Park Ohio Holdings Corp (PKOH) 2010 Q4 法說會逐字稿

Good morning, and welcome to the 2010 year-end results conference call. At this time, all participate opinions are in a listen-only mode. After the presentation, the Company will conduct a question-and-answer session. Today's conference is 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 future results or events, there are a variety of factors that may materially change their actual results from those projected. A list of relevant factors may be found in the earnings press release as well as in the Company's 2010 10-K filed with the SEC on March 9, 2011. The Company undertakes no obligation to update any forward-looking statements, whether a result of new information, future events or otherwise.

Additionally, this Company may discuss EBITDA. EBITDA is not a measure of performance under generally accepted accounting principals 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 under their credit facility to determine whether they may incur additional debt under such facility. For reconciliation from income before income taxes to EBITDA, please refer to the Company's current report on Form 8-K, furnished to the SEC on March 7, 2011.

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

Thank you very much. Good morning, ladies and gentlemen. Thank you for joining Park-Ohio as we review our 2010 activities. May I introduce the President and COO of the Company, Matthew Crawford.

Thank you, and good morning.

2010 continued to demonstrate the Company's rapidly improving financial condition and commitment to becoming a better company as a result of our actions taken during the recent economic downturn. Highlights included 17% revenue growth, driven by increased build rates and reemerging new order activity. Total sales $814 million exceeded handily even our recent guidance of $800 million. A 50% increase in operating income, demonstrating a partial recovery in margins as we see improving absorption across all businesses, and an improved pricing environment in some end markets. EPS of $0.30 per share, compared to $0.02 in 2010 (sic -- see press release). Our total EPS for 2010 of $1.29 exceeded our most recent elevated expectations of $1.25. Net long-term debt continue to shrink during the fourth quarter despite in significant sales growth, resulting in a 2010 net reduction -- net-debt reduction amount of approximately $30 million.

Now looking at the fourth quarter segment performance, Supply Technologies first. Fourth quarter revenue increased by more than 24% versus 2009. Most of this improvement was driven by increased build rates in most key end market segments; most notably to the positive were commercial truck and bus, significantly up; commercial electric; semiconductor, significantly up; recreational; lawn and garden; and industrial equipment. We're also beginning to see accelerated new account activity, which benefited the quarter modestly, but should play an important troll the balance of 2011. Operating profit continued to show significant improvement, increasing to almost $6 million, or a margin of 5.6%.

We continue to be vigilant in expense control, and anticipate continued opportunities to reduce costs as we benefit from greater absorption as well as additional synergies associated with the ACS acquisition. As it relates to ACS, after our first full quarter of ownership, we're pleased to report that the business has been a advertised with regard to the quality of revenue and the team which came with the business. We're slightly ahead of our time line with regard to achieving the benefits of the consolidation, and continue to expect ACS to ultimately contribute at or likely a little bit above our typical margins.

Aluminum Products, aluminum revenue was down slightly, due principally from product mix versus last year. Income was down more significantly as we absorb the costs in December of the more typical holiday schedule. We're somewhat more optimistic heading in to 2011, although we anxiously await the new business launch scheduled for late this year to begin to absorb the excess capacity in this segment.

Turning to Manufactured Products, revenue increased 21% during the fourth quarter to approximately $80 million. The heart of this improvement continues to be the increasing backlog in the industrial equipment group, which represents the majority of the segment's revenue. Total new equipment bookings increased for 2010 to just under $100 million, versus approximately $65 million during 2009. While trends are improving globally, the recovery specifically in North America is worth noting. Revenue continued to be sluggish in the forge division, but we're optimistic that the locomotive and rail markets are showing significant signs of improvement as we head into 2011.

Operating profits reached just under $8 million, which is up a multiple of last year's performance. We anticipate the margin will continue to accelerate, given the strength of the high margin after-market business in our industrial equipment group, augmented by the increased absorption at both this division and the forge group, which have relatively high fixed costs.

We purchased a small competitor to our industrial equipment group on December 31, 2010, Pillar. Sales at Pillar were approximately $20 million. We were attracted to Pillar due to its strong brand presence in the induction field, as well as its excellent combination of new equipment backlog and the predictable after-market presence, acombination which we model our own business after. We expect to harvest some synergistic benefits from this combination, but recognize the Pillar team was already operate an excellent business with attractive margins.

