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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number 1-898

AMPCO-PITTSBURGH CORPORATION

img138168447_0.jpg 

 

 

Pennsylvania

25-1117717

(State of

Incorporation)

(I.R.S. Employer

Identification No.)

726 Bell Avenue, Suite 301

Carnegie, Pennsylvania 15106

(Address of principal executive offices)

(412) 456-4400

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

AP

New York Stock Exchange

Series A Warrants to purchase shares of Common Stock

AP WS

NYSE American Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer

Accelerated filer

Emerging growth company

 

 

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

On May 7, 2024, 19,865,749 common shares were outstanding.

 


 

AMPCO-PITTSBURGH CORPORATION

INDEX

 

 

 

 

 

Page No.

Part I

 

Financial Information:

 

 

 

 

 

 

 

 

 

 

 

Item 1

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2024 and December 31, 2023

 

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2024 and 2023

 

5

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income – Three Months Ended March 31, 2024 and 2023

 

 

6

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity – Three Months Ended March 31, 2024 and 2023

 

7

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2024 and 2023

 

8

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

 

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

 

 

 

 

Item 4

 

Controls and Procedures

 

30

 

 

 

 

 

 

 

Part II

 

Other Information:

 

 

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

31

 

 

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

 

31

 

 

 

 

 

 

 

 

 

Item 5

 

Other Information

 

31

 

 

 

 

 

 

 

 

 

Item 6

 

Exhibits

 

32

 

 

 

 

 

 

 

Signatures

 

33

 

 

 

 

 

 

 

 

2


 

PART I – FINANCIAL INFORMATION

AMPCO-PITTSBURGH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par value)

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,829

 

 

$

7,286

 

Trade receivables, less allowance for credit losses of $893 as of March 31, 2024 and
   $
975 as of December 31, 2023

 

 

84,281

 

 

 

78,939

 

Trade receivables from related parties

 

 

 

 

 

912

 

Inventories

 

 

123,079

 

 

 

124,694

 

Insurance receivable – asbestos

 

 

15,000

 

 

 

15,000

 

Contract assets

 

 

5,510

 

 

 

4,452

 

Other current assets

 

 

5,075

 

 

 

5,370

 

Total current assets

 

 

243,774

 

 

 

236,653

 

Property, plant and equipment, net

 

 

155,382

 

 

 

158,732

 

Operating lease right-of-use assets

 

 

4,569

 

 

 

4,767

 

Insurance receivable – asbestos, less allowance for credit losses of $708 as of
  March 31, 2024 and December 31, 2023

 

 

141,960

 

 

 

145,245

 

Deferred income tax assets

 

 

3,160

 

 

 

3,160

 

Intangible assets, net

 

 

4,652

 

 

 

4,947

 

Investments in joint ventures

 

 

2,175

 

 

 

2,175

 

Prepaid pensions

 

 

4,973

 

 

 

4,951

 

Other noncurrent assets

 

 

5,163

 

 

 

5,024

 

Total assets

 

$

565,808

 

 

$

565,654

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

41,387

 

 

$

36,830

 

Accounts payable to related parties

 

 

1,068

 

 

 

401

 

Accrued payrolls and employee benefits

 

 

14,537

 

 

 

14,703

 

Debt – current portion

 

 

14,805

 

 

 

12,271

 

Operating lease liabilities – current portion

 

 

927

 

 

 

946

 

Asbestos liability – current portion

 

 

24,000

 

 

 

24,000

 

Other current liabilities

 

 

29,011

 

 

 

27,734

 

Total current liabilities

 

 

125,735

 

 

 

116,885

 

Employee benefit obligations

 

 

40,192

 

 

 

41,684

 

Asbestos liability

 

 

207,772

 

 

 

214,679

 

Long-term debt

 

 

116,171

 

 

 

116,382

 

Noncurrent operating lease liabilities

 

 

3,642

 

 

 

3,822

 

Deferred income tax liabilities

 

 

538

 

 

 

543

 

Other noncurrent liabilities

 

