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8-K

 
Other

Park-Ohio Holdings 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-15
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
e10vq
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
     
(Mark One)    
 
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended June 30, 2011
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to          
 
 
Commission file number 0-3134
 
 
 
     
Ohio   34-1867219
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
6065 Parkland Boulevard, Cleveland, Ohio
(Address of principal executive offices)
  44124
(Zip Code)
 
 
Indicate by check mark whether the registrant:
 
  (1)  Has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and
 
  (2)  Has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
Number of shares outstanding of registrant’s Common Stock, par value $1.00 per share, as of July 29, 2011: 11,965,792.
 
The Exhibit Index is located on page 26.
 


 

 
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
 
                 
        Page
 
PART I. FINANCIAL INFORMATION
  Item 1.     Financial Statements     3  
        Condensed consolidated balance sheets — June 30, 2011 and December 31, 2010     3  
        Condensed consolidated statements of operations — Three and six months ended June 30, 2011 and 2010     4  
        Condensed consolidated statement of shareholders’ equity — Six months ended June 30, 2011     5  
        Condensed consolidated statements of cash flows — Six months ended June 30, 2011 and 2010     6  
        Notes to unaudited condensed consolidated financial statements — June 30, 2011     7  
        Report of independent registered public accounting firm     14  
  Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     15  
  Item 3.     Quantitative and Qualitative Disclosure About Market Risk     21  
  Item 4.     Controls and Procedures     22  
 
PART II. OTHER INFORMATION
  Item 1.     Legal Proceedings     23  
  Item 1A.     Risk Factors     24  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     24  
  Item 6.     Exhibits     25  
SIGNATURE     26  
EXHIBIT INDEX     27  
 EX-15
 EX-31.1
 EX-31.2
 EX-32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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ITEM 1.   Financial Statements
 
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                 
    (Unaudited)
       
    June 30,
    December 31,
 
    2011     2010  
    (Dollars in thousands)  
 
ASSETS
Current Assets
               
Cash and cash equivalents
  $ 60,094     $ 35,311  
Accounts receivable, less allowances for doubtful accounts of $5,594 at June 30, 2011 and $6,011 at December 31, 2010
    147,305       126,409  
Inventories
    205,752       192,542  
Deferred tax assets
    10,496       10,496  
Unbilled contract revenue
    17,556       12,751  
Other current assets
    12,156       12,800  
                 
Total Current Assets
    453,359       390,309  
Property, Plant and Equipment
    257,047       253,077  
Less accumulated depreciation
    189,474       184,294  
                 
      67,573       68,783  
Other Assets
               
Goodwill
    9,891       9,100  
Other
    90,511       84,340  
                 
    $ 621,334     $ 552,532  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
               
Trade accounts payable
  $ 116,494     $ 95,695  
Accrued expenses
    65,206       59,487  
Current portion of long-term debt
    1,291       13,756  
Current portion of other postretirement benefits
    2,178       2,178  
                 
Total Current Liabilities
    185,169       171,116  
Long-Term Liabilities, less current portion
               
Senior Notes
    250,000       183,835  
Revolving credit facility
    90,500       113,300  
Other long-term debt
    4,948       5,322  
Deferred tax liability
    9,721       9,721  
Other postretirement benefits and other long-term liabilities
    22,660       22,863  
                 
      377,829       335,041  
Shareholders’ Equity
               
Capital stock, par value $1 a share:
               
Serial Preferred Stock
    -0-       -0-  
Common Stock
    13,539       13,397  
Additional paid-in capital
    68,871       68,085  
Retained deficit
    (11,421 )     (19,043 )
Treasury stock, at cost
    (18,740 )     (18,502 )
Accumulated other comprehensive income
    6,087       2,438  
                 
      58,336       46,375  
                 
    $ 621,334     $ 552,532  
                 
 
Note:   The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
 
See accompanying notes to these unaudited condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2011     2010     2011     2010  
    (Amounts in thousands, except per share data)  
 
Net sales
  $ 246,808     $ 198,303     $ 488,436     $ 390,004  
Cost of products sold
    201,628       165,005       401,321       327,368  
                                 
Gross profit
    45,180       33,298       87,115       62,636  
Selling, general and administrative expenses
    28,846       22,337       54,511       43,305  
                                 
Operating income
    16,334       10,961       32,604       19,331  
Interest expense
    14,229       6,167       20,092       11,603  
                                 
Income before income taxes
    2,105       4,794       12,512       7,728  
Income taxes
    3,212       1,379       4,890       2,247  
                                 
Net income (loss)
  $ (1,107 )   $ 3,415     $ 7,622     $ 5,481  
                                 
Amounts per common share:
                               
Basic
  $ (.10 )   $ .30     $ .66     $ .49  
Diluted
  $ (.10 )   $ .29     $ .64     $ .47  
Common shares used in the computation:
                               
Basic
    11,545       11,475       11,503       11,229  
                                 
Diluted
    11,545       11,956       12,000       11,747  
                                 
 
See accompanying notes to these unaudited condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)
 
                                                 
                            Accumulated
       
          Additional
                Other
       
    Common
    Paid-In
    Retained
    Treasury
    Comprehensive
       
    Stock     Capital     Deficit     Stock     Income     Total  
                (Dollars in thousands)              
 
Balance at January 1, 2011
  $ 13,397     $ 68,085     $ (19,043 )   $ (18,502 )   $ 2,438     $ 46,375  
Comprehensive income:
                                               
Net income
                    7,622                       7,622  
Foreign currency translation adjustment
                                    3,436       3,436  
Pension and post retirement benefit adjustments, net of tax
                                    213       213  
                                                 
