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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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 periods 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 for 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, 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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Emerging growth company |
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Smaller reporting 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
On November 9, 2022,
AMPCO-PITTSBURGH CORPORATION
INDEX
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Page No. |
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Part I – |
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Financial Information: |
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Item 1 – |
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Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets – September 30, 2022, and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2022, and 2021 |
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Item 2 – |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3 – |
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Item 4 – |
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Part II – |
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Other Information: |
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Item 1 – |
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29 |
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Item 1A – |
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Item 6 – |
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30 |
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2
PART I – FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par value)
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September 30, 2022 |
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December 31, 2021 |
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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 $ 2022, and $ |
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Receivables from related parties (Note 17) |
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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 |
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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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Accounts payable to related parties (Note 17) |
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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 8) |
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Shareholders’ equity: |
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Common stock – par value $ 2021 |
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Additional paid-in capital |
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Retained deficit |
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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 |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
3
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net sales: |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Net sales to related parties (Note 17) |
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Total net sales |
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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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Loss on disposal of assets |
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Total operating costs and expenses |
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(Loss) income from operations |
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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 income – net |
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Total other income |
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Income (loss) before income taxes |
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Income tax provision |
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Net income (loss) |
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( |
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Less: Net income attributable to noncontrolling interest |
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Net income (loss) attributable to Ampco-Pittsburgh |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) per share attributable to Ampco- Pittsburgh common shareholders: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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See Notes to Condensed Consolidated Financial Statements.
4
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(in thousands)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive loss, net of income tax where applicable: |
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Adjustments for changes in: |
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Foreign currency translation |
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Unrecognized employee benefit costs (including effects of foreign currency translation) |
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Fair value of cash flow hedges |
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Reclassification adjustments for items included in net income (loss): |
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Amortization of unrecognized employee benefit costs |
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Settlements of cash flow hedges |
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Other comprehensive loss |
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( |
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( |
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Comprehensive loss |
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( |
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( |
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Less: Comprehensive (loss) income attributable to noncontrolling interest |
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( |
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Comprehensive loss attributable to Ampco-Pittsburgh |
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$ |
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$ |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
5
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
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Three Months Ended September 30, 2022 |
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Common Stock |
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Additional Paid-in Capital |
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Retained Deficit |
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Accumulated Other Comprehensive Loss |
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Noncontrolling Interest |
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Total |
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Balance at July 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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Comprehensive loss: |
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Net income |
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Other comprehensive loss |
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( |
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( |
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Comprehensive loss |
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( |
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Shareholder exercise of warrants (Note 9) |
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( |
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Issuance of common stock excluding excess tax benefits of $ |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Three Months Ended September 30, 2021 |
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Balance at July 1, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Stock-based compensation |
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Comprehensive income (loss): |
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Net (loss) income |
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( |
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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 (loss): |
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( |
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Shareholder exercise of warrants (Note 9) |
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Issuance of common stock excluding excess tax benefits of $ |
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( |
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( |
) |
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Balance at September 30, 2021 |
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$ |
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$ |
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|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Shareholder exercise of warrants (Note 9) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock excluding excess tax benefits of $ |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Balance at September 30, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Shareholder exercise of warrants (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock excluding excess tax benefits of $ |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Balance at September 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
6
S
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net cash flows used in operating activities |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
|
|
|
|
|
|
|
Purchases of long-term marketable securities |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of long-term marketable securities |
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility |
|
|
|
|
|
|
|
|
|
Payments on revolving credit facility |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale and leaseback financing arrangement |
|
|
|
|
|
|
|
|
|
Payments on sale and leaseback financing arrangements |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from equipment financing facility |
|
|
|
|
|
|
|
|
|
Proceeds from related party debt (Note 17) |
|
|
|
|
|
|
|
|
|
Repayments of related party debt (Note 17) |
|
|
( |
) |
|
|
( |
) |
|
Repayments of debt |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from shareholder exercise of warrants (Note 9) |
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Net cash flows provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
Income tax payments |
|
$ |
|
|
|
$ |
|
|
|
Interest payments |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment in current liabilities |
|
$ |
|
|
|
$ |
|
|
|
Finance lease right-of-use assets exchanged for lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Operating lease right-of-use assets exchanged for lease liabilities |
|
$ |
|
|
|
$ |
|
|
See Notes to Condensed Consolidated Financial Statements.
7
AMPCO-PITTSBURGH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except share amounts)
Overview of the Business
Ampco-Pittsburgh Corporation (the “Corporation”) manufactures and sells 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.
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 three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North American 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.
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.
While the Corporation is operating at more normal levels following the emergence of the coronavirus (“COVID-19”) pandemic in 2020, lingering effects continue, some of which are being exacerbated by the Russia-Ukraine conflict, including periodic disruptions to the global supply chain, global inflationary pressures and delays in receiving and shipping product due to the lack of transportation. The Corporation is actively monitoring, and will continue to actively monitor, the pandemic and the Russia-Ukraine conflict and the potential impact on its operations, financial condition, liquidity, suppliers, industry, and workforce.
Note 1 – Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated balance sheet as of September 30, 2022, the unaudited condensed consolidated statements of operations, comprehensive loss and shareholders’ equity for the three and nine months ended September 30, 2022, and 2021, and cash flows for the nine months ended September 30, 2022, and 2021, have been prepared by the Corporation. In the opinion of management, all adjustments, consisting of only normal and recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented, have been made. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the operating results expected for the full year.
Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.
Recently Issued Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-04, Liabilities – Supplier Finance Programs, which requires certain disclosures related to supplier finance programs including the nature of the program, activity during the period, changes from period to period, and potential magnitude. The guidance becomes effective for the Corporation on January 1, 2023, including interim periods. The Corporation is currently evaluating the impact the guidance will have on its disclosures in its periodic filings.
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 and Exchange Commission (“SEC”), 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.
8
Note 2 – Inventories
At September 30, 2022, and December 31, 2021, approximately
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Supplies |
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
|
|
|
$ |
|
|
Note 3 – Property, Plant and Equipment
Property, plant and equipment were comprised of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Land and land improvements |
|
$ |
|
|
|
$ |
|
|
|
Buildings |
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Construction-in-process |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
The land and building of Union Electric Steel UK Limited, an indirect subsidiary of the Corporation (“UES-UK”), equal to $
Certain land and land improvements and buildings were included sale and leaseback financing transactions (Note 6). Title to these assets lie with the lender; however, since the transactions qualified as financing transactions, versus sales, the assets remain recorded on the Corporation’s consolidated balance sheet.
The gross value of assets under finance leases and the related accumulated amortization approximated $
Note 4 – Intangible Assets
Intangible assets were comprised of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Customer relationships |
|
$ |
|
|
|
$ |
|
|
|
Developed technology |
|
|
|
|
|
|
|
|
|
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
Intangible assets, net |
|
$ |
|
|
|
$ |
|
|
9
Changes in intangible assets consisted of the following:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Balance at beginning of the period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Amortization of intangible assets |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other, primarily impact from changes in foreign currency exchange rates |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of the period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Note 5 – Other Current Liabilities
Other current liabilities were comprised of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
|
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. The Corporation provides a limited warranty on its products, known as assurance-type warranties, and may issue credit notes or replace products free of charge for valid claims. A warranty is considered an assurance-type warranty if it provides the customer with assurance that the product will function as intended. Historically, warranty claims have been insignificant. The Corporation records a provision for product warranties at the time the underlying sale is recorded. The provision is based on historical experience as a percentage of sales adjusted for probable known claims.
Changes in the liability for product warranty claims consisted of the following:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Balance at beginning of the period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Satisfaction of warranty claims |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision for warranty claims, net |
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, primarily impact from changes in foreign currency exchange rates |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of the period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Customer deposits represent amounts collected from, or invoiced to, a customer in advance of revenue recognition. 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
Changes in customer deposits consisted of the following:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Balance at beginning of the period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Satisfaction of performance obligations |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Receipt of additional deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, primarily impact from changes in foreign currency exchange rates |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of the period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10
Note 6 – Debt
Borrowings were comprised of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Revolving credit facility |
|
$ |
|
|
|
$ |
|
|
|
Sale and leaseback financing obligations |
|
|
|
|
|
|
|
|
|
Industrial Revenue Bonds |
|
|
|
|
|
|
|
|
|
Equipment financing facility |
|
|
|
|
|
|
|
|
|
Minority shareholder loan (see Note 17) |
|
|
|
|
|
|
|
|
|
Finance lease liabilities |
|
|
|
|
|
|
|
|
|
Outstanding borrowings |
|
|
|
|
|
|
|
|
|
Debt – current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
The current portion of debt includes primarily a swing loan 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. The swing loans equaled $
Revolving Credit Facility
The Corporation is a party to a revolving credit security agreement with a syndicate of banks that was amended on June 29, 2021 (the “First Amended and Restated Security Agreement”), and subsequently amended on December 17, 2021, and May 26, 2022. The First Amended and Restated Security Agreement, as subsequently amended, provides for a senior secured asset-based revolving credit facility of $
Availability under the revolving credit facility is based on eligible accounts receivable, inventory and fixed assets. Domestic borrowings from the credit facility bear interest, at the Corporation’s option, at either (i)
As of September 30, 2022, the Corporation had outstanding borrowings under the credit facility of $
Borrowings outstanding under revolving credit facility 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 revolving credit facility 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 Obligations
On August 30, 2022, Air & Liquid completed a sale and leaseback financing transaction with Store Capital Acquisitions, LLC (“STORE”), valued at approximately $
11
In connection with the August 2022 sale and leaseback financing transaction, UES and STORE entered into an Amended and Restated Master Lease Agreement (the “Restated Lease”), which amended and restated the existing lease agreement between UES and STORE. Pursuant to the Restated Lease, UES will lease the ALS Properties and the UES Properties (collectively, the Properties), subject to the terms and conditions of the Restated Lease, and will sublease the ALS Properties to Air & Liquid on the same terms as the Restated Lease. The Restated Lease provides for an initial term of
Annual payments for the Properties are equal to $
In connection with the execution of the Restated Lease, UES and STORE entered into a Disbursement Agreement dated August 30, 2022 (the “Disbursement Agreement”), pursuant to which STORE agreed to provide up to $
The Restated Lease and the Disbursement Agreement contain certain representations, warranties, covenants, obligations, conditions, indemnification provisions and termination provisions customary for those types of agreements.
The effective interest rate approximated
See Note 19 for completion of a sale and leaseback financing transaction between Air & Liquid and STORE for certain of its real property, including its manufacturing facility in North Tonawanda, New York, in October 2022.
Industrial Revenue Bonds (“IRBs”)
The Corporation has
Equipment Financing Facility
On September 29, 2022, UES and Clarus Capital Funding I, LLC (“Clarus”) entered into a Master Loan and Security Agreement, pursuant to which UES can borrow up to $
Interest on each Term Loan will accrue at an annual fixed rate of
The Term Loans and Term Notes will be secured by a first priority security interest in and to all of UES’s rights, title and interests in the underlying equipment.
At September 30, 2022, $
Note 7 – Pension and Other Postretirement Benefits
Contributions to the Corporation’s employee benefit plans were as follows:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
U.S. defined benefit pension plans |
|
$ |
|
|
|
$ |
|
|
|
Foreign defined benefit pension plans |
|
|
|
|
|
|
|
|
|
Other postretirement benefits (e.g., net payments) |
|
|
|
|
|
|
|
|
|
U.K. defined contribution pension plan |
|
|
|
|
|
|
|
|
|
U.S. defined contribution plan |
|
|
|
|
|
|
|
|
12
Net periodic pension and other postretirement benefit costs included the following components:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
U.S. Defined Benefit Pension Plans |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
Foreign Defined Benefit Pension Plans |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of prior service credit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
Other Postretirement Benefit Plans |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of actuarial loss (gain) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 8 – Commitments and Contingent Liabilities
Outstanding standby and commercial letters of credit as of September 30, 2022, equaled $
The Corporation has undertaken a $
See Note 11 for derivative instruments, Note 15 for litigation and Note 16 for environmental matters.
