleveland, Ohio
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MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
FIRST NINE MONTHS 1996 VERSUS FIRST NINE MONTHS 1995
On July 31, 1996, substantially all of the assets of Bennett Industries,
Inc., a wholly-owned subsidiary of the Company, which manufactures plastic
containers, were sold to North American Packaging Corporation, an indirect
wholly-owned subsidiary of Southcorp Holding Limited of Australia for
approximately $50 million in cash. Accordingly, the results of operations and
changes in cash flows of Bennett have been classified as discontinued operations
for all periods presented in the consolidated condensed statements of income and
cash flows. The assets and liabilities of Bennett have been classified in the
consolidated condensed balance sheets as net assets of discontinued operations
at December 31, 1995. The Company now operates in two industry segments:
manufactured products and logistics.
Effective March 31, 1995, the Company acquired all of the shares of RB&W
Corporation (RB&W) in exchange for $31 million in cash and 2.0 million of its
common shares in a transaction valued at $54.2 million. The combination has been
accounted for as a purchase and, accordingly, the operations of RB&W are
included in the consolidated financial statements as of that date. The metal
forming business of RB&W is included within the manufactured products segment,
and the supply chain management business comprises the Company's logistics
segment.
Net sales from continuing operations increased by $53.5 million or 26% in the
first nine months of 1996 from the corresponding period of the prior year. Of
the sales increase, approximately $47 million pertains to incorporating RB&W in
the consolidated results for the entire nine months of 1996 with the remainder
pertaining to acquisitions made subsequent to the second quarter of 1995.
Gross profit from continuing operations rose to $44.0 million in the current
period from $34.7 million in the first nine months of 1995. RB&W accounted for
approximately 85% of the increase while acquisitions made subsequent to the
second quarter of 1995 accounted for the remainder. Consolidated gross margins
were 16.8% of sales in the current period and 16.7% in the first nine months
of 1995.
Selling, general and administrative costs from continuing operations
increased by 33% in the current period primarily as a result of incorporating
RB&W into the consolidated results for the entire first nine months of 1996. Of
the total increase of $7.1 million, 62% pertains to RB&W and the remainder to
increased sales, one time charges related to the installation of new systems,
start-up costs related to the Company's cap and vial business and to other
companies acquired during 1995. As a percentage of sales, consolidated selling,
general and administrative costs accounted for 10.8% of the sales dollar in the
current period and 10.2% in the corresponding period of the prior year.
Interest expense from continuing operations increased by $1.4 million in the
current period due to higher levels of debt outstanding during the period.
Average debt outstanding for the period increased from $84.6 million in 1995 to
$109.9 million in 1996. The increase in borrowings was caused by the acquisition
of RB&W as of April 1, 1995, and higher levels of revolving credit debt to
support increased sales and production. Interest rates for the period are
approximately the same as in the first nine months of 1995.
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As of December 31, 1995, the Company recorded the deferred tax assets
relating to anticipated future income tax benefits from utilization of net
operating loss carryforwards. As a result, as of January 1, 1996, the Company
began to fully provide for Federal income taxes. At December 31, 1995, the
Company had net operating loss carryforwards for tax purposes of approximately
$16.0 million available to offset future taxable income. During 1996, as a
result of the gain on the sale of Bennett Industries, it is expected that the
entire amount of net operating loss carryforwards will be utilized.
Additionally, a subsidiary of the Company has net operating loss carryforwards
for tax purposes of approximately $10.0 million, 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 from continuing operations for the 1995 period was reduced
by $3.2 million due to the utilization of net operating loss carryforwards.
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995
Net sales from continuing operations increased by $2.6 million or 3% in the
current period from the corresponding period of the prior year. The increase in
sales pertains to companies acquired subsequent to the second quarter of 1995.
Gross profit from continuing operations rose to $13.0 million in the current
period from $11.5 million in the third quarter of 1995 and is primarily
attributable to internal growth. Consolidated gross margins were approximately
16% in the current period as compared to 15% in the corresponding period of the
prior year.
Selling, general, and administrative costs from continuing operations
increased by 26% in the period and is primarily due to increased sales, one time
charges related to the installation of new systems, start-up costs related to
the Company's cap and vial system and to businesses acquired in or after the
third quarter of 1995. As a percentage of sales, consolidated selling, general
and administrative costs approximated 12% in the current period versus 10% in
the third quarter of 1995.
During the current period, the Company realized a gain on the sale of
securities of approximately $1.5 million.
Interest expense from continuing operations decreased by $145 thousand in the
third quarter of 1996 due to lower levels of debt outstanding during the period.
During the period the Company applied the proceeds from the sale of its
container division to pay down outstanding revolving credit debt. Average debt
outstanding for the period decreased from $109.9 million in 1995 to $89.8
million in 1996. Interest rates for both periods are approximately the same.
LIQUIDITY AND SOURCES OF CAPITAL
Current financial resources (working capital and available bank borrowing
arrangements) and anticipated funds from continuing operations are expected to
be adequate to meet current cash requirements, including capital expenditures.
The Company's recent growth has largely been fueled by acquisitions. In the
event additional capital resources are needed for other opportunities in the
near future, the Company believes adequate financing is either in place or would
be available. In addition, on July 31, 1996 the Company applied the net proceeds
from the sale of Bennett (approximately $50 million) to reduce outstanding bank
borrowings. The Company currently has in place a $125 million bank agreement of
which $53.7 million is borrowed as of October 31, 1996.
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During the nine-month period ended September 30, 1996, the Company generated
$15.2 million from continuing operations before changes in operating assets
and liabilities. After giving effect to the use of $16.9 million in the
operating accounts and $1.5 million provided from discontinued operations, the
Company used $235 thousand in operating activities. This amount coupled with
capital expenditures of $8.6 million was funded by bank borrowings of $9.5
million.
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at September 30, 1996, and
for the three-month and nine-month periods then ended have been reviewed, prior
to filing, by Ernst & Young LLP, the Company's independent accountants, and
their report is included herein.
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PART II
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OTHER INFORMATION
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the third quarter of 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(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
September 30, 1996.
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.
--------------------------------------
(Registrant)
By /s/ J.S. WALKER
-----------------------------------
Name: J.S. Walker
Title: Vice President and Chief
Financial Officer
Dated November 14, 1996
--------------------------------
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EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Exhibit
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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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