UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
 
     
(Mark One)    
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
  For the fiscal year ended December 31, 20092010  
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 number 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.)
   
 
   
6065 Parkland Boulevard
  
Cleveland, Ohio 44124
 
(Address of principal executive offices)
 (Zip Code)
 
Registrant’s telephone number, including area code:(440) 947-2000
Securities registered pursuant to Section 12(b) of the Act:
 
   
Title of each class
 
Name of each exchange on which registered
 
Common Stock, Par Value $1.00 Per Share The NASDAQ Stock Market LLC
 
Securities registered pursuant to Section 12(g) of the Act:
None
Park-Ohio Holdings Corp. is a successor issuer to Park-Ohio Industries, Inc.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
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 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 þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation 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 thisForm 10-K or any amendment to thisForm 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
 
       
Large accelerated filer o
 Accelerated filer oþ Non-accelerated filer þo
(Do not check if a smaller reporting company)		 Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange ActRule 12b-2).  Yes o     No þ
 
Aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant: Approximately $26,460,200,$117,004,900, based on the closing price of $3.42$14.39 per share of the registrant’s Common Stock on June 30, 2009.2010.
 
Number of shares outstanding of the registrant’s Common Stock, par value $1.00 per share, as of February 26, 2010: 11,799,873.28, 2011: 11,837,678.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders to be held on May 27, 201026, 2011 are incorporated by reference into Part III of thisForm 10-K.
 

 

 
PARK-OHIO HOLDINGS CORP.


FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20092010

TABLE OF CONTENTS
 
              
Item No.
Item No.
   Page No.
Item No.
   Page No.
PART I
PART I
PART I
1.
 Business 1 
1.
 Business 1 
1A.
 Risk Factors 7 
1A.
 Risk Factors 7 
1B.
 Unresolved Staff Comments 13 
1B.
 Unresolved Staff Comments 14 
2.
 Properties 13 
2.
 Properties 14 
3.
 Legal Proceedings 14 
3.
 Legal Proceedings 15 
4.
 Reserved 15 
4.
 [Removed and Reserved] 16 
4A.
 Executive Officers of the Registrant 16 
4A.
 Executive Officers of the Registrant 16 
PART II
PART II
PART II
5.
 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 
5.
 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 
6.
 Selected Financial Data 18 
6.
 Selected Financial Data 18 
7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 
7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 
7A.
 Quantitative and Qualitative Disclosures about Market Risk 34 
7A.
 Quantitative and Qualitative Disclosures about Market Risk 33 
8.
 Financial Statements and Supplementary Data 34 
8.
 Financial Statements and Supplementary Data 33 
9.
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 64 
9.
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 63 
9A.
 Controls and Procedures 64 
9A.
 Controls and Procedures 63 
9B.
 Other Information 65 
9B.
 Other Information 64 
PART III
PART III
PART III
10.
 Directors, Executive Officers and Corporate Governance 66 
10.
 Directors, Executive Officers and Corporate Governance 65 
11.
 Executive Compensation 66 
11.
 Executive Compensation 65 
12.
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 66 
12.
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 65 
13.
 Certain Relationships and Related Transactions, and Director Independence 67 
13.
 Certain Relationships and Related Transactions, and Director Independence 66 
14.
 Principal Accountant Fees and Services 67 
14.
 Principal Accountant Fees and Services 66 
PART IV
PART IV
PART IV
15.
 Exhibits and Financial Statement Schedules 68 
15.
 Exhibits and Financial Statement Schedules 67 
 Signatures
SignaturesSignatures 68 
EX-21.1 EX-21.1 EX-21.1
EX-23.1 EX-23.1 EX-23.1
EX-24.1
EX-31.1 EX-31.1 EX-31.1
EX-31.2 EX-31.2 EX-31.2
EX-32.1 EX-32.1 EX-32.1

 
Part I
 
Item 1.Business
 
Overview
 
Park-Ohio Holdings Corp. (“Holdings”) was incorporated as an Ohio corporation in 1998. Holdings, primarily through the subsidiaries owned by its direct subsidiary, Park-Ohio Industries, Inc. (“Park-Ohio”), is an industrial supply chain logistics and diversified manufacturing business operating in three segments: Supply Technologies, Aluminum Products and Manufactured Products.
 
References herein to “we” or “the Company” include, where applicable, Holdings, Park-Ohio and Holdings’ other direct and indirect subsidiaries.
 
Supply Technologies provides our customers with Total Supply Managementtm services for a broad range of high-volume, specialty production components. Our Aluminum Products business manufactures cast and machined aluminum components, and our Manufactured Products business is a major manufacturer of highly-engineered industrial products. Our businesses serve large, industrial original equipment manufacturers (“OEMs”) in a variety of industrial sectors, including the automotive and vehicle parts, heavy-duty truck, industrial equipment, steel, rail, electrical distribution and controls, aerospace and defense, oil and gas, power sports/fitness equipment, HVAC, electrical components, appliance and semiconductor equipment industries. As of December 31, 2009,2010 we employed approximately 2,9503,200 persons.
 
The following table summarizes the key attributes of each of our business segments:
 
       
  Supply Technologies Aluminum Products Manufactured Products
 
NET SALES FOR 20092010 $328.8402.1 million
(47%49% of total)		 $111.4143.7 million
(16%18% of total)		 $260.8267.7 million
(37%33% of total)
SELECTED PRODUCTS Sourcing, planning and
procurement of over
175,000 190,000 production
components, including:
•   Fasteners
•   Pins
•   Valves
•   Hoses
•   Wire harnesses
•   Clamps and fittings
•   Rubber and plastic components		 •   Control arms
•   Front engine covers
•   Cooling modules
•   Knuckles
•   Pump housings
•   Clutch retainers/pistons
•   Master cylinders
•   Pinion housings
•   Oil pans
•   Flywheel spacers		 •   Induction heating and melting systems
•   Pipe threading systems
•   Industrial oven systems
•   Injection molded rubber components
•   Forging presses
SELECTED INDUSTRIES SERVED •   Heavy-duty truck
•   Automotive and vehicle parts
•   Electrical distribution and controls
•   Power sports/fitness equipment
•   HVAC
•   Aerospace and defense
•   Electrical components
•   Appliance
•   Semiconductor equipment
•   Recreational Vehiclesvehicles
•   Lawn and Garden Equipmentgarden equipment		 •   Automotive
•   Agricultural equipment
•   Construction equipment
•   Heavy-duty truck
•   Marine equipment		 •   Ferrous and non-ferrous metals
•   Coatings
•   Forging
•   Foundry
•   Heavy-duty truck
•   Construction equipment
•   Silicon
•   Automotive
•   Oil and gas
•   Rail and locomotive manufacturing
•   Aerospace and defense


1

Supply Technologies
 
Our Supply Technologies business provides our customers with Total Supply Managementtm, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Managementtm includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. We operate 4049 logistics service centers in the United States, Mexico, Canada, Puerto Rico, Scotland, Ireland, Hungary, China, Taiwan, Singapore and India, as well as production sourcing and support centers in Asia. Through our supply chain management programs, we supply more than 175,000190,000 globally-sourced production components, many of which are specialized and customized to meet individual customers’ needs.
 
Products and Services.  Total Supply Managementtm provides our customers with an expert partner in strategic planning, global sourcing, technical services, parts and materials, logistics, distribution and inventory management of production components. Some production components are characterized by low per unit supplier prices relative to the indirect costs of supplier management, quality assurance, inventory management and delivery to the production line. In addition, Supply Technologies delivers an increasingly broad range of higher-cost production components including valves, electro-mechanical hardware, fittings, steering components and many others. Applications engineering specialists and the direct sales force work closely with the engineering staff of OEM customers to recommend the appropriate production components for a new product or to suggest alternative components that reduce overall production costs, streamline assembly or enhance the appearance or performance of the end product. As an additional service, Supply Technologies recently began providing spare parts and aftermarket products to end users of its customers’ products.
 
Total Supply Managementtm services are typically provided to customers pursuant to sole-source arrangements. We believe our services distinguish us from traditional buy/sell distributors, as well as manufacturers who supply products directly to customers, because we outsource our customers’ high-volume production components supply chain management, providing processes customized to each customer’s needs and replacing numerous current suppliers with a sole-source relationship. Our highly-developed, customized, information systems provide transparency and flexibility through the complete supply chain. This enables our customers to: (1) significantly reduce the direct and indirect cost of production component processes by outsourcing internal purchasing, quality assurance and inventory fulfillment responsibilities; (2) reduce the amount of working capital invested in inventory and floor space; (3) reduce component costs through purchasing efficiencies, including bulk buying and supplier consolidation; and (4) receive technical expertise in production component selection and design and engineering. Our sole-source arrangements foster long-term, entrenched supply relationships with our customers and, as a result, the average tenure of service for our top 50 Supply Technologies clients exceeds six years. Supply Technologies’ remaining sales are generated through the wholesale supply of industrial products to other manufacturers and distributors pursuant to master or authorized distributor relationships.
 
The Supply Technologies segment also engineers and manufactures precision cold formed and cold extruded products, including locknuts, SPAC® nuts and wheel hardware, which are principally used in applications where controlled tightening is required due to high vibration. Supply Technologies produces both standard items and specialty products to customer specifications, which are used in large volumes by customers in the automotive, heavy-duty truck and rail industries.
 
Markets and Customers.  For the year ended December 31, 2009,2010, approximately 85%83% of Supply Technologies’ net sales were to domestic customers. Remaining sales were primarily to manufacturing facilities of large, multinational customers located in Canada, Mexico, Europe and Asia. Total Supply Managementtm services and production components are used extensively in a variety of industries, and demand is generally related to the state of the economy and to the overall level of manufacturing activity.


2

Supply Technologies markets and sells its services to over 5,4006,100 customers domestically and internationally. The principal markets served by Supply Technologies are the heavy-duty truck, automotive


2

and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, recreational vehicles, HVAC, agricultural and construction equipment, semiconductor equipment, aerospace and defense, and appliance industries. The five largest customers, within which Supply Technologies sells through sole-source contracts to multiple operating divisions or locations, accounted for approximately 24%26% and 35%24% of the sales of Supply Technologies for 2010 and 2009, respectively. The loss of any two of its top five customers could have a material adverse effect on the results of operations and 2008, respectively, with Navistar, Inc. (“Navistar”) representing 1% and 17%, respectively,financial conditions of segment sales. this segment.
The Company made a decision to exit its relationship with Navistar effective December 31, 2008, which, along with the general economic downturn, resulted in either the closure, downsizing or consolidation of eight facilities in the Company’s distribution network. The Company also evaluated its long-lived assets in accordance with accounting guidance, to determine whether the carrying amount of its long-livedsuch assets was recoverable in accordance with accounting guidance by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company recorded restructuring and asset impairment charges of $13.4$4.0 million in 2008, related to the Supply Technologies segment. Duringduring the fourth quarter of 2009, the Company recorded restructuring and asset impairment charges of $4.0 million.2009. See Note O to the consolidated financial statements included elsewhere herein.
The loss of any two of its top five customers could have a material adverse effect on the results of operations and financial condition of this segment.
 
Competition.  A limited number of companies compete with Supply Technologies to provide supply management services for production parts and materials. Supply Technologies competes in North America, Mexico, Europe and Asia, primarily on the basis of its Total Supply Managementtm services, including engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support, and its geographic reach, extensive product selection, price and reputation for high service levels. Numerous North American and foreign companies compete with Supply Technologies in manufacturing cold-formed and cold-extruded products.
 
Recent Developments.  During the third quarter of 2010, Supply Technologies completed the acquisition of certain assets and assumed specific liabilities relating to the Assembly Components Systems (“ACS”) business of Lawson Products, Inc. for $16.0 million in cash and a $2.2 million subordinated promissory note payable in equal quarterly installments over three years. ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America. The Company recorded a gain of $2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price. See Note C to the consolidated financial statements included elsewhere herein.
Aluminum Products
 
We believe that we are one of the few aluminum component suppliers that has the capability to provide a wide range of high-volume, high-quality products utilizing a broad range of processes, including gravity and low pressure permanent mold, die-cast and lost-foam, as well as emerging alternative casting technologies. Our ability to offer our customers this comprehensive range of capabilities at a low cost provides us with a competitive advantage. We produce our aluminum components at six manufacturing facilities in Ohio, Indiana and Indiana.Georgia.
 
Products and Services.  Our Aluminum Products business casts and machines aluminum engine, transmission, brake, suspension and other components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment OEMs, primarily on a sole-source basis. Aluminum Products’ principal products include front engine covers, cooling modules, control arms, knuckles, pump housings, clutch retainers and pistons, master cylinders, pinion housings, oil pans and flywheel spacers. In addition, we also provide value-added services such as design engineering, machining 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 castings has increased in recent years as they have sought lighter alternatives to steel and iron, primarily to increase fuel efficiency without compromising structural integrity. We believe that this replacement trend will continue as end-users and the regulatory environment require greater fuel efficiency.


3

Markets and Customers.  The five largest customers, within which Aluminum Products sells to multiple operating divisions through sole-source contracts, accounted for approximately 57% of Aluminum Products sales for 20092010 and 64% for 2008.2009. The loss of any one of these customers could have a material adverse effect on the results of operations and financial condition of this segment.
During 2008, due to volume declines and volatility in the automotive markets, the Company evaluated its long-lived assets in accordance with accounting guidance and based on the results of its tests recorded asset impairment charges of $13.2 million related to the Aluminum Products segment. See Note O to the consolidated financial statements included elsewhere herein.
 
Competition.  Aluminum Products competes principally on the basis of its ability to: (1) engineer and manufacture high-quality, cost-effective, machined castings utilizing multiple casting technologies in large volumes; (2) provide timely delivery; and (3) retain the manufacturing flexibility necessary to quickly adjust to the needs of its customers. There are few domestic companies with aluminum casting capabilities able to meet the customers’ stringent quality and service standards and lean manufacturing techniques. As one of these suppliers, Aluminum Products is well-positioned to benefit as customers continue to consolidate their supplier base.
 
Recent Developments.  On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which Rome agreed to transfer to the Company substantially all of its assets in exchange for approximately $7.5 million of notes receivable due from Rome held by the Company.
Manufactured Products
 
Our Manufactured Products segment operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products, including induction heating and melting systems, pipe threading systems, rubber products and forged and machined products. We manufacture these products in eleventwelve domestic facilities and ten international facilities in Canada, Mexico, the United Kingdom, Belgium, Germany, China and Japan.
 
Products and Services.  Our induction heating and melting business utilizes proprietary technology and specializes in the engineering, construction, service and repair of induction heating and melting systems, primarily for the ferrous and non-ferrous metals, silicon, coatings, forging, foundry, automotive and construction equipment industries. Our induction heating and melting systems are engineered and built to customer specifications and are used primarily for melting, heating, and surface hardening of metals and curing of coatings. Approximately 45%51% of our induction heating and melting systems’ revenues are derived from the sale of replacement parts and provision of field service, primarily for the installed base of our own products. Our pipe threading business serves the oil and gas industry. We also engineer and install mechanical forging presses, and sell spare parts and provide field service for the large existing base of mechanical forging presses and hammers in North America. We machine, induction harden and surface finish crankshafts and camshafts, used primarily in locomotives. We forge aerospace and defense structural components such as landing gears and struts, as well as rail products such as railcar center plates and draft lugs. We manufacture injection mold rubber and silicone products, including wire harnesses, shock and vibration mounts, spark plug boots and nipples and general sealing gaskets.
 
Markets and Customers.  We sell induction heating and other capital equipment to component manufacturers and OEMs in the ferrous and non-ferrous metals, silicon, coatings, forging, foundry, automotive, truck, construction equipment and oil and gas industries. We sell forged and machined products to locomotive manufacturers, machining companies andsub-assemblers who finish aerospace and defense products for OEMs, and railcar builders and maintenance providers. We sell rubber products primarily tosub-assemblers in the automotive, food processing and consumer appliance industries.
 
During 2008, the Company evaluated its long-lived assets in accordance with accounting guidance and, based on the results of its tests, recorded an asset impairment charge of $4.3 million related to the Manufactured Products segment. During the fourth quarter of 2009, the Company evaluated its long-lived assets at one of its forging units in accordance with accounting guidance, to determine whether the carrying amount of its long-livedsuch assets was recoverable in accordance with accounting guidance by comparing the carrying amount to the sum of undiscounted cash flows expected to result from the use and eventual disposition of the assets and recorded restructuring and asset impairment charges of $3.0 million in 2009. See Note O to the consolidated financial statements.statements included elsewhere herein.


4

Competition.  We compete with smallsmall- to medium-sized domestic and international equipment manufacturers on the basis of service capability, ability to meet customer specifications, delivery performance and engineering expertise. We compete domestically and internationally with smallsmall- to medium- sized forging and machining businesses on the basis of product quality and precision. We compete with other domestic small- to medium-sized manufacturers of injection molded rubber and silicone products primarily on the basis of price and product quality.
Recent Developments.  On December 31, 2010, the Company through its subsidiary, Ajax Tocco Magnethermic, acquired the assets and the related induction heating intellectual property of ABP Induction’s U.S. heating business operating as Pillar Induction (“Pillar”) for $9.9 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
 
Sales and Marketing
 
Supply Technologies markets its products and services in the United States, Mexico, Canada, Western and Eastern Europe and East and South Asia 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. Aluminum Products primarily markets and sells its products in North America through internal sales personnel and independent sales representatives. Manufactured Products primarily markets and sells its products in North America through both internal sales personnel and independent sales representatives. Induction heating and pipe threading equipment is also marketed and sold in Europe, Asia, Latin America and Africa 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.
 
Raw Materials and Suppliers
 
Supply Technologies purchases substantially all of its production components from third-party suppliers. Supply Technologies has multiple sources of supply for its products.components. An increasing portion of Supply Technologies’ deliveredproduction components are purchased from suppliers in foreign countries, primarily Canada, Taiwan, China, South Korea, Singapore, India and multiple European countries. We are dependent upon the ability of such suppliers to meet stringent quality and performance standards and to conform to delivery schedules. 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. Most raw materials required by Aluminum Products and Manufactured Products are commodity products available from several domestic suppliers. Management believes that raw materials and component parts other than certain specialty products are available from alternative sources.
 
Backlog
 
Management believes that backlog is not a meaningful measure for Supply Technologies, as a majority of Supply Technologies’ customers requirejust-in-time delivery of production components. Management believes that Aluminum 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. The backlog of Manufactured Products’ orders believed to be firm at the endas of 2009December 31, 2010 was $178.8$174.4 million compared with $196.7$178.8 million at the endas of 2008.December 31, 2009. Approximately $6.1$20.0 million of the backlog at the endas of 2009December 31, 2010 is scheduled to be shipped after 2010.2011. The remainder is scheduled to be shipped in 2010.2011.
 
Environmental, Health and Safety Regulations
 
We are subject to numerous federal, state and local laws and regulations designed to protect public health and the environment, particularly with regard to discharges and emissions, as well as handling,


5

storage, treatment and disposal, of various substances and wastes. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil and criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures. 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


5

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 for costs of response at sites where they are located, whether or not the site is owned or operated by such person.
 
From time to time, we have incurred, and are presently incurring, costs and obligations for correcting environmental noncompliance and remediating environmental conditions at certain of our properties. In general, we have not experienced difficulty in complying with environmental laws in the past, and compliance with environmental laws has not had a material adverse effect on our financial condition, liquidity and results of operations. Our capital expenditures on environmental control facilities were not material during the past five years and such expenditures are not expected to be material to us in the foreseeable future.
 
We are currently, and may in the future, be required to incur costs relating to the investigation or remediation of property, including property where we have disposed of our waste, and for addressing environmental conditions. For instance, we have been identified as a potentially responsible party at 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. We are participating in the cost of certainclean-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, our share of such costs has not been material and, based on available information, we do not expect our exposure at any of these locations to have a material adverse effect on our results of operations, liquidity or financial condition.
 
Information as to Industry Segment Reporting and Geographic Areas
 
The information contained under the heading “Notein note B — Industry Segments” of the notes to the consolidated financial statements included elsewhere herein relating to (1) net sales, income before income taxes, identifiable assets and other information by industry segment and (2) net sales and assets by geographic region for the years ended December 31, 2010, 2009 2008 and 20072008 is incorporated herein by reference.
 
Recent Developments
 
The information contained under the headings “Notein Note C, — Acquisitions”, “NoteNote D — Goodwill and Other Intangible Assets”, “NoteNote O — Restructuring and Unusual Charges” and “Note P — Subsequent Events” of the notes to the consolidated financial statements included elsewhere herein is incorporated herein by reference.
 
Available Information
 
We file annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K and other information, including amendments to these reports, with the Securities and Exchange Commission (“SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, by calling the SEC at1-800-SEC-0330, or by accessing the SEC’s website athttp://www.sec.gov. In addition, as soon as reasonably practicable after such materials are filed with or furnished to the SEC, we make such materials available on our website athttp://www.pkoh.com. The information on our website is not a part of this annual report onForm 10-K.


6

Item 1A. Risk Factors
 
The following are certain risk factors that could affect our business, results of operations and financial condition. These risks are not the only ones we face. If any of the following risks occur, our business, results of operations or financial condition could be adversely affected.
 
Adverse credit market conditions may significantly affect our access to capital, cost of capital and ability to meet liquidity needs.
 
Disruptions, uncertainty or volatility in the credit markets may adversely impact our ability to access credit already arranged and the availability and cost of credit to us in the future. These market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow and maintain our business. Accordingly, we may be forced to delay raising capital or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility. Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures and reducing or eliminating future share repurchases or other discretionary uses of cash. Overall, our results of operations, financial condition and cash flows could be materially adversely affected by disruptions in the credit markets.
 
The recent global financial crisis may have significant effects on our customers and suppliers that would result in material adverse effects on our business and operating results.
 
The recent global financial crisis, which included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and fluctuations in equity and currency values worldwide, and concerns that the worldwide economy may enter into a prolonged recessionary period, may materially adversely affect our customers’ access to capital or willingness to spend capital on our products or their ability to pay for products that they will order or have already ordered from us. In addition, the recent global financial crisis may materially adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels and product quality, which could cause them to raise prices or lower production levels.
 
Also, availability under our revolving credit facility may be adversely impacted by credit quality and performance of our customer accounts receivable. The availability under the revolving credit facility is based on the amount of receivables that meet the eligibility criteria of the revolving credit facility. As receivable losses increase or credit quality deteriorates, the amount of eligible receivables declines and, in turn, lowers the availability under the facility.
These potential effects of the recent global financial crisis are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations and financial condition.
 
The recent global financial crisis may have significant effects on our customers that would result in our inability to borrow or to meet our debt service coverage ratio in our revolving credit facilityfacility.
 
As of December 31, 2009,2010, we were in compliance with our debt service coverage ratio covenant and other covenants contained in our revolving credit facility. While we expect to remain in compliance throughout 2010,2011, declines in demand in the automotive industry and in sales volumes could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by the declines in demanddecline in the automotive industry or the


7

economy in general, they may not be able to pay their accounts payable to us on a timely basis or at all, which would make the accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow.


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The industries in which we operate are cyclical and are affected by the economy in general.
 
We sell products to customers in industries that experience cyclicality (expectancy of recurring periods of economic growth and slowdown) in demand for products and may experience substantial increases and decreases in business volume throughout economic cycles. Industries we serve, including the automotive and vehicle parts, heavy-duty truck, industrial equipment, steel, rail, electrical distribution and controls, aerospace and defense, power sports/fitness equipment, HVAC, electrical components, appliance and semiconductor equipment industries, are affected by consumer spending, general economic conditions and the impact of international trade. A downturn in any of the industries we serve particularly the existing downturn in the domestic automotive and heavy-duty truck industry, would have, and continue tocould have a material adverse effect on our financial condition, liquidity and results of operations.
 
Because a significant portion of our sales is to the automotive and heavy-duty truck industries, a decrease in the demand of these industries or the loss of any of our major customers in these industries could adversely affect our financial health.
 
Demand for certain of our products is affected by, among other things, the relative strength or weakness of the automotive and heavy-duty truck industries. The domestic automotive and heavy-duty truck industries are highly cyclical and may be adversely affected by international competition. In addition, the automotive and heavy-duty truck industries are significantly unionized and subject to work slowdowns and stoppages resulting from labor disputes. We derived 19%24% and 4%5% of our net sales during the year ended December 31, 20092010 from the automobile and heavy-duty truck industries, respectively. Dramatically lower global automotive sales have resulted in lower demand for our products. Further economic decline that results in a reduction in automotive sales and production by our customers willcould have a material adverse effect on our business, results of operations and financial condition.
 
The loss of a portion of business to any of our major automotive or heavy-duty truck customers could have a material adverse effect on our financial condition, cash flow and results of operations. We cannot assure you that we will maintain or improve our relationships in these industries or that we will continue to supply these customers at current levels.
 
Our Supply Technologies customers are generally not contractually obligated to purchase products and services from us.
 
Most of the products and services are provided to our Supply Technologies customers under purchase orders as opposed to long-term contracts. When we do enter into long-term contracts with our customers, many of them only establish pricing terms and do not obligate our Supply Technologies customers to buy required minimum amounts from us or to buy from us exclusively. Accordingly, many of our Supply Technologies customers may decrease the amount of products and services that they purchase from us or even stop purchasing from us altogether, either of which could have a material adverse effect on our net sales and profitability.
 
We are dependent on key customers.
 
We rely on several key customers. For the year ended December 31, 2009,2010, our ten largest customers accounted for approximately 23%27% of our net sales. Many of our customers place orders for products on an as-needed basis and operate in cyclical industries and, as a result, their order levels have varied from period to period in the past and may vary significantly in the future. Due to competitive issues, we have lost key customers in the past and may again in the future. Customer orders are dependent upon their markets and may be subject to delays or cancellations. As a result of dependence on our key customers, we could


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experience a material adverse effect on our business and results of operations if any of the following were to occur:
 
 • the loss of any other key customer, in whole or in part;
 
 • the insolvency or bankruptcy of any key customer;


8

 • a declining market in which customers reduce orders or demand reduced prices; or
 
 • a strike or work stoppage at a key customer facility, which could affect both their suppliers and customers.
 