Note 9 – Equity Rights Offering
In September 2020, the Corporation completed an equity-rights offering, issuing
In May 2022, the Corporation filed a Tender Offer and Prospectus Supplement (the “Offer”) with the SEC pursuant to which the exercise price of each tendered Series A warrant was temporarily reduced. During the Offer period, the holders of Series A warrants were given the opportunity to exercise their Series A warrants at a temporarily reduced cash exercise price of $
Note 10 – Accumulated Other Comprehensive Loss
Net change and ending balances for the various components of accumulated other comprehensive loss as of and for the nine months ended September 30, 2022, and 2021, are summarized below. All amounts are net of tax where applicable.
13
|
|
|
Foreign Currency Translation |
|
|
Unrecognized Employee Benefit Costs |
|
|
Cash Flow Hedges |
|
|
Total Accumulated Other Comprehensive Loss |
|
|
Less: Noncontrolling Interest |
|
|
Accumulated Other Comprehensive Loss Attributable to Ampco-Pittsburgh |
|
||||||
|
Balance at January 1, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net change |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at September 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net change |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at September 30, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The following summarizes the line items affected on the condensed consolidated statements of operations for components reclassified from accumulated other comprehensive loss. Amounts in parenthesis represent credits to net income.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Amortization of unrecognized employee benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income – net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income tax provision |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net of tax |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Settlements 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 benefit |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Net of tax |
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The income tax effect associated with the various components of other comprehensive loss for the three and nine months ended September 30, 2022, and 2021, is summarized below. Amounts in parentheses represent credits to net income when reclassified to earnings. Certain amounts have
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
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 11 – Derivative Instruments
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 September 30, 2022, approximately
The Corporation periodically enters into purchase commitments to cover a portion of its anticipated natural gas and electricity usage. The commitments qualify as normal purchases and, accordingly, are not reflected on the condensed consolidated balance sheets. At September 30, 2022, the Corporation has purchase commitments covering approximately
14
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. As of December 31, 2010, all contracts were 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 began being amortized to earnings (depreciation and amortization) over the life of the underlying assets.
No portion of the existing cash flow or fair value 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
Gains (losses) on foreign exchange transactions included in other income – net equaled $
The change in the fair value of the cash flow contracts is recorded as a component of accumulated other comprehensive loss. The balances as of September 30, 2022, and 2021, and the amounts recognized as and reclassified from accumulated other comprehensive loss for each of the periods are summarized below. Amounts are after tax where applicable. Certain amounts recognized as comprehensive income (loss) or reclassified from accumulated other comprehensive loss have no tax effect due to the Corporation having a valuation allowance recorded against the deferred income tax assets for the jurisdiction where the income or expense is recognized.
|
Three Months Ended September 30, 2022 |
|
Beginning of the Period |
|
|
Recognized |
|
|
Reclassified |
|
|
End of the Period |
|
||||
|
Foreign currency purchase contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Futures contracts – copper and aluminum |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency purchase contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Futures contracts – copper and aluminum |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency purchase contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Futures contracts – copper and aluminum |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency purchase contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Futures contracts – copper and aluminum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 Statements |
|
Estimated to be Reclassified in the Next Twelve Months |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|||||||||||
|
|
|
of Operations |
|
12 Months |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|||||
|
Foreign currency purchase contracts |
|
Depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Futures contracts – copper and aluminum |
|
Costs of products sold (excluding depreciation and amortization) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
15
Note 12 – Fair Value
The Corporation’s financial assets and liabilities that are reported at fair value in the condensed consolidated balance sheets as of September 30, 2022, and December 31, 2021, were as follows:
|
|
|
Quoted Prices in Active Markets for Identical Inputs (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
As of September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 futures contracts is based on market quotations. The fair values of the debt and borrowings approximate their carrying values. Additionally, the fair values of trade receivables and trade payables approximate their carrying values.
Note 13 – Net Sales and Income (Loss) Before Income Taxes
Net sales and income (loss) before income taxes by geographic area for the three and nine months ended September 30, 2022, and 2021, are outlined below. When disaggregating revenue, consideration is given to information regularly reviewed by the chief operating decision maker to evaluate the financial performance of the operating segments and make resource allocation decisions. Substantially all foreign net sales for each of the periods is attributable to the FCEP segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
Net Sales |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||
|
United States |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
Income (Loss) Before Income Taxes |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
United States (1) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
(1) |
Includes Corporate costs of $ |
Net sales by product line for the three and nine months ended September 30, 2022, and 2021, were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Forged and cast mill rolls |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
FEP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heat exchange coils |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air handling systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centrifugal pumps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Note 14 – Stock-Based Compensation
The Ampco-Pittsburgh Corporation 2016 Omnibus Incentive Plan, as amended (the “Incentive Plan”), authorizes the issuance of up to
16
to the Corporation, the shares subject to such awards and the forfeited shares will not count against the aggregate number of shares available under the Incentive Plan. Shares tendered or withheld to pay the option exercise price or tax withholding will continue to count against the aggregate number of shares of common stock available for grant under the Incentive Plan. Any shares repurchased by the Corporation with cash proceeds from the exercise of options will not be added back to the pool of shares available for grant under the Incentive Plan.
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 $
Stock-based compensation expense, including expense associated with equity-based awards granted to non-employee members of the Board of Directors, for the three and nine months ended September 30, 2022, equaled $
Note 15 – Litigation
The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses from time to time 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 defendants) in claims filed in various state and federal courts.
Asbestos Claims
The following table reflects approximate information about the number of claims for Asbestos Liability against Air & Liquid and the Corporation for the nine months ended September 30, 2022, and 2021 (number of claims not in thousands). 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.
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Total claims pending at the beginning of the period |
|
|
|
|
|
|
|
|
|
New claims served |
|
|
|
|
|
|
|
|
|
Claims dismissed |
|
|
( |
) |
|
|
( |
) |
|
Claims settled |
|
|
( |
) |
|
|
( |
) |
|
Total claims pending at the end of period (1) |
|
|
|
|
|
|
|
|
|
Administrative closures (2) |
|
|
( |
) |
|
|
( |
) |
|
Total active claims at the end of the period |
|
|
|
|
|
|
|
|
|
Gross settlement and defense costs paid in period (in 000’s) |
|
$ |
|
|
|
$ |
|
|
|
Avg. gross settlement and defense costs per claim resolved (in 000’s) (3) |
|
$ |
|
|
|
$ |
|
|
|
(1) |
Included as “total claims pending” are approximately |
|
(2) |
Administrative closures include (i) those claims that were filed six or more years ago, (ii) claims that were previously classified in various jurisdictions as “inactive,” and (iii) claims that were transferred to a state or federal judicial panel on multi-district litigation. Collectively, these claims are unlikely to result in any liability to the Corporation. |
|
(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.
17
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 nationally recognized expert in the valuation of asbestos liabilities 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 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 associated with the Products, prior impairment of policies, insolvencies among 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 the fourth quarter of 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 $
18
The following table summarizes activity relating to Asbestos Liability for the nine months ended September 30, 2022, and 2021.
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Asbestos liability, beginning of the year |
|
$ |
|
|
|
$ |
|
|
|
Settlement and defense costs paid |
|
|
( |
) |
|
|
( |
) |
|
Asbestos liability, end of the period |
|
$ |
|
|
|
$ |
|
|
The following table summarizes activity relating to insurance recoveries for the nine months ended September 30, 2022, and 2021.
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Insurance receivable – asbestos, beginning of the year |
|
$ |
|
|
|
$ |
|
|
|
Settlement and defense costs paid by insurance carriers |
|
|
( |
) |
|
|
( |
) |
|
Insurance receivable – asbestos, end of the period |
|
$ |
|
|
|
$ |
|
|
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 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; 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 16 – 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 $
Note 17 – Related Parties
Shanxi Åkers TISCO Roll Co., Ltd. (“ATR”) periodically has loans outstanding with its minority shareholder. At September 30, 2022, ATR’s outstanding loan balance with its minority shareholder approximated $
Interest on borrowings accrues at the three-to- loan interest rate set by the People’s Bank of China, which approximated
Purchases from ATR’s minority shareholder and its affiliates, which were in the ordinary course of business, approximated $
19
ATR’s minority shareholder and its affiliates for purchases approximated $
Sales to ATR’s minority shareholder and its affiliates, which were in the ordinary course of business, approximated $
Note 18 – Business Segments
Presented below are the net sales and income (loss) before income taxes for the Corporation’s
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Air and Liquid Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Air and Liquid Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, including corporate costs |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total |
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Note 19 – Subsequent Event
On October 14, 2022, Air & Liquid completed a sale and leaseback financing transaction with STORE, valued at $
20
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except share and per share amounts)
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 behalf of Ampco-Pittsburgh Corporation (the “Corporation”). Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q, as well as the condensed 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) and international conflicts, 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:
|
|
• |
economic downturns, cyclical demand for our products and insufficient demand for our products, |
|
|
• |
excess global capacity in the steel industry, |
|
|
• |
fluctuations in the value of the U.S. dollar relative to other currencies, |
|
|
• |
increases in commodity prices or insufficient hedging against increases in commodity prices, reductions in electricity and natural gas supply or shortages of key production materials for us or our customers, |
|
|
• |
limitations in availability of capital to fund our strategic plan, |
|
|
• |
inability to maintain adequate liquidity to meet our operating cash flow requirements, repay maturing debt and meet other financial obligations, |
|
|
• |
inability to obtain necessary capital or financing on satisfactory terms to acquire capital expenditures that may be necessary to support our growth strategy, |
|
|
• |
inoperability of certain equipment on which we rely, |
|
|
• |
liability of our subsidiaries for claims alleging personal injury from exposure to asbestos-containing components historically used in certain products of our subsidiaries, |
|
|
• |
changes in the existing regulatory environment, |
|
|
• |
inability to successfully restructure our operations, |
|
|
• |
consequences of global pandemics (including COVID-19) and international conflicts, |
|
|
• |
work stoppage or another industrial action on the part of any of our unions, |
|
|
• |
inability to satisfy the continued listing requirements of the New York Stock Exchange or the NYSE American Exchange, |
|
|
• |
potential attacks on information technology infrastructure and other cyber-based business disruptions, |
|
|
• |
failure to maintain an effective system of internal control, and |
|
|
• |
those discussed more fully elsewhere in this report and in documents filed with the Securities and Exchange Commission by us, particularly in Item 1A, Risk Factors, in Part I of our latest Annual Report on Form 10-K for the year ended December 31, 2021. |
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.
21
The 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 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.
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.
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.
Executive Overview
While the Corporation is operating at more normal levels following the emergence of the coronavirus (“COVID-19”) pandemic in 2020, lingering effects continue, some of which are being exacerbated by the Russia-Ukraine conflict, including:
|
|
• |
Periodic disruptions to the global supply chain for the Corporation and its customers, |
|
|
• |
Global inflationary pressures and |
|
|
• |
Delays in receiving and shipping product due to the lack of transportation. |
The Corporation is actively monitoring, and will continue to actively monitor, the pandemic and the Russia-Ukraine conflict and the potential impact on its operations, financial condition, liquidity, suppliers, industry, and workforce.
For the FCEP segment, roll market conditions have recovered to pre-pandemic levels. The FEP market also has strengthened with increasing demand from the steel distribution and oil and gas markets, on rising oil prices. Although the segment continues to be adversely impacted by escalating costs, particularly for raw and ancillary materials, energy and transportation, price increases and changes to surcharge policies announced in the fourth quarter of 2021 are absorbing a significant portion of these costs, albeit on a lag. Approximately 75% of customer orders include a commodity surcharge. The primary focus for this segment is to maintain a strong position in the roll and FEP markets, diversify and develop FEP for use in other industries, complete operational and efficiency improvements at its facilities, and upgrade existing equipment with a goal of reducing costs, improving reliability and increasing FEP capacity and capabilities.
For the ALP segment, the businesses are benefitting from increasing 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, strengthen engineering and manufacturing capabilities and continue to improve its sales distribution network.
22
Selected Financial Information
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
|
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
|
$ |
75,511 |
|
|
$ |
61,179 |
|
|
$ |
14,332 |
|
|
$ |
229,848 |
|
|
$ |
195,558 |
|
|
$ |
34,290 |
|
|
Air and Liquid Processing |
|
|
24,136 |
|
|
|
20,006 |
|
|
|
4,130 |
|
|
|
66,807 |
|
|
|
64,855 |
|
|
|
1,952 |
|
|
Consolidated |
|
$ |
99,647 |
|
|
$ |
81,185 |
|
|
$ |
18,462 |
|
|
$ |
296,655 |
|
|
$ |
260,413 |
|
|
$ |
36,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
|
$ |
(62 |
) |
|
$ |
(2,832 |
) |
|
$ |
2,770 |
|
|
$ |
1,107 |
|
|
$ |
688 |
|
|
$ |
419 |
|
|
Air and Liquid Processing |
|
|
2,917 |
|
|
|
2,891 |
|
|
|
26 |
|
|
|
8,177 |
|
|
|
7,265 |
|
|
|
912 |
|
|
Corporate costs |
|
|
(2,929 |
) |
|
|
(2,420 |
) |
|
|
(509 |
) |
|
|
(8,435 |
) |
|
|
(8,938 |
) |
|
|
503 |
|
|
Consolidated |
|
$ |
(74 |
) |
|
$ |
(2,361 |
) |
|
$ |
2,287 |
|
|
$ |
849 |
|
|
$ |
(985 |
) |
|
$ |
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
Change |
|
|||
|
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
227,534 |
|
|
$ |
223,321 |
|
|
$ |
4,213 |
|
|
Air and Liquid Processing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,117 |
|
|
|
69,233 |
|
|
|
36,884 |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
333,651 |
|
|
$ |
292,554 |
|
|
$ |
41,097 |
|
Net sales approximated $99,647 and $81,185 for the three months ended September 30, 2022, and 2021, respectively, and $296,655 and $260,413 for the nine months ended September 30, 2022, and 2021, respectively. The increase primarily is attributable to higher sales for the FCEP segment. A discussion of net sales for the Corporation’s two segments is included below.
(Loss) income from operations approximated $(74) and $(2,361) for the three months ended September 30, 2022, and 2021, respectively, and $849 and $(985) for the nine months ended September 30, 2022, and 2021, respectively. Included in (loss) income from operations for the nine months ended September 30, 2022, is a charge of approximately $664 for excess COVID-19 subsidies received in 2020 but returned in 2022 (“the Refund of Excess COVID-19 Subsidies”) and a benefit of approximately $1,431 resulting from a change in how certain employees earn certain benefits (the “Change in Employee Benefit Policy”). A discussion of (loss) income from operations for the Corporation’s two segments is included below. Corporate costs decreased for the nine months ended September 30, 2022, when compared to the nine months ended September 30, 2021, due to lower employee-related costs including lower incentive compensation and a portion of the benefit from the Change in Employee Benefit Policy being attributable to Corporate employees.
Backlog equaled $333,651 as of September 30, 2022, versus $292,554 as of December 31, 2021. 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 60% of the backlog is expected to be released after 2022. A discussion of backlog by segment is included below.
Costs of products sold, excluding depreciation and amortization, as a percentage of net sales, for the three months ended September 30, 2022, and 2021, approximated 84.7% and 83.7%, respectively. While gross margins were slightly better for the FCEP segment for the third quarter of 2022 when compared to the third quarter of 2021, gross margins for the ALP segment were slightly less as a result of an unfavorable product mix. Costs of products sold, excluding depreciation and amortization, as a percentage of net sales, for the nine months ended September 30, 2022, and 2021, approximated 84.5% and 81.8%, respectively. The increase was primarily attributable to the FCEP segment which experienced higher costs, particularly for direct and indirect materials, energy and transportation when compared to the same period of the prior year. Although a portion of these costs are recovered via the variable-index surcharge, there is a lag between the time the costs are incurred and the time the variable-index surcharge is invoiced to the customer.
23
Selling and administrative expenses were comparable for the three months ended September 30, 2022, and 2021, and approximated $11,089 and $10,910, respectively. Selling and administrative expenses for the nine months ended September 30, 2022, and 2021, approximated $31,941 and $34,538, respectively, a decrease of $2,597. The decrease primarily is attributable to:
|
|
• |
Lower exchange rates used to translate the selling and administrative costs of the Corporation’s foreign subsidiaries into the U.S. dollar, which reduced selling and administrative expenses by approximately $1,200 for nine months ended September 30, 2022, when compared to the prior year, and, |
|
|
• |
Benefit from the Change in Employee Benefit Policy, which reduced selling and administrative expenses by approximately $1,020 for the nine months ended September 30, 2022. |
Investment-related income relates primarily to dividends from one of the Corporation’s Chinese joint ventures. In the third quarter of 2022, the Chinese joint venture declared a dividend which equaled $504 for the Corporation. In the second quarter of 2021, the Chinese joint venture declared a dividend which equaled $1,025 for the Corporation.
