What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-03 · 107 added, 122 removed, 213 unchanged (52% of the section changed)

40 unchanged sentences

Sales and operating income for these three segments are provided in Note 4 to the condensed consolidated financial statements, included elsewhere herein.

COVID-19 Pandemic

In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and it spread throughout the United States and other countries around the world.

The pandemic has negatively impacted several of the markets we serve, as well as contributed to a global semiconductor micro-chip shortage, raw material price inflation, higher labor costs and various supply chain constraints, including supplier delays that caused extended lead times and increasing freight costs.

In response to the ongoing COVID-19 pandemic, we continue to manage our operating costs, including plant consolidation, and we are taking aggressive actions to improve results in response to these macroeconomic conditions.

We also continue to manage both working capital and capital spending.

Although there continues to be uncertainty related to the anticipated impact and duration of the COVID-19 pandemic and the impact of global inflation on our future results, we believe our diversified portfolio of global businesses, our liquidity position of $200.5 million as of June 30, 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 June 30, 2022 Compared with Three Months Ended June 30, 2021

Three Months Ended June 30,

Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021

Three Months Ended September 30,

2022 2021 $ Change % Change

7 unchanged sentences

SG&A expenses as a percentage of net sales 10.0 % 12.6 %

Gain on sale of assets (2.9) — (2.9) *

Operating income (loss) 7.0 (5.0) 12.0 *

2 unchanged sentences

Income (loss) before income taxes 0.1 (10.2) 10.3 *

Income tax (expense) benefit (0.7) 2.8 (3.5) *

Income tax benefit 3.0 2.8 0.2 7.1 %

Net income (loss) 3.1 (7.4) 10.5 *

7 unchanged sentences

*Calculation not meaningful

Net sales increased 22.5% to $428.6 million in the second quarter of 2022 compared to $350.0 million in the same period in 2021.

Net sales increased 21.6% to $435.8 million in the third quarter of 2022 compared to $358.5 million in the same period in 2021.

This increase was primarily due to higher customer demand and increased net price realization in all three of our business segments.

The factors explaining the changes in segment net sales for the three months ended June 30, 2022 compared to the corresponding 2021 period are contained within the “Segment Results” section below.

Cost of Sales & Gross Profit

Cost of sales increased 22.2% to $378.8 million in the second quarter of 2022 compared to $310.1 million in the same period in 2021.

The factors explaining the changes in segment net sales for the three months ended September 30, 2022 compared to the corresponding 2021 period are contained within the “Segment Results” section below.

Cost of Sales & Gross Margin

Cost of sales increased 21.0% to $385.4 million in the third quarter of 2022 compared to $318.4 million in the same period in 2021.

The increase in cost of sales was primarily due to the increase in net sales for the 2022 period compared to the corresponding period in 2021, as well as the factors listed below that impacted gross margin.

Gross margin was 11.6% in the second quarter of 2022 compared to 11.4% in the same period in 2021.

The higher margin in the 2022 was driven by increased net price realization and flow-through from higher volumes, which more than offset the ongoing impact of inflation, higher labor costs and supply chain constraints.

The second quarter of 2022 included expenses of $4.1 million related to plant closure and consolidation and other actions to improve profitability.

The second quarter of 2021 included expenses of $0.8 million related to plant closure and consolidation, severance and other actions to improve profitability.

Gross margin was 11.6% in the third quarter of 2022 compared to 11.2% in the same period in 2021.

The higher margin in the 2022 was driven by increased net price realization and profit flow-through from higher volumes, which more than offset the ongoing impact of inflation, higher labor costs and supply chain constraints.

The third quarter of 2022 included expenses of $2.5 million related to plant closure and consolidation and other actions to improve profitability.

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

SG&A Expenses

SG&A expenses increased to $45.0 million in the second quarter of 2022 compared to $43.3 million in the comparable period in 2021, an increase of 3.9%.

The increase in SG&A expenses is attributable to the increase in sales noted above.

As a percentage of net sales, SG&A expenses were 10.5% in second quarter of 2022 compared to 12.4% in the comparable period in 2021.

The improvement in SG&A expenses as a percentage of net sales is driven by the impact of fixed SG&A expenses over the higher revenue base in the 2022 quarter compared to the same quarter a year ago.

SG&A expenses in the 2022 period included $0.9 million of charges related to plant closure and consolidation, severance and other actions to improve profitability.

The second quarter of 2021 included $0.6 million of expenses related to plant closure and consolidation, severance and other actions to reduce costs, and acquisition-related expenses of $0.4 million

Gain on Sale of Assets

During the second quarter of 2022, in connection with the plant closure and consolidation initiatives, the Company sold real estate within its Engineered Products segment for cash proceeds of $3.6 million, resulting in a gain of $2.5 million and within the Assembly Components segment for cash proceeds of $0.4 million, resulting in a gain of $0.4 million.

SG&A expenses decreased to $43.4 million in the third quarter of 2022 compared to $45.1 million in the comparable period in 2021, a decrease of 3.8%.

The decrease in SG&A expenses is primarily attributable to the lower personnel related expenses.

As a percentage of net sales, SG&A expenses were 10.0% in third quarter of 2022 compared to 12.6% in the comparable period in 2021.

The improvement in SG&A expenses as a percentage of net sales was also driven by the impact of fixed SG&A expenses over the higher revenue base in the 2022 quarter compared to the same quarter a year ago.

SG&A expenses in the 2022 period included $1.9 million of charges related to plant closure and consolidation, severance and other actions to improve future profitability and $0.4 million of acquisition-related costs.

The third quarter of 2021 included $2.5 million of expenses related to plant closure and consolidation and other costs.

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

Other components of pension income and OPEB expense, net was $2.8 million in the three months ended June 30, 2022 compared to $2.5 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.

Other components of pension income and OPEB expense, net was $2.7 million in the three months ended September 30, 2022 compared to $2.4 million in the corresponding period in 2021.

This increase was driven by estimated 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 $8.3 million in the second quarter of 2022 compared to $7.4 million in the 2021 period.

The increase was due to higher average outstanding borrowings during the 2022 period.

Income Tax Expense/Benefit

In the three months ended June 30, 2022, income tax expense was $0.7 million, representing an effective income tax rate of 32%.

This rate is higher than the U.S.

statutory rate of 21% primarily due to the unfavorable impact of stock compensation deduction.

In the three months ended June 30, 2021, income tax benefit was $2.8 million, representing an effective income tax rate of 34%.

Interest expense, net was $9.6 million in the third quarter of 2022 compared to $7.6 million in the 2021 period.

The increase was due to higher average outstanding borrowings and higher interest rates during the 2022 period.

Income Tax Benefit

In the three months ended September 30, 2022, income tax benefit was $3.0 million on pre-tax income of $0.1 million.

The overall benefit included a discrete benefit of $2.4 million due primarily to changes in estimates related to prior year federal research and development credits, Global Intangible Low-Taxed Income (“GILTI”), Foreign-Derived Intangible Income (“FDII”) and foreign tax credits.

In the three months ended September 30, 2021, income tax benefit was $2.8 million, representing an effective income tax rate of 27%.

This rate is higher than the U.S.

statutory rate of 21% primarily due to the additional benefit recorded as result of the net operating loss carryback claim under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and amended returns filed during the quarter.

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.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

Six Months Ended June 30,

Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

Nine Months Ended September 30,

2022 2021 $ Change % Change

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Net (income) loss attributable to noncontrolling interests (1.1) 0.5 (1.6) *

Net income attributable to Park-Ohio Holdings Corp.

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

common shareholders $ 9.8 $ (7.0) $ 16.8 *

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

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

common shareholders:

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Diluted $ 0.80 $ (0.58) $ 1.38 *

Net sales increased 19.4% to $847.0 million in the first six months of 2022 compared to $709.6 million in the same period in 2021.

*Calculation not meaningful

Net sales increased 20.1% to $1,282.8 million in the first nine months of 2022 compared to $1,068.1 million in the same period in 2021.

This increase was primarily due to higher customer demand and increased net price realization in all three of our business segments.

The factors explaining the changes in segment net sales for the six months ended June 30, 2022 compared to the corresponding 2021 period are contained in the “Segment Results” section below.

Cost of Sales & Gross Profit

Cost of sales increased 20.4% to $743.5 million in the first six months of 2022 compared to $617.7 million in the same period in 2021.

The factors explaining the changes in segment net sales for the nine months ended September 30, 2022 compared to the corresponding 2021 period are contained in the “Segment Results” section below.

Cost of Sales & Gross Margin

Cost of sales increased 20.6% to $1,128.9 million in the first nine months of 2022 compared to $936.1 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 12.2% in the first six months of 2022 compared to 13.0% in the corresponding period in 2021.

The 2022 period included expenses of $5.9 million related to plant closure and consolidation, severance and other actions to

improve profitability.

The 2021 period included expenses of $1.3 million related to plant closure and consolidation, severance and other actions to improve profitability.

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

Gross margin was 12.0% in the first nine months of 2022 compared to 12.4% in the corresponding period in 2021.

The margin decline was due to charges of $8.4 million in the 2022 period related to plant closure can consolidation and other actions to improve future profitability, compared to similar charges of $2.9 million in the 2021 period.

SG&A Expenses

SG&A expenses were $90.8 million in the first six months of 2022, compared to $83.0 million in the same period in 2021, an increase of 9.4%.

As a percentage of net sales, SG&A expenses were 10.7% in first six months of 2022 compared to 11.7% in the comparable period in 2021.

The improvement in SG&A expenses as a percentage of net sales is driven by the impact of fixed SG&A expenses over the higher revenue base in the 2022 period compared to the same period a year ago, which more than offset higher selling expenses as a result of higher sales levels, higher costs due to ongoing inflation, and expenses related to plant closure and consolidation.

SG&A expenses were $134.2 million in the first nine months of 2022, compared to $128.1 million in the same period in 2021, an increase of 4.8%.

As a percentage of net sales, SG&A expenses were 10.5% in first nine months of 2022 compared to 12.0% in the comparable period in 2021.

The improvement in SG&A expenses as a percentage of net sales was driven by the impact of fixed SG&A expenses over the higher revenue base in the 2022 period compared to the same period a year ago, which more than offset higher selling expenses as a result of higher sales levels, higher costs due to ongoing inflation, and expenses related to plant closure and consolidation.

SG&A expenses in the 2022 period included $4.5 million of expenses related to plant closure and consolidation, severance and other costs and $0.7 million of acquisition-related expenses.

SG&A expenses in the 2021 period included expenses of $1.8 million for plant closure and consolidation, and lower incentive compensation expense due to lower operating results.

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

Gain on Sale of Assets

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Other Components of Pension Income and OPEB, Net

Other components of pension income and OPEB expense, net was $5.6 million in the first six months of 2022 compared to $4.9 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.

Other components of pension income and OPEB expense, net was $8.3 million in the first nine months of 2022 compared to $7.3 million in the corresponding period in 2021.

This increase was driven by estimated 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 $16.1 million in the first six months of 2022 compared to $14.8 million in the 2021 period.

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

Interest expense, net was $25.7 million in the first nine months of 2022 compared to $22.4 million in the 2021 period.

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

Income Tax Benefit

In the six months ended June 30, 2022, income tax benefit was $2.7 million on pre-tax income of $5.1 million.

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

In the six months ended June 30, 2021, income tax benefit was $0.9 million, representing an effective income tax rate of 90%.

In the nine months ended September 30, 2022, income tax benefit was $5.7 million on pre-tax income of $5.2 million.

The overall benefit included discrete tax benefits totaling $6.5 million related primarily to changes in estimates related to prior year federal research and development credits, GILTI, FDII and foreign tax credits.

In the nine months ended September 30, 2021, income tax benefit was $3.7 million, representing an effective income tax rate of 33%.

This rate is higher than the U.S.

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

SEGMENT RESULTS

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Supply Technologies Segment

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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Segment operating income margin 5.8 % 6.9 % 6.7 % 7.1 %

Three months ended June 30:

Net sales increased 13.4% in the three months ended June 30, 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 heavy-duty truck, semiconductor, industrial and agricultural equipment and civilian aerospace, as well as due to increased net price realization.

Segment operating income increased by $2.5 million and segment operating income margin increased 60 basis points in the 2022 period compared to the same period a year ago.

The increase in margin was driven by higher sales noted above, which more than offset higher supply chain costs.

Six months ended June 30:

Net sales increased 10.2% in the six months ended June 30, 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 heavy-duty truck, semiconductor, industrial and agricultural equipment and civilian aerospace, as well as due to increased net price realization.

Segment operating income increased by $2.2 million and segment operating income margin was comparable in the 2022 period compared to the same period a year ago.

Three months ended September 30:

Net sales increased 20.7% in the three months ended September 30, 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, power sports, heavy-duty truck and civilian aerospace, as well as due to increased net price realization.

Segment operating income was flat and segment operating income margin decreased 110 basis points in the 2022 period compared to the same period a year ago.

The decrease in margin was driven primarily by higher supply chain costs including premium freight.

Nine months ended September 30:

Net sales increased 13.7% in the nine months ended September 30, 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 heavy-duty truck, semiconductor, industrial and agricultural equipment and civilian aerospace, as well as due to increased net price realization.

Segment operating income increased by $2.2 million driven by profit flow-through from higher sales.

Segment operating income margin was 40 basis points lower in the 2022 period compared to the same period a year ago due to higher supply chain costs.

Assembly Components Segment

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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Segment operating (loss) income margin (1.3) % (7.4) % (1.6) % (2.4) %

Three months ended June 30:

Net sales increased 40.8% in the three months ended June 30, 2022 compared to the 2021 period due primarily to higher customer demand driven by fuel-related products launched in 2021;

and increased net price realization.

Three months ended September 30:

Net sales increased 27.3% in the three months ended September 30, 2022 compared to the 2021 period due primarily to higher customer demand driven by fuel-related products launched in 2021 and increased net price realization.

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

Segment operating loss was $7.5 million in the 2022 period compared $6.1 million in the 2021 period.

The higher loss in 2022 was due to expenses of $4.2 million related to restructuring charges and related expenses.

Income in the 2021 period included expenses related to plant closure and consolidation of $0.8 million.

The loss in the 2021 quarter was driven by the microchip shortage, commodity inflation and higher operating costs.

Six months ended June 30:

Net sales increased 32.8% in the six months ended June 30, 2022 compared to the 2021 period due primarily to higher customer demand driven by fuel-related products launched in 2021;

Segment operating loss was $2.0 million in the 2022 period compared to $8.9 million in the 2021 period.

The improvement in segment operating results in the 2022 period was driven by profit flow-through from the higher sales levels and benefit of profit improvement initiatives in the last two years, both of which together more than offset the negative impacts of

inflation in the current year.

In addition, the loss in the 2022 period included expenses of $1.7 million related to restructuring charges and related expenses, compared to similar expenses of $3.4 million in the 2021 period.

Nine months ended September 30:

Net sales increased 31.0% in the nine months ended September 30, 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 period.

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 loss was $5.5 million in the 2022 period compared income of $0.3 million in the 2021 period.

The loss in the 2022 period was driven by expenses of $6.2 million related to restructuring chargers and related expenses.

Income in the 2021 period included expenses related to plant closure and consolidation of $1.3 million.

The income in the 2021 period was partially offset by the microchip shortage, commodity inflation and higher operating costs.

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

Segment operating loss was $7.5 million in the 2022 period compared to $8.6 million in the 2021 period.

In addition, the loss in the 2022 period included expenses of $7.9 million related to restructuring charges and related expenses, compared to similar expenses of $4.7 million in the 2021 period.

Engineered Products Segment

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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Segment operating income (loss) margin 6.0 % 0.7 % 5.1 % (0.5) %

Three months ended June 30:

Three months ended September 30:

Net sales were 14.9% higher in the 2022 period compared to the 2021 period.

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 $7.8 million and segment operating income increased by 800 basis points compared to losses in the corresponding 2021 period.

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

Expenses related to plant closure and consolidation were $0.8 million and $0.6 million in the second quarter of 2022 and 2021, respectively.

Six months ended June 30:

The increase was due to stronger demand in the 2022 period in both our capital equipment products business 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 $5.2 million and segment operating income increased by 530 basis points compared to the corresponding 2021 period.

The profit improvement in the 2022 third quarter compared to the prior year period was driven by the higher sales levels, operational improvements, and benefits of profit improvement actions.

Expenses related to plant closure and consolidation were $1.4 million and $0.6 million in the third quarter of 2022 and 2021, respectively.

Nine months ended September 30:

Net sales were 16.6% higher in the 2022 period compared to the 2021 period.

Segment operating income in the 2022 period increased $16.0 million and segment operating income increased by 560 basis points compared to losses in the corresponding 2021 period.

The income improvement in the 2022 compared to the prior year was driven by the higher sales levels, operational improvements, and benefits of profit improvement actions.

Expenses related to plant closure and consolidation were $1.4 million and $1.3 million in the first six months of 2022 and 2021, respectively.

The profit improvement in 2022 period compared to the prior period was driven by the higher sales levels, operational improvements, and benefits of profit improvement actions.

Expenses related to plant closure and consolidation were $2.8 million and $1.9 million in the first nine months of 2022 and 2021, respectively.

Liquidity and Capital Resources

The following table summarizes the major components of cash flow:

Six Months Ended June 30,

Nine Months Ended September 30,

2022 2021 $ Change

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Effect of exchange rate changes on cash (5.9) (1.2) (4.7)

Increase in cash and cash equivalents $ 7.0 $ 0.3 $ 6.7

(Decrease) increase in cash and cash equivalents $ (0.4) $ 4.6 $ (5.0)

Operating Activities

In the first six months of 2022, we had cash usage of $38.2 million compared to $23.3 million in the same period of 2021.

The usage of cash was driven by higher working capital in the six months ended June 30, 2022 compared to the same period a year ago.

In the 2022 period, working capital increased $64.4 million, compared to $40.2 million in the 2021 period, with the higher amount in 2022 driven by an increase in accounts receivable of $45.3 million resulting from higher sales levels.

In the first nine months of 2022, we had cash usage of $31.4 million compared to $25.9 million in the same period of 2021.

The usage of cash was driven by higher working capital levels in the nine months ended September 30, 2022 compared to the same period a year ago.

In the 2022 period, working capital increased $67.2 million, compared to $45.1 million in the 2021 period, with the higher amount in 2022 driven by an increase in inventories of $52.7 million resulting from higher sales levels and supply chain constraints and an increase in accounts receivable of $35.5 million resulting from higher sales.

Investing Activities

Capital expenditures were $15.5 million in the six months ended June 30, 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.

Additionally, the Company sold real estate for total proceeds of $4.0 million.

Capital expenditures were $14.4 million in the six months ended June 30, 2021 and were primarily to provide increased capacity for future growth in our Assembly Components segment and to maintain existing operations.

Also, the Company acquired NYK Component Solutions Limited ("NYK") for $5.4 million.

Capital expenditures were $23.7 million in the nine months ended September 30, 2022 and were primarily to provide increased capacity for future growth in our Engineered Products and Assembly Components segments, for facility consolidation in our Engineered Products segment and to maintain existing operations.

Additionally, the Company sold real estate for total proceeds of $4.0 million and made two acquisitions, which utilized cash of $21.9 million.

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 Engineered Products and Assembly Components segments and to maintain existing operations.

Also in the 2021 period, the Company acquired NYK Component Solutions Limited ("NYK") for $5.4 million.

Financing Activities

During the six months ended June 30, 2022, we had net debt borrowings of $64.9 million to fund our higher working capital levels.

In addition, in the six months ended June 30, 2022, we made cash dividend payments to shareholders totaling $3.2 million.

During the six months ended June 30, 2021, we had net debt borrowings of $49.0 million and paid dividends to shareholders of $3.1 million.

During the nine months ended September 30, 2022, we had net debt borrowings of $85.1 million to fund our higher working capital levels and complete two acquisitions.

In addition, in the nine months ended September 30, 2022, we made cash dividend payments to shareholders totaling $4.8 million.

During the nine months ended September 30, 2021, we had net debt borrowings of $71.8 million and paid dividends to shareholders of $4.7 million.

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

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

Our existing financial resources (working capital and available bank borrowing arrangements) and anticipated cash flow from operations are expected to be adequate to meet anticipated cash requirements for at least the next 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 June 30, 2022, we had total liquidity of $200.5 million, which included $61.1 million cash and cash equivalents, $139.4 million of unused borrowing availability under our credit agreements, which included $29.3 million of suppressed availability.

The Company had cash and cash equivalents held by foreign subsidiaries of $44.2 million at June 30, 2022 and $44.2 million at December 31, 2021.

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, pursue acquisitions, pay dividends and repurchase common shares.

As of September 30, 2022, we had total liquidity of $163.6 million, which included $53.7 million of cash and cash equivalents and $109.9 million of unused borrowing availability under our credit agreements, which included $23.6 million of suppressed availability.

The Company had cash and cash equivalents held by foreign subsidiaries of $43.1 million at September 30, 2022 and $44.2 million at December 31, 2021.

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

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Park-Ohio’s Seventh Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) provides for a revolving credit facility in the amount of $405.0 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 $70.0 million.

Pursuant to the Credit Agreement, Park-Ohio has the option to increase the availability under the revolving credit facility by an aggregate incremental amount up to $70.0 million.

The Credit Agreement matures on November 26, 2024.

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

Finance lease obligations of $14.5 million were borrowed under the Lease Agreement to acquire machinery and equipment as of June 30, 2022.

Finance lease obligations of $13.0 million were borrowed under the Lease Agreement to acquire machinery and equipment as of September 30, 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 $50.625 million, our ability to meet a debt service ratio covenant.

If our calculated availability is less than $50.625 million, our debt service coverage ratio must be greater than 1.0.

At June 30, 2022, our calculated availability under the Credit Agreement was $101.5 million;

At September 30, 2022, our calculated availability under the Credit Agreement was $78.8 million;

therefore, the debt service ratio covenant did not apply.

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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 $50.625 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 June 30, 2022.

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.

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 $3.2 million during the six months ended June 30, 2022.

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

The dividend will be paid on August 19, 2022 to shareholders of record as of the close of business on August 5, 2022 and will result in a cash outlay of approximately $1.6 million.

As our calculated availability under the Credit Agreement was above $50.625 million, we were also in compliance with the other covenants contained in the revolving credit facility as of September 30, 2022.

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 $4.8 million during the nine months ended September 30, 2022.

On November 4, 2022, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share.

The dividend will be paid on December 2, 2022 to shareholders of record as of the close of business on November 18, 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.

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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;

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;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis