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, 2003
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 12, 2003, 9,647,497 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, 2003 and December 31, 2002 3
Consolidated Statements of Operations -
Nine Months Ended September 30, 2003 and 2002;
Three Months Ended September 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 18
Item 4 - Controls and Procedures 18
Part II - Other Information:
Item 1 - Legal Proceedings 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 21
Exhibit Index 22
Exhibits
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $ 43,434,237 $ 27,743,641
Receivables, less allowance for
doubtful accounts of $1,540,309 in
2003 and $1,552,534 in 2002 35,289,309 38,791,898
Inventories 45,848,464 47,083,992
Other 7,702,593 6,685,124
Total current assets 132,274,603 120,304,655
Property, plant and equipment, at cost:
Land and land improvements 4,217,422 5,061,053
Buildings 24,673,679 29,317,286
Machinery and equipment 125,712,415 144,888,313
154,603,516 179,266,652
Accumulated depreciation (88,762,166) (95,535,004)
Net property, plant and
equipment 65,841,350 83,731,648
Prepaid pensions 23,745,859 23,039,261
Goodwill 2,694,240 2,694,240
Other noncurrent assets 3,663,663 5,100,065
$228,219,715 $234,869,869
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 10,200,052 $ 12,109,266
Accrued payrolls and employee benefits 8,082,561 8,413,650
Other 14,458,784 14,200,883
Total current liabilities 32,741,397 34,723,799
Employee benefit obligations 16,068,557 16,304,604
Deferred income taxes 19,365,077 19,825,065
Industrial Revenue Bond debt 13,311,000 13,311,000
Other noncurrent liabilities 2,433,694 684,995
Total liabilities 83,919,725 84,849,463
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 9,647,497 in 2003 and
9,632,497 in 2002 9,647,497 9,632,497
Additional paid-in capital 103,157,130 103,005,928
Retained earnings 39,585,828 45,970,371
Accumulated other comprehensive loss (8,090,465) (8,588,390)
Total shareholders' equity 144,299,990 150,020,406
$228,219,715 $234,869,869
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,
2003 2002 2003 2002
Net sales $132,383,635 $147,399,490 $ 43,358,209 $ 47,854,218
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 103,928,965 114,448,925 34,214,123 37,309,734
Selling and administrative 20,026,474 19,161,381 6,104,016 6,192,128
Depreciation 4,740,501 4,817,987 1,540,738 1,563,274
Gain on disposition of
assets and businesses (16,377) (830,180) (7,523) (834,893)
Restructuring charges - 23,114 - 23,114
Total operating expenses 128,679,563 137,621,227 41,851,354 44,253,357
Income from operations 3,704,072 9,778,263 1,506,855 3,600,861
Other (expense) income:
Interest expense (252,459) (297,103) (89,136) (125,968)
Other - net (264,974) 174,409 (27,504) (68,360)
(517,433) (122,694) (116,640) (194,328)
Income from continuing operations
before income taxes 3,186,639 9,655,569 1,390,215 3,406,533
Income tax provision 1,558,000 4,171,000 489,000 1,542,000
Income from continuing
operations 1,628,639 5,484,569 901,215 1,864,533
Discontinued operations:
Loss from operations, including
loss on disposal of $4,600,212
in 2003 (5,356,228) (1,324,256) (5,166,425) (899,317)
Income tax benefit 234,295 426,000 184,295 302,000
(5,121,933) (898,256) (4,982,130) (597,317)
Net (loss) income before
cumulative effect of change
in accounting for goodwill (3,493,294) 4,586,313 (4,080,915) 1,267,216
Cumulative effect of change in
accounting for goodwill, net of
income taxes of $1,558,269 - (2,893,931) - -
Net (loss) income $(3,493,294) $ 1,692,382 $(4,080,915) $ 1,267,216
Basic and diluted earnings
per common share:
Net income from continuing
operations $ 0.17 $ 0.57 $ 0.09 $ 0.19
Net loss from discontinued
operations $ (0.53) $ (0.09) $ (0.51) $ (0.06)
Cumulative effect of change
in accounting for goodwill $ - $ (0.30) $ - $ -
Net (loss) income $ (0.36) $ 0.18 $ (0.42) $ 0.13
Cash dividends declared
per share $ 0.30 $ 0.30 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,633,695 9,621,822 9,636,051 9,632,497
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,
2003 2002
Net cash flows provided by operating
activities $ 7,387,550 $ 15,014,603
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,910,858) (4,366,189)
Proceeds from sale of businesses 14,600,000 1,129,950
Proceeds from sale of assets 12,485 1,469,719
Net cash flows provided by (used in)
investing activities 10,701,627 (1,766,520)
Cash flows from financing activities:
Proceeds from the issuance of
common stock 166,202 238,925
Dividends paid (2,889,749) (2,885,029)
Net cash flows (used in) financing
activities (2,723,547) (2,646,104)
Effect of exchange rate changes on cash
and cash equivalents 324,966 360,304
Net increase in cash and cash equivalents 15,690,596 10,962,283
Cash and cash equivalents at
beginning of period 27,743,641 13,514,299
Cash and cash equivalents at
end of period $ 43,434,237 $ 24,476,582
Supplemental information:
Income tax payments $ 218,191 $ 802,450
Interest payments $ 256,404 $ 283,500
Noncash investing and financing activities - see Note 11.
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, 2003, the
consolidated statements of operations for the nine and three
months ended September 30, 2003 and 2002 and the condensed
consolidated statements of cash flows for the nine months ended
September 30, 2003 and 2002 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 amounts for the preceding periods have been reclassified
for comparability with the 2003 presentation. In addition,
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, 2002. The results of operations for the nine and three
months ended September 30, 2003 are not necessarily indicative
of the operating results expected for the full year.
2. Restructuring
In the third quarter of 2002, the Corporation made permanent
reductions in manning levels at several of its operations and
initiated the closure of its leased Plastics Processing
Machinery facility in South Carolina. An initial restructuring
provision of $1,337,000 for costs associated with these efforts
was recorded and as of December 31, 2002, approximately $167,000
remained outstanding. Restructuring activity for 2003 was as
follows:
(in thousands)
December 31, September 30,
2002 Paid Other 2003
Employee costs $ 157 $( 140) $(17) $ -
Costs associated with
closure of leased
facility 10 (8) (2) -
$ 167 $ (148) $(19) $ -
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" resulting in an
after-tax write off of
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goodwill amounting to $2,894,000 in the first quarter of 2002
relating to the now-sold Plastics Processing Machinery segment
(see Note 11). There have been no subsequent changes in the
carrying amount of remaining goodwill, which relates to the Air
and Liquid Processing segment.
4. Inventories
At September 30, 2003 and December 31, 2002, approximately 71%
and 70%, respectively, of the inventories were valued on the
LIFO method, with the remaining inventories being valued on the
FIFO method. Inventories were comprised of the following:
(in thousands)
September 30, December 31,
2003 2002
Raw materials $12,040 $12,836
Work-in-process 20,329 23,216
Finished goods 8,463 5,943
Supplies 5,016 5,089
$45,848 $47,084
5. Other Current Liabilities
Other current liabilities were comprised of the following:
(in thousands)
September 30, December 31,
2003 2002
Customer-related $ 5,688 $ 6,298
Other 8,771 7,903
$14,459 $14,201
Included in customer-related liabilities are costs expected to
be incurred with respect to product warranties. There have been
no significant changes in the liability for product warranty
claims for the nine and three months ended September 30, 2003.
6. Comprehensive (Loss) Income
The Corporation's comprehensive (loss) income for the nine and
three months ended September 30, 2003 and 2002 consisted of:
(in thousands)
Nine Months Three Months
Ended Sept 30, Ended Sept 30,
2003 2002 2003 2002
Net (loss) income $(3,493) $1,692 $(4,081) $1,267
Foreign currency translation 722 1,944 172 540
Unrealized holding gains (losses)
on marketable securities 6 (375) (20) (240)
Change in fair value
of derivatives (230) (119) 62 (151)
Comprehensive (loss) income $(2,995) $3,142 $(3,867) $1,416
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7. Foreign Exchange
Certain of the Corporation's operations are subject to risk from
exchange rate fluctuations in connection with sales in foreign
currencies. To minimize this risk, forward foreign exchange
contracts are purchased which are designated as fair value
hedges or cash flow hedges. As of September 30, 2003,
approximately $21,500,000 of anticipated foreign denominated
sales has been hedged with the underlying contracts settling at
various dates beginning in 2003 through September 2006. As of
September 30, 2003, the fair value of contracts expected to
settle within the next 12 months, which is recorded in other
current liabilities, approximated $1,086,000 and the fair value
of the remaining contracts, which is recorded in other
noncurrent liabilities, approximated $551,000. The change in
the fair value of the contracts designated as cash flow hedges
is recorded as a component of accumulated other comprehensive
loss and approximated $(871,000), net of taxes, as of September
30, 2003. The change in fair value will be reclassified into
earnings when the projected sales occur with approximately
$(540,000), net of taxes, expected to be released to earnings
within the next 12 months.
Gains (losses) on foreign exchange transactions approximated
$(301,000) and $140,000 for the nine months ended September 30,
2003 and 2002 respectively and $(56,000) and $(110,000) for the
three months ended September 30, 2003 and 2002 respectively.
In addition, one of the Corporation's subsidiaries is subject to
risk from increases in the price of a commodity used in the
production of inventory. To minimize this risk, futures
contracts are entered into which are designated as cash flow
hedges. At September 30, 2003, approximately 100% or $1,618,000
of anticipated commodity purchases over the next 12 months is
hedged. The fair value of the contracts expected to settle
within the next 12 months approximated $109,000 and the fair
value of the remaining contracts approximated $4,000 as of
September 30, 2003. The change in the fair value of the
contracts is recorded as a component of accumulated other
comprehensive loss and approximated $68,000, net of taxes, as of
September 30, 2003. The change in the fair value will be
reclassified into earnings when the projected sales occur with
approximately $65,000, net of taxes, expected to be released to
earnings within the next 12 months.
8. Earnings Per Share
Basic earnings per share are computed by dividing net income
from continuing operations, net loss from discontinued
operations, cumulative effect of change in accounting for
goodwill, and net (loss) 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, 2003 equaled 9,633,695 and
9,636,051 shares, respectively, and for the nine and three
months ended September 30, 2002 equaled 9,621,822 and 9,632,497
shares, respectively.
The computation of diluted earnings per share is similar to
basic earnings per share except that the denominator is
increased to include
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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 9,692,924 and 9,687,212 shares for the
nine and three months ended September 30, 2003, respectively,
and 9,647,731 and 9,654,590 shares for the nine and three months
ended September 30, 2002, respectively.
9. Business Segments
Presented below are the net sales and income (loss) before taxes
for the Corporation's two business segments. In August 2003,
the Corporation sold the stock of its plastics processing
machinery group. The transaction is accounted for as a
discontinued operation, accordingly, the net sales and income
(loss) before taxes for this group have been removed from the
segment information below. In addition, in the fourth quarter
2002, the Corporation began evaluating the performance of its
segments based solely on income from operations without an
allocation of corporate expenses to give it the ability to focus
on actual operating performance for each of the segments. Prior
year information has been restated to conform to the 2003
presentation.
(in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
2003 2002 2003 2002
Net Sales:
Forged and Cast Rolls $ 78,948 $ 74,276 $ 26,560 $ 24,353
Air and Liquid Processing 53,436 73,123 16,798 23,501
Total Reportable Segments $132,384 $147,399 $ 43,358 $ 47,854
Income (loss) before taxes:
Forged and Cast Rolls $ 4,434 $ 3,414 $ 1,637 $ 1,516
Air and Liquid Processing 2,917 9,799 1,054 3,108
Total Reportable Segments 7,351 13,213 2,691 4,624
Other expense, including
corporate costs - net (4,164) (3,558) (1,301) (1,217)
Total $ 3,187 $ 9,655 $ 1,390 $ 3,407
Income (loss) before taxes for the Forged and Cast Rolls
segment for the nine and three months ended September 30, 2002
includes a net restructuring credit of $188,000 and a net gain
on the disposition of assets and businesses of approximately
$830,000. Income (loss) before taxes for the Air and Liquid
Processing segment for the nine and three months ended
September 30, 2003 includes approximately $1,442,000 and
$328,000, respectively, of legal costs associated with the
asbestos and insurance recovery litigation (see Note 12) and
for the nine and three months ended September 30, 2002 includes
restructuring charges of $211,000.
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10.Investment in Joint Venture
Effective January 2003, the U.K. cast roll operation entered
into an agreement to sell technical know-how to a newly created
joint venture in China. In addition to cash proceeds, the U.K.
operations received an interest in the joint venture, the value
of which is not material. The Corporation has no involvement in
the day-to-day activities of the joint venture and no
additional exposure exists as a result of its involvement
therewith. The purpose of the joint venture is to improve
technology and the sale of cast rolls in China.
11. Divestitures
The plastics industry is in its third year of poor demand and
low levels of capital investment. With the outlook continuing
to be uncertain, the Corporation sold the stock of the New
Castle Industries, Inc. group of companies constituting its
small Plastics Processing Machinery segment on August 15, 2003.
The transaction is recorded as a discontinued operation and
presented net of tax in the accompanying financial statements.
A loss on disposal of approximately $4,600,000 comprised of a
loss on sale of $2,000,000, curtailment and settlement of
existing pension obligations of $500,000 and a provision for
environmental remediation of $2,100,000 (see Note 12) was
recognized. In addition, the results of operations for current
and prior year periods for this segment of approximately
$(756,000) and $(566,000) for the nine and three months ended
September 30, 2003, respectively, and $(1,324,000) and
$(899,000) for the nine and three months ended September 30,
2002, respectively, have been reclassified to discontinued
operations. Net sales for this segment approximated
$15,002,000 and $2,602,000 for the nine and three months ended
September 30, 2003, respectively, and $18,801,000 and
$6,124,000 for the nine and three months ended September 30,
2002, respectively.
In connection with the sale, the Corporation provided typical
representations and warranties to the buyer, which primarily
expire with the statutes of limitations. Losses suffered by
the buyer as a result of the Corporation's breach of
representations and warranties are reimbursable by the
Corporation up to approximately $2,000,000. The Corporation
believes no additional amounts will become due as a result of a
breach.
The sales price approximated $16,000,000, subject to post-
closing adjustments. Of the proceeds, $14,600,000 was received
at closing and $1,000,000 was collected in October 2003. The
balance is in the form of a promissory note and due no later
than the second quarter of 2006 with interest at the prime
rate, payable quarterly. As of August 15, 2003 and December
31, 2002, assets for the segment approximated $24,000,000 and
$25,000,000, respectively, and liabilities approximated
$6,000,000 and $5,500,000, respectively,
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comprised of the following major categories:
(in thousands)
August 15, December 31,
2003 2002
Current assets $ 6,300 $ 6,600
Property, plant and equipment,
net 16,100 16,900
Non-current assets 1,600 1,500
$24,000 $25,000
Current liabilities $ 2,600 $ 2,600
Non-current liabilities 3,400 2,900
$ 6,000 $ 5,500
In June 2002, the Corporation sold the net assets, excluding
primarily trade receivables and payables, of Formet, Ltd., its
small metals forging business in England for approximately its
net book value or $1,308,000. A loss of approximately $240,000
was recognized relating primarily to the release of foreign
currency translation losses previously recorded as a component
of accumulated other comprehensive loss. A portion of the
proceeds plus interest were payable subsequent to the sale, all
of which has since been collected.
12.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 alleging personal injury
from exposure to asbestos-containing components historically
used in some products of certain of the Corporation's
subsidiaries. As of September 30, 2003, those subsidiaries, and
in some cases, the Corporation, were defendants (among a number
of defendants, typically over 50 and often over 100) in cases
filed in various state and federal courts involving
approximately 17,950 claimants. Most of the claims were made
in a small number of lawsuits filed in Mississippi in 2002 and
2003. The filings do not typically identify specific products
as a source of asbestos exposure. The Corporation's agreed
gross settlement costs, including defense costs, in the third
quarter of 2003 were approximately $213,000 and for the year to
date were approximately $1,116,000, substantially all of which
is covered by insurance. Twenty-two cases, involving 33
claimants, have been settled in the third quarter of 2003
without any payment bringing the total for the year to date to
ninety-one cases, involving 152 claimants, being settled
without any payment.
On February 7, 2003, Utica Mutual Insurance Company ("Utica")
filed a lawsuit in the Supreme Court of the State of New York,
County of Oneida ("Oneida County Litigation") against the
Corporation and certain of the subsidiaries named in the
underlying asbestos action (the "Policyholder Defendants") and
three other insurance carriers that provided primary coverage
to the Corporation (the "Insurer Defendants"). In the lawsuit,
Utica disputes certain coverage obligations to the Policyholder
Defendants and asserts that the Insurer Defendants also have
defense and indemnity obligations to the Policyholder
Defendants. The lawsuit seeks a declaratory judgment
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and recoupment of amounts already paid. The Policyholder
Defendants answered Utica's complaint, denying that Utica was
entitled to the relief it requested against them, and asserting
counterclaims against Utica.
As of June 27, 2003, the Policyholder Defendants and Utica
entered into a Defense and Indemnity Agreement with Respect to
Asbestos-Related Bodily Injury Claims ("Coverage Agreement")
settling most of the issues raised in the Oneida County
Litigation. Under the Coverage Agreement, Utica has accepted
financial responsibility, subject to the limits of its policies
and based on fixed defense percentages and specified indemnity
allocation formulas, for a substantial majority of the asbestos
personal injury claims arising out of exposure to alleged
asbestos-containing components in products distributed by the
Policyholder Defendants. Utica's agreed share of such defense
and indemnification costs varies depending upon the alleged
asbestos-containing product at issue, whether Utica primary or
umbrella policies are responsible for the claims and, for
indemnification costs only, the years of the claimant's
exposure to asbestos.
Under the Agreement, Utica and the Policyholder Defendants will
continue to litigate the effect, if any, of an exclusion
addressing products liability with respect to sales to the
United States government contained in certain Utica primary
policies. Utica has agreed, however, that any claims precluded
from coverage under the primary policies containing the
exclusion will be covered under the umbrella policies issued by
Utica. Under certain of the umbrella policies, defense costs
expended on covered claims will erode the policy limits, in
contrast to the primary policies where only indemnity costs
erode the policy limits.
Also under the Agreement, Utica has agreed to front, for a
period of one year, all defense and indemnification costs for
the covered claims, subject to a right of recovery from the
relevant subsidiaries, under specified conditions, if the
Insurer Defendants ultimately do not participate in the funding
of such costs. No settlement has been reached by Utica with
the Insurer Defendants.
Based on the Corporation's claims experience to date, insurance
coverage and the identity of the subsidiaries that are named in
the cases, the Corporation believes that the pending legal
proceedings will not have a material adverse effect on its
consolidated financial condition or liquidity. The 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.
Although it is probable that future costs will be incurred, the
amounts cannot reasonably be estimated. Accordingly, the
Corporation has not made an accrual for such costs in its
financial statements. In addition, the Corporation has retained
a law firm to advise it on all matters pertaining to these
asbestos cases including insurance issues. As a result,
together with costs related to the Oneida County Litigation,
the Corporation incurred uninsured
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legal costs approximating $340,000 in the third quarter and
$1,610,000 year to date. The Corporation expects the level of
these expenses to continue to reduce towards year end but are
likely to aggregate in excess of $1,800,000 for 2003.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection
with the sale of real estate previously owned and has been
named a Potentially Responsible Party at one third-party
landfill site used by a division which was previously sold. In
addition, as a result of the sale of the Plastics Processing
Machinery segment, the Corporation retained the liability to
remediate certain environmental contamination at two of the
sold locations and has agreed to indemnify the buyer against
third-party claims arising from the discharge of certain
contamination from one of these locations at a cost estimate of
$2,100,000 which will be paid over several years.
Environmental exposures are difficult to assess and estimate
for numerous reasons including lack of reliable data, the
multiplicity of possible solutions, the years of remedial and
monitoring activity required, and identification of new sites.
However, in the opinion of management, the potential liability
for all environmental proceedings based on information known to
date has been adequately reserved.
13.Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46) and continues to issue interpretive
guidance. The effective date for calendar year corporations
has been deferred until December 31, 2003. FIN 46 currently
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiary if the entities do
not effectively disperse risks among the various parties
involved. The Corporation will continue to evaluate the impact
of FIN 46 and its related amendments on the accounting of its
small, non-recourse interest in the China joint venture.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS No. 149)
was issued codifying decisions previously made by the
Derivatives Implementation Group and in connection with other
FASB projects relating to financial instruments. SFAS No. 149
is effective for contracts entered into or modified after June
30, 2003 and has not had a significant impact on the financial
condition and results of operations of the Corporation.
In May 2003, SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity" (SFAS No. 150) was issued which establishes standards
for classifying and measuring certain financial instruments
with characteristics of both liabilities and equity. SFAS No.
150 was effective for the Corporation on July 1, 2003 and did
not have a significant impact on the financial condition and
results of operations of the Corporation.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operations for the Nine and Three Months Ended September 30, 2003
and 2002
The plastics industry is in its third year of poor demand and low
levels of capital investment. With the outlook continuing to be
uncertain, the Corporation sold the stock of the New Castle
Industries, Inc. group of companies constituting its small Plastics
Processing Machinery segment on August 15, 2003. The transaction
is recorded as a discontinued operation and presented net of tax in
the accompanying financial statements. Results for current and
prior year periods for this segment have been reclassified to
discontinued operations.
Net Sales. Net sales for the nine months ended September 30, 2003
and 2002 were $132,384,000 and $147,399,000, respectively, and for
the three months ended September 30, 2003 and 2002, were
$43,358,000 and $47,854,000, respectively. A discussion of year-to-
date and third quarter sales for the Corporation's two segments is
included below. Order backlogs approximated $105,967,000 at
September 30, 2003 in comparison to $100,922,000 at December 31,
2002, adjusted to exclude backlog for the Plastics Processing
Machinery segment. The improvement is due primarily to an increase
in backlog for the Forged and Cast Rolls segment offset by a
decline in backlog for the Air and Liquid Processing segment.
Costs of Products Sold. Costs of products sold, excluding
depreciation, were 78.5% and 77.6% of net sales for the nine months
ended September 30, 2003 and 2002, respectively, and 78.9% and
78.0% of net sales for the three months ended September 30, 2003
and 2002, respectively. The increase is due to product mix and
depressed pricing as well as higher raw material and natural gas
costs particularly for the Forged and Cast Rolls segment.
Selling and Administrative. Selling and administrative expenses
for the nine and three months ended September 30, 2003 includes
approximately $1,610,000 and $340,000, respectively, of legal costs
incurred for case management and insurance recovery lawsuits filed
in connection with asbestos-containing products manufactured
decades ago. Lower labor and fringe benefit costs resulting from a
net reduction in the number of employees in 2003 in comparison to
2002 partially offset these legal costs.
Income from Operations. Income from operations for the nine and
three months ended September 30, 2003 approximated $3,704,000 and
$1,507,000, respectively, in comparison to $9,778,000 and
$3,601,000 for the same periods of the prior year. A discussion of
year-to-date and third quarter results for the Corporation's two
segments is included below.
Forged and Cast Rolls. Sales and operating income for the nine and
three months ended September 30, 2003 were better than the
comparable prior year periods. Strong bookings and a healthier
backlog contributed significantly to the increase in sales, which
included an improvement in the level of export sales byfor the U.S.
operations. Additional commission expense due to the larger
content of foreign sales as well as higher
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natural gas and raw material costs offset the expected increase to
domestic operating income. For the U.K. operations, depressed
pricing and increases in raw material and other costs reduced the
benefit arising from the third quarter 2002 restructuring. The
sale of technical know-how has added approximately $1,500,000 of
additional income for 2003 year to date. Operating income for the
nine and three months ended September 30, 2002 includes a net gain
on the disposition of assets and businesses of approximately
$830,000 and a net restructuring credit of $188,000. Backlog of
orders for both the U.S. and U.K. operations has increased from a
year ago, reflective of the improvement in export sales. Pricing
and margins, however, remain depressed. The financial weakness of
the domestic steel industry continues to be of concern.
Air and Liquid Processing. Sales for the nine and three months
ended September 30, 2003, decreased 27% and 29% to $53,436,000 and
$16,798,000, respectively, against the comparable prior year
periods while operating income declined to approximately one-third
of that in the prior year. Each of the operating units has been
severely impacted by the fragile economy. Specifically, a dramatic
reduction in demand for power generation equipment products has
negatively affected the pumps business. In addition, lack of
industrial and construction spending and increased competition for
the air handling and coil businesses has impaired results. The
segment was also impacted by legal costs of approximately
$1,442,000 and $328,000 for the year to date and quarter,
respectively, relating to case management and insurance recovery
lawsuits filed in connection with asbestos-containing products
manufactured decades ago. In comparison, earnings for the nine and
three months ended September 20, 2002 include restructuring charges
of $211,000. Backlog of orders has declined significantly from a
year ago.
Other (Expense) Income. Interest expense for the nine and three
months ended September 30, 2003 decreased in comparison to the
prior year due primarily to repayment of $1,350,000 of industrial
revenue bonds in the fourth quarter of 2002. Other (expense)
income for the nine months ended September 30, 2003 and 2002
approximated $(265,000) and $174,000, respectively, due to losses
on foreign exchange transactions in 2003 versus gains earned in
2002. Other (expense) income for the three months ended September
30, 2003 and 2002 approximated $(28,000) and $(68,000),
respectively. The change is due primarily to lower losses on
foreign exchange transactions in 2003 against 2002.
Income Taxes. The effective tax rate for continuing operations for
the nine months ended September 30, 2003 approximated 48.9% in
comparison to 43.2% for the comparable prior year period. The
increase is due primarily to establishing a valuation allowance
against certain foreign tax credits and an increase in state income
taxes. The effective tax rates for continuing operations for the
three months ended September 30, 2003 and 2002 approximated 35.2%
and 45.3%. The decrease is due primarily to a reduction in foreign
operating losses for which no tax benefit had been recorded.
Discontinued Operations. Loss from discontinued operations
includes, net of tax, the results of operations for the Plastic
Processing Machinery segment for each of the periods presented as
well as the loss on disposal. This segment incurred pre-tax losses
of approximately $756,000 and $566,000 for the nine and three
months ended September 30, 2003, respectively, and $1,324,000 and
$899,000 for the nine and three months
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ended September 30, 2002. The loss on disposal of $4,600,000
includes loss on sale of $2,000,000, curtailment and settlement of
existing pension obligations of $500,000 and a provision for
environmental remediation of $2,100,000. The majority of the loss
is a capital loss thereby reducing the expected tax benefit. As of
August 15, 2003 and December 31, 2002, assets for the segment
approximated $24,000,000 and $25,000,000, respectively, and
liabilities approximated $6,000,000 and $5,500,000, respectively,
comprised of the following major categories.
August 15, December 31,
2003 2002
Current assets $ 6,300,000 $ 6,600,000
Property, plant and equipment, net 16,100,000 16,900,000
Non-current assets 1,600,000 1,500,000
$24,000,000 $25,000,000
Current liabilities $ 2,600,000 $ 2,600,000
Non-current liabilities 3,400,000 2,900,000
$ 6,000,000 $ 5,500,000
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" resulting in an after-tax write off of goodwill amounting
to $2,894,000 in the first quarter of 2002 relating to the now-sold
Plastics Processing Machinery segment.
Net (Loss) Income. As a result of all of the above, the
Corporation incurred a net loss for the nine and three months ended
September 30, 2003 of $3,493,000 and $4,081,000, respectively, in
comparison to net income of $1,692,000 and $1,267,000 for the nine
and three months ended September 30, 2002, respectively.
Liquidity and Capital Resources
Net cash flows provided by operating activities amounted to
$7,388,000 for the nine months ended September 30, 2003 in
comparison to $15,015,000 for the nine months ended September 30,
2002. The decrease is due primarily to lower earnings, including
the loss on the disposal of Plastics Processing Machinery segment.
Net cash flows from investing activities were $10,702,000 for the
nine months ended September 30, 2003 in comparison to a net use of
$1,767,000 for the nine months ended September 30, 2002. The
improvement is due primarily to proceeds from the sale of the
Plastics Processing Machinery segment for approximately $16,000,000
of which $14,600,000 was received at closing. Of the remaining
amount, $1,000,000 was collected in October 2003 and the balance,
subject to closing balance sheet adjustments, is due no later than
the second quarter of 2006 along with interest at the prime rate.
In June 2002, the Corporation sold the net assets of its small
metals forging business in England for approximately $1,308,000. A
portion of the proceeds in the form of a note were payable
subsequent to the sale, all of which has since been received. In
addition, in July
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2002, the remaining assets of the Belgian facility were sold for
approximately $1,447,000. Capital expenditures for 2003 and 2002
are comparable. As of September 30, 2003, future capital
expenditures totaling $2,675,000 have been approved. Funds on-hand,
funds generated by future operations and available lines of credit
are expected to be sufficient to finance capital expenditure
requirements.
Net cash flows used in financing activities were $2,724,000 for
2003 and $2,646,000 for 2002 relating primarily to payment of
quarterly dividends at a rate of $0.10 per share per quarter. In
addition, proceeds were received in both years from the issuance of
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, 2003 was approximately $8,000,000.
Litigation and Environmental Matters
See Note 12 to the consolidated financial statements.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 46, "Consolidation of Variable Interest
Entities" (FIN 46) and continues to issue interpretive guidance.
The effective date for calendar year corporations has been deferred
until December 31, 2003. FIN 46 currently requires existing
unconsolidated variable interest entities to be consolidated by
their primary beneficiary if the entities do not effectively
disperse risks among the various parties involved. The Corporation
will continue to evaluate the impact of FIN 46 and its related
amendments on the accounting of its small, non-recourse interest in
the China joint venture.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS No. 149) was
issued codifying decisions previously made by the Derivatives
Implementation Group and in connection with other FASB projects
relating to financial instruments. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and has not
had a significant impact on the financial condition and results of
operations of the Corporation.
In May 2003, SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity"
(SFAS No. 150) was issued which establishes standards for
classifying and measuring certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 was
effective for the Corporation on July 1, 2003 and did not have a
significant impact on the financial condition and 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.
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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.
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, 2002.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. As of the end of the period
covered by this Form 10-Q, the Corporation evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures. Disclosure controls and procedures are the
controls and other procedures designed to ensure that the
information required to be disclosed in reports filed with or
submitted to the SEC are recorded, processed, summarized and
reported in a timely manner. Robert A. Paul, Chief Executive
Officer, and Marliss D. Johnson, Vice President, Controller and
Treasurer, reviewed and participated in this evaluation. Based on
this evaluation, Messrs. Paul and Johnson concluded that, as of the
end of the period covered by this Form 10-Q, the Corporation's
disclosure controls were effective.
(b) Internal controls over financial reporting. Since the date of
the evaluation described above, there have not been any significant
changes in the Corporation's internal controls over financial
reporting or in other factors that could significantly affect those
controls.
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PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 12 to the consolidated
financial statements (Litigation and Environmental Matters)
is incorporated herein by reference.
Items 2-4 None
Item 5 Other Information
The Corporation's chief executive officer and chief
financial officer have provided the certifications with
respect to the Form 10-Q that are required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002. These
certifications have been filed as Exhibits 31.1 and 31.2
and Exhibits 32.1 and 32.2, respectively.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation and By-laws
(a) Articles of Incorporation
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1983,
March 31, 1984, March 31, 1985, March 31, 1987 and
September 30, 1998.
(b) By-laws
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996
and June 30, 2001.
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.
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(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.
31. Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32. Section 1350 Certifications
(1) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Dated July 22, 2003 announcing the Corporation's results
for the six and three months ended June 30, 2003.
Dated August 29, 2003, announcing the sale of the New
Castle Industries, Inc. group of companies.
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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 12, 2003 BY: s/Robert A. Paul
Robert A. Paul
President and
Chief Executive Officer
DATE: November 12, 2003 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
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AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 - Section 1350 Certifications
(1) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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