Interest expense approximated $1,486 and $834 for the three months ended September 30, 2022, and 2021, respectively, and $3,684 and $2,672 for the nine months ended September 30, 2022, and 2021, respectively. The increase for each of the current year periods when compared to the same periods of the prior year is principally due to higher average borrowings outstanding under the revolving credit facility and higher interest rates.
Other income – net is comprised of the following:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||
|
|
|
2022 |
|
2021 |
|
Change |
|
|
2022 |
|
2021 |
|
Change |
|
||||||
|
Net pension and other postretirement income |
|
$ |
1,631 |
|
$ |
1,672 |
|
$ |
(41 |
) |
|
$ |
4,931 |
|
$ |
5,015 |
|
$ |
(84 |
) |
|
Gain (loss) on foreign exchange transactions |
|
|
1,809 |
|
|
369 |
|
|
1,440 |
|
|
|
3,368 |
|
|
(705 |
) |
|
4,073 |
|
|
Unrealized (loss) gain on Rabbi trust investments |
|
|
(276 |
) |
|
(56 |
) |
|
(220 |
) |
|
|
(1,292 |
) |
|
359 |
|
|
(1,651 |
) |
|
Other |
|
|
10 |
|
|
21 |
|
|
(11 |
) |
|
|
12 |
|
|
25 |
|
|
(13 |
) |
|
|
|
$ |
3,174 |
|
$ |
2,006 |
|
$ |
1,168 |
|
|
$ |
7,019 |
|
$ |
4,694 |
|
$ |
2,325 |
|
Other income – net fluctuated period over period due to changes in foreign exchange gains and losses and, as a result of recent volatility in the financial markets, unrealized losses in the market value of the Rabbi trust investments.
Income tax provision for each of the periods 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 for each of the periods include the effects of changes in the pre-tax income of the Corporation’s profitable operations. In addition, the income tax provision for the three and nine months ended September 30, 2022, includes expense of $316 resulting from the revaluation of certain deferred tax assets associated with the Pennsylvania tax rate change. By comparison, the income tax provision for the nine months ended September 30, 2021, includes $523 of expense associated with the (i) restructuring of a foreign sales office and (ii) revaluation of the deferred income taxes of the Corporation’s U.K. entity following new legislation enacted in 2021, which will increase the U.K. corporate tax rate from 19% to 25% in 2023.
Net income attributable to Ampco-Pittsburgh and income (loss) per common share attributable to Ampco-Pittsburgh equaled $846 and $0.04 per common share and $2,894 and $0.15 per common share for the three and nine months ended September 30, 2022, respectively, and $(1,589) and $(0.08) per common share and $(359) and $(0.02) per common share for the three and nine months ended September 30, 2021, respectively.
Net income attributable to Ampco-Pittsburgh and income per common share attributable to Ampco-Pittsburgh for the nine months ended September 30, 2022, include a net benefit of $427 or $0.02 per common share for:
|
|
• |
The after-tax benefit from the Change in Employee Benefit Policy of $1,407 offset by |
|
|
• |
The after-tax charge associated with the Refund of Excess COVID-19 Subsidies of $664 and |
|
|
• |
The revaluation of certain deferred income tax assets associated with the change in the Pennsylvania state income tax rate of $316. |
Net (loss) attributable to Ampco-Pittsburgh and (loss) per common share attributable to Ampco-Pittsburgh for the nine months ended September 30, 2021, include net expense of $522 or $0.03 per common share for (i) the restructuring of a foreign sales office and (ii) the revaluation of the deferred income taxes of the Corporation’s U.K. entity following new legislation enacted in 2021, which will increase the U.K. corporate tax rate from 19% to 25% in 2023.
24
Net Sales and Operating Results by Segment
Forged and Cast Engineered Products
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
|
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged and cast mill rolls |
|
$ |
66,653 |
|
|
$ |
53,778 |
|
|
$ |
12,875 |
|
|
$ |
193,946 |
|
|
$ |
177,918 |
|
|
$ |
16,028 |
|
|
FEP |
|
|
8,858 |
|
|
|
7,401 |
|
|
|
1,457 |
|
|
|
35,902 |
|
|
|
17,640 |
|
|
|
18,262 |
|
|
|
|
$ |
75,511 |
|
|
$ |
61,179 |
|
|
$ |
14,332 |
|
|
$ |
229,848 |
|
|
$ |
195,558 |
|
|
$ |
34,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Operations |
|
$ |
(62 |
) |
|
$ |
(2,832 |
) |
|
$ |
2,770 |
|
|
$ |
1,107 |
|
|
$ |
688 |
|
|
$ |
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
Change |
|
|||
|
Backlog |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
227,534 |
|
|
$ |
223,321 |
|
|
$ |
4,213 |
|
Net sales increased for each of the current year periods when compared to the same periods of the prior year principally due to:
|
|
• |
Higher pricing and variable-index surcharges passed through to customers as a result of higher raw material, energy and transportation costs, which increased net sales by $15,400 and $42,800 for the three and nine months ended September 30, 2022, respectively, |
|
|
• |
Higher volume of mill roll shipments primarily resulting from the timing of deliveries, which increased net sales by approximately $8,600 and $4,800 for the three and nine months ended September 30, 2022, respectively, |
|
|
• |
Higher volume of FEP shipments as a result of increased demand from the steel distribution and oil and gas markets, which increased net sales by approximately $4,600 for the nine months ended September 30, 2022, but decreased net sales by approximately $2,600 for the three months then ended, |
|
|
• |
Changes in product mix, which decreased net sales by $1,800 and $6,600 for the three and nine months ended September 30, 2022, respectively, and |
|
|
• |
Changes in exchanges rates used to translate net sales of the segment’s foreign subsidiaries into the U.S. dollar, which decreased net sales by approximately $5,300 and $11,300 for the three and nine months ended September 30, 2022, respectively. |
Operating results for the current year periods improved when compared to the same periods of the prior year. While the segment continues to experience escalating costs for raw and ancillary materials, energy, transportation, direct labor and other items, a significant portion of these increases was recovered via the variable-index surcharge mechanism and higher pricing. The variable-index surcharge is known at the time of shipment and increases or decreases, as applicable, the selling price of the product for the corresponding changes in the published index cost of certain raw materials and energy. The variable-index surcharge is recognized as revenue when the corresponding sale of the inventory is recognized. However, since the cost of domestic raw materials, work-in-process and finished goods is primarily determined by the last-in, first-out method, the higher or lower costs of those certain raw materials and energy are recognized prior to the variable-index surcharge thus creating a lag between the time these costs are incurred and the time these costs are recovered.
For the three months ended September 30, 2022, the improved pricing and variable-indexed surcharge exceeded the higher raw material, energy and transportation costs by approximately $800 but, for the nine months ended September 30, 2022, under-recovered by approximately $2,100 when compared to the same period of the prior year.
In addition, (loss) income from operations improved for each of the current year periods when compared to the same periods of the prior year due to:
|
|
• |
Higher volume of shipments, which had a net improvement on operating results of $1,400 and $1,500 for the three and nine months ended September 30, 2022, respectively, |
|
|
• |
Lower selling and administrative costs of approximately $700 and $2,100 for the three and nine months ended September 30, 2022, respectively, including the savings generated from the Change in Employee Benefit Policy of $562 for the nine months ended September 30, 2022, |
|
|
• |
Lower losses on the sale of equipment of approximately $300 for the three and nine months ended September 30, 2022, offset by |
|
|
• |
Expense associated with the Refund of Excess COVID-19 Subsidies in the second quarter of 2022 of $664, and |
25
|
|
• |
Changes in exchanges rates used to translate the operating results of the segment’s foreign subsidiaries into the U.S. dollar, which reduced operating results by approximately $360 and $620 for the three and nine months ended September 30, 2022, respectively. |
Backlog increased slightly at September 30, 2022, from December 31, 2021, by $4,213. The backlog of orders for rolls increased at September 30, 2022, from December 31, 2021, by approximately $31,800 due to improved demand from flat-rolled steel and aluminum customers and improved pricing. The backlog of orders for FEP decreased at September 30, 2022, from December 31, 2021, by approximately $11,500 due to timing of receipt of new orders from customers. Lower foreign exchange rates used to translate the backlog of the Corporation’s foreign subsidiaries into the U.S. dollar also reduced backlog at September 30, 2022, when compared to backlog at December 31, 2021, by approximately $16,100. At September 30, 2022, approximately 59% of backlog is expected to ship after 2022.
Air and Liquid Processing
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
|
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heat exchange coils |
|
$ |
8,532 |
|
|
$ |
6,527 |
|
|
$ |
2,005 |
|
|
$ |
22,483 |
|
|
$ |
18,482 |
|
|
$ |
4,001 |
|
|
Air handling systems |
|
|
8,457 |
|
|
|
6,383 |
|
|
|
2,074 |
|
|
|
22,133 |
|
|
|
21,235 |
|
|
|
898 |
|
|
Centrifugal pumps |
|
|
7,147 |
|
|
|
7,096 |
|
|
|
51 |
|
|
|
22,191 |
|
|
|
25,138 |
|
|
|
(2,947 |
) |
|
|
|
$ |
24,136 |
|
|
$ |
20,006 |
|
|
$ |
4,130 |
|
|
$ |
66,807 |
|
|
$ |
64,855 |
|
|
$ |
1,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
$ |
2,917 |
|
|
$ |
2,891 |
|
|
$ |
26 |
|
|
$ |
8,177 |
|
|
$ |
7,265 |
|
|
$ |
912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
Change |
|
|||
|
Backlog |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
106,117 |
|
|
$ |
69,233 |
|
|
$ |
36,884 |
|
Net sales for the three and nine months ended September 30, 2022, improved over the comparable prior year periods by $4,130 and $1,952, respectively. More specifically,
|
|
• |
Sales of heat exchange coils benefited from a higher volume of shipments to commercial and industrial customers and |
|
|
• |
Sales of air handling systems improved due to increased order intake, while |
|
|
• |
Sales of centrifugal pumps were adversely affected by supply chain delays for purchased components and customer delays. |
Operating income benefitted from the higher sales but was offset by unfavorable product mix, particularly in the third quarter of 2022. Operating income for the for the nine months ended September 30, 2022, includes a benefit from the Change in Employee Benefit Policy of $680.
Backlog at September 30, 2022, increased from December 31, 2021, by $36,884 with backlog for each product line improving as a result of record-level order intake. In particular, the segment received a $9,600 order for a custom air handling unit project with a major healthcare provider which is expected to ship in 2023. At September 30, 2022, approximately 64% of backlog is expected to ship after 2022.
Non-GAAP Financial Measures
The Corporation presents non-GAAP adjusted (loss) income from operations, which is calculated as (loss) income from operations excluding the Refund of Excess COVID-19 Subsidies and the Change in Employee Benefit Policy. 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 could otherwise be masked by the effect of the items that it excludes from adjusted (loss) income from operations. 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.
26
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 charges similar to the Refund of Excess COVID-19 Subsidies and benefits similar to the Change in Employee Benefit Policy will not occur in future periods.
The adjustments reflected in adjusted (loss) income from operations are pre-tax. The tax impact associated with the adjustments is not significant, approximately $24, due to the Corporation having a valuation allowance recorded against the deferred income tax assets for the majority of the jurisdictions where the expense and income are recognized.
The following is a reconciliation of (loss) income from operations to non-GAAP adjusted (loss) income from operations for the three and nine months ended September 30, 2022, and 2021, respectively:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
(Loss) income from operations, as reported (GAAP) |
|
$ |
(74 |
) |
|
$ |
(2,361 |
) |
|
$ |
849 |
|
|
$ |
(985 |
) |
|
Refund of Excess COVID-19 Subsidies (1) |
|
|
0 |
|
|
|
0 |
|
|
|
664 |
|
|
|
0 |
|
|
Change in Employee Benefit Policy (2) |
|
|
0 |
|
|
|
0 |
|
|
|
(1,431 |
) |
|
|
0 |
|
|
(Loss) income from operations, as adjusted (Non-GAAP) |
|
$ |
(74 |
) |
|
$ |
(2,361 |
) |
|
$ |
82 |
|
|
$ |
(985 |
) |
|
|
(1) |
Represents excess COVID-19 subsidies received in 2020 and returned in 2022. |
|
|
(2) |
Represents a benefit resulting from a change in how certain employees earn certain benefits. |
Liquidity and Capital Resources
|
|
|
Nine Months Ended September 30, |
|
|||||||
|
|
|
2022 |
|
2021 |
|
Change |
|
|||
|
Net cash flows used in operating activities |
|
$ |
(20,405 |
) |
$ |
(4,398 |
) |
$ |
(16,007 |
) |
|
Net cash flows used in investing activities |
|
|
(12,516 |
) |
|
(11,521 |
) |
|
(995 |
) |
|
Net cash flows provided by financing activities |
|
|
35,908 |
|
|
11,609 |
|
|
24,299 |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(1,134 |
) |
|
(281 |
) |
|
(853 |
) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
1,853 |
|
|
(4,591 |
) |
|
6,444 |
|
|
Cash and cash equivalents at beginning of period |
|
|
10,337 |
|
|
16,842 |
|
|
(6,505 |
) |
|
Cash and cash equivalents at end of period |
|
$ |
12,190 |
|
$ |
12,251 |
|
$ |
(61 |
) |
Net cash flows used in operating activities equaled $(20,405) and $(4,398) for the nine months ended September 30, 2022, and 2021, respectively. The significant change between the years primarily is due to the ongoing investment in trade working capital due to a higher level of business activity resulting from increased demand and, for inventories, higher costs associated with inflation and supply chain disruptions.
Net cash flows used in investing activities equaled $(12,516) and $(11,521) for the nine months ended September 30, 2022, and 2021, respectively. Capital expenditures for each of the periods were relatively comparable and related primarily to 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 be completed by December 31, 2023. At September 30, 2022, commitments for future capital expenditures, including those associated with the FCEP capital program, approximated $19,300.
Net cash flows provided by financing activities equaled $35,908 and $11,609 for the nine months ended September 30, 2022, and 2021, respectively. The change period over period primarily is due to:
|
|
• |
Net borrowings from the Corporation’s revolving credit facility of $15,717 versus $10,516 in the prior year, |
|
|
• |
Proceeds from a sale and leaseback financing transaction completed in the third quarter of 2022 equaling $15,500, |
|
|
• |
Proceeds from an equipment financing facility completed in the third quarter of 2022, which provided proceeds of $4,014, |
|
|
• |
Net borrowings from one of the Corporation’s Chinese joint ventures from its minority shareholder of $1,525 for the nine months ended September 30, 2022, in comparison to repayments of $1,065 for the nine months ended September 30, 2021, offset by |
|
|
• |
Lower proceeds from shareholders exercising warrants for the Corporation’s common stock of $3,308. |
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 increased by $1,853 during 2022 and ended the period at $12,190 in comparison to $10,337 at December 31, 2021. 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
27
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.
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 and debt service costs. 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. As of September 30, 2022, remaining availability under the revolving credit facility approximated $35,622, net of standard availability reserves.
Availability under the Corporation’s equipment financing facility and the Disbursement Agreement are expected to be sufficient to finance the capital program for the FCEP segment in the timeframe currently anticipated. At September 30, 2022, availability under the equipment financing facility and Disbursement Agreement approximated $18,500. Each borrowing on the equipment financing facility will constitute a secured loan transaction (each, a “Term Loan”). Each Term Loan will convert to a Term Note on the earlier of (i) the date in which the associated equipment is placed in service or (ii) December 31, 2023. Each Term Note will have a term of 84 months in arrears fully amortizing and will commence on the date of the Term Note. Borrowings under the Disbursement Agreement will be repaid over an initial term of 20 years – through August 2042.
Litigation and Environmental Matters
See Note 15 and Note 16 to the condensed consolidated financial statements.
Critical Accounting Pronouncements
The Corporation’s critical accounting policies, as summarized in its Annual Report on Form 10-K for the year ended December 31, 2021, remain unchanged.
Recently Issued Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 – 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 Securities Exchange Act of 1934 (as amended, the “Exchange Act”) is recorded, processed, summarized and reported within the 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 as of September 30, 2022.
Changes in Internal Control. There has been no change in the Corporation’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II – OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
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Item 1 |
Legal Proceedings |
The information contained in Note 15 to the condensed consolidated financial statements (Litigation) is incorporated herein by reference.
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Item 1A |
Risk Factors |
There are no material changes to the Risk Factors contained in Item 1A to Part I of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021.
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Items 2-5 |
None. |
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Item 6 |
Exhibits |
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(3.1) |
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(3.2) |
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(3.3) |
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(10.1) |
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(10.2) |
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(10.3) |
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(10.4) |
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(31.1) |
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(31.2) |
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(32.1) |
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(32.2) |
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(101.INS) |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its 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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(101.LAB) |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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(101.PRE) |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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(104) |
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The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AMPCO-PITTSBURGH CORPORATION |
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DATE: November 14, 2022 |
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BY: |
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/s/ J. Brett McBrayer |
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J. Brett McBrayer |
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Director and Chief Executive Officer |
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DATE: November 14, 2022 |
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BY: |
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/s/ Michael G. McAuley |
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Michael G. McAuley |
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Senior Vice President, Chief Financial Officer and Treasurer |
30
