What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-04 · 112 added, 116 removed, 218 unchanged (51% of the section changed)

42 unchanged sentences

In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and it spread throughout the United States and other countries around the world.

The pandemic has negatively impacted several of the markets we serve.

In response to the ongoing COVID-19 pandemic, we continue to manage our operating costs, including through reductions in costs associated with plant consolidation, severance, and discretionary spending cuts.

The pandemic has negatively impacted several of the markets we serve, as well as contributed to a global semiconductor micro-chip shortage, raw material price inflation, higher labor costs and various supply chain constraints, including supplier delays that caused extended lead times and increasing freight costs.

In response to the ongoing COVID-19 pandemic, we continue to manage our operating costs, including through actions to reduce costs, including plant consolidation, severance, and discretionary spending cuts, and we are taking aggressive actions to improve results in response to these macroeconomic conditions.

We also continue to manage both working capital and capital spending.

Although there continues to be uncertainty related to the anticipated impact and duration of the COVID-19 pandemic on our future results, we believe our diversified portfolio of global businesses, our liquidity position of $221.4 million as of June 30, 2021, and the steps we have taken in both 2020 and 2021 to reduce costs leave us well-positioned to manage our business through this crisis as it continues to unfold.

Subsequent Event

On July 23, 2021, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share.

The dividend will be paid on August 20, 2021 to shareholders of record as of the close of business on August 6, 2021 and will result in a cash outlay of approximately $1.6 million.

$218.0 million as of September 30, 2021, and the steps we have taken in both 2020 and 2021 to reduce costs leave us well-positioned to manage our business through this crisis as it continues to unfold.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020

Three Months Ended June 30,

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Three Months Ended September 30,

2021 2020 $ Change % Change

7 unchanged sentences

SG&A expenses as a percentage of net sales 12.6 % 11.4 %

Operating loss (3.4) (20.9) 17.5 (83.7) %

Operating (loss) income (5.0) 11.0 (16.0) *

Other components of pension income and other postretirement benefits expense, net 2.4 1.9 0.5 26.3 %

Interest expense, net (7.6) (7.4) (0.2) 2.7 %

Loss before income taxes (8.3) (26.6) 18.3 (68.8) %

Income tax benefit 2.8 9.6 (6.8) (70.8) %

Net loss (5.5) (17.0) 11.5 (67.6) %

(Loss) income before income taxes (10.2) 5.5 (15.7) *

Income tax benefit (expense) 2.8 (0.3) 3.1 *

Net (loss) income (7.4) 5.2 (12.6) *

Net loss attributable to noncontrolling interest 0.2 0.1 0.1 100.0 %

Net loss attributable to Park-Ohio Holdings Corp.

Net (loss) income attributable to Park-Ohio Holdings Corp.

common shareholders $ (7.2) $ 5.3 $ (12.5) *

Loss per common share attributable to Park-Ohio Holdings Corp.

(Loss) income per common share attributable to Park-Ohio Holdings Corp.

common shareholders:

1 unchanged sentence

Diluted $ (0.60) $ 0.44 $ (1.04) *

Net sales increased 53.3% to $350.0 million in the second quarter of 2021 compared to $228.3 million in the same period in 2020.

This increase was primarily due to higher customer demand across all three of our business segments, largely driven by recovery from lower sales levels in the 2020 second quarter caused by the COVID-19 pandemic, including a shut-down of the North American automotive market and reduced customer demand across many other global end markets.

The factors explaining the changes in segment net sales for the three months ended June 30, 2021 compared to the corresponding 2020 period are contained within the “Segment Results” section below.

*Calculation not meaningful

Net sales increased 5.4% to $358.5 million in the third quarter of 2021 compared to $340.2 million in the same period in 2020.

This increase was primarily due to higher customer demand across our Supply Technologies and Engineered Products segments, partially offset by lower sales levels in our Assembly Components segment due to the ongoing global semiconductor micro-chip shortage.

The factors explaining the changes in segment net sales for the three months ended September 30, 2021 compared to the corresponding 2020 period are contained within the “Segment Results” section below.

Cost of Sales & Gross Profit

Cost of sales increased 44.8% to $310.1 million in the second quarter of 2021 compared to $214.1 million in the same period in 2020.

The increase in cost of sales was primarily due to the increase in net sales for the 2021 period compared to the corresponding period in 2020.

Gross margin was 11.4% in the second quarter of 2021 compared to 6.2% in the same period in 2020.

The increase was due primarily to higher profit flow-through from higher sales in the 2021 period compared to the same period a year ago.

The second quarter of 2021 included expenses of $0.6 million related to plant closure and consolidation, severance and other actions to reduce costs.

The second quarter of 2020 included charges of $2.9 million related to plant closure and consolidation, severance and other actions to reduce costs.

Cost of sales increased 9.6% to $318.4 million in the third quarter of 2021 compared to $290.5 million in the same period in 2020.

The increase in cost of sales was primarily due to the increase in net sales for the 2021 period compared to the corresponding period in 2020, as well as the factors listed below that impacted gross margin.

Gross margin was 11.2% in the third quarter of 2021 compared to 14.6% in the same period in 2020.

The lower margin in the 2021 period compared to a year ago was due to the negative impact of the global semiconductor micro-chip shortage, raw material price inflation, higher labor costs and various supply chain constraints, including supplier delays that caused extended lead times and increasing freight costs, and manufacturing under-absorption of fixed costs at certain plants.

The third quarter of 2021 included expenses of $1.8 million related to plant closure and consolidation actions.

The third quarter of 2020 included charges of $1.3 million related to plant closure and consolidation, severance and other actions to reduce costs.

SG&A Expenses

SG&A expenses increased to $43.3 million in the second quarter of 2021 compared to $35.1 million in the comparable period in 2020, an increase of 23.4%.

In response to significantly lower demand levels caused by the pandemic in the 2020 second quarter, the Company took immediate actions in many of its operations to reduce costs, including workforce furloughs, permanent headcount reductions, salary and incentive compensation reductions, and cuts in discretionary spending.

SG&A expenses increased to $45.1 million in the third quarter of 2021 compared to $38.7 million in the comparable period in 2020, an increase of 16.5%.

In response to significantly lower demand levels caused by the COVID-19 pandemic in the 2020 third quarter, the Company took immediate actions in many of its operations to reduce costs, including workforce furloughs, permanent headcount reductions, salary and incentive compensation reductions, and cuts in discretionary spending.

As demand levels increased in 2021, a portion of the SG&A expense reduction from 2020 was restored to meet the increasing demand.

SG&A expenses in the 2021 period included $0.8 million of charges related to plant closure and consolidation, severance and other actions to reduce costs, and acquisition-related expenses of $0.4 million.

SG&A expenses in the 2020 period included severance and other charges of $0.4 million.

As a percentage of net sales, SG&A expenses improved to 12.4% in the 2021 second quarter compared to 15.4% in the 2020 second quarter.

SG&A expenses in the 2021 period also included $2.5 million of charges related to plant closure and consolidation and other costs.

The third quarter of 2020 included charges of $0.5 million related to plant closure and consolidation, severance and other actions to reduce costs.

Other Components of Pension Income and Other Postretirement Benefits Expense (“OPEB”), Net

Other components of pension income and OPEB expense, net was $2.5 million in the three months ended June 30, 2021 compared to $1.8 million in the corresponding period in 2020.

Other components of pension income and OPEB expense, net was $2.4 million in the three months ended September 30, 2021 compared to $1.9 million in the corresponding period in 2020.

This increase in the 2021 period relates to higher returns on plan assets in the 2021 period compared to the same period a year ago.

