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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, 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 216/692-7200
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 July 31, 1996: 10,970,331 including 562,500 shares held in escrow.
The Exhibit Index is located on page 16.
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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 - June 30, 1996 and
December 31, 1995
Consolidated condensed statements of income - Six months and
three months ended June 30, 1996 and 1995
Consolidated condensed statements of cash flows - Six months
ended June 30, 1996 and 1995
Notes to consolidated condensed financial statements -
June 30, 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 5. Other Information
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)
June 30 December 31
1996 1995
-------------- ------------
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 1,512 $ 2,662
Accounts receivable, less allowances for
doubtful accounts of $1,085,000 at June 30,
1996 and $787,000 at December 31, 1995 65,472 55,121
Inventories 76,801 80,702
Deferred taxes 8,000 8,000
Other current assets 3,749 3,935
------------ ------------
Total Current Assets 155,534 150,420
Property, Plant and Equipment 100,499 94,117
Less accumulated depreciation 52,963 49,691
------------ ------------
47,536 44,426
Excess Purchase Price Over Net Assets Acquired, net 41,208 41,991
Net Assets Of Discontinued Operations 32,905 33,694
Deferred Taxes 11,400 15,400
Other Assets 18,195 15,816
------------ ------------
$ 306,778 $ 301,747
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 21,966 $ 30,859
Accrued expenses 16,620 17,013
Current portion of long-term liabilities 6,967 5,829
------------ ------------
Total Current Liabilities 45,553 53,701
Long-Term Liabilities, less current portion
Long-term debt 99,045 92,450
Other postretirement benefits 29,156 30,562
Other 6,823 6,845
------------ ------------
135,024 129,857
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock -0- -0-
Common Stock 10,408 10,402
Additional paid-in capital 49,233 49,184
Retained earnings 44,325 36,368
------------ ------------
103,966 95,954
------------ ------------
$ 306,778 $ 301,747
============ ============
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. Certain amounts have been
reclassified for comparative purposes.
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
----------------------- -------------------------
1996 1995 1996 1995
------- ------- -------- --------
Net sales $90,693 $88,311 $181,547 $130,642
Cost of products sold 75,262 73,364 150,587 107,488
------ ------ ------- -------
Gross profit 15,431 14,947 30,960 23,154
Selling, general and administrative expenses 9,360 8,867 18,832 13,722
------ ------ ------- -------
Operating income 6,071 6,080 12,128 9,432
Interest expense 1,959 1,668 3,851 2,274
----- ----- ----- -----
Income from continuing operations before income
taxes 4,112 4,412 8,277 7,158
Income taxes 1,562 191 3,145 241
----- --- ----- ---
Income from continuing operations 2,550 4,221 5,132 6,917
Income from discontinued operations, net of tax in 1996 1,326 600 2,825 1,644
----- --- ----- -----
Net Income $3,876 $4,821 $7,957 $8,561
====== ====== ====== ======
Per common share:
Continuing operations $ .23 $ .39 $ .46 $ .71
Discontinued operations .12 .06 .26 .17
--- --- --- ---
Net income $ .35 $ .45 $ .72 $ .88
====== ====== ====== ======
Common shares used in the computation 11,112 10,734 11,002 9,710
====== ====== ====== =====
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
--------------------------------
1996 1995
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OPERATING ACTIVITIES
Net income $ 7,957 $ 8,561
Adjustments to reconcile net income to net
cash provided (used) by continuing operations:
Discontinued operations (2,825) (1,644)
Depreciation and amortization 4,271 3,033
Deferred taxes 4,000 -0-
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13,403 9,950
Changes in operating assets and liabilities of continuing operations excluding
acquisitions of businesses:
Accounts receivable (10,351) (9,121)
Inventories and other current assets 4,087 (5,464)
Accounts payable and accrued expenses (9,286) 865
Other (4,025) (1,917)
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Net Cash Used by Continuing Operations (6,172) (5,687)
Net Cash Provided by Discontinued Operations 3,432 524
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Net Cash Used by Operations (2,740) (5,163)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (6,199) (6,446)
Cost of acquisitions, net of cash acquired -0- (33,394)
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Net Cash Used by Investing Activities (6,199) (39,840)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions -0- 33,894
Proceeds from bank arrangements for operations 9,500 11,160
Payments on bank borrowing (1,766) (82)
Issuance of common stock under stock option plan 55 -0-
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Net Cash Provided from Financing Activities 7,789 44,972
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Increase (Decrease) in Cash and Cash Equivalents (1,150) (31)
Cash and Cash Equivalents at Beginning
of Period 2,662 2,172
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Cash and Cash Equivalents at End of
Period $ 1,512 $ 2,141
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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, 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 and
six-month periods ended June 30, 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. Certain amounts for the prior periods have been
reclassified for comparative purposes.
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 fair 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)
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Total Cost of Acquisition $54,242
=======
The following unaudited pro forma results of continuing 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 continuing operations which actually would have resulted had the
acquisition occurred on the date indicated.
Six Months Ended
June 30, 1995
--------------------
(In thousands-Except
per share data)
Net sales $177,674
Gross profit 27,774
Income from continuing operations 5,901
Income from continuing operations per common share $ .55
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NOTE C - INVENTORIES
The components of inventory consist of the following:
June 30 December 31
1996 1995
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(In thousands)
In process and finished goods $ 55,324 $ 58,215
Raw materials and supplies 21,477 22,487
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$ 76,801 $ 80,702
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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. Income tax expense from
continuing operations for the three and six-months periods ended June 30, 1995
was reduced by $1,500,000 and $2,500,000, respectively due to the utilization of
net operating loss carryforwards.
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 - 10,407,831 shares at June 30, 1996 and
10,401,831 at December 31, 1995. The increase in outstanding shares
results from the issuance of 6,000 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 income and common shares outstanding are adjusted
to assume the conversion of the convertible senior subordinated debentures.
Fully diluted earnings per share were as follows for the three and six-month
periods ended June 30, 1996 and June 30, 1995, respectively.
Three Months Ended Six Months Ended
June 30 June 30
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1996 1995 1996 1995
------ ------ ------ ------
Continuing operations $ .23 $ .39 $ .46 $ .71
Discontinued operations .11 .05 .23 .15
------ ------ ------ ------
Net Income $ .34 $ .44 $ .69 $ .86
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Common shares used in the computation 12,263 11,885 12,243 10,861
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NOTE G - SUBSEQUENT EVENT
On July 31, 1996, the Company completed the sale of substantially all of the
assets of Bennett Industries, Inc. ("Bennett"), a wholly-owned subsidiary which
manufactures plastic containers, to North American Packaging Corporation, an
indirect wholly-owned subsidiary of Southcorp Holdings Limited, an Australian
company, for approximately $50 million in cash, resulting in a pretax gain of
approximately $14 million to be recognized in the third quarter of 1996. The
results of operations and changes in cash flows for Bennett have been classified
as discontinued operations for all periods presented in the related Consolidated
Condensed Statements of Income and the Consolidated Condensed Statements of Cash
Flows, respectively. Interest expense has been allocated to discontinued
operations based on the ratio of net assets discontinued to the total net assets
of the consolidated entity plus consolidated debt. The assets and liabilities
of Bennett have been classified in the Consolidated Condensed Balance Sheets as
Net Assets of Discontinued Operations. The Company now operates in two industry
segments: manufactured products and logistics.
Summary operating results of the discontinued operations for the three and
six-month periods ended June 30, 1996 were as follows:
Three Months Six Months
Ended June 30 Ended June 30
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1996 1995 1996 1995
------- ------- ------- -------
Sales $21,733 $21,109 $41,551 $41,588
Costs and Expenses 19,619 20,509 37,021 39,944
------- ------- ------- -------
Income from discontinued operations before income
taxes 2,114 600 4,530 1,644
Income taxes 788 -0- 1,705 -0-
------- ------- ------- -------
Net income from discontinued operations $ 1,326 $ 600 $ 2,825 $ 1,644
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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, 1996, and the related
consolidated condensed statements of income for the three-month and six-month
periods ended June 30, 1996 and 1995, and the consolidated condensed statements
of cash flows for the six-month periods ended June 30, 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
July 19, 1996
Cleveland, Ohio
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MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
FIRST HALF 1996 VERSUS FIRST HALF 1995
On July 31, 1996, substantially all of the assets of Bennett Industries,
Inc., a wholly owned subsidiary of the Company, which manufactures plastic
containers, were sold to North American Packaging Corporation, an indirect
wholly-owned subsidiary of Southcorp Holding Limited of Australia for
approximately $50 million in cash. Accordingly, the results of operations and
changes in cash flows of Bennett have been classified as discontinued operations
for all periods presented in the consolidated condensed statements of income and
cash flows. The assets and liabilities of Bennett have been classified in the
consolidated condensed balance sheets as net assets of discontinued operations.
The Company now operates in two industry segments: manufactured products and
logistics.
Effective March 31, 1996, the Company acquired all of the shares of RB&W
Corporation (RB&W) in exchange for $31 million in cash 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 manufactured products segment,
and the supply chain management business comprises the Company's logistics
segment.
Net sales from continuing operations increased by $50.9 million or 39% in the
first six months of 1996 from the corresponding period of the prior year. Of the
sales increase, approximately $47 million pertains to incorporating RB&W in the
consolidated results for the entire six months of 1996 with the remainder
pertaining to acquisitions made subsequent to the second quarter of 1995.
Gross profit from continuing operations rose to $31.0 million in the current
period from $23.2 million in the first half of 1995. RB&W accounted for
practically all of the increase. Consolidated gross margins were 17.1% of sales
in the current period and 17.8% in the first half of 1995.
Selling, general and administrative costs from continuing operations
increased by 37% in the period primarily as a result of incorporating RB&W into
the consolidated results for the entire first half of 1996. Of the total
increase of $5.1 million, 87% pertains to RB&W and the remainder to increased
sales. As a percentage of sales, consolidated selling, general and
administrative costs accounted for 10.4% of the sales dollar in the current
period and 10.5% in the corresponding period of the prior year.
Interest expense from continuing operations increased by $1.6 million in the
current period due to higher levels of debt outstanding during the period.
Average debt outstanding for the period increased from $73.2 million in 1995 to
$123.7 million in 1996. The increase in borrowings was caused by the acquisition
of RB&W and higher levels of revolving credit debt to support increased sales
and production. Interest rates for the period are approximately the same as in
the first six 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 and
its subsidiaries had net operating loss carryforwards for tax purposes of
approximately $26.0 million available to offset future taxable income. 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
from continuing operations for the 1995 period was reduced by $2.5 million due
to the utilization of net operating loss carryforwards.
SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995
Net sales from continuing operations increased by $2.4 million or 3% in the
current period from the corresponding period of the prior year. The increased
sales pertains to companies acquired subsequent to the second quarter of 1995.
Gross profit from continuing operations rose to $15.4 million in the current
period from $14.9 million in the second quarter of 1995 and is primarily
attributable to internal growth. Consolidated gross margins were approximately
17% of sales in both periods.
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Selling, general and administrative costs from continuing operations
increased by 6% in the period primarily as a result of increased sales. As a
percentage of sales, consolidated selling, general and administrative costs
approximated 10% of the sales dollar in both periods.
Interest expense from continuing operations increased by $291 thousand in the
second quarter of 1996 due to higher levels of debt outstanding during the
period. Average debt outstanding for the period increased from $102.5 million
in 1995 to $126.6 million in 1996. The increase in borrowings was caused by
higher levels of revolving credit debt to support increased sales and
production. Interest rates have fallen somewhat from the year earlier period
when they averaged 7.65%.
LIQUIDITY AND SOURCES OF CAPITAL
Current financial resources (working capital and available bank borrowing
arrangements) and anticipated funds from continuing 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. In addition, on July 31, 1996 the Company applied the net
proceeds from the sale of Bennett (approximately $49 million) to reduce
outstanding bank borrowings. The Company currently has in place a $125 million
bank agreement of which $55 million is borrowed as of August 5, 1996.
During the six-month period ended June 30, 1996, the Company generated $13.4
million from continuing operations before changes in operating assets and
liabilities. After giving effect to the use of $19.6 million in the operating
accounts and $3.4 million provided from discontinued operations, the Company
used $2.7 million in operating activities. This amount coupled with capital
expenditures of $6.2 million was funded by an increase in bank borrowings of
$9.5 million.
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REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at June 30, 1996, and for
the three-month 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
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OTHER INFORMATION
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held on May 23, 1996.
(c) The following matters were voted upon at the annual meeting of
shareholders:
Proposal to approve the one time grant to Mr. Crawford, Chairman and Chief
Executive Officer, of a non-statutory stock option to purchase 500,000 shares
of common stock.
8,369,763 Affirmative votes
298,115 Negative votes
53,758 Abstentions
1,005,711 Non votes
Proposal to approve the adoption of the Company's 1996 Non-employee
Director Stock Option Plan.
8,602,968 Affirmative votes
175,048 Negative votes
73,343 Abstentions
875,988 Non votes
Proposal to ratify the appointment of Ernst & Young as independent auditors for
the current year ending December 31, 1996.
9,679,248 Affirmative votes
23,582 Negative votes
24,517 Abstentions
-0- Non votes
ITEM 5. OTHER INFORMATION
On July 31, 1996 (the "Closing Date"), substantially all of the assets of
Bennett Industries, Inc. ("Bennett"), a wholly owned subsidiary of the
Company, were sold to North American Packaging Corporation ("NAMPAC"), an
indirect wholly-owned subsidiary of Southcorp Holdings Limited, pursuant to the
Asset Purchase Agreement, dated as of May 28, 1996, (the "Agreement"), among
the Company, Bennett, and NAMPAC. NAMPAC also acquired the stock of two
wholly-owned subsidiaries of Bennett which held certain intangible assets and
certain operating assets, and NAMPAC assumed certain liabilities identified in
the Agreement. In consideration of the sale of the assets and stock, NAMPAC
paid Bennett $48,502,955 in cash and $1,500,000 in cash was placed in escrow on
the Closing Date. The escrow will be released after final determination of the
net tangible assets acquired on the Closing Date. The consideration paid by
NAMPAC to acquire the assets of Bennett was determined by arm's length
negotiation between NAMPAC, Bennett and the Company.
The assets of Bennett acquired by NAMPAC include real property, machinery
and equipment, accounts receivable, inventory, proprietary rights, executory
agreements, books and records, and permits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(2) Asset Purchase Agreement dated as of May 28, 1996 among North
American Packaging Corporation, as Buyer, Bennett Industries, Inc.
as Seller, and Park-Ohio Industries, Inc.
(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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(99) Unaudited pro forma condensed financial statements
The Company did not file any reports on Form 8-K during the three months ended
June 30, 1996.
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.
------------------------------------
(Registrant)
By /s/ J.S. WALKER
----------------------------------
Name: J.S. Walker
Title: Vice President and Chief
Financial Officer
Dated August 14, 1996
--------------------------------
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EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED JUNE 30, 1996
EXHIBIT
- - -------
2 Asset Purchase Agreement dated as of May 28, 1996 among North American Packaging Corporation, as Buyer, Bennett
Industries, Inc, as Seller, and Park-Ohio Industries, Inc.
11 Computation of net income per common share
15 Letter re: unaudited financial information
27 Financial data schedule (Electronic filing only)
99 Unaudited pro forma condensed financial statements
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