PARK OHIO HOLDINGS CORP - 10-Q Quarterly Report

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

FORM 10-Q
(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2002, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____________ TO ____________

COMMISSION FILE NO. 0-3134

PARK-OHIO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)

OHIO 34-1867219
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

23000 EUCLID AVENUE, CLEVELAND, OHIO 44117
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(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 216/692-7200
PARK-OHIO HOLDINGS CORP. IS A SUCCESSOR ISSUER TO PARK-OHIO INDUSTRIES, INC.

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 [X] NO [ ]

Number of shares outstanding of registrant's Common Stock, par value $1.00 per
share, as of July 31, 2002: 10,496,191.

The Exhibit Index is located on page 21.

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PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- June 30, 2002 and December
31, 2001
Consolidated statements of operations -- Six months and
three months ended June 30, 2002 and 2001
Consolidated statement of shareholders' equity -- Six months
ended June 30, 2002
Consolidated statements of cash flows -- Six months ended
June 30, 2002 and 2001
Notes to consolidated financial statements -- June 30, 2002
Independent accountants' review report
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K

SIGNATURE

EXHIBIT INDEX

2

PART I

FINANCIAL INFORMATION

3

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Note: The balance sheet at December 31, 2001 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.

4

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to consolidated financial statements.

5

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

See notes to consolidated financial statements.

6

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to consolidated financial statements.

7

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2002

(AMOUNTS IN THOUSANDS -- EXCEPT PER SHARE DATA)

NOTE A -- BASIS OF PRESENTATION

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

The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

Certain amounts have been reclassified to conform to current year presentation.

NOTE B -- DISPOSITIONS

On December 21, 2001, the Company completed the sale of substantially all
of the assets of Cleveland City Forge for cash of approximately $6.1 million.
Cleveland City Forge was a non-core business in the Manufactured Products
Segment, producing clevises and turnbuckles for the construction industry.

On April 26, 2002, the Company completed the sale of substantially all of
the assets of Castle Rubber Company for cash of approximately $2.5 million.
Castle Rubber, a non-core business in the Manufactured Products Segment, had
been identified as a business the Company was discontinuing as part of its
restructuring activities during 2001.

NOTE C -- INVENTORIES

The components of inventory consist of the following:

NOTE D -- SHAREHOLDERS' EQUITY

At June 30, 2002, capital stock consists of (i) Serial Preferred Stock of
which 632,470 shares were authorized and none were issued and (ii) Common Stock
of which 40,000,000 shares were authorized and 10,496,191 shares were issued and
outstanding.

8

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED

NOTE E -- NET LOSS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net
loss per share:

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(a) The addition of 501 and 22 shares for the three months ended June 30, 2002
and 2001, respectively, and 439 and 22 shares for the six months ended June
30, 2002 and 2001, respectively, would result in anti-dilution.

NOTE F -- ACCOUNTING PRONOUNCEMENTS

The Company adopted Financial Accounting Standard No. 142 "Goodwill and
Other Intangible Assets" ("FAS 142") as of January 1, 2002. Under FAS 142, the
Company no longer amortizes goodwill, but is required to review goodwill for
impairment annually, or more frequently if impairment indicators arise.

In accordance with FAS 142, prior period amounts were not restated. A
reconciliation of the previously reported net income (loss) and earnings (loss)
per share for the three months and six months ended June 30, 2001 to the amounts
adjusted for the reduction of amortization expense is as follows:

Pursuant to the adoption of FAS 142, the Company has completed the initial
valuation analysis required by the transitional goodwill impairment tests which
indicates that the fair value of each of the Company's three reporting units as
of January 1, 2002 was less than the carrying value for financial reporting
purposes and that up to $50 million of goodwill is impaired. Once the
transitional impairment tests have been completed, the related non-cash
impairment charge will be recorded by December 31, 2002 and reflected as a
cumulative

9

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED

effect of a change in accounting principle. This non-cash transitional
impairment charge will have no effect on the future operating results of the
company.

In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144"), which supercedes FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". Although retaining many of the fundamental impairment and
measurement provisions of FAS 121, the new rules supercede the provisions of APB
Opinion 30 with regard to reporting the effects of a disposal of a segment of a
business. The adoption of this standard by the Company on January 1, 2002 did
not impact the Company's financial position, results of operations or cash
flows.