Interest Expense, Net

Interest expense, net was $7.4 million in the second quarter of 2021 compared to $7.5 million in the 2020 period.

The decrease was due to lower average outstanding borrowings during the 2021 period.

Interest expense, net was $7.6 million in the third quarter of 2021 compared to $7.4 million in the 2020 period.

The increase was due to higher average outstanding borrowings during the 2021 period.

Income Tax Benefit

Income tax benefit for the three months ended June 30, 2021 was $2.8 million, representing an effective rate of 34%, compared to $9.6 million, or 36%, for the three months ended June 30, 2020.

The rate in the 2021 period is higher than the U.S.

statutory rate of 21% due primarily to the additional benefit recorded as result of the net operating loss carryback claim under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and amended returns filed during the quarter.

Income tax benefit for the three months ended September 30, 2021 was $2.8 million, representing an effective rate of 27%, compared to income tax expense $0.3 million, or 5%, for the three months ended September 30, 2020.

The rate in the 2021 period is higher than the U.S.

statutory rate of 21% due to an earnings mix that yields an increase in the Global Intangible Low-Taxed Income (“GILTI”) inclusion, and also reduces the benefit of foreign tax credits and the Foreign Derived Intangible Income (“FDII”) deduction.

statutory rate of 21% due primarily to the additional tax benefit recorded as result of stock compensation that vested and state and local taxes during the quarter.

The rate in the 2020 period is lower than the U.S.

statutory rate of 21% due primarily to a U.S.

net operating loss carryback to a prior year under the CARES Act, a tax benefit from the favorable impact of final Global Intangible Low-Taxed Income (“GILTI”) regulations and a decrease in our Transition Tax liability.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

Six Months Ended June 30,

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Nine Months Ended September 30,

2021 2020 $ Change % Change

6 unchanged sentences

SG&A expenses as a percentage of net sales 12.0 % 12.3 %

Operating income (loss) 8.9 (7.9) 16.8 212.6 %

Operating income 3.9 3.1 0.8 25.8 %

Other components of pension income and other postretirement benefits expense, net

5 unchanged sentences

Net loss attributable to noncontrolling interests 0.5 0.4 0.1 25.0 %

Net income (loss) attributable to Park-Ohio Holdings Corp.

Net loss attributable to Park-Ohio Holdings Corp.

common shareholders $ (7.0) $ (10.1) $ 3.1 (30.7) %

Income (loss) per common share attributable to Park-Ohio Holdings Corp.

Loss per common share attributable to Park-Ohio Holdings Corp.

common shareholders:

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Diluted $ (0.58) $ (0.83) $ 0.25 (30.1) %

*Calculation not meaningful

Net sales increased 19.3% to $709.6 million in the first six months of 2021 compared to $594.6 million in the same period in 2020.

Net sales increased 14.3% to $1,068.1 million in the first nine months of 2021 compared to $934.8 million in the same period in 2020.

This increase was primarily due to higher customer demand in our Supply Technologies and Assembly Components business segments, partially offset by lower demand in our Engineered Products segment.

The factors explaining the changes in segment net sales for the six months ended June 30, 2021 compared to the corresponding 2020 period are contained in the “Segment Results” section below.

The factors explaining the changes in segment net sales for the nine months ended September 30, 2021 compared to the corresponding 2020 period are contained in the “Segment Results” section below.

Cost of Sales & Gross Profit

Cost of sales increased 17.3% to $617.7 million in the first six months of 2021 compared to $526.5 million in the same period in 2020.

Cost of sales increased 14.6% to $936.1 million in the first nine months of 2021 compared to $817.0 million in the same period in 2020.

The increase in cost of sales was primarily due to the increase in net sales described above.

Gross margin was 13.0% in the first six months of 2021 compared to 11.5% in the corresponding period in 2020.

The increase was due primarily to higher profit flow-through from higher sales in the 2021 period compared to the same period a year ago.

The 2021 period included expenses of $1.1 million related to plant closure and consolidation, severance and other

actions to reduce costs.

Gross margin was 12.4% in the first nine months of 2021 compared to 12.6% in the corresponding period in 2020.

The 2021 period included expenses of $2.9 million related to plant closure and consolidation, severance and other actions to reduce

The 2020 period included charges of $4.1 million related to plant closure and consolidation, severance and other actions to reduce costs.

SG&A Expenses

SG&A expenses were $83.0 million in the first six months of 2021, compared to $76.0 million in the same period in 2020, an increase of 9.2%.

SG&A expenses were $128.1 million in the first nine months of 2021, compared to $114.7 million in the same period in 2020, an increase of 11.7%.

In response to significantly lower demand levels caused by the pandemic in 2020, the Company took immediate actions in many of its operations to reduce costs, including workforce furloughs, permanent headcount reductions, salary and incentive compensation reductions, and cuts in discretionary spending.

As demand levels increased in 2021, a portion of the SG&A expense reduction from 2020 was restored to meet the increasing demand.

SG&A expenses in the 2021 period included $1.6 million of charges related to plant closure and consolidation, severance and other actions to reduce costs, and acquisition-related expenses of $0.4 million.

SG&A expenses in the 2021 period included $4.1 million of charges related to plant closure and consolidation, severance and other costs and $0.4 million of acquisition related expenses.

SG&A expenses in the 2020 period included severance and other charges of $1.5 million.

As a percentage of net sales, SG&A expenses improved to 11.7% in the 2021 period compared to 12.8% in the 2020 period.

As a percentage of net sales, SG&A expenses improved to 12.0% in the 2021 period compared to 12.3% in the 2020 period, as a fixed portion of SG&A expenses were spread over a higher revenue base.

Other Components of Pension Income and OPEB, Net

Other components of pension income and OPEB expense, net was $4.9 million in the first six months of 2021 compared to $3.6 million in the corresponding period in 2020.

Other components of pension income and OPEB expense, net was $7.3 million in the first nine months of 2021 compared to $5.5 million in the corresponding period in 2020.

This increase was driven by higher returns on plan assets and lower interest costs in the 2021 period compared to the same period a year ago.

Interest Expense, Net

Interest expense, net was $14.8 million in the first six months of 2021 compared to $15.5 million in the 2020 period.

The decrease was due primarily to lower average outstanding borrowings in the 2021 period compared to the same period a year ago.

Interest expense, net was $22.4 million in the first nine months of 2021 compared to $22.9 million in the 2020 period.

The decrease was due primarily to lower interest rates in the 2021 period compared to the same period a year ago.

Income Tax Benefit

Income tax benefit for the six months ended June 30, 2021 was $0.9 million, representing an effective rate of 90%, compared to income tax benefit of $4.1million, or 21%, for the six months ended June 30, 2020.

Income tax benefit for the nine months ended September 30, 2021 was $3.7 million, representing an effective rate of 33%, compared to $3.8 million, or 27%, for the nine months ended September 30, 2020.

The rate in the 2021 period is higher than the U.S.

statutory rate of 21% due primarily to the additional benefit recorded as result of the net operating loss carryback claim under the CARES Act and the composition of earnings.

The rate in the 2020 period is higher than the U.S.

statutory rate due to the impact of earnings in foreign jurisdictions with statutory income tax rates higher than the U.S.

SEGMENT RESULTS

2 unchanged sentences

Supply Technologies Segment

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

3 unchanged sentences

Segment operating income margin 6.9 % 8.0 % 7.1 % 5.5 %

Three months ended June 30:

Net sales increased 64.2% in the three months ended June 30, 2021 compared to the 2020 period due primarily to higher customer demand in substantially all of the Company's end markets, with the largest increases in heavy-duty truck, powersports, automotive and agricultural equipment.

Three months ended September 30:

Net sales increased 16.7% in the three months ended September 30, 2021 compared to the 2020 period due primarily to higher customer demand in substantially all of the Company's end markets, with the largest increases in heavy-duty truck, semiconductor, and agricultural and industrial equipment.

As a result of the COVID-19 pandemic, customer demand in 2020 was down significantly in most of our key end markets.

Segment operating income increased by $9.9 million and segment operating income margin was up 630 basis points in the 2021 period compared to the same period a year ago.

These increases were driven by increased sales, the impact of cost reduction actions taken in response to the COVID-19 pandemic and favorable product mix.

These positive factors were partially offset by higher freight costs in the 2021 period as a result of global supply chain constraints and a labor strike at a major truck assembly plant.

Six months ended June 30:

Net sales increased 33.0% in the six months ended June 30, 2021 compared to the 2020 period due primarily to higher customer demand in most of the Company's end markets, with the biggest increases in heavy-duty truck, powersports, automotive and agricultural equipment.

Segment operating income increased by $0.1 million and segment operating income margin decreased 110 basis points in the 2021 period compared to the same period a year ago.

The decrease in margin was driven by higher freight costs in the 2021 period as a result of global supply chain constraints and a labor strike at a major truck assembly plant, partially offset by the benefit of cost-reduction actions.

Nine months ended September 30:

Net sales increased 27.1% in the nine months ended September 30, 2021 compared to the 2020 period due primarily to higher customer demand in most of the Company's end markets, with the biggest increases in heavy-duty truck, powersports, agricultural and industrial equipment, and semiconductor.

As a result of the COVID-19 pandemic, customer demand in 2020 was down significantly in most of our key end markets.

Segment operating income increased by $13.1 million and segment operating income margin was up 160 basis points in the 2021 period compared to the same period a year ago.

These net increases were driven by increased sales, the impact of cost reduction actions taken in response to the COVID-19 pandemic and favorable product mix.

These net increases were driven by increased sales, the impact of cost reduction actions, the impact of pricing initiatives and favorable product mix.

These positive factors were partially offset by higher freight costs in the 2021 period as a result of global supply chain constraints and a labor strike at a major truck assembly plant.

Assembly Components Segment

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

3 unchanged sentences

Segment operating (loss) income margin (7.4) % 5.3 % (2.4) % (0.5) %

Three months ended June 30:

Net sales increased 99.5% in the three months ended June 30, 2021 compared to the 2020 period due primarily to the shut-down of North American automotive production in the second quarter of 2020 as a result of the COVID-19 pandemic.

Segment operating loss in the 2021 period improved by $8.5 million, and segment operating loss margin improved significantly compared to the corresponding period of 2020.

These increases were due primarily to higher profit flow-through on the higher sales levels.

The loss in the 2021 period was driven by the negative impacts of the global semiconductor chip shortage;

higher raw material costs;

operational inefficiencies driven by labor shortages, including higher temporary labor costs;

charges of $0.8 million related to plant closure and consolidation activities;

and new program start-up and launch costs.

The loss in the 2020 period was driven by lower sales as a result of the COVID-19 pandemic.

Six months ended June 30:

Net sales increased 28.6% in the six months ended June 30, 2021 compared to the 2020 period due primarily to

the shut-down of North American automotive production in the second quarter of 2020 as a result of the COVID-19 pandemic.

Segment operating income in the 2021 period increased by $8.5 million, and segment operating income margin improved compared to the 2020 period.

These improvements were due primarily to higher profit flow-through on the higher sales levels.

Three months ended September 30:

Net sales decreased 5.2% in the three months ended September 30, 2021 compared to the 2020 period due primarily to the impact of the global semiconductor micro-chip shortage that continued in the third quarter 2021, which negatively impacted net sales in the quarterly period by approximately $13.1 million.

Segment operating loss was $8.9 million in the 2021 period compared to segment operating income of $6.7 million in the 2020 period.

