Park Ohio Industries 10-Q 2008 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number 333-43005

Park-Ohio Industries, Inc.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization)

6065 Parkland Boulevard, Cleveland, Ohio
(Address of principal executive offices) 34-6520107
(I.R.S. Employer
Identification No.)

44124
(Zip Code)

440/947-2000

(Registrant’s telephone number, including area code)

Pursuant to a corporate reorganization effective June 15, 1998,

Park-Ohio Industries, Inc. became a wholly-owned subsidiary of Park-Ohio Holdings Corp.

The registrant meets the conditions set forth in general instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form in reduced disclosure format.

Indicate by check mark whether the registrant:

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

The registrant is a voluntary filer and accordingly, is not required to file reports by Section 13 or 15(d) of the Exchange Act; however the registrant has voluntarily filed all Exchange Act reports during the preceding twelve months.

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

Large accelerated filero   Accelerated filero Non-accelerated filer þ Smaller reporting Company o

                    (Do not check if a smaller reporting company)

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

All of the outstanding capital stock of the registrant is held by Park-Ohio Holdings Corp. As of October 31, 2008, 100 shares of the registrant’s common stock, $1 par value, were outstanding.

The Exhibit Index is located on page 29.

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

			Page
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements		3
		Consolidated balance sheets — September 30, 2008 and December 31, 2007		3
		Consolidated statements of operations — Three and nine months ended September 30, 2008 and 2007		4
		Consolidated statement of shareholder’s equity — Nine months ended September 30, 2008		5
		Consolidated statements of cash flows — Nine months ended September 30, 2008 and 2007		6
		Notes to consolidated financial statements — September 30, 2008		7
		Report of independent registered public accounting firm		18
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
	Item 4.	Controls and Procedures		25
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings		26
	Item 1A.	Risk Factors		27
	Item 6.	Exhibits		27
SIGNATURE				28
EXHIBIT INDEX				29
EX-31.1
EX-31.2
EX-32

2

PART I. Financial Information

ITEM 1.   Financial Statements

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30,		December 31,
	2008		2007
	(Dollars in thousands)
ASSETS
Current Assets
Cash and cash equivalents	$	28,387	$	13,077
Accounts receivable, less allowances for doubtful accounts of $3,026 at September 30, 2008 and $3,724 at December 31, 2007		185,666		172,357
Inventories		236,581		215,409
Deferred tax assets		21,897		21,897
Unbilled contract revenue		21,014		24,817
Other current assets		21,074		19,757
Total Current Assets		514,619		467,314
Property, Plant and Equipment		247,944		263,488
Less accumulated depreciation		155,409		159,896
		92,535		103,592
Other Assets
Goodwill		100,683		100,997
Net assets held for sale		-0-		3,330
Other		103,397		94,185
	$	811,234	$	769,418
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Trade accounts payable	$	136,040	$	121,870
Accrued expenses		74,803		66,923
Current portion of long-term debt		8,063		2,362
Current portion of other postretirement benefits		2,041		2,041
Total Current Liabilities		220,947		193,196
Long-Term Liabilities, less current portion
8.375% Senior Subordinated Notes due 2014		210,000		210,000
Revolving credit		160,200		145,400
Other long-term debt		2,114		2,287
Deferred tax liability		22,722		22,722
Other postretirement benefits and other long-term liabilities		23,770		24,017
		418,806		404,426
Shareholder’s Equity
Common Stock, par value $1 per share		-0-		-0-
Additional paid-in capital		64,844		64,844
Retained earnings		91,590		88,868
Accumulated other comprehensive income		15,047		18,084
		171,481		171,796
	$	811,234	$	769,418

Note:  The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See notes to consolidated financial statements.

3

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008			2007		2008		2007
	(Amounts in thousands, except per share data)
Net sales	$	266,148		$	269,104	$	819,178	$	823,626
Cost of products sold		226,759			226,880		697,361		700,413
Gross profit		39,389			42,224		121,817		123,213
Selling, general and administrative expenses		27,936			23,656		80,164		72,816
Impairment charges		17,480			-0-		17,480		-0-
Operating income (loss)		(6,027	)		18,568		24,173		50,397
Interest expense		6,775			7,993		20,672		24,286
Income (loss) before income taxes		(12,802	)		10,575		3,501		26,111
Income taxes (benefit)		(4,597	)		3,816		779		9,408
Net income (loss)	$	(8,205	)	$	6,759	$	2,722	$	16,703

See notes to consolidated financial statements.

4

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (UNAUDITED)

							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive
	Stock		Capital		Earnings		Income			Total
	(Dollars in thousands)
Balance at January 1, 2008	$	-0-	$	64,844	$	88,868	$	18,084		$	171,796
Comprehensive income (loss):
Net income						2,722					2,722
Foreign currency translation adjustment								(3,160	)		(3,160	)
Pension and postretirement benefit adjustments, net of tax								123			123
Comprehensive income (loss)											(315	)
Balance at September 30, 2008	$	-0-	$	64,844	$	91,590	$	15,047		$	171,481

See notes to consolidated financial statements.

5

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 30,
	2008			2007
	(Dollars in thousands)
OPERATING ACTIVITIES
Net income	$	2,722		$	16,703
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization		15,974			15,782
Impairment charges		17,480			-0-
Changes in operating assets and liabilities:
Accounts receivable		(13,309	)		(15,751	)
Inventories and other current assets		(18,685	)		(1,518	)
Accounts payable and accrued expenses		22,049			(13,328	)
Other		(15,493	)		4,665
Net Cash Provided by Operating Activities		10,738			6,553
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net		(15,756	)		(14,292	)
Net Cash Used by Investing Activities		(15,756	)		(14,292	)
FINANCING ACTIVITIES
Proceeds from debt, net		20,328			(311	)
Net Cash Provided (Used) by Financing Activities		20,328			(311	)
Increase (decrease) in Cash and Cash Equivalents		15,310			(8,050	)
Cash and Cash Equivalents at Beginning of Period		13,077			20,872
Cash and Cash Equivalents at End of Period	$	28,387		$	12,822
Taxes paid	$	5,826		$	4,386
Interest paid		15,236			18,048

See notes to consolidated financial statements.

6

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

(Dollar amounts in thousands)

NOTE A — Basis of Presentation

The consolidated financial statements include the accounts of Park-Ohio Industries, Inc. and its subsidiaries (“Park-Ohio” or the “Company”). Park-Ohio is a wholly-owned subsidiary of Park-Ohio Holdings Corp. All significant intercompany transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions toForm 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007.

NOTE B — Segments

The Company operates through three segments: Supply Technologies, Aluminum Products and Manufactured Products. Supply Technologies provides our customers with Total Supply Management^tm services for a broad range of high-volume, specialty production components. Total Supply Management^tm manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation and includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. Aluminum Products manufactures cast aluminum components for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment industries. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications.

Results by business segment were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Net sales:
Supply Technologies	$	131,668		$	134,066		$	399,452		$	403,956
Aluminum Products		35,784			41,188			120,304			131,838
Manufactured Products		98,696			93,850			299,422			287,832
	$	266,148		$	269,104		$	819,178		$	823,626
Income (loss) before income taxes:
Supply Technologies	$	5,259		$	8,288		$	16,551		$	20,420
Aluminum Products		(17,557	)		1,131			(18,674	)		3,285
Manufactured Products		10,062			11,619			37,703			35,292
		(2,236	)		21,038			35,580			58,997
Corporate costs		(3,791	)		(2,470	)		(11,407	)		(8,600	)
Interest expense		(6,775	)		(7,993	)		(20,672	)		(24,286	)
Income (loss) before income taxes	$	(12,802	)	$	10,575		$	3,501		$	26,111

7

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

	September 30,		December 31,
	2008		2007
Identifiable assets were as follows:
Supply Technologies	$	394,568	$	354,165
Aluminum Products		92,187		98,524
Manufactured Products		277,346		231,459
General corporate		47,133		85,270
	$	811,234	$	769,418

During the third quarter of 2008, the Company recorded $18,059 of impairment charges associated with the recent volume declines and volatility in the automotive markets (See Note I). Below is a summary of these charges by segment.

			Cost of
	Asset		Products
	Impairment		Sold		Total
Aluminum Products	$	13,189	$	579	$	13,768
Manufactured Products		4,291		-0-		4,291
	$	17,480	$	579	$	18,059

NOTE C — Recent Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161 modifies existing requirements to include qualitative disclosures regarding the objectives and strategies for using derivatives, fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The pronouncement also requires the cross-referencing of derivative disclosures within the financial statements and notes thereto. The requirements of FAS 161 are effective for the Company in 2009. The adoption of FAS 161 will not have an impact on the Company’s financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“FAS 160”). FAS 160 modifies the reporting for noncontrolling interests in the balance sheet and minority interest income (expense) in the income statement. The pronouncement also requires that increases and decreases in the noncontrolling ownership interest amount be accounted for as equity transactions. FAS 160 is required to be adopted prospectively, with limited exceptions, effective for the Company in 2009. The Company is currently evaluating the effect the adoption of FAS 160 will have on its financial position, results of operations and related disclosures.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, “Business Combinations” (“FAS 141R”). FAS 141R modifies the accounting for business combinations by requiring that acquired assets and assumed liabilities be recorded at fair value, contingent consideration arrangements be recorded at fair value on the date of the acquisition and preacquisition contingencies will generally be accounted for in purchase accounting at fair value. The pronouncement also requires that transaction costs be expensed as incurred, acquired research and development be capitalized as an indefinite-lived intangible asset and the requirements of Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” be met at the acquisition date in order to accrue for a restructuring plan in purchase accounting. FAS 141R is required to be adopted prospectively effective for fiscal years beginning after December 15, 2008.

8

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The pronouncement also establishes presentation and disclosure requirements to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company did not elect to measure its financial instruments or any other items at fair value as permitted by FAS 159. Therefore, the adoption of FAS 159 did not impact the Company’s financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of FAS 157 apply under other accounting pronouncements that require or permit fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years for financial assets and liabilities, and for fiscal years beginning after November 15, 2008 for non-financial assets and liabilities. The adoption of FAS 157 for financial assets and liabilities did not have a material effect on the Company’s financial position or results of operations.

As of September 30, 2008, the Company’s financial assets subject to FAS 157 consisted of other investments totaling $7,261. The other investments are classified as having Level 2 inputs, as the fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly, including quoted prices for similar assets in active markets; quoted prices for identical or similar assets in markets that are not active; inputs other than quoted prices that are observable for the asset; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

NOTE D — Inventories

The components of inventory consist of the following:

	September 30,		December 31,
	2008		2007
Finished goods	$	137,308	$	129,074
Work in process		30,052		26,249
Raw materials and supplies		69,221		60,086
	$	236,581	$	215,409

NOTE E — Pension Plans and Other Postretirement Benefits

The components of net periodic benefit cost recognized during interim periods was as follows:

	Pension Benefits
	Three Months						Nine Months						Postretirement Benefits
	Ended						Ended						Three Months						Nine Months
	September 30,						September 30,						Ended September 30,						Ended September 30,
	2008			2007			2008			2007			2008			2007			2008			2007
Service costs	$	108		$	91		$	324		$	273		$	43		$	41		$	129		$	123
Interest costs		722			702			2,166			2,105			290			333			870			1,000
Expected return on plan assets		(2,408	)		(2,213	)		(7,224	)		(6,638	)		-0-			-0-			-0-			-0-
Transition obligation		(12	)		(2	)		(36	)		(6	)		-0-			-0-			-0-			-0-
Amortization of prior service cost		34			34			102			102			(13	)		(16	)		(39	)		(48	)
Recognized net actuarial loss		(29	)		-0-			(87	)		-0-			71			146			213			438
Benefit (income) costs	$	(1,585	)	$	(1,388	)	$	(4,755	)	$	(4,164	)	$	391		$	504		$	1,173		$	1,513

9

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

NOTE F — Comprehensive Income (Loss)

Total comprehensive income (loss) was as follows:

	Three Months					Nine Months
	Ended					Ended
	September 30,					September 30,
	2008			2007		2008			2007
Net income (loss)	$	(8,205	)	$	6,759	$	2,722		$	16,703
Foreign currency translation		(4,775	)		3,755		(3,160	)		7,001
Pension and post retirement benefit adjustments, net of tax		40			59		123			178
Total comprehensive income (loss)	$	(12,940	)	$	10,573	$	(315	)	$	23,882

The components of accumulated comprehensive income at September 30, 2008 and December 31, 2007 are as follows:

	September 30,		December 31,
	2008		2007
Foreign currency translation adjustment	$	9,552	$	12,712
Pension and postretirement benefit adjustments, net of tax		5,495		5,372
	$	15,047	$	18,084

The pension and postretirement benefit liability amounts are net of deferred taxes of $2,904 and $2,834 at September 30, 2008 and December 31, 2007, respectively. No income taxes are provided on foreign currency translation adjustments as foreign earnings are considered permanently invested.

NOTE G — Accrued Warranty Costs

The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents the changes in the Company’s product warranty liability:

	2008			2007
Balance at January 1	$	5,799		$	3,557
Claims paid during the first nine months		(2,105	)		(1,167	)
Additional warranties issued during the first nine months		3,506			3,312
Balance at September 30	$	7,200		$	5,702

NOTE H — Income Taxes

The effective income tax rate in the first nine months of 2008 and 2007 was 22% and 36%, respectively. The increase in the effective income tax rate is primarily due to lower income before taxes.

There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2007.

NOTE I —  Impairment Charges

Due to the recent volume declines and volatility in the automotive markets, the Company evaluated its long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”). The Company determined whether the carrying

10

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. During the third quarter of 2008, based on the results of these tests, the Company recorded asset impairment charges of $18,059, which were composed of $579 of inventory impairment included in Cost of Products Sold and $17,480 for impairment of property and equipment and other long-term assets. Below is a summary of these charges by segment.

			Cost of
	Asset		Products
	Impairment		Sold		Total
Aluminum Products	$	13,189	$	579	$	13,768
Manufactured Products		4,291		-0-		4,291
	$	17,480	$	579	$	18,059

NOTE J — Goodwill

Subsequent to the end of the third quarter, the Company experienced a sharp decline in its stock price. The Company believes this decline was principally driven by circumstances that occurred subsequent to the end of the third quarter including, but not limited to, an extraordinary decline in the stock market as a whole and other factors specific to its stock price that the Company believes do not necessarily reflect changes in its business as of the end of the third quarter. However, due to the fact that the Company is required to use a hypothetical market participant’s perspective when developing the assumptions to estimate fair value for its annual impairment tests, it is possible that the estimated fair value of its goodwill may be less than its carrying amounts when the Company performs its annual impairment tests during the fourth quarter. If so, the Company would be required to record an additional non-cash impairment charge during the fourth quarter.

NOTE K — Supplemental Guarantor Information

Each of the material domestic direct and indirect wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”) has fully and unconditionally guaranteed, on a joint and several basis, to pay principal, premium, and interest with respect to the Company’s 8.375% Senior Subordinated Notes due 2014. Each of the Guarantor Subsidiaries is “100% owned” as defined by Rule 3-10(h)(1) of Regulation S-X.

The following supplemental consolidating condensed financial statements present consolidating condensed balance sheets as of September 30, 2008 and December 31, 2007, consolidating condensed statements of income for the three months and nine months ended September 30, 2008 and 2007, consolidating condensed statements of cash flows for the nine months ended September 30, 2008 and 2007 and reclassification and elimination entries necessary to consolidate the Parent and all of its subsidiaries. The “Parent” reflected in the accompanying supplemental guarantor information is Park-Ohio Industries, Inc.

11

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2008

				Combined		Combined
				Guarantor		Non-Guarantor			Reclassifications/
	Parent			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	(53,490	)	$	47,746	$	19,407		$	14,724		$	28,387
Accounts receivable, net		(299	)		148,037		37,928			-0-			185,666
Inventories		-0-			188,603		47,978			-0-			236,581
Other current assets		(11,780	)		11,929		20,960			20,979			42,088
Deferred tax assets		-0-			-0-		-0-			21,897			21,897
Total Current Assets		(65,569	)		396,315		126,273			57,600			514,619
Investment in subsidiaries		423,415			23,851		(23,851	)		(423,415	)		-0-
Inter-company advances		383,594			368,937		6,655			(759,186	)		-0-
Property, Plant and Equipment, net		2,896			74,381		21,296			(6,038	)		92,535
Other Assets:
Goodwill		-0-			93,029		7,654			-0-			100,683
Other		49,491			43,785		1,367			8,754			103,397
Total Other Assets		49,491			136,814		9,021			8,754			204,080
Total Assets	$	793,827		$	1,000,298	$	139,394		$	(1,122,285	)	$	811,234
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:
Trade accounts payable	$	2,968		$	97,417	$	21,019		$	14,636		$	136,040
Accrued expenses		(10,868	)		49,411		23,391			12,869			74,803
Current portion of long-term liabilities		-0-			194		7,868			2,042			10,104
Total Current Liabilities		(7,900	)		147,022		52,278			29,547			220,947
Long-Term Liabilities, less current portion
8.375% Senior Subordinated Notes due 2014		210,000			-0-		-0-			-0-			210,000
Revolving credit maturing on December 31, 2010		160,200			-0-		-0-			-0-			160,200
Other long-term debt		-0-			556		1,558			-0-			2,114
Deferred tax liability		(3,303	)		-0-		1,703			24,322			22,722
Other postretirement benefits and other long-term liabilities		2,838			53,820		457			(33,345	)		23,770
Total Long-Term Liabilities		369,735			54,376		3,718			(9,023	)		418,806
Inter-company advances		270,694			440,497		27,982			(739,173	)		-0-
Shareholder’s Equity		161,298			358,403		55,416			(403,636	)		171,481
Total Liabilities and Shareholder’s Equity	$	793,827		$	1,000,298	$	139,394		$	(1,122,285	)	$	811,234

12

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED — (Continued)

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2007

				Combined		Combined
				Guarantor		Non-Guarantor			Reclassifications/
	Parent			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	(19,232	)	$	607	$	11,626		$	20,076		$	13,077
Accounts receivable, net		(550	)		127,972		44,935			-0-			172,357
Inventories		-0-			174,238		41,171			-0-			215,409
Other current assets		(10,464	)		16,364		17,936			20,738			44,574
Deferred tax assets		-0-			-0-		-0-			21,897			21,897
Total Current Assets		(30,246	)		319,181		115,668			62,711			467,314
Investment in subsidiaries		397,880			28,729		(28,729	)		(397,880	)		-0-
Inter-company advances		370,880			349,186		(382	)		(719,684	)		-0-
Property, Plant and Equipment, net		2,913			77,894		22,785			-0-			103,592
Other Assets:
Goodwill		-0-			93,029		7,968			-0-			100,997
Other		47,176			47,364		949			2,026			97,515
Total Other Assets		47,176			140,393		8,917			2,026			198,512
Total Assets	$	788,603		$	915,383	$	118,259		$	(1,052,827	)	$	769,418
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:
Trade accounts payable	$	4,141		$	75,879	$	22,339		$	19,511		$	121,870
Accrued expenses		(9,477	)		45,962		18,259			12,179			66,923
Current portion of long-term liabilities		-0-			185		2,138			2,080			4,403
Total Current Liabilities		(5,336	)		122,026		42,736			33,770			193,196
Long-Term Liabilities, less current portion
8.375% Senior Subordinated Notes due 2014		210,000			-0-		-0-			-0-			210,000
Revolving credit maturing on December 31, 2010		145,400			-0-		-0-			-0-			145,400
Other long-term debt		-0-			776		1,551			(40	)		2,287
Deferred tax liability		(3,366	)		-0-		2,101			23,987			22,722
Other postretirement benefits and other long-term liabilities		4,125			52,689		557			(33,354	)		24,017
Total Long-Term Liabilities		356,159			53,465		4,209			(9,407	)		404,426
Inter-company advances		279,672			398,938		20,947			(699,557	)		-0-
Shareholder’s Equity		158,108			340,954		50,367			(377,633	)		171,796
Total Liabilities and Shareholder’s Equity	$	788,603		$	915,383	$	118,259		$	(1,052,827	)	$	769,418

13

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2008

				Combined		Combined
				Guarantor		Non-Guarantor
	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(In thousands)
Net sales	$	-0-		$	669,663	$	149,515	$	-0-		$	819,178
Cost of sales		-0-			586,591		110,770		-0-			697,361
Gross profit		-0-			83,072		38,745		-0-			121,817
Selling, general and administrative expenses		(18,291	)		49,003		24,339		25,113			80,164
Impairment charges		-0-			17,480		-0-		-0-			17,480
Operating income (loss)		18,291			16,589		14,406		(25,113	)		24,173
Interest expense		19,900			839		304		(371	)		20,672
Income (loss) before income taxes		(1,609	)		15,750		14,102		(24,742	)		3,501
Income taxes		(4,330	)		55		5,054		-0-			779
Net income (loss)	$	2,721		$	15,695	$	9,048	$	(24,742	)	$	2,722

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2007

				Combined		Combined
				Guarantor		Non-Guarantor
	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(In thousands)
Net sales	$	-0-		$	686,366	$	137,260	$	-0-		$	823,626
Cost of sales		-0-			596,561		102,369		1,483			700,413
Gross profit		-0-			89,805		34,891		(1,483	)		123,213
Selling, general and administrative expenses		(45,323	)		52,488		18,404		47,247			72,816
Operating income (loss)		45,323			37,317		16,487		(48,730	)		50,397
Interest expense		23,619			990		128		(451	)		24,286
Income (loss) before income taxes		21,704			36,327		16,359		(48,279	)		26,111
Income taxes		5,293			11		4,104		-0-			9,408
Net income (loss)	$	16,411		$	36,316	$	12,255	$	(48,279	)	$	16,703

14

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2008

				Combined			Combined
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
	(In thousands)
Net sales	$	-0-		$	216,731		$	49,417	$	-0-		$	266,148
Cost of sales		-0-			190,806			35,953		-0-			226,759
Gross profit		-0-			25,925			13,464		-0-			39,389
Selling, general and administrative expenses		7,426			15,566			9,854		(4,910	)		27,936
Impairment charges		-0-			17,480			-0-		-0-			17,480
Operating income (loss)		(7,426	)		(7,121	)		3,610		4,910			(6,027	)
Interest expense		6,432			251			216		(124	)		6,775
Income (loss) before income taxes		(13,858	)		(7,372	)		3,394		5,034			(12,802	)
Income taxes		(5,825	)		55			1,173		-0-			(4,597	)
Net income (loss)	$	(8,033	)	$	(7,427	)	$	2,221	$	5,034		$	(8,205	)

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2007

				Combined			Combined
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(In thousands)
Net sales	$	-0-			221,561		$	46,838		$	705		$	269,104
Cost of sales		-0-			192,175			34,317			388			226,880
Gross profit		-0-			29,386			12,521			317			42,224
Selling, general and administrative expenses		(16,543	)		(1,419	)		5,350			36,268			23,656
Operating income (loss)		16,543			30,805			7,171			(35,951	)		18,568
Interest expense		7,734			473			(63	)		(151	)		7,993
Income (loss) before income taxes		8,809			30,332			7,234			(35,800	)		10,575
Income taxes		2,149			13			1,654			-0-			3,816
Net income (loss)	$	6,660		$	30,319		$	5,580		$	(35,800	)	$	6,759

15

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2008

				Combined			Combined
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
	(In thousands)
Net cash provided (used ) by operations	$	(54,056	)	$	62,421		$	2,373		$	-0-	$	10,738
Cash flows from investing activities:
Purchases of property, plant and equipment, net		(354	)		(15,071	)		(331	)		-0-		(15,756	)
Net cash provided (used) in investing activities		(354	)		(15,071	)		(331	)		-0-		(15,756	)
Cash flows from financing activities:
Proceeds from revolving credit arrangements		14,800			-0-			5,739			-0-		20,539
Principal payments on long-term debt		-0-			(211	)		-0-			-0-		(211	)
Net cash provided (used ) by financing activities		14,800			(211	)		5,739			-0-		20,328
Increase (decrease) in cash and cash equivalents		(39,610	)		47,139			7,781			-0-		15,310
Cash and cash equivalents at beginning of period		844			607			11,626			-0-		13,077
Cash and cash equivalents at end of period	$	(38,766	)	$	47,746		$	19,407		$	-0-	$	28,387

16

PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2007

				Combined			Combined
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
	(In thousands)
Net cash provided (used ) by operations	$	(64,312	)	$	66,437		$	4,428		$	-0-	$	6,553
Cash flows from investing activities:
Purchases of property, plant and equipment, net		(1,071	)		(5,839	)		(7,382	)		-0-		(14,292	)
Net cash used in investing activities		(1,071	)		(5,839	)		(7,382	)		-0-		(14,292	)
Cash flows from financing activities:
Proceeds from revolving credit arrangements		-0-			-0-			1,179			-0-		1,179
Principal payments on long-term debt		(1,100	)		(390	)		-0-			-0-		(1,490	)
Net cash provided (used) by financing activities		(1,100	)		(390	)		1,179			-0-		(311	)
Increase (decrease) in cash and cash equivalents		(66,483	)		60,208			(1,775	)		-0-		(8,050	)
Cash and cash equivalents at beginning of period		7,920			570			12,382			-0-		20,872
Cash and cash equivalents at end of period	$	(58,563	)	$	60,778		$	10,607		$	-0-	$	12,822

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholder

Park-Ohio Industries, Inc.

We have reviewed the accompanying consolidated balance sheet of Park-Ohio Industries, Inc. and subsidiaries as of September 30, 2008, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2008 and 2007, and the consolidated statement of shareholder’s equity and cash flows for the nine-month period ended September 30, 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based upon our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Park-Ohio Industries, Inc. and subsidiaries as of December 31, 2007 and the related consolidated statements of income, shareholder’s equity, and cash flows for the year then ended, not presented herein; and in our report dated March 13, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/  Ernst & Young LLP

Cleveland, Ohio
November 7, 2008

18

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

Our consolidated financial statements include the accounts of Park-Ohio Industries, Inc. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Executive Overview

We are an industrial Total Supply Management^tm and diversified manufacturing business, operating in three segments: Supply Technologies, Aluminum Products and Manufactured Products. In November 2007, our Integrated Logistics Solutions (ILS) business changed its name to Supply Technologies to better reflect its breadth of services and focus on driving efficiencies throughout the total supply management process. Our Supply Technologies business provides our customers with Total Supply Management^tm, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Management^tm includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking,just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. The principal customers of Supply Technologies are in the heavy-duty truck, automotive and vehicle parts, electrical distribution and controls, consumer electronics, power sports/fitness equipment, HVAC, agricultural and construction equipment, semiconductor equipment, plumbing, aerospace and defense, and appliance industries. Aluminum Products casts and machines aluminum engine, transmission, brake, suspension and other components such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers for automotive, agricultural equipment, construction equipment, heavy-duty truck and marine equipment original equipment manufacturers (“OEMs”), primarily on a sole-source basis. Aluminum Products also provides value-added services such as design and engineering and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems, pipe threading systems, industrial oven systems, injection molded rubber components, and forged and machined products. Manufactured Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Manufactured Products are OEMs, sub-assemblers and end users in the steel, coatings, forging, foundry, heavy-duty truck, construction equipment, bottling, automotive, oil and gas, rail and locomotive manufacturing and aerospace and defense industries. Sales, earnings and other relevant financial data for these three segments are provided in Note B to the consolidated financial statements.

During the years 2004 through 2007, we reinforced our long-term availability and attractive pricing of funds by refinancing both of our major sources of borrowed funds: senior subordinated notes and our revolving credit facility. In November 2004, we sold $210.0 million of 8.375% senior subordinated notes due 2014. We have amended our revolving credit facility, most recently in June 2007, to extend its maturity to December 2010, increase the credit limit to $270.0 million subject to an asset-based formula, and provide lower interest rate levels.

The domestic and international automotive markets were significantly impacted in 2008, which adversely affected our business units serving those markets. During the third quarter of 2008, the Company recorded asset impairment charges associated with the recent volume declines and volatility in the automotive markets. The charges were composed of $.6 million of inventory impairment included in Cost of Products Sold and $17.5 million for impairment of property and equipment and other long-term assets. See Note I to the consolidated financial statements included in this quarterly report on Form 10-Q.

Accounting Changes

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161 modifies existing requirements to include qualitative disclosures regarding the objectives and strategies for using derivatives, fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The pronouncement also requires the cross-referencing of derivative disclosures within the financial statements and notes thereto.

19

The requirements of FAS 161 are effective for the Company in 2009. The adoption of FAS 161 will not have an impact on the Company’s financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“FAS 160”). FAS 160 modifies the reporting for noncontrolling interests in the balance sheet and minority interest income (expense) in the income statement. The pronouncement also requires that increases and decreases in the noncontrolling ownership interest amount be accounted for as equity transactions. FAS 160 is required to be adopted prospectively, with limited exceptions, effective for the Company in 2009. The Company is currently evaluating the effect the adoption of FAS 160 will have on its financial position, results of operations and related disclosures.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, “Business Combinations” (“FAS 141R”). FAS 141R modifies the accounting for business combinations by requiring that acquired assets and assumed liabilities be recorded at fair value, contingent consideration arrangements be recorded at fair value on the date of the acquisition and preacquisition contingencies will generally be accounted for in purchase accounting at fair value. The pronouncement also requires that transaction costs be expensed as incurred, acquired research and development be capitalized as an indefinite-lived intangible asset and the requirements of Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” be met at the acquisition date in order to accrue for a restructuring plan in purchase accounting. FAS 141R is required to be adopted prospectively effective for fiscal years beginning after December 15, 2008.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The pronouncement also establishes presentation and disclosure requirements to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company did not elect to measure its financial instruments or any other items at fair value as permitted by FAS 159.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of FAS 157 apply under other accounting pronouncements that require or permit fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years for financial assets and liabilities, and for fiscal years beginning after November 15, 2008 for non-financial assets and liabilities. The adoption of FAS 157 for financial assets and liabilities did not have a material effect on the Company’s financial position or results of operations.

As of September 30, 2008, the Company’s financial assets subject to FAS 157 consisted of other investments totaling $7,261. The other investments are classified as having Level 2 inputs, as the fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly, including quoted prices for similar assets in active markets; quoted prices for identical or similar assets in markets that are not active; inputs other than quoted prices that are observable for the asset; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

20

Results of Operations

Nine Months 2008 versus Nine Months 2007

Net Sales by Segment:

	Nine Months
	Ended
	September 30,							Percent
	2008		2007		Change			Change
Supply Technologies	$	399.5	$	404.0	$	(4.5	)		(1	)%
Aluminum Products		120.3		131.8		(11.5	)		(9	)%
Manufactured Products		299.4		287.8		11.6			4	%
Consolidated Net Sales	$	819.2	$	823.6	$	(4.4	)		(1	)%

Consolidated net sales were essentially flat in the first nine months of 2008 compared to the same period in 2007 as growth in the Manufactured Products segment nearly offset declines in Aluminum Products sales resulting from reduced automotive sales and Supply Technologies sales resulting from reduced sales to the heavy-duty truck market caused by the introduction of new environmental standards at the beginning of 2007. Supply Technologies sales decreased 1% primarily due to volume reductions in the heavy-duty truck industry, partially offset by the addition of new customers and increases in product range to existing customers. Aluminum Products sales decreased 9% as the general decline in auto industry sales volumes exceeded additional sales from new contracts starting productionramp-up. Manufactured Products sales increased 4% primarily in the induction, pipe threading equipment and forging businesses, due largely to worldwide strength in the steel, oil & gas, aerospace and rail industries. Approximately 20% of the Company’s consolidated net sales are to the automotive markets. Net sales to the automotive markets as a percentage of net sales by segment were approximately 17%, 79% and 8% for the Supply Technologies, Aluminum Products and Manufactured Products Segments, respectively.

Cost of Products Sold & Gross Profit:

	Nine Months
	Ended
	September 30,									Percent
	2008			2007			Change			Change
Consolidated cost of products sold	$	697.4		$	700.4		$	(3.0	)		0	%
Consolidated gross profit	$	121.8		$	123.2		$	(1.4	)		(1	)%
Gross Margin		14.9	%		15.0	%

Cost of products sold were essentially flat in the first nine months of 2008 compared to the same period in 2007, while gross margin decreased to 14.9% in the first nine months of 2008 from 15.0% in the same period of 2007.

Supply Technologies gross margin decreased slightly, as the effect of reduced heavy-duty truck sales volume outweighed the margin benefit from new sales. Aluminum Products gross margin decreased primarily due to both the costs associated with starting up new contracts and reduced volume. Gross margin in the Manufactured Products segment was essentially the same in the first nine months of 2008 compared to the comparable period in 2007.

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

	Nine Months
	Ended
	September 30,								Percent
	2008			2007			Change		Change
Consolidated SG&A expenses	$	80.2		$	72.8		$	7.4		10	%
SG&A percent of sales		9.8	%		8.8	%

21

Consolidated SG&A expenses increased 10% in the first nine months of 2008 compared to the same period in 2007, representing a 1.0 percentage point increase in SG&A expenses as a percent of sales. SG&A expenses increased in the first nine months of 2008 compared to the same period in 2007 primarily due to higher professional fees in the Supply Technologies and Manufactured Products segments, expenses related to the new office building and other one-time charges at the corporate office consisting of losses on the sales of securities, severance costs and legal and professional fees, partially offset by a $.6 million increase in net pension credits.

Interest Expense:

	Nine Months
	Ended
	September 30,									Percent
	2008			2007			Change			Change
Interest expense	$	20.7		$	24.3		$	(3.6	)	(15)%
Average outstanding borrowings	$	385.7		$	387.6		$	(1.9	)	(1)%
Average borrowing rate		7.15	%		8.35	%		(120	)	basis points

Interest expense decreased $3.6 million in the first nine months of 2008 compared to the same period of 2007, primarily due to lower average outstanding borrowings and a lower average borrowing rate during the first nine months of 2008. The decrease in average borrowings in the first nine months of 2008 resulted primarily from increased cash flow, partially offset by increased working capital. The lower average borrowing rate in the first nine months of 2008 was due primarily to decreased interest rates under our revolving credit facility compared to the same period in 2007.

Impairment Charges

During the third quarter of 2008, the Company recorded asset impairment charges associated with the recent volume declines and volatility in the automotive markets. Charges of $17.5 million were for impairment of property and equipment and other long-term assets.

Income Tax:

The provision for income taxes was $.8 million in the first nine months of 2008, a 22% effective income tax rate, compared to income taxes of $9.4 million provided in the corresponding period of 2007, a 36% effective income tax rate. We estimate that the effective tax rate for full-year 2008 will be approximately 38%.

Results of Operations

Third Quarter 2008 versus Third Quarter 2007

Net Sales by Segment:

	Three Months
	Ended
	September 30,							Percent
	2008		2007		Change			Change
Supply Technologies	$	131.7	$	134.1	$	(2.4	)		(2	)%
Aluminum Products		35.8		41.2		(5.4	)		(13	)%
Manufactured Products		98.6		93.8		4.8			5	%
Consolidated Net Sales	$	266.1	$	269.1	$	(3.0	)		(1	)%

Consolidated net sales were essentially the same in the third quarter of 2008 compared to the same quarter in 2007 as growth in the Manufactured Products segment nearly offset declines in the Supply Technologies and Aluminum Products segments. Supply Technologies sales decreased 2% primarily due to reduced sales to the heavy-duty truck market nearly offset by the addition of new customers and increases in product range to existing customers. Aluminum Products sales decreased 13% as the sales volume from new contracts starting production

22

ramp-up was offset by the end of production of other parts and the general decline in auto industry sales volumes. Manufactured Products sales increased 5% primarily in the induction equipment business and the pipe threading equipment and forging businesses, due largely to worldwide strength in the steel, oil & gas, aerospace and rail industries.

Cost of Products Sold & Gross Profit:

	Three Months
	Ended
	September 30,									Percent
	2008			2007			Change			Change
Consolidated cost of products sold	$	226.8		$	226.9		$	(.1	)		0	%
Consolidated gross profit	$	39.4		$	42.2		$	(2.8	)		7	%
Gross Margin		14.8	%		15.7	%

Cost of products sold was flat in the third quarter of 2008 compared to the same quarter in 2007, while gross margin decreased to 14.8% in the third quarter of 2008 from 15.7% in the same quarter of 2007.

Supply Technologies gross margin decreased primarily from product mix. Aluminum Products gross margin decreased primarily due to the costs associated with starting up new contracts and delays in new contract volumeramp-ups. Gross margin in the Manufactured Products segment increased primarily from increased parts and service sales in the capital equipment business which have a higher gross margin.

SG&A Expenses:

	Three Months
	Ended
	September 30,								Percent
	2008			2007			Change		Change
Consolidated SG&A expenses	$	27.9		$	23.7		$	4.2		18	%
SG&A percent of sales		10.5	%		8.8	%

Consolidated SG&A expenses increased 18% in the third quarter of 2008 compared to the same quarter in 2007, representing an increase in SG&A expenses as a percent of sales of 1.7%. SG&A increased in the third quarter of 2008 compared to the same quarter in 2007 primarily due to higher professional fees in the Supply Technologies and Manufactured Products segments, expenses related to the new office building and other one-time charges at the corporate office consisting of losses on the sales of securities, severance costs and legal and professional fees, partially offset by a $.2 million increase in net pension credits.

Interest Expense:

	Three Months
	Ended
	September 30,									Percent
	2008			2007			Change			Change
Interest expense	$	6.8		$	8.0		$	(1.2	)	(15)%
Average outstanding borrowings	$	388.6		$	384.4		$	4.2		1%
Average borrowing rate		7.00	%		8.32	%		(132	)	basis points

Interest expense decreased $1.2 million in the third quarter of 2008 compared to the same period of 2007, due to a lower average borrowing rate during the third quarter of 2008 partially offset by higher average outstanding borrowings. The increase in average borrowings in the third quarter of 2008 resulted from increased working capital. The lower average borrowing rate in the third quarter of 2008 was due primarily to decreased interest rates under our revolving credit facility compared to the same period in 2007.

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Impairment Changes

During the third quarter of 2008, the Company recorded asset impairment charges associated with the recent volume declines and volatility in the automotive markets. Charges of $17.5 million were for impairment of property and equipment and other long-term assets.

Income Tax:

The benefit for income taxes was $4.6 million in the third quarter of 2008, a 36% effective income tax rate, compared to a provision for income taxes of $3.8 million provided in the corresponding quarter of 2007, a 36% effective income tax rate.

Seasonality; Variability of Operating Results

Our results of operations are typically stronger in the first six months than the last six months of each calendar year due to scheduled plant maintenance in the third quarter to coincide with customer plant shutdowns and due to holidays in the fourth quarter.

The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our business units. Such variability is particularly evident at the capital equipment businesses, included in the Manufactured Products segment, which typically ship a few large systems per year.

Forward-Looking Statements

ThisForm 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “will”, “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 uncertainties and other factors include such things as: general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; raw material availability and pricing; changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate recent and future acquisitions into existing operations; changes in general domestic economic conditions such as inflation rates, interest rates, tax rates and adverse impacts to us, including the uncertainties related to the current global financial crisis; adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities; our ability to meet various covenants, including financial covenants, contained in our revolving credit agreement and the indenture governing our senior subordinated notes; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which could be lower due to the effects of the current financial crisis; dependence on key management; and dependence on information systems. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved.

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Review By Independent Registered Public Accounting Firm

The consolidated financial statements at September 30, 2008, and for the three-month and nine-month periods ended September 30, 2008 and 2007, have been reviewed, prior to filing, by Ernst & Young LLP, our independent registered public accounting firm, and their report is included herein.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk including changes in interest rates. We are subject to interest rate risk on borrowings under our floating rate revolving credit agreement, which consisted of borrowings of $160.2 million at September 30, 2008. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $1.2 million during the nine-month period ended September 30, 2008.

Our foreign subsidiaries generally conduct business in local currencies. During the first nine months of 2008, we recorded an unfavorable foreign currency translation adjustment of $3.2 million related to net assets located outside the United States. This foreign currency translation adjustment resulted primarily from the 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. The Company currently uses no other derivative instruments. At September 30, 2008, there were no such currency hedge contracts outstanding.

Item 4.   Controls and Procedures

Under the supervision of and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective.

There have been no changes in our internal control over financial reporting that occurred during the third quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.   Legal Proceedings

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

At September 30, 2008, we were a co-defendant in approximately 365 cases asserting claims on behalf of approximately 8,400 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 four asbestos cases, involving 21 plaintiffs, that plead specified damages. In each of the four 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 other case, the plaintiff has alleged compensatory damages in the amount of $20.0 million for three separate causes of action and $5.0 million for another cause of action and punitive damages in the amount of $20.0 million.

Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases, and believe we will continue to be successful in being dismissed from such cases. However, it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation. Despite this uncertainty, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases, the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all, that any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff’s injury, if any.

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

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Item 1A.   Risk Factors

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2007.

Item 6.   Exhibits

The following exhibits are included herein:

10	.1	Separation agreement with Richard P. Elliott, former Vice President and Chief Financial Officer, dated as of July 17, 2008 (filed as Exhibit 10.1 to the 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)
31	.1	Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31	.2	Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PARK-OHIO INDUSTRIES, INC.

(Registrant)

By  /s/  Jeffrey L. Rutherford

Name:     Jeffrey L. Rutherford

Title:  Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: November 13, 2008

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EXHIBIT INDEX
QUARTERLY REPORT ONFORM 10-Q
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED SEPTEMBER 30, 2008

Exhibit
	10	.1	Separation agreement with Richard P. Elliott, former Vice President and Chief Financial Officer, dated as of July 17, 2008 (filed as Exhibit 10.1 to the 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)
	31	.1	Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Certification requirement under Section 906 of the Sarbanes-Oxley Act of 2002

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