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 September 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 November 8, 2001, 9,608,897 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 -
September 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations-
Nine Months Ended September 30, 2001 and 2000;
Three Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 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 6 - Exhibits and Reports on Form 8-K 17
Signatures 19
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PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2001 2000
Assets
Current assets:
Cash and cash equivalents $ 15,335,469 $ 17,861,531
Receivables, less allowance for
doubtful accounts of $1,006,883 in
2001 and $626,722 in 2000 48,583,653 49,181,086
Inventories 47,654,050 48,010,609
Other 4,861,684 5,701,751
Total current assets 116,434,856 120,754,977
Property, plant and equipment, at cost:
Land and land improvements 5,405,865 5,650,911
Buildings 30,185,500 31,476,129
Machinery and equipment 143,251,111 142,662,151
178,842,476 179,789,191
Accumulated depreciation 87,523,801 86,349,981
Net property, plant and equipment 91,318,675 93,439,210
Prepaid pension 19,428,331 17,196,123
Other noncurrent assets 13,965,679 13,073,722
$241,147,541 $244,464,032
Liabilities and Shareholders' Equity
Current liabilities:
Note payable to bank $ - $ 2,000,000
Accounts payable 13,307,229 13,779,501
Accrued payrolls and employee benefits 9,153,977 8,332,985
Other 14,744,944 10,507,330
Total current liabilities 37,206,150 34,619,816
Employee benefit obligations 16,265,906 16,310,473
Industrial Revenue Bond debt 14,661,000 14,661,000
Deferred income taxes 12,920,988 15,816,670
Other noncurrent liabilities 2,667,047 579,160
Total liabilities 83,721,091 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 9,608,897 in 2001 and
9,602,621 in 2000 9,608,897 9,602,621
Additional paid-in capital 102,790,603 102,780,980
Retained earnings 47,660,235 52,385,164
Accumulated other comprehensive loss (2,633,285) (2,291,852)
Total shareholders' equity 157,426,450 162,476,913
$241,147,541 $244,464,032
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
2001 2000 2001 2000
Net sales $166,156,034 $170,942,483 $ 53,367,586 $ 52,798,885
Operating costs and expenses:
Cost of products sold
(excluding depreciation) 128,591,158 124,795,184 41,463,479 38,500,770
Selling and administrative 25,087,905 22,624,016 7,812,487 7,289,286
Depreciation 6,170,295 5,715,635 2,022,047 1,776,303
Restructuring charges 7,280,000 - - -
167,129,358 153,134,835 51,298,013 47,566,359
Income (loss) from operations (973,324) 17,807,648 2,069,573 5,232,526
Other income (expense):
Interest expense (517,103) (667,851) (157,452) (231,974)
Other - net (674,088) 325,983 773,023 60,255
(1,191,191) (341,868) 615,571 (171,719)
Income (loss)before
income taxes (2,164,515) 17,465,780 2,685,144 5,060,807
Income tax (benefit)
provision (321,000) 5,969,000 1,044,000 1,761,000
Net income (loss) $ (1,843,515) $ 11,496,780 $ 1,641,144 $ 3,299,807
Basic and diluted earnings
per share $ (0.19) $ 1.20 $ 0.17 $ 0.34
Cash dividends declared
per share $ 0.30 $ 0.30 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,603,630 9,600,203 9,605,616 9,602,621
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
2001 2000
Net cash flows provided by operating
activities $ 7,641,473 $ 16,571,680
Cash flows from investing activities:
Purchases of property, plant and
equipment (6,220,371) (10,465,217)
Proceeds from sale of business 1,060,000 1,760,613
Proceeds from sale of investments - 1,297,248
Reimbursement of purchase price - 298,058
Net cash flows (used in) investing
activities (5,160,371) (7,109,298)
Cash flows from financing activities:
Repayment of note payable to bank (2,000,000) -
Proceeds from the issuance of
common stock 15,900 125,000
Dividends paid (2,880,588) (2,879,537)
Net cash flows (used in) financing
activities (4,864,688) (2,754,537)
Effect of exchange rate changes on cash
and cash equivalents (142,476) (822,379)
Net (decrease) increase in cash and
cash equivalents (2,526,062) 5,885,466
Cash and cash equivalents at
beginning of period 17,861,531 16,322,834
Cash and cash equivalents at
end of period $ 15,335,469 $ 22,208,300
Supplemental information:
Income tax payments $ 1,357,263 $ 4,266,312
Interest payments $ 556,940 $ 667,803
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 September 30, 2001, the
consolidated statements of operations for the nine and three months
ended September 30, 2001 and 2000 and the condensed consolidated
statements of cash flows for the nine months ended September 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 nine and three months ended September 30, 2001 are
not necessarily indicative of the operating results expected 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
September 30, 2001, approximately $2,700,000 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 in
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 accumulated other
comprehensive 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 financial
results of the Corporation. During the nine months ended September
30, 2001, approximately $274,000 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, 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.
4. Inventories
At September 30, 2001 and December 31, 2000, approximately 71% 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)
September 30, December 31,
2001 2000
Raw materials $14,742 $12,315
Work-in-process 22,012 26,422
Finished goods 6,037 4,383
Supplies 4,863 4,891
$47,654 $48,011
5. Comprehensive (Loss) Income
The Corporation's comprehensive (loss) income for the nine and three
months ended September 30, 2001 and 2000 consisted of:
(in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
2001 2000 2001 2000
Net (loss) income $(1,844) $11,497 $ 1,641 $ 3,300
Foreign currency translation 217 (2,807) 947 (1,474)
Unrealized holding (losses)
gains on marketable
securities (285) (23) (166) 63
Change in fair value
of derivatives (274) - (92) -
Comprehensive (loss) income $(2,186) $8,667 $ 2,330 $ 1,889
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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 nine
and three months ended September 30, 2001 equaled 9,603,630 and
9,605,616 shares, respectively. The weighted average number of common
shares outstanding for the nine and three months ended September 30,
2000 equaled 9,600,203 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 9,632,568 and
9,624,278 shares for the nine and three months ended September 30,
2001, respectively, and 9,619,477 and 9,625,979 for the nine and three
months ended September 30, 2000, respectively.
7. Business Segments
Presented below are the net sales and income (loss) before taxes for
the Corporation's three business segments.
Nine Months Ended Three Months Ended
September 30, September 30,
2001 2000 2001 2000
Net Sales:
Forged and Cast Rolls $ 73,448 $ 88,007 $ 24,394 $ 25,994
Air and Liquid
Processing 71,254 57,287 22,595 18,743
Plastics Processing
Machinery 21,454 25,648 6,379 8,062
Total Reportable
Segments $166,156 $170,942 $ 53,368 $ 52,799
Income (loss) before taxes:
Forged and Cast Rolls $ (6,226) $ 9,645 $ 110 $ 2,364
Air and Liquid
Processing 5,691 6,677 2,339 2,359
Plastics Processing
Machinery (438) 1,486 (379) 510
Total Reportable
Segments (973) 17,808 2,070 5,233
Other income
(expense) - net (1,192) (342) 615 (172)
Total $ (2,165) $ 17,466 $ 2,685 $ 5,061
Income (loss) before taxes for the nine months ended September 30,
2001 for the Forged and Cast Rolls segment includes restructuring
charges of $7,280,000. In addition, income (loss) before taxes for
the Air and Liquid Processing segment for the nine and three months
ended September 30, 2001 includes litigation costs of approximately
$2,250,000 and $350,000, respectively.
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Other income (expense) - net for the nine months ended September 30,
2001 includes 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 accumulated other comprehensive loss.
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 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 arose out of alleged defects in the
air handling system installed at the Hospital. The Hospital was
seeking $3.8 million in compensatory damages from the defendants. In
addition,
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punitive and treble damages were being sought from certain of the
defendants, including BAH, for alleged fraud, negligent
misrepresentation, intentional inducement of breach of contract and
civil conspiracy. Howden had 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.
The case went to mediation in the third quarter of 2001, and was
settled. The Corporation provided $2,250,000 ($350,000 in the third
quarter of 2001 and $1,900,000 in the second quarter of 2001) for
litigation costs with respect to this case.
The Corporation is from time to time subject to routine litigation
incidental to its business. The Corporation believes, however, that
the results of 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. 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.
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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 nine and
three months ended September 30, 2001 approximated $218,000 and
$73,000, respectively.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which is effective for the Corporation
January 1, 2003. SFAS No. 143 establishes standards for accounting
for obligations associated with the retirement of tangible long-lived
assets. In addition, in August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets,"
which is effective for the Corporation January 1, 2002. SFAS No. 144
requires that long-lived assets be measured at the lower of carrying
amount or fair value, less cost to sell, whether reported in
continuing operations or in discontinued operations. The Corporation
is in the process of evaluating the effect the adoption of SFAS No.
143 and 144 will have on its financial condition and results of
operations.
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ITEM 2 - AMPCO-PITTSBURGH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operations for the Nine and Three Months Ended September 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 September 30, 2001,
approximately $2,700,000 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 in 2002. In addition, operating results
have also been adversely impacted by litigation costs related to a
lawsuit filed in the second quarter of 2001, customer bankruptcies in the
steel industry, 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, net income (loss) for
the nine and three months ended September 30, 2001 includes pre-tax
charges of $10,947,000 and $727,000, respectively, related to the above
items.
Net Sales. Net sales for the nine and three months ended September 30,
2001 were $166,156,000 and $53,368,000, respectively, compared to
$170,942,000 and $52,799,000 for the same periods of 2000, respectively.
A discussion of the third quarter and year-to-date sales for the
Corporation's three segments is included below. Order backlogs
approximated $108,367,000 at September 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 77.4% and 77.7% of net sales for the nine and three
months ended September 30, 2001, respectively, compared to 73.0% and
72.9%, respectively, for the nine and three months ended September 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 $973,000 for the nine months ended September 30, 2001, but
earned $2,070,000 for the three months ended September 30, 2001.
Excluding the aforementioned restructuring and litigation charges, income
from operations would have approximated $8,557,000 and $2,420,000,
respectively, for the nine and three months ended September 30, 2001,
which compares to $17,808,000 and $5,233,000 for the same periods of the
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prior year. A discussion of the third quarter and year-to-date results for the
Corporation's three segments is included below.
Forged and Cast Rolls. Sales for the Forged and Cast Rolls segment
decreased for the nine and three months ended September 30, 2001 by
$14,559,000 to $73,448,000 and by $1,600,000 to $24,394,000,
respectively, against the comparable prior year periods. Restructuring
charges of $7,280,000 reduced operating results for the nine months ended
September 30, 2001. Excluding these restructuring charges, operating
income would have approximated $1,054,000 for the nine months ended
September 30, 2001, a decrease of $8,591,000 from the comparable prior
year period. Operating income for the three months ended September 30,
2001 approximated $110,000, in comparison to $2,364,000 for the three
months ended September 30, 2000. Sales and operating income were
negatively impacted by the severe economic downturn in the U.S. and U.K.
steel industries resulting in lower demand and an erosion of selling
prices. The strength of the U.S. dollar and the British pound sterling
has negatively impacted export sales and impaired gross margins. In
addition, earnings for the nine and three months ended September 30, 2001
include bad debt provisions arising from customer bankruptcies.
