What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-08 · 98 added, 165 removed, 155 unchanged (63% of the section changed)

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Supply Technologies, Assembly Components and Engineered Products.

As of March 31, 2023 and December 31, 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 Quarterly Report on Form 10-Q.

Unless otherwise indicated, amounts and activity in this Quarterly Report on Form 10-Q are presented on a continuing operations basis.

See Note 5 to the condensed consolidated financial statements, included elsewhere herein.

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.

See Note 10 to the condensed consolidated financial statements, included elsewhere herein.

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.

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lawn and garden;

Assembly Components manufactures products oriented towards fuel efficiency and reduced emission standards.

Assembly Components (which excludes the discontinued Aluminum Products business) 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;

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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:

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

RESULTS OF OPERATIONS

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

Three Months Ended September 30,

RESULTS FROM CONTINUING OPERATIONS

As of March 31, 2023 and December 31, 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 Quarterly Report on Form 10-Q are presented on a continuing operations basis.

See Note 5 to the condensed consolidated financial statements, included elsewhere herein.

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

Three Months Ended March 31,

2023 2022 $ Change % Change

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Cost of sales 356.3 308.8 47.5 15.4 %

Gross profit 50.4 40.1 10.3 25.7 %

Gross margin 11.6 % 11.2 %

Selling, general and administrative (“SG&A”) expenses 45.3 40.2 5.1 12.7 %

43.4 45.1 (1.7) (3.8) %

SG&A expenses as a percentage of net sales 10.7 % 11.2 %

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 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

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.

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 %

Restructuring and other special charges 2.5 3.3 (0.8) (24.2) %

Gain on sale of assets (0.8) — (0.8) *

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Interest expense, net (10.7) (7.1) (3.6) 50.7 %

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.

Income from continuing operations before income taxes 10.2 1.1 9.1 827.3 %

Income tax (expense) benefit (2.6) 2.8 (5.4) *

Income from continuing operations 7.6 3.9 3.7 94.9 %

Income attributable to noncontrolling interests (0.1) (0.2) 0.1 (50.0) %

Income from continuing operations attributable to Park-Ohio Holdings Corp.

common shareholders $ 7.5 $ 3.7 $ 3.8 *

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

Earnings from continuing operations 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 *

Continuing operations $ 0.61 $ 0.31 $ 0.30 96.8 %

Continuing operations $ 0.61 $ 0.30 $ 0.31 *

*Calculation not meaningful

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

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

The factors explaining the changes in segment net sales for the 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.

Net sales increased 18.4% to $423.5 million in the first three months of 2023 compared to $357.7 million in the same period in 2022.

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

The factors explaining the changes in segment net sales for the three months ended March 31, 2023 compared to the corresponding 2022 period are contained in the “Segment Results” section below.

Cost of Sales

Cost of sales increased 15.4% to $356.3 million in the first three months of 2023 compared to $308.8 million in the same period in 2022.

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

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.

SG&A expenses were $45.3 million in the first three months of 2023, compared to $40.2 million in the same period in 2022, an increase of 12.7%.

As a percentage of net sales, SG&A expenses were 10.7% in first three months of 2023 compared to 11.2% in the comparable period in 2022.

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 2023 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 higher employee costs.

Restructuring and Other Special Charges

During the first three months of 2023, the Company recorded restructuring and other special charges of $2.5 million compared to $3.3 million in 2022.

The charges in both 2023 and 2022 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.

Other Components of Pension Income and Other Postretirement Benefits Expense, Net

Other components of pension income and other postretirement benefits expense, net was $0.7 million in the first three months of 2023 compared to $2.8 million in the corresponding period in 2022.

This decrease was due to lower returns on plan assets impacting 2023 compared to 2022.

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.

Interest expense, net was $10.7 million in the first three months of 2023 compared to $7.1 million in the 2022 period.

The increase was due primarily to higher interest rates and higher average outstanding debt balances in the 2023 period compared to the same period a year ago.

Income Tax Expense/Benefit

In the three months ended March 31, 2023, income tax expense was $2.6 million on pre-tax income from continuing operations of $10.2 million, representing an effective income tax rate of 25%.

In the three months ended March 31, 2022, income tax benefit was $2.8 million, on pretax income of $1.1 million.

The benefit in 2022 included a discrete tax benefit of $3.2 million related to federal research and development tax credits.

SEGMENT RESULTS

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Supply Technologies Segment

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

2022 2021 2022 2021

Three Months Ended March 31,

(Dollars in millions)

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Segment operating income margin 7.2 % 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.

Net sales increased 16% in the three months ended March 31, 2023 compared to the 2022 period due primarily to higher customer demand in nearly all end markets, with the largest increases in the power sports, heavy-duty truck, industrial and agricultural equipment, and civilian aerospace markets.

Segment operating income increased by $2.0 million and segment operating income margin was 10 basis points higher in the 2023 period compared to the same period a year ago.

These increases were driven by the higher sales levels, partially offset by higher supply chain costs.

Assembly Components Segment

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

2022 2021 2022 2021

Three Months Ended March 31,

(Dollars in millions)

Net sales $ 110.4 $ 97.9

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

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.

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.

Segment operating income (loss) $ 7.3 $ (0.4)

Segment operating income (loss) margin 6.6 % (0.4) %

Net sales increased 13% in the three months ended March 31, 2023 compared to the 2022 period.

The sales increase was driven by higher customer demand.

Segment operating income in the 2023 period increased by $7.7 million, and segment operating income margin increased by 700 basis points compared to the corresponding period of 2022.

The improvement in segment operating results in the 2023 period compared to the prior year was driven by profit flow-through from the higher sales levels and the benefit of plant consolidation and other profit-improvement initiatives, including product pricing, all of which more than offset the impacts of inflation and higher operating costs in 2023.

Charges related to plant consolidation were $0.3 million in the 2023 first quarter compared to $1.5 million in the 2022 first quarter.

Engineered Products Segment

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

2022 2021 2022 2021

Three Months Ended March 31,

(Dollars in millions)

Net sales $ 117.3 $ 91.0

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.

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.

Segment operating income $ 5.0 $ 1.8

Segment operating income margin 4.3 % 2.0 %

Net sales increased 29% in the 2023 period compared to the 2022 period.

The increase was driven by strong customer demand in both our capital equipment business and our forged and machined products business.

Segment operating income in the 2023 period increased by $3.2 million compared to the corresponding 2022 period, and segment operating margin increased 230 basis points compared to the corresponding period in 2022.

The profitability improvement in 2023 was driven by the higher sales levels, implemented operational improvements, and benefits of profit-improvement initiatives, including plant closure and consolidation.

Liquidity and Capital Resources

The following table summarizes the major components of cash flow:

Nine Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change

Net cash (used) provided by:

Net cash provided (used) by:

(In millions)

2 unchanged sentences

Financing activities 4.5 26.1 (21.6)

Discontinued operations (8.6) (10.5) 1.9

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

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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.

In the first three months of 2023, we generated positive cash flow of $0.2 million compared to a use of $2.1 million in the same period of 2022.

The positive cash flow in the 2023 period was driven by higher income from continuing operations, partially offset by higher working capital levels in the first quarter of 2023.

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.

Capital expenditures were $6.0 million in the three months ended March 31, 2023 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, in the first quarter 2023, the Company sold real estate for cash proceeds of $1.4 million and made cash payments related prior year acquisitions of $0.5 million.

The Company is schedule to pay the remaining balance of the Charter Automotive (Changzhou) Co.

acquisition throughout 2023 and 2024.

Capital expenditures were $5.5 million in the three months ended March 31, 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.

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.

During the three months ended March 31, 2023, we had net debt borrowings of $7.4 million to fund our higher working capital levels.

In addition, in the three months ended March 31, 2023, the Company made a contingent consideration payment related to a prior acquisition totaling $1.3 million and made cash dividend payments to shareholders totaling $1.6 million.

During the three months ended March 31, 2022, we had net debt borrowings of $27.8 million and paid dividends to shareholders of $1.6 million.

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

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.

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

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

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

As of March 31, 2023, we had total liquidity of $171.1 million, which included $49.6 million of cash and cash equivalents and $121.5 million of unused borrowing availability under our credit agreements, which included $18.3 million of suppressed availability.

The Company had cash and cash equivalents held by foreign subsidiaries of $38.1 million at March 31, 2023 and $47.8 million at December 31, 2022.

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

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The Credit Agreement matures on November 26, 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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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.

Finance lease obligations of $4.5 million were borrowed under the Lease Agreement to acquire machinery and equipment as of March 31, 2023.

As of March 31, 2023, the Company had additional finance leases totaling $15.7 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.

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;

At March 31, 2023, our calculated availability under the Credit Agreement was $98.4 million;

therefore, the debt service ratio covenant did not apply.

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To make certain permitted payments as defined under the Credit Agreement, including but not limited to acquisitions and dividends, we must meet defined availability thresholds ranging from $37.5 million to $50.625 million, and a defined debt service coverage ratio of 1.15.

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

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

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

While we expect to remain in compliance throughout 2023, declines in sales volumes in the future, including any declines caused by the COVID-19 pandemic, could adversely impact our ability to remain in compliance with certain of these financial covenants.

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

The Company paid dividends to shareholders of $4.8 million during the nine months ended September 30, 2022.

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

The dividend will be paid on December 2, 2022 to shareholders of record as of the close of business on November 18, 2022 and will result in a cash outlay of approximately $1.6 million.

The Company paid dividends to shareholders of $1.6 million during the three months ended March 31, 2023.

On April 21, 2023, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share.

The dividend will be paid on May 19, 2023 to shareholders of record as of the close of business on May 5, 2023 and will result in a cash outlay of approximately $1.6 million.

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

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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;

our substantial indebtedness;

the uncertainty of the global economic environment, including any recession;

the uncertainty of the global economic environment;

general business conditions and competitive factors, including pricing pressures and product innovation;

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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-Q

Item 2. Management’s Discussion and Analysis