FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-898.
AMPCO-PITTSBURGH CORPORATION
Incorporated in Pennsylvania.
I.R.S. Employer Identification No. 25-1117717.
600 Grant Street, Pittsburgh, Pennsylvania 15219
Telephone Number 412/456-4400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
On May 16, 2005, 9,757,497 common shares were outstanding.
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AMPCO-PITTSBURGH CORPORATION
INDEX
Page No.
Part I - Financial Information:
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2005 and December 31, 2004 (restated) 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2005 and 2004
(restated) 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2005 and 2004
(restated) 5
Notes to Condensed 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 19
Item 4 - Controls and Procedures 19
Part II - Other Information:
Item 1 - Legal Proceedings 20
Item 6 - Exhibits 20
Signatures 22
Exhibit Index 23
Exhibits
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2005 2004 *
Assets
Current assets:
Cash and cash equivalents $ 5,740,302 $ 11,339,514
Short-term marketable securities 26,255,000 25,455,000
Receivables, less allowance for
doubtful accounts of $674,063 in
2005 and $955,677 in 2004 40,861,637 37,495,920
Inventories 54,734,849 54,318,553
Other 9,050,081 8,337,414
Total current assets 136,641,869 136,946,401
Property, plant and equipment, net 68,223,391 69,432,041
Prepaid pensions 25,430,810 25,139,810
Goodwill 2,694,240 2,694,240
Other noncurrent assets 3,753,807 3,731,151
$236,744,117 $237,943,643
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 2,211,452 $ -
Accounts payable 13,371,348 15,446,125
Accrued payrolls and employee benefits 7,706,850 8,715,427
Industrial Revenue Bond debt 13,311,000 13,311,000
Other 17,077,252 17,009,056
Total current liabilities 53,677,902 54,481,608
Employee benefit obligations 28,417,581 28,871,999
Deferred income taxes 19,006,801 18,843,171
Other noncurrent liabilities 5,798,592 7,229,456
Total liabilities 106,900,876 109,426,234
Commitments and contingent liabilities
(Note 6)
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 9,757,497 in 2005 and
9,747,497 in 2004 9,757,497 9,747,497
Additional paid-in capital 104,318,527 104,204,311
Retained earnings 34,689,019 34,162,688
Accumulated other comprehensive loss (18,921,802) (19,597,087)
Total shareholders' equity 129,843,241 128,517,409
Total liabilities and shareholders'
equity $236,744,117 $237,943,643
* - Restated - Note 12.
See Notes to Condensed Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
2005 2004 *
Net sales $ 58,894,052 $ 46,786,579
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 47,985,845 36,751,562
Selling and administrative 6,947,178 6,807,279
Depreciation 1,692,846 1,596,516
(Gain) loss on disposition of assets (4,165) 8,968
Total operating expenses 56,621,704 45,164,325
Income from operations 2,272,348 1,622,254
Other (expense) income:
Interest expense (104,612) (61,066)
Other - net (42,655) 243,385
(147,267) 182,319
Income before income taxes 2,125,081 1,804,573
Income tax provision 622,000 496,000
Net income $ 1,503,081 $ 1,308,573
Basic and diluted earnings
per common share:
Net income per common share-basic $ 0.15 $ 0.14
Net income per common share-dilutive $ 0.15 $ 0.13
Cash dividends declared per share $ .10 $ .10
Weighted average number of common
shares outstanding:
Basic shares 9,756,275 9,682,398
Dilutive shares 9,815,304 9,748,644
* Restated - See Note 12.
See Notes to Condensed Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2005 2004*
Net cash flows (used in) provided by
operating activities $(5,576,557) $ 2,170,311
Cash flows from investing activities:
Purchases of property, plant and equipment (633,942) (1,298,682)
Purchases of short-term marketable
securities (7,000,000) (13,400,000)
Proceeds from sale of short-term
marketable securities 6,200,000 6,600,000
Proceeds from sale of business - 500,000
Proceeds from U.K. governmental grant - 922,500
Proceeds from sale of assets - 18,075
Net cash flows used in investing
activities (1,433,942) (6,658,107)
Cash flows from financing activities:
Proceeds from line of credit 2,234,361 -
Proceeds from the issuance of common stock 108,250 550,000
Dividends paid (975,750) (965,750)
Net cash flows provided by (used in)
financing activities 1,366,861 (415,750)
Effect of exchange rate changes on cash
and cash equivalents 44,426 (526,241)
Net decrease in cash and cash equivalents (5,599,212) (5,429,787)
Cash and cash equivalents at
beginning of period 11,339,514 15,488,789
Cash and cash equivalents at
end of period $ 5,740,302 $ 10,059,002
Supplemental information:
Income tax payments $ 82,555 $ 52,440
Interest payments $ 102,529 $ 64,462
* Restated - See Note 12.
See Notes to Condensed Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Unaudited Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of March 31, 2005,
the condensed consolidated statements of operations for the
three months ended March 31, 2005 and 2004 and the condensed
consolidated statements of cash flows for the three months ended
March 31, 2005 and 2004 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. The results of operations for the three months
ended March 31, 2005 are not necessarily indicative of the
operating results expected for the full year.
Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted.
2. Inventories
At March 31, 2005 and December 31, 2004, approximately 65% and
64%, respectively, of the inventories were valued on the LIFO
method, with the remaining inventories being valued on the FIFO
method. Inventories were comprised of the following:
(in thousands)
March 31, December 31,
2005 2004
Raw materials $14,808 $13,984
Work-in-process 25,007 25,717
Finished goods 8,870 8,320
Supplies 6,050 6,298
$54,735 $54,319
3. Property, Plant and Equipment
At March 31, 2005 and December 31, 2004, property, plant and
equipment were comprised of the following:
(in thousands)
March 31, December 31,
2005 2004
Land and land improvements $ 4,292 $ 4,292
Buildings 25,158 25,170
Machinery and equipment 135,429 135,058
164,879 164,520
Accumulated depreciation (96,656) (95,088)
$ 68,223 $ 69,432
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4.Other Current Liabilities
Other current liabilities were comprised of the following:
(in thousands)
March 31, December 31,
2005 2004
Customer-related liabilities $ 5,228 $ 5,991
Other 11,849 11,018
$17,077 $17,009
Included in customer-related liabilities are costs expected to be
incurred with respect to product warranties. Changes in the
liability for product warranty claims for the three months ended
March 31, 2005 and 2004 consisted of:
(in thousands)
Three Months
Ended March 31,
2005 2004
Balance at the beginning of the year $4,150 $3,435
Satisfaction of warranty claims (722) (552)
Provision for warranty claims 525 598
Other, primarily impact from changes in
foreign currency exchange rates (49) 72
Balance at end of period $3,904 $3,553
5.Pension and Other Postretirement Benefits
No contributions were made to the U.S. pension benefit plans
during the three months ended March 31, 2005 and 2004.
Contributions to the foreign pension plan approximated $148,000
and $130,000 and net payments for other postretirement benefits
approximated $320,000 and $79,000 for the three months ended
March 31, 2005 and 2004, respectively. Contributions to the U.K.
defined contribution plan approximated $61,000 and $3,000 for the
three months ended March 31, 2005 and 2004, respectively.
Net periodic pension and other postretirement costs include the
following components for the three months ended March 31, 2005
and 2004:
(in thousands)
U.S. Foreign Other
Pension Pension
Postretirement
Benefits Benefits Benefits
2005 2004 2005 2004 2005 2004
Service cost $ 566 $ 518 $ - $ 277 $ 76 $ 60
Interest cost 1,684 1,658 560 464 192 196
Expected return on
plan assets (2,657) (2,553) (492) (437) - -
Amortization of prior
service cost (benefit) 148 147 - - (137) (137)
Actuarial (gain) loss (34) (30) 95 194 42 39
Net benefit (income)
cost $ (293) $ (260) $ 163 $ 498 $ 173 $ 158
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6. Commitments and Contingent Liabilities
Outstanding standby letters of credit as of March 31, 2005
approximated $19,036,000, the majority of which serve as
collateral for the Industrial Revenue Bond debt.
In connection with the sale of certain subsidiaries in 2003, the
Corporation provided typical warranties to the buyer (such as
those relating to income taxes, intellectual property, legal
proceedings, product liabilities and title to property, plant
and equipment) which primarily expire with the statutes of
limitations. Losses suffered by the buyer as a result of the
Corporation's breach of warranties are reimbursable by the
Corporation up to approximately $2,000,000. Based on experience
while owning the subsidiary, the Corporation believes no amounts
will become due.
During 2004, the Davy Roll operations received $1,498,000
(800,000 GBP) of U.K. governmental grants toward the purchase
and installation of certain machinery and equipment. Under the
agreement, the grants are repayable if certain conditions are
not met including achieving and maintaining a targeted level of
employment through March 2009.
