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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
COMMISSION FILE NUMBER 333-43005
PARK-OHIO INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
OHIO 34-6520107
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
23000 EUCLID AVENUE
CLEVELAND, OHIO 44117
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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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:
None
(Title of class)
Pursuant to a corporate reorganization effective June 15, 1998, Park-Ohio
Industries, Inc. became a wholly-owned subsidiary of Park-Ohio Holdings Corp.
The registrant meets the conditions set forth in General Instruction I1(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
Indicate by check mark whether the registrant (1) has filed reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
All of the outstanding capital stock of the registrant is held by Park-Ohio
Holdings Corp. As of March 22, 2000, 100 shares of the registrant's common
stock, $1 par value, were outstanding.
Documents Incorporated By Reference: None
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PART I
ITEM 1. BUSINESS
THE COMPANY
Park-Ohio Industries, Inc. ("Park-Ohio"), a wholly-owned subsidiary of
Park-Ohio Holdings Corp. ("Holdings"), was incorporated as an Ohio corporation
in January, 1985. Park-Ohio is a leading provider of logistics services and a
manufacturer of highly engineered products. Reference herein to the "Company"
includes, where applicable, Holdings, Park-Ohio and its direct and indirect
subsidiaries and its predecessor companies, which have operated for more than
150 years.
The Company operates through three segments, Integrated Logistics Solutions
("ILS"), Aluminum Products and Manufactured Products, which serve a wide variety
of industrial markets. ILS is a leading national supplier of fasteners (e.g.,
nuts, bolts and screws) and other industrial products to original equipment
manufacturers ("OEMs"), other manufacturers and distributors. In connection with
the supply of such industrial products, ILS provides a variety of value-added,
cost-effective procurement solutions. The principal customers of ILS are OEMs in
the transportation, industrial, electrical and lawn and garden equipment
industries. Aluminum Products manufactures cast aluminum components primarily
for automotive OEMs. Aluminum Products also provides value-added services such
as design and engineering, machining and assembly. Manufactured Products is a
diverse group of manufacturing businesses that design and manufacture a broad
range of high quality products which includes capital equipment, rubber products
and forged and machined products for specific customer applications. The
principal customers of Manufactured Products are end-users in the automotive,
railroad, truck and aerospace industries. Between 1995 and 1999, the Company
grew significantly, through both internal growth and acquisitions. Over this
period, the Company's net sales increased from $289.5 million to $717.2 million,
income from continuing operations before income taxes increased from $12.9
million to $28.6 million, and EBITDA increased from $24.9 million to $72.1
million. As of December 31, 1999, the Company employed approximately 4,100
persons.
OPERATIONS
The following chart highlights the Company's three business segments, the
primary industries they serve and the key products they sell.
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NET SALES
FOR THE
YEAR ENDED
DEC. 31,
SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES 1999
------- ------------------------- -------------------------- ----------
(MILLIONS)
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INTEGRATED LOGISTICS Automotive parts and Inventory management, $443.1
SOLUTIONS accessories, electrical engineering and procurement
equipment, lawn and garden of standard and specialty
equipment, HVAC, industrial fasteners, fittings, rubber
equipment and heavy truck and other industrial
products.
ALUMINUM PRODUCTS Automotive Engineering and 127.1
manufacturing the following:
Aluminum castings such as
transmission pump housings,
pinion carriers, clutch
retainers, intake manifolds,
oil filter adapters and
other die, sand and
permanent mold machined
castings.
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<TABLE>
<CAPTION>
NET SALES
FOR THE
YEAR ENDED
DEC. 31,
SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES 1999
------- ------------------------- -------------------------- ----------
(MILLIONS)
<S> <C> <C> <C>
MANUFACTURED PRODUCTS Automotive, aerospace, power Engineering and 147.0
generation, railroad, manufacturing the following:
shipbuilding, steel, forged and machined products
telecommunications and truck such as aircraft landing
gears, locomotive
crankshafts and camshafts;
induction heating systems;
and industrial rubber
products.
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INTEGRATED LOGISTICS SOLUTIONS
ILS is a leading national supplier of over 175,000 standard and specialty
fasteners and other industrial products pursuant to either supply chain
management agreements or traditional wholesale supply arrangements. ILS operates
out of branches located throughout the United States, Canada, Puerto Rico,
Mexico and England, and has a central distribution center located in Dayton,
Ohio. ILS generated net sales of $443.1 million, or 62% of the Company's net
sales for the year ended December 31, 1999. The four largest customers,
comprised of many divisions, accounted for approximately 23% of sales of ILS.
The loss of any one of these customers would have an adverse effect on this
segment.
Products and Services. Supply chain management, which is ILS' primary focus
for future growth, involves offering customers procurement solutions and
comprehensive, on-site management for most of their fastener and related
hardware needs. Supply chain management customers receive value-added services,
such as part usage and cost analysis, product redesign recommendations, supplier
selection, quality assurance, bar coding, product packaging and tracking,
just-in-time delivery, electronic billing services and ongoing technical
support. Supply chain management services are typically provided to customers
pursuant to total fastening services ("TFS") contracts. TFS contracts enable
ILS' customers to both reduce procurement costs and better focus on their
companies' core manufacturing competencies by: (i) significantly reducing the
administrative and labor costs associated with fastener procurement by
outsourcing certain internal purchasing, quality control and inventory
fulfillment responsibilities; (ii) reducing the amount of working capital
invested in inventory; (iii) achieving purchasing efficiencies as a result of
vendor consolidation; and (iv) receiving technical expertise in the selection of
fasteners and other components for certain manufacturing processes. Management
believes that TFS contracts foster longer-lasting supply relationships with
customers, who increasingly rely on the Company for their fastener needs, as
compared to traditional buy/sell distribution relationships. Sales pursuant to
TFS contracts have increased significantly in recent years and represented over
61% of ILS' net sales for the year ended December 31, 1999. The increase in TFS
contracts has caused an increased investment in inventory in order to meet
customer just-in-time delivery requirements. ILS' remaining sales are generated
through the wholesale supply of fasteners and other industrial products to OEMs,
other manufacturers and distributors pursuant to master or authorized
distributor relationships.
ILS supplies standard and specialty engineered fasteners such as nuts,
bolts, screws and washers on a fully integrated basis. ILS engineers and
manufactures precision cold formed and cold extruded products including
locknuts, SPAC(R) nuts and wheel hardware, which are principally used in
applications where controlled tightening is required due to high vibration.
These are manufactured by shaping cold raw materials. Standard and specialty
nuts are produced to customer specifications, which are used in large volumes by
customers in the automotive, truck and railroad industries.
In addition to fasteners, ILS supplies, among other things, valves,
fittings, clamps and rubber products, which currently represent approximately
10% of ILS' net sales. ILS also provides engineering
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and design services to its customers. Applications-engineering specialists and
the direct sales force work closely with the engineering staff of OEM customers
to recommend the appropriate fasteners for a new product or to suggest
alternative fasteners that reduce overall production costs, streamline assembly
or enhance the appearance or performance of the end product.
Markets and Customers. In 1999, approximately 90% of ILS' net sales were to
domestic customers. Remaining sales were primarily to Canada and Mexico. The
domestic industrial fastener market is estimated by industry sources to have
generated between $7 and $9 billion in annual sales in 1999 at the wholesale
level. Fasteners are used extensively by OEMs in a variety of industries, and
demand is generally related to the state of the economy and to the overall level
of manufacturing activity.
ILS markets and sells fasteners and other industrial products to over
15,000 customers domestically and internationally. The principal markets served
by ILS are transportation equipment, including manufacturers of heavy trucks and
recreational vehicles; automotive parts and accessories; industrial equipment;
electrical equipment, including manufacturers of electrical controls; appliances
and motors; lawn and garden equipment and HVAC.
In recent years, OEMs have made it a priority to reduce their total cost of
purchasing and handling fasteners. Due to the low unit cost and the large number
of different fasteners used to manufacture or assemble a single product,
administrative and overhead costs comprise a substantial portion of an OEM's
fastener-related costs. As a result, management believes industrial fastener
suppliers are consolidating as OEMs rely on fewer suppliers to achieve
purchasing efficiencies. ILS provides a wide array of value-added services and
is a reliable source for just-in-time delivery and is well positioned to
capitalize on these trends. In addition, OEMs are increasingly relying on
fastener suppliers to provide design and applications-engineering support,
enabling more efficient use of internal engineering resources thereby allowing
ILS to increase the amount of low unit cost fastener and non-fastener items
supplied to OEMs.
Competition. The industrial fastener supply industry is highly competitive
and fragmented. Management believes that substantially all of ILS' competitors
operate on a regional basis and do not provide customers with the wide array of
supply chain management services offered by ILS. ILS competes primarily on the
basis of its value-added services, delivery capabilities, extensive product
selection and price with primarily domestic competitors who are capable of
providing inventory management programs.
ALUMINUM PRODUCTS
In January, 1999 the Company acquired all of the shares of The Metalloy
Corporation ("Metalloy"). Metalloy is a full service aluminum casting and
machining company.
The Aluminum Products segment generated net sales of $127.1 million, or 18%
of the Company's net sales for the year ended December 31, 1999. The three
largest customers, of which the Company sells to multiple operating divisions,
accounted for approximately 92% of Aluminum Products sales in 1999. The loss of
any one of these customers would have a material adverse effect on this segment.
Aluminum permanent mold, sand casted, and die casted products are produced at
Aluminum Products multiple locations in five states. Management believes
Aluminum Products is one of the few automotive part suppliers that has the
capabilities of providing permanent mold, sand-casted and die-casted products.
Aluminum Products' cast aluminum parts are critical components manufactured
primarily for automotive OEMs. Aluminum Products' principal automotive products
include: transmission pump housings, intake manifolds, planetary pinion
carriers, oil filter adapters, clutch retainers, rotor castings and bearing
cups. In addition, Aluminum Products manufactures products for non-automotive
end users such as surgical table components, light housings and electrical meter
housings. Aluminum Products also provides value-added services such as secondary
casting, machining, drilling, tapping and part assembly. Although these parts
are lightweight, they possess high durability and integrity characteristics even
under extreme pressure and temperature conditions. Demand by automotive OEMs for
aluminum
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castings has increased in recent years as OEMs have sought lighter alternatives
to heavier steel and iron components. Lighter aluminum cast components increase
an automobile's fuel efficiency without decreasing its structural integrity.
Management believes this replacement trend will continue as government standards
regarding fuel efficiency become increasingly stringent. Aluminum Products sells
its products primarily to customers located in North America. The market for
aluminum castings is comprised of two segments: automotive and non-automotive.
The domestic aluminum castings industry is highly competitive. Aluminum Products
competes principally on the basis of its ability to: (i) engineer and
manufacture high quality, machined castings in large volumes; (ii) provide
timely delivery; and (iii) retain the manufacturing flexibility necessary to
quickly adjust to the needs of its customers. Although there are a number of
smaller domestic companies with aluminum casting capabilities, the automotive
industry's stringent quality and service standards enable only large suppliers
with the requisite quality certifications to compete effectively. As one of
these suppliers, Aluminum Products has benefited in recent years as automotive
OEMs have consolidated their supplier base.
MANUFACTURED PRODUCTS
The Manufactured Products segment includes forged and machined products,
capital equipment, industrial rubber products and other manufactured products.
Manufactured Products generated net sales of $147 million, or 20% of the
Company's net sales for the year ended December 31, 1999. The three largest
customers, of which the Company sells to multiple operating divisions, accounted
for approximately 20% of Manufactured Products sales in 1999. The loss of
business from any one of these customers would have an adverse effect on this
segment.
The Company's forged and machined products business is carried out at four
operating units consisting of Park Drop Forge, Ohio Crankshaft, Park-Ohio
Structural Hardware, and Blue Falcon Forge. The forging process enables metal to
be shaped while generally retaining higher structural integrity than metal
shaped through other processes. Park Drop Forge manufactures closed-die metal
forgings of up to 6,000 pounds, including crankshafts and aircraft landing
gears, primarily for customers in the railroad and aerospace industries. Park
Drop Forge's products are sold primarily to machining companies, including Ohio
Crankshaft and subassemblers who finish the products for sale to OEMs in the
railroad and aerospace industries. Ohio Crankshaft machines, induction hardens
and surface finishes crankshafts and camshafts used primarily in locomotives,
power generators and ships. Park-Ohio Structural Hardware manufactures and
machines specialized hardware such as turnbuckles and clevises for construction
companies. Its products are manufactured according to customers' specific
dimensional and/or strength requirements. Blue Falcon Forge produces large
forged products such as center plates and couplings, both of which are used in
the undercarriage of rail cars. Forged and machined products are sold to a wide
variety of domestic and international OEMs and other manufacturers in the
transportation, power generation and construction industries. The Company's
forged and machined products business competes domestically and internationally
with other small to medium-sized businesses on the basis of product quality and
precision.
The Company manufactures large industrial equipment through its operating
units consisting of Tocco, Ajax, Feco and PMC-Colinet. Tocco specializes in the
engineering and construction of induction heating systems primarily for the
automotive and truck industries. Tocco's induction heating systems are
engineered and built to customer specifications and are used primarily by OEMs
for surface hardening. Ajax engineers, manufactures and services mechanical
forging presses ranging in size from 500 to 8,000 tons that are used worldwide
in the automotive and truck manufacturing industries. Feco produces complete
oven systems that combine heat processing and curing technologies with material
handling and conveying methods. Feco's principal products include industrial
drying and curing ovens for automotive components, metal can curing ovens,
specialized conveyor and automation systems for lightweight containers, and
plastic and glass bottle coating and finishing systems. PMC-Colinet produces
tube threading machines and related parts for the oil drilling industry. The
Company's capital equipment units compete with large domestic and international
equipment manufacturers on the basis of service capability, ability to meet
customer specifications, delivery performance and engineering expertise.
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The Company manufactures injection and transfer molded products, lathe-cut
goods, roll coverings and various items requiring rubber to metal bonding for
use in industrial applications through three operating units consisting of
Castle Rubber, Cicero Flexible Products and Geneva Rubber. Castle manufactures
valve seals, power and conveyor rolls and slitter rings. Cicero is a developer
and manufacturer of injection molded silicone rubber products for customers in
the automotive, food processing and consumer appliance industries, such as wire
harnesses, spark plug boots and nipples and general sealing gaskets. Geneva is a
manufacturer of injection molded rubber products for customers in the
automotive, telecommunications and heavy truck industries. Its products include
primary wire harnesses, transoceanic cable boots and shock and vibration mounts.
The industrial rubber products operating units compete primarily on the basis of
price and product quality with other domestic small to medium-sized
manufacturers of rubber products.
SALES AND MARKETING
ILS markets its products and services in the United States, Mexico, Canada
and Europe, primarily through its direct sales force, which is assisted by
applications engineers who provide the technical expertise necessary to assist
the engineering staff of OEM customers in designing new products and improving
existing products. ILS often obtains new customers as a result of referrals from
existing customers. Aluminum Products and Manufactured Products markets and
sells its products through both internal sales personnel and independent sales
representatives. In some instances, the internal engineering staff assists in
the sales and marketing effort through joint design and applications-engineering
efforts with major customers. In addition, Manufactured Products markets certain
of its products through various regional and national trade shows.
