PARK OHIO HOLDINGS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our,” or the “Company”). All significant intercompany transactions have been eliminated in consolidation. EXECUTIVE OVERVIEW We are a diversified international company providing world-class customers with a supply chain management outsourcing service, capital equipment used on their production lines, and manufactured components used to assemble their products. We operate through three reportable segments: Supply Technologies, Assembly Components and Engineered Products. Supply Technologies provides our customers with Total Supply Management™, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Management™ includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. Our Supply Technologies business services customers in the following principal industries: heavy-duty truck; sports and recreational equipment; aerospace and defense; semiconductor equipment; electrical distribution and controls; consumer electronics; bus and coaches; automotive, agricultural and construction equipment; HVAC; lawn and garden; plumbing; and medical. Assembly Components manufactures products oriented towards fuel efficiency and reduced emission standards. Assembly Components designs, develops and manufactures aluminum products and highly efficient, high pressure direct fuel injection fuel rails and pipes; fuel filler pipes that route fuel from the gas cap to the gas tank; flexible multi-layer plastic and rubber assemblies used to transport fuel from the vehicle's gas tank and then, at extreme high pressure, to the engine's fuel injector nozzles. Our product offerings include gasoline direct injection systems and fuel filler assemblies, and industrial hose and injected molded rubber and plastic components. Additional products include cast and machined aluminum engine, transmission, brake, suspension and other components, such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers. Our products are primarily used in the following industries: automotive, including automotive and light-vehicle; agricultural equipment; construction equipment; heavy-duty truck; and marine original equipment manufacturers (“OEMs”), on a sole-source basis. Engineered Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products, including induction heating and melting systems, pipe threading systems and forged and machined products. Engineered Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Engineered Products are OEMs, sub-assemblers and end users in the following industries: ferrous and non-ferrous metals; silicon; coatings; forging; foundry; heavy-duty truck; construction equipment; automotive; oil and gas; locomotive and rail manufacturing; and aerospace and defense. Sales and operating income for these three segments are provided in Note 4 to the condensed consolidated financial statements, included elsewhere herein. 21 Table of Contents RESULTS OF OPERATIONS Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021 Three Months Ended September 30, 2022 2021 $ Change % Change (Dollars in millions, except per share data) Net sales $ 435.8 $ 358.5 $ 77.3 21.6 % Cost of sales 385.4 318.4 67.0 21.0 % Gross profit 50.4 40.1 10.3 25.7 % Gross margin 11.6 % 11.2 % Selling, general and administrative (“SG&A”) expenses 43.4 45.1 (1.7) (3.8) % SG&A expenses as a percentage of net sales 10.0 % 12.6 % Operating income (loss) 7.0 (5.0) 12.0 * Other components of pension income and other postretirement benefits expense, net 2.7 2.4 0.3 12.5 % Interest expense, net (9.6) (7.6) (2.0) 26.3 % Income (loss) before income taxes 0.1 (10.2) 10.3 * Income tax benefit 3.0 2.8 0.2 7.1 % Net income (loss) 3.1 (7.4) 10.5 * Net (income) loss attributable to noncontrolling interest (0.4) 0.2 (0.6) * Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders $ 2.7 $ (7.2) $ 9.9 * Income (loss) per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic $ 0.22 $ (0.60) $ 0.82 * Diluted $ 0.22 $ (0.60) $ 0.82 * *Calculation not meaningful Net Sales 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 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 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 22 Table of Contents 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 $2.7 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 $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% due primarily to the additional tax benefit recorded as result of stock compensation that vested and state and local taxes during the quarter. 23 Table of Contents RESULTS OF OPERATIONS Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2022 2021 $ Change % Change (Dollars in millions, except per share data) Net sales $ 1,282.8 $ 1,068.1 $ 214.7 20.1 % Cost of sales 1,128.9 936.1 192.8 20.6 % Gross profit 153.9 132.0 21.9 16.6 % Gross margin 12.0 % 12.4 % SG&A expenses 134.2 128.1 6.1 4.8 % SG&A expenses as a percentage of net sales 10.5 % 12.0 % Gain on sale of assets (2.9) — (2.9) * Operating income 22.6 3.9 18.7 * Other components of pension income and other postretirement benefits expense, net 8.3 7.3 1.0 13.7 % Interest expense, net (25.7) (22.4) (3.3) 14.7 % Income (loss) before income taxes 5.2 (11.2) 16.4 * Income tax benefit 5.7 3.7 2.0 54.1 % Net income (loss) 10.9 (7.5) 18.4 * Net (income) loss attributable to noncontrolling interests (1.1) 0.5 (1.6) * Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders $ 9.8 $ (7.0) $ 16.8 * Income (loss) per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic $ 0.81 $ (0.58) $ 1.39 * Diluted $ 0.80 $ (0.58) $ 1.38 * *Calculation not meaningful Net Sales 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 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. 24 Table of Contents 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 $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 $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 During the second quarter of 2022, in connection with the plant closure and consolidation initiatives, the Company sold real estate within the 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. Other Components of Pension Income and OPEB, Net 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 $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 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. SEGMENT RESULTS For purposes of business segment performance measurement, 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 or unusual in nature or are corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. 25 Table of Contents Supply Technologies Segment Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Net sales $ 185.9 $ 154.0 $ 530.5 $ 466.7 Segment operating income $ 10.7 $ 10.7 $ 35.4 $ 33.2 Segment operating income margin 5.8 % 6.9 % 6.7 % 7.1 % 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Net sales $ 153.0 $ 120.2 $ 465.8 $ 355.7 Segment operating (loss) income $ (2.0) $ (8.9) $ (7.5) $ (8.6) Segment operating (loss) income margin (1.3) % (7.4) % (1.6) % (2.4) % 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 $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 26 Table of Contents 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 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. 