UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
     
(Mark One)    
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGETHE SECURITIESEXCHANGE ACT OF 1934  
  For the fiscal year ended December 31, 20072010  
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 333-43005333-43005-01
PARK-OHIO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
   
Ohio 34-6520107
 
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
   
 
   
6065 Parkland Boulevard
  
Cleveland, Ohio 44124
 
(Address of principal executive offices)
 (Zip Code)
 
Registrant’s telephone number, including area code:(440) 947-2000
Securities registered pursuant to Section 12(b) of the Act:
None
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Pursuant to a corporate reorganization effective June 15, 1998, Park-Ohio Industries, Inc. became a wholly-owned subsidiary of Park-Ohio Holdings Corp. The registrant meets the conditions set forth in general instruction (I)(1)(a) and (b) of Form 10-K and is filing this form in reduced disclosure format.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  þ  No o
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  o  No þ
 
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  o  No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
       
Large accelerated filero
 Accelerated filer  o Non-accelerated filer þ
(Do not check if a smaller reporting company)
 Smaller Reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange ActRule 12b-2).  Yes o  No þ
 
All of the outstanding stock of the registrant is held by Park-Ohio Holdings Corp. As of March 17, 2008,8, 2011, 100 shares of the registrant’s common stock, $1 par value, were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
None
 


 
Part I
 
Item 1.Business
 
Overview
 
Park-Ohio Industries, Inc. (“Park-Ohio”), a wholly-owned subsidiary of Park-Ohio Holdings Corp. (“Holdings”), was incorporated as an Ohio corporation in 1984. Park-Ohio,“Park-Ohio”, primarily through its subsidiaries owned by its direct subsidiary, Park-Ohio Industries, Inc. (“Park-Ohio”), is an industrial supply chain logistics and diversified manufacturing business operating in three segments: Supply Technologies, (formerly known as Integrated Logistics Solutions (“ILS”)), Aluminum Products and Manufactured Products.
 
References herein to “we” or “the Company” include, where applicable, Park-Ohio and its direct and indirect subsidiaries.
 
Supply Technologies provides our customers with Total Supply Managementtm services for a broad range of high-volume, specialty production components. Our Aluminum Products business manufactures cast and machined aluminum components, and our Manufactured Products business is a major manufacturer of highly-engineered industrial products. Our businesses serve large, industrial original equipment manufacturers (“OEMs”) in a variety of industrial sectors, including the automotive and vehicle parts, heavy-duty truck, industrial equipment, steel, rail, electrical distribution and controls, aerospace and defense, oil and gas, power sports/fitness equipment, HVAC, electrical components, appliance and semiconductor equipment industries. As of December 31, 2007,2010 we employed approximately 3,7003,200 persons.
 
The following table summarizes the key attributes of each of our business segments:
 
       
  Supply Technologies Aluminum Products Manufactured Products
 
NET SALES(1)
FOR 2010
 $531.4402.1 million
(49% of total)
 $169.1143.7 million
(16%18% of total)
 $370.9267.7 million
(35%33% of total)
SELECTED PRODUCTS Sourcing, planning and•   Pump housings•   Induction heating and
procurement of over•   Clutch retainers/pistons   melting systems
175,000 190,000 production•   Control arms•   Pipe threading
components, including:•   Knuckles   systems

•   Fasteners
•   Master cylinders•   Industrial oven

•   Pins
•   Pinion housings   systems

•   Valves
•   Brake calipers•   Injection molded

•   Hoses
•   Oil pans   rubber components

•   Wire harnesses
•   Flywheel spacers•   Forging presses

•   Clamps and fittings

•   Rubber and plastic components
 •   Control arms
•   Front engine covers
•   Cooling modules
•   Knuckles
•   Pump housings
•   Clutch retainers/pistons
•   Master cylinders
•   Pinion housings
•   Oil pans
•   Flywheel spacers
 •   Induction heating and melting systems
•   Pipe threading systems
•   Industrial oven systems
•   Injection molded rubber components
•   Forging presses
SELECTED INDUSTRIES SERVED •   Heavy-duty truck
•   Automotive and vehicle parts

•   Electrical distribution and controls
•   Power sports/fitness equipment
•   HVAC
•   Aerospace and defense

•   Electrical components
•   Appliance
•   Semiconductor equipment
•   Recreational vehicles
•   Lawn and garden equipment
 •   Automotive
•   Agricultural equipment
•   Construction equipment
•   Heavy-duty truck
•   Marine equipment
 •   SteelFerrous and non-ferrous metals
•   Coatings
•   Forging
•   Foundry
•   Heavy-duty truck
•   Construction equipment
•   BottlingSilicon
•   Automotive
•   Oil and gas
•   Rail and locomotive manufacturing
•   Aerospace and defense


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Supply Technologies
 
In November 2007, our ILS business changed its name to Supply Technologies to better reflect its breadth of services and focus on driving efficiencies throughout the total supply management process.


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Our Supply Technologies business provides our customers with Total Supply Managementtm, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Managementtm includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. We operate 5149 logistics service centers in the United States, Mexico, Canada, Puerto Rico, Scotland, Ireland, Hungary, China, Taiwan, Singapore and India, as well as production sourcing and support centers in Asia. Through our supply chain management programs, we supply more than 175,000190,000 globally-sourced production components, many of which are specialized and customized to meet individual customers’ needs.
In October 2006, we acquired all of the capital stock of NABS for $21.2 million in cash. NABS is a premier international supply chain manager of production components, providing services to high technology companies in the computer, electronics, and consumer products industries. NABS has 17 operations across Europe, Asia, Mexico and the United States. The historical financial data contained throughout this annual report onForm 10-K excludes the results of operations of NABS prior to October 18, 2006. See Note C to the consolidated financial statements included elsewhere herein.
In July 2005, we acquired substantially all of the assets of the Purchased Parts Group, Inc. (“PPG”), a provider of supply chain management services for a broad range of production components. At acquisition date, PPG operated 12 service centers in the United States, of which 9 have since been amalgamated into other Supply Technologies operations, and also serves customers in the United Kingdom and Mexico. This acquisition added significantly to our customer and supplier bases, and expanded our geographic presence. Supply Technologies has eliminated substantial overhead costs from PPG through the process of consolidating redundant service centers. The historical financial data contained throughout this annual report onForm 10-K exclude the results of operations of PPG prior to July 20, 2005. See Note C to the consolidated financial statements included elsewhere herein.
 
Products and Services.  Total Supply Managementtm provides our customers with an expert partner in strategic planning, global sourcing, technical services, parts and materials, logistics, distribution and inventory management of production components. Some production components are characterized by low per unit supplier prices relative to the indirect costs of supplier management, quality assurance, inventory management and delivery to the production line. In addition, Supply Technologies delivers an increasingly broad range of higher-cost production components including valves, electro-mechanical hardware, fittings, steering components and many others. Applications engineering specialists and the direct sales force work closely with the engineering staff of OEM customers to recommend the appropriate production components for a new product or to suggest alternative components that reduce overall production costs, streamline assembly or enhance the appearance or performance of the end product. As an additional service, Supply Technologies recently began providing spare parts and aftermarket products to end users of its customers’ products.
 
Total Supply Managementtm services are typically provided to customers pursuant to sole-source arrangements. We believe our services distinguish us from traditional buy/sell distributors, as well as manufacturers who supply products directly to customers, because we outsource our customers’ high-volume production components supply chain management, providing processes customized to each customer’s needs and replacing numerous current suppliers with a sole-source relationship. Our highly-developed, customized, information systems provide transparency and flexibility through the complete supply chain. This enables our customers to: (1) significantly reduce the direct and indirect cost of production component processes by outsourcing internal purchasing, quality assurance and inventory fulfillment responsibilities; (2) reduce the amount of working capital invested in inventory and floor space; (3) reduce component costs through purchasing efficiencies, including bulk buying and supplier consolidation; and (4) receive technical expertise in production component selection and design and engineering. Our sole-source arrangements foster long-term, entrenched supply relationships with our customers and, as a result, the average tenure of service for our top 50 Supply Technologies clients exceeds twelvesix years. Supply Technologies’ remaining sales are generated through the wholesale supply of industrial


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products to other manufacturers and distributors pursuant to master or authorized distributor relationships.
 
The Supply Technologies segment also engineers and manufactures precision cold formed and cold extruded products, including locknuts, SPAC® nuts and wheel hardware, which are principally used in applications where controlled tightening is required due to high vibration. Supply Technologies produces both standard items and specialty products to customer specifications, which are used in large volumes by customers in the automotive, heavy-duty truck and rail industries.
 
Markets and Customers.  For the year ended December 31, 2007,2010, approximately 76%83% of Supply Technologies’ net sales were to domestic customers. Remaining sales were primarily to manufacturing facilities of large, multinational customers located in Canada, Mexico, Europe and Asia. Total Supply Managementtm services and production components are used extensively in a variety of industries, and demand is generally related to the state of the economy and to the overall level of manufacturing activity.
 
Supply Technologies markets and sells its services to over 6,0006,100 customers domestically and internationally. The principal markets served by Supply Technologies are the heavy-duty truck, automotive


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and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, recreational vehicles, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. The five largest customers, within which Supply Technologies sells through sole-source contracts to multiple operating divisions or locations, accounted for approximately 33%26% and 43%24% of the sales of Supply Technologies for 20072010 and 2006, respectively, with International Truck representing 13% and 22%, respectively, of segment sales. Two of the five largest customers are in the heavy-duty truck industry.2009, respectively. The loss of the International Truck account or any two of the remainingits top five customers could have a material adverse effect on the results of operations and financial conditionconditions of this segment. The Company evaluated its long-lived assets to determine whether the carrying amount of such assets was recoverable in accordance with accounting guidance by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company recorded restructuring and asset impairment charges of $4.0 million during the fourth quarter of 2009. See Note N to the consolidated financial statements included elsewhere herein.
 
Competition.  A limited number of companies compete with Supply Technologies to provide supply management services for production parts and materials. Supply Technologies competes in North America, Mexico, Europe and Asia, primarily on the basis of its Total Supply Managementtm services, including engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support, and its geographic reach, extensive product selection, price and reputation for high service levels. Numerous North American and foreign companies compete with Supply Technologies in manufacturing cold-formed and cold-extruded products.
 
Recent Developments.  During the third quarter of 2010, Supply Technologies completed the acquisition of certain assets and assumed specific liabilities relating to the Assembly Components Systems (“ACS”) business of Lawson Products, Inc. for $16.0 million in cash and a $2.2 million subordinated promissory note payable in equal quarterly installments over three years. ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America. The Company recorded a gain of $2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price. See Note C to the consolidated financial statements included elsewhere herein.
Aluminum Products
 
We believe that we are one of the few aluminum component suppliers that has the capability to provide a wide range of high-volume, high-quality products utilizing a broad range of processes, including gravity and low pressure permanent mold, die-cast and lost-foam, as well as emerging alternative casting technologies. Our ability to offer our customers this comprehensive range of capabilities at a low cost provides us with a competitive advantage. We produce our aluminum components at fivesix manufacturing facilities in Ohio, Indiana and Indiana.Georgia.
 
Products and Services.  Our Aluminum Products business casts and machines aluminum engine, transmission, brake, suspension and other components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment OEMs, primarily on a sole-source basis. Aluminum Products’ principal products include front engine covers, cooling modules, control arms, knuckles, pump housings, clutch retainers and pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers. In addition, we also provide value-added services such as design engineering, machining and part assembly. Although these parts are lightweight, they possess high durability and integrity characteristics even under extreme pressure and temperature conditions.
 
Demand by automotive OEMs for aluminum castings has increased in recent years as they have sought lighter alternatives to steel and iron, primarily to increase fuel efficiency without compromising


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structural integrity. We believe that this replacement trend will continue as end-users and the regulatory environment require greater fuel efficiency. To capitalize on this trend, in August 2004, we acquired substantially all of the assets of the Amcast Components Group, a producer of aluminum automotive components. This acquisition significantly increased the sales and production capacity of our Aluminum Products business and added attractive new customers, product lines and production technologies.
 
Markets and Customers.  The five largest customers, within which Aluminum Products sells to multiple operating divisions through sole-source contracts, accounted for approximately 55%57% of


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Aluminum Products sales for 20072010 and 46% for 2006.2009. The loss of any one of these customers could have a material adverse effect on the results of operations and financial condition of this segment.
 
Competition.  The aluminum castings industry serving North America is highly competitive.  Aluminum Products competes principally on the basis of its ability to: (1) engineer and manufacture high-quality, cost-effective, machined castings utilizing multiple casting technologies in large volumes; (2) provide timely delivery; and (3) retain the manufacturing flexibility necessary to quickly adjust to the needs of its customers. Although thereThere are a number of smallerfew domestic companies with aluminum casting capabilities able to meet the customers’ stringent quality and service standards and lean manufacturing techniques enable only large suppliers with the requisite quality certifications to compete effectively.techniques. As one of these suppliers, Aluminum Products is well-positioned to benefit as customers continue to consolidate their supplier base.
Recent Developments.  On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which Rome agreed to transfer to the Company substantially all of its assets in exchange for approximately $7.5 million of notes receivable due from Rome held by the Company.
 
Manufactured Products
 
Our Manufactured Products segment operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products, including induction heating and melting systems, pipe threading systems, rubber products and forged and machined products. We manufacture these products in eleventwelve domestic facilities and nineten international facilities in Canada, Mexico, the United Kingdom, Belgium, Germany, Poland, China and Japan. In January 2006, the Company completed the acquisition of all of the capital stock of Foundry Service GmbH (“Foundry Service”). In December 2005, we acquired substantially all of the assets of Lectrotherm, Inc. (“Lectrotherm”), which is primarily a provider of field service and spare parts for induction heating and melting systems, located in Canton, Ohio.
 
Products and Services.  Our induction heating and melting business utilizes proprietary technology and specializes in the engineering, construction, service and repair of induction heating and melting systems, primarily for the steel,ferrous and non-ferrous metals, silicon, coatings, forging, foundry, automotive and construction equipment industries. Our induction heating and melting systems are engineered and built to customer specifications and are used primarily for melting, heating, and surface hardening of metals and curing of coatings. Approximately 35% to 40%51% of our induction heating and melting systems’ revenues are derived from the sale of replacement parts and provision of field service, primarily for the installed base of our own products. Our pipe threading business serves the oil and gas industry, while our industrial ovens provide heating and curing for bottling and other applications.industry. We also engineer and install mechanical forging presses, and sell spare parts and provide field service for the large existing base of mechanical forging presses and hammers in North America. We machine, induction harden and surface finish crankshafts and camshafts, used primarily in locomotives. We forge aerospace and defense structural components such as landing gears and struts, as well as rail products such as railcar center plates and draft lugs. We manufacture injection mold rubber and silicone products, including wire harnesses, shock and vibration mounts, spark plug boots and nipples and general sealing gaskets.
 
Markets and Customers.  We sell induction heating and other capital equipment to component manufacturers and OEMs in the steel,ferrous and non-ferrous metals, silicon, coatings, forging, foundry, automotive, truck, construction equipment and oil and gas industries. We sell forged and machined products to locomotive manufacturers, machining companies andsub-assemblers who finish aerospace and defense products for OEMs, and railcar builders and maintenance providers. We sell rubber products primarily tosub-assemblers in the automotive, food processing and consumer appliance industries.


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During the fourth quarter of 2009, the Company evaluated its long-lived assets at one of its forging units to determine whether the carrying amount of such assets was recoverable in accordance with accounting guidance by comparing the carrying amount to the sum of undiscounted cash flows expected to result from the use and eventual disposition of the assets and recorded restructuring and asset impairment charges of $3.0 million in 2009. See Note N to the consolidated financial statements included elsewhere herein.
Competition.  We compete with small tosmall-to medium-sized domestic and international equipment manufacturers on the basis of service capability, ability to meet customer specifications, delivery performance and engineering expertise. We compete domestically and internationally with small tosmall-to medium-


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sized forging and machining businesses on the basis of product quality and precision. We compete with other domestic small- tosmall-to medium-sized manufacturers of injection molded rubber and silicone products primarily on the basis of price and product quality.
Recent Developments.  On December 31, 2010, the Company through its subsidiary Ajax Tocco Magnethermic acquired the assets and the related induction heating intellectual property of ABP Induction’s U.S. heating business operating as Pillar Induction (“Pillar”) for $9.9 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
 
Sales and Marketing
 
Supply Technologies markets its products and services in the United States, Mexico, Canada, Western and Eastern Europe and East and South Asia primarily through its direct sales force, which is assisted by applications engineers who provide the technical expertise necessary to assist the engineering staff of OEM customers in designing new products and improving existing products. Aluminum Products primarily markets and sells its products in North America through internal sales personnel.personnel and independent sales representatives. Manufactured Products primarily markets and sells its products in North America through both internal sales personnel and independent sales representatives. Induction heating and pipe threading equipment is also marketed and sold in Europe, Asia, Latin America and Africa through both internal sales personnel and independent sales representatives. In some instances, the internal engineering staff assists in the sales and marketing effort through joint design and applications-engineering efforts with major customers.
 
Raw Materials and Suppliers
 
Supply Technologies purchases substantially all of its production components from third-party suppliers. Aluminum Products and Manufactured Products purchase substantially all of their raw materials, principally metals and certain component parts incorporated into their products, from third-party suppliers and manufacturers. Management believes that raw materials and component parts other than certain specialty products are available from alternative sources. Supply Technologies has multiple sources of supply for its products.components. An increasing portion of Supply Technologies’ deliveredproduction components are purchased from suppliers in foreign countries, primarily Canada, Taiwan, China, South Korea, Singapore, India and multiple European countries. We are dependent upon the ability of such suppliers to meet stringent quality and performance standards and to conform to delivery schedules. Aluminum Products and Manufactured Products purchase substantially all of their raw materials, principally metals and certain component parts incorporated into their products, from third-party suppliers and manufacturers. Most raw materials required by Aluminum Products and Manufactured Products are commodity products available from several domestic suppliers.
Customer Dependence
We have thousands of customers who demand quality, delivery Management believes that raw materials and service. Numerous customers have recognized our performance by awarding us with supplier quality awards. The only customer which accounted for morecomponent parts other than 10% of our consolidated sales in any of the past three years was International Truck in 2006 and 2005. In September 2005, we entered into an exclusive, multi-year agreement with International Truck to supply a wide range of production components, expiring on December 31, 2008.certain specialty products are available from alternative sources.
 
Backlog
 
Management believes that backlog is not a meaningful measure for Supply Technologies, as a majority of Supply Technologies’ customers requirejust-in-time delivery of production components. Management believes that Aluminum Products’ and Manufactured Products’ backlog as of any particular date is not a meaningful measure of sales for any future period as a significant portion of sales are on a release or firm order basis. The backlog of Manufactured Products’ orders believed to be firm as of December 31, 2010 was $174.4 million compared with $178.8 million as of December 31, 2009. Approximately $20.0 million of the backlog as of December 31, 2010 is scheduled to be shipped after 2011. The remainder is scheduled to be shipped in 2011.
 
Environmental, Health and Safety Regulations
 
We are subject to numerous federal, state and local laws and regulations designed to protect public health and the environment, particularly with regard to discharges and emissions, as well as handling, storage, treatment and disposal, of various substances and wastes. Our failure to comply with applicable


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environmental laws and regulations and permit requirements could result in civil and criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations


5


or requiring corrective measures. Pursuant to certain environmental laws, owners or operators of facilities may be liable for the costs of response or other corrective actions for contamination identified at or emanating from current or former locations, without regard to whether the owner or operator knew of, or was responsible for, the presence of any such contamination, and for related damages to natural resources. Additionally, persons who arrange for the disposal or treatment of hazardous substances or materials may be liable for costs of response at sites where they are located, whether or not the site is owned or operated by such person.
 
From time to time, we have incurred, and are presently incurring, costs and obligations for correcting environmental noncompliance and remediating environmental conditions at certain of our properties. In general, we have not experienced difficulty in complying with environmental laws in the past, and compliance with environmental laws has not had a material adverse effect on our financial condition, liquidity and results of operations. Our capital expenditures on environmental control facilities were not material during the past five years and such expenditures are not expected to be material to us in the foreseeable future.
 
We are currently, and may in the future, be required to incur costs relating to the investigation or remediation of property, including property where we have disposed of our waste, and for addressing environmental conditions. For instance, we have been identified as a potentially responsible party at third-party sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state laws, which provide for strict and, under certain circumstances, joint and several liability. We are participating in the cost of certainclean-up efforts at several of these sites. The availability of third-party payments or insurance for environmental remediation activities is subject to risks associated with the willingness and ability of the third party to make payments. However, our share of such costs has not been material and, based on available information, we do not expect our exposure at any of these locations to have a material adverse effect on our results of operations, liquidity or financial condition.
 
Information as to Industry Segment Reporting and Geographic Areas
 
The information contained under the heading “Notein note B — Industry Segments” of the notes to the consolidated financial statements included elsewhere herein relating to (1) net sales, income before income taxes, identifiable assets and other information by industry segment and (2) net sales and assets by geographic region for the years ended December 31, 2007, 20062010, 2009 and 20052008 is incorporated herein by reference.
 
Recent Developments
 
The information contained under the heading of “Notein Note C, — Acquisitions” of the notesNote D and Note M to the consolidated financial statements included elsewhere herein is incorporated herein by reference.
 
Available Information
 
We file annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K and other information, including amendments to these reports, with the Securities and Exchange Commission (“SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, by calling the SEC at1-800-SEC-0330, or by accessing the SEC’s website athttp://www.sec.gov. In addition, as soon as reasonably practicable after such materials are filed with or furnished to the SEC, we make such materials available on our website athttp://www.pkoh.com. The information on our website is not a part of this annual report onForm 10-K.


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Item 1A. Risk Factors
 
The following are certain risk factors that could affect our business, results of operations and financial condition. These risks are not the only ones we face. If any of the following risks occur, our business, results of operations or financial condition could be adversely affected.


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Adverse credit market conditions may significantly affect our access to capital, cost of capital and ability to meet liquidity needs.
Disruptions, uncertainty or volatility in the credit markets may adversely impact our ability to access credit already arranged and the availability and cost of credit to us in the future. These market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow and maintain our business. Accordingly, we may be forced to delay raising capital or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility. Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures and reducing or eliminating future share repurchases or other discretionary uses of cash. Overall, our results of operations, financial condition and cash flows could be materially adversely affected by disruptions in the credit markets.
The recent global financial crisis may have significant effects on our customers and suppliers that would result in material adverse effects on our business and operating results.
The recent global financial crisis, which included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and fluctuations in equity and currency values worldwide, and concerns that the worldwide economy may enter into a prolonged recessionary period, may materially adversely affect our customers’ access to capital or willingness to spend capital on our products or their ability to pay for products that they will order or have already ordered from us. In addition, the recent global financial crisis may materially adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels and product quality, which could cause them to raise prices or lower production levels.
These potential effects of the recent global financial crisis are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations and financial condition.
The recent global financial crisis may have significant effects on our customers that would result in our inability to borrow or to meet our debt service coverage ratio in our revolving credit facility.
As of December 31, 2010, we were in compliance with our debt service coverage ratio covenant and other covenants contained in our revolving credit facility. While we expect to remain in compliance throughout 2011, declines in demand in the automotive industry and in sales volumes could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by the decline 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.
 
The industries in which we operate are cyclical and are affected by the economy in general.
 
We sell products to customers in industries that experience cyclicality (expectancy of recurring periods of economic growth and slowdown) in demand for products and may experience substantial increases and decreases in business volume throughout economic cycles. Industries we serve, including the automotive and vehicle parts, heavy-duty truck, industrial equipment, steel, rail, electrical distribution


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and controls, aerospace and defense, power sports/fitness equipment, HVAC, electrical components, appliance and semiconductor equipment industries, are affected by consumer spending, general economic conditions and the impact of international trade. A downturn in any of the industries we serve particularly the domestic automotive or heavy-duty truck industry, could have a material adverse effect on our financial condition, liquidity and results of operations.
 
Because a significant portion of our sales is to the automotive and heavy-duty truck industries, a decrease in the demand of these industries or the loss of any of our major customers in these industries could adversely affect our financial health.
 
Demand for certain of our products is affected by, among other things, the relative strength or weakness of the automotive and heavy-duty truck industries. The domestic automotive and heavy-duty truck industries are highly cyclical and may be adversely affected by international competition. In addition, the automotive and heavy-duty truck industries are significantly unionized and subject to work slowdowns and stoppages resulting from labor disputes. We derived 24% and 11%5% of our net sales during the year ended December 31, 20072010 from the automobile and heavy-duty truck industries, respectively. International Truck,Dramatically lower global automotive sales have resulted in lower demand for our largest customer, accounted for approximately 7%products. Further economic decline that results in a reduction in automotive sales and production by our customers could have a material adverse effect on our business, results of our net sales for the year ended December 31, 2007. operations and financial condition.
The loss of a portion of business to International Truck or any of our other major automotive or heavy-duty truck customers could have a material adverse effect on our financial condition, cash flow and results of operations. We cannot assure you that we will maintain or improve our relationships in these industries or that we will continue to supply this customerthese customers at current levels.
 
Our Supply Technologies customers are generally not contractually obligated to purchase products and services from us.
 
Most of the products and services are provided to our Supply Technologies customers under purchase orders as opposed to long-term contracts. When we do enter into long-term contracts with our customers, many of them only establish pricing terms and do not obligate our Supply Technologies customers to buy required minimum amounts from us or to buy from us exclusively. Accordingly, many of our Supply Technologies customers may decrease the amount of products and services that they purchase from us or even stop purchasing from us altogether, either of which could have a material adverse effect on our net sales and profitability.
 
We are dependent on key customers.
 
We rely on several key customers. For the year ended December 31, 2007,2010, our top seventen largest customers accounted for approximately 21% of our net sales and our top customer, International Truck, accounted for approximately 7%27% of our net sales. Many of our customers place orders for products on an as-needed basis and operate in cyclical industries and, as a result, their order levels have varied from period to period in the past and may vary significantly in the future. Due to competitive issues, we have lost key customers in the past and may again in the future. Customer orders are dependent upon their markets and may be subject to


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delays or cancellations. As a result of dependence on our key customers, we could experience a material adverse effect on our business and results of operations if any of the following were to occur:
 
 • the loss of any key customer, in whole or in part;
 
 • the insolvency or bankruptcy of any key customer;
 
 • a declining market in which customers reduce orders or demand reduced prices; or
 
 • a strike or work stoppage at a key customer facility, which could affect both their suppliers and customers.
 
If any of our key customers become insolvent or file for bankruptcy, our ability to recover accounts receivable from that customer would be adversely affected and any payments we received in the


8


preference period prior to a bankruptcy filing may be potentially recoverable, which could adversely impact our results of operations.
 
Three of our substantial customersDuring 2009, Chrysler’s U.S. operations, General Motor’s U.S. operations and Metaldyne Corporation filed voluntary petitions for reorganizationbankruptcy protection under Chapter 11 of the bankruptcy code during 2005United States Bankruptcy Code. The Company has collected substantially all amounts that were due from Chrysler and 2006. Delphi Corp. and Dana Corporation, which are primarily customers of our Manufactured Products and Aluminum Products segments, filed in 2005, while Werner Ladder, which is primarily a customerGeneral Motors as of the Supply Technologies segment, filed in 2006. Collectively,dates of the respective bankruptcy filings and as such there was no charge to earnings as a result of these bankruptcies reduced our operating income inbankruptcies. The account receivable from Metaldyne at the aggregate by $1.8time of the bankruptcy was $4.2 million. The Company recorded a $4.2 million during 2005 and 2006.charge to reserve for the collection of the account receivable when Metaldyne announced it had completed the sale of substantially all of its assets to MD Investors Corporation, effectively making no payments to its unsecured creditors, including us.
 
We operate in highly competitive industries.
 
The markets in which all three of our segments sell their products are highly competitive. Some of our competitors are large companies that have greater financial resources than we have. We believe that the principal competitive factors for our Supply Technologies segment are an approach reflecting long-term business partnership and reliability, sourced product quality and conformity to customer specifications, timeliness of delivery, price and design and engineering capabilities. We believe that the principal competitive factors for our Aluminum Products and Manufactured Products segments are product quality and conformity to customer specifications, design and engineering capabilities, product development, timeliness of delivery and price. The rapidly evolving nature of the markets in which we compete may attract new entrants as they perceive opportunities, and our competitors may foresee the course of market development more accurately than we do. In addition, our competitors may develop products that are superior to our products or may adapt more quickly than we do to new technologies or evolving customer requirements.
 
We expect competitive pressures in our markets to remain strong. These pressures arise from existing competitors, other companies that may enter our existing or future markets and, in some cases, our customers, which may decide to internally produce items we sell. We cannot assure you that we will be able to compete successfully with our competitors. Failure to compete successfully could have a material adverse effect on our financial condition, liquidity and results of operations.
 
The loss of key executives could adversely impact us.
 
Our success depends upon the efforts, abilities and expertise of our executive officers and other senior managers, including Edward Crawford, our Chairman and Chief Executive Officer, and Matthew Crawford, our President and Chief Operating Officer, as well as the president of each of our operating units. An event of default occurs under our revolving credit facility if Messrs. E. Crawford and M. Crawford or certain of their related parties own in the aggregate less than 15% of Holdings’our outstanding common stock orand if they own less than 15% ofat such stock, then if eithertime neither Mr. E. Crawford ornor Mr. M. Crawford ceases to holdholds the office of chairman, chief executive officer or president. The loss of the services of Messrs. E. Crawford and M. Crawford, senior and executive officers,and/or other key individuals could have a material adverse effect on our financial condition, liquidity and results of operations.


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We may encounter difficulty in expanding our business through targeted acquisitions.
 
We have pursued, and may continue to pursue, targeted acquisition opportunities that we believe would complement our business, such as the acquisitions of NABS in 2006 and PPG in 2005.business. We cannot assure you that we will be successful in consummating any acquisitions.
 
Any targeted acquisitions will be accompanied by the risks commonly encountered in acquisitions of businesses. We may not successfully overcome these risks or any other problems encountered in connection with any of our acquisitions, including the possible inability to integrate an acquired business’ operations, IT technologies, services and products into our business, diversion of management’s attention, the assumption of unknown liabilities, increases in our indebtedness, the failure to achieve the strategic


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objectives of those acquisitions and other unanticipated problems, some or all of which could materially and adversely affect us. The process of integrating operations could cause an interruption of, or loss of momentum in, our activities. Any delays or difficulties encountered in connection with any acquisition and the integration of our operations could have a material adverse effect on our business, results of operations, financial condition or prospects of our business.
 
Our Supply Technologies business depends upon third parties for substantially all of our component parts.
 
Our Supply Technologies business purchases substantially all of its component parts from third-party suppliers and manufacturers. Our businessAs such, it is subject to the risk of price fluctuations and periodic delays in the delivery of component parts. Failure by suppliers to continue to supply us with these component parts on commercially reasonable terms, or at all, wouldcould have a material adverse effect on us. We depend upon the ability of these suppliers, among other things, to meet stringent performance and quality specifications and to conform to delivery schedules. Failure by third-party suppliers to comply with these and other requirements could have a material adverse effect on our financial condition, liquidity and results of operations.
 
The raw materials used in our production processes and by our suppliers of component parts are subject to price and supply fluctuations that could increase our costs of production and adversely affect our results of operations.
 
Our supply of raw materials for our Aluminum Products and Manufactured Products businesses could be interrupted for a variety of reasons, including availability and pricing. Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect our results of operations and profit margins. While we generally attempt to pass along increased raw materials prices to our customers in the form of price increases, there may be a time delay between the increased raw materials prices and our ability to increase the price of our products, or we may be unable to increase the prices of our products due to pricing pressure or other factors.
 
Our suppliers of component parts, particularly in our Supply Technologies business, may significantly and quickly increase their prices in response to increases in costs of the raw materials, such as steel, that they use to manufacture our component parts. We may not be able to increase our prices commensurate with our increased costs. Consequently, our results of operations and financial condition may be materially adversely affected.
 
The energy costs involved in our production processes and transportation are subject to fluctuations that are beyond our control and could significantly increase our costs of production.
 
Our manufacturing process and the transportation of raw materials, components and finished goods are energy intensive. Our manufacturing processes are dependent on adequate supplies of electricity and natural gas. A substantial increase in the cost of transportation fuel, natural gas or electricity could have a material adverse effect on our margins. We experienced widely fluctuating natural gas costs in 2006 and in 2007. We may experience higher than anticipated gas costs in the future, which could adversely affect our


9


results of operations. In addition, a disruption or curtailment in supply could have a material adverse effect on our production and sales levels.
 
Potential product liability risks exist from the products whichthat we sell.
 
Our businesses expose us to potential product liability risks that are inherent in the design, manufacture and sale of our products and products of third-party vendors that we use or resell. While we currently maintain what we believe to be suitable and adequate product liability insurance, we cannot assure you that we will be able to maintain our insurance on acceptable terms or that our insurance will provide adequate protection against potential liabilities. In the event of a claim against us, a lack of sufficient insurance coverage could have a material adverse effect on our financial condition, liquidity and


10


results of operations. Moreover, even if we maintain adequate insurance, any successful claim could have a material adverse effect on our financial condition, liquidity and results of operations.
 
Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations.
 
As of December 31, 2007,2010, we were a party to seven collective bargaining agreements with various labor unions that covered approximately 550385 full-time employees. Our inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized, we could experience a significant disruption of our operations and higher ongoing labor costs, which could have a material adverse effect on our business, financial condition and results of operations.
 
We operate and source internationally, which exposes us to the risks of doing business abroad.
 
Our operations are subject to the risks of doing business abroad, including the following:
 
 • fluctuations in currency exchange rates;
 
 • limitations on ownership and on repatriation of earnings;
 
 • transportation delays and interruptions;
 
 • political, social and economic instability and disruptions;
 
 • government embargoes or foreign trade restrictions;
 
 • the imposition of duties and tariffs and other trade barriers;
 
 • import and export controls;
 
 • labor unrest and current and changing regulatory environments;
 
 • the potential for nationalization of enterprises;
 
 • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations including the U.S. Foreign Corrupt Practices Act (“FCPA”);
• difficulties in staffing and managing multinational operations;
 
 • limitations on our ability to enforce legal rights and remedies; and
 
 • potentially adverse tax consequences.
 
In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments tonon-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures always will protect us from the reckless or criminal acts committed by our employees or agents. If we are found to be liable for FCPA violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.
Any of thesethe events enumerated above could have an adverse effect on our operations in the future by reducing the demand for our products and services, decreasing the prices at which we can sell our


11


products or otherwise having an adverse effect on our business, financial condition or results of operations. We cannot assure you that we will continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. We also cannot assure you that these laws will not be modified.


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Unexpected delays in the shipment of large, long-lead industrial equipment could adversely affect our results of operations in the period in which shipment was anticipated.
 
Long-lead industrial equipment contracts are a significant and growing part of our business. We primarily use the percentage of completion method to account for these contracts. Nevertheless, under this method, a large proportion of revenues and earnings on such contracts are recognized close to shipment of the equipment. Unanticipated shipment delays on large contracts could postpone recognition of revenue and earnings into future periods. Accordingly, if shipment was anticipated in the fourth quarter of a year, unanticipated shipment delays could adversely affect results of operations in that year.
 
We are subject to significant environmental, health and safety laws and regulations and related compliance expenditures and liabilities.
 
Our businesses are subject to many foreign, federal, state and local environmental, health and safety laws and regulations, particularly with respect to the use, handling, treatment, storage, discharge and disposal of substances and hazardous wastes used or generated in our manufacturing processes. Compliance with these laws and regulations is a significant factor in our business. We have incurred and expect to continue to incur significant expenditures to comply with applicable environmental laws and regulations. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial actions.
 
We are currently, and may in the future be, required to incur costs relating to the investigation or remediation of property, including property where we have disposed of our waste, and for addressing environmental conditions. Some environmental laws and regulations impose liability and responsibility on present and former owners, operators or users of facilities and sites for contamination at such facilities and sites without regard to causation or knowledge of contamination. In addition, we occasionally evaluate various alternatives with respect to our facilities, including possible dispositions or closures. Investigations undertaken in connection with these activities may lead to discoveries of contamination that must be remediated, and closures of facilities may trigger compliance requirements that are not applicable to operating facilities. Consequently, we cannot assure you that existing or future circumstances, the development of new facts or the failure of third parties to address contamination at current or former facilities or properties will not require significant expenditures by us.
 
We expect to continue to be subject to increasingly stringent environmental and health and safety laws and regulations. It is difficult to predict the future interpretation and development of environmental and health and safety laws and regulations or their impact on our future earnings and operations. We anticipate that compliance will continue to require increased capital expenditures and operating costs. Any increase in these costs, or unanticipated liabilities arising for example out of discovery of previously unknown conditions or more aggressive enforcement actions, could adversely affect our results of operations, and there is no assurance that they will not exceed our reserves or have a material adverse effect on our financial condition.
 
If our information systems fail, our business will be materially affected.
 
We believe that our information systems are an integral part of the Supply Technologies segment and, to a lesser extent, the Aluminum Products and Manufactured Products segments. We depend on our information systems to process orders, manage inventory and accounts receivable collections, purchase


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products, maintain cost-effective operations, route and re-route orders and provide superior service to our customers. We cannot assure you that a disruption in the operation of our information systems used by Supply Technologies, including the failure of the supply chain management software to function properly, or those used by Aluminum Products and Manufactured Products will not occur. Any such disruption could have a material adverse effect on our financial condition, liquidity and results of operations.


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Operating problems in our business may materially adversely affect our financial condition and results of operations.
 
The occurrence of material operating problems at our facilities may have a material adverse effect on our operations as a whole, both during and after the period of operational difficulties. We are subject to the usual hazards associated with manufacturing and the related storage and transportation of raw materials, products and waste, including explosions, fires, leaks, discharges, inclement weather, natural disasters, mechanical failure, unscheduled downtime and transportation interruption or calamities. The occurrence of material operating problems at our facilities may have a material adverse effect on our operations as a whole, both during and after the period of operational difficulties.
 
Changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies could adversely affect our financial results.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these polices require use of estimates and assumptions that may affect the reported value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain. Those who set and interpret the accounting standards (such as the Financial Accounting Standards Board, the Securities and Exchange Commission, and our independent registered public accounting firm) may amend or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For a further discussion of some of our critical accounting policies and standards and recent changes, see Critical Accounting Policies and Estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note A to the consolidated financial statements included elsewhere herein.
Holdings’ Chairman of the Board and Chief Executive Officer and ourHoldings’ President and Chief Operating Officer collectively beneficially own a significant portion of our parentHoldings’ company’s outstanding common stock and their interests may conflict with yours.
 
As of February 29, 2008,25, 2011, Edward Crawford, our Chairman of the Board and Chief Executive Officer, and Matthew Crawford, our President and Chief Operating Officer, collectively beneficially owned approximately 26%27% of Holdings’ common stock. Mr. E. Crawford is Mr. M. Crawford’s father. Their interests could conflict with your interests.the interests of Holdings’ shareholders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Messrs. E. Crawford and M. Crawford may conflict with your interests.the interests of Holdings’ shareholders.
 
Item 1B. Unresolved Staff Comments
 
None.
 
Item 2. Properties
 
As of December 31, 2007,2010, our operations included numerous manufacturing and supply chain logistics services facilities located in 2324 states in the United States and in Puerto Rico, as well as in Asia, Canada, Europe and Mexico. Approximately 89%87% of the available square footage was located in the United States. Approximately 45%43% of the available square footage was owned. In 2007,2010, approximately 33%30% of the available domestic square footage was used by the Supply Technologies segment, 45%47% was used by the


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Manufactured Products segment and 23% was used by the Aluminum Products segment. Approximately 46%54% of the available foreign square footage was used by the Supply Technologies segment and 54%46% was used by the Manufactured Products segment. In the opinion of management, our facilities are generally well maintained and are suitable and adequate for their intended uses.


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The following table provides information relative to our principal facilities as of December 31, 2007.2010.
 
                    
Related Industry
   Owned or
 Approximate
     Owned or
 Approximate
  
Segment
 
Location
 Leased Square Footage 
Use
 
Location
 
Leased
 
Square Footage
 
Use
SUPPLY
TECHNOLOGIES(1)
 Cleveland, OH Leased  60,450(2) Supply Technologies
Corporate Office
 Cleveland, OH Leased  60,450(2) Supply Technologies
Corporate Office
 Dayton, OH Leased  112,960  Logistics Dayton, OH Leased  70,600  Logistics
 Lawrence, PA Leased  116,000  Logistics and
Manufacturing
 Lawrence, PA Leased  116,000  Logistics and
Manufacturing
 St. Paul, MN Leased  104,425  Logistics Minneapolis, MN Leased  87,100  Logistics
 Allentown, PA Leased  60,075  Logistics Allentown, PA Leased  43,800  Logistics
 Atlanta, GA Leased  56,000  Logistics Atlanta, GA Leased  56,000  Logistics
 Dallas, TX Leased  49,985  Logistics Des Plaines, IL Leased  45,000  Logistics
 Memphis, TN Leased  48,750  Logistics Memphis, TN Leased  48,750  Logistics
 Louisville, KY Leased  30,000  Logistics Louisville, KY Leased  30,000  Logistics
 Nashville, TN Leased  44,900  Logistics Nashville, TN Leased  44,900  Logistics
 Tulsa, OK Leased  40,000  Logistics Tulsa, OK Leased  40,000  Logistics
 Austin, TX Leased  30,000  Logistics Lenexa, KS Leased  38,000  Logistics
 Kent, OH Leased  225,000  Manufacturing Austin, TX Leased  30,000  Logistics
 Mississauga, Leased  117,000  Manufacturing Madison Hts., MI Leased  32,000  Logistics
 Ontario, Canada        Streetsboro, OH Leased  45,000  Logistics
 Solon, OH Leased  62,700  Logistics Mississauga, Ontario, Canada Leased  145,000  Manufacturing
 Dublin, VA Leased  40,000  Logistics Solon, OH Leased  54,000  Logistics
 Delaware, OH Owned  45,000  Manufacturing Dublin, VA Leased  40,000  Logistics
 Delaware, OH Owned  45,000  Manufacturing
ALUMINUM Conneaut, OH(3) Leased/Owned  304,000  Manufacturing Conneaut, OH(3) Leased/Owned  304,000  Manufacturing
PRODUCTS Huntington, IN Leased  132,000  Manufacturing Huntington, IN Leased  125,000  Manufacturing
 Fremont, IN Owned  112,000  Manufacturing
 Fremont, IN Owned  108,000  Manufacturing Wapakoneta, OH Owned  188,000  Manufacturing
 Wapakoneta, OH Owned  188,000  Manufacturing Rootstown, OH Owned  177,000  Manufacturing
 Richmond, IN Leased/Owned  97,300  Manufacturing Ravenna, OH Owned  64,000  Manufacturing
MANUFACTURED Cuyahoga Hts., OH Owned  427,000  Manufacturing Cuyahoga Hts., OH Owned  427,000  Manufacturing
PRODUCTS(4) Cicero, IL Owned  450,000  Manufacturing Cicero, IL Owned  450,000  Manufacturing
 Le Roeulx, Belgium Owned  120,000  Manufacturing Le Roeulx, Belgium Owned  120,000  Manufacturing
 Euclid, OH Leased  60,000  Manufacturing Wickliffe, OH Owned  110,000  Manufacturing
 Wickliffe, OH Owned  110,000  Manufacturing Brookfield, WI Leased  100,000  Manufacturing
 Boaz, AL Owned  100,000  Manufacturing Warren, OH Owned  195,000  Manufacturing
 Warren, OH Owned  195,000  Manufacturing Canton, OH Leased  125,000  Manufacturing
 Canton, OH Leased  125,000  Manufacturing Madison Heights, MI Leased  128,000  Manufacturing
 Madison Heights, MI Leased  128,000  Manufacturing Newport, AR Leased  200,000  Manufacturing
 Newport, AR Leased  200,000  Manufacturing Cleveland, OH Leased  150,000  Manufacturing
 Cleveland, OH Leased  150,000  Manufacturing
 Shanghai, China Leased  20,500  Manufacturing
 
 
(1)Supply Technologies has 4349 other facilities, none of which is deemed to be a principal facility.
 
(2)Includes 20,150 square feet used by Holdings’ and Park-Ohio’s corporate office.
 
(3)Includes three leased properties with square footage of 91,800, 64,000 and 45,700, respectively, and two owned properties with 82,300 and 20,200 square feet, respectively.
 
(4)Manufactured Products has 16 other owned and leased facilities, none of which is deemed to be a principal facility.
 
Item 3. Legal Proceedings
 
We are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the


14


opinion of management, liabilities, if any, arising from currently pending or threatened litigation are not expected to have a material adverse effect on our financial condition, liquidity or results of operations.
 
At December 31, 2007,2010, we were a co-defendant in approximately 385260 cases asserting claims on behalf of approximately 8,5001,230 plaintiffs alleging personal injury as a result of exposure to asbestos. These


13


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 fourfive asbestos cases, involving 2125 plaintiffs, that plead specified damages. In each of the fourfive 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 anotherthe fourth case, the plaintiff has alleged against each named defendant, compensatory and punitive damages, each in the amount of $10.0 million for seven separate causes of action. In the fifth case, the plaintiff has alleged compensatory damages in the amount of $20.0 million for three separate causes of action and $5.0 million for another cause of action and punitive damages in the amount of $20.0 million.
 
Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases and believe we will continue to be successful in being dismissed from such cases. However, it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation. Despite this uncertainty, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases , the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all, that any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff’s injury, if any.
 
Our cost of defending these lawsuits has not been material to date and, based upon available information, our management does not expect its future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial position.
 
Item 4. Submission of Matters to a Vote of Security Holders[Removed and Reserved]
 
Information required by this item has been omitted pursuant to General Instruction I of Form 10-K.


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Part II
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The registrant is a wholly-owned subsidiary of Park-Ohio Holdings Corp. and has no equity securities that trade.
 
Item 6. Selected Financial Data
 
Information required by this item has been omitted pursuant to General Instructiongeneral instruction I of Form 10-K.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Our consolidated financial statements include the accounts of Park-Ohio and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The historical financial information discussed below is not directly comparable on ayear-to-year basis, primarily due to reversalsa goodwill impairment charge in 2008, recording of a tax valuation allowance in 2006 and 2005,2008, restructuring and unusual charges in 20062010, 2009 and 2005,2008 and acquisitions during the three years ended December 31, 2007.in 2010 and 2008.
 
Executive Overview
 
We are an industrial Total Supply Managementtm and diversified manufacturing business, operating in three segments: Supply Technologies, Aluminum Products and Manufactured Products. In November 2007, our ILS business changed its name to Supply Technologies to better reflect its breadth of services and focus on driving efficiencies throughout the total supply management process. Our Supply Technologies business provides our customers with Total Supply Managementtm, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Managementtm includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products casts and machines aluminum engine, transmission, brake, suspension and other components such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment OEMs, primarily on a sole-source basis. Aluminum Products also provides value-added services such as design and engineering and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems, pipe threading systems, industrial oven systems, injection molded rubber components, and forged and machined products. Manufactured Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Manufactured Products are OEMs,sub-assemblers and end users in the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense industries. Sales, earnings and other relevant financial data for these three segments are provided in Note B to the consolidated financial statements.statements included elsewhere herein.
 
SalesThe domestic and pre-tax income continued to growinternational automotive markets were significantly impacted in 2007, as growth2008, which adversely affected our business units serving those markets. During the third quarter of 2008, the Company recorded asset impairment charges associated with the related volume declines and volatility in the Manufactured Products segment and new customersautomotive markets. The charges were composed of $.6 million of inventory impairment included in the Supply Technologies and Aluminum Products segments exceeded declines in Supply Technologies segment sales to the heavy-duty truck market caused by the introduction of newCost


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environmental standards atof Products Sold and $17.5 million for impairment of property and equipment and other long-term assets. See Note N to the beginningconsolidated financial statements included elsewhere herein.
During the fourth quarter of 2007. New customers2008, the Company recorded a non-cash goodwill impairment charge of $95.8 million and restructuring and asset impairment charges of $13.4 million associated with the decision to exit its relationship with its largest customer, Navistar, along with the general economic downturn. The charges were composed of $5.0 million of inventory impairment included in the Supply Technologies segment came both from the October, 2006 acquisitionCost of NABSProducts Sold and from organic sales, while new sales$8.4 million for impairment of property and equipment, loss on disposal of a foreign subsidiary and severance costs. Impairment charges were offset by a gain of $.6 million recorded in the Aluminum Products segment primarily reflect new contracts. Sales increased 1%, while operating income increased 4% and income before income taxes increased 8%. Net income declined in 2007 because 2006 earningsrelating to the sale of certain facilities that were increased by the reversal of the remaining $5.0 million of the Company’s tax valuation allowance. At the end of fourth quarter 2007, the Company adjusted downward the amounts initially recorded for revenue, gross profit and net income by approximately $18.0 million, $4.0 million and $2.6 million, respectively. These adjustments were made to exclude certain costs from suppliers and subcontractors from the percentage of completion calculation that is used to account for long-term industrial equipment contracts. We performed an evaluation to determine if these adjustments recorded inpreviously written off.
During the fourth quarter of 20072009, the Company recorded $7.0 million of asset impairment charges associated with general weakness in the economy including the railroad industry. The charges were material to any individual prior period, taking into account the requirementscomposed of SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB No. 108), which was adopted in 2006. Based on this analysis, we concluded the errors were not material to any individual prior periods and, therefore as provided by SAB No. 108, the correction of the error does not require previously filed reports to be amended.
Net sales increased 13% in 2006 compared to 2005, while operating income increased 11%. Net income declined in 2006 because the reversal of the Company’s tax valuation allowance of $5.0 million in 2006 was smaller than the reversal of the valuation allowance of $7.3 million in 2005, and because of higher interest expense in 2006. The tax valuation allowance was substantially eliminated by December 31, 2006, so no further significant reversals occurred to affect income in 2007 or are anticipated in later years. During 2005, net sales increased 15%, and operating income increased 10% as compared to 2004. 2005 operating income was reduced by $1.8 million of restructuring charges ($.8 million reflectedinventory impairment included in Cost of products soldProducts Sold and $1.0$5.2 million in Restructuringfor impairment of property and impairment charges)equipment
In 2009, the Company recorded a gain of $12.5 million on the purchase of $26.2 million principal amount of Park-Ohio Industries, Inc. 8.375% senior subordinated notes due 2014 (the “8.375% Notes”).
 
During the years 2004 through 2007, we reinforced our long-term availability and attractive pricingthird quarter of funds by refinancing both of our major sources of borrowed funds: senior subordinated notes and our revolving credit facility. In November 2004, we sold $210.0 million of 8.375% senior subordinated notes due 2014. We have amended our revolving credit facility, most recently in June 2007, to extend its maturity to December 2010, increase the credit limit to $270.0 million subject to an asset-based formula and provide lower interest rate levels.
In October 2006, we acquired all of the capital stock of NABS for $21.2 million in cash. NABS is a premier international supply chain manager of production components, providing services to high technology companies in the computer, electronics, and consumer products industries. NABS had 14 international operations in China, India, Taiwan, Singapore, Ireland, Hungary, Scotland and Mexico plus five locations in the United States.
In January 2006, weSupply Technologies completed the acquisition of allcertain assets and assumed specific liabilities relating to the ACS business of the capital stock of Foundry Service GmbHLawson Products, Inc. for approximately $3.2$16.0 million in cash which resultedand a $2.2 million subordinated promissory note payable in additional goodwill of $2.3 million. The acquisition was funded with borrowings from foreign subsidiaries of the Company.
In December 2005, we acquired substantially all of the assets of Lectrotherm, whichequal quarterly installments over three years. ACS is primarily a provider of field service and spare parts for induction heating and melting systems, located in Canton, Ohio, for $5.1 million cash funded with borrowings under our revolving credit facility. This acquisition augments our existing, high-margin aftermarket induction business.
In July 2005, we acquired substantially all the assets of PPG, a provider of supply chain management servicessolutions for a broad range of production components for $7.0through its service centers throughout North America. The Company recorded a gain of $2.2 million cash funded with borrowings from our revolving credit facility, $.5 million in a short-term note payable andrepresenting the assumptionexcess of approximately $13.3 million of trade liabilities. This acquisition added significantly to the customer and supplier bases, and expanded our geographic presence of our Supply Technologies segment.


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Accounting Changes and Goodwill
On December 31, 2006, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”). FAS 158 required the Company to recognize the funded status ( i.e. , the difference between the Company’saggregate fair value of planpurchased net assets andover the projected benefit obligations) of its defined benefit pension and postretirement benefit plans (collectively, the “postretirement benefit plans”) in the December 31, 2006 Consolidated Balance Sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption represents the net unrecognized actuarial losses, unrecognized prior service costs and unrecognized transition obligation remaining from the initial adoption of FAS 87 and FAS 106, all of which were previously netted against the plans’ funded status in the Company’s Consolidated Balance Sheet in accordance with the provisions of FAS 87 and FAS 106. These amounts will be subsequently recognized as net periodic benefit cost in accordance with the Company’s historical accounting policy for amortizing these amounts. In addition, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit cost in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of FAS 158.
In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), we review goodwill annually for potential impairment. This review was performed as of October 1, 2007, 2006 and 2005, using forecasted discounted cash flows, and it was determined that no impairment is required. At December 31, 2007, our balance sheet reflected $101.0 million of goodwill. In 2007, discount rates used ranged from 11.0% to 14.0%, and long-term revenue growth rates ranging from 3.5% to 4.0% were used.
On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has a 50% or less likelihood of being sustained. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007.purchase price. See Note HC to the consolidated financial statements included elsewhere herein,herein.
On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which Rome agreed to transfer to the Company substantially all of its assets in exchange for approximately $7.5 million of notes receivable due from Rome held by the Company.
On December 31, 2010, the Company through its subsidiary, Ajax Tocco Magnethermic, acquired the assets and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”) for $9.9 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
On March 8, 2010 and subsequently on August 31, 2010, we amended our revolving credit facility to, among other things, extend its maturity to April 30, 2014 and reduce the loan commitment from $270.0 million to $210.0 million, which amount includes the borrowing under a term loan A that is secured by real estate and machinery and equipment, and an unsecured term loan B. See Note G to the consolidated financial statements included elsewhere herein.
During the third quarter of 2010, the Company recorded an asset impairment charge of $3.5 million related to the writedown of one of its investments.
Approximately 24% of the Company’s consolidated net sales are to the automotive markets. In 2009, the Company recorded a charge of $4.2 million to fully reserve for the impact on the Company’s financial statements and related disclosures.account receivable from Metaldyne resulting from its bankruptcy.


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Results of Operations
 
20072010 versus 20062009
 
Net Sales by Segment:
 
                
                     Year Ended
     
 Year-Ended
     Acquired/
  December 31,   Percent
 
 December 31,   Percent
 (Divested)
  2010 2009 Change Change 
 2007 2006 Change Change Sales  (Dollars in millions) 
Supply Technologies $531.4  $598.2  $(66.8)  (11)% $29.5  $402.1  $328.8  $73.3   22%
Aluminum Products  169.1   154.6   14.5   9%  0.0   143.7   111.4   32.3   29%
Manufactured Products  370.9   303.4   67.5   22%  0.0   267.7   260.8   6.9   3%
                
Consolidated Net Sales $1,071.4  $1,056.2  $15.2   1% $29.5  $813.5  $701.0  $112.5   16%
                
 
Consolidated net sales increased by 1% in 2007$112.5 million to $813.5 million compared to 2006,$701.0 million in 2009 as growththe Company experienced volume increases in the Manufactured Products segment and new customers in the Supply Technologies and Aluminum Products segments


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exceeded declines in Supply Technologies segment sales to the heavy-duty truck market caused by the introduction of new environmental standards at the beginning of 2007.each segment. Supply Technologies sales decreased 11%increased 22% primarily due to volume reductionsincreases in the heavy-duty truck industry, partiallyautomotive, semi-conductor, power sports, HVAC, agricultural and construction equipment industries. In addition, there were $16.9 million of sales resulting from the acquisition of the ACS business. These additions were offset by $29.5 million of additional sales from the October 2006 acquisition of NABS, the addition of new customers and increases in product range to existing customers. New customersdeclines in the Supply Technologies segment came from organic sales, while new sales in the Aluminum Products segment primarily reflect sales to new customers.lawn and garden and medical industries. Aluminum Products sales increased 9%29% as volumes increased to customers in the auto industry along with additional sales volumes from new contracts starting productionramp-up exceededcontracts. In addition, there were $7.0 million of sales resulting from the endacquisition of production of other parts and the general decline in auto industry sales volumes.Rome business. Manufactured Products sales increased 22%,3% primarily from increases in the induction equipment, pipe threadingcapital equipment and forging businesses, due largely to worldwide strengthrubber products business units partially offset by declining volume in the steel, oilforged and gas, aerospace and rail industries. Atmachined products business unit because of volume declines in the endrailroad industry. Approximately 24% of fourth quarter 2007, the Company adjusted downwardCompany’s consolidated net sales are to the amount initially recorded for revenue by approximately $18.0 millionautomotive markets. Net sales to reflect the exclusion of certain costs from suppliers and subcontractors from theautomotive markets as a percentage of completion calculation that is used to accountsales by segment were approximately 15%, 77% and 8% for long-term industrial equipment contracts.the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively for the year ended December 31, 2010.
 
Cost of Products Sold & Gross Profit:
 
                
                 Year Ended
     
 Year-Ended
      December 31,   Percent
 
 December 31,   Percent
  2010 2009 Change Change 
 2007 2006 Change Change  (Dollars in millions) 
Consolidated cost of products sold $912.3  $908.1  $4.2   0% $679.4  $597.2  $82.2   14%
              
Consolidated gross profit $159.1  $148.1  $11.0   7% $134.1  $103.8  $30.3   29%
              
Gross margin  14.8%  14.0%          16.5%  14.8%        
 
Cost of products sold was relatively flatincreased $82.2 million in 20072010 to $679.4 million compared to 2006,$597.2 million in 2009, primarily due to increases in sales volume, while gross margin increased to 16.5% in 2010 from 14.8% from 14.0% in 2006. the same period of 2009.
Supply Technologies gross margin increased slightly, as the margin benefit from sales from the NABS acquisition and new customers outweighed the effect of reduced heavy-truck sales volume and higher restructuring charges in 2007. Supply Technologies 2006 and 2007 cost of products sold included $.8 million and $2.2 million, respectively of inventory related restructuring charges associated with the closure of a manufacturing plant. Aluminum Products gross margin decreased primarily due to the costs associated with starting up new contracts and the slowramp-up of new contract volume. Grossincreased resulting from volume increases while gross margin in the Manufactured Products segment increased primarily due to increased sales volume.remained essentially unchanged from the prior year.
 
Selling, General & Administrative (“SG&A”) Expenses:
 
              
                 Year Ended
    
 Year-Ended
      December 31,   Percent
 December 31,   Percent
  2010 2009 Change Change
 2007 2006 Change Change  (Dollars in millions)
Consolidated SG&A expenses $96.5  $88.9  $7.6   9% $89.8  $84.0  $5.8   7%
SG&A percent  9.0%  8.4%          11.0%  12.0%      


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Consolidated SG&A expenses increased $5.8 million to $89.8 million in 2010 compared to $84.0 million in 2009 representing a 100 basis point decrease in SG&A expenses as a percent of sales. SG&A expenses increased on a dollar basis in 2010 compared to 2009 primarily due to an increase in salaries and benefits levels resulting from restoration to 2008 salary levels along with a bonus accrual offset by a $4.2 million charge in 2009 for a reserve for an account receivable from a customer in bankruptcy and an increase in pension income.
Interest Expense:
               
  Year Ended
    
  December 31,   Percent
  2010 2009 Change Change
  (Dollars in millions)
 
Interest expense $23.9  $23.9  $0  0%
Average outstanding borrowings $322.0  $363.9  $(41.9) (11.5)%
Average borrowing rate  7.42%  6.57%  85  basis points
Interest expense was unchanged in 2010 compared to 2009, primarily due to a higher average borrowing rate during 2010, offset by lower average borrowings. The decrease in average borrowings in 2010 resulted primarily from earnings and the reduction in working capital requirements. The higher average borrowing rate in 2010 was due primarily to increased interest rates under our revolving credit facility compared to 2009.
Impairment Charges:
During 2010, the Company reviewed one of its investments and determined there was diminution in value and therefore recorded an asset impairment charge of $3.5 million.
During 2009, the Company recorded asset impairment charges totaling $5.2 million associated with general weakness in the economy, including the railroad industry.
During 2008, the Company recorded goodwill impairment charges of $95.8 million. The Company also recorded asset impairment charges of $25.3 million associated with the volume declines and volatility in the automotive markets, loss from the disposal of a foreign subsidiary and restructuring expenses associated with the Company’s exit from its relationship with its largest customer, Navistar, along with realignment of its distribution network.
Gain on Purchase of 8.375% Senior Subordinated Notes:
In 2009, the Company recorded a gain of $12.5 million on the purchase of $26.2 million aggregate principal amount of the 8.375% Notes due in 2014.
Income Taxes:
         
  Year Ended
 
  December 31, 
  2010  2009 
  (Dollars in millions) 
 
Income before income taxes $19.1  $3.2 
         
Income tax expense (benefit) $2.0  $(.8)
         
Effective income tax rate  10.5%  (25)%
The Company released $5.8 million of the valuation allowance attributable to continuing operations in 2010 compared to $1.8 million in 2009. In the fourth quarter of 2008, the Company recorded a $33.6 million valuation allowance against its net U.S. and certain foreign deferred tax assets. As of December 31, 2010


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and 2009, the Company determined that it was not more likely than not that its net U.S. and certain foreign deferred tax assets would be realized.
The provision for income taxes was $2.0 million in 2010 compared to $(.8) million in 2009. The effective income tax rate was 10.5% in 2010, compared to (25)% in 2009.
The Company’s net operating loss carryforward precluded the payment of most federal income taxes in both 2010 and 2009, and should similarly preclude such payments in 2011. At December 31, 2010, the Company had net operating loss carryforwards for federal income tax purposes of approximately $24.7 million, which will expire between 2023 and 2029.
2009 versus 2008
Net Sales by Segment:
                 
  Year Ended
       
  December 31,     Percent
 
  2009  2008  Change  Change 
  (Dollars in millions) 
 
Supply Technologies $328.8  $521.3  $(192.5)  (37)%
Aluminum Products  111.4   156.3   (44.9)  (29)%
Manufactured Products  260.8   391.2   (130.4)  (33)%
                 
Consolidated Net Sales $701.0  $1,068.8  $(367.8)  (34)%
                 
Consolidated net sales declined $367.8 million to $701.0 million compared to $1,068.8 million in 2008 as the Company experienced volume declines in each segment resulting from the challenging global economic downturn. Supply Technologies sales decreased 37% primarily due to volume reductions in the heavy-duty truck industry, of which $83.0 million resulted from the Company’s decision to exit its relationship with its largest customer in the fourth quarter of 2008. The remaining sales reductions were due to the overall declining demand from customers in most end-markets partially offset by the addition of new customers. Aluminum Products sales decreased 29% as the general decline in auto industry sales volumes exceeded additional sales from new contracts starting productionramp-up. Manufactured Products sales decreased 33% primarily from the declining business environment in each of its business reporting units. Approximately 20% of the Company’s consolidated net sales are to the automotive markets. Net sales to the automotive markets as a percentage of sales by segment were approximately 8%, 83% and 5% for the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively for the year ended December 31, 2009.


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Cost of Products Sold & Gross Profit:
                 
  Year Ended
       
  December 31,     Percent
 
  2009  2008  Change  Change 
  (Dollars in millions) 
 
Consolidated cost of products sold $597.2  $919.3  $(322.1)  (35)%
                 
Consolidated gross profit $103.8  $149.5  $(45.7)  (31)%
                 
Gross margin  14.8%  14.0%        
Cost of products sold decreased $322.1 million in 2009 to $597.2 million compared to $919.3 million in 2008, primarily due to reduction in sales volume, while gross margin increased to 14.8% in 2009 from 14.0% in the same period of 2008.
Supply Technologies gross margin remained unchanged from the prior year, as increased product profitability improvements were offset by volume declines. Aluminum Products gross margin increased primarily due to cost cutting measures, a plant closure and improved efficiencies at another plant location. Gross margin in the Manufactured Products segment remained essentially unchanged from the prior year.
S,G & A Expenses:
                 
  Year Ended
    
  December 31,   Percent
  2009 2008 Change Change
  (Dollars in millions)
 
Consolidated SG&A expenses $84.0  $102.1  $(18.1)  (18)%
SG&A percent  12.0%  9.6%        
 
Consolidated SG&A expenses increased $7.6decreased $18.1 million to $84.0 million in 20072009 compared to 2006,$102.1 million in 2008 representing a .6%240 basis point increase in SG&A expenses as a percent of sales. SG&A increased approximately $5.3 million dueexpenses decreased on a dollar basis in 2009 compared to the acquisition of NABS. SG&A increased further2008 primarily due to increased expenses relatedemployee workforce reductions, salary cuts, suspension of the Company’s voluntary contribution to stock optionsits 401(k) defined contribution plan, less business travel and restricted stock, the new office building, legal and professional fees and franchise taxes, partiallya reduction in volume of business offset by a $1.1reduction in pension income. SG&A expenses benefited in 2009 from a reduction of $3.6 million increaseresulting from a second quarter change in net pension credits, reflecting higher return on pension plan assets.our vacation benefit, which is now earned throughout the calendar year rather than earned in full at the beginning of the year, but was offset by a $4.2 million charge to fully reserve for an account receivable from a customer in bankruptcy.
 
Interest Expense:
 
                
                 Year Ended
     
 Year-Ended
      December 31,   Percent
 
 December 31,   Percent
  2009 2008 Change Change 
 2007 2006 Change Change  (Dollars in millions) 
Interest expense $31.6  $31.3  $0.3   1% $23.9  $27.9  $(4.0)  (14)%
Average outstanding borrowings $383.6  $376.5  $7.1   2% $374.1  $385.8  $(11.7)  (3)%
Average borrowing rate  8.23%  8.31%  8   basis points   6.39%  7.23%  (84)  basis points 


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Interest expense increased $.3decreased $4.0 million in 20072009 compared to 2006,2008, primarily due to higher average outstanding borrowings, partially offset bya lower average interest ratesborrowing rate during 2007.2009, lower average borrowings and the effect of the purchase of the 8.375% Notes. The increasedecrease in average borrowings in 20072009 resulted primarily from higherthe reduction in working capital and the purchase of NABS in October 2006.requirements. The lower average borrowing rate in 20072009 was due primarily to decreased interest rates under our revolving credit facility compared to 2006, which increased as2008.


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Impairment Charges:
During 2009, the Company recorded asset impairment charges totaling $5.2 million associated with general weakness in the economy, including the railroad industry.
During 2008, the Company recorded goodwill impairment charges of $95.8 million. The Company also recorded asset impairment charges of $25.3 million associated with the volume declines and volatility in the automotive markets, loss from the disposal of a resultforeign subsidiary and restructuring expenses associated with the Company’s exit from its relationship with its largest customer, Navistar, along with realignment of actions byits distribution network.
Gain on Purchase of 8.375% Senior Subordinated Notes:
In 2009, the Federal Reserve.Company recorded a gain of $12.5 million on the purchase of $26.2 million aggregate principal amount of the 8.375% Notes due in 2014.
 
Income Taxes:
 
         
  Year-Ended
 
  December 31, 
  2007  2006 
 
Income before income taxes $31.0  $28.8 
         
Income taxes $10.0  $3.2 
Reversal of tax valuation allowance included in income  0.0   (5.0)
         
Income taxes, excluding reversal of tax valuation allowance — (Non-GAAP) $10.0  $8.2 
         
Effective income tax rate  32%  11%
Effective income tax rate excluding reversal of tax valuation allowance — (Non-GAAP)  32%  28%
         
  Year Ended
 
  December 31, 
  2009  2008 
  (Dollars in millions) 
 
Income (loss) before income taxes $3.2  $(101.7)
         
Income tax (benefit) expense $(.8) $21.0 
         
Effective income tax rate  (25)%  (21)%
 
In the fourth quarter of 2006,2009, the Company reversed $5.0released $1.8 million of the valuation allowance attributable to continuing operations. In the fourth quarter of 2008, the Company recorded a $33.6 million valuation allowance against its net U.S. and certain foreign deferred tax asset valuation allowance, increasing net income for that yearassets. As of December 31, 2009 and substantially eliminating this reserve. Based on strong recent and projected earnings,2008, the Company determined that it was not more likely than not that its net U.S. and certain foreign deferred tax assetassets would be realized.
 
The provision for income taxes was $10.0$(.8) million in 20072009 compared to $3.2$21.0 million in 2006, which was reduced by the $5.0 million reversal of our deferred tax asset valuation allowance.2008. The effective income tax rate was 32%(25)% in 2007,2009, compared to 11%(21)% in 2006. Excluding the reversal of the tax valuation allowance in 2006, the Company provided $8.2 million of income taxes, a 28% effective income tax rate. We are presenting taxes and tax rates without the tax benefit of the tax valuation allowance reversal to facilitate comparison between the periods.2008.
 
The Company’s net operating loss carryforward precluded the payment of most cash federal income taxes in both 20072010, 2009 and 2006, and should similarly preclude such payments in 2008 and substantially reduce them in 2009.2008. At December 31, 2007,2009, the Company had net operating loss carryforwards for federal income tax purposes of approximately $41.6$38.5 million, which will expire between 20212022 and 2027.2029.
 
Results of OperationsOff-Balance Sheet Arrangements
 
2006 versus 2005
Net Sales by Segment:
                     
  Year Ended
        Acquired/
 
  December 31,     Percent
  (Divested)
 
  2006  2005  Change  Change  Sales 
 
Supply Technologies $598.2  $532.6  $65.6   12% $38.7 
Aluminum products  154.6   159.1   (4.5)  (3)%  0.0 
Manufactured products  303.4   241.2   62.2   26%  22.9 
                     
Consolidated Net Sales $1,056.2  $932.9  $123.3   13% $61.6 
                     
Net sales increased by 13% in 2006 comparedWe 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, primarily the euro, purely for the purpose of hedging exposure to 2005. Supply Technologies sales increased primarily due to the October 2006 acquisition of NABS, a full year of sales of PPG in 2006 (acquired in July 2005), general economic growth, particularly as a result of significant growthchanges in the heavy-duty truck industry,value of accounts receivable in those currencies against the addition of new customers and increases in product range to existing customers. Aluminum Products sales decreased in 2006 primarily due to contraction of automobile and light truck production in North America. Manufactured Products sales increased in 2006 primarily in the induction equipment, pipeU.S. dollar. At December 31, 2010, none were outstanding. We currently have no other derivative instruments.


1922


threading equipment and forging businesses. Of this increase, $22.9 million was due to the acquisitions of Lectrotherm and Foundry Service by the induction business in December 2005 and January 2006, respectively.
Cost of Products Sold & Gross Profit:
                 
  Year Ended
       
  December 31,     Percent
 
  2006  2005  Change  Change 
 
Consolidated cost of products sold $908.1  $796.3  $111.8   14%
                 
Consolidated gross profit $148.1  $136.6  $11.5   8%
                 
Gross Margin  14.0%  14.6%        
Cost of products sold increased 14% in 2006 compared to 2005, while gross margin decreased to 14.0% from 14.6% in 2005. Supply Technologies gross margin decreased primarily due to PPG restructuring costs. Aluminum Products gross margin decreased due to volume reductions, product mix and pricing changes, plus the cost of preparations for new contracts due to start production in early 2007. Gross margin in the Manufactured Products segment decreased slightly, primarily as a result of operational and pricing issues in the Company’s rubber products business.
SG&A Expenses:
                 
  Year Ended
       
  December 31,     Percent
 
  2006  2005  Change  Change 
 
Consolidated SG&A expenses $88.9  $81.4  $7.5   9%
SG&A percent  8.4%  8.7%        
Consolidated SG&A expenses increased by 9%, or $7.5 million, in 2006 compared to 2005, representing a .3% reduction in SG&A expenses as a percent of sales. Approximately $5.7 million of the SG&A increase was due to acquisitions, primarily NABS, Foundry Service, Lectrotherm and PPG. SG&A expenses increased in 2006 compared to 2005 by a $.8 million decrease in net pension credits reflecting reduced returns on pension plan assets. These increases in SG&A expenses from acquisitions and reduced pension credits were partially offset by cost reductions.
Interest Expense:
                 
  Year Ended
       
  December 31,     Percent
 
  2006  2005  Change  Change 
 
Interest expense $31.3  $27.1  $4.2   15%
Average outstanding borrowings $376.5  $357.1  $19.4   5%
Average borrowing rate  8.31%  7.59%  72   basis points 
Interest expense increased in 2006 compared to 2005, due to both higher average outstanding borrowings and higher average interest rates during 2006. The increase in average borrowings in 2006 resulted primarily from growth-driven higher working capital requirements and the purchase of NABS, Foundry Service, Lectrotherm and PPG in October and January 2006, and December and July 2005, respectively. The higher average borrowing rate in 2006 was due primarily to increased interest rates under our revolving credit facility compared to 2005, which increased as a result of actions by the Federal Reserve.


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Income Taxes:
         
  Year Ended December 31, 
  2006  2005 
 
Income before income taxes $28.8  $27.3 
Income taxes (benefit) $3.2  $(4.3)
Reversal of tax valuation allowance included in income  (5.0)  (7.3)
         
Income taxes, excluding reversal of tax valuation allowance — (Non-GAAP) $8.2  $3.0 
         
Effective income tax rate (benefit)  11%  (16)%
Effective income tax rate excluding reversal of tax valuation allowance — (Non-GAAP)  28%  11%
In the fourth quarters of 2006 and 2005, the Company reversed $5.0 million and $7.3 million, respectively, of its deferred tax asset valuation allowance, substantially eliminating this reserve. Based on strong recent and projected earnings, the Company has determined that it is more likely than not that its deferred tax asset will be realized. The tax valuation allowance reversals resulted in increases to net income for both of these quarters. In 2006, the Company began recording a quarterly provision for federal income taxes, resulting in a total effective income tax rate of approximately 28%. The Company’s net operating loss carryforward precluded the payment of cash federal income taxes in 2006.
The provision for income taxes was $3.2 million in 2006 while income tax benefits were $4.3 million in 2005, including the reversals of our deferred tax asset valuation allowance. The effective income tax rate was 11% in 2006 compared to an effective tax benefit rate of (16%) in 2005. Excluding reversals of the tax valuation allowance, in 2006, the Company provided $8.2 million of income taxes, a 28% effective income tax rate, compared to providing $3.0 million of income taxes in 2005, an 11% effective income tax rate. In 2006, these taxes consisted of federal, state and foreign income taxes, while federal income tax was not provided in 2005. At December 31, 2006, our subsidiaries had $34.9 million of net operating loss carryforwards for federal tax purposes. We are presenting taxes and tax rates without the tax benefit of the tax valuation allowance reversal to facilitate comparison between the periods.
Critical Accounting Policies and Estimates
 
Preparation of financial statements in conformity with GAAPU.S. generally accepted accounting principles requires management to make certain estimates and assumptions which affect amounts reported in our consolidated financial statements. Management has made their best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe that there is great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
 
Revenue Recognition:  The Company recognizes revenue, other than from long-term contracts, when title is transferred to the customer, typically upon shipment. Revenue from long-term contracts (approximately 10%11% of consolidated revenue) is accounted for under the percentage of completion method, and recognized on the basis of the percentage each contract’s cost to date bears to the total estimated contract cost. Revenue earned on contracts in process in excess of billings is classified in other current assets in the accompanying consolidated balance sheet. The Company’s revenue recognition policies are in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”
 
Allowance for Doubtful Accounts:  Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. Allowances are developed by the individual operating units based on historical losses, adjusting for economic conditions. Our policy is to identify and reserve for specific collectibility concerns based on customers’ financial condition and payment


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history. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Writeoffs of accounts receivable have historically been low.
 
Allowance for Obsolete and Slow Moving Inventory:  Inventories are stated at the lower of cost or market value and have been reduced by an allowance for obsolete and slow-moving inventories. The estimated allowance is based on management’s review of inventories on hand with minimal sales activity, which is compared to estimated future usage and sales. Inventories identified by management as slow-moving or obsolete are reserved for based on estimated selling prices less disposal costs. Though we consider these allowances adequate and proper, changes in economic conditions in specific markets in which we operate could have a material effect on reserve allowances required.
 
