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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
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
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Pennsylvania |
25-1117717 |
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(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 |
Series A Warrants to purchase shares of Common Stock |
AP WS |
NYSE American Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 for 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Emerging growth company |
☐ |
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Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On November 7, 2024, 20,094,289 common shares were outstanding.
AMPCO-PITTSBURGH CORPORATION
INDEX
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Page No. |
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Part I – |
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Financial Information: |
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Item 1 – |
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Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets – September 30, 2024 and December 31, 2023 |
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3 |
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4 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2024 and 2023
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5 |
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6 |
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Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023 |
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7 |
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8 |
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Item 2 – |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3 – |
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32 |
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Item 4 – |
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32 |
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Part II – |
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Other Information: |
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Item 1 – |
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33 |
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Item 1A – |
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33 |
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Item 5 – |
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33 |
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Item 6 – |
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34 |
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35 |
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2
PART I – FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par value)
|
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September 30, 2024 |
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December 31, 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
11,844 |
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$ |
7,286 |
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Trade receivables, less allowance for credit losses of $903 as of September 30, 2024 and $975 as of December 31, 2023 |
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74,727 |
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78,939 |
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Trade receivables from related parties |
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2,511 |
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912 |
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Inventories |
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120,856 |
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124,694 |
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Insurance receivable – asbestos |
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15,000 |
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15,000 |
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Contract assets |
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6,864 |
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4,452 |
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Other current assets |
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6,905 |
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5,370 |
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Total current assets |
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238,707 |
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236,653 |
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Property, plant and equipment, net |
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152,530 |
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158,732 |
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Operating lease right-of-use assets |
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4,839 |
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4,767 |
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Insurance receivable – asbestos, less allowance for credit losses of $708 as of |
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131,404 |
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145,245 |
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Deferred income tax assets |
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3,160 |
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3,160 |
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Intangible assets, net |
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4,682 |
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4,947 |
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Investments in joint ventures |
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2,175 |
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2,175 |
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Prepaid pensions |
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5,415 |
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4,951 |
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Other noncurrent assets |
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4,501 |
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5,024 |
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Total assets |
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$ |
547,413 |
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$ |
565,654 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
29,772 |
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$ |
36,830 |
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Accounts payable to related parties |
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2,066 |
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401 |
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Accrued payrolls and employee benefits |
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15,805 |
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14,703 |
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Debt – current portion |
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14,268 |
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12,271 |
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Operating lease liabilities – current portion |
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979 |
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946 |
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Asbestos liability – current portion |
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24,000 |
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24,000 |
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Other current liabilities |
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32,849 |
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27,734 |
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Total current liabilities |
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119,739 |
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116,885 |
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Employee benefit obligations |
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33,240 |
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41,684 |
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Asbestos liability |
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196,069 |
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214,679 |
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Long-term debt |
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116,010 |
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116,382 |
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Noncurrent operating lease liabilities |
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3,860 |
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3,822 |
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Deferred income tax liabilities |
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400 |
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543 |
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Other noncurrent liabilities |
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4,419 |
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88 |
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Total liabilities |
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473,737 |
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494,083 |
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Commitments and contingent liabilities (Note 8) |
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Shareholders’ equity: |
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Common stock – par value $1; authorized 40,000 shares; issued and outstanding |
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19,980 |
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19,729 |
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Additional paid-in capital |
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177,926 |
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177,196 |
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Retained deficit |
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(75,661 |
) |
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(72,997 |
) |
Accumulated other comprehensive loss |
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(60,903 |
) |
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(62,989 |
) |
Total Ampco-Pittsburgh shareholders’ equity |
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61,342 |
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60,939 |
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Noncontrolling interest |
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12,334 |
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10,632 |
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Total shareholders’ equity |
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73,676 |
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71,571 |
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Total liabilities and shareholders’ equity |
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$ |
547,413 |
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$ |
565,654 |
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See Notes to Condensed Consolidated Financial Statements.
3
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales: |
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Net sales |
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$ |
92,072 |
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$ |
102,200 |
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$ |
305,102 |
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$ |
311,491 |
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Net sales to related parties |
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4,094 |
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18 |
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12,267 |
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2,741 |
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Total net sales |
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96,166 |
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102,218 |
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317,369 |
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314,232 |
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Operating costs and expenses: |
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Costs of products sold (excluding depreciation and amortization) |
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76,389 |
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84,490 |
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256,563 |
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256,333 |
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Selling and administrative |
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13,332 |
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11,821 |
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39,855 |
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38,101 |
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Depreciation and amortization |
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4,586 |
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4,382 |
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13,954 |
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13,110 |
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Credit for asbestos litigation |
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- |
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(191 |
) |
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- |
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(191 |
) |
(Gain) loss on disposal of assets |
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(11 |
) |
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(6 |
) |
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2 |
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(124 |
) |
Total operating costs and expenses |
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94,296 |
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100,496 |
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310,374 |
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307,229 |
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Income from operations |
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1,870 |
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1,722 |
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6,995 |
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7,003 |
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Other expense - net: |
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Investment-related income |
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77 |
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98 |
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104 |
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114 |
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Interest expense |
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(2,976 |
) |
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(2,468 |
) |
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(8,750 |
) |
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(6,784 |
) |
Other income – net |
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211 |
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1,959 |
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2,496 |
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3,424 |
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Total other expense - net |
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(2,688 |
) |
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(411 |
) |
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(6,150 |
) |
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(3,246 |
) |
(Loss) income before income taxes |
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(818 |
) |
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1,311 |
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845 |
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3,757 |
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Income tax provision |
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(636 |
) |
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(76 |
) |
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(1,953 |
) |
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(541 |
) |
Net (loss) income |
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(1,454 |
) |
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1,235 |
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(1,108 |
) |
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3,216 |
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Less: Net income attributable to noncontrolling interest |
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505 |
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426 |
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1,556 |
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1,308 |
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Net (loss) income attributable to Ampco-Pittsburgh |
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$ |
(1,959 |
) |
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$ |
809 |
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$ |
(2,664 |
) |
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$ |
1,908 |
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Net (loss) income per share attributable to Ampco- |
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Basic |
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$ |
(0.10 |
) |
|
$ |
0.04 |
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$ |
(0.13 |
) |
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$ |
0.10 |
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Diluted |
|
$ |
(0.10 |
) |
|
$ |
0.04 |
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$ |
(0.13 |
) |
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$ |
0.10 |
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Weighted-average number of common shares outstanding: |
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Basic |
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19,980 |
|
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19,729 |
|
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|
19,857 |
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|
|
19,580 |
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Diluted |
|
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19,980 |
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19,729 |
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19,857 |
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|
19,633 |
|
See Notes to Condensed Consolidated Financial Statements.
4
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
|
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Three Months Ended September 30, |
|
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Nine Months Ended September 30, |
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||||||||||
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2024 |
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2023 |
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2024 |
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2023 |
|
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Net (loss) income |
|
$ |
(1,454 |
) |
|
$ |
1,235 |
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|
$ |
(1,108 |
) |
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$ |
3,216 |
|
Other comprehensive income (loss), net of income tax where applicable: |
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|
|
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|
|
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Adjustments for changes in: |
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Foreign currency translation |
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5,852 |
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(3,150 |
) |
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3,130 |
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(2,113 |
) |
Unrecognized employee benefit costs (including effects of foreign currency translation) |
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(537 |
) |
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181 |
|
|
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(468 |
) |
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45 |
|
Fair value of cash flow hedges |
|
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174 |
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19 |
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384 |
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(81 |
) |
Reclassification adjustments for items included in net (loss) income: |
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Amortization of unrecognized employee benefit costs |
|
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(177 |
) |
|
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(235 |
) |
|
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(534 |
) |
|
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(728 |
) |
Settlements of cash flow hedges |
|
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(13 |
) |
|
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135 |
|
|
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(280 |
) |
|
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(52 |
) |
Other comprehensive income (loss) |
|
|
5,299 |
|
|
|
(3,050 |
) |
|
|
2,232 |
|
|
|
(2,929 |
) |
Comprehensive income (loss) |
|
|
3,845 |
|
|
|
(1,815 |
) |
|
|
1,124 |
|
|
|
287 |
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
924 |
|
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|
367 |
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|
1,702 |
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|
|
771 |
|
Comprehensive income (loss) attributable to Ampco-Pittsburgh |
|
$ |
2,921 |
|
|
$ |
(2,182 |
) |
|
$ |
(578 |
) |
|
$ |
(484 |
) |
See Notes to Condensed Consolidated Financial Statements.
5
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
Three Months Ended September 30, 2024 |
|
Common |
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Additional |
|
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Retained |
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Accumulated |
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Noncontrolling |
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Total |
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Balance at July 1, 2024 |
|
$ |
19,980 |
|
|
$ |
177,554 |
|
|
$ |
(73,702 |
) |
|
$ |
(65,783 |
) |
|
$ |
11,410 |
|
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$ |
69,459 |
|
Stock-based compensation |
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|
|
|
|
372 |
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|
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|
|
|
|
|
|
|
|
372 |
|
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Comprehensive income: |
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|
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|
|
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|
|
|
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Net (loss) income |
|
|
|
|
|
|
|
|
(1,959 |
) |
|
|
|
|
|
505 |
|
|
|
(1,454 |
) |
|||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
4,880 |
|
|
|
419 |
|
|
|
5,299 |
|
|||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
924 |
|
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|
3,845 |
|
||||
Balance at September 30, 2024 |
|
$ |
19,980 |
|
|
$ |
177,926 |
|
|
$ |
(75,661 |
) |
|
$ |
(60,903 |
) |
|
$ |
12,334 |
|
|
$ |
73,676 |
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
||||||
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at July 1, 2023 |
|
$ |
19,729 |
|
|
$ |
176,160 |
|
|
$ |
(31,970 |
) |
|
$ |
(57,813 |
) |
|
$ |
9,474 |
|
|
$ |
115,580 |
|
Stock-based compensation |
|
|
|
|
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
520 |
|
||||
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
|
809 |
|
|
|
|
|
|
426 |
|
|
|
1,235 |
|
|||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
(2,991 |
) |
|
|
(59 |
) |
|
|
(3,050 |
) |
|||
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367 |
|
|
|
(1,815 |
) |
||||
Balance at September 30, 2023 |
|
$ |
19,729 |
|
|
$ |
176,680 |
|
|
$ |
(31,161 |
) |
|
$ |
(60,804 |
) |
|
$ |
9,841 |
|
|
$ |
114,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nine Months Ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 1, 2024 |
|
$ |
19,729 |
|
|
$ |
177,196 |
|
|
$ |
(72,997 |
) |
|
$ |
(62,989 |
) |
|
$ |
10,632 |
|
|
$ |
71,571 |
|
Stock-based compensation |
|
|
|
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
|
|
1,106 |
|
||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss) income |
|
|
|
|
|
|
|
|
(2,664 |
) |
|
|
|
|
|
1,556 |
|
|
|
(1,108 |
) |
|||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
2,086 |
|
|
|
146 |
|
|
|
2,232 |
|
|||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,702 |
|
|
|
1,124 |
|
||||
Issuance of common stock excluding excess tax benefits of $0 |
|
|
251 |
|
|
|
(376 |
) |
|
|
|
|
|
|
|
|
|
|
|
(125 |
) |
|||
Balance at September 30, 2024 |
|
$ |
19,980 |
|
|
$ |
177,926 |
|
|
$ |
(75,661 |
) |
|
$ |
(60,903 |
) |
|
$ |
12,334 |
|
|
$ |
73,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nine Months Ended September 30, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 1, 2023 |
|
$ |
19,404 |
|
|
$ |
175,656 |
|
|
$ |
(33,069 |
) |
|
$ |
(58,412 |
) |
|
$ |
9,070 |
|
|
$ |
112,649 |
|
Stock-based compensation |
|
|
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
1,630 |
|
||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
|
1,908 |
|
|
|
|
|
|
1,308 |
|
|
|
3,216 |
|
|||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
(2,392 |
) |
|
|
(537 |
) |
|
|
(2,929 |
) |
|||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
771 |
|
|
|
287 |
|
||||
Issuance of common stock excluding excess tax benefits of $0 |
|
|
325 |
|
|
|
(606 |
) |
|
|
|
|
|
|
|
|
|
|
|
(281 |
) |
|||
Balance at September 30, 2023 |
|
$ |
19,729 |
|
|
$ |
176,680 |
|
|
$ |
(31,161 |
) |
|
$ |
(60,804 |
) |
|
$ |
9,841 |
|
|
$ |
114,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
See Notes to Condensed Consolidated Financial Statements.
6
S
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash flows provided by (used in) operating activities |
|
$ |
10,576 |
|
|
$ |
(10,327 |
) |
|
|
|
|
|
|
|
||
Cash flows used in investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
(8,443 |
) |
|
|
(14,134 |
) |
Proceeds from government grants, used for purchase of equipment |
|
|
1,293 |
|
|
|
- |
|
Proceeds from sale of property, plant and equipment |
|
|
10 |
|
|
|
128 |
|
Purchases of long-term marketable securities |
|
|
(364 |
) |
|
|
(70 |
) |
Proceeds from sale of long-term marketable securities |
|
|
847 |
|
|
|
561 |
|
Net cash flows used in investing activities |
|
|
(6,657 |
) |
|
|
(13,515 |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from revolving credit facility |
|
|
18,396 |
|
|
|
28,205 |
|
Payments on revolving credit facility |
|
|
(17,172 |
) |
|
|
(15,693 |
) |
Proceeds from sale and leaseback financing arrangements |
|
|
- |
|
|
|
2,500 |
|
Payments on sale and leaseback financing arrangements |
|
|
(263 |
) |
|
|
(180 |
) |
Proceeds from equipment financing facility |
|
|
1,692 |
|
|
|
6,822 |
|
Payments on equipment financing facility |
|
|
(1,120 |
) |
|
|
- |
|
Proceeds from related-party debt |
|
|
- |
|
|
|
1,099 |
|
Repayment of related-party debt |
|
|
(664 |
) |
|
|
(1,096 |
) |
Repayments of debt |
|
|
(312 |
) |
|
|
(334 |
) |
Net cash flows provided by financing activities |
|
|
557 |
|
|
|
21,323 |
|
|
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
82 |
|
|
|
(146 |
) |
|
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
|
4,558 |
|
|
|
(2,665 |
) |
Cash and cash equivalents at beginning of period |
|
|
7,286 |
|
|
|
8,735 |
|
Cash and cash equivalents at end of period |
|
$ |
11,844 |
|
|
$ |
6,070 |
|
|
|
|
|
|
|
|
||
Supplemental information: |
|
|
|
|
|
|
||
Income tax payments (net of refunds) |
|
$ |
2,181 |
|
|
$ |
1,787 |
|
Interest payments (net of amounts capitalized) |
|
$ |
7,663 |
|
|
$ |
5,739 |
|
|
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment in current liabilities |
|
$ |
516 |
|
|
$ |
2,365 |
|
Finance lease right-of-use assets exchanged for lease liabilities |
|
$ |
146 |
|
|
$ |
144 |
|
Operating lease right-of-use assets exchanged for lease liabilities |
|
$ |
550 |
|
|
$ |
1,953 |
|
See Notes to Condensed Consolidated Financial Statements.
7
AMPCO-PITTSBURGH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except per share amounts)
Overview of the Business
Ampco-Pittsburgh Corporation (the “Corporation”) manufactures and sells highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It operates in two business segments – the Forged and Cast Engineered Products (“FCEP”) segment and the Air and Liquid Processing (“ALP”) segment. This segment presentation is consistent with how the Corporation’s chief operating decision-maker evaluates financial performance and makes resource allocation and strategic decisions about the business (Note 18).
Note 1 – Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated balance sheet as of September 30, 2024 and the unaudited condensed consolidated statements of operations, comprehensive income (loss) and shareholders’ equity for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023 have been prepared by the Corporation. In the opinion of management, all adjustments, consisting of only normal and recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented, have been made. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the operating results expected for the full year.
Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Corporation’s latest Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement - Dissaggregation of Income Statement Expenses. The guidance requires tabular disclosure of certain expenses included in costs of products sold and selling and administrative expenses, such as purchases of inventory and employee compensation, and qualitative description of certain other costs. The guidance becomes effective for the Corporation’s annual period beginning January 1, 2027 and interim periods beginning January 1, 2028. The Corporation is currently evaluating the impact this new standard will have on its annual disclosures in its consolidated financial statements for the year ending December 31, 2027 and interim disclosures thereafter. It will not, however, impact the Corporation’s consolidated financial position, results of operations or cash flows.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures. The guidance requires disclosure of significant reportable segment expenses regularly provided to the chief operating decision-maker and included within each reported measure of a segment’s profit or loss. The guidance also requires disclosure of the title and position of the individual identified as the chief operating decision-maker and an explanation of how the chief operating decision-maker uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The guidance does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The guidance became effective for the Corporation’s annual period beginning January 1, 2024 and interim periods beginning January 1, 2025. The Corporation is currently evaluating the impact this new standard will have on its annual disclosures in its consolidated financial statements for the year ending December 31, 2024 and interim disclosures thereafter. It will not, however, impact the Corporation’s consolidated financial position, results of operations or cash flows.
In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures. The guidance requires annual disclosure of specific categories of information within the effective tax rate reconciliation, and income taxes paid and income tax expense disaggregated by jurisdiction. The guidance becomes effective for the Corporation’s annual period beginning January 1, 2025. Early adoption is permitted. The Corporation is currently evaluating the impact this new standard will have on its annual disclosures. It will not, however, impact the Corporation’s consolidated financial position, results of operations or cash flows.
8
Note 2 – Inventories
At September 30, 2024 and December 31, 2023, substantially all inventories were valued using the first-in, first-out method. Inventories were comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
48,981 |
|
|
$ |
51,794 |
|
Work-in-process |
|
|
50,228 |
|
|
|
48,676 |
|
Finished goods |
|
|
14,136 |
|
|
|
17,332 |
|
Supplies |
|
|
7,511 |
|
|
|
6,892 |
|
Inventories |
|
$ |
120,856 |
|
|
$ |
124,694 |
|
Note 3 – Property, Plant and Equipment
Property, plant and equipment were comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
Land and land improvements |
|
$ |
9,038 |
|
|
$ |
9,025 |
|
Buildings and leasehold improvements |
|
|
71,711 |
|
|
|
71,063 |
|
Machinery and equipment |
|
|
382,253 |
|
|
|
366,044 |
|
Construction-in-progress |
|
|
3,580 |
|
|
|
11,514 |
|
Other |
|
|
6,299 |
|
|
|
6,965 |
|
|
|
|
472,881 |
|
|
|
464,611 |
|
Accumulated depreciation and amortization |
|
|
(320,351 |
) |
|
|
(305,879 |
) |
Property, plant and equipment, net |
|
$ |
152,530 |
|
|
$ |
158,732 |
|
Certain of the above property, plant and equipment are held as collateral including:
In 2023, Union Electric Steel Corporation (“UES”), a wholly owned subsidiary of the Corporation, completed certain leasehold improvements at the Carnegie, Pennsylvania manufacturing facility with the $2,500 of proceeds from the Disbursement Agreement (Note 6). The improvements are being amortized over the remaining lease term of 20 years.
In 2021, the Corporation began a $26,000 long-term strategic capital program to upgrade existing equipment at certain of its FCEP locations. The program was completed and the assets were placed in service during the first half of 2024. Interest capitalized related to the strategic capital program approximated $251 for the nine months ended September 30, 2024 and $425 and $1,027 for the three and nine months ended September 30, 2023, respectively. No interest was capitalized for the three months ended September 30, 2024.
The gross value of assets under finance leases and the related accumulated amortization approximated $3,539 and $1,876, respectively, as of September 30, 2024 and $4,223 and $1,959, respectively, at December 31, 2023. Depreciation expense approximated $4,497 and $4,295, including depreciation of assets under finance leases of approximately $80 and $115, for the three months ended September 30, 2024 and 2023, respectively. Depreciation expense approximated $13,692 and $12,844, including depreciation of assets under finance leases of approximately $242 and $252, for the nine months ended September 30, 2024 and 2023, respectively.
9
Note 4 – Intangible Assets
Intangible assets were comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
Customer relationships |
|
$ |
5,395 |
|
|
$ |
5,442 |
|
Developed technology |
|
|
3,966 |
|
|
|
3,913 |
|
Trade name |
|
|
2,220 |
|
|
|
2,219 |
|
|
|
|
11,581 |
|
|
|
11,574 |
|
Accumulated amortization |
|
|
(6,899 |
) |
|
|
(6,627 |
) |
Intangible assets, net |
|
$ |
4,682 |
|
|
$ |
4,947 |
|
Changes in intangible assets consisted of the following:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Balance at beginning of the period |
$ |
4,574 |
|
|
$ |
4,859 |
|
|
$ |
4,947 |
|
|
$ |
5,194 |
|
Amortization of intangible assets |
|
(89 |
) |
|
|
(87 |
) |
|
|
(262 |
) |
|
|
(266 |
) |
Other, primarily impact from changes in foreign currency exchange rates |
|
197 |
|
|
|
(45 |
) |
|
|
(3 |
) |
|
|
(201 |
) |
Balance at end of the period |
$ |
4,682 |
|
|
$ |
4,727 |
|
|
$ |
4,682 |
|
|
$ |
4,727 |
|
Note 5 – Other Current Liabilities
Other current liabilities were comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
Customer-related liabilities |
|
$ |
24,971 |
|
|
$ |
19,915 |
|
Accrued utilities |
|
|
1,885 |
|
|
|
1,880 |
|
Accrued sales commissions |
|
|
1,800 |
|
|
|
1,850 |
|
Other |
|
|
4,193 |
|
|
|
4,089 |
|
Other current liabilities |
|
$ |
32,849 |
|
|
$ |
27,734 |
|
Customer-related liabilities primarily include liabilities for product warranty claims and deposits received on future orders. The Corporation provides a limited warranty on its products, known as assurance-type warranties, and may issue credit notes or replace products free of charge for valid claims. A warranty is considered an assurance-type warranty if it provides the customer with assurance that the product will function as intended. Historically, warranty claims have been insignificant. The Corporation records a provision for estimated product warranties at the time the underlying sale is recorded. The provision is based on historical experience as a percentage of sales adjusted for probable and known claims.
Changes in the liability for product warranty claims consisted of the following:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Balance at beginning of the period |
$ |
5,175 |
|
|
$ |
5,639 |
|
|
$ |
5,539 |
|
|
$ |
5,193 |
|
Satisfaction of warranty claims |
|
(330 |
) |
|
|
(304 |
) |
|
|
(1,016 |
) |
|
|
(1,280 |
) |
Provision for warranty claims, net |
|
440 |
|
|
|
62 |
|
|
|
884 |
|
|
|
1,439 |
|
Other, primarily impact from changes in foreign currency exchange rates |
|
215 |
|
|
|
(110 |
) |
|
|
93 |
|
|
|
(65 |
) |
Balance at end of the period |
$ |
5,500 |
|
|
$ |
5,287 |
|
|
$ |
5,500 |
|
|
$ |
5,287 |
|
10
Customer deposits represent amounts collected from, or invoiced to, a customer in advance of revenue recognition when necessary to secure the right to a specific product. The liability for customer deposits is reversed when the Corporation satisfies its performance obligations and control of the inventory transfers to the customer, typically when title transfers. The majority of performance obligations related to customer deposits are expected to be satisfied in less than one year. Performance obligations related to customer deposits expected to be satisfied beyond one year have been classified as a noncurrent liability.
Changes in customer deposits consisted of the following:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Balance at beginning of the period |
$ |
18,807 |
|
|
$ |
11,506 |
|
|
$ |
13,078 |
|
|
$ |
10,453 |
|
Satisfaction of performance obligations |
|
(6,156 |
) |
|
|
(7,602 |
) |
|
|
(13,541 |
) |
|
|
(17,182 |
) |
Receipt of additional deposits |
|
9,759 |
|
|
|
5,266 |
|
|
|
22,892 |
|
|
|
15,886 |
|
Other, primarily impact from changes in foreign currency exchange rates |
|
89 |
|
|
|
(22 |
) |
|
|
70 |
|
|
|
(9 |
) |
Balance at end of the period |
|
22,499 |
|
|
|
9,148 |
|
|
|
22,499 |
|
|
|
9,148 |
|
Deposits - Other noncurrent liabilities |
|
(4,213 |
) |
|
|
- |
|
|
|
(4,213 |
) |
|
|
- |
|
Deposits - Other current liabilities |
$ |
18,286 |
|
|
$ |
9,148 |
|
|
$ |
18,286 |
|
|
$ |
9,148 |
|
Note 6 – Debt
Borrowings were comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
Revolving credit facility |
|
$ |
57,224 |
|
|
$ |
56,000 |
|
Sale and leaseback financing obligations |
|
|
45,227 |
|
|
|
44,488 |
|
Equipment financing facility |
|
|
17,291 |
|
|
|
16,719 |
|
Industrial Revenue Bonds |
|
|
9,191 |
|
|
|
9,191 |
|
Finance lease liabilities |
|
|
1,345 |
|
|
|
1,590 |
|
Minority shareholder loan |
|
|
- |
|
|
|
665 |
|
Outstanding borrowings |
|
|
130,278 |
|
|
|
128,653 |
|
Debt – current portion |
|
|
(14,268 |
) |
|
|
(12,271 |
) |
Long-term debt |
|
$ |
116,010 |
|
|
$ |
116,382 |
|
The current portion of debt includes primarily swing loans under the revolving credit facility and the Industrial Revenue Bonds (“IRBs”). By definition, swing loans are temporary advances under the revolving credit facility and short term in nature. Accordingly, swing loans are classified as a current liability until the amount is either repaid, as customers remit payments, or, if elected by the Corporation, refinanced as a longer-term loan under the revolving credit facility. The swing loans equaled $2,224 at September 30, 2024. No amount was outstanding as a swing loan at December 31, 2023. Although the IRBs begin to become due in 2027, the bonds can be put back to the Corporation on short notice if they are not able to be remarketed; accordingly, the IRBs are classified as a current liability, although the Corporation considers the likelihood of the bonds being put back to the Corporation to be remote.
Revolving Credit Facility
The Corporation is a party to a revolving credit and security agreement with a syndicate of banks that was amended on June 29, 2021 (the “First Amended and Restated Security Agreement”), and subsequently amended on December 17, 2021 and May 26, 2022. The First Amended and Restated Security Agreement provides for a senior secured asset-based revolving credit facility of $100,000, that can be increased to $130,000 at the option of the Corporation and with the approval of the lenders, and an allowance of $20,000 for new equipment financing (see “Equipment Financing Facility” below) but, otherwise, restricts the Corporation from incurring additional indebtedness outside of the agreement, unless approved by the banks. The revolving credit facility includes sub-limits for letters of credit not to exceed $40,000 and European borrowings not to exceed $30,000, of which up to $7,500 may be allocated for Swedish borrowings. The maturity date for the revolving credit facility is June 29, 2026 and, subject to other terms and conditions of the agreement, would become due on that date.
Availability under the revolving credit facility is based on eligible accounts receivable, inventory and fixed assets. Effective July 1, 2023, the Corporation migrated London Inter-Bank Offered Rate (“LIBOR”)-based loans to Secured Overnight Financing Rate (“SOFR”)-based loans, in accordance with the provisions specified in the revolving credit facility, coinciding with the discontinuation of LIBOR. European borrowings denominated in euros, pound sterling or krona bear interest at the Successor Rate as defined in the First Amended and Restated Security Agreement, as amended. Domestic borrowings from the revolving credit facility bear interest, at the Corporation’s option, at either (i) SOFR, as adjusted, plus an applicable margin ranging between 2.00% to 2.50% based on the quarterly average excess availability or (ii) the alternate base rate plus an applicable margin ranging between 1.00% to 1.50% based on the quarterly average excess availability.
11
As of September 30, 2024 and December 31, 2023, there were no European borrowings outstanding. Additionally, the Corporation is required to pay a commitment fee of 0.25% based on the daily unused portion of the revolving credit facility.
As of September 30, 2024, the Corporation had outstanding borrowings under the revolving credit facility of $57,224. The average interest rate approximated 8.26% and 8.24% for the three and nine months ended September 30, 2024, respectively, and 8.32% and 7.97% for the three and nine months ended September 30, 2023, respectively. The Corporation also utilizes a portion of the revolving credit facility for letters of credit (Note 8). As of September 30, 2024, remaining availability under the revolving credit facility approximated $20,507, net of standard availability reserves.
Borrowings outstanding under the revolving credit facility are collateralized by a first priority perfected security interest in substantially all assets of the Corporation and its subsidiaries (other than real property). Additionally, the revolving credit facility contains customary affirmative and negative covenants and limitations including, but not limited to, investments in certain of its subsidiaries, payment of dividends, incurrence of additional indebtedness and guaranties, and acquisitions and divestitures. In addition, the Corporation must maintain a certain level of excess availability or otherwise maintain a minimum fixed charge coverage ratio of not less than 1.05 to 1.00. The Corporation was in compliance with the applicable bank covenants as of September 30, 2024.
Sale and Leaseback Financing Obligations
In September 2018, UES completed a sale and leaseback financing transaction with Store Capital Acquisitions, LLC (“STORE”) for certain of its real property, including its manufacturing facilities in Valparaiso, Indiana and Burgettstown, Pennsylvania, and its manufacturing facility and corporate headquarters located in Carnegie, Pennsylvania (the “UES Properties”).
In August 2022, Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation, completed a sale and leaseback financing transaction with STORE for certain of its real property, including its manufacturing facilities in Lynchburg, Virginia and Amherst, Virginia. In October 2022, Air & Liquid completed a sale and leaseback financing transaction with STORE for its real property, including its manufacturing facility, located in North Tonawanda, New York (collectively with the Virginia properties, the “ALP Properties”).
In connection with the August 2022 sale and leaseback financing transaction, and as modified by the October 2022 sale and leaseback financing transaction, UES and STORE entered into a Second Amended and Restated Master Lease Agreement (the “Restated Lease”), which amended and restated the existing lease agreement between UES and STORE.
Pursuant to the Restated Lease, UES will lease the ALP Properties and the UES Properties (collectively, the “Properties”), subject to the terms and conditions of the Restated Lease, and UES will sublease the ALP Properties to Air & Liquid on the same terms as the Restated Lease. The Restated Lease provides for an initial term of 20 years; however, UES may extend the lease for the Properties for four successive periods of five years each. If fully extended, the Restated Lease would expire in August 2062. UES also has the option to repurchase the Properties, which it may, and intends to, exercise in 2032, for a price equal to the greater of (i) the Fair Market Value of the Properties, or (ii) 115% of Lessor’s Total Investment, with such terms defined in the Restated Lease.
In August 2022, in connection with the Restated Lease, UES and STORE entered into a Disbursement Agreement pursuant to which STORE agreed to provide up to $2,500 to UES towards certain leasehold improvements in the Carnegie, Pennsylvania manufacturing facility. In June 2023, UES received $2,500 of proceeds from the Disbursement Agreement. The annual payments for the Properties (the “Base Annual Rent”) have been adjusted to repay the $2,500 over the balance of the initial term of the Restated Lease of 20 years. Advances under the Disbursement Agreement are secured by a first priority security interest in the leasehold improvements.
At September 30, 2024, the Base Annual Rent, including the Disbursement Agreement, is equal to $3,645, payable in equal monthly installments. Each October through 2052, the Base Annual Rent will increase by an amount equal to the lesser of 2.04% or 1.25 times the change in the consumer price index, as defined in the Restated Lease. The Base Annual Rent during the remaining ten years of the Restated Lease will be equal to the Fair Market Rent, as defined in the Restated Lease. Effective October 1, 2024, the new Base Annual Rent is $3,719, an increase of 2.04%.
The Restated Lease and the Disbursement Agreement contain certain representations, warranties, covenants, obligations, conditions, indemnification provisions, and termination provisions customary for those types of agreements. The Corporation was in compliance with the applicable covenants as of September 30, 2024.
The effective interest rate approximated 8.25% and 8.24% for the three and nine months ended September 30, 2024, respectively, and approximated 8.89% and 8.36% for the three and nine months ended September 30, 2023, respectively.
Equipment Financing Facility
In September 2022, UES and Clarus Capital Funding I, LLC (“Clarus”) entered into a Master Loan and Security Agreement, pursuant to which UES could borrow up to $20,000 to finance certain equipment purchases associated with a capital program at certain of the Corporation’s FCEP locations. Each borrowing constitutes a secured loan transaction (each, a “Term Loan”). As amended, each Term Loan converts to a Term Note on the earlier of (i) the date in which the associated equipment is placed in service or (ii) April 30, 2024.
12
Each Term Note has a term of 84 months in arrears fully amortizing, commencing on the date of the Term Note. The Term Loans and Term Notes are secured by a first priority security interest in and to all of UES’ rights, title and interests in the underlying equipment.
Through June 30, 2023, interest on each Term Loan accrued at an annual fixed rate of 8%, payable monthly. Effective July 1, 2023, UES and Clarus amended the Master Loan and Security Agreement increasing the interest rate on each Term Loan from an annual fixed rate of 8% to an annual fixed rate of 10.25%.
All Term Loans have converted to Term Notes and approximately $17,291 is outstanding as of September 30, 2024. At December 31, 2023, Term Notes approximated $900 and Term Loans approximated $15,819.
Interest on each Term Note accrues at an annual fixed rate ranging between 8.40% and 9.22%. The effective interest rate on the Term Notes approximated 8.69% and 8.60% for the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, monthly payments of principal and interest approximate $293 and continue through mid 2031.
Industrial Revenue Bonds (“IRBs”)
The Corporation has two IRBs outstanding: (i) $7,116 taxable IRB maturing in 2027, interest at a floating rate which averaged 5.40% and 5.39% for the three months ended September 30, 2024 and 2023, respectively, and 5.40% and 5.04% for the nine months ended September 30, 2024 and 2023, respectively, and (ii) $2,075 tax-exempt IRB maturing in 2029, interest at a floating rate which averaged 3.62% and 4.19% for the three months ended September 30, 2024 and 2023, respectively, and 3.80% and 3.63% for the nine months ended September 30, 2024 and 2023, respectively. The IRBs are secured by letters of credit of equivalent amounts and are remarketed periodically at which time the interest rates are reset. If the IRBs are not able to be remarketed, although considered a remote possibility by the Corporation, the bondholders can seek reimbursement immediately from the letters of credit; accordingly, the IRBs are recorded as current debt on the condensed consolidated balance sheets.
Minority Shareholder Loan
Shanxi Åkers TISCO Roll Co., Ltd. (“ATR”), a 59.88% indirectly owned joint venture of UES, periodically has loans outstanding with its minority shareholder (Note 17). Amounts repaid approximated $664 (RMB 4,713) during the nine months ended September 30, 2024. Amounts borrowed and repaid approximated $1,099 (RMB 7,604) and $1,096 (RMB 7,604) during the nine months ended September 30, 2023, respectively.
Note 7 – Pension and Other Postretirement Benefits
Contributions to the Corporation’s employee benefit plans were as follows:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
U.S. defined benefit pension plans |
|
$ |
4,641 |
|
|
$ |
207 |
|
U.S. defined benefit nonqualified pension plans (e.g. payments) |
|
$ |
576 |
|
|
$ |
576 |
|
Foreign defined benefit pension plans |
|
$ |
327 |
|
|
$ |
377 |
|
Other postretirement benefits (e.g., net payments) |
|
$ |
273 |
|
|
$ |
325 |
|
U.K. defined contribution pension plan |
|
$ |
200 |
|
|
$ |
175 |
|
U.S. defined contribution plan |
|
$ |
2,457 |
|
|
$ |
2,002 |
|
Net periodic pension and other postretirement benefit costs included the following components:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
U.S. Defined Benefit Pension Plans (a) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Service cost |
|
$ |
2 |
|
|
$ |
10 |
|
|
$ |
22 |
|
|
$ |
29 |
|
Interest cost |
|
|
2,331 |
|
|
|
2,483 |
|
|
|
6,988 |
|
|
|
7,450 |
|
Expected return on plan assets |
|
|
(3,443 |
) |
|
|
(3,596 |
) |
|
|
(10,245 |
) |
|
|
(10,788 |
) |
Amortization of prior service cost |
|
|
- |
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
Amortization of actuarial loss |
|
|
45 |
|
|
|
30 |
|
|
|
136 |
|
|
|
91 |
|
Net benefit income |
|
$ |
(1,065 |
) |
|
$ |
(1,071 |
) |
|
$ |
(3,098 |
) |
|
$ |
(3,213 |
) |
13
a) Includes the nonqualified defined benefit pension plan.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Foreign Defined Benefit Pension Plans |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Service cost |
|
$ |
63 |
|
|
$ |
87 |
|
|
$ |
102 |
|
|
$ |
225 |
|
Interest cost |
|
|
467 |
|
|
|
468 |
|
|
|
1,375 |
|
|
|
1,391 |
|
Expected return on plan assets |
|
|
(490 |
) |
|
|
(487 |
) |
|
|
(1,443 |
) |
|
|
(1,446 |
) |
Amortization of prior service credit |
|
|
(72 |
) |
|
|
(70 |
) |
|
|
(213 |
) |
|
|
(207 |
) |
Amortization of actuarial loss |
|
|
185 |
|
|
|
152 |
|
|
|
546 |
|
|
|
451 |
|
Net benefit expense |
|
$ |
153 |
|
|
$ |
150 |
|
|
$ |
367 |
|
|
$ |
414 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Other Postretirement Benefit Plans |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Service cost |
|
$ |
42 |
|
|
$ |
43 |
|
|
$ |
126 |
|
|
$ |
128 |
|
Interest cost |
|
|
90 |
|
|
|
98 |
|
|
|
271 |
|
|
|
293 |
|
Amortization of prior service credit |
|
|
(256 |
) |
|
|
(256 |
) |
|
|
(768 |
) |
|
|
(768 |
) |
Amortization of actuarial gain |
|
|
(79 |
) |
|
|
(81 |
) |
|
|
(236 |
) |
|
|
(242 |
) |
Net benefit income |
|
$ |
(203 |
) |
|
$ |
(196 |
) |
|
$ |
(607 |
) |
|
$ |
(589 |
) |
Note 8 – Commitments and Contingent Liabilities
Outstanding standby and commercial letters of credit and bank guarantees as of September 30, 2024 equaled $15,909, of which approximately one-half serves as collateral for the IRB debt. Outstanding surety bonds as of September 30, 2024 approximated $3,351 (SEK 33,900), which guarantee certain obligations under a credit insurance arrangement for certain of the Corporation’s foreign pension commitments.
At September 30, 2024, commitments for future capital expenditures approximated $6,000.
See Note 11 for derivative instruments, Note 15 for litigation and Note 16 for environmental matters.
Note 9 – Equity Rights Offering
In September 2020, the Corporation completed an equity rights offering, issuing 5,507,889 shares of its common stock and 12,339,256 Series A warrants to existing shareholders. The shares of common stock and warrants are classified as equity instruments in the condensed consolidated statements of shareholders’ equity. Each Series A warrant provides the holder with the right to purchase 0.4464 shares of common stock at an exercise price of $2.5668, or $5.75 per whole share of common stock, and expires on August 1, 2025. For the three and nine months ended September 30, 2024 and 2023, respectively, the Corporation received no proceeds from shareholders from the exercise of Series A warrants. At September 30, 2024 and December 31, 2023, 10,941,869 Series A warrants were outstanding.
Note 10 – Accumulated Other Comprehensive Loss
Net change and ending balances for the various components of accumulated other comprehensive loss as of and for the nine months ended September 30, 2024 and 2023 are summarized below. All amounts are net of tax where applicable.
|
|
Foreign |
|
|
Unrecognized |
|
|
Cash Flow |
|
|
Total |
|
|
Less: |
|
|
Accumulated Other |
|
||||||
Balance at January 1, 2024 |
|
$ |
(23,161 |
) |
|
$ |
(40,490 |
) |
|
$ |
186 |
|
|
$ |
(63,465 |
) |
|
$ |
(476 |
) |
|
$ |
(62,989 |
) |
Net change |
|
|
3,130 |
|
|
|
(1,002 |
) |
|
|
104 |
|
|
|
2,232 |
|
|
|
146 |
|
|
|
2,086 |
|
Balance at September 30, 2024 |
|
$ |
(20,031 |
) |
|
$ |
(41,492 |
) |
|
$ |
290 |
|
|
$ |
(61,233 |
) |
|
$ |
(330 |
) |
|
$ |
(60,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at January 1, 2023 |
|
$ |
(26,170 |
) |
|
$ |
(32,623 |
) |
|
$ |
152 |
|
|
$ |
(58,641 |
) |
|
$ |
(229 |
) |
|
$ |
(58,412 |
) |
Net change |
|
|
(2,113 |
) |
|
|
(683 |
) |
|
|
(133 |
) |
|
|
(2,929 |
) |
|
|
(537 |
) |
|
|
(2,392 |
) |
Balance at September 30, 2023 |
|
$ |
(28,283 |
) |
|
$ |
(33,306 |
) |
|
$ |
19 |
|
|
$ |
(61,570 |
) |
|
$ |
(766 |
) |
|
$ |
(60,804 |
) |
14
The following summarizes the line items affected on the condensed consolidated statements of operations for components reclassified from accumulated other comprehensive loss. Amounts in parentheses represent credits to net (loss) income.
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Amortization of unrecognized employee benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
||||
Other loss – net |
$ |
(177 |
) |
|
$ |
(223 |
) |
|
$ |
(534 |
) |
|
$ |
(670 |
) |
Income tax effect |
|
- |
|
|
|
(12 |
) |
|
|
- |
|
|
|
(58 |
) |
Net of tax |
$ |
(177 |
) |
|
$ |
(235 |
) |
|
$ |
(534 |
) |
|
$ |
(728 |
) |
Settlements of cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization (foreign currency purchase contracts) |
$ |
(6 |
) |
|
$ |
(6 |
) |
|
$ |
(20 |
) |
|
$ |
(20 |
) |
Costs of products sold (excluding depreciation and |
|
(7 |
) |
|
|
146 |
|
|
|
(267 |
) |
|
|
(33 |
) |
Total before income tax |
|
(13 |
) |
|
|
140 |
|
|
|
(287 |
) |
|
|
(53 |
) |
Income tax effect |
|
- |
|
|
|
(5 |
) |
|
|
7 |
|
|
|
1 |
|
Net of tax |
$ |
(13 |
) |
|
$ |
135 |
|
|
$ |
(280 |
) |
|
$ |
(52 |
) |
The income tax effect associated with the various components of other comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023 is summarized below. Amounts in parentheses represent credits to net (loss) income when reclassified to earnings. Certain amounts have no tax effect due to the Corporation having a valuation allowance recorded against the deferred income tax assets for the jurisdiction where the income or expense is recognized. Foreign currency translation adjustments exclude the effect of income taxes since earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Income tax effect associated with changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrecognized employee benefit costs |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Fair value of cash flow hedges |
|
$ |
(5 |
) |
|
$ |
- |
|
|
$ |
(10 |
) |
|
$ |
3 |
|
Income tax effect associated with reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of unrecognized employee benefit costs |
|
$ |
- |
|
|
$ |
(12 |
) |
|
$ |
- |
|
|
$ |
(58 |
) |
Settlement of cash flow hedges |
|
$ |
- |
|
|
$ |
(5 |
) |
|
$ |
7 |
|
|
$ |
1 |
|
Note 11 – Derivative Instruments
Certain divisions of the ALP segment are subject to risk from increases in the price of commodities (copper and aluminum) used in the production of inventory. To minimize this risk, futures contracts are entered into which are designated as cash flow hedges. At September 30, 2024, approximately 43%, or $2,853, of anticipated copper purchases over the next nine months and 56%, or $615, of anticipated aluminum purchases over the next six months are hedged. At September 30, 2023, approximately 46%, or $2,771, of anticipated copper purchases over the next ten months and 56%, or $565, of anticipated aluminum purchases over the next six months were hedged.
The Corporation periodically enters into purchase commitments to cover a portion of its anticipated natural gas and electricity usage. The commitments qualify as normal purchases and, accordingly, are not reflected on the condensed consolidated balance sheets. At September 30, 2024, the Corporation has purchase commitments covering approximately 3%, or $1,568, of anticipated natural gas usage through December 31, 2025 for two of its subsidiaries and approximately 9%, or $945, of anticipated electricity usage through December 31, 2025 for two of its subsidiaries. At September 30, 2023, the Corporation had purchase commitments covering approximately 32%, or $2,942, of anticipated natural gas usage through December 31, 2025 for one of its subsidiaries and approximately 21%, or $1,116, of anticipated electricity usage through December 31, 2025 for one of its subsidiaries. Purchases of natural gas and electricity under previously existing commitments equaled $674 and $2,507 for the three and nine months ended September 30, 2024, respectively, and $812 and $2,249 for the three and nine months ended September 30, 2023, respectively.
The Corporation previously entered into foreign currency purchase contracts to manage the volatility associated with euro-denominated progress payments to be made for certain machinery and equipment. Upon occurrence of an anticipated purchase and placement of the underlying fixed asset in service, the foreign currency purchase contract was settled and the change in fair value of the foreign currency purchase contract was deferred in accumulated other comprehensive loss and is being reclassified to earnings (depreciation and amortization expense) over the life of the underlying asset (approximately 15 years).
No portion of the existing cash flow hedges is considered to be ineffective, including any ineffectiveness arising from the unlikelihood of an anticipated transaction to occur. Additionally, no amounts have been excluded from assessing the effectiveness of a hedge.
15
The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.
(Loss) gain on foreign exchange transactions included in other expense – net equaled $(1,130) and $(1,320) for the three and nine months ended September 30, 2024, respectively, and $892 and $(267) for the three and nine months ended September 30, 2023, respectively.
The change in the fair value of the cash flow contracts is recorded as a component of accumulated other comprehensive loss. The balances as of September 30, 2024 and 2023 and the amounts recognized as and reclassified from accumulated other comprehensive loss for each of the periods are summarized below. Amounts are after tax where applicable. Certain amounts recognized as comprehensive income (loss) or reclassified from accumulated other comprehensive loss have no tax effect due to the Corporation having a valuation allowance recorded against the deferred income tax assets for the jurisdiction where the income or expense is recognized.
Three Months Ended September 30, 2024 |
|
Beginning of |
|
|
Recognized |
|
|
Reclassified |
|
|
End of |
|
||||
Foreign currency purchase contracts |
|
$ |
67 |
|
|
$ |
- |
|
|
$ |
6 |
|
|
$ |
61 |
|
Futures contracts – copper and aluminum |
|
|
62 |
|
|
|
174 |
|
|
|
7 |
|
|
|
229 |
|
|
|
$ |
129 |
|
|
$ |
174 |
|
|
$ |
13 |
|
|
$ |
290 |
|
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency purchase contracts |
|
$ |
94 |
|
|
$ |
- |
|
|
$ |
6 |
|
|
$ |
88 |
|
Futures contracts – copper and aluminum |
|
|
(229 |
) |
|
|
19 |
|
|
|
(141 |
) |
|
|
(69 |
) |
|
|
$ |
(135 |
) |
|
$ |
19 |
|
|
$ |
(135 |
) |
|
$ |
19 |
|
Nine Months Ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency purchase contracts |
|
$ |
81 |
|
|
$ |
- |
|
|
$ |
20 |
|
|
$ |
61 |
|
Futures contracts – copper and aluminum |
|
|
105 |
|
|
|
384 |
|
|
|
260 |
|
|
|
229 |
|
|
|
$ |
186 |
|
|
$ |
384 |
|
|
$ |
280 |
|
|
$ |
290 |
|
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency purchase contracts |
|
$ |
108 |
|
|
$ |
- |
|
|
$ |
20 |
|
|
$ |
88 |
|
Futures contracts – copper and aluminum |
|
|
44 |
|
|
|
(81 |
) |
|
|
32 |
|
|
|
(69 |
) |
|
|
$ |
152 |
|
|
$ |
(81 |
) |
|
$ |
52 |
|
|
$ |
19 |
|
The change in fair value reclassified or expected to be reclassified from accumulated other comprehensive loss to earnings is summarized below. All amounts are pre-tax.
|
|
Location of Gain (Loss) |
|
Estimated to |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|||||||||||
|
|
of Operations |
|
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||
Foreign currency purchase contracts |
|
Depreciation and amortization |
|
$ |
28 |
|
|
$ |
6 |
|
|
$ |
6 |
|
|
$ |
20 |
|
|
$ |
20 |
|
Futures contracts – copper and aluminum |
|
Costs of products sold |
|
$ |
235 |
|
|
$ |
7 |
|
|
$ |
(146 |
) |
|
$ |
267 |
|
|
$ |
33 |
|
16
Note 12 – Fair Value
The Corporation’s financial assets and liabilities reported at fair value in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 were as follows:
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Total |
|
||||
As of September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other noncurrent assets |
|
$ |
3,204 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,204 |
|
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other noncurrent assets |
|
$ |
3,245 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,245 |
|
The investments held as other noncurrent assets represent assets held in the “Rabbi” trust for the purpose of providing benefits under a non-qualified defined benefit pension plan. The fair value of the investments is based on quoted prices of the investments in active markets. The fair value of futures contracts is based on market quotations. The fair values of the debt and borrowings approximate their carrying values. Additionally, the fair values of trade receivables and accounts payable approximate their carrying values.
Note 13 – Net Sales and (Loss) Income Before Income Taxes
Net sales and (loss) income before income taxes by geographic area for the three and nine months ended September 30, 2024 and 2023 are outlined below. Approximately 95% of foreign net sales for each of the periods is attributable to the FCEP segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Net Sales |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
United States |
|
$ |
59,556 |
|
|
$ |
63,118 |
|
|
$ |
202,236 |
|
|
$ |
182,247 |
|
Foreign |
|
|
36,610 |
|
|
|
39,100 |
|
|
|
115,133 |
|
|
|
131,985 |
|
|
|
$ |
96,166 |
|
|
$ |
102,218 |
|
|
$ |
317,369 |
|
|
$ |
314,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Loss) Income Before Income Taxes |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
United States (1) |
|
$ |
837 |
|
|
$ |
350 |
|
|
$ |
(181 |
) |
|
$ |
(3,119 |
) |
Foreign |
|
|
(1,655 |
) |
|
|
961 |
|
|
|
1,026 |
|
|
|
6,876 |
|
|
|
$ |
(818 |
) |
|
$ |
1,311 |
|
|
$ |
845 |
|
|
$ |
3,757 |
|
Note 14 – Stock-Based Compensation
The Ampco-Pittsburgh Corporation 2016 Omnibus Incentive Plan, as amended (the “Incentive Plan”), authorizes the issuance of up to 3,700,000 shares of the Corporation’s common stock for awards under the Incentive Plan. Awards under the Incentive Plan may include incentive stock options and non-qualified stock options, stock appreciation rights, restricted shares and restricted stock units, performance awards, other stock-based awards, or short-term cash incentive awards. If any award is canceled, terminates, expires, or lapses for any reason prior to the issuance of the shares, or if the shares are issued under the Incentive Plan and thereafter are forfeited to the Corporation, the shares subject to such awards and the forfeited shares will not count against the aggregate number of shares available under the Incentive Plan. Shares tendered or withheld to pay the option exercise price or tax withholding will continue to count against the aggregate number of shares of common stock available for grant under the Incentive Plan. Any shares repurchased by the Corporation with cash proceeds from the exercise of options will not be added back to the pool of shares available for grant under the Incentive Plan.
The Incentive Plan may be administered by the Board of Directors or the Compensation Committee of the Board of Directors. The Compensation Committee has the authority to determine, within the limits of the express provisions of the Incentive Plan, the individuals to whom the awards will be granted and the nature, amount and terms of such awards.
The Incentive Plan also provides for equity-based awards during any one year to non-employee members of the Board of Directors, based on the grant date fair value, not to exceed $200. The limit does not apply to shares received by a non-employee director at his or her election in lieu of the director’s retainer for board service.
17
The restricted stock awards vest on the one-year anniversary of the grant date.
Stock-based compensation expense, including expense associated with equity-based awards granted to non-employee members of the Board of Directors, for the three and nine months ended September 30, 2024 equaled $372 and $1,106, respectively, and for the three and nine months ended September 30, 2023, equaled $520 and $1,630, respectively. The income tax benefit recognized in the condensed consolidated statements of operations was not significant due to the Corporation having a valuation allowance recorded against its deferred income tax assets for the majority of the jurisdictions where the expense was recognized.
Note 15 – Litigation
The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses from time to time and are also subject to asbestos litigation.
Asbestos Litigation
Claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid (the “Asbestos Liability”). Air & Liquid, and in some cases the Corporation, are defendants (among a number of defendants, often in excess of 50 defendants) in claims filed in various state and federal courts.
Asbestos Claims
The following table reflects approximate information about the number of claims for Asbestos Liability against Air & Liquid and the Corporation for the nine months ended September 30, 2024 and 2023 (number of claims not in thousands). The majority of the settlement and defense costs were reported and paid by insurers. Because claims are often filed and can be settled or dismissed in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Total claims pending at the beginning of the period |
|
|
6,310 |
|
|
|
6,259 |
|
New claims served |
|
|
950 |
|
|
|
984 |
|
Claims dismissed |
|
|
(517 |
) |
|
|
(647 |
) |
Claims settled |
|
|
(419 |
) |
|
|
(305 |
) |
Total claims pending at the end of period (1) |
|
|
6,324 |
|
|
|
6,291 |
|
Administrative closures (2) |
|
|
(3,117 |
) |
|
|
(2,903 |
) |
Total active claims at the end of the period |
|
|
3,207 |
|
|
|
3,388 |
|
Gross settlement and defense costs paid in period (in 000’s) |
|
$ |
18,610 |
|
|
$ |
16,221 |
|
Average gross settlement and defense costs per claim resolved (in 000’s) (3) |
|
$ |
19.88 |
|
|
$ |
17.04 |
|
Asbestos Insurance
The Corporation and Air & Liquid are parties to a series of settlement agreements (“Settlement Agreements”) with insurance carriers that have coverage obligations for the Asbestos Liability (the “Settling Insurers”). During the second quarter of 2024, the Corporation and Air & Liquid entered into a settlement agreement with a previously unsettled insurance carrier resulting in reimbursement of prior years' costs of approximately $1,756. Under the Settlement Agreements, the Settling Insurers accept financial responsibility, subject to the terms and conditions of the respective agreements, including overall coverage limits, for pending and future claims for the Asbestos Liability. The Settlement Agreements encompass the majority of insurance policies that provide coverage for claims for the Asbestos Liability.
The Settlement Agreements acknowledge Howden North America, Inc. (“Howden”) is entitled to coverage under policies covering the Asbestos Liability for claims arising out of the historical products manufactured or distributed by Buffalo Forge, a former subsidiary of the Corporation (the “Products”), which was acquired by Howden. The Settlement Agreements do not provide for any prioritization on access to the applicable policies or any sub-limits of liability as to Howden or the Corporation and Air & Liquid and, accordingly, Howden may access the coverage afforded by the Settling Insurers for any covered claim arising out of the Products. In general, access by Howden to the coverage afforded by the Settling Insurers for the Products will erode coverage under the Settlement Agreements available to the Corporation and Air & Liquid for the Asbestos Liability.
18
Asbestos Valuations
The Corporation, with the assistance of a nationally recognized expert in the valuation of asbestos liabilities, reviews the Asbestos Liability and the underlying assumptions on a regular basis to determine whether any adjustment to the Asbestos Liability or the underlying assumptions are necessary. When warranted, the Asbestos Liability is adjusted to consider current trends and new information that becomes available. In conjunction with the regular updates of the estimated Asbestos Liability, the Corporation also develops an estimate of defense costs expected to be incurred with settling the Asbestos Liability and probable insurance recoveries for the Asbestos Liability and defense costs.
In developing the estimate of probable defense costs, the Corporation considers several factors including, but not limited to, current and historical defense-to-indemnity cost ratios and expected defense-to-indemnity cost ratios. In developing the estimate of probable insurance recoveries, the Corporation considers the expert’s projection of settlement costs for the Asbestos Liability and management’s projection of associated defense costs. In addition, the Corporation consults with its outside legal counsel on insurance matters and a nationally recognized insurance consulting firm it retains to assist with certain policy allocation matters. The Corporation also considers a number of other factors including the Settlement Agreements in effect, policy exclusions, policy limits, policy provisions regarding coverage for defense costs, attachment points, gaps in the coverage, policy exhaustion, the nature of the underlying claims for the Asbestos Liability, estimated erosion of insurance limits on account of claims against Howden arising out of the Products, prior impairment of policies, insolvencies among certain of the insurance carriers, and creditworthiness of the remaining insurance carriers based on publicly available information. Based on these factors, the Corporation estimates the probable insurance recoveries for the Asbestos Liability and defense costs for the corresponding time frame of the Asbestos Liability.
In the fourth quarter of 2023, in connection with its review of the underlying assumptions and primarily as a result of identified changes in claim data and availability of new information, the Corporation recorded an undiscounted increase to its estimated Asbestos Liability of approximately $112,640. In addition, the Corporation revised its estimated defense-to-indemnity cost ratio from 65% to 60%, which reduced the Asbestos Liability by $4,162. The following table summarizes activity relating to Asbestos Liability for the nine months ended September 30, 2024 and 2023.
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Asbestos liability, beginning of the year |
|
$ |
238,679 |
|
|
$ |
153,575 |
|
Settlement and defense costs paid |
|
|
(18,610 |
) |
|
|
(16,221 |
) |
Asbestos liability, end of the period |
|
$ |
220,069 |
|
|
$ |
137,354 |
|
The increase in the asbestos-related insurance receivable associated with the increase in the estimated Asbestos Liability and a lower defense-to-indemnity ratio at December 31, 2023 approximated $67,591. The following table summarizes activity relating to insurance recoveries for the nine months ended September 30, 2024 and 2023, including the $1,756 reimbursement of prior years’ costs.
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Insurance receivable – asbestos, beginning of the year |
|
$ |
160,245 |
|
|
$ |
105,434 |
|
Settlement and defense costs paid by insurance carriers |
|
|
(13,841 |
) |
|
|
(9,041 |
) |
Insurance receivable – asbestos, end of the period |
|
$ |
146,404 |
|
|
$ |
96,393 |
|
The insurance receivable does not assume any recovery from insolvent carriers. A substantial majority of the insurance recoveries deemed probable is from insurance companies rated A – (excellent) or better by A.M. Best Corporation. There can be no assurance, however, there will not be insolvencies among the relevant insurance carriers, or the assumed percentage recoveries for certain carriers will prove correct. During the third quarter of 2023, the Corporation received $191 of proceeds from an insolvent asbestos-related insurance carrier, which is recorded as a Credit for Asbestos Litigation in the accompanying condensed consolidated statement of operations.
Asbestos Assumptions
The amounts recorded for the Asbestos Liability and insurance receivable rely on assumptions based on currently known facts and strategy. The Corporation’s actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Corporation’s or the experts’ calculations vary significantly from actual results. Key variables in these assumptions include the forecast of the population likely to have been exposed to asbestos; the number of people likely to develop an asbestos-related disease; the estimated number of people likely to file an asbestos-related injury claim against the Corporation or its subsidiaries; an analysis of pending cases, by type of injury claimed and jurisdiction where the claim is filed; average settlement value of claims, by type of injury claimed and jurisdiction of filing; the number and nature of new claims to be filed each year; the average cost of disposing of each new claim; the average annual defense costs; compliance by relevant parties with the terms of the Settlement Agreements; and the solvency risk with respect to the relevant insurance carriers.
19
Other factors that may affect the Asbestos Liability and ability to recover under the Corporation’s insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of state or federal tort reform legislation.
The Corporation intends to continue to evaluate the Asbestos Liability, related insurance receivable and 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 recovery, these regular reviews may result in the Corporation adjusting its current reserves; however, the Corporation is currently unable to estimate such future adjustments. Adjustments, if any, to the Corporation’s estimate of the Asbestos Liability and/or insurance receivable could be material to the operating results for the period in which the adjustments to the liability, receivable or allowance are recorded and to the Corporation’s condensed consolidated financial position, results of operations and liquidity.
Note 16 – Environmental Matters
The Corporation is currently performing certain remedial actions in connection with the sale of real estate previously owned and periodically incurs costs to maintain compliance with environmental laws and regulations. Environmental exposures are difficult to assess and estimate for numerous reasons, including lack of reliable data, the multiplicity of possible solutions, the years of remedial and monitoring activity required, and identification of new sites. The undiscounted potential liability for remedial actions and environmental compliance measures approximated $100 at September 30, 2024 and December 31, 2023.
ATR periodically has loans outstanding with its minority shareholder. Interest on borrowings accrues at the three-to-five-year loan interest rate set by the People’s Bank of China, which approximated 4.35% for each of the three and nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, ATR paid $2 (RMB 17) of interest. For the nine months ended September 30, 2023, ATR paid $5 (RMB 35) of interest. No interest was outstanding as of September 30, 2024 or December 31, 2023.
Loan activity for the nine months ended September 30, 2024 and 2023 was as follows:
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
||||
|
|
USD |
|
|
RMB |
|
|
USD |
|
|
RMB |
|
||||
Balance at beginning of the period |
|
$ |
665 |
|
|
|
4,713 |
|
|
$ |
- |
|
|
|
- |
|
Borrowings |
|
|
- |
|
|
|
- |
|
|
|
1,099 |
|
|
|
7,604 |
|
Repayments |
|
|
(664 |
) |
|
|
(4,713 |
) |
|
|
(1,096 |
) |
|
|
(7,604 |
) |
Foreign exchange |
|
|
(1 |
) |
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
Balance at end of the period |
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
ATR has sales to and purchases from ATR’s minority shareholder and its affiliates and sales to a shareholder of one of the Corporation’s other joint ventures in China and its affiliates. These sales and purchases, which were in the ordinary course of business, for the three and nine months ended September 30, 2024 and 2023 were as follows:
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
||||
|
|
USD |
|
|
RMB |
|
|
USD |
|
|
RMB |
|
||||
Purchases from related parties |
|
$ |
1,994 |
|
|
|
14,221 |
|
|
$ |
1,913 |
|
|
|
13,752 |
|
Sales to related parties |
|
$ |
4,094 |
|
|
|
29,156 |
|
|
$ |
18 |
|
|
|
346 |
|
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
||||
|
|
USD |
|
|
RMB |
|
|
USD |
|
|
RMB |
|
||||
Purchases from related parties |
|
$ |
5,132 |
|
|
|
36,809 |
|
|
$ |
5,236 |
|
|
|
36,885 |
|
Sales to related parties |
|
$ |
12,267 |
|
|
|
87,980 |
|
|
$ |
2,741 |
|
|
|
19,306 |
|
20
Balances outstanding with ATR’s minority shareholder including its affiliates and the other joint venture’s shareholder and its affiliates as of September 30, 2024 and December 31, 2023 were as follows:
|
|
September 30, 2024 |
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
December 31, 2023 |
|
||||
|
|
USD |
|
|
RMB |
|
|
USD |
|
|
RMB |
|
||||
Accounts receivable from related parties |
|
$ |
2,511 |
|
|
|
17,622 |
|
|
$ |
190 |
|
|
|
1,350 |
|
Accounts payable to related parties |
|
$ |
2,066 |
|
|
|
14,499 |
|
|
$ |
401 |
|
|
|
2,841 |
|
Other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer deposits |
|
$ |
- |
|
|
|
- |
|
|
$ |
149 |
|
|
|
1,056 |
|
The manufacturing facilities of ATR are located on land leased by ATR from the other partner. The land lease commenced in 2007, the date the joint venture was formed, and continues through 2054, the expected end date of the joint venture, and includes variable lease payment provisions based on the land standard price prevailing in Taiyuan, China, where the joint venture is located. Rent paid by ATR to the other partner approximated $34 (RMB 223) for each of the three months ended September 30, 2024 and 2023 and $95 (RMB 669) for each of the nine months ended September 30, 2024 and 2023, which is included in purchases from related parties.
In addition, the Corporation had sales, in the ordinary course of business, to a wholly owned subsidiary of Crawford United Corporation which, along with other affiliated persons (collectively, the “Crawford Group”), was the beneficial owner of greater than 5% of the Corporation’s stock at December 31, 2023. Pursuant to Amendment No. 5 to Schedule 13D filed by the Crawford Group with the SEC on February 20, 2024, the Crawford Group ceased to beneficially own greater than 5% of the Corporation’s stock as of February 16, 2024. The trade receivable with the Crawford Group was $722 at December 31, 2023.
Note 18 – Business Segments
The FCEP segment produces forged hardened steel rolls, cast rolls and forged engineered products (“FEP”). Forged hardened steel rolls are used primarily in cold rolling mills by producers of steel, aluminum and other metals. Cast rolls, which are produced in a variety of iron and steel qualities, are used mainly in hot and cold strip mills, medium/heavy section mills and plate mills. FEP principally are sold to customers in the steel distribution market, oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, and Slovenia and equity interests in three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North American and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world.
The ALP segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid. Aerofin produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including original equipment manufacturers, 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 utilizes an independent group of sales offices located throughout the United States and Canada.
21
Presented below are the net sales and (loss) income before income taxes for the Corporation’s two business segments and sales by product line. When disaggregating revenue, consideration is given to information regularly reviewed by the chief operating decision-maker to evaluate the financial performance of the operating segments and make resource allocation decisions.
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
||||
Forged and Cast Engineered Products |
|
|
|
|
|
|
|
|
|
|
|
||||
Forged and cast mill rolls |
$ |
63,833 |
|
|
$ |
68,325 |
|
|
$ |
209,876 |
|
|
$ |
213,027 |
|
FEP |
|
3,370 |
|
|
|
5,300 |
|
|
|
10,229 |
|
|
|
14,977 |
|
Forged and Cast Engineered Products |
|
67,203 |
|
|
|
73,625 |
|
|
|
220,105 |
|
|
|
228,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Air and Liquid Processing |
|
|
|
|
|
|
|
|
|
|
|
||||
Air handling systems |
|
8,853 |
|
|
|
9,357 |
|
|
|
35,406 |
|
|
|
27,453 |
|
Heat exchange coils |
|
10,824 |
|
|
|
10,068 |
|
|
|
33,626 |
|
|
|
31,808 |
|
Centrifugal pumps |
|
9,286 |
|
|
|
9,168 |
|
|
|
28,232 |
|
|
|
26,967 |
|
Air and Liquid Processing |
|
28,963 |
|
|
|
28,593 |
|
|
|
97,264 |
|
|
|
86,228 |
|
Total Reportable Segments |
$ |
96,166 |
|
|
$ |
102,218 |
|
|
$ |
317,369 |
|
|
$ |
314,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Loss) income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
||||
Forged and Cast Engineered Products (1) |
$ |
2,456 |
|
|
$ |
1,448 |
|
|
$ |
9,393 |
|
|
$ |
7,576 |
|
Air and Liquid Processing (2) |
|
3,134 |
|
|
|
3,456 |
|
|
|
8,290 |
|
|
|
9,386 |
|
Total Reportable Segments |
|
5,590 |
|
|
|
4,904 |
|
|
|
17,683 |
|
|
|
16,962 |
|
Other expense, including corporate costs |
|
(6,408 |
) |
|
|
(3,593 |
) |
|
|
(16,838 |
) |
|
|
(13,205 |
) |
Total |
$ |
(818 |
) |
|
$ |
1,311 |
|
|
$ |
845 |
|
|
$ |
3,757 |
|
(1) Income before income taxes for Forged and Cast Engineered Products for the nine months ended September 30, 2023 includes proceeds of approximately $1,874 for the reimbursement of past energy costs at one of the Corporation’s foreign operations by its local government. No future performance or conditions exist related to the reimbursement and, currently, no further reimbursements are expected.
(2) Income before income taxes for Air and Liquid Processing for the three and nine months ended September 30, 2023 includes proceeds of approximately $191 from an insolvent insurance carrier.
22
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share amounts)
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by us or on behalf of Ampco-Pittsburgh Corporation and its subsidiaries (collectively, “we,” “us,” “our,” or the “Corporation”). Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q, as well as the condensed consolidated financial statements and notes hereto, may include, but are not limited to, statements about operating performance, trends and events we expect or anticipate will occur in the future, statements about sales and production levels, timing of orders for our products, restructurings, the impact from pandemics and geopolitical conflicts, profitability and anticipated expenses, inflation, the global supply chain, future proceeds from the exercise of outstanding warrants, and cash outflows. All statements in this document other than statements of historical fact are statements that are, or could be, deemed “forward-looking statements” within the meaning of the Act and words such as “may,” “will,” “intend,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “target,” “goal,” “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:
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.
23
The Business
The Corporation manufactures and sells highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It operates in two business segments – the Forged and Cast Engineered Products (“FCEP”) segment and the Air and Liquid Processing (“ALP”) segment. This segment presentation is consistent with how the Corporation’s chief operating decision-maker evaluates financial performance and makes resource allocation and strategic decisions about the business.
The FCEP segment produces forged hardened steel rolls, cast rolls and forged engineered products (“FEP”). Forged hardened steel rolls are used primarily in cold rolling mills by producers of steel, aluminum and other metals. Cast rolls, which are produced in a variety of iron and steel qualities, are used mainly in hot and cold strip mills, medium/heavy section mills and plate mills. FEP principally are sold to customers in the steel distribution market, oil and gas industry and the aluminum and plastic extrusion industries. The segment has operations in the United States, England, Sweden, and Slovenia, and an equity interest in three joint venture companies in China. Collectively, the segment primarily competes with European, Asian and North and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world.
The ALP segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation. Aerofin produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including original equipment manufacturers, 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 utilizes an independent group of sales offices located throughout the United States and Canada.
Executive Overview
For the FCEP segment, demand for steel in the segment’s two largest markets, North America and Europe, has been flat when compared to the prior year, resulting in customers operating with lower overall roll inventories and placing orders for new rolls on an as-needed basis. Order intake has begun to show signs of improvement with shipments expecting to increase for the segment’s cast roll facilities in early 2025 and the segment’s forge roll facilities by mid-2025. Pricing has been stable and market share has increased, compared to a year ago, which is expected to improve the segment’s overall utilization in 2025 when compared to 2024. European steel producers, however, continue to operate at lower levels compared to pre-pandemic levels as Europe continues to experience economic uncertainty. Additionally, increased entry of low-priced products from other countries has negatively impacted local demand both in Europe and the U.S. with several of the segment’s largest customers engaging in trade cases to reduce the number of imports into the U.S. The FEP market remains challenged by low activity among bar distribution customers, improved block utilization, and lower activity among the segment’s block customers. The primary focus for the FCEP segment is to maintain a strong position in the roll market and to continue to improve operational efficiency and equipment reliability resulting from the completion of the previously announced capital program.
For the ALP segment, businesses are benefiting from steady demand and increased market share but are facing increasing production costs and supply chain issues as a result of the lingering effects from a post-pandemic environment. The segment has been implementing price increases for certain of its products to help mitigate these inflationary effects. The focus for this segment is to grow revenues, strengthen engineering and manufacturing capabilities to keep pace with growth opportunities and continue to improve its sales distribution network.
The Corporation is actively monitoring, and will continue to actively monitor, the lingering effects from a post-pandemic environment, repercussions from the Russia-Ukraine and Middle East conflicts and similar geopolitical matters, economic conditions, and other developments relevant to its business including the potential impact on its operations, financial condition, liquidity, suppliers, industry, and workforce.
24
Selected Financial Information
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forged and Cast Engineered Products |
|
$ |
67,203 |
|
|
$ |
73,625 |
|
|
$ |
(6,422 |
) |
|
$ |
220,105 |
|
|
$ |
228,004 |
|
|
$ |
(7,899 |
) |
Air and Liquid Processing |
|
|
28,963 |
|
|
|
28,593 |
|
|
|
370 |
|
|
|
97,264 |
|
|
|
86,228 |
|
|
|
11,036 |
|
Consolidated |
|
$ |
96,166 |
|
|
$ |
102,218 |
|
|
$ |
(6,052 |
) |
|
$ |
317,369 |
|
|
$ |
314,232 |
|
|
$ |
3,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forged and Cast Engineered Products |
|
$ |
2,456 |
|
|
$ |
1,448 |
|
|
$ |
1,008 |
|
|
$ |
9,393 |
|
|
$ |
7,576 |
|
|
$ |
1,817 |
|
Air and Liquid Processing |
|
|
3,134 |
|
|
|
3,456 |
|
|
|
(322 |
) |
|
|
8,290 |
|
|
|
9,386 |
|
|
|
(1,096 |
) |
Corporate costs |
|
|
(3,720 |
) |
|
|
(3,182 |
) |
|
|
(538 |
) |
|
|
(10,688 |
) |
|
|
(9,959 |
) |
|
|
(729 |
) |
Consolidated |
|
$ |
1,870 |
|
|
$ |
1,722 |
|
|
$ |
148 |
|
|
$ |
6,995 |
|
|
$ |
7,003 |
|
|
$ |
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
||||||
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forged and Cast Engineered Products |
|
|
|
|
|
|
|
|
|
|
$ |
252,138 |
|
|
$ |
247,603 |
|
|
$ |
4,535 |
|
|||
Air and Liquid Processing |
|
|
|
|
|
|
|
|
|
|
|
131,412 |
|
|
|
131,309 |
|
|
|
103 |
|
|||
Consolidated |
|
|
|
|
|
|
|
|
|
|
$ |
383,550 |
|
|
$ |
378,912 |
|
|
$ |
4,638 |
|
|||
Net sales approximated $96,166 and $102,218 for the three months ended September 30, 2024 and 2023, respectively, and $317,369 and $314,232 for the nine months ended September 30, 2024 and 2023, respectively. The decrease for the three months ended September 30, 2024, when compared to September 30, 2023, is attributable to lower sales for the FCEP segment while the increase for the nine months ended September 30, 2024, when compared to September 30, 2023, is attributable to higher sales for the ALP segment. A discussion of net sales for the Corporation’s two segments is included below.
Income from operations approximated $1,870 and $1,722 for the three months ended September 30, 2024 and 2023, respectively, and $6,995 and $7,003 for the nine months ended September 30, 2024 and 2023, respectively. Included in operating income for the three and nine months ended September 30, 2023 is a credit of approximately $191 for proceeds received from an insolvent asbestos-related insurance carrier (the “Asbestos-Related Credit”) and, for the nine months ended September 30, 2023, a credit of approximately $1,874 for the reimbursement of past energy costs at one of the Corporation’s foreign operations by its local government (the “Foreign Energy Credit”). A discussion of income from operations for the Corporation’s two segments is included below.
Backlog equaled $383,550 as of September 30, 2024 versus $378,912 as of December 31, 2023. Backlog represents the accumulation of firm orders on hand which: (i) are supported by evidence of a contractual arrangement, (ii) include a fixed and determinable sales price, (iii) have reasonably assured collectability, and (iv) generally are expected to ship within two years from the backlog reporting date. Backlog at a certain date may not be a direct measure of future revenue for a particular order because price increases, negotiated subsequently to the original order, are not included in backlog until the updated contract is received from the customer and certain surcharges are not determinable until the order is complete and ready for shipment to the customer. Approximately 71% of the backlog is expected to be released after 2024. A discussion of backlog by segment is included below.
Costs of products sold, excluding depreciation and amortization, as a percentage of net sales, for the three months ended September 30, 2024 and 2023 approximated 79.4% and 82.7%, respectively, and for the nine months ended September 30, 2024 and 2023 approximated 80.8% and 81.6%, respectively, due principally to improved margins for the FCEP segment. For the ALP segment, costs of products sold, excluding depreciation and amortization, were comparable for the three months ended September 30, 2024 when compared to the same period of the prior year, but increased for the nine months ended September 30, 2024 when compared to the same period of the prior year primarily due to product mix and shipment of older lower-margin orders for centrifugal pumps.
Selling and administrative expenses approximated $13,332 and $11,821 for the three months ended September 30, 2024 and 2023, respectively, and $39,855 and $38,101 for the nine months ended September 30, 2024 and 2023, respectively. The increase in selling and administrative expenses for the current year periods is primarily due to higher employee-related costs, professional fees and an increase in exchange rates used to translate selling and administrative expenses of the Corporation’s foreign subsidiaries into the U.S. dollar.
25
Credit for asbestos litigation of $191 in 2023 represents a credit for proceeds received from an insolvent asbestos-related insurance carrier.
Investment-related income relates primarily to dividends from one of the Corporation’s Chinese joint ventures. In the third quarter of 2024 and 2023, the Chinese joint venture declared dividends totaling $62 and $92 for the Corporation, respectively.
Interest expense approximated $2,976 and $2,468 for the three months ended September 30, 2024 and 2023, respectively, and $8,750 and $6,784, for the nine months ended September 30, 2024 and 2023, respectively. When compared to the same periods of the prior year, the increase is principally due to:
Other income – net is comprised of the following:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||
|
|
2024 |
|
2023 |
|
Change |
|
|
2024 |
|
2023 |
|
Change |
|
||||||
Net pension and other postretirement income |
|
$ |
1,222 |
|
$ |
1,257 |
|
$ |
(35 |
) |
|
$ |
3,588 |
|
$ |
3,770 |
|
$ |
(182 |
) |
(Loss) gain on foreign exchange transactions |
|
|
(1,130 |
) |
|
892 |
|
|
(2,022 |
) |
|
|
(1,320 |
) |
|
(267 |
) |
|
(1,053 |
) |
Unrealized gain (loss) on Rabbi trust investments |
|
|
85 |
|
|
(207 |
) |
|
292 |
|
|
|
191 |
|
|
41 |
|
|
150 |
|
Other |
|
|
34 |
|
|
17 |
|
|
17 |
|
|
|
37 |
|
|
(120 |
) |
|
157 |
|
|
|
$ |
211 |
|
$ |
1,959 |
|
$ |
(1,748 |
) |
|
$ |
2,496 |
|
$ |
3,424 |
|
$ |
(928 |
) |
Other income – net fluctuated period over period principally due to changes in foreign exchange gains and losses.
Income tax provision for each of the periods includes income taxes associated with the Corporation’s profitable operations. An income tax benefit is not able to be recognized on losses of certain of the Corporation’s entities since it is “more likely than not” the asset will not be realized. Accordingly, changes in the income tax provision for each of the periods include the effects of changes in the pre-tax income of the Corporation’s profitable operations in each jurisdiction and changes in expectations as to whether an income tax benefit will be able to be realized for the deferred income tax assets recognized.
In addition, as of December 31, 2023, as a result of the Corporation moving certain of its cast roll production from the U.K. to Sweden given the significant increases in energy costs in the U.K. due in part to Russia-Ukraine conflict, the Corporation’s U.K. operations entered into a three-year cumulative loss position resulting in a valuation allowance being established against the net deferred income tax assets of the U.K. operations. As of September 30, 2024, the U.K. operations remain in a three-year cumulative loss position. Accordingly, the income tax provision for the three and nine months ended September 30, 2024 does not include any income tax benefit for the net operating losses of the U.K. operations. By comparison, the income tax provision for the three and nine months ended September 30, 2023, which is prior to establishing the valuation allowance, includes an income tax benefit for the operating losses of the U.K. operations of $636 and $1,177 for the three and nine months ended September 30, 2023, respectively.
Valuation allowances are recorded against the majority of the Corporation’s deferred income tax assets. The Corporation will maintain the valuation allowances until there is sufficient evidence to support the reversal of all or some portion of the allowances. Given the Corporation’s current earnings and anticipated future earnings in Sweden, the Corporation believes there is a reasonable possibility within the next 12 months, sufficient positive evidence may become available to allow the Corporation to conclude some portion of the valuation allowance will no longer be needed. Release of any portion of the valuation allowance would result in the recognition of deferred income tax assets on the Corporation’s condensed consolidated balance sheet and a decrease to the Corporation’s income tax expense in the period the release is recorded. The exact timing and the amount of the valuation allowance released are subject to, among many items, the level of profitability achieved. Once the valuation allowance is completely reversed, a tax provision would be recognized on future earnings.
26
Net (loss) income attributable to Ampco-Pittsburgh and net (loss) income per common share attributable to Ampco-Pittsburgh equaled $(1,959) and $(0.10) per common share and $809 and $0.04 per common share for the three months ended September 30, 2024 and 2023, respectively, and $(2,664) and $(0.13) per common share and $1,908 and $0.10 per common share for the nine months ended September 30, 2024 and 2023, respectively.
Net income attributable to Ampco-Pittsburgh and net income per common share attributable to Ampco-Pittsburgh for the three months ended September 30, 2023 include an after-tax benefit of $185 or $0.01 per common share associated with the Asbestos-Related Credit.
Net income attributable to Ampco-Pittsburgh and net income per common share attributable to Ampco-Pittsburgh for the nine months ended September 30, 2023 include an after-tax benefit of $2,059 or $0.11 per common share associated with the Asbestos-Related Credit and the Foreign Energy Credit.
Net Sales and Operating Results by Segment
Forged and Cast Engineered Products
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forged and cast mill rolls |
|
$ |
63,833 |
|
|
$ |
68,325 |
|
|
$ |
(4,492 |
) |
|
$ |
209,876 |
|
|
$ |
213,027 |
|
|
$ |
(3,151 |
) |
FEP |
|
|
3,370 |
|
|
|
5,300 |
|
|
|
(1,930 |
) |
|
|
10,229 |
|
|
|
14,977 |
|
|
|
(4,748 |
) |
|
|
$ |
67,203 |
|
|
$ |
73,625 |
|
|
$ |
(6,422 |
) |
|
$ |
220,105 |
|
|
$ |
228,004 |
|
|
$ |
(7,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from Operations |
|
$ |
2,456 |
|
|
$ |
1,448 |
|
|
$ |
1,008 |
|
|
$ |
9,393 |
|
|
$ |
7,576 |
|
|
$ |
1,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
||||||
Backlog |
|
|
|
|
|
|
|
|
|
|
$ |
252,138 |
|
|
$ |
247,603 |
|
|
$ |
4,535 |
|
|||
The change in net sales for the three and nine months ended September 30, 2024, when compared to the same periods of the prior year, is primarily due to the following:
Income from operations for the three and nine months ended September 30, 2024 increased when compared to the three and nine months ended September 30, 2023 primarily due to:
27
Backlog increased at September 30, 2024 from December 31, 2023 by $4,535 due to an increase in backlog for mill roll orders of approximately $3,800 and higher exchange rates used to translate the backlog of the Corporation’s foreign subsidies into the U.S. dollar which increased backlog by approximately $770. The backlog for FEP was comparable at September 30, 2024 and December 31, 2023. At September 30, 2024, approximately 68% of backlog is expected to ship after 2024.
Air and Liquid Processing
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Air handling systems |
|
$ |
8,853 |
|
|
$ |
9,357 |
|
|
$ |
(504 |
) |
|
$ |
35,406 |
|
|
$ |
27,453 |
|
|
$ |
7,953 |
|
Heat exchange coils |
|
|
10,824 |
|
|
|
10,068 |
|
|
|
756 |
|
|
|
33,626 |
|
|
|
31,808 |
|
|
|
1,818 |
|
Centrifugal pumps |
|
|
9,286 |
|
|
|
9,168 |
|
|
|
118 |
|
|
|
28,232 |
|
|
|
26,967 |
|
|
|
1,265 |
|
|
|
$ |
28,963 |
|
|
$ |
28,593 |
|
|
$ |
370 |
|
|
$ |
97,264 |
|
|
$ |
86,228 |
|
|
$ |
11,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from Operations |
|
$ |
3,134 |
|
|
$ |
3,456 |
|
|
$ |
(322 |
) |
|
$ |
8,290 |
|
|
$ |
9,386 |
|
|
$ |
(1,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
||||||
Backlog |
|
|
|
|
|
|
|
|
|
|
$ |
131,412 |
|
|
$ |
131,309 |
|
|
$ |
103 |
|
|||
Net sales for the three and nine months ended September 30, 2024 improved over the comparable prior year periods. Net sales of air handling units for the third quarter of 2024 were slightly less than net sales for the comparable prior year period primarily due to timing of shipments and associated revenue recognition. Net sales of air handling systems for the nine months ended September 30, 2024 exceeded the comparable prior year period due to higher order intake as a result of the segment’s expansion of its sales distribution network throughout 2023 and the additional manufacturing facility opened in the third quarter of 2023. Net sales of heat exchange coils for the three and nine months ended September 30, 2024 improved when compared to net sales for the three and nine months ended September 30, 2023 primarily as a result of higher net sales to original equipment manufacturers and power generation customers. Net sales of centrifugal pumps for the three and nine months ended September 30, 2024 exceeded the comparable prior year periods principally due to a higher volume of shipments to commercial customers.
Operating income decreased for each of the current year periods, when compared to the same periods of the prior year, principally due to:
28
Backlog at September 30, 2024 and December 31, 2023 was comparable. Backlog for centrifugal pumps improved from year-end 2023 by approximately $4,600 due to improved order intake while backlog for air handling units decreased from year-end 2023 by approximately $4,600 due to the strong sales and lower order activity as a result of the manufacturing facilities being at capacity. Backlog for heat exchangers at September 30, 2024 was modestly higher versus December 31, 2023. At September 30, 2024, approximately 77% of backlog is expected to ship after 2024.
Non-GAAP Financial Measures
The Corporation presents non-GAAP adjusted income from operations which is calculated as income from operations excluding the Asbestos-Related Credit for the three and nine months ended September 30, 2023 and the Foreign Energy Credit for the nine months ended September 30, 2023. This non-GAAP financial measure is not based on any standardized methodology prescribed by accounting principles generally accepted in the United States of America (“GAAP”) and may not be comparable to similarly titled measures presented by other companies.
The Corporation has presented non-GAAP adjusted income from operations because it is a key measure used by the Corporation’s management and Board of Directors to understand and evaluate the Corporation’s operating performance and to develop operational goals for managing its business. This non-GAAP financial measure excludes significant charges or credits that are one-time charges or credits, or unrelated to the Corporation’s ongoing results of operations, or beyond its control. Additionally, a portion of the incentive and compensation arrangements for certain employees is based on the Corporation’s business performance. The Corporation believes this non-GAAP financial measure helps identify underlying trends in its business that otherwise could be masked by the effect of the items it excludes from adjusted income from operations. In particular, the Corporation believes the exclusion of the Asbestos-Related Credit and the Foreign Energy Credit can provide a useful measure for period-to-period comparisons of the Corporation’s core business performance. The Corporation also believes this non-GAAP financial measure provides useful information to management, shareholders and investors, and others in understanding and evaluating its operating results, enhancing the overall understanding of its past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by the Corporation’s management in its financial and operational decision-making.
Adjusted income from operations is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are limitations related to the use of adjusted income from operations rather than income from operations, which is the nearest GAAP equivalent. Among other things, there can be no assurance that additional benefits similar to the Asbestos-Related Credit and the Foreign Energy Credit will not occur in future periods.
The adjustments reflected in adjusted income from operations are pre-tax. The tax impact associated with these adjustments is not significant due to the Corporation having a valuation allowance recorded against the deferred income tax assets for the jurisdictions where the income is recognized.
The following is a reconciliation of income from operations to non-GAAP adjusted income from operations for the three and nine months ended September 30, 2024 and 2023, respectively:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Income from operations, as reported (GAAP) |
|
$ |
1,870 |
|
|
$ |
1,722 |
|
|
$ |
6,995 |
|
|
$ |
7,003 |
|
Asbestos-Related Credit (1) |
|
|
- |
|
|
|
(191 |
) |
|
|
- |
|
|
|
(191 |
) |
Foreign Energy Credit (2) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,874 |
) |
Income from operations, as adjusted (Non-GAAP) |
|
$ |
1,870 |
|
|
$ |
1,531 |
|
|
$ |
6,995 |
|
|
$ |
4,938 |
|
(1) Represents proceeds received from an insolvent asbestos-related insurance carrier.
(2) Represents reimbursement of past energy costs at one of the Corporation’s foreign operations by its local government.
Liquidity and Capital Resources
|
|
Nine Months Ended September 30, |
|
|||||||
|
|
2024 |
|
2023 |
|
Change |
|
|||
Net cash flows provided by (used in) operating activities |
|
$ |
10,576 |
|
$ |
(10,327 |
) |
$ |
20,903 |
|
Net cash flows used in investing activities |
|
|
(6,657 |
) |
|
(13,515 |
) |
|
6,858 |
|
Net cash flows provided by financing activities |
|
|
557 |
|
|
21,323 |
|
|
(20,766 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
82 |
|
|
(146 |
) |
|
228 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
4,558 |
|
|
(2,665 |
) |
|
7,223 |
|
Cash and cash equivalents at beginning of period |
|
|
7,286 |
|
|
8,735 |
|
|
(1,449 |
) |
Cash and cash equivalents at end of period |
|
$ |
11,844 |
|
$ |
6,070 |
|
$ |
5,774 |
|
29
Net cash flows provided by (used in) operating activities equaled $10,576 and $(10,327) for the nine months ended September 30, 2024 and 2023, respectively. The change in net cash flows provided by operating activities for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023 primarily is due to a lower investment in trade working capital. In addition, net cash flows provided by (used in) operating activities includes:
Asbestos-related payments are expected to continue in the foreseeable future. The amount of asbestos-related payments and corresponding insurance recoveries is difficult to predict and can vary based on a number of factors, including changes in assumptions, as outlined in Note 15 to the condensed consolidated financial statements.
Net cash flows used in investing activities equaled $(6,657) and $(13,515) for the nine months ended September 30, 2024 and 2023, respectively, and include primarily capital expenditures for the FCEP segment related to the previously announced capital program undertaken to upgrade existing equipment at certain of its locations. The capital program was completed during the second quarter of 2024. In addition, a division of the ALP segment has initiated purchases of key machinery which may be able to be subsidized by various government incentives such as grants. Through September 30, 2024, the Corporation received approximately $1,300 in government incentives to help offset the cost of such key machinery. To date, no repayment obligations exist for any government incentives received. At September 30, 2024, commitments for future capital expenditures approximated $6,000 which is expected to be spent over the next 12-18 months.
Net cash flows provided by financing activities equaled $557 and $21,323 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $20,766 primarily due to:
The effect of exchange rate changes on cash and cash equivalents is primarily attributable to the fluctuation of the British pound and Swedish krona against the U.S. dollar.
As a result of the above, cash and cash equivalents increased by $4,558 during 2024 and ended the period at $11,844 in comparison to $7,286 at December 31, 2023. The majority of the Corporation’s cash and cash equivalents is held by its foreign operations. Domestic customer remittances are used to pay down borrowings under the Corporation’s revolving credit facility daily, resulting in minimal cash maintained by the Corporation’s domestic operations. Cash held by the Corporation’s foreign operations is considered to be permanently re-invested; accordingly, a provision for estimated local and withholding tax has not been made. If the Corporation were to remit any foreign earnings to it or any of its U.S. entities, the estimated tax impact would be insignificant.
Funds on hand, funds generated from future operations and availability under the Corporation’s revolving credit facility are expected to be sufficient to finance the Corporation’s operational requirements and debt service costs. The maturity date for the revolving credit facility is June 29, 2026 and, subject to the other terms and conditions of the revolving credit agreement, will become due on that date. As of September 30, 2024, remaining availability under the revolving credit facility approximated $20,507, net of standard availability reserves. In addition, although the previously announced capital program undertaken to upgrade existing equipment at certain of the Corporation’s FCEP locations has been completed, subject to the approval of the lender, approximately $1,589 remains available under the Corporation’s equipment finance facility to finance other capital projects of the Corporation. Since a significant portion of the Corporation’s debt includes variable rate interest, increases in the underlying benchmark rates will increase the Corporation’s debt service costs.
While the Corporation anticipates it has sufficient liquidity to finance the Corporation’s operational requirements, debt service costs and capital expenditures, it may from time to time consider alternatives, potential transactions and other strategies in an attempt to enhance its liquidity. Given such measures are forward looking, the Corporation cannot ensure it would be successful in achieving such enhancements or be able to improve its liquidity.
30
Litigation and Environmental Matters
See Note 15 and Note 16 to the condensed consolidated financial statements.
Critical Accounting Policies
The Corporation’s critical accounting policies, as summarized in its Annual Report on Form 10-K for the year ended December 31, 2023, remain unchanged.
Recently Issued Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements.
31
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 – CONTROLS AND PROCEDURES
Disclosure controls and procedures. An evaluation of the effectiveness of the Corporation’s disclosure controls and procedures as of the end of the period covered by this report was carried out under the supervision, and with the participation, of management, including the principal executive officer and principal financial officer. Disclosure controls and procedures are defined under Securities and Exchange Commission (“SEC”) rules as controls and other procedures designed to ensure information required to be disclosed by a company in the reports it files under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) is recorded, processed, summarized and reported within the required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by an issuer in the reports it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, the Corporation’s management, including the principal executive officer and principal financial officer, has concluded the Corporation’s disclosure controls and procedures were effective as of September 30, 2024.
Changes in internal control. There has been no change in the Corporation’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
32
PART II – OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 15 to the condensed consolidated financial statements (Litigation) is incorporated herein by reference.
Item 1A Risk Factors
There are no material changes to the “Risk Factors” included under Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023, except as to the Corporation’s ability to satisfy the continued listing requirements of the New York Stock Exchange (“NYSE”) or the NYSE American Exchange.
The Corporation’s common stock is currently listed on the NYSE and its Series A warrants are listed on the NYSE American Exchange, with each imposing objective and subjective requirements for continued listing. Continued listing criteria of the NYSE include maintaining prescribed levels of financial condition, market capitalization and shareholders’ equity. Specifically, a company with common equity listed on the NYSE is subject to delisting if (i) its average market capitalization over a consecutive 30 trading-day period is below $15 million, or (ii) its common stock trades at an “abnormally low” selling price or volume of trading. In either case, if not maintained by the Corporation, the NYSE will promptly suspend the Corporation’s common stock from trading on the NYSE and would begin the process to delist the Corporation’s common stock from the NYSE, subject to the Corporation’s right to appeal under the NYSE rules.
Additionally, the NYSE requires a listed company 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 and maintain a share price of at least $1.00. If the company does not regain compliance within a cure period up to a maximum of 18 months, it will be subject to delisting. Should the Corporation receive a notice of non-compliance, the NYSE may allow up to an 18-month cure period if the Corporation presents a plan to become compliant with adequate strategic actions and progress reporting satisfactory to the NYSE. If the NYSE determines the Corporation’s common stock fails to satisfy the requirements for continued listing, or the Corporation continues to fail to meet listing criteria, the Corporation’s common stock could be de-listed from the NYSE, which could impact potential liquidity for the Corporation’s shareholders.
Continued listing criteria of the NYSE American Exchange include maintaining prescribed levels of financial condition, market capitalization and shareholders’ equity. Among other requirements, there must be an aggregate of at least 50,000 Series A warrants. Satisfaction of the NYSE American Exchange’s listing requirements therefore depends upon the extent to which warrant holders elect to exercise their Series A warrants. There can be no assurance the Corporation will continue to meet these, or other, listing standards of the NYSE American Exchange with respect to the Series A warrants. If the Corporation fails to meet the listing criteria, the Corporation’s warrants could be de-listed from the NYSE American Exchange, which could impact potential liquidity for the Corporation’s shareholders.
These “Risk Factors” should be carefully considered, understanding such risk factors may not describe every risk facing the Corporation. Additional risks and uncertainties not currently known to the Corporation or that the Corporation currently deems to be immaterial could adversely affect its business, financial condition and results of operations in the future.
Items 2-4 None.
Item 5 Other Information
(a) None.
(b) None.
(c) During the three months ended September 30, 2024, no director or officer of the Corporation adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement,' with each term being defined in Item 408(a) of Regulation S-K.
33
Item 6 Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Form 10-Q.
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(3.1) |
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(3.2) |
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(3.3) |
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(31.1) |
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† |
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(31.2) |
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† |
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(32.1) |
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†† |
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(32.2) |
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†† |
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(101.INS) |
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* |
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Inline XBRL Instance Document |
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(101.SCH) |
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** |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Document |
|
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(104) |
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|
The cover page for the Corporation’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101. |
† |
|
|
|
Filed herewith. |
†† |
|
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|
Furnished herewith. |
+ |
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|
|
Management contracts, compensatory plans or arrangements required to be filed as an exhibit hereto pursuant to Item 601 of Regulation S-K. |
* |
|
|
|
The instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document. |
** |
|
|
|
Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets at September 30, 2024 and December 31, 2023, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023, (iv) the Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2024 and 2023, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023, and (vi) Notes to Condensed Consolidated Financial Statements. |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
AMPCO-PITTSBURGH CORPORATION |
||
|
|
|
|
|
DATE: November 12, 2024 |
|
BY: |
|
/s/ J. Brett McBrayer |
|
|
|
|
J. Brett McBrayer |
|
|
|
|
Director and Chief Executive Officer |
|
|
|
|
|
DATE: November 12, 2024 |
|
BY: |
|
/s/ Michael G. McAuley |
|
|
|
|
Michael G. McAuley |
|
|
|
|
Senior Vice President, Chief Financial Officer and Treasurer |
35
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, J. Brett McBrayer, certify that:
|
/s/ J. Brett McBrayer |
J. Brett McBrayer |
Director and Chief Executive Officer |
November 12, 2024 |
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael G. McAuley, certify that:
|
/s/ Michael G. McAuley |
Michael G. McAuley |
Senior Vice President, Chief Financial Officer and Treasurer |
November 12, 2024 |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ampco-Pittsburgh Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
|
/s/ J. Brett McBrayer |
J. Brett McBrayer |
Director and Chief Executive Officer |
November 12, 2024 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ampco-Pittsburgh Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
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/s/ Michael G. McAuley |
Michael G. McAuley |
|
Senior Vice President, Chief Financial Officer and Treasurer |
November 12, 2024 |