Good morning, and welcome to the Park-Ohio Third Quarter 2012 Results Conference Call. [Operator Instructions] Today’s conference is also being recorded. If you have any objections you may disconnect at this time. I would now like to turn the conference over to Edward Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

Welcome, ladies and gentlemen, to the Third Quarter 2012 Park-Ohio Conference Call. I would like to turn over the Safe Harbor statement to CFO of the company, Scott Emerick. Scott?

Thank you, Ed. Good morning, everyone, and thank you for joining us today. If you have not received a copy of our earnings press release, you can find it on the Investor Relations section of our corporate website at pkoh.com. I want to remind everybody that certain statements we make on today’s call both, during opening remarks and during the question-and-answer session may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the company's 2011 10-K filed with the SEC on March 15, 2012. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, the company may discuss EBITDA. EBITDA is not a measure of performance under generally accepted accounting principles. For reconciliation of net income to EBITDA, please refer to the company's recent earnings release. This time, I'll turn the call back over to Ed.

Thanks, Scott. And there is Matt Crawford, the COO and President of the company to cover the results in the third quarter and year-to-date 2012. Matt?

Thank you very much. Good morning, everyone. Thank you for joining us today. Our strong operating performance momentum continued into the third [audio gap] during which we saw strong earnings performance in each of our business segments. Integration of our March acquisition of Fluid Routing Solutions, or FRS for short, continues to meet expectations. Highlights in the third quarter financial performance included an 18% increase in revenues to $286.5 million, and earnings of $0.88 per diluted share, or roughly three [ph] times the $0.24 earned in 2011. EBITDA as defined total $27.8 million for the third quarter of 2012, which was a 36% increase over EBITDA of $20.4 million during the third quarter of 2011. On a year-to-date basis, our reported earnings increased 129% to $1.99 per diluted share from $0.87 in 2011. The increase in net sales was primarily attributable to acquisitions and continued strong performance in the engineered products segment, partially offset by a decrease in net sales in the Supply Technologies segment. On a sequential basis, third quarter sales net sales decreased 7%. This sequential decrease was primarily attributable to less shipping days in the second quarter as well as July shutdowns and program completions in the automobile and truck industries. The gross profit margin was 18.8% in the third quarter, which 160 basis points better than the 17.2% in the third quarter of last year. This change is largely due to favorable changes in the sales mix and supply technologies and the inclusion of FRS. SG&A expenses as a percent sales were 10.9%, compared to 10.8% in 2011. Although we continue to watch our spending very carefully, we are making investments to support our ongoing controlled ascent, particularly in the aluminum casting business and the supply technologies international expansion. Interest expense increased by $300,000, $6.5 million…

Matt, thanks very much. We are pleased with the progress year-over-year per quarter and we are looking for the uncertainty in the marketplace hopefully will clear. We are very positive about our position for 2013. We believe our 3 diversified business units will do very well, so we are looking forward to further progress for the company across all divisions in 2013. Now I'd like to take this opportunity to open up the lines for questions and thank you.

[Operator Instructions] Our first question is from the line of Ajay Kejriwal with FBR.

Maybe if we can get little bit more color on Supply Tech, you mentioned July shutdowns, so was this more than what you expect seasonally. I know you know you said one less shipping day, but what else kind of contributed to this lower sales last year?

I think in my comments, I mentioned with some specificity some of the vitality by name in the market place during the third quarter. As I mentioned in the second quarter call, we saw a bifurcation. Some markets were up, some markets were down. We just seem to see more action relative to increases and decreases in demand. So while the lack of additional shipping day was significant in our business since we are a daily supply business, there is no question that we did see some cooling in some specific segments I mentioned those in my comments.

Ajay, this is Ed. I can't overstate, I think, the concern in the marketplace across so many customers in that particular unit to what is happening at this particular moment. I think, there are a lot of people that are not in the third quarter, are not building inventories. They are being very, very careful on shipments. So maybe we'll get some relieve very quickly, but there a lot of people with all different types of thoughts on what might happen in the fourth quarter and the first quarter, so the hesitation, I don't necessarily is reflective of the demand. It's just hit certain pockets faster than others.

Because it sounds like some of your customers are destocking on the inventory. And then when things kind of stabilize, is there an expectation that you see a bounce back quickly?

Ajay, I wish I knew would 2013 held, I do think people are aggressively managing their inventories as we are here Park-Ohio, so that shouldn't be a surprise to anybody. One of the segments I mentioned, our industry as I mentioned that we are seeing softness and I saw softness during the third quarter is in defense. Your guess is as good as mine where that's going. But clearly there was a soft patch and we expect the soft patch through the end of the year.

Got it. And then you mentioned international expansions investment there, could you maybe elaborate on that little bit? What are you looking at? Which markets? Where are you in terms of those initiatives? Any thoughts, that would be helpful.

I mentioned in the last call, specifically talked about our expansion in Singapore. One of our initiatives that we began right about a year ago today was to focus at aggressively on our customers, many of which are U.S. multinationals. But many are European and Asian-based multinationals, and making sure that we can supply them globally. For a long time, we've done a great job of taking significant European and Asian customers and helping them here in the U.S. as they expanded. Our goal is to go the other direction as well. So Singapore has been a specific location which we have been aggressive in terms of expanding both from a footprint and a management and sales perspective. Asia continues to be an area of focus, particularly China, and increasingly Europe is an opportunity for us as well, although not quite as mature as Singapore and China. So that project is relatively young, but given that closeness of the relationships with those key customers, we expect to get traction certainly next year.

Ajay, as I mentioned, we have in the last 6-months increased the amount of feet on the floor all over Europe and Asia with our new and fully developed international sales force. So this is clearly something where we are investing on behalf of all the company, particularly supply chain in our customers around the world. We have acquired and working and doing a great job initiatives in many different aspects outside North America.

Good. And one more for me if I could before I pass it on. So on aluminum you mentioned something about delays with customers and is that program specifically or is that something you are seeing with just the general auto industry kind of pushing back our new programs?

Well, it shouldn't be characterized as the delay by our customers. As indicated, we have written well over $100 million in new business. The problem we have and this is a strange problem for general aluminum, the launches of so many programs at a critical time, we are launching major platforms. We have 5 plants, we are initiating major platforms in 4 to 5 plants. And when you start up a program like we are. When you start, you need to decide to double the business, okay? And your run rate goes from x to y, literally in one quarter, there is a jam quite frankly -- log jam at the plants getting these platforms up and running, and it's not the demand from the customers. Quite frankly, we are working very hard to bring this onstream, maintain the quality, so it's a good problem, but it's not the demand and it's not our people. It's the fact that we have really written so much new business. Again, when you think in terms as we've discussed, doubling the size of this business in a very short time, I expect this. I have indicated this to be in the latter part of 2013 running at a rate twice the rate it ran 2 years ago or a year ago, so we have a lot to accomplish here and it's not the demand at all. Quite frankly, we are having a hard time keeping up with a couple of our customers, so that's not the issue. The issue is a lot coming down the pipe and the pipe just went from 2 inches to 6 inches, and it's hard to really do.

Ajay, I would only add, well, I hope I was clear that we are seeing incremental volume in the third and more significantly in the fourth quarter, but definitely the second of the year in a material way. we just don't expect it to impact the performance of the business until we get more stable.

Again, all expense, these are all 5-year contracts. The plan was to begin in August or September of this year, okay? And, I will tell you -- but we have to be up -- and these run rates and I tell you by St. Patrick’s Day or thereafter. I mean we are committed here. And not only we are casting as indicated, at the same time we've gone into all the machining. So we are not only brining up only the casting in the plants, we are bringing up casting and machining, the total concept of converting that ingot. This is a big job. I was at one of our plants yesterday. Everyone down there has to understand that we went out to sell x, we sold y, and now we went into a different part of the business, but still handle it we've got the people, it's stressful, but it's there. It's not the customers. It is not the customers. We got plenty of business.

Got it. So that's very helpful, so it sounds like first quarter of next year, you should be kind of there you want to be on the production side, or is that fair?

It's not fair to say that. It's fair to say that by the middle of year, we'll have all these wrinkles, all these start ups ironed out. It's going to be up and down for the first 2 quarters. Again, think of this as we already had as hardcore $1 million business. Now if you try $100 million business, if you try to double that, okay? It's going to take some time, but it's 5 years. Once it's dialed in, it's dialed in, but these are start up problems, these are expense problems, these are things that make it happen. What I prefer to be only starting up $50 million in sales and have no problems or try to startup $100 million and have only a few programs, so I will take the latter.

Our next question is from the line of Matt Vittorioso with Barclays.

Oscar Bate in for Matt today. Just a couple of quick ones here. Could you just update me on the timeline for your expansion from aluminum casting into machining as well? And then I guess specifically, how long we should see the elevated CapEx levels associated with that? Is that just through the fourth quarter, or what's that timeline look like?

Let's go over to CapEx. Yes. The increasing CapEx literally everything involved in the CapEx ramp up again is all for the machining side of the business. We had 5 plants. We have all the casting equipment we needed to be a much bigger company. We decided that no longer did we want to just be a caster and supply our customers through another party. Now we are all direct. We do the machining ourselves and most amazing thing about this is it's just our ability to recapture the chips. When we do the machining, we take the chips. We are bringing the chips right back and put them into furnace. This is very important. This is about quality. This is about reducing cost, but more important, when we get an ingot, we are the company that specializes and is respected in the industry as we're taking it in one facility. We anodize it, we heat treat it, we cast it, we machine it and we sell it directly to the customer. This is like a whole new business. That CapEx -- don't think of that CapEx as being in the casting part of the business. Think of that CapEx as a brand new business that all that was outsourced before, now it's all in-house, virtually all in-house.

I would add as well. In our forecast, obviously you noted we are estimated, where we said 12 million the third quarter and 2 million for the fourth, so I think that's indicative of directionally where we are going. 12 was an extremely high number. Probably the most we've ever spent in a quarter, so that is highly unusual. Now do I think 2 million is a typical run rate for the business? No. But, I think 12 million was highly unusual, and I think directionally gives you sense of where we are going.

Do you still feel good 2 million and 4 million?

Yes. We just gave that estimate about 4 minutes ago, so yes. Nothing has changed.

Matt, you really look at that as an investment in new business.

Absolutely. And then, just one last quick one. Could you just talk a little bit about the FRS integration and how that's coming along? Your ability to take out cost and drive margins there?

Sure. I'll comment on it. The opportunity once again on the synergies as it relates to the FRS acquisition was largely related to cross-selling and marketing opportunity, so FRS is a very well run business. It was when we bought it and it is now, so our expectation for success there is not about driving cost. It's about cross marketing opportunities and we continue to expect that, that is a 12-month to 18-month project. Their product lines are substantially just dissimilar than ours. Although, we think where we found a fertile ground to cross-sell, it's going to take some time, so but no. I don't want to leave anyone with the impression that this is about driving cost or increasing the performance through cost reduction at FRS, it's not.

Our next question is from the line of Jay Harris with Axiom Capital.

I have several questions. First is, I am little confused on the balance sheet on -- you filed 10-Q for the June quarter showing a little over $79 million net worth. We're now at about $94 plus million dollars, and yet the net income was $11 million. What am I missing?

Scott Emerick will take this, Jay.

There's some other activity that goes through equity for some share activity that occurs in restricted stock, so it's not all that significant, but it does have an impact. There is also accumulated other comprehensive income for some foreign currency translation and some impact on pension and OPEC plans that occur as well.

Okay. Second question. When you took over Fluid Routing, they had a profile of customer contracts, have they all rolled over? What percentage rolled over during the March quarter before you took possession and where are we on rolling over the contracts with the full customer base?

Jay, it's simple. We were aware in the acquisition process that the auto companies, the customers had rejected the previous owner's concept of raising prices when they first took the company over. That's why the company became available on the basis that they were being shut out by the auto companies for their activities and way they ran the business previous to our purchase, so that was the reason was for sale. It was considered in the price, because they had missed 2 or 3 platforms, okay? They come in, we realize what happened, so they missed writing some business that they would have and had historically. That was missed. That was taken into consideration in the price we price we paid for the company. And since we've been involved, we have been continually bidding on the programs. I think we are back in good graces, but there is a valley that we anticipated in the purchase and that is taking place.

Jay. It's Matt. Let me just point out 2 things quickly. These are long-term agreements. These are long-term auto supply agreements. Embedded in your question was this idea that maybe things turned over very quickly. They don't. These are long-term agreements, when most all of the contracts that were in place when we purchased the business are still in place today. Some are not, some will complete periodically and I alluded to those in my comments, but we don't think it's materially a different business. And since the acquisition, we have been awarded some new business as well, so I think there is the potential for a soft spot, but by and large the business is healthy and being awarded new business.

As you go through this process, I presume over the next couple or 3 years, what impact do you think this rollover process is likely to have on your gross margins?

Jay, once again embedded in your question is the concept that maybe there is something unusual or strange about the volume or the margins of the business we own. I don't know if that's the case, so it's business as usual there. And we are competing for business aggressively and we have competition and I don't know if there is going to be material difference the way you are asking the question.

Yes. I think, Jay, you are implying here that something is going to have to happen to the margins, because of the volume. Those programs you are talking about have been gone for some time.

Okay. All right. That's a good answer. In your guidance, why are the margins in the fourth quarter going to be so much lower than they have been?

Just comment generally on guidance. We are, as I indicated, also share some of the concerns that we hear from our customers and you hear from them as well. Many of them have had their own conference calls as of late, so the lack of clarity and concern about some softness we share as well, so that's built into our forecast. But having said that going to really the question, we have been performing particularly in some of our higher margin businesses exceedingly well, so we expect that as to the extent there is some softness in the fourth quarter, to the extent that there is a change in business mix that that could likely hit some of our more profitable business. At the same time, we are seeing an increase in revenue as we've indicated at our aluminum casting business, which as has been indicated several times here at least at the outset is going to be extremely low margin. So to the extent we replace some low margin business with some high margin business, that's obviously can impact the margins.

Okay. Good answer. What percentage -- looking backwards let's say in the first half of the year, what percentage of your revenues was defense related?

It's Matt again, Jay. I want to think about that for a second. It is not one of our largest segments and it's not overly material. There is a piece of supply technology that is directly defense related. It is important, but not significant to the overall revenues of Supply Technologies. There is also a significant and important part of our forged business group that is related to defense as well. On a combined basis, it's definitely single digits and maybe mid-to-low single digits. Jay, if you are landing gears for Apache helicopters and the F-16s, and somebody is saying they are going to cut their budgets, military budgets into half, I think that slows down the flow until this is straightened out.

Jay, the answer to your question, because I don't want to leave that hanging though, we will be as they were tied exclusively government budget. Particularly in the forged group a couple of things are happening, which I think will benefit us. Although, the overall trend would not be positive, the couple of things that are going on there, one is we are principally in the forged business an aftermarket supplier. So to the extent that airplanes in this case, military aircraft are not retooled and they depend on older designs, which they are. That's the benefit to us actually. Once again, the overall order book might decline, but at least we are keeping our market share. Also, of note particularly in the airplane and aerospace business as well military aerospace, the international markets are huge buyers of our air-crafts, are most notably and recently are Saudi Arabia. So I don't know if that's where you are going with that question, but I want to take it as an opportunity to say that there are opportunities outside of the Department of Defense.

Well, the reason I brought up defense was because you had mentioned that as a source of possible weakening in demand and you were commenting to an earlier question.

We are definitely seeing that. I am not suggesting that, that's not a point of weakness. I just want to remind people that particularly in the forged business, we are positioned a little better than just a prime contractor for the Department of Defense on new designs.

Jay, this is way, way, way under 5% of the total business. It's small.

Just listening to your comments, it occurs to me that it's probably very difficult for you to give guidance in an environment that we find ourselves in today, and I guess if I were doing it, I'd be ultra conservative.

Jay, we thought about this long and hard and responsibility is present the facts as we see them, okay? So that's the fact as we see them. I mean, god, if anyone knew it's going to happen here with, maybe we'd play it differently. But this is what we see and we don't like coming off a guidance downward, but the net results is that's what we see. That's our responsibility and we'll go from there, but the uncertainty here is pent-up across, well, in all of businesses I am involved in. I mean, we are all waiting, so hopefully these will all clear up and get confidence back in America in what we can do and away we go. So this particular point let's concentrate and finishing up with strong, I think of this quarter overall the other quarters and how well we've done and even this quarter against last year's quarter. So we should be comparing last year's quarter with this year's quarter and we shouldn't be thinking about the consensus for the whole year. I mean it all gets muddled here. The net result is, the company is doing very well, it's very strong and we think and we have responsibility to reflect the overall guidance and that's what we've done with all the information we have and all the uncertainty that exist.

Our final question comes from the line of John Baum [ph] with Park-Ohio.

I understand there's some trepidation with making guidance in this environment with all the uncertainty out there. A couple of questions. Have you decided to raise your full year depreciation, amortization maybe up to the $20 million range right now with the acquisition of FRS and new business?

We really haven't made any changes in our core forecast for depreciation amortization since we rolled that acquisition and incorporated in the guidance in the second quarter.

Well, if I look at the D&A for the third quarter, could we be annualized in that right now, or that's nearly up to 49, can that be annualized at that level or is that not a fair estimate?

It's pretty fair. There might be a few adjustments for truing up the depreciation and amortization for FRS, but for the most part, I think it's a pretty good indicator.

Okay. Good. Matt, maybe back to, I am going to call it manufactured products right now, not engineered products. But any particular reason that with our big shipments for the drop off in quarterly sales from 2Q to 3Q or how does that -- what does that look for fourth quarter?

We have benefited from a margin standpoint from good mix, particularly as it relates to the equipment business, and higher aftermarket percentages. The new equipment part of that business has continued to be a little choppy, but not bad. As I have mentioned on prior calls, the key market there that has continued to not recover is the steel business. So our order book, our average new equipment ticket price if you will is down from what I would consider normalized basis, so where are benefiting? Process improvement, heat treat operations, auto suppliers, things like that. So I would expect that we will continue to see a little bit of choppiness as it relates to the order book and the revenue stream there, but it's largely stabilized, albeit stabilized at a level that from a new equipment perspective, we don't think is optimal, principally because of what's going on in the steel industry.

And at this time there are no further questions in the queue.

Well, I want to thank all the stakeholders in the company, we've just come off 9 months and the uncertainty is something I think we have proven we can handle successfully, so we are not daunted by the little curves in the road, the little bumps. We're looking forward to 2013. We like our businesses. We think we have the right team. This is a matter of execution in all the opportunities we have. So we'll see you in the spring hopefully reporting strong finish and more important brighter future for the company. Again, thank you for your support. Have a nice day.

Thank you for your participation in today's conference call. You may now disconnect your lines.