If any of our key customers become insolvent or file for bankruptcy, our ability to recover accounts receivable from that customer would be adversely affected and any payments we received in the preference period prior to a bankruptcy filing may be potentially recoverable, which could adversely impact our results of operations.
 
During 2009, Chrysler’s U.S. operations, General Motor’s U.S. operations and Metaldyne Corporation filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Company has collected substantially all amounts that were due from Chrysler and General Motors as of the dates of the respective bankruptcy filings and as such there was no charge to earnings as a result of these bankruptcies. The account receivable from Metaldyne at the time of the bankruptcy was $4.2 million. The Company recorded a $4.2 million charge to reserve for the collection of the account receivable when Metaldyne announced it had completed the sale of substantially all of its assets to MD Investors Corporation, effectively making no payments to theits unsecured creditors, including Park-Ohio.us.
 
We operate in highly competitive industries.
 
The markets in which all three of our segments sell their products are highly competitive. Some of our competitors are large companies that have greater financial resources than we have. We believe that the principal competitive factors for our Supply Technologies segment are an approach reflecting long-term business partnership and reliability, sourced product quality and conformity to customer specifications, timeliness of delivery, price and design and engineering capabilities. We believe that the principal competitive factors for our Aluminum Products and Manufactured Products segments are product quality and conformity to customer specifications, design and engineering capabilities, product development, timeliness of delivery and price. The rapidly evolving nature of the markets in which we compete may attract new entrants as they perceive opportunities, and our competitors may foresee the course of market development more accurately than we do. In addition, our competitors may develop products that are superior to our products or may adapt more quickly than we do to new technologies or evolving customer requirements.
 
We expect competitive pressures in our markets to remain strong. These pressures arise from existing competitors, other companies that may enter our existing or future markets and, in some cases, our customers, which may decide to internally produce items we sell. We cannot assure you that we will be able to compete successfully with our competitors. Failure to compete successfully could have a material adverse effect on our financial condition, liquidity and results of operations.
 
The loss of key executives could adversely impact us.
 
Our success depends upon the efforts, abilities and expertise of our executive officers and other senior managers, including Edward Crawford, our Chairman and Chief Executive Officer, and Matthew Crawford, our President and Chief Operating Officer, as well as the president of each of our operating units. An event of default occurs under our revolving credit facility if Messrs. E. Crawford and M. Crawford or certain of their related parties own in the aggregate less than 15% of our outstanding common stock, orand if they own less than 15% ofat such stock, then if eithertime neither Mr. E. Crawford ornor Mr. M. Crawford ceases to holdholds the office of chairman, chief executive officer or president. The loss of the services of Messrs. E. Crawford and


9

M. Crawford, senior and executive officers,and/or other key individuals could have a material adverse effect on our financial condition, liquidity and results of operations.
 
We may encounter difficulty in expanding our business through targeted acquisitions.
 
We have pursued, and may continue to pursue, targeted acquisition opportunities that we believe would complement our business. We cannot assure you that we will be successful in consummating any acquisitions.


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Any targeted acquisitions will be accompanied by the risks commonly encountered in acquisitions of businesses. We may not successfully overcome these risks or any other problems encountered in connection with any of our acquisitions, including the possible inability to integrate an acquired business’ operations, IT technologies, services and products into our business, diversion of management’s attention, the assumption of unknown liabilities, increases in our indebtedness, the failure to achieve the strategic objectives of those acquisitions and other unanticipated problems, some or all of which could materially and adversely affect us. The process of integrating operations could cause an interruption of, or loss of momentum in, our activities. Any delays or difficulties encountered in connection with any acquisition and the integration of our operations could have a material adverse effect on our business, results of operations, financial condition or prospects of our business.
 
Our Supply Technologies business depends upon third parties for substantially all of our component parts.
 
Our Supply Technologies business purchases substantially all of its component parts from third-party suppliers and manufacturers. Our businessAs such, it is subject to the risk of price fluctuations and periodic delays in the delivery of component parts. Failure by suppliers to continue to supply us with these component parts on commercially reasonable terms, or at all, wouldcould have a material adverse effect on us. We depend upon the ability of these suppliers, among other things, to meet stringent performance and quality specifications and to conform to delivery schedules. Failure by third-party suppliers to comply with these and other requirements could have a material adverse effect on our financial condition, liquidity and results of operations.
 
The raw materials used in our production processes and by our suppliers of component parts are subject to price and supply fluctuations that could increase our costs of production and adversely affect our results of operations.
 
Our supply of raw materials for our Aluminum Products and Manufactured Products businesses could be interrupted for a variety of reasons, including availability and pricing. Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect our results of operations and profit margins. While we generally attempt to pass along increased raw materials prices to our customers in the form of price increases, there may be a time delay between the increased raw materials prices and our ability to increase the price of our products, or we may be unable to increase the prices of our products due to pricing pressure or other factors.
 
Our suppliers of component parts, particularly in our Supply Technologies business, may significantly and quickly increase their prices in response to increases in costs of the raw materials, such as steel, that they use to manufacture our component parts. We may not be able to increase our prices commensurate with our increased costs. Consequently, our results of operations and financial condition may be materially adversely affected.
 
The energy costs involved in our production processes and transportation are subject to fluctuations that are beyond our control and could significantly increase our costs of production.
 
Our manufacturing process and the transportation of raw materials, components and finished goods are energy intensive. Our manufacturing processes are dependent on adequate supplies of electricity and


10

natural gas. A substantial increase in the cost of transportation fuel, natural gas or electricity could have a material adverse effect on our margins. We may experience higher than anticipated gas costs in the future, which could adversely affect our results of operations. In addition, a disruption or curtailment in supply could have a material adverse effect on our production and sales levels.


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Potential product liability risks exist from the products that we sell.
 
Our businesses expose us to potential product liability risks that are inherent in the design, manufacture and sale of our products and products of third-party vendors that we use or resell. While we currently maintain what we believe to be suitable and adequate product liability insurance, we cannot assure you that we will be able to maintain our insurance on acceptable terms or that our insurance will provide adequate protection against potential liabilities. In the event of a claim against us, a lack of sufficient insurance coverage could have a material adverse effect on our financial condition, liquidity and results of operations. Moreover, even if we maintain adequate insurance, any successful claim could have a material adverse effect on our financial condition, liquidity and results of operations.
 
Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations.
 
As of December 31, 2009,2010, we were a party to seven collective bargaining agreements with various labor unions that covered approximately 350385 full-time employees. Our inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized, we could experience a significant disruption of our operations and higher ongoing labor costs, which could have a material adverse effect on our business, financial condition and results of operations.
 
We operate and source internationally, which exposes us to the risks of doing business abroad.
 
Our operations are subject to the risks of doing business abroad, including the following:
 
 • fluctuations in currency exchange rates;
 
 • limitations on ownership and on repatriation of earnings;
 
 • transportation delays and interruptions;
 
 • political, social and economic instability and disruptions;
 
 • government embargoes or foreign trade restrictions;
 
 • the imposition of duties and tariffs and other trade barriers;
 
 • import and export controls;
 
 • labor unrest and current and changing regulatory environments;
 
 • the potential for nationalization of enterprises;
 
 • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations including the U.S. Foreign Corrupt Practices Act (“FCPA”):;
 
 • difficulties in staffing and managing multinational operations;
 
 • limitations on our ability to enforce legal rights and remedies; and
 
 • potentially adverse tax consequences.


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In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments tonon-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.


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We cannot assure you that our internal controls and procedures always will protect us from the reckless or criminal acts committed by our employees or agents. If we are found to be liable for FCPA violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.
 
Any of the events enumerated above could have an adverse effect on our operations in the future by reducing the demand for our products and services, decreasing the prices at which we can sell our products or otherwise having an adverse effect on our business, financial condition or results of operations. We cannot assure you that we will continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. We also cannot assure you that these laws will not be modified.
 
Unexpected delays in the shipment of large, long-lead industrial equipment could adversely affect our results of operations in the period in which shipment was anticipated.
 
Long-lead industrial equipment contracts are a significant and growing part of our business. We primarily use the percentage of completion method to account for these contracts. Nevertheless, under this method, a large proportion of revenues and earnings on such contracts are recognized close to shipment of the equipment. Unanticipated shipment delays on large contracts could postpone recognition of revenue and earnings into future periods. Accordingly, if shipment was anticipated in the fourth quarter of a year, unanticipated shipment delays could adversely affect results of operations in that year.
 
We are subject to significant environmental, health and safety laws and regulations and related compliance expenditures and liabilities.
 
Our businesses are subject to many foreign, federal, state and local environmental, health and safety laws and regulations, particularly with respect to the use, handling, treatment, storage, discharge and disposal of substances and hazardous wastes used or generated in our manufacturing processes. Compliance with these laws and regulations is a significant factor in our business. We have incurred and expect to continue to incur significant expenditures to comply with applicable environmental laws and regulations. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial actions.
 
We are currently, and may in the future be, required to incur costs relating to the investigation or remediation of property, including property where we have disposed of our waste, and for addressing environmental conditions. Some environmental laws and regulations impose liability and responsibility on present and former owners, operators or users of facilities and sites for contamination at such facilities and sites without regard to causation or knowledge of contamination. In addition, we occasionally evaluate various alternatives with respect to our facilities, including possible dispositions or closures. Investigations undertaken in connection with these activities may lead to discoveries of contamination that must be remediated, and closures of facilities may trigger compliance requirements that are not applicable to operating facilities. Consequently, we cannot assure you that existing or future circumstances, the development of new facts or the failure of third parties to address contamination at current or former facilities or properties will not require significant expenditures by us.


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We expect to continue to be subject to increasingly stringent environmental and health and safety laws and regulations. It is difficult to predict the future interpretation and development of environmental and health and safety laws and regulations or their impact on our future earnings and operations. We anticipate that compliance will continue to require increased capital expenditures and operating costs. Any increase in these costs, or unanticipated liabilities arising for example out of discovery of previously unknown conditions or more aggressive enforcement actions, could adversely affect our results of


12

operations, and there is no assurance that they will not exceed our reserves or have a material adverse effect on our financial condition.
 
If our information systems fail, our business will be materially affected.
 
We believe that our information systems are an integral part of the Supply Technologies segment and, to a lesser extent, the Aluminum Products and Manufactured Products segments. We depend on our information systems to process orders, manage inventory and accounts receivable collections, purchase products, maintain cost-effective operations, route and re-route orders and provide superior service to our customers. We cannot assure you that a disruption in the operation of our information systems used by Supply Technologies, including the failure of the supply chain management software to function properly, or those used by Aluminum Products and Manufactured Products will not occur. Any such disruption could have a material adverse effect on our financial condition, liquidity and results of operations.
 
Operating problems in our business may materially adversely affect our financial condition and results of operations.
 
The occurrence of material operating problems at our facilities may have a material adverse effect on our operations as a whole, both during and after the period of operational difficulties. We are subject to the usual hazards associated with manufacturing and the related storage and transportation of raw materials, products and waste, including explosions, fires, leaks, discharges, inclement weather, natural disasters, mechanical failure, unscheduled downtime and transportation interruption or calamities. The occurrence of material operating problems at our facilities may have a material adverse effect on our operations as a whole, both during and after the period of operational difficulties.
Changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies could adversely affect our financial results.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these polices require use of estimates and assumptions that may affect the reported value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain. Those who set and interpret the accounting standards (such as the Financial Accounting Standards Board, the Securities and Exchange Commission, and our independent registered public accounting firm) may amend or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For a further discussion of some of our critical accounting policies and standards and recent changes, see Critical Accounting Policies and Estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note A to the consolidated financial statements included elsewhere herein.
 
Our Chairman of the Board and Chief Executive Officer and our President and Chief Operating Officer collectively beneficially own a significant portion of our company’s outstanding common stock and their interests may conflict with yours.
 
As of February 26, 2010,25, 2011, Edward Crawford, our Chairman of the Board and Chief Executive Officer, and Matthew Crawford, our President and Chief Operating Officer, collectively beneficially owned approximately 30%27% of our common stock. Mr. E. Crawford is Mr. M. Crawford’s father. Their interests could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Messrs. E. Crawford and M. Crawford may conflict with your interests as a shareholder.


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Item 1B. Unresolved Staff Comments
 
None.
 
Item 2. Properties
 
As of December 31, 2009,2010, our operations included numerous manufacturing and supply chain logistics services facilities located in 2324 states in the United States and in Puerto Rico, as well as in Asia, Canada, Europe and Mexico. Approximately 88%87% of the available square footage was located in the United States. Approximately 46%43% of the available square footage was owned. In 2009,2010, approximately 29%30% of the available domestic square footage was used by the Supply Technologies segment, 46%47% was used by the Manufactured Products segment and 26%23% was used by the Aluminum Products segment. Approximately 49%54% of the available foreign square footage was used by the Supply Technologies segment and 51%46% was used by the Manufactured Products segment. In the opinion of management, our facilities are generally well maintained and are suitable and adequate for their intended uses.


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The following table provides information relative to our principal facilities as of December 31, 2009.2010.
 
                    
Related Industry
   Owned or
 Approximate
     Owned or
 Approximate
  
Segment
 
Location
 
Leased
 
Square Footage
 
Use
 
Location
 
Leased
 
Square Footage
 
Use
SUPPLY
TECHNOLOGIES(1)		 Cleveland, OH Leased  60,450(2) Supply Technologies
Corporate Office		 Cleveland, OH Leased  60,450(2) Supply Technologies
Corporate Office
 Dayton, OH Leased  112,960  Logistics Dayton, OH Leased  70,600  Logistics
 Lawrence, PA Leased  116,000  Logistics and
Manufacturing		 Lawrence, PA Leased  116,000  Logistics and
Manufacturing
 Minneapolis, MN Leased  87,100  Logistics Minneapolis, MN Leased  87,100  Logistics
 Allentown, PA Leased  62,600  Logistics Allentown, PA Leased  43,800  Logistics
 Atlanta, GA Leased  56,000  Logistics Atlanta, GA Leased  56,000  Logistics
 Dallas, TX Leased  50,000  Logistics Des Plaines, IL Leased  45,000  Logistics
 Memphis, TN Leased  48,750  Logistics Memphis, TN Leased  48,750  Logistics
 Louisville, KY Leased  30,000  Logistics Louisville, KY Leased  30,000  Logistics
 Chicago, IL Leased  30,000  Logistics Nashville, TN Leased  44,900  Logistics
 Nashville, TN Leased  44,900  Logistics Tulsa, OK Leased  40,000  Logistics
 Tulsa, OK Leased  40,000  Logistics Lenexa, KS Leased  38,000  Logistics
 Austin, TX Leased  30,000  Logistics Austin, TX Leased  30,000  Logistics
 Madison Hts., MI Leased  32,000  Logistics Madison Hts., MI Leased  32,000  Logistics
 Streetsboro, OH Leased  45,000  Logistics Streetsboro, OH Leased  45,000  Logistics
 Mississauga,
Ontario, Canada		 Leased  145,000  Manufacturing Mississauga, Ontario, Canada Leased  145,000  Manufacturing
 Solon, OH Leased  54,000  Logistics Solon, OH Leased  54,000  Logistics
 Dublin, VA Leased  40,000  Logistics Dublin, VA Leased  40,000  Logistics
 Delaware, OH Owned  45,000  Manufacturing Delaware, OH Owned  45,000  Manufacturing
ALUMINUM Conneaut, OH(3) Leased/Owned  304,000  Manufacturing Conneaut, OH(3) Leased/Owned  304,000  Manufacturing
PRODUCTS Huntington, IN Leased  125,000  Manufacturing Huntington, IN Leased  125,000  Manufacturing
 Fremont, IN Owned  112,000  Manufacturing Fremont, IN Owned  112,000  Manufacturing
 Wapakoneta, OH Owned  188,000  Manufacturing Wapakoneta, OH Owned  188,000  Manufacturing
 Rootstown, OH Owned  177,000  Manufacturing Rootstown, OH Owned  177,000  Manufacturing
 Ravenna, OH Owned  64,000  Manufacturing Ravenna, OH Owned  64,000  Manufacturing
MANUFACTURED Cuyahoga Hts., OH Owned  427,000  Manufacturing Cuyahoga Hts., OH Owned  427,000  Manufacturing
PRODUCTS(4) Cicero, IL Owned  450,000  Manufacturing Cicero, IL Owned  450,000  Manufacturing
 Le Roeulx, Belgium Owned  120,000  Manufacturing Le Roeulx, Belgium Owned  120,000  Manufacturing
 Wickliffe, OH Owned  110,000  Manufacturing Wickliffe, OH Owned  110,000  Manufacturing
 Boaz, AL Owned  100,000  Manufacturing Brookfield, WI Leased  100,000  Manufacturing
 Warren, OH Owned  195,000  Manufacturing Warren, OH Owned  195,000  Manufacturing
 Canton, OH Leased  125,000  Manufacturing Canton, OH Leased  125,000  Manufacturing
 Madison Heights, MI Leased  128,000  Manufacturing Madison Heights, MI Leased  128,000  Manufacturing
 Newport, AR Leased  200,000  Manufacturing Newport, AR Leased  200,000  Manufacturing
 Cleveland, OH Leased  150,000  Manufacturing Cleveland, OH Leased  150,000  Manufacturing
 
 
(1)Supply Technologies has 3949 other facilities, none of which is deemed to be a principal facility.


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(2)Includes 20,150 square feet used by Holdings’ and Park-Ohio’s corporate office.
 
(3)Includes three leased properties with square footage of 91,800, 64,000 and 45,700, respectively, and two owned properties with 82,300 and 20,200 square feet, respectively.
 
(4)Manufactured Products has 1416 other owned and leased facilities, none of which is deemed to be a principal facility.
 
Item 3. Legal Proceedings
 
We are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation are not expected to have a material adverse effect on our financial condition, liquidity or results of operations.
 
At December 31, 2009,2010, we were a co-defendant in approximately 290260 cases asserting claims on behalf of approximately 1,2001,230 plaintiffs alleging personal injury as a result of exposure to asbestos. These


14

asbestos cases generally relate to production and sale of asbestos-containing products and allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and, in some cases, punitive damages.
 
In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. In substantially all of the asbestos cases, the plaintiffs either claim damages in excess of a specified amount, typically a minimum amount sufficient to establish jurisdiction of the court in which the case was filed (jurisdictional minimums generally range from $25,000 to $75,000), or do not specify the monetary damages sought. To the extent that any specific amount of damages is sought, the amount applies to claims against all named defendants.
 
There are only five asbestos cases, involving 25 plaintiffs, that plead specified damages. In each of the five cases, the plaintiff is seeking compensatory and punitive damages based on a variety of potentially alternative causes of action. In three cases, the plaintiff has alleged compensatory damages in the amount of $3.0 million for four separate causes of action and $1.0 million for another cause of action and punitive damages in the amount of $10.0 million. In the fourth case, the plaintiff has alleged against each named defendant, compensatory and punitive damages, each in the amount of $10.0 million for seven separate causes of action. In the fifth case, the plaintiff has alleged compensatory damages in the amount of $20.0 million for three separate causes of action and $5.0 million for another cause of action and punitive damages in the amount of $20.0 million.
 
Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases and believe we will continue to be successful in being dismissed from such cases. However, it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation. Despite this uncertainty, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases , the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all, that any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff’s injury, if any.


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Our cost of defending these lawsuits has not been material to date and, based upon available information, our management does not expect its future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial position.
 
Item 4. Reserved[Removed and Reserved]
 


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Item 4A. Executive Officers of the Registrant
 
Information with respect to the executive officers of the Company as of March 15, 20108, 2011 is as follows:
 
       
Name
 
Age
 
Position
 
Edward F. Crawford  7071  Chairman of the Board, Chief Executive Officer and Director
Matthew V. Crawford  4041  President and Chief Operating Officer and Director
Jeffrey L. Rutherford  4950  Vice President and Chief Financial Officer
Robert D. Vilsack  4950  Secretary and General Counsel
Patrick W. Fogarty  4849  Director of Corporate Development
 
Mr. E. Crawfordhas been a director and our Chairman of the Board and Chief Executive Officer since 1992. He has also served as the Chairman of Crawford Group, Inc., a management company for a group of manufacturing companies, since 1964 and is also a Director of Continental Global Group, Inc.1964.
 
Mr. M. Crawfordhas been President and Chief Operating Officer since 2003 and joined us in 1995 as Assistant Secretary and Corporate Counsel. He was also our Senior Vice President from 2001 to 2003. Mr. M. Crawford became one of our directors in August 1997 and has served as President of Crawford Group, Inc. since 1995. Mr. E. Crawford is the father of Mr. M. Crawford.
 
Mr. Rutherfordhas been Vice President and Chief Financial Officer since joining us in July 2008. From 2007 until his employment with us, Mr. Rutherford served as Senior Vice President, Chief Financial Officer of UAP Holding Corp., an independent distributor of agricultural inputs and professional non-crop products. Mr. Rutherford previously served as President and Chief Executive Officer of Lesco, Inc., a provider of professional turf care products and a division of John Deere & Co., from 2005 to 2007, and as Lesco’s Chief Financial Officer from 2002 to 2005. From 1998 to 2002, he was the Senior Vice President, Treasurer and Chief Financial Officer of Office Max,OfficeMax, Inc., an office products company. Prior to joining Office Max, he spent fourteen years with the accounting firm Arthur Andersen & Co.
 
Mr. Vilsackhas been Secretary and General Counsel since joining us in 2002. From 1999 until his employment with us, Mr. Vilsack was engaged in the private practice of law. From 1997 to 1999, Mr. Vilsack was Vice President, General Counsel and Secretary of Medusa Corporation, a manufacturer of Portland cement, and prior to that he was Vice President, General Counsel and Secretary of Figgie International Inc., a manufacturing conglomerate.
 
Mr. Fogartyhas been Director of Corporate Development since 1997 and served as Director of Finance from 1995 to 1997.


16

 
Part II
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The Company’s common stock, par value $1.00 per share, trades on the Nasdaq Global Select Market under the symbol “PKOH”. The table below presents the high and low sales prices of the common stock during the periods presented. No dividends were paid during the five years ended December 31, 2009.2010. There is no present intention to pay dividends. Additionally, the terms of the Company’s revolving credit facility and the indenture governing the Company’s 8.375% senior subordinated notes restrict the Company’s ability to pay dividends.
 
Quarterly Common Stock Price Ranges
 
                                
 2009 2008 2010 2009
Quarter
 High Low High Low High Low High Low
1st $6.63  $1.65  $25.20  $13.70  $9.96  $5.69  $6.63  $1.65 
2nd  5.24   2.67   18.24   14.56   16.40   8.80   5.24   2.67 
3rd  9.32   2.69   22.16   11.77   15.66   10.01   9.32   2.69 
4th  8.69   4.01   18.49   3.76   23.70   12.77   8.69   4.01 
 
The number of shareholders of record for the Company’s common stock as of February 26, 201025, 2011 was 645.588.
 
Issuer Purchases of Equity Securities
 
Set forth below is information regarding the Company’s stock repurchases during the fourth quarter of the fiscal year ended December 31, 2009.2010.
 
                 
        Total Number
    
  Total
     of Shares
    
  Number
  Average
  Purchased as
  Maximum Number of Shares
 
  of Shares
  Price Paid
  Part of Publicly
  That May Yet Be Purchased
 
Period
 Purchased  Per Share  Announced Plans(1)  Under the Plans or Program 
 
October 1 — October 31, 2009  30,445(2) $8.26   -0-   340,920 
November 1 — November 30, 2009  -0-   -0-   -0-   340,920 
December 1 — December 31, 2009  -0-   -0-   -0-   340,920 
                 
TOTAL  30,445  $8.26   -0-   340,920 
                 
                 
        Total Number
    
  Total
     of Shares
    
  Number
  Average
  Purchased as
  Maximum Number of Shares
 
  of Shares
  Price Paid
  Part of Publicly
  That May Yet Be Purchased
 
Period
 Purchased  Per Share  Announced Plans(1)  Under the Plans or Program 
 
October 1 — October 31, 2010  -0-  $-0-   -0-   340,920 
November 1 — November 30, 2010  -0-   -0-   -0-   340,920 
December 1 — December 31, 2010  5,000   21.10   5,000   335,920 
                 
TOTAL  5,000  $21.10   5,000   335,920 
                 
 
 
(1)In 2006, the Company announced a share repurchase program whereby the Company may repurchase up to 1.0 million shares of its common stock. During the fourth quarter of 2009, no2010, 5,000 shares were purchased as part of this program.
(2)Consist of shares of common stock the Company acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient withholding tax liabilities.


