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 September 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 October 31, 1996 there were 929,459 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 9
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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>
Nine Months Ended Three Months Ended
September 30 September 30
---------------- ------------------
1996 1995 1996 1995
------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $24,636 $29,335 $12,530 $15,513
Other Income 453 805 153 254
------- ------- ------- -------
25,089 30,140 12,683 15,767
Costs and Expenses:
Cost of products sold 19,583 20,996 8,857 10,103
Selling, administrative
and general 9,202 9,862 3,753 4,210
Interest 243 112 123 79
------- ------- ------- -------
29,028 30,970 12,733 14,392
------- ------- ------- -------
INCOME(LOSS) BEFORE INCOME TAXES (3,939) (830) (50) 1,375
Income Taxes (Credit) (1,378) (291) (17) 459
------- ------- ------- -------
NET INCOME(LOSS) $(2,561) $ (539) $ (33) $ 916
======= ======= ======= =======
Net Income(Loss) Per Share $ (2.77) $ (.55) $ (.04) $ .93
(Note 3)
Dividends Per Share (Note 3) $ .21 $ .21 $ .04 $ .03
Average Shares Outstanding 924 974 917 956
(Note 3)
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
</TABLE>
Page 2 of 9
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FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30 December 31
1996 1995
------- -------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 451 $ 2,800
Accounts receivable less allowance
(1996 - $522; 1995 - $532) 9,417 7,123
Inventories - Note 2
On first-in, first-out cost method:
Finished products 3,390 5,067
Products in process 442 445
Raw materials 3,768 2,991
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,466) (2,420)
------- -------
5,134 6,083
Recoverable income taxes 1,398 -0-
Prepaid expenses 521 915
Deferred federal income taxes 640 640
------- -------
Total Current Assets 17,561 17,561
Property, Plant and Equipment
Cost 30,378 26,199
Less allowances for depreciation 21,713 20,735
------- -------
8,665 5,464
Other Assets 1,688 1,706
Goodwill 826 841
------- -------
$28,740 $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 9
<PAGE>
FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30 December 31
1996 1995
------- -------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,279 $ 4,419
Income taxes payable -0- 901
Other current liabilities 921 1,866
------- -------
Total Current Liabilities 4,200 7,186
Deferred Federal Income Taxes 887 887
Long-Term Obligations 10,271 667
Stockholders' Equity (Note 3)
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1996-930,188; 1995-961,266
shares (excluding treasury shares of
427,830 and 396,752 respectively) 930 961
Additional paid-in capital 231 253
Retained earnings 12,221 15,618
------- -------
13,382 16,832
------- -------
$28,740 $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 9
<PAGE>
FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30
------------------
1996 1995
------- -------
(Thousands of dollars)
<S> <C> <C>
Operating Activities
Net loss $(2,561) $ (539)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 978 1,451
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (5,298) (6,920)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (6,881) (6,008)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (4,179) (1,425)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (4,179) (1,425)
Financing Activities
Borrowings 9,600 4,800
Payments of debt -0- (500)
Purchase of common stock (692) (561)
Cash dividends (197) (208)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 8,711 3,531
------- -------
Cash
Decrease during period (2,349) (3,902)
At beginning of period 2,800 4,400
------- -------
CASH AT END OF PERIOD $ 451 $ 498
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
</TABLE>
Page 5 of 9
<PAGE>
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 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 9
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS
- ----------
Net sales for the nine months ended September 30, 1996 decreased
approximately 16% to $24,636,000 from $29,335,000 for the comparable
1995 period and decreased approximately 19% to $12,530,000 for the third
quarter of 1996 from $15,513,000 for the comparable 1995 period. The
majority of the decrease is attributable to domestic sales, which
decreased approximately $5,000,000 for the nine month period and
decreased approximately $3,000,000 for the three month period.
Approximately $2,400,000 of the $3,000,000 decrease for the three month
period was in the "Ohio Art Sports" catagory of product, which is
primarily basketball games. The termination of the Michael Jordan
license in 1995 significantly reduced the sale of basketball games in
1996. In addition, a major retailer purchased a significant quantity
of Grant Hill basketball games in 1995 which did not sell through at
retail in 1995 and therefore were not reordered in 1996. The domestic
sales decrease of approximately $5,000,000 for the nine month period, in
addition to the reasons cited above, is directly attributable to two
major retailers who carried our "Pocket" category of products in 1995
which they no longer carry in 1996.
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. Subject to industry practice and comments as detailed in the
Registrant's annual Form 10-K for the year ended December 31, 1995,
order backlog as of October 31st is approximately $6,882,000 versus
$7,443,000 at the same date in 1995 or approximately 8% lower than
the prior year. Based on the lower level of sales through the first
nine months, as well as the decrease in the order backlog, it is
anticipated that net sales for the calendar year 1996 will be lower
than 1995 sales by approximately 15% to 20%, although it is difficult to
predict the final outcome for 1996.
Other income for the nine months ended September 30, 1996 decreased to
$453,000 from $805,000 for the comparable 1995 period and decreased to
$153,000 for the third quarter of 1996 from $254,000 for the comparable
1995 period. The decrease in other income is primarily due to a
decrease in royalty income from the distribution of the Company's
products outside of the United States.
Gross profit margin (percentage) for the nine months ended September
30, 1996 (20.5%) and for the third quarter of 1996 (29.3%) decreased
significantly from the comparable 1995 periods (28.4% and 34.9%
respectively). 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.
Page 7 of 9
<PAGE>
Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selling, administrative, and general expenses for the nine months ended
September 30, 1996 decreased to $9,202,000 from $9,862,000 for the
comparable 1995 period and decreased to $3,753,000 for the third quarter
of 1996 from $4,210,000 for the comparable 1995 period. The decrease is
primarily advertising expense, which is budgeted based on the current
level of sales, as well as other factors, and a decrease in royalty
expense which is due to lower sales of products subject to royalty.
FINANCIAL CONDITION
- -------------------
The seasonal nature of the business generally requires a substantial
buildup of working capital during the second and third calendar quarters
to carry inventory and accounts receivable. Extended payment terms are
in general use in the toy industry. Historically, this was given in
order to encourage earlier shipment of merchandise for selling during
the Christmas season. Customers in the toy industry now accept
shipments when inventory is needed, not early, but the extended payment
terms have remained. In addition, it is now necessary for the Company
to carry inventory in order to meet fourth quarter customer demand.
Borrowings to finance this working capital requirement are normally
repaid during the fourth quarter as these receivables are collected.
Consistent with this seasonal nature of the business, working capital
was increased during the third quarter of 1996. This buildup was
primarily funded by the use of cash on hand at December 31, 1995 and
bank borrowings. The use of bank borrowings, classified as long-term
obligations, has resulted in an increase in the current ratio from 2.4
to 1 at December 31, 1995 to 4.2 to 1 at September 30, 1996.
PART II - OTHER INFORMATION
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
September 30, 1996.
The information called for in Items 1, 2, 3, 4, and 5 are not
applicable.
Page 8 of 9
<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: November 12, 1996 /s/ William C. Killgallon
--------------------------
William C. Killgallon
Chairman of the Board
Date: November 12, 1996 /s/ M. L. Killgallon II
------------------------
M. L. Killgallon II
President
Date: November 12, 1996 /s/ Paul R. McCusty
----------------------
Paul R. McCusty
Vice President Finance
Page 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 451
<SECURITIES> 0
<RECEIVABLES> 9,939
<ALLOWANCES> 522
<INVENTORY> 5,134
<CURRENT-ASSETS> 17,561
<PP&E> 30,378
<DEPRECIATION> 21,713
<TOTAL-ASSETS> 28,740
<CURRENT-LIABILITIES> 4,200
<BONDS> 0
0
0
<COMMON> 930
<OTHER-SE> 12,452
<TOTAL-LIABILITY-AND-EQUITY> 28,740
<SALES> 24,636
<TOTAL-REVENUES> 25,089
<CGS> 19,583
<TOTAL-COSTS> 19,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> (3,939)
<INCOME-TAX> (1,378)
<INCOME-CONTINUING> (2,561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,561)
<EPS-PRIMARY> (2.77)
<EPS-DILUTED> (2.77)
</TABLE>
