What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-16 · 148 added, 78 removed, 271 unchanged (45% of the section changed)

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Business for descriptions of our business segments.

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 through actions to reduce costs, including plant closure and consolidation, severance, and discretionary spending cuts, 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 on our future results, we believe our diversified portfolio of global businesses, our liquidity position of $202.6 million as of December 31, 2021, and the steps we have taken in both 2020 and 2021 to reduce costs leave us well-positioned to manage our business through this crisis as it continues to unfold.

During the fourth quarter of 2022, we determined that our Aluminum Products business met the held-for-sale and discontinued operations accounting criteria.

Accordingly, the Company has reported the held-for-sale assets and liabilities, the operating results and the cash flows of Aluminum Products in discontinued operations for all periods presented throughout this Annual Report on Form 10-K.

Unless otherwise indicated, amounts and activity in this Annual Report are presented on a continuing operations basis.

See Note 4, “Discontinued Operations,” in the Notes to Consolidated Financial Statements for further information.

On December 30, 2022, we entered into a memorandum of understanding (the “MOU”) with a third party pursuant to which the third party would purchase our Aluminum Products business.

The sale of the Aluminum Products business is subject to the entry into a definitive purchase agreement and other customary conditions.

Subsequent Event

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The dividend was paid on February 24, 2023, to shareholders of record as of the close of business on February 10, 2023 and resulted in cash payments of $1.6 million.

RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

RESULTS FROM CONTINUING OPERATIONS

During the fourth quarter of 2022, we determined that our Aluminum Products business met the held-for-sale and discontinued operations accounting criteria.

Unless otherwise indicated, amounts and activity in this Annual Report are presented on a continuing operations basis.

See Note 4, “Discontinued Operations,” in the Notes to Consolidated Financial Statements for further information.

2022 Compared with 2021 and 2021 Compared with 2020

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Cost of sales 1,282.4 1,099.1 986.8 183.3 17 % 112.3 11 %

Gross profit 156.1 168.6 260.3 (12.5) (7) % (91.7) (35) %

Gross profit as a percentage of net sales 10.9 % 13.0 % 16.1 %

Selling, general and administrative ("SG&A") expenses 162.2 155.9 140.2 6.3 4 % 15.7 11 %

SG&A expenses as a percentage of net sales 10.9 % 12.2 % 12.2 %

Gain on sale of assets (14.7) — — (14.7) * — *

Goodwill impairment 4.6 — — 4.6 * — *

Operating (loss) income (12.1) 15.7 83.1 (27.8) (177) % (67.4) (81) %

Restructuring and other special charges 17.3 20.4 6.6 (3.1) * 13.8 *

Gains on sales of assets, net (2.4) (14.7) — 12.3 * (14.7) *

Operating income 33.4 16.3 18.5 17.1 105 % (2.2) (12) %

Other components of pension income and other postretirement benefits expense, net

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Interest expense, net (33.8) (27.1) (27.6) (6.7) 25 % 0.5 (2) %

(Loss) income before income taxes (32.5) (7.3) 54.9 (25.2) 345 % (62.2) (113) %

Income tax benefit (expense) 6.5 2.5 (15.2) 4.0 160 % 17.7 (116) %

Net (loss) income (26.0) (4.8) 39.7 (21.2) 442 % (44.5) (112) %

Net loss (income) attributable to noncontrolling interest 1.2 0.3 (1.1) 0.9 300 % 1.4 (127) %

Net (loss) income attributable to ParkOhio common shareholders $ (24.8) $ (4.5) $ 38.6 $ (20.3) 451 % $ (43.1) (112) %

(Loss) earnings per common share attributable to ParkOhio common shareholders

Basic $ (2.07) $ (0.37) $ 3.16 $ (1.70) 459 % $ (3.53) (112) %

Diluted $ (2.07) $ (0.37) $ 3.12 $ (1.70) 459 % $ (3.49) (112) %

Income (loss) from continuing operations before income taxes 10.7 (1.1) (1.8) 11.8 * 0.7 39 %

