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FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-898.
AMPCO-PITTSBURGH CORPORATION
Incorporated in Pennsylvania.
I.R.S. Employer Identification No. 25-1117717.
600 Grant Street, Pittsburgh, Pennsylvania 15219
Telephone Number 412/456-4400
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
On November 14, 2002, 9,632,497 common shares were outstanding.
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AMPCO-PITTSBURGH CORPORATION
INDEX
Page No.
Part I - Financial Information:
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations -
Nine Months Ended September 30, 2002 and 2001;
Three Months Ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4 - Controls and Procedures 18
Part II - Other Information:
Item 1 - Legal Proceedings 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 21
Section 302 Certifications 22
Exhibit Index 24
Exhibits
Exhibit 99.1
Exhibit 99.2
- 2 -
PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2002 2001
Assets
Current assets:
Cash and cash equivalents $ 24,476,582 $ 13,514,299
Receivables, less allowance for
doubtful accounts of $1,689,158 in
2002 and $1,450,868 in 2001 47,008,797 45,506,326
Inventories 44,679,935 47,277,939
Other 6,911,343 8,373,626
Total current assets 123,076,657 114,672,190
Property, plant and equipment, at cost:
Land and land improvements 5,060,402 4,994,502
Buildings 28,964,843 28,921,801
Machinery and equipment 145,666,294 140,975,589
179,691,539 174,891,892
Accumulated depreciation (95,567,368) (88,657,860)
Net property, plant and equipment 84,124,171 86,234,032
Prepaid pensions 29,694,995 27,527,527
Goodwill 2,694,240 7,146,440
Other noncurrent assets 5,574,335 5,990,769
$245,164,398 $241,570,958
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,350,000 $ 1,350,000
Accounts payable 13,022,331 13,738,636
Accrued payrolls and employee benefits 8,919,920 7,596,900
Other 14,582,072 12,438,576
Total current liabilities 37,874,323 35,124,112
Employee benefit obligations 16,735,603 16,951,050
Deferred income taxes 18,901,295 18,404,400
Industrial Revenue Bond debt 13,311,000 13,311,000
Other noncurrent liabilities 441,298 373,551
Total liabilities 87,263,519 84,164,113
Shareholders' equity:
Preference stock - no par value;
authorized 3,000,000 shares: none
issued - -
Common stock - par value $1; authorized
20,000,000 shares; issued and
outstanding 9,632,497 in 2002 and
9,608,897 in 2001 9,632,497 9,608,897
Additional paid-in capital 103,005,928 102,790,603
Retained earnings 46,364,550 47,559,557
Accumulated other comprehensive loss (1,102,096) (2,552,212)
Total shareholders' equity 157,900,879 157,406,845
$245,164,398 $241,570,958
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
2002 2001 2002 2001
Net sales $166,200,785 $166,156,034 $ 53,978,237 $ 53,367,586
Operating costs and expenses:
Cost of products sold
(excluding depreciation) 129,353,877 128,591,158 42,271,731 41,463,479
Selling and administrative 22,557,948 25,087,905 7,305,614 7,812,487
Depreciation 5,973,993 6,170,295 1,875,980 2,022,047
Restructuring charges and
gain on sale of land and
building (382,886) 7,280,000 (382,886) -
157,502,932 167,129,358 51,070,439 51,298,013
Income (loss) from operations 8,697,853 (973,324) 2,907,798 2,069,573
Other (expense) income:
Interest expense (313,932) (517,103) (131,472) (157,452)
Other - net (52,608) (674,088) (269,110) 773,023
(366,540) (1,191,191) (400,582) 615,571
Income (loss)before
income taxes 8,331,313 (2,164,515) 2,507,216 2,685,144
Income tax provision (benefit) 3,745,000 (321,000) 1,240,000 1,044,000
Net income (loss) before
cumulative effect of
accounting change for goodwill 4,586,313 (1,843,515) 1,267,216 1,641,144
Cumulative effect of accounting
change for goodwill, net of
income taxes of $1,558,269 (2,893,931) - - -
Net income (loss) $ 1,692,382 $ (1,843,515) $ 1,267,216 $ 1,641,144
Basic and diluted earnings
per share:
Net income (loss) before
cumulative effect of
accounting change for
goodwill $ 0.48 $ (0.19) $ 0.13 $ 0.17
Cumulative effect of
accounting change for
goodwill $ (0.30) $ - $ - $ -
Net income (loss) $ 0.18 $ (0.19) $ 0.13 $ 0.17
Cash dividends declared
per share $ 0.30 $ 0.30 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,621,822 9,603,630 9,632,497 9,605,616
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
2002 2001
Net cash flows provided by operating
activities $ 15,014,603 $ 7,641,473
Cash flows from investing activities:
Purchases of property, plant and
equipment (4,366,189) (6,220,371)
Proceeds from sale of businesses 1,129,950 1,060,000
