FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 3, 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 -
June 30, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Operations -
Six and Three Months Ended June 30, 2005
and 2004 (restated) 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 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 16
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 4 - Submission of Matters to a Vote of
Security Holders 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)
June 30, December 31,
2005 2004
Assets
Current assets:
Cash and cash equivalents $ 6,208,958 $ 11,339,514
Short-term marketable securities 23,755,000 25,455,000
Receivables, less allowance for
doubtful accounts of $696,069 in
2005 and $955,677 in 2004 44,743,750 37,495,920
Inventories 52,512,276 54,318,553
Other 7,876,886 8,337,414
Total current assets 135,096,870 136,946,401
Property, plant and equipment, net 67,124,349 69,432,041
Prepaid pensions 25,721,810 25,139,810
Goodwill 2,694,240 2,694,240
Other noncurrent assets 3,658,666 3,731,151
$234,295,935 $237,943,643
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft facility $ 1,616,388 $ -
Accounts payable 13,338,516 15,446,125
Accrued payrolls and employee benefits 8,506,830 8,715,427
Industrial Revenue Bond debt 13,311,000 13,311,000
Other 14,375,752 17,009,056
Total current liabilities 51,148,486 54,481,608
Employee benefit obligations 27,564,507 28,871,999
Deferred income taxes 19,245,859 18,843,171
Other noncurrent liabilities 3,387,745 7,229,456
Total liabilities 101,346,597 109,426,234
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 36,859,576 34,162,688
Accumulated other comprehensive loss (17,986,262) (19,597,087)
Total shareholders' equity 132,949,338 128,517,409
$234,295,935 $237,943,643
See Notes to Condensed Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, Three Months Ended June 30,
2005 2004 * 2005 2004 *
Net sales $121,241,037 $100,432,174 $ 62,346,985 $ 53,645,595
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 96,845,661 80,169,079 48,859,816 43,417,517
Selling and administrative 14,644,439 13,856,430 7,697,261 7,049,151
Depreciation 3,397,118 3,209,958 1,704,272 1,613,442
(Gain) loss on disposition
of assets (1,343) 3,733 2,822 (5,235)
Total operating expenses 114,885,875 97,239,200 58,264,171 52,074,875
Income from operations 6,355,162 3,192,974 4,082,814 1,570,720
Other (expense) income:
Interest expense (246,985) (127,658) (142,373) (66,592)
Other - net (7,790) 395,881 34,865 152,496
(254,775) 268,223 (107,508) 85,904
Income before income taxes 6,100,387 3,461,197 3,975,306 1,656,624
Income tax provision 1,451,000 1,214,000 829,000 718,000
Net income $ 4,649,387 $ 2,247,197 $ 3,146,306 $ 938,624
Basic and diluted earnings
per common share:
Net income per common share -
basic $ 0.48 $ 0.23 $ 0.32 $ 0.10
Net income per common share -
diluted $ 0.47 $ 0.23 $ 0.32 $ 0.10
Cash dividends declared
per share $ 0.20 $ 0.20 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding:
Basic shares 9,756,889 9,694,948 9,757,497 9,707,497
Diluted shares 9,804,380 9,755,042 9,794,432 9,760,061
* Restated - Note 12.
See Notes to Condensed Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2005 2004 *
Net cash flows (used in) provided by
operating activities $ (5,136,589) $ 4,328,210
Cash flows from investing activities:
Purchases of property, plant
and equipment (1,833,833) (3,221,940)
Purchases of short-term marketable
securities (19,000,000) (26,780,000)
Proceeds from the sale of short-term
marketable securities 20,700,000 21,165,000
Proceeds from sale of business - 500,000
Proceeds from U.K. governmental grants - 922,500
Proceeds from sale of assets 59,196 38,757
Net cash flows used in investing
activities (74,637) (7,375,683)
Cash flows from financing activities:
Net proceeds from bank overdraft
facility 1,693,012 -
Proceeds from the issuance of
common stock 124,216 624,000
Dividends paid (1,951,499) (1,936,500)
Net cash flows used in financing
activities (134,271) (1,312,500)
Effect of exchange rate changes on cash
and cash equivalents 214,941 (262,169)
Net decrease in cash and cash
equivalents (5,130,556) (4,622,142)
Cash and cash equivalents at
beginning of period 11,339,514 15,488,789
Cash and cash equivalents at
end of period $ 6,208,958 $ 10,866,647
Supplemental information:
Income tax payments $ 865,536 $ 553,639
Interest payments $ 241,434 $ 128,518
* Restated - 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 June 30, 2005, the
condensed consolidated statements of operations for the six and
three months ended June 30, 2005 and 2004 and the condensed
consolidated statements of cash flows for the six months ended
June 30, 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 six and three
months ended June 30, 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 June 30, 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)
June 30, December 31,
2005 2004
Raw materials $14,771 $13,984
Work-in-process 22,674 25,717
Finished goods 9,180 8,320
Supplies 5,887 6,298
$52,512 $54,319
3. Property, Plant and Equipment
Property, plant and equipment were comprised of the following:
(in thousands)
June 30, December 31,
2005 2004
Land and land improvements $ 4,301 $ 4,292
Buildings 25,149 25,170
Machinery and equipment 135,266 135,058
164,716 164,520
Accumulated depreciation (97,592) (95,088)
$ 67,124 $ 69,432
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4.Other Current Liabilities
Other current liabilities were comprised of the following:
(in thousands)
June 30, December 31,
2005 2004
Customer-related liabilities $ 4,899 $ 5,991
Other 9,477 11,018
$14,376 $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 six and three months
ended June 30, 2005 and 2004 consisted of:
(in thousands)
Six Months Three Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Balance at the beginning of
the period $ 4,150 $ 3,435 $3,904 $3,553
Satisfaction of warranty
claims (1,666) (1,252) (944) (700)
Provision for warranty claims 1,133 933 608 335
Other, primarily impact from
changes in foreign currency
exchange rates (158) 37 (109) (35)
Balance at end of the period $ 3,459 $ 3,153 $3,459 $3,153
5.Pension and Other Postretirement Benefits
Contributions for the six months ended June 30, 2005 and 2004 were
as follows:
(in thousands)
2005 2004
U.S. pension benefits plans $ - $ -
Foreign pension benefits plan $ 287 $ 264
Other postretirement benefits
(e.g. net payments) $ 623 $ 410
U.K. defined contribution plan $ 149 $ 8
Net periodic pension and other postretirement costs include the
following components for the six and three months ended June 30,
2005 and 2004:
(in thousands)
U.S. Pension Benefits
Six Months Three Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Service cost $ 1,133 $ 1,037 $ 567 $ 518
Interest cost 3,368 3,315 1,684 1,658
Expected return on plan assets (5,314) (5,105) (2,657) (2,553)
Amortization of prior
service cost 296 296 148 148
Actuarial gain (68) (62) (34) (31)
Net benefit income $ (585) $ (519) $ (292) $ (260)
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(in thousands)
Foreign Pension Benefits
Six Months Three Months
Ended June 30, Ended June
30,
2005 2004 2005 2004
Service cost $ - $ 551 $ - $ 277
Interest cost 1,104 921 544 464
Expected return on plan assets (969) (869) (477) (437)
Amortization of prior service
cost 187 386 92 194
Net benefit cost $ 322 $ 989 $ 159 $ 498
(in thousands)
Other Postretirement Benefits
Six Months Three Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Service cost $ 151 $ 119 $ 75 $ 60
Interest cost 385 391 193 196
Amortization of prior service
benefit (274) (274) (137) (137)
Actuarial loss 84 79 42 39
Net benefit cost $ 346 $ 315 $ 173 $ 158
6. Commitments and Contingent Liabilities
Outstanding standby letters of credit as of June 30, 2005
approximated $18,686,000, 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 six and three
months ended June 30, 2005 and 2004 consisted of:
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(in thousands)
Six Months Three Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Net income $ 4,649 $ 2,247 $ 3,146 $ 939
Foreign currency translation
adjustments (2,167) 453 (1,553) (476)
Adjustment to minimum pension
liability 1,520 (258) 1,084 127
Unrealized holding (losses)
gains on marketable securities (153) 62 (153) 60
Change in fair value
of derivatives 2,411 735 1,558 (192)
Comprehensive income $ 6,260 $ 3,239 $ 4,082 $ 458
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 June 30, 2005, approximately $60,908,000
of anticipated foreign denominated sales has been hedged with the
underlying contracts settling at various dates through March
2010. As of June 30, 2005, the fair value of contracts expected
to settle within the next 12 months, which is recorded in other
current liabilities, approximated $643,000 and the fair value of
the remaining contracts, which is recorded in other noncurrent
liabilities, approximated $1,431,000. 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 $(1,161,000), net of income taxes, as of June
30, 2005. The change in fair value will be reclassified into
earnings when the projected sales occur with approximately
$(1,786,000) expected to be released to pre-tax earnings within
the next 12 months. During the six months ended June 30, 2005
and 2004, approximately $(557,000) and $(529,000), respectively,
were released to pre-tax earnings, and during the three months
ended June 30, 2005 and 2004, approximately $(170,000) and
$(251,000), respectively, were released to pre-tax earnings.
(Losses) gains on foreign exchange transactions approximated
$(216,000) and $286,000 for the six months ended June 30, 2005
and 2004, respectively, and $(90,000) and $65,000 for the three
months ended June 30, 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 June 30, 2005, approximately 100% or $2,586,000 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 $303,000 and the fair
value of the remaining contracts approximated $(8,000) as of June
30, 2005. The change in the fair value of the
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contracts designated as cash flow hedges is recorded as a
component of accumulated other comprehensive income (loss) and
approximated
$186,000, net of income taxes, as of June 30, 2005. The change
in the fair value will be reclassified into earnings when the
projected sales occur with approximately $191,000, net of income
taxes, expected to be released to earnings within the next 12
months. During the six months ended June 30, 2005 and 2004,
approximately $353,000 and $424,000, respectively, were released
to pre-tax earnings and during the three months ended June 30,
2005 and 2004, approximately $145,000 and $285,000, 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)
Six Months Ended Three Months Ended
June 30, June 30,
2005 2004 2005 2004
Net Sales:
Forged and Cast Rolls $ 83,283 $ 63,285 $ 41,891 $ 33,515
Air and Liquid Processing 37,958 37,147 20,456 20,131
Total Reportable Segments $121,241 $100,432 $ 62,347 $ 53,646
Income before income taxes:
Forged and Cast Rolls $ 6,943 $ 3,222 $ 4,366 $ 1,501
Air and Liquid Processing 1,889 2,437 938 1,319
Total Reportable Segments 8,832 5,659 5,304 2,820
Other expense, including
corporate costs - net (2,732) (2,198) (1,329) (1,163)
Total $ 6,100 $ 3,461 $ 3,975 $ 1,657
Income before income taxes for the Air and Liquid Processing
segment for the six and three months ended June 30, 2005 and 2004
includes the majority of the 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).
10. Litigation and Environmental Matters
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In addition,
claims have been asserted 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 six
months ended June 30, 2005:
Approximate open claims at end of period: 16,600
Approximate gross settlement and defense costs: $4,424,000
Approximate claims settled or dismissed during the period: 8,800
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Of the approximate 16,600 claims pending as of June 30, 2005, over
8,600 were made in five 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.
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
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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 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 $429,000 and
$236,000 for the six and three months ended June 30, 2005,
respectively, in comparison to $728,000 and $223,000 for the same
periods of the prior year.
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
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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 of approximately $2,300,000 at June 30,
2005 is considered adequate based on information known to date.
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. The
Corporation received $5,740,000 toward its claim of which
$3,000,000 was received in 2004. Of the $2,740,000 received in
2005, $2,320,000 represents settlement of its business
interruption insurance claim which was recorded as a reduction of
costs of products sold (excluding depreciation) in the
accompanying condensed consolidated statements of operations. The
remaining $3,420,000 represents reimbursement of clean-up costs,
repairs to machinery and recovery of certain fixed expenses.
12. Restatement
Subsequent to the issuance of the Corporation's condensed
consolidated financial statements for the six and three months
ended June 30, 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, based on
supplemental guidance issued, that auction-rate securities did not
meet the definition of cash equivalents and should therefore be
classified as short-term marketable securities. Accordingly, the
accompanying condensed consolidated financial statements for the
six and three months ended June 30, 2004 have been restated from
the amounts previously reported.
The effect of reversing the deferred tax liabilities on the
condensed consolidated statements of operations for the six and
three months ended June 30, 2004 were as follows:
(in thousands, except per share amounts)
Six Months Ended Three Months Ended
Previously As Previously As
Reported Restated Reported Restated
Income tax provision $1,413 $1,214 $ 817 $ 718
Net income 2,048 2,247 840 939
Net income per common share:
Basic 0.21 0.23 0.09 0.10
Diluted 0.21 0.23 0.09 0.10
The effect of correcting the classification of its investments in
auction-rate securities from cash and cash equivalents to short-
term marketable securities on the accompanying condensed
consolidated statement of cash flows for the six months ended June
30, 2004 was as follows:
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(in thousands)
Previously As
Reported Restated
Purchases of short-term marketable securities $ - $(26,780)
Proceeds from the sale of short-term marketable
securities - 21,165
Net cash flows used in investing activities (1,761) (7,376)
Net increase (decrease) in cash and cash
equivalents 993 (4,622)
Cash and cash equivalents at beginning of period 35,739 15,489
Cash and cash equivalents at end of period 36,732 10,867
13. Recently Issued Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 151,
"Inventory 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. Companies will no longer be permitted to follow the
intrinsic value accounting method. The provisions of SFAS No.
123(R) become effective for the Corporation on January 1, 2006 and
the Corporation will adopt the standard prospectively. Until the
Corporation issues additional share-based payments in 2006 or
thereafter, the standard will not impact the Corporation's
financial condition or results of operations (see Note 14).
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.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB
Statement No. 3" which provides guidance for the accounting and
reporting of a change in accounting principle. It also applies to
changes required by a newly-issued accounting pronouncement if
that pronouncement does not
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provide such guidance. Previously, changes in accounting
principles were recognized by including the cumulative effect of
changing to the new accounting principle in net income of the
period of the change. SFAS No. 154 requires retrospective
application to prior periods and becomes effective for the
Corporation on January 1, 2006. Until the Corporation makes any
such changes, the standard will not impact the Corporation's
financial condition or results of operations.
14. Subsequent Event
On July 26, 2005, the Stock Option Committee of the Board of
Directors agreed to issue to selected employees the remaining
45,000 stock options available under the 1997 Stock Option Plan,
as amended. The exercise price of $13.67 is equivalent to the
market price on the date of grant.
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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 a
strong 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 continue 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. Additional machinery brought on-line late in 2004 at Davy
Roll has begun to contribute to operational improvements and has
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 air handling
systems for 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 for new construction
improves.
The following MD&A gives effect to the restatement discussed in Note
12 to the condensed consolidated financial statements for the six
and three months ended June 30, 2004.
Operations for the Six and Three Months Ended June 30, 2005 and 2004
Net Sales. Net sales for the six and three months ended June 30,
2005 were $121,241,000 and $62,347,000, respectively, compared to
$100,432,000 and $53,646,000,for the same periods of 2004. A
discussion of sales for the Corporation's two segments is included
below. Order backlogs approximated $249,534,000 at June 30, 2005
against $164,981,000 at December 31, 2004. The increase is
attributable principally to the Forged and Cast Rolls segment.
Approximately $129,217,000 of the June 30, 2005 backlog is scheduled
for shipment beyond 2005.
Costs of Products Sold. Costs of products sold, excluding
depreciation, were 79.9% and 79.8% of net sales for the six months
ended June 30, 2005 and 2004, respectively, and 78.4% and 80.9% of
net sales for the three months ended June 30, 2005 and 2004,
respectively. Included as a reduction of costs of products sold for
the six and three months ended June 30, 2005, is approximately
$2,320,000 and $1,717,000 of proceeds from the settlement of the
Corporation's business interruption insurance claim, offsetting
substantially higher raw material and natural gas costs.
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Selling and Administrative. Selling and administrative expenses for
the six and three months ended June 30, 2005 approximated 12.1% and
12.4% of net sales, respectively, and 13.8% and 13.1% of net sales
for the comparable prior year periods. The decrease is due to
higher sales which dilute the effect of certain selling and
administrative costs which are fixed in nature.
Income from Operations. Income from operations for the six and
three months ended June 30, 2005 approximated $6,355,000 and
$4,083,000, respectively, against $3,193,000 and $1,571,000 for the
comparable prior year periods. A discussion of year-to-date and
second quarter results for the Corporation's two segments is
included below.
Forged and Cast Rolls. Sales and operating income for the six and
three months ended June 30, 2005 improved over the comparable prior
year periods as a result of greater demand from steel producers
throughout the world and better margins as surcharges and price
increases for raw material and energy began to flow through to
earnings. Additionally, during the quarter, the segment finalized
its 2004 flood-related business interruption insurance claim
recording income of $1,717,000 in the quarter for a six month total
of $2,320,000. Backlog approximated $217,776,000 as of June 30,
2005 in comparison to $138,729,000 as of December 31, 2004. The
increase is reflective of global demand for products for both the
U.S. and U.K. operations. Approximately $123,272,000 of the June 30,
2005 backlog is scheduled for shipment beyond 2005.
Air and Liquid Processing. Sales for the six and three months ended
June 30, 2005 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
heat exchange coil business have improved due to an increase in
sales, particularly to electric-utility customers. Backlog
approximated $31,758,000 as of June 30, 2005 in comparison to
$26,252,000 as of December 31, 2004; the increase is attributable to
receipt of long lead-time pump orders for U.S. Navy ships.
Approximately $5,945,000 of the June 30, 2005 backlog is scheduled
for shipment beyond 2005.
Other (Expense) Income. Other (expense) income for the six months
ended June 30, 2005 and 2004 approximated $(255,000) and 268,000,
respectively, and $(108,000) and $86,000 for the three months ended
June 30, 2005 and 2004, respectively. The change is due primarily
to losses on foreign exchange transactions in 2005 versus gains on
foreign exchange transactions in 2004.
Income Taxes. The effective tax rate approximated 23.8% and 35.1%
for the six months ended June 30, 2005 and 2004, respectively, and
20.9% and 43.3% for the three months ended June 30, 2005 and 2004,
respectively. The decrease is attributable principally to
profitability of the U.K. operations for which no tax liability
arises, due to utilization of net operating loss carryforwards, and
beneficial permanent deductions.
Net Income. As a result of the above, the Corporation's net income
for the six months ended June 30, 2005 and 2004 equaled $4,649,000
and $2,247,000, respectively, and $3,146,000 and $939,000,
respectively, for the three months ended June 30, 2005 and 2004.
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Liquidity and Capital Resources
Net cash flows (used in) provided by operating activities
approximated $(5,137,000) and $4,328,000 for the six months ended
June 30, 2005 and 2004, respectively. The decrease is attributable
primarily to an increase in accounts receivable arising from higher
sales for the second quarter of 2005 versus second quarter of 2004
and a reduction in accounts payable due primarily to timing of
payments.
Net cash flows used in investing activities were $(75,000) and
$(7,376,000) for the six months ended June 30, 2005 and 2004,
respectively. The change is attributable to a reduction in net
purchases of short-term marketable securities and lower capital
expenditures. Capital expenditures approximated $1,834,000 for the
six months ended June 30, 2005 and $3,222,000 for the six months
ended June 30, 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 sales
proceeds of $500,000 from the 2003 sale of the Plastic Processing
Machinery segment were received in 2004. As of June 30, 2005,
future capital expenditures totaling $3,774,000 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 used in financing activities were $(134,000) and
$(1,313,000) for the six months ended June 30, 2005 and 2004,
respectively. As of June 30, 2005, Davy Roll had borrowings
outstanding under its bank overdraft facility of approximately
$1,616,000. Dividends were paid at a rate of $0.20 per share for
each of the six month periods. Issuance of stock under the
Corporation's stock option plan provided cash of $124,000 and
$624,000 for the respective six month periods.
The change in the value of the British pound against the dollar
impacted cash and cash equivalents by $215,000 and $(262,000) for
the six months ended June 30, 2005 and 2004.
The Corporation maintains short-term lines of credit and an
overdraft facility in excess of the cash needs of its businesses.
The total available at June 30, 2005 was approximately $8,200,000
(including 2,100,000 GBP in the U.K. and 400,000 Euros in Belgium).
Litigation and Environmental Matters
See Note 10 to the condensed consolidated financial statements.
Critical Accounting Pronouncements
The Corporation's critical accounting policies, as summarized in its
Form 10-K/A for the year ended December 31, 2004, remain unchanged.
Recently Issued Accounting Pronouncements
See Note 13 to the condensed consolidated financial statements.
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
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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.
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 are recorded, processed, summarized and
reported within the required time periods. Based on that
evaluation, the Corporation's management, including the principal
executive officer and principal financial officer, have concluded
that the Corporation's disclosure controls and procedures were
effective as of June 30, 2005.
(c) Changes in internal control over financial reporting. During the
quarter ended June 30, 2005, 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 control 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, discussed in the
Corporation's Form 10-Q for the three months ended March 31, 2005,
was remediated during the quarter ended June 30, 2005. 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".
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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 2-3 None
Item 4 Submission of Matters to a Vote of Security Holders
On April 28, 2005 at the annual meeting of shareholders, the
following individuals were elected directors of the
Corporation by the following votes:
For Withheld
Louis Berkman 8,796,405 71,815
William K. Lieberman 8,846,922 21,298
Stephen E. Paul 8,801,130 67,090
Carl H. Pforzheimer, III 8,790,391 77,829
Item 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.
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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.
(31.1) 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: August 3, 2005 BY: s/Robert A. Paul
Robert A. Paul
Chairman and
Chief Executive Officer
DATE: August 3, 2005 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
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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
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