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, 2002
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, 2002, 9,632,497 common shares were
outstanding.
- 1 -
AMPCO-PITTSBURGH CORPORATION
INDEX
Page No.
Part I - Financial Information:
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations -
Six Months Ended June 30, 2002 and 2001;
Three Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 17
Part II - Other Information:
Item 1 - Legal Proceedings 18
Item 4 - Submission of Matters to a Vote
of Security Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 20
Exhibit Index 21
Exhibits
Exhibit 99.1
Exhibit 99.2
- 2 -
PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2002 2001
Assets
Current assets:
Cash and cash equivalents $ 17,050,499 $ 13,514,299
Receivables, less allowance for
doubtful accounts of $1,664,777 in
2002 and $1,450,868 in 2001 48,669,829 45,506,326
Inventories 46,414,052 47,277,939
Other 8,049,798 8,373,626
Total current assets 120,184,178 114,672,190
Property, plant and equipment, at cost:
Land and land improvements 4,995,699 4,994,502
Buildings 28,950,891 28,921,801
Machinery and equipment 145,293,718 140,975,589
179,240,308 174,891,892
Accumulated depreciation (93,837,524) (88,657,860)
Net property, plant and equipment85,402,784 86,234,032
Prepaid pensions 29,013,206 27,527,527
Goodwill 2,694,240 7,146,440
Other noncurrent assets 5,811,540 5,990,769
$243,105,948 $241,570,958
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,350,000 $ 1,350,000
Accounts payable 14,126,959 13,738,636
Accrued payrolls and employee benefits8,402,372 7,596,900
Other 12,813,844 12,438,576
Total current liabilities 36,693,175 35,124,112
Employee benefit obligations 16,863,438 16,951,050
Deferred income taxes 18,278,744 18,404,400
Industrial Revenue Bond debt 13,311,000 13,311,000
Other noncurrent liabilities 511,044 373,551
Total liabilities 85,657,401 84,164,113
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 9,632,497 in 2002 and
9,608,897 in 2001 9,632,497 9,608,897
Additional paid-in capital 103,005,928 102,790,603
Retained earnings 46,060,584 47,559,557
Accumulated other comprehensive loss (1,250,462) (2,552,212)
Total shareholders' equity 157,448,547 157,406,845
$243,105,948 $241,570,958
See Notes to Consolidated Financial Statements.
- 3 -
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, Three Months Ended June 30,
2002 2001 2002 2001
Net sales $112,222,548 $112,788,448 $ 57,524,192 $ 56,620,664
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 87,082,146 87,127,679 44,420,829 44,355,905
Selling and administrative 15,252,334 17,275,418 7,703,090 9,321,754
Depreciation 4,098,013 4,148,248 2,045,967 2,063,785
Restructuring charges - 7,280,000 - 360,000
Total operating expenses 106,432,493 115,831,345 54,169,886 56,101,444
Income (loss) from operations 5,790,055 (3,042,897) 3,354,306 519,220
Other income (expense):
Interest expense (182,460) (359,651) (110,976) (175,135)
Other - net 216,502 (1,447,111) 390,145 (1,242,285)
34,042 (1,806,762) 279,169 (1,417,420)
Income (loss)before
income taxes 5,824,097 (4,849,659) 3,633,475 (898,200)
Income tax provision
(benefit) 2,505,000 (1,365,000) 1,533,000 (114,000)
Net income (loss) before
cumulative effect of
accounting change for
goodwill 3,319,097 (3,484,659) 2,100,475 (784,200)
Cumulative effect of accounting
change for goodwill, net of
income taxes of $1,558,269 (2,893,931) - - -
Net income (loss) $ 425,166 $ (3,484,659) $ 2,100,475 $ (784,200)
Basic and diluted earnings
per common share:
Net income (loss) before
cumulative effect of
accounting change for
goodwill $ 0.34 $ (0.36) $ 0.22 $ (0.08)
Cumulative effect of
accounting change for
goodwill $ (0.30) $ - $ - $ -
Net income (loss) $ 0.04 $ (0.36) $ 0.22 $ (0.08)
Cash dividends declared
per share $ 0.20 $ 0.20 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,616,396 9,602,621 9,623,812 9,602,621
See Notes to Consolidated Financial Statements.
- 4 -
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2002 2001
Net cash flows provided by operating
activities $ 6,872,545 $ 6,287,394
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,227,653) (3,685,128)
Proceeds from sale of business 1,129,950 1,060,181
Net cash flows (used in) investing
activities (2,097,703) (2,624,947)
Cash flows from financing activities:
Repayment of note payable to bank - (2,000,000)
Proceeds from the issuance
of common stock 238,925 -
Dividends paid (1,921,779) (1,920,325)
Net cash flows (used in) financing
activities (1,682,854) (3,920,325)
Effect of exchange rate changes on cash
and cash equivalents 444,212 (582,372)
Net increase (decrease) in cash and
cash equivalents 3,536,200 (840,250)
Cash and cash equivalents at
beginning of period 13,514,299 17,861,531
Cash and cash equivalents at
end of period $ 17,050,499 $ 17,021,281
Supplemental information:
Income tax payments $ 574,211 $ 1,199,095
Interest payments $ 176,081 $ 379,088
Noncash investing and financing activites - see Note 9.
See Notes to Consolidated Financial Statements.
- 5 -
AMPCO-PITTSBURGH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The consolidated balance sheet as of June 30, 2002, the
consolidated statements of operations for the six and three
months ended June 30, 2002 and 2001 and the condensed
consolidated statements of cash flows for the six months ended
June 30, 2002 and 2001 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, 2001. The results of operations for the six and three
months ended June 30, 2002 are not necessarily indicative of the
operating results expected for the full year.
2. Restructurings
In 2001, the Corporation undertook a review of its global
roll-making capacity and recorded pre-tax restructuring charges
of $7,280,000 ($6,920,000 in the first quarter of 2001 and
$360,000 in the second quarter of 2001). At December 31, 2001,
outstanding restructuring costs, excluding pension-related
liabilities which were reclassified to employee benefit
obligations, approximated $1,830,000 including employee
severance of $914,000, costs associated with the disposition of
the remaining assets of $571,000, and various other costs of
$345,000. During the six months of 2002, approximately $799,000
had been incurred of which $719,000 related to employee
severance. After consideration of the strengthening of the euro
from December 31, 2001 to June 30, 2002, which increases the
dollar equivalency of reported amounts, outstanding
restructuring costs at June 30, 2002 approximated $1,227,000
including employee severance of $577,000, costs associated with
the disposition of the remaining assets of $232,000, and various
other costs of $418,000. The remaining assets were sold in July
2002 and it is expected that the majority of the outstanding
obligations will be paid in the last six months of 2002.
3. Goodwill
Effective January 1, 2002, the Corporation adopted the
provisions of Statement of Financial Accounting Standard (SFAS)
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142
requires that goodwill no longer be amortized but instead tested
for impairment at least annually. In addition, SFAS No. 142
requires recognized intangible assets to be amortized over their
respective estimated useful lives
- 6 -
and reviewed for impairment. Any recognized intangible asset
determined to have an indefinite useful life will not be
amortized, but instead tested for impairment annually until its
life is determined to no longer be indefinite.
In accordance with the requirements of SFAS No. 142, the
Corporation tested the goodwill attributable to each of its
reporting units for impairment as of January 1, 2002. The
Corporation's reporting units are the major product lines
comprising its reportable business segments. Fair value was
estimated using discounted cash flow methodologies and market
comparable information. As a result, $4,452,000 of goodwill
specific to the Plastics Processing Machinery segment was
written off and is recorded as a cumulative effect of accounting
change, net of income taxes, in the accompanying consolidated
statements of operations. The impairment arises from the severe
downturn in the plastics processing industry resulting in
reduced selling prices and a significant reduction in demand.
The Corporation will test remaining goodwill for impairment
annually in connection with its strategic planning process. The
Corporation does not have any other material intangible assets.
Included in income (loss) from operations for the six and three
months ended June 30, 2001 was goodwill amortization of
approximately $145,000 and $73,000, respectively. The following
information reconciles previously reported net income (loss) and
earnings per common share to the amounts adjusted for the
exclusion of goodwill amortization.
