2005
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
333-43005
Ohio | ||
(State or other jurisdiction of incorporation or organization) | 34-6520107 (I.R.S. Employer Identification No.) | |
23000 Euclid Avenue | ||
Cleveland, Ohio | ||
(Address of principal executive offices) | 44117 (Zip Code) |
The registrant meets the conditions set forth in General Instructions I 1(a)(I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.
REFERENCE
Item 1. | Business |
The Company
The Company operates throughdiversified manufacturing business operating in three segments,segments: Integrated Logistics Solutions (“ILS”), Aluminum Products and Manufactured Products. ILS is a leading supply chain logistics provider of production components
Operations
Net Sales | ||||||||
for the | ||||||||
Year Ended | ||||||||
Dec. 31, | ||||||||
Segment | Primary Industries Served | Selected Products/Services | 2003 | |||||
(millions) | ||||||||
INTEGRATED LOGISTICS SOLUTIONS | Heavy-duty truck, semiconductor equipment, industrial equipment, aerospace and defense, electrical controls, HVAC, vehicle parts and accessories, appliances, lawn and garden equipment and automotive | Cross-industry supply chain management services; planning, implementing and managing the physical flow of production components to the plant floor point of use for large multi-national manufacturing companies | $ | 377.6 | ||||
ALUMINUM PRODUCTS | Automotive, agricultural equipment, heavy-duty truck and construction equipment | Engineering, casting and machining of aluminum components | $ | 90.1 |
Integrated Logistics | ||||||
Solutions | Aluminum Products | Manufactured Products | ||||
NET SALES(1) | $532.6 million (57% of total) | $159.1 million (17% of total) | $241.2 million (26% of total) | |||
SELECTED PRODUCTS | Sourcing, planning and procurement of over 175,000 production components, including: • Fasteners • Pins • Valves • Hoses • Wire harnesses • Clamps and fittings • Rubber and plastic components | • Pump housings • Clutch retainers/ pistons • Control arms • Knuckles • Master cylinders • Pinion housings • Brake calipers • Oil pans • Flywheel spacers | • Induction heating and melting systems • Pipe threading systems • Industrial oven systems • Injection molded rubber components • Forging presses | |||
SELECTED INDUSTRIES SERVED | • Heavy-duty truck • Automotive and vehicle parts • Electrical distribution and controls • Power sports/ fitness equipment • HVAC • Aerospace and defense • Electrical components • Appliance • Semiconductor equipment | • Automotive • Agricultural equipment • Construction equipment • Heavy-duty truck • Marine equipment | • Steel • Coatings • Forging • Foundry • Heavy-duty truck • Construction equipment • Bottling • Automotive • Oil and gas • Rail and locomotive manufacturing • Aerospace and defense |
(1) | Results are for the year ended December 31, 2005 and exclude the results of operations related to the assets of the Purchased Parts Group, Inc. prior to the date of acquisition on July 20, 2005. |
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Net Sales | ||||||||
for the | ||||||||
Year Ended | ||||||||
Dec. 31, | ||||||||
Segment | Primary Industries Served | Selected Products/Services | 2003 | |||||
(millions) | ||||||||
MANUFACTURED PRODUCTS | Aerospace, automotive, steel, forging, foundry, railroad, construction equipment, truck, oil, coatings, food processing, and consumer appliance | Engineering and manufacturing of the following: forged and machined products such as aircraft landing gears, locomotive crankshafts and camshafts; induction heating and melting systems; industrial rubber products; oil pipe threading systems; and industrial ovens | $ | 156.6 |
Integrated Logistics Solutions
ILS is
Large, multinational manufacturing companies continue to make it a priority to reduce their total cost of production components. Administrative and overhead costs to source, plan, purchase, quality-assure, inventory and handle production components comprise a large portion of total cost. ILS has the size, experience, highly-customized computer system and focus to reduce these costs substantially while providing reliable just-in-time delivery directly to the point of use.
consolidated financial statements included elsewhere herein.
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2
levels.
The Aluminum Products segment generated net sales of $90.1 million, or 14% of the Company’s net sales, for the year ended December 31, 2003. Management believes Aluminum Products is
Aluminum Products’ cast aluminum parts are manufacturedengine, transmission, brake, suspension and other components for automotive, agricultural equipment, construction equipment, heavy-duty truck and constructionmarine equipment OEMs, primarily located in North America.on a sole-source basis. Aluminum Products’ principal products include: transmissioninclude pump housings, intake manifolds, planetary pinion carriers, oil filter adapters, clutch retainers bearing cups, brackets,and pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers. Aluminum ProductsIn addition, we also providesprovide value-added services such as design engineering, machining drilling, tapping and part assembly. Although these parts are lightweight, they possess high durability and integrity characteristics even under extreme pressure and temperature conditions.
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The
The Company’sand Services. Our induction heating and melting business Ajax Tocco Magnethermic (“Ajax Tocco”),utilizes proprietary technology and specializes in the engineering, construction, service and repair of induction heating and melting systems, primarily for the steel, coatings, forging, foundry, automotive and construction equipment industries. Ajax Tocco’sOur induction heating and melting systems are engineered and built to customer specifications and are used primarily for melting, heating, and surface hardening of metals and curing of coatings. Approximately half35% to 40% of Ajax Tocco’s revenueour induction heating and melting systems’ revenues is derived from the sale of replacement parts and provision of field service, primarily for the installed base of itsour own products. The Company also produces
The Company manufactures injection molded rubber We compete domestically and silicone products for use in automotiveinternationally with small- to medium-sized forging and industrial applications. The rubber products facilities manufacture products for customers in the automotive, food processing and consumer appliance industries. Their products include wire harnesses, shock and vibration mounts, spark plug boots and nipples and general sealing gaskets. During 2002, the Company reduced rubber products’ costs and discontinued underperforming products by selling one business unit and closing one other manufacturing plant. The rubber products operating units compete primarilymachining businesses on the basis of priceproduct quality and product qualityprecision. We compete with other domestic small- to medium-sized manufacturers of injection molded rubber and silicone products.
The Company manufactures forged and machined products produced from closed-die metal forgings of up to 6,000 pounds. These products include crankshafts, aircraft structural components such as landing gears and rail products such as railcar center plates. Aerospace forgings are sold primarily to machining companies, and sub-assemblers who finish the products for sale to OEMs. The Company also machines, induction hardens and surface finishes crankshafts and camshafts used primarily in locomotives. In fourth quarter 2003, the Company decided to shut down its locomotive crankshaft forging plant, and entered into a long-term supply contract to purchase these forgings at a more favorable price from a third-party supplier. The 2003 restructuring is expected to increase both profitability and cash flow by approximately $15.0 million over the next five years. Forged rail products are sold primarily to railcar builders and maintenance providers. Forged and machined products are sold to a wide variety of
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The Company has
all three years. In September 2005, we entered into an exclusive, multi-year agreement with International Truck to supply a wide range of production components, expiring on December 31, 2008.
The Company is
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The Company has5
The Company files
The industries in which we operate are cyclical and are affected by the economy in general. |
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Because a significant portion of our sales is to the automotive and heavy-duty truck industries, a decrease in the demand of these industries or the loss of any of our major customers in these industries could adversely affect our financial health. |
Our ILS customers are generally not contractually obligated to purchase products and services from us. |
We are dependent on key customers. |
• | the loss of any key customer, in whole or in part; | |
• | the insolvency or bankruptcy of any key customer; | |
• | a declining market in which customers reduce orders or demand reduced prices; or | |
• | a strike or work stoppage at a key customer facility, which could affect both their suppliers and customers. |
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We operate in highly competitive industries. |
The loss of key executives could adversely impact us. |
We may encounter difficulty in expanding our business through targeted acquisitions. |
Our ILS business depends upon third parties for substantially all of our component parts. |
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The raw materials used in our production processes and by our suppliers of component parts are subject to price and supply fluctuations that could increase our costs of production and adversely affect our results of operations. |
The energy costs involved in our production processes and transportation are subject to fluctuations that are beyond our control and could significantly increase our costs of production. |
Potential product liability risks exist from the products which we sell. |
Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations. |
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We operate and source internationally, which exposes us to the risks of doing business abroad. |
• | fluctuations in currency exchange rates; | |
• | limitations on ownership and on repatriation of earnings; | |
• | transportation delays and interruptions; | |
• | political, social and economic instability and disruptions; | |
• | government embargoes or foreign trade restrictions; | |
• | the imposition of duties and tariffs and other trade barriers; | |
• | import and export controls; | |
• | labor unrest and current and changing regulatory environments; | |
• | the potential for nationalization of enterprises; | |
• | difficulties in staffing and managing multinational operations; | |
• | limitations on our ability to enforce legal rights and remedies; and | |
• | potentially adverse tax consequences. |
We are subject to significant environmental, health and safety laws and regulations and related compliance expenditures and liabilities. |
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If our information systems fail, our business will be materially affected. |
Operating problems in our business may materially adversely affect our financial condition and results of operations. |
Our Chairman of the Board and Chief Executive Officer and our President and Chief Operating Officer collectively beneficially own a significant portion of our parent company’s outstanding common stock and their interests may conflict with yours. |
Item 1B. | Unresolved Staff Comments |
Item 2. Properties
The Company’s
Item 2. | Properties |
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Related Industry | Owned or | Approximate | ||||||||||
Segment | Location | Leased | Square Footage | Use | ||||||||
ILS(1) | Cleveland, OH | Leased | 60,350 | (2) | ILS Corporate Office | |||||||
Memphis, TN | Leased | 121,700 | Logistics | |||||||||
Dayton, OH | Leased | 112,960 | Logistics | |||||||||
Lawrence, PA | Leased | 116,000 | Logistics and Manufacturing | |||||||||
St. Paul, MN | Leased | 104,425 | Logistics | |||||||||
Allentown, PA | Leased | 62,200 | Logistics | |||||||||
Atlanta, GA | Leased | 56,000 | Logistics | |||||||||
Dallas, TX | Leased | 49,985 | Logistics | |||||||||
Nashville, TN | Leased | 44,900 | Logistics | |||||||||
Charlotte, NC | Leased | 24,000 | Logistics | |||||||||
Kent, OH | Leased | 225,000 | Manufacturing | |||||||||
Mississauga, | Leased | 117,000 | Manufacturing | |||||||||
Ontario, Canada | ||||||||||||
Solon, OH | Leased | 42,600 | Logistics | |||||||||
Dublin, VA | Leased | 40,000 | Logistics | |||||||||
Delaware, OH | Owned | 45,000 | Manufacturing | |||||||||
ALUMINUM | Conneaut, OH(3) | Leased/Owned | 304,000 | Manufacturing | ||||||||
PRODUCTS | Huntington, IN | Leased | 132,000 | Manufacturing | ||||||||
Fremont, IN | Owned | 108,000 | Manufacturing | |||||||||
Wapakoneta, OH | Owned | 188,000 | Manufacturing | |||||||||
Richmond, IN | Leased/Owned | 97,300 | Manufacturing | |||||||||
Cedarburg, WI | Leased | 157,000 | Manufacturing | |||||||||
MANUFACTURED | Cuyahoga Hts., OH | Owned | 427,000 | Manufacturing | ||||||||
PRODUCTS(4) | Le Roeulx, Belgium | Owned | 120,000 | Manufacturing | ||||||||
Euclid, OH | Owned | 154,000 | Manufacturing | |||||||||
Wickliffe, OH | Owned | 110,000 | Manufacturing | |||||||||
Boaz, AL | Owned | 100,000 | Manufacturing | |||||||||
Warren, OH | Owned | 195,000 | Manufacturing | |||||||||
Canton, OH | Leased | 125,000 | Manufacturing | |||||||||
Oxted, England | Owned | 135,000 | Manufacturing | |||||||||
Newport, AR | Leased | 111,300 | Manufacturing | |||||||||
Cicero, IL | Owned | 45,000 | Manufacturing | |||||||||
Cleveland, OH | Leased | 150,000 | Manufacturing | |||||||||
Shanghai, China | Leased | 20,500 | Manufacturing |
(1) | ILS | |||||||||||
(4) | ||||||||||||
Item 3. Legal Proceedings
The Company is
Item 3. | Legal Proceedings |
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Item 4. Submission of Matters to a Vote of Security Holders
Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Market for the Registrant’s Common |
Item 6. | Selected |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The
three years ended December 31, 2005.
The Company operates through
The Company is positioned for increased sales
1993 | 1999 | 2000 | 2001 | 2002 | 2003 | |||||||||||||||||||
Net sales | $ | 94.5 | $ | 717.2 | $ | 754.7 | $ | 636.4 | $ | 634.5 | $ | 624.3 | ||||||||||||
Restructuring and impairment charges | 28.5 | 19.2 | 19.4 | |||||||||||||||||||||
Non-recurring gains / losses (pretax) | 10.1 | 1.8 | ||||||||||||||||||||||
Income (loss) before income taxes and cumulative effect of accounting change | $ | 3.9 | $ | 28.4 | $ | 7.7 | $ | (37.4 | ) | $ | (11.5 | ) | $ | (10.9 | ) |
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The Company responded
The Company’s 2003 non-cash restructuring and impairment charges totaled $19.4$210.0 million of which 90%8.375% senior subordinated notes due 2014. We used the net proceeds to fund the tender and early redemption of $199.9 million of our 9.25% senior subordinated notes due 2007. We incurred debt extinguishment costs primarily related to restructuring ofpremiums and other transaction costs associated with the Forge Group, primarily impairment of propertytender offer and equipment idled whenearly redemption and wrote off deferred financing costs totaling $6.0 million associated with the Company began purchasing crankshaft forgings instead of manufacturing them internally. Charges outside the Forge Group, totaling $1.9 million, consisted primarily of pension withdrawal charges for manufacturing units executing previously announced restructuring. The 2003 restructuring is expected to increase both profitability and cash flow by approximately $15.0 million over the next five years.
repurchased 9.25% senior subordinated notes.
Thethe customer and supplier bases, and expanded our geographic presence of our ILS segment. ILS has already eliminated substantial overhead cost and begun the process of consolidating redundant service centers.
Accounting Changes and
On January 1, 2002, the Company adopted
In accordance with FAS 142, goodwill is now reviewed annually for potential impairment. This review was performed as of October 1, 20032005, 2004 and 2002,2003, using forecasted discounted cash flows, and it was determined that no further impairment is required.
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The Company changed its method of accounting for the 15% of its inventories utilizing the LIFO method to the FIFO method. As required by accounting principles generally accepted in the United States, the Company has restated its balance sheet as of December 31, 2002 to increase inventories by the recorded LIFO reserve ($4.4 million), increase deferred tax liabilities ($1.7 million), and increase shareholders’ equity ($2.7 million). Previously reported results of operations have not been restated because the impact of utilizing the LIFO method had an insignificant impact on the Company’s reported amounts for consolidated net income (loss). See also Note B to the consolidated financial statements.15
2003 versus 2002
2005 versus 2004 |
Net Sales by Segment: |
Percent | ||||||||||||||||
2003 | 2002 | Change | Change | |||||||||||||
ILS | $ | 377.6 | $ | 398.1 | $ | (20.5 | ) | -5 | % | |||||||
Aluminum products | 90.1 | 106.1 | (16.0 | ) | -15 | % | ||||||||||
Manufactured products | 156.6 | 130.2 | 26.4 | 20 | % | |||||||||||
Consolidated Net Sales | $ | 624.3 | $ | 634.4 | $ | (10.1 | ) | -2 | % | |||||||
Year Ended | ||||||||||||||||||||
December 31, | Acquired/ | |||||||||||||||||||
Percent | (Divested) | |||||||||||||||||||
2005 | 2004 | Change | Change | Sales | ||||||||||||||||
ILS | $ | 532.6 | $ | 453.2 | $ | 79.4 | 18 | % | $ | 31.4 | ||||||||||
Aluminum Products | 159.1 | 135.4 | 23.7 | 18 | % | 34.5 | ||||||||||||||
Manufactured Products | 241.2 | 220.1 | 21.1 | 10 | % | 3.5 | ||||||||||||||
Consolidated net sales | $ | 932.9 | $ | 808.7 | $ | 124.2 | 15 | % | $ | 69.4 | ||||||||||
Costthe common stock of Jamco.
Cost of Products Sold & Gross Profit: |
Year Ended | ||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | December 31, | ||||||||||||||||||||||||||||||||||||||
Percent | Gross | Gross | Percent | |||||||||||||||||||||||||||||||||||||
2003 | 2002 | Change | Change | Margin | Margin | 2005 | 2004 | Change | Change | |||||||||||||||||||||||||||||||
Consolidated cost of products sold | $ | 527.6 | $ | 546.9 | $ | (19.3 | ) | -4 | % | $ | 796.3 | $ | 682.6 | $ | 113.7 | 17 | % | |||||||||||||||||||||||
Inventory writedowns from restructuring included in Cost of Products Sold | 0.6 | 5.6 | (5.0 | ) | ||||||||||||||||||||||||||||||||||||
Net gross profit impact of acquisition & divestitures | (4.4 | ) | (4.4 | ) | ||||||||||||||||||||||||||||||||||||
Consolidated gross profit | $ | 96.7 | $ | 87.6 | $ | 9.1 | 10 | % | 15.5 | % | 13.8 | % | $ | 136.6 | $ | 126.1 | $ | 10.5 | 8 | % | ||||||||||||||||||||
Gross margin | 14.6 | % | 15.6 | % |
Note: 25% of increase in Induction gross profit attributed to non-acquisition actions.
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equipment, pipe threading equipment and forging businesses, and also due to $.8 million writeoff of inventory associated with discontinued product lines.
Selling, General & Administrative (“SG&A”) Expenses: |
Year Ended | ||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | December 31, | ||||||||||||||||||||||||||||||||||||||
Percent | SG&A | SG&A | Percent | |||||||||||||||||||||||||||||||||||||
2003 | 2002 | Change | Change | Percent | Percent | 2005 | 2004 | Change | Change | |||||||||||||||||||||||||||||||
Consolidated SG&A expenses | $ | 62.4 | $ | 57.4 | $ | 5.0 | 9 | % | 10.0 | % | 9.1 | % | $ | 81.4 | $ | 76.7 | $ | 4.7 | 6 | % | ||||||||||||||||||||
Net SG&A expense impact of acquisition & divestitures | (3.9 | ) | (3.9 | ) | ||||||||||||||||||||||||||||||||||||
SG&A percent | 8.7 | % | 9.5 | % |
Interest Expense:
2003 | 2002 | Change | Percent | |||||||||||||
Interest expense | $ | 26.2 | $ | 27.6 | $ (1.4 | ) | -5% | |||||||||
Average outstanding borrowings | $ | 320.8 | $ | 333.6 | $(12.8 | ) | -4% | |||||||||
Average borrowing rate | 8.15 | % | 8.28 | % | (13) basis points |
Interest Expense: |
Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
Percent | ||||||||||||||||
2005 | 2004 | Change | Change | |||||||||||||
Interest expense | $ | 27.1 | $ | 31.4 | $(4.3 | ) | (14 | )% | ||||||||
Debt extinguishment costs included in interest expense | -0- | $ | 6.0 | $(6.0 | ) | |||||||||||
Average outstanding borrowings | $ | 357.1 | $ | 328.9 | $28.2 | 9 | % | |||||||||
Average borrowing rate | 7.59 | % | 7.72 | % | (13) basis points |
Income Taxes: |
Year Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
Income before income taxes | $ | 27.3 | $ | 17.9 | ||||
Income taxes (benefit) | $ | (4.3 | ) | $ | 3.4 | |||
Reversal of tax valuation allowance included in 2005 income tax benefit | (7.3 | ) | ||||||
2005 Income taxes excluding reversal of tax valuation allowance | $ | 3.0 | ||||||
Effective income tax rate | (16 | )% | 19 | % | ||||
Effective income tax rate excluding reversal of tax valuation allowance | 11 | % |
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2004 versus 2003 |
Net Sales by Segment: |
Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
Percent | ||||||||||||||||
2004 | 2003 | Change | Change | |||||||||||||
ILS | $ | 453.2 | $ | 377.6 | $ | 75.6 | 20 | % | ||||||||
Aluminum Products | 135.4 | 90.1 | 45.3 | 50 | % | |||||||||||
Manufactured Products | 220.1 | 156.6 | 63.5 | 41 | % | |||||||||||
Consolidated net sales | $ | 808.7 | $ | 624.3 | $ | 184.4 | 30 | % | ||||||||
Cost of Products Sold & Gross Profit: |
Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
Percent | ||||||||||||||||
2004 | 2003 | Change | Change | |||||||||||||
Consolidated cost of products sold | $ | 682.6 | $ | 527.6 | $ | 155.0 | 29 | % | ||||||||
Consolidated gross profit | $ | 126.1 | $ | 96.7 | $ | 29.4 | 30 | % | ||||||||
Gross margin | 15.6 | % | 15.5 | % |
SG&A Expenses: |
Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
Percent | ||||||||||||||||
2004 | 2003 | Change | Change | |||||||||||||
Consolidated SG&A expenses | $ | 76.7 | $ | 62.4 | $ | 14.3 | 23 | % | ||||||||
SG&A percent | 9.5 | % | 10.0 | % |
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Interest Expense: |
Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
Percent | ||||||||||||||||
2004 | 2003 | Change | Change | |||||||||||||
Interest expense | $ | 31.4 | $ | 26.2 | $5.2 | 20 | % | |||||||||
Debt extinguishment costs included in interest expense | $ | 6.0 | -0- | $6.0 | ||||||||||||
Average outstanding borrowings | $ | 328.9 | $ | 320.8 | $8.1 | 3 | % | |||||||||
Average borrowing rate | 7.72 | % | 8.17 | % | (45) basis points |
average borrowings in 2004 resulted primarily from higher working capital requirements.
Income Taxes: |
2002 versus 2001
Net Sales by Segment:
Percent | ||||||||||||||||
2002 | 2001 | Change | Change | |||||||||||||
ILS | $ | 398.1 | $ | 416.9 | $ | (18.8 | ) | -5 | % | |||||||
Aluminum products | 106.1 | 84.9 | 21.2 | 25 | % | |||||||||||
Manufactured products | 130.2 | 134.6 | (4.4 | ) | -3 | % | ||||||||||
Consolidated Net Sales | $ | 634.4 | $ | 636.4 | $ | (2.0 | ) | 0 | % | |||||||
Net sales declined less than 1% in 2002. The ILS net sales decline of 5% was due primarily to the sales volume reductions in heavy truck and other customer industries. The Aluminum Products net sales increase of 25% was due primarily to the initiation or ramp-up of new production contracts. The Manufactured Products net sales decline of 3% or $4.4 million was due primarily to divestitures. The divestitures of Castle Rubber and Cleveland City Forge decreased 2002 net sales by $13.0 million and the acquisition of Ajax Magnethermic increased 2002 net sales by $6.1 million.
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Cost of Products Sold & Gross Profit:
2002 | 2001 | |||||||||||||||||||||||
Percent | Gross | Gross | ||||||||||||||||||||||
2002 | 2001 | Change | Change | Margin | Margin | |||||||||||||||||||
Consolidated cost of products sold | $ | 546.9 | $ | 552.3 | $ | (5.4 | ) | -1 | % | |||||||||||||||
Inventory writedowns from restructuring included in Cost of Products Sold | 5.6 | 10.3 | (4.7 | ) | ||||||||||||||||||||
Net gross profit impact of acquisition & divestitures | 1.7 | 1.7 | ||||||||||||||||||||||
Consolidated gross profit | $ | 87.6 | $ | 84.1 | $ | 3.5 | 4 | % | 13.8 | % | 13.2 | % |
Cost of products sold declined 1% in 2002. Inventory write-downs included in cost of products sold primarily related to discontinued product lines. Gross profit increased 4% in 2002, while gross margin increased to 13.8% in 2002, from 13.2% in 2001. This increase reflected increased margins in Aluminum Products, partially offset by decreased margins in the ILS and Manufactured Products segments. Declines in ILS and Manufactured Products gross margins related primarily to reduced volumes resulting in the absorption of fixed operational overheads over a smaller sales or production base. The increase in Aluminum Products gross margin related to new, higher-margin contracts, discontinuation of low margin contracts, cost reductions, plant closures and the absorption of fixed manufacturing overheads over a larger production base.
Selling, General & Administrative (“SG&A”) Expenses:
2002 | 2001 | |||||||||||||||||||||||
Percent | SG&A | SG&A | ||||||||||||||||||||||
2002 | 2001 | Change | Change | Percent | Percent | |||||||||||||||||||
Consolidated SG&A expenses | $ | 57.4 | $ | 66.1 | $ | (8.7 | ) | -13 | % | 9.1 | % | 10.4 | % |
Consolidated SG&A expenses decreased by 13% in 2002, while SG&A expenses as a percentage of net sales decreased to 9.1% during 2002 as compared to 10.4% for 2001. This decrease was primarily due to cost reductions in all three segments resulting from business restructuring initiatives implemented by the Company. During 2003, SG&A expenses were negatively affected by a decrease in net pension credits of $.8 million, reflecting less favorable investment returns on pension plan assets.
Interest Expense:
2002 | 2001 | Change | Percent | |||||||||||||
Interest expense | $ | 27.6 | $ | 31.1 | $ (3.5 | ) | -11 | % | ||||||||
Average outstanding borrowings | $ | 333.6 | $ | 353.4 | $(19.8 | ) | -6 | % | ||||||||
Average borrowing rate | 8.28 | % | 8.80 | % | (52) basis points |
Interest expense decreased by 11% in 2002 due to lower average debt outstanding and lower average interest rates. The decrease in borrowings related primarily to working capital reductions in the course of 2001, which were retained in 2002. The lower average borrowing rate in 2002 was due primarily to decreased rates on the Company’s revolving credit facility.
In accordance with the provision of Statement of Financial Accounting Standards No. 109 (“FAS 109”), “Accounting for Income Taxes,” the Company recorded no tax benefit for the 2003 net loss because itwe had incurred three years of cumulative losses. Income taxes of $.9 million were provided in 2003, primarily for state and foreign taxes on profitable operations. The effective tax rate for 2001 was 30.5%, which was less than the statutory rate due to the amortization of non-deductible goodwill and other non-deductible items. At December 31, 2003, subsidiaries of the Company had $25.6 million of net operating loss carryforwards for federal tax purposes. The Company has not recognized any tax benefit for these loss carryforwards.
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statements included elsewhere herein.
In 2003, the
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The Company, with assistance of an outside consultant,
paid and accordingly records a tax valuation allowance if, based on the weight of available evidence it is more likely than not that some portion or all of our deferred tax assets will not be realized as required by FAS 109.
and 2024.
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The Company’s
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 8. | Financial Statements and Supplementary Data |
Page | ||||
Report of | ||||
Report of Independent Registered Public Accounting Firm | 25 | |||
26 | ||||
Consolidated Balance Sheets — December 31, | ||||
Consolidated Statements of Operations — Years Ended December 31, | ||||
Consolidated Statements of Shareholder’s Equity — Years Ended December 31, | ||||
Consolidated Statements of Cash Flows — Years Ended December 31, | ||||
Notes to Consolidated Financial Statements |
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REGISTERED PUBLIC ACCOUNTING FIRM
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As discussed in Note B toInternal Control — Integrated Framework issued by the consolidated financial statements, effective June 30, 2003,Committee of Sponsoring Organizations of the Company changed its method of accounting for inventories at certain subsidiaries. As discussed in Note C to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill.
Treadway Commission and our report dated March 13, 2006 expressed an unqualified opinion thereon.
1726
December 31 | |||||||||||||||||||||
December 31, | |||||||||||||||||||||
2003 | 2002 | ||||||||||||||||||||
2005 | 2004 | ||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||
ASSETS | ASSETS | ASSETS | |||||||||||||||||||
Current Assets | Current Assets | Current Assets | |||||||||||||||||||
Cash and cash equivalents | $ | 2,191 | $ | 8,800 | Cash and cash equivalents | $ | 17,868 | $ | 6,407 | ||||||||||||
Accounts receivable, less allowances for doubtful accounts of $3,271 in 2003 and $3,313 in 2002. | 100,938 | 101,477 | Accounts receivable, less allowances for doubtful accounts of $5,120 in 2005 and $3,976 in 2004 | 153,502 | 145,475 | ||||||||||||||||
Inventories | 149,075 | 156,067 | Inventories | 190,553 | 177,294 | ||||||||||||||||
Other current assets | 16,155 | 12,181 | Deferred tax assets | 8,627 | -0- | ||||||||||||||||
Other current assets | 27,753 | 20,655 | |||||||||||||||||||
Total Current Assets | 268,359 | 278,525 | |||||||||||||||||||
Property, Plant and Equipment | |||||||||||||||||||||
Total Current Assets | 398,303 | 349,831 | |||||||||||||||||||
Property, Plant and Equipment: | Property, Plant and Equipment: | ||||||||||||||||||||
Land and land improvements | 2,891 | 2,416 | Land and land improvements | 6,964 | 6,788 | ||||||||||||||||
Buildings | 40,774 | 36,809 | Buildings | 38,384 | 36,217 | ||||||||||||||||
Machinery and equipment | 181,045 | 187,201 | Machinery and equipment | 198,019 | 185,489 | ||||||||||||||||
224,710 | 226,426 | 243,367 | 228,494 | ||||||||||||||||||
Less accumulated depreciation | 129,434 | 114,260 | Less accumulated depreciation | 127,136 | 118,613 | ||||||||||||||||
95,276 | 112,166 | 116,231 | 109,881 | ||||||||||||||||||
Other Assets | |||||||||||||||||||||
Other Assets: | Other Assets: | ||||||||||||||||||||
Goodwill | 82,703 | 82,565 | |||||||||||||||||||
Goodwill | 82,278 | 81,464 | Net assets held for sale | -0- | 1,035 | ||||||||||||||||
Net assets held for sale | 2,321 | 19,205 | Other | 70,617 | 68,535 | ||||||||||||||||
Other | 61,310 | 51,583 | |||||||||||||||||||
$ | 667,854 | $ | 611,847 | ||||||||||||||||||
$ | 509,544 | $ | 542,943 | ||||||||||||||||||
LIABILITIES and SHAREHOLDER’S EQUITY | LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Current Liabilities | Current Liabilities | Current Liabilities | |||||||||||||||||||
Trade accounts payable | $ | 66,153 | $ | 74,868 | Trade accounts payable | $ | 115,396 | $ | 108,862 | ||||||||||||
Accrued expenses | 46,384 | 48,839 | Accrued expenses | 68,313 | 59,745 | ||||||||||||||||
Current portion of long-term liabilities | 2,811 | 3,056 | Current portion of long-term liabilities | 4,161 | 5,812 | ||||||||||||||||
Total Current Liabilities | 115,348 | 126,763 | Total Current Liabilities | 187,870 | 174,419 | ||||||||||||||||
Long-Term Liabilities, less current portion | |||||||||||||||||||||
Long-Term Liabilities, less current portion 8.375% senior subordinated notes due 2014 | Long-Term Liabilities, less current portion 8.375% senior subordinated notes due 2014 | 210,000 | 210,000 | ||||||||||||||||||
9.25% Senior Subordinated Notes due 2007. | 199,930 | 199,930 | Revolving credit | 128,300 | 120,600 | ||||||||||||||||
Revolving credit | 101,000 | 114,000 | Other long-term debt | 6,705 | 4,776 | ||||||||||||||||
Other long-term debt | 8,234 | 9,886 | Deferred tax liability | 3,176 | 1,074 | ||||||||||||||||
Other postretirement benefits and other long-term liabilities | 26,671 | 27,312 | Other postretirement benefits and other long-term liabilities | 26,174 | 26,496 | ||||||||||||||||
335,835 | 351,128 | 374,355 | 362,946 | ||||||||||||||||||
Shareholder’s Equity | Shareholder’s Equity | Shareholder’s Equity | |||||||||||||||||||
Common stock, par value $1 a share | -0- | -0- | Common stock, par value $1 a share | -0- | -0- | ||||||||||||||||
Additional paid-in capital | 64,844 | 64,844 | Additional paid-in capital | 64,844 | 64,844 | ||||||||||||||||
Retained earnings | (3,219 | ) | 8,304 | Retained earnings | 42,887 | 11,314 | |||||||||||||||
Accumulated other comprehensive loss | (3,264 | ) | (8,096 | ) | Accumulated other comprehensive loss | (2,102 | ) | (1,676 | ) | ||||||||||||
58,361 | 65,052 | 105,629 | 74,482 | ||||||||||||||||||
$ | 509,544 | $ | 542,943 | $ | 667,854 | $ | 611,847 | ||||||||||||||
1827
Year Ended December 31 | ||||||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||
Net sales | Net sales | $ | 624,295 | $ | 634,455 | $ | 636,417 | Net sales | $ | 932,900 | $ | 808,718 | $ | 624,295 | ||||||||||||||
Cost of products sold | Cost of products sold | 527,586 | 546,857 | 552,293 | Cost of products sold | 796,283 | 682,658 | 527,586 | ||||||||||||||||||||
Gross profit | 96,709 | 87,598 | 84,124 | Gross profit | 136,617 | 126,060 | 96,709 | |||||||||||||||||||||
Selling, general and administrative expenses | Selling, general and administrative expenses | 62,369 | 57,418 | 66,114 | Selling, general and administrative expenses | 81,368 | 76,714 | 62,369 | ||||||||||||||||||||
Amortization of goodwill | -0- | -0- | 3,733 | |||||||||||||||||||||||||
Restructuring and impairment charges | Restructuring and impairment charges | 18,808 | 13,601 | 18,163 | Restructuring and impairment charges | 943 | -0- | 18,808 | ||||||||||||||||||||
Operating income (loss) | 15,532 | 16,579 | (3,886 | ) | Operating income | 54,306 | 49,346 | 15,532 | ||||||||||||||||||||
Non-operating items, net | -0- | -0- | 1,850 | |||||||||||||||||||||||||
Interest expense | Interest expense | 26,151 | 27,623 | 31,108 | Interest expense | 27,056 | 31,413 | 26,151 | ||||||||||||||||||||
Loss before income taxes and cumulative effect of accounting change | (10,619 | ) | (11,044 | ) | (36,844 | ) | Income (loss) before income taxes | 27,250 | 17,933 | (10,619 | ) | |||||||||||||||||
Income taxes (benefit) | Income taxes (benefit) | 904 | 897 | (11,400 | ) | Income taxes (benefit) | (4,323 | ) | 3,400 | 904 | ||||||||||||||||||
Loss before cumulative effect of accounting change | (11,523 | ) | (11,941 | ) | (25,444 | ) | Net income (loss) | $ | 31,573 | $ | 14,533 | $ | (11,523 | ) | ||||||||||||||
Cumulative effect of accounting change | -0- | (48,799 | ) | -0- | ||||||||||||||||||||||||
Net loss | $ | (11,523 | ) | $ | (60,740 | ) | $ | (25,444 | ) | |||||||||||||||||||
1928
Accumulated | |||||||||||||||||||||
Additional | Other | ||||||||||||||||||||
Common | Paid-In | Retained | Comprehensive | ||||||||||||||||||
Stock | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Balance at January 1, 2001, as previously stated | $ | -0- | $ | 64,844 | $ | 91,747 | $ | (2,858 | ) | $ | 153,733 | ||||||||||
Adjustment for the cumulative effect on the prior years of applying retroactively the change in the method of accounting for inventories (see Note B) | 2,741 | 2,741 | |||||||||||||||||||
Balance January 1, 2001, as restated | -0- | 64,844 | 94,488 | (2,858 | ) | 156,474 | |||||||||||||||
Comprehensive (loss): | |||||||||||||||||||||
Net loss | (25,444 | ) | (25,444 | ) | |||||||||||||||||
Foreign currency translation adjustment | (1,394 | ) | (1,394 | ) | |||||||||||||||||
Comprehensive (loss) | (26,838 | ) | |||||||||||||||||||
Balance at December 31, 2001 | -0- | 64,844 | 69,044 | (4,252 | ) | 129,636 | |||||||||||||||
Comprehensive (loss): | |||||||||||||||||||||
Net loss | (60,740 | ) | (60,740 | ) | |||||||||||||||||
Foreign currency translation adjustment | 1,711 | 1,711 | |||||||||||||||||||
Minimum pension liability | (5,555 | ) | (5,555 | ) | |||||||||||||||||
Comprehensive (loss) | (64,584 | ) | |||||||||||||||||||
Balance at December 31, 2002 | $ | -0- | $ | 64,844 | $ | 8,304 | $ | (8,096 | ) | $ | 65,052 | ||||||||||
Comprehensive (loss): | |||||||||||||||||||||
Net Loss | (11,523 | ) | (11,523 | ) | |||||||||||||||||
Foreign currency translation adjustment | 3,632 | 3,632 | |||||||||||||||||||
Minimum pension liability | 1,200 | 1,200 | |||||||||||||||||||
Comprehensive (loss) | (6,691 | ) | |||||||||||||||||||
Balance at December 31, 2003 | $ | -0- | $ | 64,844 | $ | (3,219 | ) | $ | (3,264 | ) | $ | 58,361 | |||||||||
Accumulated | |||||||||||||||||||||
Other | |||||||||||||||||||||
Additional | Comprehensive | ||||||||||||||||||||
Common | Paid-In | Retained | Income | ||||||||||||||||||
Stock | Capital | Earnings | (Loss) | Total | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Balance at January 1, 2003 | $ | -0- | $ | 64,844 | $ | 8,304 | $ | (8,096 | ) | $ | 65,052 | ||||||||||
Comprehensive (loss): | |||||||||||||||||||||
Net Loss | (11,523 | ) | (11,523 | ) | |||||||||||||||||
Foreign currency translation adjustment | 3,632 | 3,632 | |||||||||||||||||||
Minimum pension liability | 1,200 | 1,200 | |||||||||||||||||||
Comprehensive (loss) | (6,691 | ) | |||||||||||||||||||
Balance at December 31, 2003 | -0- | 64,844 | (3,219 | ) | (3,264 | ) | 58,361 | ||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||
Net income | 14,533 | 14,533 | |||||||||||||||||||
Foreign currency translation adjustment | 2,071 | 2,071 | |||||||||||||||||||
Minimum pension liability | (483 | ) | (483 | ) | |||||||||||||||||
Comprehensive income | 16,121 | ||||||||||||||||||||
Balance at December 31, 2004 | -0- | 64,844 | 11,314 | (1,676 | ) | 74,482 | |||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||
Net income | 31,573 | 31,573 | |||||||||||||||||||
Foreign currency translation adjustment | 94 | 94 | |||||||||||||||||||
Minimum pension liability | (520 | ) | (520 | ) | |||||||||||||||||
Comprehensive income | 31,147 | ||||||||||||||||||||
Balance at December 31, 2005 | $ | -0- | $ | 64,844 | $ | 42,887 | $ | (2,102 | ) | $ | 105,629 | ||||||||||
2029
Year Ended December 31 | |||||||||||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||||||||
2005 | 2004 | 2003 | |||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||
OPERATING ACTIVITIES | OPERATING ACTIVITIES | OPERATING ACTIVITIES | |||||||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | (11,523 | ) | $ | (60,740 | ) | $ | (25,444 | ) | Net income (loss) | $ | 31,573 | $ | 14,533 | $ | (11,523 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operations: | Adjustments to reconcile net income (loss) to net cash provided by operations: | Adjustments to reconcile net income (loss) to net cash provided by operations: | |||||||||||||||||||||||||
Cumulative effect of accounting change | -0- | 48,799 | -0- | Depreciation and amortization | 17,261 | 15,385 | 15,479 | ||||||||||||||||||||
Depreciation and amortization | 15,479 | 16,265 | 19,911 | Restructuring and impairment charges | 1,776 | -0- | 18,641 | ||||||||||||||||||||
Restructuring and impairment charges | 18,641 | 10,399 | 16,362 | Deferred income taxes | (6,525 | ) | 1,074 | -0- | |||||||||||||||||||
Deferred income taxes | -0- | 1,951 | (6,473 | ) | |||||||||||||||||||||||
Changes in operating assets and liabilities excluding acquisitions of businesses: | Changes in operating assets and liabilities excluding acquisitions of businesses: | Changes in operating assets and liabilities excluding acquisitions of businesses: | |||||||||||||||||||||||||
Accounts receivable | 539 | 4,652 | 16,257 | ||||||||||||||||||||||||
Inventories | 6,991 | 4,682 | 34,327 | Accounts receivable | 5,507 | (35,606 | ) | 539 | |||||||||||||||||||
Accounts payable and accrued expenses | (12,160 | ) | 15,856 | (23,911 | ) | Inventories | (1,699 | ) | (26,541 | ) | 6,991 | ||||||||||||||||
Other | (6,149 | ) | (12,770 | ) | (8,731 | ) | Accounts payable and accrued expenses | (934 | ) | 39,400 | (12,160 | ) | |||||||||||||||
Other | (12,464 | ) | (7,331 | ) | (6,149 | ) | |||||||||||||||||||||
Net Cash Provided by Operating Activities | 11,818 | 29,094 | 22,298 | ||||||||||||||||||||||||
Net cash provided by operating activities | 34,495 | 914 | 11,818 | ||||||||||||||||||||||||
INVESTING ACTIVITIES | INVESTING ACTIVITIES | INVESTING ACTIVITIES | |||||||||||||||||||||||||
Purchases of property, plant and equipment, net | Purchases of property, plant and equipment, net | (10,869 | ) | (13,731 | ) | (13,923 | ) | Purchases of property, plant and equipment, net | (20,295 | ) | (9,963 | ) | (10,869 | ) | |||||||||||||
Costs of acquisitions, net of cash acquired | Costs of acquisitions, net of cash acquired | -0- | (5,748 | ) | -0- | Costs of acquisitions, net of cash acquired | (12,181 | ) | (9,997 | ) | -0- | ||||||||||||||||
Proceeds from the sale of business units | 7,340 | 2,486 | 6,051 | ||||||||||||||||||||||||
Proceeds from the sale of business units or assets held for sale | Proceeds from the sale of business units or assets held for sale | 1,100 | -0- | 7,340 | |||||||||||||||||||||||
Net Cash Used by Investing Activities | (3,529 | ) | (16,993 | ) | (7,872 | ) | |||||||||||||||||||||
Net cash used by investing activities | (31,376 | ) | (19,960 | ) | (3,529 | ) | |||||||||||||||||||||
FINANCING ACTIVITIES | FINANCING ACTIVITIES | FINANCING ACTIVITIES | |||||||||||||||||||||||||
Proceeds from financing arrangements | 112,000 | 6,749 | 19,000 | ||||||||||||||||||||||||
Proceeds from bank arrangements, net | Proceeds from bank arrangements, net | 8,342 | 18,013 | 112,000 | |||||||||||||||||||||||
Payments on long-term debt | Payments on long-term debt | (126,898 | ) | (12,394 | ) | (33,634 | ) | Payments on long-term debt | -0- | (199,930 | ) | (126,898 | ) | ||||||||||||||
Issuance of 8.375% senior subordinated notes, net of deferred financing costs | Issuance of 8.375% senior subordinated notes, net of deferred financing costs | -0- | 205,179 | -0- | |||||||||||||||||||||||
Net Cash Used by Financing Activities | (14,898 | ) | (5,645 | ) | (14,634 | ) | Net cash provided (used) by financing activities | 8,342 | 23,262 | (14,898 | ) | ||||||||||||||||
Increase (Decrease) in Cash and Cash Equivalents | (6,609 | ) | 6,456 | (208 | ) | Increase (decrease) in cash and cash equivalents | 11,461 | 4,216 | (6,609 | ) | |||||||||||||||||
Cash and Cash Equivalents at Beginning of Year | 8,800 | 2,344 | 2,552 | Cash and cash equivalents at beginning of year | 6,407 | 2,191 | 8,800 | ||||||||||||||||||||
Cash and Cash Equivalents at End of Year | $ | 2,191 | $ | 8,800 | $ | 2,344 | Cash and cash equivalents at end of year | $ | 17,868 | $ | 6,407 | $ | 2,191 | ||||||||||||||
Taxes paid (refunded) | $ | (1,038 | ) | $ | (4,817 | ) | $ | (3,346 | ) | ||||||||||||||||||
Income taxes paid (refunded) | Income taxes paid (refunded) | $ | 881 | $ | 3,370 | $ | (1,038 | ) | |||||||||||||||||||
Interest paid | Interest paid | 25,213 | 25,880 | 28,554 | Interest paid | 24,173 | 28,891 | 25,213 |
2130
Major Classes of Inventories |
December 31, | ||||||||||||||||
December 31 | ||||||||||||||||
2005 | 2004 | |||||||||||||||
2003 | 2002 | |||||||||||||||
In-process and finished goods | $ | 121,154 | $ | 136,430 | ||||||||||||
Finished goods | $ | 128,465 | $ | 121,832 | ||||||||||||
Work in process | 32,547 | 27,959 | ||||||||||||||
Raw materials and supplies | 27,921 | 19,637 | 29,541 | 27,503 | ||||||||||||
$ | 149,075 | $ | 156,067 | $ | 190,553 | $ | 177,294 | |||||||||
31
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
rates. In determining these amounts, management determined the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, expectations of future earnings, and taxable income and the extended period of time over which the postretirement benefits will be paid and accordingly records valuation allowances when necessary (See Note H).
if, based on the weight of available evidence it is more likely than not that some portion or all of our deferred tax assets will not be realized as required by Statement of Financial Accounting Standards No. 109 (“FAS 109”), “Accounting for Income Taxes.”
32
Impact of Other Recently Issued Accounting Pronouncements:In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (“FAS 146”), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at the fair value only when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. FAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002. FAS 146 has no effect on charges recorded for exit activities
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
begun prior to 2003. The adoption of this statement did not have a material effect on the Company’s financial position or results of operation.
In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 elaborates on required disclosures by a guarantor in its financial statements about obligations under certain guarantees that it has issued and requires a guarantor to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company has adopted the provisions of FIN 45 relating to initial recognition and measurements of guarantor liabilities, which are effective for qualifying guarantees entered into or modified after December 15, 2002. The adoption did not have a material impact on the consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” which clarifies the application of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” relating to consolidation of certain entities. First, FIN 46 will require identification of the Company’s participation in variable interest entities (“VIEs”), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. Then, for entities identified as VIEs, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. The Company’s adoption of FIN 46 had no effect on its financial position, results of operations and cash flows.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“FAS 149”). FAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS 133, “Accounting for Derivative Instruments and Hedging Activities.” FAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company’s adoption of FAS 149 had no effect on its financial position, results of operations and cash flows.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“FAS 150”). FAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. FAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Company’s existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15, 2003. The Company adopted FAS 150 on June 1, 2003. The adoption of this statement had no effect on the Company’s financial position, results of operations or cash flows.
In January 2004, the FASB issued FASB Staff Position (“FSP”) 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“the Act”). The FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. Regardless of whether a sponsor elects that deferral, the FSP requires certain disclosures pending further consideration of the underlying accounting issues. The Company has elected to defer accounting for the effects of
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
the Act. The Company is currently evaluating the impact of the Act on its financial position and results of operations.
Reclassification:Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year presentation.
Effective June 30, 2003, the Company changed the method of accounting for the 15% of its inventories utilizing the LIFO method to the FIFO method. The Company believes that this change is preferable for the following reasons: 1) the change conforms all of its inventories to one method of determining cost, which is the FIFO method; 2) the costs of the Company’s inventories have remained fairly level during the past several years, which has substantially negated the benefits of the LIFO method (a better matching of current costs with current revenue in periods of rising costs); 3) the impact of utilizing the LIFO method has had an insignificant impact on the Company’s consolidated net income (loss) during the past several years; and 4) the FIFO method results in the valuation of inventories at current costs on the consolidated balance sheet, which provides a more meaningful presentation for investors and financial institutions.
As required under accounting principles generally accepted in the United States, the Company has restated the consolidated balance sheet as of December 31, 2002 to increase inventories by the recorded LIFO reserve ($4.4 million), increase deferred tax liabilities ($1.7 million), and increase shareholders’ equity ($2.7 million). Previously reported results of operations have not been restated because the impact of utilizing the LIFO method had an insignificant impact on the Company’s reported amounts for consolidated net income (loss).
NOTE C — Adoption of FAS 142, “Goodwill and Other Intangible Assets”
Effective January 1, 2002, the Company adopted FAS 142, “Goodwill and Other Intangible Assets.” Under this standard, goodwill is no longer amortized, but is subject to an impairment test at least annually. The Company has selected October 1 as its annual testing date. In the year of adoption, FAS 142 also requires the Company to perform a transitional test to determine whether goodwill was impaired as of the beginning of the year. Under FAS 142, the initial step in testing for goodwill impairment is to compare the fair value of each reporting unit to its book value. To the extent the fair value of any reporting unit is less than its book value, which would indicate that potential impairment of goodwill exists, a second test is required to determine the amount of impairment.
The Company, with assistance of an outside consultant, completed the transitional impairment review of goodwill using a discounted cash flow approach to determine the fair value of each reporting unit. Based upon the results of these calculations, the Company recorded a non-cash charge for goodwill impairment which aggregated $48,799.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
The following table summarizes the transitional goodwill impairment charge by reporting segment as well as the carrying amount of goodwill for the years ended December 31, 20022005 and December 31, 2003.2004 by reporting segment.
Impairment Charge | ||||||||||||||||||||
Reporting | recorded effective | Goodwill at | Goodwill at | Goodwill at | Goodwill at | |||||||||||||||
Segment | January 1, 2002 | December 31, 2002 | December 31, 2003 | December 31, 2005 | December 31, 2004 | |||||||||||||||
ILS | $ | 32,239 | $ | 64,949 | $ | 65,763 | $ | 66,188 | $ | 66,050 | ||||||||||
Aluminum Products | 9,700 | 16,515 | 16,515 | 16,515 | 16,515 | |||||||||||||||
Manufactured Products | 6,860 | -0- | -0- | |||||||||||||||||
$ | 48,799 | $ | 81,464 | $ | 82,278 | $ | 82,703 | $ | 82,565 | |||||||||||
In accordance with FAS 142, prior period amounts have not been restated. The following table summarizes the reported results for 2001, and the results that would have been reported had the non-amortization provisions of FAS 142 been in effect for that year.
December 31 | ||||
2001 | ||||
Reported net loss | $ | (25,444 | ) | |
Amortization of goodwill adjustment, net of tax | 3,315 | |||
Adjusted net loss | $ | (22,129 | ) | |
During the first quarter of 2003,
On September 10, 2002, the Company acquired substantially all of the assets of Ajax Magnethermic Corporation (“Ajax”), a manufacturer of induction heating and melting equipment.Company’s revolving credit facility. The purchase price of approximately $5,500 and the results of operations of AjaxLectrotherm prior to its date of acquisition were not deemed significant as defined in Regulation S-X.
The results of operations for Lectrotherm have been included since December 23, 2005. The preliminary allocation of the purchase price has been performed based on the assignments of fair values to assets acquired and liabilities assumed. The allocation of the purchase price is as follows:
Cash acquisition price, less cash acquired | $ | 4,698 | |||
Assets | |||||
Accounts receivable | (2,640 | ) | |||
Inventories | (954 | ) | |||
Prepaid expenses | (97 | ) | |||
Equipment | (871 | ) | |||
Other assets | (545 | ) | |||
Liabilities | |||||
Accrued expenses | 409 | ||||
Goodwill | $ | -0- | |||
On December 21, 2001, the Company completed the sale of substantially all of the assets of Cleveland City Forge for cash of approximately $6,100 and recorded a gain of approximately $100. Cleveland City Forge was a non-core business in the Manufactured Products Segment, producing clevises and turnbuckles for the construction industry.
2633
Cash acquisition price | $ | 7,000 | |||
Assets | |||||
Accounts receivable | (10,894 | ) | |||
Inventories | (10,606 | ) | |||
Prepaid expenses | (1,201 | ) | |||
Equipment | (407 | ) | |||
Liabilities | |||||
Accounts payable | 13,255 | ||||
Accrued expenses | 2,370 | ||||
Note payable | 483 | ||||
Goodwill | $ | -0- | |||
Severance | Exit and | |||||||||||
and Personnel | Relocation | Total | ||||||||||
Balance at June 30, 2005 | $ | -0- | $ | -0- | $ | -0- | ||||||
Add: Accruals | 250 | 1,750 | 2,000 | |||||||||
Less: Payments | (551 | ) | (594 | ) | (1,145 | ) | ||||||
Transfers | 400 | (400 | ) | -0- | ||||||||
Balance at December 31, 2005 | $ | 99 | $ | 756 | $ | 855 | ||||||
34
Cash acquisition price | $ | 10,000 | |||
Assets | |||||
Accounts receivable | (8,948 | ) | |||
Inventories | (2,044 | ) | |||
Property and equipment | (15,499 | ) | |||
Other | (115 | ) | |||
Liabilities | |||||
Accounts payable | 4,041 | ||||
Compensation accruals | 3,825 | ||||
Other accruals | 8,740 | ||||
Goodwill | $ | -0- | |||
Severance | Exit | Relocation | Total | |||||||||||||
Balance at June 30, 2004 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | ||||||||
Add: Accruals | 1,916 | 100 | 265 | 2,281 | ||||||||||||
Less: Payments | 295 | -0- | 2 | 297 | ||||||||||||
Balance at December 31, 2004 | 1,621 | 100 | 263 | 1,984 | ||||||||||||
Transfer | 0 | 48 | (48 | ) | 0 | |||||||||||
Adjustments | (612 | ) | 0 | (113 | ) | (725 | ) | |||||||||
Less: Payments | 1,009 | 148 | 102 | 1,259 | ||||||||||||
Balance at December 31, 2005 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
35
December 31 | December 31, | |||||||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||||
Pension assets | Pension assets | $ | 36,186 | $ | 32,816 | Pension assets | $ | 47,164 | $ | 41,295 | ||||||||
Idle assets | Idle assets | 6,516 | -0- | Idle assets | 5,161 | 6,040 | ||||||||||||
Deferred financing costs | Deferred financing costs | 5,774 | 4,636 | Deferred financing costs | 7,048 | 7,846 | ||||||||||||
Tooling | Tooling | 4,222 | 4,213 | Tooling | 3,327 | 3,570 | ||||||||||||
Software development costs | Software development costs | 3,947 | 4,118 | Software development costs | 2,485 | 3,390 | ||||||||||||
Other | Other | 4,665 | 5,800 | Other | 5,432 | 6,394 | ||||||||||||
Totals | $ | 61,310 | $ | 51,583 | Totals | $ | 70,617 | $ | 68,535 | |||||||||
December 31 | December 31, | |||||||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||||
Accrued salaries, wages and benefits | Accrued salaries, wages and benefits | $ | 9,484 | $ | 10,583 | Accrued salaries, wages and benefits | $ | 16,435 | $ | 14,098 | ||||||||
Advance billings | Advance billings | 8,496 | 6,594 | Advance billings | 21,969 | 10,059 | ||||||||||||
Warranty and installation accruals | 6,762 | 8,990 | ||||||||||||||||
Warranty, project and installation accruals | Warranty, project and installation accruals | 4,391 | 5,660 | |||||||||||||||
Severance and exit costs | Severance and exit costs | 2,535 | 4,045 | Severance and exit costs | 1,451 | 2,175 | ||||||||||||
Interest payable | Interest payable | 2,055 | 3,529 | Interest payable | 2,900 | 2,022 | ||||||||||||
State and local taxes | State and local taxes | 3,809 | 3,206 | State and local taxes | 4,866 | 4,553 | ||||||||||||
Sundry | Sundry | 13,243 | 11,892 | Sundry | 16,301 | 21,178 | ||||||||||||
Totals | $ | 46,384 | $ | 48,839 | Totals | $ | 68,313 | $ | 59,745 | |||||||||
December 31 | December 31, | |||||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||
Balance at beginning of year | $ | 6,506 | $ | 997 | $ | 4,281 | $ | 5,614 | ||||||||
Claims paid during the year | (2,399 | ) | (1,430 | ) | (3,297 | ) | (4,708 | ) | ||||||||
Additional warranties issued during year | 1,139 | 1,858 | 2,593 | 2,874 | ||||||||||||
Acquired warranty liabilities | -0- | 5,081 | -0- | 501 | ||||||||||||
Other | 368 | -0- | (11 | ) | -0- | |||||||||||
Balance at end of year | $ | 5,614 | $ | 6,506 | $ | 3,566 | $ | 4,281 | ||||||||
2736
December 31 | |||||||||
2003 | 2002 | ||||||||
9.25% Senior Subordinated Notes due 2007. | $ | 199,930 | $ | 199,930 | |||||
Revolving credit maturing on June 30, 2004. | -0- | 114,000 | |||||||
Revolving credit maturing on July 30, 2007. | 101,000 | -0- | |||||||
Industrial Development Revenue Bonds maturing in 2012 at interest rates from 2.00% to 4.15% | 4,478 | 4,863 | |||||||
Other | 4,817 | 6,329 | |||||||
310,225 | 325,122 | ||||||||
Less current maturities | 1,061 | 1,306 | |||||||
Total | $ | 309,164 | $ | 323,816 | |||||
December 31, | |||||||||
2005 | 2004 | ||||||||
8.375% senior subordinated notes due 2014 | $ | 210,000 | $ | 210,000 | |||||
Revolving credit maturing on December 31, 2010 | 128,300 | 120,600 | |||||||
Industrial development revenue bonds maturing in 2012 at interest rates from 2.00% to 4.15% | 3,586 | 4,041 | |||||||
Other | 4,763 | 3,666 | |||||||
346,649 | 338,307 | ||||||||
Less current maturities | 1,644 | 2,931 | |||||||
Total | $ | 345,005 | $ | 335,376 | |||||
2010.
37
The fair market value of the Senior Subordinated Notes based on published market prices was approximately $201,429 and $129,955 at December 31, 2003 and 2002, respectively.2005.
28
2004.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
NOTE HG — Income Taxes
Year Ended December 31 | |||||||||||||
2003 | 2002 | 2001 | |||||||||||
Current (refundable): | |||||||||||||
Federal | $ | -0- | $ | (2,210 | ) | $ | (5,828 | ) | |||||
State | 16 | 387 | 369 | ||||||||||
Foreign | 888 | 769 | 532 | ||||||||||
904 | (1,054 | ) | (4,927 | ) | |||||||||
Deferred: | |||||||||||||
Federal | -0- | 1,951 | (6,135 | ) | |||||||||
State | -0- | -0- | (338 | ) | |||||||||
-0- | 1,951 | (6,473 | ) | ||||||||||
Income taxes | $ | 904 | $ | 897 | $ | (11,400 | ) | ||||||
Year Ended December 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Current payable (benefit): | |||||||||||||
Federal | $ | 165 | $ | (426 | ) | $ | -0- | ||||||
State | 198 | 23 | 16 | ||||||||||
Foreign | 2,260 | 3,245 | 888 | ||||||||||
2,623 | 2,842 | 904 | |||||||||||
Deferred: | |||||||||||||
Federal | (7,300 | ) | -0- | -0- | |||||||||
State | -0- | -0- | -0- | ||||||||||
Foreign | 354 | 558 | -0- | ||||||||||
(6,946 | ) | 558 | -0- | ||||||||||
Income taxes (benefit) | $ | (4,323 | ) | $ | 3,400 | $ | 904 | ||||||
Year Ended December 31 | Year Ended December 31, | |||||||||||||||||||||||
2003 | 2002 | 2001 | 2005 | 2004 | 2003 | |||||||||||||||||||
Computed statutory amount | $ | (3,712 | ) | $ | (3,895 | ) | $ | (12,700 | ) | $ | 9,189 | $ | 5,984 | $ | (3,712 | ) | ||||||||
Effect of state income taxes | 11 | 411 | 20 | 65 | 16 | 11 | ||||||||||||||||||
Goodwill | -0- | -0- | 668 | |||||||||||||||||||||
Foreign rate differences | 815 | 599 | 275 | (151 | ) | 661 | 815 | |||||||||||||||||
Medicare subsidy | (795 | ) | -0- | -0- | ||||||||||||||||||||
Valuation allowance | 3,695 | 3,475 | -0- | (12,093 | ) | (3,042 | ) | 3,695 | ||||||||||||||||
Other, net | 95 | 307 | 337 | (538 | ) | (219 | ) | 95 | ||||||||||||||||
Income taxes (benefit) | $ | 904 | $ | 897 | $ | (11,400 | ) | $ | (4,323 | ) | $ | 3,400 | $ | 904 | ||||||||||
2938
December 31 | December 31, | |||||||||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||||||
Deferred tax assets: | Deferred tax assets: | Deferred tax assets: | ||||||||||||||||||
Postretirement benefit obligation | $ | 7,600 | $ | 8,100 | ||||||||||||||||
Inventory | 8,400 | 7,200 | Postretirement benefit obligation | $ | 7,542 | $ | 7,933 | |||||||||||||
Net operating loss and tax credit carryforwards | 14,300 | 10,900 | Inventory | 10,433 | 11,277 | |||||||||||||||
Goodwill | 6,800 | 6,800 | Net operating loss and tax credit carryforwards | 18,996 | 20,384 | |||||||||||||||
Other—net | 8,400 | 2,600 | Other — net | 12,246 | 11,867 | |||||||||||||||
Total deferred tax assets | 45,500 | 35,600 | Total deferred tax assets | 49,217 | 51,461 | |||||||||||||||
Deferred tax liabilities: | Deferred tax liabilities: | Deferred tax liabilities: | ||||||||||||||||||
Tax over book depreciation | 13,900 | 12,800 | Tax over book depreciation | 15,578 | 15,492 | |||||||||||||||
Pension | 11,400 | 10,500 | Pension | 18,926 | 16,725 | |||||||||||||||
Deductible goodwill | 2,251 | 1,087 | ||||||||||||||||||
Total deferred tax liabilities | 25,300 | 23,300 | ||||||||||||||||||
Total deferred tax liabilities | 36,755 | 33,304 | ||||||||||||||||||
20,200 | 12,300 | |||||||||||||||||||
12,462 | 18,157 | |||||||||||||||||||
Valuation reserves | Valuation reserves | (20,200 | ) | (12,300 | ) | Valuation reserves | (7,011 | ) | (19,231 | ) | ||||||||||
Net deferred tax assets | $ | -0- | $ | -0- | ||||||||||||||||
Net deferred tax asset (liability) | Net deferred tax asset (liability) | $ | 5,451 | $ | (1,074 | ) | ||||||||||||||
position and after consideration of the relevant positive and negative evidence, the Company determined a full valuation allowance was no longer appropriate. Accordingly, the Company reversed a portion of its valuation allowance and recognized $7,300 of tax benefit related to its U.S. net deferred tax asset as it has been determined the realization of this amount is more likely than not.
39
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
NOTE JI — Pensions and Postretirement Benefits
Postretirement | Postretirement | |||||||||||||||||||||||||||||||
Pension | Benefits | Pension | Benefits | |||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 52,481 | $ | 50,564 | $ | 24,869 | $ | 23,403 | $ | 55,303 | $ | 53,075 | $ | 24,680 | $ | 27,366 | ||||||||||||||||
Service cost | 545 | 399 | 147 | 204 | 364 | 291 | 145 | 136 | ||||||||||||||||||||||||
Curtailment and settlement | (208 | ) | 2,053 | -0- | -0- | (1,023 | ) | -0- | -0- | -0- | ||||||||||||||||||||||
Interest cost | 3,498 | 3,556 | 1,701 | 1,712 | 3,194 | 3,320 | 1,281 | 1,532 | ||||||||||||||||||||||||
Plan participants’ contributions | -0- | -0- | 247 | 135 | ||||||||||||||||||||||||||||
Amendments | -0- | 566 | -0- | -0- | ||||||||||||||||||||||||||||
Actuarial losses (gains) | 1,800 | 1,132 | 3,758 | 1,570 | 2,101 | 2,799 | 200 | (637 | ) | |||||||||||||||||||||||
Benefits and expenses paid | (5,041 | ) | (5,223 | ) | (3,356 | ) | (2,155 | ) | ||||||||||||||||||||||||
Benefits and expenses paid, net of contributions | (5,205 | ) | (4,748 | ) | (3,463 | ) | (3,717 | ) | ||||||||||||||||||||||||
Benefit obligation at end of year | $ | 53,075 | $ | 52,481 | $ | 27,366 | $ | 24,869 | $ | 54,734 | $ | 55,303 | $ | 22,843 | $ | 24,680 | ||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 85,401 | $ | 100,498 | $ | -0- | $ | -0- | $ | 103,948 | $ | 97,603 | $ | -0- | $ | -0- | ||||||||||||||||
Actual return on plan assets | 17,243 | (8,811 | ) | -0- | -0- | 3,919 | 11,093 | -0- | -0- | |||||||||||||||||||||||
Settlement accounting | -0- | (1,063 | ) | -0- | -0- | |||||||||||||||||||||||||||
Company contributions | -0- | -0- | 3,109 | 2,020 | -0- | -0- | 3,463 | 3,717 | ||||||||||||||||||||||||
Plan participants’ contributions | -0- | -0- | 247 | 135 | ||||||||||||||||||||||||||||
Benefits and expense paid | (5,041 | ) | (5,223 | ) | (3,356 | ) | (2,155 | ) | ||||||||||||||||||||||||
Curtailments and settlement | (1,023 | ) | -0- | -0- | -0- | |||||||||||||||||||||||||||
Benefits and expenses paid, net of contributions | (5,205 | ) | (4,748 | ) | (3,463 | ) | (3,717 | ) | ||||||||||||||||||||||||
Fair value of plan assets at end of year | $ | 97,603 | $ | 85,401 | $ | -0- | $ | -0- | $ | 101,639 | $ | 103,948 | $ | -0- | $ | -0- | ||||||||||||||||
Funded (underfunded) status of the plan | $ | 44,528 | $ | 32,920 | $ | (27,366 | ) | $ | (24,869 | ) | $ | 46,905 | $ | 48,645 | $ | (22,843 | ) | $ | (24,680 | ) | ||||||||||||
Unrecognized net transition obligation | (487 | ) | (536 | ) | -0- | -0- | (386 | ) | (439 | ) | -0- | -0- | ||||||||||||||||||||
Unrecognized net actuarial (gain) loss | (7,235 | ) | 1,547 | 5,375 | (303 | ) | (13 | ) | (6,929 | ) | 4,734 | 4,639 | ||||||||||||||||||||
Unrecognized prior service cost (benefit) | 773 | 1,198 | (327 | ) | (407 | ) | 922 | 1,210 | (178 | ) | (247 | ) | ||||||||||||||||||||
Net amount recognized at year end | $ | 37,579 | $ | 35,129 | $ | (22,318 | ) | $ | (25,579 | ) | $ | 47,428 | $ | 42,487 | $ | (18,287 | ) | $ | (20,288 | ) | ||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||||
Prepaid pension cost | Prepaid pension cost | $ | 36,186 | $ | 32,816 | Prepaid pension cost | $ | 47,164 | $ | 41,295 | ||||||||
Accrued pension cost | Accrued pension cost | (2,962 | ) | (3,526 | ) | Accrued pension cost | (5,491 | ) | (4,211 | ) | ||||||||
Intangible asset | Intangible asset | -0- | 284 | Intangible asset | 397 | 565 | ||||||||||||
Accumulated other comprehensive loss | Accumulated other comprehensive loss | 4,355 | 5,555 | Accumulated other comprehensive loss | 5,358 | 4,838 | ||||||||||||
Net amount recognized at the end of year | $ | 37,579 | $ | 35,129 | Net amount recognized at the end of the year | $ | 47,428 | $ | 42,487 | |||||||||
3140
Plan Assets | Plan Assets | |||||||||||||||||||||||
Target 2004 | 2003 | 2002 | Target 2006 | 2005 | 2004 | |||||||||||||||||||
Asset Category | ||||||||||||||||||||||||
Equity securities | 60-70 | % | 64.8 | % | 62.7 | % | 60-70 | % | 71.1 | % | 66.7 | % | ||||||||||||
Debt securities | 25-30 | 26.0 | 28.7 | 20-30 | 19.7 | 20.5 | ||||||||||||||||||
Other | 5-10 | 9.2 | 8.6 | 7-15 | 9.2 | 12.8 | ||||||||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||
For the Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||
Projected benefit obligation | $ | 16,336 | $ | 15,573 | $ | 17,476 | $ | 17,458 | ||||||||
Accumulated benefit obligation | $ | 16,336 | $ | 15,573 | $ | 17,476 | $ | 17,458 | ||||||||
Fair value of plan assets | $ | 13,374 | $ | 12,047 | $ | 11,985 | $ | 13,247 | ||||||||
Weighted-Average assumptions as of | ||||||||||||||||||||||||||||||||||||||||
Postretirement | December 31, | |||||||||||||||||||||||||||||||||||||||
Pension | Benefits | |||||||||||||||||||||||||||||||||||||||
Postretirement | ||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | Pension | Benefits | |||||||||||||||||||||||||||||||||||
Weighted-Average assumptions as of December 31 | ||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
Discount rate | 6.50 | % | 7.00 | % | 6.50 | % | 7.00 | % | 5.50 | % | 6.00 | % | 6.50 | % | 5.50 | % | 6.00 | % | 6.50 | % | ||||||||||||||||||||
Expected return on plan assets | 8.75 | % | 8.75 | % | N/A | N/A | 8.75 | % | 8.75 | % | 8.75 | % | N/A | N/A | N/A | |||||||||||||||||||||||||
Rate of compensation increase | 2.00 | % | 2.00 | % | N/A | N/A | N/A | N/A | 2.00 | % | N/A | N/A | N/A |
The Company has elected to defer recognition of the potential effect of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 until authoritative guidance on the accounting for the federal subsidy is issued.41
32
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
Components of net periodic benefit cost | ||||||||||||||||||||||||
Service costs | $ | 364 | $ | 291 | $ | 545 | $ | 145 | $ | 136 | $ | 147 | ||||||||||||
Interest costs | 3,194 | 3,320 | 3,498 | 1,281 | 1,532 | 1,701 | ||||||||||||||||||
Expected return on plan assets | (8,804 | ) | (8,313 | ) | (7,229 | ) | -0- | -0- | -0- | |||||||||||||||
Transition obligation | (49 | ) | (49 | ) | (49 | ) | -0- | -0- | -0- | |||||||||||||||
Amortization of prior service cost | 163 | 129 | 257 | (69 | ) | (80 | ) | (80 | ) | |||||||||||||||
Recognized net actuarial (gain) loss | (224 | ) | (286 | ) | 361 | 106 | 99 | 43 | ||||||||||||||||
Benefit (income) costs | $ | (5,356 | ) | $ | (4,908 | ) | $ | (2,617 | ) | $ | 1,463 | $ | 1,687 | $ | 1,811 | |||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | |||||||||||||||||||
Components of net periodic benefit cost | ||||||||||||||||||||||||
Service costs | $ | 545 | $ | 399 | $ | 590 | $ | 147 | $ | 204 | $ | 179 | ||||||||||||
Interest costs | 3,498 | 3,556 | 3,506 | 1,701 | 1,712 | 1,663 | ||||||||||||||||||
Expected return on plan assets | (7,229 | ) | (8,394 | ) | (8,658 | ) | -0- | -0- | -0- | |||||||||||||||
Transition obligation | (49 | ) | (49 | ) | (56 | ) | -0- | -0- | -0- | |||||||||||||||
Amortization of prior service cost | 257 | 319 | 363 | (80 | ) | (79 | ) | (79 | ) | |||||||||||||||
Recognized net actuarial (gain) loss | 361 | (1,055 | ) | (1,720 | ) | 43 | 11 | (28 | ) | |||||||||||||||
Benefit (income) costs | $ | (2,617 | ) | $ | (5,224 | ) | $ | (5,975 | ) | $ | 1,811 | $ | 1,848 | $ | 1,735 | |||||||||
Pension | Other | Payments due to | ||||||||||
Benefits | Benefits | Medicare Subsidy | ||||||||||
2006 | $ | 4,534 | $ | 2,517 | $ | 231 | ||||||
2007 | 4,374 | 2,465 | 237 | |||||||||
2008 | 4,300 | 2,450 | 270 | |||||||||
2009 | 4,290 | 2,364 | 242 | |||||||||
2010 | 4,240 | 2,304 | 241 | |||||||||
2011 to 2015 | 20,087 | 9,881 | 1,080 |
1-Percentage | 1-Percentage | |||||||
Point | Point | |||||||
Increase | Decrease | |||||||
Effect on total of service and interest cost components in 2003 | $ | 138 | $ | 104 | ||||
Effect on post retirement benefit obligation as of December 31, 2003 | $ | 1,767 | $ | 1,545 |
1-Percentage | 1-Percentage | |||||||
Point | Point | |||||||
Increase | Decrease | |||||||
Effect on total of service and interest cost components in 2005 | $ | 127 | $ | (107 | ) | |||
Effect on post retirement benefit obligation as of December 31, 2005 | $ | 1,886 | $ | (1,601 | ) |
42
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
facturingmanufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications. The principal customers of Manufactured Products are original equipment manufacturers and end-usersend users in the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, rail and locomotive manufacturing and aerospace automotive, railroad, truck and oildefense industries.
Year Ended December 31 | |||||||||||||
2003 | 2002 | 2001 | |||||||||||
Net sales: | |||||||||||||
ILS | $ | 377,645 | $ | 398,141 | $ | 416,962 | |||||||
Aluminum products | 90,080 | 106,148 | 84,846 | ||||||||||
Manufactured products | 156,570 | 130,166 | 134,609 | ||||||||||
$ | 624,295 | $ | 634,455 | $ | 636,417 | ||||||||
Income (loss) before income taxes and amortization of goodwill: | |||||||||||||
ILS | $ | 24,893 | $ | 17,467 | $ | 22,944 | |||||||
Aluminum products | 10,201 | 4,739 | (2,327 | ) | |||||||||
Manufactured products | (13,759 | ) | (1,342 | ) | (14,287 | ) | |||||||
$ | 21,335 | $ | 20,864 | $ | 6,330 | ||||||||
Amortization of goodwill: | |||||||||||||
ILS | $ | -0- | $ | -0- | $ | 2,702 | |||||||
Aluminum products | -0- | -0- | 745 | ||||||||||
Manufactured products | -0- | -0- | 286 | ||||||||||
$ | -0- | $ | -0- | $ | 3,733 | ||||||||
Income (loss) before income taxes and change in accounting principle: | |||||||||||||
ILS | $ | 24,893 | $ | 17,467 | $ | 20,242 | |||||||
Aluminum products | 10,201 | 4,739 | (3,072 | ) | |||||||||
Manufactured products | (13,759 | ) | (1,342 | ) | (14,573 | ) | |||||||
21,335 | 20,864 | 2,597 | |||||||||||
Corporate costs | (5,803 | ) | (4,285 | ) | (6,483 | ) | |||||||
Interest expense | (26,151 | ) | (27,623 | ) | (31,108 | ) | |||||||
Non-operating items, net | -0- | -0- | (1,850 | ) | |||||||||
$ | (10,619 | ) | $ | (11,044 | ) | $ | (36,844 | ) | |||||
3443
Year Ended December 31, | ||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||
Net sales: | Net sales: | |||||||||||||||||||||||||
ILS | $ | 532,624 | $ | 453,223 | $ | 377,645 | ||||||||||||||||||||
Aluminum Products | 159,053 | 135,402 | 90,080 | |||||||||||||||||||||||
Manufactured Products | 241,223 | 220,093 | 156,570 | |||||||||||||||||||||||
$ | 932,900 | $ | 808,718 | $ | 624,295 | |||||||||||||||||||||
Income (loss) before income taxes: | Income (loss) before income taxes: | |||||||||||||||||||||||||
ILS | $ | 34,814 | $ | 29,191 | $ | 24,893 | ||||||||||||||||||||
Aluminum Products | 9,103 | 9,021 | 10,201 | |||||||||||||||||||||||
Manufactured Products | 20,630 | 18,890 | (13,759 | ) | ||||||||||||||||||||||
64,547 | 57,102 | 21,335 | ||||||||||||||||||||||||
Corporate costs | (10,241 | ) | (7,756 | ) | (5,803 | ) | ||||||||||||||||||||
Year Ended December 31 | Interest expense | (27,056 | ) | (31,413 | ) | (26,151 | ) | |||||||||||||||||||
2003 | 2002 | 2001 | $ | 27,250 | $ | 17,933 | $ | (10,619 | ) | |||||||||||||||||
Identifiable assets: | Identifiable assets: | Identifiable assets: | ||||||||||||||||||||||||
ILS | $ | 267,361 | $ | 273,442 | $ | 312,288 | ILS | $ | 323,176 | $ | 297,002 | $ | 267,361 | |||||||||||||
Aluminum products | 88,031 | 79,797 | 95,033 | Aluminum Products | 104,618 | 105,535 | 88,031 | |||||||||||||||||||
Manufactured products | 121,331 | 151,880 | 141,774 | Manufactured Products | 169,004 | 163,230 | 121,331 | |||||||||||||||||||
General corporate | 32,821 | 37,824 | 45,813 | General corporate | 71,056 | 46,080 | 32,821 | |||||||||||||||||||
$ | 509,544 | $ | 542,943 | $ | 594,908 | $ | 667,854 | $ | 611,847 | $ | 509,544 | |||||||||||||||
Depreciation and amortization expense: | Depreciation and amortization expense: | Depreciation and amortization expense: | ||||||||||||||||||||||||
ILS | $ | 4,868 | $ | 5,206 | $ | 8,441 | ILS | $ | 4,575 | $ | 4,608 | $ | 4,868 | |||||||||||||
Aluminum products | 5,342 | 6,432 | 5,532 | Aluminum Products | 7,484 | 5,858 | 5,342 | |||||||||||||||||||
Manufactured products | 5,050 | 4,307 | 5,632 | Manufactured Products | 4,986 | 4,728 | 5,050 | |||||||||||||||||||
General corporate | 219 | 320 | 306 | General corporate | 216 | 191 | 219 | |||||||||||||||||||
$ | 15,479 | $ | 16,265 | $ | 19,911 | $ | 17,261 | $ | 15,385 | $ | 15,479 | |||||||||||||||
Capital expenditures: | Capital expenditures: | Capital expenditures: | ||||||||||||||||||||||||
ILS | $ | 3,017 | $ | 1,603 | $ | 1,972 | ILS | $ | 2,070 | $ | 3,691 | $ | 3,017 | |||||||||||||
Aluminum products | 1,878 | 5,927 | 3,160 | Aluminum Products | 10,473 | 5,497 | 1,878 | |||||||||||||||||||
Manufactured products | 5,867 | 6,201 | 8,352 | Manufactured Products | 7,266 | 720 | 5,867 | |||||||||||||||||||
General corporate | 107 | -0- | 439 | General corporate | 486 | 55 | 107 | |||||||||||||||||||
$ | 10,869 | $ | 13,731 | $ | 13,923 | $ | 20,295 | $ | 9,963 | $ | 10,869 | |||||||||||||||
44
Year Ended | Year Ended | |||||||||||||||||||||||
December 31 | December 31, | |||||||||||||||||||||||
2003 | 2002 | 2001 | 2005 | 2004 | 2003 | |||||||||||||||||||
United States | 83 | % | 80 | % | 88 | % | 79 | % | 74 | % | 83 | % | ||||||||||||
Canada | 8 | % | 13 | % | 7 | % | 7 | % | 9 | % | 8 | % | ||||||||||||
Other | 9 | % | 7 | % | 5 | % | 14 | % | 17 | % | 9 | % | ||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
NOTE ML — Accumulated Comprehensive Loss
December 31 | December 31, | |||||||||||||||||
2003 | 2002 | 2005 | 2004 | |||||||||||||||
Foreign currency translation adjustment | Foreign currency translation adjustment | $ | (1,091 | ) | $ | 2,541 | Foreign currency translation adjustment | $ | (3,256 | ) | $ | (3,162 | ) | |||||
Minimum pension liability | Minimum pension liability | 4,355 | 5,555 | Minimum pension liability | 5,358 | 4,838 | ||||||||||||
Total | $ | 3,264 | $ | 8,096 | Total | $ | 2,102 | $ | 1,676 | |||||||||
Since 2001, the Company has responded to the economic downturn by reducing costs in a variety of ways, including restructuring businesses and selling non-core manufacturing assets. These activities generated restructuring and asset impairment charges in 2001, 2002 and 2003, as the Company’s restructuring efforts continued and evolved.