Air and Liquid Processing. For the nine months ended September 30, 2001,
sales for the Air and Liquid Processing segment increased $13,967,000 to
$71,254,000 and for the three months ended September 30, 2001 increased
$3,852,000 to $22,595,000. Earnings were negatively impacted by
litigation costs of $2,250,000 (of which $350,000 was recorded in the
third quarter 2001) covering alleged defects in an air handling system
manufactured more than nine years ago. Excluding these litigation
charges, operating results increased by $1,264,000 and $330,000 for the
nine and three months ended September 30, 2001 from the same periods in
the prior year. An increase in pump sales primarily to original
equipment manufacturers (OEM), growth in the sale of air handling
systems, particularly to the pharmaceutical, hospital and institutional
markets as well as cost savings measures account for the improved
operating results 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 nine-month period ended September 30, 2001
decreased by $4,194,000 to $21,454,000 and for the three-month period
ended September 30, 2001 decreased $1,683,000 to $6,379,000 in comparison
to the same periods of the prior year. In addition, earnings decreased
$1,924,000 to an operating loss of $438,000 for the nine months ended
September 30, 2001 and decreased $889,000 to an operating loss of
$379,000 for the three months ended September 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 Income (Expense) - net. Other income (expense) - net for the nine
and three months ended September 30, 2001 of $(1,192,000) and $615,000,
respectively, compares to other income (expense) - net of $(342,000) and
$(172,000) for the comparable periods in 2000. The increase in expense
for the nine month period 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
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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
offset by gains on foreign exchange. The increase in other income for
the three-month period is due primarily to gains on foreign exchange
transactions versus losses incurred in the prior year.
Income taxes. The effective tax rate for the nine and three months ended
September 30, 2001 approximated 14.8% and 38.8%, respectively, in
comparison to 34.2% and 34.8% for the comparable prior year periods. The
reduction for the nine-month period 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. The increase in the effective rate for the three-month period
ended September 30, 2001 is due primarily to lower foreign sales benefit,
lower tax-exempt income and state taxes.
Net Income. As a result of all of the above, the Corporation had a net
loss for the nine months of 2001 of $1,844,000 and net income for the
three months of 2001 of $1,641,000. This compares with net income of
$11,497,000 and $3,300,000 for the comparable prior year periods.
Liquidity and Capital Resources
Net cash flows from operating activities were positive for the nine
months ended September 30, 2001 at $7,641,000 in comparison to positive
cash flows of $16,572,000 for the nine months ended September 30, 2000.
The difference in cash flows between the two periods results primarily
from payments related to restructuring and litigation costs.
Net cash flows used in investing activities were $5,160,000 in 2001
compared to $7,109,000 in 2000. Capital expenditures for 2001 totaled
$6,220,000 compared to $10,465,000 in 2000. Capital expenditures carried
forward from September 30, 2001 approximate $6,479,000. 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 $1,761,000. 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 $4,865,000 for 2001 and
$2,755,000 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 third quarter 2001 and 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 September 30, 2001
was approximately $3,500,000.
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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 arose out of alleged defects in the air handling
system installed at the Hospital. The Hospital was seeking $3.8 million
in compensatory damages from the defendants. In addition, punitive and
treble damages were being sought from certain of the defendants,
including BAH, for alleged fraud, negligent misrepresentation,
intentional inducement of breach of contract and civil conspiracy.
Howden had 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. The case went to mediation
in the third quarter of 2001, and was settled. The Corporation provided
$2,250,000 ($350,000 in the third quarter of 2001 and $1,900,000 in the
second quarter of 2001) for litigation costs in connection with this
case.
The Corporation is from time to time subject to routine litigation
incidental to its business. The Corporation believes, however, that the
results of 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.
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.
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
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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. 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 nine and three months ended
September 30, 2001 approximated $218,000 and $73,000, respectively.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which is effective for the Corporation January
1, 2003. SFAS No. 143 establishes standards for accounting for
obligations associated with the retirement of tangible long-lived assets.
In addition, in August 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," which is effective
for the Corporation January 1, 2002. SFAS No. 144 requires that long-
lived assets be measured at the lower of carrying amount or fair value,
less cost to sell, whether reported in continuing operations or in
discontinued operations. The Corporation is in the process of evaluating
the effect the adoption of SFAS Nos. 143 and 144 will have on its
financial condition and results of operations.
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 1-5 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 Reports on
Form 10-Q for the quarters ended June 30, 2001 and
March 31, 1996.
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: November 8, 2001 BY: s/Robert A. Paul
Robert A. Paul
President and
Chief Executive Officer
DATE: November 8, 2001 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
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