UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~March 31,~~September 30, 2019



¨	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: 000-03134

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)

(440) 947-2000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $1.00 Per Share	PKOH	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountings standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, Par Value $1.00 Per Share~~	~~PKOH~~	~~The NASDAQ Stock Market LLC~~

Number of shares outstanding of registrant’s Common Stock, par value $1.00 per share, as of ~~April 30,~~October 31, 2019: ~~12,632,089~~12,493,102 shares.

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Park-Ohio Holdings Corp. and Subsidiaries

Index



		Page
	Part I. Financial Information

Item 1.	Financial Statements	3
	Condensed consolidated balance sheets — ~~March 31,~~September 30, 2019 (unaudited) and December 31, 2018	3
	Condensed consolidated statements of income (unaudited) — Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	4
	Condensed consolidated statements of comprehensive income (unaudited) — Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	5
	Condensed consolidated ~~statement~~statements of shareholders' equity (unaudited) — Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	6
	Condensed consolidated statements of cash flows (unaudited) — ~~Three~~Nine months ended ~~March 31,~~September 30, 2019 and 2018	78
	Notes to unaudited condensed consolidated financial statements — ~~March 31,~~September 30, 2019	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1821
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	2431
Item 4.	Controls and Procedures	2531

	Part II. Other Information

Item 1.	Legal Proceedings	2632
Item 1A.	Risk Factors	2633
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2633
Item 6.	Exhibits	2633
Signatures		2734

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Part I. Financial Information



Item 1.	Financial Statements

Park-Ohio Holdings Corp. and Subsidiaries

Condensed Consolidated Balance Sheets


	(Unaudited)				(Unaudited)
	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
	(In millions)				(In millions)
ASSETS
Current assets:
Cash and cash equivalents	$	47.5	$	55.7	$	49.8	$	55.7
Accounts receivable, net	287.9		264.4		285.3		264.4
Inventories, net	329.7		317.8		324.0		317.8
Prepaid and other current assets	75.6		82.7		87.1		82.7
Total current assets	740.7		720.6		746.2		720.6
Property, plant and equipment, net	224.7		219.4		233.3		219.4
Operating lease right-of-use assets	67.9		—		62.6		—
Goodwill	103.2		103.4		107.1		103.4
Intangible assets, net	93.5		95.3		90.4		95.3
Other long-term assets	79.8		69.8		79.4		69.8
Total assets	$	1,309.8	$	1,208.5	$	1,319.0	$	1,208.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	194.9	$	177.8	$	184.0	$	177.8
Current portion of long-term debt and short-term debt	17.9		17.9		16.0		17.9
Current portion of operating lease liabilities	12.8		—		11.7		—
Accrued expenses and other	100.1		103.2		107.8		103.2
Total current liabilities	325.7		298.9		319.5		298.9
Long-term liabilities, less current portion:
Debt	546.1		547.5		559.4		547.5
Long-term operating lease liabilities	55.9		—		52.3		—
Other long-term liabilities	52.8		49.5		54.3		49.5
Total long-term liabilities	654.8		597.0		666.0		597.0
Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity	315.5		299.0		319.6		299.0
Noncontrolling interests	13.8		13.6		13.9		13.6
Total equity	329.3		312.6		333.5		312.6
Total liabilities and shareholders' equity	$	1,309.8	$	1,208.5	$	1,319.0	$	1,208.5

Refer to the accompanying notes to these unaudited condensed consolidated financial statements.

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Park-Ohio Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
	(In millions, except per share data)						(In millions, except per share data)
Net sales	$	420.1		$	405.7		$	403.4		$	414.3		$	1,238.8		$	1,252.2
Cost of sales	354.8			340.6			336.9			348.4			1,040.8			1,048.1
Gross profit	65.3			65.1			66.5			65.9			198.0			204.1
Selling, general and administrative expenses	42.8			43.0			42.7			41.1			132.4			131.9
Gain on sale of assets							—			—			—			(1.9		)
Operating income	22.5			22.1			23.8			24.8			65.6			74.1
Other components of pension income and other postretirement benefits expense, net	1.3			2.3			1.4			2.0			4.2			6.4
Interest expense, net	(8.2		)	(8.4		)	(8.6		)	(8.9		)	(25.5		)	(26.1		)
Income before income taxes	15.6			16.0			16.6			17.9			44.3			54.4
Income tax expense	(3.9		)	(5.8		)	(4.2		)	(3.2		)	(12.3		)	(14.5		)
Net income	11.7			10.2			12.4			14.7			32.0			39.9
Net income attributable to noncontrolling interests	(0.5		)	(0.4		)	(0.2		)	(0.5		)	(1.0		)	(1.1		)
Net income attributable to Park-Ohio Holdings Corp. common shareholders	$	11.2		$	9.8		$	12.2		$	14.2		$	31.0		$	38.8

Earnings per common share attributable to Park-Ohio Holdings Corp. common shareholders:
Basic	$	0.92		$	0.80		$	1.00		$	1.15		$	2.54		$	3.15
Diluted	$	0.90		$	0.78		$	0.99		$	1.14		$	2.51		$	3.09
Weighted-average shares used to compute earnings per share:
Basic	12.2			12.3			12.2			12.3			12.2			12.3
Diluted	12.4			12.5			12.3			12.5			12.4			12.5

Refer to the accompanying notes to these unaudited condensed consolidated financial statements.

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Park-Ohio Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
	(In millions)						(In millions)
Net income	$	11.7		$	10.2		$	12.4		$	14.7		$	32.0		$	39.9
Other comprehensive income, net of tax:
Other comprehensive (loss) income, net of tax:
Currency translation	0.7			4.2			(9.1		)	(2.7		)	(10.9		)	(8.9		)
Pension and other postretirement benefits	5.3			1.3			0.5			0.1			6.2			1.5
Total other comprehensive income	6.0			5.5
Total other comprehensive loss							(8.6		)	(2.6		)	(4.7		)	(7.4		)
Total comprehensive income, net of tax	17.7			15.7			3.8			12.1			27.3			32.5
Comprehensive income attributable to noncontrolling interests	(0.5		)	(0.4		)	(0.2		)	(0.5		)	(1.0		)	(1.1		)
Comprehensive income attributable to Park-Ohio Holdings Corp. common shareholders	$	17.2		$	15.3		$	3.6		$	11.6		$	26.3		$	31.4

Refer to the accompanying notes to these unaudited condensed consolidated financial statements.

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Park-Ohio Holdings Corp. and Subsidiaries

Condensed Consolidated ~~Statement~~Statements of Shareholders' Equity (Unaudited)


	Common Stock																				Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest			Total			Shares		Amount			Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest			Total
	(In whole shares)	(In millions)																			(In whole shares)		(In millions)
Balance at January 1, 2019	15,555,275	$	15.6	$	125.7	$	265.9		$	(67.3	)	$	(40.9	)	$	13.6		$	312.6		15,555,275		$	15.6		$	125.7		$	265.9		$	(67.3	)	$	(40.9	)	$	13.6		$	312.6
Other comprehensive income	—	—		—		11.2			—			6.0			0.5			17.7			—		—			—			11.2			—			6.0			0.5			17.7
Stock-based compensation expense	—	—		1.9		—			—			—			—			1.9			—		—			1.9			—			—			—			—			1.9
Stock-based compensation activity	38,000	—		—		—			—			—			—			—			38,000		—			—			—			—			—			—			—
Dividends	—	—		—		(1.6		)	—			—			(0.3		)	(1.9		)	—		—			—			(1.6		)	—			—			(0.3		)	(1.9		)
Payments of withholding taxes on share awards	—	—		—		—			(1.0		)	—			—			(1.0		)	—		—			—			—			(1.0		)	—			—			(1.0		)
Balance at March 31, 2019	15,593,275	$	15.6	$	127.6	$	275.5		$	(68.3	)	$	(34.9	)	$	13.8		$	329.3		15,593,275		15.6			127.6			275.5			(68.3		)	(34.9		)	13.8			329.3
Other comprehensive income																					—		—			—			7.6			—			(2.1		)	0.3			5.8
Stock-based compensation expense																					—		—			(0.2		)	—			—			—			—			(0.2		)
Stock-based compensation activity																					(75,550	)	(0.1		)	0.1			—			—			—			—			—
Dividends																					—		—			—			(1.6		)	—			—			(0.4		)	(2.0		)
Purchases of treasury stock (27,069)																					—		—			—			—			(0.9		)	—			—			(0.9		)
Payments of withholding taxes on share awards																					—		—			—			—			(1.8		)	—			—			(1.8		)
Balance at June 30, 2019																					15,517,725		15.5			127.5			281.5			(71.0		)	(37.0		)	13.7			330.2
Other comprehensive income																					—		—			—			12.2			—			(8.6		)	0.2			3.8
Stock-based compensation expense																					—		—			1.1			—			—			—			—			1.1
Stock-based compensation activity																					13,000		—			—			—			—			—			—			—
Dividends																					—		—			—			(1.6		)	—			—			—			(1.6		)
Balance at September 30, 2019																					15,530,725		$	15.5		$	128.6		$	292.1		$	(71.0	)	$	(45.6	)	$	13.9		$	333.5