The loss in the 2021 period was driven by the negative impacts of the global semiconductor micro-chip shortage;

raw material price inflation;

higher labor costs and various supply chain constraints, including supplier delays that caused extended lead times and increasing freight costs;

and charges of $3.4 million related to plant closure and consolidation activities and other costs.

Income in the 2020 period included charges related to plant closure and consolidation were $1.4 million.

Nine months ended September 30:

Net sales increased 14.7% in the nine months ended September 30, 2021 compared to the 2020 period due primarily to

the shut-down of North American automotive production in the second quarter of 2020 as a result of the COVID-19 pandemic, partially offset the impact of the global semiconductor micro-chip shortage, which negatively impacted net sales in the 2021 year-to-date period.

Segment operating income in the 2021 period decreased by $7.0 million, and segment operating income margin decreased 190 basis points compared to the 2020 period.

The loss in the 2021 period was driven by the factors listed above under the three-month discussion.

The loss in the 2020 period was driven by lower sales as a result of the COVID-19 pandemic.

In the 2021 period, charges related to plant closure and consolidation and other costs were $4.8 million.

The loss in the 2020 period was driven by lower sales as a result of the COVID-19 pandemic and charges related to plant closure and consolidation were $3.7 million.

Engineered Products Segment

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

1 unchanged sentence

Net sales $ 84.3 $ 81.3 $ 245.7 $ 257.6

Segment operating (loss) income $ (0.7) $ (0.8) $ (1.9) $ 3.0

Segment operating (loss) income margin (0.8) % (1.0) % (1.2) % 1.7 %

Three months ended June 30:

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 %

Three months ended September 30:

Net sales were 3.7% higher in the 2021 period compared to the 2020 period.

The increase was due to stronger demand in the 2021 period for our capital equipment products, partially offset by lower customer demand in certain end markets in our forged and machined products business, including oil and gas, aerospace, rail and agriculture.

Segment operating loss in the 2021 period improved by $0.1 million compared to the corresponding 2020 period as a result of the higher sales levels and improved profitability in our capital equipment group in the 2021 period, which were partially offset by manufacturing under-absorption of fixed costs at certain plants and by charges of $0.6 million in 2021 related to plant closure and consolidation.

Six months ended June 30:

Segment operating income in the 2021 period decreased $0.7 million and segment operating income decreased by 90 basis points compared to the corresponding 2020 period.

These decreases were the result of manufacturing under-absorption of fixed costs at certain plants and charges of $0.6 million in 2021 related to plant closure and consolidation.

Charges related to plant closure and consolidation in the 2020 period were $0.4 million.

Nine months ended September 30:

Net sales were 4.6% lower in the 2021 period compared to the 2020 period.

The decrease was due to lower demand in certain end markets in our forged and machined products business and lower customer demand for new capital equipment.

The decrease was due to lower demand in certain end markets in our forged and machined products business which continue to be slow to recover from the pandemic, partially offset by stronger demand in the 2021 period for our capital equipment products

Segment operating loss was $1.3 million in the 2021 period compared to segment operating income of $4.3 million in the 2020 period.

This decrease in profitability of $5.6 million was due to the lower sales levels, manufacturing under-absorption of fixed costs at certain plants, and charges of $1.9 million related to plant closure and consolidation activities in the 2021 period.

Charges related to plant closure and consolidation in the 2020 period were $0.7 million.

Liquidity and Capital Resources

The following table summarizes the major components of cash flow:

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 $ Change

Net cash provided (used) by:

Net cash (used) provided by:

(In millions)

3 unchanged sentences

Effect of exchange rate changes on cash (1.2) (0.3) (0.9)

Increase in cash and cash equivalents $ 0.3 $ (4.1) $ 4.4

Increase (decrease) in cash and cash equivalents $ 4.6 $ (5.1) $ 9.7

Operating Activities

Cash generated by operating activities in the 2021 period was lower than in the prior year period driven by higher working capital usage in the six months ended June 30, 2021 compared to the same period a year ago.

Cash generated by operating activities in the 2021 period was lower than in the prior year period driven by higher working capital usage in the nine months ended September 30, 2021 compared to the same period a year ago.

In the 2021 period, working capital usage was $45.1 million, compared to working capital reduction in the 2020 period of $12.8 million.

Higher inventories were the primary driver of our higher working capital in 2021, due to both higher material costs and increased inventory levels in certain businesses and locations in response to global supply chain constraints, various facility closures and consolidations, and certain new program launches.

Higher inventories were the main driver of our higher working capital in 2021.

In the 2021 nine-month period, we utilized cash of $74.7 million to increase inventories, driven by higher raw material prices and increased inventory levels in certain businesses and locations in response to global supply chain constraints, and various facility closures and consolidations.

Working capital usage was partially offset by a lower net loss in the 2021 period compared to the 2020 period.

Investing Activities

Capital expenditures were $14.4 million in the six months ended June 30, 2021 and were primarily to provide increased capacity for future growth in our Assembly Components segment and to maintain existing operations.

During the six months ended June 30, 2021, the Company also acquired NYK Component Solutions Limited (“NYK”) for $5.4 million, net of cash acquired.

Capital expenditures were $24.9 million in the nine months ended September 30, 2021 and were primarily to provide increased capacity for future growth in our Assembly Components segment and to maintain existing operations.

During the nine months ended September 30, 2021, the Company also acquired NYK Component Solutions Limited (“NYK”) for $5.4 million, net of cash acquired.

Capital expenditures of $14.9 million in the 2020 period were lower than in the 2021 period, as we aggressively managed capital spending in 2020 in response to the pandemic.

Financing Activities

During the six months ended June 30, 2021, we had net debt borrowings of $49.0 million compared to $3.3 million in the 2020 period.

The increased borrowings in the current year period were used to fund our higher working capital levels, our higher capital level, and the acquisition of NYK.

In addition, in the six months ended June 30, 2021, we made two cash dividend payments to shareholders totaling $3.1 million, whereas in the 2020 period, we only made one cash dividend payment totaling $1.6 million, as the dividend was temporarily suspended in the second quarter of 2020 in response to the COVID-19 pandemic.

In the 2020 period, the Company repurchased treasury shares totaling $5.3 million.

During the nine months ended September 30, 2021, we had net debt borrowings of $71.8 million compared to repayments of $14.6 million in the 2020 period.

The increased borrowings in the 2021 period were used to fund our higher working capital levels and the acquisition of NYK.

In addition, in the nine months ended September 30, 2021, we made three cash dividend payments to shareholders totaling $4.7 million, whereas in the 2020 period, we only made one cash dividend payment totaling $1.6 million, as our dividend was temporarily suspended in the second quarter of 2020 in response to the COVID-19 pandemic.

In the 2021 and 2020 periods, the Company repurchased treasury shares totaling $2.5 million and $7.2 million, respectively.

We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons, other than the letters of credits disclosed in Note 10 to the condensed consolidated financial statements, included elsewhere herein.

1 unchanged sentence

Our primary sources of liquidity have been funds provided by operations, funds available from existing bank credit arrangements and the sale of our debt securities.

Our existing financial resources (working capital and available bank borrowing arrangements) and

anticipated cash flow from operations are expected to be adequate to meet anticipated cash requirements for at least the next twelve months, including but not limited to our ability to maintain current operations and fund capital expenditure requirements, service our debt, pay dividends, pursue acquisitions, and repurchase common shares.

As of June 30, 2021, we had total liquidity of $221.4 million, which included $166.1 million of unused borrowing availability and cash and cash equivalents of $55.3 million.

The Company had cash and cash equivalents held by foreign subsidiaries of $44.2 million at June 30, 2021 and $44.7 million at December 31, 2020.

Our existing financial resources (working capital and available bank borrowing arrangements) and anticipated cash flow from operations are expected to be adequate to meet anticipated cash requirements for at least the next

twelve months, including but not limited to our ability to maintain current operations and fund capital expenditure requirements, service our debt, pay dividends, pursue acquisitions, and repurchase common shares.

As of September 30, 2021, we had total liquidity of $218.0 million, which included $158.4 million of unused borrowing availability and cash and cash equivalents of $59.6 million.

The Company had cash and cash equivalents held by foreign subsidiaries of $49.3 million at September 30, 2021 and $44.7 million at December 31, 2020.

We do not expect restrictions on repatriation of cash held outside the U.S.

17 unchanged sentences

The Lease Agreement provides the Company up to $50.0 million for finance leases.

Finance lease obligations of $15.4 million were borrowed under the Lease Agreement to acquire machinery and equipment as of June 30, 2021.

Finance lease obligations of $15.2 million were borrowed under the Lease Agreement to acquire machinery and equipment as of September 30, 2021.

The future availability of bank borrowings under the revolving credit facility provided by the Credit Agreement is based on (1) our calculated availability under the Credit Agreement and (2) if such calculated availability decreases below $46.875 million, our ability to meet a debt service ratio covenant.

If our calculated availability is less than $46.875 million, our debt service coverage ratio must be greater than 1.0.

At June 30, 2021, our calculated availability under the Credit Agreement was $143.6 million;

At September 30, 2021, our calculated availability under the Credit Agreement was $136.6 million;

therefore, the debt service ratio covenant did not apply.

1 unchanged sentence

Our debt service coverage ratio could be materially impacted by negative economic trends, including the negative trends caused by the COVID-19 pandemic.

To make certain permitted payments as defined under the Credit Agreement, including but not limited to acquisitions and dividends, we must

meet defined availability thresholds ranging from $37.5 million to $46.875 million, and a defined debt service coverage ratio of 1.15.

As our calculated availability under the Credit Agreement was above $46.875 million, we were also in compliance with the other covenants contained in the revolving credit facility as of June 30, 2021.

To make certain permitted payments as defined under the Credit Agreement, including but not limited to acquisitions and dividends, we must meet defined availability thresholds ranging from $37.5 million to $46.875 million, and a defined debt service coverage ratio of 1.15.

While we expect to remain in compliance throughout 2021, declines in sales volumes in the future, including any declines caused by the COVID-19 pandemic, could adversely impact our ability to remain in compliance with certain of these financial covenants.

Additionally, to the extent our customers are adversely affected by declines in the economy in general, including the decline caused by the COVID-19 pandemic, they may be unable to pay their accounts payable to us on a timely basis or at all, which could make our accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility.

The Company paid dividends to shareholders of $3.1 million during the six months ended June 30, 2021.

On July 23, 2021, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share.

The dividend will be paid on August 20, 2021 to shareholders of record as of the close of business on August 6, 2021 and will result in a cash outlay of approximately $1.6 million.

The Company paid dividends to shareholders of $4.7 million during the nine months ended September 30, 2021.

Variability of Operating Results

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These factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:

the ultimate impact the COVID-19 pandemic has on our business, results of operations, financial position and liquidity, including, without limitation, supply chain issues such as the global semiconductor chip shortage and logistic issues;

our substantial indebtedness;

the uncertainty of the global economic environment;

general business conditions

and competitive factors, including pricing pressures and product innovation;

general business conditions and competitive factors, including pricing pressures and product innovation;

demand for our products and services;

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the amounts and timing, if any, of purchases of our common stock;

changes in general economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including those related to the current global uncertainties and crises, such as tariffs and surcharges;

changes in general economic conditions

such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions and changing government policies, laws and regulations, including those related to the current global uncertainties and crises, such as tariffs and surcharges;

adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities;

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis