UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 0-4479
THE OHIO ART COMPANY
(Exact name of registrant as specified in its charter)
Ohio 34-4319140
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 111, Bryan, Ohio 43506
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (419) 636-3141
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 _____
At July 31, 1995 there were 491,171 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 10
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<TABLE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
---------------- ------------------
1995 1994 1995 1994
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $13,822 $13,524 $ 6,811 $ 7,496
Other Income 551 336 317 112
------- ------- ------- -------
14,373 13,860 7,128 7,608
Costs and Expenses:
Cost of products sold 10,893 10,544 5,242 5,614
Selling, administrative
and general 5,652 5,231 2,865 2,621
Interest 33 35 18 17
------- ------- ------- -------
16,578 15,810 8,125 8,252
------- ------- ------- -------
LOSS BEFORE INCOME TAXES (2,205) (1,950) (997) (644)
Income Tax Credit (750) (663) (339) (219)
_______ _______ _______ _______
NET LOSS $(1,455) $(1,287) $ (658) $ (425)
======= ======= ======= =======
Net Loss Per Share $ (2.96) $ (2.58) $ (1.35) $ (.86)
Dividends Per Share $ .36 $ .18 $ .06 $ .06
Average Shares Outstanding 492 499 489 498
(Note 3)
<FN>
See notes to condensed consolidated unaudited financial statements.
Page 2 of 10
</TABLE>
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FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
1995 1994
------- -------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 137 $ 4,400
Accounts receivable less allowance
(1995 - $494; 1994 - $465) 4,732 7,494
Inventories - Note 2
On first-in, first-out cost method:
Finished products 5,422 2,902
Products in process 543 287
Raw materials 4,053 2,835
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,475) (2,445)
------- -------
7,543 3,579
Recoverable income taxes 738 -0-
Prepaid expenses 772 955
Deferred federal income taxes 811 810
------- -------
Total Current Assets 14,733 17,238
Property, Plant and Equipment
Cost 26,005 24,849
Less allowances for depreciation 20,272 19,305
------- -------
5,733 5,544
Other Assets 1,533 1,530
Goodwill 852 862
------- -------
$22,851 $25,174
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
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.
</TABLE>
Page 3 of 10
<PAGE>
FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
1995 1994
------- -------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,220 $ 6,055
Income taxes payable -0- 678
Other current liabilities 720 1,195
------- -------
Total Current Liabilities 5,940 7,928
Deferred Federal Income Taxes 906 906
Long-Term Obligations 2,223 454
Stockholders' Equity
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1995-491,267; 1994-497,470
shares (excluding treasury shares of
187,742 and 181,539 respectively) 491 497
Additional paid-in capital 745 760
Retained earnings 12,546 14,629
------- -------
13,782 15,886
------- -------
$22,851 $25,174
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements
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.
</TABLE>
Page 4 of 10
<PAGE>
FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
------------------
1995 1994
------- -------
(Thousands of dollars)
<S> <C> <C>
Operating Activities
Net loss $(1,455) $(1,287)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 967 900
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (3,732) (2,108)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (4,220) (2,495)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (1,156) (641)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,156) (641)
Financing Activities
Borrowings 1,500 400
Purchase of common stock (208) (12)
Cash dividends (179) (90)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,113 298
------- -------
Cash
Decrease during period (4,263) (2,838)
At beginning of period 4,400 3,019
------- -------
CASH AT END OF PERIOD $ 137 $ 181
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
</TABLE>
Page 5 of 10
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FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1995
Note 1 - Basis of Presentation
The accompanying condensed consolidated unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for
the year ended December 31, 1994.
All adjustments necessary (consisting of normal adjustments), in the
opinion of management, for a fair statement of results for the periods
indicated have been made.
Due to the seasonal nature of the toy business in which the Company is
engaged and the factors set forth in Management's Discussion and
Analysis, the results of interim periods are not necessarily indicative
of a full calendar year.
Note 2 - Inventories
The Company takes a physical inventory annually at each location. The
amounts shown in the quarterly financial statements have been determined
using the Company's standard cost accounting system. An estimate, based
on past experience, of the adjustment which may result from the next
physical inventory has been included in the financial statements.
Inventories are priced at the lower of cost or market under the last-in,
first-out (LIFO) cost method. Since inventories under the LIFO method
can only be determined at the end of each fiscal year based on
quantities and costs at that time, interim inventory valuation must be
based on estimates of quantities and costs at year-end.
Note 3 - Average Shares Outstanding
Unallocated ESOP shares are deducted from outstanding shares of Common
Stock to arrive at average shares outstanding.
Page 6 of 10
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FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS
- ----------
Net sales for the six months ended June 30, 1995 increased slightly to
$13,822,000 from $13,524,000 for the comparable 1994 period and
decreased to $6,811,000 for the second quarter of 1995 from $7,496,000
for the comparable 1994 period. Sales during the first half of the year
as well as for the three months ended June 30th, increased to our
international and lithography customers while sales to domestic
customers and sales by Strydel, Inc., our injection molding facility,
decreased. The decrease in sales in the second quarter was due
primarily to the decrease in domestic toy sales of approximately
$800,000, which were hampered by the delay of new toy product
start-ups which were delayed from the beginning of the second quarter
until late in the second quarter. The increase in sales for the six
months ended June 30, 1995 was due primarily to sales to our
international customers, which increased approximately $700,000. This
was the result of restructuring our distribution network with western
European toy companies, which was effective January 1, 1995. This
increase was offset by a decrease in domestic toy sales of approximately
$400,000 for the six months ended June 30, 1995 for the reason cited
above.
The Company's business is seasonal, with approximately 60-70% of its
sales being made in the last six months of the calendar year in recent
years. Because of the seasonality of the Company's business, the dollar
order backlog in July is not necessarily indicative of expectations of
sales for the full year. Subject to industry practice and comments as
detailed in the Registrant's annual Form 10-K for the year ended
December 31, 1994, order receipts through July 31st are approximately
$21,100,000 versus $13,600,000 for the same period of 1994, or
approximately 55% ahead of the prior year. The increase in the order
backlog is due to the delay in new toy product start-ups for which
orders have beeen received but shipments have not yet been made, and
orders received for the promotion of the 35th anniversary of Etch A
Sketchr which, due to the delay in special packaging, have not yet been
shipped.
Gross profit margin (percentage) for the six months ended June 30, 1995
(21.2%) decreased from the comparable 1994 period (22.0%). Gross profit
margin percentage for the second quarter of 1995 decreased to 23.0% from
25.1% for the similar period of 1994. The decrease in gross profit
margin is due to lower domestic toy sales production which resulted in
larger overhead per unit of sales variance than the prior year.
Page 7 of 10
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selling, administrative, and general expenses for the six months ended
June 30, 1995 increased to $5,652,000 from $5,231,000 for the comparable
1994 period and increased to $2,865,000 for the second quarter of 1995
from $2,621,000 for the comparable 1994 period. For the six months
ended June 30, 1995, royalty expense increased approximately $130,000 as
the result of increased sales of products subject to inventor royalties;
travel and entertainment increased approximately $150,000 due to
increased traveling for both international and domestic sales
activities, and salaries increased approximately $90,000 as the result
of a higher headcount. For the second quarter, royalty expense
increased approximately $80,000, travel and entertainment increased
approximately $50,000, and salaries increased approximately $50,000; all
for the same reasons as stated above.
FINANCIAL CONDITION
- -------------------
The Company's current ratio increased to 2.5 to 1 at June 30, 1995 from
2.2 to 1 at December 31, 1994. The Company used cash on hand as well as
cash collected from accounts receivable at December 31, 1994, and
borrowings from the Revolving Credit Agreement (classified as a long-
term liability) to finance the buildup of inventory, payment of income
taxes, and paydown of accounts payable. Inventories at June 30, 1995
increased $3,964,000 from December 31, 1994. This change during the
first half of 1995 is consistent with the seasonal nature of the
Company's business, as inventories are built during the first six months
of the year for shipment during the last six months of the year.
On May 26, 1995, the Company renewed its three-year $10,000,000
Revolving Credit Agreement which extended the maturity date until May
1998. The Company also changed its $6,000,000 Demand Credit Agreement
to a maturity date of May 25, 1996. All the terms and conditions
related to both agreements are the same as the previous agreements
except for the maturity date.
Page 8 of 10
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FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
PART II - OTHER INFORMATION
Item 4. (a) The annual meeting of stockholders of The Ohio Art
Company was held on May 2, 1995.
(c) Set forth below is the tabulation of the votes on each
nominee for election as a director:
WITHHOLD
FOR AUTHORITY
W. C. Killgallon 465,479 1,833
Martin L. Killgallon 465,479 1,833
E. J. Wright 465,479 1,833
Frank L. Gallucci 465,479 1,833
Item 6. Exhibits and reports on Form 8-K - The company did not
file any reports on Form 8-K during the three months ended
June 30, 1995.
The information called for in Items 1, 2, 3, and 5 are not applicable.
Page 9 of 10
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FORM 10-Q
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.
THE OHIO ART COMPANY
----------------------
(Registrant)
Date: August 14, 1995 /s/ William C. Killgallon
--------------------------
William C. Killgallon
Chairman of the Board
Date: August 14, 1995 /s/ M. L. Killgallon II
------------------------
M. L. Killgallon II
President
Date: August 14, 1995 /s/ Paul R. McCusty
----------------------
Paul R. McCusty
Vice President Finance
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 137
<SECURITIES> 0
<RECEIVABLES> 5226
<ALLOWANCES> (494)
<INVENTORY> 7543
<CURRENT-ASSETS> 14733
<PP&E> 26005
<DEPRECIATION> (20272)
<TOTAL-ASSETS> 22851
<CURRENT-LIABILITIES> 5940
<BONDS> 0
<COMMON> 491
0
0
<OTHER-SE> 13291
<TOTAL-LIABILITY-AND-EQUITY> 22851
<SALES> 13822
<TOTAL-REVENUES> 14373
<CGS> 10893
<TOTAL-COSTS> 10893
<OTHER-EXPENSES> 5652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (2205)
<INCOME-TAX> (750)
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<NET-INCOME> (1455)
<EPS-PRIMARY> (2.96)
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</TABLE>