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	Common Stock																			Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest		Total			Shares	Amount		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest		Total
	(In whole shares)	(In millions)																		(In whole shares)	(In millions)
Balance at January 1, 2018	15,153,009	$	15.2	$	117.8	$	216.1		$	(55.2	)	$	(17.9	)	$	12.0	$	288.0		15,153,009	$	15.2	$	117.8		$	216.1		$	(55.2	)	$	(17.9	)	$	12.0	$	288.0
Other comprehensive income	—	—		—		9.8			—			5.5			0.4		15.7			—	—		—			9.8			—			5.5			0.4		15.7
Stock-based compensation expense	—	—		2.2		—			—			—			—		2.2			—	—		2.2			—			—			—			—		2.2
Stock-based compensation activity	12,000	—		—		—			—			—			—		—			12,000	—		—			—			—			—			—		—
Dividends	—	—		—		(1.6		)	—			—			—		(1.6		)	—	—		—			(1.6		)	—			—			—		(1.6		)
Purchase of treasury stock (26,917 shares)	—	—		—		—			(1.0		)	—			—		(1.0		)
Purchases of treasury stock (26,917 shares)																				—	—		—			—			(1.1		)	—			—		(1.1		)
Payments of withholding taxes on share awards	—	—		—		—			(1.1		)	—			—		(1.1		)	—	—		—			—			(1.0		)	—			—		(1.0		)
Adoption of ASU 2014-09	—	—		—		2.6			—			—			—		2.6			—	—		—			2.6			—			—			—		2.6
Balance at March 31, 2018	15,165,009	$	15.2	$	120.0	$	226.9		$	(57.3	)	$	(12.4	)	$	12.4	$	304.8		15,165,009	15.2		120.0			226.9			(57.3		)	(12.4		)	12.4		304.8
Other comprehensive income																				—	—		—			14.8			—			(10.3		)	0.2		4.7
Stock-based compensation expense																				—	—		2.4			—			—			—			—		2.4
Stock-based compensation activity																				386,450	0.4		(0.4		)	—			—			—			—		—
Dividends																				—	—		—			(1.6		)	—			—			—		(1.6		)
Payments of withholding taxes on share awards																				—	—		—			—			(2.0		)	—			—		(2.0		)
Balance at June 30, 2018																				15,551,459	15.6		122.0			240.1			(59.3		)	(22.7		)	12.6		308.3
Other comprehensive income																				—	—		—			14.2			—			(2.6		)	0.5		12.1
Stock-based compensation expense																				—	—		1.9			—			—			—			—		1.9
Stock-based compensation activity																				5,650	—		—			—			—			—			—		—
Dividends																				—	—		—			(1.6		)	—			—			—		(1.6		)
Purchases of treasury stock (123,504 shares)																				—	—		—			—			(5.0		)	—			—		(5.0		)
Payments of withholding taxes on share awards																				—	—		—			—			(0.1		)	—			—		(0.1		)
Balance at September 30, 2018																				15,557,109	$	15.6	$	123.9		$	252.7		$	(64.4	)	$	(25.3	)	$	13.1	$	315.6

Three Months Ended March 31,
2019 2018
Dividends per common share $ 0.125
$ 0.125



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Dividends per common share	$	0.125	$	0.125	$	0.375	$	0.375

Refer to the accompanying notes to these unaudited condensed consolidated financial statements.

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Park-Ohio Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In millions)						(In millions)
OPERATING ACTIVITIES
Net income	$	11.7		$	10.2		$	32.0		$	39.9
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization	9.2			8.9			25.5			27.3
Stock-based compensation expense	1.9			2.2			2.8			6.5
Net impact of Tax Cuts and Jobs Act	—			1.2
Net impact of Tax Cuts and Jobs Act ("TCJA")							—			0.3
Gain on sale of assets							—			(1.9		)
Changes in operating assets and liabilities:
Accounts receivable	(23.0		)	(16.5		)	(20.6		)	(37.2		)
Inventories	(11.2		)	(9.2		)	(6.8		)	(23.2		)
Prepaid and other current assets	6.9			(2.2		)	(3.0		)	(9.8		)
Accounts payable and accrued expenses	11.2			15.0			5.4			26.0
Other	(0.1		)	(1.2		)	(1.8		)	(6.1		)
Net cash provided by operating activities	6.6			8.4			33.5			21.8
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(10.6		)	(8.9		)	(31.6		)	(35.9		)
Proceeds from sale of assets							—			2.8
Business acquisitions, net of cash acquired	—			(36.7		)	(8.1		)	(36.8		)
Net cash used by investing activities	(10.6		)	(45.6		)	(39.7		)	(69.9		)
FINANCING ACTIVITIES
Proceeds from revolving credit facility, net	1.3			47.3			20.9			48.3
Payments on term loans and other debt	(2.2		)	(3.6		)	(7.3		)	(2.8		)
Proceeds from term loans and other debt	1.1			3.7			1.8			2.2
Payments on finance lease facilities, net	(1.6		)	(1.2		)	(5.0		)	(3.5		)
Dividends	(1.9		)	(1.6		)	(5.5		)	(4.8		)
Purchase of treasury shares	—			(0.6		)	(0.9		)	(6.1		)
Payments of withholding taxes on share awards	(1.0		)	(1.1		)	(2.8		)	(3.1		)
Net cash (used) provided by financing activities	(4.3		)	42.9
Net cash provided by financing activities							1.2			30.2
Effect of exchange rate changes on cash	0.1			0.7			(0.9		)	(2.0		)
(Decrease) increase in cash and cash equivalents	(8.2		)	6.4
Decrease in cash and cash equivalents							(5.9		)	(19.9		)
Cash and cash equivalents at beginning of period	55.7			82.8			55.7			82.8
Cash and cash equivalents at end of period	$	47.5		$	89.2		$	49.8		$	62.9
Interest paid	$	2.0		$	2.2		$	18.5		$	19.0
Income taxes paid	$	2.1		$	2.0		$	11.0		$	14.8

Refer to the accompanying notes to these unaudited condensed consolidated financial statements.

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019

NOTE 1 — Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~three-month~~three- and nine-month periods ended ~~March 31,~~September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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, 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.

NOTE 2 — New Accounting Pronouncements

Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” This accounting standard requires that a lessee recognize a right-of-use asset and a lease liability on its balance sheet for all leases, including operating leases, with a term greater than 12 months. In July 2018, the FASB issued updated guidance, which allows an additional transition method to adopt the new leases standard at the adoption date, rather than as of the beginning of the earliest period presented. The Company elected to transition to the new standard on its effective date of January 1, 2019 and therefore did not adjust its prior period financial information. On the transition date, we recognized operating right-of-use assets and related lease liabilities of approximately $69.7 million. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company also made an accounting policy election not to record a right-of-use asset or lease liability related to leases with an initial term of 12 months or less, and elected to not separate lease and non-lease components for all leases. See Note 10, "Leases" for additional disclosure.

In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The ASU affects any entity that is required to apply the provisions of Topic 220, “Income Statement—Reporting Comprehensive Income,” and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The Company has evaluated ASU 2018-02 and has decided not to make the election to reclassify the income tax effects of the ~~Tax Cuts and Jobs Act (“TCJA”)~~TCJA from accumulated other comprehensive income to retained earnings.

Recent Accounting Pronouncements Not Yet Adopted

Table of Contents

Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments,” which replaces the current incurred loss impairment model with a methodology that reflects expected credit losses. Under the new methodology, entities will be required to measure expected credit losses on financial instruments held at amortized cost, including trade receivables, based on historical experience, current conditions and reasonable forecasts. Adoption of this guidance is required for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the expected impact of this standard.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the requirements on fair value measurements by removing, modifying or adding certain disclosures. Adoption of this guidance is required for interim and annual periods beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating the expected impact of this standard.

No other recently issued ASUs are expected to have a material impact on our results of operations, financial condition or liquidity.

NOTE 3 - Revenue

We disaggregate our revenue by product line and geographic region of our customer, as we believe these best depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. See details in the tables below.


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018
	(In millions)				(In millions)
PRODUCT LINE
Supply Technologies	$	144.8	$	138.8	$	128.2	$	135.0	$	413.9	$	419.9
Engineered specialty fasteners and other products	20.5		22.1		20.4		20.1		61.5		62.3
Supply Technologies Segment	165.3		160.9		148.6		155.1		475.4		482.2

Fuel, rubber and plastic products	89.6		99.2		91.1		95.2		271.8		294.3
Aluminum products	48.7		46.2		44.8		50.9		138.7		150.4
Assembly Components Segment	138.3		145.4		135.9		146.1		410.5		444.7

Industrial equipment	80.6		74.5		81.4		76.0		242.8		228.9
Forged and machined products	35.9		24.9		37.5		37.1		110.1		96.4
Engineered Products Segment	116.5		99.4		118.9		113.1		352.9		325.3

Total revenues	$	420.1	$	405.7	$	403.4	$	414.3	$	1,238.8	$	1,252.2

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019


	Supply Technologies Segment		Assembly Components Segment		Engineered Products Segment		Total Revenues		Supply Technologies Segment		Assembly Components Segment		Engineered Products Segment		Total Revenues
	(In millions)								(In millions)
Three Months Ended March 31, 2019
Three Months Ended September 30, 2019
GEOGRAPHIC REGION
United States	$	110.4	$	101.7	$	68.1	$	280.2	$	98.2	$	92.5	$	69.2	$	259.9
Europe	26.5		4.3		20.4		51.2		23.3		2.9		16.0		42.2
Asia	11.3		5.2		14.9		31.4		9.6		6.0		17.8		33.4
Mexico	13.7		9.0		3.0		25.7		13.7		12.6		4.1		30.4
Canada	3.2		17.7		7.6		28.5		3.1		21.5		6.4		31.0
Other	0.2		0.4		2.5		3.1		0.7		0.4		5.4		6.5
Total	$	165.3	$	138.3	$	116.5	$	420.1	$	148.6	$	135.9	$	118.9	$	403.4

Three Months Ended March 31, 2018
Three Months Ended September 30, 2018
GEOGRAPHIC REGION
United States	$	103.3	$	101.8	$	53.5	$	258.6	$	101.3	$	103.9	$	65.8	$	271.0
Europe	26.0		1.2		18.8		46.0		23.7		1.5		17.7		42.9
Asia	13.9		7.8		11.7		33.4		12.5		8.4		18.0		38.9
Mexico	14.2		8.5		8.0		30.7		13.4		9.5		1.9		24.8
Canada	3.4		25.7		5.2		34.3		3.4		22.3		6.3		32.0
Other	0.1		0.4		2.2		2.7		0.8		0.5		3.4		4.7
Total	$	160.9	$	145.4	$	99.4	$	405.7	$	155.1	$	146.1	$	113.1	$	414.3

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2019



	Supply Technologies Segment			Assembly Components Segment			Engineered Products Segment		Total Revenues
	(In millions)
Nine Months Ended September 30, 2019
GEOGRAPHIC REGION
United States	$	319.2		$	291.2		$	205.2	$	815.6
Europe	74.0			11.0			56.8		141.8
Asia	30.4			15.2			48.5		94.1
Mexico	40.8			32.2			10.5		83.5
Canada	9.6			59.7			20.6		89.9
Other	1.4			1.2			11.3		13.9
Total	$	475.4		$	410.5		$	352.9	$	1,238.8

Nine Months Ended September 30, 2018
GEOGRAPHIC REGION
United States	$	315.1		$	315.0		$	185.4	$	815.5
Europe	75.3			3.9			56.8		136.0
Asia	39.6			24.9		26,600,000	44.6		109.1
Mexico	41.1		5,000,000	26.1			13.4		80.6
Canada	10.2			73.6			17.2		101.0
Other	0.9			1.2			7.9		10.0
Total	$	482.2		$	444.7		$	325.3	$	1,252.2

NOTE 4 — Segments

Our operating segments are defined as components of the enterprise for which separate financial information is available and evaluated on a regular basis by our chief operating decision maker to allocate resources and assess performance.

For purposes of measuring business segment performance, the Company utilizes segment operating income, which is defined as revenues less expenses identifiable to the product lines within each segment. The Company does not allocate items that are non-operating; unusual in nature; or are corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs; certain non-cash and/or non-operating items; Other components of pension income and other postretirement benefits expense, net; and interest ~~expense.~~expense, net.

Results by business segment were as follows:

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
	(In millions)						(In millions)
Net sales:
Supply Technologies	$	165.3		$	160.9		$	148.6		$	155.1		$	475.4		$	482.2
Assembly Components	138.3			145.4			135.9			146.1			410.5			444.7
Engineered Products	116.5			99.4			118.9			113.1			352.9			325.3
	$	420.1		$	405.7		$	403.4		$	414.3		$	1,238.8		$	1,252.2
Segment operating income:
Supply Technologies	$	13.1		$	12.5		$	10.0		$	11.3		$	34.4		$	37.3
Assembly Components	8.3			12.6			10.4			9.3			27.0			33.6
Engineered Products	8.1			5.7			10.3			12.2			29.9			27.4
Total segment operating income	29.5			30.8			30.7			32.8			91.3			98.3
Corporate costs	(7.0		)	(8.7		)	(6.9		)	(8.0		)	(21.4		)	(26.1		)
One-time net expense related to former President^(a)							—			—			(4.3		)	—
Gain on sale of assets							—			—			—			1.9
Operating income	22.5			22.1			23.8			24.8			65.6			74.1
Other components of pension income and other postretirement benefits expense, net	1.3			2.3			1.4			2.0			4.2			6.4
Interest expense, net	(8.2		)	(8.4		)	(8.6		)	(8.9		)	(25.5		)	(26.1		)
Income before income taxes	$	15.6		$	16.0		$	16.6		$	17.9		$	44.3		$	54.4

(a) On June 17, 2019, Edward F. Crawford, our President, retired and resigned to become the U.S. Ambassador to Ireland. In connection with his resignation, the Company incurred one-time net expense of $4.3 million, consisting of a $6.0 million payment and reversal of $1.7 million of previously-recorded expense related to restricted stock forfeitures.							(a) On June 17, 2019, Edward F. Crawford, our President, retired and resigned to become the U.S. Ambassador to Ireland. In connection with his resignation, the Company incurred one-time net expense of $4.3 million, consisting of a $6.0 million payment and reversal of $1.7 million of previously-recorded expense related to restricted stock forfeitures.

NOTE 5 — Acquisitions

On May 31, 2019, the Company acquired EFCO, Inc. d/b/a Erie Press Systems (“EP”) for $9.1 million, including a working capital adjustment and contingent consideration. EP, which has annual revenue of approximately $20 million, is an industry-recognized leader in the manufacturing of advanced forging presses, hydraulic and mechanical presses, and metal stretch-forming and carbon extrusion machines for several end markets, including aerospace and defense, primary metals and high-speed rail. EP is included in the Company's Engineered Products segment.

At closing, the Company paid $7.6 million in cash (net of $10.4 million of cash and cash equivalents acquired). In July 2019, the Company paid an additional $0.5 million upon finalization of the net working capital adjustment. In addition, the purchase agreement stipulates potential contingent consideration of up to an additional $1.0 million based on two-year cumulative earnings before interest and taxes. The estimated fair value of the contingent consideration, valued using level 3 inputs, was approximately $1.0 million as of September 30, 2019, resulting in total consideration of $9.1 million.

The allocation of the purchase price for EP is subject to finalization of the Company's determination of the fair values of the assets acquired and liabilities assumed as of the acquisition date, and could be materially different than the estimates presented below. The Company has not yet completed its analysis of the fair value of property, plant and equipment; intangible assets; and deferred income taxes. The final allocation is expected to be completed in 2019 but no later than one year after the acquisition date. Below is the estimated purchase price allocation as of September 30, 2019 related to the acquisition of EP, which reflects decreases in property, plant and equipment and intangible assets and a resulting increase in goodwill compared to the estimated values at June 30, 2019:

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2019



	(In millions)
Net working capital	$	0.1
Property, plant and equipment	2.9
Intangible assets	1.5
Goodwill	5.5
Deferred income tax liabilities	(0.9		)
Total purchase price (including working capital adjustment and contingent consideration)	$	9.1

On February 1, 2018, the Company acquired Canton Drop Forge (“CDF”) for $35.6 million in cash for its Engineered Products segment. CDF manufactures forgings for high-performance applications in the global aerospace, oil and gas, and other markets.

On October 1, 2018, the Company acquired Hydrapower Dynamics Limited (“Hydrapower”) for $7.8 million in cash for its Assembly Components segment. Headquartered in Birmingham, England, Hydrapower is a manufacturer of fluid handling systems incorporating hoses, manipulated tubes and fabricated assemblies for the bus and truck, automotive, agricultural and construction end markets.

During 2018, the Company made two other acquisitions in its Supply Technologies segment totaling a cash purchase price of $3.5 million. Both acquired companies distribute products into the aerospace and defense end markets.

~~During the first quarter of 2019, the Company finalized its valuations of~~The purchase price allocations for the 2018 acquisitions ~~resulting in immaterial changes to goodwill and deferred income tax liabilities.~~have been finalized.

NOTE 6 — Inventories

Inventories, net consist of the following:



	September 30, 2019		December 31, 2018
	(In millions)
Raw materials and supplies	$	91.1	$	85.0
Work in process	48.7		48.9
Finished goods	182.2		182.0
LIFO reserve	2.0		1.9
Inventories, net	$	324.0	$	317.8

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019

~~NOTE 6 — Inventories~~

~~Inventories, net consist of the following:~~

March 31, 2019 December 31, 2018
(In millions)
Raw materials and supplies $ 88.9
$ 85.0
Work in process 49.8
48.9
Finished goods 189.1
182.0
LIFO reserve 1.9
1.9
Inventories, net $ 329.7
$ 317.8

NOTE 7 — Accrued Warranty Costs

The Company estimates warranty claims that may be incurred based on current and historical data of products sold. Actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents changes in the Company’s product warranty liability for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018:


	2019			2018			Three Months Ended September 30,						Nine Months Ended September 30,
	(In millions)						2019			2018			2019			2018
January 1	$	6.2		$	7.9
							(In millions)
Beginning balance							$	7.1		$	7.9		$	6.2		$	7.9
Claims paid	(0.8		)	(1.6		)	(1.0		)	(0.9		)	(2.6		)	(3.4		)
Warranty expense	1.3			1.6			1.3			0.3			3.8			2.8
March 31	$	6.7		$	7.9
Ending balance							$	7.4		$	7.3		$	7.4		$	7.3

NOTE 8 — Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of its annual effective rate, adjusted for discrete items, if any, in each period.

Income tax expense for the three months ended ~~March 31,~~September 30, 2019 was ~~$3.9~~$4.2 million, representing an effective ~~income tax~~ rate of ~~25.4%~~25.3%, compared to income tax expense of ~~$5.8~~$3.2 million, or ~~36.3%~~17.9%, infor the three months ended ~~March 31,~~September 30, 2018. The rate in the 2018 period ~~was negatively impacted by discrete items totaling~~includes a $0.9 million ~~of expense, primarily for one-time charges~~benefit related to ~~enactment~~an adjustment of the Company's estimated transition tax liability under the TCJA.

Income tax expense for the nine months ended September 30, 2019 was $12.3 million, representing an effective rate of 27.7%, compared to income tax expense of $14.5 million, or 26.7%, for the nine months ended September 30, 2018. The rate in the 2019 period is higher due to the impact of the $6.0 million one-time, non-deductible payment described more fully in Note 4, partially offset by the impact of discrete tax items including a favorable U.S. return to provision adjustment.

NOTE 9 — Financing Arrangements

Debt consists of the following:



				Carrying Value at
	Maturity Date	Interest Rate at September 30, 2019		September 30, 2019			December 31, 2018
				(In millions)
Senior Notes	April 15, 2027	6.625	%	$	350.0		$	350.0
Revolving credit facility	April 17, 2022	3.30	%	185.7			165.1
Industrial Equipment Group European Facilities	December 21, 2021	3.25	%	7.2			12.6
Finance Leases	Various	Various		15.7			20.7
Other	Various	Various		23.5			24.7
Gross debt				582.1			573.1
Less current portion of long-term and short-term debt				(16.0		)	(17.9		)
Less unamortized debt issuance costs				(6.7		)	(7.7		)
Total long-term debt, net				$	559.4		$	547.5

Table of Contents

Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019

Carrying Value at
Maturity Date
Interest Rate at
March 31, 2019
March 31, 2019 December 31, 2018
(In millions)
Senior Notes April 15, 2027 6.625 % $ 350.0
$ 350.0
Revolving credit facility April 17, 2022 3.67 % 166.6
165.1
Industrial Equipment Group European Facilities December 21, 2021 3.25 % 11.0
12.6
Finance Leases Various Various
19.1
20.7
Other Various Various
24.6
24.7
Gross debt 571.3
573.1
Less current portion of long-term and short-term debt (17.9 ) (17.9 )
Less unamortized debt issuance costs (7.3 ) (7.7 )
Total long-term debt, net $ 546.1
$ 547.5

In 2018, Park-Ohio Industries, Inc. (“Park-Ohio”), the operating subsidiary of Park-Ohio Holdings Corp., entered into Amendment No. 1 to Seventh Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of banks to increase the availability under the revolving credit facility from $350.0 million to $375.0 million, the Canadian revolving subcommitment from $35.0 million to $40.0 million and the European revolving subcommitment from $25.0 million to $30.0 million. Furthermore, Park-Ohio has the option, pursuant to the ~~Amended~~ Credit Agreement, to increase the availability under the revolving credit facility by an aggregate incremental amount up to $100.0 million. We had outstanding bank guarantees of approximately ~~$28.5~~$32.3 million at ~~March 31,~~September 30, 2019 and $27.5 million at December 31, 2018 under ~~our credit agreements.~~the Credit Agreement.

In 2017, Park-Ohio completed the issuance, in a private placement, of $350.0 million aggregate principal amount of 6.625% Senior Notes due 2027 (the “Notes”). The Notes are unsecured senior obligations of Park-Ohio and are guaranteed on an unsecured senior basis by the 100% owned material domestic subsidiaries of Park-Ohio.

In 2016, the Company, through its subsidiary, IEGE Industrial Equipment Holding Company Limited, entered into a financing agreement with Banco Bilbao Vizcaya Argentaria, S.A. The financing agreement provides the Company a loan up to ~~$25.2~~$24.6 million as of ~~March 31,~~September 30, 2019, as well as a revolving credit facility for up to ~~$11.2~~$10.9 million to fund working capital and general corporate needs. The Company had ~~$11.0~~$7.2 million outstanding on the loan as of ~~March 31,~~September 30, 2019. No amounts have been drawn on the revolving credit facility as of ~~March 31,~~September 30, 2019.

In 2015, the Company entered into a Capital Lease Agreement (the “Lease Agreement”). The Lease Agreement provides the Company up to $50.0 million for finance leases. Finance lease obligations of ~~$19.1~~$15.7 million were borrowed under the Lease Agreement to acquire machinery and equipment as of ~~March 31,~~September 30, 2019.

In 2015, the Company, through its Southwest Steel Processing LLC subsidiary, entered into a financing agreement with the Arkansas Development Finance Authority. The financing agreement provides the Company the ability to borrow up to $11.0 million for expansion of its manufacturing facility in Arkansas. The financing agreement matures in September 2025. The Company had ~~$8.6~~$8.8 million of borrowings outstanding under this agreement as of ~~March 31,~~September 30, 2019, which is included in Other above.

The following table represents fair value information of the Notes, classified as Level 1 using estimated quoted market prices.

~~Table of Contents~~

~~Park-Ohio Holdings Corp. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~March 31, 2019~~


	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
	(In millions)				(In millions)
Carrying amount	$	350.0	$	350.0	$	350.0	$	350.0
Fair value	$	352.2	$	345.8	$	348.3	$	345.8

NOTE 10 — Leases

We lease manufacturing facilities, warehouse space, office space, machinery and equipment, information technology equipment and vehicles under operating leases. We also lease one building and machinery and equipment under finance leases. For operating leases with terms greater than 12 months, we record the operating right-of-use asset and related lease liability at the present value of lease payments over the lease term. In certain real estate leases, we have options to renew lease terms, generally at our sole discretion. We evaluate renewal options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors.

The discount rate implicit in our operating leases is generally not determinable, and therefore the Company determines the discount rate for each lease based on its incremental borrowing rate. The incremental borrowing rate is calculated based on lease term, currency and collateral adjustments.

~~During the three months ended March 31, 2019, the Company obtained right-of-use assets in exchange for new operating lease liabilities of $2.2 million.~~

~~Balance Sheet as of March 31, 2019~~

Classification on the Balance Sheet March 31, 2019
Assets (in millions)
Operating lease assets Operating lease right-of-use assets $ 67.9
Finance lease assets Property, plant and equipment, net 26.5
Total lease assets $ 94.4

Liabilities
Current
Operating Current portion of operating lease liabilities $ 12.8
Finance Current portion of long-term debt and short-term debt 6.6
Noncurrent
Operating Long-term operating lease liabilities 55.9
Finance Debt 12.5
Total lease liabilities $ 87.8

Weighted-average remaining lease term (in years)
Operating leases 7.3
Finance leases 4.2
Weighted-average discount rate
Operating leases 5.3 %
Finance leases 3.8 %

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019

During the three and nine months ended September 30, 2019, the Company obtained right-of-use assets in exchange for new operating lease liabilities of $2.8 million and $7.4 million, respectively.

Balance Sheet as of September 30, 2019



	Classification on the Balance Sheet	September 30, 2019
Assets		(in millions)
Operating lease assets	Operating lease right-of-use assets	$	62.6
Finance lease assets	Property, plant and equipment, net	24.7
Total lease assets		$	87.3

Liabilities
Current
Operating	Current portion of operating lease liabilities	$	11.7
Finance	Current portion of long-term debt and short-term debt	6.7
Noncurrent
Operating	Long-term operating lease liabilities	52.3
Finance	Debt	9.0
Total lease liabilities		$	79.7

Weighted-average remaining lease term (in years)
Operating leases		7.0
Finance leases		3.9
Weighted-average discount rate
Operating leases		5.3		%
Finance leases		3.8		%

Lease ~~Costs~~Expense for the three and nine months ended ~~March 31,~~September 30, 2019

Operating lease expense is recognized on a straight-line basis over the lease term, with variable payments recognized in the period those payments are incurred.

March 31, 2019
Finance lease cost (in millions)
Amortization of right-of-use assets $ 1.0
Interest on lease liabilities 0.2
Operating lease cost 4.6
Other lease cost⁽¹⁾
1.0
Total lease cost $ 6.8

(1) - Other lease cost includes short-term lease costs and variable lease costs.



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Finance lease expense	(in millions)
Amortization of right-of-use assets	$	0.9	$	2.7
Interest on lease liabilities	0.2		0.5
Operating lease expense	4.3		13.4
Other lease expense⁽¹⁾	1.8		4.2
Total lease expense	$	7.2	$	20.8

(1) - Other lease expense includes variable lease costs and short-term lease costs.

Total lease ~~cost~~expense for the three and nine months ended ~~March 31,~~September 30, 2018 was ~~$6.4 million.~~$7.0 million and $20.0 million, respectively.

Cash Flow Information

March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities (in millions)
Operating cash flows for operating leases $ 4.4
Operating cash flows for finance leases $ 0.2
Financing cash flows for finance leases $ 1.6

~~Maturities of Lease Liabilities~~

March 31, 2019
Operating Leases Finance Leases
(in millions)
Remainder of 2019 $ 12.4
$ 5.5
2020 13.4
6.5
2021 10.7
3.3
2022 9.5
2.2
2023 8.7
1.4
Thereafter 28.1
1.6
Total lease payments 82.8
20.5
Less: amount of lease payments representing interest (14.1 ) (1.4 )
Total present value of future lease payments $ 68.7
$ 19.1

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019



	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	(in millions)
Operating cash flows for operating leases	$	13.2
Operating cash flows for finance leases	$	0.5
Financing cash flows for finance leases	$	5.0

Maturities of Lease Liabilities



	September 30, 2019
	Operating Leases			Finance Leases
	(in millions)
Remainder of 2019	$	3.9		$	1.9
2020	14.2			6.5
2021	11.7			3.3
2022	9.8			2.2
2023	8.6			1.4
Thereafter	28.0			1.6
Total lease payments	76.2			16.9
Less: amount of lease payments representing interest	(12.2		)	(1.2		)
Total present value of future lease payments	$	64.0		$	15.7

NOTE 11 — Stock-Based Compensation

A summary of restricted share activity for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 is as follows:


	2019							2019
	Time-Based				Performance-Based			Time-Based				Performance-Based
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
	(In whole shares)				(In whole shares)			(In whole shares)				(In whole shares)
Outstanding - beginning of year	529,947		$	35.98	—	$	—	529,947		$	35.98	—	$	—
Granted(a)	41,000		32.53		50,000	32.55		93,275		32.45		50,000	32.55
Vested	(74,834	)	35.93		—	—		(210,428	)	37.70		—	—
Cancelled or expired	(3,000	)	43.70		—	—
Forfeited								(115,000	)	39.35		—	—
Outstanding - end of period	493,113		$	35.65	50,000	$	32.55	297,794		$	32.36	50,000	$	32.55

(a) Included in the granted amount are 2,825 restricted share units.

Total stock-based compensation expense included in Selling, general and administrative expenses during the ~~first~~ three months ofended September 30, 2019 and 2018 was $1.1 million and $1.9 million, respectively. The amounts recorded for the nine months ended September 30, 2019 and ~~$2.2~~2018 were $2.8 million and $6.5 million, respectively. As of ~~March 31,~~September 30, 2019, there was ~~$9.7~~ $6.1

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2019

million of unrecognized compensation cost related to non-vested stock-based compensation, which cost is expected to be recognized over a weighted-average period of ~~2.1~~2.0 years.

NOTE 12 ~~— Commitments, Contingencies and Litigation Settlement~~

The Company is subject to various pending and threatened legal proceedings arising in the ordinary course of business. The Company records a liability for loss contingencies in the consolidated financial statements when a loss is known or considered probable and the amount can be reasonably estimated. Our provisions are based on historical experience, current information and legal advice, and they may be adjusted in the future based on new developments. Estimating probable losses requires the analysis of multiple forecasted factors that often depend on judgments and potential actions by third parties. Although it is not possible to predict with certainty the ultimate outcome or cost of these matters, the Company believes they will not have a material adverse effect on our consolidated financial statements.