In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections," ("FAS
145"). FAS 145 rescinds FAS 4 and FAS 64 related to classification of gains and
losses on debt extinguishment such that most debt extinguishment gains and
losses will no longer be classified as extraordinary. FAS 145 also amends FAS 13
with respect to sales-leaseback transactions. The Company adopted the provisions
of FAS 145 effective April 1, 2002, and the adoption had no impact on the
Company's reported results of operations or financial position.

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," ("FAS 146"), which addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." FAS 146 is
effective for exit and disposal activities that are initiated after December 31,
2002. It is currently the Company's policy to recognize restructuring costs as
announced in December 2001 in accordance with EITF Issue No. 94-3.

NOTE G -- INDUSTRY SEGMENTS

The Company operates through three segments. Integrated Logistics Solutions
("ILS"), Aluminum Products and Manufactured Products. ILS is a leading logistics
provider of production components to large, multinational manufacturing
companies, other manufacturers and distributors. In connection with the supply
of such production components, ILS provides a variety of value-added,
cost-effective supply chain management services. The principal customers of ILS
are in the semiconductor equipment, technology, industrial equipment, aerospace
and defense, electrical controls, HVAC, heavy-duty truck, vehicle parts and
accessories, appliances and motors, and lawn and garden equipment industries.
Aluminum Products manufactures cast aluminum components for automotive,
agricultural equipment, heavy-duty truck and construction equipment. Aluminum
Products also provides value-added services such as design and engineering,
machining and assembly. Manufactured Products operates a diverse group of niche
manufacturing businesses that design and manufacture a broad range of high
quality products engineered for specific customer applications. The principal
customers of Manufactured Products are equipment manufacturers and end-users in
the aerospace, automotive, railroad, truck and oil industries. Intersegment
sales are immaterial.

10

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED

Results by business segment were as follows:

NOTE H -- COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss) was as follows:

NOTE I -- NON-OPERATING EXPENSES

In June 2000, the Company's Cicero Flexible Products plant was destroyed in
a fire. In the first half of 2001, the Company expensed $1.85 million ($900
thousand in the second quarter) of non-recurring business interruption costs,
which were not covered by insurance.

11

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED

NOTE J -- RESTRUCTURING ACTIVITIES

During 2001, the Company recorded pretax charges of $28.5 million (of which
$6.9 million related to severance and exit costs) as a result of a restructuring
plan aimed at positioning the Company for stronger profitability. The charges
consisted of asset write-downs, employee termination and severance costs related
to workforce reductions of approximately 525 employees, and other exit costs
related to the shutdown of facilities. The Company continues to re-evaluate the
asset write-down reserves and severance and exit cost liabilities, and expects
to substantially complete these restructuring actions in 2002. For further
details on the restructuring plan, see Note M to the audited financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.

The accrued liability balance for severance and exit costs and related cash
payments consisted of:

As of June 30, 2002, all of the 525 employees identified in 2001 had been
terminated. Severance costs related to additional work force reductions of 290
employees were recorded in the first half of 2002. The workforce reductions
under the restructuring plan consisted of hourly and salaried employees at
various operating facilities due to either closure or consolidation.

Net sales for Ajax Manufacturing (business held for sale) were $3,090 and
$2,536 for the six months ended June 30, 2002 and 2001, respectively. Operating
income (loss) for this entity was $(467) and $207 for the six months ended June
30, 2002 and 2001, respectively.

During the second quarter of 2002 the Company sold Castle Rubber for $2.5
million and completed the closure of a manufacturing facility. The difference
between the proceeds received and the carrying value of net assets sold was
charged to asset write-down reserves established in 2001. Included in
restructuring and other non-recurring expenses is a $2.7 million charge for the
curtailment of the two pension plans at these facilities, as determined by
consulting actuaries.

12

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Board of Directors and Shareholders
Park-Ohio Holdings Corp.

We have reviewed the accompanying consolidated balance sheet of Park-Ohio
Holdings Corp. and subsidiaries as of June 30, 2002 and the related consolidated
statements of operations for the three-month and six-month periods ended June
30, 2002 and 2001, the consolidated statement of shareholders' equity for the
six-month period ended June 30, 2002 and the consolidated statements of cash
flows for the six-month periods ended June 30, 2002 and 2001. These financial
statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

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

As discussed in Note F to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Park-Ohio
Holdings Corp. and subsidiaries as of December 31, 2001 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended, not presented herein, and in our report dated March 1,
2002, 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, 2001, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

/s/Ernst & Young LLP

Cleveland, Ohio
August 12, 2002

13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The consolidated financial statements of the Company include the accounts
of Park-Ohio Holdings Corp. and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Financial information for
the three-month and six-month periods ended June 30, 2002 is not directly
comparable to the financial information for the same three-month and six-month
periods in 2001, for several reasons. Effective January 1, 2002, the Company no
longer amortizes goodwill. Goodwill amortization was $955 thousand and $902
thousand in the first and second quarters of 2001, respectively. During second
quarter 2002, the Company continued its announced restructuring activities and
recorded $935 thousand of cash restructuring charges, plus $2.7 million of
pension plan curtailment charges related to the sale of Castle Rubber and
closure of a manufacturing plant. In the first and second quarters of 2001, the
Company expensed $950 thousand and $900 thousand respectively, of non-recurring
business-interruption costs related to a June 2000 fire, which destroyed the
Company's Cicero Flexible Products plant. The Company sold substantially all the
assets of Cleveland City Forge on December 21, 2001 for cash of approximately
$6.1 million. The Company sold substantially all the assets of Castle Rubber
Company on April 26, 2002 for cash of approximately $2.5 million.

OVERVIEW

The Company operates through three segments: Integrated Logistics Solutions
("ILS"), Aluminum Products and Manufactured Products. ILS is a leading logistics
provider of production components to large, multinational manufacturing
companies, other manufacturers and distributors. In connection with the supply
of such production components, ILS provides a variety of value-added,
cost-effective supply chain management services. The principal customers of ILS
are semiconductor equipment, technology, industrial equipment, aerospace and
defense, electrical controls, HVAC, heavy-duty truck, vehicle parts and
accessories, appliances and motors and lawn and garden equipment industries.
Aluminum Products manufactures cast aluminum components for automotive,
agricultural equipment, heavy-duty truck and construction equipment. Aluminum
Products also provides value-added services such as design and engineering,
machining and assembly. Manufactured Products operates a diverse group of niche
manufacturing businesses that design and manufacture a broad range of high
quality products engineered for specific customer applications. The principal
customers of Manufactured Products are original equipment manufacturers and
end-users in the aerospace, automotive, railroad, truck and oil industries.

The Company's sales volumes and profitability declined during 2001, due to
overall weakness in the manufacturing economy, and particularly to contraction
in the heavy-duty truck and automotive industries. Despite these sales declines,
the Company believes it has retained or gained market share in most major
markets served. The Company has responded to this economic downturn by reducing
costs, increasing prices on targeted products, restructuring businesses and
selling non-core manufacturing assets. Costs were reduced primarily by
negotiating supplier price concessions, reducing headcount through layoffs and
attrition (approximately 600 or 15% during 2001), and operating more
efficiently. Despite customer pricing pressures, the Company negotiated
significantly increased prices for several, particularly low-margin product
lines in the Aluminum Products and Manufactured Products segments. The Company
restructured many of its businesses, including planned closure of twenty
logistics warehouses and closure or sale of eight manufacturing plants. With
regard to these actions, in 2001 the Company recorded restructuring and
impairment charges of $28.5 million before tax consisting of $6.9 million for
severance and exit costs, $10.3 million recorded in cost of products sold,
primarily to write down inventory of discontinued businesses and other product
lines to fair value, and $11.3 million for the impairment of property and
equipment and other long-term assets. The Company continued to work toward the
sale of non-core manufacturing assets, including the December, 2001 sale of
substantially all the assets of Cleveland City Forge for cash of $6.1 million.

The Company's sales volume and profitability improved in the first half of
2002. Sales increased approximately $7.2 million, or 5% in first quarter 2002
over fourth quarter 2001, and in second quarter 2002 sales increased a further
$12.8 million, or 8% over first quarter, and the company returned to
profitability (excluding the non-cash pension plan curtailment charges). During
first half 2002, the Company continued to

14

reduce costs and restructure businesses as previously planned, including closing
or consolidating four logistics warehouses, and one manufacturing plant, and
selling Castle Rubber.

On January 1, 2002 the Company adopted Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("FAS 142"). Under FAS
142, goodwill and intangible assets with indefinite lives are no longer
amortized, but are reviewed for impairment annually, or more frequently if
impairment indicators arise.

Pursuant to FAS 142, the Company has completed the initial valuation
analysis required by the transitional goodwill impairment tests which indicates
that the fair value of each of the Company's three reporting units as of January
1, 2002 (the bottom of the economic cycle) was less than the carrying value for
financial reporting purposes and that up to $50 million of the goodwill is
impaired. Once the transitional impairment tests have been completed, the
related non-cash impairment charge will be recorded by December 31, 2002, and
reflected as the cumulative effect of a change in accounting principle. This
non-cash transitional impairment charge will have no effect on the future
operating results of the Company.

RESULTS OF OPERATIONS

First Half 2002 versus First Half 2001

Net sales declined by $13.1 million, or 4%, from $333.6 million in first
half 2001 to $320.5 million in 2002. ILS net sales declined 12%, or $26.6
million, due primarily to shrinkage in heavy truck and other customer
industries. Aluminum Products net sales increased 35%, or $14.5 million. This
increase included $7.7 million in new production contracts and $8.5 million from
higher volumes and price increases in ongoing contracts, partially offset by a
$1.7 million decrease relating to the ending of certain production contracts.
Manufactured Products net sales decreased 2%, or $1.1 million, primarily due to
the sale of Cleveland City Forge and Castle Rubber.

Gross profit declined by $5.7 million, or 11%, to $46.1 million for first
half 2002, from $51.8 million for first half 2001, and the Company's gross
margin declined to approximately 14.4% for first half 2002, from 15.5% for first
half 2001. ILS gross margin declined despite cost reductions, primarily due to
the absorption of fixed operational overheads over a smaller sales base.
Aluminum Products gross margins increased significantly, due to the absorption
of fixed manufacturing overheads over a larger production base, cost reductions
and higher margins on new contracts. Gross margins in the Manufactured Products
segment decreased primarily due to pricing pressure and the divestiture of the
high-margin sales of Cleveland City Forge.

Selling, general and administrative expenses ("SG&A") decreased by 15% or
$5.3 million, to $29.0 million for first half 2002 from $34.3 million for the
same period in 2001. SG&A decreased through cost reductions in the ILS and
Manufactured Products segments, offset by a small increase in the Aluminum
Products segment. Manufactured Products SG&A was reduced by $.7 million in first
half 2002 due to the sale of Cleveland City Forge and Castle Rubber. During the
first half of 2002, SG&A was negatively affected by a decrease of $.6 million in
net pension credits, reflecting less favorable investment returns on pension
plan assets. Consolidated SG&A expenses as a percentage of net sales were 9.0%
for first half 2002 as compared to 10.3% for first half 2001. Amortization of
goodwill (reported separately from SG&A for clarity) has been eliminated in
2002, in accordance with FAS 142, eliminating $1.9 million of first half
expenses.

Interest expense decreased $2.2 million from $15.8 million in first half
2001 to $13.6 million in first half 2002 due to lower average debt outstanding
and lower average interest rates in 2002. During the first six months of 2002,
the Company averaged outstanding borrowings of $333.8 million as compared to
$357.7 million for the corresponding period of the prior year. The $23.9 million
decrease related primarily to lower working capital levels in ongoing units and
cash from the sale of Cleveland City Forge and Castle Rubber. The average
interest rate of 8.17% for the current half was 67 basis points lower than the
average rate of 8.84% for first half 2001, primarily due to decreased rates on
the Company's revolving credit facility.

The effective income tax rate for the six month period ended June 30, 2002
was 39%, compared to 46% for the corresponding period in 2001. The rate for 2001
was negatively impacted by the amortization of goodwill, which is not deductible
for income tax purposes.
15

Second Quarter 2002 versus Second Quarter 2001

Net sales grew by $2.4 million, or 2%, from $164.2 million in second
quarter 2001 to $166.6 million in 2002. ILS net sales declined 4%, or $4.5
million, due primarily to shrinkage in heavy truck and other customer
industries. Aluminum Products net sales increased 41%, or $8.7 million. This
increase included $5.1 million in new production contracts and $4.9 million from
higher volumes and price increases in ongoing contracts, partially offset by a
$1.3 million decrease relating to the ending of certain production contracts.
Manufactured Products net sales decreased 5%, or $1.8 million, primarily due to
the sale of Cleveland City Forge and Castle Rubber.

Gross profit declined by $.2 million, or 1%, to $24.4 million for second
quarter 2002, from $24.6 million for second quarter 2001, and the Company's
gross margin declined to approximately 14.6% for second quarter 2002, from 15.0%
for second quarter 2001. ILS gross margin declined slightly despite cost
reductions, primarily due to reduced volumes resulting in the absorption of
fixed operational overheads over a smaller sales base. Aluminum Products gross
margins increased significantly, due to the absorption of fixed manufacturing
overheads over a larger production base, cost reductions and higher margins on
new contracts. Gross margins in the Manufactured Products segment decreased
primarily due to pricing pressure and the divestiture of the high-margin sales
of Cleveland City Forge.

Selling, general and administrative expenses ("SG&A") decreased by 16% or
$2.9 million, to $14.7 million for second quarter 2002 from $17.6 million for
the same period in 2001. SG&A decreased through cost reductions in the ILS and
Manufactured Products segments, offset by a small increase in the Aluminum
Products segment. Manufactured Products SG&A was reduced by $.5 million in
second quarter 2002 due to the sales of Cleveland City Forge and Castle Rubber.
During the first quarter of 2002, SG&A was negatively affected by a decrease of
$.3 million in net pension credits, reflecting less favorable investment returns
on pension plan assets. Consolidated SG&A expenses as a percentage of net sales
were 8.8% for second quarter 2002 as compared to 10.7% for second quarter 2001.
Amortization of goodwill (reported separately from SG&A for clarity) has been
eliminated in 2002, in accordance with FAS 142, eliminating $.9 million of
second quarter expenses.

Interest expense decreased $.8 million from $7.8 million in second quarter
2001 to $7.0 million in second quarter 2002 due to lower average debt
outstanding and lower average interest rates in 2002. During second quarter
2002, the Company averaged outstanding borrowings of $329.7 million as compared
to $359.4 million for the corresponding period of the prior year. The $29.7
million decrease related primarily to lower working capital levels in ongoing
units and cash from the sale of Cleveland City Forge and Castle Rubber. The
average interest rate of 8.44% for the current quarter was 29 basis points lower
than the average rate of 8.73% for second quarter 2001, primarily due to
decreased rates on the Company's revolving credit facility.

The effective income tax rate for the three-month period ended June 30,
2002 was 40%, compared to 46% for the corresponding period in 2001. The rate for
2001 was negatively impacted by the amortization of goodwill, which is not
deductible for income tax purposes.

LIQUIDITY AND SOURCES OF CAPITAL

The Company's liquidity needs are primarily for working capital and capital
expenditures. The Company's primary sources of liquidity have been funds
provided by operations and funds available from existing bank credit
arrangements and the sale of Senior Subordinated Notes. The Company is party to
a credit and security agreement dated December 21, 2000, as amended ("Credit
Agreement"), with a group of banks under which it may borrow up to $180 million
secured by substantially all the assets of the Company. The proceeds from the
Credit Agreement, which expires on December 31, 2003, will be used for general
corporate purposes. Amounts borrowed under the Credit Agreement may be borrowed
at Park-Ohio's election at either (i) the bank's prime lending rate plus up to
50-150 basis points or (ii) LIBOR plus 275-350 basis points. The Company's
ability to select LIBOR-based interest and the interest rate are dependent on
the Company's ratio of senior funded indebtedness to EBITDA, as defined in the
credit agreement. As of June 30, 2002, the Company was limited to prime-based
borrowings (5.75% at that date) and $121.0 million was outstanding under the
facility.
16

The Credit Agreement currently provides for a detailed borrowing base
formula to be developed in 2002. This borrowing base formula will provide
borrowing capacity to the Company based on negotiated percentages of eligible
accounts receivable, inventory and fixed assets. The minimum borrowing capacity
at the implementation date of the detailed borrowing base will be at least 10%
greater than borrowings on that date. Until the implementation date, borrowings
are limited to $160 million.

