PARK OHIO HOLDINGS CORP 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements and Supplementary Financial Data Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 34 Report of Independent Registered Public Accounting Firm 36 Consolidated Balance Sheets — December 31, 2021 and 2020 38 Consolidated Statements of Operations — Years Ended December 31, 2021, 2020 and 2019 39 Consolidated Statements of Comprehensive (Loss) Income — Years Ended December 31, 2021, 2020 and 2019 40 Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2021, 2020 and 2019 41 Consolidated Statements of Cash Flows — Years Ended December 31, 2021, 2020 and 2019 42 Notes to Consolidated Financial Statements 43 Supplementary Financial Data 66 Schedule II — Valuation and Qualifying accounts 66 33 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Park-Ohio Holdings Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Park Ohio Holdings Corp. 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. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated March 16, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (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 account or disclosure to which it relates. 34 Table of Contents Quantitative Impairment Assessment of Goodwill Description of the matter How we addressed the matter in our audit At December 31, 2021, the Company’s goodwill was $106.0 million. As discussed in Note 1 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level or more frequently if impairment indicators arise. Goodwill is tested at the reporting unit level for impairment utilizing the income approach, which uses a discounted cash flow methodology to estimate the fair value of each reporting unit. Auditing management’s quantitative goodwill impairment assessment for certain of its reporting units was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimate was sensitive to significant assumptions, such as revenue growth rates, operating margins and weighted average cost of capital (WACC), which are impacted by expectations of future market or economic conditions. We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment process. This included controls over management’s review of the significant assumptions underlying the fair value determination described above. To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions described above and the underlying data used by the Company in its analysis. For example, we compared the significant assumptions used by management to current industry and economic trends and to historical results. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We also involved our specialists to review the methodology, and certain assumptions such as the WACC. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1967. Cleveland, Ohio March 16, 2022 35 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Park-Ohio Holdings Corp. Opinion on Internal Control over Financial Reporting We have audited Park Ohio Holdings Corp. and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Park Ohio Holdings Corp. 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. 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 36 Table of Contents /s/ Ernst & Young LLP Cleveland, Ohio March 16, 2022 37 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Consolidated Balance Sheets December 31, 2021 December 31, 2020 (In millions, except share data) ASSETS Current assets: Cash and cash equivalents $ 54.1 $ 55.0 Accounts receivable, net 255.3 248.1 Inventories, net 382.9 310.9 Unbilled contract revenue 55.0 56.9 Other current assets 28.2 35.5 Total current assets 775.5 706.4 Property, plant and equipment, net 229.1 236.6 Operating lease right-of-use assets 63.4 68.6 Goodwill 106.0 110.9 Intangible assets, net 81.7 86.8 Pension assets 86.2 74.8 Other long-term assets 18.1 16.4 Total assets $ 1,360.0 $ 1,300.5 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 194.0 $ 166.7 Current portion of long-term debt and short-term debt 10.7 11.6 Current portion of operating lease liabilities 12.8 12.9 Accrued employee compensation 28.0 28.1 Deferred revenue 51.7 37.4 Other accrued expenses 51.8 50.4 Total current liabilities 349.0 307.1 Long-term liabilities, less current portion: Long-term debt 591.5 517.8 Long-term operating lease liabilities 50.7 56.7 Deferred income taxes 31.8 36.8 Other long-term liabilities 12.2 24.2 Total long-term liabilities 686.2 635.5 Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity: Capital stock, par value $ 1 a share Serial preferred stock: Authorized -- 632,470 shares: Issued and outstanding -- none — — Common stock: Authorized - 40,000,000 shares; Issued - 16,339,722 shares in 2021 and 16,148,791 in 2020 16.3 16.1 Additional paid-in capital 142.9 135.5 Retained earnings 259.4 290.5 Treasury stock, at cost, 3,751,993 shares in 2021 and 3,560,010 shares in 2020 ( 85.3 ) ( 79.8 ) Accumulated other comprehensive loss ( 19.2 ) ( 18.1 ) Total Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity 314.1 344.2 Noncontrolling interests 10.7 13.7 Total equity 324.8 357.9 Total liabilities and shareholders' equity $ 1,360.0 $ 1,300.5 The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Consolidated Statements of Operations Year Ended December 31, 2021 2020 2019 (In millions, except per share data) Net sales $ 1,438.0 $ 1,295.2 $ 1,618.3 Cost of sales 1,281.9 1,126.6 1,358.0 Gross profit 156.1 168.6 260.3 Selling, general and administrative expenses 178.3 152.9 177.2 Gain on sale of assets ( 14.7 ) — — Goodwill impairment 4.6 — — Operating (loss) income ( 12.1 ) 15.7 83.1 Other components of pension income and other postretirement benefits expense, net 9.7 7.3 5.6 Interest expense, net ( 30.1 ) ( 30.3 ) ( 33.8 ) (Loss) income before income taxes ( 32.5 ) ( 7.3 ) 54.9 Income tax benefit (expense) 6.5 2.5 ( 15.2 ) Net (loss) income ( 26.0 ) ( 4.8 ) 39.7 Net loss (income) attributable to noncontrolling interest 1.2 0.3 ( 1.1 ) Net (loss) income attributable to ParkOhio common shareholders $ ( 24.8 ) $ ( 4.5 ) $ 38.6 (Loss) earnings per common share attributable to ParkOhio common shareholders: Basic $ ( 2.07 ) $ ( 0.37 ) $ 3.16 Diluted $ ( 2.07 ) $ ( 0.37 ) $ 3.12 Weighted-average shares used to compute (loss) earnings per share: Basic 12.0 12.1 12.2 Diluted 12.0 12.1 12.4 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Consolidated Statements of Comprehensive (Loss) Income Year Ended December 31, 2021 2020 2019 (In millions) Net (loss) income $ ( 26.0 ) $ ( 4.8 ) $ 39.7 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 (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 (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. 40 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Consolidated Statements of Shareholders’ Equity Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive (Loss) Income Noncontrolling Interest Total (In whole shares) (In millions) Balance at January 1, 2019 15,555,275 $ 15.6 $ 125.7 $ 265.9 $ ( 67.3 ) $ ( 40.9 ) $ 13.6 $ 312.6 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 — — — — — Dividends — — — ( 6.3 ) — — ( 0.7 ) ( 7.0 ) Purchase of treasury stock ( 111,754 shares) — — — — ( 3.8 ) — — ( 3.8 ) Balance at December 31, 2019 15,706,398 15.7 129.8 298.2 ( 71.1 ) ( 37.0 ) 14.0 349.6 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 ) — — — — — Restricted stock cancelled ( 5,000 ) — — — — — — — Dividends — — — ( 3.2 ) — — — ( 3.2 ) Purchase of treasury stock ( 519,387 shares) — — — — ( 8.7 ) — — ( 8.7 ) Balance at December 31, 2020 16,148,791 16.1 135.5 290.5 ( 79.8 ) ( 18.1 ) 13.7 357.9 Comprehensive (loss) income — — — ( 24.8 ) — ( 1.1 ) ( 1.2 ) ( 27.1 ) Stock-based compensation — — 6.5 — — — — 6.5 Restricted stock awards issued 202,848 0.2 ( 0.2 ) — — — — — Restricted stock cancelled ( 11,917 ) — — — — — — — Dividends — — — ( 6.3 ) — — ( 0.7 ) ( 7.0 ) 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 (1) - Includes 52,173 restricted share units converted to common stock. Year Ended December 31, 2021 2020 2019 Cash dividends per common share $ 0.50 $ 0.25 $ 0.50 The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, 2021 2020 2019 OPERATING ACTIVITIES (In millions) Net (loss) income $ ( 26.0 ) $ ( 4.8 ) $ 39.7 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 38.7 35.8 34.2 Stock-based compensation 6.5 6.1 4.1 Gain on sale of assets ( 14.7 ) — — Goodwill impairment 4.6 — — Deferred income taxes ( 9.3 ) 6.2 1.4 Changes in operating assets and liabilities: Accounts receivable ( 8.4 ) 16.7 6.5 Inventories ( 71.2 ) 18.5 ( 7.2 ) Prepaid and other current assets 2.5 ( 8.2 ) 3.5 Accounts payable and accrued expenses 43.1 0.1 ( 14.1 ) Other ( 9.1 ) ( 1.1 ) ( 4.4 ) Net cash (used) provided by operating activities ( 43.3 ) 69.3 63.7 INVESTING ACTIVITIES Purchases of property, plant and equipment ( 31.1 ) ( 26.3 ) ( 40.1 ) Proceeds from sale of assets 20.3 1.4 — Business acquisitions, net of cash acquired ( 5.4 ) — ( 8.1 ) Net cash used by investing activities ( 16.2 ) ( 24.9 ) ( 48.2 ) FINANCING ACTIVITIES 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 (Payments on) proceeds from finance lease facilities, net ( 1.2 ) 1.4 ( 3.4 ) Dividends ( 7.0 ) ( 3.2 ) ( 7.0 ) Purchases of treasury stock ( 2.5 ) ( 7.5 ) ( 0.9 ) Payments of withholding taxes on stock awards ( 3.0 ) ( 1.2 ) ( 2.9 ) 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 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 (received) paid, net $ ( 1.0 ) $ 5.5 $ 12.3 Interest paid $ 28.8 $ 28.3 $ 31.5 The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions, except per share data.) NOTE 1 — Summary of Significant Accounting Policies Consolidation and Basis of Presentation: Park-Ohio Holdings Corp. (“ParkOhio,” “we” or the “Company”) is 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. The Company operates three reportable segments: Supply Technologies, Assembly Components and Engineered Products. The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company does not have off-balance sheet arrangements or financings with unconsolidated entities or other persons, other than the letters of credits disclosed in Note 8. The Company leases certain real properties owned by related parties as described in Note 12. Transactions with related parties are not material to the Company’s financial position, results of operations or cash flows. Accounting Estimates: 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 in the consolidated financial statements. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are recorded at net realizable value. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The allowance for doubtful accounts was $ 6.7 million and $ 5.5 million at December 31, 2021 and 2020, respectively. The Company’s policy is to measure expected credit losses on accounts receivable based on historical experience, current conditions and reasonable forecasts. During 2021 and 2020, we sold, without recourse, $ 102.3 million and $ 74.1 million, respectively, of accounts receivable to mitigate accounts receivable concentration risk and to increase working capital efficiency. 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 in both 2021 and 2020 related to the discount on sale of accounts receivable is recorded in the Consolidated Statements of Operations. Inventories: 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 Raw materials and supplies $ 114.2 $ 93.8 Work in process 49.6 44.0 Finished goods 219.1 173.1 Inventories, net $ 382.9 $ 310.9 Other Inventory Items Inventory reserves $ ( 39.5 ) $ ( 39.3 ) Consigned inventory $ 10.6 $ 13.4 Property, Plant and Equipment: Property, plant and equipment is carried at cost. 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 ). 43 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes property, plant and equipment: December 31, 2021 December 31, 2020 Land and land improvements $ 11.2 $ 12.7 Buildings 78.5 87.8 Machinery and equipment 451.9 440.1 Leased property under finance leases 46.2 44.8 Total property, plant and equipment 587.8 585.4 Less: Accumulated depreciation 358.7 348.8 Property, plant and equipment, net $ 229.1 $ 236.6 Year Ended December 31, 2021 2020 2019 Depreciation expense $ 31.8 $ 29.6 $ 27.7 Goodwill and Indefinite-Lived Assets: In accordance with Accounting Standards Codification (“ASC”) 350, “Intangibles — Goodwill and Other” (“ASC 350”), goodwill and indefinite life intangible assets are not amortized but rather are tested annually for impairment as of October 1, or whenever events or changes in circumstances indicate there may be an indicator of impairment in accordance with ASC 350 . Goodwill is tested for impairment at the reporting unit level and is based on the net assets of each reporting unit, including goodwill and intangible assets, compared to its fair value. 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, 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. To determine fair value for indefinite-lived intangibles testing, the Company uses a relief-of-royalty method. See Notes 6 and 7 for additional disclosures about goodwill and indefinite-lived intangibles. Impairment of Other Long-Lived Assets: Other long-lived assets, including operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Upon indications of impairment, assets and liabilities are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The asset group would be considered impaired if the estimated future net undiscounted cash flows generated by the asset group are less than its carrying value. Impairment losses are measured by comparing the estimated fair value of the asset group to its carrying value. Fair Values of Financial Instruments: Certain financial instruments are required to be recorded at fair value. The Company measures financial assets and liabilities at fair value in three levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows: Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. 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) 44 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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. The Company has not changed its valuation techniques for measuring fair value during 2021, and there were no transfers between levels during the periods presented. Pension and Other Postretirement Benefits: We account for our pensions and other post-retirement benefits in accordance with ASC Topic 715, "Compensation — Retirement Benefits." Net actuarial gains and losses are amortized to expense when they exceed the 10% accounting corridor, based on the greater of the plan assets or benefit obligations, over an average employee future service period. Refer to Note 13 for more information. Income Taxes: The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the current enacted tax rates. In determining these amounts, management determined the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, cumulative earnings and losses, expectations of future earnings, taxable income and the extended period of time over which the postretirement benefits will be paid. As required by ASC 740, “Income Taxes” (“ASC 740”), the Company records valuation allowances if, based on the weight of available evidence, it is more likely than not that all or some portion of our deferred tax assets will not be realized. We have elected to account for global intangible low-taxed income (“GILTI”) as a current period expense. 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: The Company recognizes revenue, other than from long-term contracts within the Engineered Products segment, when its obligations under the contract terms are satisfied and control transfers to the customer, typically upon shipment. Revenue from certain long-term contracts is accounted for over time, as products are manufactured or services are performed, as control transfers over time under these arrangements. We follow this method since reasonably reliable estimates of revenue and costs of a contract can be made. See Note 2 for additional disclosure on revenue. Cost of Sales : Cost of sales is primarily comprised of direct materials and supplies consumed in the manufacture of product; manufacturing labor, depreciation expense and direct overhead expense; and shipping and handling costs. Concentration of Credit Risk: The Company sells its products to customers in diversified industries. The Company performs ongoing credit evaluations of its customers’ financial condition but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, current conditions and reasonable forecasts. As of December 31, 2021, the Company had uncollateralized receivables with six customers in the automotive industry, each with several locations, aggregating $ 50.3 million, which represented approximately 20 % of the Company’s trade accounts receivable. During 2021, sales to these customers amounted to approximately $ 241.5 million, which represented approximately 17 % of the Company’s net sales. Environmental: The Company expenses environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Costs that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability when environmental assessments and/or remedial efforts are probable and can be reasonably estimated. The estimated liability of the Company is not reduced for possible recoveries from insurance carriers and is undiscounted. Foreign Currency Translation: The functional currency of the Company's subsidiaries outside the United States is the local currency. Financial statements are translated into U.S. dollars at year-end exchange rates for assets and liabilities and weighted-average exchange rates during the period for revenues and expenses. The resulting translation adjustments are recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets. 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. Warranties: The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents the changes in the Company’s product warranty liability: 45 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2021 2020 2019 Balance at January 1 $ 6.4 $ 6.4 $ 6.2 Claims paid during the year ( 1.9 ) ( 2.5 ) ( 4.1 ) Warranty expense 2.7 2.5 4.3 Balance at December 31 $ 7.2 $ 6.4 $ 6.4 Weighted-Average Number of Shares Used in Computing (Loss) Earnings Per Share: The following table sets forth the weighted-average number of shares used in the computation of (loss) earnings per share: Year Ended December 31, 2021 2020 2019 (In whole shares) Weighted average basic shares outstanding 12,007,000 12,061,419 12,225,481 Dilutive impact of employee stock awards — — 153,608 Weighted average diluted shares outstanding 12,007,000 12,061,419 12,379,089 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 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 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 2 — Revenue Substantially all of the Company’s contracts have a single performance obligation to transfer products to or, in limited cases, perform services for the customer. Accordingly, the Company recognizes revenue when its obligations under the contract terms are satisfied and control transfers to the customer. Revenue is recognized at an amount that reflects the consideration the Company expects to receive in exchange for the good or service, including estimated provisions for rebates, discounts, returns and allowances. The Company sells its products both directly to customers, and in limited cases, through distributors, generally under agreements with payment terms between 30 - 90 days; the Company has no financing components. The majority of the Company’s revenue is derived from contracts (i) with an original contract length of one year or less, or (ii) for which it recognizes revenue at the amount at which it has the right to invoice as products or services are delivered. The Company has elected the practical expedient not to disclose the value of remaining performance obligations associated with these types of contacts. 46 Table of Contents 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. The Company has elected the practical expedient not to assess whether these promised goods or services are performance obligations. 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. Within this segment, contracts routinely consist of a long-term agreement or master service agreement with quantity and pricing specified through individual purchase orders. Revenue is recognized at a point in time, which is the shipping point, as that is when control transfers to the customer. Assembly Components designs, develops and manufactures: aluminum products; 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; and 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. Within this segment, contracts routinely consist of a long-term agreement or master service agreement with quantity and pricing specified through individual purchase orders. Revenue is recognized at a point in time, which is at the shipping point, as that is when control transfers to the customer. 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. In this segment, revenue is recognized for certain revenue streams at a point in time, and over time for other revenue streams. For point in time arrangements, revenue is recognized at the shipping point, as that is when control transfers to the customer. For over time arrangements, revenue is recognized over the time during which products are manufactured or services are performed, as control transfers under these arrangements over a period of time. Over time arrangements represent 14 % of the Company's total consolidated sales for the year ended December 31, 2021. The Company uses the input method to calculate the contract revenues to be recognized, which utilizes costs incurred to date in relation to total expected costs to satisfy the Company’s performance obligation under the contract. Incurred costs represent work performed and therefore best depict the transfer of control to the customer. For over time arrangements, contract liabilities relate to advances or deposits received from the Company’s customers before revenue is recognized. 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. 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. These amounts, which totaled $ 55.0 million and $ 56.9 million at December 31, 2021 and December 31, 2020, respectively, are recorded as Unbilled contract revenue in the Consolidated Balance Sheets. The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer its products. As such, shipping and handling fees billed to customers in a sales transaction are recorded in Net sales, and shipping and handling costs incurred are recorded in Cost of sales. The Company has elected to exclude from Net sales any value-added, sales or other taxes which it collects concurrent with revenue-producing activities. We disaggregate our revenue by product line and geographic region of our customer, as we believe these criteria 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. 47 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2021 2020 2019 PRODUCT LINE Supply Technologies $ 539.5 $ 444.8 $ 532.9 Engineered specialty fasteners and other products 80.0 65.3 78.6 Supply Technologies Segment 619.5 510.1 611.5 Fuel, rubber and plastic products 321.5 298.4 353.8 Aluminum products 161.0 143.1 185.7 Assembly Components Segment 482.5 441.5 539.5 Industrial equipment 247.0 238.2 323.8 Forged and machined products 89.0 105.4 143.5 Engineered Products Segment 336.0 343.6 467.3 Total revenues $ 1,438.0 $ 1,295.2 $ 1,618.3 48 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues Year Ended December 31, 2021 GEOGRAPHIC REGION United States $ 370.3 $ 319.7 $ 173.3 $ 863.3 Europe 114.0 14.5 64.5 193.0 Asia 58.1 26.2 51.8 136.1 Mexico 62.4 59.4 17.6 139.4 Canada 11.5 61.2 18.7 91.4 Other 3.2 1.5 10.1 14.8 Total $ 619.5 $ 482.5 $ 336.0 $ 1,438.0 Year Ended December 31, 2020 GEOGRAPHIC REGION United States $ 314.0 $ 302.3 $ 179.1 $ 795.4 Europe 83.8 13.2 64.5 161.5 Asia 43.3 29.6 59.3 132.2 Mexico 55.4 35.9 9.8 101.1 Canada 9.8 59.1 19.2 88.1 Other 3.8 1.4 11.7 16.9 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 The Company operates three reportable segments: Supply Technologies, Assembly Components and Engineered Products. 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; unusual in nature; or are corporate costs, which include but are not limited to executive compensation and corporate office costs. 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; and interest expense, net. 49 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Results by business segment were as follows: Year Ended December 31, 2021 2020 2019 Net sales: Supply Technologies $ 619.5 $ 510.1 $ 611.5 Assembly Components 482.5 441.5 539.5 Engineered Products 336.0 343.6 467.3 $ 1,438.0 $ 1,295.2 $ 1,618.3 Segment operating (loss) income: Supply Technologies $ 42.8 $ 30.2 $ 42.0 Assembly Components ( 26.4 ) 8.1 36.2 Engineered Products ( 12.2 ) 3.5 37.7 Total segment operating income 4.2 41.8 115.9 Corporate costs ( 26.4 ) ( 26.1 ) ( 28.5 ) Gain on sale of assets (1) 14.7 — — Goodwill impairment (2) ( 4.6 ) — — 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 9.7 7.3 5.6 Interest expense, net ( 30.1 ) ( 30.3 ) ( 33.8 ) (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. 50 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2021 2020 2019 Capital expenditures: Supply Technologies $ 4.1 $ 6.5 $ 6.1 Assembly Components 16.4 13.1 19.5 Engineered Products 10.4 6.5 14.3 Corporate 0.2 0.2 0.2 $ 31.1 $ 26.3 $ 40.1 Depreciation and amortization expense: Supply Technologies $ 5.5 $ 5.1 $ 4.8 Assembly Components 22.6 20.7 20.1 Engineered Products 10.2 9.6 8.8 Corporate 0.4 0.4 0.5 $ 38.7 $ 35.8 $ 34.2 Identifiable assets: Supply Technologies $ 398.5 $ 347.6 $ 355.9 Assembly Components 432.7 401.1 413.4 Engineered Products 414.9 439.7 455.1 Corporate 113.9 112.1 86.0 $ 1,360.0 $ 1,300.5 $ 1,310.4 At December 31, 2021, 2020 and 2019, approximately 71 %, 70 % and 71 %, respectively, of the Company’s assets were located in the United States. NOTE 4 — Plant Closure and Consolidation 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. 51 Table of Contents 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 Goodwill 1.5 Deferred income tax liability ( 0.9 ) Total purchase price (including the estimated contingent consideration of $ 1.2 million at the date of acquisition) $ 6.6 On May 31, 2019, the Company acquired EFCO, Inc. 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 2021, the Company determined that no contingent consideration was payable to the seller of EP based on the actual cumulative earnings of EP. 52 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 6 — Goodwill The changes in the carrying amount of goodwill by reportable segment are as follows: Supply Technologies Assembly Components Engineered Products Total Balance at January 1, 2020 $ 14.6 $ 56.0 $ 37.8 $ 108.4 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 December 31, 2021 December 31, 2020 Weighted Average Remaining Useful Life (Years) Gross Value Accumulated Amortization Net Value Gross Value Accumulated Amortization Net Value Customer relationships 9.3 $ 90.4 $ 50.0 $ 40.4 $ 87.5 $ 44.5 $ 43.0 Indefinite-lived tradenames * 24.7 * 24.7 25.2 * 25.2 Technology 13.5 23.1 7.6 15.5 23.7 6.4 17.3 Other 5.8 4.9 3.8 1.1 4.9 3.6 1.3 Total $ 143.1 $ 61.4 $ 81.7 $ 141.3 $ 54.5 $ 86.8 * Not applicable, as these tradenames have an indefinite life. Amortization expense of other intangible assets as follows: Year Ended December 31, 2021 2020 2019 Amortization expense $ 6.9 $ 6.2 $ 6.5 We estimate amortization expense for the five years subsequent to 2021 as follows: 2022 $ 6.5 2023 $ 6.4 2024 $ 6.3 2025 $ 6.3 2026 $ 5.9 53 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 8 — Financing Arrangements Debt consists of the following: Carrying Value at Maturity Date Interest Rate at December 31, 2021 December 31, 2021 December 31, 2020 Senior Notes due 2027 April 15, 2027 6.625 % $ 350.0 $ 350.0 Revolving credit facility November 26, 2024 1.30 % 221.1 143.7 Finance leases Various Various 17.5 18.7 Other Various Various 17.5 22.3 Total debt 606.1 534.7 Less: Current portion of long-term debt and short-term debt ( 10.7 ) ( 11.6 ) Less: Unamortized debt issuance costs ( 3.9 ) ( 5.3 ) Total long-term debt, net $ 591.5 $ 517.8 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”). Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year, and the Notes mature on April 15, 2027. 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 August 13, 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 $ 17.5 million were borrowed under the Lease Agreement as of December 31, 2021 to acquire machinery and equipment. See Note 12 for additional disclosures about finance leases. 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 $ 11.0 million for expansion of its manufacturing facility in Arkansas. The loan matures in September 2025. The Company has borrowed $ 5.8 million under this agreement as of December 31, 2021. The following table represents fair value information of the Notes, classified as Level 1, at December 31, 2021 and 2020. The fair value was estimated using quoted market prices. 54 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2021 December 31, 2020 Carrying amount $ 350.0 $ 350.0 Fair value $ 337.6 $ 361.8 Maturities of short-term and long-term debt, excluding finance leases, during each of the five years subsequent to December 31, 2021 are as follows: 2022 $ 3.8 2023 $ 4.4 2024 $ 224.1 2025 $ 2.5 2026 $ 1.4 Foreign subsidiaries of the Company had $ 9.8 million of borrowings at December 31, 2021 and $ 13.0 million at December 31, 2020. 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 5.2 % in 2021, 5.4 % in 2020 and 5.8 % in 2019. NOTE 9 — Income Taxes (Loss) income before income taxes consists of the following: Year Ended December 31, 2021 2020 2019 United States $ ( 58.2 ) $ ( 27.7 ) $ 26.2 Outside the United States 25.7 20.4 28.7 $ ( 32.5 ) $ ( 7.3 ) $ 54.9 Income taxes consists of the following: Year Ended December 31, 2021 2020 2019 Current (benefit) expense: Federal $ ( 6.9 ) $ ( 16.5 ) $ 5.9 State 0.3 0.4 0.7 Foreign 9.4 7.4 7.2 2.8 ( 8.7 ) 13.8 Deferred expense (benefit): Federal ( 9.2 ) 6.7 1.8 State ( 0.8 ) ( 0.2 ) ( 0.2 ) 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 55 Table of Contents 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. The Company has recorded a significant benefit for the impact of the net operating loss carryback, which provides for refunds related to tax years in which the U.S. tax rate was 35% versus the current U.S. tax rate of 21%. This additional tax benefit of 14% increased the 2020 tax benefit. A reconciliation of income tax (benefit) expense computed by applying the statutory federal income tax rate to income tax expense as recorded is as follows: Year Ended December 31, 2021 2020 2019 Income tax (benefit) expense at U.S. statutory rate $ ( 6.8 ) $ ( 1.5 ) $ 11.5 Effect of state income taxes, net ( 0.5 ) ( 0.3 ) 0.3 Effect of foreign operations 1.9 1.5 1.9 Valuation allowance ( 0.1 ) 0.6 0.6 Uncertain tax positions ( 0.3 ) ( 1.0 ) 0.1 Non-deductible items 1.3 1.5 2.5 Equity compensation 0.6 0.6 — CARES Act NOL carryback ( 3.1 ) ( 5.3 ) — Foreign tax credit ( 0.7 ) ( 0.8 ) ( 1.7 ) Other tax credits ( 0.6 ) ( 0.3 ) ( 0.8 ) GILTI 1.8 1.8 1.9 FDII — — ( 0.8 ) Other, net — 0.7 ( 0.3 ) Income tax (benefit) expense as recorded $ ( 6.5 ) $ ( 2.5 ) $ 15.2 56 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Significant components of the Company’s net deferred income tax assets and liabilities are as follows: Year Ended December 31, 2021 2020 Deferred income tax assets: Postretirement benefit obligation $ 0.5 $ 1.7 Inventory 8.4 0.8 Net operating loss and credit carryforwards 15.4 16.4 Operating lease liabilities 14.1 15.4 Compensation 3.4 3.9 Disallowed interest 4.9 — Other 5.1 6.4 Total deferred income tax assets 51.8 44.6 Deferred income tax liabilities: Depreciation and amortization 20.6 20.1 Pension 18.8 16.3 Intangible assets 17.3 16.8 Lease right-of-use assets 14.0 15.2 Other 2.0 3.0 Total deferred income tax liabilities 72.7 71.4 Net deferred income tax liabilities prior to valuation allowances ( 20.9 ) ( 26.8 ) Valuation allowances ( 6.1 ) ( 6.2 ) Net deferred income tax liability $ ( 27.0 ) $ ( 33.0 ) At December 31, 2021, the Company has U.S., state and foreign net operating loss carryforwards and U.S. foreign tax credit carryforwards for income tax purposes. The foreign net operating loss carryforward is $ 34.3 million, of which $ 14.5 million expires between 2022 and 2041 and the remainder has no expiration date. The Company has a tax benefit from a state net operating loss carryforward of $ 3.2 million that expires between 2022 and 2041. The Company also has a non-consolidated U.S. net operating loss carryforward of $ 1.5 million that expires between 2034 and 2037. 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. deferred tax assets will be realized. The Company reviews all valuation allowances related to deferred tax assets and will reverse these valuation allowances, partially or totally, when appropriate under ASC 740. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2021 2020 2019 Unrecognized Tax Benefit — January 1 $ 2.1 $ 3.7 $ 0.9 Gross Increases to Tax Positions Related to Current Year — — 0.5 Gross Increases to Tax Positions Related to Prior Years — 0.1 2.6 Gross Decreases to Tax Positions Related to Prior Years — ( 0.5 ) — Gross Decreases related to settlements with taxing authorities ( 0.1 ) — — Expiration of Statute of Limitations ( 1.0 ) ( 1.2 ) ( 0.3 ) Unrecognized Tax Benefit — December 31 $ 1.0 $ 2.1 $ 3.7 57 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $ 0.1 million at December 31, 2021 and $ 0.2 million at December 31, 2020. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. 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. The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2015 through 2021 remain open for examination by the Internal Revenue Service and 2015 through 2021 remain open for examination by various state and foreign taxing authorities. As of December 31, 2021, the Company has accumulated undistributed earnings generated by our foreign subsidiaries of approximately $ 239.6 million. Because $ 135.9 million of such earnings have previously been subject to the one-time transition taxes required by the U.S. Tax Cuts and Jobs Act (the “TCJA”), any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state income taxes. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs. NOTE 10 — Stock-Based Compensation The Company follows the provisions of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires all share-based payments to employees to be recognized in the income statement based on their grant date fair values. Compensation expense for awards with service conditions only that are subject to graded vesting is recognized on a straight-line basis over the term of the vesting period. A summary of time-based and performance-based activity for the year ended December 31, 2021 is as follows: 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) 207,753 32.41 — — Vested ( 281,749 ) 23.74 — — Cancelled or expired ( 11,917 ) 19.86 — — Outstanding — end of year 655,093 $ 24.62 50,000 $ 32.55 (a) Included in the granted amount are 4,905 restricted share units. 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. The 50,000 share performance-based award in 2019 relates to a five-year cumulative profit target through 2023. Through December 31, 2021, no compensation expense was recognized as achievement of the performance target is deemed not probable. The total fair value of restricted shares and share units that vested during the years ended December 31, 2021, 2020 and 2019 was $ 6.7 million, $ 6.4 million and $ 8.0 million, respectively. 58 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of December 31, 2021, the Company had unrecognized compensation expense of $ 10.1 million related to restricted shares. The unrecognized compensation expense is expected to be recognized over a total weighted average period of 1.9 years. NOTE 11 — Commitments and Contingencies 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. 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 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. In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. To the extent that any specific amount of damages is sought, the amount applies to claims against all named defendants. Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases and believe we will continue to be successful in being dismissed from such cases. However, 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. Despite this uncertainty, 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. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all or that any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff's injury, if any. NOTE 12 - Lease Arrangements We lease manufacturing facilities, warehouse space, office space, machinery and equipment, information technology equipment and vehicles under operating leases. We also lease one building and machinery and numerous equipment under finance leases. For operating leases with terms greater than 12 months, we record the operating right-of-use asset and related lease liability at the present value of lease payments over the lease term. In certain real estate leases, we have options to renew lease terms, generally at our sole discretion. We evaluate renewal options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. 59 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The discount rate implicit in our operating leases is generally not determinable, and therefore the Company determines the discount rate for each lease based on its incremental borrowing rate. The incremental borrowing rate is calculated based on lease term, currency and collateral adjustments. During 2021, the Company obtained right-of-use assets in exchange for new operating lease liabilities of $ 11.8 million. Balance Sheet as of December 31, 2021 and 2020 Classification on the Balance Sheet December 31, 2021 December 31, 2020 Assets Operating lease assets Operating lease right-of-use assets $ 63.4 $ 68.6 Finance lease assets Property, plant and equipment, net 26.3 28.2 Total lease assets $ 89.7 $ 96.8 Liabilities Current Operating Current portion of operating lease liabilities $ 12.8 $ 12.9 Finance Current portion of long-term debt and short-term debt 6.9 7.1 Noncurrent Operating Long-term operating lease liabilities 50.7 56.7 Finance Long-term debt 10.6 11.6 Total lease liabilities $ 81.0 $ 88.3 Weighted-average remaining lease term (in years) Operating leases 6.3 6.5 Finance leases 3.7 4.1 Weighted-average discount rate Operating leases 5.3 % 5.4 % Finance leases 4.0 % 4.1 % Lease Expense for 2021, 2020 and 2019 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 Amortization of right-of-use assets $ 3.3 $ 4.6 $ 3.7 Interest on lease liabilities 0.7 0.5 0.7 Operating lease expense 17.3 16.9 17.4 Other lease expense (1) 7.9 6.4 6.3 Total lease expense $ 29.2 $ 28.4 $ 28.1 (1) - Other lease expense includes variable lease costs and short-term lease costs. Cash Flow Information for 2021, 2020 and 2019 60 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2021 2020 2019 Amounts included in the Consolidated Statements of Cash Flows: Operating cash outflows for operating leases $ ( 17.1 ) $ ( 16.8 ) $ ( 17.2 ) Operating cash outflows for finance leases $ ( 0.7 ) $ ( 0.5 ) $ ( 0.7 ) 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: Operating Leases Finance Leases 2022 $ 15.7 $ 6.4 2023 13.8 5.7 2024 11.4 3.8 2025 9.0 2.0 2026 6.8 0.9 Thereafter 18.0 0.6 Total lease payments 74.7 19.4 Less: amount of lease payments representing interest ( 11.2 ) ( 1.9 ) Total present value of future lease payments $ 63.5 $ 17.5 Certain of the Company’s leases are with related parties at an annual rental expense of approximately $ 2.5 million. Transactions with related parties are not material to the Company’s financial position, results of operations or cash flows. NOTE 13 — Pensions and Postretirement Benefits The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans, covering substantially all employees. In addition, the Company has an unfunded postretirement benefit plan. One of its defined benefit plans, covering most U.S. employees not covered by collective bargaining agreements, utilizes a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits that are based upon a percentage of current eligible earnings and current interest credits. For the remaining defined benefit plans, benefits are based on the employee’s years of service. For the defined contribution plans, the costs charged to operations and the amount funded are based upon a percentage of the covered employees’ compensation. The Company's objectives for the pension plan are to monitor the funded ratio; create general investment goals with regard to acceptable risk and liquidity needs ensuring the long-term interests of participants and beneficiaries are considered; and manage risk by minimizing the short-term and long-term risk of actual expenses and contribution requirements. 61 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tables set forth the changes in benefit obligation, plan assets, funded status and amounts recognized in the consolidated balance sheet for the defined benefit pension and postretirement benefit plans as of December 31, 2021 and 2020: Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Change in benefit obligation Benefit obligation at beginning of year $ 86.5 $ 79.4 $ 7.9 $ 8.0 Service cost 4.2 4.1 — — Interest cost 1.4 2.1 0.1 0.2 Actuarial (gains) losses ( 2.5 ) 6.6 ( 0.5 ) 0.6 Benefits and expenses paid ( 5.9 ) ( 5.7 ) ( 0.6 ) ( 0.9 ) Benefit obligation at end of year $ 83.7 $ 86.5 $ 6.9 $ 7.9 Change in plan assets Fair value of plan assets at beginning of year $ 161.3 $ 144.4 $ — $ — Actual return on plan assets 19.6 23.2 — — Company contributions — — 5.1 0.9 Cash transfer to fund postretirement benefit payments ( 5.1 ) ( 0.6 ) — — Benefits and expenses paid ( 5.9 ) ( 5.7 ) ( 0.6 ) ( 0.9 ) Fair value of plan assets at end of year $ 169.9 $ 161.3 $ 4.5 $ — Funded (underfunded) status of the plans $ 86.2 $ 74.8 $ ( 2.4 ) $ ( 7.9 ) Amounts recognized in the consolidated balance sheets consist of: Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Pension assets $ 86.2 $ 74.8 $ — $ — Other current liabilities — — 0.1 0.8 Other long-term liabilities — — 2.3 7.1 $ 86.2 $ 74.8 $ 2.4 $ 7.9 Amounts recognized in Accumulated other comprehensive loss Net actuarial loss $ 10.8 $ 21.3 $ 2.2 $ 3.0 Net prior service cost 0.2 0.2 — — Accumulated other comprehensive loss $ 11.0 $ 21.5 $ 2.2 $ 3.0 The pension plan weighted-average asset allocation at December 31, 2021 and 2020 and target allocation for 2022 are as follows: Plan Assets Target 2022 2021 2020 Asset Category Equity securities 45 - 75 % 61.0 % 61.5 % Debt securities 15 - 35 % 17.0 % 20.0 % Other 0 - 25 % 22.0 % 18.5 % 100 % 100 % 100 % The following table sets forth, by level within the fair value hierarchy, the pension plans assets: 62 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2021 2020 Level 1 Total Level 1 Total Common stock $ 32.4 $ 32.4 $ 30.7 $ 30.7 Equity securities 65.3 65.3 63.1 63.1 Foreign stock 7.8 7.8 6.8 6.8 U.S. Government obligations 8.9 8.9 8.5 8.5 Fixed income securities 6.4 6.4 6.4 6.4 Corporate bonds 14.9 14.9 16.0 16.0 Cash and cash equivalents 6.8 6.8 5.9 5.9 Total $ 142.5 $ 137.4 Investments measured at net asset value: Common collective trusts 5.8 3.2 Hedge funds 26.1 20.7 Multi-year 420 transfer ( 4.5 ) — Total assets at fair value $ 169.9 $ 161.3 Valuation Methodologies: Following is a description of the valuation methodologies used for pension plan assets measured at fair value. There have been no changes in the methodologies used at December 31, 2021 and 2020. Common stock, equity securities and foreign stock - These securities consist of direct investments in the stock of publicly-traded companies. Such investments are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1. U.S. Government obligations, fixed income securities and corporate bonds - Valued at the closing price of each security. Cash equivalents - Consists of primarily money market funds and certificates of deposit, for which book value equals fair value. Common collective trusts - Valued at the net unit value of units held by the trust at year end. The unit value is determined by the total value of fund assets divided by the total number of units of the fund owned. The equity investments in collective trusts are predominantly in index funds for which the underlying securities are actively traded in public markets based upon readily measurable prices. Common collective trusts are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets. Hedge funds - Consists of direct investments in hedge funds through limited partnership interests. Net asset values are based on the estimated fair value of the ownership interest in the investment as determined by the general partner. The majority of the holdings of the hedge funds are in equity securities traded on public exchanges. The investment terms of the hedge funds allow capital to be redeemed quarterly given prior notice with certain limitations. Hedge funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets. For additional information regarding fair value measurements, see Note 1. The following tables summarize the assumptions used in the valuation of pension and postretirement benefit obligations at December 31 and the measurement of the net periodic benefit cost in the following year. The Company used a spot rate approach by applying the specific spot rates along the yield curve to the relevant projected cash flows in the estimation of the service and interest components of benefit cost. 63 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Weighted-Average assumptions as of December 31, Pension Benefits Postretirement Benefits 2021 2020 2019 2021 2020 2019 Assumptions used to determine benefit obligation at year-end Discount rate 2.80 % 2.40 % 3.22 % 2.49 % 1.95 % 2.94 % Rate of compensation increase 3.00 % 3.00 % 3.00 % N/A N/A N/A Health care cost trend rate N/A N/A N/A 6.25 % 6.25 % 6.50 % Ultimate health care cost trend rate N/A N/A N/A 5.00 % 5.00 % 5.00 % Year of ultimate trend rate N/A N/A N/A 2028 2028 2025 Assumptions used to determine expense Discount rate for benefit obligations 2.40 % 3.22 % 4.11 % 2.04 % 2.95 % 4.06 % Discount rate for service costs 2.47 % 3.25 % 4.14 % 2.44 % 3.29 % 4.34 % Discount rate for interest costs 1.66 % 2.76 % 3.72 % 1.33 % 2.56 % 3.72 % 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 Medical health care benefits rate increase N/A N/A N/A 6.25 % 6.25 % 6.50 % Medical drug benefits rate increase N/A N/A N/A 6.25 % 6.25 % 6.50 % Ultimate health care cost trend rate N/A N/A N/A 5.00 % 5.00 % 5.00 % Year of ultimate trend rate N/A N/A N/A 2028 2028 2025 In determining its expected return on plan assets assumption for the year ended December 31, 2021, the Company considered historical experience, its asset allocation, expected future long-term rates of return for each major asset class, and an assumed long-term inflation rate. This assumption was supported by the asset return generation model, which projected future asset returns using simulation and asset class correlation. Pension Benefits Postretirement Benefits 2021 2020 2019 2021 2020 2019 Components of net periodic benefit cost Service costs $ 4.2 $ 4.1 $ 3.8 $ — $ — $ — Interest costs 1.4 2.1 2.6 0.1 0.2 0.3 Expected return on plan assets ( 12.3 ) ( 11.7 ) ( 10.9 ) — — — Amortization of prior service cost (credit) — — — — — ( 0.1 ) Recognized net actuarial loss 0.8 1.9 2.2 0.3 0.2 0.3 Benefit (income) costs $ ( 5.9 ) $ ( 3.6 ) $ ( 2.3 ) $ 0.4 $ 0.4 $ 0.5 Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss (“AOCI”) AOCI at beginning of year $ 21.5 $ 28.3 $ 35.0 $ 3.0 $ 2.6 $ 2.3 Net (loss) gain arising during the year ( 0.8 ) ( 1.8 ) ( 2.2 ) ( 0.3 ) ( 0.2 ) ( 0.3 ) Recognition of prior service credit — — — — — 0.1 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 64 Table of Contents PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Below is a table summarizing the Company’s expected future benefit payments and the expected payments due to Medicare subsidy over the next ten years: Postretirement Benefits Pension Benefits Gross Expected Medicare Subsidy Net including Medicare Subsidy 2022 $ 6.2 $ 0.8 $ 0.1 $ 0.7 2023 6.4 0.8 0.1 0.7 2024 6.5 0.8 0.1 0.7 2025 6.5 0.7 0.1 0.6 2026 6.6 0.7 0.1 0.6 2027 to 2031 31.8 2.6 0.2 2.4 The Company expects to make no contributions to its defined benefit plans in 2022 and beyond, as pension benefits are expected to be paid out of plan assets and postretirement benefits are paid directly by the Company. In January 2008, a Supplemental Executive Retirement Plan (“SERP”) for the Former CEO was approved by the Compensation Committee of the Board of Directors of the Company. The SERP provides an annual supplemental retirement benefit of up to $ 0.4 million upon the Former CEO’s termination of employment with the Company. The Former CEO is fully vested in the SERP, which has a balance of $ 2.2 million as of December 31, 2021. NOTE 14 — Accumulated Other Comprehensive Income (Loss) The components of and changes in accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 were as follows: Cumulative Translation Adjustment Pension and Postretirement Benefits Total Balance at January 1, 2019 $ ( 21.3 ) $ ( 19.6 ) $ ( 40.9 ) Currency translation ( 1.1 ) — ( 1.1 ) Pension and OPEB activity, net of tax — 5.0 5.0 Balance at December 31, 2019 ( 22.4 ) ( 14.6 ) ( 37.0 ) Currency translation 14.1 — 14.1 Pension and OPEB activity, net of tax — 4.8 4.8 Balance at December 31, 2020 ( 8.3 ) ( 9.8 ) ( 18.1 ) Currency translation ( 10.0 ) — ( 10.0 ) Pension and OPEB activity, net of tax — 8.9 8.9 Balance at December 31, 2021 $ ( 18.3 ) $ ( 0.9 ) $ ( 19.2 ) No income taxes are provided on currency translation as foreign earnings are considered permanently re-invested. NOTE 15 — Subsequent Event 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 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. 65 Table of Contents Supplementary Financial Data Schedule II PARK-OHIO HOLDINGS CORP. SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Description Balance at Beginning of Period Charged to Costs and Expenses Deductions and Other Balance at End of Period Year Ended December 31, 2021: Allowances deducted from assets: Trade receivable allowances $ 5.5 4.1 ( 2.9 ) (A) $ 6.7 Inventory reserves 39.3 14.2 ( 14.0 ) (B) 39.5 Tax valuation allowances 6.5 ( 0.4 ) — 6.1 Year Ended December 31, 2020: Allowances deducted from assets: Trade receivable allowances $ 4.9 3.0 ( 2.4 ) (A) $ 5.5 Inventory reserves 34.2 13.1 ( 8.0 ) (B) 39.3 Tax valuation allowances 5.5 1.0 — 6.5 Year Ended December 31, 2019: Allowances deducted from assets: Trade receivable allowances $ 6.2 1.3 ( 2.6 ) (A) $ 4.9 Inventory reserves 34.9 5.3 ( 6.0 ) (B) 34.2 Tax valuation allowances 5.3 0.2 — 5.5 Note (A)- Uncollectable accounts written off, net of recoveries. Note (B)- Amounts written off. 66 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.