What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-16 compared with 2021-03-05 · 141 added, 144 removed, 943 unchanged (23% of the section changed)

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Index to Consolidated Financial Statements and Supplementary Financial Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets — December 31, 2021 and 2020

Consolidated Statements of Operation s — Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income — Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Operations — Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive (Loss) Income — Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2021, 2020 and 2019

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Notes to Consolidated Financial Statements

Selected Quarterly Financial Data (Unaudited) — Years Ended December 31, 2020 and 2019

Supplementary Financial Data

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We have audited the accompanying consolidated balance sheets of Park Ohio Holdings Corp.

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Quantitative Impairment Assessment of Goodwill

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and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 5, 2021 expressed an unqualified opinion thereon.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting , management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of NYK Component Solutions, which is included in the 2021 consolidated financial statements of the Company and constituted less than 1% of total assets as of December 31, 2021 and less than 1% of total revenues for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of NYK Component Solutions.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 16, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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Gain on sale of assets ( 14.7 ) — —

Operating income 15.7 83.1 97.3

Goodwill impairment 4.6 — —

Operating (loss) income ( 12.1 ) 15.7 83.1

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

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and Subsidiaries

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

Year Ended December 31,

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Net (loss) income $ ( 26.0 ) $ ( 4.8 ) $ 39.7

Other comprehensive income (loss):

Other comprehensive (loss) income:

Currency translation ( 10.0 ) 14.1 ( 1.1 )

Pensions and other postretirement benefits, net of tax 8.9 4.8 5.0

Total other comprehensive income (loss) 18.9 3.9 ( 23.0 )

Total comprehensive income, net of tax 14.1 43.6 32.2

Total other comprehensive (loss) income ( 1.1 ) 18.9 3.9

Total comprehensive (loss) income, net of tax ( 27.1 ) 14.1 43.6

Comprehensive loss (income) attributable to noncontrolling interest 1.2 0.3 ( 1.1 )

Comprehensive income attributable to ParkOhio common shareholders $ 14.4 $ 42.5 $ 30.6

Comprehensive (loss) income attributable to ParkOhio common shareholders $ ( 25.9 ) $ 14.4 $ 42.5

The accompanying notes are an integral part of these consolidated financial statements.

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Balance at January 1, 2019 15,555,275 $ 15.6 $ 125.7 $ 265.9 $ ( 67.3 ) $ ( 40.9 ) $ 13.6 $ 312.6

Comprehensive income (loss) — — — 53.6 — ( 23.0 ) 1.6 32.2

Comprehensive income — — — 38.6 — 3.9 1.1 43.6

Stock-based compensation — — 4.1 — — — — 4.1

Restricted stock awards issued (1)

266,123 0.2 ( 0.1 ) — — — — 0.1

Restricted stock cancelled ( 115,000 ) ( 0.1 ) 0.1 — — — — —

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— — — — ( 3.8 ) — — ( 3.8 )

Adoption of ASU 2014-09 — — — 2.6 — — — 2.6

Balance at December 31, 2019 15,706,398 15.7 129.8 298.2 ( 71.1 ) ( 37.0 ) 14.0 349.6

Comprehensive income — — — 38.6 — 3.9 1.1 43.6

Comprehensive (loss) income — — — ( 4.5 ) — 18.9 ( 0.3 ) 14.1

Stock-based compensation — — 6.1 — — — — 6.1

Restricted stock awards issued 447,393 0.4 ( 0.4 ) — — — — —

266,123 0.2 ( 0.1 ) — — — — 0.1

Restricted stock cancelled ( 5,000 ) — — — — — — —

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Dividends — — — ( 6.3 ) — — ( 0.7 ) ( 7.0 )

Purchase of treasury stock ( 519,387 shares)

Purchase of treasury stock ( 191,983 )

— — — — ( 5.5 ) — — ( 5.5 )

Increase in Park-Ohio ownership interest — — 1.1 — — — ( 1.1 ) —

Balance at December 31, 2021 16,339,722 $ 16.3 $ 142.9 $ 259.4 $ ( 85.3 ) $ ( 19.2 ) $ 10.7 $ 324.8

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Gain on sale of assets ( 14.7 ) — —

Goodwill impairment 4.6 — —

Deferred income taxes ( 9.3 ) 6.2 1.4

Net impact of Tax Cuts and Jobs Act — — 0.3

Changes in operating assets and liabilities:

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Other ( 9.1 ) ( 1.1 ) ( 4.4 )

Net cash provided by operating activities 69.3 63.7 54.8

Net cash (used) provided by operating activities ( 43.3 ) 69.3 63.7

INVESTING ACTIVITIES

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FINANCING ACTIVITIES

(Payments on) proceeds from revolving credit facility, net ( 29.3 ) 7.8 40.3

Proceeds from (payments on) revolving credit facility, net 77.6 ( 29.3 ) 7.8

Payments on term loans and other debt ( 6.3 ) ( 13.0 ) ( 10.3 )

Proceeds from other long-term debt 2.3 5.5 1.4

Proceeds from (payments on) finance lease facilities, net 1.4 ( 3.4 ) ( 0.9 )

(Payments on) proceeds from finance lease facilities, net ( 1.2 ) 1.4 ( 3.4 )

Dividends ( 7.0 ) ( 3.2 ) ( 7.0 )

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Payments of withholding taxes on stock awards ( 3.0 ) ( 1.2 ) ( 2.9 )

Net cash (used) provided by financing activities ( 47.3 ) ( 15.3 ) 9.4

Net cash provided (used) by financing activities 59.9 ( 47.3 ) ( 15.3 )

Effect of exchange rate changes on cash ( 1.3 ) 1.9 0.1

(Decrease) increase in cash and cash equivalents ( 1.0 ) 0.3 ( 27.1 )

Decrease in cash and cash equivalents ( 0.9 ) ( 1.0 ) 0.3

Cash and cash equivalents at beginning of year 55.0 56.0 55.7

Cash and cash equivalents at end of year $ 54.1 $ 55.0 $ 56.0

Income taxes paid $ 5.5 $ 12.3 $ 21.0

Income taxes (received) paid, net $ ( 1.0 ) $ 5.5 $ 12.3

Interest paid $ 28.8 $ 28.3 $ 31.5

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Sales of accounts receivable are reflected as a reduction of accounts receivable in the Consolidated Balance Sheets, and the proceeds are included in cash flows from operating activities in the Consolidated Statements of Cash Flows.

Expense in the amount of $ 0.4 million and $ 1.1 million in 2020 and 2019, respectively, related to the discount on sale of accounts receivable is recorded in the Consolidated Statements of Operations.

Inventories are valued using first-in, first-out (“FIFO”) or the weighted-average inventory method and stated at the lower of cost or net realizable value, except for the inventories at Canton Drop Forge (“CDF”).

CDF inventories are stated using the last-in, first-out (“LIFO”) method.

Expense in the amount of $ 0.4 million in both 2021 and 2020 related to the discount on sale of accounts receivable is recorded in the Consolidated Statements of Operations.

Inventories are valued using first-in, first-out (“FIFO”) or the weighted-average inventory method and stated at the lower of cost or net realizable value.

Major Classes of Inventories December 31, 2021 December 31, 2020

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Finished goods 219.1 173.1

LIFO reserve 2.0 2.0

Inventories, net $ 382.9 $ 310.9

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Additions and improvements that extend the lives of assets are capitalized, and expenditures for repairs and maintenance are charged to operations as incurred.

Depreciation of fixed assets, including amounts capitalized under finance leases, is computed by the straight-line method based on the estimated useful lives of the assets ranging from five to 40 years for buildings, and one to 20 years for machinery and equipment (with the majority in the range of three to ten years ).

PARK-OHIO HOLDINGS CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes property, plant and equipment:

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Our reporting units have been identified one level below the operating segment level.

The Company completed its annual goodwill and indefinite-lived intangibles impairment testing as of October 1 of each year, noting no impairment.

The Company completed its annual goodwill and indefinite-lived intangibles impairment testing as of October 1 of each year, noting no impairment, except for the full write-off of the $ 4.6 million of goodwill in our Aluminum Products reporting unit.

To determine fair value for goodwill testing purposes, the Company uses an income approach, utilizing a discounted cash flow model based on forecasted cash flows and weighted average cost of capital.

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These valuations require significant judgment.

Changes in assumptions or estimation methods could affect the fair value estimates;

however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and borrowings under the Credit Agreement (as defined in Note 8)

PARK-OHIO HOLDINGS CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Changes in assumptions or estimation methods could affect the fair value estimates;

however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and borrowings under the Credit Agreement (as defined in Note 8) approximate fair value at December 31, 2020 and December 31, 2019 because of the short-term nature of these instruments.

approximate fair value at December 31, 2021 and December 31, 2020 because of the short-term nature of these instruments.

The fair values of long-term debt and pension plan assets are disclosed in Note 8 and Note 13, respectively.

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We have elected to account for global intangible low-taxed income (“GILTI”) as a current period expense.

The impact of GILTI at December 31, 2020 and 2019 was an increase in tax expense of $ 1.8 million and $ 1.9 million, respectively.

The impact of FDII at December 31, 2020 and 2019 was a decrease in tax expense of $ 0.0 million and $ 0.8 million, respectively.

The impact of GILTI at December 31, 2021 and 2020 was an increase in tax expense of $ 1.8 million in both periods.

Revenue Recognition:

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The resulting translation adjustments are recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets.

Gains and losses resulting from foreign

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

currency transactions, including intercompany transactions that are not considered long-term investments, are included in the Consolidated Statements of Operations.

Gains and losses resulting from foreign currency transactions, including intercompany transactions that are not considered long-term investments, are included in the Consolidated Statements of Operations.

The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data.

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The following table presents the changes in the Company’s product warranty liability:

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31,

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Outstanding stock awards with exercise prices greater than the average price of the common shares are anti-dilutive and are not included in the computation of diluted earnings per share.

Because the Company was in a loss position for the year ended December 31, 2020, all common shares outstanding would have been anti-dilutive.

For the years ended December 31, 2019 and 2018, the anti-dilutive shares were insignificant.

Accounting Standards Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses of Financial Instruments,” which replaced the current incurred loss impairment model with a methodology that reflected expected credit losses.

Under the new methodology, entities will measure expected credit losses on financial instruments held at amortized cost, including trade receivables, based on historical experience, current conditions and reasonable forecasts.

The Company adopted this standard as of January 1, 2020.

The adoption of the standard had an immaterial impact on the Company.

For the year ended December 31, 2020, the provision and write-offs was not material, and the allowance approximated $ 5.5 million as of December 31, 2020.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740) - Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

The amendments also improve consistent application of and simplify U.S.

GAAP for other areas of ASC 740 by clarifying and amending existing guidance.

The Company adopted this standard as of April 1, 2020.

The adoption of the standard had an immaterial impact on the Company's tax provision.

Because the Company was in a loss position for the years ended December 31, 2021 and 2020, all common shares outstanding are anti-dilutive.

For the years ended December 31, 2021, 2020 and 2019, the anti-dilutive shares were 0.6 million, 0.6 million and 0.1 million respectively.

Recent Accounting Standards Not Yet Adopted

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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

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date.

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.

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The Company has elected the practical expedient not to disclose the value of remaining performance obligations associated with these types of contacts.

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company also has certain contracts which contain performance obligations that are immaterial in the context of the contract with the customer.

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These amounts, which totaled $ 51.7 million and $ 37.4 million at December 31, 2021 and December 31, 2020, respectively, are recorded as Deferred revenue in the Consolidated Balance Sheets.

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For over time arrangements, contract assets relate to revenue recognized in advance of billings to customers under long-term contracts accounted for under percentage of completion.

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See details in the tables below.

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31,

2021 2020 2019

Supply Technologies $ 539.5 $ 444.8 $ 532.9

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Total $ 510.1 $ 441.5 $ 343.6 $ 1,295.2

Year Ended December 31, 2019

GEOGRAPHIC REGION

United States $ 404.5 $ 388.1 $ 271.3 $ 1,063.9

Europe 98.0 14.6 80.2 192.8

Asia 40.3 21.4 66.2 127.9

Mexico 54.7 37.3 13.8 105.8

Canada 12.2 76.7 23.9 112.8

Other 1.8 1.4 11.9 15.1

Total $ 611.5 $ 539.5 $ 467.3 $ 1,618.3

NOTE 3 — Segments

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Supply Technologies, Assembly Components and Engineered Products.

For purposes of measuring business segment performance, the chief operating decision maker utilizes segment operating income, which is defined as revenues less expenses identifiable to the product lines within each segment.

For purposes of measuring business segment performance, the chief operating decision maker utilizes segment operating (loss) 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;

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or are corporate costs, which include but are not limited to executive compensation and corporate office costs.

Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs, certain non-cash and/or non-operating items;

Segment operating (loss) income reconciles to consolidated (loss) income before income taxes by deducting corporate costs, certain non-cash and/or non-operating items;

Other components of pension income and other postretirement benefits (“OPEB”) expense, net;

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$ 1,438.0 $ 1,295.2 $ 1,618.3

Segment operating income:

Segment operating (loss) income:

Supply Technologies $ 42.8 $ 30.2 $ 42.0

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Corporate costs ( 26.4 ) ( 26.1 ) ( 28.5 )

One-time net expense related to former President — ( 4.3 ) —

Gain on sale of assets (1)

Operating income 15.7 83.1 97.3

Goodwill impairment (2)

One-time net expense related to former President — — ( 4.3 )

Operating (loss) income ( 12.1 ) 15.7 83.1

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

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(Loss) income before income taxes $ ( 32.5 ) $ ( 7.3 ) $ 54.9

(1) Gain on sale of assets was primarily due to the sale of real estate, for which the Company received cash proceeds of $ 19.6 million, in connection with the restructuring of the forged and machined products operating unit, which is included in the Engineered Products segment.

(2) The Company wrote-off the full amount of $ 4.6 million of goodwill in the Aluminum Products operating unit, which is included in the Assembly Components segment.

PARK-OHIO HOLDINGS CORP.

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NOTE 4 — Plant Closure and Consolidation

During 2020, the Company recorded charges totaling $ 4.1 million in its Assembly Components segment in connection with commencement of actions to close and consolidate its extrusion operations in Tennessee and its fuel operations in Shanghai, China, and to complete other cost-reduction actions in this segment.

The charges, which are included in Cost of sales in the Consolidated Statements of Operations, are comprised of severance and related employee costs of $ 1.4 million, asset impairment of $ 0.5 million, and other facility costs of $ 2.2 million.

In the Engineered Products segment, the Company recorded charges in 2020 related to plant closure and consolidation, of which $ 1.0 million are included in Cost of sales in the Consolidated Statements of Operations and $ 1.2 million are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

During 2021, the Company recorded expenses totaling $ 6.1 million in its Assembly Components segment.

These expenses were recorded in connection with actions taken to close and consolidate its extrusion operations in Tennessee and its fuel operations in Michigan, to relocate certain production to lower-cost facilities with open capacity, and to complete other cost-reduction actions in this segment.

The expenses included facility-related costs of $ 5.5 million, which were included in cost of sales in the Consolidated Statements of Operations.

During 2021, expenses also included severance and other costs of $ 0.6 million, which were included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

In connection with these actions, real estate was sold, resulting in a gain $ 0.5 million.

During 2021, the Company recorded expenses totaling $ 11.7 million in its Engineered Products segment.

These expenses were recorded in connection with actions taken to close and consolidate multiple locations, and to complete other cost-reduction actions in this segment.