During 2001, the Company recorded restructuring and asset impairment charges aggregating $28,462, primarily related to management’s decision to exit certain under-performing product lines and to close or consolidate certain operating facilities in 2002. The Company’s actions included 1) selling or discontinuing the businesses of Castle Rubber and Ajax Manufacturing, 2) closing the Cicero Flexible Products’ manufacturing facility and discontinue certain product lines, 3) inventory write-downs and other restructuring activities at St. Louis Screw and Bolt and Tocco, 4) closing twenty ILS supply chain logistics facilities and two ILS manufacturing plants, 5) closing an Aluminum Products machining facility, and 6) write-down of certain Corporate assets to current value. The charges were composed of $11,280 for the impairment of property and equipment and other long-term assets; $10,299 million of cost of goods sold, primarily to write down inventory of discontinued businesses and product lines to current market value; and $6,883 for severance (525 employees) and exit costs. Below is a summary of these charges by segment.
Cost of | ||||||||||||||||
Products | Asset | Restructuring | ||||||||||||||
Sold | Impairment | & Severance | Total | |||||||||||||
Manufactured Products | $ | 8,599 | $ | 10,080 | $ | 2,030 | $ | 20,709 | ||||||||
ILS | 1,700 | 600 | 4,070 | 6,370 | ||||||||||||
Aluminum Products | -0- | -0- | 783 | 783 | ||||||||||||
Corporate | -0- | 600 | -0- | 600 | ||||||||||||
$ | 10,299 | $ | 11,280 | $ | 6,883 | $ | 28,462 | |||||||||
During 2002, the Company recorded further restructuring and asset impairment charges aggregating $19,190, primarily related to management decisions to exit additional product lines and consolidate additional facilities. The Company’s planned actions included 1) selling or discontinuing the businesses of St. Louis Screw and Bolt and Green Bearing, 2) closing five additional supply chain logistics facilities and 3) closing or selling two Aluminum Products manufacturing plants (one of which was closed as of December 31, 2002). The charges were composed of $5,599 for severance (490 employees) and exit costs, $2,700 for pension curtailment costs; $5,628 of costs of goods sold, primarily to write down inventory of discontinued businesses and product lines to current market value; and $5,263 for impairment of property and equipment and other long-term assets. Below is a summary of these charges by segment.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
Cost of | ||||||||||||||||||||
Products | Asset | Restructuring | Pension | |||||||||||||||||
Sold | Impairment | & Severance | Curtailment | Total | ||||||||||||||||
ILS | $ | 4,500 | $ | -0- | $ | 2,534 | $ | 2,000 | $ | 9,034 | ||||||||||
Manufactured Products | 1,128 | 2,103 | 2,628 | 700 | 6,559 | |||||||||||||||
Aluminum Products | -0- | 3,160 | 437 | -0- | 3,597 | |||||||||||||||
$ | 5,628 | $ | 5,263 | $ | 5,599 | $ | 2,700 | $ | 19,190 | |||||||||||
Cost of | Cost of | |||||||||||||||||||||||||||||||||||||||
Products | Asset | Restructuring | Pension | Products | Asset | Restructuring | Pension | |||||||||||||||||||||||||||||||||
Sold | Impairment | & Severance | Curtailment | Total | Sold | Impairment | & Severance | Curtailment | Total | |||||||||||||||||||||||||||||||
Manufactured Products | $ | 638 | $ | 16,051 | $ | 990 | $ | 1,600 | $ | 19,279 | $ | 638 | $ | 16,051 | $ | 990 | $ | 1,600 | $ | 19,279 | ||||||||||||||||||||
Aluminum Products | -0- | -0- | -0- | 167 | 167 | -0- | -0- | -0- | 167 | 167 | ||||||||||||||||||||||||||||||
$ | 638 | $ | 16,051 | $ | 990 | $ | 1,767 | $ | 19,446 | $ | 638 | $ | 16,051 | $ | 990 | $ | 1,767 | $ | 19,446 | |||||||||||||||||||||
45
Cost of | ||||||||||||||||||||
Products | Asset | Restructuring | Pension | |||||||||||||||||
Sold | Impairment | & Severance | Curtailment | Total | ||||||||||||||||
Manufactured Products | $ | 833 | $ | -0- | $ | 400 | $ | 152 | $ | 1,385 | ||||||||||
Aluminum Products | -0- | 391 | -0- | -0- | 391 | |||||||||||||||
$ | 833 | $ | 391 | $ | 400 | $ | 152 | $ | 1,776 | |||||||||||
Severance and exit charges recorded in 2001 | $ | 6,883 | ||
Cash payments made in 2001 | (2,731 | ) | ||
Balance at December 31, 2001 | 4,152 | |||
Severance and exit charges recorded in 2002 | 5,599 | |||
Cash payments made in 2002 | (5,706 | ) | ||
Balance at December 31, 2002 | 4,045 | |||
Severance and exit charges recorded in 2003 | 990 | |||
Cash payments made in 2003 | (2,500 | ) | ||
Balance at December 31, 2003 | $ | 2,535 | ||
Balance at January 1, 2003 | $ | 4,045 | ||
Severance and exit charges recorded in 2003 | 990 | |||
Cash payments made in 2003 | (2,500 | ) | ||
Balance at December 31, 2003 | 2,535 | |||
Severance and exit charges recorded in 2004 | -0- | |||
Cash payments made in 2004 | (2,073 | ) | ||
Balance at December 31, 2004 | 462 | |||
Exit charges recorded in 2005 | 400 | |||
Cash payments made in 2005 | (266 | ) | ||
Balance at December 31, 2005 | $ | 596 | ||
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
panyCompany is evaluating new products and technologies. These assets may either be reclassified to property, plant and equipment if placed in service, or sold. They are currently carried at estimated fair value.
3846
47
Combined | Combined | |||||||||||||||||||||
Guarantor | Non-Guarantor | Reclassifications/ | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | (11,036 | ) | $ | 626 | $ | 11,899 | $ | 16,379 | $ | 17,868 | |||||||||||
Accounts receivable, net | -0- | 129,302 | 24,200 | -0- | 153,502 | |||||||||||||||||
Inventories | -0- | 160,775 | 29,778 | -0- | 190,553 | |||||||||||||||||
Other current assets | 464 | 20,029 | 1,147 | 6,113 | 27,753 | |||||||||||||||||
Deferred tax assets | -0- | -0- | -0- | 8,627 | 8,627 | |||||||||||||||||
Total Current Assets | (10,572 | ) | 310,732 | 67,024 | 31,119 | 398,303 | ||||||||||||||||
Investment in subsidiaries | 290,802 | -0- | -0- | (290,802 | ) | -0- | ||||||||||||||||
Inter-company advances | 359,963 | 372,156 | 8,208 | (740,327 | ) | -0- | ||||||||||||||||
Property, Plant and Equipment, net | 2,536 | 101,175 | 12,520 | -0- | 116,231 | |||||||||||||||||
Other Assets: | ||||||||||||||||||||||
Goodwill | -0- | 78,424 | 4,279 | -0- | 82,703 | |||||||||||||||||
Other | 34,724 | 37,530 | 686 | (2,323 | ) | 70,617 | ||||||||||||||||
Total Other Assets | 34,724 | 115,954 | 4,965 | (2,323 | ) | 153,320 | ||||||||||||||||
Total Assets | $ | 677,453 | $ | 900,017 | $ | 92,717 | $ | (1,002,333 | ) | $ | 667,854 | |||||||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||
Trade accounts payable | $ | 3,348 | $ | 87,666 | $ | 9,778 | $ | 14,604 | $ | 115,396 | ||||||||||||
Accrued expenses | 1,643 | 46,847 | 14,763 | 5,060 | 68,313 | |||||||||||||||||
Current portion of long-term liabilities | -0- | 11,054 | 590 | (7,483 | ) | 4,161 | ||||||||||||||||
Total Current Liabilities | 4,991 | 145,567 | 25,131 | 12,181 | 187,870 | |||||||||||||||||
Long-Term Liabilities, less current portion | ||||||||||||||||||||||
8.375% Senior Subordinated Notes due 2014 | 210,000 | -0- | -0- | -0- | 210,000 | |||||||||||||||||
Revolving credit maturing on December 31, 2010 | 128,300 | -0- | -0- | -0- | 128,300 | |||||||||||||||||
Other long-term debt | -0- | 34,533 | 3,140 | (30,968 | ) | 6,705 | ||||||||||||||||
Deferred tax liability | -0- | -0- | -0- | 3,176 | 3,176 | |||||||||||||||||
Other postretirement benefits and other long-term liabilities | 4,115 | 21,501 | 3,076 | (2,518 | ) | 26,174 | ||||||||||||||||
Total Long-Term Liabilities | 342,415 | 56,034 | 6,216 | (30,310 | ) | 374,355 | ||||||||||||||||
Inter-company advances | 227,614 | 415,558 | 17,674 | (660,846 | ) | -0- | ||||||||||||||||
Shareholder’s Equity | 102,433 | 282,858 | 43,696 | (323,358 | ) | 105,629 | ||||||||||||||||
Total Liabilities and Shareholder’s Equity | $ | 677,453 | $ | 900,017 | $ | 92,717 | $ | (1,002,333 | ) | $ | 667,854 | |||||||||||
48
Combined | Combined | |||||||||||||||||||||
Guarantor | Non-Guarantor | Reclassifications/ | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | (14,387 | ) | $ | 199 | $ | 6,851 | $ | 13,744 | $ | 6,407 | |||||||||||
Accounts receivable, net | 114 | 117,097 | 30,208 | (1,944 | ) | 145,475 | ||||||||||||||||
Inventories | (81 | ) | 151,187 | 26,188 | -0- | 177,294 | ||||||||||||||||
Other current assets | 499 | 12,215 | 1,799 | 6,142 | 20,655 | |||||||||||||||||
Total Current Assets | (13,855 | ) | 280,698 | 65,046 | 17,942 | 349,831 | ||||||||||||||||
Investment in subsidiaries | 341,088 | -0- | -0- | (341,088 | ) | -0- | ||||||||||||||||
Inter-company advances | 251,357 | 224,918 | 5,145 | (481,420 | ) | -0- | ||||||||||||||||
Property, Plant and Equipment, net | 2,266 | 95,494 | 12,121 | -0- | 109,881 | |||||||||||||||||
Other Assets: | ||||||||||||||||||||||
Goodwill | -0- | 78,424 | 4,141 | -0- | 82,565 | |||||||||||||||||
Net assets held for sale | -0- | 1,035 | -0- | -0- | 1,035 | |||||||||||||||||
Other | 43,908 | 37,316 | 1,490 | (14,179 | ) | 68,535 | ||||||||||||||||
Total Other Assets | 43,908 | 116,775 | 5,631 | (14,179 | ) | 152,135 | ||||||||||||||||
Total Assets | $ | 624,764 | $ | 717,885 | $ | 87,943 | $ | (818,745 | ) | $ | 611,847 | |||||||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||
Trade accounts payable | $ | 4,347 | $ | 87,291 | $ | 16,130 | $ | 1,094 | $ | 108,862 | ||||||||||||
Accrued expenses | 6,291 | 44,529 | 8,925 | -0- | 59,745 | |||||||||||||||||
Current portion of long-term liabilities | -0- | 587 | 2,344 | 2,881 | 5,812 | |||||||||||||||||
Total Current Liabilities | 10,638 | 132,407 | 27,399 | 3,975 | 174,419 | |||||||||||||||||
Long-Term Liabilities, less current portion | ||||||||||||||||||||||
8.375% Senior Subordinated Notes due 2014 | 210,000 | -0- | -0- | -0- | 210,000 | |||||||||||||||||
Revolving credit maturing on December 31, 2010 | 120,600 | -0- | -0- | -0- | 120,600 | |||||||||||||||||
Other long-term debt | -0- | 35,037 | 707 | (30,968 | ) | 4,776 | ||||||||||||||||
Deferred tax liability | 1,074 | -0- | -0- | -0- | 1,074 | |||||||||||||||||
Other postretirement benefits and other long-term liabilities | 4,241 | 21,875 | 3,261 | (2,881 | ) | 26,496 | ||||||||||||||||
Total Long-Term Liabilities | 335,915 | 56,912 | 3,968 | (33,849 | ) | 362,946 | ||||||||||||||||
Inter-company advances | 206,503 | 242,202 | 17,425 | (466,130 | ) | -0- | ||||||||||||||||
Shareholder’s Equity | 71,708 | 286,364 | 39,151 | (322,741 | ) | 74,482 | ||||||||||||||||
Total Liabilities and Shareholder’s Equity | $ | 624,764 | $ | 717,885 | $ | 87,943 | $ | (818,745 | ) | $ | 611,847 | |||||||||||
49
Combined | Combined | ||||||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Net sales | $ | -0- | $ | 827,815 | $ | 114,179 | $ | (9,094 | ) | $ | 932,900 | ||||||||||
Cost of sales | -0- | 715,057 | 90,320 | (9,094 | ) | 796,283 | |||||||||||||||
Gross profit | -0- | 112,758 | 23,859 | -0- | 136,617 | ||||||||||||||||
Operating Expenses: | |||||||||||||||||||||
Selling, general and administrative expenses | 3,349 | 62,394 | 15,025 | 600 | 81,368 | ||||||||||||||||
Restructuring and impairment charges | -0- | 943 | -0- | -0- | 943 | ||||||||||||||||
Operating Income | (3,349 | ) | 49,421 | 8,834 | (600 | ) | 54,306 | ||||||||||||||
Interest expense | (5,346 | ) | 31,442 | 1,560 | (600 | ) | 27,056 | ||||||||||||||
Income before income taxes | 1,997 | 17,979 | 7,274 | -0- | 27,250 | ||||||||||||||||
Income taxes | (7,439 | ) | 59 | 3,057 | -0- | (4,323 | ) | ||||||||||||||
Net income | $ | 9,436 | $ | 17,920 | $ | 4,217 | $ | -0- | $ | 31,573 | |||||||||||
Combined | Combined | ||||||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Net sales | $ | -0- | $ | 697,888 | $ | 123,827 | $ | (12,997 | ) | $ | 808,718 | ||||||||||
