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, 1996
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, 1996 there were 936,867 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 12
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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
---------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $12,106 $13,822 $ 6,785 $ 6,811
Other Income 300 551 115 317
------- ------- ------- -------
12,406 14,373 6,900 7,128
Costs and Expenses:
Cost of products sold 10,726 10,893 5,793 5,242
Selling, administrative
and general 5,449 5,652 2,698 2,865
Interest 120 33 92 18
------- ------- ------- -------
16,295 16,578 8,583 8,125
------- ------- ------- -------
LOSS BEFORE INCOME TAXES (3,889) (2,205) (1,683) (997)
Income Tax Credit (1,361) (750) (589) (339)
------- ------- ------- -------
NET LOSS $(2,528) $(1,455) $(1,094) $ (658)
======= ======= ======= =======
Net Loss Per Share (Note 3) $ (2.73) $ (1.48) $ (1.18) $ (.68)
Dividends Per Share (Note 3) $ .17 $ .18 $ .04 $ .03
Average Shares Outstanding 928 984 924 978
(Note 3)
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
</TABLE>
Page 2 of 12
<PAGE>
FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
1996 1995
-------- -------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current Assets
Cash (Overdraft) $ (36) $ 2,800
Accounts receivable less allowance
(1996 - $511; 1995 - $494) 4,785 7,123
Inventories - Note 2
On first-in, first-out cost method:
Finished products 5,557 5,067
Products in process 902 445
Raw materials 3,269 2,991
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,451) (2,420)
------- -------
7,277 6,083
Recoverable income taxes 1,381 -0-
Prepaid expenses 1,216 915
Deferred federal income taxes 640 640
------- -------
Total Current Assets 15,263 17,561
Property, Plant and Equipment
Cost 28,316 26,199
Less allowances for depreciation 21,367 20,735
------- -------
6,949 5,464
Other Assets 1,872 1,706
Goodwill 831 841
------- -------
$24,915 $25,572
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
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.
</FN>
</TABLE>
Page 3 of 12
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FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
1996 1995
------- -------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,495 $ 4,419
Income taxes payable -0- 901
Other current liabilities 945 1,866
------- -------
Total Current Liabilities 4,440 7,186
Deferred Federal Income Taxes 893 887
Long-Term Obligations 5,963 667
Stockholders' Equity (Note 3)
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1996-940,059; 1995-961,266
shares (excluding treasury shares of
417,959 and 396,752 respectively) 940 961
Additional paid-in capital 238 253
Retained earnings 12,441 15,618
------- -------
13,619 16,832
------- -------
$24,915 $25,572
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
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.
</FN>
</TABLE>
Page 4 of 12
<PAGE>
FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
------------------
1996 1995
------- -------
(Thousands of dollars)
<S> <C> <C>
Operating Activities
Net loss $(2,528) $(1,455)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 632 967
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (3,438) (3,732)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (5,334) (4,220)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (2,117) (1,156)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,117) (1,156)
Financing Activities
Borrowings 5,300 1,500
Purchase of common stock (525) (208)
Cash dividends (160) (179)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,615 1,113
------- -------
Cash
Decrease during period (2,836) (4,263)
At beginning of period 2,800 4,400
------- -------
CASH (OVERDRAFT) AT END OF PERIOD $ (36) $ 137
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
</TABLE>
Page 5 of 12
<PAGE>
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
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, 1995.
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 - Common Stock
The number of shares of common stock has been restated for all prior
periods to reflect the two for one stock split effective May 7, 1996
for stockholders of record as of April 9, 1996.
Unallocated ESOP shares are deducted from outstanding shares of Common
Stock to arrive at average shares outstanding.
Page 6 of 12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS
- ----------
Net sales for the six months ended June 30, 1996 decreased approximately
12% to $12,106,000 from $13,822,000 for the comparable 1995 period and
decreased slightly to $6,785,000 for the second quarter of 1996 from
$6,811,000 for the comparable 1995 period. The majority of the decrease
is attributable to domestic sales, which decreased approximately
$1,500,000. This decrease is directly related to two major retailers
who carried our "Pocket" category of products in 1995 which they no
longer carry in 1996. International toy shipments were down as well
(approximately $400,000) while our Diversified Products division
increased (approximately $800,000).
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, 1995, order receipts through July 31st are approximately
$31,600,000 versus $38,800,000 for the same period of 1995, or
approximately 19% behind the prior year. As detailed above, the loss of
listings at two major retailers contributed to this decrease.
Gross profit margin (percentage) for the six months ended June 30, 1996
(11.4%) decreased significantly from the comparable 1995 period (21.2%).
Gross profit margin percentage for the second quarter of 1996 decreased
to 14.6% from 23.0% for the similar period of 1995. The decrease in
gross profit margin is primarily due to the change in product mix and the
sale of lower margin items had a greater influence on overall margins
because of the lower level of sales. Manufacturing overhead variances,
although slightly less than the prior year in dollars, had a greater
negative effect on margin percentages because of the lower level of
sales.
Selling, administrative, and general expenses for the six months ended
June 30, 1996 decreased to $5,449,000 from $5,652,000 for the comparable
1995 period and decreased to $2,698,000 for the second quarter of 1996
from $2,865,000 for the comparable 1995 period. The decrease is primarily
advertising expense, which decreased approximately $200,000 for both time
periods. Advertising expense is budgeted based on the current level of
sales, as well as other factors.
Page 7 of 12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
- -------------------
The Company's current ratio increased to 3.4 to 1 at June 30, 1996 from
2.4 to 1 at December 31, 1995. This change was the result of using cash
on hand, cash from the collection of accounts receivable, and the
non-current line of credit to reduce accounts payable, to pay income
taxes owed on the prior year profits, to finance the build-up of
inventories, and to finance the loss generated in the first six
months of 1996.
On May 10, 1996, the Company renewed its three-year $10,000,000
Revolving Credit Agreement which extended the maturity date until May
1999. The Company also renewed its one-year term loan to a maturity
date of May 25, 1997. All the terms and conditions related to both
agreements are the same as the previous agreements except for the
maturity date.
PART II - OTHER INFORMATION
Item 4. (a) The annual meeting of stockholders of The Ohio Art
Company was held on May 7, 1996.
(c) Set forth below is the tabulation of the votes on each
nominee for election as a director:
WITHHOLD
FOR AUTHORITY
------- ---------
Neil H. Borden 866,862 768
William C. Killgallon 866,862 768
Wayne E. Shaffer 864,942 1,688
Item 5. The following exhibits are filed as part of this Form 10-Q
quarterly report:
1) Amendment to the Revolving Credit Agreement dated
May 10, 1996
2) Credit agreement dated May 10, 1996
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, 1996.
The information called for in Items 1, 2, and 3 are not applicable.
Page 8 of 12
<PAGE>
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, 1996 /s/ William C. Killgallon
--------------------------
William C. Killgallon
Chairman of the Board
Date: August 14, 1996 /s/ M. L. Killgallon II
------------------------
M. L. Killgallon II
President
Date: August 14, 1996 /s/ Paul R. McCusty
----------------------
Paul R. McCusty
Vice President Finance
Page 9 of 12
<PAGE>
FORM 10-Q
Item 5 - Exhibit 1
Amendment
Note #:883798 The Fifth Third Bank of NW Ohio, N.A.
606 Madison Avenue
Amount: $10,000,000.00 Toledo, Ohio 43604
Due Date: May 25, 1999
This Amendment entered into the 10th day of May, 1996, by The
Fifth Third Bank of Northwestern Ohio, N.A. ("Bank"), and THE OHIO ART
COMPANY ("Borrower").
WHEREAS, Borrower executed and delivered to Fifth Third Bank a
Credit Agreement and a $10,000,000.00 Revolving Note, both dated January
24, 1994, a copy of the $10,000,000.00 Revolving Note is attached hereto
as Exhibit "A" and made a part hereof; and
WHEREAS, The Fifth Third Bank assigned to Bank all of its right,
title and interest in the $10,000,000.00 Revolving Note and in that part
of the Credit Agreement which relates in any way to the loan evidenced
by the $10,000,000.00 Revolving Note; and
WHEREAS, the present balance due on the $10,000,000.00 Revolving
Note is $4.163M; and
WHEREAS, Borrower and Bank have agreed to amend the $10,000,000.00
Revolving Note and the Credit Agreement, as follows.
NOW THEREFORE, Borrower and Bank mutually agree to the following:
1. The following recitals, the $10,000,000.00 Revolving Note,
the Credit Agreement, and all documents pertaining thereto
are incorporated by reference.
2. The maturity date of the $10,000,000.00 Revolving Note is
hereby extended to May 25, 1999.
3. The Credit Agreement is amended to provide that Borrower may
utilize up to $600,000 of the loan proceeds for Employee
Stock Ownership Plan purposes.
4. The warrant of attorney to confess judgment and all waivers
in the $10,000,000.00 Revolving Note are hereby expressly
granted to the Bank by Borrower.
Page 10 of 12
<PAGE>
FORM 10-Q
5. Except as amended hereby, the original terms and conditions
of the $10,000,000.00 Revolving Note and the Credit Agreement
are and remain in full force and effect.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY GAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAILURE ON HIS PART TO
COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
/s/ Paul R. McCusty
By: Paul R. McCusty
Vice President Finance
Item 5 - Exhibit 2
Amendment
Note #:883798 The Fifth Third Bank of NW Ohio, N.A.
606 Madison Avenue
Amount: $6,000,000.00 Toledo, Ohio 43604
Due Date: May 25, 1997
This Amendment entered into the 10th day of May, 1996, by The
Fifth Third Bank of Northwestern Ohio, N.A. ("Bank"), and THE OHIO ART
COMPANY ("Borrower").
WHEREAS, Borrower executed and delivered to Fifth Third Bank a
Credit Agreement and a $6,000,000.00 Revolving Note, both dated January
24, 1994, a copy of the $6,000,000.00 Revolving Note is attached hereto
as Exhibit "A" and made a part hereof; and
WHEREAS, Borrower and Bank have agreed to amend the $6,000,000.00
Revolving Note and the Credit Agreement, as follows.
NOW THEREFORE, Borrower and Bank mutually agree to the following:
1. The following recitals, the $6,000,000.00 Revolving Note, the
Credit Agreement, and all documents pertaining thereto are
incorporated by reference.
Page 11 of 12
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FORM 10-Q
2. The outstanding principal and all accrued and unpaid interest
shall be due and payable on May 25, 1997 instead of on
demand. Interest on any outstanding principal will continue
to accrue and be payable monthly or more frequently as
provided in the $6,000,000.00 Revolving Note.
3. The warrant of attorney to confess judgment and all waivers
in the $6,000,000.00 Revolving Note are hereby expressly
granted to the Bank by Borrower.
5. Except as amended hereby, the original terms and conditions
of the $6,000,000.00 Revolving Note and the Credit Agreement
are and remain in full force and effect.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY GAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAILURE ON HIS PART TO
COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
/s/ Paul R. McCusty
By: Paul R. McCusty
Vice President Finance
Page 12 of 12
<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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> (36)
<SECURITIES> 0
<RECEIVABLES> 5,296
<ALLOWANCES> 511
<INVENTORY> 7,277
<CURRENT-ASSETS> 15,263
<PP&E> 28,316
<DEPRECIATION> 21,367
<TOTAL-ASSETS> 24,915
<CURRENT-LIABILITIES> 4,440
<BONDS> 0
0
0
<COMMON> 940
<OTHER-SE> 12,679
<TOTAL-LIABILITY-AND-EQUITY> 24,915
<SALES> 12,106
<TOTAL-REVENUES> 12,406
<CGS> 10,726
<TOTAL-COSTS> 10,726
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> (3,889)
<INCOME-TAX> (1,361)
<INCOME-CONTINUING> (2,528)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,528)
<EPS-PRIMARY> (2.73)
<EPS-DILUTED> (2.73)
</TABLE>
