PARK OHIO HOLDINGS CORP Management’s Discussion and Analysis of Financial Condition and
Our consolidated financial statements include the accounts ofPark-Ohio Holdings Corp. and its subsidiaries. All intercompany transactions have been eliminated in consolidation. EXECUTIVE OVERVIEW General 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. Refer to Part 1, Item 1. Business for descriptions of our business segments.
COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it spread throughoutthe United States and other countries around the world. The pandemic has negatively impacted several of the markets we serve, as well as contributed to a global semiconductor micro-chip shortage, raw material price inflation, higher labor costs and various supply chain constraints, including supplier delays that caused extended lead times and increasing freight costs. In response to the ongoing COVID-19 pandemic, we continue to manage our operating costs, including through actions to reduce costs, including plant closure and consolidation, severance, and discretionary spending cuts, and we are taking aggressive actions to improve results in response to these macroeconomic conditions. We also continue to manage both working capital and capital spending. Although there continues to be uncertainty related to the anticipated impact and duration of the COVID-19 pandemic on our future results, we believe our diversified portfolio of global businesses, our liquidity position of$202.6 million as ofDecember 31, 2021 , and the steps we have taken in both 2020 and 2021 to reduce costs leave us well-positioned to manage our business through this crisis as it continues to unfold.
Subsequent Event
OnJanuary 28, 2022 , the Company's Board of Directors declared a quarterly dividend of$0.125 per common share. The dividend was paid onFebruary 25, 2022 , to shareholders of record as of the close of business onFebruary 11, 2022 and resulted in cash payments of$1.6 million .
RESULTS OF OPERATIONS
This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . 21
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Table of Contents
2021 Compared with 2020 and 2020 Compared with 2019
2021 vs. 2020 2020 vs. 2019
2021 2020 2019 $ Change % Change $ Change % Change
(Dollars in millions, except per share data)
Net sales $ 1,438.0 $ 1,295.2 $ 1,618.3 $ 142.8 11 % $ (323.1) (20) %
Cost of sales 1,281.9 1,126.6 1,358.0 155.3 14 % (231.4) (17) %
Gross profit 156.1 168.6 260.3 (12.5) (7) % (91.7) (35) %
Gross profit as a percentage of
net sales 10.9 % 13.0 % 16.1 %
Selling, general and
administrative ("SG&A")
expenses 178.3 152.9 177.2 25.4 17 % (24.3) (14) %
SG&A expenses as a percentage
of net sales 12.4 % 11.8 % 10.9 %
Gain on sale of assets (14.7) - - (14.7) * - *
Goodwill impairment 4.6 - - 4.6 * - *
Operating (loss) income (12.1) 15.7 83.1 (27.8) (177) % (67.4) (81) %
Other components of pension
income and other postretirement
benefits expense, net 9.7 7.3 5.6 2.4 33 % 1.7 30 %
Interest expense, net (30.1) (30.3) (33.8) 0.2 (1) % 3.5 (10) %
(Loss) income before income
taxes (32.5) (7.3) 54.9 (25.2) 345 % (62.2) (113) %
Income tax benefit (expense) 6.5 2.5 (15.2) 4.0 160 % 17.7 (116) %
Net (loss) income (26.0) (4.8) 39.7 (21.2) 442 % (44.5) (112) %
Net loss (income) attributable
to noncontrolling interest 1.2 0.3 (1.1) 0.9 300 % 1.4 (127) %
Net (loss) income attributable
to ParkOhio common shareholders
451 %$ (43.1) (112) % (Loss) earnings per common share attributable to ParkOhio common shareholders Basic$ (2.07) $ (0.37) $ 3.16 $ (1.70) 459 %$ (3.53) (112) % Diluted$ (2.07) $ (0.37) $ 3.12 $ (1.70) 459 %$ (3.49) (112) % * Calculation not meaningful 2021 Compared with 2020 Net Sales Net sales increased 11% to$1,438.0 million in 2021 compared to$1,295.2 million in 2020. This increase was primarily due to higher customer demand in our Supply Technologies and Assembly Components business segments, partially offset by lower demand in our Engineered Products segment.
The factors explaining the changes in segment net sales for the year ended
the “Segment Results” section below.
Cost of Sales & Gross Profit
Cost of sales increased 14% to$1,281.9 million in 2021 compared to$1,126.6 million in 2020. Gross margin decreased to 10.9% in 2021 compared to 13.0% in 2020. The increase in cost of sales and decrease in gross margin were due to the increase in net sales described above and to expenses of$15.7 million in 2021 related to plant closure and consolidation, 22 -------------------------------------------------------------------------------- Table of Contents severance and other actions to reduce costs. 2020 included expenses of$5.1 million related to plant closure and consolidation, severance and other actions to reduce costs. SG&A Expenses SG&A expenses increased to$178.3 million , or 12.4% of net sales, in 2020 from$152.9 million , or 11.8% of net sales, in 2020. In response to significantly lower demand levels caused by the COVID-19 pandemic in 2020, 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 2021 included$5.8 million of expenses related to plant closure and consolidation, severance and other costs,$1.9 million of legal settlement expense and$1.0 million of acquisition-related expenses.
Gain on Sale of Assets
During 2021, in connection with the plant closure and consolidation initiatives, the Company sold real estate within the Engineered Products segment for cash proceeds of$19.6 million , resulting in a gain of$14.2 million . In...
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