PARK OHIO HOLDINGS CORP 10-Q

Item 1. Financial Statements 4 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) September 30, 2021 December 31, 2020 (In millions) ASSETS Current assets: Cash and cash equivalents $ 59.6 $ 55.0 Accounts receivable, net 253.7 248.1 Inventories, net 386.4 310.9 Prepaid and other current assets 78.8 92.4 Total current assets 778.5 706.4 Property, plant and equipment, net 232.4 236.6 Operating lease right-of-use assets 66.9 68.6 Goodwill 112.0 110.9 Intangible assets, net 83.0 86.8 Other long-term assets 97.1 91.2 Total assets $ 1,369.9 $ 1,300.5 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 185.6 $ 166.7 Current portion of long-term debt and short-term debt 8.9 11.6 Current portion of operating lease liabilities 13.3 12.9 Accrued expenses and other 122.1 115.9 Total current liabilities 329.9 307.1 Long-term liabilities, less current portion: Long-term debt 592.1 517.8 Long-term operating lease liabilities 54.2 56.7 Other long-term liabilities 56.0 61.0 Total long-term liabilities 702.3 635.5 Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity 325.6 344.2 Noncontrolling interests 12.1 13.7 Total equity 337.7 357.9 Total liabilities and shareholders' equity $ 1,369.9 $ 1,300.5 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 5 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions, except per share data) Net sales $ 358.5 $ 340.2 $ 1,068.1 $ 934.8 Cost of sales 318.4 290.5 936.1 817.0 Gross profit 40.1 49.7 132.0 117.8 Selling, general and administrative expenses 45.1 38.7 128.1 114.7 Operating (loss) income ( 5.0 ) 11.0 3.9 3.1 Other components of pension income and other postretirement benefits expense, net 2.4 1.9 7.3 5.5 Interest expense, net ( 7.6 ) ( 7.4 ) ( 22.4 ) ( 22.9 ) (Loss) income before income taxes ( 10.2 ) 5.5 ( 11.2 ) ( 14.3 ) Income tax benefit (expense) 2.8 ( 0.3 ) 3.7 3.8 Net (loss) income ( 7.4 ) 5.2 ( 7.5 ) ( 10.5 ) Net loss attributable to noncontrolling interests 0.2 0.1 0.5 0.4 Net (loss) income attributable to Park-Ohio Holdings Corp. common shareholders $ ( 7.2 ) $ 5.3 $ ( 7.0 ) $ ( 10.1 ) (Loss) income per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic $ ( 0.60 ) $ 0.44 $ ( 0.58 ) $ ( 0.83 ) Diluted $ ( 0.60 ) $ 0.44 $ ( 0.58 ) $ ( 0.83 ) Weighted-average shares used to compute (loss) income per share: Basic 12.1 12.0 12.0 12.1 Diluted 12.1 12.0 12.0 12.1 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 6 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions) Net (loss) income $ ( 7.4 ) $ 5.2 $ ( 7.5 ) $ ( 10.5 ) Other comprehensive (loss) income, net of tax: Currency translation ( 5.5 ) 12.6 ( 8.2 ) ( 1.1 ) Pension and other postretirement benefits 0.2 0.3 0.6 1.2 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 ) Comprehensive loss attributable to noncontrolling interests 0.2 0.1 0.5 0.4 Comprehensive (loss) income attributable to Park-Ohio Holdings Corp. common shareholders $ ( 12.5 ) $ 18.2 $ ( 14.6 ) $ ( 10.0 ) Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 7 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Shareholders' Equity (Unaudited) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive (Loss) Income Noncontrolling Interests Total (In whole shares) (In millions) Balance at January 1, 2021 16,148,791 $ 16.1 $ 135.5 $ 290.5 $ ( 79.8 ) $ ( 18.1 ) $ 13.7 $ 357.9 Other comprehensive income (loss) — — — 5.5 — ( 4.1 ) ( 0.1 ) 1.3 Stock-based compensation expense — — 1.6 — — — — 1.6 Stock-based compensation activity ( 6,667 ) — — — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Increase in Park-Ohio ownership interest — — 1.1 — — — ( 1.1 ) — Payments of withholding taxes on share awards — — — — ( 0.1 ) — — ( 0.1 ) Balance at March 31, 2021 16,142,124 16.1 138.2 294.4 ( 79.9 ) ( 22.2 ) 12.5 359.1 Other comprehensive (loss) income — — — ( 5.3 ) — 1.8 ( 0.2 ) ( 3.7 ) Stock-based compensation expense — — 1.4 — — — — 1.4 Stock-based compensation activity 174,746 0.2 ( 0.2 ) — — — — — Dividends — — — ( 1.5 ) — — — ( 1.5 ) Payments of withholding taxes on share awards — — — — ( 2.1 ) — — ( 2.1 ) Balance at June 30, 2021 16,316,870 16.3 139.4 287.6 ( 82.0 ) ( 20.4 ) 12.3 353.2 Other comprehensive (loss) income — — — ( 7.2 ) — ( 5.3 ) ( 0.2 ) ( 12.7 ) Stock-based compensation expense — — 1.7 — — — — 1.7 Stock-based compensation activity 2,500 — — — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Purchases of treasury stock ( 99,661 shares) — — — — ( 2.5 ) — — ( 2.5 ) Payments of withholding taxes on share awards — — — — ( 0.4 ) — — ( 0.4 ) Balance at September 30, 2020 16,319,370 $ 16.3 $ 141.1 $ 278.8 $ ( 84.9 ) $ ( 25.7 ) $ 12.1 $ 337.7 8 Table of Contents Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interests Total (In whole shares) (In millions) Balance at January 1, 2020 15,706,398 $ 15.7 $ 129.8 $ 298.2 $ ( 71.1 ) $ ( 37.0 ) $ 14.0 $ 349.6 Other comprehensive income (loss) — — — 1.2 — ( 16.1 ) 0.1 ( 14.8 ) Stock-based compensation expense — — 1.4 — — — — 1.4 Stock-based compensation activity 1,000 — — — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Purchases of treasury stock ( 180,827 shares) — — — — ( 2.9 ) — — ( 2.9 ) Payments of withholding taxes on share awards — — — — ( 0.1 ) — — ( 0.1 ) Balance at March 31, 2020 15,707,398 15.7 131.2 297.8 ( 74.1 ) ( 53.1 ) 14.1 331.6 Other comprehensive (loss) income — — — ( 16.6 ) — 3.3 ( 0.4 ) ( 13.7 ) Stock-based compensation expense — — 1.3 — — — — 1.3 Stock-based compensation activity 283,993 0.3 ( 0.3 ) — — — — — Purchases of treasury stock ( 149,376 shares) — — — — ( 2.4 ) — — ( 2.4 ) Payments of withholding taxes on share awards — — — — ( 0.6 ) — — ( 0.6 ) Balance at June 30, 2020 15,991,391 16.0 132.2 281.2 ( 77.1 ) ( 49.8 ) 13.7 316.2 Other comprehensive income (loss) — — — 5.3 — 12.9 ( 0.1 ) 18.1 Stock-based compensation expense — — 1.6 — — — — 1.6 Stock-based compensation activity 157,400 0.2 ( 0.2 ) — — — — — Purchases of treasury stock ( 119,831 shares) — — — — ( 1.9 ) — — ( 1.9 ) Balance at September 30, 2020 16,148,791 $ 16.2 $ 133.6 $ 286.5 $ ( 79.0 ) $ ( 36.9 ) $ 13.6 $ 334.0 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Dividends per common share $ 0.125 $ — $ 0.375 $ 0.125 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 9 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2021 2020 (In millions) OPERATING ACTIVITIES Net loss $ ( 7.5 ) $ ( 10.5 ) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Depreciation and amortization 28.9 26.9 Stock-based compensation expense 4.7 4.4 Changes in operating assets and liabilities: Accounts receivable ( 6.6 ) 9.6 Inventories ( 74.7 ) 20.8 Prepaid and other current assets 11.5 0.6 Accounts payable and accrued expenses 24.7 ( 18.2 ) Other ( 6.9 ) ( 0.8 ) Net cash (used) provided by operating activities ( 25.9 ) 32.8 INVESTING ACTIVITIES Purchases of property, plant and equipment ( 24.9 ) ( 14.9 ) Business acquisition, net of cash acquired ( 5.4 ) — Proceeds from sale of an asset — 1.4 Net cash used by investing activities ( 30.3 ) ( 13.5 ) FINANCING ACTIVITIES Proceeds (payments) from revolving credit facility, net 78.4 ( 7.7 ) Payments on other debt ( 5.4 ) ( 8.1 ) Proceeds from other debt 2.3 3.8 Payments on finance lease facilities, net ( 3.5 ) ( 2.6 ) Dividends ( 4.7 ) ( 1.6 ) Purchases of treasury shares ( 2.5 ) ( 7.2 ) Payments of withholding taxes on share awards ( 2.6 ) ( 0.7 ) Net cash provided (used) by financing activities 62.0 ( 24.1 ) Effect of exchange rate changes on cash ( 1.2 ) ( 0.3 ) Increase (decrease) in cash and cash equivalents 4.6 ( 5.1 ) Cash and cash equivalents at beginning of period 55.0 56.0 Cash and cash equivalents at end of period $ 59.6 $ 50.9 Interest paid $ 15.6 $ 15.7 Income taxes (received) paid, net $ ( 4.6 ) $ 2.0 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 10 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 NOTE 1 — Basis of Presentation The condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our” or the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine- month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 — New Accounting Pronouncements Recent Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which was issued in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate. The guidance is effective upon issuance and may be adopted on any date on or after March 12, 2020. However, the relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. The Company is currently evaluating the expected impact of this standard. No other recently issued ASUs are expected to have a material impact on our results of operations, financial condition or liquidity. NOTE 3 - Revenue We disaggregate our revenue by product line and geographic region of our customer, as we believe these metrics best depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. See details in the tables below. 