Ampco-Pittsburgh(AP) - 2022 Q2 - Quarterly Report

Part I – Financial Information This section presents the unaudited financial statements, management's discussion, market risk disclosures, and internal controls Item 1 – Financial Statements (Unaudited) The unaudited consolidated financial statements for June 30, 2022, show increased assets and liabilities, with varied net sales and income results Condensed Consolidated Balance Sheets Total assets increased to $501.8 million while total liabilities rose to $418.1 million, leading to a decrease in shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $215,320 | $188,297 | | Total assets | $501,771 | $485,632 | | Total current liabilities | $128,760 | $125,042 | | Long-term debt | $75,791 | $40,912 | | Total liabilities | $418,113 | $393,826 | | Total shareholders' equity | $83,658 | $91,806 | Condensed Consolidated Statements of Operations Q2 2022 net sales increased to $102.6 million, but operating income turned to a loss, while six-month net income improved Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $102,582 | $92,428 | $197,008 | $179,228 | | (Loss) income from operations | $(320) | $469 | $923 | $1,376 | | Net income attributable to Ampco-Pittsburgh | $403 | $1,063 | $2,048 | $1,230 | | Diluted EPS | $0.02 | $0.05 | $0.11 | $0.06 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $23.0 million, primarily funded by increased financing activities Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(23,033) | $(2,754) | | Net cash used in investing activities | $(6,725) | $(6,536) | | Net cash provided by financing activities | $27,500 | $5,842 | | Net decrease in cash | $(2,965) | $(3,529) | | Cash at end of period | $7,372 | $13,313 | Notes to Condensed Consolidated Financial Statements Notes detail business segments, accounting policies, and significant financial components, including increased debt and asbestos litigation liabilities - The company operates in two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP), facing ongoing disruptions from global conflicts and the pandemic[22] - Borrowings under the revolving credit facility significantly increased to $57.7 million at June 30, 2022, from $29.7 million at year-end 2021[36][38] Asbestos Liability and Insurance Receivable (in thousands) | Account | June 30, 2022 | | :--- | :--- | | Asbestos liability, end of period | $171,710 | | Insurance receivable – asbestos, end of period | $116,727 | - The company plans a significant capital program of approximately $27 million over the next 15 months for its FCEP locations, with $23 million in commitments outstanding as of June 30, 2022[45] Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses post-pandemic recovery, persistent inflation, increased net sales driven by FCEP, declining operating income, and significant backlog growth Executive Overview and Business Conditions The company observes market recovery in FCEP segments but faces significant cost inflation, mitigated by price increases and surcharges - FCEP segment's roll market has recovered to pre-pandemic levels, with strengthening demand in the FEP market from steel distribution and oil & gas sectors[91] - Both segments are experiencing significant cost inflation in materials, energy, and transportation, with price increases and surcharges implemented to offset these costs, albeit with a time lag[91] Results of Operations Consolidated net sales increased, driven by FCEP, but operating income declined due to cost pressures, while backlog grew significantly Financial Performance Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $102,582 | $92,428 | $197,008 | $179,228 | | Consolidated (Loss) Income from Operations | $(320) | $469 | $923 | $1,376 | - Consolidated backlog grew significantly to $348.8 million at June 30, 2022, an increase of $56.2 million from December 31, 2021[93][94] - Costs of products sold as a percentage of sales increased to 85.3% in Q2 2022 from 81.6% in Q2 2021, primarily due to higher material, energy, and transportation costs in the FCEP segment[95] Liquidity and Capital Resources The company used $23.0 million in operating cash for working capital, funded by increased borrowings, and plans a $27 million capital program - Net cash used in operating activities was $23.0 million for the first six months of 2022, mainly due to investment in trade working capital[114] - The company plans a significant capital program of approximately $27 million over the next 15 months for its FCEP locations and is exploring long-term financing options[115][118] - As of June 30, 2022, remaining availability under the revolving credit facility was approximately $24.4 million[117] Item 3 – Quantitative and Qualitative Disclosures About Market Risk This section is marked as "Not applicable," indicating no new material disclosures regarding market risk for the period - The report states this section is not applicable[119] Item 4 – Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls - Management concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2022[120] - No material changes to the internal control over financial reporting were identified during the last fiscal quarter[121] Part II – Other Information This section covers legal proceedings, risk factors, and a list of exhibits filed with the Form 10-Q Item 1 – Legal Proceedings This section incorporates by reference information on ongoing asbestos-related litigation from the financial statement notes - The report refers to Note 15 of the financial statements for information on legal proceedings, which focuses on asbestos litigation[123] Item 1A – Risk Factors There are no material changes to the risk factors previously disclosed in the company's latest Annual Report on Form 10-K - There are no material changes to the risk factors from the company's latest Annual Report on Form 10-K[124] Item 6 – Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and required certifications - Lists filed exhibits, including Sarbanes-Oxley certifications and an amendment to the Revolving Credit and Security Agreement[125] Signatures The report was duly signed and authorized on August 9, 2022, by the CEO and CFO - The report was duly signed and authorized on August 9, 2022, by J. Brett McBrayer (CEO) and Michael G. McAuley (CFO)[127][128]