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
MARCH 31, 1997
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
23000 EUCLID AVENUE, CLEVELAND, OHIO 44117
- ----------------------------------------- -----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 216/692-7200
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, 1997: 10,995,462 including 187,500 shares held in
escrow and 306,171 held in treasury.
The Exhibit Index is located on page 12.
================================================================================
2
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets -- March 31, 1997 and December 31, 1996
Consolidated condensed statements of income -- Three months ended March 31, 1997
and 1996
Consolidated condensed statements of cash flows -- Three months ended March 31,
1997 and 1996
Notes to consolidated condensed financial statements -- March 31, 1997
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
2
3
PART I
FINANCIAL INFORMATION
3
4
CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
MARCH 31 DECEMBER 31
1997 1996
----------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents......................................... $ 1,681 $ 4,659
Accounts receivable, less allowances for doubtful accounts of
$1,189 at March 31, 1997 and $1,048 at December 31, 1996....... 64,998 58,764
Inventories....................................................... 85,742 83,758
Deferred taxes.................................................... 3,000 3,000
Other current assets.............................................. 7,334 5,718
--------- --------
Total Current Assets...................................... 162,755 155,899
Property, Plant and Equipment....................................... 113,388 106,862
Less accumulated depreciation..................................... 54,848 53,054
--------- --------
58,540 53,808
Other Assets
Excess purchase price over net assets acquired, net............... 44,209 40,305
Deferred taxes.................................................... 14,100 14,100
Other............................................................. 20,673 18,798
--------- --------
$ 300,277 $282,910
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable............................................ $ 31,122 $ 28,545
Accrued expenses.................................................. 19,398 20,695
Current portion of long-term liabilities.......................... 6,936 6,936
--------- --------
Total Current Liabilities................................. 57,456 56,176
Long-Term Liabilities, less current portion
Long-term debt.................................................... 67,794 55,571
Other postretirement benefits..................................... 28,055 28,442
Other............................................................. 4,787 4,788
--------- --------
100,636 88,801
Convertible Senior Subordinated Debentures.......................... 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock......................................... -0- -0-
Common Stock................................................... 10,808 10,433
Additional paid-in capital........................................ 52,937 49,337
Retained earnings................................................. 59,945 57,703
Treasury stock, at cost........................................... (3,740) (1,775)
--------- --------
119,950 115,698
--------- --------
$ 300,277 $282,910
========= ========
Note: The balance sheet at December 31, 1996 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.
4
5
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars in thousands -- except per share data)
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1996
------- -------
Net sales................................................................ $93,806 $90,854
Cost of products sold.................................................... 78,763 75,324
------- -------
Gross profit........................................................... 15,043 15,530
Selling, general and administrative expenses............................. 9,862 9,473
Interest expense......................................................... 1,623 1,893
------- -------
Income from continuing operations before income taxes.................. 3,558 4,164
Income taxes............................................................. 1,316 1,582
------- -------
Income from continuing operations...................................... 2,242 2,582
Income from discontinued operations...................................... -0- 1,499
------- -------
Net Income..................................................... $ 2,242 $ 4,081
======= =======
Net income per common share:
Continuing operations.................................................. $ .20 $ .24
Discontinued operations................................................ -0- .14
------- -------
Net income............................................................. $ .20 $ .38
======= =======
Common shares used in the computation.................................... 11,097 10,816
======= =======
See notes to consolidated condensed financial statements.
5
6
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars in thousands)
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1996
------- -------
OPERATING ACTIVITIES
Net income............................................................. $ 2,242 $ 4,081
Adjustments to reconcile net income to net cash provided (used) by
continuing operations:
Discontinued operations........................................... -0- (1,499)
Depreciation and amortization..................................... 2,248 2,648
Deferred income taxes............................................. -0- 1,200
------- -------
4,490 6,430
Changes in operating assets and liabilities of continuing operations
excluding acquisitions of businesses:
Accounts receivable............................................... (5,578) (8,301)
Inventories and other current assets.............................. (2,597) (167)
Accounts payable and accrued expenses............................. (251) (1,296)
Other............................................................. (439) (2,495)
------- -------
Net Cash Used by Continuing Operations......................... (4,375) (5,829)
Net Cash Provided by Discontinued Operations................... -0- 1,911
------- -------
Net Cash Used by Operations.................................. (4,375) (3,918)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net........................ (3,438) (3,611)
Costs of acquisitions, net of cash acquired............................ (4,100) -0-
Investments............................................................ (1,323) -0-
------- -------
Net Cash Used by Investing Activities.......................... (8,861) (3,611)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions....................... 4,100 -0-
Proceeds from bank arrangements for operations......................... 9,400 7,500
Payments on long-term debt............................................. (1,277) (71)
Purchase of treasury stock............................................. (1,965) -0-
Issuance of common stock under stock option plan....................... -0- 45
------- -------
Net Cash Provided by Financing Activities...................... 10,258 7,474
------- -------
Decrease in Cash and Cash Equivalents............................. (2,978) (55)
Cash and Cash Equivalents at Beginning of Period.................. 4,659 2,662
------- -------
Cash and Cash Equivalents at End of Period........................ $ 1,681 $ 2,607
======= =======
See notes to consolidated condensed financial statements.
6
7
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
(Dollars in thousands -- except per share data)
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-months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
NOTE B -- 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 America Packaging Corporation,
an indirect wholly-owned subsidiary of Southcorp Holdings Limited , an
Australian company, for $50.8 million in cash, resulting in a pretax gain of
$13.8 million recognized in the third quarter of 1996. The results of operations
and changes in cash flows for Bennett for the three months ended March 31, 1996
have been classified as discontinued operations. 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.
Summary operating results of the discontinued operations, excluding the
above gain on sale, for the three months ended March 31, 1996 were as follows:
Sales................................................................... $19,818
Costs and expenses...................................................... 17,401
------
Income from discontinued operations before income taxes................. 2,417
Income taxes............................................................ 918
------
Net income from discontinued operations................................. $ 1,499
======
NOTE C -- INVENTORIES
The components of inventory consist of the following:
MARCH 31 DECEMBER 31
1997 1996
-------- -----------
In process and finished goods............................... $62,228 $60,587
Raw materials and supplies.................................. 23,514 23,171
------- -------
$85,742 $83,758
======= =======
7
8
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
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 -- 10,807,962 shares at March 31, 1997 and
10,432,998 at December 31, 1996. The increase in outstanding
shares results from the issuance of 375,000 common 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 weighted 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 for the three months
ended March 31, 1997 and March 31, 1996 were as follows:
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1996
------- -------
Continuing operations.......................................... $ .20 $ .24
Discontinued operations........................................ -0- .12
------- -------
Net Income..................................................... $ .20 $ .36
======= =======
Common shares used in the computation.......................... 12,248 12,022
======= =======
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in no change
in primary earnings per share for the three months ended March 31, 1997 and
March 31, 1996. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
8
9
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, 1997, and the
related consolidated condensed statements of income and cash flows for the
three-month periods ended March 31, 1997 and 1996. 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, 1996, 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 17, 1997, 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, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ ERNST & YOUNG LLP
April 21, 1997
Cleveland, Ohio
9
10
MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
FIRST THREE MONTHS 1997 VERSUS FIRST THREE MONTHS 1996
On July 31, 1996, the Company completed the sale of substantially all of
the assets of Bennett Industries, Inc., a wholly-owned subsidiary of the
Company, which manufactures plastic containers, to North America Packaging
Corporation, an indirect wholly-owned subsidiary of Southcorp Holdings Limited,
an Australian company, for $50.8 million in cash, resulting in a pre-tax gain of
$13.8 million recognized in the third quarter of 1996. The results of operations
and changes in cash flows of Bennett for the three months ended March 31, 1996
have been classified as discontinued operations.
Net sales from continuing operations increased by $3.0 million or 3% in the
first three months of 1997 from the corresponding period of the prior year. The
increase was divided between internally generated sales increases and two small
acquisitions made in the first quarter of 1997.
Gross profit from continuing operations declined by $487 thousand in the
current period as compared to the first quarter of 1996. This decline is largely
attributable to certain operations included in the manufactured products segment
not achieving their sales goals due to shipments being extended into the balance
of 1997, thereby increasing the amount of unabsorbed burden for the period.
Consolidated gross margins were 16% of sales in the current period versus 17% in
the first three months of 1996.
Selling, general and administrative costs from continuing operations
increased by $389 thousand to $9.9 million from $9.5 million in the first
quarter of 1996. The increase in costs is primarily related to increased sales
for the period. As a percentage of sales, consolidated selling, general and
administrative costs accounted for 10.5% of the sales dollar in the current
period compared to 10.4% in the corresponding period of the prior year.
Interest expense from continuing operations decreased by $270 thousand in
the current period due to lower levels of debt outstanding during the period.
Average debt outstanding for the period decreased by approximately $32.6 million
from $121.5 million in 1996 to $88.9 million in 1997. The decrease resulted from
applying the net proceeds from the Bennett disposition to outstanding bank debt.
Interest rates were approximately the same in both periods.
At December 31, 1996, subsidiaries of the Company have net operating loss
carryforwards for tax purposes of approximately $15.0 million, subject to
certain limitations which expire in 2001 to 2007.
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. The Company currently has a credit agreement with a group of banks
($90 million revolving credit commitment and a $31.2 million term loan) of which
$75.2 million is borrowed as of April 30, 1997.
During the three-month period ended March 31, 1997, the Company generated
$4.5 million from continuing operations before changes in operating assets and
liabilities. After giving effect to the use of $8.9 million in the operating
accounts, the Company used $4.4 million for operating activities. During the
period, the Company invested $3.4 million in capital expenditures and $5.4
million for acquisitions and investments. During the quarter, the Company also
bought 148,746 shares of its common stock in the open market for $2.0 million.
As of March 31, 1997, the Company has 274,971 shares of its common stock in the
treasury. These activities were funded by a net increase in bank borrowings of
$12.2 million and a use of cash of $3.0 million.
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated condensed financial statements as of March 31, 1997, and
for the three-month periods ended March 31, 1997 and 1996, have been reviewed,
prior to filing, by Ernst & Young LLP, the Company's independent accountants,
and their report is included herein.
10
11
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
first quarter of 1997.
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 March 31, 1997.
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 May 13, 1997
---------------------------------
11
12
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 1997
EXHIBIT
- -------
11 Computation of net income per common share
15 Letter re: unaudited financial information
27 Financial data schedule (Electronic filing only)
12