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. The future availability of bank borrowings is
based on the Company's ability to meet various financial covenants, which could
be materially impacted in the event of a renewal of negative economic trends.
Failure to meet financial covenants could materially impact the availability and
interest rate of future borrowings. At June 30, 2002, the Company is in
compliance with all financial covenants under the Credit Agreement.

The ratio of current assets to current liabilities was 2.57 at June 30,
2002 versus 2.85 at December 31, 2001. Working capital decreased by $3.3 million
to $177.0 million at June 30, 2002 from $180.3 million at December 31, 2001.

During the first six months of 2002, the Company provided $13.5 million
from operating activities as compared to using $9.2 million in the first six
months of 2001. During first half 2002, the Company invested $7.3 million in
capital expenditures and received $2.5 million from the sale of Castle Rubber.
These activities, less a net pay-down of borrowings of $4.0 million, resulted in
an increase in cash during first half 2002 of $4.7 million.

SEASONALITY; VARIABILITY OF OPERATING RESULTS

The Company's results of operations are typically stronger in the first six
months rather 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 to holidays in the fourth quarter.

The timing of orders placed by the Company's 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 the
Company's business units. Such variability is particularly evident at the
capital equipment businesses, included in the Manufactured Products segment,
which typically ship a few large systems per year.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations contain forward-
looking statements, including without limitation, discussion regarding the
Company's anticipated amounts of restructuring charges, credit availability,
levels and funding of capital expenditures and trends for the remainder of 2002.
Forward-looking statements are necessarily subject to risks, uncertainties and
other factors, many of which are outside our control, which could cause actual
results to differ materially from such statements. These uncertainties and other
factors include such things as: general business conditions, competitive
factors, including pricing pressures and product innovation and quality; raw
material availability and pricing; changes in our relationships with customers
and suppliers; the ability of the Company to successfully integrate recent and
future acquisitions into its existing operations; changes in general domestic
economic conditions such as inflation rates, interest rates, foreign currency
exchange rates; tax rates and 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 credit agreement and the
indenture governing the Senior Subordinated Notes; 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; dependence on the automotive and
heavy truck industries; dependence on key management; and
17

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. 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 the our plans and objectives will be achieved.

REVIEW BY INDEPENDENT ACCOUNTANTS

The consolidated financial statements at June 30, 2002, and for the
three-month and six-month periods ended June 30, 2002 and 2001, have been
reviewed, prior to filing, by Ernst & Young LLP, the Company's independent
accountants, and their report is included herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risk including changes in interest rates.
The Company is subject to interest rate risk on its floating rate revolving
credit facility which consisted of borrowings of $121 million at June 30, 2002.
A 100 basis point increase in the interest rate would have resulted in an
increase in interest expense of approximately $.6 million during the six-month
period ended June 30, 2002.

The Company's foreign subsidiaries generally conduct business in local
currencies. During the first half of 2002, the Company recorded a favorable
foreign currency translation adjustment of $1.9 million related to net assets
located outside the United States. This foreign currency translation adjustment
resulted primarily from the weakening of the United States dollar in relation to
the Canadian dollar and the euro. Our foreign operations are also subject to
other customary risks of operating in a global environment, such as unstable
political situations, the effect of local laws and taxes, tariff increases and
regulations and requirements for export licenses, the potential imposition of
trade or foreign exchange restrictions and transportation delays.

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PART II

OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held is annual meeting of stockholders on May 23, 2002. The
stockholders approved the election of three directors to serve until the annual
meeting of stockholders in the year 2005. The votes cast for each nominee were
as follows:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

The following exhibits are included herein:

(15) Letter re: unaudited financial information

(99) Certification requirement under Section 906 of the Sarbanes-Oxley
Act of 2002

The Company did not file any reports on Form 8-K during the three months
ended June 30, 2002.

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SIGNATURE

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

PARK-OHIO HOLDINGS CORP.
------------------------------------
(Registrant)

By /s/ RICHARD P. ELLIOTT
---------------------------------
Name: Richard P. Elliott
Title: Vice President and Chief
Financial Officer (Principal
Financial and Accounting
Officer)

Dated August 14, 2002
-------------------------------

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EXHIBIT INDEX

QUARTERLY REPORT ON FORM 10-Q

PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
FOR THE QUARTER ENDED JUNE 30, 2002