FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2004
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
Incorporated in Pennsylvania.
I.R.S. Employer Identification No. 25-1117717.
600 Grant Street, Pittsburgh, Pennsylvania 15219
Telephone Number 412/456-4400
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 X NO
On May 7,August 5, 2004, 9,707,497 common shares were outstanding.
- 1 -
AMPCO-PITTSBURGH CORPORATION
INDEX
Page No.
Part I - Financial Information:
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets -
March 31,June 30, 2004 and December 31, 2003 3
Consolidated Statements of Operations -
Six Months Ended June 30, 2004 and 2003
Three Months Ended March 31,June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows-
ThreeSix Months Ended March 31,June 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 1314
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 1617
Item 4 - Controls and Procedures 1617
Part II - Other Information:
Item 1 - Legal Proceedings 1718
Item 4 - Submission of Matters to a Vote of
Security Holders 18
Item 5 - Other Information 1718
Item 6 - Exhibits and Reports on Form 8-K 1718
Signatures 1920
Exhibit Index 2021
Exhibits
Exhibit 3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
- 2 -
PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31,
June 30, December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $ 37,109,00236,731,647 $ 35,738,789
Receivables, less allowance for
doubtful accounts of $774,162$872,603 in
2004 and $542,594 in 2003 37,677,53238,701,918 38,801,415
Inventories 53,626,38152,409,773 48,260,368
Other 9,367,6447,779,052 11,525,202
Total current assets 137,780,559135,622,390 134,325,774
Property, plant and equipment,
at cost:
Land and land improvements 4,220,2674,219,858 4,219,403
Buildings 25,139,36825,131,286 25,148,729
Machinery and equipment 130,653,281132,291,369 130,015,316
160,012,916161,642,513 159,383,448
Accumulated depreciation 91,551,09292,976,634 89,885,025
Net property, plant and
equipment 68,461,82468,665,879 69,498,423
Prepaid pensions 24,366,73324,629,233 24,104,233
Goodwill 2,694,240 2,694,240
Other noncurrent assets 3,490,0493,554,728 3,500,869
$236,793,405$235,166,470 $234,123,539
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 12,133,25911,819,428 $ 11,760,521
Accrued payrolls and employee
benefits 7,665,8208,259,227 7,930,282
Other 15,458,53014,233,974 14,338,231
Total current liabilities 35,257,60934,312,629 34,029,034
Employee benefit obligations 16,372,99916,420,224 16,680,481
Deferred income taxes 20,852,71320,794,242 20,555,776
Industrial Revenue Bond debt 13,311,000 13,311,000
Other noncurrent liabilities 4,129,2424,070,901 5,002,033
Total liabilities 89,923,56388,908,996 89,578,324
Shareholders' equity:
Preference stock - no par value;
authorized 3,000,000 shares: none
issued - -
Common stock - par value $1; authorized
20,000,000 shares; issued and
outstanding 9,707,497 in 2004 and
9,653,497 in 2003 9,707,497 9,653,497
Additional paid-in capital 103,771,130 103,211,130
Retained earnings 39,801,78239,670,657 39,564,359
Accumulated other comprehensive loss (6,410,567)(6,891,810) (7,883,771)
Total shareholders' equity 146,869,842146,257,474 144,545,215
Total liabilities and
shareholders' equity $236,793,405$235,166,470 $234,123,539
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
2004 2003
Six Months Ended June 30, Three Months Ended June 30,
2004 2003 2004 2003
Net sales $100,432,174 $ 46,786,57989,025,426 $ 43,530,39553,645,595 $ 45,495,031
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 36,751,562 34,425,47880,169,079 69,714,842 43,417,517 35,289,364
Selling and administrative 6,807,279 6,804,87513,856,430 13,922,458 7,049,151 7,117,583
Depreciation 1,596,516 1,601,6013,209,958 3,199,763 1,613,442 1,598,162
Loss (gain) on disposition
of assets 8,968 8,4503,733 (8,854) (5,235) (17,304)
Total operating expense 45,164,325 42,840,404expenses 97,239,200 86,828,209 52,074,875 43,987,805
Income from operations 1,622,254 689,9913,192,974 2,197,217 1,570,720 1,507,226
Other income (expense):
Interest expense (61,066) (93,417)(127,658) (163,323) (66,592) (69,906)
Other - net 243,385 (151,913)
182,319 (245,330)395,881 (237,470) 152,496 (85,557)
268,223 (400,793) 85,904 (155,463)
Income from continuing operations
before income taxes 1,804,573 444,6613,461,197 1,796,424 1,656,624 1,351,763
Income tax provision 596,000 292,0001,413,000 1,069,000 817,000 777,000
Income from continuing
operations 1,208,573 152,6612,048,197 727,424 839,624 574,763
Discontinued operations:
IncomeLoss from operations - 80,912(189,803) - (270,715)
Income tax provisionbenefit - 37,000(50,000) - 43,912(87,000)
- (139,803) - (183,715)
Net income $1,208,573 $ 196,5732,048,197 $ 587,621 $ 839,624 $ 391,048
Basic and diluted earnings
per common share:
IncomeNet income from continuing
operations $ 0.120.21 $ 0.02
Income0.08 $ 0.09 $ 0.06
Net loss from discontinued
operations $ - $ (0.02) $ - $ (0.02)
Net income $ 0.120.21 $ 0.020.06 $ 0.09 $ 0.04
Cash dividends declared
per share $ 0.20 $ 0.20 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,682,3989,694,948 9,632,497 9,707,497 9,632,497
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2004 2003
Six Months Ended June 30,
2004 2003
Net cash flows provided by (used in)
operating
activities $ 2,170,311 $(2,281,295)4,328,210 $ 3,208,167
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,298,682) (970,280)(3,221,940) (2,405,341)
Proceeds from sale of businessesbusiness 500,000 -
Proceeds from grant 922,500 -
Proceeds from sale of assets 18,075 -38,757 818
Investing activities of discontinued
operations - (217,120)(230,130)
Net cash flows provided by (used in)used in investing
activities 141,893 (1,187,400)(1,760,683) (2,634,653)
Cash flows from financing activities:
Proceeds from the issuance of common stock 550,000624,000 -
Dividends paid (965,750) (963,250)(1,936,500) (1,926,500)
Net cash flows (used in)used in financing
activities (415,750) (963,250)(1,312,500) (1,926,500)
Effect of exchange rate changes on cash
and cash equivalents (526,241) 12,767(262,169) 244,269
Net increase (decrease) in cash and
cash equivalents 1,370,213 (4,419,178)992,858 (1,108,717)
Cash and cash equivalents at
beginning of period 35,738,789 27,788,798
Cash and cash equivalents at
end of period $ 37,109,00236,731,647 $ 23,369,62026,680,081
Supplemental information:
Income tax payments $ 52,440553,639 $ 115,215216,217
Interest payments $ 64,462128,518 $ 82,349166,279
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The consolidated balance sheet as of March 31,June 30, 2004, the
consolidated statements of operations for the six and three
months ended March 31,June 30, 2004 and 2003 and the condensed
consolidated statements of cash flows for the threesix months ended
March 31,June 30, 2004 and 2003 have been prepared by Ampco-Pittsburgh
Corporation (the Corporation) without audit. In the opinion of
management, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position,
results of operations and cash flows for the periods presented
have been made.
Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted. In addition, the
Corporation sold the stock of its Plastics Processing Machinery
segment in 2003 (see Note 9) which was accounted for as a
discontinued operation. Accordingly, the results of operations
for this segment for the prior periodperiods have been reclassified
and presented net of tax in the accompanying consolidated
statements of operations. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto incorporated by reference
in the Corporation's annual report to shareholders on Form 10-K
for the year ended December 31, 2003. The results of operations
for the six and three months ended March 31,June 30, 2004 are not
necessarily indicative of the operating results expected for the
full year.
2. Inventories
At March 31,June 30, 2004 and December 31, 2003, approximately 67%65% and
70%, respectively, of the inventories were valued on the LIFO
method, with the remaining inventories being valued on the FIFO
method. Inventories were comprised of the following:
(in thousands)
March 31,June 30, December 31,
2004 2003
Raw materials $13,164$13,196 $11,803
Work-in-process 25,25824,147 23,392
Finished goods 9,6698,894 7,894
Supplies 5,5356,173 5,171
$53,626$52,410 $48,260
- 6 -
3. Other Current Liabilities
Other current liabilities were comprised of the following:
(in thousands)
March 31,June 30, December 31,
2004 2003
Customer-related $ 5,7184,590 $ 5,674
Forward exchange contracts 2,3931,424 2,335
Other 7,3488,220 6,329
$15,459$14,234 $14,338
Included in customer-related liabilities are costs expected to
be incurred with respect to product warranties. There have been
no significant changes in the liability for product warranty
claims for the threesix months ended March 31,June 30, 2004.
4. Comprehensive Income
(Loss)
The Corporation's comprehensive income (loss) for the six and three
months ended March 31,June 30, 2004 and 2003 consisted of:
(in thousands)
Three Months
Ended March 31,
2004 2003
Net income $ 1,208 $ 197
Foreign currency translation 928 (217)
Minimum pension liability (385) 7
Unrealized holding gains (losses)
on marketable securities 2 (93)
Change in fair value of derivatives 928 (103)
Comprehensive income (loss) $ 2,681 $ (209)
(in thousands)
Six Months Three Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
Net income $2,048 $ 588 $ 840 $ 391
Foreign currency translation 453 551 (476) 767
Adjustment to minimum pension
liability (258) - 127 (7)
Unrealized holding gains
on marketable securities 62 26 60 119
Change in fair value
of derivatives 735 (293) (192) (190)
Comprehensive income $3,040 $ 872 $ 359 $1,080
5. Foreign Exchange
Certain of the Corporation's operations are subject to risk from
exchange rate fluctuations in connection with sales in foreign
currencies. To minimize this risk, forward foreign exchange
contracts are purchased which are designated as fair value
hedges or cash flow hedges. As of March 31,June 30, 2004, approximately
$37,196,000$42,451,000 of anticipated foreign denominated sales hashave been
hedged with the underlying contracts settling at various dates
beginning in 2004 through JanuaryJuly 2009. As of March 31,June 30, 2004, the
fair value of contracts expected to settle within the next 12
months, which is recorded in other current liabilities,
approximated $2,393,000$1,424,000 and the fair value of the remaining
contracts, which is recorded in other noncurrent liabilities,
approximated $1,274,000.$1,447,000. The change in the fair value of the
contracts designated as cash flow hedges is recorded as a
component of accumulated other comprehensive loss and
approximated $(1,487,000)($1,378,000), net of taxes, as of March 31,June 30, 2004.
The change in fair
- 7 -
value will be reclassified into earnings when the projected
sales occur with approximately $(802,000)$(589,000), net of taxes,
expected to be released to earnings within the next 12 months.
During the six months ended June 30, 2004 and 2003,
approximately $(529,000) and $(358,000), respectively, net of
taxes, were released into earnings and for the three months
ended March 31,June 30, 2004 and 2003, - 7 -
approximately $(464,000)$(251,000) and
$(239,000) was released into earnings.$(215,000), respectively, net of taxes, were released.
Gains (losses) on foreign exchange transactions approximated
$222,000$286,000 and $(163,000)$(245,000) for the six months ended June 30, 2004
and 2003 respectively, and $65,000 and $(82,000) for the three
months ended March 31,June 30, 2004 and 2003, respectively.
In addition, one of the Corporation's subsidiaries is subject to
risk from increases in the price of a commodity 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,June 30, 2004, approximately 100% or $1,932,000$2,121,000 of
anticipated commodity purchases over the next 12 months is
hedged. The fair value of the contracts expected to settle
within the next 12 months approximated $806,000$312,000 and the fair
value of the remaining contracts approximated $12,000$3,000 as of March 31,June
30, 2004. The change in the fair value of the contracts is
recorded as a component of accumulated other comprehensive loss
and approximated $490,000,$189,000, net of taxes, as of March 31,June 30, 2004.
The change in the fair value will be reclassified into earnings
when the projected sales occur with approximately $483,000,$187,000, net
of taxes, expected to be released to earnings within the next 12
months.
6. Pension and Other Postretirement Benefits
No contributions were made to the U.S. pension benefit plans
during the threesix months ended March 31,June 30, 2004. Contributions to the
foreign pension plan approximated $130,000$264,000 and net payments for
other postretirement benefits approximated $79,000$410,000 for the threesix
months ended March 31,June 30, 2004.
Net periodic pension and other postretirement benefit costs
include the following components for the six and three months
ended March 31,June 30, 2004 and 2003:
(in thousands)
U.S. Foreign Other
Pension Pension Postretirement
Benefits Benefits Benefits
2004 2003 2004 2003 2004 2003
Service cost $ 518 $ 537 $ 277 $ 200 $ 60 $ 55
Interest cost 1,658 1,701 464 339 196 195
Expected return on
plan assets (2,553)(2,705) (437) (337)
(in thousands)
U.S. Pension Benefits:
Six Months Three Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
Service cost $ 1,037 $ 1,074 $ 518 $ 537
Interest cost 3,315 3,402 1,658 1,701
Expected return on plan assets(5,105) (5,410) (2,553) (2,705)
Amortization of prior
service cost 296 275 148 138
Actuarial gain (62) (2) (31) (1)
Net benefit income $ (519) $ (661) $ (260) $ (330)
- 8 -
Amortization of
prior service
cost (benefit) 147 136 194 140 (137) (137)
Actuarial
(gain) loss (30) - - - 39 13
Net benefit
(income) cost $ (260)$ (331) $ 498 $ 342 $ 158 $ 126
(in thousands)
Foreign Pension Benefits:
Six Months Three Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
Service cost $ 551 $ 400 $ 277 $ 200
Interest cost 921 679 464 339
Expected return on plan assets (869) (673) (437) (336)
Amortization of prior
service cost 386 279 194 140
Net benefit cost $ 989 $ 685 $ 498 $ 343
(in thousands)
Other Postretirement Benefits:
Six Months Three Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
Service cost $ 119 $ 109 $ 60 $ 55
Interest cost 391 391 196 195
Amortization of prior
service benefit (274) (274) (137) (137)
Actuarial loss 79 27 39 14
Net benefit cost $ 315 $ 253 $ 158 $ 127
7. Earnings Per Share
Basic earnings per share are computed by dividing income from
continuing operations, incomeloss from discontinued operations, and
net income by the weighted average number of common shares
outstanding for each of the period.periods. The weighted average
number of common shares outstanding for the six and three months
ended March 31,June 30, 2004 were 9,694,948 and 2003 equaled 9,682,3989,707,497 and 9,632,497 shares,
respectively.
- 8 -for the
same periods of the prior year were 9,632,497.
The computation of diluted earnings per share is similar to
basic earnings per share except that the denominator is
increased to include the dilutive effect of the net additional
common shares that would have been outstanding assuming exercise
of outstanding stock options, calculated using the treasury
stock method. The weighted average number of common shares
outstanding assuming exercise of the stock options was 9,748,6449,755,042 and
9,688,2429,760,061 shares for the six and three months ended March 31,June 30,
2004, respectively, and 9,698,501 and 9,706,863 for the six and
three months ended June 30, 2003, respectively.
- 9 -
8. Business Segments
Presented below are the net sales and income from continuing
operations before income taxes for the Corporation's two
business segments.
(in thousands)
Three Months Ended
March 31,
2004 2003
Net Sales:
Forged and Cast Rolls $ 29,771 $ 24,798
Air and Liquid Processing 17,016 18,732
Total Reportable Segments $ 46,787 $ 43,530
(in thousands)
Six Months Ended Three Months Ended
June 30, June 30,
2004 2003 2004 2003
Net Sales:
Forged and Cast Rolls $ 63,285 $ 52,388 $ 33,515 $ 27,590
Air and Liquid Processing 37,147 36,637 20,131 17,905
Total Reportable Segments $100,432 $ 89,025 $ 53,646 $ 45,495
Income from continuing oper-
ations before income taxes:
Forged and Cast Rolls $ 3,222 $ 2,797 $ 1,501 $ 1,840
Air and Liquid Processing 2,437 1,863 1,319 835
Total Reportable Segments 5,659 4,660 2,820 2,675
Other expense, including
corporate costs - net (2,198) (2,864) (1,163) (1,323)
Total $ 3,461 $ 1,796 $ 1,657 $ 1,352
Income from continuing operations before taxes:
Forged and Cast Rolls $ 1,720 $ 957
Air and Liquid Processing 1,117 1,028
Total Reportable Segments 2,837 1,985
Other expense, including
corporate costs - net (1,032) (1,540)
Total $ 1,805 $ 445
Income beforeincome taxes for the
Air and Liquid Processing segment for the threesix months ended March 31,June
30, 2004 and 2003 includes approximately $475,000$718,000 and
$529,000$1,180,000, respectively, and for the three months ended June
30, 2004 and 2003 includes approximately $244,000 and $643,000,
respectively, for legal and case management costs forassociated
with personal injury claims litigation related to asbestos-containing productasbestos-
containing products and indemnity payments not expected to be
recovered from insurance carriers (see Note 10).
9. Acquisitions and Divestitures
The Corporation sold the stock of the New Castle Industries, Inc.
group of companies constituting its small Plastics Processing
Machinery segment on August 15, 2003. Results of operations for
the first quarter ofsix and three months ended June 2003 for this segment of
approximately $81,000$(190,000) and $(271,000) have been reclassified to
discontinued operations. Net sales for this segment approximated
$6,149,000$12,401,000 and $6,252,000 for the first
quarter of 2003.same periods.
In connection with the sale, the Corporation provided typical
representations and warranties to the buyer, which primarily
expire with the statutes of limitations. Losses suffered by the
buyer as a result of the Corporation's breach of representations
and warranties are reimbursable by the Corporation up to
approximately $2,000,000. The Corporation believes no additional
amounts will become due as a result of a breach.
The Corporation continues to evaluate potential acquisitions to
ensure that long-term objectives of achieving maximum shareholder
value are met.
- 910 -
10. Litigation10.Litigation and Environmental Matters (claims not in thousands)
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In addition,
claims have been asserted alleging personal injury from exposure
to asbestos-containing components historically used in some
products of certain of the Corporation's subsidiaries. Those
subsidiaries, and in some cases, the Corporation, are defendants
(among a number of defendants, typically over 50 and often over
100) in cases filed in various state and federal courts. The
following table reflects information about these cases:
For the three
months ended
March 31,
2004
Approximate open claims at endas of 21,000
periodJune 30, 2004 24,700
Gross settlement and defense $651
costs (in 000's) Claims$ 1,261
for the six months ended June 30, 2004
Approximate claims settled without payment 176
during periodor dismissed for 218
the six months ended June 30, 2004
Of the 21,00024,700 claims open, over 15,000 were made in six lawsuits
filed in Mississippi in 2002. Substantially all settlement and
defense costs in the above table were paid by insurers.
On February 7, 2003, Utica Mutual Insurance Company ("Utica")
filed a lawsuit in the Supreme Court of the State of New York,
County of Oneida ("Oneida County Litigation") against the
Corporation and certain of the subsidiaries named in the
underlying asbestos actions (the "Policyholder Defendants") and
three other insurance carriers that provided primary coverage to
the Corporation (the "Insurer Defendants"). In the lawsuit,
Utica disputed certain coverage obligations to the Policyholder
Defendants and asserted that the Insurer Defendants also had
defense and indemnity obligations to the Policyholder Defendants.
As of November 24, 2003, the Policyholder Defendants and Utica
had settled the Oneida County Litigation as among themselves,
although the Oneida County Litigation remained pending because
settlement had not been reached with all of the Insurer
Defendants. Pursuant to the settlement, Utica accepted financial
responsibility, subject to the limits of its policies and based
on fixed defense percentages and specified indemnity allocation
formulas, for a substantial majority of the costs of responding
to asbestos personal injury claims arising out of exposure to
alleged asbestos-
containingasbestos-containing components in products distributed by
the Policyholder Defendants that are subsidiaries of the
Corporation. Utica's agreed share of such defense and
indemnification costs varies depending upon the alleged asbestos-containingasbestos-
containing product at issue, whether Utica's primary or umbrella
policies are responsible for the claims and, for indemnification
costs only, the years of the claimant's exposure to asbestos.
- 11 -
On January 23, 2004, Utica sought the court's approval to file an
amended complaint seeking additional relief against the
Policyholder
- 10 - Defendants that is substantially identical to the
relief Utica seeks against those defendants in a separate lawsuit
filed by Howden Buffalo, Inc. ("Howden") in the United States
District Court for the Western District of Pennsylvania (the
"Pennsylvania Litigation") that is described below. Utica also
sought to add Howden as a defendant in the Oneida County
Litigation. On February 23, 2004, the Policyholder Defendants
filed an opposition to Utica's attempt to seek additional relief
against them in the Oneida County Litigation, and filed a
separate motion to dismiss them from that litigation with
prejudice. Both issues are currently pending before the Court.
On November 25, 2003, Howden filed the Pennsylvania Litigation
against the Corporation, Utica and two of the Insurer Defendants
(with Utica, the "Howden Insurer Defendants"). Howden alleges
that (1) Buffalo Forge Company, a former subsidiary of the
Corporation, or its predecessors (collectively or individually,
"Buffalo Forge") had rights in certain policies issued by the
Howden Insurer Defendants; (2) those rights were transferred in
the 1993 transaction whereby the Corporation sold all of the
capital stock of Buffalo Forge to Howden Group America, Inc. and
Howden Group Canada, Ltd.; and (3) those rights currently reside
in Howden, as successor to Buffalo Forge. In the lawsuit, Howden
is seeking a judicial determination of the rights and duties of
the Corporation and the Howden Insurer Defendants under those
policies with respect to asbestos-related personal injury claims
asserted against Howden arising from the historical operations of
Buffalo Forge, as well as monetary damages from Utica as a result
of its denial of Howden's rights under policies it issued that
allegedly covered Buffalo Forge. The Corporation intends to
defend the lawsuit vigorously, and has asserted a counterclaim
against Howden. If Howden is successful in this lawsuit and
obtains coverage from the Howden Insurer Defendants, however, any
insurance recovery obtained by Howden under those policies could
erode, in whole or in part, the applicable coverage limits, which
would reduce or eliminate coverage amounts that otherwise may be
available to the Corporation under those policies.
As one of the Howden Insurer Defendants, Utica has filed a cross-
claim against the Corporation, and a third-party complaint
against two of its subsidiaries, seeking a declaratory judgment
that, to the extent Utica has defense or indemnity obligations to
Howden: (1) Utica is entitled to contribution, subrogation and
reimbursement from the Corporation or its subsidiaries with
respect to defense and indemnity payments paid on behalf of the
Corporation or its subsidiaries; and (2) the Corporation and its
subsidiaries have no rights under the insurance contracts issued
by Utica to Buffalo Forge. The Corporation believes that Utica's
cross-claim and third party claims, as well as the similar relief
Utica now seeks in the Oneida County Litigation, are barred by a
release provided in the settlement of the Oneida County
Litigation and are otherwise without merit, and has asserted that
position in both lawsuits. If Utica is successful in obtaining
the declaratory relief it seeks, it could eliminate insurance
coverage provided to the Corporation by Utica.
The Corporation believes it has meritorious defenses to the
Howden lawsuit and Utica's cross claims. In addition, based on
the Corporation's claims experience to date with the underlying
asbestos
- 12 -
claims, the available insurance coverage and the identity of the
subsidiaries that are named in the cases, the Corporation
believes that the pending legal proceedings will not have a
material adverse effect on its consolidated financial condition
or liquidity. The
- 11 - outcome of particular lawsuits, however, could
be material to the consolidated results of operations of the
period in which the costs, if any, are recognized.
There can be no assurance that the Corporation or certain of its
subsidiaries will not be subjected to significant additional
claims in the future or that the Corporation's or its
subsidiaries' ultimate liability with respect to these claims
will not present significantly greater and longer lasting
financial exposure than presently contemplated. The Corporation
has made an accrual in its financial statements to reflect its
estimated share of costs for pending asbestos claims, based on
deductible and similar features of its relevant insurance
policies. In addition, the Corporation incurred uninsured legal
costs in connection with advice on certain matters pertaining to
these asbestos cases including insurance litigation and other
issues. Those costs amounted to approximately $500,000 in$728,000 and
$223,000 for the first quarter ofsix and three months ended June 30, 2004,
respectively, in comparison to $600,000$1,273,000 and $669,000 for the
first
quartersame periods of 2003.the prior year.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection with
the sale of real estate previously owned and has been named a
Potentially Responsible Party at one third-party landfill site
used by a division that was previously sold. In addition, as a
result of the sale of the Plastics Processing Machinery segment,
the Corporation retained the liability to remediate certain
environmental contamination at two of the sold locations and has
agreed to indemnify the buyer against third-party claims arising
from the discharge of certain contamination from one of these
locations at a cost estimate of $2,100,000 which will be paid
over several years and was provided for in the third quarter of
2003. 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.
However, in the opinion of management, the potential liability
for all environmental proceedings based on information known to
date has been adequately reserved.
- 1213 -
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
The Executive Overview of Management's Discussion and Analysis
should be read in conjunction with the consolidated financial
statements and notes thereto incorporated by reference in Ampco-
Pittsburgh Corporation's (the Corporation) annual report to
shareholders on Form 10-K for the year ended December 31, 2003.
The Corporation operates in two business segments - the Forged and
Cast Rolls segment and the Air and Liquid Processing segment. The
Corporation's businesses are cyclical and have been affected by the
severe downturn in the economy and lack of capital spending by the
manufacturing sector.
The improvement in demand from the global steel industry for forged
and cast rolls, which began in latter part of 2003, resulted in the
segment having its largesthas created a
strong backlog (unfilled orders on hand) for
many years.. The weakening of the
dollar and the British pound, particularly in relation to the Euro,
has improved export sales. The exception being the weaker dollar
to the British pound which has adversely impacted sales from the
United Kingdom to U.S. customers. Escalation in the price of steel
scrap and alloys to unprecedented levels together with the high
cost of natural gas has significantly reduced margins. Although
raw material surcharges and price increases have been implemented
on new orders, margins will not begin to improve until the latter
part of 2004 due to the existing high level of backlog.
Because of long lead times for certain products, the Air and Liquid
Processing segment was not affected by the weak economy until 2003.
Similarly, any rebound in the economy will not immediately improve
operating results. In particular, demand for lube oil pumps is
expected to remain at low levels for the foreseeable future due to
an oversupply of gas turbines in the market. TheDespite a higher
level of backlog which is primarily due to one large, low-margin
contract, the segment is also being impacted by an escalationa slow down in
commodity pricesdemand from the construction industry and becausethe resultant reduction
in margins following aggressive pricing by competitors as a reduced
level of severe competition only a portion can be passed onto customers.potential business is pursued. A significant increase in
the level of capital spending by the manufacturing sector is
necessary before earnings willare likely to improve.
Operations for the Six and Three Months Ended March 31,June 30, 2004 and 2003
Net Sales. Net sales for the six and three months ended March 31,June 30,
2004 were $46,787,000$100,432,000 and $53,646,000, respectively, compared to
$43,530,000$89,025,000 and $45,495,000 for the same periodperiods of 2003. A
discussion of the firstyear-to-date and second quarter sales for the
Corporation's two segments is included below. BacklogOrder backlogs
approximated $133,331,000$130,516,000 at March 31,June 30, 2004 in comparison to
$112,923,000 at December 31, 2003 with improvement at2003. The increase is attributable to
improvements in backlog for each of the segments.
Costs of Products Sold. Costs of products sold, excluding
depreciation, remained consistent at 78.6%were 79.8% and 79.1%78.3% of net sales for the six months
ended June 30, 2004 and 2003, respectively, and 80.9% and 77.6% of
net sales for the three
- 14 -
months ended March 31,June 30, 2004 and 2003, respectively. The increase is
due to product mix as well as higher raw material and natural gas
costs particularly for the Forged and Cast Rolls segment.
Selling and Administrative. Selling and administrative expenses
were comparable for the six and three months ended March 31,June 30, 2004 are comparable to
that of the same periods of the prior year. Volume-related
expenses such as commissions increased in connection with the
higher sales levels, however, were offset by lower legal costs for
case management and 2003.
- 13 -insurance recovery relating to lawsuits filed
in connection with asbestos-containing products manufactured
decades ago.
Income from Operations. Income from operations for the six and
three months ended March 31,June 30, 2004 approximated $1,622,000$3,193,000 and
$1,571,000, respectively, in comparison to $690,000$2,197,000 and
$1,507,000 for the same periodperiods of the prior year. A discussion of
firstyear-to-date and second quarter results for the Corporation's two
segments is included below.
Forged and Cast Rolls. Sales and operating income for the six and three months ended
March 31,June 30, 2004 were better thanimproved over the comparable prior year period.periods. A
strong backlogstronger demand by the steel industry contributed to the increase
in sales, including an improvement in the level of export sales
which have also been aided by more favorable foreign exchange
rates. SignificantlyThe benefit to operating income from the additional volume
was offset by higher natural gas, steel scrap and raw material costs havealloy costs.
Additionally, the quarter was negatively impacted by one-time
operational problems at the U.K. facility resulting in a loss for
the quarter against operating results.income for the prior year quarter.
Raw material surcharges have been added to the selling price of
incoming orders; however, the level of order backlog is such that
it will be towards year end before the escalation in costs will
begin to be recovered. Backlog approximated $97,403,000$95,726,000 as of March
31,June
30, 2004 in comparison to $79,515,000$74,420,000 as of March 31,June 30, 2003. The
increase is reflective of the improvement in demand for both the
U.S. and U.K. operations and closure of several foreign
competitors.
Air and Liquid Processing. DespiteSales and operating income improved for
the decrease in sales for thesix and three months ended March 31,June 30, 2004 againstin comparison to the
comparablesame periods of the prior year period, earnings improved slightly due primarily to additional volume
for the pumps business, which benefited from an increase in
shipments of replacement pumps parts. However, reduced spendingWhile sales for the quarter for
the air handling company improved from higher order intake earlier
in the construction marketsyear, sales and operating income for capital equipment resulted in lower
saleseach of air handling units andthe periods
improved only marginally because of competitive market constraints.
Results for the heat exchange equipment. Thecoil operations remain inline with
the prior year periods. Although this segment wascontinues to be
adversely impacted by legal and case management costs forassociated
with personal injury claims and insurance recovery litigation
related to asbestos-
containing productassociated with asbestos-containing products and indemnity payments
not expected to be recovered from insurance carriers, ofthese costs
decreased by approximately $475,000$462,000 and $529,000$399,000 for the first quartersix and
three months ended June 30, 2004 against the same periods of 2004 and 2003, respectively.the
prior year. Backlog approximated $35,928,000$34,790,000 as of March 31,June 30, 2004
in comparison to $29,095,000$26,609,000 as of March 31,June 30, 2003; the increase is
attributable to one large contract for air handling units.
Other Income (Expense). The fluctuation in otherOther income (expense) for the six and
three months ended June 30, 2004 approximated $268,000 and $86,000,
respectively, in comparison to other expense of $(401,000) and
$(155,000)
- 15 -
for the six and three months ended in 2003, respectively. The
change is attributabledue primarily to gains on foreign exchange gains realizedtransactions
in the
first quarter 2004 principally due to the strengthening of the
British pound against the dollar in comparison toversus losses on foreign exchange transactions in 2003.
Income Taxes. The effective tax rate for continuing operations for
the six months ended June 30, 2004 approximated 40.8% and for the
three months ended March 31,June 30, 2004 approximated 33.0%49.3% in comparison
to 65.7%59.5% and 57.5% for the comparable prior year period.periods. The 2003
effective rate includes establishing valuation allowances against
certain foreign net operating losses and foreign tax credits.
Discontinued Operations. IncomeLoss from discontinued operations
includes, net of tax, the results of operations for the Plastic
Processing Machinery segment which was sold in August 2003. This
segment earnedincurred pre-tax incomelosses of approximately $81,000$(190,000) and
$(271,000) for the six and three months ended March 31,June 30, 2003 on
sales of $6,149,000.$12,401,000 and $6,252,000 for the respective periods.
Net Income. As a result of all of the above, the Corporation
earned net income for the six and three months ended March 31,June 30, 2004
of $1,208,000$2,048,000 and $840,000, respectively, in comparison to $197,000$588,000
and $391,000, respectively, for the six and three months ended March 31,June
30, 2003.
Liquidity and Capital Resources
Net cash flows provided by operating activities amounted to
$2,170,000$4,328,000 for the threesix months ended March 31,June 30, 2004 in comparison to
$(2,281,000)
- 14 -$3,208,000 for the threesix months ended March 31,June 30, 2003. The improvement is due
primarily to higher earnings and reimbursement of value-added taxes
for the U.K. operations during the first quarter of 2004.
Net cash flows provided byused in investing activities were $142,000$1,761,000 for the
threesix months ended March 31,June 30, 2004 in comparison to a net use of
$1,187,000and $2,635,000 for the threesix months
ended March 31,June 30, 2003. Capital expenditures approximated $1,299,000$3,222,000
and $970,000,$2,405,000, respectively, for the same periods then ended. As
of March 31,June 30, 2004, future capital expenditures totaling $5,593,000$5,342,000
have been approved. Funds on-hand, funds generated by future
operations, proceeds from U.K. government grants of which $923,000
has been received to date and available lines of credit are
expected to be sufficient to finance capital expenditure
requirements. The Corporation also received the final proceeds
from the sale of its Plastics Processing Machinery segment of
$500,000 during the first quarter of 2004.
Net cash flows used in financing activities were $416,000$1,313,000 for the
threesix months ended March 31,June 30, 2004 and related to the payment of
quarterly dividends at a rate of $0.10 per share offset by the
proceeds from the issuance of stock under the Corporation's stock
option plan. Net cash flows used in financing activities for the
threesix months ended March 31,June 30, 2003 were $963,000$1,927,000 and related to the
payment of quarterly dividends at a rate of $0.10 per share.
The increase in the value of the British pound against the dollar
reduced cash and cash equivalents by $526,000.$262,000 for the six months
ended June 30, 2004.
The Corporation maintains short-term lines of credit in excess of
the cash needs of its businesses. The total available at March 31,June 30,
2004 was approximately $8,000,000 (including 2,100,000 British poundsGBP in the U.K.
and 400,000 EuroEuros in Belgium).
- 16 -
Litigation and Environmental Matters
See Note 10 to the consolidated financial statements.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by or on behalf of
the Corporation. Management's Discussion and Analysis and other
sections of the Form 10-Q contain forward-looking statements that
reflect the Corporation's current views with respect to future
events and financial performance. Forward-looking statements are
identified by the use of the words "believe," "expect,"
"anticipate," "estimate," "projects," "forecasts" and other
expressions that indicate future events and trends. Forward-looking
statements speak only as of the date on which such statements are
made, are not guarantees of future performance or expectations and
involve risks and uncertainties. In addition, there may be events
in the future that the Corporation is not able to accurately
predict or control which may cause actual results to differ
materially from expectations expressed or implied by forward-
looking statements. The Corporation undertakes no obligation to
update any forward-looking statement, whether as a result of new
information, events or otherwise. These forward-looking statements
shall not be deemed incorporated by
- 15 - reference by any general
statement incorporating by reference this Form 10-Q into any filing
under the Securities Act of 1933 or the Securities Exchange Act of
1934 and shall not otherwise be deemed filed under such Acts.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Corporation's exposure to
market risk from December 31, 2003.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. As of the end of the period
covered by this Form 10-Q, the Corporation evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures. Disclosure controls and procedures are
the controls and other procedures designed to ensure that the
information required to be disclosed in reports filed with or
submitted to the SEC are recorded, processed, summarized and
reported in a timely manner. Robert A. Paul, Chief Executive
Officer, and Marliss D. Johnson, Vice President, Controller and
Treasurer, reviewed and participated in this evaluation. Based on
this evaluation, Messrs. Paul and Johnson concluded that, as of the
end of the period covered by this Form 10-Q, the Corporation's
disclosure controls were effective.
(b) Internal controls over financial reporting. Since the date of
the evaluation described above, there have not been any significant
changes in the Corporation's internal controls over financial
reporting or in other factors that could significantly affect those
controls.
- 1617 -
PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 10 to the consolidated
financial statements (Litigation and Environmental Matters)
is incorporated herein by reference.
Items 2-4None2-3 None
Item 4 Submission of Matters to a Vote of Security Holders
On April 29, 2004 at the annual meeting of shareholders,
the following individuals were elected directors of the
Corporation by the following votes:
For Withheld
Leonard M. Carroll 8,902,249 71,002
Laurence E. Paul 8,757,927 215,324
Ernest G. Siddons 8,781,379 191,872
Item 5 Other Information
The Corporation's chief executive officer and chief
financial officer have provided the certifications with
respect to the Form 10-Q that are required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002. These
certifications have been filed as Exhibits 31.1 and 31.2
and Exhibits 32.1 and 32.2, respectively.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation and By-laws
(a) Articles of Incorporation
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1983,
March 31, 1984, March 31, 1985, March 31, 1987 and
September 30, 1998.
(b) By-laws
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996
and June 30, 2001.
Attached hereto as Exhibit 3 is an amendment to
the by-laws adopted by the Board of Directors of
the Corporation as of June 1, 2004 amending
Article II, Section 8 and Article III, Sections 4
and 5.
- 18 -
4. Instruments defining the rights of securities holders
(a) Rights Agreement between Ampco-Pittsburgh Corporation
and Chase Mellon Shareholder Services dated as of
September 28, 1998.
Incorporated by reference to the Form 8-K Current
Report dated September 28, 1998.
10. Material Contracts
(a) 1988 Supplemental Executive Retirement Plan
Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996.
(b) Severance Agreements between Ampco-Pittsburgh
Corporation and certain officers and employees of
Ampco-
PittsburghAmpco-Pittsburgh Corporation.
- 17 -
Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30,
1988; the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994; the Annual
Report on Form 10-K for fiscal year ended December
31, 1994; the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997; the Annual Report on
Form 10-K for the fiscal year ended December 31,
1998; and the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
(c) 1997 Stock Option Plan, as amended.
Incorporated by reference to the Proxy Statements
dated March 14, 1997 and March 15, 2000.
31. Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32. Section 1350 Certifications
(1) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Dated January 27,April 21, 2004 announcing the Corporation's results
for 2003.
Dated February 13, 2004 announcing revision to the Corporation's results for 2003.three months ended March 31, 2004.
- 1819 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMPCO-PITTSBURGH CORPORATION
DATE: May 7,August 5, 2004 BY: s/Robert A. Paul
Robert A. Paul
PresidentChairman and
Chief Executive Officer
DATE: May 7,August 5, 2004 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
- 1920 -
AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit 3 - Articles of Incorporation and By-laws
Amendment to the by-laws adopted by the Board of
Directors of the Corporation as of June 1, 2004
Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 - Section 1350 Certifications
(1) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- 2021 -