RAW MATERIALS AND SUPPLIERS
ILS purchases substantially all of its fasteners from third party
suppliers. Aluminum Products and Manufactured Products purchase substantially
all of their raw materials, principally metals and certain component parts
incorporated into their products, from third-party suppliers and manufacturers.
Management believes that raw materials and component parts other than certain
specialty fasteners are available from alternative sources. ILS has multiple
sources of supply for standard products, but has limited supply sources for
certain specialty products. Approximately 12% of ILS' fasteners are purchased
from suppliers in foreign countries, primarily Taiwan, Japan and Korea. The
Company is dependent upon the ability of such suppliers to meet stringent
quality and performance standards and to conform to delivery schedules. Most raw
materials required by Aluminum Products and Manufactured Products are commodity
products available from several domestic suppliers.
BACKLOG
Management believes that backlog is not a meaningful measure for ILS, as a
majority of ILS' customers require just-in-time delivery of fasteners and other
industrial products. Management believes that Aluminum Products' and
Manufactured Products' backlog as of any particular date is not a meaningful
measure of sales for any future period as a significant portion of sales are on
a release or firm order basis.
ENVIRONMENTAL REGULATIONS
The Company is subject to numerous federal, state and local laws and
regulations designed to protect public health and the environment
("Environmental Laws"), particularly with regard to discharges and emissions, as
well as handling, storage, treatment and disposal, of various substances and
wastes. Pursuant to certain Environmental Laws, owners or operators of
facilities may be liable for the costs of response or other corrective actions
for contamination identified at or emanating from current or former locations,
without regard to whether the owner or operator knew of, or was responsible for,
the presence of any such contamination, and for related damages to natural
resources. Additionally, persons who arrange for the disposal or treatment of
hazardous substances or materials may be liable
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for costs of response at sites where they are located, whether or not the site
is owned or operated by such person.
The Company believes that it is currently in material compliance with
applicable Environmental Laws. In general, the Company has not experienced
difficulty in complying with Environmental Laws in the past, and compliance with
Environmental Laws has not had a material adverse effect on the Company's
financial condition, liquidity and results of operations. The Company's capital
expenditures on environmental control facilities were not material during the
past five years and such expenditures are not expected to be material to the
Company in the foreseeable future.
The Company has been identified as a potentially responsible party at
certain third-party sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or comparable state laws
which provide for strict and, under certain circumstances, joint and several
liability. The Company is participating in the cost of certain clean-up efforts
at several of these sites. The availability of third-party payments or insurance
for environmental remediation activities is subject to risks associated with the
willingness and ability of the third party to make payments. However, the
Company's share of such costs has not been material and based on available
information, the Company does not expect its exposure at any of these locations
to have a material adverse effect on its results of operations, liquidity or
financial condition.
INFORMATION AS TO INDUSTRY SEGMENT REPORTING AND GEOGRAPHIC AREAS
The information contained under the heading of "Note I -- 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, 1999, 1998, and
1997 is incorporated herein by reference.
RECENT DEVELOPMENTS
The information contained under the heading of "Note B -- Acquisitions and
Disposition" of notes to consolidated financial statements included herein, is
incorporated by reference.
ITEM 2. PROPERTIES
The Company's operations include numerous manufacturing and warehousing
facilities located in 26 states in the United States and in 4 other countries.
Approximately 48% of the available square footage is owned. In 1999,
approximately 38% of the available domestic square footage was used by the ILS
segment; approximately 47% was used by the Manufactured Products segment and 15%
by the Aluminum Products segment. Approximately 89% of the available foreign
square footage was used by the ILS segment and 11% was used by the Manufactured
Products segment. In the opinion of management, Park-Ohio's facilities are
generally well maintained and are suitable and adequate for their intended uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from currently pending or threatened
litigation will not have a material adverse effect on the Company's financial
condition, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information required by this item has been omitted pursuant to General
Instruction I of Form 10-K.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The registrant is a wholly-owned subsidiary of Park-Ohio Holdings Corp. and
has no equity securities that trade.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information required by this item has been omitted pursuant to General
Instruction I of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information required by this item has been omitted pursuant to
General Instruction I of Form 10-K.
The consolidated financial statements of the Company include the accounts
of Park-Ohio Industries, Inc. and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The historical financial
information is not directly comparable on a year-to-year basis due to
acquisitions made in 1999 and 1998. During 1999, the Company acquired six
businesses for an aggregate purchase price of $65.4 million. In January, the
Company acquired all of the shares of The Metalloy Corporation ("Metalloy") and
substantially all of the assets of St. Louis Screw & Bolt Co. ("St. Louis
Screw"). Metalloy is a full service aluminum casting and machining company. St.
Louis Screw is a manufacturer of bolts used in the construction industry. In
February, the Company acquired substantially all of the assets of PMC
Industries, ("PMC") and, in September, the Company acquired all of the shares of
M.P. Colinet ("Colinet"). PMC and Colinet provide capital equipment and
associated parts for the oil drilling industry. In July, the Company acquired
all of the shares of Columbia Nut and Bolt Corp. ("Columbia") and Industrial
Fasteners Corporation ("Industrial"). Columbia and Industrial are logistics
providers of fastener related components. During 1998, the Company acquired two
businesses for $40.2 million. In October, the Company acquired all of the shares
of GIS Industries, Inc. ("Gateway"). Gateway is a logistics provider of
fastener-related components and a manufacturer of metal products and fasteners.
In April, the Company acquired all of the shares of Direct Fasteners Limited
("Direct"), a logistics provider of fastener related components located in
Ontario, Canada. Each of these transactions has been accounted for as a purchase
and consequently their results are included in the consolidated financial
statements from their respective dates of acquisition.
OVERVIEW
The Company operates diversified manufacturing and logistics businesses
that serve a wide variety of industrial markets. During the first quarter of
1999 the Company, upon completion of the acquisition of Metalloy, redefined and
restated its operating segments. The Company manages its businesses based upon
three operating segments: Integrated Logistics Solutions ("ILS"), Aluminum
Products and Manufactured Products. ILS is a leading national supplier of
fasteners (e.g., nuts, bolts and screws) and other industrial products to
original equipment manufacturers ("OEMs"), other manufacturers and distributors.
In connection with the supply of such industrial products, ILS provides a
variety of value-added, cost-effective procurement solutions. The principal
customers of ILS are in the transportation, industrial, electrical and lawn and
garden equipment industries. Aluminum Products manufactures cast aluminum
components primarily for automotive OEMs. Aluminum Products also provides
value-added services such as design and engineering, machining and assembly.
Manufactured Products operates a diverse group of niche manufacturing businesses
that design and manufacture a broad range of high quality products engineered
for specific customer applications. The principal customers of Manufactured
Products are OEMs and end-users in the automotive, railroad, truck and aerospace
industries.
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Between 1993 and 1999, the Company has grown significantly, both internally
and through acquisitions. Over this period, the Company's net sales increased at
a 40% compounded annual growth rate ("CAGR"), from $94.5 million to $717.2
million, and income from continuing operations on a fully taxed basis increased
at a 38% CAGR from $2.4 million to $16.4 million.
Recent growth has been primarily attributable to the Company's strategy of
making selective acquisitions in order to complement internal growth. The
Company has acquired businesses with potential for: (i) significant cost
reductions through improved labor, supplier and customer relations and increased
purchasing power and (ii) revenue enhancement due to better asset utilization
and management practices, as well as increased access to capital. The Company's
internal growth has been driven primarily by the addition of ILS customers under
total fastening service ("TFS") contracts and by the leveraging of existing
customer relationships in the Aluminum and Manufactured Products segments.
Between January 1, 1994 and December 31, 1999, the Company's continuing
operations incurred $86.9 million of capital expenditures, the majority of which
was used to expand existing manufacturing facilities, upgrade equipment and
enhance the Company's management information systems.
RESULTS OF OPERATIONS
1999 versus 1998
Net sales increased by $165.4 million, or 30%, from $551.8 million in 1998
to $717.2 million in 1999. This growth results primarily from recent
acquisitions and relates to the ILS and the Aluminum Products segments. For ILS,
the growth in net sales amounted to $78.5 million of which $51.7 million related
to acquisitions and the remainder was organic growth. For Aluminum Products, net
sales increased by $87.3 million of which $81.2 million related to the
acquisition of Metalloy and the remainder to internal growth.
Gross profit increased by $29.2 million, or 30%, from $96.6 million in 1998
to $125.8 million in 1999 and is directly related to acquisitions made in 1999.
The Company's consolidated gross margin of approximately 17.5% was the same for
both periods.
Selling, general and administrative costs increased by 29% to $72.4 million
for 1999 from $56.3 million for 1998. The increase was related to recent
acquisitions. Consolidated selling, general and administrative expenses as a
percentage of net sales were 10.1% during the current period and 10.2% for 1998.
Interest expense increased by $7.3 million from $17.5 million in 1998 to
$24.8 million in 1999 due to higher average debt outstanding during the current
period offset by lower average interest rates in 1999 versus 1998. For the year
ended December 31, 1999, the Company averaged outstanding borrowings of $294.6
million as compared to $205.3 million for 1998. The $89.3 million increase
related primarily to acquisitions completed during the latter part of 1998 and
in 1999. The average borrowing rate of 8.40% for the year ended December 31,
1999 is 12 basis points lower than the average rate of 8.52% for 1998 primarily
because of increased borrowings under the Company's bank revolving credit which
carries a lower effective interest rate as compared to the 9.25% on the
Company's Senior Subordinated Notes.
The effective income tax rate for 1999 and 1998 was 43%. At December 31,
1999, subsidiaries of the Company had $1.1 million of net operating loss
carryforwards for federal tax purposes.
1998 versus 1997
Net sales increased by $110.7 million, or 25%, from $441.1 million in 1997
to $551.8 million in 1998. Approximately 27% of this increase was attributable
to internal growth and 73% was a result of acquisitions completed in 1997 or
1998. Of the internal sales growth, approximately 66% was primarily attributable
to ILS and the addition of TFS customers, and the remainder was due to increased
orders from Aluminum Products' (11%) and Manufactured Products' (23%) customers.
The growth in net sales from acquisitions applies to ILS and primarily pertains
to Arden and Gateway.
Gross profit increased by $24.2 million, or 33%, from $72.4 million in 1997
to $96.6 million in 1998. Of the increase, 67% relates to acquisitions and 33%
to internal growth. The Company's consolidated
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gross margin increased to 17.5% for 1998 from 16.4% for 1997. This increase in
consolidated gross margin was due to increased margins in both the ILS and
Manufactured Products segments offset by a decrease in Aluminum Products
margins. The increase in margin in Manufactured Products was due to a change in
revenue mix and to increased production thereby allocating fixed manufacturing
overhead over a greater production base. The increase in margins in the ILS
segment is a result of reduced material costs. The decrease in margin in
Aluminum Products was the result of higher than expected start-up costs
associated with new facilities necessitated by significant new orders from a
major customer.
Selling, general and administrative costs increased by 27% to $56.3 million
in 1998 from $44.4 million in 1997. Approximately 78% of such increase was
related to acquisitions while the remainder related to the increase in
internally generated net sales. During 1998, selling, general and administrative
expenses benefited from an increase in net pension credits of $2.4 million,
reflecting favorable investment returns on pension plan assets. Consolidated
selling, general and administrative expenses as a percentage of net sales was
approximately 10% for both periods.
Interest expense increased by $8.4 million from $9.1 million for 1997 to
$17.5 million for 1998 due to higher average debt outstanding during 1998 and to
higher average interest rates in 1998 versus 1997. For the year ended December
31, 1998, the Company averaged outstanding borrowings of $205.3 million as
compared to $123.1 million outstanding for 1997. The $82.2 million increase
related primarily to acquisitions completed during the latter part of 1997 and
1998, working capital increases to support the realized and anticipated growth
in business and capital expenditures to support the operations. The average
borrowing rate of 8.5% for the year ended December 31, 1998 is 1.1% higher than
the average rate of 7.4% for the year ended December 31, 1997 primarily because
of the $150 million bond offering in November, 1997 which carries a rate of
9.25% versus a 7.3% rate on the bank debt it replaced.
The effective income tax rate for 1998 was 43% as compared to 41% for 1997.
The increase is directly attributable to an increase in expenses recorded for
financial reporting purposes, but not deductible for income tax purposes,
primarily certain goodwill amortization. At December 31, 1998, subsidiaries of
the Company had $1.1 million of net operating loss carryforwards for tax
purposes.
SEASONALITY; VARIABILITY OF OPERATING RESULTS
As a result of the significant growth in the Company's net sales and
operating income in recent years, seasonal fluctuations have been substantially
mitigated. The Company, however, performs scheduled plant maintenance in the
third quarter to coincide with customer plant shut downs.
The timing of orders placed by the Company's customers has varied with,
among other factors, orders for customers' finished goods, customer production
schedules, competitive conditions and general economic conditions. The
variability of the level and timing of orders has, from time to time, resulted
in significant periodic and quarterly fluctuations in the operations of the
Company's business units. Such variability is particularly evident at the
capital equipment businesses, included in the Manufactured Products segment,
which typically ship a few large systems per year.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations contain
forward-looking statements, including without limitation, discussion regarding
the Company's anticipated levels and funding of capital expenditures and the Y2K
issue. Forward-looking statements are necessarily subject to risks,
uncertainties and other factors, many of which are outside the control of the
Company, that could cause actual results to differ materially from such
statements. These uncertainties and other factors include such things as:
general business conditions, competitive factors, including pricing pressures
and product innovation and quality; raw material availability and pricing;
changes in the Company's relationships with customers and suppliers; the ability
of the Company to successfully
9
<PAGE> 11
integrate recent and future acquisitions into its existing operations; changes
in general domestic economic conditions such as inflation rates, interest rates
and tax rates; increasingly stringent domestic and foreign governmental
regulations including those affecting the environment; inherent uncertainties
involved in assessing the Company's potential liability for environmental
remediation-related activities; the outcome of pending and future litigation and
other claims; dependence on the automotive industry; dependence on key
management; dependence on information systems; and the ability of the Company,
its vendors and customers to remain Y2K failure free. Any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise. In light of
these and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk including changes in interest rates.
The Company is subject to interest rate risk on its floating rate revolving
credit facility which consisted of borrowings of $138 million at December 31,
1999. A 100 basis point increase in the interest rate would have resulted in an
increase in interest expense of approximately $1.2 million for the year ended
December 31, 1999.
10
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. 12
Consolidated Balance Sheets -- December 31, 1999 and
December 31, 1998......................................... 13
Consolidated Statements of Income -- Years Ended December
31, 1999, 1998 and 1997................................... 14
Consolidated Statements of Shareholders' Equity -- Years
Ended December 31, 1999, 1998 and 1997.................... 15
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1999, 1998 and 1997.......................... 16
Notes to Consolidated Financial Statements.................. 17
</TABLE>
11
<PAGE> 13
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Park-Ohio Industries, Inc.
We have audited the accompanying consolidated financial statements of
Park-Ohio Industries, Inc. and subsidiaries (a wholly-owned subsidiary of
Park-Ohio Holdings Corp.) 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park-Ohio
Industries, Inc. and subsidiaries at December 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 22, 2000
12
<PAGE> 14
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 5,625 $ 4,320
Accounts receivable, less allowances for doubtful accounts
of $3,296 in 1999 and $2,803 in 1998.................... 112,896 95,718
Inventories............................................... 192,270 150,052
Deferred tax assets....................................... 600 2,232
Other current assets...................................... 5,754 5,468
-------- --------
Total Current Assets............................... 317,145 257,790
Property, Plant and Equipment
Land and land improvements................................ 6,471 4,460
Buildings................................................. 32,504 25,912
Machinery and equipment................................... 172,118 130,253
-------- --------
211,093 160,625
Less accumulated depreciation............................. 86,721 70,468
-------- --------
124,372 90,157
Other Assets
Excess purchase price over net assets acquired, net of
accumulated amortization of $11,941 in 1999 and $8,105
in 1998................................................. 137,905 99,351
Deferred taxes............................................ 2,400 8,900
Other..................................................... 48,321 33,356
-------- --------
$630,143 $489,554
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable.................................... $ 72,452 $ 46,755
Accrued expenses.......................................... 32,995 32,076
Current portion of long-term liabilities.................. 2,557 2,372
-------- --------
Total Current Liabilities.......................... 108,004 81,203
Long-Term Liabilities, less current portion
Long-term debt............................................ 339,813 237,483
Other postretirement benefits............................. 25,470 26,286
Other..................................................... 1,840 3,740
-------- --------
367,123 267,509
Shareholders' Equity
Common stock; par value $1 a share........................ -0- -0-
Additional paid-in capital................................ 64,844 64,844
Retained earnings......................................... 91,024 77,580
Accumulated other comprehensive earnings (loss)........... (852) (1,582)
-------- --------
155,016 140,842
-------- --------
$630,143 $489,554
======== ========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 15
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................. $717,222 $551,793 $441,110
Cost of products sold..................................... 591,439 455,167 368,734
-------- -------- --------
Gross profit............................................ 125,783 96,626 72,376
Selling, general and administrative expenses.............. 72,423 56,318 44,396
-------- -------- --------
Operating income........................................ 53,360 40,308 27,980
Other income.............................................. -0- -0- (320)
Interest expense.......................................... 24,752 17,488 9,101
-------- -------- --------
Income before income taxes........................... 28,608 22,820 19,199
Income taxes.............................................. 12,164 9,726 7,903
-------- -------- --------
Income before extraordinary charge................... 16,444 13,094 11,296
Extraordinary charge for early retirement of debt, net of
tax benefit of $928..................................... -0- -0- (1,513)
-------- -------- --------
Net income...................................... $ 16,444 $ 13,094 $ 9,783
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 16
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED TREASURY EARNINGS
STOCK CAPITAL EARNINGS STOCK (LOSS) TOTAL
------- ---------- -------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997.................... $10,433 $49,337 $57,703 $(1,775) $ (629) $115,069
Comprehensive income:
Net income.............. 9,783 9,783
Foreign currency
translation
adjustment........... (196) (196)
--------
Comprehensive income.... 9,587
Issuance of General
Aluminum Mfg. Company
earn-out shares...... 375 3,600 3,975
Exercise of stock
options................. 152 539 2,673 3,364
Purchase of treasury
stock................... (2,985) (2,985)
------- ------- ------- ------- ------- --------
Balance at December 31,
1997.................... 10,960 53,476 67,486 (2,087) (825) 129,010
Comprehensive income:
Net income.............. 13,094 13,094
Foreign currency
translation
adjustment........... (757) (757)
--------
Comprehensive income.... 12,337
Issuance of General
Aluminum Mfg. Company
earn-out shares......... 188 2,306 2,494
Exercise of stock
options................. (18) 257 239
Purchase of treasury
stock................... (238) (238)
Corporate
reorganization.......... (11,148) 9,080 2,068 -0-
Dividends paid............ (3,000) (3,000)
------- ------- ------- ------- ------- --------
Balance at December 31,
1998.................... -0- 64,844 77,580 -0- (1,582) 140,842
Comprehensive income:
Net income.............. 16,444 16,444
Foreign currency
translation
adjustment........... 730 730
--------
Comprehensive income.... 17,174
Dividends paid............ (3,000) (3,000)
------- ------- ------- ------- ------- --------
Balance at December 31,
1999.................... $-0-... $64,844 $91,024 $ -0- $ (852) $155,016
======= ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 17
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income................................................ $ 16,444 $ 13,094 $ 9,783
Adjustments to reconcile net income to net cash (used)
provided by operations:
Extraordinary charge................................. -0- -0- 1,513
Gain on sale of investments.......................... -0- -0- (320)
Depreciation and amortization........................ 18,698 12,753 10,365
Deferred income taxes................................ 6,904 6,659 5,686
-------- -------- --------
42,046 32,506 27,027
Changes in operating assets and liabilities excluding
acquisitions of businesses:
Accounts receivable.................................. (5,127) (2,312) (14,008)
Inventories.......................................... (32,726) (10,404) (21,021)
Accounts payable and accrued expenses................ (2,359) (7,465) 5,623
Other................................................ (3,290) (8,193) (7,660)
-------- -------- --------
Net Cash (Used) Provided by Operating Activities..... (1,456) 4,132 (10,039)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net........... (22,650) (22,681) (15,947)
Costs of acquisitions, net of cash acquired............... (65,426) (40,175) (60,389)
Purchase of investments................................... (445) (101) (1,432)
Proceeds from sales of investments........................ -0- -0- 551
-------- -------- --------
Net Cash (Used) by Investing Activities.............. (88,521) (62,957) (77,217)
FINANCING ACTIVITIES
Proceeds from bank arrangements........................... 101,500 66,000 106,500
Payments on long-term debt................................ (56,726) (1,670) (166,657)
Issuance of 9.25% senior subordinated notes, net of
deferred financing costs............................... 49,508 -0- 145,604
Cash paid to retire subordinated debentures............... -0- -0- (1,245)
Dividends paid............................................ (3,000) (3,000) -0-
Issuance of common stock under stock option plan.......... -0- 239 3,194
Purchase of treasury stock................................ -0- (238) (2,985)
-------- -------- --------
Net Cash Provided by Financing Activities............ 91,282 61,331 84,411
Increase (Decrease) in Cash and Cash Equivalents..... 1,305 2,506 (2,845)
Cash and Cash Equivalents at Beginning of Year....... 4,320 1,814 4,659
-------- -------- --------
Cash and Cash Equivalents at End of Year............. $ 5,625 $ 4,320 $ 1,814
======== ======== ========
Taxes paid................................................ $ 6,892 $ 2,326 $ 1,215
Interest paid............................................. 23,646 17,947 7,713
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 18
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated upon consolidation.
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (principally the
first-in, first-out method) or market value. If the first-in, first-out method
of inventory accounting had been used exclusively by the Company, inventories
would have been approximately $5,098 and $4,869 higher than reported at December
31, 1999 and 1998, respectively.
Major Classes of Inventories
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
In-process and finished goods....................... $160,648 $124,783
Raw materials and supplies.......................... 31,622 25,269
-------- --------
$192,270 $150,052
======== ========
</TABLE>
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Major additions and associated interest costs are capitalized and
betterments are charged to accumulated depreciation; expenditures for repairs
and maintenance are charged to operations. Depreciation of fixed assets is
computed principally by the straight-line method based on the estimated useful
lives of the assets. The Company capitalized interest of $1.0 million in 1998.
Interest capitalized in 1999 and 1997 was immaterial.
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 periods from twenty-five to forty years using the
straight-line method. Management periodically evaluates for possible impairment
of the current value of these intangibles, and other long-lived assets, through
undiscounted cash flow analyses as required by Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which established accounting standards for determining the impairment of
long-lived assets to be held and used, certain identifiable intangibles, and
goodwill related to those assets and for long-lived assets and certain
identifiable intangibles to be disposed of. Amortization expense related to the
excess purchase price over net assets acquired totalled $3,835, $2,356 and
$2,211 in 1999, 1998 and 1997, respectively.
Pensions and Other Postretirement Benefits: The Company and its
subsidiaries have pension plans, principally noncontributory defined benefit or
noncontributory defined contribution plans, cover-
17
<PAGE> 19
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
ing substantially all employees. In addition, the Company has two postretirement
benefit plans. For the defined benefit plans, benefits are based on the
employee's years of service and the Company's policy is to fund that amount
recommended by its independent actuaries. For the defined contribution plans,
the costs charged to operations and the amount funded are based upon a
percentage of the covered employees' compensation.
Stock-Based Compensation: The Company has elected to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Income Taxes: The Company accounts for income taxes under the liability
method whereby deferred tax assets and liabilities are determined based on
temporary differences between the financial reporting and the tax bases of
assets and liabilities and are measured using the current enacted tax rates.
Revenue Recognition: For the majority of its operations, the Company
recognizes revenues upon shipment of its product. Revenues on long-term
contracts are recognized using the percentage of completion method of
accounting, under which the sales value of performance is recognized on the
basis of the percentage each contract's cost to date bears to the total
estimated cost. The recognition of profit, based upon anticipated final costs,
is made only after evaluation of the contract status at critical milestones. The
Company's contracts generally provide for billing to customers at various points
prior to contract completion. Revenues earned on contracts in process in excess
of billings are classified in other current assets in the accompanying balance
sheet.
Environmental: The Company accrues environmental costs related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Costs which extend the life of the related
property or mitigate or prevent future environmental contamination are
capitalized. The Company records a liability when environmental assessments
and/or remedial efforts are probable and can be reasonably estimated. The
estimated liability of the Company is not discounted or reduced for possible
recoveries from insurance carriers.
Concentration of Credit Risk: The Company sells its products to customers
in diversified industries. The Company performs ongoing credit evaluations of
its customers' financial condition but does not require collateral to support
customer receivables. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. As of December 31, 1999 the Company had
uncollateralized receivables with seven customers in the automotive and truck
industry, each with several locations, approximating $34,176 which represents
approximately 30% of the Company's trade accounts receivable. During 1999, sales
to these customers amounted to approximately $245,588 which represents 34% of
the Company's net sales.
Impact of Recently Issued Accounting Standards: In March 1998, the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". The SOP requires companies to capitalize qualifying
computer software costs incurred during the application development stage. The
Company adopted the statement in the first quarter of 1999. The impact of this
new standard did not have a significant effect on the Company's financial
position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Accounting for the Costs of
Start-up Activities". The SOP requires that costs of start-up activities be
expensed as incurred. The SOP is effective for fiscal years beginning after
December 15, 1998. The Company adopted the SOP in the first quarter of 1999. The
18
<PAGE> 20
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
impact of adoption of the SOP on the Company's financial position, results of
operations or cash flows was immaterial.
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. Statement 133 requires derivatives to be
recorded on the balance sheet at fair value and establishes accounting for three
different types of hedges: hedges of changes in fair value of assets,
liabilities, or firm commitments; hedges of the variable cash flows of
forecasted transactions; and hedges of foreign currency exposures of net
investments in foreign operations. Statement 133 is effective for years
beginning after June 15, 2000 and is not expected to have a significant impact
on the Company's financial position or results of operations.
Reclassification: Certain amounts in the prior period's financial
statements have been reclassified to be consistent with the current
presentation.
NOTE B -- ACQUISITIONS AND DISPOSITION
During 1999, the Company acquired all of the stock of The Metalloy
Corporation ("Metalloy"), Columbia Nut and Bolt Corp. ("Columbia"), Industrial
Fasteners Corporation ("Industrial"), M.P. Colinet ("Colinet") and substantially
all of the assets of St. Louis Screw & Bolt Co. ("St. Louis Screw") and PMC
Industries ("PMC") for cash of approximately $65.4 million. Metalloy is a full
service aluminum casting and machining company. Columbia and Industrial are
logistics providers of fastener related components. St. Louis Screw is a
manufacturer of bolts and PMC and Colinet provide capital equipment and
associated parts for the oil drilling industry. Each of these transactions has
been accounted for as a purchase. The purchase price and the results of
operations of each of these businesses prior to their respective dates of
acquisition were not deemed to be significant as defined in Regulation S-X.
During 1998, the Company completed the acquisitions of Direct Fasteners
Limited ("Direct") and GIS Industries, Inc. ("Gateway"). The transactions have
been accounted for as purchases. Direct is a logistics provider of fastener
related components. Gateway is a logistics provider of fastener related
components and manufacturer of fabricated metal products and fasteners. The
aggregate purchase price and the results of operations of Direct and Gateway
prior to their respective dates of acquisition were not deemed to be significant
as defined in Regulation S-X.
On August 1, 1997, the Company acquired substantially all of the shares of
Arden Industrial Products, Inc. ("Arden") for cash of approximately $44 million.
The transaction has been accounted for as a purchase. Arden is a national
distributor of specialty and standard fasteners to the industrial market. Arden
is included in the Company's ILS segment.
The following is the estimated value of the net assets of Arden as of
August 1, 1997:
<TABLE>
<S> <C>
Cash..................................................... $ 2,711
Accounts receivable...................................... 11,503
Inventories.............................................. 17,764
Property, plant and equipment............................ 4,468
Excess purchase price over net assets acquired........... 19,599
Other assets............................................. 6,680
Trade accounts payable................................... (6,437)
Accrued expenses......................................... (5,930)
Long-term liabilities.................................... (6,358)
-------
Total estimated cost of acquisition...................... $44,000
=======
</TABLE>
19
<PAGE> 21
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
During the year ended December 31, 1997, the Company acquired four other
businesses for an aggregate purchase price of approximately $18.6 million. Each
of these transactions was accounted for as a purchase, resulting in excess
purchase price over net assets acquired of $8.6 million. The following unaudited
pro forma results of operations assume the acquisitions of Arden and the other
businesses discussed above occurred on January 1, 1997. 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.
<TABLE>
<CAPTION>
YEAR
ENDED
--------
1997
--------
<S> <C>
Net sales................................................. $508,724
Gross profit.............................................. 93,547
Income from continuing operations......................... 12,454
Income from continuing operations per common share
assuming dilution....................................... $ 1.10
========
</TABLE>
On October 15, 1993, the Company acquired General Aluminum Mfg. Company
("GAMCO"), by issuing 250,000 shares of its common stock valued at $3,127 in
exchange for the outstanding shares of GAMCO. An additional 187,500 shares of
common stock valued at $1,931, were issued in March, 1995; an additional 375,000
shares of common stock valued at $3,975 were issued in January, 1997; an
additional 187,500 shares of common stock valued at $2,494, representing the
final earn-out shares to be issued under the GAMCO purchase agreement, were
issued in 1998. The additional $8,400 represents purchase price in excess of net
assets acquired.
During September, 1998 the Company completed the sale of the assets of
Friendly and Safe Packaging Systems, Inc. to Kerr Group. The transaction had an
immaterial effect on the consolidated results of operations and financial
position of the Company.
NOTE C -- ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1999 1998
------- -------
<S> <C> <C>
Self-insured liabilities................................ $ 3,924 $ 2,911
Warranty and installation accruals...................... 3,348 3,156
Accrued payroll and payroll-related items............... 3,844 2,586
State and local taxes................................... 2,533 2,101
Advance billings........................................ 2,549 2,229
Acquisition liabilities................................. 2,780 5,930
Interest payable........................................ 2,187 1,695
Sundry.................................................. 11,830 11,468
------- -------
Totals............................................. $32,995 $32,076
======= =======
</TABLE>
20
<PAGE> 22
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- FINANCING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
9.25% Senior Subordinated Notes due 2007............... $200,000 $150,000
Revolving credit maturing on April 30, 2001............ 138,000 86,000
Other.................................................. 2,620 2,105
-------- --------
340,620 238,105
Less current maturities................................ 807 622
-------- --------
Total........................................ $339,813 $237,483
======== ========
</TABLE>
During 1999 Park-Ohio amended its credit agreement with a group of banks
under which it may borrow up to $175 million on an unsecured basis. Interest is
payable quarterly at the prime lending rate (8.5% at December 31, 1999) less 1%
to plus .2% or at Park-Ohio's election at LIBOR plus .9% to 2.2% (which
aggregated 7.5% at December 31, 1999). The interest rate is dependent on the
aggregate amounts borrowed under the agreement. The credit agreement expires on
April 30, 2001.
Provisions of the Senior Subordinated Notes and the revolving credit
agreement contain restrictions on the Company's ability to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments,
investments, loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to or merge or consolidate with, an unaffiliated
entity. The revolving credit agreement also requires maintenance of specific
financial ratios.
On November 25, 1997, the Company sold $150 million of its 9.25% Senior
Subordinated Notes due 2007 at a price of 97.375% of face value. Interest on the
Senior Subordinated Notes is payable semi-annually on June 1 and December 1 of
each year beginning on June 1, 1998. The Company used the net proceeds of the
Senior Subordinated Notes along with borrowings under its new credit facility to
(i) redeem its 7 1/4% Convertible Senior Subordinated Debentures due June 15,
2004 and (ii) to repay substantially all amounts of its then existing credit
facility. The early extinguishment of the 7 1/4% Convertible Senior Subordinated
Debentures and the then existing credit facility resulted in an extraordinary
charge of $1.5 million consisting of the following:
<TABLE>
<S> <C>
Discount on prepayment of 7 1/4% Convertible Senior
Subordinated Debentures................................... $1,245
Write-off related unamortized financing costs............... 1,196
------
Extraordinary charge before income tax benefit.............. 2,441
Income tax benefit.......................................... 928
------
Net extraordinary charge.................................... $1,513
======
</TABLE>
On June 3, 1999, the Company sold an additional $50 million of its 9.25%
Senior Subordinated Notes due 2007 at a price of 99.016% of face value. The
Company used the net proceeds to reduce the amount borrowed under its credit
facility.
The weighted average interest rate on all debt was 8.6% at December 31,
1999.
The fair market value of fixed rate debt securities at December 31, 1999
was approximately $192,500.
21
<PAGE> 23
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company has agreements on which up to $5 million in standby letters of
credit and commercial letters of credit may be issued. In addition to the bank's
customary letter of credit fees, a 3/4% fee is assessed on standby letters of
credit on an annual basis. As of December 31, 1999, in addition to amounts
borrowed under the revolving credit agreement, there is $2.9 million outstanding
primarily for standby letters of credit. A fee of 1/4% to 3/8% is imposed by the
bank on the unused portion of available borrowings.
Maturities of long-term debt during each of the five years following
December 31, 1999 are approximately $807 in 2000, $138,836 in 2001, $558 in
2002, $281 in 2003 and $80 in 2004.
NOTE E -- INCOME TAXES
Significant components of the Company's net deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefit obligation......................... $ 9,400 $ 9,900
Inventory................................................. 6,700 6,800
Tax net operating loss carryforwards and credits.......... 2,000 1,500
Other -- net.............................................. 1,600 4,832
------- -------
Total deferred tax assets......................... 19,700 23,032
Deferred tax liabilities:
Tax over book depreciation................................ 10,200 6,900
Pension................................................... 6,500 5,000
------- -------
Total deferred tax liabilities.................... 16,700 11,900
------- -------
Net deferred tax assets..................................... $ 3,000 $11,132
======= =======
</TABLE>
Income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 3,007 $ 1,023 $ 775
State............................................ 1,246 1,037 733
Foreign.......................................... 1,007 1,007 709
------- ------- -------
5,260 3,067 2,217
Deferred:
Federal.......................................... 6,029 6,195 5,175
State............................................ 875 464 511
------- ------- -------
6,904 6,659 5,686
------- ------- -------
Income taxes.......................................... $12,164 $ 9,726 $ 7,903
======= ======= =======
</TABLE>
22
<PAGE> 24
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The reasons for the difference between income taxes and the amount computed
by applying the statutory Federal income tax rate to income before income taxes
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed statutory amount............................. $ 9,662 $ 7,700 $ 6,500
Effect of state income taxes payable.................. 1,400 1,000 800
Other................................................. 1,102 1,026 603
------- ------- -------
Income taxes.......................................... $12,164 $ 9,726 $ 7,903
======= ======= =======
</TABLE>
At December 31, 1999, subsidiaries of the Company have net operating loss
carryforwards for income tax purposes of approximately $1.1 million subject to
certain limitations, which expire in 2001 to 2007.
NOTE F -- LEGAL PROCEEDINGS
The Company is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from currently pending or threatened
litigation will not have a material adverse effect on the Company's financial
condition, liquidity and results of operations.
NOTE G -- PENSIONS AND OTHER POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........ $ 45,701 $ 45,473 $ 21,718 $ 21,673
Service cost................................... 561 403 150 133
Amendments and other........................... 306 116 -0- -0-
Acquisition.................................... 4,686 -0- -0- -0-
Interest cost.................................. 3,387 3,136 1,449 1,496
Plan participants' contributions............... -0- -0- 118 118
Actuarial losses (gains)....................... (3,469) 731 (1,516) 497
Benefits paid.................................. (4,352) (4,158) (2,199) (2,199)
-------- -------- -------- --------
Benefit obligation at end of year.............. $ 46,820 $ 45,701 $ 19,720 $ 21,718
======== ======== ======== ========
</TABLE>
23
<PAGE> 25
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS
Fair Value of plan assets at beginning of
year......................................... $ 83,960 $ 80,274 $ -0- $ -0-
Actual return on plan assets................... 23,299 7,832 -0- -0-
Acquisition.................................... 3,504 -0- -0- -0-
Company contributions.......................... 159 12 2,081 2,081
Plan participants' contributions............... -0- -0- 118 118
Benefits paid.................................. (4,352) (4,158) (2,199) (2,199)
-------- -------- -------- --------
Fair value of plan assets at end of year....... $106,570 $ 83,960 $ -0- $ -0-
======== ======== ======== ========
Funded (underfunded) status of the plan........ $ 59,750 $ 38,259 $(19,720) $(21,718)
Unrecognized net transition obligation......... (380) (329) -0- -0-
Unrecognized net actuarial gain................ (39,190) (21,027) (6,856) (5,595)
Unrecognized prior service cost................ 1,686 1,395 (644) (723)
-------- -------- -------- --------
Prepaid (accrued) benefit cost................. $ 21,866 $ 18,298 $(27,220) $(28,036)
======== ======== ======== ========
The prepaid pension benefit is included in other assets.
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................................. 7.75% 7.00% 7.75% 7.00%
Expected return on plan assets................. 8.25% 8.50% N/A N/A
Rate of compensation increase.................. 2.50% 2.50% N/A N/A
</TABLE>
For measurement purposes, an 8.0% percent annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1999. The rate
was assumed to decrease gradually to 5.5% for 2004 and remain at that level
thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------------------- ---------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET
PERIODIC BENEFIT COST
Service costs..................... $ 561 $ 403 $ 302 $ 150 $ 133 $ 118
Interest costs.................... 3,387 3,136 3,252 1,449 1,496 1,541
Expected return on plan assets.... (7,062) (6,642) (5,181) -0- -0- -0-
Transition obligation............. 63 77 77 -0- -0- -0-
Amortization of prior service
cost............................ 229 181 170 (79) (79) (79)
Recognized net actuarial gain..... (1,132) (1,225) (332) (255) (343) (407)
------- ------- ------- ------- ------- -------
Benefit costs..................... $(3,954) $(4,070) $(1,712) $ 1,265 $ 1,207 $ 1,173
======= ======= ======= ======= ======= =======
</TABLE>
The Company has two non-pension postretirement benefit plans. Health care
benefits are provided on both a contributory and noncontributory basis. The life
insurance plan is primarily noncontributory.
24
<PAGE> 26
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
------------- ------------
<S> <C> <C>
Effect on total of service and interest cost
components in 1999..................................... $ 124,000 $ 124,000
Effect on post retirement benefit obligation as of
December 31, 1999...................................... $1,247,000 $1,247,000
</TABLE>
The total contribution charged to pension expense for the Company's defined
contribution plans was $1,158 in 1999, $876 in 1998 and $687 in 1997.
NOTE H -- LEASES
Rental expense for 1999, 1998 and 1997 was $11,814, $7,056 and $6,696,
respectively. Future minimum lease commitments during each of the five years
following December 31, 1999 are as follows: $10,128 in 2000, $8,318 in 2001,
$5,863 in 2002, $3,950 in 2003, $1,810 in 2004 and $3,853 thereafter.
NOTE I -- INDUSTRY SEGMENTS
During the first quarter of 1999 the Company, upon completion of the
acquisition of Metalloy, redefined and restated its operating segments. The
Company retained its Integrated Logistics Solutions ("ILS") segment and further
segregated its former Manufactured Products segment into an Aluminum Products
segment and a Manufactured Products segment. ILS is a leading national supplier
of fasteners (e.g., nuts, bolts and screws) and other industrial products to
original equipment manufacturers, other manufacturers and distributors. In
connection with the supply of such industrial products, ILS provides a variety
of value-added, cost-effective procurement solutions. The principal customers of
ILS are in the transportation, industrial, electrical, lawn and garden equipment
industries. Aluminum Products manufactures cast aluminum components primarily
for automotive original equipment manufacturers. In addition, Aluminum Products
also provides value-added services such as design and engineering, machining and
assembly. Manufactured Products designs and manufactures a broad range of high
quality products which includes capital equipment, rubber products and forged
and machined products for specific customer applications. The principal
customers of Manufactured Products are original equipment manufacturers and
end-users in the automotive, railroad, truck and aerospace industries.
The Company's sales are made through its own sales organization,
distributors and representatives. Intersegment sales are immaterial and
eliminated in consolidation and are not included in the figures presented.
Intersegment sales are accounted for at values based on market prices. Income
allocated to segments excludes certain corporate expenses, interest expense and
amortization of excess purchase price over net assets acquired. Identifiable
assets by industry segment include assets directly identified with those
operations.
Corporate assets generally consist of cash and cash equivalents, deferred
tax assets, and other assets.
25
<PAGE> 27
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales
ILS..................................................... $443,078 $364,546 $266,292
Aluminum products....................................... 127,148 39,871 36,500
Manufactured products................................... 146,996 147,376 138,318
-------- -------- --------
$717,222 $551,793 $441,110
======== ======== ========
Income before income taxes
ILS..................................................... $ 39,217 $ 34,595 $ 23,310
Aluminum products....................................... 10,925 1,842 2,753
Manufactured products................................... 11,214 10,162 8,010
-------- -------- --------
61,356 46,599 34,073
Amortization of excess purchase price over net assets
acquired............................................. (3,836) (2,277) (2,211)
Corporate costs......................................... (4,160) (4,014) (3,562)
Interest expense........................................ (24,752) (17,488) (9,101)
-------- -------- --------
$ 28,608 $ 22,820 $ 19,199
======== ======== ========
Identifiable assets
ILS..................................................... $343,522 $288,713 $252,763
Aluminum products....................................... 97,717 40,063 37,869
Manufactured products................................... 170,267 147,032 102,409
General corporate....................................... 18,637 13,746 20,068
-------- -------- --------
$630,143 $489,554 $413,109
======== ======== ========
Depreciation and amortization expense
ILS..................................................... $ 7,710 $ 6,124 $ 4,352
Aluminum products....................................... 4,929 1,268 1,299
Manufactured products................................... 5,864 5,173 4,525
General corporate....................................... 195 188 189
-------- -------- --------
$ 18,698 $ 12,753 $ 10,365
======== ======== ========
Capital expenditures
ILS..................................................... $ 6,046 $ 4,274 $ 3,938
Aluminum products....................................... 4,963 1,650 8,167
Manufactured products................................... 8,904 16,666 3,703
General corporate....................................... 2,737 91 139
-------- -------- --------
$ 22,650 $ 22,681 $ 15,947
======== ======== ========
</TABLE>
The Company had sales of $95,504 in 1999 to Ford Motor Company which
represented 13% of consolidated net sales.
In 1999, approximately 91% of the Company's net sales are within the United
States, none of the net sales to any foreign country represented more than 5% of
the Company's total sales and approximately 94% of the Company's assets are
maintained in the United States.
NOTE J -- CORPORATE REORGANIZATION
At the 1998 Annual Meeting of Shareholders of Park-Ohio Industries, Inc.
("Park-Ohio") held on May 28, 1998, the shareholders of Park-Ohio approved an
agreement of Merger ("Merger Agreement") dated February 20, 1998 by and among
Park-Ohio, PKOH Holdings Corp. ("Holdings") and PKOH Merger Corp. ("Merger
Corp.") providing for a reorganization of Park-Ohio into a holding company form
of
26
<PAGE> 28
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
ownership with Holdings as its sole parent. On June 10, 1998, Holdings amended
and restated its articles of incorporation to increase its authorized shares
from 100 shares of common stock, $1.00 par value per share, to 40,000,000 shares
of common stock and 632,470 shares of preferred stock, all $1.00 par value per
share, and changed its name from PKOH Holding Corp. to Park-Ohio Holdings Corp.
Effective as of the close of business on June 15, 1998, Merger Corp. was merged
with and into Park-Ohio upon the terms and conditions of the Merger Agreement.
At the effective time of the Merger, (i) all of the shares of Park-Ohio's common
stock issued and outstanding immediately prior to the Merger were converted into
an equal number of shares of Holding's common stock(on a share-for-share basis),
(ii) all of the shares of Merger Corp.'s common stock issued and outstanding
immediately prior to the Merger were converted into 100 shares of Park-Ohio's
common stock and (iii) all of the shares of Holdings' common stock issued and
outstanding immediately prior to the Merger were canceled.
Prior to the Merger, there was no public market for Holdings' common stock,
and Park-Ohio's common stock was listed for trading on the NASDAQ National
Market under the symbol "PKOH". Upon the opening of the market after the
effective time of the Merger: (i) Holdings' common stock was registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and was listed for trading on the NASDAQ National Market under the symbol
"PKOH"; (ii) Park-Ohio common stock was simultaneously delisted from the NASDAQ
National Market and ceased to be registered under Section 12(g) of the Exchange
Act; and (iii) Holdings assumed Park-Ohio's reporting obligations under the
Exchange Act.
27
<PAGE> 29
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, 1999.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................ 12
Financial Statements
Consolidated balance sheets -- December 31, 1999 and
1998.................................................. 13
Consolidated statements of income -- years ended
December 31, 1999, 1998 and 1997...................... 14
Consolidated statements of shareholders'
equity -- years ended December 31, 1999, 1998 and
1997.................................................. 15
Consolidated statements of cash flows -- years ended
December 31, 1999, 1998 and 1997...................... 16
Notes to consolidated financial statements............. 17
</TABLE>
(2) Financial Statement Schedules
All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and, therefore, have been
omitted.
(3) Exhibits:
The Exhibits filed as part of this Form 10-K are listed on the Exhibit Index
immediately preceding such exhibits, incorporated herein by reference.
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
None
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy statement covering the Company's last fiscal year
has been or will be circulated to security holders.
