PARK OHIO HOLDINGS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our,” or the “Company”). All significant intercompany transactions have been eliminated in consolidation. EXECUTIVE OVERVIEW We are a diversified international company providing world-class customers with a supply chain management outsourcing service, capital equipment used on their production lines, and manufactured components used to assemble their products. We operate through three reportable segments: Supply Technologies, Assembly Components and Engineered Products. Supply Technologies provides our customers with Total Supply Management™, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Management™ includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. Our Supply Technologies business services customers in the following principal industries: heavy-duty truck; sports and recreational equipment; aerospace and defense; semiconductor equipment; electrical distribution and controls; consumer electronics; bus and coaches; automotive, agricultural and construction equipment; HVAC; lawn and garden; plumbing; and medical. Assembly Components manufactures products oriented towards fuel efficiency and reduced emission standards. Assembly Components designs, develops and manufactures aluminum products and highly efficient, high pressure direct fuel injection fuel rails and pipes; fuel filler pipes that route fuel from the gas cap to the gas tank; flexible multi-layer plastic and rubber assemblies used to transport fuel from the vehicle's gas tank and then, at extreme high pressure, to the engine's fuel injector nozzles. Our product offerings include gasoline direct injection systems and fuel filler assemblies, and industrial hose and injected molded rubber and plastic components. Additional products include cast and machined aluminum engine, transmission, brake, suspension and other components, such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers. Our products are primarily used in the following industries: automotive, including automotive and light-vehicle; agricultural equipment; construction equipment; heavy-duty truck; and marine original equipment manufacturers (“OEMs”), on a sole-source basis. Engineered Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products, including induction heating and melting systems, pipe threading systems and forged and machined products. Engineered Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Engineered Products are OEMs, sub-assemblers and end users in the following industries: ferrous and non-ferrous metals; silicon; coatings; forging; foundry; heavy-duty truck; construction equipment; automotive; oil and gas; locomotive and rail manufacturing; and aerospace and defense. Sales and operating income for these three segments are provided in Note 4 to the condensed consolidated financial statements, included elsewhere herein. COVID-19 Pandemic 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, 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 21 Table of Contents $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. 22 Table of Contents RESULTS OF OPERATIONS Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020 Three Months Ended September 30, 2021 2020 $ Change % Change (Dollars in millions, except per share data) Net sales $ 358.5 $ 340.2 $ 18.3 5.4 % Cost of sales 318.4 290.5 27.9 9.6 % Gross profit 40.1 49.7 (9.6) (19.3) % Gross margin 11.2 % 14.6 % Selling, general and administrative (“SG&A”) expenses 45.1 38.7 6.4 16.5 % SG&A expenses as a percentage of net sales 12.6 % 11.4 % 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) 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) income attributable to Park-Ohio Holdings Corp. common shareholders $ (7.2) $ 5.3 $ (12.5) * (Loss) income per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic $ (0.60) $ 0.44 $ (1.04) * Diluted $ (0.60) $ 0.44 $ (1.04) * *Calculation not meaningful Net Sales 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 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. 23 Table of Contents SG&A Expenses 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 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 $2.4 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 $7.6 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 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 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. 24 Table of Contents RESULTS OF OPERATIONS Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2021 2020 $ Change % Change (Dollars in millions, except per share data) Net sales $ 1,068.1 $ 934.8 $ 133.3 14.3 % Cost of sales 936.1 817.0 119.1 14.6 % Gross profit 132.0 117.8 14.2 12.1 % Gross margin 12.4 % 12.6 % SG&A expenses 128.1 114.7 13.4 11.7 % SG&A expenses as a percentage of net sales 12.0 % 12.3 % Operating income 3.9 3.1 0.8 25.8 % Other components of pension income and other postretirement benefits expense, net 7.3 5.5 1.8 32.7 % Interest expense, net (22.4) (22.9) 0.5 (2.2) % Loss before income taxes (11.2) (14.3) 3.1 (21.7) % Income tax benefit 3.7 3.8 (0.1) (2.6) % Net loss (7.5) (10.5) 3.0 (28.6) % Net loss attributable to noncontrolling interests 0.5 0.4 0.1 25.0 % Net loss attributable to Park-Ohio Holdings Corp. common shareholders $ (7.0) $ (10.1) $ 3.1 (30.7) % Loss per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic $ (0.58) $ (0.83) $ 0.25 (30.1) % Diluted $ (0.58) $ (0.83) $ 0.25 (30.1) % Net Sales 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 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 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 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 25 Table of Contents costs. 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 $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 $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 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 $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 $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 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. SEGMENT RESULTS For purposes of business segment performance measurement, 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 or unusual in nature or are corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. Supply Technologies Segment Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Dollars in millions) Net sales $ 154.0 $ 132.0 $ 466.7 $ 367.2 Segment operating income $ 10.7 $ 10.6 $ 33.2 $ 20.1 Segment operating income margin 6.9 % 8.0 % 7.1 % 5.5 % Three months ended September 30: 26 Table of Contents 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 $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, 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Dollars in millions) Net sales $ 120.2 $ 126.9 $ 355.7 $ 310.0 Segment operating (loss) income $ (8.9) $ 6.7 $ (8.6) $ (1.6) Segment operating (loss) income margin (7.4) % 5.3 % (2.4) % (0.5) % 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. 27 Table of Contents 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. 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Dollars in millions) Net sales $ 84.3 $ 81.3 $ 245.7 $ 257.6 Segment operating income (loss) $ 0.6 $ 1.3 $ (1.3) $ 4.3 Segment operating income (loss) margin 0.7 % 1.6 % (0.5) % 1.7 % 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, which continue to be slow to recover from the pandemic. 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 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. 28 Table of Contents Liquidity and Capital Resources The following table summarizes the major components of cash flow: Nine Months Ended September 30, 2021 2020 $ Change Net cash (used) provided by: (In millions) Operating activities $ (25.9) $ 32.8 $ (58.7) Investing activities (30.3) (13.5) (16.8) Financing activities 62.0 (24.1) 86.1 Effect of exchange rate changes on cash (1.2) (0.3) (0.9) 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 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 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 $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 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. Liquidity Our liquidity needs are primarily for working capital, capital expenditures, dividends and acquisitions. 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 29 Table of Contents 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. to have a material effect on our overall liquidity, financial condition or results of operations for the foreseeable future. The Company has two components to its assertion regarding reinvestment of foreign earnings outside of the United States. First, for all foreign subsidiaries except RB&W Corporation of Canada (“RB&W”), all earnings are permanently reinvested outside of the United States. Second, for RB&W, dividend distributions may be made, but only to the extent of current earnings in excess of cash required to fund its business operations; all accumulated earnings are permanently reinvested. Senior Notes In April 2017, Park-Ohio Industries, Inc. (“Park-Ohio”), the operating subsidiary of Park-Ohio Holdings Corp., completed the sale, in a private placement, of $350.0 million aggregate principal amount of 6.625% Senior Notes due 2027 (the “Notes”). The net proceeds from the issuance of the Notes were used to repay in full our previously outstanding 8.125% Senior Notes due 2021 and our outstanding term loan, and to repay a portion of the borrowings then outstanding under our revolving credit facility. Credit Agreement In June 2018, Park-Ohio entered into Amendment No. 1 to its Seventh Amended and Restated Credit Agreement (the “Credit Agreement”). The amendment to the Credit Agreement, among other things, provided increases in 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, the Company 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. Finance Leases In August 2015, the Company entered into a Capital 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. Covenants 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 September 30, 2021, our calculated availability under the Credit Agreement was $136.6 million; therefore, the debt service ratio covenant did not apply. Failure to maintain calculated availability of at least $46.875 million and meet the debt service ratio covenant could materially impact the availability and interest rate of future borrowings. 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. 30 Table of Contents 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 September 30, 2021. 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. Dividends The Company paid dividends to shareholders of $4.7 million during the nine months ended September 30, 2021. Seasonality; Variability of Operating Results The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our businesses. Such variability is particularly evident in our capital equipment business, included in the Engineered Products segment, which typically ships large systems at a relatively lower pace than our other businesses. Critical Accounting Policies Our critical accounting policies are described in "Item. 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations," and in the notes to our consolidated financial statements for the year ended December 31, 2020, both contained in our Annual Report on Form 10-K for the year ended December 31, 2020. There were no new critical accounting policies or updates to existing critical accounting policies as a result of new accounting pronouncements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates. Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements, including statements regarding future performance of the Company, that are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 micro-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; demand for our products and services; the impact of labor disturbances affecting our customers; raw material availability and pricing; fluctuations in energy costs; component part availability and pricing; changes in our relationships with customers and suppliers; the financial condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate recent and future acquisitions into existing operations; the amounts and timing, if any, of purchases of our common stock; changes in general economic conditions 31 Table of Contents 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; public health issues, including the outbreak of COVID-19 and its impact on our facilities and operations and our customers and suppliers; our ability to meet various covenants, including financial covenants, contained in the agreements governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; potential disruption due to a partial or complete reconfiguration of the European Union; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment or import and export controls and other trade barriers; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims and disputes with customers; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending; our ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems; our ability to continue to pay cash dividends, and the timing and amount of any such dividends; and the other factors we describe under “Item 1A. Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved.