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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
AMPCO-PITTSBURGH CORPORATION
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(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) ( (Registrant’s telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting stock of Ampco-Pittsburgh Corporation held by non-affiliates on June 30, 2021 (based upon the closing price of the Registrant’s Common Stock on the New York Stock Exchange on that date) was approximately $
As of March 9, 2022,
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by us or on our behalf. Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Annual Report on Form 10-K, as well as the consolidated financial statements and notes hereto, may include, but are not limited to, statements about operating performance, trends and events that we expect or anticipate will occur in the future, statements about sales and production levels, restructurings, the impact from global pandemics (including COVID-19), profitability and anticipated expenses, inflation, the global supply chain, future proceeds from the exercise of outstanding warrants, and cash outflows. All statements in this document other than statements of historical fact are statements that are, or could be, deemed “forward-looking statements” within the meaning of the Act and words such as “may,” “will,” “intend,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “forecast” and other terms of similar meaning that indicate future events and trends are also generally intended to identify forward-looking statements. Forward-looking statements speak only as of the date on which such statements are made, are not guarantees of future performance or expectations, and involve risks and uncertainties. For us, these risks and uncertainties include, but are not limited to:
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cyclical demand for products and economic downturns; |
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excess global capacity in the steel industry; |
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fluctuations in the value of the U.S. dollar relative to other currencies; |
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increases in commodity prices, reductions in electricity and natural gas supply or shortages of key production materials; |
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limitations in availability of capital to fund our strategic plan; |
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inability to maintain adequate liquidity in order to meet our operating cash flow requirements, repay maturing debt and meet other financial obligations; |
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inability to obtain necessary capital or financing on satisfactory terms in order to acquire capital expenditures that may be necessary to support our growth strategy; |
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inoperability of certain equipment on which we rely; |
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liability of our subsidiaries for claims alleging personal injury from exposure to asbestos-containing components historically used in certain products of our subsidiaries; |
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changes in the existing regulatory environment; |
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inability to successfully restructure our operations; |
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consequences of global pandemics (including COVID-19); |
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work stoppage or another industrial action on the part of any of our unions; |
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inability to satisfy the continued listing requirements of the New York Stock Exchange or the NYSE American Exchange; |
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potential attacks on information technology infrastructure and other cyber-based business disruptions; |
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failure to maintain an effective system of internal control; and |
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those discussed more fully elsewhere in this report, particularly in Item 1A, Risk Factors, in Part I of this Annual Report on Form 10-K. |
We cannot guarantee any future results, levels of activity, performance or achievements. In addition, there may be events in the future that we are not able to predict accurately or control which may cause actual results to differ materially from expectations expressed or implied by forward-looking statements. Except as required by applicable law, we assume no obligation, and disclaim any obligation, to update forward-looking statements whether as a result of new information, events or otherwise.
– PART I –
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Ampco-Pittsburgh Corporation (the “Corporation”) was incorporated in Pennsylvania in 1929. The Corporation, individually or together with its consolidated subsidiaries, is also referred to herein as the “Registrant.” The Corporation manufactures and sells highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It
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operates in two business segments – the Forged and Cast Engineered Products (“FCEP”) segment and the Air and Liquid Processing (“ALP”) segment. This segment presentation is consistent with how the Corporation’s chief operating decision maker evaluates financial performance and makes resource allocation and strategic decisions about the business.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus (“COVID-19”) and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. In response, many state and local governments required the closure of various businesses. The U.S. Department of Homeland Security, however, issued guidance outlining criteria to identify domestic businesses as operating in critical infrastructure industries, essential to the economic prosperity, security and continuity of the United States, which provides exceptions to certain closures mandated by state and local governments and permits businesses to continue operations during such an order. The Corporation’s domestic businesses were, and continue to be, deemed to participate in critical infrastructure industries; however, despite the designation and particularly in 2020, the Corporation has had to periodically and temporarily idle certain operations of its FCEP segment and, consequently, furlough certain of its employees in response to market conditions. While most of these direct impacts were experienced in 2020, as variants have developed, the Corporation has experienced episodic disruptions to its operations or the operations of its customers and suppliers. The pandemic also has spurred disruptions to the global supply chain, which is believed to be a key factor in the global inflationary pressures of 2021. Accordingly, the Corporation has experienced, and may continue to experience, customer-requested delays of deliveries or cancellation of orders, lower order intake resulting from customers postponing projects, inability to obtain raw materials and supplies critical to the manufacturing process, delays in receiving and shipping product due to the lack of transportation, and higher cost of production and transportation.
NARRATIVE DESCRIPTION OF BUSINESS
Forged and Cast Engineered Products Segment
The FCEP segment produces forged hardened steel rolls, cast rolls and forged engineered products (“FEP”). Forged hardened steel rolls are used primarily in cold rolling mills by producers of steel, aluminum and other metals. Cast rolls, which are produced in a variety of iron and steel qualities, are used mainly in hot and cold strip mills, medium/heavy section mills and plate mills. FEP principally are sold to customers in the steel distribution market, oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, and Slovenia and an equity interest in three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world.
Union Electric Steel Corporation produces forged hardened steel rolls and FEP. It is headquartered in Carnegie, Pennsylvania, with three manufacturing facilities in Pennsylvania and one in Indiana. The following entities are direct or indirect operating subsidiaries of Union Electric Steel Corporation:
Union Electric Steel UK Limited produces cast rolls in a variety of iron and steel qualities for hot and cold strip mills, medium/heavy section mills and plate mills. It is located in Gateshead, England.
Åkers Sweden AB produces cast rolls in a variety of iron and steel qualities for hot strip finishing mills, roughing mills, plate mills, and medium/heavy section mills. It is located in Åkers Styckebruk, Sweden.
Åkers Valji Ravne d.o.o. produces forged rolls for cluster mills and Z-Hi mills, work rolls for narrow and wide strip and aluminum mills, back-up rolls for narrow strip mills, and leveling rolls and shafts. It is located in Ravne, Slovenia.
Alloys Unlimited Processing, LLC is a distributor of tool steels and alloys and carbon round bar. It is located in Austintown, Ohio.
The segment’s three joint venture companies in China include:
Shanxi Åkers TISCO Roll Co., Ltd. is a joint venture between Taiyuan Iron and Steel Co. Ltd. and Åkers AB, a non-operating subsidiary of Union Electric Steel Corporation, that produces cast rolls for hot strip mills, steckel mills and medium plate mills. It is located in Taiyuan, Shanxi Province, China. Åkers AB holds a 59.88% interest in the joint venture.
Magong Gongchang United Rollers Co., Ltd., previously known as Masteel Gongchang Roll Co., Ltd., is a joint venture among Union Electric Steel Corporation, Magang (Group) Holding Co., Ltd. and Jiangsu Gong-Chang Roll Co., Ltd. that produces large forged backup rolls for hot and cold strip mills. It is located in Maanshan, Anhui Province, China. Union Electric Steel (Hong Kong) Limited, a non-operating subsidiary of Union Electric Steel Corporation, holds a 33% interest in the joint venture.
Jiangsu Gong-Chang Roll Co., Ltd., previously known as Jiangsu Gongchang Roll Joint-Stock Co., Ltd., is a joint venture that produces cast rolls for hot and cold strip mills, medium/heavy section mills and plate mills. It is located in Xinjian Town Yixing City, Jiangsu Province, China. Union Electric Steel UK Limited holds a 24.03% interest in the joint venture.
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Air and Liquid Processing Segment
The ALP segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation. The segment has operations in Virginia and New York with headquarters in Carnegie, Pennsylvania. The segment distributes a significant portion of its products through a common independent group of sales offices located throughout the United States and has several major competitors.
Aerofin Division of Air & Liquid Systems Corporation produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including OEM/commercial, nuclear power generation and industrial manufacturing. It is located in Lynchburg, Virginia.
Buffalo Air Handling Division of Air & Liquid Systems Corporation produces large custom-designed air handling systems for institutional (e.g., hospital, university), pharmaceutical and general industrial building markets. It is located in Amherst, Virginia.
Buffalo Pumps Division of Air & Liquid Systems Corporation manufactures centrifugal pumps for the fossil fueled power generation, marine defense and industrial refrigeration industries. It is located in North Tonawanda, New York.
Products
In both segments, the products are dependent on engineering, principally custom designed, and are sold to sophisticated commercial and industrial users located throughout the world. Products are delivered directly to the customer via third-party carriers or customer-arranged transportation. For the FCEP segment, no customers exceeded 10% of its net sales in 2021, and one customer accounted for approximately 11% of its net sales in 2020. The loss of this customer could have a material adverse effect on the segment. For the ALP segment, no customers exceeded 10% of its net sales in 2021 or 2020. For additional information on the products produced and financial information about each segment, see Note 16, Revenue, and Note 23, Business Segments, to the Consolidated Financial Statements.
Raw Materials
Raw materials used in both segments are generally available from many sources, and neither segment is dependent upon any single supplier for any raw material. Substantial volumes of raw materials used by each segment are subject to significant variations in price. The Corporation’s subsidiaries generally do not purchase or commit for the purchase of a major portion of raw materials significantly in advance of the time they require such materials but do make forward commitments for natural gas, electricity and certain commodities (copper and aluminum). See Note 14, Derivative Instruments, to the Consolidated Financial Statements.
Patents and Trademarks
While the Corporation and its subsidiaries hold certain patents, trademarks and licenses, in the opinion of the Corporation, they are not material to either segment.
Backlog
The backlog of orders at December 31, 2021, was approximately $292.5 million compared to a backlog of $246.1 million at year-end 2020. Both segments contributed to the improvement in backlog. Backlog for the FCEP segment increased by approximately $31.4 million year over year due to a combination of (i) higher orders for FEP as a result of increased demand from the steel distribution and oil and gas markets, (ii) improved pricing for FEP and mill rolls and (iii) higher variable-index surcharges included in backlog. Backlog for the ALP segment increased by approximately $15.0 million and benefited from improved order intake for each of its product lines. Approximately 6% of the backlog is expected to be released after 2022.
Competition
The Corporation faces considerable competition from a large number of companies in both segments. The Corporation believes, however, that its subsidiaries are significant participants in each of the niche markets that they serve. Competition in both segments is based on quality, service, price, and delivery.
Environmental Protection Compliance Costs
Expenditures for environmental control matters were not material to either segment in 2021 and are not expected to be material in 2022.
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Employees and Human Capital Management
Employees
On December 31, 2021, the Corporation and its subsidiaries had 1,485 active employees worldwide, of which approximately 50% were employed in the United States. Approximately one-third of the Corporation’s employees are covered by collective bargaining agreements or agreements with works councils.
Oversight
The Compensation Committee of the Board of Directors maintains oversight of the Corporation’s human capital management strategies that it may deem important to the long-term sustainability of the Corporation.
Key Areas of Focus for the Corporation
Health and Safety – The Corporation’s health and safety program is designed around the regulations associated with the specific hazards and unique working environments of the Corporation’s manufacturing and headquarter operations. The Corporation requires all of its locations to perform regular safety audits to ensure compliance with the safety program. Leading indicators, such as reporting and training of all near-miss events, are used to identify risks for potential future incidents. Lagging indicators, such as OSHA recordable rates and lost-time incidence rates, are used to measure achievement of safety metrics.
Diversity and Inclusion – The Corporation tracks various metrics such as turnover, absenteeism and diversity. The Corporation has developed strategies to ensure that employees of diverse backgrounds and perspectives enjoy a culture of mutual respect, inclusiveness and teamwork in an environment which values diversity.
AVAILABLE INFORMATION
The Corporation files annual, quarterly and current reports; amendments to those reports; proxy statements; and other information with the Securities and Exchange Commission (“SEC”). You may access and read the Corporation’s filings without charge through the SEC’s website at www.sec.gov.
The Corporation’s internet address is www.ampcopittsburgh.com. The Corporation makes available, free of charge on its website, access to these reports as soon as reasonably practicable after such material is filed with, or furnished to, the SEC. The information on the Corporation’s website is not part of this Annual Report on Form 10-K.
EXECUTIVE OFFICERS
The name, age, position with the Corporation, and business experience for at least the past five years of the Executive Officers(1) of the Corporation are as follows:
J. Brett McBrayer (age 56). Mr. McBrayer has served as the Corporation’s Chief Executive Officer since July 2018. He previously served as President and Chief Executive Officer at Airtex Products and ASC Industries, a global manufacturer and distributor of automotive after-market and OEM fuel and water pumps, from 2012 to 2017. Airtex Products and ASC Industries, together with its parent company, UCI International LLC, and affiliated companies, filed for bankruptcy protection in June 2016, and successfully emerged in December 2016. Mr. McBrayer also served as Vice President and General Manager of the Alcan Cable business at Rio Tinto Alcan, as Vice President and General Manager of the Specialty Metals Division at Precision Cast Parts Corporation, and held positions of various responsibility and leadership during his 20 years with Alcoa, Inc. Mr. McBrayer received a Bachelor of Science in Industrial Engineering from the University of Tennessee and a Master of Arts in Applied Behavioral Science from Bastyr University.
Michael G. McAuley (age 58). Mr. McAuley has served as Senior Vice President, Chief Financial Officer and Treasurer of the Corporation since March 2018 and as Vice President, Chief Financial Officer and Treasurer since April 2016. Previously, he served as Senior Vice President and Chief Financial Officer of RTI International Metals, Inc., a producer of titanium mill products and fabricated metal components, from July 2014 to October 2015.
Samuel C. Lyon (age 53). Mr. Lyon has served as President of Union Electric Steel Corporation since February 2019. He previously served as Vice President and Group President of Performance Engineered Products at Carpenter Technology Corporation, a developer, manufacturer and distributor of stainless steels and corrosion-resistant alloys, from July 2017 to January 2019. Prior to that, he served as Vice President and General Manager of Dynamet Incorporated, the titanium business unit of Carpenter Technology Corporation, from October 2016 to June 2017, and as Chief Operating Officer of UCI-Pumps business of UCI-Fram, an OEM and after-market automotive parts supplier, from March 2013 to September 2016.
David G. Anderson (age 54). Mr. Anderson has been employed by the Corporation since 2010 and has served as President of Air & Liquid Systems Corporation since January 2022. He previously served as Vice President of Finance for Union Electric Steel
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Corporation from October 2018 to December 2021, and as Vice President of Air & Liquid Systems Corporation from May 2016 to October 2018.
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Officers serve at the discretion of the Board of Directors of the Corporation and none of the listed individuals serve as a director of another public company. |
ITEM 1A. RISK FACTORS
Our business, financial condition, results of operations, liquidity, and the value of any investment in our securities are subject to a number of risks. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including overall economic and industry conditions. The COVID-19 pandemic has led to general uncertainty and adverse changes in global economic conditions and has heightened, and in some cases manifested, certain of the risks we normally face in operating our business, including those disclosed herein. Additional risks and uncertainties not currently known to us or that we currently believe are not material also may impair our business, financial condition, results of operations, liquidity, and the value of any investment in our securities.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Cyclical demand for products and economic downturns could reduce the demand for, and sales of, our products, which could adversely affect our margins and profitability.
A significant portion of the FCEP segment’s sales consists of mill rolls to customers in the global steel and aluminum industry that can be periodically impacted by economic or cyclical downturns. Such downturns, the timing and length of which are difficult to predict, may reduce the demand for, and sales of, our forged and cast rolls both in the United States and the rest of the world. Lower demand for rolls may also adversely impact profitability as other competing roll producers lower selling prices in the marketplace in order to fill their manufacturing capacity. Cancellation of orders or deferral of delivery of rolls may occur and produce an adverse impact on our financial results. In addition, sales of FEP, specifically open-die forged products for the oil and gas industry and steel distribution markets, are impacted by fluctuations in global energy prices.
Excess global capacity in the steel industry could lower prices for our products, which could adversely affect our sales, margins and profitability, as well as the collectability of our receivables and the salability of our in-process inventory.
The global steel manufacturing capacity continues to exceed global consumption of steel products. Such excess capacity often results in manufacturers in certain countries exporting steel at prices significantly below their home market prices (often due to local government assistance or subsidies), which leads to global market destabilization and reduced sales and profitability of some of our customers which, in turn, affects our sales and profit margins, as well as the collectability of our receivables and the salability of our in-process inventory. Excess capacity in the global roll industry and cyclicality in end-market demand also pose risks of potential impairment of our long-lived assets, which could be material to our results of operations and the carrying value of our assets.
A reduction in the level of our export sales, as well as other economic factors in foreign countries, could have an adverse impact on our financial results.
Exports are a significant portion of our sales. Historically, changes in foreign exchange rates, particularly in respect of the U.S. dollar, British pound, Swedish krona, and euro, have impacted the export of our products and may do so again in the future. Other factors that may adversely impact our export sales and our operating results include political and economic instability, export controls, changes in tax laws and tariffs, and new indigenous producers in overseas markets. A reduction in the level of our export sales may have an adverse impact on our financial results. In addition, changes in foreign currency exchange rates may provide foreign roll suppliers with advantages based on those lower foreign currency exchange rates and, therefore, permit them to compete in our home markets.
Fluctuation in the value of the U.S. dollar relative to other currencies could adversely affect our business, results of operations and financial condition.
Certain of our subsidiaries operate in foreign jurisdictions and, accordingly, earn revenues, pay expenses, own assets, and incur liabilities in countries using currencies other than the U.S. dollar. Since our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period and assets and liabilities into U.S. dollars at the exchange rate in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect the translated value for revenue, expenses and balance sheet items denominated in foreign currencies and could materially affect our financial results expressed in U.S. dollars.
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Increases in commodity prices, reductions in electricity and natural gas supply or shortage of key production materials could adversely impact our production, which could result in lower profitability or higher losses.
Our subsidiaries use certain commodities in the manufacture of their products. These include steel scrap, ferroalloys and energy. Any unexpected, sudden or prolonged price increase may cause a reduction in our profit margins or losses where beneficial fixed-priced contracts do not exist, unfavorable fixed-price contracts cannot be modified or increases cannot be obtained in our selling prices. In addition, there could be a time lag between when we incur such price increases and when we are able to recover such increases in our selling prices. Global increases in transportation costs and more limited availability of freight carriers may impact timely delivery of supplies to our subsidiaries and product to our customers, which may be accentuated during pandemics, and may negatively impact our sales, production and profitability. There also may be curtailment in electricity or natural gas supply or availability of key production materials, all of which could adversely impact our production. Shortage of critical materials, while driving up costs, may be of such severity as to disrupt our production, all of which may impact our sales and profitability. Geopolitical factors or wars could exacerbate these risks. In particular, the Russia-Ukraine conflict may intensify the inflationary effect for the cost of natural gas, raw materials and other production components which could be difficult to predict given the fluidity of the military conflict, the novelty of Western sanctions against Russia and possibility of yet harsher ones.
We could face limitations in availability of capital to fund our strategic plans. Additionally, deterioration in our credit profile or increases in interest rates could increase our costs of borrowing and further limit our access to capital markets and commercial credit.
We are parties to a senior secured asset-based revolving credit facility with a consortium of banks. The credit facility is collateralized by a first priority perfected security interest in substantially all of our assets. The credit facility provides for borrowings not to exceed $100 million and an allowance of $20 million for new capital equipment financing but otherwise restricts us from incurring additional indebtedness outside of the agreement, unless approved by the banks. The credit facility is subject to various affirmative and negative covenants and contains various sub-limits, including those based on the type of collateral and borrowings by geographic region. If the financial covenants become difficult to meet or if our borrowing needs increase beyond the prescribed limits, our financial position, results of operations and liquidity may be materially adversely affected. In addition, changes in our credit profile could cause less favorable commercial terms for the procurement of materials required to manufacture our products, which also could have a negative impact on our financial position, results of operations and liquidity. Further, our access to public and private debt markets is limited based on our size, credit profile and not being a well-known seasoned issuer, which may result in limitations in availability of capital to fund our strategic plans.
We need to maintain adequate liquidity in order to meet our operating cash flow requirements, repay maturing debt and meet other financial obligations. If we fail to comply with the covenants contained in our revolving credit facility, it may adversely affect our liquidity, results of operations and financial condition.
Our liquidity is a function of our cash on-hand, our ability to successfully generate cash flows from a combination of efficient operations and continuing operating improvements, availability from our revolving credit facility, access to capital markets, and funding from other third parties. We believe our liquidity (including operating and other cash flows that we expect to generate and revolving credit availability) should be sufficient to meet our operating requirements as they occur; however, our ability to maintain sufficient liquidity going forward is subject to the general liquidity of and ongoing changes in the credit markets as well as general economic, financial, competitive, legislative, regulatory, and other market factors that are beyond our control.
Our revolving credit facility is subject to various affirmative and negative covenants. Failure to comply with material provisions or covenants in the revolving credit facility could have a material adverse effect on our liquidity, results of operations and financial condition. We may seek to renegotiate or replace such facility, or may determine not to replace such facility at all and may instead pursue other forms of liquidity. Any new credit agreement or these other forms of liquidity may result in higher borrowing costs and contain non-investment grade covenants that are less advantageous to us than our existing revolving credit facility.
Our growth strategy may require substantial capital expenditures. We may be unable to obtain necessary capital or financing on satisfactory terms.
To support our growth strategy, we expect to continue to make substantial capital expenditures. We expect to fund capital expenditures with cash generated by operations and borrowings under our credit facility; however, our financing needs may require us to alter or increase our capitalization substantially through the issuance of debt or equity securities. The issuance of additional indebtedness would require that a portion of our cash flows from operations be used for the payment of interest and principal, thereby reducing our ability to use our cash flows from operations to fund working capital, capital expenditures and acquisitions. Furthermore, raising equity capital generally would dilute existing shareholders. If additional capital is needed, we may not be able to obtain debt or equity financing on terms acceptable to us, if at all.
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Dependence on certain equipment may cause an interruption in our production if such equipment is out of operation for an extended period of time, which could result in lower sales and profitability.
Our principal business relies on certain unique equipment such as an electric arc furnace and a spin cast work roll machine. Although a comprehensive critical spare inventory of key components for this equipment is maintained, if any such unique equipment is out of operation for an extended period, it may result in a significant reduction in our sales and earnings.
The ultimate liability of our subsidiaries for claims alleging personal injury from exposure to asbestos-containing components historically used in certain products of our subsidiaries could have a material adverse effect on our financial condition, results of operations or liquidity in the future.
Certain of our subsidiaries, and in some cases, we, are defendants in numerous claims alleging personal injury from exposure to asbestos-containing components historically used in certain products of these subsidiaries. Through the current year end, our insurance has covered a majority of our settlement and defense costs. We believe that the estimated costs, net of anticipated insurance recoveries, of our pending and future asbestos legal proceedings should not have a material adverse effect on our financial condition or liquidity. However, there can be no assurance that our subsidiaries or we will not be subject to significant additional claims in the future or that our subsidiaries’ ultimate liability with respect to asbestos claims will not present significantly greater and longer lasting financial exposure than provided in our consolidated financial statements. The ultimate net liability with respect to such pending and any unasserted claims is subject to various uncertainties, including the following:
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the number and nature of claims in the future; |
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the costs of defending and settling these claims; |
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insolvencies among our insurance carriers and the risk of future insolvencies; |
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the possibility that adverse jury verdicts could require damage payments in amounts greater than the amounts for which we have historically settled claims; |
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possible changes in the litigation environment or federal and state law governing the compensation of asbestos claimants; and |
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the risk that the bankruptcies of other asbestos defendants may increase our costs. |
Because of the uncertainties related to such claims, it is possible that our ultimate liability could have a material adverse effect on our financial condition, results of operations or liquidity in the future.
A change in the existing regulatory environment could negatively affect our operations and financial performance.
We are subject to a wide variety of complex domestic and foreign laws, rules and regulations, including trade policies and tax regimes. We are affected by new laws and regulations and changes to existing laws and regulations, including interpretations by the courts and regulators, whether prompted by changes in government administrations or otherwise. These laws, regulations and policies, and changes thereto, may result in restrictions or limitations to our current operational practices and processes and product/service offerings which could negatively impact our current cost structure, revenue streams, future tax obligations, the value of our deferred income tax assets, cash flows, and overall financial position.
In 2018, the United States imposed tariffs of 25% on primary steel imports and 10% on primary aluminum imports into the United States. As consumers of steel and aluminum in some of our products, our cost base is exposed to the impact of this action, or similar actions, which could reduce our margins, and we could potentially lose market share to foreign competitors not subject to similar tariff increases. Our financial condition, results of operations and liquidity may continue to be affected by these tariffs, or similar actions. Moreover, these new tariffs, or other changes in U.S. trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries which could adversely impact demand for our products, as well as impact our costs, customers, suppliers, and/or the U.S. economy or certain sectors thereof and, thus, may adversely impact our business, operations and financial performance.
We may not be able to achieve the expected benefits of restructuring our operations or consummating future divestitures of operations which become non-core to our portfolio.
We may, from time to time, divest businesses that become less of a strategic fit within our core portfolio or restructure operations to improve our operating results. Our profitability may be impacted by gains or losses on the sale or restructuring of such businesses and our level of expected cost savings from restructuring actions may not materialize. Additionally, we may be required to record asset impairment or restructuring charges related to these businesses and may in the future become responsible for liabilities which materialize post-divestiture. These issues may adversely impact our financial position, results of operations and liquidity.
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We have significant international operations and sales and face risks related to global health epidemics such as the coronavirus.
Outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, financial condition and results of operations. For example, the outbreak of a novel strain of the coronavirus resulted in significant local governmental measures being implemented to control the spread of the virus, including restrictions on manufacturing and the movement of employees in many regions and countries. The coronavirus has had a significant impact on our business and financial results and recovery depends on future developments, which remain highly uncertain. Future pandemics may result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn, and negatively impact our sales and results of operations.
The COVID-19 pandemic has caused and may continue to cause disruptions in manufacturing industries.
The COVID-19 pandemic has significantly increased economic and demand uncertainty and could cause a sustained global recession. It has impacted, and may continue to impact, our financial condition, results of operations and liquidity.
While the U.S. Department of Homeland Security guidance has identified our domestic businesses as operating in critical infrastructure industries, essential to the economic prosperity, security and continuity of the United States, we have had to periodically and temporarily idle certain operations of our FCEP segment and, consequently, furlough certain of our employees in response to market conditions. While most of these direct impacts were experienced in 2020, as variants have developed, we have experienced episodic disruptions to our operations or to the operations of our customers and suppliers. The pandemic also has spurred disruptions to the global supply chain, which is believed to be a key factor in the global inflationary pressures of 2021. Accordingly, the FCEP segment has experienced, and may continue to experience, customer-requested delays of deliveries or cancellation of orders, lower order intake resulting from customers postponing projects, inability to obtain raw materials and supplies critical to the manufacturing process, delays in receiving and shipping product due to the lack of transportation, and higher cost of production and transportation. We also may experience long-term disruptions to our operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities that are critical to our business or our supply chains. We may also incur higher write-offs of accounts receivables and impairment charges on our asset values, including property, plant and equipment and intangible assets.
The COVID-19 pandemic also could adversely affect our liquidity and our ability to access the capital markets. Additionally, government stimulus programs available to us, our customers or our suppliers may prove to be insufficient or ineffective. Furthermore, in the event that the impact from the COVID-19 pandemic causes us to be unable to maintain a certain level of excess availability under our revolving credit facility, our availability of funds may become limited, or we may be required to renegotiate the facility on less favorable terms. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could materially adversely affect our financial condition, results of operations and liquidity.
Although our internal control over financial reporting has not been impacted to date, the COVID-19 pandemic could negatively affect it in the future if infections within our workforce are significant or our workforce is required to work from home on a longer term or permanent basis, thereby requiring new processes, procedures and controls to respond to changes in our business environment. We may be susceptible to increased litigation related to, among other things, the financial impacts of the pandemic on our business, our ability to meet contractual obligations due to the pandemic, employment practices or policies adopted during the health crisis, or litigation related to individuals contracting COVID-19 as a result of alleged exposures on our premises.
While we have been impacted by the effect of the COVID-19 pandemic – see Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations – the full extent to which the COVID-19 pandemic will affect our operations, and the industries in which we operate, remains uncertain and will ultimately depend on future developments which cannot be predicted at this time, including, but not limited to, the duration, severity, speed, and scope of the pandemic, and the length of time required for demand to return and normal economic and operating conditions to resume. The impact of the COVID-19 pandemic also may have the effect of exacerbating many of the other risks described herein.
Uncertainty related to environmental regulation and industry standards, as well as the physical risks of climate change, could impact our results of operations and financial position.
Increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, regional and/or federal requirements or industry standards to reduce or mitigate global warming and other environmental risks. New climate change laws and regulations could require us to change our manufacturing processes or obtain substitute materials that may cost more or be less available for our manufacturing operations. Various jurisdictions in which we do business have implemented, or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, changes from traditional fossil fuel sources to renewables, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our costs and adversely affect our operating results. In addition, the physical risks of climate change may impact the availability and cost of materials, sources and
8
supply of energy, product demand and manufacturing and could increase our insurance and other operating costs. The expected future increased worldwide regulatory activity relating to climate change could expand the nature, scope and complexity of matters that we are required to control, assess and report. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon us, our suppliers, our customers, or our products, or if our operations are disrupted due to the physical impacts of climate change on us, our suppliers, our customers or our business, our results of operations and financial condition could be adversely impacted.
A work stoppage or another industrial action on the part of any of our unions could be disruptive to our operations.
Our subsidiaries have several key operations which are subject to multi-year collective bargaining agreements or agreements with works councils with their hourly work forces. While we believe we have good relations with our unions, there is the risk of industrial action or work stoppage at the expiration of an agreement if contract negotiations fail, which may disrupt our manufacturing processes and impact our results of operations.
RISKS RELATED TO OWNERHSIP OF OUR SECURITIES
Actions of activist shareholders with respect to us or our securities could be disruptive and potentially costly and the possibility that activist shareholders may contest, or seek changes that conflict with, our strategic direction could cause uncertainty about the strategic direction of our business.
Activist shareholders may from time to time attempt to effect changes in our strategic direction and, in furtherance thereof, may seek changes in how we are governed. While our Board of Directors and management team strive to maintain constructive, ongoing communications with all of our shareholders, including activist shareholders, and welcome their views and opinions with the goal of working together constructively to enhance value for all shareholders, activist campaigns that contest, or conflict with, our strategic direction could have an adverse effect on us because: (i) responding to actions by activist shareholders can disrupt our operations, be costly and time-consuming and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition; (ii) perceived uncertainties as to our future direction may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, cause concern to our current or potential customers, result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners; and (iii) these types of actions could cause significant fluctuations in our stock price due to factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
We may not be able to satisfy the continued listing requirements of the New York Stock Exchange and the NYSE American Exchange for our common stock and Series A warrants, respectively.
Our common stock is currently listed on the New York Stock Exchange, and our Series A warrants are listed on the NYSE American Exchange, with each imposing objective and subjective requirements for continued listing.
Continued listing criteria of the New York Stock Exchange include maintaining prescribed levels of financial condition, market capitalization and shareholders’ equity. Specifically, the New York Stock Exchange requires a company with common equity listed on its exchange to maintain average global market capitalization over a consecutive 30 trading-day period of at least $50 million or maintain shareholders’ equity of at least $50 million. Our common stock’s average-global market capitalization over the 30 trading-day period ended December 31, 2021, was $98.4 million, and our total Ampco-Pittsburgh shareholders’ equity was $82.6 million as of December 31, 2021. Should we receive a notice of non-compliance, the New York Stock Exchange may allow up to an 18-month cure period if we present a plan to become compliant with adequate strategic actions and progress reporting satisfactory to the New York Stock Exchange. If the New York Stock Exchange determines that our common stock fails to satisfy the requirements for continued listing, or we continue to fail to meet listing criteria, our common stock could be de-listed from the New York Stock Exchange, which could impact potential liquidity for our shareholders.
Continued listing criteria of the NYSE American Exchange include maintaining prescribed levels of financial condition, market capitalization and shareholders’ equity. Among other requirements, there must be an aggregate of at least 50,000 Series A warrants. Satisfaction of the NYSE American Exchange’s listing requirements therefore depends upon the extent to which warrant holders elect to exercise their Series A warrants. We cannot provide assurance that we will continue to meet these, or other, listing standards of the NYSE American Exchange with respect to the Series A warrants.
Holders of Series A warrants will have no rights as holders of our common stock until they exercise their Series A warrants and acquire our common stock.
Until holders of our Series A warrants acquire shares of our common stock upon exercise of such Series A warrants, they will have no rights with respect to the shares of our common stock underlying such Series A warrants. Upon exercise of the Series A warrants, the
9
holders thereof will be entitled to exercise the rights of holders of our common stock only as to matters for which the record date occurs after the warrant exercise date.
The market price of our common stock may not exceed the exercise price of the Series A warrants at such time as the holder desires to exercise such Series A warrants.
The Series A warrants are exercisable through August 1, 2025. The market price of our common stock may not exceed the exercise price of the Series A warrants at such times prior to their date of expiration that the holder desires to exercise such warrants. Any Series A warrants not exercised by their date of expiration will expire without residual value to the holders. Additionally, the price of the Series A warrants may fluctuate, and liquidity may be limited. Holders of Series A warrants may be unable to resell their Series A warrants at a favorable price, or at all.
Because the Series A warrants are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.
In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised Series A warrants are executory contracts subject to rejection by us with the approval of a bankruptcy court. As a result, even if we have sufficient funds, holders may not be entitled to receive any consideration for their Series A warrants or may receive an amount less than they would be entitled to if they had exercised their Series A warrants prior to the commencement of any such bankruptcy or reorganization proceeding.
We have not declared dividends since mid-2017 and do not expect to declare dividends in the foreseeable future. Any return on the investment in our common stock may be limited to the value of our common stock.
We have not declared a cash dividend on our common stock since mid-2017 and do not anticipate doing so in the foreseeable future. The declaration and payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our Board of Directors may consider relevant. In addition, payment of dividends is prohibited under our current revolving credit facility unless approved in advance by our banks. If we do not pay dividends, our common stock may be less valuable because a return on investment in our securities will only occur if the value of our stock price appreciates.
GENERAL RISK FACTORS
Potential attacks on information technology infrastructure and other cyber-based business disruptions could have a material adverse effect on our financial condition, results of operations and liquidity.
We depend on integrated information technology (“IT”) systems to conduct our business. IT systems failures, including risks associated with upgrading our systems or in successfully integrating IT and other systems to common platforms, network disruptions and breaches of data security could disrupt our operations by impeding our processing of transactions, our ability to protect customer or company information and our financial reporting. Our computer systems, including our back-up systems, could be damaged or interrupted by power outages; computer and telecommunications failures; computer viruses; internal or external security breaches; events such as fires, earthquakes, floods, tornadoes, and hurricanes; and errors by our employees. Cyber-based risks, in particular, are evolving and include potential attacks to our IT infrastructure and to the IT infrastructure of third parties in attempts to gain unauthorized access to our confidential or other proprietary information or information relating to our employees, customers and other third parties or to seek ransom. Although we have taken steps to address these concerns, there can be no assurance that a system failure or data security breach will not have a material adverse effect on our financial condition, results of operations and liquidity.
If we fail to maintain an effective system of internal control, we may not be able to accurately determine our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial results, which could harm the business and the value of our securities.
Effective internal control is necessary to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. Our internal control over financial reporting is not subject to attestation by our independent registered public accounting firm pursuant to the exemption provided to issuers that are not “large accelerated filers” or “accelerated filers” under the Dodd-Frank Act of 2010. We cannot be certain that we will be successful in maintaining adequate internal control over our financial reporting and financial processes in the future. Because our internal control relies on the judgments and determinations of key personnel, the COVID-19 pandemic elevates this risk. We may in the future discover areas of our internal control that need improvement. Furthermore, to the extent our business grows, our internal control may become more complex, and we would require significantly more resources to ensure our internal control remains effective. If we or our independent registered public accounting firm discover a material weakness, the disclosure of that fact, even if quickly remediated, could reduce the market value of our securities. Additionally, the existence of any material weakness could require us to devote significant time and incur significant expense to identify and remediate any such material weaknesses, and we may not be able to remediate any such material weaknesses in a timely manner.
10
Our By-laws designate the state and federal courts sitting in the judicial district of the Commonwealth of Pennsylvania as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits against us and our directors and officers but may be found to be inapplicable or unenforceable.
Our By-laws provide, unless we otherwise consent in writing, the state and federal courts sitting in the judicial district of the Commonwealth of Pennsylvania embracing the county in which our principal executive office is located will be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of us, (b) any action asserting a claim of breach of a fiduciary duty owed to us or our shareholders by any director, officer or other employee of ours, (c) any action asserting a claim against us or against any of our directors, officers or other employees arising pursuant to any provision of the Pennsylvania Business Corporation Law of 1988 or our Articles of Incorporation or By-laws, (d) any action seeking to interpret, apply, enforce, or determine the validity of our Article of Incorporation or By-laws, or (e) any action asserting a claim against us or any director or officer or other employee of ours governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or the Securities Act of 1933, as amended. This exclusive forum provision may limit the ability of our shareholders to bring a claim in a judicial forum that such shareholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. Alternatively, if a court outside of Pennsylvania were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Corporation has no unresolved staff comments.
ITEM 2. PROPERTIES
The location and general character of the principal locations in each segment, all of which are owned unless otherwise noted, are listed below. In addition, the Corporation has sales offices located in several foreign countries. See Note 3, Property, Plant and Equipment, and Note 8, Debt, to the Consolidated Financial Statements for disclosure of properties held as collateral.
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Company and Location |
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Principal Use |
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Approximate Square Footage |
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Type of Construction |
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FORGED AND CAST ENGINEERED PRODUCTS SEGMENT |
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Union Electric Steel Corporation |
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Route 18 Burgettstown, PA 15021*
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Manufacturing facilities |
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296,800 on 55 acres |
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Metal and steel |
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726 Bell Avenue Carnegie, PA 15106*
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Manufacturing facilities and offices |
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165,900 on 8.7 acres |
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Metal and steel |
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U.S. Highway 30 Valparaiso, IN 46383*
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Manufacturing facilities |
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88,000 on 20 acres |
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Metal and steel |
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1712 Greengarden Road Erie, PA 16501*
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Manufacturing facilities |
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40,000 on 1 acre |
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Metal and steel |
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Union Electric Steel UK Limited |
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Coulthards Lane Gateshead, England
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Manufacturing facilities and offices |
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274,000 on 10 acres |
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Steel framed, metal and brick |
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Åkers Sweden AB |
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Bruksallén 12SE-647 51 Åkers Styckebruk, Sweden
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Manufacturing facilities and offices |
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394,000 on 162 acres |
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Steel framed, metal and brick |
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11
|
Company and Location |
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Principal Use |
|
Approximate Square Footage |
|
Type of Construction |
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Åkers Valji Ravne d.o.o. |
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|
|
|
|
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Koroška c. 14 SI-2390 Ravne na Koroškem, Slovenia
|
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Manufacturing facilities and offices |
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106,000 on 2.1 acres |
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Brick |
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Shanxi Åkers TISCO Roll Co. Ltd. |
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No. 2 Jian Cao Ping Taiyuan, Shanxi, China
|
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Manufacturing facilities and offices |
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338,000 on 14.6 acres |
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Metal, steel and brick |
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Alloys Unlimited and Processing, LLC |
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3760 Oakwood Avenue Austintown, OH 44515*
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Manufacturing facilities and offices |
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69,800 on 1.5 acres |
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Steel framed and cement block |
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AIR AND LIQUID PROCESSING SEGMENT |
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Air & Liquid Systems Corporation |
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Aerofin Division 4621 Murray Place Lynchburg, VA 24506
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Manufacturing facilities and offices |
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146,000 on 15.3 acres |
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Brick, concrete and steel |
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Buffalo Air Handling Division |
|
|
|
|
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Zane Snead Drive Amherst, VA 24531
|
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Manufacturing facilities and offices |
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89,000 on 19.5 acres |
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Metal and steel |
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Buffalo Pumps Division |
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|
|
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874 Oliver Street N. Tonawanda, NY 14120 |
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Manufacturing facilities and offices |
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94,000 on 9 acres |
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Metal, brick and cement block |
* Facility is leased.
In 2018, Union Electric Steel Corporation completed a sale and leaseback financing transaction covering certain of its real estate assets, including its manufacturing facilities in Valparaiso, Indiana and Burgettstown, Pennsylvania, and its manufacturing facility and corporate headquarters located in Carnegie, Pennsylvania. Simultaneously with the sale, Union Electric Steel Corporation entered into a lease agreement pursuant to which Union Electric Steel Corporation would lease the properties from Store Capital Acquisitions, LLC, the purchaser of the properties.
Union Electric Steel Corporation subleases office space to the Corporation. The Corporation further subleases a portion of its office space to Air & Liquid for use as its headquarters.
All of the owned facilities are adequate and suitable for their respective purposes.
The facilities of the FCEP segment operated within 85% to 90% of their normal capacity during 2021. The facilities of the ALP segment operated within 60% to 70% of their normal capacity. Normal capacity is defined as capacity under approximately normal conditions with allowances made for unavoidable interruptions, such as lost time for repairs, maintenance, breakdowns, set-up, failure, supply delays, labor shortages and absences, Sundays, holidays, vacation, inventory taking, and the periodic and temporary idling of certain operations of the FCEP segment resulting from the COVID-19 pandemic. The number of work shifts is also taken into consideration.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
The Corporation and its subsidiaries may become involved in various claims and lawsuits incidental to their businesses. In addition, claims been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid. Air & Liquid, and in some cases the Corporation, are defendants (among a number of defendants, often in excess of 50) in cases filed in various state and federal courts. See Note 19, Litigation, to the Consolidated Financial Statements.
ENVIRONMENTAL
The Corporation is currently performing certain remedial actions in connection with the sale of real estate previously owned and periodically incurs costs to maintain compliance with environmental laws and regulations. Environmental exposures are difficult to assess and estimate for numerous reasons, including lack of reliable data, the multiplicity of possible solutions, the years of remedial
12
and monitoring activity required, and identification of new sites. The Corporation believes appropriate reserves have been established. See Note 21, Environmental Matters, to the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
13
– PART II –
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The shares of common stock of Ampco-Pittsburgh Corporation are traded on the New York Stock Exchange (symbol AP). The Corporation paid cash dividends on common shares in every year since 1965 through mid-2017. In June 2017, the Corporation announced that it would suspend quarterly cash dividends, beginning with the second quarter of 2017.
The Series A warrants are traded on the NYSE American Exchange (symbol AP WS). Each warrant entitles the holder with the right to purchase 0.4464 shares of common stock of Ampco-Pittsburgh Corporation.
The number of registered shareholders at December 31, 2021, and 2020, equaled 364 and 376, respectively.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share amounts)
EXECUTIVE OVERVIEW
Ampco-Pittsburgh Corporation and its subsidiaries (collectively, the “Corporation”) manufacture and sell highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It operates in two business segments – the Forged and Cast Engineered Products (“FCEP”) segment and the Air and Liquid Processing (“ALP”) segment. This segment presentation is consistent with how the Corporation’s chief operating decision maker evaluates financial performance and makes resource allocation and strategic decisions about the business.
COVID-19
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus (“COVID-19”) and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. In response, many state and local governments required the closure of various businesses. The U.S. Department of Homeland Security, however, issued guidance outlining criteria to identify domestic businesses as operating in critical infrastructure industries, essential to the economic prosperity, security and continuity of the United States, which provides exceptions to certain closures mandated by state and local governments and permits businesses to continue operations during such an order. The Corporation’s domestic businesses were, and continue to be, deemed to participate in critical infrastructure industries; however, despite the designation and particularly in 2020, the Corporation has had to periodically and temporarily idle certain operations of its FCEP segment and, consequently, furlough certain of its employees in response to market conditions. While most of these direct impacts were experienced in 2020, as variants have developed, the Corporation has experienced episodic disruptions to its operations or the operations of its customers and suppliers. The pandemic also has spurred disruptions to the global supply chain, which is believed to be a key factor in the global inflationary pressures of 2021. Accordingly, the Corporation has experienced, and may continue to experience, customer-requested delays of deliveries or cancellation of orders, lower order intake resulting from customers postponing projects, inability to obtain raw materials and supplies critical to the manufacturing process, delays in receiving and shipping product due to the lack of transportation, and higher cost of production and transportation.
It is difficult to isolate the impact of the pandemic on the Corporation’s operating results, particularly in relation to the unabsorbed costs resulting from the periodic and temporary idling of certain of the Corporation’s forged and cast roll operations and furloughing of employees. In addition, the Corporation is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world, hesitancy to use the vaccine and the extent of any resurgences of the virus or emergence of new variants of the virus will impact the stability of economic recovery and growth. The extent to which the operations of the Corporation, and the operations of its customers and vendors, may be adversely impacted by the COVID-19 pandemic will depend largely on these future developments. The Corporation may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business or supply chains. It also may incur higher write-offs of accounts receivables and impairment charges on its asset values, including property, plant and equipment and intangible assets. The Corporation is actively monitoring, and will continue to actively monitor, the pandemic and the potential impact on its operations, financial condition, liquidity, suppliers, industry, and workforce.
14
In response to the pandemic, the United States federal government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferral of employer-side social security payments and contributions to employee benefit plans, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. Subsequently, on March 11, 2021, the American Rescue Plan (“ARP”) Act of 2021 was enacted into law, providing the next phase of economic relief as a result of the COVID-19 pandemic. The ARP Act, among other things, extends the provision relating to refundable payroll tax credits and deferral of contributions to employee benefit plans. Similar programs have been offered in certain of the foreign jurisdictions in which the Corporation operates, including subsidies and reimbursement of certain employee-related costs. While the Corporation has taken, and intends to continue to take, advantage of various provisions of the CARES Act, the ARP Act and other similar programs offered domestically and in the foreign jurisdictions in which the Corporation operates, where possible, it is unable to determine what impact those provisions may have on its consolidated financial statements in the future.
The Segments
The FCEP segment produces forged hardened steel rolls, cast rolls and forged engineered products (“FEP”). Forged hardened steel rolls are used primarily in cold rolling mills by producers of steel, aluminum and other metals. Cast rolls, which are produced in a variety of iron and steel qualities, are used mainly in hot and cold strip mills, medium/heavy section mills and plate mills. FEP principally are sold to customers in the steel distribution market, oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, Slovenia, and an equity interest in three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world.
For the FCEP segment, roll market conditions have recovered to near pre-pandemic levels, and expectations are for sales orders to continue to improve in 2022. The FEP market also continues to strengthen with increasing demand from the steel distribution and oil and gas markets. During 2021, however, the segment experienced escalating costs, particularly for raw materials, energy and transportation, and supply chain issues. In the fourth quarter of 2021, the Corporation announced price increases for its forged and cast rolls and FEP and changes to its surcharge policy, each aimed at recovering a portion of these escalating costs. For forged and cast rolls, the price increase was effective immediately following the announcement. For FEP, the increase was effective immediately on all new orders received as of the date of the announcement, or as relevant contract terms permit. The primary focus for this segment is to maintain a strong position in the roll market and to continue diversification and development of FEP for use in other industries, operational and efficiency improvements at its facilities, and capital equipment investment activities to upgrade existing equipment with a goal of reducing costs, improving reliability and increasing FEP capacity and capabilities.
The ALP segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation. Aerofin produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including OEM/commercial, nuclear power generation and industrial manufacturing. Buffalo Air Handling produces large custom-designed air handling systems for institutional (e.g., hospital, university), pharmaceutical and general industrial building markets. Buffalo Pumps manufactures centrifugal pumps for the fossil-fueled power generation, marine defense and industrial refrigeration industries. The segment has operations in Virginia and New York with headquarters in Carnegie, Pennsylvania. The segment distributes a significant portion of its products through a common independent group of sales offices located throughout the United States and Canada.
The ALP businesses are benefitting from steady demand but, similarly, are facing increasing production and transportation costs and supply chain issues. The segment has been implementing price increases for certain of its products to help mitigate these inflationary effects. The focus for this segment is to grow revenues, increase margins, strengthen engineering and manufacturing capabilities, increase manufacturing productivity, and continue to improve its sales distribution network.
15
CONSOLIDATED RESULTS OF OPERATIONS OVERVIEW
The Corporation
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
||||||||||
|
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
|
|
|
|
|
$ |
260,204 |
|
|
|
75 |
% |
|
$ |
237,889 |
|
|
|
72 |
% |
|
Air and Liquid Processing |
|
|
|
|
|
|
84,716 |
|
|
|
25 |
% |
|
|
90,655 |
|
|
|
28 |
% |
|
Consolidated |
|
|
|
|
|
$ |
344,920 |
|
|
|
100 |
% |
|
$ |
328,544 |
|
|
|
100 |
% |
|
(Loss) Income from Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
|
|
|
|
|
$ |
(3,065 |
) |
|
|
|
|
|
$ |
8,621 |
|
|
|
|
|
|
Air and Liquid Processing (1) |
|
|
|
|
|
|
1,905 |
|
|
|
|
|
|
|
10,133 |
|
|
|
|
|
|
Corporate costs |
|
|
|
|
|
|
(12,456 |
) |
|
|
|
|
|
|
(12,308 |
) |
|
|
|
|
|
Consolidated |
|
|
|
|
|
$ |
(13,616 |
) |
|
|
|
|
|
$ |
6,446 |
|
|
|
|
|
|
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
|
|
|
|
|
$ |
223,321 |
|
|
|
76 |
% |
|
$ |
191,919 |
|
|
|
78 |
% |
|
Air and Liquid Processing |
|
|
|
|
|
|
69,233 |
|
|
|
24 |
% |
|
|
54,212 |
|
|
|
22 |
% |
|
Consolidated |
|
|
|
|
|
$ |
292,554 |
|
|
|
100 |
% |
|
$ |
246,131 |
|
|
|
100 |
% |
|
|
(1) |
(Loss) income from operations for the Air and Liquid Processing segment includes charges for asbestos-related costs of $6,661 and $283 in 2021 and 2020, respectively, as more fully explained in Note 19, Litigation, to the Consolidated Financial Statements. |
Net sales equaled $344,920 and $328,544 for 2021 and 2020, respectively. The increase of $16,376 is principally attributable to a higher volume of shipments of FEP for the FCEP segment, primarily due to increasing demand from the steel distribution and oil and gas markets, which increased net sales by approximately $17,100. A discussion of sales by segment is included below.
Backlog equaled $292,554 at December 31, 2021, versus $246,131 as of December 31, 2020. Backlog represents the accumulation of firm orders on hand which: (i) are supported by evidence of a contractual arrangement, (ii) include a fixed and determinable sales price, (iii) have collectability that is reasonably assured, and (iv) generally are expected to ship within two years from the backlog reporting date. Backlog at a certain date may not be a direct measure of future revenue for a particular order because price increases, negotiated subsequently to the original order, are not included in backlog until the updated contract is received from the customer and certain surcharges are not determinable until the order is completed and ready for shipment to the customer. Approximately 6% of the backlog is expected to be released after 2022. A discussion of backlog by segment is included below.
Gross margin, excluding depreciation and amortization, as a percentage of net sales was 16.6% and 21.6% for 2021 and 2020, respectively. The decrease from the prior year is primarily attributable to the FCEP segment which experienced higher net raw material and energy costs, higher repairs and maintenance spend associated with extended machine outages, and changes in product mix. Additionally, the prior year benefited from receipt of business interruption insurance proceeds of $769 for equipment outages that occurred in 2018 (the “Proceeds from Business Interruption Insurance Claim”). For the ALP segment, gross margin, excluding depreciation and amortization, as a percentage of net sales decreased slightly as a result of higher costs and changes in product mix, the majority of which was offset by higher sales prices.
Selling and administrative expenses were comparable, totaling $45,998 (13.3% of net sales) and $45,542 (13.9% of net sales) for 2021 and 2020, respectively. In summary:
|
|
• |
Severance costs associated with early-retirement incentives for two executive officers, employee terminations at one of the Corporation’s cast roll facilities and costs associated with the closing of a foreign sales office increased expense in 2021 by $1,600 (the “Reorganization-Related Costs”); |
|
|
• |
Commission expense resulting primarily from higher FEP sales increased expense in 2021 by $1,300; and |
|
|
• |
Higher exchange rates used to translate the selling and administrative costs of the Corporation’s foreign subsidiaries into the U.S. dollar increased expense in 2021 by $900; offset by |
|
|
• |
Lower incentive compensation, which reduced expense in 2021 by $2,300; |
|
|
• |
Lower spend on research and development activities, which reduced expense in 2021 by $800; and |
|
|
• |
Lower bad debt expense in 2021, as a result of bad debt reserves established in 2020 for FCEP customers adversely affected by the COVID-19 pandemic, which reduced expense by $500. |
Depreciation and amortization expense was comparable, equaling $17,877 and $18,575 for 2021 and 2020, respectively.
16
Charge for asbestos-related costs equaled $6,661 and $283 in 2021 and 2020, respectively, (the “Asbestos-Related Charge”). The charge in 2021 represents changes in the estimated costs of pending and future asbestos claims, net of additional insurance recoveries, through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims. The amount in 2020 represents a charge for the potential insolvency of an asbestos-related insurance carrier. See Note 19, Litigation, to the Consolidated Financial Statements for further explanation.
Investment-related income equaled $1,084 and $1,396 for 2021 and 2020, respectively, and represents primarily dividends received from one of the Corporation’s Chinese joint ventures.
Interest expense equaled $3,599 and $4,114 for 2021 and 2020, respectively. The decrease principally is due to lower average borrowings outstanding under the revolving credit facility in 2021 compared to 2020.
Other income – net is comprised of the following:
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Net pension and other postretirement income |
|
$ |
6,694 |
|
|
$ |
4,879 |
|
|
$ |
1,815 |
|
|
Unrealized gain on Rabbi trust investments |
|
|
661 |
|
|
|
377 |
|
|
|
284 |
|
|
Loss on foreign exchange transactions |
|
|
(1,134 |
) |
|
|
(97 |
) |
|
|
(1,037 |
) |
|
Other |
|
|
81 |
|
|
|
(187 |
) |
|
|
268 |
|
|
|
|
$ |
6,302 |
|
|
$ |
4,972 |
|
|
$ |
1,330 |
|
Other income – net fluctuated due to:
|
|
• |
Higher pension and other postretirement income due to lower interest costs on employee benefit obligations as a result of lower discount rates coupled with a higher expected return on plan assets as a result of an increase in the fair value of plan assets year over year; |
|
|
• |
Changes in the market value of the investments in the Rabbi trust; and |
|
|
• |
Higher foreign exchange losses. |
Income tax (provision) benefit equaled $(2,305) and 470 for 2021 and 2020, respectively, and includes income taxes associated with the Corporation’s profitable operations. An income tax benefit is not able to be recognized on losses of certain of the Corporation’s entities since it is “more likely than not” the asset will not be realized. Accordingly, changes in the income tax (provision) benefit for each period includes the effects of changes in the pre-tax income of the Corporation’s profitable operations. In addition, the income tax benefit for 2020 includes a $3,502 benefit made possible by the CARES Act, which enabled the Corporation to carry back net operating losses to an earlier period, at a higher tax rate, and to release a portion of the valuation allowance it had previously established against its deferred income tax assets.
Net loss attributable to Ampco-Pittsburgh and net loss per common share for 2021 include the Asbestos-Related Charge and the Reorganization-Related Costs which increased the net loss of Ampco-Pittsburgh by $8,157 or $0.43 per common share. Net income attributable to Ampco-Pittsburgh and net income per common share for 2020 include an income tax benefit of $3,502, due to the enactment of the CARES Act, the Proceeds from Business Interruption Insurance Claim and the Asbestos-Related Charge, which had a combined net positive impact on the net income of Ampco-Pittsburgh of $3,988 or $0.28 per common share.
Non-GAAP Financial Measures
The Corporation presents non-GAAP adjusted (loss) income from operations, which is calculated as (loss) income from operations excluding the Asbestos-Related Charge, the Reorganization-Related Costs and the Proceeds from Business Interruption Insurance Claim for each of the years, as applicable. This non-GAAP financial measure is not based on any standardized methodology prescribed by accounting principles generally accepted in the United States of America (“GAAP”) and may not be comparable to similarly-titled measures presented by other companies.
The Corporation has presented non-GAAP adjusted (loss) income from operations because it is a key measure used by the Corporation’s management and Board of Directors to understand and evaluate the Corporation’s operating performance and to develop operational goals for managing its business. This non-GAAP financial measure excludes significant charges or credits, that are one-time charges or credits, unrelated to the Corporation’s ongoing results of operations or beyond its control. Additionally, a portion of the incentive and compensation arrangements for certain employees is based on the Corporation’s business performance. The Corporation believes this non-GAAP financial measure helps identify underlying trends in its business that otherwise could be masked by the effect of the items that it excludes from adjusted (loss) income from operations. In particular, the Corporation believes that the exclusion of the Asbestos-Related Charge, the Reorganization-Related Costs and the Proceeds from Business Interruption
17
Insurance Claim can provide a useful measure for period-to-period comparisons of the Corporation’s core business performance. The Corporation also believes this non-GAAP financial measure provides useful information to management, shareholders and investors, and others in understanding and evaluating its operating results, enhancing the overall understanding of its past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by the Corporation’s management in its financial and operational decision-making.
Adjusted (loss) income from operations is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are limitations related to the use of adjusted (loss) income from operations rather than (loss) income from operations, which is the nearest GAAP equivalent. Among other things, there can be no assurance that additional expenses similar to the Asbestos-Related Charge and the Reorganization-Related Costs or additional benefits similar to the Proceeds from Business Interruption Insurance Claim will not occur in future periods.
The adjustments reflected in adjusted (loss) income from operations are pre-tax. The tax impact associated with these adjustments was $132 for 2021 and not significant for 2020.
The following is a reconciliation of (loss) income from operations to non-GAAP adjusted (loss) income from operations for 2021 and 2020, respectively:
|
|
|
2021 |
|
|
2020 |
|
||
|
(Loss) income from operations, as reported (GAAP) |
|
$ |
(13,616 |
) |
|
$ |
6,446 |
|
|
Asbestos-Related Charge (1) |
|
|
6,661 |
|
|
|
283 |
|
|
Reorganization-Related Costs (2) |
|
|
1,600 |
|
|
|
0 |
|
|
Proceeds from Business Interruption Insurance Claim (3) |
|
|
0 |
|
|
|
(769 |
) |
|
(Loss) income from operations, as adjusted (Non-GAAP) |
|
$ |
(5,355 |
) |
|
$ |
5,960 |
|
|
|
(1) |
For 2021, represents a charge for changes in the estimated costs of pending and future asbestos claims, net of additional insurance recoveries, through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims. For 2020, represents a charge for the potential insolvency of an asbestos-related insurance carrier. See Note 19, Litigation, to the Consolidated Financial Statements for further explanation. |
|
|
(2) |
Represents severance costs associated with early-retirement incentives for two executive officers, employee terminations at one of the Corporation’s cast roll facilities and costs associated with the closing of a foreign sales office. |
|
|
(3) |
Represents business interruption insurance proceeds received for equipment outages that occurred in 2018. |
Forged and Cast Engineered Products
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and cast mill rolls |
|
$ |
234,926 |
|
|
$ |
228,219 |
|
|
$ |
6,707 |
|
|
FEP |
|
|
25,278 |
|
|
|
9,670 |
|
|
|
15,608 |
|
|
|
|
$ |
260,204 |
|
|
$ |
237,889 |
|
|
$ |
22,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
$ |
(3,065 |
) |
|
$ |
8,621 |
|
|
$ |
(11,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and cast mill rolls |
|
$ |
197,476 |
|
|
$ |
185,755 |
|
|
$ |
11,721 |
|
|
FEP |
|
|
25,845 |
|
|
|
6,164 |
|
|
|
19,681 |
|
|
|
|
$ |
223,321 |
|
|
$ |
191,919 |
|
|
$ |
31,402 |
|
Net sales increased by $22,315 in 2021 from 2020 principally due to the net of:
|
|
• |
Higher volume of FEP shipments as a result of increased demand from the steel distribution and oil and gas markets, which increased net sales in 2021 when compared to 2020 by approximately $17,100; |
|
|
• |
Net higher variable-index surcharges and pricing passed through to customers as a result of higher raw material costs, which increased net sales in 2021 when compared to 2020 by approximately $5,800; |
|
|
• |
Higher volume of mill roll shipments resulting from improved demand as certain customers returned to pre-pandemic levels of production and, as a result, began to replenish roll inventory, which increased net sales in 2021 when compared to 2020 by approximately $400; |
|
|
• |
Changes in exchange rates used to translate net sales of the segment’s foreign subsidiaries into the U.S. dollar, which increased net sales in 2021 when compared to 2020 by approximately $9,400; offset by |
|
|
• |
Changes in product mix, which decreased net sales in 2021 when compared to 2020 by approximately $10,400. |
18
Operating results decreased by $11,686 in 2021 when compared to 2020 primarily as a result of:
|
|
• |
Higher costs of raw materials, energy and other production costs, net of variable-index surcharges passed through to customers, which reduced operating results in 2021 when compared to 2020 by approximately $15,100; |
|
|
• |
Changes in sales product mix net of higher sales volumes, which reduced operating results in 2021 when compared to 2020 by approximately $3,100; |
|
|
• |
Higher maintenance spending associated with extended machine outages, which reduced operating results in 2021 when compared to 2020 by approximately $3,000; |
|
|
• |
Higher commissions principally associated with the higher volume of FEP sales, which reduced operating results in 2021 when compared to 2020 by approximately $1,300; offset by |
|
|
• |
Higher production levels when compared to the pandemic-plagued levels of the prior year resulting in a better absorption of costs, which improved operating results in 2021 when compared to 2020 by approximately $8,900; and |
|
|
• |
Changes in exchange rates used to translate operating results of the segment’s foreign subsidiaries into the U.S. dollar, which increased operating results in 2021 when compared to 2020 by approximately $800. |
In addition, operating results for 2020 included:
|
|
• |
Proceeds received from the Business Interruption Insurance Claim of $769; offset by |
|
|
• |
Charges for anticipated bad debts and slow-moving inventory reserves of approximately $1,000 for customers expected to be more severely impacted by the pandemic. |
Backlog equaled $223,321 at December 31, 2021, compared to $191,919 at December 31, 2020, with the improvement in current year-end backlog of $31,402 principally due to:
|
|
• |
Increased demand from the steel distribution and oil and gas markets coupled with favorable product mix, surcharge and pricing, which increased FEP backlog by $19,700; and |
|
|
• |
Favorable product mix, surcharge and pricing for mill rolls, which improved roll backlog by $12,900; offset by |
|
|
• |
Lower foreign exchange rates used to translate the backlog of the Corporation’s foreign subsidiaries into the U.S. dollar, which reduced backlog by approximately $1,200 at December 31, 2021, compared to December 31, 2020. |
At December 31, 2021, approximately 5% of the backlog is expected to ship after 2022.
Air and Liquid Processing
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrifugal pumps |
|
$ |
33,867 |
|
|
$ |
36,911 |
|
|
$ |
(3,044 |
) |
|
Air handling systems |
|
|
26,477 |
|
|
|
28,495 |
|
|
|
(2,018 |
) |
|
Heat exchange coils |
|
|
24,372 |
|
|
|
25,249 |
|
|
|
(877 |
) |
|
|
|
$ |
84,716 |
|
|
$ |
90,655 |
|
|
$ |
(5,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (1) |
|
$ |
1,905 |
|
|
$ |
10,133 |
|
|
$ |
(8,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog |
|
$ |
69,233 |
|
|
$ |
54,212 |
|
|
$ |
15,021 |
|
|
|
(1) |
Operating income for 2021 includes a charge of $6,661 for changes in the estimated costs of pending and future asbestos claims, net of additional insurance recoveries, through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims. Operating income for 2020, includes a charge of $283 for the potential insolvency of an asbestos-related insurance carrier. See Note 19, Litigation, to the Consolidated Financial Statements for further explanation. |
Net sales for 2021 decreased from the prior year by $5,939. Sales of centrifugal pumps declined from a year ago as a result of a lower volume of commercial pump shipments partially offset by a higher volume of shipments to U.S. Navy shipbuilders. Sales of air handling units for the current year decreased from the prior year primarily as a result of customer-requested deferrals and delays in receiving required components. Sales of heat exchange coils were slightly less in 2021 when compared to 2020 with lower sales to the nuclear industry being offset by higher sales to the commercial market.
19
Operating income for 2021 includes the Asbestos-Related Charge of $6,661 for changes in the estimated costs of pending and future asbestos claims, net of additional insurance recoveries, through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims. Operating income for 2020 includes the Asbestos-Related Charge of $283 for the potential insolvency of an asbestos-related insurance carrier. See Note 19, Litigation, to the Consolidated Financial Statements for further explanation. In addition, operating income for the current year was negatively impacted by the lower volume of shipments but benefited from changes in product mix and savings generated from process improvements.
Backlog at December 31, 2021, improved $15,021 from December 31, 2020, principally due to additional order intake for centrifugal pumps and higher on-hand orders for air handlers due, in part, to the aforementioned deferrals by customers and delays in receiving required components. At December 31, 2021, approximately 9% of the backlog is expected to ship after 2022.
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Net cash flows (used in) provided by operating activities |
|
$ |
(15,866 |
) |
|
$ |
33,635 |
|
|
$ |
(49,501 |
) |
|
Net cash flows used in investing activities |
|
|
(14,734 |
) |
|
|
(7,929 |
) |
|
|
(6,805 |
) |
|
Net cash flows provided by (used in) financing activities |
|
|
24,402 |
|
|
|
(17,220 |
) |
|
|
41,622 |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(307 |
) |
|
|
1,396 |
|
|
|
(1,703 |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
|
(6,505 |
) |
|
|
9,882 |
|
|
|
(16,387 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
16,842 |
|
|
|
6,960 |
|
|
|
9,882 |
|
|
Cash and cash equivalents at end of period |
|
$ |
10,337 |
|
|
$ |
16,842 |
|
|
$ |
(6,505 |
) |
Net cash flows (used in) provided by operating activities equaled $(15,866) and $33,635 for 2021 and 2020, respectively. The significant change between the years primarily is due to (i) a net loss incurred in 2021 versus net income in 2020 and (ii) a higher investment in trade working capital year over year as the Corporation began to return to a higher level of business activity following the pandemic-plagued levels of the prior year and, for inventories, higher costs associated with inflation and supply chain disruptions. Although the Corporation recorded the Asbestos-Related Charge in 2021 and 2020, these were non-cash charges and, accordingly, did not impact net cash flows (used in) provided by operating activities. Instead, net asbestos-related payments equaled $9,903 and $8,725 in 2021 and 2020, respectively, and are expected to approximate $7,000 in 2022.
Deferred employer-side social security payments equaled $2,163 through December 31, 2020, of which one half was paid in 2021, and, under the current provisions of the CARES Act, the balance will be paid in December 2022. Contributions to the defined benefit pension and other postretirement benefits plans equaled $1,658 and $7,857 in 2021 and 2020, respectively, and are expected to approximate $3,100 in 2022. Contributions for 2021 and expected contributions for 2022 are lower than contributions for 2020 due to relief provided by the ARP Act.
Net cash flows used in investing activities primarily represented expenditures for the FCEP segment. The Corporation has undertaken a significant capital program approximating $27,000 to upgrade existing equipment at certain of its FCEP locations, which is anticipated to occur over the next two years. At December 31, 2021, commitments for future capital expenditures, including those associated with the FCEP capital program, approximated $20,800.
Net cash flows provided by (used in) financing activities fluctuated year over year primarily due to:
|
|
• |
Net borrowings from the Corporation’s revolving credit facility of $23,744 in 2021 versus repayment of (i) net amounts outstanding under the Corporation’s revolving credit facility of $28,273 and (ii) an outstanding Industrial Revenue Bond at maturity of $4,120 in 2020; and |
|
|
• |
Proceeds from shareholders exercising warrants for the Corporation’s common stock of $3,308 in 2021 versus net common equity proceeds of $18,139 received in 2020 when the Corporation completed an equity rights offering. See Note 12, Equity Rights Offering, to the Consolidated Financial Statements for further explanation. |
The effect of exchange rate changes on cash and cash equivalents is primarily attributable to the fluctuation of the British pound and Swedish krona against the U.S. dollar.
As a result of the above, cash and cash equivalents decreased by $6,505 during 2021 and ended the period at $10,337 in comparison to $16,842 at December 31, 2020. The majority of the Corporation’s cash and cash equivalents is held by its foreign operations. Domestic customer remittances are used to pay down borrowings under the Corporation’s revolving credit facility daily, resulting in minimal cash maintained by the Corporation’s domestic operations. Cash held by the Corporation’s foreign operations is considered to be permanently re-invested; accordingly, a provision for estimated local and withholding tax has not been made. If the Corporation were to remit any foreign earnings to it or any of its U.S. entities, the estimated tax impact would be insignificant.
20
Funds on hand, funds generated from future operations and availability under the Corporation’s revolving credit facility are expected to be sufficient to finance the Corporation’s operational requirements. The maturity date for the revolving credit facility is June 29, 2026, and, subject to the other terms and conditions of the revolving credit agreement, will become due on that date. While availability under the revolving credit facility also should be sufficient to fund the capital equipment investment activities for the FCEP segment, the Corporation currently is exploring supplemental financing. As of December 31, 2021, remaining availability under the revolving credit facility approximated $34,000, net of standard availability reserves.
With respect to litigation, see Note 19, Litigation, to the Consolidated Financial Statements. With respect to environmental matters, see Note 21, Environmental Matters, to the Consolidated Financial Statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Corporation’s off-balance sheet arrangements include the previously mentioned expected future capital expenditures and letters of credit unrelated to the Industrial Revenue Bonds. See Note 11, Commitments and Contingent Liabilities, to the Consolidated Financial Statements. These arrangements are not considered significant to the liquidity, capital resources, market risk, or credit risk of the Corporation.
EFFECTS OF INFLATION
Inflationary and market pressures on costs are likely to continue to be experienced. Product pricing is reflective of current costs. For the FCEP segment, approximately 50% to 70% of customer orders include a commodity surcharge; the ability to pass on future increases in the price of commodities for the balance of the customer orders will be negotiated on a contract-by-contract basis. To minimize the effect of future increases, the Corporation has entered into pricing for a portion of the electricity and natural gas for certain of its FCEP operating entities and has long-term labor agreements at each of the key locations. Certain of these agreements will expire in 2022. As is consistent with past practice, the Corporation will negotiate with the intent to secure mutually beneficial arrangements covering multiple years. See Note 11, Commitments and Contingent Liabilities, and Note 14, Derivative Instruments, to the Consolidated Financial Statements for further information.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Corporation has identified critical accounting policies that are important to the presentation of its financial condition, changes in financial condition and results of operations and involve the most complex or subjective assessments. Critical accounting policies relate to assessing recoverability of property, plant and equipment and accounting for pension and other postretirement benefits, litigation and loss contingencies, and income taxes.
Property, plant and equipment is reviewed for recoverability whenever events or circumstances indicate the carrying amount of the long-lived assets may not be recoverable. If the undiscounted cash flows generated from the use and eventual disposition of the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. Estimates of future cash flows are based on expected market conditions over the remaining useful life of the primary asset(s). Accordingly, assumptions are made about pricing, volume and asset-resale values. The Corporation believes the amounts recorded in the accompanying consolidated financial statements for property, plant and equipment are recoverable and are not impaired as of December 31, 2021.
Accounting for pension and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, input from the Corporation’s actuaries is evaluated and extensive use is made of assumptions about inflation, long-term rate of return on plan assets, longevity, employee turnover and discount rates. The curtailment of the majority of the Corporation’s defined benefit pension plans and the amendment of various other postretirement benefit plans has helped to mitigate the volatility in net periodic pension and other postretirement benefit costs resulting from changes in these assumptions.
The expected long-term rate of return on plan assets is an estimate of the average rates of earnings expected to be earned on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. Since these benefits will be paid over many years, the expected long-term rate of return is reflective of current investment returns and investment returns over a longer period. Also, consideration is given to target and actual asset allocations, inflation and real risk-free return. The Corporation believes the expected long-term rate of return ranging between 6.50% and 7.00% for its domestic plans and 2.90% for its foreign plans to be reasonable. Actual returns on plan assets for 2021 approximated 8.70% for the domestic plans and 10.76% for the foreign plans. A percentage point decrease in the expected long-term rate of return would increase annual pension expense by approximately $2,500. Conversely, a percentage point increase in the expected long-term rate of return would decrease annual pension expense by approximately $2,500.
The discount rates used in determining future pension obligations and other postretirement benefits for each of the plans are based on rates of return for high-quality fixed-income investments currently available and expected to be available during the period to maturity
21
of the pension and other postretirement benefits. High-quality fixed-income investments are defined as those investments which have received one of the two highest ratings given by a recognized rating agency with maturities of 10+ years. Assumed discount rates range between 2.79% and 2.91% for its domestic plans, 2.91% for its other postretirement benefits plans, and 1.95% for its foreign plans at December 31, 2021. A 1/4 percentage point increase in the discount rate would decrease projected and accumulated benefit obligations by approximately $10,300. Conversely, a 1/4 percentage point decrease in the discount rate would increase projected and accumulated benefit obligations by approximately $10,300.
The Corporation believes that the amounts recorded in the accompanying consolidated financial statements related to pension and other postretirement benefits are based on assumptions that are appropriate at December 31, 2021, although actual outcomes could differ.
Litigation and loss contingency accruals are made when it is determined that it is probable that a liability has been incurred and the amount can be reasonably estimated. Specifically, the Corporation and certain of its subsidiaries are involved in various claims and lawsuits incidental to its businesses. In addition, claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid (the “Asbestos Liability”). To assist the Corporation in determining whether an estimate could be made of the potential liability for pending and unasserted future claims for the Asbestos Liability along with applicable insurance coverage, and the amounts of any estimates, the Corporation hires a nationally recognized asbestos-liability expert and an insurance consultant. Based on their analyses, reserves for probable and reasonably estimable costs for the Asbestos Liability, including defense costs, and receivables for the insurance recoveries that are deemed probable are established. These amounts rely on assumptions which are based on currently known facts and strategy.
In 2018, the Corporation undertook a review of the Asbestos Liability claims, defense costs and the likelihood for insurance recoveries. The Corporation extended its estimate of the Asbestos Liability, including the estimated costs of settlement and defense costs relating to pending claims and future claims projected to be filed against it through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims. The Corporation’s policy is to evaluate the Asbestos Liability and related insurance receivables as well as the underlying assumptions on a regular basis. In 2021, the Corporation reviewed the assumptions and determined certain adjustments to the Asbestos Liability and related insurance coverage were necessary based on current experience and future expectations. As a result, the Corporation recorded an additional charge of $6,661 representing the change in the estimated costs of pending and future asbestos claims, net of additional insurance recoveries, through 2052. Key variables in these assumptions, including the ability to reasonably estimate the Asbestos Liability through the expected final date by which the Corporation expects to have settled all asbestos-related claims, are summarized in Note 19, Litigation, to the Consolidated Financial Statements. Key assumptions include the number and nature of new claims to be filed each year, the average cost of disposing of each new claim, average annual defense costs, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Asbestos Liability and the Corporation’s ability to recover under its insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, the passage of state or federal tort reform legislation, and continued solvency of the insurance carriers. Actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the calculations vary significantly from actual results.
The Corporation intends to continue to evaluate the Asbestos Liability and related insurance receivables as well as the underlying assumptions on a regular basis to determine whether further adjustments to the estimates are required. Due to the uncertainties surrounding asbestos litigation and insurance, these regular reviews may result in the incurrence of future charges or credits; however, the Corporation is currently unable to estimate such future changes. Adjustments, if any, to the Corporation’s estimate of the Asbestos Liability and/or insurance receivables could be material to its operating results for the periods in which the adjustments to the liability or receivable are recorded, and to its liquidity and financial position when such liabilities are paid.
Accounting for income taxes includes the Corporation evaluation of the underlying accounts, permanent and temporary differences, its tax filing positions and interpretations of existing tax law. A valuation allowance is recorded against deferred income tax assets to reduce them to the amount that is “more likely than not” to be realized. In doing so, assumptions are made about the future profitability of the Corporation and the nature of that profitability. Actual results may differ from these assumptions. If the Corporation determined it would not be able to realize all or part of the deferred income tax assets in the future, an adjustment to the valuation allowance would be established resulting in a charge to net income (loss). Likewise, if the Corporation determined it would be able to realize deferred income tax assets in excess of the net amount recorded, a portion of the existing valuation allowance would be released resulting in a credit to net income (loss). As of December 31, 2021, the valuation allowance approximates $42,441, reducing deferred income tax assets, net of deferred income tax liabilities, to $2,176, an amount the Corporation believes is “more likely than not” to be realized.
The Corporation does not recognize a tax benefit in the consolidated financial statements related to a tax position taken or expected to be taken in a tax return unless it is “more likely than not” that the tax authorities will sustain the tax position solely on the basis of the position’s technical merits. Consideration primarily is given to legislation and statutes, legislative intent, regulations, rulings and case law as well as their applicability to the facts and circumstances of the tax position when assessing the sustainability of the tax position.
22
In the event a tax position no longer meets the “more likely than not” criteria, the Corporation would reverse the tax benefit by recognizing a liability and recording a charge to earnings. Conversely, if the Corporation subsequently determined that a tax position met the “more likely than not” criteria, it would recognize the tax benefit by reducing the liability and recording a credit to earnings. As of December 31, 2021, based on information known to date, the Corporation believes the amount of unrecognized tax benefits for tax positions taken or expected to be taken in a tax return, which may be challenged by the tax authorities, not to be significant.
See Note 20, Income Taxes, to the Consolidated Financial Statements.
RECENTLY IMPLEMENTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
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December 31, |
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|||||
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(in thousands, except par value) |
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2021 |
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2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, less allowance for doubtful accounts of $ |
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Inventories |
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Insurance receivable – asbestos |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets, net |
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Insurance receivable – asbestos |
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Deferred income tax assets |
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Intangible assets, net |
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Investments in joint ventures |
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Prepaid pensions |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued payrolls and employee benefits |
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Debt – current portion |
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Operating lease liabilities – current portion |
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Asbestos liability – current portion |
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Other current liabilities |
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Total current liabilities |
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Employee benefit obligations |
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Asbestos liability |
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Long-term debt |
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Noncurrent operating lease liabilities |
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Deferred income tax liabilities |
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Other noncurrent liabilities |
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Total liabilities |
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Commitments and contingent liabilities (Note 11) |
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Shareholders’ equity: |
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Common stock – par value $ outstanding |
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Additional paid-in capital |
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Retained deficit |
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( |
) |
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( |
) |
|
Accumulated other comprehensive loss |
|
|
( |
) |
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|
( |
) |
|
Total Ampco-Pittsburgh shareholders’ equity |
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Noncontrolling interest |
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|
Total shareholders’ equity |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
|
|
|
$ |
|
|
See Notes to Consolidated Financial Statements.
24
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
For The Years Ended December 31, |
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|||||
|
(in thousands, except per share amounts) |
|
2021 |
|
|
2020 |
|
||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Operating costs and expenses: |
|
|
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|
|
Costs of products sold (excluding depreciation and amortization) |
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|
Selling and administrative |
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Depreciation and amortization |
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Charge for asbestos-related costs |
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Loss on disposal of assets |
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(Loss) income from operations |
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( |
) |
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|
Other income (expense): |
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|
Investment-related income |
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Interest expense |
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( |
) |
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( |
) |
|
Other – net |
|
|
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|
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|
(Loss) income before income taxes |
|
|
( |
) |
|
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|
Income tax (provision) benefit |
|
|
( |
) |
|
|
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|
Net (loss) income |
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|
( |
) |
|
|
|
|
|
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Ampco-Pittsburgh |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share attributable to Ampco-Pittsburgh common shareholders: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
( |
) |
|
$ |
|
|
|
Diluted |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding: |
|
|
|
|
|
|
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|
|
Basic |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
25
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
For The Years Ended December 31, |
|
||||||
|
(in thousands) |
|
2021 |
|
|
|
2020 |
|
||
|
Net (loss) income |
|
$ |
( |
) |
|
|
$ |
|
|
|
Other comprehensive income (loss), net of income tax where applicable: |
|
|
|
|
|
|
|
|
|
|
Adjustments for changes in: |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
( |
) |
|
|
|
|
|
|
Unrecognized employee benefit costs (including effects of foreign currency translation) |
|
|
|
|
|
|
|
( |
) |
|
Fair value of cash flow hedges |
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for items included in net (loss) income: |
|
|
|
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|
|
|
Amortization of unrecognized employee benefit costs |
|
|
|
|
|
|
|
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|
|
Settlement of cash flow hedges |
|
|
( |
) |
|
|
|
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
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|
|
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Ampco-Pittsburgh |
|
$ |
|
|
|
|
$ |
|
|
See Notes to Consolidated Financial Statements.
26
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
(in thousands) |
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Retained Deficit |
|
|
Accumulated Other Comprehensive Loss |
|
|
Noncontrolling Interest |
|
|
Total |
|
||||||
|
Balance January 1, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income |
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|
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|
Other comprehensive (loss) income |
|
|
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|
|
|
|
|
|
|
|
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( |
) |
|
|
|
|
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|
Comprehensive income |
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|
Equity rights offering (Note 12) |
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Issuance of common stock including excess tax benefits of $ |
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|
Balance December 31, 2020 |
|
|
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|
|
|
|
|
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|
( |
) |
|
|
( |
) |
|
|
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|
Stock-based compensation |
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
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|
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Comprehensive income |
|
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|
Shareholder exercise of warrants (Note 12) |
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|
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|
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|
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|
Issuance of common stock including excess tax benefits of $ |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Balance December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
See Notes to Consolidated Financial Statements.
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For The Years Ended December 31, |
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|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
Adjustments to reconcile net (loss) income from operations to net cash flows from operating activities: |
|
|
|
|
|
|
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|
|
Depreciation and amortization |
|
|
|
|
|
|
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|
|
Charge for asbestos-related costs |
|
|
|
|
|
|
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|
Deferred income tax expense |
|
|
|
|
|
|
|
|
|
Difference between net periodic pension and other postretirement costs and contributions |
|
|
( |
) |
|
|
( |
) |
|
Stock-based compensation |
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|
Non-cash provisions – net |
|
|
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|
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|
Other – net |
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|
|
Changes in assets/liabilities: |
|
|
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|
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|
|
|
|
Receivables |
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|
( |
) |
|
|
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|
|
Inventories |
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|
( |
) |
|
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|
Other assets |
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|
( |
) |
|
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|
|
Insurance receivable – asbestos |
|
|
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|
|
|
|
|
|
Asbestos liability |
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|
( |
) |
|
|
( |
) |
|
Accounts payable |
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|
|
|
|
( |
) |
|
Accrued payrolls and employee benefits |
|
|
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|
( |
) |
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash flows (used in) provided by operating activities |
|
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( |
) |
|
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|
|
Cash flows from investing activities: |
|
|
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|
|
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
|
|
|
|
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|
|
Other – net |
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from financing activities: |
|
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|
|
Proceeds from revolving credit facility |
|
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|
|
Payments on revolving credit facility |
|
|
( |
) |
|
|
( |
) |
|
Repayment of debt |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from shareholder exercise of warrants |
|
|
|
|
|
|
|
|
|
Proceeds from equity rights offering, net of issuance costs |
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Net cash flows provided by (used in) financing activities |
|
|
|
|
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
Income tax payments |
|
$ |
|
|
|
$ |
|
|
|
Interest payments |
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment in accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Finance lease right-of-use assets exchanged for lease liabilities |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets exchanged for lease liabilities |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Description of Business
Ampco-Pittsburgh Corporation and its subsidiaries (collectively, the “Corporation”) manufacture and sell highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It operates in
The Segments
The FCEP segment produces forged hardened steel rolls, cast rolls and forged engineered products (“FEP”). Forged hardened steel rolls are used primarily in cold rolling mills by producers of steel, aluminum and other metals. Cast rolls, which are produced in a variety of iron and steel qualities, are used mainly in hot and cold strip mills, medium/heavy section mills and plate mills. FEP principally are sold to customers in the steel distribution market, oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, and Slovenia and equity interests in
The ALP segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation. Aerofin produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including OEM/commercial, nuclear power generation and industrial manufacturing. Buffalo Air Handling produces large custom-designed air handling systems for institutional (e.g., hospital, university), pharmaceutical and general industrial building markets. Buffalo Pumps manufactures centrifugal pumps for the fossil fueled power generation, marine defense and industrial refrigeration industries. The segment has operations in Virginia and New York with headquarters in Carnegie, Pennsylvania. The segment distributes a significant portion of its products through a common independent group of sales offices located throughout the United States and Canada.
COVID-19
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus (“COVID-19”) and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. In response, many state and local governments required the closure of various businesses. The U.S. Department of Homeland Security, however, issued guidance outlining criteria to identify domestic businesses as operating in critical infrastructure industries, essential to the economic prosperity, security and continuity of the United States, which provides exceptions to certain closures mandated by state and local governments and permits businesses to continue operations during such an order. The Corporation’s domestic businesses were, and continue to be, deemed to participate in critical infrastructure industries; however, despite the designation and particularly in 2020, the Corporation has had to periodically and temporarily idle certain operations of its FCEP segment and, consequently, furlough certain of its employees in response to market conditions. While most of these direct impacts were experienced in 2020, as variants have developed, the Corporation has experienced episodic disruptions to its operations or the operations of its customers and suppliers. The pandemic also has spurred disruptions to the global supply chain, which is believed to be a key factor in the global inflationary pressures of 2021. Accordingly, the Corporation has experienced, and may continue to experience, customer-requested delays of deliveries or cancellation of orders, lower order intake resulting from customers postponing projects, inability to obtain raw materials and supplies critical to the manufacturing process, delays in receiving and shipping product due to the lack of transportation, and higher cost of production and transportation.
It is difficult to isolate the impact of the pandemic on the Corporation’s operating results, particularly in relation to the unabsorbed costs resulting from the periodic and temporary idling of certain of the Corporation’s forged and cast roll operations and furloughing of employees. In addition, the Corporation is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world, hesitancy to use the vaccine and the extent of any resurgences of the virus or emergence of new variants of the virus will impact the stability of economic recovery and growth. The extent to which the operations of the Corporation, and the operations of its customers and vendors, may be adversely impacted by the COVID-19 pandemic will depend largely on these future developments. The Corporation may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business or supply chains. It may also incur higher write-offs of accounts receivables and impairment charges on its asset values, including property, plant and equipment and intangible assets. The Corporation is actively
29
monitoring, and will continue to actively monitor, the pandemic and the potential impact on its operations, financial condition, liquidity, suppliers, industry, and workforce.
In response to the pandemic, the United States federal government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferral of employer-side social security payments and contributions to employee benefit plans, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. Subsequently, on March 11, 2021, the American Rescue Plan (“ARP”) Act of 2021 was enacted into law, providing the next phase of economic relief as a result of the COVID-19 pandemic. The ARP Act, among other things, extends the provision relating to refundable payroll tax credits and deferral of contributions to employee benefit plans. Similar programs have been offered in certain of the foreign jurisdictions in which the Corporation operates, including subsidies and reimbursement of certain employee-related costs. While the Corporation has taken, and intends to continue to take, advantage of various provisions of the CARES Act, the ARP Act and other similar programs offered domestically and in the foreign jurisdictions in which the Corporation operates, where possible, it is unable to determine what impact those provisions may have on its consolidated financial statements in the future.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Corporation’s accounting policies conform to accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include assessing the carrying value of long-lived assets, valuing the assets and obligations related to employee benefit plans, accounting for loss contingencies associated with claims and lawsuits, and accounting for income taxes. Actual results could differ from those estimates. A summary of the significant accounting policies followed by the Corporation is presented below.
Basis of Presentation
The financial information included herein reflects the consolidated financial position of the Corporation as of December 31, 2021, and 2020, and the consolidated results of its operations and cash flows for the years then ended.
Consolidation
The accompanying consolidated financial statements include the assets, liabilities, revenues, and expenses of all majority-owned subsidiaries and joint ventures over which the Corporation exercises control and, when applicable, entities for which the Corporation has a controlling financial interest or is the primary beneficiary. Investments in joint ventures where the Corporation owns
Cash and Cash Equivalents
Securities with purchased original maturities of three months or less are considered to be cash equivalents. The Corporation maintains cash and cash equivalents at various financial institutions which may exceed federally-insured amounts.
Inventories
Inventories are valued at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. Cost includes the cost of raw materials, direct labor and overhead for those items manufactured but not yet sold or for which control has not yet transferred to the customer. Fixed production overhead is allocated to inventories based on normal capacity of the production facilities. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. The amount of fixed overhead allocated to inventories is not increased as a consequence of abnormally low production or plant idling. Costs for abnormal amounts of spoilage, handling costs and freight costs are charged to expense when incurred. Cost of domestic raw materials, work-in-process and finished goods inventories is primarily determined by the last-in, first-out (LIFO) method. Cost of domestic supplies and foreign inventories is determined primarily by the first-in, first-out (FIFO) method.
30
Property, Plant and Equipment
Property, plant and equipment purchased new is recorded at cost with depreciation computed using the straight-line method over the following estimated useful lives: land improvements – 15 to
Right-of-Use Assets
A right-of-use (“ROU”) asset represents the right to use an underlying asset for the term of the lease, and the corresponding liability represents an obligation to make periodic payments arising from the lease. A determination of whether an arrangement includes a lease is made at the inception of the arrangement. ROU assets and liabilities are recognized on the consolidated balance sheet, at the commencement date of the lease, in an amount equal to the present value of the lease payments over the term of the lease calculated using the interest rate implicit in the lease arrangement or, if not known, the Corporation’s incremental borrowing rate. The present value of a ROU asset also includes any lease payments made prior to commencement of the lease and excludes any lease incentives received or to be received under the arrangement. The lease term includes options to extend or terminate the lease when it is reasonably certain that such options will be exercised. Operating leases that have original terms of less than 12 months, inclusive of options to extend that are reasonably certain to be exercised, are classified as short-term leases and are not recognized on the consolidated balance sheet.
ROU assets are recorded as a noncurrent asset on the consolidated balance sheet. The corresponding liabilities are recorded as an operating lease liability, either current or noncurrent, as applicable, on the consolidated balance sheet. Operating lease costs are recognized on a straight-line basis over the lease term within costs of products sold (excluding depreciation and amortization) or selling and administrative expenses based on the use of the related ROU asset.
Intangible Assets
Intangible assets primarily consist of developed technology, customer relationships and trade name. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful life, which is determined by identifying the period over which most of the cash flows are expected to be generated. Intangible assets with indefinite lives are not amortized but reviewed for impairment at least annually, as of October 1. Additionally, intangible assets, both finite and indefinite lived, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. For finite-lived intangible assets, if the undiscounted cash flows attributable to the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. For indefinite-lived intangible assets, if the discounted cash flows attributable to the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. Also, if the estimate of an intangible asset’s remaining useful life changes, the remaining carrying value of the intangible asset will be amortized prospectively over the revised remaining useful life.
Debt Issuance Costs
Debt issuance costs are amortized as interest expense over the scheduled maturity period of the debt. The costs related to a line-of-credit arrangement are amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings. Unamortized debt issuance costs are either recognized as a direct deduction from the carrying amount of the related debt or, if related to a line-of-credit facility, as an other noncurrent asset on the consolidated balance sheet.
Product Warranty
A warranty that ensures basic functionality is an assurance-type warranty. A warranty that goes beyond ensuring basic functionality is considered a service-type warranty. The Corporation provides assurance-type warranties; it does not provide service-type warranties. Provisions for assurance-type warranties are recognized at the time the underlying sale is recorded. The provision is based on historical experience as a percentage of sales adjusted for potential claims when a liability is probable and for known claims.
31
Employee Benefit Plans
Funded Status
If the fair value of the plan assets exceeds the projected benefit obligation, the over-funded projected benefit obligation is recognized as an asset (prepaid pensions) on the consolidated balance sheet. Conversely, if the projected benefit obligation exceeds the fair value of the plan assets, the under-funded projected benefit obligation is recognized as a liability (employee benefit obligations) on the consolidated balance sheet. Gains and losses arising from the difference between actuarial assumptions and actual experience and unamortized prior service costs are recorded as a separate component of accumulated other comprehensive loss.
Net Periodic Pension and Other Postretirement Benefit Costs
Net periodic pension and other postretirement benefit costs include service cost, interest cost, expected rate of return on the market-related value of plan assets, amortization of prior service costs, and recognized actuarial gains or losses. When actuarial gains or losses exceed
Warrants
Accounting for warrants includes an initial assessment of whether the warrants qualify as debt or equity. The Corporation’s warrants meet the definition of equity instruments and, accordingly, are recorded within shareholders’ equity on the consolidated balance sheet. The fair value of the warrants is determined as of the measurement date. Incremental costs directly attributable to the offering of the securities are deferred and charged against the proceeds of the offering.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes changes in assets and liabilities from non-owner sources including foreign currency translation adjustments, unamortized prior service costs and unrecognized actuarial gains and losses associated with employee benefit plans, and changes in the fair value of derivatives designated and effective as cash flow hedges.
Certain components of other comprehensive income (loss) are presented net of income tax. Foreign currency translation adjustments exclude the effect of income tax since earnings of non-U.S. subsidiaries are deemed to be re-invested for an indefinite period of time.
Reclassification adjustments are amounts which are realized during the year and, accordingly, are deducted from other comprehensive income (loss) in the period in which they are included in net income (loss) or when a transaction no longer qualifies as a cash flow hedge. Foreign currency translation adjustments are included in net income (loss) upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. With respect to employee benefit plans, unamortized prior service costs are included in net income (loss), either immediately upon curtailment of the employee benefit plan or over the average remaining service period or life expectancy of the employees expected to receive benefits, and unrecognized actuarial gains and losses are included in net income (loss) indirectly as a result of lower/higher interest costs arising from a decrease/increase in the projected benefit obligation. Changes in the fair value of derivatives are included in net income (loss) when the projected sale occurs or, if a foreign currency purchase contract, over the estimated useful life of the underlying asset.
Foreign Currency Translation
Assets and liabilities of the Corporation’s foreign operations are translated at year-end exchange rates, and the statements of operations are translated at the average exchange rates for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive loss until the entity is sold or substantially liquidated.
Revenue Recognition
Revenue from sales is recognized when obligations under the terms of the contract with the customer are satisfied. Generally, this occurs when control of the product transfers to the customer. A contract with a customer is deemed to exist when there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collectability is reasonably assured.
Persuasive evidence of an arrangement identifies the final understanding between the parties as to the specific nature and terms of the agreed-upon transaction that creates the enforceable obligations. It can be in the form of an executed purchase order from the
32
customer, combined with an order acknowledgment from the Corporation, a sales agreement or a longer-term supply agreement between the customer and the Corporation, or a similar arrangement deemed to be a normal and customary business practice for that particular customer or class of customer (collectively, a sales agreement). Sales agreements typically include a single performance obligation for the manufacturing of product which is satisfied upon transfer of control of the product to the customer.
The sales price required to be paid by the customer is fixed or determinable from the sales agreement. It is not subject to refund or adjustment, except for a variable-index surcharge provision which is known at the time of shipment and increases or decreases, as applicable, the selling price of the product for corresponding changes in the published index cost of certain raw materials and energy. The variable-index surcharge is recognized as revenue when the corresponding revenue for the inventory is recognized.
Likelihood of collectability is assessed prior to acceptance of an order. In certain circumstances, the Corporation may require a deposit from the customer, a letter of credit or another form of assurance for payment. An allowance for doubtful accounts is maintained based on historical experience. Payment terms are standard to the industry and generally require payment 30 days after control transfers to the customer.
Transfer of control is assessed based on alternative use of the product manufactured and, under the terms of the sales agreement, an enforceable right to payment for performance to date. Transfer of control, and therefore revenue recognition, occurs when title, ownership and risk of loss pass to the customer. Typically, this occurs when the product is shipped to the customer (i.e., FOB shipping point), delivered to the customer (i.e., FOB destination) or, for foreign sales, in accordance with trading guidelines known as Incoterms. Incoterms are standard trade definitions used in international contracts and are developed, maintained and promoted by the ICC Commission on Commercial Law and Practice. Shipping terms vary across the businesses and typically depend on the product, country of origin and type of transportation (truck or vessel). There are no customer-acceptance provisions other than, perhaps, customer inspection and testing prior to shipment. Post-shipment obligations are insignificant.
Amounts billed to the customer for shipping and handling are recorded within net sales and the related costs are recorded within costs of products sold (excluding depreciation and amortization). Amounts billed for taxes assessed by various government authorities (e.g., sales tax, value-added tax, etc.) are excluded from the determination of net income (loss) and, instead, are recorded as a liability until remitted to the government authority.
Stock-Based Compensation
Stock-based compensation, such as stock options, restricted stock units and performance shares, is recognized over the vesting period based on the fair value of the award at the date of grant. For stock options, the fair value is determined by the Black-Scholes option pricing model and is expensed over the vesting period of
Asbestos-Related Costs
The amounts recorded for asbestos-related liabilities and insurance receivables for asbestos-related matters rely on assumptions that are based on currently known facts and strategies. Asbestos-related liabilities are recognized when a liability is probable of occurrence and can be reasonably estimated. The liability includes an estimate of future claims as well as settlement or indemnity costs that would be incurred to resolve both pending and future unasserted claims over the period which such claims can be reasonably estimated. Insurance receivables for asbestos-related matters are recognized for the estimated amount of probable insurance recoveries attributable to the claims for which an asbestos-related liability has been recognized, including the portion of incurred defense costs expected to be reimbursed. Neither the asbestos-related liabilities nor the insurance receivables for asbestos-related matters are discounted to their present values due to the inability to reliably forecast the timing of future cash flows. The asbestos-related liabilities and insurance receivables for asbestos-related matters, as well as the underlying assumptions, are reviewed on a regular basis to determine whether any adjustments to the estimates are required. If it is determined that there is an increase in asbestos-related liabilities net of insurance recoveries, then a charge to net income (loss) would be recorded. Similarly, if it is determined that there is a decrease in asbestos-related liabilities net of insurance recoveries, then a credit to net income (loss) would be recorded.
Derivative Instruments
Derivative instruments which include forward exchange (for foreign currency sales and purchases) and futures contracts are recorded on the consolidated balance sheet as either an asset or a liability measured at their fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. To the extent that a derivative is designated and effective as a cash flow hedge of an exposure to future changes in value, the change in the fair value of the derivative is deferred in accumulated other
33
comprehensive loss. Any portion considered to be ineffective, including that arising from the unlikelihood of an anticipated transaction to occur, is reported as a component of earnings (other income/expense) immediately.
Upon occurrence of the anticipated sale, the foreign currency sales contract designated and effective as a cash flow hedge is de-designated as a fair value hedge, and the change in fair value previously deferred in accumulated other comprehensive loss is reclassified to earnings (net sales) with subsequent changes in fair value recorded as a component of earnings (other income/expense). Upon occurrence of the anticipated purchase, the foreign currency purchase contract is settled, and the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings (depreciation and amortization expense) over the life of the underlying asset. Upon settlement of a futures contract, the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings (costs of products sold, excluding depreciation and amortization) when the corresponding inventory is sold and revenue is recognized. To the extent that a derivative is designated and effective as a hedge of an exposure to changes in fair value, the change in the derivative’s fair value will be offset in the consolidated statement of operations by the change in the fair value of the item being hedged and is recorded as a component of earnings (other income/expense). Cash flows associated with the derivative instruments are recorded as a component of operating activities on the consolidated statement of cash flows.
The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy of inputs is used to determine fair value measurements with three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities and are considered the most reliable evidence of fair value. Level 2 inputs are observable prices that are not quoted on active exchanges. Level 3 inputs are unobservable inputs used for measuring the fair value of assets or liabilities.
Legal Costs
Legal costs expected to be incurred in connection with loss contingencies are accrued when such costs are probable and estimable.
Income Taxes
Income taxes are recognized during the year in which transactions enter into the determination of financial statement income (loss). Any taxes on foreign income in excess of a deemed return on tangible assets of foreign corporations are accounted for as period costs. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the book carrying amount and the tax basis of assets and liabilities including net operating loss carryforwards. A valuation allowance is provided against a deferred income tax asset when it is “more likely than not” the asset will not be realized. Similarly, if a determination is made that it is “more likely than not” the deferred income tax asset will be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded. Penalties and interest are recognized as a component of the income tax provision.
Tax benefits are recognized in the consolidated financial statements for tax positions taken or expected to be taken in a tax return when it is “more likely than not” that the tax authorities will sustain the tax position solely on the basis of the position’s technical merits. Consideration is given primarily to legislation and statutes, legislative intent, regulations, rulings, and case law as well as their applicability to the facts and circumstances of the tax position when assessing the sustainability of the tax position. In the event a tax position no longer meets the “more likely than not” criteria, the tax benefit is reversed by recognizing a liability and recording a charge to earnings. Conversely, if a tax position subsequently meets the “more likely than not” criteria, a tax benefit would be recognized by reducing the liability and recording a credit to earnings.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per common share is similar to basic earnings per common share except that the denominator is increased to include the dilutive effect of the net additional common shares that would have been outstanding assuming exercise of outstanding stock awards and warrants, calculated using the treasury stock method. The computation of diluted earnings per share would not assume the exercise of an outstanding stock award or warrant if the effect on earnings per common share would be antidilutive. Similarly, the computation of diluted earnings per share would not assume the exercise of outstanding stock awards and warrants if the Corporation incurred a net loss since the effect on earnings per common share would be antidilutive. The weighted-average number of common shares outstanding assuming exercise of dilutive stock awards and warrants was
34
for 2020. With respect to amounts attributable to Ampco-Pittsburgh common shareholders, net income (loss) attributable to Ampco-Pittsburgh common shareholders excludes net income (loss) attributable to noncontrolling interest.
Recently Implemented Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740). ASU 2019-12 is intended to simplify the accounting for income taxes including removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, such as other comprehensive income, and accounting for franchise or similar tax, and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the interim period that includes the enactment date. The guidance became effective for the Corporation on January 1, 2021, and did not impact the Corporation’s consolidated financial position, operating results or liquidity.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional exceptions for applying generally accepted accounting principles to modifications of contracts, hedging relationships, and other transactions that reference LIBOR or another rate that will be discontinued by reference rate reform if certain criteria are met. The optional guidance is available as of March 12, 2020, through December 31, 2022. The Corporation adopted this guidance during 2021, and it did not impact the Corporation’s consolidated financial position, operating results or liquidity.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260, Earnings per Share, relating to the computation of earnings per share for convertible instruments and contracts in an entity’s own equity. The guidance becomes effective for the Corporation on January 1, 2024; however, as permitted, the Corporation early adopted the guidance in 2021, and it did not impact the Corporation’s consolidated financial position, operating results or liquidity.
Recently Issued Accounting Pronouncements
In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which adds a new impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies it to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. The guidance originally became effective for the Corporation on January 1, 2020; however, since the Corporation meets the definition of a Smaller Reporting Company, as defined by the Securities Exchange Commission, the effective date was subsequently revised to fiscal years beginning after December 15, 2022. The Corporation is currently evaluating the impact the guidance will have on its financial position and operating results. It will not, however, affect the Corporation’s liquidity.
NOTE 2 – INVENTORIES:
|
|
|
2021 |
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|
2020 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work-in-progress |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Supplies |
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
|
|
|
$ |
|
|
At December 31, 2021, and 2020, approximately
35
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT:
|
|
|
2021 |
|
|
2020 |
|
||
|
Land and land improvements |
|
$ |
|
|
|
$ |
|
|
|
Buildings |
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Construction-in-process |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
The majority of the assets of the Corporation, except real property including the land and building of Union Electric Steel UK Limited, an indirect subsidiary of the Corporation (“UES-UK”), is pledged as collateral for the Corporation’s revolving credit facility (see Note 8). Land and buildings of UES-UK, equal to approximately $
NOTE 4 – OPERATING LEASE RIGHT-OF-USE ASSETS:
The Corporation leases certain factory and office space and equipment. Additionally, the manufacturing facilities of one of the Corporation’s cast roll joint ventures in China are located on land leased by the joint venture from the other partner. The land lease commenced in 2007, the date the joint venture was formed, and continues through 2054, the expected end date of the joint venture, and includes variable lease payment provisions based on the land standard price prevailing in Taiyuan, China, where the joint venture is located.
Right-of-use assets associated with operating leases as of December 31, 2021, and 2020, were comprised of the following:
|
|
|
2021 |
|
|
2020 |
|
||
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Buildings |
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Other |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
Operating lease right-of-use assets, net |
|
$ |
|
|
|
$ |
|
|
NOTE 5 – INTANGIBLE ASSETS:
|
|
|
2021 |
|
|
2020 |
|
||
|
Customer relationships |
|
$ |
|
|
|
$ |
|
|
|
Developed technology |
|
|
|
|
|
|
|
|
|
Trade name |
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|
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|
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|
|
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|
|
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
Intangible assets, net |
|
$ |
|
|
|
$ |
|
|
36
The trade name is an indefinite-lived asset and, accordingly, is not subject to amortization. The fluctuation between the years is due to changes in foreign currency exchange rates.
|
|
|
2021 |
|
|
2020 |
|
||
|
Balance at the beginning of the year |
|
$ |
|
|
|
$ |
|
|
|
Amortization of intangible assets |
|
|
( |
) |
|
|
( |
) |
|
Other, primarily impact from changes in foreign currency exchange rates |
|
|
( |
) |
|
|
|
|
|
Balance at the end of the year |
|
$ |
|
|
|
$ |
|
|
Identifiable intangible assets are reviewed for impairment whenever events or circumstances indicate that the carrying values may not be recoverable. The Corporation continues to evaluate the uncertainty associated with COVID-19, and, at December 31, 2021, there were no triggering events identified for the underlying asset groups. Identifiable intangible assets are expected to be amortized over a weighted-average period of approximately
NOTE 6 – INVESTMENTS IN JOINT VENTURES:
The Corporation has interests in three joint ventures:
|
|
• |
Shanxi Åkers TISCO Roll Co., Ltd. (“ATR”) – a cast roll joint venture in China for which the Corporation accounts using the consolidated method of accounting. ATR principally manufactures and sells cast rolls for hot strip mills, steckel mills and medium plate mills. |
|
|
• |
Magong Gongchang United Rollers Co., Ltd., previously known as Masteel Gongchang Roll Co., Ltd. (“MG”) – a forged roll joint venture in China for which the Corporation accounts using the cost method of accounting. MG principally manufactures and sells large forged backup rolls for hot and cold strip mills. |
|
|
• |
Jiangsu Gong-Chang Roll Co., Ltd., previously known as Jiangsu Gongchang Roll Joint-Stock Co., Ltd. (“Gongchang”) – a cast roll joint venture in China for which the Corporation accounts using the cost method of accounting. Gongchang principally manufactures and sells cast rolls for hot and cold strip mills, medium/heavy section mills and plate mills. |
ATR
In 2007, Åkers AB, a subsidiary of Union Electric Steel Corporation, a wholly owned subsidiary of the Corporation (“UES”), entered into an agreement with Taiyuan Iron & Steel Co., Ltd. (“TISCO”) to form ATR, with Åkers AB owning
MG
The Corporation has a
Gongchang
The Corporation has a
37
NOTE 7 – OTHER CURRENT LIABILITIES:
|
|
|
2021 |
|
|
2020 |
|
||
|
Customer-related liabilities |
|
$ |
|
|
|
$ |
|
|
|
Accrued interest payable |
|
|
|
|
|
|
|
|
|
Accrued sales commissions |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
|
|
|
$ |
|
|
Customer-related liabilities primarily include liabilities for product warranty claims and deposits received on future orders.
|
|
|
2021 |
|
|
2020 |
|
||
|
Balance at the beginning of the year |
|
$ |
|
|
|
$ |
|
|
|
Satisfaction of warranty claims |
|
|
( |
) |
|
|
( |
) |
|
Provision for warranty claims |
|
|
|
|
|
|
|
|
|
Other, primarily impact from changes in foreign currency exchange rates |
|
|
( |
) |
|
|
|
|
|
Balance at the end of the year |
|
$ |
|
|
|
$ |
|
|
Customer deposits represent amounts collected from, or invoiced to, a customer in advance of revenue recognition and are recorded as an other current liability on the consolidated balance sheet. The liability for customer deposits is reversed when the Corporation satisfies its performance obligations and control of the inventory transfers to the customer, typically when title transfers. Performance obligations related to customer deposits are expected to be satisfied in less than
|
|
2021 |
|
|
2020 |
|
||
|
Balance at the beginning of the year |
$ |
|
|
|
$ |
|
|
|
Satisfaction of performance obligations |
|
( |
) |
|
|
( |
) |
|
Receipt of additional deposits |
|
|
|
|
|
|
|
|
Other, primarily changes in foreign currency exchange rates |
|
( |
) |
|
|
|
|
|
Balance at the end of the year |
$ |
|
|
|
$ |
|
|
NOTE 8 – DEBT:
|
|
|
2021 |
|
|
2020 |
|
||
|
Revolving credit facility |
|
$ |
|
|
|
$ |
|
|
|
Sale and leaseback financing obligation |
|
|
|
|
|
|
|
|
|
Industrial Revenue Bonds |
|
|
|
|
|
|
|
|
|
Minority shareholder loan |
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
Outstanding borrowings |
|
|
|
|
|
|
|
|
|
Debt – current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
The current portion of debt includes primarily swing loans under the revolving credit facility and the Industrial Revenue Bonds (“IRBs”). By definition, swing loans are temporary advances under the revolving credit facility and short-term in nature. Accordingly, swing loans are classified as a current liability until the amount is either repaid, as customers remit payments, or, if elected by the Corporation, refinanced as a longer-term loan under the revolving credit facility. At December 31, 2021, the swing loans balance was $
38
Revolving Credit Facility
On May 20, 2016, the Corporation became a party to a Revolving Credit and Security Agreement, which had been amended periodically. On June 29, 2021, the Corporation entered into an amended and restated credit agreement (the “Restated Credit Agreement”) with a syndicate of banks that provides for a senior secured asset-based revolving credit facility of $
Availability under the Restated Credit Agreement is based on eligible accounts receivable, inventory and fixed assets. Amounts outstanding under the credit facility bear interest, at the Corporation’s option, at either (i)
As of December 31, 2021, the Corporation had outstanding borrowings under the Restated Credit Agreement of $
Borrowings outstanding under the Restated Credit Agreement are collateralized by a first priority perfected security interest in substantially all assets of the Corporation and its subsidiaries (other than real property). Additionally, the Restated Credit Agreement contains customary affirmative and negative covenants and limitations, including, but not limited to, investments in certain of its subsidiaries, payment of dividends, incurrence of additional indebtedness and guaranties, and acquisitions and divestures. In addition, the Corporation must maintain a certain level of excess availability or otherwise maintain a minimum fixed charge coverage ratio of not less than
Sale and Leaseback Financing Obligation
In September 2018, UES completed a sale and leaseback financing transaction for certain of its real property, including the land and buildings of its manufacturing facilities in Valparaiso, Indiana and Burgettstown, Pennsylvania, and its manufacturing facility and corporate headquarters located in Carnegie, Pennsylvania (the “Properties”). Simultaneously with the sale, UES entered into a lease agreement pursuant to which UES would lease the Properties from the buyer. The lease provides for an initial term of
Industrial Revenue Bonds
At December 31, 2021, the Corporation had the following IRBs outstanding: (i) $
Minority Shareholder Loan
ATR had a loan outstanding with its minority shareholder, which was fully repaid in 2021. The loan originally matured in 2008 but had been renewed continually for one-year periods. At December 31, 2020, the loan balance approximated $
39
set by the People’s Bank of China in effect at the time of renewal. In 2021, in addition to repaying the balance of the loan, ATR paid $
Finance Leases
The Corporation leases equipment under various noncancelable lease agreements ending 2022 to 2028. Effective interest rates ranged between approximately
NOTE 9 – OPERATING LEASE LIABILITIES:
The current and noncurrent portions of the Corporation’s operating lease arrangements as of December 31, 2021, and 2020, were as follows:
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating lease liabilities – current portion |
|
$ |
|
|
|
$ |
|
|
|
Noncurrent operating lease liabilities |
|
|
|
|
|
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
Future operating lease payments as of December 31, 2021, were as follows:
|
2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 and thereafter |
|
|
|
|
|
Total undiscounted payments |
|
|
|
|
|
Less: amount representing interest |
|
|
( |
) |
|
Present value of net minimum lease payments |
|
$ |
|
|
At December 31, 2021, and 2020, the weighted-average remaining lease term approximated
The components of lease cost for the years ended December 31, 2021, and 2020, were as follows:
|
|
|
2021 |
|
|
2020 |
|
||
|
Short-term operating lease costs |
|
$ |
|
|
|
$ |
|
|
|
Long-term operating lease costs |
|
|
|
|
|
|
|
|
|
Total operating lease costs |
|
$ |
|
|
|
$ |
|
|
Cash paid for amounts included in the measurement of operating lease liabilities totaled $
NOTE 10 – PENSION AND OTHER POSTRETIREMENT BENEFITS:
U.S. Pension Benefits
The Corporation has
40
$
The Corporation also maintains nonqualified defined benefit pension plans for selected executive officers in addition to the benefits provided under one of the Corporation’s qualified defined benefit pension plans. The objectives of the nonqualified plans are to provide supplemental retirement benefits or restore benefits lost due to limitations set by the Internal Revenue Service. The assets of the nonqualified plans are held in a grantor tax trust known as a “Rabbi” trust and are subject to claims of the Corporation’s creditors, but otherwise must be used only for purposes of providing benefits under the plans. The fair market value of the trust at December 31, 2021, and 2020, which is included in other noncurrent assets on the consolidated balance sheets, was $
Employees at one location participate in a multi-employer plan, I.A.M. National Pension Fund (employer identification number 51-6031295, plan number 002), in lieu of the Corporation’s defined benefit pension plans. A multi-employer plan generally receives contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements. The assets contributed by one employer may be used to fund the benefits provided to employees of other employers in the plan because the plan assets, once contributed, are not restricted to individual employers. The latest report of summary plan information (for the 2020 plan year) provided by I.A.M. National Pension Fund indicates:
|
|
• |
Approximately |
|
|
• |
|
|
|
• |
Assets of approximately $ |
Foreign Pension Benefits
Employees of UES-UK participated in a defined benefit pension plan that was curtailed effective December 31, 2004, and replaced with a defined contribution pension plan. The plans are non-U.S. plans and, therefore, are not covered by ERISA. Employer contributions to the defined benefit pension plan, when necessary, are agreed to by the Trustees and UES-UK, based on U.K. regulations, with the objective of maintaining the self-sufficiency of the plan. Accordingly, estimated contributions are subject to change based on the future investment performance of the plan’s assets. Currently, the plan is fully funded and
The Corporation has
Other Postretirement Benefits
The Corporation provides a monthly reimbursement of postretirement health care benefits for up to a 6-year period principally to the bargaining groups of
41
Significant Activity
Actuarial (gains) losses were comprised of the following components:
|
|
|
U.S. Pension Benefits |
|
|
Foreign Pension Benefits |
|
|
Other Postretirement Benefits |
|
|||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Changes in assumptions |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Other |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total actuarial (gains) losses |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Changes in actuarial assumptions principally include the effect of changes in discount rates and mortality tables which are used to estimate plan liabilities. A 1/4 percentage point decrease in the discount rate would increase projected and accumulated benefit obligations by approximately $
Reconciliations
The following tables provide a reconciliation of projected benefit obligations (“PBO”), plan assets and the funded status of the plans for the Corporation’s defined benefit plans calculated using a measurement date as of the end of the respective years.
|
|
|
U.S. Pension Benefits(a) |
|
|
Foreign Pension Benefits(b) |
|
|
Other Postretirement Benefits |
|
|||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Change in projected benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO at January 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gains) losses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Participant contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Benefits paid by the Corporation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
PBO at December 31 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Actual return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participant contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross benefits paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Fair value of plan assets at December 31 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
(a) |
Includes the nonqualified defined benefit pension plan. |
|
|
(b) |
Includes the over-funded U.K. defined benefit pension plan and two smaller unfunded defined benefit pension plans. |
42
The following tables provide a summary of amounts recognized in the consolidated balance sheets at December 31, 2021, and 2020.
|
|
|
U.S. Pension Benefits |
|
|
Foreign Pension Benefits |
|
|
Other Postretirement Benefits |
|
|||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Employee benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pensions(a) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accrued payrolls and employee benefits(b) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Employee benefit obligations(c) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total employee benefit obligations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss:(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Prior service cost (credit) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total accumulated other comprehensive loss |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
(a) |
Represents the over-funded U.K. defined benefit pension plan which is recorded as a noncurrent asset in the consolidated balance sheets. |
|
|
(b) |
Recorded as a current liability in the consolidated balance sheets. |
|
|
(c) |
Recorded as a noncurrent liability in the consolidated balance sheets. |
|
|
(d) |
Amounts are pre-tax. |
As of December 31, 2021, estimated benefit payments for subsequent years are as follows:
|
|
|
U.S. Pension Benefits |
|
|
Foreign Pension Benefits |
|
|
Other Postretirement Benefits |
|
|||
|
2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2027-2031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit payments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Investment Policies and Strategies
The investment policies and strategies are determined by the Ampco-Pittsburgh Corporation Retirement Committee (the “Retirement Committee”) and monitored by the Investment Committee of the Board of Directors for the U.S. pension plans and by the Trustees (as appointed by UES-UK and the employees of UES-UK) for the UES-UK pension plan, each of whom employ their own investment managers to manage the plan’s assets in accordance with the policy guidelines. The U.S. defined benefit pension plans follow a glide-path strategy whereby target asset allocations are rebalanced based on projected payment obligations and the funded status of the plans. The U.K. defined benefit pension plan employs a liability-matching portfolio whereby a higher percentage of plan assets are invested in fixed-income securities. Pension assets of the UES-UK plan are invested with the objective of the plan maintaining self-sufficiency.
Attempts to minimize risk include allowing temporary changes to the allocation mix in response to market conditions, diversifying investments among asset categories (e.g., equity securities, fixed-income securities, alternative investments, cash and cash equivalents) and within these asset categories (e.g., economic sector, industry, geographic distribution, size) and consulting with independent financial and legal counsels to assure that the investments and their expected returns and risks are consistent with the goals of the Retirement and Investment Committees or Trustees.
Investments in equity securities are primarily in common stocks of publicly-traded U.S. and international companies across a broad spectrum of industry sectors. Investments in fixed-income securities are principally A-rated or better bonds with maturities of less than
43
The following table summarizes target asset allocations for 2021 (within +/-5% considered acceptable) and major asset categories. Certain investments are classified differently for target asset allocation purposes and external reporting purposes. The Corporation intends to continue to liquidate the alternative investments of the U.S. plans to provide additional flexibility with investment allocation.
|
|
|
U.S. Pension Benefits |
|
|
Foreign Pension Benefits |
|
||||||||||||||||||
|
|
|
Target Allocation |
|
|
Percentage of Plan Assets |
|
|
Target Allocation |
|
|
Percentage of Plan Assets |
|
||||||||||||
|
|
|
Dec. 31, 2021 |
|
|
2021 |
|
|
2020 |
|
|
Dec. 31, 2021 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Equity securities |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Fixed-income securities |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Alternative investments |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Other (primarily cash and cash equivalents) |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Fair Value Measurement of Plan Assets
Equity securities, exchange-traded funds (“ETFs”), mutual funds and treasury bonds are actively traded on exchanges or broker networks and price quotes for these investments are readily available. While not quoted on active exchanges, price quotes for corporate and agency bonds are readily available. Similarly, certain commingled funds are not traded publicly, but the underlying assets (such as stocks and bonds) held in the funds are traded on active markets and the prices for the underlying assets are readily observable. For securities not actively traded, the fair value may be based on third-party appraisals, discounted cash flow analysis, benchmark yields, and inputs that are currently observable in markets for similar securities.
Investment Strategies
The significant investment strategies of the various funds are summarized below.
|
Fund |
Investment Strategy |
Primary Investment Objective |
|
Temporary Investment Funds |
Invests primarily in a diversified portfolio of investment grade money market instruments. |
Achieve a market level of current income while maintaining stability of principal and liquidity. |
|
Various Equity Funds |
Each fund maintains a diversified holding in common stock of applicable companies (e.g., common stock of small capitalization companies if a small-cap fund, common stock of medium capitalization companies if a mid-cap fund, common stock of foreign corporations if an international fund, etc.). |
Outperform the fund’s related index. |
|
Various Fixed- Income Funds |
|
Achieve a rate of return that matches or exceeds the expected growth in plan liabilities.
|
|
Alternative Investments – Managed Funds |
Invests in equities and equity-like asset classes and strategies (such as public equities, venture capital, private equity, real estate, natural resources, and |
|
|
Alternative Investments –Absolute Return Funds |
Invests in a diversified portfolio of alternative investment styles and strategies approved by the Trustees of the UES-UK defined benefit pension plan. |
Generate long-term capital appreciation while maintaining a low correlation with the traditional global financial markets. |
44
Categories of Plan Assets
Asset categories based on the nature and risks of the U.S. pension benefit plans’ assets as of December 31, 2021, are summarized below.
|
|
|
Quoted Prices in Active Markets for Identical Inputs (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Consumer staples |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds and ETFs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds and ETFs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed-Income Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alternative Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
Includes approximately |
|
|
(b) |
Includes investments in temporary funds. |
|
|
(c) |
Includes accrued receivables and pending broker settlements. |
45
Asset categories based on the nature and risks of the U.S. pension benefit plans’ assets as of December 31, 2020, are summarized below.
|
|
|
Quoted Prices in Active Markets for Identical Inputs (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Consumer staples |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds and ETFs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer staples |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds and ETFs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed-Income Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alternative Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(c) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total Other |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
Includes approximately |
|
|
(b) |
Includes investments in temporary funds. |
|
|
(c) |
Includes accrued receivables and pending broker settlements. |
46
Asset categories based on the nature and risks of the foreign pension benefit plan’s assets as of December 31, 2021, are summarized below.
|
|
|
Quoted Prices in Active Markets for Identical Inputs (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Commingled funds (International) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (International) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed-Income Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Asset Commingled Funds (International) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute return funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Asset categories based on the nature and risks of the foreign pension benefit plan’s assets as of December 31, 2020, are summarized below.
|
|
|
Quoted Prices in Active Markets for Identical Inputs (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Commingled funds (International) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (International) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Asset Commingled Funds (International) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute return funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table sets forth a summary of changes in the fair value of the Level 3 plan assets for the U.S. and foreign pension benefit plans for the years ended December 31, 2021, and 2020.
|
|
|
U.S. Pension Benefits |
|
Foreign Pension Benefits |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
2021 |
|
|
2020 |
|
||||
|
Fair value as of January 1 |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
Transfers from other plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to other plan assets |
|
|
( |
) |
|
|
( |
) |
|
( |
) |
|
|
( |
) |
|
Realized gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Change in net unrealized gains (losses) |
|
|
|
|
|
|
( |
) |
|
( |
) |
|
|
|
|
|
Other, primarily impact from changes in foreign currency exchange rates |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Fair value as of December 31 |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
47
Net Periodic Pension and Other Postretirement Benefit Costs
The actual return on the fair value of the plan assets is included in determining the funded status of the plans. In determining net periodic pension benefit costs, the expected long-term rate of return on the market-related value of the plan assets is used. Differences between the actual return on the fair value of the plan assets and the expected long-term rate of return on the market-related value of the plan assets are classified as part of unrecognized actuarial gains or losses and are recorded as a component of accumulated other comprehensive loss on the consolidated balance sheet. When these gains or losses exceed
Net periodic pension and other postretirement benefit costs include the following components for each of the years.
|
|
|
U.S. Pension Benefits |
|
|
Foreign Pension Benefits |
|
|
Other Postretirement Benefits |
|
|||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Actuarial loss (gain) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic pension and other postretirement benefit costs |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Assumptions
Assumptions are reviewed on an annual basis. The expected long-term rate of return on plan assets is an estimate of average rates of earnings expected to be earned on funds invested, or to be invested, to provide for the benefits included in the projected benefit obligation. Since these benefits will be paid over many years, the expected long-term rate of return is reflective of current investment returns and investment returns over a longer period. Consideration is also given to target and actual asset allocations, inflation and real risk-free return. A percentage point decrease in the expected long-term rate of return would increase annual pension expense by approximately $
The discount rates used to determine the benefit obligations as of December 31, 2021, and 2020, are summarized below.
|
|
|
U.S. Pension Benefits |
|
Foreign Pension Benefits |
|
Other Postretirement Benefits |
||||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Discount rate |
|
2.79-2.91% |
|
2.50-2.63% |
|
|
|
|
|
|
|
|
In addition, the assumed health care cost trend rate at December 31, 2021, for other postretirement benefits is
48
The following assumptions were used to determine net periodic pension and other postretirement benefit costs for the years ended December 31, 2021, and 2020.
|
|
|
U.S. Pension Benefits |
|
Foreign Pension Benefits |
|
Other Postretirement Benefits |
||||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Discount rate |
|
2.50-2.63% |
|
3.25-3.31% |
|
|
|
|
|
|
|
2.98-3.35% |
|
Expected long-term rate of return |
|
6.50-7.00% |
|
6.60-7.25% |
|
|
|
|
|
n/a |
|
n/a |
NOTE 11 – COMMITMENTS AND CONTINGENT LIABILITIES:
Outstanding standby and commercial letters of credit as of December 31, 2021, approximated $
The Corporation has undertaken a significant capital program to upgrade existing equipment at certain of its FCEP locations which is anticipated to occur over the next
Approximately
See Note 14 regarding derivative instruments, Note 19 regarding litigation and Note 21 for environmental matters.
NOTE 12 – EQUITY RIGHTS OFFERING:
In September 2020, the Corporation completed an equity rights offering, issuing
The following summarizes outstanding warrants as of December 31, 2021, and 2020, and activity for the years then ended.
|
|
|
|
|
Number of Warrants |
|
|
|
Outstanding as of January 1, 2020 |
|
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
|
Converted to common stock |
|
|
|
|
|
|
|
Outstanding as of December 31, 2020 |
|
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
|
Converted to common stock |
|
|
|
|
( |
) |
|
Outstanding as of December 31, 2021 |
|
|
|
|
|
|
Stock issuance costs equaled $
49
NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE LOSS:
Net changes and ending balances for the various components of other comprehensive income (loss) and for accumulated other comprehensive loss as of and for the years ended December 31, 2020, and 2021, are summarized below.
|
|
|
Foreign Currency Translation Adjustments |
|
|
Unrecognized Components of Employee Benefit Plans |
|
|
Derivatives |
|
|
Total Accumulated Other Comprehensive Loss |
|
|
Noncontrolling Interest |
|
|
Accumulated Other Comprehensive Loss Attributable to Ampco-Pittsburgh |
|
||||||
|
January 1, 2020 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net change |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
December 31, 2020 |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net change |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The following summarizes the line items affected on the consolidated statements of operations for components reclassified from accumulated other comprehensive loss for the years ended December 31, 2021, and 2020. Amounts in parentheses represent credits to net income (loss).
|
|
|
2021 |
|
|
2020 |
|
||
|
Amortization of unrecognized employee benefit costs: |
|
|
|
|
|
|
|
|
|
Other – net |
|
$ |
|
|
|
$ |
|
|
|
Income tax (provision) benefit |
|
|
( |
) |
|
|
|
|
|
Net of income tax |
|
$ |
|
|
|
$ |
|
|
|
Settlement of cash flow hedges: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization (foreign currency purchase contracts) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Costs of products sold (excluding depreciation and amortization) (futures contracts – copper and aluminum) |
|
|
( |
) |
|
|
( |
) |
|
Total before income tax |
|
|
( |
) |
|
|
( |
) |
|
Income tax (provision) benefit |
|
|
|
|
|
|
|
|
|
Net of income tax |
|
$ |
( |
) |
|
$ |
( |
) |
The income tax effect associated with the various components of other comprehensive income for the years ended December 31, 2021, and 2020, is summarized below. Amounts in parentheses represent credits to net income (loss) when reclassified to earnings. Certain amounts have
|
|
|
2021 |
|
|
2020 |
|
||
|
Income tax effect associated with changes in: |
|
|
|
|
|
|
|
|
|
Unrecognized employee benefit costs |
|
$ |
( |
) |
|
$ |
|
|
|
Fair value of cash flow hedges |
|
|
( |
) |
|
|
|
|
|
Income tax effect associated with reclassification adjustments: |
|
|
|
|
|
|
|
|
|
Amortization of unrecognized employee benefit costs |
|
|
( |
) |
|
|
|
|
|
Settlement of cash flow hedges |
|
|
|
|
|
|
|
|
NOTE 14 – DERIVATIVE INSTRUMENTS:
Certain operations of the Corporation are subject to risk from exchange rate fluctuations in connection with sales in foreign currencies. To minimize this risk, foreign currency sales contracts are periodically entered into which are designated as cash flow or fair value hedges. As of December 31, 2021,
Certain divisions of the ALP segment are subject to risk from increases in the price of commodities (copper and aluminum) used in the production of inventory. To minimize this risk, futures contracts are entered into which are designated as cash flow hedges. At December 31, 2021, approximately
50
anticipated aluminum purchases over the next
At December 31, 2021, the Corporation has purchase commitments covering approximately
The Corporation previously entered into foreign currency purchase contracts to manage the volatility associated with euro-denominated progress payments to be made for certain machinery and equipment. Upon occurrence of an anticipated purchase and placement of the underlying fixed assets in service, the foreign currency purchase contract is settled and the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings (depreciation and amortization expense) over the life of the underlying asset. As of December 31, 2010, all contracts had been settled, the underlying fixed assets were placed in service and the change in fair value of the foreign currency purchase contract deferred in accumulated other comprehensive loss is being amortized to earnings over the life of the underlying assets.
No portion of the existing cash flow hedges is considered to be ineffective, including any ineffectiveness arising from the unlikelihood of an anticipated transaction to occur. Additionally, no amounts have been excluded from assessing the effectiveness of a hedge. The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds
|
|
|
Location |
|
Total |
|
|
|
Fair value hedge contracts |
|
Other current assets |
|
$ |
|
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
Fair value hedged item |
|
Receivables |
|
|
( |
) |
|
|
|
Other current liabilities |
|
|
|
|
|
|
|
Other noncurrent liabilities |
|
|
|
|
The change in the fair value of the cash flow contracts is recorded as a component of accumulated other comprehensive loss. Amounts recognized as and reclassified from accumulated other comprehensive loss are recorded as a component of other comprehensive income (loss) and are summarized below. Amounts are after-tax, where applicable. Certain amounts recognized as or reclassified from comprehensive income (loss) for 2021 and 2020 have no tax effect due to the Corporation recording a valuation allowance against the deferred income tax assets in the related jurisdictions.
|
For the Year Ended December 31, 2021 |
|
Beginning of the Year |
|
|
Recognized |
|
|
Reclassified |
|
|
End of the Year |
|
||||
|
Foreign currency purchase contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Future contracts – copper and aluminum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency purchase contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Future contracts – copper and aluminum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
51
The change in fair value reclassified or expected to be reclassified from accumulated other comprehensive loss to earnings is summarized below. All amounts are pre-tax.
|
|
|
Location of Gain (Loss) in |
|
Estimated to be Reclassified in the Next |
|
|
Years Ended December 31, |
|
||||||
|
|
|
Consolidated Statements of Operations |
|
12 Months |
|
|
2021 |
|
|
2020 |
|
|||
|
Foreign currency purchase contracts |
|
Depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Futures contracts – copper and aluminum |
|
Costs of products sold (excluding depreciation and amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
Losses on foreign exchange transactions included in other expense approximated $(
NOTE 15 – FAIR VALUE:
The following summarizes financial assets and liabilities reported at fair value on a recurring basis in the consolidated balance sheets at December 31:
|
2021 |
|
Quoted Prices in Active Markets for Identical Inputs (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Foreign currency exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investments held as other noncurrent assets represent assets held in the “Rabbi” trust for the purpose of providing benefits under the non-qualified defined benefit pension plan. The fair value of the investments is based on quoted prices of the investments in active markets. The fair value of foreign currency exchange contracts is determined based on the fair value of similar contracts with similar terms and remaining maturities. The fair value of futures contracts is based on market quotations. The fair values of the variable-rate IRB debt and borrowings under the revolving credit facility approximate their carrying values. Additionally, the fair values of trade receivables and trade payables approximate their carrying values.
NOTE 16 – REVENUE:
Net sales by geographic area and product line for the years ended December 31, 2021, and 2020, are outlined below. Net sales are attributed to the geographic areas based on the location of the customer. Sales to individual foreign countries were less than
|
|
|
Net Sales by Geographic Area |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
United States |
|
$ |
|
|
|
$ |
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
52
|
|
|
Net Sales by Product Line |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Forged and cast mill rolls |
|
$ |
|
|
|
$ |
|
|
|
Forged engineered products |
|
|
|
|
|
|
|
|
|
Heat exchange coils |
|
|
|
|
|
|
|
|
|
Centrifugal pumps |
|
|
|
|
|
|
|
|
|
Air handling systems |
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
NOTE 17 – STOCK-BASED COMPENSATION:
The Ampco-Pittsburgh Corporation 2016 Omnibus Incentive Plan (the “Incentive Plan”) originally authorized the issuance of up to
The Incentive Plan may be administered by the Board of Directors or the Compensation Committee of the Board of Directors. The Compensation Committee has the authority to determine, within the limits of the express provisions of the Incentive Plan, the individuals to whom the awards will be granted and the nature, amount and terms of such awards. The Incentive Plan also provides for equity-based awards during any one year to non-employee members of the Board of Directors, based on the grant date fair value, not to exceed $
The Compensation Committee has granted stock options, time-vesting restricted stock units (RSUs) and performance-vesting restricted stock units (PSUs) to select individuals. Each stock option represents the right to purchase one share of common stock of the Corporation at a designated price, subject to the terms and conditions of the stock option award agreement. All stock options are fully vested. Each RSU represents the right to receive one share of common stock of the Corporation at a future date after the RSU has become earned and vested, subject to the terms and conditions of the RSU award agreement. The RSUs typically vest over a period. The PSUs can be earned depending upon the achievement of a performance or market condition and a time-vesting condition as follows:
The grant date fair value for the RSUs equals the closing price of the Corporation’s common stock on the NYSE on the date of grant. The grant date fair value for PSUs subject to a market condition is determined using a Monte Carlo simulation model and the grant date fair value for PSUs that vest subject to a performance condition is equal to the closing price of the Corporation’s stock on the NYSE on the date of grant. The determination of the fair value of these awards takes into consideration the likelihood of achievement of the market or performance condition and, in certain circumstances, is adjusted for subsequent changes in the estimated or actual outcome of the condition. Unrecognized compensation expense associated with the RSUs and PSUs equaled $
53
Outstanding RSUs and PSUs, which would represent non-vested awards, as of December 31, 2021, and 2020, and activity for the years then ended are as follows:
|
|
|
Number of RSUs |
|
|
Weighted- Average Fair Value |
|
|
Number of PSUs |
|
|
Weighted- Average Fair Value |
|
||||
|
Outstanding at January 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Converted to common stock |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Outstanding at December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Converted to common stock |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Outstanding at December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Outstanding stock options, all of which are fully vested, as of December 31, 2021, and 2020, and activity for the years then ended are as follows:
|
|
|
Number of Shares Under Options |
|
|
Weighted- Average Exercise Price |
|
|
Remaining Contractual Life In Years |
|
|
Intrinsic Value |
|
||||
|
Outstanding at January 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Exercisable at December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Vested or expected to vest at December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Stock-based compensation expense for all awards, including expense associated with the modified awards and equity-based awards granted to non-employee members of the Board of Directors, approximated $
NOTE 18 – RESEARCH AND DEVELOPMENT COSTS:
Expenditures relating to the development of new products, identification of products or process alternatives and modifications and improvements to existing products and processes are expensed as incurred. These expenses approximated $
NOTE 19 – LITIGATION:
The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses and are also subject to asbestos litigation as described below.
Asbestos Litigation
Claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid (the “Asbestos Liability”). Air & Liquid, and in some cases the Corporation, are defendants (among a number of defendants, often in excess of 50) in cases filed in various state and federal courts.
54
Asbestos Claims
The following table reflects approximate information about the claims for the Asbestos Liability against Air & Liquid and the Corporation for the years ended December 31, 2021, and 2020. The majority of the settlement and defense costs were reported and paid by insurers. Because claims are often filed and can be settled or dismissed in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.
|
|
|
2021 |
|
|
2020 |
|
||
|
Total claims pending at the beginning of the period |
|
|
|
|
|
|
|
|
|
New claims served |
|
|
|
|
|
|
|
|
|
Claims dismissed |
|
|
( |
) |
|
|
( |
) |
|
Claims settled |
|
|
( |
) |
|
|
( |
) |
|
Total claims pending at the end of the period (1) |
|
|
|
|
|
|
|
|
|
Administrative closures (2) |
|
|
( |
) |
|
|
|
|
|
Total active claims pending at the end of the period (2) |
|
|
|
|
|
|
|
|
|
Gross settlement and defense costs paid (in 000’s) |
|
$ |
|
|
|
$ |
|
|
|
Average gross settlement and defense costs per claim resolved (in 000’s) (3) |
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
Included as “open claims” are approximately |
|
|
(2) |
In 2021, the Corporation adopted the same methodology used by the liability expert who values the Corporation’s asbestos claims, in order to better align the Corporation’s data with the expert’s liability valuation. The expert’s methodology treats all claims filed six or more years ago as “administratively closed.” Therefore, the Corporation changed its prior practice of reporting “Total claims pending at the end of the period” into |
|
|
(3) |
Claims resolved do not include claims that were administratively closed. |
Asbestos Insurance
The Corporation and Air & Liquid are parties to a series of settlement agreements (“Settlement Agreements”) with insurers that have coverage obligations for the Asbestos Liability (the “Settling Insurers”). Under the Settlement Agreements, the Settling Insurers accept financial responsibility, subject to the terms and conditions of the respective agreements, including overall coverage limits, for pending and future claims for the Asbestos Liability. The Settlement Agreements encompass the majority of insurance policies that provide coverage for claims for the Asbestos Liability.
The Settlement Agreements include acknowledgements that Howden North America, Inc. (“Howden”) is entitled to coverage under policies covering the Asbestos Liability for claims arising out of the historical products manufactured or distributed by Buffalo Forge, a former subsidiary of the Corporation (the “Products”), which was acquired by Howden. The Settlement Agreements do not provide for any prioritization on access to the applicable policies or any sub-limits of liability as to Howden or the Corporation and Air & Liquid and, accordingly, Howden may access the coverage afforded by the Settling Insurers for any covered claim arising out of the Products. In general, access by Howden to the coverage afforded by the Settling Insurers for the Products will erode coverage under the Settlement Agreements available to the Corporation and Air & Liquid for the Asbestos Liability.
Asbestos Valuations
At December 31, 2006, with the assistance of a nationally recognized expert in the valuation of asbestos liabilities, the Corporation recorded its initial reserve for the Asbestos Liability. Since then, the Corporation and the expert have reviewed the Asbestos Liability and the underlying assumptions on a regular basis to determine whether any adjustment to the Asbestos Liability or the underlying assumptions were necessary. When warranted, the Asbestos Liability was adjusted to consider the current trends and new information that became available and, if reasonably estimable, to extend the valuation of asbestos liabilities further into the future. In 2018, the valuation was extended to include claims projected to be asserted through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims.
In conjunction with the regular updates of the estimated Asbestos Liability, the Corporation also develops an estimate of defense costs expected to be incurred with settling the Asbestos Liability and probable insurance recoveries for the Asbestos Liability and defense costs. In developing the estimate of probable defense costs, the Corporation considers several factors including, but not limited to, current and historical defense-to-indemnity cost ratios. In developing the estimate of probable insurance recoveries, the Corporation considers the expert’s projection of settlement costs for the Asbestos Liability and management’s projection of associated defense costs. In addition, the Corporation consults with its outside legal counsel on insurance matters and a nationally recognized insurance consulting firm that it retains to assist with certain policy allocation matters. The Corporation also considers a number of other factors
55
including the Settlement Agreements in effect, policy exclusions, policy limits, policy provisions regarding coverage for defense costs, attachment points, gaps in the coverage, policy exhaustions, the nature of the underlying claims for the Asbestos Liability, estimated erosion of insurance limits on account of claims against Howden arising out of the Products, prior impairment of policies, insolvencies among certain of the insurance carriers, and creditworthiness of the remaining insurers based on publicly available information. Based on these factors, the Corporation estimates the probable insurance recoveries for the Asbestos Liability and defense costs for the corresponding timeframe of the Asbestos Liability.
In 2021, primarily as a result of identified changes in claim data and availability of new information, the Corporation engaged GNARUS Advisors LLC (“GNARUS”) to update the estimated Asbestos Liability. The methodology used by GNARUS in its updated projection was substantially the same methodology employed previously, which has been accepted by numerous courts, and included the following factors:
|
|
• |
interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos; |
|
|
• |
epidemiological studies estimating the number of people likely to develop asbestos-related diseases; |
|
|
• |
analysis of the number of people likely to file an asbestos-related injury claim against the subsidiaries and the Corporation based on such epidemiological data and relevant claims history from January 1, 2018, to July 31, 2021; |
|
|
• |
an analysis of pending cases, by type of injury claimed and jurisdiction where the claim is filed; and |
|
|
• |
an analysis of claims resolution history from January 1, 2018, to July 31, 2021, to determine the average settlement value of claims, by type of injury claimed and jurisdiction of filing. |
Based on this analysis, the Corporation recorded an increase to its estimated Asbestos Liability of $
The following table summarizes activity relating to insurance recoveries for the years ended December 31, 2021, and 2020.
|
|
|
2021 |
|
|
2020 |
|
||
|
Insurance receivable – asbestos, beginning of the year |
|
$ |
|
|
|
$ |
|
|
|
Settlement and defense costs paid by insurance carriers |
|
|
( |
) |
|
|
( |
) |
|
Change in estimated coverage |
|
|
|
|
|
|
( |
) |
|
Insurance receivable – asbestos, end of the year |
|
$ |
|
|
|
$ |
|
|
The balance of the insurance receivable does not assume any recovery from insolvent carriers. A substantial majority of the insurance recoveries deemed probable is from insurance companies rated A – (excellent) or better by A.M. Best Corporation. There can be no assurance, however, that there will not be insolvencies among the relevant insurance carriers, or that the assumed percentage recoveries for certain carriers will prove correct. The difference between insurance recoveries and projected costs is not due to exhaustion of all insurance coverage for the Asbestos Liability.
The amounts recorded for the Asbestos Liability and insurance receivable rely on assumptions that are based on currently known facts and strategy. The Corporation’s actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Corporation’s or the experts’ calculations vary significantly from actual results. Key variables in these assumptions are identified above and also include the number and nature of new claims to be filed each year, the average cost of disposing of each new claim, average annual defense costs, compliance by relevant parties with the terms of the Settlement Agreements, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Asbestos Liability and ability to recover under the Corporation’s insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of state or federal tort reform legislation.
The Corporation intends to continue to evaluate the Asbestos Liability and related insurance receivable, as well as the underlying assumptions, on a regular basis to determine whether any adjustments to the estimates are required. Due to the uncertainties surrounding asbestos litigation and insurance, these regular reviews may result in the Corporation adjusting its current reserve;
56
however, the Corporation is currently unable to estimate such future adjustments. Adjustments, if any, to the Corporation’s estimate of the Asbestos Liability and/or insurance receivable could be material to the operating results for the periods in which the adjustments to the liability or receivable are recorded and to the Corporation’s consolidated financial position and liquidity.
NOTE 20 – INCOME TAXES:
(Loss) income from operations before income taxes for the years ended December 31, 2021, and 2020, is summarized below. (Loss) income from operations before income taxes for certain foreign entities is classified differently for book reporting and income tax reporting purposes.
|
|
|
2021 |
|
|
2020 |
|
||
|
Domestic |
|
$ |
( |
) |
|
$ |
( |
) |
|
Foreign |
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes |
|
$ |
( |
) |
|
$ |
|
|
The income tax provision (benefit) for the years ended December 31, 2021, and 2020, consisted of the following:
|
|
|
2021 |
|
|
2020 |
|
||
|
Current: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
( |
) |
|
State |
|
|
( |
) |
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
Current income tax provision (benefit) |
|
|
|
|
|
|
( |
) |
|
Deferred: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
( |
) |
|
|
|
|
|
State |
|
|
( |
) |
|
|
|
|
|
Foreign |
|
|
|
|
|
|
( |
) |
|
Increase (decrease) in valuation allowance |
|
|
|
|
|
|
( |
) |
|
Deferred income tax provision |
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit) |
|
$ |
|
|
|
$ |
( |
) |
The income tax benefit recorded in 2020 includes a benefit of $
The difference between statutory U.S. federal income tax and the Corporation’s effective income tax for the years ended December 31, 2021, and 2020, was as follows:
|
|
|
2021 |
|
|
2020 |
|
||
|
Computed at statutory rate |
|
$ |
( |
) |
|
$ |
|
|
|
State income taxes |
|
|
( |
) |
|
|
|
|
|
Rate change |
|
|
|
|
|
|
|
|
|
Tax differential on non-U.S. earnings |
|
|
( |
) |
|
|
( |
) |
|
GILTI inclusion |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Meals and entertainment |
|
|
|
|
|
|
|
|
|
Net operating loss carryback |
|
|
|
|
|
|
( |
) |
|
Adjustments to net operating losses |
|
|
|
|
|
|
|
|
|
Increase (decrease) in valuation allowance |
|
|
|
|
|
|
( |
) |
|
Other – net |
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit) |
|
$ |
|
|
|
$ |
( |
) |
57
|
|
|
2021 |
|
|
2020 |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
Employment – related liabilities |
|
$ |
|
|
|
$ |
|
|
|
Pension liability – foreign |
|
|
|
|
|
|
|
|
|
Pension liability – domestic |
|
|
|
|
|
|
|
|
|
Capital loss carryforwards |
|
|
|
|
|
|
|
|
|
Asbestos-related liability |
|
|
|
|
|
|
|
|
|
Net operating loss – domestic |
|
|
|
|
|
|
|
|
|
Net operating loss – state |
|
|
|
|
|
|
|
|
|
Net operating loss – foreign |
|
|
|
|
|
|
|
|
|
Inventory related |
|
|
|
|
|
|
|
|
|
Impairment charge associated with investment in MG |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
|
Interest expense limitation |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets |
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
( |
) |
|
|
( |
) |
|
Pension asset – foreign |
|
|
( |
) |
|
|
|
|
|
Intangible assets – finite life |
|
|
( |
) |
|
|
( |
) |
|
Intangible assets – indefinite life |
|
|
( |
) |
|
|
( |
) |
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Other |
|
|
( |
) |
|
|
( |
) |
|
Gross deferred income tax liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net deferred income tax (liabilities) assets |
|
$ |
( |
) |
|
$ |
|
|
At December 31, 2021,
Unrecognized tax benefits and changes in unrecognized tax benefits for the years ended December 31, 2021, and 2020, are insignificant. If the unrecognized tax benefits were recognized, the effect on the Corporation’s effective income tax rate would also be insignificant. The amount of penalties and interest recognized in the consolidated balance sheets as of December 31, 2021, and 2020, and in the consolidated statements of operations for 2021 and 2020 is insignificant.
The Corporation is subject to taxation in the United States, various states and foreign jurisdictions, and remains subject to examination by tax authorities for 2013, due to the carryback of net operating losses enabled by the CARES Act, and for tax years 2018 – 2021.
NOTE 21 – ENVIRONMENTAL MATTERS:
The Corporation is currently performing certain remedial actions in connection with the sale of real estate previously owned and periodically incurs costs to maintain compliance with environmental laws and regulations. Environmental exposures are difficult to assess and estimate for numerous reasons, including lack of reliable data, the multiplicity of possible solutions, the years of remedial and monitoring activity required, and identification of new sites. The undiscounted potential liability for remedial actions and environmental compliance measures approximated $
58
NOTE 22 – RELATED PARTIES:
ATR had a loan outstanding with its minority shareholder, which was fully repaid in 2021. The loan originally matured in
Interest did not compound and had accrued on the outstanding loan balance, since inception, at the three-to-five-year loan interest rate set by the People’s Bank of China in effect at the time of renewal. In 2021, in addition to repaying the balance of the loan, ATR paid $
Purchases from ATR’s minority shareholder and its affiliates, which were in the ordinary course of business, approximated $
59
NOTE 23 – BUSINESS SEGMENTS:
The Corporation organizes its business into
|
|
|
Net Sales(1) |
(Loss) Income from Operations Before Income Taxes |
|
||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Forged and Cast Engineered Products |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Air and Liquid Processing (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Corporate costs, including other income (expense) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Capital Expenditures |
Depreciation and Amortization Expense |
Identifiable Assets(3) |
|
|||||||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Forged and Cast Engineered Products |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Air and Liquid Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Long-Lived Assets(4) |
|
(Loss) Income from Operations Before Income Taxes |
||||||||||||||
|
Geographic Areas: |
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
2020 |
|
|
||||
|
United States (5) |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
(1) |
For the Forged and Cast Engineered Products segment, |
|
|
(2) |
(Loss) income from operations before income taxes for the Air and Liquid Processing segment for 2021 includes a charge of $ |
|
|
(3) |
Identifiable assets for the Forged and Cast Engineered Products segment include investments in joint ventures of $ |
|
|
(4) |
Foreign long-lived assets primarily represent assets of the foreign operations. Long-lived assets of the U.S. include noncurrent asbestos-related insurance receivables of $ |
|
|
(5) |
(Loss) income from operations before income taxes for the United States includes Corporate costs. In addition, for 2021, it includes a charge of $ |
60
QUARTERLY INFORMATION – UNAUDITED
Not applicable.
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Ampco-Pittsburgh Corporation
Carnegie, Pennsylvania
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ampco-Pittsburgh Corporation and subsidiaries (the “Corporation”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Asbestos Liabilities and Related Insurance Receivables
As described in Note 1 and 19 to the Corporation’s consolidated financial statements, the Corporation has accrued asbestos liabilities of $180.3 million ($23.0 million current and $157.3 million long term) and recorded asbestos-related insurance receivables of $121.3 million ($16.0 million current and $105.3 million noncurrent) as of December 31, 2021. These liabilities and insurance receivables relate to claims that have been asserted alleging personal injury from exposure to asbestos-containing components historically used in certain products manufactured by predecessors of the Corporation’s Air & Liquid Systems Corporation. The Corporation utilizes third-party experts to assist in developing (i) an estimate of the asbestos liability for the probable pending and future claims over the period that the Corporation believes it can reasonably estimate such claims and (ii) an estimate of the insurance receivable for the insurance proceeds expected to be received under existing policies associated with the asbestos liabilities.
We identified the valuation of asbestos liabilities and insurance receivables as a critical audit matter. The principal considerations for our determination are: (i) the subjectivity of estimating projected claims including the period for which the Corporation can reasonably estimate the asbestos liabilities, (ii) the estimation process for projected settlement values of reported and unreported claims including
62
the number of claims expected to be filed and adjudicated, the disease type, and the settlement and defense costs to estimate the asbestos liabilities, and (iii) the complexity of determining the associated insurance receivables including the estimated settlement costs for the asbestos liabilities and the associated defense costs, the continued financial solvency of the insurers, and legal interpretation of rights for recovery under the insurance policies and the related settlement agreements. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
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Assessing the qualifications, experience, and objectivity of the Corporation’s third-party experts; |
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Testing the underlying historical data that served as a basis for the valuation of the asbestos liabilities for completeness and accuracy through the examination of relevant source documents; |
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Testing the insurance policies for existence and coverage amounts including independent confirmation of a selection of policies and the related settlement agreements directly with insurance carriers; |
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Evaluating the ongoing financial solvency of insurance providers utilizing publicly available financial information; and |
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Utilizing personnel with specialized knowledge and skill in actuarial science to assist in: (i) evaluating the valuation methodology utilized by the Corporation to estimate the asbestos liabilities, (ii) testing the computation of the asbestos liability estimate performed by the Corporation’s third-party experts, (iii) evaluating the period utilized by the Corporation to project probable pending and future claims, and (iv) evaluating the reasonableness of certain assumptions utilized to develop the estimates for the asbestos liabilities and insurance receivables such as the estimated settlement or indemnity costs for the asbestos liabilities and the associated defense costs. |
/s/
We have served as the Corporation’s auditor since 2020.
March 16, 2022
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Corporation did not experience any changes in, or disagreements with its accountants on, accounting and financial disclosure during the period covered.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. An evaluation of the effectiveness of the Corporation’s disclosure controls and procedures as of the end of the period covered by this report was carried out under the supervision, and with the participation, of management, including the principal executive officer and principal financial officer. Disclosure controls and procedures are defined under Securities and Exchange Commission (“SEC”) rules as controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, the Corporation’s management, including the principal executive officer and principal financial officer, has concluded that the Corporation’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021.
Management’s Annual Report on Internal Control Over Financial Reporting. The Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a – 15(f) under the Securities Exchange Act). Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Effective internal control over financial reporting can only provide reasonable assurance that the objectives of the control process are met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Further, the design of internal control over financial reporting includes the consideration of the benefits of each control relative to the cost of the control.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on those criteria and management’s assessment, management, including the principal executive officer and principal financial officer, concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2021.
Changes in Internal Control Over Financial Reporting. There were no changes in the Corporation’s internal control over financial reporting during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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– PART III –
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information about the Corporation’s directors required by Item 401 of Regulation S-K and not otherwise set forth below is contained under the caption “Proposal 1: Election of Directors” in the Corporation’s definitive Proxy Statement for the 2022 Annual Meeting of Shareholders (the “Proxy Statement”) which the Company anticipates filing with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the Corporation’s fiscal year, and is incorporated by reference. The information required by Item 401 of Regulation S-K regarding executive officers is set forth in Part I, Item 1 of this report under “Executive Officers.”
The information required by Item 405 of Regulation S-K is contained under the caption “Security Ownership of Certain Beneficial Owners and Management―Delinquent Section 16(a) Reports” of the Proxy Statement and is incorporated by reference.
The Corporation and its subsidiaries have adopted a Code of Business Conduct and Ethics that applies to all of their officers, directors and employees, as well as an additional Code of Ethics that applies to the Corporation’s Chief Executive Officer and Chief Financial Officer, which are available on the Corporation’s website at www.ampcopittsburgh.com.
The information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is contained under the captions “Corporate Governance – Director Nominating Procedures” and “Board Committees; Director Compensation – Audit Committee” of the Proxy Statement and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required for Item 11 is contained under the captions “Director Compensation,” “Compensation Discussion and Analysis (“CDA”),” “Summary Compensation Table,” “Outstanding Equity Awards at Fiscal Year-End,” “Retirement Benefits,” “Potential Payments upon Termination, Resignation or Change in Control,” and “Report of The Compensation Committee” of the Proxy Statement and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 201(d) of Regulation S-K is contained under the caption “Equity Compensation Plan Information” of the Proxy Statement and is incorporated by reference.
The information required by Item 403 of Regulation S-K is contained under the caption “Security Ownership of Certain Beneficial Owners and Management” of the Proxy Statement and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 404 of Regulation S-K is contained under the caption “Certain Relationships and Related Transactions” in the Proxy Statement and is incorporated by reference.
The information required by Item 407(a) of Regulation S-K is contained under the caption “Corporate Governance – Board Independence” of the Proxy Statement and is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required for Item 14 is contained under the caption “Report of the Audit Committee” of the Proxy Statement and is incorporated herein.
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– PART IV –
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
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Financial Statements |
– Consolidated Balance Sheets
– Consolidated Statements of Operations
– Consolidated Statements of Comprehensive Income
– Consolidated Statements of Shareholders’ Equity
– Consolidated Statements of Cash Flows
– Notes to Consolidated Financial Statements
– Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Pittsburgh, Pennsylvania, United States; PCAOB ID #
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Financial Statement Schedules |
The financial statement schedules are not applicable to the Corporation since the Corporation meets the definition of a Smaller Reporting Company, as defined by the Securities and Exchange Commission per Rule 12b-2 of the Exchange Act.
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72 |
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Exhibits |
Exhibit No.
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2.2 |
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4.4 |
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10.1* |
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10.2* |
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10.3* |
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10.8 |
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10.9 |
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10.10 |
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10.11 |
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10.12* |
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10.13* |
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10.14* |
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10.15* |
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10.16*
10.17* |
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10.18* |
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10.19 |
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10.20 |
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10.21* |
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10.22* |
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10.23* |
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10.24* |
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Retirement and Consulting Agreement effective as of December 31, 2021, by and between Ampco-Pittsburgh Corporation and Rose Hoover, incorporated by reference to Current Report on Form 8-K filed on October 22, 2021. |
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10.26* |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Cover Page Interactive Data File (embedded within the Inline XBRL document)
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*Designates management contract or compensatory plan or arrangement.
66
ITEM 16. FORM 10-K SUMMARY
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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March 16, 2022 |
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AMPCO-PITTSBURGH CORPORATION |
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By: |
/s/ J. Brett McBrayer |
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Name: |
J. Brett McBrayer |
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Title: |
Chief Executive Officer |
Each person whose individual signature follows hereby authorizes and appoints J. Brett McBrayer and Michael G. McAuley, and each of them, with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated.
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SIGNATURE |
TITLE |
DATE |
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/s/ J. Brett McBrayer |
Director and Chief Executive Officer (Principal Executive Officer) |
March 16, 2022 |
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J. Brett McBrayer |
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/s/ Michael G. McAuley |
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
March 16, 2022 |
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Michael G. McAuley |
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/s/ James J. Abel |
Director |
March 16, 2022 |
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James J. Abel |
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/s/ Frederick D. DiSanto |
Director |
March 16, 2022 |
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Frederick D. DiSanto |
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/s/ Terry L. Dunlap |
Director |
March 16, 2022 |
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Terry L. Dunlap |
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/s/ Elizabeth A. Fessenden |
Director |
March 16, 2022 |
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Elizabeth A. Fessenden |
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/s/ Michael I. German |
Director |
March 16, 2022 |
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Michael I. German |
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/s/ William K. Lieberman |
Director |
March 16, 2022 |
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William K. Lieberman |
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/s/ Darrell L. McNair |
Director |
March 16, 2022 |
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Darrell L. McNair
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/s/ Laurence E. Paul |
Director |
March 16, 2022 |
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Laurence E. Paul |
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/s/ Stephen E. Paul |
Director |
March 16, 2022 |
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Stephen E. Paul |
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/s/ Carl H. Pforzheimer, III |
Director |
March 16, 2022 |
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Carl H. Pforzheimer, III |
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69
INDEX TO AMPCO-PITTSBURGH CORPORATION FINANCIAL DATA
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70