17

 
Item 6. Selected Financial Data
 
(Dollars in thousands, except per share data)
 
                                        
 Year Ended December 31,  Year Ended December 31, 
 2009 2008 2007 2006 2005  2010 2009 2008 2007 2006 
Selected Statement of Operations Data(a):
                    
Selected Statement of Operations Data:
                    
Net sales $701,047  $1,068,757  $1,071,441  $1,056,246  $932,900  $813,522  $701,047  $1,068,757  $1,071,441  $1,056,246 
Cost of products sold(b)(a)  597,200   919,297   912,337   908,095   796,283   679,425   597,200   919,297   912,337   908,095 
                      
Gross profit  103,847   149,460   159,104   148,151   136,617   134,097   103,847   149,460   159,104   148,151 
Selling, general and administrative expenses  87,786   105,546   98,679   90,296   82,133   91,755   87,786   105,546   98,679   90,296 
Goodwill impairment charge  -0-   95,763   -0-   -0-   -0-   -0-   -0-   95,763   -0-   -0- 
Gain on sale of assets held for sale  -0-   -0-   (2,299)  -0-   -0-   -0-   -0-   -0-   (2,299)  -0- 
Restructuring and impairment charges (credits)(b)(a)  5,206   25,331   -0-   (809)  943   3,539   5,206   25,331   -0-   (809)
                      
Operating income (loss)(b)(a)  10,855   (77,180)  62,724   58,664   53,541   38,803   10,855   (77,180)  62,724   58,664 
Gain on purchase of 8.375% senior subordinated notes  (6,297)  (6,232)  -0-   -0-   -0-   -0-   (6,297)  (6,232)  -0-   -0- 
Interest expense(c)  23,189   27,869   31,551   31,267   27,056 
Gain on acquisition of business  (2,210)  -0-   -0-   -0-   -0- 
Interest expense  23,792   23,189   27,869   31,551   31,267 
                      
(Loss) income before income taxes  (6,037)  (98,817)  31,173   27,397   26,485 
Income tax (benefit) expense(d)  (828)  20,986   9,976   3,218   (4,323)
Income (loss) before income taxes  17,221   (6,037)  (98,817)  31,173   27,397 
Income tax expense (benefit)(b)  2,034   (828)  20,986   9,976   3,218 
                      
Net (loss) income $(5,209) $(119,803) $21,197  $24,179  $30,808 
Net income (loss) $15,187  $(5,209) $(119,803) $21,197  $24,179 
                      
Amounts per common share:                                        
Basic $(.47) $(10.88) $1.91  $2.20  $2.82  $1.34  $(.47) $(10.88) $1.91  $2.20 
                      
Diluted $(.47) $(10.88) $1.82  $2.11  $2.70  $1.29  $(.47) $(10.88) $1.82  $2.11 
                      
 
                                        
 Year Ended December 31,  Year Ended December 31, 
 2009 2008 2007 2006 2005  2010 2009 2008 2007 2006 
Other Financial Data:
                                        
Net cash flows provided by operating activities $43,865  $8,547  $31,466  $6,063  $34,501  $67,059  $43,865  $8,547  $31,466  $6,063 
Net cash flows used by investing activities  (4,772)  (20,398)  (21,991)  (31,407)  (31,376)  (29,851)  (4,772)  (20,398)  (21,991)  (31,407)
Net cash flows (used) provided by financing activities  (33,820)  15,164   (16,600)  28,285   8,414   (24,995)  (33,820)  15,164   (16,600)  28,285 
Depreciation and amortization  18,918   20,933   20,611   20,140   17,346   17,132   18,918   20,933   20,611   20,140 
Capital expenditures, net  5,575   17,466   21,876   20,756   20,295   3,951   5,575   17,466   21,876   20,756 
Selected Balance Sheet Data (as of period end):
                                        
Cash and cash equivalents $23,098  $17,825  $14,512  $21,637  $18,696  $35,311  $23,098  $17,825  $14,512  $21,637 
Working capital  229,348   252,873   270,939   268,825   208,051   219,193   222,748   252,873   270,939   268,825 
Property, plant and equipment  76,631   90,642   105,557   101,085   110,310   68,783   76,631   90,642   105,557   101,085 
Total assets  502,268   619,220   769,189   783,751   662,854   552,532   502,268   619,220   769,189   783,751 
Total debt  333,997   374,646   360,049   374,800   346,649   316,213   333,997   374,646   360,049   374,800 
Shareholders’ equity  22,810   12,755   171,478   138,737   103,521   46,375   22,810   12,755   171,478   138,737 


18

 
(a)The selected consolidated financial data is not directly comparable on ayear-to-year basis, primarily due to acquisitions and divestitures we made throughout the five years ended December 31, 2009, which include the following acquisitions:
2008 — Ravenna Aluminum
2006 — Foundry Service GmbH (“Foundry Service”) and NABS, Inc. (“NABS”)
2005 — Purchased Parts Group, Inc. (“PPG”) and Lectrotherm, Inc. (“Lectrotherm”)
All of the acquisitions were accounted for as purchases.
(b)In each of the years ended December 31, 2010, 2009, 2008, 2007 2006 and 2005,2006, we recorded restructuring and asset impairment charges related to exiting product lines and closing or consolidating operating facilities. The restructuring charges related to the write-down of inventory have no cash impact and are reflected by an increase in cost of products sold in the applicable period. The restructuring charges relating to asset impairment attributable to the closing or consolidating of operating facilities have no cash impact and are reflected in the restructuring and impairment charges. The charges for restructuring and severance and pension curtailment are accruals for cash expenses. We made cash payments of $.5$.1 million, $.3$.5 million, $.3 million, and $.3 million in the years ended December 31, 2010, 2009, 2007, 2006, and 2005,2006, respectively, related to our severance and pension curtailment accrued liabilities. The table below provides a summary of these restructuring and impairment charges.
 
                                        
 Year Ended December 31,  Year Ended December 31, 
 2009 2008 2007 2006 2005  2010 2009 2008 2007 2006 
   (Dollars in thousands)    (Dollars in thousands) 
Non-cash charges:                                        
Cost of products sold (inventory write-down) $1,797  $5,544  $2,214  $800  $833  $-0-  $1,797  $5,544  $2,214  $800 
Asset impairment  5,206   24,767   -0-   -0-   391   3,539   5,206   24,767   -0-   -0- 
Restructuring and severance  -0-   564   -0-   -0-   400   -0-   -0-   564   -0-   -0- 
Pension and postretirement benefits curtailment (credits)  -0-   -0-   -0-   (809)  152   -0-   -0-   -0-   -0-   (809)
                      
Total $7,003  $30,875  $2,214  $(9) $1,776  $3,539  $7,003  $30,875  $2,214  $(9)
                      
Charges reflected as restructuring and impairment charges (credits) on income statement $5,206  $25,331  $-0-  $(809) $943  $3,539  $5,206  $25,331  $-0-  $(809)
                      
 
 
(c)(b)In 2006, and 2005, the Company reversed $5.0 million and $7.3 million, respectively, of its domestic deferred tax asset valuation allowances as it has been determined the realization of these amounts is more likely than not. In 2008, the Company recorded a valuation allowance of $33.5 million for its net deferred tax asset.
 
No dividends were paid during the five years ended December 31, 2009.2010.


19

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Our consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The historical financial information discussed below is not directly comparable on ayear-to-year basis, primarily due to a goodwill impairment charge in 2008, recording of a tax valuation allowance in 2008, restructuring and unusual charges in 2010, 2009 2008, 2007 and 2006, reversal of a tax valuation allowance in 20072008 and acquisitions in 20082010 and 2006.2008.
 
Executive Overview
 
We are an industrial Total Supply Managementtm and diversified manufacturing business, operating in three segments: Supply Technologies, Aluminum Products and Manufactured Products. Our Supply Technologies business provides our customers with Total Supply Managementtm, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Managementtm includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products casts and machines aluminum engine, transmission, brake, suspension and other components such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment OEMs, primarily on a sole-source basis. Aluminum Products also provides value-added services such as design and engineering and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems, pipe threading systems, industrial oven systems, injection molded rubber components, and forged and machined products. Manufactured Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Manufactured Products are OEMs,sub-assemblers and end users in the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense industries. Sales, earnings and other relevant financial data for these three segments are provided in Note B to the consolidated financial statements.
On March 8, 2010, we amended our revolving credit facility to, among other things, extend its maturity to June, 2013 and reduce the loan commitment from $270.0 million to $210.0 million, including the borrowing under a term loan A for $28.0 million, which is secured by real estate and machinery and equipment, and an unsecured term loan B for $12.0 million. See Note G.
In October 2006, we acquired all of the capital stock of NABS for $21.2 million in cash. NABS is a premier international supply chain manager of production components, providing services to high technology companies in the computer, electronics, and consumer products industries. NABS had 14 international operations in China, India, Taiwan, Singapore, Ireland, Hungary, Scotland and Mexico plus five locations in the United States.
In January 2006, we completed the acquisition of all of the capital stock of Foundry Service for approximately $3.2 million in cash, which resulted in additional goodwill of $2.3 million. The acquisition was funded with borrowings from foreign subsidiaries of the Company.
In December 2005, we acquired substantially all of the assets of Lectrotherm, which is primarily a provider of field service and spare parts for induction heating and melting systems, located in Canton,


20

Ohio, for $5.1 million cash funded with borrowings under our revolving credit facility. This acquisition augments our existing, high-margin aftermarket induction business.
In July 2005, we acquired substantially all the assets of PPG, a provider of supply chain management services for a broad range of production components for $7.0 million cash funded with borrowings from our revolving credit facility, $.5 million in a short-term note payable and the assumption of approximately $13.3 million of trade liabilities. This acquisition added significantly to the customer and supplier bases, and expanded our geographic presence of our Supply Technologies segment.statements, included elsewhere herein.
 
The domestic and international automotive markets were significantly impacted in 2008, which adversely affected our business units serving those markets. During the third quarter of 2008, the Company recorded asset impairment charges associated with the recentrelated volume declines and volatility in the automotive markets. The charges were composed of $.6 million of inventory impairment included in Cost of Products Sold and $17.5 million for impairment of property and equipment and other long-term assets. See Note O to the consolidated financial statements included in this annual report onForm 10-K.elsewhere herein.
 
During the fourth quarter of 2008, the Company recorded a non-cash goodwill impairment charge of $95.8 million and restructuring and asset impairment charges of $13.4 million associated with the decision to exit its relationship with its largest customer, Navistar, along with the general economic downturn. The charges were composed of $5.0 million of inventory impairment included in Cost of Products Sold and $8.4 million for impairment of property and equipment, loss on disposal of a foreign subsidiary and severance costs. Impairment charges were offset by a gain of $.6 million recorded in the Aluminum Products segment relating to the sale of certain facilities that were previously written off.
 
During the fourth quarter of 2009, the Company recorded $7.0 million of asset impairment charges associated with general weakness in the economy including the railroad industry. The charges were


20

composed of $1.8 million of inventory impairment included in Cost of Products Sold and $5.2 million for impairment of property and equipment
 
In 2009, the Company recorded a gain of $6.3 million on the purchase of $15.2 million principal amount of Park-Ohio Industries, Inc. 8.375% senior subordinated notes due 2014 (the “8.375% Notes”). In 2008, the Company recorded a gain of $6.2 million on the purchase of $11.0 million principal amount of the 8.375% Notes.
 
During the third quarter of 2010, Supply Technologies completed the acquisition of certain assets and assumed specific liabilities relating to the ACS business of Lawson Products, Inc. for $16.0 million in cash and a $2.2 million subordinated promissory note payable in equal quarterly installments over three years. ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America. The Company recorded a gain of $2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price. See Note C to the consolidated financial statements included elsewhere herein.
On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which Rome agreed to transfer to the Company substantially all of its assets in exchange for approximately $7.5 million of notes receivable due from Rome held by the Company.
On December 31, 2010, the Company through its subsidiary, Ajax Tocco Magnethermic, acquired the assets and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”) for $9.9 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
On March 8, 2010 and subsequently on August 31, 2010, we amended our revolving credit facility to, among other things, extend its maturity to April 30, 2014 and reduce the loan commitment from $270.0 million to $210.0 million, which amount includes the borrowing under a term loan A that is secured by real estate and machinery and equipment, and an unsecured term loan B. See Note G to the consolidated financial statements included elsewhere herein.
During the third quarter of 2010, the Company recorded an asset impairment charge of $3.5 million related to the writedown of one of its investments.
Approximately 20%24% of the Company’s consolidated net sales are to the automotive markets. The recent deterioration in the global economy and global credit markets continues to negatively impact the automotive markets. General Motors, Ford and Chrsyler have encountered severe financial difficulty, which ultimately resulted in the bankruptcy of Chrysler and General Motors and could result in bankruptcy for more automobile manufacturers and their suppliers such as the bankruptcy of Metaldyne, which in turn, would adversely affect the financial condition of the Company’s automobile OEM customers. In 2009, the Company recorded a charge of $4.2 million to fully reserve for the account receivable from Metaldyne. In Metaldyne resulting from its bankruptcy.
Results of Operations
2010 versus 2009
Net Sales by Segment:
                 
  Year Ended
       
  December 31,     Percent
 
  2010  2009  Change  Change 
  (Dollars in millions) 
 
Supply Technologies $402.1  $328.8  $73.3   22%
Aluminum Products  143.7   111.4   32.3   29%
Manufactured Products  267.7   260.8   6.9   3%
                 
Consolidated Net Sales $813.5  $701.0  $112.5   16%
                 
Consolidated net sales increased $112.5 million to $813.5 million compared to $701.0 million in 2009 as the Company expects that its business, resultsexperienced volume increases in each segment. Supply Technologies sales increased 22% primarily due to volume increases in the heavy-duty truck industry, automotive, semi-conductor, power sports, HVAC, agricultural and construction equipment industries. In addition, there were $16.9 million of operations and financial condition will continue to be negatively impacted by the performance of the automotive markets.


21

Resultssales resulting from the acquisition of Operationsthe ACS business. These additions were offset by declines in the lawn and garden and medical industries. Aluminum Products sales increased 29% as volumes increased to customers in the auto industry along with additional sales from new contracts. In addition, there were $7.0 million of sales resulting from the acquisition of the Rome business. Manufactured Products sales increased 3% primarily from increases in the capital equipment and rubber products business units partially offset by declining volume in the forged and machined products business unit because of volume declines in the railroad industry. Approximately 24% of the Company’s consolidated net sales are to the automotive markets. Net sales to the automotive markets as a percentage of sales by segment were approximately 15%, 77% and 8% for the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively for the year ended December 31, 2010.
Cost of Products Sold & Gross Profit:
 
                 
  Year Ended
       
  December 31,     Percent
 
  2010  2009  Change  Change 
  (Dollars in millions) 
 
Consolidated cost of products sold $679.4  $597.2  $82.2   14%
                 
Consolidated gross profit $134.1  $103.8  $30.3   29%
                 
Gross margin  16.5%  14.8%        
Cost of products sold increased $82.2 million in 2010 to $679.4 million compared to $597.2 million in 2009, primarily due to increases in sales volume, while gross margin increased to 16.5% in 2010 from 14.8% in the same period of 2009.
Supply Technologies and Aluminum Products gross margin increased resulting from volume increases while gross margin in the Manufactured Products segment remained essentially unchanged from the prior year.
Selling, General & Administrative (“SG&A”) Expenses:
                 
  Year Ended
    
  December 31,   Percent
  2010 2009 Change Change
  (Dollars in millions)
 
Consolidated SG&A expenses $91.8  $87.8  $4.0   5%
SG&A percent  11.3%  12.5%        
Consolidated SG&A expenses increased $4.0 million to $91.8 million in 2010 compared to $87.8 million in 2009 representing a 120 basis point decrease in SG&A expenses as a percent of sales. SG&A expenses increased on a dollar basis in 2010 compared to 2009 primarily due to an increase in salaries and benefits levels resulting from restoration to 2008 salary levels along with a bonus accrual offset by a $4.2 million charge in 2009 for a reserve for an account receivable from a customer in bankruptcy and an increase in pension income.
Interest Expense:
               
  Year-Ended
    
  December 31,   Percent
  2010 2009 Change Change
  (Dollars in millions)
 
Interest expense $23.8  $23.2  $.6  3%
Average outstanding borrowings $322.0  $363.9  $(41.9) (11.5)%
Average borrowing rate  7.39%  6.38%  101  basis points
Interest expense increased $.6 million in 2010 compared to 2009, primarily due to a higher average borrowing rate during 2010, offset by lower average borrowings. The decrease in average borrowings in


22

2010 resulted primarily from earnings and the reduction in working capital requirements. The higher average borrowing rate in 2010 was due primarily to increased interest rates under our revolving credit facility compared to 2009.
Impairment Charges:
During 2010, the Company reviewed one of its investments and determined there was diminution in value and therefore recorded an asset impairment charge of $3.5 million.
During 2009, the Company recorded asset impairment charges totaling $5.2 million associated with general weakness in the economy, including the railroad industry.
During 2008, the Company recorded goodwill impairment charges of $95.8 million. The Company also recorded asset impairment charges of $25.3 million associated with the volume declines and volatility in the automotive markets, loss from the disposal of a foreign subsidiary and restructuring expenses associated with the Company’s exit from its relationship with its largest customer, Navistar, along with realignment of its distribution network.
Gain on Purchase of 8.375% Senior Subordinated Notes:
In 2009, the Company recorded a gain of $6.3 million on the purchase for $8.9 million of $15.2 million aggregate principal amount of the 8.375% Notes due in 2014.
In 2008, the Company purchased $11.0 million aggregate principal amount of the 8.375% Notes for $4.7 million. After writing off $.1 million of deferred financing costs, the Company recorded a net gain of $6.2 million. The 8.375% Notes were not contributed to Park-Ohio Industries, Inc. in 2008 but were held by Holdings. During the fourth quarter of 2009, these notes were sold to a wholly-owned foreign subsidiary of Park-Ohio Industries, Inc.
Income Taxes:
         
  Year Ended
 
  December 31, 
  2010  2009 
  (Dollars in millions) 
 
Income before income taxes $17.2  $(6.0)
         
Income tax expense (benefit) $2.0  $(.8)
         
Effective income tax rate  11.6%  13%
The Company released $5.8 million of the valuation allowance attributable to continuing operations in 2010 compared to $1.8 million in 2009. In the fourth quarter of 2008, the Company recorded a $33.6 million valuation allowance against its net U.S. and certain foreign deferred tax assets. As of December 31, 2010 and 2009, the Company determined that it was not more likely than not that its net U.S. and certain foreign deferred tax assets would be realized.
The provision for income taxes was $2.0 million in 2010 compared to $(.8) million in 2009. The effective income tax rate was 11.6% in 2010, compared to 13% in 2009.
The Company’s net operating loss carryforward precluded the payment of most federal income taxes in both 2010 and 2009, and should similarly preclude such payments in 2011. At December 31, 2010, the Company had net operating loss carryforwards for federal income tax purposes of approximately $24.7 million, which will expire between 2023 and 2029.


23

2009 versus 2008
 
Net Sales by Segment:
                 
  Year-Ended
       
  December 31,     Percent
 
  2009  2008  Change  Change 
  (Dollars in millions) 
 
Supply Technologies $328.8  $521.3  $(192.5)  (37)%
Aluminum Products  111.4   156.3   (44.9)  (29)%
Manufactured Products  260.8   391.2   (130.4)  (33)%
                 
Consolidated Net Sales $701.0  $1,068.8  $(367.8)  (34)%
                 
                 
  Year Ended
       
  December 31,     Percent
 
  2009  2008  Change  Change 
  (Dollars in millions) 
 
Supply Technologies $328.8  $521.3  $(192.5)  (37)%
Aluminum Products  111.4   156.3   (44.9)  (29)%
Manufactured Products  260.8   391.2   (130.4)  (33)%
                 
Consolidated Net Sales $701.0  $1,068.8  $(367.8)  (34)%
                 
 
Consolidated net sales declined $367.8 million to $701.0 million compared to $1,068.8 million in 2008 as the Company experienced volume declines in each segment resulting from the challenging global economic downturn. Supply Technologies sales decreased 37% primarily due to volume reductions in the heavy-duty truck industry, of which $83.0 million resulted from the Company’s decision to exit its relationship with its largest customer in the fourth quarter of 2008. The remaining sales reductions were due to the overall declining demand from customers in most end-markets partially offset by the addition of new customers. Aluminum Products sales decreased 29% as the general decline in auto industry sales volumes exceeded additional sales from new contracts starting productionramp-up. Manufactured Products sales decreased 33% primarily from the declining business environment in each of its business reporting units. Approximately 20% of the Company’s consolidated net sales are to the automotive markets. Net sales to the automotive markets as a percentage of sales by segment were approximately 8%, 83% and 5% for the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively for the year ended December 31, 2009.
 
Cost of Products Sold & Gross Profit:
 
                                
 Year-Ended
      Year Ended
     
 December 31,   Percent
  December 31,   Percent
 
 2009 2008 Change Change  2009 2008 Change Change 
 (Dollars in millions)  (Dollars in millions) 
Consolidated cost of products sold $597.2  $919.3  $(322.1)  (35)% $597.2  $919.3  $(322.1)  (35)%
              
Consolidated gross profit $103.8  $149.5  $(45.7)  (31)% $103.8  $149.5  $(45.7)  (31)%
              
Gross margin  14.8%  14.0%          14.8%  14.0%        
 
Cost of products sold decreased $322.1 million in 2009 to $597.2 million compared to $919.3 million in 2008, primarily due to reduction in sales volume, while gross margin increased to 14.8% in 2009 from 14.0% in the same period of 2008.
 
Supply Technologies gross margin remained unchanged from the prior year, as increased product profitability improvements were offset by volume declines. Aluminum Products gross margin increased primarily due to cost cutting measures, a plant closure and improved efficiencies at another plant location. Gross margin in the Manufactured Products segment remained essentially unchanged from the prior year.
 
Selling, GeneralS, G & Administrative (“SG&A”)A Expenses:
 
                              
 Year-Ended
     Year Ended
    
 December 31,   Percent
 December 31,   Percent
 2009 2008 Change Change 2009 2008 Change Change
 (Dollars in millions) (Dollars in millions)
Consolidated SG&A expenses $87.8  $105.5  $(17.7)  (17)% $87.8  $105.5  $(17.7)  (17)%
SG&A percent  12.5%  9.9%        12.5%  9.9%      


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Consolidated SG&A expenses decreased $17.7 million to $87.8 million in 2009 compared to $105.5 million in 2008 representing a 260 basis point increase in SG&A expenses as a percent of sales. SG&A expenses decreased on a dollar basis in 2009 compared to 2008 primarily due to employee workforce reductions, salary cuts, suspension of the Company’s voluntary contribution to its 401(k) defined contribution plan, less business travel and a reduction in volume of business offset by a reduction in pension income. SG&A expenses benefited in 2009 from a reduction of $3.6 million resulting from a second quarter change in our vacation benefit, which is now earned throughout the calendar year rather than earned in full at the beginning of the year, but was offset by a $4.2 million charge to fully reserve for an account receivable from a customer in bankruptcy.
 
Interest Expense:
 
                              
 Year-Ended
     Year Ended
     
 December 31,   Percent
 December 31,   Percent
 
 2009 2008 Change Change 2009 2008 Change Change 
 (Dollars in millions) (Dollars in millions) 
Interest expense $23.2  $27.9  $(4.7) (17)% $23.2  $27.9  $(4.7)  (17)%
Average outstanding borrowings $363.9  $385.8  $(21.9) (6)% $363.9  $385.8  $(21.9)  (6)%
Average borrowing rate  6.38%  7.23%  (85) basis points  6.38%  7.23%  (85)  basis points 
 
Interest expense decreased $4.7 million in 2009 compared to 2008, primarily due to a lower average borrowing rate during 2009, lower average borrowings and the effect of the purchase of the 8.375% Notes. The decrease in average borrowings in 2009 resulted primarily from the reduction in working capital requirements. The lower average borrowing rate in 2009 was due primarily to decreased interest rates under our revolving credit facility compared to 2008.
 
Impairment Charges:
 
During 2009, the Company recorded asset impairment charges totaling $5.2 million associated with general weakness in the economy, including the railroad industry.
 
During 2008, the Company recorded goodwill impairment charges of $95.8 million. The Company also recorded asset impairment charges of $25.3 million associated with the volume declines and volatility in the automotive markets, loss from the disposal of a foreign subsidiary and restructuring expenses associated with the Company’s exit from its relationship with its largest customer, Navistar, along with realignment of its distribution network.
 
Gain on Purchase of 8.375% Senior Subordinated Notes:
 
In 2009, the Company recorded a gain of $6.3 million on the purchase for $8.9 million of $15.2 million aggregate principal amount of the 8.375% Notes due in 2014.
 
In 2008, the Company purchased $11.0 million aggregate principal amount of the 8.375% Notes for $4.7 million. After writing off $.1 million of deferred financing costs, the Company recorded a net gain of $6.2 million. The 8.375% Notes were not contributed to Park-Ohio Industries, Inc. in 2008 but were held by Holdings. During the fourth quarter of 2009, these notes were sold to a wholly-owned foreign subsidiary of Park-Ohio Industries, Inc.


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Income Taxes:
 
         
  Year-Ended
 
  December 31, 
  2009  2008 
  (Dollars in millions) 
 
Income before income taxes $(6.0) $(98.8)
         
Income tax (benefit) expense $(.8) $21.0 
         
Effective income tax rate  13%  (21)%
         
  Year Ended
 
  December 31, 
  2009  2008 
  (Dollars in millions) 
 
(Loss) income before income taxes $(6.0) $(98.8)
         
Income taxes $(.8) $21.0 
         
Effective income tax rate  13%  (21)%


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In the fourth quarter of 2009, the Company released $1.8 million of the valuation allowance attributable to continuing operations. In the fourth quarter of 2008, the Company recorded a $33.6 million valuation allowance against its net U.S. and certain foreign deferred tax assets. As of December 31, 2009 and 2008, the Company determined that it was not more likely than not that its net U.S. and certain foreign deferred tax assets would be realized.
 
The provision for income taxes was $(.8) million in 2009 compared to $21.0 million in 2008. The effective income tax rate was 13% in 2009, compared to (21)% in 2008.
 
