The following table sets forth the weighted-average number of shares used in the computation of earnings per share:
Certain restricted stock awards are anti-dilutive and therefore excluded from the computation of diluted earnings per share. Anti-dilutive shares were 0.30.4 million and 0.00.3 million for the three months ended June 30, 20202021 and 2019,2020, respectively. Anti-dilutive shares were 0.30.0 million and 0.00.3 million for the six months ended June 30, 20202021 and 2019,2020, respectively.
Our condensed consolidated financial statements include the accounts of Park-Ohio Holdings Corp. and its subsidiaries (collectively, “we,” “our,” or the “Company”). All significant intercompany transactions have been eliminated in consolidation.
We are a diversified international company providing world-class customers with a supply chain management outsourcing service, capital equipment used on their production lines, and manufactured components used to assemble their products. We operate through three reportable segments: Supply Technologies, Assembly Components and Engineered Products.
Supply Technologies provides our customers with Total Supply Management™, a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers’ manufacturing floor, from strategic planning to program implementation. Total Supply Management™ includes such services as engineering and design support, part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time and point-of-use delivery, electronic billing services and ongoing technical support. Our Supply Technologies business services customers in the following principal industries: heavy-duty truck; sports and recreational equipment; aerospace and defense; semiconductor equipment; electrical distribution and controls; consumer electronics; bus and coaches; automotive, agricultural and construction equipment; HVAC; lawn and garden; plumbing; and medical.
Assembly Components manufactures products oriented towards fuel efficiency and reduced emission standards. Assembly Components designs, develops and manufactures aluminum products and highly efficient, high pressure direct fuel injection fuel rails and pipes; fuel filler pipes that route fuel from the gas cap to the gas tank; flexible multi-layer plastic and rubber assemblies used to transport fuel from the vehicle's gas tank and then, at extreme high pressure, to the engine's fuel injector nozzles. Our product offerings include gasoline direct injection systems and fuel filler assemblies, and industrial hose and injected molded rubber and plastic components. Additional products include cast and machined aluminum engine, transmission, brake, suspension and other components, such as pump housings, clutch retainers/pistons, control arms, knuckles, master cylinders, pinion housings, brake calipers, oil pans and flywheel spacers. Our products are primarily used in the following industries: automotive, including automotive and light-vehicle; agricultural equipment; construction equipment; heavy-duty truck; and marine original equipment manufacturers (“OEMs”), on a sole-source basis.
Engineered Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products, including induction heating and melting systems, pipe threading systems and forged and machined products. Engineered Products also produces and provides services and spare parts for the equipment it manufactures. The principal customers of Engineered Products are OEMs, sub-assemblers and end users in the following industries: ferrous
and non-ferrous metals; silicon; coatings; forging; foundry; heavy-duty truck; construction equipment; automotive; oil and gas; locomotive and rail manufacturing; and aerospace and defense.
In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and it continues to spread throughout the United States and other countries acrossaround the world. To limit the spread of COVID-19, governments have taken various actions, including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. ThisThe pandemic has negatively impacted several of the markets we serve, including the North American automotive market, which shut down production in mid-March 2020.serve. In late May, North American automotive production began a slow re-start, and at that time, our facilities in that market re-opened. While a number of our plants in our other segments continued to operate as essential businesses, many suspended or cut back on operating levels and shifts in response to lower customer demand as a result of the pandemic.
Subsequent Event
On July 23, 2021, the Company's Board of Directors declared a quarterly dividend of $0.125 per common share. The dividend will be paid on August 20, 2021 to shareholders of record as of the close of business on August 6, 2021 and will result in a cash outlay of approximately $1.6 million.
RESULTS OF OPERATIONS
Three Months Ended June 30, 20202021 Compared with Three Months Ended June 30, 20192020
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
| (Dollars in millions, except per share data) |
| Net sales | $ | 350.0 | | | $ | 228.3 | | | $ | 121.7 | | | 53.3 | % |
| Cost of sales | 310.1 | | | 214.1 | | | 96.0 | | | 44.8 | % |
| Gross profit | 39.9 | | | 14.2 | | | 25.7 | | | 180.9 | % |
| Gross margin | 11.4 | % | | 6.2 | % | | | | |
Selling, general and administrative (“SG&A”) expenses
| 43.3 | | | 35.1 | | | 8.2 | | | 23.4 | % |
| SG&A expenses as a percentage of net sales | 12.4 | % | | 15.4 | % | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Operating loss | (3.4) | | | (20.9) | | | 17.5 | | | (83.7) | % |
| Other components of pension income and other postretirement benefits expense, net | 2.5 | | | 1.8 | | | 0.7 | | | 38.9 | % |
| Interest expense, net | (7.4) | | | (7.5) | | | 0.1 | | | (1.3) | % |
| | | | | | | |
| Loss before income taxes | (8.3) | | | (26.6) | | | 18.3 | | | (68.8) | % |
| Income tax benefit | 2.8 | | | 9.6 | | | (6.8) | | | (70.8) | % |
| | | | | | | |
| | | | | | | |
| Net loss | (5.5) | | | (17.0) | | | 11.5 | | | (67.6) | % |
| Net loss attributable to noncontrolling interest | 0.2 | | | 0.4 | | | (0.2) | | | (50.0) | |
| Net loss attributable to Park-Ohio Holdings Corp. common shareholders | $ | (5.3) | | | $ | (16.6) | | | $ | 11.3 | | | (68.1) | % |