Cost of sales | -0- | 599,379 | 96,276 | (12,997 | ) | 682,658 | |||||||||||||||
Gross profit | -0- | 98,509 | 27,551 | -0- | 126,060 | ||||||||||||||||
Operating Expenses: | |||||||||||||||||||||
Selling, general and administrative expenses | (22,748 | ) | 82,657 | 16,605 | 200 | 76,714 | |||||||||||||||
Operating Income | 22,748 | 15,852 | 10,946 | (200 | ) | 49,346 | |||||||||||||||
Interest expense | 30,954 | 439 | 220 | (200 | ) | 31,413 | |||||||||||||||
Income before income taxes | (8,206 | ) | 15,413 | 10,726 | -0- | 17,933 | |||||||||||||||
Income taxes | 318 | -0- | 3,082 | -0- | 3,400 | ||||||||||||||||
Net income | $ | (8,524 | ) | $ | 15,413 | $ | 7,644 | $ | -0- | $ | 14,533 | ||||||||||
50
Combined | Combined | ||||||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Net sales | $ | -0- | $ | 546,002 | $ | 84,298 | $ | (6,005 | ) | $ | 624,295 | ||||||||||
Cost of sales | -0- | 463,984 | 69,607 | (6,005 | ) | 527,586 | |||||||||||||||
Gross profit | -0- | 82,018 | 14,691 | -0- | 96,709 | ||||||||||||||||
Operating Expenses: | |||||||||||||||||||||
Selling, general and administrative expenses | 2,094 | 48,682 | 11,593 | -0- | 62,369 | ||||||||||||||||
Restructuring and impairment charges | -0- | 18,553 | 255 | -0- | 18,808 | ||||||||||||||||
Operating Income | (2,094 | ) | 14,783 | 2,843 | -0- | 15,532 | |||||||||||||||
Interest expense | 1,239 | 23,781 | 1,131 | -0- | 26,151 | ||||||||||||||||
Income before income taxes | (3,333 | ) | (8,998 | ) | 1,712 | -0- | (10,619 | ) | |||||||||||||
Income taxes | 16 | -0- | 888 | -0- | 904 | ||||||||||||||||
Net income | $ | (3,349 | ) | $ | (8,998 | ) | $ | 824 | $ | -0- | $ | (11,523 | ) | ||||||||
51
Combined | Combined | ||||||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Net cash provided (used ) by operations | $ | (1,228 | ) | $ | 29,314 | $ | 6,409 | $ | -0- | $ | 34,495 | ||||||||||
Cash flows from investing activities: | |||||||||||||||||||||
Purchases of property, plant and equipment, net | (486 | ) | (17,769 | ) | (2,040 | ) | -0- | (20,295 | ) | ||||||||||||
Acquisitions, net of cash acquired | -0- | (12,181 | ) | -0- | -0- | (12,181 | ) | ||||||||||||||
Proceeds from sale of assets held for sale | -0- | 1,100 | -0- | -0- | 1,100 | ||||||||||||||||
Net cash provided (used ) in investing activities | (486 | ) | (28,850 | ) | (2,040 | ) | -0- | (31,376 | ) | ||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||
Proceeds from bank arrangements, net | 7,700 | (37 | ) | 679 | -0- | 8,342 | |||||||||||||||
Net cash provided (used ) by financing activities | 7,700 | (37 | ) | 679 | -0- | 8,342 | |||||||||||||||
Increase (decrease) in cash and cash equivalents | 5,986 | 427 | 5,048 | -0- | 11,461 | ||||||||||||||||
Cash and cash equivalents at beginning of year | (643 | ) | 199 | 6,851 | -0- | 6,407 | |||||||||||||||
Cash and cash equivalents at end of year | $ | 5,343 | $ | 626 | $ | 11,899 | $ | -0- | $ | 17,868 | |||||||||||
52
Combined | Combined | ||||||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Net cash provided (used ) by operations | $ | (24,045 | ) | $ | 18,123 | $ | 6,836 | $ | -0- | $ | 914 | ||||||||||
Cash flows from investing activities: | |||||||||||||||||||||
Purchases of property, plant and equipment, net | (55 | ) | (8,979 | ) | (929 | ) | -0- | (9,963 | ) | ||||||||||||
Acquisitions, net of cash acquired | -0- | (9,997 | ) | -0- | -0- | (9,997 | ) | ||||||||||||||
Proceeds from sale of assets held for sale | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||
Net cash provided (used ) in investing activities | (55 | ) | (18,976 | ) | (929 | ) | -0- | (19,960 | ) | ||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||
Proceeds from 8.375% Senior Subordinated Notes | 205,179 | -0- | -0- | -0- | 205,179 | ||||||||||||||||
Payment on 9.25% Senior Subordinated Notes | (199,930 | ) | -0- | -0- | -0- | (199,930 | ) | ||||||||||||||
Principal payments on revolving credit and long-term debt, net | 19,600 | 171 | (1,758 | ) | -0- | 18,013 | |||||||||||||||
Net cash provided (used ) by financing activities | 24,849 | 171 | (1,758 | ) | -0- | 23,262 | |||||||||||||||
Increase (decrease) in cash and cash equivalents | 749 | (682 | ) | 4,149 | -0- | 4,216 | |||||||||||||||
Cash and cash equivalents at beginning of year | (1,392 | ) | 881 | 2,702 | -0- | 2,191 | |||||||||||||||
Cash and cash equivalents at end of year | $ | (643 | ) | $ | 199 | $ | 6,851 | $ | -0- | $ | 6,407 | ||||||||||
53
Combined | Combined | ||||||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Net cash provided (used) by operations | $ | 7,459 | $ | 737 | $ | 3,622 | $ | -0- | $ | 11,818 | |||||||||||
Cash flows from investing activities: | |||||||||||||||||||||
Purchases of property, plant and equipment, net | (50 | ) | (8,398 | ) | (2,421 | ) | -0- | (10,869 | ) | ||||||||||||
Acquisitions, net of cash acquired | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||
Proceeds from sale of assets held for sale | -0- | 7,340 | -0- | -0- | 7,340 | ||||||||||||||||
Net cash provided (used) in investing activities | (50 | ) | (1,058 | ) | (2,421 | ) | -0- | (3,529 | ) | ||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||
Proceeds from bank arrangements | 112,000 | -0- | -0- | -0- | 112,000 | ||||||||||||||||
Repayment of old revolving credit agreement | (112,000 | ) | -0- | -0- | -0- | (112,000 | ) | ||||||||||||||
Principal payments on revolving credit and long-term debt | (13,000 | ) | (796 | ) | (1,102 | ) | -0- | (14,898 | ) | ||||||||||||
Net cash provided (used ) by financing activities | (13,000 | ) | (796 | ) | (1,102 | ) | -0- | (14,898 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | (5,591 | ) | (1,117 | ) | 99 | -0- | (6,609 | ) | |||||||||||||
Cash and cash equivalents at beginning of year | 4,199 | 1,998 | 2,603 | -0- | 8,800 | ||||||||||||||||
Cash and cash equivalents at end of year | $ | (1,392 | ) | $ | 881 | $ | 2,702 | $ | -0- | $ | 2,191 | ||||||||||
54
Item 9. | Changes in and Disagreements |
55
Item 9A. | Controls and Procedures |
56
Item 10. | Directors and Executive Officers of the Registrant |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. | Certain Relationships and Related Transactions |
Item 14. | Principal Accountant Fees and Services |
2003 | 2002 | 2005 | 2004 | |||||||||||||
Audit fees | $ | 401,000 | $ | 427,000 | $ | 1,007,000 | $ | 1,264,000 | ||||||||
Audit-related fees | 60,000 | 58,000 | ||||||||||||||
Tax fees | 67,250 | 71,000 | 86,000 | 65,000 | ||||||||||||
Audit-related fees | 215,500 | 204,000 |
3957
Item 15. | Exhibits and Financial Statement Schedules |
Page | |||||
Management’s Annual Report on Internal Control Over Financial Reporting | 24 | ||||
Report of | |||||
Report of Independent Registered Public Accounting Firm | 26 | ||||
Consolidated Balance Sheets — December 31, 2005 and 2004 | 27 | ||||
Consolidated Statements of Operations — Years Ended December 31, 2005, 2004 and 2003 | 28 | ||||
Consolidated Statements of Shareholder’s Equity — Years Ended December 31, 2005, 2004 and 2003 | 29 | ||||
Consolidated Statements of Cash Flows — Years Ended December 31, 2005, 2004 and 2003 | 30 | ||||
Notes to Consolidated Financial Statements | 31 | ||||
All |
The |
Supplemental Information to be furnished with reports filed pursuant to Section 15(d) of the Act by registrants which have not registered securities pursuant to Section 12 of the Act.
No annual report or proxy statement covering the Company’s last fiscal year has been or will be circulated to security holders.
4058
PARK-OHIO INDUSTRIES, INC. (Registrant) |
By: | /s/ Elliott |
Richard P. Elliott, Vice President | |
and Chief Financial Officer |
27, 2006
* Edward F. Crawford | Chairman, Chief Executive Officer and Director | March 15, 2006 | ||
* Richard P. Elliott | Vice President | March 15, 2006 | ||
* Matthew V. Crawford | President, Chief Operating Officer and Director | March 15, 2006 | ||
* Patrick V. Auletta | Director | March 15, 2006 | ||
* Kevin R. Greene | Director | March 15, 2006 | ||
* Lewis E. Hatch, Jr. | Director | March | ||
* | Director | March 15, 2006 | ||
* Lawrence O. Selhorst | Director | March 15, 2006 | ||
* Ronna Romney | Director | March 15, 2006 | ||
* James W. Wert | Director | March 15, 2006 |
* The undersigned, pursuant to a Power of Attorney executed by each of the Directors and officers identified above and filed with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated.
* | The undersigned, pursuant to a Power of Attorney executed by each of the directors and officers identified above and filed with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated. |
By: | /s/ Vilsack |
Robert D. Vilsack, |
4159
2005
Exhibit | ||||
3 | .1 | Amended and Restated Articles of Incorporation of Park-Ohio Industries, Inc. (filed as Exhibit 3.1 to the Form 10-K of Park-Ohio Industries, Inc. for the year ended December 31, 1998, SEC File No. 333-43005 and incorporated by reference and made a part hereof) | ||
3 | .2 | Code of Regulations of Park-Ohio Industries, Inc. (filed as Exhibit 3.2 to the Form 10-K of Park-Ohio Industries, Inc. for the year ended December 31, 1998, SEC File No. 333-43005 and incorporated by reference and made a part hereof) | ||
4 | .1 | Amended and Restated Credit Agreement, dated November 5, 2003, among Park-Ohio Industries, Inc., the other loan parties party thereto, the lenders party thereto, Bank One, NA and Banc One Capital Markets Inc. (filed as Exhibit 4 to the Form 10-Q of Park-Ohio Holdings Corp. for the quarter ended September 30, 2003, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
4 | .2 | First Amendment, dated September 30, 2004, to the Amended and Restated Credit Agreement, dated November 5, 2003, among Park-Ohio Industries, Inc., the other loan parties thereto, the lenders party thereto, Bank One, NA and Bank One Capital Markets, Inc. (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio Holdings Corp. on October 1, 2004, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof) | ||
4 | .3 | Second Amendment, dated December 29, 2004, to the Amended and Restated Credit Agreement, dated November 5, 2003, among Park-Ohio Industries, Inc., the other loan parties thereto, the lenders party thereto and JP Morgan Chase Bank, NA (successor by merger to Bank One, NA), as agent (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on January 5, 2005, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof) | ||
4 | .4 | Indenture, dated as of November 30, 2004, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, NA, as trustee (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on December 6, 2004, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof) | ||
10 | .1 | Form of Indemnification Agreement entered into between Park-Ohio Industries, Inc. and each of its directors and certain officers (filed as Exhibit 10.1 to the Form 10-K of Park-Ohio Industries, Inc. for the year ended December 31, 1998, SEC File No. 333-43005 and incorporated by reference and made a part hereof) | ||
10 | .2* | Amended and Restated 1998 Long-Term Incentive Plan (filed as Appendix A to the Definitive Proxy Statement of Park-Ohio Holdings Corp., filed on April 23, 2001, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
10 | .3 | Registration Rights Agreement, dated November 30, 2004, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and the initial purchasers that are party thereto (filed as Exhibit 10.1 to Form 8-K of Park-Ohio Holdings Corp. filed on December 6, 2004, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof) | ||
24 | .1 | Power of Attorney | ||
31 | .1 | Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31 | .2 | Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32 | .1 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 |
* | ||||