Comprehensive income
                                            11,271  
Amortization of restricted stock
            840                               840  
Restricted stock awards
    140       (140 )                             -0-  
Purchase of treasury stock (12,130 shares)
                            (238 )             (238 )
Exercise of stock options (2,500 shares)
    2       6                               8  
Share-based compensation
            80                               80  
                                                 
Balance at June 30, 2011
  $ 13,539     $ 68,871     $ (11,421 )   $ (18,740 )   $ 6,087     $ 58,336  
                                                 
 
See accompanying notes to these unaudited condensed consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
 
                 
    Six Months Ended
 
    June 30,  
    2011     2010  
    (Dollars in thousands)  
 
OPERATING ACTIVITIES
               
Net income
  $ 7,622     $ 5,481  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    8,277       8,437  
Share-based compensation expense
    920       840  
Debt extinguishment costs
    7,335       -0-  
Changes in operating assets and liabilities:
               
Accounts receivable
    (20,896 )     (15,235 )
Inventories and other current assets
    (17,370 )     19,678  
Accounts payable and accrued expenses
    26,518       16,354  
Other
    (831 )     (9,121 )
                 
Net Cash Provided by Operating Activities
    11,575       26,434  
INVESTING ACTIVITIES
               
Purchases of property, plant and equipment, net
    (5,258 )     (636 )
                 
Net Cash Used by Investing Activities
    (5,258 )     (636 )
FINANCING ACTIVITIES
               
Payments on term loans and other debt
    (35,939 )     (2,017 )
(Payments on) proceeds from revolving credit facility
    300       (14,400 )
Issuance of 8.125% senior notes, net of deferred financing costs
    244,970       -0-  
Redemption of 8.375% senior subordinated notes due 2014
    (189,555 )     -0-  
Bank debt issue costs
    (1,080 )     (3,847 )
Purchase of treasury stock
    (238 )     (766 )
Exercise of stock options
    8       -0-  
                 
Net Cash Provided (Used) by Financing Activities
    18,466       (21,030 )
                 
Increase in Cash and Cash Equivalents
    24,783       4,768  
Cash and Cash Equivalents at Beginning of Period
    35,311       23,098  
                 
Cash and Cash Equivalents at End of Period
  $ 60,094     $ 27,866  
                 
Taxes paid
  $ 1,769     $ 945  
Interest paid (includes $5,720 of senior subordinated notes redemption costs)
    15,389       11,268  
 
See accompanying notes to these condensed consolidated financial statements. The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011
(Dollars and shares in thousands, except per share amounts)
 
 
The condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (the “Company”). All significant intercompany transactions have been eliminated in consolidation.
 
The accompanying unaudited 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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, 2010.
 
 
The Company operates through three segments: Supply Technologies, Aluminum Products and Manufactured Products. Supply Technologies provides our customers with Total Supply Management tm services for a broad range of high-volume, specialty production components. Total Supply Management tm manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. Aluminum Products manufactures cast aluminum components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Results by business segment were as follows:
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2011     2010     2011     2010  
 
Net sales:
                               
Supply Technologies
  $ 125,522     $ 97,185     $ 248,748     $ 191,423  
Aluminum products
    33,452       37,572       72,493       74,160  
Manufactured products
    87,834       63,546       167,195       124,421  
                                 
    $ 246,808     $ 198,303     $ 488,436     $ 390,004  
                                 
Income (loss) before income taxes:
                               
Supply Technologies
  $ 8,419     $ 5,311     $ 17,052     $ 9,795  
Aluminum products
    1,304       2,299       4,618       4,235  
Manufactured products
    11,333       7,597       19,879       12,529  
                                 
      21,056       15,207       41,549       26,559  
Corporate costs
    (4,722 )     (4,246 )     (8,945 )     (7,228 )
Interest expense
    (14,229 )     (6,167 )     (20,092 )     (11,603 )
                                 
Income before income taxes
  $ 2,105     $ 4,794     $ 12,512     $ 7,728  
                                 
 
                 
    June 30,
    December 31,
 
    2011     2010  
 
Identifiable assets were as follows:
               
Supply Technologies
  $ 234,491     $ 217,915  
Aluminum products
    66,195       66,219  
Manufactured products
    202,549       188,017  
General corporate
    118,099       80,381  
                 
    $ 621,334     $ 552,532  
                 
 
 
In June 2011, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification (“ASC”) 220, “Presentation of Comprehensive Income.” This amendment will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amended guidance, which must be applied retroactively, is effective for interim and annual periods beginning after December 15, 2011, with earlier adoption permitted. This Accounting Standards Update (“ASU”) impacts presentation only and will have no effect on our financial position, results of operations or cash flows.
 
In May 2011, the FASB amended ASC 820, “Fair Value Measurement.” This amendment is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The amendment is effective for interim and annual periods beginning after December 15, 2011. The adoption of this amendment will not have a material impact on our consolidated financial statements.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
The components of inventory consist of the following:
 
                 
    June 30,
    December 31,
 
    2011     2010  
 
Finished goods
  $ 122,825     $ 116,202  
Work in process
    25,366       24,339  
Raw materials and supplies
    57,561       52,001  
                 
    $ 205,752     $ 192,542  
                 
 
 
At June 30, 2011, capital stock consists of (i) Serial Preferred Stock, of which 632,470 shares were authorized and none were issued, and (ii) Common Stock, of which 40,000,000 shares were authorized and 13,539,174 shares were issued, of which 11,967,848 were outstanding and 1,571,326 were treasury shares.
 
 
The following table sets forth the computation of basic and diluted earnings per share:
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2011     2010     2011     2010  
 
NUMERATOR
                               
Net income (loss)
  $ (1,107 )   $ 3,415     $ 7,622     $ 5,481  
                                 
DENOMINATOR
                               
Denominator for basic earnings per share — weighted average shares
    11,545       11,475       11,503       11,229  
Effect of dilutive securities:
                               
Employee stock options
    -0-       481       497       518  
                                 
Denominator for diluted earnings per share — weighted average shares and assumed conversions
    11,545       11,956       12,000       11,747  
                                 
Amounts per common share:
                               
Basic
  $ (.10 )   $ .30     $ .66     $ .49  
Diluted
  $ (.10 )   $ .29     $ .64     $ .47  
 
Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. Diluted earnings per common share is computed as net income available to common shareholders divided by the weighted average diluted shares outstanding.
 
Pursuant to ASC 260, “Earnings Per Share,” when a loss is reported the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of stock options and awards because doing so will result in anti-dilution. Therefore, for the three months ended June 30, 2011, basic weighted-average shares outstanding are used in calculating diluted earnings per share.
 
Outstanding stock options with exercise prices greater than the average price of the common shares are anti-dilutive and are not included in the computation of diluted earnings per share. Stock options on 20,000 shares were excluded in the six months ended June 30, 2011, and 206,000 were excluded for the three months and six months ended June 30, 2010 because they were anti-dilutive.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Total stock compensation expense recorded in the first six months of 2011 and 2010 was $920 and $840, respectively. Total stock compensation expense recorded in the second quarter of 2011 and 2010 was $492 and $378, respectively. There were 140,000 shares of restricted stock awarded during the six months ended June 30, 2011 at a price of $20.90 per share, all of which were awarded in the three months ended June 30, 2011. There were no stock options awarded during the six months ended June 30, 2011 and 2010. There were 5,000 shares of restricted stock awarded during the three months and six months ended June 30, 2010. As of June 30, 2011, there was $3,912 of unrecognized compensation cost related to non-vested stock-based compensation, which cost is expected to be recognized over a weighted average period of 2.34 years.
 
 
The components of net periodic benefit cost recognized during interim periods was as follows:
 
                                                                 
    Pension Benefits     Postretirement Benefits  
    Three Months
    Six Months
    Three Months
    Six Months
 
    Ended June 30,     Ended June 30,     Ended June 30,     Ended June 30,  
    2011     2010     2011     2010     2011     2010     2011     2010  
 
Service costs
  $ 604     $ 81     $ 713     $ 162     $ 12     $ 9     $ 24     $ 18  
Interest costs
    596       643       1,192       1,286       228       248       456       496  
Expected return on plan assets
    (2,239 )     (1,984 )     (4,468 )     (3,968 )     -0-       -0-       -0-       -0-  
Transition obligation
    (10 )     (10 )     (20 )     (20 )     -0-       -0-       -0-       -0-  
Amortization of prior service cost
    11       15       22       30       (24 )     (24 )     (48 )     (48 )
Recognized net actuarial loss
    -0-       82       -0-       164       129       107       258       214  
                                                                 
Benefit (income) costs
  $ (1,038 )   $ (1,173 )   $ (2,561 )   $ (2,346 )   $ 345     $ 340     $ 690     $ 680  
                                                                 
 
 
Total comprehensive income (loss) was as follows:
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2011     2010     2011     2010  
 
Net income (loss)
  $ (1,107 )   $ 3,415     $ 7,622     $ 5,481  
Foreign currency translation
    816       (3,832 )     3,436       (5,859 )
Pension and post retirement benefit adjustments, net of tax
    107       195       213       390  
                                 
Total comprehensive income (loss)
  $ (184 )   $ (222 )   $ 11,271     $ 12  
                                 
 
The components of accumulated comprehensive loss at June 30, 2011 and December 31, 2010 are as follows:
 
                 
    June 30,
    December 31,
 
    2011     2010  
 
Foreign currency translation adjustment
  $ 9,675     $ 6,239  
Pension and postretirement benefit adjustments, net of tax
    (3,588 )     (3,801 )
                 
    $ 6,087     $ 2,438  
                 


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents the changes in the Company’s product warranty liability:
 
                 
    2011     2010  
 
Balance at January 1
  $ 4,046     $ 2,760  
Claims paid during the year
    (313 )     (541 )
Additional warranties issued during the first six months
    371       907  
                 
Balance at June 30
  $ 4,104     $ 3,126  
                 
 
 
The Company’s tax provision for interim periods is determined using an estimate of its annual effective income tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimated annual effective income tax rate, and if the estimated income tax rate changes, a cumulative adjustment is made.
 
The reported effective tax rate for full-year 2011 including discrete items is estimated to be approximately 32% and is lower than the 35% U.S. federal statutory rate primarily due to anticipated income in the United States for which the Company will record no tax expense due to a full valuation allowance against its U.S. net deferred tax assets and anticipated income earned in jurisdictions outside of the United States where the effective income tax rate is lower than in the United States.
 
The reported effective tax rate in the first six months of 2011 and 2010 was 39.1% and 29.1%, respectively. The primary reason for the variance is due to a provision for foreign income taxes of $2.1 million resulting from the retirement of our 8.375% senior subordinated notes due 2014 that were held by a foreign affiliate. The underlying effective tax rate on operations for the first six months of 2011 and 2010 was 22.5% and 29.1%, respectively. The primary reason for the variance is due to a change in the mix of income of foreign affiliates.
 
There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2010.
 
NOTE L — Fair Value Measurements
 
The Company measures financial assets and liabilities at fair value in three levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
 
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
 
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
 
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
 
The fair value of the 8.375% Senior Subordinated Notes due 2014 approximated $187,512 at December 31, 2010. The fair value of the 8.125% Senior Notes due 2021 approximated book value at June 30, 2011. The fair value estimates are based on a third party’s bid price.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE M — Financing Arrangement
 
Long-term debt consists of the following:
 
                 
    June 30,
    December 31,
 
    2011     2010  
 
8.125% senior notes due 2021
  $ 250,000     $ -0-  
8.375% senior subordinated notes due 2014
    -0-       183,835  
Revolving credit
    90,500       90,200  
Term loan A
    -0-       25,900  
Term loan B
    -0-       8,400  
Other
    6,239       7,878  
                 
      346,739       316,213  
Less current maturities
    1,291       13,756  
                 
Total
  $ 345,448     $ 302,457  
                 
 
On April 7, 2011, the Company completed the sale of $250,000 in the aggregate principal amount of 8.125% Senior Notes due 2021 (the “Notes”). The Notes bear an interest rate of 8.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2011. The Notes mature on April 1, 2021. In connection with the sale of the Notes, the Company also entered into a fourth amended and restated credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement among other things, provides an increased credit facility up to $200,000, extends the maturity date of the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option, pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50,000. At June 30, 2011 the Company had approximately $74,388 of unused borrowing capacity available under the revolving credit facility. The Company also purchased all of its outstanding $183,835 aggregate principal amount of 8.375% senior subordinated notes due 2014 that were not held by its affiliates, repaid all of the term loan A and term loan B outstanding under its then existing credit facility and retired the 8.375% senior subordinated notes due 2014 totaling $26,165 that were held by an affiliate. The Company incurred debt extinguishment costs related primarily to premiums and other transaction costs associated with the tender and early redemption and wrote off deferred financing costs totaling $7,335 and recorded a provision for foreign income taxes of $2,100 resulting from the retirement of the 8.375% senior subordinated notes due 2014 that were held by an affiliate.
 
NOTE N — Accounts Receivable
 
During the first six months of 2011 and 2010, the Company sold approximately $27,467 and $12,825, respectively, of accounts receivable to mitigate accounts receivable concentration risk and to provide additional financing capacity and recorded a loss in the amount of $122 and $42, respectively in the Condensed Consolidated Statements of Operations. These losses represented implicit interest on the transactions.
 
NOTE O — Acquisition
 
On December 31, 2010, the Company through its subsidiary Ajax Tocco Magnathermic acquired the assets and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”). Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
 
The assets of Pillar have been integrated into the Company’s manufactured products segment. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price is allocated to Pillar’s net tangible assets and intangible assets acquired and liabilities


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
assumed based on their estimated fair values as of December 31, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed which are based on estimates and assumptions that are subject to change, the purchase price is allocated as follows:
 
         
Accounts receivable
  $ 3,164  
Inventories
    2,782  
Prepaid expenses and other current assets
    178  
Property, plant and equipment
    447  
Customer relationships
    3,480  
Technological know how
    1,890  
Trade name and other intangible assets
    710  
Accounts payable
    (1,202 )
Accrued expenses
    (2,133 )
Goodwill
    990  
         
Total purchase price
  $ 10,306  
         
 
The purchase price allocation was finalized during March 2011 and reflects the working capital adjustment as of December 31, 2010. There were no significant direct transaction costs included in selling, general and administrative expenses during the first six months of 2011.
 
During the third quarter of 2010, the Company also completed the acquisition of the ACS business (“ACS”) of Lawson Products, Inc. and substantially all of the assets of Rome Die Casting LLC (“Rome”). The following unaudited pro forma information is provided to present a summary of the combined results of the Company’s operations with ACS, Rome and Pillar as if the acquisitions had occurred on January 1, 2010. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of what the results would have been had the acquisitions been completed at the date indicated above.
 
                 
    Three Months Ended
  Six Months Ended
    June 30, 2010   June 30, 2010
 
Pro forma revenues
  $ 221,571     $ 434,324  
Pro forma net income
    2,871       4,996  
Earnings per share:
               
Basic
    .25       .44  
Diluted
    .24       .43  


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Board of Directors and Shareholders
Park-Ohio Holdings Corp.
 
We have reviewed the accompanying condensed consolidated balance sheet of Park-Ohio Holdings Corp. and subsidiaries as of June 30, 2011, and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 2011 and 2010, and the condensed consolidated statement of shareholders’ equity for the six-month period ended June 30, 2011 and cash flows for the six-month periods ended June 30, 2011 and 2010. These financial statements are the responsibility of the Company’s management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based upon our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
 
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Park-Ohio Holdings Corp. and subsidiaries as of December 31, 2010 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended, not presented herein; and in our report dated March 8, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
/s/  Ernst & Young LLP
 
Cleveland, Ohio
August 5, 2011


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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. All significant intercompany transactions have been eliminated in consolidation.
 
 
We are an industrial Total Supply Managementtm and diversified manufacturing business, operating in three segments: Supply Technologies, Aluminum Products and Manufactured Products. Our Supply Technologies business provides our customers with Total Supply Managementtm, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Managementtm includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products casts and machines aluminum engine, transmission, brake, suspension and other components such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment original equipment manufacturers (“OEMs”), primarily on a sole-source basis. Aluminum Products also provides value-added services such as design and engineering and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems, pipe threading systems, industrial oven systems, injection molded rubber components, and forged and machined products. Manufactured Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Manufactured Products are OEMs, sub-assemblers and end users in the ferrous and non-ferrous metals, silicon, coatings, forging, foundry, heavy-duty truck, construction equipment, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense industries. Sales, earnings and other relevant financial data for these three segments are provided in Note B to the consolidated financial statements, included elsewhere herein.
 
During the third quarter of 2010, Supply Technologies completed the acquisition of certain assets and assumed specific liabilities relating to the ACS business of Lawson Products, Inc. for $16.0 million in cash and a $2.2 million subordinated promissory note payable in equal quarterly installments over three years ($1.4 million outstanding at June 30, 2011). ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America.
 
On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which Rome agreed to transfer to the Company substantially all of its assets in exchange for approximately $7.5 million of notes receivable due from Rome.
 
On December 31, 2010, the Company, through its subsidiary Ajax Tocco Magnathermic, acquired the assets and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”) for $10.3 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
 
On April 7, 2011, the Company completed the sale of $250 million in aggregate principal amount of 8.125% Senior Notes due 2021 (the “Notes”). The Notes bear an interest rate of 8.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2011. The Notes mature on April 1, 2021. In connection with the sale of the Notes, the Company entered into a fourth amended and restated credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement among other things, provides an increased credit facility up to $200 million, extends the maturity date of the borrowings under the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option, pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50 million. The Company also purchased all of its outstanding $183.8 million aggregate principal amount of 8.375% senior


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subordinated notes due 2014 that were not held by its affiliates, repaid all of the term loan A and term loan B outstanding under its then existing credit facility and retired the 8.375% senior subordinated notes due 2014 in the aggregate principal amount of $26.2 million that were held by an affiliate. The Company incurred debt extinguishment costs related to premiums and other transaction costs associated with the tender and early redemption and wrote off deferred financing costs totaling $7.3 million and recorded a provision for foreign income taxes of $2.1 million resulting from the retirement of the 8.375% senior subordinated notes due 2014 that were held by an affiliate.
 
 
Our critical accounting policies are described in 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, 2010 contained in our 2010 Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Condensed Consolidated Financial Statements 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.
 
Results of Operations
 
Six Months 2011 versus Six Months 2010
 
 
                                 
    Six Months
             
    Ended
             
    June 30,           Percent
 
    2011     2010     Change     Change  
    (Dollars in millions)              
 
Supply Technologies
  $ 248.7     $ 191.4     $ 57.3       30 %
Aluminum Products
    72.5       74.2       (1.7 )     (2 )%
Manufactured Products
    167.2       124.4       42.8       34 %
                                 
Consolidated Net Sales
  $ 488.4     $ 390.0     $ 98.4       25 %
                                 
 
Net sales increased $98.4 million to $488.4 million in the first six months of 2011 compared to $390.0 million in the same period in 2010 as the Company experienced volume increases in the Supply Technologies and Manufactured Products segments. Supply Technologies sales increased 30% primarily due to volume increases in the heavy-duty truck, electrical, industrial equipment, auto, power sports, HVAC, agricultural and construction equipment industries offset primarily by declines in the instruments, consumer electronics, medical and plumbing industries. In addition, there were $25.7 million of incremental sales resulting from the acquisition of the ACS business. Aluminum Products sales decreased 2%, resulting primarily from the completion of certain automotive supply contracts offset by sales of $9.5 million resulting from the acquisition of the Rome business. Manufactured Products sales increased 34% primarily due to increased business in the capital equipment, forged and machined products and rubber products business units. In addition, there were $7.5 million of incremental sales resulting from the acquisition of Pillar.


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    Six Months
             
    Ended
             
    June 30,           Percent
 
    2011     2010     Change     Change  
    (Dollars in millions)              
 
Consolidated cost of products sold
  $ 401.3     $ 327.4     $ 73.9       23 %
                                 
Consolidated gross profit
  $ 87.1     $ 62.6     $ 24.5       39 %
                                 
Gross Margin
    17.8 %     16.1 %                
 
Cost of products sold increased $73.9 million in the first six months of 2011 to $401.3 million compared to $327.4 million in the same period in 2010, while gross margin increased to 17.8% in the first six months of 2011 from 16.1% in the same period in 2010.
 
Supply Technologies and Manufactured Products gross margin increased due to volume increases. Gross margin in the Aluminum Products segment remained level primarily from reduced sales volume.
 
 
                                 
    Six Months
             
    Ended
             
    June 30,           Percent
 
    2011     2010     Change     Change  
    (Dollars in millions)              
 
Consolidated SG&A expenses
  $ 54.5     $ 43.3     $ 11.2       26 %
SG&A percent
    11.2 %     11.1 %                
 
Consolidated SG&A expenses increased 26% in the first six months of 2011 compared to the same period in 2010, representing a 10 basis point increase in SG&A expenses as a percent of sales. SG&A expenses increased in the first six months of 2011 compared to the same period in 2010 primarily due to increases in payroll related expenses and to $3.9 million of incremental expenses resulting from the acquisitions of ACS, Rome and Pillar.
 
