<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
<TABLE>
<S> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2000, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____________ TO____________
</TABLE>
COMMISSION FILE NO. 0-3134
PARK-OHIO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 34-1867219
- ----------------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23000 EUCLID AVENUE, CLEVELAND, OHIO 44117
- ----------------------------------------- -----------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 216/692-7200
PARK-OHIO HOLDINGS CORP. IS A SUCCESSOR ISSUER TO PARK-OHIO INDUSTRIES, INC.
Indicate by check mark whether the registrant:
(1) Has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding twelve months
(or for such shorter period that the registrant was required to file
such reports):
and
(2) Has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Number of shares outstanding of registrant's Common Stock, par value $1.00 per
share, as of April 28, 2000: 10,547,791.
The Exhibit Index is located on page 17.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- March 31, 2000 and December
31, 1999
Consolidated statements of income -- Three month periods
ended March 31, 2000 and 1999
Consolidated statement of shareholders' equity -- Three
months ended March 31, 2000
Consolidated statements of cash flows -- Three month periods
ended March 31, 2000 and 1999
Notes to consolidated financial statements -- March 31, 2000
Independent accountants' review report
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
3
<PAGE> 4
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31 DECEMBER 31
2000 1999
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 3,724 $ 5,867
Accounts receivable, less allowances for doubtful accounts
of $3,304 at March 31, 2000 and $3,296 at December 31,
1999................................................... 130,232 112,896
Inventories............................................... 204,382 192,270
Deferred tax assets....................................... 600 600
Other current assets...................................... 5,822 5,250
-------- --------
Total Current Assets.............................. 344,760 316,883
Property, Plant and Equipment............................... 217,343 211,093
Less accumulated depreciation............................. 91,052 86,721
-------- --------
126,291 124,372
Other Assets
Excess purchase price over net assets acquired, net of
accumulated amortization of $12,934 at March 31, 2000
and $11,941 at December 31, 1999....................... 137,045 137,905
Deferred taxes............................................ 2,400 2,400
Other..................................................... 49,996 48,321
-------- --------
$660,492 $629,881
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable.................................... $ 79,295 $ 72,452
Accrued expenses.......................................... 42,540 33,064
Current portion of long-term liabilities.................. 2,454 2,557
-------- --------
Total Current Liabilities......................... 124,289 108,073
Long-Term Liabilities, less current portion
Long-term debt............................................ 350,218 339,813
Other postretirement benefits............................. 25,066 25,470
Other..................................................... 1,843 1,840
-------- --------
377,127 367,123
Shareholders' Equity
Capital stock, par value $1 a share:
Serial Preferred Stock................................. -0- -0-
Common Stock........................................... 11,148 11,148
Additional paid-in capital................................ 55,684 55,684
Retained earnings......................................... 101,234 96,674
Treasury stock, at cost................................... (8,123) (7,969)
Accumulated other comprehensive earnings (loss)........... (867) (852)
-------- --------
159,076 154,685
-------- --------
$660,492 $629,881
======== ========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to consolidated financial statements.
4
<PAGE> 5
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS --
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales................................................... $206,360 $171,403
Cost of products sold....................................... 170,083 140,436
-------- --------
Gross profit.............................................. 36,277 30,967
Selling, general and administrative expenses................ 21,044 17,952
-------- --------
Operating income.......................................... 15,233 13,015
Interest expense............................................ 7,505 5,378
-------- --------
Income before income taxes................................ 7,728 7,637
Income taxes................................................ 3,168 3,289
-------- --------
Net income................................................ $ 4,560 $ 4,348
======== ========
Net income per common share:
Basic..................................................... $ .43 $ .40
======== ========
Diluted................................................... $ .43 $ .40
======== ========
Common shares used in the computation:
Basic..................................................... 10,550 10,793
======== ========
Diluted................................................... 10,551 10,938
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<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 January 1, 2000...... $11,148 $55,684 $ 96,674 $(7,969) $(852) $154,685
Comprehensive income:
Net income................. 4,560 4,560
Foreign currency
translation
adjustment.............. (15) (15)
--------
Comprehensive income.... 4,545
Purchase of treasury stock... (154) (154)
------- ------- -------- ------- ----- --------
Balance March 31, 2000....... $11,148 $55,684 $101,234 $(8,123) $(867) $159,076
======= ======= ======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 4,560 $ 4,348
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization.......................... 5,505 4,984
-------- --------
10,065 9,332
Changes in operating assets and liabilities excluding
acquisitions of businesses:
Accounts receivable.................................... (17,336) 2,002
Inventories and other current assets................... (12,684) (8,737)
Accounts payable and accrued expenses.................. 16,319 11,419
Other.................................................. (2,223) (2,629)
-------- --------
Net Cash (Used) Provided by Operating Activities..... (5,859) 11,387
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net........... (6,431) (6,304)
Costs of acquisitions, net of cash acquired............... -0- (29,146)
Purchase of investments................................... -0- (446)
-------- --------
Net Cash (Used) by Investing Activities................ (6,431) (35,896)
FINANCING ACTIVITIES
Proceeds from bank arrangements........................... 10,500 29,000
Payments on debt.......................................... (199) (3,868)
Purchase of treasury stock................................ (154) (454)
-------- --------
Net Cash Provided by Financing Activities.............. 10,147 24,678
-------- --------
(Decrease)Increase in Cash and Cash Equivalents........ (2,143) 169
Cash and Cash Equivalents at Beginning of Period....... 5,867 4,320
-------- --------
Cash and Cash Equivalents at End of Period............. $ 3,724 $ 4,489
======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS -- EXCEPT PER SHARE DATA)
NOTE A -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Park-Ohio
Holdings Corp. and its subsidiaries ("the Company"). All significant
intercompany transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
NOTE B -- ACQUISITIONS
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 and Bolt ("St. Louis Screw") and PMC
Industries, Inc. ("PMC") for cash. 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.
NOTE C -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
-------- -----------
<S> <C> <C>
In process and finished goods............................... $170,646 $160,648
Raw materials and supplies.................................. 33,736 31,622
-------- --------
$204,382 $192,270
======== ========
</TABLE>
NOTE D -- SHAREHOLDERS' EQUITY
At March 31, 2000, capital stock consists of (i) Serial Preferred Stock of
which 632,470 shares were authorized and none were issued and (ii) Common Stock
of which 40,000,000 shares were authorized and 10,547,791 shares were issued and
outstanding.
8
<PAGE> 9
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
NOTE E -- NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
2000 1999
------- -------
<S> <C> <C>
NUMERATOR
Net income.................................................. $ 4,560 $ 4,348
======= =======
DENOMINATOR
Denominator for basic earnings per share-weighted average
shares.................................................... 10,550 10,793
Effect of dilutive securities:
Employee stock options...................................... 1 145
------- -------
Denominator for diluted earnings per share-adjusted weighted
average shares and assumed conversions.................... 10,551 10,938
======= =======
Net income per common share-basic........................... $ .43 $ .40
======= =======
Net income per common share-diluted......................... $ .43 $ .40
======= =======
</TABLE>
NOTE F -- ACCOUNTING PRONOUNCEMENTS
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, as delayed by the issuance of
Statement 137, 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.
NOTE G -- SEGMENTS
The Company manages its business 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. Aluminum Products are cast aluminum components
manufactured primarily for automotive OEMs. In addition, 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 for specific
customer applications. There are no intersegment sales.
9
<PAGE> 10
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
Results by Business Segment were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales:
ILS.................................................... $134,729 $106,412
Aluminum products...................................... 33,781 31,619
Manufactured products.................................. 37,850 33,372
-------- --------
$206,360 $171,403
======== ========
Income before income taxes:
ILS.................................................... $ 13,630 $ 10,965
Aluminum products...................................... 2,630 2,971
Manufactured products.................................. 1,841 972
-------- --------
18,101 14,908
Amortization of excess purchase price over net assets
acquired.................................................. (993) (814)
Corporate costs............................................. (1,875) (1,079)
Interest expense............................................ (7,505) (5,378)
-------- --------
$ 7,728 $ 7,637
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
-------- -----------
<S> <C> <C>
Identifiable assets were as follows:
ILS.................................................... $364,314 $343,522
Aluminum products...................................... 104,246 97,717
Manufactured products.................................. 173,494 170,267
General corporate...................................... 18,438 18,375
-------- --------
$660,492 $629,881
======== ========
</TABLE>
10
<PAGE> 11
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Park-Ohio Holdings Corp.
We have reviewed the accompanying consolidated balance sheet of Park-Ohio
Holdings Corp. and subsidiaries as of March 31, 2000, and the related
consolidated statements of income for the three month periods ended March 31,
2000 and 1999, the consolidated statement of shareholders' equity for the three
months ended March 31, 2000 and the consolidated statements of cash flows for
the three month periods ended March 31, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based upon our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Park-Ohio
Holdings Corp. and subsidiaries as of December 31, 1999 and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended, not presented herein, and in our report dated February 22,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ Ernst & Young LLP
Cleveland, Ohio
April 19, 2000
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The consolidated financial statements of the Company include the accounts
of Park-Ohio Holdings Corp. and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The historical financial
information for the three-month period ended March 31, 2000 is not directly
comparable on a period-to-period basis to the financial information for the
three-month period ended March 31, 1999 due to acquisitions made subsequent to
the first quarter of 1999. 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. In September, the Company acquired all of the shares of M.P.
Colinet ("Colinet"). Colinet provides capital equipment and associated parts for
the oil drilling industry and is complementary to PMC Industries, Inc., a
subsidiary of the Company acquired in February, 1999. 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. The Company manages its
businesses based upon three operating segments: Integrated Logistics Solutions
("ILS"), Aluminum Products and Manufactured Products. ILS is a leading national
business to business 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.
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 $16.3 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 leveraging existing customer
relationships in the Aluminum and Manufactured Products segments.
Between January 1, 1994 and March 31, 2000, the Company's continuing
operations incurred $93.3 million of capital expenditures, the majority of which
was used to expand and upgrade existing manufacturing facilities and enhance the
Company's management information systems.
RESULTS OF OPERATIONS
Three Months 2000 versus Three Months 1999
Net sales increased by $35.0 million, or 20%, from $171.4 million in 1999
to $206.4 million in 2000. Of the $35.0 million in growth for the quarter, $23.7
million represents organic growth, primarily ILS, while the remainder is
acquisitive. For ILS, net sales increased 27% or $28.3 million of which $17.1
million related to internal growth (a 16% internal growth rate) and the
remainder to acquisitions made in the second half of 1999. For Aluminum Products
and Manufactured Products, net sales increases of 7% and 13%, respectively,
related to organic growth.
12
<PAGE> 13
Gross profit increased by $5.3 million, or 17%, from $31.0 million in 1999
to $36.3 million in 2000. Of the increase in gross profit, $2.7 million is
attributable to the organic increase in sales and the remainder to acquisitions.
However, the Company's consolidated gross margin decreased to 17.6% for the
first three months of 2000 from 18.1% for the first three months of 1999. This
decrease in consolidated gross margin was due to decreased gross margins in both
Aluminum Products and ILS not being offset by increased margins in Manufactured
Products. The decrease in gross margins at ILS results from a change in product
mix to lower margin items. For Aluminum Products, the decline in gross margins
results from the phasing out of certain production parts during the second half
of 1999, yet to be fully replaced, thereby causing unabsorbed fixed burden to
increase during the current period. The increase in gross margins at
Manufactured Products results from increased sales of higher margin products
particularly in the oil drilling capital equipment business, and to increased
production levels which allocates fixed overhead costs over a larger productive
base.
Selling, general and administrative costs increased by 17% to $21.0 million
for 2000 from $18.0 million for 1999. The increase was related to recent
acquisitions and to increased sales. For the three-month period ended March 31,
2000, selling, general and administrative expenses benefited from an increase in
net pension credits of $800 thousand, reflecting favorable investment returns on
pension plan assets. Consolidated selling, general and administrative expenses
as a percentage of net sales were 10.2% during the current period and 10.5% for
1999.
Interest expense increased by $2.1 million from $5.4 million in 1999 to
$7.5 million in 2000 due to higher average debt outstanding and to higher
average rates during the current period. For the quarter ended March 31, 2000,
the Company averaged outstanding borrowings of $345.9 million as compared to
$265.2 million for the corresponding period of the prior year. The $80.7 million
increase related primarily to acquisitions completed during 1999 and to
increases in working capital. The average borrowing rate of 8.68% for the three-
month period ended March 31, 2000 is 57 basis points higher than the average
rate of 8.11% for 1999 primarily because of the $50 million add-on in June 1999
to the Company's Senior Subordinated Notes and to increased rates related to the
Company's revolving credit facility caused by Federal Reserve action.
The effective income tax rate for the three-month period ended March 31,
2000 was 41% compared to 43% for the corresponding period of the prior year. The
decrease in tax rate results from the relative reduction of non-deductible
goodwill for tax purposes and to a corresponding increase in research and
experimental credits.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity needs are primarily for working capital and capital
expenditures. The Company's primary sources of liquidity have been funds
provided by operations and funds available from existing bank credit
arrangements and the sale of Senior Subordinated Notes. On November 1, 1999, the
Company amended its credit agreement with a group of banks under which it may
borrow up to $175 million on an unsecured basis. The proceeds from the amended
credit agreement, which expires on April 30, 2001, will be used for general
corporate purposes. Amounts borrowed under the new credit agreement may be
borrowed at the Company's election at either (i) the bank's prime lending rate
less 100 basis points to plus 20 basis points or (ii) LIBOR plus 90-220 basis
points depending on the aggregate amount borrowed under the new credit
agreement. As of March 31, 2000, $148.5 million was outstanding under the
facility. The Company's ability to refinance or extend its borrowings under this
facility will be dependent on a variety of factors, including the Company's
operating performance and the outlook for the Company and its industry groups
and the availability of credit for borrowers in the Company's industry groups
and in the economy generally.
On June 3, 1999, the Company sold an additional $50 million of its 9.25%
Senior Subordinated Notes due 2007 bringing the amount of Notes outstanding to
$200 million. The Company used the net proceeds from the sale of the Notes
($49.5 million) to repay outstanding bank borrowings.
Current financial resources, including available bank borrowing
arrangements and anticipated funds from operations, are expected to be adequate
to meet current cash requirements. Capital expenditures for 2000 are
13
<PAGE> 14
projected to be approximately $14 million that will be used to invest in the
Company's current facilities for projected new business, for scheduled
improvements and new equipment to expand existing products.
The ratio of current assets to current liabilities was 2.77 at March 31,
2000 versus 2.93 at December 31, 1999. Working capital increased by $11.7
million to $220.5 at March 31, 2000 from $208.8 million at December 31, 1999 to
support the internal growth of the Company.
During the first three months of 2000, the Company generated $10.1 million
from operations before changes in operating assets and liabilities. After giving
effect to the use of $15.9 million in the operating accounts, the Company used
$5.9 million from operating activities compared to providing $11.4 million in
1999. During the period, the Company invested $6.4 million in capital
expenditures. These activities were funded by an increase of $10.5 million in
bank borrowings and a decrease in cash for the period of $2.1 million.
SEASONALITY; VARIABILITY OF OPERATING RESULTS
As a result of the significant growth in our net sales and operating income
in recent years, seasonal fluctuations have been mitigated. However, the
Company's results of operations are stronger in the first six months rather than
the last six months due to scheduled plant maintenance in the third quarter to
coincide with customer plant shut downs and holidays in the fourth quarter.
The timing of orders placed by our customers has varied with, among other
factors, orders for customers' finished goods, customer production schedules,
competitive conditions and general economic conditions. The variability of the
level and timing of orders has, from time to time, resulted in significant
periodic and quarterly fluctuations in the operations of our business units.
This 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-Q contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. 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 capital resources and anticipated levels of capital expenditures.
Forward-looking statements are necessarily subject to risks, uncertainties and
other factors, many of which are outside our control, which could cause actual
results to differ materially from such statements. These uncertainties and other
factors include such things as: our ability to renegotiate or extend the
existing credit facility, general business conditions, competitive factors,
including pricing pressures and product innovation and quality; raw material
availability and pricing; changes in our relationships with customers and
suppliers; our ability to successfully integrate recent and future acquisitions
into 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 our 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; and dependence on information systems.
Any forward-looking statement speaks only as of the date on which such statement
is made, and we undertake 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 us that our plans and
objectives will be achieved.
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated financial statements at March 31, 2000, and for the
three-month periods ended March 31, 2000 and 1999, have been reviewed, prior to
filing, by Ernst & Young LLP, the Company's independent accountants, and their
report is included herein.
14
<PAGE> 15
ITEM 3. 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 $148.5 million at March 31,
2000. A 100 basis point increase in the interest rate would have resulted in an
increase in interest expense of approximately $.4 million during the period.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
first quarter of 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
<TABLE>
<C> <S>
(15) Letter re: unaudited financial information
(27) Financial data schedule (Electronic filing only)
</TABLE>
The Company did not file any reports on Form 8-K during the three-month
period ended March 31, 2000.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARK-OHIO HOLDINGS CORP.
------------------------------------
(Registrant)
By /s/ J. S. WALKER
-----------------------------------
Name: J. S. Walker
Title: Vice President and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
Dated May 12, 2000
---------------------------------
16
<PAGE> 17
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
(15) Letter re: unaudited financial information
(27) Financial data schedule (Electronic filing only)
</TABLE>
17
<PAGE> 1
EXHIBIT (15) LETTER RE: UNAUDITED FINANCIAL INFORMATION
Board of Directors and Shareholders
Park-Ohio Holdings Corp.
We are aware of the incorporation by reference in the following
Registration Statements of Park-Ohio Holdings Corp., for the registration of its
common stock of our report dated April 19, 2000 relating to the unaudited
consolidated interim financial statements of Park-Ohio Holdings Corp., which are
included in its Form 10-Q for the quarter ended March 31, 2000.
<TABLE>
<CAPTION>
SHARES
REGISTRATION STATEMENT DESCRIPTION REGISTERED
---------------------- ----------- ----------
<S> <C> <C>
Form S-8 (33-64420) 1992 Stock Option Plan 350,000
Form S-8 (33-01047) Individual Account Retirement Plan 1,500,000
Form S-8 (333-28407) Amended and Restated 1992 Stock Option Plan and 1996 750,000
Non-Employee Director Stock Option Plan
Form S-4 (333-46931) Formation of PKOH Holding Corporation 11,000,000
Form S-8 (333-58161) 1998 Long-Term Incentive Plan 550,000
</TABLE>
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a
part of the registration statements prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 12, 2000
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000076282
<NAME> PARK-OHIO HOLDINGS CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,724
<SECURITIES> 0
<RECEIVABLES> 130,232
<ALLOWANCES> 3,304
<INVENTORY> 204,382
<CURRENT-ASSETS> 344,760
<PP&E> 217,343
<DEPRECIATION> 91,052
<TOTAL-ASSETS> 660,492
<CURRENT-LIABILITIES> 124,289
<BONDS> 350,218
0
0
<COMMON> 11,148
<OTHER-SE> 147,928
<TOTAL-LIABILITY-AND-EQUITY> 660,492
<SALES> 206,360
<TOTAL-REVENUES> 206,360
<CGS> 170,083
<TOTAL-COSTS> 170,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,505
<INCOME-PRETAX> 7,728
<INCOME-TAX> 3,168
<INCOME-CONTINUING> 4,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,560
<EPS-BASIC> .43
<EPS-DILUTED> .43
</TABLE>
