What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-06 compared with 2024-03-06 · 79 added, 84 removed, 266 unchanged (38% of the section changed)

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Business for descriptions of our business segments.

Sale of Aluminum Products

On December 29, 2023, the Company completed the sale of its Aluminum Products business to Angstrom Automotive Group (“Angstrom”) for up to $50.5 million in cash and promissory notes, plus the assumption of approximately $3 million of finance lease obligations.

The total purchase price consisted of a cash down payment of $20.0 million paid to the Company in December 2022;

cash of $15.5 million paid to the Company at closing;

and promissory notes totaling $15.0 million payable to the Company on December 31, 2024, of which $10.0 million is contingent on the Aluminum Products business attaining certain purchase commitments during 2024.

On December 29, 2023, the Company completed the sale to Angstrom Automotive Group (“Angstrom”) of its Aluminum Products business, which has been classified as a discontinued operation for all periods presented.

Subsequent Events

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The dividend was paid on February 21, 2025, to shareholders of record as of the close of business on February 7, 2025 and resulted in cash payments of $1.8 million.

Effective February 29, 2024, the Company acquired all of the outstanding shares of EMA Indutec GmbH (“EMA”), headquartered in Meckesheim, Germany, from the Aichelin Group, headquartered in Modling, Austria.

EMA, a leading manufacturer of induction heating equipment and converters, operates through its two locations in Meckesheim, Germany and Beijing, China.

The acquisition strengthens our global induction heating expertise throughout Europe and expands our portfolio of induction equipment brands and our aftermarket service capabilities.

The cash purchase price for the acquisition was approximately $14 million.

RESULTS FROM CONTINUING OPERATIONS

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Gains on sales of assets, net (2.5) (0.8) (2.4) (1.7) * 1.6 *

Other expense 5.0 — — 5.0 * — *

Operating income 86.6 84.1 33.4 2.5 3 % 50.7 152 %

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Interest expense, net (47.4) (45.1) (33.8) (2.3) 5 % (11.3) 33 %

Income (loss) from continuing operations before income taxes 41.5 10.7 (1.1) 30.8 288 % 11.8 *

Income from continuing operations before income taxes 44.4 41.5 10.7 2.9 7 % 30.8 288 %

Income tax (expense) benefit (4.9) (8.5) 0.7 3.6 (42) % (9.2) 1,314 %

Income (loss) from continuing operations 33.0 11.4 (0.1) 21.6 189 % 11.5 *

Income from continuing operations 39.5 33.0 11.4 6.5 20 % 21.6 189 %

Loss (income) attributable to noncontrolling interest 2.7 1.0 (1.3) 1.7 170 % 2.3 177 %

Income from continuing operations attributable to ParkOhio common shareholders $ 42.2 $ 34.0 $ 10.1 $ 8.2 24 % $ 23.9 237 %

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

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

Continuing operations $ 3.27 $ 2.76 $ 0.83 $ 0.51 18 % $ 1.93 233 %

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2024 Compared with 2023

Net sales increased 11% to $1,659.7 million in 2023 compared to $1,492.9 million in 2022.

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

Net sales were $1,656.2 million in 2024 compared to $1,659.7 million in 2023, a decrease of 0.2%.

The decrease was primarily due to lower sales in the Assembly Components segment, partially offset by higher sales in our Supply Technologies segment and in the capital equipment business in our Engineered Products segment.

The factors explaining the changes in segment net sales for the year ended December 31, 2024 compared to the year ended December 31, 2023 are contained in the “Segment Results” section below.

Cost of Sales and Gross Margin

Cost of sales increased 8% to $1,388.3 million in 2023 compared to $1,282.4 million in 2022.

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

Gross margin was 16.4% in 2023 compared to 14.1% in 2022, driven by profit flow-through from the higher sales levels and the impact of our profit-enhancement initiatives, including increased product pricing.

Cost of sales decreased 1% to $1,374.8 million in 2024 compared to $1,388.3 million in 2023.

The decrease was driven by ongoing profit improvement initiatives and the decrease in net sales described above.

Gross margin was 17.0% in 2024 compared to 16.4% in 2023.

The gross margin improvement was driven by improved operating profit in our Supply Technologies segment;

higher sales and improved margins in our capital equipment business;

and ongoing profit improvement initiatives.

SG&A Expenses

SG&A expenses increased to $187.4 million, or 11.3% of net sales, in 2024 from $181.5 million, or 10.9% of net sales, in 2023.

The SG&A expense increase was driven by higher selling expenses as a result of higher sales levels;

higher costs due to ongoing inflation;

and higher employee costs.

As a percentage of net sales, SG&A expenses were comparable year-over-year.

