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

Executive Overview

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

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.

During the fourth quarter of 2008, the Company recorded a non-cash goodwill impairment charge of $95.8 million and restructuring and asset impairment charges of $13.4 million associated with the decision to exit its relationship with its largest customer, Navistar, along with the general economic downturn. The charges were composed of $5.0 million of inventory impairment included in Cost of Products Sold and $8.4 million for impairment of property and equipment, loss on disposal of a foreign subsidiary and severance costs. Impairment charges were offset by a gain of $.6 million recorded in the Aluminum Products segment relating to the sale of certain facilities that were previously written off.

Approximately 20% of the Company's consolidated net sales were to the automotive markets in 2008. The recent deterioration in the global economy and global credit markets continues to negatively impact the automotive markets. General Motors, Ford and Chrysler have encountered severe financial difficulty, which ultimately resulted in the bankruptcy of Chrysler and General Motors and could result in bankruptcy for more automobile manufacturers and their suppliers such as the recent bankruptcy of Metaldyne, which, in turn, would adversely affect the financial condition of the Company's automobile OEM customers. For the remainder of 2009, the Company expects that its business, results of operations and financial condition will continue to be negatively impacted by the performance of the automotive markets.

Accounting Changes

In December 2007, the Financial Accounting Standards Board ("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 was adopted prospectively by the Company, effective January 1, 2009. There was no impact on the consolidated financial statements upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

In December 2008, the FASB issued FSP 132(R)-1, "Employers Disclosures about Post Retirement Benefit Plan Assets." FSP 132(R)-1 provides guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. The guidance addresses disclosures related to the categories of plan assets and fair value measurements of plan assets. This FSP was adopted by the Company effective January 1, 2009 and had no effect on its consolidated financial position or results of operations.

In April 2009, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies." This FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," and FASB Interpretation No. 14, "Reasonable Estimation of the Amount of a Loss." Further, the FASB removed the subsequent accounting guidance for assets and liabilities arising from contingencies from FAS 141(R)-1. The requirements of this FSP carry forward without significant revision the guidance on contingencies of Statement of Financial Accounting Standards No. 141, "Business Combinations", which was superseded by FAS 141(R). The FSP also eliminates the requirement to disclose an estimate of the range of possible outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the FASB requires that entities include only the disclosures required by Statement of Financial Accounting Standards No. 5. This FSP was adopted effective January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with Statement of Financial Accounting Standards No. 157 "Fair Value Measurements." This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company adopted this FSP for its quarter ended June 30, 2009. There was no impact on the Consolidated Financial Statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB-28-1, "Interim Disclosures about Fair Value of Financial Instruments," which requires that publicly traded companies include the fair value disclosures required by Statement of Financial Accounting Standards No. 107 in their interim financial statements. This FSP is effective for interim reporting periods ending after June 15, 2009 and was adopted by the Company at June 30, 2009.

In May 2009, the FASB issued Financial Accounting Standards No. 165, "Subsequent Events" ("FAS 165"), which addresses the types and timing of events that should be reported in the financial statements for events occurring between the balance sheet date and the date the financial statements are issued or available to be issued. FAS 165 was effective for the Company on June 30, 2009. The adoption of FAS 165 did not impact the Company's consolidated financial position or results of operations.

In June 2009, the FASB issued Financial Accounting Standards No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of Statement of Financial Accounting Standards No. 162," which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles ("GAAP") in the United States. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard will change how we reference various elements of GAAP when preparing our financial statement disclosures, but will have no impact on our financial position, results of operations or cash flows.

Results of Operations

Six Months 2009 versus Six Months 2008

Net Sales by Segment:


                                        Six Months
                                           Ended
                                         June 30,                         Percent
                                     2009        2008        Change       Change

           Supply Technologies      $ 160.4     $ 267.8     $ (107.4 )         (40 )%
           Aluminum Products           44.0        84.5        (40.5 )         (48 )%
           Manufactured Products      140.3       200.7        (60.4 )         (30 )%

           Consolidated Net Sales   $ 344.7     $ 553.0     $ (208.3 )         (38 )%

Net sales declined $208.3 million to $344.7 million in the first six months of 2009 compared to $553.0 million in the same period in 2008 as the Company experienced volume declines in each segment resulting from the challenging global economic downturn. Supply Technologies sales decreased 40% primarily due to volume reductions in the heavy duty truck industry, of which $38.3 million resulted from the Company's decision to exit its relationship with its largest customer in the fourth quarter of 2008. The remaining sales reductions were due to the overall reduction in demand from customers in most end-markets. Aluminum Products sales decreased 48% as the general decline in auto industry sales volumes exceeded additional sales from new contracts starting production ramp-up. Manufactured Products sales decreased 30% from the declining business environment in each of its business reporting units.

Cost of Products Sold & Gross Profit:


                                              Six Months
                                                 Ended
                                               June 30,                         Percent
                                           2009        2008        Change       Change

     Consolidated cost of products sold   $ 291.5     $ 470.6     $ (179.1 )         (38 )%

     Consolidated gross profit            $  53.2     $  82.4     $  (29.2 )         (35 )%

     Gross Margin                            15.4 %      14.9 %

Cost of products sold decreased $179.1 million in the first six months of 2009 to $291.5 million compared to $470.6 million in the same period in 2008, while gross margin increased to 15.4% in the first six months of 2009 from 14.9% in the same period in 2008.

Supply Technologies gross margin remained unchanged from the prior year, as increased product profitability improvements were offset by volume declines. Aluminum Products gross margin decreased primarily due to reduced volume from customers in the automotive industry, partially offset by cost cutting measures, a plant closure and improved efficiencies at another plant location. Gross margin in the Manufactured Products segment increased primarily due to workforce reductions and other cost cutting measures.

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


                                          Six Months
                                             Ended
                                           June 30,                       Percent
                                        2009       2008      Change       Change

          Consolidated SG&A expenses   $ 44.8     $ 54.0     $  (9.2 )         (17 )%
          SG&A percent                   13.0 %      9.8 %

Consolidated SG&A expenses decreased 17% in the first six months of 2009 compared to the same period in 2008, representing a 3.2% increase in SG&A expenses as a percent of sales. SG&A expenses decreased in the first six months of 2009 compared to the same period in 2008 primarily due to employee workforce reductions, salary cuts, less business travel, reduction in volume of business and a reduction in pension income. SG&A expenses benefited in the first six months of 2009 from a reduction of $2.1 million resulting from a second quarter change in our vacation benefit, which is now earned throughout the calendar year rather than earned in full at the beginning of the year, and a $2.0 million charge for a reserve for an account receivable from a customer in bankruptcy.

Gain on Purchase of 8.375% Senior Subordinated Notes:

During the second quarter of 2009, the Company recorded a gain of $3.1 million on the purchase of $6.125 million principal amount of Park-Ohio Industries, Inc. 8.375% senior subordinated notes due 2014.

Interest Expense:


                                           Six Months
                                              Ended
                                            June 30,                         Percent
                                        2009        2008       Change         Change

      Interest expense                 $  12.1     $  13.9     $  (1.8 )      (13)%
      Average outstanding borrowings   $ 379.2     $ 384.0     $  (4.8 )       (1)%
      Average borrowing rate              6.38 %      7.24 %       (86 )   basis points

Interest expense decreased $1.8 million in the first six months of 2009 compared to the same period of 2008, primarily due to lower average outstanding borrowings and a lower average borrowing rate during the first six months of 2009. The decrease in average borrowings in the first six months of 2009 resulted primarily from earnings, partially offset by increased working capital. The lower average borrowing rate in the first six months of 2009 was due primarily to decreased interest rates under our revolving credit facility compared to the same period in 2008.

Income Tax:

The provision for income taxes was $1.5 million in the first half of 2009, a
(238)% effective income tax rate, compared to income taxes of $5.4 million provided in the corresponding period of 2008, a 37% effective income tax rate. We estimate that the effective tax rate for full-year 2009 will be approximately 79%.

Results of Operations

Second Quarter 2009 versus Second Quarter 2008

Net Sales by Segment:


                                       Three Months
                                           Ended
                                         June 30,                         Percent
                                     2009        2008        Change       Change

           Supply Technologies      $  77.4     $ 138.5     $  (61.1 )         (44 )%
           Aluminum Products           21.7        44.0        (22.3 )         (51 )%
           Manufactured Products       64.3       103.4        (39.1 )         (38 )%

           Consolidated Net Sales   $ 163.4     $ 285.9     $ (122.5 )         (43 )%

Consolidated net sales declined $122.5 million in the second quarter of 2009 to $163.4 compared to $285.9 million in the same quarter of 2008 as the Company experienced volume declines in each segment resulting from the challenging global economic downturn. Supply Technologies sales decreased 44% primarily due to volume reductions in the heavy-duty truck industry, of which $23.3 million resulted from the Company's decision to exit its relationship with its largest customer in the fourth quarter of 2008. The remaining sales reduction was due to the overall reduction in demand. Aluminum Products sales decreased 51% as the general decline in auto industry sales volumes exceeded sales from new contracts starting production. Manufactured Products sales decreased 38% from the declining business environment.

Cost of Products Sold & Gross Profit:


                                             Three Months
                                                 Ended
                                               June 30,                         Percent
                                           2009        2008        Change       Change

     Consolidated cost of products sold   $ 134.1     $ 242.2     $ (108.1 )         (45 )%

     Consolidated gross profit            $  29.3     $  43.7     $  (14.4 )         (33 )%

     Gross Margin                            17.9 %      15.3 %

Cost of products sold decreased $108.1 million to $134.1 million in the second quarter of 2009 compared to $242.2 million for the same quarter of 2008, while gross margin increased to 17.9% in the second quarter of 2009 from 15.3% in the same quarter of 2008.

Gross margins improved in each segment resulting from cost cutting initiatives and business restructuring activities undertaken in the fourth quarter of 2008 and first quarter of 2009.

SG&A Expenses:


                                         Three Months
                                             Ended
                                           June 30,                       Percent
                                        2009       2008      Change       Change

          Consolidated SG&A expenses   $ 22.2     $ 28.0     $  (5.8 )         (21 )%
          SG&A percent                   13.6 %      9.8 %

Consolidated SG&A expenses decreased 21% in the second quarter of 2009 compared to the same quarter in 2008, representing an increase in SG&A expenses as a percent of sales of 380 basis points from 9.8% to 13.6%. SG&A expenses decreased in the second quarter of 2009 compared to the same quarter in 2008 primarily due to workforce reductions, salary cuts, reduction in volume of business and a reduction in pension income. SG&A expenses for the second quarter of 2009 benefited from a reduction of $2.1 million resulting from a second quarter change in our vacation benefit, which is now earned throughout the calendar year rather than earned in full at the beginning of the year, and a $2.0 charge for a reserve for an account receivable from a customer in bankruptcy.

Gain on Purchase of 8.375% Senior Subordinated Notes:

During the second quarter of 2009, the Company recorded a gain of $3.1 million on the purchase of $6.125 million principal amount of Park-Ohio Industries, Inc. 8.375% senior subordinated notes due 2014.

Interest Expense:


                                          Three Months
                                              Ended
                                            June 30,                         Percent
                                        2009        2008       Change         Change

      Interest expense                 $   6.1     $   6.6     $   (.5 )       (8)%
      Average outstanding borrowings   $ 376.9     $ 390.2     $ (13.3 )       (3)%
      Average borrowing rate              6.50 %      6.80 %       (30 )   basis points

Interest expense decreased $0.5 million in the second quarter of 2009 compared to the same period of 2008, primarily due to lower average outstanding borrowings and a lower average borrowing rate during the second quarter of 2009. The decrease in average borrowings in the second quarter of 2009 resulted primarily from earnings and a reduction in working capital. The lower average borrowing rate in the second quarter of 2009 was due primarily to decreased interest rates under our revolving credit facility compared to the same period in 2008.

Income Tax:

The provision for income taxes was $.8 million in the second quarter of 2009, a 20% effective income tax rate, compared to income taxes of $3.4 million provided in the corresponding quarter of 2008, a 37% effective income tax rate. We estimate that the effective tax rate for full-year 2009 will be approximately 79%.

Liquidity and Sources of Capital

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 senior subordinated notes. In 2003, we entered into a revolving credit facility with a group of banks which, as subsequently amended, matures at December 31, 2010 and provides for availability of up to $270 million subject to an asset-based formula. The revolving credit facility is secured by substantially all of our assets in the United States, Canada and the United Kingdom. Borrowings from this revolving credit facility will be used for general corporate purposes.

Amounts borrowed under the revolving credit facility may be borrowed at the Company's election at either (i) LIBOR plus .75% to 1.75% or (ii) the bank's prime lending rate. The LIBOR-based interest rate is dependent on the Company's debt service coverage ratio, as defined in the revolving credit facility. Under the revolving credit facility, a detailed borrowing base formula provides borrowing availability to the Company based on percentages of eligible accounts receivable, inventory and fixed assets. As of June 30, 2009, the Company had $168.1 million borrowed under the revolving credit facility, $7.9 million outstanding primarily for standby letters of credit, and approximately $15.6 million of unused borrowing availability.

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 credit facility is based on the Company's ability to meet a debt service ratio covenant, which could be materially impacted by negative economic trends. Failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings.

At June 30, 2009, the Company's debt service coverage ratio was 1.4, and, therefore, it was in compliance with the debt service coverage ratio covenant contained in the revolving credit facility. The Company was also in compliance with the other covenants contained in the revolving credit facility as of June 30, 2009. The debt service coverage ratio is calculated at the end of each fiscal quarter and is based on the most recently ended four fiscal quarters of consolidated EBITDA minus cash taxes paid, minus unfunded capital expenditures, plus cash tax refunds to consolidated debt charges which are consolidated cash interest expense plus scheduled principal payments on indebtedness plus scheduled reductions in our fixed asset borrowing base as defined in the revolving credit facility. 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 2009, further declines in demand in the automotive industry and in sales volumes in 2009 could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by the declines in demand in the automotive industry or the economy in general, they may not be able to pay their accounts payable to us on a timely basis or at all, which would make the accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility.

The Company may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. It may also repurchase shares of its outstanding common stock. Such repurchases or exchanges, if any, 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's ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow and maintain its business. Accordingly, the Company may be forced to delay raising capital, issue shorter tenors than the Company prefers or pay unattractive interest rates, which could increase its interest expense, decrease its profitability and significantly reduce its financial flexibility. . . .