 
                             
    Six Months
           
    Ended
           
    June 30,         Percent
 
    2011     2010     Change   Change  
    (Dollars in millions)            
 
Interest expense
  $ 20.1     $ 11.6     $8.5     73 %
Debt extinguishment costs included in interest expense
  $ 7.3                      
Amortization of deferred financing costs and bank service charges
  $ 1.7     $ 1.2              
Average outstanding borrowings
  $ 325.8     $ 328.3     $(2.5)     (1 )%
Average borrowing rate
    6.81 %     6.33 %   48 basis points        
 
Interest expense increased $8.5 million in the first six months of 2011 compared to the same period of 2010, primarily due to debt extinguishment costs of $7.3 million related to premiums and other transaction costs associated with the tender and early redemption and write off of deferred financing costs associated with the 8.375% senior subordinated notes due 2014 and to increases in amortization of deferred financing costs and bank service charges. Excluding these costs, interest increased due primarily to a higher average borrowing rate during the first six months of 2011 partially offset by lower average outstanding borrowings. Average borrowings in the first six months of 2011 were lower when compared to the same period in 2010. The higher average borrowing rate in the first six months of 2011 was due primarily to the interest rate mix of our revolving credit facility and the Senior Notes when compared to the mix in the same period in 2010.


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The provision for income taxes was $4.9 million in the first half of 2011 and the reported effective tax rate for the first six months was 39% and the underlying effective tax rate on operations was 23%, compared to a provision for income taxes of $2.2 million and reported effective tax rate and underlying effective tax rate on operations of 29% in the corresponding period of 2010. The variance between the reported rate and the underlying rate in the first six months of 2011 was primarily due to the tax impact resulting from the retirement of our senior subordinated notes due 2014 that were held by a foreign affiliate. We estimate that our reported effective tax rate for full-year 2011 will be approximately 32%.
 
Second Quarter 2011 versus Second Quarter 2010
 
 
                                 
    Three Months
             
    Ended
             
    June 30,           Percent
 
    2011     2010     Change     Change  
    (Dollars in millions)              
 
Supply Technologies
  $ 125.5     $ 97.2     $ 28.3       29 %
Aluminum Products
    33.5       37.6       (4.1 )     (11 )%
Manufactured Products
    87.8       63.5       24.3       38 %
                                 
Consolidated Net Sales
  $ 246.8     $ 198.3     $ 48.5       24 %
                                 
 
Consolidated net sales increased $48.5 million in the second quarter of 2011 to $246.8 compared to $198.3 million in the same quarter of 2010 as the Company experienced volume increases in the Supply Technologies and Manufactured Products segments. Supply Technologies sales increased 29% primarily due to volume increases in the heavy-duty truck, electrical, industrial equipment, power sports, HVAC, agricultural and construction equipment industries offset by declines in the consumer electronics, semi-conductor, instruments, medical and plumbing industries. In addition there were $11.7 of incremental sales resulting from the acquisition of the ACS business. Aluminum Products sales decreased 11% resulting primarily from the completion of certain automotive contracts offset by sales of $1.4 million resulting from the acquisition of Rome. Manufactured Products sales increased 38% primarily due to increased business in the capital equipment and forged and machined products business units offset by a decline in the rubber products business unit. In addition, there were $1.8 million of incremental sales resulting from the acquisition of Pillar.
 
 
                                 
    Three Months
             
    Ended
             
    June 30,           Percent
 
    2011     2010     Change     Change  
    (Dollars in millions)              
 
Consolidated cost of products sold
  $ 201.6     $ 165.0     $ 36.6       22 %
                                 
Consolidated gross profit
  $ 45.2     $ 33.3     $ 11.9       36 %
                                 
Gross Margin
    18.3 %     16.8 %                
 
Cost of products sold increased $36.6 million to $201.6 million in the second quarter of 2011 compared to $165.0 million for the same quarter of 2010, while gross margin increased to 18.3% in the second quarter of 2011 from 16.8% in the same quarter of 2010.
 
Supply Technologies and Manufactured Products gross margin increased due to volume increases. Gross margin in the Aluminum Products segment decreased primarily from a lower sales volume.


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    Three Months
       
    Ended
       
    June 30,       Percent
    2011   2010   Change   Change
    (Dollars in millions)        
 
Consolidated SG&A expenses
  $ 28.8     $ 22.3     $ 6.5       29 %
SG&A percent
    11.7 %     11.2 %                
 
Consolidated SG&A expenses increased 29% in the second quarter of 2011 compared to the same quarter in 2010, representing an increase in SG&A expenses as a percent of sales of 50 basis points from 11.2% to 11.7%. SG&A expenses increased in the second quarter of 2011 compared to the same quarter in 2010 on a percentage basis primarily due to increases in payroll and payroll related expenses, travel expenses associated with the sale of the 8.125% Senior Notes and to $1.7 million of incremental expenses resulting from the acquisitions of ACS, Rome and Pillar.
 
 
                             
    Three Months
           
    Ended
           
    June 30,         Percent
 
    2011     2010     Change   Change  
    (Dollars in millions)            
 
Interest expense
  $ 14.2     $ 6.2     $8.0     129 %
Debt extinguishment costs included in interest expense
  $ 7.3                      
Amortization of deferred financing costs and bank service charges
  $ .9     $ .6              
Average outstanding borrowings
  $ 336.7     $ 325.9     $10.8     3 %
Average borrowing rate
    7.12 %     6.87 %   25 basis points        
 
Interest expense increased $8.0 million in the second quarter of 2011 compared to the same period of 2010, primarily due to debt extinguishment costs of $7.3 million related to premiums and other transaction costs associated with the tender and early redemption and write off of deferred financing costs associated with the 8.375% senior subordinated notes due 2014 and to increases in amortization of deferred financing costs and bank service charges. Excluding these costs, interest increased due primarily to higher average outstanding borrowings and a higher average borrowing rate. The higher average borrowing rate was due primarily to the interest rate mix of our revolving credit facility and the Senior Notes when compared to the mix in the same period in 2010.
 
 
The provision for income taxes was $3.2 million in the second quarter of 2011 and the reported effective tax rate was 153% and the underlying effective tax rate on operations was 54%, compared to a provision for income taxes of $1.4 million and a reported effective tax rate and underlying effective tax rate on operations of 29% in the corresponding period of 2010. The variance between the reported rate and the underlying rate in the second quarter of 2011 was primarily due to the tax impact resulting from the retirement of our senior subordinated notes due 2014 that were held by a foreign affiliate. We estimate that our reported effective tax rate for full-year 2011 will be approximately 32%.
 
 
As of June 30, 2011, the Company had $90.5 million outstanding under the revolving credit facility, and approximately $74.8 million of unused borrowing availability.
 
Our liquidity needs are primarily for working capital and capital expenditures. Our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of debt securities. On April 7, 2011, the Company completed the sale of $250,000 aggregate principal amount of Notes. The Notes bear an interest rate of 8.125% per annum and will be payable semi-annually in arrears on April 1 and October 1 of each year commencing on April 1, 2011. The Notes mature on April 1, 2021. In connection with the sale of the Notes, the Company also entered into a fourth amended and restated credit agreement (the “Amended


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Credit Agreement”). The Amended Credit Agreement, among other things, provides an increased credit facility up to $200,000, extends the maturity date of the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option, pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50,000. The Company also purchased all of its outstanding $183,835 in the aggregate principal amount of 8.375% senior subordinated notes due 2014 that were not held by its affiliates, repaid all of the term loan A and term loan B outstanding under its then existing credit facility and retired the 8.375% senior subordinated notes due 2014 that were held by its affiliates.
 
Current financial resources (cash, working capital and available bank borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet current cash requirements for at least the next twelve months. The future availability of bank borrowings under the revolving credit facility is based on the Company’s ability to meet a debt service ratio covenant, which could be materially impacted by negative economic trends. Failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings.
 
At June 30, 2011, the Company’s debt service coverage ratio was 2.4, and, therefore, it was in compliance with the debt service coverage ratio covenant contained in the revolving credit facility. The Company was also in compliance with the other covenants contained in the revolving credit facility as of June 30, 2011. The debt service coverage ratio is calculated at the end of each fiscal quarter and is based on the most recently ended four fiscal quarters of consolidated EBITDA minus cash taxes paid, minus unfunded capital expenditures, plus cash tax refunds to consolidated debt charges which are consolidated cash interest expense plus scheduled principal payments on indebtedness plus scheduled reductions in our term debt as defined in the revolving credit facility. If the Company’s aggregate availability under its revolving credit facility is less than $25,000, the debt service coverage ratio must be greater than 1.0 and not less than 1.1 for any two consecutive fiscal quarters. While we expect to remain in compliance throughout 2011, declines in sales volumes in 2011 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 not be able to pay their accounts payable to us on a timely basis or at all, which would make the accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility.
 
The ratio of current assets to current liabilities was 2.45 at June 30, 2011 versus 2.28 at December 31, 2010. Working capital increased by $49.0 million to $268.2 million at June 30, 2011 from $219.2 million at December 31, 2010. Accounts receivable increased $20.9 million to $147.3 million at June 30, 2011 from $126.4 million in 2010 primarily resulting from sales volume increases. Inventory increased by $13.2 million at June 30, 2011 to $205.8 million from $192.5 million at December 31, 2010 primarily resulting from planned increases due to sales volume increases. Accrued expenses increased by $5.7 million to $65.2 million at June 30, 2011 from $59.5 million at December 31, 2010 primarily resulting from the terms of the payments of interest due on the Company’s 8.125% Senior Notes. Accounts payable increased $20.8 million to $116.5 million at June 30, 2011 from $95.7 million at December 31, 2010.
 
During the first six months of 2011, the Company provided $11.6 million from operating activities compared to $26.4 million in the same period of 2010. The decrease in the operating cash provision of $14.9 million in 2011 compared to 2010 was primarily the result of a decrease of operating assets and liabilities offset by an increase in net income. In the first six months of 2011, the Company used cash of $5.3 million for capital expenditures. These activities, plus cash interest and tax payments of $17.2 million, a net increase in borrowings of $25.5 million and purchase of treasury stock of $.2 million, resulted in an increase in cash of $24.8 million in the first six months of 2011.
 
We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons. There are occasions whereupon we enter into forward contracts on foreign currencies, purely for the purpose of hedging exposure to changes in the value of accounts receivable in those currencies against the U.S. dollar. At June 30, 2011, none were outstanding. We currently have no other derivative instruments.
 
 
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


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variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our business units. Such variability is particularly evident at the capital equipment businesses, included in the Manufactured Products segment, which typically ship a few large systems per year.
 
 
This Form 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to the following: our substantial indebtedness; continuation of the current negative global economic environment; general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; raw material availability and pricing; component part availability and pricing; changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate recent and future acquisitions into existing operations; changes in general domestic economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including the uncertainties related to the current global financial crisis; adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities; our ability to meet various covenants, including financial covenants, contained in the agreements governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which could be lower due to the effects of the current financial crisis; our ability to negotiate contracts with labor unions; dependence on key management; dependence on information systems; and the other factors we describe under the “Item 1A. Risk Factors” included in the Company’s annual report on Form 10-K for the year ended December 31, 2010. 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.
 
 
The condensed consolidated financial statements at June 30, 2011, and for the three-month and six-month periods ended June 30, 2011 and 2010, have been reviewed, prior to filing, by Ernst & Young LLP, our independent registered public accounting firm, and their report is included herein.
 
Item 3.   Quantitative and Qualitative Disclosure About Market Risk
 
We are exposed to market risk including changes in interest rates. We are subject to interest rate risk on borrowings under our floating rate revolving credit agreement, which consisted of borrowings of $90.5 million at June 30, 2011. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.5 million during the six-month period ended June 30, 2011.
 
Our foreign subsidiaries generally conduct business in local currencies. During the first six months of 2011, we recorded a favorable foreign currency translation adjustment of $3.4 million related to net assets located outside the United States. This foreign currency translation adjustment resulted primarily from the weakening of the U.S. dollar. Our foreign operations are also subject to other customary risks of operating in a global environment, such as unstable political situations, the effect of local laws and taxes, tariff increases and regulations and requirements for export licenses, the potential imposition of trade or foreign exchange restrictions and transportation delays.


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The Company periodically enters into forward contracts on foreign currencies, primarily the euro and the British Pound Sterling, purely for the purpose of hedging exposure to changes in the value of accounts receivable in those currencies against the U.S. dollar. The Company currently uses no other derivative instruments. At June 30, 2011, there were no such currency hedge contracts outstanding.
 
Item 4.   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 Securities Exchange Act of 1934) 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.
 
There have been no changes in our internal control over financial reporting that occurred during the first six months of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
 
 
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.
 
At June 30, 2011, we were a co-defendant in approximately 300 cases asserting claims on behalf of approximately 1,240 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 only six asbestos cases, involving 27 plaintiffs, that plead specified damages. In each of the six cases, the plaintiff is seeking compensatory and punitive damages based on a variety of potentially alternative causes of action. In three cases, the plaintiff has alleged compensatory damages in the amount of $3.0 million for four separate causes of action and $1.0 million for another cause of action and punitive damages in the amount of $10.0 million. In the fourth case, the plaintiff has alleged against each named defendant, compensatory and punitive damages, each in the amount of $10.0 million for seven separate causes of action. In the fifth case, the plaintiff has alleged compensatory damages in the amount of $20.0 million for three separate causes of action and $5.0 million for another cause of action and punitive damages in the amount of $20.0 million. In the sixth case, the plaintiff has alleged against each named defendant, compensatory and punitive damages, each in the amount of $10.0 million for six separate causes of action and $5.0 million for the seventh 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, 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 fiscal year ended December 31, 2010.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
Set forth below is information regarding the Company’s repurchases of its common stock during the second quarter ended June 30, 2011.
 
                                 
                Total Number
       
    Total
          of Shares
    Maximum Number of
 
    Number
    Average
    Purchased as
    Shares That May Yet Be
 
    of Shares
    Price Paid
    Part of Publicly
    Purchased Under the
 
Period   Purchased     Per Share     Announced Plans(1)     Plans or Program  
 
April 1 — April 30, 2011
    -0-     $ -0-       -0-       340,920  
May 1 — May 31, 2011
    -0-       -0-       -0-       340,920  
June 1 — June 30, 2011
    672 (2)     21.09       -0-       340,920  
                                 
      672     $ 21.09       -0-       340,920  
                                 
 
 
(1) In 2006, the Company announced a share repurchase program whereby the Company may repurchase up to 1.0 million shares of its common stock. During the second quarter of 2011, no shares were purchased as part of this program.
 
(2) Consist of shares of common stock the Company acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient withholding tax liabilities.


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Item 6.   Exhibits
 
The following exhibits are included herein:
 
         
  4 .1   Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio-Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  4 .2   Fifth Supplemental Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc. the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.2 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  4 .3   Fourth Amended and Restated Credit Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the other Loan Parties (as defined therein), the Lenders (as defined therein) JP Morgan Chase Bank, N.A., as administrative agent, JP Morgan Chase Bank, N.A.,Toronto Branch, as Canadian agent, and J.P. Morgan Securities Inc., as sole lead arranger and bookrunning manager. (filed as Exhibit 4.3 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  10 .1   Registration Rights Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and the initial purchasers that are a party thereto. (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  10 .2   Park-Ohio Industries, Inc. Annual Cash Bonus Plan (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on June 1, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  15     Letter re: unaudited interim financial information
  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 .LAB   XBRL Taxonomy Extension Label Linkbase Document
  101 .PRE   XBRL Taxonomy Extension Presentation Linkbase Document


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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/  Jeffrey L. Rutherford
Name:     Jeffrey L. Rutherford
  Title:  Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 
Date: August 5, 2011


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Exhibit    
 
  4 .1   Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio-Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  4 .2   Fifth Supplemental Indenture, dated April 7, 2011, among Park-Ohio Industries, Inc. the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.2 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  4 .3   Fourth Amended and Restated Credit Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the other Loan Parties (as defined therein), the Lenders (as defined therein) JP Morgan Chase Bank, N.A., as administrative agent, JP Morgan Chase Bank, N.A.,Toronto Branch, as Canadian agent, and J.P. Morgan Securities Inc., as sole lead arranger and bookrunning manager. (filed as Exhibit 4.3 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  10 .1   Registration Rights Agreement, dated April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and the initial purchasers that are a party thereto. (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  10 .2   Park-Ohio Industries, Inc. Annual Cash Bonus Plan (filed as Exhibit 10.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on June 1, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  15     Letter re: unaudited interim financial information
  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 .LAB   XBRL Taxonomy Extension Label Linkbase Document
  101 .PRE   XBRL Taxonomy Extension Presentation Linkbase Document


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