Proceeds from sale of assets 1,469,719 -
Net cash flows (used in) investing
activities (1,766,520) (5,160,371)
Cash flows from financing activities:
Repayment of note payable to bank - (2,000,000)
Proceeds from the issuance
of common stock 238,925 15,900
Dividends paid (2,885,029) (2,880,588)
Net cash flows (used in) financing
activities (2,646,104) (4,864,688)
Effect of exchange rate changes on cash
and cash equivalents 360,304 (142,476)
Net increase (decrease) in cash and
cash equivalents 10,962,283 (2,526,062)
Cash and cash equivalents at
beginning of period 13,514,299 17,861,531
Cash and cash equivalents at
end of period $ 24,476,582 $ 15,335,469
Supplemental information:
Income tax payments $ 737,309 $ 1,357,263
Interest payments $ 283,500 $ 556,940
Noncash investing and financing activities - see Note 10.
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The consolidated balance sheet as of September 30, 2002, the
consolidated statements of operations for the nine and three
months ended September 30, 2002 and 2001 and the condensed
consolidated statements of cash flows for the nine months ended
September 30, 2002 and 2001 have been prepared by Ampco-
Pittsburgh Corporation (the Corporation) without audit. In the
opinion of management, all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows for the
periods presented have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto incorporated by reference in the Corporation's annual
report to shareholders on Form 10-K for the year ended December 31,
2001. The results of operations for the nine and three
months ended September 30, 2002 are not necessarily indicative
of the operating results expected for the full year.
2. Restructurings and Gain on Sale of Land and Building
In 2001, the Corporation undertook a review of its global roll-
making capacity and recorded a pre-tax charge of $7,280,000
primarily for restructuring costs associated with the permanent
closure of its forged steel roll plant in Belgium. As of
December 31, 2001, outstanding restructuring costs, excluding
pension-related liabilities which were reclassified to employee
benefit obligations, approximated $1,830,000 and included
employee severance of $914,000, estimated costs to repair
structural damage to the facility resulting from the removal of
machinery and holding costs for the remaining assets of
$571,000, and various other costs of $345,000 including foreign
currency translation adjustments expected to be released upon
the disposition of the remaining assets. The remaining assets
which had a carrying value of approximately $170,000 as of
December 31, 2001 were sold in July 2002 resulting in a gain of
approximately $1,058,000. During the nine months ended September 30,
2002, approximately $1,168,000 had been incurred of which
$1,054,000 related to employee severance. Unused restructuring
provisions no longer necessary of approximately $662,000 were
reversed to income during the third quarter of 2002.
As a result of weak economic conditions across each of the
segments of the Corporation including a depressed steel industry
in the U.K., reduced demand for power generation equipment and a
slowdown in construction and capital spending, the Corporation
gave notification of a permanent reduction in manning levels at
several of its operations and initiated the closure of its
leased Plastics Processing Machinery
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facility in South Carolina in the third quarter of 2002 and
recorded pre-tax restructuring charges of approximately
$1,337,000 primarily for severance costs of $786,000 for the
approximate 80 employees terminated and costs associated with
the closure of the facility of $511,000 including the estimated
loss on the disposition of machinery and early termination of
the lease. The net of the third quarter restructuring charges,
the gain on the sale of the land and building in Belgium and the
unused restructuring provisions reversed into income resulted in
a net credit of $383,000 which is reflected as restructuring
charges and gain on sale of land and building in the
accompanying statements of operations for the nine and three
months ended September 30, 2002.
Outstanding restructuring costs at September 30, 2002
approximated $982,000 for employee severance of $779,000, costs
associated with the closure of the leased facility of $163,000
including holding costs and remaining lease payments, and
various other costs of $40,000. The machinery which had a
carrying value of approximately $55,000 as of September 30,
2002, is expected to be disposed of by March 31, 2003.