CapEx for the quarter was approximately $4 million -- or excuse me -- CapEx for the year was approximately $4 million. Net debt during 2010 decreased by $30 million. This was significantly in excess of our forecast, particularly after giving effect to the incremental borrowing at -- of approximately $26 million due to the acquisitions of ACS and Pillar. Of particular note in achieving this goal is the ongoing discipline around CapEx and working capital management. Great job to our entire team who helped achieve these outstanding results.

Turning to 2011, we're excited about what we call internally our controlled accent. We anticipate a continued build in the average daily sales of Supply Technologies and believe the trend will continue to strengthen in global capital goods and infrastructure markets, benefited somewhat by inflationary forces, which would be particularly helpful in steel, oil, and gas. Adding to these improving trends, the acquisitions of ACS and Pillar should be meaningfully accretive with low execution risk. We use the word "controlled" because we continue to maintain the disciplines surrounding cost and cash flow that we focused on during the downturn.

We anticipate CapEx during 2011 to be slightly up to approximately $10 million as we prepare for new business in our Aluminum segment, launching in late 2011. Our cash flow forecast should be about the same as 2010 at $30 million. Sales are forecasted to be approximately $900 million, with $1.85 to $2 EPS target, which equates to $71.5 millionto $74 million in EBITDA.

Thank you very much.

Thanks, Matt.

Just a couple of brief comments. A year ago we were sitting here addressing the issues that were upon us in 2008 and 2009. And I think everyone will rememberwe talked about not only getting through the crisis, but we also emphasized that we expected, as we have in the past, to come out of a dip or a crisis in revenue as a stronger Company. That is exactly what we have today, some will remember back in 2001 and 2002 we had a similar reduction in revenues, and the sales went down some 16%. We came out of that slowdown a better Company and rolled up over $370 million in EBITDA.

Here we are again, same circumstances. Through a crisis, 2008 and 2009. If our revenue was in the first quarter of 2009 was annualized. we were down some 40%. This Company was prepared. We understand crises, and I'm very, very proud of our organization. Clearly we can play in very difficult times. We never sprung any of the covenants with the banks. We were never in doubt that we get through this, and important, come out a better company. We have three divisions, and each of the divisions in their own -- Supply Technology, Aluminum Products and Manufactured Products -- are in excellent position to go forward. But we are prepared, and I have never been more optimistic about what can be accomplished.

Again, this is a company -- anyone can run a company when the wind is at your back. When the difficult times come this is your chance for good management to build for the future. And I don't think we have ever been better prepared and ready to challenge, and if revenue increases, we will do very, very well. We can play at the current levels and do very well. We really think we're in a position for the future, a solid management team that's come through another major, major crisis. So we are prepared, and we thank all of the stakeholders, particularly the employees of the Company, for their cooperation and commitment during a very difficult period.

I will now open up the call to questions. Thank you.

(Operator Instructions). Your first question comes from the line of Ajay Kejriwal from FBR Capital Markets. Your line is open.

Good morning, everyone.

Good morning, sir.

Good morning.

Hey, just to start with maybe on the guidance. So above our expectations, a good number there, but maybe if you can help with some color on the segments. What are you expecting for Supply Tech, Aluminum Products, and Manufactured Products? Just trying to get a handle behind the sales numbers there.

Well, Ajay, we don't give actual sales forecast, so I can just talk a little bit about each generally and some of the thoughts and assumptions that are behind them. First I'll talk about Supply Tech. Obviously, Supply Tech we anticipate getting significant benefit from a full year of ACS, so that is meaningful. We also, as I mentioned, expect to see -- we were cautiously optimistic as it relates to build rates, but we are not necessarily expecting a significant leg up in the economy. And then we do, as I mention expected -- so we're pretty conservative in that area, and we do expect some new account activity. I would even note in one instance a customer that -- not Navistar by the way, but a customer that actually left us about a year ago -- small customer -- that is likely to come back, so that's always a positive sign relative to our value creation versus some of our competition.

As it relates to Manufactured Products, obviously there is -- we have a much bigger backlog going in to 2011 than we did going into 2010. I mentioned those bookings numbers. That's a 50% increase year-over-year. So as you can imagine, we're anticipating a pretty meaningful uptick in the new equipment side of our industrial equipment group. The after-market business has been strong. I don't expect it to be that much meaningfully stronger. And then the rail and locomotive portion of the forging business, we expect a significant uptick, albeit that's not a huge number relative to our overall forecast.

So we're feeling pretty good. The GAMCO business, the Aluminum Products business, we are thoughtful about that excess capacity and are anxious about the new business that is launching at the end of the year, so that one is a little bit harder to predict, but -- and I also forgot to mention the Pillar acquisition provides -- that $20 million incremental provides some upside in the Manufactured Products group as well. So any volatility that we could see in the Aluminum Products, I think being the smaller of the three segments, will be adequately picked up in the other two.

Good. You mentioned back -- bookings up 50%, backlog up. So maybe any color on what you are seeing end markets. Are you seeing customer CapEx kind of coming back? What is driving that bookings increase?

Yes. No, I would say it's pretty broad. Given the top of the cycle, going back to 2007-ish, the average order size back there was probably somewhat bigger, so while I think that there is -- so I would say what is causing the uptick in backlog currently is probably related to a combination of a year and a half of lack of investment. So that's not necessarily true capacity building, but nonetheless it's very good business for us. Those average order sizes are a little smaller, but nonetheless profitable.

And I think particularly in North America, you are beginning to see some capacity building, and we have seen it both in the pipe business, in the oil and gas business, somewhat as a result of the tariffs that the US put on the China for dumping pipe in the US. But also slowly in the steel markets, which have been -- continue to be sluggish, but are certainly rebounding off of the base. And lastly, I would mention auto. I think induction in particular is -- the hardening applications are significant in the auto end market, and as those balance sheets have gotten shored up, we're seeing some positive increases.

What do you say book-to-bill is comfortably above one? Any color on book-to-bill? In that business?

We haven't given that explicitly in the past, so I would hate to give a number then that we had to repeat every quarter or monitor every quarter, so I would prefer not to.

Ajay, the one thing Matt touched on which is a very important element of the capital equipment business is during the crisis here in 2008 and 2009, there's a tendency to push back some aspect of the maintenance CapEx in the facilities. In a big pipe facility, they cut back 10% or so in the maintenance and the spare parts, they shrink down the inventories. As the economy picks up, obviously capital equipment orders with significant. But we normally would expect -- anticipate an increase in the service and the parts business that goes along with bringing a lot of this equipment back up to 100% utilization.

Good. That's kind of our expectation too when we look at some of our companies, and what we're seeing CapEx in end markets, so that's very consistent. On margins, I'm looking at the fourth quarter. It looks like incrementals were a little light versus, at least where we were. So I don't know if that's due to Pillar. I guess not, but any comments there? Is that related to raw materials, or is this just a lower-margin mix?

No, I would -- you're talking -- you are speaking --

Manufactured Products, yes.

Sequentially, I presume you are referring to?

Yes. So margins in the fourth quarter about 10%, third quarter and second you have were 12, 13, and maybe part of it is seasonality, but any color there would be helpful.

Yes, I would be careful with quarter-to-quarter comps -- or sequential comps in that business. Because obviously being an equipment builder, you are going to have different orders of size that are going to come through different margins, so I don't know that that's an accurate depiction of what is going on in the business. The after-market business is pretty predictable. Where we have seen poor absorption and some resulting not strong profitability is in the forge segment, particularly as it relates to the locomotive build. So that has hurt us, because that's a pretty high margin part of our business. So from a margin perspective, I think we'll see more volatility in that business, but I can say with some conviction that we see the trend going up. So I'm comfortable saying we're starting to climb back up that mountain relative to margins in that segment, and feel good about 2011, but I would be a little careful going quarter-to-quarter on that.

Yes, I would like to back Matt up on that thought. The capital equipment business by nature is the -- you get around to getting the CapEx out in the first quarter, and then there's this tremendous rush to service the supply and manufacturing and get it out the door by year end. That sometimes doesn't always happen. It's a difficult crunch in that business at the end. So I think it -- looking at it quarter by quarter sometimes is a -- doesn't really get the accurate picture of what is happening.

Good, that's --

Ajay, as you know, we do use a percentage of completion accounting method, but it doesn't necessarily -- it doesn't completely obviate some of the volatility.

No, makes sense. Good color. So I thought I heard you say margins should be up in Manufactured Products. You feel pretty bullish given what you have seen with bookings and backlog. So any sense there -- is that baked into your backlog, that margin kind of outlook? Or is that what you're seeing based current activity? And what are you hearing from customers?

No, I wasn't necessarily commenting on the pricing environment. I was commenting generally on our Manufactured Products group has a fair amount of operating leverage, so the increased build rates in the facilities is going to help, and once again this pick up in the locomotive and rail market is going to help as well.

Good.

So those are areas of significant operating leverage, and incremental revenue will be meaningful to the performance of not only this segment but the overall business.

Good. Hey, maybe if we could switch gears and talk Aluminum Products a little bit. So fourth quarter margins were a little light. So is that related to any raw material issues? I know you talked about typical seasonality coming back in that business because of holidays and all of that, but a little bit on fourth quarter? And then what do you expect for this year, with program rollovers in some of your products? Any color there would be helpful.

Well, again, without getting too forward in our thinking, the -- any time you have -- we have a compression, as expected over the rollout of certain platforms through 2011, and we have the addition already indicated -- at least one major order coming into play the latter part of this year and definitely 2012, 2013, 2014, and 2015. So you have got to look at this from the standpoint that the cost related to the ramp-up in a particular quarter is something getting ready for the future. It's fortunately the expense of setting up and beginning the process of installing a new block of business is spent before the revenues engage.

So it's really -- if you want to look at 2011 by itself, it will look somewhat unattractive, mainly because we're preparing for -- with large contracts, and there's never been more new business available than is currently existing, or potential exists. So, really, we have to look at 2011 as a year preparing for 2012, 2013, 2014, and 2015, as we put in place multi-year contracts. But you have to spend the money and get ready and get the equipment the year before. So you are winding down and winding up. But this is not uncommon in this type of business.

But the one that we feel good about here -- as we've indicated, there is a shrinkage in capacity, clearly, especially in safety-critical parts. The auto industry we're thinking here of 12 million units. If it goes higher than that, we have, as you know, the excess capacity to grow right with that. So right now we managed the last couple of years for cash flow, particularly in 2010. I think the Company generated --

Aluminum specifically?

Yes.

$15 million.

Yes. In 2010 $15 million we took out of the Company in pure cash flow, so -- but as everything, remember I keep looking at this Company as -- see three different saddles, three separate businesses. We know exactly where Supply Tech is going. It's going to follow the industry. The capital equipment business looks like it is picking up a lot of steam, and we're going to do very, very well in this segment, the Aluminum segment over the next six years, but there will be a little discomfort here from what we would love to have as a way of earnings. But cash flow is still there, and we're real happy with it, but this is the transition period.

So, Ed, on that new business, you have some orders, very nice order, and you have provided details in the past. Any update there? Any developments in the last few months that we should be knowing of?

Well, we acknowledged one major order with Chrysler. We have also been awarded an order from ZF Bosch, which in America literally 100% of the current steering mechanisms in the front of the cars are hydraulic. In Europe they have moved to electric steering. They are going to move to electric steering in North America. I would say in the next five years, all of the cars out there will be with -- have electric steering. And incidentally, electric steering, the system itself utilizes a lot more aluminum than the hydraulic system. So it's a real growth market. It's a strategic market. And to be in that queue as the supplier to someone who currently dominates that business in ZF worldwide, we're very happy with that, and we expect that to be a growth area.

And there are a lot of new models being introduced, so I would not be surprised that we'll be able to, on a regular basis over the course of the next two or three meetings, to talk about adding contract as we go. I expect to finish the 2011 year with substantial backlog, long-term contracts to be announced as they are awarded throughout the balance of 2011.

Sounds really good. Hey, if I could maybe ask a couple balance sheet and tax questions. So like to see the net debt go down $30 million. I know you did a couple of acquisitions and borrowed money, but despite that, that's come down. Maybe update us with your thoughts on cap structure and any refinancing possibilities?

Ajay, it's Matt. Yes, I mean, we're cognizant of the position of our senior subordinated notes in our capital structure, how important it is. And obviously we're cognizant of, with our leverage, of our ABL structure as well. So we're constantly monitoring that, and we're going to make sure that we don't put ourselves in harm's way or take care -- or take advantage of any opportunities.

Okay. Good. And then finally, maybe for me on the tax rate. So fourth quarter it's about 21%, so maybe make walk us through how you get there, and then what is embedded in your 2011 guidance?

Sure, Ajay. Yes, our -- we couldn't have designed it more complicated than it is for our tax. In that gain on acquisition of business is a $1.3 million tax provision. That's only place I have ever seen pre-tax where you actually netted tax a number like that, and that's what GAAP requires. So there's a $1.3 million provision in that gain when what happens is, because we're in an NOL with -- fully reserved NOL, is that $1.3 million credit comes through the provision because of that -- because of the pre-tax provision, then there's a credit that comes through the provision.

So our -- what we consider our actual tax provision to be for 2010 would be the net of those numbers, or one-point -- just shy of one-point-- or $3.4 million. That $3.4 million is all foreign taxes. Because we're in an NOL in the United States and it's fully reserved, we do not recognize a tax provision other than what I just said related to that gain and the offset of the gain. So the $3.4 million is foreign tax provision, and it's at an approximate effective rate of 30%. We pay relatively high foreign taxes because of the income that we generate in Belgium, which has -- almost as high a tax rate as the United States. So going forward we'll have that same situation for 2011. And -- so we plan on continuing to have zero taxes for the US, and then a foreign provision, and it's going to be -- if you take the numbers that we're talking about with -- and using 12 million shares, you are going to get about the same as you had this year, about a 20 -- the low 20s -- 21%, 22% [float] provision going forward.

So 21%, 22% is embedded in that guidance?

Yes, let me just run through one more time. It's going to be in -- about 20%.

Okay. That's very helpful. That's all I have.

Thank you very much. Appreciate the questions.

Your next question comes from the line of [Michael Levine] from BB&T, your line is open.

Good morning.

Hi, Michael, how are you doing?

Good, thanks. Hey, Ed, your comments on margins for the Aluminum business for 2011, do those apply to the fourth quarter also,or is fourth quarter a little bit different?

Past fourth quarter or future fourth quarter?

The past fourth quarter. I mean, the margins were off versus the rest of the year.

Yes, well I --

Is that the same for the future?

I think, again, I have tried to give -- the color to that is we have already started spending and getting prepared for the future. And you are unwinding certain products and getting others. It's not a perfect hand off, but I think you'll see early on in the year a little pressure there, but that will change as the volume begins to ramp up.

Okay. Okay. I thought -- I thought that's what you meant. Can you just talk about SG&A? Did -- I don't know if I'm missing something, but it seems quite a bit higher in the fourth quarter than the rest of the year. Is there something special that's in there? Is it related to ACS or anything?

Well, there would be some ACS costs in there, but also what happened is in 2009 we had all taken pay cuts, including everybody in this room.

Right.

And incentive comps did not continue. But what we have now is we have reinstated those programs, so you get an unfavorable comparison to prior year, because last year we didn't pay out any kind of incentive comp and everyone had taken pay cuts. This year those had been reinstated and there will be some incentive comp paid this year.

Okay. So you have gone up, I don't know, about $4 million or something like that. Is that -- arewe kind at the run rate what we saw in the fourth quarter?

Yes, you look at the annual basis, we get some -- we can get some strange mix because of audits and so forth that are occurring at year end, and tax work. So if you want to see a run rate -- if you want to run a quarterly run rate, run it off of the annualized number.

Okay. So next year's should be about the same as this year, or maybe a little higher?

We modeled in to be just a little higher next year than 2010. Basically an inflationary rate.

Okay. Okay. And then I guess in ACS it's gone up a little bit, but you should have had a pretty significant contribution -- I don't mean ACS, I mean Supply Technology. You could have had a pretty good contribution from ACS. Organically, if you take ACS out, is revenue down a little bit?

No, I don't think it's down. I don't have that number right in front of me, but I will say that the quarter ended, December notably --I talked about some of the high points --we did see a little bit of weakness in the consumer electronics segment, which usually is a little bit stronger. Candidly we have seen that rebound a little bit, but December was a little bit of a mixed bag relative to year-over-year performance, so no, I don't think Supply Tech was down minus ACS, but it certainly was not significantly up.

Okay. All right. Okay. That's it for me. Thank you.

Well, thank you very much.

Your next question comes from the line of Michael Corelli from Barry Vogel & Associate. Your line is open.

HI, good morning.

Hi, Michael. How are you doing?

All right. Congratulations on a great year.

Thank you very much. Appreciate it.

So as far as the tax rate for the year, that 21%, 22%, how much of that would you expect to be cash taxes?

Cash taxes this year -- we had a good year on cash taxes; they were $1.2 million. It's going to be more than that. I would say, Michael, it's going to be in that $3 million to $4 million range.

In 2011? Okay. And how about depreciation and amortization? What do you think that will look like?

It's starting to come down, but what we're modeling is it's going to be just under $17 million.

Okay. And planned debt repayment in the new year?

Would be our free cash flow of that $25 million to $30 million.

Okay. Great. All right, that's all. Thank you.

Thank you very much.

(Operator Instructions). And your next question comes from the line of David Marsh from Odeon Capital. Your line is open.

Thank you. Good quarter, guys. Congrats on the turn around.

Good morning, David. How are you?

Doing well. Thank you. With regard to 2011, should we think about seasonality being similar to what was exhibited in 2010, or would there be some change to the pattern? In other words, would we anticipate maybe a small sequential decline in revenue in the first quarter relative to the fourth quarter and then a build from there?

I -- yes. Let me comment on one, and then I'll let Jeff -- I want to -- because it touches on the comment a few moments ago that Michael asked about Supply Tech. Supply Tech, generally, it's average daily sales throughout the year were increasing nicely. December was a little soft, and I actually think now that I have looked at more carefully, maybe minus ACS, though we don't break it out anymore, Supply Tech could have been a little softer sequentially third to fourth quarter. I think that's anomaly. Consumer electronics is usually stronger, and as I mentioned, we have seen that rebound a little bit. So I wanted to clear that up, based on Michael's question.

Relative to seasonality, we have done some things historically that have changed the seasonality of the business. Once again, by adding some of that consumer electronics component, that has typically strengthened our fourth quarter, but clearly one of the things that will impact our seasonality is the automotive business gets a little bit more back to its typical shutdown period. That may impact it as well, so generally those are some trends, and we have made some changes to the business to try to mitigate some of those ups and downs. I don't generally think of our business as being meaningfully cyclical or seasonal anymore. Jeff, would you add anything to that?

I would say from a comparable basis, we're going to get favorable comps in the first half of the year, because of ACS in particular.

Yes. I don't know if that's seasonal as much as acquisition driven.

Yes. So when you look at the sales for 2011, you are going to see a favorable comp until we comp the ACS acquisition.

And then all year for the Pillar acquisition.

That's right. And then the unfavorable seasonality would be the summer shutdowns and the holiday shutdown.

And as we discussed, automotive is a pretty small percentage these days on a direct basis, so I can't -- I don't know that there is any meaningful seasonal trends in our business that are any greater than some of the volatility that we'll see in our industrial equipment business just through significant orders. So -- I'm sure I'll eat these words later, but I don't think that's something I would try to model the business after.

All right. Okay. That's helpful. And with regard to SG&A this year, I know that you mentioned previously some of the incentive comp -- there was a lack of some incentive comp during the downturn. I mean, would that come back in the form of SG&A or would that hit your cost of goods line?

Both. That would hit both.

All right, so when we roll it, if we think about margins being comparable this year, really it's not all of the realm of possibilities that if you can get to the $900 million of revenue, that EBITDA could possibly approach maybe $80 million if things go well? Is that a reasonable expectation?

All I would say is, obviously, we have given you our forecast, and we have applied the same rules coming to that number as we have in the past.

Sure. Sure. Okay. And then just with regard to the balance sheet, when you think about this term A now. I guess B is effectively paid down or completely off at this point, and A -- would you target that term debt first, or do you think you would target the revolver balance as you generate free cash flow and are able knock that balance down a little bit?

Yes, as we stand right today, it's important for us to get through the B. We have talked about that on earlier calls. And with the excess payment coming, that B, as we stand today, would be gone. But in all likelihood what we would do to maintain flexibility is that we would pay down on the revolver.

Right.

Under the current [plan].

And when you look at the landscape now -- going through the downturn obviously there was an elimination of some capacity in certain segments, but you guys were able to do two acquisitions during fiscal 2010, and as the business recovers, do you feel like the acquisition environment is still favorable? And are there parts of the business where you think that you have opportunities to add incremental bolt-on-type pieces that are incremental to the business and accretive to the business?

Well, number one, as everyone will recall, we were persisting all year in 2010 that we would not do an acquisition. Our goal was not to be out there under any circumstances. It wasn't until late in the year -- very late in the year that what was provided to us was, one, what we call bolt-on, and the ACS was a transaction that was acquiring revenues that mirrored ours with wonderful accounts. It had all of the aspects. And quite frankly when it was all over, we were able to add that revenue at a lower cost than if we actually in fact had gone out there and developed it ourselves. So we picked up great accounts. It was a surprise. We did very well on it from the standpoint of the measured return.

And that was followed by another surprise that a company that was in the market -- a specialty market competing with our Ajax Magnethermic division, a world class name, relatively small in size, became available under the same terms. So I guess at the end of the year, some people just decide they want to get out of businesses. And in this particular case, this was not a classic sale in whichthere was a process run. This was -- they called us up, would you be interested? We set the pricing, and we moved on it.

So our -- we'll start all over again in -- going forward, 2011 and 2012, we believe we have three companies, three separate units that all have the ability to grow organically, and if we can get what we consider absolute bolt-ons, in which we can add revenue to those Companies at less than it would cost us to develop the revenues ourselves -- that's just a rough guideline -- we'll do that. But right now, we are -- I'm very comfortable with the platforms we have. So if the question is, we're not going to go out and buy a furniture factory or get in to some company that is not directly aligned with our business now. So ourgoal is to pay down debt, to run this Company towards cash flow, but if something comes along that fits directly into one of our current operating units and makes a lot of sense, then we would feel -- and if the pricing was right, we feel we would act on it.

But we have no intention, as we did last year -- we started the year for cash and cash flow only. We're beginning this year the same way. So we're going to slam down on expenses, and we're going to continue to reduce debt, but when you are offered two transactions like that, late in the year, that's what management is about. Change directions and take advantage of it. But our intention is not to do acquisitions this year unless they meet a very, very special high-level of contribution.

I'm sure that you see many opportunities. Are you seeing pricing in general remain reasonable for businesses that are available for sale? Or are you starting to see some bidding up with all of the dry powder in the [P/E] funds laying around?

Well, interesting from that, given the broad picture, the financial players are on the sidelines wounded. I mean, as you know, it wasn't two, three years ago when the financial players were rolling in all of these industries, particularly the auto part industry, and we all know what happened to that. So quite frankly, I think that the -- we are aware, and there are lots of processes going on, but quite frankly, the individuals that thought they could go in and roll up these companies, and were willing to pay six and seven times EBITDA on the private equity side in return 25% annualized return to their investors, it was never meant to be from the very beginning. So you can't buy something at six times, seven times EBITDA and turn around and somehow reconfigure --you can on the balance sheet, but as far as long-term sustainability.

So we -- there's a lot of less financial players in the business looking for that model, which is good. Particularly we don't run in to that type of business up in the supply chain, and we -- but the difference is we have the platforms we need, and again, we are not and have not and will not pay those type of premiums for a company.

Great color, Ed. Thanks. And congrats, and good luck for 2011.

Well, thank you very much.

And your next question comes from the line of [John Baum], who is a shareholder. Your line is open.

Hi, guys --

Hi, John, how are you today?

Excellent. Great turn around, [Ed and]Jeff. You really, again, hit the ball out of the park, and it's exciting. Looking forward to the next couple of years right here, especially in line with Aluminum Products. First question, focusing on that, are you knocking on all of the big three doors, Eddy, right now? Or when you look at the -- when you look at some of the out years right now, is it still Chrysler and Ford for the big three?

No, we're -- it's -- what is happening in this business is -- a couple of things have hand, John, that are even unique. I have been in this business a long time, but it's shocking in some ways to find that some major dye casting companies have always operated in Japan and shipped parts into our market here. Those companies are --a couple of them are for sale. And further, some of the really great German manufacturing companies supplying their transplants here. I think it's doors shutting on the shed for bringing aluminum parts from China and from Germany or Europe, or -- into America.

So I think -- somebody told me there are like 54 new models are going to be introduced in the next 12 months. Different car models. People -- the big time people are talk about the cars going all to aluminum. Aluminum doors. I mean, it's really the only recyclable metal, and there's a lot happening. The cars are going to be lighter. They're talking electric steering. There are a lot of things happening, and so we are talking to everyone. I mean when you start with this -- when you begin with having a relationship with the new ZF Bosch partnership in Cincinnati, they must have 900,000 square feet down there, and they are going in to electric steering market in a big way. And that's across all platforms. So no, it's not any one particular car.

But I will say one thing. All the -- I would say that American car companies have got the message, and they are concentrating -- particularly up at Chrysler; we have Fiat in there from the viewpoint -- supply relationships between the supplier and the user, like Chrysler, have improved. There is not the acidity that has historically existed between the two buying groups. And maybe that's because there are a not of suppliers, and a lot have come and gone. And you've been with us a long time on this, and we'vetalked about the corner or intersection, where it's supply and reliability and the fact that these relationships [for taking the] transplants are buying from their home court I think is fading away. I think a lot of that product is going to be made right here.

Okay. That's a nice segue into inflationary supplies -- supply impact. You guys, if we're looking at oil and gas, on one hand we're seeing commodities rise, but on the other hand that helps your pipe-threading business, et cetera. Can you just touch overall -- I mean, with the whole commodities boom right now, how are you modeling that for your cost? Do you have pass-throughs for that? And are there business advantages such as what you have already touched on with lighter parts, aluminum in the vehicles? Can that actually be a benefit?

Well, I can have the boys address Supply Technology and capital equipment. The Aluminum business, as you know, we are not in -- we do not take positions on our supply of aluminum. It is a negotiated contract, which the price is adjusted at a maximum for a quarter. So we do not take aluminum positions, we do not play the aluminum market. It's a pass through to the customers, and of course is a deduct if aluminum goes down. So with aluminum moving at the rate it is, the price of the part just goes up, andwe pass it on to our customers. We do not get in to the position of hedging our aluminum. We have never really felt that was the business we were in. Matt, how do you feel about the other two divisions?

Yes, John, I would say in general on our Manufactured Products segment it's a net benefit for the seasons he mentioned and I discussed earlier, particularly in light of the fact that most of major equipment orders have a four to six month type -- even the biggest of ones typically have a four to six month cycle, so you're not taking a tremendous amount of risk there. On the forging side, we typically, once again also, ours pretty short build cycles, so the Manufactured Products segment definitely will see a net benefit, and that's why you saw performance blossom in the last commodity run.

Supply Technologies, there is some risk. I think the business model has changed a little bit since the last commodity spike, in that a lot of our contracts, long-term agreements now are indexed to certain baskets of parts. Given the breadth of our purchases, it's hard to do that perfectly, butI would say to you that it gets us a contractual seat at the table when we're seeing some raw material inflation.

On the positive side, I would say that there's a couple of benefits, while there is some risk. One is, as it relates to competition that does exist, whether it be the customer themselves or other external competitors, our global sourcing and global operations footprint benefits us, because I think we are in a better position to move product to different sources, depending on currency fluctuations or raw material increases, so I would say competitively that help us.

The other thing I would say is aluminum inflation is good, right? Because you want to see -- you don't want to allow competition or the customers to price quote stuff in a decelerating environment, hence making your six months of inventory on a certain part look more expensive. So a modest amount of inflation [methods] is actually a positive thing. So I would say we're well positioned for it, but to the extent that there is risk in our business portfolio, itlies in Supply Technology.

Excellent. All right, takea victory lap guys. Great quarter, great year, and I look forward to good stuff coming up in 2011, 2012 and 2013. Thank you.

Thanks for the encouragement.

And there are no further questions in queue. I'll turn the call back over to management for any closing remarks.

Again, to all of the stakeholders in Park-Ohio we appreciate the support, we believe that we're in a position now to really capitalize on the short- and long-term future. We, again, always recognize the people that have supported us, and provided us the opportunity to build this very, very strong Company for the future. Thank you very much.

And this concludes today's conference call. You may now disconnect.