Park-Ohio Pre-Tax Earnings Up in 2007

CLEVELAND, March 11 /PRNewswire-FirstCall/ -- Park-Ohio Holdings Corp. (NASDAQ:PKOH) today announced results for its fourth quarter and year ended December 31, 2007.

FULL YEAR RESULTS

Park-Ohio reported net sales of $1,071.4 million for 2007, a 1% increase compared to net sales of $1,056.2 million for 2006. Park-Ohio reported net income of $21.2 million, or $1.82 per share dilutive, for 2007, compared to $24.2 million, or $2.11 per share dilutive, for 2006. Net income in 2006 was increased by the reversal of $5.0 million of the Company's deferred tax asset valuation allowance. Net sales, net income and EPS in 2007 were adversely impacted by $18.0 million, $2.6 million and $.23 per share dilutive, respectively, due to reduced percentage of completion on long-lead industrial equipment contracts, resulting from changes in computation methodology.

FOURTH QUARTER RESULTS

Park-Ohio reported net sales of $247.8 million for fourth quarter 2007, an 8% decrease compared to sales of $270.4 million for fourth quarter 2006. Park-Ohio reported net income of $3.9 million, or $.34 per share dilutive, for fourth quarter 2007, compared to net income of $10.8 million, or $.94 per share dilutive, for fourth quarter 2006. Net income in fourth quarter 2006 was increased by the reversal of $5.0 million of the Company's deferred tax asset valuation allowance. Net sales, net income and EPS in fourth quarter 2007 were adversely impacted by $18.0 million, $2.6 million and $.23 per share dilutive, respectively, due to reduced percentage of completion on long-lead industrial equipment contracts, resulting from changes in computation methodology.

Edward F. Crawford, Chairman and Chief Executive Officer, stated, "We are pleased to have achieved double-digit growth in pre-tax earnings; although we are disappointed to have reported earnings below our expected profitability for 2007. This was caused by a change identified in the recent audit process, which altered the way we calculate percentage of completion in the rapidly growing industrial equipment businesses of our Manufactured Products segment. This change does not affect the underlying revenue or profitability of the business, but does delay recognition of revenue and earnings closer to shipment of long-lead industrial equipment when we outsource segments of the manufacturing process. These orders can take anywhere from a few months to as long as 20 months to produce.

We believe that our prior methodology more accurately depicted the operational performance of the business, but have followed our outside auditor's guidance on this matter. This shifted revenue and earnings from late 2007 into future periods. We are working hard to minimize the long-term impact of this recent change, and we expect to recapture this deferral.

From an operations and cash perspective, 2007 was an excellent year for our industrial equipment businesses, and we expect them to grow in 2008. Going forward, this change will make Manufactured Products segment revenues and earnings lumpier and harder to forecast accurately by quarter.

We believe Park-Ohio is well positioned with its diversity and global markets, despite concerns over uncertainty in pockets of the US economy, raw material prices, and the timing of large industrial equipment orders. Accordingly, we expect to generate diluted earnings per share of $2.10 to $2.25 in 2008."

Table 1: Recent History of EPS, EBIT and Revenue

Year ended December 31,
2004 2005 2006 2007

Dilutive EPS, GAAP,
as reported $1.27 $2.70 $2.11 $1.82

Dilutive EPS, fully
taxed(A) $1.07 $1.58 $1.62 $1.82

Operating Income
(EBIT) - [$ in millions] $49.0 $53.5 $58.7 $62.7

Revenue $808.7 $932.9 $1.056 $1.072

(million) (million) (billion) (billion)

(Note A) Reconciliation to GAAP Year ended
(In Millions, except EPS) December 31,
2004 2005 2006 2007
Net Income (Loss), GAAP,
as reported: $14.2 $30.8 $24.2 $21.2
Less: Reversal of Tax
Valuation Allowance(1) (7.3) (5.0)
Plus: Add'l Income Tax to
32% Rate before Reversal(2) (2.2) (5.5) (0.6)
Net Income, fully-taxed $12.0 $18.0 $18.6 $21.2
Number of Dilutive Shares
(millions) 11.2 11.4 11.46 11.65
Dilutive EPS, fully-taxed $1.07 $1.58 $1.62 $1.82

The Company presents fully-taxed net income and EPS reflecting equalized tax rates to facilitate comparison between periods.

(1) Net income in fourth quarter 2006 and 2005 included the reversal of
$5.0 million and $7.3 million, respectively, of the Company's
deferred tax asset valuation allowance, substantially eliminating
this allowance. Based on strong recent and projected earnings, the
Company has determined that it is more likely than not that this
deferred tax asset will be realized. The tax valuation allowance
reversal resulted in an increase to net income for the fourth quarter
of each year.
(2) In 2006, following the reversal of a portion of its deferred tax
valuation allowance, the Company began recording a quarterly
provision for federal income taxes. For 2007, the Company's effective
income tax rate was 32%, compared to 30%, 11% and 19% for 2006, 2005
and 2004, respectively, excluding the tax valuation allowance
reversal. Park-Ohio's net operating loss carry-forward precluded the
payment of most cash federal income taxes in 2006 and 2007, and
should similarly preclude such payments in 2008 and substantially
reduce them in 2009.

A conference call reviewing Park-Ohio's fourth quarter results will be broadcast live over the Internet on Wednesday, March 12, commencing at 9:00 am Eastern Time. Simply log on to http://www.pkoh.com/.

Park-Ohio is a leading provider of supply management services and a manufacturer of highly engineered products. Headquartered in Cleveland, Ohio, the Company operates 24 manufacturing sites and 51 supply chain logistics facilities.

This news release contains forward-looking statements, including statements regarding future performance of the Company that are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

Among the key factors that could cause actual results to differ materially from expectations are: the cyclical nature of the vehicular industry; timing of cost reductions; labor availability and stability; changes in economic and industry conditions; adverse impacts to the Company, its suppliers and customers from acts of terrorism or hostilities; the financial condition of the Company's customers and suppliers, including the impact of any bankruptcies; the Company's ability to successfully integrate the operations of acquired companies; the uncertainties of environmental, litigation or corporate contingencies; and changes in regulatory requirements. These and other risks and assumptions are described in the Company's reports that are available from the United States Securities and Exchange Commission. The Company assumes no obligation to update the information in this release.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
(In Thousands, Except per Share Data)

Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006

Net sales $247,815 $270,405 $1,071,441 $1,056,246
Cost of products sold 211,924 233,056 912,337 908,095
Gross profit 35,891 37,349 159,104 148,151
Selling, general and
administrative expenses 24,142 23,925 98,679 90,296
Restructuring and impairment
items 0 (809) 0 (809)
Gain on sale of assets held
for sale 0 0 (2,299) 0
Operating income 11,749 14,233 62,724 58,664
Interest expense 7,265 8,097 31,551 31,267

Income before income
taxes 4,484 6,136 31,173 27,397
Income taxes 568 (4,649) 9,976 3,218
Net income $3,916 $10,785 $21,197 $24,179

Amounts per common share:
Basic $0.35 $0.98 $1.91 $2.20
Diluted $0.34 $0.94 $1.82 $2.11

Common shares used in the
computation:
Basic 11,184 11,029 11,106 10,997
Diluted 11,679 11,491 11,651 11,461

Other financial data:
EBITDA, as defined $16,871 $20,701 $83,049 $80,057

Note A--EBITDA, as defined, reflects earnings before interest, income taxes, and excludes depreciation, amortization, certain non-cash charges and corporate-level expenses as defined in the Company's Revolving Credit Agreement. EBITDA is not a measure of performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for net income, cash flows from operating, investing and financing activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. The Company presents EBITDA because management believes that EBITDA is useful to investors as an indication of the Company's satisfaction of its Debt Service Ratio covenant in its revolving credit agreement and because EBITDA is a measure used under the Company's revolving credit facility to determine whether the Company may incur additional debt under such facility. EBITDA as defined herein may not be comparable to other similarly titled measures of other companies. The following table reconciles net income to EBITDA, as defined:

Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006

Net income $3,916 $10,785 $21,197 $24,179
Add back:
Income taxes 568 (4,649) 9,976 3,218
Interest expense 7,265 8,097 31,551 31,267
Depreciation and
amortization 4,687 5,940 20,469 20,037
Restructuring and other
unusual items 0 (9) 0 (9)
Gain on the sale of assets
held for sale 0 0 (2,299) 0
Miscellaneous 435 537 2,155 1,365
EBITDA, as defined $16,871 $20,701 $83,049 $80,057

CONSOLIDATED CONDENSED BALANCE SHEETS
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES

December 31, December 31,
2007 2006
(Unaudited) (Audited)
(In Thousands)
ASSETS

Current Assets
Cash and cash equivalents $14,512 $21,637
Accounts receivable, net 172,357 181,893
Inventories 215,409 223,936
Deferred tax assets 21,897 34,142
Unbilled contract revenue 24,817 16,886
Other current assets 15,232 7,332

Total Current Assets 464,224 485,826

Property, Plant and Equipment 266,222 248,065
Less accumulated depreciation 160,665 146,980
Total Property Plant and Equipment 105,557 101,085

Other Assets
Goodwill 100,997 98,180
Net assets held for sale 3,330 6,568
Other 95,081 92,092
Total Other Assets 199,408 196,840
Total Assets $769,189 $783,751

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Trade accounts payable $121,875 $132,864
Accrued expenses 67,007 78,264
Current portion of long-term liabilities 4,403 5,873
Total Current Liabilities 193,285 217,001

Long-Term Liabilities, less current portion
8.375% Senior Subordinated Notes due 2014 210,000 210,000
Revolving credit maturing on December 31, 2010 145,400 156,700
Other long-term debt 2,287 4,790
Deferred tax liability 22,722 32,089
Other postretirement benefits and other long-term
liabilities 24,017 24,434
Total Long-Term Liabilities 404,426 428,013

Shareholders' Equity 171,478 138,737
Total Liabilities and Shareholders'
Equity $769,189 $783,751

BUSINESS SEGMENT INFORMATION (UNAUDITED)
PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES
(In Thousands)

Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
NET SALES

Supply Technologies $127,461 $148,598 $531,417 $598,228
Aluminum Products 37,280 33,750 169,118 154,639
Manufactured Products 83,074 88,057 370,906 303,379
$247,815 $270,405 $1,071,441 $1,056,246

INCOME BEFORE INCOME TAXES

Supply Technologies $6,755 $8,934 $27,175 $38,383
Aluminum Products (265) (397) 3,020 3,921
Manufactured Products 10,506 9,049 45,798 28,991
16,996 17,586 75,993 71,295
Corporate and Other Costs (5,247) (3,353) (13,269) (12,631)
Interest Expense (7,265) (8,097) (31,551) (31,267)
$4,484 $6,136 $31,173 $27,397

First Call Analyst:
FCMN Contact:

Source: Park-Ohio Holdings Corp.

CONTACT: Edward F. Crawford of Park-Ohio Holdings Corp.,
+1-440-947-2000

Web site: http://www.pkoh.com/

2008-03-11 18:47:59 0310169 PRNEWSWIRE