The Company’s net operating loss carryforward precluded the payment of most federal income taxes in both2010, 2009 and 2008, and should similarly preclude such payments in 2010.2008. At December 31, 2009, the Company had net operating loss carryforwards for federal income tax purposes of approximately $38.5 million, which will expire between 2022 and 2029.
2008 versus 2007
Net Sales by Segment:
                 
  Year-Ended
       
  December 31,     Percent
 
  2008  2007  Change  Change 
  (Dollars in millions) 
 
Supply Technologies $521.3  $531.4  $(10.1)  (2)%
Aluminum Products  156.3   169.1   (12.8)  (8)%
Manufactured Products  391.2   370.9   20.3   5%
                 
Consolidated Net Sales $1,068.8  $1,071.4  $(2.6)  0%
                 
Consolidated net sales were essentially flat in 2008 compared to 2007 as growth in Manufactured Products segment nearly offset declines in Aluminum Products sales resulting from reduced automotive sales and Supply Technologies sales resulting from reduced sales to the semiconductor, lawn and garden, auto, plumbing and heavy-duty truck markets. Supply Technologies sales decreased 2% primarily due to volume reductions in the heavy-duty truck industry, partially offset by the addition of new customers and increases in product range to existing customers. Aluminum Products sales decreased 8% as the general decline in auto industry sales volumes exceeded additional sales from new contracts starting productionramp-up. Manufactured Products sales increased 5% primarily in the induction, pipe threading equipment and forging businesses, due largely to worldwide strength in the steel, oil & gas, aerospace and rail industries. Approximately 20% of the Company’s consolidated net sales are to the automotive markets. Net sales to the automotive markets as a percentage of sales by segment were approximately 13%, 79% and 5% for the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively.
Cost of Products Sold & Gross Profit:
                 
  Year-Ended
       
  December 31,     Percent
 
  2008  2007  Change  Change 
  (Dollars in millions) 
 
Consolidated cost of products sold $919.3  $912.3  $7.0   1%
                 
Consolidated gross profit $149.5  $159.1  $(9.6)  (6)%
                 
Gross margin  14.0%  14.8%        
Cost of products sold increased $7.0 million in 2008 compared to the same period in 2007, while gross margin decreased to 14.0% in 2008 from 14.8% in the same period of 2007.
Supply Technologies gross margin decreased slightly, as the effect of reduced heavy-duty truck sales volume and restructuring charges outweighed the margin benefit from new sales. Aluminum Products gross margin decreased primarily due to both the costs associated with starting up new contracts and


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reduced volume. Gross margin in the Manufactured Products segment increased in 2008 compared to 2007 primarily due to increased volume in the induction, pipe threading equipment and forging businesses.
Selling, General & Administrative Expenses:
                 
  Year-Ended
    
  December 31,   Percent
  2008 2007 Change Change
  (Dollars in millions)
 
Consolidated SG&A expenses $105.5  $98.7  $6.8   7%
SG&A percent  9.9%  9.2%        
Consolidated SG&A expenses increased $6.8 million in 2008 compared to 2007 representing a .7% increase in SG&A expenses as a percent of sales. SG&A expenses increased primarily due to higher professional fees in the Supply Technologies and Manufactured Products segments, expenses related to a new office building and other one-time charges at the corporate office consisting of losses on the sales of securities, severance costs and legal and professional fees, partially offset by a $.6 million increase in net pension credits and a reversal of year end bonus accruals.
Interest Expense:
                 
  Year-Ended
    
  December 31,   Percent
  2008 2007 Change Change
  (Dollars in millions)
 
Interest expense $27.9  $31.6  $(3.7)  (12)%
Average outstanding borrowings $385.8  $383.6  $2.2   1%
Average borrowing rate  7.23%  8.23%  100   basis points 
Interest expense decreased $3.7 million in 2008 compared to 2007, primarily due to a lower average borrowing rate during 2008 offset by slightly higher average borrowings. The increase in average borrowings in 2008 resulted primarily from decreased cash flow and increased working capital. The lower average borrowing rate in 2008 was due primarily to decreased interest rates under our revolving credit facility compared to 2007.
Impairment Charges:
During 2008, the Company recorded goodwill impairment charges of $95.8 million. The Company also recorded asset impairment charges of $25.3 million associated with the volume declines and volatility in the automotive markets, loss from the disposal of a foreign subsidiary and restructuring expenses associated with the Company’s exit from its relationship with its largest customer, Navistar, Inc., along with realignment of its distribution network.
Gain on Purchase of 8.375% Senior Subordinated Notes:
In 2008, Holdings purchased $11.0 million aggregate principal amount of the 8.375% Notes for $4.7 million. After writing off $.1 million of deferred financing costs, the Company recorded a net gain of $6.2 million. The 8.375% Notes were not contributed to Park-Ohio Industries, Inc. but were held by Holdings.


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Income Taxes:
         
  Year-Ended
 
  December 31, 
  2008  2007 
  (Dollars in millions) 
 
(Loss) income before income taxes $(98.8) $31.2 
         
Income taxes $21.0  $10.0 
         
Effective income tax rate  (21)%  32%
In the fourth quarter of 2008, the Company recorded a $33.6 million valuation allowance against its net U.S. and certain foreign deferred tax assets. As of December 31, 2008, the Company determined that it was not more likely than not that its net U.S. and certain foreign deferred tax assets would be realized.
The provision for income taxes was $21.0 million in 2008 compared to $10.0 million in 2007. The effective income tax rate was (21)% in 2008, compared to 32% in 2007.
The Company’s net operating loss carryforward precluded the payment of most federal income taxes in both 2008 and 2007, and should similarly preclude such payments in 2009. At December 31, 2008, the Company had net operating loss carryforwards for federal income tax purposes of approximately $42.1 million, which will expire between 2022 and 2028.
 
Liquidity and Sources of Capital
 
Our liquidity needs are primarily for working capital and capital expenditures. Our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our senior subordinated notes. In 2003, we entered into a revolving credit facility with a group of banks which, as subsequently amended, matures at JuneApril 30, 20132014 and, as amended, currently provides for availability of up to $170 million subject to an asset-based formula. We have the option to increase the availability under the revolving loan portion of the credit facility by $25$25.0 million. The revolving credit facility is secured by substantially all our assets in the United States and Canada. Borrowings from this revolving credit facility will be used for general corporate purposes.
 
As of December 31, 2009, the Company had $141.2 million outstanding under the revolving credit facility, and approximately $34.2 million of unused borrowing availability.
On March 8, 2010 and subsequently on August 31, 2010, the revolving credit facility was amended and restated to, among other things, extend its maturity date to JuneApril 30, 2013,2014, reduce the loan commitment from $270.0 million to $210.0 million which includes a term loan A for $28.0 million ($25.9 million outstanding at December 31, 2010) that is secured by real estate and machinery and equipment and an unsecured term loan B for $12.0 million.million ($8.4 million outstanding at December 31, 2010). Amounts borrowed under the revolving credit facility may be borrowed at either (i) LIBOR plus 3%2.25% to 4%3.25% or (ii) the bank’s prime lending rate minus .25 to plus 1%.75%, at the Company’s election. The LIBOR-based interest rate is dependent on the Company’s debt service coverage ratio, as defined in the revolving credit facility. Under the revolving credit facility, a detailed borrowing base formula provides borrowing availability to the Company based on percentages of eligible accounts receivable and inventory. Interest on the term loan A is at either (i) LIBOR plus 4%3.25% to 5%4.25% or (ii) the bank’s prime lending rate plus 2%.75% to 1.75%, at the Company’s election. Interest on the term loan B is at either (i) LIBOR plus 6%5.25% to 7%6.25% or (ii) the bank’s prime lending rate plus 4.5%3.25% to 4.25%, at the Company’s election. The term loan A is amortized based on a ten-year schedule with the balance due at maturity. The term loan B is amortized over a two-year period plus 50% of debt service coverage excess capped at $3.5 million.
 
As of December 31, 2010, the Company had $124.5 million outstanding under the revolving credit facility, and approximately $44.6 million of unused borrowing availability.
Current financial resources (working capital and available bank borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet current cash requirements for at least the next twelve months. The future availability of bank borrowings under the revolving loan


26

portion of the credit facility is based on the Company’s ability to meet a debt service ratio covenant, which could be materially impacted by negative economic trends. Failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings.


26

In 2009, the Company purchased $15.2 million aggregate principal amount of the 8.375% Notes for $8.9 million. After writing off $.1 million of deferred financing costs, the Company recorded a net gain of $6.3 million.
 
The Company may from time to time seek to refinance, retire or purchase its outstanding debt through cash purchasesand/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. It may also repurchase shares of its outstanding common stock. Such repurchases or exchanges, if any,Any such actions will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
 
Disruptions, uncertainty or volatility in the credit markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future. These market conditions may limit the Company’s ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow and maintain its business. Accordingly, the Company may be forced to delay raising capital or pay unattractive interest rates, which could increase its interest expense, decrease its profitability and significantly reduce its financial flexibility.
 
At December 31, 2009,2010, the CompanyCompany’s debt service coverage ratio was 2.0, and, therefore, it was in compliance with the debt service ratio covenant andcontained in the revolving credit facility. The Company was also in compliance with the other covenants contained in the revolving credit facility as of December 31, 2010. The debt service coverage ratio is calculated at the end of each fiscal quarter and is based on the most recently ended four fiscal quarters of consolidated EBITDA minus cash taxes paid, minus unfunded capital expenditures, plus cash tax refunds to consolidated debt charges which are consolidated cash interest expense plus scheduled principal payments on indebtedness plus scheduled reductions in our term debt as defined in the revolving credit facility. The debt service coverage ratio must be greater than 1.0 and not less than 1.1 for any two consecutive fiscal quarters. While we expect to remain in compliance throughout 2010, further declines in demand in the automotive industry and2011. Declines in sales volumes in 20102011 could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by the declines in demand in the automotive industry or the economy inis general, they may not be able to pay their accounts payable to us on a timely basis or at all, which would make thosethe accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base.base and our ability to borrow under such facility. We expect to remain in compliance throughout 2011.
 
The ratio of current assets to current liabilities was 2.902.28 at December 31, 20092010 versus 2.222.75 at December 31, 2008.2009. Working capital decreased by $23.6$3.5 million to $229.3$219.2 million at December 31, 20092010 from $252.9$222.7 million at December 31, 2008.2009. Accounts receivable decreased $61.1increased $21.8 million to $126.4 million in 2010 from $104.6 million in 2009 from $165.82009. Inventory increased by $10.4 million in 2008. Inventory decreased by $46.72010 to $192.5 million from $182.1 million in 2009 to $182.1 million from $228.8 million in 2008 while accrued expenses decreasedincreased by $35.3$20.3 million to $59.5 million in 2010 from $39.1 in 2009 and accounts payable increased $20.6 million to $95.7 million in 2010 from $75.1 million in 2009.
During 2010, the Company provided $67.1 million from operating activities as compared to providing $43.9 million in 2009. The increase in cash provision of $23.2 million was primarily the result of net income of $15.2 million in 2010 compared to a net loss of $5.2 million in 2009 from $74.4(a change of $20.4 million) and net working capital decreases of $33.7 million in 2008 and accounts payable decreased $46.9 million2010 compared to $75.1$30.7 million in 2009 from $122.0offset by a reduction in depreciation and amortization of $1.8 million in 2008.2010 compared to 2009. During 2010, the Company also invested $4.0 million in capital expenditures and made acquisitions for $25.9 million in cash. These activities, plus cash interest and tax payments of $24.5 million, a reduction in borrowings of $19.9 million, purchase of treasury stock of $1.1 million and debt issue costs of $4.1 million resulted in an increase of cash of $12.2 million in 2010.


27

During 2009, the Company provided $43.9 million from operating activities as compared to providing $8.5 million in 2008. The increase in cash provision of $35.4 million was primarily the result of a decrease in net operating assets in 2009 compared to an increase in 2008 ($30.7 million compared to $(9.6) million, respectively) and a decrease in net loss of $114.6 million. The decrease in net loss was partially offset by approximately $5.2 million of noncash restructuring and impairment charges in 2009. During 2009, the Company also invested $5.6 million in capital expenditures, reduced its bank and other debt by $34.4 million, and purchased $.2 million of its common stock.
 
During 2008, the Company provided $8.5 million from operating activities as compared to $31.5 million from operating activities in 2007. The decrease in cash provision of $23.0 million was primarily the result of a decrease in net operating assets in 2008 compared to 2007 ($(9.6) million compared to $(19.0) million), a net income in 2007 of $21.2 million compared to a net loss of $119.8 million in 2008 offset by non-cash restructuring and impairment charges of $121.1 million in 2008 compared to $2.2 million in 2007. During 2008, the Company also invested $17.5 million in capital expenditures, $5.3 million for business acquisitions, received proceeds from bank arrangements of $25.6 million and $3.0 million from the sales of marketable securities and used $4.7 million to purchase $11.0 million aggregate principal amount of the 8.375% Notes and purchased $5.9 million of its common stock.
Off-Balance Sheet Arrangements
 
We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons. There are occasions whereupon we enter into forward contracts on foreign


27

currencies, primarily the euro, purely for the purpose of hedging exposure to changes in the value of accounts receivable in those currencies against the U.S. dollar. At December 31, 2009,2010, none were outstanding. We currently have no other derivative instruments.
 
The following table summarizes our principal contractual obligations and other commercial commitments over various future periods as of December 31, 2009:2010:
 
                                        
   Payments Due or Commitment Expiration Per Period    Payments Due or Commitment Expiration Per Period 
   Less Than
     More than
    Less Than
     More than
 
(In thousands)
 Total 1 Year 1-3 Years 4-5 Years 5 Years  Total 1 Year 1-3 Years 4-5 Years 5 Years 
Long-term debt obligations(1) $333,792  $10,689  $13,936  $306,358  $2,809  $316,213  $13,756  $7,590  $292,580  $2,287 
Capital lease obligations  205   205   -0-   -0-   -0- 
Interest obligations(2)  75,056   15,396   30,792   28,868   -0- 
Interest obligations(1)  59,660   15,396   30,792   13,472   -0- 
Operating lease obligations  36,815   12,477   14,955   5,785   3,598   39,699   13,109   16,232   8,180   2,178 
Purchase obligations  90,218   84,238   5,980   -0-   -0-   135,098   128,826   6,265   4   3 
Postretirement obligations(3)  19,059   2,434   4,543   4,086   7,996 
Postretirement obligations(2)  18,150   2,454   4,332   3,867   7,497 
Standby letters of credit and bank guarantees  19,461   13,114   5,530   -0-   817   15,574   8,118   4,341   -0-   3,115 
                      
Total $574,606  $138,553  $75,736  $345,097  $15,220  $584,394  $181,659  $69,552  $318,103  $15,080 
                      
 
 
(1)Maturities on long-term debt obligations consider the March 8, 2010 amendment to the credit agreement.
(2)Interest obligations are included on the 8.375% Notes only and assume the notes are paid at maturity. The calculation of interest on debt outstanding under our revolving credit facility and other variable rate debt ($2.04.0 million based on 1.43%3.21% average interest rate and outstanding borrowings of $141.2$124.5 million at December 31, 2009)2010) is not included above due to the subjectivity and estimation required.
 
(3)(2)Postretirement obligations include projected postretirement benefit payments to participants only through 2019.2020.
 
The table above excludes the liability for unrecognized income tax benefits disclosed in Note H to the consolidated financial statements included elsewhere herein, since the Company cannot predict with reasonable reliability, the timing of potential cash settlements with the respective taxing authorities.
 
We expect that funds provided by operations plus available borrowings under our revolving credit facility to be adequate to meet our cash requirements for at least the next twelve months.
 
Critical Accounting Policies and Estimates
 
Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions which affect amounts reported in our consolidated financial statements. Management has made their best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe that there is great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However,


28

application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
 
Revenue Recognition:  The Company recognizes revenue, other than from long-term contracts, when title is transferred to the customer, typically upon shipment. Revenue from long-term contracts (approximately 10%11% of consolidated revenue) is accounted for under the percentage of completion method, and recognized on the basis of the percentage each contract’s cost to date bears to the total estimated contract cost. Revenue earned on contracts in process in excess of billings is classified in other current assets in the accompanying consolidated balance sheet. The Company’s revenue recognition


28

policies are in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”
 
Allowance for Doubtful Accounts:  Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. Allowances are developed by the individual operating units based on historical losses, adjusting for economic conditions. Our policy is to identify and reserve for specific collectibility concerns based on customers’ financial condition and payment history. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.
 
Allowance for Obsolete and Slow Moving Inventory:  Inventories are stated at the lower of cost or market value and have been reduced by an allowance for obsolete and slow-moving inventories. The estimated allowance is based on management’s review of inventories on hand with minimal sales activity, which is compared to estimated future usage and sales. Inventories identified by management as slow-moving or obsolete are reserved for based on estimated selling prices less disposal costs. Though we consider these allowances adequate and proper, changes in economic conditions in specific markets in which we operate could have a material effect on reserve allowances required.
 
Impairment of Long-Lived Assets:  In accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, management performs impairment tests of long-lived assets, including property and equipment, whenever an event occurs or circumstances change that indicate that the carrying value may not be recoverable or the useful life of the asset has changed. We reviewed our long-lived assets for indicators of impairment such as a decision to idle certain facilities and consolidate certain operations, a current-period operating or cash flow loss or a forecast that demonstrates continuing losses associated with the use of a long-lived asset and the expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life especially in light of the recent volume declines and volatility in the automotive markets along with the general economic downturn and our goodwill impairment.life. When we identified impairment indicators, we determined whether the carrying amount of our long-lived assets was recoverable by comparing the carrying value to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. We considered whether impairments existed at the lowest level of independent identifiable cash flows within a reporting unit (for example, plant location, program level or asset level). If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets by using appraisals or recent selling experience in selling similar assets or for certain assets with reasonably predicable cash flows by performing discounted cash flow analysis using the same discount rate used as the weighted average cost of capital in the respective goodwill impairment analysis to estimate fair value when market information wasn’t available to determine whether an impairment existed. Certain assets were abandoned and written down to scrap or appraised value. During 2008, the Company recorded asset impairment charges of approximately $23.0 million, of which approximately $13.8 million was determined based on appraisals or scrap value and approximately $9.2 million was based on discounted cash flow analysis. The impact of a one percentage point change in the discount rate used in performing the discounted cash flow analysis would have been less than $1.0 million with respect to the asset impairment charges. In 2009, the Company recorded $7.0 million of asset impairment charges of which $5.2 million was based on appraisals and $1.8 million was based on other valuation methods. See Note O to the consolidated financial statements.statements included elsewhere herein.


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Restructuring:  We recognize costs in accordance with ASC 420, “Exit or Disposal Cost Obligations”. Detailed contemporaneous documentation is maintained and updated on a quarterly basis to ensure that accruals are properly supported. If management determines that there is a change in the estimate, the accruals are adjusted to reflect the changes.
 
Goodwill:  As required by ASC 350, “Intangibles — Goodwill and Other”, (“ASC 350”), management performs impairment testing of goodwill at least annually as of October 1 of each year or more frequently if impairment indicators arise.


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In accordance with ASC 350, management tests goodwill for impairment at the reporting unit level. A reporting unit is a reportable operating segment pursuant to ASC 280 “Segment Reporting”, or one level below the reportable operating segment (component level) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of a reportable operating segment having similar economic characteristics. Prior to our 2008 impairment analysis, we had four reporting units with recorded goodwill including Supply Technologies (included in the Supply Technologies Segment) with $64.6 million of goodwill, Engineered Specialty Products (included in the Supply Technology Segment) with $14.7 million of goodwill, Aluminum Products with $16.5 million of goodwill and Capital Equipment (included in the Manufactured Products segment) with $4.1 million of goodwill. At the time of goodwill impairment testing, management determined fair value of the reporting units through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for each reporting unit. If the calculated fair value is less than the carrying value, impairment of the reporting unit may exist. The use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value. The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the weighted average cost of capital (“WACC”) methodology. The WACC methodology considers market and industry data as well as company-specific risk factors for each reporting unity in determining the appropriate discount rates to be used. The discount rate utilized for each reporting unit, which ranged from 12% to 18%, is indicative of the return an investor would expect to receive for investing in such a business. Operational management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. The projections developed for the 2008 impairment test reflected managements’ view considering the significant market downturn during the fourth quarter of 2008. As an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow model, the aggregate fair value of all reporting units is reconciled to the market capitalization of the Company, which had a significant decline in the fourth quarter of 2008. We have completed the annual impairment test as of October 1, 2007, 2006 and 2005 and have determined that no goodwill impairment existed as of those dates. We completed the annual impairment tests as of October 1, 2008 and updated these tests, as necessary, as of December 31, 2008. We concluded that all of the goodwill in three of the reporting units for a total of $95.8 million was impaired and written off in the fourth quarter of 2008. At December 31, 2008 the Company had remaining goodwill of $4.1 million in the Capital Equipment reporting unit. We completed the annual impairment tests as of October 1, 2009 and 2010 and concluded that no goodwill impairment existed forexisted. On September 30, 2010, the remainingCompany completed the acquisition of Rome and recorded goodwill of $4.6 million in the Aluminum Products reporting unit. On December 31, 2010, the Company completed the acquisition of Pillar and recorded additional goodwill of $.6 million in the Capital Equipment reporting unit.
 
Income Taxes:  In accordance with ASC 740, “Income Taxes”, (“ASC 740”), the Company accounts for income taxes under the asset and 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 currently enacted tax rates. Specifically, we measure gross deferred tax assets for deductible temporary differences and carryforwards, such as operating losses and


30

tax credits, using the applicable enacted tax rates and apply the more likely than not measurement criterion.
 
ASC 740 provides that future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback, carryforward period available under the tax law. The Company analyzed the four possible sources of taxable income as set forth in ASC 740 and concluded that the only relevant sources of taxable income is the reversal of its existing taxable temporary differences. The Company reviewed the projected timing of the reversal of its taxable temporary differences and determined that such reversals will offset the Company’s deferred tax assets prior to their expiration.


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Accordingly, a valuation reserve was established against the Company’s domestic deferred tax assets net of its deferred tax liabilities (taxable temporary differences). See Note H to the consolidated financial statements included elsewhere herein.
 
Pension and Other Postretirement Benefit Plans:  We and our subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans and postretirement benefit plans covering substantially all employees. The measurement of liabilities related to these plans is based on management’s assumptions related to future events, including interest rates, return on pension plan assets, rate of compensation increases, and health care cost trends. Pension plan asset performance in the future will directly impact our net income. We have evaluated our pension and other postretirement benefit assumptions, considering current trends in interest rates and market conditions and believe our assumptions are appropriate.
 
Stock-Based Compensation:
 
ASC 718, “Compensation-Stock Compensation”Compensation,” requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes a fair-value measurement objective in determining the value of such a cost and was effective as of January 1, 2006. The adoptionCompany recorded expense related to stock-based compensation in 2010, 2009 and 2008 of fair-value recognition provisions for stock options increased the Company’s 2009, 2008 and 2007 compensation expense by $.4$1.7 million, $.4$2.4 million and $.3$2.1 million (before-tax)(before tax), respectively.
 
Recent Accounting Pronouncements
 
Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Update (“ASU”)No. 2010-06 “Improving Disclosure about Fair Value Measurements”, requires enhanced disclosures about recurring and nonrecurring fair-value measurements including significant transfers in and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances and settlements on a gross basis of Level 3 fair-value measurements. ASUNo. 2010-06 was adopted January 1, 2010, except for the requirement to separately disclose purchases, sales, issuances and settlements of recurring Level 3 fair value measurements, which is effective January 1, 2011.
In October 2009, the FASB issued ASUNo. 2009-13, “Multiple-Deliverable Revenue Arrangements,” which amends ASC Topic 605, “Revenue Recognition.” ASUNo. 2009-13 amends the ASC to eliminate the residual method of allocation for multiple-deliverable revenue arrangements, and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. Additionally, ASUNo. 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. The Company is currently evaluating the potential impact, if any, of the adoption of this guidance on its Consolidated Financial Statements, which is effective for the Company on January 1, 2011.
In June 2009, the FASB issued guidance as codified inASC 810-10, “Consolidation of Variable Interest Entities” (previously Statement of Financial Accounting Standards (“SFAS”) No. 168, “The167, “Amendments to FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles”Interpretation No. 46(R)”). The statement makes the ASC the single source of authoritative U.S. accounting andThis guidance is intended to improve financial reporting standards, but it does not change U.S. GAAP. The Company adopted the statement as of September 30, 2009. Accordingly, the financial statements for the interim period ending September 30, 2009, and the financial statements for future interim and annual periods will reflect the ASC references. The statement has no impact on the Company’s results of operations, financial condition or liquidity.
In December 2007, the FASB issued new guidance that modifies the accounting for business combinations by requiring that acquired assets and assumed liabilities be recorded at fair value, contingent consideration arrangements be recorded at fair value on the date of the acquisition and pre-acquisition contingencies will generally be accounted for in purchase accounting at fair value. The new guidance was adopted prospectively by the Company, effective January 1, 2009.
In December 2008, the FASB issued new guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The guidance addresses disclosures related to the categories of plan assets and fair value measurements of plan assets. The new guidance was adopted by the Company effective January 1, 2009 and had no effect on its consolidated financial position or results of operations.
Effective January 1, 2008, the Company measures financial assets and liabilities at fair value in three levels of inputs. Thethree-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.providing


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In April 2009, the FASB issued newadditional guidance that if an entity determines that the level of activity for an asset or liability has significantly decreasedto companies involved with variable interest entities (“VIEs”) and thatby requiring additional disclosures about a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value. This new guidance is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009company’s involvement with early adoption permitted for periods ending after March 15, 2009. The Company adopted this guidance for its quarter ended June 30, 2009. There was no impact on the consolidated financial statements. In April 2009, the FASB issued guidance which requires that publicly traded companies include the fair value disclosures in their interim financial statements.variable interest entities. This guidance is generally effective for annual periods beginning after November 15, 2009 and for interim periods within that first annual reporting periods ending after June 15, 2009. The Company adopted this guidance at June 30, 2009. At December 31, 2009 the approximate fair value of Park-Ohio Industries, Inc 8.375% senior subordinated notes due 2014 was $144.3 million based on Level 1 inputs. The company had other investments having Level 2 inputs totaling $6.8 million.
In May 2009, the FASB issued guidance which addresses the types and timing of events that should be reported in the financial statements for events occurring between the balance sheet date and the date the financial statements are issued or available to be issued. This guidance was effective for the Company on June 30, 2009.period. The adoption of this guidance did not have a material impact on the Company’s’ consolidated financial position or results of operations. Refer to Note P to the consolidated financial statements for information on subsequent events.of the Company.
 
Environmental
 
We have been identified as a potentially responsible party at 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. We are participating in the cost of certainclean-up efforts at several of these sites. However, our share of such costs has not been material and based on available information, our management does not expect our exposure at any of these locations to have a material adverse effect on our results of operations, liquidity or financial condition.
 
We have been named as one of many defendants in a number of asbestos-related personal injury lawsuits. Our cost of defending such lawsuits has not been material to date and, based upon available information, our management does not expect our future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial condition. We caution, however, that inherent in management’s estimates of our exposure are expected trends in claims severity, frequency and other factors that may materially vary as claims are filed and settled or otherwise resolved.
 
Seasonality; Variability of Operating Results
 
Our results of operations are typically stronger in the first six months than the last six months of each calendar year due to scheduled plant maintenance in the third quarter to coincide with customer plant shutdowns and due to holidays in the fourth quarter.
The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our business units. Such variability is particularly evident at the capital equipment businesses, included in the Manufactured Products segment, which typically ship a few large systems per year.
 
Forward-Looking Statements
 
This annual report onForm 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. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown


32

risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. These factors include, but are not limited to the following: our substantial indebtedness; continuation of the current negative global economic environment; general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; raw material availability and pricing; component part availability and pricing; changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate recent and future acquisitions into existing operations; changes in general domestic economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including the uncertainties related to the recent global financial crisis; adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities; our ability to meet various covenants, including financial covenants, contained in the agreements governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending


32

and future litigation and other claims; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which could be lower due to the effects of the current financial crisis; our ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems; and the risk factors we describe under “Item 1A. Risk Factors”. 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, except as required by law. 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.


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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risk including changes in interest rates. We are subject to interest rate risk on our floating rate revolving credit facility, which consisted of borrowings of $141.2$124.5 million at December 31, 2009.2010. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $1.4$1.2 million for the year ended December 31, 2009.2010.
 
Our foreign subsidiaries generally conduct business in local currencies. During 2009,2010, we recorded an unfavorable foreign currency translation adjustment of $3.0$.7 million related to net assets located outside the United States. This foreign currency translation adjustment resulted primarily from weakening of the U.S. dollar. Our foreign operations are also subject to other customary risks of operating in a global environment, such as unstable political situations, the effect of local laws and taxes, tariff increases and regulations and requirements for export licenses, the potential imposition of trade or foreign exchange restrictions and transportation delays.
 
Our largest exposures to commodity prices relate to steel and natural gas prices, which have fluctuated widely in recent years. We do not have any commodity swap agreements, forward purchase or hedge contracts for steel but have entered into forward purchase contracts for a portion of our anticipated natural gas usage through April 2010.in 2011.
 
Item 8. Financial Statements and Supplementary Data
 
Index to Consolidated Financial Statements and Supplementary Financial Data
 
     
  Page
 
Report of Independent Registered Public Accounting Firm
  3534 
Report of Independent Registered Public Accounting Firm
  3635 
Consolidated Balance Sheets — December 31, 2010 and 2009
36
Consolidated Statements of Operations — Years Ended December 31, 2010, 2009 and 2008
  37 
Consolidated Statements of Operations — Years Ended December 31, 2009, 2008 and 2007
38
Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2010, 2009 2008 and 20072008
  3938 
Consolidated Statements of Cash Flows — Years Ended December 31, 2010, 2009 2008 and 20072008
  4039 
Notes to Consolidated Financial Statements
  4140 
Supplementary Financial Data
  62 
Selected Quarterly Financial Data (Unaudited) — Years Ended December 31, 20092010 and 20082009
  62 
Schedule II — Valuation and Qualifying accounts
  6463 


3433

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders of Park-Ohio Holdings Corp.
 
We have audited the accompanying consolidated balance sheets of Park-Ohio Holdings Corp. and subsidiaries as of December 31, 20092010 and 2008,2009, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2009.2010. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (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 Holdings Corp. and subsidiaries at December 31, 20092010 and 20082009 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 20092010 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Park-Ohio Holdings Corp. and subsidiaries internal control over financial reporting as of December 31, 2009,2010, based on criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 20108, 2011 expressed an unqualified opinion thereon.
 
/s/  Ernst & Young LLP
 
Cleveland, Ohio
March 15, 20108, 2011


3534

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders of Park-Ohio Holdings Corp.
 
We have audited Park-Ohio Holding Corp.’s and subsidiariessubsidiaries’ internal control over financial reporting as of December 31, 2009,2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Park-Ohio Holdings Corp.’s and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Park-Ohio Holdings Corp. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2010, based on the COSO criteria.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Park-Ohio Holdings Corp. and subsidiaries as of December 31, 20092010 and 2008,2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 20092010 of Park-Ohio Holdings Corp. and subsidiaries and our report dated March 15, 20108, 2011 expressed an unqualified opinion thereon.
 
/s/  Ernst & Young LLP
 
Cleveland, Ohio
March 15, 20108, 2011


3635

Park-Ohio Holdings Corp. and Subsidiaries
 
Consolidated Balance Sheets
 
         
  December 31, 
  2009  2008 
  (Dollars in thousands) 
 
ASSETS
Current Assets        
Cash and cash equivalents $23,098  $17,825 
Accounts receivable, less allowances for doubtful accounts of $8,388 in 2009 and $3,044 in 2008  104,643   165,779 
Inventories  182,116   228,817 
Deferred tax assets  8,104   9,446 
Unbilled contract revenue  19,411   25,602 
Other current assets  12,700   12,818 
         
Total Current Assets  350,072   460,287 
Property, plant and equipment:        
Land and land improvements  3,948   3,723 
Buildings  46,181   42,464 
Machinery and equipment  195,111   202,287 
         
   245,240   248,474 
Less accumulated depreciation  168,609   157,832 
         
   76,631   90,642 
Other Assets:        
Goodwill  4,155   4,109 
Other  71,410   64,182 
         
  $502,268  $619,220 
         
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities        
Trade accounts payable $75,083  $121,995 
Accrued expenses  39,150   74,351 
Current portion of long-term debt  10,894   8,778 
Current portion of other postretirement benefits  2,197   2,290 
         
Total Current Liabilities  127,324   207,414 
Long-Term Liabilities, less current portion        
8.375% senior subordinated notes due 2014  183,835   198,985 
Revolving credit  134,600   164,600 
Other long-term debt  4,668   2,283 
Deferred tax liability  7,200   9,090 
Other postretirement benefits and other long-term liabilities  21,831   24,093 
         
   352,134   399,051 
Shareholders’ Equity        
Capital stock, par value $1 per share        
Serial preferred stock:        
Authorized — 632,470 shares; Issued and outstanding — none  -0-   -0- 
Common stock:        
Authorized — 40,000,000 shares; Issued — 13,273,842 shares in 2009 and 12,237,392 in 2008  13,274   12,237 
Additional paid-in capital  66,323   64,212 
Retained (deficit)  (34,230)  (29,021)
Treasury stock, at cost, 1,473,969 shares in 2009 and 1,443,524 shares in 2008  (17,443)  (17,192)
Accumulated other comprehensive (loss)  (5,114)  (17,481)
         
   22,810   12,755 
         
  $502,268  $619,220 
         
         
  December 31, 
  2010  2009 
  (Dollars in thousands) 
 
ASSETS
Current Assets        
Cash and cash equivalents $35,311  $23,098 
Accounts receivable, less allowances for doubtful accounts of $6,011 in 2010 and $8,388 in 2009  126,409   104,643 
Inventories  192,542   182,116 
Deferred tax assets  10,496   8,104 
Unbilled contract revenue  12,751   19,411 
Other current assets  12,800   12,700 
         
Total Current Assets  390,309   350,072 
Property, plant and equipment:        
Land and land improvements  3,678   3,948 
Buildings  47,479   46,181 
Machinery and equipment  201,920   195,111 
         
   253,077   245,240 
Less accumulated depreciation  184,294   168,609 
         
   68,783   76,631 
Other Assets:        
Goodwill  9,100   4,155 
Other  84,340   71,410 
         
  $552,532  $502,268 
         
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities        
Trade accounts payable $95,695  $75,083 
Accrued expenses  59,487   39,150 
Current portion of long-term debt  13,756   10,894 
Current portion of other postretirement benefits  2,178   2,197 
         
Total Current Liabilities  171,116   127,324 
Long-Term Liabilities, less current portion        
8.375% senior subordinated notes due 2014  183,835   183,835 
Revolving credit  113,300   134,600 
Other long-term debt  5,322   4,668 
Deferred tax liability  9,721   7,200 
Other postretirement benefits and other long-term liabilities  22,863   21,831 
         
   335,041   352,134 
Shareholders’ Equity        
Capital stock, par value $1 per share        
Serial preferred stock:        
Authorized — 632,470 shares; Issued and outstanding — none  -0-   -0- 
Common stock:        
Authorized — 40,000,000 shares; Issued — 13,396,674 shares in 2010 and 13,273,842 in 2009  13,397   13,274 
Additional paid-in capital  68,085   66,323 
Retained (deficit)  (19,043)  (34,230)
Treasury stock, at cost, 1,558,996 shares in 2010 and 1,473,969 shares in 2009  (18,502)  (17,443)
Accumulated other comprehensive income (loss)  2,438   (5,114)
         
   46,375   22,810 
         
  $552,532  $502,268 
         
See notes to consolidated financial statements.


36

Park-Ohio Holdings Corp. and Subsidiaries
Consolidated Statements of Operations
             
  Year Ended December 31, 
  2010  2009  2008 
  (Dollars in thousands,
 
  except per share data) 
 
Net sales $813,522  $701,047  $1,068,757 
Cost of products sold  679,425   597,200   919,297 
             
Gross profit  134,097   103,847   149,460 
Selling, general and administrative expenses  91,755   87,786   105,546 
Goodwill impairment charge  -0-   -0-   95,763 
Restructuring and impairment charges  3,539   5,206   25,331 
             
Operating income (loss)  38,803   10,855   (77,180)
Gain on purchase of 8.375% senior subordinated notes  -0-   (6,297)  (6,232)
Gain on acquisition of business  (2,210)  -0-   -0- 
Interest expense  23,792   23,189   27,869 
             
Income (loss) before income taxes  17,221   (6,037)  (98,817)
Income tax expense (benefit)  2,034   (828)  20,986 
             
Net income (loss) $15,187  $(5,209) $(119,803)
             
Amounts per common share:            
Basic $1.34  $(.47) $(10.88)
             
Diluted $1.29  $(.47) $(10.88)
             
 
See notes to consolidated financial statements.


37

Park-Ohio Holdings Corp. and Subsidiaries
 
Consolidated Statements of OperationsShareholders’ Equity
 
             
  Year Ended December 31, 
  2009  2008  2007 
  (Dollars in thousands,
 
  except per share data) 
 
Net sales $701,047  $1,068,757  $1,071,441 
Cost of products sold  597,200   919,297   912,337 
             
Gross profit  103,847   149,460   159,104 
Selling, general and administrative expenses  87,786   105,546   98,679 
Goodwill impairment charge  -0-   95,763   -0- 
Gain on sale of assets held for sale  -0-   -0-   (2,299)
Restructuring and impairment charges  5,206   25,331   -0- 
             
Operating income (loss)  10,855   (77,180)  62,724 
Gain on purchase of 8.375% senior subordinated notes  (6,297)  (6,232)  -0- 
Interest expense  23,189   27,869   31,551 
             
(Loss) income before income taxes  (6,037)  (98,817)  31,173 
Income tax (benefit) expense  (828)  20,986   9,976 
             
Net (loss) income $(5,209) $(119,803) $21,197 
             
Amounts per common share:            
Basic $(.47) $(10.88) $1.91 
             
Diluted $(.47) $(10.88) $1.82 
             
                         
              Accumulated
    
     Additional
  Retained
     Other
    
  Common
  Paid-In
  Earnings
  Treasury
  Comprehensive
    
  Stock  Capital  (Deficit)  Stock  Income (Loss)  Total 
  (Dollars in thousands) 
 
Balance at January 1, 2008 $12,233  $61,956  $90,782  $(11,255) $17,762  $171,478 
Comprehensive (loss):                        
Net loss          (119,803)          (119,803)
Foreign currency translation adjustment                  (8,730)  (8,730)
Unrealized loss on marketable securities, net of income tax of $-0-                  (90)  (90)
Pension and postretirement benefit adjustments, net of income tax of $13,460                  (26,423)  (26,423)
                         
Comprehensive (loss)                      (155,046)
Restricted stock award  23   (23)              -0- 
Restricted stock exchange for restricted share units  (62)  62               -0- 
Amortization of restricted stock      1,677               1,677 
Purchase of treasury stock (614,863 shares)              (5,937)      (5,937)
Exercise of stock options (43,003 shares)  43   104               147 
Share-based compensation      436               436 
                         
Balance at December 31, 2008  12,237   64,212   (29,021)  (17,192)  (17,481)  12,755 
Comprehensive (loss):                        
Net loss          (5,209)          (5,209)
Foreign currency translation adjustment                  2,968   2,968 
Unrealized loss on marketable securities, net of income tax of $182                  413   413 
Pension and postretirement benefit adjustments, net of income tax of $1,179                  8,986   8,986 
                         
Comprehensive income                      7,158 
Restricted stock award, net of forfeiture  627   (627)              -0- 
Amortization of restricted stock      1,969               1,969 
Purchase of treasury stock (30,445 shares)              (251)      (251)
Exercise of stock options (410,000 shares)  410   373               783 
Share-based compensation      396               396 
                         
Balance at December 31, 2009  13,274   66,323   (34,230)  (17,443)  (5,114)  22,810 
Comprehensive income (loss):                        
Net income          15,187           15,187 
Foreign currency translation adjustment                  (711)  (711)
Pension and postretirement benefit adjustments, net of income tax of $1,143                  8,263   8,263 
                         
Comprehensive income                      22,739 
Amortization of restricted stock      1,463               1,463 
Restricted share units exchange for restricted stock  13   (13)              -0- 
Restricted stock awards  101   (101)              -0- 
Restricted stock cancelled  (14)  14               -0- 
Purchase of treasury stock (85,027 shares)              (1,059)      (1,059)
Exercise of stock options (23,166 shares)  23   127               150 
Share-based compensation      272               272 
                         
Balance at December 31, 2010 $13,397  $68,085  $(19,043) $(18,502) $2,438  $46,375 
                         
 
See notes to consolidated financial statements.


38

Park-Ohio Holdings Corp. and Subsidiaries
 
Consolidated Statements of Shareholders’ EquityCash Flows
 
                         
              Accumulated
    
     Additional
  Retained
     Other
    
  Common
  Paid-In
  Earnings
  Treasury
  Comprehensive
    
  Stock  Capital  (Deficit)  Stock  Income (Loss)  Total 
  (Dollars in thousands) 
 
Balance at January 1, 2007 $12,110  $59,676  $70,193  $(9,066) $5,824  $138,737 
Adjustment relating to adoption of FIN 48          (608)          (608)
Comprehensive income (loss):                        
Net income          21,197           21,197 
Foreign currency translation adjustment                  7,328   7,328 
Unrealized loss on marketable securities, net of income tax of $182                  (323)  (323)
Pension and postretirement benefit adjustments, net of income tax of $2,834                  4,933   4,933 
                         
Comprehensive income                      33,135 
Restricted stock award  17   (17)              -0- 
Amortization of restricted stock      1,651               1,651 
Purchase of treasury stock (92,253 shares)              (2,189)      (2,189)
Exercise of stock options (106,084 shares)  106   234               340 
Share-based compensation      412               412 
                         
Balance at December 31, 2007  12,233   61,956   90,782   (11,255)  17,762   171,478 
Comprehensive (loss):                        
Net loss          (119,803)          (119,803)
Foreign currency translation adjustment                  (8,730)  (8,730)
Unrealized loss on marketable securities, net of income tax of $-0-                  (90)  (90)
Pension and postretirement benefit adjustments, net of income tax of $13,460                  (26,423)  (26,423)
                         
Comprehensive (loss)                      (155,046)
Restricted stock award  23   (23)              -0- 
Restricted stock exchange for restricted share units  (62)  62               -0- 
Amortization of restricted stock      1,677               1,677 
Purchase of treasury stock (614,863 shares)              (5,937)      (5,937)
Exercise of stock options (43,003 shares)  43   104               147 
Share-based compensation      436               436 
                         
Balance at December 31, 2008  12,237   64,212   (29,021)  (17,192)  (17,481)  12,755 
Comprehensive income (loss):                        
Net loss          (5,209)          (5,209)
Foreign currency translation adjustment                  2,968   2,968 
Unrealized loss on marketable securities, net of income tax of $182                  413   413 
Pension and postretirement benefit adjustments, net of income tax of $1,179                  8,986   8,986 
                         
Comprehensive income (loss)                      7,158 
Restricted stock award, net of forfeiture  627   (627)              -0- 
Amortization of restricted stock      1,969               1,969 
Purchase of treasury stock (30,445 shares)              (251)      (251)
Exercise of stock options (410,000 shares)  410   373               783 
Share-based compensation      396               396 
                         
Balance at December 31, 2009 $13,274  $66,323  $(34,230) $(17,443) $(5,114) $22,810 
                         
             
  Year Ended December 31, 
  2010  2009  2008 
  (Dollars in thousands) 
 
OPERATING ACTIVITIES            
Net income (loss) $15,187  $(5,209) $(119,803)
Adjustments to reconcile net income (loss) to net cash provided by operations:            
Depreciation and amortization  17,132   18,918   20,933 
Restructuring and impairment charges  3,539   5,206   121,094 
Gain on purchase of 8.375% senior subordinated notes  -0-   (6,297)  (6,232)
Gain on acquisition of business  (2,210)  -0-   -0- 
Deferred income taxes  (1,126)  (1,842)  -0- 
Stock based compensation expense  1,735   2,365   2,113 
Changes in operating assets and liabilities excluding acquisitions of businesses:            
Accounts receivable  (7,624)  61,136   6,578 
Inventories  10,067   46,701   (12,547)
Accounts payable and accrued expenses  28,068   (82,113)  7,247 
Other  2,291   5,000   (10,836)
             
Net cash provided by operating activities  67,059   43,865   8,547 
INVESTING ACTIVITIES            
Purchases of property, plant and equipment  (3,951)  (5,575)  (17,466)
Business acquisitions, net of cash acquired  (25,900)  -0-   (5,322)
Purchases of marketable securities  -0-   (62)  (853)
Sales of marketable securities  -0-   865   2,983 
Proceeds from the sale of assets held for sale  -0-   -0-   260 
             
Net cash used by investing activities  (29,851)  (4,772)  (20,398)
FINANCING ACTIVITIES            
Payments on debt, net  (19,944)  (25,499)  25,612 
Debt issue costs  (4,142)  -0-   -0- 
Purchase of 8.375% senior subordinated notes  -0-   (8,853)  (4,658)
Issuance of common stock under stock option plan  150   783   147 
Purchase of treasury stock  (1,059)  (251)  (5,937)
             
Net cash (used) provided by financing activities  (24,995)  (33,820)  15,164 
Increase in cash and cash equivalents  12,213   5,273   3,313 
Cash and cash equivalents at beginning of year  23,098   17,825   14,512 
             
Cash and cash equivalents at end of year $35,311  $23,098  $17,825 
             
Income taxes paid $1,217  $3,146  $6,847 
Interest paid  23,324   23,018   26,115 
 
See notes to consolidated financial statements.


39

Park-Ohio Holdings Corp. and Subsidiaries
Consolidated Statements of Cash Flows
             
  Year Ended December 31, 
  2009  2008  2007 
  (Dollars in thousands) 
 
OPERATING ACTIVITIES            
Net (loss) income $(5,209) $(119,803) $21,197 
Adjustments to reconcile net (loss) income to net cash provided by operations:            
Depreciation and amortization  18,918   20,933   20,611 
Restructuring and impairment charges  5,206   121,094   2,214 
Gain on purchase of 8.375% senior subordinated notes  (6,297)  (6,232)  -0- 
Deferred income taxes  (1,842)  -0-   4,342 
Stock based compensation expense  2,365   2,113   2,063 
Changes in operating assets and liabilities excluding acquisitions of businesses:            
Accounts receivable  61,136   6,578   9,536 
Inventories  46,701   (12,547)  8,527 
Accounts payable and accrued expenses  (82,113)  7,247   (22,246)
Other  5,000   (10,836)  (14,778)
             
Net cash provided by operating activities  43,865   8,547   31,466 
INVESTING ACTIVITIES            
Purchases of property, plant and equipment  (5,575)  (17,466)  (21,876)
Business acquisitions, net of cash acquired  -0-   (5,322)  -0- 
Purchases of marketable securities  (62)  (853)  (5,142)
Sales of marketable securities  865   2,983   662 
Proceeds from the sale of assets held for sale  -0-   260   4,365 
             
Net cash used by investing activities  (4,772)  (20,398)  (21,991)
FINANCING ACTIVITIES            
(Payments) proceeds on bank arrangements, net  (25,499)  25,612   (14,751)
Purchase of 8.375% senior subordinated notes  (8,853)  (4,658)  -0- 
Issuance of common stock under stock option plan  783   147   340 
Purchase of treasury stock  (251)  (5,937)  (2,189)
             
Net cash (used) provided by financing activities  (33,820)  15,164   (16,600)
Increase (decrease) in cash and cash equivalents  5,273   3,313   (7,125)
Cash and cash equivalents at beginning of year  17,825   14,512   21,637 
             
Cash and cash equivalents at end of year $23,098  $17,825  $14,512 
             
Income taxes paid $3,146  $6,847  $6,170 
Interest paid  23,018   26,115   30,194 
See notes to consolidated financial statements.


40

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
December 31, 2010, 2009 2008 and 2007
2008
(Dollars in thousands, except per share data)
 
NOTE A — Summary of Significant Accounting Policies
 
Consolidation and Basis of Presentation:  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. The Company does not have off-balance sheet arrangements or financings with unconsolidated entities or other persons. In the ordinary course of business, the Company leases certain real properties as described in Note L. Transactions with related parties are in the ordinary course of business, are conducted on an arm’s-length basis, and are not material to the Company’s financial position, results of operations or cash flows.
 
Accounting Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 offirst-in, first-out (“FIFO”) cost or market value. Inventory reserves were $21,456$22,788 and $22,312$21,456 at December 31, 20092010 and 2008,2009, respectively. Inventory consigned to others was $3,160$6,940 and $5,025$3,160 at December 31, 20092010 and 2008,2009, respectively.
 
Major Classes of Inventories
 
                
 December 31,  December 31, 
 2009 2008  2010 2009 
Finished goods $100,309  $129,939  $116,202  $100,309 
Work in process  26,778   29,648   24,339   26,778 
Raw materials and supplies  55,029   69,230   52,001   55,029 
          
 $182,116  $228,817  $192,542  $182,116 
          
 
Property, Plant and Equipment:  Property, plant and equipment are carried at cost. Additions and associated interest costs are capitalized and 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 ranging from 25 to 6040 years for buildings, and 3 to 20 years for machinery and equipment. The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recoverable. See Note O.
 
Impairment of Long-Lived Assets:  We assess the recoverability of long-lived assets (excluding goodwill) and identifiable acquired intangible assets with finite useful lives, whenever events or changes in circumstances indicate that we may not be able to recover the assets’ carrying amount. We measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset to the expected net future undiscounted cash flows to be generated by that asset, or, for identifiable intangibles with finite useful lives, by determining whether the amortization of the intangible asset balance over its remaining life can be recovered through undiscounted future cash flows. The amount of impairment of identifiable intangible assets with finite useful lives, if any, to be recognized is measured based on projected discounted future cash flows. We measure the amount of impairment of other long-lived assets (excluding goodwill) as the amount by which the carrying value of the asset exceeds the fair market value of the asset,


4140

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
of the asset, which is generally determined, based on projected discounted future cash flows or appraised values. We classify long-lived assets to be disposed of other than by sale as held and used until they are disposed.
 
Goodwill and Other Intangible Assets:  In accordance with Accounting Standards Codification (“ASC”) 350 “Intangibles — Goodwill and Other” (“ASC 350”), the Company does not amortize goodwill recorded in connection with business acquisitions. The Company completed the annual impairment tests required by ASC 350 as of October 1, 2009.2010. Other intangible assets, which consist primarily of non-contractual customer relationships, are amortized over their estimated useful lives.
 
We use an income approach and other valuation techniques to estimate the fair value of our reporting units. Absent an indication of fair value from a potential buyer or similar specific transactions, we believe that using this methodology provides reasonable estimates of a reporting unit’s fair value. The income approach is based on projected future debt-free cash flow that is discounted to present value using factors that consider the timing and risk of the future cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating and cash flow performance. This approach also mitigates most of the impact of cyclical downturns that occur in the reporting unit’s industry. The income approach is based on a reporting unit’s projection of operating results and cash flows that is discounted using a weighted-average cost of capital. The projection is based upon our best estimates of projected economic and market conditions over the related period including growth rates, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements based on management projections. There are inherent uncertainties, however, related to these factors and to our judgment in applying them to this analysis. Nonetheless, we believe that this method provides a reasonable approach to estimate the fair value of our reporting units. See Note D for the results of this testing.
 
Stock-Based Compensation:  The Company follows the provisions of ASC 718 “Compensation — Stock Compensation,” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
ASC 718 also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under previous accounting guidance. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior years was zero because the Company did not owe federal income taxes due to the recognition of net operating loss carryforwards for which valuation allowances had been provided.
 