3. Goodwill
Effective January 1, 2002, the Corporation adopted the
provisions of Statement of Financial Accounting Standard (SFAS)
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142
requires that goodwill no longer be amortized but instead tested
for impairment at least annually. In addition, SFAS No. 142
requires recognized intangible assets to be amortized over their
respective estimated useful lives and reviewed for impairment.
Any recognized intangible asset determined to have an indefinite
useful life will not be amortized, but instead tested for impairment
annually until its life is determined to no longer be indefinite.
In accordance with the requirements of SFAS No. 142, the
Corporation tested the goodwill attributable to each of its
reporting units for impairment as of January 1, 2002. The
Corporation's reporting units are the major product lines
comprising its reportable business segments. Fair value was
estimated using discounted cash flow methodologies and market
comparable information. As a result, $4,452,000 of goodwill
specific to the heat-transfer rolls unit of the Plastics
Processing Machinery segment was written off and is recorded as
a cumulative effect of accounting change, net of income taxes,
in the accompanying consolidated statements of operations. The
impairment arises from the severe downturn in the plastics
processing industry resulting in reduced selling prices and a
significant reduction in demand. The Corporation will test
remaining goodwill for impairment annually in connection with
its strategic planning process. The Corporation does not have
any other material intangible assets.
Included in income (loss) from operations for the nine and three
months ended September 30, 2001 was goodwill amortization of
approximately $218,000 and $73,000, respectively. The following
information reconciles previously reported net income (loss) and
earnings per common share to the amounts adjusted for the
exclusion of goodwill amortization.
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(in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
2002 2001 2002 2001
Net income (loss), as reported $ 1,692 $ (1,844) $ 1,267 $ 1,641
Add goodwill amortization,
net of tax - 142 - 47
Net income (loss), as adjusted $ 1,692 $ (1,702) $ 1,267 $ 1,688
Basic and diluted earnings per
common share, as reported $ 0.18 $ (0.19) $ 0.13 $ 0.17
Goodwill amortization, net
of tax - 0.01 - -
Basic and diluted earnings
per common share, as adjusted $ 0.18 $ (0.18) $ 0.13 $ 0.17
The changes in the carrying amount of goodwill for the nine
months ended September 30, 2002 are as follows:
(in thousands)
Air and Plastics
Liquid Processing
Processing Machinery Total
Goodwill as of December 31, 2001 $2,694 $4,452 $7,146
Write-off of goodwill - 4,452 4,452
Goodwill as of September 30, 2002 $2,694 $ - $2,694
4. Inventories
At September 30, 2002 and December 31, 2001, approximately 71%
and 73%, respectively, of the inventories are valued on the LIFO
method, with the remaining inventories being valued on the FIFO
method. Inventories are comprised of the following:
(in thousands)
September 30, December 31,
2002 2001
Raw materials $13,262 $14,853
Work-in-process 22,246 20,915
Finished goods 4,404 6,699
Supplies 4,768 4,811
$44,680 $47,278
5. Other Current Liabilities
Other current liabilities are comprised of the following:
(in thousands)
September 30, December 31,
2002 2001
Customer-related $ 3,420 $ 3,848
Restructuring costs 982 1,830
Accrued income taxes 2,495 1,029
Other 7,685 5,732
$14,582 $12,439
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6. Comprehensive Income (Loss)
The Corporation's comprehensive income (loss) for the nine and
three months ended September 30, 2002 and 2001 consisted of:
(in thousands)
Nine Months Three Months
Ended Sept. 30, Ended Sept. 30,
2002 2001 2002 2001
Net income (loss) $ 1,692 $(1,844) $1,267 $1,641
Foreign currency translation 1,944 217 540 947
Unrealized holding losses on
marketable securities (375) (285) (240) (166)
Change in fair value of derivatives (119) (274) (151) (92)
Comprehensive income (loss) $ 3,142 $(2,186) $1,416 $2,330
7. Foreign Exchange
The Corporation manages its exposure to exchange rate
fluctuations on sales contracts in foreign currencies and
commodity price fluctuations through the use of forward foreign
exchange and futures contracts. During the second quarter of
2002, the Corporation began entering into forward foreign
exchange contracts to hedge exchange rate fluctuations on
projected sales. These contracts, settling at various dates
beginning in 2003 through 2004, have been designated as cash
flow hedges. As of September 30, 2002, approximately $8,000,000
of anticipated foreign denominated sales have been hedged. The
fair value of these contracts expected to settle within the next
12 months is recorded in other current liabilities and
approximated $158,000. The fair value of the remaining
contracts is recorded in other liabilities and approximated
$80,000. The change in the fair value of these contracts is
recorded as a component of comprehensive income (loss) and
approximated $155,000, net of taxes. The change in fair value
will be reclassified into earnings as a loss within other income
(expense) when the projected sales occur with approximately
$103,000 expected to be released within the next 12 months.
