10-K 1 ap-10k_20191231.htm 10-K ap-10k_20191231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

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 1-898

AMPCO-PITTSBURGH CORPORATION

 

Pennsylvania

 

 

25-1117717

(State of Incorporation)

 

 

(I.R.S. Employer Identification No.)

 

 

726 Bell Avenue, Suite 301

Carnegie, Pennsylvania 15106

(Address of principal executive offices)

(412) 456-4400

(Registrant’s telephone number)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

AP

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes        No      

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes        No      

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No        

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).  Yes      No        

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

____  

  

Accelerated filer

 

____

Non-accelerated filer

 

      

  

Smaller reporting company

 

      

 

 

 

 

Emerging growth company

 

____

 

 

 

 

 

 

 

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        No      

The aggregate market value of the voting stock of Ampco-Pittsburgh Corporation held by non-affiliates on June 28, 2019 (based upon the closing price of the Registrant’s Common Stock on the New York Stock Exchange on that date) was approximately $27 million.

As of March 10, 2020, 12,658,844 common shares were outstanding.

Documents Incorporated by Reference: Part III of this report incorporates by reference certain information from the Proxy Statement for the 2020 Annual Meeting of Shareholders.


 

 

TABLE OF CONTENTS

 

PART I

 

 

 

Item 1. Business

1

 

 

Item 1a. Risk Factors

4

 

 

Item 1b. Unresolved Staff Comments

7

 

 

Item 2. Properties

7

 

 

Item 3. Legal Proceedings

8

 

 

Item 4. Mine Safety Disclosures

8

 

 

PART II

 

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

9

 

 

Item 6. Selected Financial Data

9

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

9

 

 

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

18

 

 

Item 8. Financial Statements and Supplementary Data

19

 

 

Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

60

 

 

Item 9a. Controls and Procedures

60

 

 

Item 9b. Other Information

60

 

 

PART III

 

 

 

Item 10. Directors, Executive Officers and Corporate Governance

61

 

 

Item 11. Executive Compensation

61

 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

61

 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

61

 

 

Item 14. Principal Accountant Fees and Services

61

 

 

Part IV

 

 

 

Item 15. Exhibits and Financial Statement Schedules

62

 

 

Item 16. Form 10-K Summary

65

 

 

Signatures

66

 

 

 

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FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by us or on our behalf. Management’s Discussion and Analysis of Financial Condition and Results of Operation and other sections of this Annual Report on Form 10-K, as well as the consolidated financial statements and notes hereto, may include, but are not limited to, statements about operating performance, trends, events that we expect or anticipate will occur in the future, statements about sales levels, divestitures, restructuring, the effect of any impairment charges, profitability and anticipated expenses 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,” “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:  cyclical demand for products and economic downturns; excess global capacity in the steel industry; increases in commodity prices or shortages of key production materials; a work stoppage or similar industrial action; currency fluctuations; inability to successfully restructure our operations; limitations in availability of capital to fund our strategic plan; and those discussed more fully elsewhere in this report, particularly in Item 1A, Risk Factors, in Part I of this Annual Report on Form 10-K. We cannot guarantee any future results, levels of activity, performance or achievements. In addition, there may be events in the future that we are not able to predict accurately or control which may cause actual results to differ materially from expectations expressed or implied by forward-looking statements. Except as required by applicable law, we assume no obligation, and disclaim any obligation, to update forward-looking statements whether as a result of new information, events or otherwise.

– PART I –

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

Ampco-Pittsburgh Corporation (the “Corporation”) was incorporated in Pennsylvania in 1929. The Corporation, individually or together with its consolidated subsidiaries, is also referred to herein as the “Registrant.” The Corporation manufactures and sells highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It operates in two business segments, the Forged and Cast Engineered Products segment and the Air and Liquid Processing segment. This segment presentation is consistent with how the Corporation’s chief operating decision maker evaluates the financial performance and makes resource allocation and strategic decisions about the business. In 2019, the Corporation sold all of the issued and outstanding stock of ASW Steel Inc., a specialty steel producer based in Canada, and certain assets, including real estate and certain personal property, of Akers National Roll Company (“ANR”). Following the completion of customer orders in backlog, all manufacturing activities at ANR ceased. Both operations incurred significant losses in 2019 and 2018.

NARRATIVE DESCRIPTION OF BUSINESS

Forged and Cast Engineered Products Segment

The Forged and Cast Engineered Products segment produces forged hardened steel rolls, cast rolls and open-die forged products. 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. Forged engineered products are used in the oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, Slovenia, and an equity interest in three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world.

Union Electric Steel Corporation produces forged hardened steel rolls and open-die forged products. It is headquartered in Carnegie, Pennsylvania, with three manufacturing facilities in Pennsylvania and one in Indiana. The following entities are direct or indirect operating subsidiaries of Union Electric Steel Corporation:

Union Electric Steel UK Limited produces cast rolls in a variety of iron and steel qualities for hot and cold strip mills, medium/heavy section mills and plate mills. It is located in Gateshead, England.

Åkers Sweden AB produces cast rolls in a variety of iron and steel qualities for hot strip finishing, roughing mills, plate mills and medium/heavy section mills. It is located in Åkers Styckebruk, Sweden.

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Åkers Valji Ravne d.o.o. produces forged rolls for cluster mills and Z-Hi mills, work rolls for narrow and wide strip and aluminum mills, back-up rolls for narrow strip mills, and leveling rolls and shafts. It is located in Ravne, Slovenia.

Alloys Unlimited Processing, LLC is a distributor of tool steels, alloys and carbon round bar, located in Austintown, Ohio.

The segment also has an equity interest in three joint venture companies in China:

Shanxi Åkers TISCO Roll Co. Ltd., is a joint venture between Taiyuan Iron and Steel Co Ltd. and Åkers AB, a subsidiary of Union Electric Steel Corporation, that produces cast rolls for hot strip mills, steckel mills and medium plate mills. It is located in Taiyuan, Shanxi Province, China. Åkers AB holds a 59.88% interest in the joint venture.

Masteel Gongchang Roll Co., Ltd. is a joint venture among Union Electric Steel Corporation, Magang (Group) Holding Co., Ltd. and Jiangsu Gongchang Roll Joint-Stock Co., Ltd. that produces large forged backup rolls for hot and cold strip mills. It is located in Maanshan, Anhui Province, China. Union Electric Steel (Hong Kong) Limited, a subsidiary of Union Electric Steel Corporation, holds a 33% interest in the joint venture.

Jiangsu Gongchang Roll Joint-Stock Co., Ltd. is a joint venture that produces cast rolls for hot and cold strip mills, medium/heavy section mills and plate mills. It is located in Xinjian Town Yixing City, Jiangsu Province, China. Union Electric Steel UK Limited holds a 24.03% interest in the joint venture.

Air and Liquid Processing Segment

The Air and Liquid Processing segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation. The segment has operations in Virginia and New York with headquarters in Carnegie, Pennsylvania. It distributes a significant portion of its products through a common independent group of sales offices located throughout the United States and Canada and has several major competitors.

Aerofin Division of Air & Liquid Systems Corporation produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including OEM/commercial, nuclear power generation and industrial manufacturing, and is located in Lynchburg, Virginia.

Buffalo Air Handling Division of Air & Liquid Systems Corporation produces large custom-designed air handling systems for institutional (e.g., hospital, university), pharmaceutical and general industrial building markets, and is located in Amherst, Virginia.

Buffalo Pumps Division of Air & Liquid Systems Corporation manufactures centrifugal pumps for the fossil-fueled power generation, marine defense and industrial refrigeration industries, and is located in North Tonawanda, New York.

Products

In both segments, the products are dependent on engineering, principally custom designed, and are sold to sophisticated commercial and industrial users located throughout the world. For additional information on the products produced and financial information about each segment, see Note 16, Revenue, and Note 23, Business Segments, to the Consolidated Financial Statements.

Raw Materials

Raw materials used in both segments are generally available from many sources and neither segment is dependent upon any single supplier for any raw material. Substantial volumes of raw materials used by each segment are subject to significant variations in price. The Corporation’s subsidiaries generally do not purchase or commit for the purchase of a major portion of raw materials significantly in advance of the time they require such materials but do make forward commitments for certain commodities (copper and aluminum). See Note 14, Derivative Instruments, to the Consolidated Financial Statements

Patents and Trademarks

While the Corporation and its subsidiaries hold certain patents, trademarks and licenses, in the opinion of management, they are not material to either segment.

Backlog

The backlog of orders at December 31, 2019, was approximately $321 million compared to a backlog of $343 million at year-end 2018. The reduction in backlog is attributable to the Forged and Cast Engineered Products segment. It is not a reflection of any loss of market share but, instead, due to several of its largest customers adjusting their ordering patterns. Approximately 9% of the backlog is expected to be released after 2020.

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Competition

The Corporation faces considerable competition from a large number of companies in both segments. The Corporation believes, however, that its subsidiaries are significant participants in each of the niche markets that they serve. Competition in both segments is based on quality, service, price, and delivery.

Environmental Protection Compliance Costs

Expenditures for environmental control matters were not material to either segment in 2019 and are not expected to be material in 2020.