7. Comprehensive Income
The Corporation's comprehensive income for the three months
ended March 31, 2005 and 2004 consisted of:
(in thousands)
Three Months
Ended March 31,
2005 2004
Net income $ 1,503 $ 1,309
Foreign currency translation adjustments (613) 928
Adjustment to minimum pension liability 436 (385)
Unrealized holding (losses) gains on
marketable securities (1) 2
Change in fair value of derivatives 853 928
Comprehensive income $ 2,178 $ 2,782
8. Foreign Exchange and Futures Contracts
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 or
cash flow hedges. As of March 31, 2005, approximately
$61,447,000 of anticipated foreign denominated sales has been
hedged with the underlying contracts settling at various dates
beginning in 2005 through March 2010. As of March 31, 2005, the
fair value of contracts expected to settle within the next 12
months, which is recorded in other current liabilities,
approximated $1,695,000 and the fair value of the remaining
contracts, which is recorded in other noncurrent liabilities,
approximated $3,478,000. The change in the fair value of the
contracts designated as cash flow hedges is recorded as a
component of accumulated other comprehensive income (loss) and
approximated $(2,842,000), net of income taxes, as of March 31,
2005. The change in fair value will be reclassified into
earnings when the projected sales occur with
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approximately $(1,254,000) expected to be released to earnings
within the next 12 months. During the three months ended March
31, 2005 and 2004, approximately $(333,000) and $(464,000),
respectively, were released to pre-tax earnings.
(Losses) gains on foreign exchange transactions approximated
$(126,000) and $222,000 for the three months ended March 31,
2005 and 2004, respectively.
In addition, one of the Corporation's subsidiaries is subject to
risk from increases in the price of a commodity (copper) used in
the production of inventory. To minimize this risk, futures
contracts are entered into which are designated as cash flow
hedges. At March 31, 2005, approximately 100% or $2,513,000 of
anticipated commodity purchases over the next 12 months are
hedged. The fair value of the contracts expected to be settled
within the next 12 months approximated $490,000 and the fair
value of the remaining contracts approximated $2,000 as of March
31, 2005. The change in the fair value of the contracts
designated as cash flow hedges is recorded as a component of
accumulated other comprehensive income (loss) and approximated
$309,000, net of income taxes, as of March 31, 2005. The change
in the fair value will be reclassified into earnings when the
projected sales occur with approximately $308,000 expected to be
released to earnings within the next 12 months. During the
three months ended March 31, 2005 and 2004, approximately
$209,000 and $140,000, respectively, were released to pre-tax
earnings.
9. Business Segments
Presented below are the net sales and income before income taxes
for the Corporation's two business segments.
(in thousands)
Three Months Ended
March 31,
2005 2004
Net sales:
Forged and Cast Rolls $ 41,392 $ 29,771
Air and Liquid Processing 17,502 17,016
Total Reportable Segments $ 58,894 $ 46,787
Income before income taxes:
Forged and Cast Rolls $ 2,577 $ 1,720
Air and Liquid Processing 952 1,117
Total Reportable Segments 3,529 2,837
Other expense, including
corporate costs - net (1,404) (1,032)
Total $ 2,125 $ 1,805
Income before income taxes for the Air and Liquid Processing
segment for the three months ended March 31, 2005 and 2004
includes approximately $190,000 and $475,000, respectively, for
legal and case management costs associated with personal injury
claims and insurance recovery litigation related to asbestos-
containing product and indemnity payments not expected to be
recovered from insurance carriers (see Note 10).
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10. Litigation and Environmental Matters (claims not in thousands)
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In addition,
claims have been asserted alleging personal injury from exposure
to asbestos-containing components historically used in some
products of certain of the Corporation's subsidiaries. Those
subsidiaries, and in some cases, the Corporation, are defendants
(among a number of defendants, typically over 50 and often over
100) in cases filed in various state and federal courts. The
following table reflects information about these cases for the
three months ended March 31, 2005:
Approximate open claims at end of period: 25,000
Approximate gross settlement and defense costs: $2,613,000
Approximate claims settled or dismissed during the period: 78
Of the approximate 25,000 claims pending as of March 31, 2005,
over 15,000 were made in six lawsuits filed in Mississippi in
2002. Substantially all settlement and defense costs in the
above table were paid by insurers.
