ParkOhio(PKOH) - 2021 Q3 - Quarterly Report

Part I. Financial Information This section presents Park-Ohio Holdings Corp.'s unaudited condensed consolidated financial statements and detailed notes for interim periods Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements and comprehensive notes for Park-Ohio Holdings Corp. Condensed Consolidated Balance Sheets This section presents the Company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Summary Table | ASSETS (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :------------------- | :----------- | :----------- | | Cash and cash equivalents | $59.6 | $55.0 | | Accounts receivable, net | $253.7 | $248.1 | | Inventories, net | $386.4 | $310.9 | | Total current assets | $778.5 | $706.4 | | Total assets | $1,369.9 | $1,300.5 | | LIABILITIES AND SHAREHOLDERS' EQUITY (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------------- | :----------- | :----------- | | Trade accounts payable | $185.6 | $166.7 | | Current portion of long-term debt and short-term debt | $8.9 | $11.6 | | Total current liabilities | $329.9 | $307.1 | | Long-term debt | $592.1 | $517.8 | | Total liabilities | $1,032.2 | $942.6 | | Total equity | $337.7 | $357.9 | | Total liabilities and shareholders' equity | $1,369.9 | $1,300.5 | - Total assets increased by $69.4 million from $1,300.5 million at December 31, 2020, to $1,369.9 million at September 30, 2021, primarily driven by an increase in inventories, net, from $310.9 million to $386.4 million[16] - Total liabilities increased by $89.6 million, from $942.6 million at December 31, 2020, to $1,032.2 million at September 30, 2021, mainly due to an increase in long-term debt from $517.8 million to $592.1 million[16] Condensed Consolidated Statements of Operations This section outlines the Company's financial performance, including net sales, gross profit, operating income, and net income Summary Table | Metric (In millions, except per share data) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $358.5 | $340.2 | $1,068.1 | $934.8 | | Gross profit | $40.1 | $49.7 | $132.0 | $117.8 | | Operating (loss) income | $(5.0) | $11.0 | $3.9 | $3.1 | | Net (loss) income | $(7.4) | $5.2 | $(7.5) | $(10.5) | | Net (loss) income attributable to Park-Ohio Holdings Corp. common shareholders | $(7.2) | $5.3 | $(7.0) | $(10.1) | | Basic (Loss) income per common share | $(0.60) | $0.44 | $(0.58) | $(0.83) | - For the three months ended September 30, 2021, net sales increased by $18.3 million (5.4%) YoY, but the company reported a net loss of $7.4 million compared to a net income of $5.2 million in the prior year period[19] - For the nine months ended September 30, 2021, net sales increased by $133.3 million (14.3%) YoY, and the net loss improved to $7.5 million from $10.5 million in the prior year period[19] Condensed Consolidated Statements of Comprehensive Income (Loss) This section details comprehensive income or loss, including net income and other comprehensive income items Summary Table | Metric (In millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) income | $(7.4) | $5.2 | $(7.5) | $(10.5) | | Currency translation | $(5.5) | $12.6 | $(8.2) | $(1.1) | | Total other comprehensive (loss) income | $(5.3) | $12.9 | $(7.6) | $0.1 | | Total comprehensive (loss) income, net of tax | $(12.7) | $18.1 | $(15.1) | $(10.4) | - Total comprehensive loss for the three months ended September 30, 2021, was $12.7 million, a significant decrease from comprehensive income of $18.1 million in the prior year, primarily due to a negative currency translation impact of $5.5 million[22] - For the nine months ended September 30, 2021, total comprehensive loss was $15.1 million, compared to $10.4 million in the prior year, largely influenced by a negative currency translation of $8.2 million[22] Condensed Consolidated Statements of Shareholders' Equity This section tracks changes in shareholders' equity, including common stock, retained earnings, and comprehensive loss Summary Table | Metric (In millions) | Balance at Jan 1, 2021 | Balance at Sep 30, 2021 | | :------------------- | :--------------------- | :---------------------- | | Common Stock | $16.1 | $16.3 | | Additional Paid-In Capital | $135.5 | $141.1 | | Retained Earnings | $290.5 | $278.8 | | Treasury Stock | $(79.8) | $(84.9) | | Accumulated Other Comprehensive (Loss) Income | $(18.1) | $(25.7) |\ | Noncontrolling Interests | $13.7 | $12.1 | | Total Equity | $357.9 | $337.7 | - Total equity decreased from $357.9 million at January 1, 2021, to $337.7 million at September 30, 2021, primarily due to retained earnings decreasing by $11.7 million and an increase in accumulated other comprehensive loss by $7.6 million[25] - Dividends per common share for the nine months ended September 30, 2021, were $0.375, compared to $0.125 in the same period of 2020[26] Condensed Consolidated Statements of Cash Flows This section presents cash inflows and outflows from operating, investing, and financing activities Summary Table | Cash Flow Component (In millions) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used) provided by operating activities | $(25.9) | $32.8 | | Net cash used by investing activities | $(30.3) | $(13.5) | | Net cash provided (used) by financing activities | $62.0 | $(24.1) | | Increase (decrease) in cash and cash equivalents | $4.6 | $(5.1) | | Cash and cash equivalents at end of period | $59.6 | $50.9 | - Net cash used in operating activities was $25.9 million for the nine months ended September 30, 2021, a significant decrease from $32.8 million provided in the prior year, primarily due to higher working capital usage, particularly increased inventories[28][128] - Net cash provided by financing activities was $62.0 million in the first nine months of 2021, a reversal from $24.1 million used in the prior year, driven by net debt borrowings of $78.4 million and increased dividend payments[28][130] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements NOTE 1 — Basis of Presentation This note describes the accounting principles and assumptions used in preparing the interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all footnotes required for complete annual statements[31][32] - Management's estimates and assumptions are used, and actual results may differ[32] NOTE 2 — New Accounting Pronouncements This note discusses the impact and evaluation of recently issued accounting standards on financial reporting - The Company is evaluating the impact of ASU 2020-04, 'Reference Rate Reform (Topic 848),' which provides temporary relief for financial reporting impacts of reference rate reform, effective upon issuance but generally not applicable after December 31, 2022[33] - No other recently issued ASUs are expected to have a material impact on the Company's results of operations, financial condition, or liquidity[34] NOTE 3 - Revenue This note disaggregates revenue by product line and geographic region, detailing contract assets and liabilities Summary Table | Product Line (In millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Supply Technologies | $154.0 | $132.0 | $466.7 | $367.2 | | Assembly Components | $120.2 | $126.9 | $355.7 | $310.0 | | Engineered Products | $84.3 | $81.3 | $245.7 | $257.6 | | Total revenues | $358.5 | $340.2 | $1,068.1 | $934.8 | Summary Table | Geographic Region (In millions) | Supply Technologies Segment (3M Sep 2021) | Assembly Components Segment (3M Sep 2021) | Engineered Products Segment (3M Sep 2021) | Total Revenue (3M Sep 2021) | | :------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------------- | | United States | $92.5 | $77.9 | $46.4 | $216.8 | | Europe | $27.9 | $3.4 | $14.8 | $46.1 | | Asia | $14.7 | $6.6 | $12.0 | $33.3 | | Mexico | $15.6 | $17.8 | $5.0 | $38.4 | | Canada | $2.9 | $14.1 | $3.5 | $20.5 | | Other | $0.4 | $0.4 | $2.6 | $3.4 | | Total | $154.0 | $120.2 | $84.3 | $358.5 | - Contract liabilities (advances/deposits) totaled $38.6 million at September 30, 2021, up from $37.4 million at December 31, 2020[40] - Contract assets (revenue recognized before billing) decreased to $50.0 million from $56.9 million over the same period[41] NOTE 4 — Segments This note provides financial information for the Company's operating segments, including net sales and operating income Summary Table | Segment (In millions) | Net Sales (3M Sep 2021) | Net Sales (3M Sep 2020) | Operating Income (3M Sep 2021) | Operating Income (3M Sep 