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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
June 30, 1995
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.)
600 TOWER EAST 44122
20600 CHAGRIN BOULEVARD (Zip Code)
CLEVELAND, OHIO
(Address of principal executive offices)
Registrant's telephone number, including 216/991-9700
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
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Number of shares outstanding of registrant's Common Stock, par value $1.00 per
share, as of July 31, 1995: 10,964,331 including 562,500 shares held in
escrow.
The Exhibit Index is located on page 13.
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INDEX
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - June 30, 1995 and
December 31, 1994
Consolidated condensed statements of income - Six months and
three months ended June 30, 1995 and 1994
Consolidated condensed statements of cash flows - Six months
ended June 30, 1995 and 1994
Notes to consolidated condensed financial statements -
June 30, 1995
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
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PART I
FINANCIAL INFORMATION
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CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
June 30 December 31
1995 1994
----------- -----------
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 2,141 $ 2,172
Accounts receivable, less allowances for
doubtful accounts of $870,000 at June 30,
1995 and $394,000 at December 31, 1994 68,082 27,165
Inventories 69,507 25,651
Prepaid expenses 1,877 1,845
-------- --------
Total Current Assets 141,607 56,833
Property, Plant and Equipment 127,234 111,881
Less accumulated depreciation 64,778 61,246
-------- --------
62,456 50,635
Excess Purchase Price Over Net Assets Acquired, net 54,313 16,727
Other Assets 25,864 10,420
-------- --------
$284,240 $134,615
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 37,228 $ 15,353
Accrued expenses 18,857 8,884
Current portion of long-term liabilities 2,590 2,469
-------- --------
Total Current Liabilities 58,675 26,706
Long-Term Liabilities, less current portion
Long-term debt 83,197 9,513
Other postemployment benefits 30,982 27,800
Other 8,670 1,646
-------- --------
122,849 38,959
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock -0- -0-
Common Stock 10,402 8,192
Additional paid-in capital 49,183 26,189
Retained earnings 20,896 12,334
-------- --------
80,481 46,715
-------- --------
$284,240 $134,615
======== ========
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.
See notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF
INCOME (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(In Thousands - Except Per Share Data)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $109,420 $49,394 $172,230 $101,682
Cost and expenses:
Cost of products sold 93,395 40,818 145,723 83,568
Selling, general and administrative expenses 9,128 4,818 15,168 10,737
Interest expense 1,885 455 2,537 883
-------- ------- -------- --------
104,408 46,091 163,428 95,188
-------- ------- -------- --------
Income before Federal Income Taxes 5,012 3,303 8,802 6,494
Federal income taxes 191 30 241 84
-------- ------- -------- --------
Net Income $ 4,821 $ 3,273 $ 8,561 $ 6,410
======== ======= ======== ========
Net income per common share: $ .45 $ .39 $ .88 $ .79
======== ======= ======== ========
Shares used in calculation 10,734 8,080 9,710 7,892
======== ======= ======== ========
See notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(In Thousands)
Six Months Ended
June 30
----------------------
1995 1994
---- ----
OPERATING ACTIVITIES
Net income $ 8,561 $ 6,410
Adjustments to reconcile net income to net
cash provided (used):
Depreciation and amortization 4,726 2,819
Changes in noncurrent assets and liabilities (2,840) (1,191)
Changes in operating assets and liabilities (15,610) (6,190)
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Net Cash Provided (Used) by Operations (5,163) 1,848
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (6,446) (3,646)
Cost of acquisitions, net of cash acquired (33,383) -0-
-------- --------
Net Cash Used by Investing Activities (39,829) (3,646)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions 33,383 -0-
Proceeds from bank arrangements for operations 11,660 4,350
Proceeds from Convertible Senior Subordinated
Debentures, net -0- 21,356
Payments on bank borrowings (82) (26,844)
Issuance of common stock, net -0- 4,005
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Net Cash Provided from Financing Activities 44,961 2,867
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Increase (Decrease)in Cash and Cash Equivalents (31) 1,069
Cash and Cash Equivalents at Beginning
of Year 2,172 133
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Cash and Cash Equivalents at End of
Period $ 2,141 $ 1,202
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See notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
June 30, 1995
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 and
six-month periods ended June 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995. 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, 1994.
NOTE B - ACQUISITIONS
On March 31, 1995, the Company acquired all of the shares of RB&W
Corporation 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. The
transaction has been accounted for as a purchase and, accordingly, the
operations of RB&W have been included since that date.
The following is the current value of the net assets acquired as of March
31, 1995:
(In thousands)
Cash $ 510
Accounts receivable 29,551
Inventories 36,731
Property, plant and equipment 5,591
Excess purchase price over net assets acquired 35,200
Other assets 15,620
Notes payable (28,739)
Trade accounts payable (21,524)
Accrued expenses (8,398)
Long-term liabilities (10,300)
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Total Cost of Acquisition $ 54,242
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The following unaudited pro forma results of operations assume the
acquisition occurred on January 1, 1994. 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.
Six Months Ended
June 30
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1995 1994
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(In Thousands - Except Per Share Data)
Net sales $ 219,262 $ 186,947
Gross profit 32,002 29,807
Net income 7,545 6,426
Net income per common share $ .70 $ .63
The Company purchased certain assets of two companies for a total cost
during the period of $2,925. The operations of these businesses prior to the
dates of acquisition were not material to the Company.
NOTE C - INVENTORIES
The components of inventory consist of the following:
June 30 December 31
1995 1994
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(In thousands)
In process and finished goods $ 53,642 $ 14,496
Raw materials and supplies 15,865 11,155
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$ 69,507 $ 25,651
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NOTE D - 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 - 10,401,831 shares at June 30, 1995 and
8,191,810 at December 31, 1994.
The increase in outstanding shares results from the issuance of 2,023,000
shares as discussed in Note B, and 187,500 shares relating to the earn-out
provision in connection with the acquisition of General Aluminum Mfg. Company.
NOTE E - 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.
NOTE F - BANK ARRANGEMENTS
On April 11, 1995, the Company entered into a new credit agreement with a
group of banks under which it may borrow up to $100 million on an unsecured
basis. The agreement, which replaced the Company's existing credit facility,
consists of a $65 million revolving credit and a $35 million term loan payable
over seven years. Interest is payable quarterly at the prime lending rate or at
LIBOR plus a percentage which fluctuates based on specific financial ratios.
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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 June 30, 1995, and the
related consolidated condensed statements of income for the three-month and
six-month periods ended June 30, 1995 and 1994, and the consolidated
condensed statements of cash flows for the six-month periods ended June 30,
1995 and 1994. 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, 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the year then ended, not presented herein, and in our report dated
February 22, 1995, 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, 1994,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
July 24, 1995
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MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
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FIRST HALF 1995 VERSUS FIRST HALF 1994
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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 will be included with the transportation group and the
distribution business will be included in a newly formed group, logistics. The
Logistics Group distributes various products associated with the fastener
industry, primarily components to original equipment manufacturers.
Net sales increased by $70.5 million during the period of which $49.8 million
pertained to RB&W whose results are included for the period April through June
1995. Of the sales increase applicable to RB&W, $37.7 million relate to the
logistics group and $12.1 million relate to the transportation group. The
remainder of the sales increase was attributable to the transportation group as
well as the container products group. Net sales for the transportation group
increased by $8.1 million primarily as a result of two other acquisitions that
contributed $5.6 million in sales. In the container products group, net sales
increased by $12.8 million, all of which were internally generated. Containers
shipped for the period increased by 23% with average prices per container
increasing by 23% largely offsetting increases in raw material costs.
Gross profit rose to $26.5 million in the current period from $18.1 million
in the first half of 1994. Of the $8.4 million increase in gross profits, RB&W
accounted for 89% of the increase. Consolidated gross margins were 15% of
sales in the first half of 1995 compared with 18% of sales during the prior
period. The decline in gross margins was due, in part, to RB&W that
historically has lower gross margins than the Company as a whole. In
addition, margins in both the consumer and container products groups declined
as a result of increased raw material costs that could not be adequately
reflected in pricing and to product mix changes, particularly in the consumer
products group.
Selling, general and administrative costs increased by 41% in the period
largely 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 8.8% of the sales dollar in the current
period as compared to 10.6% in the first half of 1994.
Interest expense increased by $1.7 million in the first half of 1995 due to
higher levels of debt outstanding during the period and to higher average
interest rates. Average debt outstanding for the period increased from $27.2
million in 1994 to $73.2 million in 1995. The increase in borrowings was
caused by the acquisition of RB&W, higher levels of revolving credit debt to
support increased sales and to the convertible subordinated debentures issued
in May, 1994, being outstanding for the entire current period. Interest rates
averaged 7.31% versus 6.50% in the first half of 1994.
Federal income taxes related primarily to the alternative minimum tax due as
a result of utilizing available net operating loss carryforwards. At December
31, 1994, the Company had net operating loss carryforwards for tax purposes of
$21.6 million available to offset future taxable income. Additionally, net
operating loss carryforwards of $21.1 million pertaining to RB&W and $2.5
million related to General Aluminum Mfg. Company, a wholly owned subsidiary,
are available to offset future taxable income 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 has been reduced by $3.0 million ($2.2 million
in 1994) due to the utilization of net operating loss carryforwards.
SECOND QUARTER 1995 VERSUS SECOND QUARTER 1994
- ----------------------------------------------
Net sales increased by $60.0 million of which $49.8 million pertained to
RB&W; $37.7 million relate to the logistics group and $12.1 million relate to
the transportation group. The remainder of the sales increase was
attributable to the transportation group as well as the container products
group. Net sales for the transportation group increased by $5.2 million
primarily as a result of two other acquisitions that contributed $4.1 million
in net sales for the period. In the container products group, net sales
increased by $5.2 million all of which was due to internal growth. Containers
shipped for the period increased by 15% with average prices per container
increasing by 24% offsetting increases in raw material costs.
Gross profit rose to $16.0 million in the current period from $8.6 million in
the second quarter of 1994. Of the $7.4 million increase in gross profits for
the period, RB&W accounted for almost the entire increase. Consolidated gross
margins were 15% of sales compared with 17% of sales during the second quarter
of 1994. The decline in gross margin was due, in part, to RB&W that
historically has lower gross margins than the Company as a whole. Margins in
both the container and consumer products groups declined due to the inability
to sufficiently pass along price increases which would have offset increased
raw material costs.
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The increase of 89% in selling, general and administrative costs is largely
a result of including RB&W in the consolidated results. As a percentage of
sales, consolidated selling, general and administrative costs accounted for
8.3% of the sales dollar in the current period as compared to 9.8% in the
second quarter of 1994.
Interest expense increased by $1.4 million in the second quarter of 1995 due
to increased debt during the period and to higher average interest rates.
Average debt outstanding for the period increased from $28.0 million in 1994 to
$102.5 million in 1995. The increase in borrowings was caused by the
acquisition of RB&W, increased borrowings under the Company's revolving credit
arrangements to support increased sales and to the convertible subordinated
debentures issued in May, 1994, being outstanding for the entire current
period. Interest rates averaged 7.65% versus 6.48% in the corresponding period
of the prior year.
LIQUIDITY AND SOURCES OF CAPITAL
On April 11, 1995, the Company entered into a Credit Agreement with three
banks that replaced the Company's existing agreement with the same three banks.
The new agreement provides $100 million in unsecured credit consists of a $65
million revolving credit facility to be used for general corporate purposes,
including working capital and acquisitions, and a $35 million term facility
which replaced RB&W's current lender. As of June 30, 1995, $80 million was
outstanding under this facility.
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 opportunities in the near
future, the Company believes adequate financing is either in place or would be
available.
During the period, the Company increased its borrowings under its working
capital facility by $11.7 million which was used to fund operations by $5.2
million, primarily accounts receivable and inventories and to invest $6.5
million in machinery and equipment. During the period the Company completed
the acquisition of RB&W by issuing 2.0 million of its common shares and paying
$31.0 million for all the outstanding common stock of RB&W. The cash component
of the acquisition was provided under the Company's $100 million credit
facility.
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at June 30, 1995, and for the
three and six-month periods then ended have been reviewed, prior to filing, by
Ernst & Young LLP, the Company's independent accountants, and their report is
included herein.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held on May 25, 1995.
(c) The following matters were voted upon at the annual meeting of
shareholders:
Proposal to approve the Amended and Restated 1992 Stock Option Plan.
7,425,643 Affirmative votes
125,464 Negative votes
58,830 Abstentions
1,414,019 Non votes
Proposal to ratify the appointment of Ernst & Young as independent
auditors for the current year ending December 31, 1995.
8,998,511 Affirmative votes
7,860 Negative votes
17,585 Abstentions
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(10)(a) Employment Agreement between Park-Ohio Industries, Inc. and John J.
Murray dated effective January 1, 1995
(10)(b) Park-Ohio Industries, Inc. Amended and Restated 1992 Stock Option
Plan
(11) Computation of net income per common share
(15) Letter re: unaudited financial information
(27) Financial data schedule (Electronic Filing Only)
On April 17, 1995, the Company filed a Form 8-K regarding the Company's
acquisition of RB&W Corporation. See Note B to the Consolidated Condensed
Financial Statements (unaudited) on page 7 and Management's discussion on
page 10.
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 - Treasurer
and Controller
Dated August 14, 1995
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EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED JUNE 30, 1995
EXHIBIT
(10)(a) Employment Agreement between Park-Ohio Industries, Inc. and John J.
Murray dated effective January 1, 1995
(10)(b) Park-Ohio Industries, Inc. Amended and Restated 1992 Stock Option
Plan
11 Computation of net income per common share
15 Letter re: unaudited financial information
27 Financial data schedule (Electronic filing only)
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