 

4,519

 

 

 

88

 

Total liabilities

 

 

498,569

 

 

 

494,083

 

Commitments and contingent liabilities (Note 8)

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Common stock – par value $1; authorized 40,000 shares; issued and outstanding
    
19,729 shares as of March 31, 2024 and December 31, 2023

 

 

19,729

 

 

 

19,729

 

Additional paid-in capital

 

 

177,542

 

 

 

177,196

 

Retained deficit

 

 

(75,714

)

 

 

(72,997

)

Accumulated other comprehensive loss

 

 

(65,257

)

 

 

(62,989

)

Total Ampco-Pittsburgh shareholders’ equity

 

 

56,300

 

 

 

60,939

 

Noncontrolling interest

 

 

10,939

 

 

 

10,632

 

Total shareholders’ equity

 

 

67,239

 

 

 

71,571

 

Total liabilities and shareholders’ equity

 

$

565,808

 

 

$

565,654

 

 

3


 

See Notes to Condensed Consolidated Financial Statements.

4


 

AMPCO-PITTSBURGH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net sales:

 

 

 

 

 

 

Net sales

 

$

110,025

 

 

$

102,383

 

Net sales to related parties

 

 

190

 

 

 

2,420

 

Total net sales

 

 

110,215

 

 

 

104,803

 

Operating costs and expenses:

 

 

 

 

 

 

Costs of products sold (excluding depreciation and amortization)

 

 

92,490

 

 

 

86,372

 

Selling and administrative

 

 

12,973

 

 

 

12,187

 

Depreciation and amortization

 

 

4,670

 

 

 

4,374

 

Gain on disposal of assets

 

 

 

 

 

(123

)

Total operating costs and expenses

 

 

110,133

 

 

 

102,810

 

Income from operations

 

 

82

 

 

 

1,993

 

Other expense - net:

 

 

 

 

 

 

Investment-related income

 

 

19

 

 

 

9

 

Interest expense

 

 

(2,757

)

 

 

(2,071

)

Other income – net

 

 

904

 

 

 

1,367

 

Total other expense - net

 

 

(1,834

)

 

 

(695

)

(Loss) income before income taxes

 

 

(1,752

)

 

 

1,298

 

Income tax provision

 

 

(454

)

 

 

(313

)

Net (loss) income

 

 

(2,206

)

 

 

985

 

Less: Net income attributable to noncontrolling interest

 

 

511

 

 

 

309

 

Net (loss) income attributable to Ampco-Pittsburgh

 

$

(2,717

)

 

$

676

 

 

 

 

 

 

 

 

Net (loss) income per share attributable to Ampco-
   Pittsburgh common shareholders:

 

 

 

 

 

 

Basic

 

$

(0.14

)

 

$

0.03

 

Diluted

 

$

(0.14

)

 

$

0.03

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

19,729

 

 

 

19,404

 

Diluted

 

 

19,729

 

 

 

19,404

 

 

See Notes to Condensed Consolidated Financial Statements.

5


 

AMPCO-PITTSBURGH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net (loss) income

 

$

(2,206

)

 

$

985

 

Other comprehensive (loss) income, net of income tax where applicable:

 

 

 

 

 

 

Adjustments for changes in:

 

 

 

 

 

 

Foreign currency translation

 

 

(2,445

)

 

 

1,912

 

Unrecognized employee benefit costs (including effects of foreign currency translation)

 

 

93

 

 

 

(149

)

Fair value of cash flow hedges

 

 

52

 

 

 

178

 

Reclassification adjustments for items included in net (loss) income:

 

 

 

 

 

 

Amortization of unrecognized employee benefit costs

 

 

(183

)

 

 

(195

)

Settlements of cash flow hedges

 

 

11

 

 

 

(114

)

Other comprehensive (loss) income

 

 

(2,472

)

 

 

1,632

 

Comprehensive (loss) income

 

 

(4,678

)

 

 

2,617

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

307

 

 

 

348

 

Comprehensive (loss) income attributable to Ampco-Pittsburgh

 

$

(4,985

)

 

$

2,269

 

 

See Notes to Condensed Consolidated Financial Statements.