| | | | | | | |
| Loss per common share attributable to Park-Ohio Holdings Corp. common shareholders: | | | | | | | |
| Basic | $ | (0.44) | | | $ | (1.38) | | | $ | 0.94 | | | (68.1) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Diluted | $ | (0.44) | | | $ | (1.38) | | | $ | 0.94 | | | (68.1) | % |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | |
| | 2020 | | 2019 | | $ Change | | % Change |
| | (Dollars in millions, except per share data) |
| Net sales | $ | 228.3 |
| | $ | 415.3 |
| | $ | (187.0 | ) | | (45.0 | )% |
| Cost of sales | 214.1 |
| | 349.1 |
| | (135.0 | ) | | (38.7 | )% |
| Gross profit | 14.2 |
| | 66.2 |
| | (52.0 | ) | | (78.5 | )% |
| Gross margin | 6.2 | % | | 15.9 | % | | | | |
Selling, general and administrative (“SG&A”) expenses
| 35.1 |
| | 46.9 |
| | (11.8 | ) | | (25.2 | )% |
| SG&A expenses as a percentage of net sales | 15.4 | % | | 11.3 | % | | | | |
| Operating (loss) income | (20.9 | ) | | 19.3 |
| | (40.2 | ) | | * |
|
| Other components of pension income and other postretirement benefits expense, net | 1.8 |
| | 1.5 |
| | 0.3 |
| | 20.0 | % |
| Interest expense, net | (7.5 | ) | | (8.7 | ) | | 1.2 |
| | (13.8 | )% |
| (Loss) income before income taxes | (26.6 | ) | | 12.1 |
| | (38.7 | ) | | * |
|
| Income tax benefit (expense) | 9.6 |
| | (4.2 | ) | | 13.8 |
| | * |
|
| Net (loss) income | (17.0 | ) | | 7.9 |
| | (24.9 | ) | | * |
|
| Net loss (income) attributable to noncontrolling interest | 0.4 |
| | (0.3 | ) | | 0.7 |
| | * |
|
| Net (loss) income attributable to Park-Ohio Holdings Corp. common shareholders | $ | (16.6 | ) | | $ | 7.6 |
| | $ | (24.2 | ) | | * |
|
| | | | | | | | |
| (Loss) income per common share attributable to Park-Ohio Holdings Corp. common shareholders: | | | | | | | |
| Basic | $ | (1.38 | ) | | $ | 0.62 |
| | $ | (2.00 | ) | | * |
|
| Diluted | $ | (1.38 | ) | | $ | 0.61 |
| | $ | (1.99 | ) | | * |
|
* Calculation not meaningful
Net Sales
Net sales decreased 45.0%increased 53.3% to $228.3$350.0 million in the second quarter of 20202021 compared to $415.3$228.3 million in the same period in 2019.2020. This decreaseincrease was primarily due to higher customer demand across all three of our business segments, largely driven by recovery from lower demand from several end markets primarily drivensales levels in the 2020 second quarter caused by the COVID-19 pandemic. Severalpandemic, including a shut-down of the North American automotive market and reduced customer plant closures and changes in production schedules affected our businesses, primarily in our Assembly Components segment.demand across many other global end markets.
The factors explaining the changes in segment net sales for the three months ended June 30, 20202021 compared to the corresponding 20192020 period are contained within the “Segment Results” section below.
Cost of Sales & Gross Profit
Cost of sales decreased 38.7%increased 44.8% to $214.1$310.1 million in the second quarter of 20202021 compared to $349.1$214.1 million in the same period in 2019.2020. The decreaseincrease in cost of sales was primarily due to the decreaseincrease in net sales for the 20202021 period compared to the corresponding period in 2019.2020.
Gross margin was 6.2%11.4% in the second quarter of 20202021 compared to 15.9%6.2% in the same period in 2019.2020. The decreaseincrease was due primarily to lowerhigher profit flow-through from higher sales in the lower sales volumes2021 period compared to the same period a year ago. The second quarter of 2021 included expenses of $0.6 million related to plant closure and unfavorable product mix, partially offset by the benefit of cost-reductionconsolidation, severance and other actions taken in response to current market conditions.reduce costs. The second quarter of 2020 includesincluded charges of $2.9 million related to plant closure and consolidation, severance and other actions to reduce costs during this period. Thecosts.
SG&A Expenses
SG&A expenses increased to $43.3 million in the second quarter of 2019 includes2021 compared to $35.1 million in the comparable period in 2020, an increase of 23.4%. In response to significantly lower demand levels caused by the pandemic in the 2020 second quarter, the Company took immediate actions in many of its operations to reduce costs, including workforce furloughs, permanent headcount reductions, salary and incentive compensation reductions, and cuts in discretionary spending. As demand levels increased in 2021, a portion of the SG&A expense reduction from 2020 was restored to meet the increasing demand. SG&A expenses in the 2021 period included $0.8 million of charges of $1.7 million related to plant closure and consolidation.
SG&A Expenses
$0.4 million. SG&A expenses decreased to $35.1 million, or 15.4% of net sales, in the second quarter2020 period included severance and other charges of 2020 compared to $46.9 million, or 11.3% of net sales, in the same period in 2019. The amount in 2019 includes$0.4 million. As a $4.3 million charge related to departure of the Company’s former President. SG&A expenses were down 25.2% compared to the same period a year ago, driven by the benefit from cost reduction actions implemented across the company in response to the COVID-19 pandemic and the 2019 charge mentioned above. The increase in SG&A as of percentage of net sales, was due to a fixed portion of SG&A expenses over a lower revenue base.improved to 12.4% in the 2021 second quarter compared to 15.4% in the 2020 second quarter.
Other Components of Pension Income and Other Postretirement Benefits Expense (“OPEB”), Net
Other components of pension income and OPEB expense, net was $1.8$2.5 million in the three months ended June 30, 20202021 compared to $1.5$1.8 million in the corresponding period in 2019.2020. This increase in the 20202021 period relates to higher returns on plan assets in the 20202021 period compared to the same period a year ago.
Interest Expense, netNet
Interest expense, net was $7.5$7.4 million in the second quarter of 20202021 compared to $8.7$7.5 million in the 20192020 period. The decrease was due to lower average interest rates and lower average outstanding borrowings during the 20202021 period.
