Park-Ohio Holdings Corp.
Park-Ohio Holdings Corp.
Incorporated: 1907 as Park Drop Forge Company
Sales: $932.9 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: PKOH
NAIC: 332111 Iron and Steel Forgings; 551112 Offices of Other Holding Companies
Park-Ohio Holdings Corp. provides industrial supply chain logistics and diversified manufacturing primarily through its direct subsidiary, Park-Ohio Industries. Created through the merger of two Cleveland manufacturers in the late 1960s, Park-Ohio weathered a broad range of challenges to U.S. industry in the last half of the 20th century. In the new millennium, Park-Ohio honed its offerings to focus on areas with the best growth potential.
FOUNDATION AND DEVELOPMENT
Park-Ohio was created through the 1967 merger of Park Drop Forge Co. and Ohio Crankshaft Co. These two Cleveland companies experienced a similar pattern of development during the first half of the 20th century. Established in 1907, Park Drop Forge was the older of the two firms. It manufactured forgings for crankshafts, camshafts, and other engine parts used in large diesel locomotives, trucks, and buses. Dwight Goddard served as Park Drop Forge's first president and was succeeded by George C. Gordon in 1913. With its specialization in custom forging, Park Drop Forge expanded into new modes of transportation as they developed. In 1927, for example, the company's motor forgings were used in the Spirit of St. Louis, helping to make possible Charles Lindbergh's historic solo transatlantic flight. By the late 1950s, Park Drop Forge had more than 500 employees, sales of $9 million, and profits of $900,000.
Park Drop's future partner, Ohio Crankshaft, was established by William C. Dunn and Francis S. Denneen in a Cleveland garage in 1920. This company's sales of crankshafts and camshafts for diesel engines increased so quickly that it was able to move into a new building in 1922. Growth during the 1930s was fueled by the development of a proprietary metalworking process using high-frequency electrical current. Ohio Crankshaft created its TOCCO division in 1934 to produce and sell equipment used in this process. To keep up with demand for the new machines, the company added two plants during the 1930s and erected a fourth plant during World War II.
By the mid-1950s, Ohio Crankshaft's forged parts could be found in tugboats, construction and oil drilling equipment, tractors, trucks, trains, and aircraft brakes. The company generated sales of $20 million in 1956.
CEO Richard S. Sheetz and President George Bricmont guided Park Drop Forge's postwar acquisition of its local competitor. Having accumulated a controlling 51 percent stake in Ohio Crankshaft, Sheetz and Bricmont merged the two companies via a 1967 stock swap. The unified companies' cooperation bred rapid growth. Taking into account the 1971 acquisition of Growth International, Inc., Park-Ohio's sales increased from $46.2 million in 1968 to $89.9 million in 1973. Net income grew from $1.4 million to $4.6 million during that same period. The merger added Bennett Industries, Inc., a manufacturer of steel and plastic containers for the chemical, oil, and food industries; Castle Rubber Co., a maker of specialty rubber goods; and Globe Steel Abrasive Co., a producer of metallic cleaners used in steel fabrication.
Spurred by the decade's energy crisis and spearheaded by President Bricmont, Park-Ohio acquired oil and natural gas interests to become energy self-sufficient. By the late 1970s, the company's more than 200 wells throughout Ohio, Pennsylvania, and New York were producing 37 trillion cubic feet of natural gas and 1.5 million barrels of oil. The company's multifaceted strategy worked well through the 1970s. Revenues nearly doubled from $90 million in 1973 to $159 million in 1978, and net income grew even faster, from $4.6 million to $10.3 million.
RECESSION LEADS TO TOUGH DECADE
Park-Ohio's many years of prosperity came to an end in the early 1980s, when recession hit the midwestern Rust Belt especially hard. Prices of natural gas and oil—by this time a significant segment of the company's business—went into a precipitous decline. At the same time, the conglomerate's Ohio Crankshaft subsidiary lost its single biggest client, accounting for more than two-thirds of annual volume. Not surprisingly, Park-Ohio's sales and profits began to decline. After peaking at more than $200 million in the early 1980s, revenues dipped to less than $150 million in 1983, the year the company suffered a net loss of $5.6 million.
In light of the economic environment, Park-Ohio asked employees at two Ohio Crankshaft plants to accept wage, vacation, and benefit concessions. Workers, who considered the plants' steadily shrinking employee rolls and work rule changes "union-busting" tactics, balked at the proposals. In July 1983, more than 100 United Auto Workers (UAW) members employed at the Ohio Crankshaft factory in Cleveland went on a protracted strike marred by violence and frequent legal tangles. Production at the Cleveland TOCCO plant was transferred to a new facility in Alabama, and Park-Ohio hired replacement workers at the crankshaft facility.
Although the national economy improved over the course of the decade, Park-Ohio's performance only worsened. The company ended up in the red in five out of the six years from 1986 to 1992, accumulating more than $87 million in losses. In 1989, Value-Line downgraded the company's stock to a speculative investment. Led by local businessman Edward F. Crawford, some unhappy shareholders began to call for management changes. After a series of late 1980s suits and countersuits, Crawford won a seat on Park-Ohio's board of directors in 1989.
In 1988, the company hired Stanley V. Intihar away from a 30-year career with TRW's automotive division. Intihar led a return to Park-Ohio's traditional manufacturing focus, selling the company's money-losing energy interests to Atwood Resources Inc. for $29 million in 1988. The company took a $29.7 million loss on the transaction. Intihar succeeded Richard S. Sheetz, a 24-year veteran of Park-Ohio's chief executive office, in 1991. The new leader quickly spun off unprofitable steel abrasives operations and announced his intention to focus on what he considered the "core business," Bennett Industries. Although they reduced revenues to $120 million by 1992, these divestments freed up sorely needed capital for debt reduction, new production equipment, and other physical plant improvements.
Park-Ohio is a well-established diversified logistics and manufacturing company providing customized supply chain solutions and highly engineered manufactured products to every major industrial sector.
Before these actions could bear fruit, Intihar resigned without comment. Park-Ohio Director Thomas McGinty assumed corporate leadership on an interim basis. Combined with all of its other weaknesses, the vacancy at the top made Park-Ohio particularly vulnerable to hostile takeover. Over the course of the next few months, the company thwarted several buyout overtures while sorting out its options. In the middle of 1992, the board of directors and shareholders voted to ratify a plan formulated by one of their newest colleagues, Edward Crawford. Crawford proposed that the firm purchase his privately held Kay Home Products and elect him chairman, chief executive officer, and, incidentally, lead shareholder. The subsequent stock swap was the first step in Park-Ohio's transformation from a weak business riddled with red ink into an aggressive, efficient turnaround expert.
REORGANIZATION BRINGS RETURN TO PROFITABILITY
Although he was only 53 years old in 1992, Crawford had started out in business in 1962 with a steel container concern. Under the aegis of Crawford Group, Inc., he later diversified into roofing materials and, eventually, into consumer leisure goods. By the early 1990s, his Kay Home Products manufactured barbecue grills, patio tables, and lawn spreaders. It brought Park-Ohio $15.5 million in annual revenues, $405,600 in profits, and a measure of diversification to even out the parent company's cyclical core businesses.
Within six months of taking the helm at Park-Ohio, Crawford had begun a sweeping reorganization. He reduced the board of directors from ten to nine members, brought in a new generation of managers, and instituted $400,000 worth of cost savings each month. Although the company still suffered a loss in 1992, Crawford's first address to his fellow shareowners emphasized that Park-Ohio enjoyed a low level of debt and high capacity for profitable growth.
Crawford was also credited with bringing the nine-year strike at Ohio Crankshaft (by this time the longest walkout in UAW history) to its conclusion. Union officials and management agreed that the key to the settlement was Park-Ohio's dismissal of its hard-line, antiunion law firm. By the end of 1992, the parties had ratified a three-year agreement that featured company-funded health and retirement benefits as well as pay increases. About half of the original picketers had endured the record-breaking conflict.