Employees

On December 31, 2019, the Corporation and its subsidiaries had 1,673 active employees.

AVAILABLE INFORMATION

The Corporation files annual, quarterly and current reports, amendments to those reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). You may access and read the Corporation’s filings without charge through the SEC’s website at www.sec.gov.

The Corporation’s internet address is www.ampcopittsburgh.com. The Corporation makes available, free of charge on its internet website, access to these reports as soon as reasonably practicable after such material is filed with, or furnished to, the SEC. The information on the Corporation’s website is not part of this Annual Report on Form 10-K.

EXECUTIVE OFFICERS

The name, age, position with the Corporation(1) and business experience for at least the past five years of the Executive Officers of the Corporation are as follows:

J. Brett McBrayer (age 54). Mr. McBrayer has served as the Corporation’s Chief Executive Officer since July 2018. He previously served as President and Chief Executive Officer at Airtex Products and ASC Industries, a global manufacturer and distributor of automotive aftermarket and OEM fuel and water pumps, from 2012 to 2017. Mr. McBrayer also served as Vice President and General Manager of the Alcan Cable business at Rio Tinto Alcan, as Vice President and General Manager of the Specialty Metals Division at Precision Cast Parts Corporation, and held positions of various responsibility and leadership during his 20 years with Alcoa, Inc.

Rose Hoover (age 64). Ms. Hoover has been employed by the Corporation for more than forty years. She has served as President and Chief Administrative Officer of the Corporation since August 2015 and Executive Vice President from 2011 to August 2015.

Michael G. McAuley (age 56). Mr. McAuley has served as Senior Vice President, Chief Financial Officer and Treasurer of the Corporation since March 2018 and as Vice President, Chief Financial Officer and Treasurer since April 2016. Previously, he served as Senior Vice President and Chief Financial Officer of RTI International Metals, Inc., a producer of titanium mill products and fabricated metal components, from July 2014 to October 2015, and has held several senior financial capacities over the preceding 25 years including at Goodrich Corporation and Air Products & Chemicals, Inc.

Samuel C. Lyon (age 51). Mr. Lyon has served as President of Union Electric Steel Corporation since February 2019. He previously served as Vice President and Group President of Performance Engineered Products at Carpenter Technology Corporation, a developer, manufacturer and distributor of stainless steels and corrosion-resistant alloys, from July 2017 to January 2019.  Prior to that, he served as Vice President and General Manager of Dynamet Incorporated, the titanium business unit of Carpenter Technology, from October 2016 to June 2017, and as Chief Operating Officer of UCI-Pumps business of UCI-Fram, an OEM and after-market automotive parts supplier, from March 2013 to September 2016.

Terrence W. Kenny (age 60). Mr. Kenny has been employed by the Corporation for more than thirty-five years. He has served as President of the Air & Liquid Systems Corporation for more than ten years.

(1)

Officers serve at the discretion of the Board of Directors of the Corporation and none of the listed individuals serves as a director of a public company.

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ITEM 1A. RISK FACTORS

From time to time, important factors may cause actual results to differ materially from future expected results based on performance expressed or implied by any forward-looking statements made by us, including known and unknown risks, uncertainties and other factors, many of which are not possible to predict or control. Several of these factors are described from time to time in our filings with the SEC, but the factors described in filings are not the only risks that the Corporation faces.

Cyclical demand for products and economic downturns could reduce the demand for, and sales of, our products, which could adversely affect our margins and profitability.

A significant portion of the Forged and Cast Engineered Products segment’s sales consists of mill rolls to customers in the global steel and aluminum industry that can be periodically impacted by economic or cyclical downturns. Such downturns, the timing and length of which are difficult to predict, may reduce the demand for, and sales of, our forged and cast rolls both in the United States and the rest of the world. Lower demand for rolls may also adversely impact profitability as other competing roll producers lower selling prices in the marketplace in order to fill their manufacturing capacity. Cancellation of orders or deferral of delivery of rolls may occur and produce an adverse impact on financial results. In addition, sales of non-roll product, consisting of open-die forged product primarily for the oil and gas industry, are impacted by fluctuations in global energy prices.

Excess global capacity in steel industry could lower prices for our products, which could adversely affect our sales, margins and profitability, as well as collectability of receivables and salability of in-process inventory.

The global steel manufacturing capacity continues to exceed global consumption of steel products. Such excess capacity often results in manufacturers in certain countries exporting steel at prices significantly below their home market prices (often due to local government assistance or subsidies), which leads to global market destabilization and reduced sales and profitability of some of our and our subsidiaries’ customers, which, in turn, affects our sales and profit margins, as well as collectability of receivables and salability of in-process inventory.

A reduction in the level of export sales, as well as other economic factors in foreign countries, could have an adverse impact on our financial results.

Exports are a significant proportion of our subsidiaries’ sales. Historically, changes in foreign exchange rates, particularly in respect of the U.S. dollar, British pound, Swedish krona and the euro, have impacted the export of our products and may do so again in the future. Other factors that may adversely impact export sales and operating results include political and economic instability, export controls, changes in tax laws and tariffs, and new indigenous producers in overseas markets. A reduction in the level of export sales may have an adverse impact on our financial results. In addition, changes in foreign currency exchange rates may provide foreign roll suppliers with advantages based on those lower foreign currency exchange rates and, therefore, permit them to compete in our home markets.

Fluctuation of the value of the U.S. dollar relative to other currencies could adversely affect our business, results of operations and financial condition.

Certain of our subsidiaries operate in foreign jurisdictions and, accordingly, earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Since our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, and assets and liabilities into U.S. dollars at the exchange rate in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect the translated value for revenue, expenses and balance sheet items denominated in foreign currencies and could materially affect our financial results expressed in U.S. dollars.

Commodity price increases, as well as any reductions in electricity, gas supply or shortage of key production materials, could adversely impact our production, which could result in lower profitability or higher losses.

Our subsidiaries use certain commodities in the manufacture of their products. These include steel scrap, ferroalloys, energy and graphite electrodes. Any unexpected, sudden or prolonged price increase may cause a reduction in profit margins or losses where fixed-priced contracts have been accepted or increases cannot be obtained in future selling prices. In addition, there may be curtailment in electricity or gas supply which could adversely impact production. Shortage of critical materials, while driving up costs, may be of such severity as to disrupt production, all of which may impact sales and profitability. The global supply shortage of graphite electrodes used for electric arc furnace melting of our steels could materially impact results of operations should we be unable to secure sufficient supply for our production requirements.

4


 

A work stoppage or another industrial action on the part of any of our unions could be disruptive to our operations.

Our subsidiaries have several key operations which are subject to multi-year collective bargaining agreements with their hourly work forces. While we believe we have good relations with our unions, there is the risk of industrial action or work stoppage at the expiration of an agreement if contract negotiations break down, which may disrupt manufacturing and impact results of operations.

Dependence on certain equipment may cause an interruption in our production if such equipment is out of operation for an extended period of time, which could result in lower sales and profitability.

Our subsidiaries’ principal business relies on certain unique equipment such as an electric arc furnace and a spin cast work roll machine. Although a comprehensive critical spare inventory of key components for this equipment is maintained, if any such unique equipment is out of operation for an extended period, it may result in a significant reduction in our sales and earnings.

The ultimate liability of our subsidiaries for claims alleging personal injury from exposure to asbestos-containing components historically used in certain products of our subsidiaries could have a material adverse effect on our financial condition or liquidity in the future.

Our subsidiaries, and in some cases, we, are defendants in numerous claims alleging personal injury from exposure to asbestos-containing components historically used in certain products of our subsidiaries. Through the current year end, our insurance has covered a substantial majority of our settlement and defense costs. We believe that the estimated costs net of anticipated insurance recoveries of our pending and future asbestos legal proceedings should not have a material adverse effect on our financial condition or liquidity. However, there can be no assurance that our subsidiaries or we will not be subject to significant additional claims in the future or that our subsidiaries’ ultimate liability with respect to asbestos claims will not present significantly greater and longer lasting financial exposure than provided in our financial statements. The ultimate net liability with respect to such pending and any unasserted claims is subject to various uncertainties, including the following:

 

the number of claims in the future;

 

the costs of defending and settling these claims;

 

insolvencies among our insurance carriers and the risk of future insolvencies;

 

the possibility that adverse jury verdicts could require damage payments in amounts greater than the amounts for which we have historically settled claims;

 

possible changes in the litigation environment or federal and state law governing the compensation of asbestos claimants; and

 

the risk that the bankruptcies of other asbestos defendants may increase our costs.

Because of the uncertainties related to such claims, it is possible that the ultimate liability could have a material adverse effect on our financial condition or liquidity in the future.

Potential attacks on information technology infrastructure and other cyber-based business disruptions could have a material adverse effect on our financial condition and results of operations.