28
<PAGE> 30
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PARK-OHIO INDUSTRIES, INC.
(Registrant)
By: /s/ RONALD J.
COZEAN
--------------------
Ronald J. Cozean,
Secretary
Date: March 27, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<C> <S> <C>
* Chairman, Chief Executive Officer and
- ------------------------------------------------ President (Principal Executive Officer)
Edward F. Crawford and Director
* Vice President -- and Chief Financial
- ------------------------------------------------ Officer (Principal Financial and
James S. Walker Accounting Officer)
* Director
- ------------------------------------------------
Matthew V. Crawford
* Director
- ------------------------------------------------
Kevin R. Greene
* Director
- ------------------------------------------------
Lewis E. Hatch, Jr.
* Director
- ------------------------------------------------
Thomas E. McGinty
* Director
- ------------------------------------------------
Lawrence O. Selhorst
* Director
- ------------------------------------------------
Felix J. Tarorick
* Director
- ------------------------------------------------
James W. Wert
</TABLE>
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this report on behalf of each of the persons noted above, in the capacities
indicated.
March 27, 2000 By: /s/ RONALD J. COZEAN
------------------------------------
Ronald J. Cozean, Attorney-in-Fact
March 27, 2000
29
<PAGE> 31
ANNUAL REPORT ON FORM 10-K
PARK-OHIO INDUSTRIES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Park-Ohio
Industries, Inc. (filed as Exhibit 3.1 to the Form 10-K of
Park-Ohio Industries, Inc. for the year ended December 31,
1998, SEC File No. 333-43005 and incorporated by reference
and made a part hereof)
3.2 Code of Regulations of Park-Ohio Industries, Inc. (filed as
Exhibit 3.2 to the Form 10-K of Park-Ohio Industries, Inc.
for the year ended December 31, 1998, SEC File No. 333-43005
and incorporated by reference and made a part hereof)
4.1 Indenture, dated November 25, 1997 by and among Park-Ohio
Industries, Inc. and Norwest Bank Minnesota, N.A. as trustee
(filed as Exhibit 4.1 of the Company's Registration
Statement on Form S-4, filed on December 23, 1997, SEC File
No. 333-43005 and incorporated by reference and made a part
hereof)
4.2 Indenture, dated June 3, 1999 by and among Park-Ohio
Industries, Inc. and Norwest Bank Minnesota, N.A., as
trustee (filed as Exhibit 4.2 of the Company's Registration
Statement on Form S-4, filed on July 23, 1999, SEC File No.
333-83117 and incorporated by reference and made a part
hereof)
4.3 Amended and Restated Credit Agreement among Park-Ohio
Industries, Inc., and various financial institutions dated
November 2, 1998 (filed as Exhibit 4 to the Form 10-Q of
Park-Ohio Holdings Corp., filed on November 13, 1998, SEC
File No. 333-43005 and incorporated by reference and made a
part hereof)
4.4 First amendment to the Amended and Restated Credit Agreement
among Park-Ohio Industries, Inc. and various financial
institutions
4.5 Second amendment to the Amended and Restated Credit
Agreement among Park-Ohio Industries, Inc. and various
financial institutions
4.6 Third amendment to the Amended and Restated Credit Agreement
among Park-Ohio Industries, Inc. and various financial
institutions
10.1 Form of Indemnification Agreement entered into between
Park-Ohio Industries, Inc. and each of its directors and
certain officers (filed as Exhibit 10.1 to the Form 10-K of
Park-Ohio Industries, Inc. for the year ended December 31,
1998, SEC File No. 333-43005 and incorporated by reference
and made a part hereof)
12.1 Computation of Ratios
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney
27.1 Financial Data Schedule for period ended December 31, 1999
(Electronic Filing Only)
</TABLE>
30
<PAGE> 1
Exhibit 4.4
FIRST AMENDMENT AGREEMENT
This First Amendment Agreement is made as of the 23rd day of December,
1998, among PARK-OHIO INDUSTRIES, INC., an Ohio corporation, ("Borrower"),
the banking institutions listed on SCHEDULE 1 to the Credit Agreement, as
hereinafter defined ("Banks"), KEYBANK NATIONAL ASSOCIATION, as administrative
agent for the Banks ("Administrative Agent"), and THE HUNTINGTON NATIONAL BANK,
as co-agent for the Banks ("Co-Agent", and, together with Administrative Agent,
"Agents").
WHEREAS, Borrower, Agents and the Banks are parties to a certain Amended
and Restated Credit Agreement dated as of November 2, 1998, as it may from time
to time be amended, restated or otherwise modified, which provides, among other
things, for loans aggregating One Hundred Fifty Million Dollars ($150,000,000),
all upon certain terms and conditions ("Credit Agreement");
WHEREAS, Borrower, Agents and the Banks desire to amend the Credit
Agreement to modify certain provisions thereof; and
WHEREAS, each term used herein shall be defined in accordance with the
Credit Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein and for other valuable considerations, Borrower, Agents and the
Banks agree as follows:
1. Section 5.7 of the Credit and Security Agreement is hereby amended to
delete subsection (b) therefrom in its entirety and to insert in place thereof
the following:
(b) SENIOR FUNDED INDEBTEDNESS TO CAPITALIZATION. Borrower and its
Subsidiaries shall not suffer or permit, at any time, the ratio of (i)
Total Senior Funded Indebtedness to (ii) Total Capitalization, to exceed
.35 to 1.00, based upon Borrower's financial statements for the most
recently completed fiscal quarter.
2. Concurrently with the execution of this First Amendment Agreement,
Borrower shall:
(a) cause each Guarantor of Payment to consent and agree to and acknowledge
the terms of this First Amendment Agreement; and
(b) pay all legal fees and expenses of Administrative Agent in connection
with this First Amendment Agreement.
3. Borrower hereby represents and warrants to Agents and the Banks that
(a) Borrower has the legal power and authority to execute and deliver this First
Amendment Agreement, (b) the officers executing this First Amendment Agreement
have been duly authorized to execute and deliver the same and bind Borrower with
respect to the provisions hereof, (c) the execution and
<PAGE> 2
delivery hereof by Borrower and the performance and observance by Borrower of
the provisions hereof do not violate or conflict with the organizational
agreements of Borrower or any law applicable to Borrower or result in a breach
of any provision of or constitute a default under any other agreement,
instrument or document binding upon or enforceable against Borrower, (d) no
Unmatured Event of Default or Event of Default exists under the Credit
Agreement, nor will any occur immediately after the execution and delivery of
the First Amendment Agreement or by the performance or observance of any
provision hereof, (e) Borrower is not aware of any claim or offset against, or
defense or counterclaim to, any of Borrower's obligations or liabilities under
the Credit Agreement or any Related Writing, and (f) this First Amendment
Agreement constitutes a valid and binding obligation of Borrower in every
respect, enforceable in accordance with its terms.
4. Each reference that is made in the Credit Agreement or any other writing
to the Credit Agreement shall hereafter be construed as a reference to the
Credit Agreement as amended hereby. Except as herein otherwise specifically
provided, all provisions of the Credit Agreement shall remain in full force and
effect and be unaffected hereby. This First Amendment Agreement is a Related
Writing as defined in the Credit Agreement.
5. Borrower and each Guarantor of Payment, by signing below, hereby waives
and releases Administrative Agent, Co-Agent and each of the Banks and the
respective directors, officers, employees, attorneys, affiliates and
subsidiaries of each of the foregoing from any and all such claims, offsets,
defenses and counterclaims of which Borrower or such Guarantor of Payment is
aware, such waiver and release being with full knowledge and understanding of
the circumstances and effect thereof and after having consulted legal counsel
with respect thereto.
6. This First Amendment Agreement may be executed in any number of
counterparts, by different parties hereto in separate counterparts and by
facsimile signature, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
7. The rights and obligations of all parties hereto shall be governed by
the laws of the State of Ohio, without regard to principles of conflicts of
laws.
[Remainder of page intentionally left blank.]
2
<PAGE> 3
8. JURY TRIAL WAIVER. BORROWER, AGENTS AND EACH OF THE BANKS WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, AGENTS AND THE BANKS, OR ANY
THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT
IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENTS' OR ANY BANK'S ABILITY
TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION
CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG BORROWER,
AGENTS AND THE BANKS, OR ANY THEREOF.
PARK-OHIO INDUSTRIES, INC.
/s/ James S. Walker
By: _______________________________
James S. Walker, Vice President
/s/ Ronald J. Cozean
and ______________________________
Ronald J. Cozean, Secretary
KEYBANK NATIONAL ASSOCIATION,
as a Bank and as Administrative Agent
/s/ Kenneth M. Merhar
By: _________________________________
Kenneth M. Merhar, Vice President
THE HUNTINGTON NATIONAL BANK,
as a Bank and as Co-Agent
/s/ Timothy M. Ward
By: __________________________________
Timothy M. Ward, Vice President
3
<PAGE> 4
GUARANTOR ACKNOWLEDGMENT
------------------------
The undersigned consents and agrees to and acknowledges the terms of the
foregoing First Amendment Agreement. The undersigned further agrees that the
obligations of the undersigned pursuant to the Guaranty of Payment executed by
the undersigned shall remain in full force and effect and be unaffected hereby.
ADVANCED VEHICLES, INC.
ARDEN INDUSTRIAL PRODUCTS, INC.
BLUE FALCON FORGE, INC.
CASTLE RUBBER COMPANY
CHARKEN COMPANY, INC.
CICERO FLEXIBLE PRODUCTS, INC.
GENERAL ALUMINUM MANUFACTURING COMPANY II
GENERAL ALUMINUM MFG. COMPANY
KAY HOME PRODUCTS, INC.
RB&W CORPORATION
THE AJAX MANUFACTURING COMPANY
TOCCO, INC.
/s/ James S. Walker
By: ____________________________________
James S. Walker, Vice President
of each of the foregoing Companies
/s/ Ronald J. Cozean
By: ___________________________________
Ronald J. Cozean, Secretary
of each of the foregoing Companies
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<PAGE> 1
Exhibit 4.5
SECOND AMENDMENT AGREEMENT
This Second Amendment Agreement is made as of the 1st day of November,
1999, among PARK-OHIO INDUSTRIES, INC., an Ohio corporation ("Borrower"), the
banking institutions listed on SCHEDULE 1 to the Credit Agreement, as
hereinafter defined ("Banks"), KEYBANK NATIONAL ASSOCIATION, as administrative
agent for the Banks ("Administrative Agent"), and THE HUNTINGTON NATIONAL BANK,
as co-agent for the Banks ("Co-Agent" and, together with Administrative Agent,
"Agents").
WHEREAS, Borrower, Agents and the Banks are parties to a certain Amended
and Restated Credit Agreement dated as of November 2, 1998, as amended and as it
may from time to time be further amended, restated or otherwise modified, which
provides, among other things, for loans aggregating One Hundred Fifty Million
Dollars ($150,000,000), all upon certain terms and conditions (the "Credit
Agreement");
WHEREAS, Borrower, Agents and the Banks desire to amend the Credit
Agreement to provide for an additional revolving credit tranche thereunder and
to modify certain other provisions thereof; and
WHEREAS, each term used herein shall be defined in accordance with the
Credit Agreement:
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other valuable considerations, Borrower, Agents and the
Banks agree as follows:
1. Article I of the Credit Agreement is hereby amended to delete the
definitions of "Advantage", "Applicable Margin", "Commitment", "Commitment
Percentage", "Commitment Period", "Indenture", "Loan", "Note", "Senior
Subordinated Note", "Senior Subordinated Noteholders", "Total Commitment Amount"
and "Total Senior Funded Indebtedness" therefrom and to insert in place thereof
the following:
"Advantage" shall mean any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other indebtedness or otherwise)
received by any Bank in respect of the Debt, if such payment results in
that Bank having less than its Pro Rata Share of the Applicable Debt then
outstanding, than was the case immediately before such payment.
"Applicable Margin" shall mean, with respect to any Loan, the number
of basis points (depending upon whether such Loan is a Prime Rate Loan or a
LIBOR Loan) set forth in the following matrix:
- -------------------------------------------------------------------------------
APPLICABLE BASIS APPLICABLE BASIS
TYPE OF LOAN POINTS FOR LIBOR POINTS FOR PRIME
LOANS RATE LOANS
- --------------------------------------------------------------------------------
Tranche A Loan 90 basis points -100 basis points
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
Tranche B Loan 150 basis points -50 basis points
- --------------------------------------------------------------------------------
Tranche C Loan (at any time that there 170 basis points -30 basis points
is no Tranche D Loan outstanding)
- --------------------------------------------------------------------------------
Tranche C Loan (at any time that there 185 basis points -15 basis points
is a Tranche D Loan outstanding)
- --------------------------------------------------------------------------------
Tranche D Loan 220 basis points 20 basis points
- --------------------------------------------------------------------------------
Each change in the Applicable Margin with respect to any Tranche C Loan
shall be effective immediately. The above matrix does not modify or waive,
in any respect, the requirements of Section 5.7 hereof, the rights of the
Banks to charge the Default Rate, or the rights and remedies of Agents and
the Banks pursuant to Articles VII and VIII hereof.
"Commitment" shall mean the obligation hereunder of the Banks, during
the applicable Commitment Period, to make Loans pursuant to the Tranche A
Commitments, the Tranche B Commitments, the Tranche C Commitments and the
Tranche D Commitments, up to the Total Commitment Amount.
"Commitment Percentage" shall mean Applicable Commitment Percentage.
"Commitment Period" shall mean (a) with respect to the Tranche A
Commitments, the Tranche B Commitments and the Tranche C Commitments, the
period from the Closing Date to April 30, 2001, and (b) with respect to the
Tranche D Commitments, the period from the Tranche D Closing Date to
April 30, 2001; or such earlier date on which the Commitment shall have
been terminated pursuant to Article VIII hereof.
"Indenture" shall mean both of the following and any thereof (a) the
1997 Indenture and (b) the 1999 Indenture; as either of the foregoing may,
with the prior written consent of Administrative Agent and the Majority
Banks, be from time to time amended, restated or otherwise modified or
replaced.
"Loan" shall mean the credit extended to Borrower by the Banks in
accordance with Section 2.1A, B, C or D hereof.
"Note" shall mean any Tranche A Note, Tranche B Note, Tranche C Note,
Tranche D Note or other note delivered pursuant to this Agreement.
"Senior Subordinated Noteholder" shall mean any one of the Senior
Subordinated Noteholders under any Indenture.
"Senior Subordinated Notes" shall mean the Senior Subordinated Notes
issued pursuant to any Indenture.
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<PAGE> 3
"Total Commitment Amount" shall mean the principal amount of One
Hundred Seventy-Five Million Dollars ($175,000,000) (or such lesser amount
as shall be determined pursuant to Section 2.5 hereof).
"Total Senior Funded Indebtedness" shall mean, on a Consolidated basis
and in accordance with GAAP, (a) Total Funded Indebtedness minus (b) all
Subordinated Indebtedness.
2. Article I of the Credit Agreement is hereby amended to add the
following new definitions thereto:
"Applicable Commitment Percentage" shall mean, for each Bank, (a) with
respect to the Tranche A Commitments, the Tranche B Commitments and the
Tranche C Commitments, the percentage set forth opposite such Bank's name
under the column headed "Tranche A through Tranche C Commitment Percentage"
as described in SCHEDULE 1 hereof; and (b) with respect to the Tranche D
Commitments, the percentage set forth opposite such Bank's name under the
column headed "Tranche D Commitment Percentage" as described in SCHEDULE 1
hereof.
