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, 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 October 31, 1995 there were 481,424 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 10
FORM 10-Q
PART I - FINANCIAL INFORMATION
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30 September 30
---------------- ------------------
1995 1994 1995 1994
------- ------- ------- -------
(In thousands, except per share data)
Net sales $29,335 $26,721 $15,513 $13,197
Other income 805 524 254 188
------- ------- ------- -------
30,140 27,245 15,767 13,385
Costs and expenses:
Cost of products sold 20,996 19,150 10,103 8,606
Selling, administrative
and general 9,862 8,607 4,210 3,376
Interest 112 74 79 39
------- ------- ------- -------
30,970 27,831 14,392 12,021
------- ------- ------- -------
INCOME(LOSS) BEFORE INCOME TAXES (830) (586) 1,375 1,364
Income taxes (Credit) (291) (199) 459 464
------- ------- ------- -------
NET INCOME(LOSS) $ (539) $ (387) $ 916 $ 900
======= ======= ======= =======
Net income(loss) per share $ (1.11) $ (.78) $ 1.85 $ 1.80
Dividends per share $ .42 $ .24 $ .06 $ .06
Average shares outstanding 487 498 478 496
(Note 3)
<FN>
See notes to condensed consolidated unaudited financial statements.
Page 2 of 10
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1995 1994
------- -------
(Unaudited) (Note)
(Thousands of dollars)
ASSETS
Current Assets
Cash $ 498 $ 4,400
Accounts receivable less allowance
(1995 - $532; 1994 - $465) 11,032 7,494
Inventories - Note 2
On first-in, first-out cost method:
Finished products 5,563 2,902
Products in process 423 287
Raw materials 4,658 2,835
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,490) (2,445)
------- -------
8,154 3,579
Recoverable income taxes 279 -0-
Prepaid expenses 935 955
Deferred federal income taxes 810 810
------- -------
Total Current Assets 21,708 17,238
Property, Plant and Equipment
Cost 26,274 24,849
Less allowances for depreciation 20,756 19,305
------- -------
5,518 5,544
Other Assets 1,526 1,530
Goodwill 847 862
------- -------
$29,599 $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.
Page 3 of 10
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1995 1994
------- -------
(Unaudited) (Note)
(Thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 8,589 $ 6,055
Income taxes payable -0- 678
Other current liabilities 757 1,195
------- -------
Total Current Liabilities 9,346 7,928
Deferred Federal Income Taxes 906 906
Long-Term Obligations 5,031 454
Stockholders' Equity
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1995-481,424; 1994-497,470
shares (excluding treasury shares of
197,585 and 181,539 respectively) 481 497
Additional paid-in capital 729 760
Retained earnings 13,106 14,629
------- -------
14,316 15,886
------- -------
$29,599 $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.
Page 4 of 10
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30
------------------
1995 1994
------- -------
(Thousands of dollars)
Operating Activities
Net loss $ (539) $ (387)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 1,451 1,346
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (6,920) (3,020)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (6,008) (2,061)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (1,425) (953)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,425) (953)
Financing Activities
Borrowings 4,800 2,200
Payments of debt (500) (700)
Purchase of common stock (561) (64)
Cash dividends (208) (120)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,531 1,316
------- -------
Cash
Decrease during period (3,902) (1,698)
At beginning of period 4,400 3,019
------- -------
CASH AT END OF PERIOD $ 498 $ 1,321
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
Page 5 of 10
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 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
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS
- - ----------
Net sales for the nine months ended September 30, 1995 increased to
$29,335,000 from $26,721,000 for the comparable 1994 period and
increased to $15,513,000 for the third quarter of 1995 from $13,197,000
for the comparable 1994 period. Sales during the first nine months of
the year as well as for the three months ended September 30th, increased
to our international and domestic toy customers while sales by Strydel,
Inc., our injection molding facility decreased. International toy
sales, which increased approximately $1,600,000 for the three months and
approximately $2,300,000 for the nine months was due to restructuring
our distribution network with western European toy companies, which was
effective January 1, 1995. The domestic toy sales increase of
approximately $1,100,000 for the three months and $700,000 for the nine
months was due to the shipment of new toy product start-ups, which had
been delayed from the beginning of the second quarter until late in the
second quarter, as well as an increase in sales of basic toy products.
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, 1994,
order backlog as of October 31st is approximately $7,443,000
versus $5,951,000 for the same period of 1994 or approximately 25%
higher than the prior year. Based on the higher level of sales through
the first nine months, as well as the increase in the order backlog, it
is anticipated that net sales for the calendar year 1995 will be greater
than 1994 sales by approximately 15% to 20%, although it is difficult to
predict the final outcome for 1995.
Other income for the first nine months of 1995 increased to $805,000
from $524,000 for the comparable 1994 period and increased to $254,000
for the third quarter of 1995 from $188,000 for the comparable 1994
period. The increase in other income is primarily due to an increase
in royalty income from the distribution of the Company's products
outside of the United States as a result of the distributor network
reorganization discussed above.
Gross profit margin (percentage) for the nine months ended September
30 1995 (28.4%) and for the third quarter of 1995 (34.9%) marginally
increased from the comparable 1994 periods (28.3% and 34.8%
respectively). The .1% increase for both the three month period and
year to date period is the result of slightly higher gross profit
margins at standard offset by a slight increase in overhead expenses.
Page 7 of 10
Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selling, administrative, and general expenses, as a percentage of net
sales, increased for the nine months ended September 30, 1995 (33.6%)
and for the third quarter of 1995 (27.1%) from the comparable 1994
periods (32.2% and 25.6% respectively). The increase of approximately
1.5% for both the quarter and year to date is due to increased travel
and entertainment expenses as both domestic and international sales
departments increased traveling activities and increased royalty
expense as the result of increased sales of products subject to
inventor royalties.
Interest expense for the nine months ended September 30, 1995 increased
to $112,000 from $74,000 for the comparable 1994 period and increased to
$79,000 for the third quarter of 1995 from $39,000 for the similar 1994
period. The increase, which occurred entirely in the third quarter, is
due to higher levels of borrowing at slightly higher interest rates.
The higher levels of borrowing are necessary to support the higher
levels of inventory, which are necessary to meet anticipated shipments
in the fourth quarter of 1995.
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 1995. This buildup was
primarily funded by the use of cash on hand at December 31, 1994, bank
borrowings, and accounts payable. The use of bank borrowings,
classified as long-term obligations, has resulted in an increase in
the current ratio from 2.2 to 1 at December 31, 1994 to 2.3 to 1 at
September 30, 1995.
Page 8 of 10
Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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, 1995.
The information called for in Items 1, 2, 3, 4, and 5 are not
applicable.
Page 9 of 10
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 10, 1995 /s/ William C. Killgallon
--------------------------
William C. Killgallon
Chairman of the Board
Date: November 10, 1995 /s/ M. L. Killgallon II
------------------------
M. L. Killgallon II
President
Date: November 10, 1995 /s/ Paul R. McCusty
----------------------
Paul R. McCusty
Vice President Finance
Page 10 of 10