Income tax benefit 0.7 1.0 1.3 (0.3) * (0.3) *

Income (loss) from continuing operations 11.4 (0.1) (0.5) 11.5 * 0.4 80 %

(Income) loss attributable to noncontrolling interest (1.3) 1.2 0.3 (2.5) * 0.9 300 %

Income (loss) from continuing operations attributable to ParkOhio common shareholders $ 10.1 $ 1.1 $ (0.2) $ 9.0 * $ 1.3 650 %

Earnings (loss) from continuing operations per common share attributable to ParkOhio common shareholders:

Continuing operations $ 0.83 $ 0.09 $ (0.02) $ 0.74 * $ 0.11 550 %

* Calculation not meaningful

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Net sales increased 17% to $1,492.9 million in 2022 compared to $1,277.0 million 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 year ended December 31, 2022 compared to the year ended December 31, 2021 are contained in the “Segment Results” section below.

Cost of Sales

Cost of sales increased 17% to $1,282.4 million in 2022 compared to $1,099.1 million in 2021.

The increase in cost of sales and decrease in gross margin were due to the increase in net sales described above.

SG&A Expenses

SG&A expenses increased to $162.2 million, or 10.9% of net sales, in 2022 from $155.9 million, or 12.2% of net sales, in 2021.

The increase in SG&A expenses was primarily attributable to foreign exchange impacts of a weaker Euro and British Pound and higher personnel costs in 2022 compared to 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 2022 compared to 2021.

Restructuring and other special charges

During 2022, the Company recorded restructuring and other special charges of $17.3 million compared to $20.4 million in 2021.

The charges in both 2022 and 2021 related primarily to plant closure and consolidation in the Company's Assembly Components and Engineered Products segments;

other cost reduction initiatives in all three business segments;

and costs related to acquisitions.

Gains on Sales of Assets, net

During 2022, in connection with its plant closure and consolidation initiatives, the Company sold assets within its Supply Technologies segment for cash proceeds of $1.5 million, resulting in a loss of $3.4 million;

within its Assembly Components segment for cash proceeds of $4.4 million, resulting in a gain of $3.3 million;

and within its Engineered Products segment for cash proceeds of $3.6 million, resulting in a gain of $2.5 million.

The total net gain of $2.4 million was recorded on a separate line in the Consolidated Statements of Operations and was excluded from segment income.

During 2021, in connection with its plant closure and consolidation initiatives, the Company sold real estate within its Engineered Products segment for cash proceeds of $19.6 million, resulting in a gain of $14.2 million.

In addition, the Company sold real estate within the Assembly Components segment for cash proceeds of $0.7 million, resulting in a gain of $0.5 million.

The total net gain of $14.7 million was recorded on a separate line in the Consolidated Statements of Operations and was excluded from segment income.

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

Other components of pension income and OPEB expense, net was $11.1 million in 2022 compared to $9.7 million in 2021.

The increase in 2022 was driven by higher returns on plan assets impacting 2022 compared to 2021.

Interest Expense, Net

Interest expense, net increased to $33.8 million in 2022 compared to $27.1 million in 2021.

The increase was due to higher average interest rates and higher average outstanding borrowings in 2022 compared to 2021.

The higher borrowings were used to fund higher working capital levels.

Our average effective borrowing rate was 5.1% in 2022 compared to 4.8% in 2021.

Income Tax Benefit

Income tax benefit in 2022 was $0.7 million on pre-tax income of $10.7 million, driven by changes in estimates related to prior year federal research and development credits.

Income tax benefit in 2021 was $1.0 million on pre-tax loss of $1.1 million, driven by the additional benefit recorded as a result of the net operating loss claimed under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

2021 Compared with 2020

Net sales increased 11% to $1,277.0 million in 2021 compared to $1,152.1 million in 2020.

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

The factors explaining the changes in segment net sales for the year ended December 31, 2021 compared to the year ended December 31, 2020 are contained in the “Segment Results” section below.

Cost of Sales & Gross Profit

Cost of Sales

Cost of sales increased 11% to $1,099.1 million in 2021 compared to $986.8 million in 2020.

Gross margin decreased to 10.9% in 2021 compared to 13.0% in 2020.

The increase in cost of sales and decrease in gross margin were due to the increase in net sales described above and to expenses of $15.7 million in 2021 related to plant closure and consolidation,

severance and other actions to reduce costs.

2020 included expenses of $5.1 million related to plant closure and consolidation, severance and other actions to reduce costs.

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

SG&A Expenses

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

SG&A expenses in 2021 included $5.8 million of expenses related to plant closure and consolidation, severance and other costs, $1.9 million of legal settlement expense and $1.0 million of acquisition-related expenses.

Gain on Sale of Assets

Restructuring and other special charges

During 2021, the Company recorded restructuring and other special charges of $20.4 million compared to $6.6 million in 2020.

The charges in 2021 related primarily to plant closure and consolidation in the Company's Assembly Components and Engineered Products segments;

other cost reduction initiatives in all three business segments;

and costs related to acquisitions.

The charges in 2020 related to initiatives the Company took in response to the COVID-19 pandemic and primarily consisted of plant consolidation and closure actions.

Gains on Sales of Assets, net

During 2021, in connection with the plant closure and consolidation initiatives, the Company sold real estate within the Engineered Products segment for cash proceeds of $19.6 million, resulting in a gain of $14.2 million.

In addition, in 2021, the Company sold real estate within the Assembly Components segment for cash proceeds of $0.7 million, resulting in a gain of $0.5 million.

Goodwill impairment

The Company recorded an impairment charge of $4.6 million in the fourth quarter of 2021 to write-off the full amount of goodwill of the Aluminum Products reporting unit, which is in the Assembly Components segment.

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

In addition, the Company sold real estate within the Assembly Components segment for cash proceeds of $0.7 million, resulting in a gain of $0.5 million.

The total net gain of $14.7 million was recorded on a separate line in the Consolidated Statements of Operations and was excluded from segment income.

Other Components of Pension Income and OPEB Expense, Net

Other components of pension income and OPEB expense, net was $9.7 million in 2021 compared to $7.3 million in 2020.

The increase in 2021 was driven by higher returns on plan assets in 2021 compared to 2020.

The increase in 2021 was driven by higher returns on plan assets impacting 2021 compared to 2020.

Interest Expense, Net

Interest expense, net decreased to $27.1 million in 2021 compared to $27.6 million in 2020.

The decrease was due to lower average interest rates offset by higher average outstanding borrowings in 2021 compared to 2020.

The decrease was due to lower average interest rates partially offset by higher average outstanding borrowings in 2021 compared to 2020.

Our average effective borrowing rate was 4.8% in 2021 compared to 5.0% in 2020.

Income Tax Benefit (Expense)

The provision for income taxes was a benefit of $6.5 million in 2021 (an effective rate of 20%) compared to $2.5 million in 2020 (an effective rate of 34%).

The 2020 rate is higher due to U.S.

tax loss planning and related net operating loss carrybacks to prior years under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was enacted on March 27, 2020.

Income Tax Benefit

Income tax benefit in 2021 was $1.0 million on pre-tax loss of $1.1 million (effective rate of 91%).

Income tax benefit in 2020 was $1.3 million on pre-tax loss of $1.8 million (effective rate of 72%).

These effective rates are higher in both periods due to U.S tax loss planning and related net operating loss carrybacks to prior years under the CARES Act.

SEGMENT RESULTS

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and interest expense, net.

During the fourth quarter of 2022, we determined that our Aluminum Products business met the held-for-sale and discontinued operations accounting criteria.

Unless otherwise indicated, amounts and activity in this Annual Report are presented on a continuing operations basis.

See Note 4, “Discontinued Operations,” in the Notes to Consolidated Financial Statements for further information.

Supply Technologies Segment

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2022 Compared to 2021

Net sales increased 21% in 2021 compared to 2020 due primarily to higher customer demand in most of the Company's end markets, with the biggest increases in heavy-duty truck, powersports, semiconductor, and agricultural and industrial equipment.

Net sales increased 15% in 2022 compared to 2021 due primarily to higher customer demand in most of the Company's end markets, with the biggest increases in heavy-duty truck, power sports, industrial and agricultural equipment, semiconductor, and civilian aerospace markets, as well as the sales from our acquisitions in 2022.

Segment operating income increased by $2.9 million and segment operating income margin was down 50 basis points in 2022 compared to the prior year.

The decrease in margin was driven primarily by higher supply chain costs, primarily freight-related, and sales mix.

2021 Compared to 2020

Net sales increased 21% in 2021 compared to 2020 due primarily to higher customer demand in most of the Company's end markets, with the biggest increases in heavy-duty truck, power sports, semiconductor, and agricultural and industrial equipment.

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

Segment operating income increased by $12.6 million and segment operating income margin was up 100 basis points in 2021 compared to a year ago.

Segment operating income increased by $12.6 million and segment operating income margin was up 100 basis points in 2021 compared to the prior year.

These net increases were driven by the profit flow-through on higher sales, the impact of pricing initiatives and the impact of cost reduction actions.

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2022 Compared to 2021

Net sales increased 9% in 2021 compared to 2020 due primarily to the shut-down of North American automotive production in the second quarter of 2020 as a result of the COVID-19 pandemic, partially offset the impact of the global semiconductor micro-chip shortage, which negatively impacted net sales in 2021.

Segment operating income in 2021 period decreased by $34.5 million, and segment operating income margin decreased 730 basis points compared to 2020.

Net sales increased 21% in 2022 compared to 2021.

The sales increase was driven by higher customer demand driven by several products launched in 2021, increased net price realization and the pass-through of higher rubber compound prices in 2022.

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

Segment operating income in 2022 increased by $3.7 million, and segment operating income margin increased 110 basis points compared to 2021.

The improvement in segment operating results in 2022 compared to the prior year was driven by profit flow-through from the higher sales levels, higher product pricing and the benefit of profit improvement initiatives, all of which more than offset the impacts of inflation and higher operating costs in 2022.

In 2022, expenses incurred in connection with plant closure and consolidation, severance and other costs were $5.6 million.

In 2021, expenses incurred in connection with plant closure and consolidation, severance, a legal settlement and other costs were $5.7 million.

2021 Compared to 2020

Net sales increased 8% in 2021 compared to 2020 due primarily to the shut-down of North American automotive production in the second quarter of 2020 as a result of the COVID-19 pandemic, partially offset the impact of the global micro-chip shortage, which negatively impacted net sales in 2021.

Segment operating loss in the 2021 period decreased by $13.5 million, and segment operating income margin decreased 450 basis points compared to 2020.

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

raw material price inflation;

higher labor costs;

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

These factors were partially offset by the positive impact of higher sales in 2021.

In 2021, expenses incurred in connection with plant closure and consolidation, severance, a legal settlement and other costs were $5.7 million.

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2022 Compared to 2021

Net sales were 17% higher in 2022 compared to 2021.

The increase was driven by strong demand in both our capital equipment business and our forged and machined products business as key end markets continue to recover from COVID-19 pandemic lows.

Segment operating income was $14.8 million in 2022 compared to segment operating loss of $12.2 million in 2021.

The profitability improvement in 2022 was driven by the higher sales levels, implemented operational improvements, and benefits of profit-improvement initiatives, including plant closure and consolidation.

In 2022, expenses incurred in connection with plant closure and consolidation, severance, and other costs were $8.4 million, compared to $12.7 million in 2021.

2021 Compared to 2020

Net sales were 2% lower in 2021 compared to 2020.

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Segment operating loss was $12.2 million in 2021 compared to segment operating income of $3.5 million in 2020.

This decrease in profitability was due to expenses of $12.7 million related to plant closure and consolidation activities in 2021, lower sales levels, and manufacturing under-absorption of fixed costs at certain plants.

This decrease in profitability was due to expenses of $12.7 million related to plant closure and consolidation activities and other actions in 2021, lower sales levels, and manufacturing under-absorption of fixed costs at certain plants.

Expenses related to plant closure and consolidation in 2020 were $2.2 million.

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Financing activities 84.6 60.8 (44.8)

Discontinued operations (9.2) (40.8) 2.2

Effect of exchange rate on cash (4.0) (1.3) 1.9

(Decrease) increase in cash and cash equivalents $ (0.9) $ (1.0) $ 0.3

Increase (decrease) in cash and cash equivalents $ 4.1 $ (0.9) $ (1.0)

Operating Activities

Cash generated by operating activities in 2021 was lower than in the prior year driven by higher working capital levels in the year ended December 31, 2021 compared to 2020.

In 2021, working capital usage was $34.0 million, compared to working capital reduction in 2020 of $27.1 million.

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

In 2021, inventories increased by $71.2 million;

this increase was driven by higher raw material prices, increased inventory levels in certain businesses and locations in response to global supply chain constraints, and inventory builds in connection with various facility consolidations.

The use of cash in 2022 was driven by increased working capital of $57.2 million, driven by higher inventory levels resulting from supply chain constraints and an increase in accounts receivable of $23.2 million resulting from higher sales.

These factors were partially offset by higher income in 2022 compared to 2021.

The use of cash in 2021 was driven by increased working capital of $20.7 million, primarily resulting from higher inventory driven by higher raw material prices, increased inventory levels in certain locations in response to global supply chain constraints, and inventory builds in connection with various facility consolidations.

Positive operating cash flow in 2020 was driven by lower working capital levels.

Investing Activities

Capital expenditures were $31.1 million in 2021 and $26.3 million in 2020.

Capital expenditures were $26.9 million in 2022, $22.3 million in 2021 and $20.3 million in 2020.

These capital expenditures were primarily for growth initiatives, with the majority in our Assembly Components and Engineered Products segments.

Capital expenditures in 2020 were lower than in the prior year, as we curtailed non-critical capital spending in response to the COVID-19 pandemic.

In 2021, we sold assets and received aggregate proceeds of $20.3 million.

Capital expenditures were lower in 2020, as we curtailed non-critical capital spending in response to the COVID-19 pandemic.

In 2022 and 2021, we sold assets and received aggregate proceeds of $9.5 million and $20.3 million, respectively.

See Note 5 to the consolidated financial statements included elsewhere herein for additional information.

Additionally, we spent $5.4 million on the acquisition of NYK Component Solutions Limited.

Additionally, we spent

$22.7 million in the aggregate in 2022 for the acquisitions of Charter Automotive (Changzhou) Co.

(“Charter”) and Southern Fasteners & Supply, Inc., (“Southern Fasteners”) and $0.6 million for a contingent consideration payment related to our 2021 acquisition of NYK Component Solutions Limited (“NYK”).

In 2021, we paid $5.4 million for the NYK acquisition.

See Note 6 to the consolidated financial statements included elsewhere herein for additional information.

Financing Activities

Cash provided by financing activities in 2022 included debt borrowings of $73.2 million, proceeds from a third-party financing arrangement of $20.0 million in connection with the entry into the MOU, dividends of $7.0 million, and payments of withholding taxes on share awards of $1.6 million.

The borrowings in 2022 were primarily used to fund higher working capital levels and the 2022 acquisitions.

Cash provided by financing activities in 2021 included debt borrowings of $73.3 million, dividends of $7.0 million, payments of withholding taxes on share awards of $3.0 million and treasury share repurchases of $2.5 million.

Cash used by financing activities in 2020 included debt repayments of $32.9 million, treasury share repurchases of $7.5 million, dividends of $3.2 million and payments of withholding taxes on share awards of $1.2 million.

In the second and third quarter of 2020, we temporarily suspended our quarterly cash dividend to preserve capital in response to challenging market conditions and uncertainty caused by the COVID-19 pandemic.

In the second and third quarters of 2020, we temporarily suspended our quarterly cash dividend to preserve capital in response to challenging market conditions and uncertainty caused by the COVID-19 pandemic.

Our Board of Directors once again declared a dividend in the fourth quarter of 2020.

Overall, we utilized our revolving credit facility to fund our higher working capital levels, our capital expenditures and our other financing activities described above.

Overall, we utilized our revolving credit facility in 2022 to fund our higher working capital levels, our capital expenditures, our acquisitions and our other financing activities described above.

See Note 9 to the consolidated financial statements included elsewhere herein for further discussion of our financing arrangements.

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Gross debt (excluding unamortized debt issuance costs) $ 669.1 $ 597.1

Financing arrangement with third party, net $ 20.0 $ —

Working capital (excluding cash) $ 425.6 $ 372.4

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

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

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

As of December 31, 2022, we had $285.3 million outstanding under the revolving credit facility, and total liquidity of $167.9 million, which included cash and cash equivalents of $58.2 million and $109.7 million of unused borrowing availability and excluded $12.4 million of suppressed availability.

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The Credit Agreement matures on November 16, 2024.

Financing Arrangement with Third Party

On December 30, 2022, the Company entered into the MOU with a third party pursuant to which the third party would purchase our Aluminum Products business.

The sale of the Aluminum Products business is subject to the successful completion of a definitive purchase agreement and other customary conditions.

In connection with the entry into the MOU, the Company also entered into a financing arrangement with the third party pursuant to which the Company received a portion of the estimated purchase price of the Aluminum Products business, including $20.0 million of cash and a promissory note in the principal amount of $25.0 million, and recorded a financing arrangement liability of $45.0 million.

The Company used the $20.0 million from this financing arrangement to repay indebtedness under its revolving credit facility.

If a definitive purchase agreement between the parties is not entered into or the sale is not successfully consummated, the promissory note will be cancelled and the Company will repay the third party $20.0 million, less a $0.8 million break-up fee.

Finance Leases

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Finance lease obligations of $5.1 million were borrowed under the Lease Agreement to acquire machinery and equipment as of December 31, 2022.

As of December 31, 2022, the Company had additional finance leases totaling $13.4 million.

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.

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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.

Our debt service coverage ratio could be materially impacted by negative economic trends, including inflation and supply chain disruptions.

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 December 31, 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.

While we expect to remain in compliance throughout 2023, declines in sales volumes in the future, 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, 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 $6.4 million during 2022.

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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.

Contractual Obligations and Commitments

Contractual and Other Obligations and Commitments

Our material cash commitments from known contractual and other obligations primarily consist of obligations for long-term debt and related interest, leases for properties and equipment and purchase obligations as part of normal operations.

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See Note 14 - Pension and Postretirement Benefits for additional information of future pension and postretirement benefit obligations.

Interest payable associated with our 6.625% Senior Notes due 2027 was $23.2 million due in the twelve months following December 31, 2021 and $99.5 million due thereafter.

Interest payable associated with our 6.625% Senior Notes due 2027 is $23.2 million due in the twelve months following December 31, 2022 and $76.3 million due thereafter.

As of December 31, 2022, our undiscounted purchase obligations were $282.2 million due in the next twelve months and $1.6 million due thereafter under purchase orders and "take or pay" arrangements.

These purchase obligations include all

enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts.