Income Tax Benefit/ExpenseBenefit
Income tax benefit for the three months ended June 30, 20202021 was $9.6$2.8 million, representing an effective rate of 36.1%34%, compared to income tax expense of $4.2$9.6 million, or 34.3%36%, for the three months ended June 30, 2019.2020. The rate in the 2021 period is higher than the U.S. statutory rate of 21% due primarily to the additional benefit recorded as result of the net operating loss carryback claim under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and amended returns filed during the quarter. The rate in the 2020 period is higher than the U.S. statutory rate of 21% due primarily to a U.S. net operating loss carryback to a prior year under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The ratean earnings mix that yields an increase in the 2019 period is higher thanGlobal Intangible Low-Taxed Income (“GILTI”) inclusion, and also reduces the U.S. statutory rate due tobenefit of foreign tax credits and the impact of the $6.0 million one-time, non-deductible payment related to the resignation of the Company’s former President.Foreign Derived Intangible Income (“FDII”) deduction.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020
Compared with Six Months Ended June 30, 2019
| | | | Six Months Ended June 30, | | | | | | Six Months Ended June 30, | |
| | 2020 | | 2019 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change |
| | (Dollars in millions, except per share data) | | (Dollars in millions, except per share data) |
| Net sales | $ | 594.6 |
| | $ | 835.4 |
| | $ | (240.8 | ) | | (28.8 | )% | Net sales | $ | 709.6 | | | $ | 594.6 | | | $ | 115.0 | | | 19.3 | % |
| Cost of sales | 526.5 |
| | 703.9 |
| | (177.4 | ) | | (25.2 | )% | Cost of sales | 617.7 | | | 526.5 | | | 91.2 | | | 17.3 | % |
| Gross profit | 68.1 |
| | 131.5 |
| | (63.4 | ) | | (48.2 | )% | Gross profit | 91.9 | | | 68.1 | | | 23.8 | | | 34.9 | % |
| Gross margin | 11.5 | % | | 15.7 | % | | | | | Gross margin | 13.0 | % | | 11.5 | % | |
SG&A expenses
| 76.0 |
| | 89.7 |
| | (13.7 | ) | | (15.3 | )% | SG&A expenses | 83.0 | | | 76.0 | | | 7.0 | | | 9.2 | % |
| SG&A expenses as a percentage of net sales | 12.8 | % | | 10.7 | % | | | | | SG&A expenses as a percentage of net sales | 11.7 | % | | 12.8 | % | |
| Operating (loss) income | (7.9 | ) | | 41.8 |
| | (49.7 | ) | | * |
| |
| Other components of pension income and OPEB expense, net | 3.6 |
| | 2.8 |
| | 0.8 |
| | 28.6 | % | |
| | Operating income (loss) | | Operating income (loss) | 8.9 | | | (7.9) | | | 16.8 | | | 212.6 | % |
| Other components of pension income and other postretirement benefits expense, net | | Other components of pension income and other postretirement benefits expense, net | 4.9 | | | 3.6 | | | 1.3 | | | 36.1 | % |
| Interest expense, net | (15.5 | ) | | (16.9 | ) | | 1.4 |
| | (8.3 | )% | Interest expense, net | (14.8) | | | (15.5) | | | 0.7 | | | (4.5) | % |
| (Loss) income before income taxes | (19.8 | ) | | 27.7 |
| | (47.5 | ) | | * |
| |
| Income tax benefit (expense) | 4.1 |
| | (8.1 | ) | | 12.2 |
| | * |
| |
| Net (loss) income | (15.7 | ) | | 19.6 |
| | (35.3 | ) | | * |
| |
| Net loss (income) attributable to noncontrolling interests | 0.3 |
| | (0.8 | ) | | 1.1 |
| | * |
| |
| Net (loss) income attributable to Park-Ohio Holdings Corp. common shareholders | $ | (15.4 | ) | | $ | 18.8 |
| | $ | (34.2 | ) | | * |
| |
| | | | | | | | | |
| (Loss) income per common share attributable to Park-Ohio Holdings Corp. common shareholders: | | | | | | | | |
| Loss before income taxes | | Loss before income taxes | (1.0) | | | (19.8) | | | 18.8 | | | (94.9) | % |
| Income tax benefit | | Income tax benefit | 0.9 | | | 4.1 | | | (3.2) | | | (78.0) | % |
| | Net loss | | Net loss | (0.1) | | | (15.7) | | | 15.6 | | | * |
| Net loss attributable to noncontrolling interests | | Net loss attributable to noncontrolling interests | 0.3 | | | 0.3 | | | — | | | — | % |
| Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders | | Net income (loss) attributable to Park-Ohio Holdings Corp. common shareholders | $ | 0.2 | | | $ | (15.4) | | | $ | 15.6 | | | * |
| | Income (loss) per common share attributable to Park-Ohio Holdings Corp. common shareholders: | | Income (loss) per common share attributable to Park-Ohio Holdings Corp. common shareholders: | |
| Basic | $ | (1.27 | ) | | $ | 1.54 |
| | $ | (2.81 | ) | | * |
| Basic | $ | 0.02 | | | $ | (1.27) | | | $ | 1.29 | | | * |
| | Diluted | $ | (1.27 | ) | | $ | 1.51 |
| | $ | (2.78 | ) | | * |
| Diluted | $ | 0.02 | | | $ | (1.27) | | | $ | 1.29 | | | * |
|
*Calculation not meaningful
Net Sales
Net sales decreased 28.8%increased 19.3% to $594.6$709.6 million in the first six months of 20202021 compared to $835.4$594.6 million in the same period in 2019.2020. This decreaseincrease was primarily due to higher customer demand in our Supply Technologies and Assembly Components business segments, partially offset by lower demand from several end markets primarily driven by the COVID-19 pandemic. Several customer plant closures and changes in production schedules affected our businesses, primarily in our Assembly ComponentsEngineered Products segment.
The factors explaining the changes in segment net sales for the six months ended June 30, 20202021 compared to the corresponding 20192020 period are contained in the “Segment Results” section below.
Cost of Sales & Gross Profit
Cost of sales decreased 25.2%increased 17.3% to $526.5$617.7 million in the first six months of 20202021 compared to $703.9$526.5 million in the same period in 2019.2020. The decreaseincrease in cost of sales was primarily due to the decreaseincrease in net sales described above.
Gross margin was 11.5%13.0% in the first six months of 20202021 compared to 15.7%11.5% in the corresponding period in 2019.2020. The decreaseincrease was due primarily to lowerhigher profit flow-through from higher sales in the lower sales volumes2021 period compared to the same period a year ago. The 2021 period included expenses of $1.1 million related to plant closure and unfavorable product mix, partially offset by the benefitconsolidation, severance and other
actions taken in response to current market conditions.reduce costs. The 2020 period includesincluded charges
of $3.1 million related to plant closure and consolidation, severance and other actions to reduce costs during this period. The 2019 period includes charges of $3.0 million related to plant closure and consolidation.costs.
SG&A Expenses
SG&A expenses were $76.0$83.0 million or 12.8% of net sales, in the first six months of 2020,2021, compared to $89.7$76.0 million or 10.7% of net sales, in the same period in 2019. The amount2020, an increase of 9.2%. In response to significantly lower demand levels caused by the pandemic in 2019 includes2020, the Company took immediate actions in many of its operations to reduce costs, including workforce furloughs, permanent headcount reductions, salary and incentive compensation reductions, and cuts in discretionary spending. As demand levels increased in 2021, a $4.3portion of the SG&A expense reduction from 2020 was restored to meet the increasing demand. SG&A expenses in the 2021 period included $1.6 million chargeof charges related to departureplant closure and consolidation, severance and other actions to reduce costs, and acquisition-related expenses of the Company’s former President.$0.4 million. SG&A expenses were down 15.3% compared toin the same2020 period a year ago, driven by the benefit from cost reduction actions implemented across the companyincluded severance and the impactother charges of the 2019 charge mentioned above. The increase in SG&A as of$0.6 million. As a percentage of net sales, was due to a fixed portion of SG&A expenses over a lower revenue base.improved to 11.7% in the 2021 period compared to 12.8% in the 2020 period.
Other Components of Pension Income and OPEB, Net
Other components of pension income and OPEB expense, net was $3.6$4.9 million in the first six months of 20202021 compared to $2.8$3.6 million in the corresponding period in 2019.2020. This increase was driven by higher returns on plan assets and lower interest costs in the 20202021 period compared to the same period a year ago.
Interest Expense, netNet
Interest expense, net was $15.5$14.8 million in the first six months of 20202021 compared to $16.9$15.5 million in 2019.the 2020 period. The decrease was due primarily to lower average interest rates and lower average outstanding borrowings duringin the 2020 period.2021 period compared to the same period a year ago.
Income Tax Benefit/ExpenseBenefit
Income tax benefit for the six months ended June 30, 20202021 was $4.1$0.9 million, representing an effective rate of 20.7%90%, compared to income tax expensebenefit of $8.1 million,$4.1million, or 29.2%21%, for the six months ended June 30, 2019.2020. The rate in the 20192021 period includesis higher than the $6.0 million one-time, non-deductible payment mentioned above.U.S. statutory rate of 21% due primarily to the additional benefit recorded as result of the net operating loss carryback claim under the CARES Act and the composition of earnings.
SEGMENT RESULTS
For purposes of business segment performance measurement, the Company utilizes segment operating income, which is defined as revenues less expenses identifiable to the product lines within each segment. The Company does not allocate items that are non-operating or unusual in nature or are corporate costs, which include but are not limited to executive and share-based compensation and corporate office costs.
Supply Technologies Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
| Net sales | $ | 155.0 | | | $ | 94.4 | | | $ | 312.7 | | | $ | 235.2 | |
| Segment operating income | $ | 10.2 | | | $ | 0.3 | | | $ | 22.5 | | | $ | 9.5 | |
| Segment operating income margin | 6.6 | % | | 0.3 | % | | 7.2 | % | | 4.0 | % |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (Dollars in millions) |
| Net sales | $ | 94.4 |
| | $ | 161.5 |
| | $ | 235.2 |
| | $ | 326.8 |
|
| Segment operating income | $ | 0.3 |
| | $ | 11.3 |
| | $ | 9.5 |
| | $ | 24.4 |
|
| Segment operating income margin | 0.3 | % | | 7.0 | % | | 4.0 | % | | 7.5 | % |
Three months ended June 30:
Net sales decreased 41.5%increased 64.2% in the three months ended June 30, 20202021 compared to the 20192020 period due primarily to lower customer demand in certain end markets, including the Company’s automotive market, primarily affecting our fastener manufacturing business; the Company's truck and truck-related market, which was down 71% year-over-year; the Company’s power sports market, which was down 39% year-over-year; the Company’s aerospace and defense market, which was down 49% year-over-year; the Company’s industrial and agricultural equipment market, which was down 35% year-over-year; and
the Company’s consumer products market, which was down 29% year-over-year. These decreases were partially offset by higher customer demand in substantially all of the Company’s semiconductor market, which was up 49% year-over-year;Company's end markets, with the largest increases in heavy-duty truck, powersports, automotive and the Company’s medical market, which was up 110% year-over-year. Sales were negatively impacted byagricultural equipment. As a result of the COVID-19 pandemic, customer demand in certain2020 was down significantly in most of our key end markets, primarily automotive, during the 2020 period.markets.
Segment operating income decreasedincreased by $11.0$9.9 million and segment operating income margin was down 670up 630 basis points in the 2021 period compared to the same period a year ago. These increases were driven by increased sales, the impact of cost reduction actions taken in response to the COVID-19 pandemic and favorable product mix. These positive factors were partially offset by higher freight costs in the 2021 period as a result of global supply chain constraints and a labor strike at a major truck assembly plant.
Six months ended June 30:
Net sales increased 33.0% in the six months ended June 30, 2021 compared to the 2020 period due primarily to higher customer demand in most of the Company's end markets, with the biggest increases in heavy-duty truck, powersports, automotive and agricultural equipment. As a result of the COVID-19 pandemic, customer demand in 2020 was down significantly in most of our key end markets.
Segment operating income increased by $13.0 million and segment operating income margin was up 320 basis points in the 2021 period compared to the same period a year ago. These net decreasesincreases were driven by lower profit flow-through from lowerincreased sales, levels and unfavorable sales mix, offset by the benefitsimpact of cost-reductioncost reduction actions implementedtaken in response to current market conditions.the COVID-19 pandemic and favorable product mix. These positive factors were partially offset by higher freight costs in the 2021 period as a result of global supply chain constraints and a labor strike at a major truck assembly plant.
Assembly Components Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
| Net sales | $ | 109.5 | | | $ | 54.9 | | | $ | 235.5 | | | $ | 183.1 | |
| Segment operating (loss) income | $ | (6.1) | | | $ | (14.6) | | | $ | 0.3 | | | $ | (8.3) | |
| Segment operating (loss) income margin | (5.6) | % | | (26.6) | % | | 0.1 | % | | (4.5) | % |
Three months ended June 30:
Net sales increased 99.5% in the three months ended June 30, 2021 compared to the 2020 period due primarily to the shut-down of North American automotive production in the second quarter of 2020 as a result of the COVID-19 pandemic.
Segment operating loss in the 2021 period improved by $8.5 million, and segment operating loss margin improved significantly compared to the corresponding period of 2020. These increases were due primarily to higher profit flow-through on the higher sales levels. The loss in the 2021 period was driven by the negative impacts of the global semiconductor chip shortage; higher raw material costs; operational inefficiencies driven by labor shortages, including higher temporary labor costs; charges of $0.8 million related to plant closure and consolidation activities; and new program start-up and launch costs. The loss in the 2020 period was driven by lower sales as a result of the COVID-19 pandemic.
Six months ended June 30:
Net sales decreased 28.0%increased 28.6% in the six months ended June 30, 20202021 compared to the 20192020 period due primarily to lower customer demand in certain end markets, including
the Company’sshut-down of North American automotive market, primarily affecting our fastener manufacturing business; the Company's truck and truck-related market, which was down 52% year-over-year; the Company's power sports market, which was down 24% year-over-year; the Company's aerospace and defense market, which was down 39% year-over-year; and the Company’s consumer products market, which was down 25% year-over-year. These decreases were partially offset by higher customer demandproduction in the Company’s semiconductor market, which was up 48% year-over-year; and the Company’s medical market, which was up 60% year-over-year. Sales were negatively impacted bysecond quarter of 2020 as a result of the COVID-19 pandemic in certain end markets, primarily automotive, during the 2020 periodpandemic.
.
Segment operating income decreasedin the 2021 period increased by $14.9$8.5 million, and segment operating income margin improved compared to the 2020 period. These improvements were due primarily to higher profit flow-through on the higher sales levels. The loss in the 2021 period was down 350 basis pointsdriven by the factors listed above under the three-month discussion. The loss in the 2020 period compared to the same period a year ago. These net decreases werewas driven by lower profit flow-through from lower sales levels and unfavorable sales mix, offset byas a result of the benefits of cost-reduction actions implemented in response to current market conditions.COVID-19 pandemic.
Assembly ComponentsEngineered Products Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
| Net sales | $ | 85.5 | | | $ | 79.0 | | | $ | 161.4 | | | $ | 176.3 | |
| Segment operating (loss) income | $ | (0.7) | | | $ | (0.8) | | | $ | (1.9) | | | $ | 3.0 | |
| Segment operating (loss) income margin | (0.8) | % | | (1.0) | % | | (1.2) | % | | 1.7 | % |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (Dollars in millions) |
| Net sales | $ | 54.9 |
| | $ | 136.3 |
| | $ | 183.1 |
| | $ | 274.6 |
|
| Segment operating (loss) income | $ | (14.6 | ) | | $ | 8.3 |
| | $ | (8.3 | ) | | $ | 16.6 |
|
| Segment operating (loss) income margin | (26.6 | )% | | 6.1 | % | | (4.5 | )% | | 6.0 | % |
Three months ended June 30:
Net sales decreased 59.7% in the three months ended June 30, 2020 compared to the 2019 period due primarily to customer plant closures and reduced vehicle production, which began in mid-March 2020 and continued until late May, when the market started a slow re-opening and our facilities re-started production, albeit at lower levels than before the pandemic.
Segment operating (loss) income in the 2020 period decreased by $22.9 million, and segment operating (loss) income margin decreased to (26.6)% from 6.1% in the corresponding period of 2019. These decreases were due primarily to the impact of the lower sales volumes noted above, partially offset by the benefits of cost-reduction actions taken in response to current operating conditions as a result of the pandemic. In the 2020 period, this segment incurred charges of $2.2 million related to plant closing and consolidation and other actions to reduce costs. In the 2019 period, this segment incurred charges of $1.7 million related to plant closing and consolidation.
Six months ended June 30:
Net sales decreased 33.3% in the six months ended June 30, 2020 compared to the 2019 period due primarily to customer plant closures and reduced vehicle production, which began in mid-March 2020 and continued until late May, when the market started a slow re-opening and our facilities re-started production, albeit at lower levels than before the pandemic.
Segment operating (loss) income in the 2020 period decreased by $24.9 million, and segment operating income (loss) margin decreased to (4.5)% from 6.0% in the corresponding period of 2019. These decreases were due primarily to the impact of the lower sales volumes noted above, partially offset by the benefits of cost-reduction actions taken in response to current operating conditions as a result of the pandemic. In the 2020 period, this segment incurred charges of $2.3 million related to plant closing and consolidation and other actions to reduce costs. In the 2019 period, this segment incurred charges of $3.1 million related to plant closing and consolidation.
Engineered Products Segment
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (Dollars in millions) |
| Net sales | $ | 79.0 |
| | $ | 117.5 |
| | $ | 176.3 |
| | $ | 234.0 |
|
| Segment operating (loss) income | $ | (0.8 | ) | | $ | 11.5 |
| | $ | 3.0 |
| | $ | 19.6 |
|
| Segment operating (loss) income margin | (1.0 | )% | | 9.8 | % | | 1.7 | % | | 8.4 | % |
Three months ended June 30:
Net sales were 32.8% lower8.2% higher in the 20202021 period compared to the 20192020 period. The decreaseincrease was due to stronger demand in the 2021 period for our capital equipment products, partially offset by lower customer demand for new capital equipment and lower demand in certain key end markets in our forged and machined products business, including oil and gas, aerospace, rail and aerospace and defense.agriculture.
Segment operating (loss) incomeloss in the 20202021 period decreasedimproved by $12.3$0.1 million compared to the corresponding 2019 period. This decrease was driven by2020 period as a result of the lowerhigher sales levels unfavorable sales mix,and improved profitability in our capital equipment group in the negative impacts of the COVID-19 pandemic on certain product lines, and manufacturing underabsorption at certain plants. The decreases2021 period, which were partially offset by the benefitsmanufacturing under-absorption of cost-reduction actions that the Company has implementedfixed costs at certain plants and by charges of $0.6 million in response2021 related to current market conditions.plant closure and consolidation.
Six months ended June 30:
Net sales were 24.7%8.5% lower in the 20202021 period compared to the 20192020 period. The decrease was due to lower customer demand for new capital equipment and lower demand in certain key end markets in our forged and machined products business including oil and gas and aerospace and defense. These decreases were partially offset by the sales from our Erie Press acquisition in May 2019.lower customer demand for new capital equipment.
Segment operating loss was $1.9 million in the 2021 period compared to segment operating income of $3.0 million in the 2020 period decreased by $16.6period. This decrease in profitability of $4.9 million and segment operating income margin decreased by 670 basis points comparedwas due to the corresponding 2019 period. These decreases were driven by the lower sales levels, unfavorable sales mix, the negative impactsmanufacturing under-absorption of the COVID-19 pandemic on certain product lines, and manufacturing underabsorptionfixed costs at certain plants. The decreases were partially offset byplants, and charges of $1.3 million related to plant closure and consolidation activities in the benefits2021 period.
Liquidity and Capital Resources
The following table summarizes the major components of cash flow:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2021 | | 2020 | | $ Change |
| Net cash provided (used) by: | (In millions) |
| Operating activities | $ | (23.3) | | | $ | 9.5 | | | $ | (32.8) | |
| Investing activities | (19.8) | | | (8.0) | | | (11.8) | |
| Financing activities | 43.7 | | | (4.3) | | | 48.0 | |
| Effect of exchange rate changes on cash | (0.3) | | | (1.3) | | | 1.0 | |
| Increase in cash and cash equivalents | $ | 0.3 | | | $ | (4.1) | | | $ | 4.4 | |
|
| | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | $ Change |
| Net cash (used) provided by: | (In millions) |
| Operating activities | $ | 9.5 |
| | $ | 2.8 |
| | $ | 6.7 |
|
| Investing activities | (8.0 | ) | | (28.3 | ) | | 20.3 |
|
| Financing activities | (4.3 | ) | | 14.8 |
| | (19.1 | ) |
| Effect of exchange rate changes on cash | (1.3 | ) | | 0.3 |
| | (1.6 | ) |
| Increase (decrease) in cash and cash equivalents | $ | (4.1 | ) | | $ | (10.4 | ) | | $ | 6.3 |
|
Operating Activities
Cash generated by operating activities in the 20202021 period was higherlower than in the prior year period as the Company reduceddriven by higher working capital usage in the six months ended June 30, 2021 compared to the same period a year ago. In the 2021 period, working capital usage was $40.2 million, compared to working capital reduction in the 2020 period of $6.3 million. Higher inventories were the primary driver of our higher working capital in 2021, due to both higher material costs and increased inventory levels in certain businesses and locations in response to current market conditions, which more thanglobal supply chain constraints, various facility closures and consolidations, and certain new program launches. Working capital usage was partially offset by a lower net loss in the low profitability in 2020.2021 period compared to the 2020 period.
Investing Activities
Capital expenditures were $9.4$14.4 million in the six months ended June 30, 20202021 and were primarily to provide increased capacity for future growth in our Assembly Components segment and to maintain existing operations. InDuring the first six months ended June 30, 2021, the Company also acquired NYK Component Solutions Limited (“NYK”) for $5.4 million, net of 2019, we had $20.7cash acquired. Capital expenditures of $9.4 million of capital expenditures. The lower capital expenditures in the 2020 period reflect our decision to reducewere lower than in the 2021 period, as we aggressively managed capital spending in 2020 in response to current market conditions and to enhance our liquidity. In the first six months of 2020, we had proceeds of $1.4 million from the sale of an asset.pandemic.
Financing Activities
During the six months ended June 30, 2020,2021, we had net borrowing on our revolving credit and other facilitiesdebt borrowings of $49.0 million compared to $3.3 million in the 2020 period. The increased borrowings in the current year period were used to fund our higher working capital expenditureslevels, our higher capital level, and our common share repurchases. We also repaid the remaining balanceacquisition of $4.5 million on our loan with Banco Bilbao Vizcaya Argentaria, S.A.NYK. In addition, in the six months ended June 30, 2019,2021, we had net debt repayments of $1.4 million. We paid dividendsmade two cash dividend payments to shareholders oftotaling $3.1 million, whereas in the 2020 period, we only made one cash dividend payment totaling $1.6 million, inas the first six months of 2020 and $3.2 million in in the first six months of 2019, as wedividend was temporarily suspended our quarterly cash dividend in the second quarter of 2020 in response to preserve liquidity during the COVID-19 pandemic. In the 2020 period, the Company repurchased treasury shares totaling $5.3 million.
We do not have off-balance sheet arrangements, financing or other relationships with unconsolidated entities or other persons, other than the letters of credits disclosed in Note 910 to the condensed consolidated financial statements, included elsewhere herein.
Liquidity
Our liquidity needs are primarily for working capital, capital expenditures, dividends and acquisitions. Our primary sources of liquidity have been funds provided by operations, funds available from existing bank credit arrangements and the sale of our debt securities. Our existing financial resources (working capital and available bank borrowing arrangements) and
anticipated cash flow from operations are expected to be adequate to meet anticipated cash requirements for at least the next twelve months, including but not limited to our ability to maintain current operations and fund capital expenditure requirements, service our debt, pay dividends, pursue acquisitions, and repurchase common shares.
As of June 30, 2020,2021, we had total liquidity of $196.9$221.4 million, which included $145.0$166.1 million of unused borrowing availability and cash and cash equivalents of $51.9$55.3 million. We also suspended our quarterly cash dividend to further enhance our liquidity.
The Company had cash and cash equivalents held by foreign subsidiaries of $39.0$44.2 million at June 30, 20202021 and $45.4$44.7 million at December 31, 2019.2020. We do not expect restrictions on repatriation of cash held outside the U.S. to have a material effect on our overall liquidity, financial condition or results of operations for the foreseeable future.
The Company has two components to its assertion regarding reinvestment of foreign earnings outside of the United States. First, for all foreign subsidiaries except RB&W Corporation of Canada (“RB&W”), all earnings are permanently reinvested outside of the United States. Second, for RB&W, dividend distributions may be made, but only to the extent of current earnings in excess of cash required to fund its business operations; all accumulated earnings are permanently reinvested.
Senior Notes
In April 2017, Park-Ohio Industries, Inc. (“Park-Ohio”), the operating subsidiary of Park-Ohio Holdings Corp., completed the sale, in a private placement, of $350.0 million aggregate principal amount of 6.625% Senior Notes due 2027 (the “Notes”). The net proceeds from the issuance of the Notes were used to repay in full our previously outstanding 8.125% Senior Notes due 2021 and our outstanding term loan, and to repay a portion of the borrowings then outstanding under our revolving credit facility.
Credit Agreement
In June 2018, Park-Ohio entered into Amendment No. 1 to its Seventh Amended and Restated Credit Agreement (the “Credit Agreement”). The amendment to the Credit Agreement, among other things, provided increases in the availability under the revolving credit facility from $350.0 million to $375.0 million, the Canadian revolving subcommitment from $35.0 million to $40.0 million and the European revolving subcommitment from $25.0 million to $30.0 million. Furthermore, the Company has the option, pursuant to the Credit Agreement, to increase the availability under the revolving credit facility by an aggregate incremental amount up to $100.0 million. In 2019, Park-Ohio entered into Amendment No. 4 to the Credit Agreement, extending the maturity of the Credit Agreement to November 26, 2024.
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 $16.7$15.4 million were borrowed under the Lease Agreement to acquire machinery and equipment as of June 30, 2020.2021.
Covenants
The future availability of bank borrowings under the revolving credit facility provided by the Credit Agreement is based on (1) our calculated availability under the Credit Agreement and (2) if such calculated availability decreases below $46.875 million, our ability to meet a debt service ratio covenant. If our calculated availability is less than $46.875 million, our debt service coverage ratio must be greater than 1.0. At June 30, 2020,2021, our calculated availability under the Credit Agreement was $125.7$143.6 million; therefore, the debt service ratio covenant did not apply.
Failure to maintain calculated availability of at least $46.875 million and meet the debt service ratio covenant could materially impact the availability and interest rate of future borrowings. Our debt service coverage ratio could be materially impacted by negative economic trends, including the negative trends caused by the COVID-19 pandemic. 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 $46.875 million, and a defined debt service coverage ratio of 1.15.
WeAs our calculated availability under the Credit Agreement was above $46.875 million, we were also in compliance with the other covenants contained in the revolving credit facility as of June 30, 2020.2021. While we expect to remain in compliance throughout 2020,2021, declines in sales volumes in the future, including furtherany declines caused by the COVID-19 pandemic, could adversely impact our ability to remain in compliance with certain of these financial covenants. Additionally, to the extent our customers are adversely affected by declines in the economy in general, including the decline caused by the COVID-19 pandemic, they may be unable to pay their accounts payable to us on a timely basis or at all,
which could make our accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility.
Dividends
The Company paid dividends to shareholders of $1.6$3.1 million during the six months ended June 30, 2020. To preserve liquidity in response to2021. On July 23, 2021, the pandemic, the Company has suspended payingCompany's Board of Directors declared a quarterly dividend of $0.125 per common share. The dividend will be paid on August 20, 2021 to our common shareholders.shareholders of record as of the close of business on August 6, 2021 and will result in a cash outlay of approximately $1.6 million.
Seasonality; Variability of Operating Results
The timing of orders placed by our customers has varied with, among other factors, orders for customers’ finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of our businesses. Such variability is particularly evident in our capital equipment business, included in the Engineered Products segment, which typically ships large systems at a relatively lower pace than our other businesses.
Critical Accounting Policies
Our critical accounting policies are described in "Item. 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations," and in the notes to our consolidated financial statements for the year ended December 31, 2019,2020, both contained in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. There were no new critical accounting policies or updates to existing critical accounting policies as a result of new accounting pronouncements in this Quarterly Report on Form 10-Q.
The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “estimates” and similar expressions are intended to identify forward-looking statements.
These forward-looking statements, including statements regarding future performance of the Company, that are subject to
known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or
industry results, to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements. These factors that could cause actual results to differ materially from expectations include, but are
not limited to, the following: the ultimate impact the COVID-19 pandemic has on our business, results of operations, financial position and liquidity;liquidity, including, without limitation, supply chain issues such as the global semiconductor chip shortage and logistic issues; our substantial indebtedness; the uncertainty of the global economic environment; general business conditions
and competitive factors, including pricing pressures and product innovation; demand for our products and
services; the impact of labor disturbances affecting our customers; raw material availability and pricing; fluctuations in energy
costs; component part availability and pricing; changes in our relationships with customers and suppliers; the financial
condition of our customers, including the impact of any bankruptcies; our ability to successfully integrate recent and future
acquisitions into existing operations; the amounts and timing, if any, of purchases of our common stock; changes in general
economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs,
recessions and changing government policies, laws and regulations, including those related to the current global uncertainties
and crises, such as tariffs and surcharges; adverse impacts to us, our suppliers and customers from acts of terrorism or
hostilities; public health issues, including the outbreak of COVID-19 and its impact on our facilities and operations and our
customers and suppliers; our ability to meet various covenants, including financial covenants, contained in the agreements
governing our indebtedness; disruptions, uncertainties or volatility in the credit markets that may limit our access to capital;
potential disruption due to a partial or complete reconfiguration of the European Union; increasingly stringent domestic and
foreign governmental regulations, including those affecting the environment or import and export controls and other trade
barriers; inherent uncertainties involved in assessing our potential liability for environmental remediation-related activities; the
outcome of pending and future litigation and other claims and disputes with customers; our dependence on the automotive and
heavy-duty truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending; our
ability to negotiate contracts with labor unions; our dependence on key management; our dependence on information systems;
our ability to continue to pay cash dividends, and the timing and amount of any such dividends; and the other factors we describe under “Item 1A. Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved.
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| | | | |
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
We are exposed to market risk, including changes in interest rates. As of June 30, 2020,2021, we are subject to interest rate risk on borrowings under the floating rate revolving credit facility provided by our Credit Agreement. A 100-basis-point increase in the interest rate would have resulted in an increase in interest expense on these borrowings of approximately $0.9$1.0 million during the six-monthsix-month period ended June 30, 2020.2021.
Our foreign subsidiaries generally conduct business in local currencies. We face translation risks related to the changes in foreign currency exchange rates. Amounts invested in our foreign operations are translated in U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive loss in the Shareholders' equity section of the accompanying Condensed Consolidated Balance Sheets. Sales and expenses at our foreign operations are translated into U.S. dollars at the applicable monthly average exchange rates. Therefore, changes in exchange rates may either positively or negatively affect our net sales and expenses from foreign operations as expressed in U.S. dollars.
Our largest exposures to commodity prices relate to metal and natural gas prices, which have fluctuated widely in recent years. We do not have any commodity swap agreements, forward purchase or hedge contracts.
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| | | | |
| Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures.
Under the supervision of and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.
Changes in internal control over financial reporting.
During the quarter ended June 30, 2020,2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
We are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation are not expected to have a material adverse effect on our financial condition, liquidity or results of operations.
In addition to the routine lawsuits and asserted claims noted above, we were a party to the lawsuits and legal proceedings described below as of June 30, 2020:2021:
We were a co-defendant in approximately 118125 cases asserting claims on behalf of approximately 220229 plaintiffs alleging personal injury as a result of exposure to asbestos. These asbestos cases generally relate to production and sale of asbestos-containing products and allege various theories of liability, including negligence, gross negligence and strict liability, and seek compensatory and, in some cases, punitive damages.
In every asbestos case in which we are named as a party, the complaints are filed against multiple named defendants. In substantially all of the asbestos cases, the plaintiffs either claim damages in excess of a specified amount, typically a minimum amount sufficient to establish jurisdiction of the court in which the case was filed (jurisdictional minimums generally range from $25,000 to $75,000), or do not specify the monetary damages sought. To the extent that any specific amount of damages is sought, the amount applies to claims against all named defendants.
There are threefour asbestos cases, involving 1920 plaintiffs, that plead specified damages against named defendants. In each of the threefour cases, the plaintiff is seeking compensatory and punitive damages based on a variety of potentially alternative causes of action. In two cases, the plaintiff has alleged three counts at $3.0 million compensatory and punitive damages each; one count at $3.0 million compensatory and $1.0 million punitive damages; one count at $1.0 million. In the third case, the plaintiff has alleged compensatory and punitive damages, each in the amount of $20.0 million, for three separate causes of action, and $5.0 million compensatory damages for the fifth cause of action. In the fourth case, the plaintiff has alleged compensatory and punitive damages, each in the amount of $10.0 million, for ten separate causes of action.
Historically, we have been dismissed from asbestos cases on the basis that the plaintiff incorrectly sued one of our subsidiaries or because the plaintiff failed to identify any asbestos-containing product manufactured or sold by us or our subsidiaries. We intend to vigorously defend these asbestos cases, and believe we will continue to be successful in being dismissed from such cases. However, 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. Despite this uncertainty, 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. Among the factors management considered in reaching this conclusion were: (a) our historical success in being dismissed from these types of lawsuits on the bases mentioned above; (b) many cases have been improperly filed against one of our subsidiaries; (c) in many cases the plaintiffs have been unable to establish any causal relationship to us or our products or premises; (d) in many cases, the plaintiffs have been unable to demonstrate that they have suffered any identifiable injury or compensable loss at all or that any injuries that they have incurred did in fact result from alleged exposure to asbestos; and (e) the complaints assert claims against multiple defendants and, in most cases, the damages alleged are not attributed to individual defendants. Additionally, we do not believe that the amounts claimed in any of the asbestos cases are meaningful indicators of our potential exposure because the amounts claimed typically bear no relation to the extent of the plaintiff's injury, if any.
Our cost of defending these lawsuits has not been material to date and, based upon available information, our management does not expect its future costs for asbestos-related lawsuits to have a material adverse effect on our results of operations, liquidity or financial position.
In addition toThere have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020. Investors should not interpret the Company has also identified the following:
The COVID-19 outbreak has impacted and could in the future materially and adversely affect our business.
The novel straindisclosure of the coronavirus identified in China in late 2019 and now affecting the global community has impacted and is expectedany risk factor to continue to impact our operations, and the full nature and extent of the impact is highly uncertain and may be beyond our control. Among other things, uncertainties relating to COVID-19 include the duration of the outbreak, the severity of the virus, and the actions, or perception of actionsimply that may be taken, to contain or treat its impact, by governments and others, including declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.
As a result of COVID-19 and the measures implemented that are designed to contain its spread, our customers have been and could continue to be negatively impacted as a result of disruption in demand, which has negatively impacted our sales and had a material adverse effect on our business, results of operations and financial condition. Similarly, as a result of COVID-19 and measures implemented that are designed to contain its spread, our suppliers may not have the materials, capacity, or capability to enable the manufacture of our products according to our schedule and specifications. Because of impacts to suppliers' operations, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our results of operations.
The COVID-19 pandemic has also disrupted our internal operations, including by heightening the risk that a significant portion of our workforce will suffer illness or otherwisehas not be permitted or be unable to work and exposing us to cyber and other risks associated with a large number of our employees working remotely. Certain of our facilities have experienced temporary work disruptions as a result of the COVID-19 pandemic, and we cannot predict whether these will continue or our facilities will experience more significant or frequent disruptions in the future. Furthermore, we may need to reduce our workforce as a result of declines in our business caused by the COVID-19 pandemic, and any such reduction would cause us to incur costs. Moreover, there can be no assurance that we would be able to rehire our workforce in the event our business experiences a subsequent recovery.already materialized.
The impact of the COVID-19 pandemic continues to evolve and its duration and ultimate disruption to our customers and to our supply chain, and related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact could have a more severe adverse effect on our business, results of operations and financial condition. Additionally, weaker economic conditions generally could result in impairment in value of our tangible or intangible assets, or our ability to raise additional capital, if needed.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The table below summarizes the information regarding our repurchases of the Company's common stock during the quarter ended June 30, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans (1) | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program (1) |
| April 1 — April 30, 2021 | | 549 | | (2) | $ | 33.44 | | | — | | | 541,085 | |
| May 1 — May 31, 2021 | | 17,713 | | (2) | 36.35 | | | — | | | 541,085 | |
| June 1 — June 30, 2021 | | 39,274 | | (2) | 35.38 | | | — | | | 541,085 | |
| Total | | 57,536 | | | $ | 35.66 | | | — | | | 541,085 | |
(1)On March 11, 2020, we announced a share repurchase program whereby we may repurchase up to 1.0 million shares of our outstanding common stock.
(2)Consists of an aggregate total of 57,536 shares of common stock we acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient withholding tax liabilities.
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| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans (1) | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program (1) |
| April 1 — April 30, 2020 | | 25,078 |
| (2) | $ | 19.13 |
| | 24,032 |
| | 795,141 |
|
| May 1 — May 31, 2020 | | 57,213 |
| (2) | 13.52 |
| | 38,758 |
| | 756,383 |
|
| June 1 — June 30, 2020 | | 103,858 |
| (2) | 15.73 |
| | 86,586 |
| | 669,797 |
|
| Total | | 186,149 |
| | $ | 15.51 |
| | 149,376 |
| | 669,797 |
|
| |
(1) | On March 11, 2020, we announced a share repurchase program whereby we may repurchase up to 1.0 million shares of our outstanding common stock. |
| |
(2) | Consists of an aggregate total of 36,773 shares of common stock we acquired from recipients of restricted stock awards at the time of vesting of such awards in order to settle recipient withholding tax liabilities. |
The following exhibits are included herein:
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31.1 | | |
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| 10.1 | | |
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| 31.1 | | |
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| 31.2 | | |
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| 32 | | |
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| 101.INS | Inline XBRL Instance Document | |
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| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
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| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
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| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
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| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
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| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
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| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| PARK-OHIO HOLDINGS CORP. |
| (Registrant) |
| |
PARK-OHIO HOLDINGS CORP. |
(Registrant) |
| By: | |
By: | /s/ Patrick W. Fogarty |
| Name: | Patrick W. Fogarty |
| Title: | Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Date: August 5, 2020