Item 1. Financial Statements
Item 1. Financial Statements
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Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30,
2023 December 31,
2022
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 51.2 $ 58.2
Accounts receivable, net 265.8 246.3
Inventories, net 404.2 406.5
Other current assets 141.3 114.2
Current assets held-for-sale - discontinued operations 1
102.5 107.2
Total current assets 965.0 932.4
Property, plant and equipment, net 182.5 181.1
Operating lease right-of-use assets 46.8 54.7
Goodwill 108.8 108.9
Intangible assets, net 73.8 78.7
Other long-term assets 79.6 80.8
Total assets $ 1,456.5 $ 1,436.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 202.1 $ 221.0
Current portion of long-term debt and short-term debt 12.2 10.9
Current portion of operating lease liabilities 10.9 11.2
Accrued expenses and other 191.8 161.7
Current liabilities held-for-sale - discontinued operations 1
34.4 43.8
Total current liabilities 451.4 448.6
Long-term liabilities, less current portion:
Long-term debt 659.1 655.1
Long-term operating lease liabilities 36.3 43.7
Other long-term liabilities 22.4 21.3
Total long-term liabilities 717.8 720.1
Park-Ohio Holdings Corp. and Subsidiaries shareholders' equity 276.6 256.5
Noncontrolling interests 10.7 11.4
Total equity 287.3 267.9
Total liabilities and shareholders' equity $ 1,456.5 $ 1,436.6
(1) - Our continuing operations exclude the results of our Aluminum Products business unit, which is held-for-sale as of September 30, 2023 and December 31, 2022 and presented in discontinued operations for all periods presented.
Refer to the accompanying notes to these unaudited condensed consolidated financial statements.
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Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions, except per share data)
Net sales $ 418.8 $ 383.8 $ 1,270.4 $ 1,111.3
Cost of sales 348.8 331.4 1,063.1 956.3
Selling, general and administrative expenses 43.0 36.5 135.1 117.2
Restructuring and other special charges — 4.3 6.6 9.9
Gains on sales of assets — — ( 0.8 ) ( 2.9 )
Operating income 27.0 11.6 66.4 30.8
Other components of pension income and other postretirement benefits expense, net 0.6 2.7 1.9 8.3
Interest expense, net ( 11.6 ) ( 9.0 ) ( 33.4 ) ( 23.7 )
Income from continuing operations before income taxes 16.0 5.3 34.9 15.4
Income tax (expense) benefit ( 3.8 ) 2.2 ( 8.5 ) 2.9
Income from continuing operations 12.2 7.5 26.4 18.3
Loss (income) attributable to noncontrolling interests 0.3 ( 0.4 ) 0.7 ( 1.1 )
Income from continuing operations attributable to Park-Ohio Holdings Corp. common shareholders 12.5 7.1 27.1 17.2
Loss from discontinued operations, net of tax (Note 5) ( 1.4 ) ( 4.4 ) ( 4.8 ) ( 7.4 )
Net income attributable to Park-Ohio Holdings Corp. common shareholders $ 11.1 $ 2.7 $ 22.3 $ 9.8
Earnings per common share attributable to Park-Ohio Holdings Corp. common shareholders:
Basic:
Continuing operations $ 1.01 $ 0.58 $ 2.22 $ 1.42
Discontinued operations $ ( 0.11 ) $ ( 0.36 ) ( 0.39 ) ( 0.61 )
Total $ 0.90 $ 0.22 $ 1.83 $ 0.81
Diluted:
Continuing operations $ 0.99 $ 0.58 $ 2.19 $ 1.41
Discontinued operations $ ( 0.11 ) $ ( 0.36 ) ( 0.39 ) ( 0.61 )
Total $ 0.88 $ 0.22 $ 1.80 $ 0.80
Refer to the accompanying notes to these unaudited condensed consolidated financial statements.
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Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Net income attributable to Park-Ohio Holdings Corp. common shareholders before noncontrolling interest $ 10.8 $ 3.1 $ 21.6 $ 10.9
Other comprehensive income (loss), net of tax:
Currency translation ( 9.3 ) ( 17.0 ) ( 3.8 ) ( 35.5 )
Foreign currency forward contracts ( 0.1 ) — ( 0.5 ) 0.5
Pension and other postretirement benefits 1.0 0.1 3.9 0.2
Total other comprehensive loss ( 8.4 ) ( 16.9 ) ( 0.4 ) ( 34.8 )
Total comprehensive income (loss), net of tax 2.4 ( 13.8 ) 21.2 ( 23.9 )
Comprehensive loss (income) attributable to noncontrolling interests 0.3 ( 0.4 ) 0.7 ( 1.1 )
Comprehensive income (loss) attributable to Park-Ohio Holdings Corp. common shareholders $ 2.7 $ ( 14.2 ) $ 21.9 $ ( 25.0 )
Refer to the accompanying notes to these unaudited condensed consolidated financial statements.
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Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
Common Stock
Shares Amount Additional
Paid-In
Capital Retained
Earnings Treasury Stock Accumulated
Other
Comprehensive Loss Noncontrolling Interests Total
(In whole shares) (In millions)
Balance at January 1, 2023 16,653,928 $ 16.6 $ 149.8 $ 238.8 $ ( 86.9 ) $ ( 61.8 ) $ 11.4 $ 267.9
Other comprehensive
income — — — 5.8 — 5.1 0.1 11.0
Stock-based compensation expense — — 1.6 — — — — 1.6
Stock-based compensation activity 9,535 0.1 ( 0.1 ) — — — — —
Dividends — — — ( 1.6 ) — — — ( 1.6 )
Balance at March 31, 2023 16,663,463 16.7 151.3 243.0 ( 86.9 ) ( 56.7 ) 11.5 278.9
Other comprehensive income (loss) — — — 5.4 — 2.9 ( 0.5 ) 7.8
Stock-based compensation expense — — 1.7 — — — — 1.7
Stock-based compensation activity 309,237 0.3 ( 0.3 ) — — — — —
Dividends — — — ( 1.6 ) — — — ( 1.6 )
Payments of withholding taxes on share awards
— — — — ( 1.2 ) — — ( 1.2 )
Balance at June 30, 2023 16,972,700 17.0 152.7 246.8 ( 88.1 ) ( 53.8 ) 11.0 285.6
Other comprehensive income (loss) — — — 11.1 — ( 8.4 ) ( 0.3 ) 2.4
Stock-based compensation expense — 1.6 — — — — 1.6
Stock-based compensation activity 36,949 — — — — — — —
Dividends — — — ( 1.6 ) — — — ( 1.6 )
Payments of withholding taxes on share awards
— — — — ( 0.7 ) — — ( 0.7 )
Balance at September 30, 2023 17,009,649 $ 17.0 $ 154.3 $ 256.3 $ ( 88.8 ) $ ( 62.2 ) $ 10.7 $ 287.3
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Common Stock
Shares Amount Additional
Paid-In
Capital Retained
Earnings Treasury Stock Accumulated
Other
Comprehensive Loss Noncontrolling Interests Total
(In whole shares) (In millions)
Balance at January 1, 2022 16,339,722 $ 16.3 $ 142.9 $ 259.4 $ ( 85.3 ) $ ( 19.2 ) $ 10.7 $ 324.8
Other comprehensive
income (loss) — — — 6.1 — ( 3.1 ) 0.2 3.2
Stock-based compensation expense — — 1.6 — — — — 1.6
Stock-based compensation activity ( 5,502 ) — — — — — — —
Dividends — — — ( 1.6 ) — — — ( 1.6 )
Payments of withholding taxes on share awards
— — — — ( 0.1 ) — — ( 0.1 )
Balance at March 31, 2022 16,334,220 16.3 144.5 263.9 ( 85.4 ) ( 22.3 ) 10.9 327.9
Other comprehensive income (loss) — — — 1.0 — ( 14.8 ) 0.5 ( 13.3 )
Stock-based compensation expense — — 1.8 — — — — 1.8
Stock-based compensation activity 308,621 0.3 ( 0.3 ) — — — — —
Dividends — — — ( 1.6 ) — — — ( 1.6 )
Payments of withholding taxes on share awards
— — — — ( 1.0 ) — — ( 1.0 )
Balance at June 30, 2022 16,642,841 16.6 146.0 263.3 ( 86.4 ) ( 37.1 ) 11.4 313.8
Other comprehensive income (loss) — — — 2.7 — ( 16.9 ) 0.4 ( 13.8 )
Stock-based compensation expense — — 2.0 — — — — 2.0
Stock-based compensation activity 7,497 — — — — — — —
Dividends — — — ( 1.6 ) — — ( 0.6 ) ( 2.2 )
Payments of withholding taxes on share awards
— — — — ( 0.2 ) — — ( 0.2 )
Balance at September 30, 2022 16,650,338 $ 16.6 $ 148.0 $ 264.4 $ ( 86.6 ) $ ( 54.0 ) $ 11.2 $ 299.6
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Dividends per common share $ 0.125 $ 0.125 $ 0.375 $ 0.375
Refer to the accompanying notes to these unaudited condensed consolidated financial statements.
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Park-Ohio Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
2023 2022
(In millions)
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Income from continuing operations $ 26.4 $ 18.3
Adjustments to reconcile income from continuing operations to net cash provided (used) by operating activities from continuing operations:
Depreciation and amortization 23.4 22.7
Stock-based compensation expense 4.9 5.4
Gains on sales of assets ( 0.8 ) ( 2.9 )
Changes in operating assets and liabilities:
Accounts receivable ( 20.2 ) ( 34.0 )
Inventories 2.5 ( 51.2 )
Prepaid and other current assets ( 30.8 ) ( 2.1 )
Accounts payable and accrued expenses 14.2 23.6
Other 4.7 ( 6.8 )
Net cash provided (used) by operating activities from continuing operations 24.3 ( 27.0 )
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Purchases of property, plant and equipment ( 20.8 ) ( 20.0 )
Proceeds from sales of assets 2.0 4.0
Business acquisitions, net of cash acquired ( 1.2 ) ( 21.9 )
Net cash used in investing activities from continuing operations ( 20.0 ) ( 37.9 )
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Proceeds from revolving credit facility, net 1.4 90.0
Payments on other debt ( 1.4 ) ( 3.1 )
Proceeds from other debt 5.1 2.7
Proceeds from (payments on) finance lease facilities, net 0.3 ( 2.0 )
Payments related to prior acquisitions ( 2.1 ) —
Dividends ( 4.9 ) ( 5.3 )
Payments of withholding taxes on share awards ( 1.9 ) ( 1.3 )
Net cash (used) provided by financing activities from continuing operations ( 3.5 ) 81.0
DISCONTINUED OPERATIONS 1 :
Total used by operating activities ( 3.4 ) ( 4.4 )
Total used by investing activities ( 2.0 ) ( 3.7 )
Total used by financing activities ( 1.9 ) ( 2.5 )
Decrease in cash and cash equivalents from discontinued operations ( 7.3 ) ( 10.6 )
Effect of exchange rate changes on cash ( 0.5 ) ( 5.9 )
Decrease in cash and cash equivalents ( 7.0 ) ( 0.4 )
Cash and cash equivalents at beginning of period 58.2 54.1
Cash and cash equivalents at end of period $ 51.2 $ 53.7
Interest paid $ 29.6 $ 18.5
Income taxes paid $ 7.1 $ 1.8
(1) - Our continuing operations exclude the results of our Aluminum Products business unit, which is held-for-sale as of September 30, 2023 and December 31, 2022 and presented in discontinued operations for all periods presented.
Refer to the accompanying notes to these unaudited condensed consolidated financial statements.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
NOTE 1 — Basis of Presentation
The condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our” or the “Company”). All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
We determined that our Aluminum Products business met the held-for-sale and discontinued operations accounting criteria as of December 31, 2022 and September 30, 2023. 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 Form 10-Q. Unless otherwise indicated, amounts and activity in this Form 10-Q are presented on a continuing operations basis. See Note 5, “Discontinued Operations,” in the Notes to Consolidated Financial Statements (Unaudited) for further information.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 — New Accounting Pronouncements
No recently-issued accounting standards updates are expected to have a material impact on our results of operations, financial condition or liquidity.
NOTE 3 - Revenue
We disaggregate our revenue by product line and geographic region of our customer as we believe these metrics best depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. See details in the tables below.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
PRODUCT LINE
Supply Technologies $ 166.3 $ 159.1 $ 508.2 $ 459.5
Engineered specialty fasteners and other products 26.5 26.8 77.7 71.0
Supply Technologies Segment 192.8 185.9 585.9 530.5
Fuel, rubber and plastic products 108.4 101.0 330.8 294.3
Assembly Components Segment 108.4 101.0 330.8 294.3
Industrial equipment 81.4 67.3 253.9 201.1
Forged and machined products 36.2 29.6 99.8 85.4
Engineered Products Segment 117.6 96.9 353.7 286.5
Total revenues $ 418.8 $ 383.8 $ 1,270.4 $ 1,111.3
Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues
(In millions)
Three Months Ended September 30, 2023
GEOGRAPHIC REGION
United States $ 117.7 $ 73.0 $ 64.2 $ 254.9
Europe 37.5 4.2 21.4 63.1
Asia 16.1 8.2 15.3 39.6
Mexico 17.4 13.4 3.0 33.8
Canada 2.9 8.2 10.3 21.4
Other 1.2 1.4 3.4 6.0
Total $ 192.8 $ 108.4 $ 117.6 $ 418.8
Three Months Ended September 30, 2022
GEOGRAPHIC REGION
United States $ 115.1 $ 73.0 $ 54.8 $ 242.9
Europe 29.2 3.7 19.7 52.6
Asia 18.4 6.4 14.1 38.9
Mexico 19.2 10.6 3.4 33.2
Canada 3.2 6.6 4.5 14.3
Other 0.8 0.7 0.4 1.9
Total $ 185.9 $ 101.0 $ 96.9 $ 383.8
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Supply Technologies Segment Assembly Components Segment Engineered Products Segment Total Revenues
(In millions)
Nine Months Ended September 30, 2023
GEOGRAPHIC REGION
United States $ 358.1 $ 236.8 $ 201.0 $ 795.9
Europe 115.1 13.3 51.9 180.3
Asia 46.5 20.1 51.2 117.8
Mexico 54.1 33.3 11.6 99.0
Canada 10.0 23.7 25.6 59.3
Other 2.1 3.6 12.4 18.1
Total $ 585.9 $ 330.8 $ 353.7 $ 1,270.4
Nine Months Ended September 2022
GEOGRAPHIC REGION
United States $ 324.7 $ 214.8 $ 165.6 $ 705.1
Europe 91.8 12.2 50.2 154.2
Asia 50.2 15.8 39.1 105.1
Mexico 51.9 29.0 11.4 92.3
Canada 9.3 20.6 14.6 44.5
Other 2.6 1.9 5.6 10.1
Total $ 530.5 $ 294.3 $ 286.5 $ 1,111.3
For over time arrangements, contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. These amounts, which totaled $ 67.9 million and $ 52.6 million at September 30, 2023 and December 31, 2022, respectively, are recorded in Accrued expenses and other in the Condensed Consolidated Balance Sheets.
For over time arrangements, contract assets primarily relate to revenue recognized in advance of billings to customers under long-term contracts accounted for under percentage of completion. These amounts, which totaled $ 79.3 million and $ 56.7 million at September 30, 2023 and December 31, 2022, respectively, are recorded in Other current assets in the Condensed Consolidated Balance Sheets.
NOTE 4 — Segments
Our operating segments are defined as components of the enterprise for which separate financial information is available and evaluated on a regular basis by our chief operating decision maker to allocate resources and assess performance.
For purposes of measuring business segment performance, 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; unusual in nature; or corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs. Segment operating income reconciles to consolidated income before income taxes by adjusting for corporate costs; gains on sales of assets; other components of pension income and other postretirement benefits expense, net; and interest expense, net.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Results by business segment were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
NET SALES OF CONTINUING OPERATIONS:
Supply Technologies $ 192.8 $ 185.9 $ 585.9 $ 530.5
Assembly Components 1
108.4 101.0 330.8 294.3
Engineered Products 117.6 96.9 353.7 286.5
$ 418.8 $ 383.8 $ 1,270.4 $ 1,111.3
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES:
Supply Technologies $ 15.6 $ 10.7 $ 45.0 $ 35.4
Assembly Components 1
11.2 2.6 26.9 0.7
Engineered Products 7.1 5.8 15.3 14.7
Total segment operating income 33.9 19.1 87.2 50.8
Corporate costs ( 6.9 ) ( 7.5 ) ( 21.6 ) ( 22.9 )
Gains on sales of assets — — 0.8 2.9
Operating income 27.0 11.6 66.4 30.8
Other components of pension income and other postretirement benefits expense, net
0.6 2.7 1.9 8.3
Interest expense, net ( 11.6 ) ( 9.0 ) ( 33.4 ) ( 23.7 )
Income from continuing operations before income taxes 1
$ 16.0 $ 5.3 $ 34.9 $ 15.4
(1) - Our continuing operations exclude the results of our Aluminum Products business unit, which is held-for-sale as of September 30, 2023 and December 31, 2022 and presented in discontinued operations for all periods presented. Aluminum Products was previously included in our Assembly Components segment.
NOTE 5 — Discontinued Operations
A business is classified as held-for-sale when management having the authority to approve the action commits to a plan to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value, and certain other criteria of ASC 360 are met. A business classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. When the carrying amount of the business exceeds its estimated fair value less costs to sell, a loss is recognized and updated each reporting period as appropriate. A business held-for-sale is classified as discontinued operations if the disposal group is a component of an entity; the component of an entity meets the held-for-sale criteria of ASC 360; and disposal of the component of an entity represents a strategic shift that will have a major effect on the entity's operations and financial results.
During the fourth quarter of 2022, the Company determined that the 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 and the operating results of Aluminum Products in discontinued operations for all periods presented in this Quarterly Report on Form 10-Q. The Aluminum Products business was previously reported in the Company’s Assembly Components segment until meeting the discontinued operations criteria. See Note 10 for further discussion related to the potential sale of this business.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Net sales $ 45.4 $ 51.9 $ 137.7 $ 171.5
Cost of sales 41.6 52.8 129.6 165.5
Selling, general and administrative 4.9 3.3 12.5 10.6
Restructuring and other special charges — 0.5 — 3.7
Operating loss ( 1.1 ) ( 4.7 ) ( 4.4 ) ( 8.3 )
Interest expense 1
( 1.1 ) ( 0.6 ) ( 2.6 ) ( 2.0 )
Loss from operation of discontinued operations ( 2.2 ) ( 5.3 ) ( 7.0 ) ( 10.3 )
Income tax benefit 0.8 0.9 2.2 2.9
Loss from discontinued operations, net of tax $ ( 1.4 ) $ ( 4.4 ) $ ( 4.8 ) $ ( 7.4 )
(1) - Interest expense includes an allocation of interest that is not directly attributable to our Aluminum Products business. The allocations were $ 1.0 million and $ 0.5 million in the three months ended September 30, 2023 and 2022, respectively, and $ 2.3 million and $ 1.7 million in the nine months ended September 30, 2023 and 2022, respectively.
The following represents the details of assets and liabilities held-for-sale in each period:
September 30, 2023 December 31, 2022
(In millions, except share data)
ASSETS
Current assets:
Accounts receivable, net $ 29.2 $ 24.9
Inventories, net 20.5 30.2
Other current assets 1.8 1.2
Current assets held-for-sale 1
51.5 56.3
Property, plant and equipment, net 47.9 46.1
Operating lease right-of-use assets 3.1 4.8
Long-term assets held-for-sale 1
51.0 50.9
Total assets held-for-sale $ 102.5 $ 107.2
LIABILITIES
Current liabilities:
Trade accounts payable $ 19.9 $ 22.8
Current portion of finance lease liabilities 1.7 2.4
Current portion of operating lease liabilities 1.4 2.3
Other accrued expenses 7.7 10.7
Current liabilities held-for-sale 1
$ 30.7 $ 38.2
Long-term liabilities, less current portion:
Long-term finance lease liabilities 2.0 3.1
Long-term operating lease liabilities 1.7 2.5
Long-term liabilities held-for-sale 1
3.7 5.6
Total liabilities held-for-sale $ 34.4 $ 43.8
(1) - We reasonably expect to finalize the sale of the Aluminum Products business in the next twelve months, and therefore we have presented all assets and liabilities held-for-sale as current in the Condensed Consolidated Balance Sheet.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
NOTE 6 — Plant Closure and Consolidation
During the three and nine months ended September 30, 2023 and 2022, the Company incurred the following expenses related to plant closure and consolidation in connection with its profit-improvement actions across its segments. These charges are included in Restructuring and other special charges in the Condensed Consolidated Statements of Income.
Facility-Related Costs Severance and Other Total
Three months ended September 30, 2023:
Assembly Components $ — $ — $ —
Engineered Products — — —
Total $ — $ — $ —
Three months ended September 30, 2022:
Assembly Components $ 1.2 $ — $ 1.2
Engineered Products 1.4 — 1.4
Total $ 2.6 $ — $ 2.6
Facility-Related Costs Severance and Other Total
Nine months ended September 30, 2023:
Assembly Components $ 0.5 $ — $ 0.5
Engineered Products 2.7 1.9 4.6
Total $ 3.2 $ 1.9 $ 5.1
Nine months ended September 30, 2022:
Assembly Components $ 4.2 $ — $ 4.2
Engineered Products 2.7 0.1 2.8
Total $ 6.9 $ 0.1 $ 7.0
The actions in the Assembly Components segment were primarily in connection with actions taken to close and consolidate its extrusion operations in Tennessee and its fuel operations in Michigan, relocate certain production to lower-cost facilities with open capacity, and complete other cost-reduction actions.
The actions in the Engineered Product segment were primarily in connection with plant closure and consolidation of multiple locations, and to complete other cost-reduction actions.
As of September 30, 2023, the Company was substantially complete with these actions.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
NOTE 7 — Inventories
Inventories, net consist of the following:
September 30, 2023 December 31, 2022
(In millions)
Raw materials and supplies $ 103.8 $ 105.0
Work-in-process 52.6 42.9
Finished goods 247.8 258.6
Inventories, net $ 404.2 $ 406.5
NOTE 8 — Accrued Warranty Costs
The Company estimates warranty claims that may be incurred based on current and historical data of products sold. Actual warranty expense could differ from the estimates made by the Company based on product performance. The following table presents changes in the Company’s product warranty liability for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Beginning balance $ 5.8 $ 6.4 $ 5.2 $ 7.2
Claims paid ( 0.4 ) ( 0.5 ) ( 1.7 ) ( 1.3 )
Warranty expense 0.1 0.1 2.4 0.6
Foreign currency translation ( 0.3 ) ( 0.3 ) ( 0.7 ) ( 0.8 )
Ending balance $ 5.2 $ 5.7 $ 5.2 $ 5.7
NOTE 9 — Income Taxes
The Company’s tax provision for interim periods is determined using an estimate of its annual effective rate, adjusted for discrete items in each period, if any.
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.
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.
NOTE 10 — Financing Arrangements
Debt consists of the following:
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Carrying Value at
Maturity Date Interest Rate at
September 30, 2023 September 30, 2023 December 31, 2022
(In millions)
Senior Notes April 15, 2027 6.625 % $ 350.0 $ 350.0
Revolving credit facility January 14, 2027 7.17 % 286.8 285.3
Finance Leases Various Various 18.8 18.5
Other Various Various 18.8 15.3
Total debt 674.4 669.1
Less: Current portion of long-term debt and short-term debt ( 12.2 ) ( 10.9 )
Less: Unamortized debt issuance costs ( 3.1 ) ( 3.1 )
Total long-term debt $ 659.1 $ 655.1
In addition to debt listed above, 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 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.
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 January 14, 2027. As of September 30, 2023, we had borrowing availability of $ 99.2 million under the Credit Agreement.
We had outstanding bank guarantees and letters of credit under our credit arrangements of approximately $ 42.5 million at September 30, 2023 and $ 41.0 million at December 31, 2022.
In 2017, Park-Ohio completed the issuance, in a private placement, of $ 350.0 million aggregate principal amount of 6.625 % Senior Notes due 2027 (the “Notes”). The Notes are unsecured senior obligations of Park-Ohio and are guaranteed on an unsecured senior basis by the 100 % owned material domestic subsidiaries of Park-Ohio.
The following table represents fair value information of the Notes, classified as Level 1 using estimated quoted market prices.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
September 30, 2023 December 31, 2022
(In millions)
Carrying amount $ 350.0 $ 350.0
Fair value $ 306.0 $ 227.5
The fair value of the revolving credit facility is equal to its carrying value as the Company has the ability to repay the outstanding principal at par value at any time. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments.
NOTE 11 — Stock-Based Compensation
A summary of restricted share activity for the nine months ended September 30, 2023 is as follows:
2023
Time-Based Performance-Based
Number of Shares Weighted Average
Grant Date
Fair Value Number of Shares Weighted Average
Grant Date
Fair Value
(In whole shares) (In whole shares)
Outstanding - beginning of year 716,242 $ 20.53 50,000 $ 32.55
Granted (a)
369,238 16.12 — —
Vested ( 306,433 ) 19.83 — —
Canceled or expired ( 4,517 ) 19.91 — —
Outstanding - end of period 774,530 $ 18.71 50,000 $ 32.55
(a) - Included in this amount is 9,000 restricted share units.
Stock-based compensation is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Income. Total stock-based compensation expense was $ 1.6 million and $ 2.0 million for the three months ended September 30, 2023 and 2022, respectively. Total stock-based compensation expense was $ 4.9 million and $ 5.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, there was $ 9.0 million of unrecognized compensation cost related to non-vested stock-based compensation, which cost is expected to be recognized over a weighted-average period of 2.0 years.
NOTE 12 — Commitments and Contingencies
The Company is subject to a variety of claims, suits, investigations and administrative proceedings with respect to commercial, premises liability, product liability, employment, personal injury and environmental matters arising from the ordinary course of business. The Company records a liability for loss contingencies in the consolidated financial statements when a loss is known or considered probable and the amount can be reasonably estimated. Our provisions are based on historical experience, current information and legal advice, and they may be adjusted in the future based on new developments. Estimating probable losses requires the analysis of multiple forecasted factors that often depend on judgments and potential actions by third parties. Although it is not possible to predict with certainty the ultimate outcome or cost of these matters, the Company believes they will not have a material adverse effect on our consolidated financial statements.
Our subsidiaries are involved in a number of contractual and warranty-related disputes. We believe that appropriate liabilities for these contingencies have been recorded; however, actual results may differ materially from our estimates.
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
In addition to the routine lawsuits and asserted claims noted above, we are also a co-defendant in 128 cases asserting claims on behalf of 178 plaintiffs alleging personal injury as a result of exposure to asbestos. In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. Historically, we have been dismissed from asbestos cases. We intend to vigorously defend these cases and believe we will continue to be successful in being dismissed from such cases.
While it is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation, and although our results of operations and cash flows for a particular period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate resolution of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations.
NOTE 13 — Pension and Postretirement Benefits
The components of net periodic benefit (income) expense costs recognized for the three and nine months ended September 30, 2023 and 2022 were as follows:
Pension Benefits Postretirement Benefits
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022 2023 2022 2023 2022
(In millions)
Service costs $ 0.9 $ 1.1 $ 3.4 $ 3.3 $ — $ — $ — $ —
Interest costs 0.9 0.4 2.6 1.3 — — 0.2 0.1
Expected return on plan assets ( 2.5 ) ( 3.2 ) ( 7.5 ) ( 9.7 ) — — ( 0.1 ) ( 0.2 )
Recognized net actuarial loss 0.9 — 2.7 — 0.1 0.1 0.2 0.2
Net periodic benefit expense (income) $ 0.2 $ ( 1.7 ) $ 1.2 $ ( 5.1 ) $ 0.1 $ 0.1 $ 0.3 $ 0.1
NOTE 14 — Accumulated Other Comprehensive Loss
The components of and changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2023 and 2022 were as follows:
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Park-Ohio Holdings Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Cumulative Translation Adjustment Cash Flow Hedges Pension and Postretirement Benefits Total Cumulative Translation Adjustment Cash Flow Hedges Pension and Postretirement Benefits Total
(In millions)
Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
Beginning balance $ ( 33.2 ) $ 0.1 $ ( 20.7 ) $ ( 53.8 ) $ ( 36.8 ) $ 0.5 $ ( 0.8 ) $ ( 37.1 )
Currency translation (a)
( 9.3 ) — — ( 9.3 ) ( 17.0 ) — — ( 17.0 )
Foreign currency forward contracts, net of tax — ( 0.1 ) — ( 0.1 ) — — — —
Pension and OPEB activity, net of tax — — 1.0 1.0 — — 0.1 0.1
Ending balance $ ( 42.5 ) $ — $ ( 19.7 ) $ ( 62.2 ) $ ( 53.8 ) $ 0.5 $ ( 0.7 ) $ ( 54.0 )
Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
Beginning balance $ ( 38.7 ) $ 0.5 $ ( 23.6 ) $ ( 61.8 ) $ ( 18.3 ) $ — $ ( 0.9 ) $ ( 19.2 )
Currency translation (a)
( 3.8 ) — — ( 3.8 ) ( 35.5 ) — — ( 35.5 )
Foreign currency forward contracts — ( 0.5 ) — ( 0.5 ) — 0.5 — 0.5
Pension and OPEB activity, net of tax — — 3.9 3.9 — — 0.2 0.2
Ending balance $ ( 42.5 ) $ — $ ( 19.7 ) $ ( 62.2 ) $ ( 53.8 ) $ 0.5 $ ( 0.7 ) $ ( 54.0 )
(a) No income taxes were provided on currency translation as foreign earnings are considered permanently reinvested.
NOTE 15 — Weighted-Average Number of Shares Used in Computing Earnings Per Share
The following table sets forth the weighted-average number of shares used in the computation of earnings per share:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Weighted-average basic shares outstanding 12.4 12.1 12.2 12.1
Plus: Dilutive impact of employee stock awards 0.2 0.1 0.2 0.1
Weighted-average diluted shares outstanding 12.6 12.2 12.4 12.2
Certain restricted stock awards are anti-dilutive and therefore excluded from the computation of diluted earnings per share. Anti-dilutive shares were 0.1 million for the three months ended September 30, 2023 and 2022, respectively, and 0.1 million and 0.2 million for the nine months ended September 30, 2023 and 2022, respectively.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.