The expenses included facility-related costs of $ 9.2 million, which were included in cost of sales in the Consolidated Statements of Operations.

During 2021, expenses also included severance and other costs of $ 2.5 million, which were included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

During 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.

During the fourth quarter of 2021, the Company sold one property for $ 19.6 million in cash proceeds and recorded a gain on the sale of $ 14.2 million.

The Company determined that the remaining asset continues to meet the criteria to be classified as held for sale as of December 31, 2021 and, therefore, the carrying value is included in assets held for sale and presented in Prepaid and other current assets in the Consolidated Balance Sheet at December 31, 2021.

The Company believes that the fair value less costs to sell of this asset exceeds its respective carrying value.

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2020, the Company recorded expenses totaling $ 4.1 million in its Assembly Components segment in connection with commencement of actions to close and consolidate its extrusion operations in Tennessee and its fuel operations in Shanghai, China, and to complete other cost-reduction actions in this segment.

The expenses, which are included in Cost of sales in the Consolidated Statements of Operations, are comprised of severance and related employee costs of $ 1.4 million, asset impairment of $ 0.5 million, and other facility costs of $ 2.2 million.

In the Engineered Products segment, the Company recorded expenses in 2020 related to plant closure and consolidation, of which $ 1.0 million is included in Cost of sales in the Consolidated Statements of Operations and $ 1.2 million is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

NOTE 5 — Acquisitions

On April 1, 2021, the Company acquired NYK Component Solutions Limited (“NYK”).

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.

At closing, the Company paid $ 5.4 million in cash, net of cash acquired.

In addition, the purchase agreement stipulates potential contingent consideration of up to an additional $ 2.1 million based on two-year cumulative earnings before interest, taxes, depreciation and amortization.

The fair value of the contingent consideration at the acquisition date was determined to be $ 1.2 million, valued using level 3 inputs.

During 2021, the Company recorded expense of $ 0.7 million to increase the estimated contingent consideration liability to $ 1.9 million as of December 31, 2021.

The allocation of the purchase price of NYK was finalized in 2021 and is summarized as follows:

(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 3.6

Deferred income tax liability ( 0.9 )

Total purchase price (including the estimated contingent consideration of $ 1.2 million at the date of acquisition)

On May 31, 2019, the Company acquired EFCO, Inc.

d/b/a Erie Press Systems (“EP”).

d/b/a Erie Press Systems (“EP”) for $ 8.1 million in cash, plus up to an additional $ 1.0 million based on cumulative earnings of EP over two-years .

EP, which is included in the Company's Engineered Products segment, is an industry-recognized leader in the manufacturing of advanced forging presses, hydraulic and mechanical presses, and metal stretch-forming and carbon extrusion machines for several end markets, including aerospace and defense, primary metals and high-speed rail.

During 2019, the Company paid $ 8.1 million in cash (net of $ 10.4 million of cash and cash equivalents acquired) for EP.

In addition, the purchase agreement stipulates potential contingent consideration of up to an additional $ 1.0 million based on two-year cumulative earnings before interest and taxes.

The estimated fair value of the contingent consideration, valued using level 3 inputs, was $ 0.0 million as of December 31, 2020.

The Consolidated Statement of Operations for the year ended

During 2021, the Company determined that no contingent consideration was payable to the seller of EP based on the actual cumulative earnings of EP.

PARK-OHIO HOLDINGS CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2020 includes a credit of $ 1.0 million in Selling, general and administrative expenses representing the reversal of a previously-recorded liability related to this contingent consideration.

On February 1, 2018, the Company acquired CDF for $ 35.6 million in cash for its Engineered Products segment.

CDF manufactures forgings for high-performance applications in the global aerospace, oil and gas, and other markets.

On October 1, 2018, the Company acquired Hydrapower Dynamics Limited (“Hydrapower”) for $ 7.8 million in cash for its Assembly Components segment.

Headquartered in Birmingham, England, Hydrapower is a manufacturer of fluid handling systems incorporating hoses, manipulated tubes and fabricated assemblies for the bus and truck, automotive, agricultural and construction end markets.

During 2018, the Company made two other acquisitions in its Supply Technologies segment totaling a cash purchase price of $ 3.5 million.

Both acquired companies distribute products into the aerospace and defense end markets.

NOTE 6 — Goodwill

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Balance at January 1, 2020 $ 14.6 $ 56.0 $ 37.8 $ 108.4

Acquisitions and adjustments — — 5.0 5.0

Foreign currency translation 0.5 0.1 1.9 2.5

Balance at December 31, 2020 15.1 56.1 39.7 110.9

Acquisition 1.5 — — 1.5

Goodwill impairment — ( 4.6 ) — ( 4.6 )

Foreign currency translation ( 0.3 ) — ( 1.5 ) ( 1.8 )

Balance at December 31, 2021 $ 16.3 $ 51.5 $ 38.2 $ 106.0

Upon completion of goodwill impairment testing in the fourth quarter of 2021, the Company determined that the fair value of its Aluminum Products reporting unit, which is included in the Assembly Components segment, was lower than its carrying amount.

As a result, the Company recorded an impairment charge of $ 4.6 million in the fourth quarter of 2021 to write-off the full amount of goodwill of the Aluminum Products reporting unit.

The Company's other reporting units with goodwill balances had fair values in excess of their carrying amounts by at least 15 %.

NOTE 7 — Other Intangible Assets

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Amortization expense $ 6.9 $ 6.2 $ 6.5

We estimate amortization expense for the five years subsequent to 2021 as follows:

PARK-OHIO HOLDINGS CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We estimate amortization expense for the five years subsequent to 2020 as follows:

NOTE 8 — Financing Arrangements

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Revolving credit facility November 26, 2024 1.30 % 221.1 143.7

Industrial Equipment Group European Facilities December 21, 2021 3.25 % — 4.6

Finance leases Various Various 17.5 18.7

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$ 591.5 $ 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 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 Amended Credit Agreement, to increase the availability under the revolving credit facility by an aggregate incremental amount up to $ 100.0 million.

In November 2019, Park-Ohio entered into Amendment No.

4 to the Credit Agreement, extending the maturity of the Credit Agreement to November 26, 2024.

Park-Ohio’s Seventh Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) provides for a revolving credit facility in the amount of $ 375.0 million, including a $ 40.0 million Canadian revolving subcommitment and a European revolving subcommitment in the amount of $ 30.0 million.

Pursuant to the Credit Agreement, the Company has the option to increase the availability under the revolving credit facility by an aggregate incremental amount up to $ 100.0 million.

The Credit Agreement matures on November 16, 2024.

As of December 31, 2021, we had borrowing availability of $ 138.8 million under the Credit Agreement.

In April 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”).

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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.

On December 21, 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 $ 30.7 million as of December 31, 2020, as well as a revolving credit facility for up to $ 12.3 million to fund working capital and general corporate needs.

The Company had $ 0.0 million outstanding on the loan as of December 31, 2020.

No amounts have been drawn on the revolving credit facility as of December 31, 2020.

On August 13, 2015, the Company entered into a finance lease agreement (the “Lease Agreement”).

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On October 21, 2015, the Company, through its subsidiary, Southwest Steel Processing LLC, entered into a financing agreement with the Arkansas Development Finance Authority.

The agreement provides the Company the ability to borrow up to

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$ 11.0 million for expansion of its manufacturing facility in Arkansas.

The agreement provides the Company the ability to borrow up to $ 11.0 million for expansion of its manufacturing facility in Arkansas.

The loan matures in September 2025.

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The fair value was estimated using quoted market prices.

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2021 December 31, 2020

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We had outstanding bank guarantees and letters of credit of approximately $ 39.7 million at December 31, 2021 and $ 34.9 million at December 31, 2020 under our credit arrangements.

