Ampco-Pittsburgh Corporation 2022 Form 10-K Summary
Business context and reporting period
Ampco-Pittsburgh manufactures engineered specialty metal products and customized industrial equipment through two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP). The filing covers the fiscal year ended December 31, 2022, with 2021 presented as adjusted for the retrospective change from LIFO to FIFO inventory accounting.
Operations were generally normal, but were affected by supply-chain disruptions, inflation, transportation delays, the European energy crisis, and the Russia-Ukraine conflict. The company had 1,565 active employees at year-end, with approximately 34% covered by collective bargaining agreements or works councils.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total net sales | $390.2 million | $344.9 million | +13.1% |
| Income (loss) from operations | $2.8 million | $(4.8) million | +$7.6 million |
| Net income (loss) attributable to Ampco-Pittsburgh | $3.4 million | $(3.9) million | Improved |
| Basic and diluted EPS | $0.18 | $(0.20) | Improved |
| Gross margin excluding depreciation and amortization | 15.9% | 19.2% | Down 330 basis points |
| Net cash used in operating activities | $(27.2) million | $(15.9) million | Use increased |
| Capital expenditures | $16.7 million | $15.2 million | Higher |
| Cash and cash equivalents | $8.7 million | $10.3 million | Down $1.6 million |
FCEP sales increased to $299.5 million from $260.2 million, driven by pricing, surcharges, higher mill-roll volumes and product mix. FCEP operating income declined to $0.4 million from $5.1 million because higher raw-material, energy, transportation and other production costs more than offset pricing and volume benefits.
ALP sales increased to $90.7 million from $84.7 million. ALP operating income rose to $13.7 million from $2.6 million, although the comparison benefited materially from a $2.2 million asbestos-related credit in 2022 versus a $6.7 million asbestos-related charge in 2021.
Year-end backlog increased to $369.0 million from $292.6 million. FCEP backlog was $252.2 million and ALP backlog was $116.9 million. Approximately 6% of total backlog was expected to be released after 2023.
Liquidity, debt and financial position
- Total debt was $105.5 million at December 31, 2022, compared with $60.9 million at year-end 2021. Long-term debt was $93.1 million and current debt was $12.4 million.
- Debt included $47.1 million outstanding under a $100 million senior secured asset-based revolving facility, $41.0 million of sale-leaseback financing obligations, $9.2 million of industrial revenue bonds and $6.4 million under new equipment financing.
- Remaining availability under the revolving credit facility was approximately $28.4 million; equipment-financing availability was approximately $16.1 million. The company was in compliance with applicable debt covenants at year-end.
- Operating cash flow was negative primarily because of increased receivables and inventory investment associated with higher activity, inflation and supply-chain disruptions.
- Shareholders’ equity attributable to Ampco-Pittsburgh was $104.3 million, compared with $102.9 million in 2021. Total assets were $502.8 million and total liabilities were $389.4 million.
Material changes versus the prior comparable period
- The company returned to GAAP profitability, but reported operating performance remained modest after excluding unusual items: adjusted operating income was $(0.2) million in 2022 versus adjusted operating income of $3.5 million in 2021.
- Reported 2022 operating income included a $2.2 million asbestos-related credit, a $1.4 million employee-benefit-policy benefit and a $0.7 million charge for repayment of excess COVID-19 subsidies.
- Reported 2021 results included a $6.7 million asbestos-related charge and $1.6 million of reorganization-related costs.
- The company retrospectively changed domestic inventory accounting from LIFO to FIFO. The change increased January 1, 2021 retained earnings by $11.5 million net of tax. For 2022, FIFO increased reported income attributable to Ampco-Pittsburgh by approximately $2.8 million, or $0.14 per share, compared with LIFO.
- Interest expense increased to $5.4 million from $3.6 million because of higher borrowings, new financing transactions and higher interest rates.
- The U.S. defined benefit pension plan experienced a significant decline in plan assets during 2022, although higher discount rates reduced reported benefit obligations. Future benefit-plan contributions are expected to increase in 2024 and 2025.
Guidance, outlook, risks and unusual items
Management did not provide formal consolidated revenue or earnings guidance in the filing. Management expects funds on hand, future operating cash flow and revolving-credit availability to support operating needs and debt service, but this expectation depends on maintaining covenant compliance and adequate borrowing availability.
- The FCEP market outlook was mixed: North American forged-roll demand stabilized, European cast-roll demand softened, and FEP demand stabilized after a strong first half. UES announced a price increase on new forged- and cast-roll quotations and orders in February 2023.
- Approximately 80% of FCEP customer orders included commodity surcharges, but surcharges do not recover all cost increases. Inflation, energy costs, transportation, raw materials and foreign exchange remain significant margin risks.
- The company is executing an approximately $27.0 million FCEP capital program expected to be substantially completed by December 31, 2023. Capital-expenditure commitments at year-end were approximately $16.4 million.
- Asbestos liabilities totaled $153.6 million, offset by asbestos-related insurance receivables of $105.9 million. The company paid $19.8 million of gross asbestos settlement and defense costs in 2022 and expects net asbestos-related payments of approximately $8.0 million in 2023. Future adjustments could be material.
- The company disclosed material weaknesses in internal control over financial reporting related to asbestos-liability accounting and management review controls over tax accounting for a non-routine transaction. Management has remediation plans, but the weaknesses were not considered remediated at filing.
- The company faces risks from cyclical steel and aluminum demand, excess global steel capacity, customer concentration, geopolitical events, energy and commodity prices, labor negotiations, cyberattacks, environmental matters and potential asset impairments.
- The company has suspended quarterly cash dividends since the second quarter of 2017.
Most important facts for investors to verify
- Whether FCEP pricing and commodity surcharges can offset continuing inflationary, energy and transportation costs.
- The sustainability of ALP profitability after excluding the 2022 asbestos-related credit and considering supply-chain delays affecting centrifugal-pump shipments.
- Revolving-credit availability, covenant compliance, debt maturities and the company’s ability to fund the remaining FCEP capital program.
- Actual asbestos claims, insurance recoveries, insurer solvency and any future changes to the $153.6 million asbestos liability estimate.
- Progress and testing results for remediation of the two material weaknesses in internal control over financial reporting.
- Working-capital trends, particularly inventories and receivables, given negative operating cash flow in 2022.
- The effect of the FIFO accounting change when comparing 2022 results with prior filings or external company analyses.