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 $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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Net sales $ 96.9 $ 84.3 $ 286.5 $ 245.7 Segment operating income (loss) $ 5.8 $ 0.6 $ 14.7 $ (1.3) Segment operating income (loss) margin 6.0 % 0.7 % 5.1 % (0.5) % 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 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. 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 $16.0 million and segment operating income increased by 560 basis points compared to losses in the corresponding 2021 period. 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: 27 Table of Contents Nine Months Ended September 30, 2022 2021 $ Change Net cash (used) provided by: (In millions) Operating activities $ (31.4) $ (25.9) $ (5.5) Investing activities (41.6) (30.3) (11.3) Financing activities 78.5 62.0 16.5 Effect of exchange rate changes on cash (5.9) (1.2) (4.7) (Decrease) increase in cash and cash equivalents $ (0.4) $ 4.6 $ (5.0) Operating Activities 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 $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 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. 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. Liquidity Our liquidity needs are primarily for working capital, capital expenditures, dividends and acquisitions. 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, pursue acquisitions, pay dividends and repurchase common shares. 28 Table of Contents 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. to have a material effect on our overall liquidity, financial condition or results of operations for the foreseeable future. The Company has two components to its assertion regarding reinvestment of foreign earnings outside of the United States. First, for all foreign subsidiaries except RB&W Corporation of Canada (“RB&W”), all earnings are permanently reinvested outside of the United States. Second, for RB&W, dividend distributions may be made, but only to the extent of current earnings in excess of cash required to fund its business operations; all accumulated earnings are permanently reinvested. Senior Notes In April 2017, Park-Ohio Industries, Inc. (“Park-Ohio”), the operating subsidiary of Park-Ohio Holdings Corp., completed the sale, in a private placement, of $350.0 million aggregate principal amount of 6.625% Senior Notes due 2027 (the “Notes”). The net proceeds from the issuance of the Notes were used to repay in full our previously outstanding 8.125% Senior Notes due 2021 and our outstanding term loan, and to repay a portion of the borrowings then outstanding under our revolving credit facility. Credit Agreement 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, 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. Finance Leases In August 2015, the Company entered into a Capital 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. Covenants 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 September 30, 2022, our calculated availability under the Credit Agreement was $78.8 million; therefore, the debt service ratio covenant did not apply. Failure to maintain calculated availability of at least $50.625 million and meet the debt service ratio covenant could materially impact the availability and interest rate of future borrowings. Our debt service coverage ratio could be materially impacted by negative economic trends, including the negative trends caused by the COVID-19 pandemic. 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 $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 29 Table of Contents 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. Dividends 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. Seasonality; Variability of Operating Results The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our businesses. Such variability is particularly evident in our capital equipment business, included in the Engineered Products segment, which typically ships large systems at a relatively lower pace than our other businesses. Critical Accounting Policies Our critical accounting policies are described in "Item. 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations," and in the notes to our consolidated financial statements for the year ended December 31, 2021, both contained in our Annual Report on Form 10-K for the year ended December 31, 2021. There were no new critical accounting policies or updates to existing critical accounting policies as a result of new accounting pronouncements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates. Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements, including statements regarding future performance of the Company, that are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors that could cause actual results to differ materially from expectations include, but are not limited to, the following: the ultimate impact the COVID-19 pandemic has on our business, results of operations, financial position and liquidity, including, without limitation, supply chain issues such as the global semiconductor micro-chip shortage and logistic issues; our substantial indebtedness; the uncertainty of the global economic environment, including any recession; general business conditions and competitive factors, including pricing pressures and product innovation; demand for our products and services; the impact of labor disturbances affecting our customers; raw material availability and pricing; fluctuations in energy costs; component part availability and pricing; changes in our relationships with customers and suppliers; 30 Table of Contents 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, 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; our ability to meet various covenants, including financial covenants, contained in the agreements governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital; potential disruption due to a partial or complete reconfiguration of the European Union; increasingly stringent domestic and foreign governmental regulations, including those affecting the environment or import and export controls and other trade barriers; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims and disputes with customers; our dependence on the automotive and heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending; our ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems; our ability to continue to pay cash dividends, and the timing and amount of any such dividends; and the other factors we describe under “Item 1A. Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved.