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 June 30, 2001
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 August 14, 2001, 9,604,021 common shares were
outstanding.
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AMPCO-PITTSBURGH CORPORATION
INDEX
Page No.
Part I - Financial Information:
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations-
Six Months Ended June 30, 2001 and 2000;
Three Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
- -
Six Months Ended June 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12
Item 3 - Quantitative and Qualitative
Disclosures About Market Risk 16
Part II - Other Information:
Item 1 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of
Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 20
Exhibit Index 21
Exhibits
- Exhibit 3
- 2 -
PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2001 2000
Assets
Current assets:
Cash and cash equivalents $ 17,021,281 $ 17,861,531
Receivables, less allowance for
doubtful accounts of $638,911 in
2001 and $626,722 in 2000 45,121,881 49,181,086
Inventories 48,113,869 48,010,609
Other 5,411,685 5,701,751
Total current assets 115,668,716 120,754,977
Property, plant and equipment, at cost:
Land and land improvements 5,386,820 5,650,911
Buildings 30,097,725 31,476,129
Machinery and equipment 140,319,351 142,662,151
175,803,896 179,789,191
Accumulated depreciation 85,785,496 86,349,981
Net property, plant and equipment90,018,400 93,439,210
Prepaid pension 18,454,521 17,196,123
Other noncurrent assets 14,532,556 13,073,722
$238,674,193 $244,464,032
Liabilities and Shareholders' Equity
Current liabilities:
Note payable to bank $ - $ 2,000,000
Accounts payable 12,984,945 13,779,501
Accrued payrolls and employee benefits 8,492,660 8,332,985
Other 13,688,978 10,507,330
Total current liabilities 35,166,583 34,619,816
Employee benefit obligations 16,228,893 16,310,473
Industrial Revenue Bond debt 14,661,000 14,661,000
Deferred income taxes 13,695,469 15,816,670
Other noncurrent liabilities 2,881,700 579,160
Total liabilities 82,633,645 81,987,119
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 9,602,621 in 2001
and 2000 9,602,621 9,602,621
Additional paid-in capital 102,780,980 102,780,980
Retained earnings 46,979,981 52,385,164
Accumulated other comprehensive loss (3,323,034) (2,291,852)
Total shareholders' equity 156,040,548 162,476,913
$238,674,193 $244,464,032
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, Three Months Ended June 30,
2001 2000 2001 2000
Net sales $112,788,448 $118,143,598 $ 56,620,664 $ 57,981,274
Operating costs and expenses:
Cost of products sold
(excluding depreciation) 87,127,679 86,294,414 44,355,905 42,689,855
Selling and administrative 17,275,418 15,334,730 9,321,754 7,299,048
Depreciation 4,148,248 3,939,332 2,063,785 1,908,621
Restructuring charges 7,280,000 - 360,000 -
115,831,345 105,568,476 56,101,444 51,897,524
Income (loss) from operations (3,042,897) 12,575,122 519,220 6,083,750
Other expense - net (1,806,762) (170,149) (1,417,420) (13,405)
Income (loss)before
income taxes (4,849,659) 12,404,973 (898,200) 6,070,345
Income tax (benefit)
provision (1,365,000) 4,208,000 (114,000) 2,038,000
Net income (loss) $ (3,484,659) $ 8,196,973 $ (784,200) $ 4,032,345
Basic and diluted earnings
per share $ (0.36) $ .85 $ (0.08) $ 0.42
Cash dividends declared
per share $ 0.20 $ 0.20 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,602,621 9,598,981 9,602,621 9,602,621
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2001 2000
Net cash flows provided by operating
activities $ 6,287,394 $ 8,931,614
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,685,128) (8,345,112)
Proceeds from sale of business 1,060,181 1,272,882
Proceeds from sale of investments - 1,297,248
Reimbursement of purchase price - 298,058
Net cash flows (used in) investing
activities (2,624,947) (5,476,924)
Cash flows from financing activities:
Repayment of note payable to bank (2,000,000) -
Proceeds from the issuance of
common stock - 125,000
Dividends paid (1,920,325) (1,919,274)
Net cash flows (used in) financing
activities (3,920,325) (1,794,274)
Effect of exchange rate changes on cash
and cash equivalents (582,372) (492,522)
Net (decrease) increase in cash and
cash equivalents (840,250) 1,167,894
Cash and cash equivalents at
beginning of period 17,861,531 16,322,834
Cash and cash equivalents at
end of period $ 17,021,281 $ 17,490,728
Supplemental information:
Income tax payments $ 1,199,095 $ 2,923,937
Interest payments $ 379,088 $ 421,743
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 June 30, 2001, the
consolidated statements of operations for the six and
three months ended June 30, 2001 and 2000 and the
condensed consolidated statements of cash flows for the
six months ended June 30, 2001 and 2000 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 financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. 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, 2000. The results of operations for the
period ended June 30, 2001 are not necessarily
indicative of the operating results for the full year.
2. Restructuring
In 2001, the Corporation undertook a review of its
global roll-making capacity. As a result, in March
2001, the Corporation recorded a pre-tax charge of
$6,920,000 for restructuring costs associated with the
permanent closure of its forged steel roll plant in
Belgium and, in May 2001, recorded a pre-tax charge of
$360,000 related to a workforce reduction at its cast
roll facility in England. Of these charges,
approximately $3,860,000 relates to employee severance
and pension costs for approximately 96 employees,
$2,120,000 for costs associated with the disposition of
assets, $800,000 for the release of foreign currency
translation adjustments recorded within accumulated
other comprehensive loss, and $500,000 for various other
costs. As of June 30, 2001, approximately $2,500,000 of
the reserve had been utilized (primarily related to
employee severance and pension costs and release of
foreign currency translation adjustments). It is
estimated that the majority of the remaining costs will
be paid by March 2002.
3. Derivatives
Certain of the Corporation's operations are subject to
risk from exchange rate fluctuations in connection with
regular inventory purchases in U.S. dollars and sales
contracts in foreign currencies. To minimize these
risks, forward foreign exchange contracts are purchased.
In addition, another operation is subject to risk from
changes in price of a significant raw material. To
minimize this risk, future contracts are purchased. The
Corporation does not enter into
derivative transactions for speculative purposes and,
therefore, holds no derivative instruments for trading
purposes.
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As of January 1, 2001, the Corporation adopted Statement
of Financial Accounting Standard (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging
Activities", as amended. SFAS No. 133 requires each
derivative instrument to be recorded in the balance
sheet as either an asset or liability measured at its
fair value. The accounting for changes in the fair
value of a derivative will depend on the use of the
derivative. To the extent that a derivative is
effective as a hedge of a future exposure to changes in
value, the fair value of the derivative will be deferred
in other comprehensive income (loss). Any portion
considered to be ineffective will be reported in
earnings immediately. As of the date of adoption, the
impact of SFAS No. 133 did not have a material impact on
the Corporation. During the six months ended June 30,
2001, approximately $182,000 was recorded in other
comprehensive income (loss).
The Financial Accounting Standards Board's (FASB)
Derivatives Implementation Group (DIG) continues to
identify and provide guidance on various implementation
issues related to SFAS No. 133 that are in varying
stages of review and clearance by the DIG and FASB. The
Corporation is currently evaluating the impact of these
issues.
4. Inventories
At June 30, 2001 and December 31, 2000, approximately
70% and 64% respectively, of the inventories are valued
on the LIFO method, with the remaining inventories being
valued on the FIFO method. Inventories are comprised of
the following:
(in thousands)
June 30, December 31,
2001 2000
Raw materials $13,926 $12,315
Work-in-process 23,598 26,422
Finished goods 5,933 4,383
Supplies 4,657 4,891
$48,114 $48,011
5. Comprehensive (Loss) Income
The Corporation's comprehensive (loss) income for the
six and three months ended June 30, 2001 and 2000
consisted of:
(in thousands)
Six Months Ended Three Months Ended
June 30,
June 30,
2001 2000 2001 2000
Net (loss) income $(3,485) $ 8,197 $ (784) $ 4,032
Foreign currency
translation (730) (1,333) 927 (564)
Unrealized holding (losses)
gains on marketable
securities (119) (86) 134 43
Change in fair value
of derivatives (182) - (43) -
Comprehensive (loss)
income $(4,516) $6,778 $ 232 $ 3,511
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6. Earnings Per Share
Basic earnings per share is computed by dividing net
income by the weighted average number of common shares
outstanding for the period. The weighted average number
of common shares outstanding for the six and three
months ended June 30, 2001 equaled 9,602,621 shares.