The SG&A expense increase was driven by SG&A expenses in our acquired EMA Indutec GmbH (“EMA”) business, ongoing inflation and higher employee costs.

Restructuring and other special charges

During 2024, the Company recorded restructuring and other special charges of $4.9 million compared to $6.6 million in 2023.

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.

The charges in both years relate primarily to plant closure and consolidation activities and other initiatives in the Company’s Assembly Components and Engineered Products segments.

Gains on Sales of Assets, net

During 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 2024, the Company sold real estate and other assets within its Engineered Products segment for cash proceeds of $9.3 million, resulting in a net gain of $0.8 million.

The Company also sold real estate within its Assembly Components segment for cash proceeds of $2.2 million, resulting in a net gain of $1.7 million.

The total net gain of $2.5 million is recorded on a separate line in the Consolidated Statements of Operations and is excluded from segment income.

During 2023, in connection with its 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 net gain of $0.8 million.

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

The total net gain of $0.8 million was recorded on a separate line in the Consolidated Statements of Operations and excluded from segment income.

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

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

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

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

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

The total net gain of $0.8 million is recorded on a separate line in the Consolidated Statements of Operations and is excluded from segment income.

Other Components of Pension and Other Postretirement Benefits (“OPEB”) I ncome, Net

Other components of pension and OPEB income, net was $5.2 million in 2024 compared to $2.5 million in 2023.

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

The increase in 2024 was due to lower net actuarial losses impacting 2024 compared to 2023.

Interest Expense, Net

Interest expense, net increased to $47.4 million in 2024 compared to $45.1 million in 2023.

The increase was due to higher average interest rates and higher average outstanding borrowings in 2023 compared to 2022.

The increase was due to higher average interest rates partially offset by lower average outstanding borrowings in 2024 compared to 2023.

Our average effective borrowing rate was 7.0% in 2024 compared to 6.6% in 2023.

Income Tax Expense/Benefit

Income Tax Expense

Income tax expense in 2024 was $4.9 million on pre-tax income of $44.4 million, for an effective tax rate of 11.0%, which was less than the U.S.

statutory rate of 21%, primarily as a result of the tax benefit of the research and development tax credit and the release of certain valuation allowances.

Income tax expense in 2023 was $8.5 million on pre-tax income of $41.5 million, for an effective tax rate of 20.5%, which approximated the U.S.

statutory rate.

The tax benefits of the foreign tax credit and research and development tax credit were offset by the tax expense of foreign earnings, global intangible low-taxed income and non-deductible expenses.

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

statutory rate of 21%, as the tax benefits of the foreign tax credit and research and development tax credit were offset by the tax expense of foreign earnings, GILTI and non-deductible expenses.

SEGMENT RESULTS

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 or unusual in nature or are 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 deducting corporate costs;

certain non-cash and/or non-operating items;

other components of pension and OPEB income, net;

For purposes of measuring business segment performance, the chief operating decision maker 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 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 expenses;

other components of pension and other postretirement benefits income, net;

and interest expense, net.

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2024 Compared to 2023

Net sales increased 7.3% in 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, and commercial aerospace, and increased demand for our proprietary fastener products.

Net sales increased 1.6% in 2024 compared to 2023 due to continued strong demand in many of the Company's key end markets, with the largest increases in the aerospace and defense, heavy-duty truck, electrical distribution and consumer electronics end markets, partially offset by decreases in the power sports and industrial and agricultural equipment end markets.

In addition, net sales benefited from higher customer demand for our proprietary products throughout North America and Europe in our fastener manufacturing business.

Segment operating income increased $16.0 million to $75.0 million in 2024 compared to 2023, and segment operating income margin increased 200 basis points in 2024 compared to a year ago.

These increases were driven by the higher sales levels and the impact of profit-enhancement actions, including increased product pricing.

These increases were due primarily to the increase in sales, profit improvement initiatives and higher profit flow-through from strong demand in our fastener manufacturing business.

Assembly Components Segment

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Net sales $ 398.7 $ 427.8 $ 388.8

Segment operating income (loss) $ 33.4 $ 1.1 $ (2.6)

Segment operating income (loss) margin 7.8 % 0.3 % (0.8) %

Segment operating income $ 25.4 $ 33.4 $ 1.1

Segment operating income margin 6.4 % 7.8 % 0.3 %

2024 Compared to 2023

Net sales increased 10.0% in 2023 compared to 2022.

The sales increase was driven by increased product pricing and new programs implemented during the year.

Segment operating income was $33.4 million in 2023 compared to $1.1 million in 2022.

The improvement in segment operating results in 2023 compared to 2022 was driven by the benefit of profit-improvement initiatives implemented over the

past two years, including increased product pricing, and the higher sales levels.

Restructuring and other special charges were $1.5 million in 2023 compared to $5.6 million in 2022.

Net sales decreased 6.8% in 2024 compared to 2023 due primarily to lower product pricing on certain legacy programs and lower unit volumes primarily on end-of-life programs, partially offset by higher product pricing on certain other programs.

Segment operating income was $25.4 million in 2024 compared to $33.4 million in 2023 and segment operating income margin decreased 140 basis points in 2024 compared to a year ago.

The decreases were due to the lower product pricing and unit volumes, which were partially offset by profit enhancement initiatives in 2024.

During 2024 and 2023, we incurred $1.1 million and $1.5 million, respectively, of charges related to restructuring activities.

Engineered Products Segment

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Net sales $ 481.7 $ 468.5 $ 392.6

Segment operating income (loss) $ 19.1 $ 14.8 $ (12.2)

Segment operating income (loss) margin 4.1 % 3.8 % (3.6) %

Segment operating income $ 17.7 $ 19.1 $ 14.8

Segment operating income margin 3.7 % 4.1 % 3.8 %

2024 Compared to 2023

Net sales were 19.3% higher in 2023 compared to 2022.

The increase was driven by strong backlogs at the start of the year and higher customer demand in both our capital equipment business and our forged and machined products business.

Segment operating income in 2023 increased $4.3 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 partially offset by lower margins in our forged and machined products business.

Net sales were 2.8% higher in 2024 compared to 2023 driven by higher new capital equipment and aftermarket sales in our capital equipment business.

Segment operating income in 2024 decreased $1.4 million compared to 2023, and segment operating margin decreased 40 basis points in 2024 compared to 2023, as a result of higher operating costs in our forged and machined products business, partially offset by the higher sales and improved margins in our capital equipment business.

In addition, restructuring and other special charges were $3.6 million in 2024 and $4.9 million in 2023.

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Discontinued operations (5.2) (9.2) (9.2)

Effect of exchange rate on cash 0.9 (4.0) (1.3)

Effect of exchange rate changes on cash (2.2) 0.9 (4.0)

(Decrease) increase in cash and cash equivalents $ (1.7) $ (3.4) $ 4.1

Operating Activities

In 2023, we generated positive operating cash flow of $53.4 million compared to a cash outflow of $26.6 million in 2022.

The positive cash flow in 2023 was driven by higher income from continuing operations in 2023 and improvement in working capital in 2023.

In 2024, we generated positive operating cash flow of $35.0 million compared to $53.4 million in 2023.

Cash flow from operating activities was lower in 2024 due to higher working capital needs, which more than offset higher profitability in 2024.

Investing Activities

Capital expenditures were $31.4 million in 2024 and $28.2 million in 2023.

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

for facility consolidation in Engineered Products segment;

and to maintain existing operations.

These capital expenditures were primarily for growth initiatives, including information technology investments, across all three of our segments, and to maintain existing operations.

In 2024 and 2023, we sold assets and received aggregate proceeds of $11.5 million and $2.0 million, respectively.

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

Additionally, we received $15.5

million in relation to the sale of our Aluminum Products business, and we spent $1.2 million in the aggregate in 2023 for acquisitions, of which $0.5 million related to the 2022 acquisition of Southern Fasteners & Supply, Inc.

We spent $11.0 million for the acquisition of EMA.

Additionally, in 2023, we received $15.5 million in connection with the sale of our Aluminum Products business.

Financing Activities

Cash used by financing activities in 2023 included debt repayments of $24.3 million, payments related to prior acquisitions of $2.9 million, dividends of $7.4 million, and payments of withholding taxes on share awards of $2.0 million.

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

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

Overall, we were able to pay down debt and fund capital expenditures in 2023 using cash flows from operations and proceeds from the sale of our discontinued operation.

Cash provided by financing activities in 2024 included debt repayments of $16.0 million, payments related to prior acquisitions of $3.0 million, dividends to shareholders and noncontrolling interest partners totaling $7.2 million, and payments of withholding taxes on share awards of $2.6 million.

On June 3, 2024, the Company entered into an agreement providing for an at-the-market (“ATM”) program authorizing the sale of up to $50.0 million of the Company's common stock.

During the year ended December 31, 2024, the Company sold 550,981 shares of common stock for aggregate net proceeds of $15.9 million under the ATM program.

The Company has $34.1 million remaining under the ATM program.

In addition, in the third quarter of 2024, the Company sold 341,997 shares of common stock in a public offering to its pension plan for $10.0 million;

and 148,612 shares of common stock, for proceeds of $4.5 million, in a private offering to Matthew V.

Crawford, our Chairman of the Board, Chief Executive Officer and President, and to Crawford Capital Enterprises, LLC, an entity controlled by Edward F.

Crawford, one of our Board members.

Cash used by financing activities in 2023 included debt repayments of $24.3 million, payments related to prior acquisitions of $2.9 million, dividends to shareholders and noncontrolling interest partners totaling $7.4 million, and payments of withholding taxes on share awards of $2.0 million.

Overall, we were able to pay down debt and fund capital expenditures in 2024 using cash flows from operations, cash proceeds from asset sales and proceeds from common stock issuances.

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

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Gross debt (excluding unamortized debt issuance costs) $ 628.7 $ 645.7

Financing arrangement with third party, net $ — $ 20.0

Working capital (excluding cash) $ 406.0 $ 425.6

Working capital (excluding cash and cash equivalents) $ 421.8 $ 406.0

Net debt as a % of capitalization 60 % 64 %

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

As of December 31, 2023, we had $263.5 million outstanding under the revolving credit facility, and total liquidity of $166.0 million, which included cash and cash equivalents of $54.8 million and $111.2 million of unused borrowing availability.

As of December 31, 2024, we had $248.6 million outstanding under the revolving credit facility, and total liquidity of $198.2 million, which included cash and cash equivalents of $53.1 million and $145.1 million of unused borrowing availability under our credit arrangements.

The Company had cash and cash equivalents held by foreign subsidiaries of $43.4 million at December 31, 2024 and $44.6 million at December 31, 2023.

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Credit Agreement

On September 13, 2023, Park-Ohio amended its Eighth Amended and Restated Credit Agreement (the “Credit Agreement”).

In September 2023, Park-Ohio amended its Seventh 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.

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The dividend was paid on February 21, 2025, to shareholders of record as of the close of business on February 7, 2025 and resulted in cash payments of $1.8 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.

capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors may deem relevant.

Contractual and Other Obligations and Commitments

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Inventories identified by management as slow-moving or obsolete are reserved for based on estimated selling prices less disposal costs.

Though we consider these allowances adequate and proper, changes in economic conditions in specific markets in which we operate could have a material effect on allowances required.

Though we consider these allowances

adequate and proper, changes in economic conditions in specific markets in which we operate could have a material effect on allowances required.

Business Combinations:

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

In applying the quantitative approach, we use an income approach and market multiple approach to estimate the fair value of the reporting unit.

In applying the quantitative approach, we use the discounted cash flow method, a form of income approach, and the guideline public company method, a form of the market approach to estimate the fair value of the reporting unit.

The income approach uses a number of factors, including future business plans, actual and forecasted operating results, and market data.

The significant assumptions employed under this method include discount rates;

revenue growth rates, including assumed terminal growth rates;

The significant assumptions employed under this method include the weighted average cost of capital (“WACC”);

revenue growth rates;

and operating margins used to project future cash flows for a reporting unit.

The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows of the individual reporting unit.

The WACCs utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows of the individual reporting unit.

Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.

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The results of testing as of October 1, 2024, 2023 and 2022 for all reporting units confirmed that the estimated fair values exceeded carrying values, and no impairment existed as of those dates.

Based on our 2023 annual impairment test, we determined that the fair value of our Forged and Machined Products Group reporting unit, which is included in our Engineered Products segment, exceeded its carrying value by approximately 10% using the income approach as of the testing date.

As such, we concluded that the goodwill of this reporting unit of $8.7 million was not impaired as of that date.

Based on our 2024 annual impairment test, we determined that the fair value of our Forged and Machined Products Group reporting unit, which is included in our Engineered Products segment, exceeded its carrying value by approximately 10% as of the testing date.

As such, we concluded that the goodwill of this reporting unit of $8.7 million as of that date was not impaired.

This reporting unit was negatively impacted by equipment downtime and labor challenges, and while we believe that the current assumptions and estimates used in our goodwill testing are reasonable, supportable and appropriate, there can be no assurance that such assumptions and estimates will prove to be accurate predictions of future performance.

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The Company’s pension plans are funded.

The weighted-average expected long-term rate of return on assets assumption is 7.75% for 2023 and 2022.

The weighted-average expected long-term rate of return on assets assumption is 7.50% and 7.75% for 2024 and 2023, respectively.

In determining the expected return on plan assets, we consider both historical performance and an estimate of future long-term rates of return on assets similar to those in our plan.

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

our ability to realize any contingent consideration from the sale of the Aluminum Products business;

the impact supply chain and logistic issues have on our business, results of operations, financial position and liquidity;

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the financial condition of our customers, including the impact of any bankruptcies;

our ability to successfully integrate recent and future acquisitions into existing operations, including the EMA acquisition;

our ability to successfully integrate recent and future acquisitions into existing operations;

the amounts and timing, if any, of purchases of our common stock;

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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.

The Company assumes no obligation to update the information in this Annual Report on Form 10-K, except to the extent required by law.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis