Park-Ohio Holdings Corp. — 2021 Form 10-K
Business context and reporting period
Fiscal year ended December 31, 2021; comparisons are primarily with 2020. Park-Ohio is a diversified industrial company operating Supply Technologies (supply-chain services and components), Assembly Components (automotive and other manufactured components), and Engineered Products (capital equipment, forged and machined products). It employed approximately 6,900 people.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $1,438.0 million | $1,295.2 million |
| Gross profit / margin | $156.1 million / 10.9% | $168.6 million / 13.0% |
| Operating income (loss) | $(12.1) million | $15.7 million |
| Net income (loss) attributable to common shareholders | $(24.8) million | $(4.5) million |
| Diluted earnings (loss) per share | $(2.07) | $(0.37) |
| Cash from (used in) operating activities | $(43.3) million | $69.3 million |
| Capital expenditures | $31.1 million | $26.3 million |
- Sales rose 11%, principally from higher Supply Technologies and Assembly Components demand. Gross margin declined as costs rose faster than revenue.
- Supply Technologies sales were $619.5 million, up 21%; segment operating income was $42.8 million, with a 6.9% margin (versus $30.2 million and 5.9%).
- Assembly Components sales were $482.5 million, up 9%; segment operating loss was $26.4 million, versus $8.1 million income in 2020. Its margin fell to (5.5%) from 1.8%.
- Engineered Products sales were $336.0 million, down 2%; segment operating loss was $12.2 million, versus $3.5 million income. Its margin fell to (3.6%) from 1.0%.
- Cash and cash equivalents were $54.1 million, versus $55.0 million. Gross debt was $606.1 million, versus $534.7 million; net debt as a percentage of capitalization increased to 60% from 54%.
- Year-end liquidity was $202.6 million, comprising cash of $54.1 million and $148.5 million of unused borrowing availability. Revolver borrowings were $221.1 million; the $350 million senior notes carry 6.625% interest and mature in 2027. The revolving credit facility matures in 2024.
Material changes and unusual items
- Operating cash flow swung from $69.3 million provided in 2020 to $43.3 million used in 2021. Working capital used $34.0 million, with inventories increasing $71.2 million amid inflation, supply constraints, and facility consolidation.
- 2021 results included $15.7 million of plant closure, consolidation, severance, and other cost-reduction expenses; a $14.7 million gain on asset sales; and a $4.6 million goodwill impairment in Assembly Components’ Aluminum Products reporting unit.
- Assembly Components’ results were pressured by semiconductor shortages, raw-material inflation, higher labor and freight costs, production inefficiencies, and supplier delays. Engineered Products cited restructuring costs, lower sales in forged and machined products, and fixed-cost under-absorption.
- Park-Ohio acquired NYK Component Solutions for $5.4 million net cash consideration; contingent consideration was estimated at $1.9 million at year-end.
- The company paid $0.50 per common share in dividends during 2021. A $0.125 quarterly dividend was declared in January 2022 and paid in February.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance is provided. Management said available resources and anticipated operating cash were expected to cover requirements for at least the next 12 months and beyond, and expected compliance with debt covenants during 2022. It cautioned that weaker sales could affect covenant compliance and borrowing capacity.
- Management identified continuing uncertainty from COVID-19, semiconductor and broader supply-chain disruption, raw-material and freight inflation, labor shortages, and cyclicality in automotive and other served markets. Automotive and heavy-duty truck sales represented 34% and 8% of 2021 net sales, respectively.
- Customer concentration is material: the ten largest customers represented approximately 30% of consolidated sales. The five largest customers represented 46% of Assembly Components segment sales; many Supply Technologies customer purchases are not protected by minimum-volume commitments.
- Other risks include substantial debt and floating-rate exposure, foreign currency and international trade risks, environmental and product-liability exposure, cybersecurity, and dependence on suppliers and key customers. A 100-basis-point rate increase would have added approximately $2.2 million to 2021 interest expense on revolver borrowings.
- The filing discloses approximately 106 asbestos-related cases involving 169 plaintiffs and environmental cleanup participation at third-party sites; management did not expect these matters to materially affect the company. It also disclosed that a third party participated in a payment on the company’s behalf to a foreign tax official that implicated the FCPA, in connection with an SEC staff subpoena; potential outcomes are not quantified here.
Important facts for investors to verify
- Whether the margin and cash-flow pressures—especially in Assembly Components—improved after year-end, and how much of the restructuring costs are recurring.
- Whether inventory and working-capital levels convert into operating cash, and whether year-end liquidity remains sufficient under adverse conditions.
- Debt maturities, revolver availability, covenant headroom, and exposure to changing interest rates and the transition from LIBOR.
- Customer and supplier concentration, semiconductor availability, and the ability to pass through material, freight, and labor cost increases.
- Developments in the FCPA-related matter, asbestos litigation, environmental claims, and the impaired Aluminum Products business.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; the internal-control assessment excluded NYK, which represented less than 1% of assets and revenue.