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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
23000 EUCLID AVENUE
CLEVELAND, OHIO 44117
- ----------------------------------------------------- -----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (216) 692-7200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
------------------------------------------------------
(TITLE OF CLASS)
PARK-OHIO HOLDINGS CORP. IS A SUCCESSOR ISSUER TO PARK-OHIO INDUSTRIES, INC.
Indicate by check mark whether the registrant (1) has filed reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 29, 2001: Approximately $34,100,000.
Number of shares outstanding of the registrant's Common Stock, par value
$1.00 per share, as of March 23, 2001: 10,433,791.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON MAY 24, 2001 ARE INCORPORATED BY REFERENCE
INTO PART III OF THIS FORM 10-K.
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PARK-OHIO HOLDINGS CORP.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
ITEM NO. PAGE NO.
-------- --------
PART I
1. Business.................................................... 1
2. Properties.................................................. 6
3. Legal Proceedings........................................... 7
4. Submission of Matters to a Vote of Security Holders......... 7
4A. Executive Officers of the Registrant........................ 7
PART II
5. Market for the Registrant's Common Stock and Related
Security Holder Matters..................................... 8
6. Selected Consolidated Financial Data........................ 8
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
7A. Quantitative and Qualitative Disclosure about Market Risk... 14
8. Financial Statements and Supplementary Data................. 15
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 32
PART III
Part III information will appear in the Registrant's Proxy
Statement in connection with its 2000 Annual Meeting of
Shareholders. Such Proxy Statement will be filed with the
Securities and Exchange Commission pursuant to Regulation
14A and such information will be incorporated herein by
reference as of the date of such filing..................... 32
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 33
SIGNATURES ............................................................ 34
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PART I
ITEM 1. BUSINESS
THE COMPANY
Park-Ohio Holdings Corp. ("Holdings") was incorporated as an Ohio
corporation in 1998. Holdings, primarily through the subsidiaries owned by its
direct subsidiary, Park-Ohio Industries, Inc. ("Park-Ohio") is a leading
provider of logistics services and a manufacturer of highly engineered products.
Reference herein to the "Company" includes, where applicable, Holdings,
Park-Ohio and its direct and indirect subsidiaries and its predecessor
companies, which have operated for more than 150 years.
The Company operates through three segments, Integrated Logistics Solutions
("ILS"), Aluminum Products and Manufactured Products, which serve a wide variety
of industrial markets. ILS is a leading logistics provider of Class C production
components to original equipment manufacturers ("OEMs"), other manufacturers and
distributors. In connection with the supply of such industrial products, ILS
provides a variety of value-added, cost-effective supply chain management
solutions to major OEMs. The principal customers of ILS are OEMs in the heavy
duty truck, vehicle parts and accessories, industrial equipment, electrical
controls, HVAC, appliances and motors, and lawn and garden industries. Aluminum
Products manufactures cast aluminum components primarily for automotive OEMs.
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.
The principal customers of Manufactured Products are OEMs and end-users in the
automotive, railroad, truck, oil and aerospace industries. Between 1995 and
2000, the Company grew significantly, through both internal growth and
acquisitions. Over this period, the Company's net sales increased from $289.5
million to $754.7 million, income from continuing operations before income taxes
on a pro forma basis excluding the loss on the sale of Kay Home Products
increased from $12.9 million to $23.0 million, and EBITDA increased from $24.9
million to $68.7 million excluding $5.2 million in gains from fire insurance. As
of December 31, 2000, the Company employed approximately 3,800 persons.
OPERATIONS
The following chart highlights the Company's three business segments, the
primary industries they serve and the key products they sell.
NET SALES
FOR THE
YEAR ENDED
DEC. 31,
SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES 2000
------- ------------------------- -------------------------- ----------
(MILLIONS)
INTEGRATED LOGISTICS Heavy duty truck, vehicle Supply chain management $482.3
SOLUTIONS parts and accessories, programs, procurement and
industrial equipment, engineering of a wide
electrical controls, HVAC, variety of industrial
appliances and motors, lawn components.
and garden
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NET SALES
FOR THE
YEAR ENDED
DEC. 31,
SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES 2000
------- ------------------------- -------------------------- ----------
(MILLIONS)
ALUMINUM PRODUCTS Automotive Engineering and 111.4
manufacturing of the
following: Aluminum castings
such as transmission pump
housings, pinion carriers,
clutch retainers, intake
manifolds, oil filter
adapters and other die, sand
and permanent mold machined
castings.
MANUFACTURED PRODUCTS Automotive, aerospace, Engineering and $161.0
railroad, oil and truck manufacturing of the
following: forged and
machined products such as
aircraft landing gears,
locomotive crankshafts and
camshafts; induction heating
systems; industrial rubber
products; and oil pipe
threading systems.
INTEGRATED LOGISTICS SOLUTIONS
ILS is a leading provider of cross-industry supply chain management
services and specializes in the process of planning, implementing, and managing
the physical flow of production components to large OEMs from the point of
origin to the point of use. ILS operates out of branches located throughout the
United States, Canada, Puerto Rico, Mexico and England, and has a central
distribution center located in Dayton, Ohio. ILS generated net sales of $482.3
million, or 64% of the Company's net sales for the year ended December 31, 2000.
OEMs continue to make it a priority to reduce their total cost of
purchasing and handling of production components. Due to the low unit cost and
the large number of different Class C items used to manufacture or assemble a
single product, administrative and overhead costs comprise a substantial portion
of an OEM's Class C related costs. ILS provides a wide array of value-added
services and is a reliable source for just-in-time delivery and is well
positioned to capitalize on these trends. In addition, OEMs are increasingly
relying on suppliers to provide design and applications-engineering support,
enabling more efficient use of internal engineering resources thereby allowing
ILS to increase the amount of low unit cost items supplied to OEMs.
Products and Services. Supply chain management, which is ILS' primary focus
for future growth, involves offering customers supply chain management services
and comprehensive, on-site management for most of their Class C production
component needs. Class C components are characterized by low per unit costs
relative to the indirect costs of vendor management, quality assurance,
inventory management and delivery to the production line. Examples of Class C
items include nuts, bolts, screws, washers, rivets, clips, clamps, cable ties,
caps and various plastics and rubber components. In addition, ILS delivers a
broad range of higher cost per unit products such as valves, fittings, steering
components and many others. Supply chain management customers receive various
value-added services, such as part usage and cost analysis, supplier selection,
quality assurance, bar coding, product packaging and tracking, just-in-time
delivery, electronic billing services and ongoing technical support. ILS also
provides engineering and design services to its customers.
Applications-engineering specialists and the direct sales force work closely
with the engineering staff of OEM customers to recommend the appro-
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priate Class C components for a new product or to suggest alternative components
that reduce overall production costs, streamline assembly or enhance the
appearance or performance of the end product.
Supply chain management services are typically provided to customers
pursuant to supply chain services contracts. These agreements enable ILS'
customers to both reduce procurement costs and better focus on their core
manufacturing competencies by: (i) significantly reducing the administrative and
labor costs associated with Class C component procurement by outsourcing certain
internal purchasing, quality control and inventory fulfillment responsibilities;
(ii) reducing the amount of working capital invested in inventory; (iii)
achieving purchasing efficiencies as a result of vendor consolidation; and (iv)
receiving technical expertise in the selection of Class C and other components
for certain manufacturing processes. Although supply chain services are often
inventory intensive, management believes that such agreements foster
longer-lasting supply relationships with customers, who increasingly rely on the
Company for their Class C production component needs, as compared to traditional
buy/sell distribution relationships. Sales pursuant to supply chain service
agreements have increased significantly in recent years and represented over 69%
of ILS' net sales for the year ended December 31, 2000. ILS' remaining sales are
generated through the wholesale supply of industrial products to OEMs, other
manufacturers and distributors pursuant to master or authorized distributor
relationships.
ILS also engineers and manufactures precision cold formed and cold extruded
products including locknuts, SPAC(R) nuts and wheel hardware, which are
principally used in applications where controlled tightening is required due to
high vibration. ILS produces both standard items and specialty products to
customer specifications, which are used in large volumes by customers in the
automotive, truck and railroad industries.
Markets and Customers. In 2000, approximately 87% of ILS' net sales were to
domestic customers. Remaining sales were primarily to Canada, Mexico and the
United Kingdom. Supply chain management services and Class C components are used
extensively by OEMs in a variety of industries, and demand is generally related
to the state of the economy and to the overall level of manufacturing activity.
ILS markets and sells its services to over 15,000 customers domestically
and internationally. The principal markets served by ILS are transportation
equipment, including manufacturers of heavy trucks and recreational vehicles;
vehicle parts and accessories; industrial equipment; electrical equipment,
including manufacturers of electrical controls; appliances and motors; lawn and
garden equipment and HVAC. The four largest customers, of which ILS sells to
multiple operating divisions or locations, accounted for approximately 24% of
sales of ILS. Three of the four largest customers are in the heavy duty truck
industry. The loss of any one of these customers would have a material adverse
effect on this segment.
Competition. There are numerous competitors in the supply chain services
industry. Management believes that substantially all of ILS' competitors operate
on a regional basis and do not provide customers with the wide array of supply
chain management services offered by ILS. ILS competes primarily on the basis of
its value-added services, delivery capabilities, geographic reach, extensive
product selection, price and reputation for high service levels with primarily
domestic competitors who are capable of providing inventory management programs.
ALUMINUM PRODUCTS
The Aluminum Products segment generated net sales of $111.4 million, or 15%
of the Company's net sales for the year ended December 31, 2000. Aluminum
permanent mold, sand-casted, and die-casted products are produced at Aluminum
Products multiple locations in four states. Management believes Aluminum
Products is one of the few automotive part suppliers that has the capabilities
of providing high volume, automotive quality permanent mold, sand-casted and
die-casted products.
Aluminum Products' cast aluminum parts are manufactured primarily for
automotive OEMs. Aluminum Products' principal automotive products include:
transmission pump housings, intake manifolds, planetary pinion carriers, oil
filter adapters, clutch retainers, rotor castings and bearing cups. Aluminum
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Products also provides value-added services such as secondary casting,
machining, drilling, tapping and part assembly. Although these parts are
lightweight, they possess high durability and integrity characteristics even
under extreme pressure and temperature conditions. Demand by automotive OEMs for
aluminum castings has increased in recent years as OEMs have sought lighter
alternatives to heavier steel and iron components. Lighter aluminum cast
components increase an automobile's fuel efficiency without decreasing its
structural integrity. Management believes this replacement trend will continue
as government standards regarding fuel efficiency become increasingly stringent.