"Applicable Debt" shall mean (a) with respect to the Tranche A
Commitments, the Tranche B Commitments and the Tranche C Commitments,
collectively, (i) all Indebtedness incurred by Borrower to Agents or the
Banks pursuant to this Agreement (other than pursuant to the Tranche D
Commitments) and includes the principal of and interest on all Notes (other
than the Tranche D Notes), (ii) each extension, renewal or refinancing
thereof in whole or in part, and (iii) the commitment fees, other fees and
any prepayment fees payable hereunder (other than the commitment fees and
any prepayment fees payable in connection with the Tranche D Commitments);
and (b) with respect to the Tranche D Commitments, collectively, (i) all
Indebtedness incurred by Borrower to Agents or the Banks pursuant to the
Tranche D Commitments and includes the principal of and interest on the
Tranche D Notes, (ii) each extension, renewal or refinancing thereof in
whole or in part, and (iii) the commitment fees and any prepayment fees
payable in connection with the Tranche D Commitments.
"Fixed Charge Coverage Ratio Condition" shall mean any time that (a)
Borrower's Consolidated Fixed Charge Coverage Ratio (as defined in the
Indenture) is less than 2.25 to 1.00, as calculated in accordance with the
terms and conditions of the Indenture, or (b) any Subsidiary's Consolidated
Fixed Charge Coverage Ratio (as defined in the Indenture) is less than 2.50
to 1.00, as calculated in accordance with the terms and conditions of the
Indenture.
"1997 Indenture" shall mean that certain Indenture dated as of
November 25, 1997, between Borrower and Norwest Bank Minnesota, National
Association, as trustee, pursuant to which the Senior Subordinated Notes
were issued to the Senior Subordinated Noteholders,
3
<PAGE> 4
as the same may, with the prior written consent of Administrative Agent
and the Majority Banks, be from time to time amended, restated or
otherwise modified or replaced.
"1999 Indenture" shall mean that certain Indenture dated as of June 2,
1999, between Borrower and Norwest Bank Minnesota, National Association, as
trustee, pursuant to which the Senior Subordinated Notes were issued to the
Senior Subordinated Noteholders, as the same may, with the prior written
consent of Administrative Agent and the Majority Banks, be from time to
time amended, restated or otherwise modified or replaced.
"Pro Rata Basis" or "pro rata basis" shall mean distribution to the
Banks by Administrative Agent in accordance with the Applicable Commitment
Percentages.
"Pro Rata Share" or "pro rata share" shall mean, with respect to the
Applicable Debt, a Bank's share in accordance with such Bank's Applicable
Commitment Percentage.
"Ratable Account" or "ratable account" shall mean each Bank's share of
the Applicable Debt in accordance with such Bank's Applicable Commitment
Percentage.
"Ratable Share" or "ratable share" shall mean each Bank's share of the
Applicable Debt in accordance with such Bank's Applicable Commitment
Percentage.
"Ratably" or "ratably" shall mean in accordance with each Bank's
Ratable Share.
"Tranche D Bank" shall mean any Bank with a Tranche D Commitment.
"Tranche D Closing Date" shall mean November 1, 1999.
"Tranche D Commitments" shall mean the obligation hereunder of each
Tranche D Bank to make Tranche D Loans, during the applicable Commitment
Period, up to the amount set forth opposite such Tranche D Bank's name
under the column headed "Tranche D Commitment Amount" as set forth on
SCHEDULE 1 hereof (or such lesser amount as shall be determined pursuant to
Section 2.5 hereof); provided that the aggregate amount of the Tranche D
Commitments shall not exceed Twenty-Five Million Dollars ($25,000,000).
"Tranche D Conditions" shall include the following: (a) any payment of
principal under this Agreement shall be applied first to the principal then
outstanding on the Tranche D Commitments; (b) any payment of interest under
this Agreement shall be applied first to the interest then outstanding on
the Tranche D Commitments; and (c) any payment of commitment fees or other
fees owing under this Agreement shall be applied first to the commitment
and other fees then owing with respect to the Tranche D Commitments.
"Tranche D Leverage Ratio Condition" shall mean any time that a
Tranche D Loan is outstanding.
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<PAGE> 5
"Tranche D Loan" shall mean a Loan granted to Borrower by the Tranche D
Banks in accordance with Section 2.1D hereof.
"Tranche D Note" shall mean the Tranche D Note executed and delivered
pursuant to Section 2.1D hereof.
3. Section 2.1 of the Credit Agreement is hereby amended to delete the
second and third paragraphs therefrom and to insert in place thereof the
following:
Each Bank, for itself and not one for any other, agrees to participate
in Loans made hereunder during the Commitment Period on such basis that
(a) immediately after the completion of any borrowing by Borrower, the
aggregate principal amount then outstanding on the Notes issued to such
Bank shall not be in excess of the Maximum Amount for such Bank, and
(b) such aggregate principal amounts outstanding on the Tranche A Note, the
Tranche B Note and the Tranche C Note, respectively, issued to such Bank
shall represent that percentage of the aggregate principal amount then
outstanding on all Tranche A Notes, Tranche B Notes and Tranche C Notes
(including all such Notes held by such Bank), respectively, which is such
Bank's Applicable Commitment Percentage; and (c) such aggregate principal
amount outstanding on the Tranche D Note issued to such Bank shall
represent that percentage of the aggregate principal amount then
outstanding on all Tranche D Notes (including the Tranche D Note held by
such Bank) which is such Bank's Applicable Commitment Percentage.
Each borrowing from the Banks hereunder shall be made pro rata
according to the Banks' respective Applicable Commitment Percentages. The
Loans may be made as Tranche A Loans, Tranche B Loans, Tranche C Loans and
Tranche D Loans as follows:
4. Section 2.1 of the Credit Agreement is hereby amended to add the
following new subsection D thereto:
D. Tranche D Loans. Subject to the terms and conditions of this
Agreement, during the applicable Commitment Period, the Tranche D Banks
shall make a Tranche D Loan or Tranche D Loans to Borrower in such amount
or amounts as Borrower may from time to time request, but not exceeding in
aggregate principal amount at any time outstanding hereunder the aggregate
amount of the Tranche D Commitments; provided, however, that Borrower shall
not request any Tranche D Loan hereunder unless the Tranche A Commitments,
Tranche B Commitments and Tranche C Commitments have been fully funded.
Borrower shall have the option, subject to the terms and conditions set
forth herein, to borrow Tranche D Loans, maturing on the last day of the
Commitment Period, by means of any combination of (a) Prime Rate Loans, or
(b) LIBOR Loans.
Borrower shall pay interest, for the benefit of the Tranche D Banks, on
the unpaid principal amount of Prime Rate Loans outstanding from time to
time from the date thereof
5
<PAGE> 6
until paid at the Derived Prime Rate from time to time in effect. Interest
on such Prime Rate Loans shall be payable, commencing December 31, 1999,
and on the last day of each succeeding March, June, September and December
of each year and at the maturity thereof.
Borrower shall pay interest, for the benefit of the Tranche D Banks, on
the unpaid principal amount of each LIBOR Loan outstanding from time to
time, from the date thereof until paid, at the Derived LIBOR Rate, fixed in
advance for each Interest Period as herein provided for each such Interest
Period. Interest on such LIBOR Loans shall be payable on each Interest
Adjustment Date with respect to an Interest Period (provided that if an
Interest Period exceeds three (3) months, the interest must be paid every
three (3) months, commencing three (3) months from the beginning of such
Interest Period).
The obligation of Borrower to repay the Prime Rate Loans and the LIBOR
Loans made by each Tranche D Bank and to pay interest thereon shall be
evidenced by a Tranche D Note of Borrower in the form of EXHIBIT F hereto,
dated as of the Tranche D Closing Date, and payable to the order of such
Tranche D Bank in the principal amount of its Tranche D Commitment, or, if
less, the aggregate unpaid principal amount of Tranche D Loans made
hereunder by such Bank. Subject to the provisions of this Agreement,
Borrower shall be entitled under this Section 2.1D to borrow funds, repay
the same in whole or in part and re- borrow hereunder at any time and from
time to time during the applicable Commitment Period.
5. The Credit Agreement is hereby amended to delete Section 2.3 therefrom
and to insert in place thereof the following:
SECTION 2.3. PAYMENT ON NOTES, ETC. Each payment made on Loans
hereunder shall be applied first to Tranche D Loans, if any are
outstanding, then to Tranche C Loans, if any are outstanding, then to
Tranche B Loans, if any are outstanding, and then to Tranche A Loans. All
payments of principal, interest and commitment and other fees shall be made
to Administrative Agent in immediately available funds for the account of
the Banks on a Pro Rata Basis (except as to payments made exclusively for
the benefit of Administrative Agent pursuant to the Agent Fee Letter), and
Administrative Agent, within one (1) Business Day, shall distribute to each
Bank, in accordance with the Tranche D Conditions, its Ratable Share of the
amount of principal, interest, and commitment and other fees received by it
for the account of such Bank. Whenever payments are made to Administrative
Agent "for the benefit of the Banks", "for the benefit of the Banks" shall
mean on a Pro Rata Basis. Each Bank shall record (a) any principal,
interest or other payment, and (b) the principal amount of the Prime Rate
Loans and the LIBOR Loans and all prepayments thereof and the applicable
dates with respect thereto, by such method as such Bank may generally
employ; provided, however, that failure to make any such entry shall in no
way detract from Borrower's obligations under each such Note. The aggregate
unpaid amount of Loans set forth on the records of Administrative Agent
shall be rebuttably presumptive evidence of the principal and interest
owing and unpaid on each Note.
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<PAGE> 7
Whenever any payment to be made hereunder, including, without limitation,
any payment to be made on any Note, shall be stated to be due on a day that
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall in each case be included in
the computation of the interest payable on such Note; provided, however,
that with respect to any LIBOR Loan, if the next succeeding Business Day
falls in the succeeding calendar month, such payment shall be made on the
preceding Business Day and the relevant Interest Period shall be adjusted
accordingly.
6. Section 2.4 of the Credit Agreement is hereby amended to delete the
first paragraph therefrom and to insert in place thereof the following:
SECTION 2.4. PREPAYMENT. Borrower shall have the right at any time or
from time to time to prepay, on a Pro Rata Basis for all of the Banks, all
or any part of the principal amount of the Notes then outstanding as
designated by Borrower, plus interest accrued on the amount so prepaid to
the date of such prepayment, subject, however, to the Tranche D Conditions.
Borrower shall give Administrative Agent notice of prepayment of any Prime
Rate Loan by not later than 11:00 A.M. (Cleveland, Ohio time) on the
Business Day such prepayment is to be made and written notice of the
prepayment of any LIBOR Loan not later than 1:00 P.M. (Cleveland, Ohio
time) three (3) Business Days before the Business Day on which such
prepayment is to be made. Prepayments of Prime Rate Loans shall be without
any premium or penalty.
7. Section 2.5 of the Credit Agreement is hereby amended to delete
subsection (e) therefrom and to insert in place thereof the following:
(e) Borrower may at any time or from time to time permanently reduce in
whole or in part the Commitment of the Banks hereunder to an amount not
less than the aggregate principal amount of the Loans then outstanding, by
giving Agents not fewer than five (5) Business Days' notice, provided that
(i) any partial reduction shall be applied, on a Pro Rata Basis for all of
the Banks, first to the Tranche D Commitments, then to the Tranche C
Commitments, then to the Tranche B Commitments and, finally, to the Tranche
A Commitments, and (ii) any partial reduction shall be in an aggregate
amount of Five Million Dollars ($5,000,000) or any multiple thereof.
Administrative Agent shall promptly notify each Bank of the date of each
such reduction and such Bank's proportionate share thereof. After each such
reduction, the commitment fees payable hereunder shall be calculated upon
the Commitment of the Banks as so reduced. If Borrower reduces in whole the
Commitment of the Banks, on the effective date of such reduction (Borrower
having prepaid in full the unpaid principal balance, if any, of the Notes,
together with all interest and commitment and other fees accrued and
unpaid), all of the Notes shall be delivered to Administrative Agent marked
"Canceled" and Administrative Agent shall redeliver such Notes to Borrower.
Any partial reduction in the Commitment of the Banks shall be effective
during the remainder of the Commitment Period.
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<PAGE> 8
8. Section 2.5 of the Credit Agreement is hereby amended to add new a
subsection (f) thereto as follows:
(f) Borrower shall pay to Administrative Agent, for the account of the
Tranche D Banks, as a consideration for the Tranche D Commitments, a
commitment fee from the Tranche D Closing Date to and including the last
day of the Commitment Period equal to (i) one-half percent (1/2%) per
annum, times (ii) the average daily unborrowed amount of the Tranche D
Commitments. The commitment fee shall be payable, in arrears, on
December 31, 1999 and on the last day of each March, June, September and
December thereafter, and on the last day of the Commitment Period.
9. The Credit Agreement is hereby amended to add a new Section 2.9 thereto
as follows:
SECTION 2.9. FIXED CHARGE COVERAGE RATIO CONDITION. Borrower shall
provide immediate written notice to Agents and the Banks at any time that
the Fixed Charge Coverage Ratio Condition exists or, within the next three
(3) months, is likely to exist, and, so long as the Fixed Charge Coverage
Ratio exists, Borrower shall not request any Loan, and the Banks shall not
be obligated to make any Loan, unless (a) the proceeds of such Loan shall
constitute Permitted Indebtedness (as defined in the Indenture), and
(b) upon request of Administrative Agent, Borrower shall provide to the
Banks such evidence of use of proceeds of the Loans and such opinion of
counsel with respect to the Indenture, as Administrative Agent may require
in its reasonable discretion.
10. Section 5.7 of the Credit Agreement is hereby amended to delete
subsection (c) therefrom and to insert in place thereof the following:
(c) LEVERAGE RATIO. Borrower shall not suffer or permit at any time the
Leverage Ratio to exceed (i) 5.00 to 1.00 for the period from the Closing
Date through December 30, 1999 at any time that the Leverage Ratio
Condition exists during such period, (ii) on December 31, 1999 through
June 29, 2000, 5.00 to 1.00 or, in the event that the Tranche D Leverage
Ratio Condition exists, 4.50 to 1.00, and (iii) on June 30, 2000 and
thereafter, 5.00 to 1.00 or, in the event that the Tranche D Leverage Ratio
Conditions exists, 4.00 to 1.00.
11. The Credit Agreement is hereby amended to delete Section 6.18 therefrom
and to insert in place thereof the following:
SECTION 6.18. INDENTURE. (a) No Event of Default (as defined in the
Indenture) or Default (as defined in the Indenture) exists, nor will any
such Event of Default or Default exist immediately after the granting of
any Loan, under the Indenture, the Senior Subordinated Notes or any
agreement executed by Borrower in connection therewith; (b) no Company has
incurred (as defined in the Indenture) any Designated Senior Indebtedness
(as defined in the Indenture) other than the Debt; and (c) no Company has
"incurred" (as defined
8
<PAGE> 9
in the Indenture) either prior to or after the granting of any Loan, any
Indebtedness (as defined in the Indenture) in violation of Section 4.06
(Limitation on Additional Indebtedness) of the Indenture.
12. The Credit Agreement is hereby amended to delete Section 6.19 therefrom
and to insert in place thereof the following:
SECTION 6.19. REVOLVING CREDIT FACILITY. This Agreement (a) constitutes
"Revolving Credit Facility" (as defined in the 1999 Indenture), and (b) is
a replacement of the Credit Agreement dated as of April 11, 1995, as
amended, among Borrower, KeyBank National Association (successor by merger
to Society National Bank), as Agent, and the banking institutions listed on
Annex 1 attached thereto, and the Credit Agreement dated as of January 14,
1998 among Borrower, KeyBank National Association, as Administrative Agent,
The Huntington National Bank, as Co-Agent, and the banking institutions
listed on Schedule 1 attached thereto.
13. The Credit Agreement is hereby amended to delete Section 7.10 therefrom
and to insert in place thereof the following:
SECTION 7.10. INDENTURE. If (a) any Event of Default (as defined in the
Indenture), or any event or condition that with the lapse of time or giving
of notice or both would constitute an Event of Default (as defined in the
Indenture), shall exist under the Indenture, the Senior Subordinated Notes
or any agreement executed by Borrower in connection therewith, (b) without
the prior written consent of Agents and the Majority Banks, the Indenture
or the Senior Subordinated Notes shall be amended or modified in any
respect or replaced, or (c) the Senior Subordinated Notes shall be
accelerated for any reason.
14. The Credit Agreement is hereby amended to delete Section 8.4 therefrom
and to insert in place thereof the following:
SECTION 8.4. EQUALIZATION PROVISION. Each Bank agrees with the other
Banks that if it, at any time, shall obtain any Advantage over the other
Banks or any thereof in respect of the Debt (except under Article III
hereof), it shall purchase from the other Banks, for cash and at par, such
additional participation in the Applicable Debt as shall be necessary to
nullify the Advantage. If any such Advantage resulting in the purchase of
an additional participation as aforesaid shall be recovered in whole or in
part from the Bank receiving the Advantage, each such purchase shall be
rescinded, and the purchase price restored (but without interest unless the
Bank receiving the Advantage is required to pay interest on the Advantage
to the Person recovering the Advantage from such Bank) to the extent of the
recovery. Each Bank further agrees with the other Banks that if it at any
time shall receive any payment for or on behalf of Borrower on any
indebtedness owing by Borrower to that Bank by reason of offset of any
deposit or other indebtedness, it will apply
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<PAGE> 10
such payment first to the Debt owing by Borrower to that Bank (including,
without limitation, any participation purchased or to be purchased pursuant
to this Section or any other Section of this Agreement), subject to the
Tranche D Conditions. Borrower agrees that any Bank so purchasing a
participation from the other Banks or any thereof pursuant to this Section
may exercise all its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Bank was a direct
creditor of Borrower in the amount of such participation.
15. The Credit Agreement is hereby amended to delete Section 9.9 therefrom
and to insert in place thereof the following:
SECTION 9.9. INDEMNIFICATION OF AGENTS. The Banks agree to indemnify
Agents (to the extent not reimbursed by Borrower), in accordance with their
Commitment Percentages applicable to the Tranche A Commitments from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against
Agents in their capacity as agent in any way relating to or arising out of
this Agreement or any Loan Document or any action taken or omitted by
Agents with respect to this Agreement or any Loan Document, provided that
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including attorney fees) or disbursements resulting from Agents'
respective gross negligence, willful misconduct or from any action taken or
omitted by Agents, or either thereof, in any capacity other than as agent
under this Agreement.
16. The Credit Agreement is hereby amended to delete Section 10.13
therefrom and to insert in place thereof the following:
SECTION 10.13. ENTIRE AGREEMENT. This Agreement, any Note and any other
Loan Document or other agreement, document or instrument attached hereto or
referred to herein or executed on or as of the Closing Date integrate all
of the terms and conditions mentioned herein or incidental hereto and
supersede all oral representations and negotiations and prior writings with
respect to the subject matter hereof. This Agreement is intended to, and
Borrower, Agents and the Banks agree that this Agreement shall, (a)
constitute "Revolving Credit Facility" (as defined in the Indenture), and
(b) be a replacement of the Credit Agreement dated as of April 11, 1995, as
amended, among Borrower, KeyBank National Association (successor by merger
to Society National Bank), as Agent, and the banking institutions listed on
Annex 1 attached thereto, and the Credit Agreement dated as of January 14,
1998 among Borrower, KeyBank National Association, as Administrative Agent,
The Huntington National Bank, as Co-Agent, and the banking institutions
listed on Schedule 1 attached thereto.
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<PAGE> 11
17. The Credit Agreement is hereby amended to delete SCHEDULE 1 and
SCHEDULE 2 thereof in their entirety and to insert in place thereof a new
SCHEDULE 1 and a new SCHEDULE 2, in the form of SCHEDULE 1 and SCHEDULE 2,
respectively, attached hereto.
18. The Credit Agreement is hereby amended to add a new EXHIBIT F thereto
in the form of EXHIBIT F attached hereto.
19. In connection with the fee specified in Section 2.8 of the Credit
Agreement, Borrower, Agents and the Banks agree that Borrower shall not be
obligated to pay the one-fourth percent (1/4%) increase fee set forth in such
Section 2.8 with respect to the increase of the Commitment as a result of the
addition of the Tranche D Commitments contemplated in this Second Amendment
Agreement, provided that nothing contained in this paragraph shall affect
Borrower's obligations with respect to the commitment fees relating to the
Tranche D Commitments set forth in subpart (f) of Section 2.5 of the Credit
Agreement (as amended by this Second Amendment Agreement).
20. Concurrently with the execution of this Second Amendment Agreement,
Borrower shall:
(a) execute and deliver to each Tranche D Bank a Tranche D Note dated as of
the Tranche D Closing Date, and such Tranche D Note shall be in the form and
substance of Exhibit F attached hereto;
(b) pay to Administrative Agent, for the pro rata benefit of the Tranche D
Banks, a facility fee in the amount of One Hundred Sixty Thousand Dollars
($160,000);
(c) deliver to Administrative Agent a Guaranty of Payment executed by each
of Columbia Nut & Bolt Corp., Geneva Rubber Company, Industrial Fasteners
Corporation, Integrated Logistics Solutions, Inc., Integrated Logistics Holding
Company, Park-Ohio Structural Hardware LLC, Pharmaceutical Logistics, Inc., and
Pharmacy Wholesale Logistics, Inc., together with such other corporate
governance and authorization documents as requested by Agents;
(d) cause each Guarantor of Payment to consent and agree to and acknowledge
the terms of this Second Amendment Agreement; and
(e) pay all legal fees and expenses of Administrative Agent in connection
with this Second Amendment Agreement.
21. Borrower hereby represents and warrants to Agents and the Banks that
(a) Borrower has the legal power and authority to execute and deliver this
Second Amendment Agreement, (b) the officers executing this Second Amendment
Agreement have been duly authorized to execute and deliver the same and bind
Borrower with respect to the provisions hereof, (c) the execution and delivery
hereof by Borrower and the performance and observance by Borrower of the
provisions
11
<PAGE> 12
hereof do not violate or conflict with the organizational agreements of Borrower
or any law applicable to Borrower or result in a breach of any provision of or
constitute a default under any other agreement, instrument or document binding
upon or enforceable against Borrower, (d) no Unmatured Event of Default or Event
of Default exists under the Credit Agreement, nor will any occur immediately
after the execution and delivery of this Second Amendment Agreement or by the
performance or observance of any provision hereof, (e) Borrower is not aware of
any claim or offset against, or defense or counterclaim to, any of Borrower's
obligations or liabilities under the Credit Agreement or any Related Writing,
and (f) this Second Amendment Agreement constitutes a valid and binding
obligation of Borrower in every respect, enforceable in accordance with its
terms.
22. Each reference that is made in the Credit Agreement or any other
writing to the Credit Agreement shall hereafter be construed as a reference to
the Credit Agreement as amended hereby. Except as herein otherwise specifically
provided, all provisions of the Credit Agreement shall remain in full force and
effect and be unaffected hereby. This Second Amendment Agreement is a Related
Writing as defined in the Credit Agreement.
23. Borrower and each Guarantor of Payment, by signing below, hereby waives
and releases Administrative Agent, Co-Agent and each of the Banks and the
respective directors, officers, employees, attorneys, affiliates and
subsidiaries of each of the foregoing from any and all claims, offsets, defenses
and counterclaims of which Borrower or such Guarantor of Payment is aware, such
waiver and release being with full knowledge and understanding of the
circumstances and effect thereof and after having consulted legal counsel with
respect thereto.
24. This Second Amendment Agreement may be executed in any number of
counterparts, by different parties hereto in separate counterparts and by
facsimile signature, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
25. The rights and obligations of all parties hereto shall be governed by
the laws of the State of Ohio, without regard to principles of conflicts of
laws.
[Remainder of page intentionally left blank.]
12
<PAGE> 13
26. JURY TRIAL WAIVER. BORROWER, AGENTS AND EACH OF THE BANKS WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, AGENTS AND THE BANKS, OR ANY
THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT
IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENTS' OR ANY BANK'S ABILITY
TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION
CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG BORROWER,
AGENTS AND THE BANKS, OR ANY THEREOF.
PARK-OHIO INDUSTRIES, INC.
/s/ James S. Walker
By: _______________________________
James S. Walker, Vice President
/s/ Ronald J. Cozean
and _______________________________
Ronald J. Cozean, Secretary
KEYBANK NATIONAL ASSOCIATION,
as a Bank and as Administrative Agent
/s/ Kenneth M. Merhar
By: __________________________________
Kenneth M. Merhar, Vice President
THE HUNTINGTON NATIONAL BANK,
as a Bank and as Co-Agent
/s/ Timothy M. Ward
By: ____________________________________
Timothy M. Ward, Vice President
13
<PAGE> 14
<TABLE>
<CAPTION>
SCHEDULE 1
- -------------------------------------------------------------------------------------------------------------------------------
BANKING TRANCHE A TRANCHE B TRANCHE C TRANCHE A TRANCHE D TRANCHE D MAXIMUM
INSTITUTIONS COMMITMENT COMMITMENT COMMITMENT THROUGH COMMITMENT COMMITMENT AMOUNT
AMOUNT AMOUNT AMOUNT TRANCHE C AMOUNT PERCENTAGE
COMMITMENT
PERCENTAGE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KeyBank $50,000,000 $12,500,000 $12,500,000 50% $25,000,000 100% $100,000,000
National
Association
- -------------------------------------------------------------------------------------------------------------------------------
The Huntington $50,000,000 $12,500,000 $12,500,000 50% $0 0% $75,000,000
National Bank
- -------------------------------------------------------------------------------------------------------------------------------
Total $100,000,000 $25,000,000 $25,000,000 100% $25,000,000 100%
- -------------------------------------------------------------------------------------------------------------------------------
Total $175,000,000
Commitment
Amount
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
SCHEDULE 2
GUARANTORS OF PAYMENT
Advance Vehicles, Inc.
Blue Falcon Forge, Inc.
Castle Rubber Company
Cicero Flexible Products, Inc.
Columbia Nut & Bolt Corp.
GIS Industries, Inc. (formerly known as Charken Company, Inc.)
General Aluminum Manufacturing Company II
General Aluminum Mfg. Company
Geneva Rubber Company
Industrial Fasteners Corporation
Integrated Logistics Solutions, Inc.
Integrated Logistics Solutions LLC (successor by merger to Arden Industrial
Products, Inc.)
Integrated Logistics Holding Company
Kay Home Products, Inc.
Park-Ohio Structural Hardware LLC
Pharmaceutical Logistics, Inc.
Pharmacy Wholesale Logistics, Inc.
RB&W Manufacturing LLC (successor by merger to RB&W Corporation)
The Ajax Manufacturing Company
The Metalloy Corporation
Tocco, Inc.
15
<PAGE> 16
EXHIBIT F
TRANCHE D NOTE
$__________________ Cleveland, Ohio
November 1, 1999
FOR VALUE RECEIVED, the undersigned, PARK-OHIO INDUSTRIES, INC.
("Borrower") promises to pay on the last day of the Commitment Period, as
defined in the Credit Agreement (as hereinafter defined), to the order of
_______________________ ("Bank") at the Main Office of KEYBANK NATIONAL
ASSOCIATION, as Administrative Agent, 127 Public Square, Cleveland, Ohio
44114-1306 the principal sum of
...................................................................... DOLLARS
or the aggregate unpaid principal amount of all Tranche D Loans made by Bank to
Borrower pursuant to Section 2.1D of the Credit Agreement, whichever is less, in
lawful money of the United States of America. As used herein, "Credit Agreement"
means the Amended and Restated Credit Agreement dated as of November 2, 1998, as
amended, among Borrower, the banks named therein, KeyBank National Association,
as Administrative Agent, and The Huntington National Bank, as Co- Agent, as the
same may from time to time be further amended, restated or otherwise modified.
Capitalized terms used herein shall have the meanings ascribed to them in the
Credit Agreement.
Borrower also promises to pay interest on the unpaid principal amount of
each Tranche D Loan from time to time outstanding, from the date of such
Tranche D Loan until the payment in full thereof, at the rates per annum which
shall be determined in accordance with the provisions of Section 2.1D of the
Credit Agreement. Such interest shall be payable on each date provided for in
such Section 2.1D; provided, however, that interest on any principal portion
which is not paid when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
Prime Rate Loans and LIBOR Loans, and payments of principal of any thereof, will
be shown on the records of Bank by such method as Bank may generally employ;
provided, however, that failure to make any such entry shall in no way detract
from Borrower's obligations under this Note.
If this Note shall not be paid at maturity, whether such maturity occurs by
reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, until paid, at a rate per annum which
shall be the Default Rate. All payments of principal of and interest on this
Note shall be made in immediately available funds. In the event of a failure to
pay interest or principal, when the same becomes due, Bank may collect and
Borrower agrees to pay a late charge of an amount equal to the greater of
(a) ten percent (10%) of the amount of such late payment, or (b) Twenty Five
Dollars ($25).
16
<PAGE> 17
This Note is one of the Tranche D Notes referred to in the Credit
Agreement. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
Except as expressly provided in the Credit Agreement, Borrower expressly
waives presentment, demand, protest and notice of any kind.
The undersigned authorizes any attorney at law at any time or times after
the maturity hereof (whether maturity occurs by lapse of time or by
acceleration) to appear in any state or federal court of record in the United
States of America, to waive the issuance and service of process, to admit the
maturity of this Note and the nonpayment thereof when due, to confess judgment
against the undersigned in favor of the holder of this Note for the amount then
appearing due, together with interest and costs of suit, and thereupon to
release all errors and to waive all rights of appeal and stay of execution. The
foregoing warrant of attorney shall survive any judgment, and if any judgment be
vacated for any reason, the holder hereof nevertheless may thereafter use the
foregoing warrant of attorney to obtain an additional judgment or judgments
against the undersigned. The undersigned agrees that Agents' or the Banks'
attorney may confess judgment pursuant to the foregoing warrant of attorney. The
undersigned further agrees that the attorney confessing judgment pursuant to the
foregoing warrant of attorney may receive a legal fee or other compensation from
Agents or the Banks.
PARK-OHIO INDUSTRIES, INC.
By: _______________________________
James S. Walker, Vice President
and _______________________________
Ronald J. Cozean, Secretary
================================================================================
"WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE."
================================================================================
17
<PAGE> 18
GUARANTOR ACKNOWLEDGMENT
------------------------
Each of the undersigned consents and agrees to and acknowledges the terms
of the foregoing Second Amendment Agreement. Each of the undersigned further
agrees that the obligations of the undersigned pursuant to the Guaranty of
Payment executed by the undersigned shall remain in full force and effect and be
unaffected hereby.
ADVANCE VEHICLES, INC.
INTEGRATED LOGISTICS SOLUTIONS
LLC (successor by merger to
Arden Industrial Products, Inc.)
BLUE FALCON FORGE, INC.
CASTLE RUBBER COMPANY
GIS INDUSTRIES, INC.,
(formerly known as Charken Company, Inc.)
CICERO FLEXIBLE PRODUCTS, INC.
GENERAL ALUMINUM MANUFACTURING COMPANY II
GENERAL ALUMINUM MFG. COMPANY
KAY HOME PRODUCTS, INC.
RB&W MANUFACTURING LLC (successor
by merger to RB&W Corporation)
THE AJAX MANUFACTURING COMPANY
TOCCO, INC.
THE METALLOY CORPORATION
/s/ James S. Walker
By: ____________________________________
James S. Walker, Vice President
of each of the foregoing Companies
/s/ Ronald J. Cozean
By: ___________________________________
Ronald J. Cozean, Secretary
of each of the foregoing Companies
18
<PAGE> 1
Exhibit 4.6
THIRD AMENDMENT AGREEMENT
This Third Amendment Agreement (this "Amendment") is made as of the
15th day of March, 2000, among PARK-OHIO INDUSTRIES, INC., an Ohio corporation
("Borrower"), the banking institutions listed on SCHEDULE 1 to the Credit
Agreement, as hereinafter defined ("Banks"), KEYBANK NATIONAL ASSOCIATION, as
administrative agent for the Banks ("Administrative Agent"), and THE HUNTINGTON
NATIONAL BANK, as co-agent for the Banks ("Co-Agent" and, together with
Administrative Agent, "Agents").
WHEREAS, Borrower, Agents and the Banks are parties to a certain
Amended and Restated Credit Agreement dated as of November 2, 1998, as amended
and as the same may from time to time be further amended, restated or otherwise
modified, which provides, among other things, for loans aggregating One Hundred
Seventy-Five Million Dollars ($175,000,000), all upon certain terms and
conditions (the "Credit Agreement");
WHEREAS, Borrower, Agents and the Banks desire to amend the Credit
Agreement to modify certain other provisions thereof; and
WHEREAS, each term used herein shall be defined in accordance with the
Credit Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other valuable considerations, Borrower, Agents and the
Banks agree as follows:
1. Section 5.7 of the Credit Agreement is hereby amended to delete
subsection (c) therefrom and to insert in place thereof the following:
(c) LEVERAGE RATIO. Borrower shall not suffer or permit at any
time the Leverage Ratio to exceed:
(i) 5.00 to 1.00 for the period from the Closing Date
through December 30, 1999 at any time that the Leverage Ratio
Condition exists during such period;
(ii) on December 31, 1999 through March 30, 2000,
5.00 to 1.00 or, in the event that the Tranche D Leverage
Ratio Condition exists, 4.50 to 1.00;
(iii) on March 31, 2000 through June 29, 2000, 5.00
to 1.00;
(iv) on June 30, 2000 through September 29, 2000,
5.00 to 1.00 or, in the event that the Tranche D Leverage
Ratio Condition exists, 4.75 to 1.00; provided, however, that,
if, on June 30, 2000, the Tranche D Leverage Ratio Condition
exists and the Leverage Ratio is greater than 4.75 to 1.00 but
less than 5.00 to 1.00, then an Event of Default shall not be
deemed to have occurred under this Agreement by virtue of the
breach of this subpart (iv) of this Section 5.7(c) so long as
the ratio for Borrower of (A) Total Funded Indebtedness
(outstanding on July 31, 2000) to (B)
<PAGE> 2
Consolidated Pro-Forma EBITDA (based upon the financial
statements of Borrower for the fiscal quarter ended June 30,
2000 and the three (3) previous fiscal quarters) is less than
4.75 to 1.00 on July 31, 2000; and
(v) on September 30, 2000 and thereafter, 5.00 to
1.00 or, in the event that the Tranche D Leverage Ratio
Conditions exists, 4.00 to 1.00.
2. The Credit Agreement is hereby amended to delete Section 7.9
therefrom in its entirety and to insert in place thereof the following:
SECTION 7.9. DESIGNATED SENIOR INDEBTEDNESS . If any Company
shall incur or permit to exist any Designated Senior Indebtedness (as
defined in the Indenture) other than the Debt.
3. Borrower, Agents and the Banks agree that, notwithstanding any
provision of the Credit Agreement to the contrary, no Subsidiary shall (a)
become a Guarantor with respect to any of the Indebtedness incurred in
connection with the Senior Subordinated Notes, (b) merge with Borrower, or (c)
sell, lease, transfer or otherwise dispose of all or a substantial part of its
assets to Borrower.
4. Borrower, Agents and the Banks agree that, notwithstanding any
provision of the Credit Agreement to the contrary, if the Tranche D Leverage
Ratio Condition exists (or immediately after consummating any Acquisition would
exist), no Acquisition otherwise permitted pursuant to Section 5.13 of the
Credit Agreement, shall occur during the period from the date of this Amendment
through September 30, 2000 (the "Restricted Period") unless the Leverage Ratio,
both before and after consummating such Acquisition, is less than or equal to
(a) 4.50 to 1.00 for the period from the date of this Amendment through June 29,
2000, and (b) 4.00 to 1.00 thereafter. In the event that, without the prior
written consent of Agents and the Banks, an Acquisition shall occur during the
Restricted Period in violation of the preceding sentence, such Acquisition shall
constitute an Event of Default under the Credit Agreement.
5. Concurrently with the execution of this Amendment, Borrower shall:
(a) cause each Guarantor of Payment to consent and agree to and
acknowledge the terms of this Amendment;
(b) pay an amendment fee to (i) Administrative Agent, for its own
account, in the amount of Twenty-Five Thousand Dollars ($25,000) and (ii)
Co-Agent, for its own account, in the amount of Ten Thousand Dollars ($10,000);
and
(c) pay all legal fees and expenses of Administrative Agent in
connection with this Amendment.
2
<PAGE> 3
5. Borrower hereby represents and warrants to Agents and the Banks that
(a) Borrower has the legal power and authority to execute and deliver this
Amendment, (b) the officers executing this Amendment have been duly authorized
to execute and deliver the same and bind Borrower with respect to the provisions
hereof, (c) the execution and delivery hereof by Borrower and the performance
and observance by Borrower of the provisions hereof do not violate or conflict
with the organizational agreements of Borrower or any law applicable to Borrower
or result in a breach of any provision of or constitute a default under any
other agreement, instrument or document binding upon or enforceable against
Borrower, (d) no Unmatured Event of Default or Event of Default exists under the
Credit Agreement, nor will any occur immediately after the execution and
delivery of this Amendment or by the performance or observance of any provision
hereof, (e) Borrower is not aware of any claim or offset against, or defense or
counterclaim to, any of Borrower's obligations or liabilities under the Credit
Agreement or any Related Writing, and (f) this Amendment constitutes a valid and
binding obligation of Borrower in every respect, enforceable in accordance with
its terms.
6. Each reference that is made in the Credit Agreement or any other
writing to the Credit Agreement shall hereafter be construed as a reference to
the Credit Agreement as amended hereby. Except as herein otherwise specifically
provided, all provisions of the Credit Agreement shall remain in full force and
effect and be unaffected hereby. This Amendment is a Related Writing as defined
in the Credit Agreement.
7. Borrower and each Guarantor of Payment, by signing below, hereby
waives and releases Administrative Agent, Co-Agent and each of the Banks and the
respective directors, officers, employees, attorneys, affiliates and
subsidiaries of each of the foregoing from any and all claims, offsets, defenses
and counterclaims of which Borrower or such Guarantor of Payment is aware, such
waiver and release being with full knowledge and understanding of the
circumstances and effect thereof and after having consulted legal counsel with
respect thereto.
8. This Amendment may be executed in any number of counterparts, by
different parties hereto in separate counterparts and by facsimile signature,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
9. The rights and obligations of all parties hereto shall be governed
by the laws of the State of Ohio, without regard to principles of conflicts of
laws.
[Remainder of page intentionally left blank.]
3
<PAGE> 4
10. JURY TRIAL WAIVER. BORROWER, AGENTS AND EACH OF THE BANKS WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, AGENTS AND THE BANKS, OR ANY
THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT
IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENTS' OR ANY BANK'S ABILITY
TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION
CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG BORROWER,
AGENTS AND THE BANKS, OR ANY THEREOF.
PARK-OHIO INDUSTRIES, INC.
/s/ James S. Walker
By: _________________________________
James S. Walker, Vice President
and /s/ Ronald J. Cozean
_________________________________
Ronald J. Cozean, Secretary
KEYBANK NATIONAL ASSOCIATION,
as a Bank and as Administrative Agent
/s/ Kenneth M. Merhar
By: _________________________________
Kenneth M. Merhar, Vice President
THE HUNTINGTON NATIONAL BANK,
as a Bank and as Co-Agent
/s/ Timothy M. Ward
By: _________________________________
Timothy M. Ward, Vice President
4
<PAGE> 5
GUARANTOR ACKNOWLEDGMENT
------------------------
Each of the undersigned consents and agrees to and acknowledges the
terms of the foregoing Third Amendment Agreement. Each of the undersigned
further agrees that the obligations of the undersigned pursuant to the Guaranty
of Payment executed by the undersigned shall remain in full force and effect and
be unaffected hereby.
ADVANCE VEHICLES, INC.
BLUE FALCON FORGE, INC.
CASTLE RUBBER COMPANY
CICERO FLEXIBLE PRODUCTS, INC.
COLUMBIA NUT & BOLT CORP.
GIS INDUSTRIES, INC. (formerly known as
Charken Company, Inc.)
GENERAL ALUMINUM
MANUFACTURING COMPANY II
GENERAL ALUMINUM MFG. COMPANY
GENEVA RUBBER COMPANY
INDUSTRIAL FASTENERS CORPORATION
INTEGRATED LOGISTICS SOLUTIONS, INC.
INTEGRATED LOGISTICS SOLUTIONS LLC
(successor by merger to Arden
Industrial Products, Inc.)
INTEGRATED LOGISTICS HOLDING COMPANY
KAY HOME PRODUCTS, INC.
PARK-OHIO STRUCTURAL HARDWARE LLC
PHARMACEUTICAL LOGISTICS, INC.
PHARMACY WHOLESALE LOGISTICS, INC.
RB&W MANUFACTURING LLC (successor
by merger to RB&W Corporation)
THE AJAX MANUFACTURING
COMPANY
THE METALLOY CORPORATION
TOCCO, INC.
/s/ James S. Walker
By: ____________________________________
James S. Walker, Vice President
of each of the foregoing Companies
/s/ Ronald J. Cozean
By: ____________________________________
Ronald J. Cozean, Secretary
of each of the foregoing Companies
6
<PAGE> 1
EXHIBIT 12.1
PARK-OHIO INDUSTRIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
.................................... 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations
before income taxes................ $28,608 $22,820 $19,199 $14,753 $12,913
Less capitalized interest............ (1,000)
Fixed charges........................ 28,690 20,840 11,495 8,787 7,192
------- ------- ------- ------- -------
Earnings available for fixed
charges............................ $57,298 $42,660 $30,694 $23,540 $20,105
Fixed charges:
Interest component
of rent expense.................... $ 3,938 $ 2,352 $ 2,232 $ 1,584 $ 1,176
Interest expense..................... 24,752 17,488 9,101 6,947 5,911
Interest capitalized................. 1,000
Amortization of deferred financing
costs.............................. --(1) --(1) 162 256 105
------- ------- ------- ------- -------
Total fixed charges.................. $28,690 $20,840 $11,495 $ 8,787 $ 7,192
Ratio of earnings to fixed
charges............................ 2.0x 2.0x 2.7x 2.7x 2.8x
</TABLE>
(1) Included in interest expense
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 333-83117) and the Registration Statement (Form S-4 No. 333-43005) of
Park-Ohio Industries, Inc. for the registration of its 9.25% Senior Subordinated
Notes due 2007 of our report dated February 22, 2000 with respect to the
consolidated financial statements of Park-Ohio Industries, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 27, 2000
<PAGE> 1
Exhibit 24.1
PARK-OHIO INDUSTRIES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned directors and officers of Park-Ohio
Industries, Inc., an Ohio corporation (the "Corporation"), hereby constitute and
appoint, James S. Walker and Ronald J. Cozean, and each of them, with full power
of substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of
the undersigned, for him and in his name, place and stead, to execute and file
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1934 the Annual Report of the Corporation on Form 10-K (the
"Annual Report"), with any and all amendments, supplements and exhibits thereto,
to execute and file any and all other documents to be filed with the Commission
relating to the Annual Report, each such attorney to have full power to act with
or without the other, and to have full power and authority to do and perform, in
the name and on behalf of the undersigned, every act whatsoever necessary,
advisable or appropriate to be done in the premises, hereby ratifying and
approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of March 22, 2000.
<TABLE>
<S> <C>
/s/ Edward F. Crawford /s/ James S. Walker
- ----------------------------------------------------- -----------------------------------------------------
Edward F. Crawford James S. Walker
President, Chief Executive Officer, Vice President and Chief Financial Officer
Chairman of the Board and Director
/s/ Felix J. Tarorick /s/ Ronald J. Cozean
- ----------------------------------------------------- -----------------------------------------------------
Felix J. Tarorick Ronald J. Cozean
Vice Chairman of the Board, Secretary and General Counsel
Vice President of Operations and Director
/s/ Matthew V. Crawford /s/ Patrick W. Fogarty
- ----------------------------------------------------- -----------------------------------------------------
Matthew V. Crawford Patrick W. Fogarty
Assistant Secretary, Corporate Counsel Director of Corporate Development
and Director
/s/ Lewis E. Hatch, Jr. /s/ Thomas E. McGinty
- ----------------------------------------------------- -----------------------------------------------------
Lewis E. Hatch, Jr. Thomas E. McGinty
Director Director
/s/ Lawrence O. Selhorst /s/ James W. Wert
- ----------------------------------------------------- -----------------------------------------------------
Lawrence O. Selhorst James W. Wert
Director Director
/s/ Kevin R. Greene
- -----------------------------------------------------
Kevin R. Greene
Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK>0001068148
<NAME> PARK-OHIO INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,625
<SECURITIES> 0
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<CURRENT-ASSETS> 317,145
<PP&E> 211,093
<DEPRECIATION> 86,721
<TOTAL-ASSETS> 630,143
<CURRENT-LIABILITIES> 108,004
<BONDS> 339,813
0
0
<COMMON> 0
<OTHER-SE> 155,016
<TOTAL-LIABILITY-AND-EQUITY> 630,143
<SALES> 717,222
<TOTAL-REVENUES> 717,222
<CGS> 591,439
<TOTAL-COSTS> 591,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,752
<INCOME-PRETAX> 28,608
<INCOME-TAX> 12,164
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,444
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
