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. As of June 30, 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, for further discussion of the MOU. 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 industrial equipment; HVAC; lawn and garden; plumbing; and medical. 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; 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. 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. 22 Table of Contents RESULTS OF CONTINUING OPERATIONS As of June 30, 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, for more information about our discontinued operations. Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022 Three Months Ended June 30, 2023 2022 $ Change % Change (Dollars in millions, except per share data) Net sales $ 428.1 $ 369.8 $ 58.3 15.8 % Cost of sales 358.0 316.1 41.9 13.3 % Selling, general and administrative (“SG&A”) expenses 46.8 40.5 6.3 15.6 % SG&A expenses as a percentage of net sales 10.9 % 11.0 % Restructuring and other special charges 4.1 2.3 1.8 78.3 Gains on sales of assets — (2.9) 2.9 * Operating income 19.2 13.8 5.4 39.1 Other components of pension income and other postretirement benefits expense, net 0.6 2.8 (2.2) (78.6) % Interest expense, net (11.1) (7.6) (3.5) 46.1 % Income before income taxes 8.7 9.0 (0.3) (3.3) % Income tax expense (2.1) (2.1) — — % Income from continuing operations 6.6 6.9 (0.3) (4.3) % Net loss (income) attributable to noncontrolling interest 0.5 (0.5) 1.0 * Income from continuing operations attributable to Park-Ohio Holdings Corp. common shareholders $ 7.1 $ 6.4 $ 0.7 10.9 % Income per common share from continuing operations attributable to Park-Ohio Holdings Corp. common shareholders: Basic: Continuing operations $ 0.58 $ 0.53 $ 0.05 9.4 % Diluted: Continuing operations $ 0.57 $ 0.52 $ 0.05 9.6 % *Calculation not meaningful Net Sales Net sales increased 15.8% to $428.1 million in the second quarter of 2023 compared to $369.8 million in the same period in 2022. This increase was primarily due to higher customer demand in all three of our business segments and increased product pricing. The factors explaining the changes in segment net sales for the three months ended June 30, 2023 compared to the corresponding 2022 period are contained within the “Segment Results” section below. Cost of Sales and Gross Margin Cost of sales increased 13.3% to $358.0 million in the second quarter of 2023 compared to $316.1 million in the same period in 2022. The increase in cost of sales was primarily due to the increase in net sales for the 2023 period compared to the 23 Table of Contents corresponding period in 2022. Gross margin was 16.4% in the 2023 period compared to 14.5% in the corresponding 2022 period, driven by profit flow-through from the higher sales levels and the impact of our profit-enhancement initiatives. SG&A Expenses SG&A expenses were $46.8 million in the second quarter of 2023 compared to $40.5 million in the comparable period in 2022, an increase of 15.6%. As a percentage of net sales, SG&A expenses decreased to 10.9% in the second quarter of 2023 compared to 11.0% in corresponding 2022 period. 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; SG&A expenses of our 2022 acquisitions; and higher employee costs. Restructuring and Other Special Charges During the three months ended June 30, 2023, the Company recorded restructuring and other special charges of $4.1 million compared to $2.3 million in 2022. The charges in both periods relate primarily to plant closure and consolidation activities, including severance, and other initiatives in the Company’s Assembly Components and Engineered Products segments. Gains on Sales of Assets During the second quarter of 2022, in connection with the plant closure and consolidation initiatives, the Company sold real estate within its Engineered Products segment for cash proceeds of $3.6 million, resulting in a gain of $2.5 million, and within the Assembly Components segment for cash proceeds of $0.4 million, resulting in a gain of $0.4 million. Other Components of Pension Income and Other Postretirement Benefits Expense (“OPEB”), Net Other components of pension income and OPEB expense, net was $0.6 million in the three months ended June 30, 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 $11.1 million in the second quarter of 2023 compared to $7.6 million in the 2022 period. The increase was due to higher average outstanding borrowings and higher interest rates during the 2023 period. Income Tax Expense In the three months ended June 30, 2023, income tax expense was $2.1 million on pre-tax income from continuing operations of $8.7 million, representing an effective income tax rate of 24%. In the three months ended June 30, 2022, income tax expense was $2.1 million on pre-tax income of $9.0 million, an effective income tax rate of 23%. 24 Table of Contents Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022 Six Months Ended June 30, 2023 2022 $ Change % Change (Dollars in millions, except per share data) Net sales $ 851.6 $ 727.5 $ 124.1 17.1 % Cost of sales 714.3 624.9 89.4 14.3 % SG&A expenses 92.1 80.7 11.4 14.1 % SG&A expenses as a percentage of net sales 10.8 % 11.1 % Restructuring and other special charges 6.6 5.6 1.0 17.9 % Gains on sales of assets (0.8) (2.9) 2.1 * Operating income 39.4 19.2 20.2 105.2 % Other components of pension income and other postretirement benefits expense, net 1.3 5.6 (4.3) (76.8) % Interest expense, net (21.8) (14.7) (7.1) 48.3 % Income from continuing operations before income taxes 18.9 10.1 8.8 87.1 % Income tax (expense) benefit (4.7) 0.7 (5.4) * Income from continuing operations 14.2 10.8 3.4 31.5 % Loss (income) attributable to noncontrolling interests 0.4 (0.7) 1.1 * Income from continuing operations attributable to Park-Ohio Holdings Corp. common shareholders $ 14.6 $ 10.1 $ 4.5 44.6 % Earnings from continuing operations per common share attributable to Park-Ohio Holdings Corp. common shareholders: Basic: Continuing operations $ 1.20 $ 0.83 $ 0.37 44.6 % Diluted: Continuing operations $ 1.18 $ 0.83 $ 0.35 42.2 % *Calculation not meaningful Net Sales Net sales increased 17.1% to $851.6 million in the first six months of 2023 compared to $727.5 million in the same period in 2022. This increase was primarily due to higher customer demand in all three of our business segments and increased product pricing. The factors explaining the changes in segment net sales for the six months ended June 30, 2023 compared to the corresponding 2022 period are contained in the “Segment Results” section below. Cost of Sales and Gross Margin Cost of sales increased 14.3% to $714.3 million in the first six months of 2023 compared to $624.9 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 16.1% in the 2023 period compared to 14.1% in the corresponding 2022 period, driven by profit flow-through from the higher sales levels and the impact of our profit-enhancement initiatives. SG&A Expenses 25 Table of Contents SG&A expenses were $92.1 million in the first six months of 2023, compared to $80.7 million in the same period in 2022, an increase of 14.1%. As a percentage of net sales, SG&A expenses decreased to 10.8% in the first six months of 2023 compared to 11.1% 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; SG&A expenses of our 2022 acquisitions; and higher employee costs. Restructuring and Other Special Charges During the first six months of 2023, the Company recorded restructuring and other special charges of $6.6 million compared to $5.6 million in 2022. The charges in both periods relate primarily to plant closure and consolidation activities, including severance, and other initiatives in the Company’s Assembly Components and Engineered Products segments. Gains on Sales of Assets During the six months ended June, 30, 2023, in connection with the plant closure and consolidation initiatives, the Company sold real estate within its Engineered Products segment for cash proceeds of $1.4 million, resulting in a gain of $0.8 million. During the six months ended June, 30, 2022, in connection with the plant closure and consolidation initiatives, the Company sold real estate within its Engineered Products segment for cash proceeds of $3.6 million, resulting in a gain of $2.5 million, and within the Assembly Components segment for cash proceeds of $0.4 million, resulting in a gain of $0.4 million. Other Components of Pension Income and Other Postretirement Benefits Expense, Net Other components of pension income and other postretirement benefits expense, net was $1.3 million in the first six months of 2023 compared to $5.6 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 $21.8 million in the first six months of 2023 compared to $14.7 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 six months ended June 30, 2023, income tax expense was $4.7 million on pre-tax income from continuing operations of $18.9 million, representing an effective income tax rate of 24%. In the six months ended June 30, 2022, income tax benefit was $0.7 million on pre-tax income of $10.1 million. The benefit in 2022 included a discrete tax benefit of $3.2 million related to federal research and development tax credits. SEGMENT RESULTS 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. 26 Table of Contents Supply Technologies Segment Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in millions) Net sales $ 197.3 $ 175.8 $ 393.1 $ 344.6 Segment operating income $ 15.4 $ 12.7 $ 29.4 $ 24.7 Segment operating income margin 7.8 % 7.2 % 7.5 % 7.2 % Three months ended June 30: Net sales increased 12.2% in the three months ended June 30, 2023 compared to the 2022 period due primarily to higher customer demand in many of the Company's key end markets, with the largest increases in the power sports, heavy-duty truck, industrial and agricultural equipment, and civilian aerospace markets, as well as the sales from our 2022 acquisitions. Segment operating income increased $2.7 million to $15.4 million for the three months ended June 30, 2023 compared to the same period in 2022, and segment operating income margin increased 60 basis points in the 2023 period compared to the same period a year ago. These increases were driven by the higher sales levels and the impact of profit-enhancement actions, partially offset by certain inflationary supply chain costs. Six months ended June 30: Net sales increased 14.1% in the six months ended June 30, 2023 compared to the 2022 period due primarily to higher customer demand in many of the Company's key end markets, with the largest increases in the power sports, heavy-duty truck, industrial and agricultural equipment, and civilian aerospace markets, as well as the sales from our 2022 acquisitions. Segment operating income increased $4.7 million to $29.4 million for the six months ended June 30, 2023 compared to the same period in 2022, and segment operating income margin increased 30 basis points in the 2023 period compared to the same period a year ago. These increases were driven by the higher sales levels and the impact of profit-enhancement actions, partially offset by certain inflationary supply chain costs. Assembly Components Segment Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in millions) Net sales $ 112.0 $ 95.4 $ 222.4 $ 193.3 Segment operating income (loss) $ 8.4 $ (1.4) $ 15.7 $ (1.9) Segment operating income (loss) margin 7.5 % (1.5) % 7.1 % (1.0) % Three months ended June 30: Net sales increased 17.4% in the three months ended June 30, 2023 compared to the 2022 period. The sales increase was driven by higher customer demand and increased product pricing. Segment operating income was $8.4 million in the three months ended June 30, 2023 compared to a loss of $1.4 million in the 2022 period. The improvement in segment operating results in the 2023 period compared to the same period in 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 increased product pricing, all of which more than offset the impacts of inflation and higher 27 Table of Contents operating costs in 2023. Restructuring and other special charges were $1.2 million in the 2023 first quarter compared to $1.5 million in the 2022 second quarter. Six months ended June 30: Net sales increased 15.1% in the six months ended June 30, 2023 compared to the 2022 period. The sales increase was driven by higher customer demand and increased product pricing. Segment operating income was $15.7 million in the 2023 period compared to a loss of $1.9 million in the 2022 period. The improvement in segment operating results in the 2023 period compared to the same period in 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 increased product pricing, all of which more than offset the impacts of inflation and higher operating costs in 2023. Restructuring and other special charges were $1.5 million in 2023 compared to $3.0 million in the 2022 period. Engineered Products Segment Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in millions) Net sales $ 118.8 $ 98.6 $ 236.1 $ 189.6 Segment operating income $ 3.2 $ 7.1 $ 8.2 $ 8.9 Segment operating income margin 2.7 % 7.2 % 3.5 % 4.7 % Three months ended June 30: Net sales were 20.4% higher 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 decreased $3.9 million compared to the 2022 period. In our capital equipment business, operating income increased year-over-year, as profit flow-through from higher sales levels and implemented operational improvement initiatives contributed to higher profit and margins in this business. These increases were more than offset by operating losses in our forged and machined products business, which was impacted by equipment down-time and labor challenges, which impacted our two forging plants during the second quarter of 2023. In addition, during the 2023 quarter, we incurred restructuring and other special charges of $2.9 million, compared to $0.8 million in the three months ended June 30, 2022. These charges are primarily related to plant closure and consolidation activities, including severance. Six months ended June 30: Net sales were 24.5% higher 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 decreased $0.7 million, driven primarily by restructuring and other special charges of $4.9 million in the 2023 period compared to $1.4 million in the same period a year ago. These charges related to primarily to plant closure and consolidation activities, including severance. Excluding these charges, operating income during the 2023 period increased due to strong results in our capital equipment business as discussed in the “Three months ended June 30” section above. Liquidity and Capital Resources The following table summarizes the major components of cash flow: 28 Table of Contents Six Months Ended June 30, 2023 2022 $ Change Net cash provided (used) by: (In millions) Operating activities $ 0.9 $ (35.0) $ 35.9 Investing activities (13.0) (8.7) (4.3) Financing activities 12.1 62.3 (50.2) Discontinued operations (5.1) (7.7) 2.6 Effect of exchange rate changes on cash 0.3 (3.9) 4.2 (Decrease) increase in cash and cash equivalents $ (4.8) $ 7.0 $ (11.8) Operating Activities In the six months ended June 30, 2023, we generated positive operating cash flow of $0.9 million compared to a use of $35.0 million in the same period of 2022. The positive cash flow in the 2023 period was driven by higher income from continuing operations in the 2023 period and higher working capital usage in the 2022 period. Investing Activities Capital expenditures were $13.4 million in the six months ended June 30, 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. Capital expenditures were $12.7 million in the six months ended June 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, in the 2022 period, the Company sold real estate for cash proceeds of $4.0 million. Financing Activities During the six months ended June 30, 2023, we had net debt borrowings of $18.5 million to fund a portion of our operating activities and capital expenditures. In addition, in the six months ended June 30, 2023, the Company made scheduled payments related to prior acquisitions totaling $2.0 million and cash dividend payments to shareholders totaling $3.2 million. The Company is scheduled to pay the remaining $2.1 million balance in connection with the Charter Automotive (Changzhou) Co. Ltd. acquisition on scheduled dates in 2023 and 2024. During the six months ended June 30, 2022, we had net debt borrowings of $66.6 million to fund our higher working capital levels. In addition, we made cash dividend payments to shareholders totaling $3.2 million. 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. 29 Table of Contents As of June 30, 2023, we had total liquidity of $168.6 million, which included $53.4 million of cash and cash equivalents and $115.2 million of unused borrowing availability under our credit agreements, which included $24.3 million of suppressed availability. The Company had cash and cash equivalents held by foreign subsidiaries of $41.9 million at June 30, 2023 and $47.8 million at December 31, 2022. 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. Financing Arrangement with Third Party On December 30, 2022, the Company 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 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. 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 $4.0 million were borrowed under the Lease Agreement to acquire machinery and equipment as of June 30, 2023. As of June 30, 2023, the Company had additional finance leases totaling $15.4 million. 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 30 Table of Contents million, our ability to meet a debt service ratio covenant. If our calculated availability is less than $50.625 million, our debt service coverage ratio must be greater than 1.0. At June 30, 2023, our calculated availability under the Credit Agreement was $86.8 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. 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 June 30, 2023. 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. Dividends The Company paid dividends to shareholders of $3.2 million during the six months ended June 30, 2023. On July 21, 2023, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share. The dividend will be paid on August 18, 2023 to shareholders of record as of the close of business on August 4, 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. 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, 2022, both contained in our Annual Report on Form 10-K for the year ended December 31, 2022. 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 31 Table of Contents 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: 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 impact supply chain issues such as the global semiconductor micro-chip shortage and logistic issues have on our business, results of operations, financial position and liquidity; our substantial indebtedness; the uncertainty of the global economic environment; 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; 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 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 infectious diseases and any 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, 2022. 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.