ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Description of Business
Ampco-Pittsburgh Corporation and its subsidiaries (collectively, the “Corporation”) manufacture and sell highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. 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 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 Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation. Aerofin produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including OEM/commercial, nuclear power generation and industrial manufacturing. Buffalo Air Handling produces large custom-designed air handling systems for institutional (e.g., hospital, university), pharmaceutical and general industrial building markets. Buffalo Pumps manufactures centrifugal pumps for the fossil fueled power generation, marine defense and industrial refrigeration industries. The segment has operations in Virginia and New York with headquarters in Carnegie, Pennsylvania. The segment distributes a significant portion of its products through a common independent group of sales offices located throughout the United States and Canada.
COVID-19
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus (“COVID-19”) and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. In response, many state and local governments required the closure of various businesses. The U.S. Department of Homeland Security, however, issued guidance outlining criteria to identify domestic businesses as operating in critical infrastructure industries, essential to the economic prosperity, security and continuity of the United States, which provides exceptions to certain closures mandated by state and local governments and permits businesses to continue operations during such an order. The Corporation’s domestic businesses were, and continue to be, deemed to participate in critical infrastructure industries; however, despite the designation and particularly in 2020, the Corporation has had to periodically and temporarily idle certain operations of its FCEP segment and, consequently, furlough certain of its employees in response to market conditions. While most of these direct impacts were experienced in 2020, as variants have developed, the Corporation has experienced episodic disruptions to its operations or the operations of its customers and suppliers. The pandemic also has spurred disruptions to the global supply chain, which is believed to be a key factor in the global inflationary pressures of 2021. Accordingly, the Corporation has experienced, and may continue to experience, customer-requested delays of deliveries or cancellation of orders, lower order intake resulting from customers postponing projects, inability to obtain raw materials and supplies critical to the manufacturing process, delays in receiving and shipping product due to the lack of transportation, and higher cost of production and transportation.
It is difficult to isolate the impact of the pandemic on the Corporation’s operating results, particularly in relation to the unabsorbed costs resulting from the periodic and temporary idling of certain of the Corporation’s forged and cast roll operations and furloughing of employees. In addition, the Corporation is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world, hesitancy to use the vaccine and the extent of any resurgences of the virus or emergence of new variants of the virus will impact the stability of economic recovery and growth. The extent to which the operations of the Corporation, and the operations of its customers and vendors, may be adversely impacted by the COVID-19 pandemic will depend largely on these future developments. The Corporation may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business or supply chains. It may also incur higher write-offs of accounts receivables and impairment charges on its asset values, including property, plant and equipment and intangible assets. The Corporation is actively
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monitoring, and will continue to actively monitor, the pandemic and the potential impact on its operations, financial condition, liquidity, suppliers, industry, and workforce.
In response to the pandemic, the United States federal government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferral of employer-side social security payments and contributions to employee benefit plans, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. Subsequently, on March 11, 2021, the American Rescue Plan (“ARP”) Act of 2021 was enacted into law, providing the next phase of economic relief as a result of the COVID-19 pandemic. The ARP Act, among other things, extends the provision relating to refundable payroll tax credits and deferral of contributions to employee benefit plans. Similar programs have been offered in certain of the foreign jurisdictions in which the Corporation operates, including subsidies and reimbursement of certain employee-related costs. While the Corporation has taken, and intends to continue to take, advantage of various provisions of the CARES Act, the ARP Act and other similar programs offered domestically and in the foreign jurisdictions in which the Corporation operates, where possible, it is unable to determine what impact those provisions may have on its consolidated financial statements in the future.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Corporation’s accounting policies conform to accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include assessing the carrying value of long-lived assets, valuing the assets and obligations related to employee benefit plans, accounting for loss contingencies associated with claims and lawsuits, and accounting for income taxes. Actual results could differ from those estimates. A summary of the significant accounting policies followed by the Corporation is presented below.
Basis of Presentation
The financial information included herein reflects the consolidated financial position of the Corporation as of December 31, 2021, and 2020, and the consolidated results of its operations and cash flows for the years then ended.
Consolidation
The accompanying consolidated financial statements include the assets, liabilities, revenues, and expenses of all majority-owned subsidiaries and joint ventures over which the Corporation exercises control and, when applicable, entities for which the Corporation has a controlling financial interest or is the primary beneficiary. Investments in joint ventures where the Corporation owns 20% to 50% of the voting stock and has the ability to exercise significant influence over the operating and financial policies of the joint venture are accounted for using the equity method of accounting. Investments in joint ventures where the Corporation does not have the ability to exercise significant influence over the operating and financial policies of the joint venture are accounted for using the cost method of accounting. Investments in joint ventures are reviewed for impairment whenever events or circumstances indicate the carrying amount of the investment may not be recoverable. If the estimated fair value of the investment is less than the carrying amount and such decline is determined to be “other than temporary,” then the investment may not be fully recoverable, potentially resulting in a write-down of the investment value. Intercompany accounts and transactions are eliminated.
Cash and Cash Equivalents
Securities with purchased original maturities of three months or less are considered to be cash equivalents. The Corporation maintains cash and cash equivalents at various financial institutions which may exceed federally-insured amounts.
Inventories
Inventories are valued at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. Cost includes the cost of raw materials, direct labor and overhead for those items manufactured but not yet sold or for which control has not yet transferred to the customer. Fixed production overhead is allocated to inventories based on normal capacity of the production facilities. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. The amount of fixed overhead allocated to inventories is not increased as a consequence of abnormally low production or plant idling. Costs for abnormal amounts of spoilage, handling costs and freight costs are charged to expense when incurred. Cost of domestic raw materials, work-in-process and finished goods inventories is primarily determined by the last-in, first-out (LIFO) method. Cost of domestic supplies and foreign inventories is determined primarily by the first-in, first-out (FIFO) method.
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Property, Plant and Equipment
Property, plant and equipment purchased new is recorded at cost with depreciation computed using the straight-line method over the following estimated useful lives: land improvements – 15 to 20 years, buildings – 25 to 50 years, machinery and equipment – 3 to 25 years and other (e.g., furniture and fixtures and vehicles) – 5 to 10 years. Assets under finance leases are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Property, plant and equipment acquired as part of a business combination is recorded at its estimated fair value with depreciation computed using the straight-line method over the estimated remaining useful lives based, in part, on third-party valuations. Expenditures that extend economic useful lives are capitalized. Routine maintenance is charged to expense. Gains or losses are recognized on retirements or disposals. Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the undiscounted cash flows generated from the use and eventual disposition of the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. Estimates of future cash flows are based on expected market conditions over the remaining useful life of the primary asset(s). In addition, the remaining depreciation period for the impaired asset would be re-assessed and, if necessary, revised. Proceeds from government grants are recorded as a reduction in the purchase price of the underlying assets and amortized against depreciation over the lives of the related assets.
Right-of-Use Assets
A right-of-use (“ROU”) asset represents the right to use an underlying asset for the term of the lease, and the corresponding liability represents an obligation to make periodic payments arising from the lease. A determination of whether an arrangement includes a lease is made at the inception of the arrangement. ROU assets and liabilities are recognized on the consolidated balance sheet, at the commencement date of the lease, in an amount equal to the present value of the lease payments over the term of the lease calculated using the interest rate implicit in the lease arrangement or, if not known, the Corporation’s incremental borrowing rate. The present value of a ROU asset also includes any lease payments made prior to commencement of the lease and excludes any lease incentives received or to be received under the arrangement. The lease term includes options to extend or terminate the lease when it is reasonably certain that such options will be exercised. Operating leases that have original terms of less than 12 months, inclusive of options to extend that are reasonably certain to be exercised, are classified as short-term leases and are not recognized on the consolidated balance sheet.
ROU assets are recorded as a noncurrent asset on the consolidated balance sheet. The corresponding liabilities are recorded as an operating lease liability, either current or noncurrent, as applicable, on the consolidated balance sheet. Operating lease costs are recognized on a straight-line basis over the lease term within costs of products sold (excluding depreciation and amortization) or selling and administrative expenses based on the use of the related ROU asset.
Intangible Assets
Intangible assets primarily consist of developed technology, customer relationships and trade name. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful life, which is determined by identifying the period over which most of the cash flows are expected to be generated. Intangible assets with indefinite lives are not amortized but reviewed for impairment at least annually, as of October 1. Additionally, intangible assets, both finite and indefinite lived, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. For finite-lived intangible assets, if the undiscounted cash flows attributable to the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. For indefinite-lived intangible assets, if the discounted cash flows attributable to the assets are less than their carrying value, then the asset value may not be fully recoverable, potentially resulting in a write-down of the asset value. Also, if the estimate of an intangible asset’s remaining useful life changes, the remaining carrying value of the intangible asset will be amortized prospectively over the revised remaining useful life.
Debt Issuance Costs
Debt issuance costs are amortized as interest expense over the scheduled maturity period of the debt. The costs related to a line-of-credit arrangement are amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings. Unamortized debt issuance costs are either recognized as a direct deduction from the carrying amount of the related debt or, if related to a line-of-credit facility, as an other noncurrent asset on the consolidated balance sheet.
Product Warranty
A warranty that ensures basic functionality is an assurance-type warranty. A warranty that goes beyond ensuring basic functionality is considered a service-type warranty. The Corporation provides assurance-type warranties; it does not provide service-type warranties. Provisions for assurance-type warranties are recognized at the time the underlying sale is recorded. The provision is based on historical experience as a percentage of sales adjusted for potential claims when a liability is probable and for known claims.
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Employee Benefit Plans
Funded Status
If the fair value of the plan assets exceeds the projected benefit obligation, the over-funded projected benefit obligation is recognized as an asset (prepaid pensions) on the consolidated balance sheet. Conversely, if the projected benefit obligation exceeds the fair value of the plan assets, the under-funded projected benefit obligation is recognized as a liability (employee benefit obligations) on the consolidated balance sheet. Gains and losses arising from the difference between actuarial assumptions and actual experience and unamortized prior service costs are recorded as a separate component of accumulated other comprehensive loss.
Net Periodic Pension and Other Postretirement Benefit Costs
Net periodic pension and other postretirement benefit costs include service cost, interest cost, expected rate of return on the market-related value of plan assets, amortization of prior service costs, and recognized actuarial gains or losses. When actuarial gains or losses exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets, they are amortized to net periodic pension and other postretirement benefit costs over the average remaining service period of the employees expected to receive benefits under the plan or over the remaining life expectancy of the employees expected to receive benefits if “all or almost all” of the plan’s participants are inactive. When actuarial gains or losses are less than 10% of the greater of the projected benefit obligation or the market-related value of plan assets, they are included in net periodic pension and other postretirement benefit costs indirectly as a result of lower/higher interest costs arising from a decrease/increase in the projected benefit obligation. The market-related value of plan assets is determined using a five-year moving average which recognizes gains or losses in the fair market value of assets at the rate of 20% per year.
Warrants
Accounting for warrants includes an initial assessment of whether the warrants qualify as debt or equity. The Corporation’s warrants meet the definition of equity instruments and, accordingly, are recorded within shareholders’ equity on the consolidated balance sheet. The fair value of the warrants is determined as of the measurement date. Incremental costs directly attributable to the offering of the securities are deferred and charged against the proceeds of the offering.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes changes in assets and liabilities from non-owner sources including foreign currency translation adjustments, unamortized prior service costs and unrecognized actuarial gains and losses associated with employee benefit plans, and changes in the fair value of derivatives designated and effective as cash flow hedges.
Certain components of other comprehensive income (loss) are presented net of income tax. Foreign currency translation adjustments exclude the effect of income tax since earnings of non-U.S. subsidiaries are deemed to be re-invested for an indefinite period of time.
Reclassification adjustments are amounts which are realized during the year and, accordingly, are deducted from other comprehensive income (loss) in the period in which they are included in net income (loss) or when a transaction no longer qualifies as a cash flow hedge. Foreign currency translation adjustments are included in net income (loss) upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. With respect to employee benefit plans, unamortized prior service costs are included in net income (loss), either immediately upon curtailment of the employee benefit plan or over the average remaining service period or life expectancy of the employees expected to receive benefits, and unrecognized actuarial gains and losses are included in net income (loss) indirectly as a result of lower/higher interest costs arising from a decrease/increase in the projected benefit obligation. Changes in the fair value of derivatives are included in net income (loss) when the projected sale occurs or, if a foreign currency purchase contract, over the estimated useful life of the underlying asset.
Foreign Currency Translation
Assets and liabilities of the Corporation’s foreign operations are translated at year-end exchange rates, and the statements of operations are translated at the average exchange rates for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive loss until the entity is sold or substantially liquidated.
Revenue Recognition
Revenue from sales is recognized when obligations under the terms of the contract with the customer are satisfied. Generally, this occurs when control of the product transfers to the customer. A contract with a customer is deemed to exist when there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collectability is reasonably assured.
Persuasive evidence of an arrangement identifies the final understanding between the parties as to the specific nature and terms of the agreed-upon transaction that creates the enforceable obligations. It can be in the form of an executed purchase order from the
32
customer, combined with an order acknowledgment from the Corporation, a sales agreement or a longer-term supply agreement between the customer and the Corporation, or a similar arrangement deemed to be a normal and customary business practice for that particular customer or class of customer (collectively, a sales agreement). Sales agreements typically include a single performance obligation for the manufacturing of product which is satisfied upon transfer of control of the product to the customer.
The sales price required to be paid by the customer is fixed or determinable from the sales agreement. It is not subject to refund or adjustment, except for a variable-index surcharge provision which is known at the time of shipment and increases or decreases, as applicable, the selling price of the product for corresponding changes in the published index cost of certain raw materials and energy. The variable-index surcharge is recognized as revenue when the corresponding revenue for the inventory is recognized.
Likelihood of collectability is assessed prior to acceptance of an order. In certain circumstances, the Corporation may require a deposit from the customer, a letter of credit or another form of assurance for payment. An allowance for doubtful accounts is maintained based on historical experience. Payment terms are standard to the industry and generally require payment 30 days after control transfers to the customer.
