Ampco-Pittsburgh(AP) - 2020 Q4 - Annual Report

Part I Business Ampco-Pittsburgh Corporation manufactures specialty metal products and customized equipment through its Forged and Cast Engineered Products and Air and Liquid Processing segments - The Corporation operates in two business segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing[5] - The FCEP segment produces forged hardened steel rolls, cast rolls, and open-die forged products for steel, aluminum, oil and gas, and other industries, with global operations[7] - The Air and Liquid Processing segment manufactures custom heat exchange coils (Aerofin), air handling systems (Buffalo Air Handling), and centrifugal pumps (Buffalo Pumps) for various industrial, commercial, and defense markets[8][10] - In response to the COVID-19 pandemic, the company periodically idled certain FCEP operations and furloughed employees, while the Air and Liquid Processing segment was less affected[6] Order Backlog and Employees | Metric | Value | Date | | :--- | :--- | :--- | | Order Backlog | $246 million | Dec 31, 2020 | | Order Backlog | $321 million | Dec 31, 2019 | | Worldwide Employees | 1,533 | Dec 31, 2020 | Risk Factors The company faces material risks including cyclical demand, foreign currency fluctuations, commodity price volatility, operational challenges, and COVID-19 impacts - Business and Industry Risks: The company is exposed to cyclical demand from the steel and aluminum industries, excess global steel capacity, foreign exchange rate fluctuations, and commodity price increases[24][25][26] - Operational Risks: Key operational risks include potential work stoppages from union negotiations, reliance on unique equipment like electric arc furnaces, and significant liability from historical asbestos exposure claims[30][31][32] - COVID-19 Risks: The pandemic has caused disruptions, including temporary idling of FCEP facilities, customer-requested delivery delays, and increased economic uncertainty, which could impact operations, financial condition, and liquidity[39][40][41] - Securities Risks: Risks related to securities include potential delisting from the NYSE or NYSE American if listing requirements are not met, and specific risks for Series A warrant holders, such as the stock price not exceeding the exercise price[43][46] - General Risks: The company faces risks from potential cyber-attacks on its IT infrastructure and the challenge of maintaining an effective system of internal controls, which is crucial for reliable financial reporting[49][50] Unresolved Staff Comments The Corporation reports that it has no unresolved staff comments from the SEC - The Corporation has no unresolved staff comments[53] Properties The company lists its principal manufacturing facilities and offices for both segments, located in the US, England, Sweden, Slovenia, and China - The company's principal properties are detailed, including manufacturing facilities and offices for both segments across the US, Europe, and China, with several key US facilities subject to a 2018 sale and leaseback agreement[54][55][57] 2020 Capacity Utilization | Segment | 2020 Capacity Utilization (Normal) | 2020 Capacity Utilization (Adjusted for COVID) | | :--- | :--- | :--- | | FCEP | 70% to 80% | 60% to 70% | | Air and Liquid Processing | 60% to 70% | N/A | Legal Proceedings This section refers to Note 20 (Litigation) and Note 22 (Environmental Matters) in the Consolidated Financial Statements for details on legal proceedings - For information on litigation and environmental legal proceedings, the report directs readers to Note 20 and Note 22 of the Consolidated Financial Statements, respectively[59] Mine Safety Disclosures This item is not applicable to the Corporation - Mine Safety Disclosures are not applicable[59] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ampco-Pittsburgh's common stock trades on the NYSE under 'AP', and Series A warrants trade on the NYSE American under 'AP WS' - Common Stock (Symbol: AP) is traded on the New York Stock Exchange, and Series A Warrants (Symbol: AP WS) are traded on the NYSE American Exchange[62] - The Corporation suspended quarterly cash dividends in mid-2017 and has not paid them since[62] - An equity rights offering was completed in September 2020, issuing common stock and Series A warrants[62] Selected Financial Data This item is not applicable - Selected Financial Data is not applicable[63] Management's Discussion and Analysis of Financial Condition and Results of Operation In 2020, net sales decreased to $328.5 million, but income from continuing operations improved to $6.4 million, driven by restructuring benefits, lower raw material costs, and a tax benefit Financial Metrics Overview | Financial Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $328.5M | $397.9M | | Income (Loss) from Cont. Ops. | $6.4M | ($10.9M) | | Backlog | $246.1M | $321.3M | - The company reduced its total debt to $37.2 million at year-end 2020, a decrease of $33.6 million from 2019, primarily using proceeds from an equity rights offering[65] - The CARES Act provided a discrete income tax benefit of $3.5 million in 2020 due to the carryback of net operating losses[68] - Restructuring efforts in 2019, including the sale of the Avonmore Plant and ASW Steel, helped offset adverse pandemic effects by eliminating excess costs and loss-making operations[69] Consolidated Results of Operations Overview Consolidated net sales fell to $328.5 million in 2020, but gross margin improved to 21.6% due to restructuring benefits and lower raw material costs Consolidated Financial Performance (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $328,544 | $397,904 | | Gross Margin (excl. D&A) | 21.6% | 18.0% | | Selling & Admin Expenses | $45,542 (13.9% of sales) | $53,643 (13.5% of sales) | | Net Income (Loss) Attributable to Ampco | $7,970 | $(20,986) | | Diluted EPS | $0.54 | $(1.67) | Reconciliation to Non-GAAP (in thousands) | Reconciliation to Non-GAAP | 2020 | 2019 | | :--- | :--- | :--- | | Income (Loss) from Cont. Ops. (GAAP) | $6,446 | $(10,908) | | Adjustments (Impairment, Restructuring, etc.) | $(486) | $16,567 | | Adjusted Income from Cont. Ops. (Non-GAAP) | $5,960 | $5,659 | - The improvement in gross margin was primarily due to the FCEP segment benefiting from the elimination of costs from the sold Avonmore plant, lower raw material costs, and improved pricing, which more than offset unabsorbed costs from pandemic-related facility idling[75] Forged and Cast Engineered Products Segment Analysis The FCEP segment's net sales decreased by $67.7 million in 2020, but operating income dramatically improved to $8.6 million due to the absence of prior-year charges and favorable pricing FCEP Segment Performance (in thousands) | FCEP Segment | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $237,889 | $305,630 | | Operating Income (Loss) | $8,621 | $(6,130) | | Backlog | $191,919 | $270,737 | - The $14.8 million improvement in operating results was largely due to the non-recurrence of 2019 charges, including a $10.1 million impairment charge, $4.6 million in excess costs from the sold Avonmore Plant, and a $1.4 million bad debt expense[86] - Positive impacts in 2020 included approximately $3.3 million from better pricing/mix and $4.5 million from lower raw material costs, partially offset by a net negative impact of $8.9 million from unabsorbed costs due to pandemic-related facility idling[87][89] Air and Liquid Processing Segment Analysis The Air and Liquid Processing segment's net sales slightly decreased to $90.7 million, while operating income remained stable at $10.1 million, benefiting from favorable product mix and process improvements Air and Liquid Processing Segment Performance (in thousands) | Air and Liquid Processing Segment | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $90,655 | $92,274 | | Operating Income | $10,133 | $10,002 | | Backlog | $54,212 | $50,594 | - The segment successfully mitigated the negative impacts of the COVID-19 pandemic on its sales and operating income[90] - Backlog increased by $3.6 million, mainly due to higher order intake for centrifugal pumps and a refinement in measuring long-term Navy pump orders[90] Liquidity and Capital Resources The company's liquidity significantly improved in 2020, with net cash from continuing operations reaching $33.6 million, driven by better operating results and lower working capital investment Cash Flow (Continuing Operations, in thousands) | Cash Flow (Continuing Operations) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $33,635 | $(3,294) | | Net Cash Used in Investing Activities | $(7,929) | $(2,662) | | Net Cash Used in Financing Activities | $(17,220) | $(6,617) | - Financing activities included net proceeds of $18.1 million from an equity rights offering, primarily used to repay revolving credit facility borrowings[92] - As of December 31, 2020, cash and cash equivalents stood at $16.8 million, with approximately $48.3 million in remaining availability under its revolving credit facility maturing in May 2022[92] Application of Critical Accounting Policies The company's critical accounting policies involve significant management judgment and estimates, particularly for asbestos liabilities, pension benefits, and deferred tax asset recoverability - Property, Plant and Equipment: The company performed a quantitative impairment analysis as of March 31, 2020, due to COVID-19 being a triggering event, and determined that the assets were not impaired[96][97] - Pension and Other Postretirement Benefits: Accounting relies on key assumptions for discount rates (2.50%-2.63% for domestic plans) and long-term rate of return on plan assets (6.60%-7.25% for domestic plans), where a 1% change in the rate of return could impact annual pension expense by approximately $2.35 million[98] - Asbestos Liability: The company uses a nationally recognized expert to estimate its asbestos liability for claims projected through 2052, involving key assumptions about future claim numbers, settlement costs, and insurance carrier solvency, with a $283,000 charge recorded in 2020 for potential insolvency of one carrier[99] - Income Taxes: A valuation allowance of $42.5 million is recorded against deferred tax assets, reducing the net deferred tax asset to $1.1 million, the amount management believes is 'more likely than not' to be realized[101] Financial Statements and Supplementary Data This section presents the Corporation's audited consolidated financial statements for the fiscal year ended December 31, 2020, including balance sheets, statements of operations, and cash flows, along with accompanying notes Consolidated Balance Sheets As of December 31, 2020, total assets were $463.2 million, total liabilities decreased to $378.2 million, and total shareholders' equity increased to $85.0 million Consolidated Balance Sheet (in thousands) | Balance Sheet (in thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $171,832 | $193,412 | | Total Assets | $463,208 | $506,560 | | Total Current Liabilities | $105,332 | $124,232 | | Long-Term Debt | $24,807 | $50,494 | | Asbestos Liability (Current & Noncurrent) | $180,196 | $207,633 | | Total Liabilities | $378,209 | $450,944 | | Total Shareholders' Equity | $84,999 | $55,616 | Consolidated Statements of Operations For 2020, net sales were $328.5 million, with income from continuing operations of $6.4 million, a significant improvement from a $10.9 million loss in 2019 Consolidated Statement of Operations (in thousands) | Statement of Operations (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $328,544 | $397,904 | | Income (Loss) from Continuing Operations | $6,446 | $(10,908) | | Net Income (Loss) from Continuing Operations | $9,170 | $(10,475) | | Loss from Discontinued Operations, net of tax | $0 | $(9,085) | | Net Income (Loss) Attributable to Ampco-Pittsburgh | $7,970 | $(20,986) | | Diluted EPS | $0.54 | $(1.67) | Consolidated Statements of Cash Flows For 2020, net cash provided by operating activities from continuing operations was $33.6 million, a significant improvement from a cash use in 2019, leading to an increase in cash and cash equivalents Cash Flows (Continuing Operations, in thousands) | Cash Flows (Continuing Ops, in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $33,635 | $(3,294) | | Net cash used in investing activities | $(7,929) | $(2,662) | | Net cash used in financing activities | $(17,220) | $(6,617) | | Net increase (decrease) in cash | $9,882 | $(13,877) | | Cash and cash equivalents at end of year | $16,842 | $6,960 | Notes to Consolidated Financial Statements The notes provide detailed information on the financial statements, covering topics such as discontinued operations, debt structure, pension plans, asbestos liability, and income tax details - Note 2 (Discontinued Operations): The 2019 sale of ASW Steel Inc. was accounted for as a discontinued operation, while the sale of the Avonmore Plant in 2019 resulted in a $10.1 million impairment charge in Q1 2019[153][155] - Note 9 (Debt): Total debt decreased to $37.2 million in 2020 from $70.9 million in 2019, with a $92.5 million revolving credit facility maturing in May 2022, having $6.0 million drawn and $48.3 million available at year-end[172][173] - Note 11 (Pensions): The company has multiple defined benefit pension plans, with U.S. plans having a funded status deficit of $62.9 million and foreign plans a deficit of $3.0 million as of December 31, 2020[192] - Note 20 (Litigation): The company has a significant asbestos liability, estimated at $180.2 million at year-end 2020 for claims projected through 2052, with a corresponding insurance receivable of $117.9 million also recorded[251] - Note 21 (Income Taxes): A valuation allowance of $42.5 million is maintained against deferred tax assets, and the company has federal net operating loss carryforwards of $41.6 million[260] Changes In and Disagreements With Accountants On Accounting and Financial Disclosure The Corporation reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure during the period - There were no disagreements with accountants on accounting and financial disclosure[288] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2020[289] - Based on the COSO framework, management concluded that the Corporation's internal control over financial reporting was effective as of December 31, 2020[290] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for the 2021 Annual Meeting of Shareholders - Information required by this item is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Shareholders[293][294] Executive Compensation Information regarding executive compensation, including the Compensation Discussion and Analysis (CDA), summary compensation tables, and other related disclosures, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[295] Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters Information regarding security ownership by certain beneficial owners and management, as well as details on securities authorized for issuance under equity compensation plans, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[296][297] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[298] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the Report of the Audit Committee in the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[299] Part IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report, including consolidated financial statements, the auditor's report, and a detailed index of exhibits - The report includes the full set of consolidated financial statements and the independent auditor's report[301] - Financial statement schedules are not applicable as the Corporation qualifies as a Smaller Reporting Company[302] - A comprehensive list of exhibits is filed with the report, including key contracts, corporate governance documents, and Sarbanes-Oxley certifications[304][306][307] Form 10-K Summary This item is not applicable - A Form 10-K summary is not applicable[309]