Aluminum Products sells its products primarily to automotive and non-automotive
customers located in North America. The three largest customers, of which
Aluminum Products sells to multiple operating divisions, accounted for
approximately 89% of Aluminum Products sales in 2000. The loss of any one of
these customers would have a material adverse effect on this segment. The
domestic aluminum castings industry is highly competitive. Aluminum Products
competes principally on the basis of its ability to: (i) engineer and
manufacture high quality, cost effective, machined castings in large volumes;
(ii) provide timely delivery; and (iii) retain the manufacturing flexibility
necessary to quickly adjust to the needs of its customers. Although there are a
number of smaller domestic companies with aluminum casting capabilities, the
automotive industry's stringent quality and service standards enable only large
suppliers with the requisite quality certifications to compete effectively. As
one of these suppliers, Aluminum Products is structured to benefit as automotive
OEMs continue to consolidate their supplier base.
MANUFACTURED PRODUCTS
The Manufactured Products segment includes forged and machined products,
capital equipment, and industrial rubber products. Manufactured Products
generated net sales of $161 million, or 21% of the Company's net sales for the
year ended December 31, 2000. The three largest customers, of which Manufactured
Products sells to multiple operating divisions, accounted for approximately 24%
of Manufactured Products sales in 2000. The loss of business from any one of
these customers would have a material adverse effect on this segment.
The Company's forged and machined products business is carried out at three
operating units consisting of Park Drop Forge, Ohio Crankshaft, and Park-Ohio
Structural Hardware. The forging process enables metal to be shaped while
generally retaining higher structural integrity than metal shaped through other
processes. Park Drop Forge manufactures closed-die metal forgings of up to 6,000
pounds, including crankshafts and aircraft landing gears. Park Drop Forge's
products are sold primarily to machining companies, including Ohio Crankshaft
and subassemblers who finish the products for sale to OEMs in the railroad and
aerospace industries. Ohio Crankshaft machines, induction hardens and surface
finishes crankshafts and camshafts used primarily in locomotives. Park-Ohio
Structural Hardware manufactures and machines specialized hardware such as
turnbuckles and clevises for construction companies. Its products are
manufactured according to customers' specific dimensional and/or strength
requirements. Forged and machined products are sold to a wide variety of
domestic and international OEMs and other manufacturers in the transportation,
and construction industries. The Company's forged and machined products business
competes domestically and internationally with other small to medium-sized
businesses on the basis of product quality and precision.
The Company manufactures large industrial equipment through its operating
units consisting of Tocco, Feco, PMC-Colinet and Ajax. Tocco specializes in the
engineering and construction of induction heating systems primarily for the
automotive and truck industries. Tocco's induction heating systems are
engineered and built to customer specifications and are used primarily by OEMs
for surface hardening. Feco produces complete oven systems that combine heat
processing and curing technologies with material handling and conveying methods.
Feco's principal products include industrial drying and curing ovens for
automotive components, metal can curing ovens, specialized conveyor and
automation systems for lightweight containers, and plastic and glass bottle
coating and finishing systems. PMC-Colinet produces tube threading machines and
related parts for the oil drilling industry. Ajax engineers, manufactures and
services mechanical forging presses ranging in size from 500 to 8,000 tons that
are used worldwide in the automotive and truck manufacturing industries. The
Company's capital
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equipment units compete with large domestic and international equipment
manufacturers on the basis of service capability, ability to meet customer
specifications, delivery performance and engineering expertise.
The Company manufactures injection and transfer molded products, lathe-cut
goods, roll coverings and various items requiring rubber to metal bonding for
use in industrial applications through three operating units consisting of
Castle Rubber, Cicero Flexible Products and Geneva Rubber. Castle manufactures
valve seals, power and conveyor rolls and slitter rings. Cicero develops and
manufacturers injection molded silicone rubber products for customers in the
automotive, food processing and consumer appliance industries, such as wire
harnesses, spark plug boots and nipples and general sealing gaskets. Geneva
manufactures injection molded rubber products for customers in the automotive,
telecommunications and heavy truck industries. Its products include primary wire
harnesses, transoceanic cable boots and shock and vibration mounts. The
industrial rubber products operating units compete primarily on the basis of
price and product quality with other domestic small to medium-sized
manufacturers of rubber products.
On June 6, 2000, the Company experienced a fire at its Cicero Flexible
Products facility. The Company carries both property damage and business
interruption insurance and, as a result, does not expect the fire to have a
material adverse impact on the Company's financial results. The total amount due
from the insurance company for business interruption, property damage and other
related expenses has not been determined. The deductible portion of the loss has
been recorded. The Company has received interim payments from its insurance
carrier related primarily to replacement of property, plant and equipment
destroyed in the fire which resulted in a pre-tax involuntary conversion gain of
$5.2 million.
On June 30, 2000, the Company sold substantially all the assets of Kay Home
Products, for cash of approximately $9.2 million and recorded a pre-tax loss of
approximately $15.3 million.
SALES AND MARKETING
ILS markets its products and services in the United States, Mexico, Canada
and Europe, primarily through its direct sales force, which is assisted by
applications engineers who provide the technical expertise necessary to assist
the engineering staff of OEM customers in designing new products and improving
existing products. ILS often obtains new customers as a result of referrals from
existing customers. Aluminum Products and Manufactured Products markets and
sells its products through both internal sales personnel and independent sales
representatives. In some instances, the internal engineering staff assists in
the sales and marketing effort through joint design and applications-engineering
efforts with major customers.
RAW MATERIALS AND SUPPLIERS
ILS purchases substantially all of its Class C and other components from
third party suppliers. Aluminum Products and Manufactured Products purchase
substantially all of their raw materials, principally metals and certain
component parts incorporated into their products, from third-party suppliers and
manufacturers. Management believes that raw materials and component parts other
than certain specialty fasteners are available from alternative sources. ILS has
multiple sources of supply for standard products, but has limited supply sources
for certain specialty products. Approximately 25% of ILS' delivered components
are purchased from suppliers in foreign countries, primarily Canada, Taiwan,
Japan and Korea. The Company is dependent upon the ability of such suppliers to
meet stringent quality and performance standards and to conform to delivery
schedules. Most raw materials required by Aluminum Products and Manufactured
Products are commodity products available from several domestic suppliers.
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BACKLOG
Management believes that backlog is not a meaningful measure for ILS, as a
majority of ILS' customers require just-in-time delivery of Class C production
components. Management believes that Aluminum Products' and Manufactured
Products' backlog as of any particular date is not a meaningful measure of sales
for any future period as a significant portion of sales are on a release or firm
order basis.
ENVIRONMENTAL REGULATIONS
The Company is subject to numerous federal, state and local laws and
regulations designed to protect public health and the environment
("Environmental Laws"), particularly with regard to discharges and emissions, as
well as handling, storage, treatment and disposal, of various substances and
wastes. Pursuant to certain Environmental Laws, owners or operators of
facilities may be liable for the costs of response or other corrective actions
for contamination identified at or emanating from current or former locations,
without regard to whether the owner or operator knew of, or was responsible for,
the presence of any such contamination, and for related damages to natural
resources. Additionally, persons who arrange for the disposal or treatment of
hazardous substances or materials may be liable for costs of response at sites
where they are located, whether or not the site is owned or operated by such
person.
In general, the Company has not experienced difficulty in complying with
Environmental Laws in the past, and compliance with Environmental Laws has not
had a material adverse effect on the Company's financial condition, liquidity
and results of operations. The Company's capital expenditures on environmental
control facilities were not material during the past five years and such
expenditures are not expected to be material to the Company in the foreseeable
future.
The Company has been identified as a potentially responsible party at
third-party sites under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or comparable state laws which provide
for strict and, under certain circumstances, joint and several liability. The
Company is participating in the cost of certain clean-up efforts at several of
these sites. The availability of third-party payments or insurance for
environmental remediation activities is subject to risks associated with the
willingness and ability of the third party to make payments. However, the
Company's share of such costs has not been material and based on available
information, the Company does not expect its exposure at any of these locations
to have a material adverse effect on its results of operations, liquidity or
financial condition.
INFORMATION AS TO INDUSTRY SEGMENT REPORTING AND GEOGRAPHIC AREAS
The information contained under the heading of "Note J -- Industry
Segments" of notes to consolidated financial statements included herein,
relating to net sales, operating income, identifiable assets and other
information by industry segment for the years ended December 31, 2000, 1999, and
1998 is incorporated herein by reference.
RECENT DEVELOPMENTS
The information contained under the heading of "Note B -- Acquisitions and
Disposition" of notes to consolidated financial statements included herein, is
incorporated by reference.
ITEM 2. PROPERTIES
The Company's operations include numerous manufacturing and warehousing
facilities located in twenty-five states in the United States and in four other
countries. Approximately 48% of the available square footage is owned. In 2000,
approximately 42% of the available domestic square footage was used by the ILS
segment; approximately 42% was used by the Manufactured Products segment and 16%
by the Aluminum Products segment. Approximately 50% of the available foreign
square footage was used by
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the ILS segment and 50% was used by the Manufactured Products segment. In the
opinion of management, Park-Ohio's facilities are generally well maintained and
are suitable and adequate for their intended uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is 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 will not have a material adverse effect on the Company's financial
condition, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the executive officers of the Company is as
follows:
NAME AGE POSITION
---- --- --------
EXECUTIVE OFFICERS
Edward F. Crawford......................... 61 Chairman of the Board, Chief Executive Officer
and President
Felix J. Tarorick.......................... 58 Vice Chairman of the Board and Vice President
of Operations
Richard P. Elliott......................... 44 Vice President and Chief Financial Officer
Ronald J. Cozean........................... 37 Secretary and General Counsel
Matthew V. Crawford........................ 31 Assistant Secretary, Corporate Counsel and
Director
Patrick W. Fogarty......................... 40 Director of Corporate Development
Edward F. Crawford has been Chairman of the Board and Chief Executive
Officer of the Company since 1992.
Felix J. Tarorick became Vice Chairman of the Board in 1998 and has been
Vice President of Operations since 1996. From 1992 to 1995, Mr. Tarorick served
as President of the former consumer products group. Mr. Tarorick joined the
Company in 1992. Mr. Tarorick became a director of the Company in February,
1998.
Richard P. Elliott has been Vice President and Chief Financial Officer
since joining the Company in May, 2000. Mr. Elliott held various positions,
including partner, at Ernst and Young LLP from January, 1986 to April, 2000.
Ronald J. Cozean has served as Secretary and General Counsel since joining
the Company in 1994.
Matthew V. Crawford has served as Assistant Secretary and Corporate Counsel
since joining the Company in February 1995. Mr. M. Crawford became a director of
the Company in August 1997 and has served as President of Crawford Container
Company since 1991. Mr. E. Crawford is the father of Mr. M. Crawford.
Patrick W. Fogarty has been Director of Corporate Development since 1997
and joined the Company in 1995 as Director of Finance.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock, $1 par value, trades on The NASDAQ Stock
Market(R) under the symbol PKOH. The table presents its high and low sales
prices during the periods presented. No dividends were paid during the periods.
QUARTERLY COMMON STOCK PRICE RANGES
2000 1999
------------------ -------------------
QUARTER HIGH LOW HIGH LOW
- ------- ------ ----- ------ ------
1st $11.25 $6.63 $17.13 $13.25
2nd 10.75 7.94 17.63 12.63
3rd 10.88 7.38 18.50 12.44
4th 8.75 3.75 12.50 9.00
The number of shareholders of record for the Company's common stock as of
March 23, 2001 was 1,133.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Selected Income Statement Data(a):
Net sales.......................... $754,674 $717,222 $551,793 $441,110 $347,679
Cost of products sold.............. 625,205 591,439 455,167 368,734 289,400
-------- -------- -------- -------- --------
Gross profit..................... 129,469 125,783 96,626 72,376 58,279
Selling, general and administrative
expenses......................... 80,838 72,613 56,478 44,396 38,131
Restructuring charge............... -- -- -- -- 2,652
-------- -------- -------- -------- --------
Operating income(b).............. 48,631 53,170 40,148 27,980 17,496
Non-operating items, net(c)........ 10,118 -- -- (320) (4,204)
Interest expense................... 30,812 24,752 17,488 9,101 6,947
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes........... 7,701 28,418 22,660 19,199 14,753
Income taxes....................... 7,183 12,164 9,726 7,903 5,060
-------- -------- -------- -------- --------
Income from continuing operations
before extraordinary charge... $ 518 $ 16,254 $ 12,934 $ 11,296 $ 9,693
======== ======== ======== ======== ========
Income per common share from
continuing operations before
extraordinary charge --diluted... $ .05 $ 1.51 $ 1.16 $ 1.01 $ .88
======== ======== ======== ======== ========
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YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Supplemental per common share data:
Pro forma income per common share
from continuing operations before
loss on the sale of Kay Home
Products in 2000 and
extraordinary charge for early
retirement of debt in 1997 on a
fully taxed basis -- diluted..... $ 1.30 $ 1.51 $ 1.16 $ 1.01 $ .88
======== ======== ======== ======== ========
Other Financial Data:
Net cash flows provided (used) by
operating activities............. $ 24,025 $ (728) $ 3,627 $(10,039) $ 7,726
EBITDA(d).......................... 68,679 71,868 52,901 38,345 28,146
Capital expenditures............... 24,968 22,650 22,681 15,947 15,590
Selected Balance Sheet Data:
Cash and cash equivalents........ $ 2,612 $ 5,867 $ 4,320 $ 1,814 $ 4,659
Working capital.................. 213,368 208,810 176,932 146,444 99,094
Total assets..................... 635,332 629,881 489,554 413,109 282,910
Total debt....................... 345,402 340,620 238,105 172,755 82,989
Shareholders' equity............. 152,126 154,685 141,187 129,010 115,069
(a) The selected consolidated financial data is not directly comparable on a
year-to-year basis due to acquisitions made throughout the five years ended
December 31, 2000 which include the following:
2000 -- IBM's plant automation software product lines and related
assets.
1999 -- The Metalloy Corporation, Columbia Nut and Bolt Corp.,
Industrial Fasteners Corporation, M.P. Colinet, St Louis Screw
and Bolt and PMC Industries.
1998 -- Direct Fasteners Limited and GIS Industries, Inc.
1997 -- Arden Industrial Products, Inc.
All of the acquisitions were accounted for as purchases. In addition, during
2000, the Company sold substantially all of the assets of Kay Home Products.
(b) Operating income is defined as net sales less cost of products sold,
selling, general and administrative expenses and a restructuring charge. In
1996, the Company incurred a restructuring charge of $2.7 million related to
the consolidation of three of the Company's manufacturing facilities into
one and the discontinuation of certain product lines.
(c) In 1996, non-operating income was comprised of (i) a gain of $2.7 million in
connection with the full settlement of subordinated notes receivable
resulting from the sale of two manufacturing facilities and (ii) a gain of
$1.5 million on the sale of certain securities by the Company in the third
quarter of 1996.
In 2000, other non-operating items, net was comprised of (i) a loss of $15.3
million on the sale of substantially all of the assets of Kay Home Products
and (ii) a gain of $5.2 million resulting from interim payments from the
Company's insurance carrier related primarily to replacement of property,
plant and equipment destroyed in a fire at its Cicero Flexible Products
facility.
(d) EBITDA is defined as earnings from continuing operations before interest,
income taxes, depreciation, amortization, non-operating income and expense
and non-recurring items. Non-recurring items include a restructuring charge
of $2.7 million in the fourth quarter of 1996 related to the consolidation
of three of the Company's manufacturing facilities into one and the
discontinuation of certain
9
12
product lines. EBITDA is not a measure of performance under generally
accepted accounting principles ("GAAP"). While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used as an indication of a
company's ability to incur and service debt. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a
discussion of other measures of liquidity and operations that are covered by
the audited financial statements. EBITDA as defined herein may not be
comparable to other similarly titled measures of other companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The consolidated financial statements of the Company include the accounts
of Park-Ohio Holdings Corp. and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The historical financial
information is not directly comparable on a year-to-year basis due to an
acquisition and a divestiture made in 2000, acquisitions made in 1999 and 1998,
and gains recognized relating to fire insurance in 2000. In September 2000, the
Company acquired IBM's plant automation software product lines to form ILS
Technology (a new unit within its ILS segment).
On June 30, 2000, the Company sold substantially all the assets of Kay Home
Products, for cash of approximately $9.2 million and recorded a pretax loss of
approximately $15.3 million. In June 2000, one of the Company's manufacturing
plants was destroyed in a fire. In 2000, $5.2 million of pretax involuntary
conversion gains were recognized, which represented the difference between
replacement cost and net book value of substantially all equipment, the building
and tooling destroyed in the fire.
During 1999, the Company acquired six businesses for an aggregate purchase
price of $65.4 million. In January, the Company acquired all of the shares of
The Metalloy Corporation ("Metalloy") and substantially all of the assets of St.
Louis Screw & Bolt Co. ("St. Louis Screw"). Metalloy is a full service aluminum
casting and machining company. St. Louis Screw is a manufacturer of bolts used
in the construction industry. In February, the Company acquired substantially
all of the assets of PMC Industries, ("PMC") and, in September, the Company
acquired all of the shares of M.P. Colinet ("Colinet"). PMC and Colinet provide
capital equipment and associated parts for the oil drilling industry. In July,
the Company acquired all of the shares of Columbia Nut and Bolt Corp.
("Columbia") and Industrial Fasteners Corporation ("Industrial"). Columbia and
Industrial are logistics providers of industrial components. During 1998, the
Company acquired two businesses for $40.2 million. In October, the Company
acquired all of the shares of GIS Industries, Inc. ("Gateway"). Gateway is a
logistics provider of fastener-related components and a manufacturer of metal
products and fasteners. In April, the Company acquired all of the shares of
Direct Fasteners Limited ("Direct"), a logistics provider of fastener related
components located in Ontario, Canada. Each of these transactions has been
accounted for as a purchase and consequently their results are included in the
consolidated financial statements from their respective dates of acquisition.
OVERVIEW
The Company has three operating segments: Integrated Logistics Solutions
("ILS"), Aluminum Products and Manufactured Products. ILS is a leading logistics
provider of Class C production components to original equipment manufacturers
("OEMs"), other manufacturers and distributors. In connection with the supply of
such industrial products, ILS provides a variety of value-added, cost-effective
supply chain management services to major OEM's. The principal customers of ILS
are in the heavy duty truck, vehicle parts and accessories, industrial
equipment, electrical controls, HVAC, appliances and motors and lawn and garden
equipment industries. Aluminum Products manufactures cast aluminum components
primarily for automotive OEMs. 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
10
13
products engineered for specific customer applications. The principal customers
of Manufactured Products are OEMs and end-users in the automotive, railroad,
truck, oil and aerospace industries.
Between 1993 and 2000, the Company has grown significantly, both internally
and through acquisitions. Over this period, the Company's net sales increased at
a 35% compounded annual growth rate ("CAGR"), from $94.5 million to $754.7
million. Over the same period income on a fully taxed basis, excluding the 2000
effects of the sale of Kay Home Products and fire insurance gains, increased at
a 23% CAGR from $2.4 million to $10.1 million.
Recent growth has been primarily attributable to the Company's strategy of
making selective acquisitions in order to complement internal growth. The
Company has acquired businesses with potential for: (i) significant cost
reductions through improved labor, supplier and customer relations and increased
purchasing power and (ii) revenue enhancement due to better asset utilization
and management practices, as well as increased access to capital. The Company's
internal growth has been driven primarily by the addition of ILS customers under
supply chain service agreements and by the leveraging of existing customer
relationships in the Aluminum and Manufactured Products segments.
Between January 1, 1994 and December 31, 2000, the Company's continuing
operations incurred $111.9 million of capital expenditures, the majority of
which was used to expand existing manufacturing facilities, upgrade equipment
and enhance the Company's management information systems.
RESULTS OF OPERATIONS
2000 versus 1999
Net sales increased by $37.5 million, or 5%, from $717.2 million in 1999 to
$754.7 million in 2000. Of this, $9.9 million represented organic growth. Net
sales grew $27.6 million from acquisitions made in the second half of 1999 and
in 2000 partially offset by the divestiture in 2000. For ILS, net sales
increased 9%, or $39.2 million, of which $16.1 million related to internal
growth and $23.1 million related to acquisitions made in July 1999 and September
2000. For Manufactured Products, sales increased 10%, or $14.0 million, of which
$9.5 million related to organic growth and $4.5 million growth resulted from
acquisitions net of divestiture. For Aluminum Products, net sales decreased 12%,
or $15.7 million, primarily due to the ending of certain sales contracts at
Metalloy, which was expected at the time of its purchase in 1999, partially
offset by organic growth. During the second half of 2000, sales volumes to heavy
truck customers (primarily in the ILS segment) dropped significantly while sales
volumes to automotive customers (primarily in the Aluminum Products segment)
weakened in the fourth quarter. Management anticipates weakness in the truck and
automotive sectors will continue in 2001.
Gross profit increased by $3.7 million, or 3%, from $125.8 million in 1999
to $129.5 million in 2000 and is primarily related to acquisitions made in 1999
and 2000. The Company's consolidated gross margin was approximately 17.2% in
2000 and 17.5% in 1999. Margin declined in 2000 partially due to the effects of
a strike at Park Drop Forge which was settled in December.
Selling, general and administrative costs increased by 11% to $80.8 million
for 2000 from $72.6 million for 1999. The increase was primarily related to
recent acquisitions. During 2000, selling, general and administrative expenses
benefited from an increase in net pension credits of $2.8 million, reflecting
favorable investment returns on pension plan assets. Consolidated selling,
general and administrative expenses as a percentage of net sales were 10.7%
during the current period and 10.1% for 1999.
Interest expense increased by $6.0 million from $24.8 million in 1999 to
$30.8 million in 2000 due to higher average debt outstanding and higher average
interest rates during 2000. For the year ended December 31, 2000, the Company
averaged outstanding borrowings of $342.4 million as compared to $294.6 million
for 1999. The $47.8 million increase related primarily to acquisitions completed
during the second half of 1999. The average borrowing rate of 9.00% for the year
ended December 31, 2000 is 60 basis points higher than the average rate of 8.40%
for 1999. This rate increase was due both to the $50 million 9.25% Senior
Subordinated Notes issued in June 1999, and to increased interest rates on the
Company's bank revolving credit facility, primarily caused by Federal Reserve
action.
11
14
Before considering the tax effect of the sale of Kay Home Products and the
gain on fire insurance, the effective income tax rate for 2000 was 41%, while
for 1999 it was 43%. The decrease in tax rate resulted from creating a foreign
sales corporation and an increase in research and experimental credits. The
divestiture of Kay Home Products generated a book loss of $15.3 million, but
only reduced income taxes by $2.1 million due to the exclusion of goodwill as a
deduction for tax purposes. Income taxes of $2.1 million were provided for the
$5.2 million pretax fire insurance gain. At December 31, 2000, subsidiaries of
the Company had $5.7 million of net operating loss carry forwards for federal
tax purposes.
1999 versus 1998
Net sales increased by $165.4 million, or 30%, from $551.8 million in 1998
to $717.2 million in 1999. This growth resulted primarily from acquisitions and
related to the ILS and the Aluminum Products segments. For ILS, the growth in
net sales amounted to $78.5 million of which $51.7 million related to
acquisitions and the remainder was organic growth. For Aluminum Products, net
sales increased by $87.3 million of which $81.2 million related to the
acquisition of Metalloy and the remainder to internal growth.
Gross profit increased by $29.2 million, or 30%, from $96.6 million in 1998
to $125.8 million in 1999 and is directly related to acquisitions made in 1999.
The Company's consolidated gross margin of approximately 17.5% was the same for
both periods.
Selling, general and administrative costs increased by 29% to $72.6 million
for 1999 from $56.5 million for 1998. The increase was related to acquisitions.
Consolidated selling, general and administrative expenses as a percentage of net
sales were 10.1% during 1999 and 10.2% for 1998.
Interest expense increased by $7.3 million from $17.5 million in 1998 to
$24.8 million in 1999 due to higher average debt outstanding during the current
period offset by lower average interest rates in 1999 versus 1998. For the year
ended December 31, 1999, the Company averaged outstanding borrowings of $294.6
million as compared to $205.3 million for 1998. The $89.3 million increase
related primarily to acquisitions completed during the latter part of 1998 and
in 1999. The average borrowing rate of 8.40% for the year ended December 31,
1999 is 12 basis points lower than the average rate of 8.52% for 1998 primarily
because of increased borrowings under the Company's bank revolving credit which
carries a lower effective interest rate as compared to the 9.25% on the
Company's Senior Subordinated Notes.
The effective income tax rate for 1999 and 1998 was 43%. At December 31,
1999, subsidiaries of the Company had $1.1 million of net operating loss carry
forwards for federal tax purposes.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity needs are primarily for working capital and capital
expenditures. The Company's primary sources of liquidity have been funds
provided by operations and funds available from existing bank credit
arrangements and the sale of Senior Subordinated Notes. On December 21, 2000,
Park-Ohio signed a new credit agreement with a group of banks under which it may
borrow up to $180 million secured by receivables and inventory. The proceeds
from the credit agreement (as amended on March 12, 2001), which expires on
December 31, 2003 will be used for general corporate purposes. Amounts borrowed
under the new credit agreement may be borrowed at Park-Ohio's election at either
(i) the bank's prime lending rate plus up to 125 basis points or (ii) LIBOR plus
137.5-300 basis points depending on a ratio specified in the new credit
agreement, reflecting higher interest rates than the previous credit agreement.
(See Note D -- "Financing Arrangements" of notes to consolidated financial
statements included herein.) As of December 31, 2000, $138.5 million was
outstanding under the facility; this had increased to $149.5 million at March
30, 2001, due to increased working capital.
On June 3, 1999, the Company sold an additional $50 million of its 9.25%
Senior Subordinated Notes due 2007 bringing the amount of Notes outstanding to
$200 million. The Company used the net proceeds from the sale of the Notes
($49.5 million) to repay outstanding bank borrowings.
12
15
Current financial resources (working capital and available bank borrowing
arrangements) and anticipated funds from operations are expected to be adequate
to meet current cash requirements. Bank borrowings are contingent upon meeting
various covenants, including financial covenants. The Company's ability to meet
those covenants would be materially impacted if recent negative economic trends
worsen.
Capital expenditures for 2001 are projected to be approximately $12-$18
million which will fund additions and improvements to the Company's facilities,
equipment and information systems. This projection excludes capital expenditures
to be reimbursed from fire insurance proceeds.
The ratio of current assets to current liabilities was 2.96 at December 31,
2000 versus 2.93 at December 31, 1999. Working capital increased by $4.6 million
to $213.4 million at December 31, 2000 from $208.8 million at December 31, 1999,
as a result of the inclusion of acquisitions completed in 2000 and to support
the internal growth of the Company.
During 2000, the Company generated $36.9 million of cash from operations
before changes in operating assets and liabilities. After giving effect to the
use of $12.9 million in the operating accounts, the Company provided $24.0
million from operating activities in 2000 compared to using $.7 million in 1999.
During the year, the Company invested $25.0 million in capital expenditures
(including $7.0 million to replace a portion of the equipment destroyed in the
rubber plant fire), used $3.9 million for acquisitions, provided $9.2 million
from divestitures, used $6.1 million for fire related business interruption
costs and used $1.5 million for other purposes, primarily the purchase of
treasury shares. These activities resulted in a decrease in cash for the year of
$3.3 million.
During 1999, the Company generated $41.9 million of cash from operations
before changes in operating assets and liabilities. After giving effect to the
use of $42.6 million in the operating accounts, the Company used $.7 million
from operating activities compared to providing $3.6 million in 1998. During the
year, the Company invested $22.7 million in capital expenditures, used $65.4
million for acquisitions and used $3.9 million for other purposes, primarily the
purchase of treasury shares. These activities were funded by issuing $49.5
million of 9.25% Senior Subordinated Notes and a net increase of $44.8 million
in bank borrowings which resulted in an increase in cash for the year of $1.6
million.
During 1998, the Company generated $32.3 million of cash from operations
before changes in operating assets and liabilities. After giving effect to the
use of $28.6 million in the operating accounts, the Company provided $3.6
million from operating activities. During the year, the Company invested $22.7
million in facilities, machinery and equipment, and information systems, used
$40.2 million for acquisitions and used $2.8 million to purchase common shares
for the treasury. These activities were funded by a net increase in bank
borrowings of $64.3 million offset by a $2.5 million increase in cash during the
period.
ENVIRONMENTAL
The Company has been identified as a potentially responsible party at
third-party sites under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or comparable state laws which provide
for strict and, under certain circumstances, joint and several liability. The
Company is participating in the cost of certain clean-up efforts at several of
these sites. However, the Company's share of such costs has not been material
and based on available information, management of the Company does not expect
the Company's exposure at any of these locations to have a material adverse
effect on its results of operations, liquidity or financial condition.
SEASONALITY; VARIABILITY OF OPERATING RESULTS
The Company's results of operations are typically stronger in the first six
months rather than the last six months of each calendar year due to scheduled
plant maintenance in the third quarter to coincide with customer plant shutdowns
and to holidays in the fourth quarter.
13
16
The timing of orders placed by the Company's customers has varied with,
among other factors, orders for customers' finished goods, customer production
schedules, competitive conditions and general economic conditions. The
variability of the level and timing of orders has, from time to time, resulted
in significant periodic and quarterly fluctuations in the operations of the
Company's business units. Such variability is particularly evident at the
capital equipment businesses, included in the Manufactured Products segment,
which typically ship a few large systems per year.
FORWARD-LOOKING STATEMENTS
This Form 10-K 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. Certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations contain
forward-looking statements, including without limitation, discussion regarding
the Company's anticipated levels and funding of capital expenditures and credit
availability. Forward-looking statements are necessarily subject to risks,
uncertainties and other factors, many of which are outside the control of the
Company, that could cause actual results to differ materially from such
statements. These uncertainties and other factors include such things as:
general business conditions, competitive factors, including pricing pressures
and product innovation and quality; raw material availability and pricing;
changes in the Company's relationships with customers and suppliers; the ability
of the Company to successfully integrate recent and future acquisitions into its
existing operations; changes in general domestic economic conditions such as
inflation rates, interest rates and tax rates; the ability of the Company to
meet various covenants, including financial covenants, contained in its credit
agreement and the indenture governing the Senior Subordinated Notes;
increasingly stringent domestic and foreign governmental regulations including
those affecting the environment; inherent uncertainties involved in assessing
the Company's potential liability for environmental remediation-related
activities; the outcome of pending and future litigation and other claims;
dependence on the automotive and heavy truck industries; dependence on key
management; and dependence on information systems. Any forward-looking statement
speaks only as of the date on which such statement is made, and the Company
undertakes no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise. In light of these and
other uncertainties, the inclusion of a forward-looking statement herein should
not be regarded as a representation by the Company that the Company's plans and
objectives will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk including changes in interest rates.
The Company is subject to interest rate risk on its floating rate revolving
credit facility which consisted of borrowings of $138.5 million at December 31,
2000. A 100 basis point increase in the interest rate would have resulted in an
increase in interest expense of approximately $1.4 million for the year ended
December 31, 2000.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
PAGE
----
Report of Independent Auditors.............................. 16
Consolidated Balance Sheets -- December 31, 2000 and
December 31, 1999......................................... 17
Consolidated Statements of Income -- Years Ended December
31, 2000, 1999 and 1998................................... 18
Consolidated Statements of Shareholders' Equity -- Years
Ended December 31, 2000, 1999 and 1998.................... 19
Consolidated Statements of Cash Flows -- Years Ended
December 31, 2000, 1999 and 1998.......................... 20
Notes to Consolidated Financial Statements.................. 21
Supplementary Financial Data:
Selected Quarterly Financial Data (Unaudited) -- Years Ended
December 31, 2000 and 1999................................ 32
15
18
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Park-Ohio Holdings Corp.
We have audited the accompanying consolidated financial statements of
Park-Ohio Holdings Corp. and subsidiaries, listed in the index at Item 14(a)(i).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park-Ohio
Holdings Corp. and subsidiaries at December 31, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 26, 2001
16
19
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents................................. $ 2,612 $ 5,867
Accounts receivable, less allowances for doubtful accounts
of $3,292 in 2000 and $3,296 in 1999.................... 117,318 112,896
Inventories............................................... 189,023 192,270
Other current assets...................................... 13,191 5,850
-------- --------
Total Current Assets............................... 322,144 316,883
Property, Plant and Equipment
Land and land improvements................................ 5,993 6,471
Buildings................................................. 35,026 32,504
Machinery and equipment................................... 193,444 172,118
-------- --------
234,463 211,093
Less accumulated depreciation............................. 101,757 86,721
-------- --------
132,706 124,372
Other Assets
Excess purchase price over net assets acquired, net of
accumulated amortization of $12,283 in 2000 and $11,941
in 1999................................................. 133,612 137,905
Other..................................................... 46,870 50,721
-------- --------
$635,332 $629,881
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable.................................... $ 76,041 $ 72,452
Accrued expenses.......................................... 28,831 33,064
Current portion of long-term liabilities.................. 3,904 2,557
-------- --------
Total Current Liabilities.......................... 108,776 108,073
Long-Term Liabilities, less current portion
Long-term debt............................................ 343,248 339,813
Other postretirement benefits............................. 24,487 25,470
Other..................................................... 6,695 1,840
-------- --------
374,430 367,123
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 -- 11,209,862
shares in 2000
and 11,147,462 in 1999............................. 11,210 11,148
Additional paid-in capital................................ 56,135 55,684
Retained earnings......................................... 97,192 96,674
Treasury stock, at cost, 713,671 shares in 2000 and
583,571 in 1999......................................... (9,092) (7,969)
Accumulated other comprehensive (loss).................... (2,858) (852)
Unearned compensation -- restricted stock awards.......... (461) -0-
-------- --------
152,126 154,685
-------- --------
$635,332 $629,881
======== ========
See notes to consolidated financial statements.
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20
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales................................................. $754,674 $717,222 $551,793
Cost of products sold..................................... 625,205 591,439 455,167
-------- -------- --------
Gross profit............................................ 129,469 125,783 96,626
Selling, general and administrative expenses.............. 80,838 72,613 56,478
-------- -------- --------
Operating income........................................ 48,631 53,170 40,148
Non-operating items, net.................................. 10,118 -0- -0-
Interest expense.......................................... 30,812 24,752 17,488
-------- -------- --------
Income before income taxes........................... 7,701 28,418 22,660
Income taxes.............................................. 7,183 12,164 9,726
-------- -------- --------
Net income...................................... $ 518 $ 16,254 $ 12,934
======== ======== ========
Net Income per common share:
Basic................................................... $ .05 $ 1.52 $ 1.18
======== ======== ========
Diluted................................................. $ .05 $ 1.51 $ 1.16
======== ======== ========
See notes to consolidated financial statements.
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21
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED TREASURY INCOME UNEARNED
STOCK CAPITAL EARNINGS STOCK (LOSS) COMPENSATION TOTAL
------- ---------- -------- -------- ------------- ------------ --------
(DOLLARS IN THOUSANDS)
Balance at January 1,
1998................. $10,960 $53,476 $67,486 $(2,087) $ (825) $ -0- $129,010
Comprehensive income:
Net income........... 12,934 12,934
Foreign currency
translation
adjustment......... (757) (757)
--------
Comprehensive
income............. 12,177
Issuance of General
Aluminum Mfg.
Company earn-out
shares............. 188 2,306 2,494
Exercise of stock
options.............. (27) 294 267
Purchase of treasury
stock................ (2,761) (2,761)
------- ------- ------- ------- ------- ----- --------
Balance at December 31,
1998................. 11,148 55,755 80,420 (4,554) (1,582) -0- 141,187
Comprehensive income:
Net income........... 16,254 16,254
Foreign currency
translation
adjustment......... 730 730
--------
Comprehensive
income............. 16,984
Exercise of stock
options.............. (71) 330 259
Purchase of treasury
stock................ (3,745) (3,745)
------- ------- ------- ------- ------- ----- --------
Balance at December 31,
1999................. 11,148 55,684 96,674 (7,969) (852) -0- 154,685
Issuance of restricted
stock................ 62 500 (562)
Amortization of
restricted stock..... 101 101
Comprehensive income
(loss):
Net income........... 518 518
Foreign currency
translation
adjustment......... (2,006) (2,006)
--------
Comprehensive
(loss)............. (1,488)
Exercise of stock
options.............. (49) 172 123
Purchase of treasury
stock................ (1,295) (1,295)
------- ------- ------- ------- ------- ----- --------
Balance at December 31,
2000................. $11,210 $56,135 $97,192 $(9,092) $(2,858) $(461) $152,126
======= ======= ======= ======= ======= ===== ========
See notes to consolidated financial statements.
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22
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net Income................................................ $ 518 $ 16,254 $ 12,934
Adjustments to reconcile net income to net cash (used)
provided by operations:
Gain from fire insurance............................. (5,200) -0- -0-
Loss on the sale of Kay Home Products................ 15,318 -0- -0-
Depreciation and amortization........................ 20,048 18,698 12,753
Deferred income taxes................................ 6,217 6,904 6,659
-------- -------- --------
36,901 41,856 32,346
Changes in operating assets and liabilities excluding
acquisitions of businesses:
Accounts receivable.................................. (7,121) (5,127) (2,312)
Inventories.......................................... 3,775 (32,726) (10,404)
Accounts payable and accrued expenses................ (7,701) (2,427) (7,810)
Other................................................ (1,829) (2,304) (8,193)
-------- -------- --------
Net Cash Provided (Used) by Operating Activities..... 24,025 (728) 3,627
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net........... (24,968) (22,650) (22,681)
Costs of acquisitions, net of cash acquired............... (3,890) (65,426) (40,175)
Proceeds from the sale of Kay Home Products............... 9,177 -0- -0-
Other, net................................................ (6,100) (445) (101)
-------- -------- --------
Net Cash (Used) by Investing Activities.............. (25,781) (88,521) (62,957)
FINANCING ACTIVITIES
Proceeds from bank arrangements........................... 23,000 101,500 66,000
Payments on long-term debt................................ (23,327) (56,726) (1,670)
Issuance of 9.25% senior subordinated notes, net of
deferred financing costs............................... -0- 49,508 -0-
Issuance of common stock under stock option plan.......... 123 259 267
Purchase of treasury stock................................ (1,295) (3,745) (2,761)
-------- -------- --------
Net Cash (Used) Provided by Financing Activities..... (1,499) 90,796 61,836
(Decrease) Increase in Cash and Cash Equivalents..... (3,255) 1,547 2,506
Cash and Cash Equivalents at Beginning of Year....... 5,867 4,320 1,814
-------- -------- --------
Cash and Cash Equivalents at End of Year............. $ 2,612 $ 5,867 $ 4,320
======== ======== ========
Taxes paid................................................ $ 3,261 $ 6,892 $ 2,326
Interest paid............................................. 30,194 23,646 17,947
See notes to consolidated financial statements.
20
23
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated upon consolidation.
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (principally the
first-in, first-out method) or market value. If the first-in, first-out method
of inventory accounting had been used exclusively by the Company, inventories
would have been approximately $4,956 and $5,098 higher than reported at December
31, 2000 and 1999, respectively.
Major Classes of Inventories
DECEMBER 31
-------------------
2000 1999
-------- --------
In-process and finished goods........................... $164,833 $160,648
Raw materials and supplies.............................. 24,190 31,622
-------- --------
$189,023 $192,270
======== ========
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Major additions and associated interest costs are capitalized and
betterments are charged to accumulated depreciation; expenditures for repairs
and maintenance are charged to operations. Depreciation of fixed assets is
computed principally by the straight-line method based on the estimated useful
lives of the assets.
Excess Purchase Price Over Net Assets Acquired: The Company records
amortization of excess purchase price over the fair value of net assets acquired
primarily over forty years using the straight-line method. Management
periodically evaluates for possible impairment of the current value of these
intangibles, and other long-lived assets, through undiscounted cash flow
analyses as required by Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" which established
accounting standards for determining the impairment of long-lived assets to be
held and used, certain identifiable intangibles, and goodwill related to those
assets and for long-lived assets and certain identifiable intangibles to be
disposed of. Amortization expense related to the excess purchase price over net
assets acquired totalled $3,907, $3,836 and $2,277 in 2000, 1999 and 1998,
respectively.
Pensions and Other Postretirement Benefits: The Company and its
subsidiaries have pension plans, principally noncontributory defined benefit or
noncontributory defined contribution plans, covering substantially all
employees. In addition, the Company has two postretirement benefit plans. For
the defined benefit plans, benefits are based on the employee's years of service
and the Company's policy is to fund that amount recommended by its independent
actuaries. For the defined contribution plans, the
21
24
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
costs charged to operations and the amount funded are based upon a percentage of
the covered employees' compensation.
Stock-Based Compensation: The Company has elected to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Income Taxes: The Company accounts for income taxes under the liability
method whereby deferred tax assets and liabilities are determined based on
temporary differences between the financial reporting and the tax bases of
assets and liabilities and are measured using the current enacted tax rates.
Revenue Recognition: For the majority of its operations, the Company
recognizes revenues upon shipment of its product. Revenues on long-term
contracts are recognized using the percentage of completion method of
accounting, under which the sales value of performance is recognized on the
basis of the percentage each contract's cost to date bears to the total
estimated cost. The recognition of profit, based upon anticipated final costs,
is made only after evaluation of the contract status at critical milestones. The
Company's contracts generally provide for billing to customers at various points
prior to contract completion. Revenues earned on contracts in process in excess
of billings are classified in other current assets in the accompanying balance
sheet.
Environmental: The Company accrues environmental costs related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Costs which extend the life of the related
property or mitigate or prevent future environmental contamination are
capitalized. The Company records a liability when environmental assessments
and/or remedial efforts are probable and can be reasonably estimated. The
estimated liability of the Company is not discounted or reduced for possible
recoveries from insurance carriers.
Concentration of Credit Risk: The Company sells its products to customers
in diversified industries. The Company performs ongoing credit evaluations of
its customers' financial condition but does not require collateral to support
customer receivables. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. As of December 31, 2000 the Company had
uncollateralized receivables with seven customers in the automotive and truck
industry, each with several locations, approximating $33,466 which represents
approximately 29% of the Company's trade accounts receivable. During 2000, sales
to these customers amounted to approximately $252,128 which represents 33% of
the Company's net sales.
Impact of Recently Issued Accounting Pronouncements: The Company adopted
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which outlines the basic criteria that must be met to recognize
revenue and provides guidelines for disclosure related to revenue recognition
policies, in the fourth quarter of 2000. There was no impact on the Company's
financial position or results of operations as a result of the adoption.
The Company adopted Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended, on
January 1, 2001. Because of the Company's minimal use of derivatives, adoption
of the new Statement will not have a significant effect on earnings or the
financial position of the Company.
Reclassification: Certain amounts in the prior period's financial
statements have been reclassified to be consistent with the current
presentation.
22
25
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B -- ACQUISITIONS AND DISPOSITION
On September 30, 2000, the Company acquired IBM's plant automation software
product lines and related assets for cash of approximately $3.9 million. The
transaction has been accounted for as a purchase and the results of operations
prior to the date of acquisition were not deemed to be significant as defined in
Regulation S-X.
On June 30, 2000 the Company completed the sale of substantially all of the
assets of Kay Home Products for cash of approximately $9.2 million and recorded
a loss of approximately $15.3 million, which is included in non-operating items,
net in the consolidated statement of income. Kay Home Products was a non-core
business producing and distributing barbecue grills, tray tables, screen houses
and plant stands.
During 1999, the Company acquired all of the stock of The Metalloy
Corporation ("Metalloy"), Columbia Nut and Bolt Corp. ("Columbia"), Industrial
Fasteners Corporation ("Industrial"), M.P. Colinet ("Colinet") and substantially
all of the assets of St. Louis Screw & Bolt Co. ("St. Louis Screw") and PMC
Industries ("PMC") for cash of approximately $65.4 million. Metalloy is a full
service aluminum casting and machining company. Columbia and Industrial are
logistics providers of Class C components. St. Louis Screw is a manufacturer of
bolts and PMC and Colinet provide capital equipment and associated parts for the
oil drilling industry. Each of these transactions has been accounted for as a
purchase. The purchase price and the results of operations of each of these
businesses prior to their respective dates of acquisition were not deemed to be
significant as defined in Regulation S-X.
During 1998, the Company completed the acquisitions of Direct Fasteners
Limited ("Direct") and GIS Industries, Inc. ("Gateway"). The transactions have
been accounted for as purchases. Direct is a logistics provider of Class C
components. Gateway is a logistics provider of industrial components and
manufacturer of fabricated metal products and fasteners. The aggregate purchase
price and the results of operations of Direct and Gateway prior to their
respective dates of acquisition were not deemed to be significant as defined in
Regulation S-X.
NOTE C -- ACCRUED EXPENSES
Accrued expenses include the following:
DECEMBER 31
------------------
2000 1999
------- -------
Self-insured liabilities................................ $ 3,267 $ 3,924
Warranty and installation accruals...................... 2,662 3,348
Accrued payroll and payroll-related items............... 3,065 3,844
State and local taxes................................... 1,730 2,533
Advance billings........................................ 883 2,549
Acquisition liabilities................................. 1,694 2,780
Interest payable........................................ 1,882 2,187
Sundry.................................................. 13,648 11,899
------- -------
Totals............................................. $28,831 $33,064
======= =======
23
26
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- FINANCING ARRANGEMENTS
Long-term debt consists of the following:
DECEMBER 31
--------------------
2000 1999
-------- --------
9.25% Senior Subordinated Notes due 2007.............. $199,930 $200,000
Revolving credit maturing on December 31, 2003........ 138,500 138,000
Other................................................. 6,972 2,620
-------- --------
345,402 340,620
Less current maturities............................... 2,154 807
-------- --------
Total....................................... $343,248 $339,813
======== ========
In December 2000, Park-Ohio entered into a credit and security agreement
with a group of banks (as amended in March, 2001) under which it may borrow up
to $180 million. Interest is payable quarterly at either the bank's prime
lending rate plus up to 1.25% (9.0% at December 31, 2000) or at Park-Ohio's
election at LIBOR plus 1.375% - 3% (8.56% at December 31, 2000). The interest
rate is dependent on the Company's ratio of total funded indebtedness to pro
forma earnings before interest, taxes, depreciation and amortization ("EBITDA")
as defined in the credit agreement and is adjusted every quarter. The credit
agreement expires on December 31, 2003. The revolving credit is secured by the
Company's accounts receivable and inventories.
Provisions of the Senior Subordinated Notes and the revolving credit
agreement contain restrictions on the Company's ability to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments,
investments, loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to or merge or consolidate with, an unaffiliated
entity. The revolving credit agreement also requires maintenance of specific
financial ratios.
On June 3, 1999, the Company sold an additional $50 million of its 9.25%
Senior Subordinated Notes due 2007 at a price of 99.016% of face value. The
Company used the net proceeds to reduce the amount borrowed under its credit
facility.
The weighted average interest rate on all debt was 8.93% at December 31,
2000.
The fair market value of the Senior Subordinated Notes at December 31, 2000
was approximately $150,947.
The Company has agreements on which up to $6.7 million in standby letters
of credit and commercial letters of credit may be issued. In addition to the
bank's customary letter of credit fees, a 3/4% fee is assessed on standby
letters of credit on an annual basis. As of December 31, 2000, in addition to
amounts borrowed under the revolving credit agreement, there is $3.8 million
outstanding primarily for standby letters of credit. A fee of .25% to .55% is
imposed by the bank on the unused portion of available borrowings.
Maturities of long-term debt during each of the five years following
December 31, 2000 are approximately $2,154 in 2001, $910 in 2002, $139,106 in
2003, $352 in 2004 and $334 in 2005.
24
27
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE E -- INCOME TAXES
Significant components of the Company's net deferred tax assets and
liabilities are as follows:
DECEMBER 31,
------------------
2000 1999
------- -------
Deferred tax assets:
Postretirement benefit obligation......................... $ 9,000 $ 9,400
Inventory................................................. 5,800 6,700
Tax net operating loss carryforwards and credits.......... 2,000 2,000
Other -- net.............................................. 4,400 1,600
------- -------
Total deferred tax assets......................... 21,200 19,700
Deferred tax liabilities:
Tax over book depreciation................................ 13,200 10,200
Pension................................................... 9,100 6,500
------- -------
Total deferred tax liabilities.................... 22,300 16,700
------- -------
Net deferred tax (liabilities) assets....................... $(1,100) $ 3,000
======= =======
Income taxes consisted of the following:
YEAR ENDED DECEMBER 31
---------------------------
2000 1999 1998
------ ------- ------
Current:
Federal............................................ $ 106 $ 3,007 $1,023
State.............................................. 774 1,246 1,037
Foreign............................................ 86 1,007 1,007
------ ------- ------
966 5,260 3,067
Deferred:
Federal............................................ 5,025 6,029 6,195
State.............................................. 1,192 875 464
------ ------- ------
6,217 6,904 6,659
------ ------- ------
Income taxes............................................ $7,183 $12,164 $9,726
====== ======= ======
The reasons for the difference between income taxes and the amount computed
by applying the statutory Federal income tax rate to income before income taxes
are as follows:
YEAR ENDED DECEMBER 31
---------------------------
2000 1999 1998
------ ------- ------
Computed statutory amount............................... $2,617 $ 9,662 $7,700
Effect of state income taxes payable.................... 1,304 1,400 1,000
Goodwill................................................ 715 751 535
Non deductible goodwill write off upon sale of Kay Home
Products.............................................. 3,513 -0- -0-
Other, net.............................................. (966) 351 491
------ ------- ------
Income taxes............................................ $7,183 $12,164 $9,726
====== ======= ======
25
28
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 2000, subsidiaries of the Company have net operating loss
carryforwards for income tax purposes of approximately $5.7 million subject to
certain limitations, which expire in 2001 to 2020.
NOTE F -- STOCK PLANS
Under the provisions of the Company's Amended and Restated 1992 Stock
Option Plan, incentive stock options or non-statutory options to purchase
850,000 shares of the Company's stock were granted to officers and other key
employees at the market price on the respective date of grant. The option rights
are exercisable only if and after the employee shall have remained in the employ
of the Company for one year from the date the option is granted.
During 1996 the Chairman and Chief Executive Officer of the Company was
granted a non-statutory stock option to purchase 500,000 shares of common stock
at $13.625 per share which was the market price at the date of grant. The
options become 100% exercisable after five years and terminate fifteen years
from the option date.
The 1996 Non-Employee Director Stock Option Plan authorized the granting of
options on 250,000 shares of common stock to directors who are not employees of
the Company. Annually, each non-employee director may receive options to acquire
6,000 shares at the market price on the date of grant in lieu of any retainer or
meeting fees. Options under this plan are exercisable six months from the date
of grant.
Under the provisions of the 1998 Long-Term Incentive Plan ("1998 Plan"),
which is administered by the Compensation Committee, incentive stock options,
non-statutory stock options, stock appreciation rights ("SARs"), restricted
shares, performance shares or stock awards may be awarded to all employees of
the Company and its subsidiaries. Stock options will be exercisable in whole or
in installments as may be determined provided that no options will be
exercisable more than ten years from date of grant. The exercise price will be
the market price at the date of grant. The aggregate number of shares of the
Company's stock which may be awarded under the 1998 Plan is 550,000, all of
which may be incentive stock options. No more than 250,000 shares shall be the
subject of awards to any individual participant in any one calendar year. During
2000, 62,400 restricted shares were awarded under the 1998 Plan. During 1999,
options to purchase 100,000 shares of common stock were awarded under the 1998
Plan. During 1998, there were no awards under the 1998 Plan.
Had compensation cost for stock options granted been determined based on
the fair value method of FASB Statement No. 123, the Company's net income and
diluted earnings per share would have been reduced by $1,008 ($.10 per share) in
2000, $1,077 ($.10 per share) in 1999, and $1,235 ($.11 per share) in 1998. The
effects on 2000, 1999 and 1998 net earnings may not be representative of the
effect on future years net earnings amounts as the compensation cost on each
year's grant is recognized over the vesting period.
Fair value was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 2000, 1999 and
1998, respectively: risk-free interest rates of 5.83%, 6.25% and 4.75%; zero
dividend yield; expected volatility of 42%, 38% and 39% and expected option
lives of 6 years.
26
29
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table reflects activity under all stock plans from January 1,
1998 through December 31, 2000, and the weighted average exercise prices:
WEIGHTED
NUMBER AVERAGE PRICE
OF SHARES PER SHARE
--------- -------------
Outstanding,
January 1, 1998.......................................... 915,000 $13.13
Granted.................................................. 145,000 18.45
Exercised................................................ (20,817) 12.82
Forfeited................................................ (3,333) 13.62
Outstanding,
December 31, 1998........................................ 1,035,850 13.88
Granted.................................................. 124,000 10.66
Exercised................................................ (24,000) 10.81
Forfeited................................................ (4,000) 18.25
Outstanding,
December 31, 1999........................................ 1,131,850 13.57
Granted.................................................. 12,000 9.78
Exercised................................................ (13,500) 9.13
Forfeited................................................ (40,850) 13.08
---------
Outstanding,
December 31, 2000........................................ 1,089,500 $13.61
=========
The following table summarizes information about options outstanding as of
December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE
- --------------- ------------ ----------- -------- ------------ --------
$ 9.125-$13.000 227,500 6.47 $10.51 164,174 $10.81
13.125- 14.250 688,000 8.70 13.63 588,000 13.63
14.438- 19.375 174,000 7.45 17.59 139,009 17.36
--------- -------
1,089,500 891,183
========= =======
NOTE G -- LEGAL PROCEEDINGS
The Company is 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 will not have a material adverse effect on the Company's financial
condition, liquidity and results of operations.
27
30
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE H -- PENSIONS AND OTHER POSTRETIREMENT BENEFITS
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........ $ 46,820 $ 45,701 $ 19,720 $ 21,718
Service cost................................... 503 561 157 150
Amendments and other........................... 846 306 -0- -0-
Acquisitions................................... 2,218 4,686 -0- -0-
Interest cost.................................. 3,529 3,387 1,539 1,449
Plan participants' contributions............... -0- -0- 108 118
Actuarial losses (gains)....................... 1,135 (3,469) 1,793 (1,516)
Benefits paid.................................. (4,344) (4,352) (2,308) (2,199)
-------- -------- -------- --------
Benefit obligation at end of year.............. $ 50,707 $ 46,820 $ 21,009 $ 19,720
======== ======== ======== ========
CHANGE IN PLAN ASSETS
Fair Value of plan assets at beginning of
year......................................... $106,570 $ 83,960 $ -0- $ -0-
Actual return on plan assets................... 1,869 23,299 -0- -0-
Acquisitions................................... 3,808 3,504 -0- -0-
Company contributions.......................... -0- 159 2,200 2,081
Plan participants' contributions............... -0- -0- 108 118
Benefits paid.................................. (4,344) (4,352) (2,308) (2,199)
-------- -------- -------- --------
Fair value of plan assets at end of year....... $107,903 $106,570 $ -0- $ -0-
======== ======== ======== ========
Funded (underfunded) status of the plan........ $ 57,196 $ 59,750 $(21,009) $(19,720)
Unrecognized net transition obligation......... (944) (380) -0- -0-
Unrecognized net actuarial gain................ (28,654) (39,190) (4,663) (6,856)
Unrecognized prior service cost................ 1,982 1,686 (565) (644)
-------- -------- -------- --------
Prepaid (accrued) benefit cost................. $ 29,580 $ 21,866 $(26,237) $(27,220)
======== ======== ======== ========
The prepaid pension benefit is included in other assets.
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................................. 7.50% 7.75% 7.50% 7.75%
Expected return on plan assets................. 8.25% 8.25% N/A N/A
Rate of compensation increase.................. 2.50% 2.50% N/A N/A
For measurement purposes, a 6.75% percent annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2000. The rate
was assumed to decrease gradually to 5.5% for 2004 and remain at that level
thereafter.
28
31
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PENSION BENEFITS OTHER BENEFITS
--------------------------- ------------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------ ------ ------
COMPONENTS OF NET
PERIODIC BENEFIT COST
Service costs.......................... $ 503 $ 561 $ 403 $ 157 $ 150 $ 133
Interest costs......................... 3,529 3,387 3,136 1,539 1,449 1,496
Expected return on plan assets......... (8,599) (7,062) (6,642) -0- -0- -0-
Transition obligation.................. 23 63 77 -0- -0- -0-
Amortization of prior service cost..... 367 229 181 (79) (79) (79)
Recognized net actuarial gain.......... (2,574) (1,132) (1,225) (243) (255) (343)
------- ------- ------- ------ ------ ------
Benefit (income) costs................. $(6,751) $(3,954) $(4,070) $1,374 $1,265 $1,207
======= ======= ======= ====== ====== ======
The Company has two non-pension postretirement benefit plans. Health care
benefits are provided on both a contributory and noncontributory basis. The life
insurance plan is primarily noncontributory.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
------------- ------------
Effect on total of service and interest cost components
in 2000................................................ $ 137 $ 117
Effect on post retirement benefit obligation as of
December 31, 2000...................................... $1,358 $1,192
The total contribution charged to pension expense for the Company's defined
contribution plans was $1,418 in 2000, $1,158 in 1999 and $876 in 1998.
NOTE I -- LEASES
Rental expense for 2000, 1999 and 1998 was $12,816, $11,814 and $7,056,
respectively. Future minimum lease commitments during each of the five years
following December 31, 2000 are as follows: $9,644 in 2001, $7,268 in 2002,
$5,117 in 2003, $2,836 in 2004, $1,821 in 2005 and $3,494 thereafter.
NOTE J -- INDUSTRY SEGMENTS
The Company manages its business based upon three operating segments:
Integrated Logistics Solutions ("ILS"), Aluminum Products and Manufactured
Products. ILS is a leading logistics provider of Class C production components
to original equipment manufacturers ("OEMs"), other manufacturers and
distributors. In connection with the supply of such industrial products, ILS
provides a variety of value-added, supply chain management services to major
OEMs. The principal customers of ILS are in the heavy duty truck, vehicle parts
and accessories, industrial equipment, electrical controls, HVAC, appliances and
motors, and lawn and garden industries. Aluminum Products manufactures cast
aluminum components primarily for automotive original equipment manufacturers.
In addition, 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. The principal customers of Manufactured Products are original
equipment manufacturers and end-users in the automotive, railroad, truck and
aerospace industries.
29
32
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company's sales are made through its own sales organization,
distributors and representatives. Intersegment sales are immaterial and
eliminated in consolidation and are not included in the figures presented.
Intersegment sales are accounted for at values based on market prices. Income
allocated to segments excludes certain corporate expenses, interest expense and
amortization of excess purchase price over net assets acquired. Identifiable
assets by industry segment include assets directly identified with those
operations.
Corporate assets generally consist of cash and cash equivalents, deferred
tax assets, property and equipment, and other assets.