6


 

AMPCO-PITTSBURGH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

 

Three Months Ended March 31, 2024

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Deficit

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Noncontrolling
Interest

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2024

 

$

19,729

 

 

$

177,196

 

 

$

(72,997

)

 

$

(62,989

)

 

$

10,632

 

 

$

71,571

 

Stock-based compensation

 

 

 

 

 

346

 

 

 

 

 

 

 

 

 

 

 

 

346

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

 

 

 

(2,717

)

 

 

 

 

 

511

 

 

 

(2,206

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(2,268

)

 

 

(204

)

 

 

(2,472

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

307

 

 

 

(4,678

)

Balance at March 31, 2024

 

$

19,729

 

 

$

177,542

 

 

$

(75,714

)

 

$

(65,257

)

 

$

10,939

 

 

$

67,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

$

19,404

 

 

$

175,656

 

 

$

(33,069

)

 

$

(58,412

)

 

$

9,070

 

 

$

112,649

 

Stock-based compensation

 

 

 

 

 

627

 

 

 

 

 

 

 

 

 

 

 

 

627

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

676

 

 

 

 

 

 

309

 

 

 

985

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,593

 

 

 

39

 

 

 

1,632

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

348

 

 

 

2,617

 

Balance at March 31, 2023

 

$

19,404

 

 

$

176,283

 

 

$

(32,393

)

 

$

(56,819

)

 

$

9,418

 

 

$

115,893

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

7


 

S

AMPCO-PITTSBURGH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net cash flows from (used in) operating activities

 

$

4,535

 

 

$

(4,391

)

 

 

 

 

 

 

 

Cash flows used in investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(2,837

)

 

 

(3,636

)

Proceeds from sale of property, plant and equipment

 

 

-

 

 

 

128

 

Purchases of long-term marketable securities

 

 

(12

)

 

 

(13

)

Proceeds from sale of long-term marketable securities

 

 

4

 

 

 

164

 

Net cash flows used in investing activities

 

 

(2,845

)

 

 

(3,357

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

6,621

 

 

 

8,535

 

Payments on revolving credit facility

 

 

(4,666

)

 

 

(6,073

)

Payments on sale and leaseback financing arrangements

 

 

(86

)

 

 

(90

)

Proceeds from equipment financing facility

 

 

1,134

 

 

 

2,498

 

Proceeds from related party debt

 

 

-

 

 

 

229

 

Repayment of related party debt

 

 

(664

)

 

 

-

 

Repayments of debt

 

 

(311

)

 

 

(101

)

Net cash flows provided by financing activities

 

 

2,028

 

 

 

4,998

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(175

)

 

 

89

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

3,543

 

 

 

(2,661

)

Cash and cash equivalents at beginning of period

 

 

7,286

 

 

 

8,735

 

Cash and cash equivalents at end of period

 

$

10,829

 

 

$

6,074

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

Income tax payments, net of refunds

 

$

569

 

 

$

342

 

Interest payments

 

$

2,347

 

 

$

1,716

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment in current liabilities

 

$

333

 

 

$

844

 

Finance lease right-of-use assets exchanged for lease liabilities

 

$

81

 

 

$

-

 

Operating lease right-of-use assets exchanged for lease liabilities

 

$

28

 

 

$

-

 

 

See Notes to Condensed Consolidated Financial Statements.

8


 

AMPCO-PITTSBURGH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except per share amounts)

Overview of the Business

Ampco-Pittsburgh Corporation (the “Corporation”) manufactures and sells highly engineered, high-performance specialty metal products and customized equipment utilized by industry throughout the world. It operates in two business segments – the Forged and Cast Engineered Products (“FCEP”) segment and the Air and Liquid Processing (“ALP”) segment. This segment presentation is consistent with how the Corporation’s chief operating decision-maker evaluates financial performance and makes resource allocation and strategic decisions about the business (Note 18).

Note 1 – Unaudited Condensed Consolidated Financial Statements

The unaudited condensed consolidated balance sheet as of March 31, 2024 and the unaudited condensed consolidated statements of operations, comprehensive (loss) income, cash flows and shareholders’ equity for the three months ended March 31, 2024 and 2023, have been prepared by the Corporation. 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, 2024 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 (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Corporation's latest Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures. The guidance requires disclosure of significant reportable segment expenses regularly provided to the chief operating decision-maker and included within each reported measure of a segment's profit or loss. The guidance also requires disclosure of the title and position of the individual identified as the chief operating decision-maker and an explanation of how the chief operating decision-maker uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The guidance does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The guidance became effective for the Corporation’s annual period beginning January 1, 2024 and interim periods beginning January 1, 2025. The Corporation is currently evaluating the impact this new standard will have on its annual disclosures in its consolidated financial statements for the year ending December 31, 2024 and interim disclosures thereafter. It will not, however, impact the Corporation’s consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures. The guidance requires annual disclosure of specific categories of information within the effective tax rate reconciliation, and income taxes paid and income tax expense disaggregated by jurisdiction. The guidance becomes effective for the Corporation’s annual period beginning January 1, 2025. Early adoption is permitted. The Corporation is currently evaluating the impact this new standard will have on its condensed consolidated financial statements disclosures. It will not, however, impact the Corporation’s condensed consolidated financial position, results of operations or cash flows.

Note 2 – Inventories

At March 31, 2024 and December 31, 2023, substantially all inventories were valued using the first-in-first-out method. Inventories were comprised of the following:

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Raw materials

 

$

50,360

 

 

$

51,794

 

Work-in-process

 

 

49,613

 

 

 

48,676

 

Finished goods

 

 

16,327

 

 

 

17,332

 

Supplies

 

 

6,779

 

 

 

6,892

 

Inventories

 

$

123,079

 

 

$

124,694

 

 

9


 

 

Note 3 – Property, Plant and Equipment

Property, plant and equipment were comprised of the following:

 

 

March 31,
2024

 

 

December 31,
2023

 

Land and land improvements

 

$

8,865

 

 

$

9,025

 

Buildings and leasehold improvements

 

 

70,324

 

 

 

71,063

 

Machinery and equipment

 

 

371,640

 

 

 

366,044

 

Construction-in-progress

 

 

6,255

 

 

 

11,514

 

Other

 

 

6,902

 

 

 

6,965

 

 

 

463,986

 

 

 

464,611

 

Accumulated depreciation and amortization

 

 

(308,604

)

 

 

(305,879

)

Property, plant and equipment, net

 

$

155,382

 

 

$

158,732

 

Certain of the above property, plant and equipment are held as collateral including:

The land and building of Union Electric Steel UK Limited, an indirect subsidiary of the Corporation (“UES-UK”), with a book value equal to $2,6782,122) at March 31, 2024, are held as collateral by the trustees of the UES-UK defined benefit pension plan (Note 7).
Certain of the machinery and equipment and construction-in-progress, with a book value equal to $23,653 at March 31, 2024, purchased with proceeds from the equipment finance facility (Note 6) are held as collateral for the facility.
Certain land and land improvements and buildings and leasehold improvements are included in the sale and leaseback financing transactions and Disbursement Agreement (Note 6). Title to these assets lies with the lender; however, since the transactions qualified as financing transactions, versus sales, the assets remain recorded on the Corporation’s condensed consolidated balance sheet.
The remaining assets, other than real property, are pledged as collateral for the Corporation’s revolving credit facility (Note 6).

 

In 2023, Union Electric Steel Corporation (“UES”), a wholly owned subsidiary of the Corporation, completed certain leasehold improvements at the Carnegie, Pennsylvania manufacturing facility with the $2,500 of proceeds from the Disbursement Agreement (Note 6). The improvements are being amortized over the remaining lease term of 20 years.