These purchase obligations include all enforceable, legally binding agreements to purchase goods or services that specify all significant terms, regardless of the duration of the agreement, and exclude agreements with variable terms for which we are unable to estimate the minimum amounts.

Off-Balance Sheet Arrangements

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We recognize revenue, other than from long-term contracts, when our obligations under the contact terms are satisfied and control transfers to the customer, typically upon shipment.

Revenue from certain long-term contracts is accounted for over time, when products are manufactured or services are performed, as control transfers under these arrangements.

Revenue from certain long-term contracts is

accounted for over time, when products are manufactured or services are performed, as control transfers under these arrangements.

We follow the input method since reasonably reliable estimates of revenue and costs of a contract can be made.

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Allowance for Obsolete and Slow-Moving Inventory:

Inventories are valued using first-in, first-out (“FIFO”) or the weighted-average inventory method;

Inventories are valued using first-in, first-out or the weighted-average inventory method;

stated at the lower of cost or net realizable value;

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For 2022, 2021 and 2020, we performed quantitative testing for each reporting unit with a goodwill balance.

Our annual goodwill impairment analysis utilizes a quantitative approach comparing carrying amount of the reporting unit to its estimated fair value.

Our annual goodwill impairment analysis utilizes a quantitative approach comparing the carrying amount of the reporting unit to its estimated fair value.

To the extent that the carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is recorded.

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We validate our estimates of fair value under the income approach by considering the implied control premium and conclude whether that premium is reasonable based on recent market transactions.

The results of testing as of October 1, 2021, 2020 and 2019 for all reporting units confirmed that the estimated fair values exceeded carrying values, and no impairment existed as of those dates, except for our Aluminum Products reporting unit as described below.

Based on our 2021 annual impairment test, we determined that the fair value of our Aluminum Products reporting unit, which is included in our Assembly Components segment, did not exceed its carrying value as of the October 1, 2021 testing date.

As such, we concluded that the full amount of goodwill of this reporting unit of $4.6 million was impaired as of that date.

The Company's other reporting units with goodwill balances had fair values in excess of their carrying amounts by at least 15%.

The results of testing as of October 1, 2022, 2021 and 2020 for all reporting units confirmed that the estimated fair values exceeded carrying values, and no impairment related to continuing operations existed as of those dates.

The Company's reporting units with goodwill balances had fair values in excess of their carrying amounts by at least 14%.

Additionally, we test all indefinite-lived intangible assets for impairment at least annually, as of October 1 of each year, or more frequently if impairment indicators arise.

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Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates.

As a result, our actual annual effective income

tax rates and related income tax liabilities may differ materially from our interim estimated effective tax rates and related income tax liabilities.

As a result, our actual annual effective income tax rates and related income tax liabilities may differ materially from our interim estimated effective tax rates and related income tax liabilities.

Any resulting differences are recorded in the period they become known.

Pension and Other Postretirement Benefit Plans:

We and our subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans and postretirement benefit plans covering substantially all employees.

Pension Plans:

We and our subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans covering substantially all employees.

The measurement of liabilities related to these plans is based on management’s assumptions related to future events, including interest rates, return on pension plan assets, rate of compensation increases, and health care cost trends.

Pension plan asset performance in the future will directly impact our net income.

We have evaluated our pension and other postretirement benefit assumptions, considering current trends in interest rates and market conditions and believe our assumptions are appropriate.

We have evaluated our pension assumptions, considering current trends in interest rates and market conditions and believe our assumptions are appropriate.

We consult with our actuaries at least annually when reviewing and selecting the discount rates to be used.

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These factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:

our ability to consummate the sale of our Aluminum Products business for any reason, including the inability to enter into a definitive purchase agreement;

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;

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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;

adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities, including the conflict between Russia and Ukraine, or political unrest, including the rising tension between China and the United States;

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

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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-K

Item 7. Management’s Discussion and Analysis