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 March 31, 1997
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 April 30, 1997 there were 910,586 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 9
FORM 10-Q
PART I - FINANCIAL INFORMATION
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
------------------
1997 1996
------- -------
(In thousands, except
per share data)
Net Sales $ 6,111 $ 5,321
Other Income 177 185
------- -------
6,288 5,506
Costs and Expenses:
Cost of products sold 5,380 4,933
Selling, administrative and general 2,631 2,751
Interest 158 28
------- -------
8,169 7,712
------- -------
LOSS BEFORE INCOME TAXES (1,881) (2,206)
Income Tax Credit (658) (772)
------- -------
NET LOSS $(1,223) $(1,434)
======= =======
Net Loss Per Share (Note 3) $ (1.34) $ (1.55)
Dividends Per Share (Note 3) $ .08 $ .13
Average Shares Outstanding (Note 3) 914 924
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
Page 2 of 9
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
1997 1996
-------- --------
(Unaudited) (Note)
(Thousands of dollars)
ASSETS
Current Assets
Cash (Overdraft) $ (106) $ 1,078
Accounts receivable less allowance
(1997 - $411; 1996 - $365) 5,403 6,222
Inventories - Note 2
On first-in, first-out cost method:
Finished products 4,501 3,997
Products in process 537 393
Raw materials 2,705 2,329
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,444) (2,429)
------- -------
5,299 4,290
Recoverable income taxes 1,378 711
Prepaid expenses 1,011 1,043
Deferred federal income taxes 692 692
------- -------
Total Current Assets 13,677 14,036
Property, Plant and Equipment
Cost 34,493 33,641
Less allowances for depreciation (22,610) 22,176
------- -------
11,883 11,465
Other Assets 1,767 1,762
Goodwill 815 820
------- -------
$28,142 $28,083
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
NOTE: The balance sheet at December 31, 1996 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>
Page 3 of 9
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
1997 1996
-------- --------
(Unaudited) (Note)
(Thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,174 $ 3,169
Other current liabilities 1,456 1,751
------- -------
Total Current Liabilities 4,630 4,920
Deferred Federal Income Taxes 733 733
Long-Term Obligations 10,170 8,375
Stockholders' Equity (Note 3)
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1997-910,586; 1996-922,277
shares (excluding treasury shares of
49,174 and 37,483 respectively) 911 922
Additional paid-in capital 217 225
Retained earnings 11,481 12,908
------- -------
12,609 14,055
------- -------
$28,142 $28,083
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements
NOTE: The balance sheet at December 31, 1996 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>
Page 4 of 9
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
------------------
1997 1996
------- -------
(Thousands of dollars)
Operating Activities
Net loss $(1,223) $(1,434)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 434 287
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (1,120) (1,606)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,909) (2,753)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (852) (1,867)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (852) (1,867)
Financing Activities
Borrowings 2,400 2,300
Payments of debt (600) -0-
Purchase of common stock (187) (497)
Cash dividends (36) (122)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,577 1,680
------- -------
Cash
Decrease during period (1,184) (2,940)
At beginning of period 1,078 2,800
------- -------
(OVERDRAFT) AT END OF PERIOD $ (106) $ (140)
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
Page 5 of 9
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1997
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, 1996.
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
During 1996 the Company declared a two for one stock split by way of a
dividend on all outstanding common stock excepting shares held in the
treasury. The Company used 190,000 shares of treasury stock and 280,751
of authorized but previously unissued common stock to effect the
dividend. All share (excepting treasury shares) and per share amounts
have been retroactively adjusted for the stock split.
Page 6 of 9
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
Unallocated ESOP shares are deducted from outstanding shares of Common
Stock to arrive at average shares outstanding.
OPERATIONS
Net sales for the three months ended March 31, 1997 increased to
$6,111,000 from $5,321,000 for the comparable 1996 period. Sales
increased approximately 28% in the Domestic toy sector and 9% in the
Diversified Products division, while International toy shipments
decreased approximately 35%.
Domestic toy sales accounted for approximately $660,000 of the total
sales dollar increase of $790,000, and was primarily due to an increase
in our Etch A Sketchr line of products, classic, travel, pocket, and hot
pocket. International toy shipments were down approximately $100,000
while the Diversified Products Division shipments increased
approximately $200,000 from the prior year.
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 mid-May 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, 1996, order receipts through May 10 are approximately
$21,500,000 versus $12,600,000 for the same period of 1996, or
approximately 70% ahead of the prior year.
Gross profit margin (percentage) for the first quarter of 1997 (12.0%)
increased from the first quarter of 1996 (7.3%) and was primarily due to
the increased sales of the Making Creativity Fun!r line of products,
which are generally at a higher gross margin than other products.
Selling, administrative, and general expenses for the first quarter of
1997 decreased to $2,631,000 from $2,751,000 for the comparable period
in 1996. Travel and entertainment accounted for the majority of the
decrease as management made a concerted effort to control these
expenditures.
FINANCIAL CONDITION
The Company's current ratio increased from 2.9 to 1 at December 31, 1996
to 3.0 to 1 at March 31, 1997. 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 finance the buildup of inventories and to
finance the loss for the first quarter of 1997, and a reduction in other
current liabilities which was due to the reduction of accrued
liabilities established at year-end during the first quarter of 1997.
Page 7 of 9
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
March 31, 1997.
The information called for in Items 1, 2, 3, 4, and 5 are not
applicable.
Page 8 of 9
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: May 13, 1997 /s/ William C. Killgallon
__________________________
William C. Killgallon
Chairman of the Board
Date: May 13, 1997 /s/ M. L. Killgallon II
________________________
M. L. Killgallon II
President
Date: May 13, 1997 /s/ Paul R. McCusty
______________________
Paul R. McCusty
Vice President Finance
Page 9 of 9