FORM 10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 0-3134
Park-Ohio Holdings
Corp.
(Exact name of registrant as
specified in its charter)
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Ohio
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34-1867219
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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6065 Parkland Boulevard, Cleveland, Ohio
(Address of principal
executive offices)
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44124
(Zip
Code)
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440/947-2000
(Registrants telephone number, including area code)
Park-Ohio Holdings Corp. is a successor issuer to Park-Ohio
Industries, Inc.
Indicate by check mark whether the registrant:
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(1)
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Has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and
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(2)
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Has been subject to such filing requirements for the past
90 days. Yes þ No o
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Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was
required to submit and post such files). Yes
o No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Number of shares outstanding of registrants Common Stock,
par value $1.00 per share, as of April 30, 2009: 11,690,368.
The Exhibit Index is located on page 23.
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
INDEX
2
PART I.
Financial Information
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ITEM 1.
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Financial
Statements
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PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
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(Unaudited)
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March 31,
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December 31,
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2009
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2008
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(Dollars in thousands)
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ASSETS
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Current Assets
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Cash and cash equivalents
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$
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14,165
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$
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17,825
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Accounts receivable, less allowances for doubtful accounts of
$3,010 at March 31, 2009 and $3,044 at December 31,
2008
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132,736
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165,779
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Inventories
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223,903
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228,817
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Deferred tax assets
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9,446
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9,446
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Unbilled contract revenue
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24,293
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25,602
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Other current assets
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10,803
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12,818
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Total Current Assets
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415,346
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460,287
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Property, Plant and Equipment
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248,490
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248,474
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Less accumulated depreciation
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161,059
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157,832
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87,431
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90,642
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Other Assets
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Goodwill
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3,935
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4,109
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Other
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65,204
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64,182
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$
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571,916
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$
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619,220
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current Liabilities
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Trade accounts payable
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$
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90,360
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$
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121,995
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Accrued expenses
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62,656
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74,351
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Current portion of long-term debt
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2,808
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8,778
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Current portion of other postretirement benefits
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2,290
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2,290
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Total Current Liabilities
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158,114
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207,414
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Long-Term Liabilities, less current portion
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8.375% Senior Subordinated Notes due 2014
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198,985
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198,985
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Revolving credit
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173,900
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164,600
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Other long-term debt
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2,128
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2,283
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Deferred tax liability
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9,090
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9,090
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Other postretirement benefits and other long-term liabilities
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24,330
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24,093
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408,433
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399,051
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Shareholders Equity
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Capital stock, par value $1 a share:
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Serial Preferred Stock
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-0-
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-0-
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Common Stock
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13,120
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12,237
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Additional paid-in capital
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64,531
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64,212
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Retained deficit
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(34,483
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)
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(29,021
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)
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Treasury stock, at cost
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(17,192
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)
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(17,192
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)
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Accumulated other comprehensive (loss)
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(20,607
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)
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(17,481
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)
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5,369
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12,755
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$
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571,916
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$
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619,220
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Note: |
The balance sheet at December 31, 2008 has been derived
from the audited financial statements at that date, but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
|
See notes to consolidated financial statements.
3
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
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Three Months Ended
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March 31,
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2009
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2008
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(Amounts in thousands, except per share data)
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Net sales
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$
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181,250
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$
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267,090
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Cost of products sold
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157,388
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228,397
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Gross profit
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23,862
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38,693
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Selling, general and administrative expenses
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22,621
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25,945
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Operating income
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1,241
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12,748
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Interest expense
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5,971
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7,264
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(Loss) income before income taxes
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(4,730
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)
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5,484
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Income taxes
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732
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2,002
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Net (loss) income
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$
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(5,462
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)
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$
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3,482
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Amounts per common share:
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Basic
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$
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(.50
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)
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$
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.31
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Diluted
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$
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(.50
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)
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$
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.30
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Common shares used in the computation:
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Basic
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10,950
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11,153
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Diluted
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10,950
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11,689
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See notes to consolidated financial statements.
4
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
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Accumulated
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Additional
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Other
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Common
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Paid-In
|
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Retained
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Treasury
|
|
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Comprehensive
|
|
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|
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|
|
Stock
|
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Capital
|
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Deficit
|
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Stock
|
|
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Income (Loss)
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Total
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(Dollars in thousands)
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Balance at January 1, 2009
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$
|
12,237
|
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|
$
|
64,212
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$
|
(29,021
|
)
|
|
$
|
(17,192
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)
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|
$
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(17,481
|
)
|
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$
|
12,755
|
|
Comprehensive (loss):
|
|
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|
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Net (loss)
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|
|
|
|
|
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|
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(5,462
|
)
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|
|
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|
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(5,462
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(3,877
|
)
|
|
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(3,877
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)
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Unrealized loss on marketable securities, net of tax
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
413
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|
|
413
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|
Pension and post retirement benefit adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
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|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Comprehensive (loss)
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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(8,588
|
)
|
Amortization of restricted stock
|
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|
|
|
|
413
|
|
|
|
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|
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|
|
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|
|
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|
413
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Exercise of stock options (360,000 shares)
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|
360
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|
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|
328
|
|
|
|
|
|
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|
|
|
|
|
|
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|
688
|
|
Restricted stock awards
|
|
|
523
|
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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|
-0-
|
|
Share-based compensation
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
13,120
|
|
|
$
|
64,531
|
|
|
$
|
(34,483
|
)
|
|
$
|
(17,192
|
)
|
|
$
|
(20,607
|
)
|
|
$
|
5,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See notes to consolidated financial statements.
5
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(5,462
|
)
|
|
$
|
3,482
|
|
Adjustments to reconcile net (loss) income to net cash used by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,229
|
|
|
|
5,268
|
|
Share-based compensation expense
|
|
|
514
|
|
|
|
553
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
33,042
|
|
|
|
(24,179
|
)
|
Inventories and other current assets
|
|
|
7,436
|
|
|
|
(10,756
|
)
|
Accounts payable and accrued expenses
|
|
|
(43,330
|
)
|
|
|
16,830
|
|
Other
|
|
|
(4,420
|
)
|
|
|
(5,573
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Used by Operating Activities
|
|
|
(6,991
|
)
|
|
|
(14,375
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net
|
|
|
(1,335
|
)
|
|
|
(4,282
|
)
|
Purchases of marketable securities
|
|
|
(62
|
)
|
|
|
(231
|
)
|
Sales of marketable securities
|
|
|
865
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used by Investing Activities
|
|
|
(532
|
)
|
|
|
(4,320
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from debt, net
|
|
|
3,175
|
|
|
|
27,766
|
|
Purchase of treasury stock
|
|
|
-0-
|
|
|
|
(643
|
)
|
Exercise of stock options
|
|
|
688
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
3,863
|
|
|
|
27,123
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in Cash and Cash Equivalents
|
|
|
(3,660
|
)
|
|
|
8,428
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
17,825
|
|
|
|
14,512
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
14,165
|
|
|
$
|
22,940
|
|
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
1,747
|
|
|
$
|
2,058
|
|
Interest paid
|
|
|
1,541
|
|
|
|
2,238
|
|
See notes to consolidated financial statements.
6
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
March 31,
2009
(Dollar amounts in thousands except per share
data)
|
|
NOTE A
|
Basis of
Presentation
|
The consolidated financial statements include the accounts of
Park-Ohio Holdings Corp. and its subsidiaries (the
Company). All significant intercompany transactions
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted for interim financial information and with
the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period
ended March 31, 2009 are not necessarily indicative of the
results that may be expected for the year ending
December 31, 2009. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008.
The Company operates through three segments: Supply
Technologies, Aluminum Products and Manufactured Products.
Supply Technologies provides our customers with Total Supply
Managementtm
services for a broad range of high-volume, specialty production
components. Total Supply
Managementtm
manages the efficiencies of every aspect of supplying production
parts and materials to our customers manufacturing floor,
from strategic planning to program implementation and includes
such services as engineering and design support, part usage and
cost analysis, supplier selection, quality assurance, bar
coding, product packaging and tracking,
just-in-time
and point-of-use delivery, electronic billing services and
ongoing technical support. Aluminum Products manufactures cast
aluminum components for automotive, agricultural equipment,
construction equipment, heavy-duty truck and marine equipment
industries. Aluminum Products also provides value-added services
such as design and engineering, machining and assembly.
Manufactured Products operates a diverse group of niche
manufacturing businesses that design and manufacture a broad
range of high quality products engineered for specific customer
applications.
Results by business segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Supply Technologies
|
|
$
|
82,971
|
|
|
$
|
129,233
|
|
Aluminum Products
|
|
|
22,358
|
|
|
|
40,536
|
|
Manufactured Products
|
|
|
75,921
|
|
|
|
97,321
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
181,250
|
|
|
$
|
267,090
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
Supply Technologies
|
|
$
|
546
|
|
|
$
|
4,707
|
|
Aluminum Products
|
|
|
(3,662
|
)
|
|
|
(1,055
|
)
|
Manufactured Products
|
|
|
7,712
|
|
|
|
13,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,596
|
|
|
|
16,874
|
|
Corporate costs
|
|
|
(3,355
|
)
|
|
|
(4,126
|
)
|
Interest expense
|
|
|
(5,971
|
)
|
|
|
(7,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,730
|
)
|
|
$
|
5,484
|
|
|
|
|
|
|
|
|
|
|
7
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Identifiable assets were as follows:
|
|
|
|
|
|
|
|
|
Supply Technologies
|
|
$
|
230,969
|
|
|
$
|
256,161
|
|
Aluminum Products
|
|
|
74,875
|
|
|
|
87,215
|
|
Manufactured Products
|
|
|
230,440
|
|
|
|
242,057
|
|
General corporate
|
|
|
35,632
|
|
|
|
33,787
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
571,916
|
|
|
$
|
619,220
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE C
|
Recent
Accounting Pronouncements
|
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (FAS) No. 141R, Business
Combinations (FAS 141R). FAS 141R
modifies the accounting for business combinations by requiring
that acquired assets and assumed liabilities be recorded at fair
value, contingent consideration arrangements be recorded at fair
value on the date of the acquisition and preacquisition
contingencies will generally be accounted for in purchase
accounting at fair value. The pronouncement also requires that
transaction costs be expensed as incurred, acquired research and
development be capitalized as an indefinite-lived intangible
asset and the requirements of FAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, be
met at the acquisition date in order to accrue for a
restructuring plan in purchase accounting. FAS 141R was
adopted prospectively by the Company, effective January 1,
2009. There was no impact upon adoption, and its effects on
future periods will depend on the nature and significance of
business combinations subject to this statement.
In December 2008, the FASB issued FSP 132R-1,
Employers Disclosures about Post Retirement Benefit Plan
Assets. FSP 132R-1 provides guidance on an
employers disclosures about plan assets of a defined
benefit pension or other postretirement plan. The guidance
addresses disclosures related to the categories of plan assets
and fair value measurements of plan assets. This Staff Position
was adopted by the Company, effective January 1, 2009 and
had no effect on its consolidated financial position or results
of operations.
In April 2009, the FASB issued FSP FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies. This
FSP requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized
at fair value if fair value can be reasonably estimated. If fair
value cannot be reasonably estimated, the asset or liability
would generally be recognized in accordance with
FAS No. 5, Accounting for Contingencies,
and FASB Interpretation No. 14, Reasonable Estimation
of the Amount of a Loss. Further, the FASB removed the
subsequent accounting guidance for assets and liabilities
arising from contingencies from FAS 141R-1. The
requirements of this FSP carry forward without significant
revision the guidance on contingencies of FAS 141,
Business Combinations, which was superseded by
FAS 141R. The FSP also eliminates the requirement to
disclose an estimate of the range of possible outcomes of
recognized contingencies at the acquisition date. For
unrecognized contingencies, the FASB requires that entities
include only the disclosures required by FAS No. 5.
This FSP was adopted effective January 1, 2009. There was
no impact upon adoption, and its effects on future periods will
depend on the nature and significance of business combinations
subject to this statement.
In April 2009, the FASB issued FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly. Based
on the guidance, if an entity determines that the level of
activity for an asset or liability has significantly decreased
and that a transaction is not orderly, further analysis of
transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary
to estimate fair value in accordance with
SFAS No. 157, Fair Value Measurements.
This FSP is to be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15,
2009. The Company will adopt this FSP for its quarter ending
June 30, 2009. There is no expected impact on the
consolidated financial statements.
8
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
The components of inventory consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Finished goods
|
|
$
|
119,621
|
|
|
$
|
129,939
|
|
Work in process
|
|
|
32,665
|
|
|
|
29,648
|
|
Raw materials and supplies
|
|
|
71,617
|
|
|
|
69,230
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
223,903
|
|
|
$
|
228,817
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E
|
Shareholders
Equity
|
At March 31, 2009, capital stock consists of
(i) Serial Preferred Stock, of which 632,470 shares
were authorized and none were issued, and (ii) Common
Stock, of which 40,000,000 shares were authorized and
13,119,892 shares were issued, of which 11,676,368 were
outstanding and 1,443,524 were treasury shares.
|
|
NOTE F
|
Net
(Loss) Income Per Common Share
|
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
NUMERATOR
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(5,462
|
)
|
|
$
|
3,482
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share weighted
average shares
|
|
|
10,950
|
|
|
|
11,153
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
-0-
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share weighted
average shares and assumed conversions
|
|
|
10,950
|
|
|
|
11,689
|
|
|
|
|
|
|
|
|
|
|
Amounts per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.50
|
)
|
|
$
|
.31
|
|
Diluted
|
|
$
|
(.50
|
)
|
|
$
|
.30
|
|
Basic earnings per common share is computed as net income
available to common shareholders divided by the weighted average
basic shares outstanding. Diluted earnings per common share is
computed as net income available to common shareholders divided
by the weighted average diluted shares outstanding.
Pursuant to FAS No. 128, Earnings Per Share,
when a loss is reported the denominator of diluted earnings per
share cannot be adjusted for the dilutive impact of stock
options and awards because doing so will result in
anti-dilution. Therefore, for the three months ended
March 31, 2009, basic weighted-average shares outstanding
are used in calculating diluted earnings per share.
Outstanding stock options with exercise prices greater than the
average price of the common shares are anti-dilutive and are not
included in the computation of diluted earning per share. Stock
options on 56,250 shares were excluded in the three months
ended March 31, 2008 because they were anti-dilutive.
9
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE G
|
Stock-Based
Compensation
|
Total stock compensation expense recorded in the first three
months of 2009 and 2008 was $514 and $553, respectively. There
were 523,000 shares of restricted stock at $3.49 per share and
no stock option awards during the three months ended
March 31, 2009. There were no stock option or restricted
stock awards during the first three months of 2008. As of
March 31, 2009, there was $4,061 of unrecognized
compensation cost related to non-vested stock-based
compensation, which is expected to be recognized over a weighted
average period of 2.2 years.
|
|
NOTE H
|
Pension
Plans and Other Postretirement Benefits
|
The components of net periodic benefit cost recognized during
interim periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service costs
|
|
$
|
123
|
|
|
$
|
108
|
|
|
$
|
24
|
|
|
$
|
43
|
|
Interest costs
|
|
|
694
|
|
|
|
722
|
|
|
|
296
|
|
|
|
290
|
|
Expected return on plan assets
|
|
|
(1,758
|
)
|
|
|
(2,408
|
)
|
|
|
-0-
|
|
|
|
-0-
|
|
Transition obligation
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
|
-0-
|
|
|
|
-0-
|
|
Amortization of prior service cost
|
|
|
32
|
|
|
|
34
|
|
|
|
-0-
|
|
|
|
(13
|
)
|
Recognized net actuarial loss
|
|
|
231
|
|
|
|
(29
|
)
|
|
|
119
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (income) costs
|
|
$
|
(688
|
)
|
|
$
|
(1,585
|
)
|
|
$
|
439
|
|
|
$
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During March 2009, the Company suspended indefinitely its
contribution to its 401(k) defined contribution plan covering
substantially all U.S. employees.
|
|
NOTE I
|
Comprehensive
(Loss) Income
|
Total comprehensive (loss) income was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net (loss) income
|
|
$
|
(5,462
|
)
|
|
$
|
3,482
|
|
Foreign currency translation
|
|
|
(3,877
|
)
|
|
|
1,347
|
|
Unrealized loss on marketable securities, net of tax
|
|
|
413
|
|
|
|
(132
|
)
|
Pension and post retirement benefit adjustments, net of tax
|
|
|
338
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(8,588
|
)
|
|
$
|
4,738
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated comprehensive loss at
March 31, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency translation adjustment
|
|
$
|
105
|
|
|
$
|
3,982
|
|
Unrealized net losses on marketable securities, net of tax
|
|
|
-0-
|
|
|
|
(413
|
)
|
Pension and postretirement benefit adjustments, net of tax
|
|
|
(20,712
|
)
|
|
|
(21,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(20,607
|
)
|
|
$
|
(17,481
|
)
|
|
|
|
|
|
|
|
|
|
10
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE J
|
Accrued
Warranty Costs
|
The Company estimates the amount of warranty claims on sold
products that may be incurred based on current and historical
data. The actual warranty expense could differ from the
estimates made by the Company based on product performance. The
following table presents the changes in the Companys
product warranty liability:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
5,402
|
|
|
$
|
5,799
|
|
Claims paid during the quarter
|
|
|
(660
|
)
|
|
|
(983
|
)
|
Additional warranties issued during the quarter
|
|
|
325
|
|
|
|
2,953
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31
|
|
$
|
5,067
|
|
|
$
|
7,769
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate in the first three months of 2009
and 2008 was (15.5)% and 36.5%, respectively.
There have been no material changes to the balance of
unrecognized tax benefits reported at December 31, 2008.
In 2008, due to recent volume declines and volatility in the
automotive markets along with the general economic downturn, the
Company evaluated its long-lived assets in accordance with
FAS 144. Based on the results of these tests, the Company
recorded asset impairment charges. In addition, the Company made
a decision to exit its relationship with its largest customer,
Navistar, effective December 31, 2008 which along with the
general economic downturn resulted in either the closure,
downsizing or consolidation of eight facilities in its
distribution network. The Company expects the restructuring
activities to be completed in 2009. As a result, the Company
recorded asset impairment charges of $30,875, which were
composed of $5,544 of inventory impairment included in Cost of
Products Sold, $1,758 for a loss on disposition of a foreign
subsidiary, $564 of severance costs (80 employees) and
$23,009 for impairment of property and equipment and other
long-term assets.
The following table summarizes the activity associated with
severance costs at March 31, 2009 and for the three-month
period then ended:
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
545
|
|
Cash payments made in 2009
|
|
|
(233
|
)
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
312
|
|
|
|
NOTE M
|
Subsequent
Events
|
On April 30, 2009, Chrysler LLC filed for bankruptcy
protection under Title 11 of the United States Code. The
impact of this bankruptcy is under review by management at this
time. The Companys sales to Chrysler for the three months
ended March 31, 2009 were $3.1 million, or
approximately 2% of consolidated sales. Accounts receivable from
Chrysler as of March 31, 2009 were $6.2 million.
Approximately $5.6 million has been collected subsequent to
March 31, 2009. The Company will cease shipments to
Chrysler as a result of the announcement until such time that an
agreement can be reached to ensure payments within guidelines
established by the Uniform Commercial Code and Title 11 of
the United States Code and other applicable statutes. In
connection with its bankruptcy filing, Chrysler announced that
most manufacturing operations will be temporarily idled until
the bankruptcy process is complete.
11
PARK-OHIO
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
There is uncertainty surrounding General Motors future
structure and potential filing for bankruptcy protection. The
impact of any potential filing is under review by management,
but would be influenced by the nature, timing and form of such
filing. Company sales to General Motors and its global
subsidiaries for the three months ended March 31, 2009 were
$1.0 million, or approximately 1% of consolidated sales.
Accounts receivable from General Motors and its global
subsidiaries as of March 31, 2009 were $.9 million. In
the event of a bankruptcy filing, the Company will consider
ceasing all shipments to the impacted locations within General
Motors until such time that an agreement can be reached to
ensure payments within guidelines established by the Uniform
Commercial Code and Title 11 of the United States Code and
other applicable statutes.
12
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Park-Ohio Holdings Corp.
We have reviewed the accompanying consolidated balance sheet of
Park-Ohio Holdings Corp. and subsidiaries as of March 31,
2009, and the related consolidated statements of operations and
cash flows for the three-month periods ended March 31, 2009
and 2008 and the consolidated statement of shareholders
equity for the three-month period ended March 31, 2009.
These financial statements are the responsibility of the
Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Park-Ohio Holdings Corp. and
subsidiaries as of December 31, 2008 and the related
consolidated statements of operations, shareholders
equity, and cash flows for the year then ended, not presented
herein; and in our report dated March 12, 2009, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31,
2008, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Cleveland, Ohio
May 8, 2009
13
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Our consolidated financial statements include the accounts of
Park-Ohio Holdings Corp. and its subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Executive
Overview
We are an industrial Total Supply
Managementtm
and diversified manufacturing business, operating in three
segments: Supply Technologies, Aluminum Products and
Manufactured Products. Our Supply Technologies business provides
our customers with Total Supply
Managementtm,
a proactive solutions approach that manages the efficiencies of
every aspect of supplying production parts and materials to our
customers manufacturing floor, from strategic planning to
program implementation. Total Supply
Managementtm
includes such services as engineering and design support, part
usage and cost analysis, supplier selection, quality assurance,
bar coding, product packaging and tracking,
just-in-time
and
point-of-use
delivery, electronic billing services and ongoing technical
support. The principal customers of Supply Technologies are in
the heavy-duty truck, automotive and vehicle parts, electrical
distribution and controls, consumer electronics, power
sports/fitness equipment, HVAC, agricultural and construction
equipment, semiconductor equipment, plumbing, aerospace and
defense, and appliance industries. Aluminum Products casts and
machines aluminum engine, transmission, brake, suspension and
other components such as front engine covers, cooling modules,
pump housings, clutch retainers/pistons, control arms, knuckles,
master cylinders, pinion housings, oil pans and flywheel spacers
for automotive, agricultural equipment, construction equipment,
heavy-duty truck and marine equipment original equipment
manufacturers (OEMs), primarily on a sole-source
basis. Aluminum Products also provides value-added services such
as design and engineering and assembly. Manufactured Products
operates a diverse group of niche manufacturing businesses that
design and manufacture a broad range of highly-engineered
products including induction heating and melting systems, pipe
threading systems, industrial oven systems, injection molded
rubber components, and forged and machined products.
Manufactured Products also produces and provides services and
spare parts for the equipment it manufactures. The principal
customers of Manufactured Products are OEMs,
sub-assemblers
and end users in the ferrous and non-ferrous metals, silicon,
coatings, forging, foundry, heavy-duty truck, construction
equipment, automotive, oil and gas, rail and locomotive
manufacturing and aerospace and defense industries. Sales,
earnings and other relevant financial data for these three
segments are provided in Note B to the consolidated
financial statements.
The domestic and international automotive markets were
significantly impacted in 2008, which adversely affected our
business units serving those markets. During the third quarter
of 2008, the Company recorded asset impairment charges
associated with the recent volume declines and volatility in the
automotive markets. The charges were composed of
$.6 million of inventory impairment included in Cost of
Products Sold and $17.5 million for impairment of property
and equipment and other long-term assets.
During the fourth quarter of 2008, the Company recorded a
non-cash goodwill impairment charge of $95.8 million and
restructuring and asset impairment charges of $13.4 million
associated with the decision to exit its relationship with its
largest customer, Navistar, along with the general economic
downturn. The charges were composed of $5.0 million of
inventory impairment included in Cost of Products Sold and
$8.4 million for impairment of property and equipment, loss
on disposal of a foreign subsidiary and severance costs.
Impairment charges were offset by a gain of $.6 million
recorded in the Aluminum Products segment relating to the sale
of certain facilities that were previously written off.
Approximately 20% of the Companys consolidated net sales
were to the automotive markets in 2008. The recent deterioration
in the global economy and global credit markets continues to
negatively impact the automotive markets. General Motors, Ford
and Chrysler have encountered severe financial difficulty, which
ultimately resulted in the bankruptcy of Chrysler and could
result in bankruptcy for more of these domestic automobile
manufacturers, which, in turn would adversely affect the
financial condition of the Companys automobile OEM
customers. In 2009, the Company expects that its business,
results of operations and financial condition will continue to
be negatively impacted by the performance of the automotive
markets. On April 23, 2009, General Motors announced the
extended summer production shutdown for 13 assembly plants
beginning on or after May 18, 2009 for up to 9 weeks.
The extended production shutdowns at General Motors and Chrysler
will significantly reduce production volumes in the second and
third quarters of 2009.
14
Accounting
Changes
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (FAS) No. 141R, Business
Combinations (FAS 141R). FAS 141R
modifies the accounting for business combinations by requiring
that acquired assets and assumed liabilities be recorded at fair
value, contingent consideration arrangements be recorded at fair
value on the date of the acquisition and preacquisition
contingencies will generally be accounted for in purchase
accounting at fair value. The pronouncement also requires that
transaction costs be expensed as incurred, acquired research and
development be capitalized as an indefinite-lived intangible
asset and the requirements of FAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, be
met at the acquisition date in order to accrue for a
restructuring plan in purchase accounting. FAS 141R was
adopted prospectively by the Company, effective January 1,
2009. There was no impact upon adoption, and its effects on
future periods will depend on the nature and significance of
business combinations subject to this statement.
In December 2008, the FASB issued FSP 132R-1,
Employers Disclosures about Post Retirement Benefit Plan
Assets. FSP 132R-1 provides guidance on an
employers disclosures about plan assets of a defined
benefit pension or other postretirement plan. The guidance
addresses disclosures related to the categories of plan assets
and fair value measurements of plan assets. This Staff Position
was adopted by the Company, effective January 1, 2009 and
had no effect on its consolidated financial position or results
of operations.
In April 2009, the FASB issued FSP FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies. This
FSP requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized
at fair value if fair value can be reasonably estimated. If fair
value cannot be reasonably estimated, the asset or liability
would generally be recognized in accordance with
FAS No. 5, Accounting for Contingencies,
and FASB Interpretation No. 14, Reasonable Estimation
of the Amount of a Loss. Further, the FASB removed the
subsequent accounting guidance for assets and liabilities
arising from contingencies from FAS 141R-1. The
requirements of this FSP carry forward without significant
revision the guidance on contingencies of FAS 141,
Business Combinations, which was superseded by
FAS 141R. The FSP also eliminates the requirement to
disclose an estimate of the range of possible outcomes of
recognized contingencies at the acquisition date. For
unrecognized contingencies, the FASB requires that entities
include only the disclosures required by FAS No. 5.
This FSP was adopted effective January 1, 2009. There was
no impact upon adoption, and its effects on future periods will
depend on the nature and significance of business combinations
subject to this statement.
In April 2009, the FASB issued FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly. Based
on the guidance, if an entity determines that the level of
activity for an asset or liability has significantly decreased
and that a transaction is not orderly, further analysis of
transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary
to estimate fair value in accordance with
SFAS No. 157, Fair Value Measurements.
This FSP is to be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15,
2009. The Company will adopt this FSP for its quarter ending
June 30, 2009. There is no expected impact on the
consolidated financial statements.
Results
of Operations
Three
Months 2009 versus Three Months 2008
Net
Sales by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Supply Technologies
|
|
$
|
83.0
|
|
|
$
|
129.2
|
|
|
$
|
(46.2
|
)
|
|
|
(36
|
)%
|
Aluminum Products
|
|
|
22.4
|
|
|
|
40.6
|
|
|
|
(18.2
|
)
|
|
|
(45
|
)%
|
Manufactured Products
|
|
|
75.9
|
|
|
|
97.3
|
|
|
|
(21.4
|
)
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Sales
|
|
$
|
181.3
|
|
|
$
|
267.1
|
|
|
$
|
(85.8
|
)
|
|
|
(32
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Net sales declined $85.8 million to $181.3 million in
the first three months of 2009 compared to $267.1 million
in the same period in 2008 as the Company experienced volume
declines in each segment resulting from the challenging global
economic downturn. Supply Technologies sales decreased 36%
primarily due to volume reductions in the heavy-duty truck
industry resulting from the Companys decision to exit its
relationship with its largest customer and overall reduction in
demand. Aluminum Products sales decreased 45% as the general
decline in auto industry sales volumes exceeded additional sales
from new contracts starting production
ramp-up.
Manufactured Products sales decreased 22% from the declining
business environment.
Cost
of Products Sold & Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Consolidated cost of products sold
|
|
$
|
157.4
|
|
|
$
|
228.4
|
|
|
$
|
(71.0
|
)
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit
|
|
$
|
23.9
|
|
|
$
|
38.7
|
|
|
$
|
(14.8
|
)
|
|
|
(38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
13.1
|
%
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
Cost of products sold decreased $71.0 million to
$157.4 million in the first three months of 2009 compared
to $228.4 million in the same period in 2008, while gross
margin decreased to 13.1% in the first three months of 2009 from
14.5% in the same period in 2008.
Supply Technologies gross margin decreased slightly, as
increased product profitability improvements were offset by
volume declines. Aluminum Products gross margin decreased
primarily due to reduced volume from customers in the automotive
industry. Gross margin in the Manufactured Products segment
decreased primarily due to reduced sales volume.
Selling,
General & Administrative (SG&A)
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Consolidated SG&A expenses
|
|
$
|
22.6
|
|
|
$
|
25.9
|
|
|
$
|
(3.3
|
)
|
|
|
(13
|
)%
|
SG&A percent
|
|
|
12.5
|
%
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
Consolidated SG&A expenses decreased 13% in the first three
months of 2009 compared to the same period in 2008, representing
a 2.8% increase in SG&A expenses as a percent of sales.
SG&A expenses decreased in the first three months of 2009
compared to the same period in 2008 primarily due to employee
workforce reductions, salary cuts, reduction in volume of
business and a reduction in pension income.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
Interest expense
|
|
$
|
6.0
|
|
|
$
|
7.3
|
|
|
$
|
(1.3
|
)
|
|
(18)%
|
Average outstanding borrowings
|
|
$
|
381.1
|
|
|
$
|
378.8
|
|
|
$
|
(2.3
|
)
|
|
(1)%
|
Average borrowing rate
|
|
|
6.30
|
%
|
|
|
7.71
|
%
|
|
|
(141
|
)
|
|
basis points
|
Interest expense decreased $1.3 million in the first three
months of 2009 compared to the same period of 2008, primarily
due to a lower average borrowing rate during the first three
months of 2009. Average borrowings in the first three months of
2009 were essentially unchanged when compared to the same period
in 2008. The lower average borrowing rate in the first three
months of 2009 was due primarily to decreased interest rates
under our revolving credit facility compared to the same period
in 2008.
16
Income
Tax:
The provision for income taxes was $.7 million in the first
three months of 2009, a (15)% effective income tax rate,
compared to income taxes of $2.0 million provided in the
corresponding period of 2008, a 36% effective income tax rate.
We estimate that the effective tax rate for full-year 2009 will
be approximately 48%.
Liquidity
and Sources of Capital
Our liquidity needs are primarily for working capital and
capital expenditures. Our primary sources of liquidity have been
funds provided by operations and funds available from existing
bank credit arrangements and the sale of our senior subordinated
notes. In 2003, we entered into a revolving credit facility with
a group of banks which, as subsequently amended, matures at
December 31, 2010 and provides for availability of up to
$270 million subject to an asset-based formula. The
revolving credit facility is secured by substantially all our
assets in the United States, Canada and the United Kingdom.
Borrowings from this revolving credit facility will be used for
general corporate purposes.
Amounts borrowed under the revolving credit facility may be
borrowed at the Companys election at either (i) LIBOR
plus .75% to 1.75% or (ii) the banks prime lending
rate. The LIBOR-based interest rate is dependent on the
Companys debt service coverage ratio, as defined in the
revolving credit facility. Under the revolving credit facility,
a detailed borrowing base formula provides borrowing
availability to the Company based on percentages of eligible
accounts receivable, inventory and fixed assets. As of
March 31, 2009, the Company had $173.9 million
outstanding under the revolving credit facility and
approximately $27.1 million of unused borrowing
availability.
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 at
least the next twelve months. The future availability of bank
borrowings under the revolving credit facility is based on the
Companys ability to meet a debt service ratio covenant,
which could be materially impacted by negative economic trends.
Failure to meet the debt service ratio could materially impact
the availability and interest rate of future borrowings.
The Company may from time to time seek to retire or purchase its
outstanding debt through cash purchases
and/or
exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. It may also
repurchase shares of its outstanding common stock. Such
repurchases or exchanges, if any, will depend on prevailing
market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be
material.
Disruptions, uncertainty or volatility in the credit markets may
adversely impact the availability of credit already arranged and
the availability and cost of credit in the future. These market
conditions may limit the Companys ability to replace, in a
timely manner, maturing liabilities and access the capital
necessary to grow and maintain its business. Accordingly, the
Company may be forced to delay raising capital, issue shorter
tenors than the Company prefers or pay unattractive interest
rates, which could increase its interest expense, decrease its
profitability and significantly reduce its financial
flexibility. There can be no assurances that government
responses to the disruptions in the financial markets will
stabilize the markets or increase liquidity and the availability
of credit.
At March 31, 2009, the Company was in compliance with the
debt service coverage ratio covenant and other covenants
contained in the revolving credit facility. While we expect to
remain in compliance throughout 2009, further declines in demand
in the automotive industry and in sales volumes in 2009 could
adversely impact our ability to remain in compliance with
certain of these financial covenants. Additionally, to the
extent our customers are adversely affected by the declines in
demand in the automotive industry or the economy in general,
they may not be able to pay their accounts payable to us on a
timely basis or at all, which would make the accounts receivable
ineligible for purposes of the revolving credit facility and
could reduce our borrowing base.
The ratio of current assets to current liabilities was 2.63 at
March 31, 2009 versus 2.22 at December 31, 2008.
Working capital increased by $4.3 million to
$257.2 million at March 31, 2009 from
$252.9 million at December 31, 2008.
17
During the first three months of 2009, the Company used
$7.0 million from operating activities compared to using
$14.4 million in the same period of 2008. The increase in
the operating cash provision of $7.4 million was primarily
the result of a decrease in accounts receivable, inventories and
other current assets in the first three months of 2009 compared
to the same period of 2008 (a decrease of $40.5 million
compared to an increase of $35.0 million, respectively),
primarily due to a decrease in sales compared to the prior
quarter. This difference, plus a decrease in net income of
$8.9 million and a decrease in accounts payable and other
current liabilities in the first three months of 2009 compared
to the same period of 2008 (a decrease of $43.3 million
compared to an increase of $16.8 million, respectively). In
the first three months of 2009, the Company also used cash of
$1.3 million for capital expenditures. These activities,
plus cash interest and taxes payments of $3.3 million and a
net increase in borrowing of $3.2 million, and proceeds
received from the exercise of stock options of $.7 million
resulted in a decrease in cash of $3.7 million in the first
three months of 2009.
We do not have off-balance sheet arrangements, financing or
other relationships with unconsolidated entities or other
persons. There are occasions whereupon we enter into forward
contracts on foreign currencies, primarily the euro, purely for
the purpose of hedging exposure to changes in the value of
accounts receivable in those currencies against the
U.S. dollar. At March 31, 2009, none were outstanding.
We currently have no other derivative instruments.
Seasonality;
Variability of Operating Results
Our results of operations are typically stronger in the first
six months than the last six months of each calendar year due to
scheduled plant maintenance in the third quarter to coincide
with customer plant shutdowns and due to holidays in the fourth
quarter.
The timing of orders placed by our customers has varied with,
among other factors, orders for customers finished goods,
customer production schedules, competitive conditions and
general economic conditions. The variability of the level and
timing of orders has, from time to time, resulted in significant
periodic and quarterly fluctuations in the operations of our
business units. Such variability is particularly evident in the
capital equipment businesses, included in the Manufactured
Products segment, which typically ship a few large systems per
year.
Forward-Looking
Statements
This
Form 10-Q
contains certain statements that are forward-looking
statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. The
words believes, anticipates,
plans, expects, intends,
estimates and similar expressions are intended to
identify forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance and
achievements, or industry results, to be materially different
from any future results, performance or achievements expressed
or implied by such forward-looking statements. These factors
include, but are not limited to the following: our substantial
indebtedness; continuation of the current negative global
economic environment; general business conditions and
competitive factors, including pricing pressures and product
innovation; demand for our products and services; raw material
availability and pricing; component part availability and
pricing; changes in our relationships with customers and
suppliers; the financial condition of our customers, including
the impact of any bankruptcies; our ability to successfully
integrate recent and future acquisitions into existing
operations; changes in general domestic economic conditions such
as inflation rates, interest rates, tax rates, unemployment
rates, higher labor and healthcare costs, recessions and
changing government policies, laws and regulations, including
the uncertainties related to the current global financial
crisis; adverse impacts to us, our suppliers and customers from
acts of terrorism or hostilities; our ability to meet various
covenants, including financial covenants, contained in our
revolving credit facility and the indenture governing the
8.375% senior subordinated notes due 2014; disruptions,
uncertainty or volatility in the credit markets that may limit
our access to capital; increasingly stringent domestic and
foreign governmental regulations, including those affecting the
environment; inherent uncertainties involved in assessing our
potential liability for environmental remediation-related
activities; the outcome of pending and future litigation and
other claims, including, without limitation asbestos claims; our
dependence on the automotive and heavy-duty truck industries,
which are highly cyclical; the financial crisis; our ability to
negotiate acceptable contracts with labor unions; dependence on
key management; dependence on information systems; and the other
factors we describe under the Item 1A.. Risk
18
Factors included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008. Any forward-looking
statement speaks only as of the date on which such statement is
made, and we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events or otherwise. In light of these and
other uncertainties, the inclusion of a forward-looking
statement herein should not be regarded as a representation by
us that our plans and objectives will be achieved.
Review By
Independent Registered Public Accounting Firm
The consolidated financial statements at March 31, 2009,
and for the three-month periods ended March 31, 2009 and
2008, have been reviewed, prior to filing, by Ernst &
Young LLP, our independent registered public accounting firm,
and their report is included herein.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
We are exposed to market risk including changes in interest
rates. We are subject to interest rate risk on borrowings under
our floating rate revolving credit agreement, which consisted of
borrowings of $173.9 million at March 31, 2009. A
100 basis point increase in the interest rate would have
resulted in an increase in interest expense of approximately
$.4 million during the three-month period ended
March 31, 2009.
Our foreign subsidiaries generally conduct business in local
currencies. During the first quarter of 2009, we recorded an
unfavorable foreign currency translation adjustment of
$3.9 million related to net assets located outside the
United States. This foreign currency translation adjustment
resulted primarily from the strengthening of the
U.S. dollar. Our foreign operations are also subject to
other customary risks of operating in a global environment, such
as unstable political situations, the effect of local laws and
taxes, tariff increases and regulations and requirements for
export licenses, the potential imposition of trade or foreign
exchange restrictions and transportation delays.
The Company periodically enters into forward contracts on
foreign currencies, primarily the euro and the British Pound
Sterling, purely for the purpose of hedging exposure to changes
in the value of accounts receivable in those currencies against
the U.S. dollar. The Company currently uses no other
derivative instruments. At March 31, 2009, there were no
such currency hedge contracts outstanding.
|
|
Item 4.
|
Controls
and Procedures
|
Under the supervision of and with the participation of our
management, including our chief executive officer and chief
financial officer, we evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and 15(d)-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this quarterly
report. Based on that evaluation, our chief executive officer
and chief financial officer have concluded that, as of the end
of the period covered by this quarterly report, our disclosure
controls and procedures were effective.
There have been no changes in our internal control over
financial reporting during the first quarter of 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
19
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
We are subject to various pending and threatened lawsuits in
which claims for monetary damages are asserted in the ordinary
course of business. While any litigation involves an element of
uncertainty, in the opinion of management, liabilities, if any,
arising from currently pending or threatened litigation is not
expected to have a material adverse effect on our financial
condition, liquidity or results of operations.
At March 31, 2009, we were a co-defendant in approximately
260 cases asserting claims on behalf of approximately 1,750
plaintiffs alleging personal injury as a result of exposure to
asbestos. These asbestos cases generally relate to production
and sale of asbestos-containing products and allege various
theories of liability, including negligence, gross negligence
and strict liability and seek compensatory and, in some cases,
punitive damages.
In every asbestos case in which we are named as a party, the
complaints are filed against multiple named defendants. In
substantially all of the asbestos cases, the plaintiffs either
claim damages in excess of a specified amount, typically a
minimum amount sufficient to establish jurisdiction of the court
in which the case was filed (jurisdictional minimums generally
range from $25,000 to $75,000), or do not specify the monetary
damages sought. To the extent that any specific amount of
damages is sought, the amount applies to claims against all
named defendants.
There are only four asbestos cases, involving 23 plaintiffs,
that plead specified damages. In each of the four cases, the
plaintiff is seeking compensatory and punitive damages based on
a variety of potentially alternative causes of action. In three
cases, the plaintiff has alleged compensatory damages in the
amount of $3.0 million for four separate causes of action
and $1.0 million for another cause of action and punitive
damages in the amount of $10.0 million. In the other case,
the plaintiff has alleged compensatory damages in the amount of
$20.0 million for three separate causes of action and
$5.0 million for another cause of action and punitive
damages in the amount of $20.0 million.
Historically, we have been dismissed from asbestos cases on the
basis that the plaintiff incorrectly sued one of our
subsidiaries or because the plaintiff failed to identify any
asbestos-containing product manufactured or sold by us or our
subsidiaries. We intend to vigorously defend these asbestos
cases, and believe we will continue to be successful in being
dismissed from such cases. However, it is not possible to
predict the ultimate outcome of asbestos-related lawsuits,
claims and proceedings due to the unpredictable nature of
personal injury litigation. Despite this uncertainty, and
although our results of operations and cash flows for a
particular period could be adversely affected by
asbestos-related lawsuits, claims and proceedings, management
believes that the ultimate resolution of these matters will not
have a material adverse effect on our financial condition,
liquidity or results of operations. Among the factors management
considered in reaching this conclusion were: (a) our
historical success in being dismissed from these types of
lawsuits on the bases mentioned above; (b) many cases have
been improperly filed against one of our subsidiaries;
(c) in many cases, the plaintiffs have been unable to
establish any causal relationship to us or our products or
premises; (d) in many cases, the plaintiffs have been
unable to demonstrate that they have suffered any identifiable
injury or compensable loss at all, that any injuries that they
have incurred did in fact result from alleged exposure to
asbestos; and (e) the complaints assert claims against
multiple defendants and, in most cases, the damages alleged are
not attributed to individual defendants. Additionally, we do not
believe that the amounts claimed in any of the asbestos cases
are meaningful indicators of our potential exposure because the
amounts claimed typically bear no relation to the extent of the
plaintiffs injury, if any.
Our cost of defending these lawsuits has not been material to
date and, based upon available information, our management does
not expect its future costs for asbestos-related lawsuits to
have a material adverse effect on our results of operations,
liquidity or financial position.
20
There have been no material changes in the risk factors
previously disclosed in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The Company has a share repurchase program whereby the Company
may repurchase up to 1.0 million shares of its common
stock. There were no purchases under this program during the
quarter ended March 31, 2009.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders
during the first quarter of 2009.
The following exhibits are included herein:
|
|
|
|
|
|
15
|
|
|
Letter re: unaudited interim financial information
|
|
31
|
.1
|
|
Principal Executive Officers Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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31
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.2
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Principal Financial Officers Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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32
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Certification requirement under Section 906 of the
Sarbanes-Oxley Act of 2002
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PARK-OHIO HOLDINGS CORP.
(Registrant)
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By
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/s/ Jeffrey
L. Rutherford
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Name: Jeffrey L. Rutherford
Title:
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Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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Date: May 8, 2009
22