We depend on integrated information technology (“IT”) systems to conduct our business. IT systems failures, including risks associated with upgrading our systems or in successfully integrating IT and other systems to common platforms, network disruptions and breaches of data security could disrupt our operations by impeding our processing of transactions, our ability to protect customer or company information and our financial reporting. Our computer systems, including our back-up systems, could be damaged or interrupted by power outages; computer and telecommunications failures; computer viruses; internal or external security breaches; events such as fires, earthquakes, floods, tornadoes and hurricanes; and/or errors by our employees. Cyber-based risks, in particular, are evolving and include potential attacks to our IT infrastructure and to the IT infrastructure of third parties in attempts to gain unauthorized access to our confidential or other proprietary information or information relating to our employees, customers and other third parties or to seek ransom. Although we have taken steps to address these concerns, there can be no assurance that a system failure or data security breach will not have a material adverse effect on our financial condition or results of operations.

A change in the existing regulatory environment could negatively affect our operations and financial performance.

We are subject to a wide variety of complex domestic and foreign laws, rules and regulations. We are affected by new laws and regulations, and changes to existing laws and regulations, including interpretations by courts and regulators. These laws, regulations and policies, and changes thereto, may result in restrictions or limitations to our current operational practices and processes and product/service offerings which could negatively impact our current cost structure, revenue streams, cash flows, and overall financial position.

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In 2018, the United States imposed tariffs of 25% on primary steel imports and 10% on primary aluminum imports into the United States. As consumers of steel and aluminum in some of our products, our cost base is exposed to the impact of this action, or similar actions, on our margins, and we could potentially lose market share to foreign competitors not subject to similar tariffs increases. Our financial condition, results of operations and cash flows may continue to be affected by these tariffs, or similar actions. Moreover, these new tariffs, or other changes in U.S. trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries which could adversely impact demand for our products, as well as impact our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, thus, may adversely impact our business.

New trade restrictions and regulatory burdens associated with “Brexit” could adversely impact our operations and financial performance.

On June 23, 2016, voters in the United Kingdom (the “U.K.”) approved a referendum to exit from the European Union (the “E.U.”), commonly known as “Brexit.” The U.K left the E.U. on January 31, 2020. The E.U. and the U.K. agreed upon the terms of an agreement which sets out the terms of the U.K.’s withdrawal from the E.U. and includes a transitional period until December 31, 2020. The U.K. has not entered into trade agreements with several of its primary trading partners, including the E.U. If a trade agreement between the E.U. and the U.K. is not reached before December 31, 2020, then trade between the E.U. and U.K. may be subject to tariffs and other restrictions. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications of the U.K. leaving the E.U. with no trade agreements in place would have and how such withdrawal would affect our financial condition, results of operations and cash flows.

We may not be able to achieve expected benefits of restructuring our operations or consummating future divestitures of operations which become non-core to our portfolio.

We may, from time to time, divest businesses that become less of a strategic fit within our core portfolio or restructure operations to improve operating results. Our profitability may be impacted by gains or losses on the sale or restructuring of such businesses and our level of expected cost savings from restructuring actions may not materialize. Additionally, we may be required to record asset impairment or restructuring charges related to these businesses and may in the future become responsible for liabilities which materialize post-divestiture. These issues may adversely impact our financial position, liquidity and results of operations.

We may not continue to satisfy the continued listing requirements of the New York Stock Exchange.

Our common stock is currently listed on the New York Stock Exchange, which imposes both objective and subjective requirements for continued listing. Continued listing criteria include our financial condition, market capitalization and shareholders’ equity.  Specifically, the New York Stock Exchange requires a company listed on its exchange to maintain average global market capitalization over a consecutive 30 trading-day period of at least $50 million or maintain shareholders’ equity of at least $50 million. Our common stock’s average-global market capitalization over the 30 trading-day period ended December 31, 2019, was less than $50 million and our shareholders’ equity was $55.6 million as of December 31, 2019.  Should we receive a notice of non-compliance, the New York Stock Exchange may allow up to an 18-month cure period if we present a plan to become compliant, with adequate strategic actions and progress reporting satisfactory to the New York Stock Exchange. If the New York Stock Exchange determines that our common stock fails to satisfy the requirements for continued listing or we continue to fail to meet listing criteria, our common stock could be de-listed from the New York Stock Exchange, which could impact potential liquidity for our shareholders. 

We face limitations in availability of capital to fund our strategic plans. Additionally, deterioration in our credit profile or increases in interest rates could increase our costs of borrowing and further limit our access to the capital markets and commercial credit.

We are parties to a Revolving Credit and Security Agreement (the “Credit Agreement”), a senior secured asset-based revolving credit facility collateralized by a first priority perfected security interest in substantially all of our assets. The Credit Agreement provides for initial borrowings not to exceed $100 million, with an option to increase the credit facility by an additional $50 million at our request and with the approval of the banks, but restricts us from incurring additional indebtedness outside of the Credit Agreement, unless otherwise approved by the banks. The Credit Agreement is subject to various affirmative and negative covenants and contains various sub-limits, including those based on type of collateral and borrowings by geographic region. If the financial covenants become difficult to meet or if our borrowing needs increase beyond the prescribed limits, our results of operations and liquidity may be materially adversely affected. In addition, our access to public debt markets is limited based on our size, credit profile and not being a well-known seasoned issuer. Further, changes in our credit profile could cause less favorable commercial terms for the procurement of materials required to manufacture our products, which could have a negative impact on our liquidity.

We have significant international operations and sales, and face risks related to health epidemics such as the coronavirus.

Outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, financial condition and results of operations. For example, the recent outbreak of a novel strain of coronavirus first identified in Wuhan, Hubei Province, China, has resulted in significant local governmental measures being

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implemented to control the spread of the virus, including restrictions on manufacturing and the movement of employees in many regions of the country. The extent to which the coronavirus will impact our business and our financial results will depend on future developments, which are highly uncertain. In addition, the coronavirus may result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn, and also adversely impacting our sales and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Corporation has no unresolved staff comments.

ITEM 2. PROPERTIES

The location and general character of the principal locations in each segment, all of which are owned unless otherwise noted, are listed below. In addition, we have sales offices located in several foreign countries. See Note 4, Property, Plant and Equipment, and Note 9, Debt, to the Consolidated Financial Statements for disclosure of properties held as collateral.

 

Company and Location

 

Principal Use

 

Approximate

Square Footage

 

Type of Construction

 

 

 

 

 

 

 

FORGED AND CAST ENGINEERED PRODUCTS SEGMENT

Union Electric Steel Corporation

 

 

 

 

 

 

Route 18

Burgettstown, PA 15021*

 

 

Manufacturing facilities

 

296,800 on 55 acres

 

Metal and steel

 

 

 

 

 

 

 

726 Bell Avenue

Carnegie, PA 15106*

 

 

Manufacturing facilities and offices

 

165,900 on 8.7 acres

 

Metal and steel

 

 

 

 

 

 

 

U.S. Highway 30

Valparaiso, IN 46383*

 

 

Manufacturing facilities

 

88,000 on 20 acres

 

Metal and steel

 

 

 

 

 

 

 

1712 Greengarden Road

Erie, PA 16501*

 

 

Manufacturing facilities

 

40,000 on 1 acre

 

Metal and steel

 

 

 

 

 

 

Union Electric Steel UK Limited

 

 

 

 

 

 

Coulthards Lane

Gateshead, England

 

 

Manufacturing facilities and offices

 

274,000 on 10 acres

 

Steel framed, metal and brick

 

 

 

 

 

 

 

Åkers Sweden AB

 

 

 

 

 

 

Bruksallén 12SE-647 51

Åkers Styckebruk, Sweden

 

 

Manufacturing facilities and offices

 

394,000 on 162 acres

 

Steel framed, metal and brick

 

 

 

 

 

 

 

Åkers Valji Ravne d.o.o.

 

 

 

 

 

 

Koroška c. 14

SI-2390 Ravne na Koroškem, Slovenia

 

 

Manufacturing facilities and offices

 

106,000 on 2.1 acres

 

Brick

 

 

 

 

 

 

 

Shanxi Åkers TISCO Roll Co. Ltd.

 

 

 

 

 

 

No. 2 Jian Cao Ping

Taiyuan, Shanxi, China

 

 

Manufacturing facilities and offices

 

338,000 on 14.6 acres

 

Metal, steel and brick

 

 

 

 

 

 

 

Alloys Unlimited and Processing, LLC

 

 

 

 

 

 

3760 Oakwood Avenue

Austintown, OH 44515*

 

 

Manufacturing facilities and offices

 

69,800 on 1.5 acres

 

Steel framed and cement block

 

 

 

 

 

 

 

7


 

Company and Location

 

Principal Use

 

Approximate

Square Footage

 

Type of Construction

 

AIR AND LIQUID PROCESSING SEGMENT

Air & Liquid Systems Corporation

 

 

 

 

 

 

Aerofin Division

4621 Murray Place

Lynchburg, VA 24506

 

 

Manufacturing facilities and offices

 

146,000 on 15.3 acres

 

Brick, concrete and steel

 

 

 

 

 

 

 

Buffalo Air Handling Division

 

 

 

 

 

 

Zane Snead Drive

Amherst, VA 24531

 

 

Manufacturing facilities and offices

 

89,000 on 19.5 acres

 

Metal and steel

 

Buffalo Pumps Division

 

 

 

 

 

 

874 Oliver Street

N. Tonawanda, NY 14120

 

Manufacturing facilities and offices

 

94,000 on 9 acres

 

Metal, brick and

cement block

* Facility is leased.

In 2018, Union Electric Steel Corporation completed a sale and leaseback financing transaction covering certain of its real estate assets, including its manufacturing facilities in Valparaiso, Indiana and Burgettstown, Pennsylvania, and its manufacturing facility and corporate headquarters located in Carnegie, Pennsylvania. Simultaneously with the sale, Union Electric Steel Corporation entered into a lease agreement pursuant to which Union Electric Steel Corporation would lease the properties from Store Capital Acquisitions, LLC, the purchaser of the properties.  

Union Electric Steel Corporation subleases office space to the Corporation. The Corporation further subleases a portion of its office space to Air & Liquid Systems Corporation for use as its headquarters.

All of the owned facilities are adequate and suitable for their respective purposes.

The Forged and Cast Engineered Products segment’s facilities operated within 70% to 80% of their normal capacity during 2019. The facilities of the Air and Liquid Processing segment operated within 60% to 70% of their normal capacity. Normal capacity is defined as capacity under approximately normal conditions with allowances made for unavoidable interruptions, such as lost time for repairs, maintenance, breakdowns, set-up, failure, supply delays, labor shortages and absences, Sundays, holidays, vacation, and inventory taking. The number of work shifts is also taken into consideration.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

See Note 19, Litigation, to the Consolidated Financial Statements.

ENVIRONMENTAL

See Note 21, Environmental Matters, to the Consolidated Financial Statements.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

8


 

– PART II –

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The shares of common stock of Ampco-Pittsburgh Corporation are traded on the New York Stock Exchange (symbol AP). The Corporation paid cash dividends on common shares in every year since 1965 through mid-2017. In June 2017, the Corporation announced that it would suspend quarterly cash dividends, beginning with the second quarter of 2017.

The number of registered shareholders at December 31, 2019, and 2018, equaled 375 and 383, respectively.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

(in thousands, except per share amounts)

EXECUTIVE OVERVIEW

Ampco-Pittsburgh Corporation and its subsidiaries (collectively, the “Corporation”) manufacture and sell highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. We operate in two business segments – the Forged and Cast Engineered Products segment and the Air and Liquid Processing segment. This segment presentation is consistent with how our chief operating decision maker evaluates financial performance and makes resource allocation and strategic decisions about the business.

Significant measures have been undertaken to return the Corporation to profitability. During 2019, we:

 

Completed the sale of our cast roll manufacturing facility in Avonmore, Pennsylvania, which is expected to eliminate excess net operating costs from our cost structure of approximately $4,572, when compared to 2019, and $9,349, when compared to 2018, an estimate of a full-year run-rate (the “Excess Costs of Avonmore”).

 

Completed the sale of our specialty steel subsidiary in Canada, which had net losses of approximately $9,000 in 2019, through the date of sale, and $24,000 in 2018, including an impairment charge of $15,000 to write down the carrying value of the assets to their estimated fair value less costs to sell.

 

Implemented operational and efficiency improvements at our domestic forged roll facilities, which are expected to generate an annualized savings of approximately $2,300 and, in the latter part of 2019, commenced similar initiatives at our European cast roll operations.

 

Completed selected reductions in force across our organization, which are expected to yield an annualized savings of approximately $4,000.

The Forged and Cast Engineered Products segment produces forged hardened steel rolls, cast rolls and open-die forged products. 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. Forged engineered products are used in the oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, Slovenia, and an equity interest in three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world.

Roll market conditions in the United States and Europe have softened as slowdowns in the automotive and industrial markets have reduced steel demand and caused steel prices to fall. However, recent indicators suggest that market demand has begun to stabilize, and steel prices have begun to improve. With respect to the oil and gas market, demand continues to be weak as operators in the Permian Basin have lost access to financing due to lack of operational cash flow. The primary focus for this segment is diversification and development of its forged engineered products for use in other industries and ongoing operational and efficiency improvements at its facilities, particularly for its European cast roll operations.

9


 

The Air and Liquid Processing 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.

For our heat exchanger business, although it is being adversely impacted by lower business activity in the industrial OEM market, it is benefiting from increased business activity in its commercial market. For the custom air handling business, demand remains steady while competitive pricing pressures continue. For our specialty centrifugal pumps business, improvement from the marine defense market has been partially offset by a decline in activity in the fossil-fueled power generation market. The focus for this segment is to grow revenues, increase margins, strengthen engineering and manufacturing capabilities, increase manufacturing productivity, and continue to improve its sales distribution network.

Forged and Cast Engineered Products Segment Divestitures

ASW Steel Inc.

In October 2018, the Board of Directors of the Corporation approved a plan to sell ASW Steel Inc. (“ASW”). ASW is a specialty steel producer based in Canada, which we acquired in November 2016 to support our diversification efforts in the open-die forging market. Loss of a key customer in early 2018, due to a plant closure, and loss of significant U.S. business commencing mid-2018, due to tariffs imposed by the United States on imports of steel products, resulted in significant losses for the Canadian operation over the past two years. In connection with the decision to sell ASW, we recorded an after-tax charge of $15,000 in 2018 to write down the assets of ASW to their estimated fair value less costs to sell. The anticipated sale of ASW represented a strategic shift that would have a major favorable impact on our operations and financial results and, accordingly, was accounted for as a discontinued operation in the accompanying financial statements.

On September 30, 2019, the Corporation, Ampco UES Sub, Inc., an indirect subsidiary of the Corporation, and ASW entered into a Share Purchase Agreement (the “Purchase Agreement”) with Valbruna Canada Ltd., a company organized and existing under the laws of the Province of New Brunswick, Canada (the “Purchaser”). The Purchaser acquired all of the issued and outstanding shares of ASW for a cash purchase price of $8,000, subject to normal and customary adjustments including a net working capital adjustment. Net proceeds received at closing, after such normal and customary adjustments including a preliminary net working capital adjustment, approximated $4,292. Subsequent post-closing adjustments were not significant.

As a result of the sale, we no longer manufacture or directly supply primary stainless steels to customers in the non-roll opened and closed die forgings and rebar markets and have exited the Canadian market for these products. Additionally, while we will continue to participate in the open-die forged products market, we will not have a dedicated supply of required stainless steel through a back-end integration of ASW. Instead, in conjunction with the sale, Union Electric Steel Corporation (“UES”) entered into a long-term supply agreement with ASW for the supply of stainless steel ingots.

Akers National Roll Company

In March 2019, the Board of Directors of the Corporation approved a plan to sell certain assets of Akers National Roll Company (“ANR”), an indirect subsidiary of ours located in Avonmore, Pennsylvania (the “Avonmore Plant”). In connection with the anticipated sale, we recognized an impairment charge of $10,082 in the first quarter of 2019 to record the assets of the Avonmore Plant at their estimated net realizable value less costs to sell. In May 2019, ANR entered into a definitive agreement to sell the Avonmore Plant, including its real estate and certain personal property, to an affiliate of WHEMCO, Inc. for $3,700. On September 30, 2019, following completion of customer orders in backlog, the transaction closed and all operations at ANR ceased. Although the sale of the Avonmore Plant is expected to help mitigate the excess capacity and high operating costs of our cast roll operations, thereby having a positive impact on our operating and financial results, the sale of the Avonmore Plant is not considered a strategic shift per the requirements of ASC 205, Presentation of Financial Statements (“ASC 205”); accordingly, the operating results and cash flows of ANR through the date of sale are included within continuing operations, versus discontinued operations, of the Corporation.

Vertical Seal Division of Akers National Roll Company

In 2018, the Board of Directors of the Corporation approved the sale of certain net assets of the Vertical Seal division of ANR (“Vertical Seal”). On October 31, 2018, we completed the sale of such net assets to Roser Technologies, Inc. and WIR II, LLC for

10


 

approximately net book value, or $7,200. Vertical Seal manufactured custom-designed parts and provided specialty services to rolling mill customers located throughout North America. The sale of Vertical Seal was not considered a strategic shift that would have a major effect on our operations and financial results per the requirements of ASC 205; accordingly, the operating results and cash flows of Vertical Seal through the date of sale are included within continuing operations, versus discontinued operations, of the Corporation.

CONSOLIDATED RESULTS OF OPERATIONS OVERVIEW

The Corporation

 

 

 

 

 

 

 

2019

 

 

2018

 

Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forged and Cast Engineered Products

 

 

 

 

 

$

305,630

 

 

 

77

%

 

$

329,530

 

 

 

79

%

Air and Liquid Processing

 

 

 

 

 

 

92,274

 

 

 

23

%

 

 

89,902

 

 

 

21

%

Consolidated

 

 

 

 

 

$

397,904

 

 

 

100

%

 

$

419,432

 

 

 

100

%

(Loss) Income from Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forged and Cast Engineered Products (1)

 

 

 

 

 

$

(6,130

)

 

 

 

 

 

$

(6,605

)

 

 

 

 

Air and Liquid Processing(2)

 

 

 

 

 

 

10,002

 

 

 

 

 

 

 

(22,129

)

 

 

 

 

Corporate costs

 

 

 

 

 

 

(14,780

)

 

 

 

 

 

 

(16,158

)

 

 

 

 

Consolidated

 

 

 

 

 

$

(10,908

)

 

 

 

 

 

$

(44,892

)

 

 

 

 

Backlog:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forged and Cast Engineered Products

 

 

 

 

 

$

270,737

 

 

 

84

%

 

$

298,723

 

 

 

87

%

Air and Liquid Processing

 

 

 

 

 

 

50,594

 

 

 

16

%

 

 

44,356

 

 

 

13

%

Consolidated

 

 

 

 

 

$

321,331

 

 

 

100

%

 

$

343,079

 

 

 

100

%

(1)

(Loss) income from continuing operations for the Forged and Cast Engineered Products segment for 2019 includes an impairment charge of $10,082 to record the Avonmore Plant at its estimated net realizable value less costs to sell.

(2)

(Loss) income from continuing operations for the Air and Liquid Processing segment for 2018 includes a charge of $32,910 for estimated costs of asbestos-related litigation through 2052, the estimated final date by which we expect to have settled all asbestos-related claims, net of estimated insurance recoveries.

Net sales for 2019 decreased from 2018 principally due to lower sales of forged engineered products (“FEP”) for the Forged and Cast Engineered Products segment, which declined approximately $40,000, or 67%, from the prior year. The impact was minimized by higher sales of mill rolls and, for the Air and Liquid Processing segment, higher sales of heat exchange coils and air handling units.

Gross margin, excluding depreciation and amortization, as a percentage of net sales, was 18.0% and 16.1% for 2019 and 2018, respectively. The improvement is primarily attributable to the Forged and Cast Engineered Products segment, which is benefitting principally from lower Excess Costs of Avonmore, higher sales of mill rolls, and improved manufacturing and operating efficiencies for the domestic forged operations offset by lower sales of FEP. Additionally, the Forged and Cast Engineered Products segment received business interruption insurance proceeds in 2019 of $1,803, for equipment outages that occurred in 2018, which were recorded as a reduction to costs of products sold, excluding depreciation and amortization, (the “Proceeds from Business Interruption Insurance Claim”). For the Air & Liquid Processing segment, gross margin, excluding depreciation and amortization, decreased slightly due to changes in product mix.

Selling and administrative expenses totaled $53,643 (13.5% of net sales) and $58,068 (13.8% of net sales) for 2019 and 2018, respectively. The decrease of $4,425 is primarily due to the net of:

 

Lower commissions of approximately $1,941 due to a lower volume of FEP sales,

 

Lower exchange rates used to translate local currency costs into the U.S. dollar, which reduced selling and administrative expenses by approximately $1,025,

 

The sale of the Vertical Seal, which had selling and administrative costs of approximately $851 in 2018,

 

Lower professional fees for Corporate of approximately $769,

 

Lower employee-related costs, in part, due to reduction-in-force actions, offset by

 

Bad debt expense of $1,366 for a British cast roll customer who filed for bankruptcy in 2019 (the “Bad Debt Expense”), and

 

Restructuring-related costs, including employee severance due to reduction-in-force actions, of $2,350 in 2019 versus $981 in 2018 (the “Restructuring-Related Costs”).

11


 

Depreciation and amortization decreased in the current year principally due to lower depreciation expense following the sale of Vertical Seal and the cessation of depreciation of the Avonmore Plant beginning in the second quarter of 2019 in connection with the write-down of certain assets to their estimated net realizable value.

Impairment charge represents the write-down of $10,082 for the Avonmore Plant in the first quarter of 2019 to its estimated net realizable value less costs to sell (the “Impairment Charge”).

Charge for asbestos litigation in 2018 of $32,910 represents the estimated costs of asbestos-related litigation through 2052, the estimated final date by which we expect to have settled all asbestos-related claims, net of estimated insurance recoveries (the “Asbestos-Related Charge”). See Note 19, Litigation, to the Consolidated Financial Statements.

Investment-related income includes dividends of $1,364 and $377 in 2019 and 2018, respectively, from our U.K./Chinese cast roll joint venture company.

Interest expense for the current year increased when compared to the prior year due to a full-year of interest on the sale and leaseback financing transaction completed in September 2018 and higher borrowings outstanding under our revolving credit facility, offset by lower interest on promissory notes which were repaid on March 4, 2019.

Other income (expense) for 2019, versus 2018, includes higher pension and other postretirement benefit income, including a net gain of $2,304 resulting from the curtailment of the defined benefit pension and other postretirement plans of ANR and special termination benefits associated with the sale of the Avonmore Plant. Other income (expense) for 2018 includes a favorable contract settlement with a third party of $2,425. The remaining fluctuation between the periods is due to appreciation of plan assets held by our Rabbi Trust (see Note 11, Pension and Other Postretirement Benefits, to the Consolidated Financial Statements) and changes in foreign exchange gains and losses.

Income tax provision for each of the periods includes income taxes associated with our profitable operations. An income tax benefit is not able to be recognized on losses of certain of our entities since they remain in a three-year cumulative loss position. Our income tax provision increased in 2019, when compared to 2018, in part, due to higher earnings for our profitable operations. Additionally, the income tax provision for 2018 includes: (i) a $1,242 benefit from the release of a valuation allowance previously established against the deferred income tax assets of one of our foreign subsidiaries on the basis that it was “more likely than not” the deferred income tax assets would be realized, (ii) a benefit for the carryback of additional 2017 tax losses of $986, (iii) a refund of AMT credits of $433, and (iv) a state deferred income tax benefit of $1,029 associated with the Asbestos-Related Charge. These benefits in 2018 were partially offset by recognition of a one-time tax on the deemed repatriation of previously untaxed foreign earnings of approximately $2,369.

Gain on sale of joint venture represents proceeds received from the 2016 sale of a portion of our equity interest in a forged roll Chinese joint venture. Proceeds are being recognized when received since, at the time of the sale, collectability was not assured.

Net loss from continuing operations attributable to Ampco-Pittsburgh and loss per common share for 2019 include the Impairment Charge, the Restructuring-Related Costs, the Excess Costs of Avonmore, the Bad Debt Expense, and the Proceeds from Business Interruption Insurance Claim, which had a combined negative impact on net loss from continuing operations of $16,567, or $1.32 per common share. Net loss from continuing operations attributable to Ampco-Pittsburgh and loss per common share for 2018 include the Restructuring-Related Costs, the Excess Costs of Avonmore and the Asbestos-Related Charge, which had a combined adverse impact on net loss from continuing operations attributable to Ampco-Pittsburgh of $42,211, or $3.39 per common share.

Non-GAAP Financial Measures

We present below non-GAAP adjusted income (loss) from continuing operations, which we calculate as our loss from continuing operations, excluding the Impairment Charge, the Restructuring-Related Costs, the Excess Costs of Avonmore, the Bad Debt Expense, the Proceeds from Business Interruption Insurance Claim, and the Asbestos-Related Charge for each of the years, as applicable. This non-GAAP financial measure is not based on any standardized methodology prescribed by accounting principles generally accepted in the United States of America (“GAAP”) and may not be comparable to similarly-titled measures presented by other companies.

We have presented non-GAAP adjusted income (loss) from continuing operations for each of the years because it is a key measure used by our management and the Board of Directors to understand and evaluate our operating performance and to develop operational goals for managing our business. This non-GAAP financial measure excludes significant charges or credits, that are one-time in nature, unrelated to our ongoing results of operations or beyond our control. Additionally, a portion of the incentive and compensation arrangements for certain employees is based on the Corporation’s business performance. We believe this non-GAAP financial

12


 

measure helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude from adjusted income (loss) from continuing operations. In particular, we believe that the exclusion of the Impairment Charge, the Restructuring-Related Costs, the Excess Costs of Avonmore, which are not expected to continue following the sale of the Avonmore Plant, the Bad Debt Expense, the Proceeds from Business Interruption Insurance Claim, and the Asbestos-Related Charge can provide a useful measure for period-to-period comparisons of our core business performance. Accordingly, we believe that this non-GAAP financial measure provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

Adjusted income (loss) from continuing 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 income (loss) from continuing operations rather than loss from continuing operations, which is the nearest GAAP equivalent. Among other things, the Excess Costs of Avonmore, which is excluded from the adjusted non-GAAP financial measure, necessarily reflects judgments made by management in allocating manufacturing and operating costs between the Avonmore Plant and the Corporation’s other operations and in anticipating how it will conduct business following the sale of the Avonmore Plant. There can be no assurance that additional charges similar to the Impairment Charge, the Restructuring-Related Costs, the Bad Debt Expense, the Proceeds from Business Interruption Insurance Claim, and the Asbestos-Related Charge will not occur in future periods.

The adjustments reflected in adjusted income (loss) from continuing operations are pre-tax. Other than a small state tax impact for the Asbestos-Related Charge, there is no tax impact associated with these adjustments due to our having a valuation allowance recorded against our deferred income tax assets for the jurisdictions where the expenses are recognized.

The following is a reconciliation of loss from continuing operations to non-GAAP adjusted income (loss) from continuing operations for 2019 and 2018, respectively:

 

 

2019

 

 

2018

 

Loss from continuing operations, as reported (GAAP)

 

$

(10,908

)

 

$

(44,892

)

Impairment Charge (1)

 

 

10,082

 

 

 

0

 

Restructuring-Related Costs (2)

 

 

2,350

 

 

 

981

 

Excess Costs of Avonmore (3)

 

 

4,572

 

 

 

9,349

 

Bad Debt Expense (4)

 

 

1,366

 

 

 

0

 

Proceeds from Business Interruption Insurance Claim (5)

 

 

(1,803

)

 

 

0

 

Asbestos-Related Charge (6)

 

 

0

 

 

 

32,910

 

Income (loss) from continuing operations, as adjusted (Non-GAAP)

 

$

5,659

 

 

$

(1,652

)

 

(1)

Represents an impairment charge recognized in the first quarter of 2019 to record the Avonmore Plant to its estimated net realizable value less costs to sell in anticipation of its sale, which was completed in September 2019.

 

(2)

Represents professional fees associated with the Corporation’s overall restructuring plan and employee severance costs due to reductions in force.

 

(3)

Represents estimated net operating costs not expected to continue after the sale of the Avonmore Plant, which was completed in September 2019. The estimated excess costs include judgments made by management in allocating manufacturing and operating costs between ANR and the Corporation’s other operations and in anticipating how it will conduct business following the sale of the Avonmore Plant.

 

(4)

Represents bad debt expense for a British cast roll customer who filed for bankruptcy in 2019.

 

(5)

Represents business interruption insurance proceeds received in 2019 for equipment outages that occurred in 2018.

 

(6)

Represents an asbestos-related charge taken in 2018 to extend the estimated costs of pending and future asbestos claims, net of additional insurance recoveries, from 2026 through 2052, the estimated final date by which we expect to have settled all asbestos-related claims.

Loss from discontinued operations, net of tax, for 2018 includes an after-tax charge of $15,000, or $1.21 per common share, for the write-down of the assets of ASW to their estimated fair value less costs to sell. See Note 2, Discontinued Operations and Dispositions, to the Consolidated Financial Statements.

Forged and Cast Engineered Products

 

 

 

 

 

2019

 

 

2018

 

Net sales

 

 

 

$

305,630

 

 

$

329,530

 

Operating loss

 

 

 

$

(6,130

)

 

$

(6,605

)

Backlog

 

 

 

$

270,737

 

 

$

298,723

 

 

13


 

The decrease in net sales in 2019 from 2018 is due to the net of:

 

Lower volume of shipments and weaker pricing for our forged engineered products to the oil and gas industry, which adversely impacted sales by approximately $40,000,

 

The sale of Vertical Seal, which had sales of $6,732 in 2018,

 

Lower exchange rates used to translate sales of our foreign operations from local currency into the U.S. dollar, which reduced sales by approximately $11,000,

 

Improved pricing, partly offset by a lower volume of shipments, for our cast roll operations resulting in a net increase of $11,000, and

 

Improved pricing and a higher volume of shipments for our forged roll operations, which increased sales by approximately $20,000.

The operating loss for 2019 includes the Impairment Charge, a portion of the Restructuring-Related Costs, the Excess Costs of Avonmore, the Bad-Debt Expense, and the Proceeds from Business Interruption Insurance Claim. By comparison, the operating loss for 2018 includes a portion of the Restructuring-Related Costs and the Excess Costs of Avonmore. Additionally, the operating loss for 2019, when compared to 2018, was impacted by the net of:

 

Lower volume of shipments and weaker pricing for our forged engineered products, which increased the operating loss by approximately $11,000,

 

The sale of Vertical Seal, which had operating income of $980 in 2018, and

 

Improved pricing and product mix and a net overall increase in the volume for mill rolls, which benefited operating results by approximately $17,000.

Manufacturing and operating efficiencies achieved at our domestic roll operations were offset by manufacturing and operating inefficiencies at our European cast roll facilities. Differences in the exchange rates used to translate the operating results of our foreign operations for 2019 and 2018 did not have a significant impact on the operating loss.

Backlog at December 31, 2019, decreased from the prior year due to sales outpacing order intake for mill rolls and lower demand for forged engineered products principally due to a retraction in the frac bloc market. The reduction in backlog for mill rolls is not a reflection of any loss of market share. Instead, many of our largest customers have adjusted their ordering patterns. As of December 31, 2019, approximately 10% of the backlog is expected to be released after 2020.

Air and Liquid Processing

 

 

 

 

 

2019

 

 

2018

 

Net sales

 

 

 

$

92,274

 

 

$

89,902

 

Operating income (loss)

 

 

 

$

10,002

 

 

$

(22,129

)

Backlog

 

 

 

$

50,594

 

 

$

44,356

 

Net sales for 2019 improved by approximately 2.6% when compared to 2018. Sales of heat exchange coils and air handling units increased in the current year while sales of centrifugal pumps remained relatively constant. The operating loss for 2018 includes the Asbestos-Related Charge of $32,910. While operating income improved from the additional volume, the expected benefit was offset by changes in the product mix. Backlog at December 31, 2019, increased from December 31, 2018. Backlog for air handling units improved due to an increase in business activity. Backlog for centrifugal pumps improved due to higher orders of pumps from U.S. Navy shipbuilders. Backlog for heat exchange coils decreased slightly due to lower business activity in the industrial OEM market. The majority of the current backlog is expected to ship in 2020.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows (used in) provided by operating activities for continuing operations equaled $(3,294) and $6,710 for 2019 and 2018, respectively. The decrease is primarily attributable to higher trade receivables resulting from improved sales in the latter part of 2019, versus 2018, customer mix and slower collections. Although we recorded an impairment charge in 2019 associated with the anticipated sale of the Avonmore Plant, the charge was a non-cash charge and, accordingly, did not impact our net cash flows (used in) provided by operating activities for continuing operations. Additionally, we recognized a non-cash charge in 2018 for the revaluation of our estimated costs of pending and future asbestos claims, net of additional insurance recoveries. This non-cash charge

14


 

did not affect cash flows by the same amount. Instead, net asbestos-related payments equaled $4,713 and $6,904 in 2019 and 2018, respectively, and are expected to approximate $5,000 in 2020. Contributions to our defined benefit pension and other postretirement benefits plans equaled $3,544 and $4,365 in 2019 and 2018, respectively, and are expected to approximate $6,800 in 2020. The increase is principally due to amortization of pension funding credit balances created in earlier years from voluntary contributions we previously made and expiration of legislation which reduced funding requirements for single employer plans.

Net cash flows used in investing activities for continuing operations for 2019 include proceeds from the sale of ASW of $4,292 and the Avonmore Plant of $3,700, whereas 2018 includes proceeds from the sale of Vertical Seal of approximately $7,200. Capital expenditures were slightly higher in 2019, than 2018, and are primarily for our Forged and Cast Engineered Products segment. As of December 31, 2019, purchase commitments for expected future capital expenditures approximated $3,072, which are anticipated to be spent over the next 12 months.

Net cash flows used in financing activities for continuing operations fluctuated as a result of borrowing activity, proceeds from the sale and leaseback financing transaction completed in 2018, and changes in funding required by our discontinued operation, ASW, through the date of sale. More specifically,

 

Net borrowings under our revolving credit facility during 2019 equaled $19,953. Borrowings of $26,474 were used to repay promissory notes (and interest) in March 2019. Combined proceeds from the sale of ASW and the Avonmore Plant of $7,992 were used to repay a portion of our borrowings in 2019.

 

In September 2018, we completed a sale and leaseback financing transaction for $19,000, with the majority of the proceeds used to repay borrowings under our revolving credit facility. Debt issuance costs associated with the sale and leaseback financing transaction approximated $477 and are included in “other”.

 

A lower level of funding was required for ASW during 2019 as ASW began to reduce its investment in trade working capital following the fall-off in the business, which began in mid-2018.

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.

Net cash flows used in discontinued operations, which was comparable between the years, represent the cash activity for ASW through the date of sale. The reduction in trade working capital required lower borrowings by ASW from its affiliates.

As a result of the above, cash and cash equivalents of continuing operations decreased by $12,753 in 2019 and ended the year at $6,960, in comparison to $19,713 at December 31, 2018. As of December 31, 2019, the majority of our cash and cash equivalents is held by our foreign operations. In early 2019, we implemented a springing lock-box feature whereby daily domestic customer remittances to the lock-box are used to pay down borrowings under our revolving credit facility, resulting in minimal cash maintained by our domestic operations. Cash held by our foreign operations is considered to be permanently reinvested; accordingly, a provision for estimated local and withholding tax has not been made. If we were to remit any foreign earnings to the U.S., the estimated tax impact would be insignificant.

Funds on hand, funds generated from future operations and availability under our revolving credit facility are expected to be sufficient to finance our operational and maintenance capital expenditure requirements and to repay our financial obligations. As of December 31, 2019, remaining availability under the revolving credit facility approximated $27,000, net of standard availability reserves. While the revolving credit agreement limits the amount of distributions upstream, we have not historically relied on or have been dependent on distributions from our subsidiaries and are not expected to be in the future.

With respect to environmental matters, see Note 21, Environmental Matters, to the Consolidated Financial Statements.

With respect to litigation, see Note 19, Litigation, to the Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

Our off-balance sheet arrangements include the previously mentioned expected future capital expenditures and letters of credit unrelated to the Industrial Revenue Bonds. See Note 12, Commitments and Contingent Liabilities, to the Consolidated Financial Statements. These arrangements are not considered significant to our liquidity, capital resources, market risk, or credit risk.

15


 

EFFECTS OF INFLATION

While inflationary and market pressures on costs are likely to be experienced, it is anticipated that ongoing improvements in manufacturing efficiencies and cost savings efforts will mitigate the effects of inflation on our 2020 operating results. The ability to pass on increases in the price of commodities to the customer is contingent upon current market conditions, with us potentially having to absorb some portion or all of the increase. Product pricing for the Forged and Cast Engineered Products segment is reflective of current costs, with a portion of orders subject to a variable-index surcharge program which helps to protect the segment and its customers against the volatility in the cost of certain raw materials. Additionally, long-term labor agreements exist at each of the key locations. Certain of these agreements will expire in 2020. As is consistent with past practice, we will negotiate with the intent to secure mutually beneficial arrangements covering multiple years. See Note 12, Commitments and Contingent Liabilities, to the Consolidated Financial Statements. Finally, commitments have been executed for certain commodities (copper and aluminum) and natural gas to cover a portion of orders in the backlog. See Note 14, Derivate Instruments, to the Consolidated Financial Statements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

We have identified critical accounting policies that are important to the presentation of our financial condition, changes in financial condition and results of operations and involve the most complex or subjective assessments. Critical accounting policies relate to assessing recoverability of property, plant and equipment and intangibles and accounting for pension and other postretirement benefits, litigation and loss contingencies, and income taxes.

Property, plant and equipment is reviewed for recoverability whenever events or circumstances indicate the carrying amount of the long-lived assets may not be recoverable. If the undiscounted cash flows generated from the use and eventual disposition of the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. Estimates of future cash flows are based on expected market conditions over the remaining useful life of the primary asset(s). Accordingly, assumptions are made about pricing, volume and asset-resale values. Actual results may differ from these assumptions. We believe the amounts recorded in the accompanying consolidated financial statements for property, plant and equipment are recoverable and are not impaired as of December 31, 2019.

Intangible assets with finite lives are amortized using the straight-line method over their estimated useful life, which is determined by identifying the period over which most of the cash flows are expected to be generated. Intangible assets with indefinite lives are not amortized but reviewed for impairment at least annually, as of October 1. Additionally, intangible assets, both finite and indefinite lived, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. For finite-lived intangible assets, if the undiscounted cash flows attributable to the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. For indefinite-lived intangible assets, if the discounted cash flows attributable to the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. In assessing recoverability, we make assumptions regarding estimated future cash flows and discount rates. If these estimates or related assumptions change in the future, we may be required to record an impairment charge. Also, if the estimate of an intangible asset’s remaining useful life changes, we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. We believe the amounts recorded in the accompanying consolidated financial statements for intangible assets are recoverable and are not impaired as of December 31, 2019.

Accounting for pension and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, input from our actuaries is evaluated and extensive use is made of assumptions about inflation, long-term rate of return on plan assets, longevity, employee turnover and discount rates. The curtailment of the majority of our defined benefit pension plans and the amendment of various other postretirement benefit plans has helped to mitigate the volatility in net periodic pension and other postretirement benefit costs resulting from changes in these assumptions.

The expected long-term rate of return on plan assets is an estimate of the average rates of earnings expected to be earned on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. Since these benefits will be paid over many years, the expected long-term rate of return is reflective of current investment returns and investment returns over a longer period. Also, consideration is given to target and actual asset allocations, inflation and real risk-free return. We believe the expected long-term rate of return ranging between 6.60% and 7.25% for our domestic plans and 3.55% for our foreign plans to be reasonable. Actual returns on plan assets for 2019 approximated 13.91% for our domestic plans and 15.87% for our foreign plans and include the benefit of the global financial markets rebounding in the current year, after a significant drop in 2018. Accordingly, we do not believe the current returns to be indicative of future investment returns. The remaining foreign plans are not funded, and the obligations are not significant.

16


 

The discount rates used in determining future pension obligations and other postretirement benefits for each of our plans are based on rates of return for high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension and other postretirement benefits. High-quality fixed-income investments are defined as those investments which have received one of the two highest ratings given by a recognized rating agency with maturities of 10+ years. We believe the assumed discount rates ranging between 3.25% and 3.31% for our domestic plans, 2.98% and 3.35% for our other postretirement benefits plans and 2.05% for our foreign plans as of December 31, 2019, to be reasonable.

We believe that the amounts recorded in the accompanying consolidated financial statements related to pension and other postretirement benefits are based on appropriate assumptions although actual outcomes could differ. A percentage point decrease in the expected long-term rate of return would increase annual pension expense by approximately $2,200. A 1/4 percentage point decrease in the discount rate would increase projected and accumulated benefit obligations by approximately $8,700. Conversely, a percentage point increase in the expected long-term rate of return would decrease annual pension expense by approximately $2,200, and a 1/4 percentage point increase in the discount rate would decrease projected and accumulated benefit obligations by approximately $8,700.

Litigation and loss contingency accruals are made when it is determined that it is probable that a liability has been incurred and the amount can be reasonably estimated. Specifically, we and certain of our subsidiaries are involved in various claims and lawsuits incidental to our businesses. In addition, claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid (the “Asbestos Liability”). To assist us in determining whether an estimate could be made of the potential liability for pending and unasserted future claims for the Asbestos Liability along with applicable insurance coverage, and the amounts of any estimates, we hire a nationally recognized asbestos-liability expert and insurance consultant. Based on their analyses, reserves for probable and reasonably estimable costs for the Asbestos Liability, including defense costs, and receivables for the insurance recoveries that are deemed probable are established. These amounts rely on assumptions which are based on currently known facts and strategy.

In 2018, we undertook a review of the Asbestos Liability claims, defense costs and the likelihood for insurance recoveries. We extended our estimate of the Asbestos Liability, including the costs of settlement and defense costs relating to currently pending claims and future claims projected to be filed against us through 2052, the estimated final date by which we expect to have settled all asbestos-related claims. Key variables in these assumptions, including our ability to reasonably estimate the Asbestos Liability through the expected final date by which we expect to have settled all asbestos-related claims, are summarized in Note 19, Litigation, to the Consolidated Financial Statements. Key assumptions include the number and type of new claims to be filed each year, the average cost of disposing of each new claim, average annual defense costs, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Asbestos Liability and our ability to recover under our 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. Actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the calculations vary significantly from actual results.

We intend to evaluate the Asbestos Liability and related insurance receivables 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 incurrence of future charges or credits; however, we are currently unable to estimate such future changes. Adjustments, if any, to our estimate of the Asbestos Liability and/or insurance receivables could be material to our operating results for the periods in which the adjustments to the liability or receivable are recorded, and to our liquidity and consolidated financial position when such liabilities are paid.

Accounting for income taxes includes our evaluation of the underlying accounts, permanent and temporary differences, our tax filing positions and interpretations of existing tax law. A valuation allowance is recorded against deferred income tax assets to reduce them to the amount that is “more likely than not” to be realized. In doing so, assumptions are made about the future profitability of our operations and the nature of that profitability. Actual results may differ from these assumptions. If we determined we would not be able to realize all or part of the deferred income tax assets in the future, an adjustment to the valuation allowance would be established resulting in a charge to net income (loss). Likewise, if we determined we would be able to realize deferred income tax assets in excess of the net amount recorded, we would release a portion of the existing valuation allowance resulting in a credit to net income (loss). As of December 31, 2019, the valuation allowance approximates $43,671, reducing our deferred income tax assets, net of deferred income tax liabilities, to $2,454, an amount we believe is “more likely than not” to be realized.

We do not recognize a tax benefit in the financial statements related to a tax position taken or expected to be taken in a tax return unless it is “more likely than not” that the tax authorities will sustain the tax position solely on the basis of the position’s technical merits. Consideration is primarily given to legislation and statutes, legislative intent, regulations, rulings and case law as well as their applicability to the facts and circumstances of the tax position when assessing the sustainability of the tax position. In the event a tax position no longer meets the “more likely than not” criteria, we would reverse the tax benefit by recognizing a liability and recording a

17


 

charge to earnings. Conversely, if we subsequently determined that a tax position meets the “more likely than not” criteria, we would recognize the tax benefit by reducing the liability and recording a credit to earnings. As of December 31, 2019, based on information known to date, we believe the amount of unrecognized tax benefits for tax positions taken or expected to be taken in a tax return which may be challenged by the tax authorities not to be significant.

See Note 20, Income Taxes, to the Consolidated Financial Statements.

RECENTLY IMPLEMENTED and ISSUED ACCOUNTING PRONOUNCEMENTS

See Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 

18


 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

 

 

 

December 31,

 

(in thousands, except par value)

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,960

 

 

$

19,713

 

Receivables, less allowance for doubtful accounts of $3,041 in 2019 and $978 in 2018

 

 

81,783

 

 

 

69,448

 

Inventories

 

 

82,289

 

 

 

94,196

 

Insurance receivable – asbestos

 

 

16,000

 

 

 

17,000

 

Other current assets

 

 

6,380

 

 

 

7,271

 

Current assets of discontinued operations

 

 

0

 

 

 

20,238

 

Total current assets

 

 

193,412

 

 

 

227,866

 

Property, plant and equipment, net

 

 

166,392

 

 

 

185,661

 

Operating lease right-of-use assets, net

 

 

4,263

 

 

 

0

 

Insurance receivable – asbestos

 

 

120,932

 

 

 

135,508

 

Deferred income tax assets

 

 

2,997

 

 

 

3,188

 

Intangible assets, net

 

 

7,625

 

 

 

9,225

 

Investments in joint ventures

 

 

2,175

 

 

 

2,175

 

Other noncurrent assets

 

 

8,764

 

 

 

7,496

 

Total assets

 

$

506,560

 

 

$

571,119

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

33,271

 

 

$

38,900

 

Accrued payrolls and employee benefits

 

 

22,266

 

 

 

20,380

 

Debt – current portion

 

 

20,363

 

 

 

45,728

 

Operating lease liabilities – current portion

 

 

612

 

 

 

0

 

Asbestos liability – current portion

 

 

21,000

 

 

 

24,000

 

Other current liabilities

 

 

26,720

 

 

 

28,987

 

Current liabilities of discontinued operations

 

 

0

 

 

 

9,458

 

Total current liabilities

 

 

124,232

 

 

 

167,453

 

Employee benefit obligations

 

 

83,936

 

 

 

72,658

 

Asbestos liability

 

 

186,633

 

 

 

203,922

 

Long-term debt

 

 

50,494

 

 

 

31,881

 

Noncurrent operating lease liabilities

 

 

3,651

 

 

 

0

 

Deferred income tax liabilities

 

 

543

 

 

 

164

 

Other noncurrent liabilities

 

 

1,455

 

 

 

2,072

 

Total liabilities

 

 

450,944

 

 

 

478,150

 

Commitments and contingent liabilities (Note 12)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock – par value $1; authorized 40,000 shares in 2019 and 20,000 shares in 2018; issued and outstanding 12,652 shares in 2019 and 12,495 shares in 2018

 

 

12,652

 

 

 

12,495

 

Additional paid-in capital

 

 

156,251

 

 

 

154,889

 

Retained deficit

 

 

(51,341

)

 

 

(30,355

)

Accumulated other comprehensive loss

 

 

(68,662

)

 

 

(49,434

)

Total Ampco-Pittsburgh shareholders’ equity

 

 

48,900

 

 

 

87,595

 

Noncontrolling interest

 

 

6,716

 

 

 

5,374

 

Total shareholders’ equity

 

 

55,616

 

 

 

92,969

 

Total liabilities and shareholders’ equity

 

$

506,560

 

 

$

571,119

 

 

See Notes to Consolidated Financial Statements.

19


 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For The Year Ended December 31,

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

Net sales

 

$

397,904

 

 

$

419,432

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Costs of products sold (excluding depreciation and amortization)

 

 

326,157

 

 

 

351,839

 

Selling and administrative

 

 

53,643

 

 

 

58,068

 

Depreciation and amortization

 

 

18,967

 

 

 

21,379

 

Impairment charge

 

 

10,082

 

 

 

0

 

Charge for asbestos litigation

 

 

0

 

 

 

32,910

 

(Gain) loss on disposal of assets

 

 

(37

)

 

 

128

 

 

 

 

408,812

 

 

 

464,324

 

Loss from continuing operations

 

 

(10,908

)

 

 

(44,892

)

Other income (expense):

 

 

 

 

 

 

 

 

Investment-related income

 

 

1,417

 

 

 

533

 

Interest expense

 

 

(5,342

)

 

 

(4,130

)

Other – net

 

 

6,466

 

 

 

4,682

 

 

 

 

2,541

 

 

 

1,085

 

Loss from continuing operations before income taxes and gain on sale of joint venture

 

 

(8,367

)

 

 

(43,807

)

Income tax provision

 

 

(2,108

)

 

 

(268

)

Gain on sale of joint venture

 

 

0

 

 

 

500

 

Net loss from continuing operations

 

 

(10,475

)

 

 

(43,575

)

Loss from discontinued operations, net of tax

 

 

(9,085

)

 

 

(23,901

)

Net loss

 

 

(19,560

)

 

 

(67,476

)

Less:  Net income attributable to noncontrolling interest

 

 

1,426

 

 

 

1,859

 

Net loss attributable to Ampco-Pittsburgh

 

$

(20,986

)

 

$

(69,335

)

 

 

 

 

 

 

 

 

 

Net loss from continuing operations per share attributable to

Ampco-Pittsburgh common shareholders:

 

 

 

 

 

 

 

 

Basic

 

$

(0.95

)

 

$

(3.65

)

Diluted

 

$

(0.95

)

 

$

(3.65

)

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax, per share attributable to

Ampco-Pittsburgh common shareholders:

 

 

 

 

 

 

 

 

Basic

 

$

(0.72

)

 

$

(1.92

)

Diluted

 

$

(0.72

)

 

$

(1.92

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to Ampco-Pittsburgh common shareholders:

 

 

 

 

 

 

 

 

Basic

 

$

(1.67

)

 

$

(5.57

)

Diluted

 

$

(1.67

)

 

$

(5.57

)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

12,590

 

 

 

12,448

 

Diluted

 

 

12,590

 

 

 

12,448

 

 

See Notes to Consolidated Financial Statements.

20


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

For The Year Ended December 31,

 

(in thousands)

 

2019

 

 

 

2018

 

Net loss

 

$

(19,560

)

 

 

$

(67,476

)

Other comprehensive income (loss), net of income tax where applicable:

 

 

 

 

 

 

 

 

 

Adjustments for changes in:

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

290

 

 

 

 

(6,710

)

Unrecognized employee benefit costs (including effects of foreign

   currency translation)

 

 

(19,655

)

 

 

 

3,205

 

Fair value of cash flow hedges

 

 

97

 

 

 

 

(713

)

Reclassification adjustments for items included in net loss:

 

 

 

 

 

 

 

 

 

Amortization of unrecognized employee benefit costs

 

 

(302

)

 

 

 

89

 

Realized losses (gains) from settlement of cash flow hedges

 

 

258

 

 

 

 

(90

)

Other comprehensive loss

 

 

(19,312

)

 

 

 

(4,219

)

Comprehensive loss

 

 

(38,872

)

 

 

 

(71,695

)

Less:  Comprehensive income attributable to noncontrolling interest

 

 

1,342

 

 

 

 

1,682

 

Comprehensive loss attributable to Ampco-Pittsburgh

 

$

(40,214

)

 

 

$

(73,377

)

 

See Notes to Consolidated Financial Statements.

21


 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

(in thousands)

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings (Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Noncontrolling

Interest

 

 

Total

 

Balance January 1, 2018

 

$

12,361

 

 

$

152,992

 

 

$

38,980

 

 

$

(45,392

)

 

$

2,820

 

 

$

161,761

 

Stock-based compensation

 

 

 

 

 

 

1,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,539

 

Debt-to-equity conversion (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

872

 

 

 

872

 

Comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

(69,335

)

 

 

 

 

 

 

1,859

 

 

 

(67,476

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,042

)

 

 

(177

)

 

 

(4,219

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,682

 

 

 

(71,695

)

Issuance of common stock including excess tax

   benefits of $0

 

 

134

 

 

 

358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

492

 

Balance December 31, 2018

 

 

12,495

 

 

 

154,889

 

 

 

(30,355

)

 

 

(49,434

)

 

 

5,374

 

 

 

92,969

 

Stock-based compensation

 

 

 

 

 

 

1,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,293

 

Comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

(20,986

)

 

 

 

 

 

 

1,426

 

 

 

(19,560

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,228

)

 

 

(84

)

 

 

(19,312

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,342

 

 

 

(38,872

)

Issuance of common stock including excess tax

   benefits of $0

 

 

157

 

 

 

69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

226

 

Balance December 31, 2019

 

$

12,652

 

 

$

156,251

 

 

$

(51,341

)

 

$

(68,662

)

 

$

6,716

 

 

$

55,616

 

 

See Notes to Consolidated Financial Statements.

22


 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For The Year Ended December  31,

 

(in thousands)

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(19,560

)

 

$

(67,476

)

Loss from discontinued operations, net of tax

 

 

(9,085

)

 

 

(23,901

)

Net loss from continuing operations

 

 

(10,475

)

 

 

(43,575

)

Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

18,967

 

 

 

21,379

 

Impairment charge

 

 

10,082

 

 

 

0

 

Charge for asbestos litigation

 

 

0

 

 

 

32,910

 

Deferred income tax expense (benefit)

 

 

559