Ampco-Pittsburgh(AP) - 2022 Q1 - Quarterly Report

Part I – Financial Information Item 1 – Financial Statements (Unaudited) This section presents Ampco-Pittsburgh Corporation's unaudited condensed consolidated financial statements and notes for Q1 2022 and 2021 Condensed Consolidated Balance Sheets The balance sheets show an increase in total assets driven by current assets, with a slight rise in shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands): | Metric | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Total Assets | $502,634 | $485,632 | | Total Liabilities | $410,704 | $393,826 | | Total Shareholders' Equity | $91,930 | $91,806 | - Total assets increased by $17,002 thousand from December 31, 2021, to March 31, 2022, primarily driven by an increase in current assets, notably receivables and inventories[6] Condensed Consolidated Statements of Operations The statements of operations reflect increased net sales and a significant rise in net income attributable to Ampco-Pittsburgh Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Net Sales | $94,426 | $86,800 | | Income from Operations | $1,243 | $907 | | Income Before Income Taxes | $1,665 | $695 | | Net Income | $1,609 | $314 | | Net Income Attributable to Ampco-Pittsburgh | $1,645 | $167 | | Basic Net Income Per Share Attributable to Ampco-Pittsburgh | $0.09 | $0.01 | | Diluted Net Income Per Share Attributable to Ampco-Pittsburgh | $0.08 | $0.01 | - Net sales increased by $7,626 thousand year-over-year, and net income attributable to Ampco-Pittsburgh significantly rose from $167 thousand in Q1 2021 to $1,645 thousand in Q1 2022[9] Condensed Consolidated Statements of Comprehensive Loss Despite increased net income, the company reported a comprehensive loss due to other comprehensive loss components Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income | $1,609 | $314 | | Other Comprehensive Loss | $(1,755) | $(458) | | Comprehensive Loss | $(146) | $(144) | | Comprehensive Loss Attributable to Ampco-Pittsburgh | $(138) | $(325) | - The company reported a comprehensive loss of $(146) thousand in Q1 2022, primarily due to foreign currency translation adjustments and other comprehensive loss components, despite an increase in net income[12] Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity saw a slight increase, driven by net income offsetting other comprehensive losses Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands): | Metric | March 31, 2022 | January 1, 2022 | | :------------------------------------ | :------------- | :-------------- | | Common Stock | $19,191 | $19,184 | | Additional Paid-in Capital | $174,824 | $174,561 | | Retained Deficit | $(54,421) | $(56,066) | | Accumulated Other Comprehensive Loss | $(56,889) | $(55,106) | | Total Ampco-Pittsburgh Shareholders' Equity | $82,705 | $82,573 | | Noncontrolling Interest | $9,225 | $9,233 | | Total Shareholders' Equity | $91,930 | $91,806 | - Total shareholders' equity slightly increased from $91,806 thousand at January 1, 2022, to $91,930 thousand at March 31, 2022, driven by net income offsetting other comprehensive losses[15] Condensed Consolidated Statements of Cash Flows Operating activities shifted to a significant cash outflow, while financing activities provided substantial cash from borrowings Condensed Consolidated Statements of Cash Flows Highlights (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Cash Flows (Used in) Provided by Operating Activities | $(16,272) | $1,858 | | Net Cash Flows Used in Investing Activities | $(3,330) | $(2,303) | | Net Cash Flows Provided by Financing Activities | $16,228 | $2,172 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(3,552) | $1,409 | | Cash and Cash Equivalents at End of Period | $6,785 | $18,251 | - Operating activities shifted from providing $1,858 thousand in cash in Q1 2021 to using $(16,272) thousand in Q1 2022, primarily due to increased investment in trade working capital[18][104][106] - Financing activities provided $16,228 thousand in Q1 2022, largely from net borrowings under the revolving credit facility[18][104][106] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of various financial accounts, business segments, accounting policies, and significant liabilities Note 1 – Overview of the Business & Unaudited Condensed Consolidated Financial Statements Ampco-Pittsburgh operates in two segments, monitoring global economic impacts and evaluating new accounting standards - Ampco-Pittsburgh Corporation operates in two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP), manufacturing specialty metal products and customized equipment globally[21] - The company is monitoring ongoing impacts from COVID-19 and the Russia-Ukraine conflict, including global supply chain disruptions, inflationary pressures, and transportation delays[21] - The Corporation, as a Smaller Reporting Company, has deferred the effective date for ASU 2016-13 (CECL model) to fiscal years beginning after December 15, 2022, and is evaluating its impact on financial position and operating results, but not liquidity[22] Note 2 – Inventories Total inventories increased, with a significant portion valued using the LIFO method Inventory Composition (in thousands): | Category | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Raw materials | $27,725 | $22,332 | | Work-in-process | $42,741 | $37,447 | | Finished goods | $16,698 | $18,093 | | Supplies | $10,708 | $10,326 | | Total Inventories | $97,872 | $88,198 | - Approximately 37% of inventories were valued using the LIFO method at March 31, 2022, with the remainder using FIFO[24][25] - Total inventories increased by $9,674 thousand from December 31, 2021, to March 31, 2022[24][25] Note 3 – Property, Plant and Equipment Net property, plant and equipment slightly decreased, with depreciation expense impacting the total Property, Plant and Equipment, Net (in thousands): | Category | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Land and land improvements | $10,271 | $10,377 | | Buildings | $63,090 | $63,166 | | Machinery and equipment | $347,068 | $345,118 | | Construction-in-process | $11,414 | $11,019 | | Other | $6,798 | $6,798 | | Accumulated depreciation and amortization | $(282,156) | $(277,915) | | Property, plant and equipment, net | $156,485 | $158,563 | - Net property, plant and equipment decreased slightly by $2,078 thousand from December 31, 2021, to March 31, 2022[27] - Depreciation expense was approximately $4,389 thousand for the three months ended March 31, 2022[27] Note 4 – Intangible Assets Net intangible assets decreased due to amortization and foreign currency exchange rate changes Intangible Assets, Net (in thousands): | Category | March 31, 2022 | December 31, 2021 | | :----------------------- | :------------- | :---------------- | | Customer relationships | $5,751 | $5,850 | | Developed technology | $4,128 | $4,201 | | Trade name | $2,384 | $2,442 | | Accumulated amortization | $(6,293) | $(6,289) | | Intangible assets, net | $5,970 | $6,204 | - Net intangible assets decreased by $234 thousand from December 31, 2021, to March 31, 2022, primarily due to amortization of intangible assets and the impact of foreign currency exchange rate changes[28][29] Note 5 – Other Current Liabilities Total other current liabilities increased, while product warranty claims and customer deposits decreased Other Current Liabilities (in thousands): | Category | March 31, 2022 | December 31, 2021 | | :--------------------------- | :------------- | :---------------- | | Customer-related liabilities | $12,082 | $12,548 | | Accrued interest payable | $1,807 | $1,772 | | Accrued sales commissions | $2,022 | $1,864 | | Other | $6,024 | $5,026 | | Total Other Current Liabilities | $21,935 | $21,210 | - Total other current liabilities increased by $725 thousand from December 31, 2021, to March 31, 2022[32][33][34] - The liability for product warranty claims decreased from $7,331 thousand to $6,997 thousand, while customer deposits decreased from $4,328 thousand to $3,989 thousand during the three months ended March 31, 2022[32][33][34] Note 6 – Debt Outstanding borrowings increased significantly, primarily due to increased utilization of the revolving credit facility Debt Composition (in thousands): | Category | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Revolving credit facility | $45,487 | $29,744 | | Sale and leaseback financing obligation | $20,690 | $20,546 | | Industrial Revenue Bonds | $9,191 | $9,191 | | Minority shareholder loan | $742 | $0 | | Finance lease liabilities | $1,812 | $1,438 | | Outstanding Borrowings | $77,922 | $60,919 | | Debt – current portion | $(19,530) | $(20,007) | | Long-term debt | $58,392 | $40,912 | - Outstanding borrowings increased by $17,003 thousand from December 31, 2021, to March 31, 2022, primarily due to increased utilization of the revolving credit facility[35][38] - The revolving credit facility has a $100,000 thousand limit, with $33,000 thousand remaining availability as of March 31, 2022[35][38] Note 7 – Pension and Other Postretirement Benefits Contributions to foreign defined benefit pension plans increased, and U.S. defined benefit plans showed improved net benefit income Contributions to Employee Benefit Plans (in thousands): | Plan Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | U.S. defined benefit pension plans | $0 | $0 | | Foreign defined benefit pension plans | $642 | $171 | | Other postretirement benefits | $115 | $182 | | U.K. defined contribution pension plan | $71 | $82 | | U.S. defined contribution plan | $1,361 | $1,402 | - Net benefit income for U.S. Defined Benefit Pension Plans was $(1,015) thousand in Q1 2022, an improvement from $(1,240) thousand in Q1 2021, primarily due to expected return on plan assets[43] Note 8 – Commitments and Contingent Liabilities The Corporation has significant commitments for capital expenditures and outstanding letters of credit - Outstanding standby and commercial letters of credit totaled $13,846 thousand as of March 31, 2022, mainly collateralizing IRB debt[45] - The Corporation has commitments for future capital expenditures of approximately $25,000 thousand as of March 31, 2022, including a significant $27,000 thousand program to upgrade FCEP equipment over the next 18 months[45][105] Note 9 – Equity Rights Offering In Q1 2021, the Corporation received proceeds from warrant exercises, but no such proceeds were received in Q1 2022 - In Q1 2021, the Corporation received $3,101 thousand from shareholders exercising 1,208,192 Series A warrants, resulting in the issuance of 539,336 common shares[46][106] - No proceeds were received from warrant exercises in Q1 2022[46][106] Note 10 – Accumulated Other Comprehensive Loss Accumulated other comprehensive loss increased, primarily due to foreign currency translation adjustments Accumulated Other Comprehensive Loss (in thousands): | Component | Balance at Jan 1, 2022 | Net Change | Balance at Mar 31, 2022 | | :------------------------------------------------ | :--------------------- | :--------- | :---------------------- | | Foreign Currency Translation | $(14,322) | $(2,614) | $(16,936) | | Unrecognized Employee Benefit Costs | $(40,563) | $511 | $(40,052) | | Cash Flow Hedges | $277 | $348 | $625 | | Total Accumulated Other Comprehensive Loss | $(54,608) | $(1,755) | $(56,363) | | Less: Noncontrolling Interest | $498 | $28 | $526 | | Accumulated Other Comprehensive Loss Attributable to Ampco-Pittsburgh | $(55,106) | $(1,783) | $(56,889) | - Accumulated other comprehensive loss attributable to Ampco-Pittsburgh increased by $(1,783) thousand during Q1 2022, primarily due to a $(2,614) thousand net change in foreign currency translation[48] Note 11 – Derivative Instruments The Corporation uses futures contracts to hedge commodity prices, and foreign exchange transactions resulted in a significant gain - The Corporation uses futures contracts to hedge against commodity price increases (copper and aluminum) for its ALP segment, with 46% of anticipated copper purchases and 56% of anticipated aluminum purchases hedged as of March 31, 2022[53] - Gains on foreign exchange transactions included in other income – net equaled $256 thousand for Q1 2022, a significant improvement from a loss of $(1,221) thousand in Q1 2021[54] Note 12 – Fair Value Investments in other noncurrent assets are valued based on quoted prices in active markets Fair Value of Investments (in thousands): | Category | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Other noncurrent assets | $4,521 | $4,860 | - Investments held as other noncurrent assets, primarily in a 'Rabbi' trust for pension benefits, are valued based on quoted prices in active markets (Level 1 inputs)[59] Note 13 – Revenue and Income Before Income Taxes U.S. net sales and income before taxes significantly improved, while forged engineered products sales saw substantial growth Net Sales by Geographic Area (in thousands): | Region | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------- | :-------------------------------- | :-------------------------------- | | United States | $51,278 | $44,482 | | Foreign | $43,148 | $42,318 | | Total | $94,426 | $86,800 | Income Before Income Taxes by Geographic Area (in thousands): | Region | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------- | :-------------------------------- | :-------------------------------- | | United States | $1,410 | $(61) | | Foreign | $255 | $756 | | Total | $1,665 | $695 | Net Sales by Product Line (in thousands): | Product Line | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------- | :-------------------------------- | :-------------------------------- | | Forged and cast mill rolls | $60,707 | $58,166 | | Forged engineered products | $14,052 | $5,185 | | Centrifugal pumps | $7,300 | $10,042 | | Air handling systems | $6,609 | $7,350 | | Heat exchange coils | $5,758 | $6,057 | | Total | $94,426 | $86,800 | - U.S. net sales increased significantly from $44,482 thousand in Q1 2021 to $51,278 thousand in Q1 2022, and U.S. income before income taxes turned positive from a loss of $(61) thousand to a gain of $1,410 thousand[61][62] - Forged engineered products sales saw a substantial increase from $5,185 thousand in Q1 2021 to $14,052 thousand in Q1 2022, while centrifugal pumps, air handling systems, and heat exchange coils experienced declines[63] Note 14 – Stock-Based Compensation Stock-based compensation expense decreased, with the Omnibus Incentive Plan authorizing up to 2,700,000 shares for awards - Stock-based compensation expense decreased from $546 thousand in Q1 2021 to $287 thousand in Q1 2022[64] - The Ampco-Pittsburgh Corporation 2016 Omnibus Incentive Plan authorizes up to 2,700,000 shares for awards[64] Note 15 – Litigation Asbestos claims and associated costs increased, leading to an updated valuation of asbestos liabilities Asbestos Claims Activity (Number of Claims): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Total claims pending at beginning of period | 6,097 | 5,891 | | New claims served | 299 | 318 | | Claims dismissed | (80) | (141) | | Claims settled | (52) | (104) | | Total claims pending at end of period | 6,264 | 5,964 | | Total active claims at end of period | 3,439 | 3,077 | | Gross settlement and defense costs paid (in 000's) | $3,034 | $3,340 | | Avg. gross settlement and defense costs per claim resolved (in 000's) | $22.98 | $13.63 | Asbestos Liability and Insurance Receivable (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Asbestos liability, beginning of the year | $180,314 | $180,196 | | Settlement and defense costs paid | $(3,034) | $(3,340) | | Asbestos liability, end of the period | $177,280 | $176,856 | | Insurance receivable – asbestos, beginning of the year | $121,297 | $117,937 | | Settlement and defense costs paid by insurance carriers | $(1,600) | $(2,075) | | Insurance receivable – asbestos, end of the period | $119,697 | $115,862 | - Total active asbestos claims increased to 3,439 at March 31, 2022, from 3,077 in the prior year[69] - The average gross settlement and defense costs per claim resolved increased significantly to $22.98 thousand in Q1 2022 from $13.63 thousand in Q1 2021[69] - The Corporation's asbestos liability was $177,280 thousand at March 31, 2022, with a corresponding insurance receivable of $119,697 thousand[72][73][74] - The valuation of asbestos liabilities was updated in Q4 2021, increasing the reserve by $23,333 thousand due to recent claim experience, including a higher proportion of mesothelioma claims[72][73][74] Note 16 – Environmental Matters The potential liability for environmental remedial actions and compliance measures remained consistent - The undiscounted potential liability for remedial actions and environmental compliance measures approximated $100 thousand at March 31, 2022, and December 31, 2021[76] Note 17 – Related Parties A loan from a minority shareholder was outstanding, with increased sales and decreased purchases from related parties Related Party Transactions (in thousands): | Metric | March 31, 2022 | December 31, 2021 | | :------------------------------------------------ | :------------- | :---------------- | | Loan outstanding from minority shareholder (ATR) | $742 | $0 | | Purchases from ATR's minority shareholder & affiliates | $2,058 | $2,942 | | Amount payable to ATR's minority shareholder & affiliates | $2,635 | $1,125 | | Customer deposits from ATR's minority shareholder & affiliates | $380 | $616 | | Sales to ATR's minority shareholder & affiliates | $2,248 | $2,083 | | Amount receivable from ATR's minority shareholder & affiliates | $866 | $0 | - A loan of $742 thousand was outstanding from Shanxi Åkers TISCO Roll Co., Ltd. (ATR)'s minority shareholder as of March 31, 2022[77] - Sales to related parties increased, while purchases from related parties decreased year-over-year[77] Note 18 – Business Segments FCEP segment sales significantly increased, while ALP segment sales decreased but saw improved income before taxes Net Sales by Segment (in thousands): | Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Forged and Cast Engineered Products | $74,759 | $63,351 | | Air and Liquid Processing | $19,667 | $23,449 | | Total Reportable Segments | $94,426 | $86,800 | Income Before Income Taxes by Segment (in thousands): | Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Forged and Cast Engineered Products | $1,298 | $1,846 | | Air and Liquid Processing | $2,661 | $2,312 | | Other expense, including corporate costs | $(2,294) | $(3,463) | | Total | $1,665 | $695 | - The Forged and Cast Engineered Products (FCEP) segment saw a significant increase in net sales to $74,759 thousand in Q1 2022 from $63,351 thousand in Q1 2021, while the Air and Liquid Processing (ALP) segment experienced a decrease in net sales[79] - ALP segment's income before income taxes increased to $2,661 thousand in Q1 2022 from $2,312 thousand in Q1 2021, while FCEP segment's income before income taxes decreased[79] Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and liquidity, highlighting segment performance and external impacts Forward-Looking Statements The report contains forward-looking statements subject to risks from global events, demand cycles, and liabilities - The report includes forward-looking statements regarding future operating performance, sales, profitability, and the impact of global pandemics and international conflicts, subject to various risks and uncertainties[82] - Key risks include cyclical demand, commodity price increases, supply chain disruptions, and liabilities from asbestos claims[82] The Business Ampco-Pittsburgh operates in two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP) - Ampco-Pittsburgh operates in two segments: Forged and Cast Engineered Products (FCEP), producing rolls and forged engineered products for metal industries, and Air and Liquid Processing (ALP), manufacturing heat exchange coils, air handling systems, and centrifugal pumps[85] Executive Overview The Corporation faces ongoing global challenges, with FCEP recovering and ALP benefiting from demand despite cost pressures - The Corporation continues to face lingering effects of the COVID-19 pandemic and the Russia-Ukraine conflict, including global supply chain disruptions, inflationary pressures, and transportation delays[86] - FCEP segment's roll and FEP markets have recovered, with a focus on diversification, operational improvements, and capital equipment investment to reduce costs and increase capacity[87] - ALP segment is benefiting from increasing demand but is also impacted by rising production and transportation costs and supply chain issues, with a focus on revenue growth, engineering capabilities, and sales distribution[87] Selected Financial Information Consolidated net sales and operating income increased, driven by FCEP and a benefit from employee benefit policy changes Selected Financial Information (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Sales | $94,426 | $86,800 | $7,626 | | Income from Operations | $1,243 | $907 | $336 | | Backlog (as of period end) | $327,539 | $292,554 | $34,985 | Operating Costs and Expenses as % of Net Sales: | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Costs of products sold (excluding depreciation and amortization) | 83.5% | 80.2% | | Selling and administrative expenses | $9,878 | $11,558 | - Consolidated net sales increased by $7,626 thousand year-over-year, primarily driven by the FCEP segment[89][90] - Operating income increased by $336 thousand, including a $1,431 thousand benefit from a change in employee benefit policy[89][90] - Backlog significantly increased by $34,985 thousand to $327,539 thousand at March 31, 2022, indicating strong future demand[90][91] - Costs of products sold as a percentage of net sales increased to 83.5% due to higher raw material, energy, and transportation costs, partially offset by price increases and surcharges[90][91] - Selling and administrative expenses decreased by $1,680 thousand, mainly due to the Change in Employee Benefit Policy, lower R&D, and favorable foreign exchange rates[93] - Net income attributable to Ampco-Pittsburgh increased to $1,645 thousand ($0.09 EPS) in Q1 2022, including an after-tax benefit of $1,410 thousand ($0.07 EPS) from the Change in Employee Benefit Policy[95] Net Sales and Operating Results by Segment This section details the net sales and operating results for the Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP) segments Forged and Cast Engineered Products (FCEP) FCEP net sales increased significantly due to pricing and FEP volume, despite a decrease in operating income FCEP Segment Performance (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :--------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net Sales | $74,759 | $63,351 | $11,408 | | Forged and cast mill rolls | $60,707 | $58,166 | $2,541 | | FEP | $14,052 | $5,185 | $8,867 | | Income from Operations | $1,298 | $1,846 | $(548) | | Backlog (as of period end) | $239,748 | $223,321 | $16,427 | - FCEP net sales increased by $11,408 thousand, driven by higher pricing and surcharges ($13,700 thousand) and increased FEP shipment volume ($5,500 thousand), despite lower mill roll volume and negative foreign exchange impacts[97] - Operating income decreased by $548 thousand due to lower mill roll shipments, partially offset by $562 thousand in savings from the Change in Employee Benefit Policy[98] - Backlog increased by $16,427 thousand, primarily from increased orders for forged rolls ($16,400 thousand) and price increases ($8,500 thousand), offset by strong Q1 FEP sales and negative foreign exchange rates[98] Air and Liquid Processing (ALP) ALP net sales decreased due to supply chain delays, but operating income improved, and backlog significantly increased ALP Segment Performance (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :--------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net Sales | $19,667 | $23,449 | $(3,782) | | Centrifugal pumps | $7,300 | $10,042 | $(2,742) | | Air handling systems | $6,609 | $7,350 | $(741) | | Heat exchange coils | $5,758 | $6,057 | $(299) | | Income from Operations | $2,661 | $2,312 | $349 | | Backlog (as of period end) | $87,791 | $69,233 | $18,558 | - ALP net sales decreased by $3,782 thousand, mainly due to lower shipments of centrifugal pumps and air handling systems caused by supply chain delays and customer delivery timing[99] - Operating income improved by $349 thousand, benefiting from the Change in Employee Benefit Policy ($680 thousand), despite lower sales volumes[99] - Backlog increased by $18,558 thousand, with all product lines improving, including a significant $9,600 thousand order for a custom air handling unit project[99] Non-GAAP Financial Measures The Corporation presents adjusted non-GAAP operating results to exclude a one-time employee benefit policy change Reconciliation of Income from Operations to Non-GAAP Adjusted (Loss) Income from Operations (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Income from operations, as reported (GAAP) | $1,243 | $907 | | Change in Employee Benefit Policy | $(1,431) | $0 | | (Loss) income from operations, as adjusted (Non-GAAP) | $(188) | $907 | - The Corporation presents non-GAAP adjusted (loss) income from operations, excluding a one-time $1,431 thousand benefit from the Change in Employee Benefit Policy, to provide a clearer view of ongoing operating performance[100][101][103] Liquidity and Capital Resources Operating cash flow significantly decreased due to working capital investment, offset by financing activities Cash Flow Summary (in thousands): | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | :------- | | Net cash flows (used in) provided by operating activities | $(16,272) | $1,858 | $(18,130) | | Net cash flows used in investing activities | $(3,330) | $(2,303) | $(1,027) | | Net cash flows provided by financing activities | $16,228 | $2,172 | $14,056 | | Net (decrease) increase in cash and cash equivalents | $(3,552) | $1,409 | $(4,961) | | Cash and cash equivalents at end of period | $6,785 | $18,251 | $(11,466) | - Net cash used in operating activities significantly increased to $(16,272) thousand in Q1 2022, primarily due to higher investment in trade working capital driven by increased business activity, inflation, and supply chain disruptions[104] - Net cash provided by financing activities improved to $16,228 thousand, mainly due to net borrowings from the revolving credit facility ($15,743 thousand) and related party debt, offsetting lower proceeds from warrant exercises[106] - Cash and cash equivalents decreased by $3,552 thousand to $6,785 thousand at March 31, 2022[107][108] - The Corporation expects funds on hand, future operations, and revolving credit facility availability ($33,000 thousand remaining) to be sufficient for operational requirements[107][108] Litigation and Environmental Matters Details on litigation and environmental matters are incorporated by reference from the financial statement notes - Refer to Note 15 for details on asbestos litigation and Note 16 for environmental matters[109] Critical Accounting Pronouncements The Corporation's critical accounting policies remain consistent with the prior annual report - The Corporation's critical accounting policies remain unchanged from its Annual Report on Form 10-K for the year ended December 31, 2021[109] Recently Issued Accounting Pronouncements Information on recently issued accounting pronouncements, specifically ASU 2016-13 (CECL model), is provided in Note 1 - Refer to Note 1 for information on recently issued accounting pronouncements, specifically ASU 2016-13 (CECL model)[109] Item 3 – Quantitative and Qualitative Disclosures About Market Risk No applicable quantitative and qualitative disclosures about market risk are reported for this period - The Corporation has no applicable quantitative and qualitative disclosures about market risk for this reporting period[109] Item 4 – Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2022, with no material changes in internal control - The Corporation's management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of March 31, 2022[110] - No material changes in internal control over financial reporting were identified during the last fiscal quarter[111] Part II – Other Information Item 1 Legal Proceedings Legal proceedings, primarily asbestos litigation, are incorporated by reference from Note 15 to the financial statements - Information on legal proceedings is incorporated by reference from Note 15 to the condensed consolidated financial statements, primarily concerning asbestos litigation[113] Item 1A Risk Factors No material changes to risk factors were reported from the Annual Report on Form 10-K for December 31, 2021 - There are no material changes to the Risk Factors from the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021[114] Item 6 Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, agreements, and certifications - The report includes various exhibits such as Restated Articles of Incorporation, Amended and Restated By-laws, Cooperation Agreement, certifications of principal officers, and Inline XBRL documents[115]