What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-03 · 86 added, 164 removed, 166 unchanged (60% of the section changed)

46 unchanged sentences

Although there continues to be uncertainty related to the anticipated impact and duration of the COVID-19 pandemic on our future results, we believe our diversified portfolio of global businesses, our liquidity position of

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

$224.8 million as of March 31, 2022, and the steps we have taken during the past two years to reduce costs leave us well-positioned to manage our business through this crisis as it continues to unfold.

RESULTS OF OPERATIONS

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

Three Months Ended September 30,

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Three Months Ended March 31,

2022 2021 $ Change % Change

5 unchanged sentences

Selling, general and administrative (“SG&A”) expenses 45.8 39.7 6.1 15.4 %

45.1 38.7 6.4 16.5 %

SG&A expenses as a percentage of net sales 10.9 % 11.0 %

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

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

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

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

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

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

Net loss attributable to noncontrolling interest 0.2 0.1 0.1 100.0 %

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

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

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

common shareholders:

Basic $ (0.60) $ 0.44 $ (1.04) *

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

*Calculation not meaningful

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

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

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

Cost of Sales & Gross Profit

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

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

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

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

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

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

SG&A Expenses

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

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

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

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

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

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

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

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

Interest Expense, Net

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

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

Income Tax Benefit

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

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

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

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

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

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

RESULTS OF OPERATIONS

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

Nine Months Ended September 30,

2021 2020 $ Change % Change

(Dollars in millions, except per share data)

Net sales $ 1,068.1 $ 934.8 $ 133.3 14.3 %

Cost of sales 936.1 817.0 119.1 14.6 %

Gross profit 132.0 117.8 14.2 12.1 %

Gross margin 12.4 % 12.6 %

SG&A expenses 128.1 114.7 13.4 11.7 %

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

Operating income 7.9 12.3 (4.4) (35.8) %

2 unchanged sentences

Interest expense, net (7.8) (7.4) (0.4) 5.4 %

Loss before income taxes (11.2) (14.3) 3.1 (21.7) %

Income tax benefit 3.7 3.8 (0.1) (2.6) %

Net loss (7.5) (10.5) 3.0 (28.6) %

Net loss attributable to noncontrolling interests 0.5 0.4 0.1 25.0 %

Net loss attributable to Park-Ohio Holdings Corp.

Income before income taxes 2.9 7.3 (4.4) (60.3) %

Income tax benefit (expense) 3.4 (1.9) 5.3 *

Net income 6.3 5.4 0.9 16.7 %

Net (income) loss attributable to noncontrolling interests (0.2) 0.1 (0.3) *

Net income attributable to Park-Ohio Holdings Corp.

common shareholders $ 6.1 $ 5.5 $ 0.6 10.9 %

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

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

common shareholders:

1 unchanged sentence

Diluted $ 0.50 $ 0.45 $ 0.05 11.1 %

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

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

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

Net sales increased 16.4% to $418.4 million in the first three months of 2022 compared to $359.6 million in the same period in 2021.

This increase was primarily due to higher customer demand in all three of our business segments.

The factors explaining the changes in segment net sales for the three months ended March 31, 2022 compared to the corresponding 2021 period are contained in the “Segment Results” section below.

Cost of Sales & Gross Profit

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

Cost of sales increased 18.6% to $364.7 million in the first three months of 2022 compared to $307.6 million in the same period in 2021.

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

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

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

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

Gross margin was 12.8% in the first three months of 2022 compared to 14.5% in the corresponding period in 2021.

The 2022 period included expenses of $1.8 million related to plant closure and consolidation and other costs.

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

remaining decline in margin was driven by the ongoing impacts of inflation, higher labor costs and supply chain constraints in the 2022 period.

SG&A Expenses

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

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

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

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

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

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

SG&A expenses were $45.8 million in the first three months of 2022, compared to $39.7 million in the same period in 2021, an increase of 15.4%.

As a percentage of net sales, SG&A expenses were approximately 11% in the first quarter of both 2022 and 2021.

SG&A expenses in the 2022 period included $1.6 million of expenses related to plant closure and consolidation, severance and other costs and $0.3 million of acquisition related expenses.

Selling expenses were higher in the 2022 period as a result of higher sales levels, and other expenses were higher due to inflation.

SG&A expenses in the 2021 period included expenses of $0.7 million for plant closure and consolidation, and lower incentive compensation expense due to lower operating results.

Other Components of Pension Income and OPEB, Net

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

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

Other components of pension income and OPEB expense, net was $2.8 million in the first three months of 2022 compared to $2.4 million in the corresponding period in 2021.

This increase was driven by higher returns on plan assets and lower actuarial loss in the 2022 period compared to the same period a year ago.

Interest Expense, Net

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

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

Interest expense, net was $7.8 million in the first three months of 2022 compared to $7.4 million in the 2021 period.

The increase was due primarily to higher outstanding debt balances in the 2022 period compared to the same period a year ago.

Income Tax Benefit

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

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

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

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

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

In the three months ended March 31, 2022, income tax benefit was $3.4 million on pre-tax income of $2.9 million.

The benefit included a discrete tax benefit of $4.1 million related to a federal research and development credit.

In the three months ended March 31, 2021, income tax expense was $1.9 million, representing an effective income tax rate of 26%.

This rate is higher than the U.S.

statutory rate of 21% primarily due to income subject to foreign tax at tax rates higher than the U.S.

statutory rate and state taxes.

SEGMENT RESULTS

2 unchanged sentences

Supply Technologies Segment

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

2021 2020 2021 2020

Three Months Ended March 31,

(Dollars in millions)

2 unchanged sentences

Segment operating income margin 7.1 % 7.7 %

Three months ended September 30:

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

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

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

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

Nine months ended September 30:

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

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

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

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

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

Three months ended March 31:

Net sales increased 7.0% in the three months ended March, 2022 compared to the 2021 period due primarily to higher customer demand in many of the Company's key end markets, with the largest increases in semiconductor, civilian aerospace, industrial and agricultural equipment and heavy-duty truck.

Segment operating income decreased by $0.2 million and segment operating income margin decreased 60 basis points in the 2022 period compared to the same period a year ago.

The decrease in margin was driven by higher freight costs in the 2022 period as a result of global supply chain constraints.

Assembly Components Segment

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

2021 2020 2021 2020

Three Months Ended March 31,

(Dollars in millions)

Net sales $ 158.6 $ 126.0

Segment operating (loss) income $ (8.9) $ 6.7 $ (8.6) $ (1.6)

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

Three months ended September 30:

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

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

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

raw material price inflation;

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

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

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

Nine months ended September 30:

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

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

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

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

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

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

Segment operating income $ 2.0 $ 6.4

Segment operating income margin 1.3 % 5.1 %

Three months ended March 31:

Net sales increased 25.9% in the three months ended March 31, 2022 compared to the 2021 period due primarily to higher customer demand driven by fuel-related products launched in 2021;

increased net price realization;

and the pass-through of higher aluminum and rubber compound prices in the 2022 quarter.

In addition, sales in the 2021 periods were negatively impacted by the semiconductor micro-chip shortage and supply chain disruptions in the automobile industry.

Segment operating income was $2.0 million in the 2022 period compared $6.4 million in the 2021 period.

The decrease was due to the unfavorable impacts of inflation, higher labor costs and supply chain constraints in the 2022 quarter compared to the same period a year ago, and expenses of $2.0 million related to plant closure and consolidation activities and other costs.

Income in the 2021 period included expenses related to plant closure and consolidation of $0.6 million.

Engineered Products Segment

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

2021 2020 2021 2020

Three Months Ended March 31,

(Dollars in millions)

2 unchanged sentences

Segment operating income (loss) margin 2.0 % (1.7) %

Three months ended September 30:

Three months ended March 31:

Net sales were 19.9% higher in the 2022 period compared to the 2021 period.

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

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

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

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

Nine months ended September 30:

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

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

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

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

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

The increase was due to stronger demand in the 2022 period in both our capital equipment products and our forged and machined products business as key end markets continue to recover from the COVID-19 pandemic.

Segment operating income in the 2022 period increased $3.1 million and segment operating income increased by 370 basis points compared to losses in the corresponding 2021 period.

The income improvement in the 2022 first quarter compared to the prior year period was driven by the higher sales levels, benefits of cost-reduction actions, and operational improvements.

Expenses related to plant closure and consolidation were $0.6 million and $0.7 million, in the first quarter 2022 and 2021, respectively.

Liquidity and Capital Resources

The following table summarizes the major components of cash flow:

Nine Months Ended September 30,

Three Months Ended March 31,

2022 2021 $ Change

5 unchanged sentences

Effect of exchange rate changes on cash (0.5) (0.9) 0.4

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

Increase in cash and cash equivalents $ 7.5 $ 3.9 $ 3.6

Operating Activities

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

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

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

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

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

In the 2022 first quarter, we had cash usage of $10.1 million compared to cash provided of $9.9 million in the same period of 2021.

The usage of cash was driven by higher working capital in the three months ended March 31, 2022 compared to the same period a year ago.

In the 2022 period, working capital increased $25.9 million, compared to $5.0 million in the 2021 period, with the higher amount in 2022 driven by an increase in accounts receivable of $45.0 million resulting from higher sales levels.

Investing Activities

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

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

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

Capital expenditures were $7.1 million in the three months ended March 31, 2022 and were primarily to provide increased capacity for future growth in our Assembly Components segment, for facility consolidation in our Engineered Products segment and to maintain existing operations.

Capital expenditures were $6.6 million in the three months ended March 31, 2021 and were primarily to provide increased capacity for future growth in our Assembly Components segment and to maintain existing operations.

Financing Activities

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

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

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

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

During the three months ended March 31, 2022, we had net debt borrowings of $26.9 million to fund our higher working capital levels.

In addition, in the three months ended March 31, 2022, we made a cash dividend payment to shareholders totaling $1.6 million.

During the three months ended March 31, 2021, we had net debt borrowings of $3.2 million and paid dividends to shareholders of $1.6 million.

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

1 unchanged sentence

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

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

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

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

Our existing financial resources (working capital and available bank borrowing arrangements) and anticipated cash flow from operations are expected to be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future thereafter, including but not limited to our ability to maintain current operations and fund capital expenditure requirements, service our debt, pay dividends, pursue acquisitions, and repurchase common shares.

As of March 31, 2022, we had total liquidity of $224.8 million, which included $61.6 million cash and cash equivalents, $163.2 million of unused borrowing availability under our credit agreements, which included $45.0 million of suppressed availability.

The Company had cash and cash equivalents held by foreign subsidiaries of $51.4 million at March 31, 2022 and $44.2 million at December 31, 2021.

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

8 unchanged sentences

Credit Agreement

In June 2018, Park-Ohio entered into Amendment No.

1 to its Seventh Amended and Restated Credit Agreement (the “Credit Agreement”).

The amendment to the Credit Agreement, among other things, provided increases in the availability under the revolving credit facility from $350.0 million to $375.0 million, the Canadian revolving subcommitment from $35.0 million to $40.0 million and the European revolving subcommitment from $25.0 million to $30.0 million.

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

In 2019, Park-Ohio entered into Amendment No.

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

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.

Finance Leases

1 unchanged sentence

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

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

Finance lease obligations of $16.0 million were borrowed under the Lease Agreement to acquire machinery and equipment as of March 31, 2022.

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

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

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

At March 31, 2022, our calculated availability under the Credit Agreement was $109.5 million;

therefore, the debt service ratio covenant did not apply.

2 unchanged sentences

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

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

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

While we expect to remain in compliance throughout 2022, declines in sales volumes in the future, including any declines caused by the COVID-19 pandemic, could

adversely impact our ability to remain in compliance with certain of these financial covenants.

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

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

The Company paid dividends to shareholders of $1.6 million during the three months ended March 31, 2022.

On April 22, 2022, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share.

The dividend will be paid on May 20, 2022 to shareholders of record as of the close of business on May 6, 2022 and will result in a cash outlay of approximately $1.6 million.

Although we currently intend to pay a quarterly dividend on an ongoing basis, all future dividend declarations will be at the discretion of our Board of Directors and dependent upon then-existing conditions, including our operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors may deem relevant.

Variability of Operating Results

23 unchanged sentences

changes in our relationships with customers and suppliers;

the financial condition of our customers, including the impact of any bankruptcies;

the financial condition of

our customers, including the impact of any bankruptcies;

our ability to successfully integrate recent and future acquisitions into existing operations;

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

changes in general economic conditions

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

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

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

adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities, including the evolving situation with Russia and Ukraine;

public health issues, including the outbreak of COVID-19 and its impact on our facilities and operations and our customers and suppliers;

16 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis