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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
September 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
----- -----
Number of shares outstanding of registrant's Common Stock, par value $1.00 per
share, as of October 31, 1995: 10,964,331 including 562,500 shares held in
escrow.
The Exhibit Index is located on page 14.
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INDEX
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - September 30, 1995 and
December 31, 1994
Consolidated condensed statements of income - Nine months and three
months ended September 30, 1995 and 1994
Consolidated condensed statements of cash flows - Nine months
ended September 30, 1995 and 1994
Notes to consolidated condensed financial statements - September 30,
1995
Independent accountants' review report
Item 2. Management's Discussion
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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EXHIBIT INDEX
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PART I
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FINANCIAL INFORMATION
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CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
September 30 December 31
1995 1994
------------ ------------
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 2,711 $ 2,172
Accounts receivable, less allowances for
doubtful accounts of $659,000 at September 30,
1995 and $394,000 at December 31, 1994 64,992 27,165
Inventories 82,455 25,651
Prepaid expenses 2,917 1,845
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Total Current Assets 153,075 56,833
Property, Plant and Equipment 132,930 111,881
Less accumulated depreciation 66,526 61,246
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66,404 50,635
Excess Purchase Price Over Net Assets Acquired, net 53,783 16,727
Other Assets 26,236 10,420
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$ 299,498 $ 134,615
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 37,476 $ 15,353
Accrued expenses 21,025 8,884
Current portion of long-term liabilities 4,700 2,469
------------ ------------
Total Current Liabilities 63,201 26,706
Long-Term Liabilities, less current portion
Long-term debt 91,785 9,513
Other postemployment benefits 30,993 27,800
Other 7,788 1,646
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130,566 38,959
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial preferred stock -0- -0-
Common stock 10,402 8,192
Additional paid-in capital 49,184 26,189
Retained earnings 23,910 12,334
------------ ------------
83,496 46,715
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$ 299,498 $ 134,615
============ ============
<FN>
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 Nine Months Ended
September 30 September 30
------------------------- -------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Net sales $ 98,616 $ 44,183 $ 270,846 $ 145,865
Cost and expenses:
Cost of products sold 85,341 37,372 231,063 120,940
Selling, general and administrative
expenses 8,037 4,586 23,206 15,323
Interest expense 2,028 559 4,565 1,441
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95,406 42,517 258,834 137,704
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Income before Federal Income
Taxes 3,210 1,666 12,012 8,161
Federal income taxes 196 26 436 110
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Net Income $ 3,014 $ 1,640 $ 11,576 $ 8,051
========= ========= ========= =========
Net income per common share: $ .28 $ .17 $ 1.15 $ .97
========= ========= ========= =========
Shares used in calculation 10,799 8,523 10,040 7,995
========= ========= ========= =========
<FN>
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)
Nine Months Ended
September 30
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1995 1994
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OPERATING ACTIVITIES
Net income $ 11,576 $ 8,051
Adjustments to reconcile net income to net
cash provided (used):
Depreciation and amortization 7,743 3,755
Changes in noncurrent assets and liabilities (4,444) (2,321)
Changes in operating assets and liabilities (22,840) (2,126)
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Net Cash Provided (Used) by Operations (7,965) 7,359
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (10,045) (8,500)
Purchase of notes receivable -0- (841)
Cost of acquisitions, net of cash acquired (33,383) -0-
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Net Cash Used by Investing Activities (43,428) (9,341)
FINANCING ACTIVITIES
Proceeds from bank arrangements related to acquisitions 66,202 -0-
Proceeds from bank arrangements for operations 18,765 4,350
Proceeds from Convertible Senior Subordinated
Debentures, net -0- 21,356
Payments on bank borrowings (216) (26,887)
Payments on acquired debt (32,819) -0-
Issuance of common stock, net -0- 4,005
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Net Cash Provided from Financing Activities 51,932 2,824
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Increase in Cash and Cash Equivalents 539 842
Cash and Cash Equivalents at Beginning
of Year 2,172 133
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Cash and Cash Equivalents at End of
Period $ 2,711 $ 975
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<FN>
See notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
September 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Park-Ohio Industries, Inc. and Subsidiaries (the Company) 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
nine-month periods ended September 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 (RB&W) in an exchange of 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 of RB&W 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
========
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.
Nine Months Ended
September 30
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1995 1994
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(In Thousands --
Except Per Share Data)
Net sales $317,878 $273,187
Gross profit 45,278 42,760
Net income 10,560 8,197
Net income per common share $ .98 $ .78
During 1995, the Company purchased certain assets of three companies for a
total cost of $5,500, which includes $1,500 for Ajax Manufacturing Company,
purchased from the Company's chairman. The operations of these businesses
prior to the dates of acquisition were not material to the Company.
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NOTE C - INVENTORIES
The components of inventory consist of the following:
September 30 December 31
1995 1994
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(In thousands)
In process and finished goods $ 61,709 $ 14,496
Raw materials and supplies 20,746 11,155
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$ 82,455 $ 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 September 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 of 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, as
defined in the credit agreement.
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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 September 30, 1995, and the
related consolidated condensed statements of income for the three-month and
nine-month periods ended September 30, 1995 and 1994, and the consolidated
condensed statements of cash flows for the nine-month periods ended September
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 income, 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
October 19, 1995
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MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
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FIRST NINE MONTHS 1995 VERSUS FIRST NINE MONTHS 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 common
shares of the Company 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 $125.0 million during the period of which $94.6
million pertained to RB&W whose results are included for the period April
through September 1995. Of the sales increase applicable to RB&W, $72.8 million
relate to the logistics group and $21.8 million relate to the metal forming
business. The remainder of the sales increase pertains to the transportation
and the container products groups. Net sales for the transportation group
increased by $13.3 million primarily as a result of acquisitions made in 1995
that contributed $10.0 million in sales. In the container products group, net
sales increased by $17.7 million, all of which were internally generated.
Containers shipped for the period increased by 20% with average prices per
container increasing by 19%.
Gross profit rose to $39.8 million in the current period from $24.9
million in the first nine months of 1994. Of the $14.9 million increase in
gross profits, RB&W accounted for 93% of the increase. Consolidated gross
margins were 15% of sales in the first nine months of 1995 compared with 17% 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 51% 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 8.6% of the sales dollar in the current
period as compared to 10.5% in the first nine months of 1994.
Interest expense increased by $3.1 million in the first nine months of
1995 due to higher levels of debt outstanding during the period. Average debt
outstanding for the period increased from $26.5 million in 1994 to $84.6
million in 1995. The increase in borrowings was caused by the acquisition of
RB&W, other acquisitions, 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
7.17% versus 7.23% in the first nine months of 1994.
Federal income taxes related primarily to the alternative minimum tax.
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
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postretirement benefits. Federal income tax expense for the 1995 period has
been reduced by $4.1 million ($2.8 million in 1994) due to the utilization of
net operating loss carryforwards.
THIRD QUARTER 1995 VERSUS THIRD QUARTER 1994
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Net sales increased by $54.4 million of which $44.7 million pertained
to RB&W; $35.1 million relate to the logistics group and $9.6 million relate to
the metal forming business. The remainder of the sales increase was
attributable to the transportation and container products groups. Net sales
for the transportation group increased by $5.2 million primarily as a result of
acquisitions made in 1995 that contributed $4.4 million in net sales for the
period. In the container products group, net sales increased by $4.9 million
all of which was due to internal growth. Containers shipped for the period
increased by 15% with average prices per container increasing by 19%.
Gross profit rose to $13.3 million in the current period from $6.8
million in the third quarter of 1994. Of the $6.5 million increase in gross
profits for the period, RB&W accounted for almost the entire increase.
Consolidated gross margins were 13% of sales compared with 15% of sales during
the third 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.
In addition, 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 production costs, principally raw materials.
The increase of 75% 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 8.2% of the sales dollar in the current period as compared to
10.4% in the third quarter of 1994.
Interest expense increased by $1.5 million in the third quarter of 1995
due to increased debt during the period offset in part by lower average interest
rates. Average debt outstanding for the period increased from $25.0 million
in 1994 to $109.9 million in 1995. The increase in borrowings was caused by
the acquisition of RB&W, other acquisitions and to increased borrowings under
the Company's revolving credit arrangements to support increased sales.
Interest rates averaged 7.38% versus 7.86% in the corresponding period of the
prior year.
LIQUIDITY AND SOURCES OF CAPITAL
On April 11, 1995, the Company entered into a new credit agreement with
its 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. As of September 30, 1995, $92.0 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 nine-month period ended September 30, 1995, the Company
borrowed $18.8 million which was used to fund operations by $8.0 million,
primarily accounts receivable and inventories, and to invest $10.0 million in
machinery and equipment. In addition, the Company borrowed $66.2 million under
its $100 million credit agreement which was used to fund acquisitions of $33.4
million, primarily RB&W, and to pay off acquired debt of $32.8 million related
to the acquisitions.
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Review By Independent Accountants
The condensed consolidated financial statements at September 30, 1995,
and for the three and nine-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
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OTHER INFORMATION
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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 September 30, 1995.
SIGNATURE
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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.
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(Registrant)
By /s/ J.S. WALKER
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Name: J.S. Walker
Title: Vice President - Treasurer
and Controller
Dated November 13, 1995
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EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Exhibit
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11 Computation of net income per common share
15 Letter re: unaudited financial information
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