<PAGE> 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, 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 216/692-7100
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 April 30, 1996: 10,969,331 including 562,500 shares held in
escrow.
The Exhibit Index is located on page 13.
1
<PAGE> 2
INDEX
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- - ------- ---------------------
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - March 31, 1996 and
December 31, 1995
Consolidated condensed statements of income - Three months ended
March 31, 1996 and 1995
Consolidated condensed statements of cash flows - Three months
ended March 31, 1996 and 1995
Notes to consolidated condensed financial statements - March 31,
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
2
<PAGE> 3
PART I
------
FINANCIAL INFORMATION
---------------------
3
<PAGE> 4
CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
1996 1995
-------------- ---------------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,607 $ 2,662
Accounts receivable, less allowances for
doubtful accounts of $1,332,000 at March 31,
1996 and $962,000 at December 31, 1995 71,668 61,787
Inventories 83,300 83,177
Deferred taxes 8,000 8,000
Other current assets 4,710 4,394
------------ ------------
Total Current Assets 170,285 160,020
Property, Plant and Equipment 141,200 137,724
Less accumulated depreciation 70,257 67,373
------------ ------------
70,943 70,351
Excess Purchase Price Over Net Assets Acquired, net 44,505 44,070
Deferred taxes 13,400 15,400
Other Assets 18,277 17,129
------------ ------------
$ 317,410 $ 306,970
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 34,454 $ 34,769
Accrued expenses 18,479 18,067
Current portion of long-term liabilities 7,176 5,971
------------ ------------
Total Current Liabilities 60,109 58,807
Long-Term Liabilities, less current portion
Long-term debt 98,673 92,450
Other postretirement benefits 29,422 30,561
Other 6,891 6,963
------------ ------------
134,986 129,974
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock -0- -0-
Common Stock 10,407 10,402
Additional paid-in capital 49,224 49,184
Retained earnings 40,449 36,368
------------ ------------
100,080 95,954
------------ ------------
$ 317,410 $ 306,970
============ ============
</TABLE>
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.
See notes to consolidated condensed financial statements.
4
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(In Thousands - Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 110,672 $ 62,810
Cost of products sold 91,253 52,327
------ ------
Gross profit 19,419 10,483
Selling, general and administrative expenses 10,621 6,042
------- ----------
Operating income 8,798 4,441
Interest expense 2,217 651
------------ -------------
Income before Income Taxes 6,581 3,790
Income taxes 2,500 50
------------ -------------
Net income $ 4,081 $ 3,740
============ =============
Net income per common share $ .38 $ .43
============ =============
Common shares used in the computation 10,816 8,731
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,081 $ 3,740
Adjustments to reconcile net income to net
cash provided (used):
Depreciation and amortization 3,598 1,981
Deferred taxes 2,000 -0-
------- --------
9,679 5,721
Changes in operating assets and liabilities
excluding acquisitions of businesses:
Accounts receivable (9,881) (13,316)
Inventories and prepaid expenses (440) (2,279)
Accounts payable and accrued expenses 97 6,250
Other (3,373) (166)
-------- ---------
Net Cash Provided (Used) by Operations (3,918) (3,790)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (3,611) (2,377)
Cost of acquisitions, net of cash acquired -0- (33,394)
-------- ----------
Net Cash Used by Investing Activities (3,611) (35,771)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions -0- 33,894
Proceeds from bank arrangements for operations 7,500 5,075
Payments on bank borrowing (71) (46)
Issuance of common stock under stock option plan 45 -0-
--------- --------
Net Cash Provided from Financing Activities 7,474 38,923
--------- --------
Increase (Decrease) in Cash and Cash Equivalents (55) (638)
Cash and Cash Equivalents at Beginning
of Period 2,662 2,172
--------- --------
Cash and Cash Equivalents at End of
Period $ 2,607 $ 1,534
============= ============
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
March 31, 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-month
period ended March 31, 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.
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 current 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 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 operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in the future.
1995
----------------------
(In thousands - Except
per share data)
Net sales $ 109,842
Gross profit 15,978
Net income 2,724
Net income per common share $ .25
7
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NOTE C - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------------- --------------
(In thousands)
<S> <C> <C>
In process and finished goods $ 61,107 $ 59,964
Raw materials and supplies 22,193 23,213
-------------- --------------
$ 83,300 $ 83,177
============== ==============
</TABLE>
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. Federal income tax expense
for the three months ended March 31, 1995 was reduced by $1,300,000 due to the
utilization of net operating loss carryforwards. State income taxes, which had
previously been included in selling, general and administrative expenses are
now included in income taxes. The effect for the period ended March 31, 1995
was immaterial.
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 - 10,406,831 shares at March 31, 1996 and
10,401,831 at December 31, 1995. The increase in outstanding shares
results from the issuance of 5,000 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 earnings and shares outstanding are adjusted to
assume the conversion of the convertible senior subordinated debentures. Fully
diluted earnings per share were $.36 and $.42 for the three months ended March
31, 1996 and March 31, 1995, respectively.
8
<PAGE> 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, 1996, and the
related consolidated condensed statements of income and cash flows for the
three-months ended March 31, 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
April 22, 1996
Cleveland, Ohio
9
<PAGE> 10
MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
Effective March 31, 1995, the Company acquired all of the shares of RB&W
Corporation (RB&W) in exchange for $31 million 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 transportation group, and the
supply chain management business is included in a newly formed logistics group.
Net sales increased by $47.9 million or 76% in the current period from the
corresponding period of the prior year. Practically the entire sales increase
pertains to incorporating RB&W in the consolidated results for the first
quarter of 1996.
Gross profit rose to $19.4 million in the current period from $10.5 million
in the first three months of 1995. Of the $8.9 million increase in gross
profits, RB&W accounted for 88% of the increase. The remainder primarily
relates to the container products group. Consolidated gross margins were 18%
of sales in the first three months of 1996 compared with 17% of sales during
the prior period. The increase was due to a significant improvement in gross
margins in the container products segment during the current period.
Selling, general and administrative costs increased by 76% in the period as
a result of including RB&W in the consolidated results for the period. As a
percentage of sales, consolidated selling, general and administrative costs
accounted for 9.6% of the sales dollar in both the current period as well as
the corresponding period of the prior year.
Interest expense increased by $1.6 million in the first three months of 1996
due to higher levels of debt outstanding during the period. Average debt
outstanding for the period increased from $35.8 million in 1995 to $121.5
million in 1996. The increase in borrowings was caused by the acquisition of
RB&W, other acquisitions and to higher levels of revolving credit debt to
support increased sales. Interest rates averaged 7.30% versus 7.26% in the
first three months of 1995.
As of December 31, 1995, the Company recorded the deferred tax assets
relating to anticipated future income 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 $16.0 million
available to offset future taxable income. 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 for the 1995 period
was reduced by $1.3 million due to the utilization of net operating loss
carryforwards.
LIQUIDITY AND SOURCES OF CAPITAL
Current financial resources (working capital and available bank borrowing
arrangements) and anticipated funds from 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 acquisition opportunities
in the near future, the Company believes adequate financing is either in place
or would be available.
During the three-month period ended March 31, 1996, the Company generated
$9.7 million from operations before changes in operating assets and
liabilities. After giving effect to changes in the operating accounts of $13.6
million, the Company used $3.9 million in operating activities. This amount
coupled with capital expenditures of $3.6 million was funded by an increase in
bank borrowings of $7.5 million.
10
<PAGE> 11
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at March 31, 1996, and for
the three-month period then ended have been reviewed, prior to filing, by Ernst
& Young LLP, the Company's independent accountants, and their report is included
herein.
11
<PAGE> 12
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 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 March 31, 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 May 13, 1996
-------------------------------
12
<PAGE> 13
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 1996
EXHIBIT
- - -------
11 Computation of net income per common share
15 Letter re: unaudited financial information
27 Financial data schedule (Electronic filing only)
13
<PAGE> 1
EXHIBIT 11
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(In Thousands - Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
---- ----
<S> <C> <C>
Net income $ 4,081 $ 3,740
Amortization of imputed goodwill associated
with the earnout shares (21) (21)
----------- -----------
Net income related to shareholders of Common
Stock (Primary) 4,060 3,719
Interest associated with convertible senior
subordinated debentures 274 403
----------- -----------
Net income related to shareholders of Common
Stock (Fully Diluted) $ 4,334 $ 4,122
=========== ===========
PRIMARY COMPUTATION
Average shares outstanding during the period 10,404 8,401
Effect of General Aluminum Mfg. Company earnout
shares deemed to be issued 188 188
Effect of dilutive stock options based on the
treasury stock method using the average
market price for the period 224 142
----------- ----------
Shares used 10,816 8,731
=========== ===========
Net income per share of Common Stock $ .38 $ .43
=========== ===========
FULLY DILUTED COMPUTATION
Average shares outstanding per primary computation
above 10,816 8,731
Additional effect of dilutive stock options based
on the treasury stock method using the end of
period market price, if higher than the average
market price 55 -0-
Effect of assuming conversion of the
Convertible Senior Subordinated Debentures 1,151 1,151
----------- -----------
Shares used 12,022 9,882
=========== ===========
Net income per share of Common Stock $ .36 $ .42
=========== ===========
</TABLE>
<PAGE> 1
Exhibit (15) Letter Re: Unaudited Financial Information
Board of Directors and Shareholders
Park-Ohio Industries, Inc.
We are aware of the incorporation by reference in the Registration Statements on
Form S-3 and Forms S-8 (relating to the 1992 Stock Option Plan and the
Individual Account Retirement Plan) of Park-Ohio Industries, Inc. for the
registration of 363,094 shares, 350,000 shares and 1,500,000 shares,
respectively, of its common stock of our report dated April 22, 1996, relating
to the unaudited condensed consolidated interim financial statements of
Park-Ohio Industries, Inc., which are included in its Form 10-Q for the quarter
ended March 31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
April 22, 1996
Cleveland, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000076282
<NAME> PARK OHIO INDUSTRIES, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,607
<SECURITIES> 0
<RECEIVABLES> 71,668
<ALLOWANCES> 1,332
<INVENTORY> 83,300
<CURRENT-ASSETS> 170,285
<PP&E> 141,200
<DEPRECIATION> 70,257
<TOTAL-ASSETS> 317,410
<CURRENT-LIABILITIES> 60,109
<BONDS> 120,908
<COMMON> 10,407
0
0
<OTHER-SE> 89,673
<TOTAL-LIABILITY-AND-EQUITY> 317,410
<SALES> 110,672
<TOTAL-REVENUES> 110,672
<CGS> 91,253
<TOTAL-COSTS> 91,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,217
<INCOME-PRETAX> 6,581
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 4,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,081
<EPS-PRIMARY> .38
<EPS-DILUTED> .36
</TABLE>
