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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 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________________ to ______________________
Commission file number 0-3134
PARK-OHIO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-6520107
- - ------------------------------------------- -------------------------------------
(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)
$.75 CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE
----------------------------------------------------------------------
(TITLE OF CLASS)
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 definite 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 21, 1996: Approximately $126,997,000
Number of shares outstanding of the registrant's Common Stock, par value
$1.00 per share, as of February 29, 1996: 10,966,331
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT DATED APRIL 17, 1996 ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
The Exhibit Index is located on page 35.
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PART I
ITEM 1. BUSINESS
Park-Ohio Industries, Inc. ("Park-Ohio"), an Ohio corporation, is a
diversified manufacturer whose operations serve a wide variety of industrial
and consumer markets. Park-Ohio's industry segments are (i) container
products, (ii) transportation, (iii) consumer products, and (iv) logistics.
Headquartered in Cleveland, Ohio, Park-Ohio is publicly held, and its shares
are traded on the NASDAQ National Market System. In 1995, Park-Ohio had net
sales of $371.4 million and as of December 31, 1995, employed approximately
2,800 persons.
Effective March 31, 1995 Park-Ohio acquired all of the shares of RB&W
Corporation ("RB&W") in exchange for $31 million and 2.0 million shares of its
Common Stock in a transaction valued at $54.2 million. The combination has
been accounted for as a purchase and, accordingly, the operations of RB&W are
included in the consolidated financial statements as of that date. The metal
forming business of RB&W is included within the transportation group, and the
supply chain management business is included in a newly-formed logistics group.
CONTAINER PRODUCTS
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Bennett Industries, Inc. ("Bennett"), a wholly-owned subsidiary, makes
plastic pails, mostly in 2 to 7 gallon sizes for packagers of food,
industrial coatings, and building materials. Bennett has approximately 550
employees. Plastic pail production is conducted at its plants in
Valparaiso, Indiana; Dunellen, New Jersey; Lithonia, Georgia; San Fernando,
California and Cleveland, Ohio. The Cleveland, Ohio facility was acquired
on December 30, 1993, from Cleveland Steel Container for $2.4 million in cash
and assets of Bennett's steel container plant in Peotone, Illinois.
The plastic pails are distributed nationally through direct sales and
manufacturers' representatives. In 1995, the largest single container customer
accounted for approximately 9% of this segment's sales. The loss of such
customer would have a material, adverse effect on this segment. Raw materials
for the production of these containers are available from a number of resin
suppliers.
Conditions in the container industry are extremely price competitive.
Bennett's competitors include Letica Corporation, Plastican Incorporated and
North American Packaging Corporation.
TRANSPORTATION
- - --------------
Park-Ohio's transportation segment includes forged and machined
products, metal forming, induction heating systems, aluminum permanent
mold castings, and industrial rubber products.
During 1995, in addition to the acquisition of the metal forming
business of RB&W, Park-Ohio also purchased certain assets of four companies
for a total cost of $6.4 million. The operations of these businesses prior to
the dates of acquisition were not material to Park-Ohio.
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On October 15, 1993, Park-Ohio acquired General Aluminum Mfg. Company
("GAMCO") by issuing 250,000 shares of its Common Stock in exchange for the
outstanding shares of GAMCO. See Note B to the consolidated financial
statements included herein. GAMCO is headquartered in Conneaut, Ohio and
produces and machines aluminum permanent mold castings for the transportation
industry.
FORGED AND MACHINED PRODUCTS
- - ----------------------------
Park-Ohio produces closed die forgings and machines and finishes forgings
produced by it and others. The transportation industry is Park-Ohio's
major market for its forged and machined products. Park-Ohio forges
crankshafts and machines camshafts and crankshafts for diesel engines used in
trucks, locomotives, buses, farm machinery, marine and other applications. It
also forges components and other high-strength, high-performance, structural
parts for civilian and military aircraft, truck, military ordnance and other
machinery and equipment producers.
Park-Ohio's forging and machining business is carried out by approximately
400 employees in five plants, three of which are located in Cleveland,
Ohio, one in Wellington, Ohio and one in Berwick, Pennsylvania.
Forging and machining sales are generated by an internal sales force and
through independent sales representatives. The single largest customer
accounted for approximately 30% of sales of forged and machined products in
1995. The loss of such customer would have a material, adverse effect on this
business.
Competition for forging and machining work is substantial. Several of
Park-Ohio's larger customers also do their own forging or machining and there
are many independent companies in this field, some of which are substantially
larger than Park-Ohio.
Park-Ohio's forgings are made primarily from various kinds of steel alloys.
These raw materials are generally available from a number of sources.
METAL FORMING
- - -------------
RB&W metal forming includes the engineering and manufacturing of cold
formed products and related hardware, principally, internally threaded parts
and miscellaneous formed metal components and assemblies which are manufactured
in high volume by cold forming, cold extrusion and specialized secondary
operations. The predominant material used is steel of various carbons and
alloys which is purchased directly from steel mills as hot rolled coils of rods
or bars of various diameters. Non-ferrous materials such as silicon bronze are
purchased in coils ready for use. These raw materials are generally available
from a number of sources.
RB&W manufactures certain trademark items which are used in volume in the
automobile and truck industry and segments of the farm and machinery
businesses. These include lock nuts which find principal use in applications
where vibration is a problem and controlled tightening is desired.
RB&W's metal forming business is carried out by approximately 300
employees in three plants located in Kent, Ohio; Coraopolis, Pennsylvania and
Toronto, Ontario.
Metal forming products are sold through an internal sales force and through
independent representatives. The four largest customers accounted for
60% of sales in 1995. The loss of business from any one of these customers
would have an adverse effect on this business.
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The domestic industrial fastener industry, which accounts for all of the
products of RB&W's metal forming business, is highly price competitive. RB&W
is one of the largest of several domestic producers of industrial fasteners.
INDUCTION HEATING SYSTEMS
- - -------------------------
Park-Ohio custom engineers, manufactures and sells induction heating
systems under the TOCCO brand name through Tocco, Inc. ("Tocco"), a
wholly-owned subsidiary. TOCCO induction heating systems are used primarily
for heat treating, surface hardening, heating for forging, brazing, soldering,
annealing, shrink-fitting, melting, welding and heating metal components,
principally for the purpose of up-grading the wear and fatigue resistance
features of such components.
Automotive and automotive supplier companies are Tocco's major customers
with farm equipment manufacturers second and miscellaneous metalworking
companies third. TOCCO systems are sold worldwide. Several companies
manufacture equipment competitive with some or all of the TOCCO equipment.
While standard "off the shelf" systems are produced, it is more often necessary
to engineer unique installations to meet the particular needs of the customer.
TOCCO custom engineering may involve systems with a series of loading, heating,
quenching, conveying and unloading processes incorporated into a single unit.
The individually designed systems may involve micro-processor controls,
adaptable modular construction and solid state technology. All production is
conducted at Tocco's manufacturing facility in Boaz, Alabama. In addition, a
laboratory and customer service facility is located in Madison Heights,
Michigan. Tocco employs approximately 200 people.
Sales are made both through its own sales organization and through
independent representatives. The three largest customers, each comprised of
many divisions, accounted for approximately 48% of sales of TOCCO systems and
service in 1995. The loss of business from any one of these customers'
divisions would have a material, adverse effect on this business.
The various electrical components, electrical wiring, metal stampings, and
other materials incorporated in the systems are generally available from a
variety of sources.
ALUMINUM PERMANENT MOLD CASTINGS
- - --------------------------------
Park Ohio produces and machines aluminum permanent mold castings for the
transportation industry through GAMCO, a wholly-owned subsidiary. GAMCO
operates with approximately 350 employees with plants located in Conneaut, Ohio
and Hartsville, Tennessee. The castings produced by GAMCO are used in
automobiles, vans and light trucks. GAMCO maintains a favorable competitive
position since its primary plant has received quality awards from its major
automotive customers and believes that it is one of the few permanent mold
aluminum foundries in the United States to have received these awards. Raw
materials for production, primarily aluminum ingots of various alloys, are
generally available. Products are sold directly and through sales'
representatives. The largest customer, comprised of many divisions, accounted
for approximately 60% of sales in 1995. The loss of business from any of the
divisions of this customer would have a materially adverse effect on this
business.
INDUSTRIAL RUBBER PRODUCTS
- - --------------------------
Park-Ohio's industrial rubber products consist of molded and lathe cut
goods, roll coverings, linings and items requiring rubber-to-metal bonding.
Rubber products produced by Park-Ohio are used in air brake equipment, gas and
oil lines, motors, compressors, automobiles, caskets, communication equipment,
printing rolls and steel mills. Market conditions are competitive. Products
are sold directly and through sales
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representatives to a variety of industries. Raw materials for production
include natural and synthetic rubber and metal inserts, all of which are
generally available.
Park-Ohio's industrial rubber products business is carried out by
approximately 300 employees in three plants located in East Butler,
Pennsylvania; Geneva, Ohio; and Cicero, Illinois. The two largest customers
accounted for approximately 26% of sales in 1995. The loss of business from
either of these customers would have a material, adverse effect on this
business.
CONSUMER PRODUCTS
- - -----------------
Park-Ohio manufactures barbecue grills, lawn spreaders, lap trays, patio
tables, tray table sets, plant stands and planters through Kay Home Products,
Inc. ("KHP"), a wholly-owned subsidiary acquired on June 30, 1992. Sales are
made through its own sales organization and through independent
representatives. KHP distributes the products nationwide through a network
comprised of mass merchandisers, grocery chains, drug stores, and hardware
stores. Market conditions are price competitive. KHP has operations in
Cleveland, Ohio; Antioch, Illinois and Columbus, Ohio. Because KHP's business
is very seasonal, the number of its employees varies from approximately 100
during the off season to a peak of approximately 400.
For the period ended December 31, 1995, one customer accounted for 10% of
net sales. The loss of such customer would have a materially adverse effect on
this business. KHP is not dependent upon any particular suppliers.
LOGISTICS
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The principal activity of Park-Ohio's logistics business is the supply
chain management of various commodity products primarily fasteners,
principally to original equipment manufacturers. Logistics locations inventory
several thousand items which are readily available including common standard
fasteners such as bolts, nuts and cap screws; machine tapping and wood screws;
stainless steel and non-ferrous bolts, nuts and screws; patented and
proprietary locking fasteners; plus non-standard engineered special items
inventoried for specific customer's orders. The logistics business is carried
out by approximately 500 employees, has 31 branches located throughout the
United States, Puerto Rico, Mexico and England, and has a central distribution
center located in Dayton, Ohio. The central distribution center receives,
processes and packages certain materials for the 31 branches.
The logistics business sales are generated through national agreements,
Total Fastening Service ("TFS") contracts, along with field and telemarketing
efforts on the part of each branch. These TFS contracts with large original
equipment manufacturers have increased significantly over the last few years.
The products sold by logistics are manufactured by a broad base of domestic
fastener manufacturers, as well as qualified sources around the world. The
single largest customer accounted for approximately 15% of sales of logistics.
The loss of such customer would have a material adverse effect on this
business.
The logistics business is competitive in both price and service and
competes with a large number of companies, including those with domestic
manufacturing operations, and other importers, many of whom have access to the
same or similar sources of supply.
ENVIRONMENTAL REGULATIONS
- - -------------------------
Park-Ohio is subject to numerous laws and regulations designed to protect
the environment, particularly in regard to waste and emissions. In general,
Park-Ohio has not experienced difficulty in complying with environmental
protection provisions in the past, and compliance with such laws and
regulations has not had a materially adverse effect on Park-Ohio's operations.
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INFORMATION AS TO INDUSTRY SEGMENT REPORTING
- - --------------------------------------------
The information contained under the heading of "Note K - 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, 1995, 1994 and 1993 is incorporated
herein by reference.
ITEM 2. PROPERTIES
Park-Ohio's operations include numerous manufacturing and warehousing
facilities located in 21 states in the United States and in 4 other countries.
In 1995, approximately 61% of the available domestic square footage was used by
the transportation group, 14% by the consumer products group, 13% by the
logistics group, and 12% by the container products group. Approximately 76%
of the foreign facilities were used by the transportation group and 24% were
used by the logistics group.
In the opinion of management, Park-Ohio's facilities are generally well
maintained and are suitable and adequate for their intended use.
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ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved in litigation arising out of its normal
business activities. In the opinion of management, the Company's liability, if
any, under any pending litigation would not materially affect its financial
position 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 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to executive officers of Park-Ohio is as follows:
EXECUTIVE
OFFICER OF
REGISTRANT
NAME AGE PRESENT EXECUTIVE OFFICE SINCE
---- --- ------------------------ -----------
Edward F. Crawford 56 Chairman and Chief Executive Officer 1992
John J. Murray 40 President and Chief Operating Officer 1995
James S. Walker 53 Vice President and Chief Financial 1983
Officer
Ronald J. Cozean 32 Secretary and General Counsel 1994
Mr. Walker has been an employee of Park-Ohio for more than five years.
Since 1964, Mr. Crawford owned and operated various private companies and is
currently Chairman and Chief Executive Officer, Crawford Group, Inc. From
April, 1989, to his resignation in March, 1991, Mr. Crawford was a director of
Park-Ohio. On June 17, 1992, the shareholders approved the acquisition of Kay
Home Products, Inc., a company wholly-owned by Mr. Crawford. At that time, Mr.
Crawford was appointed to the Board of Directors and was elected Chairman,
Chief Executive Officer and President of Park-Ohio. Mr. Murray became the
President and Chief Operating Officer on January 1, 1995. He had been
President of KMR Industries, Inc. (business consulting firm) since 1991 and was
formerly the President and Chief Operating Officer, Rennoc Corporation
(manufacturing company) from 1989 to 1990. Mr. Murray was elected to the Board
of Directors in 1992. Mr. Cozean was an attorney with the law firm of Squire,
Sanders & Dempsey prior to joining the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Park-Ohio's common stock, $1 par value, is traded on the NASDAQ
National Market System. The table presents its high and low sales prices. No
dividends were paid during the periods.
QUARTERLY COMMON STOCK PRICE RANGES
1995 1994
----------------- ------------------
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
1st 14 10-5/8 18-1/8 12-5/8
2nd 12-1/4 11 17-1/8 12-3/8
3rd 15-1/8 12 15-3/4 12-1/2
4th 16-1/4 12-1/2 14-1/8 12-3/4
The number of common shareholders of record for Park-Ohio's common stock as
of March 21, 1996 was 2,201.
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ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per share data)
Operations
Net sales $371,430 $191,527 $147,168 $119,839 $115,497
Gross profit 55,217 33,665 25,369 17,027 19,396
Income (loss) from
continuing operations 24,034 12,484 6,031 (7,655) (4,001)
Cumulative effect of change
in accounting principle -0- -0- -0- (26,891) -0-
Net income (loss) 24,034 12,484 6,031 (34,546) (10,217)
Net income (loss) per common
share:
Continuing operations 2.34 1.49 .90 (1.28) (.72)
Net income (loss) 2.34 1.49 .90 (5.76) (1.83)
Financial Position
Working capital 101,213 30,127 20,519 15,297 17,932
Total assets 306,970 134,615 97,664 71,729 62,610
Long-term debt 96,503 9,766 25,054 12,008 3,228
Subordinated debentures 22,235 22,235 -0- -0- -0-
Shareholders' equity 95,954 46,715 17,933 8,795 39,742
<FN>
(A) On March 31, 1995 the Company acquired all of the shares of RB&W
Corporation in exchange for 2,023,000 shares of the Company's common
stock and cash. The transaction was accounted for as a purchase and,
accordingly, the operations of RB&W have been included since that
date.
(B) In 1995 and 1994, the Company reduced by $8,100,000 and $2,000,000,
respectively, the valuation allowance on deferred tax assets relating
to anticipated future income tax benefits from utilization of net
operating loss carryforwards and postretirement obligations.
(C) On October 15, 1993, the Company acquired General Aluminum Mfg.
Company in an exchange of shares. The acquisition has been accounted
for as a purchase. On June 30, 1992, the Company acquired
substantially all of the assets of Kay Home Products, Inc. The
acquisition has been accounted for as a purchase.
(D) Effective January 1, 1992, the Company adopted the provisions of
Financial Accounting Standards Board No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," changing to the
accrual method of accounting for these benefits, which resulted in a
noncash charge to operations of $26,891,000 as of that date. During
1993, the Company reduced costs and revised its actuarial assumptions
to reflect experience.
(E) This summary should be read in conjunction with the related
Management's Discussion and Analysis of Financial Condition and
Results of Operations included under Item 7 elsewhere herein.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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1995 VERSUS 1994
Effective March 31, 1995, the Company acquired all of the shares of
RB&W in exchange for $31 million and 2.0 million of its common shares in a
transaction valued at $54.2 million. The combination has been accounted for as
a purchase and, accordingly, the operations of RB&W are included in the
consolidated financial statements as of that date. The metal forming business
of RB&W is included within the transportation group, and the supply chain
management business is included in a newly-formed logistics group.
Net sales increased by $179.9 million during the period, of which
$139.2 million pertained to RB&W whose results are included for the period
April through December 1995. Of the sales increase applicable to RB&W, $108.5
million pertains to the logistics group and $30.7 million relate to the metal
forming business included within the transportation group. Net sales for the
transportation group increased by $23.7 million primarily as a result of
acquisitions made in 1995 that contributed $18.8 million in sales. In the
container products group, net sales increased by $19.6 million, all of which
were internally generated. Containers shipped for the period increased by 18%
with average prices per container increasing by 14%.
Gross profit rose to $55.2 million in the current period from $33.7
million for 1994. Of the $21.5 million increase in gross profits, RB&W
accounted for 92% of the increase. Consolidated gross margins were 15% of
sales in 1995 compared with approximately 17% of sales in 1994. The decline in
gross margins was due, in part, to RB&W which has lower gross margins than
the Company as a whole. In addition, margins in both the consumer and container
products groups declined as a result of increased raw material costs that could
not be adequately reflected in pricing and to product mix changes, particularly
in the consumer products group.
Selling, general and administrative costs increased by 49% in the
period largely as a result of including RB&W in the consolidated results. As a
percentage of sales, consolidated selling, general and administrative costs
accounted for 8.5% of the sales dollar in the current period compared to
11.0% in 1994.
Interest expense increased by $4.8 million in 1995 due to higher
levels of debt outstanding during the period. Average debt outstanding for the
period increased from $27.8 million in 1994 to $92.0 million in 1995. The
increase in borrowings was caused by the acquisition of RB&W, other
acquisitions, higher levels of revolving credit debt to support increased
sales and to the convertible subordinated debentures issued in May 1994, being
outstanding for the entire current period. Interest rates averaged 7.39% versus
7.32% in 1994.
The income tax benefit of $6.9 million in 1995 primarily results from
recording an $8.1 million reduction in the valuation allowance on deferred tax
assets. Full realization of future income tax benefits from utilization of net
operating loss carryforwards is expected. At December 31, 1995, the Company
had net operating loss carryforwards for tax purposes of $16.0 million
available to offset future taxable income. Additionally, a subsidiary of the
Company has net operating loss carryforwards for tax purposes of approximately
$10.0 million, subject to certain limitations. For financial reporting
purposes, the Company has additional net operating loss carryforwards relating
to deductible temporary differences, the most
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significant of which relates to other postemployment benefits. Federal
income tax expense for 1995 has been reduced by approximately $5.1 million due
to the utilization of net operating loss carryforwards.
1994 VERSUS 1993
On October 15, 1993, the Company acquired GAMCO by issuing 250,000
shares of common stock valued at $3.1 million in exchange for the outstanding
shares of GAMCO. Up to an additional 750,000 shares of common stock could be
issued if GAMCO achieves certain income levels during the four-year period
ending December 31, 1997. The acquisition has been accounted for as a purchase.
As of December 31,1995, 187,500 common shares were earned and an additional
187,500 shares are deemed to have been earned under the earnout provisions and,
accordingly, have been included in the computation of earnings per share.
Net sales increased by 30% in 1994 compared to 1993. This increase is
primarily a result of receiving the full impact of acquisitions made in 1993.
For 1994, the transportation group's net sales increased by 42% over the prior
year with 15% of the increase attributable to internal sales growth and 85% to
acquisitions made in 1993. For the consumer products group, net sales increased
by 21% largely as a result of acquisitions made by the Company in the fourth
quarter of 1993. The container group's net sales increased by 18% primarily
due to the acquisition of the Cleveland Container facility in December, 1993.
Consolidated gross profit which approximates 17% of net sales in both
1994 and 1993 rose $8.3 million to $33.7 million. Acquisitions made in 1993
accounted for 69% of this increase, while internal growth accounted for 31%
primarily in the transportation group. The increase in the transportation group
relates to the increase in net sales.
Selling, general and administrative costs increased by approximately
$3.2 million primarily as a result of the 42% increase in net sales for the
period. However, as a percentage of sales, selling, general and administrative
expenses declined to 11% from 12% of sales in the corresponding period of the
prior period.
Interest expense increased by 58% to $2.0 million in 1994. This
increase is a result of issuing $22.2 million principal amount of 7-1/4%
Convertible Senior Subordinated Debentures in the second quarter of 1994 and to
increased borrowings under the Company's revolving credit arrangements
necessitated by higher demands on the Company's working capital to support the
increased sales and by increased capital expenditures and other capital asset
acquisitions.
The income tax benefit of $1.8 million in 1994 primarily results from
recording a $2.0 million reduction in the valuation allowance on deferred tax
assets relating to anticipated future income tax benefits from utilization of
net operating loss carryforwards. In 1993, the Federal income tax provision of
$242 thousand related primarily to certain subsidiaries not consolidated for
Federal income tax purposes and, to the alternative minimum tax. At December
31, 1994, the Company had net operating loss carryforwards for tax purposes of
$22 million available to offset future taxable income. For financial reporting
purposes, the Company has additional net operating loss carryforwards relating
to deductible temporary differences, the most significant of which relates to
other postretirement benefits. Federal income tax expense for the 1994 period
has been reduced by approximately $3.5 million ($1.8 million in 1993) due to
the utilization of net operating loss carryforwards.
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LIQUIDITY AND SOURCES OF CAPITAL
- - --------------------------------
The ratio of current assets to current liabilities was 2.72 at
December 31, 1995, compared to 2.20 at December 31, 1994 and 1.79 at December
31, 1993. Working capital increased by $69.1 million to $101.2 million at
December 31, 1995, primarily resulting from the acquisition of RB&W.
During 1995, the Company entered into a new credit agreement with its
banks under which it may borrow up to $125 million on an unsecured basis. The
agreement which replaced the Company's existing credit facility, consists of a
$90 million revolving credit and a $35 million term loan, payable over seven
years. As of December 31, 1995, $94.0 million was outstanding under this
facility. During 1995, the Company entered into interest rate swap agreements
for a notional amount of $50.0 million. These interest rate swap agreements,
maturing in 2000, are associated with a portion of the principal balance and
term of specific debt obligations. There are no swap agreements that are not
designated with outstanding debt. The weighted average pay rate and receive
rate under these agreements is 5.83% and 5.88%, respectively, at December 31,
1995. For 1995, the effect of the interest rate swap agreement on operations
was not material.
Current financial resources (working capital and available bank
borrowing arrangements) and anticipated funds from operations are expected to
be adequate to meet cash requirements for 1996, including estimated capital
expenditures of $14.0 million. The Company's growth during the three-year
period ended December 31, 1995, has largely been fueled by acquisitions. In
the event additional capital resources are needed for other acquisition
opportunities in 1996, the Company believes adequate financing is either in
place or would be available.
During 1995, the Company generated $25.9 million from operations
before changes in operating assets and liabilities. After giving effect to
changes in the operating accounts of $29.9 million, the Company used $4.0
million in operating activities. This amount coupled with capital expenditures
of $13.6 million was funded by an increase in bank borrowings. In addition,
the Company borrowed $68.6 million under its revolving credit agreement to
fund acquisitions of $35.8 million, primarily RB&W, and to pay off $32.8
million of acquired debt related to the acquisitions.
During 1994, the Company generated $9.0 million from operations,
borrowed $11.4 million under revolving credit arrangements with a bank group
and sold $20.9 million, net of financing costs, of 7-1/4% Convertible Senior
Subordinated Debentures and $4.2 million of common stock. The combined
proceeds were used to fund capital expenditures of $11.8 million, acquisitions
of $2.1 million, acquire other capital assets of $2.9 million and retire $26.7
million of bank indebtedness under revolving credit and term loan arrangements.
For 1993, the Company financed its cash outflows from cash generated
from operations and bank borrowings. For the year, the Company generated $4.9
million from operations, and borrowed $9.9 million from its revolving credit
with a bank. These funds were used primarily to finance capital expenditures,
plant and equipment of $5.0 million, fund acquisitions of $6.9 million and to
repay bank borrowings of $2.1 million.
Long-term debt and the convertible senior subordinated debentures
represented 55% of the Company's capital at December 31, 1995, 41% at
December 31, 1994 and 58% at December 31, 1993.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- - ----------------------------------------------
The Financial Accounting Standards Board has issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and Statement No. 123, "Accounting for Stock-based
Compensation". The Company is required to adopt Statement No. 121 during the
first quarter of 1996 and Statement No. 123 during 1996.
12
13
The adoption of these statements in 1996 will not have a material effect on the
Company's consolidated financial position or results of operations.
IMPACT OF INFLATION
- - -------------------
Although inflation was not a significant factor in 1995, the Company
continues to seek ways to cope with its impact. To the extent permitted by
competition, the Company's operations generally attempt to pass on increased
costs by increasing sales prices over time. The Company generally uses both
the LIFO and FIFO methods of accounting for its inventories. Under the LIFO
method, accounting for 31% of inventory valuation, the cost of products sold
reported in the consolidated financial statements approximates current
production costs. Under the FIFO method, accounting for 69% of inventory
valuation, current costs are generally reflected in cost of products sold as
manufactured product is sold. The charges to operations for depreciation
represent the allocation of historical costs incurred over past years and are
significantly less than if they were based on the current cost of productive
capacity being consumed.
OTHER
- - -----
Governmental agencies have identified eight disposal sites for
clean-up under Superfund and similar laws to which the Company has been named a
Potential Responsible Party. The Company is participating in the cost of
certain clean-up efforts. However, the Company's share of such costs has not
been material and is not expected to have a material adverse impact on the
Company's financial condition or results of operations.
13
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Financial Data
Page
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 15
Financial Statements:
Consolidated balance sheets - December 31, 1995 and 1994 . . . . . . . . 16
Consolidated statements of income - Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 17
Consolidated statements of shareholders' equity - Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 18
Consolidated statements of cash flows - Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 19
Notes to consolidated financial statements . . . . . . . . . . . . 20 - 29
Supplementary Financial Data:
Selected quarterly financial data (unaudited) - Years
ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 30
14
15
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Park-Ohio Industries, Inc.
We have audited the consolidated financial statements of Park-Ohio Industries,
Inc. and subsidiaries listed in the index at Item 14(a)(1). 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 generally accepted auditing
standards. 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
Industries, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 22, 1996
15
16
CONSOLIDATED BALANCE SHEETS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
December 31
-----------
1995 1994
---- ----
(In Thousands)
Assets
Current Assets
Cash and cash equivalents $ 2,662 $ 2,172
Accounts receivable, less allowances for doubtful accounts
of $962,000 in 1995 and $394,000 in 1994 61,787 27,165
Inventories 83,177 25,651
Deferred taxes 8,000 2,000
Other current assets 4,394 1,845
-------------- --------------
Total Current Assets 160,020 58,833
Property, Plant and Equipment
Land and land improvements 3,349 2,925
Buildings 29,497 24,096
Machinery and equipment 104,878 84,860
-------------- --------------
137,724 111,881
Less accumulated depreciation 67,373 61,246
-------------- --------------
70,351 50,635
Excess purchase price over net assets acquired, net 44,070 16,727
Deferred taxes 15,400 -0-
Other assets 17,129 8,420
-------------- --------------
$ 306,970 $ 134,615
============== ==============
Liabilities and Shareholders' Equity
Current Liabilities
Trade accounts payable $ 34,769 $ 15,353
Accrued expenses 18,067 8,884
Current portion of long-term liabilities 5,971 2,469
-------------- --------------
Total Current Liabilities 58,807 26,706
Long-Term Liabilities, less current portion
Long-term debt 92,450 9,513
Other postretirement benefits 30,561 27,800
Other 6,963 1,646
-------------- --------------
129,974 38,959
Convertible Senior Subordinated Debentures 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share
Serial preferred stock:
Authorized - 632,470 shares; Issued - none -0- -0-
Common stock:
Authorized - 20,000,000 shares
Issued and outstanding - 10,401,831 shares in 1995 and
8,191,810 in 1994 10,402 8,192
Additional paid-in capital 49,184 26,189
Retained earnings 36,368 12,334
-------------- --------------
95,954 46,715
-------------- --------------
$ 306,970 $ 134,615
============== ==============
See notes to consolidated financial statements.
16
17
CONSOLIDATED STATEMENTS OF INCOME
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands, Except Per Share Data)
Net sales $ 371,430 $ 191,527 $ 147,168
Cost of products sold 316,213 157,862 121,799
----------- ----------- -----------
Gross profit 55,217 33,665 25,369
Selling, general and administrative expenses 31,373 21,049 17,854
----------- ----------- -----------
Operating income 23,844 12,616 7,515
Interest expense 6,710 1,958 1,242
----------- ----------- -----------
Income before Income Taxes 17,134 10,658 6,273
Income taxes (benefit) (6,900) (1,826) 242
----------- ----------- -----------
Net Income $ 24,034 $ 12,484 $ 6,031
=========== =========== ===========
Net income per common share $ 2.34 $ 1.49 $ .90
=========== =========== ===========
Common shares used in the computation 10,257 8,092 6,642
Preferred dividends per share $ -0- $ -0- $ .75
See notes to consolidated financial statements.
17
18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
Cumulative
Convertible Additional
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
------------ ------------- -------------- ------------- ------------
(In Thousands)
Balance at January 1, 1993 $ 37 $ 6,457 $ 8,455 $ (6,154) $ 8,795
Net income 6,031 6,031
Conversion of 24,667
preferred shares
into 49,334 common
shares (24) 48 (24) -0-
Redemption of preferred
shares (13) (178) (191)
Acquisitions of General
Aluminum Mfg. Company
and Gilchrist Kustom
Molders, Inc. 264 3,052 3,316
Preferred stock cash
dividends (27) (27)
Issuance of common shares
upon exercise of stock
options 2 7 9
----------- ----------- ----------- ----------- -----------
Balance at December 31,1993 -0- 6,771 11,312 (150) 17,933
Net income 12,484 12,484
Issuance of Kay Home
Products earn-out shares 1,150 10,925 12,075
Sale of common stock 271 3,952 4,223
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 -0- 8,192 26,189 12,334 46,715
Net income 24,034 24,034
Acquisition of RB&W
Corporation 2,023 21,251 23,274
Issuance of General
Aluminum Mfg. Company
earn-out shares 187 1,744 1,931
------------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 $ -0- $ 10,402 $ 49,184 $ 36,368 $ 95,954
============= =========== =========== =========== ===========
See notes to consolidated financial statements.
18
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 24,034 $ 12,484 $ 6,031
Adjustments to reconcile net income to net cash
provided:
Depreciation and amortization 10,002 5,888 4,936
Tax benefit resulting from reduction of
valuation allowance on deferred tax assets (8,100) (2,000) -0-
------ ------ --------
25,936 16,372 10,967
Changes in operating assets and liabilities excluding
acquisitions of businesses:
Accounts receivable (3,595) (1,820) (2,485)
Inventories (15,402) (6,201) (2,826)
Accounts payable and accrued expenses (6,328) 2,573 (1,343)
Other (4,603) (1,897) 598
------ ------ --------
(29,928) (7,345) (6,056)
------- ------ ------
Net Cash Provided (Used) by Operating Activities (3,992) 9,027 4,911
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (13,632) (11,749) (4,992)
Costs of acquisitions (35,793) (2,114) (6,886)
Other -0- (2,909) (548)
-------- -------- --------
Net Cash Used by Investing Activities (49,425) (16,772) (12,426)
FINANCING ACTIVITIES
Proceeds from bank arrangements related to acquisitions 68,580 -0- -0-
Proceeds from bank arrangements for operations 18,389 11,350 9,900
Payments on acquired debt (32,787) -0- -0-
Payments on long-term debt (275) (26,661) (2,148)
Proceeds from convertible senior subordinated
debentures, net -0- 20,872 -0-
Issuance of common stock -0- 4,223 -0-
Other -0- -0- (218)
-------- -------- --------
Net Cash Provided by Financing Activities 53,907 9,784 7,534
-------- -------- --------
Increase in Cash and Cash Equivalents 490 2,039 19
Cash and Cash Equivalents at Beginning of Year 2,172 133 114
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 2,662 $ 2,172 $ 133
======== ======== ========
See notes to consolidated financial statements.
19
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of
the Company and all of its subsidiaries. All 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 $6,474,000 and $7,144,000 higher than reported at
December 31, 1995 and 1994, respectively.
Major Classes of Inventories
----------------------------
December 31
-----------
1995 1994
------- -------
(In Thousands)
In-process and finished goods $ 59,964 $ 14,496
Raw materials and supplies 23,213 11,155
-------- --------
$ 83,177 $ 25,651
======== ========
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at
cost. Major additions 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 (see Note B) over twenty-five years using the straight-line method.
Management periodically evaluates for possible impairment the current value of
these intangibles through cash flow and income analyses of the acquired
businesses. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Statement No.
121 establishes 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. The Company is required to adopt
Statement No. 121 during the first quarter of 1996. The financial statement
effect of adoption will not be material.
PENSIONS: The Company and its subsidiaries have pension plans, principally
noncontributory defined benefit or noncontributory defined contribution plans,
covering substantially all employees. 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 costs charged to operations and the amount funded are
based upon a percentage of the covered employees' compensation.
20
21
INCOME TAXES: Effective January 1, 1993, the Company began accounting for
income taxes under the liability method by adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under Statement
No. 109, the liability method is used in accounting for income taxes whereby
deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets and liabilities
and are measured using the current enacted tax rates. The adoption of FASB No.
109 had no effect on the Company's financial position or results of operations
as net deferred tax assets as of January 1, 1993 were not recognized due to the
Company's net operating loss carryforwards.
NET INCOME PER COMMON SHARE: Net income per common share is based on the
average number of common shares outstanding and assumes the exercise of
outstanding dilutive stock options and the issuance of certain additional
shares subject to earn-out provisions. On a fully-diluted basis, both net
earnings and shares outstanding are adjusted to assume the conversion of the
convertible senior subordinated debentures which were issued in 1994. Fully
diluted earnings per share were $2.23 in 1995 and $1.49 in 1994.
INTEREST RATE SWAP AGREEMENTS: The Company enters into interest rate swap
agreements to modify the interest characteristics of its outstanding debt.
Each interest rate swap agreement is designated with a portion of the principal
balance and term of a specific debt obligation. These agreements involve the
exchange of amounts based on a fixed interest rate for amounts based on
variable interest rates of the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
of interest expense related to the debt. There are no swap agreements that are
not designated with outstanding debt.
REVENUE RECOGNITION: For the majority of its operations, the Company recognizes
revenues upon shipment of its product. Revenues on long-term contracts for the
sale of capital equipment 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 of customers. Revenues
earned on contracts in process in excess of billings are classified in other
current assets in the accompanying balance sheet.
ENVIRONMENTAL: The Company expenses 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, 1995 the Company
had uncollateralized receivables with four transportation industry customers
with several locations approximating $15,300,000 which represents 25% of the
Company's trade accounts receivable. During 1995, sales to these customers
amounted to approximately $76,300,000 which represents 21% of the Company's
revenue.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the 1995 presentation.
21
22
NOTE B - ACQUISITIONS
On March 31, 1995, the Company acquired all of the shares of RB&W
Corporation ("RB&W") in exchange for 2,023,000 shares of the Company's common
stock ($11.50 market value as of March 31, 1995) and cash of $30,968,000. The
transaction has been accounted for as a purchase and, accordingly, the
operations of RB&W have been included since that date.
The table below reflects the current value of the net assets acquired of
RB&W:
(In Thousands)
Cash $ 510
Accounts receivable 29,551
Inventories 36,731
Property, plant and equipment 5,591
Excess purchase price over net assets acquired 24,900
Deferred tax assets 13,300
Other assets 12,620
Notes payable (28,739)
Trade accounts payable (21,524)
Accrued expenses (8,398)
Long-term liabilities (10,300)
---------
$ 54,242
=========
The following unaudited pro forma results of operations assume the
acquisition occurred on January 1, 1994. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in the future.
1995 1994
------------ ------------
(In Thousands - except Per Share Data)
Net sales $ 418,462 $ 359,819
Gross profit 60,712 56,119
Net income 23,018 12,883
Net income per common share $2.13 $1.22
During 1995, the Company also purchased certain assets of four companies
for a total cost of $6,400,000 which includes $1,500,000 for Ajax Manufacturing
Company, purchased from a related party. The operations of these businesses
prior to the dates of acquisition were not material to the Company.
On October 15, 1993, the Company acquired General Aluminum Mfg. Company
("GAMCO") from a related party, by issuing 250,000 shares of its common stock
valued at $3,127,000, in exchange for the outstanding shares of GAMCO. An
additional 187,500 shares of common stock valued at $1,931,250, which
represents purchase price in excess of net assets acquired, were issued in
March, 1995 as a result of GAMCO achieving a certain income level during 1994
as specified in the purchase agreement. Up to an additional 562,500 shares of
common stock may be issued if GAMCO achieves certain income levels during the
three-year period ending December 31, 1997. Throughout 1995, 187,500 of the
remaining 562,500 shares were included in the earnings per share calculation as
it appeared likely such shares would be issued pursuant to this agreement. The
acquisition has been accounted for as a purchase.
On June 30, 1992, the Company acquired substantially all of the assets
of Kay Home Products, Inc. ("KHP") from a related party in consideration of the
assumption of certain of the liabilities of KHP and an initial issuance of
850,000 shares of common stock valued at $3,825,000. An additional 1,150,000
shares of common stock valued at $12,075,000, which represents purchase price
22
23
in excess of net assets acquired, were issued in September, 1994 as a result of
KHP achieving certain income levels for the two-year period ended June 30, 1994
as specified in the purchase agreement. The acquisition has been accounted for
as a purchase.
In 1994, the Company purchased certain assets and a product line from a
company for a total cost of $2,114,000. In 1993, the Company also purchased
certain assets and product lines from four companies for a total cost of
$7,023,000, which includes the issuance of 18,000 common shares valued at
$193,500. The operations of these businesses prior to the dates of acquisition
were not material to the Company.
NOTE C - ACCRUED EXPENSES
Accrued expenses include the following:
December 31
-----------
1995 1994
-------- --------
(In Thousands)
Self-insured liabilities $ 1,269 $ 1,023
Warranty and installation accruals 2,060 2,000
Accrued payroll and payroll-related items 3,442 1,663
State and local taxes 1,317 705
Advance billings 1,301 755
Acquisition liabilities 2,196 -0-
Interest payable 780 -0-
Sundry 5,702 2,738
-------- --------
Totals $ 18,067 $ 8,884
======== ========
NOTE D - FINANCING ARRANGEMENTS
Long-term debt consists of the following:
December 31
-----------
1995 1994
-------- --------
(In Thousands)
Term loan, payable in quarterly installments of
$1,250,000 commencing June 30, 1996 through
December 31, 2001, final payment due March 31,
2002 $ 35,000
Revolving credit maturing on March 31, 1999 59,000 $ 7,000
Industrial Revenue Bond, Boaz, Alabama, 9.25%, due
through 2000 1,300 1,400
GAMCO, payable in monthly installments through November 1,
2003, interest at 3% 703 781
Other 500 585
-------- --------
96,503 9,766
Less current maturities 4,053 253
-------- --------
Totals $ 92,450 $ 9,513
======== ========
Maturities of long-term debt during each of the five years following
December 31, 1995 are approximately $4,053 in 1996, $5,330 in 1997, $5,325 in
1998, $64,523 in 1999 and $7,304 in 2000.
During 1995, the Company entered into a new credit agreement with a group
of banks under which it may borrow up to $125,000,000 ($35,000,000 term loan
and $90,000,000 revolving credit commitments, respectively) on an unsecured
basis. Interest is payable quarterly at the prime lending rate (8.5% at
December 31, 1995) or at the Company's election, at LIBOR plus a percentage
which fluctuates based on specific financial ratios (which aggregated 7.3% at
December 31, 1995). The weighted average rate on borrowings was 7.3% at
December 31, 1995. The credit agreement expires on March 31, 1999 and replaced
the previous credit agreements of the Company.
23
24
The Company has agreements on which $7,000,000 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 1% fee is assessed on standby letters of
credit on an annual basis. As of December 31, 1995, in addition to amounts
borrowed under the revolving credit agreement, there is $4,148,000 outstanding
primarily for standby letters of credit. A fee of 1/4% is imposed by the bank
on the unused portion of available borrowings.
The credit agreement contains limitations on borrowings, investments, lease
rentals, capital expenditures and acquisitions or mergers, and requires
maintenance of specific financial ratios and a minimum net worth.
As of December 31, 1995 the Company has interest rate swap agreements for
notional borrowings of $50 million in which the Company pays a fixed rate and
receives a floating rate equal to the three month LIBOR rate. The weighted
average pay rate and receive rate under these agreements is 5.83% and 5.88%,
respectively. These agreements mature during 2000.
During 1994, the Company sold $22,235,000 of its 7-1/4% convertible senior
subordinated debentures and $4,200,000 of its common stock at $15.75 a share.
The debentures are convertible into shares of the Company's common stock at a
price of $19.32 per share or a rate of 51.76 shares per $1,000 principal amount
of debentures and are subordinated to all senior indebtedness of the Company.
Interest is payable semi-annually.
NOTE E - INCOME TAXES
Significant components of the Company's net deferred tax assets and liabilities
are as follows:
December 31
1995 1994
-------- --------
(In Thousands)
Deferred tax assets:
Postretirement benefit obligation $11,200 $10,100
Tax net operating loss carryforwards 9,000 8,100
Inventory 4,300 -0-
Tax credits 1,200 600
Other - net 5,600 2,600
------- -------
Total deferred tax assets 31,300 21,400
Deferred tax liabilities:
Tax over book depreciation 5,700 5,100
Pension 2,200 1,100
------- -------
Total deferred tax liabilities 7,900 6,200
------- -------
Net deferred tax assets 23,400 15,200
Valuation allowance for deferred tax assets -0- (13,200)
------- -------
Net deferred tax assets $23,400 $ 2,000
======= =======
As of December 31, 1995, the Company reduced by $8,100,000 the remaining
valuation allowance on deferred tax assets relating to anticipated future
income tax benefits from utilization of net operating loss carryforwards as
full realization of these assets is expected.
24
25
The reasons for the difference between income taxes (benefit) and the
amount computed by applying the statutory Federal income tax rate to income
before income taxes are as follows:
Years Ended December 31
-----------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
Computed statutory amount $ 5,800 $ 3,643 $ 2,051
Effect of state income taxes payable 500 -0- -0-
Utilization of net operating loss carryforwards (5,100) (3,469) (1,809)
Reduction in valuation allowance for deferred
tax assets (8,100) (2,000) -0-
------- ------- -------
Income taxes (benefit) $(6,900) $(1,826) $ 242
======= ======= =======
At December 31, 1995, the Company had net operating loss carryforwards for
tax purposes of approximately $16,000,000 available to offset future taxable
income which expire in 2001 to 2007. Additionally, a subsidiary of the Company
has net operating loss carryforwards for tax purposes of approximately
$10,000,000, subject to certain limitations, which expire in 2001 to 2007.
NOTE F - STOCK OPTIONS
Under the provisions of the Company's 1992 Stock Option Plan, incentive
stock options or non-statutory options to purchase 850,000 shares of the
Company's stock may be 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. At December 31,
1995, there were a total of 540,500 options outstanding under the Plan; 200,000
of such options became 100% exercisable after two years from the date of grant
at option prices ranging from $3.813 - $5.125 a share and terminate five years
from the option date; 340,500 of such options become 100% exercisable after
three years from the date of grant at option prices ranging from $9.125 -
$14.25 a share and terminate ten years from the option date. During 1995 and
1994, no options under this Plan were exercised. At December 31, 1995, there
were 269,000 options exercisable at $3.813 - $13.625 a share.
The Company is currently planning to adopt the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation" in 1996.
NOTE G - LEGAL PROCEEDINGS
The Company becomes involved in litigation arising out of its normal
business activities. In the opinion of management, the Company's liability, if
any, under any pending litigation would not have a material effect on its
financial position or results of operations.
25
26
NOTE H - PENSIONS
A summary of the components of net periodic pension credit for the defined
benefit plans and the total contributions charged to pension expense for the
defined contribution plans is as follows:
Years Ended December 31
-----------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
Defined benefit plans:
Service cost $ 287 $ 128 $ 175
Interest cost 3,410 1,558 1,718
Actual return on assets (11,174) 90 (2,197)
Net amortization and deferral 6,632 (2,242) (61)
-------- -------- --------
Net periodic pension credit of defined
benefit plans (845) (466) (365)
Defined contribution plans 802 773 882
-------- -------- --------
Total pension expense $ (43) $ 307 $ 517
========= ======== ========
Assumptions used in the accounting for the defined benefit pension plans were
as follows:
December 31
-----------
1995 1994
------- --------
Weighted average discount rate 7.5% 8.5%
Expected long-term rate of return on assets 8.5 9.5
26
27
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31, 1995 and 1994 for the Company's
defined benefit pension plans.
December 31
-----------
1995 1994
------ ------
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $44,223 $18,211
======= =======
Accumulated benefit obligation $45,872 $19,108
======= =======
Plan assets at fair value $58,563 $21,772
Projected benefit obligation 46,308 19,108
------- -------
Plan assets in excess of projected benefit
obligation 12,255 2,664
Unrecognized net gain (2,956) (274)
Unrecognized prior service cost 1,436 1,383
Unrecognized net asset at January 1, 1987 net of
amortization (231) (345)
------- -------
Net pension asset included in other assets $10,504 $ 3,428
======= =======
As a result of the RB&W acquisition, the net pension asset recorded by the
Company increased by $6,192,000.
The plans' assets at December 31, 1995 and 1994 are invested in listed
stocks, bonds and unallocated insurance contracts.
NOTE I - OTHER POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries provide health care and life
insurance benefits for retired employees. Employees may become eligible for
benefits if they qualify for retirement while working for the Company.
The following table presents the plan's funded status and amounts
recognized in the consolidated balance sheets at December 31, 1995 and 1994:
December 31
--------------------
1995 1994
---- ----
(In Thousands)
Accumulated postretirement benefit obligation
Retirees $ 18,460 $ 16,495
Fully eligible active plan participants 445 218
Other active plan participants 1,626 818
-------- --------
Accumulated Postretirement Benefit Obligations 20,531 17,531
Unrecognized net gain 10,851 12,146
-------- --------
Accrued Postretirement Benefit Obligations $ 31,382 $ 29,677
======== ========
As a result of the RB&W acquisition, the liability for postretirement benefits
other than pensions increased by $3,073,000.
27
28
Net periodic benefit cost includes the following components for the years
ended December 31, 1995, 1994 and 1993:
December 31
---------------------
1995 1994 1993
---- ---- ----
(In Thousands)
Service cost $ 92 $ 58 $ 56
Interest cost 1,559 1,476 1,744
Net amortization and deferral (819) (620) (611)
------ ------ -------
Net Periodic Postretirement Benefit Cost $ 832 $ 914 $ 1,189
======= ======= =======
The accumulated postretirement benefit obligation ("APBO") was determined
using assumed discount rates of 7.5%, 8.5% and 7.5% for 1995, 1994 and 1993,
respectively. The assumed annual health care trend rate for retirees younger
than 65 was 9.5% in 1995 (10% in 1994 and 11% in 1993) decreasing to 6.0% in
2004. The assumed annual health care trend rate for retirees aged 65 and over
will decrease to 5.5% in 2004. A 1% change in the trend rate would increase
the APBO by 6.6% and annual expense by 12%.
NOTE J - LEASES
Rental expense for 1995, 1994 and 1993 was $4,797,000, $2,348,000 and
$2,008,000, respectively. Future minimum lease commitments during each of the
five years following December 31, 1995 are as follows: $3,820,000 in 1996,
$2,688,000 in 1997, $1,536,000 in 1998, $906,000 in 1999 and $722,000 in 2000.
NOTE K - INDUSTRY SEGMENTS
The Company operates in four principal industry groups: container
products, transportation, consumer products and logistics. The container
products group includes the manufacture of plastic containers for the food,
industrial coatings and building products industries. The transportation group
manufactures industrial products for the airline, automotive, locomotive and
trucking industries and includes forged and machined products, metal forming,
induction heating systems, permanent mold castings and industrial rubber
products. Forged and machined products include the production, machining and
finishing of closed die forgings produced by the Company and others. Metal
forming includes the engineering and manufacturing of fasteners, cold formed
products and related hardware. Induction heating systems include the
engineering and manufacturing of induction heating machinery used for a variety
of purposes such as surface hardening, brazing, soldering, melting, and
welding. Permanent mold castings include the production and machining of
permanent mold aluminum parts. Industrial rubber products include custom made
molded and lathe cut goods and items requiring rubber-to-metal bonding. The
consumer products group manufactures and distributes molded plastic and metal
indoor and outdoor products for the housewares industry. The logistics group
provides supply chain management of various commodity products primarily
fasteners, principally to original equipment manufacturers.
The Company's sales are made through its own sales organization,
distributors and representatives. Intersegment metal forming sales to the
Logistics Group of $4,309,000 are eliminated in consolidation and are not
included in the figures presented. Intersegment sales are accounted for at
values based on market prices. Operating income is total revenue less operating
expenses, excluding interest and unallocated income and expense (net).
Identifiable assets by industry segment include assets directly identified with
those operations.
28
29
Corporate assets generally consist of cash and cash equivalents, deferred
tax assets, and other assets.
Years Ended December 31
-----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
Net Sales
Container products group $ 81,929 $ 62,311 $ 52,696
Transportation group 155,900 101,427 71,332
Consumer products group 25,100 27,789 23,140
Logistics group 108,501 -0- -0-
---------- ---------- ----------
Net Sales $ 371,430 $ 191,527 $ 147,168
========== ========== ==========
Operating Income
Container products group $ 5,470 $ 4,525 $ 2,903
Transportation group 12,828 7,560 3,538
Consumer products group 1,406 3,451 3,274
Logistics group 8,217 -0- -0-
---------- ---------- -----------
27,921 15,536 9,715
Amortization of excess purchase price over
net assets acquired (1,663) (285) (70)
Corporate costs (2,414) (2,635) (2,130)
---------- ---------- ----------
Operating Income $ 23,844 $ 12,616 $ 7,515
========== ========== ==========
Identifiable Assets
Container products group $ 39,283 $ 33,570 $ 23,420
Transportation group 129,101 58,433 54,145
Consumer products group 33,013 32,418 19,195
Logistics group 93,876 -0- -0-
General corporate 11,697 10,194 904
---------- ---------- ----------
Total Assets $ 306,970 $ 134,615 $ 97,664
========== ========== ==========
Depreciation and Amortization Expense
Container products group $ 3,654 $ 2,675 $ 2,309
Transportation group 4,161 2,563 1,990
Consumer products group 1,453 650 637
Logistics group 734 -0- -0-
---------- ---------- ----------
Total Depreciation and Amortization Expense $ 10,002 $ 5,888 $ 4,936
========== ========== ==========
Capital Expenditures
Container products group $ 7,322 $ 7,932 $ 1,765
Transportation group 4,977 3,538 561
Consumer products group 234 279 2,666
Logistics group 1,099 -0- -0-
---------- ---------- ----------
Total Capital Expenditures $ 13,632 $ 11,749 $ 4,992
========== ========== ==========
The Company's transportation group had sales of $32,200,000 in 1995 and
$28,000,000 in 1994 to Ford Motor Company (8.7% and 14.6% of consolidated net
sales, respectively).
29
30
SUPPLEMENTARY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
-------------
1995 March 31 June 30 Sept. 30 Dec. 31
- - ---- -------- ------- -------- -------
(In Thousands, Except Per Share Data)
Net sales $ 62,810 $109,420 $ 98,616 $100,584
Gross profit 10,483 16,025 13,275 15,434
Net income $ 3,740 $ 4,821 $ 3,014 $ 12,458
======== ======== ======== ========
Net income per common share $ 0.43 $ 0.45 $ 0.28 $ 1.15
======== ======== ======== ========
Quarter Ended
-------------
1994 March 31 June 30 Sept. 30 Dec. 31
- - ---- -------- ------- -------- -------
(In Thousands, Except Per Share Data)
Net sales $ 52,288 $ 49,394 $ 44,183 $ 45,662
Gross profit 9,538 8,576 6,811 8,740
Net income $ 3,138 $ 3,273 $ 1,640 $ 4,433
======== ======== ======== ========
Net income per common share $ 0.40 $ 0.39 $ 0.17 $ 0.52
======== ======== ======== ========
Note A - On March 31, 1995, the Company acquired all of the shares of RB&W
Corporation in exchange for 2,203,000 shares of the Company's
common stock and cash. The transaction was accounted for as a
purchase and, accordingly, the operations of RB&W have been
included since that date.
Note B - In the fourth quarter of 1995 and 1994, the Company reduced by
$8,100,000 and $2,000,000, respectively, the valuation
allowance on deferred tax assets relating to anticipated
future income tax benefits from utilization of net operating
loss carryforwards and postretirement obligations.
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, 1995.
30
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The information contained in "Election of Directors" on page 2 of
Park-Ohio's Proxy Statement, dated April 17, 1996, is incorporated herein by
reference. Information relating to executive officers of Park-Ohio is
contained under Part I of this Annual Report on Form 10-K.
Information required by Item 405 of Regulation S-K contained under the
heading "Beneficial Ownership of Shares" on pages 4 and 5 of Park-Ohio's Proxy
Statement, dated April 17, 1996, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation contained under the
headings "Certain Matters Pertaining to the Board of Directors" on pages 5 and
6, "Executive Compensation" on pages 6 and 7, and "Information Concerning
Executive Officers - Executive Agreements" on page 10, of Park-Ohio's Proxy
Statement, dated April 17, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information contained under the heading "Beneficial Ownership of
Shares" on pages 4 and 5 of Park-Ohio's Proxy Statement, dated April 17, 1996,
relating to the beneficial ownership of Park-Ohio's Common Stock is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning related transactions contained under the heading
"Information Concerning Executive Officers - Related Transactions" on page 10
of Park-Ohio's Proxy Statement, dated April 17, 1996, is incorporated herein by
reference.
31
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a)(1) The following financial statements are included in Part II, Item 8:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 15
Financial Statements
Consolidated balance sheets - December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . .. . . . . . . 16
Consolidated statements of income - years ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 17
Consolidated statements of shareholders' equity - years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 18
Consolidated statements of cash flows - years ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 19
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 20 - 29
Selected quarterly financial data (unaudited) - years ended December 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 30
(3) Exhibits included herein:
(3)(A) Amended Articles of Incorporation of Park-Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ****
(3)(B) Code of Regulations of Park-Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ****
Instruments defining the rights of security holders:
(4)(A) See Exhibits (3)(A) and (B)
(4)(B) Revolving Loan and Credit Agreement among Park-Ohio Industries, Inc., Society National Bank, The
Huntington National Bank, and NBD Bank, N.A., dated April 11, 1995. . . . . . . . . . . . . . . . . . . *****
(4)(C) Indenture dated May 3, 1994 between Park-Ohio Industries, Inc. and Society Bank, Michigan, as Trustee. . ***
(10)(A) Form of Indemnification Agreement entered into between Park-Ohio
Industries, Inc. and each of its directors and certain officers . . . . . . . . . . . . . . . . . . . . *
(10)(B) Amended and Restated Plan and Agreement of Merger dated February 6, 1995 among Park-Ohio
Industries, Inc., P.O. Acquisition Company, Inc. and RB&W Corporation . . . . . . . . . . . . . . . . . *****
32
33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED)
(10)(C) Plan and Agreement of Merger dated October 1, 1993 among
Park-Ohio Industries, Inc., PO Acquisition Company, Inc.,
General Aluminum Mfg. Company and Edward F. Crawford . . . . . . . . . . . . . . . . . . . . . . . **
(10)(D) Park-Ohio Industries, Inc. Amended and Restated 1992 Stock Option Plan . . . . . . . . . . . . . ******
(10)(E) Escrow Agreement dated October 15, 1993 among Park-Ohio Industries, Inc., Edward F. Crawford
and The Huntington Trust Company, N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . **
(10)(F) Employment Agreement between Park-Ohio Industries, Inc. And John J. Murray
dated effective January 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *******
(11) Computation of Net Income Per Common Share
(21) List of Subsidiaries of Park-Ohio Industries, Inc.
(23) Consent of Independent Auditors
(27) Financial Data Schedule (Electronic Filing Only)
<FN>
- - ---------------------------
* These documents were filed as part of the registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
** These documents were filed as part of the registrant's Report on
Form 8-K filed with the Commission on November 1, 1993.
*** These documents were filed as part of the registrant's Report on Form
8-K filed with the Commission on May 6, 1994.
**** These documents were filed as part of the registrant's Report on
Form S-3 (No. 33-86054) filed with the Commission on November 7,
1994.
***** These documents were part of the registrant's Form S-4 (No.
33-87230) filed with the Commission on December 9, 1994, as amended.
****** These documents were filed as part of the registrant's Report on Form
10-Q filed with the Commission on May 12, 1995.
******* These documents were filed as part of the registrant's Report on Form
10-Q filed with the Commission on August 14, 1995.
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
None
33
34
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PARK-OHIO INDUSTRIES, INC.
(Registrant)
By /s/ RONALD J. COZEAN
------------------------
Ronald J. Cozean,
Secretary
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ EDWARD F. CRAWFORD Chairman and Chief Executive )
- - ------------------------------- Officer (Principal Executive )
Edward F. Crawford Officer) and Director )
)
)
/s/ JOHN J. MURRAY President and Chief Operating )
- - ------------------------------- Officer and Director )
John J. Murray )
)
)
/s/ JAMES S. WALKER Vice President and Chief )
- - ------------------------------- Financial Officer (Principal )
James S. Walker Financial and Accounting )
Officer) )
) March 29, 1996
/s/ LEWIS E. HATCH, JR. Director )
- - ------------------------------- )
Lewis E. Hatch, Jr. )
)
)
/s/ THOMAS E. MCGINTY Director )
- - ------------------------------- )
Thomas E. McGinty )
)
)
/s/ LAWRENCE O. SELHORST Director )
- - ------------------------------- )
Lawrence O. Selhorst )
)
)
/s/ RICHARD S. SHEETZ Director )
- - ------------------------------- )
Richard S. Sheetz )
)
)
/s/ JAMES W. WERT Director )
- - ------------------------------- )
James W. Wert )
34
35
ANNUAL REPORT ON FORM 10-K
PARK-OHIO INDUSTRIES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
EXHIBIT INDEX
EXHIBIT
- - ---------
(11) Computation of Net Income Per Common Share
(21) List of Subsidiaries of Park-Ohio Industries, Inc.
(23) Consent of Independent Auditors
(27) Financial Data Schedule (Electronic Filing Only)
35