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, 2017, and the condensed consolidated statements of operations, comprehensive loss and cash flows for the three months ended March 31, 2017 and 2016, 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, 2017, 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 Implemented Accounting
Pronouncements
In March 2016, the Financial Accounting Standards Board (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. 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. The amended guidance became effective for the Corporation January 1, 2017, and, as permitted
by the guidance, will be applied prospectively when awards vest or are settled. No awards vested or were settled in the first quarter of 2017.
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. 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 became effective for the Corporation January 1, 2017, and did not have a significant impact on its financial position, operating results or liquidity.
Recently Issued Accounting Pronouncements
In March 2017, the FASB issued ASU
2017-07,
Compensation - Retirement Benefits
, which
requires an employer who offers defined benefit and postretirement benefit plans to report the service cost component of net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by employees
during the period. The other components of net period benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendment also allows for the
service cost component of net periodic benefit cost to be eligible for capitalization into inventory when applicable. The amended guidance does not change the amount of net benefit cost to be recognized, only where it is to be recognized in the
income statement. The amended guidance will be effective for interim and annual periods beginning after December 15, 2017; however, early adoption is permitted. The Corporation is currently evaluating the impact the guidance will have on the
presentation of its operating results. It will not, however, affect the Corporations financial position or liquidity.
In August
2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which clarifies guidance on the classification of certain cash receipts
and payments in the statement of cash flows. The amended guidance will be effective for interim and annual periods beginning after December 15, 2017; 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 the presentation of its cash flow statement. It will not, however, affect the Corporations financial position, operating results or liquidity.
In May 2016, April 2016, March 2016 and May 2014, the FASB issued ASUs
2016-12,
2016-10,
2016-08
and
2014-09,
respectively,
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 for the Corporation January 1, 2018. While the Corporation is currently assessing the impact the guidance will have on its business processes, business and
accounting systems and consolidated financial statements and disclosures, it anticipates there will be some changes to revenue recognition for certain of its customer contracts. The Corporation currently expects to complete its analysis, including
implementing any necessary changes to existing business processes and systems to accommodate these new standards, during 2017.
7
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 for the Corporation January 1, 2019. The Corporation is currently evaluating the impact the guidance will have on its financial position, operating results and liquidity.
Acquisition of Åkers
On March 3, 2016, the Corporation acquired 100% of the voting equity interest 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 purchase price approximated $74,155 and was comprised of $29,399 in cash, $22,619 in
the form of three-year promissory notes, 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 notes bear interest
at 6.5%, compounding annually, with principal and interest payable at maturity on March 3, 2019. Operating results of Åkers are included in the Forged and Cast Engineered Products segment from the date of acquisition. Net sales and loss
before income taxes for Åkers approximated $31,890 and $668 for the three months ended March 31, 2017, respectively, and $12,583 and $1,006 for March 2016, respectively.
Acquisition of ASW
On
November 1, 2016, the Corporation acquired 100% of the voting equity interest of ASW Steel Inc. (ASW) from CK Pearl Fund, Ltd., CK Pearl Fund L.P. and White Oak Strategic Master Fund, L.P. The purchase price of $13,116 consisted of
$3,500 in cash and $9,616 in the assumption of outstanding indebtedness. The estimated fair value of assets acquired and liabilities assumed as of the date of the acquisition is summarized below.
|
|
|
|
|
Current assets (excluding inventories)
|
|
$
|
6,525
|
|
Inventories
|
|
|
6,956
|
|
Property, plant and equipment
|
|
|
10,310
|
|
Current liabilities
|
|
|
(10,675
|
)
|
Outstanding indebtedness
|
|
|
(9,616
|
)
|
|
|
|
|
|
Base purchase price
|
|
$
|
3,500
|
|
|
|
|
|
|
The estimated fair values primarily for property, plant and equipment and
pre-acquisition
contingencies are provisional amounts based, in part, on third party valuations and are expected to be finalized by June 30, 2017. For the three months ended March 31, 2017, net sales
for ASW approximated $13,323 and income before income taxes approximated $161.
Pro Forma Financial Information for the Åkers and
ASW Acquisitions:
The following financial information presents the combination of the results of operations of Ampco, Åkers and
ASW as though the acquisition date for both of the business combinations had occurred as of January 1, 2016. Pro forma adjustments have been made primarily to (1) include the net incremental depreciation and amortization expense associated
with recording property, plant and equipment and definite-lived intangible assets at fair value and (2) remove debt-related expenses associated with 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 2016:
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
Net sales
|
|
$
|
97,699
|
|
Loss before income taxes (includes noncontrolling interest)
|
|
$
|
(9,989
|
)
|
Net loss attributable to Ampco-Pittsburgh
|
|
$
|
(7,975
|
)
|
Net loss per common share (basic) attributable to Ampco-Pittsburgh
|
|
$
|
(0.65
|
)
|
8
At March 31, 2017, and December 31, 2016, approximately 45% 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,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
21,600
|
|
|
$
|
23,964
|
|
Work-in-process
|
|
|
35,699
|
|
|
|
29,198
|
|
Finished goods
|
|
|
21,440
|
|
|
|
20,046
|
|
Supplies
|
|
|
13,534
|
|
|
|
10,371
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,273
|
|
|
$
|
83,579
|
|
|
|
|
|
|
|
|
|
|
4.
|
Property, Plant and Equipment
|
Property, plant and equipment were comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Land and land improvements
|
|
$
|
11,806
|
|
|
$
|
11,747
|
|
Buildings
|
|
|
66,317
|
|
|
|
66,017
|
|
Machinery and equipment
|
|
|
325,733
|
|
|
|
323,684
|
|
Construction-in-process
|
|
|
4,450
|
|
|
|
2,595
|
|
Other
|
|
|
7,766
|
|
|
|
7,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416,072
|
|
|
|
411,538
|
|
Accumulated depreciation and amortization
|
|
|
(202,893
|
)
|
|
|
(197,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213,179
|
|
|
$
|
214,408
|
|
|
|
|
|
|
|
|
|
|
The majority of the assets of the Corporation, except real property including the land and building of Union
Electric Steel UK Limited
(UES-UK),
is pledged as collateral for the Corporations Revolving Credit and Security Agreement (Note 8). Land and buildings of
UES-UK,
equal to approximately $2,596 (£2,079) at March 31, 2017, are held as collateral by the trustees of the
UES-UK
defined benefit pension plan (see
Note 7). The gross value of assets under capital lease and the related accumulated amortization as of March 31, 2017, approximated $3,642 and $802, respectively, and at December 31, 2016, approximated $3,610 and $691, respectively.
Intangible assets were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Customer relationships
|
|
$
|
6,278
|
|
|
$
|
6,244
|
|
Developed technology
|
|
|
4,286
|
|
|
|
4,248
|
|
Trade name
|
|
|
2,558
|
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,122
|
|
|
|
13,029
|
|
Accumulated amortization
|
|
|
(1,726
|
)
|
|
|
(1,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,396
|
|
|
$
|
11,601
|
|
|
|
|
|
|
|
|
|
|
Movement in foreign currency exchange rates used to translate intangible assets from local currency to the
U.S. dollar changed the gross value of intangible assets between the periods. Amortization expense for the three months ended March 31, 2017 and 2016, was $298 and $164, respectively.
9
6.
|
Other Current Liabilities
|
Other current liabilities were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Customer-related liabilities
|
|
$
|
22,164
|
|
|
$
|
21,564
|
|
Accrued interest payable
|
|
|
2,355
|
|
|
|
2,274
|
|
Accrued sales commissions
|
|
|
1,863
|
|
|
|
1,693
|
|
Other
|
|
|
16,870
|
|
|
|
16,666
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,252
|
|
|
$
|
42,197
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
11,521
|
|
|
$
|
6,358
|
|
Acquisitions opening balance sheet liability for warranty claims
|
|
|
0
|
|
|
|
6,032
|
|
Satisfaction of warranty claims
|
|
|
(870
|
)
|
|
|
(558
|
)
|
Provision for warranty claims
|
|
|
1,019
|
|
|
|
613
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
78
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
$
|
11,748
|
|
|
$
|
12,580
|
|
|
|
|
|
|
|
|
|
|
7.
|
Pension and Other Postretirement Benefits
|
Contributions were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Foreign defined benefit pension plans
|
|
$
|
424
|
|
|
$
|
430
|
|
Other postretirement benefits (e.g. net payments)
|
|
|
275
|
|
|
|
241
|
|
U.K. defined contribution pension plan
|
|
|
65
|
|
|
|
62
|
|
U.S. defined contribution plan
|
|
|
650
|
|
|
|
503
|
|
10
Net periodic pension and other postretirement costs include the following components:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
U.S. Defined Benefit Pension Plans
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
411
|
|
|
$
|
346
|
|
Interest cost
|
|
|
2,098
|
|
|
|
2,258
|
|
Expected return on plan assets
|
|
|
(3,127
|
)
|
|
|
(3,011
|
)
|
Amortization of prior service cost
|
|
|
13
|
|
|
|
105
|
|
Amortization of actuarial loss
|
|
|
936
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
331
|
|
|
$
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Foreign Defined Benefit Pension Plans
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
90
|
|
|
$
|
31
|
|
Interest cost
|
|
|
445
|
|
|
|
568
|
|
Expected return on plan assets
|
|
|
(538
|
)
|
|
|
(647
|
)
|
Amortization of actuarial loss
|
|
|
181
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
178
|
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Other Postretirement Benefit Plans
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
172
|
|
|
$
|
158
|
|
Interest cost
|
|
|
172
|
|
|
|
200
|
|
Amortization of prior service cost
|
|
|
(405
|
)
|
|
|
(258
|
)
|
Amortization of actuarial loss
|
|
|
8
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Net benefit costs
|
|
$
|
(53
|
)
|
|
$
|
137
|
|
|
|
|
|
|
|
|
|
|
8.
|
Borrowing Arrangements
|
The Corporation has a five-year Revolving Credit and Security
Agreement (the Agreement) with a syndicate of banks. The Agreement provides for a $100,000 senior secured asset-based revolving credit facility with an option to increase the credit facility by an additional $50,000 at the request of the
Corporation and with the approval of the banks. The Agreement includes sublimits for letters of credit, not to exceed $40,000, European borrowings not to exceed $15,000, and Canadian borrowings not to exceed $15,000.
Availability under the Agreement is based on eligible accounts receivable, inventory and fixed assets. Amounts outstanding under the credit
facility bear interest at the Corporations option at either (1) LIBOR plus an applicable margin ranging between 1.25% to 1.75% based on the quarterly average excess availability or (2) the Base Rate plus an applicable margin ranging
between 0.25% to 0.75% based on the quarterly average excess availability. Additionally, the Corporation is required to pay a commitment fee ranging between 0.25% and 0.375% based on the daily unused portion of the credit facility. As of
March 31, 2017, the Corporation had utilized a portion of the credit facility for letters of credit (Note 9) and had remaining availability of approximately $57,000. In April 2017, the Corporation borrowed $7,000 from the credit facility for an
initial term of three months. Interest accrues on the outstanding balance at 2.68%.
The Agreement is collateralized by a first priority
perfected security interest in substantially all of the assets of the Corporation and its subsidiaries (other than real property). Additionally, the Agreement contains customary affirmative and negative covenants and certain limitations including
but not limited to investments in Excluded Subsidiaries, payment of dividends, incurrence of additional indebtedness, upstreaming distributions from subsidiaries, and acquisitions and divestures. The Corporation must also maintain a certain level of
excess availability. If excess availability falls below the established threshold, or in an event of default, the Corporation will be required to maintain a minimum fixed charge coverage ratio of not less than 1.00 to 1.00. The Corporation was in
compliance with the applicable bank covenants as of March 31, 2017.
11
In March 2017, the Corporation repaid the debt assumed (term debt and credit facility) in
connection with the acquisition of ASW, including interest, fees and early termination costs. Accordingly, outstanding borrowings of the Corporation as of March 31, 2017, and December 31, 2016, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Industrial Revenue Bonds (IRB)
|
|
$
|
13,311
|
|
|
$
|
13,311
|
|
Promissory notes (and interest)
|
|
|
24,221
|
|
|
|
23,844
|
|
Minority shareholder loan
|
|
|
5,028
|
|
|
|
4,990
|
|
Credit facility (ASW)
|
|
|
0
|
|
|
|
7,146
|
|
Term loan (ASW)
|
|
|
0
|
|
|
|
762
|
|
Capital leases
|
|
|
2,021
|
|
|
|
2,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,581
|
|
|
|
52,214
|
|
Current portion
|
|
|
(18,886
|
)
|
|
|
(26,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,695
|
|
|
$
|
25,389
|
|
|
|
|
|
|
|
|
|
|
9.
|
Commitments and Contingent Liabilities
|
Outstanding standby and commercial letters of
credit as of March 31, 2017 approximated $27,355, the majority of which serves as collateral for the IRB debt and foreign exchange contracts. In addition, in connection with the acquisition of Åkers, the Corporation issued two surety
bonds to PRI Pensionsgaranti, guaranteeing certain obligations of Åkers Sweden AB and Åkers AB under a credit insurance arrangement relating to pension commitments. The total amount covered by the surety bonds is approximately $4,000
(SEK 33,900).
See Note 10 for derivative instruments, Note 15 for litigation and Note 16 for environmental matters.
10.
|
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, 2017,
approximately $17,088 of anticipated foreign-denominated sales has been hedged which are covered by fair value contracts settling at various dates through April 2018. The fair value of assets held as collateral for the fair value contracts as of
March 31, 2017 approximated $5,624, including a $5,000 standby letter of credit.
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, 2017, approximately 46% or $2,350 of anticipated copper purchases over the next 12 months and 56% or $435 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.
The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for
trading purposes.
(Losses) gains on foreign exchange transactions included in other income (expense) approximated $(1,064) and $1,173 for
the three months ended March 31, 2017, and 2016, respectively.
12
The location and fair value of the foreign currency sales contracts recorded on the condensed
consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Fair value hedge contracts
|
|
Other current assets
|
|
$
|
206
|
|
|
$
|
214
|
|
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
2
|
|
|
|
Other current liabilities
|
|
|
293
|
|
|
|
940
|
|
|
|
Other noncurrent liabilities
|
|
|
2
|
|
|
|
35
|
|
Fair value hedged items
|
|
Receivables
|
|
|
48
|
|
|
|
121
|
|
|
|
Other current assets
|
|
|
269
|
|
|
|
808
|
|
|
|
Other noncurrent assets
|
|
|
3
|
|
|
|
45
|
|
|
|
Other current liabilities
|
|
|
173
|
|
|
|
233
|
|
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
5
|
|
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, 2017, and 2016, and the amount recognized as and reclassified from accumulated other comprehensive loss for each of the periods is summarized below. Amounts are
after-tax,
where applicable. Certain amounts recognized as and reclassified from comprehensive income (loss) for 2017 have no tax effect due to the Corporation recording a valuation allowance against its
deferred income tax assets in the related jurisdictions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
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
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Foreign currency purchase contracts
|
|
|
216
|
|
|
|
0
|
|
|
|
7
|
|
|
|
209
|
|
Futures contracts copper and aluminum
|
|
|
335
|
|
|
|
224
|
|
|
|
148
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
551
|
|
|
$
|
224
|
|
|
$
|
155
|
|
|
$
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2017
|
|
|
2016
|
|
Foreign currency sales contracts cash flow hedges
|
|
Net sales
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
10
|
|
Foreign currency purchase contracts
|
|
Depreciation and
amortization
|
|
|
27
|
|
|
|
7
|
|
|
|
7
|
|
Futures contracts copper and aluminum
|
|
Costs of products
sold (excluding
depreciation and
amortization)
|
|
|
411
|
|
|
|
148
|
|
|
|
(236
|
)
|
13
11.
|
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, 2017, and 2016, 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, 2017
|
|
$
|
(22,973
|
)
|
|
$
|
(38,636
|
)
|
|
$
|
59
|
|
|
$
|
551
|
|
|
$
|
(60,999
|
)
|
Net Change
|
|
|
2,252
|
|
|
|
478
|
|
|
|
179
|
|
|
|
69
|
|
|
|
2,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
$
|
(20,721
|
)
|
|
$
|
(38,158
|
)
|
|
$
|
238
|
|
|
$
|
620
|
|
|
$
|
(58,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Amortization of unrecognized employee benefit costs:
|
|
|
|
|
|
|
|
|
Costs of products sold (excluding depreciation and amortization)
|
|
$
|
(15
|
)
|
|
$
|
725
|
|
Selling and administrative
|
|
|
582
|
|
|
|
323
|
|
Other income (expense)
|
|
|
166
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Total before income tax
|
|
|
733
|
|
|
|
1,188
|
|
Income tax provision
|
|
|
0
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
$
|
733
|
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sale of marketable securities:
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
$
|
(6
|
)
|
|
$
|
(46
|
)
|
Income tax provision
|
|
|
0
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
$
|
(6
|
)
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses from settlement of cash flow hedges:
|
|
|
|
|
|
|
|
|
Net sales (foreign currency sales contracts)
|
|
$
|
0
|
|
|
$
|
(10
|
)
|
Depreciation and amortization (foreign currency purchase contracts)
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Costs of products sold (excluding depreciation and amortization) (futures
contracts copper and aluminum)
|
|
|
(148
|
)
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
Total before income tax
|
|
|
(155
|
)
|
|
|
219
|
|
Income tax provision
|
|
|
0
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
$
|
(155
|
)
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
14
The income tax expense (benefit) associated with the various components of other comprehensive income for the
three months ended March 31, 2017, and 2016, is summarized below. For 2017, there was no income tax benefit for certain items due to the Corporation having a valuation allowance recorded against its deferred income tax assets for the
jurisdiction where the expense is recognized. 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,
|
|
|
|
2017
|
|
|
2016
|
|
Tax expense (benefit) associated with changes in:
|
|
|
|
|
|
|
|
|
Unrealized employee benefit costs
|
|
$
|
0
|
|
|
$
|
(398
|
)
|
Unrealized holding gains on marketable securities
|
|
|
0
|
|
|
|
(77
|
)
|
Fair value of cash flow hedges
|
|
|
0
|
|
|
|
(9
|
)
|
Tax expense (benefit) associated with reclassification adjustments:
|
|
|
|
|
|
|
|
|
Amortization of unrecognized employee benefit costs
|
|
|
0
|
|
|
|
(403
|
)
|
Realized gains from sale of marketable securities
|
|
|
0
|
|
|
|
16
|
|
Realized losses from settlement of cash flow hedges
|
|
|
0
|
|
|
|
(84
|
)
|
12.
|
Stock-Based Compensation
|
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. 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.
Stock-based compensation expense for the three months ended March 31, 2017, and 2016,
equaled $664 and $329, respectively. The related income tax benefit recognized in the condensed consolidated statements of operations for the three months ended March 31, 2016, was approximately $115. There was no income tax benefit for the three
months ended March 31, 2017, due to the Corporation having a valuation allowance recorded against its deferred income tax assets for the jurisdiction where the expense is recognized.
15
The Corporations financial assets and liabilities that are reported at
fair value in the condensed consolidated balance sheets as of March 31, 2017, and December 31, 2016, 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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
3,976
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,976
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
0
|
|
|
|
475
|
|
|
|
0
|
|
|
|
475
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
|
|
3
|
|
Other current liabilities
|
|
|
0
|
|
|
|
466
|
|
|
|
0
|
|
|
|
466
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
2
|
|
|
|
0
|
|
|
|
2
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
3,863
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,863
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
0
|
|
|
|
1,022
|
|
|
|
0
|
|
|
|
1,022
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
47
|
|
|
|
0
|
|
|
|
47
|
|
Other current liabilities
|
|
|
0
|
|
|
|
1,173
|
|
|
|
0
|
|
|
|
1,173
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
40
|
|
|
|
0
|
|
|
|
40
|
|
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.
Presented below are the net sales and (loss) income before income
taxes for the Corporations two business segments. Other expense, including corporate costs
,
for the three months ended March 31
,
2017, includes higher interest expense of approximately $900 and foreign exchange
losses of approximately $1,100 in the current year quarter compared to foreign exchange gains of approximately $1,200 recorded in the prior year quarter. The prior year quarter also includes acquisition-related costs of approximately $1,800.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products
|
|
$
|
81,702
|
|
|
$
|
41,527
|
|
Air and Liquid Processing
|
|
|
21,814
|
|
|
|
22,051
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments
|
|
$
|
103,516
|
|
|
$
|
63,578
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
Forged and Cast Engineered Products
|
|
$
|
(599
|
)
|
|
$
|
(2,470
|
)
|
Air and Liquid Processing
|
|
|
2,717
|
|
|
|
2,634
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments
|
|
|
2,118
|
|
|
|
164
|
|
Other expense, including corporate costs
|
|
|
(6,695
|
)
|
|
|
(4,160
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,577
|
)
|
|
$
|
(3,996
|
)
|
|
|
|
|
|
|
|
|
|
16
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. In addition, in February 2017, the Corporation, its indirect subsidiary Akers National Roll Company, as well as the Akers National Roll Company
Health & Welfare Benefits Plan were named as defendants in a class action complaint filed in the United States District Court for the Western District of Pennsylvania, where the plaintiffs (currently retired former employees of Akers
National Roll Company and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union,
AFL-CIO)
alleged that the defendants breached
collective bargaining agreements and violated the benefit plan by modifying medical benefits of the plaintiffs and similarly situated retirees. The complaint seeks class certification. The Corporation believes the lawsuit is without merit and intend
to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, the Corporation believes that the final resolution of this action will not have a material adverse effect on our results of operations, financial
position, liquidity or capital resources.
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, 2017, and 2016 (claims not in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Total claims pending at the beginning of the period
|
|
|
6,618
|
|
|
|
6,212
|
|
New claims served
|
|
|
336
|
|
|
|
397
|
|
Claims dismissed
|
|
|
(80
|
)
|
|
|
(90
|
)
|
Claims settled
|
|
|
(88
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
Total claims pending at the end of the period
(1)
|
|
|
6,786
|
|
|
|
6,439
|
|
|
|
|
|
|
|
|
|
|
Gross settlement and defense costs (in 000s)
|
|
$
|
4,888
|
|
|
$
|
4,027
|
|
|
|
|
|
|
|
|
|
|
Avg. gross settlement and defense costs per claim resolved (in 000s)
|
|
$
|
29.10
|
|
|
$
|
23.69
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included as open claims are approximately 445 and 427 claims as of March 31, 2017, and 2016, 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.
|
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.
17
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 sought 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 Air & Liquid for
Asbestos Liability and as respects asbestos bodily-injury claims against Howden arising from the Products. By September 2013, the Corporation and Air & Liquid had 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 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 were also dismissed. Various counterclaims, cross claims and third party claims had been filed in the litigation and remained pending as of September 27, 2013 although only two domestic
insurers and Howden remained in the litigation as to the Corporation and Air & Liquid at that time. 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 appeal. On November 2, 2016, the Corporation and Air & Liquid reached a settlement with one
of the two insurer defendants that remained in the litigation. Thereafter, the U.S. Court of Appeals issued an order of dismissal of the case on November 23, 2016, by agreement of all parties.
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. 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 2016, and additional reserves were established by the Corporation as of December 31, 2016, for Asbestos Liability claims pending or
projected to be asserted through 2026. The methodology used by HR&A in its projection in 2016 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, 2014, to September 9, 2016;
|
|
|
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, 2014, to September 9, 2016, 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 2016 the number of future claims for Asbestos Liability that would be filed through the year
2026, as well as the settlement or indemnity costs that would be incurred to resolve both pending and future unasserted claims through 2026. 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
18
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 2026. 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, 2016, for the total costs, including defense costs,
for Asbestos Liability claims pending or projected to be asserted through 2026 was $171,181 of which approximately 70% was attributable to settlement costs for unasserted claims projected to be filed through 2026 and future defense costs. The
reserve at March 31, 2017 was $166,293. 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 2026. Accordingly, no reserve has been recorded for any costs that may be incurred after 2026.
The Corporations receivable at December 31, 2016, 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, 2016, and the probable payments and reimbursements relating
to the estimated indemnity and defense costs for pending and unasserted future Asbestos Liability claims, was $115,945 ($112,319 at March 31, 2017).
The following table summarizes activity relating to insurance recoveries.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Insurance receivable asbestos, beginning of the year
|
|
$
|
115,945
|
|
|
$
|
125,243
|
|
Settlement and defense costs paid by insurance carriers
|
|
|
(3,626
|
)
|
|
|
(2,675
|
)
|
|
|
|
|
|
|
|
|
|
Insurance receivable asbestos, end of the period
|
|
$
|
112,319
|
|
|
$
|
122,748
|
|
|
|
|
|
|
|
|
|
|
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 2026. However,
this insurance coverage also can be expected to have gaps creating significant shortfalls of insurance recoveries 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 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.
19
16.
|
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. In the opinion of management, the potential liability for all environmental compliance measures
of approximately $2,464 at March 31, 2017, is considered adequate based on information known to date.
In April 2017, the Corporation temporarily idled a portion of one of
its cast roll plants. While the idling term is indefinite, it may last well into 2017.
20