The weighted average interest rate on all debt was approximately 5.4 % in 2020 and 5.8 % in 2019 and 2018.

The weighted average interest rate on all debt was approximately 5.2 % in 2021, 5.4 % in 2020 and 5.8 % in 2019.

NOTE 9 — Income Taxes

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$ ( 32.5 ) $ ( 7.3 ) $ 54.9

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income taxes consists of the following:

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Foreign 0.7 ( 0.3 ) ( 0.2 )

( 9.3 ) 6.2 1.4

Income tax (benefit) expense $ ( 6.5 ) $ ( 2.5 ) $ 15.2

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted on March 27, 2020.

The CARES Act was a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic.

The CARES Act was a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

COVID-19 pandemic.

Significant impacts of the CARES Act include the ability to carry back a net operating loss 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.

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net operating loss carryforward of $ 1.5 million that expires between 2034 and 2037.

The foreign tax credit carryforward is $ 0.5 million and expires in 2029.

The foreign tax credit carryforward is $ 0.2 million and expires between 2029 and 2031.

As of December 31, 2021 and 2020, the Company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its U.S.

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The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.

During the years ended December 31, 2020 and 2019, the Company recognized a tax benefit of approximately $ 0.1 million and a tax expense of $ 0.1 million, respectively, in net interest and penalties due to the expiration of various uncertain tax positions.

The Company had approximately $ 0.2 million for the payment of interest and penalties accrued at both December 31, 2020 and 2019.

During the years ended December 31, 2021 and 2020, the Company recognized a tax benefit of approximately $ 0.1 million in both periods in net interest and penalties due to the expiration of various uncertain tax positions.

The Company had approximately $ 0.1 million and $ 0.2 million for the payment of interest and penalties accrued at December 31, 2021 and 2020, respectively.

It is reasonably possible that, within the next twelve months, the amount of gross unrecognized tax benefits could be reduced by approximately $ 0.4 million as a result of the closure of tax statutes related to existing uncertain tax positions.

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The Company recognized compensation expense of $ 6.5 million, $ 6.1 million and $ 4.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, relating to time-based awards and performance-based awards.

The amount in 2019 is net of $ 1.7 million of forfeitures related to the departure of the Company’s former President, Chairman and Chief Executive Officer (“Former CEO”).

The amount in 2019 is net of $ 1.7 million of forfeitures related to the departure of the Company’s former President, Chairman and Chief Executive Officer.

The 50,000 share performance-based award in 2019 relates to a five-year cumulative profit target through 2023.

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NOTE 11 — Commitments and Contingencies

The Company is subject to various pending and threatened legal proceedings arising in the ordinary course of business.

The Company is subject to a variety of claims, suits, investigations and administrative proceedings with respect to commercial, premises liability, product liability, employment, personal injury and environmental matters arising from 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.

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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 118 cases asserting claims on behalf of approximately 219 plaintiffs alleging personal injury as a result of exposure to asbestos.

In addition to the routine claims, suits, investigations and proceedings and asserted claims noted above, we are also a co-defendant in approximately 106 cases asserting claims on behalf of approximately 169 plaintiffs alleging personal injury as a result of exposure to asbestos.

These asbestos cases generally relate to production and sale of asbestos-containing products and allege various theories of liability, including negligence, gross negligence and strict liability, and seek compensatory and, in some cases, punitive damages.

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Operating lease expense is recognized on a straight-line basis over the lease term, with variable payments recognized in the period those payments are incurred.

2021 2020 2019

Finance lease expense

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(1) - Other lease expense includes variable lease costs and short-term lease costs.

Total lease expense for 2018 was $ 27.4 million.

Cash Flow Information for 2021, 2020 and 2019

PARK-OHIO HOLDINGS CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash Flow Information for 2020 and 2019

2021 2020 2019

Amounts included in the Consolidated Statements of Cash Flows:

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Operating cash outflows for finance leases $ ( 0.7 ) $ ( 0.5 ) $ ( 0.7 )

Financing cash inflows (outflows) for finance leases $ 1.4 $ ( 3.4 )

Financing cash (outflows) inflows for finance leases $ ( 1.2 ) $ 1.4 $ ( 3.4 )

Maturities of Lease Liabilities as of December 31, 2021, were as follows:

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2024 11.4 3.8

2024 10.5 2.1

Thereafter 18.0 0.6

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Interest cost 1.4 2.1 0.1 0.2

Actuarial losses 6.6 7.4 0.6 0.5

Actuarial (gains) losses ( 2.5 ) 6.6 ( 0.5 ) 0.6

Benefits and expenses paid ( 5.9 ) ( 5.7 ) ( 0.6 ) ( 0.9 )

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Hedge funds 26.1 20.7

Multi-year 420 transfer ( 4.5 ) —

Total assets at fair value $ 169.9 $ 161.3

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Discount rate for interest costs 1.66 % 2.76 % 3.72 % 1.33 % 2.56 % 3.72 %

Expected return on plan assets 7.75 % 8.25 % 8.25 % N/A N/A N/A

Expected return on plan assets 7.75 % 7.75 % 8.25 % 7.75 % N/A N/A

Rate of compensation increase 3.00 % 3.00 % 3.00 % N/A N/A N/A

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Recognition of prior service credit — — — — — 0.1

Recognition of actuarial loss ( 5.0 ) ( 4.5 ) 18.5 0.6 0.5 0.3

Recognition of actuarial (loss) gain ( 9.8 ) ( 5.0 ) ( 4.5 ) ( 0.5 ) 0.6 0.5

Total recognized in accumulated other comprehensive loss at end of year $ 10.9 $ 21.5 $ 28.3 $ 2.2 $ 3.0 $ 2.6

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On January 28, 2022, the Company's Board of Directors declared a quarterly dividend of $ 0.125 per common share.

The dividend was paid on February 26, 2021, to shareholders of record as of the close of business on February 12, 2021 and resulted in a cash outlay of $ 1.6 million.

PARK-OHIO HOLDINGS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 16 — Selected Quarterly Financial Data (Unaudited)

Quarter Ended

Net sales $ 366.3 $ 228.3 $ 340.2 $ 360.4

Gross profit 53.9 14.2 49.7 50.8

Net income (loss) 1.3 ( 17.0 ) 5.2 5.7

Net (income) loss attributable to noncontrolling interest ( 0.1 ) 0.4 0.1 ( 0.1 )

Net income (loss) attributable to ParkOhio common shareholders $ 1.2 $ ( 16.6 ) $ 5.3 $ 5.6

Earnings (loss) per common share attributable to ParkOhio common shareholders:

Basic $ 0.10 $ ( 1.38 ) $ 0.44 $ 0.46

Diluted $ 0.10 $ ( 1.38 ) $ 0.44 $ 0.45

Cash dividends per common share $ 0.125 $ — $ — $ 0.125

Net sales $ 420.1 $ 415.3 $ 403.4 $ 379.5

Gross profit 65.3 66.2 66.5 62.3

Net income 11.7 7.9 12.4 7.7

Net income attributable to noncontrolling interest ( 0.5 ) ( 0.3 ) ( 0.2 ) ( 0.1 )

Net income attributable to ParkOhio common shareholders $ 11.2 $ 7.6 $ 12.2 $ 7.6

Earnings per common share attributable to ParkOhio common shareholders:

Basic $ 0.92 $ 0.62 $ 1.00 $ 0.62

Diluted $ 0.90 $ 0.61 $ 0.99 $ 0.61

Cash dividends per common share $ 0.125 $ 0.125 $ 0.125 $ 0.125

Results for the second quarter of 2019 include net expense of $ 4.3 million due to the retirement and resignation of our Former CEO.

The dividend was paid on February 25, 2022, to shareholders of record as of the close of business on February 11, 2022 and resulted in cash payments of $ 1.6 million.

Supplementary Financial Data

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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-K

Item 8. Financial Statements and Supplementary Data