Amendment No. 1 to Form 8-K

0001193125-17-011070.txt : 20170117 0001193125-17-011070.hdr.sgml : 20170117 20170117160255 ACCESSION NUMBER: 0001193125-17-011070 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20161101 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20170117 DATE AS OF CHANGE: 20170117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPCO PITTSBURGH CORP CENTRAL INDEX KEY: 0000006176 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 251117717 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-00898 FILM NUMBER: 17530824 BUSINESS ADDRESS: STREET 1: 726 BELL AVENUE STREET 2: SUITE 301 CITY: CARNEGIE STATE: PA ZIP: 15106 BUSINESS PHONE: 412-456-4400 MAIL ADDRESS: STREET 1: 726 BELL AVENUE STREET 2: SUITE 301 CITY: CARNEGIE STATE: PA ZIP: 15106 FORMER COMPANY: FORMER CONFORMED NAME: SCREW & BOLT CORP OF AMERICA DATE OF NAME CHANGE: 19710518 8-K/A 1 d320802d8ka.htm AMENDMENT NO. 1 TO FORM 8-K Amendment No. 1 to Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 4, 2016 (November 1, 2016)

AMPCO-PITTSBURGH

CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania

1-898

25-1117717

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

726 Bell Avenue, Suite 301

Carnegie, Pennsylvania

15106

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (412) 456-4400

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e 4(c))

Item 2.01.

Completion of Acquisition or Disposition of Assets.

This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by Ampco-Pittsburgh Corporation (the “Corporation”) on November 4, 2016 (the “Initial Form 8-K”) to include Item 9.01(a) Financial Statements of Business Acquired and Item 9.01(b) Pro Forma Financial Information, which was not previously filed with the Initial Form 8-K and is permitted to be filed by amendment no later than 71 days after the date the Current Report on Form 8-K reporting the ASW Acquisition (as defined below) was required to be filed with the SEC. As reported on the Initial Form 8-K, on November 1, 2016, the Corporation acquired the stock of ASW Steel Inc. (“ASW”) from CK Pearl Fund, Ltd., CK Pearl Fund L.P. and White Oak Strategic Master Fund, L.P. (the “ASW Acquisition”).

The above description does not purport to be complete and is qualified in its entirety by reference to the purchase agreement relating to the ASW Acquisition, a copy of which was filed as an exhibit to the Initial Form 8-K and is incorporated by reference into this Current Report. The required historical financial statements of ASW and the related pro forma financial information are contained herein under Item 9.01 of this Current Report.

Item 9.01.

Financial Statements and Exhibits

(a)

Financial Statements of Business Acquired.

The audited financial statements of ASW as of and for the years ended December 31, 2015 and 2014 and the unaudited financial statements of ASW as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively.

(b)

Pro Forma Financial Information.

The unaudited pro forma condensed combined balance sheet of the Corporation as of September 30, 2016 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 and are attached hereto as Exhibit 99.3.

(d)

Exhibits.

The following exhibits are filed herewith:


*Exhibit No.*		*Description*

(23)		Consent of BDO Canada, LLP.

(99.1)		Audited financial statements of ASW as of and for the years ended December 31, 2015 and 2014.

(99.2)		Unaudited financial statements of ASW as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015.

(99.3)		Unaudited pro forma condensed combined balance sheet of the Corporation as of September 30, 2016 and unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016.

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 hereunto duly authorized.


		AMPCO-PITTSBURGH CORPORATION

Date: January 17, 2017		By: /s/ Michael G. McAuley
		Michael G. McAuley
		Vice President, Chief Financial Officer and Treasurer

EX-23 2 d320802dex23.htm EX-23 EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

Ampco-Pittsburgh Corporation

Carnegie, Pennsylvania

We hereby consent to the incorporation by reference in Registration Statements No. 333-152803, 333-174269 and 333-211242 on Form S-8 of our report dated January 17, 2017 relating to the financial statements of ASW Steel Inc. for the years ended December 31, 2015 and 2014 appearing in this Current Report on Form 8-K/A dated January 17, 2017, of Ampco-Pittsburgh Corporation. Our report contains an explanatory paragraph regarding ASW Steel Inc.’s ability to continue as a going concern.

/s/BDO Canada, LLP

Chartered Professional Accountants, Licensed Public Accountants

Mississauga, Ontario

January 17, 2017

EX-99.1 3 d320802dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

ASW Steel Inc.

Financial Statements

For the years ended December 31, 2015 and 2014

(denominated in US dollars)


	Contents

Independent Auditor’s Report		2

Financial Statements

Balance Sheets		3

Statements of Operations		4

Statements of Stockholders’ Equity		5

Statements of Cash Flows		6

Notes to Financial Statements		7 - 18

Independent Auditor’s Report

To the Board of Directors

ASW Steel Inc.

Welland, Ontario

We have audited the accompanying financial statements of ASW Steel Inc., which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ASW Steel Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matters

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company incurred a net loss of $6,344,486 for the year ended December 31, 2015, had an accumulated deficit of $42,104,318 at December 31, 2015 and the Company expects to incur further losses in the development of its business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO Canada, LLP

Chartered Professional Accountants, Licensed Public Accountants

Mississauga, Ontario

January 17, 2017

ASW Steel Inc.

Balance Sheets

(denominated in US dollars)


December 31	2015			2014
Assets
Current
Accounts receivable (Note 3)	$	7,124,437		$	13,049,366
Inventories (Note 4)		8,280,963			11,622,662
Prepaid expenses		304,617			360,878

		15,710,017			25,032,906
Restricted cash (Note 2)		519,678			1,785,892
Capital assets (Note 5)		34,628,740			35,393,389

	$	50,858,435		$	62,212,187

Liabilities and Stockholders’ Equity
Current
Bank indebtedness (Note 9)	$	7,530,364		$	10,195,603
Accounts payable and accrued liabilities		6,718,294			8,583,093
Current portion of term facility (Note 9)		1,507,401			1,269,787

		15,756,059			20,048,483
Long-term debt (Note 6)		12,210,598			12,071,996
Long-term portion of term facility (Note 9)		769,766			1,927,220
Promissory note with related parties (Note 7)		14,958,434			14,656,424

		43,694,857			48,704,123

Stockholders’ equity
Common shares (Unlimited common shares authorized); (156,222 shares issued and outstanding at December 31, 2015 and 2014) (Note 8)		49,267,896			49,267,896
Deficit		(42,104,318	)		(35,759,832	)

		7,163,578			13,508,064

	$	50,858,435		$	62,212,187

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Statements of Operations

(denominated in US dollars)


For the years ended December 31	2015			2014
Revenue	$	51,130,458		$	77,680,419
Cost of sales		52,680,983			76,108,090

Gross profit (loss)		(1,550,525	)		1,572,329

Expenses
Foreign exchange loss (gain)		1,397,588			(2,010,918	)
Interest on long-term debt		1,137,797			828,841
Administration expenses		3,496,724			6,408,999
Change in fair value of warrants liability		—			(1,805,582	)
Loss from fire (Note 11)		605,879			1,453,072
Insurance recovery (Note 11)		(1,844,027	)		(1,180,072	)

		4,793,961			3,694,340

Net loss for the year	$	(6,344,486	)	$	(2,122,011	)

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Statements of Stockholders’ Equity

(denominated in US dollars)


For the years ended December 31, 2015 and 2014
						Stockholders’
	Common shares		Deficit			Equity
Balance, December 31, 2013		49,267,896	$	(33,637,821	)	$	15,630,075
Net loss for the year		—		(2,122,011	)		(2,122,011	)

Balance, December 31, 2014		49,267,896		(35,759,832	)		13,508,064
Net loss for the year		—		(6,344,486	)		(6,344,486	)

Balance, December 31, 2015		49,267,896	$	(42,104,318	)	$	7,163,578

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Statements of Cash Flows

(denominated in US dollars)


For the years ended December 31	2015			2014
Cash provided by (used in)
Operating activities
Net loss for the year	$	(6,344,486	)	$	(2,122,011	)
Adjustments required to reconcile net loss with cash provided by (used in) operating activities
Amortization		3,052,378			1,571,447
Unrealized foreign exchange loss		(329,373	)		(2,306,984	)
Financing fees amortization		—			621,659
Accrued interest on long-term debt		95,147			144,974
Accrued interest on promissory note with related parties		234,226			299,570
Change in fair value of warrants liability		—			(1,805,582	)
Changes in non-cash working capital balances
Accounts receivable		5,924,929			(3,699,574	)
Inventories		3,341,699			(1,480,194	)
Prepaid expenses		56,261			(144,690	)
Accounts payables and accrued liabilities		(1,864,799	)		2,334,102

		4,165,982			(6,587,283	)

Investing activities
Purchase of capital assets		(2,287,729	)		(2,421,982	)
Restricted cash		1,266,214			(1,346,611	)

		(1,021,515	)		(3,768,593	)

Financing activities
Increase (decrease) in bank indebtedness		(2,665,239	)		4,764,835
Proceeds from long-term debt		138,602			488,112
Proceeds from term facility		460,260			3,514,454
Repayment of term facility		(1,380,100	)		(317,447	)
Promissory note with related parties		302,010			1,905,922

		(3,144,467	)		10,355,876

Cash, beginning and end of year	$	—		$	—

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

1.	Significant Accounting Policies

Description of the Business and Basis of Presentation

ASW Steel Inc. (“Company”) was incorporated under the laws of Ontario on July 28, 2010. The Company is engaged in the operation of producing and selling carbon, stainless, and highly specialized steel products globally.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in US dollars.

An evaluation of subsequent events through January 17, 2017, the date these financial statements were available to be issued, was completed to determine whether any circumstances warranted recognition and disclosure of events or transactions in the financial statements as at December 31, 2015. Subsequent events have been appropriately disclosed in these financial statements.

Use of Estimates

The preparation of the financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Estimates and judgments are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Due to changes in facts and circumstances and the inherent uncertainty involved in making estimates, actual results may differ from current estimates. Estimates and judgments are reviewed periodically and, as adjustments become necessary, are reported in earnings in the period in which they become known. Estimates include allowance for doubtful accounts, obsolescence of inventory, useful lives of capital assets, and accrued liabilities.

Going Concern

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has incurred a net loss of $6,344,486 for the fiscal year ended December 31, 2015 and, as of December 31, 2015, the Company has an accumulated deficit of $42,104,318. The Company has not achieved profitable operations. Until the Company generates a level of revenue to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash outflows. There is no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. Management does not believe the Company has sufficient resources to meet its operating and capital needs for the ensuing fiscal year, and will be required to seek additional sources of funding.

The Company intends to fund ongoing activities by securing additional debt financings. There can be no assurance that the Company will be successful in securing additional debt financing or that such debt financing, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional financing, the Company may be compelled to reduce the scope of its operations and planned capital expenditure or sell certain assets. This material uncertainty gives rise to substantial doubt about the Company’s ability to continue as a going concern.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

1.	Significant Accounting Policies (continued)

Revenue Recognition

Revenue is recognized when goods are shipped, the sales price is fixed and determinable, collectibility is reasonably assured and the title and risk of ownership have passed to the customer.

Accounts Receivable

Accounts receivable are stated at their net realizable value. Management records allowance for doubtful accounts based on their best estimate of losses on the accounts receivable balances. This estimate is based on a variety of factors including accounts receivable aging, historical experience and other currently available information.

Inventories

Inventories are comprised of raw materials, work in process and finished goods which are recorded at the lower of cost and market value, with cost being determined on a first-in, first-out basis. Cost includes direct material, labour and manufacturing overhead.

Capital Assets

Capital assets are recorded at cost less accumulated amortization. Amortization is provided at the following rates:


Buildings		- 20 years straight line
Machinery and equipment		- 3 to 20 years straight line
Computer equipment		- 2 to 5 years straight line
Moulds		- over 300 heats

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset and eventual disposition. If the carrying amount of an asset exceeds its estimated future cash flows and eventual disposition, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes that are more likely than not (greater than a 50 per cent chance) to be realized. The deferred income tax assets and liabilities are measured using enacted income tax rates and laws that will be in effect when the temporary differences are expected to be recovered or settled. Current income tax expense or recovery is recognized for the estimated income taxes payable or receivable in the current year.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

1.	Significant Accounting Policies (continued)

Foreign Currency Translation

The functional currency of the Company is the U.S. dollar (“USD”). The Company’s reporting currency is also the U.S. dollar.

Transactions in foreign currencies are remeasured into the functional currency at the exchange rate in effect at the date of the transaction. Any monetary assets and liabilities arising from these transactions are translated into the functional currency at exchange rates in effect at the balance sheet date or on settlement. Resulting gains and losses are recorded in other foreign exchange loss (gain) within the statements of operations.

Financial Instruments

The Company’s financial instruments consist primarily of accounts receivable, restricted cash accounts payable and accrued liabilities, bank indebtedness, term facility, long term debt and promissory notes with related parties. The carrying values of the accounts receivable, accounts payable and accrued liabilities, and bank indebtedness approximate their fair values due to the immediate or short-term nature of those instruments.

ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company has a Level 2 long term liabilities recorded on the balance sheet at its carrying value. These liabilities include long term debt, promissory notes with related parties and credit facilities. The fair value of these liabilities is estimated using quoted market prices when available. When quoted market prices are not available, the fair value is determined by discounting the future cash flows of the debt instrument at market interest rate plus a market credit risk premium equal to that of issuers of similar credit quality. See notes 6, 7 and 9 for the estimated fair value of these liabilities.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

1.	Significant Accounting Policies (continued)

Financial Instruments (continued)

The Company had a Level 3 derivative liabilities related to the warrants issued with exercise price denominated in currency other than the Company’s functional currency, which is required to be recorded at fair value on a recurring basis in accordance with US GAAP as at December 31, 2014. Unobservable inputs used in the valuation of these liabilities includes volatility of the underlying share price of a comparable peer group and the expected term. See Note 8 for the inputs used in the Black Scholes model at December 31, 2014 and the rollforward of the warrant liability. This financial instrument expired on December 21, 2014.

