June 14, 2005
VIA EDGAR
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Pamela A. Long
Assistant Director
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Park-Ohio Industries, Inc.
Amendment No. 1 to Registration Statement on Form S-4
Filed May 10, 2005
File Number 333-123665
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Dear Ms. Long:
Reference is made to your letter, dated May 27, 2005, regarding
comments by the staff of the Securities and Exchange Commission (the
"Commission") with respect to the above-mentioned registration statement of
Park-Ohio Industries, Inc. (the "Company"). Today, in response to your letter,
the Company is filing with the Commission amendment no. 2 to the registration
statement.
Below are the Company's responses to each comment in your letter. For
the convenience of the staff, the Company has repeated each of your comments
before the response. Unless otherwise indicated, page references included in the
body of the Company's responses are to Amendment No. 2 to the registration
statement.
General
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1. Provide updated financial statements and related disclosures as
required by Rule 3-12 of Regulation S-X.
The Company has provided financial statements and related disclosures
for the three months ended March 31, 2005 and 2004 as required by Rule
3-12 of Regulation S-X.
Cover Letter
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2. We have reviewed your response to comment 1 in our letter dated April
28, 2005. Please revise the cover letter to include the representations
in the Sherman & Sterling no-action letter with respect to the
prospectus delivery obligations of broker-dealers who receive new
securities in the exchange offer.
In the Company's letter to you dated May 10, 2005, the Company included
certain representations that were set forth in the Exxon Capital
Holdings Corp., Morgan Stanley
Pamela A. Long
Securities and Exchange Commission
June 14, 2005
Page 2
and Shearman & Sterling no action letters. The Company confirms that it
is registering the exchange offer in reliance upon these letters and
for ease of reference, the Company reaffirms and supplements its
representations as follows:
In accordance with the Commission's position set forth in Exxon Capital
Holdings Corporation (available May 13, 1988) and subsequent related no
action letters, the Company makes the following representations to the
Commission:
1. The Company has not entered into any arrangement or
understanding with any person to distribute the exchange notes
to be received in the exchange offer and, to the best of the
Company's information and belief, each person participating in
the exchange offer is acquiring the exchange notes in its
ordinary course of business and has no arrangement or
understanding with any person to participate in the
distribution of the exchange notes to be received in the
exchange offer.
2. The Company will make each participant in the exchange offer
aware (through the exchange offer prospectus or otherwise)
that if such person is participating in the exchange offer for
the purpose of distributing the exchange notes to be acquired
in the exchange offer, such person (a) cannot rely on the
position enunciated in Exxon Capital Holdings Corporation or
interpretive letters to similar effect and (b) must comply
with the registration and prospectus delivery requirements of
the Securities Act of 1933 (the "Securities Act") in
connection with a secondary resale transaction. The Company
acknowledges that such a secondary resale transaction by such
person participating in the exchange offer for the purpose of
distributing the exchange notes should be covered by an
effective registration statement containing the selling
securityholder information required by Item 507 of Regulation
S-K promulgated under the Securities Act.
3. The Company will include, in the transmittal letter or similar
documentation to be executed by the exchange offeree in order
to participate in the exchange offer, representations to the
effect that (a) the exchange offeree is acquiring the exchange
notes in its ordinary course of business, (b) by accepting the
exchange offer, the exchange offeree represents to the Company
that such offeree is not engaged in, does not intend to engage
in, and has no arrangement or understanding with any person to
participate in a distribution of the exchange notes and (c)
the exchange offeree is not an affiliate of the Company.
4. The Company understands that a broker-dealer may participate
in the exchange offer with respect to initial notes acquired
for its own account as a result of market-making activities or
other trading activities, provided that:
(a) in connection with any resales of exchange notes
received in exchange for such initial notes, the
broker-dealer delivers a prospectus meeting the
Pamela A. Long
Securities and Exchange Commission
June 14, 2005
Page 3
requirements of the Securities Act, which may be the
prospectus for the exchange offer so long as it
contains a plan of distribution with respect to such
resale transactions (however, such plan of
distribution need not name the broker-dealer or
disclose the amount of exchange notes held by the
broker-dealer);
(b) the broker-dealer has not entered into any
arrangement or understanding with the Company or an
affiliate of the Company to distribute the exchange
notes; and
(c) the Company
(i) will make each person participating in the
exchange offer aware (through the exchange
offer prospectus) that any broker-dealer who
holds initial notes acquired for its own
account as a result of market-making
activities or other trading activities, and
who receives exchange notes in exchange for
such initial notes pursuant to the exchange
offer, may be a statutory underwriter and
must deliver a prospectus meeting the
requirements of the Securities Act as
described in paragraph (4)(a) above in
connection with any resale of such exchange
notes; and
(ii) will include in the transmittal letter or
similar documentation to be executed by an
exchange offeree in order to participate in
the exchange offer an additional provision
that if the exchange offeree is a
broker-dealer holding initial notes acquired
for its own account as a result of
market-making activities or other trading
activities, an acknowledgement that it will
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of exchange notes
received in respect of such initial notes
pursuant to the exchange offer. The
transmittal letter or similar documentation
may also include a statement to the effect
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
Management's Discussion and Analysis of Financial Condition, page 25
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Liquidity and Sources of Capital, page 30
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3. We note the revisions you made to your tabular presentation of
contractual obligations in response to comment 13 of our letter dated
April 28, 2005. It appears to us that you should further revise your
presentation to:
- Reflect estimated variable interest payments in the
table for each period based on the current amount
outstanding and current interest rates and disclose
the assumptions used to estimate such amounts. If you
do not reflect estimated
Pamela A. Long
Securities and Exchange Commission
June 14, 2005
Page 6
variable interest payments in the table, revise note
(1) to quantify them for each period based on the
current amount outstanding and current interest rates
and disclose the assumptions used to estimate such
amounts; and
- Reflect postretirement obligations beyond 2014 in the
table. If you do not reflect postretirement
obligations beyond 2014 in the table, revise note (2)
to explain why they are excluded and provide an
estimate of the payments beyond 2014.
The Company has revised note (1) to the tabular presentation of
contractual obligations to reflect the impact of variable rate debt and
the assumptions used to estimate such amounts.
The Company has not revised note (2) to the tabular presentation of
contractual obligations with respect to post-retirement benefit
obligations. In accordance with FASB Statement 132R, the Company is
required to present estimated post-retirement benefit payments for each
of the next five fiscal years and in the aggregate for the five fiscal
years thereafter. Accordingly, the Company has only presented estimated
post-retirement obligations through 2014.
Legal Proceedings, page 45
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4. We note your supplemental response to comment 15 in our letter dated
April 28, 2005, stating the amount of damages claimed in four on-going
asbestos cases. It appears the aggregate amount of claimed damages in
these and other cases exceeds ten percent of your current assets as of
December 31, 2004. Please provide the disclosures required by Item 103
of Regulation S-K. We would not object to clarifying disclosures
regarding the damages sought similar to the disclosure contained in
your response.
The Company has revised the disclosure on pages 48 and 49 to provide
the disclosures required by Item 103 of Regulation S-K.
Revenue Recognition, page F-8
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5. We note from your response to comment 27 of our April 28, 2005 letter
that the final payment for short-term contracts is deferred and
recorded upon completion of installation and final customer acceptance.
It is not clear to us why you only defer the portion of these
arrangements representing the final payment instead of the entire
amount. Please tell us the terms of these arrangements and explain how
you determined that your policy is appropriate and complies with SAB
101, SAB 104, and EITF 00-21.
The Company confirms that for the majority of its short-term contracts
approximately 90% of the customer payments are required to occur prior
to installation. Installation involves equipment set-up,
plumbing/electrical/pneumatic connection and production validation at
the customer site. Installation costs constitute approximately 2% of
the
Pamela A. Long
Securities and Exchange Commission
June 14, 2005
Page 5
contract revenue and do not vary widely. Based upon the specific
application, there are several independent service providers that can
install the equipment, and, in some cases, the customer may complete
the installation, which may take from a few hours to a few days to
complete depending on the type of installation. Based on the contracts,
installation impacts payments of only 10% of the contract value, and
the Company defers the portion of the contract price that is withheld
or refundable until the installation is complete because that portion
would not be realized or realizable in accordance with SAB 104.
6. We also note from your response that service revenue is immaterial to
your business. Therefore, please consider revising your disclosures in
business and in MD&A to more clearly describe the nature of your
activities. It appears to us that your current disclosures imply that
services are a more material aspect of your business than they actually
are.
The nature of the Company's business does include the provision of
various value-added services. However, these services are not
considered separate units of accounting because they do not meet any
of the criteria in paragraph 9 of EITF 00-21. Therefore, the price for
services are not charged for separately, but are instead included in
the price charged to customers for the products the Company sells. As
previously disclosed to the staff, true service revenue is immaterial
to the Company's business. Accordingly, the Company has not revised its
disclosures in business or MD&A.
7. We note your response to comment 28 of our April 28, 2005 letter.
Provide us additional information related to the specific nature and
terms of your long-term contracts and the milestones included in those
contracts.
Terms and milestones may vary from contract to contract, but generally
for long-term contracts (contracts that extend beyond 180 days),
payment terms are 20% upon contract initiation, 10% upon engineering
approval, 20% upon purchase of materials for manufacturing, 40% prior
to shipment and 10% upon installation. The objective is to maintain a
cash-neutral position and minimize risk on these capital equipment
projects. The Company confirms that it recognizes revenue on these
contracts on the basis of the percentage each contract's cost to date
bears to the total estimated contract cost.
Note F - Accrued Expenses, page F-13
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8. We note the revisions you made in response to comment 30 of our letter
dated April 28, 2005, however, we also note the disclosures in your
Form 10-Q for the period ended March 31, 2005. In the updated interim
financial statements you include in the Form S-4, and in future
quarterly filings, provide a roll-forward of your warranty accrual for
both the current and comparative interim periods.
The Company has revised its warranty accrual roll-forward disclosure in
the footnotes to the interim financial statements provided in the Form
S-4 to include disclosure of both
Pamela A. Long
Securities and Exchange Commission
June 14, 2005
Page 6
the current and comparative interim periods. The Company will provide a
roll-forward of the warranty accrual for both the current and
comparative interim periods in future quarterly filings.
Please contact the undersigned at (216) 692-7004 if you have any
further questions concerning these filings. Thank you for your attention to this
matter.
Very truly yours,
/s/ Robert D. Vilsack
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Robert D. Vilsack, Esq.
cc: Christopher M. Kelly, Esq.
Michael J. Solecki, Esq.