In 2021, the Corporation began a $26,000 long-term strategic capital program to upgrade existing equipment at certain of its FCEP locations. Interest capitalized for the strategic capital program totaled $235 and $261 for the three months ended March 31, 2024 and 2023, respectively.

The gross value of assets under finance leases and the related accumulated amortization approximated $3,454 and $1,734, respectively, as of March 31, 2024 and $4,223 and $1,959, respectively, at December 31, 2023. Depreciation expense approximated $4,582 and $4,281, including depreciation of assets under finance leases of approximately $82 and $70, for the three months ended March 31, 2024 and 2023, respectively.

Note 4 – Intangible Assets

Intangible assets were comprised of the following:

 

 

March 31,
2024

 

 

December 31,
2023

 

Customer relationships

 

$

5,275

 

 

$

5,442

 

Developed technology

 

 

3,788

 

 

 

3,913

 

Trade name

 

 

2,122

 

 

 

2,219

 

 

 

11,185

 

 

 

11,574

 

Accumulated amortization

 

 

(6,533

)

 

 

(6,627

)

Intangible assets, net

 

$

4,652

 

 

$

4,947

 

 

10


 

Changes in intangible assets consisted of the following:

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Balance at beginning of the period

$

4,947

 

 

$

5,194

 

Amortization of intangible assets

 

(88

)

 

 

(93

)

Other, primarily impact from changes in foreign currency exchange rates

 

(207

)

 

 

30

 

Balance at end of the period

$

4,652

 

 

$

5,131

 

 

Note 5 – Other Current Liabilities

Other current liabilities were comprised of the following:

 

 

March 31,
2024

 

 

December 31,
2023

 

Customer-related liabilities

 

$

20,803

 

 

$

19,915

 

Accrued utilities

 

 

1,745

 

 

 

1,880

 

Accrued sales commissions

 

 

2,049

 

 

 

1,850

 

Other

 

 

4,414

 

 

 

4,089

 

Other current liabilities

 

$

29,011

 

 

$

27,734

 

Customer-related liabilities primarily include liabilities for product warranty claims and deposits received on future orders. The Corporation provides a limited warranty on its products, known as assurance-type warranties, and may issue credit notes or replace products free of charge for valid claims. A warranty is considered an assurance-type warranty if it provides the customer with assurance that the product will function as intended. Historically, warranty claims have been insignificant. The Corporation records a provision for estimated product warranties at the time the underlying sale is recorded. The provision is based on historical experience as a percentage of sales adjusted for probable and known claims.

Changes in the liability for product warranty claims consisted of the following:

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Balance at beginning of the period

$

5,539

 

 

$

5,193

 

Satisfaction of warranty claims

 

(394

)

 

 

(378

)

Provision for warranty claims, net

 

588

 

 

 

570

 

Other, primarily impact from changes in foreign currency exchange rates

 

(136

)

 

 

65

 

Balance at end of the period

$

5,597

 

 

$

5,450

 

Customer deposits represent amounts collected from, or invoiced to, a customer in advance of revenue recognition. The liability for customer deposits is reversed when the Corporation satisfies its performance obligations and control of the inventory transfers to the customer, typically when title transfers. Performance obligations related to customer deposits are expected to be satisfied in less than one year.

Changes in customer deposits consisted of the following:

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Balance at beginning of the period

$

13,078

 

 

$

10,453

 

Satisfaction of performance obligations

 

(2,567

)

 

 

(4,261

)

Receipt of additional deposits

 

7,704

 

 

 

7,197

 

Other, primarily impact from changes in foreign currency exchange rates

 

(17

)

 

 

43

 

Balance at end of the period

 

18,198

 

 

 

13,432

 

Deposits - Other noncurrent liabilities

 

(4,430

)

 

 

-

 

Deposits - Other current liabilities

$

13,768

 

 

$

13,432

 

 

11


 

 

Note 6 – Debt

Borrowings were comprised of the following:

 

 

March 31,
2024

 

 

December 31,
2023

 

Revolving credit facility

 

$

57,955

 

 

$

56,000

 

Sale and leaseback financing obligations

 

 

44,736

 

 

 

44,488

 

Equipment financing facility

 

 

17,655

 

 

 

16,719

 

Industrial Revenue Bonds

 

 

9,191

 

 

 

9,191

 

Finance lease liabilities

 

 

1,439

 

 

 

1,590

 

Minority shareholder loan

 

 

-

 

 

 

665

 

Outstanding borrowings

 

 

130,976

 

 

 

128,653

 

Debt – current portion

 

 

(14,805

)

 

 

(12,271

)

Long-term debt

 

$

116,171

 

 

$

116,382

 

The current portion of debt includes primarily swing loans under the revolving credit facility and the Industrial Revenue Bonds (“IRBs”). By definition, swing loans are temporary advances under the revolving credit facility and short term in nature. Accordingly, swing loans are classified as a current liability until the amount is either repaid, as customers remit payments, or, if elected by the Corporation, refinanced as a longer-term loan under the revolving credit facility. The swing loans equaled $2,955 at March 31, 2024. No amount was outstanding as a swing loan at December 31, 2023. Although the IRBs begin to become due in 2027, the bonds can be put back to the Corporation on short notice if they are not able to be remarketed; accordingly, the IRBs are classified as a current liability, although the Corporation considers the likelihood of the bonds being put back to the Corporation to be remote.

Revolving Credit Facility

The Corporation is a party to a revolving credit security agreement with a syndicate of banks that was amended on June 29, 2021 (the “First Amended and Restated Security Agreement”), and subsequently amended on December 17, 2021 and May 26, 2022. The First Amended and Restated Security Agreement provides for a senior secured asset-based revolving credit facility of $100,000, that can be increased to $130,000 at the option of the Corporation and with the approval of the lenders, and an allowance of $20,000 for new equipment financing (see “Equipment Financing Facility” below) but, otherwise, restricts the Corporation from incurring additional indebtedness outside of the agreement, unless approved by the banks. The revolving credit facility includes sub-limits for letters of credit not to exceed $40,000 and European borrowings not to exceed $30,000, of which up to $7,500 may be allocated for Swedish borrowings. The maturity date for the revolving credit facility is June 29, 2026 and, subject to other terms and conditions of the agreement, would become due on that date.

Availability under the revolving credit facility is based on eligible accounts receivable, inventory and fixed assets. Effective July 1, 2023, the Corporation migrated London Inter-Bank Offered Rate (“LIBOR”)-based loans to Secured Overnight Financing Rate (“SOFR”)-based loans, in accordance with the provisions specified in the revolving credit facility, coinciding with the discontinuation of LIBOR. European borrowings denominated in euros, pound sterling or krona bear interest at the Successor Rate as defined in the First Amended and Restated Security Agreement, as amended. Domestic borrowings from the revolving credit facility bear interest, at the Corporation’s option, at either (i) SOFR, as adjusted, plus an applicable margin ranging between 2.00% to 2.50% based on the quarterly average excess availability or (ii) the alternate base rate plus an applicable margin ranging between 1.00% to 1.50% based on the quarterly average excess availability. As of March 31, 2024 and December 31, 2023, there were no European borrowings outstanding. Additionally, the Corporation is required to pay a commitment fee of 0.25% based on the daily unused portion of the revolving credit facility.

As of March 31, 2024, the Corporation had outstanding borrowings under the revolving credit facility of $57,955. The average interest rate approximated 8.22% and 7.70% for the three months ended March 31, 2024 and 2023, respectively. The Corporation also utilizes a portion of the revolving credit facility for letters of credit (Note 8). As of March 31, 2024, remaining availability under the revolving credit facility approximated $23,174, net of standard availability reserves.