Financing Fees

Financing fees are amortized over three years which is the term of the line of credit.

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update revise the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The amendments are effective for annual reporting periods after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The amendments in this update requires that deferred tax assets and liabilities be classified and presented as non-current on the balance sheet. The amendments are effective for annual reporting periods after December 15, 2017. Early adoption is permitted. The adoption of this standard will not have a material impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amount that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update require that inventory be measured at the lower of cost and net realizable value. The amendments are effective for annual reporting periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

1.	Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

In April 2015, the FASB issued ASU 2015-03, Interest- Imputation of Interest (Subtopic 835-30). This update is to simplify the presentation of debt issuance costs by recognizing a debt liability in the balance sheet as a direct deduction from that debt liability consistent with the presentation of a debt discount. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015. The adoption of this standard will not have a material impact on the Company’s financial position or results of operations.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items. This update eliminates the concept of extraordinary items which requires that an entity separately classify, present, and disclose extraordinary events and transactions. The amendments in this update are effective for fiscal years beginning after December 15, 2015. As permitted, the Company early adopted the amendment in this update and was applied retrospectively.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and to provide related footnote disclosures. The ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The ASU is effective for annual periods ending after December 15, 2016. Early adoption is permitted. The adoption of this standard will not have a material impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU No. 2014-09 and the amendments in this update create ASC Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the codification. This standard completes a joint effort by FASB and the International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for US GAAP and International Financial Reporting Standards that clarifies the principles for recognizing revenue and that can be applied consistently across various transactions, industries and capital markets. This standard was originally effective for annual and interim periods beginning after December 15, 2016 and is to be applied on a full retrospective or modified retrospective basis. ASU No. 2015-14 was issued in August 2015 and the amendments in this update defer the effective date of ASU No. 2014-09 by one year to annual reporting period beginning after December 15, 2017. Early adoption is permitted as of the original effective date. The Company is currently evaluating the potential impact of the adoption of this standard.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

2.	Restricted Cash

Restricted cash is comprised of a temporary investment in a GIC, that is held as security for IESO payments and for a TD Visa account held by management. ASW is required to hold this investment in the event payments are required by IESO or TD Visa.

3.	Accounts Receivable


	2015		2014
Trade receivables	$	6,673,284	$	12,179,578
Other receivables		144,000		298,379
HST receivable		307,153		571,409

	$	7,124,437	$	13,049,366

There is no allowance for doubtful accounts recorded during the year (2014 - $Nil).

4.	Inventories


	2015		2014
Raw materials	$	4,307,198	$	4,777,646
Finished goods		2,170,072		3,951,066
Work in process		1,803,693		2,893,950

	$	8,280,963	$	11,622,662

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

5.	Capital Assets


					2015

	Cost		Accumulated Amortization		Net Book Value
Land	$	48,500	$	—	$	48,500
Buildings		1,394,557		211,242		1,183,315
Machinery and equipment		40,345,716		9,476,054		30,869,662
Computer equipment		522,233		309,751		212,482
Moulds		2,744,321		429,540		2,314,781

	$	45,055,327	$	10,426,587	$	34,628,740


					2014

	Cost		Accumulated Amortization		Net Book Value
Land	$	48,500	$	—	$	48,500
Buildings		1,288,636		79,698		1,208,938
Machinery and equipment		38,692,145		7,099,907		31,592,238
Computer equipment		435,850		60,856		374,994
Moulds		2,302,467		133,748		2,168,719

	$	42,767,598	$	7,374,209	$	35,393,389

6.	Long-term Debt


	2015		2014
Ameriforge Group Inc. secured term loan, repayable on the maturity date of September 24, 2017, interest at 1.1% payable on January 1st, secured by a general security agreement	$	12,210,598	$	12,071,996

Ameriforge Group Inc. has two options to purchase all of the shares of ASW Steel Inc The first option period was from September 24, 2012 to March 24, 2013 and was for consideration of $45,000,000 plus capital expenditures. Ameriforge Group Inc. did not exercise this option. The second option period is from December 24, 2014 to September 24, 2017 for consideration of $45,000,000 plus an adjustment based on the value of EBITDA, debt and net working capital prior to the option period. During these option periods, CK Pearl Fund, LP, CK Pearl Fund, Ltd. and White Oak Strategic Master Fund, L.P. are not allowed to exercise their warrants based on the warrant agreement dated December 31, 2011 (Note 8). Management analyzed this option arrangement under ASC 480 and determined that it did not meet the criteria for bifurcation which would require separate accounting. The debt and the option arrangement are measured as a combined instrument at amortized cost. The fair value of the Company’s long term debt as of December 31, 2015 and 2014, which is Level 2 of the fair value hierarchy and recorded on the balance sheets at its carrying value, is $10,460,527 (2014 - $9,574,853).

Interest paid during the year was $129,977 (2014 - $146,382).

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

7.	Promissory Note with Related Parties

The amounts due to shareholders are as follows:


	2015		2014
White Oak Strategic Master Fund, L.P.	$	10,635,910	$	10,422,513
CK Pearl Fund, Ltd.		3,890,260		3,810,508
CK Pearl Fund, LP		432,264		423,403

	$	14,958,434	$	14,656,424

The promissory notes payable to White Oak Strategic Master Fund, L.P., CK Pearl Fund, Ltd., and CK Pearl Fund, LP are secured by general security agreements, bear interest at a rate of 2.25% and are due in full September 24, 2017. The interest rate is based on a rate agreed upon by all parties in this arrangement and the fair value of promissory notes payable is not determinable as of December 31, 2015.

Interest paid during the year was $319,968 (2014 - $354,207).

On January 2, 2015, Medley Opportunity Fund, LP changed its legal name to CK Pearl Fund, LP.

8.	Share Capital and Warrants

Authorized:

Unlimited number of common shares


Issued:	2015		2014
156,222 Common shares	$	49,267,896	$	49,267,896

On December 31, 2011, the Company has issued 15,337 warrants with an exercise price of $326 CAD to White Oak Global Advisors, LLC and 15,337 warrants with an exercise price of $326 CAD jointly to CK Pearl Fund, LP and CK Pearl Fund, Ltd. The exercise prices of these warrants are denominated in Canadian dollars whereas the functional currency of the Company is the US dollar; as such, the settlement of the warrants fails the fixed for fixed criteria of ASC 815 and they are required to be recorded as a liability at their fair value on inception. The warrant liability is required to be re-measured at its fair value on each reporting date with the changes in fair value recorded in the Company’s statement of operations. These warrants expired on December 31, 2014.


	2015		2014
Fair value of warrants, beginning of year	$	—	$	1,805,582
Issuance		—		—
Change in fair value of warrants during the period		—		(753,034	)
Expiry		—		(1,052,548	)

Fair value of warrants, end of period	$	—	$	—

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

8.	Share Capital and Warrants (continued)

The fair value of warrants is estimated using the Black Scholes option pricing model with the following assumptions:


	2015			2014
Stock price		—			315
Exercise price		—			281
Expected life		—			0 years
Expected volatility		0	%		33	%
Risk-free interest rate		0	%		0	%
Dividend rate		0	%		0	%

The continuity of warrants for the year ended December 31, 2015 and 2014 are as follows:


	2015		2014
Balance, beginning of year	$	—	$	30,674
Issuance		—		—
Expiry		—		(30,674	)

Balance, end of year	$	—	$	—

9.	Credit Facility

On September 18, 2014 the Company entered into a new agreement for an operating credit facility to a maximum of $20,000,000 which is due on demand or upon the termination date of the agreement, June 18, 2017. The credit facility bears interest at the LIBOR rate plus 4% payable monthly. At December 31, 2015, the Company had withdrawn $7,530,364 (2014 - $10,195,603) on the credit facility and therefore has undrawn credit capacity of $12,469,636 (2014 - $9,804,397).

The Company has a fixed rate term facility available to a maximum of $5,000,000 which can be drawn upon in tranches. Each tranche will be repayable in equal monthly principal payments with interest paid monthly at the LIBOR rate plus 7.25%.


	2015		2014
Fixed rate term loan, due June 2017, interest at 8.25%, repayable in monthly payments of $98,328 (2014 - $96,516)	$	2,277,167	$	3,197,007
Less: current portion		1,507,401		1,269,787

	$	769,766	$	1,927,220

The credit facility is secured by a general security agreement on all assets. Interest paid during the year was $687,852 (2014 - $775,856).

During the year, the Company fell into default on the financial covenants relating to the credit facility. The covenant violation was waived at December 31, 2015.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

10.

Income Taxes

A reconciliation of the income tax provision computed at statutory rates to the reported income tax provision for the years ended December 31, 2015 and 2014 is as follows:


	2015			2014
Statutory tax rate		26.50	%		26.50	%
Loss before income taxes	$	(6,344,486	)	$	(2,122,011	)

		(1,681,289	)		(562,333	)
Increase (decrease) in income tax recovery resulting from:
Non-deductible expenses and other permanent differences		642,243			328,484
Increase in valuation of allowance		1,039,046			712,328
Warrants liability		—			(478,479	)

	$	—		$	—


	2015			2014
Deferred tax assets in relation to:
Capital assets	$	1,994,951		$	1,304,078
Financing costs		105,649			186,098
Unrealized foreign exchange		839,339			107,211
Operating losses carried forward		6,854,765			7,053,955
SR&ED pool		536,483			640,799
Valuation allowance		(10,331,187	)		(9,292,141	)

	$	—		$	—

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

10.

Income Taxes (continued)

The Company has losses available for income tax purposes totaling $33,966,000. This amount can be used to reduce taxable income of future years. These losses have not been recognized in the financial statements and expire as follows:


2031	$	2,517,150
2032		3,247,150
2033		7,535,000
2034		12,973,750
2035		3,802,500
2036		3,890,450

	$	33,966,000

The Company has investment tax credits of approximately $756,000 federally and $180,000 provincially which expire between December 31, 2031 and December 31, 2032. These amounts can be carried forward to reduce income taxes payable in future years. The Company has scientific research and experimental development expenditure pool of approximately $2,016,000. This amount can be carried forward to reduce taxable income of future years. The full benefit of these tax credits and expenditure pool has not been reflected in the financial statements as they were not considered more likely than not to be realized.

11.

Loss From Fire

During 2014, there was a fire at the Company’s facility which resulted in damages and expenses totalling $605,879 (2014 - $1,453,072). Insurance proceeds of $1,844,027 (2014 - $1,180,072 were received or receivable) were received during the year.

12.

Financial Instrument Risk

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to this risk through its credit facilities which has a variable interest rate, which involves risks of default on repayment and price changes due to, without limitation, such factors as interest rates and general economic conditions.

ASW Steel Inc.

Notes to Financial Statements

(denominated in US dollars)

December 31, 2015 and 2014

12.

Financial Instrument Risk (continued)

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company is exposed to credit risk resulting from the possibility that a counterparty to a financial instrument defaults on their financial obligations; if there is a concentration of transactions carried out with the same counterparty; or of financial obligations which have similar economic characteristics such that they could be similarly affected by changes in economic conditions. The Company’s financial instruments that are exposed to concentrations of credit risk relate primarily to the accounts receivable. There were three customers (2014 - five customers) making up 73% (2014 - 83%) of the total accounts receivable. An impairment analysis is performed at each reporting date on an individual basis for these customers.

Currency risk

Included in the balance sheet are the following Canadian currency amounts which are subject for foreign exchange risk:


	2015			2014
Accounts receivable	$	2,317,355		$	2,760,645
Accounts payable and accrued liabilities		(4,083,880	)		(4,955,311	)

Liquidity risk

Liquidity risk is the risk that the Company encounters difficulty in meeting its obligations associated with financial liabilities. Liquidity risk includes the risk that, as a result of operational liquidity requirements, the Company will not have sufficient funds to settle a transaction on the due date; will be forced to sell financial assets at a value, which is less than what they are worth; or may be unable to settle or recover a financial asset. Liquidity risk arises from bank indebtedness, accounts payable and accrued liabilities, term facility, long-term debt and promissory notes with related parties.

13.

Comparative Figures

Certain comparative figures have been reclassified to conform with the method of presentation adopted for the current year.

14.

Subsequent Events

On November 1, 2016, all of the outstanding equity of the Company was acquired by Ampco UES Sub, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Ampco-Pittsburgh Corporation, a Pennsylvania corporation (“Ampco”). The Company was sold for $13,115,650, consisting of $3,500,000 in cash and $9,615,650 in assumption of outstanding indebtedness. Sales to a wholly owned subsidiary of Ampco approximated $6,700,000 and $2,400,000 for 2015 and 2014, respectively.

EX-99.2 4 d320802dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

ASW Steel Inc.

Condensed Balance Sheets

(denominated in US dollars)

(Unaudited)


	September 30 2016			December 31 2015

Assets

Current
Accounts receivable (Note 3)	$	6,664,451		$	7,124,437
Inventories (Note 4)		6,271,016			8,280,963
Prepaid expenses		591,237			304,617

		13,526,704			15,710,017

Restricted cash (Note 2)		552,165			519,678
Capital assets (Note 5)		34,229,051			34,628,740


	$	48,307,920		$	50,858,435


Liabilities and Stockholders’ Equity

Current
Bank indebtedness (Note 8)	$	8,398,036		$	7,530,364
Accounts payable and accrued liabilities		8,066,151			6,718,294
Current portion of term facility (Note 8)		1,142,346			1,507,401


		17,606,533			15,756,059

Long-term debt (Note 6)		12,355,289			12,210,598
Long-term portion of term facility (Note 8)		—			769,766
Promissory note with related parties (Note 7)		15,270,308			14,958,434


		45,232,130			43,694,857


Stockholders’ equity
Common shares (Unlimited common shares authorized); (156,222 shares issued and outstanding at September 30, 2016 and December 31, 2015)		49,267,896			49,267,896
Deficit		(46,192,106	)		(42,104,318	)


		3,075,790			7,163,578


	$	48,307,920		$	50,858,435

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Condensed Statements of Operations

(denominated in US dollars)

(Unaudited)


For the nine month periods ended September 30	2016			2015

Revenue	$	37,514,434		$	39,977,553

Cost of sales		37,896,758			40,938,585


Gross loss		(382,324	)		(961,032	)


Expenses
Foreign exchange loss		636,916			1,706,487
Interest on long-term debt		774,907			867,386
Administration expenses		2,293,641			2,254,857
Loss from fire (Note 9)		—			605,879
Insurance recovery (Note 9)		—			(1,844,027	)


		3,705,464			3,590,582


Net loss for the period	$	(4,087,788	)	$	(4,551,614	)

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Condensed Statements of Stockholders’ Equity

(denominated in US dollars)

(Unaudited)


For the periods ended September 30, 2016 and December 31, 2015
	Common shares		Deficit			Stockholders’ Equity

Balance, December 31, 2014		49,267,896	$	(35,759,832	)	$	13,508,064

Net loss for the year		—		(6,344,486	)		(6,344,486	)


Balance, December 31, 2015		49,267,896		(42,104,318	)		7,163,578

Net loss for the period		—		(4,087,788	)		(4,087,788	)


Balance, September 30, 2016		49,267,896	$	(46,192,106	)	$	3,075,790

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Condensed Statements of Cash Flows

(denominated in US dollars)

(Unaudited)


For the nine month periods ended September 30	2016			2015

Cash provided by (used in)

Operating activities
Net loss for the period	$	(4,087,788	)	$	(4,551,614	)
Adjustments required to reconcile net loss with cash provided by (used in) operating activities
Amortization		1,790,277			2,289,284
Unrealized foreign exchange loss		(332,159	)		(149,884	)
Accrued interest on long-term debt		94,578			41,655
Accrued interest on promissory note with related parties		237,581			108,229
Changes in non-cash working capital balances
Accounts receivable		459,986			4,631,537
Inventories		2,009,947			1,881,644
Prepaid expenses		(286,620	)		(119,742	)
Accounts payables and accrued liabilities		1,347,857			(1,038,549	)


		1,233,659			3,092,560


Investing activities
Purchase of capital assets		(1,390,588	)		(1,611,950	)
Restricted cash		(32,487	)		120,507


		(1,423,075	)		(1,491,443	)


Financing activities
Increase (decrease) in bank indebtedness		867,672			(1,392,475	)
Proceeds from long-term debt		144,691			104,175
Proceeds from term facility		—			460,260
Repayment of term facility		(1,134,821	)		(992,433	)
Promissory note with related parties		311,874			219,356


		189,416			(1,601,117	)


Cash, beginning and end of period	$	—		$	—

The accompanying notes are an integral part of these financial statements.

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

1.	Unaudited Condensed Financial Statements

The condensed balance sheet as of September 30, 2016 and the condensed statements of operations and stockholders’ equity for the nine months ended September 30, 2016 and condensed statements of cash flows for the nine months ended September 30, 2016 and 2015 have been prepared by ASW Steel, Inc. (the “Company”) without audit. 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 nine months ended September 30, 2016 are not necessarily indicative of the operating results expected for the full year.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in US dollars.

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 have been condensed or omitted.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amended guidance will be effective for interim and annual periods beginning after December 15, 2017; however, early adoption is permitted if all provisions are adopted in the same period. The Company is currently evaluating the impact the guidance will have on the presentation of its cash flow statement. The guidance will not affect the Company’s financial position or liquidity.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with a term of more than one year. Accounting by lessors will remain similar to existing generally accepted accounting principles. The guidance becomes effective for the Company on January 1, 2019. The Company is currently evaluating the impact the guidance will have on its financial position, operating results and liquidity.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update require that inventory be measured at the lower of cost and net realizable value. The amendments are effective for annual reporting periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

1.	Unaudited Condensed Financial Statements (continued)

Recent Accounting Pronouncements (continued)

In April 2015, the FASB issued ASU 2015-03, Interest- Imputation of Interest (Subtopic 835-30). This update is to simplify the presentation of debt issuance costs by recognizing a debt liability in the balance sheet as a direct deduction from that debt liability consistent with the presentation of a debt discount. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

Going Concern

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has incurred a net loss of $4,087,788 for the fiscal period ended September 30, 2016 and, as of September 30, 2016, the Company has an accumulated deficit of $46,192,106. The Company has not achieved profitable operations. Until the Company generates a level of revenue to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash outflows. There is no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. Management does not believe the Company has sufficient resources to meet its operating and capital needs for the ensuing fiscal year, and will be required to seek additional sources of funding.

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

2.	Restricted Cash

3.	Accounts Receivable


	2016		2015

Trade receivables	$	6,173,195	$	6,673,284
Other receivables		103,228		144,000
HST receivable		388,028		307,153


	$	6,664,451	$	7,124,437

There is no allowance for doubtful accounts recorded during the period (2015 - $Nil).

4.	Inventories


	2016		2015

Raw materials	$	3,662,019	$	4,307,198
Finished goods		1,250,866		2,170,072
Work in process		1,358,131		1,803,693


	$	6,271,016	$	8,280,963

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

5.	Capital Assets


					2016

	Cost		Accumulated Amortization		Net Book Value

Land	$	48,500	$	—	$	48,500
Buildings		1,394,557		263,538		1,131,019
Machinery and equipment		41,701,463		11,017,263		30,684,200
Computer equipment		557,074		390,989		166,085
Moulds		2,744,321		545,074		2,199,247


	$	46,445,915	$	12,216,864	$	34,229,051


					2015

	Cost		Accumulated Amortization		Net Book Value

Land	$	48,500	$	—	$	48,500
Buildings		1,394,557		211,242		1,183,315
Machinery and equipment		40,345,716		9,476,054		30,869,662
Computer equipment		522,233		309,751		212,482
Moulds		2,744,321		429,540		2,314,781


	$	45,055,327	$	10,426,587	$	34,628,740

6.	Long-term Debt


	2016		2015
Ameriforge Group Inc. secured term loan, repayable on the maturity date of September 24, 2017, interest at 1.1% payable on January 1st, secured by a general security agreement	$	12,355,289	$	12,210,598

Through September 24, 2017, Ameriforge Group Inc. has the option to purchase all of the shares of ASW Steel Inc. for consideration of $45,000,000 plus an adjustment based on the value of EBITDA, debt and net working capital prior to the option period. The fair value of the Company’s long term debt as of September 30, 2016 and December 31, 2015, which is Level 2 of the fair value hierarchy and recorded on the balance sheets at its carrying value, is $10,584,480 (2015 - $10,460,527).

Interest paid during the period was $101,655 (September 30, 2015 - $97,483).

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

7.	Promissory Note with Related Parties

The amounts due to shareholders are as follows:


	2016		2015

White Oak Strategic Master Fund, L.P.	$	10,873,471	$	10,635,910
CK Pearl Fund, Ltd.		3,957,082		3,890,260
CK Pearl Fund, LP		439,755		432,264


	$	15,270,308	$	14,958,434

Interest paid during the period was $259,279 (September 30, 2015 - $239,976).

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

8.	Credit Facility

The Company has an agreement for an operating credit facility to a maximum of $20,000,000 which is due on demand or upon the termination date of the agreement, June 18, 2017. The credit facility bears interest at the LIBOR rate plus 4% payable monthly. At September 30, 2016, the Company had withdrawn $8,398,036 (2015 - $7,530,364) on the credit facility and therefore has undrawn credit capacity of $11,601,964 (2015 - $12,469,636).


	2016		2015
Fixed rate term loan, due June 2017, interest at 8.25%, repayable in monthly payments of $98,328	$	1,142,346	$	2,277,167
Less: current portion		1,142,346		1,507,401


	$	—	$	769,766

The credit facility is secured by a general security agreement on all assets. Interest paid during the period was $413,973 (September 30, 2015 - $515,889).

During 2016, the Company fell into default on the financial covenants relating to the credit facility.

9.	Loss From Fire

During 2014, there was a fire at the Company’s facility which resulted in damages and expenses totalling $Nil (September 30, 2015 - $605,879). Insurance proceeds of $Nil (September 30, 2015 - $1,844,027 were received or receivable) were received during the year.

10.

Financial Instrument Risk

Interest rate risk

ASW Steel Inc.

Notes to Condensed Financial Statements

(denominated in US dollars)

(Unaudited)

September 30, 2016 and December 31, 2015

10.

Financial Instrument Risk (continued)

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company is exposed to credit risk resulting from the possibility that a counterparty to a financial instrument defaults on their financial obligations; if there is a concentration of transactions carried out with the same counterparty; or of financial obligations which have similar economic characteristics such that they could be similarly affected by changes in economic conditions. The Company’s financial instruments that are exposed to concentrations of credit risk relate primarily to the accounts receivable. There were four customers (2015 - three customers) making up 78% (2015 - 73%) of the total accounts receivable. An impairment analysis is performed at each reporting date on an individual basis for these customers.

Currency risk

Included in the balance sheet are the following Canadian currency amounts which are subject for foreign exchange risk:


	2016			2015

Accounts receivable	$	2,019,115		$	2,317,355
Accounts payable and accrued liabilities		(4,738,002	)		(4,083,880	)

Liquidity risk

11.

Subsequent Events

On November 1, 2016, all of the outstanding equity of the Company was acquired by Ampco UES Sub, Inc., a Delaware corporation and an indirect wholly owned subsidiary of Ampco-Pittsburgh Corporation, a Pennsylvania corporation (“Ampco”). The Company was sold for $13,115,650, consisting of $3,500,000 in cash and $9,615,650 in assumption of outstanding indebtedness. Sales to a wholly owned subsidiary of Ampco approximated $6,600,000 for the nine months ended September 30, 2015. The Company had no sales to any subsidiary of Ampco for the nine months ended September 30, 2016.

EX-99.3 5 d320802dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

AMPCO-PITTSBURGH CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(dollars in thousands)

On November 1, 2016, Ampco-Pittsburgh Corporation (“Ampco” or the “Corporation”) acquired the stock of ASW Steel Inc. (“ASW”) from CK Pearl Fund, Ltd., CK Pearl Fund L.P. and White Oak Strategic Master Fund, L.P. (the “ASW Acquisition”). The purchase price of $13,116 consisted of $3,500 in cash and $9,616 in the assumption of outstanding indebtedness. In addition, on March 3, 2016, Ampco acquired the stock of Åkers AB and certain of its affiliated companies (collectively, “Åkers”) from Altor Fund II GP Limited (the “Åkers Acquisition”). The Åkers Acquisition was initially reported by the Corporation in its Current Report on Form 8-K filed with the SEC on March 7, 2016 (as amended by the Corporation’s Current Report on Form 8-K/A filed with the SEC on May 17, 2016).

The following Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2016 presents the combination of the financial position of Ampco and ASW as if the ASW Acquisition had been consummated as of September 30, 2016. The balance sheet for Ampco, which includes Åkers, is consistent with that presented in its Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2016. The balance sheet for ASW is consistent with its unaudited financial statements as of and for the nine months ended September 30, 2016. Certain amounts have been reclassified to conform to Ampco’s presentation.

The following Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 present the combination of the results of operations of Ampco, Åkers and ASW as if the Åkers Acquisition and the ASW Acquisition had been consummated on January 1, 2015, the beginning of the earliest period presented. The results of operations for Ampco for the year ended December 31, 2015 and the nine months ended September 30, 2016 are consistent with those presented in its audited consolidated financial statements as of and for the year ended December 31, 2015 and its Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2016, respectively. The results of operations of Åkers for the year ended December 31, 2015 are consistent with those previously presented in the Current Report on Form 8-K/A filed with the SEC on May 17, 2016. The results of operations of Åkers from the date of the Åkers Acquisition (March 3, 2016) through September 30, 2016 are included in the results of operations of Ampco. The results of operations of Åkers for January and February 2016 are consistent with those presented in its unaudited financial statements for those periods. The results of operations of ASW for the year ended December 31, 2015 and the nine months ended September 30, 2016 are consistent with those presented in its audited financial statements as of and for the year ended December 31, 2015 and its unaudited financial statements as of and for the nine months ended September 30, 2016, respectively. Certain amounts have been reclassified to conform to Ampco’s presentation.

The Unaudited Pro Forma Condensed Combined Statements of Operations do not reflect the costs or benefits of any integration activities that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the ASW Acquisition or the Åkers Acquisition.

The Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Operations should be read in conjunction with the following:

•

The accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information;

•

The audited consolidated financial statements of Ampco as of and for the year ended December 31, 2015, included in Ampco’s Annual Report on Form 10-K for the year ended December 31, 2015 (filed with the SEC on March 15, 2016);

•

The unaudited consolidated financial statements of Ampco as of and for the nine months September 30, 2016, included in Ampco’s Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2016 (filed with the SEC on November 9, 2016);

•

The audited financial statements of ASW as of and for the years ended December 31, 2015 and 2014 which are filed as Exhibit 99.1 hereto; and.

•

The unaudited financial statements of ASW as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 which are filed as Exhibit 99.2 hereto.

AMPCO-PITTSBURGH CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2016

(in thousands)


	Historical						Pro Forma Adjustments
	Ampco			ASW			Acquisition Adjustments			Financing Adjustments		Ampco Pro Forma Condensed Combined
Assets
Current assets:
Cash and cash equivalents	$	43,525		$	—		$	(3,500	)[A]	$	—	$	40,025
Receivables, less allowance for doubftul accounts		67,674			6,174			—					73,848
Inventories		83,924			6,271			209	[B]				90,404
Insurance receivable—asbestos		17,000			—			—					17,000
Other current assets		13,347			1,082			—					14,429

Total current assets		225,470			13,527			(3,291	)		—		235,706
Property, plant and equipment, net		208,276			34,229			(23,919	)[C]				218,586
Insurance receivable—asbestos		97,945			—			—					97,945
Deferred income tax assets		4,337			—			—					4,337
Investments in joint ventures		2,815			—			—					2,815
Intangible assets, net		13,802			—			—					13,802
Goodwill		27,381			—			—					27,381
Other noncurrent assets		7,581			552			—					8,133

Total assets	$	587,607		$	48,308		$	(27,210	)	$	—	$	608,705

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	34,065		$	7,020		$	—		$	—	$	41,085
Accrued payrolls and employee benefits		18,323			333			—					18,656
Debt—current portion		19,144			9,540			—					28,684
Asbestos liability—current portion		21,000			—			—					21,000
Other current liabilities		40,707			713			3,492	[D]				44,912

Total current liabilities		133,239			17,606			3,492			—		154,337
Employee benefit obligations		94,567			—			—					94,567
Asbestos liability		135,087			—			—					135,087
Noncurrent debt		25,588			27,626			(27,626	)[E]				25,588
Other noncurrent liabilities		654			—			—					654

Total liabilities		389,135			45,232			(24,134	)		—		410,233

Commitments and contingent liabilities
Shareholders’ equity:
Common stock		12,271			49,268			(49,268	)[F]				12,271
Additional paid-in capital		150,696			—			—					150,696
Retained earnings		89,645			(46,192	)		46,192	[F]				89,645
Accumulated other comprehensive loss		(55,974	)		—			—					(55,974	)

Total Ampco shareholders’ equity		196,638			3,076			(3,076	)		—		196,638
Noncontrolling interest		1,834			—			—			—		1,834

Total shareholders’ equity		198,472			3,076			(3,076	)		—		198,472

Total liabilities and shareholders' equity	$	587,607		$	48,308		$	(27,210	)	$	—	$	608,705

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations.

AMPCO-PITTSBURGH CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Year ended December 31, 2015

(in thousands, except per share amounts)


	Historical									Pro Forma Adjustments
	Ampco			Åkers			ASW			Acquisition Adjustments (Note 2)			Financing Adjustments (Note 3)			Ampco Pro Forma Condensed Combined
Net sales	$	238,480		$	150,655		$	51,130		$	—		$	—		$	440,265

Operating costs and expenses:
Cost of products sold (excluding depreciation and amortization)		196,091			131,008			49,000			(1,716	)[G]		—			374,383
Selling and administrative		39,510			24,072			3,497			(2,828	)[H]		—			64,251
Depreciation and amortization		11,787			6,731			3,052			1,412	[I]		—			22,982
Credit for asbestos litigation		(14,333	)		—			—			—			—			(14,333	)
Loss (gain) on disposition of assets		378			—			(609	)		—			—			(231	)

Total operating expenses		233,433			161,811			54,940			(3,132	)		—			447,052

Income (loss) from operations		5,047			(11,156	)		(3,810	)		3,132			—			(6,787	)

Other income (expense):
Investment-related income		174			19			—			—			—			193
Interest expense		(226	)		(4,900	)		(1,138	)		4,851	[J]		(1,470	)[N]		(2,883	)
Other-net		(475	)		(597	)		(1,396	)		—			—			(2,468	)

Total other income (expense)		(527	)		(5,478	)		(2,534	)		4,851			(1,470	)		(5,158	)

Income (loss) before income taxes and equity losses in Chinese joint venture		4,520			(16,634	)		(6,344	)		7,983			(1,470	)		(11,945	)
Income tax (expense) benefit		(2,633	)		(9,687	)		—			(929	)[K]		515	[O]		(12,734	)
Equity losses in Chinese joint venture		(514	)		—						—			—			(514	)

Net income (loss)		1,373			(26,321	)		(6,344	)		7,054			(955	)		(25,193	)
Less: Net (loss) income attributable to noncontrolling interest		—			(461	)		—			8	[L]		—			(453	)

Net income (loss) attributable to Ampco	$	1,373		$	(25,860	)	$	(6,344	)	$	7,046		$	(955	)	$	(24,740	)

Net income (loss) per common share attributable to Ampco:
Basic	$	0.13														$	(2.03	)

Diluted	$	0.13														$	(2.03	)

Weighted average number of common shares outstanding:
Basic		10,435									1,777	[M]					12,212

Diluted		10,447									1,777	[M]					12,224

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations.

AMPCO-PITTSBURGH CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Nine months ended September 30, 2016

(in thousands, except per share amounts)


	Historical									Pro Forma Adjustments
	Ampco			Åkers			ASW			Acquisition Adjustments (Note 2)			Financing Adjustments (Note 3)			Ampco Pro Forma Condensed Combined
Net sales	$	239,740		$	21,550		$	37,514		$	—		$	—		$	298,804

Operating costs and expenses:
Cost of products sold (excluding depreciation and amortization)		195,824			19,426			36,107			(286	)[G]		—			251,071
Selling and administrative		43,740			3,036			2,294			(2,167	)[H]		—			46,903
Depreciation and amortization		14,945			1,074			1,790			77	[I]		—			17,886
Credit for asbestos litigation		—			—			—			—			—			—
Gain on disposition of assets		(9	)		—			—			—			—			(9	)

Total operating expenses		254,500			23,536			40,191			(2,376	)		—			315,851

Income (loss) from operations		(14,760	)		(1,986	)		(2,677	)		2,376			—			(17,047	)

Other income (expense):
Investment-related income		540			6			—			—			—			546
Interest expense		(1,502	)		(1,058	)		(775	)		695	[J]		(246	)[N]		(2,886	)
Other-net		327			(473	)		(636	)		—			—			(782	)

Total other income (expense)		(635	)		(1,525	)		(1,411	)		695			(246	)		(3,122	)

Income (loss) before income taxes and equity losses in Chinese joint venture		(15,395	)		(3,511	)		(4,088	)		3,071			(246	)		(20,169	)
Income tax (expense) benefit		(21,627	)		(27	)		—			(53	)[K]		86	[O]		(21,621	)
Equity losses in Chinese joint venture		115			—			—			—			—			115

Net income (loss)		(36,907	)		(3,538	)		(4,088	)		3,018			(160	)		(41,675	)
Less: Net loss attributable to noncontrolling interest		(149	)		(7	)		—			(7	)[L]		—			(163	)

Net income (loss) attributable to Ampco	$	(36,758	)	$	(3,531	)	$	(4,088	)	$	3,025		$	(160	)	$	(41,512	)

Net income (loss) per common share attributable to Ampco:
Basic	$	(3.10	)													$	(3.39	)

Diluted	$	(3.10	)													$	(3.39	)

Weighted average number of common shares outstanding:
Basic		11,844									402	[M]					12,246

Diluted		11,844									402	[M]					12,246

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations.

AMPCO-PITTSBURGH CORPORATION

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

(in thousands)

Note 1. Basis of Presentation

The “pro forma adjustments” give effect to the adjustments described in these notes and are intended to reflect the impact of the acquisitions on Ampco’s consolidated balance sheet and statements of operations. The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Operations are presented for illustrative purposes only and do not reflect the costs or benefits of any integration activities that may result.

The Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Operations were prepared using the acquisition method of accounting with Ampco considered the acquirer of Åkers and ASW.

Note 2. Acquisition Adjustments

The base purchase price as of the date of acquisition for ASW equaled $3,500 in cash and $9,616 in the assumption of outstanding indebtedness. The estimated fair value of assets acquired and liabilities assumed as of the date of the ASW Acquisition is summarized below and is subject to final adjustments primarily for tangible assets, pre-acquisition contingencies, deferred income taxes and residual intangibles and goodwill, if any.


Current assets (excluding inventories)	$	6,525
Inventories		6,956
Property, plant and equipment		10,310
Current liabilities		(10,675	)
Outstanding indebtedness		(9,616	)

Base purchase price	$	3,500

The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the adjustments summarized below.

[A]	Cash and cash equivalents were reduced by the amount of cash paid for the purchase of ASW.

[B]	Inventories were adjusted to their estimated fair value as of the date of the ASW Acquisition.

[C]	Property, plant and equipment was reduced to its estimated fair value as of the date of the ASW Acquisition.

[D]	Other current liabilities were increased to record the estimated value of pre-acquisition contingencies associated primarily with remediation of potential environmental contamination.

[E]	Noncurrent debt was reduced to eliminate debt not assumed by the Corporation.

[F]	Common stock and retained earnings (deficit) through September 30, 2016 was eliminated.

The Unaudited Pro Forma Condensed Combined Statement of Operations reflects the adjustments summarized below.

[G]

Cost of products sold (excluding depreciation and amortization) was decreased by $1,716 for the year ended December 31, 2015 and $286 for the nine months ended September 30, 2016 to reflect pension and other postretirement benefit costs in accordance with U.S. GAAP. This decrease was determined based on actuarial valuations for the two U.S. defined benefit pension plans, the two foreign retirement benefit plans and the two other postretirement benefit plans that were assumed as part of the Åkers Acquisition. No pension and other postretirement plans exist for ASW.

[H]

Selling and administrative expenses were reduced by $2,828 for the year ended December 31, 2015 and $2,167 for the nine months ended September 30, 2016 for direct, incremental costs associated with the acquisitions of Åkers and ASW, which are included in the historical results of operations of Ampco, due to their non-recurring nature. These costs primarily consist of professional and legal fees.

[I]	Depreciation and amortization were adjusted as follows:

•

An increase in depreciation of $1,453 for the year ended December 31, 2015 and $288 for the nine months ended September 30, 2016 to recognize the additional expense associated with recording Åkers’ property, plant and equipment at fair value. For purposes of determining the impact on the Unaudited Pro Forma Condensed Combined Statement of Operations, the fair value of property, plant and equipment is being depreciated over an estimated weighted-average useful life of 11 years.

•

A decrease in depreciation by $1,181 for the year ended December 31, 2015 and $401 for the nine months ended September 30, 2016 to recognize lower expense associated with recording ASW property, plant and equipment at fair value. For purposes of determining the impact on the Unaudited Pro Forma Condensed Combined Statement of Operations, the fair value of property, plant and equipment is being depreciated over an estimated weighted-average useful life of approximately 5 years.

•

An increase in amortization expense of $1,140 for the year ended December 31, 2015 and $190 for the nine months ended September 30, 2016 associated with the estimated fair value of definite-lived intangible assets acquired as part of the Åkers Acquisition. The estimated fair value of acquired, definite-lived intangible assets consists of $4,429 for developed technology and $5,881 for customer relationships. For purposes of determining the impact on the Unaudited Pro Forma Condensed Combined Statement of Operations, the estimated fair value of definite-lived intangible assets is being amortized over an estimated weighted-average economic life of 14 years.

[J]	Interest expense was adjusted as follows:

•

A decrease of $4,401 for the year ended December 31, 2015 and $334 for the nine months ended September 30, 2016 to eliminate debt-related expenses associated with Åkers’ previous debt facilities not assumed by the Corporation as part of the Åkers Acquisition.

•

A decrease of $450 for the year ended December 31, 2015 and $361 for the nine months ended September 30, 2016 to eliminate debt-related expenses associated with ASW’s previous debt facilities not assumed by the Corporation as part of the ASW Acquisition.

[K]

Income tax benefit (expense) reflects the tax effect of the indicated acquisition adjustments calculated using the applicable statutory tax rates in effect during the period. Since ASW was in a three-year cumulative loss position, no tax effect was recognized for any of the acquisition adjustments relating to ASW.

[L]	Net loss attributable to noncontrolling interest decreased by $8 for the year ended December 31, 2015 and increased by $7 for the nine months ended September 30, 2016 and reflects depreciation and amortization of fair value adjustments attributable to the noncontrolling interest.

[M]	Shares outstanding were adjusted to include those shares issued in connection with the Åkers Acquisition as if those shares were issued January 1, 2015.

Note 3. Financing Adjustments

In connection with the Åkers Acquisition, after a post-closing purchase price adjustment made in accordance with the purchase agreement, Ampco issued a three-year promissory note in the amount of $22,619. The note bears interest at 6.5%, compounding annually, with principal and interest payable at maturity on March 3, 2019.

The Unaudited Pro Forma Condensed Combined Statement of Operations reflects the adjustments summarized below.

[N]	Interest expense was increased by $1,470 for the year ended December 31, 2015 and $246 for the nine months ended September 30, 2016 to reflect interest incurred on the three-year note issued in connection with the Åkers Acquisition.

[O]	Income tax benefit (expense) reflects the tax effect of the indicated financing adjustments calculated using the applicable statutory tax rates in effect during the periods.

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