Attached files
file | filename |
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EX-32 - EX-32 - PARK OHIO INDUSTRIES INC/OH | l42587exv32.htm |
EX-31.2 - EX-31.2 - PARK OHIO INDUSTRIES INC/OH | l42587exv31w2.htm |
EX-31.1 - EX-31.1 - PARK OHIO INDUSTRIES INC/OH | l42587exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-Q
(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended March 31, 2011 | ||
or
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission file number 333-43005-01
Park-Ohio Industries,
Inc.
(Exact name of registrant as
specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization) 6065 Parkland Boulevard, Cleveland, Ohio (Address of principal executive offices) |
34-6520107
(I.R.S. Employer Identification No.) 44124 (Zip Code) |
440/947-2000
(Registrants telephone number, including area code)
Pursuant to a corporate reorganization effective
June 15, 1998,
Park-Ohio Industries, Inc. became a wholly-owned subsidiary
of Park-Ohio Holdings Corp.
The registrant meets the conditions set forth in general
instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this form in reduced disclosure format.
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 o No þ |
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting Company o |
(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
All of the outstanding capital stock of the registrant is held
by Park-Ohio Holdings Corp. As of April 30, 2011,
100 shares of the registrants common stock, $1 par
value, were outstanding.
The Exhibit Index is located on page 26.
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
2
Table of Contents
PART I.
Financial Information
ITEM 1. | Financial Statements |
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) |
||||||||
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$ | 26,021 | $ | 35,075 | ||||
Accounts receivable, less allowances for doubtful accounts of
$5,473 at March 31, 2011 and $6,011 at December 31,
2010
|
146,470 | 126,409 | ||||||
Inventories
|
200,707 | 192,542 | ||||||
Deferred tax assets
|
10,496 | 10,496 | ||||||
Unbilled contract revenue
|
13,774 | 12,751 | ||||||
Other current assets
|
10,643 | 12,797 | ||||||
Total Current Assets
|
408,111 | 390,070 | ||||||
Property, Plant and Equipment
|
259,796 | 256,053 | ||||||
Less accumulated depreciation
|
189,652 | 184,284 | ||||||
70,144 | 71,769 | |||||||
Other Assets
|
||||||||
Goodwill
|
9,671 | 9,100 | ||||||
Other
|
85,227 | 84,340 | ||||||
$ | 573,153 | $ | 555,279 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current Liabilities
|
||||||||
Trade accounts payable
|
$ | 115,564 | $ | 95,690 | ||||
Payable to affiliates
|
7,255 | 11,879 | ||||||
Accrued expenses
|
65,913 | 59,200 | ||||||
Current portion of long-term debt
|
7,792 | 13,756 | ||||||
Current portion of other postretirement benefits
|
2,178 | 2,178 | ||||||
Total Current Liabilities
|
198,702 | 182,703 | ||||||
Long-Term Liabilities, less current portion
|
||||||||
8.375% Senior Subordinated Notes due 2014
|
183,835 | 183,835 | ||||||
Revolving credit facility
|
103,800 | 113,300 | ||||||
Other long-term debt
|
5,058 | 5,322 | ||||||
Deferred tax liability
|
9,721 | 9,721 | ||||||
Other postretirement benefits and other long-term liabilities
|
23,372 | 22,863 | ||||||
325,786 | 335,041 | |||||||
Shareholders Equity
|
||||||||
Common Stock, par value $1 per share
|
-0- | -0- | ||||||
Additional paid-in capital
|
47,100 | 47,850 | ||||||
Retained deficit
|
(3,570 | ) | (12,723 | ) | ||||
Accumulated other comprehensive income
|
5,135 | 2,408 | ||||||
48,665 | 37,535 | |||||||
$ | 573,153 | $ | 555,279 | |||||
Note: | The balance sheet at December 31, 2010 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 accompanying notes to these unaudited condensed consolidated
financial statements. The accompanying notes are an integral
part of these unaudited condensed consolidated financial
statements.
3
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Amounts in thousands) | ||||||||
Net sales
|
$ | 241,628 | $ | 191,701 | ||||
Cost of products sold
|
199,693 | 162,363 | ||||||
Gross profit
|
41,935 | 29,338 | ||||||
Selling, general and administrative expenses
|
25,222 | 20,456 | ||||||
Operating income
|
16,713 | 8,882 | ||||||
Interest expense
|
5,882 | 5,455 | ||||||
Income before income taxes
|
10,831 | 3,427 | ||||||
Income taxes
|
1,678 | 868 | ||||||
Net income
|
$ | 9,153 | $ | 2,559 | ||||
See accompanying notes to these unaudited condensed consolidated
financial statements. The accompanying notes are an integral
part of these unaudited condensed consolidated financial
statements.
4
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
Accumulated |
||||||||||||||||||||
Additional |
Other |
|||||||||||||||||||
Common |
Paid-In |
Retained |
Comprehensive |
|||||||||||||||||
Stock | Capital | Deficit | Income | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance at January 1, 2011
|
$ | -0- | $ | 47,850 | $ | (12,723 | ) | $ | 2,408 | $ | 37,535 | |||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
9,153 | 9,153 | ||||||||||||||||||
Foreign currency translation adjustment
|
2,621 | 2,621 | ||||||||||||||||||
Pension and post retirement benefit adjustments, net of tax
|
106 | 106 | ||||||||||||||||||
Comprehensive income
|
11,880 | |||||||||||||||||||
Distribution of capital to shareholder
|
(750 | ) | (750 | ) | ||||||||||||||||
Balance at March 31, 2011
|
$ | -0- | $ | 47,100 | $ | (3,570 | ) | $ | 5,135 | $ | 48,665 | |||||||||
See accompanying notes to these unaudited condensed consolidated
financial statements. The accompanying notes are an integral
part of these unaudited condensed consolidated financial
statements.
5
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
OPERATING ACTIVITIES
|
||||||||
Net income
|
$ | 9,153 | $ | 2,559 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
Depreciation and amortization
|
3,957 | 4,168 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(20,061 | ) | (15,405 | ) | ||||
Inventories and other current assets
|
(11,657 | ) | 18,196 | |||||
Accounts payable and accrued expenses
|
26,612 | 17,628 | ||||||
Other
|
935 | (4,922 | ) | |||||
Net Cash Provided by Operating Activities
|
8,939 | 22,224 | ||||||
INVESTING ACTIVITIES
|
||||||||
Purchases of property, plant and equipment, net
|
(1,515 | ) | (1,580 | ) | ||||
Net Cash Used by Investing Activities
|
(1,515 | ) | (1,580 | ) | ||||
FINANCING ACTIVITIES
|
||||||||
Payments on debt, net
|
(15,728 | ) | (4,450 | ) | ||||
Distribution of capital to shareholder
|
(750 | ) | (750 | ) | ||||
Capital contribution from parent
|
-0- | (6,762 | ) | |||||
Debt issue costs
|
-0- | (3,806 | ) | |||||
Net Cash Used by Financing Activities
|
(16,478 | ) | (15,768 | ) | ||||
(Decrease) Increase in Cash and Cash Equivalents
|
(9,054 | ) | 4,876 | |||||
Cash and Cash Equivalents at Beginning of Period
|
35,075 | 21,976 | ||||||
Cash and Cash Equivalents at End of Period
|
$ | 26,021 | $ | 26,852 | ||||
Taxes paid
|
$ | 463 | $ | 573 | ||||
Interest paid
|
1,389 | 1,167 |
See accompanying notes to these condensed consolidated financial
statements. The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.
are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Dollar amounts in thousands)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Dollar amounts in thousands)
NOTE A
Basis of Presentation
The consolidated financial statements include the accounts of
Park-Ohio Industries, Inc. and its subsidiaries (the
Company). All significant intercompany transactions
have been eliminated in consolidation. Park-Ohio Industries,
Inc. is a wholly-owned subsidiaries of Park-Ohio Holdings Corp.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted 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 accounting principles generally accepted
in the United States 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-month period
ended March 31, 2011 are not necessarily indicative of the
results that may be expected for the year ending
December 31, 2011. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010.
NOTE B
Segments
The Company operates through three segments: Supply
Technologies, Aluminum Products and Manufactured Products.
Supply Technologies provides our customers with Total Supply
Managementtm
services for a broad range of high-volume, specialty production
components. Total Supply
Managementtm
manages the efficiencies of every aspect of supplying production
parts and materials to our customers manufacturing floor,
from strategic planning to program implementation, and includes
such services as engineering and design support, part usage and
cost analysis, supplier selection, quality assurance, bar
coding, product packaging and tracking,
just-in-time
and
point-of-use
delivery, electronic billing services and ongoing technical
support. Aluminum Products manufactures cast aluminum components
for automotive, agricultural equipment, construction equipment,
heavy-duty truck and marine equipment industries. Aluminum
Products also provides value-added services such as design and
engineering, machining and assembly. Manufactured Products
operates a diverse group of niche manufacturing businesses that
design and manufacture a broad range of high quality products
engineered for specific customer applications.
7
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Results by business segment were as follows:
Three Months Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net sales:
|
||||||||
Supply Technologies
|
$ | 123,226 | $ | 94,238 | ||||
Aluminum Products
|
39,041 | 36,588 | ||||||
Manufactured Products
|
79,361 | 60,875 | ||||||
$ | 241,628 | $ | 191,701 | |||||
Income before income taxes:
|
||||||||
Supply Technologies
|
$ | 8,633 | $ | 4,484 | ||||
Aluminum Products
|
3,314 | 1,936 | ||||||
Manufactured Products
|
8,546 | 4,933 | ||||||
20,493 | 11,353 | |||||||
Corporate costs
|
(3,780 | ) | (2,471 | ) | ||||
Interest expense
|
(5,882 | ) | (5,455 | ) | ||||
$ | 10,831 | $ | 3,427 | |||||
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
Identifiable assets were as follows:
|
||||||||
Supply Technologies
|
$ | 234,397 | $ | 217,915 | ||||
Aluminum Products
|
68,901 | 66,219 | ||||||
Manufactured Products
|
201,909 | 188,017 | ||||||
General corporate
|
67,946 | 83,128 | ||||||
$ | 573,153 | $ | 555,279 | |||||
NOTE C
Inventories
The components of inventory consist of the following:
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
Finished goods
|
$ | 118,551 | $ | 116,202 | ||||
Work in process
|
23,256 | 24,339 | ||||||
Raw materials and supplies
|
58,900 | 52,001 | ||||||
$ | 200,707 | $ | 192,542 | |||||
8
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE D
Pension Plans and Other Postretirement Benefits
The components of net periodic benefit cost recognized during
interim periods was as follows:
Three Months Ended |
||||||||||||||||
March 31, | ||||||||||||||||
Postretirement |
||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service costs
|
$ | 109 | $ | 81 | $ | 12 | $ | 9 | ||||||||
Interest costs
|
596 | 643 | 228 | 248 | ||||||||||||
Expected return on plan assets
|
(2,229 | ) | (1,984 | ) | -0- | -0- | ||||||||||
Transition obligation
|
(10 | ) | (10 | ) | -0- | -0- | ||||||||||
Amortization of prior service cost
|
11 | 15 | (24 | ) | (24 | ) | ||||||||||
Recognized net actuarial loss
|
-0- | 82 | 129 | 107 | ||||||||||||
Benefit (income) costs
|
$ | (1,523 | ) | $ | (1,173 | ) | $ | 345 | $ | 340 | ||||||
During March 2009, the Company suspended indefinitely its
contribution to its 401(k) defined contribution plan covering
substantially all U.S. employees.
NOTE E
Comprehensive Income
Total comprehensive income was as follows:
Three Months Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net income
|
$ | 9,153 | $ | 2,559 | ||||
Foreign currency translation
|
2,621 | (2,027 | ) | |||||
Pension and post retirement benefit adjustments, net of tax
|
106 | 195 | ||||||
Total comprehensive income
|
$ | 11,880 | $ | 727 | ||||
The components of accumulated comprehensive income at
March 31, 2011 and December 31, 2010 are as follows:
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
Foreign currency translation adjustment
|
$ | 8,830 | $ | 6,209 | ||||
Pension and postretirement benefit adjustments, net of tax
|
(3,695 | ) | (3,801 | ) | ||||
$ | 5,135 | $ | 2,408 | |||||
The pension and postretirement benefit liability amounts are net
of deferred taxes of $1,143 at March 31, 2011 and
December 31, 2010. No income taxes are provided on foreign
currency translation adjustments as foreign earnings are
considered permanently invested.
9
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE F
Accrued Warranty Costs
The Company estimates the amount of warranty claims on sold
products that may be incurred based on current and historical
data. The actual warranty expense could differ from the
estimates made by the Company based on product performance. The
following table presents the changes in the Companys
product warranty liability:
2011 | 2010 | |||||||
Balance at January 1
|
$ | 4,046 | $ | 2,760 | ||||
Claims paid during the quarter
|
(127 | ) | (246 | ) | ||||
Additional warranties issued during the quarter
|
149 | 73 | ||||||
Balance at March 31
|
$ | 4,068 | $ | 2,587 | ||||
NOTE G
Income Taxes
The Companys tax provision for interim periods is
determined using an estimate of its annual effective income tax
rate, adjusted for discrete items, if any, that are taken into
account in the relevant period. Each quarter, the Company
updates the estimated annual effective income tax rate, and if
the estimated income tax rate changes, a cumulative adjustment
is made.