2020) | | :-------------------- | :---------------------- | :---------------------- | :----------------------------- | :----------------------------- | | Supply Technologies | $154.0 | $132.0 | $10.7 | $10.6 | | Assembly Components | $120.2 | $126.9 | $(8.9) | $6.7 | | Engineered Products | $84.3 | $81.3 | $0.6 | $1.3 | | Total Segment Operating Income | $2.4 | $18.6 | | | Summary Table | Segment (In millions) | Net Sales (9M Sep 2021) | Net Sales (9M Sep 2020) | Operating Income (9M Sep 2021) | Operating Income (9M Sep 2020) | | :-------------------- | :---------------------- | :---------------------- | :----------------------------- | :----------------------------- | | Supply Technologies | $466.7 | $367.2 | $33.2 | $20.1 | | Assembly Components | $355.7 | $310.0 | $(8.6) | $(1.6) | | Engineered Products | $245.7 | $257.6 | $(1.3) | $4.3 | | Total Segment Operating Income | $23.3 | $22.8 | | | - Total segment operating income for the three months ended September 30, 2021, decreased significantly to $2.4 million from $18.6 million in the prior year, primarily due to a loss in the Assembly Components segment[46] NOTE 5 — Plant Closure and Consolidation This note details expenses and asset reclassifications related to plant closure and consolidation activities - The Assembly Components segment incurred $1.8 million in plant closure and consolidation expenses (facility-related costs) for the three months ended September 30, 2021, and $3.1 million for the nine months, including $0.3 million in severance costs[47] - The Engineered Products segment recorded $0.6 million in plant closure and consolidation expenses for the three months ended September 30, 2021, and $1.9 million for the nine months[48] - The Company committed to selling real estate at two Engineered Products locations, classifying assets with an aggregate carrying value of approximately $4.9 million as held for sale at September 30, 2021[49] NOTE 6 — Acquisition This note describes the acquisition of NYK Component Solutions Limited and its estimated purchase price allocation - On April 1, 2021, Park-Ohio acquired NYK Component Solutions Limited for $5.4 million in cash, net of cash acquired, plus estimated contingent consideration of up to $1.8 million[51] - NYK is a distributor of circular connectors and accessories, included in the Supply Technologies segment[51] Summary Table | Estimated Purchase Price Allocation (In millions) | Amount | | :---------------------------------------------- | :----- | | Accounts receivable | $1.0 | | Inventories | $2.2 | | Property, plant and equipment | $0.1 | | Intangible assets | $2.8 | | Goodwill | $2.5 | | Deferred income tax liability | $(0.5) | | Total purchase price (including estimated contingent consideration of $1.8 million) | $7.2 | NOTE 7 — Inventories This note provides a breakdown of inventories by raw materials, work-in-process, and finished goods Summary Table | Inventories, net (In millions) | September 30, 2021 | December 31, 2020 | | :----------------------------- | :----------------- | :---------------- | | Raw materials and supplies | $120.0 | $93.8 | | Work-in-process | $50.1 | $44.0 | | Finished goods | $216.3 | $173.1 | | Inventories, net | $386.4 | $310.9 | - Inventories, net, increased by $75.5 million from $310.9 million at December 31, 2020, to $386.4 million at September 30, 2021, with finished goods showing the largest increase[54] NOTE 8 — Accrued Warranty Costs This note details changes in accrued warranty liabilities, including claims paid and warranty expense Summary Table | Warranty Liability (In millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $7.6 | $6.5 | $6.4 | $6.4 | | Claims paid | $(0.4) | $(0.5) | $(1.6) | $(1.1) | | Warranty expense | $0.1 | $0.3 | $2.5 | $1.0 | | Ending balance | $7.3 | $6.3 | $7.3 | $6.3 | - The ending balance of accrued warranty costs increased to $7.3 million at September 30, 2021, from $6.3 million at September 30, 2020, for both the three-month and nine-month periods, driven by higher warranty expense recognized in 2021[56] NOTE 9 — Income Taxes This note explains income tax benefit/expense and effective tax rates, including the impact of the CARES Act - Income tax benefit for the three months ended September 30, 2021, was $2.8 million (effective rate of 27%), compared to an expense of $0.3 million (5%) in 2020[59] - The 2021 rate was higher than the U.S. statutory rate (21%) due to additional tax benefit from stock compensation and state/local taxes[59] - For the nine months ended September 30, 2021, income tax benefit was $3.7 million (effective rate of 33%), compared to $3.8 million (27%) in 2020[60] - The 2021 rate was higher than the U.S. statutory rate due to the net operating loss carryback claim under the CARES Act and earnings composition[60] - The CARES Act, signed in March 2020, allows for a five-year net operating loss carryback and an increase in the Section 163(j) interest expense disallowance limitation from 30% to 50% for 2019 and 2020 tax years[58] NOTE 10 — Financing Arrangements This note outlines the Company's debt structure, including senior notes, revolving credit facility, and finance leases Summary Table | Debt (In millions) | Maturity Date | Interest Rate (Sep 30, 2021) | Carrying Value (Sep 30, 2021) | Carrying Value (Dec 31, 2020) | | :----------------- | :------------ | :--------------------------- | :---------------------------- | :---------------------------- | | Senior Notes | April 15, 2027 | 6.625% | $350.0 | $350.0 | | Revolving credit facility | November 26, 2024 | 1.30% | $221.8 | $143.7 | | Finance Leases | Various | Various | $15.2 | $18.7 | | Other | Various | Various | $18.2 | $22.3 | | Total debt | | | $605.2 | $534.7 | - Total debt increased to $605.2 million at September 30, 2021, from $534.7 million at December 31, 2020, primarily due to an increase in the revolving credit facility balance from $143.7 million to $221.8 million[63] - The fair value of the Senior Notes was $351.3 million at September 30, 2021, compared to a carrying amount of $350.0 million[70] NOTE 11 — Stock-Based Compensation This note details stock-based compensation expense and activity for restricted share awards Summary Table | Restricted Share Activity (In whole shares) | Outstanding - beginning of year | Granted | Vested | Canceled or expired | Outstanding - end of period | | :---------------------------------------- | :------------------------------ | :------ | :----- | :------------------ | :-------------------------- | | Time-Based | 741,006 | 183,401 | (234,081) | (7,917) | 682,409 | | Performance-Based | 50,000 | — | — | — | 50,000 | - Total stock-based compensation expense was $1.7 million for the three months ended September 30, 2021 (vs. $1.6 million in 2020) and $4.7 million for the nine months ended September 30, 2021 (vs. $4.4 million in 2020)[72] - As of September 30, 2021, $11.4 million of unrecognized compensation cost related to non-vested stock-based compensation is expected to be recognized over a weighted-average period of 2.0 years[72] NOTE 12 — Commitments and Contingencies This note discloses legal proceedings, including asbestos-related lawsuits, and management's impact assessment - The Company is involved in approximately 124 asbestos-related lawsuits, asserting claims on behalf of 228 plaintiffs[75][158][161] - Historically, the Company has been successful in being dismissed from such cases[161] - Management believes the ultimate resolution of these legal matters, including asbestos-related lawsuits, will not have a material adverse effect on the Company's financial condition, liquidity, or results of operations[77][157][161] NOTE 13 — Pension and Postretirement Benefits This note presents net periodic benefit income or expense for pension and postretirement plans Summary Table | Net Periodic Benefit (Income) Expense (In millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Pension Benefits | $(1.5) | $(1.0) | $(4.4) | $(2.6) | | Postretirement Benefits | $0.1 | $0.1 | $0.4 | $0.3 | | Total Net Periodic Benefit (Income) Expense | $(1.4) | $(0.9) | $(4.0) | $(2.3) | - Net periodic pension benefit income increased to $1.5 million for the three months ended September 30, 2021, from $1.0 million in the prior year, and to $4.4 million for the nine months from $2.6 million, primarily due to expected return on plan assets[78] NOTE 14 — Accumulated Other Comprehensive (Loss) Income This note details components of accumulated other comprehensive loss, primarily currency translation adjustments Summary Table | Accumulated Other Comprehensive (Loss) Income (In millions) | Beginning Balance (3M Sep 2021) | Currency Translation (3M Sep 2021) | Pension and OPEB Activity (3M Sep 2021) | Ending Balance (3M Sep 2021) | | :-------------------------------------------------------- | :------------------------------ | :--------------------------------- | :-------------------------------------- | :--------------------------- | | Cumulative Translation Adjustment | $(11.0) | $(5.5) | — | $(16.5) | | Pension and Postretirement Benefits | $(9.4) | — | $0.2 | $(9.2) | | Total | $(20.4) | $(5.5) | $0.2 | $(25.7) | - The accumulated other comprehensive loss increased to $25.7 million at September 30, 2021, from $18.1 million at the beginning of the year, primarily due to a negative currency translation adjustment of $8.2 million for the nine-month period[79] NOTE 15 — Weighted-Average Number of Shares Used in Computing Earnings Per Share This note provides weighted-average shares outstanding for basic and diluted earnings per share calculations Summary Table | Shares (In millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Weighted-average basic shares outstanding | 12.1 | 12.0 | 12.0 | 12.1 | | Weighted-average diluted shares outstanding | 12.1 | 12.0 | 12.0 | 12.1 | - Anti-dilutive shares, excluded from diluted EPS computation, were 0.2 million for the three months ended September 30, 2021 (vs. 0.5 million in 2020) and 0.1 million for the nine months ended September 30, 2021 (vs. 0.3 million in 2020)[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Company's financial condition, operating results, segment performance, liquidity, and capital resources Executive Overview This overview introduces Park-Ohio's business segments, the impact of COVID-19, and strategic responses - Park-Ohio Holdings Corp. is a diversified international company operating through three segments: Supply Technologies (supply chain management), Assembly Components (fuel efficiency and emission reduction products), and Engineered Products (induction heating, pipe threading, forged/machined products)[84][85][86][87] - The COVID-19 pandemic has negatively impacted markets, caused a global semiconductor micro-chip shortage, raw material price inflation, higher labor costs, and supply chain constraints[89] - The Company is implementing cost-reduction actions, including plant consolidation and discretionary spending cuts[89] - Despite uncertainties, the Company believes its diversified portfolio, $218.0 million liquidity as of September 30, 2021, and cost-reduction efforts position it well to manage through the crisis[90] Results of Operations (Three Months Ended September 30, 2021 vs. 2020) This section analyzes financial performance for the three months ended September 30, 2021, compared to prior year Summary Table | Metric (In millions, except per share data) | 3M Sep 2021 | 3M Sep 2020 | $ Change | % Change | | :------------------------------------------ | :---------- | :---------- | :------- | :------- | | Net sales | $358.5 | $340.2 | $18.3 | 5.4% | | Gross profit | $40.1 | $49.7 | $(9.6) | (19.3)% | | Gross margin | 11.2% | 14.6% | | | | Operating (loss) income | $(5.0) | $11.0 | $(16.0) | * | | Net (loss) income attributable to Park-Ohio Holdings Corp. common shareholders | $(7.2) | $5.3 | $(12.5) | * | | Basic (Loss) income per common share | $(0.60) | $0.44 | $(1.04) | * | - Net sales increased by 5.4% due to higher customer demand in Supply Technologies and Engineered Products, partially offset by lower sales in Assembly Components due to the global semiconductor micro-chip shortage[93] - Gross margin decreased from 14.6% to 11.2% due to the micro-chip shortage, raw material price inflation, higher labor costs, supply chain constraints, increased freight costs, and manufacturing under-absorption of fixed costs[96] - Plant closure and consolidation expenses of $1.8 million also impacted the margin[96] - SG&A expenses increased by 16.5% to $45.1 million, partly due to the restoration of costs cut in 2020 and $2.5 million in plant closure and consolidation charges[97] Results of Operations (Nine Months Ended September 30, 2021 vs. 2020) This section analyzes financial performance for the nine months ended September 30, 2021, compared to prior year Summary Table | Metric (In millions, except per share data) | 9M Sep 2021 | 9M Sep 2020 | $ Change | % Change | | :------------------------------------------ | :---------- | :---------- | :------- | :------- | | Net sales | $1,068.1 | $934.8 | $133.3 | 14.3% | | Gross profit | $132.0 | $117.8 | $14.2 | 12.1% | | Gross margin | 12.4% | 12.6% | | | | Operating income | $3.9 | $3.1 | $0.8 | 25.8% | | Net loss attributable to Park-Ohio Holdings Corp. common shareholders | $(7.0) | $(10.1) | $3.1 | (30.7)% | | Basic Loss per common share | $(0.58) | $(0.83) | $0.25 | (30.1)% | - Net sales increased by 14.3% to $1,068.1 million, driven by higher customer demand in Supply Technologies and Assembly Components, partially offset by lower demand in Engineered Products[103] - Gross margin slightly decreased from 12.6% to 12.4%, impacted by $2.9 million in plant closure and consolidation expenses in 2021 (compared to $4.1 million in 2020)[105][106] - SG&A expenses increased by 11.7% to $128.1 million, including $4.1 million for plant closure and consolidation and $0.4 million for acquisition-related expenses[107] - As a percentage of net sales, SG&A improved to 12.0% from 12.3% due to a higher revenue base[107] Segment Results This section provides a detailed analysis of the financial performance for each of the Company's operating segments Supply Technologies Segment This section details the net sales and operating income performance of the Supply Technologies segment Summary Table | Metric (In millions) | 3M Sep 2021 | 3M Sep 2020 | 9M Sep 2021 | 9M Sep 2020 | | :------------------- | :---------- | :---------- | :---------- | :---------- | | Net sales | $154.0 | $132.0 | $466.7 | $367.2 | | Segment operating income | $10.7 | $10.6 | $33.2 | $20.1 | | Segment operating income margin | 6.9% | 8.0% | 7.1% | 5.5% | - Net sales for the three months ended September 30, 2021, increased by 16.7% due to higher customer demand across most end markets, particularly heavy-duty truck, semiconductor, and agricultural/industrial equipment[113] - Segment operating income margin decreased by 110 basis points in the three-month period due to higher freight costs from global supply chain constraints and a labor strike, partially offset by cost-reduction actions[114] - For the nine months ended September 30, 2021, net sales increased by 27.1%, and segment operating income margin was up 160 basis points, driven by increased sales, cost reduction actions, pricing initiatives, and favorable product mix[115][116] Assembly Components Segment This section details the net sales and operating income performance of the Assembly Components segment Summary Table | Metric (In millions) | 3M Sep 2021 | 3M Sep 2020 | 9M Sep 2021 | 9M Sep 2020 | | :------------------- | :---------- | :---------- | :---------- | :---------- | | Net sales | $120.2 | $126.9 | $355.7 | $310.0 | | Segment operating (loss) income | $(8.9) | $6.7 | $(8.6) | $(1.6) | | Segment operating (loss) income margin | (7.4)% | 5.3% | (2.4)% | (0.5)% | - Net sales for the three months ended September 30, 2021, decreased by 5.2% due to a $13.1 million negative impact from the global semiconductor micro-chip shortage[118] - The segment reported an operating loss of $8.9 million in the three-month period (vs. $6.7 million income in 2020), driven by the micro-chip shortage, raw material inflation, higher labor/freight costs, and $3.4 million in plant closure/consolidation charges[119] - For the nine months ended September 30, 2021, net sales increased by 14.7% due to the recovery from 2020 COVID-19 shutdowns, despite the ongoing micro-chip shortage[120] - The segment operating loss increased to $8.6 million (vs. $1.6 million in 2020) due to similar factors as the quarterly period, including $4.8 million in plant closure/consolidation costs[121] Engineered Products Segment This section details the net sales and operating income performance of the Engineered Products segment Summary Table | Metric (In millions) | 3M Sep 2021 | 3M Sep 2020 | 9M Sep 2021 | 9M Sep 2020 | | :------------------- | :---------- | :---------- | :---------- | :---------- | | Net sales | $84.3 | $81.3 | $245.7 | $257.6 | | Segment operating income (loss) | $0.6 | $1.3 | $(1.3) | $4.3 | | Segment operating income (loss) margin | 0.7% | 1.6% | (0.5)% | 1.7% | - Net sales for the three months ended September 30, 2021, increased by 3.7% due to stronger demand for capital equipment products, partially offset by slow recovery in forged and machined products (oil and gas, aerospace, rail, agriculture)[123] - Segment operating income decreased by $0.7 million in the three-month period, and margin decreased by 90 basis points, due to manufacturing under-absorption of fixed costs and $0.6 million in plant closure/consolidation charges[124] - For the nine months ended September 30, 2021, net sales decreased by 4.6%, resulting in an operating loss of $1.3 million (vs. $4.3 million income in 2020), attributed to lower sales, under-absorption of fixed costs, and $1.9 million in plant closure/consolidation activities[125] Liquidity and Capital Resources This section discusses cash flows, debt, and available liquidity to fund operations and investments Summary Table | Cash Flow Component (In millions) | 9M Sep 2021 | 9M Sep 2020 | $ Change | | :-------------------------------- | :---------- | :---------- | :------- | | Net cash (used) provided by operating activities | $(25.9) | $32.8 | $(58.7) | | Net cash used by investing activities | $(30.3) | $(13.5) | $(16.8) | | Net cash provided (used) by financing activities | $62.0 | $(24.1) | $86.1 | | Increase (decrease) in cash and cash equivalents | $4.6 | $(5.1) | $9.7 | - Cash used in operating activities for the nine months ended September 30, 2021, was $25.9 million, a decrease from $32.8 million provided in the prior year, primarily due to $45.1 million in working capital usage (vs. $12.8 million reduction in 2020), driven by higher inventories ($74.7 million increase)[128] - Investing activities used $30.3 million, including $24.9 million for capital expenditures (up from $14.9 million in 2020) and $5.4 million for the NYK acquisition[129] - Financing activities provided $62.0 million, primarily from $78.4 million in net debt borrowings (vs. $7.7 million repayments in 2020) and three cash dividend payments totaling $4.7 million[130] - As of September 30, 2021, total liquidity was $218.0 million, comprising $158.4 million of unused borrowing availability and $59.6 million in cash and cash equivalents[133] - The Company was in compliance with its revolving credit facility covenants as of September 30, 2021, with calculated availability of $136.6 million, exceeding the $46.875 million threshold for the debt service ratio covenant[139][141] Seasonality; Variability of Operating Results This section explains factors causing fluctuations in operating results, including customer order timing - The timing and level of customer orders vary due to factors like finished goods orders, production schedules, competition, and economic conditions, leading to significant periodic and quarterly fluctuations in operations[143] - This variability is particularly pronounced in the capital equipment business within the Engineered Products segment, which typically ships large systems at a slower pace[143] Critical Accounting Policies This section highlights key accounting policies requiring significant management judgments and estimates - There were no new critical accounting policies or updates to existing ones in this Quarterly Report on Form 10-Q[144] - The application of critical accounting policies requires management judgments and estimates, which are based on historical experience and available information, and actual results could differ from these estimates[145] Forward-Looking Statements This section identifies forward-looking statements and outlines key risks and uncertainties affecting future results - The report contains forward-looking statements identified by words like 'believes,' 'anticipates,' 'plans,' 'expects,' 'intends,' and 'estimates,' which are subject to known and unknown risks and uncertainties[146][147] - Key risk factors include the ultimate impact of the COVID-19 pandemic (supply chain issues, micro-chip shortage), substantial indebtedness, global economic uncertainty, raw material/energy costs, labor disturbances, and the ability to meet financial covenants[147] - The Company undertakes no obligation to update any forward-looking statement, and their inclusion should not be seen as a guarantee that plans and objectives will be achieved[148] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section assesses market risks, including interest rate, foreign currency, and commodity price fluctuations - The Company is exposed to interest rate risk on its floating rate revolving credit facility; a 100-basis-point increase would have increased interest expense by approximately $1.7 million for the nine months ended September 30, 2021[149] - Foreign currency translation risks exist due to foreign subsidiaries conducting business in local currencies, affecting net sales and expenses when translated to U.S. dollars[150] - The Company's largest commodity price exposures are to metal and natural gas, which have fluctuated widely, but it does not use commodity swap agreements, forward purchase, or hedge contracts[151] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports on internal control over financial reporting - As of September 30, 2021, the Company's chief executive officer and chief financial officer concluded that disclosure controls and procedures were effective[152] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[153] Part II. Other Information This section provides additional information, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings This section details the Company's involvement in various legal proceedings, including asbestos-related cases - The Company is a co-defendant in approximately 124 asbestos cases involving 228 plaintiffs, alleging personal injury from asbestos exposure[158] - Historically, the Company has been successful in being dismissed from asbestos cases, often due to incorrect subsidiary naming or failure to identify Company products/premises as sources of asbestos[161] - Management believes the ultimate resolution of asbestos-related lawsuits will not have a material adverse effect on the Company's financial condition, liquidity, or results of operations, and defense costs have not been material to date[161][162] Item 1A. Risk Factors This section states no material changes to previously disclosed risk factors from the annual report - No material changes have occurred in the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020[163] - Investors should not interpret the disclosure of any risk factor to imply that the risk has not already materialized[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes common stock repurchases, including those under publicly announced programs and for tax liabilities Summary Table | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans (1) | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program (1) | | :------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :-------------------------------------------------------------------------------- | | July 1 — July 31, 2021 | 9,549 | $32.25 | — | 541,085 | | August 1 — August 31, 2021 | 70,813 | $25.31 | 69,374 | 471,711 | | September 1 — September 30, 2021 | 30,178 | $26.93 | 27,287 | 444,424 | | Total | 110,540 | $26.35 | 96,661 | 444,424 | - The Company repurchased a total of 110,540 shares of common stock during the quarter ended September 30, 2021, at an average price of $26.35 per share[165] - Of the total shares purchased, 96,661 were part of a publicly announced share repurchase program (up to 1.0 million shares), leaving 444,424 shares available for repurchase under the program[165][166] - An aggregate of 13,879 shares were acquired from restricted stock award recipients to settle withholding tax liabilities[166] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits include Principal Executive Officer's and Principal Financial Officer's Certifications (31.1, 31.2), Certification under Section 906 (32), and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[166] Signatures This section contains the official signature confirming the due filing of the report by an authorized officer - The report was signed by Patrick W. Fogarty, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) of Park-Ohio Holdings Corp. on November 3, 2021[169][170]