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, 1999 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 17, 1999, 9,590,121 common shares were outstanding. - 1 - AMPCO-PITTSBURGH CORPORATION INDEX Page No. Part I - Financial Information: Item 1 - Consolidated Financial Statements Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 3 Consolidated Statements of Income - Three Months Ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information: Item 4 Submission of Matters to a Vote of Security Holders 13 Item 6 Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibits Exhibit 27 - 2 - PART I - FINANCIAL INFORMATION AMPCO-PITTSBURGH CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 1999 1998 Assets Current assets: Cash and cash equivalents $ 36,439,097 $ 33,107,815 Receivables, less allowance for doubtful accounts of $719,421 in 1999 and $691,090 in 1998 36,746,976 35,017,919 Inventories 34,364,559 35,492,440 Other 4,408,319 4,076,339 Total current assets 111,958,951 107,694,513 Property, plant and equipment, at cost 152,878,986 150,709,005 Accumulated depreciation (75,419,185) (73,932,512) Net property, plant and equipment 77,459,801 76,776,493 Prepaid pension 13,823,044 13,885,544 Other noncurrent assets 13,195,236 13,454,580 $216,437,032 $211,811,130 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 10,019,316 $ 9,247,179 Accrued payrolls and employee benefits 7,892,279 7,820,048 Other 10,586,004 9,355,391 Total current liabilities 28,497,599 26,422,618 Employee benefit obligations 15,852,275 16,509,026 Industrial revenue bond debt 14,661,000 12,586,000 Deferred income taxes 11,612,082 11,707,742 Other noncurrent liabilities 2,109,035 2,287,132 Total liabilities 72,731,991 69,512,518 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 9,577,621 in 1999 and 1998 9,577,621 9,577,621 Additional paid-in capital 102,555,980 102,555,980 Retained earnings 31,168,759 28,724,905 Accumulated other comprehensive income 402,681 1,440,106 Total shareholders' equity 143,705,041 142,298,612 $216,437,032 $211,811,130 See Notes to Consolidated Financial Statements. - 3 - AMPCO-PITTSBURGH CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended March 31, 1999 1998 Net sales $ 49,417,506 $ 48,598,350 Operating costs and expenses: Cost of products sold (excluding depreciation) 35,088,097 32,797,645 Selling and administrative 7,181,088 6,806,879 Depreciation 1,908,626 1,919,415 44,177,811 41,523,939 Income from operations 5,239,695 7,074,411 Other income (expense) net (98,079) 146,711 Income before income taxes 5,141,616 7,221,122 Income taxes 1,740,000 2,565,000 Net income $ 3,401,616 $ 4,656,122 Basic and diluted earnings per share $ .36 $ .49 Cash dividends declared per share $ .10 $ .09 Weighted average number of common shares outstanding 9,577,621 9,577,621 See Notes to Consolidated Financial Statements - 4 - AMPCO-PITTSBURGH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 1999 1998 Cash flows from operating activities: Net income $ 3,401,616 $ 4,656,122 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 1,908,626 1,919,415 Deferred income taxes 184,000 373,000 Other - net 124,941 125,255 Changes in assets/liabilities: Receivables (2,230,406) 1,278,996 Inventories 655,861 (929,390) Other assets (436,760) (690,617) Accounts payable 1,086,828 381,607 Accrued payrolls and employee benefits (210,430) (433,925) Other liabilities 662,524 2,214,414 Net cash flows from operating activities 5,146,800 8,894,877 Cash flows from investing activities: Purchases of property, plant and equipment (2,961,511) (1,957,013) Proceeds from sales of property, plant and equipment - 371,657 Use of unexpended industrial revenue bond proceeds 150,013 278,420 Net cash flows from investing activities (2,811,498) (1,306,936) Cash flows from financing activities: Proceeds from industrial revenue bonds 2,075,000 - Dividends paid (957,762) (861,986) Net cash flows from financing activities 1,117,238 (861,986) Effect of exchange rate changes on cash (121,258) (25,096) Net increase in cash 3,331,282 6,700,859 Cash at beginning of year 33,107,815 21,695,512 Cash at end of period $ 36,439,097 $ 28,396,371 Supplemental information: Income tax payments $ 734,010 $ 7,226 Interest payments 177,241 179,282 See Notes to Consolidated Financial Statements. - 5 - AMPCO-PITTSBURGH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Unaudited Consolidated Financial Statements The consolidated balance sheet as of March 31, 1999, the consolidated statements of income for the three month periods ended March 31, 1999 and 1998 and the consolidated statements of cash flows for the three month periods then ended have been prepared by the Corporation without audit. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation's annual report to shareholders for the year ended December 31, 1998. The results of operations for the period ended March 31, 1999 are not necessarily indicative of the operating results for the full year. 2. Inventory Inventories, principally valued on the LIFO method, are comprised of the following: (in thousands) March 31, December 31, 1999 1998 Raw materials $ 7,333 $ 6,425 Work-in-process 20,916 21,985 Finished goods 4,185 5,100 Supplies 1,931 1,982 $ 34,365 $ 35,492 3. Comprehensive Income The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", effective January 1, 1998. This Statement establishes standards for reporting and display of comprehensive income and its components in the financial statements. The Corporation's comprehensive income for the three months ended March 31, 1999 and 1998 consisted of: - 6 - (in thousands) Three Months Ended March 31, 1999 1998 Net income $ 3,402 $ 4,656 Foreign currency translation (1,067) (254) Unrealized holding gains on securities 29 - Comprehensive income $ 2,364 $ 4,402 4. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding which has remained unchanged at 9,577,621 shares for the periods presented. The computation of diluted earnings per share is similar to basic earnings per share except that the denominator is increased to include the net additional common shares that would have been outstanding assuming exercise of outstanding stock options, calculated using the treasury stock method. The weighted average number of common shares outstanding assuming exercise of the stock options was 9,580,984 common shares for the quarter ended March 31, 1999. There were no potentially dilutive securities outstanding for the comparable 1998 period. 5. Business Segments The Corporation adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" effective with its annual report to shareholders for the year ended December 31, 1998 which changed its previous practice of reporting under one business segment, engineered equipment. Presented below are the net sales and earnings before taxes for the Corporation's three business segments. (dollars in thousands) Three Months Ended March 31, Earnings Before Net Sales Taxes 1999 1998 1999 1998 Forged Steel Rolls $22,440 $21,592 $ 2,709 $ 4,109 Air and Liquid Processing 17,126 16,076 1,648 1,469 Plastics Processing Machinery 9,852 10,930 883 1,496 Total Reportable Segments 49,418 48,598 5,240 7,074 Other income (expense) - net - - (98) 147 Total $49,418 $48,598 $ 5,142 $ 7,221 - 7 - 6. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This pronouncement requires all derivative instruments to be reported at fair value on the balance sheet; depending on the nature of the derivative instrument, changes in fair value will be recognized either in net income or as an element of comprehensive income. SFAS No. 133 is first effective for the Corporation for the year ending December 31, 2000. The Corporation does not engage in significant activity with respect to derivative instruments or hedging activities. Management is evaluating the impact but does not anticipate adoption of SFAS No. 133 will have a material impact on the financial position, results of operations or cash flows of the Corporation. - 8 - AMPCO-PITTSBURGH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operations for the Three Month Periods Ended March 31, 1999 and 1998 Operations Net Sales. Net sales of $49,418,000 for the first quarter of 1999 were 1.7% higher when compared to 1998 sales of $48,598,000. A discussion of the first quarter sales and results for the Corporation's three segments is included below. The order backlog at March 31, 1999 of $97,000,000 declined by 3% compared to $100,000,000 at December 31, 1998. The reduction in the backlog is due primarily to a decrease in forged hardened steel roll orders. Cost of Products Sold. The cost of products sold, excluding depreciation, in relationship to net sales was 71.0% in 1999 compared to 67.5% in 1998. The decrease in margins occurred principally in the Forged Steel Rolls business. Income from Operations. Income from operations of $5,240,000 in 1999 decreased by $1,834,000 or 26.0% compared to $7,074,000 in 1998. This was a result of decreased earnings from the Forged Steel Rolls and Plastics Processing Machinery segments. Forged Steel Rolls. Sales for the Forged Steel Rolls segment increased by 3.9% in the first quarter to $22,440,000 compared with $21,592,000 in the prior year. An increase in sales to customers outside of the U.S. offset a reduction in sales to domestic customers. The 1998 period benefitted from certain non-recurring domestic sales related to customers' new mill construction. Earnings for this segment, however, decreased by 34% to $2,709,000 compared with $4,109,000. Margins were reduced as competitive pressures in both the domestic and export markets resulted in lower selling prices. In addition, operating levels were reduced in the 1999 quarter compared to the year ago period. Air & Liquid Processing. Sales for the Air & Liquid Processing segment improved by 6.5% to $17,126,000 in 1999 compared to $16,076,000 in 1998. Sales were higher for both the air handling system and heat exchange coil operations which entered 1999 with improved backlog levels. Earnings for this segment increased by 12.2% to $1,648,000 compared to $1,469,000. -9 - Plastics Processing Machinery. Sales for the Plastics Processing Machinery segment decreased by 9.9% to $9,852,000 in 1999 compared with $10,930,000 in 1998. Earnings were lower by 41.0% at $883,000 compared to $1,496,000 in the prior year. The decline in sales and earnings occurred principally at the heat transfer roll operation which has been impacted by reduced demand in its markets and low backlog levels as a result of declining orders throughout 1998. Other Income (Expense). Other income (expense) of ($98,000) in 1999 reflects lower interest earnings on cash balances and losses on foreign exchange transactions compared to foreign exchange gains included in 1998's other income of $147,000. Net Income. As a result of all of the above, the Corporation had net income of $3,402,000 in 1999 compared to $4,656,000 in 1998. Liquidity and Capital Resources Net cash flows from operating activities were positive for 1999 at $5,147,000 and compare with positive cash flows of $8,895,000 for 1998. The difference in cash flow between the two periods resulted from a $1,835,000 decrease in income from operations in 1999 and changes in working capital requirements, principally in accounts receivables, which increased in 1999's first quarter. Net cash outflows from investing activities were $2,811,000 in 1999 and compare with cash outflows of $1,307,000 in 1998. Capital expenditures for 1999 totaled $2,962,000 compared to $1,957,000 in 1997. Capital expenditures carried forward from March 31, 1999 total $11,250,000. Funds on-hand and generated internally are expected to be sufficient to finance capital expenditure requirements. Cash flows from financing activities in 1999 include the issuance of $2,075,000 of tax-exempt Industrial Revenue Bonds, the proceeds of which were used for plant expansion and equipment at the Corporation's heat exchange coil operation in Lynchburg, Virginia. Cash outflows with respect to financing activities in 1999 reflect an increase in the quarterly dividend rate to $.10 per share compared to $.09 per share in 1998. The Corporation maintains short-term lines of credit and a revolving credit agreement in excess of the cash needs of its businesses. The total available at March 31, 1999 was $14,500,000. With respect to environmental concerns, the Corporation has been named a potentially responsible party at certain third party sites. The Corporation has accrued its share of the - 10 - estimated cost of remedial actions it would likely be required to contribute. While it is not possible to quantify with certainty the potential cost of actions regarding environmental matters, particularly any future remediation and other compliance efforts, in the opinion of management, compliance with the present environmental protection laws and the potential liability for all environmental proceedings will not have a material adverse effect on the financial condition, results of operations or liquidity of the Corporation. The nature and scope of the Corporation's business brings it into regular contact with a variety of persons, businesses and government agencies in the ordinary course of business. Consequently, the Corporation and its subsidiaries from time to time are named in various legal actions. The Corporation does not anticipate that its financial condition, results of operations or liquidity will be materially affected by the costs of known, pending or threatened litigation. Impact of Year 2000 The Year 2000 issue is the result of computer programs that were written using two digits rather than four to define the applicable year. If the Corporation's computer programs or other equipment with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the Year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. Generally, each of the Corporation's subsidiaries maintains its own data processing equipment and software. In order to ensure that their operations will not be adversely impacted by Year 2000 software failures, project teams have been formed at each subsidiary to address Year 2000 risks. The project teams have coordinated the identification of and will coordinate the implementation of changes to computer hardware and software applications to ensure availability and integrity of the Corporation's information systems and the reliability of its operational systems and manufacturing processes. Each subsidiary has reviewed its information and operational systems and manufacturing processes in order to identify those products, services or systems that are not Year 2000 compliant. As a result of these reviews, it has been determined that it will be necessary to modify or replace certain information and operational systems so they will be Year 2000 compliant. These modifications and replacements are being, and will continue to be, made in conjunction with - 11 - the Corporation's overall systems initiatives. It is difficult to break out the total cost of Year 2000 compliance; however, the combined cost of such compliance, system upgrades, principally software, and setting up a stand-alone system at a subsidiary currently integrated into an unrelated business subsidiary system, is less than $1,000,000. The majority of this cost is for system upgrade and replacement software, which had been acquired and capitalized as of December 31, 1998, and is either in operation or in the process of being implemented. The modifications being handled in-house to internally developed systems are progressing on schedule. The Corporation estimates its Year 2000 efforts are eighty percent complete and the entire project will be completed by mid-1999. Based on available information, the Corporation does not believe any material exposure to significant business interruption exists as a result of Year 2000 compliance issues. Accordingly, the Corporation has not adopted any formal contingency plan in the event its Year 2000 project is not completed in a timely manner. If the Corporation's progress deviates from the anticipated timeline, contingency plans will be developed as deemed necessary at that time. The Corporation also faces some risk to the extent that customers or suppliers of products, services and systems purchased by the Corporation do not comply with Year 2000 requirements. The Corporation has initiated efforts to evaluate the status of significant suppliers and customers to determine the extent to which the Corporation is vulnerable to these third parties' failure to remediate their own Year 2000 issues. However, we believe the breadth of the Corporation's customer base and availability of alternative suppliers will mitigate the risks associated with third party issues. The descriptions herein of the elements of the Corporation's Year 2000 effort are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Of necessity, this effort is based on estimates and there can be no assurance that actual results will not materially differ from expectations. - 12 - PART II - OTHER INFORMATION AMPCO-PITTSBURGH CORPORATION Items 1-3. None Item 4. Submission of Matters to a Vote of Security Holders On April 27, 1999 at the annual meeting of shareholders, Louis Berkman and Carl H. Pforzheimer, III were elected directors of the Registrant: For Withheld Louis Berkman 7,919,791 52,379 Carl H. Pforzheimer, III 7,913,173 58,997 Item 5. None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K, dated February 25, 1999 was filed reporting under Item 4, Changes in Registrant's Certifying Accountant, the dismissal of PricewaterhouseCoopers LLP and the appointment of Deloitte & Touche LLP as the Corporation's independent accountants. - 13 - 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 17, 1999 BY: s/Robert A. Paul Robert A. Paul President and Chief Executive Officer DATE: May 17, 1999 BY: s/Robert J. Reilly Robert J. Reilly Vice President - Finance and Treasurer - 14 -