Additional information regarding our share-based compensation program is provided in Note I.
Accounting for Asset Retirement Obligations:  In accordance with ASC 410 “Asset Retirement and Environmental Obligations”, the Company has identified certain conditional asset retirement obligations at various current manufacturing facilities. These obligations relate primarily to asbestos abatement. Using investigative, remediation, and disposal methods that are currently available to the Company, the estimated cost of these obligations is not significant and management does not believe that any potential liability ultimately attributed to the Company for its conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time during which investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties. Management expects these contingent asset retirement obligations to be resolved over an extended period of time. Management is


42

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unable to provide a more specific time frame due to the indefinite amount of time to conduct investigation activities at any site, the indefinite amount of time to obtain governmental agency approval, as necessary, with respect to investigation and remediation activities, and the indefinite amount of time necessary to conduct remediation activities.
 
Income Taxes:  The Company accounts for income taxes under the asset and 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. In determining these amounts, management determined the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, cumulative earnings and losses, expectations of future earnings, taxable income and the extended period of time over which the postretirement benefits will be paid and accordingly records valuation allowances if, based on the weight of available evidence it is more likely than not that some portion or all of our deferred tax assets will not be realized as required by ASC 740 “Income Taxes” (“ASC 740”).
 
Revenue Recognition:  The Company recognizes revenue, other than from long-term contracts, when title is transferred to the customer, typically upon shipment. Revenue from long-term contracts (approximately 10%11% of consolidated revenue) is accounted for under the percentage of completion method, and recognized on the basis of the percentage each contract’s cost to date bears to the total estimated contract cost. Revenue earned on contracts in process in excess of billings is classified in unbilled contract revenues in the accompanying consolidated balance sheet.
 
Accounts Receivable and Allowance for Doubtful Accounts:Accounts receivable are recorded at net realizable value. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company’s policy is to identify and reserve for specific collectibility


41

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
concerns based on customers’ financial condition and payment history. On November 16, 2007, the Company entered into a five-year Accounts Receivable Purchase Agreement whereby one specific customer’s accounts receivable may be sold without recourse to a third-party financial institution on a revolving basis. During 20092010 and 2008,2009, we sold approximately $20,832$37,272 and $33,814,$20,832, respectively, of accounts receivable to mitigate accounts receivable concentration risk and to provide additional financing capacity. In compliance with ASC 860, “Transfers and Servicing”, sales of accounts receivable are reflected as a reduction of accounts receivable in the Consolidated Balance Sheets and the proceeds are included in the cash flows from operating activities in the Consolidated Statements of Cash flows. In 20092010 and 2008,2009, a loss in the amount of $86$165 and $200,$86, respectively, related to the sale of accounts receivable is recorded in the Consolidated Statements of Operations. These losses represented implicit interest on the transactions.
 
Software Development Costs:  Software development costs incurred subsequent to establishing feasibility through the general release of the software products are capitalized and included in other assets in the consolidated balance sheet. Technological feasibility is demonstrated by the completion of a working model. All costs prior to the development of the working model are expensed as incurred. Capitalized costs are amortized on a straight-line basis over five years, which is the estimated useful life of the software product. Amortization expense was $2,213, $1,454 and $1,288 in 2010, 2009 and $1,287 in 2009, 2008, and 2007, respectively.
 
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, 2009,2010, the Company had uncollateralized receivables with sixfive customers in the automotive industry, each with several locations, aggregating $17,363,$13,352, which represented approximately 16%11% of the Company’s trade accounts receivable. During 2009,2010, sales to these customers amounted to approximately $77,297,$100,009, which represented approximately 11%12% of the Company’s net sales.


43

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Shipping and Handling Costs:  All shipping and handling costs are included in cost of products sold in the Consolidated Statements of Operations.
 
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 that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability when environmental assessmentsand/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.
 
Foreign Currency Translation:  The functional currency for all subsidiaries outside the United States is the local currency. Financial statements for these subsidiaries are translated into U.S. dollars at year-end exchange rates as to assets and liabilities and weighted-average exchange rates as to revenues and expenses. The resulting translation adjustments are recorded in accumulated comprehensive income (loss) in shareholders’ equity.
 
Recent Accounting Pronouncements
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued StatementAccounting Standard Codification (“ASC”) Update (“ASU”)No. 2010-06 “Improving Disclosure about Fair Value Measurements”, requires enhanced disclosures about recurring and nonrecurring fair-value measurements including significant transfers in and out of Financial Accounting Standards Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances and settlements on a gross basis of Level 3 fair-value measurements. ASUNo. 168, “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles”. The statement makes the ASC the single source of authoritative U.S. accounting and reporting standards, but it does not change U.S. GAAP. The Company2010-06 was adopted the statement as of September 30, 2009. Accordingly, the financial statementsJanuary 1, 2010, except for the interim period ending September 30, 2009,requirement to separately disclose purchases, sales, issuances and the financial statements for future interim and annual periods will reflect the ASC references. The statement has no impact on the Company’s resultssettlements of operations, financial condition or liquidity.
In December 2007, the FASB issued new guidance that modifies the accounting for business combinations by requiring that acquired assets and assumed liabilities be recorded atrecurring Level 3 fair value contingent consideration arrangements be recorded at fair value on the date of the acquisition and pre-acquisition contingencies will generally be accounted for in purchase accounting at fair value. The new guidance was adopted prospectively by the Company,measurements, which is effective January 1, 2009.
In December 2008, the FASB issued new guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The guidance addresses disclosures related to the categories of plan assets and fair value measurements of plan assets. The new guidance was adopted by the Company effective January 1, 2009 and had no effect on its consolidated financial position or results of operations.
Effective January 1, 2008, the Company measures financial assets and liabilities at fair value in three levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level 1 —Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 —Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 —Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.2011.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In AprilOctober 2009, the FASB issued new guidanceASUNo. 2009-13, “Multiple-Deliverable Revenue Arrangements,” which amends ASC Topic 605, “Revenue Recognition.” ASUNo. 2009-13 amends the ASC to eliminate the residual method of allocation for multiple-deliverable revenue arrangements, and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transactionavailable, (2) third-party evidence if vendor-specific objective evidence is not orderly, further analysisavailable, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. Additionally, ASUNo. 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. The Company is currently evaluating the potential impact, if any, of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value. This newadoption of this guidance is to be applied prospectively andon its Consolidated Financial Statements, which is effective for interim and annual periods ending afterthe Company on January 1, 2011.
In June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company adopted this guidance for its quarter ended June 30, 2009. There was no impact on the consolidated financial statements. In April 2009, the FASB issued guidance which requires that publicly traded companies include the fair value disclosuresas codified in their interim financial statements.ASC 810-10, “Consolidation of Variable Interest Entities” (previously Statement of Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB Interpretation No. 46(R)”). This guidance is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities (“VIEs”) and by requiring additional disclosures about a company’s involvement with VIEs. This guidance is generally effective for annual periods beginning after November 15, 2009 and for interim periods within that first annual reporting periods ending after June 15, 2009. The Company adopted this guidance at June 30, 2009. At December 31, 2009 the approximate fair value of Park-Ohio Industries, Inc 8.375% senior subordinated notes due 2014 was $144,310 based on Level 1 inputs. The Company had other investments having Level 2 inputs totaling $6,809.
In May 2009, the FASB issued guidance which addresses the types and timing of events that should be reported in the financial statements for events occurring between the balance sheet date and the date the financial statements are issued or available to be issued. This guidance was effective for the Company on June 30, 2009.period. The adoption of this guidance did not have a material impact on the Company’s’ consolidated financial position or results of operations. Refer to Note P to the consolidated financial statements for information on subsequent events.of the Company.
 
NOTE B —Segments
 
The Company operates through three segments: Supply Technologies, Aluminum Products and Manufactured Products. Supply Technologies provides our customers with Total Supply Managementtm services for a broad range of high-volume, specialty production components. Total Supply Managementtm manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products manufactures cast aluminum components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications. The principal customers of Manufactured Products are original equipment manufacturers and end users in the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense 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 and interest expense. Identifiable assets by industry segment include assets directly identified with those operations.
 
Corporate assets generally consist of cash and cash equivalents, deferred tax assets, property and equipment, and other assets.
 


4543

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                        
 Year Ended December 31,  Year Ended December 31, 
 2009 2008 2007  2010 2009 2008 
Net sales:                        
Supply Technologies $328,805  $521,270  $531,417  $402,169  $328,805  $521,270 
Aluminum Products  111,388   156,269   169,118   143,672   111,388   156,269 
Manufactured Products  260,854   391,218   370,906   267,681   260,854   391,218 
              
 $701,047  $1,068,757  $1,071,441  $813,522  $701,047  $1,068,757 
              
Income before income taxes:                        
Supply Technologies $6,325  $(74,884) $27,175  $22,216  $8,531  $(66,419)
Aluminum Products  (5,155)  (36,042)  3,020   6,582   (5,155)  (23,467)
Manufactured Products  23,472   50,534   45,798   28,739   26,472   54,825 
              
  24,642   (60,392)  75,993   57,537   29,848   (35,061)
Corporate costs  (7,490)  (10,556)  (13,269)  (15,195)  (13,787)  (16,788)
Gain on purchase of 8.375% senior subordinated notes  -0-   6,297   6,232 
Gain on acquisition of business  2,210   -0-   -0- 
Asset impairment charge  (3,539)  (5,206)  (25,331)
Interest expense  (23,189)  (27,869)  (31,551)  (23,792)  (23,189)  (27,869)
              
 $(6,037) $(98,817) $31,173  $17,221  $(6,037) $(98,817)
              
Identifiable assets:                        
Supply Technologies $207,729  $256,161  $354,165  $217,915  $207,729  $256,161 
Aluminum Products  76,443   87,215   98,524   66,219   76,443   87,215 
Manufactured Products  178,715   242,057   231,459   188,017   178,715   242,057 
General corporate  39,381   33,787   85,041   80,381   39,381   33,787 
              
 $502,268  $619,220  $769,189  $552,532  $502,268  $619,220 
              
Depreciation and amortization expense:                        
Supply Technologies $4,812  $5,153  $4,832  $5,272  $4,812  $5,153 
Aluminum Products  7,556   8,564   8,563   6,488   7,556   8,564 
Manufactured Products  6,022   6,586   6,723   5,001   6,022   6,586 
General corporate  528   630   493   371   528   630 
              
 $18,918  $20,933  $20,611  $17,132  $18,918  $20,933 
              
Capital expenditures:                        
Supply Technologies $2,380  $931  $7,751  $1,613  $2,380  $931 
Aluminum Products  1,385   7,750   4,775   156   1,385   7,750 
Manufactured Products  2,006   8,101   6,534   2,138   2,006   8,101 
General corporate  (196)  684   2,816   44   (196)  684 
              
 $5,575  $17,466  $21,876  $3,951  $5,575  $17,466 
              

4644

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company’s approximate percentage of net sales by geographic region were as follows:
 
                  
 Year Ended
  Year Ended
 
 December 31,  December 31, 
 2009 2008 2007  2010 2009 2008 
United States  73%  68%  70%  73%  73%  68%
Asia  9%  11%  9%  10%  9%  11%
Canada  6%  6%  5%  6%  6%  6%
Mexico  2%  6%  6%  3%  2%  6%
Europe  9%  6%  6%  5%  9%  6%
Other  1%  3%  4%  3%  1%  3%
              
  100%  100%  100%  100%  100%  100%
              
 
At December 31, 2010, 2009 and 2008, approximately 75%, 77% and 2007, approximately 77%, 81% and 85%, respectively, of the Company’s assets were maintained in the United States.
 
NOTE C —Acquisitions
 
During 2008,Effective August 31, 2010, the Company purchasedcompleted the acquisition of certain assets and assumed specific liabilities relating to Assembly Components Systems (“ACS”) business unit of two companiesLawson Products, Inc. for $16,000 in cash and a $2,160 subordinated promissory note payable in equal quarterly installments over three years. ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America. The net assets acquired were integrated into the Company’s Supply Technologies business segment. The fair value of the net assets acquired of $20,370 exceeded the total costpurchase price and, accordingly, resulted in a gain on acquisition of $5,322. These acquisitionsbusiness of $2,210. Net sales of $16,931 were funded with borrowingsadded to the Company’s Supply Technologies business segment in 2010 since the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price is allocated to ACS’s tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of August 31, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed which are based on estimates and assumptions, the purchase price is allocated as follows:
     
Accounts receivable $9,059 
Inventories  16,711 
Prepaid expenses and other current assets  42 
Property, plant and equipment  299 
Customer relationships  990 
Accounts payable  (5,047)
Accrued expenses  (330)
Deferred tax liability  (1,354)
Gain on acquisition  (2,210)
     
Total purchase price $18,160 
     
Direct transaction costs associated with this acquisition included in selling, general and administrative expenses during the year ended December 31, 2010 were approximately $346.
On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which, Rome agreed to transfer to the


45

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company substantially all of the assets of Rome in exchange for approximately $7,500 of notes receivable from Rome. The assets of Rome were integrated into the Company’s revolving credit facility.aluminum segment. Net sales of $7,031 were added to the Company’s Aluminum segment in 2010 since the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the purchase price is allocated to Rome’s tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of September 30, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price is as follows:
     
Accounts receivable $1,918 
Inventories  1,000 
Property, plant and equipment  2,800 
Accounts payable  (2,314)
Accrued expenses  (516)
Goodwill  4,572 
     
Total purchase price $7,460 
     
Direct transaction costs associated with this acquisition included in selling, general and administrative expenses during the year ended December 31, 2010 were approximately $256.
On December 31, 2010, the Company through its subsidiary Ajax Tocco Magnathermic acquired the assets and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”). Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
The assets of Pillar will be integrated into the Company’s manufactured products segment. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price is allocated to Pillar’s tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of December 31, 2010, the effective date of the acquisition. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed which are based on estimates and assumptions that are subject to change, the preliminary estimated purchase price is allocated as follows:
     
Accounts receivable $3,164 
Inventories  2,782 
Prepaid expenses and other current assets  178 
Property, plant and equipment  447 
Customer relationships  3,480 
Technological know how  1,890 
Trade name and other intangible assets  710 
Accounts payable  (1,202)
Accrued expenses  (2,133)
Goodwill  584 
     
Total purchase price $9,900 
     
The area of purchase price allocation that is not yet finalized relates to the working capital adjustment as of December 31, 2010. Prior to the measurement period for finalizing the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively. There were no significant


46

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
direct transaction costs included in selling, general and administrative expenses during the year ended December 31, 2010. These costs will be expensed as incurred in the first quarter of 2011.
The following unaudited pro forma information is provided to present a summary of the combined results of the Company’s operations with ACS, Rome and Pillar as if the acquisitions werehad occurred on January 1, 2009. The unaudited pro forma financial information is for informational purposes only and is not deemed significant as defined inRegulation S-X.necessarily indicative of what the results would have been had the acquisitions been completed at the date indicated above.
         
  Year Ended December 31,
  2010 2009
 
Pro forma revenues $881,271  $770,603 
Pro forma net income $15,072  $(12,744)
Earnings per share:        
Basic $1.33  $1.16 
Diluted $1.28  $1.16 
 
NOTE D —Goodwill and Other Intangible Assets
 
ASC 350, requires that our annual, and any interim, impairment assessment be performed at the “reporting unit” level. At October 1, 2008, the Company had four reporting units that had goodwill. Under the provisions of ASC 350, these four reporting units were tested for impairment as of October 1, 2008 and updated as of December 31, 2008, as necessary. During the fourth quarter of 2008, indicators of potential impairment caused us to update our impairment tests. Those indicators included the following: a significant decrease in market capitalization; a decline in recent operating results; and a decline in our business outlook primarily due to the macroeconomic environment. In accordance with ASC 350, we completed an impairment analysis and concluded that all of the goodwill in three of the reporting units for a total of $95,763 was impaired and written off in the fourth quarter of 2008.
 
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2010, 2009 and 2008 were as follows:
 
                                
 Supply
   Manufactured
    Supply
   Manufactured
   
 Technologies Aluminum Products Total  Technologies Aluminum Products Total 
Balance at January 1, 2008 $80,249  $16,515  $4,233  $100,997  $80,249  $16,515  $4,233  $100,997 
Foreign Currency Translation  (1,001)  -0-   (124)  (1,125)  (1,001)  -0-   (124)  (1,125)
Impairment Charge  (79,248)  (16,515)  -0-   (95,763)  (79,248)  (16,515)  -0-   (95,763)
                  
Balance at December 31, 2008  -0-   -0-   4109   4,109   -0-   -0-   4,109   4,109 
Foreign Currency Translation  -0-   -0-   46   46   -0-   -0-   46   46 
                  
Balance at December 31, 2009 $-0-  $-0-  $4,155  $4,155   -0-   -0-   4,155   4,155 
Foreign Currency Translation  -0-   -0-   (211)  (211)
Acquisitions  -0-   4,572   584   5,156 
                  
Balance at December 31, 2010 $-0-  $4,572  $4,528  $9,100 
         


47

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Other intangible assets were acquired in connection with the acquisitionacquisitions of NABS, Inc., ACS and Pillar. Information regarding other intangible assets as of December 31, 20092010 and 20082009 follows:
 
                                                
   2009     2008      2010     2009   
 Acquisition
 Accumulated
   Acquisition
 Accumulated
    Acquisition
 Accumulated
   Acquisition
 Accumulated
   
 Costs Amortization Net Costs Amortization Net  Costs Amortization Net Costs Amortization Net 
Non-contractual customer relationships $7,200  $1,800  $5,400  $7,200  $1,200  $6,000  $11,670  $2,422  $9,248  $7,200  $1,800  $5,400 
Other  820   372   448   820   248   572   3,420   495   2,925   820   372   448 
                          
 $8,020  $2,172  $5,848  $8,020  $1,448  $6,572  $15,090  $2,917  $12,173  $8,020  $2,172  $5,848 
                          
 
Amortization of other intangible assets was $745 for the year ended December 31, 2010 and $724 for each of the years ended December 31, 2009 and 2008. Amortization expense for each of the five years following December 31, 20092010 is approximately $724 in 2010, $724$1,169 in 2011, $1,169 in 2012 and $600$1,045 for each of the three subsequent years thereafter.
 
NOTE E —Other Assets
 
Other assets consists of the following:
 
                
 December 31,  December 31, 
 2009 2008  2010 2009 
Pension assets $49,435  $38,985  $60,786  $49,435 
Deferred financing costs, net  1,345   2,951   3,695   1,345 
Tooling  384   139   417   384 
Software development costs  3,893   4,096   2,292   3,893 
Intangible assets subject to amortization  5,848   6,572   12,173   5,848 
Other  10,505   11,439   4,977   10,505 
          
Totals $71,410  $64,182  $84,340  $71,410 
          
 
NOTE F —Accrued Expenses
 
Accrued expenses include the following:
 
                
 December 31,  December 31, 
 2009 2008  2010 2009 
Accrued salaries, wages and benefits $8,978  $13,173  $13,832  $8,978 
Advance billings  14,189   28,412   23,218   14,189 
Warranty accrual  2,760   5,402   4,046   2,760 
Interest payable  2,191   2,837   2,504   2,191 
Taxes  1,788   6,386 
Taxes, income and other  3,252   1,788 
Other  9,244   18,141   12,635   9,244 
          
Totals $39,150  $74,351  $59,487  $39,150 
          
 
Substantially all advance billings and warranty accruals relate to the Company’s capital equipment businesses.


48

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The changes in the aggregate product warranty liability are as follows for the year ended December 31, 2010, 2009 2008 and 2007:2008:
 
                        
 2009 2008 2007  2010 2009 2008 
Balance at beginning of year $5,402  $5,799  $3,557  $2,760  $5,402  $5,799 
Claims paid during the year  (3,367)  (3,944)  (2,402)  (1,260)  (3,367)  (3,944)
Warranty expense  704   4,202   4,526   2,294   704   4,202 
Other  21   (655)  118   252   21   (655)
              
Balance at end of year $2,760  $5,402  $5,799  $4,046  $2,760  $5,402 
              
 
NOTE G —Financing Arrangements
 
Long-term debt consists of the following:
 
                
 December 31,  December 31, 
 2009 2008  2010 2009 
8.375% senior subordinated notes due 2014 $183,835  $198,985  $183,835  $183,835 
Revolving credit facility maturing on June 30, 2013  141,200   164,600 
Revolving credit  90,200   101,200 
Term Loan A  25,900   28,000 
Term Loan B  8,400   12,000 
Other  8,962   11,061   7,878   8,962 
          
  333,997   374,646   316,213   333,997 
Less current maturities  10,894   8,778   13,756   10,894 
          
Total $323,103  $365,868  $302,457  $323,103 
          
 
The Company is a party to a credit and security agreement dated November 5, 2003, as amended (“Credit Agreement”), with a group of banks, under which it may borrow or issue standby letters of credit or commercial letters of credit upcredit. On March 8, 2010, and subsequently on August 31, 2010, the Credit Agreement was amended and restated to among other things, extend its maturity date to April 30, 2014 and reduce the loan commitment from $270,000 at December 31, 2009.to $210,000, which includes a term loan A that is secured by real estate and machinery and equipment and an unsecured term loan B. The Credit Agreement contains a detailed borrowing base formula that provides borrowing capacity to the Company based on negotiated percentages of eligible accounts receivable, inventory and fixed assets. At December 31, 2009,2010, the Company had approximately $34,172$44,634 of unused borrowing capacity available under the Credit Agreement. Up to $40,000 in standby letters of credit and commercial letters of credit may be issued under the Credit Agreement. As of December 31, 2009,2010, in addition to amounts borrowed under the Credit Agreement, there was $8,552$7,554 outstanding primarily for standby letters of credit. An annual fee of .75% is imposed by the bank on the unused portion of available borrowings.
 
On March 8, 2010, the Credit Agreement was amended and restated to, among other things, extend its maturity date to June 30, 2013, reduce the loan commitment from $270,000 to $210,000, which includes a term loan A for $28,000 that is secured by real estate and machinery and equipment and an unsecured term loan B for $12,000. Amounts borrowed under the revolving credit facility may be borrowed at either (i) LIBOR plus 3%2.25% to 4%3.25% or (ii) the bank’s prime lending rate minus (.25)% to plus 1%.75% at the Company’s election. The LIBOR-based interest rate is dependent on the Company’s debt service coverage ratio, as defined in the Credit Agreement. Under the Credit Agreement, a detailed borrowing base formula provides borrowing availability to the Company based on percentages of eligible accounts receivable and inventory. Interest on the term loan A is at either (i) LIBOR plus 4%3.25% to 5%4.25% or (ii) the bank’s prime lending rate plus 2%.75% to 1.75% at the Company’s election. Interest on the term loan B is at either (i) LIBOR plus 6%5.25% to 7%6.25% or (ii) the bank’s prime lending rate plus 4.5%3.25% to 4.25%, at the Company’s election. The term loan A is amortized based on a ten year schedule with the balance due at maturity. The term loan B is amortized over a two-year period plus 50% of debt service coverage excess capped at $3,500.


49

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Considering the amendment of the Credit Agreement on March 8, 2010, maturitiesMaturities of long-term debt during each of the five years following December 31, 20092010 are approximately $10,894 in 2010, $9,136$13,756 in 2011, $4,800$4,290 in 2012, $122,000$3,300 in 2013, $292,058 in 2014 and $523 in 2014.
2015.
 
Foreign subsidiaries of the Company had borrowings of $3,787$1,229 and $10,319$3,787 at December 31, 20092010 and 2008,2009, respectively and outstanding bank guarantees of $10,909$7,363 at December 31, 20092010 under their credit arrangements.
 
The 8.375% senior subordinated notes due 2014 (“8.375% Notes”) are general unsecured senior subordinated obligations of the Company and are fully and unconditionally guaranteed on a joint and several basis by all material domestic subsidiaries of the Company. Provisions of the indenture governing the 8.375% Notes and the 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 or to merge or consolidate with an unaffiliated entity. At December 31, 2009,2010, the Company was in compliance with all financial covenants of the Credit Agreement.
 
The weighted average interest rate on all debt was 5.26%6.21% at December 31, 2009.2010.
 
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and borrowings under the Credit Agreement approximate fair value at December 31, 20092010 and 2008.2009. The approximate fair value of the 8.375% Notes was $144,310$187,512 and $79,594$144,310 at December 31, 20092010 and 2008,2009, respectively.
 
In 2009, a foreign subsidiary of the Company purchased $15,150 aggregate principal amount of the 8.375% Notes for $8,853. After writing off $147 of deferred financing costs, the Company recorded a net gain of $6,297.
 
In 2008, the Company purchased $11,015 aggregate principal amount of the 8.375% Notes for $4,658. After writing off $125 of deferred financing costs, the Company recorded a net gain of $6,232. The 8.375% Notes were not contributed to Park-Ohio Industries, Inc. in 2008 but were held by Park-Ohio Holdings Corp. During the fourth quarter of 2009, these notes were sold to a wholly-owned subsidiary of Park-Ohio Industries, Inc.
 
