Ampco-Pittsburgh Corporation 2021 Form 10-K Summary
Business Context and Reporting Period
Annual report for the fiscal year ended December 31, 2021, filed March 16, 2022. Ampco-Pittsburgh manufactures engineered specialty metal products and customized equipment through two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP).
- FCEP produces forged and cast mill rolls and forged engineered products for steel, aluminum, oil and gas, and related markets.
- ALP produces centrifugal pumps, air-handling systems, and heat-exchange coils.
- The company had 1,485 active employees worldwide at year-end; approximately one-third were covered by collective bargaining agreements or works councils.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $344.9 million | $328.5 million | +5.0% |
| Operating income (loss) | $(13.6) million | $6.4 million | $(20.1) million |
| Net income (loss) attributable to Ampco-Pittsburgh | $(12.7) million | $8.0 million | $(20.7) million |
| Basic EPS | $(0.67) | $0.56 | $(1.23) |
| Gross margin excluding depreciation and amortization | 16.6% | 21.6% | Down 5.0 points |
| Cash flow from operating activities | $(15.9) million | $33.6 million | $(49.5) million |
| Capital expenditures | $15.2 million | $8.5 million | +$6.8 million |
| Cash and cash equivalents | $10.3 million | $16.8 million | Down $6.5 million |
Calculated consolidated operating and net margins were approximately negative 3.9% and negative 3.7%, respectively, compared with positive margins in 2020.
- FCEP sales increased to $260.2 million from $237.9 million, but operating income declined to a $3.1 million loss from $8.6 million of income.
- ALP sales declined to $84.7 million from $90.7 million, while operating income fell to $1.9 million from $10.1 million. The 2021 result included a $6.7 million asbestos-related charge.
- Year-end backlog increased to $292.6 million from $246.1 million, including $223.3 million for FCEP and $69.2 million for ALP. Approximately 6% of consolidated backlog was expected to ship after 2022.
- Total debt was $60.9 million at year-end, consisting primarily of $29.7 million drawn under the revolving credit facility, $20.5 million of sale-and-leaseback financing, and $9.2 million of industrial revenue bonds. The company reported approximately $34.0 million of remaining revolver availability and compliance with applicable covenants.
- Total shareholders’ equity was $91.8 million, including $82.6 million attributable to Ampco-Pittsburgh.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by higher FEP shipments to the steel distribution and oil and gas markets, higher pricing and variable-index surcharges, and improved mill-roll demand.
- Profitability deteriorated because of higher raw material, energy, transportation, maintenance, and commission costs; unfavorable product mix; and supply-chain disruption. Price increases and surcharges recovered only part of the cost inflation.
- FCEP production improved from pandemic-affected 2020 levels, but extended machine outages and higher input costs more than offset the benefit of higher production.
- ALP sales were reduced by lower commercial pump shipments, customer-requested air-handler deferrals, and delays in obtaining components. Backlog nevertheless improved due to additional pump orders and deferred air-handler orders.
- Operating results included a $6.7 million asbestos-related charge in 2021 versus $0.3 million in 2020 and $1.6 million of reorganization-related costs in 2021. Adjusted operating loss, excluding specified unusual items, was $5.4 million in 2021 versus adjusted operating income of $6.0 million in 2020.
- Working capital absorbed cash as receivables and inventories increased with higher activity, inflation, and supply-chain disruptions. Inventory rose to $88.2 million from $73.2 million.
- Shares outstanding increased, in part, from the exercise of 1.3 million Series A warrants, generating $3.3 million of proceeds. Approximately 11.1 million warrants remained outstanding at year-end, exercisable through August 1, 2025.
Outlook, Commentary, Risks, and Unusual Items
- Management stated that FCEP roll-market conditions had recovered to near pre-pandemic levels and expected sales orders to continue improving in 2022. FEP demand was strengthening in steel distribution and oil and gas.
- Management planned continued price increases, surcharge changes, operational improvements, equipment upgrades, and diversification of FEP products. A significant FCEP capital program was expected to cost approximately $27.0 million over two years; committed future capital expenditures at year-end were approximately $20.8 million.
- ALP was experiencing steady demand but continued to face higher production and transportation costs and supply-chain constraints. Management’s priorities were revenue growth, margin improvement, productivity, engineering capabilities, and distribution expansion.
- Management expected funds on hand, future operating cash flow, and revolver availability to fund operations. It was exploring supplemental financing for capital investments.
- Asbestos liabilities totaled $180.3 million at year-end, offset by $121.3 million of asbestos-related insurance receivables. The 2021 charge reflected updated estimates of pending and future claims through 2052, net of expected insurance recoveries. The company paid $9.9 million of net asbestos-related costs in 2021 and expected approximately $7.0 million in 2022.
- Key risks include cyclical steel and aluminum demand, excess global steel capacity, commodity and energy inflation, foreign-exchange movements, supply-chain disruption, equipment outages, labor actions, COVID-19 effects, cybersecurity, regulatory and climate-related changes, and limited access to capital.
- The company had not paid a common-stock dividend since mid-2017 and did not expect to resume dividends in the foreseeable future.
- The company’s independent auditor issued an unqualified opinion. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021; the auditor was not required to attest to internal control effectiveness because the company is a smaller reporting company.
Important Facts for Investors to Verify
- Whether price increases, surcharges, and productivity actions can offset continuing raw material, energy, transportation, labor, and supply-chain costs.
- The timing, cost, and financing of the approximately $27.0 million FCEP capital program, including whether supplemental financing is obtained on acceptable terms.
- Revolver availability, covenant headroom, debt maturities, and the company’s ability to fund operations while operating cash flow remains negative.
- The reasonableness of asbestos liability and insurance-recovery assumptions, insurer solvency, claim volumes, and potential future reserve adjustments.
- Conversion of the $292.6 million backlog into revenue and cash, including the approximately 6% expected to ship after 2022 and the effect of subsequent pricing or surcharge changes.
- The sustainability of FCEP demand recovery and ALP backlog growth despite lower 2021 sales and production constraints.
- The effect of approximately 11.1 million outstanding warrants and potential equity dilution through their August 1, 2025 expiration date.