NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in
thousands, except claim amounts)
1.
|
Unaudited Condensed Consolidated Financial Statements
|
The condensed consolidated balance sheet as of March 31, 2016 and the condensed consolidated statements of operations,
comprehensive (loss) income and cash flows for the three months ended March 31, 2016 and 2015 have been prepared by Ampco-Pittsburgh Corporation (the Corporation) without audit. In the opinion of management, all adjustments,
consisting of only normal and recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented, have been made
.
The results of operations for the three months ended
March 31, 2016 are not necessarily indicative of the operating results expected for the full year.
Certain information and footnote
disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which provides a common revenue standard for U.S. GAAP
and IFRS. The guidance establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a companys contracts with customers. It requires companies to apply a five-step
model when recognizing revenue relating to the transfer of goods or services to customers in an amount that reflects the consideration that the company expects to be entitled to receive for those goods and services. It also requires comprehensive
disclosures regarding revenue recognition. The guidance becomes effective January 1, 2018. The Corporation is currently evaluating the impact the guidance will have on its financial position, operating results and liquidity.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
, which revises the measurement of inventory at
the lower of cost or market. Currently, market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. In accordance with ASU 2015-11, an entity will measure inventory 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. The amendment does not apply to inventory that is measured
using last-in, first out (LIFO). The guidance becomes effective January 1, 2017 with earlier application permitted. The Corporation does not expect the guidance will have a significant impact on its financial position, operating results and
liquidity.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which requires lessees to recognize assets and liabilities on the
balance sheet for the rights and obligations created by all leases with a term of more than one year. Accounting by lessors will remain similar to existing generally accepted accounting principles. The guidance becomes effective January 1,
2019. The Corporation is currently evaluating the impact the guidance will have on its financial position, operating results and liquidity.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which requires all income tax
effects of awards to be recognized in the income statement when the awards vest or are settled and will be applied on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity on the statement of
cash flows rather than as a financing activity, and can be applied retroactively or prospectively. The amended guidance will be effective for interim and annual periods beginning after December 15, 2016; however, early adoption is permitted if
all provisions are adopted in the same period. The Corporation is currently evaluating the impact the guidance will have on its financial position, operating results and liquidity.
7
On March 3, 2016, the Corporation acquired the stock of
Åkers AB and certain of its affiliated companies, including Åkers ABs 60% equity interest in a Chinese joint venture company (collectively, Åkers) from Altor Fund II GP Limited. The base purchase price as of the
date of acquisition, subject to certain post-closing adjustments, approximated $77,246 and was comprised of $29,399 in cash, $25,710 in the form of a three-year note, and 1,776,604 shares of common stock of the Corporation which, based on the
closing price of the Corporations common stock as of the date of closing, had a fair value of $22,137. The note bears interest at 6.5%, compounding annually, with principal and interest payable at maturity on March 3, 2019.
The acquisition adds roll production facilities in Sweden, the United States, Slovenia, and China; 14 sales offices; and a service capability
in the United States. It enables cast roll production in the United States, forged roll production in Europe, and a low-cost product alternative for customers. The Corporations financial position as of March 31, 2016 includes the acquired
assets and assumed liabilities of Åkers at their estimated fair value. Operating results of the acquired entities are included in the Forged and Cast Engineered Products segment. For March 2016, net sales for Åkers approximated $12,583
and loss before income taxes including the effects of purchase accounting approximated $1,006. Acquisition-related transaction costs of approximately $1,800 relating principally to the purchase of Åkers are included in selling and
administrative costs.
The estimated fair value of assets acquired and liabilities assumed as of the date of acquisition is summarized
below and subject to final adjustments primarily for intangible assets, pre-acquisition contingencies, deferred income taxes and residual goodwill. Goodwill is not amortized for book purposes or deductible for tax purposes. Goodwill is assessed for
impairment annually in connection with the Corporations strategic planning process or whenever events or circumstances indicate the carrying amount of the asset may not be recoverable.
|
|
|
|
|
Current assets (excluding inventories)
|
|
$
|
40,703
|
|
Inventories
|
|
|
29,863
|
|
Property, plant and equipment
|
|
|
68,140
|
|
Intangible assets
|
|
|
15,972
|
|
Other noncurrent assets
|
|
|
7,391
|
|
Current liabilities
|
|
|
(66,651
|
)
|
Noncurrent liabilities
|
|
|
(42,219
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
53,199
|
|
Noncontrolling interest
|
|
|
(11,666
|
)
|
Goodwill
|
|
|
35,713
|
|
|
|
|
|
|
Base purchase price
|
|
$
|
77,246
|
|
|
|
|
|
|
These fair value estimates are provisional amounts based on third party valuations that are currently under
review. The estimated fair value of acquired intangible assets consists of $6,400 for developed technology, $6,016 for customer relationships, and $3,556 for trade name. The economic life of the acquired intangible assets is estimated to be 5 years
for developed technology, 10 years for customer relationships, and indefinite for the trade name. Included in current liabilities is a loan payable to the noncontrolling shareholder of the Chinese joint venture company which, with accrued interest,
approximated $7,468 as of the date of acquisition. The interest rate is equal to the benchmark lending rate set by the Peoples Bank of China. Both the loan and interest were payable as of December 31, 2015 but remain unpaid.
Pro Forma Financial Information for the Åkers Acquisition (unaudited):
The financial information in the table below summarizes the combined results of operations of the Corporation and Åkers on a pro forma
basis, for the period in which the acquisition occurred as though the companies had been combined as of the beginning of that period. Pro forma adjustments have been made to (1) include amortization expense on the definite-lived intangible assets
identified in the acquisition and interest expense on the note and (2) remove debt-related expenses associated with Åkers previous debt facilities not assumed by the Corporation. The following pro forma financial information is presented
for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred at the beginning of the period presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March, 31
|
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
85,128
|
|
|
$
|
106,610
|
|
Loss before income taxes (includes noncontrolling interest)
|
|
$
|
(9,778
|
)
|
|
$
|
(6,733
|
)
|
At March 31, 2016 and December 31, 2015, approximately 51% and 60% respectively, of the inventories were valued on
the LIFO method with the remaining inventories valued on the FIFO method. Inventories were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
22,744
|
|
|
$
|
18,314
|
|
Work-in-process
|
|
|
34,230
|
|
|
|
21,583
|
|
Finished goods
|
|
|
25,016
|
|
|
|
9,897
|
|
Supplies
|
|
|
11,988
|
|
|
|
9,940
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,978
|
|
|
$
|
59,734
|
|
|
|
|
|
|
|
|
|
|
8
4.
|
Property, Plant and Equipment
|
Property, plant and equipment were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Land and land improvements
|
|
$
|
10,323
|
|
|
$
|
5,223
|
|
Buildings
|
|
|
65,027
|
|
|
|
44,570
|
|
Machinery and equipment
|
|
|
310,200
|
|
|
|
266,358
|
|
Construction-in-progress
|
|
|
4,669
|
|
|
|
3,566
|
|
Other
|
|
|
6,775
|
|
|
|
7,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,994
|
|
|
|
327,491
|
|
Accumulated depreciation
|
|
|
(183,930
|
)
|
|
|
(180,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213,064
|
|
|
$
|
146,913
|
|
|
|
|
|
|
|
|
|
|
Land and buildings of Union Electric Steel UK Limited (UES-UK) equal to approximately $2,905
(£2,022) at March 31, 2016 are held as collateral by the trustees of the UES-UK defined benefit pension plan (see Note 6).
5.
|
Other Current Liabilities
|
|
Other
|
current liabilities were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Customer-related liabilities
|
|
$
|
28,137
|
|
|
$
|
12,195
|
|
Accrued interest payable
|
|
|
2,237
|
|
|
|
3
|
|
Accrued sales commissions
|
|
|
1,253
|
|
|
|
1,506
|
|
Income taxes payable
|
|
|
3,449
|
|
|
|
3,256
|
|
Other
|
|
|
12,973
|
|
|
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,049
|
|
|
$
|
23,880
|
|
|
|
|
|
|
|
|
|
|
Included in customer-related liabilities are costs expected to be incurred with respect to product warranties.
Changes in the liability for product warranty claims consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of the period
|
|
$
|
6,358
|
|
|
$
|
6,672
|
|
Åkers opening balance sheet liability for warranty claims
|
|
|
6,032
|
|
|
|
0
|
|
Satisfaction of warranty claims
|
|
|
(558
|
)
|
|
|
(331
|
)
|
Provision for warranty claims
|
|
|
613
|
|
|
|
748
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
135
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
$
|
12,580
|
|
|
$
|
6,936
|
|
|
|
|
|
|
|
|
|
|
6.
|
Pension and Other Postretirement Benefits
|
Contributions were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Foreign defined benefit pension plans
|
|
$
|
430
|
|
|
$
|
427
|
|
Other postretirement benefits (e.g. net payments)
|
|
$
|
241
|
|
|
$
|
164
|
|
U.K. defined contribution pension plan
|
|
$
|
62
|
|
|
$
|
96
|
|
U.S. defined contribution plan
|
|
$
|
503
|
|
|
$
|
0
|
|
9
In 2015, the U.S. Defined Benefit Plan was amended to freeze benefit accruals and participation
in the plan for non-union hourly and salaried participants and, effective January 1, 2016, for employees of the Union Electric Steel Carnegie Steelworkers Location. Benefits under the plan were replaced with employer contributions equaling a 3%
base contribution and a matching contribution of up to 4% to the defined contribution plan. The plan changes resulted in a curtailment loss of $1,217 for the three months ended March 31, 2015. Additionally, as part of the Åkers
acquisition, the Corporation assumed the obligations for two U.S. defined benefit pension plans, two foreign retirement benefit plans and two other postretirement benefit plans. None of the acquired benefit plans were fully funded as of the
acquisition date.
Net periodic pension and other postretirement costs include the following components:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
U.S. Defined Benefit Pension Plans
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
346
|
|
|
$
|
1,130
|
|
Interest cost
|
|
|
2,258
|
|
|
|
2,070
|
|
Expected return on plan assets
|
|
|
(3,011
|
)
|
|
|
(2,741
|
)
|
Amortization of prior service cost
|
|
|
105
|
|
|
|
138
|
|
Amortization of actuarial loss
|
|
|
1,128
|
|
|
|
1,463
|
|
Curtailment charge
|
|
|
0
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
826
|
|
|
$
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Foreign Defined Benefit Pension Plans
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
31
|
|
|
$
|
0
|
|
Interest cost
|
|
|
568
|
|
|
|
597
|
|
Expected return on plan assets
|
|
|
(647
|
)
|
|
|
(668
|
)
|
Amortization of actuarial loss
|
|
|
176
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
128
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Other Postretirement Benefit Plans
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
158
|
|
|
$
|
75
|
|
Interest cost
|
|
|
200
|
|
|
|
112
|
|
Amortization of prior service cost
|
|
|
(258
|
)
|
|
|
(168
|
)
|
Amortization of actuarial loss
|
|
|
37
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
137
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
7.
|
Commitments and Contingent Liabilities
|
Outstanding standby and commercial letters of credit as of March 31, 2016 approximated $22,080, the majority of which
serve as collateral for the Industrial Revenue Bond (IRB) debt. In addition, in connection with the acquisition of Åkers, the Corporation issued two surety bonds to PRJ Pensionsgaranti, guaranteeing certain obligations of
Åkers Sweden AB and Åkers AB under the credit insurance policy relating to pension commitments. The total amount covered by the guarantees is approximately $4,200 (SEK 33,900).
See Note 8 for derivative instruments, Note 13 for litigation and Note 14 for environmental matters.
8.
|
Derivative Instruments
|
Certain of the Corporations operations are subject to risk from exchange rate fluctuations in connection with sales in
foreign currencies. To minimize this risk, foreign currency sales contracts are entered into which are designated as cash flow or fair value hedges. As of March 31, 2016, approximately $14,458 of anticipated foreign-denominated sales has been
hedged which are covered by fair value contracts settling at various dates through April 2017. The fair value of assets held as collateral for the fair value contracts as of March 31, 2016 approximated $718.
10
Additionally, certain of the divisions of the Air and Liquid Processing 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 March 31, 2016, approximately 43%
or $2,486 of anticipated copper purchases over the next 15 months and 56% or $386 of anticipated aluminum purchases over the next six months are hedged.
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. As of December 31, 2010, all contracts had been settled and the underlying fixed assets were placed in service.
No portion of the existing cash flow or fair value 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.
At March 31, 2016, the Corporation has purchase commitments covering 44% or $1,976 of anticipated natural gas usage through 2017 at one of
its subsidiaries. The commitments qualify as normal purchases and, accordingly, are not reflected on the condensed consolidated balance sheet. Purchases of natural gas under previously existing commitments approximated $823 and $781 for the three
months ended March 31, 2016 and 2015, respectively.
The Corporation does not enter into derivative transactions for speculative
purposes and, therefore, holds no derivative instruments for trading purposes.
Gains (losses) on foreign exchange transactions included in
other income (expense) approximated $1,173 and $(380) for the three months ended March 31, 2016 and 2015, respectively.
The location
and fair value of the foreign currency sales contracts recorded on the condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Cash flow hedge contracts
|
|
Other current assets
|
|
$
|
0
|
|
|
$
|
10
|
|
Fair value hedge contracts
|
|
Other current assets
|
|
|
1
|
|
|
|
113
|
|
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
0
|
|
|
|
Other current liabilities
|
|
|
564
|
|
|
|
258
|
|
|
|
Other noncurrent liabilities
|
|
|
60
|
|
|
|
49
|
|
Fair value hedged items
|
|
Receivables
|
|
|
134
|
|
|
|
27
|
|
|
|
Other current assets
|
|
|
404
|
|
|
|
255
|
|
|
|
Other noncurrent assets
|
|
|
54
|
|
|
|
39
|
|
|
|
Other current liabilities
|
|
|
3
|
|
|
|
116
|
|
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
0
|
|
The change in the fair value of the cash flow contracts is recorded as a component of accumulated other
comprehensive loss. The balances as of March 31, 2016 and 2015 and the amount recognized as and reclassified from accumulated other comprehensive loss for each of the periods is summarized below. All amounts are after-tax.
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Comprehensive
Income (Loss)
Beginning of
the Year
|
|
|
Plus
Recognized as
Comprehensive
Income (Loss)
|
|
|
Less
Gain (Loss) Reclassified
from Accumulated Other
Comprehensive Loss
|
|
|
Comprehensive
Income (Loss)
End of
the Period
|
|
Foreign currency sales contracts
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
0
|
|
Foreign currency purchase contracts
|
|
|
241
|
|
|
|
0
|
|
|
|
4
|
|
|
|
237
|
|
Futures contracts copper and aluminum
|
|
|
(200
|
)
|
|
|
15
|
|
|
|
(146
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45
|
|
|
$
|
18
|
|
|
$
|
(135
|
)
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency sales contracts
|
|
$
|
0
|
|
|
$
|
(2
|
)
|
|
$
|
0
|
|
|
$
|
(2
|
)
|
Foreign currency purchase contracts
|
|
|
258
|
|
|
|
0
|
|
|
|
5
|
|
|
|
253
|
|
Futures contracts copper and aluminum
|
|
|
(173
|
)
|
|
|
(83
|
)
|
|
|
(120
|
)
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
85
|
|
|
$
|
(85
|
)
|
|
$
|
(115
|
)
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Statements
|
|
Estimated
to be
Reclassified
in the Next
|
|
|
Three Months Ended March 31,
|
|
|
|
of Operations
|
|
12 Months
|
|
|
2016
|
|
|
2015
|
|
Foreign currency sales contracts cash flow hedges
|
|
Net sales
|
|
$
|
0
|
|
|
$
|
10
|
|
|
$
|
0
|
|
Foreign currency purchase contracts
|
|
Depreciation
|
|
|
27
|
|
|
|
7
|
|
|
|
7
|
|
Futures contracts copper and aluminum
|
|
Costs of products
sold (excluding
depreciation and
amortization)
|
|
|
(63
|
)
|
|
|
(236
|
)
|
|
|
(194
|
)
|
9.
|
Accumulated Other Comprehensive Loss
|
Net change and ending balances for the various components of accumulated other comprehensive loss as of and for the three
months ended March 31, 2016 and 2015 is summarized below. All amounts are net of tax, where applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrecognized
Employee
Benefit Costs
|
|
|
Unrealized
Holding Gains
on Marketable
Securities
|
|
|
Cash Flow
Hedges
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance at January 1, 2016
|
|
$
|
(8,393
|
)
|
|
$
|
(49,943
|
)
|
|
$
|
692
|
|
|
$
|
45
|
|
|
$
|
(57,599
|
)
|
Net Change
|
|
|
315
|
|
|
|
1,434
|
|
|
|
118
|
|
|
|
153
|
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
(8,708
|
)
|
|
$
|
(48,509
|
)
|
|
$
|
810
|
|
|
$
|
198
|
|
|
$
|
(56,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
$
|
(4,426
|
)
|
|
$
|
(65,396
|
)
|
|
$
|
984
|
|
|
$
|
85
|
|
|
$
|
(68,753
|
)
|
Net Change
|
|
|
(3,741
|
)
|
|
|
7,327
|
|
|
|
4
|
|
|
|
30
|
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015
|
|
$
|
(8,167
|
)
|
|
$
|
(58,069
|
)
|
|
$
|
988
|
|
|
$
|
115
|
|
|
$
|
(65,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following summarizes the line items affected on the condensed consolidated statements of
operations for components reclassified from accumulated other comprehensive loss. Amounts in parentheses represent credits to net income.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Amortization of unrecognized employee benefit costs:
|
|
|
|
|
|
|
|
|
Costs of products sold (excluding depreciation)
|
|
$
|
725
|
|
|
$
|
1,281
|
|
Selling and administrative
|
|
|
323
|
|
|
|
1,595
|
|
Other income (expense)
|
|
|
140
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
Total before income tax
|
|
|
1,188
|
|
|
|
2,918
|
|
Income tax provision
|
|
|
(403
|
)
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
$
|
785
|
|
|
$
|
1,874
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sale of marketable securities:
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
$
|
(46
|
)
|
|
$
|
0
|
|
Income tax provision
|
|
|
16
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
$
|
(30
|
)
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses from settlement of cash flow hedges:
|
|
|
|
|
|
|
|
|
Net sales (foreign currency sales contracts)
|
|
$
|
(10
|
)
|
|
$
|
0
|
|
Depreciation (foreign currency purchase contracts)
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Costs of products sold (excluding depreciation) (futures contracts
copper and aluminum)
|
|
|
236
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Total before income tax
|
|
|
219
|
|
|
|
187
|
|
Income tax provision
|
|
|
(84
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
$
|
135
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
The income tax expense (benefit) associated with the various components of other comprehensive income for the
three months ended March 31, 2016 and 2015 is summarized below. Foreign currency translation adjustments exclude the effect of income taxes since earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Tax expense (benefit) associated with changes in:
|
|
|
|
|
|
|
|
|
Unrealized employee benefit costs
|
|
$
|
(398
|
)
|
|
$
|
(2,429
|
)
|
Unrealized holding gains on marketable securities
|
|
|
(77
|
)
|
|
|
(2
|
)
|
Fair value of cash flow hedges
|
|
|
(9
|
)
|
|
|
50
|
|
Tax expense (benefit) associated with reclassification adjustments:
|
|
|
|
|
|
|
|
|
Amortization of unrecognized employee benefit costs
|
|
|
(403
|
)
|
|
|
(1,044
|
)
|
Realized gains from sale of marketable securities
|
|
|
16
|
|
|
|
0
|
|
Realized losses from settlement of cash flow hedges
|
|
|
(84
|
)
|
|
|
(72
|
)
|
10.
|
Stock-Based Compensation
|
In May 2011, the shareholders of the Corporation approved the adoption of the Ampco-Pittsburgh Corporation 2011 Omnibus
Incentive Plan (the Predecessor Plan) which authorized the issuance of up to 1,000,000 shares of the Corporations common stock for grants of equity-based compensation under the plan. In May 2016, the shareholders of the Corporation
approved the adoption of the Ampco-Pittsburgh Corporation 2016 Omnibus Incentive Plan (the Incentive Plan), which authorizes the issuance of up to 1,100,000 shares of the Corporations common stock for awards under the Incentive
Plan. The Incentive Plan replaces the Predecessor Plan and no new awards will be granted under the Predecessor Plan. Any awards outstanding under the Predecessor Plan will remain subject to and be paid under the Predecessor Plan, and any shares
subject to outstanding awards under the Predecessor Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the Incentive Plan.
13
Awards under the Incentive Plan may include incentive 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
shares, or if 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 directors retainer for board service. In May 2016, 32,090 shares of the
Corporations common stock were granted to the non-employee directors.
Stock-based compensation expense for the three months ended
March 31, 2016 and 2015 equaled $329 and $225, respectively. The related income tax benefit recognized in the condensed consolidated statements of operations for each of the periods was approximately $115 and $79, respectively.
The Corporations financial assets and liabilities that are reported at fair value in the condensed consolidated
balance sheets as of March 31, 2016 and December 31, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Inputs
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
As of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
3,829
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,829
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
0
|
|
|
|
405
|
|
|
|
0
|
|
|
|
405
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
54
|
|
|
|
0
|
|
|
|
54
|
|
Other current liabilities
|
|
|
0
|
|
|
|
567
|
|
|
|
0
|
|
|
|
567
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
60
|
|
|
|
0
|
|
|
|
60
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
3,663
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,663
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
0
|
|
|
|
378
|
|
|
|
0
|
|
|
|
378
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
39
|
|
|
|
0
|
|
|
|
39
|
|
Other current liabilities
|
|
|
0
|
|
|
|
374
|
|
|
|
0
|
|
|
|
374
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
49
|
|
|
|
0
|
|
|
|
49
|
|
The investments held as other noncurrent assets represent assets held in a Rabbi trust for the
purpose of providing benefits under a 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 value of the variable-rate IRB debt approximates its carrying value. Additionally,
the fair value of trade receivables and trade payables approximates their carrying value.
14
Presented below are the net sales and (loss) income before income taxes for the Corporations two business segments.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products
|
|
$
|
41,527
|
|
|
$
|
42,773
|
|
Air and Liquid Processing
|
|
|
22,051
|
|
|
|
22,314
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments
|
|
$
|
63,578
|
|
|
$
|
65,087
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products
|
|
$
|
(2,470
|
)
|
|
$
|
1,627
|
|
Air and Liquid Processing
|
|
|
2,634
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments
|
|
|
164
|
|
|
|
3,700
|
|
Other expense, including corporate costs
|
|
|
(4,160
|
)
|
|
|
(3,578
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,996
|
)
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
13.
|
Litigation (claims not in thousands)
|
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 of
predecessors of Air & Liquid Systems Corporation (Asbestos Liability). Those subsidiaries, 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.
Asbestos Claims
The following table reflects approximate information about the claims for Asbestos Liability against the subsidiaries and the Corporation for
the three months ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Total claims pending at the beginning of the period
|
|
|
6,212
|
|
|
|
8,457
|
|
New claims served
|
|
|
397
|
|
|
|
372
|
|
Claims dismissed
|
|
|
(90
|
)
|
|
|
(311
|
)
|
Claims settled
|
|
|
(80
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
Total claims pending at the end of the period
(1)
|
|
|
6,439
|
|
|
|
8,398
|
|
|
|
|
|
|
|
|
|
|
Gross settlement and defense costs (in 000s)
|
|
$
|
4,027
|
|
|
$
|
5,083
|
|
|
|
|
|
|
|
|
|
|
Avg. gross settlement and defense costs per claim resolved (in 000s)
|
|
$
|
23.69
|
|
|
$
|
11.79
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included as open claims are approximately 427 and 1,645 claims as of March 31, 2016 and 2015, 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.
|
15
A substantial majority of the settlement and defense costs reflected in the above table was
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.
Asbestos Insurance
The
Corporation and its Air & Liquid Systems Corporation (Air & Liquid) subsidiary are parties to a series of settlement agreements (Settlement Agreements) with insurers that have coverage obligations for 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 Asbestos Liability. The Settlement Agreements encompass the substantial majority of insurance policies that provide coverage for claims for Asbestos Liability.
The Settlement Agreements include acknowledgements that Howden North America, Inc. (Howden) is entitled to coverage under policies
covering Asbestos Liability for claims arising out of the historical products manufactured or distributed by Buffalo Forge, a former subsidiary of the Corporation (the Products). The Settlement Agreements do not provide for any
prioritization on access to the applicable policies or any sublimits 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 a Product. 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 Asbestos
Liability.
On February 24, 2011, the Corporation and Air & Liquid filed a lawsuit in the United States District Court for
the Western District of Pennsylvania against thirteen domestic insurance companies, certain underwriters at Lloyds, London and certain London market insurance companies, and Howden. The lawsuit seeks a declaratory judgment regarding the
respective rights and obligations of the parties under excess insurance policies that were issued to the Corporation from 1981 through 1984 as respects claims against the Corporation and its subsidiary for Asbestos Liability and as respects asbestos
bodily-injury claims against Howden arising from the Products. The Corporation and Air & Liquid have reached Settlement Agreements with all but two of the defendant insurers in the coverage action. Those Settlement Agreements specify the
terms and conditions upon which the insurer parties are to contribute to defense and indemnity costs for claims for Asbestos Liability. One of the Settlement Agreements entered into by the Corporation and Air & Liquid also provided for the
dismissal of claims, without prejudice, regarding two upper-level excess policies issued by one of the insurers. The Court has entered Orders dismissing all claims in the action filed against each other by the Corporation and Air & Liquid,
on the one hand, and by the settling insurers, on the other. Howden also reached an agreement with eight domestic insurers addressing asbestos-related bodily injury claims arising from the Products, and claims as to those insurers and Howden have
been dismissed. Various counterclaims, cross claims and third party claims have been filed in the litigation and remain pending although only two domestic insurers and Howden remain in the litigation as to the Corporation and Air & Liquid.
On September 27, 2013, the Court issued a memorandum opinion and order granting in part and denying in part cross motions for summary judgment filed by the Corporation and Air & Liquid, Howden, and the insurer parties still in the
litigation. On February 26, 2015, the Court issued final judgment. One insurer filed a notice of appeal from the judgment to the U.S. Court of Appeals to the Third Circuit; as a result, several other insurers, Howden, the Corporation, and
Air & Liquid filed notices of case appeal. The appeals are presently pending, and the parties have been involved in a mediation through the Third Circuits mediators office.
Asbestos Valuations
In
2006, the Corporation retained Hamilton, Rabinovitz & Associates, Inc. (HR&A), a nationally recognized expert in the valuation of asbestos liabilities, to assist the Corporation in estimating the potential liability for
pending and unasserted future claims for Asbestos Liability. HR&A was not requested to estimate asbestos claims against the inactive subsidiary in dissolution, which the Corporation believes are immaterial. Based on this analysis, the
Corporation recorded a reserve for Asbestos Liability claims pending or projected to be asserted through 2013 as of December 31, 2006. HR&As analysis has been periodically updated since that time. Most recently, the HR&A analysis
was updated in 2014, and additional reserves were established by the Corporation as of December 31, 2014 for Asbestos Liability claims pending or projected to be asserted through 2024. The methodology used by HR&A in its projection in 2014
of the operating subsidiaries liability for pending and unasserted potential future claims for Asbestos Liability, which is substantially the same as the methodology employed by HR&A in prior estimates, relied upon and included the
following factors:
|
|
HR&As 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;
|
|
|
HR&As 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, 2012 to December 8, 2014;
|
16
|
|
an analysis of pending cases, by type of injury claimed and jurisdiction where the claim is filed;
|
|
|
an analysis of claims resolution history from January 1, 2012 to December 8, 2014 to determine the average settlement value of claims, by type of injury claimed and jurisdiction of filing; and
|
|
|
an adjustment for inflation in the future average settlement value of claims, at an annual inflation rate based on the Congressional Budget Offices ten year forecast of inflation.
|
Using this information, HR&A estimated in 2014 the number of future claims for Asbestos Liability that would be filed through the year
2024, as well as the settlement or indemnity costs that would be incurred to resolve both pending and future unasserted claims through 2024. This methodology has been accepted by numerous courts.
In conjunction with developing the aggregate liability estimate referenced above, the Corporation also developed an estimate of probable
insurance recoveries for its Asbestos Liabilities. In developing the estimate, the Corporation considered HR&As projection for settlement or indemnity costs for Asbestos Liability and managements projection of associated defense
costs (based on the current defense to indemnity cost ratio), as well as a number of additional factors. These additional factors included the Settlement Agreements then in effect, policy exclusions, policy limits, policy provisions regarding
coverage for defense costs, attachment points, prior impairment of policies and gaps in the coverage, policy exhaustions, insolvencies among certain of the insurance carriers, and the nature of the underlying claims for Asbestos Liability asserted
against the subsidiaries and the Corporation as reflected in the Corporations asbestos claims database, as well as estimated erosion of insurance limits on account of claims against Howden arising out of the Products. In addition to consulting
with the Corporations outside legal counsel on these insurance matters, the Corporation consulted with a nationally-recognized insurance consulting firm it retained to assist the Corporation with certain policy allocation matters that also are
among the several factors considered by the Corporation when analyzing potential recoveries from relevant historical insurance for Asbestos Liabilities. Based upon all of the factors considered by the Corporation, and taking into account the
Corporations analysis of publicly available information regarding the credit-worthiness of various insurers, the Corporation estimated the probable insurance recoveries for Asbestos Liability and defense costs through 2024. Although the
Corporation believes that the assumptions employed in the insurance valuation were reasonable and previously consulted with its outside legal counsel and insurance consultant regarding those assumptions, there are other assumptions that could have
been employed that would have resulted in materially lower insurance recovery projections.
Based on the analyses described above, the
Corporations reserve at December 31, 2014 for the total costs, including defense costs, for Asbestos Liability claims pending or projected to be asserted through 2024 was $189,048 of which approximately 64% was attributable to settlement
costs for unasserted claims projected to be filed through 2024 and future defense costs. The reserve at March 31, 2016 was $165,822. While it is reasonably possible that the Corporation will incur additional charges for Asbestos Liability and
defense costs in excess of the amounts currently reserved, the Corporation believes that there is too much uncertainty to provide for reasonable estimation of the number of future claims, the nature of such claims and the cost to resolve them beyond
2024. Accordingly, no reserve has been recorded for any costs that may be incurred after 2024.
The Corporations receivable at
December 31, 2014 for insurance recoveries attributable to the claims for which the Corporations Asbestos Liability reserve has been established, including the portion of incurred defense costs covered by the Settlement Agreements in
effect through December 31, 2014, and the probable payments and reimbursements relating to the estimated indemnity and defense costs for pending and unasserted future Asbestos Liability claims, was $140,651 ($122,748 at March 31, 2016).
The following table summarizes activity relating to insurance recoveries.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Insurance receivable asbestos, beginning of the year
|
|
$
|
125,423
|
|
|
$
|
140,651
|
|
Settlement and defense costs paid by insurance carriers
|
|
|
(2,675
|
)
|
|
|
(3,844
|
)
|
|
|
|
|
|
|
|
|
|
Insurance receivable asbestos, end of the period
|
|
$
|
122,748
|
|
|
$
|
136,807
|
|
|
|
|
|
|
|
|
|
|
The insurance receivable recorded by the Corporation does not assume any recovery from insolvent carriers and
a substantial majority of the insurance recoveries deemed probable was from insurance companies rated A (excellent) or better by A.M. Best Corporation. There can be no assurance, however, that there will not be further 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 Asbestos
Liability. The Corporation and the subsidiaries have substantial additional insurance coverage which the Corporation expects to be available for Asbestos Liability claims and defense costs that the subsidiaries and it may incur after 2024. However,
this insurance coverage also can be expected to have gaps creating significant shortfalls of insurance recoveries as against claims expense, which could be material in future years.
The amounts recorded by the Corporation for Asbestos Liabilities and insurance receivables rely on assumptions that are based on currently
known facts and strategy. The Corporations actual expenses or insurance recoveries could be significantly higher
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or lower than those recorded if assumptions used in the Corporations or HR&As calculations vary significantly from actual results. Key variables in these assumptions are
identified above and include the number and type of new claims to be filed each year, the average cost of disposing of each such new claim, average annual defense costs, compliance by relevant parties with the terms of the Settlement Agreements, the
resolution of remaining coverage issues with insurance carriers, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Corporations Asbestos Liability and ability to recover under its
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 evaluate its estimated Asbestos Liability and related insurance receivables 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 incurring future charges;
however, the Corporation is currently unable to estimate such future charges. Adjustments, if any, to the Corporations estimate of its recorded Asbestos Liability and/or insurance receivables could be material to operating results for the
periods in which the adjustments to the liability or receivable are recorded, and to the Corporations liquidity and consolidated financial position.
14.
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Environmental Matters
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The Corporation is currently performing certain remedial actions in connection with the sale of real estate previously
owned. 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. In the opinion of management and in consideration of advice from the Corporations consultants, the potential liability for all environmental proceedings of approximately $300 recorded at March 31, 2016 is considered adequate based
on information known to date.
In April 2016, the Corporation elected to freeze salary benefit accruals and participation in one of the U.S. defined benefit
pension plans assumed as a result of the Åkers acquisition. Effective June 1, 2016, benefits under the plan will be replaced with employer non-elective contributions equaling 3% of compensation. Participants in the plan currently receive an
employer matching contribution. The Corporation is currently evaluating the financial statement effect of this modification.
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