The effective income tax rate in the first three months of 2011
and 2010 was 15.5% and 25.3%, respectively. The 2011 annual
effective income tax rate is estimated to be approximately 17%
and is lower than the 35% United States federal statutory rate
primarily due to anticipated income in the United States for
which the Company will record no tax expense due to a full
valuation allowance against its U.S. net deferred tax assets and
anticipated income earned in jurisdictions outside of the United
States where the effective income tax rate is lower than in the
United States.
NOTE H
Fair Value Measurements
The Company measures financial assets and liabilities at fair
value in three levels of inputs. The three-tier fair value
hierarchy, which prioritizes the inputs used in the valuation
methodologies, is:
Level 1 Valuations based on quoted
prices for identical assets and liabilities in active markets.
Level 2 Valuations based on observable
inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data.
Level 3 Valuations based on unobservable
inputs reflecting our own assumptions, consistent with
reasonably available assumptions made by other market
participants. These valuations require significant judgment.
The fair value of the 8.375% Subordinated Notes due 2014 is
estimated based on a third partys bid price. The fair
value approximated $189,350 at March 31, 2011 and $187,512
at December 31, 2010.
NOTE I
Financing Arrangements
The Company is a party to a credit and security agreement dated
November 5, 2003, as amended (Credit
Agreement), with a group of banks, under which it may
borrow or issue standby letters of credit or commercial letters
of credit. On March 8, 2010 and subsequently on
August 31, 2010, the Credit Agreement was amended and
restated to among other things, extend its maturity date to
April 30, 2014 and reduce the loan commitment from $270,000
to $210,000, which includes a term loan A that is secured by
real estate and machinery and equipment and an unsecured term
loan B. The Credit Agreement contains a detailed borrowing base
formula that provides borrowing capacity to the Company based on
negotiated percentages of eligible accounts receivable,
inventory and fixed assets. At March 31, 2011, the Company
had approximately $61,900 of unused borrowing capacity available
under the Credit Agreement. Amounts borrowed under the revolving
credit facility may be borrowed at either
10
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(i) LIBOR plus 3% to 4% or (ii) the banks prime
lending rate plus 1%, at the Companys election. The
LIBOR-based interest rate is dependent on the Companys
debt service coverage ratio, as defined in the Credit Agreement.
Interest on the term loan A is at either (i) LIBOR plus
3.25% to 4.25% or (ii) the banks prime lending rate
plus .75% to 1.75%, at the Companys election. Interest on
the term loan B is at either (i) LIBOR plus 5.25% to 6.25%
or (ii) the banks prime lending rate plus 3.25% to
4.25%, at the Companys election. The term loan A is
amortized based on a ten-year schedule with the balance due at
maturity. The term loan B is amortized over a two-year period,
plus 50% of debt service coverage excess capped at $3,500.
Long-term debt consists of the following:
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
8.375% senior subordinated notes due 2014
|
$ | 183,835 | $ | 183,835 | ||||
Revolving credit
|
81,400 | 90,200 | ||||||
Term loan A
|
25,200 | 25,900 | ||||||
Term loan B
|
3,700 | 8,400 | ||||||
Other
|
6,350 | 7,878 | ||||||
300,485 | 316,213 | |||||||
Less current maturities
|
7,792 | 13,756 | ||||||
Total
|
$ | 292,693 | $ | 302,457 | ||||
On April 7, 2011, the Company completed the sale of
$250,000 in aggregate principal amount of 8.125% Senior
Notes due 2021 (the Notes) in an offering exempt
from the registration requirements of the Securities Act of
1933. The Notes bear an interest rate of 8.125% per annum and
will be payable semi-annually in arrears on April 1 and October
1 of each year commencing on October 1, 2011. The Notes
mature on April 1, 2021. In connection with the sale of the
Notes, the Company also entered into a fourth amended and
restated credit agreement (the Amended Credit
Agreement). The Amended Credit Agreement, among other
things, provides an increased revolving credit facility up to
$200,000, extends the maturity date of the borrowings under the
revolving credit facility to April 7, 2016 and amends fee
and pricing terms. Furthermore, the Company has the option,
pursuant to the Amended Credit Agreement, to increase the
availability under the revolving credit facility by $50,000. The
Company also purchased all of its outstanding 8.375% senior
subordinated notes due 2014 in the aggregate principal amount of
$183,835 that were not held by its affiliates, repaid all of the
term loan A and term loan B outstanding under its then existing
credit facility and retired the 8.375% senior subordinated
notes due 2014 in the aggregate principal amount of $26,165 that
were held by its affiliates.
NOTE J
Accounts Receivable
During the first three months of 2011 and 2010, the Company sold
approximately $11,690 and $6,576, respectively, of accounts
receivable to mitigate accounts receivable concentration risk
and to provide additional financing capacity and recorded a loss
in the amount of $53 and $21, respectively, in the Consolidated
Statements of Income. These losses represented implicit interest
on the transactions.
NOTE K
Acquisition
On December 31, 2010, the Company through its subsidiary
Ajax Tocco Magnathermic acquired the assets and the related
induction heating intellectual property of ABP Inductions
United States heating business operating as Pillar Induction
(Pillar). Pillar provides complete turnkey automated
induction power systems and aftermarket parts and service to a
worldwide market.
The assets of Pillar have been integrated into the
Companys manufactured products segment. The acquisition
was accounted for under the acquisition method of accounting.
Under the acquisition method of accounting, the
11
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
total estimated purchase price is allocated to Pillars net
tangible assets and intangible assets acquired and liabilities
assumed based on their estimated fair values as of
December 31, 2010, the effective date of the acquisition.
Based on managements valuation of the fair value of
tangible and intangible assets acquired and liabilities assumed
which are based on estimates and assumptions that are subject to
change, the purchase price is allocated as follows:
Accounts receivable
|
$ | 3,164 | ||
Inventories
|
2,782 | |||
Prepaid expenses and other current assets
|
178 | |||
Property, plant and equipment
|
447 | |||
Customer relationships
|
3,480 | |||
Technological know how
|
1,890 | |||
Trade name and other intangible assets
|
710 | |||
Accounts payable
|
(1,202 | ) | ||
Accrued expenses
|
(2,133 | ) | ||
Goodwill
|
990 | |||
Total purchase price
|
$ | 10,306 | ||
The purchase price allocation was finalized during March 2011
and reflects the working capital adjustment as of
December 31, 2010. There were no significant direct
transaction costs included in selling, general and
administrative expenses during the first three months of 2011.
During the third quarter of 2010, the Company also completed the
acquisition of the ACS business (ACS) of Lawson
Products, Inc. and substantially all of the assets of Rome Die
Casting LLC (Rome). The following unaudited pro
forma information is provided to present a summary of the
combined results of the Companys operations with ACS, Rome
and Pillar as if the acquisitions had occurred on
January 1, 2010. The unaudited pro forma financial
information is for informational purposes only and is not
necessarily indicative of what the results would have been had
the acquisitions been completed at the date indicated above.
Three Months Ended |
||||
March 31, 2010 | ||||
Pro forma revenues
|
$ | 212,754 | ||
Pro forma net income
|
$ | 2,618 |
NOTE L
Supplemental Guarantor Information
Each of the material domestic direct and indirect wholly-owned
subsidiaries of the Company (the Guarantor
Subsidiaries) has fully and unconditionally guaranteed, on
a joint and several basis, to pay principal, premium, and
interest with respect to the Companys 8.375% Senior
Subordinated Notes due 2014. Each of the Guarantor Subsidiaries
is 100% owned as defined by Rule 3-10(h)(1) of
Regulation S-X.
The following supplemental condensed consolidating financial
statements present condensed consolidating balance sheets as of
March 31, 2011 and December 31, 2010, condensed
consolidating statements of operations for the three months
ended March 31, 2011 and 2010, condensed consolidating
statements of cash flows for the three months ended
March 31, 2011 and 2010 and reclassification and
elimination entries necessary to consolidate the Parent and all
of its subsidiaries. The Parent reflected in the
accompanying supplemental guarantor information is Park-Ohio
Industries, Inc.
12
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2011
Combined |
Combined |
|||||||||||||||||||
Guarantor |
Non-Guarantor |
Reclassifications/ |
||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current assets:
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | (5,275 | ) | $ | 3,229 | $ | 24,703 | $ | 3,364 | $ | 26,021 | |||||||||
Accounts receivable, net
|
(2,650 | ) | 116,460 | 32,660 | -0- | 146,470 | ||||||||||||||
Inventories
|
-0- | 162,246 | 38,461 | -0- | 200,707 | |||||||||||||||
Other current assets
|
18,282 | 10,006 | 13,880 | (17,751 | ) | 24,417 | ||||||||||||||
Deferred tax assets
|
-0- | -0- | -0- | 10,496 | 10,496 | |||||||||||||||
Total Current Assets
|
10,357 | 291,941 | 109,704 | (3,891 | ) | 408,111 | ||||||||||||||
Investment in subsidiaries
|
331,677 | 26,266 | (26,266 | ) | (331,677 | ) | -0- | |||||||||||||
Inter-company advances
|
7,219 | 39,683 | 27,656 | (74,558 | ) | -0- | ||||||||||||||
Property, Plant and Equipment, net
|
5,435 | 66,885 | 5,525 | (7,701 | ) | 70,144 | ||||||||||||||
Other Assets:
|
||||||||||||||||||||
Goodwill
|
-0- | 6,908 | 2,763 | -0- | 9,671 | |||||||||||||||
Other
|
64,748 | 21,949 | 14,919 | (16,389 | ) | 85,227 | ||||||||||||||
Total Other Assets
|
64,748 | 28,857 | 17,682 | (16,389 | ) | 94,898 | ||||||||||||||
Total Assets
|
$ | 419,436 | $ | 453,632 | $ | 134,301 | $ | (434,216 | ) | $ | 573,153 | |||||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
||||||||||||||||||||
Current Liabilities:
|
||||||||||||||||||||
Trade accounts payable
|
$ | 2,162 | $ | 93,501 | $ | 16,490 | $ | 3,411 | $ | 115,564 | ||||||||||
Payable to affiliates
|
7,255 | -0- | -0- | -0- | 7,255 | |||||||||||||||
Accrued expenses
|
9,543 | 40,669 | 15,703 | (2 | ) | 65,913 | ||||||||||||||
Current portion of long-term liabilities
|
-0- | 13 | 2 | 9,955 | 9,970 | |||||||||||||||
Total Current Liabilities
|
18,960 | 134,183 | 32,195 | 13,364 | 198,702 | |||||||||||||||
Long-Term Liabilities, less current portion
|
||||||||||||||||||||
8.375% Senior Subordinated Notes due 2014
|
210,000 | -0- | -0- | (26,165 | ) | 183,835 | ||||||||||||||
Revolving credit
|
110,300 | -0- | -0- | (6,500 | ) | 103,800 | ||||||||||||||
Other long-term debt
|
-0- | 4,000 | -0- | 1,058 | 5,058 | |||||||||||||||
Deferred tax liability
|
8,343 | -0- | 1,399 | (21 | ) | 9,721 | ||||||||||||||
Other postretirement benefits and other long-term liabilities
|
23,215 | 3,942 | 707 | (4,492 | ) | 23,372 | ||||||||||||||
Total Long-Term Liabilities
|
351,858 | 7,942 | 2,106 | (36,120 | ) | 325,786 | ||||||||||||||
Inter-company advances
|
24,990 | (1,723 | ) | 40,640 | (63,907 | ) | -0- | |||||||||||||
Shareholders Equity
|
23,628 | 313,230 | 59,360 | (347,553 | ) | 48,665 | ||||||||||||||
Total Liabilities and Shareholders Equity
|
$ | 419,436 | $ | 453,632 | $ | 134,301 | $ | (434,216 | ) | $ | 573,153 | |||||||||
13
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2010
Combined |
Combined |
|||||||||||||||||||
Guarantor |
Non-Guarantor |
Reclassifications/ |
||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current assets:
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | (4,983 | ) | $ | 2,286 | $ | 33,736 | $ | 4,036 | $ | 35,075 | |||||||||
Accounts receivable, net
|
(2,650 | ) | 100,754 | 25,141 | 3,164 | 126,409 | ||||||||||||||
Inventories
|
-0- | 157,180 | 32,580 | 2,782 | 192,542 | |||||||||||||||
Other current assets
|
24,322 | 8,932 | 14,491 | (22,197 | ) | 25,548 | ||||||||||||||
Deferred tax assets
|
-0- | -0- | -0- | 10,496 | 10,496 | |||||||||||||||
Total Current Assets
|
16,689 | 269,152 | 105,948 | (1,719 | ) | 390,070 | ||||||||||||||
Investment in subsidiaries
|
311,612 | 26,234 | (26,234 | ) | (311,612 | ) | -0- | |||||||||||||
Inter-company advances
|
9,520 | 42,063 | 37,393 | (88,976 | ) | -0- | ||||||||||||||
Property, Plant and Equipment, net
|
5,505 | 68,036 | 5,482 | (7,254 | ) | 71,769 | ||||||||||||||
Other Assets:
|
||||||||||||||||||||
Goodwill
|
-0- | 5,918 | 2,597 | 585 | 9,100 | |||||||||||||||
Other
|
63,684 | 16,094 | 14,466 | (9,904 | ) | 84,340 | ||||||||||||||
Total Other Assets
|
63,684 | 22,012 | 17,063 | (9,319 | ) | 93,440 | ||||||||||||||
Total Assets
|
$ | 407,010 | $ | 427,497 | $ | 139,652 | $ | (418,880 | ) | $ | 555,279 | |||||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
||||||||||||||||||||
Current Liabilities:
|
||||||||||||||||||||
Trade accounts payable
|
$ | 3,371 | $ | 70,191 | $ | 16,856 | $ | 5,272 | $ | 95,690 | ||||||||||
Payable to affiliates
|
11,879 | -0- | -0- | -0- | 11,879 | |||||||||||||||
Accrued expenses
|
3,496 | 37,347 | 16,240 | 2,117 | 59,200 | |||||||||||||||
Current portion of long-term liabilities
|
-0- | 50 | 1,229 | 14,655 | 15,934 | |||||||||||||||
Total Current Liabilities
|
18,746 | 107,588 | 34,325 | 22,044 | 182,703 | |||||||||||||||
Long-Term Liabilities, less current portion
|
||||||||||||||||||||
8.375% Senior Subordinated Notes due 2014
|
210,000 | -0- | -0- | (26,165 | ) | 183,835 | ||||||||||||||
Revolving credit
|
124,500 | -0- | -0- | (11,200 | ) | 113,300 | ||||||||||||||
Other long-term debt
|
-0- | 4,000 | -0- | 1,322 | 5,322 | |||||||||||||||
Deferred tax liability
|
8,343 | -0- | 1,378 | -0- | 9,721 | |||||||||||||||
Other postretirement benefits and other long-term liabilities
|
23,195 | 4,213 | 216 | (4,761 | ) | 22,863 | ||||||||||||||
Total Long-Term Liabilities
|
366,038 | 8,213 | 1,594 | (40,804 | ) | 335,041 | ||||||||||||||
Inter-company advances
|
6,646 | 22,689 | 49,908 | (79,243 | ) | -0- | ||||||||||||||
Shareholders Equity
|
15,580 | 289,007 | 53,825 | (320,877 | ) | 37,535 | ||||||||||||||
Total Liabilities and Shareholders Equity
|
$ | 407,010 | $ | 427,497 | $ | 139,652 | $ | 418,880 | $ | 555,279 | ||||||||||
14
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2011
Combined |
Combined |
|||||||||||||||||||
Guarantor |
Non-Guarantor |
|||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net sales
|
$ | -0- | $ | 203,026 | $ | 38,602 | $ | -0- | $ | 241,628 | ||||||||||
Cost of sales
|
-0- | 169,465 | 30,228 | -0- | 199,693 | |||||||||||||||
Gross profit
|
-0- | 33,561 | 8,374 | -0- | 41,935 | |||||||||||||||
Operating expenses:
|
||||||||||||||||||||
Selling, general and administrative expenses
|
(17,493 | ) | 16,163 | 5,818 | 20,734 | 25,222 | ||||||||||||||
Operating income
|
17,493 | 17,398 | 2,556 | (20,734 | ) | 16,713 | ||||||||||||||
Interest expense
|
6,296 | 108 | 147 | (669 | ) | 5,882 | ||||||||||||||
Income (loss) before income taxes
|
11,197 | 17,290 | 2,409 | (20,065 | ) | 10,831 | ||||||||||||||
Income taxes
|
1,177 | -0- | 501 | -0- | 1,678 | |||||||||||||||
Net income (loss)
|
$ | 10,020 | $ | 17,290 | $ | 1,908 | $ | (20,065 | ) | $ | 9,153 | |||||||||
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2010
Combined |
Combined |
|||||||||||||||||||
Guarantor |
Non-Guarantor |
|||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net sales
|
$ | -0- | $ | 157,944 | $ | 33,757 | $ | -0- | $ | 191,701 | ||||||||||
Cost of sales
|
-0- | 136,661 | 25,702 | -0- | 162,363 | |||||||||||||||
Gross profit
|
-0- | 21,283 | 8,055 | -0- | 29,338 | |||||||||||||||
Operating expenses:
|
||||||||||||||||||||
Selling, general and administrative expenses
|
(7,914 | ) | 13,529 | 4,540 | 10,301 | 20,456 | ||||||||||||||
Operating income
|
7,914 | 7,754 | 3,515 | (10,301 | ) | 8,882 | ||||||||||||||
Interest expense
|
5,566 | 231 | 322 | (664 | ) | 5,455 | ||||||||||||||
Income before income taxes
|
2,348 | 7,523 | 3,193 | (9,637 | ) | 3,427 | ||||||||||||||
Income taxes
|
740 | 39 | 89 | -0- | 868 | |||||||||||||||
Net income (loss)
|
$ | 1,608 | $ | 7,484 | $ | 3,104 | $ | (9,637 | ) | $ | 2,559 | |||||||||
15
Table of Contents
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2011
Combined |
Combined |
|||||||||||||||||||
Guarantor |
Non-Guarantor |
|||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net cash provided (used) by operations
|
$ | 14,000 | $ | 2,456 | $ | (7,517 | ) | $ | -0- | $ | 8,939 | |||||||||
Cash flows from investing activities:
|
||||||||||||||||||||
Purchases of property, plant and equipment, net
|
(14 | ) | (1,262 | ) | (239 | ) | -0- | (1,515 | ) | |||||||||||
Net cash provided (used) in investing activities
|
(14 | ) | (1,262 | ) | (239 | ) | -0- | (1,515 | ) | |||||||||||
Cash flows from financing activities:
|
||||||||||||||||||||
Distribution of capital to shareholder
|
(750 | ) | -0- | -0- | -0- | (750 | ) | |||||||||||||
Principal payments on revolving credit and long term debt
|
(14,200 | ) | (251 | ) | (1,277 | ) | -0- | (15,728 | ) | |||||||||||
Net cash provided (used) by financing activities
|
(14,950 | ) | (251 | ) | (1,277 | ) | -0- | (16,478 | ) | |||||||||||
Increase (decrease) in cash and cash equivalents
|
(964 | ) | 943 | (9,033 | ) | -0- | (9,054 | ) | ||||||||||||
Cash and cash equivalents at beginning of period
|
(947 | ) | 2,286 | 33,736 | -0- | 35,075 | ||||||||||||||
Cash and cash equivalents at end of period
|
$ | (1,911 | ) | $ | 3,229 | $ | 24,703 | $ | -0- | $ | 26,021 | |||||||||
PARK-OHIO
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2010
Combined |
Combined |
|||||||||||||||||||
Guarantor |
Non-Guarantor |
|||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net cash provided (used) by operations
|
$ | 16,942 | $ | 7,133 | $ | (1,851 | ) | $ | -0- | $ | 22,224 | |||||||||
Cash flows from investing activities:
|
||||||||||||||||||||
Purchases of property, plant and equipment, net
|
(26 | ) | (7,047 | ) | 5,493 | -0- | (1,580 | ) | ||||||||||||
Net cash provided (used) in investing activities
|
(26 | ) | (7,047 | ) | 5,493 | -0- | (1,580 | ) | ||||||||||||
Cash flows from financing activities:
|
||||||||||||||||||||
(Payments) Proceeds on debt
|
(4,200 | ) | (245 | ) | (5 | ) | -0- | (4,450 | ) | |||||||||||
Distribution of capital to shareholder
|
(750 | ) | -0- | -0- | -0- | (750 | ) | |||||||||||||
Capital contributions from parent
|
(6,762 | ) | -0- | -0- | -0- | (6,762 | ) | |||||||||||||
Debt issue costs
|
(3,806 | ) | -0- | -0- | -0- | (3,806 | ) | |||||||||||||
Net cash provided (used) by financing activities
|
(15,518 | ) | (245 | ) | (5 | ) | -0- | (15,768 | ) | |||||||||||
Increase in cash and cash equivalents
|
1,398 | (159 | ) | 3,637 | -0- | 4,876 | ||||||||||||||
Cash and cash equivalents at beginning of period
|
(1,476 | ) | 1,613 | 21,839 | -0- | 21,976 | ||||||||||||||
Cash and cash equivalents at end of period
|
$ | (78 | ) | $ | 1,454 | $ | 25,476 | $ | -0- | $ | 26,852 | |||||||||
16
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholder
Park-Ohio Industries, Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of Park-Ohio Industries, Inc. and subsidiaries as of
March 31, 2011, and the related condensed consolidated
statements of income and cash flows for the three-month periods
ended March 31, 2011 and 2010 and the condensed
consolidated statement of shareholders equity for the
three-month period ended March 31, 2011. These financial
statements are the responsibility of the Companys
management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting
principles.
We have previously audited, in accordance with standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Park-Ohio Industries, Inc. and
subsidiaries as of December 31, 2010 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 March 8, 2011, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2010, 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
May 10, 2011
17
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Our condensed consolidated financial statements include the
accounts of Park-Ohio Industries, Inc. and its subsidiaries. All
significant intercompany transactions have been eliminated in
consolidation. Park-Ohio Industries, Inc. is a wholly-owned
subsidiary of Park-Ohio Holdings Corp.
Executive
Overview
We are an industrial Total Supply
Managementtm
and diversified manufacturing business, operating in three
segments: Supply Technologies, Aluminum Products and
Manufactured Products. Our Supply Technologies business provides
our customers with Total Supply
Managementtm,
a proactive solutions approach that manages the efficiencies of
every aspect of supplying production parts and materials to our
customers manufacturing floor, from strategic planning to
program implementation. Total Supply
Managementtm
includes such services as engineering and design support, part
usage and cost analysis, supplier selection, quality assurance,
bar coding, product packaging and tracking,
just-in-time
and
point-of-use
delivery, electronic billing services and ongoing technical
support. The principal customers of Supply Technologies are in
the heavy-duty truck, automotive and vehicle parts, electrical
distribution and controls, consumer electronics, power
sports/fitness equipment, HVAC, agricultural and construction
equipment, semiconductor equipment, plumbing, aerospace and
defense, and appliance industries. Aluminum Products casts and
machines aluminum engine, transmission, brake, suspension and
other components such as pump housings, clutch
retainers/pistons, control arms, knuckles, master cylinders,
pinion housings, brake calipers, oil pans and flywheel spacers
for automotive, agricultural equipment, construction equipment,
heavy-duty truck and marine equipment original equipment
manufacturers (OEMs), primarily on a sole-source
basis. Aluminum Products also provides value-added services such
as design and engineering and assembly. Manufactured Products
operates a diverse group of niche manufacturing businesses that
design and manufacture a broad range of highly-engineered
products including induction heating and melting systems, pipe
threading systems, industrial oven systems, injection molded
rubber components, and forged and machined products.
Manufactured Products also produces and provides services and
spare parts for the equipment it manufactures. The principal
customers of Manufactured Products are OEMs,
sub-assemblers
and end users in the ferrous and non-ferrous metals, silicon,
coatings, forging, foundry, heavy-duty truck, construction
equipment, automotive, oil and gas, rail and locomotive
manufacturing and aerospace and defense industries. Sales,
earnings and other relevant financial data for these three
segments are provided in Note B to the condensed
consolidated financial statements, included elsewhere herein.
During the third quarter of 2010, Supply Technologies completed
the acquisition of certain assets and assumed specific
liabilities relating to the ACS business of Lawson Products,
Inc. for $16.0 million in cash and a $2.2 million
subordinated promissory note payable in equal quarterly
installments over three years ($1.7 million outstanding at
March 31, 2011). ACS is a provider of supply chain
management solutions for a broad range of production components
through its service centers throughout North America.
On September 30, 2010, the Company entered a Bill of Sale
with Rome Die Casting LLC (Rome), a producer of
aluminum high pressure die castings, pursuant to which Rome
agreed to transfer to the Company substantially all of its
assets in exchange for approximately $7.5 million of notes
receivable due from Rome.
On December 31, 2010, the Company through its subsidiary
Ajax Tocco Magnathermic acquired the assets and the related
induction heating intellectual property of ABP Inductions
United States heating business operating as Pillar Induction
(Pillar) for $10.3 million in cash. Pillar
provides complete turnkey automated induction power systems and
aftermarket parts and service to a worldwide market.
On April 7, 2011, the Company completed the sale of
$250 million in aggregate principal amount of
8.125% Senior Notes due 2021 (the Notes) in an
offering exempt from the registration requirements of the
Securities Act of 1933. The Notes bear an interest rate of
8.125% per annum and will be payable semi-annually in arrears on
April 1 and October 1 of each year commencing on October 1,
2011. The Notes mature on April 1, 2021. In connection with
the sale of the Notes, the Company entered into a fourth amended
and restated credit agreement (the Amended Credit
Agreement). The Amended Credit Agreement, among other
things, provides an increased revolving credit facility up to
$200 million, extends the maturity date of the borrowings
under the revolving credit facility to April 7, 2016 and
amends fee and pricing terms. Furthermore, the Company has the
option, pursuant to the Amended Credit Agreement, to increase
the availability under the revolving credit facility by
$50 million. The Company also purchased all of its
outstanding 8.375% senior subordinated notes due 2014 in
aggregate principal
18
Table of Contents
amount of $183.8 million that were not held by its
affiliates, repaid all of the term loan A and term loan B
outstanding under its then existing credit facility and retired
the 8.375% senior subordinated notes due 2014 in the
aggregate principal amount of $26.2 million that were held
by its affiliates.
Critical
Accounting Policies
Our critical accounting policies are described in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations, and in the notes to our Consolidated
Financial Statements for the year ended December 31, 2010
contained in our 2010 Annual Report on
Form 10-K.
There were no new accounting policies or updates to existing
accounting policies as a result of new accounting pronouncements
discussed in the notes to our Consolidated Financial Statements
in this Quarterly Report on
Form 10-Q.
The application of our critical accounting policies may require
management to make judgments and estimates about the amounts
reflected in the Consolidated Financial Statements. Management
uses historical experience and all available information to make
these estimates and judgments, and different amounts could be
reported using different assumptions and estimates.
Results
of Operations
Three
Months 2011 versus Three Months 2010
Net
Sales by Segment:
Three Months |
||||||||||||||||
Ended |
||||||||||||||||
March 31, |
Percent |
|||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Supply Technologies
|
$ | 123.2 | $ | 94.2 | $ | 29.0 | 31 | % | ||||||||
Aluminum Products
|
39.0 | 36.6 | 2.4 | 7 | % | |||||||||||
Manufactured Products
|
79.4 | 60.9 | 18.5 | 30 | % | |||||||||||
Consolidated Net Sales
|
$ | 241.6 | $ | 191.7 | $ | 49.9 | 26 | % | ||||||||
Net sales increased $49.9 million to $241.6 million in
the first three months of 2011 compared to $191.7 million
in the same period in 2010 as the Company experienced volume
increases in each of its segments. Supply Technologies sales
increased 31% primarily due to volume increases in the
heavy-duty truck, electrical, semi-conductor, power sports,
HVAC, agricultural and construction equipment industries offset
primarily by declines in the consumer electronics, medical and
plumbing industries. In addition, there were $14.0 million
of sales resulting from the acquisition of the ACS business.
Aluminum Products sales increased 7% primarily from sales of
$8.2 million resulting from the acquisition of the Rome
business. Manufactured Products sales increased 30% primarily
due to the increased business in the capital equipment, forged
and machine and rubber products business units. In addition,
there were $5.8 million of sales resulting from the
acquisition of Pillar.
Cost of Products Sold & Gross Profit:
Three Months |
||||||||||||||||
Ended |
||||||||||||||||
March 31, |
Percent |
|||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated cost of products sold
|
$ | 199.7 | $ | 162.4 | $ | 37.3 | 23 | % | ||||||||
Consolidated gross profit
|
$ | 41.9 | $ | 29.3 | $ | 12.6 | 43 | % | ||||||||
Gross margin
|
17.3 | % | 15.3 | % |
Cost of products sold increased $37.3 million to
$199.7 million in the first three months of 2011 compared
to $162.4 million in the same period in 2010, while gross
margin increased to 17.3% in the first three months of 2011
compared to 15.3% in the same period in 2010. Gross margin
increased in each business unit resulting primarily from volume
increases.
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Selling,
General & Administrative (SG&A)
Expenses:
Three Months Ended |
||||||||||||||||
March 31, |
Percent |
|||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated SG&A expenses
|
$ | 25.2 | $ | 20.5 | $ | 4.7 | 23 | % | ||||||||
SG&A percent
|
10.4 | % | 10.7 | % |
Consolidated SG&A expenses increased 23% in the first three
months of 2011 compared to the same period in 2010, representing
a 3 basis point decrease in SG&A expenses as a percent
of sales. SG&A expenses increased in the first three months
of 2011 compared to the same period in 2010 primarily due to
increases in payroll and payroll related expenses.
Interest
Expense:
Three Months |
||||||||||||||
Ended |
||||||||||||||
March 31, |
Percent |
|||||||||||||
2011 | 2010 | Change | Change | |||||||||||
(Dollars in millions) | ||||||||||||||
Interest expense
|
$ | 5.9 | $ | 5.5 | $ .4 | 7 | % | |||||||
Average outstanding borrowings
|
$ | 308.7 | $ | 331.0 | $(22.3) | (7 | )% | |||||||
Average borrowing rate
|
7.64 | % | 6.64 | % | 100 basis points |
Interest expense increased $.4 million in the first three
months of 2011 compared to the same period of 2010, primarily
due to a higher average borrowing rate during the first three
months of 2011. Average borrowings in the first three months of
2011 were lower when compared to the same period in 2010. The
higher average borrowing rate in the first three months of 2011
was due primarily to increased interest rates under our
revolving credit facility compared to the same period in 2010.
Income
Tax:
The provision for income taxes was $1.7 million in the
first three months of 2011, a 16% effective income tax rate,
compared to income taxes of $.9 million provided in the
corresponding period of 2010, a 25% effective income tax rate.
We estimate that the effective tax rate for full-year 2011 will
be approximately 17%.
Seasonality;
Variability of Operating Results
The timing of orders placed by our customers has varied with,
among other factors, orders for customers finished goods,
customer production schedules, competitive conditions and
general economic conditions. The variability of the level and
timing of orders has, from time to time, resulted in significant
periodic and quarterly fluctuations in the operations of our
business units. Such variability is particularly evident at the
capital equipment businesses, included in the Manufactured
Products segment, which typically ship a few large systems per
year.
Forward-Looking
Statements
This
Form 10-Q
contains certain statements that are forward-looking
statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. The
words believes, anticipates,
plans, expects, intends,
estimates and similar expressions are intended to
identify forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance and
achievements, or industry results, to be materially different
from any future results, performance or achievements expressed
or implied by such forward-looking statements. These factors
include, but are not limited to the following: our substantial
indebtedness; any deterioration in the global economic
environment; general business conditions and competitive
factors, including pricing pressures and product innovation;
demand for our products and services; raw material availability
and pricing; component part availability and pricing; changes in
our relationships with customers and suppliers; the financial
condition of our customers, including the impact of any
bankruptcies; our ability to successfully integrate recent and
future acquisitions into existing operations; changes in general
domestic economic conditions such as inflation rates, interest
rates, tax rates, unemployment rates, higher labor and
healthcare costs, recessions and changing
20
Table of Contents
government policies, laws and regulations, including the
uncertainties related to the current global financial crisis;
adverse impacts to us, our suppliers and customers from acts of
terrorism or hostilities; our ability to meet various covenants,
including financial covenants, contained in the agreements
governing our indebtedness; disruptions, uncertainties or
volatility in the credit markets that may limit our access to
capital; increasingly stringent domestic and foreign
governmental regulations, including those affecting the
environment; inherent uncertainties involved in assessing our
potential liability for environmental remediation-related
activities; the outcome of pending and future litigation and
other claims; our dependence on the automotive and heavy-duty
truck industries, which are highly cyclical; the dependence of
the automotive industry on consumer spending, which could be
lower due to the effects of the current financial crisis; our
ability to negotiate contracts with labor unions; dependence on
key management; dependence on information systems; and the other
factors we describe under the Item 1A. Risk
Factors included in the Companys annual report on
Form 10-K
for the year ended December 31, 2010. Any forward-looking
statement speaks only as of the date on which such statement is
made, and we undertake no obligation to update any
forward-looking statement, whether as a result of new
information, future events or otherwise, except as required by
law. In light of these and other uncertainties, the inclusion of
a forward-looking statement herein should not be regarded as a
representation by us that our plans and objectives will be
achieved.
Review By
Independent Registered Public Accounting Firm
The condensed consolidated financial statements at
March 31, 2011, and for the three-month periods ended
March 31, 2011 and 2010, have been reviewed, prior to
filing, by Ernst & Young LLP, our independent
registered public accounting firm, and their report is included
herein.
Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
We are exposed to market risk including changes in interest
rates. We are subject to interest rate risk on borrowings under
our floating rate revolving credit facility, which consisted of
borrowings of $110.3 million at March 31, 2011. A
100 basis point increase in the interest rate would have
resulted in an increase in interest expense of approximately
$.3 million during the three-month period ended
March 31, 2011.
Our foreign subsidiaries generally conduct business in local
currencies. During the first quarter of 2011, we recorded a
favorable foreign currency translation adjustment of
$2.6 million related to net assets located outside the
United States. This foreign currency translation adjustment
resulted primarily from the weakening of the U.S. dollar.
Our foreign operations are also subject to other customary risks
of operating in a global environment, such as unstable political
situations, the effect of local laws and taxes, tariff increases
and regulations and requirements for export licenses, the
potential imposition of trade or foreign exchange restrictions
and transportation delays.
The Company periodically enters into forward contracts on
foreign currencies, primarily the euro and the British Pound
Sterling, purely for the purpose of hedging exposure to changes
in the value of accounts receivable in those currencies against
the U.S. dollar. The Company currently uses no other
derivative instruments. At March 31, 2011, there were no
such currency hedge contracts outstanding.
Item 4. | Controls and Procedures |
Under the supervision of and with the participation of our
management, including our chief executive officer and chief
financial officer, we evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and 15(d)-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this quarterly
report.
Based on that evaluation, our chief executive officer and chief
financial officer have concluded that, as of the end of the
period covered by this quarterly report, our disclosure controls
and procedures were effective.
There have been no changes in our internal control over
financial reporting that occurred during the first quarter of
2011 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
21
Table of Contents
OTHER
INFORMATION
Item 1. | Legal Proceedings |
We are subject to various pending and threatened lawsuits in
which claims for monetary damages are asserted in the ordinary
course of business. While any litigation involves an element of
uncertainty, in the opinion of management, liabilities, if any,
arising from currently pending or threatened litigation are not
expected to have a material adverse effect on our financial
condition, liquidity or results of operations.
At March 31, 2011, we were a co-defendant in approximately
260 cases asserting claims on behalf of approximately 1,230
plaintiffs alleging personal injury as a result of exposure to
asbestos. These asbestos cases generally relate to production
and sale of asbestos-containing products and allege various
theories of liability, including negligence, gross negligence
and strict liability and seek compensatory and, in some cases,
punitive damages.
In every asbestos case in which we are named as a party, the
complaints are filed against multiple named defendants. In
substantially all of the asbestos cases, the plaintiffs either
claim damages in excess of a specified amount, typically a
minimum amount sufficient to establish jurisdiction of the court
in which the case was filed (jurisdictional minimums generally
range from $25,000 to $75,000), or do not specify the monetary
damages sought. To the extent that any specific amount of
damages is sought, the amount applies to claims against all
named defendants.
There are only six asbestos cases, involving 27 plaintiffs, that
plead specified damages. In each of the six cases, the plaintiff
is seeking compensatory and punitive damages based on a variety
of potentially alternative causes of action. In three cases, the
plaintiff has alleged compensatory damages in the amount of
$3.0 million for four separate causes of action and
$1.0 million for another cause of action and punitive
damages in the amount of $10.0 million. In the fourth case,
the plaintiff has alleged against each named defendant,
compensatory and punitive damages, each in the amount of
$10.0 million for seven separate causes of action. In the
fifth case, the plaintiff has alleged compensatory damages in
the amount of $20.0 million for three separate causes of
action and $5.0 million for another cause of action and
punitive damages in the amount of $20.0 million. In the
sixth case, the plaintiff has alleged against each named
defendant, compensatory and punitive damages, each in the amount
of $10.0 million for six separate causes of action and
$5.0 million for the seventh cause of action.
Historically, we have been dismissed from asbestos cases on the
basis that the plaintiff incorrectly sued one of our
subsidiaries or because the plaintiff failed to identify any
asbestos-containing product manufactured or sold by us or our
subsidiaries. We intend to vigorously defend these asbestos
cases, and believe we will continue to be successful in being
dismissed from such cases. However, it is not possible to
predict the ultimate outcome of asbestos-related lawsuits,
claims and proceedings due to the unpredictable nature of
personal injury litigation. Despite this uncertainty, and
although our results of operations and cash flows for a
particular period could be adversely affected by
asbestos-related lawsuits, claims and proceedings, management
believes that the ultimate resolution of these matters will not
have a material adverse effect on our financial condition,
liquidity or results of operations. Among the factors management
considered in reaching this conclusion were: (a) our
historical success in being dismissed from these types of
lawsuits on the bases mentioned above; (b) many cases have
been improperly filed against one of our subsidiaries;
(c) in many cases, the plaintiffs have been unable to
establish any causal relationship to us or our products or
premises; (d) in many cases, the plaintiffs have been
unable to demonstrate that they have suffered any identifiable
injury or compensable loss at all, that any injuries that they
have incurred did in fact result from alleged exposure to
asbestos; and (e) the complaints assert claims against
multiple defendants and, in most cases, the damages alleged are
not attributed to individual defendants. Additionally, we do not
believe that the amounts claimed in any of the asbestos cases
are meaningful indicators of our potential exposure because the
amounts claimed typically bear no relation to the extent of the
plaintiffs injury, if any.
Our cost of defending these lawsuits has not been material to
date and, based upon available information, our management does
not expect its future costs for asbestos-related lawsuits to
have a material adverse effect on our results of operations,
liquidity or financial position.
22
Table of Contents
Item 1A. | Risk Factors |
There have been no material changes in the risk factors
previously disclosed in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010.
Item 6. | Exhibits |
The following exhibits are included herein:
31 | .1 | Principal Executive Officers Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31 | .2 | Principal Financial Officers Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 |
23
Table of Contents
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.
PARK-OHIO INDUSTRIES, INC.
(Registrant)
By |
/s/ Jeffrey
L. Rutherford
|
Name: Jeffrey L. Rutherford
Title: | Vice President and Chief Financial Officer |
(Principal Financial and Accounting Officer)
Date: May 10, 2011
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Table of Contents
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 2011
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 2011
31 | .1 | Principal Executive Officers Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31 | .2 | Principal Financial Officers Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 |
25