Transfer of control is assessed based on alternative use of the product manufactured and, under the terms of the sales agreement, an enforceable right to payment for performance to date. Transfer of control, and therefore revenue recognition, occurs when title, ownership and risk of loss pass to the customer. Typically, this occurs when the product is shipped to the customer (i.e., FOB shipping point), delivered to the customer (i.e., FOB destination) or, for foreign sales, in accordance with trading guidelines known as Incoterms. Incoterms are standard trade definitions used in international contracts and are developed, maintained and promoted by the ICC Commission on Commercial Law and Practice. Shipping terms vary across the businesses and typically depend on the product, country of origin and type of transportation (truck or vessel). There are no customer-acceptance provisions other than, perhaps, customer inspection and testing prior to shipment. Post-shipment obligations are insignificant.
Amounts billed to the customer for shipping and handling are recorded within net sales and the related costs are recorded within costs of products sold (excluding depreciation and amortization). Amounts billed for taxes assessed by various government authorities (e.g., sales tax, value-added tax, etc.) are excluded from the determination of net income (loss) and, instead, are recorded as a liability until remitted to the government authority.
Stock-Based Compensation
Stock-based compensation, such as stock options, restricted stock units and performance shares, is recognized over the vesting period based on the fair value of the award at the date of grant. For stock options, the fair value is determined by the Black-Scholes option pricing model and is expensed over the vesting period of three years. For restricted stock units, the fair value is equal to the closing price of the Corporation’s common stock on the New York Stock Exchange (“NYSE”) on the date of grant and is expensed over the service period, typically three years. For performance share awards that vest subject to a performance condition, the fair value is equal to the closing price of the Corporation’s stock on the NYSE on the date of grant. For performance share awards that vest subject to a market condition, the fair value is determined using a Monte Carlo simulation model. The fair value of performance share awards is expensed over the performance period when it is probable that the performance condition will be achieved.
Asbestos-Related Costs
The amounts recorded for asbestos-related liabilities and insurance receivables for asbestos-related matters rely on assumptions that are based on currently known facts and strategies. Asbestos-related liabilities are recognized when a liability is probable of occurrence and can be reasonably estimated. The liability includes an estimate of future claims as well as settlement or indemnity costs that would be incurred to resolve both pending and future unasserted claims over the period which such claims can be reasonably estimated. Insurance receivables for asbestos-related matters are recognized for the estimated amount of probable insurance recoveries attributable to the claims for which an asbestos-related liability has been recognized, including the portion of incurred defense costs expected to be reimbursed. Neither the asbestos-related liabilities nor the insurance receivables for asbestos-related matters are discounted to their present values due to the inability to reliably forecast the timing of future cash flows. The asbestos-related liabilities and insurance receivables for asbestos-related matters, as well as the underlying assumptions, are reviewed on a regular basis to determine whether any adjustments to the estimates are required. If it is determined that there is an increase in asbestos-related liabilities net of insurance recoveries, then a charge to net income (loss) would be recorded. Similarly, if it is determined that there is a decrease in asbestos-related liabilities net of insurance recoveries, then a credit to net income (loss) would be recorded.
Derivative Instruments
Derivative instruments which include forward exchange (for foreign currency sales and purchases) and futures contracts are recorded on the consolidated balance sheet as either an asset or a liability measured at their fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. To the extent that a derivative is designated and effective as a cash flow hedge of an exposure to future changes in value, the change in the fair value of the derivative is deferred in accumulated other
33
comprehensive loss. Any portion considered to be ineffective, including that arising from the unlikelihood of an anticipated transaction to occur, is reported as a component of earnings (other income/expense) immediately.
Upon occurrence of the anticipated sale, the foreign currency sales contract designated and effective as a cash flow hedge is de-designated as a fair value hedge, and the change in fair value previously deferred in accumulated other comprehensive loss is reclassified to earnings (net sales) with subsequent changes in fair value recorded as a component of earnings (other income/expense). Upon occurrence of the anticipated purchase, the foreign currency purchase contract is settled, and the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings (depreciation and amortization expense) over the life of the underlying asset. Upon settlement of a futures contract, the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings (costs of products sold, excluding depreciation and amortization) when the corresponding inventory is sold and revenue is recognized. To the extent that a derivative is designated and effective as a hedge of an exposure to changes in fair value, the change in the derivative’s fair value will be offset in the consolidated statement of operations by the change in the fair value of the item being hedged and is recorded as a component of earnings (other income/expense). Cash flows associated with the derivative instruments are recorded as a component of operating activities on the consolidated statement of cash flows.
The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy of inputs is used to determine fair value measurements with three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities and are considered the most reliable evidence of fair value. Level 2 inputs are observable prices that are not quoted on active exchanges. Level 3 inputs are unobservable inputs used for measuring the fair value of assets or liabilities.
Legal Costs
Legal costs expected to be incurred in connection with loss contingencies are accrued when such costs are probable and estimable.
Income Taxes
Income taxes are recognized during the year in which transactions enter into the determination of financial statement income (loss). Any taxes on foreign income in excess of a deemed return on tangible assets of foreign corporations are accounted for as period costs. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the book carrying amount and the tax basis of assets and liabilities including net operating loss carryforwards. A valuation allowance is provided against a deferred income tax asset when it is “more likely than not” the asset will not be realized. Similarly, if a determination is made that it is “more likely than not” the deferred income tax asset will be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded. Penalties and interest are recognized as a component of the income tax provision.
Tax benefits are recognized in the consolidated financial statements for tax positions taken or expected to be taken in a tax return when it is “more likely than not” that the tax authorities will sustain the tax position solely on the basis of the position’s technical merits. Consideration is given primarily to legislation and statutes, legislative intent, regulations, rulings, and case law as well as their applicability to the facts and circumstances of the tax position when assessing the sustainability of the tax position. In the event a tax position no longer meets the “more likely than not” criteria, the tax benefit is reversed by recognizing a liability and recording a charge to earnings. Conversely, if a tax position subsequently meets the “more likely than not” criteria, a tax benefit would be recognized by reducing the liability and recording a credit to earnings.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per common share is similar to basic earnings per common share except that the denominator is increased to include the dilutive effect of the net additional common shares that would have been outstanding assuming exercise of outstanding stock awards and warrants, calculated using the treasury stock method. The computation of diluted earnings per share would not assume the exercise of an outstanding stock award or warrant if the effect on earnings per common share would be antidilutive. Similarly, the computation of diluted earnings per share would not assume the exercise of outstanding stock awards and warrants if the Corporation incurred a net loss since the effect on earnings per common share would be antidilutive. The weighted-average number of common shares outstanding assuming exercise of dilutive stock awards and warrants was 19,696,397 for 2021 and 14,636,022 for 2020. Weighted-average outstanding stock awards and warrants excluded from the diluted earnings per common share calculation, since the effect would have been antidilutive, were 359,940 for 2021 and 1,809,432
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for 2020. With respect to amounts attributable to Ampco-Pittsburgh common shareholders, net income (loss) attributable to Ampco-Pittsburgh common shareholders excludes net income (loss) attributable to noncontrolling interest.
Recently Implemented Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740). ASU 2019-12 is intended to simplify the accounting for income taxes including removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, such as other comprehensive income, and accounting for franchise or similar tax, and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the interim period that includes the enactment date. The guidance became effective for the Corporation on January 1, 2021, and did not impact the Corporation’s consolidated financial position, operating results or liquidity.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional exceptions for applying generally accepted accounting principles to modifications of contracts, hedging relationships, and other transactions that reference LIBOR or another rate that will be discontinued by reference rate reform if certain criteria are met. The optional guidance is available as of March 12, 2020, through December 31, 2022. The Corporation adopted this guidance during 2021, and it did not impact the Corporation’s consolidated financial position, operating results or liquidity.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260, Earnings per Share, relating to the computation of earnings per share for convertible instruments and contracts in an entity’s own equity. The guidance becomes effective for the Corporation on January 1, 2024; however, as permitted, the Corporation early adopted the guidance in 2021, and it did not impact the Corporation’s consolidated financial position, operating results or liquidity.
Recently Issued Accounting Pronouncements
In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which adds a new impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies it to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. The guidance originally became effective for the Corporation on January 1, 2020; however, since the Corporation meets the definition of a Smaller Reporting Company, as defined by the Securities Exchange Commission, the effective date was subsequently revised to fiscal years beginning after December 15, 2022. The Corporation is currently evaluating the impact the guidance will have on its financial position and operating results. It will not, however, affect the Corporation’s liquidity.
NOTE 2 – INVENTORIES:
|
|
2021 |
|
|
2020 |
|
Raw materials |
|
$ |
22,332 |
|
|
$ |
17,893 |
|
Work-in-progress |
|
|
37,447 |
|
|
|
31,568 |
|
Finished goods |
|
|
18,093 |
|
|
|
12,466 |
|
Supplies |
|
|
10,326 |
|
|
|
11,316 |
|
Inventories |
|
$ |
88,198 |
|
|
$ |
73,243 |
|
At December 31, 2021, and 2020, approximately 35% of the inventories were valued using the LIFO method. The LIFO reserve approximated $(18,407) and $(12,256) at December 31, 2021, and 2020, respectively. During each of the years, inventory quantities decreased for certain locations resulting in a liquidation of LIFO layers which were at lower costs. During 2021, the effect of the liquidations was insignificant. For 2020, the effect of the liquidations was to decrease costs of products sold (excluding depreciation and amortization) by approximately $3,262. There was no income tax expense recognized in the consolidated statement of operations due to the Corporation having a valuation allowance recorded against the deferred income tax assets for the jurisdiction where the income was recognized (see Note 20). Accordingly, the effect of the liquidations increased net income by approximately $3,262, or $0.23 per common share, for 2020.
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NOTE 3 – PROPERTY, PLANT AND EQUIPMENT:
|
|
2021 |
|
|
2020 |
|
Land and land improvements |
|
$ |
10,377 |
|
|
$ |
10,473 |
|
Buildings |
|
|
63,166 |
|
|
|
63,765 |
|
Machinery and equipment |
|
|
345,118 |
|
|
|
339,203 |
|
Construction-in-process |
|
|
11,019 |
|
|
|
4,896 |
|
Other |
|
|
6,798 |
|
|
|
6,870 |
|
|
|
|
436,478 |
|
|
|
425,207 |
|
Accumulated depreciation |
|
|
(277,915 |
) |
|
|
(263,109 |
) |
Property, plant and equipment, net |
|
$ |
158,563 |
|
|
$ |
162,098 |
|
The majority of the assets of the Corporation, except real property including the land and building of Union Electric Steel UK Limited, an indirect subsidiary of the Corporation (“UES-UK”), is pledged as collateral for the Corporation’s revolving credit facility (see Note 8). Land and buildings of UES-UK, equal to approximately $2,867 (£2,122) at December 31, 2021, are held as collateral by the trustees of the UES-UK defined benefit pension plan (see Note 10). The gross value of assets under finance leases and the related accumulated amortization approximated $3,882 and $1,263 as of December 31, 2021, respectively, and $3,430 and $1,222 as of December 31, 2020, respectively. Depreciation expense approximated $17,336 and $17,420, including depreciation of assets under finance leases of approximately $473 and $415, for the years ended December 31, 2021, and 2020, respectively. The Corporation continues to evaluate the uncertainty associated with COVID-19, and, at December 31, 2021, there were no triggering events identified for the underlying asset groups.
NOTE 4 – OPERATING LEASE RIGHT-OF-USE ASSETS:
The Corporation leases certain factory and office space and equipment. Additionally, the manufacturing facilities of one of the Corporation’s cast roll joint ventures in China are located on land leased by the joint venture 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.
Right-of-use assets associated with operating leases as of December 31, 2021, and 2020, were comprised of the following:
|
|
2021 |
|
|
2020 |
|
Land |
|
$ |
2,928 |
|
|
$ |
2,850 |
|
Buildings |
|
|
1,953 |
|
|
|
1,825 |
|
Machinery and equipment |
|
|
511 |
|
|
|
495 |
|
Other |
|
|
429 |
|
|
|
404 |
|
|
|
|
5,821 |
|
|
|
5,574 |
|
Accumulated amortization |
|
|
(1,765 |
) |
|
|
(1,230 |
) |
Operating lease right-of-use assets, net |
|
$ |
4,056 |
|
|
$ |
4,344 |
|
NOTE 5 – INTANGIBLE ASSETS:
|
|
2021 |
|
|
2020 |
|
Customer relationships |
|
$ |
5,850 |
|
|
$ |
6,191 |
|
Developed technology |
|
|
4,201 |
|
|
|
4,457 |
|
Trade name |
|
|
2,442 |
|
|
|
2,646 |
|
|
|
|
12,493 |
|
|
|
13,294 |
|
Accumulated amortization |
|
|
(6,289 |
) |
|
|
(6,077 |
) |
Intangible assets, net |
|
$ |
6,204 |
|
|
$ |
7,217 |
|
36
The trade name is an indefinite-lived asset and, accordingly, is not subject to amortization. The fluctuation between the years is due to changes in foreign currency exchange rates. The following summarizes changes in intangible assets for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
Balance at the beginning of the year |
|
$ |
7,217 |
|
|
$ |
7,625 |
|
Amortization of intangible assets |
|
|
(541 |
) |
|
|
(1,155 |
) |
Other, primarily impact from changes in foreign currency exchange rates |
|
|
(472 |
) |
|
|
747 |
|
Balance at the end of the year |
|
$ |
6,204 |
|
|
$ |
7,217 |
|
Identifiable intangible assets are reviewed for impairment whenever events or circumstances indicate that the carrying values may not be recoverable. The Corporation continues to evaluate the uncertainty associated with COVID-19, and, at December 31, 2021, there were no triggering events identified for the underlying asset groups. Identifiable intangible assets are expected to be amortized over a weighted-average period of approximately 13 years or $378 for 2022, $378 for 2023, $378 for 2024, $324 for 2025, $228 for 2026 and $2,076 thereafter.
NOTE 6 – INVESTMENTS IN JOINT VENTURES:
The Corporation has interests in three joint ventures:
|
• |
Shanxi Åkers TISCO Roll Co., Ltd. (“ATR”) – a cast roll joint venture in China for which the Corporation accounts using the consolidated method of accounting. ATR principally manufactures and sells cast rolls for hot strip mills, steckel mills and medium plate mills. |
|
• |
Magong Gongchang United Rollers Co., Ltd., previously known as Masteel Gongchang Roll Co., Ltd. (“MG”) – a forged roll joint venture in China for which the Corporation accounts using the cost method of accounting. MG principally manufactures and sells large forged backup rolls for hot and cold strip mills. |
|
• |
Jiangsu Gong-Chang Roll Co., Ltd., previously known as Jiangsu Gongchang Roll Joint-Stock Co., Ltd. (“Gongchang”) – a cast roll joint venture in China for which the Corporation accounts using the cost method of accounting. Gongchang principally manufactures and sells cast rolls for hot and cold strip mills, medium/heavy section mills and plate mills. |
ATR
In 2007, Åkers AB, a subsidiary of Union Electric Steel Corporation, a wholly owned subsidiary of the Corporation (“UES”), entered into an agreement with Taiyuan Iron & Steel Co., Ltd. (“TISCO”) to form ATR, with Åkers AB owning 59.88% and TISCO owning 40.12%. Since Åkers AB is the majority shareholder, has voting rights proportional to its ownership interest and exercises control over TISCO, Åkers AB is considered the primary beneficiary and, accordingly, accounts for its investment in ATR using the consolidated method of accounting. The net assets and net income (loss) attributable to TISCO are reflected as non-controlling interest in the consolidated financial statements.
MG
The Corporation has a 33% interest in MG, which is recorded at cost, or $835. The Corporation does not participate in the management or daily operation of MG, has not guaranteed any of its obligations and has no ongoing responsibilities to it. Dividends may be declared by the Board of Directors of the joint venture after allocation of after-tax profits to various “funds” equal to the minimum amount required under Chinese law. No dividends were declared or received in 2021 or 2020.
Gongchang
The Corporation has a 24.03% interest in Gongchang, which is recorded at cost, or $1,340. The Corporation does not participate in the management or daily operation of Gongchang, has not guaranteed any of its obligations and has no ongoing responsibilities to it. Dividends may be declared by the Board of Directors of the joint venture after allocation of after-tax profits to various “funds” equal to the minimum amount required under Chinese law. Dividends of $1,025 and $1,203 were declared and received in 2021 and 2020, respectively.
37
NOTE 7 – OTHER CURRENT LIABILITIES:
|
|
2021 |
|
|
2020 |
|
Customer-related liabilities |
|
$ |
12,548 |
|
|
$ |
16,144 |
|
Accrued interest payable |
|
|
1,772 |
|
|
|
2,131 |
|
Accrued sales commissions |
|
|
1,864 |
|
|
|
1,419 |
|
Other |
|
|
5,026 |
|
|
|
4,546 |
|
Other current liabilities |
|
$ |
21,210 |
|
|
$ |
24,240 |
|
Customer-related liabilities primarily include liabilities for product warranty claims and deposits received on future orders. The following summarizes changes in the liability for product warranty claims for the years ended December 31:
|
|
2021 |
|
|
2020 |
|
Balance at the beginning of the year |
|
$ |
8,105 |
|
|
$ |
9,065 |
|
Satisfaction of warranty claims |
|
|
(3,220 |
) |
|
|
(3,854 |
) |
Provision for warranty claims |
|
|
2,509 |
|
|
|
2,737 |
|
Other, primarily impact from changes in foreign currency exchange rates |
|
|
(63 |
) |
|
|
157 |
|
Balance at the end of the year |
|
$ |
7,331 |
|
|
$ |
8,105 |
|
Customer deposits represent amounts collected from, or invoiced to, a customer in advance of revenue recognition and are recorded as an other current liability on the consolidated balance sheet. 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. Performance obligations related to customer deposits are expected to be satisfied in less than one year.
Changes in customer deposits consisted of the following:
|
2021 |
|
|
2020 |
|
Balance at the beginning of the year |
$ |
6,507 |
|
|
$ |
4,895 |
|
Satisfaction of performance obligations |
|
(12,870 |
) |
|
|
(13,915 |
) |
Receipt of additional deposits |
|
10,729 |
|
|
|
15,458 |
|
Other, primarily changes in foreign currency exchange rates |
|
(38 |
) |
|
|
69 |
|
Balance at the end of the year |
$ |
4,328 |
|
|
$ |
6,507 |
|
NOTE 8 – DEBT:
|
|
2021 |
|
|
2020 |
|
Revolving credit facility |
|
$ |
29,744 |
|
|
$ |
6,000 |
|
Sale and leaseback financing obligation |
|
|
20,546 |
|
|
|
19,931 |
|
Industrial Revenue Bonds |
|
|
9,191 |
|
|
|
9,191 |
|
Minority shareholder loan |
|
|
0 |
|
|
|
1,056 |
|
Finance leases |
|
|
1,438 |
|
|
|
1,065 |
|
Outstanding borrowings |
|
|
60,919 |
|
|
|
37,243 |
|
Debt – current portion |
|
|
(20,007 |
) |
|
|
(12,436 |
) |
Long-term debt |
|
$ |
40,912 |
|
|
$ |
24,807 |
|
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. At December 31, 2021, the swing loans balance was $8,744. At December 31, 2020, no swing loans were outstanding. 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, which is considered remote by the Corporation; accordingly, the IRBs are classified as a current liability. Future principal payments, assuming the swing loans balance is repaid in 2022 and the IRBs are called in 2022, are $20,007 for 2022, $2,123 for 2023, $2,033 for 2024, $15,409 for 2025, $21,124 for 2026, and $223 thereafter.
38
Revolving Credit Facility
On May 20, 2016, the Corporation became a party to a Revolving Credit and Security Agreement, which had been amended periodically. On June 29, 2021, the Corporation entered into an amended and restated credit agreement (the “Restated Credit Agreement”) with a syndicate of banks that provides for a senior secured asset-based revolving credit facility of $100,000, which can be increased up to $130,000 at the option of the Corporation and with the approval of the lenders, and an allowance of $20,000 for new capital equipment financing but otherwise restricts the Corporation from incurring additional indebtedness outside of the agreement, unless approved by the banks. The Restated Credit Agreement includes sub-limits for letters of credit not to exceed $40,000 and European borrowings not to exceed $30,000. The maturity date for the Restated Credit Agreement is June 29, 2026, and, subject to other terms and conditions of the Restated Credit Agreement, would become due on that date.
Availability under the Restated Credit Agreement is based on eligible accounts receivable, inventory and fixed assets. Amounts outstanding under the credit facility bear interest, at the Corporation’s option, at either (i) LIBOR 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. Additionally, the Corporation is required to pay a commitment fee of 0.25% based on the daily unused portion of the credit facility. On December 17, 2021, as a result of reference rate reform, the Restated Credit Agreement was amended whereby interest for advances or other extensions of credit under the Restated Credit Agreement denominated in euros or pound sterling would no longer be based on LIBOR but, instead, on its successor rate as defined in the Restated Credit Agreement. As of December 31, 2021, there were no borrowings under the Restated Credit Agreement denominated in euros or pound sterling.
As of December 31, 2021, the Corporation had outstanding borrowings under the Restated Credit Agreement of $29,744. The average interest rate approximated 4% for 2021 and 2020. Additionally, the Corporation had utilized a portion of the credit facility for letters of credit (see Note 11). As of December 31, 2021, the remaining availability under the Restated Credit Agreement approximated $34,000, net of standard availability reserves. Deferred financing fees of $485 have been incurred related to the Restated Credit Agreement and are being amortized over the remaining term of the agreement.
Borrowings outstanding under the Restated Credit Agreement 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 Restated Credit Agreement 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 divestures. 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 covenants under the Restated Credit Agreement as of December 31, 2021.
Sale and Leaseback Financing Obligation
In September 2018, UES completed a sale and leaseback financing transaction for certain of its real property, including the land and buildings of its manufacturing facilities in Valparaiso, Indiana and Burgettstown, Pennsylvania, and its manufacturing facility and corporate headquarters located in Carnegie, Pennsylvania (the “Properties”). Simultaneously with the sale, UES entered into a lease agreement pursuant to which UES would lease the Properties from the buyer. The lease provides for an initial term of 20 years; however, UES may extend the lease for four successive periods of approximately five years each. If fully extended, the lease would expire in September 2058. UES also has the option to repurchase the Properties, which it may exercise, and currently intends to exercise, in 2025, for a price equal to the greater of (i) the Fair Market Value of the Properties, or (ii) 115% of Lessor’s Total Investment for the Facilities, with such terms defined in the lease agreement. Annual payments will increase each anniversary date by an amount equal to the lesser of 2% or 1.25% of the change in the consumer price index, as defined in the lease agreement. The effective interest rate approximated 8.06% and 7.98% for 2021 and 2020, respectively.
Industrial Revenue Bonds
At December 31, 2021, the Corporation had the following IRBs outstanding: (i) $7,116 taxable IRB maturing in 2027, interest at a floating rate which averaged 0.19% and 0.83% for 2021 and 2020, respectively; and (ii) $2,075 tax-exempt IRB maturing in 2029, interest at a floating rate which averaged 0.09% and 0.85% for 2021 and 2020, 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 remote by the Corporation, the bondholders can seek reimbursement immediately from the letters of credit which serve as collateral for the bonds. Accordingly, the IRBs are recorded as current debt on the consolidated balance sheets.
Minority Shareholder Loan
ATR had a loan outstanding with its minority shareholder, which was fully repaid in 2021. The loan originally matured in 2008 but had been renewed continually for one-year periods. At December 31, 2020, the loan balance approximated $1,056 (RMB 6,901). Interest did not compound and had accrued on the outstanding loan balance, since inception, at the three-to-five-year loan interest rate
39
set by the People’s Bank of China in effect at the time of renewal. In 2021, in addition to repaying the balance of the loan, ATR paid $479 (RMB 3,046) in accrued interest. In 2020, ATR repaid $1,882 (RMB 13,000) in principal and $290 (RMB 2,000) in accrued interest. The interest rate for 2021 and 2020 approximated 5%. Accrued interest as of December 31, 2021, and 2020, approximated $1,713 (RMB 10,901) and $2,117 (RMB 13,842), respectively, and is recorded in other current liabilities on the consolidated balance sheets.
Finance Leases
The Corporation leases equipment under various noncancelable lease agreements ending 2022 to 2028. Effective interest rates ranged between approximately 1% and 3% for 2021 and 2020. The weighted-average remaining lease term approximated 5 years at December 31, 2021, and 2 years at December 31, 2020. Cash paid for amounts included in the measurement of finance lease liabilities totaled $884 and $570 for the years ended December 31, 2021, and 2020, respectively, of which $29 and $18 were classified as operating cash flows and $855 and $552 were classified as financing cash flows in the consolidated statements of cash flows for each of the respective years. Interest on the finance lease liabilities was insignificant for both years.
NOTE 9 – OPERATING LEASE LIABILITIES:
The current and noncurrent portions of the Corporation’s operating lease arrangements as of December 31, 2021, and 2020, were as follows:
|
|
2021 |
|
|
2020 |
|
Operating lease liabilities – current portion |
|
$ |
641 |
|
|
$ |
674 |
|
Noncurrent operating lease liabilities |
|
|
3,415 |
|
|
|
3,670 |
|
Total operating lease liabilities |
|
$ |
4,056 |
|
|
$ |
4,344 |
|
Future operating lease payments as of December 31, 2021, were as follows:
2022 |
|
$ |
653 |
|
2023 |
|
|
604 |
|
2024 |
|
|
544 |
|
2025 |
|
|
308 |
|
2026 |
|
|
179 |
|
2027 and thereafter |
|
|
3,841 |
|
Total undiscounted payments |
|
|
6,129 |
|
Less: amount representing interest |
|
|
(2,073 |
) |
Present value of net minimum lease payments |
|
$ |
4,056 |
|
At December 31, 2021, and 2020, the weighted-average remaining lease term approximated 8.76 years and 8.71 years, respectively, and the weighted-average discount rate approximated 4.66% and 3.95%, respectively.
The components of lease cost for the years ended December 31, 2021, and 2020, were as follows:
|
|
2021 |
|
|
2020 |
|
Short-term operating lease costs |
|
$ |
29 |
|
|
$ |
30 |
|
Long-term operating lease costs |
|
|
642 |
|
|
|
697 |
|
Total operating lease costs |
|
$ |
671 |
|
|
$ |
727 |
|
Cash paid for amounts included in the measurement of operating lease liabilities totaled $671 and $727 for the years ended December 31, 2021, and 2020, respectively, and was classified as operating cash flows in the consolidated statements of cash flows.
NOTE 10 – PENSION AND OTHER POSTRETIREMENT BENEFITS:
U.S. Pension Benefits
The Corporation has two qualified domestic defined benefit pension plans that cover substantially all of its U.S. employees. For all locations except one, benefit accruals and participation in the plans have been curtailed and replaced with a defined contribution pension plan. The defined benefit pension plans are covered by the Employee Retirement Income Security Act of 1974 (“ERISA”); accordingly, the Corporation’s policy is to fund at least the minimum actuarially-computed annual contribution required under ERISA. No minimum contributions were due for 2021 due to relief provided by the ARP Act. Minimum contributions for 2020 approximated
40
$5,562 and are expected to approximate $770 in 2022. The fair value of the plan assets as of December 31, 2021, and 2020, approximated $214,937 and $210,880, respectively, in comparison to accumulated benefit obligations of $249,180 and $264,750 for the same periods. Employer contributions to the defined contribution plan totaled $2,893 and $2,796 for 2021 and 2020, respectively, and are expected to approximate $2,400 in 2022.
The Corporation also maintains nonqualified defined benefit pension plans for selected executive officers in addition to the benefits provided under one of the Corporation’s qualified defined benefit pension plans. The objectives of the nonqualified plans are to provide supplemental retirement benefits or restore benefits lost due to limitations set by the Internal Revenue Service. The assets of the nonqualified plans are held in a grantor tax trust known as a “Rabbi” trust and are subject to claims of the Corporation’s creditors, but otherwise must be used only for purposes of providing benefits under the plans. The fair market value of the trust at December 31, 2021, and 2020, which is included in other noncurrent assets on the consolidated balance sheets, was $4,860 and $4,402, respectively. The plan is treated as a non-funded pension plan for financial reporting purposes. Accordingly, benefit payments would represent employer contributions. Accumulated benefit obligations approximated $11,121 and $8,813 at December 31, 2021, and 2020, respectively.
Employees at one location participate in a multi-employer plan, I.A.M. National Pension Fund (employer identification number 51-6031295, plan number 002), in lieu of the Corporation’s defined benefit pension plans. A multi-employer plan generally receives contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements. The assets contributed by one employer may be used to fund the benefits provided to employees of other employers in the plan because the plan assets, once contributed, are not restricted to individual employers. The latest report of summary plan information (for the 2020 plan year) provided by I.A.M. National Pension Fund indicates:
|
• |
Approximately 1,700 employer locations contribute to the plan; |
|
• |
Approximately 100,000 active employees participate in the plan; and |
|
• |
Assets of approximately $12.7 billion and a funded status of approximately 85%. |
Less than 100 of the Corporation’s employees participate in the plan and contributions are based on a rate per hour. The Corporation’s contributions to the plan were less than $275 for 2021 and 2020 and represent less than five percent of total contributions to the plan by all contributing employers. Contributions are expected to approximate $300 in 2022.
Foreign Pension Benefits
Employees of UES-UK participated in a defined benefit pension plan that was curtailed effective December 31, 2004, and replaced with a defined contribution pension plan. The plans are non-U.S. plans and, therefore, are not covered by ERISA. Employer contributions to the defined benefit pension plan, when necessary, are agreed to by the Trustees and UES-UK, based on U.K. regulations, with the objective of maintaining the self-sufficiency of the plan. Accordingly, estimated contributions are subject to change based on the future investment performance of the plan’s assets. Currently, the plan is fully funded and no contributions were required in 2021 or 2020, and none are expected in 2022. The fair value of the plan’s assets as of December 31, 2021, and 2020, approximated $71,614 (£53,008) and $66,957 (£49,056), respectively, in comparison to accumulated benefit obligations of $59,651 (£44,153) and $61,629 (£45,153) for the same periods. Contributions to the defined contribution pension plan approximated $322 and $292 in 2021 and 2020, respectively, and are expected to approximate $324 in 2022.
The Corporation has two additional foreign defined benefit pension plans, which are not funded. Accordingly, benefit payments would represent employer contributions. Projected and accumulated benefit obligations approximated $7,356 and $8,294 at December 31, 2021, and 2020, respectively.
Other Postretirement Benefits
The Corporation provides a monthly reimbursement of postretirement health care benefits for up to a 6-year period principally to the bargaining groups of two subsidiaries. The plans cover participants and their spouses who retire under an existing pension plan on other than a deferred vested basis and at the time of retirement also have rendered 10 or more years of continuous service irrespective of age. Retiree life insurance is provided to substantially all retirees. The Corporation’s postretirement health care and life insurance plans are not funded or subject to any minimum regulatory funding requirements. Instead, benefit payments are made from the general assets of the Corporation at the time they are due.
41
Significant Activity
Actuarial (gains) losses were comprised of the following components:
|
|
U.S. Pension
Benefits |
|
|
Foreign Pension
Benefits |
|
|
Other Postretirement
Benefits |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Changes in assumptions |
|
$ |
(6,234 |
) |
|
$ |
21,494 |
|
|
$ |
(164 |
) |
|
$ |
5,674 |
|
|
$ |
(365 |
) |
|
$ |
811 |
|
Other |
|
|
2,027 |
|
|
|
(1,851 |
) |
|
|
167 |
|
|
|
(333 |
) |
|
|
(442 |
) |
|
|
(85 |
) |
Total actuarial (gains) losses |
|
$ |
(4,207 |
) |
|
$ |
19,643 |
|
|
$ |
3 |
|
|
$ |
5,341 |
|
|
$ |
(807 |
) |
|
$ |
726 |
|
Changes in actuarial assumptions principally include the effect of changes in discount rates and mortality tables which are used to estimate plan liabilities. A 1/4 percentage point decrease in the discount rate would increase projected and accumulated benefit obligations by approximately $10,300. Conversely, a 1/4 percentage point increase in the discount rate would decrease projected and accumulated benefit obligations by approximately $10,300. It is not possible to quantify the effects of future changes to mortality tables.
Reconciliations
The following tables provide a reconciliation of projected benefit obligations (“PBO”), plan assets and the funded status of the plans for the Corporation’s defined benefit plans calculated using a measurement date as of the end of the respective years.
|
|
U.S. Pension
Benefits(a) |
|
|
Foreign Pension
Benefits(b) |
|
|
Other Postretirement
Benefits |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Change in projected benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO at January 1 |
|
$ |
273,776 |
|
|
$ |
261,902 |
|
|
$ |
69,923 |
|
|
$ |
62,339 |
|
|
$ |
11,410 |
|
|
$ |
11,398 |
|
Service cost |
|
|
243 |
|
|
|
223 |
|
|
|
375 |
|
|
|
444 |
|
|
|
245 |
|
|
|
225 |
|
Interest cost |
|
|
5,349 |
|
|
|
7,175 |
|
|
|
829 |
|
|
|
1,058 |
|
|
|
182 |
|
|
|
281 |
|
Special termination benefits |
|
|
0 |
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Foreign currency exchange rate changes |
|
|
0 |
|
|
|
0 |
|
|
|
(1,354 |
) |
|
|
3,209 |
|
|
|
0 |
|
|
|
0 |
|
Actuarial (gains) losses |
|
|
(4,207 |
) |
|
|
19,643 |
|
|
|
3 |
|
|
|
5,341 |
|
|
|
(807 |
) |
|
|
726 |
|
Participant contributions |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
161 |
|
|
|
274 |
|
Benefits paid from plan assets |
|
|
(14,457 |
) |
|
|
(14,776 |
) |
|
|
(2,114 |
) |
|
|
(1,796 |
) |
|
|
0 |
|
|
|
0 |
|
Benefits paid by the Corporation |
|
|
(403 |
) |
|
|
(403 |
) |
|
|
(655 |
) |
|
|
(672 |
) |
|
|
(761 |
) |
|
|
(1,494 |
) |
PBO at December 31 |
|
$ |
260,301 |
|
|
$ |
273,776 |
|
|
$ |
67,007 |
|
|
$ |
69,923 |
|
|
$ |
10,430 |
|
|
$ |
11,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
$ |
210,880 |
|
|
$ |
195,667 |
|
|
$ |
66,957 |
|
|
$ |
57,900 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Actual return on plan assets |
|
|
18,514 |
|
|
|
24,427 |
|
|
|
7,550 |
|
|
|
8,396 |
|
|
|
0 |
|
|
|
0 |
|
Foreign currency exchange rate changes |
|
|
0 |
|
|
|
0 |
|
|
|
(779 |
) |
|
|
2,457 |
|
|
|
0 |
|
|
|
0 |
|
Corporate contributions |
|
|
403 |
|
|
|
5,965 |
|
|
|
655 |
|
|
|
672 |
|
|
|
600 |
|
|
|
1,220 |
|
Participant contributions |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
161 |
|
|
|
274 |
|
Gross benefits paid |
|
|
(14,860 |
) |
|
|
(15,179 |
) |
|
|
(2,769 |
) |
|
|
(2,468 |
) |
|
|
(761 |
) |
|
|
(1,494 |
) |
Fair value of plan assets at December 31 |
|
$ |
214,937 |
|
|
$ |
210,880 |
|
|
$ |
71,614 |
|
|
$ |
66,957 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets |
|
$ |
214,937 |
|
|
$ |
210,880 |
|
|
$ |
71,614 |
|
|
$ |
66,957 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Less benefit obligations |
|
|
260,301 |
|
|
|
273,776 |
|
|
|
67,007 |
|
|
|
69,923 |
|
|
|
10,430 |
|
|
|
11,410 |
|
Funded status at December 31 |
|
$ |
(45,364 |
) |
|
$ |
(62,896 |
) |
|
$ |
4,607 |
|
|
$ |
(2,966 |
) |
|
$ |
(10,430 |
) |
|
$ |
(11,410 |
) |
|
(a) |
Includes the nonqualified defined benefit pension plan. |
|
(b) |
Includes the over-funded U.K. defined benefit pension plan and two smaller unfunded defined benefit pension plans.
|
42
The following tables provide a summary of amounts recognized in the consolidated balance sheets at December 31, 2021, and 2020.
|
|
U.S. Pension
Benefits |
|
|
Foreign Pension
Benefits |
|
|
Other Postretirement
Benefits |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Employee benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pensions(a) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
11,963 |
|
|
$ |
5,327 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Accrued payrolls and employee benefits(b) |
|
|
(740 |
) |
|
|
(477 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(932 |
) |
|
|
(1,028 |
) |
Employee benefit obligations(c) |
|
|
(44,624 |
) |
|
|
(62,419 |
) |
|
|
(7,356 |
) |
|
|
(8,293 |
) |
|
|
(9,498 |
) |
|
|
(10,382 |
) |
Total employee benefit obligations |
|
$ |
(45,364 |
) |
|
$ |
(62,896 |
) |
|
$ |
4,607 |
|
|
$ |
(2,966 |
) |
|
$ |
(10,430 |
) |
|
$ |
(11,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss:(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
$ |
51,476 |
|
|
$ |
63,834 |
|
|
$ |
16,046 |
|
|
$ |
18,341 |
|
|
$ |
(405 |
) |
|
$ |
324 |
|
Prior service cost (credit) |
|
|
15 |
|
|
|
38 |
|
|
|
(6,952 |
) |
|
|
(7,327 |
) |
|
|
(5,803 |
) |
|
|
(6,833 |
) |
Total accumulated other comprehensive loss |
|
$ |
51,491 |
|
|
$ |
63,872 |
|
|
$ |
9,094 |
|
|
$ |
11,014 |
|
|
$ |
(6,208 |
) |
|
$ |
(6,509 |
) |
|
(a) |
Represents the over-funded U.K. defined benefit pension plan which is recorded as a noncurrent asset in the consolidated balance sheets. |
|
(b) |
Recorded as a current liability in the consolidated balance sheets. |
|
(c) |
Recorded as a noncurrent liability in the consolidated balance sheets. |
As of December 31, 2021, estimated benefit payments for subsequent years are as follows:
|
|
U.S. Pension
Benefits |
|
|
Foreign Pension
Benefits |
|
|
Other Postretirement
Benefits |
|
2022 |
|
$ |
16,050 |
|
|
$ |
1,993 |
|
|
$ |
945 |
|
2023 |
|
|
16,005 |
|
|
|
2,096 |
|
|
|
934 |
|
2024 |
|
|
15,925 |
|
|
|
2,036 |
|
|
|
939 |
|
2025 |
|
|
15,768 |
|
|
|
2,803 |
|
|
|
909 |
|
2026 |
|
|
15,535 |
|
|
|
2,594 |
|
|
|
640 |
|
2027-2031 |
|
|
73,709 |
|
|
|
13,535 |
|
|
|
2,684 |
|
Total benefit payments |
|
$ |
152,992 |
|
|
$ |
25,057 |
|
|
$ |
7,051 |
|
Investment Policies and Strategies
The investment policies and strategies are determined by the Ampco-Pittsburgh Corporation Retirement Committee (the “Retirement Committee”) and monitored by the Investment Committee of the Board of Directors for the U.S. pension plans and by the Trustees (as appointed by UES-UK and the employees of UES-UK) for the UES-UK pension plan, each of whom employ their own investment managers to manage the plan’s assets in accordance with the policy guidelines. The U.S. defined benefit pension plans follow a glide-path strategy whereby target asset allocations are rebalanced based on projected payment obligations and the funded status of the plans. The U.K. defined benefit pension plan employs a liability-matching portfolio whereby a higher percentage of plan assets are invested in fixed-income securities. Pension assets of the UES-UK plan are invested with the objective of the plan maintaining self-sufficiency.
Attempts to minimize risk include allowing temporary changes to the allocation mix in response to market conditions, diversifying investments among asset categories (e.g., equity securities, fixed-income securities, alternative investments, cash and cash equivalents) and within these asset categories (e.g., economic sector, industry, geographic distribution, size) and consulting with independent financial and legal counsels to assure that the investments and their expected returns and risks are consistent with the goals of the Retirement and Investment Committees or Trustees.
Investments in equity securities are primarily in common stocks of publicly-traded U.S. and international companies across a broad spectrum of industry sectors. Investments in fixed-income securities are principally A-rated or better bonds with maturities of less than ten years, preferred stocks and convertible bonds. Investments in equity and fixed-income securities are either direct or through designated mutual funds. The Corporation believes there are no significant concentrations of risk associated with the plans’ assets. With respect to the U.S. pension plans, the following investments are prohibited unless otherwise approved by the Board of Directors: stock of the Corporation, futures and options except for hedging purposes, unregistered or restricted stock, warrants, margin trading, short-selling, real estate excluding public or real estate partnerships, and commodities including art, jewelry and gold. The UES-UK pension plan invests in specific funds. Any investments other than those specifically identified would be considered prohibited.
43
The following table summarizes target asset allocations for 2021 (within +/-5% considered acceptable) and major asset categories. Certain investments are classified differently for target asset allocation purposes and external reporting purposes. The Corporation intends to continue to liquidate the alternative investments of the U.S. plans to provide additional flexibility with investment allocation.
|
|
U.S. Pension Benefits |
|
|
Foreign Pension Benefits |
|
|
|
Target
Allocation |
|
|
Percentage of Plan
Assets |
|
|
Target
Allocation |
|
|
Percentage of Plan
Assets |
|
|
|
Dec. 31, 2021 |
|
|
2021 |
|
|
2020 |
|
|
Dec. 31, 2021 |
|
|
2021 |
|
|
2020 |
|
Equity securities |
|
|
48 |
% |
|
|
50 |
% |
|
|
52 |
% |
|
|
17 |
% |
|
|
15 |
% |
|
|
34 |
% |
Fixed-income securities |
|
|
43 |
% |
|
|
43 |
% |
|
|
40 |
% |
|
|
46 |
% |
|
|
44 |
% |
|
|
48 |
% |
Alternative investments |
|
|
6 |
% |
|
|
4 |
% |
|
|
5 |
% |
|
|
28 |
% |
|
|
29 |
% |
|
|
11 |
% |
Other (primarily cash and cash equivalents) |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
9 |
% |
|
|
12 |
% |
|
|
7 |
% |
Fair Value Measurement of Plan Assets
Equity securities, exchange-traded funds (“ETFs”), mutual funds and treasury bonds are actively traded on exchanges or broker networks and price quotes for these investments are readily available. While not quoted on active exchanges, price quotes for corporate and agency bonds are readily available. Similarly, certain commingled funds are not traded publicly, but the underlying assets (such as stocks and bonds) held in the funds are traded on active markets and the prices for the underlying assets are readily observable. For securities not actively traded, the fair value may be based on third-party appraisals, discounted cash flow analysis, benchmark yields, and inputs that are currently observable in markets for similar securities.
Investment Strategies
The significant investment strategies of the various funds are summarized below.
Fund |
Investment Strategy |
Primary Investment Objective |
Temporary Investment Funds |
Invests primarily in a diversified portfolio of investment grade money market instruments. |
Achieve a market level of current income while maintaining stability of principal and liquidity. |
Various Equity Funds |
Each fund maintains a diversified holding in common stock of applicable companies (e.g., common stock of small capitalization companies if a small-cap fund, common stock of medium capitalization companies if a mid-cap fund, common stock of foreign corporations if an international fund, etc.). |
Outperform the fund’s related index. |
Various Fixed- Income Funds |
Invests primarily in a diversified portfolio of fixed-income securities of varying maturities or in commingled funds which invest in a diversified portfolio of fixed-income securities of varying maturities. |
Achieve a rate of return that matches or exceeds the expected growth in plan liabilities.
|
Alternative Investments – Managed Funds |
Invests in equities and equity-like asset classes and strategies (such as public equities, venture capital, private equity, real estate, natural resources, and hedged strategies) and fixed-income securities approved by the Retirement Committee. |
Generate a minimum annual inflation adjusted return of 5% and outperform a traditional 70/30 equities/bond portfolio. |
Alternative Investments –Absolute Return Funds |
Invests in a diversified portfolio of alternative investment styles and strategies approved by the Trustees of the UES-UK defined benefit pension plan. |
Generate long-term capital appreciation while maintaining a low correlation with the traditional global financial markets. |
44
Categories of Plan Assets
Asset categories based on the nature and risks of the U.S. pension benefit plans’ assets as of December 31, 2021, are summarized below.
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1) |
|
|
Significant Other
Observable Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
$ |
6,442 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
6,442 |
|
Consumer staples |
|
|
3,050 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,050 |
|
Energy |
|
|
1,167 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,167 |
|
Financial |
|
|
4,617 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,617 |
|
Healthcare |
|
|
10,526 |
|
|
|
0 |
|
|
|
0 |
|
|
|
10,526 |
|
Industrials |
|
|
8,089 |
|
|
|
0 |
|
|
|
0 |
|
|
|
8,089 |
|
Information technology |
|
|
11,819 |
|
|
|
0 |
|
|
|
0 |
|
|
|
11,819 |
|
Materials |
|
|
938 |
|
|
|
0 |
|
|
|
0 |
|
|
|
938 |
|
Mutual funds and ETFs |
|
|
58,440 |
|
|
|
0 |
|
|
|
0 |
|
|
|
58,440 |
|
Real estate |
|
|
824 |
|
|
|
0 |
|
|
|
0 |
|
|
|
824 |
|
Telecommunications |
|
|
2,388 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,388 |
|
Utilities |
|
|
146 |
|
|
|
0 |
|
|
|
0 |
|
|
|
146 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
|
426 |
|
|
|
0 |
|
|
|
0 |
|
|
|
426 |
|
Financial |
|
|
751 |
|
|
|
0 |
|
|
|
0 |
|
|
|
751 |
|
Healthcare |
|
|
880 |
|
|
|
0 |
|
|
|
0 |
|
|
|
880 |
|
Industrials |
|
|
1,410 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,410 |
|
Information technology |
|
|
2,065 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,065 |
|
Materials |
|
|
1,330 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,330 |
|
Total Equity Securities |
|
|
115,308 |
|
|
|
0 |
|
|
|
0 |
|
|
|
115,308 |
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
0 |
|
|
|
41,991 |
|
|
|
0 |
|
|
|
41,991 |
|
Treasury bonds |
|
|
28,694 |
|
|
|
0 |
|
|
|
0 |
|
|
|
28,694 |
|
Agency bonds |
|
|
0 |
|
|
|
257 |
|
|
|
0 |
|
|
|
257 |
|
Mutual funds and ETFs |
|
|
7,334 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7,334 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
0 |
|
|
|
3,711 |
|
|
|
0 |
|
|
|
3,711 |
|
Total Fixed-Income Securities |
|
|
36,028 |
|
|
|
45,959 |
|
|
|
0 |
|
|
|
81,987 |
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds(a) |
|
|
0 |
|
|
|
0 |
|
|
|
8,167 |
|
|
|
8,167 |
|
Total Alternative Investments |
|
|
0 |
|
|
|
0 |
|
|
|
8,167 |
|
|
|
8,167 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(b) |
|
|
9,349 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9,349 |
|
Other(c) |
|
|
76 |
|
|
|
0 |
|
|
|
50 |
|
|
|
126 |
|
Total Other |
|
|
9,425 |
|
|
|
0 |
|
|
|
50 |
|
|
|
9,475 |
|
Total assets |
|
$ |
160,761 |
|
|
$ |
45,959 |
|
|
$ |
8,217 |
|
|
$ |
214,937 |
|
|
(a) |
Includes approximately 89.6% in alternative investments (real assets, commodities and resources, absolute return funds) and 10.4% in cash and cash equivalents. |
|
(b) |
Includes investments in temporary funds. |
|
(c) |
Includes accrued receivables and pending broker settlements. |
45
Asset categories based on the nature and risks of the U.S. pension benefit plans’ assets as of December 31, 2020, are summarized below.
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1) |
|
|
Significant Other
Observable Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
$ |
6,012 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
6,012 |
|
Consumer staples |
|
|
2,591 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,591 |
|
Energy |
|
|
569 |
|
|
|
0 |
|
|
|
0 |
|
|
|
569 |
|
Financial |
|
|
3,199 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,199 |
|
Healthcare |
|
|
9,831 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9,831 |
|
Industrials |
|
|
7,026 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7,026 |
|
Information technology |
|
|
11,450 |
|
|
|
0 |
|
|
|
0 |
|
|
|
11,450 |
|
Materials |
|
|
736 |
|
|
|
0 |
|
|
|
0 |
|
|
|
736 |
|
Mutual funds and ETFs |
|
|
52,101 |
|
|
|
0 |
|
|
|
0 |
|
|
|
52,101 |
|
Real estate |
|
|
1,180 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,180 |
|
Telecommunications |
|
|
2,343 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,343 |
|
Utilities |
|
|
325 |
|
|
|
0 |
|
|
|
0 |
|
|
|
325 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
|
|
1,070 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,070 |
|
Consumer staples |
|
|
2,478 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,478 |
|
Energy |
|
|
419 |
|
|
|
0 |
|
|
|
0 |
|
|
|
419 |
|
Financial |
|
|
2,252 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,252 |
|
Healthcare |
|
|
1,107 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,107 |
|
Industrials |
|
|
2,113 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,113 |
|
Information technology |
|
|
1,743 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,743 |
|
Materials |
|
|
987 |
|
|
|
0 |
|
|
|
0 |
|
|
|
987 |
|
Total Equity Securities |
|
|
109,532 |
|
|
|
0 |
|
|
|
0 |
|
|
|
109,532 |
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
0 |
|
|
|
45,567 |
|
|
|
0 |
|
|
|
45,567 |
|
Treasury bonds |
|
|
24,967 |
|
|
|
0 |
|
|
|
0 |
|
|
|
24,967 |
|
Agency bonds |
|
|
0 |
|
|
|
624 |
|
|
|
0 |
|
|
|
624 |
|
Mutual funds and ETFs |
|
|
7,794 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7,794 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
0 |
|
|
|
2,699 |
|
|
|
0 |
|
|
|
2,699 |
|
Total Fixed-Income Securities |
|
|
32,761 |
|
|
|
48,890 |
|
|
|
0 |
|
|
|
81,651 |
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds(a) |
|
|
0 |
|
|
|
0 |
|
|
|
7,557 |
|
|
|
7,557 |
|
Total Alternative Investments |
|
|
0 |
|
|
|
0 |
|
|
|
7,557 |
|
|
|
7,557 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(b) |
|
|
12,142 |
|
|
|
0 |
|
|
|
0 |
|
|
|
12,142 |
|
Other(c) |
|
|
88 |
|
|
|
0 |
|
|
|
(90 |
) |
|
|
(2 |
) |
Total Other |
|
|
12,230 |
|
|
|
0 |
|
|
|
(90 |
) |
|
|
12,140 |
|
Total assets |
|
$ |
154,523 |
|
|
$ |
48,890 |
|
|
$ |
7,467 |
|
|
$ |
210,880 |
|
|
(a) |
Includes approximately 82.8% in alternative investments (real assets, commodities and resources, absolute return funds) and 17.2% in cash and cash equivalents. |
|
(b) |
Includes investments in temporary funds. |
|
(c) |
Includes accrued receivables and pending broker settlements. |
46
Asset categories based on the nature and risks of the foreign pension benefit plan’s assets as of December 31, 2021, are summarized below.
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1) |
|
|
Significant Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
1,079 |
|
|
$ |
1,079 |
|
Commingled funds (International) |
|
|
0 |
|
|
|
1,663 |
|
|
|
8,205 |
|
|
|
9,868 |
|
Total Equity Securities |
|
|
0 |
|
|
|
1,663 |
|
|
|
9,284 |
|
|
|
10,947 |
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
|
0 |
|
|
|
16,320 |
|
|
|
0 |
|
|
|
16,320 |
|
Commingled funds (International) |
|
|
0 |
|
|
|
15,281 |
|
|
|
10,197 |
|
|
|
25,478 |
|
Total Fixed-Income Securities |
|
|
0 |
|
|
|
31,601 |
|
|
|
10,197 |
|
|
|
41,798 |
|
Multi-Asset Commingled Funds (International) |
|
|
0 |
|
|
|
9,077 |
|
|
|
0 |
|
|
|
9,077 |
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute return funds |
|
|
0 |
|
|
|
0 |
|
|
|
1,347 |
|
|
|
1,347 |
|
Cash and cash equivalents |
|
|
0 |
|
|
|
8,445 |
|
|
|
0 |
|
|
|
8,445 |
|
Total assets |
|
$ |
0 |
|
|
$ |
50,786 |
|
|
$ |
20,828 |
|
|
$ |
71,614 |
|
Asset categories based on the nature and risks of the foreign pension benefit plan’s assets as of December 31, 2020, are summarized below.
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1) |
|
|
Significant Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
2,925 |
|
|
$ |
2,925 |
|
Commingled funds (International) |
|
|
0 |
|
|
|
2,343 |
|
|
|
17,746 |
|
|
|
20,089 |
|
Total Equity Securities |
|
|
0 |
|
|
|
2,343 |
|
|
|
20,671 |
|
|
|
23,014 |
|
Fixed-Income Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds (U.K.) |
|
|
0 |
|
|
|
17,883 |
|
|
|
0 |
|
|
|
17,883 |
|
Commingled funds (International) |
|
|
0 |
|
|
|
14,118 |
|
|
|
0 |
|
|
|
14,118 |
|
Total Fixed Income Securities |
|
|
0 |
|
|
|
32,001 |
|
|
|
0 |
|
|
|
32,001 |
|
Multi-Asset Commingled Funds (International) |
|
|
0 |
|
|
|
4,381 |
|
|
|
0 |
|
|
|
4,381 |
|
Alternative Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absolute return funds |
|
|
0 |
|
|
|
0 |
|
|
|
3,094 |
|
|
|
3,094 |
|
Cash and cash equivalents |
|
|
73 |
|
|
|
4,394 |
|
|
|
0 |
|
|
|
4,467 |
|
Total assets |
|
$ |
73 |
|
|
$ |
43,119 |
|
|
$ |
23,765 |
|
|
$ |
66,957 |
|
The following table sets forth a summary of changes in the fair value of the Level 3 plan assets for the U.S. and foreign pension benefit plans for the years ended December 31, 2021, and 2020.
|
|
U.S. Pension Benefits |
|
Foreign Pension Benefits |
|
|
|
2021 |
|
|
2020 |
|
2021 |
|
|
2020 |
|
Fair value as of January 1 |
|
$ |
7,557 |
|
|
$ |
19,341 |
|
$ |
23,765 |
|
|
$ |
6,495 |
|
Transfers from other plan assets |
|
|
0 |
|
|
|
0 |
|
|
10,214 |
|
|
|
16,418 |
|
Transfers to other plan assets |
|
|
(1,600 |
) |
|
|
(10,784 |
) |
|
(16,957 |
) |
|
|
(7,066 |
) |
Realized gains (losses) |
|
|
273 |
|
|
|
1,706 |
|
|
5,989 |
|
|
|
(197 |
) |
Change in net unrealized gains (losses) |
|
|
1,937 |
|
|
|
(2,706 |
) |
|
(2,085 |
) |
|
|
6,024 |
|
Other, primarily impact from changes in foreign currency
exchange rates |
|
|
0 |
|
|
|
0 |
|
|
(98 |
) |
|
|
2,091 |
|
Fair value as of December 31 |
|
$ |
8,167 |
|
|
$ |
7,557 |
|
$ |
20,828 |
|
|
$ |
23,765 |
|
47
Net Periodic Pension and Other Postretirement Benefit Costs
The actual return on the fair value of the plan assets is included in determining the funded status of the plans. In determining net periodic pension benefit costs, the expected long-term rate of return on the market-related value of the plan assets is used. Differences between the actual return on the fair value of the plan assets and the expected long-term rate of return on the market-related value of the plan assets are classified as part of unrecognized actuarial gains or losses and are recorded as a component of accumulated other comprehensive loss on the consolidated balance sheet. When these gains or losses exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets, they are amortized to net periodic pension and other postretirement benefit costs over the average remaining service period or life expectancy of the employees expected to receive benefits under the plans. When the gains or losses are less than 10% of the greater of the projected benefit obligation or the market-related value of plan assets, they are included in net periodic pension and other postretirement benefit costs indirectly as a result of lower/higher interest costs arising from a decrease/increase in the projected benefit obligation.
Net periodic pension and other postretirement benefit costs include the following components for each of the years.
|
|
U.S. Pension
Benefits |
|
|
Foreign Pension
Benefits |
|
|
Other Postretirement
Benefits |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Service cost |
|
$ |
243 |
|
|
$ |
223 |
|
|
$ |
375 |
|
|
$ |
444 |
|
|
$ |
245 |
|
|
$ |
225 |
|
Interest cost |
|
|
5,349 |
|
|
|
7,175 |
|
|
|
829 |
|
|
|
1,058 |
|
|
|
182 |
|
|
|
281 |
|
Expected return on plan assets |
|
|
(12,995 |
) |
|
|
(12,828 |
) |
|
|
(1,935 |
) |
|
|
(1,972 |
) |
|
|
0 |
|
|
|
0 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
23 |
|
|
|
41 |
|
|
|
(306 |
) |
|
|
(285 |
) |
|
|
(1,030 |
) |
|
|
(1,017 |
) |
Actuarial loss (gain) |
|
|
2,632 |
|
|
|
2,094 |
|
|
|
635 |
|
|
|
701 |
|
|
|
(78 |
) |
|
|
(139 |
) |
Special termination benefits |
|
|
0 |
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Total net periodic pension and other postretirement benefit costs |
|
$ |
(4,748 |
) |
|
$ |
(3,283 |
) |
|
$ |
(402 |
) |
|
$ |
(54 |
) |
|
$ |
(681 |
) |
|
$ |
(650 |
) |
Assumptions
Assumptions are reviewed on an annual basis. The expected long-term rate of return on plan assets is an estimate of average rates of earnings expected to be earned on funds invested, or to be invested, to provide for the benefits included in the projected benefit obligation. Since these benefits will be paid over many years, the expected long-term rate of return is reflective of current investment returns and investment returns over a longer period. Consideration is also given to target and actual asset allocations, inflation and real risk-free return. A percentage point decrease in the expected long-term rate of return would increase annual pension expense by approximately $2,500. Conversely, a percentage point increase in the expected long-term rate of return would decrease annual pension expense by approximately $2,500. The discount rates used in determining future pension obligations and other postretirement benefits for each of the plans are based on rates of return on high-quality fixed-income investments currently available, and expected to be available, during the period to maturity of the pension and other postretirement benefits. High-quality fixed-income investments are defined as those investments which have received one of the two highest ratings given by a recognized rating agency with maturities of 10+ years. Assumptions about wage increases are not relevant since substantially all the benefits available under the defined benefit pension plans are either frozen or based on a multiplier, versus wages.
The discount rates used to determine the benefit obligations as of December 31, 2021, and 2020, are summarized below.
|
|
U.S. Pension
Benefits |
|
Foreign Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Discount rate |
|
2.79-2.91% |
|
2.50-2.63% |
|
1.95% |
|
1.45% |
|
2.91% |
|
2.61% |
In addition, the assumed health care cost trend rate at December 31, 2021, for other postretirement benefits is 5.65% for 2022 gradually decreasing to 4.75% in 2027. In selecting rates for current and long-term health care assumptions, the Corporation considers known health care cost increases, the design of the benefit programs, the demographics of its active and retiree populations, and expectations of inflation rates in the future.
48
The following assumptions were used to determine net periodic pension and other postretirement benefit costs for the years ended December 31, 2021, and 2020.
|
|
U.S. Pension
Benefits |
|
Foreign Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Discount rate |
|
2.50-2.63% |
|
3.25-3.31% |
|
1.45% |
|
2.05% |
|
2.61% |
|
2.98-3.35% |
Expected long-term rate of return |
|
6.50-7.00% |
|
6.60-7.25% |
|
2.90% |
|
3.55% |
|
n/a |
|
n/a |
NOTE 11 – COMMITMENTS AND CONTINGENT LIABILITIES:
Outstanding standby and commercial letters of credit as of December 31, 2021, approximated $14,093, the majority of which serves as collateral for the IRB debt. In addition, outstanding surety bonds guaranteeing certain obligations of the two unfunded foreign defined benefit pension plans approximated $4,000 (SEK 33,900) as of December 31, 2021.
The Corporation has undertaken a significant capital program to upgrade existing equipment at certain of its FCEP locations which is anticipated to occur over the next two years and cost approximately $27,000. At December 31, 2021, commitments for future capital expenditures, including those associated with the FCEP capital program, approximated $20,800.
Approximately 36% of the Corporation’s employees are covered by collective bargaining agreements or agreements with works councils that have expiration dates ranging from May 2022 to March 2025. Collective bargaining agreements and agreements with works councils expiring in 2022 (representing approximately 52% of the covered employees) will be negotiated with the intent to secure mutually beneficial, long-term arrangements.
See Note 14 regarding derivative instruments, Note 19 regarding litigation and Note 21 for environmental matters.
NOTE 12 – 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 for total gross proceeds of $19,279. The shares of common stock and warrants are classified as equity instruments in the consolidated statements of shareholders’ equity. Additional proceeds may be received from the future exercise of the Series A warrants. 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.
The following summarizes outstanding warrants as of December 31, 2021, and 2020, and activity for the years then ended.
|
|
|
|
Number of Warrants |
|
Outstanding as of January 1, 2020 |
|
|
|
|
0 |
|
Issued |
|
|
|
|
12,339,256 |
|
Converted to common stock |
|
|
|
|
0 |
|
Outstanding as of December 31, 2020 |
|
|
|
|
12,339,256 |
|
Issued |
|
|
|
|
0 |
|
Converted to common stock |
|
|
|
|
(1,289,009 |
) |
Outstanding as of December 31, 2021 |
|
|
|
|
11,050,247 |
|
Stock issuance costs equaled $1,140 in 2020 and were recorded against the proceeds from the equity rights offering in additional paid-in capital.
49
NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE LOSS:
Net changes and ending balances for the various components of other comprehensive income (loss) and for accumulated other comprehensive loss as of and for the years ended December 31, 2020, and 2021, are summarized below.
|
|
Foreign
Currency
Translation
Adjustments |
|
|
Unrecognized
Components
of Employee
Benefit Plans |
|
|
Derivatives |
|
|
Total Accumulated
Other
Comprehensive
Loss |
|
|
Noncontrolling Interest |
|
|
Accumulated
Other
Comprehensive
Loss Attributable to Ampco-Pittsburgh |
|
January 1, 2020 |
|
$ |
(18,352 |
) |
|
$ |
(50,859 |
) |
|
$ |
291 |
|
|
$ |
(68,920 |
) |
|
$ |
(258 |
) |
|
$ |
(68,662 |
) |
Net change |
|
|
6,981 |
|
|
|
(6,793 |
) |
|
|
298 |
|
|
|
486 |
|
|
|
519 |
|
|
|
(33 |
) |
December 31, 2020 |
|
|
(11,371 |
) |
|
|
(57,652 |
) |
|
|
589 |
|
|
|
(68,434 |
) |
|
|
261 |
|
|
|
(68,695 |
) |
Net change |
|
|
(2,951 |
) |
|
|
17,089 |
|
|
|
(312 |
) |
|
|
13,826 |
|
|
|
237 |
|
|
|
13,589 |
|
December 31, 2021 |
|
$ |
(14,322 |
) |
|
$ |
(40,563 |
) |
|
$ |
277 |
|
|
$ |
(54,608 |
) |
|
$ |
498 |
|
|
$ |
(55,106 |
) |
The following summarizes the line items affected on the consolidated statements of operations for components reclassified from accumulated other comprehensive loss for the years ended December 31, 2021, and 2020. Amounts in parentheses represent credits to net income (loss).
|
|
2021 |
|
|
2020 |
|
Amortization of unrecognized employee benefit costs: |
|
|
|
|
|
|
|
|
Other – net |
|
$ |
1,876 |
|
|
$ |
1,395 |
|
Income tax (provision) benefit |
|
|
(50 |
) |
|
|
0 |
|
Net of income tax |
|
$ |
1,826 |
|
|
$ |
1,395 |
|
Settlement of cash flow hedges: |
|
|
|
|
|
|
|
|
Depreciation and amortization (foreign currency purchase contracts) |
|
$ |
(27 |
) |
|
$ |
(27 |
) |
Costs of products sold (excluding depreciation and amortization)
(futures contracts – copper and aluminum) |
|
|
(1,092 |
) |
|
|
(65 |
) |
Total before income tax |
|
|
(1,119 |
) |
|
|
(92 |
) |
Income tax (provision) benefit |
|
|
33 |
|
|
|
0 |
|
Net of income tax |
|
$ |
(1,086 |
) |
|
$ |
(92 |
) |
The income tax effect associated with the various components of other comprehensive income for the years ended December 31, 2021, and 2020, is summarized below. Amounts in parentheses represent credits to net income (loss) 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 re-invested for an indefinite period of time.
|
|
2021 |
|
|
2020 |
|
Income tax effect associated with changes in: |
|
|
|
|
|
|
|
|
Unrecognized employee benefit costs |
|
$ |
(1,049 |
) |
|
$ |
0 |
|
Fair value of cash flow hedges |
|
|
(38 |
) |
|
|
0 |
|
Income tax effect associated with reclassification adjustments: |
|
|
|
|
|
|
|
|
Amortization of unrecognized employee benefit costs |
|
|
(50 |
) |
|
|
0 |
|
Settlement of cash flow hedges |
|
|
33 |
|
|
|
0 |
|
NOTE 14 – DERIVATIVE INSTRUMENTS:
Certain operations of the Corporation are subject to risk from exchange rate fluctuations in connection with sales in foreign currencies. To minimize this risk, foreign currency sales contracts are periodically entered into which are designated as cash flow or fair value hedges. As of December 31, 2021, no anticipated foreign-denominated sales have been hedged. As of December 31, 2020, approximately $4,370 of anticipated foreign-denominated sales were hedged.
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 December 31, 2021, approximately 67% or $3,434 of anticipated copper purchases over the next eight months and 56% or $684 of
50
anticipated aluminum purchases over the next six months are hedged. At December 31, 2020, approximately 39% or $2,138 of anticipated copper purchases over the following eight months and 56% or $470 of anticipated aluminum purchases over the following six months were hedged.
At December 31, 2021, the Corporation has purchase commitments covering approximately 29% or $1,753 of anticipated natural gas usage through December 31, 2023, for one of its subsidiaries and approximately 34% or $2,125 of anticipated electricity usage through December 31, 2024, for two of its subsidiaries. The commitments qualify as normal purchases and, accordingly, are not reflected on the consolidated balance sheet. Purchases of natural gas under previously existing commitments approximated $1,368 for 2020. No purchase commitments for anticipated natural gas usage were outstanding during 2021 or as of December 31, 2020.
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 assets in service, the foreign currency purchase contract is settled and the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings (depreciation and amortization expense) over the life of the underlying asset. As of December 31, 2010, all contracts had been settled, the underlying fixed assets were placed in service and the change in fair value of the foreign currency purchase contract deferred in accumulated other comprehensive loss is being amortized to earnings over the life of the underlying assets.
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. The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.
No foreign currency sales contracts are outstanding as of December 31, 2021. The following summarizes location and fair value of the outstanding foreign currency sales contracts recorded on the consolidated balance sheet as of December 31, 2020.
|
|
Location |
|
Total |
|
Fair value hedge contracts |
|
Other current assets |
|
$ |
1,123 |
|
|
|
Other noncurrent assets |
|
|
332 |
|
|
|
Other current liabilities |
|
|
12 |
|
Fair value hedged item |
|
Receivables |
|
|
(960 |
) |
|
|
Other current liabilities |
|
|
201 |
|
|
|
Other noncurrent liabilities |
|
|
327 |
|
The change in the fair value of the cash flow contracts is recorded as a component of accumulated other comprehensive loss. Amounts recognized as and reclassified from accumulated other comprehensive loss are recorded as a component of other comprehensive income (loss) and are summarized below. Amounts are after-tax, where applicable. Certain amounts recognized as or reclassified from comprehensive income (loss) for 2021 and 2020 have no tax effect due to the Corporation recording a valuation allowance against the deferred income tax assets in the related jurisdictions.
For the Year Ended December 31, 2021 |
|
Beginning of
the Year |
|
|
Recognized |
|
|
Reclassified |
|
|
End of
the Year |
|
Foreign currency purchase contracts |
|
$ |
162 |
|
|
$ |
0 |
|
|
$ |
27 |
|
|
$ |
135 |
|
Future contracts – copper and aluminum |
|
|
427 |
|
|
|
774 |
|
|
|
1,059 |
|
|
|
142 |
|
Change in fair value |
|
$ |
589 |
|
|
$ |
774 |
|
|
$ |
1,086 |
|
|
$ |
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency purchase contracts |
|
$ |
189 |
|
|
$ |
0 |
|
|
$ |
27 |
|
|
$ |
162 |
|
Future contracts – copper and aluminum |
|
|
102 |
|
|
|
390 |
|
|
|
65 |
|
|
|
427 |
|
Change in fair value |
|
$ |
291 |
|
|
$ |
390 |
|
|
$ |
92 |
|
|
$ |
589 |
|
51
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) in |
|
Estimated to be
Reclassified in
the Next |
|
|
Years Ended December 31, |
|
|
|
Consolidated Statements of Operations |
|
12 Months |
|
|
2021 |
|
|
2020 |
|
Foreign currency purchase contracts |
|
Depreciation and amortization |
|
$ |
27 |
|
|
$ |
27 |
|
|
$ |
27 |
|
Futures contracts – copper and
aluminum |
|
Costs of products sold (excluding depreciation and amortization) |
|
|
142 |
|
|
|
1,059 |
|
|
|
65 |
|
Losses on foreign exchange transactions included in other expense approximated $(1,134) and $(97) for 2021 and 2020, respectively.
NOTE 15 – FAIR VALUE:
The following summarizes financial assets and liabilities reported at fair value on a recurring basis in the consolidated balance sheets at December 31:
2021 |
|
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
4,860 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
4,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
4,402 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
4,402 |
|
Foreign currency exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
0 |
|
|
|
(960 |
) |
|
|
0 |
|
|
|
(960 |
) |
Other current assets |
|
|
0 |
|
|
|
1,123 |
|
|
|
0 |
|
|
|
1,123 |
|
Other noncurrent assets |
|
|
0 |
|
|
|
332 |
|
|
|
0 |
|
|
|
332 |
|
Other current liabilities |
|
|
0 |
|
|
|
213 |
|
|
|
0 |
|
|
|
213 |
|
Other noncurrent liabilities |
|
|
0 |
|
|
|
327 |
|
|
|
0 |
|
|
|
327 |
|
The investments held as other noncurrent assets represent assets held in the “Rabbi” trust for the purpose of providing benefits under the 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 foreign currency exchange contracts is determined based on the fair value of similar contracts with similar terms and remaining maturities. The fair value of futures contracts is based on market quotations. The fair values of the variable-rate IRB debt and borrowings under the revolving credit facility approximate their carrying values. Additionally, the fair values of trade receivables and trade payables approximate their carrying values.
NOTE 16 – REVENUE:
Net sales by geographic area and product line for the years ended December 31, 2021, and 2020, are outlined below. Net sales are attributed to the geographic areas based on the location of the customer. Sales to individual foreign countries were less than 10% of consolidated net sales for each of the years.
|
|
Net Sales by Geographic Area |
|
|
|
2021 |
|
|
2020 |
|
United States |
|
$ |
178,090 |
|
|
$ |
159,908 |
|
Foreign |
|
|
166,830 |
|
|
|
168,636 |
|
Consolidated total |
|
$ |
344,920 |
|
|
$ |
328,544 |
|
52
|
|
Net Sales by Product Line |
|
|
|
2021 |
|
|
2020 |
|
Forged and cast mill rolls |
|
$ |
234,926 |
|
|
$ |
228,219 |
|
Forged engineered products |
|
|
25,278 |
|
|
|
9,670 |
|
Heat exchange coils |
|
|
24,372 |
|
|
|
25,249 |
|
Centrifugal pumps |
|
|
33,867 |
|
|
|
36,911 |
|
Air handling systems |
|
|
26,477 |
|
|
|
28,495 |
|
Consolidated total |
|
$ |
344,920 |
|
|
$ |
328,544 |
|
NOTE 17 – STOCK-BASED COMPENSATION:
The Ampco-Pittsburgh Corporation 2016 Omnibus Incentive Plan (the “Incentive Plan”) originally authorized the issuance of up to 1,100,000 shares of the Corporation’s common stock for awards under the Incentive Plan. In May 2021, the shareholders of the Corporation approved an amendment and restatement of the Incentive Plan providing for an additional 1,600,000 shares that could be issued 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 all or a portion of the director’s retainer for board service.
The Compensation Committee has granted stock options, time-vesting restricted stock units (RSUs) and performance-vesting restricted stock units (PSUs) to select individuals. Each stock option represents the right to purchase one share of common stock of the Corporation at a designated price, subject to the terms and conditions of the stock option award agreement. All stock options are fully vested. Each RSU represents the right to receive one share of common stock of the Corporation at a future date after the RSU has become earned and vested, subject to the terms and conditions of the RSU award agreement. The RSUs typically vest over a three-year period. The PSUs can be earned depending upon the achievement of a performance or market condition and a time-vesting condition as follows: (i) achievement of a targeted return on invested capital over a three-year performance period; (ii) achievement of a three-year cumulative relative total shareholder return as ranked against other companies included in the Corporation’s peer group; and (iii) remaining continuously employed with the Corporation through the end of the third year following the date of grant. Earlier vesting of the stock units is permitted under certain conditions, such as upon a change of control of the Corporation, or as approved by the Board of Directors. In 2021, in connection with the early retirement of two executive officers, the Board of Directors approved modifying certain terms of their outstanding awards including accelerating the vesting requirements. The modifications increased stock-based compensation expense for 2021 by approximately $369.
The grant date fair value for the RSUs equals the closing price of the Corporation’s common stock on the NYSE on the date of grant. The grant date fair value for PSUs subject to a market condition is determined using a Monte Carlo simulation model and the grant date fair value for PSUs that vest subject to a performance condition is equal to the closing price of the Corporation’s stock on the NYSE on the date of grant. The determination of the fair value of these awards takes into consideration the likelihood of achievement of the market or performance condition and, in certain circumstances, is adjusted for subsequent changes in the estimated or actual outcome of the condition. Unrecognized compensation expense associated with the RSUs and PSUs equaled $2,013 at December 31, 2021, and is expected to be recognized over a weighted-average period of approximately 2 years.
53
Outstanding RSUs and PSUs, which would represent non-vested awards, as of December 31, 2021, and 2020, and activity for the years then ended are as follows:
|
|
Number of
RSUs |
|
|
Weighted-
Average
Fair
Value |
|
|
Number of
PSUs |
|
|
Weighted-
Average
Fair
Value |
|
Outstanding at January 1, 2020 |
|
|
219,851 |
|
|
$ |
5.45 |
|
|
|
214,191 |
|
|
$ |
5.74 |
|
Granted |
|
|
162,503 |
|
|
|
3.22 |
|
|
|
169,178 |
|
|
|
4.19 |
|
Converted to common stock |
|
|
(95,391 |
) |
|
|
6.81 |
|
|
|
(5,793 |
) |
|
|
14.00 |
|
Forfeited |
|
|
(8,305 |
) |
|
|
5.59 |
|
|
|
(29,380 |
) |
|
|
10.46 |
|
Outstanding at December 31, 2020 |
|
|
278,658 |
|
|
|
3.68 |
|
|
|
348,196 |
|
|
|
4.45 |
|
Granted |
|
|
207,381 |
|
|
|
5.74 |
|
|
|
215,150 |
|
|
|
6.78 |
|
Converted to common stock |
|
|
(169,757 |
) |
|
|
4.39 |
|
|
|
(133,745 |
) |
|
|
5.98 |
|
Forfeited |
|
|
(15,435 |
) |
|
|
4.80 |
|
|
|
(96,994 |
) |
|
|
4.30 |
|
Outstanding at December 31, 2021 |
|
|
300,847 |
|
|
$ |
4.64 |
|
|
|
332,607 |
|
|
$ |
5.39 |
|
Outstanding stock options, all of which are fully vested, as of December 31, 2021, and 2020, and activity for the years then ended are as follows:
|
|
Number of
Shares Under
Options |
|
|
Weighted-
Average
Exercise
Price |
|
|
Remaining
Contractual
Life In
Years |
|
|
Intrinsic
Value |
|
Outstanding at January 1, 2020 |
|
|
408,750 |
|
|
$ |
21.64 |
|
|
|
2.1 |
|
|
$ |
0 |
|
Granted |
|
|
0 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
0 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(17,000 |
) |
|
20.31 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(122,500 |
) |
|
|
25.77 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020 |
|
|
269,250 |
|
|
|
19.85 |
|
|
|
2.0 |
|
|
|
0 |
|
Granted |
|
|
0 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
0 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,000 |
) |
|
20.00 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(58,750 |
) |
|
|
25.18 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021 |
|
|
205,500 |
|
|
$ |
18.32 |
|
|
|
1.4 |
|
|
$ |
0 |
|
Exercisable at December 31, 2021 |
|
|
205,500 |
|
|
$ |
18.32 |
|
|
|
1.4 |
|
|
$ |
0 |
|
Vested or expected to vest at December 31, 2021 |
|
|
205,500 |
|
|
$ |
18.32 |
|
|
|
1.4 |
|
|
$ |
0 |
|
Stock-based compensation expense for all awards, including expense associated with the modified awards and equity-based awards granted to non-employee members of the Board of Directors, approximated $2,438 and $1,329 for 2021 and 2020, respectively. The income tax benefit recognized in the consolidated statements of operations was not significant due to the Corporation having a valuation allowance recorded against its deferred income tax assets for the jurisdiction where the expense was recognized (see Note 20).
NOTE 18 – RESEARCH AND DEVELOPMENT COSTS:
Expenditures relating to the development of new products, identification of products or process alternatives and modifications and improvements to existing products and processes are expensed as incurred. These expenses approximated $1,229 for 2021 and $2,047 for 2020.
NOTE 19 – LITIGATION:
The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses and are also subject to asbestos litigation as described below.
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) in cases filed in various state and federal courts.
54
Asbestos Claims
The following table reflects approximate information about the claims for the Asbestos Liability against Air & Liquid and the Corporation for the years ended December 31, 2021, and 2020. 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.
|
|
2021 |
|
|
2020 |
|
Total claims pending at the beginning of the period |
|
|
5,891 |
|
|
|
6,102 |
|
New claims served |
|
|
1,233 |
|
|
|
1,016 |
|
Claims dismissed |
|
|
(605 |
) |
|
|
(855 |
) |
Claims settled |
|
|
(422 |
) |
|
|
(372 |
) |
Total claims pending at the end of the period (1) |
|
|
6,097 |
|
|
|
5,891 |
|
Administrative closures (2) |
|
|
(2,941 |
) |
|
|
|
|
Total active claims pending at the end of the period (2) |
|
|
3,156 |
|
|
|
|
|
Gross settlement and defense costs paid (in 000’s) |
|
$ |
23,215 |
|
|
$ |
27,437 |
|
Average gross settlement and defense costs per claim resolved (in 000’s) (3) |
|
$ |
22.60 |
|
|
$ |
22.36 |
|
|
(1) |
Included as “open claims” are approximately 661 and 688 claims in 2021 and 2020, respectively, classified in various jurisdictions as “inactive” or transferred to a state or federal judicial panel on multi-district litigation, commonly referred to as the MDL. |
|
(2) |
In 2021, the Corporation adopted the same methodology used by the liability expert who values the Corporation’s asbestos claims, in order to better align the Corporation’s data with the expert’s liability valuation. The expert’s methodology treats all claims filed six or more years ago as “administratively closed.” Therefore, the Corporation changed its prior practice of reporting “Total claims pending at the end of the period” into two categories – “Administrative closures” and “Total active claims at the end of the period.” Administrative closures now include (i) those claims that were filed six or more years ago; (ii) claims that were previously classified in various jurisdictions as “inactive;” and (iii) claims that were transferred to a state or federal judicial panel on multi-district litigation. Collectively, these claims are unlikely to result in any liability to the Corporation. Accordingly, the Corporation believes that presentation of “Total active claims pending at the end of the period” is a better indicator of total claims which may result in future payment. |
|
(3) |
Claims resolved do not include claims that were administratively closed. |
Asbestos Insurance
The Corporation and Air & Liquid are parties to a series of settlement agreements (“Settlement Agreements”) with insurers that have coverage obligations for the Asbestos Liability (the “Settling Insurers”). 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 include acknowledgements that 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.
Asbestos Valuations
At December 31, 2006, with the assistance of a nationally recognized expert in the valuation of asbestos liabilities, the Corporation recorded its initial reserve for the Asbestos Liability. Since then, the Corporation and the expert have reviewed the Asbestos Liability and the underlying assumptions on a regular basis to determine whether any adjustment to the Asbestos Liability or the underlying assumptions were necessary. When warranted, the Asbestos Liability was adjusted to consider the current trends and new information that became available and, if reasonably estimable, to extend the valuation of asbestos liabilities further into the future. In 2018, the valuation was extended to include claims projected to be asserted through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims.
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. 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 that it retains to assist with certain policy allocation matters. The Corporation also considers a number of other factors
55
including the Settlement Agreements in effect, policy exclusions, policy limits, policy provisions regarding coverage for defense costs, attachment points, gaps in the coverage, policy exhaustions, 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 insurers 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 timeframe of the Asbestos Liability.
In 2021, primarily as a result of identified changes in claim data and availability of new information, the Corporation engaged GNARUS Advisors LLC (“GNARUS”) to update the estimated Asbestos Liability. The methodology used by GNARUS in its updated projection was substantially the same methodology employed previously, which has been accepted by numerous courts, and included the following factors:
|
• |
interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos; |
|
• |
epidemiological studies estimating the number of people likely to develop asbestos-related diseases; |
|
• |
analysis of the number of people likely to file an asbestos-related injury claim against the subsidiaries and the Corporation based on such epidemiological data and relevant claims history from January 1, 2018, to July 31, 2021; |
|
• |
an analysis of pending cases, by type of injury claimed and jurisdiction where the claim is filed; and |
|
• |
an analysis of claims resolution history from January 1, 2018, to July 31, 2021, to determine the average settlement value of claims, by type of injury claimed and jurisdiction of filing. |
Based on this analysis, the Corporation recorded an increase to its estimated Asbestos Liability of $23,333 for claims pending or projected to be asserted through 2052. The increase is primarily attributable to recent claim experience, including a higher expected proportion of mesothelioma claims which typically have a higher settlement value, offset by a lower defense-to-indemnity cost ratio (reduced to 70% from 80% based on experience over the past five years) and elimination of an inflationary factor based on historical experience over the past 10+ years which provided no evidence that inflationary pressures influenced settlement averages. In addition, the Corporation increased its estimated insurance receivable by $16,672 for the estimated insurance recoveries attributable to the claims for which the Asbestos Liability reserve has been established and the portion of defense costs covered by the Settlement Agreements. The difference between the increase to the Asbestos Liability and the increase to the insurance receivable of $6,661 is recorded as a charge for asbestos-related costs in the consolidated statement of operations for 2021. In addition, in the prior year, the Corporation recognized expense equaling $283 for the potential insolvency of an insurance carrier, which was recorded as a charge for asbestos-related costs in the consolidated statement of operations for 2020.
The following table summarizes activity relating to insurance recoveries for the years ended December 31, 2021, and 2020.
|
|
2021 |
|
|
2020 |
|
Insurance receivable – asbestos, beginning of the year |
|
$ |
117,937 |
|
|
$ |
136,932 |
|
Settlement and defense costs paid by insurance carriers |
|
|
(13,312 |
) |
|
|
(18,712 |
) |
Change in estimated coverage |
|
|
16,672 |
|
|
|
(283 |
) |
Insurance receivable – asbestos, end of the year |
|
$ |
121,297 |
|
|
$ |
117,937 |
|
The balance of 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, that there will not be insolvencies among the relevant insurance carriers, or that the assumed percentage recoveries for certain carriers will prove correct. The difference between insurance recoveries and projected costs is not due to exhaustion of all insurance coverage for the Asbestos Liability.
The amounts recorded for the Asbestos Liability and insurance receivable rely on assumptions that are 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 are identified above and also include the number and nature of new claims to be filed each year, the average cost of disposing of each new claim, 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. 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 and related insurance receivable, as well as the underlying assumptions, on a regular basis to determine whether any adjustments to the estimates are required. Due to the uncertainties surrounding asbestos litigation and insurance, these regular reviews may result in the Corporation adjusting its current reserve;
56
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 periods in which the adjustments to the liability or receivable are recorded and to the Corporation’s consolidated financial position and liquidity.
NOTE 20 – INCOME TAXES:
(Loss) income from operations before income taxes for the years ended December 31, 2021, and 2020, is summarized below. (Loss) income from operations before income taxes for certain foreign entities is classified differently for book reporting and income tax reporting purposes.
|
|
2021 |
|
|
2020 |
|
Domestic |
|
$ |
(18,057 |
) |
|
$ |
(1,587 |
) |
Foreign |
|
|
8,228 |
|
|
|
10,287 |
|
(Loss) income from operations before income taxes |
|
$ |
(9,829 |
) |
|
$ |
8,700 |
|
The income tax provision (benefit) for the years ended December 31, 2021, and 2020, consisted of the following:
|
|
2021 |
|
|
2020 |
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
0 |
|
|
$ |
(3,614 |
) |
State |
|
|
(16 |
) |
|
|
107 |
|
Foreign |
|
|
1,017 |
|
|
|
2,079 |
|
Current income tax provision (benefit) |
|
|
1,001 |
|
|
|
(1,428 |
) |
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
(2,978 |
) |
|
|
2,485 |
|
State |
|
|
(1,085 |
) |
|
|
1,329 |
|
Foreign |
|
|
1,138 |
|
|
|
(178 |
) |
Increase (decrease) in valuation allowance |
|
|
4,229 |
|
|
|
(2,678 |
) |
Deferred income tax provision |
|
|
1,304 |
|
|
|
958 |
|
Total income tax provision (benefit) |
|
$ |
2,305 |
|
|
$ |
(470 |
) |
The income tax benefit recorded in 2020 includes a benefit of $3,502 for the carryback of net operating losses, as enabled by the CARES Act, to an earlier period when the Corporation was subject to a higher tax rate, resulting in the release of a portion of the valuation allowance previously established against the deferred income tax assets of the Corporation.
The difference between statutory U.S. federal income tax and the Corporation’s effective income tax for the years ended December 31, 2021, and 2020, was as follows:
|
|
2021 |
|
|
2020 |
|
Computed at statutory rate |
|
$ |
(2,064 |
) |
|
$ |
1,827 |
|
State income taxes |
|
|
(1,098 |
) |
|
|
1,413 |
|
Rate change |
|
|
482 |
|
|
|
0 |
|
Tax differential on non-U.S. earnings |
|
|
(49 |
) |
|
|
(44 |
) |
GILTI inclusion |
|
|
305 |
|
|
|
1,586 |
|
Stock-based compensation |
|
|
152 |
|
|
|
0 |
|
Meals and entertainment |
|
|
10 |
|
|
|
32 |
|
Net operating loss carryback |
|
|
0 |
|
|
|
(3,502 |
) |
Adjustments to net operating losses |
|
|
275 |
|
|
|
53 |
|
Increase (decrease) in valuation allowance |
|
|
4,229 |
|
|
|
(2,678 |
) |
Other – net |
|
|
63 |
|
|
|
843 |
|
Total income tax provision (benefit) |
|
$ |
2,305 |
|
|
$ |
(470 |
) |
57
Deferred income tax assets and liabilities as of December 31, 2021, and 2020, are summarized in the following table. Unremitted earnings of the Corporation’s non-U.S. subsidiaries and affiliates are deemed to be permanently re-invested and, accordingly, no deferred income tax liability has been recorded. If the Corporation were to remit any foreign earnings to the U.S., the estimated tax impact would be insignificant.
|
|
2021 |
|
|
2020 |
|
Assets: |
|
|
|
|
|
|
|
|
Employment – related liabilities |
|
$ |
7,378 |
|
|
$ |
8,709 |
|
Pension liability – foreign |
|
|
0 |
|
|
|
688 |
|
Pension liability – domestic |
|
|
7,984 |
|
|
|
11,991 |
|
Capital loss carryforwards |
|
|
204 |
|
|
|
157 |
|
Asbestos-related liability |
|
|
14,685 |
|
|
|
15,521 |
|
Net operating loss – domestic |
|
|
13,156 |
|
|
|
8,735 |
|
Net operating loss – state |
|
|
5,415 |
|
|
|
4,711 |
|
Net operating loss – foreign |
|
|
9,666 |
|
|
|
10,940 |
|
Inventory related |
|
|
3,232 |
|
|
|
2,056 |
|
Impairment charge associated with investment in MG |
|
|
961 |
|
|
|
949 |
|
Operating lease right-of-use assets |
|
|
980 |
|
|
|
1,026 |
|
Interest expense limitation |
|
|
2,517 |
|
|
|
1,770 |
|
Other |
|
|
797 |
|
|
|
798 |
|
Gross deferred income tax assets |
|
|
66,975 |
|
|
|
68,051 |
|
Valuation allowance |
|
|
(42,441 |
) |
|
|
(42,454 |
) |
|
|
|
24,534 |
|
|
|
25,597 |
|
Liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(22,015 |
) |
|
|
(22,165 |
) |
Pension asset – foreign |
|
|
(1,482 |
) |
|
|
0 |
|
Intangible assets – finite life |
|
|
(565 |
) |
|
|
(707 |
) |
Intangible assets – indefinite life |
|
|
(510 |
) |
|
|
(552 |
) |
Operating lease liabilities |
|
|
(980 |
) |
|
|
(1,026 |
) |
Other |
|
|
(664 |
) |
|
|
(57 |
) |
Gross deferred income tax liabilities |
|
|
(26,216 |
) |
|
|
(24,507 |
) |
Net deferred income tax (liabilities) assets |
|
$ |
(1,682 |
) |
|
$ |
1,090 |
|
At December 31, 2021, the Corporation has U.S. federal net operating loss carryforwards of $62,649, of which $55,914 can be carried forward indefinitely but will be limited to 80 percent of taxable income in any given year. The balance of $6,735 will begin to expire in 2035 and can be used without taxable income limitation. Additionally, at December 31, 2021, the Corporation had state net operating loss carryforwards of $81,909, which begin to expire in 2022, and foreign net operating loss carryforwards of $45,049 and capital loss carryforwards of $815, which do not expire.
Unrecognized tax benefits and changes in unrecognized tax benefits for the years ended December 31, 2021, and 2020, are insignificant. If the unrecognized tax benefits were recognized, the effect on the Corporation’s effective income tax rate would also be insignificant. The amount of penalties and interest recognized in the consolidated balance sheets as of December 31, 2021, and 2020, and in the consolidated statements of operations for 2021 and 2020 is insignificant.
The Corporation is subject to taxation in the United States, various states and foreign jurisdictions, and remains subject to examination by tax authorities for 2013, due to the carryback of net operating losses enabled by the CARES Act, and for tax years 2018 – 2021.
NOTE 21 – 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 as of December 31, 2021, and 2020.
58
NOTE 22 – RELATED PARTIES:
ATR had a loan outstanding with its minority shareholder, which was fully repaid in 2021. The loan originally matured in 2008 but had been renewed continually for one-year periods. At December 31, 2020, the loan balance approximated $1,056 (RMB 6,901).
Interest did not compound and had accrued on the outstanding loan balance, since inception, at the three-to-five-year loan interest rate set by the People’s Bank of China in effect at the time of renewal. In 2021, in addition to repaying the balance of the loan, ATR paid $479 (RMB 3,046) in accrued interest. In 2020, ATR repaid $1,882 (RMB 13,000) in principal and $290 (RMB 2,000) in accrued interest. The interest rate for 2021 and 2020 approximated 5%. Accrued interest as of December 31, 2021, and 2020, approximated $1,713 (RMB 10,901) and $2,117 (RMB 13,842), respectively, and is recorded in other current liabilities on the consolidated balance sheets.
Purchases from ATR’s minority shareholder and its affiliates, which were in the ordinary course of business, approximated $11,368 (RMB 73,299) and $7,556 (RMB 52,255) in 2021 and 2020, respectively. At December 31, 2021, and 2020, the amount payable to ATR’s minority shareholder and its affiliates for purchases approximated $1,125 (RMB 7,157) and $344 (RMB 2,249), respectively. Additionally, customer deposits from ATR’s minority shareholder and its affiliates approximated $616 (RMB 3,921) and $456 (RMB 2,984) at December 31, 2021, and 2020, respectively. Sales to ATR’s minority shareholder and its affiliates, which were in the ordinary course of business, approximated $9,842 (RMB 63,460) and $9,154 (RMB 63,222) for 2021 and 2020, respectively. No amounts were due from ATR’s minority shareholder or its affiliates as of December 31, 2021, or 2020.
59
NOTE 23 – BUSINESS SEGMENTS:
The Corporation organizes its business into two operating segments – Forged and Cast Engineered Products and Air and Liquid Processing. Summarized financial information concerning the Corporation’s reportable segments is shown in the following tables. Corporate assets included under Identifiable Assets represent primarily cash and cash equivalents and other items not allocated to reportable segments. Long-lived assets exclude deferred income tax assets. Corporate costs are comprised of operating costs of the corporate office and other costs not allocated to the segments. The accounting policies are the same as those described in Note 1, Summary of Significant Accounting Policies.
|
|
Net Sales(1) |
(Loss) Income from Operations Before Income Taxes |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Forged and Cast Engineered Products |
|
$ |
260,204 |
|
|
$ |
237,889 |
|
|
$ |
(3,065 |
) |
|
$ |
8,621 |
|
Air and Liquid Processing (2) |
|
|
84,716 |
|
|
|
90,655 |
|
|
|
1,905 |
|
|
|
10,133 |
|
Total Reportable Segments |
|
|
344,920 |
|
|
|
328,544 |
|
|
|
(1,160 |
) |
|
|
18,754 |
|
Corporate costs, including other income (expense) |
|
0 |
|
|
0 |
|
|
|
(8,669 |
) |
|
|
(10,054 |
) |
Consolidated total |
|
$ |
344,920 |
|
|
$ |
328,544 |
|
|
$ |
(9,829 |
) |
|
$ |
8,700 |
|
|
|
Capital Expenditures |
Depreciation and
Amortization Expense |
Identifiable Assets(3) |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Forged and Cast Engineered Products |
|
$ |
14,929 |
|
|
$ |
7,972 |
|
|
$ |
17,051 |
|
|
$ |
17,583 |
|
|
$ |
317,562 |
|
|
$ |
297,552 |
|
Air and Liquid Processing |
|
|
307 |
|
|
|
494 |
|
|
|
749 |
|
|
|
824 |
|
|
|
155,718 |
|
|
|
156,322 |
|
Corporate |
|
|
0 |
|
|
|
0 |
|
|
|
77 |
|
|
|
168 |
|
|
|
12,352 |
|
|
|
9,334 |
|
Consolidated total |
|
$ |
15,236 |
|
|
$ |
8,466 |
|
|
$ |
17,877 |
|
|
$ |
18,575 |
|
|
$ |
485,632 |
|
|
$ |
463,208 |
|
|
|
Long-Lived Assets(4) |
|
(Loss) Income from Operations Before Income Taxes |
Geographic Areas: |
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
2020 |
|
|
United States (5) |
|
$ |
218,712 |
|
|
$ |
220,372 |
|
|
|
$ |
(18,148 |
) |
|
$ |
(1,706 |
) |
|
Foreign |
|
|
76,447 |
|
|
|
68,511 |
|
|
|
|
8,319 |
|
|
|
10,406 |
|
|
Consolidated total |
|
$ |
295,159 |
|
|
$ |
288,883 |
|
|
|
$ |
(9,829 |
) |
|
$ |
8,700 |
|
|
|
(1) |
For the Forged and Cast Engineered Products segment, one customer accounted for 11% of its net sales in 2020. |
|
(2) |
(Loss) income from operations before income taxes for the Air and Liquid Processing segment for 2021 includes a charge of $6,661 representing the estimated increase in the costs of asbestos-related litigation through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims, net of estimated insurance recoveries. (Loss) income from operations before income taxes for the Air and Liquid Processing segment for 2020 includes a charge of $283 for the potential insolvency of an asbestos-related insurance carrier. |
|
(3) |
Identifiable assets for the Forged and Cast Engineered Products segment include investments in joint ventures of $2,175 at December 31, 2021, and 2020. |
|
(4) |
Foreign long-lived assets primarily represent assets of the foreign operations. Long-lived assets of the U.S. include noncurrent asbestos-related insurance receivables of $105,297 and $101,937 at December 31, 2021, and 2020. respectively. |
|
(5) |
(Loss) income from operations before income taxes for the United States includes Corporate costs. In addition, for 2021, it includes a charge of $6,661 representing the estimated increase in the costs of asbestos-related litigation through 2052, the estimated final date by which the Corporation expects to have settled all asbestos-related claims, net of estimated insurance recoveries, and, for 2020, a charge of $283 for the potential insolvency of an asbestos-related insurance carrier. |
60
QUARTERLY INFORMATION – UNAUDITED
Not applicable.
61