UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 0-3134
Park-Ohio Holdings Corp.
(Exact name of registrant as specified in its charter)
Ohio | 34-1867219 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6065 Parkland Boulevard, Cleveland, Ohio | 44124 | |
(Address of principal executive offices) | (Zip Code) |
440/947-2000
(Registrant’s telephone number, including area code)
Park-Ohio Holdings Corp. is a successor issuer to Park-Ohio Industries, Inc.
Indicate by check mark whether the registrant:
(1) | Has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and | |
(2) | Has been subject to such filing requirements for the past 90 days. Yes þ No |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ¨ No o¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer þ | Non-accelerated filer | Smaller reporting company | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o¨ No þ
Number of shares outstanding of registrant’s Common Stock, par value $1.00 per share, as of July 29, 2011: 11,965,792.
The Exhibit Index is located on page 26.
INDEX
2
Financial Statements
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(Unaudited) | ||||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 60,094 | $ | 35,311 | ||||
Accounts receivable, less allowances for doubtful accounts of $5,594 at June 30, 2011 and $6,011 at December 31, 2010 | 147,305 | 126,409 | ||||||
Inventories | 205,752 | 192,542 | ||||||
Deferred tax assets | 10,496 | 10,496 | ||||||
Unbilled contract revenue | 17,556 | 12,751 | ||||||
Other current assets | 12,156 | 12,800 | ||||||
Total Current Assets | 453,359 | 390,309 | ||||||
Property, Plant and Equipment | 257,047 | 253,077 | ||||||
Less accumulated depreciation | 189,474 | 184,294 | ||||||
67,573 | 68,783 | |||||||
Other Assets | ||||||||
Goodwill | 9,891 | 9,100 | ||||||
Other | 90,511 | 84,340 | ||||||
$ | 621,334 | $ | 552,532 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 116,494 | $ | 95,695 | ||||
Accrued expenses | 65,206 | 59,487 | ||||||
Current portion of long-term debt | 1,291 | 13,756 | ||||||
Current portion of other postretirement benefits | 2,178 | 2,178 | ||||||
Total Current Liabilities | 185,169 | 171,116 | ||||||
Long-Term Liabilities, less current portion | ||||||||
Senior Notes | 250,000 | 183,835 | ||||||
Revolving credit facility | 90,500 | 113,300 | ||||||
Other long-term debt | 4,948 | 5,322 | ||||||
Deferred tax liability | 9,721 | 9,721 | ||||||
Other postretirement benefits and other long-term liabilities | 22,660 | 22,863 | ||||||
377,829 | 335,041 | |||||||
Shareholders’ Equity | ||||||||
Capital stock, par value $1 a share: | ||||||||
Serial Preferred Stock | -0- | -0- | ||||||
Common Stock | 13,539 | 13,397 | ||||||
Additional paid-in capital | 68,871 | 68,085 | ||||||
Retained deficit | (11,421 | ) | (19,043 | ) | ||||
Treasury stock, at cost | (18,740 | ) | (18,502 | ) | ||||
Accumulated other comprehensive income | 6,087 | 2,438 | ||||||
58,336 | 46,375 | |||||||
$ | 621,334 | $ | 552,532 | |||||
(Unaudited) March 31, 2012 | December 31, 2011 | |||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 44,588 | $ | 78,001 | ||||
Accounts receivable, less allowances for doubtful accounts of $5,469 at March 31, 2012 and $5,483 at December 31, 2011 | 191,062 | 139,941 | ||||||
Inventories, net | 222,643 | 202,039 | ||||||
Deferred tax assets | 22,544 | 20,561 | ||||||
Unbilled contract revenue | 15,102 | 18,778 | ||||||
Other current assets | 12,572 | 8,790 | ||||||
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Total Current Assets | 508,511 | 468,110 | ||||||
Property, plant and equipment: | ||||||||
Land and land improvements | 6,471 | 3,654 | ||||||
Buildings | 51,524 | 47,594 | ||||||
Machinery and equipment | 226,392 | 208,727 | ||||||
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284,387 | 259,975 | |||||||
Less accumulated depreciation | 201,377 | 198,165 | ||||||
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83,010 | 61,810 | |||||||
Other Assets: | ||||||||
Goodwill and other intangible assets | 104,282 | 20,187 | ||||||
Other | 64,578 | 63,833 | ||||||
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| |||||
$ | 760,381 | $ | 613,940 | |||||
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| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 134,774 | $ | 99,588 | ||||
Accrued expenses | 102,308 | 73,651 | ||||||
Current portion of long-term debt | 4,730 | 1,415 | ||||||
Current portion of other postretirement benefits | 2,002 | 2,002 | ||||||
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|
| |||||
Total Current Liabilities | 243,814 | 176,656 | ||||||
Long-Term Liabilities, less current portion | ||||||||
Senior Notes | 250,000 | 250,000 | ||||||
Credit facility | 138,029 | 93,000 | ||||||
Other long-term debt | 3,051 | 3,165 | ||||||
Deferred tax liability | 24,321 | 1,392 | ||||||
Other postretirement benefits and other long-term liabilities | 25,159 | 24,285 | ||||||
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| |||||
440,560 | 371,842 | |||||||
Shareholders’ Equity | ||||||||
Capital stock, par value $1 a share: | ||||||||
Serial preferred stock: | ||||||||
Authorized — 632,470 shares: Issued and outstanding — none | -0- | -0- | ||||||
Common stock: | ||||||||
Authorized — 40,000,000 shares: Issued – 13,831,274 shares in 2012 and 13,813,774 in 2011 | 13,831 | 13,814 | ||||||
Additional paid-in capital | 71,116 | 70,248 | ||||||
Retained earnings | 19,348 | 10,392 | ||||||
Treasury stock, at cost, 1,706,217 shares in 2012 and 1,673,926 shares in 2011 | (21,266 | ) | (20,607 | ) | ||||
Accumulated other comprehensive (loss) | (7,022 | ) | (8,405 | ) | ||||
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76,007 | 65,442 | |||||||
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| |||||
$ | 760,381 | $ | 613,940 | |||||
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Note: | The balance sheet at December 31, |
See accompanying notes to these unaudited condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
Net sales | $ | 246,808 | $ | 198,303 | $ | 488,436 | $ | 390,004 | ||||||||
Cost of products sold | 201,628 | 165,005 | 401,321 | 327,368 | ||||||||||||
Gross profit | 45,180 | 33,298 | 87,115 | 62,636 | ||||||||||||
Selling, general and administrative expenses | 28,846 | 22,337 | 54,511 | 43,305 | ||||||||||||
Operating income | 16,334 | 10,961 | 32,604 | 19,331 | ||||||||||||
Interest expense | 14,229 | 6,167 | 20,092 | 11,603 | ||||||||||||
Income before income taxes | 2,105 | 4,794 | 12,512 | 7,728 | ||||||||||||
Income taxes | 3,212 | 1,379 | 4,890 | 2,247 | ||||||||||||
Net income (loss) | $ | (1,107 | ) | $ | 3,415 | $ | 7,622 | $ | 5,481 | |||||||
Amounts per common share: | ||||||||||||||||
Basic | $ | (.10 | ) | $ | .30 | $ | .66 | $ | .49 | |||||||
Diluted | $ | (.10 | ) | $ | .29 | $ | .64 | $ | .47 | |||||||
Common shares used in the computation: | ||||||||||||||||
Basic | 11,545 | 11,475 | 11,503 | 11,229 | ||||||||||||
Diluted | 11,545 | 11,956 | 12,000 | 11,747 | ||||||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(Amounts in thousands, except per share data) | ||||||||
Net sales | $ | 263,056 | $ | 241,628 | ||||
Cost of products sold | 214,177 | 199,693 | ||||||
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Gross profit | 48,879 | 41,935 | ||||||
Selling, general and administrative expenses | 28,745 | 25,665 | ||||||
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Operating income | 20,134 | 16,270 | ||||||
Interest expense | 6,735 | 5,863 | ||||||
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Income before income taxes | 13,399 | 10,407 | ||||||
Income taxes | 4,443 | 1,678 | ||||||
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Net income | $ | 8,956 | $ | 8,729 | ||||
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Amounts per common share: | ||||||||
Basic | $ | .76 | $ | .76 | ||||
Diluted | $ | .74 | $ | .73 | ||||
Common shares used in the computation: | ||||||||
Basic | 11,787 | 11,460 | ||||||
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| |||||
Diluted | 12,041 | 11,987 | ||||||
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See accompanying notes to these unaudited condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common | Paid-In | Retained | Treasury | Comprehensive | ||||||||||||||||||||
Stock | Capital | Deficit | Stock | Income | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Balance at January 1, 2011 | $ | 13,397 | $ | 68,085 | $ | (19,043 | ) | $ | (18,502 | ) | $ | 2,438 | $ | 46,375 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 7,622 | 7,622 | ||||||||||||||||||||||
Foreign currency translation adjustment | 3,436 | 3,436 | ||||||||||||||||||||||
Pension and post retirement benefit adjustments, net of tax | 213 | 213 | ||||||||||||||||||||||
Comprehensive income | 11,271 | |||||||||||||||||||||||
Amortization of restricted stock | 840 | 840 | ||||||||||||||||||||||
Restricted stock awards | 140 | (140 | ) | -0- | ||||||||||||||||||||
Purchase of treasury stock (12,130 shares) | (238 | ) | (238 | ) | ||||||||||||||||||||
Exercise of stock options (2,500 shares) | 2 | 6 | 8 | |||||||||||||||||||||
Share-based compensation | 80 | 80 | ||||||||||||||||||||||
Balance at June 30, 2011 | $ | 13,539 | $ | 68,871 | $ | (11,421 | ) | $ | (18,740 | ) | $ | 6,087 | $ | 58,336 | ||||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(Amounts in thousands) | ||||||||
Net income | $ | 8,956 | $ | 8,729 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation | 1,221 | 2,620 | ||||||
Pension and post retirement benefit adjustments, net of tax | 162 | 106 | ||||||
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Comprehensive income, net of tax | $ | 10,339 | $ | 11,455 | ||||
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See accompanying notes to these unaudited condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 7,622 | $ | 5,481 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 8,277 | 8,437 | ||||||
Share-based compensation expense | 920 | 840 | ||||||
Debt extinguishment costs | 7,335 | -0- | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (20,896 | ) | (15,235 | ) | ||||
Inventories and other current assets | (17,370 | ) | 19,678 | |||||
Accounts payable and accrued expenses | 26,518 | 16,354 | ||||||
Other | (831 | ) | (9,121 | ) | ||||
Net Cash Provided by Operating Activities | 11,575 | 26,434 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment, net | (5,258 | ) | (636 | ) | ||||
Net Cash Used by Investing Activities | (5,258 | ) | (636 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Payments on term loans and other debt | (35,939 | ) | (2,017 | ) | ||||
(Payments on) proceeds from revolving credit facility | 300 | (14,400 | ) | |||||
Issuance of 8.125% senior notes, net of deferred financing costs | 244,970 | -0- | ||||||
Redemption of 8.375% senior subordinated notes due 2014 | (189,555 | ) | -0- | |||||
Bank debt issue costs | (1,080 | ) | (3,847 | ) | ||||
Purchase of treasury stock | (238 | ) | (766 | ) | ||||
Exercise of stock options | 8 | -0- | ||||||
Net Cash Provided (Used) by Financing Activities | 18,466 | (21,030 | ) | |||||
Increase in Cash and Cash Equivalents | 24,783 | 4,768 | ||||||
Cash and Cash Equivalents at Beginning of Period | 35,311 | 23,098 | ||||||
Cash and Cash Equivalents at End of Period | $ | 60,094 | $ | 27,866 | ||||
Taxes paid | $ | 1,769 | $ | 945 | ||||
Interest paid (includes $5,720 of senior subordinated notes redemption costs) | 15,389 | 11,268 |
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss) | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Balance at January 1, 2012 | $ | 13,814 | $ | 70,248 | $ | 10,392 | $ | (20,607 | ) | $ | (8,405 | ) | $ | 65,442 | ||||||||||
Other comprehensive income | 8,956 | 1,383 | 10,339 | |||||||||||||||||||||
Amortization of restricted stock | 617 | 617 | ||||||||||||||||||||||
Purchase of treasury stock (32,291 shares) | (659 | ) | (659 | ) | ||||||||||||||||||||
Exercise of stock options (17,500 shares) | 17 | 244 | 261 | |||||||||||||||||||||
Share-based compensation | 7 | 7 | ||||||||||||||||||||||
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Balance at March 31, 2012 | $ | 13,831 | $ | 71,116 | $ | 19,348 | $ | (21,266 | ) | $ | (7,022 | ) | $ | 76,007 | ||||||||||
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See accompanying notes to these condensed consolidated financial statements. The accompanying notes
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(Dollars in thousands) | ||||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 8,956 | $ | 8,729 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,501 | 3,957 | ||||||
Share-based compensation expense | 624 | 428 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (20,201 | ) | (20,061 | ) | ||||
Inventories and other current assets | (7,449 | ) | (7,033 | ) | ||||
Accounts payable and accrued expenses | 30,403 | 25,989 | ||||||
Other | 1,266 | 961 | ||||||
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Net Cash Provided by Operating Activities | 17,100 | 12,970 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment, net | (2,829 | ) | (1,515 | ) | ||||
Acquisitions, net of cash acquired | (94,641 | ) | -0- | |||||
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Net Cash Used by Investing Activities | (97,470 | ) | (1,515 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from term loan and other debt | 24,630 | -0- | ||||||
Proceeds from (payments on) revolving credit facility | 23,600 | (15,728 | ) | |||||
Debt issue costs | (875 | ) | -0- | |||||
Exercise of stock options | 261 | -0- | ||||||
Purchase of treasury stock | (659 | ) | (224 | ) | ||||
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Net Cash Provided (Used) by Financing Activities | 46,957 | (15,952 | ) | |||||
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Decrease in Cash and Cash Equivalents | (33,413 | ) | (4,497 | ) | ||||
Cash and Cash Equivalents at Beginning of Period | 78,001 | 35,311 | ||||||
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Cash and Cash Equivalents at End of Period | $ | 44,588 | $ | 30,814 | ||||
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Taxes paid | $ | 1,338 | $ | 463 | ||||
Interest paid | $ | 669 | $ | 1,389 |
See accompanying notes to these condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2011
March 31, 2012
(Dollars and shares in thousands, except per share amounts)
NOTE A — Basis of Presentation
The condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (the(collectively, the “Company”). All significant intercompany transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions toForm 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periodsperiod ended June 30, 2011March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2010.
NOTE B — Recent Accounting Pronouncements
Accounting Pronouncements Adopted in the Three Months Ended March 31, 2012
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 amends existing guidance by allowing only two options for presenting components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement on other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, the FASB issued ASU No. 2011-12, deferring its requirements that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. Entities continue to be required to present amounts reclassified out of accumulated other comprehensive income on the face of the financial statements or disclose those amounts in the notes to the financial statements. The requirement to present reclassification adjustments in interim periods was also deferred. However, entities are required to report a total for comprehensive income in condensed financial statements of interim periods in a single continuous statement or in two consecutive statements. The FASB is reconsidering the presentation requirements for reclassification adjustments. The Company adopted ASU No. 2011-5 in the first quarter of 2012 and elected to present the components of net income and comprehensive income in two separate but consecutive statements.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE C — Segments
The Company operates through three segments: Supply Technologies, Aluminum Products and Manufactured Products. Supply Technologies provides our customers with Total Supply Managementtm™ services for a broad range of high-volume, specialty production components. Total Supply Managementtm™ manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation, and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. Aluminum Products manufactures cast aluminum components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications.
7
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Net sales: | ||||||||
Supply Technologies | $ | 134,351 | $ | 123,226 | ||||
Aluminum Products | 36,165 | 39,041 | ||||||
Manufactured Products | 92,540 | 79,361 | ||||||
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$ | 263,056 | $ | 241,628 | |||||
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Income (loss) before income taxes: | ||||||||
Supply Technologies | $ | 10,077 | $ | 8,633 | ||||
Aluminum Products | 1,059 | 3,314 | ||||||
Manufactured Products | 14,090 | 8,546 | ||||||
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25,226 | 20,493 | |||||||
Corporate costs | (5,092 | ) | (4,223 | ) | ||||
Interest expense | (6,735 | ) | (5,863 | ) | ||||
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$ | 13,399 | $ | 10,407 | |||||
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March 31, 2012 | December 31, 2011 | |||||||
Identifiable assets: | ||||||||
Supply Technologies | $ | 236,324 | $ | 228,629 | ||||
Aluminum Products | 216,988 | 61,002 | ||||||
Manufactured Products | 220,168 | 203,782 | ||||||
General corporate | 86,901 | 120,527 | ||||||
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$ | 760,381 | $ | 613,940 | |||||
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For the three months ended March 31, 2012, sales of the Manufactured Products segment consisted of capital equipment (74%), forged and machined products (19%) and rubber products (7%). Engineered specialty products sales represent approximately 13% of Supply Technologies segment sales for the three months ended March 31, 2012.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales: | ||||||||||||||||
Supply Technologies | $ | 125,522 | $ | 97,185 | $ | 248,748 | $ | 191,423 | ||||||||
Aluminum products | 33,452 | 37,572 | 72,493 | 74,160 | ||||||||||||
Manufactured products | 87,834 | 63,546 | 167,195 | 124,421 | ||||||||||||
$ | 246,808 | $ | 198,303 | $ | 488,436 | $ | 390,004 | |||||||||
Income (loss) before income taxes: | ||||||||||||||||
Supply Technologies | $ | 8,419 | $ | 5,311 | $ | 17,052 | $ | 9,795 | ||||||||
Aluminum products | 1,304 | 2,299 | 4,618 | 4,235 | ||||||||||||
Manufactured products | 11,333 | 7,597 | 19,879 | 12,529 | ||||||||||||
21,056 | 15,207 | 41,549 | 26,559 | |||||||||||||
Corporate costs | (4,722 | ) | (4,246 | ) | (8,945 | ) | (7,228 | ) | ||||||||
Interest expense | (14,229 | ) | (6,167 | ) | (20,092 | ) | (11,603 | ) | ||||||||
Income before income taxes | $ | 2,105 | $ | 4,794 | $ | 12,512 | $ | 7,728 | ||||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Identifiable assets were as follows: | ||||||||
Supply Technologies | $ | 234,491 | $ | 217,915 | ||||
Aluminum products | 66,195 | 66,219 | ||||||
Manufactured products | 202,549 | 188,017 | ||||||
General corporate | 118,099 | 80,381 | ||||||
$ | 621,334 | $ | 552,532 | |||||
8
The components of inventory consist of the following:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Finished goods | $ | 122,825 | $ | 116,202 | ||||
Work in process | 25,366 | 24,339 | ||||||
Raw materials and supplies | 57,561 | 52,001 | ||||||
$ | 205,752 | $ | 192,542 | |||||
March 31, 2012 | December 31, 2011 | |||||||
Finished goods | $ | 121,445 | $ | 122,010 | ||||
Work in process | 28,702 | 20,660 | ||||||
Raw materials and supplies | 72,496 | 59,369 | ||||||
|
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| |||||
$ | 222,643 | $ | 202,039 | |||||
|
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|
|
NOTE E — Shareholders’ Equity
At June 30, 2011,March 31, 2012, capital stock consistsconsisted of (i) Serial Preferred Stock, of which 632,470 shares were authorized and none were issued, and (ii) Common Stock, of which 40,000,000 shares were authorized and 13,539,17413,831,274 shares were issued, of which 11,967,84812,125,057 were outstanding and 1,571,3261,706,217 were treasury shares.
NOTE F — Net Income Per Common Share
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
NUMERATOR | ||||||||||||||||
Net income (loss) | $ | (1,107 | ) | $ | 3,415 | $ | 7,622 | $ | 5,481 | |||||||
DENOMINATOR | ||||||||||||||||
Denominator for basic earnings per share — weighted average shares | 11,545 | 11,475 | 11,503 | 11,229 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options | -0- | 481 | 497 | 518 | ||||||||||||
Denominator for diluted earnings per share — weighted average shares and assumed conversions | 11,545 | 11,956 | 12,000 | 11,747 | ||||||||||||
Amounts per common share: | ||||||||||||||||
Basic | $ | (.10 | ) | $ | .30 | $ | .66 | $ | .49 | |||||||
Diluted | $ | (.10 | ) | $ | .29 | $ | .64 | $ | .47 |
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
NUMERATOR | ||||||||
Net income | $ | 8,956 | $ | 8,729 | ||||
|
|
|
| |||||
DENOMINATOR | ||||||||
Denominator for basic earnings per share — weighted average shares | 11,787 | 11,460 | ||||||
Effect of dilutive securities: | ||||||||
Employee stock options | 254 | 527 | ||||||
|
|
|
| |||||
Denominator for diluted earnings per share — weighted average shares and assumed conversions | 12,041 | 11,987 | ||||||
|
|
|
| |||||
Amounts per common share: | ||||||||
Basic | $ | .76 | $ | .76 | ||||
Diluted | $ | .74 | $ | .73 |
Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. Diluted earnings per common share is computed as net income available to common shareholders divided by the weighted average diluted shares outstanding.
Outstanding stock options with exercise prices greater than the average price of the common shares are anti-dilutive and are not included in the computation of diluted earnings per share. Stock options on 40,000 and 20,000 shares were excluded in the sixthree months ended June 30,March 31, 2012 and 2011, and 206,000 were excluded for the three months and six months ended June 30, 2010respectively, because they were anti-dilutive.
9
Total stockstock-based compensation expense recorded in the first sixthree months of 2012 and 2011 was $624 and 2010 was $920 and $840,$428, respectively. Total stock compensation expense recorded in the second quarter of 2011 and 2010 was $492 and $378, respectively. There were 140,000 shares of restricted stock awarded during the six months ended June 30, 2011 at a price of $20.90 per share, all of which were awarded in the three months ended June 30, 2011. There were no stock options awardedoption or restricted stock awards during the six months ended June 30, 2011 and 2010. There were 5,000 shares of restricted stock awarded during thefirst three months of 2012 and six months ended June 30, 2010.2011. As of June 30, 2011,March 31, 2012, there was $3,912$3,141 of unrecognized compensation cost related to non-vested stock-based compensation, which cost is expected to be recognized over a weighted average period of 2.342.1 years.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE H — Pension Plans and Other Postretirement Benefits
The components of net periodic benefit cost recognized during interim periods waswere as follows:
Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||
Three Months | Six Months | Three Months | Six Months | |||||||||||||||||||||||||||||
Ended June 30, | Ended June 30, | Ended June 30, | Ended June 30, | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
Service costs | $ | 604 | $ | 81 | $ | 713 | $ | 162 | $ | 12 | $ | 9 | $ | 24 | $ | 18 | ||||||||||||||||
Interest costs | 596 | 643 | 1,192 | 1,286 | 228 | 248 | 456 | 496 | ||||||||||||||||||||||||
Expected return on plan assets | (2,239 | ) | (1,984 | ) | (4,468 | ) | (3,968 | ) | -0- | -0- | -0- | -0- | ||||||||||||||||||||
Transition obligation | (10 | ) | (10 | ) | (20 | ) | (20 | ) | -0- | -0- | -0- | -0- | ||||||||||||||||||||
Amortization of prior service cost | 11 | 15 | 22 | 30 | (24 | ) | (24 | ) | (48 | ) | (48 | ) | ||||||||||||||||||||
Recognized net actuarial loss | -0- | 82 | -0- | 164 | 129 | 107 | 258 | 214 | ||||||||||||||||||||||||
Benefit (income) costs | $ | (1,038 | ) | $ | (1,173 | ) | $ | (2,561 | ) | $ | (2,346 | ) | $ | 345 | $ | 340 | $ | 690 | $ | 680 | ||||||||||||
Three Months Ended March 31, | ||||||||||||||||
Pension Benefits | Postretirement Benefits | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service costs | $ | 542 | $ | 109 | $ | 15 | $ | 12 | ||||||||
Interest costs | 565 | 596 | 201 | 228 | ||||||||||||
Expected return on plan assets | (2,059 | ) | (2,229 | ) | -0- | -0- | ||||||||||
Transition obligation | (10 | ) | (10 | ) | -0- | -0- | ||||||||||
Amortization of prior service cost | 11 | 11 | (24 | ) | (24 | ) | ||||||||||
Recognized net actuarial loss | 241 | -0- | 186 | 129 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
(Income) benefit costs | $ | (710 | ) | $ | (1,523 | ) | $ | 378 | $ | 345 | ||||||
|
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|
|
|
|
|
|
NOTE I — Comprehensive Income
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) | $ | (1,107 | ) | $ | 3,415 | $ | 7,622 | $ | 5,481 | |||||||
Foreign currency translation | 816 | (3,832 | ) | 3,436 | (5,859 | ) | ||||||||||
Pension and post retirement benefit adjustments, net of tax | 107 | 195 | 213 | 390 | ||||||||||||
Total comprehensive income (loss) | $ | (184 | ) | $ | (222 | ) | $ | 11,271 | $ | 12 | ||||||
The components of accumulated comprehensive lossincome at June 30, 2011March 31, 2012 and December 31, 20102011 are as follows:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Foreign currency translation adjustment | $ | 9,675 | $ | 6,239 | ||||
Pension and postretirement benefit adjustments, net of tax | (3,588 | ) | (3,801 | ) | ||||
$ | 6,087 | $ | 2,438 | |||||
10
March 31, 2012 | December 31, 2011 | |||||||
Foreign currency translation adjustment | $ | 6,073 | $ | 4,852 | ||||
Pension and postretirement benefit adjustments, net of tax | (13,095 | ) | (13,257 | ) | ||||
|
|
|
| |||||
$ | (7,022 | ) | $ | (8,405 | ) | |||
|
|
|
|
The pension and postretirement benefit liability amounts were net of deferred taxes of $5,571 at March 31, 2012 and December 31, 2011. No income taxes are provided on foreign currency translation adjustments as foreign earnings are considered permanently invested.
The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents the changes in the Company’s product warranty liability:
2011 | 2010 | |||||||
Balance at January 1 | $ | 4,046 | $ | 2,760 | ||||
Claims paid during the year | (313 | ) | (541 | ) | ||||
Additional warranties issued during the first six months | 371 | 907 | ||||||
Balance at June 30 | $ | 4,104 | $ | 3,126 | ||||
2012 | 2011 | |||||||
Balance at January 1 | $ | 4,208 | $ | 4,046 | ||||
Claims paid during the quarter | (592 | ) | (127 | ) | ||||
Additional warranties issued during the quarter | 817 | 149 | ||||||
Acquired warranty liabilities | 3,317 | -0- | ||||||
|
|
|
| |||||
Balance at March 31 | $ | 7,750 | $ | 4,068 | ||||
|
|
|
|
NOTE K — Income Taxes
The Company’s tax provision for interim periods is determined using an estimate of its annual effective income tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimated annual effective income tax rate and, if the estimated income tax rate changes, a cumulative adjustment is made.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reported effective income tax rate for full-yearin the first three months of 2012 and 2011 including discrete itemswas 33.2% and 16.1%, respectively. The 2012 annual effective income tax rate is estimated to be approximately 32%33% and is lower than the 35% U.S.United States federal statutory rate primarily due to anticipated income in the United States for which the Company will record no tax expense due to a full valuation allowance against its U.S. net deferred tax assets and anticipated income earned in jurisdictions outside of the United States where the effective income tax rate is lower than in the United States.
NOTE L — Fair Value Measurements
The Company measures financial assets and liabilities at fair value in three levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The fair value of the 8.125% Senior Notes due 2021 approximated book value at June 30, 2011. The fair value estimates areis estimated based on a third party’s bid price.
11
The Company is a party to a credit and security agreement dated November 5, 2003, as amended (the “Credit Agreement”), with a group of banks, under which it may borrow or issue standby letters of credit or commercial letters of credit. On March 23, 2012, the Credit Agreement was amended and restated to, among other things, increase the revolving loan commitment from $200,000 to $220,000, and provide a term loan for $25,000 that is secured by certain real estate and machinery and equipment. Amounts borrowed under the revolving credit facility may be borrowed at either (i) LIBOR plus 1.75% to 2.75% or (ii) the bank’s prime lending rate minus .25% to 1.00%, at the Company’s election. The LIBOR-based interest rate is dependent on the Company’s debt service coverage ratio, as defined in the Credit Agreement. Under the Credit Agreement, a detailed borrowing base formula provides borrowing availability to the Company based on percentages of eligible accounts receivable and inventory. Interest on the term loan is at either (i) LIBOR plus 2.75% or (ii) the bank’s prime lending rate plus .25%, at the Company’s election. The term loan is amortized based on a seven-year schedule with the balance due at maturity.
March 31, 2012 | December 31, 2011 | |||||||
8.125% senior notes due 2021 | $ | 250,000 | $ | 250,000 | ||||
Revolving credit | 116,600 | 93,000 | ||||||
Term loan | 25,000 | -0- | ||||||
Other | 4,210 | 4,580 | ||||||
|
|
|
| |||||
395,810 | 347,580 | |||||||
Less current maturities | 4,730 | 1,415 | ||||||
|
|
|
| |||||
Total | $ | 391,080 | $ | 346,165 | ||||
|
|
|
|
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
8.125% senior notes due 2021 | $ | 250,000 | $ | -0- | ||||
8.375% senior subordinated notes due 2014 | -0- | 183,835 | ||||||
Revolving credit | 90,500 | 90,200 | ||||||
Term loan A | -0- | 25,900 | ||||||
Term loan B | -0- | 8,400 | ||||||
Other | 6,239 | 7,878 | ||||||
346,739 | 316,213 | |||||||
Less current maturities | 1,291 | 13,756 | ||||||
Total | $ | 345,448 | $ | 302,457 | ||||
NOTE N — Accounts Receivable
During the first sixthree months of 20112012 and 2010,2011, the Company sold approximately $27,467$20,432 and $12,825,$11,690, respectively, of accounts receivable to mitigate accounts receivable concentration risk and to provide additional financing capacity and recorded a losslosses in the amount of $122$94 and $42,$53, respectively, in the Condensed Consolidated Statementscondensed consolidated statements of Operations.income. These losses represented implicit interest on the transactions.
NOTE O — Acquisition
On December 31, 2010,March 23, 2012, the Company through its subsidiary Ajax Tocco Magnathermic acquiredcompleted the assetsacquisition of Fluid Routing Solutions Holding Corp. (“FRS”), a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies, in an all cash transaction valued at $97,451. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured hose, including bulk and formed fuel, power steering, transmission oil cooling, hydraulic and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”). Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
12
Accounts receivable | $ | 3,164 | ||
Inventories | 2,782 | |||
Prepaid expenses and other current assets | 178 | |||
Property, plant and equipment | 447 | |||
Customer relationships | 3,480 | |||
Technological know how | 1,890 | |||
Trade name and other intangible assets | 710 | |||
Accounts payable | (1,202 | ) | ||
Accrued expenses | (2,133 | ) | ||
Goodwill | 990 | |||
Total purchase price | $ | 10,306 | ||
Cash and cash equivalents | $ | 2,809 | ||
Accounts receivable | 30,920 | |||
Inventories | 11,617 | |||
Prepaid expenses and other current assets | 3,626 | |||
Property, plant and equipment | 21,143 | |||
Customer relationships | 30,000 | |||
Trademarks and trade name | 10,900 | |||
Other assets | 213 | |||
Accounts payable | (17,814 | ) | ||
Accrued expenses | (15,622 | ) | ||
Deferred tax liability | (22,912 | ) | ||
Other long-term liabilities | (776 | ) | ||
Goodwill | 43,348 | |||
|
| |||
Total purchase price | $ | 97,452 | ||
|
|
The areas of purchase price allocation wasthat are not yet finalized during March 2011 and reflectsrelate to the working capital adjustment as of December 31, 2010.March 23, 2012, and completion of appraisals for the inventories, property plant and equipment and intangible assets. There were no significant$262 of direct transaction costs included in selling, general and administrative expenses during the first sixthree months of 2011.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following unaudited pro forma information is provided to present a summary of the combined results of the Company’s operations with ACS, Rome and PillarFRS as if the acquisitionsacquisition had occurred on January 1, 2010.2011. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of what the results would have been had the acquisitionsacquisition been completed at the date indicated above.
Three Months Ended | Six Months Ended | |||||||
June 30, 2010 | June 30, 2010 | |||||||
Pro forma revenues | $ | 221,571 | $ | 434,324 | ||||
Pro forma net income | 2,871 | 4,996 | ||||||
Earnings per share: | ||||||||
Basic | .25 | .44 | ||||||
Diluted | .24 | .43 |
13
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Pro forma revenues | $ | 313,925 | $ | 288,961 | ||||
Pro forma net income | $ | 5,297 | $ | 8,292 | ||||
Earnings per share: | ||||||||
Basic | $ | .45 | $ | .72 | ||||
Diluted | $ | .44 | $ | .69 |
Note P — Commitments and 2010,Contingencies
The Company is subject to various pending and threatened legal proceedings arising in the condensed consolidated statementordinary course of shareholders’ equity forbusiness. Although the six-month period ended June 30, 2011Company cannot precisely predict the amount of any liability that may ultimately arise with respect to any of these matters, the Company records provisions when it considers the liability probable and cash flows forreasonably estimable. Our provisions are based on historical experience and legal advice, reviewed quarterly and adjusted according to developments. Estimating probable losses requires the six-month periods ended June 30, 2011analysis of multiple forecasted factors that often depend on judgments about potential actions by third parties, such as regulators, courts, and 2010. Thesestate and federal legislatures. Changes in the amounts of our loss provisions, which can be material, affect our financial statementscondition. Due to the inherent uncertainties in the process undertaken to estimate potential losses, we are the responsibilityunable to estimate an additional range of the Company’s management.
Our subsidiaries are involved in conformity with U.S. generally accepted accounting principles.
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE Q — Goodwill and cash flows forOther Intangible Assets
The change in goodwill and other intangibles assets reflected on the year then ended, not presented herein; and in our report dated March 8, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
14
March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||
Acquisition Costs | Accumulated Amortization | Net | Acquisition Costs | Accumulated Amortization | Net | |||||||||||||||||||
Non-contractual customer relationships | $ | 41,670 | $ | 3,451 | $ | 38,219 | $ | 11,670 | $ | 3,320 | $ | 8,350 | ||||||||||||
Other | 3,420 | 1,120 | 2,300 | 3,420 | 1,046 | 2,374 | ||||||||||||||||||
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| |||||||||||||
$ | 45,090 | $ | 4,571 | $ | 40,519 | $ | 15,090 | $ | 4,366 | $ | 10,724 | |||||||||||||
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| |||||||||||||||||
Tradenames | 10,900 | -0- | ||||||||||||||||||||||
Goodwill | 52,863 | 9,463 | ||||||||||||||||||||||
|
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| |||||||||||||||||||||
Total | $ | 104,282 | $ | 20,187 | ||||||||||||||||||||
|
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|
|
Amortization expense for the first three months of 2012 was $205 and is estimated to be $3,100 in 2012, $3,086 in 2013 and $3,028 for each of the three subsequent years thereafter. The weighted-average amortization period for the acquired intangible assets was approximately 15 years.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries.subsidiaries (collectively, “we” or the “Company”). All significant intercompany transactions have been eliminated in consolidation.
Executive Overview
We are an industrial Total Supply Managementtm™ and diversified manufacturing business, operating in three segments: Supply Technologies, Aluminum Products and Manufactured Products. Our Supply Technologies business provides our customers with Total Supply Managementtm™, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Managementtm™ includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products casts and machines aluminum engine, transmission, brake, suspension and other components such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers for automotive, agricultural, equipment, construction, equipment, heavy-duty truck and marine equipment original equipment manufacturers (“OEMs”), primarily on a sole-source basis. Aluminum Products also provides value-added services such as design and engineering and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems, pipe threading systems, industrial oven systems, injection molded rubber components, and forged and machined products. Manufactured Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Manufactured Products are OEMs,sub-assemblers and end users in the ferrous and non-ferrous metals, silicon, coatings, forging, foundry, heavy-duty truck, construction equipment, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense industries. Sales, earnings and other relevant financial data for these three segments are provided in Note BC to the condensed consolidated financial statements, included elsewhere herein.
On April 7, 2011, the Company completed the sale of $250 million in aggregate principal amount of 8.125% Senior Notes due 2021 (the “Notes”). in an offering exempt from the registration requirements of the Securities Act of 1933. The Notes bear an interest rate of 8.125% per annum and will be payable semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2011. The Notes mature on April 1, 2021. In connection with the sale of the Notes, the Company entered into a fourth amended and restated credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement among other things, provides an increased credit facility up to $200 million, extends the maturity date of the borrowings under the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option, pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50 million. The Company also purchased all of its outstanding $183.8 million8.375% senior subordinated notes due 2014 in aggregate principal amount of 8.375% senior
15
On March 23, 2012, the Company completed the acquisition of Fluid Routing Solutions Holding Corp. (“FRS”), a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies, in an affiliate.all cash transaction valued at $97.5 million. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel, power steering, transmission oil cooling, hydraulic and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee and the Czech Republic. FRS is included in the Company’s Aluminum Products segment pending further evaluation.
In connection with the acquisition of FRS, the Company amended and restated its existing credit and security agreement dated November 5, 2003, as amended (the “Credit Agreement”), to, among other things, increase the revolving loan commitment from $200 million to $220 million and provide a seven-year amortizing term loan for $25 million that is secured by certain real estate and machinery and equipment. The Company incurred debt extinguishment costs related to premiumsfunded the acquisition with cash of $40 million ($10 million domestic and other transaction costs associated with$30 million foreign), the tender$25 million term loan provided by the Credit Agreement and early redemption and wrote off deferred financing costs totaling $7.3$32.5 million and recorded a provision for foreign income taxes of $2.1 million resulting fromborrowings under the retirement ofrevolving credit facility provided by the 8.375% senior subordinated notes due 2014 that were held by an affiliate.
Critical Accounting Policies
Our critical accounting policies are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended December 31, 20102011, contained in our 20102011 Annual Report onForm 10-K. Any There were no new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Condensed Consolidated Financial Statementscondensed consolidated financial statements in this Quarterly Report onForm 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Condensed Consolidated Financial Statements.condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
Results of Operations
SixThree Months 2012 versus Three Months 2011 versus Six Months 2010
Net Sales by Segment:
Six Months | ||||||||||||||||
Ended | ||||||||||||||||
June 30, | Percent | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Supply Technologies | $ | 248.7 | $ | 191.4 | $ | 57.3 | 30 | % | ||||||||
Aluminum Products | 72.5 | 74.2 | (1.7 | ) | (2 | )% | ||||||||||
Manufactured Products | 167.2 | 124.4 | 42.8 | 34 | % | |||||||||||
Consolidated Net Sales | $ | 488.4 | $ | 390.0 | $ | 98.4 | 25 | % | ||||||||
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||
Supply Technologies | $ | 134.4 | $ | 123.2 | $ | 11.2 | 9 | % | ||||||||
Aluminum Products | 36.2 | 39.0 | (2.8 | ) | (7 | )% | ||||||||||
Manufactured Products | 92.5 | 79.4 | 13.1 | 16 | % | |||||||||||
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|
|
| |||||||||||
Consolidated Net Sales | $ | 263.1 | $ | 241.6 | $ | 21.5 | 9 | % | ||||||||
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|
Net sales increased $98.4$21.5 million to $488.4$263.1 million in the first sixthree months of 20112012, compared to $390.0$241.6 million in the same period in 20102011, as the Company experienced volume increases in theits Supply Technologies and Manufactured Products segments.segments offset by a decline in the Aluminum products segment. Supply Technologies sales increased 30%9% primarily due to volume increases in the heavy-duty truck, electrical, industrial equipment, auto, power sports, HVAC, agricultural and construction equipment industries offset primarily by declines in the semi-conductor, HVAC and instruments consumer electronics, medical and plumbing industries. In addition, there were $25.7 million of incremental sales resulting from the acquisition of the ACS business. Aluminum Products sales decreased 2%, resulting7% primarily from the completion of certain automotive supply contractsreductions in volume, which was partially offset by incremental sales of $9.5$5.5 million resulting from the acquisition of the Rome business.FRS. Manufactured Products sales increased 34%16% primarily due to the increased business in the capital equipment, forged and machined productsmachine and rubber products business units. In addition, there were $7.5 million of incremental sales resulting from the acquisition of Pillar.
16
Six Months | ||||||||||||||||
Ended | ||||||||||||||||
June 30, | Percent | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated cost of products sold | $ | 401.3 | $ | 327.4 | $ | 73.9 | 23 | % | ||||||||
Consolidated gross profit | $ | 87.1 | $ | 62.6 | $ | 24.5 | 39 | % | ||||||||
Gross Margin | 17.8 | % | 16.1 | % |
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated cost of products sold | $ | 214.2 | $ | 199.7 | $ | 14.5 | 7 | % | ||||||||
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Consolidated gross profit | $ | 48.9 | $ | 41.9 | $ | 7.0 | 17 | % | ||||||||
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Gross margin | 18.6 | % | 17.3 | % |
Cost of products sold increased $73.9$14.5 million to $214.2 million in the first sixthree months of 2011 to $401.3 million2012, compared to $327.4$199.7 million in the same period in 2010,2011, while gross margin increased to 17.8%18.6% in the first sixthree months of 2011 from 16.1%2012 compared to 17.3% in the same period in 2010.
Selling, General & Administrative (SG&A)(“SG&A”) Expenses:
Six Months | ||||||||||||||||
Ended | ||||||||||||||||
June 30, | Percent | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated SG&A expenses | $ | 54.5 | $ | 43.3 | $ | 11.2 | 26 | % | ||||||||
SG&A percent | 11.2 | % | 11.1 | % |
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated SG&A expenses | $ | 28.7 | $ | 25.7 | $ | 3.0 | 12 | % | ||||||||
SG&A percent | 10.9 | % | 10.6 | % |
Consolidated SG&A expenses increased 26%12% in the first sixthree months of 20112012 compared to the same period in 2010,2011, representing a 1030 basis point increase in SG&A expenses as a percent of sales. SG&A expenses increased in the first sixthree months of 20112012 compared to the same period in 20102011 primarily due to increases in payroll and payroll related expenses and to $3.9 milliona reduction in pension income of incremental expenses resulting from the acquisitions of ACS, Rome and Pillar.
Interest Expense:
Six Months | ||||||||||||||
Ended | ||||||||||||||
June 30, | Percent | |||||||||||||
2011 | 2010 | Change | Change | |||||||||||
(Dollars in millions) | ||||||||||||||
Interest expense | $ | 20.1 | $ | 11.6 | $8.5 | 73 | % | |||||||
Debt extinguishment costs included in interest expense | $ | 7.3 | ||||||||||||
Amortization of deferred financing costs and bank service charges | $ | 1.7 | $ | 1.2 | ||||||||||
Average outstanding borrowings | $ | 325.8 | $ | 328.3 | $(2.5) | (1 | )% | |||||||
Average borrowing rate | 6.81 | % | 6.33 | % | 48 basis points |
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||
Interest expense | $ | 6.7 | $ | 5.9 | $.8 | 14 | % | |||||||||
Debt extinguishment costs included in interest expense | $ | 0.3 | -0- | .3 | ||||||||||||
Amortization of deferred financing costs and bank service charges | $ | 0.6 | $ | 0.7 | .1 | (14 | )% | |||||||||
Average outstanding borrowings | $ | 358.6 | $ | 308.7 | $49.9 | 16 | % | |||||||||
Average borrowing rate | 7.51 | % | 7.04 | % | 47 basis points |
Interest expense increased $8.5$.8 million in the first sixthree months of 20112012 compared to the same period of 2010,2011, primarily due to debt extinguishment costs of $7.3 million related to premiums and other transaction costs associated with the tender and early redemption and write off of deferred financing costs associated with the 8.375% senior subordinated notes due 2014 and to increases in amortization of deferred financing costs and bank service charges. Excluding these costs, interest increased due primarily to a higher average borrowing rate during the first sixthree months of 2011 partially offset by lower average outstanding borrowings.2012. Average borrowings in the first sixthree months of 20112012 were lowerhigher when compared to the same period in 2010.2011 due to the Company’s sale of $250 million in aggregate principal amount of the Notes offset by the purchase of all of its outstanding 8.375% senior subordinated notes due 2014 and additional borrowings to fund the acquisition of FRS. The higher average borrowing rate in the first sixthree months of 20112012 was due primarily to the interest rate mix of our revolving credit facility and the Senior Notes when compared to the mix in the same period in 2010.
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The provision for income taxes was $4.9$4.4 million in the first halfthree months of 2011 and the reported2012, a 33.2% effective income tax rate, for the first six months was 39% and the underlying effective tax rate on operations was 23%, compared to a provision for income taxes of $2.2$1.7 million and reported effective tax rate and underlying effective tax rate on operations of 29%provided in the corresponding period of 2010. The variance between the reported rate and the underlying rate in the first six months of 2011, was primarily due to thea 16.1% effective income tax impact resulting from the retirement of our senior subordinated notes due 2014 that were held by a foreign affiliate.rate. We estimate that our reportedthe effective tax rate for full-year 20112012 will be approximately 32%33%.
Three Months | ||||||||||||||||
Ended | ||||||||||||||||
June 30, | Percent | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Supply Technologies | $ | 125.5 | $ | 97.2 | $ | 28.3 | 29 | % | ||||||||
Aluminum Products | 33.5 | 37.6 | (4.1 | ) | (11 | )% | ||||||||||
Manufactured Products | 87.8 | 63.5 | 24.3 | 38 | % | |||||||||||
Consolidated Net Sales | $ | 246.8 | $ | 198.3 | $ | 48.5 | 24 | % | ||||||||
Three Months | ||||||||||||||||
Ended | ||||||||||||||||
June 30, | Percent | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated cost of products sold | $ | 201.6 | $ | 165.0 | $ | 36.6 | 22 | % | ||||||||
Consolidated gross profit | $ | 45.2 | $ | 33.3 | $ | 11.9 | 36 | % | ||||||||
Gross Margin | 18.3 | % | 16.8 | % |
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Three Months | ||||||||||||||||
Ended | ||||||||||||||||
June 30, | Percent | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Consolidated SG&A expenses | $ | 28.8 | $ | 22.3 | $ | 6.5 | 29 | % | ||||||||
SG&A percent | 11.7 | % | 11.2 | % |
Three Months | ||||||||||||||
Ended | ||||||||||||||
June 30, | Percent | |||||||||||||
2011 | 2010 | Change | Change | |||||||||||
(Dollars in millions) | ||||||||||||||
Interest expense | $ | 14.2 | $ | 6.2 | $8.0 | 129 | % | |||||||
Debt extinguishment costs included in interest expense | $ | 7.3 | ||||||||||||
Amortization of deferred financing costs and bank service charges | $ | .9 | $ | .6 | ||||||||||
Average outstanding borrowings | $ | 336.7 | $ | 325.9 | $10.8 | 3 | % | |||||||
Average borrowing rate | 7.12 | % | 6.87 | % | 25 basis points |
As of June 30, 2011,March 31, 2012, the Company had $90.5$116.6 million outstanding under theits revolving credit facility, and approximately $74.8$80.9 million of unused borrowing availability.
Our liquidity needs are primarily for working capital and capital expenditures. Our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our debt securities. On April 7, 2011, the Company completed the sale of $250,000$250.0 million aggregate principal amount of Notes. The Notes bear an interest rate of 8.125% per annum and will be payable semi-annually in arrears on April 1 and October 1 of each year commencingbeginning on April 1, 2011. The Notes mature on April 1, 2021. In connection
The Company is a party to the Credit Agreement, with a group of banks, under which it may borrow or issue standby letters of credit or commercial letters of credit. On March 23, 2012, the sale of the Notes, the Company also entered into a fourthCredit Agreement was amended and restated credit agreement (the “Amended
19
and provide a term loan for $25 million that is secured by certain real estate and machinery and equipment. Amounts borrowed under the revolving credit facility by $50,000.may be borrowed at either (i) LIBOR plus 1.75% to 2.75% or (ii) the bank’s prime lending rate minus .25% to 1.00%, at the Company’s election. The Company also purchased all of its outstanding $183,835LIBOR-based interest rate is dependent on the Company’s debt service coverage ratio, as defined in the aggregate principal amountCredit Agreement. Under the Credit Agreement, a detailed borrowing base formula provides borrowing availability to the Company based on percentages of 8.375% senior subordinated notes due 2014 that were not held by its affiliates, repaid all ofeligible accounts receivable and inventory. Interest on the term loan A andis at either (i) LIBOR plus 2.75% or (ii) the bank’s prime lending rate plus .25%, at the Company’s election. The term loan B outstanding under its then existing credit facility and retiredis amortized based on a seven-year schedule with the 8.375% senior subordinated notesbalance due 2014 that were held by its affiliates.
Current financial resources (cash, working(working capital and available bank borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet current cash requirements for at least the next twelve months. The future availability of bank borrowings under the revolving credit facility provided by the Credit Agreement is based on the Company’s ability to meet a debt service ratio covenant, which could be materially impacted by negative economic trends. Failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings.
The Company had cash and cash equivalents held by foreign subsidiaries of $32.2 million at March 31, 2012 and $61.2 million at December 31, 2011. For each of its foreign subsidiaries, the Company makes a determination regarding the amount of earnings intended for permanent reinvestment, with the balance, if any, available to be repatriated to the United States. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the foreign subsidiaries’ operational activities and/or future foreign investments. At June 30,March 31, 2012, management believed that sufficient liquidity was available in the United States, and it is our current intention to permanently reinvest undistributed earnings of our foreign subsidiaries outside of the United States. Although we have no intention to repatriate the approximately $80.8 million of undistributed earnings of our foreign subsidiaries, as of December 31, 2011, if we were to repatriate these earnings, there would potentially be an adverse tax impact.
At March 31, 2012, the Company’s debt service coverage ratio was 2.4,2.7, and, therefore, it was in compliance with the debt service coverage ratio covenant contained in the revolving credit facility. The Company was also in compliance with the other covenants contained in the revolving credit facility as of June 30, 2011.March 31, 2012. The debt service coverage ratio is calculated at the end of each fiscal quarter and is based on the most recently ended four fiscal quarters of consolidated EBITDA minus cash taxes paid, minus unfunded capital expenditures, plus cash tax refunds to consolidated debt charges whichthat are consolidated cash interest expense plus scheduled principal payments on indebtedness plus scheduled reductions in our term debt as defined in the revolving credit facility. If the Company’s aggregate availability under its revolving credit facility is less than $25,000, theCredit Agreement. The debt service coverage ratio must be greater than 1.0 and not less than 1.1 for any two consecutive fiscal quarters. While we expect to remain in compliance throughout 2011,2012, declines in sales volumes in 20112012 could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by declines in the economy in general, they may not be able to pay their accounts payable to us on a timely basis or at all, which would make the accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility.
The ratio of current assets to current liabilities was 2.452.09 at June 30, 2011March 31, 2012, versus 2.282.65 at December 31, 2010.2011. Working capital increaseddecreased by $49.0$26.8 million to $268.2$264.7 million at June 30, 2011March 31, 2012, from $219.2$291.5 million at December 31, 2010.2011. Accounts receivable increased $20.9$51.2 million to $147.3$191.1 million at June 30,March 31, 2012, from $139.9 million at December 31, 2011, from $126.4 million in 2010 primarily resulting from the acquisition of FRS and its $28.4 million of accounts receivable and sales volume increases. Inventory increased by $13.2$20.6 million at June 30, 2011March 31, 2012, to $205.8$222.6 million from $192.5$202.0 million at December 31, 20102011, primarily resulting from planned increases due to sales volume increases.increases and $11.3 million of increases associated with the acquisition of FRS. Accrued expenses increased by $5.7$28.6 million to $65.2$102.3 million at June 30, 2011March 31, 2012, from $59.5$73.7 million at December 31, 20102011, primarily resulting from the terms of the payments of interest due on the Company’s 8.125% Senior Notes.Notes and accrued liabilities of FRS of $17.0 million. Accounts payable increased $20.8$35.2 million to $116.5$134.8 million at June 30, 2011March 31, 2012, from $95.7$99.6 million at December 31, 2010.
During the first sixthree months of 2011,2012, the Company provided $11.6$17.1 million from operating activities compared to $26.4$13.0 million in the same period of 2010.2011. The decreaseincrease in the operating cash provision of $14.9 $4.1
million in 20112012 compared to 20102011 was primarily the result of a decrease ofin operating assets and liabilities offset by an increase in net income. In the first sixthree months of 2011,2012, the Company used cash of $5.3$2.8 million for capital expenditures.expenditures and $94.6 million for the acquisition of FRS. These activities, plus cash interest and tax payments of $17.2$2.0 million, a netan increase in borrowings of $25.5$48.2 million and purchase of treasury stock of $.2$.7 million resulted in an increasea decrease in cash of $24.8$33.4 million in the first sixthree months of 2011.
We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons. There are occasions whereupon we enter into forward contracts on foreign currencies, purely for the purpose of hedging exposure to changes in the value of accounts receivable in those currencies against the U.S. dollar. At June 30, 2011,March 31, 2012, none were outstanding. We currently have no other derivative instruments.
Seasonality; Variability of Operating Results
The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, the following: our substantial indebtedness; continuation of the current negative global economic environment; general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; raw material availability and pricing; component part availability and pricing; changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate FRS and achieve the expected results of the acquisition; our ability to retain FRS’s relationship with customers and suppliers; our ability to successfully integrate recent and future acquisitions into existing operations; changes in general domestic economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including the uncertainties related to the current global financial crisis; adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities; our ability to meet various covenants, including financial covenants, contained in the agreements governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims;claims and disputes with customers; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which could be lower due to the effects of the current financial crisis; our ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems; and the other factors we describe under the “Item 1A. Risk Factors” included in the Company’s annual reportAnnual Report onForm 10-K for the year ended December 31, 2010.2011. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved.
Review By Independent Registered Public Accounting Firm
The condensed consolidated financial statements at June 30, 2011,March 31, 2012, and for the three-month and six-month periods ended June 30,March 31, 2012 and 2011, and 2010, have been reviewed, prior to filing, by Ernst & Young LLP, our independent registered public accounting firm,firm.
We are exposed to market risk including changes in interest rates. We are subject to interest rate risk on borrowings under ourthe floating rate revolving credit agreement,facility provided by our Credit Agreement, which consisted of borrowings of $90.5$116.6 million at June 30, 2011.March 31, 2012. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.5$.3 million during the six-monththree-month period ended June 30, 2011.
Our foreign subsidiaries generally conduct business in local currencies. During the first six monthsquarter of 2011,2012, we recorded a favorable foreign currency translation adjustment of $3.4$1.2 million related to net assets located outside the United States. This foreign currency translation adjustment resulted primarily from the weakening of the U.S. dollar. Our foreign operations are also subject to other customary risks of operating in a global environment, such as unstable political situations, the effect of local laws and taxes, tariff increases and regulations and requirements for export licenses, the potential imposition of trade or foreign exchange restrictions and transportation delays.
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Item 4. Controls and Procedures
Under the supervision of and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report.
Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this quarterly report,Quarterly Report, our disclosure controls and procedures were effective.
There have been no changes in our internal control over financial reporting that occurred during the first six monthsquarter of 20112012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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We are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation are not expected to have a material adverse effect on our financial condition, liquidity or results of operations.
In addition to the routine lawsuits and asserted claims noted above, we were a party to the lawsuits and legal proceedings described below at March 31, 2012.
We were a co-defendant in approximately 300225 cases asserting claims on behalf of approximately 1,240760 plaintiffs alleging personal injury as a result of exposure to asbestos. These asbestos cases generally relate to production and sale of asbestos-containing products and allege various theories of liability, including negligence, gross negligence and strict liability, and seek compensatory and, in some cases, punitive damages.
In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. In substantially all of the asbestos cases, the plaintiffs either claim damages in excess of a specified amount, typically a minimum amount sufficient to establish jurisdiction of the court in which the case was filed (jurisdictional minimums generally range from $25,000 to $75,000), or do not specify the monetary damages sought. To the extent that any specific amount of damages is sought, the amount applies to claims against all named defendants.
There are only sixseven asbestos cases, involving 2725 plaintiffs, that plead specified damages. In each of the sixseven cases, the plaintiff is seeking compensatory and punitive damages based on a variety of potentially alternative causes of action. In three cases, the plaintiff has alleged compensatory damages in the amount of $3.0 million for four separate causes of action and $1.0 million for another cause of action and punitive damages in the amount of $10.0 million. In the fourth case, the plaintiff has alleged against each named defendant, compensatory and punitive damages, each in the amount of $10.0 million, for seven separate causes of action. In the fifth case, the plaintiff has alleged compensatory damages in the amount of $20.0 million for three separate causes of action and $5.0 million for another cause of action and punitive damages in the amount of $20.0 million. In the sixth case,remaining two cases, the plaintiff hasplaintiffs have each alleged against each named defendant compensatory and punitive damages, each in the amount of $10.0$50.0 million, for sixfour separate causes of action and $5.0 million for the seventh cause of action.
Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases, and believe we will continue to be successful in being dismissed from such cases. However, it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation. Despite this uncertainty, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all or that any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff’s injury, if any.
Our cost of defending these lawsuits has not been material to date and, based upon available information, our management does not expect its future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial position.
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One of our subsidiaries, Ajax Tocco Magnethermic (“ATM”), is a party to a binding arbitration proceeding pending in South Africa with its customer Evraz Highveld Steel and Vanadium (“Evraz”). The arbitration involves a dispute over the design and installation of a melting furnace. Evraz sought binding arbitration in September 2011 for breach of contract and seeks compensatory damages in the amount of $37.0 million, as well as fees and expenses related to the arbitration. ATM intends to counterclaim arbitration, alleging breach of contract for non-payment in the amount of $2.7 million as well as fees and expenses related to the arbitration. We believe we have meritorious defenses to these claims and intend to vigorously defend such allegations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Set forth below is information regarding the Company’s repurchases of its common stock during the second quarter ended June 30, 2011.
Total Number | ||||||||||||||||
Total | of Shares | Maximum Number of | ||||||||||||||
Number | Average | Purchased as | Shares That May Yet Be | |||||||||||||
of Shares | Price Paid | Part of Publicly | Purchased Under the | |||||||||||||
Period | Purchased | Per Share | Announced Plans(1) | Plans or Program | ||||||||||||
April 1 — April 30, 2011 | -0- | $ | -0- | -0- | 340,920 | |||||||||||
May 1 — May 31, 2011 | -0- | -0- | -0- | 340,920 | ||||||||||||
June 1 — June 30, 2011 | 672 | (2) | 21.09 | -0- | 340,920 | |||||||||||
672 | $ | 21.09 | -0- | 340,920 | ||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans(1) | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program | ||||||||||||
January 1 — January 31, 2012 | 2,066 | (2) | $ | 17.84 | -0- | 340,920 | ||||||||||
February 1 — February 29, 2012 | -0- | -0- | -0- | 340,920 | ||||||||||||
March 1 — March 31, 2012 | 30,225 | (2) | 20.59 | -0- | 340,920 | |||||||||||
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Total | 32,291 | $ | 20.41 | -0- | 340,920 | |||||||||||
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(1) | On September 27, 2006, the Company announced a share repurchase program whereby the Company may repurchase up to 1.0 million shares of its common stock. During the | |
(2) | Consist of shares of common stock the Company acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient withholding tax liabilities. |
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4 | .1 | Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Form 8-K ofPark-Ohio-Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
4 | .2 | Fifth Supplemental Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc. the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.2 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
4 | .3 | Fourth Amended and Restated Credit Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the other Loan Parties (as defined therein), the Lenders (as defined therein) JP Morgan Chase Bank, N.A., as administrative agent, JP Morgan Chase Bank, N.A.,Toronto Branch, as Canadian agent, and J.P. Morgan Securities Inc., as sole lead arranger and bookrunning manager. (filed as Exhibit 4.3 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
10 | .1 | Registration Rights Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and the initial purchasers that are a party thereto. (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
10 | .2 | Park-Ohio Industries, Inc. Annual Cash Bonus Plan (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on June 1, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
15 | Letter re: unaudited interim financial information | |||
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 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101 | .INS | XBRL Instance Document | ||
101 | .SCH | XBRL Taxonomy Extension Schema Document | ||
101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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2.1* | Agreement and Plan of Merger by and among Fluid Routing Solutions Holding Corp., FRS Group, LP, Automotive Holding Acquisition Corp and Park-Ohio Industries, Inc., dated as of March 5, 2012 | |
4.1 | Fifth Amended and Restated Credit Agreement, dated March 23, 2012, among Park-Ohio Industries, Inc., the other Loan Parties (as defined therein), the Lenders (as defined therein), JP Morgan Chase Bank, N.A., as Administrative Agent, JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian Agent, RBS Business Capital, as Syndication Agent, KeyBank National Association and First National Bank of Pennsylvania, as Co-Documentation Agent, U.S. Bank National Association, as Co-Documentation Agent and Joint Bookrunner, PNC Bank, National Association, as Joint Bookrunner and J.P. Morgan Securities Inc., as Sole Lead Arranger and Bookrunning Manager (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio Holdings Corp., filed on March 27, 2012, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | |
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 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
* | The exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request. |
PARK-OHIO HOLDINGS CORP. | ||||
(Registrant) | ||||
BY | /s/ PATRICK W. FOGARTY | |||
Name: | Patrick W. Fogarty | |||
Title: | Interim Chief Financial Officer, Director of Corporate Development | |||
(Principal Financial and Accounting Officer) |
FOR THE QUARTER ENDED MARCH 31, 2012
2.1 | Agreement and Plan of Merger by and among Fluid Routing Solutions Holding Corp., FRS Group, LP, Automotive Holding Acquisition Corp and Park-Ohio Industries, Inc., dated as of March 5, 2012 |
4.1 | Fifth Amended and | ||
31.1 | Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | Principal Financial | ||
32 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 | ||
101.INS | XBRL Instance Document | ||
101.SCH | XBRL Taxonomy Extension Schema Document | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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Exhibit | ||||
4 | .1 | Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Form 8-K ofPark-Ohio-Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
4 | .2 | Fifth Supplemental Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc. the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.2 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
4 | .3 | Fourth Amended and Restated Credit Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the other Loan Parties (as defined therein), the Lenders (as defined therein) JP Morgan Chase Bank, N.A., as administrative agent, JP Morgan Chase Bank, N.A.,Toronto Branch, as Canadian agent, and J.P. Morgan Securities Inc., as sole lead arranger and bookrunning manager. (filed as Exhibit 4.3 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
10 | .1 | Registration Rights Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and the initial purchasers that are a party thereto. (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
10 | .2 | Park-Ohio Industries, Inc. Annual Cash Bonus Plan (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on June 1, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof) | ||
15 | Letter re: unaudited interim financial information | |||
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 | Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101 | .INS | XBRL Instance Document | ||
101 | .SCH | XBRL Taxonomy Extension Schema Document | ||
101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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