11 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions) PRODUCT LINE Supply Technologies $ 134.5 $ 112.1 $ 406.2 $ 320.1 Engineered specialty fasteners and other products 19.5 19.9 60.5 47.1 Supply Technologies Segment 154.0 132.0 466.7 367.2 Fuel, rubber and plastic products 80.8 86.8 238.2 211.3 Aluminum products 39.4 40.1 117.5 98.7 Assembly Components Segment 120.2 126.9 355.7 310.0 Industrial equipment 62.0 56.2 179.9 175.7 Forged and machined products 22.3 25.1 65.8 81.9 Engineered Products Segment 84.3 81.3 245.7 257.6 Total revenues $ 358.5 $ 340.2 $ 1,068.1 $ 934.8 Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues (In millions) Three Months Ended September 30, 2021 GEOGRAPHIC REGION 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 Three Months Ended September 30, 2020 GEOGRAPHIC REGION United States $ 77.0 $ 86.1 $ 43.0 $ 206.1 Europe 21.6 3.8 16.1 41.5 Asia 10.3 9.1 12.6 32.0 Mexico 20.5 10.0 2.0 32.5 Canada 2.5 17.4 6.0 25.9 Other 0.1 0.5 1.6 2.2 Total $ 132.0 $ 126.9 $ 81.3 $ 340.2 12 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues (In millions) Nine Months Ended September 30, 2021 GEOGRAPHIC REGION United States $ 281.4 $ 241.8 $ 126.7 $ 649.9 Europe 84.7 10.7 46.3 141.7 Asia 42.4 19.0 38.5 99.9 Mexico 48.2 38.6 13.4 100.2 Canada 8.6 44.3 12.5 65.4 Other 1.4 1.3 8.3 11.0 Total $ 466.7 $ 355.7 $ 245.7 $ 1,068.1 Nine Months Ended September 30, 2020 GEOGRAPHIC REGION United States $ 228.3 $ 212.9 $ 141.7 $ 582.9 Europe 59.3 10.2 42.4 111.9 Asia 31.5 19.8 46.1 97.4 Mexico 40.0 23.8 5.5 69.3 Canada 7.0 42.3 15.1 64.4 Other 1.1 1.0 6.8 8.9 Total $ 367.2 $ 310.0 $ 257.6 $ 934.8 For over time arrangements, contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. These amounts, which totaled $ 38.6 million and $ 37.4 million at September 30, 2021 and December 31, 2020, respectively, are recorded in Accrued expenses and other in the Condensed Consolidated Balance Sheets. For over time arrangements, contract assets primarily relate to revenue recognized in advance of billings to customers under long-term contracts accounted for under percentage of completion. These amounts, which totaled $ 50.0 million and $ 56.9 million at September 30, 2021 and December 31, 2020, respectively, are recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheets. NOTE 4 — Segments Our operating segments are defined as components of the enterprise for which separate financial information is available and evaluated on a regular basis by our chief operating decision maker to allocate resources and assess performance. For purposes of measuring business segment performance, the Company utilizes segment operating income, which is defined as revenues less expenses identifiable to the product lines within each segment. The Company does not allocate items that are non-operating; unusual in nature; or corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs; Other components of pension income and other postretirement benefits expense, net; and interest expense, net. Results by business segment were as follows: 13 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions) Net sales: 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 $ 358.5 $ 340.2 $ 1,068.1 $ 934.8 Segment operating income (loss): Supply Technologies $ 10.7 $ 10.6 $ 33.2 $ 20.1 Assembly Components ( 8.9 ) 6.7 ( 8.6 ) ( 1.6 ) Engineered Products 0.6 1.3 ( 1.3 ) 4.3 Total segment operating income 2.4 18.6 23.3 22.8 Corporate costs ( 7.4 ) ( 7.6 ) ( 19.4 ) ( 19.7 ) Operating (loss) income ( 5.0 ) 11.0 3.9 3.1 Other components of pension income and other postretirement benefits expense, net 2.4 1.9 7.3 5.5 Interest expense, net ( 7.6 ) ( 7.4 ) ( 22.4 ) ( 22.9 ) (Loss) income before income taxes $ ( 10.2 ) $ 5.5 $ ( 11.2 ) $ ( 14.3 ) NOTE 5 — Plant Closure and Consolidation In the three and nine months ended September 30, 2021, the Company recorded expenses totaling $ 1.8 million and $ 3.1 million, respectively, in its Assembly Components segment. These charges were recorded in connection with actions taken to close and consolidate its extrusion operations in Tennessee and its fuel operations in Michigan, and to complete other cost-reduction actions in this segment. In the three and nine months ended September 30, 2021, the expenses included facility-related costs of $ 1.8 million and $ 2.8 million, respectively, which were included in cost of sales in the Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2021, expenses also included severance costs of $ 0.3 million, which were included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The Company expects to incur additional moving and other facility-related costs related to these initiatives of approximately $ 1.9 million in the fourth quarter of 2021. In the three and nine months ended September 30, 2021, the Company recorded expenses related to plant closure and consolidation in its Engineered Products segment totaling $ 0.6 million and $ 1.9 million, respectively, which are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The Company expects to incur additional costs related to these initiatives of approximately $ 1.6 million in the fourth quarter of 2021. During the third quarter of 2021, in connection with the plant closure and consolidation activities in its Engineered Products segment, the Company committed to a plan to sell real estate at two operating locations. The Company determined that these assets met the criteria to be classified as held for sale during the third quarter and, therefore, the aggregate carrying value of approximately $ 4.9 million is included in assets held for sale and presented in Prepaid and other current assets in the Condensed Consolidated Balance Sheet at September 30, 2021. The Company believes that the fair value less costs to sell of these assets exceeds their respective carrying values. 14 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 NOTE 6 — Acquisition On April 1, 2021, the Company acquired NYK Component Solutions Limited (“NYK”) for $ 5.4 million in cash, net of cash acquired, plus estimated contingent consideration of up to an additional $ 1.8 million. NYK, which is included in our Supply Technologies segment, is headquartered in Southampton, United Kingdom and is a leading distributor of circular connectors and accessories for use in aerospace, defense, and other industrial applications. NYK provides complementary products to our existing products in Supply Technologies. The allocation of the purchase price of NYK is subject to finalization of the Company's determination of the fair values of the assets acquired and the liabilities assumed as of the acquisition date, and could be materially different than the estimates presented below. The Company has not yet completed its analysis of the fair value of the intangible assets or the contingent consideration. The final allocation is expected to be completed in the fourth quarter of 2021, but no later than one year after the acquisition date. Below is the estimated purchase price allocation related to the acquisition of NYK; the total purchase price is net of cash acquired and includes estimated contingent consideration of $ 1.8 million. (In millions) Accounts receivable $ 1.0 Inventories 2.2 Accounts payable and accrued expenses ( 1.0 ) Property, plant and equipment 0.1 Other, net 0.1 Intangible assets 2.8 Goodwill 2.5 Deferred income tax liability ( 0.5 ) Total purchase price (including the estimated contingent consideration of $ 1.8 million) $ 7.2 NOTE 7 — Inventories Inventories, net consist of the following: September 30, 2021 December 31, 2020 (In millions) 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 15 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 NOTE 8 — Accrued Warranty Costs The Company estimates warranty claims that may be incurred based on current and historical data of products sold. Actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents changes in the Company’s product warranty liability for the three and nine months ended September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions) 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 NOTE 9 — Income Taxes The Company’s tax provision for interim periods is determined using an estimate of its annual effective rate, adjusted for discrete items, if any, in each period. On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. Significant impacts of the CARES Act include the ability to carry back a net operating loss for five years and an increase of the Internal Revenue Code Section 163(j) interest expense disallowance limitations from 30% to 50% of adjusted taxable income, which will allow the Company to deduct additional interest expense for the 2019 and 2020 tax years. The Company is assessing the potential impact of global relief packages and the CARES Act. 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 of $ 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 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. 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. rate. NOTE 10 — Financing Arrangements Debt consists of the following: 16 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 Carrying Value at Maturity Date Interest Rate at September 30, 2021 September 30, 2021 December 31, 2020 (In millions) 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 Less current portion of long-term debt and short-term debt ( 8.9 ) ( 11.6 ) Less unamortized debt issuance costs ( 4.2 ) ( 5.3 ) Total long-term debt, net $ 592.1 $ 517.8 In 2018, Park-Ohio Industries, Inc. (“Park-Ohio”), the operating subsidiary of Park-Ohio Holdings Corp., entered into Amendment No. 1 to Seventh Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of banks to increase the availability under the revolving credit facility from $ 350.0 million to $ 375.0 million, the Canadian revolving subcommitment from $ 35.0 million to $ 40.0 million and the European revolving subcommitment from $ 25.0 million to $ 30.0 million. Furthermore, Park-Ohio has the option, pursuant to the Credit Agreement, to increase the availability under the revolving credit facility by an aggregate incremental amount up to $ 100.0 million. In 2019, Park-Ohio entered into Amendment No. 4 to the Credit Agreement, extending the maturity of the Credit Agreement to November 26, 2024. We had outstanding bank guarantees and letters of credit under the Credit Agreement of approximately $ 35.3 million at September 30, 2021 and $ 34.9 million at December 31, 2020. In 2017, Park-Ohio completed the issuance, in a private placement, of $ 350.0 million aggregate principal amount of 6.625 % Senior Notes due 2027 (the “Notes”). The Notes are unsecured senior obligations of Park-Ohio and are guaranteed on an unsecured senior basis by the 100 % owned material domestic subsidiaries of Park-Ohio. In 2016, the Company, through its subsidiary, IEGE Industrial Equipment Holding Company Limited, entered into a financing agreement with Banco Bilbao Vizcaya Argentaria, S.A. The financing agreement provides the Company a loan up to $ 28.9 million as of September 30, 2021, as well as a revolving credit facility for up to $ 11.6 million to fund working capital and general corporate needs. No amounts were outstanding under the loan agreement or the revolving credit facility as of September 30, 2021. In 2015, the Company entered into a finance lease agreement (the “Lease Agreement”). The Lease Agreement provides the Company up to $ 50.0 million for finance leases. Finance lease obligations of $ 15.2 million were borrowed under the Lease Agreement to acquire machinery and equipment as of September 30, 2021. In 2015, the Company, through its Southwest Steel Processing LLC subsidiary, entered into a financing agreement with the Arkansas Development Finance Authority which matures in September 2025. The financing agreement provides the Company the ability to borrow up to $ 11.0 million for expansion of its manufacturing facility in Arkansas. The Company had $ 6.1 million of borrowings outstanding under this agreement as of September 30, 2021, which is included in Other above. The following table represents fair value information of the Notes, classified as Level 1 using estimated quoted market prices. 17 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 September 30, 2021 December 31, 2020 (In millions) Carrying amount $ 350.0 $ 350.0 Fair value $ 351.3 $ 361.8 NOTE 11 — Stock-Based Compensation A summary of restricted share activity for the nine months ended September 30, 2021 is as follows: 2021 Time-Based Performance-Based Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value (In whole shares) (In whole shares) Outstanding - beginning of year 741,006 $ 22.02 50,000 $ 32.55 Granted (a) 183,401 33.64 — — Vested ( 234,081 ) 22.47 — — Canceled or expired ( 7,917 ) 21.71 — — Outstanding - end of period 682,409 $ 24.99 50,000 $ 32.55 (a) - Included in this amount are 4,905 restricted share units. Stock-based compensation is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. Total stock-based compensation expense for the three months ended September 30, 2021 and 2020 was $ 1.7 million and $ 1.6 million, respectively. Total stock-based compensation expense for the nine months ended September 30, 2021 and 2020 was $ 4.7 million and $ 4.4 million, respectively. As of September 30, 2021, there was $ 11.4 million of unrecognized compensation cost related to non-vested stock-based compensation, which cost is expected to be recognized over a weighted-average period of 2.0 years. NOTE 12 — Commitments and Contingencies The Company is subject to various pending and threatened legal proceedings arising in the ordinary course of business. The Company records a liability for loss contingencies in the consolidated financial statements when a loss is known or considered probable and the amount can be reasonably estimated. Our provisions are based on historical experience, current information and legal advice, and they may be adjusted in the future based on new developments. Estimating probable losses requires the analysis of multiple forecasted factors that often depend on judgments and potential actions by third parties. Although it is not possible to predict with certainty the ultimate outcome or cost of these matters, the Company believes they will not have a material adverse effect on our consolidated financial statements. Our subsidiaries are involved in a number of contractual and warranty-related disputes. We believe that appropriate liabilities for these contingencies have been recorded; however, actual results may differ materially from our estimates. In addition to the routine lawsuits and asserted claims noted above, we are also a co-defendant in approximately 124 cases asserting claims on behalf of approximately 228 plaintiffs alleging personal injury as a result of exposure to asbestos. In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. Historically, we have been dismissed from asbestos cases. We intend to vigorously defend these cases and believe we will continue to be successful in being dismissed from such cases. 18 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 While it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations. NOTE 13 — Pension and Postretirement Benefits The components of net periodic benefit (income) expense costs recognized for the three and nine months ended September 30, 2021 and 2020 were as follows: Pension Benefits Postretirement Benefits Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 2021 2020 2021 2020 (In millions) Service costs $ 1.0 $ 1.0 $ 3.2 $ 3.2 $ — $ — $ — $ — Interest costs 0.3 0.5 1.0 1.6 — — 0.1 0.1 Expected return on plan assets ( 3.0 ) ( 2.9 ) ( 9.2 ) ( 8.8 ) — — — — Recognized net actuarial loss 0.2 0.4 0.6 1.4 0.1 0.1 0.3 0.2 Net periodic benefit (income) expense $ ( 1.5 ) $ ( 1.0 ) $ ( 4.4 ) $ ( 2.6 ) $ 0.1 $ 0.1 $ 0.4 $ 0.3 NOTE 14 — Accumulated Other Comprehensive (Loss) Income The components of and changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2021 and 2020 were as follows: Cumulative Translation Adjustment Pension and Postretirement Benefits Total Cumulative Translation Adjustment Pension and Postretirement Benefits Total (In millions) Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 Beginning balance $ ( 11.0 ) $ ( 9.4 ) $ ( 20.4 ) $ ( 36.1 ) $ ( 13.7 ) $ ( 49.8 ) Currency translation (a) ( 5.5 ) — ( 5.5 ) 12.6 — 12.6 Pension and OPEB activity, net of tax — 0.2 0.2 — 0.3 0.3 Ending balance $ ( 16.5 ) $ ( 9.2 ) $ ( 25.7 ) $ ( 23.5 ) $ ( 13.4 ) $ ( 36.9 ) Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 Beginning balance $ ( 8.3 ) $ ( 9.8 ) $ ( 18.1 ) $ ( 22.4 ) $ ( 14.6 ) $ ( 37.0 ) Currency translation (a) ( 8.2 ) — ( 8.2 ) ( 1.1 ) — ( 1.1 ) Pension and OPEB activity, net of tax — 0.6 0.6 — 1.2 1.2 Ending balance $ ( 16.5 ) $ ( 9.2 ) $ ( 25.7 ) $ ( 23.5 ) $ ( 13.4 ) $ ( 36.9 ) (a) No income taxes were provided on currency translation as foreign earnings are considered permanently reinvested. NOTE 15 — Weighted-Average Number of Shares Used in Computing Earnings Per Share The following table sets forth the weighted-average number of shares used in the computation of earnings per share: 19 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions) Weighted-average basic shares outstanding 12.1 12.0 12.0 12.1 Plus: Dilutive impact of employee stock awards — — — — Weighted-average diluted shares outstanding 12.1 12.0 12.0 12.1 Certain restricted stock awards are anti-dilutive and therefore excluded from the computation of diluted earnings per share. Anti-dilutive shares were 0.2 million and 0.5 million for the three months ended September 30, 2021 and 2020, respectively. Anti-dilutive shares were 0.1 million and 0.3 million for the nine months ended September 30, 2021 and 2020, respectively. 20 Table of Contents