On February 7, 2003, Utica Mutual Insurance Company ("Utica")
filed a lawsuit in the Supreme Court of the State of New York,
County of Oneida ("Oneida County Litigation") against the
Corporation and certain of the subsidiaries named in the
underlying asbestos actions (the "Policyholder Defendants") and
three other insurance carriers that provided primary coverage to
the Corporation (the "Insurer Defendants"). In the lawsuit,
Utica disputed certain coverage obligations to the Policyholder
Defendants and asserted that the Insurer Defendants also had
defense and indemnity obligations to the Policyholder Defendants.
As of November 24, 2003, the Policyholder Defendants and Utica
had settled the Oneida County Litigation as among themselves,
although the Oneida County Litigation remained pending because
settlement had not been reached with all of the Insurer
Defendants. Pursuant to the settlement, Utica accepted financial
responsibility, subject to the limits of its policies and based
on fixed defense percentages and specified indemnity allocation
formulas, for a substantial majority of the asbestos personal
injury claims arising out of exposure to alleged asbestos-
containing components in products distributed by the Policyholder
Defendants that are subsidiaries of the Corporation. Utica's
agreed share of such defense and indemnification costs varies
depending upon the alleged asbestos-containing product at issue,
whether Utica's primary or umbrella policies are responsible for
the claims and, for indemnification costs only, the years of the
claimant's exposure to asbestos.
On January 23, 2004, Utica sought the court's approval to file an
amended complaint seeking additional relief against the
Policyholder Defendants that is substantially identical to the
relief Utica seeks against those defendants in a separate lawsuit
filed by Howden Buffalo, Inc. ("Howden") in the United States
District Court for the Western District of Pennsylvania (the
"Pennsylvania Litigation") that is described below. Utica also
sought to add Howden as a defendant in the Oneida County
Litigation.
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On November 25, 2003, Howden filed the Pennsylvania Litigation
against the Corporation, Utica and two of the Insurer Defendants
(with Utica, the "Howden Insurer Defendants"). Howden alleges
that (1) Buffalo Forge Company, a former subsidiary of the
Corporation, or its predecessors (collectively or individually,
"Buffalo Forge") had rights in certain policies issued by the
Howden Insurer Defendants; (2) those rights were transferred in
the 1993 transaction whereby the Corporation sold all of the
capital stock of Buffalo Forge to Howden Group America, Inc. and
Howden Group Canada, Ltd.; and (3) those rights currently reside
in Howden, as successor to Buffalo Forge. In the lawsuit, Howden
is seeking a judicial determination of the rights and duties of
the Corporation and the Howden Insurer Defendants under those
policies with respect to asbestos-related personal injury claims
asserted against Howden arising from the historical operations of
Buffalo Forge, as well as monetary damages from Utica as a result
of its denial of Howden's rights under policies it issued that
allegedly covered Buffalo Forge. The Corporation intends to
defend the lawsuit vigorously. If Howden is successful in this
lawsuit and obtains coverage from the Howden Insurer Defendants,
however, any insurance recovery obtained by Howden under those
policies could erode, in whole or in part, the applicable
coverage limits, which would reduce or eliminate coverage amounts
that otherwise may be available to the Corporation under those
policies.
As one of the Howden Insurer Defendants, Utica has filed a cross-
claim against the Corporation, and a third-party complaint
against two of its subsidiaries, seeking a declaratory judgment
that, to the extent Utica has defense or indemnity obligations to
Howden: (1) Utica is entitled to contribution, subrogation and
reimbursement from the Corporation or its subsidiaries with
respect to defense and indemnity payments paid on behalf of the
Corporation or its subsidiaries; and (2)the Corporation and its
subsidiaries have no rights under the insurance contracts issued
by Utica to Buffalo Forge. The Corporation believes that Utica's
cross-claim and third party claims, as well as the similar relief
Utica now seeks in the Oneida County Litigation, are barred by a
release provided in the settlement of the Oneida County
Litigation and is otherwise without merit, and intends to assert
that position in this lawsuit. If Utica is successful in
obtaining the declaratory relief it seeks, it could eliminate
insurance coverage provided to the Corporation by Utica.
The Corporation believes it has meritorious defenses to the
Howden lawsuit and Utica's cross claims. In addition, based on
the Corporation's claims experience to date with the underlying
asbestos claims, the available insurance coverage and the
identity of the subsidiaries that are named in the cases, the
Corporation believes that the pending legal proceedings will not
have a material adverse effect on its consolidated financial
condition or liquidity. The outcome of particular lawsuits,
however, could be material to the consolidated results of
operations of the period in which the costs, if any, are
recognized.
There can be no assurance that the Corporation or certain of its
subsidiaries will not be subjected to significant additional
claims in the future or that the Corporation's or its
subsidiaries' ultimate liability with respect to these claims
will not present significantly greater and longer lasting
financial exposure than presently contemplated. The Corporation
has made an accrual in its financial
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statements to reflect its estimated share of costs for pending
asbestos claims, based on deductible and similar features of its
relevant insurance policies. In addition, the Corporation
incurred uninsured legal costs in connection with advice on
certain matters pertaining to these asbestos cases including
insurance litigation, case management and other issues. Those
costs amounted to approximately $193,000 and $505,000 for the
three months ended March 31, 2005 and 2004, respectively.
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 four third-party landfill sites.
In addition, as a result of the sale of certain subsidiaries, 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, the cost for which was accrued at the time of sale.
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.
11. Flood Damage
In September 2004, the Carnegie, Pennsylvania plant of the
Corporation's Union Electric Steel subsidiary was damaged by
flooding as a result of the remnants of Hurricane Ivan. Through
March 31, 2005, the Corporation received $4,000,000 toward its
claim of which $3,000,000 was received in 2004. Of the
$1,000,000 received in 2005, $600,000 represents non-refundable
advances toward the business interruption insurance claim which
was recorded as a reduction of costs of products sold (excluding
depreciation) in the accompanying condensed consolidated
statement of operations. The remaining $3,400,000 represents
reimbursement of clean-up costs, repairs to machinery and
recovery of certain fixed expenses. Final settlement is expected
in the second quarter of 2005.
12. Restatement
Subsequent to the issuance of the Corporation's condensed
consolidated financial statements for the three months ended
March 31, 2004, the Corporation determined that deferred tax
liabilities were not required to be provided for interest
receivable from its U.K. subsidiary on intercompany debt owed to
the Corporation. Additionally, subsequent to the issuance of the
Corporation's consolidated financial statements for the year
ended December 31, 2004, the Corporation concluded
(1) based on supplemental guidance recently issued, that auction-
rate securities do not meet the definition of cash equivalents and
should therefore be classified as short-term marketable securities,
and
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(2) its outstanding Industrial Revenue Bond debt should be
classified as a current liability since the bonds can be put back
to the Corporation on short notice if, although considered remote
by the Corporation, the bonds are unable to be remarketed and
bondholders seek reimbursement from the letters of credit which
serve as collateral for the bonds. Any draws against the letters
of credit are required to be repaid by the Corporation immediately.
Accordingly, the accompanying condensed consolidated financial
statements for the three months ended March 31, 2004 and the
condensed consolidated balance sheet as of December 31, 2004 have
been restated from the amounts previously reported.
The effect of reversing the deferred tax liabilities on the
condensed consolidated financial statements for the three months
ended March 31, 2004 was as follows:
Previously As
Reported Restated
Condensed Consolidated Statement of
Operations:
Income tax provision $ 596,000 $ 496,000
Net income 1,208,573 1,308,573
Net income per common share - basic 0.12 0.14
Net income per common share - dilutive 0.12 0.13
The effect of reclassifying its investments in auction-rate
securities from cash and cash equivalents to short-term
marketable securities and its Industrial Revenue Bond debt from a
long-term liability to a current liability on the accompanying
condensed consolidated balance sheet as of December 31, 2004 and
the condensed consolidated statement of cash flows for the three
months ended March 31, 2004 was as follows:
Previously As
Reported Restated
Condensed Consolidated Balance Sheet:
Cash and cash equivalents $36,794,514 $11,339,514
Short-term marketable securities - 25,455,000
Total current liabilities 41,170,608 54,481,608
Long-term debt obligations 13,311,000 -
Condensed Consolidated Statements of
Cash Flows:
Purchases of short-term marketable
securities - (13,400,000)
Proceeds from the sale of short-term
marketable securities - 6,600,000
Net cash flows provided by (used in)
investing activities 141,893 (6,658,107)
Net increase (decrease) in cash and
cash equivalents 1,370,213 (5,429,787)
Cash and cash equivalents at beginning
of period 35,738,789 15,488,789
Cash and cash equivalents at end
of period 37,109,002 10,059,002
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
The Corporation currently operates in two business segments - the
Forged and Cast Rolls segment and the Air and Liquid Processing
segment. The Forged and Cast Rolls segment is benefiting from
resurgence in the global steel industry and the weaker dollar which
is improving export business, particularly to the Asian and Indian
markets. While the unprecedented cost increases experienced in
2004 for raw materials and natural gas have begun to stabilize,
they remain at historically high cost levels. Operating results
for 2005 are expected to improve in the latter part of the year as
the segment progressively works through its backlog and increased
pricing and raw material and energy surcharges flow through to
earnings. New machinery brought on-line late in 2004 at Davy Roll
have begun to contribute to operational improvements and have added
needed capacity.
The Air and Liquid Processing segment generally lags any downturn
in the economy; accordingly, the segment was not affected by the
weak economy until 2003. Similarly, any recovery will not
immediately improve operating results. In particular, demand for
lube oil pumps is expected to remain steady but significantly below
peak levels in 2002 and 2001 due to reduced demand for gas
turbines. The segment is also being impacted by higher material
costs, the slow down in the construction industry particularly
related to the pharmaceutical, institutional and health care
markets, and the resulting decline in margins following aggressive
pricing by competitors as a reduced level of potential business is
pursued. Product offerings have been expanded but no significant
improvement is expected until capital spending by the manufacturing
sector improves.
Subsequent to the issuance of the Corporation's consolidated
financial statements for the year ended December 31, 2004, the
Corporation concluded
(1) based on supplemental accounting interpretation recently
issued, that auction-rate securities did not meet the definition of
cash equivalents and should therefore be classified as short-term
marketable securities, and
(2) its outstanding Industrial Revenue Bond debt should be
classified as a current liability, despite principal not beginning
to become due until 2020, since the bonds can be put back to the
Corporation on short notice if, although considered remote by the
Corporation, the bonds are unable to be remarketed and bondholders
seek reimbursement from the letters of credit which serve as
collateral for the bonds. Any payments under the letters of credit
are required to be repaid by the Corporation immediately.
As soon as practicable, the Corporation intends to file an
amendment on Form 10-K/A to its Annual Report to Shareholders on
Form 10-K for the year ended December 31, 2004, filed with the
Securities and Exchange Commission on March 11, 2005, to change the
balance sheet classification of auction-rate securities from cash
and cash equivalents to short-term marketable securities and its
Industrial Revenue Bond debt from a long-
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term liability to a current liability, and to reflect purchases and
sales of auction-rate securities as cash flows from investing activities
in the consolidated statements of cash flows, within Part II -
Items 7 and 8 and Part IV - Item 15, as follows:
2004 2003
As As
Previously As Previously As
Reported Restated Reported Restated
(in thousands)
Consolidated Balance Sheets
as of December 31,:
Cash and cash equivalents $ 36,795 $ 11,340 $ 35,739 $ 15,489
Short-term marketable securities - 25,455 - 20,250
Total current liabilities 41,170 54,481 34,042 47,353
Long-term debt obligations 13,311 - 13,311 -
2004 2003
As As
Previously As Previously As
Reported Restated Reported Restated
(in thousands)
Consolidated Statements of
Cash Flows for the Year Ended:
Purchases of short-term
marketable securities $ - $(48,635) $ - $(51,250)
Proceeds from the sale of
short-term marketable securities - 43,430 - 31,000
Net cash flow (used in) provided
by investing activities (5,111) (10,316) 6,863 (13,387)
Net increase (decrease) in cash
and cash equivalents 1,056 (4,149) 7,950 (12,300)
Cash and cash equivalents
at beginning of period 35,739 15,489 27,789 27,789
Cash and cash equivalents
at end of period 36,795 11,340 35,739 15,489
The Corporation did not invest in auction-rate securities prior to
2003.
The following MD&A gives effect to the restatement discussed in
Note 12 to the condensed consolidated financial statements for the
three months ended March 31, 2004.
Operations for the Three Months Ended March 31, 2005 and 2004
Net Sales. Net sales for the three months ended March 31, 2005 and
2004 were $58,894,000 and $46,787,000, respectively. A discussion
of sales for the Corporation's two segments is included below.
Order backlogs approximated $202,547,000 at March 31, 2005 in
comparison to $164,981,000 at December 31, 2004. The increase is
attributable principally to the Forged and Cast Rolls segment.
Approximately $46,255,000 of the March 31, 2005 backlog is
scheduled for shipment beyond 2005.
Costs of Products Sold. Costs of products sold, excluding
depreciation, were 81.5% and 78.6% of net sales for the three
months ended March 31, 2005 and 2004, respectively. The increase
is due to product mix and higher raw material and natural gas
costs.
- 15 -
Selling and Administrative. Selling and administrative expenses
for the three months ended March 31, 2005 and 2004 were comparable.
Higher commission expense resulting from improved sales volumes
were offset by lower legal and case management costs associated
with personal injury claims and insurance recovery litigation
related to asbestos-containing product and indemnity payments not
expected to be recovered from insurance carriers.
Income from Operations. Income from operations for the three
months ended March 31, 2005 approximated $2,272,000, including non-
refundable advances of $600,000 toward the business interruption
insurance claim, in comparison to $1,622,000 for the three months
ended March 31, 2004. A discussion of operating results for the
Corporation's two segments is included below.
Forged and Cast Rolls. Sales for the three months ended March 31,
2005 improved over the comparable prior year period as a result of
a stronger opening backlog and price increases, including raw
material and energy surcharges. Although operating income benefited
from the additional volume, margins remained relatively flat due to
the higher cost of raw materials and energy from a year ago. During
the quarter, non-refundable advances of $600,000 were received
toward the business interruption insurance claim of Union Electric
Steel, which arose from flooding caused by the remnants of
Hurricane Ivan in the third quarter of 2004, with final settlement
expected in second quarter of 2005. Backlog approximated
$173,630,000 as of March 31, 2005 in comparison to $138,729,000 as
of December 31, 2004. The increase is reflective of the continued
demand for products of both the U.S. and U.K. operations.
Approximately $43,041,000 of the March 31, 2005 backlog is
scheduled for shipment beyond 2005.
Air and Liquid Processing. Sales for the three months ended March
31, 2005 and 2004 were comparable. Operating income declined due
principally to the weak performance of the air handling business
which is being impacted by a decline in construction activity and
depressed pricing on available projects. Results for the pumps
operation remain in line with the prior period. Earnings for the
coil business have improved slightly due to product mix. Although
this segment continues to be adversely impacted by legal and case
management costs associated with personal injury claims and
insurance recovery litigation related to asbestos-containing
products and indemnity payments not expected to be recovered from
insurance carriers, these costs decreased by approximately $285,000
for the three months ended March 31, 2005 against the same period
of the prior year. Backlog approximated $28,917,000 as of March
31, 2005 in comparison to $26,252,000 as of December 31, 2004; the
increase is attributable to additional orders for the heat exchange
business. Approximately $3,214,000 of the March 31, 2005 backlog
is scheduled for shipment beyond 2005.
Other (Expense) Income. Other (expense) income for the three
months ended March 31, 2005 and 2004 approximated $(147,000) and
$182,000, respectively. The change is due primarily to losses on
foreign exchange transactions in 2005 versus gains on foreign
exchange transactions in 2004.
- 16 -
Income Taxes. The effective tax rate approximated 29.3% and 27.5%
for the three months ended March 31, 2005 and 2004, respectively.
The increase is due primarily to higher domestic profitability
partially offset by beneficial permanent deductions.
Net Income. As a result of all of the above, the Corporation's net
income for the three months ended March 31, 2005 and 2004 equaled
$1,503,000 and $1,309,000, respectively.
Liquidity and Capital Resources
Net cash flows (used in) provided by operating activities
approximated $(5,577,000) and $2,170,000 for the three months ended
March 31, 2005 and 2004, respectively. The decrease is
attributable primarily to an increase in accounts receivable
arising from higher sales for the first quarter of 2005 versus
first quarter of 2004 and a reduction in accounts payable due
primarily to timing of payments.
Net cash flows used in investing activities were $(1,434,000) and
$(6,658,000) for the three months ended March 31, 2005 and 2004,
respectively. The decrease in the usage is primarily attributable
to a reduction in net purchases of short-term marketable
securities. Capital expenditures approximated $634,000 for the
three months ended March 31, 2005 and $1,299,000 for the three
months ended March 31, 2004 of which approximately $923,000 of U.K.
governmental grants were received during the same period reducing
the net cost of the expenditures. Additionally, the remaining sale
proceeds of $500,000 from the 2003 sale of the Plastics Processing
Machinery segment were received in 2004. As of March 31, 2005,
future capital expenditures totaling $2,575,000 have been approved.
Funds on-hand and funds generated by future operations are expected
to be sufficient to finance capital expenditure requirements.
Net cash flows provided by (used in) financing activities were
$1,367,000 and $(416,000) for the three months ended March 31, 2005
and 2004, respectively. As of March 31, 2005, Davy Roll had
borrowings outstanding under its line of credit of approximately
$2,234,000. During each of the quarters, dividends were paid at a
rate of $0.10 per share. Issuance of stock under the Corporation's
stock option plan provided cash of $108,000 and $550,000 for the
respective quarters.
The change in the value of the British pound against the dollar
impacted cash and cash equivalents by $44,000 and $(526,000) for
the three months ended March 31, 2005 and 2004.
The Corporation maintains short-term lines of credit in excess of
the cash needs of its businesses. The total available at March 31,
2005 was approximately $6,300,000 (including 900,000 GBP in the
U.K. and 400,000 Euros in Belgium).
Litigation and Environmental Matters
See Note 10 to the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 151,
"Inventory
- 17 -
Costs" which confirms that accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material
(spoilage) be recognized as current period charges and that
allocation of fixed production overheads to inventories be based on
normal capacity of the production facilities. The provisions of
SFAS No. 151 will become effective for the Corporation on January
1, 2006 and are not expected to have a significant effect on its
financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets" which amends previously issued guidance by
eliminating the exception from fair value measurement for
nonmonetary exchanges of similar productive assets and replaces it
with an exception for exchanges which do not have commercial
substance. The provisions of SFAS No. 153 will become effective
for the Corporation on July 1, 2005. Until the Corporation enters
into such transactions, the standard will not impact the
Corporation's financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 123 (R), "Shared-Based
Payment" which requires companies to recognize compensation cost
for stock options and other stock-based awards based on their fair
value and companies will no longer be permitted to follow the
intrinsic value accounting method, which becomes effective for the
Corporation on January 1, 2006. The Corporation will adopt the
standard prospectively. Until the Corporation issues additional
stock options, the standard will not impact the Corporation's
financial condition or results of operations.
In March 2005, the FASB issued an interpretation of SFAS No. 143,
"Accounting for Conditional Asset Retirement Obligations" which
clarifies the term conditional asset retirement obligation. The
interpretation did not impact the Corporation's financial condition
or results of operations.
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.
- 18 -
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, 2004.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. An evaluation of the
effectiveness of the Corporation's disclosure controls and
procedures as of the end of the period covered by this report was
carried out under the supervision, and with the participation, of
the management, including the principal executive officer and
principal financial officer. Disclosure controls and procedures
are defined under Securities and Exchange Commission ("SEC") rules
as controls and other procedures that are designed to ensure that
information required to be disclosed by a company in reports that
it files under the Exchange Act recorded, processed, summarized and
reported within the required time periods. As a result of the
restatement of the Corporation's consolidated balance sheet as of
December 31, 2004 as explained elsewhere in this Form 10-Q, the
Corporation's management, including the principal executive officer
and principal financial officer, have concluded that a material
weakness existed in the Corporation's internal control over
financial reporting with respect to classification of redeemable
instruments that are subject to remarketing agreements. Solely as
a result of this material weakness, the Corporation's management,
including the principal executive officer and principal financial
officer, have concluded that the disclosure controls were not
effective as of March 31, 2005.
(c) Changes in internal control over financial reporting. Since
December 31, 2004, except as disclosed below, there have been no
changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
The Corporation's management, including the principal executive
officer and principal financial officer, believe that the material
weakness in the Corporation's internal control over financial
reporting with respect to classification of redeemable instruments
that are subject to remarketing agreements has been remediated.
The remedial actions included:
- Requiring all future debt agreements to be reviewed by the
finance department for proper balance sheet classification.
- Improving understanding of relevant personnel of the
requirements of EITF D-61, "Classification by the Issuer of
Redeemable Instruments That Are Subject to Remarketing
Agreements".
- 19 -
PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 10 to the condensed
consolidated financial statements (Litigation and
Environmental Matters) is incorporated herein by reference.
Items 2-5 None
Item 6 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 September 30,
1994, March 31, 1996, June 30, 2001 and June 30,
2004.
(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 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.
- 20 -
(c) 1997 Stock Option Plan, as amended.
Incorporated by reference to the Proxy Statements
dated March 14, 1997 and March 15, 2000.
(31.1) Certification of the principal executive officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
(31.2) Certification of the principal financial officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1) Certification of principal executive officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(32.2) Certification of principal financial officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
- 21 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMPCO-PITTSBURGH CORPORATION
DATE: May 16, 2005 BY: s/Robert A. Paul
Robert A. Paul
Chairman and
Chief Executive Officer
DATE: May 16, 2005 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
- 22 -
AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit (31.1) Certification of principal executive officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2) Certification of principal financial
officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit (32.1) Certification of principal executive
officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(32.2) Certification of principal financial officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
- 23 -