Our subsidiaries are involved in a number of contractual and warranty-related disputes. We believe that appropriate liabilities for these contingencies have been recorded; however, actual results may differ materially from our estimates.

~~NOTE 13~~ — Pension and Postretirement Benefits

The components of net periodic benefit (income) costs recognized during interim periods were as follows:


	Pension Benefits						Postretirement Benefits						Pension Benefits													Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended September 30,							Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018			2019				2018			2019			2018			2019		2018		2019			2018
	(In millions)												(In millions)
Service costs	$	0.9		$	1.0		$	—		$	—		$	1.0			$	0.9		$	2.8		$	2.9		$	—	$	—	$	—		$	—
Interest costs	0.7			0.5			0.1			0.1			0.6				0.6			1.9			1.7			0.1		0.1		0.2			0.2
Expected return on plan assets	(2.7		)	(2.9		)	—			—			(2.8		)		(2.9		)	(8.2		)	(8.7		)	—		—		—			—
Recognized net actuarial loss	0.6			0.1			—			—			0.5				0.1			1.6			0.3			—		—		0.1			—
Net periodic benefit (income) costs	$	(0.5	)	$	(1.3	)	$	0.1		$	0.1
Net periodic benefit (income) expense													$	(0.7	)		$	(1.3	)	$	(1.9	)	$	(3.8	)	$	0.1	$	0.1	$	0.3		$	0.2
Weighted average:																��
Discount rate for PBO	4.11		%	3.52		%	4.06		%	3.32		%
Discount rate for projected benefit obligation																				4.11		%	3.52		%					4.06		%	3.32		%
Discount rate for interest cost	3.72		%	3.10		%	3.72		%	2.89		%								3.72		%	3.10		%					3.72		%	2.89		%
Discount rate for service cost	4.10		%	3.57		%	4.34		%	3.70		%								4.14		%	3.57		%					4.34		%	3.70		%
Expected return on plan assets	8.25		%	8.25		%														8.25		%	8.25		%

NOTE 13 — Accumulated Other Comprehensive Loss

The components of and changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2019 and 2018 were as follows:



	Cumulative Translation Adjustment			Pension and Postretirement Benefits			Total			Cumulative Translation Adjustment			Pension and Postretirement Benefits			Total
	(In millions)
	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
Beginning balance	$	(23.1	)	$	(13.9	)	$	(37.0	)	$	(17.8	)	$	(4.9	)	$	(22.7	)
Currency translation ^(a)	(9.1		)	—			(9.1		)	(2.7		)	—			(2.7		)
Pension and OPEB activity, net of tax	—			0.5			0.5			—			0.1			0.1
Ending balance	$	(32.2	)	$	(13.4	)	$	(45.6	)	$	(20.5	)	$	(4.8	)	$	(25.3	)

	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
Beginning balance	$	(21.3	)	$	(19.6	)	$	(40.9	)	$	(11.6	)	$	(6.3	)	$	(17.9	)
Currency translation ^(a)	(10.9		)	—			(10.9		)	(8.9		)	—			(8.9		)
Pension and OPEB activity, net of tax	—			6.2			6.2			—			1.5			1.5
Ending balance	$	(32.2	)	$	(13.4	)	$	(45.6	)	$	(20.5	)	$	(4.8	)	$	(25.3	)


(a)	No income taxes were provided on currency translation as foreign earnings are considered permanently reinvested.

1619

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Park-Ohio Holdings Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~September 30, 2019

NOTE 14 ~~— Accumulated Other Comprehensive Loss~~

~~The components of and changes in accumulated other comprehensive loss for the three months ended March 31, 2019 and 2018 were as follows:~~

Cumulative Translation Adjustment Pension and Postretirement Benefits Total
(In millions)
January 1, 2019 $ (21.3 ) $ (19.6 ) $ (40.9 )
Currency translation ^(a)
0.7
—
0.7
Pension and OPEB activity, net of tax —
5.3
5.3
March 31, 2019 $ (20.6 ) $ (14.3 ) $ (34.9 )

January 1, 2018 $ (11.6 ) $ (6.3 ) $ (17.9 )
Currency translation ^(a)
4.2
—
4.2
Pension and OPEB activity, net of tax —
1.3
1.3
March 31, 2018 $ (7.4 ) $ (5.0 ) $ (12.4 )


~~(a)~~	No ~~income taxes are provided on currency translation as foreign earnings are considered permanently re-invested.~~

~~NOTE 15~~ — Weighted-Average Number of Shares Used in Computing Earnings Per Share

The following table sets forth the weighted-average number of shares used in the computation of earnings per share:


	Three Months Ended March 31,		Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018	2019	2018
	(In millions)		(In millions)
Weighted average basic shares outstanding	12.2	12.3	12.2	12.3	12.2	12.3
Plus: Dilutive impact of employee stock awards	0.2	0.2	0.1	0.2	0.2	0.2
Weighted average diluted shares outstanding	12.4	12.5	12.3	12.5	12.4	12.5

~~Outstanding~~Certain restricted stock ~~options with exercise prices greater than the average price of the common shares~~awards are anti-dilutive and ~~are~~therefore excluded from the computation of diluted earnings per share. Anti-dilutive shares were immaterial for the three and nine months ended ~~March 31,~~September 30, 2019 and ~~there were no anti-dilutive shares for the three months ended March 31,~~ 2018.

NOTE 1615 — Subsequent Events

On ~~April 26,~~October 30, 2019, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share. The dividend will be paid on ~~May 29,~~November 27, 2019 to shareholders of record as of the close of business on ~~May 15,~~November 13, 2019 and will result in a cash outlay of approximately $1.6 million.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our,” or the “Company”). All significant intercompany transactions have been eliminated in consolidation.

EXECUTIVE OVERVIEW

We are a diversified international company providing world-class customers with a supply chain management outsourcing service, capital equipment used on their production lines, and manufactured components used to assemble their products. We operate through three reportable segments: Supply Technologies, Assembly Components and Engineered Products.

Supply Technologies provides our customers with Total Supply Management™, 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 Management™ 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 and point-of-use delivery, electronic billing services and ongoing technical support. Our Supply Technologies business services customers in the following principal industries: heavy-duty truck; sports and recreational equipment; aerospace and defense; semiconductor equipment; electrical distribution and controls; consumer electronics; bus and coaches; automotive, agricultural and construction equipment; HVAC; lawn and garden; plumbing; and medical.

Assembly Components manufactures products oriented towards fuel efficiency and reduced emission standards. Assembly Components designs, develops and manufactures aluminum products and highly efficient, high pressure direct fuel injection fuel rails and pipes; fuel filler pipes that route fuel from the gas cap to the gas tank; flexible multi-layer plastic and rubber assemblies used to transport fuel from the vehicle's gas tank and then, at extreme high pressure, to the engine's fuel injector nozzles. Our product offerings include gasoline direct injection systems and fuel filler assemblies, and industrial hose and injected molded rubber and plastic components. Additional products include cast and machined 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. Our products are primarily used in the following industries: automotive, including automotive and light-vehicle; agricultural equipment; construction equipment; heavy-duty truck; and marine original equipment manufacturers (“OEMs”), on a sole-source basis.

Engineered 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 and forged and machined products. Engineered Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Engineered Products are OEMs, sub-assemblers and end users in the following industries: ferrous and non-ferrous metals; silicon; coatings; forging; foundry; heavy-duty truck; construction equipment; automotive; oil and gas; locomotive and rail manufacturing; and aerospace and defense.

Sales and segment operating income for these three segments are provided in Note 4 to the condensed consolidated financial statements, included elsewhere herein.

Subsequent Event

RESULTS OF OPERATIONS

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Three Months Ended ~~March 31,~~September 30, 2019 Compared with Three Months Ended ~~March 31,~~September 30, 2018


	Three Months Ended March 31,												Three Months Ended September 30,
	2019			2018			$ Change				% Change		2019			2018			$ Change			% Change
	(Dollars in millions, except per share data)												(Dollars in millions, except per share data)
Net sales	$	420.1		$	405.7		$	14.4			3.5	%	$	403.4		$	414.3		$	(10.9	)	(2.6	)%
Cost of sales	354.8			340.6			14.2				4.2	%	336.9			348.4			(11.5		)	(3.3	)%
Gross profit	65.3			65.1			0.2				0.3	%	66.5			65.9			0.6			0.9	%
Gross margin	15.5		%	16.0		%							16.5		%	15.9		%
Selling, general and administrative (“SG&A”) expenses	42.8			43.0			(0.2		)		(0.5	)%	42.7			41.1			1.6			3.9	%
SG&A expenses as a percentage of net sales	10.2		%	10.6		%
SG&A as a percentage of net sales													10.6		%	9.9		%
Operating income	22.5			22.1			0.4				1.8	%	23.8			24.8			(1.0		)	(4.0	)%
Other components of pension income and other postretirement benefits expense, net	1.3			2.3			(1.0		)	��	(43.5	)%	1.4			2.0			(0.6		)	(30.0	)%
Interest expense, net	(8.2		)	(8.4		)	0.2				(2.4	)%	(8.6		)	(8.9		)	0.3			(3.4	)%
Income before income taxes	15.6			16.0			(0.4		)		(2.5	)%	16.6			17.9			(1.3		)	(7.3	)%
Income tax expense	(3.9		)	(5.8		)	1.9				(32.8	)%	(4.2		)	(3.2		)	(1.0		)	31.3	%
Net income	11.7			10.2			1.5				14.7	%	12.4			14.7			(2.3		)	(15.6	)%
Net income attributable to noncontrolling interests	(0.5		)	(0.4		)	(0.1		)		25.0	%
Net income attributable to noncontrolling interest													(0.2		)	(0.5		)	0.3			(60.0	)%
Net income attributable to Park-Ohio Holdings Corp. common shareholders	$	11.2		$	9.8		$	1.4			14.3	%	$	12.2		$	14.2		$	(2.0	)	(14.1	)%

Earnings per common share attributable to Park-Ohio Holdings Corp. common shareholders:
Basic	$	0.92		$	0.80		$	0.12			15.0	%	$	1.00		$	1.15		$	(0.15	)	(13.0	)%
Diluted	$	0.90		$	0.78		$	0.12			15.4	%	$	0.99		$	1.14		$	(0.15	)	(13.2	)%

Net Sales

Net sales ~~increased 3.5%,~~decreased 2.6% to ~~$420.1~~$403.4 million in the ~~first~~ ~~three~~ ~~months~~third quarter of 2019, compared to ~~$405.7~~$414.3 million in the same period in ~~2018, due~~2018. This decrease was primarily to a full three months of sales for Canton Drop Forge (“CDF”), which was acquired on February 1, 2018, and sales from the October 2018 acquisition of Hydrapower Dynamics Limited (“Hydrapower”). Also, net sales were higher in the 2019 period due to ~~increased~~the impact of the United Auto Workers (“UAW”) labor strike at General Motors (“GM”), lower end-market demand for our products in our Supply Technologies segment and ~~Engineered Products segments, which together more than~~negative foreign currency translation from a weaker Euro and British Pound. Overall, these sales decreases were partially offset ~~lower~~by increased sales in our ~~Assembly Components segment.~~Engineered Products segment driven by increasing demand for our capital equipment and aftermarket sales and services in our industrial equipment group.

The factors explaining the changes in segment net sales for the three months ended ~~March 31,~~September 30, 2019 compared to the corresponding 2018 period are contained inwithin the “Segment Results” section below.

Cost of Sales & Gross Profit

Cost of sales ~~increased~~decreased to ~~$354.8~~$336.9 million in the ~~first three months~~third quarter of 2019, compared to ~~$340.6~~$348.4 million in the same period in ~~2018~~.2018. The ~~increase~~decrease in cost of sales was primarily due to the ~~increase~~decrease in net sales ~~during~~for the 2019 period compared to the ~~same~~corresponding period in 2018.

Gross margin was ~~comparable year-over-year at 15.5%~~16.5% in the ~~first quarter of~~ ~~2019~~third ~~compared to 16.0% in the corresponding period in 2018. The decrease was due primarily to $1.4 million of non-recurring costs related to plant closure~~

~~and consolidation, unfavorable sales mix and continuing start-up costs related to new facilities in China and Mexico, all in our Assembly Components segment.~~

~~SG&A Expenses~~

~~SG&A expenses decreased to $42.8 million in the first three months~~quarter of 2019 compared to ~~$43.0 million~~15.9% in the same period in 2018. As The increase was due primarily to the benefit of cost-reduction actions taken in the first quarter of 2019 to improve margins in our Assembly Components segment, excess operational costs in 2018 that did not repeat in 2019 and higher margin new business in certain product lines.

SG&A Expenses

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SG&A expenses increased to $42.7 million, or 10.6% of sales, in the third quarter of 2019 compared to $41.1 million, or 9.9% of sales, in the same period in 2018. The increase in SG&A expenses was due primarily to the acquisitions of Hydrapower Dynamics Limited (“Hydrapower”) in October 2018 and EFCO, Inc. d/b/a Erie Press Systems (“EP”) in May 2019. The increase in SG&A as of percentage of net sales ~~SG&A expenses were 10.2% in the 2019 period compared to 10.6% in the 2018 period. This improvement~~ was due ~~primarily~~ to ~~relatively comparable~~a fixed portion of SG&A expenses over a ~~higher sales~~lower revenue base.

Other Components of Pension Income and Other Postretirement Benefits Expense (“OPEB”), Net

Other components of pension income and OPEB expense, net was ~~$1.3~~$1.4 million in the three months ended ~~March 31,~~September 30, 2019 compared to ~~$2.3~~$2.0 million in the corresponding period in 2018. This decrease in the 2019 period relates to the recognition of higher net actuarial losses in 2019 compared to the prior-year period, driven by lower returns on plan assets in 2018 to be amortized over future periods starting in 2019.

Interest Expense, net

Interest expense, net was ~~$8.2~~$8.6 million in the ~~first~~third quarter of 2019 compared to ~~$8.4~~$8.9 million in ~~2018.~~the 2018 period. The decrease was due to lower ~~expense in 2019 was driven by debt repayments~~average outstanding borrowings during the ~~second half of 2018, which lowered outstanding debt balances, partially offset by slightly higher interest rates on our revolving credit facility in the first quarter of~~ 2019 ~~compared to the 2018~~ period.

Income Tax Expense

Income tax expense for the three months ended ~~March 31,~~September 30, 2019 was ~~$3.9~~$4.2 million, representing an effective ~~income tax~~ rate of ~~25.4%~~25.3%, compared to income tax expense of ~~$5.8~~$3.2 million, or ~~36.3%~~17.9%, infor the three months ended ~~March 31,~~September 30, 2018. The rate in the 2018 period ~~was negatively impacted by discrete items totaling~~includes a $0.9 million ~~of expense, primarily for one-time charges~~benefit related to ~~enactment~~an adjustment of the ~~U.S.~~Company's estimated transition tax liability under the Tax Cuts and Jobs ~~Act (the “TCJA”).~~Act.

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RESULTS OF OPERATIONS

Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018



	Nine Months Ended September 30,
	2019			2018			$ Change			% Change
	(Dollars in millions, except per share data)
Net sales	$	1,238.8		$	1,252.2		$	(13.4	)	(1.1	)%
Cost of sales	1,040.8			1,048.1			(7.3		)	(0.7	)%
Gross profit	198.0			204.1			(6.1		)	(3.0	)%
Gross margin	16.0		%	16.3		%
SG&A expenses	132.4			131.9			0.5			0.4	%
SG&A expenses as a percentage of net sales	10.7		%	10.5		%
Gain on sale of assets	—			(1.9		)	1.9			*
Operating income	65.6			74.1			(8.5		)	(11.5	)%
Other components of pension income and other postretirement benefits expense, net	4.2			6.4			(2.2		)	(34.4	)%
Interest expense, net	(25.5		)	(26.1		)	0.6			(2.3	)%
Income before income taxes	44.3			54.4			(10.1		)	(18.6	)%
Income tax expense	(12.3		)	(14.5		)	2.2			(15.2	)%
Net income	32.0			39.9			(7.9		)	(19.8	)%
Net income attributable to noncontrolling interests	(1.0		)	(1.1		)	0.1			(9.1	)%
Net income attributable to Park-Ohio Holdings Corp. common shareholders	$	31.0		$	38.8		$	(7.8	)	(20.1	)%

Earnings per common share attributable to Park-Ohio Holdings Corp. common shareholders:
Basic	$	2.54		$	3.15		$	(0.61	)	(19.4	)%
Diluted	$	2.51		$	3.09		$	(0.58	)	(18.8	)%

*Calculation not meaningful

Net Sales

Net sales decreased 1.1%, to $1,238.8 million in the first nine months of 2019 compared to $1,252.2 million in the same period in 2018. This decrease was due to lower customer demand for our products in our Supply Technologies and Assembly Components segments, driven by softening demand in certain key end markets, the impact of the UAW labor strike at GM and the pass-through of reduced aluminum prices. Overall, these sales decreases were partially offset by increased sales in our Engineered Products segment, driven by increasing demand for our capital equipment, aftermarket sales and services and our aerospace and rail forgings.

The factors explaining the changes in segment net sales for the nine months ended September 30, 2019 compared to the corresponding 2018 period are contained in the “Segment Results” section below.

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Cost of Sales & Gross Profit

Cost of sales decreased to $1,040.8 million in the first nine months of 2019, compared to $1,048.1 million in the same period in 2018. The decrease incost of sales was primarily due to the decrease in net sales for the 2019 period compared to the corresponding period in 2018.

Gross margin was 16.0% in the first nine months of 2019 compared to 16.3% in the corresponding period in 2018. The increase in cost of sales and decrease in gross margin was due primarily to $3.3 million of non-recurring costs related to plant closure and consolidation in our Assembly Components segment.

SG&A Expenses

SG&A expenses increased to $132.4 million, or 10.7% of net sales, in the first nine months of 2019, compared to $131.9 million, or 10.5% of net sales, in the same period in 2018. These increases in SG&A expenses were due primarily to $4.3 million of one-time net expense related to an executive departure in June 2019 as discussed further in Note 4 to the condensed consolidated financial statements, included elsewhere herein, and SG&A expense from our acquisitions of Hydrapower and EP, both partially offset by lower professional fees, acquisition-related expenses and restricted stock compensation expense.

Gain on Sale of Assets

During the first nine months of 2018, the Company sold land to a third party, resulting in cash proceeds of $2.8 million and a pre-tax gain on sale of $1.9 million.

Other Components of Pension Income and OPEB, Net

Other components of pension income and OPEBexpense, net was $4.2 million in the nine months ended September 30, 2019 compared to $6.4 million in the corresponding period in 2018. This decrease in the 2019 period relates to the recognition of higher net actuarial losses in 2019 compared to the prior-year period, driven by lower returns on plan assets in 2018 to be amortized over future periods starting in 2019.

Interest Expense, net

Interest expense, net was $25.5 million in the first nine months of 2019 compared to $26.1 million in 2018. The decrease was due to lower average outstanding borrowings during the 2019 period.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2019 was $12.3 million, representing an effective rate of 27.8%, compared to income tax expense of $14.5 million, or 26.7%, for the nine months ended September 30, 2018. The rate in the 2019 period is higher due to the impact of the $6.0 million one-time, non-deductible payment described more fully in Note 4 to the condensed consolidated financial statements, included elsewhere herein, partially offset by the impact of discrete tax items including a favorable U.S. return to provision adjustment.

SEGMENT RESULTS

For purposes of business segment performance measurement, the Company utilizes segment operating income, which is defined as revenues less expenses identifiable to the product lines within each segment. The Company does not allocate items that are non-operating or unusual in nature or are corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. ~~Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs; certain non-cash and/or non-operating items; Other components~~

Table of ~~pension income and other postretirement benefits expense, net; and interest expense.~~Contents

Supply Technologies Segment


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
	(Dollars in millions)						(Dollars in millions)
Net sales	$	165.3		$	160.9		$	148.6		$	155.1		$	475.4		$	482.2
Segment operating income	$	13.1		$	12.5		$	10.0		$	11.3		$	34.4		$	37.3
Segment operating income margin	7.9		%	7.8		%	6.7		%	7.3		%	7.2		%	7.7		%

Three months ended ~~March 31:~~

September 30:

Net sales ~~increased 2.7%~~decreased 4.2% in the three months ended ~~March 31,~~September 30, 2019 compared to the 2018 period due primarily to ~~higher~~lower customer demand in certain end markets, including the Company’s semiconductor market, which was down 11% year-over-year, and the Company's construction and agricultural equipment market, which was down 18% year-over-year. These decreases were partially offset by higher customer demand in the Company’s truck and truck-related market, which was up ~~37% year-over-year, and~~3% year-over-year; the ~~Company’s~~Company's civil aerospace ~~and defense~~ market, which was up ~~21% year-over-year. These increases were partially offset by lower customer demand in~~16% year-over-year; and the ~~Company’s semiconductor~~Company's power sports market, which was ~~down 28%~~up 5% year-over-year.

Segment operating income ~~increased~~decreased by ~~$0.6~~$1.3 million due primarily to the ~~favorable~~ impact of ~~higher~~lower sales in the 2019 period compared to the same period a year ago. Segment operating income margin was ~~up 10~~down 60 basis points in the 2019 period compared to a year ago, driven by ~~favorable sales mix and the benefit of~~lower profit flow-through from the lower sales levels and unfavorable sales mix.

Nine months ended September 30:

Net sales decreased 1.4% in the nine months ended September 30, 2019 compared to the 2018 period due primarily to lower customer demand in certain end markets, including the Company’s semiconductor market, which was down 20% year-over-year; the Company's consumer products market, which was down 15% year-over-year; and the Company's construction and agricultural equipment market, which was down 13% year-over-year. These decreases were offset by higher ~~sales.~~customer demand in the Company’s truck and truck-related market, which was up 19% year-over-year, and the Company's civil aerospace market, which was up 18% year-over-year.

In the 2019 period compared to the same period a year ago, segment operating income decreased by $2.9 million and segment operating income margin was down 50 basis points, due primarily to unfavorable sales mix and an increase in product costs from both general inflation and tariffs on Chinese imported products.

Assembly Components Segment


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
	(Dollars in millions)						(Dollars in millions)
Net sales	$	138.3		$	145.4		$	135.9		$	146.1		$	410.5		$	444.7
Segment operating income	$	8.3		$	12.6		$	10.4		$	9.3		$	27.0		$	33.6
Segment operating income margin	6.0		%	8.7		%	7.7		%	6.4		%	6.6		%	7.6		%

Three months ended ~~March 31:~~September 30:

Net sales decreased ~~4.9%~~7.0% in the three months ended September 30, 2019 compared to the 2018 period due primarily to the impact of the UAW labor strike at GM in the 2019 period; lower levels of demand in China; and the pass-through of reduced aluminum prices.

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Segment operating income in the 2019 period increased by $1.1 million, and segment operating income margin increased by 130 basis points, compared to the corresponding 2018 period. These increases were due primarily to the favorable impact of cost reduction actions taken in the first half of 2019 to improve margins; the flow-through impact of new business in our extrusion and molded rubber products business; excess operational costs in 2018 that did not repeat in 2019; plant start-up costs related to new facilities in China and Mexico in the third quarter of 2018 that did not repeat in 2019; and favorable sales mix. These positive factors more than offset the impact of lower sales volumes.

Nine months ended September 30:

Net sales decreased 7.7% in the 2019 period compared to the 2018 period due primarily to the impact of the UAW labor strike at GM in the 2019 period; lower ~~sales volumes in our fuel products line, caused by end-of-life programs. This decrease was partially offset by sales growth of 5% on our aluminum products business due to new programs, and~~year-over-year sales from our facilities in China; anticipated end-of-life programs; and the ~~October 2018 acquisition~~pass-through of ~~Hydrapower.~~reduced aluminum prices.

Segment operating income in the 2019 period decreased by ~~$4.3~~$6.6 million, and segment operating income margin decreased by 100 basis points, compared to ~~6.0% from 8.7% in~~ the corresponding period of 2018. These decreases were due primarily to the lower sales volumes noted ~~above, $1.4~~above; $3.3 million of ~~non-recurring~~ costs related to the closure of two facilities in 2019; and unfavorable sales ~~mix and costs related to new facilities in China and Mexico.~~mix. As a result of the reduced sales volumes in this segment, during the first quarter of 2019, the Company initiated several cost reduction actions to improve profitability, including the closure and consolidation of two manufacturing facilities.

Engineered Products Segment


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
	(Dollars in millions)						(Dollars in millions)
Net sales	$	116.5		$	99.4		$	118.9		$	113.1		$	352.9		$	325.3
Segment operating income	$	8.1		$	5.7		$	10.3		$	12.2		$	29.9		$	27.4
Segment operating income margin	7.0		%	5.7		%	8.7		%	10.8		%	8.5		%	8.4		%

Three months ended ~~March 31:~~September 30:

Net sales were ~~17.2%~~5.1% higher in the 2019 period compared to the 2018 period. The ~~growth~~increase was due to organic growth driven by increased customer demand for our induction ~~heating,~~and pipe threading equipment, and aftermarket parts and services in our industrial equipment group. In our forged ~~steel~~ and machined products group, higher aerospace sales and ~~a full quarter of~~ sales from the acquisition of ~~CDF.~~EP were substantially offset by weaker customer demand for our oil and gas forged products.

Segment operating income in the 2019 period decreased by $1.9 million and segment operating income margin decreased by 210 basis points compared to the corresponding 2018 period. These decreases were driven by unfavorable sales mix and an unplanned temporary shutdown of a production line at one of our forging plants.

Nine months ended September 30:

Net sales were 8.5% higher in the 2019 period compared to the 2018 period. The increase was due to organic growth driven by increased customer demand for our induction and pipe threading equipment, our aftermarket parts and services, and our aerospace products, as well as the acquisitions of Canton Drop Forge (“CDF”) in February 2018 and EP in May 2019.

Segment operating income in the 2019 period increased by ~~$2.4~~$2.5 million and segment operating income margin improved by ~~130~~10 basis points compared to the corresponding 2018 period. These increases were driven by the profit flow-through from the higher sales in the 2019 ~~quarter~~period compared to the same ~~quarter~~period a year ago, partially offset by unfavorable sales mix and the ~~income from CDF.~~unplanned shutdown noted above.

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Liquidity and Capital Resources

The following table summarizes the major components of cash flow:


	Three Months Ended March 31,									Nine Months Ended September 30,
	2019			2018			$ Change			2019			2018			$ Change
Net cash provided (used) by:	(In millions)									(In millions)
Operating activities	$	6.6		$	8.4		$	(1.8	)	$	33.5		$	21.8		$	11.7
Investing activities	(10.6		)	(45.6		)	35.0			(39.7		)	(69.9		)	30.2
Financing activities	(4.3		)	42.9			(47.2		)	1.2			30.2			(29.0		)
Effect of exchange rate changes on cash	0.1			0.7			(0.6		)	(0.9		)	(2.0		)	1.1
(Decrease) increase in cash and cash equivalents	$	(8.2	)	$	6.4		$	(14.6	)	$	(5.9	)	$	(19.9	)	$	14.0

Operating Activities

Cash provided by operating activities ~~decreased~~increased from the comparable period in the prior year, as more efficient working capital usage in 2019 more than offset higher profitability in 2018. The 2019 ~~was more than offset by higher working capital~~period includes the $6.0 million one-time payment as discussed further in Note 4 of the ~~first three months of 2019.~~condensed consolidated financial statements.

Investing Activities

Capital expenditures were ~~$10.6~~$31.6 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019, and were primarily to fund growth and maintain operations. In the comparable period of 2018, we had ~~$8.9~~$35.9 million of capital ~~expenditures~~expenditures. In the first nine months of 2019, we spent cash of $8.1 million for the EP acquisition, and ~~completed~~in the ~~acquisition~~2018 period, we spent cash of ~~CDF~~$36.8 for ~~$36.7 million in cash.~~acquisitions.

Financing Activities

During the ~~first three~~nine months ofended September 30, 2019, we ~~made~~had net ~~debt repayments~~borrowings of ~~$1.4 million.~~$10.4 million to fund the acquisition of EP. In the comparable period of 2018, we had net ~~debt~~ borrowings of ~~$46.2~~$44.2 million, primarily to fund the CDF acquisition and higher working capital levels.

We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons, other than the letters of credits disclosed in Note 9 to the condensed consolidated financial statements, included elsewhere herein.

Liquidity

Our liquidity needs are primarily for working capital, capital expenditures, dividends and acquisitions. Our primary sources of liquidity have been funds provided by operations, funds available from existing bank credit arrangements and the sale of our debt securities. Our existing financial resources (working capital and available bank borrowing arrangements) and anticipated cash flow from operations are expected to be adequate to meet anticipated cash requirements for at least the next twelve months, including but not limited to our ability to maintain current operations and fund capital expenditure requirements, service our debt, pay dividends, pursue acquisitions, and repurchase shares.

As of ~~March 31,~~September 30, 2019, we had ~~$166.6~~$185.7 million outstanding under our revolving credit facility, approximately ~~$205.0~~$185.8 million of unused borrowing availability, and cash and cash equivalents of ~~$47.5~~$49.8 million.

The Company had cash and cash equivalents held by foreign subsidiaries of ~~$39.8~~$38.6 million at ~~March 31,~~September 30, 2019 and $46.2 million at December 31, 2018. We do not expect restrictions on repatriation of cash held outside the U.S. to have a material effect on our overall liquidity, financial condition or results of operations for the foreseeable future.