NOTE H —Income Taxes
NOTE H — Income Taxes
 
Income taxes consisted(loss) from continuing operations before income tax expense consists of the following:
 
             
  Year Ended December 31, 
  2009  2008  2007 
 
Current expense (benefit):            
Federal $(147) $229  $(9)
State  179   1,518   299 
Foreign  982   6,156   5,344 
             
   1,014   7,903   5,634 
Deferred:            
Federal  (1,231)  12,421   3,639 
State  (39)  923   198 
Foreign  (572)  (261)  505 
             
   (1,842)  13,083   4,342 
             
Income tax (benefit) expense $(828) $20,986  $9,976 
             
             
  Year Ended December 31 
  2010  2009  2008 
 
United States $6,723  $(10,160) $(113,699)
Outside the United States  10,498   4,123   14,882 
             
  $17,221  $(6,037) $(98,817)
             


50

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income taxes consisted of the following:
             
  Year Ended December 31, 
  2010  2009  2008 
 
Current expense (benefit):            
Federal $61  $(147) $229 
State  573   179   1,518 
Foreign  2,526   982   6,156 
             
   3,160   1,014   7,903 
Deferred:            
Federal  (2,014)  (1,231)  12,421 
State  689   (39)  923 
Foreign  199   (572)  (261)
             
   (1,126)  (1,842)  13,083 
             
Income tax expense (benefit) $2,034  $(828) $20,986 
             
 
The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
 
                        
Rate Reconciliation
 2009 2008 2007  2010 2009 2008 
Tax at statutory rate $(2,113) $(34,586) $10,911  $6,027  $(2,113) $(34,586)
Effect of state income taxes, net  (161)  (1,834)  266   1,048   (161)  (1,834)
Effect of foreign operations  1,247   293   (1,082)  1,472   1,247   293 
Goodwill  -0-   23,241   -0-   -0-   -0-   23,241 
Valuation allowance  (1,815)  33,625   238 
Valuation allowance, federal and foreign  (6,475)  (1,815)  33,625 
Equity compensation  148   18   51   (59)  148   18 
Tax credits  (192)  (240)  (207)  (72)  (192)  (240)
Prior year adjustments  141   (304)  504   365   141   (304)
Non-deductable items  735   802   572   480   735   802 
Gain on asset purchase  (772) ��-0-   -0- 
Other, net  1,182   (29)  (1,277)  20   1,182   (29)
              
Total $(828) $20,986  $9,976  $2,034  $(828) $20,986 
              


51

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Significant components of the Company’s net deferred tax assets and liabilities are as follows:
 
                
 December 31,  December 31, 
 2009 2008  2010 2009 
Deferred tax assets:                
Postretirement benefit obligation $7,060  $7,579  $7,003  $7,060 
Inventory  10,342   12,126   12,363   10,342 
Net operating loss and credit carryforwards  22,478   22,133   16,184   22,478 
Goodwill  4,381   5,465   3,177   4,381 
Other  8,348   10,832   11,138   8,348 
          
Total deferred tax assets  52,609   58,135   49,865   52,609 
Deferred tax liabilities:                
Depreciation and amortization  692   5,824   1,090   692 
Pension  18,010   14,389   21,423   18,010 
Intangible assets and other  2,335   2,645   4,191   2,335 
          
Total deferred tax liabilities  21,037   22,858   26,704   21,037 
          
Net deferred tax assets prior to valuation allowances  31,572   35,277   23,161   31,572 
Valuation allowances  (30,668)  (34,921)  (22,386)  (30,668)
          
Net deferred tax asset $904  $356  $775  $904 
          
 
At December 31, 2009,2010, the Company has federal, state and foreign net operating loss carryforwards for income tax purposes. The U.S. federal net operating loss carryforward is approximately $38,538$24,699 which expires between 20222023 and 2029. The foreign net operating loss carryforward is $3,619$3,988 of which $1,181$1,315 expires in 20162029 and $2,438$2,673 has no expiration date. The Company also has a tax benefit from a state net operating loss carryforward of $4,589$4,748 which expires between 20102011 and 2029.2030.
 
At December 31, 2009,2010, the Company has research and development credit carryforwards of approximately $2,923$2,875 which expire between 2012 and 2029.2030. The Company also has foreign tax credit carryforwards of $1,778, which expire between 2015 and 2019, and alternative minimum tax credit carryforwards of $1,083 which have no expiration date.


51

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 20062007 through 20092010 remain open for examination by the U.S. and various state and foreign taxing authorities.
 
As of December 31, 20092010 and 2008,2009, the Company was in a cumulative three-year loss position and it was determined that it was not more likely than not that its U.S. net deferred tax assets will be realized. As of December 31, 20092010 and 2008,2009, the Company recorded full valuation allowances of $28,813$20,089 and $34,475,$28,813, respectively, against its U.S. net deferred tax assets. In addition, the Company determined that it was not more likely than not that certain foreign net deferred tax assets will be realized. As of December 31, 20092010 and 2008,2009, the Company recorded valuation allowances of $1,855$2,297 and $447,$1,855, respectively, against certain foreign net deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities). The Company reviews all valuation allowances related to deferred tax assets and will reverse these valuation allowances, partially or totally, when appropriate under ASC 740.


52

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
The Company adopted the provisions of Accounting for Uncertainty in Income Taxes, primarily codified under ASC 740, on January 1, 2007. As a result of this implementation the Company recognized a $608 increase in the liability for unrecognized tax benefits which was accounted for as a reduction in retained earnings. The total amount of unrecognized tax benefits on the date of the adoption was approximately $4,691. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
                        
 2009 2008 2007  2010 2009 2008 
Unrecognized Tax Benefit — January 1, $5,806  $5,255  $4,691  $5,718  $5,806  $5,255 
Gross Increases — Tax Positions in Prior Period  101   -0-   72   283   101   -0- 
Gross Decreases — Tax Positions in Prior Period  (55)  (39)  (133)  (4)  (55)  (39)
Gross Increases — Tax Positions in Current Period  97   590   625   341   97   590 
Settlements  -0-   -0-   -0-   (18)  -0-   -0- 
Lapse of Statute of Limitations  (231)  -0-   -0-   (178)  (231)  -0- 
              
Unrecognized Tax Benefit — December 31, $5,718  $5,806  $5,255  $6,142  $5,718  $5,806 
              
 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $4,916 at December 31, 2010 and $4,633 at December 31, 2009 and $4,692 at December 31, 2008.2009. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 20092010 and 2008,2009, the Company recognized approximately $42$9 and $94,$42, respectively, in net interest and penalties. The Company had approximately $673$682 and $631$673 for the payment of interest and penalties accrued at December 31, 20092010 and 2008,2009, respectively. The Company does not expect that the unrecognized tax benefit will change significantly within the next twelve months.
 
Deferred taxes have not been provided on undistributed earnings of the Company’s foreign subsidiaries as it is the Company’s policy and intent to permanently reinvest such earnings. The Company has determined that it is not practical to determine the deferred tax liability on such undistributed earnings.
 
NOTE I —Stock Plan
 
Under the provisions of the Company’s 1998 Long-Term Incentive Plan, as amended (“1998 Plan”), which is administered by the Compensation Committee of the Company’s Board of Directors, incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), restricted shares, performance shares or stock awards may be awarded to directors and all employees of the Company and its subsidiaries. Stock options will be exercisable in whole or in installments as may be determined provided that no options will be exercisable more than ten years from date of grant. The exercise price will be the fair


52

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
market value at the date of grant. The aggregate number of shares of the Company’s common stock that may be awarded under the 1998 Plan is 3,100,000, all of which may be incentive stock options. No more than 500,000 shares shall be the subject of awards to any individual participant in any one calendar year.
 
The fair value of significant stock option awards granted during 2008 and 2007 was estimated at the date of grant using a Black-Scholes option-pricing method with the following assumptions:
 
Assumptions:
         
  2008 2007
 
Weighted average fair value per option $7.48  $12.92 
Risk-free interest rate  3.33%  4.62%
Dividend yield  0%  0%
Expected stock volatility  53%  57%
Expected life — years  6.0   6.0 
    ��
Weighted average fair value per option $7.48 
Risk-free interest rate  3.33%
Dividend yield  0%
Expected stock volatility  53%
Expected life — years  6.0 


53

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The weighted average fair market value of options issued for the fiscal year ended December 31, 2008 and 2007 was estimated to be $7.48 and $12.92 per share, respectively.share. There were no options awarded in 2009.
There were no options awarded during the year ended December 31,2010 and 2009.
 
Historical information was the primary basis for the selection of the expected dividend yield, and expected volatility. The SEC simplified method per Staff Accounting Bulletin No. 107 is the basis for the assumptions of the expected lives of the options. The Company uses the simplified method, pursuant to the guidance in Staff Accounting Bulletins No. 107 and 110, to value the expected lives of its “plain vanilla” options in accordance with ASC 718 because it believes that it is unable to rely on its historical exercise data as a reasonable basis upon which to estimate the expected lives based upon the following:
 
Most of our historical grant and exercise data are from options granted with an option exercise price of $1.91 in November 2001. The employees included in this grant were middle management to executive level whereas current option grants are at the executive level. Therefore, exercise data from the November 2001 grant are not representative of current option grants. The size of our recent option grants is small, and only a select few executives now receive options. Exercises for the executives are particularly driven by their individual tax considerations. Other factors are share price growth and elapsed time. The data on these drivers are insufficient to support estimates of future expected lives of new grants and historical exercise data for the executives are sparse due to short elapsed option lives and unfavorable share price paths. The Company will discontinue using the simplified method when it can rely on its historical exercise data.
 
The risk-free interest rate was based upon yields of U.S. zero coupon issues and U.S. Treasury issues, with a term equal to the expected life of the option being valued. Forfeitures were estimated at 3% for 2008.
A summary of option activity as of December 31, 2010 and changes during the year then ended is presented below:
                 
  2010 
        Weighted
    
     Weighted
  Average
    
     Average
  Remaining
  Aggregate
 
  Number
  Exercise
  Contractual
  Intrinsic
 
  of Shares  Price  Term  Value 
 
Outstanding — beginning of year  491,050  $6.26         
Granted  -0-   -0-         
Exercised  (23,166)  6.47         
Canceled or Expired  (9,250)  21.42         
                 
Outstanding — end of year  458,634  $6.17   3.3 years  $6,839 
Options Exercisable  429,470   7.99   3.0 years   5,628 
Exercise prices for options outstanding as of December 31, 2010 range from $1.91 to $6.28, $13.40 to $15.61 and $20.00 to $24.92. The number of options outstanding at December 31, 2010, which correspond with these ranges, are 266,800, 151,834 and 40,000, respectively. The number of options exercisable at December 31, 2010, which correspond to these ranges are 263,466, 126,004 and 40,000, respectively. The weighted average contractual life of these options is 3.0 years.
The fair value provisions for option awards resulted in compensation expense of $272, $396, and $436 (before tax), for 2010, 2009 and 2008, respectively.
The number of shares available for future grants for all plans at December 31, 2010 is 331,284.
The total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2007.2008 was $368, $104 and $343, respectively. Net cash proceeds from the exercise of stock options were


5354

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A summary of option activity as of December 31, 2009$150, $783 and changes during the year then ended is presented below:
                 
  2009 
        Weighted
    
     Weighted
  Average
    
     Average
  Remaining
  Aggregate
 
  Number
  Exercise
  Contractual
  Intrinsic
 
  of Shares  Price  Term  Value 
 
Outstanding — beginning of year  901,050  $4.28         
Granted  -0-   -0-         
Exercised  (410,000)  1.91         
Canceled or Expired  -0-   -0-         
                 
Outstanding — end of year  491,050  $6.26   4.0 years  $931 
Options Exercisable  421,050   7.31   3.6 years   877 
Exercise prices for options outstanding as of December 31, 2009 range from $1.91 to $6.28, $13.40 to $15.61 and $20.00 to $24.92. The number of options outstanding at December 31, 2009, which correspond with these ranges, are 283,300, 161,500 and 46,250, respectively. The number of options exercisable at December 31, 2009, which correspond to these ranges are 276,633, 113,583 and 30,834, respectively. The weighted average contractual life of these options is 4.0 years.
The fair value provisions for option awards resulted in compensation expense of $396, $436, and $412 (before tax), for 2009, 2008 and 2007, respectively.
The number of shares available for future grants for all plans at December 31, 2009 is 408,200.
The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $104, $343 and $2,318, respectively. Net cash proceeds from the exercise of stock options were $783, $147, and $340, respectively. There were no income tax benefits because the Company had a net operating loss carryforward.
 
A summary of restricted share activity for the year ended December 31, 20092010 is as follows:
 
                
 2009  2010 
   Weighted
    Weighted
 
   Average
    Average
 
 Number of
 Grant Date
  Number of
 Grant Date
 
 Shares Fair Value  Shares Fair Value 
Outstanding — beginning of year  174,501  $14.93   695,410  $4.58 
Granted  644,700   3.50   101,000   12.12 
Vested  (105,541)  13.39   (362,186)  4.74 
Canceled or expired  (18,250)  3.49   (14,834)  6.15 
          
Outstanding — end of year  695,410  $4.58   419,390  $6.26 
          
 
The Company recognized compensation expense of $1,463, $1,969 $1,677 and $1,651$1,677 for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively, relating to restricted shares.
 
The total fair value of restricted stock units vested during the years ended December 31, 2010, 2009 and 2008 was $4,043, $797 and 2007 was $797, $1,235, and $2,953, respectively.
 
On September 11, 2008, the Company delayed the vesting of 61,970 restricted shares of the Company’s common stock held by two of the Company’s officers. In lieu of vesting the restricted shares, the officers agreed to exchange 61,970 shares of restricted stock for 61,970 restricted stock units. The restricted stock


54

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
units were fully vested and will be paid in shares of the Company’s common stock either upon termination of employment with the Company or when the deduction by the Company for such payment would not be prohibited under Section 162(m) of the Internal Revenue Code.
 
The Company recognizes compensation cost of all share-based awards as an expense on a straight-line basis over the vesting period of the awards.
 
As of December 31, 2009,2010, the Company had unrecognized compensation expense of $2,599,$1,887, before taxes, related to stock option awards and restricted shares. The unrecognized compensation expense is expected to be recognized over a total weighted average period of 1.81.6 years.
 
NOTE J —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 is not expected to have a material adverse effect on the Company’s financial condition, liquidity and results of operations.
 
NOTE K —Pensions and Postretirement Benefits
 
The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans, covering substantially all employees. In addition, the Company has two unfunded postretirement benefit plans. For the defined benefit plans, benefits are based on the employee’s years of service. For the defined contribution plans, the costs charged to operations and the amount funded are based upon a percentage of the covered employees’ compensation.


55

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following tables set forth the change in benefit obligation, plan assets, funded status and amounts recognized in the consolidated balance sheet for the defined benefit pension and postretirement benefit plans as of December 31, 20092010 and 2008:2009:
 
                                
   Postretirement
    Postretirement
 
 Pension Benefits  Pension Benefits 
 2009 2008 2009 2008  2010 2009 2010 2009 
Change in benefit obligation
                                
Benefit obligation at beginning of year $48,383  $48,320  $19,961  $18,711  $48,820  $48,383  $18,288  $19,961 
Service cost  471   439   61   87   295   471   31   61 
Interest cost  2,748   2,892   1,053   1,215   2,596   2,748   959   1,053 
Amendments  10   -0-   (920)  -0-   -0-   10   -0-   (920)
Actuarial losses (gains)  1,446   1,150   279   2,348 
Actuarial losses  2,622   1,446   1,364   279 
Benefits and expenses paid, net of contributions  (4,238)  (4,418)  (2,146)  (2,400)  (4,661)  (4,238)  (2,210)  (2,146)
                  
Benefit obligation at end of year $48,820  $48,383  $18,288  $19,961  $49,672  $48,820  $18,432  $18,288 
                  
Change in plan assets
                                
Fair value of plan assets at beginning of year $87,368  $118,878  $-0-  $-0-  $98,255  $87,368  $-0-  $-0- 
Actual return on plan assets  16,725   (27,092)  -0-   -0-   18,364   16,725   -0-   -0- 
Company contributions  -0-   -0-   2,146   2,400   -0-   -0-   2,210   2,146 
Cash transfer to fund postretirement benefit payments  (1,600)  -0-   -0-   -0-   (1,500)  (1,600)  -0-   -0- 
Benefits and expenses paid, net of contributions  (4,238)  (4,418)  (2,146)  (2,400)  (4,661)  (4,238)  (2,210)  (2,146)
                  
Fair value of plan assets at end of year $98,255  $87,368  $-0-  $-0-  $110,458  $98,255  $-0-  $-0- 
                  
Funded (underfunded) status of the plans $49,435  $38,985  $(18,288) $(19,961) $60,786  $49,435  $(18,432) $(18,288)
                  
 
Amounts recognized in the consolidated balance sheets consist of:
 
                                
   Postretirement
    Postretirement
 
 Pension Benefits  Pension Benefits 
 2009 2008 2009 2008  2010 2009 2010 2009 
Noncurrent assets $49,435  $38,985  $-0-  $-0-  $60,786  $49,435  $-0-  $-0- 
Noncurrent liabilities  -0-   -0-   11,111   11,757   -0-   -0-   10,196   11,111 
Current liabilities  -0-   -0-   2,197   2,290   -0-   -0-   2,177   2,197 
Accumulated other comprehensive (income) loss  15,900   25,131   4,980   5,914   7,701   15,900   6,059   4,980 
                  
Net amount recognized at the end of the year $65,335  $64,116  $18,288  $19,961  $68,487  $65,335  $18,432  $18,288 
                  
Amounts recognized in accumulated other comprehensive (income) loss
                                
Net actuarial loss/(gain) $15,819  $24,972  $4,980  $5,914  $7,641  $15,819  $6,059  $4,980 
Net prior service cost (credit)  253   372   -0-   -0-   192   253   -0-   -0- 
Net transition obligation (asset)  (172)  (213)  -0-   -0-   (132)  (172)  -0-   -0- 
                  
Accumulated other comprehensive (income) loss $15,900  $25,131  $4,980  $5,914  $7,701  $15,900  $6,059  $4,980 
                  
 
As of December 31, 20092010 and 2008,2009, the Company’s defined benefit pension plans did not hold a material amount of shares of the Company’s common stock.


56

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The pension plan weighted-average asset allocation at December 31, 20092010 and 20082009 and target allocation for 20102011 are as follows:
 
                        
   Plan Assets    Plan Assets 
 Target 2010 2009 2008  Target 2011 2010 2009 
Asset Category
                        
Equity securities  60-65%  69.3%  54.0%  45-75%  78.3%  69.3%
Debt securities  25-30   9.9   11.6   10-40   19.3   9.9 
Other  15-20   20.8   34.4   0-20   2.4   20.8 
              
  100%  100%  100%  100%  100%  100%
              
 
The following table sets forth, by level within the fair value hierarchy, the pension plans assets:
 
                
         2010 2009 
 Level 2 Total  Level 2 Total Level 2 Total 
Collective trust and pooled insurance funds:
                        
Common stock $52,507  $52,507  $65,362  $65,362  $52,507  $52,507 
Equity Funds  12,727   12,727   16,142   16,142   12,727   12,727 
Foreign Stock  2,590   2,590   5,000   5,000   2,590   2,590 
Convertible Securities  1,063   1,063   967   967   1,063   1,063 
U.S. Government Obligations  4,900   4,900   9,840   9,840   4,900   4,900 
Fixed income funds  4,588   4,588   5,242   5,242   4,588   4,588 
Corporate Bonds  5,295   5,295   -0-   -0- 
Cash and Cash Equivalents  19,779   19,779   2,381   2,381   19,779   19,779 
Other  100   100   229   229   101   101 
              
 $98,254  $98,254  $110,458  $110,458  $98,255  $98,255 
              
 
The following tables summarize the assumptions used by the consulting actuary and the related cost information.
 
                                    
 Weighted-Average assumptions as of December 31, Weighted-Average assumptions as of December 31,
 Pension Postretirement Benefits Pension Postretirement Benefits
 2009 2008 2007 2009 2008 2007 2010 2009 2008 2010 2009 2008
Discount rate  5.50%  6.00%  6.25%  5.50%  6.00%  6.25%  5.00%  5.50%  6.00%  5.00%  5.50%  6.00%
Expected return on plan assets  8.25%  8.25%  8.25%  N/A   N/A   N/A   8.25%  8.25%  8.25%  N/A   N/A   N/A 
Rate of compensation increase  N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A 
 
In determining its expected return on plan assets assumption for the year ended December 31, 2009,2010, the Company considered historical experience, its asset allocation, expected future long-term rates of return for each major asset class, and an assumed long-term inflation rate. Based on these factors, the Company derived an expected return on plan assets for the year ended December 31, 20092010 of 8.25%. This assumption was supported by the asset return generation model, which projected future asset returns using simulation and asset class correlation.


57

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
For measurement purposes, a 7.0% and a 9.5%8.75% annual rate of increase in the per capita cost of covered medical health care benefits and drug benefits, respectively were assumed for 2009.2010. The rates were assumed to decrease gradually to 5.0% for medical for 2011 and 5.0% for drug for 20122042 and remain at that level thereafter.
 
                                                
 Pension Benefits Postretirement Benefits  Pension Benefits Postretirement Benefits 
 2009 2008 2007 2009 2008 2007  2010 2009 2008 2010 2009 2008 
Components of net periodic benefit cost
                                                
Service costs $471  $439  $334  $61  $87  $180  $295  $471  $439  $31  $61  $87 
Interest costs  2,748   2,892   2,842   1,053   1,215   1,103   2,596   2,748   2,892   959   1,053   1,215 
Expected return on plan assets  (7,036)  (9,634)  (9,049)  -0-   -0-   -0-   (7,932)  (7,036)  (9,634)  -0-   -0-   -0- 
Transition obligation  (40)  (47)  (38)  -0-   -0-   -0-   (40)  (40)  (47)  -0-   -0-   -0- 
FAS 88 one-time charge  -0-   -0-   80   -0-   -0-   -0-   -0-   -0-   -0-   -0-   -0-   -0- 
Amortization of prior service cost  129   137   138   -0-   (52)  (63)  61   129   137   (96)  -0-   (52)
Recognized net actuarial (gain) loss  910   (100)  13   294   369   227   366   910   (100)  381   294   369 
                          
Benefit (income) costs $(2,818) $(6,313) $(5,680) $1,408  $1,619  $1,447  $(4,654) $(2,818) $(6,313) $1,275  $1,408  $1,619 
                          
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
                                                
AOCI at beginning of year $25,131  $(12,756) $(8,144) $5,914  $3,884  $7,038  $15,900  $25,131  $(12,756) $4,980  $5,914  $3,884 
Net (gain)/loss  (8,241)  37,876   (4,499)  280   2,347   (2,990)  (7,811)  (8,241)  37,876   1,364   280   2,347 
Recognition of prior service cost/(credit)  (120)  (137)  (138)  (920)  52   63   (62)  (120)  (137)  96   (920)  52 
Recognition of (gain)/loss  (870)  148   25   (294)  (369)  (227)  (326)  (870)  148   (381)  (294)  (369)
                          
Total recognized in other comprehensive (income) loss at end of year $15,900  $25,131  $(12,756) $4,980  $5,914  $3,884 
Total recognized in other comprehensive loss at end of year $7,701  $15,900  $25,131  $6,059  $4,980  $5,914 
                          
 
The estimated net (gain), prior service cost and net transition (asset) for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 20102011 are $330, $62$-0-, $44 and $(40), respectively.
 
The estimated net loss and prior service cost for the postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 20102011 is $386$441 and $(96), respectively.
 
Below is a table summarizing the Company’s expected future benefit payments and the expected payments due to Medicare subsidy over the next ten years:
 
                                
   Postretirement Benefits   Postretirement Benefits
 Pension
   Expected
 Net including
 Pension
   Expected
 Net including
 Benefits Gross Medicare Subsidy Medicare Subsidy Benefits Gross Medicare Subsidy Medicare Subsidy
2010  4,088   2,434   237   2,197 
2011  3,988   2,353   235   2,118   4,041   2,454   223   2,231 
2012  3,901   2,190   236   1,954   3,942   2,240   225   2,015 
2013  3,873   2,087   229   1,858   3,860   2,092   219   1,873 
2014  3,802   1,999   218   1,781   3,788   1,988   209   1,779 
2015 to 2019  18,172   7,996   916   7,080 
2015  3,739   1,879   197   1,682 
2016 to 2020  17,837   7,497   811   6,686 


58

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company has two postretirement benefit plans. Under both of these plans, health care benefits are provided on both a contributory and noncontributory basis. 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:
 
         
  1-Percentage
 1-Percentage
  Point
 Point
  Increase Decrease
 
Effect on total of service and interest cost components in 2009 $91  $(79)
Effect on postretirement benefit obligation as of December 31, 2009 $1,309  $(1,170)
         
  1-Percentage
 1-Percentage
  Point
 Point
  Increase Decrease
 
Effect on total of service and interest cost components in 2010 $68  $(60)
Effect on postretirement benefit obligation as of December 31, 2010 $1,383  $(1,229)
 
The total contribution charged to pension expense for the Company’s defined contribution plans was $-0-in 2010, $301 in 2009 and $2,081 in 2008 and $2,068 in 2007.2008. During March 2009, the Company suspended indefinitely its voluntary contribution to its 401(k) defined contribution plan covering substantially all U.S. employees. The Company expects to have no contributions to its defined benefit plans in 2010.2011.
 
In January 2008, a Supplemental Executive Retirement Plan (“SERP”) for the Company’s Chairman of the Board of Directors and Chief Executive Officer (“CEO”) was approved by the Compensation Committee of the Board of Directors of the Company. The SERP provides an annual supplemental retirement benefit for up to $375 upon the CEO’s termination of employment with the Company. The vested retirement benefit will be equal to a percentage of the Supplemental Pension that is equal to the ratio of the sum of his credited service with the Company prior to January 1, 2008 (up to a maximum of thirteen years), and his credited service on or after January 1, 2008 (up to a maximum of seven years) to twenty years of credited service. In the event of a change in control before the CEO’s termination of employment, he will receive 100% of the Supplemental Pension. The Company recorded an expense of $389 related with the SERP in 2010, 2009 and 2008. Additionally, a non-qualified defined contribution retirement benefit was also approved in which the Company will credit $94 quarterly ($375 annually) for a seven year period to an account in which the CEO will always be 100% vested. The seven year period began on March 31, 2008.
 
NOTE L —Leases
 
Future minimum lease commitments during each of the five years following December 31, 20092010 and thereafter are as follows: $12,477 in 2010, $9,216$13,109 in 2011, $5,739$9,816 in 2012, $3,600$6,416 in 2013, $2,185$4,538 in 2014, $3,642 in 2015 and $3,598$2,178 thereafter. Rental expense for 2010, 2009 and 2008 was $13,068, $12,812 and 2007 was $12,812, $14,400, and $14,687, respectively.
 