The weighted average number of common shares outstanding
for the six and three months ended June 30, 2000 equaled
9,598,981 and 9,602,621 shares, respectively.
The computation of diluted earnings per share is similar
to basic earnings per share except that the denominator
is increased to include 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 9,636,843 and 9,625,997 shares for the six
and three months ended June 30, 2001, respectively, and
9,616,388 and 9,620,915 for the six and three months
ended June 30, 2000, respectively.
7. Business Segments
Presented below are the net sales and income (loss)
before taxes for the Corporation's three business
segments.
Six Months Ended Three Months Ended
June 30, June 30,
2001 2000 2001 2000
Net Sales:
Forged and Cast Rolls $ 49,054 $ 62,014 $ 24,877 $ 29,634
Air and Liquid
Processing 48,658 38,476 24,943 19,384
Plastics Processing
Machinery 15,076 17,654 6,801 8,963
Total Reportable
Segments $112,788 $118,144 $ 56,621 $ 57,981
Income (loss) before taxes:
Forged and Cast Rolls$ (6,329) $ 7,238 $ (220) $ 3,488
Air and Liquid
Processing 3,421 4,362 983 2,255
Plastics Processing
Machinery (135) 975 (244) 341
Total Reportable
Segments (3,043) 12,575 519 6,084
Other expense - net (1,807) (170) (1,417) (14)
Total $ (4,850) $ 12,405 $ (898) $ 6,070
Income (loss) before taxes for the six and three months
ended June 30, 2001 for the Forged and Cast Rolls
segment includes restructuring charges of $7,280,000 and
$360,000, respectively. In addition, income (loss)
before taxes for the Air and Liquid Processing segment
for the six and three months ended June 30, 2001
includes litigation costs of approximately $1,900,000.
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Other expense - net for the six and three months ended
June 30, 2001 include charges of approximately
$1,040,000 primarily for foreign currency translation
losses incurred on the sale of a small feed roll
business (Note 8) and environmental costs expected to be
incurred for a previously discontinued business (Note
9).
8. Divestitures
In May 2001, the Corporation sold the net assets,
excluding primarily trade receivables and payables, of
its small feed roll business in England for
approximately $1,060,000. A loss of approximately
$490,000 was recognized which related primarily to the
release of foreign currency translation losses
previously recorded as a component of other
comprehensive income (loss).
In March 2000, the Corporation sold the net assets,
excluding accounts receivables, of the small roll
division of The Davy Roll Company for approximately net
book value. Also in March 2000, the Corporation sold
the remaining discontinued operation property, which it
carried as an investment, for its carrying value of
approximately $1,300,000.
9. Litigation and Environmental Matters
The Corporation's subsidiary, Vulcan Inc. (Vulcan), is a
50% general partner in Valley-Vulcan Mold Company
(Valley), a partnership, which filed under Chapter 11 of
the U.S. Bankruptcy Code in 1990. Valley, in connection
with its formation, assumed certain obligations of each
of the partners, including Vulcan's obligation to pay an
industrial revenue bond. A portion of the latter
obligation, however, had been paid by the Corporation
pursuant to a guaranty given at the time of Valley's
formation, which guaranty was secured by all of Valley's
assets. In 1991, the unsecured creditors committee
brought an adversary proceeding against the Corporation
and Vulcan, as well as others, seeking to set aside the
Corporation's liens, to hold the Corporation and Vulcan
liable for debts of Valley, and for return of certain
funds received in connection with Valley's formation.
In April 1994, the Bankruptcy Court (Court) issued a
favorable judgment denying all claims against the
Corporation. In addition, the Court permitted the
Corporation to recover $2,200,000 from the estate of
Valley in connection with the Corporation's lien for the
industrial revenue bond guaranty. Subsequently, the
unsecured creditors committee appealed this judgment;
however, in August 1999, the Bankruptcy Appellate Panel
for the Sixth Circuit (BAP) affirmed the Court's
decision in favor of the Corporation. The unsecured
creditors committee appealed the BAP's decision to the
United States Court of Appeals for the Sixth Circuit
(Court of Appeals). In February 2001, the Court of
Appeals affirmed the Court's decision in favor of the
Corporation. The deadline has now passed for plaintiffs
to file either a petition for rehearing with the Sixth
Circuit or a petition for certiorari with the United
States Supreme Court. Therefore, this matter is now
concluded.
In April, 2001, Buffalo Air Handling Company (BAH) was
joined as a defendant in a lawsuit previously filed by
St. Jude Children's Research Hospital (Hospital) in the
United States District Court for the Western District of
Tennessee at No. 00-2243 M1 A against Turner
Construction Company, Henningsen, Durham & Richardson,
and Howden Fan Company (Howden). The litigation arises
out of alleged defects in the air
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handling system installed at the Hospital. The Hospital
is seeking $3.8 million in compensatory damages from the
defendants. In addition, punitive and treble damages
are being sought from certain of the defendants,
including BAH, for alleged fraud, negligent
misrepresentation, intentional inducement of breach of
contract and civil conspiracy. Howden has asserted a
separate claim against BAH for indemnification of all
costs ultimately assessed against Howden pursuant to the
Assets Purchase Agreement (Agreement) whereby BAH
acquired the assets and business of Howden's air
handling division. BAH believes it has a right to
indemnification by Howden pursuant to the Agreement and
has filed appropriate counterclaims. The Corporation
believes that it has meritorious defenses and will
vigorously defend this lawsuit. In the second quarter
of 2001, the Corporation provided $1,900,000 for
litigation costs in connection with this case. It is
expected that the case will go to mediation in the third
quarter of 2001.
In addition to the litigation noted above, the
Corporation is from time to time subject to routine
litigation incidental to its business. The Corporation
believes that the results of the above noted litigation
and other pending legal proceedings will not have a
material adverse effect on the financial condition,
results of operations or liquidity of the Corporation.
With respect to environmental matters, the Corporation
is currently performing certain remedial actions in
connection with sales of real estate previously owned by
discontinued operations and has been named a Potentially
Responsible Party at one third-party landfill site used
by a division which was previously sold. The reserves
for discontinued operations include an accrual for costs
of likely remedial actions. In the second quarter of
2001, the Corporation recorded an additional $550,000
for costs estimated to be incurred with respect to the
remediation of real estate previously owned by a
discontinued operation.
Certain of these environmental exposures are more
difficult to assess and estimate for numerous reasons
including lack of reliable data, the multiplicity of
possible solutions and the years of remedial and
monitoring activity required. While it is not possible
to quantify with certainty the environmental exposure,
in the opinion of management, the potential liability
for all environmental matters, based on information
known to date and the estimated quantities of waste at
these sites, will not have a material adverse effect on
the financial condition, results of operations or
liquidity of the Corporation.
10. Recently Issued Accounting Pronouncements
In June 2001, the FASB unanimously voted in favor of
SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141
requires that the purchase method of accounting be used
for all business combinations completed after June 30,
2001. SFAS No. 141 also specifies the types of acquired
intangible assets that are required to be recognized and
reported separately from goodwill and those acquired
intangible assets that are required to be included in
goodwill.
SFAS No. 142 will require that goodwill no longer be
amortized, but instead tested for impairment at least
annually. SFAS No. 142 will also require recognized
intangible assets to be amortized over their respective
estimated useful lives and reviewed for impairment in
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accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Any recognized intangible
asset determined to have an indefinite useful life will
not be amortized, but instead tested for impairment
until its life is determined to no longer be indefinite.
The Corporation is required to adopt the provisions of
SFAS No. 141 and SFAS No. 142 on January 1, 2002, with
the exception of the immediate requirement to use the
purchase method of accounting for business combinations
completed after June 30, 2001; and, any goodwill or
other intangible asset determined to have an indefinite
useful life that is acquired in a business combination
completed after June 30, 2001 will not be amortized.
Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue
to be amortized until December 31, 2001.
SFAS No. 141 will require the Corporation to evaluate
its existing intangible assets and goodwill and to make
necessary reclassifications to conform with the new
separation requirements at the date of
adoption. Upon adoption of SFAS No. 142, the
Corporation will be required to reassess the useful
lives and residual values of its intangible assets and
make any necessary adjustment to the amortization
periods by March 31, 2002.
The Corporation is currently evaluating the impact of
the new accounting standards on existing goodwill and
other intangible assets. While the complete impact of
the new accounting standards has yet to be determined,
amortization expense for goodwill for the six and three
months ended June 30, 2001 approximated $145,000 and
$73,000, respectively.
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ITEM 2 - AMPCO-PITTSBURGH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operations for the Six and Three Months Ended June 30, 2001
and 2000
In 2001, the Corporation undertook a review of its global
roll-making capacity. As a result, in March 2001, the
Corporation recorded a pre-tax charge of $6,920,000 for
restructuring costs associated with the permanent closure of
its forged steel roll plant in Belgium and, in May 2001,
recorded a pre-tax charge of $360,000 related to a workforce
reduction at its cast roll facility in England. Of these
charges, approximately $3,860,000 relates to employee
severance and pension costs for approximately 96 employees,
$2,120,000 for costs associated with the disposition of
assets, $800,000 for the release of foreign currency
translation adjustments recorded within accumulated other
comprehensive loss, and $500,000 for various other costs.
As of June 30, 2001, approximately $2,500,000 of the reserve
had been utilized (primarily related to employee severance
and pension costs and release of foreign currency
translation adjustments). It is estimated that the majority
of the remaining costs will be paid by March 2002. In
addition, in the second quarter of 2001, the Corporation
provided $1,900,000, pretax, for litigation costs related to
a lawsuit filed in the quarter and $1,040,000, pretax, for
foreign currency translation losses resulting from the sale
of its small feed roll business in England and environmental
costs of a previously discontinued business. In summary,
the first quarter was adversely impacted by a one-time
pretax charge of $6,920,000 and the second quarter by one-
time pretax charges and the charge for litigation costs of
$3,300,000.
Net Sales. Net sales for the six and three months ended
June 30, 2001 were $112,788,000 and $56,621,000,
respectively, compared to $118,144,000 and $57,981,000 for
the same periods of 2000, respectively. A discussion of the
second quarter and year-to-date sales for the Corporation's
three segments is included below. Order backlogs
approximated $112,091,000 at June 30, 2001 in comparison to
$115,552,000 at December 31, 2000. The decrease is due to a
reduction in the backlogs of the Forged and Cast Rolls and
the Plastics Processing Machinery segments offset by an
improvement in backlog for the Air and Liquid Processing
segment.
Cost of Products Sold. The cost of products sold, excluding
depreciation, equaled 77.2% and 78.3% of net sales for the
six and three months ended June 30, 2001, respectively,
compared to 73.0% and 73.6%, respectively, for the six and
three months ended June 30, 2000, respectively. The
increase is due primarily to lower production volumes for
the roll and plastics operations and significantly reduced
selling prices.
Income (Loss) from Operations. The Corporation incurred a
loss from operations of $3,043,000 for the six months ended
June 30, 2001, but earned $519,000 for the three months
ended June 30, 2001. Excluding the aforementioned
restructuring and litigation charges, income from operations
would have approximated $6,137,000 and $2,779,000,
respectively, for the six and three months ended June 30,
2001, which compares to $12,575,000 and $6,084,000 for the
same periods of the prior year. A discussion of the second
quarter and year-to-date results for the Corporation's three
segments is included below.
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Forged and Cast Rolls. Sales for the Forged and Cast Rolls
segment decreased for the six and three months ended June
30, 2001 by $12,960,000 to $49,054,000 and by $4,757,000 to
$24,877,000, respectively, against the comparable prior year
periods. As a result of the restructuring charges, the
forged and cast rolls segment incurred an operating loss of
$6,329,000 and $220,000 for the six and three months ended
June 30, 2001. Excluding the restructuring charges,
operating income would have been $951,000 and $140,000
respectively, for the six and three months ended June 30,
2001, a decrease of $6,287,000 and $3,348,000 from the
comparable prior year periods. Sales and operating income
were negatively impacted by severe economic downturn in the
U.S. and U.K. steel industries resulting in lower demand and
an erosion of selling prices. In addition, the strength of
the U.S. dollar and the British pound sterling has
negatively impacted export sales and impaired gross margins.
Air and Liquid Processing. For the six months ended June
30, 2001, sales for the Air and Liquid Processing segment
increased $10,182,000 to $48,658,000 and for the three
months ended June 30, 2001 increased $5,559,000 to
$24,943,000. The improvement is attributable to an increase
in pump sales primarily to original equipment manufacturers
(OEM) serving the energy sector and to the growth in the
sale of air handling systems, particularly to the
pharmaceutical and institutional markets. In comparison to
the same periods of the prior year, earnings were negatively
impacted by litigation costs of $1,900,000 covering alleged
defects in an air handling system manufactured more than six
years ago, attributing to the decrease in earnings of
$941,000 to $3,421,000 for the six months ended June 30,
2001 and a decrease of $1,272,000 to $983,000 for the three
months ended June 30, 2001. Excluding this charge,
operating results improved for the pumps and air handling
businesses and offset the poorer results for the heat
exchange coil business, which is principally being impacted
by the weak industrial economy.
Plastics Processing Machinery. Sales for the Plastics
Processing Machinery segment for the six-month period ended
June 30, 2001 decreased by $2,578,000 to $15,076,000 and for
the three-month period ended June 30, 2001 decreased
$2,162,000 to $6,801,000 in comparison to the same periods
of the prior year. In addition, earnings decreased
$1,110,000 to an operating loss of $135,000 for the six
months ended June 30, 2001 and decreased $585,000 to an
operating loss of $244,000 for the three months ended June
30, 2001 in comparison to the same periods of the prior
year. The decrease is attributable to a significant
nationwide downturn in sales of plastic producing machinery
and lower business activity levels of plastic processors.
The impact on the segment has been a substantial reduction
in volume and selling prices, in particular, to OEM
customers.
Other Expense - net. Other expense - net for the six and
three months ended June 30, 2001 of $1,807,000 and
$1,417,000, respectively, compares to other expense - net of
$170,000 and $14,000 for the comparable periods in 2000.
The increase in expense is due primarily to the loss on the
sale of the small feed roll business in May 2001 (which
related primarily to the release of foreign currency
translation adjustments previously recorded in accumulated
other comprehensive loss) and recognition of additional
environmental costs estimated to be incurred with respect to
the remediation of real estate previously owned by a
discontinued operation.
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Income taxes. The effective tax rate for the six and three
months ended June 30, 2001 approximated (28.1%) and (12.7%),
respectively, in comparison to 33.9% and 33.6% for the
comparable prior year periods. The reduction is due
primarily to release of foreign currency translation losses
(for which no tax benefit is provided) resulting from the
sale of the small feed roll business in England.
Net Income. As a result of all of the above, the
Corporation had a net loss for the six and three months of
2001 of $3,485,000 and $784,000, respectively. This compares
with net income of $8,197,000 and $4,032,000 for the
comparable prior year periods.
Liquidity and Capital Resources
Net cash flows from operating activities were positive for
the six months ended June 30, 2001 at $6,287,000 in
comparison to positive cash flows of $8,932,000 for the six
months ended June 30, 2000. The difference in cash flows
between the two periods results primarily from changes in
working capital.
Net cash flows used in investing activities were $2,625,000
in 2001 compared to $5,477,000 in 2000. Capital
expenditures for 2001 totaled $3,685,000 compared to
$8,345,000 in 2000. Capital expenditures carried forward
from June 30, 2001 approximate $9,249,000. Funds on-hand,
funds generated by future operations and available lines of
credit are expected to be sufficient to finance capital
expenditure requirements. In May 2001, the Corporation sold
the net assets, excluding primarily trade receivables and
payables of its small feed roll business in England for
approximately $1,060,000. In March 2000, the Corporation
sold the net assets, excluding accounts receivables, of the
small roll division of Davy for approximately $1,673,000. A
portion of the proceeds included a $400,000 note which was
paid in September 2000 as well as an additional $100,000 on
a long-term note originally deemed to have no present value.
Also in March 2000, the Corporation sold the remaining
discontinued operation property, which it carried as an
investment, for its carrying value of approximately
$1,300,000. In May 2000, approximately $300,000 of the
purchase price for The Davy Roll Group (Davy) was returned
to the Corporation based on the balance sheet of Davy as of
the date of acquisition.
Net cash flows used in financing activities were $3,920,000
for 2001 and $1,794,000 for 2000 and include payment of
quarterly dividends at a rate of $0.10 per share. In
addition, the Corporation repaid in 2001, $2,000,000 of
short-term borrowings which were outstanding as of December
31, 2000. In first quarter 2000, proceeds were received
from the issuance of common stock under the Corporation's
stock option plan.
The Corporation maintains short-term lines of credit in
excess of the cash needs of its businesses. The total
available at June 30, 2001 was approximately $3,500,000.
In April, 2001, Buffalo Air Handling Company (BAH) was
joined as a defendant in a lawsuit previously filed by St.
Jude Children's Research Hospital (Hospital) in the United
States District Court for the Western District of Tennessee
at No. 00-2243 M1 A against Turner Construction Company,
Henningsen, Durham & Richardson, and Howden Fan Company
(Howden). The litigation arises out of alleged defects in
the air handling system installed at the Hospital. The
Hospital is seeking $3.8 million in
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compensatory damages from the defendants. In addition,
punitive and treble damages are being sought from certain of
the defendants, including BAH, for alleged fraud, negligent
misrepresentation, intentional inducement of breach of
contract and civil conspiracy. Howden has asserted a
separate claim against BAH for indemnification of all costs
ultimately assessed against Howden pursuant to the Assets
Purchase Agreement (Agreement) whereby BAH acquired the
assets and business of Howden's air handling division. BAH
believes it has a right to indemnification by Howden
pursuant to the Agreement and has filed appropriate
counterclaims. The Corporation believes that it has
meritorious defenses and will vigorously defend this
lawsuit. In the second quarter of 2001, the Corporation
provided $1,900,000 for litigation costs in connection with
this case. It is expected that the case will go to
mediation in the third quarter of 2001.
In addition to the litigation noted above, the Corporation
is from time to time subject to routine litigation
incidental to its business. The Corporation believes that
the results of the above noted litigation and other pending
legal proceedings will not have a material adverse effect on
the financial condition, results of operations or liquidity
of the Corporation.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection
with sales of real estate previously owned by discontinued
operations and has been named a Potentially Responsible
Party at one third-party landfill site used by a division
which was previously sold. The reserves for discontinued
operations include an accrual for costs of likely remedial
actions. In the second quarter of 2001, the Corporation
recorded an additional $550,000 for costs estimated to be
incurred with respect to the remediation of real estate
previously owned by a discontinued operation.
Certain of these environmental exposures are more difficult
to assess and estimate for numerous reasons including lack
of reliable data, the multiplicity of possible solutions and
the years of remedial and monitoring activity required.
While it is not possible to quantify with certainty the
environmental exposure, in the opinion of management, the
potential liability for all environmental matters, based on
information known to date and the estimated quantities of
waste at these sites, will not have a material adverse
effect on the financial condition, results of operations or
liquidity of the Corporation.
Conversion to the Euro
The Corporation has identified issues that may result from
conversion to the Euro which include primarily changes to
information systems at its Belgian operation. The
Corporation does not expect the conversion to the Euro will
have a material impact on its financial condition, results
of operations or liquidity.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board's (FASB)
Derivatives Implementation Group (DIG) continues to identify
and provide guidance on various implementation issues
related to SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities, as Amended", that are in
varying stages of review and clearance by the DIG and FASB.
The Corporation is currently evaluating the impact of these
issues.
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In June 2001, the FASB unanimously voted in favor of SFAS
No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141
requires that the purchase method of accounting be used for
all business combinations completed after June 30, 2001.
SFAS No. 141 also specifies the types of acquired intangible
assets that are required to be recognized and reported
separately from goodwill and those acquired intangible
assets that are required to be included in goodwill.
SFAS No. 142 will require that goodwill no longer be
amortized, but instead tested for impairment at least
annually. SFAS No. 142 will also require recognized
intangible assets to be amortized over their respective
estimated useful lives and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Any recognized intangible asset determined to
have an indefinite useful life will not be amortized, but
instead tested for impairment until its life is determined
to no longer be indefinite.
The Corporation is required to adopt the provisions of SFAS
No. 141 and SFAS No. 142 on January 1, 2002, with the
exception of the immediate requirement to use the purchase
method of accounting for business combinations completed
after June 30, 2001; and, any goodwill or other intangible
asset determined to have an indefinite useful life that is
acquired in a business combination completed after June 30,
2001 will not be amortized. Goodwill and intangible assets
acquired in business combinations completed before July 1,
2001 will continue to be amortized until December 31, 2001.
SFAS No. 141 will require the Corporation to evaluate its
existing intangible assets and goodwill and to make
necessary reclassifications to conform with the new
separation requirements at the date of
adoption. Upon adoption of SFAS No. 142, the Corporation
will be required to reassess the useful lives and residual
values of its intangible assets and make any necessary
adjustment to the amortization periods by March 31, 2002.
The Corporation is currently evaluating the impact of the
new accounting standards on existing goodwill and other
intangible assets. While the complete impact of the new
accounting standards has yet to be determined, amortization
expense for goodwill for the six and three months ended June
30, 2001 approximated $145,000 and $73,000, respectively.
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, 2000. See Note 3
(Derivatives) for expanded disclosure of the market risks.
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PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1. Legal Proceedings
The Corporation previously reported a lawsuit
captioned Official Unsecured Creditors' Committee
of Valley-Vulcan Mold Company v. Microdot, Inc.,
Valley Mould Corporation, Ampco-Pittsburgh
Corporation and Vulcan, Inc. The lawsuit arose out
of the filing of a petition under Chapter 11 of the
United Bankruptcy Code in October, 1990 by Valley-
Vulcan Mold Company, a partnership formed in
September, 1987 (the "Partnership") of which
Vulcan, Inc. (a subsidiary of the Corporation) was
a general partner. The trial of the lawsuit was
held the week of October 4, 1993. In April 1994,
the Court issued a judgment in favor of the
Corporation. Under the Court's decision, all
claims against the Corporation were denied. All
claims against Vulcan, Inc. were also denied except
for its liability as a general partner. Vulcan's
only asset is its interest in the partnership,
which has no value and accordingly the judgment
will not have any adverse effect on the
Corporation.
The Bankruptcy Appellate Panel for the Sixth
Circuit and the United States Court of Appeals for
the Sixth Circuit both affirmed the judgment issued
by the trial court. The deadline has now passed
for plaintiffs to file either a petition for
rehearing with the Sixth Circuit or a petition for
certiorari with the United States Supreme Court.
Therefore, this matter is now concluded.
Items 2-3. None
Item 4. Submission of Matters to a Vote of Security Holders
On April 24, 2001 at the annual meeting of
shareholders, Leonard M. Carroll, Laurence E. Paul
and Ernest G. Siddons were elected directors of the
Corporation by the following votes:
For Withheld
Leonard M. Carroll 6,902,551 1,873,736
Laurence E. Paul 6,877,250 1,899,037
Ernest G. Siddons 6,825,335 1,950,952
The shareholders did not approve a shareholder
proposal urging the Board of Directors to authorize
the prompt sale of the Corporation to the highest
bidder. The vote was:
3,733,295 (For); 4,242,151 (Against); 67,118 (Abstain)
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Item 5. None
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
Report on Form 10-Q for the quarter ended
March 31, 1983; the Quarterly Report on Form
10-Q for the quarter ended March 31, 1984;
the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1985; and the
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1987.
(b) By-laws
Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1996.
Attached hereto as Exhibit 3 is an
amendment to the by-laws adopted by the
Board of Directors of the Corporation on
April 24, 2001 amending Section 9,
Nominations for Directors.
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-
Pittsburgh Corporation.
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
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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, 2000.
(c) 1997 Stock Option Plan, as amended.
Incorporated by reference to the Proxy
Statements dated March 14, 1997 and
March 15, 2000.
(b) Reports on Form 8-K
None
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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: August 14, 2001 BY: s/Robert A. Paul
Robert A. Paul
President and
Chief Executive Officer
DATE: August 14, 2001 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
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AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit 3 - Amended and restated By-laws
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