Impairment of Long-Lived Assets:  Long-livedIn accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, management performs impairment tests of long-lived assets, areincluding property and equipment, whenever an event occurs or circumstances change that indicate that the carrying value may not be recoverable or the useful life of the asset has changed. We reviewed by managementour long-lived assets for indicators of impairment whenever eventssuch as a decision to idle certain facilities and consolidate certain operations, a current-period operating or changes in circumstances indicatecash flow loss or a forecast that demonstrates continuing losses associated with the use of a long-lived asset and the expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. When we identified impairment indicators, we determined whether the carrying amount may not be recoverable. During 2005of our long-lived assets was recoverable by comparing the carrying value to the sum of the undiscounted cash flows expected to result from the use and 2003,eventual disposition of the assets. We considered whether impairments existed at the lowest level of independent identifiable cash flows within a reporting unit (for example, plant location, program level or asset level). If the carrying value of the assets exceeded the expected cash flows, the Company decidedestimated the fair value of these assets by using appraisals or recent selling experience in selling similar assets or for certain assets with reasonably predicable cash flows by performing discounted cash flow analysis using the same discount rate used as the weighted average cost of capital in the respective goodwill impairment analysis to exit certain under-performing product linesestimate fair value when market information wasn’t available to determine whether an impairment existed. Certain assets were abandoned and written down to closescrap or consolidate certain operating facilities and, accordingly,appraised value. During 2008, the Company recorded restructuring andasset impairment charges as discussed aboveof approximately $23.0 million, of which approximately $13.8 million was determined based on appraisals or


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scrap value and approximately $9.2 million was based on discounted cash flow analysis. The impact of a one percentage point change in the discount rate used in performing the discounted cash flow analysis would have been less than $1.0 million with respect to the asset impairment charges. In 2009, the Company recorded $7.0 million of asset impairment charges of which $5.2 million was based on appraisals and $1.8 million was based on other valuation methods. See Note M to the consolidated financial statements included elsewhere herein.
 
Restructuring:  We recognize costs in accordance with Emerging Issues Task Force IssueNo. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)”(“EITF 94-3”), and SEC Staff Accounting Bulletin No. 100, “Restructuring and Impairment Charges,” for charges prior to 2003.ASC 420, “Exit or Disposal Cost Obligations”. Detailed contemporaneous documentation is maintained and updated on a quarterly basis to ensure that accruals are properly supported. If management determines that there is a change in the estimate, the accruals are adjusted to reflect the changes.
 
The Company adopted Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”), which nullifiedEITF 94-3 and requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at the fair value only when the liability is incurred. FAS 146 has no effect on charges recorded for exit activities begun prior to 2002.
Goodwill:  We adopted FAS 142As required by ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”), management performs impairment testing of goodwill at least annually as of JanuaryOctober 1 2002. Under FAS 142, we are required to review goodwill for impairment annuallyof each year or more frequently if impairment indicators arise.
In accordance with ASC 350, management tests goodwill for impairment at the reporting unit level. A reporting unit is a reportable operating segment pursuant to ASC 280 “Segment Reporting”, or one level below the reportable operating segment (component level) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of a reportable operating segment having similar economic characteristics. Prior to our 2008 impairment analysis, we had four reporting units with recorded goodwill including Supply Technologies (included in the Supply Technologies Segment) with $64.6 million of goodwill, Engineered Specialty Products (included in the Supply Technology Segment) with $14.7 million of goodwill, Aluminum Products with $16.5 million of goodwill and Capital Equipment (included in the Manufactured Products segment) with $4.1 million of goodwill. At the time of goodwill impairment testing, management determined fair value of the reporting units through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for each reporting unit. If the calculated fair value is less than the carrying value, impairment of the reporting unit may exist. The use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value. The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the weighted average cost of capital (“WACC”) methodology. The WACC methodology considers market and industry data as well as company-specific risk factors for each reporting unity in determining the appropriate discount rates to be used. The discount rate utilized for each reporting unit, which ranged from 12% to 18%, is indicative of the return an investor would expect to receive for investing in such a business. Operational management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. The projections developed for the 2008 impairment test reflected managements’ view considering the significant market downturn during the fourth quarter of 2008. As an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow model, the aggregate fair value of all reporting units is reconciled to the market capitalization of the Company, which had a significant decline in the fourth quarter of 2008. We have completed the annual impairment testtests as of October 1, 2007, 2006, 20052008 and 2004updated these tests, as necessary, as of December 31, 2008. We concluded that all of the goodwill in three of the reporting units for a total of $95.8 million was impaired and have determinedwritten off in the fourth quarter of 2008. At December 31, 2008 the Company had remaining goodwill of $4.1 million in the Capital Equipment reporting unit. We completed the annual impairment tests as of October 1, 2009 and 2010 and concluded that no goodwill impairment existed asexisted. On September 30, 2010, the Company completed the acquisition of those dates.Rome and recorded goodwill of $4.6 million in the Aluminum Products reporting unit. On December 31, 2010, the Company completed the acquisition of Pillar and recorded additional goodwill of $.6 million in the Capital Equipment reporting unit.


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Deferred Income Tax Assets and Liabilities:Taxes:  We accountIn accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates. In determining these amounts, management determined the probability of realizingSpecifically, we measure gross deferred tax assets taking into consideration factors including historicalfor deductible temporary differences and carryforwards, such as operating results, expectations of future earningslosses and taxable incometax credits, using the applicable enacted tax rates and apply the extended period of time over which the postretirement benefits will be paid and accordingly records a tax valuation allowance if, based on the weight of available evidence it is more likely than not measurement criterion.
ASC 740 provides that some portionfuture realization of the tax benefit of an existing deductible temporary difference or allcarryforward ultimately depends on the existence of oursufficient taxable income of the appropriate character within the carryback, carryforward period available under the tax law. The Company analyzed the four possible sources of taxable income as set forth in ASC 740 and concluded that the only relevant sources of taxable income is the reversal of its existing taxable temporary differences. The Company reviewed the projected timing of the reversal of its taxable temporary differences and determined that such reversals will offset the Company’s deferred tax assets will not be realized as required by FAS 109.prior to their expiration. Accordingly, a valuation reserve was established against the Company’s domestic deferred tax assets net of its deferred tax liabilities (taxable temporary differences). See Note H to the consolidated financial statements included elsewhere herein.
 
Pension and Other Postretirement Benefit Plans:  We and our subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans and postretirement benefit plans covering substantially all employees. The measurement of liabilities related to these plans is based on management’s assumptions related to future events, including interest rates, return on pension plan assets, rate of compensation increases, and health care cost trends. Pension plan asset performance in the future will directly impact our net income. We have evaluated our pension and other postretirement benefit assumptions, considering current trends in interest rates and market conditions and believe our assumptions are appropriate.
 
Accounting Changes:  In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting


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Accounting Changes in Interim Financial Statements.” The statement changes the requirements for the accounting and reporting of a change in accounting principle and is applicable to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement if that pronouncement does not include specific transition provisions. The statement requires retrospective application to prior periods’ financial statements of changes in accounting principle unless it is impractical to determine the period specific effects or the cumulative effect of the change. The correction of an error by the restatement of previously issued financial statements is also addressed by the statement. The Company adopted this statement effective January 1, 2006 as prescribed and its adoption did not have any impact on the Company’s results of operations or financial condition.
Recent Accounting Pronouncements
 
Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Update (“ASU”)No. 2010-06 “Improving Disclosure about Fair Value Measurements”, requires enhanced disclosures about recurring and nonrecurring fair-value measurements including significant transfers in and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances and settlements on a gross basis of Level 3 fair-value measurements. ASUNo. 2010-06 was adopted January 1, 2010, except for the requirement to separately disclose purchases, sales, issuances and settlements of recurring Level 3 fair value measurements, which is effective January 1, 2011.
In September 2006,October 2009, the FASB issued SFAS ASUNo. 157, “Fair Value Measurements,2009-13, “Multiple-Deliverable Revenue Arrangements,” which defines fair value in GAAPamends ASC Topic 605, “Revenue Recognition.” ASUNo. 2009-13 amends the ASC to eliminate the residual method of allocation for multiple-deliverable revenue arrangements, and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. Additionally, ASUNo. 2009-13expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements and is effective for the Company in 2008.disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. The Company is currently evaluating the potential impact, of adopting this statement on the Company’s financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits an entity to elect fair value as the initial and subsequent measurement attribute for many financial assets and liabilities. Entities electing the fair value option would be required to recognize changes in fair value in earnings. Entities electing the fair value option would also be required to distinguish, on the faceif any, of the statementadoption of financial position, the fair value of assets and liabilities forthis guidance on its Consolidated Financial Statements, which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. FAS 159 is effective for the Company in 2008. The adjustment to reflect the difference between the fair value and the carrying amount would be accounted for as a cumulative-effect adjustment to retained earnings as of the date of initial adoption. The Company is currently evaluating the impact of adoption of FAS 159 on the Company’s financial position and results of operations.January 1, 2011.
 
In December 2007,June 2009, the FASB issued SFASguidance as codified inASC 810-10, “Consolidation of Variable Interest Entities” (previously Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)167, “Amendments to FASB Interpretation No. 46(R)”). FAS 141(R) provides revisedThis guidance on how acquirers recognizeis intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities (“VIEs”) and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interestsby requiring additional disclosures about a company’s involvement with variable interest entities. This guidance is


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generally effective for annual periods beginning after November 15, 2009 and goodwill acquired infor interim periods within that first annual reporting period. The adoption of this guidance did not have a business combination. FAS 141(R) also expands required disclosures surrounding the nature and financial effects of business combinations. FAS 141(R) is effective, on a prospective basis, for the Company in 2009. The Company is currently evaluating thematerial impact of adopting FAS 141(R) on the Company’s financial position and resultsstatements of operations.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. FAS 160 is effective, on a prospective basis, for the Company in 2009. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company is currently evaluating the impact of adopting FAS 160 on the Company’s financial position and results of operations.Company.
 
Environmental
 
We have been identified as a potentially responsible party at third-party sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state laws, which provide for strict and, under certain circumstances, joint and several liability. We are participating in the cost of certainclean-up efforts at several of these sites. However, our share of such


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costs has not been material and based on available information, our management does not expect our exposure at any of these locations to have a material adverse effect on itsour results of operations, liquidity or financial condition.
 
We have been named as one of many defendants in a number of asbestos-related personal injury lawsuits. Our cost of defending such lawsuits has not been material to date and, based upon available information, our management does not expect our future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial condition. We caution, however, that inherent in management’s estimates of our exposure are expected trends in claims severity, frequency and other factors that may materially vary as claims are filed and settled or otherwise resolved.
 
Seasonality; Variability of Operating Results
Our results of operations are typically stronger in the first six months than the last six months of each calendar year due to scheduled plant maintenance in the third quarter to coincide with customer plant shutdowns and due to holidays in the fourth quarter.
 
The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our business units. Such variability is particularly evident at the capital equipment businesses, included in the Manufactured Products segment, which typically ship a few large systems per year.
 
Forward-Looking Statements
 
This annual report onForm 10-K contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown 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; dependence on the automotive and heavy-duty truck industries, which are highly cyclical; demand for our products and services; raw material availability and pricing; component part availability and pricing; adverse changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate recent and future acquisitions into existing operations; changes in general domestic economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including the uncertainties related to the recent global financial crisis; adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities; our ability to meet various covenants, including financial covenants, contained in the agreements governing our revolvingindebtedness; disruptions, uncertainties or volatility in the credit facility and the indenture governing the 8.375% senior subordinated notes due 2014;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, including, without limitation asbestos 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


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be lower due to the effects of the current financial crisis; our ability to negotiate acceptable contracts with labor unions; our dependence on key management; our dependence on information systems; and the otherrisk factors we describe under the “Item 1A. Risk Factors”. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or


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otherwise. 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 7A. Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risk including changes in interest rates. We are subject to interest rate risk on our floating rate revolving credit facility, which consisted of borrowings of $145.4$124.5 million at December 31, 2007.2010. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $1.4$1.2 million for the year ended December 31, 2007.2010.
 
Our foreign subsidiaries generally conduct business in local currencies. During 2007,2010, we recorded a favorablean unfavorable foreign currency translation adjustment of $7.3$.7 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 in relation to the Canadian dollar. Our foreign operations are also subject to other customary risks of operating in a global environment, such as unstable political situations, the effect of local laws and taxes, tariff increases and regulations and requirements for export licenses, the potential imposition of trade or foreign exchange restrictions and transportation delays.
 
Our largest exposures to commodity prices relate to steel and natural gas prices, which have fluctuated widely in recent years. We do not have any commodity swap agreements, forward purchase or hedge contracts for steel but have entered into forward purchase contracts for a portion of our anticipated natural gas usage through April 2008.in 2011.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholder
of Park-Ohio Industries, Inc.
 
We have audited the accompanying consolidated balance sheets of Park-Ohio Industries, Inc. and subsidiaries as of December 31, 20072010 and 2006,2009, and the related consolidated statements of income,operations, shareholder’s equity and cash flows for each of the three years in the period ended December 31, 2007.2010. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park-Ohio Industries, Inc. and subsidiaries at December 31, 20072010 and 20062009 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 20072010 in conformity with U.S. generally accepted accounting principles.
As discussed Also, in Note Jour opinion, the related financial statement schedule, when considered in relation to the consolidatedbasic financial statements taken as a whole, presents fairly in all material respects the Company adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans”, effective December 31, 2006. As discussed in Note H to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Incomes Taxes”, effective January 1, 2007.information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Park-Ohio Industries, Inc. and subsidiaries internal control over financial reporting as of December 31, 2007,2010, based on criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 20088, 2011 expressed an adverseunqualified opinion thereon.
 
/s/  Ernst & Young LLP
 
Cleveland, Ohio
March 13, 20088, 2011


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholder of Park-Ohio Industries, Inc.
 
We have audited Park-Ohio Industries, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2007,2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Park-Ohio Industries, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment.
• Management has identified a material weakness in controls related to the Company’s revenue recognition process.
The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2007 consolidated financial statements, and this report does not affect our report dated March 13, 2008, on those financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the internal control criteria, Park-Ohio Industries, Inc. has notand subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 20072010, based on the COSO criteria.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Park-Ohio Industries, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2010 of Park-Ohio Industries, Inc. and subsidiaries and our report dated March 8, 2011 expressed an unqualified opinion thereon.
/s/  Ernst & Young LLP
 
Cleveland, Ohio
March 13, 20088, 2011


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Park-Ohio Industries, Inc. and Subsidiaries
 
 
         
  December 31, 
  2007  2006 
  (Dollars in thousands) 
 
ASSETS
Current Assets        
Cash and cash equivalents $13,077  $20,872 
Accounts receivable, less allowances for doubtful accounts of $3,724 in 2007 and $4,305 in 2006  172,357   181,893 
Inventories  215,409   223,936 
Deferred tax assets  21,897   34,142 
Unbilled contract revenue  24,817   16,886 
Other current assets  19,757   12,829 
         
Total Current Assets  467,314   490,558 
Property, plant and equipment:        
Land and land improvements  3,177   3,188 
Buildings  39,977   36,197 
Machinery and equipment  220,334   205,945 
         
   263,488   245,330 
Less accumulated depreciation  159,896   146,352 
         
   103,592   98,978 
Other Assets:        
Goodwill  100,997   98,180 
Net assets held for sale  3,330   4,576 
Other  94,185   91,377 
         
  $769,418  $783,669 
         
 
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities        
Trade accounts payable $121,870  $132,859 
Accrued expenses  66,923   77,834 
Current portion of long-term debt  2,362   3,310 
Current portion of other postretirement benefits  2,041   2,563 
         
Total Current Liabilities  193,196   216,566 
Long-Term Liabilities, less current portion
8.375% senior subordinated notes due 2014
  210,000   210,000 
Revolving credit  145,400   156,700 
Other long-term debt  2,287   4,790 
Deferred tax liability  22,722   32,089 
Other postretirement benefits and other long-term liabilities  24,017   24,434 
         
   404,426   428,013 
Shareholder’s Equity        
Common stock, par value $1 per share  -0-   -0- 
Additional paid-in capital  64,844   64,844 
Retained earnings  88,868   68,422 
Accumulated other comprehensive loss  18,084   5,824 
         
   171,796   139,090 
         
  $769,418  $783,669 
         
See notes to consolidated financial statements.


29


Park-Ohio Industries, Inc. and Subsidiaries
Consolidated Statements of Income
             
  Year Ended December 31, 
  2007  2006  2005 
  (Dollars in thousands) 
 
Net sales $1,071,441  $1,056,246  $932,900 
Cost of products sold  912,337   908,095   796,283 
             
Gross profit  159,104   148,151   136,617 
Selling, general and administrative expenses  96,523   88,940   81,368 
Restructuring and impairment charges (credits)  -0-   (809)  943 
             
Operating income  62,581   60,020   54,306 
Interest expense  31,551   31,267   27,056 
             
Income before income taxes  31,030   28,753   27,250 
Income taxes (benefit)  9,976   3,218   (4,323)
             
Net income $21,054  $25,535  $31,573 
             
         
  December 31, 
  2010  2009 
  (Dollars in thousands) 
 
ASSETS
Current Assets        
Cash and cash equivalents $35,075  $21,976 
Accounts receivable, less allowances for doubtful accounts of $6,011 in 2010 and $8,388 in 2009  126,409   104,643 
Inventories  192,542   182,116 
Deferred tax assets  10,496   8,104 
Unbilled contract revenue  12,751   19,411 
Other current assets  12,797   21,476 
         
Total Current Assets  390,070   357,726 
Property, plant and equipment:        
Land and land improvements  3,628   3,673 
Buildings  50,505   44,721 
Machinery and equipment  201,920   194,111 
         
   256,053   242,505 
Less accumulated depreciation  184,284   167,546 
         
   71,769   74,959 
Other Assets:        
Goodwill  9,100   4,155 
Other  84,340   70,695 
         
  $555,279  $507,535 
         
 
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities        
Trade accounts payable $95,690  $75,078 
Payable to affiliates  11,879   7,693 
Accrued expenses  59,200   39,074 
Current portion of long-term debt  13,756   10,894 
Current portion of other postretirement benefits  2,178   2,197 
         
Total Current Liabilities  182,703   134,936 
Long-Term Liabilities, less current portion        
8.375% senior subordinated notes due 2014  183,835   183,835 
Revolving credit  113,300   134,600 
Other long-term debt  5,322   4,668 
Deferred tax liability  9,721   7,200 
Other postretirement benefits and other long-term liabilities  22,863   21,831 
         
   335,041   352,134 
Shareholder’s Equity        
Common stock, par value $1 per share  -0-   -0- 
Additional paid-in capital  47,850   55,362 
Retained (deficit)  (12,723)  (29,783)
Accumulated other comprehensive income (loss)  2,408   (5,114)
         
   37,535   20,465 
         
  $555,279  $507,535 
         
 
See notes to consolidated financial statements.


30


Park-Ohio Industries, Inc. and Subsidiaries
 
 
                     
           Accumulated
    
     Additional
     Other
    
  Common
  Paid-In
  Retained
  Comprehensive
    
  Stock  Capital  Earnings  Income (Loss)  Total 
  (Dollars in thousands) 
 
Balance at January 1, 2005 $-0-  $64,844  $11,314  $(1,676) $74,482 
Comprehensive income (loss):                    
Net income          31,573       31,573 
Foreign currency translation adjustment              94   94 
Minimum pension liability              (520)  (520)
                     
Comprehensive income                  31,147 
                     
Balance at December 31, 2005  -0-   64,844   42,887   (2,102)  105,629 
Comprehensive income (loss):                    
Net income          25,535       25,535 
Foreign currency translation adjustment              2,128   2,128 
Minimum pension liability              5,358   5,358 
                     
Comprehensive income                  33,021 
Adjustment recognized upon adoption of FAS 158 (net of income tax of $404)              440   440 
                     
Balance at December 31, 2006  -0-   64,844   68,422   5,824   139,090 
Adjustment relating to adoption of FIN 48          (608)      (608)
Comprehensive income:                    
Net income          21,054       21,054 
Foreign currency translation adjustment              7,328   7,328 
Pension and postretirement benefit adjustments, net of income tax of $2,834              4,932   4,932 
                     
Comprehensive income                  33,314 
                     
Balance at December 31, 2007 $-0-  $64,844  $88,868  $18,084  $171,796 
                     
             
  Year Ended December 31, 
  2010  2009  2008 
  (Dollars in thousands) 
 
Net sales $813,522  $701,047  $1,068,757 
Cost of products sold  679,425   597,200   919,297 
             
Gross profit  134,097   103,847   149,460 
Selling, general and administrative expenses  89,806   84,036   102,127 
Goodwill impairment charge  -0-   -0-   95,763 
Restructuring and impairment charges  3,539   5,206   25,331 
             
Operating income (loss)  40,752   14,605   (73,761)
Gain on purchase of 8.375% senior subordinated notes  -0-   12,529   -0- 
Gain on acquisition of business  (2,210)  -0-   -0- 
Interest expense  23,868   23,945   27,921 
             
Income (loss) before income taxes  19,094   3,189   (101,682)
Income tax expense (benefit)  2,034   (828)  20,986 
             
Net income (loss) $17,060  $4,017  $(122,668)
             
 
See notes to consolidated financial statements.


31


Park-Ohio Industries, Inc. and Subsidiaries
 
 
             
  Year Ended December 31, 
  2007  2006  2005 
  (Dollars in thousands) 
 
OPERATING ACTIVITIES            
Net income $21,054  $25,535  $31,573 
Adjustments to reconcile net income to net cash provided by operations:            
Depreciation and amortization  20,469   20,037   17,261 
Restructuring and impairment charges (credits)  2,214   (9)  1,776 
Deferred income taxes  4,342   (4,361)  (6,946)
Changes in operating assets and liabilities excluding acquisitions of businesses:            
Accounts receivable  9,536   (16,219)  5,507 
Inventories  8,527   (28,443)  (1,699)
Accounts payable and accrued expenses  (21,900)  16,760   (934)
Other  (15,410)  (8,539)  (12,043)
             
Net cash provided by operating activities  28,832   4,761   34,495 
INVESTING ACTIVITIES            
Purchases of property, plant and equipment, net  (21,876)  (19,256)  (20,295)
Business acquisitions, net of cash acquired  -0-   (23,271)  (12,181)
Proceeds from sale-leaseback transactions  -0-   9,420   -0- 
             
Proceeds from the sale of assets held for sale  -0-   3,200   1,100 
             
Net cash used by investing activities  (21,876)  (29,907)  (31,376)
FINANCING ACTIVITIES            
Proceeds from bank arrangements, net  -0-   28,150   8,342 
Payments on bank arrangements and long-term debt, net  (14,751)  -0-   -0- 
             
Net cash (used) provided by financing activities  (14,751)  28,150   8,342 
(Decrease) Increase in cash and cash equivalents  (7,795)  3,004   11,461 
Cash and cash equivalents at beginning of year  20,872   17,868   6,407 
             
Cash and cash equivalents at end of year $13,077  $20,872  $17,868 
             
Income taxes paid $6,170  $5,291  $881 
Interest paid  30,194   28,997   24,173 
                     
           Accumulated
    
     Additional
  Retained
  Other
    
  Common
  Paid-In
  Earnings
  Comprehensive
    
  Stock  Capital  (Deficit)  Income (Loss)  Total 
  (Dollars in thousands) 
 
Balance at January 1, 2008 $-0-  $64,844  $88,868  $18,084  $171,796 
Comprehensive (loss):                    
Net loss          (122,668)      (122,668)
Foreign currency translation adjustment              (8,730)  (8,730)
Pension and postretirement benefit adjustments, net of income tax of $13,460              (26,456)  (26,456)
                     
Comprehensive (loss)                  (157,854)
Distribution of capital to shareholder      (8,732)          (8,732)
                     
Balance at December 31, 2008  -0-   56,112   (33,800)  (17,102)  5,210 
Comprehensive income (loss):                    
Net income          4,017       4,017 
Foreign currency translation adjustment              2,968   2,968 
Pension and postretirement benefit adjustments, net of income tax of $1,179              9,020   9,020 
                     
Comprehensive income                  16,005 
Distribution of capital to shareholder      (750)          (750)
                     
Balance at December 31, 2009  -0-   55,362   (29,783)  (5,114)  20,465 
Comprehensive income (loss):                    
Net income          17,060       17,060 
Foreign currency translation adjustment              (741)  (741)
Pension and postretirement benefit adjustments, net of income tax of $1,143              8,263   8,263 
                     
Comprehensive income                  24,582 
Capital contribution from shareholder      (6,762)          (6,762)
Distribution of capital to shareholder      (750)          (750)
                     
Balance at December 31, 2010 $-0-  $47,850  $(12,723) $2,408  $37,535 
                     
 
See notes to consolidated financial statements.


32


Park-Ohio Industries, Inc. and Subsidiaries
             
  Year Ended December 31, 
  2010  2009  2008 
  (Dollars in thousands) 
 
OPERATING ACTIVITIES            
Net income (loss) $17,060  $4,017  $(122,668)
Adjustments to reconcile net income (loss) to net cash provided by operations:            
Depreciation and amortization  17,122   18,776   20,782 
Restructuring and impairment charges  3,539   5,206   121,094 
Gain on purchase of 8.375% senior subordinated notes  -0-   (12,529)  -0- 
Gain on acquisition of business  (2,210)  -0-   -0- 
Deferred income taxes  (1,126)  (1,842)  -0- 
Changes in operating assets and liabilities excluding acquisitions of businesses:            
Accounts receivable  (7,624)  61,136   6,578 
Inventories  10,067   46,701   (12,547)
Accounts payable and accrued expenses  27,856   (82,349)  7,490 
Other  9,864   10,572   (10,535)
             
Net cash provided by operating activities  74,548   49,688   10,194 
INVESTING ACTIVITIES            
Purchases of property, plant and equipment  (3,951)  (5,575)  (17,466)
Business acquisitions, net of cash acquired  (25,900)  -0-   (5,322)
Proceeds from the sale of assets held for sale  -0-   -0-   260 
             
Net cash used by investing activities  (29,851)  (5,575)  (22,528)
FINANCING ACTIVITIES            
Payments on debt, net  (19,944)  (25,499)  25,612 
Debt issue costs  (4,142)  -0-   -0- 
Purchase of 8.375% senior subordinated notes  -0-   (13,511)  -0- 
Distribution of capital to shareholder  (750)  (750)  (8,732)
Capital contribution  (6,762)  -0-   -0- 
             
Net cash (used) provided by financing activities  (31,598)  (39,760)  16,880 
Increase in cash and cash equivalents  13,099   4,353   4,546 
Cash and cash equivalents at beginning of year  21,976   17,623   13,077 
             
Cash and cash equivalents at end of year $35,075  $21,976  $17,623 
             
Income taxes paid $1,217  $3,146  $6,847 
Interest paid  23,324   23,018   26,115 
See notes to consolidated financial statements.


33


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
 
December 31, 2007, 20062010, 2009 and 2005
2008
(Dollars in thousands)
 
NOTE A —Summary of Significant Accounting Policies
NOTE A — Summary of Significant Accounting Policies
 
Consolidation and Basis of Presentation:  The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The Company does not have off-balance sheet arrangements or financings with unconsolidated entities or other persons. In the ordinary course of business, the Company leases certain real properties as described in Note K. Transactions with related parties are in the ordinary course of business, are conducted on an arm’s-length basis, and are not material to the Company’s financial position, results of operations or cash flows.
 
Accounting Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Cash Equivalents:  The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
 
Inventories:  Inventories are stated at the lower offirst-in, first-out (FIFO)(“FIFO”) cost or market value. Inventory reserves were $20,432$22,788 and $22,978$21,456 at December 31, 20072010 and 2006,2009, respectively. Inventory consigned to others was $6,940 and $3,160 at December 31, 2010 and 2009, respectively.
 
Major Classes of Inventories
 
                
 December 31,  December 31, 
 2007 2006  2010 2009 
Finished goods $129,074  $143,071  $116,202  $100,309 
Work in process  26,249   42,405   24,339   26,778 
Raw materials and supplies  60,086   38,460   52,001   55,029 
          
 $215,409  $223,936  $192,542  $182,116 
          
 
Property, Plant and Equipment:  Property, plant and equipment are carried at cost. Additions and associated interest costs are capitalized and expenditures for repairs and maintenance are charged to operations. Depreciation of fixed assets is computed principally by the straight-line method based on the estimated useful lives of the assets ranging from 25 to 6040 years for buildings, and three3 to 1620 years for machinery and equipment. The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recoverable. See Note M.
 
Impairment of Long-Lived Assets:  We assess the recoverability of long-lived assets (excluding goodwill) and identifiable acquired intangible assets with finite useful lives, whenever events or changes in circumstances indicate that we may not be able to recover the assets’ carrying amount. We measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset to the expected net future undiscounted cash flows to be generated by that asset, or, for identifiable intangibles with finite useful lives, by determining whether the amortization of the intangible asset balance over its remaining life can be recovered through undiscounted future cash flows. The amount of impairment of identifiable intangible assets with finite useful lives, if any, to be recognized is measured based on projected discounted future cash flows. We measure the amount of impairment of other long-lived assets (excluding goodwill) as the amount by which the carrying value of the asset exceeds the fair market value


34


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the asset, which is generally determined, based on projected discounted future cash flows or appraised values. We classify long-lived assets to be disposed of other than by sale as held and used until they are disposed.
Goodwill and Other Intangible Assets:  In accordance with Statement of Financial Accounting Standards Codification (“SFAS”ASC”) No. 142, “Goodwill350 “Intangibles — Goodwill and Other Intangible Assets”Other” (“FAS 142”ASC 350”), the Company does not amortize goodwill recorded in connection with business acquisitions. The Company completed the annual impairment tests required by FAS 142ASC 350 as of October 1, and these tests confirmed that the fair value of the Company’s goodwill exceed their respective carrying values and no impairment loss was required to be recognized.2010. Other intangible assets, which consist primarily of non-contractual customer relationships, are amortized over their estimated useful lives.
 
PensionsWe use an income approach and Other Postretirement Benefits:other valuation techniques to estimate the fair value of our reporting units. Absent an indication of fair value from a potential buyer or similar specific transactions, we believe that using this methodology provides reasonable estimates of a reporting unit’s fair value. The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans, covering substantially all employees. In addition, the Company has two unfunded postretirement benefit plans. For the defined benefit plans, benefits areincome approach is based on projected future debt-free cash flow that is discounted to present value using factors that consider the employee’s yearstiming and risk of service. For the defined


33


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
contribution plans, the costs charged to operations and the amount funded arefuture cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon a percentagethe reporting unit’s expected long-term operating and cash flow performance. This approach also mitigates most of the covered employees’ compensation.
Accounting for Asset Retirement Obligations:  In accordance with FIN No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretationimpact of FASB Statement No. 143”, “Accounting for Asset Retirement Obligations”,cyclical downturns that occur in the Company has identified certain conditional asset retirement obligations at various current manufacturing facilities. These obligations relate primarily to asbestos abatement. Using investigative, remediation,reporting unit’s industry. The income approach is based on a reporting unit’s projection of operating results and disposal methodscash flows that are currently available to the Company, the estimatedis discounted using a weighted-average cost of capital. The projection is based upon our best estimates of projected economic and market conditions over the related period including growth rates, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements based on management projections. There are inherent uncertainties, however, related to these obligations is not significantfactors and management does notto our judgment in applying them to this analysis. Nonetheless, we believe that any potential liability ultimately attributedthis method provides a reasonable approach to estimate the Companyfair value of our reporting units. See Note D for its conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended periodresults of time during which investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties. Management expects these contingent asset retirement obligations to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indefinite amount of time to conduct investigation activities at any site, the indefinite amount of time to obtain governmental agency approval, as necessary, with respect to investigation and remediation activities, and the indefinite amount of time necessary to conduct remediation activities.this testing.
 
Income Taxes:  The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the current enacted tax rates. In determining these amounts, management determined the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, cumulative earnings and losses, expectations of future earnings, taxable income and the extended period of time over which the postretirement benefits will be paid and accordingly records valuation allowances if, based on the weight of available evidence it is more likely than not that some portion or all of our deferred tax assets will not be realized as required by SFAS No. 109ASC 740 “Income Taxes” (“FAS 109”ASC 740”), “Accounting for Income Taxes.”.
 
Revenue Recognition:  The Company recognizes revenue, other than from long-term contracts, when title is transferred to the customer, typically upon shipment. Revenue from long-term contracts (approximately 10%11% of consolidated revenue) is accounted for under the percentage of completion method, and recognized on the basis of the percentage each contract’s cost to date bears to the total estimated contract cost. Revenue earned on contracts in process in excess of billings is classified in other current assetsunbilled contract revenues in the accompanying consolidated balance sheet. The Company’s revenue recognition policies are in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”
 
Accounts Receivable and Allowance for Doubtful Accounts:  Accounts receivable are recorded at net realizable value. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company’s policy is to identify and reserve for specific collectibility concerns based on customers’ financial condition and payment history. On November 16, 2007, the Company entered into a five-year Accounts Receivable Purchase Agreement whereby one specific customer’s accounts receivable may be sold without recourse to a third-party financial institution on a revolving basis. During 2007,2010 and 2009, we sold approximately $10,400$37,272 and $20,832, respectively, of accounts receivable to mitigate accounts receivable concentration risk and to provide additional financing capacity. In compliance with SFAS No. 140, “Accounting for TransfersASC 860, “Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“FAS 140”)Servicing”, sales of accounts receivable are reflected as a reduction of accounts receivable in the Consolidated Balance Sheets and the proceeds are included in the cash flows from operating activities in the Consolidated Statements of Cash flows. In 2007, a loss in the amount of $84 related to the sale of accounts


3435


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the Consolidated Statements of Cash flows. In 2010 and 2009, a loss in the amount of $165 and $86, respectively, related to the sale of accounts receivable is recorded in the Consolidated Statements of Income. This lossOperations. These losses represented implicit interest on the transactions.
 
Software Development Costs:  Software development costs incurred subsequent to establishing feasibility through the general release of the software products are capitalized and included in other assets in the consolidated balance sheet. Technological feasibility is demonstrated by the completion of a working model. All costs prior to the development of the working model are expensed as incurred. Capitalized costs are amortized on a straight-line basis over five years, which is the estimated useful life of the software product. Amortization expense was $2,213, $1,454 and $1,288 in 2010, 2009 and 2008, respectively.
 
Concentration of Credit Risk:  The Company sells its products to customers in diversified industries. The Company performs ongoing credit evaluations of its customers’ financial condition but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. As of December 31, 2007,2010, the Company had uncollateralized receivables with five customers in the automotive and heavy-duty truck industries,industry, each with several locations, aggregating $22,703,$13,352, which represented approximately 13%11% of the Company’s trade accounts receivable. During 2007,2010, sales to these customers amounted to approximately $179,367,$100,009, which represented approximately 16%12% of the Company’s net sales.
 
Shipping and Handling Costs:  All shipping and handling costs are included in cost of products sold in the Consolidated Income Statements.Statements of Operations.
 
Environmental:  The Company accrues environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Costs that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability when environmental assessmentsand/or remedial efforts are probable and can be reasonably estimated. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers.
 
Foreign Currency Translation:  The functional currency for all subsidiaries outside the United States is the local currency. Financial statements for these subsidiaries are translated into U.S. dollars at year-end exchange rates as to assets and liabilities and weighted-average exchange rates as to revenues and expenses. The resulting translation adjustments are recorded in accumulated comprehensive income (loss) in shareholder’s equity.
 
Recent Accounting Pronouncements
 
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation Accounting Standard Codification (“ASC”) Update (“ASU”)No. 48, “Accounting for Uncertainty2010-06 “Improving Disclosure about Fair Value Measurements”, requires enhanced disclosures about recurring and nonrecurring fair-value measurements including significant transfers in Income Taxes,” An Interpretationand out of FASB Statement Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances and settlements on a gross basis of Level 3 fair-value measurements. ASUNo. 109 (“FIN 48”)” that prescribes a recognition threshold and measurement attribute2010-06 was adopted January 1, 2010, except for the financial statement recognitionrequirement to separately disclose purchases, sales, issuances and measurementsettlements of a tax position taken or expected to be taken in a tax return. Under FIN 48, a contingent tax asset only will be recognized if it is more likely than not that a tax position ultimately will be sustained. After this threshold is met, a tax position is reported at the largest amount of benefit that is more likely than not to be realized. FIN 48recurring Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2006. FIN 48 requires the cumulative effect of applying the provisions to be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. The Company adopted FIN 48 as of January 1, 2007. See Note H for the impact of such adoption on the Company’s financial statements and related disclosures.2011.
 
In September 2006,October 2009, the FASB issued SFAS ASUNo. 157, “Fair Value Measurements,2009-13, “Multiple-Deliverable Revenue Arrangements,” which defines fair value in GAAPamends ASC Topic 605, “Revenue Recognition.” ASUNo. 2009-13 amends the ASC to eliminate the residual method of allocation for multiple-deliverable revenue arrangements, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncementsrequires that require or permit fair value measurements and is effectivearrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence if available, (2) third-party evidence if


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PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Company in 2008.vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. Additionally, ASUNo. 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. The Company is currently evaluating the potential impact, of adopting this statement on the Company’s financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits an entity to elect fair value as the initial and subsequent measurement attribute for many financial assets and liabilities. Entities electing the fair value option would be required to recognize changes in fair value in earnings. Entities electing the fair value option would also be required to distinguish, on the faceif any, of the statementadoption of financial position, the fair value of assets and liabilities forthis guidance on its Consolidated Financial Statements, which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. FAS 159 is effective for the Company in 2008. The adjustment to reflect the difference between the fair value and the carrying amount would be accounted for as a cumulative-effect adjustment to retained earnings as of the date of initial adoption. The Company is currently evaluating the impact of adoption of FAS 159 on the Company’s financial position and results of operations.January 1, 2011.
 
In December 2007,June 2009, the FASB issued SFASguidance as codified inASC 810-10, “Consolidation of Variable Interest Entities” (previously Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)167, “Amendments to FASB Interpretation No. 46(R)”). FAS 141(R) provides revisedThis guidance on how acquirers recognizeis intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities (“VIEs”) and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interestsby requiring additional disclosures about a company’s involvement with VIEs. This guidance is generally effective for annual periods beginning after November 15, 2009 and goodwill acquired infor interim periods within that first annual reporting period. The adoption of this guidance did not have a business combination. FAS 141(R) also expands required disclosures surrounding the nature and financial effects of business combinations. FAS 141(R) is effective, on a prospective basis, for the Company in 2009. The Company is currently evaluating thematerial impact of adopting FAS 141(R) on the Company’s financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” FAS 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) be clearly identified, presented and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. FAS 160 is effective, on a prospective basis, for the Company in 2009. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company is currently evaluating the impact of adopting FAS 160 on the Company’s financial position and results of operations.
Reclassification:  Certain amounts in the prior years’ financial statements have been reclassified to conform toof the current year presentation.Company.
 
NOTE B —Industry Segments
 
The Company operates through three segments: Supply Technologies, Aluminum Products and Manufactured Products. In November 2007, our Integrated Logistics Solutions segment changed its name to Supply Technologies to better reflect its breadth of services and focus on driving efficiencies throughout the total supply management process. Supply Technologies provides our customers with Total Supply Managementtm services for a broad range of high-volume, specialty production components. Total Supply Managementtm manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time andpoint-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products manufactures cast


36


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
aluminum components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications. The principal customers of Manufactured Products are original equipment manufacturers and end users in the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense industries.
 
The Company’s sales are made through its own sales organization, distributors and representatives. Intersegment sales are immaterial and eliminated in consolidation and are not included in the figures presented. Intersegment sales are accounted for at values based on market prices. Income allocated to segments excludes certain corporate expenses and interest expense. Identifiable assets by industry segment include assets directly identified with those operations.
 
Corporate assets generally consist of cash and cash equivalents, deferred tax assets, property and equipment, and other assets.
 
             
  Year Ended December 31, 
  2007  2006  2005 
 
Net sales:            
Supply Technologies $531,417  $598,228  $532,624 
Aluminum Products  169,118   154,639   159,053 
Manufactured Products  370,906   303,379   241,223 
             
  $1,071,441  $1,056,246  $932,900 
             
Income before income taxes:            
Supply Technologies $27,175  $38,383  $34,814 
Aluminum Products  3,020   3,921   9,103 
Manufactured Products  45,798   28,991   20,630 
             
   75,993   71,295   64,547 
Corporate costs  (13,412)  (11,275)  (10,241)
Interest expense  (31,551)  (31,267)  (27,056)
             
  $31,030  $28,753  $27,250 
             


37


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                        
 Year Ended December 31, 
 2010 2009 2008 
Net sales:            
Supply Technologies $402,169  $328,805  $521,270 
Aluminum Products  143,672   111,388   156,269 
Manufactured Products  267,681   260,854   391,218 
       
 $813,522  $701,047  $1,068,757 
       
Income before income taxes:            
Supply Technologies $22,216  $8,531  $(66,419)
Aluminum Products  6,582   (5,155)  (23,467)
Manufactured Products  28,739   26,472   54,825 
       
  57,537   29,848   (35,061)
Corporate costs  (13,246)  (3,805)  (19,601)
Gain on purchase of 8.375% senior subordinated notes  -0-   6,297   6,232 
Gain on acquisition of business  2,210   -0-   -0- 
Asset impairment charge  (3,539)  (5,206)  (25,331)
Interest expense  (23,868)  (23,945)  (27,921)
 Year Ended December 31,        
 2007 2006 2005  $19,094  $3,189  $(101,682)
       
Identifiable assets:                        
Supply Technologies $354,165  $382,101  $323,176  $217,915  $207,729  $256,161 
Aluminum Products  98,524   98,041   101,489   66,219   76,443   87,215 
Manufactured Products  231,459   206,089   169,004   188,017   178,715   242,057 
General corporate  85,270   97,438   71,056   83,128   44,648   37,412 
              
 $769,418  $783,669  $664,725  $555,279  $507,535  $622,845 
              
Depreciation and amortization expense:                        
Supply Technologies $4,832  $4,365  $4,575  $5,272  $4,812  $5,153 
Aluminum Products  8,563   7,892   7,484   6,488   7,556   8,564 
Manufactured Products  6,723   6,960   4,986   5,001   6,022   6,586 
General corporate  351   820   216   361   386   479 
              
 $20,469  $20,037  $17,261  $17,122  $18,776  $20,782 
              
Capital expenditures:                        
Supply Technologies $7,751  $2,447  $2,070  $1,613  $2,380  $931 
Aluminum Products  4,775   5,528   10,473   156   1,385   7,750 
Manufactured Products  6,534   12,548   7,266   2,138   2,006   8,101 
General corporate  2,816   (1,267)  486   44   (196)  684 
              
 $21,876  $19,256  $20,295  $3,951  $5,575  $17,466 
              

38


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
The Company had sales of $77,389 in 2007, $146,849 in 2006 and $107,853 in 2005 to International Truck, which represented approximately 7%, 14% and 12% of consolidated net sales for each respective year.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company’s approximate percentage of net sales by geographic region were as follows:
 
                  
 Year Ended
  Year Ended
 
 December 31,  December 31, 
 2007 2006 2005  2010 2009 2008 
United States  70%  76%  79%  73%  73%  68%
Asia  9%  5%  5%  10%  9%  11%
Canada  5%  9%  7%  6%  6%  6%
Mexico  6%  4%  3%  3%  2%  6%
Europe  6%  4%  2%  5%  9%  6%
Other  4%  2%  4%  3%  1%  3%
              
  100%  100%  100%  100%  100%  100%
              
 
At December 31, 2007, 20062010, 2009 and 2005,2008, approximately 85%75%, 90%77% and 86%81%, respectively, of the Company’s assets were maintained in the United States.
 
NOTE C —Acquisitions
 
In October 2006,Effective August 31, 2010, the Company completed the acquisition of certain assets and assumed specific liabilities relating to Assembly Components Systems (“ACS”) business unit of Lawson Products, Inc. for $16,000 in cash and a $2,160 subordinated promissory note payable in equal quarterly installments over three years. ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America. The net assets acquired were integrated into the Company’s Supply Technologies business segment. The fair value of the net assets acquired of $20,370 exceeded the total purchase price and, accordingly, resulted in a gain on acquisition of business of $2,210. Net sales of $16,931 were added to the Company’s Supply Technologies business segment in 2010 since the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price is allocated to ACS’s tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of August 31, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed which are based on estimates and assumptions, the purchase price is allocated as follows:
     
Accounts receivable $9,059 
Inventories  16,711 
Prepaid expenses and other current assets  42 
Property, plant and equipment  299 
Customer relationships  990 
Accounts payable  (5,047)
Accrued expenses  (330)
Deferred tax liability  (1,354)
Gain on acquisition  (2,210)
     
Total purchase price $18,160 
     
Direct transaction costs associated with this acquisition included in selling, general and administrative expenses during the year ended December 31, 2010 were approximately $346.
On September 30, 2010, the Company entered a Bill of Sale with Rome Die Casting LLC (“Rome”), a producer of aluminum high pressure die castings, pursuant to which, Rome agreed to transfer to the Company substantially all of the capital stockassets of NABS, Inc. (“NABS”)Rome in exchange for $21,201 in cash. NABS is a premier international supply chain managerapproximately $7,500 of production components, providing servicesnotes receivable

38
39


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
from Rome. The assets of Rome were integrated into the Company’s aluminum segment. Net sales of $7,031 were added to high technology companiesthe Company’s Aluminum segment in 2010 since the computer, electronics, and consumer products industries. NABS has 17 operations across Europe, Asia, Mexico and the United States.date of acquisition. The acquisition was funded with borrowingsaccounted for under the Company’s revolving credit facility.
The purchase price and resultsacquisition method of operationsaccounting. Under the acquisition method of NABS prior to its date of acquisition were not deemed significant as defined inRegulation S-X. The results of operations for NABS have been included since October 18, 2006. The final allocation ofaccounting, the purchase price has been performed based on the assignments of fair valuesis allocated to Rome’s tangible assets and intangible assets acquired and liabilities assumed. The final allocationassumed based on their estimated fair values as of September 30, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price is as follows:
 
         
Cash acquisition price, less cash acquired     $20,053 
Assets        
Accounts receivable      (11,460)
Inventories      (4,326)
Other current assets      (201)
Equipment      (365)
Intangible assets subject to amortization      (8,020)
Other assets      (724)
Liabilities        
Accounts payable      9,905 
Accrued expenses and other current liabilities      4,701 
Deferred tax liability      3,128 
         
Goodwill     $12,691 
         
     
Accounts receivable $1,918 
Inventories  1,000 
Property, plant and equipment  2,800 
Accounts payable  (2,314)
Accrued expenses  (516)
Goodwill  4,572 
     
Total purchase price $7,460 
     
 
The Company has a plan for integration activities. In accordanceDirect transaction costs associated with FASB EITF IssueNo. 95-3, “Recognition of Liabilitiesthis acquisition included in Connection with a Purchase Business Combination,”selling, general and administrative expenses during the Company recorded accruals for severance, exit and relocation costs in the purchase price allocation. A reconciliation of the beginning and ending accrual balances is as follows:
             
  Severance and
  Exit and
    
  Personnel  Relocation  Total 
 
Balance at October 18, 2006 $-0-  $-0-  $-0- 
Add: Accruals  650   250   900 
Less: Payments  (136)  (46)  (182)
             
Balance at December 31, 2006  514   204   718 
Add: Accruals  -0-   -0-   -0- 
Less: Payments  (514)  (204)  (718)
             
Balance at December 31, 2007 $-0-  $-0-  $-0- 
             
In January 2006, the Company completed the acquisition of all of the capital stock of Foundry Service GmbH (“Foundry Service”) foryear ended December 31, 2010 were approximately $3,219, which resulted in additional goodwill of $2,313. The acquisition was funded with borrowings from foreign subsidiaries of the Company. The acquisition was not deemed significant as defined inRegulation S-X.$256.
 
On December 23, 2005,31, 2010, the Company completed the acquisition ofthrough its subsidiary Ajax Tocco Magnathermic acquired the assets and the related induction heating intellectual property of Lectrotherm, Inc.ABP Induction’s United States heating business operating as Pillar Induction (“Lectrotherm”Pillar”) for $5,125 in cash.. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.
The assets of Pillar will be integrated into the Company’s manufactured products segment. The acquisition was funded with borrowingsaccounted for under the Company’s revolving credit facility. Theacquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price is allocated to Pillar’s tangible assets and the results of operations of Lectrotherm prior to its date of acquisition were not deemed significant as defined inRegulation S-X. The results of operations for


39


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Lectrotherm have been included since December 23, 2005. In 2006, the allocation of the purchase price was finalized based on the assignments of fair values tointangible assets acquired and liabilities assumed. assumed based on their estimated fair values as of December 31, 2010, the effective date of the acquisition. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed which are based on estimates and assumptions that are subject to change, the preliminary estimated purchase price is allocated as follows:
     
Accounts receivable $3,164 
Inventories  2,782 
Prepaid expenses and other current assets  178 
Property, plant and equipment  447 
Customer relationships  3,480 
Technological know how  1,890 
Trade name and other intangible assets  710 
Accounts payable  (1,202)
Accrued expenses  (2,133)
Goodwill  584 
     
Total purchase price $9,900 
     
The area of purchase price allocation that is not yet finalized relates to the working capital adjustment as of December 31, 2010. Prior to the measurement period for finalizing the purchase price is as follows:
         
Cash acquisition price, less cash acquired     $4,698 
Assets        
Accounts receivable      (2,465)
Inventories      -0- 
Prepaid expenses      (97)
Equipment      (1,636)
Liabilities        
Accrued expenses      846 
         
Goodwill     $1,346 
         
On July 20, 2005, the Company completed the acquisition of the assets of Purchased Parts Group, Inc. (“PPG”) for $7,000 in cash, $1,346 in a short-term note payable and the assumption of approximately $12,787 of trade liabilities. The acquisition was funded with borrowings under the Company’s revolving credit facility. The purchase price and the results of operations of PPG prior to its date of acquisition were not deemed significant as defined inRegulation S-X. The results of operations for PPG have beenallocation, such adjustments will be included in the Company’s financial statements since July 20, 2005. The final allocation of the purchase price isallocation retrospectively. There were no significant direct transaction costs included in selling, general and administrative expenses during the year ended December 31, 2010. These costs will be expensed as follows:
         
Cash acquisition price     $7,000 
Assets        
Accounts receivable      (10,835)
Inventories      (10,909)
Prepaid expenses      (1,201)
Equipment      (407)
Liabilities        
Accounts payable      12,783 
Accrued expenses      2,270 
Note payable      1,299 
         
Goodwill     $-0- 
         
incurred in the first quarter of 2011.


40


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company hasfollowing unaudited pro forma information is provided to present a plansummary of the combined results of the Company’s operations with ACS, Rome and Pillar as if the acquisitions had occurred on January 1, 2009. The unaudited pro forma financial information is for integration activities. In accordance with FASB EITF IssueNo. 95-3, “Recognitioninformational purposes only and is not necessarily indicative of Liabilities in Connection with a Purchase Business Combination,”what the results would have been had the acquisitions been completed at the date indicated above.
         
  Year Ended December 31,
  2010 2009
 
Pro forma revenues $881,271  $770,603 
Pro forma net income $15,072  $(12,744)
NOTE D —Goodwill and Other Intangible Assets
ASC 350, requires that our annual, and any interim, impairment assessment be performed at the “reporting unit” level. At October 1, 2008, the Company recorded accruals for severance, exit and relocation costs in the purchase price allocation. A reconciliation of the beginning and ending accrual balance is as follows:
             
  Severance
  Exit and
    
  and Personnel  Relocation  Total 
 
Balance at June 30, 2005 $-0-  $-0-  $-0- 
Add: Accruals  250   1,750   2,000 
Less: Payments  (551)  (594)  (1,145)
Transfers  400   (400)  -0- 
             
Balance at December 31, 2005 $99  $756  $855 
Less: Payments and adjustments  (43)  (417)  (460)
Transfers  (17)  17   -0- 
             
Balance at December 31, 2006 $39  $356  $395 
Less: Payments and adjustments  (39)  (356)  (395)
             
Balance at December 31, 2007 $-0-  $-0-  $-0- 
             
NOTE D — FAS 142, “Goodwill and Other Intangible Assets”
In accordance withhad four reporting units that had goodwill. Under the provisions of FAS 142, the Company has completed its annual goodwillASC 350, these four reporting units were tested for impairment tests as of October 1, 2007, 20062008 and 2005, and has determined that no impairment of goodwill existedupdated as of those dates.December 31, 2008, as necessary. During the fourth quarter of 2008, indicators of potential impairment caused us to update our impairment tests. Those indicators included the following: a significant decrease in market capitalization; a decline in recent operating results; and a decline in our business outlook primarily due to the macroeconomic environment. In accordance with ASC 350, we completed an impairment analysis and concluded that all of the goodwill in three of the reporting units for a total of $95,763 was impaired and written off in the fourth quarter of 2008.
 
The following table summarizeschanges in the carrying amount of goodwill by reportable segment for the years ended December 31, 20072010, 2009 and December 31, 2006 by reporting segment.2008 were as follows:
 
         
  Goodwill at
  Goodwill at
 
Reporting Segment
 December 31, 2007  December 31, 2006 
 
Supply Technologies $80,249  $77,732 
Aluminum Products  16,515   16,515 
Manufactured Products  4,233   3,933 
         
  $100,997  $98,180 
         
                 
  Supply
     Manufactured
    
  Technologies  Aluminum  Products  Total 
 
Balance at January 1, 2008 $80,249  $16,515  $4,233  $100,997 
Foreign Currency Translation  (1,001)  -0-   (124)  (1,125)
Impairment Charge  (79,248)  (16,515)  -0-   (95,763)
                 
Balance at December 31, 2008  -0-   -0-   4,109   4,109 
Foreign Currency Translation  -0-   -0-   46   46 
                 
Balance at December 31, 2009  -0-   -0-   4,155   4,155 
Foreign Currency Translation  -0-   -0-   (211)  (211)
Acquisitions  -0-   4,572   584   5,156 
                 
Balance at December 31, 2010 $-0-  $4,572  $4,528  $9,100 
                 
The increase in the goodwill in the Manufactured Products segment during 2007 results from foreign currency fluctuations. The increase in the goodwill in the Supply Technologies segment during 2007 results from the final purchase price adjustment of the NABS acquisition of $1,714 and foreign currency fluctuations.
 
Other intangible assets were acquired in connection with the acquisitionacquisitions of NABS.NABS, Inc., ACS and Pillar. Information regarding other intangible assets as of December 31, 20072010 and 2009 follows:
 
                        
               2010     2009   
 Acquisition
 Accumulated
    Acquisition
 Accumulated
   Acquisition
 Accumulated
   
 Costs Amortization Net  Costs Amortization Net Costs Amortization Net 
Non-contractual customer relationships $7,200  $600  $6,600  $11,670  $2,422  $9,248  $7,200  $1,800  $5,400 
Other  820   124   696   3,420   495   2,925   820   372   448 
                    
 $8,020  $724  $7,296  $15,090  $2,917  $12,173  $8,020  $2,172  $5,848 
                    


41


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE E — Other AssetsAmortization of other intangible assets was $745 for the year ended December 31, 2010 and $724 for each of the years ended December 31, 2009 and 2008. Amortization expense for each of the five years following December 31, 2010 is approximately $1,169 in 2011, $1,169 in 2012 and $1,045 for each of the three subsequent years thereafter.
NOTE E —Other Assets
 
Other assets consists of the following:
 
                
 December 31,  December 31, 
 2007 2006  2010 2009 
Pension assets $70,558  $60,109  $60,786  $49,435 
Deferred financing costs  4,225   5,618 
Deferred financing costs, net  3,695   1,345 
Tooling  543   1,501   417   384 
Software development costs  3,461   6,368   2,292   3,893 
Deferred tax assets  -0-   6,555 
Intangible assets subject to amortization  7,504   8,779   12,173   5,848 
Other  7,894   2,447   4,977   9,790 
          
Totals $94,185  $91,377  $84,340  $70,695 
          
 
NOTE F — Accrued Expenses
NOTE F —Accrued Expenses
 
Accrued expenses include the following:
 
                
 December 31,  December 31, 
 2007 2006  2010 2009 
Accrued salaries, wages and benefits $17,399  $17,349  $13,832  $8,978 
Advance billings  16,387   26,729   23,218   14,189 
Warranty and project accruals  7,322   4,820 
Warranty accrual  4,046   2,760 
Interest payable  2,683   3,232   2,504   2,191 
State and local taxes  5,607   5,746 
Sundry  17,525   19,958 
Taxes, income and other  3,252   1,788 
Other  12,348   9,168 
          
Totals $66,923  $77,834  $59,200  $39,074 
          
 
Substantially all advance billings warranty and projectwarranty accruals relate to the Company’s capital equipment businesses.
 
The changes in the aggregate product warranty liability are as follows for the year ended December 31, 2007, 20062010, 2009 and 2005:2008:
 
                        
 2007 2006 2005  2010 2009 2008 
Balance at beginning of year $3,557  $3,566  $4,281  $2,760  $5,402  $5,799 
Claims paid during the year  (2,402)  (2,984)  (3,297)  (1,260)  (3,367)  (3,944)
Warranty expense  4,526   2,797   2,593   2,294   704   4,202 
Acquired warranty liabilities  -0-   178   -0- 
Other  118   -0-   (11)  252   21   (655)
              
Balance at end of year $5,799  $3,557  $3,566  $4,046  $2,760  $5,402 
              


42


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE G — Financing Arrangements
NOTE G —Financing Arrangements
 
Long-term debt consists of the following:
 
                
 December 31,  December 31, 
 2007 2006  2010 2009 
8.375% senior subordinated notes due 2014 $210,000  $210,000  $183,835  $183,835 
Revolving credit facility maturing on December 31, 2010  145,400   156,700 
Industrial development revenue bonds maturing in 2012 at interest rates from 2.00% to 4.15%  -0-   3,114 
Revolving credit  90,200   101,200 
Term Loan A  25,900   28,000 
Term Loan B  8,400   12,000 
Other  4,649   4,986   7,878   8,962 
          
  360,049   374,800   316,213   333,997 
Less current maturities  2,362   3,310   13,756   10,894 
          
Total $357,687  $371,490  $302,457  $323,103 
          
Maturities of long-term debt during each of the five years following December 31, 2007 are approximately $2,362 in 2008, $330 in 2009, $147,332 in 2010, $24 in 2011 and $-0- in 2012.
 
The Company is a party to a credit and security agreement dated November 5, 2003, as amended (“Credit Agreement”), with a group of banks, under which it may borrow or issue standby letters of credit or commercial letters of credit upcredit. On March 8, 2010, and subsequently on August 31, 2010, the Credit Agreement was amended and restated to $270,000. The credit agreement, as recently amended, provides lower interest rate bracketsamong other things, extend its maturity date to April 30, 2014 and modified certain covenantsreduce the loan commitment from $270,000 to provide greater flexibility.$210,000, which includes a term loan A that is secured by real estate and machinery and equipment and an unsecured term loan B. The Credit Agreement currently contains a detailed borrowing base formula that provides borrowing capacity to the Company based on negotiated percentages of eligible accounts receivable, inventory and fixed assets. At December 31, 2007,2010, the Company had approximately $70,429$44,634 of unused borrowing capacity available under the Credit Agreement. Interest is payable quarterly at either the bank’s prime lending rate (7.25% at December 31, 2007) or, at the Company’s election, at LIBOR plus .75% to 1.75%. The Company’s ability to elect LIBOR-based interest rates as well as the overall interest rate are dependent on the Company’s Debt Service Coverage Ratio, as defined in the Credit Agreement. Up to $40,000 in standby letters of credit and commercial letters of credit may be issued under the Credit Agreement. As of December 31, 2007,2010, in addition to amounts borrowed under the Credit Agreement, there was $12,723$7,554 outstanding primarily for standby letters of credit. An annual fee of .25%.75% is imposed by the bank on the unused portion of available borrowings.
Amounts borrowed under the revolving credit facility may be borrowed at either (i) LIBOR plus 2.25% to 3.25% or (ii) the bank’s prime lending rate minus (.25)% to plus .75% at the Company’s election. The interest rate is dependent on the Company’s debt service coverage ratio, as defined in the Credit Agreement expiresAgreement. Interest on the term loan A is at either (i) LIBOR plus 3.25% to 4.25% or (ii) the bank’s prime lending rate plus .75% to 1.75% at the Company’s election. Interest on the term loan B is at either (i) LIBOR plus 5.25% to 6.25% or (ii) the bank’s prime lending rate plus 3.25% to 4.25%, at the Company’s election. The term loan A is amortized based on a ten year schedule with the balance due at maturity. The term loan B is amortized over a two-year period plus 50% of debt service coverage excess capped at $3,500.
Maturities of long-term debt during each of the five years following December 31, 2010 are approximately $13,756 in 2011, $4,290 in 2012, $3,300 in 2013, $292,058 in 2014 and $523 in 2015.
Foreign subsidiaries of the Company had borrowings of $1,229 and $3,787 at December 31, 2010 and borrowings are secured by substantially all2009, respectively and outstanding bank guarantees of the Company’s assets.
A foreign subsidiary of the Company had outstanding standby letters of credit of $11,968$7,363 at December 31, 20072010 under itstheir credit arrangement.arrangements.
 
The 8.375% senior subordinated notes due 2014 (“8.375% Notes”) are general unsecured senior subordinated obligations of the Company and are fully and unconditionally guaranteed on a joint and several basis by all material domestic subsidiaries of the Company. Provisions of the indenture governing the 8.375% Notes and the Credit Agreement contain restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets or to merge or


43


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
consolidate with an unaffiliated entity. At December 31, 2007,2010, the Company was in compliance with all financial covenants of the Credit Agreement.
 
The weighted average interest rate on all debt was 7.4%6.21% at December 31, 2007.2010.
 
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and borrowings under the Credit Agreement and the 8.375% Notes approximate fair value at December 31, 20072010 and 2006.2009. The approximate fair value of the 8.375% Notes was $187,512 and $144,310 at December 31, 2010 and 2009, respectively.
In 2009, a foreign subsidiary of the Company purchased $26,165 aggregate principal amount of the 8.375% Notes for $13,511. After writing off $125 of deferred financing costs, the Company recorded a net gain of $12,529.
In 2008, the Company purchased $11,015 aggregate principal amount of the 8.375% Notes for $4,658. After writing off $125 of deferred financing costs, the Company recorded a net gain of $6,232. The 8.375% Notes were not contributed to Park-Ohio Industries, Inc. in 2008 but were held by Park-Ohio Holdings Corp. During the fourth quarter of 2009, these notes were sold to a wholly-owned subsidiary of Park-Ohio Industries, Inc.
NOTE H —Income Taxes
Income (loss) from continuing operations before income tax expense consists of the following:
             
  Year Ended December 31 
  2010  2009  2008 
 
United States $8,596  $(934) $(116,564)
Outside the United States  10,498   4,123   14,882 
             
  $19,094  $3,189  $(101,682)
             
Income taxes consisted of the following:
             
  Year Ended December 31, 
  2010  2009  2008 
 
Current expense (benefit):            
Federal $61  $(147) $229 
State  573   179   1,518 
Foreign  2,526   982   6,156 
             
   3,160   1,014   7,903 
Deferred:            
Federal  (2,014)  (1,231)  12,421 
State  689   (39)  923 
Foreign  199   (572)  (261)
             
   (1,126)  (1,842)  13,083 
             
Income tax expense (benefit) $2,034  $(828) $20,986 
             


4344


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The approximate fair value of the 8.375% Notes was $189,000 and $195,300 at December 31, 2007 and 2006, respectively.
NOTE H — Income Taxes
Income taxes consisted of the following:
             
  Year Ended December 31, 
  2007  2006  2005 
 
Current payable (benefit):            
Federal $(9) $2,355  $165 
State  299   432   198 
Foreign  5,344   4,792   2,260 
             
   5,634   7,579   2,623 
Deferred:            
Federal  3,639   (1,093)  (7,300)
State  198   (1,521)  -0- 
Foreign  505   (1,747)  354 
             
   4,342   (4,361)  (6,946)
             
Income taxes (benefit) $9,976  $3,218  $(4,323)
             
 
The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
 
             
Rate Reconciliation
 2007  2006  2005 
 
Tax at statutory rate $10,911  $9,571  $9,189 
Effect of state income taxes, net  266   (1,240)  129 
Effect of foreign operations  (1,082)  (1,441)  (151)
Medicare subsidy  196   (126)  (795)
FIN 48  471   -0-   -0- 
Valuation allowance  238   (4,806)  (12,093)
Prior years adjustments  (848)  889   50 
Research and development credit  (206)  (250)  (237)
Nondeductible expenses  572   417   53 
Foreign tax credit  (501)  -0-   -0- 
Other, net  (41)  204   (468)
             
Total $9,976  $3,218  $(4,323)
             
             
Rate Reconciliation
 2010  2009  2008 
 
Tax at statutory rate $6,027  $(2,113) $(34,586)
Effect of state income taxes, net  1,048   (161)  (1,834)
Effect of foreign operations  1,472   1,247   293 
Goodwill  -0-   -0-   23,241 
Valuation allowance, federal and foreign  (6,475)  (1,815)  33,625 
Equity compensation  (59)  148   18 
Tax credits  (72)  (192)  (240)
Prior year adjustments  365   141   (304)
Non-deductable items  480   735   802 
Gain on asset purchase  (772)  -0-   -0- 
Other, net  20   1,182   (29)
             
Total $2,034  $(828) $20,986 
             


44


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Significant components of the Company’s net deferred tax assets and liabilities are as follows:
 
                
 December 31,  December 31, 
 2007 2006  2010 2009 
Deferred tax assets:                
Postretirement benefit obligation $7,604  $9,409  $7,003  $7,060 
Inventory  10,969   12,493   12,363   10,342 
Net operating loss and credit carryforwards  21,544   18,626   16,184   22,478 
Other — net  9,223   11,616 
Goodwill  3,177   4,381 
Other  11,138   8,348 
          
Total deferred tax assets  49,340   52,144   49,865   52,609 
Deferred tax liabilities:                
Tax over book depreciation  13,354   12,858 
Depreciation and amortization  1,090   692 
Pension  26,071   22,693   21,423   18,010 
Inventory  864   889 
Intangible assets  2,955   3,127 
Deductible goodwill  4,704   3,452 
Intangible assets and other  4,191   2,335 
          
Total deferred tax liabilities  47,948   43,019   26,704   21,037 
          
Net deferred tax assets prior to valuation allowances  1,392   9,125   23,161   31,572 
Valuation allowances  (2,217)  (316)  (22,386)  (30,668)
          
Net deferred tax (liability) asset $(825) $8,809 
Net deferred tax asset $775  $904 
          
 
At December 31, 2007,2010, the Company has federal, state and foreign net operating loss carryforwards for income tax purposes. The U.S. federal net operating loss carryforward is approximately $41,602$24,699 which expires between 20212023 and 2027. Foreign2029. The foreign net operating lossesloss carryforward is $3,988 of $1,389 havewhich $1,315 expires in 2029 and $2,673 has no expiration date. The Company also has a tax benefit of the U.S. federalfrom a state net operating loss is $13,053,carryforward of $4,748 which expires between 2011 and 2030.
At December 31, 2010, the Company has been reduced by $1,508research and development credit carryforwards of FIN 48 liabilities.approximately $2,875 which expire between 2012 and 2030. The Company also has $1,614alternative minimum tax credit carryforwards of $1,083 which have no expiration date.


45


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax benefit related toyears for 2007 through 2010 remain open for examination by the U.S. and various state and foreign taxing authorities.
As of December 31, 2010 and 2009, the Company was in a cumulative three-year loss position and it was determined that it was not more likely than not that its U.S. net operating losses which expire between 2011deferred tax assets will be realized. As of December 31, 2010 and 2027.2009, the Company recorded full valuation allowances of $20,089 and $28,813, respectively, against its U.S. net deferred tax assets. In addition, the Company determined that it was not more likely than not that certain foreign net deferred tax assets will be realized. As of December 31, 2010 and 2009, the Company recorded valuation allowances of $2,297 and $1,855, respectively, against certain foreign net deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities).
The Company is subjectreviews all valuation allowances related to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2004 through 2007 remain open for examination by the U.S. and various state and foreign taxing authorities.
As of December 31, 2004, the Company was in a cumulative three-year loss position and determined it was not more likely than not that its net deferred tax assets and will be realized. Therefore, as of December 31, 2004, the Company had a fullreverse these valuation allowance against its U.S. net deferred tax asset and a portion of its foreign net operating loss carryforwards. As of December 31, 2005, the Company was no longer in a three-year cumulative loss position and after consideration of the relevant positive and negative evidence, the Company determined a full valuation allowance was no longer appropriate. Accordingly, the Company reversed a portion of its valuation allowance and recognized a $7,300 tax benefit related to its US net deferred tax asset as it has been determined the realization of this amount was more likely than not. As of December 31, 2006, the Company determined that it was more likely than not that it would be able to realize most of its deferred tax assets in the future and released $4,806 of the valuation allowance. As of December 31, 2006, the Company also recognized a tax benefit for net operating losses of $1,284 for state income taxes which it has determined are more likely than not will be fully realized in the future.allowances, partially or totally, when appropriate under ASC 740.
 
The Company recorded a deferred tax asset for a capital loss carryforward that was generated in 2005 in the amount of $4,750 which expires in 2010. During 2007, the Company was able to offset the loss with


45


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
capital gains in the amount of $1,772. The Company has recorded a valuation allowance against the remaining balance of the capital loss carryforward of $2,978 as it is not considered more likely than not that this amount will be fully realized in the future.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $608 increase in the liability for unrecognized tax benefits which was accounted for as a reduction in retained earnings. The total amount of unrecognized tax benefits as of the date of adoption was approximately $4,691. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
                
Unrecognized Tax Benefit — January 1, 2007 $4,691 
 2010 2009 2008 
Unrecognized Tax Benefit — January 1, $5,718  $5,806  $5,255 
Gross Increases — Tax Positions in Prior Period  72   283   101   -0- 
Gross Decreases — Tax Positions in Prior Period  (133)  (4)  (55)  (39)
Gross Increases — Tax Positions in Current Period  625   341   97   590 
Settlements  -0-   (18)  -0-   -0- 
Lapse of Statute of Limitations  -0-   (178)  (231)  -0- 
          
Unrecognized Tax Benefit — December 31, 2007 $5,255 
Unrecognized Tax Benefit — December 31, $6,142  $5,718  $5,806 
          
 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $4,916 at December 31, 2010 and $4,633 at December 31, 2009. The Company recognizes accrued interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2007,2010 and 2009, the Company recognized approximately $57$9 and $42, respectively, in net interest and penalties. The Company had approximately $537$682 and $480$673 for the payment of interest and penalties accrued at December 31, 20072010 and January 1, 2007,2009, respectively. At December 31, 2007, the Company had total recognized tax benefits of $5,255, of which $4,311 would impact the effective tax rate if recognized. The Company does not expect that the unrecognized tax benefit will change significantly within the next twelve months.
At December 31, 2007, the Company has research and development credit carryforwards of approximately $2,689, which expire between 2010 and 2027. The Company also has foreign tax credit carryforwards of $1,213, which expire between 2015 and 2017, and alternative minimum tax credit carryforwards of $1,214, which have no expiration date.
 
Deferred taxes have not been provided on undistributed earnings of the Company’s foreign subsidiaries as it is the Company’s policy and intent to permanently reinvest such earnings. The Company has determined that it is not practical to determine the deferred tax liability on such undistributed earnings.
 
NOTE I — Legal Proceedings
NOTE I —Legal Proceedings
 
The Company is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation is not expected to have a material adverse effect on the Company’s financial condition, liquidity and results of operations.
 
NOTE J — Pensions and Postretirement Benefits
NOTE J —Pensions and Postretirement Benefits
 
On December 31, 2006,The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans, covering substantially all employees. In addition, the Company adoptedhas two unfunded postretirement benefit plans. For the recognition and disclosure provisions of FAS 158. FAS 158 required the Company to recognize the funded status (i.e., the difference between the Company’s fair value of plan assets and the projected benefit obligations) of its defined benefit pension and postretirement benefit plans, (collectively, the “postretirement benefit plans”) in the December 31, 2006 Consolidated Balance Sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption representsbenefits are based on


46


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the net unrecognized actuarial losses, unrecognized prior service costs and unrecognized transition obligation remaining from the initial adoptionemployee’s years of FAS 87 and FAS 106, all of which were previously netted against the plans’ funded status in the company’s Consolidated Balance Sheet in accordance with the provisions of FAS 87 and FAS 106. These amounts will be subsequently recognized as net periodic benefit cost in accordance with the Company’s historical accounting policy for amortizing these amounts. In addition, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit cost in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of FAS 158.
The incremental effects of adopting the provisions of FAS 158 on the company’s Consolidated Balance Sheet at December 31, 2006 are presented in the following table. The adoption of FAS 158 had no effect on the Company’s Consolidated Statement of Income for the year ended December 31, 2006 and 2005, respectively, and it will not effect the Company’s operating results in subsequent periods.
             
  At December 31, 2006    
  Prior to
  Effect of
  As Reported
 
  Adopting FAS
  Adopting FAS
  at December 31,
 
  No. 158  No. 158  2006 
 
Assets
            
Other non-current assets $83,493  $7,884  $91,377 
             
Total assets $775,785  $7,884  $783,669 
             
Liabilities and Shareholder’s Equity:
            
Pension and postretirement benefit liabilities $15,951  $7,040  $22,989 
Deferred income taxes  12,880   404   13,284 
Accumulated other comprehensive income  -0-   440   440 
             
Total liabilities and shareholder’s equity $775,785  $7,884  $783,669 
             
In the table presented above, deferred income taxes represent current and non-current deferred income tax assets on the Consolidated Balance Sheet as of December 31, 2006. In addition, pension and postretirement benefit liabilities represent salaries, wages and benefits, accrued pension cost and accrued postretirement benefits costs on the Consolidated Balance Sheet as of December 31, 2006.
The estimated net (gain), prior service cost and net transition (asset) forservice. For the defined benefit pensioncontribution plans, that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 2008costs charged to operations and the amount funded are $(117), $137 and $(47), respectively.
The estimated net loss and prior service credit forbased upon a percentage of the postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 2008 are $200 and $(52), respectively.


47


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)covered employees’ compensation.
 
The following tables set forth the change in benefit obligation, plan assets, funded status and amounts recognized in the consolidated balance sheet for the defined benefit pension and postretirement benefit plans as of December 31, 20062010 and 2005:2009:
 
                                
   Postretirement
    Postretirement
 
 Pension Benefits  Pension Benefits 
 2007 2006 2007 2006  2010 2009 2010 2009 
Change in benefit obligation
                                
Benefit obligation at beginning of year $52,387  $54,734  $22,989  $22,843  $48,820  $48,383  $18,288  $19,961 
Service cost  334   426   180   199   295   471   31   61 
Curtailment and settlement  80   12   -0-   (254)
Interest cost  2,842   2,915   1,103   1,292   2,596   2,748   959   1,053 
Amendments  -0-   -0-   -0-   (1,106)  -0-   10   -0-   (920)
Actuarial losses (gains)  (2,571)  (580)  (2,990)  3,047 
Actuarial losses  2,622   1,446   1,364   279 
Benefits and expenses paid, net of contributions  (4,752)  (5,120)  (2,571)  (3,032)  (4,661)  (4,238)  (2,210)  (2,146)
                  
Benefit obligation at end of year $48,320  $52,387  $18,711  $22,989  $49,672  $48,820  $18,432  $18,288 
                  
Change in plan assets
                                
Fair value of plan assets at beginning of year $112,496  $101,639  $-0-  $-0-  $98,255  $87,368  $-0-  $-0- 
Actual return on plan assets  11,134   15,977   -0-   -0-   18,364   16,725   -0-   -0- 
Company contributions  -0-   -0-   2,571   3,032   -0-   -0-   2,210   2,146 
Curtailments and settlement  -0-   -0-   -0-   -0- 
Cash transfer to fund postretirement benefit payments  (1,500)  (1,600)  -0-   -0- 
Benefits and expenses paid, net of contributions  (4,752)  (5,120)  (2,571)  (3,032)  (4,661)  (4,238)  (2,210)  (2,146)
                  
Fair value of plan assets at end of year $118,878  $112,496  $-0-  $-0-  $110,458  $98,255  $-0-  $-0- 
                  
Funded (underfunded) status of the plan $70,558  $60,109  $(18,711) $(22,989)
Funded (underfunded) status of the plans $60,786  $49,435  $(18,432) $(18,288)
                  


47


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Amounts recognized in the consolidated balance sheets consist of:
 
                                
   Postretirement
    Postretirement
 
 Pension Benefits  Pension Benefits 
 2007 2006 2007 2006  2010 2009 2010 2009 
Noncurrent assets $70,558  $60,109  $-0-  $-0-  $60,786  $49,435  $-0-  $-0- 
Noncurrent liabilities  -0-   -0-   12,786   13,387   -0-   -0-   10,196   11,111 
Current liabilities  -0-   -0-   2,041   2,564   -0-   -0-   2,177   2,197 
Accumulated other comprehensive (income) loss  (12,756)  (8,144)  3,884   7,038   7,701   15,900   6,059   4,980 
                  
Net amount recognized at the end of the year $57,802  $51,965  $18,711  $22,989  $68,487  $65,335  $18,432  $18,288 
                  
Amounts recognized in accumulated other comprehensive income
                
Amounts recognized in accumulated other comprehensive (income) loss
                
Net actuarial loss/(gain) $(13,005) $(8,452) $3,936  $7,153  $7,641  $15,819  $6,059  $4,980 
Net prior service cost (credit)  509   646   (52)  (115)  192   253   -0-   -0- 
Net transition obligation (asset)  (260)  (338)  -0-   -0-   (132)  (172)  -0-   -0- 
                  
Accumulated other comprehensive income $(12,756) $(8,144) $3,884  $7,038 
Accumulated other comprehensive (income) loss $7,701  $15,900  $6,059  $4,980 
                  
 
As of December 31, 20072010 and 2006,2009, the Company’s defined benefit pension plans did not hold a material amount of shares of the Company’s common stock.
The pension plan weighted-average asset allocation at December 31, 2010 and 2009 and target allocation for 2011 are as follows:
             
     Plan Assets 
  Target 2011  2010  2009 
 
Asset Category
            
Equity securities  45-75%  78.3%  69.3%
Debt securities  10-40   19.3   9.9 
Other  0-20   2.4   20.8 
             
   100%  100%  100%
             
The following table sets forth, by level within the fair value hierarchy, the pension plans assets:
                 
  2010  2009 
  Level 2  Total  Level 2  Total 
 
Collective trust and pooled insurance funds:
                
Common stock $65,362  $65,362  $52,507  $52,507 
Equity Funds  16,142   16,142   12,727   12,727 
Foreign Stock  5,000   5,000   2,590   2,590 
Convertible Securities  967   967   1,063   1,063 
U.S. Government Obligations  9,840   9,840   4,900   4,900 
Fixed income funds  5,242   5,242   4,588   4,588 
Corporate Bonds  5,295   5,295   -0-   -0- 
Cash and Cash Equivalents  2,381   2,381   19,779   19,779 
Other  229   229   101   101 
                 
  $110,458  $110,458  $98,255  $98,255 
                 


48


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The pension plan weighted-average asset allocation at December 31, 2007 and 2006 and target allocation for 2008 are as follows:
             
     Plan Assets 
  Target 2008  2007  2006 
 
Asset Category
            
Equity securities  60-70%  64.8%  65.1%
Debt securities  20-30   24.2   25.7 
Other  7-15   11.0   9.2 
             
   100%  100%  100%
             
The following tables summarize the assumptions used by the consulting actuary and the related cost information.
 
                                          
 Weighted-Average assumptions as of December 31,  Weighted-Average assumptions as of December 31,
 Pension Postretirement Benefits  Pension Postretirement Benefits
 2007 2006 2005 2007 2006 2005  2010 2009 2008 2010 2009 2008
Discount rate  6.25%  5.75%  5.50%  6.25%  5.75%  5.50%  5.00%  5.50%  6.00%  5.00%  5.50%  6.00%
Expected return on plan assets  8.25%  8.50%  8.75%  N/A   N/A   N/A   8.25%  8.25%  8.25%  N/A   N/A   N/A 
Rate of compensation increase  N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A 
 
In determining its expected return on plan assets assumption for the year ended December 31, 2007,2010, the Company considered historical experience, its asset allocation, expected future long-term rates of return for each major asset class, and an assumed long-term inflation rate. Based on these factors, the Company derived an expected return on plan assets for the year ended December 31, 20072010 of 8.25%. This assumption was supported by the asset return generation model, which projected future asset returns using simulation and asset class correlation.
For measurement purposes, a 7.0% and a 8.75% annual rate of increase in the per capita cost of covered medical health care benefits and drug benefits, respectively were assumed for 2010. The rates were assumed to decrease gradually to 5.0% for medical and drug for 2042 and remain at that level thereafter.
                         
  Pension Benefits  Postretirement Benefits 
  2010  2009  2008  2010  2009  2008 
 
Components of net periodic benefit cost
                        
Service costs $295  $471  $439  $31  $61  $87 
Interest costs  2,596   2,748   2,892   959   1,053   1,215 
Expected return on plan assets  (7,932)  (7,036)  (9,634)  -0-   -0-   -0- 
Transition obligation  (40)  (40)  (47)  -0-   -0-   -0- 
FAS 88 one-time charge  -0-   -0-   -0-   -0-   -0-   -0- 
Amortization of prior service cost  61   129   137   (96)  -0-   (52)
Recognized net actuarial (gain) loss  366   910   (100)  381   294   369 
                         
Benefit (income) costs $(4,654) $(2,818) $(6,313) $1,275  $1,408  $1,619 
                         
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
                        
AOCI at beginning of year $15,900  $25,131  $(12,756) $4,980  $5,914  $3,884 
Net (gain)/loss  (7,811)  (8,241)  37,876   1,364   280   2,347 
Recognition of prior service cost/(credit)  (62)  (120)  (137)  96   (920)  52 
Recognition of (gain)/loss  (326)  (870)  148   (381)  (294)  (369)
                         
Total recognized in other comprehensive loss at end of year $7,701  $15,900  $25,131  $6,059  $4,980  $5,914 
                         
The estimated net (gain), prior service cost and net transition (asset) for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 2011 are $-0-, $44 and $(40), respectively.


49


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
For measurement purposes, a 9.0% annual rate of increase inThe estimated net loss and prior service cost for the per capitapostretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost of covered health care benefits was assumed for 2007. The rate was assumed to decrease gradually to 5.0% forover the year ending December 31, 2011 is $441 and remain at that level thereafter.$(96), respectively.
                         
  Pension Benefits  Other Benefits 
  2007  2006  2005  2007  2006  2005 
 
Components of net periodic benefit cost
                        
Service costs $334  $426  $364  $180  $199  $145 
Interest costs  2,842   2,915   3,194   1,103   1,292   1,281 
Expected return on plan assets  (9,049)  (8,408)  (8,804)  -0-   -0-   -0- 
Transition obligation  (38)  (48)  (49)  -0-   -0-   -0- 
FAS 88 one-time charge  80   297   -0-   -0-   -0-   -0- 
Amortization of prior service cost  138   182   163   (63)  (63)  (69)
Recognized net actuarial (gain) loss  13   99   (224)  227   374   106 
                         
Benefit (income) costs $(5,680) $(4,537) $(5,356) $1,447  $1,802  $1,463 
                         
Other changes in plan assets and benefit obligations recognized in other comprehensive income(a)
                        
AOCI at beginning of year $(8,144) $5,358   N/A  $7,038  $-0-   N/A 
Net loss/(gain)  (4,499)          (2,990)        
Recognition of prior service cost/(credit)  (138)  -0-   N/A   63   -0-   N/A 
Recognition of loss/(gain)  25   -0-   N/A   (227)  -0-   N/A 
Decrease prior to adoption of SFAS No. 158  -0-   (5,358)  N/A   -0-   -0-   N/A 
Increase (decrease) due to adoption of SFAS No. 158  -0-   (8,144)  N/A   -0-   7,038   N/A 
                         
Total recognized in other comprehensive income at end of year $(12,756) $(8,144)  N/A  $3,884  $7,038   N/A 
                         
(a)These disclosures are not applicable to 2005 defined benefit pension plans and postretirement plans due to FAS No. 158 being effective for the year ended December 31, 2006.
 
Below is a table summarizing the Company’s expected future benefit payments and the expected payments due to Medicare subsidy over the next ten years:
 
                 
     Postretirement Benefits 
  Pension
     Expected
  Net including
 
  Benefits  Gross  Medicare Subsidy  Medicare Subsidy 
 
2008 $4,235  $2,243  $202  $2,041 
2009  4,217   2,223   205   2,018 
2010  4,138   2,185   204   1,981 
2011  4,053   2,117   198   1,919 
2012  3,957   1,972   195   1,777 
2013 to 2017  19,079   8,318   826   7,492 
                 
    Postretirement Benefits
  Pension
   Expected
 Net including
  Benefits Gross Medicare Subsidy Medicare Subsidy
 
2011  4,041   2,454   223   2,231 
2012  3,942   2,240   225   2,015 
2013  3,860   2,092   219   1,873 
2014  3,788   1,988   209   1,779 
2015  3,739   1,879   197   1,682 
2016 to 2020  17,837   7,497   811   6,686 


50


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company has two postretirement benefit plans. Under both of these plans, health care benefits are provided on both a contributory and noncontributory basis. The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
 
         
  1-Percentage
 1-Percentage
  Point
 Point
  Increase Decrease
 
Effect on total of service and interest cost components in 2007 $121  $(103)
Effect on postretirement benefit obligation as of December 31, 2007 $1,463  $(1,274)
         
  1-Percentage
 1-Percentage
  Point
 Point
  Increase Decrease
 
Effect on total of service and interest cost components in 2010 $68  $(60)
Effect on postretirement benefit obligation as of December 31, 2010 $1,383  $(1,229)
 
The total contribution charged to pension expense for the Company’s defined contribution plans was $2,068$-0-in 2010, $301 in 2007, $1,8312009 and $2,081 in 2006 and $1,753 in 2005.2008. During March 2009, the Company suspended indefinitely its voluntary contribution to its 401(k) defined contribution plan covering substantially all U.S. employees. The Company expects to have no contributions to its defined benefit plans in 2011.
In January 2008, a Supplemental Executive Retirement Plan (“SERP”) for the Company’s Chairman of the Board of Directors and Chief Executive Officer (“CEO”) was approved by the Compensation Committee of the Board of Directors of the Company. The SERP provides an annual supplemental retirement benefit for up to $375 upon the CEO’s termination of employment with the Company. The vested retirement benefit will be equal to a percentage of the Supplemental Pension that is equal to the ratio of the sum of his credited service with the Company prior to January 1, 2008 (up to a maximum of thirteen years), and his credited service on or after January 1, 2008 (up to a maximum of seven years) to twenty years of credited service. In the event of a change in control before the CEO’s termination of employment, he will receive 100% of the Supplemental Pension. The Company recorded an expense of $389 related with the SERP in 2010, 2009 and 2008. Additionally, a non-qualified defined contribution retirement benefit was also approved in which the Company will credit $94 quarterly ($375 annually) for a seven year period to an account in which the CEO will always be 100% vested. The seven year period began on March 31, 2008.
 
NOTE K —Leases and Sale-leaseback Transactions
 
Future minimum lease commitments during each of the five years following December 31, 20072010 and thereafter are as follows: $13,400 in 2008, $11,106 in 2009, $8,338 in 2010, $5,305$13,109 in 2011, $3,812$9,816 in 2012, $6,416 in 2013, $4,538 in 2014, $3,642 in 2015 and $12,799$2,178 thereafter. Rental expense for 2007, 20062010, 2009 and 20052008 was $14,687, $15,370$13,068, $12,812 and $13,494,$14,400, respectively.


50


In 2006, the Company entered into two sale-leaseback arrangements. Under the arrangements, land, building and equipment with a net book value of approximately $7,988 were sold for $9,420 and leased back under two operating lease agreements ranging from five to twelve years. The gain on these transactions of approximately $1,400 was deferred and is being amortized over the terms of the lease agreements.PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTE LNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Accumulated Comprehensive Loss(Continued)
Certain of the Company’s leases are with related parties at an annual rental expense of approximately $2,464. Transactions with related parties are in the ordinary course of business, are conducted on an arms length basis, and are not material to the Company’s financial position, results of operations or cash flows.
NOTE L —Accumulated Comprehensive Loss
 
The components of accumulated comprehensive loss at December 31, 20072010 and 20062009 are as follows:
 
                
 December 31,  December 31, 
 2007 2006  2010 2009 
Foreign currency translation adjustment $12,712  $5,384  $6,239  $6,950 
Pension and postretirement benefit adjustments, net of tax  5,372   440   (3,801)  (12,064)
          
Total $18,084  $5,824  $2,438  $(5,114)
          
 
NOTE M —Restructuring and Unusual Charges
 
During the fourththird quarter of 2005,2010, the Company reviewed one of its investments and determined there was diminution in value and therefore recorded an asset impairment charge of $3,539.
In 2009 and 2008, due to volume declines and volatility in the automotive markets along with the general economic downturn, the Company evaluated its long-lived assets in accordance with ASC 360 “Property, Plant and Equipment”. The Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. During 2008, based on the results of these tests, the Company recorded asset impairment charges. In addition, the Company made a decision to exit its relationship with its largest customer, Navistar, effective December 31, 2008 which along with the general economic downturn resulted in either the closure, downsizing or consolidation of eight facilities in its distribution network. The Company’s restructuring andactivities were substantially completed in 2009. In 2008, the Company recorded asset impairment charges associated with executing restructuring actions in the Aluminum Products and Manufactured Products segments initiated in prior years. The chargesof $30,875, which were composed of $833$5,544 of inventory impairment included in Cost of Products Sold, $391$1,758 for a loss on disposition of asseta foreign subsidiary, $564 of severance costs (80 employees) and $23,009 for impairment $152 of multi-employer pension plan withdrawal costsproperty and $400 of restructuring charges related to the closure of two Manufactured Products manufacturing facilities.equipment and other long-term assets. Below is a summary of these charges by segment.
 
                     
        Loss on Disposal
       
  Asset
  Cost of
  of Foreign
  Severance
    
  Impairment  Products Sold  Subsidiary  Costs  Total 
 
Supply Technologies $6,143  $4,965  $1,758  $564  $13,430 
Aluminum Products  12,575   579   -0-   -0-   13,154 
Manufactured Products  4,291   -0-   -0-   -0-   4,291 
                     
  $23,009  $5,544  $1,758  $564  $30,875 
                     


51


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                     
  Cost of
             
  Products
  Asset
  Restructuring
  Pension
    
  Sold  Impairment  & Severance  Curtailment  Total 
 
Manufactured Products $833  $-0-  $400  $152  $1,385 
Aluminum Products  -0-   391   -0-   -0-   391 
                     
  $833  $391  $400  $152  $1,776 
                     
In 2006, the Company recorded restructuring and asset impairment charges associated with its planned closure of a manufacturing facility in the Supply Technologies segment. The charges (credits) were composed of $800 of inventory and tooling included in Cost of Products Sold, $297 of pension curtailment and $(1,106) of postretirement benefit curtailment. In 2007, the Company recorded an additional $2,214 charge for inventory related restructuring charges which are included in Cost of Products Sold.
The accrued liability for severance and exit costs and related cash payments consisted of:
     
Balance at January 1, 2005 $462 
Exit charges recorded in 2005  400 
Cash payments made in 2005  (266)
     
Balance at December 31, 2005  596 
Cash payments made in 2006  (312)
     
Balance at December 31, 2006  284 
Cash payments made in 2007  (284)
     
Balance at December 31, 2007 $-0- 
     
As of December 31, 2006, all of the 525 employees identified in 2001 and all of the 490 employees identified in 2002 had been terminated. The workforce reductions under the restructuring plan consisted of hourly and salaried employees at various operating facilities due to either closure or consolidation. As of December 31, 2007, the Company had an accrued liability of $-0- for future estimated employee severance and plant closing payments.
At December 31, 2007, the Company’s balance sheet reflected assets held for sale at their estimated current value of $3,330 for property, plant and equipment. Net sales for the businesses that were included in net assets held for sale were $-0- in 2007, 2006 and 2005.
NOTE N — Derivatives and Hedging
The Company recognizes all derivative financial instruments as either assets or liabilities at fair value. The Company has no derivative instruments that are classified as fair value hedges. Changes in the fair value of derivative instruments that are classified as cash flow hedges are recognized in other comprehensive income until such time as the hedged items are recognized in net income.
During 2006, the Company entered into forward contracts for the purpose of hedging exposure to changes in the value of accounts receivable in euros against the U.S. dollar, for a notional amount of $1,000, of which $-0- was outstanding at December 31, 2006. The Company recognized $61 of foreign currency losses upon settlement of the forward contracts in 2006. The Company used no derivative instruments in 2007, and there were no such currency hedge contracts outstanding at December 31, 2007.

52


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The accrued liability for severance costs and related cash payments consisted of:
Balance at January 1, 2008$-0-
Severance costs recorded in 2008564
Cash payments made in 2008(19)
Balance at December 31, 2008545
Cash payments made in 2009(460)
Balance at December 31, 200985
Cash payments made in 2010(85)
Balance at December 31, 2010$-0-
In the fourth quarter of 2009, due to weakness in the general economy including the railroad industry, the Company recorded $7,003 of asset impairment charges which were composed of $1,797 for inventory impairment and $5,206 for impairment of property and equipment and other long-term assets. Below is a summary of these charges by segment.
             
  Asset
  Cost of
    
  Impairment  Products Sold  Total 
 
Supply Technologies $2,206  $1,797  $4,003 
Manufactured Products  3,000   -0-  $3,000 
             
  $5,206  $1,797  $7,003 
             
NOTE ON — Supplemental Guarantor Information
 
Each of the material domestic direct and indirect wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”) has fully and unconditionally guaranteed, on a joint and several basis, to pay principal, premium and interest with respect to the 8.375% Notes. Each of the Guarantor Subsidiaries is “100% owned” as defined by Rule 3-10(h)(1) of Regulation S-X.
 
The following supplemental consolidating condensed financial statements present consolidating condensed balance sheets as of December 31, 20072010 and 2006,2009, consolidating condensed statements of incomeoperations for the years ended December 31, 2007, 20062010, 2009 and 20052008, consolidating condensed statements of cash flows for the years ended December 31, 2007, 20062010, 2009 and 20052008 and reclassification and elimination entries necessary to consolidate the Parent and all of its subsidiaries. The “Parent” reflected in the accompanying supplemental guarantor information is Park-Ohio Industries, Inc.


5352


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 20072010
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
 Reclassifications/
      Guarantor
 Non-Guarantor
 Reclassifications/
   
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
ASSETS
ASSETS
ASSETS
Current assets:                                        
Cash and cash equivalents $(19,232) $607  $11,626  $20,076  $13,077  $(4,983) $2,286  $33,736  $4,036  $35,075 
Accounts receivable, net  (550)  127,972   44,935   -0-   172,357   (2,650)  100,754   25,141   3,164   126,409 
Inventories  -0-   174,238   41,171   -0-   215,409   -0-   157,180   32,580   2,782   192,542 
Other current assets  (10,464)  16,364   17,936   20,738   44,574   24,322   8,932   14,491   (22,197)  25,548 
Deferred tax assets  -0-   -0-   -0-   21,897   21,897   -0-   -0-   -0-   10,496   10,496 
                      
Total Current Assets  (30,246)  319,181   115,668   62,711   467,314   16,689   269,152   105,948   (1,719)  390,070 
Investment in subsidiaries  397,880   28,729   (28,729)  (397,880)  -0-   311,612   26,234   (26,234)  (311,612)  -0- 
Inter-company advances  370,880   349,186   (382)  (719,684)  -0-   9,520   42,063   37,393   (88,976)  -0- 
Property, Plant and Equipment, net  2,913   77,894   22,785   -0-   103,592   5,505   68,036   5,482   (7,254)  71,769 
Other Assets:                                        
Goodwill  -0-   93,029   7,968   -0-   100,997   -0-   5,918   2,597   585   9,100 
Other  47,176   47,364   949   2,026   97,515   63,684   16,094   14,466   (9,904)  84,340 
                      
Total Other Assets  47,176   140,393   8,917   2,026   198,512   63,684   22,012   17,063   (9,319)  93,440 
                      
Total Assets $788,603  $915,383  $118,259  $(1,052,827) $769,418  $407,010  $427,497  $139,652  $(418,880) $555,279 
                      
                    
                    
LIABILITIES AND SHAREHOLDER’S EQUITY
LIABILITIES AND SHAREHOLDER’S EQUITY
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:                                        
Trade accounts payable $4,141  $75,879  $22,339  $19,511  $121,870  $3,371  $70,191  $16,856  $5,272  $95,690 
Payable to affiliates  11,879   -0-   -0-   -0-   11,879 
Accrued expenses  (9,477)  45,962   18,259   12,179   66,923   3,496   37,347   16,240   2,117   59,200 
Current portion of long-term liabilities  -0-   185   2,138   2,080   4,403   -0-   50   1,229   14,655   15,934 
                      
Total Current Liabilities  (5,336)  122,026   42,736   33,770   193,196   18,746   107,588   34,325   22,044   182,703 
Long-Term Liabilities, less current portion                                        
8.375% Senior Subordinated Notes due 2014  210,000   -0-   -0-   -0-   210,000   210,000   -0-   -0-   (26,165)  183,835 
Revolving credit maturing on December 31, 2010  145,400   -0-   -0-   -0-   145,400 
Revolving credit  124,500   -0-   -0-   (11,200)  113,300 
Other long-term debt  -0-   776   1,551   (40)  2,287   -0-   4,000   -0-   1,322   5,322 
Deferred tax liability  (3,366)  -0-   2,101   23,987   22,722   8,343   -0-   1,378   -0-   9,721 
Other postretirement benefits and other long-term liabilities  4,125   52,689   557   (33,354)  24,017   23,195   4,213   216   (4,761)  22,863 
                      
Total Long-Term Liabilities  356,159   53,465   4,209   (9,407)  404,426   366,038   8,213   1,594   (40,804)  335,041 
Inter-company advances  279,672   398,938   20,947   (699,557)  -0-   6,646   22,689   49,908   (79,243)  -0- 
Shareholder’s Equity  158,108   340,954   50,367   (377,633)  171,796   15,580   289,007   53,825   (320,877)  37,535 
                      
Total Liabilities and Shareholder’s Equity $788,603  $915,383  $118,259  $(1,052,827) $769,418  $407,010  $427,497  $139,652  $418,880  $555,279 
                      


5453


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 20062009
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
 Reclassifications/
      Guarantor
 Non-Guarantor
 Reclassifications/
   
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
ASSETS
ASSETS
ASSETS
Current assets:                                        
Cash and cash equivalents $(15,770) $570  $12,382  $23,690  $20,872  $(2,876) $1,613  $21,839  $1,400  $21,976 
Accounts receivable, net  (1,043)  147,834   35,102   -0-   181,893   (1,300)  84,669   24,477   (3,203)  104,643 
Inventories  -0-   187,649   36,287   -0-   223,936   -0-   148,658   33,458   -0-   182,116 
Other current assets  3,362   12,278   8,575   9,927   34,142   16,462   18,365   9,878   (3,818)  40,887 
Deferred tax assets  -0-   -0-   -0-   29,715   29,715   -0-   -0-   -0-   8,104   8,104 
                      
Total Current Assets  (13,451)  348,331   92,346   63,332   490,558   12,286   253,305   89,652   2,483   357,726 
Investment in subsidiaries  388,117   17,169   (17,169)  (388,117)  -0-   313,315   26,129   (26,129)  (313,315)  -0- 
Inter-company advances  338,471   531,453   4,427   (874,351)  -0-   383,098   292,128   21,935   (697,161)  -0- 
Property, Plant and Equipment, net  448   83,478   15,052   -0-   98,978   (464)  70,962   10,506   (6,045)  74,959 
Other Assets:                                        
Goodwill  (5,514)  96,830   6,864   -0-   98,180   -0-   1,346   2,809   -0-   4,155 
Other  52,312   40,599   719   2,323   95,953   25,864   38,660   14,528   (8,357)  70,695 
                      
Total Other Assets  46,798   137,429   7,583   2,323   194,133   25,864   40,006   17,337   (8,357)  74,850 
                      
Total Assets $760,383  $1,117,860  $102,239  $(1,196,813) $783,669  $734,099  $682,530  $113,301  $(1,022,395) $507,535 
                      
                    
                    
LIABILITIES AND SHAREHOLDER’S EQUITY
LIABILITIES AND SHAREHOLDER’S EQUITY
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:                                        
Trade accounts payable $3,759  $84,003  $21,610  $23,487  $132,859  $3,360  $55,920  $14,375  $1,423  $75,078 
Payable to affiliates  7,693   -0-   -0-   -0-   7,693 
Accrued expenses  1,579   51,638   12,138   12,479   77,834   1,581   25,889   11,604   -0-   39,074 
Current portion of long-term liabilities  -0-   552   2,758   2,563   5,873   6,600   102   2,163   4,226   13,091 
                      
Total Current Liabilities  5,338   136,193   36,506   38,529   216,566   19,234   81,911   28,142   5,649   134,936 
Long-Term Liabilities, less current portion                                        
8.375% Senior Subordinated Notes due 2014  210,000   -0-   -0-   -0-   210,000   210,000   -0-   -0-   (26,165)  183,835 
Revolving credit maturing on December 31, 2010  156,700   -0-   -0-   -0-   156,700 
Revolving credit  134,600   -0-   -0-   -0-   134,600 
Other long-term debt  -0-   3,027   1,763   -0-   4,790   -0-   4,409   1,623   (1,364)  4,668 
Deferred tax liability  -0-   -0-   42   32,047   32,089   6,007   -0-   1,193   -0-   7,200 
Other postretirement benefits and other long-term liabilities  9,199   54,136   2,692   (41,593)  24,434   2,710   52,637   314   (33,830)  21,831 
                      
Total Long-Term Liabilities  375,899   57,163   4,497   (9,546)  428,013   353,317   57,046   3,130   (61,359)  352,134 
Inter-company advances  242,672   594,730   17,423   (854,825)  -0-   361,789   286,093   37,505   (685,387)  -0- 
Shareholder’s Equity  136,474   329,774   43,813   (370,971)  139,090   (241)  257,480   44,524   (281,298)  20,465 
                      
Total Liabilities and Shareholder’s Equity $760,383  $1,117,860  $102,239  $(1,196,813) $783,669  $734,099  $682,530  $113,301  $(1,022,395) $507,535 
                      


5554


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
For the Year Ended December 31, 20072010
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
        Guarantor
 Non-Guarantor
     
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
Net sales $-0-  $882,091  $189,350  $-0-  $1,071,441  $-0-  $668,089  $145,433  $-0-  $813,522 
Cost of sales  -0-   766,495   143,626   2,216   912,337   -0-   566,648   112,777   -0-   679,425 
                      
Gross profit  -0-   115,596   45,724   (2,216)  159,104   -0-   101,441   32,656   -0-   134,097 
Operating Expenses:                                        
Selling, general and administrative expenses  (54,674)  103,919   25,553   21,725   96,523   (39,747)  95,466   20,865   13,222   89,806 
Asset Impairment Charge  -0-   3,539   -0-   -0-   3,539 
                      
Operating Income  54,674   11,677   20,171   (23,941)  62,581 
Operating Income (loss)  39,747   2,436   11,791   (13,222)  40,752 
Interest expense  30,588   1,793   339   (1,169)  31,551   25,054   954   296   (2,436)  23,868 
Gain on acquisition of business  -0-   -0-   -0-   (2,210)  (2,210)
                      
Income before income taxes  24,086   9,884   19,832   (22,772)  31,030   14,693   1,482   11,495   (8,576)  19,094 
Income taxes  3,377   216   6,383   -0-   9,976   721   144   1,169   -0-   2,034 
                      
Net income $20,709  $9,668  $13,449  $(22,772) $21,054 
Net (loss) income $13,972  $1,338  $10,326  $(8,576) $17,060 
                      


5655


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
For the Year Ended December 31, 20062009
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
        Guarantor
 Non-Guarantor
     
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
Net sales $-0-  $912,060  $144,186  $-0-  $1,056,246  $-0-  $572,333  $128,714  $-0-  $701,047 
Cost of sales  800   795,936   111,359   -0-   908,095   -0-   494,323   102,877   -0-   597,200 
                      
Gross profit  (800)  116,124   32,827   -0-   148,151   -0-   78,010   25,837   -0-   103,847 
Operating Expenses:                                        
Selling, general and administrative expenses  (55,175)  100,320   20,769   23,026   88,940   (12,463)  91,238   19,193   (13,932)  84,036 
Restructuring and impairment charges  -0-   (809)  -0-   -0-   (809)  -0-   2,206   -0-   3,000   5,206 
                      
Operating Income  54,375   16,613   12,058   (23,026)  60,020 
Operating Income (loss)  12,463   (15,434)  6,644   10,932   14,605 
Gain on purchase of 8.375% senior subordinated notes  -0-   -0-   -0-   (12,529)  (12,529)
Interest expense  30,496   1,067   304   (600)  31,267   23,243   1,152   752   (1,202)  23,945 
                      
Income before income taxes  23,879   15,546   11,754   (22,426)  28,753 
Income taxes  (2,419)  57   5,580   -0-   3,218 
(Loss) income before income tax (benefit) expense  (10,780)  (16,586)  5,892   24,663   3,189 
Income tax (benefit) expense  (1,067)  60   179   -0-   (828)
                      
Net income $26,298  $15,489  $6,174  $(22,426) $25,535 
Net income (loss) $(9,713) $(16,646) $5,713  $24,663  $4,017 
                      


5756


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
For the Year Ended December 31, 20052008
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
        Guarantor
 Non-Guarantor
     
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
Net sales $-0-  $827,815  $114,179  $(9,094) $932,900  $-0-  $875,260  $193,497  $-0-  $1,068,757 
Cost of sales  -0-   715,057   90,320   (9,094)  796,283   -0-   766,952   146,801   5,544   919,297 
                      
Gross profit  -0-   112,758   23,859   -0-   136,617   -0-   108,308   46,696   (5,544)  149,460 
Operating Expenses:                                        
Selling, general and administrative expenses  3,349   62,394   15,025   600   81,368   (20,346)  106,893   31,939   (16,359)  102,127 
Restructuring and impairment charges  -0-   943   -0-   -0-   943   -0-   108,614   12,480   -0-   121,094 
                      
Operating Income  (3,349)  49,421   8,834   (600)  54,306 
Operating Income (loss)  20,346   (107,199)  2,277   10,815   (73,761)
Interest expense  (5,346)  31,442   1,560   (600)  27,056   26,883   1,736   725   (1,423)  27,921 
                      
Income before income taxes  1,997   17,979   7,274   -0-   27,250 
(Loss) income before income taxes  (6,537)  (108,935)  1,552   12,238   (101,682)
Income taxes  (7,439)  59   3,057   -0-   (4,323)  14,569   96   6,321   -0-   20,986 
                      
Net income $9,436  $17,920  $4,217  $-0-  $31,573 
Net (loss) income $(21,106) $(109,031) $(4,769) $12,238  $(122,668)
                      


5857


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 20072010
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
        Guarantor
 Non-Guarantor
     
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
Net cash provided by operations $7,040  $11,812  $9,980  $-0-  $28,832  $28,927  $35,234  $10,387  $-0-  $74,548 
Cash flows from investing activities:                                        
Acquisitions  -0-   (25,900)  -0-   -0-   (25,900)
Purchases of property, plant and equipment, net  (2,816)  (9,156)  (9,904)  -0-   (21,876)  (44)  (7,924)  4,017   -0-   (3,951)
                      
Net cash (used) in investing activities  (2,816)  (9,156)  (9,904)  -0-   (21,876)  (44)  (33,824)  4,017   -0-   (29,851)
Cash flows from financing activities:                                        
Principal payments on long-term debt  (11,300)  (2,619)  (832)  -0-   (14,751)
Distribution of capital to shareholder  (750)  -0-   -0-   -0-   (750)
Capital contributions from parent  (6,762)  -0-   -0-   -0-   (6,762)
Debt issue costs  (4,142)              (4,142)
Payments on debt  (16,700)  (737)  (2,507)  -0-   (19,944)
                      
Net cash (used) by financing activities  (11,300)  (2,619)  (832)  -0-   (14,751)  (28,354)  (737)  (2,507)  -0-   (31,598)
                      
Increase (decrease) in cash and cash equivalents  (7,076)  37   (756)  -0-   (7,795)
Increase in cash and cash equivalents  529   673   11,897   -0-   13,099 
Cash and cash equivalents at beginning of year  7,920   570   12,382   -0-   20,872   (1,476)  1,613   21,839   -0-   21,976 
                      
Cash and cash equivalents at end of year $844  $607  $11,626  $-0-  $13,077  $(947) $2,286  $33,736  $-0-  $35,075 
                      


5958


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 20062009
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
        Guarantor
 Non-Guarantor
     
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
Net cash provided (used) by operations $(27,090) $27,983  $3,868  $-0-  $4,761 
Net cash provided by operations $15,697  $965  $33,026  $-0-  $49,688 
Cash flows from investing activities:                                        
Purchases of property, plant and equipment, net  1,267   (16,347)  (4,176)  -0-   (19,256)  197   (4,125)  (1,647)  -0-   (5,575)
Acquisitions, net of cash acquired  -0-   (23,271)  -0-   -0-   (23,271)
Proceeds from sale of assets held for sale  -0-   3,200   -0-   -0-   3,200 
Proceeds from sale-leaseback transaction  -0-   9,420   -0-   -0-   9,420 
                      
Net cash provided (used) in investing activities  1,267   (26,998)  (4,176)  -0-   (29,907)  197   (4,125)  (1,647)  -0-   (5,575)
Cash flows from financing activities:                                        
Distribution of capital to shareholder  (750)  -0-   -0-   -0-   (750)
Purchase of 8.375% senior subordinated notes  -0-   -0-   (13,511)  -0-   (13,511)
Proceeds from bank arrangements  28,400   -0-   791   -0-   29,191   (23,400)  4,434   (6,533)  -0-   (25,499)
Principal payments on long-term debt  -0-   (1,041)  -0-   -0-   (1,041)
                      
Net cash provided (used) by financing activities  28,400   (1,041)  791   -0-   28,150 
Net cash (used) provided by financing activities  (24,150)  4,434   (20,044)  -0-   (39,760)
                      
Increase (decrease) in cash and cash equivalents  2,577   (56)  483   -0-   3,004   (8,256)  1,274   11,335   -0-   4,353 
Cash and cash equivalents at beginning of year  5,343   626   11,899   -0-   17,868   6,780   339   10,504   -0-   17,623 
                      
Cash and cash equivalents at end of year $7,920  $570  $12,382  $-0-  $20,872  $(1,476) $1,613  $21,839  $-0-  $21,976 
                      


6059


PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)
 
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 20052008
 
                                        
   Combined
 Combined
        Combined
 Combined
     
   Guarantor
 Non-Guarantor
        Guarantor
 Non-Guarantor
     
 Parent Subsidiaries Subsidiaries Eliminations Consolidated  Parent Subsidiaries Subsidiaries Eliminations Consolidated 
 (In thousands)  (In thousands) 
Net cash provided (used) by operations $(1,228) $29,314  $6,409  $-0-  $34,495 
Net cash (used) provided by operations $(3,847) $25,797  $(11,756) $-0-  $10,194 
Cash flows from investing activities:                                        
Purchases of property, plant and equipment, net  (486)  (17,769)  (2,040)  -0-   (20,295)  (685)  (20,784)  4,003   -0-   (17,466)
Acquisitions, net of cash acquired  -0-   (12,181)  -0-   -0-   (12,181)
Proceeds from sale of assets held for sale  -0-   1,100   -0-   -0-   1,100 
Business acquisitions, net of cash acquired  -0-   (5,322)  -0-   -0-   (5,322)
Proceeds from the sale of assets held for sale  -0-   260   -0-   -0-   260 
                      
Net cash provided (used) in investing activities  (486)  (28,850)  (2,040)  -0-   (31,376)
Net cash (used) provided in investing activities  (685)  (25,846)  4,003   -0-   (22,528)
Cash flows from financing activities:                                        
Proceeds from bank arrangements, net  7,700   (37)  679   -0-   8,342   19,200   (219)  6,631   -0-   25,612 
Distribution of capital to shareholder  (8,732)  -0-   -0-   -0-   (8,732)
                      
Net cash provided (used) by financing activities  7,700   (37)  679   -0-   8,342   10,468   (219)  6,631   -0-   16,880 
                      
Increase (decrease) in cash and cash equivalents  5,986   427   5,048   -0-   11,461   5,936   (268)  (1,122)  -0-   4,546 
Cash and cash equivalents at beginning of year  (643)  199   6,851   -0-   6,407   844   607   11,626   -0-   13,077 
                      
Cash and cash equivalents at end of year $5,343  $626  $11,899  $-0-  $17,868  $6,780  $339  $10,504  $-0-  $17,623 
                      


6160


Schedule II
 
PARK-OHIO INDUSTRIES, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
                                
 Balance at
 Charged to
 Deductions
 Balance at
  Balance at
 Charged to
 Deductions
 Balance at
 
 Beginning of
 Costs and
 and
 End of
  Beginning of
 Costs and
 and
 End of
 
Description
 Period Expenses Other Period  Period Expenses Other Period 
 (Dollars in thousands) 
Year Ended December 31, 2007:                
Year Ended December 31, 2010:                
Allowances deducted from assets:                                
Trade receivable allowances $4,305  $1,609  $(2,190)(A) $3,724  $8,388  $2,581  $(4,958)(A) $6,011 
Inventory Obsolescence reserve  22,978   4,383   (6,929)(B)  20,432   21,456   8,956   (7,624)(B)  22,788 
Tax valuation allowances  316   1,901   0   2,217   30,668   (5,754)  (2,528)(D)  22,386 
Product warranty liability  3,557   4,526   (2,284)(C)  5,799   2,760   2,294   (1,008)(C)  4,046 
                  
Year Ended December 31, 2006:                
Year Ended December 31, 2009:                
Allowances deducted from assets:                                
Trade receivable allowances $5,120  $2,330  $(3,145)(A) $4,305  $3,044  $6,527  $(1,183)(A) $8,388 
Inventory Obsolescence reserve  19,166   7,216   (3,404)(B)  22,978   22,313   7,153   (8,010)(B)  21,456 
Tax valuation allowances  7,011   (4,806)  (1,889)(D)  316   34,921   (1,815)  (2,438)  30,668 
Product warranty liability  3,566   2,797   (2,806)(C)  3,557   5,402   704   (3,346)(C)  2,760 
                  
Year Ended December 31, 2005:                
Year Ended December 31, 2008:                
Allowances deducted from assets:                                
Trade receivable allowances $3,976  $3,230  $(2,086)(A) $5,120  $3,724  $1,429  $(2,109)(A) $3,044 
Inventory Obsolescence reserve  18,604   6,704   (6,142)(B)  19,166   20,432   5,385   (3,505)(B)  22,312 
Tax valuation allowances  19,231   (12,220)      7,011   2,217   33,625   (921)(D)  34,921 
Product warranty liability  4,281   2,593   (3,308)(C)  3,566   5,799   4,202   (4,599)(C)  5,402 
                  
 
Note (A)- Uncollectible accounts written off, net of recoveries.
 
Note (B)- Amounts written off or payments incurred, net of acquired reserves.
 
Note (C)- Loss and loss adjustment.
 
Note (D)- Excess tax benefit initiallyAmounts recorded in connection with the exercise of stock options.other comprehensive income.
 
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
There were no changes in or disagreements with the Company’s independent auditors on accounting and financial disclosure matters within the two-year period ended December 31, 2007.2010.
 
Item 9A. Controls and Procedures
 
Evaluation of disclosure controls and procedures
 
As of December 31, 2007, management, includingthe end of the period covered by this report, we carried out an evaluation , under the supervision and with the participation of our Chairman and Chief Executive Officer and our Vice President and Chief Financial Officer, evaluatedof the effectiveness of the design and operation of the Company’sour disclosure controls and procedures. As defined inprocedures pursuant toRule 13a-15(e) underandRule 15d-15(e) of the Securities Exchange Act of 1934, (the “Exchangeas amended (“Exchange Act”), disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as


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appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of the Company’s internal control over financial reporting.
. Based upon this evaluation, our Chairman and Chief Executive Officer and Vice President and Chief Financial Officer concluded that, as of the Company’send of the period covered by this report, our disclosure controls and procedures were not effective, as of December 31, 2007, due solely to the material weakness in the Company’s internal control over financial reporting described below in “Management’s assessment of the effectiveness of the Company’s internal control over financial reporting.” In light of this material weakness, the Company performed additional analysis as deemed necessary to ensure that the consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Management believes that the consolidated financial statements included in this annual report on Form 10-K present fairly in all material respects the Company’s financial position, results of operations and cash flows for the periods presented.effective.


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Management’s assessment of the effectiveness of the Company’s internal controlReport on Internal Control over financial reportingFinancial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) under the Exchange Act. As required byRule 13a-15(c) under the Exchange Act, management carried out an evaluation, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its internal control over financial reporting as of December 31, 2007.2010. The framework on which such evaluation was based is contained in the report entitled “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”). Based upon the evaluation described above under the framework contained in the COSO Report, the Company’s management has concluded that the Company did not maintain effectiveCompany’s internal controlscontrol over financial reporting solelywas effective as a result of the following material weakness:
• The Company did not maintain effective controls over the revenue recognition process.
The Company primarily uses the percentage of completion method to account for its long-lead industrial equipment contracts. The Company’s controls did not identify that when initially calculating the percentage of completion in 2007, costs of purchases from certain suppliers and subcontractors were included in costs incurred prior to the Company being invoiced. This resulted in adjustments in 2007 to exclude such costs from the percentage of completion calculation. Management believes that the consolidated financial statements included in this annual report on Form 10-K present fairly in all material respects the Company’s financial position, results of operations and cash flows for the periods presented.December 31, 2010.
 
Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestationaudit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007.2010 based on the framework contained in the COSO Report. This attestation report is included at page 2836 of this annual report onForm 10-K and is incorporated herein by reference.
 
Changes in internal control over financial reporting
 
There have been no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of 20072010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is evaluating appropriate changes in internal controls to address the material weakness described above.
 
Item 9B. Other Information
 
None.


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Part III
 
Item 10. Directors, Executive Officers and Corporate Governance
 
Information required by this item has been omitted pursuant to Generalgeneral Instruction I of Form 10-K.
 
Item 11. Executive Compensation
 
Information required by this item has been omitted pursuant to Generalgeneral Instruction I of Form 10-K.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Information required by this item has been omitted pursuant to Generalgeneral Instruction I of Form 10-K.
 
Item 13. Certain Relationships and Related Transactions, and Director Independence
 
Information required by this item has been omitted pursuant to Generalgeneral Instruction I of Form 10-K.
 
Item 14. Principal Accountant Fees and Services
 
The following table presents fees for professional services rendered by Ernst & Young LLP to the Company and its parent for the years ended December 31, 20072010 and 2006:2009:
 
                
 2007 2006  2010 2009 
Audit fees $1,043,000  $1,084,000  $965,000  $965,000 
Audit-related fees  75,000   83,000   425,000   75,000 
Tax fees  77,800   112,000   64,000   52,210 
 
Fees for audit services include fees associated with the annual audit, the reviews of the Company’s quarterly reports on Form 10-Q, statutory audits required internationally and the audit of management’s assessment of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. Audit-related fees principally included fees in connection with pension plan audits of ACS and accounting consultation.audits of Rome Die Casting. Tax fees include fees in connection with tax compliance and tax planning. Park-Ohio is a wholly-owned subsidiary of Holdings and does not have a separate audit committee. Holdings’ audit committee has adopted a pre-approval policy for audit and non-audit related services and auditor independence requiring the approval by Holdings’ audit committee of all professional services rendered by the Company’s and its parent’s independent auditor prior to the commencement of the specified services.
 
100% of the services described in “Audit Fees,” “Audit-Related Fees” and “Tax Fees” were pre-approved by Holdings’ audit committee in accordance with Holdings’ formal policy on auditor independence.


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Part IV
 
Item 15. Exhibits and Financial Statement Schedules
 
(a)(1) The following financial statements are included in Part II, Item 8 of this annual report onForm 10-K:
 
   
  Page
 
Report of Independent Registered Public Accounting Firm 2728
Report of Independent Registered Public Accounting Firm 2829
Consolidated Balance Sheets — December 31, 20072010 and 20062009 2930
Consolidated Statements of IncomeOperations — Years Ended December 31, 2007, 20062010, 2009 and 20052008 3031
Consolidated Statements of Shareholder’s Equity — Years Ended December 31, 2007, 20062010, 2009 and 20052008 3132
Consolidated Statements of Cash Flows — Years Ended December 31, 2007, 20062010, 2009 and 20052008 3233
Notes to Consolidated Financial Statements 3334
(2) Financial Statement Schedules  
The following consolidated financial statement schedule of Park-Ohio Industries Inc. is included in Item 8:
Schedule II — Valuation and Qualifying accounts 6261
EX-31.1
EX-31.2
EX-32.1
 
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and, therefore, have been omitted.
 
(3) Exhibits:
 
The exhibits filed as part of this annual report onForm 10-K are listed on the Exhibit Index immediately preceding such exhibits and are incorporated herein by reference.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PARK-OHIO INDUSTRIES, INC. (Registrant)
 
 By: 
/s/  Richard P. ElliottJeffrey L. Rutherford
Richard P. Elliott,Jeffrey L. Rutherford, Vice President
and Chief Financial Officer
 
Date: March 28, 20088, 2011
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
 
       
*

Edward F. Crawford
 Chairman, Chief Executive Officer and Director 
March 28, 20088, 2011
*

Richard P. ElliottJeffrey L. Rutherford
 Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)  
*

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

Patrick V. Auletta
 Director  
*

Kevin R. Greene
Director
*

A. Malachi Mixon, III
 Director  
*

Dan T. Moore
 Director  
*

Ronna Romney
 Director  
*

James W. Wert
 Director  
 
 
*The undersigned, pursuant to a Power of Attorney executed by each of the directors and officers identified above and filed with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated.
 
March 28, 20088, 2011
 By: 
/s/  Richard P. ElliottRobert D. Vilsack
Richard P. Elliott,Robert D. Vilsack,Attorney-in-Fact


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ANNUAL REPORT ONFORM 10-K
PARK-OHIO INDUSTRIES, INC.
 
For the Year Ended December 31, 20072010
 
EXHIBIT INDEX
 
     
Exhibit
  
 
 3.1 Amended and Restated Articles of Incorporation of Park-Ohio Holdings Corp. (filed as Exhibit 3.1 to theForm 10-K of Industries, Inc. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 3.2 Code of Regulations of Park-Ohio Industries, Inc. (filed as Exhibit 3.2 to theForm 10-K of Park-Ohio Industries, Inc. for the year ended December 31, 1998, SEC FileNo. 333-43005 and incorporated by reference and made a part hereof)
 4.1 Second Amended and Restated Credit Agreement, dated June 20, 2007, among Park-Ohio Industries, Inc., the other loan parties thereto, the lenders thereto and JP Morgan Chase Bank, N.A. (successor by merger to Bank One, NA), as agent (filed as exhibit 4.1 toForm 8-K of Park-Ohio Holdings Corp. on June 26, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof).
 4.2 Indenture, dated as of November 30, 2004, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, NA, as trustee (filed as Exhibit 4.1 to theForm 8-K of Park-Ohio Holdings Corp. filed on December 6, 2004, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.1 Form of Indemnification Agreement entered into between Park-Ohio Industries, Inc. and each of its directors and certain officers (filed as Exhibit 10.1 to theForm 10-K of Park-Ohio Industries, Inc. for the year ended December 31, 1998, SEC FileNo. 333-43005 and incorporated by reference and made a part hereof)
 10.2* Amended and Restated 1998 Long-Term Incentive Plan (filed as Appendix A to the Definitive Proxy Statement of Park-Ohio Holdings Corp., filed on April 23, 2001, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 24.1 Power of Attorney
 31.1 Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 31.2 Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 32.1 Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002
     
Exhibit
  
 
 3.1 Amended and Restated Articles of Incorporation of Park-Ohio Holdings Corp. (filed as Exhibit 3.1 to theForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SECFile No. 000-03134 and incorporated by reference and made a part hereof)
 3.2 Code of Regulations of Park-Ohio Holdings Corp. (filed as Exhibit 3.2 to theForm 10-K ofPark-Ohio Holdings Corp. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.1 Third Amended and Restated Credit Agreement, dated March 8, 2010, among Park-Ohio Industries, Inc., RB&W Corporation of Canada Inc., the Ex-Im Borrowers party thereto, the other loan parties thereto, the lenders party thereto and JP Morgan Chase Bank, N.A., as Administrative Agent, JP Morgan Chase Bank, N.A. Toronto Branch, as Canadian Agent, RBS Business Capital as Syndication Agent, Key Bank National Association , as Co-Documentation Agent, JP Morgan Securities Inc., as Sole Lead Arranger, PNC Bank, National Association, as Joint Bookrunner and U.S. Bank National Association, as Co-Documentation Agent and Joint Bookrunner (filed as Exhibit 4.1 to theForm 10-Q of Park-Ohio Holdings Corp., filed on May 10, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.2 Consent and Amendment No. 1 to Third Amended and Restated Credit Agreement, dated July 9, 2010, among Park-Ohio Industries, Inc., RB&W Corporation of Canada, the Ex-Im Borrowers party to the Credit Agreement, the other loan parties to the Credit Agreement, the lenders party to the Credit Agreement, JP Morgan Chase Bank, N.A., as Administrative Agent, and JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian Agent (filed as Exhibit 4.1 to the Form10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.3 Consent and Amendment No. 2 to Third Amended and Restated Credit Agreement, dated August 31, 2010, among Park-Ohio Industries, Inc., RB&W Corporation of Canada, the Ex-Im Borrowers party to the Credit Agreement, the other loan parties to the Credit Agreement, the lenders party to the Credit Agreement, JP Morgan Chase Bank, N.A., as Administrative Agent, and JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian Agent (filed as Exhibit 4.1 to theForm 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 4.4 Indenture, dated as of November 30, 2004, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, NA, as trustee (filed as Exhibit 4.1 to theForm 8-K of Park-Ohio Holdings Corp. filed on December 6, 2004, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.1 Form of Indemnification Agreement entered into between Park-Ohio Holdings Corp. and each of its directors and certain officers (filed as Exhibit 10.1 to theForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.2* Amended and Restated 1998 Long-Term Incentive Plan (filed as Exhibit 10.1 toForm 8-K ofPark-Ohio Holdings Corp., filed on June 3, 2009, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.3* Park-Ohio Holdings Corp. Annual Cash Bonus Plan (filed as Exhibit 10.2 to theForm 8-K forPark-Ohio Holdings Corp, filed June 1, 2006, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.4* Supplemental Executive Retirement Plan for Edward F. Crawford, effective as of March 10, 2008 (filed as Exhibit 10.9 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)


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Exhibit
  
 
 10.5* Non-qualified Defined Contribution Retirement Benefit Letter Agreement for Edward F. Crawford, dated March 10, 2008 (filed as Exhibit 10.10 toForm 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC FileNo. 000-03134 and incorporated by reference and made a part hereof)
 10.6 Agreement of Settlement and Release, dated July 1, 2008 (filed as Exhibit 10.1 toForm 10-Q of Park-Ohio Holdings Corp. for the quarter ended September 30, 2008, SEC FileNo. 000-03134 and incorporated herein by reference and made a part hereof)
 10.12 Asset Purchase Agreement, dated as of August 31, 2010, by and among Assembly Component Systems, Inc., Lawson Products, Inc., Supply Technologies LLC and Park-Ohio Industries, Inc. (filed as Exhibit 10.1 to the Form 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
 10.13 Bill of Sale, dated September 30, 2010, by Rome Die Casting LLC and Johnny Johnson in favor of General Aluminum Mfg. Company (filed as Exhibit 10.2 to the Form 10-Q of Park-Ohio Holdings Corp., filed on November 15, 2010, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
 24.1 Power of Attorney
 31.1 Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 31.2 Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 32.1 Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002
 
 
*Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(c) of this Report.

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