Certain of the Company’s leases are with related parties at an annual rental expense of approximately $2,000.$2,464. Transactions with related parties are in the ordinary course of business, are conducted on an arms length basis, and are not material to the Company’s financial position, results of operations or cash flows.


59

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE M —Earnings Per Share
 
The following table sets forth the computation of basic and diluted earnings (loss) per share:
 
                        
 Year Ended December 31,  Year Ended December 31, 
 2009 2008 2007  2010 2009 2008 
NUMERATOR                        
Net (loss) income $(5,209) $(119,803) $21,197 
Net income (loss) $15,187  $(5,209) $(119,803)
              
DENOMINATOR                        
Denominator for basic earnings per share — weighted average shares  10,968   11,008   11,106   11,314   10,968   11,008 
Effect of dilutive securities:                        
Employee stock options  -0-   -0-   545   493   -0-   -0- 
              
Denominator for diluted earnings per share — weighted average shares and assumed conversions  10,968   11,008   11,651   11,807   10,968   11,008 
Amounts per common share:                        
Basic $(.47) $(10.88) $1.91  $1.34  $(.47) $(10.88)
              
Diluted $(.47) $(10.88) $1.82  $1.29  $(.47) $(10.88)
              
 
Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. Diluted earnings per common share is computed as net income available to common shareholders divided by the weighted average diluted shares outstanding. Pursuant to ASC 260 “Earnings Per Share” when a loss is reported the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of stock options and awards because doing so will result in anti-dilution. Therefore, for the years ended December 31, 2009 and 2008, basic weighted-average shares outstanding are used in calculating diluted earnings per share.
 
Outstanding stock options with exercise prices greater that the average price of the common shares are anti-dilutive and are not included in the computation of diluted earnings per share. Stock options for 32,000201,100 shares of common stock were excluded in the year ended December 31, 2007.2010.
 
NOTE N —Accumulated Comprehensive Loss
 
The components of accumulated comprehensive loss at December 31, 20092010 and 20082009 are as follows:
 
                
 December 31,  December 31, 
 2009 2008  2010 2009 
Foreign currency translation adjustment $6,950  $3,982  $6,239  $6,950 
Unrealized net losses on marketable securities, net of tax  -0-   (413)
Pension and postretirement benefit adjustments, net of tax  (12,064)  (21,050)  (3,801)  (12,064)
          
Total $(5,114) $(17,481) $2,438  $(5,114)
          
 
NOTE O —Restructuring and Unusual Charges
During the third quarter of 2010, the Company reviewed one of its investments and determined there was diminution in value and therefore recorded an asset impairment charge of $3,539.
 
In 2009 and 2008, due to volume declines and volatility in the automotive markets along with the general economic downturn, the Company evaluated its long-lived assets in accordance with ASC 360 “Property, Plant and Equipment”. The Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows


60

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
��
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expected to result from the use and eventual disposition of the assets. If the carrying value of the assets


60

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. During 2008, based on the results of these tests, the Company recorded asset impairment charges. In addition, the Company made a decision to exit its relationship with its largest customer, Navistar, effective December 31, 2008 which along with the general economic downturn resulted in either the closure, downsizing or consolidation of eight facilities in its distribution network. The Company’s restructuring activities were substantially completed in 2009. In 2008, the Company recorded asset impairment charges of $30,875, which were composed of $5,544 of inventory impairment included in Cost of Products Sold, $1,758 for a loss on disposition of a foreign subsidiary, $564 of severance costs (80 employees) and $23,009 for impairment of property and equipment and other long-term assets. Below is a summary of these charges by segment.
 
                     
        Loss on Disposal
       
  Asset
  Cost of
  of Foreign
  Severance
    
  Impairment  Products Sold  Subsidiary  Costs  Total 
 
Supply Technologies $6,143  $4,965  $1,758  $564  $13,430 
Aluminum Products  12,575   579   -0-   -0-   13,154 
Manufactured Products  4,291   -0-   -0-   -0-   4,291 
                     
  $23,009  $5,544  $1,758  $564  $30,875 
                     
 
The accrued liability for severance costs and related cash payments consisted of:
 
     
Balance at January 1, 2008 $-0- 
Severance costs recorded in 2008  564 
Cash payments made in 2008  (19)
     
Balance at December 31, 2008  545 
Cash payments made in 2009  (460)
     
Balance at December 31, 2009 $85 
     
Balance at January 1, 2008$-0-
Severance costs recorded in 2008564
Cash payments made in 2008(19)
Balance at December 31, 2008545
Cash payments made in 2009(460)
Balance at December 31, 200985
Cash payments made in 2010(85)
Balance at December 31, 2010$-0-
 
In the fourth quarter of 2009, due to weakness in the general economy including the railroad industry, the Company recorded $7,003 of asset impairment charges which were composed of $1,797 for inventory impairment and $5,206 for impairment of property and equipment and other long-term assets. Below is a summary of these charges by segment.
 
             
  Asset
  Cost of
    
  Impairment  Products Sold  Total 
 
Supply Technologies $2,206  $1,797  $4,003 
Manufactured Products  3,000   -0-  $3,000 
             
  $5,206  $1,797  $7,003 
             
NOTE P —Subsequent Event
On March 8, 2010 the Company amended and restated its existing credit facility to, along with other changes, extend the term of the facility to June 30, 2013. See Note G.


61

Supplementary Financial Data
 
Selected Quarterly Financial Data (Unaudited)
 
                                
 Quarter Ended  Quarter Ended 
 March 31 June 30 Sept. 30 Dec. 31  March 31 June 30 Sept. 30 Dec. 31 
 (Dollars in thousands, except per share data)  (Dollars in thousands, except per share data) 
2010
                
Net sales $191,701  $198,303  $202,986  $220,532 
Gross profit  29,338   33,298   34,980   36,481 
Net income (loss) $2,066  $3,415  $6,184  $3,522 
         
Amounts per common share:                
Basic $.19  $.30  $.54  $.31 
         
Diluted $.18  $.29  $.52  $.30 
         
2009
                                
Net sales $181,250  $163,405  $168,597  $187,795  $181,250  $163,405  $168,597  $187,795 
Gross profit  23,862   29,328   22,659   27,998   23,862   29,328   22,659   27,998 
Net income (loss) $(5,462) $3,272  $(3,224) $205  $(5,462) $3,272  $(3,224) $205 
                  
Amounts per common share:                                
Basic $(.50) $.30  $(.29) $.02  $(.50) $.30  $(.29) $.02 
                  
Diluted $(.50) $.29  $(.29) $.02  $(.50) $.29  $(.29) $.02 
                  
2008
                
Net sales $267,090  $285,940  $266,148  $249,579 
Gross profit  38,693   43,735   39,389   27,643 
Net income (loss) $3,482  $5,717  $(9,068) $(119,934)
         
Amounts per common share:                
Basic $.31  $.52  $(.82) $(10.96)
         
Diluted $.30  $.49  $(.82) $(10.96)
         
 
Note 1 —In the second quarter of 2009, the Company recorded a gain of $3,096 on the purchase of $6,125 aggregate principal amount of 8.375% senior subordinated notes due 2014 issued by Park-Ohio Industries, Inc.
 
Note 2 —In the second quarter of 2009, the Company recorded a charge of $2,015 to reserve for an account receivable from a customer in bankruptcy.
Note 3 —In the third quarter of 2009, the Company recorded a gain of $2,011 on the purchase of $4,090 aggregate principal amount of 8.375% senior subordinated notes due 2014 issued by Park-Ohio Industries, Inc.
 
Note 4 —In the third quarter of 2009, the Company recorded a charge of $2,139 to reserve for an account receivable from a customer in bankruptcy.
 
Note 5 —In the fourth quarter of 2009, the Company recorded a gain of $1,190 on the purchase of $4,935 aggregate principal amount of 8.375% senior subordinated notes due 2014 issued by Park-Ohio Industries, Inc.
 
Note 6 —In the fourth quarter of 2009, the Company recorded $7,003 of restructuring and asset impairment charges associated with weakness in the general economy, including in the railroad industry.
 
Note 7 —In the third quarter of 2008, the Company recorded $18,059 of restructuring and asset impairment charges associated with the weakness and volatility in the automotive markets ($13,189 in the Aluminum Products segment and $4,291 in the Manufactured Products segment). Inventory impairment charges of $579 were included in Cost of Products Sold and $17,480 were included in Restructuring and impairment charges.
Note 8 —In the fourth quarter of 2008,2010, the Company recorded a non-cash goodwillbargain purchase gain of $2,210 from the acquisition of certain assets and assumption of specific liabilities of Assembly Component Systems Inc. representing the excess of the aggregate fair value of purchased net assets over the purchase price and $3,539 asset impairment charge relating to the write down of $95,763.an investment.


62

Note 9 —In the fourth quarter of 2008, the Company recorded a gain of $6,232 on the purchase of $11,015 aggregate principal amount of 8.375% senior subordinated notes due 2014 issued by Park-Ohio Industries, Inc. The notes were not contributed to Park-Ohio Industries, Inc., but were held by Park-Ohio Holdings Corp.
Note 10 —In the fourth quarter of 2008, the Company recorded $13,430 of restructuring and asset impairment charges associated with the decision to exit its relationship with its largest customer along with the general economic downturn resulting in either the closure, downsizing or consolidation of eight facilities in its distribution network. Impairment charges were offset by a gain of $614 recorded in the Aluminum Products segment relating to the sale of certain facilities that were previously written off.
Note 11 —In the fourth quarter of 2008, the Company recorded a valuation allowance of $33,466 for its net deferred tax asset.


63

Schedule II
 
PARK-OHIO HOLDINGS CORP.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
                                
 Balance at
 Charged to
 Deductions
 Balance at
  Balance at
 Charged to
 Deductions
 Balance at
 
 Beginning of
 Costs and
 and
 End of
  Beginning of
 Costs and
 and
 End of
 
Description
 Period Expenses Other Period  Period Expenses Other Period 
Year Ended December 31, 2010:                
Allowances deducted from assets:                
Trade receivable allowances $8,388  $2,581  $(4,958)(A) $6,011 
Inventory Obsolescence reserve  21,456   8,956   (7,624)(B)  22,788 
Tax valuation allowances  30,668   (5,754)  (2,528)(D)  22,386 
Product warranty liability  2,760   2,294   (1,008)(C)  4,046 
         
Year Ended December 31, 2009:                                
Allowances deducted from assets:                                
Trade receivable allowances $3,044  $6,527  $(1,183)(A) $8,388  $3,044  $6,527  $(1,183)(A) $8,388 
Inventory Obsolescence reserve  22,313   7,153   (8,010)(B)  21,456   22,313   7,153   (8,010)(B)  21,456 
Tax valuation allowances  34,921   (1,815)  (2,438)(D)  30,668   34,921   (1,815)  (2,438)  30,668 
Product warranty liability  5,402   704   (3,346)(C)  2,760   5,402   704   (3,346)(C)  2,760 
                  
Year Ended December 31, 2008:                                
Allowances deducted from assets:                                
Trade receivable allowances $3,724  $1,429  $(2,109)(A) $3,044  $3,724  $1,429  $(2,109)(A) $3,044 
Inventory Obsolescence reserve  20,432   5,385   (3,505)(B)  22,312   20,432   5,385   (3,505)(B)  22,312 
Tax valuation allowances  2,217   33,625   (921)  34,921   2,217   33,625   (921)(D)  34,921 
Product warranty liability  5,799   4,202   (4,599)(C)  5,402   5,799   4,202   (4,599)(C)  5,402 
                  
Year Ended December 31, 2007:                
Allowances deducted from assets:                
Trade receivable allowances $4,305  $1,609  $(2,190)(A) $3,724 
Inventory Obsolescence reserve  22,978   4,383   (6,929)(B)  20,432 
Tax valuation allowances  316   1,901   -0-(D)  2,217 
Product warranty liability  3,557   4,526   (2,284)(C)  5,799 
         
 
Note (A)- Uncollectible accounts written off, net of recoveries.
 
Note (B)- Amounts written off or payments incurred, net of acquired reserves.
 
Note (C)- Loss and loss adjustment.
 
Note (D)- Amounts recorded in other comprehensive income.
 
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
There were no changes in or disagreements with the Company’s independent auditors on accounting and financial disclosure matters within the two-year period ended December 31, 2009.2010.
 
Item 9A. Controls and Procedures
 
Evaluation of disclosure controls and procedures
 
As of the end of the period covered by this report, we carried out an evaluation , under the supervision and with the participation of our Chairman and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant toRule 13a-15(e) andRule 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon this evaluation, our Chairman and Chief Executive Officer and Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.


6463

Management’s Report on Internal Control over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) under the Exchange Act. As required byRule 13a-15(c) under the Exchange Act, management carried out an evaluation, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its internal control over financial reporting as of December 31, 2009.2010. The framework on which such evaluation was based is contained in the report entitled “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”). Based upon the evaluation described above under the framework contained in the COSO Report, the Company’s management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2009.2010.
 
Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 20092010 based on the framework contained in the COSO Report. This report is included at page 36 of this annual report onForm 10-K and is incorporated herein by reference.
 
Changes in internal control over financial reporting
 
There have been no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of 20092010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Item 9B. Other Information
 
None.


6564

 
Part III
 
Item 10. Directors, Executive Officers and Corporate Governance
 
The information concerning directors, the identification of the audit committee and the audit committee financial expert and the Company’s code of ethics required under this item is incorporated herein by reference from the material contained under the captions “Election of Directors” and “Certain Matters Pertaining to the Board of Directors and Corporate Governance,” as applicable, in the Company’s definitive proxy statement for the 20102011 annual meeting of shareholders to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the close of the fiscal year (the “Proxy Statement”). The information concerning Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference from the material contained under the caption “Principal Shareholders — Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. Information relating to executive officers is contained in Part I of this annual report onForm 10-K.
 
Item 11. Executive Compensation
 
The information relating to executive officer and director compensation and the compensation committee report contained under the heading “Executive Compensation” in the Proxy Statement is incorporated herein by reference. The information relating to compensation committee interlocks contained under the heading “Certain Matters Pertaining to the Board of Directors and Corporate Governance — Compensation Committee Interlocks and Insider Participation” in the Proxy Statement is incorporated herein by reference.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required under this item is incorporated herein by reference from the material contained under the caption “Principal Shareholders” in the Proxy Statement, except that information required by Item 201(d) ofRegulation S-K can be found below.
 
The following table provides information about the Company’s common stock that may be issued under the Company’s equity compensation plan as of December 31, 2009.2010.
 
Equity Compensation Plan Information
 
                        
     Number of securities
      Number of securities
 
 Number of securities
 Weighted-average
 remaining available for
  Number of securities
 Weighted-average
 remaining available for
 
 to be issued upon
 exercise price of
 future issuance under
  to be issued upon
 exercise price of
 future issuance under
 
 exercise price of
 outstanding
 equity compensation plans
  exercise price of
 outstanding
 equity compensation plans
 
 outstanding options
 options, warrants
 (excluding securities
  outstanding options
 options, warrants
 (excluding securities
 
Plan Category
 warrants and rights and rights reflected in column (a))  warrants and rights and rights reflected in column (a)) 
 (a) (b) (c)  (a) (b) (c) 
Equity compensation plans approved by security holders(1)  408,200  $6.26   899,250   458,634  $6.17   331,284 
Equity compensation plans not approved by security holders  -0-   -0-   -0-   -0-   -0-   -0- 
              
Total  408,200  $6.26   899,250   458,634  $6.17   331,284 
 
 
(1)Includes the Company’s Amended and Restated 1998 Long-Term Incentive Plan.


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Item 13. Certain Relationships and Related Transactions, and Director Independence
 
The information required under this item is incorporated herein by reference to the material contained under the captions “Certain Matters Pertaining to the Board of Directors and Corporate Governance — Company Affiliations with the Board of Directors and Nominees” and “Transactions With Related Persons” in the Proxy Statement.
 
Item 14. Principal Accountant Fees and Services
 
The information required under this item is incorporated herein by reference to the material contained under the caption “Audit Committee — Independent Auditor Fee Information” in the Proxy Statement.


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Part IV
 
Item 15. Exhibits and Financial Statement Schedules
 
(a)(1) The following financial statements are included in Part II, Item 8 of this annual report onForm 10-K:
 
     
  Page
 
Report of Independent Registered Public Accounting Firm    3534 
Report of Independent Registered Public Accounting Firm  3635 
Consolidated Balance Sheets — December 31, 2010 and 200936
Consolidated Statements of Operations — Years Ended December 31, 2010, 2009 and 2008  37 
Consolidated Statements of Operations — Years Ended December 31, 2009, 2008 and 200738
Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2010, 2009 2008 and 20072008  3938 
Consolidated Statements of Cash Flows — Years Ended December 31, 2010, 2009 2008 and 20072008  4039 
Notes to Consolidated Financial Statements  4140 
Selected Quarterly Financial Data (Unaudited) — Years Ended December 31, 20092010 and 20082009  62 
(2) Financial Statement Schedules    
The following consolidated financial statement schedule of Park-Ohio Holdings Corp. is included in Item 8:    
Schedule II — Valuation and Qualifying accounts  6463 
 
All other schedules for which provision is made in the applicable accounting regulations of the SEC 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 annual report onForm 10-K are listed on the Exhibit Index immediately preceding such exhibits and are incorporated herein by reference.


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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 HOLDINGS CORP. (Registrant)
 
 By: 
/s/  Jeffrey L. Rutherford
Jeffrey L. Rutherford, Vice President
and Chief Financial Officer
 
Date: March 15, 20108, 2011
 
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.
 
       
*

Edward F. Crawford		 Chairman, Chief Executive Officer and Director March 15, 20109, 2011
*

Jeffrey L. Rutherford		 Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)  
*

Matthew V. Crawford		 President, Chief Operating Officer and Director  
*

Patrick V. Auletta		 Director  
*

Kevin R. Greene		 Director  
*

A. Malachi Mixon, III		 Director  
*

Dan T. Moore		 Director  
*

Ronna Romney		 Director  
*

James W. Wert		 Director  
 
 
*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 15, 20108, 2011
 By: 
/s/  Robert D. Vilsack
Robert D. Vilsack,Attorney-in-Fact


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ANNUAL REPORT ONFORM 10-K
PARK-OHIO HOLDINGS CORP.
 
For the Year Ended December 31, 20092010
 
EXHIBIT INDEX
 
     
Exhibit
  
 
 3.1 Amended and Restated Articles of Incorporation of Park-Ohio Holdings Corp. (filed as Exhibit 3.1 to theForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SECFile No. 000-03134 and incorporated by reference and made a part hereof)
 3.2 Code of Regulations of Park-Ohio Holdings Corp. (filed as Exhibit 3.2 to theForm 10-K ofPark-Ohio Holdings Corp. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.1 Second Amended and Restated Credit Agreement, dated June 20, 2007, among Park-Ohio Industries, Inc., the other loan parties thereto, the lenders thereto and JP Morgan Chase Bank, N.A. (successor by merger to Bank One, NA), as agent (filed as exhibit 4.1 toForm 10-Q of Park-Ohio Holdings Corp. on November 9, 2009, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.2 Indenture, dated as of November 30, 2004, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, NA, as trustee (filed as Exhibit 4.1 to theForm 8-K of Park-Ohio Holdings Corp. filed on December 6, 2004, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.1 Form of Indemnification Agreement entered into between Park-Ohio Holdings Corp. and each of its directors and certain officers (filed as Exhibit 10.1 to theForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.2* Amended and Restated 1998 Long-Term Incentive Plan (filed as Exhibit 10.1 toForm 8-K ofPark-Ohio Holdings Corp., filed on June 3, 2009, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.3* Form of Restricted Share Agreement between the Company and each non-employee director (filed as Exhibit 10.1 toForm 8-K of Park-Ohio Holdings Corp. filed on January 25, 2005, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof).
 10.4* Form of Restricted Share Agreement for Employees (filed as Exhibit 10.1 toForm 10-Q forPark-Ohio Holdings Corp. for the quarter ended September 30, 2006, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.5* Form of Incentive Stock Option Agreement (filed as Exhibit 10.5 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2004, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.6* Form of Non-Statutory Stock Option Agreement (filed as Exhibit 10.6 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2004, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.7* Summary of Annual Cash Bonus Plan for Chief Executive Officer (filed as Exhibit 10.1 toForm 10-Q for Park-Ohio Holdings Corp. for the quarter ended March 31, 2005, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.8* Supplemental Executive Retirement Plan for Edward F. Crawford, effective as of March 10, 2008 (filed as Exhibit 10.9 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.9* Non-qualified Defined Contribution Retirement Benefit Letter Agreement for Edward F. Crawford, dated March 10, 2008 (filed as Exhibit 10.10 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.11 Agreement of Settlement and Release, dated July 1, 2008 (filed as Exhibit 10.1 toForm 10-Q of Park-Ohio Holdings Corp. for the quarter ended September 30, 2008, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
     
Exhibit
  
 
 3.1 Amended and Restated Articles of Incorporation of Park-Ohio Holdings Corp. (filed as Exhibit 3.1 to theForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SECFile No. 000-03134 and incorporated by reference and made a part hereof)
 3.2 Code of Regulations of Park-Ohio Holdings Corp. (filed as Exhibit 3.2 to theForm 10-K ofPark-Ohio Holdings Corp. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.1 Third Amended and Restated Credit Agreement, dated March 8, 2010, among Park-Ohio Industries, Inc., RB&W Corporation of Canada Inc., the Ex-Im Borrowers party thereto, the other loan parties thereto, the lenders party thereto and JP Morgan Chase Bank, N.A., as Administrative Agent, JP Morgan Chase Bank, N.A. Toronto Branch, as Canadian Agent, RBS Business Capital as Syndication Agent, Key Bank National Association , as Co-Documentation Agent, JP Morgan Securities Inc., as Sole Lead Arranger, PNC Bank, National Association, as Joint Bookrunner and U.S. Bank National Association, as Co-Documentation Agent and Joint Bookrunner (filed as Exhibit 4.1 to theForm 10-Q of Park-Ohio Holdings Corp., filed on May 10, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.2 Consent and Amendment No. 1 to Third Amended and Restated Credit Agreement, dated July 9, 2010, among Park-Ohio Industries, Inc., RB&W Corporation of Canada, the Ex-Im Borrowers party to the Credit Agreement, the other loan parties to the Credit Agreement, the lenders party to the Credit Agreement, JP Morgan Chase Bank, N.A., as Administrative Agent, and JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian Agent (filed as Exhibit 4.1 to theForm 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.3 Consent and Amendment No. 2 to Third Amended and Restated Credit Agreement, dated August 31, 2010, among Park-Ohio Industries, Inc., RB&W Corporation of Canada, the Ex-Im Borrowers party to the Credit Agreement, the other loan parties to the Credit Agreement, the lenders party to the Credit Agreement, JP Morgan Chase Bank, N.A., as Administrative Agent, and JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian Agent (filed as Exhibit 4.1 to theForm 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.4 Indenture, dated as of November 30, 2004, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, NA, as trustee (filed as Exhibit 4.1 to theForm 8-K of Park-Ohio Holdings Corp. filed on December 6, 2004, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.1 Form of Indemnification Agreement entered into between Park-Ohio Holdings Corp. and each of its directors and certain officers (filed as Exhibit 10.1 to theForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.2* Amended and Restated 1998 Long-Term Incentive Plan (filed as Exhibit 10.1 toForm 8-K ofPark-Ohio Holdings Corp., filed on June 3, 2009, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.3* Form of Restricted Share Agreement between the Company and each non-employee director (filed as Exhibit 10.1 toForm 8-K of Park-Ohio Holdings Corp., filed on January 25, 2005, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.4* Form of Restricted Share Agreement for Employees (filed as Exhibit 10.1 toForm 10-Q for Park-Ohio Holdings Corp. for the quarter ended September 30, 2006, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)


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Exhibit
  
 
 21.1 List of Subsidiaries of Park-Ohio Holdings Corp.
 23.1 Consent of Independent Registered Public Accounting Firm
 24.1 Power of Attorney
 31.1 Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 31.2 Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 32.1 Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002
     
Exhibit
  
 
 10.5* Form of Incentive Stock Option Agreement (filed as Exhibit 10.5 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2004, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.6* Form of Non-Statutory Stock Option Agreement (filed as Exhibit 10.6 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2004, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.7* Park-Ohio Holdings Corp. Annual Cash Bonus Plan (filed as Exhibit 10.2 to theForm 8-K for Park-Ohio Holdings Corp, filed June 1, 2006, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.8* Supplemental Executive Retirement Plan for Edward F. Crawford, effective as of March 10, 2008 (filed as Exhibit 10.9 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.9* Non-qualified Defined Contribution Retirement Benefit Letter Agreement for Edward F. Crawford, dated March 10, 2008 (filed as Exhibit 10.10 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.11 Agreement of Settlement and Release, dated July 1, 2008 (filed as Exhibit 10.1 toForm 10-Q of Park-Ohio Holdings Corp. for the quarter ended September 30, 2008, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.12 Asset Purchase Agreement, dated as of August 31, 2010, by and among Assembly Component Systems, Inc., Lawson Products, Inc., Supply Technologies LLC and Park-Ohio Industries, Inc. (filed as Exhibit 10.1 to theForm 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.13 Bill of Sale, dated September 30, 2010, by Rome Die Casting LLC and Johnny Johnson in favor of General Aluminum Mfg. Company (filed as Exhibit 10.2 to theForm 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 21.1 List of Subsidiaries of Park-Ohio Holdings Corp.
 23.1 Consent of Independent Registered Public Accounting Firm
 24.1 Power of Attorney
 31.1 Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 31.2 Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 32.1 Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002
 
 
*Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(c) of this Report.

7170