ParkOhio(PKOH) - 2022 Q2 - Quarterly Report

Part I Financial Information This section presents the unaudited condensed consolidated financial statements and management's financial analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and related notes for Park-Ohio Holdings Corp Condensed Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (In millions): | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | ASSETS | | | | Cash and cash equivalents | $61.1 | $54.1 | | Accounts receivable, net | $294.8 | $255.3 | | Inventories, net | $413.1 | $382.9 | | Total current assets | $850.7 | $775.5 | | Property, plant and equipment, net | $224.8 | $229.1 | | Goodwill | $102.4 | $106.0 | | Total assets | $1,418.3 | $1,360.0 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Trade accounts payable | $226.0 | $194.0 | | Current portion of long-term debt and short-term debt | $10.3 | $10.7 | | Total current liabilities | $359.5 | $349.0 | | Long-term debt | $655.6 | $591.5 | | Total liabilities | $1,104.5 | $1,035.2 | | Total equity | $313.8 | $324.8 | | Total liabilities and shareholders' equity | $1,418.3 | $1,360.0 | Condensed Consolidated Statements of Operations (Unaudited) This table details the company's revenues, expenses, and net income over specific interim periods Condensed Consolidated Statements of Operations (Unaudited, In millions, except per share data): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $428.6 | $350.0 | $847.0 | $709.6 | | Gross profit | $49.8 | $39.9 | $103.5 | $91.9 | | Operating income (loss) | $7.7 | $(3.4) | $15.6 | $8.9 | | Income (loss) before income taxes | $2.2 | $(8.3) | $5.1 | $(1.0) | | Net income (loss) | $1.5 | $(5.5) | $7.8 | $(0.1) | | Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders | $1.0 | $(5.3) | $7.1 | $0.2 | | Basic EPS | $0.08 | $(0.44) | $0.59 | $0.02 | | Diluted EPS | $0.08 | $(0.44) | $0.58 | $0.02 | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) This table presents the company's net income adjusted for other comprehensive income or loss items Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, In millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1.5 | $(5.5) | $7.8 | $(0.1) | | Currency translation | $(14.6) | $1.6 | $(18.5) | $(2.7) | | Total other comprehensive (loss) income | $(14.8) | $1.8 | $(17.9) | $(2.3) | | Total comprehensive loss, net of tax | $(13.3) | $(3.7) | $(10.1) | $(2.4) | | Comprehensive loss attributable to Park-Ohio Holdings Corp. common shareholders | $(13.8) | $(3.5) | $(10.8) | $(2.1) | Condensed Consolidated Statements of Shareholders' Equity (Unaudited) This section outlines changes in the company's equity components, including common stock and retained earnings Condensed Consolidated Statements of Shareholders' Equity (Unaudited, In millions, except shares): | Metric | Balance at Jan 1, 2022 | Balance at Mar 31, 2022 | Balance at Jun 30, 2022 | | :-------------------------------- | :--------------------- | :---------------------- | :---------------------- | | Common Stock (Shares) | 16,339,722 | 16,334,220 | 16,642,841 | | Common Stock (Amount) | $16.3 | $16.3 | $16.6 | | Additional Paid-In Capital | $142.9 | $144.5 | $146.0 | | Retained Earnings | $259.4 | $263.9 | $263.3 | | Treasury Stock | $(85.3) | $(85.4) | $(86.4) | | Accumulated Other Comprehensive Loss | $(19.2) | $(22.3) | $(37.1) | | Noncontrolling Interests | $10.7 | $10.9 | $11.4 | | Total | $324.8 | $327.9 | $313.8 | Dividends per common share: | Period | 2022 | 2021 | | :------------------------ | :--- | :--- | | Three Months Ended June 30, | $0.125 | $0.125 | | Six Months Ended June 30, | $0.250 | $0.250 | Condensed Consolidated Statements of Cash Flows (Unaudited) This table summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited, In millions): | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(38.2) | $(23.3) | | Net cash used in investing activities | $(11.5) | $(19.8) | | Net cash provided by financing activities | $60.6 | $43.7 | | Effect of exchange rate changes on cash | $(3.9) | $(0.3) | | Increase in cash and cash equivalents | $7.0 | $0.3 | | Cash and cash equivalents at end of period | $61.1 | $55.3 | | Interest paid | $15.4 | $14.3 | | Income taxes paid | $2.7 | $6.4 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the 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 U.S. GAAP for interim financial information, including normal recurring accruals, and do not include all information required for complete annual financial statements[29][30] - Management's estimates and assumptions are used, and actual results may differ[31] NOTE 2 — New Accounting Pronouncements This note discusses the impact of recently issued accounting standards on the company's financial reporting - ASU 2020-04, 'Reference Rate Reform,' effective from March 12, 2020, is not expected to have a material impact[32] - No other recently-issued ASUs are anticipated to materially affect operations, financial condition, or liquidity[33] NOTE 3 — Revenue This note disaggregates revenue by product line and geographic region, detailing contract assets and liabilities - Revenue is disaggregated by product line and geographic region to best illustrate the impact of economic factors on revenue and cash flows[34] Revenue by Product Line (In millions): | Product Line | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Supply Technologies Segment | $175.8 | $155.0 | $344.6 | $312.7 | | Assembly Components Segment | $154.2 | $109.5 | $312.8 | $235.5 | | Engineered Products Segment | $98.6 | $85.5 | $189.6 | $161.4 | | Total revenues | $428.6 | $350.0 | $847.0 | $709.6 | Revenue by Geographic Region (Three Months Ended June 30, 2022, In millions): | Geographic Region | Supply Technologies Segment | Assembly Components Segment | Engineered Products Segment | Total Revenue | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :------------ | | United States | $108.0 | $111.7 | $58.6 | $278.3 | | Europe | $30.7 | $4.7 | $14.4 | $49.8 | | Asia | $16.9 | $4.2 | $12.3 | $33.4 | | Mexico | $16.5 | $14.2 | $3.9 | $34.6 | | Canada | $3.1 | $18.7 | $5.5 | $27.3 | | Other | $0.6 | $0.7 | $3.9 | $5.2 | | Total | $175.8 | $154.2 | $98.6 | $428.6 | - Contract liabilities (advances/deposits) totaled $43.3 million at June 30, 2022, down from $51.7 million at December 31, 2021[39] - Contract assets (revenue recognized before billing) totaled $51.3 million at June 30, 2022, down from $55.0 million at December 31, 2021[40] NOTE 4 — Segments This note provides financial information for the company's three operating segments - The Company operates through three segments: Supply Technologies, Assembly Components, and Engineered Products[41] - Segment performance is measured by segment operating income, which excludes non-operating, unusual, or corporate costs[42] Segment Net Sales and Operating Income (In millions): | Segment | Three Months Ended June 30, 2022 Net Sales | Three Months Ended June 30, 2021 Net Sales | Six Months Ended June 30, 2022 Net Sales | Six Months Ended June 30, 2021 Net Sales | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Supply Technologies | $175.8 | $155.0 | $344.6 | $312.7 | | Assembly Components | $154.2 | $109.5 | $312.8 | $235.5 | | Engineered Products | $98.6 | $85.5 | $189.6 | $161.4 | | Total Net Sales | $428.6 | $350.0 | $847.0 | $709.6 | | | | | | | | Segment | Three Months Ended June 30, 2022 Operating Income (Loss) | Three Months Ended June 30, 2021 Operating Income (Loss) | Six Months Ended June 30, 2022 Operating Income (Loss) | Six Months Ended June 30, 2021 Operating Income (Loss) | | :-------------------- | :------------------------------------------------------- | :------------------------------------------------------- | :----------------------------------------------------- | :----------------------------------------------------- | | Supply Technologies | $12.7 | $10.2 | $24.7 | $22.5 | | Assembly Components | $(7.5) | $(6.1) | $(5.5) | $0.3 | | Engineered Products | $7.1 | $(0.7) | $8.9 | $(1.9) | | Total Segment Operating Income | $12.3 | $3.4 | $28.1 | $20.9 | NOTE 5 — Plant Closure and Consolidation This note details expenses incurred for plant closure and consolidation activities across segments - Assembly Components segment incurred $4.2 million (Q2 2022) and $6.2 million (YTD 2022) in plant closure and consolidation expenses, with an additional $1.0 million expected in H2 2022[46] - Engineered Products segment incurred $0.8 million (Q2 2022) and $1.4 million (YTD 2022) for similar activities, with an additional $5.0 million expected in H2 2022[47] - In 2021, Assembly Components recorded $0.8 million (Q2) and $1.3 million (YTD) for plant closures, and Engineered Products recorded $0.6 million (Q2) and $1.3 million (YTD) for consolidation activities[48][49] NOTE 6 — Inventories This table breaks down the company's inventory balances by raw materials, work-in-process, and finished goods Inventories, net (In millions): | Category | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Raw materials and supplies | $134.1 | $114.2 | | Work-in-process | $52.1 | $49.6 | | Finished goods | $226.9 | $219.1 | | Inventories, net | $413.1 | $382.9 | NOTE 7 — Accrued Warranty Costs This table presents the changes in accrued warranty costs, including claims paid and warranty expense Accrued Warranty Costs (In millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $6.7 | $6.5 | $7.2 | $6.4 | | Claims paid | $(0.2) | $(0.9) | $(0.9) | $(1.2) | | Warranty expense | $0.5 | $2.0 | $0.7 | $2.4 | | Ending balance | $7.0 | $7.6 | $7.0 | $7.6 | NOTE 8 — Income Taxes This note explains the income tax expense and benefit, including effective tax rates and specific credits - Q2 2022 income tax expense was $0.7 million (32% effective rate), higher than the 21% U.S. statutory rate due to stock compensation deduction[54] - Q2 2021 income tax benefit was $2.8 million (34% effective rate) due to CARES Act net operating loss carryback[54] - YTD 2022 income tax benefit was $2.7 million, including a $4.1 million federal R&D credit[55] - YTD 2021 income tax benefit was $0.9 million (90% effective rate) due to CARES Act benefit and earnings composition[55] NOTE 9 — Financing Arrangements This note details the company's debt structure, including senior notes, revolving credit facilities, and fair values Debt Composition (In millions): | Debt Type | Maturity Date | Interest Rate at June 30, 2022 | Carrying Value at June 30, 2022 | Carrying Value at December 31, 2021 | | :-------------------------- | :------------ | :----------------------------- | :------------------------------ | :---------------------------------- | | Senior Notes | April 15, 2027 | 6.625% | $350.0 | $350.0 | | Revolving credit facility | November 26, 2024 | 2.34% | $288.4 | $221.1 | | Finance Leases | Various | Various | $14.5 | $17.5 | | Other | Various | Various | $16.5 | $17.5 | | Total debt | | | $669.4 | $606.1 | | Less current portion & issuance costs | | | $(13.8) | $(14.6) | | Total long-term debt, net | | | $655.6 | $591.5 | - The revolving credit facility is $405.0 million, with $101.5 million borrowing availability as of June 30, 2022[58] - Senior Notes of $350.0 million are unsecured and due 2027[59] Senior Notes Fair Value (In millions): | Metric | June 30, 2022 | December 31, 2021 | | :------------- | :------------ | :---------------- | | Carrying amount | $350.0 | $350.0 | | Fair value | $276.5 | $337.6 | NOTE 10 — Stock-Based Compensation This note outlines restricted share activity and the total stock-based compensation expense recognized Restricted Share Activity (Six Months Ended June 30, 2022): | Metric | Time-Based Shares | Weighted Average Grant Date Fair Value | Performance-Based Shares | Weighted Average Grant Date Fair Value | | :------------------------ | :---------------- | :----------------------------------- | :----------------------- | :----------------------------------- | | Outstanding - beginning of year | 655,093 | $24.62 | 50,000 | $32.55 | | Granted | 325,765 | $16.03 | — | — | | Vested | (173,035) | $25.38 | — | — | | Canceled or expired | (10,246) | $23.39 | — | — | | Outstanding - end of period | 797,577 | $20.96 | 50,000 | $32.55 | - Total stock-based compensation expense was $1.8 million (Q2 2022) and $3.4 million (YTD 2022)[66] - Unrecognized compensation cost was $11.6 million, expected to be recognized over 2.0 years[66] NOTE 11 — Commitments and Contingencies This note discloses the company's involvement in legal proceedings and other contingent liabilities - The Company is involved in various claims and legal proceedings, including 99 asbestos-related cases involving 161 plaintiffs[67][69] - Management believes these will not have a material adverse effect on financial condition, liquidity, or results of operations due to historical dismissal success and lack of causal relationship[70] NOTE 12 — Pension and Postretirement Benefits This table details the net periodic benefit income and expense for pension and postretirement plans Net Periodic Benefit (Income) Expense Costs (In millions): | Metric | Three Months Ended June 30, 2022 Pension | Three Months Ended June 30, 2021 Pension | Six Months Ended June 30, 2022 Pension | Six Months Ended June 30, 2021 Pension | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :----------------------------------- | :----------------------------------- | | Service costs | $1.1 | $1.1 | $2.2 | $2.2 | | Interest costs | $0.5 | $0.4 | $0.9 | $0.7 | | Expected return on plan assets | $(3.3) | $(3.1) | $(6.5) | $(6.2) | | Recognized net actuarial loss | — | $0.2 | — | $0.4 | | Net periodic benefit (income) expense | $(1.7) | $(1.4) | $(3.4) | $(2.9) | | | | | | | | Metric | Three Months Ended June 30, 2022 Postretirement | Three Months Ended June 30, 2021 Postretirement | Six Months Ended June 30, 2022 Postretirement | Six Months Ended June 30, 2021 Postretirement | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Service costs | — | — | — | — | | Interest costs | $0.1 | $0.1 | $0.1 | $0.1 | | Expected return on plan assets | $(0.1) | — | $(0.2) | — | | Recognized net actuarial loss | — | $0.1 | $0.1 | $0.2 | | Net periodic benefit (income) expense | $0.2 | — | $0.3 | $0.3 | NOTE 13 — Accumulated Other Comprehensive Loss This table shows changes in accumulated other comprehensive loss, including currency translation adjustments Accumulated Other Comprehensive Loss (In millions): | Component | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Beginning balance | $(22.3) | $(19.2) | | Currency translation | $(14.6) | $(18.5) | | Foreign currency forward contracts | $(0.2) | $0.5 | | Pension and OPEB activity, net of tax | — | $0.1 | | Ending balance | $(37.1) | $(37.1) | - No income taxes were provided on currency translation as foreign earnings are considered permanently reinvested[73] NOTE 14 — Weighted-Average Number of Shares Used in Computing Earnings Per Share This table provides the weighted-average shares used for basic and diluted earnings per share calculations Weighted-Average Shares Used in EPS Computation (In millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Weighted-average basic shares outstanding | 12.1 | 12.0 | 12.1 | 12.0 | | Plus: Dilutive impact of employee stock awards | 0.1 | — | 0.1 | 0.3 | | Weighted-average diluted shares outstanding | 12.2 | 12.0 | 12.2 | 12.3 | - Anti-dilutive shares excluded from diluted EPS were 0.3 million (Q2 2022) and 0.3 million (YTD 2022)[76] NOTE 15 — Subsequent Events This note discloses significant events occurring after the reporting period, including dividends and acquisitions - On July 22, 2022, a quarterly dividend of $0.125 per common share was declared, resulting in a $1.6 million cash outlay[77] - Acquired Southern Fasteners & Supply, Inc. for approximately $17 million cash and $2 million notes payable, adding $25 million in annual revenues to the Supply Technologies segment[78] - Finalized acquisition of Charter Automotive (Changzhou) Co. Ltd. for approximately $11 million notes payable, adding $15 million in annual revenues to the Supply Technologies segment and accelerating global growth of proprietary products for EV and auto platforms[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance, liquidity, and capital resources, including segment results EXECUTIVE OVERVIEW This section provides a high-level summary of the company's diversified international business operations - Park-Ohio Holdings Corp. is a diversified international company offering supply chain management, capital equipment, and manufactured components[82] - Operates through three reportable segments: Supply Technologies (Total Supply Management™ for various industries), Assembly Components (fuel efficiency and emission reduction products for automotive, agricultural, construction, heavy-duty truck, and marine OEMs), and Engineered Products (induction heating/melting systems, pipe threading systems, forged/machined products for diverse industrial OEMs and end users)[82][83][84][85] COVID-19 Pandemic This section discusses the pandemic's impact on markets, supply chains, costs, and the company's mitigation strategies - The COVID-19 pandemic negatively impacted markets, caused a global semiconductor micro-chip shortage, raw material price inflation, higher labor costs, and supply chain constraints[87] - The Company is managing operating costs, including plant consolidation, and taking aggressive actions to improve results, maintaining a diversified portfolio and $200.5 million in liquidity as of June 30, 2022[87][88] RESULTS OF OPERATIONS (Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021) This section analyzes the company's financial performance for the second quarter of 2022 compared to the prior year Financial Highlights (Three Months Ended June 30, In millions, except per share data): | Metric | 2022 | 2021 | $ Change | % Change | | :--------------------------------------------------- | :--- | :--- | :------- | :------- | | Net sales | $428.6 | $350.0 | $78.6 | 22.5% | | Gross profit | $49.8 | $39.9 | $9.9 | 24.8% | | Gross margin | 11.6% | 11.4% | | | | SG&A expenses | $45.0 | $43.3 | $1.7 | 3.9% | | SG&A expenses as a percentage of net sales | 10.5% | 12.4% | | | | Operating income (loss) | $7.7 | $(3.4) | $11.1 | * | | Income (loss) before income taxes | $2.2 | $(8.3) | $10.5 | * | | Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders | $1.0 | $(5.3) | $6.3 | * | | Basic EPS | $0.08 | $(0.44) | $0.52 | * | | Diluted EPS | $0.08 | $(0.44) | $0.52 | * | - Net sales increased 22.5% due to higher customer demand and increased net price realization across all segments[91] - Gross margin improved to 11.6% from 11.4%, driven by increased net price realization and higher volumes, offsetting inflation and supply chain constraints[93] - Q2 2022 included $4.1 million in plant closure costs[93] - SG&A expenses increased 3.9% but decreased as a percentage of net sales to 10.5% (from 12.4%) due to the higher revenue base[94] - Q2 2022 included $0.9 million in plant closure charges[94] - A $2.9 million gain on sale of assets was recorded in Q2 2022 from real estate sales in Engineered Products ($2.5 million) and Assembly Components ($0.4 million)[95] - Interest expense, net, increased to $8.3 million from $7.4 million due to higher average outstanding borrowings[97] RESULTS OF OPERATIONS (Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021) This section analyzes the company's financial performance for the first six months of 2022 compared to the prior year Financial Highlights (Six Months Ended June 30, In millions, except per share data): | Metric | 2022 | 2021 | $ Change | % Change | | :--------------------------------------------------- | :--- | :--- | :------- | :------- | | Net sales | $847.0 | $709.6 | $137.4 | 19.4% | | Gross profit | $103.5 | $91.9 | $11.6 | 12.6% | | Gross margin | 12.2% | 13.0% | | | | SG&A expenses | $90.8 | $83.0 | $7.8 | 9.4% | | SG&A expenses as a percentage of net sales | 10.7% | 11.7% | | | | Operating income | $15.6 | $8.9 | $6.7 | 75.3% | | Income (loss) before income taxes | $5.1 | $(1.0) | $6.1 | * | | Net income attributable to Park-Ohio Holdings Corp. common shareholders | $7.1 | $0.2 | $6.9 | * | | Basic EPS | $0.59 | $0.02 | $0.57 | * | | Diluted EPS | $0.58 | $0.02 | $0.56 | * | - Net sales increased 19.4% to $847.0 million, driven by higher customer demand and increased net price realization across all segments[101] - Gross margin decreased to 12.2% from 13.0%, impacted by $5.9 million in plant closure costs (vs. $1.3 million in 2021) and ongoing inflation, higher labor costs, and supply chain constraints[102][103] - SG&A expenses increased 9.4% but improved as a percentage of net sales to 10.7% (from 11.7%) due to the higher revenue base, despite higher selling expenses and plant closure costs ($2.6 million)[104] - Interest expense, net, increased to $16.1 million from $14.8 million due to higher average outstanding debt balances[107] - Income tax benefit was $2.7 million, including a $4.1 million federal R&D credit[108] 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 financial performance of the Supply Technologies segment, including sales and operating income Supply Technologies Segment Performance (In millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $175.8 | $155.0 | $344.6 | $312.7 | | Segment operating income | $12.7 | $10.2 | $24.7 | $22.5 | | Segment operating income margin | 7.2% | 6.6% | 7.2% | 7.2% | - Q2 2022 net sales increased 13.4% due to higher customer demand in heavy-duty truck, semiconductor, industrial, agricultural equipment, and civilian aerospace, along with increased net price realization[111] - Q2 2022 segment operating income margin increased 60 basis points to 7.2% due to higher sales offsetting increased supply chain costs[112] - YTD 2022 net sales increased 10.2% with comparable segment operating income margin[113][114] Assembly Components Segment This section details the financial performance of the Assembly Components segment, including sales and operating loss Assembly Components Segment Performance (In millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $154.2 | $109.5 | $312.8 | $235.5 | | Segment operating (loss) income | $(7.5) | $(6.1) | $(5.5) | $0.3 | | Segment operating (loss) income margin | (4.9)% | (5.6)% | (1.8)% | 0.1% | - Q2 2022 net sales increased 40.8% due to higher demand for fuel-related products and increased net price realization, overcoming prior year's semiconductor shortage impact[116] - Q2 2022 segment operating loss increased to $7.5 million (from $6.1 million) due to $4.2 million in restructuring charges[117] - YTD 2022 net sales increased 32.8% due to higher demand, price realization, and pass-through of material costs[118] - YTD operating loss was $5.5 million (vs. $0.3 million income) due to $6.2 million in restructuring charges[119] Engineered Products Segment This section details the financial performance of the Engineered Products segment, including sales and operating income Engineered Products Segment Performance (In millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $98.6 | $85.5 | $189.6 | $161.4 | | Segment operating income (loss) | $7.1 | $(0.7) | $8.9 | $(1.9) | | Segment operating income (loss) margin | 7.2% | (0.8)% | 4.7% | (1.2)% | - Q2 2022 net sales increased 15.3% due to stronger demand in capital equipment and forged/machined products as markets recovered[121] - Q2 2022 segment operating income increased by $7.8 million, with margin improving by 800 basis points, driven by higher sales, operational improvements, and profit improvement actions[122] - YTD 2022 net sales increased 17.4%[123] - YTD operating income increased by $10.8 million, with margin improving by 590 basis points, due to similar factors[124] Liquidity and Capital Resources This section discusses the company's cash flows, debt arrangements, borrowing capacity, and dividend policy Operating Activities This section analyzes cash flows generated or used by the company's primary business operations - Cash usage from operating activities increased to $38.2 million (YTD 2022) from $23.3 million (YTD 2021), primarily due to higher working capital, including a $45.3 million increase in accounts receivable[127] Investing Activities This section details cash flows related to the acquisition and disposal of long-term assets and investments - Capital expenditures were $15.5 million (YTD 2022) for capacity expansion and facility consolidation, with $4.0 million from asset sales[128] - YTD 2021 capital expenditures were $14.4 million, plus a $5.4 million acquisition[129] Financing Activities This section outlines cash flows from debt, equity, and dividend transactions affecting the company's capital structure - Net debt borrowings of $64.9 million (YTD 2022) funded higher working capital[130] - Cash dividends paid were $3.2 million (YTD 2022)[130] Liquidity This section assesses the company's ability to meet short-term obligations, including cash and borrowing availability - Total liquidity was $200.5 million as of June 30, 2022, comprising $61.1 million cash and $139.4 million unused borrowing availability[133] - Foreign subsidiaries held $44.2 million in cash, with no material repatriation restrictions expected[134] Senior Notes This section describes the company's unsecured senior notes, including their issuance and maturity details - In April 2017, $350.0 million of 6.625% Senior Notes due 2027 were issued to repay previous debt and revolving credit facility borrowings[136] Credit Agreement This section outlines the terms of the company's revolving credit facility, including its maturity and capacity - The revolving credit facility is for $405.0 million, maturing November 26, 2024, with an option to increase by $70.0 million[137] Finance Leases This section details the company's finance lease obligations for machinery and equipment - The Company has a $50.0 million finance lease agreement, with $14.5 million borrowed as of June 30, 2022, for machinery and equipment[138] Covenants This section discusses the company's compliance with debt covenants and potential impacts on borrowing capacity - Borrowing availability under the Credit Agreement is subject to a debt service ratio covenant if calculated availability falls below $46.875 million[139] - As of June 30, 2022, calculated availability was $101.5 million, so the covenant did not apply[139] - Compliance with covenants is expected, but future sales declines or customer payment issues could adversely impact borrowing capacity[141] Dividends This section reports on dividends paid and declared, noting the Board's discretion for future distributions - Paid $3.2 million in dividends (YTD 2022)[143] - A quarterly dividend of $0.125 per share was declared on July 22, 2022[143] - Future dividends are at the Board's discretion[143] Seasonality; Variability of Operating Results This section explains factors causing fluctuations in operating results, such as customer orders and economic conditions - Operating results can fluctuate significantly due to variable customer order timing, production schedules, competitive conditions, and general economic conditions, particularly in the capital equipment business[144] Critical Accounting Policies This section confirms no new critical accounting policies and highlights the role of management's estimates - No new critical accounting policies or updates were made in this Quarterly Report[145] - Management's judgments and estimates are crucial for financial statement amounts[146] Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to various known and unknown risks - The report contains forward-looking statements subject to known and unknown risks, including the impact of COVID-19, indebtedness, global economic uncertainty, raw material/energy costs, supply chain issues, and regulatory changes[147][148][149] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section details the company's exposure to market risks, including interest rate and foreign currency translation risks - Exposed to interest rate risk on floating-rate revolving credit facility; a 100-basis-point increase would raise interest expense by approximately $1.4 million over six months[150] - Faces foreign currency translation risks from foreign subsidiaries' local currency operations, affecting U.S. dollar reported sales and expenses[151] - Translation adjustments are recorded in Accumulated other comprehensive loss[151] - Largest commodity price exposures are to metal and natural gas[152] - A foreign currency forward contract was entered into during the six months ended June 30, 2022, but is not expected to have a material impact[152] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal control Evaluation of disclosure controls and procedures. This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022[153] Changes in internal control over financial reporting. This section reports that no material changes occurred in internal control over financial reporting during the quarter - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[155] Part II Other Information This section provides additional information on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section details the company's legal claims, including asbestos cases, and management's assessment of their impact - The Company is a co-defendant in 99 asbestos cases involving 161 plaintiffs, alleging personal injury from asbestos exposure[158] - Historically, the Company has been dismissed from asbestos cases due to incorrect subsidiary naming or failure to identify Company products/premises[161] - Management intends to vigorously defend these cases[161] - Management believes the ultimate resolution of these matters will not have a material adverse effect on financial condition, liquidity, or results of operations, citing historical success in dismissals and lack of causal relationship[161][162] Item 1A. Risk Factors This section confirms no material changes to the risk factors previously disclosed in the Annual Report - No material changes to risk factors since the Annual Report on Form 10-K for the year ended December 31, 2021[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes common stock repurchases, primarily for settling withholding tax liabilities on restricted awards Common Stock Repurchases (Quarter Ended June 30, 2022): | 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) | | :------------------------ | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :-------------------------------------------------------------------------------- | | April 1 — April 30, 2022 | 430 (2) | $12.69 | — | 444,424 | | May 1 — May 31, 2022 | — (2) | — | — | 444,424 | | June 1 — June 30, 2022 | 59,721 (2) | $17.57 | — | 444,424 | | Total | 60,151 | $17.53 | — | 444,424 | - The repurchased shares (60,151 total) were acquired from restricted stock award recipients to settle withholding tax liabilities[166] - A share repurchase program announced on March 11, 2020, allows for the repurchase of up to 1.0 million shares, with 444,424 shares remaining available[165] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including credit agreement amendments and officer certifications - Exhibits include Amendment No. 7 to the Seventh Amended and Restated Credit Agreement, Principal Executive and Financial Officer's Certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[168] Signatures This section contains the registrant's signature, confirming due authorization and filing of the report - The report was signed by Patrick W. Fogarty, Vice President and Chief Financial Officer, on August 3, 2022[171][172]