Borrowings outstanding under the revolving credit facility are collateralized by a first priority perfected security interest in substantially all assets of the Corporation and its subsidiaries (other than real property). Additionally, the revolving credit facility contains customary affirmative and negative covenants and limitations including, but not limited to, investments in certain of its subsidiaries, payment of dividends, incurrence of additional indebtedness and guaranties, and acquisitions and divestitures. In addition, the Corporation must maintain a certain level of excess availability or otherwise maintain a minimum fixed charge coverage ratio of not less than 1.05 to 1.00. The Corporation was in compliance with the applicable bank covenants as of March 31, 2024.

12


 

Sale and Leaseback Financing Obligations

In September 2018, UES completed a sale and leaseback financing transaction with Store Capital Acquisitions, LLC (“STORE”) for certain of its real property, including its manufacturing facilities in Valparaiso, Indiana and Burgettstown, Pennsylvania, and its manufacturing facility and corporate headquarters located in Carnegie, Pennsylvania (the “UES Properties”).

In August 2022, Air & Liquid Systems Corporation (“Air & Liquid”), a wholly owned subsidiary of the Corporation, completed a sale and leaseback financing transaction with STORE for certain of its real property, including its manufacturing facilities in Lynchburg, Virginia and Amherst, Virginia. In October 2022, Air & Liquid completed a sale and leaseback financing transaction with STORE for its real property, including its manufacturing facility, located in North Tonawanda, New York (collectively with the Virginia properties, the “ALP Properties”).

In connection with the August 2022 sale and leaseback financing transaction, and as modified by the October 2022 sale and leaseback financing transaction, UES and STORE entered into a Second Amended and Restated Master Lease Agreement (the “Restated Lease”), which amended and restated the existing lease agreement between UES and STORE.

Pursuant to the Restated Lease, UES will lease the ALP Properties and the UES Properties (collectively, the “Properties”), subject to the terms and conditions of the Restated Lease, and UES will sublease the ALP Properties to Air & Liquid on the same terms as the Restated Lease. The Restated Lease provides for an initial term of 20 years; however, UES may extend the lease for the Properties for four successive periods of five years each. If fully extended, the Restated Lease would expire in August 2062. UES also has the option to repurchase the Properties, which it may, and intends to, exercise in 2032, for a price equal to the greater of (i) the Fair Market Value of the Properties, or (ii) 115% of Lessor’s Total Investment, with such terms defined in the Restated Lease.

In August 2022, in connection with the Restated Lease, UES and STORE entered into a Disbursement Agreement pursuant to which STORE agreed to provide up to $2,500 to UES towards certain leasehold improvements in the Carnegie, Pennsylvania manufacturing facility. In June 2023, UES received $2,500 of proceeds from the Disbursement Agreement. The annual payments for the Properties (the "Base Annual Rent") have been adjusted to repay the $2,500 over the balance of the initial term of the Restated Lease of 20 years. Advances under the Disbursement Agreement are secured by a first priority security interest in the leasehold improvements.

At March 31, 2024, the Base Annual Rent, including the Disbursement Agreement adjustment, is equal to $3,645, payable in equal monthly installments. Each October through 2052, the Base Annual Rent will increase by an amount equal to the lesser of 2.04% or 1.25 times the change in the consumer price index, as defined in the Restated Lease. The Base Annual Rent during the remaining ten years of the Restated Lease will be equal to the Fair Market Rent, as defined in the Restated Lease.

The Restated Lease and the Disbursement Agreement contain certain representations, warranties, covenants, obligations, conditions, indemnification provisions, and termination provisions customary for those types of agreements. The Corporation was in compliance with the applicable covenants as of March 31, 2024.

The effective interest rate approximated 8.24% and 8.22% for the three months ended March 31, 2024 and 2023, respectively.

Equipment Financing Facility

In September 2022, UES and Clarus Capital Funding I, LLC (“Clarus”) entered into a Master Loan and Security Agreement, pursuant to which UES can borrow up to $20,000 to finance certain equipment purchases associated with a capital program at certain of the Corporation's FCEP locations. Each borrowing constitutes a secured loan transaction (each, a “Term Loan”). As amended, each Term Loan converts to a Term Note on the earlier of (i) the date in which the associated equipment is placed in service or (ii) April 30, 2024 (previously March 31, 2024). Each Term Note has a term of 84 months in arrears fully amortizing, commencing on the date of the Term Note.

Effective July 1, 2023, UES and Clarus amended the Master Loan and Security Agreement increasing the interest rate on each Term Loan from an annual fixed rate of 8% to an annual fixed rate of 10.25%. In December 2023, UES and Clarus further amended the Master Loan and Security Agreement to add a SOFR 'floor' to the Term Note calculation. Once converted from a Term Loan to a Term Note, interest accrues on the Term Note at a fixed rate calculated by Clarus as the like-term SOFR-swap rate, as reported in ICE Benchmark or such other information service available to Clarus, for the week ending immediately prior to the commencement date for such Term Note, subject to a floor of 3.59%, plus a SOFR adjustment of 0.31% and a margin of 4.50%.

The Term Loans and Term Notes are secured by a first priority security interest in and to all of UES’s rights, title and interests in the underlying equipment.

At March 31, 2024 and December 31, 2023, Term Notes outstanding under the equipment financing facility approximated $12,485 and $900, respectively. Interest accrues on each of the Term Notes at a fixed rate ranging between 8.40% and 8.93% per annum. As of March 31, 2024, monthly payments of principal and interest approximate $200 and continue through early 2031.

At March 31, 2024 and December 31, 2023, Term Loans outstanding totaled $5,170 and $15,819, respectively. On April 1, 2024, Term Loans equaling $3,894 were converted to Term Notes with fixed interest rates of 8.75% per annum. Monthly payments of

13


 

principal and interest of $62 began May 1, 2024 and continue through April 1, 2031. On May 1, 2024, a Term Loan equaling $1,834 was converted to a Term Note with a fixed interest rate of 9.22% per annum. Monthly payments of principal and interest of $30 begin June 1, 2024 and continue through May 1, 2031.

Industrial Revenue Bonds (“IRBs”)

The Corporation has two IRBs outstanding: (i) $7,116 taxable IRB maturing in 2027, interest at a floating rate which averaged 5.36% and 4.54% for the three months ended March 31, 2024 and 2023, respectively, and (ii) $2,075 tax-exempt IRB maturing in 2029, interest at a floating rate which averaged 3.70% and 2.92% for the three months ended March 31, 2024 and 2023, respectively. The IRBs are secured by letters of credit of equivalent amounts and are remarketed periodically at which time the interest rates are reset. If the IRBs are not able to be remarketed, although considered a remote possibility by the Corporation, the bondholders can seek reimbursement immediately from the letters of credit; accordingly, the IRBs are recorded as current debt on the condensed consolidated balance sheets.

Minority Shareholder Loan

Shanxi Åkers TISCO Roll Co., Ltd. (“ATR”), a 59.88% indirectly owned joint-venture of UES, periodically has loans outstanding with its minority shareholder (Note 17). Amounts repaid approximated $664 (RMB 4,713) during the three months ended March 31, 2024. Amounts borrowed approximated $229 (RMB 1,570) during the three months ended March 31, 2023.

Note 7 – Pension and Other Postretirement Benefits

Contributions to the Corporation’s employee benefit plans were as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

U.S. defined benefit pension plans

 

$

192

 

 

$

207

 

Foreign defined benefit pension plans

 

$

120

 

 

$

113

 

Other postretirement benefits (e.g., net payments)

 

$

88

 

 

$

119

 

U.K. defined contribution pension plan

 

$

66

 

 

$

57

 

U.S. defined contribution plan

 

$

929

 

 

$

646

 

Net periodic pension and other postretirement benefit costs included the following components:

 

 

Three Months Ended March 31,

 

U.S. Defined Benefit Pension Plans

 

2024

 

 

2023

 

Service cost

 

$

10

 

 

$

10

 

Interest cost

 

 

2,329

 

 

 

2,483

 

Expected return on plan assets

 

 

(3,401

)

 

 

(3,596

)

Amortization of prior service cost