Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

FORM 10-K

(Mark One)

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20112013

OR

or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from __________ to

 __________

Commission file number 0-3134number:

000-03134

PARK-OHIO HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

Ohio

 

34-1867219

(State or other jurisdiction of

incorporation or organization)

 (I.R.S. Employer Identification No.)

6065 Parkland Boulevard,

Cleveland, Ohio

 

44124

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: code (440) 947-2000


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

Title of each class

 

Name of each exchange on which registered

Common Stock, Par Value $1.00 Per Share The NASDAQ Stock Market LLC

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

None

Park-Ohio Holdings Corp. is a successor issuer to Park-Ohio Industries, Inc.


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨  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  ¨ No  þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 this Form 10-K or any amendment to this Form 10-K.    ¨þ



Table of Contents

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

Large accelerated filer

¨

 Accelerated filerþNon-accelerated filer ¨Smaller reporting company ¨þ
Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company¨

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

Aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant: Approximately $178,232,000,$289,030,000 based on the closing price of $21.14$32.98 per share of the registrant’s Common Stock on June 30, 2011.

28, 2013.

Number of shares outstanding of the registrant’s Common Stock, par value $1.00 per share, as of February 29, 2012: 12,137,782.

28, 2014, 12,430,446 shares of the registrant’s common stock, $1 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders to be held on or about May 24, 2012June 12, 2014 are incorporated by reference into Part III of this Form 10-K.



Table of Contents

PARK-OHIO HOLDINGS CORP.

FORM 10-K ANNUAL REPORT

FOR THE FISCAL YEAR ENDED DECEMBER 31, 20112013

TABLE OF CONTENTS

Item No.

     Page No. 

PART I

  

1.

  Business   3  

1A.

  Risk Factors   10  

1B.

  Unresolved Staff Comments   18  

2.

  Properties   18  

3.

  Legal Proceedings   20  

4.

  Mine Safety Disclosures   21  

4A.

  Executive Officers of the Registrant   21  

PART II

  

5.

  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   23  

6.

  Selected Financial Data   24  

7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations   26  

7A.

  Quantitative and Qualitative Disclosures about Market Risk   41  

8.

  Financial Statements and Supplementary Data   42  

9.

  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   74  

9A.

  Controls and Procedures   74  

9B.

  Other Information   75  

PART III

  

10.

  Directors, Executive Officers and Corporate Governance   76  

11.

  Executive Compensation   76  

12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   76  

13.

  Certain Relationships and Related Transactions, and Director Independence   77  

14.

  Principal Accountant Fees and Services   77  

PART IV

  

15.

  Exhibits and Financial Statement Schedules   78  

Signatures

   79  

Item No. Page
 
1.
1A.
1B.
2.
3.
4.
 
5.
6.
7.
7A.
8.
9.
9A.
9B.
 
10.
11.
12
13.
14
 
15.



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Part I


Item 1.Business

Overview

Park-Ohio Holdings Corp. (“Holdings”) was incorporated as an Ohio corporation in 1998. Holdings, primarily through the subsidiaries owned by its direct subsidiary, Park-Ohio Industries, Inc. (“Park-Ohio”), is an industrial supply chain logistics and diversified manufacturing business operating in three segments: Supply Technologies, Aluminum ProductsAssembly Components and ManufacturedEngineered Products.

References herein to “we” or “the Company” include, where applicable, Holdings, Park-Ohio and Holdings’ other direct and indirect subsidiaries.

The Company operates through three reportable segments: Supply Technologies, Assembly Components and Engineered Products. Supply Technologies provides our customers with Total Supply ManagementTM services for a broad range of high-volume, specialty production components. Our Aluminum Products businessTotal Supply Management manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation, and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck; automotive, truck and vehicle parts; power sports and recreational equipment; bus and coaches; electrical distribution and controls; agricultural and construction equipment; consumer electronics; HVAC; lawn and garden; semiconductor equipment; aerospace and defense; and plumbing. Assembly Components manufactures cast and machined aluminum components, automotive and our Manufacturedindustrial rubber and thermoplastic products, fuel filler and hydraulic assemblies for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Assembly Components also provides value-added services such as design and engineering, machining and assembly. Engineered Products business isoperates a major manufacturerdiverse group of highly-engineered industrial products. Ourniche manufacturing businesses serve large, industrialthat design and manufacture a broad range of high quality products engineered for specific customer applications. The principal customers of Engineered Products are original equipment manufacturers (“OEMs”) and end users in a variety of industrial sectors, including the automotiveferrous and vehicle parts,non-ferrous metals, silicon, coatings, forging, foundry, heavy-duty truck, industrialconstruction equipment, steel,automotive, oil and gas, rail electrical distribution and controls,locomotive manufacturing and aerospace and defense oilindustries.
Our sales are made through our own sales organization, distributors and gas, power sports/fitness equipment, HVAC, electrical components, appliancerepresentatives. Intersegment sales are immaterial and semiconductor equipment industries.eliminated in consolidation and are not included in the financial results presented. Intersegment sales are accounted for at values based on market prices. Income allocated to segments excludes certain corporate expenses, interest expense, and certain other infrequent or unusual charges or credits. Identifiable assets by industry segment include assets directly identified with those operations. As of December 31, 20112013, we employed approximately 3,2005,000 persons.

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The following chart reflects our end-use market mix for the year ended

December 31, 2013:

The following chart reflects our geographic mix for the year ended December 31, 2013:

3


The following table summarizes the key attributes of each of our business segments:

 

Supply Technologies

 

AluminumAssembly Components

Engineered Products

   

Manufactured Products    

NET SALES FOR 20112013
$471.9 million
(39% of total)
 

$493.0412.8 million

(51%34% of total)

 

$127.0318.5 million

(13%27% of total)

$346.6 million

(36% of total)

SELECTED PRODUCTS

Sourcing, planning and procurement of over 190,000 production components, including:

• Fasteners

• Pins

• Valves

• Hoses

• Wire harnesses

• Clamps and fittings

• Rubber and plastic components

 

• Control arms

• Front engine covers

• Cooling modules

• Knuckles

• Injection molded rubber products
• Pump housings

• Clutch retainers/pistons

• Master cylinders

• Pinion housings

Rubber and thermoplastic hose

• Oil pans

• Flywheel spacers

• Steering racks

• Fuel filler assemblies
 

• Induction heating and melting systems

• Pipe threading systems

• Industrial oven systems

• Injection molded rubber components

• Forging presses

SELECTED INDUSTRIES SERVED

• Heavy-duty truck

• Automotive, truck and vehicle parts

• Power sports and recreational equipment
• Bus and coaches
• Electrical distribution and controls

• Power sports/fitnessAgricultural and construction equipment

• Consumer electronics
• HVAC

• Lawn and garden
• Semiconductor equipment
• Aerospace and defense

• Electrical components

• Appliance

• Semiconductor equipment

• Recreational vehicles

• Lawn and garden equipment

Plumbing
 

• Automotive

• Agricultural equipment

• Construction

equipment

• Heavy-duty truck

• Marine equipment

 

• Ferrous and non-ferrous metals

• Coatings

• Forging

• Foundry

• Heavy-duty truck

• Construction equipment

• Silicon

• Automotive

• Oil and gas

• Rail and locomotive manufacturing

• Aerospace and defense

Supply Technologies

Our Supply Technologies business provides our customers with Total Supply ManagementTM, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply ManagementTM includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. We operate 4452 logistics service centers in the United States, Mexico, Canada, Puerto Rico, Scotland, Hungary, China, Taiwan, Singapore, India, United Kingdom and India,Ireland, as well as production sourcing and support centers in Asia. Through our supply chain management programs, we supply more than 190,000 globally-sourced production components, many of which are specialized and customized to meet individual customers’ needs.

Products and Services.    Total Supply ManagementTM provides our customers with an expert partner in strategic planning, global sourcing, technical services, parts and materials, logistics, distribution and inventory management of production components. Some production components are characterized by low per unit supplier prices relative to the indirect costs of supplier management, quality assurance, inventory management and delivery to the production line. In addition, Supply Technologies delivers an increasingly broad range of higher-cost production components including valves, electro-mechanical hardware, fittings, steering components and many others. Applications engineering specialists and the direct sales force work closely with the engineering staff of OEM customers to recommend the appropriate production components for a new product

4


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 providingalso provides spare parts and aftermarket products to end users of its customers’ products.

Total Supply ManagementTM services are typically provided to customers pursuant to sole-source arrangements. We believe our services distinguish us from traditional buy/sell distributors, as well as manufacturers who supply products directly to customers, because we outsource our customers’ high-volume production components supply chain management, providing processes customized to each customer’s needs and replacing numerous current suppliers with a sole-source relationship. Our highly-developed, customized, information systems provide transparency and flexibility through the complete supply chain. This enables our customers to: (1) significantly reduce the direct and indirect cost of production component processes by outsourcing internal purchasing, quality assurance and inventory fulfillment responsibilities; (2) reduce the amount of working capital invested in inventory and floor space; (3) reduce component costs through purchasing efficiencies, including bulk buying and supplier consolidation; and (4) receive technical expertise in production component selection and design and engineering. Our sole-source arrangements foster long-term, entrenched supply relationships with our customers and, as a result, the average tenure of service for our top 50 Supply Technologies clients exceeds six years. Supply Technologies’ remaining sales are generated through the wholesale supply of industrial products to other manufacturers and distributors pursuant to master or authorized distributor relationships.

The Supply Technologies segment also engineers and manufactures precision cold formed and cold extruded products, including locknuts, SPAC® nuts and wheel hardware, which are principally used in applications where controlled tightening is required due to high vibration. Supply Technologies produces both standard items and specialty products to customer specifications, which are used in large volumes by customers in the automotive, heavy-duty truck and rail industries.

Markets and Customers.    For the year ended December 31, 2011,2013, approximately 84%79% 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 5,5006,500 customers domestically and internationally. The principal markets served by Supply Technologies are the heavy-duty truck; automotive, truck automotive and vehicle parts,parts; power sports and recreational equipment; bus and coaches; electrical distribution and controls, consumer electronics, power sports/fitness equipment, recreational vehicles, HVAC,controls; agricultural and construction equipment,equipment; consumer electronics; HVAC; lawn and garden; semiconductor equipment,equipment; aerospace and defense,defense; and appliance industries.plumbing. The five largest customers, within which Supply Technologies sells through sole-source contracts to multiple operating divisions or locations, accounted for approximately 27% and 26%31% of the sales of Supply Technologies for 2011both 2013 and 2010, respectively.2012. The loss of any two of its top five customers could have a material adverse effect on the results of operations and financial conditionscondition 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 O 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. Some global competitors include Anixter, Bossard and Wurth, and some domestic competitors include Endries, Fastenal and General. 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 and point-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    In November 2013, we acquired all the third quarteroutstanding capital stock of 2010, Supply Technologies completed the acquisition of certain assets and assumed specific liabilities relating to the Assembly Components Systems (“ACS”QEF Global Limited ("QEF") 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. QEF is a provider of supply chain management solutions with four locations throughout Ireland, Scotland and England. QEF's net sales for the year ended December 31, 2012 totaled approximately $14.0 million.
In October 2013, we acquired all of the outstanding capital stock of Henry Halstead Ltd. (“Henry Halstead”). Henry Halstead is a broad rangeprovider of production components throughsupply chain management solutions throughout the United Kingdom and Ireland. For its service centers throughout North America. Thefiscal year ended March 31, 2013, Henry Halstead generated net sales of approximately $24.0 million.

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Table of Contents

We paid $25.8 million in the aggregate for these two businesses, which are subject to insignificant deferred and contingent purchase price consideration, respectively. QEF and Henry Halstead are included in our Supply Technologies segment from their respective dates of acquisition.
On September 3, 2013, the Company recordedsold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment, for $8.5 million in cash, which resulted in a net gain of $2.2approximately $3.8 million, representing the excessafter taxes of $1.5 million. The business unit sold is a provider of high-quality machine to machine information technology solutions, products and services. As a result of the aggregate fair valuesale, this business had been removed from the Supply Technologies segment and presented as a discontinued operation for all of purchased netthe periods presented. Additionally, the assets overand liabilities of the purchase price. See Note C tobusiness are classified as held for sale under the caption other current assets and accrued expenses and other, respectively, in the Company's consolidated financial statements included elsewhere herein.

Aluminum Products

Webalance sheet as of December 31, 2012.

Assembly Components
Our Assembly Components segment operates what we believe that we areis 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 abilityIn 2012, we added machining capabilities to offer our customers this comprehensive range of

capabilities at a low cost provides us with a competitive advantage. We produce our aluminum components at six manufacturing facilities in Ohio, Indianaproducts service offerings. We also design and Georgia.

manufacture fluid routing, injection molded rubber and thermoplastic and screw products.

Products and Services.    Our Aluminum Products business casts    Assembly Components manufactures cast aluminum components, automotive and machines aluminum engine, transmission, brake, suspensionindustrial rubber and other componentsthermoplastic products, fuel filler and hydraulic assemblies for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment OEMs, primarily on a sole-source basis. Aluminum Products’industries. Assembly Components’ principal products include front engine covers, cooling modules, control arms, knuckles, pump housings, clutch retainers and pistons, master cylinders, pinion housings, oil pans and flywheel spacers.spacers, injected molded rubber and silicone products, including wire harnesses, shock and vibration mounts, spark plug boots and nipples and general sealing gaskets, rubber and thermoplastic hose and fuel filler assemblies. We produce our Assembly Components at twenty-four manufacturing facilities in Ohio, Michigan, Indiana, Tennessee, Florida, Georgia, Mexico, China and the Czech Republic. In addition, we also provide value-added services such as design engineering, machining and part assembly. Although these parts are lightweight, they possess high durability and integrity characteristics even under extreme pressure and temperature conditions.

Demand by automotive OEMs for aluminum castings has increased in recent years as they have sought lighter alternatives to steel and iron, primarily to increase fuel efficiency without compromising structural integrity. We believe that this replacement trend will continue as end-users and the regulatory environment require greater fuel efficiency.

Markets and Customers.    The five largest customers, withinto which Aluminum ProductsAssembly Components sells to multiple operating divisions through sole-source contracts, accounted for approximately 59% and 57%45% of Aluminum ProductsAssembly Components sales for 2011both 2013 and 2010, respectively.2012. 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.    Aluminum Products    Assembly Components competes principally on the basis of its ability to: (1) engineer and manufacture high-quality, cost-effective, machined castingsassemblies utilizing multiple casting technologies in large volumes; (2) provide timely delivery; and (3) retain the manufacturing flexibility necessary to quickly adjust to the needs of its customers. There are few domestic companies with aluminum casting capabilities able to meet the customers’ stringent quality and service standards and lean manufacturing techniques. As one of these suppliers, Aluminum ProductsAssembly Components is well-positioned to benefit as customers continue to consolidate their supplier base. Principal competitors in the Assembly Components segment are Chassix, Martinrea and Stant.

Recent Developments.    On September 30, 2010,    Effective April 26, 2013, the Company enteredacquired certain assets and assumed specific liabilities relating to Bates Acquisition, LLC and Bates Real Estate Acquisition, LLC (collectively, “Bates”) for a Billtotal purchase consideration of Sale with Rome Die Casting LLC (“Rome”),$20.8 million in cash. The acquisition was funded from borrowings under the revolving credit facility provided by the Credit Agreement (as defined herein). Bates is a producerleading manufacturer of aluminum high pressure die castings, pursuant to which Rome agreed to transfer toextruded, formed and molded products and assemblies for the Company substantially alltransportation and industrial markets. Bates’ production facilities are located in Tennessee. The financial results of its assetsBates are included in exchange for approximately $7.5the Company’s Assembly Components segment and contributed $30.4 million in revenues and $2.2 million of notes receivable duenet income from Rome held by the Company. See Note C todate acquired through December 31, 2013. The acquisition was accounted for under the consolidated financial statements included elsewhere herein.acquisition method of accounting.

Manufactured


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Engineered Products

Our ManufacturedEngineered 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 twelveeleven domestic facilities and tennine international facilities in Canada, Mexico, the United Kingdom, Belgium, Germany, China and Japan.

Products and Services.    Our induction heating and melting business utilizes proprietary technology and specializes in the engineering, construction, service and repair of induction heating and melting systems, primarily for the ferrous and non-ferrous metals, silicon, coatings, forging, foundry, automotive and construction equipment industries. Our induction heating and

melting systems are engineered and built to customer specifications and are used primarily for melting, heating, and surface hardening of metals and curing of coatings. Approximately 49%57% of our induction heating and melting systems’ revenues are derived from the sale of replacement parts and provision of field service, primarily for the installed base of our own products. Our pipe threading business serves the oil and gas industry. We also engineer and install mechanical forging presses, sell spare parts and provide field service for the large existing base of mechanical forging presses and hammers in North America. We machine, induction harden and surface finish crankshafts and camshafts, used primarily in locomotives. We forge aerospace and defense structural components such as landing gears and struts, as well as rail products such as railcar center plates and draft lugs. We manufacture injection mold rubber and silicone products, including wire harnesses, shock and vibration mounts, spark plug boots and nipples and general sealing gaskets.

Markets and Customers.    We sell induction heating and other capital equipment to component manufacturers and OEMs in the ferrous and non-ferrous metals, silicon, coatings, forging, foundry, automotive, truck, construction equipment and oil and gas industries. We sell forged and machined products to locomotive manufacturers, machining companies and sub-assemblers who finish aerospace and defense products for OEMs, and railcar builders and maintenance providers. We sell rubber products primarily to sub-assemblers in the automotive, food processing and consumer appliance industries.

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-sized forging and machining businesses on the basis of product quality and precision. We compete with other domestic small- to medium-sized manufacturers of injection molded rubber and silicone products primarily on the basis of price and product quality.

Recent Developments.    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 O to the consolidated financial statements included elsewhere herein. On December 31, 2010, the Company through its subsidiary,    Ajax Tocco Magnethermic acquiredCorporation (“ATM”) was the defendant in a lawsuit in the United States District Court for the Eastern District of Arkansas. The plaintiff is IPSCO Tubulars Inc. d/b/a TMK IPSCO. The complaint alleged claims for breach of contract, gross negligence and constructive fraud, and TMK IPSCO sought approximately $6.0 million in direct and $4.0 million in consequential damages as well as an unspecified amount of punitive damages. ATM denied the allegations against it, believes it has a number of meritorious defenses and vigorously defended the lawsuit. A motion for partial summary judgment filed by ATM that, among other things, denied the plaintiff's fraud claims was granted by the district court. The remaining claims were the subject of a bench trial in May 2013. At the close of TMK IPSCO's case, the court entered partial judgment in favor of ATM, dismissing the gross negligence claim, dismissing a portion of the breach of contract claim, and dismissing any claim for punitive damages. The trial proceeded with respect to the remainder of TMK IPSCO's claim for damages and, in September 2013, the district court awarded TMK IPSCO damages of approximately $5.2 million. ATM is appealing the court's decision. TMK IPSCO is also appealing the decision and, additionally, it has asked the court for $3.8 million in attorney's fees.
During August 2013, the Company entered into an agreement to purchase certain assets and the related induction heating intellectual propertyliabilities of ABP Induction’s U.S. heatinga small business, operating as Pillar Induction (“Pillar”) for $10.3which resulted in a pre-tax gain of $0.6 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market. See Note C to the consolidated financial statements included elsewhere herein.

As a result of incurred losses induring the third quarter of 2011, projected losses2013. The small business is engaged in the business of designing, manufacturing, selling, distributing and installing various tube bending machines and related tooling, spare and replacement parts and ancillary services for fiscal year 2011 and planned restructuring,commercial applications. The small business is included in our Engineered Products segment from the date of acquisition. The purchase price was not significant to the results of operations, financial condition or liquidity.

Effective August 1, 2013, the Company evaluated the long-lived assetsentered into an agreement to sell 25% of its rubber productsSouthwest Steel Processing LLC, ("SSP") business unitto Arkansas Steel Associates, LLC for impairment. Based on management’s analysis, certain long-lived assets were deemed abandoned$5.0 million in cash. SSP is included in our Engineered Products segment. This transaction facilitates the Company's capacity expansion in one of its growing product lines.
During the second quarter of 2012, we agreed to settle the Evraz Highveld Steel and were written down to their scrap or liquidation value andVanadium (“Evraz”) arbitration proceeding for the Company recorded a chargesum of $5.4 million.

$13.0 million in cash, which payment was made in June 2012.


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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 ProductsAssembly Components primarily markets and sells its products in North America through internal sales personnel and independent sales representatives. ManufacturedEngineered Products primarily markets and sells its products in North America through both internal sales personnel and independent sales representatives. Induction heating and pipe threading equipment is also marketed and sold in Europe, Asia, Latin America and Africa through both internal sales personnel and independent sales representatives. In some instances, the internal engineering staff assists in the sales and marketing effort through joint design and applications-engineering efforts with major customers.

Raw Materials and Suppliers

Supply Technologies purchases substantially all of its production components from third-party suppliers. Supply Technologies has multiple sources of supply for its components. An increasing portion of Supply Technologies’ production components are purchased from suppliers in foreign countries, primarily Canada, Taiwan, China, South Korea, Singapore, India and multiple European countries. We areSupply Technologies is dependent upon the ability of such suppliers to meet stringent quality and performance standards and to conform to delivery schedules. Aluminum ProductsAssembly Components and ManufacturedEngineered 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 ProductsAssembly Components and ManufacturedEngineered Products are commodity products available from several domestic suppliers. Management believes that raw materials and component parts other than certain specialty products are available from alternative sources.

Our suppliers of raw materials and component parts 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 raw materials and component parts. 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. See the discussion of risks associated with raw material supply and costs in Item 1A "Risk Factors".
Backlog

Management believes that backlog is not a meaningful measure for Supply Technologies, as a majority of Supply Technologies’ customers require just-in-time delivery of production components. Management believes that Aluminum Products’Assembly Components’ 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 ManufacturedEngineered Products’ orders believed to be firm as of December 31, 20112013 was $226.7$145.3 million compared with $174.4$180.0 million as of December 31, 2010. Approximately $1.9 million2012. Predominantly all of theEngineered Products’ backlog as of December 31, 2011 is scheduled to be shipped after 2012. The remainder2013 is scheduled to be shipped in 2012.

2014.

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 environmental laws and regulations and permit requirements could result in civil and criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures. Pursuant to certain environmental laws, owners or operators of facilities may be liable for the costs of response or other corrective actions for contamination identified at or emanating from current or former locations, without regard to whether the owner or operator knew of, or 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

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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 certain clean-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 in Note B2 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, 2011, 20102013, 2012 and 20092011 is incorporated herein by reference.

Recent Developments

In November 2013, we acquired all the outstanding capital stock of QEF. QEF is a provider of supply chain management solutions with four locations throughout Ireland, Scotland and England. QEF's sales for the year ended December 31, 2012 totaled approximately $14.0 million.
In October 2013, we acquired all of the outstanding capital stock of Henry Halstead. Henry Halstead is a provider of supply chain management solutions throughout the United Kingdom and Ireland. For its fiscal year ended March 31, 2013, Henry Halstead generated net sales of approximately $24.0 million.
We paid $25.8 million in the aggregate for these two businesses, which are subject to insignificant deferred and contingent purchase price consideration, respectively. QEF and Henry Halstead are included in our Supply Technologies segment from their respective dates of acquisition.
On September 3, 2013, we sold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment, for $8.5 million in cash, which resulted in a net gain of approximately $3.8 million, after taxes of $1.5 million. The business unit sold is a provider of high-quality machine to machine information containedtechnology solutions, products and services. As a result of the sale, this business had been removed from the Supply Technologies segment and presented as a discontinued operation for all of the periods presented. Additionally, the assets and liabilities of the business are classified as held for sale under the caption other current assets and accrued expenses and other, respectively, in Note C, Note D, Note Oour consolidated balance sheet as of December 31, 2012.
Effective April 26, 2013, we acquired certain assets and Note Passumed specific liabilities relating to Bates for a total purchase consideration of $20.8 million in cash. The acquisition was funded from borrowings under the revolving credit facility provided by the Credit Agreement (as defined herein). Bates is a leading manufacturer of extruded, formed and molded products and assemblies for the transportation and industrial markets. Bates’ production facilities are located in Tennessee. The financial results of Bates are included in our Assembly Components segment and contributed $30.4 million in revenues and $2.2 million of net income from the date acquired through December 31, 2013. The acquisition was accounted for under the acquisition method of accounting.
Ajax Tocco Magnethermic Corporation (“ATM”) was the defendant in a lawsuit in the United States District Court for the Eastern District of Arkansas. The plaintiff is IPSCO Tubulars Inc. d/b/a TMK IPSCO. The complaint alleged claims for breach of contract, gross negligence and constructive fraud, and TMK IPSCO sought approximately $6.0 million in direct and $4.0 million in consequential damages as well as an unspecified amount of punitive damages. ATM denied the allegations against it, believes it has a number of meritorious defenses and vigorously defended the lawsuit. A motion for partial summary judgment

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filed by ATM that, among other things, denied the plaintiff's fraud claims was granted by the district court. The remaining claims were the subject of a bench trial in May 2013. At the close of TMK IPSCO's case, the court entered partial judgment in favor of ATM, dismissing the gross negligence claim, dismissing a portion of the breach of contract claim, and dismissing any claim for punitive damages. The trial proceeded with respect to the consolidated financial statements included elsewhere hereinremainder of TMK IPSCO's claim for damages and, in September 2013, the district court awarded TMK IPSCO damages of approximately $5.2 million. ATM is incorporated herein by reference.

On March 5, 2012,appealing the Companycourt's decision. TMK IPSCO is also appealing the decision and, additionally, it has asked the court for $3.8 million in attorney's fees.

During August 2013, we entered into an agreement to acquire Fluid Routing Solutions Holding Corp. (“FRS”),purchase certain assets and liabilities of a leading manufacturersmall business, which resulted in a pre-tax gain of industrial hose products and fuel filler and hydraulic fluid assemblies, in an all cash transaction valued at $97.5 million. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel, power steering, transmission oil cooling, hydraulic, and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee and the Czech Republic. The transaction is expected to close by March 30, 2012 subject to a number of customary conditions, including the expiration of waiting periods and the receipt of approvals under Hart-Scott-Rodino Antitrust Improvements Act.

On April 7, 2011, the Company completed the sale of $250$0.6 million aggregate principal amount of 8.125% senior notes due 2021 (the “Notes”). The Notes bear an interest rate of 8.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2011. The Notes mature on April 1, 2021. In connection with the sale of the Notes, the Company also entered into a fourth amended and restated credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement, among other things, provides an increased credit facility up to $200 million, extends the maturity date of the borrowings under the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option,

pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50 million. The Company also purchased all of its outstanding $183.8 million aggregate principal amount of 8.375% senior subordinated notes due 2014 (the “Senior Subordinated Notes”) that were not held by its affiliates pursuant to a tender offer and subsequent redemption, repaid all of the term loan A and term loan B outstanding under its then existing credit facility and retired the Senior Subordinated Notes in the aggregate principal amount of $26.2 million that were held by an affiliate. The Company incurred debt extinguishment costs related to premiums and other transaction costs associated with the tender offer and subsequent redemption of the Senior Subordinated Notes and wrote off deferred financing costs totaling $7.3 million and recorded a provision for foreign income taxes of $2.1 million resulting from the retirement of the Senior Subordinated Notes that were held by an affiliate.

Duringduring the third quarter of 2011,2013. The small business is engaged in the Company recordedbusiness of designing, manufacturing, selling, distributing and installing various tube bending machines and related tooling, spare and replacement parts and ancillary services for commercial applications. The small business is included in our Engineered Products segment from the date of acquisition. The purchase price was not significant to the results of operations, financial condition or liquidity.

Effective August 1, 2013, we entered into an asset impairment chargeagreement to sell 25% of $5.4our SSP business to Arkansas Steel Associates, LLC for $5.0 million associated with the underperformance of the assetsin cash. SSP is included in our Engineered Products segment. This transaction facilitates our capacity expansion in one of its rubber products business unit.

growing product lines.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 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 at 1-800-SEC-0330, or by accessing the SEC’s website at http://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 free of charge at http://www.pkoh.com. The information on our website is not a part of this annual report on Form 10-K.

Executive Officers of the Registrant
Information with respect to our executive officers as of March 14, 2014 is as follows:
NameAgePosition
Edward F. Crawford74
Chairman of the Board, Chief Executive Officer and Director
Matthew V. Crawford44
President and Chief Operating Officer and Director
W. Scott Emerick49
Vice President and Chief Financial Officer
Robert D. Vilsack53
Secretary and General Counsel
Patrick W. Fogarty52
Director of Corporate Development
Mr. E. Crawford has been a director and our Chairman of the Board and Chief Executive Officer since 1992. He has also served as the Chairman of Crawford Group, Inc., a management company for a group of manufacturing companies, since 1964.
Mr. M. Crawford has been President and Chief Operating Officer since 2003 and joined us in 1995 as Assistant Secretary and Corporate Counsel. He was also our Senior Vice President from 2001 to 2003. Mr. M. Crawford became one of our directors in August 1997 and has served as President of Crawford Group, Inc. since 1995. Mr. E. Crawford is the father of Mr. M. Crawford.
Mr. Emerick has been Vice President and Chief Financial Officer since joining us in July 2012. From 2004 to 2011, Mr. Emerick served as Corporate Controller of The Lubrizol Corporation, a global specialty chemical company. From 2001 to 2004, he served as Director of Finance and Director of Accounting and External Financial Reporting at Noveon, Inc., a specialty chemical company. From 1997 to 2001, he served as the Director of Finance and Corporate Controller of Flexalloy Inc., a distributor and provider of vendor managed inventory services. Prior to joining Flexalloy, he spent seven years with the accounting firm Ernst & Young.

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Mr. Vilsack has been Secretary and General Counsel since joining us in 2002. From 1999 until his employment with us, Mr. Vilsack was engaged in the private practice of law. From 1997 to 1999, Mr. Vilsack was Vice President, General Counsel and Secretary of Medusa Corporation, a manufacturer of Portland cement, and prior to that he was Vice President, General Counsel and Secretary of Figgie International Inc., a manufacturing conglomerate.
Mr. Fogarty has been Director of Corporate Development since 1997 and served as Director of Finance from 1995 to 1997.

Item 1A.    Risk Factors

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

Adverse credit market conditions may significantly affect our access to capital, cost of capital and ability to meet liquidity needs.

Disruptions, uncertainty or volatility in the credit markets may adversely impact our ability to access credit already arranged and the availability and cost of credit to us in the future. These market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow and maintain our business. Accordingly, we may be forced to delay raising capital or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility. Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures and reducing or eliminating future share repurchases or other discretionary uses of cash. Overall, our results of operations, financial condition and cash flows could be materially adversely affected by disruptions in the credit markets.

The recent

Adverse global financial crisiseconomic conditions may have significant effects on our customers and suppliers that wouldcould result in material adverse effects on our business and operating results.

The recent global financial crisis, which included, among other things, significant

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 recentunfavorable global financial crisiseconomic conditions may materially adversely affect our suppliers’ access to capital and liquidity with which tothey maintain their inventories, production levels and product quality, which could cause them to raise prices or lower production levels.

These potential effects of the recentadverse global financial crisiseconomic conditions 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

Adverse global financial crisiseconomic conditions 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, 2011,2013, 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 2012,2014, 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 thea 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.


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The industries in which we operate are cyclical and are affected by the economy in general.

We sell products to customers in industries that experience cyclicality (expectancy of recurring periods of economic growth and slowdown) in demand for products and may experience substantial increases and decreases in business volume throughout economic cycles. Industries we serve, including the automotive and vehicle parts, heavy-duty truck, industrial equipment, steel, rail, electrical distribution and controls, aerospace and defense, power sports/fitnessrecreational 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 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-

dutyheavy-duty truck industries are highly cyclical and may be adversely affected by international competition. In addition, the automotive and heavy-duty truck industries are significantly unionized and subject to work slowdowns and stoppages resulting from labor disputes. We derived 19%40% and 7%6% of our net sales during the year ended December 31, 20112013 from the automobileautomotive and heavy-duty truck industries, respectively.

The loss of a portion of business to any of our major automotive or heavy-duty truck customers could have a material adverse effect on our financial condition, cash flow and results of operations. We cannot assure you that we will maintain or improve our relationships in these industries or that we will continue to supply these customers at current levels.

Our Supply Technologies customers are generally not contractually obligated to purchase products and services from us.

Most of the products and services are provided to our Supply Technologies customers under purchase orders as opposed to long-term contracts. When we do enter into long-term contracts with our Supply Technologies customers, many of them only establish pricing terms and do not obligate our 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, 2011,2013, our ten largest customers accounted for approximately 26%28% of our net sales. Many of our customers place orders for products on an as-needed basis and operate in cyclical industries and, as a result, their order levels have varied from period to period in the past and may vary significantly in the future. Due to competitive issues, we have lost key customers in the past and may again in the future. Customer orders are dependent upon their markets and may be subject to delays or cancellations. As a result of dependence on our key customers, we could 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 preference period prior to a bankruptcy filing may be potentially recoverable, which could adversely impact our results of operations.

During 2009, Chrysler’s U.S. operations, General Motor’s U.S. operations and Metaldyne Corporation filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. We have collected substantially all amounts that were due from Chrysler and General Motors as of the dates of the respective bankruptcy filings and as such there was no charge to earnings as a result of these bankruptcies. The account receivable from Metaldyne at the time of the bankruptcy was $4.2 million. We recorded a $4.2 million charge to reserve for the collection of

the account receivable when Metaldyne announced it had completed the sale of substantially all of its assets to MD Investors Corporation, effectively making no payments to 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 ProductsAssembly Components and ManufacturedEngineered Products segments are product quality and

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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 ourHoldings’ outstanding common stock and if at such time neither Mr. E. Crawford nor Mr. M. Crawford holds 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.

We may encounter difficulty in expanding our business through targeted acquisitions.

We have pursued, and may continue to pursue, targeted acquisition opportunities that we believe would complement our business. We cannot assure you that we will be successful in consummating any acquisitions.

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,information technology, services and products into our business, diversion of management’s attention, the assumption of unknown liabilities, increases in our indebtedness, the failure to achieve the strategic objectives of those acquisitions and other unanticipated problems, some or all of which could materially and adversely affect us. The process

of integrating operations could cause an interruption of, or loss of momentum in, our activities. Any delays or difficulties encountered in connection with any acquisition and the integration of our operations could have a material adverse effect on our business, results of operations, financial condition or prospects of our business.

Our Supply Technologies business depends upon third parties for substantially all of our component parts.

Our Supply Technologies business purchases substantially all of its component parts from third-party suppliers and manufacturers. As 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, could 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 ProductsAssembly Components and ManufacturedEngineered 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.


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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 may experience higher than anticipated gas costs in the future, which could adversely affect our results of operations. In addition, a disruption or curtailment in supply could have a material adverse effect on our production and sales levels.

Potential product liability risks exist from the products that we sell.

Our businesses expose us to potential product liability risks that are inherent in the design, manufacture and sale of our products and products of third-party vendors that we use or resell.

While we currently maintain what we believe to be suitable and adequate product liability insurance, we cannot assure you that we will be able to maintain our insurance on acceptable terms or that our insurance will provide adequate protection against potential liabilities. In the event of a claim against us, a lack of sufficient insurance coverage could have a material adverse effect on our financial condition, liquidity and results of operations. Moreover, even if we maintain adequate insurance, any successful claim could have a material adverse effect on our financial condition, liquidity and results of operations.

Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations.

As of December 31, 2011,2013, we were a party to seveneight collective bargaining agreements with various labor unions that covered approximately 400650 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;

potential disruption that could be caused with the partial or complete reconfiguration of the European Union;

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

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payments to non-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. For example, in connection with responding to a subpoena from the staff of the SEC, regarding a third party, we disclosed to the staff that the third party participated in a payment on our behalf to a foreign tax official that implicates the FCPA. If we are found to be liable for FCPA violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

Any of the events enumerated above could have an adverse effect on our operations in the future by reducing the demand for our products and services, decreasing the prices at which we can sell our products or otherwise having an adverse effect on our business, financial condition or results of operations. We cannot assure you that we will continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. We also cannot assure you that these laws will not be modified.

Unexpected delays in the shipment of large, long-lead industrial equipment could adversely affect our results of operations in the period in which shipment was anticipated.

Long-lead industrial equipment contracts are a significant and growing part of our business. We primarily use the percentage of completion method to account for these contracts. Nevertheless, under this method, a large proportion of revenues and earnings on such contracts are recognized close to shipment of the equipment. Unanticipated shipment delays on large contracts could postpone recognition of revenue and earnings into future periods. Accordingly, if shipment was anticipated in the fourth quarter of a year, unanticipated shipment delays could adversely affect results of operations in that year.

We are subject to significant environmental, health and safety laws and regulations and related compliance expenditures and liabilities.

Our businesses are subject to many foreign, federal, state and local environmental, health and safety laws and regulations, particularly with respect to the use, handling, treatment, storage, discharge and disposal of substances and hazardous wastes used or generated in our manufacturing processes. Compliance with these laws and regulations is a significant factor in our business. We have incurred and expect to continue to incur significant expenditures to comply with applicable environmental laws and regulations. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial actions.

We are currently, and may in the future be, required to incur costs relating to the investigation or remediation of property, including property where we have disposed of our waste, and for addressing environmental conditions. Some environmental laws and regulations impose liability and responsibility on present and former owners, operators or users of facilities and sites for contamination at such facilities and sites without regard to causation or knowledge of contamination. In addition, we occasionally evaluate various alternatives with respect to our facilities, including possible dispositions or closures. Investigations undertaken in connection with these activities may lead to discoveries of contamination that must be remediated, and closures of facilities may trigger compliance requirements that are not applicable to operating facilities. Consequently, we cannot assure you that existing or future circumstances, the development of new facts or the failure of third parties to address contamination at current or former facilities or properties will not require significant expenditures by us.

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 offrom, among other things, 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.


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If our information systems fail, our business willcould 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 ProductsAssembly Components and ManufacturedEngineered Products segments. We depend on our information systems to process orders, manage inventory and accounts receivable collections, purchase products, maintain cost-effective operations, route and re-route orders and provide superior service to our customers. We cannot assure you that a disruption in the operation of our information systems used by Supply Technologies, including the failure of the supply chain management software to function properly, or those used by Aluminum ProductsAssembly Components and ManufacturedEngineered Products will not occur. Any such disruption could have a material adverse effect on our financial condition, liquidity and results of operations.

Operating problems in our business may materially adversely affect our financial condition and results of operations.

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 SEC, 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 A1 to the consolidated financial statements included elsewhere herein.

We have a significant amount of goodwill, and any future goodwill impairment charges could adversely impact our results of operations.
As of December 31, 2013, we had goodwill of $60.4 million. The future occurrence of a potential indicator of impairment, such as a significant adverse change in legal factors or business climate, an adverse action or assessment by a regulator, unanticipated competition, a material negative change in relationships with significant customers, strategic decisions made in response to economic or competitive conditions, loss of key personnel or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could result in goodwill impairment charges, which could adversely impact our results of operations. We have recorded goodwill impairment charges in the past, and such charges materially impacted our historical results of operations. For additional information, see Note 5, Goodwill, to the consolidated financial statements included elsewhere herein.
Our Chairman of the Board and Chief Executive Officer and our President and Chief Operating Officer collectively beneficially own a significant portion of ourHoldings’ outstanding common stock and their interests may conflict with yours.

As of February 29, 2012,December 31, 2013, Edward Crawford, our Chairman of the Board and Chief Executive Officer, and Matthew Crawford, our President and Chief Operating Officer, collectively beneficially owned approximately 27%26% of ourHoldings’ common stock. Mr. E. Crawford is Mr. M. Crawford’s father. Their interests could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Messrs. E. Crawford and M. Crawford may conflict with your interests as a shareholder.

interests.

16

Table of Contents

Item 1B.    Unresolved Staff Comments

None.


Item 2.    Properties

As of December 31, 2011,2013, our operations included numerous manufacturing and supply chain logistics services facilities located in 26 states in the United States and in Puerto Rico, as well as in Asia, Canada, Europe and Mexico. Approximately 88% of the available square footage wasWe lease our world headquarters located in Cleveland, Ohio, which includes the United States. Approximately 45%world headquarters for certain of the available square footage was owned. As of December 31, 2011, approximately 31% of the available domestic square footage was used by the Supply Technologies segment, 49% was used by the Manufactured Products segmentour businesses. We believe our manufacturing, logistics and 20% was used by the Aluminum Products segment. Approximately 50% of the available foreign square footage was used by the Supply Technologies segment and 50% was used by the Manufactured Products segment. In the opinion of management, ourcorporate office facilities are generally well maintainedwell-maintained and are suitable and adequate, for their intended uses.

and have sufficient productive capacity to meet our current needs.


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Table of Contents

The following table provides information relative to our principal facilities as of December 31, 2011.

Related Industry

Segment

 

Location

 

Owned or

Leased

 

Approximate

Square Footage

  

Use

SUPPLY TECHNOLOGIES(1) Cleveland, OH Leased  60,450(2)  Supply Technologies Corporate Office
 Dayton, OH Leased  70,600   Logistics
 Lawrence, PA Leased  116,000   Logistics and Manufacturing
 Minneapolis, MN Leased  87,100   Logistics
 Allentown, PA Leased  43,800   Logistics
 Atlanta, GA Leased  56,000   Logistics
 Memphis, TN Leased  48,750   Logistics
 Louisville, KY Leased  30,000   Logistics
 Chicago, IL Leased  51,000   Logistics
 Tulsa, OK Leased  40,000   Logistics
 Lenexa, KS Leased  67,400   Logistics
 Austin, TX Leased  30,000   Logistics
 Streetsboro, OH Leased  45,000   Logistics
 Mississauga, Ontario, Canada Leased  145,000   Manufacturing
 Solon, OH Leased  47,100   Logistics
 Dublin, VA Leased  40,000   Logistics
 Delaware, OH Owned  45,000   Manufacturing

ALUMINUM

 Conneaut, OH(3) Leased/Owned  258,300   Manufacturing

PRODUCTS

 Huntington, IN Leased  132,000   Manufacturing
 Fremont, IN Owned  112,000   Manufacturing
 Wapakoneta, OH Owned  188,000   Manufacturing
 Rootstown, OH Owned  209,300   Manufacturing
 Ravenna, OH Owned  70,000   Manufacturing

MANUFACTURED

 Cuyahoga Hts., OH Owned  427,000   Manufacturing

PRODUCTS(4)

 Cicero, IL Owned  450,000   Manufacturing
 Le Roeulx, Belgium Owned  120,000   Manufacturing
 Wickliffe, OH Owned  110,000   Manufacturing
 Brookfield, WI Leased  116,000   Manufacturing
 Warren, OH Owned  195,000   Manufacturing
 Canton, OH Leased  125,000   Manufacturing
 Madison Heights, MI Leased  128,000   Manufacturing
 Newport, AR Leased  200,000   Manufacturing
 Cleveland, OH Leased  150,000   Manufacturing

2013.
Related Industry
Segment
Location
Owned or
Leased
Approximate
Square Footage
Use
SUPPLYMississauga, Ontario, CanadaLeased145,000
Manufacturing
TECHNOLOGIES (1)Lawrence, PALeased116,000
Logistics and Manufacturing
Minneapolis, MNLeased87,100
Logistics
Dayton, OHLeased70,600
Logistics
Cleveland, OH (2)Leased60,450
Supply Technologies Corporate Office
Carol Stream, ILLeased51,000
Logistics
Memphis, TNLeased48,750
Logistics
Solon, OHLeased47,100
Logistics
Streetsboro, OHLeased45,000
Manufacturing
Allentown, PALeased43,800
Logistics
Suwanee, GALeased42,500
Logistics
Dublin, VALeased40,000
Logistics
Tulsa, OKLeased40,000
Logistics
Lenexa, KSLeased29,500
Logistics
ASSEMBLYOcala, FLOwned433,000
Manufacturing
COMPONENTSConneaut, OH (4)Leased/Owned283,800
Manufacturing
Lexington, TNOwned240,000
Manufacturing
Lobelville, TN (5)Owned208,700
Manufacturing
Rootstown, OHOwned208,000
Manufacturing
Cleveland, OH (3)Leased/Owned190,000
Manufacturing
Wapakoneta, OHOwned188,000
Manufacturing
Huntington, INLeased124,500
Manufacturing
Fremont, INOwned112,000
Manufacturing
Big Rapids, MIOwned97,000
Manufacturing
Ravenna, OHOwned69,000
Manufacturing
Delaware, OHOwned45,000
Manufacturing
Bedford, OHLeased43,300
Manufacturing
ENGINEEREDCicero, ILOwned450,000
Manufacturing
PRODUCTS (6)Cuyahoga Heights, OHOwned427,000
Manufacturing
Newport, AROwned200,000
Manufacturing
Warren, OHOwned195,000
Manufacturing
Madison Heights, MILeased128,000
Manufacturing
Canton, OHLeased124,000
Manufacturing
La Roeulx, BelgiumOwned120,000
Manufacturing
Brookfield, WILeased116,000
Manufacturing
Wickliffe, OHOwned110,000
Manufacturing
Albertville, ALLeased56,000
Office
Cortland, OHOwned30,000
Office and Manufacturing
(1)Supply Technologies has 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 twoone leased property with 150,000 square feet and one owned property with 40,000 square feet.
(4)Includes three leased properties with square footage of 91,800, 64,000 and 64,000, respectively,45,700 and twoone owned propertiesproperty with 82,300 and 20,200 square feet, respectively.feet.

(4)Manufactured
(5)Includes five facilities, which make up the total square footage of 208,700.
(6)Engineered Products has other owned and leased facilities, none of which is deemed to be a principal facility.


18

Table of Contents

Item 3. Legal Proceedings

We are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation are not expected to have a material adverse effect on our financial condition, liquidity or results of operations.

In addition to the routine lawsuits and asserted claims noted above, we were a party to the lawsuits and legal proceedings described below at as of December 31, 2011:

2013:

We were a co-defendant in approximately 260269 cases asserting claims on behalf of approximately 1,140609 plaintiffs alleging personal injury as a result of exposure to asbestos. These asbestos cases generally relate to production and sale of asbestos-containing products and allege various theories of liability, including negligence, gross negligence and strict liability, and seek compensatory and, in some cases, punitive damages.

In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. In substantially all of the asbestos cases, the plaintiffs either claim damages in excess of a specified amount, typically a minimum amount sufficient to establish jurisdiction of the court in which the case was filed (jurisdictional minimums generally range from $25,000 to $75,000), or do not specify the monetary damages sought. To the extent that any specific amount of damages is sought, the amount applies to claims against all named defendants.

There are only seven asbestos cases, involving 25 plaintiffs, that plead specified damages. In each of the seven cases, the plaintiff is seeking compensatory and punitive damages based on a variety of potentially alternative causes of action. In three cases, the plaintiff has alleged compensatory damages in the amount of $3.0 million for four separate causes of action and $1.0 million for another cause of action and punitive damages in the amount of $10.0 million. In the fourth case, the plaintiff has alleged against each named defendant, compensatory and punitive damages, each in the amount of $10.0 million, for seven separate causes of action. In the fifth case, the plaintiff has alleged compensatory damages in the amount of $20.0 million for three separate causes of action and $5.0 million for another cause of action and punitive damages in the amount of $20.0 million. In the remaining two cases, the plaintiffs have each alleged against each named defendant, compensatory and punitive damages, each in the amount of $50.0 million, for four separate causes of action.

Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases, and believe we will continue to be successful in being dismissed from such cases. However, it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation. Despite this uncertainty, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all or that

any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff’splaintiff'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.

One

ATM was the defendant in a lawsuit in the United States District Court for the Eastern District of our subsidiaries, Ajax Tocco Magnethermic (“ATM”),Arkansas. The plaintiff is IPSCO Tubulars Inc. d/b/a party to a binding arbitration proceeding pending in South Africa with one of its customers, Evraz Highveld Steel and Vanadium (“Evraz”).TMK IPSCO. The arbitration involves a dispute over the design and installation of a melting furnace. Evraz sought binding arbitration in September of 2011complaint alleged claims for breach of contract, gross negligence and seeks compensatoryconstructive fraud, and TMK IPSCO sought approximately $10.0 million in damages as well as an unspecified amount of

19

Table of Contents

punitive damages. ATM denies the allegations against it, believes it has a number of meritorious defenses and vigorously defended the lawsuit. A motion for partial summary judgment filed by ATM that, among other things, denied the plaintiff's fraud claims was granted by the district court. The remaining claims were the subject of a bench trial in May 2013. At the close of TMK IPSCO's case, the court entered partial judgment in favor of ATM, dismissing the gross negligence claim, dismissing a portion of the breach of contract claim, and dismissing any claim for punitive damages. The trial proceeded with respect to the remainder of TMK IPSCO's claim for damages and, in September 2013, the district court awarded TMK IPSCO damages of approximately $37.0$5.2 million as well as fees. ATM is appealing the court’s decision. TMK IPSCO is also appealing the decision and, expenses relatedadditionally, it has asked for $3.8 million in attorney's fees.
In August 2013, we received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, we also learned that the Department of Justice (“DOJ”) is conducting a criminal investigation of the third party. In connection with responding to the arbitration. ATM intends to counterclaim arbitration, alleging breach of contract for non-payment in the amount of $2.7 million as well as fees and expenses relatedstaff’s subpoena, we disclosed to the arbitration. We believe we have meritorious defensesstaff of the SEC that, in November 2007, the third party participated in a payment on behalf of us to these claimsa foreign tax official that implicates the Foreign Corrupt Practices Act (“FCPA”).
Our Board of Directors has formed a special committee to review our transactions with the third party and to make any recommendations to the Board of Directors with respect thereto.
We intend to vigorously defend such allegations.

cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of our disclosure. We are unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on our results of operations.

Item 4. Mine Safety Disclosures

Not applicable.



20

Item 4A.  Executive Officers
Table of the Registrant

Information with respect to the executive officers of the Company as of March 15, 2012 is as follows:

Name

Age

Position

Edward F. Crawford

72Chairman of the Board, Chief Executive Officer and Director

Matthew V. Crawford

42President and Chief Operating Officer and Director

Jeffrey L. Rutherford

51Vice President and Chief Financial Officer

Robert D. Vilsack

51Secretary and General Counsel

Patrick W. Fogarty

50Director of Corporate Development

Mr. E. Crawfordhas been a director and our Chairman of the Board and Chief Executive Officer since 1992. He has also served as the Chairman of Crawford Group, Inc., a management company for a group of manufacturing companies, since 1964.

Mr. M. Crawfordhas been President and Chief Operating Officer since 2003 and joined us in 1995 as Assistant Secretary and Corporate Counsel. He was also our Senior Vice President from 2001 to 2003. Mr. M. Crawford became one of our directors in August 1997 and has served as President of Crawford Group, Inc. since 1995. Mr. E. Crawford is the father of Mr. M. Crawford.

Mr. Rutherfordhas been Vice President and Chief Financial Officer since joining us in July 2008. From 2007 until his employment with us, Mr. Rutherford served as Senior Vice President, Chief Financial Officer of UAP Holding Corp., an independent distributor of agricultural inputs and professional non-crop products. Mr. Rutherford previously served as President and Chief Executive Officer of Lesco, Inc., a provider of professional turf care products and a division

of John Deere & Co., from 2005 to 2007, and as Lesco’s Chief Financial Officer from 2002 to 2005. From 1998 to 2002, he was the Senior Vice President, Treasurer and Chief Financial Officer of OfficeMax, Inc., an office products company. Prior to joining Office Max, he spent fourteen years with the accounting firm Arthur Andersen & Co.

Mr. Vilsackhas been Secretary and General Counsel since joining us in 2002. From 1999 until his employment with us, Mr. Vilsack was engaged in the private practice of law. From 1997 to 1999, Mr. Vilsack was Vice President, General Counsel and Secretary of Medusa Corporation, a manufacturer of Portland cement, and prior to that he was Vice President, General Counsel and Secretary of Figgie International Inc., a manufacturing conglomerate.

Mr. Fogartyhas been Director of Corporate Development since 1997 and served as Director of Finance from 1995 to 1997.

Contents


Part II

Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock, par value $1.00 per share, trades on the Nasdaq Global Select Market under the symbol “PKOH”. The table below presents the high and low sales prices of the common stock during the periods presented. No dividends were declared or paid during the five years ended December 31, 2011. There is no present intention to pay dividends.2013. Additionally, the terms of the Company’scredit agreement governing our revolving credit facility and the indenture governing the Notes restrict8.125% senior notes due 2021 provide some restrictions on the Company’s ability to payamounts of dividends.

Quarterly Common Stock Price Ranges

   2011   2010 

Quarter

  High   Low   High   Low 

1st

  $24.48    $16.95    $9.96    $5.69  

2nd

   24.40     17.46     16.40     8.80  

3rd

   23.27     10.95     15.66     10.01  

4th

   20.29     10.59     23.70     12.77  

Quarterly Common Stock Price Ranges
     
  2013 2012
Quarter High Low High Low
1st $33.35
 $19.96
 $21.00
 $16.13
2nd 39.00
 30.61
 22.61
 16.85
3rd 38.75
 31.29
 22.88
 16.42
4th 53.32
 36.19
 23.21
 18.33

The number of shareholders of record for the Company’sour common stock as of February 29, 201228, 2014 was 561.

490.


Issuer Purchases of Equity Securities

Set forth below is information regarding the Company’srepurchases of our common stock repurchases during the fourth quarter of the fiscal year ended December 31, 2011.

Period

 Total
Number
of Shares
Purchased
  Average
Price Paid
Per Share
  Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
  Maximum Number of Shares
That May Yet Be Purchased
Under the Plans or Program(1)
 

October 1 — October 31, 2011

  -0-   $-0-    -0-    340,920  

November 1 — November 30, 2011(2)

  79,427    19.05    -0-    340,920  

December 1 — December 31, 2011

  -0-    -0-    -0-    340,920  
 

 

 

  

 

 

  

 

 

  

 

 

 

TOTAL

  79,427   $19.05    -0-    340,920  
 

 

 

  

 

 

  

 

 

  

2013
.
Period Total Number of Shares Purchased   Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans (1) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program (1)
October 1 — October 31, 2013 
   $
 
 988,334
November 1 — November 30, 2013 3,714
 (2) 38.47
 
 988,334
December 1 — December 31, 2013 
   
 
 988,334
Total 3,714
   $38.47
 
 988,334
(1)On September 27, 2006, the CompanyMarch 4, 2013, we announced a share repurchase program whereby the Companywe may repurchase up to 1.0 million shares of itsour outstanding common stock. During the fourth quarter of 2011, no shares were purchased as part of this program.

(2)ConsistConsists of 3,714 shares of common stock the Companywe acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient minimum withholding tax liabilities.



21


Item 6.  Selected Financial Data

(Dollars in thousands, except per share data)

   Year Ended December 31, 
   2011  2010  2009  2008  2007 

Selected Statement of Operations Data:

      

Net sales

  $966,573   $813,522   $701,047   $1,068,757   $1,071,441  

Cost of products sold(a)

   799,248    679,425    597,200    919,297    912,337  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   167,325    134,097    103,847    149,460    159,104  

Selling, general and administrative expenses

   105,582    91,755    87,786    105,546    98,679  

Goodwill impairment charge

   -0-    -0-    -0-    95,763    -0-  

Gain on sale of assets held for sale

   -0-    -0-    -0-    -0-    (2,299

Restructuring and impairment charges(a)

   5,359    3,539    5,206    25,331    -0-  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)(a)

   56,384    38,803    10,855    (77,180  62,724  

Gain on purchase of 8.375% senior subordinated notes

   -0-    -0-    (6,297  (6,232  -0-  

Gain on acquisition of business

   -0-    (2,210  -0-    -0-    -0-  

Interest expense

   32,152    23,792    23,189    27,869    31,551  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   24,232    17,221    (6,037  (98,817  31,173  

Income tax (benefit) expense

   (5,203  2,034    (828  20,986    9,976  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $29,435   $15,187   $(5,209 $(119,803 $21,197  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Amounts per common share:

      

Basic

  $2.54   $1.34   $(.47 $(10.88 $1.91  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

  $2.45   $1.29   $(.47 $(10.88 $1.82  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   Year Ended December 31, 
   2011  2010  2009  2008  2007 

Other Financial Data:

      

Net cash flows provided by operating activities

  $35,861   $67,059   $43,865   $8,547   $31,466  

Net cash flows used by investing activities

   (11,098  (29,851  (4,772  (20,398  (21,991

Net cash flows provided (used) by financing activities

   17,927    (24,995  (33,820  15,164    (16,600

Depreciation and amortization

   16,177    17,132    18,918    20,933    20,611  

Capital expenditures, net

   11,098    3,951    5,575    17,466    21,876  

Selected Balance Sheet Data (as of period end):

      

Cash and cash equivalents

  $78,001   $35,311   $23,098   $17,825   $14,512  

Working capital

   291,454    219,193    222,748    252,873    270,939  

Property, plant and equipment

   61,810    68,783    76,631    90,642    105,557  

Total assets

   613,940    552,532    502,268    619,220    769,189  

Total debt

   347,580    316,213    333,997    374,646    360,049  

Shareholders’ equity

   65,442    46,375    22,810    12,755    171,478  

 Year Ended December 31,
   
Adjusted (1)
 
Adjusted (1)
 
Adjusted (1)
 
Adjusted (1)
 2013 2012 2011 2010 2009
 (In millions, except per share data)
Selected Statement of Operations Data:         
Net sales$1,203.2
 $1,128.2
 $961.4
 $808.9
 $696.6
Cost of sales (2)
992.2
 920.9
 793.7
 674.0
 592.3
Gross profit211.0
 207.3
 167.8
 134.9
 104.3
Selling, general and administrative expenses119.3
 113.4
 102.2
 88.3
 82.8
Restructuring and asset impairment charges (2)

 
 5.4
 3.5
 5.2
Litigation judgment and settlement costs5.2
 13.0
 
 
 
Operating income86.5
 80.9
 60.1
 43.1
 16.3
Gain on purchase of 8.375% senior subordinated notes
 
 
 
 (6.3)
Gain on acquisition of business(0.6) 
 
 (2.2) 
Interest expense26.8
 26.4
 32.2
 23.8
 23.2
Income (loss) from continuing operations before income taxes60.3
 54.5
 27.9
 21.5
 (0.6)
Income tax expense (benefit)19.4
 20.3
 (3.8) 2.0
 (0.8)
Net income from continuing operations40.9
 34.2
 31.7
 19.5
 0.2
Income (loss) from discontinued operations, net of taxes3.0
 (2.4) (2.3) $(4.3) $(5.4)
Net income (loss)43.9
 31.8
 29.4
 15.2
 (5.2)
Net income attributable to noncontrolling interest(0.5) 
 
 
 
Net income (loss) attributable to ParkOhio common shareholders$43.4
 $31.8
 $29.4
 $15.2
 $(5.2)
          
Earnings (loss) per common share attributable to ParkOhio common shareholders - Basic:         
Continuing operations$3.40
 $2.87
 $2.74
 $1.72
 $0.02
Discontinued operations$0.25
 $(0.20) $(0.20) $(0.38) $(0.49)
Total$3.65
 $2.67
 $2.54
 $1.34
 $(0.47)
Earnings (loss) per common share attributable to ParkOhio common shareholders - Diluted:         
Continuing operations$3.31
 $2.82
 $2.64
 $1.65
 $0.02
Discontinued operations$0.25
 $(0.20) $(0.19) $(0.36) $(0.49)
Total$3.56
 $2.62
 $2.45
 $1.29
 $(0.47)
Weighted-average shares used to compute earnings per share:         
Basic11.9
 11.9
 11.6
 11.3
 11.0
Diluted12.2
 12.1
 12.0
 11.8
 11.0
(a)
(1)
Adjusted to reflect the discontinued operations.

22


(2)
In each of the years ended December 31, 2011, 2010, 2009, 2008 and 2007,2009, we recorded restructuring and asset impairment charges related to exiting product lines and closing or consolidating operating facilities. The restructuringAny charges related to the write-down of inventory, have no cash impact and are reflected by an increase in cost of products sold in the applicable period. The restructuring charges relating to asset impairment attributable to the closing or consolidating of operating facilities have no cash impact and are reflected in the restructuring and asset impairment charges. The charges for restructuring and severance are accruals for cash expenses. We made cash payments of $.1 million, $.5$0.1 million and $.3$0.5 million in the years ended December 31, 2010 2009 and 2007,2009, respectively, related to our severance accrued liabilities. The table below provides a summary of these restructuring and impairment charges.

   Year Ended December 31, 
   2011   2010   2009   2008   2007 
   (Dollars in thousands) 

Non-cash charges:

          

Cost of products sold (inventory write-down)

  $-0-    $-0-    $1,797    $5,544    $2,214  

Asset impairment

   5,359     3,539     5,206     24,767     -0-  

Restructuring and severance

   -0-     -0-     -0-     564     -0-  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $5,359    $3,539    $7,003    $30,875    $2,214  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charges reflected as restructuring and impairment charges on income statement

  $5,359    $3,539    $5,206    $25,331    $-0-  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 Year Ended December 31,
 2011 2010 2009
 (In millions)
Non-cash charges:     
Cost of products sold (inventory write-down)$
 $
 $1.8
Asset impairment5.4
 3.5
 5.2
Restructuring and severance
 
 
Total$5.4
 $3.5
 $7.0
Charges reflected as restructuring and impairment charges on income statement$5.4
 $3.5
 $5.2

 Year Ended December 31,
 2013 2012 2011 2010 2009
 (In millions)
Other Financial Data:         
Net cash flows provided by operating activities$60.3
 $55.9
 $35.9
 $67.1
 $43.9
Net cash flows used by investing activities(54.3) (120.3) (11.1) (29.9) (4.8)
Net cash flows provided (used) by financing activities3.9
 30.5
 17.9
 (25.0) (33.8)
Depreciation and amortization19.2
 18.0
 16.2
 17.1
 18.9
Capital expenditures, net22.7
 23.3
 11.1
 4.0
 5.6
Selected Balance Sheet Data (as of period end) (1):
         
Cash and cash equivalents$55.2
 $44.4
 $78.0
 $35.3
 $23.1
Working capital298.3
 273.5
 293.8
 222.5
 227.3
Property, plant and equipment115.4
 100.0
 61.4
 68.4
 76.2
Total assets818.7
 726.6
 614.8
 552.5
 502.3
Long-term debt379.2
 374.2
 346.2
 302.4
 323.1
Total debt383.6
 378.6
 347.6
 316.2
 334.0
Shareholders’ equity164.0
 101.8
 65.4
 46.4
 22.8
(1) Adjusted to reflect the discontinued operations.
No dividends were paid during the five years ended December 31, 2011.

2013.


23



Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The historical financial information discussed below is not directly comparable on a year-to-year basis, primarily due to recording of a reversal of a tax valuation allowance in 2011, restructuring and unusualimpairment charges in 2011, 2010acquisitions and 2009 acquisitionslitigation costs in 20102013 and 2012, dispositions in 2013 and a refinancing in 2011.

Executive Overview

2012.

EXECUTIVE OVERVIEW
General
We are an industrial Total Supply ManagementTMManagement™ and diversified manufacturing business, operating in three segments: Supply Technologies, Aluminum ProductsAssembly Components and ManufacturedEngineered Products.
Our Supply Technologies business provides our customers with Total Supply ManagementTMManagement™, 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 ManagementTMManagement™ includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. The principal customers ofOur Supply Technologies arebusiness services customers in the following principal industries: heavy-duty truck; automotive, truck automotive and vehicle parts,parts; power sports and recreational equipment; bus and coaches; electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC,controls; agricultural and construction equipment,equipment; consumer electronics; HVAC; lawn and garden; semiconductor equipment, plumbing,equipment; aerospace and defense,defense; and appliance industries. Aluminum Products castsplumbing.
Assembly Components manufactures parts and machinesassemblies and provides value-added design, engineering and assembly services that are incorporated into our customer’s end products. Our product offerings include cast and machined aluminum engine, transmission, brake, suspension and other components, such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers forspacers; industrial hose and injected molded rubber components; and fuel filler assemblies. Our products are primarily used in the following industries: automotive, agricultural, equipment, construction, equipment, heavy-duty truck and marine original equipment OEMs,manufacturers (“OEMs”), primarily on a sole-source basis. Aluminum Products also provides value-added services such as design and engineering and assembly. Manufactured
Engineered Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems, pipe threading systems, industrial oven systems, injection molded rubber components, and forged and machined products. ManufacturedEngineered Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of ManufacturedEngineered Products are OEMs, sub-assemblers and end users in the steel,ferrous and non-ferrous metals, silicon, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, raillocomotive and locomotiverail manufacturing, and aerospace and defense industries. Sales, earnings and other relevant financial data for these three segments are provided in Note B to the
Primary Factors Affecting 2013 Results
The following factors most affected our consolidated financial statements, included elsewhere herein.

Sales and profitability continued to grow substantially in 2011, continuing the trend of the prior year, as the domestic and international economies come out of the recession. Net sales increased 19% and net income increased 94% in 2011 compared to 2010. Net income in 2011 was affected by a $16.8 million reversal of the deferred tax asset valuation allowance, $5.4 million of restructuring and impairment charges and debt refinancing costs of $7.3 million.

During the fourth quarter of 2009, the Company recorded $7.0 million of asset impairment charges associated with general weakness in the economy including the railroad industry.2013 results:

    The charges were composed of $1.8 million of inventory impairment included in Cost of Products Sold and $5.2 million for impairment of property and equipment

In 2009, the Company recorded a gain of $6.3 million on the purchase of $15.2 million principal amount of the Senior Subordinated Notes.

Approximately 19% 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 account receivable from Metaldyne resulting from its bankruptcy.

During the third quarter of 2010, Supply Technologies completed the acquisition of certain assetsgrowth in 2013 principally was driven by strategic acquisitions in 2012 and assumed specific liabilities relating to the ACS business of Lawson Products, Inc. for $16.0 million in cash and a $2.2 million subordinated promissory note payable in equal quarterly installments over three years. ACS is a provider of supply chain management solutions for a broad range of production components through its service centers throughout North America. The Company recorded a gain of $2.2 million representing the excess of the aggregate fair value of purchased net assets over the purchase price. See Note C to the consolidated financial statements included elsewhere herein.

2013.

On September 30, 2010, the Company entered a Bill of Sale with 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. See Note C to the consolidated financial statements included elsewhere herein.

On December 31, 2010, the Company through its subsidiary, Ajax Tocco Magnethermic, acquired the assets and the related induction heating intellectual property of Pillar for $10.3 million in cash. Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market. See Note C 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.

On April 7, 2011,March 23, 2012, the Company completed the salea transformational acquisition of $250 million aggregate principal amount of the Notes. The Notes bear an interest rate of 8.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2011. The Notes mature on April 1, 2021. In connection with the sale of the Notes, the Company also entered into the Amended Credit Agreement. The Amended Credit Agreement among other things, provides an increased credit facility up to $200 million, extends the maturity date of the borrowings under the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option, pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50 million. The Company also purchased all of its outstanding $183.8 million aggregate principal amount of the Senior Subordinated Notes that were not held by its affiliates pursuant to a tender offer and subsequent redemption, repaid all of the term loan A and term loan B outstanding under its then existing credit facility and retired the Senior Subordinated Notes in the aggregate principal amount of $26.2 million that were held by an affiliate. The Company incurred debt extinguishment costs related to premiums and other transaction costs associated with the tender offer and subsequent redemption of the Senior Subordinated Notes and wrote off deferred financing costs totaling $7.3 million and recorded a provision for foreign income taxes of $2.1 million resulting from the retirement of the Senior Subordinated Notes that were held by an affiliate.

During the third quarter of 2011, the Company recorded an asset impairment charge of $5.4 million associated with the underperformance of the assets of its rubber products business unit.

On March 5, 2012, the Company entered into an agreement to acquire FRS,Fluid Routing Solutions Holding Corp. (“FRS”), a leading manufacturer of automotive and industrial rubber and thermoplastic hose products and fuel filler and hydraulic fluid assemblies, in an all cash transaction valued at $97.5 million.$98.8 million. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured rubber and thermoplastic hose, including bulk and formed fuel, power steering, transmission oil cooling, hydraulic and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee and the Czech Republic. The transactionFRS is expected to close by March 30, 2012 subject to a number of customary conditions, including the expiration of waiting periods and the receipt of approvals under Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to be funded byincluded in the Company’s cashAssembly Components segment. In 2013, $43.2 million of $40.0 million ($10.0 million domestic and $30.0 million foreign), a new $25.0 million seven-year amortizing term loan secured by certain real estate and machinery and equipmentincremental revenues were generated for the additional nearly full quarter of operations that FRS contributed to consolidated results in 2013.


24


Effective April 26, 2013, the Company acquired certain assets and assumed specific liabilities relating to Bates for which the Company has received a commitment lettertotal purchase consideration of $20.8 million in cash. The acquisition was funded from its bank group and $32.5 million of borrowings under the Company’s revolving credit facility.

Resultsfacility provided by the Credit Agreement (as defined herein). Bates is a leading manufacturer of Operations

2011 versus 2010

Net Sales by Segment:

   Year Ended
December 31,
   Change  Percent
Change
 
   2011   2010    
   (Dollars in millions) 

Supply Technologies

  $493.0    $402.1    $90.9    23

Aluminum Products

   127.0     143.7     (16.7  (12)% 

Manufactured Products

   346.6     267.7     78.9    29
  

 

 

   

 

 

   

 

 

  

Consolidated Net Sales

  $966.6    $813.5    $153.1    19
  

 

 

   

 

 

   

 

 

  

Net sales increased $153.1 million to $966.6extruded, formed and molded products and assemblies for the transportation and industrial markets. Bates’ production facilities are located in Tennessee. The business has been integrated into our Assembly Components segment and the financial results of Bates are included in the Assembly Components Segment results. The Bates acquisition contributed approximately $30.4 million in 2011 compared to $813.5revenues for 2013 during the period of our ownership.

In the fourth quarter of 2013, we completed two strategic acquisitions in our Supply Technologies segment. In October 2013, we acquired all of the outstanding capital stock of Henry Halstead. Henry Halstead is a provider of supply chain management solutions throughout the United Kingdom and Ireland. In November 2013, we acquired all the outstanding capital stock of QEF. QEF is a provider of supply chain management solutions with four locations throughout Ireland, Scotland and England. We paid $25.8 million in 2010the aggregate for these two businesses, which are subject to insignificant deferred and contingent purchase price consideration, respectively. Henry Halstead and QEF results, which include approximately $8.5 million in net sales, are included in our Supply Technologies segment results from their respective dates of acquisition.
Overall, our organic growth was flat in 2013 as the Company experienced volume increasesstrength of new automotive platform business in our Aluminum business within the Assembly Components segment was offset by industrial slowness for the truck and defense industries in the Supply Technologies segment and Manufacturedthe capital equipment business of the industrial equipment business in the Engineered Products segments.segment.
ATM was the defendant in a lawsuit in the United States District Court for the Eastern District of Arkansas. The plaintiff is IPSCO Tubulars Inc. d/b/a TMK IPSCO. ATM denied the allegations against it, believed it has a number of meritorious defenses and vigorously defended the lawsuit. The trial proceeded with respect to TMK IPSCO's claim for damages and, in September 2013, the district court awarded TMK IPSCO damages of approximately $5.2 million. Although ATM is appealing the court's decision, we recognized expense of $5.2 million in 2013 for this unfavorable court ruling. TMK IPSCO is also appealing the decision and, additionally, it has asked the court for $3.8 million in attorney's fees.
On September 3, 2013, we sold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment for $8.5 million in cash, which resulted in a net gain of approximately $3.8 million, after taxes of $1.5 million, for the year ended December 31, 2013. The business unit sold is a provider of high-quality machine to machine information technology solutions, products and services. As a result of the sale, this business has been removed from the Supply Technologies segment and its operating results and the gain on sale are presented as a discontinued operation for all of the periods presented.
Effective August 1, 2013, we entered into an agreement to sell 25% of our SSP business to Arkansas Steel Associates, LLC for $5.0 million in cash. SSP is included in our Engineered Products segment. This transaction facilitates our capacity expansion in one of our growing product lines. As a result of this transaction, 25% of SSP's earnings, or $0.5 million, are reflected as "net income attributable to noncontrolling interest", which is deducted from "net income" to derive "net income attributable to ParkOhio common shareholders".

25


RESULTS OF OPERATIONS
2013 Compared with 2012 and 2012 Compared with 2011
       2013 vs. 2012 2012 vs. 2011
 2013 2012 2011 $ Change % Change $ Change % Change
 (Dollars in millions, except per share data)
Net sales$1,203.2
 $1,128.2
 $961.4
 $75.0
 7 % $166.8
 17 %
Cost of sales992.2
 920.9
 793.7
 71.3
 8 % 127.2
 16 %
Gross profit211.0
 207.3
 167.8
 3.7
 2 % 39.5
 24 %
Gross profit as a percentage of net sales17.5% 18.4% 17.5%        
Selling, general and administrative expenses119.3
 113.4
 102.2
 5.9
 5 % 11.2
 11 %
SG&A as a percentage of net sales9.9% 10.1% 10.6%        
Restructuring and asset impairment charges
 
 5.4
 
  % (5.4) *
Litigation judgment and settlement costs5.2
 13.0
 
 (7.8) *
 13.0
 *
Operating income86.5
 80.9
 60.1
 5.6
 7 % 20.8
 35 %
Gain on acquisition of business(0.6) 
 
 (0.6) *
 
  %
Interest expense26.8
 26.4
 32.2
 0.4
 2 % (5.8) (18)%
Income from continuing operations before income taxes60.3
 54.5
 27.9
 5.8
 11 % 26.6
 95 %
Income tax expense (benefit)19.4
 20.3
 (3.8) (0.9) (4)% 24.1
 *
Net income from continuing operations40.9
 34.2
 31.7
 6.7
 20 % 2.5
 8 %
Income (loss) from discontinued operations, net of taxes3.0
 (2.4) (2.3) 5.4
 *
 (0.1) (4)%
Net income43.9
 31.8
 29.4
 12.1
 38 % 2.4
 8 %
Net income attributable to noncontrolling interest(0.5) 
 
 (0.5) *
 
  %
Net income attributable to ParkOhio common shareholders$43.4
 $31.8
 $29.4
 $11.6
 36 % $2.4
 8 %
              
Earnings (loss) per common share attributable to ParkOhio common shareholders - Basic:             
Continuing operations$3.40
 $2.87
 $2.74
 $0.53
 18 % $0.13
 5 %
Discontinued operations0.25
 (0.20) (0.20) 0.45
 *
 
  %
Total$3.65
 $2.67
 $2.54
 $0.98
 37 % $0.13
 5 %
Earnings (loss) per common share attributable to ParkOhio common shareholders - Diluted:             
Continuing operations$3.31
 $2.82
 $2.64
 $0.49
 17 % $0.18
 7 %
Discontinued operations0.25
 (0.20) (0.19) 0.45
 *
 (0.01) 5 %
Total$3.56
 $2.62
 $2.45
 $0.94
 36 % $0.17
 7 %
* Calculation not meaningful

26


2013 Compared with 2012
Net Sales:
Net sales increased $75.0 million, or 7%, to $1,203.2 million in 2013, compared to $1,128.2 million in 2012. The increase in net sales is principally attributable to the strategic acquisitions in 2012 and 2013. The 2012 acquisition of FRS and the 2013 acquisitions of Bates, Henry Halstead and QEF were the primary drivers of the 2013 revenue growth. Combined, these acquisitions contributed $82.1 million of the increase in net sales. Overall, our organic growth declined slightly in 2013 as the strength of new automotive platform business in our Aluminum business within the Assembly Components segment was slightly more than offset by industrial slowness for the truck and defense industries in the Supply Technologies segment and for the industrial equipment business of the Engineered Products segment.
The factors explaining the changes in segment revenues for 2013 compared to the prior year are contained within the “Segment Analysis” section.
Cost of Sales & Gross Profit:
Cost of sales increased 23%$71.3 million, or 8%, to $992.2 million in 2013, compared to $920.9 million in 2012. The increase in cost of sales was primarily due to volume ($53.8 million) increasesthe increase in net sales volumes, which increased 7%. The gross profit margin percentage was 17.5% in 2013 compared to 18.4% in 2012. This 90 basis point decline in gross margin percentage is largely due to a change in the heavy-duty truck, electrical, industrial equipment, auto, power sports, HVAC, furniture, agricultural and construction equipment industries and price increasessales mix between the comparable periods as the Assembly Components net sales, carrying a lower gross margin percentage, were a higher percentage of $7.3 million, which were offset primarily by declinesconsolidated net sales than in the instruments, medical and semi-conductor industries. In addition, there were $29.8prior year.
Selling, General & Administrative (SG&A) Expenses:
Consolidated SG&A expenses increased 5% in 2013 compared to 2012, but SG&A expenses as a percent of sales decreased by 20 basis points to 9.9%. SG&A expenses increased in 2013 compared to 2012 primarily due to $4.3 million of incremental sales resulting fromexpense associated with FRS, Bates, Henry Halstead and QEF, increases in payroll, payroll related expenses and share-based compensation offset by FRS acquisition expenses of $1.1 million in 2012.
Litigation Judgment and Settlement Costs:
During the third quarter of 2013, the United States District Court for the Eastern District of Arkansas awarded TMK IPSCO damages of approximately $5.2 million.
During the second quarter of 2012, we agreed to settle the Evraz arbitration proceeding for the sum of $13.0 million in cash, which payment was made in June 2012.
Gain on Acquisition of Business:
The $0.6 million gain on acquisition of business relates to the bargain purchase associated with a small bolt-on acquisition in the Engineered Products segment.
Interest Expense:
 Year Ended December 31,   
Percent
Change
 2013 2012 Change 
 (Dollars in millions)
Interest expense$26.8
 $26.4
 $0.4
 2 %
Debt extinguishment costs included in interest expense$
 $0.3
 $(0.3) (100)%
Average outstanding borrowings$385.5
 $379.2
 $6.3
 2 %
Average borrowing rate6.95% 6.88% 7
 basis points
Interest expense increased$0.4 million in 2013 compared to 2012 as average borrowings in 2013 were higher when compared to 2012 due to additional borrowings to fund the acquisition of Bates.

27


Income Tax Expense:
The provision for income taxes was $19.4 million in 2013, which was a 32.2% effective income tax rate, compared to income taxes of $20.3 million provided in 2012, a 37.2% effective income tax rate. The reduction in the ACS business. Aluminum Products sales decreased 12%, resulting primarily from the completion of certain automotive supply contracts ($31.7 million) offset by sales of $9.6 million resulting from the acquisition of the Rome business and price increases of $5.4 million. Manufactured Products sales increased 29%effective tax rate is primarily due to our ability to realize certain deductions, such as the Manufacturer’s Deduction, now that our net operating loss carryforwards were utilized in 2012 combined with the reversal of valuation allowances against certain U.S. net deferred tax assets in 2013 that reduced tax expense by $1.6 million.
Net Income from Continuing Operations:
Net income from continuing operations increased$6.7 million to $40.9 million in 2013, compared to $34.2 million in 2012, due to the reasons described above.
Income (Loss) from Discontinued Operations:
In September 2013, the Company sold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment, for $8.5 million in cash, which resulted in a net gain of approximately $3.8 million, after taxes of $1.5 million. The income from discontinued operations of $3.0 million in 2013 is predominantly comprised of the gain on sale, but also includes the operating losses, net of tax, of the business unit sold. The loss from discontinued operations of $2.4 million in 2012 is comprised of the operating losses, net of tax, of the business unit sold. As a result of the sale, this business unit has been removed from the Supply Technologies segment and presented as a discontinued operation for all of the periods presented.
Net Income:
Net income increased$12.1 million to $43.9 million in 2013, compared to $31.8 million in 2012, due to the reasons described above.
Net Income Attributable to Noncontrolling Interest:
As a result of the sale of the 25% equity interest in a small forging business in 2013, the capital equipment andincome of $0.5 million attributable to the noncontrolling interest is deducted from net income to derive net income attributable to ParkOhio common shareholders.
Net Income Attributable to ParkOhio Common Shareholders:
Net income attributable to ParkOhio common shareholders increased $11.6 million to $43.4 million in 2013, compared to $31.8 million in 2012, due to the reasons described above.
2012 Compared with 2011
Net Sales:
Net sales increased $166.8 million, or 17%, to $1,128.2 million in 2012, compared to $961.4 million in 2011. The increase in revenues is primarily attributable to sales from the 2012 FRS acquisition, which totaled $152.4 million during the approximate nine months of ownership. In addition, net sales in Engineered Products increased 6% primarily due to 15% increased volume in the forged and machined products business units offset by a minor declineunit and 4% increased volume in the rubber productsindustrial equipment business unit. In addition, there were $26.3 million of incremental sales resulting from
The factors explaining the acquisition of Pillar.

changes in segment revenues for 2012 compared to the prior year are contained within the “Segment Analysis” section.

Cost of Products SoldSales & Gross Profit:

   Year Ended
December 31,
  Change   Percent
Change
 
   2011  2010    
   (Dollars in millions) 

Consolidated cost of products sold

  $799.2   $679.4   $119.8     18
  

 

 

  

 

 

  

 

 

   

Consolidated gross profit

  $167.3   $134.1   $33.2     25
  

 

 

  

 

 

  

 

 

   

Gross Margin

   17.3  16.5   

Cost of products soldsales increased $119.8$127.2 million, or 16%, to $920.9 million for 2012, compared to $793.7 million in 2011 to $799.2 million compared to $679.4 million in 2010, while gross margin increased to 17.3% in 2011 from 16.5% in 2010.2011. Cost of products sold increased primarily due to sales increases and increasesthe inclusion of FRS results of $125.7 million in commodity prices, including2012.
The gross profit margin percentage was 18.4% in 2012, which is a 100 basis point increase compared to the prices17.4% gross profit margin in the prior year. Supply Technologies gross margin increased primarily due to product mix. Engineered Products

28


gross margin increased primarily due to volume increases.increases and the resulting favorable absorption of overhead. Gross margin in the Aluminum ProductsAssembly Components segment decreasedincreased primarily due to the favorable margins realized from reduced sales volume. Gross margin in the Supply Technologies segment was essentially unchanged from 2010.

FRS acquisition.

SG&A Expenses:
Selling, General & Administrative (SG&A) Expenses:

   Year Ended
December 31,
  Change   Percent
Change
 
   2011  2010    
   (Dollars in millions) 

Consolidated SG&A expenses

  $105.6   $91.8   $13.8     15

SG&A percent

   10.9  11.3   

Consolidated SG&A expenses increased 15%11% in 20112012 compared to 2011; however, SG&A expenses as a percentage of sales declined by 50 basis points to 10.1%. SG&A expenses increased in 2012 compared to the same period in 2010. SG&A expenses increased $13.8 million in 2011 compared to 2010prior year primarily due to increased sales volume and to$7.6 million of incremental expense associated with FRS, increases in payroll and payroll related expenses of $8.2$1.9 million, FRS acquisition expenses of $1.1 million and legal expenses of $1.0 million associated with the Evraz litigation settlement.

Restructuring and Asset Impairment Charges:
During the third quarter of 2011, the Company recorded a $5.4 million restructuring and asset impairment charge related to $3.4the write down of underperforming assets in its rubber products business unit.
Litigation Judgment and Settlement Costs:
During the second quarter of 2012, we agreed to settle the Evraz arbitration proceeding for the sum of $13.0 million of incremental expenses resulting from the acquisitions of ACS, Rome and Pillar.

in cash, which payment was made in June 2012.

Interest Expense:

   Year Ended
December 31,
  Change   Percent
Change
 
   2011  2010    
   (Dollars in millions) 

Interest expense

  $32.2   $23.8   $8.4     35%  

Debt extinguishment costs included in interest expense

  $7.3      

Amortization of deferred financing costs and bank service charges

  $1.9   $1.9     

Average outstanding borrowings

  $337.3   $322.0   $15.3     5%  

Average borrowing rate

   7.38  7.39    (1) basis point  

 Year Ended December 31,   
Percent
Change
 Adjusted Adjusted   
 2012 2011 Change 
 (Dollars in millions)
Interest expense$26.4
 $32.2
 $(5.8) (18)%
Debt extinguishment costs included in interest expense$0.3
 $7.3
 $(7.0) (96)%
Average outstanding borrowings$379.2
 $337.3
 $41.9
 12 %
Average borrowing rate6.88% 7.38% 50
 basis points
Interest expense increased $8.4decreased $5.8 million in 2012 compared to 2011, primarily due to higher debt extinguishment costs in 2011 as a result of the refinancing of our Senior Subordinated Notes and the amendment of the Credit Agreement. Average borrowings in 2012 were higher when compared to 2011 due to additional borrowings to fund the acquisition of FRS and the Evraz litigation settlement. The lower average borrowing rate in 2012 was due primarily to the interest rate mix of our credit facility and Notes when compared to the interest rate mix in 2011.
Income Tax Expense:
The provision for income taxes was $20.3 million in 2012, which was a 37.2% effective income tax rate, compared to the income tax benefit of $3.8 million in 2011 compared to 2010, primarily due to debt extinguishment costs of $7.3 million related to premiums and other transaction costs associated with the tender and early redemption and write off of deferred financing costs associated with the Senior Subordinated Notes. Excluding these costs, interest increased due primarily to outstanding borrowings.

Income Tax:

   Year Ended
December 31,
 
   2011   2010 
   (Dollars in millions) 

Income before income taxes

  $24.2    $17.2  
  

 

 

   

 

 

 

Income tax (benefit) expense

  $(5.2  $2.0  
  

 

 

   

 

 

 

Effective income tax rate

   (21.5)%    11.6

The Company released $16.8 million of the valuation allowance attributable to continuing operations in 2011 compared to $5.8 million in 2010. a 13.6% effective income tax rate benefit.

As of December 31, 2011, the Company waswe were not in a cumulative three-year loss position and determined that it was more likely than not that its U.S.our U. S. net deferred tax assets would be realized. As of December 31, 2010,2011, we released $16.8 million of 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 $(5.2) millionvaluation allowance attributable to continuing operations in 2011 compared to $2.0 million in 2010. The effective income tax rate was (21.5)% in 2011 compared to 11.6% in 2010.

The Company’s2011.

Our net operating loss carryforward precluded the payment of most U.S. federal income taxes in both 20112012 and 2010, and may preclude substantial payments in 2012.2011. At December 31, 2011,2012, we had fully utilized the Company had net operating loss carryforwards for U.S. federal income tax purposespurposes.


29

Table of approximately $10.4 million, whichContents

SEGMENT ANALYSIS
We primarily evaluate performance and allocate resources based on segment operating income as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the business units and product lines included within each segment. Segment operating income will expire between 2024reconcile to consolidated income from continuing operations before income taxes by deducting corporate costs that are not attributable to the segments, litigation judgment and 2031.

settlement costs and net interest expense and by adding the gain on acquisition of business.

2010 versus 2009The proportion of consolidated revenues and segment operating income attributed to each segment was as follows:

 Year Ended December 31,
 2013 2012 2011
Revenues:     
Supply Technologies39% 43% 50%
Assembly Components34% 27% 16%
Engineered Products27% 30% 34%
      
Segment Operating Income:     
Supply Technologies31% 33% 43%
Assembly Components28% 18% 2%
Engineered Products41% 49% 55%
Supply Technologies Segment
       2013 vs. 2012 2012 vs. 2011
 2013 2012 2011 $ Change % Change $ Change % Change
 (Dollars in millions)
Net sales$471.9
 $483.8
 $481.4
 $(11.9) (2)% $2.4
 %
Segment operating income35.9
 37.9
 35.1
 (2.0) (5)% 2.8
 8%
Segment operating income margin7.6% 7.8% 7.3%        
2013 Compared with 2012
Net Sales by Segment:Sales:

   Year Ended
December 31,
   Change   Percent
Change
 
   2010   2009     
   (Dollars in millions) 

Supply Technologies

  $402.1    $328.8    $73.3     22

Aluminum Products

   143.7     111.4     32.3     29

Manufactured Products

   267.7     260.8     6.9     3
  

 

 

   

 

 

   

 

 

   

Consolidated Net Sales

  $813.5    $701.0    $112.5     16
  

 

 

   

 

 

   

 

 

   

Consolidated The decrease in net sales increased $112.5 million to $813.5 millionin 2013 compared to $701.0 million in 2009 aswith the Company experienced volume increases in each segment. Supply Technologies sales increased 22%prior year was primarily due to a 13% decline in volume increasesassociated with the heavy-duty truck market and a 25% decline in volume associated with the defense industry market combined with the exit of low margin business approximating $11.0 million. These unfavorable impacts to revenues were partially offset by approximately $8.5 million in sales from our two fourth quarter acquisitions, Henry Halstead and QEF, greater volume in our power sports and recreational equipment market of 7% and increased tooling sales in our small fastener manufacturing division.

Segment Operating Income: Included in 2013 cost of sales was $1.6 million of acquisition-related costs associated with the inventory step-up in purchase accounting for the Henry Halstead and QEF acquisitions. Excluding these acquisition-related costs, segment operating income remained comparable with the prior year, even though revenues were slightly down compared to the prior year. While the acquisition-related costs unfavorably impacted segment operating income by 30 basis points, our overall segment operating margin only decreased 20 basis points to 7.6% in 2013 compared with the prior year as a result of effective cost control management and the pairing of low margin business.
2012 Compared with 2011
Net Sales: Net sales increased slightly in 2012. The strength of volumes in the heavy-duty truck industry, automotive, semi-conductor,market, which reflected an increase of 19%, and the power sports and recreational equipment market, which increased 22%, were significantly offset by the exit of low margin business in the appliance and HVAC agriculturalmarket, which combined to be $13.0 million, and construction equipment industries.by other sales declines in other industrial markets.

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Table of Contents

Segment Operating Income: Despite a modest increase in revenues in 2012, segment operating income increased 8% compared to the prior year. On the strength of effective cost control management and the pairing of low margin business, segment operating income margin increased 50 basis points to 7.8% in 2012 compared with the prior year.
Assembly Components Segment
       2013 vs. 2012 2012 vs. 2011
 2013 2012 2011 $ Change % Change $ Change % Change
 (Dollars in millions)
Net sales$412.8
 $304.0
 $157.8
 $108.8
 36% $146.2
 93%
Segment operating income31.8
 19.9
 1.4
 11.9
 60% 18.5
 *
Segment operating income margin7.7% 6.5% 0.9%        
* Calculation not meaningful
2013 Compared with 2012
Net Sales: The significant increase in net sales is primarily due to the incremental revenues in 2013 associated with the FRS and Bates acquisitions that combined to total approximately $73.6 million. In addition, there were $16.9 million of sales resulting from the acquisition of the ACS business. These additions were offset by declines in the lawn and garden and medical industries. Aluminum Products salesaluminum business revenues increased 29% as volumesnew programs with our automotive customers were launched in 2013. In total, approximately 72% of our revenue growth is attributable to acquisitions and the remainder of the growth is organic.
Segment Operating Income: On the strength of our acquisitions, segment operating income increased 60% in 2013 compared with the prior year. Furthermore, our segment operating income margin increased 120 basis points based on the contribution of the acquisitions. As the aluminum business is still ramping up to full capacity, this business has had only a small favorable impact on segment operating income improvement.
2012 Compared with 2011
Net sales: The significant increase in net sales is entirely due to the incremental revenues in 2012 associated with the FRS acquisition. Aluminum revenues declined 7% as the business unit was changing over to new platforms for its automotive customers.
Segment Operating Income: Segment operating income significantly increased due to the transformational acquisition of FRS. Accordingly, the segment operating income margin increased to 6.5%.
Engineered Products Segment
       2013 vs. 2012 2012 vs. 2011
 2013 2012 2011 $ Change % Change $ Change % Change
 (Dollars in millions)
Net sales$318.5
 $340.4
 $322.2
 $(21.9) (6)% $18.2
 6%
Segment operating income47.1
 55.0
 45.3
 (7.9) (14)% 9.7
 21%
Segment operating income margin14.8% 16.2% 14.1%        
2013 Compared with 2012
Net Sales: The decline in net sales of 6% is primarily attributable to an 18% decline in capital equipment business within our industrial equipment business unit. Global economic uncertainty in 2013 caused many industrial customers to defer orders. The aftermarket volume in the auto industry along with additionalindustrial equipment business was just 2% less in 2013 compared to 2012. Offsetting these net sales from new contracts. In addition, there were $7.0 million of sales resulting from the acquisition of the Rome business. Manufactured Productsdeclines, our forging business demand continued to be very strong in 2013 led by our rail business, and net sales increased 3% primarily from increases7% over the prior year.
Segment Operating Income: Given the decline in net sales in 2013, segment operating income also decreased 14%. The decrease in operating income dollars and the 140 basis point decline in segment operating income margin are associated with the volume decline in 2013 and the associated reduction in overhead absorption related to the decline in volume.

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Table of Contents

2012 Compared with 2011
Net Sales: Net sales increased $18.2 million, or 6%, to $340.4 million year over year due to increased volume in the capitalindustrial equipment and rubber products business units partially offset by declining volume inunit and the forged and machined products business unit because of volume declinesunit. The 4% increase in the railroad industry. Approximately 24%volumes of the Company’s consolidated net sales are to the automotive markets. Net sales to the automotive markets as a percentage of salesindustrial equipment business was entirely driven by segment

were approximately 15%, 77% and 8% for the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively for the year ended December 31, 2010.

Cost of Products Sold & Gross Profit:

   Year Ended
December 31,
  Change   Percent
Change
 
   2010  2009    
   (Dollars in millions) 

Consolidated cost of products sold

  $679.4   $597.2   $82.2     14
  

 

 

  

 

 

  

 

 

   

Consolidated gross profit

  $134.1   $103.8   $30.3     29
  

 

 

  

 

 

  

 

 

   

Gross margin

   16.5  14.8   

Cost of products sold increased $82.2 million in 2010 to $679.4 million compared to $597.2 million in 2009, primarily due tovolume increases in sales volume, while gross margin increased to 16.5% in 2010 from 14.8% in the same periodaftermarket business of 2009.

Supply Technologies and Aluminum Products gross margin increased resulting from volume increases while gross margin in the Manufactured Products segment remained essentially unchanged from the prior year.

SG&A:

   Year Ended
December 31,
  Change   Percent
Change
 
   2010  2009    
   (Dollars in millions) 

Consolidated SG&A expenses

  $91.8   $87.8   $4.0     5

SG&A percent

   11.3  12.5   

Consolidated SG&A expenses increased $4.0 million to $91.8 million in 2010 compared to $87.8 million in 2009 representing a 120 basis point decrease in SG&A expenses as a percent of sales. SG&A expenses increased on a dollar basis in 2010 compared to 2009 primarily due to an increase in salaries and benefits levels resulting from restoration to 2008 salary levels along with a bonus accrual12%, slightly offset by a $4.2 million charge4% decrease in 2009 for a reserve for an account receivable from a customercapital equipment volume. In addition, our forging business demand was very strong in bankruptcy2012 led by our rail business, and an increasenet sales increased 15% over the prior year.

Segment Operating Income: Segment operating income in pension income.

Interest Expense:

   Year-Ended
December 31,
  Change  Percent
Change
 
   2010  2009   
   (Dollars in millions) 

Interest expense

  $23.8   $23.2   $.6    3

Average outstanding borrowings

  $322.0   $363.9   $(41.9  (11.5)% 

Average borrowing rate

   7.39  6.38  101    basis points  

Interest expense2012 increased $.6 million in 201021% compared to 2009, primarilywith 2011 due to a higher average borrowing rate during 2010, offset by lower average borrowings. The decreasethe volume increases in average borrowings in 2010 resulted primarily from earningsthe aftermarket business for the industrial equipment business 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 millionvolume increases 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 Senior Subordinated Notes:

In 2009, the Company recorded a gain of $6.3 million on the purchase for $8.9 million of $15.2 million aggregate principal amountforging business unit. Because of the Senior Subordinated Notes.

In 2008, the Company purchased $11.0 million aggregate principal amountexcellent utilization of the Senior Subordinated Notes for $4.7 million. After writing off $.1 million of deferred financing costs, the Company recorded a net gain of $6.2 million. The Senior Subordinated Notes were not contributedour capacity in 2012, our segment operating margin increased 210 basis points to Park-Ohio Industries, Inc. in 2008 but were held by Holdings. During the fourth quarter of 2009, these notes were sold to a wholly-owned foreign subsidiary of Park-Ohio Industries, Inc.

Income Taxes:16.2%.

   Year Ended
December 31,
 
   2010  2009 
   (Dollars in
millions)
 

Income before income taxes

  $17.2   $(6.0
  

 

 

  

 

 

 

Income tax expense (benefit)

  $2.0   $(.8
  

 

 

  

 

 

 

Effective income tax rate

   11.6  13

The Company released $5.8 million of the valuation allowance attributable to continuing operations in 2010 compared to $1.8 million in 2009. As of December 31, 2010 and 2009, the Company determined that it was not more likely than not that its net U.S. and certain foreign deferred tax assets would be realized.

The provision for income taxes was $2.0 million in 2010 compared to $(.8) million in 2009. The effective income tax rate was 11.6% in 2010, compared to 13% in 2009.

The Company’s net operating loss carryforward precluded the payment of most U.S. federal income taxes in both 2010 and 2009. At December 31, 2010, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $24.7 million, which will expire between 2023 and 2029.

Working Capital, Liquidity, and Sources of Capital
The following table summarizes our financial indicators of liquidity:

 2013 2012
 (Dollars in millions)
Cash and cash equivalents$55.2
 $44.4
Working capital$298.3
 $273.5
Current ratio2.51
 2.43
Debt as a % of capitalization70% 79%
Net debt as a % of capitalization61% 70%
The following table summarizes the major components of cash flows:
 2013 2012 2011
Cash provided (used) by:(In millions)
Operating activities$60.3
 $55.9
 $35.9
Investing activities(54.3) (120.3) (11.1)
Financing activities3.9
 30.5
 17.9
Effect of exchange rate changes on cash0.9
 0.3
 
Increase (decrease) in cash and cash equivalents$10.8
 $(33.6) $42.7
As of December 31, 2013, we had $111.0 million outstanding under the revolving credit facility, approximately $67.8 million of unused borrowing availability and cash and cash equivalents of $55.2 million.
Our liquidity needs are primarily for working capital and capital expenditures. Our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our long-term debt securities. On April 7, 2011, we completed the sale of $250.0 million aggregate principal amount of Senior Notes. The Senior Notes bear an interest rate of 8.125% per annum payable semi-annually in arrears on April 1 and October 1 of each year. The Senior Notes mature on April 1, 2021.
In 2003, we entered into a revolving credit facilitythe Credit Agreement with a group of banks which, as subsequently amended, matures at April 7, 20162016. Pursuant to the Credit Agreement, we may borrow or issue standby letters of credit or commercial letters of credit. On March 23, 2012, the Credit Agreement was amended and as amended, currently providesrestated to, among other things, increase the revolving loan commitment from $200.0 million to $220.0 million, and provide a term loan for availability of up to $200$25.0 million subject to an asset-based formula.that is secured by certain real estate and machinery and equipment. We have the option to increase the availability under the revolving loan portion of the credit facility by $50.0$30.0 million. The revolving credit facility is secured by substantially all our accounts receivable and inventory in the United States and Canada. Borrowings from this revolving credit facility will be used for general corporate purposes.

As of December 31, 2011, the Company had $93.0 million outstanding Amounts borrowed under the revolving credit facility and approximately $68.1 millionmay be borrowed at either (i) LIBOR plus 1.75% to 2.75% or (ii) the bank’s prime lending rate minus 0.25% to 1.00%, at the Company's election. The LIBOR-based interest rate is


32


dependent on the Company's debt service coverage ratio, as defined in the Credit Agreement. Under the Credit Agreement, a detailed borrowing availability.

On March 5, 2012,base formula provides borrowing availability to the Company entered into an agreementbased on percentages of eligible accounts receivable and inventory. On April 3, 2013, the Credit Agreement was amended to acquire FRS, a leading manufacturer of industrial hose productsincrease the advance rate on eligible accounts receivable and fuel filler and hydraulic fluid assemblies, in an all cash transaction valued at $97.5 million. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel, power steering, transmission oil cooling, hydraulic and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee andinventory. Interest on the Czech Republic. The transaction is expected to close by March 30, 2012 subject to a number of customary conditions, including the expiration of waiting periods and the receipt of approvals under Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to be funded by the Company’s cash of $40.0 million ($10.0 million domestic and $30.0 million foreign), a new $25.0 million seven-year amortizing term loan secured by certain real estate and machinery and equipment ofis at either (i) LIBOR plus 2.75% or (ii) the Company for whichbank’s prime lending rate plus 0.25%, at the Company has receivedCompany's election. The term loan is amortized based on a commitment letter from its bank group and $32.5 million of borrowings underseven-year schedule with the Company’s revolving credit facility.

balance due at maturity (April 7, 2016).

Current financial resources (working capital and available bank borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet current cash requirements for at least the next twelve months. The future availability of bank borrowings under the revolving loan portion ofcredit facility provided by the credit facilityCredit Agreement is based on the Company’sour ability to meet a debt service ratio covenant, which could be materially impacted by negative economic trends. Failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings.

In 2009, the Company purchased $15.2 million aggregate principal amount of the 8.375% Notes for $8.9 million. After writing off $.1 million of deferred financing costs, the Company recorded a net gain of $6.3 million.

The Company

We may from time to time seek to refinance, retire or purchase itsour outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. ItWe may also repurchase shares of itsour outstanding common stock. Any such actions will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Disruptions, uncertainty or volatility in the credit markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future. These market conditions may limit the Company’sour ability to replace, in a timely manner, maturing

liabilities and access the capital necessary to grow and maintain its business. Accordingly, the Companywe may be forced to delay raising capital or pay unattractive interest rates, which could increase itsour interest expense, decrease itsour profitability and significantly reduce its financial flexibility.

The Company had cash and cash equivalents held by foreign subsidiaries of $61.2$40.0 million and $33.7 million at December 31, 20112013 and 2010, respectively.$42.2 million at December 31, 2012. For each of itsour foreign subsidiaries, the Company makeswe make a determination regarding the amount of earnings intended for permanent reinvestment, with the balance, if any, available to be repatriated to the United States. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the foreign subsidiaries’ operational activities and/or future foreign investments. At December 31, 2011,2013, management believed that sufficient liquidity was available in the United States, and it is our current intention to permanently reinvest undistributed earnings of our foreign subsidiaries outside of the United States. However, the Company is contemplating intercompany financing arrangements from foreign subsidiaries that may result in adverse U.S. federal income tax consequences. OtherwiseAlthough we have no intention to repatriate the approximately $80.8$82.6 million of undistributed earnings of our foreign subsidiaries, as of December 31, 2011,2013, if we were to repatriate these earnings, there would potentially be an adverse tax impact.

At December 31, 2011, the Company’s2013, our debt service coverage ratio was 2.2,1.5, and, therefore, it waswe were in compliance with the debt service coverage ratio covenant contained in the revolving credit facility. The Company wasfacility provided by the Credit Agreement. We were also in compliance with the other covenants contained in the revolving credit facility as of December 31, 2011.2013. The debt service coverage ratio is calculated at the end of each fiscal quarter and is based on the most recently ended four fiscal quarters of consolidated EBITDA minus cash taxes paid, minus unfunded capital expenditures, plus cash tax refunds to consolidated debt charges whichthat are consolidated cash interest expense plus scheduled principal payments on indebtedness plus scheduled reductions in our term debt as defined in the revolving credit facility.Credit Agreement. The debt service coverage ratio must be greater than 1.0 and not less than 1.1 for any two consecutive fiscal quarters. While we expect to remain in compliance throughout 2012,2014, declines in sales volumes in 20122014 could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by declines in the economy in general, they may not be able to pay their accounts payable to us on a timely basis or at all, which would make the accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility. We expect to remain in compliance throughout 2012.


The ratio of current assets to current liabilities was 2.652.51 at December 31, 20112013, versus 2.282.43 at December 31, 2010.2012. Working capital increased by $72.2$24.8 million to $291.4$298.3 million at December 31, 20112013, from $219.2$273.5 million at December 31, 2010.2012. Accounts receivable increased $13.5$5.3 million to $139.9$165.7 million in 2011 at December 31, 2013, from $126.4$160.4 million in 2010 primarily the result of the increase in sales volume in 2011. Inventory increased by $9.5 million in 2011 to $202.0 million from $192.5 million in 2010 at December 31, 2012, primarily resulting from the acquisitions in 2013. Inventory increased by $5.8 million at December 31, 2013, to $221.4 million from $215.6 million at December 31, 2012, primarily resulting from $6.8 million of increases associated with the acquisitions in 2013 offset by some planned inventory reductions. Accounts payable increased$10.2 million to $112.0 million at December 31, 2013 from $101.8 million at December 31, 2012, primarily resulting from $6.2 million of

33


increases due to sales volume increases.associated with the 2013 acquisitions and the timing of payments at December 31, 2013. Accrued expenses increaseddecreased by $14.2$3.7 million to $73.7$79.9 million in 2011 at December 31, 2013, from $59.5$83.6 million in 2010 at December 31, 2012, primarily resulting from an increasea reduction in advance billings partially offset by the accrued liabilities of $7.0the 2013 acquisitions of $6.2 million.

Operating Activities

Cash provided by operating activities increased $4.4 million an to $60.3 million in 2013 compared to $55.9 million in 2012. The increase in accrued interest of $2.6 million resulting from the terms of the payments of interest due on the Notes, an increase in accrued salaries, wages and benefits of $2.0 million and an increase in accrued professional fees of $2.6 million and accounts payable increased $3.9 million to $99.6 million in 2011 from $95.7 million in 2010.

During 2011, the Company provided $35.9 million from operating activities as compared to providing $67.1 million in 2010. The decrease in cash provision of $31.2 millionflows was primarily the result of increases in net income in 2013 compared to 2012 of $12.1 million, offset by an increase in net working capitalgains on sales of businesses and assets and gains of acquisitions of $6.4 million.

Cash provided by operating activities increased $20.0 million to $55.9 million in 2012 compared to $35.9 million in 2011. The increase in cash provided by operating activities was primarily the result of a decrease in changes in operating assets and liabilities, excluding acquisitions of businesses, of $4.2 million in 2012 compared to decreases of $11.7 million in 2011, compared to decreases of $32.8

million in 2010 offset by an increase in net income of $14.2 million. During 2011,$2.4 million and an increase in deferred taxes of $20.3 million, offset by the Company investednon-cash expenses added back to reconcile net income to net cash provided by operating activities for debt extinguishment costs of $7.3 million and restructuring and asset impairment charges of $5.4 million in 2011.

Investing Activities
Our purchases of property, plant and equipment, net of proceeds from sales and leaseback transactions, were $22.7 million in 2013 and compared to $23.7 million and $12.7 million in 2012 and 2011, respectively. The increases in capital expenditures whichexpenditure spending for 2012 and 2013 compared to 2011 were offset byprimarily associated with growth capital spending in the receiptaluminum business of $1.6 millionthe Assembly Components segment.
In 2013, we generated proceeds from the sale of property. Theseassets of $14.2 million, primarily associated with the $8.5 million sale of the outstanding equity interests of a non-core business unit in the Supply Technologies segment and the $5.0 million sale of a 25% interest in the SSP business in the Engineered Products segment.
In 2013, we spent a combined $45.8 million on the business acquisitions, net of cash acquired, primarily for Bates, Henry Halstead and QEF. In 2012, we spent a combined $97.0 million on the business acquisitions of FRS and Elastomeros Tecnicos Moldeados Inc, (“ETM”).
Financing Activities
Cash provided by financing activities plus cash interestof $3.9 million in 2013 primarily consisted of net borrowings on debt instruments of $4.9 million, offset by financing activities related to stock compensation.
Cash provided by financing activities of $30.5 million in 2012 primarily consisted of net borrowings on debt instruments of $31.1 million. The net borrowings were used to provide some of the financing for the FRS acquisition.
Cash provided by financing activities was $17.9 million in 2011. In 2011, we issued the 8.125% senior notes due 2021 for net proceeds of $245.0 million and taxredeemed the 8.375% senior subordinated notes due 2014 for $189.6 million. In addition, net payments of $31.6 million, a net increase in borrowings ofon other debt instruments totaled $34.8 million the issuance of the Notes, and purchases of treasury stock of $2.1 million, resulted in an increase in cash of $42.7 million in 2011.

During 2010, the Company provided $67.1 million from operating activities as compared to providing $43.9 million in 2009. The increase in cash provision of $23.2 million was primarily the result of net income of $15.2 million in 2010 compared to a net loss of $5.2 million in 2009 (a change of $20.4 million) and net working capital decreases of $33.7 million in 2010 compared to $30.7 million in 2009 offset by a reduction in depreciation and amortization of $1.8 million in 2010 compared to 2009. During 2010, the Company also invested $4.0 million in capital expenditures and made acquisitions for $25.9 million in cash. These activities, plus cash interest and tax payments of $24.5 million, a reduction in borrowings of $19.9 million, purchase of treasury stock of $1.1 million and debt issue costs of $4.1 million resulted in an increase of cash of $12.2 million in 2010.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons. There are occasions whereupon we enter into forward contracts on foreign currencies, primarily the euro, purely for the purpose of hedging exposure to changes in the value of accounts receivable in those currencies against the U.S. dollar. At December 31, 2011,2013, none were outstanding. We currently have no other derivative instruments.


34


The following table summarizes our principal contractual obligations and other commercial commitments over various future periods as of December 31, 2011:

       Payments Due or Commitment Expiration Per
Period
 

(In thousands)

  Total   Less Than
1  Year
   1-3 Years   3-5 Years   More than
5  Years
 

Long-term debt obligations

  $347,580    $1,415    $1,000    $94,000    $251,165  

Interest obligations(1)

   196,816     22,368     44,639     43,216     86,593  

Operating lease obligations

   42,840     12,784     14,847     7,436     7,773  

Purchase obligations

   131,084     130,701     383     -0-     -0-  

Postretirement obligations(2)

   17,502     2,282     4,191     3,739     7,290  

Standby letters of credit and bank guarantees

   15,705     10,109     2,141     3,455     -0-  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $751,527    $179,659    $67,201    $151,846    $352,821  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2013
:
   Payments Due or Commitment Expiration Per Period
(In millions)Total 
Less Than
1 Year
 1-3 Years 3-5 Years 
More than
5 Years
Long-term debt obligations$383.6
 $4.4
 $127.8
 $1.2
 $250.2
Interest obligations (1) 
147.2
 20.3
 40.6
 40.6
 45.7
Operating lease obligations50.1
 13.5
 20.3
 12.3
 4.0
Purchase obligations165.3
 165.2
 0.1
 
 
Postretirement obligations (2)
14.7
 1.9
 3.5
 3.1
 6.2
Standby letters of credit and bank guarantees19.1
 10.9
 8.2
 
 
Total$780.0
 $216.2
 $200.5
 $57.2
 $306.1
(1)Interest obligations are included on the Notes only and assume the notesNotes are paid at maturity. The calculation of interest on debt outstanding under our revolving credit facility and other variable rate debt ($1.92.9 million based on 2.04%2.21% average interest rate and outstanding borrowings of $93.0$129.7 million at December 31, 2011)2013) is not included above due to the subjectivity and estimation required.

(2)Postretirement obligations include projected postretirement benefit payments to participants only through 2021.2023.

The table above excludes the liability for unrecognized income tax benefits disclosed in Note H10 to the consolidated financial statements included elsewhere herein, since the Company

we cannot predict with reasonable reliability, the timing of potential cash settlements with the respective taxing authorities.

We expect that funds provided by operations plus available borrowings under our revolving credit facility to be adequate to meet our cash requirements for at least the next twelve months.

Critical Accounting Policies and Estimates

Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions which affect amounts reported in our consolidated financial statements. Management has made their best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe that there is great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, 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     We recognize revenue, other than from long-term contracts, when title is transferred to the customer, typically upon shipment. Revenue from long-term contracts (approximately 12%9% 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 that are in excess of billings, is classified in other current assetsunbilled contract revenue in the accompanying consolidated balance sheet. The Company’sBillings that are in excess of revenue earned on contracts in process are classified in accrued expenses on the accompanying balance sheet. Our 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 collectability concerns based on customers’ financial condition and payment history. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.

Allowance for Obsolete and Slow Moving Inventory:     Inventories are stated at the lower of cost or market value and have been reduced by an allowance for obsolete and slow-moving inventories. The estimated allowance is based on management’s review of inventories on hand with minimal sales activity, which is compared to estimated future usage and sales. Inventories identified by management as slow-moving or obsolete are reserved for based on estimated selling prices less disposal costs. Though we consider these allowances adequate and proper, changes in economic conditions in specific markets in which we operate could have a material effect on reserve allowances required.

Impairment of Long-Lived Assets:     In accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”,Equipment,” management performs impairment tests of long-lived assets, including property and equipment, whenever an event occurs or circumstances change that indicate that the carrying value may not be recoverable or the useful life

35


of the asset has changed. We reviewed our long-lived assets for indicators of impairment such as a decision to idle certain facilities and consolidate certain operations, a current-period operating or cash flow loss or a forecast that demonstrates continuing losses associated with the use of a long-lived asset and the expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. When we identified

impairment indicators, we determined whether the carrying amount of our long-lived assets was recoverable by comparing the carrying value to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. We considered whether impairments existed at the lowest level of independent identifiable cash flows within a reporting unit (for example, plant location, program level or asset level). If the carrying value of the assets exceeded the expected cash flows, the Companywe estimated the fair value of these assets by using appraisals or recent selling experience in selling similar assets or for certain assets with reasonably predicablepredictable cash flows by performing discounted cash flow analysis using the same discount rate used as the weighted average cost of capital in the respective goodwill impairment analysis to estimate fair value when market information wasn’twas not available to determine whether an impairment existed. Certain assets were abandoned and written down to scrap or appraised value. The CompanyWe recorded $7.0 million and $5.4 million of asset impairment charges in 2009 and 2011 respectively, based on appraisals and scrap values. See Note O15 to the consolidated financial statements included elsewhere herein.

Restructuring:    We recognize costsBusiness Combinations, Goodwill and Indefinite-Lived Assets:     Business combinations are accounted for using the purchase method of accounting. This method requires the Company to record assets and liabilities of the business acquired at their estimated fair market values as of the acquisition date. Any excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The Company uses valuation specialists to perform appraisals and assist in accordance with ASC 420, “Exitthe determination of the fair values of the assets acquired and liabilities assumed. These valuations require management to make estimates and assumptions.
Generally, goodwill recorded in business combinations is more susceptible to risk of impairment soon after the acquisition primarily because the business combination is recorded at fair value based on operating plans and economic conditions present at the time of the acquisition. If operating results 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 aeconomic conditions deteriorate soon after an acquisition, it could result in the impairment of the acquired goodwill. A change in macroeconomic conditions in the United States or Europe, as well as future changes in the judgments, assumptions and estimates that were used in the Company's goodwill impairment testing for these three reporting units, including the discount rate and future cash flow projections, could result in a significantly different estimate of the accruals are adjusted to reflect the changes.

Goodwill:fair value.

As required by ASC 350, “Intangibles - Goodwill and Other” (“ASC 350”), management performs impairment testing of goodwill and indefinite-lived assets at least annually, as of October 1 of each year, or more frequently if impairment indicators arise. In September 2011,
The goodwill impairment analysis is a two-step process. Step one compares the FASB issued ASU 2011-08, which amendscarrying amount of the rules for testingreporting unit to its estimated fair value. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, step two is performed, where the reporting unit’s carrying value of goodwill for impairment. Underis compared to the new rules, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that theimplied fair value of a reporting unit is less than itsgoodwill. To the extent that the carrying amount. If, after assessingvalue of goodwill exceeds the totality of events or circumstances, an entity determines it is not more likely than not that theimplied fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company early adopted ASU 2011-08 for its October 1, 2011 annual goodwill, impairment test.

exists and must be recognized. In accordance with ASC 350, management tests goodwill for impairment at the reporting unit level. A reporting unit is a reportablean 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 reportablean operating segment having similar economic characteristics. The Company completed

During 2011, we adopted the assessmentprovisions of Accounting Standards Update (“ASU”) No. 2011-8, “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which allows companies to assess qualitative factors to determine if goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test. Based on a review of various qualitative factors, as set forth in ASC 350, management concluded that the goodwill for the Industrial Equipment reporting unit was not impaired and that the two-step approach was not required to be performed for this reporting unit. Based on a review of various qualitative factors, management concluded that the goodwill for the Aluminum Products reporting unit would be tested under the two-step approach. In 2011, we prepared the quantitative goodwill impairment analysis by comparing the estimated fair value of the qualitative factors and determined that there was no impairment with respectAluminum Products reporting unit to the Capital Equipment reporting unit’s goodwill. With respect to aluminum products, managementits carrying value. Management determined fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for the 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

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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 setdetermined 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 unityunit in determining the appropriate discount rates to be used. TheIn 2011, the discount rate utilized for the Aluminum reporting unit which ranged fromwas 12% to 13%,which 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. 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. At December 31, 2009,In 2013 and 2012, based on a review of the Companyqualitative factors set forth above, combined with the results of the quantitative analysis performed in 2011 for the Aluminum Products reporting unit, management concluded that as of October 1, 2013 and 2012, the reporting units had goodwillfair values that exceeded their carrying values. As a result of $4.1 million in the Capital Equipment reporting unit. On December 31, 2010, the Companythis analysis, we concluded that no impairment existed.

In 2013, we completed the acquisitionacquisitions of PillarQEF, Henry Halstead, and Bates and recorded additional goodwill of $1.0 million in the Capital Equipment reporting unit.$10.4 million. At December 31, 2011 the Company2013, we had goodwill of $9.5$60.4 million. We completedThere were no interim indicators of impairment and management concluded that the annualgoodwill related to the Aluminum Products, FRS, Capital Equipment and Supply Technologies reporting units was not impaired and that the two-step approach was not required to be performed through December 31, 2013.
At December 31, 2013, we had $11.7 million of indefinite-lived trade names primarily related to the 2012 acquisition of FRS. For purposes of impairment teststesting in 2012, we estimated the fair value of the trade name using a “relief from royalty” approach. This approach involves two steps: (1) estimating a reasonable royalty rate for the trade name and (2) applying this royalty rate to a net sales stream and discounting the resulting cash flows to determine fair value. Fair value is then compared with the carrying value of the trade name. As a result of this analysis, we concluded that no impairment existed.
Based on the qualitative factors analyzed in 2013, as mentioned above, combined with this quantitative analysis performed in 2012 and management concluded that as of October 1, 2009, 2010 and 2011 and2013, the indefinite-lived intangibles had fair values that exceeded their carrying values. As a result of this analysis, we concluded that no goodwill impairment existed.

There were no interim indicators of impairment and management concluded that the indefinite-lived intangibles were not impaired and that the two-step approach was not required to be performed through December 31, 2013.

See Notes 5 and 6 of the consolidated financial statements for additional disclosure on goodwill and indefinite-lived intangibles.
Income Taxes:     In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company accountswe account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates. Specifically, we measure gross deferred tax assets for deductible temporary differences and carryforwards, such as operating losses and tax credits, using the applicable enacted tax rates and apply the more likely than not measurement criterion.

ASC 740 provides that

In determining the adequacy of valuation allowances we consider cumulative and anticipated amounts of domestic and international earnings or losses, anticipated amounts of foreign source income as well as the anticipated taxable income resulting from the reversal of future realizationtaxable temporary differences. We intend to maintain any recorded valuation allowances until sufficient positive evidence, for example cumulative positive foreign earnings or additional foreign source income exists, to support reversal of the tax benefitvaluation allowances.
Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of an existing deductible temporary differenceglobal income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or carryforward ultimately depends on the existence of sufficient taxable incomeother guidance provided by taxing authorities influences our estimate of the appropriate character withineffective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the carryback, carryforward period available under the tax law. The Company analyzed the four possible sources of taxable income as set forth in ASC 740 and concluded that the only relevant sources of taxable income is the reversal of its existing taxable temporary differences. The Company reviewed the projected timing of the reversal of its taxable temporary differences and determined that such reversals will offset the Company’s deferred tax assets prior to their expiration. As of December 31, 2011, the Company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its U.S. net deferred tax assets will be realized. As of December 31, 2011, the Company reversed a valuation allowance against its U.S. net deferred tax assets. See Note H to the consolidated financial statements included elsewhere herein.

they become known.

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

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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.
We consult with our actuaries at least annually when reviewing and selecting the discount rates to be used. The discount rates used by the Company are based on yields of various corporate and governmental bond indices with actual maturity dates that approximate the estimated benefit payment streams of the related pension plans. The discount rates are also reviewed in comparison with current benchmark indices, economic market conditions and the movement in the benchmark yield since the previous fiscal year. The liability weighted-average discount rate for the defined benefit pension plan is

Stock-Based Compensation:4.51%

ASC 718, “Compensation-Stock Compensation,” requires for 2013, compared with 3.66% in 2012. For the other postretirement benefit plan, the rate is 4.21% for 2013 and 3.35% for 2012. This rate represents the interest rates generally available in the United States, which is the Company’s only country with other postretirement benefit liabilities. Another assumption that affects the Company’s pension expense is the expected long-term rate of return on assets. The Company’s plans are funded. The weighted-average expected long-term rate of return on assets assumption is 8.25% for 2013.

Changes in the related pension benefit costs may occur in the future due to changes in assumptions. The following table illustrates the sensitivity to a change in the assumed discount rate and expected long-term rate of return on assets for the Company’s pension plans and other postretirement plans as of December 31, 2013:
Change in Assumption Impact on 2014 Benefit Expense Impact on 2014 Projected Benefit Obligation for Pension Benefits Impact on 2014 Projected Benefit Obligation for Postretirement Benefits
50 basis point decrease in discount rate $
 $2.5
 $0.6
50 basis point increase in discount rate $
 $(2.3) $(0.6)
50 basis point decrease in expected return on assets $0.6
 $
 $
See Note 13 of the consolidated financial statements for further analysis regarding the sensitivity of the key assumptions applied in the actuarial valuations.
Legal Contingencies:     We are involved in a variety of claims, suits, investigations and administrative proceedings with respect to commercial, premises liability, product liability, employment and environmental matters arising from the ordinary course of business. We accrue reserves for legal contingencies, on an undiscounted basis, when it is probable that we have incurred a liability and we can reasonably estimate an amount. When a single amount cannot be reasonably estimated, but the cost resulting from all share-based payment transactionscan be recognizedestimated within a range, we accrue the minimum amount in the financial statementsrange. Based upon facts and establishesinformation currently available, we believe the amounts reserved are adequate for such pending matters. We monitor the development of legal proceedings on a fair-value measurement objective in determiningregular basis and will adjust our reserves when, and to the valueextent, additional information becomes available.

Accounting Guidance Adopted as of such a cost. The Company recorded expense related to stock-based compensation in 2011, 2010, and 2009 of $2.1 million, $1.7 million and $2.4 million (before tax), respectively.

RecentDecember 31, 2013


In February 2013, the Financial Accounting Pronouncements

In June 2011, the FASBStandards Board (“FASB”) issued ASU No. 2011-05,2013-02, “Comprehensive Income (Topic 220): PresentationReporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.Income,ASU No. 2011-05 amends existing guidance by allowing only two options for presentingwhich requires entities to provide information about the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, the FASB issued ASU 2011-12, deferring its requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and OCI on the face of the financial statements. Entities continue to be required to present amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the financial statementsstatement where net income is presented or to disclose those amounts in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the financial statements. The requirementsame reporting period. For other amounts that are not required under U.S. GAAP to present reclassification adjustmentsbe reclassified in interim periods was also deferred. However,their entirety to net income, entities are required to report a total for comprehensive income in condensed financial statements of interim periods in a single continuous statement or in two consecutive statements. The FASB is reconsidering the presentation requirements for reclassification adjustments.

The Company planscross-reference to adopt ASU No. 2011-05 in the first quarter of fiscal 2012. The Company believes the adoption of ASU No. 2011-05 will change the order in which certain financial statements are presented andother disclosures required under U.S. GAAP that provide additional detail on those financial statements when applicable, but will not have any other impact on its consolidated financial statements.

In May 2011, the FASB amended ASC 820, “Fair Value Measurement.”these amounts. This amendment is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The amendmentASU is effective prospectively for interim and annualreporting periods beginning after December 15, 2011.2012. The updated standard affects the Company’s disclosures but has no impact on its results of operations, financial condition or liquidity.



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Accounting Guidance Issued But Not Adopted as of December 31, 2013
In February 2013, the FASB issued ASU 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date,” which requires entities to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. Entities are also required to disclose the nature and amount of the obligation as well as other information about those obligations. This ASU is effective prospectively for reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of adopting this guidance.
In February 2013, the FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity,” requiring reporting entities that no longer have a controlling financial interest in a subsidiary or group of assets that is considered a business within a foreign entity, to release the cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For equity method investments that are foreign entities, the partial sale requires a pro rata portion of the cumulative translation adjustment to be released into net income upon a partial sale of such an equity investment. However, for an equity method investment that is not a foreign entity, the release of the cumulative translation adjustment into net income is required only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. Additionally, the amendments in this update clarify that the sale of an investment in a foreign entity requiring release into net income the cumulative translation adjustment upon the occurrence of events that includes (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. This ASU is effective prospectively for reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of adopting this guidance.
In July 2013 the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to eliminate diversity in practice. This ASU requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. This new guidance is effective prospectively for annual reporting periods beginning on or after December 15, 2013 and interim periods therein. The adoption of this amendmentASU will not have a material impacteffect on our consolidated financial statements.

statements because it aligns with our current presentation.


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 certain clean-up efforts at several of these sites. However, our share of such costs has not been material and based on available information, our management does not expect our exposure at any of these locations to have a material adverse effect on our results of operations, liquidity or financial condition.

We have been named as one of many defendants in a number of asbestos-related personal injury lawsuits. Our cost of defending such lawsuits has not been material to date and, based upon available information, our management does not expect our future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial condition. We caution, however, that inherent in management’s estimates of our exposure are expected trends in claims severity, frequency and other factors that may materially vary as claims are filed and settled or otherwise resolved.

Seasonality; Variability of Operating Results

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 capitalindustrial equipment businesses,business unit included in the ManufacturedEngineered Products segment, which typically shipships a few large systems per year.


39


Forward-Looking Statements

This annual reportAnnual Report on Form 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; continuationthe uncertainty of the current negative global economic environment; general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; raw material availability and pricing; fluctuations in energy costs; component part availability and pricing; changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully close the acquisition of FRS in the expected timeframe or at all; our ability to successfully integrate FRS and achieve the expected results of the acquisition; our ability to retain FRS’s management team and FRS’s relationship with customers and suppliers; our ability to successfully integrate recent and future acquisitions into existing operations; the amounts and timing, if any, of purchases of our common stock; changes in general domestic economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including the uncertainties related to the current global financial crisis;crises; adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities; our ability to meet various covenants, including financial covenants, contained in the agreements governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; potential disruption due to a partial or complete reconfiguration of the European Union; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims and disputes with customers; the outcome of the review being conducted by the special committee of our board of directors; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which could be lower due to the effects of the currentrecent financial crisis;crises; our ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems; and the other factors we describe under the “Item 1A. Risk Factors”. included in the Company’s Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved.


40

Table of Contents

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 ourborrowings under the floating rate revolving credit facility and term loan provided by our Credit Agreement, which consisted of borrowings of $93.0$129.7 million at December 31, 2011.2013. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.9$1.3 million for during the year ended December 31, 2011.

2013.

Our foreign subsidiaries generally conduct business in local currencies. During 2011,2013, we recorded an unfavorable foreign currency translation adjustment of $1.4$2.6 million related to net assets located outside the United States. This foreign currency translation adjustment resulted primarily from weakeningthe strengthening of the U.S. dollar. Our foreign operations are also subject to other customary risks of operating in a global environment, such as unstable political situations, the effect of local laws and taxes, tariff increases and regulations and requirements for export licenses, the potential imposition of trade or foreign exchange restrictions and transportation delays.

The Company periodically enters into forward contracts on foreign currencies, primarily the euro and the British pound sterling, purely for the purpose of hedging exposure to changes in the value of accounts receivable in those currencies against the U.S. dollar. We currently use no other derivative instruments. At December 31, 2013, there were no such currency hedge contracts outstanding.
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.



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Item 8.  Financial Statements and Supplementary Data


Index to Consolidated Financial Statements and Supplementary Financial Data


 Page

47

48

49

Supplementary Financial Data

73

73

74




42


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Park-Ohio Holdings Corp.

We have audited the accompanying consolidated balance sheets of Park-Ohio Holdings Corp.Corp and subsidiaries as of December 31, 20112013 and 2010,2012 and the related consolidated statements of operations, shareholders’income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2011.2013. 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park-Ohio Holdings Corp. and subsidiaries at December 31, 20112013 and 20102012 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 20112013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Park-Ohio Holdings Corp. and subsidiariessubsidiaries' internal control over financial reporting as of December 31, 2011,2013, based on criteria established in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 15, 201214, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Cleveland, Ohio

March 15, 2012

14, 2014



43


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of Park-Ohio Holdings Corp.

We have audited Park-Ohio HoldingHoldings Corp. and subsidiaries’ internal control over financial reporting as of December 31, 2011,2013, based on criteria established in Internal Control — IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Park-Ohio Holdings Corp. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’scompany’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: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.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Bates, Henry Halstead and QEF Global, which are included in the 2013 consolidated financial statements of Park-Ohio Holdings Corp. and subsidiaries and constituted 8% of total assets as of December 31, 2013 and 3% of revenues for the year then ended. Our audit of internal control over financial reporting of Park-Ohio Holdings Corp. and subsidiaries also did not include an evaluation of the internal control over financial reporting of Bates, Henry Halstead and QEF Global.
In our opinion, Park-Ohio Holdings Corp. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2013, based on the COSO criteria.

We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Park-Ohio Holdings Corp. and subsidiaries as of December 31, 20112013 and 2010,2012, and the related consolidated statements of operations,income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 20112013 of Park-Ohio Holdings Corp. and subsidiaries and our report dated March 15, 201214, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Cleveland, Ohio

March 15, 2012

14, 2014


44


Park-Ohio Holdings Corp. and Subsidiaries

Consolidated Balance Sheets

   December 31, 
   2011  2010 
   (Dollars in thousands) 
ASSETS  

Current Assets

   

Cash and cash equivalents

  $78,001   $35,311  

Accounts receivable, less allowances for doubtful accounts of $5,483 in 2011 and $6,011 in 2010

   139,941    126,409  

Inventories, net

   202,039    192,542  

Deferred tax assets

   20,561    10,496  

Unbilled contract revenue

   18,778    12,751  

Other current assets

   8,790    12,800  
  

 

 

  

 

 

 

Total Current Assets

   468,110    390,309  

Property, plant and equipment:

   

Land and land improvements

   3,654    3,678  

Buildings

   47,594    47,479  

Machinery and equipment

   208,727    201,920  
  

 

 

  

 

 

 
   259,975    253,077  

Less accumulated depreciation

   198,165    184,294  
  

 

 

  

 

 

 
   61,810    68,783  

Other Assets:

   

Goodwill

   9,463    9,100  

Other

   74,557    84,340  
 ��

 

 

  

 

 

 
  $613,940   $552,532  
  

 

 

  

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY  

Current Liabilities

   

Trade accounts payable

  $99,588   $95,695  

Accrued expenses

   73,651    59,487  

Current portion of long-term debt

   1,415    13,756  

Current portion of other postretirement benefits

   2,002    2,178  
  

 

 

  

 

 

 

Total Current Liabilities

   176,656    171,116  

Long-Term Liabilities, less current portion

   

Senior Notes

   250,000    183,835  

Credit facility

   93,000    113,300  

Other long-term debt

   3,165    5,322  

Deferred tax liability

   1,392    9,721  

Other postretirement benefits and other long-term liabilities

   24,285    22,863  
  

 

 

  

 

 

 
   371,842    335,041  

Shareholders’ Equity

   

Capital stock, par value $1 per share

   

Serial preferred stock:

   

Authorized — 632,470 shares; Issued and outstanding — none

   -0-    -0-  

Common stock:

   

Authorized — 40,000,000 shares; Issued — 13,813,774 shares in 2011 and 13,396,674 in 2010

   13,814    13,397  

Additional paid-in capital

   70,248    68,085  

Retained earnings (deficit)

   10,392    (19,043

Treasury stock, at cost, 1,673,926 shares in 2011 and 1,558,996 shares in 2010

   (20,607  (18,502

Accumulated other comprehensive (loss) income

   (8,405  2,438  
  

 

 

  

 

 

 
   65,442    46,375  
  

 

 

  

 

 

 
  $613,940   $552,532  
  

 

 

  

 

 

 

See

   
Adjusted (1)
 December 31,
2013
 December 31,
2012
 (In millions, except share
and per share data)
ASSETS
Current assets:   
Cash and cash equivalents$55.2
 $44.4
Accounts receivable, less allowances for doubtful accounts of $3.7 million at December 31, 2013 and $3.5 million at December 31, 2012165.7
 160.4
Inventories, net221.4
 215.6
Deferred tax assets25.2
 19.8
Unbilled contract revenue8.7
 1.4
Other current assets20.1
 23.6
Total current assets496.3
 465.2
Net property, plant and equipment115.4
 100.0
Goodwill60.4
 49.7
Intangible assets, net66.2
 49.6
Other long-term assets80.4
 62.1
Total assets$818.7
 $726.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:   
Trade accounts payable$112.0
 $101.8
Accrued expenses and other79.9
 83.6
Current portion of long-term debt4.4
 4.4
Current portion of other postretirement benefits1.7
 1.9
Total current liabilities198.0
 191.7
Long-term liabilities, less current portion:   
Senior Notes250.0
 250.0
Credit facility126.2
 120.6
Other long-term debt3.0
 3.6
Deferred tax liabilities45.3
 31.5
Other postretirement benefits and other long-term liabilities32.2
 27.4
Total long-term liabilities456.7
 433.1
Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity:   
Capital stock, par value $1 a share   
Serial preferred stock: Authorized -- 632,470 shares: Issued and outstanding -- none
 
Common stock: Authorized - 40,000,000 shares; Issued - 14,364,239 shares in 2013 and 14,109,255 in 201214.4
 14.1
Additional paid-in capital82.4
 76.9
Retained earnings85.6
 42.2
Treasury stock, at cost, 1,934,959 shares in 2013 and 1,872,265 shares in 2012(26.8) (24.6)
Accumulated other comprehensive income (loss)3.4
 (6.8)
Total Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity159.0
 101.8
Noncontrolling interest5.0
 
Total equity164.0
 101.8
Total liabilities and shareholders' equity$818.7
 $726.6
(1)Adjusted to reflect the discontinued operations.
The accompanying notes toare an integral part of these consolidated financial statements.


45


Park-Ohio Holdings Corp. and Subsidiaries

Consolidated Statements of Operations

   Year Ended December 31, 
   2011  2010  2009 
   (Dollars in thousands,
except per share data)
 

Net sales

  $966,573   $813,522   $701,047  

Cost of products sold

   799,248    679,425    597,200  
  

 

 

  

 

 

  

 

 

 

Gross profit

   167,325    134,097    103,847  

Selling, general and administrative expenses

   105,582    91,755    87,786  

Restructuring and asset impairment charges

   5,359    3,539    5,206  
  

 

 

  

 

 

  

 

 

 

Operating income

   56,384    38,803    10,855  

Gain on purchase of 8.375% senior subordinated notes

   -0-    -0-    (6,297

Gain on acquisition of business

   -0-    (2,210  -0-  

Interest expense

   32,152    23,792    23,189  
  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   24,232    17,221    (6,037

Income tax (benefit) expense

   (5,203  2,034    (828
  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $29,435   $15,187   $(5,209
  

 

 

  

 

 

  

 

 

 

Amounts per common share:

    

Basic

  $2.54   $1.34   $(.47
  

 

 

  

 

 

  

 

 

 

Diluted

  $2.45   $1.29   $(.47
  

 

 

  

 

 

  

 

 

 

SeeIncome

 Year Ended December 31,
   
Adjusted (1)
 2013 2012 2011
 (In millions, except earnings per share data)
Net sales$1,203.2
 $1,128.2
 $961.4
Cost of sales992.2
 920.9
 793.7
Gross profit211.0
 207.3
 167.7
Selling, general and administrative expenses119.3
 113.4
 102.2
Restructuring and asset impairment charges
 
 5.4
Litigation judgment and settlement costs5.2
 13.0
 
Operating income86.5
 80.9
 60.1
Gain on acquisition of business(0.6) 
 
Interest expense26.8
 26.4
 32.2
Income from continuing operations before income taxes60.3
 54.5
 27.9
Income tax expense (benefit)19.4
 20.3
 (3.8)
Net income from continuing operations40.9
 34.2
 31.7
Income (loss) from discontinued operations, net of taxes3.0
 (2.4) (2.3)
Net income43.9
 31.8
 29.4
Net income attributable to noncontrolling interest(0.5) 
 
Net income attributable to ParkOhio common shareholders$43.4
 $31.8
 $29.4
      
Earnings (loss) per common share attributable to ParkOhio common shareholders - Basic:     
Continuing operations$3.40
 $2.87
 $2.74
Discontinued operations0.25
 (0.20) (0.20)
Total$3.65
 $2.67
 $2.54
Earnings (loss) per common share attributable to ParkOhio common shareholders - Diluted:     
Continuing operations$3.31
 $2.82
 $2.64
Discontinued operations0.25
 (0.20) (0.19)
Total$3.56
 $2.62
 $2.45
Weighted-average shares used to compute earnings per share:     
Basic11.9
 11.9
 11.6
Diluted12.2
 12.1
 12.0

(1)Adjusted to reflect the discontinued operations.
The accompanying notes toare an integral part of these consolidated financial statements.



46


Park-Ohio Holdings Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

 Year Ended December 31,
 2013 2012 2011
 (In millions)
Net income$43.9
 $31.8
 $29.4
Other comprehensive income (loss):     
Foreign currency translation (loss) gain(2.6) 0.6
 (1.4)
Pension and postretirement benefit adjustments, net of tax12.8
 1.0
 (9.4)
Total other comprehensive income (loss)10.2
 1.6
 (10.8)
Total comprehensive income, net of tax54.1
 33.4
 18.6
Comprehensive income attributable to noncontrolling interest(0.5) 
 
Comprehensive income attributable to ParkOhio common shareholders$53.6
 $33.4
 $18.6
The accompanying notes are an integral part of these consolidated financial statements.


47


Park-Ohio Holdings Corp. and Subsidiaries
Consolidated Statements of Shareholders’ Equity

  Common
Stock
  Additional
Paid-In
Capital
  Retained
Earnings
(Deficit)
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (Loss)
  Total 
  (Dollars in thousands) 

Balance at January 1, 2009

 $12,237   $64,212   $(29,021 $(17,192 $(17,481 $12,755  

Comprehensive (loss):

      

Net loss

    (5,209    (5,209

Foreign currency translation adjustment

      2,968    2,968  

Unrealized loss on marketable securities, net of income tax of $182

      413    413  

Pension and postretirement benefit adjustments, net of income tax of $1,179

      8,986    8,986  
     

 

 

  

 

 

 

Comprehensive income

       7,158  

Restricted stock award, net of forfeiture

  627    (627     -0-  

Amortization of restricted stock

   1,969       1,969  

Purchase of treasury stock (30,445 shares)

     (251   (251

Exercise of stock options (410,000 shares)

  410    373       783  

Share-based compensation

   396       396  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2009

  13,274    66,323    (34,230  (17,443  (5,114  22,810  

Comprehensive income (loss):

      

Net income

    15,187      15,187  

Foreign currency translation adjustment

      (711  (711

Pension and postretirement benefit adjustments, net of income tax of $1,143

      8,263    8,263  
     

 

 

  

 

 

 

Comprehensive income

       22,739  

Amortization of restricted stock

   1,463       1,463  

Restricted share units exchange for restricted stock

  13    (13     -0-  

Restricted stock awards

  101    (101     -0-  

Restricted stock cancelled

  (14  14       -0-  

Purchase of treasury stock (85,027 shares)

     (1,059   (1,059

Exercise of stock options (23,166 shares)

  23    127       150  

Share-based compensation

   272       272  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2010

  13,397    68,085    (19,043  (18,502  2,438    46,375  

Comprehensive income (loss):

      

Net income

    29,435      29,435  

Foreign currency translation adjustment

      (1,387  (1,387

Pension and postretirement benefit adjustments, net of income tax of $5,571

      (9,456  (9,456
      

 

 

 

Comprehensive income

       18,592  

Amortization of restricted stock

   1,988       1,988  

Restricted stock awards

  194    (194     -0-  

Purchase of treasury stock (114,930 shares)

     (2,105   (2,105

Exercise of stock options (223,300 shares)

  223    271       494  

Share-based compensation

   98       98  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2011

 $13,814   $70,248   $10,392   $(20,607 $(8,405 $65,442  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See

 Common Stock            
 Shares Amount Additional
Paid-In
Capital
 Retained (Deficit)
Earnings
 Treasury Stock Accumulated
Other
Comprehensive
Income (Loss)
 Noncontrolling Interest Total
 (In whole shares) (In millions)
Balance at January 1, 201113,396,674
 $13.4
 $68.1
 $(19.0) $(18.5) $2.4
 $
 $46.4
Other comprehensive income (loss)
 
 
 29.4
 
 (10.8) 
 18.6
Amortization of restricted stock
 
 2.0
 
 
 
 
 2.0
Restricted stock awards194,000
 0.2
 (0.2) 
 
 
 
 
Restricted stock cancelled(200) 
 
 
 
 
 
 
Purchase of treasury stock (114,930 shares)
 
 
 
 (2.1) 
 
 (2.1)
Exercise of stock options223,300
 0.2
 0.3
 
 
 
 
 0.5
Share-based compensation
 
 0.1
 
 
 
 
 0.1
Balance at December 31, 201113,813,774
 13.8
 70.3
 10.4
 (20.6) (8.4) 
 65.5
Other comprehensive income
 
 
 31.8
 
 1.6
 
 33.4
Share-based compensation
 
 2.6
 
 
 
 
 2.6
Restricted stock awards258,000
 0.3
 (0.3) 
 
 
 
 
Common stock award31,606
 
 0.6
 
 
 
 
 0.6
Restricted stock cancelled(32,375) 
 
 
 
 
 
 
Purchase of treasury stock (198,339 shares)
 
 
 
 (4.0) 
 
 (4.0)
Exercise of stock options38,250
 
 0.5
 
 
 
 
 0.5
Income tax effect of share-based compensation exercises and vesting
 
 0.4
 
 
 
 
 0.4
Income tax effect of suspended benefits from share-based compensation
 
 2.8
 
 
 
 
 2.8
Balance at December 31, 201214,109,255
 14.1
 76.9
 42.2
 (24.6) (6.8) 
 101.8
Other comprehensive income
 
 
 43.4
 
 10.2
 0.5
 54.1
Share-based compensation
 
 4.1
 
 
 
 
 4.1
Restricted stock awards204,650
 0.2
 (0.2) 
 
 
 
 
Restricted stock cancelled(4,000) 
 
 
 
 
 
 
Performance shares issued14,000
 
 0.4
 
 
 
 
 0.4
Capital contribution from noncontrolling interest
 
 0.5
 
 
 
 4.5
 5.0
Purchase of treasury stock (62,694 shares)
 
 
 
 (2.2) 
 
 (2.2)
Exercise of stock options40,334
 0.1
 0.3
 
 
 
 
 0.4
Income tax effect of share-based compensation exercises and vesting
 
 0.4
 
 
 
 
 0.4
Balance at December 31, 201314,364,239
 $14.4
 $82.4
 $85.6
 $(26.8) $3.4
 $5.0
 $164.0
The accompanying notes toare an integral part of these consolidated financial statements.





48


Park-Ohio Holdings Corp. and Subsidiaries

Consolidated Statements of Cash Flows

   Year Ended December 31, 
   2011  2010  2009 
   (Dollars in thousands) 

OPERATING ACTIVITIES

    

Net income (loss)

  $29,435   $15,187   $(5,209

Adjustments to reconcile net income (loss) to net cash provided by operations:

    

Depreciation and amortization

   16,177    17,132    18,918  

Restructuring and asset impairment charges

   5,359    3,539    5,206  

Debt extinguishment costs

   7,335    -0-    -0-  

Gain on purchase of 8.375% senior subordinated notes

   -0-    -0-    (6,297

Gain on acquisition of business

   -0-    (2,210  -0-  

Deferred income taxes

   (12,817  (1,126  (1,842

Share-based compensation expense

   2,086    1,735    2,365  

Changes in operating assets and liabilities excluding acquisitions of businesses:

    

Accounts receivable

   (13,533  (7,624  61,136  

Inventories and other current assets

   (8,763  10,067    46,701  

Accounts payable and accrued expenses

   18,057    28,068    (82,113

Other

   (7,475  2,291    5,000  
  

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

   35,861    67,059    43,865  

INVESTING ACTIVITIES

    

Purchases of property, plant and equipment

   (12,673  (3,951  (5,575

Business acquisitions, net of cash acquired

   -0-    (25,900  -0-  

Proceeds from the sale of property

   1,575    -0-    -0-  

Purchases of marketable securities

   -0-    -0-    (62

Sales of marketable securities

   -0-    -0-    865  
  

 

 

  

 

 

  

 

 

 

Net cash used by investing activities

   (11,098  (29,851  (4,772

FINANCING ACTIVITIES

    

(Payments) on term loans and other debt

   (37,598  (8,944  (2,099

Bank debt issue costs

   (1,079  (4,142  -0-  

Proceeds from (payments on) revolving credit facility

   2,800    (11,000  (23,400

Issuance of 8.125% senior notes due 2021, net of deferred financing costs

   244,970    -0-    -0-  

Redemption of 8.375% senior subordinated notes due 2014

   (189,555  -0-    -0-  

Purchase of 8.375% senior subordinated notes

   -0-    -0-    (8,853

Issuance of common stock under stock option plan

   494    150    783  

Purchase of treasury stock

   (2,105  (1,059  (251
  

 

 

  

 

 

  

 

 

 

Net cash provided (used) by financing activities

   17,927    (24,995  (33,820

Increase in cash and cash equivalents

   42,690    12,213    5,273  

Cash and cash equivalents at beginning of year

   35,311    23,098    17,825  
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of year

  $78,001   $35,311   $23,098  
  

 

 

  

 

 

  

 

 

 

Income taxes paid

  $4,648   $1,217   $3,146  

Interest paid (includes $5,720 of senior subordinated notes redemption costs in 2011)

   26,993    23,324    23,018  

See

 Year Ended December 31,
 2013 2012 2011
OPERATING ACTIVITIES(In millions)
Net income$43.9
 $31.8
 $29.4
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization19.2
 18.0
 16.2
Debt extinguishment costs
 0.3
 7.3
Restructuring and asset impairment charges
 
 5.4
Share-based compensation4.7
 2.7
 2.1
Gain on sale of business and assets(6.0) (0.2) 
Gain on acquisition of business(0.6) 
 
Deferred income taxes(2.3) 7.5
 (12.8)
Changes in operating assets and liabilities, excluding business acquisitions:     
Accounts receivable8.5
 9.8
 (13.5)
Inventories and other current assets(4.9) 7.1
 (8.8)
Accounts payable and accrued expenses(7.5) (21.4) 18.1
Other5.3
 0.3
 (7.5)
Net cash provided by operating activities60.3
 55.9
 35.9
INVESTING ACTIVITIES     
Purchases of property, plant and equipment(30.1) (29.6) (12.7)
Proceeds from sale and leaseback transactions7.4
 5.9
 
Proceeds from sale of assets14.2
 0.4
 1.6
Business acquisitions, net of cash acquired(45.8) (97.0) 
Net cash used by investing activities(54.3) (120.3) (11.1)
FINANCING ACTIVITIES     
Proceeds from term loans and other debt
 25.9
 
Payments on term loans and other debt(4.2) (3.7) (37.6)
Proceeds from revolving credit facility, net9.1
 8.9
 2.8
Bank debt issue costs
 (0.9) (1.1)
Issuance of 8.125% senior notes due 2021, net of deferred financing costs
 
 245.0
Redemption of 8.375% senior subordinated notes due 2014
 
 (189.6)
Issuance of common stock awards0.8
 1.1
 0.5
Income tax effect of suspended benefits from share-based compensation
 2.8
 
Income tax effect of share-based compensation exercises and vesting0.4
 0.4
 
Purchase of treasury stock(2.2) (4.0) (2.1)
Net cash provided by financing activities3.9
 30.5
 17.9
Effect of exchange rate changes on cash0.9
 0.3
 
Increase (decrease) in cash and cash equivalents10.8
 (33.6) 42.7
Cash and cash equivalents at beginning of period44.4
 78.0
 35.3
Cash and cash equivalents at end of period$55.2
 $44.4
 $78.0
Income taxes paid$25.0
 $5.5
 $4.6
Interest paid$24.8
 $23.8
 $27.0
The accompanying notes toare an integral part of these consolidated financial statements.


49


PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 20102013, 2012 and 20092011

(Dollars in thousands,millions, except per share data)


NOTE A1 — Summary of Significant Accounting Policies

Consolidation and Basis of Presentation:    The consolidated financial statements include the accounts of the Company and all of its majority-owned 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 owned by related parties as described in Note L.12. 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.

On September 3, 2013, we sold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment for $8.5 million in cash, which resulted in a gain that is reflected within the income (loss) from discontinued operations, net of taxes, line of the consolidated statements of income. This business unit is a provider of high-quality machine to machine information technology solutions, products and services. The results of the business unit have been reported as discontinued operations in the financial statements.
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 of first-in, first-out (“FIFO”) cost or market value. Inventory reserves were $24,881 and $22,788 at December 31, 2011 and 2010, respectively. Inventory consigned to others was $6,546 and $6,940 at December 31, 2011 and 2010, respectively.

Major Classes of InventoriesDecember 31, 2013 December 31, 2012
 (In millions)
Finished goods$114.7
 $113.0
Work in process30.3
 27.9
Raw materials and supplies76.4
 74.7
Inventories, net$221.4
 $215.6
    
Other inventory items   
Inventory reserves$28.4
 $27.2
Consigned Inventory$6.6
 $6.6
Major Classes of Inventories

   December 31, 
   2011   2010 

Finished goods

  $122,010    $116,202  

Work in process

   20,660     24,339  

Raw materials and supplies

   59,369     52,001  
  

 

 

   

 

 

 
  $202,039    $192,542  
  

 

 

   

 

 

 

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 25five to 4050 years for buildings, and 3one to 20 years for machinery and equipment. The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recoverable. See Note O.

15.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes property, plant and equipment at December 31, 2013 and December 31, 2012:
 December 31,
2013
 December 31,
2012
Property, plant and equipment:   
Land and land improvements$6.5
 $5.7
Buildings58.2
 55.8
Machinery and equipment261.5
 245.2
Total property, plant and equipment326.2
 306.7
Less accumulated depreciation210.8
 206.7
Net property, plant and equipment$115.4
 $100.0
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

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

events or changes in circumstances indicate that we may not be able to recover the assets’ carrying amount. We measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset to the expected net future undiscounted cash flows to be generated by that asset, or, for identifiable intangibles with finite useful lives, by determining whether the amortization of the intangible asset balance over its remaining life can be recovered through undiscounted future cash flows. The amount of impairment of identifiable intangible assets with finite useful lives, if any, to be recognized is measured based on projected discounted future cash flows. We measure the amount of impairment of other long-lived assets (excluding goodwill) as the amount by which the carrying value of the asset exceeds the fair market value of the asset, 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 IntangibleIndefinite-Lived Assets:    In accordance with Accounting Standards Codification (“ASC”) 350, “IntangiblesIntangibles — Goodwill and Other”Other (“ASC 350”), the Company does not amortize goodwill or indefinite-lived intangible assets recorded in connection with business acquisitions. Other intangible assets, which consist primarily of non-contractual customer relationships, are amortized over their estimated useful lives.

Goodwill and indefinite life intangible assets are tested annually for impairment as of October 1, or whenever events or changes in circumstances indicate there may be a possible permanent loss of value in accordance with ASC 350Intangibles — Goodwill and Other.

.

Goodwill is tested for impairment at the reporting unit level and is based on the net assets for each reporting unit, including goodwill and intangible assets.assets, compared to the fair value. In September 2011, the Financial Accounting Standards Board (“FASB”) issuedaccordance with Accounting Standard Update “ASU”(“ASU”) 2011-08, which amends the rules for testing goodwill for impairment. Under the new rules, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The CompanyWe early adopted ASU 2011-08 for itsour October 1, 2011 annual goodwill impairment test.

In assessing the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we identify and assess relevant drivers of fair value and events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments and assumptions. The judgmentjudgments and assumptions include the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, Company-specific events and share price trends, and the assessment of whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.

If our qualitative assessment concludes that it is more likely than not that impairment exists then a quantitative assessment is required. In a quantitative assessment, we use an income approach and other valuation techniques to estimate the fair value of our reporting units. Absent

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

an indication of fair value from a potential buyer or similar specific transactions, we believe that using this methodology provides reasonable estimates of a reporting unit’s fair value. The income approach is based on projected future debt-free cash flow that is discounted to present value using factors that consider the timing and risk of the future cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

unit’s expected long-term operating and cash flow performance. This approach also mitigates most of the impact of cyclical downturns that occur in the reporting unit’s industry. The income approach is based on a reporting unit’s projection of operating results and cash flows that is discounted using a weighted-average cost of capital. The projection is based upon our best estimates of projected economic and market conditions over the related period including growth rates, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements based on management projections. There are inherent uncertainties, however, related to these factors and to our judgment in applying them to this analysis. Nonetheless, we believe that this method provides a reasonable approach to estimate the fair value of our reporting units.

The Company completed its annual goodwill impairment test for each year presented and confirmed no reporting unit was at risk of failing the impairment test for any periods presented herein.

Indefinite life intangible assets are tested annually for impairment as of October 1, or whenever events or changes in circumstances indicate there may be a possible permanent loss of value in accordance with ASC 350. In accordance with ASU 2011-08, an entity may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible is less than its carrying value. When using a quantitative assessment, recoverability is measured by a comparison of the carrying amount to future undiscounted net cash flows to be generated which is estimated by management. Fair value is the basis for the measurement of any asset write-downs that are recorded. In conjunction with the recoverability analysis, management reviews the estimated remaining useful lives for appropriateness and considers adjusting the useful lives which may result in accelerated depreciation, which is included in cost of sales. Based on this quantitative analysis performed in 2012 and the qualitative factors analyzed in 2013, as mentioned above, management concluded that as of October 1, 2013, the indefinite-lived intangibles had fair values that exceeded their carrying values. As a result of this analysis, we concluded that no impairment existed.
Stock-Based Compensation:Fair Values of Financial Instruments: Certain financial instruments are required to be recorded at fair value. The Company followsmeasures financial assets and liabilities at fair value in three levels of inputs. The three-tier fair value hierarchy, which prioritizes the provisions of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognizedinputs used in the income statementvaluation methodologies, is:
Level 1 — Valuations based on theirquoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
Changes in assumptions or estimation methods could affect the fair values.

Additional information regardingvalue estimates; however, we do not believe any such changes would have a material impact on our share-based compensation program is providedfinancial condition, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and borrowings under the Credit Agreement (as defined in Note I.

9) approximate fair value at December 31, 2013 and December 31, 2012. The fair values of long-term debt and pension plan assets are disclosed in Note 9 and Note 13, respectively.

The Company has not changed its valuation techniques for measuring fair value during 2013 and there were no transfers between levels during the periods presented.
Income Taxes:    The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the current enacted tax rates. In determining these amounts, management determined the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, cumulative earnings and losses, expectations of future earnings, taxable income and the extended period of time over which the postretirement benefits will be paid and accordingly records valuation allowances if, based on the weight of available evidence it is more likely than not that some portion or all of our deferred tax assets will not be realized as required by ASC 740, “Income Taxes” (“ASC 740”).


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-Based Compensation:    The Company follows the provisions of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Compensation expense for awards with service conditions only that are subject to graded vesting is recognized on a straight-line basis over the term of the vesting period.
Additional information regarding our share-based compensation program is provided in Note 11.
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 12%9% 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 that are in excess of billings, is classified in unbilled contract revenues in the accompanying consolidated balance sheet. Billings that are in excess of revenues earned on contracts in process are classified in accrued expenses in the accompanying balance sheet.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIESCost of Sales

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued): Cost of sales is primarily comprised of direct materials and supplies consumed in the manufacture of product, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of sales also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.

Shipping and Handling Costs:    All shipping and handling costs are included in cost of products sold in the Consolidated Statements of Income.
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 uncollectibleuncollectable in the future. The Company’s policy is to identify and reserve for specific collectability concerns based on customers’ financial condition and payment history. During 20112013 and 2010,2012, we sold approximately $63,202$75.4 million and $37,272,$76.8 million, respectively, of accounts receivable to mitigate accounts receivable concentration risk and to provide additional financing capacity. In compliance with ASC 860, “Transfers and Servicing”, sales of accounts receivable are reflected as a reduction of accounts receivable in the Consolidated Balance Sheets and the proceeds are included in the cash flows from operating activities in the Consolidated Statements of Cash flows. In 20112013 and 2010, a loss2012, an expense in the amount of $281$0.4 million and $165,$0.3 million, respectively, related to the discount on sale of accounts receivable is recorded in the Consolidated Statements of Operations. These losses represented implicit interest on the transactions.Income.

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 $1,533, $2,213 and $1,454 in 2011, 2010 and 2009, 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, 2011,2013, the Company had uncollateralized receivables with threefour customers in the automotive industry, each with several locations, aggregating $9,529,$24.2 million, which represented approximately 8%15% of the Company’s trade accounts receivable. During 2011,2013, sales to these customers amounted to approximately $72,871,$179.4 million, which represented approximately 8%15% 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 Statements of Operations.Environmental:    

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 assessments and/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.

Legal Contingencies:     We are involved in a variety of claims, suits, investigations and administrative proceedings with respect to commercial, premises liability, product liability, employment and environmental matters arising from the ordinary course of business. We accrue reserves for legal contingencies, on an undiscounted basis, when it is probable that we have incurred a liability and we can reasonably estimate an amount. When a single amount cannot be reasonably estimated, but the cost can be estimated within a range, we accrue the minimum amount in the range. Based upon facts and information currently available, we believe the amounts reserved are adequate for such pending matters. We monitor the development of legal proceedings on a regular basis and will adjust our reserves when, and to the extent, additional information becomes available.

53

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Currency Translation:    The functional currency for a majority of 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 tofor assets and liabilities and weighted-average exchange rates as tofor revenues and expenses. The resulting translation adjustments are recorded in accumulated comprehensive income (loss) in shareholders’ equity.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIESWeighted-Average Number of Shares Used in Computing Earnings Per Share:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The following table sets forth the weighted-average number of shares used in the computation of earnings per share:

 Year Ended December 31,
 2013 2012 2011
 (In whole shares)
Weighted average basic shares outstanding11,936,772
 11,920,593
 11,579,819
Plus dilutive impact of employee stock options295,393
 195,836
 419,042
Weighted average diluted shares outstanding12,232,165
 12,116,429
 11,998,861
Earnings from continuing operations per common share is computed as net income from continuing operations less net income attributable to noncontrolling interests divided by the weighted average basic shares outstanding. Diluted earnings from continuing operations per common share is computed as net income from continuing operations less net income attributable to noncontrolling interests divided by the weighted average diluted shares outstanding.
Earnings (loss) from discontinued operations per common share is computed as income (loss) from discontinued operations, net of taxes divided by the weighted average basic shares outstanding. Diluted earnings (loss) from discontinued operations per common share is computed as income (loss) from discontinued operations, net of taxes divided by the weighted average diluted shares outstanding.
Total basic earnings per common share is computed as net income attributable to Park-Ohio common shareholders divided by the weighted average basic shares outstanding. Total diluted earnings per common share is computed as net income attributable to Park-Ohio common shareholders divided by the weighted average diluted shares outstanding.
Outstanding stock options with exercise prices greater than the average price of the common shares are anti-dilutive and are not included in the computation of diluted earnings per share. For the year endedDecember 31, 2013 and 2012, the anti-dilutive shares were insignificant.
Accounting Pronouncements Not Yet Adopted

In June 2011,February 2013, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2011-05,2013-02, “Comprehensive Income (Topic 220): PresentationReporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. ASU No. 2011-05 amends existing guidance by allowing only two options for presentingIncome,” which requires entities to provide information about the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, the FASB issued ASU 2011-12, deferring its requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and OCI on the face of the financial statements. Entities continue to be required to present amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the financial statementsstatement where net income is presented or to disclose those amounts in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the financial statements. The requirementsame reporting period. For other amounts that are not required under U.S. GAAP to present reclassification adjustmentsbe reclassified in interim periods was also deferred. However,their entirety to net income, entities are required to report a total for comprehensive income in condensed financial statements of interim periods in a single continuous statement or in two consecutive statements. The FASB is reconsidering the presentation requirements for reclassification adjustments.

The Company planscross-reference to adopt ASU No. 2011-05 in the first quarter of fiscal 2012. The Company believes the adoption of ASU No. 2011-05 will change the order in which certain financial statements are presented andother disclosures required under U.S. GAAP that provide additional detail on those financial statements when applicable, but will not have any other impact on its consolidated financial statements.

In May 2011, the FASB amended ASC 820, “Fair Value Measurement.”these amounts. This amendment is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The amendmentASU is effective prospectively for interim and annualreporting periods beginning after December 15, 2011.2012. The updated standard affects the Company’s disclosures but has no impact on its results of operations, financial condition or liquidity.

Recent Accounting Pronouncements Not Yet Adopted
In February 2013, the FASB issued ASU 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date,” which requires entities to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. Entities are also required to disclose the nature and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amount of the obligation as well as other information about those obligations. This ASU is effective prospectively for reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of adopting this guidance.
In February 2013, the FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity,” requiring reporting entities that no longer have a controlling financial interest in a subsidiary or group of assets that is considered a business within a foreign entity, to release the cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For equity method investments that are foreign entities, the partial sale requires a pro rata portion of the cumulative translation adjustment to be released into net income upon a partial sale of such an equity investment. However, for an equity method investment that is not a foreign entity, the release of the cumulative translation adjustment into net income is required only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. Additionally, the amendments in this update clarify that the sale of an investment in a foreign entity requiring release into net income the cumulative translation adjustment upon the occurrence of events that includes (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. This ASU is effective prospectively for reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of adopting this guidance.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to eliminate diversity in practice. This ASU requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. This new guidance is effective prospectively for annual reporting periods beginning on or after December 15, 2013 and interim periods therein. The adoption of this amendmentASU will not have a material impacteffect on our consolidated financial statements.

statements because it aligns with our current presentation.

Reclassification: Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation.
NOTE B2 — Segments
On March 23, 2012, the Company completed the acquisition of Fluid Routing Solutions Holding Corp. (“FRS”), a leading manufacturer of automotive and industrial rubber and thermoplastic hose products and fuel filler and hydraulic fluid assemblies for the automotive and industrial industries. FRS expanded the Company’s sales of assembled components.
During the second quarter of 2012, as a result of the FRS acquisition, the Company realigned its segments in order to better align its business with the underlying markets and customers that the Company serves. In so doing, we realigned the following components with FRS to form the Assembly Components operating/reportable segment: Aluminum Products, Rubber Products (previously included in the former Manufactured Products operating/reportable segment) and Delo Screw Products (previously included in the Supply Technologies operating/reportable segment). The former Manufactured Products operating/reportable segment is now referred to as Engineered Products. The results of operations of FRS from the date of the acquisition through

December 31, 2013 are included in the Assembly Components operating/reportable segment. The business segment results for the prior years have been reclassified to reflect these changes. The following is a description of our three operating/reportable segments.

The Company operates through three reportable segments: Supply Technologies, Aluminum ProductsAssembly Components and ManufacturedEngineered Products. Supply Technologies provides our customers with Total Supply ManagementTMManagement™ services for a broad range of high-volume, specialty production components. Total Supply ManagementTMManagement™ manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation, and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck,Assembly Components manufactures cast aluminum components, automotive and vehicle parts, electrical distributionindustrial rubber and controls, consumer electronics, power sports/fitness equipment, HVAC, agriculturalthermoplastic products, fuel filler and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products manufactures cast

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

aluminum componentshydraulic assemblies for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Aluminum ProductsAssembly Components also provides value-added services such as design and engineering,


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

machining and assembly. ManufacturedEngineered 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 manufacturersCompany primarily evaluates performance and end users inallocates resources based on segment operating income as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, automotive, oilproduct lines included within each segment. Segment operating income reconciles to consolidated income from continuing operations before income taxes by deducting corporate costs 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 andother income or expense items that are not included inattributed to the figures presented. Intersegment sales are accounted for at values based on market prices. Income allocatedsegments and net interest expense.

Results by business segment were as follows:
 Year Ended December 31,
   
Adjusted (1)
 
Adjusted (1)
 2013 2012 2011
 (In millions)
Net sales:     
Supply Technologies$471.9
 $483.8
 $481.4
Assembly Components412.8
 304.0
 157.8
Engineered Products318.5
 340.4
 322.2
 $1,203.2
 $1,128.2
 $961.4
Segment operating income:     
Supply Technologies$35.9
 $37.9
 $35.1
Assembly Components31.8
 19.9
 1.4
Engineered Products47.1
 55.0
 45.3
Total segment operating income114.8
 112.8
 81.8
Corporate costs(23.1) (18.9) (16.3)
Restructuring and asset impairment charges
 
 (5.4)
Litigation judgment and settlement costs(5.2) (13.0) 
Gain on acquisition of business0.6
 
 
Interest expense(26.8) (26.4) (32.2)
Income from continuing operations before income taxes$60.3
 $54.5
 $27.9
(1) Adjusted to segments excludes certain corporate expenses and interest expense. Identifiable assets by industry segment include assets directly identified with thosereflect the discontinued operations.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Corporate assets generally consist of cash and cash equivalents, deferred tax assets, property and equipment, and other assets.

   Year Ended December 31, 
   2011  2010  2009 

Net sales:

    

Supply Technologies

  $492,974   $402,169   $328,805  

Aluminum Products

   127,044    143,672    111,388  

Manufactured Products

   346,555    267,681    260,854  
  

 

 

  

 

 

  

 

 

 
  $966,573   $813,522   $701,047  
  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes:

    

Supply Technologies

  $32,565   $22,216   $8,531  

Aluminum Products

   1,781    6,582    (5,155

Manufactured Products

   43,671    28,739    26,472  
  

 

 

  

 

 

  

 

 

 
   78,017    57,537    29,848  

Corporate costs

   (16,274  (15,195  (13,787

Gain on purchase of 8.375% senior subordinated notes

   -0-    -0-    6,297  

Gain on acquisition of business

   -0-    2,210    -0-  

Asset impairment charge

   (5,359  (3,539  (5,206

Interest expense (includes $7,335 of debt extinguishment costs in 2011)

   (32,152  (23,792  (23,189
  

 

 

  

 

 

  

 

 

 
  $24,232   $17,221   $(6,037
  

 

 

  

 

 

  

 

 

 

Identifiable assets:

    

Supply Technologies

  $228,629   $217,915   $207,729  

Aluminum Products

   61,002    66,219    76,443  

Manufactured Products

   203,782    188,017    178,715  

General corporate

   120,527    80,381    39,381  
  

 

 

  

 

 

  

 

 

 
  $613,940   $552,532   $502,268  
  

 

 

  

 

 

  

 

 

 

Depreciation and amortization expense:

    

Supply Technologies

  $4,632   $5,272   $4,812  

Aluminum Products

   5,844    6,488    7,556  

Manufactured Products

   5,159    5,001    6,022  

General corporate

   542    371    528  
  

 

 

  

 

 

  

 

 

 
  $16,177   $17,132   $18,918  
  

 

 

  

 

 

  

 

 

 

Capital expenditures:

    

Supply Technologies

  $1,463   $1,613   $2,380  

Aluminum Products

   7,015    156    1,385  

Manufactured Products

   1,472    2,138    2,006  

General corporate

   2,723    44    (196
  

 

 

  

 

 

  

 

 

 
  $12,673   $3,951   $5,575  
  

 

 

  

 

 

  

 

 

 


 Year Ended December 31,
 2013 2012 2011
 (In millions)
Identifiable assets:     
Supply Technologies$241.7
 $207.0
 $225.3
Assembly Components276.7
 230.0
 73.1
Engineered Products183.1
 199.4
 195.8
General corporate117.2
 90.2
 120.6
 $818.7
 $726.6
 $614.8
Depreciation and amortization expense:     
Supply Technologies$3.0
 $3.9
 $4.6
Assembly Components11.6
 9.5
 7.2
Engineered Products3.4
 3.2
 3.9
General corporate1.2
 1.4
 0.5
 $19.2
 $18.0
 $16.2
Capital expenditures:     
Supply Technologies$3.8
 $1.6
 $1.3
Assembly Components21.5
 22.1
 7.7
Engineered Products3.6
 3.1
 0.9
General corporate1.2
 2.8
 2.8
 $30.1
 $29.6
 $12.7
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The percentage of net sales by product line included in each segment werewas as follows:

   Year Ended December 31, 
   2011  2010  2009 

Manufactured Products:

    

Capital equipment

   76  73  68

Forged and machined products

   17  18  26

Rubber products

   7  9  6
  

 

 

  

 

 

  

 

 

 
   100  100  100
  

 

 

  

 

 

  

 

 

 

Supply Technologies:

    

Supply Technologies

   87  86  88

Engineered specialty products

   12  13  11

Other

   1  1  1
  

 

 

  

 

 

  

 

 

 
   100  100  100
  

 

 

  

 

 

  

 

 

 

 Year Ended December 31,
 2013 2012 2011
Supply Technologies:     
Supply Technologies87% 88% 89%
Engineered specialty products13% 12% 11%
 100% 100% 100%
Assembly Components:     
Fluid routing54% 50% %
Aluminum products37% 39% 81%
Rubber and plastics7% 9% 15%
Screw products2% 2% 4%
 100% 100% 100%
Engineered Products:     
Industrial equipment business77% 80% 81%
Forged and machined products23% 20% 19%
 100% 100% 100%

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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s approximate percentage of net sales by geographic region werewas as follows:

   Year Ended
December 31,
 
   2011  2010  2009 

United States

   76  73  73

Asia

   9  10  9

Canada

   5  6  6

Mexico

   3  3  2

Europe

   5  5  9

Other

   2  3  1
  

 

 

  

 

 

  

 

 

 
   100  100  100
  

 

 

  

 

 

  

 

 

 

 
Year Ended
December 31,
 2013 2012 2011
United States74% 77% 76%
Canada8% 8% 5%
Mexico5% 4% 3%
Asia6% 6% 9%
Europe5% 4% 5%
Other2% 1% 2%
 100% 100% 100%
The basis for attributing revenue to individual countries is final shipping destination.

At December 31, 2013, 2012 and 2011, 2010approximately 77%, 81% and 2009, approximately 68%, 75% and 77%, respectively, of the Company’s assets were maintained in the United States.

NOTE C3 — Acquisitions

Effective August 31, 2010,

In November 2013, the Company completedacquired all the acquisitionoutstanding capital stock of certain assets and assumed specific liabilities relating to Assembly Components Systems (“ACS”QEF Global Limited ("QEF") 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. QEF is a provider of supply chain management solutions with four locations throughout Ireland, Scotland and England. QEF's sales for the year ended December 31, 2012 totaled approximately $14.0 million.
In October 2013, the Company acquired all of the outstanding capital stock of Henry Halstead Ltd. (“Henry Halstead”). Henry Halstead is a broad rangeprovider of production components throughsupply chain management solutions throughout the United Kingdom and Ireland. For its service centers throughout North America. fiscal year ended March 31, 2013, Henry Halstead generated net sales of approximately $24.0 million.
The net assets acquired were integrated intoCompany paid $25.8 million in the Company’saggregate for QEF and Henry Halstead, which are subject to insignificant deferred and contingent purchase price consideration, respectively. QEF and Henry Halstead are included in our 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 datefrom their respective dates of acquisition. The acquisition wasacquisitions were accounted for under the acquisition method of accounting. Under

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the acquisition method of accounting, the total estimated purchase price is allocated to ACS’sQEF and Henry Halstead’s net tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of the respective effective dates of the acquisitions. Management's valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions and are preliminary at December 31, 2013. The purchase price allocations are subject to further adjustment until all pertinent information regarding the property, plant and equipment, intangible assets, goodwill, other long-term liabilities and deferred income tax assets and liabilities acquired are fully evaluated by the Company and independent valuations are complete. Assuming these acquisitions had taken place at the beginning of 2012, results would not have been materially different.

During August 2013, the Company entered into an agreement to purchase certain assets and liabilities of a small business, which resulted in a pre-tax gain of $0.6 million during the third quarter of 2013. The small business is engaged in the business of designing, manufacturing, selling, distributing and installing various tube bending machines and related tooling, spare and replacement parts and ancillary services for commercial applications. The small business is included in our Engineered Products segment from the date of acquisition. The purchase price was not significant to the results of operations, financial condition or liquidity.
Effective April 26, 2013, the Company acquired certain assets and assumed specific liabilities relating to Bates Rubber (“Bates”) for a total purchase price of $20.8 million in cash. The acquisition was funded from borrowings under the revolving credit facility provided by the Credit Agreement. Bates is a leading manufacturer of extruded, formed and molded products and assemblies for the transportation and industrial markets. Bates’ production facilities are located in Tennessee. The financial results of Bates are included in the Company’s Assembly Components segment and had insignificant revenues and net income from the date acquired through December 31, 2010,2013. The acquisition was accounted for under the acquisition method of accounting and the purchase price allocation is preliminary at December 31, 2013. Management's valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions. The purchase price

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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

allocations are subject to further adjustment until all pertinent information regarding goodwill, other liabilities and deferred income tax assets and liabilities acquired are fully evaluated by the Company. Assuming these acquisitions had taken place at the beginning of 2012, results would not have been materially different.
On March 23, 2012, the Company completed the acquisition of FRS, a leading manufacturer of automotive and industrial rubber and thermoplastic hose products and fuel filler and hydraulic fluid assemblies, in an all cash transaction valued at $98.8 million. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured rubber and thermoplastic hose, including bulk and formed fuel, power steering, transmission oil cooling, hydraulic and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee and the Czech Republic. FRS is included in the Company’s Assembly Components segment and had revenues of $152.4 million and net income of $7.1 million for the period from the date acquired through December 31, 2012. The Company funded the acquisition with cash of $40.0 million, a $25.0 millionseven-year amortizing term loan provided by the Credit Agreement and secured by certain real estate and machinery and equipment of the Company and $33.8 million of borrowings under the revolving credit facility provided by the Credit Agreement. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price is allocated to FRS’ net tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of March 23, 2012, 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 final 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 assets of Rome in exchange for approximately $7,500 of notes receivable from Rome. The assets of Rome were integrated into the Company’s aluminum segment. Net sales of $7,031 were added to the Company’s Aluminum segment in 2010 since the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the purchase price is allocated to Rome’s tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of September 30, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price is as follows:

Accounts receivable

  $1,918  

Inventories

   1,000  

Property, plant and equipment

   2,800  

Accounts payable

   (2,314

Accrued expenses

   (516

Goodwill

   4,572  
  

 

 

 

Total purchase price

  $7,460  
  

 

 

 

Direct transaction costs associated with this acquisition included in selling, general and administrative expenses during the year ended December 31, 2010 were approximately $256.

On December 31, 2010, the Company, through its subsidiary Ajax Tocco Magnathermic, acquired the assets and the related induction heating intellectual property of ABP Induction’s United States heating business operating as Pillar Induction (“Pillar”). Pillar provides complete turnkey automated induction power systems and aftermarket parts and service to a worldwide market.

 (In Millions)
Cash and cash equivalents$2.8
Accounts receivable30.9
Inventories12.4
Prepaid expenses and other current assets2.7
Property, plant and equipment30.2
Customer relationships29.4
Trademarks and trade name11.5
Other assets0.2
Accounts payable(17.8)
Accrued expenses(15.6)
Deferred tax liability(26.4)
Other long-term liabilities(0.8)
Goodwill39.3
Total purchase price$98.8
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The assets of Pillar have been integrated into the Company’s manufactured products segment. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price is allocated to Pillar’s net tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values as of December 31, 2010, the effective date of the acquisition. Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the purchase price is allocated as follows:

Accounts receivable

  $3,164  

Inventories

   2,782  

Prepaid expenses and other current assets

   178  

Property, plant and equipment

   447  

Customer relationships

   3,480  

Technological know how

   1,890  

Trade name and other intangible assets

   710  

Accounts payable

   (1,202

Accrued expenses

   (2,133

Goodwill

   990  
  

 

 

 

Total purchase price

  $10,306  
  

 

 

 

The purchase price allocation was finalized during March 2011 and reflects the working capital adjustment as of December 31, 2010. There were no significant direct transaction costs included in selling, general and administrative expenses during the year ended December 31, 2011.

The following unaudited pro forma information is provided to present a summary of the combined results of the Company’s operations with ACS, Rome and PillarFRS as if the acquisitionsacquisition had occurred on January 1, 2009.2011. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of what the results would have been had the acquisitionsacquisition been completed at the date indicated above.

   Year Ended
December 31,
 
   2010   2009 

Pro forma revenues

  $881,271    $770,603  

Pro forma net income (loss)

  $15,072    $(12,744

Earnings per share:

    

Basic

  $1.33    $1.16  

Diluted

  $1.28    $1.16  

 Year Ended December 31,
 2012 2011
 (In millions)
Pro forma revenues$1,179.1
 $1,146.9
Pro forma net income$39.1
 $39.4

On November 30, 2012, the Company completed the acquisition of Elastomeros Tecnicos Moldeados Inc (“ETM”) for $1.1 million in cash, $0.5 million in promissory notes payable and $0.1 million annually in each of the next four years, if ETM

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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


achieves certain earnings levels. ETM is a provider of molded rubber products and has been integrated into the Company’s Assembly Components segment. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the purchase price is allocated to ETM’s tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of November 30, 2012, the effective date of the acquisition. Based on the final purchase price allocation, goodwill of $0.9 million was recorded. Assuming this acquisition had taken place at the beginning of 2011, pro forma results would not have been materially different.
NOTE D4 — Dispositions
On September 3, 2013, the Company sold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment for $8.5 million in cash. This business unit is a provider of high-quality machine to machine information technology solutions, products and services. As a result of the sale, this business unit has been removed from the Supply Technologies segment and presented as a discontinued operation for all of the periods presented. Additionally, the assets and liabilities of the business unit are classified as held for sale under the caption other current assets and accrued expenses and other, respectively, in the Company's consolidated balance sheet as of December 31, 2012. The financial position of the discontinued operation was not significant. Select financial information included in discontinued operations were as follows:
 Year Ended December 31,
 2013 2012 2011
 (In millions)
Net sales$5.2
 $5.8
 $5.2
      
Loss from discontinued operations before tax(1.3) (4.0) (3.7)
Income tax benefit from operations0.5
 1.6
 1.4
Net loss from discontinued operations(0.8) (2.4) (2.3)
      
Gain on sale of business before tax5.3
 
 
Income tax expense from gain on sale of business(1.5) 
 
Net gain on sale of business3.8
 
 
Income (loss) from discontinued operations, net of taxes$3.0
 $(2.4) $(2.3)
Effective August 1, 2013, the Company entered into an agreement to sell 25% of its Southwest Steel Processing LLC ("SSP") business to Arkansas Steel Associates, LLC for $5.0 million in cash. SSP is included in our Engineered Products segment. This transaction facilitates the Company's capacity expansion in one of its growing product lines.


60

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5 — Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2013, 2012, and 2011 were as follows:
 Supply Technologies Assembly Components Engineered Products Total
 (In millions)
Balance at January 1, 2011$
 $4.6
 $4.5
 $9.1
Finalization of Pillar purchase price allocation
 
 0.4
 0.4
Balance at December 31, 2011
 4.6
 4.9
 9.5
Acquisitions
 40.2
 
 40.2
Balance at December 31, 2012
 44.8
 4.9
 49.7
Acquisitions6.2
 4.2
 
 10.4
Foreign currency translation0.2
 
 0.1
 0.3
Balance at December 31, 2013$6.4
 $49.0
 $5.0
 $60.4
The increase in goodwill from December 31, 2012 is due to the acquisitions of Bates in the second quarter of 2013 and Henry Halstead and QEF in the fourth quarter of 2013. Bates is included in the Assembly Components reportable segment and Henry Halstead and QEF are included in the Supply Technologies reportable segment. The goodwill associated with the Bates transaction is deductible for income tax purposes. The goodwill associated with the Henry Halstead and QEF transactions are not deductible for income tax purposes.
The increase in goodwill from December 31, 2011 2010to December 31, 2012 is due to the acquisitions of FRS in the first quarter of 2012 and 2009 were as follows:

   Supply
Technologies
   Aluminum   Manufactured
Products
  Total 

Balance at January 1, 2009

  $-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  

Foreign Currency Translation

   -0-     -0-     (43  (43

Finalization of Pillar Purchase Price Allocation

   -0-     -0-     406    406  
  

 

 

   

 

 

   

 

 

  

 

 

 

Balance at December 31, 2011

  $-0-    $4,572    $4,891   $9,463  
  

 

 

   

 

 

   

 

 

  

 

 

 

ETM in the fourth quarter of 2012.

NOTE 6 — Other intangible assets were acquired in connection with acquisitions. Intangible Assets
Information regarding other intangible assets as of December 31, 20112013 and 2010December 31, 2012 follows:

     2011        2010    
  Acquisition
Costs
  Accumulated
Amortization
  Net  Acquisition
Costs
  Accumulated
Amortization
  Net 

Non-contractual customer relationships

 $11,670   $3,320   $8,350   $11,670   $2,422   $9,248  

Other

  3,420    1,046    2,374    3,420    495    2,925  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 $15,090   $4,366   $10,724   $15,090   $2,917   $12,173  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Amortization

   December 31, 2013 December 31, 2012
 Weighted Average Useful Life Acquisition
Costs
 Accumulated
Amortization
 Net Acquisition
Costs
 Accumulated
Amortization
 Net
   (In millions)
Non-contractual customer relationships13.2 years $61.1
 $8.7
 $52.4
 $41.7
 $5.7
 $36.0
Other9.4 years 3.9
 1.8
 2.1
 3.4
 1.3
 2.1
   $65.0
 $10.5
 $54.5
 $45.1
 $7.0
 $38.1
Indefinite-lived tradenames      11.7
     11.5
Total      $66.2
     $49.6
Information regarding amortization expense of other intangible assets was $1,449 for the year ended December 31, 2011, $745 for the year ended December 31, 2010 and $724 for the year ended December 31, 2009. Amortization expense for eachfollows:
 Year Ended December 31,
 2013 2012 2011
 (In millions)
Amortization expense$3.5
 $2.5
 $1.4

61

Table of the five years following December 31, 2011 is approximately $1,140 in 2012, $1,086 in 2013 and $1,028 for each of the three subsequent years thereafter. The weighted-average amortization period for the acquired intangible assets was 11.5 years.

NOTE E — Other Assets

Other assets consists of the following:

   December 31, 
   2011   2010 

Pension assets

  $49,575    $60,786  

Deferred financing costs, net

   7,253     3,695  

Software development costs

   1,920     2,292  

Intangible assets subject to amortization

   10,724     12,173  

Other

   5,085     5,394  
  

 

 

   

 

 

 

Totals

  $74,557    $84,340  
  

 

 

   

 

 

 

Contents

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amortization expense for the five years subsequent to

December 31, 2013 follows:

 Amortization Expense
 (In millions)
2014$4.5
2015$4.4
2016$4.3
2017$4.2
2018$4.1

NOTE F7 — Other Long-Term Assets
Other assets consists of the following:
 December 31,
 2013 2012
 (In millions)
Pension assets$73.3
 $52.9
Deferred financing costs, net5.7
 7.0
Other1.4
 2.2
Total$80.4
 $62.1

NOTE 8 — Accrued Expenses

Accrued expenses includeconsists of the following:

   December 31, 
   2011   2010 

Accrued salaries, wages and benefits

  $15,771    $13,832  

Advance billings

   30,180     23,218  

Warranty accrual

   4,208     4,046  

Interest payable

   5,106     2,504  

Taxes, income and other

   4,331     3,252  

Other

   14,055     12,635  
  

 

 

   

 

 

 

Totals

  $73,651    $59,487  
  

 

 

   

 

 

 

 December 31,
 2013 2012
 (In millions)
Accrued salaries, wages and benefits$22.2
 $20.1
Advance billings20.4
 27.2
Warranty accrual5.4
 6.9
Interest payable5.6
 5.5
Taxes, income and other2.9
 6.1
Other23.4
 17.8
Total$79.9
 $83.6
Substantially all advance billings and warranty accruals relate to the Company’s capitalindustrial equipment businesses.

business unit. Warranty liabilities are primarily associated with the Company’s industrial equipment business unit and the fluid routing solutions business.


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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents the changes in the aggregateCompany’s product warranty liability are as follows for the yearyears ended December 31, 2011, 20102013, 2012, and 2009:

   2011  2010  2009 

Balance at beginning of year

  $4,046   $2,760   $5,402  

Claims paid during the year

   (3,421  (1,260  (3,367

Warranty expense

   3,583    2,294    704  

Other

   -0-    252    21  
  

 

 

  

 

 

  

 

 

 

Balance at end of year

  $4,208   $4,046   $2,760  
  

 

 

  

 

 

  

 

 

 

2011:

 Year Ended December 31,
 2013 2012 2011
 (In millions)
Balance at January 1,$6.9
 $4.2
 $4.0
Claims paid during the year(6.4) (6.0) (3.4)
Warranty expense4.9
 5.4
 3.6
Acquired warranty liabilities
 3.3
 
Balance at December 31,$5.4
 $6.9
 $4.2

NOTE G9 — Financing Arrangements

Long-term debt consists of the following:

   December 31, 
   2011   2010 

8.125% senior notes due 2021

  $250,000    $-0-  

8.375% senior subordinated notes due 2014

   -0-     183,835  

Revolving credit

   93,000     90,200  

Term Loan A

   -0-     25,900  

Term Loan B

   -0-     8,400  

Other

   4,580     7,878  
  

 

 

   

 

 

 
   347,580     316,213  

Less current maturities

   1,415     13,756  
  

 

 

   

 

 

 

Total

  $346,165    $302,457  
  

 

 

   

 

 

 

 December 31, 2013 December 31, 2012
 (In millions)
8.125% Senior Notes due 2021$250.0
 $250.0
Revolving credit111.0
 101.9
Term loan18.7
 22.3
Other3.9
 4.4
Total debt383.6
 378.6
Less current maturities4.4
 4.4
Total long-term debt, net of current portion$379.2
 $374.2
On April 7, 2011, the Company completed the sale of $250,000$250.0 million in the aggregate principal amount of 8.125% senior notes due 2021 (the “Notes”"Notes"). The Notes bear an interest rate of

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2011.year. The Notes mature on April 1, 2021. The Company is a party to a credit and security agreement, dated November 5, 2003, as amended (the “Credit Agreement”), with a group of banks, under which it may borrow or issue standby letters of credit or commercial letters of credit. In connection withOn March 23, 2012, the sale of the Notes, the Company also entered into a fourthCredit Agreement was amended and restated credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreementto, among other things, providesincrease the revolving loan commitment from $200.0 million to $220.0 million, and provide a term loan for $25.0 million that is secured by certain real estate and machinery and equipment. The Company may increase the commitment by an increased credit facility up to $200,000, extendsadditional $30.0 million during the maturity dateterm of the facility to April 7, 2016 and amends fee and pricing terms. Furthermore, the Company has the option, pursuant to the Amended Credit Agreement, to increase the availability under the revolving credit facility by $50,000.Agreement. At December 31, 2011,2013, in addition to amounts borrowed under the revolving credit facility, there was $7,387$12.0 million outstanding for standby letters of credit. An annual fee of up to .5%0.5% is imposed by the bank on the unused borrowing capacity and is based on the total aggregate credit facility used. Amounts borrowed under the revolving credit facility may be borrowed at either (i) LIBOR plus 1.75% to 2.75% or (ii) the bank’s prime lending rate minus 1%0.25% to 1.00%, at the Company’s election. The LIBOR-based interest rate is dependent on the Company’s debt service coverage ratio, as defined in the Amended Credit Agreement. Under the Credit Agreement, a detailed borrowing base formula provides borrowing availability to the Company based on percentages of eligible accounts receivable and inventory. On April 3, 2013, the Credit Agreement was amended to increase the advance rate on eligible accounts receivable and inventory. The interest rate on the revolving credit facility was 1.94% at December 31, 2013. At December 31, 20112013, the Company had approximately $68,140$67.8 million of unused borrowing capacity available under the revolving credit facility. The Company also purchased all of its outstanding $183,835 aggregate principal amount of 8.375% senior subordinated notes due 2014 that were not held by its affiliates, repaid all ofInterest on the term loan A andis at either (i) LIBOR plus 2.75% or (ii) the bank’s prime lending rate plus 0.25%, at the Company’s election. The term loan B outstanding under its then existing credit facility and retired the 8.375% senior subordinated notes due 2014 totaling $26,165 that were held by an affiliate. The Company incurred debt extinguishment costs related primarily to premiums and other transaction costs associatedis amortized based on a seven-year schedule with the tender and early redemption and wrote off deferred financing costs totaling $7,335 and recorded a provision for foreign income taxes of $2,100 resulting frombalance due at maturity (April 7, 2016). The interest rate on the retirementterm loan was 3.00% at December 31, 2013.

The following table represents fair value information of the 8.375% senior subordinated notesCompany's 8.125% Senior Notes due 2014 that were held by an affiliate.

2021 at December 31, 2013 and 2012. The fair value was estimated based on quoted market prices, which is a Level 1 fair value input as defined in


63

Table of Contents
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 1.
 December 31, 2013 December 31, 2012
 (In millions)
Carrying amount$250.0
 $250.0
Fair value$275.6
 $266.3
Maturities of long-term debt during each of the five years following subsequent to December 31, 2011 are approximately $1,415 in 2012, $500 in 2013 $500 in 2014, $500 in 2015 and $93,500 in 2016.

follows:

 (In millions)
20144.4
20154.4
2016123.4
20170.7
20180.5
Foreign subsidiaries of the Company had no borrowings of $0 and $1,299 at December 31, 20112013 and 2010, respectively2012 and outstanding bank guarantees of approximately $8,318$7.2 million and $9.2 million at December 31, 20112013 and 2012, respectively, under their credit arrangements.

The Notes are general unsecured senior obligations of the Company and are fully and unconditionally guaranteed on a joint and several basis by all material 100% owned domestic subsidiaries of the Company. Provisions of the indenture governing the Notes and the Credit Agreement contain restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets or to merge or consolidate with an unaffiliated entity. At December 31, 2011,2013, the Company was in compliance with all financial covenants of the Credit Agreement.

The weighted average interest rate on all debt was 6.44%6.10% at December 31, 2011.

The carrying value2013 and 6.15% at December 31, 2012.

In connection with the sale of cashthe Notes, the Company incurred debt extinguishment costs related primarily to premiums and cash equivalents, accounts receivable, accounts payableother transaction costs and borrowings underwrote off deferred financing costs totaling $7.3 million in 2011. In connection with the amendment to the Credit Agreement approximate fair value at December 31, 2011 and 2010. The approximate fair valuein 2012, the Company wrote off deferred financing costs of the Notes was $247,500 at December 31, 2011. The approximate fair value$0.3 million.

64

Table of the 8.375% senior subordinated notes due 2014 was $187,512 at December 31, 2010.

Contents

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In 2009, a foreign subsidiary of the Company purchased $15,150 aggregate principal amount of the 8.375% senior subordinated notes due 2014 for $8,853 and recorded a net gain of $6,297.


NOTE H10 — Income Taxes

Income (loss) from continuing operations before income tax expense consists of the following:

   Year Ended December 31 
   2011   2010   2009 

United States

  $13,844    $6,723    $(10,160

Outside the United States

   10,388     10,498     4,123  
  

 

 

   

 

 

   

 

 

 
  $24,232    $17,221    $(6,037
  

 

 

   

 

 

   

 

 

 

 Year Ended December 31,
 2013 2012 2011
 (In millions)
United States$48.4
 $39.1
 $17.5
Outside the United States11.9
 15.4
 10.4
 $60.3
 $54.5
 $27.9
Income taxes consisted of the following:

   Year Ended December 31, 
   2011  2010  2009 

Current (benefit) expense:

    

Federal

  $(41 $61   $(147

State

   497    573    179  

Foreign

   7,158    2,526    982  
  

 

 

  

 

 

  

 

 

 
   7,614    3,160    1,014  

Deferred:

    

Federal

   (9,661  (2,014  (1,231

State

   (2,563  689    (39

Foreign

   (593  199    (572
  

 

 

  

 

 

  

 

 

 
   (12,817  (1,126  (1,842
  

 

 

  

 

 

  

 

 

 

Income tax (benefit) expense

  $(5,203 $2,034   $(828
  

 

 

  

 

 

  

 

 

 

 Year Ended December 31,
 2013 2012 2011
 (In millions)
Current expense (benefit):
    
Federal$16.0
 $7.5
 $
State1.5
 0.8
 0.5
Foreign4.2
 4.4
 7.1
 21.7
 12.7
 7.6
Deferred expense (benefit):     
Federal1.2
 7.5
 (8.3)
State(2.6) (0.2) (2.5)
Foreign(0.9) 0.3
 (0.6)
 (2.3) 7.6
 (11.4)
Income tax expense (benefit)$19.4
 $20.3
 $(3.8)
The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes for the years ended December 31, 2013, 2012 and 2011 are as follows:

Rate Reconciliation

  2011  2010  2009 

Tax at statutory rate

  $8,477   $6,027   $(2,113

Effect of state income taxes, net

   153    1,048    (161

Effect of foreign operations

   2,910    1,472    1,247  

Valuation allowance, federal and foreign

   (16,820  (6,475  (1,815

Non-deductable items

   378    480    735  

Gain on asset purchase

   -0-    (772  -0-  

Other, net

   (301  254    1,279  
  

 

 

  

 

 

  

 

 

 

Total

  $(5,203 $2,034   $(828
  

 

 

  

 

 

  

 

 

 

Rate Reconciliation2013 2012 2011
 (In millions)
Tax at statutory rate$21.1
 $19.3
 $9.9
Effect of state income taxes, net1.1
 0.9
 0.1
Effect of foreign operations(0.2) (0.1) 2.9
Valuation allowance(1.6) (0.2) (16.8)
Non-deductible items0.7
 0.6
 0.4
Manufacturer's deduction(1.4) (0.6) 
Other, net(0.3) 0.4
 (0.3)
Total$19.4
 $20.3
 $(3.8)

65

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Significant components of the Company’s net deferred tax assets and liabilities are as follows:

   December 31, 
   2011  2010 

Deferred tax assets:

   

Postretirement benefit obligation

  $6,970   $7,003  

Inventory

   11,682    12,363  

Net operating loss and credit carryforwards

   9,677    16,184  

Goodwill

   1,862    3,177  

Other

   12,725    11,138  
  

 

 

  

 

 

 

Total deferred tax assets

   42,916    49,865  

Deferred tax liabilities:

   

Depreciation and amortization

   83    1,090  

Pension

   17,491    21,423  

Intangible assets and other

   1,764    4,191  
  

 

 

  

 

 

 

Total deferred tax liabilities

   19,338    26,704  
  

 

 

  

 

 

 

Net deferred tax assets prior to valuation allowances

   23,578    23,161  

Valuation allowances

   (4,409  (22,386
  

 

 

  

 

 

 

Net deferred tax asset

  $19,169   $775  
  

 

 

  

 

 

 

 December 31,
 2013 2012
 (In millions)
Deferred tax assets:   
Postretirement benefit obligation$5.9
 $7.0
Inventory13.2
 11.5
Net operating loss and credit carryforwards3.8
 5.3
Goodwill0.5
 0.6
Other17.1
 13.1
Total deferred tax assets40.5
 37.5
Deferred tax liabilities:   
Depreciation and amortization11.7
 8.7
Inventory0.6
 0.6
Pension26.4
 19.2
Goodwill2.7
 
Intangible assets and other16.6
 16.5
Total deferred tax liabilities58.0
 45.0
Net deferred tax liabilities prior to valuation allowances(17.5) (7.5)
Valuation allowances(2.6) (4.2)
Net deferred tax liability$(20.1) $(11.7)
At December 31, 2011,2013, 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 $10,435 which expires between 2024 and 2031. The foreign net operating loss carryforward is $2,417$5.2 million, of which $2.9 million expires between 2014 and 2025 and the remainder has no expiration date. The Company also has a tax benefit from a state net operating loss carryforward of $5,428 which$4.1 million that expires between 20122014 and 2031.

At December 31, 2011, the Company has research and development credit carryforwards of approximately $2,875 which expire between 2012 and 2031. The Company also has alternative minimum tax credit carryforwards of $1,023 which have no expiration date.

2033.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 20082010 through 20112013 remain open for examination by the U.S. and various state and foreign taxing authorities.

As of December 31, 2011,2013 and 2012, the Company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its U.S. net deferred tax assets will be realized. As of December 31, 2011,2013, the Company reversed a valuation allowance of $16,820$1.6 million against its U.S.state net deferred tax assets.operating loss carryforward. As of December 31, 2010, the Company recorded a full valuation allowance of $20,089 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, 20112013 and 2010,2012, the Company recorded valuation allowances of $565$1.2 million and $2,297,$0.2 million, respectively, against certain foreign net deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities). The Company reviews all valuation allowances related to deferred tax assets and will reverse these valuation allowances, partially or totally, when appropriate under ASC 740.


66

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

   2011  2010  2009 

Unrecognized Tax Benefit — January 1,

  $6,142   $5,718   $5,806  

Gross Increases — Tax Positions in Prior Period

   32    283    101  

Gross Decreases — Tax Positions in Prior Period

   (129  (4  (55

Gross Increases — Tax Positions in Current Period

   135    341    97  

Settlements

   -0-    (18  -0-  

Lapse of Statute of Limitations

   (203  (178  (231
  

 

 

  

 

 

  

 

 

 

Unrecognized Tax Benefit — December 31,

  $5,977   $6,142   $5,718  
  

 

 

  

 

 

  

 

 

 

 2013 2012 2011
 (In millions)
Unrecognized Tax Benefit — January 1,$6.1
 $6.0
 $6.2
Gross Increases — Tax Positions in Prior Period0.4
 0.1
 
Gross Decreases — Tax Positions in Prior Period(0.6) 
 (0.1)
Gross Increases — Tax Positions in Current Period
 0.1
 0.1
Settlements
 
 
Lapse of Statute of Limitations
 (0.1) (0.2)
Unrecognized Tax Benefit — December 31,$5.9
 $6.1
 $6.0
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $4,794$4.7 million at December 31, 20112013 and $4,916$4.9 million at December 31, 2010.2012. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 20112013 and 2010,2012, the Company recognized approximately $19$0.7 million and $9,$0.1 million, respectively, in net interest and penalties. The Company had approximately $701$1.4 million and $682$0.8 million for the payment of interest and penalties accrued at December 31, 20112013 and 2010,2012, respectively. The Company does not expect that the unrecognized tax benefit will change significantly within the next twelve months.

The Company has accrued a U.S. federal tax liability of $1,359 at December 31, 2011 related to the U.S. taxation of $3,882 of undistributed earnings of the Company’s foreign subsidiaries. Given this one exception, deferred

Deferred taxes have not been provided on approximately $80,795$82.6 million of 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 practicable to determine the unrecognized tax liability on such undistributed earnings.

NOTE I11 — Stock Plan

Stock-Based Compensation

Under the provisions of the Company’s 1998 Long-Term Incentive Plan, as amended (“1998 Plan”), which is administered by the Compensation Committee of the Company’s Board of Directors, incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”), restricted shares,share units, performance shares or stock awards may be awarded to directors and all employees of the Company and its subsidiaries. Stock options will be exercisable in whole or in installments as may be determined provided that no options will be exercisable more than ten years from date of grant. The exercise price will be the fair market value at the date of grant. The aggregate number of shares of the Company’s common stock that may be awarded under the 1998 Plan is 3,100,000,3,700,000, all of which may be incentive stock options. No more than 500,000 shares shall be the subject of awards to any individual participant in any one calendar year.


There were no stock options awarded in 2011, 20102013, 2012 and 2009.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2011. The compensation expense related to option awards was $0.1 million for 2011.

A summary of stock option activity as of December 31, 20112013 and changes during the year then ended is presented below:

   2011 
   Number
of Shares
  Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 

Outstanding — beginning of year

   458,634   $6.17      

Granted

   -0-    -0-      

Exercised

   (223,300  2.18      

Canceled or Expired

   (7,000  1.91      
  

 

 

  

 

 

     

Outstanding — end of year

   228,334   $14.58     4.6 years    $930  

Options Exercisable

   224,584    14.59     4.6 years     914  

 2013
 
Number
of Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
 (in whole shares)     (in millions)
Outstanding — beginning of year186,334
 15.02
    
Granted
 
    
Exercised(40,334) 8.89
    
Canceled or expired
 
    
Outstanding — end of year146,000
 16.71
 2.7 years $5.2
Options exercisable146,000
 16.71
 2.7 years $5.2

67

Table of Contents
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Exercise prices for options outstanding as of December 31, 20112013 range from $3.05 to $6.28, $13.40$14.12 to $15.61 and $20.00 to $24.92. The number of options outstanding and exercisable at December 31, 2011,2013, which correspond with these ranges, are 36,500, 151,834111,000 and 40,000, respectively. The number of options exercisable at December 31, 2011, which correspond to these ranges are 36,500, 148,084 and 40,000,35,000, respectively. The weighted average contractual life of these options is 4.62.7 years.

The fair value provisions for option awards resulted in compensation expense of $98, $272 and $396 (before tax), for 2011, 2010 and 2009, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 2010was $1.1 million, $0.8 million and 2009 was $3,609, $368 and $104,$3.6 million, respectively. Net cash proceeds from the exercise of stock options were $494, $150$0.4 million, $0.5 million and $783$0.5 million, respectively. There were no income tax benefits because
In 2012, the Company hadawarded an employee the option to purchase up to an aggregate of $0.5 million of common stock at its then-current market value at a net operating loss carryforward.

20% discount and recognized compensation expense of $0.1 million.

A summary of restricted share and performance share activity for the year ended December 31, 20112013 is as follows:

   2011 
   Number of
Shares
  Weighted
Average
Grant Date
Fair Value
 

Outstanding — beginning of year

   419,390   $6.26  

Granted

   194,000    20.35  

Vested

   (220,096  6.73  

Canceled or expired

   (200  3.18  
  

 

 

  

 

 

 

Outstanding — end of year

   393,094   $9.77  
  

 

 

  

 

 

 

 2013
 Time-Based Performance-Based
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 (in whole shares)   (in whole shares)  
Outstanding — beginning of year385,168
 $14.94
 56,000
 $20.30
Granted212,050
 30.37
 
  
Vested(170,320) 18.86
 (14,000) 20.30
Canceled or expired(4,000) 21.59
 
  
Outstanding — end of year422,898
 $21.04
 42,000
 $20.30
The Company recognized compensation expense of $1,988, $1,463$4.7 million, $2.7 million and $1,969$2.1 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively, relating to restricted shares and performance shares.

The total fair value of restricted stock units vested during the years ended December 31, 2013, 2012 and 2011 2010was $6.1 million, $4.6 million and 2009 was $3,986, $4,043, and $797,$4.0 million, respectively.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognizes compensation cost of all share-based awards as an expense on a straight-line basis over the vesting period of the awards.

As of December 31, 2011,2013, the Company had unrecognized compensation expense of $3,699,$8.0 million, before taxes, related to stock option awards and restricted shares. The unrecognized compensation expense is expected to be recognized over a total weighted average period of 2.32.1 years.

The number of shares available for future grants for all plans at December 31, 20112013 is 144,484.

267,953.


68

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE J12 — Commitments, Contingencies and Contingencies

Litigation Judgment

The Company is subject to various pending and threatened legal proceedings arising in the ordinary course of business. Although the Company cannot precisely predict the amount of any liability that may ultimately arise with respect to any of these matters, the Company records provisions when it considers the liability probable and reasonably estimable. Our provisions are based on historical experience and legal advice, reviewed quarterly and adjusted according to developments. Estimating probable losses requires the analysis of multiple forecasted factors that often depend on judgments about potential actions by third parties, such as regulators, courts, and state and federal legislatures. Changes in the amounts of our loss provisions, which can be material, affect our financial condition. Due to the inherent uncertainties in the process undertaken to estimate potential losses, we are unable to estimate an additional range of loss in excess of our accruals. While it is reasonably possible that such excess liabilities, if they were to occur, could be material to operating results in any given quarter or year of their recognition, we do not believe that it is reasonably possible that such excess liabilities would have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

Our subsidiaries are involved in a number of contractual and warranty related disputes. At this time, we cannot reasonably determine the probability of a loss, and the timing and amount of loss, if any, cannot be reasonably estimated. We believe that appropriate liabilities for these contingencies have been recorded; however, actual results may differ materially from our estimates.

Ajax Tocco Magnethermic Corporation (“ATM”) was the defendant in a lawsuit in the United States District Court for the Eastern District of Arkansas. The plaintiff is IPSCO Tubulars Inc. d/b/a TMK IPSCO. The complaint alleged claims for breach of contract, gross negligence and constructive fraud, and TMK IPSCO sought approximately $10.0 million in damages as well as an unspecified amount of punitive damages. ATM denied the allegations against it, believes it has a number of meritorious defenses and vigorously defended the lawsuit. A motion for partial summary judgment filed by ATM that, among other things, denied the plaintiff's fraud claims was granted by the district court. The remaining claims were the subject of a bench trial in May 2013. At the close of TMK IPSCO's case, the court entered partial judgment in favor of ATM, dismissing the gross negligence claim, dismissing a portion of the breach of contract claim, and dismissing any claim for punitive damages. The trial proceeded with respect to the remainder of TMK IPSCO's claim for damages and, in September 2013, the district court awarded TMK IPSCO damages of approximately $5.2 million. ATM is appealing the court’s decision. TMK IPSCO is also appealing the decision and, additionally, it has asked the court for $3.8 million in attorney's fees.
In August 2013, the Company received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, the Company also learned that the Department of Justice (“DOJ”) is conducting a criminal investigation of the third party. In connection with responding to the staff’s subpoena, the Company disclosed to the staff of the SEC that, in November 2007, the third party participated in a payment on behalf of the Company to a foreign tax official that implicates the Foreign Corrupt Practices Act (“FCPA”).
The Board of Directors of the Company has formed a special committee to review the Company’s transactions with the third party and to make any recommendations to the Board of Directors with respect thereto.
The Company intends to cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of the Company’s disclosure. The Company is unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on its results of operations.

69

Table of Contents
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Leases
Future minimum lease commitments during each of the five years following December 31, 2013 and thereafter are as follows:
 (In millions)
2014$13.5
201510.9
20169.4
20177.2
20185.1
Thereafter4.0
Rental expense for 2013, 2012 and 2011 was $17.6 million, $15.8 million and $16.4 million, respectively.
Certain of the Company’s leases are with related parties at an annual rental expense of approximately $2.6 million. 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.
During the years ended December 31, 2013 and 2012, we entered into sales leaseback transactions for certain equipment. No gains or losses resulted from these transactions and the leases are being accounted for as operating leases.
NOTE K13 — Pensions and Postretirement Benefits

The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans, covering substantially all employees. In addition, the Company has an unfunded postretirement benefit plan. In April 2011, the Company amended one of its plans to cover most U.S. employees not covered by collective bargaining agreements using a cash balance formula, which increased the 2011 benefit obligation by approximately $1,100.$1.1 million. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits that are based upon a percentage of current eligible earnings and current interest credits. For the remaining defined benefit plans, benefits are based on the employee’s years of service. For the defined contribution plans, the costs charged to operations and the amount funded are based upon a percentage of the covered employees’ compensation.


70

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The following tables set forth the change in benefit obligation, plan assets, funded status and amounts recognized in the consolidated balance sheet for the defined benefit pension and postretirement benefit plans as of December 31, 20112013 and 2010:

   Pension  Postretirement
Benefits
 
   2011  2010  2011  2010 

Change in benefit obligation

     

Benefit obligation at beginning of year

  $49,672   $48,820   $18,432   $18,288  

Service cost

   1,627    295    52    31  

Interest cost

   2,329    2,596    857    959  

Actuarial losses

   3,015    2,622    1,346    1,364  

Benefits and expenses paid, net of contributions

   (4,384  (4,661  (2,128  (2,210
  

 

 

  

 

 

  

 

 

  

 

 

 

Benefit obligation at end of year

  $52,259   $49,672   $18,559   $18,432  
  

 

 

  

 

 

  

 

 

  

 

 

 

Change in plan assets

     

Fair value of plan assets at beginning of year

  $110,458   $98,255   $-0-   $-0-  

Actual (loss) return on plan assets

   (2,740  18,364    -0-    -0-  

Company contributions

   -0-    -0-    2,128    2,210  

Cash transfer to fund postretirement benefit payments

   (1,500  (1,500  -0-    -0-  

Benefits and expenses paid, net of contributions

   (4,384  (4,661  (2,128  (2,210
  

 

 

  

 

 

  

 

 

  

 

 

 

Fair value of plan assets at end of year

  $101,834   $110,458   $-0-   $-0-  
  

 

 

  

 

 

  

 

 

  

 

 

 

Funded (underfunded) status of the plans

  $49,575   $60,786   $(18,559 $(18,432
  

 

 

  

 

 

  

 

 

  

 

 

 

2012:

 Pension Benefits Postretirement Benefits
 2013 2012 2013 2012
 (In millions)
Change in benefit obligation       
Benefit obligation at beginning of year$56.4
 $52.3
 $18.5
 $18.6
Service cost2.6
 2.2
 0.1
 
Interest cost2.0
 2.2
 0.6
 0.8
Actuarial (gains) losses(4.4) 4.2
 (1.3) 1.1
Benefits and expenses paid, net of contributions(4.5) (4.5) (1.7) (2.0)
Benefit obligation at end of year$52.1
 $56.4
 $16.2
 $18.5
Change in plan assets       
Fair value of plan assets at beginning of year$109.4
 $101.8
 $
 $
Actual return on plan assets21.8
 13.7
 
 
Company contributions
 
 1.7
 2.0
Cash transfer to fund postretirement benefit payments(1.3) (1.6) 
 
Benefits and expenses paid, net of contributions(4.5) (4.5) (1.7) (2.0)
Fair value of plan assets at end of year$125.4

$109.4
 $
 $
Funded (underfunded) status of the plans$73.3
 $53.0
 $(16.2) $(18.5)
Amounts recognized in the consolidated balance sheets consist of:

   Pension  Postretirement
Benefits
 
   2011  2010  2011   2010 

Noncurrent assets

  $49,575   $60,786   $-0-    $-0-  

Noncurrent liabilities

   -0-    -0-    16,557     16,255  

Current liabilities

   -0-    -0-    2,002     2,177  
  

 

 

  

 

 

  

 

 

   

 

 

 
  $49,575   $60,786   $18,559    $18,432  
  

 

 

  

 

 

  

 

 

   

 

 

 

Amounts recognized in accumulated other comprehensive (income) loss

      

Net actuarial loss

  $22,345   $7,641   $7,052    $6,059  

Net prior service cost

   148    192    -0-     -0-  

Net transition (asset)

   (91  (132  -0-     -0-  
  

 

 

  

 

 

  

 

 

   

 

 

 

Accumulated other comprehensive loss

  $22,402   $7,701   $7,052    $6,059  
  

 

 

  

 

 

  

 

 

   

 

 

 

 Pension Benefits Postretirement Benefits
 2013 2012 2013 2012
 (In millions)
Noncurrent assets$73.3
 $53.0
 $
 $
Noncurrent liabilities
 
 14.5
 16.6
Current liabilities
 
 1.7
 1.9
 $73.3
 $53.0
 $16.2
 $18.5
Amounts recognized in accumulated other comprehensive loss       
Net actuarial loss$2.1
 $20.3
 $6.3
 $8.2
Net prior service cost (credit)0.1
 0.1
 (0.5) (0.6)
Net transition (asset)
 (0.1) 
 
Accumulated other comprehensive loss$2.2
 $20.3
 $5.8
 $7.6
As of December 31, 20112013 and 2010,2012, the Company’s defined benefit pension plans did not hold a material amount of shares of the Company’s common stock.


71

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The pension plan weighted-average asset allocation at December 31, 20112013 and 20102012 and target allocation for 20122014 are as follows:

      Plan Assets 
   Target 2012  2011  2010 

Asset Category

    

Equity securities

   45-75  66.4  78.3

Debt securities

   10-40    24.6    19.3  

Other

   0-20    9.0    2.4  
  

 

 

  

 

 

  

 

 

 
   100  100  100
  

 

 

  

 

 

  

 

 

 

   Plan Assets
 Target 2014 2013 2012
Asset Category     
Equity securities45-75% 67.2% 64.4%
Debt securities  10-40 25.4% 27.8%
Other    0-20 7.4% 7.8%
 100% 100% 100%
The following table sets forth, by level within the fair value hierarchy, the pension plans assets:

  2011  2010 
  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Total 

Collective trust and pooled insurance funds:

       

Common stock

 $42,737   $-0-   $-0-   $42,737   $65,362   $-0-   $65,362  

Equity Funds

  19,014    2,088    -0-    21,102    12,729    3,413    16,142  

Foreign Stock

  3,820    -0-    -0-    3,820    5,000    -0-    5,000  

Convertible Securities

  -0-    -0-    -0-    -0-    967    -0-    967  

U.S. Government Obligations

  7,176    -0-    -0-    7,176    9,840    -0-    9,840  

Fixed income funds

  12,492    -0-    -0-    12,492    5,242    -0-    5,242  

Corporate Bonds

  5,420    -0-    -0-    5,420    5,295    -0-    5,295  

Cash and Cash Equivalents

  2,964    -0-    -0-    2,964    2,381    -0-    2,381  

Hedge funds

  -0-    -0-    5,936    5,936    -0-    -0-    -0-  

Other

  187    -0-    -0-    187    229    -0-    229  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 $93,810   $2,088   $5,936   $101,834   $107,045   $3,413   $110,458  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1 refers to the fair value determined based on unadjusted quoted prices for identical assets in active markets. Level 2 refers to the fair values based on quoted markets that are not active, quoted prices for similar assets in active markets, and inputs that are observable for the asset either directly or indirectly, for substantially the full term of the asset and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 refers to fair value based on prices or valuation techniques that require inputs that are both unobservable and significant to the fair value measurement.

 2013 2012
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 (In millions)
Collective trust and pooled insurance funds:               
Common stock$48.3
 $2.5
 $
 $50.8
 $40.1
 $2.5
 $
 $42.6
Equity Funds26.9
 
 
 26.9
 23.9
 
 
 23.9
Foreign Stock5.6
 
 
 5.6
 4.1
 
 
 4.1
U.S. Government obligations5.1
 
 
 5.1
 6.5
 
 
 6.5
Fixed income funds18.8
 
 
 18.8
 17.1
 
 
 17.1
Balanced funds2.1
 
 
 2.1
 
 
 
 
Corporate Bonds6.8
 
 
 6.8
 6.8
 
 
 6.8
Cash and Cash Equivalents2.0
 
 
 2.0
 2.0
 
 
 2.0
Hedge funds
 
 7.3
 7.3
 
 
 6.4
 6.4
 $115.6
 $2.5
 $7.3
 $125.4
 $100.5
 $2.5
 $6.4
 $109.4
The following table presents a reconciliation of Level 3 assets, as defined in Note 1, held during the yearyears ended December 31, 2011.

   Balance
Jan. 1, 2011
   Net Unrealized
Loss
  Purchases   Balance
Dec. 31, 2011
 

Hedge Funds

  $-0-    $(64 $6,000    $5,936  
  

 

 

   

 

 

  

 

 

   

 

 

 

2013 and 2012.

 
Balance at
Beginning of Year
 
Net Unrealized
Gain
 Purchases 
Balance at
End of Year
 (In millions)
Hedge Funds:       
2013$6.4
 $0.9
 $
 $7.3
2012$5.9
 $0.5
 $
 $6.4

72

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The following tables summarize the assumptions used byin the consulting actuaryvaluation of pension and postretirement benefit obligations at December 31, and to measure the relatednet periodic benefit cost information.

   Weighted-Average assumptions as of December 31, 
   Pension  Postretirement
Benefits
 
   2011  2010  2009  2011  2010  2009 

Discount rate

   4.50  5.00  5.50  4.50  5.00  5.50

Expected return on plan assets

   8.25  8.25  8.25  N/A    N/A    N/A  

Rate of compensation increase

   2.00  N/A    N/A    N/A    N/A    N/A  

in the following year.

 Weighted-Average assumptions as of December 31,
 Pension Benefits Postretirement Benefits
 2013 2012 2011 2013 2012 2011
Discount rate4.51% 3.66% 4.50% 4.21% 3.35% 4.50%
Expected return on plan assets8.25% 8.25% 8.25% N/A
 N/A
 N/A
Rate of compensation increase2.00% 2.00% 2.00% N/A
 N/A
 N/A
Medical health care benefits rate increaseN/A
 N/A
 N/A
 6.50% 7.00% 6.50%
Medical drug benefits rate increaseN/A
 N/A
 N/A
 6.50% 7.25% 8.00%
Ultimate health care cost trend rateN/A
 N/A
 N/A
 5.00% 5.00% 5.00%
Year of ultimate trend rateN/A
 N/A
 N/A
 2042
 2042
 2042
In determining its expected return on plan assets assumption for the year ended December 31, 2011,2013, 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, 20112013 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 6.5% and a 8.0% annual rate of increase in the per capita cost of covered medical health care benefits and drug benefits, respectively were assumed for 2011. 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 
  2011  2010  2009  2011  2010  2009 

Components of net periodic benefit cost

      

Service costs

 $1,627   $295   $471   $52   $31   $61  

Interest costs

  2,329    2,596    2,748    857    959    1,053  

Expected return on plan assets

  (8,950  (7,932  (7,036  -0-    -0-    -0-  

Transition obligation

  (40  (40  (40  -0-    -0-    -0-  

Amortization of prior service cost

  44    61    129    (96  (96  -0-  

Recognized net actuarial loss

  -0-    366    910    449    381    294  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Benefit (income) costs

 $(4,990 $(4,654 $(2,818 $1,262   $1,275   $1,408  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss

      

AOCI at beginning of year

 $7,701   $15,900   $25,131   $6,059   $4,980   $5,914  

Net (gain)/loss

  14,704    (7,811  (8,241  1,346    1,364    280  

Recognition of prior service cost/(credit)

  (44  (62  (120  96    96    (920

Recognition of (gain)/loss

  41    (326  (870  (449  (381  (294
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total recognized in accumulated other comprehensive loss at end of year

 $22,402   $7,701   $15,900   $7,052   $6,059   $4,980  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 Pension Benefits Postretirement Benefits
 2013 2012 2011 2013 2012 2011
 (In millions)
Components of net periodic benefit cost           
Service costs$2.6
 $2.2
 $1.6
 $0.1
 $
 $0.1
Interest costs2.0
 2.2
 2.3
 0.6
 0.8
 0.9
Expected return on plan assets(8.9) (8.2) (8.9) 
 
 
Amortization of prior service credit
 
 
 (0.1) (0.1) (0.1)
Recognized net actuarial loss0.8
 0.9
 
 0.7
 0.7
 0.4
Benefit (income) costs$(3.5) $(2.9) $(5.0) $1.3
 $1.4
 $1.3
Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss           
AOCI at beginning of year$20.3
 $22.4
 $7.7
 $7.6
 $7.1
 $6.1
Net (gain) loss arising during the year(17.3) (1.2) 14.7
 (1.2) 1.1
 1.3
Recognition of prior service credit
 
 
 0.1
 0.1
 0.1
Recognition of actuarial loss(0.8) (0.9) 
 (0.7) (0.7) (0.4)
Total recognized in accumulated other comprehensive loss at end of year$2.2
 $20.3
 $22.4
 $5.8
 $7.6
 $7.1
The estimated net loss, prior service cost and net transition obligation 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, 20122014 are $965, $44 and $(40), respectively.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

immaterial.

The estimated net loss and prior service cost for the postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 20122014 is $703$0.6 million and $(96),$(0.1) million, respectively.


73

Table of Contents
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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
Benefits
   Gross   Expected
Medicare  Subsidy
   Net including
Medicare  Subsidy
 

2012

  $4,002    $2,282    $236    $2,046  

2013

   4,027     2,143     230     1,913  

2014

   4,086     2,048     220     1,828  

2015

   4,095     1,945     208     1,737  

2016

   4,107     1,794     196     1,598  

2017 to 2021

   21,807     7,290     798     6,492  

   Postretirement Benefits
 Pension Benefits Gross 
Expected
Medicare Subsidy
 
Net including
Medicare Subsidy
 (In millions)
2014$4.2
 $1.9
 $0.2
 $1.7
20154.2
 1.8
 0.2
 1.6
20164.1
 1.7
 0.2
 1.5
20174.3
 1.6
 0.2
 1.4
20184.2
 1.5
 0.1
 1.4
2019 to 202321.9
 6.2
 0.6
 5.6
The Company has a postretirement benefit plan. Under the plan, 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
Point
Increase
  1-Percentage
Point
Decrease
 

Effect on total of service and interest cost components in 2011

 $68   $(60

Effect on postretirement benefit obligation as of December 31, 2011

 $1,456   $(1,291

The total contribution charged to pension expense for the Company’s defined contribution plans was $0 in 2011, $0 in 2010 and $301 in 2009. During March 2009, the Company suspended indefinitely its voluntary contribution to its 401(k) defined contribution plan covering substantially all U.S. employees.

 
1-Percentage
Point
Increase
 
1-Percentage
Point
Decrease
 (In millions)
Effect on total of service and interest cost components in 2013$0.1
 $
Effect on postretirement benefit obligation as of December 31, 2013$1.3
 $(1.1)
The Company expects to have no contributions to its defined benefit plans in 2012.

2014.

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$0.4 million 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$0.5 million in 2013 and 2012 related to the SERP and $0.4 millionin 2011, 2010 and 2009.2011. Additionally, a non-qualified defined contribution retirement benefit was also approved in which the Company will credit $94$0.1 million quarterly ($3750.4 million annually) for a seven yearseven-year period to an account in which the CEO will always be 100% vested. The seven year period began on March 31, 2008.


74

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE L — Leases

Future minimum lease commitments during each of the five years following December 31, 2011 and thereafter are as follows: $12,784 in 2012, $9,135 in 2013, $5,712 in 2014, $4,080 in 2015, $3,356 in 2016 and $7,773 thereafter. Rental expense for 2011, 2010 and 2009 was $16,363, $13,068 and $12,812, respectively.

Certain of the Company’s leases are with related parties at an annual rental expense of approximately $2,598. 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 M — Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share:

   Year Ended December 31, 
   2011   2010   2009 

NUMERATOR

      

Net income (loss)

  $29,435    $15,187    $(5,209
  

 

 

   

 

 

   

 

 

 

DENOMINATOR

      

Denominator for basic earnings per share — weighted average shares

   11,580     11,314     10,968  

Effect of dilutive securities:

      

Employee stock options and restricted shares

   419     493     -0-  
  

 

 

   

 

 

   

 

 

 

Denominator for diluted earnings per share — weighted average shares and assumed conversions

   11,999     11,807     10,968  

Amounts per common share:

      

Basic

  $2.54    $1.34    $(.47
  

 

 

   

 

 

   

 

 

 

Diluted

  $2.45    $1.29    $(.47
  

 

 

   

 

 

   

 

 

 

Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. Diluted earnings per common share is computed as net income available to common shareholders divided by the weighted average diluted shares outstanding. Pursuant to ASC 260, “Earnings Per Share,” when a loss is reported the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of stock options and awards because doing so will result in anti-dilution. Therefore, for the year ended December 31, 2009, basic weighted-average shares outstanding are used in calculating diluted earnings per share.

Outstanding stock options with exercise prices greater that the average price of the common shares are anti-dilutive and are not included in the computation of diluted earnings per share. Stock options for 201,100 shares of common stock were excluded in the year ended December 31, 2010.

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE N14 — Accumulated Other Comprehensive Income (Loss)

The components of and changes in accumulated other comprehensive income (loss) at for the years ended December 31, 2013, 2012, and 2011 and 2010 arewere as follows:

   December 31, 
   2011  2010 

Foreign currency translation adjustment

  $4,852   $6,239  

Pension and postretirement benefit adjustments, net of tax

   (13,257  (3,801
  

 

 

  

 

 

 

Total

  $(8,405 $2,438  
  

 

 

  

 

 

 

 Cumulative Translation Adjustment Pension and Postretirement Benefits Total
 (In millions)
Balance at January 1, 2011$6.2
 $(3.8) $2.4
Foreign currency translation adjustments (a)(1.4) 
 (1.4)
Loss arising during the year
 (16.0) (16.0)
Tax adjustment (c)
 6.4
 6.4
Net loss arising during the year
 (9.6) (9.6)
Recognition of actuarial gain (b)
 0.4
 0.4
Tax adjustment (c)
 (0.2) (0.2)
Recognition of actuarial gain, net
 0.2
 0.2
Balance at December 31, 20114.8
 (13.2) (8.4)
Foreign currency translation adjustments (a)0.6
 
 0.6
Recognition of actuarial gain, net (b)
 1.6
 1.6
Tax adjustment (c)
 (0.6) (0.6)
Recognition of actuarial gain, net
 1.0
 1.0
Balance at December 31, 20125.4
 (12.2) (6.8)
Foreign currency translation adjustments (a)(2.6) 
 (2.6)
Recognition of actuarial gain, net (b)
 19.9
 19.9
Tax adjustment (c)
 (7.1) (7.1)
Recognition of actuarial gain, net
 12.8
 12.8
Balance at December 31, 2013$2.8
 $0.6
 $3.4
(a)
No income taxes are provided on foreign currency translation adjustments as foreign earnings are considered permanently invested.
(b)The recognition of actuarial gains are reclassified out of accumulated other comprehensive income and included in the computation of net periodic benefit cost in selling, general and administrative expenses.
(c)The tax adjustments are reclassified out of accumulated other comprehensive income and included in income tax expenses.
NOTE O15 — Restructuring and Unusual Charges

During the third quarter of 2011, the Company recorded a $5,359$5.4 million restructuring and asset impairment charge related to the write down of underperforming assets in its rubber products business unit.

During the third quarterAssembly Components segment.


75

Table of 2010, the Company reviewed one of its investments and determined there was diminution in value and therefore recorded an asset impairment charge of $3,539 included in the Aluminum products segment.

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
Impairment
   Cost of
Products Sold
   Total 

Supply Technologies

  $2,206    $1,797    $4,003  

Manufactured Products

   3,000     -0-    $3,000  
  

 

 

   

 

 

   

 

 

 
  $5,206    $1,797    $7,003  
  

 

 

   

 

 

   

 

 

 

Contents

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE P16Subsequent Event

On March 5, 2012, the Company entered into an agreement to acquire Fluid Routing Solutions Holding Corp. (“FRS”), a leading manufacturer of industrial hose products and fuel filler and hydraulic fluid assemblies, in an all cash transaction valued at $97,500. FRS products include fuel filler, hydraulic, and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel, power steering, transmission oil cooling, hydraulic and thermoplastic hose. FRS sells to automotive and industrial customers throughout North America, Europe and Asia. FRS has five production facilities located in Florida, Michigan, Ohio, Tennessee and the Czech Republic. The transaction is expected to close by March 30, 2012 subject to a number of customary conditions, including the expiration of waiting periods and the receipt of approvals under Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to be funded by the Company’s cash of $40,000 ($10,000 domestic and $30,000 foreign), a new $25,000 seven-year amortizing term loan secured by certain real estate and machinery and equipment of the Company for which the Company has received a commitment letter from its bank group and $32,500 of borrowings under the Company’s revolving credit facility.

Supplementary Financial Data

Selected Quarterly Financial Data (Unaudited)

   Quarter Ended 
   March 31   June 30   Sept. 30   Dec. 31 
   (Dollars in thousands, except per share data) 

2011

        

Net sales

  $241,628    $246,808     $243,544    $234,593  

Gross profit

   41,935     45,180      41,844     38,366  

Net income (loss)

  $8,729    $(1,107)    $2,870    $18,943  
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts per common share:

        

Basic

  $.76    $.(10)    $.25    $1.62  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $.73    $.(10)    $.24    $1.58  
  

 

 

   

 

 

   

 

 

   

 

 

 

2010

        

Net sales

  $191,701    $198,303     $202,986    $220,532  

Gross profit

   29,338     33,298      34,980     36,481  

Net income

  $2,066    $3,415     $6,184    $3,522  
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts per common share:

        

Basic

  $.19    $.30     $.54    $.31  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $.18    $.29     $.52    $.30  
  

 

 

   

 

 

   

 

 

   

 

 

 

 Quarter Ended
 Mar. 31, Jun. 30, Sept. 30, Dec. 31,
 (Dollars in millions, except per share data)
2013       
Net sales$283.0
 $307.3
 $303.5
 $309.4
Gross profit51.6
 57.5
 54.6
 47.3
Net income from continuing operations10.7
 12.1
 8.7
 9.4
Income (loss) from discontinued operations, net of taxes(0.4) (0.1) 3.7
 (0.2)
Net income attributable to noncontrolling interest
 
 (0.2) (0.3)
Net income attributable to ParkOhio common shareholders$10.3
 $12.0
 $12.2
 $8.9
Earnings (loss) per common share attributable to ParkOhio common shareholders - Basic:       
Continuing operations$0.90
 $1.02
 $0.71
 $0.76
Discontinued operations(0.03) (0.01) 0.31
 (0.02)
Total$0.87
 $1.01
 $1.02
 $0.74
Earnings (loss) per common share attributable to ParkOhio common shareholders - Diluted:       
Continuing operations$0.88
 $0.99
 $0.69
 $0.74
Discontinued operations(0.03) (0.01) 0.30
 (0.02)
Total$0.85
 $0.98
 $0.99
 $0.72
2012       
Net sales$261.7
 $307.3
 $285.2
 $274.0
Gross profit49.0
 55.9
 54.2
 48.2
Net income from continuing operations9.6
 5.0
 11.4
 8.2
Loss from discontinued operations, net of taxes(0.6) (0.6) (0.7) (0.5)
Net income attributable to ParkOhio common shareholders$9.0
 $4.4
 $10.7
 $7.7
Earnings (loss) per common share attributable to ParkOhio common shareholders - Basic:       
Continuing operations$0.81
 $0.42
 $0.95
 $0.68
Discontinued operations(0.05) (0.05) (0.06) (0.04)
Total$0.76
 $0.37
 $0.89
 $0.64
Earnings (loss) per common share attributable to ParkOhio common shareholders - Diluted:       
Continuing operations$0.79
 $0.42
 $0.94
 $0.67
Discontinued operations(0.05) (0.05) (0.06) (0.04)
Total$0.74
 $0.37
 $0.88
 $0.63

Note 1 —

In the third quarter of 2010, the Company recorded a bargain purchase gain of $2,210 from the acquisition of certain assets and assumption of specific liabilities of Assembly Component Systems Inc. representing the excess of the aggregate fair value of purchased net assets over the purchase price and $3,539 asset impairment charge relating to the write down of an investment.

Note 2A

In the second quarter of 2011,2013, the Company incurred debt extinguishment costs related primarily to premiumscompleted the acquisition of substantially all of the assets of Bates, a manufacturer of extruded, formed and other transactions costs associated with the tendermolded products and early redemption and wrote off deferred financing costs associated with the 8.375% senior subordinated notes due 2014 totaling $7,335 and recorded a provision for foreign taxes of $2,100 resulting from the retirement of $26,165 that were held by an affiliate.is included in our Assembly Components segment.

Note 3B

Effective August 1, 2013, the Company sold a 25% interest in its Southwest Steel Processing business.
Note C —
On September 3, 2013, the Company sold all of the outstanding equity interests of a non-core business unit in the Supply Technologies segment for $8.5 million in cash. The results of this business unit are reported as discontinued operations and prior periods are adjusted to reflect the discontinued operation.

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Table of Contents
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note D —In the third quarter of 2011,September 2013, the Company recorded a $5,359 restructuring and asset impairment charge related to the write down of underperforming assets in its rubber products business unit$5.2 million pre-tax litigation judgment.

Note 4E

InDuring the fourth quarter of 2011,2013, the Company reversed its deferred tax valuation allowanceacquired the outstanding capital stock of $11,271.Henry Halstead and QEF. Both companies are providers of supply chain management solutions.

Note F —
In the first quarter of 2012, the Company completed the acquisition of FRS, a leading manufacturer of industrial rubber and thermoplastic hose products and fuel filler and hydraulic fluid assemblies for the automotive and industrial industries, in an all cash transaction for approximately $98.8 million.
Note G —In the second quarter of 2012, the Company entered into a settlement agreement with a customer pursuant to which it agreed to settle all claims subject to an arbitration agreement by paying the customer $13.0 million in cash.

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Table of Contents

Supplementary Financial Data


Schedule II

PARK-OHIO HOLDINGS CORP.

Schedule VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Description

  Balance at
Beginning  of
Period
   Charged to
Costs and
Expenses
  Deductions
and
Other
  Balance at
End of
Period
 

Year Ended December 31, 2011:

      

Allowances deducted from assets:

      

Trade receivable allowances

  $6,011    $708   $(1,236)(A)  $5,483  

Inventory obsolescence reserve

   22,788     7,433    (5,340)(B)   24,881  

Tax valuation allowances

   22,386     (17,977  -0-(D)   4,409  

Product warranty liability

   4,046     3,583    (3,421)(C)   4,208  
  

 

 

   

 

 

  

 

 

  

 

 

 

Year Ended December 31, 2010:

      

Allowances deducted from assets:

      

Trade receivable allowances

  $8,388    $2,581   $(4,958)(A)  $6,011  

Inventory obsolescence reserve

   21,456     8,956    (7,624)(B)   22,788  

Tax valuation allowances

   30,668     (5,754  (2,528)(D)   22,386  

Product warranty liability

   2,760     2,294    (1,008)(C)   4,046  
  

 

 

   

 

 

  

 

 

  

 

 

 

Year Ended December 31, 2009:

      

Allowances deducted from assets:

      

Trade receivable allowances

  $3,044    $6,527   $(1,183)(A)  $8,388  

Inventory obsolescence reserve

   22,313     7,153    (8,010)(B)   21,456  

Tax valuation allowances

   34,921     (1,815  (2,438)(D)   30,668  

Product warranty liability

   5,402     704    (3,346)(C)   2,760  
  

 

 

   

 

 

  

 

 

  

 

 

 

Description
Balance at
Beginning of
Period
 
Charged to
Costs and
Expenses
 
Deductions
and
Other
 
Balance at
End of
Period
 (In millions)
Year Ended December 31, 2013:       
Allowances deducted from assets:       
Trade receivable allowances3.5
 1.8
 (1.6)(A) 3.7
Inventory obsolescence reserve27.2
 9.4
 (8.2)(B) 28.4
Tax valuation allowances4.2
 (1.6) 
  2.6
Year Ended December 31, 2012:       
Allowances deducted from assets:       
Trade receivable allowances5.5
 1.8
 (3.8)(A) 3.5
Inventory obsolescence reserve24.9
 11.6
 (9.3)(B) 27.2
Tax valuation allowances4.4
 (0.2) 
  4.2
Year Ended December 31, 2011:       
Allowances deducted from assets:       
Trade receivable allowances6.0
 0.6
 (1.1)(A) 5.5
Inventory obsolescence reserve22.8
 7.4
 (5.3)(B) 24.9
Tax valuation allowances22.4
 (18.0) 
  4.4
Note (A)- UncollectibleUncollectable accounts written off, net of recoveries.

Note (B)- Amounts written off or payments incurred, net of acquired reserves.

Note (C)- Loss and loss adjustment.

Note (D)- Amounts recorded in other comprehensive income.



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Table of Contents

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with the Company’sour independent auditors on accounting and financial disclosure matters within the two-year period ended December 31, 2011.

2013.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chairman and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). In the second quarter of fiscal 2013, the Company acquired Bates. In the fourth quarter of fiscal 2013, the Company acquired Henry Halstead and QEF Global. The scope of the Company’s assessment of the effectiveness of internal control over financial reporting did not include Bates, Henry Halstead and QEF Global, which in the aggregate constituted 8% of total assets as of December 31, 2013 and 3% of revenues for the year then ended. These exclusions are in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from the Company’s scope in the year of acquisition. Based upon this evaluation, our Chairman and Chief Executive Officer and Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this annual reportAnnual Report on Form 10-K, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management of the Company

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, management carried out an evaluation, with participation of the Company’sour Chairman and Chief Executive Officer and Vice President and Chief Financial Officer, of the effectiveness of itsour internal control over financial reporting as of December 31, 2011.2013. 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 (1992 Framework) (the “COSO Report”). Management’s assessment and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Bates, Henry Halstead and QEF Global, which in the aggregate constituted 8% of total assets as of December 31, 2013 and 3% of revenues for the year then ended. Based upon the evaluation described above under the framework contained in the COSO Report, the Company’sour management has concluded that the Company’sour internal control over financial reporting was effective as of December 31, 2011.

2013.

Ernst & Young LLP, the Company’sour independent registered public accounting firm, haswho audited the consolidated financial statements of the Company for the year ended December 31, 2013, also issued an auditattestation report on the effectiveness of the Company’s internal control over financial reporting asunder Auditing Standard No. 5 of December 31, 2011 based on the framework contained in the COSO Report.Public Company Accounting Oversight Board. This attestation report is included atset forth on page 44 of this annual reportAnnual Report on Form 10-K and is incorporated herein by reference.

reference into this Item 9A.

Changes in internal control over financial reporting

There have been no changes in the Company’sour internal control over financial reporting that occurred during the fourth quarter of 20112013 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.

Item 9B. Other Information

None.


79


Part III


Item 10.  Directors, Executive Officers and Corporate Governance

The information concerning directors, the identification of the audit committee and the audit committee financial expert and the Company’sour code of ethics required under this item is incorporated herein by reference from the material contained under the captions “Election of Directors” and “Certain Matters Pertaining to the Board of Directors and Corporate Governance,” as applicable, in the Company’sour definitive proxy statement for the 20122014 annual meeting of shareholders to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the close of the fiscal year (the “Proxy Statement”). The information concerning Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference from the material contained under the caption “Principal Shareholders — Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. Information relating to executive officers is contained in Part I of this annual reportAnnual Report on Form 10-K.

Item 11.  Executive Compensation

The information relating to executive officer and director compensation and the compensation committee report contained under the heading “Executive Compensation” in the Proxy Statement is incorporated herein by reference. The information relating to compensation committee interlocks contained under the heading “Certain Matters Pertaining to the Board of Directors and Corporate Governance — Compensation Committee Interlocks and Insider Participation” in the Proxy Statement is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference from the material contained under the caption “Principal Shareholders” in the Proxy Statement, except that information required by Item 201(d) of Regulation S-K can be found below.

The following table provides information about the Company’sour common stock that may be issued under the Company’sour equity compensation plan as of December 31, 2011.

2013.

Equity Compensation Plan Information

Plan Category

 Number of securities
to be issued upon
exercise price of
outstanding options
warrants and rights
  Weighted-average
exercise price of
outstanding
options, warrants
and rights
  Number of  securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
 
  (a)  (b)  (c) 

Equity compensation plans approved by security holders(1)

  228,334   $14.58    144,484  

Equity compensation plans not approved by security holders

  -0-    -0-    -0-  
 

 

 

  

 

 

  

 

 

 

Total

  228,334   $14.58    144,484  

Plan Category 
Number of securities
to be issued upon
exercise price of
outstanding options
warrants and rights
 
Weighted-average
exercise price of
outstanding
options, warrants
and rights
 
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
  (a) (b) (c)
Equity compensation plans approved by security holders (1) 146,000
 $16.71
 267,953
Equity compensation plans not approved by security holders 
 
 
Total 146,000
 $16.71
 267,953
(1)Includes the Company’sour Amended and Restated 1998 Long-Term Incentive Plan.

Item 13.  CertainRelationships and Related Transactions, and Director Independence



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Table of Contents

Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference to the material contained under the captions “Certain Matters Pertaining to the Board of Directors and Corporate Governance — Company Affiliations with the Board of Directors and Nominees” and “Transactions With Related Persons” in the Proxy Statement.

Item 14.  Principal AccountantAccounting Fees and Services

The information required under this item is incorporated herein by reference to the material contained under the caption “Audit Committee — Independent Auditor Fee Information” in the Proxy Statement.



81


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 on Form 10-K:

 Page

42

43

44

45

46

47

48

71(2) Financial Statement Schedules 

(2) Financial Statement Schedules

The following consolidated financial statement schedule of Park-Ohio Holdings Corp. is included in Item 8:

 

72

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 reportAnnual Report on Form 10-K are listed on the Exhibit Index immediately preceding such exhibits and are incorporated herein by reference.



82


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PARK-OHIO HOLDINGS CORP.
(Registrant)
By:/s/ JEFFREY L. RUTHERFORDW. Scott Emerick
Name:Jeffrey L. Rutherford, Vice PresidentW. Scott Emerick
Title:
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: March 15, 2012

14, 2014


Pursuant to the requirements of the Securities Exchange Act of 1934, this reportreport has beenbeen signed by the following persons in the capacities and on the dates indicated.

*

Edward F. Crawford

  Chairman, Chief Executive Officer and Director    March 14, 2014

*

Jeffrey L. Rutherford

W. Scott Emerick
  
Vice President and Chief Financial Officer (Principal
(Principal Financial and Accounting Officer)
   

*

Matthew V. Crawford

  President, Chief Operating Officer and Director   

*

Patrick V. Auletta

  Director   

*

Kevin R. Greene

  Director   March 15, 2012

*

A. Malachi Mixon, III

  Director   

*

Dan T. Moore

  Director   

*

Ronna Romney

  Director   

*

Steven H. Rosen

Director

*

James W. Wert

  Director   
*
James W. Wert
Director

*The undersigned, pursuant to a Power of Attorney executed by each of the directors and officers identified above and filed with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated.

March 15, 201214, 2014  By: 
/s/    ROBERT D. VILSACK
   Robert D. Vilsack, Attorney-in-Fact




83


EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K

PARK-OHIO HOLDINGS CORP.

For the Year Ended December 31, 20112013

EXHIBIT INDEX

Exhibit

2.1Agreement and Plan of Merger by and among Fluid Routing Solutions Holding Corp., FRS Group, LLP, Automotive Holding Acquisition Corp and Park-Ohio Industries, Inc., dated as of March 5, 2012 (filed as Exhibit 2.1 to From 10-Q of Park-Ohio Holdings Corp. filed on May 10, 2012, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
  
3.1Amended and Restated Articles of Incorporation of Park-Ohio Holdings Corp. (filed as Exhibit 3.1 to the Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
3.2Code of Regulations of Park-Ohio Holdings Corp. (filed as Exhibit 3.2 to the Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
4.1FourthFifth Amended and Restated Credit Agreement, dated April 7, 2011,March 23, 2012, 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 andLoan Parties (as defined therein), 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,and First National Bank of America, N.A.,Pennsylvania, as Co-Documentation Agent, U.S. Bank National Association, as Co-Documentation Agent, and Joint Bookrunner, PNC Bank, National Association , as Joint Bookrunner, and J.P. Morgan Securities, Inc. as Sole Lead Arranger and Bookrunning Manager (filed as Exhibit 4.34.1 to the Form 8-K of Park-Ohio Holdings Corp., filed on April 13, 2011,March 27, 2012, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
4.2Amendment No. 1 to Fifth Amended and Restated Credit Agreement, dated April 3, 2013, among Park-Ohio Industries, Inc. and RB&W Corporation of Canada, as borrowers, the Ex-Im Borrowers party to the Credit Agreement (as defined therein) the other Loan Parties party to the Credit Agreement, the lenders party to the Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Agent (filed as Exhibit 4.1 to the Form 10-Q of Park-Ohio Holdings Corp., filed on May 6, 2013, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
 4.2 
4.3Indenture, dated as of April 7, 2011, among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, NA, as trustee (filed as Exhibit 4.1 to the Form 8-K of Park-Ohio Holdings Corp. filed on April 13, 2011, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof)
10.1Form of Indemnification Agreement entered into between Park-Ohio Holdings Corp. and each of its directors and certain officers (filed as Exhibit 10.1 to the Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC File No. 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 to Form 8-K of Park-Ohio Holdings Corp., filed on June 3, 2009,May 30, 2012, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
10.3*Form of Restricted Share Agreement between the Company and each non-employee director (filed as Exhibit 10.1 to Form 8-K of Park-Ohio Holdings Corp., filed on January 25, 2005, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof)

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Table of Contents

10.4*Exhibit
10.4*Form of Restricted Share Agreement for Employees (filed as Exhibit 10.1 to Form 10-Q for Park-Ohio Holdings Corp. for the quarter ended September 30, 2006, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof)
10.5*Form of Incentive Stock Option Agreement (filed as Exhibit 10.5 to Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2004, SEC File No. 000-03134 and incorporated by reference and made a part hereof)

Exhibit

  
10.6*Form of Non-Statutory Stock Option Agreement (filed as Exhibit 10.6 to Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2004, SEC File No. 000-03134 and incorporated herein by reference and made a part hereof)
10.7*Park-Ohio Industries, Inc. Annual Cash Bonus Plan (filed as Exhibit 10.1 to the Form 8-K for Park-Ohio Holdings Corp, filed June 1, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
10.8*Supplemental Executive Retirement Plan for Edward F. Crawford, effective as of March 10, 2008 (filed as Exhibit 10.9 to Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
10.9*Non-qualified Defined Contribution Retirement Benefit Letter Agreement for Edward F. Crawford, dated March 10, 2008 (filed as Exhibit 10.10 to Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 2007, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
10.10*2009 Director Supplemental Defined Contribution Plan of Park-Ohio Holdings Corp. (Filed as Exhibit 10 to Form 10-Q of Park-Ohio Holdings Corp. filed on May 10, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
10.11Agreement of Settlement and Release, dated July 1, 2008 (filed as Exhibit 10.1 to Form 10-Q of Park-Ohio Holdings Corp. for the quarter ended September 30, 2008, SEC File No. 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)
10.13Bill 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)
10.14Registration Rights Agreement, dated as of April 7, 2011, by and among Park-Ohio Industries, Inc., the Guarantors (as defined therein) and the initial purchasers party thereto (filed as Exhibit 10.1 to Form 8-K of Park-Ohio Holdings Corp., filed April 7, 2011, SEC File No. 000-03134 and incorporated by reference and made a part hereof)
21.1List of Subsidiaries of Park-Ohio Holdings Corp.
23.1Consent of Independent Registered Public Accounting Firm
24.1Power of Attorney


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Table of Contents

31.1Exhibit
31.1Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit

  
32.1Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LAB101.DEFXBRL Taxonomy Extension Label Linkbase Document
101.PRE101.LABXBRL Taxonomy Extension Presentation Linkbase Document
101.DEF101.PREXBRL Taxonomy Extension Definition Linkbase Document

*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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