What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 99 added, 107 removed, 232 unchanged (47% of the section changed)

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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.

As of September 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.

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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.

As of September 30, 2023 and December 31, 2022, we determined that our Aluminum Products business met the held-for-sale and discontinued operations accounting criteria.

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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,

Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

Three Months Ended September 30,

2023 2022 $ Change % Change

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Restructuring and other special charges — 4.3 (4.3) *

Gains on sales of assets — (2.9) 2.9 *

Operating income 27.0 11.6 15.4 *

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Income before income taxes 16.0 5.3 10.7 *

Income tax expense (2.1) (2.1) — — %

Income tax (expense) benefit (3.8) 2.2 (6.0) *

Income from continuing operations 12.2 7.5 4.7 62.7 %

Net loss (income) attributable to noncontrolling interest 0.5 (0.5) 1.0 *

Loss (income) attributable to noncontrolling interest 0.3 (0.4) 0.7 *

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

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*Calculation not meaningful

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.

Net sales increased 9.1% to $418.8 million in the third quarter of 2023 compared to $383.8 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.

The factors explaining the changes in segment net sales for the three months ended September 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

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.

Cost of sales increased 5.3% to $348.8 million in the third quarter of 2023 compared to $331.4 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 corresponding period in 2022.

Gross margin was 16.7% in the 2023 period compared to 13.7% in the corresponding 2022

period, driven by profit flow-through from the higher sales levels and the impact of our profit-enhancement initiatives, including increased product pricing.

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;

SG&A expenses were $43.0 million in the third quarter of 2023 compared to $36.5 million in the comparable period in 2022, an increase of 17.8%.

As a percentage of net sales, SG&A expenses was 10.3% in the third quarter of 2023 compared to 9.5% in corresponding 2022 period.

The SG&A expense increase as a percentage of net sales was driven by 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.

Other components of pension income and OPEB expense, net was $0.6 million in the three months ended September 30, 2023 compared to $2.7 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%.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Six Months Ended June 30,

Interest expense, net was $11.6 million in the third quarter of 2023 compared to $9.0 million in the 2022 period.

The increase was due to higher interest rates and higher average outstanding borrowings during the 2023 period.

Income Tax Expense/Benefit

In the three months ended September 30, 2023, income tax expense was $3.8 million on pre-tax income from continuing operations of $16.0 million, representing an effective income tax rate of 24%.

In the three months ended September 30, 2022, income tax benefit was $2.2 million on pre-tax income of $5.3 million.

The benefit in 2022 included a discrete tax benefit of $2.7 million related to various tax credits and a reduction to the Global Intangible Low-Taxed Income (“GILTI”) inclusion.

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Nine Months Ended September 30,

2023 2022 $ Change % Change

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*Calculation not meaningful

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.

Net sales increased 14.3% to $1,270.4 million in the first nine months of 2023 compared to $1,111.3 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.

The factors explaining the changes in segment net sales for the nine months ended September 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.

Cost of sales increased 11.2% to $1,063.1 million in the first nine months of 2023 compared to $956.3 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.

Gross margin was 16.3% in the 2023 period compared to 13.9% in the corresponding 2022 period, driven by profit flow-through from the higher sales levels and the impact of our profit-enhancement initiatives, including increased product pricing.

SG&A Expenses

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.

SG&A expenses were $135.1 million in the first nine months of 2023, compared to $117.2 million in the same period in 2022, an increase of 15.3%.

As a percentage of net sales, SG&A expenses were 10.6% in the first nine months of 2023 compared to 10.5% in the comparable period in 2022.

SG&A expenses as a percentage of net sales was driven by higher selling expenses as a result of higher sales levels;

higher costs due to ongoing inflation;

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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.

During the first nine months of 2023, the Company recorded restructuring and other special charges of $6.6 million compared to $9.9 million in 2022.

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.

During the nine months ended September 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.

The Company also sold other real estate for cash proceeds of $0.6 million.

During the nine months ended September 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.

Other components of pension income and other postretirement benefits expense, net was $1.9 million in the first nine months of 2023 compared to $8.3 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.

Interest expense, net was $33.4 million in the first nine months of 2023 compared to $23.7 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.

In the nine months ended September 30, 2023, income tax expense was $8.5 million on pre-tax income from continuing operations of $34.9 million, representing an effective income tax rate of 24%.

In the nine months ended September 30, 2022, income tax benefit was $2.9 million on pre-tax income of $15.4 million.

The benefit in 2022 included a discrete tax benefit of $5.9 million related to various tax credits and a reduction to the GILTI inclusion.

SEGMENT RESULTS

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Supply Technologies Segment

Three Months Ended June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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Segment operating income margin 8.1 % 5.8 % 7.7 % 6.7 %

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.

Three months ended September 30:

Net sales increased 3.7% in the three months ended September 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 heavy-duty truck and bus, military and civilian aerospace, power sports, and industrial and agricultural equipment markets.

Segment operating income increased $4.9 million to $15.6 million for the three months ended September 30, 2023 compared to the same period in 2022, and segment operating income margin increased 230 basis points in the 2023 period compared to the same period a year ago.

These increases were driven by the higher sales levels, customer price increases and other profit-enhancement actions in this segment.

Nine months ended September 30:

Net sales increased 10.4% in the nine months ended September 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.

Segment operating income increased $9.6 million to $45.0 million for the nine months ended September 30, 2023 compared to the same period in 2022, and segment operating income margin increased 100 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, which more than offset certain inflationary supply chain costs.

Assembly Components Segment

Three Months Ended June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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Net sales $ 108.4 $ 101.0 $ 330.8 $ 294.3

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.

Segment operating income $ 11.2 $ 2.6 $ 26.9 $ 0.7

Segment operating income margin 10.3 % 2.6 % 8.1 % 0.2 %

Three months ended September 30:

Net sales increased 7.3% in the three months ended September 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

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.

Segment operating income was $11.2 million in the three months ended September 30, 2023 compared to $2.6 million in the 2022 period.

The improvement in segment operating results in the 2023 period compared to the same period a year ago was driven by profit flow-through from the higher sales levels;

the benefit of profit-improvement initiatives implemented over the past two years, including increased product pricing.

Nine months ended September 30:

Net sales increased 12.4% in the nine months ended September 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.

Segment operating income was $26.9 million in the 2023 period compared to $0.7 million in the 2022 period.

The improvement in segment operating results in the 2023 period compared to the same period a year ago was driven by profit flow-through from the higher sales levels;

the benefit of profit-improvement initiatives implemented over the past two years, including increased product pricing.

Restructuring and other special charges were $1.5 million in 2023 compared to $4.2 million in the 2022 period.

Engineered Products Segment

Three Months Ended June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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Segment operating income margin 6.0 % 6.0 % 4.3 % 5.1 %

Three months ended June 30:

Three months ended September 30:

Net sales were 21.3% 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:

Segment operating income in the 2023 period increased $1.3 million compared to the 2022 period.

In our capital equipment business, operating income increased year-over-year, as we converted our robust backlog levels into higher sales levels and achieved higher margins driven by implemented operational improvements.

These improvements helped to offset equipment downtime and labor challenges at two of our forging plants.

In the 2022 period, we also incurred restructuring and other special charges of $1.4 million that did not recur in the 2023 period.

Nine months ended September 30:

Net sales were 23.5% 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.

Segment operating income in the 2023 period increased $0.6 million, as profit flow-through from higher sales levels and implemented operational improvement initiatives contributed to higher profit and margins in this business.

These factors were partially offset by restructuring and other special charges of $4.9 million in the 2023 period and $2.8 million in the 2022 period.

Liquidity and Capital Resources

The following table summarizes the major components of cash flow:

Six Months Ended June 30,

Nine Months Ended September 30,

2023 2022 $ Change

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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.

In the nine months ended September 30, 2023, we generated positive operating cash flow of $24.3 million compared to a use of $27.0 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.

Capital expenditures were $20.8 million in the nine months ended September 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 $20.0 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, in the 2022 period, the Company sold real estate for cash proceeds of $4.0 million and made two acquisitions, for a total of $21.9 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.

During the nine months ended September 30, 2023, we had net debt borrowings of $5.4 million to fund a portion of our capital expenditures.

In addition, the Company made scheduled payments related to prior acquisitions totaling $2.1 million and cash dividend payments to shareholders totaling $4.9 million.

The Company is scheduled to pay the remaining $2.0 million balance in connection with the Charter Automotive (Changzhou) Co.

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.

acquisition on scheduled dates in 2023 and 2024, and the remaining $1.5 million related to the acquisition of Southern Fasteners and Supply, Inc.

on a scheduled date in 2024.

During the nine months ended September 30, 2022, we had net debt borrowings of $87.6 million to fund capital expenditures, our higher working capital levels and complete two acquisitions.

In addition, we made cash dividend payments to shareholders totaling $4.8 million.

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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.

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.

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, 2023, we had total liquidity of $174.9 million, which included $51.2 million of cash and cash equivalents and $123.7 million of unused borrowing availability under our credit agreements.

The Company had cash and cash equivalents held by foreign subsidiaries of $40.4 million at September 30, 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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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.

On September 13, 2023, Park-Ohio Industries, Inc.

(“Park-Ohio”) amended its Eighth Amended and Restated Credit Agreement (the “Credit Agreement”).

The Credit Agreement provides for a revolving credit facility in the amount of $405.0 million, including a $40.0 million Canadian revolving subcommitment and a European revolving subcommitment in the amount of $30.0 million.

Pursuant to the Credit Agreement, Park-Ohio has the option to increase the availability under the revolving credit facility by an aggregate incremental amount up to $70.0 million.

The Credit Agreement matures on November 26, 2024.

The Credit Agreement matures on January 14, 2027.

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.

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.

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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.

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 June 30, 2023, our calculated availability under the Credit Agreement was $86.8 million;

As of September 30, 2023, the Company had finance leases totaling $18.8 million.

If our calculated availability is less than $50.625 million, our debt

service coverage ratio must be greater than 1.0.

At September 30, 2023, our calculated availability under the Credit Agreement was $99.2 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 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.

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.

The Company paid dividends to shareholders of $4.9 million during the nine months ended September 30, 2023.

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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demand for our products and services;

the impact of labor disturbances affecting our customers;

the impact of labor disturbances affecting our customers, including the UAW strike;

raw material availability and pricing;

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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 conflict between Russia and Ukraine, or political unrest, including the rising tension between China and the United States;

adverse impacts to us, our suppliers and customers from acts of terrorism or hostilities, including the conflict between Russia and Ukraine and in the Middle East, 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;

16 unchanged sentences

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