(in thousands)
Six Months Ended Three Months Ended
June 30, June 30,
2002 2001 2002 2001
Net income (loss), as reported $ 425 $(3,485) $2,100 $ (784)
Add goodwill amortization,
net of tax - 94 - 47
Net income (loss), as adjusted $ 425 $(3,391) $2,100 $ (737)
Basic and diluted earnings per
common share, as reported $ 0.04 $ (0.36) $ 0.22 $(0.08)
Goodwill amortization, net
of tax - 0.01 - -
Basic and diluted earnings
per common share, as adjusted $ 0.04 $ (0.35) $ 0.22 $(0.08)
The changes in the carrying amount of goodwill for the six
months ended June 30, 2002 are as follows:
(in thousands)
Air and Plastics
Liquid Processing
Processing Machinery Total
Goodwill as of December 31, 2001 $2,694 $4,452 $7,146
Write-off of goodwill - 4,452 4,452
Goodwill as of June 30, 2002 $2,694 $ - $2,694
- 7 -
4. Inventories
At June 30, 2002 and December 31, 2001, approximately 72% and
73%, 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,
2002 2001
Raw materials $13,357 $14,853
Work-in-process 23,577 20,915
Finished goods 4,689 6,699
Supplies 4,791 4,811
$46,414 $47,278
5. Other Current Liabilities
Other current liabilities are comprised of the following:
(in thousands)
June 30, December 31,
2002 2001
Customer-related $ 2,893 $ 3,848
Restructuring costs 1,227 1,830
Other 8,694 6,761
$12,814 $12,439
6. Comprehensive Income (Loss)
The Corporation's comprehensive income (loss) for the six and
three months ended June 30, 2002 and 2001 consisted of:
(in thousands)
Six Months Three Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Net income (loss) $ 425 $(3,485) $2,100 $ (784)
Foreign currency translation 1,404 (730) 1,871 925
Unrealized holding gains (losses)
on marketable securities (135) (119) (292) 134
Change in fair value of derivatives 32 (182) (152) (43)
Comprehensive income (loss) $1,726 $(4,516) $3,527 $ 232
The Corporation manages its exposure to exchange rate
fluctuations on sales contracts in foreign currencies and
commodity price fluctuations through the use of forward foreign
exchange and futures contracts. During the second quarter of
2002, the Corporation began entering into forward foreign
exchange contracts to hedge exchange rate fluctuations on
projected sales. These contracts, settling at various dates
beginning in 2003 through 2004, have been designated as cash
flow hedges. As of June 30, 2002, approximately $6,864,000 of
forecasted foreign denominated sales have been hedged. The fair
value of the
- 8 -
contracts expected to settle within the next 12 months is
recorded in other current liabilities and approximates $102,000.
The fair value of the remaining contracts is recorded in other
liabilities and approximates $144,000. The change in the fair
value of these contracts is recorded as a component of
comprehensive income (loss) and approximates $160,000, net of
taxes. The change in fair value will be reclassified into
earnings when the forecasted sales occur with approximately
$66,000 expected to be released within the next 12 months.
7. Earnings Per Share
Basic earnings per share are computed by dividing net income
(loss) before cumulative effect of accounting change for
goodwill, cumulative effect of accounting change for goodwill,
and net income (loss) 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, 2002 equaled 9,616,396 and 9,623,812 shares,
respectively. The weighted average number of common shares
outstanding for the six and three month periods ended June 30,
2001 equaled 9,602,621 shares.
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 9,647,139
and 9,664,956 shares for the six and three months ended June 30,
2002 and 9,636,843 and 9,625,997 shares for the six and three
months ended June 30, 2001, respectively.
8. 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,
2002 2001 2002 2001
Net Sales:
Forged and Cast Rolls $ 49,923 $ 49,054 $ 25,374 $ 24,877
Air and Liquid
Processing 49,623 48,658 25,553 24,943
Plastics Processing
Machinery 12,677 15,076 6,597 6,801
Total Reportable
Segments $112,223 $112,788 $ 57,524 $ 56,621
- 9 -
Income (loss) before taxes:
Forged and Cast Rolls $ 1,045 $ (6,329) $ 834 $ (220)
Air and Liquid
Processing 5,524 3,421 2,896 983
Plastics Processing
Machinery (779) (135) (376) (244)
Total Reportable
Segments 5,790 (3,043) 3,354 519
Other income
(expense) - net 34 (1,807) 279 (1,417)
Total $ 5,824 $ (4,850) $ 3,633 $ (898)
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.
Other income (expense) - net for the six and three months ended
June 30, 2001 includes charges of approximately $1,040,000
primarily for foreign currency translation losses incurred on
the sale of the small feed roll business (Note 9) and
environmental costs for a previously discontinued business.
9. Divestitures
In June 2002, the Corporation sold the net assets, excluding
primarily trade receivables and payables, of its metal forgings
business in England for approximately its net book value or
$1,428,000. Adjustments to the proceeds may arise based on
completion of the closing balance sheet. Of the estimated
proceeds approximately $300,000, plus interest at the prevailing
rate, is payable in two equal semi-annual installments beginning
in December 2002.
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 initially recognized relating
primarily to the release of foreign currency translation losses
previously recorded as a component of other comprehensive income
(loss). In 2001, the loss was subsequently revised to $152,000
due to various post-closing adjustments.
10.Litigation and Environmental Matters
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In
addition, claims have been asserted against the Corporation and
certain of its subsidiaries for alleged exposure to asbestos-
containing components used in certain products primarily
produced prior to the subsidiaries' acquisition by the
Corporation. Approximately 141 lawsuits are pending, most of
which were commenced in 2002, involving approximately 4,084
claimants (including derivative spousal claims).
- 10 -
The Corporation has been named as co-defendant with one or more
of its subsidiaries in six of these lawsuits. Because the
Corporation and the subsidiaries named as defendants in these
lawsuits are separate corporations, and because the Corporation
did not at any time engage in the activities giving rise to
these claims, the Corporation believes it has strong defenses to
the claims that have been asserted against it.
While the Corporation believes it and its subsidiaries have
meritorious defenses to the asbestos-related claims against
them, to date four claims have been settled. In addition, the
Corporation expects that approximately 24 lawsuits involving
approximately 40 claimants against one of its subsidiaries will
be withdrawn on the ground that this subsidiary is not an
appropriate defendant. The Corporation's insurers have been
notified and are defending the Corporation and the subsidiaries
in each of the remaining cases. To date, substantially all
amounts paid by the Corporation and its subsidiaries to defend
and resolve these cases have been covered by insurance. The
Corporation is currently analyzing its insurance policies to
determine the full extent of available coverage.
Based on the foregoing and its claims experience to date, the
Corporation believes that the pending legal proceedings will not
have a material adverse effect on its consolidated financial
condition or liquidity. The outcome of any of the 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.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection with
sale 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.
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.
While it is not possible to quantify with certainty the
environmental exposure, in the opinion of management, the
potential liability for all environmental proceedings, 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.
11.Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) continues to
identify and provide guidance on various implementation issues
related to SFAS
- 11 -
No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, which are in varying stages of review
and clearance. The Corporation continues to evaluate the impact
of these issues. To date, these items have not had a material
adverse effect on the financial condition or results of
operations of the Corporation.
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. Adoption of SFAS No. 143 is not
expected to have a significant impact on the financial condition
or results of operations
of the Corporation. In addition, in August 2001, the FASB
issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," which became 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. Adoption of SFAS No.
144 did not have a significant impact on the financial condition
or results of operations of the Corporation.
- 12 -
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
While overall results improved, the Corporation continued to be
impacted by the slow and uncertain economy. Despite modest
improvement, the Forged and Cast Rolls segment was affected by low
demand and poor margins. Excluding litigation costs incurred in
2001, operating results of the Air and Liquid Processing group
remained level with prior year; however, the slowdown in
construction spending and a significant reduction in demand for
power generation equipment will have an adverse impact on operations
for the remainder of the year. The Plastics Processing Machinery
segment incurred losses due to the extremely low activity levels of
plastics processor and original equipment customers. The outlook
for the Corporation in the second half of the year is expected to be
a continuation of weak operating results.
Operations for the Six and Three Months Ended June 30, 2002 and 2001
In 2001, the Corporation undertook a review of its global roll-
making capacity and recorded pre-tax restructuring charges of
$7,280,000 ($6,920,000 in the first quarter of 2001 and $360,000 in
the second quarter of 2001). At December 31, 2001, outstanding
restructuring costs, excluding pension-related liabilities which
were reclassified to employee benefit obligations, approximated
$1,830,000 including employee severance of $914,000, costs
associated with the disposition of the remaining assets of
$571,000, and various other costs of $345,000. During the six
months of 2002, approximately $799,000 had been incurred of which
$719,000 related to employee severance. After consideration of the
strengthening of the euro from December 31, 2001 to June 30, 2002
which increased the dollar equivalency of reported amounts,
outstanding restructuring costs at June 30, 2002 approximated
$1,227,000 including employee severance of $577,000, costs
associated with the disposition of the remaining assets of
$232,000, and various other costs of $418,000. The remaining
assets were sold in July 2002 and it is expected that the majority
of the outstanding obligations will be paid in the last six months
of 2002.
Net Sales. Net sales for the six months ended June 30, 2002 and
2001 were $112,223,000 and $112,788,000, respectively, and net
sales for the three months then ended were $57,524,000 and
$56,621,000, respectively. A discussion of the year-to-date and
second quarter sales for the Corporation's three segments is
included below. Order backlogs approximated $97,655,000 at June
30, 2002 in comparison to $107,608,000 at December 31, 2001. The
decrease is due primarily to a decrease in the backlog for the
Forged and Cast Rolls and Air and Liquid Processing segments.
Cost of Products Sold. Cost of products sold, excluding
depreciation, equaled 77.6% and 77.2% of net sales for the six
months ended June 30, 2002 and 2001, respectively, and 77.2% and
78.3%, for the three months ended June 30, 2002 and 2001,
respectively. The decrease for the second quarter is primarily
attributable to higher production volumes for the Forged and Cast
Rolls operations.
- 13 -
Income (Loss) from Operations. Excluding 2001 restructuring
charges, income from operations approximated $5,790,000 and
$4,237,000 for the six months ended June 30, 2002 and 2001,
respectively, and $3,354,000 and $879,000, for the three months
ended June 30, 2002 and 2001, respectively. A discussion of the
year-to-date and second quarter results for the Corporation's three
segments is included below.
Forged and Cast Rolls. Sales for the Forged and Cast Rolls segment
increased by $869,000 to $49,923,000 for the six months ended June
30, 2002 and $497,000 to $25,374,000 for the three months ended
June 30, 2002 against the comparable prior year periods. The
improvement in sales is attributable to an increase in volume
particularly by the U.S. operations offset by depressed pricing and
the May 2001 sale of the small feed roll business in the U.K.
Operating income, excluding the 2001 restructuring charges,
increased $94,000 to $1,045,000 for the six months ended June 30,
2002 and increased $694,000 to $834,000 for the three months ended
June 30, 2002. The improvement in operating income is due to a
higher volume of shipments and increased production offset by lower
gross margins and, for the six months ended June 30, 2002, larger
losses by the U.K. operations.
Air and Liquid Processing. For the six months ended June 30, 2002,
sales for the Air and Liquid Processing segment increased $965,000
to $49,623,000 and for the three months ended June 30, 2002,
increased $610,000 to $25,553,000 against the comparable prior year
periods. Operating income for the second quarter of 2001 was
negatively impacted by litigation costs of approximately
$1,900,000. Excluding these costs, operating income improved
$203,000 and $13,000 for the six and three months ended June 30,
2002, respectively, in comparison to the same periods of the prior
year. The improvement is primarily attributable to increased
activity from the industrial and utility markets for the heat
exchange coil business offset by poorer results for the air
handling business, which is principally being impacted by reduced
demand and increased price competition. Pumps sales benefited from
stronger demand during the first four months of the year but have
begun to be impacted by a downturn in the power generation
industry.
Plastics Processing Machinery. Sales for the Plastics Processing
Machinery segment for the six and three-month period ended June 30,
2002 decreased by $2,399,000 to $12,677,000 and $204,000 to
$6,597,000, respectively, in comparison to the same periods of the
prior year. Earnings decreased $644,000 to an operating loss of
$779,000 and decreased $132,000 to an operating loss of $376,000
for the six and three months ended June 30, 2002, respectively,
against the same periods of the prior year. The decrease is
attributable to reduced selling prices and a significant reduction
in demand from plastics processor and original equipment customers.
Other Income (Expense). Interest expense for the six and three
months ended June 30, 2002 decreased due to lower interest rates.
Other income (expense) for the six and three months ended June 30,
2001 includes $1,040,000 relating to the loss recognized on the
sale of the small feed roll business in May 2001 and additional
environmental costs for a previously discontinued business.
Excluding these costs, other income of $217,000 and $390,000 for
the six and three months ended June 30, 2002, respectively,
compares to other expense of $(407,000) and $(202,000) for
- 14 -
six and three months ended June 30, 2001, respectively. The
improvement is due primarily to lower losses on foreign exchange
transactions offset by lower interest income resulting from a
decrease in interest rates.
Income Taxes. The effective tax rate approximated 43.0% and
(28.1%)for the six months ended June 30, 2002 and 2001,
respectively, and 42.2% and (12.7%) for the three months ended June
30, 2002 and 2001, respectively. The increase is due primarily to
lower tax benefit for operating losses generated in the U.K.,
reduced foreign sales benefit, and state income taxes.
Cumulative Effect of Accounting Change. Effective January 1, 2002,
the Corporation adopted the provisions of Statement of Financial
Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142, requires that goodwill no longer be
amortized but instead tested for impairment at least annually. In
accordance with the requirements of SFAS No. 142, the Corporation
tested the goodwill attributable to each of its reporting units for
impairment as of January 1, 2002. The Corporation's reporting
units are the major product lines comprising its reportable
business segments. Fair value was estimated using discounted cash
flow methodologies and market comparable information. As a result,
$4,452,000 of goodwill specific to the Plastics Processing
Machinery segment was written off and is recorded as a cumulative
effect of accounting change, net of income taxes, in the
accompanying consolidated statements of operations. The impairment
arises from the severe downturn in the plastics processing industry
resulting in reduced selling prices and a significant reduction in
demand.
Net Income (Loss). As a result of all of the above, the
Corporation had net income for the six and three months end June
30, 2002 of $425,000 and $2,100,000, respectively, in comparison to
a net loss of $(3,485,000) and $(784,000), respectively, for the
six and three months ended June 30, 2001.
Liquidity and Capital Resources
Net cash flows from operating activities were comparable for the
six months ended June 30, 2002 and 2001 at $6,873,000 and
$6,287,000, respectively.
Net cash flows used in investing activities approximated $2,098,000
and $2,625,000 for the six months ended June 30, 2002 and 2001,
respectively. Capital expenditures for 2002 amounted to $3,228,000
in comparison to $3,685,000 for 2001. Capital expenditures carried
forward from June 30, 2002 approximated $3,935,000. Funds on-hand,
funds generated by future operations and available lines of credit
are expected to be sufficient to finance capital expenditure
requirements. In June 2002, the Corporation sold the net assets,
excluding primarily trade receivables and payables, of its metal
forgings business in England for approximately its net book value
or $1,428,000. Adjustments to the proceeds may arise based on
completion of the closing balance sheet. Of the estimated proceeds
approximately $300,000, plus interest at the prevailing rate, is
payable in two equal semi-annual installments beginning in December
2002. In May 2001, the Corporation sold the net assets, excluding
primarily trade receivables and payable of its small feed roll
business in England for approximately $1,060,000.
- 15 -
Net cash flows used in financing activities were $1,683,000 for
2002 and $3,920,000 for 2001 and include payment of quarterly
dividends at a rate of $0.10 per share. In 2002, proceeds were
received from the issuance of stock under the Corporation's stock
option plan. In 2001, the Corporation repaid $2,000,000 of short-
term borrowings.
The Corporation maintains short-term lines of credit in excess of
the cash needs of its businesses. The total available at June 30,
2002 was approximately $4,400,000.
Litigation and Environmental Matters
See Note 10 of the notes to the consolidated financial statements.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) 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. The Corporation continues to evaluate the
impact of these issues. To date, these items have not had a
material adverse effect on the financial condition or results of
operations of the Corporation.
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. Adoption of SFAS No. 143 is not expected to have a
significant impact on the financial condition or results of
operations of the Corporation.
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 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.
- 16 -
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, 2001.
- 17 -
PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 10 (Litigation and
Environmental Matters) is incorporated herein by reference.
Items 2-3 None
Item 4 Submission of Matters to a Vote of Security Holders
On April 23, 2002 at the annual meeting of shareholders,
Louis Berkman and Carl H. Pforzheimer, III were elected
directors of the Corporation by the following votes:
For Withheld
Louis Berkman 8,909,901 162,625
Carl H. Pforzheimer, III 8,905,512 167,014
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 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.
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.
- 18 -
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 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.
(b) Reports on Form 8-K
None
- 19 -
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, 2002 BY: s/Robert A. Paul
Robert A. Paul
President and
Chief Executive Officer
DATE: August 14, 2002 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
- 20 -
AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit 99 - Additional Exhibits
99.1 Certification of Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification of Vice President, Controller and
Treasurer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
- 21 -