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WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x

For the fiscal year ended December 31, 2003

OR

o

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

For the transition period from                          to                          

Commission file number 0-3134

PARK-OHIO INDUSTRIES, INC.

Registrant’s telephone number, including area code: (216) 692-7200

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

None

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

None

Pursuant to a corporate reorganization effective June 15, 1998, Park-Ohio Industries, Inc. became a wholly-owned subsidiary of Park-Ohio Holdings Corp.

     The registrant meets the conditions set forth in General Instructions I 1(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes o  No x

     All of the outstanding stock of the registrant is held by Park-Ohio Holdings Corp. As of March 25, 2004, 100 shares of the registrant’s common stock $1 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None

Part I

Item 1. Business

The Company

      Park-Ohio Industries, Inc. (“Park-Ohio”) a wholly-owned subsidiary of Park-Ohio Holdings Corp. (“Holdings”) was incorporated as an Ohio corporation in 1998. Park-Ohio primarily through the subsidiaries is a leading provider of supply chain logistics services and a manufacturer of highly engineered products. Reference herein to the “Company” includes, where applicable, Holdings, Park-Ohio and its direct and indirect subsidiaries.

      The Company operates through three segments, Integrated Logistics Solutions (“ILS”), Aluminum Products and Manufactured Products. ILS is a leading supply chain logistics provider of production components to large, multinational manufacturers. 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 heavy-duty truck, semiconductor equipment, industrial equipment, aerospace and defense, electrical controls, heating, ventilating and air-conditioning (“HVAC”), vehicle parts and accessories, appliances and lawn and garden equipment industries. Aluminum Products manufactures cast aluminum components for automotive, agricultural equipment, heavy-duty truck and construction equipment manufacturers. 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 (“OEMs”) and end-users in the aerospace, automotive, steel, forging, railroad, truck, oil, food processing and consumer appliance industries. As of December 31, 2003, the Company employed approximately 2,500 persons.

Operations

      The following chart highlights the Company’s three business segments, the primary industries they serve and the key products they sell.

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Integrated Logistics Solutions

      ILS is a leading provider of cross-industry supply chain management services and specializes in the process of planning, implementing, and managing the physical flow of production components to large multinational manufacturing companies from the point of manufacturing to the point of use. ILS generated net sales of $377.6 million, or 61% of the Company’s net sales, for the year ended December 31, 2003. ILS operates facilities, throughout the United States, Asia, Canada, Puerto Rico, Mexico and Europe. ILS continues to consolidate its network of branches to reduce costs and serve its customers more efficiently.

      Large, multinational manufacturing companies continue to make it a priority to reduce their total cost of production components. Administrative and overhead costs to source, plan, purchase, quality-assure, inventory and handle production components comprise a large portion of total cost. ILS has the size, experience, highly-customized computer system and focus to reduce these costs substantially while providing reliable just-in-time delivery directly to the point of use.

      Products and Services. Supply chain management services, which is ILS’ primary focus for future growth, involves offering customers comprehensive, on-site management for most of their production component needs. Some production components are characterized by low per unit supplier prices relative to the indirect costs of supplier management, quality assurance, inventory management and delivery to the production line. In addition, ILS delivers an increasingly broad range of higher cost production components including valves, fittings, steering components and many others. Supply chain management customers receive various value-added services, such as part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time delivery, electronic billing services and ongoing technical support. ILS also provides engineering and design services to its customers. Applications-engineering specialists and the direct sales force work closely with the engineering staff of OEM customers to recommend the appropriate production components for a new product or to suggest alternative components that reduce overall production costs, streamline assembly or enhance the appearance or performance of the end product. Recently, ILS also provides as an additional service, spare parts and aftermarket products to the final end user of its customers’ products.

      Supply chain management services are typically provided to customers pursuant to sole-source supply chain services contracts. These agreements enable ILS’ customers to both reduce procurement costs and better focus on their core manufacturing competencies by: (i) significantly reducing the cost of production component procurement by outsourcing many internal purchasing, quality assurance and inventory fulfillment responsibilities; (ii) reducing the amount of working capital invested in inventory; (iii) achieving purchasing efficiencies and cost reductions as a result of supplier consolidation; and

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

      Markets and Customers. In 2003, approximately 88% of ILS’ net sales were to domestic customers. Remaining sales were primarily to manufacturing facilities of large, multinational customers located in Asia, Canada, Mexico and Europe. Supply chain management services and production components are used extensively in a variety of industries, and demand is generally related to the state of the economy and to the overall level of manufacturing activity.

      ILS markets and sells its services to over 7,500 customers domestically and internationally. The principal markets served by ILS are heavy-duty truck, semiconductor equipment, industrial equipment, aerospace and defense, electrical controls, HVAC, vehicle parts and accessories, appliances, and lawn and garden equipment industries. The five largest customers, within which ILS sells through sole-source contracts to multiple operating divisions or locations, accounted for approximately 32% of sales of ILS in 2003, with Navistar International Corp. (“Navistar”) representing 15% of segment sales. Two of the five largest customers are in the heavy-duty truck industry. The loss of the Navistar account or any two of the remaining top five customers could have a material adverse effect on this segment.

      Competition. There are a limited number of companies who compete with ILS for supply chain service contracts. ILS competes primarily on the basis of its value-added services, which includes sourcing, engineering and delivery capabilities, geographic reach, extensive product selection, price and reputation for high service levels with primarily domestic competitors who are capable of providing supply chain logistics services.

Aluminum Products

      The Aluminum Products segment generated net sales of $90.1 million, or 14% of the Company’s net sales, for the year ended December 31, 2003. Management believes Aluminum Products is one of the few part suppliers that has the capability to provide a wide range of high volume, high quality permanent mold, sand-cast, die-cast and lost-foam products. Aluminum Products casts and machines these products at three plants in two states. During the past two years, Aluminum Products substantially improved its operating efficiency by consolidating manufacturing facilities.

      Aluminum Products’ cast aluminum parts are manufactured for automotive, agricultural equipment, heavy-duty truck and construction equipment OEMs primarily located in North America. Aluminum Products’ principal products include: transmission pump housings, intake manifolds, planetary pinion carriers, oil filter adapters, clutch retainers, bearing cups, brackets, oil pans and flywheel spacers. Aluminum Products also provides value-added services such as machining, drilling, tapping and part assembly. Although these parts are lightweight, they possess high durability and integrity characteristics even under extreme pressure and temperature conditions. Demand by OEMs for aluminum castings has increased in recent years as OEMs have sought lighter alternatives to heavier steel and iron components. Lighter aluminum cast components increase an automobile’s fuel efficiency without decreasing structural integrity. Management believes this replacement trend will continue as end-users and government standards regarding automotive fuel efficiency become increasingly stringent. The five largest customers, of which Aluminum Products sells to multiple operating divisions through sole source

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Manufactured Products

      The Manufactured Products segment includes businesses involved in the manufacturing of induction systems and other capital equipment, rubber products, and forged and machined products. Manufactured Products generated net sales of $156.6 million, or 25% of the Company’s net sales, for the year ended December 31, 2003. The five largest customers, within which Manufactured Products sells primarily through sole-source contracts to multiple operating divisions, accounted for approximately 17% of Manufactured Products sales in 2003. The loss of business from any one of these customers would not have a material adverse effect on this segment.

      The Company’s induction heating and melting business, Ajax Tocco Magnethermic (“Ajax Tocco”), specializes in the engineering, construction, service, and repair of induction systems primarily for the steel, coatings, forging, foundry, automotive and construction equipment industries. Ajax Tocco’s induction systems are engineered and built to customer specifications and are used primarily for melting, heating, and surface hardening of metals and curing of coatings. Approximately half of Ajax Tocco’s revenue is derived from the sale of replacement parts and provision of field service, primarily for the installed base of its own products. The Company also produces other capital equipment including pipe threading equipment and related parts for the oil drilling industry, and complete oven systems that combine heat processing and curing technologies with material handling and conveying methods. The Company also engineers and installs mechanical forging presses for the automotive and truck manufacturing industries, and sells spare parts and provides field service for the large existing base of mechanical forging presses and hammers in North America. These capital equipment units compete with small to medium-sized domestic and international equipment manufacturers on the basis of service capability, ability to meet customer specifications, delivery performance and engineering expertise.

      The Company manufactures injection molded rubber and silicone products for use in automotive and industrial applications. The rubber products facilities manufacture products for customers in the automotive, food processing and consumer appliance industries. Their products include wire harnesses, shock and vibration mounts, spark plug boots and nipples and general sealing gaskets. During 2002, the Company reduced rubber products’ costs and discontinued underperforming products by selling one business unit and closing one other manufacturing plant. The rubber products operating units compete primarily on the basis of price and product quality with other domestic small- to medium-sized manufacturers of injection molded rubber and silicone products.