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~~In connection with the enactment of the TCJA, the~~

The Company has ~~recorded a transition tax related~~two components to ~~previously-unremitted earnings. Notwithstanding the U.S. taxation~~its assertion regarding reinvestment of ~~these amounts, we intend to continue to invest all of these~~foreign earnings ~~as well as our capital in these subsidiaries, indefinitely~~ outside of the ~~U.S. and do not expect~~United States. For all foreign subsidiaries except RB&W Corporation of Canada (“RB&W”), all earnings are permanently reinvested outside of the United States. For RB&W, dividend distributions may be made, but only to ~~incur any significant additional taxes related~~the extent of current earnings in excess of cash required to ~~such amounts.~~fund its business operations; all accumulated earnings are permanently reinvested.

Senior Notes

In April 2017, Park-Ohio Industries, Inc. (“Park-Ohio”), the operating subsidiary of Park-Ohio Holdings Corp., completed the sale, in a private placement, of $350.0 million aggregate principal amount of 6.625% Senior Notes due 2027 (the “Notes”). The net proceeds from the issuance of the Notes were used to repay in full our previously outstanding 8.125% Senior Notes due 2021 and our outstanding term loan, and to repay a portion of the borrowings then outstanding under our revolving credit facility.

Credit Agreement

In June 2018, Park-Ohio entered into Amendment No. 1 to its Seventh Amended and Restated Credit Agreement (the “Credit Agreement”). The ~~Amendment~~amendment to the Credit Agreement, among other things, provided increases in the availability under the revolving credit facility from $350.0 million to $375.0 million, the Canadian revolving subcommitment from $35.0 million to $40.0 million and the European revolving subcommitment from $25.0 million to $30.0 million. Furthermore, the Company has the option, pursuant to the Credit Agreement, to increase the availability under the revolving credit facility by an aggregate incremental amount up to $100.0 million.

Finance Leases

In August 2015, the Company entered into a Capital Lease Agreement (the “Lease Agreement”). The Lease Agreement provides the Company up to $50.0 million for finance leases. Finance lease obligations of ~~$19.1~~$15.7 million were borrowed under the Lease Agreement to acquire machinery and equipment as of ~~March 31,~~September 30, 2019.

Covenants

The future availability of bank borrowings under the revolving credit facility provided by the Credit Agreement is based on our ability to meet a debt service ratio covenant, which could be materially impacted by negative economic trends. Failure to meet the debt service ratio covenant could materially impact the availability and interest rate of future borrowings.

Our debt service coverage ratio must be greater than 1.0 and not less than 1.15 for any two consecutive fiscal quarters. At ~~March 31,~~September 30, 2019, our debt service coverage ratio was ~~1.9;~~2.1; therefore, we were in compliance with the debt service coverage ratio covenant in the revolving credit facility provided by the Credit Agreement. The debt service coverage ratio is calculated at the end of each fiscal quarter based on the following ratio: (1) the most recently ended four fiscal quarters of consolidated EBITDA, as defined in the Credit Agreement, minus cash taxes paid, minus unfunded capital expenditures, plus cash tax refunds; to (2) 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 Credit Agreement.

We were also in compliance with the other covenants contained in the revolving credit facility as of ~~March 31,~~September 30, 2019. While we expect to remain in compliance throughout 2019, declines in sales volumes in the future 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 declines in the economy in general, they may be unable to pay their accounts payable to us on a timely basis or at all, which could make our accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility.

Dividends

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The Company paid dividends to shareholders of ~~$1.6~~$4.8 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2019. In ~~April~~October 2019, our Board of Directors declared a quarterly dividend of $0.125 per common share. The dividend will be paid on ~~May 29,~~November 27, 2019 to

shareholders of record as of the close of business on ~~May 15,~~November 13, 2019 and will result in a cash outlay of approximately $1.6 million. Although we currently intend to pay a quarterly dividend on an ongoing basis, all future dividend declarations are at the discretion of our Board of Directors and dependent upon then-existing conditions, including our operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors may deem relevant.

Seasonality; Variability of Operating Results

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 businesses. Such variability is particularly evident in our capital equipment business, included in the Engineered Products segment, which typically ships large systems at a relatively lower pace than our other businesses.

Critical Accounting Policies

Our critical accounting policies are described in ~~Item~~"Item. 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations," and in the notes to our consolidated financial statements for the year ended December 31, 2018, both contained in our Annual Report on Form 10-K for the year ended December 31, 2018. There were no new critical accounting policies or updates to existing critical accounting policies as a result of new accounting pronouncements in this Quarterly Report on Form 10-Q.

The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements.

These forward-looking statements ~~including~~include statements regarding future performance of the Company that are subject to known and unknown 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 that could cause actual results to differ materially from expectations include, but are not limited to, the following: our substantial indebtedness; the uncertainty of the global economic environment; general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; the impact of labor disturbances affecting our customers; raw material availability and pricing; fluctuations in energy costs; 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; the amounts and timing, if any, of purchases of our common stock; changes in general 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 those related to the current global uncertainties and crises, such as tariffs and surcharges; 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

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indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; potential disruption due to a partial or complete reconfiguration of the European Union; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment or import and export controls and other trade barriers; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims and disputes with customers; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending; our ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems; our ability to continue to pay cash dividends, and the other factors we describe under “Item 1A. Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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.



Item 3.	Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risk, including changes in interest rates. As of ~~March 31,~~September 30, 2019, we are subject to interest rate risk on borrowings under the floating rate revolving credit facility provided by our Credit Agreement. A 100-basis-point increase in the interest rate would have resulted in an increase in interest expense on these borrowings of approximately $~~0.4~~1.4 million during the ~~three~~nine-month period ended ~~March 31,~~September 30, 2019.

Our foreign subsidiaries generally conduct business in local currencies. We face translation risks related to the changes in foreign currency exchange rates. Amounts invested in our foreign operations are translated in U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive loss in the Shareholders' equity section of the accompanying Condensed Consolidated Balance Sheets. Sales and expenses at our foreign operations are translated into U.S. dollars at the applicable monthly average exchange rates. Therefore, changes in exchange rates may either positively or negatively affect our net sales and expenses from foreign operations as expressed in U.S. dollars.

Our largest exposures to commodity prices relate to metal and natural gas prices, which have fluctuated widely in recent years. We do not have any commodity swap agreements, forward purchase or hedge contracts.



Item 4.	Controls and Procedures

Evaluation of disclosure controls and procedures.

Under the supervision of and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting.

~~Except as set forth below, during~~During the ~~three months~~quarter ended ~~March 31,~~September 30, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~During the three months ended March~~

31 ~~2019, we implemented a new lease accounting system and related processes in response to the adoption~~

Table of ~~Accounting Standards Update No. 2016-02, "Leases (Topic 842)," effective January 1, 2019. This adoption materially affected our internal control over financial reporting.~~Contents

Part II. Other Information



Item 1.	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.

In addition to the routine lawsuits and asserted claims noted above, we were a party to the lawsuits and legal proceedings described below as of ~~March 31,~~September 30, 2019:

We were a co-defendant in approximately 87113 cases asserting claims on behalf of approximately ~~190~~217 plaintiffs alleging personal injury as a result of exposure to asbestos. These 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 three asbestos cases, involving 19 plaintiffs, that plead specified damages against named defendants. In each of the three cases, the plaintiff is seeking compensatory and punitive damages based on a variety of potentially alternative causes of action. In two cases, the plaintiff has alleged three counts at $3.0 million compensatory and punitive damages each; one count at $3.0 million compensatory and $1.0 million punitive damages; one count at $1.0 million. In the third case, the plaintiff has alleged compensatory and punitive damages, each in the amount of $20.0 million, for three separate causes of action, and $5.0 million compensatory damages for the fifth cause of action.

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 or 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.

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.

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Item 1A.	Risk Factors

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The table below summarizes the information regarding our repurchases of the Company's common stock during the quarter ended ~~March 31,~~September 30, 2019.

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans (1) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program (1)
January 1 — January 31, 2019 1,791
(2) $ 31.46
—
382,685
February 1 — February 28, 2019 2,093
(2) 32.46
—
382,685
March 1 — March 31, 2019 26,637
(2) 32.90
—
382,685
Total 30,521
$ 32.78
—
382,685



Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program (1)
July 1 — July 31, 2019	674	(2)	$	31.35	—	355,616
August 1 — August 31, 2019	—	(2)	—		—	355,616
September 1 — September 30, 2019	—	(2)	—		—	355,616
Total	674		$	31.35	—	355,616


(1)	On March 4, 2013, we announced a share repurchase program whereby we may repurchase up to 1.0 million shares of our outstanding common stock.


(2)	Consists of an aggregate total of ~~30,521~~674 shares of common stock we acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient withholding tax liabilities.



Item 6.	Exhibits

The following exhibits are included herein:



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	Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements 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/ Patrick W. Fogarty
Name:	Patrick W. Fogarty
Title:	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Date: ~~May 7,~~November 5, 2019

2734



				Carrying Value at
	Maturity Date	Interest Rate at March 31, 2019		March 31, 2019			December 31, 2018
				(In millions)
Senior Notes	April 15, 2027	6.625	%	$	350.0		$	350.0
Revolving credit facility	April 17, 2022	3.67	%	166.6			165.1
Industrial Equipment Group European Facilities	December 21, 2021	3.25	%	11.0			12.6
Finance Leases	Various	Various		19.1			20.7
Other	Various	Various		24.6			24.7
Gross debt				571.3			573.1
Less current portion of long-term and short-term debt				(17.9		)	(17.9		)
Less unamortized debt issuance costs				(7.3		)	(7.7		)
Total long-term debt, net				$	546.1		$	547.5



	March 31, 2019
Finance lease cost	(in millions)
Amortization of right-of-use assets	$	1.0
Interest on lease liabilities	0.2
Operating lease cost	4.6
Other lease cost⁽¹⁾	1.0
Total lease cost	$	6.8

(1) - Other lease cost includes short-term lease costs and variable lease costs.