PARK OHIO HOLDINGS CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2004,
or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file no. 0-3134

Park-Ohio Holdings Corp.

(Exact name of registrant as specified in its charter)


Ohio		34-1867219
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

23000 Euclid Avenue, Cleveland, Ohio (Address of principal executive offices)		44117 (Zip Code)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o No þ

Number of shares outstanding of registrant’s Common Stock, par value $1.00 per share, as of October 29, 2004: 10,646,352.

The Exhibit Index is located on page 24.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

INDEX


		Page

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		3
	Consolidated balance sheets — September 30, 2004 and December 31, 2003		3
	Consolidated statements of income — Three months and nine months ended September 30, 2004 and 2003		4
	Consolidated statement of shareholders’ equity — Nine months ended September 30, 2004		5
	Consolidated statements of cash flows — Nine months ended September 30, 2004 and 2003		6
	Notes to consolidated financial statements — September 30, 2004		7
	Report of Independent Registered Public Accounting Firm		14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		21
Item 4.	Controls and Procedures		21
PART II. OTHER INFORMATION
Item 5.	Submission of Matters to a Vote of Security Holders		22
Item 6.	Exhibits		22
SIGNATURE			23
EXHIBIT INDEX			24
Exhibit 15 Letter Re: Unaudited Financial Information
Exhibit 31.1 Certification of CEO
Exhibit 31.2 Certification of CFO
Exhibit 32 Certification Pursuant to Rule 906

PART I

Item 1. Financial Statements (Unaudited)

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


			(Unaudited)
			September 30,			December 31,
			2004			2003


			(Dollars in thousands)
ASSETS
Current Assets
	Cash and cash equivalents		$	6,548		$	3,718
	Accounts receivable, less allowances for doubtful accounts of $3,437 at September 30, 2004 and $3,271 at December 31, 2003			151,167			100,938
	Inventories			184,735			149,075
	Other current assets			15,041			10,780

		Total Current Assets		357,491			264,511
Property, Plant and Equipment				250,576			225,710
	Less accumulated depreciation			140,353			129,559

				110,223			96,151
Other Assets
	Goodwill			82,375			82,278
	Net assets held for sale			1,305			2,321
	Prepaid pension and other			63,739			62,191

			$	615,133		$	507,452

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Trade accounts payable		$	101,177		$	66,158
	Accrued expenses			73,656			46,623
	Current portion of long-term liabilities			2,382			2,811

		Total Current Liabilities		177,215			115,592
Long-Term Liabilities, less current portion
	9.25% Senior Subordinated Notes, maturing on December 1, 2007			199,930			199,930
	Revolving credit facility, maturing on June 30, 2007			130,700			101,000
	Other long-term debt			7,587			8,234
	Other postretirement benefits and other long-term liabilities			25,500			26,671

				363,717			335,835
Shareholders’ Equity
	Capital stock, par value $1 per share:
		Serial Preferred Stock		-0-			-0-
		Common stock		11,379			11,288
	Additional paid-in capital			56,068			55,858
	Retained earnings			17,477			1,007
	Treasury stock, at cost			(8,864	)		(8,864	)
	Accumulated other comprehensive loss			(1,732	)		(3,264	)
	Unearned compensation — restricted stock awards			(127	)		-0-

				74,201			56,025

			$	615,133		$	507,452

Note: The balance sheet at December 31, 2003 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.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2004		2003		2004		2003


		(Amounts in thousands — except per share data)
Net sales		$	200,875	$	146,830	$	594,154	$	461,596
Cost of products sold			169,549		125,078		498,938		389,588

	Gross profit		31,326		21,752		95,216		72,008
Selling, general and administrative expenses			19,876		15,008		57,329		45,707

	Operating income		11,450		6,744		37,887		26,301
Interest expense			6,510		6,512		18,842		19,964

	Income before income taxes		4,940		232		19,045		6,337
Income taxes			949		144		2,575		1,116

	Net income	$	3,991	$	88	$	16,470	$	5,221

Amounts per common share:
	Basic	$	.38	$	.01	$	1.55	$	.50
	Diluted	$	.36	$	.01	$	1.48	$	.48
Common shares used in the computation:
	Basic		10,629		10,501		10,599		10,500

	Diluted		11,225		11,016		11,164		10,937

See notes to consolidated financial statements.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)


											Accumulated
											Other
		Common		Paid-In		Retained		Treasury			Comprehensive			Unearned
		Stock		Capital		Earnings		Stock			(Loss)			Compensation			Total

Balance January 1, 2004		$	11,288	$	55,858	$	1,007	$	(8,864	)	$	(3,264	)	$	-0-		$	56,025
Comprehensive income:
	Net income						16,470											16,470
	Foreign currency translation adjustment											1,532						1,532

	Comprehensive income																	18,002
Restricted stock award			14		138										(152	)		-0-
Amortization of restricted stock															25			25
Exercise of stock options			77		72													149

Balance September 30, 2004		$	11,379	$	56,068	$	17,477	$	(8,864	)	$	(1,732	)	$	(127	)	$	74,201

See notes to consolidated financial statements.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



				Nine Months Ended
				September 30,

				2004			2003


				(Dollars in thousands)
OPERATING ACTIVITIES
	Net income			$	16,470		$	5,221
	Adjustments to reconcile net income to net cash (used) provided by operating activities:
		Depreciation and amortization			11,875			12,061
		Changes in operating assets and liabilities:
			Accounts receivable		(41,298	)		(5,306	)
			Inventories and other current assets		(38,131	)		42
			Accounts payable and accrued expenses		45,380			(4,980	)
			Other		(1,854	)		(3,339	)

			Net Cash (Used) Provided by Operating Activities		(7,558	)		3,699

INVESTING ACTIVITIES
	Purchases of property, plant and equipment, net				(8,386	)		(8,298	)
	Acquisition, net of cash acquired				(9,998	)		-0-
	Proceeds from sale of assets held for sale				-0-			7,340

		Net Cash (Used) by Investing Activities			(18,384	)		(958	)

FINANCING ACTIVITIES
	Proceeds from bank arrangements				28,623			112,000
	Repayment of old revolving credit agreement				-0-			(112,000	)
	Payments on debt, net				-0-			(9,782	)
	Exercise of stock options				149			(89	)

		Net Cash Provided (Used) by Financing Activities			28,772			(9,871	)

Increase (Decrease) in Cash and Cash Equivalents					2,830			(7,130	)
Cash and Cash Equivalents at Beginning of Period					3,718			8,812

Cash and Cash Equivalents at End of Period				$	6,548		$	1,682

Taxes paid (received)				$	2,191		$	(881	)
Interest paid					13,592			14,902

See notes to consolidated financial statements.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2004

(Amounts in Thousands — except per share data)

NOTE A — Basis of Presentation

The consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (“the Company”). All significant intercompany transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.

NOTE B — Acquisition and Dispositions

On August 23, 2004, the Company acquired substantially all of the assets of the Automotive Components Group (“Amcast Components Group”) of Amcast Industrial Corporation. The purchase price was approximately $10.0 million in cash and the assumption of approximately $9.0 million of operating liabilities. The acquisition was funded with borrowings under the Company’s revolving credit facility. The purchase price and the results of operations of Amcast Components Group prior to its date of acquisition were not deemed significant as defined in Regulation S-X. The results of operations for Amcast Components Group have been included since August 23, 2004.

The tentative allocation of the purchase price has been performed based on the assignment of fair values to assets acquired and liabilities assumed. Final fair values will be based primarily on appraisals yet to be performed by an independent appraisal firm.

The tentative allocation of the purchase price is as follows:


Cash acquisition price		$	10,000
Assets
	Accounts receivable		(8,931	)
	Inventories		(1,677	)
	Property and equipment		(16,264	)
	Other		(115	)

Liabilities
	Accounts payable		4,041
	Compensation accruals		5,504
	Other accruals		7,442

Goodwill		$	-0-

The Company has a plan for integration activities and plant rationalization. In accordance with FASB EITF Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination,” the

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — Continued

Company recorded accruals for severance, exit and relocation costs in the purchase price allocation. A reconciliation of the beginning and ending accrual balances is as follows:

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(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.


Note:	The balance sheet at December 31, 2003 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.