PARK OHIO HOLDINGS CORP 10-Q

Item 1. Financial Statements 4 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) September 30, 2022 December 31, 2021 (In millions) ASSETS Current assets: Cash and cash equivalents $ 53.7 $ 54.1 Accounts receivable, net 285.6 255.3 Inventories, net 433.0 382.9 Prepaid and other current assets 80.4 83.2 Total current assets 852.7 775.5 Property, plant and equipment, net 226.8 229.1 Operating lease right-of-use assets 62.3 63.4 Goodwill 106.4 106.0 Intangible assets, net 76.1 81.7 Other long-term assets 107.0 104.3 Total assets $ 1,431.3 $ 1,360.0 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 225.2 $ 194.0 Current portion of long-term debt and short-term debt 10.6 10.7 Current portion of operating lease liabilities 13.6 12.8 Accrued expenses and other 119.3 131.5 Total current liabilities 368.7 349.0 Long-term liabilities, less current portion: Long-term debt 674.4 591.5 Long-term operating lease liabilities 48.7 50.7 Other long-term liabilities 39.9 44.0 Total long-term liabilities 763.0 686.2 Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity 288.4 314.1 Noncontrolling interests 11.2 10.7 Total equity 299.6 324.8 Total liabilities and shareholders' equity $ 1,431.3 $ 1,360.0 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 5 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions, except per share data) Net sales $ 435.8 $ 358.5 $ 1,282.8 $ 1,068.1 Cost of sales 385.4 318.4 1,128.9 936.1 Gross profit 50.4 40.1 153.9 132.0 Selling, general and administrative expenses 43.4 45.1 134.2 128.1 Gain on sale of assets — — ( 2.9 ) — Operating income (loss) 7.0 ( 5.0 ) 22.6 3.9 Other components of pension income and other postretirement benefits expense, net 2.7 2.4 8.3 7.3 Interest expense, net ( 9.6 ) ( 7.6 ) ( 25.7 ) ( 22.4 ) Income (loss) before income taxes 0.1 ( 10.2 ) 5.2 ( 11.2 ) Income tax benefit 3.0 2.8 5.7 3.7 Net income (loss) 3.1 ( 7.4 ) 10.9 ( 7.5 ) Net (income) loss attributable to noncontrolling interests ( 0.4 ) 0.2 ( 1.1 ) 0.5 Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders $ 2.7 $ ( 7.2 ) $ 9.8 $ ( 7.0 ) Income (loss) per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic $ 0.22 $ ( 0.60 ) $ 0.81 $ ( 0.58 ) Diluted $ 0.22 $ ( 0.60 ) $ 0.80 $ ( 0.58 ) Weighted-average shares used to compute income (loss) per share: Basic 12.1 12.1 12.1 12.0 Diluted 12.2 12.1 12.2 12.0 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 6 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) Net income (loss) $ 3.1 $ ( 7.4 ) $ 10.9 $ ( 7.5 ) Other comprehensive (loss) income, net of tax: Currency translation ( 17.0 ) ( 5.5 ) ( 35.5 ) ( 8.2 ) Foreign currency forward contracts — — 0.5 — Pension and other postretirement benefits 0.1 0.2 0.2 0.6 Total other comprehensive loss ( 16.9 ) ( 5.3 ) ( 34.8 ) ( 7.6 ) Total comprehensive loss, net of tax ( 13.8 ) ( 12.7 ) ( 23.9 ) ( 15.1 ) Comprehensive (income) loss attributable to noncontrolling interests ( 0.4 ) 0.2 ( 1.1 ) 0.5 Comprehensive loss attributable to Park-Ohio Holdings Corp. common shareholders $ ( 14.2 ) $ ( 12.5 ) $ ( 25.0 ) $ ( 14.6 ) Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 7 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Shareholders' Equity (Unaudited) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interests Total (In whole shares) (In millions) Balance at January 1, 2022 16,339,722 $ 16.3 $ 142.9 $ 259.4 $ ( 85.3 ) $ ( 19.2 ) $ 10.7 $ 324.8 Other comprehensive income (loss) — — — 6.1 — ( 3.1 ) 0.2 3.2 Stock-based compensation expense — — 1.6 — — — — 1.6 Stock-based compensation activity ( 5,502 ) — — — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Payments of withholding taxes on share awards — — — — ( 0.1 ) — — ( 0.1 ) Balance at March 31, 2022 16,334,220 16.3 144.5 263.9 ( 85.4 ) ( 22.3 ) 10.9 327.9 Other comprehensive income (loss) — — — 1.0 — ( 14.8 ) 0.5 ( 13.3 ) Stock-based compensation expense — — 1.8 — — — — 1.8 Stock-based compensation activity 308,621 0.3 ( 0.3 ) — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Payments of withholding taxes on share awards — — — — ( 1.0 ) — — ( 1.0 ) Balance at June 30, 2022 16,642,841 $ 16.6 $ 146.0 $ 263.3 $ ( 86.4 ) $ ( 37.1 ) $ 11.4 $ 313.8 Other comprehensive (loss) income — — — 2.7 — ( 16.9 ) 0.4 ( 13.8 ) Stock-based compensation expense — — 2.0 — — — — 2.0 Stock-based compensation activity 7,497 — — — — — — — Dividends — — — ( 1.6 ) — — ( 0.6 ) ( 2.2 ) Payments of withholding taxes on share awards — — — — ( 0.2 ) — — ( 0.2 ) Balance at September 30, 2022 16,650,338 $ 16.6 $ 148.0 $ 264.4 $ ( 86.6 ) $ ( 54.0 ) $ 11.2 $ 299.6 8 Table of Contents Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Noncontrolling Interests Total (In whole shares) (In millions) Balance at January 1, 2021 16,148,791 $ 16.1 $ 135.5 $ 290.5 $ ( 79.8 ) $ ( 18.1 ) $ 13.7 $ 357.9 Other comprehensive income (loss) — — — 5.5 — ( 4.1 ) ( 0.1 ) 1.3 Stock-based compensation expense — — 1.6 — — — — 1.6 Stock-based compensation activity ( 6,667 ) — — — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Increase in Park-Ohio ownership interest — — 1.1 — — — ( 1.1 ) — Payments of withholding taxes on share awards — — — — ( 0.1 ) — — ( 0.1 ) Balance at March 31, 2021 16,142,124 16.1 138.2 294.4 ( 79.9 ) ( 22.2 ) 12.5 359.1 Other comprehensive (loss) income — — — ( 5.3 ) — 1.8 ( 0.2 ) ( 3.7 ) Stock-based compensation expense — — 1.4 — — — — 1.4 Stock-based compensation activity 174,746 0.2 ( 0.2 ) — — — — — Dividends — — — ( 1.5 ) — — — ( 1.5 ) Payments of withholding taxes on share awards — — — — ( 2.1 ) — — ( 2.1 ) Balance at June 30, 2021 16,316,870 $ 16.3 $ 139.4 $ 287.6 $ ( 82.0 ) $ ( 20.4 ) $ 12.3 $ 353.2 Other comprehensive (loss) income — — — ( 7.2 ) — ( 5.3 ) ( 0.2 ) ( 12.7 ) Stock-based compensation expense — — 1.7 — — — — 1.7 Stock-based compensation activity 2,500 — — — — — — — Dividends — — — ( 1.6 ) — — — ( 1.6 ) Purchases of treasury stock ( 99,661 shares) — — — — ( 2.5 ) — — ( 2.5 ) Payments of withholding taxes on share awards — — — — ( 0.4 ) — — ( 0.4 ) Balance at September 30, 2021 16,319,370 $ 16.3 $ 141.1 $ 278.8 $ ( 84.9 ) $ ( 25.7 ) $ 12.1 $ 337.7 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Dividends per common share $ 0.125 $ 0.125 $ 0.375 $ 0.375 Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 9 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2022 2021 (In millions) OPERATING ACTIVITIES Net income (loss) $ 10.9 $ ( 7.5 ) Adjustments to reconcile net income to net cash (used) provided by operating activities: Depreciation and amortization 28.2 28.9 Stock-based compensation expense 5.4 4.7 Gain on sale of assets ( 2.9 ) — Changes in operating assets and liabilities: Accounts receivable ( 35.5 ) ( 6.6 ) Inventories ( 52.7 ) ( 74.7 ) Prepaid and other current assets ( 1.7 ) 11.5 Accounts payable and accrued expenses 22.7 24.7 Other ( 5.8 ) ( 6.9 ) Net cash used in operating activities ( 31.4 ) ( 25.9 ) INVESTING ACTIVITIES Purchases of property, plant and equipment ( 23.7 ) ( 24.9 ) Proceeds from sale of assets 4.0 — Business acquisitions, net of cash acquired ( 21.9 ) ( 5.4 ) Net cash used in investing activities ( 41.6 ) ( 30.3 ) FINANCING ACTIVITIES Proceeds from revolving credit facility, net 90.0 78.4 Payments on other debt ( 3.1 ) ( 5.4 ) Proceeds from other debt 2.7 2.3 Payments on finance lease facilities, net ( 4.5 ) ( 3.5 ) Dividends ( 5.3 ) ( 4.7 ) Purchases of treasury shares — ( 2.5 ) Payments of withholding taxes on share awards ( 1.3 ) ( 2.6 ) Net cash provided by financing activities 78.5 62.0 Effect of exchange rate changes on cash ( 5.9 ) ( 1.2 ) (Decrease) increase in cash and cash equivalents ( 0.4 ) 4.6 Cash and cash equivalents at beginning of period 54.1 55.0 Cash and cash equivalents at end of period $ 53.7 $ 59.6 Interest paid $ 18.5 $ 15.6 Income taxes paid (received) $ 1.8 $ ( 4.6 ) Refer to the accompanying notes to these unaudited condensed consolidated financial statements. 10 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 NOTE 1 — Basis of Presentation The condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our” or the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 — New Accounting Pronouncements Recent Accounting Pronouncements 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. This standard is not expected to have a material impact once adopted. No other recently-issued ASUs are expected to have a material impact on our results of operations, financial condition or liquidity. NOTE 3 - Revenue We disaggregate our revenue by product line and geographic region of our customer as we believe these metrics 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. 11 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) PRODUCT LINE Supply Technologies $ 159.1 $ 134.5 $ 459.5 $ 406.2 Engineered specialty fasteners and other products 26.8 19.5 71.0 60.5 Supply Technologies Segment 185.9 154.0 530.5 466.7 Fuel, rubber and plastic products 101.1 80.8 294.3 238.2 Aluminum products 51.9 39.4 171.5 117.5 Assembly Components Segment 153.0 120.2 465.8 355.7 Industrial equipment 67.3 62.0 201.1 179.9 Forged and machined products 29.6 22.3 85.4 65.8 Engineered Products Segment 96.9 84.3 286.5 245.7 Total revenues $ 435.8 $ 358.5 $ 1,282.8 $ 1,068.1 Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues (In millions) Three Months Ended September 30, 2022 GEOGRAPHIC REGION United States $ 115.1 $ 108.9 $ 54.8 $ 278.8 Europe 29.2 3.9 19.7 52.8 Asia 18.4 6.4 14.1 38.9 Mexico 19.2 15.1 3.4 37.7 Canada 3.2 18.0 4.5 25.7 Other 0.8 0.7 0.4 1.9 Total $ 185.9 $ 153.0 $ 96.9 $ 435.8 Three Months Ended September 30, 2021 GEOGRAPHIC REGION United States $ 92.5 $ 77.9 $ 46.4 $ 216.8 Europe 27.9 3.4 14.8 46.1 Asia 14.7 6.6 12.0 33.3 Mexico 15.6 17.8 5.0 38.4 Canada 2.9 14.1 3.5 20.5 Other 0.4 0.4 2.6 3.4 Total $ 154.0 $ 120.2 $ 84.3 $ 358.5 12 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues (In millions) Nine Months Ended September 30, 2022 GEOGRAPHIC REGION United States $ 324.7 $ 333.0 $ 165.6 $ 823.3 Europe 91.8 12.9 50.2 154.9 Asia 50.2 15.8 39.1 105.1 Mexico 51.9 43.9 11.4 107.2 Canada 9.3 58.3 14.6 82.2 Other 2.6 1.9 5.6 10.1 Total $ 530.5 $ 465.8 $ 286.5 $ 1,282.8 Nine Months Ended September 30, 2021 GEOGRAPHIC REGION United States $ 281.4 $ 241.8 $ 126.7 $ 649.9 Europe 84.7 10.7 46.3 141.7 Asia 42.4 19.0 38.5 99.9 Mexico 48.2 38.6 13.4 100.2 Canada 8.6 44.3 12.5 65.4 Other 1.4 1.3 8.3 11.0 Total $ 466.7 $ 355.7 $ 245.7 $ 1,068.1 For over time arrangements, contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. These amounts, which totaled $ 48.9 million and $ 51.7 million at September 30, 2022 and December 31, 2021, respectively, are recorded in Accrued expenses and other in the Condensed Consolidated Balance Sheets. For over time arrangements, contract assets primarily relate to revenue recognized in advance of billings to customers under long-term contracts accounted for under percentage of completion. These amounts, which totaled $ 46.1 million and $ 55.0 million at September 30, 2022 and December 31, 2021, respectively, are recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheets. NOTE 4 — Segments Our operating segments are defined as components of the enterprise for which separate financial information is available and evaluated on a regular basis by our chief operating decision maker to allocate resources and assess performance. For purposes of measuring business segment performance, the Company utilizes segment operating income, which is defined as revenues less expenses identifiable to the product lines within each segment. The Company does not allocate items that are non-operating; unusual in nature; or corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. Segment operating income reconciles to consolidated income before income taxes by deducting corporate costs; Other components of pension income and other postretirement benefits expense, net; and interest expense, net. 13 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 Results by business segment were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) Net sales: Supply Technologies $ 185.9 $ 154.0 $ 530.5 $ 466.7 Assembly Components 153.0 120.2 465.8 355.7 Engineered Products 96.9 84.3 286.5 245.7 $ 435.8 $ 358.5 $ 1,282.8 $ 1,068.1 Segment operating income (loss): Supply Technologies $ 10.7 $ 10.7 $ 35.4 $ 33.2 Assembly Components ( 2.0 ) ( 8.9 ) ( 7.5 ) ( 8.6 ) Engineered Products 5.8 0.6 14.7 ( 1.3 ) Total segment operating income 14.5 2.4 42.6 23.3 Corporate costs ( 7.5 ) ( 7.4 ) ( 22.9 ) ( 19.4 ) Gain on sale of assets — — 2.9 — Operating income (loss) 7.0 ( 5.0 ) 22.6 3.9 Other components of pension income and other postretirement benefits expense, net 2.7 2.4 8.3 7.3 Interest expense, net ( 9.6 ) ( 7.6 ) ( 25.7 ) ( 22.4 ) Income (loss) before income taxes $ 0.1 $ ( 10.2 ) $ 5.2 $ ( 11.2 ) NOTE 5 — Plant Closure and Consolidation In the three and nine months ended September 30, 2022 , the Company recorded expenses totaling $ 1.7 million and $ 7.9 million, respectively, in its Assembly Components segment in connection with its plant closure and consolidation and other activities. For the three months ended September 30, 2022, e xpenses of $ 1.7 million were included in Cost of sales. For the nine months ended September 30, 2022, restructuring e xpenses of $ 7.6 million were included in Cost of sales and $ 0.3 million were included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. The Company expects to incur additional restructuring costs of approximately $ 0.5 million in this segment in the remainder of 2022. In the three and nine months ended September 30, 2022 , the Company recorded expenses totaling $ 1.4 million and $ 2.8 million, respectively, in its Engineered Products segment in connection with plant closure and consolidation activities. The expenses are included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations, and consisted of severance of $ 0.0 million and $ 0.2 million, respectively, and other restructuring activities of $ 1.4 million and $ 2.6 million, respectively. The Company expects to incur additional costs of approximately $ 4.0 million related to the initiatives in this segment in the remainder of 2022. In connection with its plant closure and consolidation initiatives, during the nine months ended September 30, 2022, 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. In the three and nine months ended September 30, 2021 , the Company recorded expenses totaling $ 1.8 million and $ 3.1 million, respectively, in its Assembly Components segment in connection with actions taken to close and consolidate its extrusion operations in Tennessee and its fuel operations in Michigan, and to complete other cost-reduction actions in this 14 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 segment. The expenses included in Cost of sales in the Condensed Consolidated Statements of Operations were comprised of facility-related costs related to these initiatives of $ 1.8 million and $ 2.8 million, respectively. For the nine months ended September 30, 2021, expenses also included $ 0.3 million, which were included in Selling, general and administrative expenses in the Condensed Consolidated Statement of operations. In the three and nine months ended September 30, 2021 , the Company recorded expenses totaling $ 0.6 million and $ 1.9 million, respectively, in its Engineered Products segment in connection with plant closure and consolidation activities. The expenses are included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. NOTE 6 — Acquisitions In July 2022, the Company acquired Charter Automotive (Changzhou) Co. Ltd. (“Charter”) for $ 9.3 million, net of cash acquired. Charter, which is included in our Supply Technologies segment, is headquartered in Changzhou, China and is strategic to our existing fastener manufacturing business, will accelerate the global growth of the Company's proprietary products to Electric Vehicle and other auto-related platforms. The allocation of the purchase price of Charter is subject to finalization of the Company's determination of the fair values of the assets acquired and the liabilities assumed as of the acquisition date, and could be materially different than the estimates presented below. The final allocation will be completed no later than one year after the acquisition date. Below is the estimated purchase price allocation related to the acquisition of Charter; the total purchase price is net of cash acquired. (In millions) Accounts receivable $ 2.6 Inventories 3.0 Property, plant and equipment 4.3 Other current assets 0.9 Accounts payable and accrued expenses ( 0.4 ) Deferred income tax liability ( 1.1 ) Total purchase price $ 9.3 In August 2022, the Company acquired Southern Fasteners & Supply, Inc. (“Southern Fasteners”) for $ 18.7 million, net of cash acquired. The purchase price included cash of $ 16.7 million paid at closing plus a $ 2.0 million note that will be paid to the seller over the next two years. Southern Fasteners, which is included in our Supply Technologies segment, is headquartered in Winston-Salem, North Carolina. Southern Fasteners provides commercial fasteners and industrial supplies to a diverse base of Maintenance, Repair and Operations (“MRO”) and Original Equipment Manufacturing (“OEM”) customers throughout the United States and specializes in the design of customized inventory programs for its customers. Southern Fasteners complements Supply Technologies’ continued efforts to grow the initiatives centered around industrial supply and MRO products to our global OEM customer base. The allocation of the purchase price of Southern Fasteners is subject to finalization of the Company's determination of the fair values of the assets acquired and the liabilities assumed as of the acquisition date, and could be materially different than the estimates presented below. The final allocation will be completed no later than one year after the acquisition date. Below is the estimated purchase price allocation related to the acquisition of Southern Fasteners. The total purchase price is net of cash acquired and includes the $ 2.0 million of notes payable to the seller. 15 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 (In millions) Accounts receivable $ 3.3 Inventories 6.0 Property, plant and equipment 0.4 Deferred income tax asset 0.3 Other current assets 0.3 Intangible assets 4.4 Goodwill 6.5 Accounts payable and accrued expenses ( 2.5 ) Total purchase price (including notes payable to seller of $ 2.0 million) $ 18.7 NOTE 7 — Inventories Inventories, net consist of the following: September 30, 2022 December 31, 2021 (In millions) Raw materials and supplies $ 126.3 $ 114.2 Work-in-process 56.4 49.6 Finished goods 250.3 219.1 Inventories, net $ 433.0 $ 382.9 NOTE 8 — Accrued Warranty Costs The Company estimates warranty claims that may be incurred based on current and historical data of products sold. Actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents changes in the Company’s product warranty liability for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) Beginning balance $ 6.4 $ 7.6 $ 7.2 $ 6.4 Claims paid ( 0.5 ) ( 0.4 ) ( 1.3 ) ( 1.6 ) Warranty expense 0.1 0.3 0.6 2.8 Foreign currency translation ( 0.3 ) ( 0.2 ) ( 0.8 ) ( 0.3 ) Ending balance $ 5.7 $ 7.3 $ 5.7 $ 7.3 NOTE 9 — Income Taxes The Company’s tax provision for interim periods is determined using an estimate of its annual effective rate, adjusted for discrete items, if any, in each period. 16 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 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% due primarily to the additional tax benefit recorded as result of stock compensation that vested and state and local taxes during the quarter. 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 Coronavirus Aid, Relief, and Economic Security Act and the composition of earnings. NOTE 10 — Financing Arrangements Debt consists of the following: Carrying Value at Maturity Date Interest Rate at September 30, 2022 September 30, 2022 December 31, 2021 (In millions) Senior Notes April 15, 2027 6.625 % $ 350.0 $ 350.0 Revolving credit facility November 26, 2024 3.80 % 309.9 221.1 Finance Leases Various Various 13.0 17.5 Other Various Various 15.4 17.5 Total debt 688.3 606.1 Less: current portion of long-term debt and short-term debt ( 10.6 ) ( 10.7 ) Less: unamortized debt issuance costs ( 3.3 ) ( 3.9 ) Total long-term debt, net $ 674.4 $ 591.5 Park-Ohio's Seventh Amended and Restated Credit Agreement (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, 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. As of September 30, 2022, we had borrowing availability of $ 78.8 million under the Credit Agreement. We had outstanding bank guarantees and letters of credit under the Credit Agreement of approximately $ 44.4 million at September 30, 2022 and $ 39.7 million at December 31, 2021. In 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”). 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. In 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 $ 13.0 million were borrowed under the Lease Agreement to acquire machinery and equipment as of September 30, 2022. In 2015, the Company, through its Southwest Steel Processing LLC subsidiary, entered into a financing agreement with the Arkansas Development Finance Authority, which matures in September 2025. The financing agreement provides the 17 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 Company the ability to borrow up to $ 11.0 million for expansion of its manufacturing facility in Arkansas. The Company had $ 4.7 million of borrowings outstanding under this agreement as of September 30, 2022, which is included in Other above. The following table represents fair value information of the Notes, classified as Level 1 using estimated quoted market prices. September 30, 2022 December 31, 2021 (In millions) Carrying amount $ 350.0 $ 350.0 Fair value $ 269.0 $ 337.6 NOTE 11 — Stock-Based Compensation A summary of restricted share activity for the nine months ended September 30, 2022 is as follows: 2022 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 655,093 $ 24.62 50,000 $ 32.55 Granted (a) 338,265 15.98 — — Vested ( 215,305 ) 23.55 — — Canceled or expired ( 14,581 ) 23.16 — — Outstanding - end of period 763,472 $ 21.12 50,000 $ 32.55 (a) - Included in this amount are 12,500 restricted share units. Stock-based compensation is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. Total stock-based compensation expense was $ 2.0 million and $ 1.7 million for the three months ended September 30, 2022 and 2021, respectively. Total stock-based compensation expense was $ 5.4 million and $ 4.7 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was $ 9.8 million of unrecognized compensation cost related to non-vested stock-based compensation, which cost is expected to be recognized over a weighted-average period of 1.9 years. NOTE 12 — 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. 18 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 In addition to the routine lawsuits and asserted claims noted above, we are also a co-defendant in 99 cases asserting claims on behalf of 162 plaintiffs alleging personal injury as a result of exposure to asbestos. In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. Historically, we have been dismissed from asbestos cases. We intend to vigorously defend these cases and believe we will continue to be successful in being dismissed from such cases. While 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, 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. NOTE 13 — Pension and Postretirement Benefits The components of net periodic benefit (income) expense costs recognized for the three and nine months ended September 30, 2022 and 2021 were as follows: Pension Benefits Postretirement Benefits Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 2022 2021 2022 2021 (In millions) Service costs $ 1.1 $ 1.0 $ 3.3 $ 3.2 $ — $ — $ — $ — Interest costs 0.4 0.3 1.3 1.0 — — 0.1 0.1 Expected return on plan assets ( 3.2 ) ( 3.0 ) ( 9.7 ) ( 9.2 ) — — ( 0.2 ) — Recognized net actuarial loss — 0.2 — 0.6 0.1 0.1 0.2 0.3 Net periodic benefit (income) expense $ ( 1.7 ) $ ( 1.5 ) $ ( 5.1 ) $ ( 4.4 ) $ 0.1 $ 0.1 $ 0.1 $ 0.4 NOTE 14 — Accumulated Other Comprehensive Loss The components of and changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 and 2021 were as follows: 19 Table of Contents Park-Ohio Holdings Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022 Cumulative Translation Adjustment Cash Flow Hedges Pension and Postretirement Benefits Total Cumulative Translation Adjustment Cash Flow Hedges Pension and Postretirement Benefits Total (In millions) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Beginning balance $ ( 36.8 ) $ 0.5 $ ( 0.8 ) $ ( 37.1 ) $ ( 11.0 ) $ — $ ( 9.4 ) $ ( 20.4 ) Currency translation (a) ( 17.0 ) — — ( 17.0 ) ( 5.5 ) — — ( 5.5 ) Pension and OPEB activity, net of tax — — 0.1 0.1 — — 0.2 0.2 Ending balance $ ( 53.8 ) $ 0.5 $ ( 0.7 ) $ ( 54.0 ) $ ( 16.5 ) $ — $ ( 9.2 ) $ ( 25.7 ) Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Beginning balance $ ( 18.3 ) $ — $ ( 0.9 ) $ ( 19.2 ) $ ( 8.3 ) $ — $ ( 9.8 ) $ ( 18.1 ) Currency translation (a) ( 35.5 ) — — ( 35.5 ) ( 8.2 ) — — ( 8.2 ) Foreign currency forward contracts — 0.5 — 0.5 — — — — Pension and OPEB activity, net of tax — — 0.2 0.2 — — 0.6 0.6 Ending balance $ ( 53.8 ) $ 0.5 $ ( 0.7 ) $ ( 54.0 ) $ ( 16.5 ) $ — $ ( 9.2 ) $ ( 25.7 ) (a) No income taxes were provided on currency translation as foreign earnings are considered permanently reinvested. NOTE 15 — Weighted-Average Number of Shares Used in Computing Earnings Per Share The following table sets forth the weighted-average number of shares used in the computation of earnings per share: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) Weighted-average basic shares outstanding 12.1 12.1 12.1 12.0 Plus: Dilutive impact of employee stock awards 0.1 — 0.1 — Weighted-average diluted shares outstanding 12.2 12.1 12.2 12.0 Certain restricted stock awards are anti-dilutive and therefore excluded from the computation of diluted earnings per share. Anti-dilutive shares were 0.1 million and 0.2 million for the three months ended September 30, 2022 and 2021, respectively, and 0.2 million and 0.1 million for the nine months ended September 30, 2022 and 2021, respectively. NOTE 16 — Subsequent Event 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. 20 Table of Contents