PKOH

Park-Ohio Holdings Corp. (PKOH)

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Park-Ohio Holdings Corp. (PKOH)

Q4 2008 Earnings Call Transcript

March 11, 2009 10:00 am ET

Executives

Edward Crawford – Chairman & CEO

Jeff Rutherford – VP & CFO

Matt Crawford – President & COO

Analysts

Richard Paget – Morgan Joseph

John Baum [ph]

Michael Levine [ph] – BB&T

Presentation

Operator

Good morning and welcome to the 2008 yearend results conference call. At this time all participants are in a listen-only mode. After the presentation the Company will conduct a question-and-answer session. Today's conference also being recorded. If you have any objections, you may disconnect at this time.

Before the conference call begins, please remember that the Company will be discussing some issues that are historical and some issues that are forward-looking. When the Company speaks about the future results or events, there are a variety of factors may materially change from the actual results from those projected. A list of relevant factors may be found in earnings press release as well as in the Company's 2008 10-K to be filed with the SEC on March 16, 2009.

The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, the company may discuss EBITDA. EBITDA is a measure of performance under Generally Accepted Accounting Principles and is considered a non-GAAP financial measure as defined by the SEC.

The Company may present EBITDA because management believes that EBITDA could be useful to investors as an indication of their ability to incur and service debt and because EBITDA is a measure used on their credit facilities to determine whether they may incur additional debt under such facilities. For reconciliation from income before income tax to EBITDA please refer to the Company's current report on Form 8-K furnished on the SEC on March 10, 2009.

Now the meeting will be turned over to Mr. Edward S. Crawford, Chairman and Chief Executive Officer. Gentleman, you may begin.

Edward Crawford

Good morning, ladies and gentlemen. Welcome to the Park-Ohio annual review. I thought we would start today by having Jeff Rutherford, the CFO of the Company, address the unusual non-cash charges that are reflected in the press release in some detail, then I will have Matt Crawford, the President and COO, address operations and I will try to give an overview or peek into the future with our company. So Jeff, why don't you begin by addressing the charges?

Jeff Rutherford

Thanks, Ed, and good morning, everyone. I think the best way to do this would be to do it by segment and we will run through the segments and what the restructuring and impairment charges are and also address the gains and the tax implications of those charges and gains.

Let's start with Supply Tech, the Supply Technologies segment. Due to the current depressed business cycle, which inherently results in higher discount rates and lower valuation models, we impaired $79.2 million of goodwill at Supply Tech. We do not believe this is indicative of the long-term intrinsic value of the operations, but based on the current accounting rules and specifically FASB 142, an impairment has been recorded.

Additionally, we took $5.8 million fixed asset impairment within Supply Technologies. This is for the auto fastener manufacturing operation within the segment and we impaired 50% of that equipment value based upon current and near-term volume estimates.

There is also a restructuring charge has been taken in the Supply Technologies segment. The total charge is going to be approximately $9 million. $7 million of this charge is being taken in the fourth quarter of '08. The remainder of the charge will be taken in the first quarter or first half of '09.

This restructuring charge is being taken to realign the distribution network for the loss of Navistar business and to adjust to the current business cycle. $5 million of the charges markdown of inventory.

It should be noted that this inventory is already ineligible from our borrowing base and therefore that has no effect on our ability to borrow under our credit facilities. And this markdown should assist in more timely conversion to cash of this inventory.

Remaining $4 million is for facility closures and mergers. There is a cash piece. $350,000 of the fourth quarter '08 charge is for severance. And the anticipated annual savings from this restructuring charge is – this is on annual basis somewhere between $9 million and $10 million of cost (inaudible).

In the Aluminum segment we impaired $16.5 million of goodwill for the same reason as the Supply Technologies impairment. As you may recall in the third quarter, we took a fixed asset impairment charge at aluminum for $13.8 million. $0.6 million, that 600,000 that's reversed in the fourth quarter as we disposed of assets that we had previously marked down.

In the Manufacturing segment there were no fourth quarter charges. There was a third quarter charge for a fixed asset impairment in the Rubber group within the Manufacturing segment.

We did have gains in the fourth quarter as the holding company repurchased $11 million of notes – of industry's notes. We repurchased those notes at approximately 42% after accounting for an appropriate write-off of deferred debt issuance costs, we recorded a net gain at the holding level of $6.2 million.

As I said, these notes are currently held at holdings and have not been contributed down to industries. Therefore, when we record – when we report the 10-K for Park-Ohio industries, these notes will remain outstanding. In the first quarter of '08 we did have a gain of $2.3 million related to the sale of property. And then you will see that reflected in the presentation also.

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