Tuesday, May 11, 1999
Etch-A-Sketch adjusting financial picture
By Troy Flint
in the stock halted and its lenders refusing to extend loans, the
company that makes the Etch-A-Sketch is twisting knobs to create
a new financial plan.
Ohio Art Co.,
the Bryan, Ohio, firm that created the classic drawing toy, said
Friday it is trying to work out a new borrowing agreement with its
lenders. For the year ended Jan.31, the company lost $1.8 million,
compared with a loss of $45.1 million the previous year. Sales grew
27 percent, to $45.9 million.
As of Oct. 31,
the most recent data available, the company had $23.5 million in
long-term debt and $2.3 million in short-term debt, but just $445,000
failed to file its annual financial report with the Securities and
Exchange Commission by last week's deadline.
the American Stock exchange to indefinitely halt trading in the
company's shares May 3.
performance has historically depended on it signature Etch-A-Sketch
product, a winner since its inception in 1960.
said the number of toys has increased exponentially since Etch-A-Sketch's
introduction four decades ago. As video games, action figures and
interactive toys have taken hold, they said, Ohio Art has relied
too heavily on its principal franchise.
historically been a one-line company and been very conservative,"
said Jay Tapper, president of Tapper Candies, a maker of candy and
toy products in Garfield Heights.
Ohio Art said
that unlike previous holiday seasons, the one just ended was particularly
were unforeseen and substantial order cancellations by a number
of major toy retailers and they impacted not only us, but our industry,"
William C. Killgallon, Ohio Art's chairman and chief executive officer,
said yesterday. "We ended up with the [excess] inventory, and
we had also made marketing TV commitments in order to move merchandise
through to the consumer - and we were not able to cancel those advertising
company's recent slump, one analyst remains positive about the company's
Art were for sale, there would be no shortage of potential buyers
because of their excellent consumer franchise and their successful
Etch-A-Sketch product," said David Leibowitz, an analyst with
Burnham Securities in New York.
Ohio Art officials
declined to comment on news reports speculating the company might
be shopping for a buyer.
Ohio Art said
AMEX suspended trading of the company's stock because of the delay
in submitting the SEC report. AMEX spokesman Mike Shokouhi said
trading was halted at the company's request. He added that such
a decision is common when a company is preparing to make an announcement
that will dramatically affect the stock price.
Ohio Art stock
is thinly traded and has a small float - about three-quarters of
the company's stock is owned by Killgallon and his relatives. Ohio
art shares traded last Monday at $15.75, down from a 52-week high
of $40 in November.
Ohio Art was hurt by overly tentative attempts to develop new product
business, you live for one product that's constant and then gamble
the cash flow from that to develop new items and try and grow the
business base," he explained.
Ohio Art has
experienced some success in the past few years with its Betty Spaghetty
doll as well as two non-toy businesses: metal lithography and injection
molding. The non-toy units account for about a third of the company's
industry figures say the toy business has shifted toward making
products with a licensed identity, such as Teletubbies, the World
Wrestling Federation or NASCAR.
is a real challenge we've seen building in the last couple years,"
said Bruce Good, vice president of Good Marketing, a Cleveland product-development
and consulting firm specializing in the toy industry. "What's
building is a shift toward licensed items rather than new products."