      The Company manufactures forged and machined products produced from closed-die metal forgings of up to 6,000 pounds. These products include crankshafts, aircraft structural components such as landing gears and rail products such as railcar center plates. Aerospace forgings are sold primarily to machining companies, and sub-assemblers who finish the products for sale to OEMs. The Company also machines, induction hardens and surface finishes crankshafts and camshafts used primarily in locomotives. In fourth quarter 2003, the Company decided to shut down its locomotive crankshaft forging plant, and entered into a long-term supply contract to purchase these forgings at a more favorable price from a third-party supplier. The 2003 restructuring is expected to increase both profitability and cash flow by approximately $15.0 million over the next five years. Forged rail products are sold primarily to railcar builders and maintenance providers. Forged and machined products are sold to a wide variety of

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Sales and Marketing

      ILS markets its products and services in the United States, Mexico, Canada and Europe, primarily through its direct sales force, which is assisted by applications engineers who provide the technical expertise necessary to assist the engineering staff of OEM customers in designing new products and improving existing products. Aluminum Products primarily markets and sells its products in North America through internal sales personnel. Manufactured Products primarily markets and sells its products in North America through both internal sales personnel and independent sales representatives. Induction heating and pipe threading equipment is also marketed and sold in Asia, Latin America and North Africa through both internal sales personnel and independent sales representatives. In some instances, the internal engineering staff assists in the sales and marketing effort through joint design and applications-engineering efforts with major customers.

Raw Materials and Suppliers

      ILS purchases substantially all of its production components from third-party suppliers. Aluminum Products and Manufactured Products purchase substantially all of their raw materials, principally metals and certain component parts incorporated into their products, from third-party suppliers and manufacturers. Management believes that raw materials and component parts other than certain specialty products are available from alternative sources. ILS has multiple sources of supply for its products. Approximately 25% of ILS’ delivered components are purchased from suppliers in foreign countries, primarily Taiwan, South Korea and China. The Company is dependent upon the ability of such suppliers to meet stringent quality and performance standards and to conform to delivery schedules. Most raw materials required by Aluminum Products and Manufactured Products are commodity products available from several domestic suppliers.

Customer Dependence

      The Company has thousands of customers who demand quality, delivery and service. Numerous customers have recognized our performance by awarding the Company with supplier quality awards. Navistar is the only customer accounting for more than 10% of consolidated sales within the past three years (only in the year 2003).

Backlog

      Management believes that backlog is not a meaningful measure for ILS, as a majority of ILS’ customers require just-in-time delivery of production components. Management believes that Aluminum Products’ and Manufactured Products’ backlog as of any particular date is not a meaningful measure of sales for any future period as a significant portion of sales are on a release or firm order basis.

Environmental Regulations

      The Company is subject to numerous federal, state and local laws and regulations designed to protect public health and the environment (“Environmental Laws”), particularly with regard to discharges and emissions, as well as handling, storage, treatment and disposal, of various substances and wastes. Pursuant to certain Environmental Laws, owners or operators of facilities may be liable for the costs of response or other corrective actions for contamination identified at or emanating from current or former locations, without regard to whether the owner or operator knew of, or was responsible for, the presence of any such contamination, and for related damages to natural resources. Additionally, persons who arrange for the disposal or treatment of hazardous substances or materials may be liable

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      In general, the Company has not experienced difficulty in complying with Environmental Laws in the past, and compliance with Environmental Laws has not had a material adverse effect on the Company’s financial condition, liquidity and results of operations. The Company’s capital expenditures on environmental control facilities were not material during the past five years and such expenditures are not expected to be material to the Company in the foreseeable future.

      The Company has been identified as a potentially responsible party at third-party sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state laws, which provide for strict and, under certain circumstances, joint and several liability. The Company is participating in the cost of certain clean-up efforts at several of these sites. The availability of third-party payments or insurance for environmental remediation activities is subject to risks associated with the willingness and ability of the third party to make payments. However, the Company’s share of such costs has not been material and, based on available information, the Company does not expect its exposure at any of these locations to have a material adverse effect on its results of operations, liquidity or financial condition.

Information as to Industry Segment Reporting and Geographic Areas

      The information contained under the heading of “Note L—Industry Segments” of notes to consolidated financial statements included herein, relating to (i) net sales, income (loss) before income taxes and change in accounting principles, identifiable assets and other information by industry segment and (ii) net sales and assets by geographic region for the years ended December 31, 2003, 2002, and 2001 is incorporated herein by reference.

Recent Developments

      The information contained under the heading of “Note D—Acquisitions and Dispositions” and “Note N—Restructuring and Unusual Charges” of notes to consolidated financial statements included herein, is incorporated by reference.

Available Information

      The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information with the Securities and Exchange Commission (“SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330, or by accessing the SEC’s website at http://www.sec.gov. In addition, as soon as reasonably practicable after such materials are filed with or furnished to the SEC, the Company makes copies available to the public, free of charge.

Item 2. Properties

       The Company’s operations include numerous manufacturing and supply chain logistics services facilities located in twenty-three states in the United States, and in Puerto Rico, as well as in Asia, Canada, Europe and Mexico. Approximately 91% of the available square footage is located in the United States. Approximately 49% of the available square footage is owned. In 2003, approximately 32% of the available domestic square footage was used by the ILS segment, 51% was used by the Manufactured Products segment and 17% by the Aluminum Products segment. Approximately 33% of the available foreign square footage was used by the ILS segment and 67% was used by the Manufactured Products segment. In the opinion of management, Park-Ohio’s facilities are generally well maintained and are suitable and adequate for their intended uses.

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      The following table provides information relative to the principal facilities of Park-Ohio and its subsidiaries.

Item 3. Legal Proceedings

       The Company is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation will not have a material adverse effect on the Company’s financial condition, liquidity or results of operations. The Company has been named as one of many defendants in asbestos-related personal injury lawsuits. The Company’s cost of defending such lawsuits has not been material to date and based upon available information, management of the Company does not expect the Company’s future costs for asbestos-related lawsuits to have a material adverse effect on its results of operations, liquidity or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

       Information required by this item has been omitted pursuant to General Instruction I of Form 10-K.

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Part II

       The registrant is a wholly-owned subsidiary of Park-Ohio Holdings Corp. and has no equity securities that trade.

       Information required by this item has been omitted pursuant to General Instruction I of Form 10-K.

       The consolidated financial statements of the Company include the accounts of Park-Ohio Industries, Inc. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The historical financial information is not directly comparable on a year-to-year basis, primarily due to restructuring and unusual charges in all three years, a goodwill impairment charge in 2002 to reflect the cumulative effect of an accounting change, the elimination of goodwill amortization starting in 2002, divestitures and acquisitions.

Executive Overview

      The Company operates through three segments, ILS, Aluminum Products and Manufactured Products. ILS is a leading supply chain logistics provider of production components to large, multinational manufacturers. 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 heavy-duty truck, semiconductor equipment, industrial equipment, aerospace and defense, electrical controls, HVAC, vehicle parts and accessories, appliances, and lawn and garden equipment industries. Aluminum Products manufactures cast aluminum components primarily for automotive manufactures, and 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 OEMs and end-users in the aerospace, automotive, steel, forging, railroad, truck, oil, food processing and consumer appliance industries. Sales, earnings and other relevant financial data for these three segments are provided in Note L to the consolidated financial statements.

      The Company is positioned for increased sales and profitability in 2004 and beyond, as the manufacturing economy stabilizes and returns to growth, particularly in two of the Company’s significant customer segments, heavy-duty truck and semiconductor equipment. The Company grew strongly from 1993 through the first half of 2000 (see table below), through both internal growth and acquisition. Starting in the second half of 2000, both sales and profitability declined 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 retained or gained market share in most major markets served. The Company’s sales stabilized in 2002 and declined only slightly in 2003, and pretax income began to recover.

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     The Company responded to the economic downturn by reducing costs, increasing prices on targeted products, restructuring many of its businesses and selling non-core manufacturing assets. During 2001 through 2003, the Company consolidated 28 supply chain logistics facilities, and closed or sold 11 manufacturing plants. With regard to these actions, the Company recorded restructuring and impairment charges in 2001, 2002 and 2003 (see table above and Note N to the consolidated financial statements). Management’s actions aimed to increase operational earnings during the economic downturn and position the Company for increased profitability when the manufacturing economy stabilizes and returns to growth. These actions resulted in increased income (as adjusted) in 2002 and 2003 despite flat to declining sales.

      The Company’s 2003 non-cash restructuring and impairment charges totaled $19.4 million, of which 90% related to restructuring of the Forge Group, primarily impairment of property and equipment idled when the Company began purchasing crankshaft forgings instead of manufacturing them internally. Charges outside the Forge Group, totaling $1.9 million, consisted primarily of pension withdrawal charges for manufacturing units executing previously announced restructuring. The 2003 restructuring is expected to increase both profitability and cash flow by approximately $15.0 million over the next five years.

      In July 2003, the Company entered into a four-year bank revolving credit agreement under which it may borrow up to $165.0 million subject to an asset based formula. The credit agreement is secured by substantially all the assets of the Company. The Company has paid down its revolving bank borrowings by $53.0 million, or 34%, from $154.0 million at June 30, 2001 to $101.0 million at December 31, 2003, when it had approximately $47.0 million of excess borrowing availability. The Company’s $199.9 million of outstanding Senior Subordinated Notes mature in November, 2007. Funds provided by operations plus available borrowings under the bank credit facility are expected to be adequate to meet the Company’s cash requirements until 2007, by which time management expects to have entered into replacement financing agreements.

      The Company sold substantially all the assets of St. Louis Screw and Green Bearing in first quarter 2003, for cash totaling approximately $7.3 million, and Castle Rubber Company in second quarter 2002, for cash of approximately $2.5 million. The Company purchased substantially all the assets of Ajax Magnethermic Corp. in third quarter 2002, for cash of approximately $5.5 million. The Company sold substantially all the assets of Cleveland City Forge in fourth quarter 2001, for cash of approximately $6.1 million. During 2001, the Company expensed $1.9 million of non-recurring business interruption costs, caused by the June 2000 fire that destroyed the Cicero Flexible Products plant, which were not covered by insurance.

Accounting Changes and Goodwill

      On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). Under FAS 142, the Company reviewed its goodwill and other intangible assets and recorded a non-cash goodwill impairment charge of $48.8 million, which was recorded as the cumulative effect of a change in accounting principle effective January 1, 2002. Circumstances which led to this goodwill impairment included reduced sales, profitability and growth rates of the units with goodwill (see Note C to the consolidated financial statements), and reduced transaction prices for comparable businesses, which were themselves results of the downturn in the manufacturing economy. The effects of these circumstances on the Company’s operations, financial condition and liquidity are reflected in 2002 and 2003 results. The goodwill impairment itself did not have any effect on operations. Under FAS 142, goodwill was not amortized in 2003 or 2002, compared to $3.7 million in 2001.

      In accordance with FAS 142, goodwill is now reviewed annually for potential impairment. This review was performed as of October 1, 2003 and 2002, using forecasted discounted cash flows, and it was determined that no further impairment is required. At December 31, 2003, the balance sheet reflected $82.3 million of goodwill in the ILS and Aluminum Products segments. In 2003, discount rates

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      The Company changed its method of accounting for the 15% of its inventories utilizing the LIFO method to the FIFO method. As required by accounting principles generally accepted in the United States, the Company has restated its balance sheet as of December 31, 2002 to increase inventories by the recorded LIFO reserve ($4.4 million), increase deferred tax liabilities ($1.7 million), and increase shareholders’ equity ($2.7 million). Previously reported results of operations have not been restated because the impact of utilizing the LIFO method had an insignificant impact on the Company’s reported amounts for consolidated net income (loss). See also Note B to the consolidated financial statements.

Results of Operations

     2003 versus 2002

      Net sales declined by 2% in 2003. $10.4 million of the ILS sales decline related to the sale of Green Bearing and the termination of the pharmaceutical contract, while the remainder reflected general economic weakness. Aluminum Products net sales were lower primarily due to the ending of $10.0 million of sales contracts, the majority of which relate to the closure of the Tupelo and Hudson plants. Manufactured Products net sales increased $26.4 million primarily in the induction business. The acquisition of Ajax Magnethermic increased 2003 net sales by $29.6 million and the divestiture of Castle Rubber and St. Louis Screw decreased 2003 net sales by $6.8 million.

Cost of Products Sold & Gross Profit:

Note: 25% of increase in Induction gross profit attributed to non-acquisition actions.

      Cost of products sold declined 4% in 2003, and gross profit increased 10%, while gross margin increased to 15.5% in 2003, from 13.8% in 2002. ILS gross margin decreased primarily due to reduced absorption of fixed overhead over a smaller sales base and the positive effect on 2002 of the early termination of a high margin pharmaceutical sales contract, partially offset by lower inventory costs, facility costs and other cost reductions. Aluminum Products gross margin increased significantly, primarily as a result of restructuring and cost reductions and higher margins on new contracts. Gross margin in the Manufactured Products segment increased, primarily as a result of increased sales and overhead efficiencies achieved in the induction business.

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

      Consolidated SG&A expenses increased by 9% in 2003, while SG&A expenses as a percentage of net sales increased to 10.0% for 2003 compared to 9.1% for 2002. This increase was due primarily to the net impact of acquisitions and divestitures, and the $2.6 million reduction of net pension credits reflecting less favorable returns on pension plan assets, partially offset by reductions in other SG&A costs in all three segments.

     Interest Expense:

      Interest expense decreased by 5% due to lower average debt outstanding and lower average interest rates during 2003. The decrease in average borrowings resulted primarily from the sale of two manufacturing units and lower working capital requirements. The lower average borrowing rate in 2003 was due primarily to decreased rates on the Company’s new revolving credit facility, beginning in August, 2003.

      In accordance with the provision of Statement of Financial Accounting Standards No. 109 (“FAS 109”), “Accounting for Income Taxes,” the Company recorded no tax benefit for the 2003 or 2002 net losses, because in both years it had incurred three years of cumulative losses. Income taxes of $.9 million were provided in 2003 and 2002, primarily for state and foreign taxes on profitable operations. At December 31, 2003, subsidiaries of the Company had $35.7 million of net operating loss carryforwards for federal tax purposes. The Company has not recognized any tax benefit for these loss carryforwards.

     2002 versus 2001

     Net Sales by Segment:

      Net sales declined less than 1% in 2002. The ILS net sales decline of 5% was due primarily to the sales volume reductions in heavy truck and other customer industries. The Aluminum Products net sales increase of 25% was due primarily to the initiation or ramp-up of new production contracts. The Manufactured Products net sales decline of 3% or $4.4 million was due primarily to divestitures. The divestitures of Castle Rubber and Cleveland City Forge decreased 2002 net sales by $13.0 million and the acquisition of Ajax Magnethermic increased 2002 net sales by $6.1 million.

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Cost of Products Sold & Gross Profit:

      Cost of products sold declined 1% in 2002. Inventory write-downs included in cost of products sold primarily related to discontinued product lines. Gross profit increased 4% in 2002, while gross margin increased to 13.8% in 2002, from 13.2% in 2001. This increase reflected increased margins in Aluminum Products, partially offset by decreased margins in the ILS and Manufactured Products segments. Declines in ILS and Manufactured Products gross margins related primarily to reduced volumes resulting in the absorption of fixed operational overheads over a smaller sales or production base. The increase in Aluminum Products gross margin related to new, higher-margin contracts, discontinuation of low margin contracts, cost reductions, plant closures and the absorption of fixed manufacturing overheads over a larger production base.

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

      Consolidated SG&A expenses decreased by 13% in 2002, while SG&A expenses as a percentage of net sales decreased to 9.1% during 2002 as compared to 10.4% for 2001. This decrease was primarily due to cost reductions in all three segments resulting from business restructuring initiatives implemented by the Company. During 2003, SG&A expenses were negatively affected by a decrease in net pension credits of $.8 million, reflecting less favorable investment returns on pension plan assets.

Interest Expense:

      Interest expense decreased by 11% in 2002 due to lower average debt outstanding and lower average interest rates. The decrease in borrowings related primarily to working capital reductions in the course of 2001, which were retained in 2002. The lower average borrowing rate in 2002 was due primarily to decreased rates on the Company’s revolving credit facility.

      In accordance with the provision of Statement of Financial Accounting Standards No. 109 (“FAS 109”), “Accounting for Income Taxes,” the Company recorded no tax benefit for the 2003 net loss, because it had incurred three years of cumulative losses. Income taxes of $.9 million were provided in 2003, primarily for state and foreign taxes on profitable operations. The effective tax rate for 2001 was 30.5%, which was less than the statutory rate due to the amortization of non-deductible goodwill and other non-deductible items. At December 31, 2003, subsidiaries of the Company had $25.6 million of net operating loss carryforwards for federal tax purposes. The Company has not recognized any tax benefit for these loss carryforwards.

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Critical Accounting Policies

      Preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make certain estimates and assumptions which affect amounts reported in the Company’s consolidated financial statements. Management has made their best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe that there is great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

      Revenue Recognition: The Company recognizes more than 95% of its revenue when title is transferred to unaffiliated customers, typically upon shipment. The Company’s remaining revenue, from long-term contracts, is recognized using the percentage of completion method of accounting. Selling prices are fixed based on purchase orders or contractual arrangements. The Company’s revenue recognition policies are in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition.”

      Allowance for Uncollectible Accounts Receivable: Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. Allowances are developed by the individual operating units based on historical losses, adjusting for economic conditions. The Company’s policy is to identify and reserve for specific collectibility concerns based on customers’ financial condition and payment history. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Writeoffs of accounts receivable have historically been low.

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

      Impairment of Long-Lived Assets: Long-lived assets are reviewed by management for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. During 2003, 2002 and 2001, the Company decided to exit certain under-performing product lines and to close or consolidate certain operating facilities and, accordingly, recorded restructuring and impairment charges as discussed above and in Note N to the consolidated financial statements.

      Restructuring: The Company recognizes costs in accordance with Emerging Issues Task Force 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)” (“EITF 94-3”) and the SEC Staff Accounting Bulletin No. 100, “Restructuring and Impairment Charges” for charges prior to 2003. Detailed contemporaneous documentation is maintained and updated on a quarterly basis to ensure that accruals are properly supported. If management determines that there is a change in the estimate, the accruals are adjusted to reflect the changes.

      In 2003, the Company adopted Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”), which nullified EITF 94-3 and requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at the fair value only when the liability is incurred. FAS 146 has no effect on charges recorded for exit activities begun prior to 2002.

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      Goodwill: Through December 31, 2001, the Company amortized goodwill primarily over forty years using the straight-line method. The Company adopted Financial Accounting Standard (“FAS”) No. 142 “Goodwill and Other Intangible Assets” 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.

      The Company, with assistance of an outside consultant, completed the transitional impairment review of goodwill during the fourth quarter of 2002 and recorded a non-cash charge of $48.8 million. The charge has been reported as a cumulative effect of a change in accounting principle. The Company has also completed the annual impairment test as of October 1, 2003 and 2002, and has determined that no additional goodwill impairment existed as of those dates.

      Deferred Income Tax Assets and Liabilities: The Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates. In determining these amounts, management determined the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, expectations of future earnings and taxable income and the extended period of time over which the postretirement benefits will be paid.

      At December 31, 2003, the Company has net operating loss carryforwards for income tax purposes of approximately $35.7 million, which will expire in 2021 or 2023 In accordance with the provisions of FAS 109 “Accounting for Income Taxes”, the tax benefits related to these carryforwards have been fully reserved as of December 31, 2003 since the Company is in a three year cumulative loss position.

      Pension and Other Postretirement Benefit Plans: The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans and postretirement benefit plans, covering substantially all employees. The measurement of liabilities related to these plans is based on management’s assumptions related to future events, including interest rates, return on pension plan assets, rate of compensation increases, and health care cost trends. Pension plan asset performance in the future will directly impact net income of the Company. The Company has evaluated its pension and other postretirement benefit assumptions, considering current trends in interest rates and market conditions and believes its assumptions are appropriate.

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 Annual Report on Form 10-K contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 and its expected impact on profitability and cash flow, credit availability, levels and funding of capital expenditures and trends for 2004. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are

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Index to Consolidated Financial Statements and Supplementary Financial Data

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Shareholder

      We have audited the accompanying consolidated balance sheets of Park-Ohio Industries, Inc. and subsidiaries (a wholly-owned subsidiary of Park-Ohio Holdings Corp.) as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholder’s equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park-Ohio Industries, Inc. and subsidiaries at December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States.

      As discussed in Note B to the consolidated financial statements, effective June 30, 2003, the Company changed its method of accounting for inventories at certain subsidiaries. As discussed in Note C to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill.

Cleveland, Ohio

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Park-Ohio Industries, Inc. and Subsidiaries

Consolidated Balance Sheets

See notes to consolidated financial statements.

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Park-Ohio Industries, Inc. and Subsidiaries

Consolidated Statements of Operations

See notes to consolidated financial statements.

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Park-Ohio Industries, Inc. and Subsidiaries

Consolidated Statements of Shareholder’s Equity