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
Net sales
ILS..................................................... $482,274 $443,078 $364,546
Aluminum products....................................... 111,370 127,148 39,871
Manufactured products................................... 161,030 146,996 147,376
-------- -------- --------
$754,674 $717,222 $551,793
======== ======== ========
Income before income taxes
ILS..................................................... $ 42,118 $ 39,217 $ 34,595
Aluminum products....................................... 4,947 10,925 1,842
Manufactured products................................... 12,586 11,214 10,162
-------- -------- --------
59,651 61,356 46,599
Amortization of excess purchase price over net assets
acquired............................................. (3,907) (3,836) (2,277)
Corporate costs......................................... (7,113) (4,350) (4,174)
Interest expense........................................ (30,812) (24,752) (17,488)
Loss on the sale of Kay Home Products................... (15,318) -0- -0-
Gain from fire insurance................................ 5,200 -0- -0-
-------- -------- --------
$ 7,701 $ 28,418 $ 22,660
======== ======== ========
Identifiable assets
ILS..................................................... $349,444 $343,522 $288,713
Aluminum products....................................... 99,208 97,717 40,063
Manufactured products................................... 164,524 170,267 147,032
General corporate....................................... 22,156 18,375 13,746
-------- -------- --------
$635,332 $629,881 $489,554
======== ======== ========
Depreciation and amortization expense
ILS..................................................... $ 8,096 $ 7,710 $ 6,124
Aluminum products....................................... 5,145 4,929 1,268
Manufactured products................................... 6,379 5,864 5,173
General corporate....................................... 428 195 188
-------- -------- --------
$ 20,048 $ 18,698 $ 12,753
======== ======== ========
Capital expenditures
ILS..................................................... $ 3,126 $ 6,046 $ 4,274
Aluminum products....................................... 7,302 4,963 1,650
Manufactured products................................... 14,190 8,904 16,666
General corporate....................................... 350 2,737 91
-------- -------- --------
$ 24,968 $ 22,650 $ 22,681
======== ======== ========
The Company had sales of $73,039 in 2000 to Ford Motor Company which
represented approximately 10% of consolidated net sales.
30
33
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In 2000, approximately 88% of the Company's net sales are within the United
States, none of the net sales to any foreign country represented more than 6% of
the Company's total sales and approximately 92% of the Company's assets are
maintained in the United States.
NOTE K -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEARS ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
NUMERATOR
Net Income.................................................. $ 518 $16,254 $12,934
======= ======= =======
DENOMINATOR
Denominator for basic earnings per share-weighted average
shares.................................................... 10,492 10,685 10,958
Effect of dilutive securities:
Employee stock options.................................... 35 86 203
------- ------- -------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions........ 10,527 10,771 11,161
Net income per common share -- basic........................ $ .05 $ 1.52 $ 1.18
======= ======= =======
Net income per common share -- diluted...................... $ .05 $ 1.51 $ 1.16
======= ======= =======
NOTE L -- INVOLUNTARY CONVERSION OF ASSETS
During 2000, the Company experienced a fire at one of its rubber
manufacturing facilities. The Company carries both property damage and business
interruption insurance and, as a result, does not expect the fire to have a
material adverse impact on the Company's financial results. The total amount due
from the insurance company for business interruption, property damage, and other
related expenses has not been determined. The deductible portion of the loss has
been recorded. The Company has received interim payments from its insurance
carrier related primarily to replacement of property, plant and equipment
destroyed in the fire which resulted in a pre-tax, involuntary conversion gain
of $5.2 million, which is included in non-operating items, net in the
consolidated statement of income. The net book value of other property damaged
by the fire along with business interruption related expenses have been recorded
as a receivable ($8.4 million) which is included in other current assets.
31
34
SUPPLEMENTARY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
--------------------------------------------
2000 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---- -------- -------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales....................................... $206,360 $204,539 $170,923 $172,852
Gross profit.................................... 36,277 37,293 27,706 28,193
Net Income (Loss)............................... $ 4,560 $ (8,267) $ 4,798 $ (573)
======== ======== ======== ========
Diluted Earnings (Loss) Per Share............... $ .43 $ (.79) $ .46 $ (.05)
======== ======== ======== ========
QUARTER ENDED
--------------------------------------------
1999 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---- -------- -------- -------- --------
Net sales....................................... $171,403 $186,917 $178,087 $180,815
Gross profit.................................... 30,967 33,813 31,545 29,458
Net Income...................................... $ 4,348 $ 4,536 $ 3,876 $ 3,494
======== ======== ======== ========
Diluted Earnings Per Share...................... $ .40 $ .42 $ .36 $ .33
======== ======== ======== ========
NOTE 1 -- On June 3, 1999, the Company sold $50 million of its 9.25% Senior
Subordinated Notes due 2007. The Company used the net proceeds to
reduce the amount borrowed under its credit facility.
NOTE 2 -- In July, 1999, the Company acquired all of the shares of Columbia Nut
& Bolt Corp. and Industrial Fasteners Corporation. These transactions
have been accounted for as purchases. These companies distribute
fasteners and other industrial products. In addition, Industrial
Fasteners manufactures fasteners, primarily screws, rivets and pins.
NOTE 3 -- On June 30, 2000, the Company sold substantially all of the assets of
Kay Home Products for cash and recorded a pretax loss of $15.3 million.
NOTE 4 -- The Company recorded interim payments from its insurance carrier
related primarily to replacement of property, plant and equipment
destroyed at its Cicero Flexible Products facility which resulted in a
pretax gain of $4.7 million recorded in the quarter ended September 30,
2000 and $.5 million recorded in the quarter ended December 31, 2000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in nor disagreements with Park-Ohio's independent
auditors on accounting and financial disclosure matters within the two-year
period ended December 31, 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. Information relating
to executive officers is contained under Part I of this Annual Report on Form
10-K.
32
35
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation contained under the
headings "Certain Matters Pertaining to the Board of Directors" and "Executive
Compensation" in the registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference from the material contained under the caption "Principal Shareholders"
in the registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference from the material contained under the caption "Certain Transactions"
in the registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Part II, Item 8:
PAGE
----
Report of Independent Auditors............................ 16
Financial Statements
Consolidated balance sheets -- December 31, 2000 and
1999.................................................. 17
Consolidated statements of income -- years ended
December 31, 2000, 1999 and 1998...................... 18
Consolidated statements of shareholders'
equity -- years ended December 31, 2000, 1999 and
1998.................................................. 19
Consolidated statements of cash flows -- years ended
December 31, 2000, 1999 and 1998...................... 20
Notes to consolidated financial statements............. 21
Selected quarterly financial data (unaudited) -- years
ended December 31, 2000 and 1999....................... 32
(2) Financial Statement Schedules
All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and, therefore, have been
omitted.
(3) Exhibits:
The Exhibits filed as part of this Form 10-K are listed on the Exhibit Index
immediately preceding such exhibits, incorporated herein by reference.
(b) Reports on Form 8-K filed in the fourth quarter of 2000:
None
33
36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PARK-OHIO HOLDINGS CORP.
(Registrant)
By: /s/ RONALD J. COZEAN
------------------------------------
Ronald J. Cozean, Secretary
Date: March 30, 2001
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
* Chairman, Chief Executive Officer and
- ------------------------------------------------ President (Principal Executive Officer)
Edward F. Crawford and Director
* Vice President -- and Chief Financial
- ------------------------------------------------ Officer (Principal Financial and
Richard P. Elliott Accounting Officer)
* Director
- ------------------------------------------------
Matthew V. Crawford
* Director
- ------------------------------------------------
Kevin R. Greene
* Director March 30, 2001
- ------------------------------------------------
Lewis E. Hatch, Jr.
* Director
- ------------------------------------------------
Thomas E. McGinty
* Director
- ------------------------------------------------
Lawrence O. Selhorst
* Director
- ------------------------------------------------
Felix J. Tarorick
* Director
- ------------------------------------------------
James W. Wert
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this report on behalf of each of the persons noted above, in the capacities
indicated.
March 30, 2001 By: /s/ RONALD J. COZEAN
------------------------------------
Ronald J. Cozean, Attorney-in-Fact
34
37
ANNUAL REPORT ON FORM 10-K
PARK-OHIO HOLDINGS CORP.
FOR THE YEAR ENDED DECEMBER 31, 2000
EXHIBIT INDEX
EXHIBIT
- -------
3.1 Amended and Restated Articles of Incorporation of Park-Ohio
Holdings Corp. (filed as Exhibit 3.1 to the Form 10-K of
Park-Ohio Holdings Corp. for the year ended December 31,
1998, SEC File No. 000-03134 and incorporated by reference
and made a part hereof)
3.2 Code of Regulations of Park-Ohio Holdings Corp. (filed as
Exhibit 3.2 to the Form 10-K of Park-Ohio Holdings Corp. for
the year ended December 31, 1998, SEC File No. 000-03134 and
incorporated by reference and made a part hereof)
4.1 Indenture, dated June 3, 1999 by and among Park-Ohio
Industries, Inc. and Norwest Bank Minnesota, N.A., as
trustee (filed as Exhibit 4.2 of the Company's Registration
Statement on Form S-4, filed on July 23, 1999, SEC File No.
333-83117 and incorporated by reference and made a part
hereof)
4.2 Credit and Security Agreement among Park-Ohio Industries,
Inc., and various financial institutions dated December 22,
2000.
4.3 First amendment, dated March 12, 2001, to the Credit and
Security Agreement among Park-Ohio Industries, Inc. and
various financial institutions
10.1 Form of Indemnification Agreement entered into between
Park-Ohio Holdings Corp. and each of its directors and
certain officers (filed as Exhibit 10.1 to the Form 10-K of
Park-Ohio Holdings Corp. for the year ended December 31,
1998, SEC File No. 000-03134 and incorporated by reference
and made a part hereof)
10.2* Park-Ohio Industries, Inc. Amended and Restated 1992 Stock
Option Plan (filed as Exhibit A to Schedule 14A of Park-Ohio
Industries, Inc. filed on May 12, 1995, SEC File No.
000-03134 and incorporated by reference and made a part
hereof)
10.3* Non-Statutory Stock Option Agreement dated February 22, 1996
by and between Park-Ohio Industries, Inc., and Edward F.
Crawford (filed as Appendix A to the Definitive Proxy
Statement of Park-Ohio Industries, Inc., filed on April 16,
1996, SEC File No. 000-03134 and incorporated by reference
and made a part hereof)
10.4* 1996 Non-employee Director Stock Option Plan (filed as
Appendix B to the Definitive Proxy Statement of Park-Ohio
Industries, Inc., filed on April 16, 1996, SEC File No.
000-03134 and incorporated by reference and made a part
hereof)
10.5* 1998 Long-Term Incentive Plan (filed as appendix E to the
Definitive Proxy Statement of Park-Ohio Industries, Inc.,
filed on April 24, 1998, SEC File No. 000-03134 and
incorporated by reference and made a part hereof)
12.1 Computation of Ratios
21.1 List of Subsidiaries of Park-Ohio Holdings Corp.
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney
- ---------------
* Reflects management contract or other compensatory arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Report.
35