ACQUISITIONS, NEW PRODUCTS
In 1993, Crawford set the firm on a path of growth through acquisition, targeting local companies, for the most part, that had untapped potential or that complemented Park-Ohio's core operations. Within that year alone, the firm made seven separate acquisitions, increasing annual sales to $149 million by the end of 1993 and, perhaps more important, returning the parent company to the black with a $6 million profit.
Flush with his success, Crawford set a sales target of $500 million for the end of the decade and then made a large stride toward that goal with the 1995 acquisition of RB&W Corp. (formerly Russell, Birdsall & Wood). This $60 million stock swap, Crawford's largest transaction to date, was the company's only acquisition for the year. Park-Ohio gained another $8 million toward its $500 million sales goal with that year's acquisition of northeast Ohio's Geneva Rubber Co. In 1996, the conglomerate began to fine-tune its family of companies through the sale of Bennett Industries, Inc., to a subsidiary of Australia's Southcorp Holdings Ltd. Crawford said that he planned to use the proceeds of the divestment for new acquisitions. In the fall of 1996, in fact, Park-Ohio made a $170 million cash bid for Sudbury Inc., a northeast Ohio firm with about $300 million in annual sales.
Although corporate transactions were clearly Crawford's primary expansion strategy, Park-Ohio also sought growth through product diversification. In the spring of 1996 the company created a new subsidiary, Park-Ohio Biomedical Group, to manufacture a patented prescription drug container. Created by a team of physicians, this vial featured a one-piece child safety cap that was purported to be easier for arthritic and elderly adults to remove.
- Park Drop Forge Co. begins manufacturing large vehicle engine parts.
- Ohio Crankshaft Co. opens for business, out of a Cleveland garage.
- Park Drop Forge makes part for Charles Lindbergh's Spirit of St. Louis.
- Ohio Crankshaft creates division dedicated to proprietary metalworking process.
- Park Drop Forge Co. and Ohio Crankshaft Co. merge.
- Growth strategy drives rapid mid-decade rise in revenue and income.
- Recession leads to net loss.
- Period of divestment begins with energy interests.
- Edward F. Crawford's vision for company is adopted.
- Holding company is formed.
- September 11 terrorist attacks on the United States worsen economic downturn, leading to heavy losses.
- Company posts record revenue and profits.
Tangible signs of Crawford's successful turnaround abounded. Park-Ohio's stock appreciated from about $2 in late 1990 to more than $17 in early 1996. Not only did the company stay in the black, but its net income quadrupled from $6 million in 1993 to $24 million in 1995. Sales more than doubled during the same period, from $147 million to $371 million. It appeared mid-decade that the company had finally found a reliable formula for profitable growth.
Entering its 90th year in 1997, the conglomerate with operations in ten states continued under the direction of former dissident shareholder Edward F. Crawford. Since mid-1992, the company had been transformed from a consistent money-loser and takeover target into a profitable turnaround specialist. The firm's diverse interests encompassed such industrial products as forged and machined engine parts, induction heating systems, and industrial rubber components as well as consumer goods including outdoor furniture and lawn care products. Park-Ohio Holdings Corporation was formed in 1998, with Park-Ohio Industries Inc. as its direct subsidiary.
TRANSITION TO A NEW CENTURY
The acquisition strategy set forth by Crawford drove up debt, so much so that Standard & Poor's considered downgrading Park-Ohio Industries' credit rating, according to a January 2000 Crain's Cleveland Business. Cash expenditures for eight companies during 1998 and 1999 totaled about $105 million. Over a year's period ending September 30, 1999, long-term debt climbed 65 percent, from $197.9 million to $327.7 million, Scott Suttell reported.
Crawford, nevertheless, had guided the company out of losses into 27 consecutive quarters of earnings, Crain's noted. The operation had grown to one of 4,000 employees, 34 manufacturing sites, and 55 logistic warehouses. Acquisitions had driven sales from $66 million in 1992 to a projected $850 million in 2000. None were on the docket for the year, though. "We've had an aggressive program to grow the company and make it profitable," Crawford told Crain's. "It's a good time for us to step back and consolidate and settle into strong businesses."
Of its two business segments, Integrated Logistics Solutions (ILS) was the stronger, producing 65 percent of revenues. A separation of ILS from Manufactured Products had been considered and tabled. Technology and dot-com stocks had captivated investors dreaming of fantastic returns. Even strong performers of other industries were being eschewed, making an initial public offering less advantageous for Park-Ohio.
During the first quarter of 2000, ILS sales grew by 16 percent: roughly a fifty-fifty split between new customers and increases from existing business, according to the Wall Street Journal. Setting the stage for continued rapid growth, Crawford had invested heavily in computer technology.
Ralph Winter elaborated for the Wall Street Journal: "The next revolution in manufacturing will be to electronically integrate plants—including plants owned by different companies—to achieve a continuous flow from raw materials to shipment of finished products, he said. 'Goods will be identified as work-in-process from start to finish, never as raw materials or finished inventory,' he said. The result will be a further reduction in working capital and much smoother and more efficient plant operation. Even repair parts will be delivered automatically to production machines at specified intervals so preventive maintenance can avoid downtime, he said."
The rising price of oil pressed Crawford to concentrate on costs during the later half of 2000. Trading at a ten-year high (the $35 per barrel range), escalating raw material and energy prices had begun to take their toll on manufacturers. A downturn in the economy and subsequent slowdown in business had companies preparing investors for falling profits, according to a September 2000 Crain's article.
Indeed, Park-Ohio's sales of $754.7 million fell below the level predicted at the year's onset. The September 11, 2001, terrorist attacks on the United States had an even greater negative impact on the American economy and Park-Ohio. Sales slipped to $636.4 million. Worse yet, the company recorded losses of $37.4 million for 2001.
To cut costs and stop the revenue and earnings slide, 11 manufacturing plants were closed or sold and 28 supply chain logistics facilities were consolidated, and core businesses were bolstered, Inside Business reported. Matthew Crawford, who took over as COO in May 2003, said: "Our guiding principle during the downturn was, 'How do we make sure that we emerge from this downturn as a better company?'"
During 2003, the company recorded a $19.4 million restructuring cost and sales of $624.3 million. Its three business segments—Integrated Logistics Solutions, Manufactured Products, and Aluminum Products—produced 61 percent, 25 percent, and 14 percent of sales, respectively.
More diversified than its sister divisions, Manufactured Products produced strong growth in 2003. Its induction melting system used by steel mills during the galvanization process was of particular importance. "We are the world leader and that business is headquartered right here in Warren, Ohio," Crawford told Inside Business in November 2004. The Asian market topped the list in terms of new steel mill construction. "We are constantly out of Warren shipping our technology into China, into Korea, and it's an exciting business." Yet, while the global market afforded opportunity, it also brought increased competition.
The purchase of Amcast Industrial's Automotive Components Group earlier in the year added new products, customers, and employees to the General Aluminum business. Increased capacity would help Park-Ohio meet the rising demand of vehicle manufacturers seeking to trim weight to gain fuel efficiency by switching from steel or iron to aluminum parts. Wall Street applauded the move.
Park-Ohio reported record net income in 2005 of $30.8 million. Net sales climbed 15 percent over 2004, to $932.9 million from $808.7 million. The Integrated Logistics Solutions segment provided 57 percent of net sales; Manufactured Products, 26 percent; and Aluminum Products, 17 percent.
In September 2006, the board of directors authorized a one million share buyback program, replacing a share repurchase plan initiated in 1998. The next month, the company reported the acquisition of all outstanding capital stock of NABS, Inc., for $21 million cash. The New York-based supply chain manager held 14 international operations and five domestic locations. As 2006 concluded Park-Ohio continued to report growth.
April Dougal Gasbarre
Updated, Kathleen Peippo
The Fairchild Corporation; GKN Sinter Metals, Inc.; Wyman-Gordon Company.
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