Gains (losses) on foreign exchange transactions approximated
$140,000 and ($45,000) for the nine months ended September 30,
2002 and 2001, respectively, and ($110,000) and $635,000 for the
three months ended September 30, 2002 and 2001, respectively.
8. Earnings Per Share
Basic earnings per share are computed by dividing net income
(loss) before cumulative effect of accounting change for
goodwill, cumulative effect of accounting change for goodwill,
and net income (loss) by the weighted average number of common
shares outstanding for the period. The weighted average number
of common shares outstanding for the nine and three months ended
September 30, 2002 equaled 9,621,822 and 9,632,497 shares,
respectively. The weighted average number of common shares
outstanding for the nine and three month periods ended September 30,
2001 equaled 9,603,630 and 9,605,616 shares, respectively.
The computation of diluted earnings per share is similar to
basic earnings per share except that the denominator is
increased to include
- 9 -
the dilutive effect of the net additional common shares that
would have been outstanding assuming exercise of outstanding
stock options, calculated using the treasury stock method. The
weighted average number of common shares outstanding assuming
exercise of the stock options was 9,647,731 and 9,654,590 shares
for the nine and three months ended September 30, 2002 and
9,632,568 and 9,624,278 shares for the nine and three months
ended September 30, 2001, respectively.
9. Business Segments
Presented below are the net sales and income (loss) before taxes
for the Corporation's three business segments.
Nine Months Ended Three Months Ended
September 30, September 30,
2002 2001 2002 2001
Net Sales:
Forged and Cast Rolls $ 74,276 $ 73,448 $ 24,353 $ 24,394
Air and Liquid
Processing 73,124 71,254 23,501 22,595
Plastics Processing
Machinery 18,801 21,454 6,124 6,379
Total Reportable
Segments $166,201 $166,156 $ 53,978 $ 53,368
Income (loss) before taxes:
Forged and Cast Rolls $ 2,406 $ (6,226) $ 1,378 $ 110
Air and Liquid
Processing 8,127 5,691 2,595 2,339
Plastics Processing
Machinery (1,835) (438) (1,065) (379)
Total Reportable
Segments 8,698 (973) 2,908 2,070
Other (expense)
income - net (367) (1,192) (401) 615
Total $ 8,331 $ (2,165) $ 2,507 $ 2,685
Income (loss) before taxes for the Forged and Cast Rolls segment
for the nine and three months ended September 30, 2002 includes
a net restructuring credit of $188,000 and a gain on the sale of
land and building of $1,058,000 and for the nine months ended
September 30, 2001 includes restructuring charges of $7,280,000.
Income (loss) from before taxes for the Air and Liquid
Processing segment for the nine and three months ended September 30,
2002 includes restructuring charges of $211,000 and for the
nine and three months ended September 30, 2001 includes
litigation costs of approximately $2,250,000 and $350,000,
respectively. Income (loss) before taxes for the nine and three
months ended September 30, 2002 for the Plastics Processing
Machinery segment includes restructuring charges of $652,000.
Other (expense) income - net for the nine months ended September 30,
2001 includes charges of approximately $1,040,000 primarily
for foreign currency translation losses incurred on the sale of
the small feed roll business (Note 10) and environmental costs
for a previously discontinued business.
- 10 -
10.Divestitures
In June 2002, the Corporation sold the net assets, excluding
primarily trade receivables and payables, of its metals forging
business in England for approximately its net book value or
$1,395,000. A loss of approximately $265,000 was recognized
relating primarily to the release of foreign currency
translation losses previously recorded as a component of
accumulated other comprehensive loss. Adjustments to the
proceeds may arise based on completion of the closing balance
sheet; however, such adjustments are not expected to be
material. Of the estimated proceeds approximately $265,000,
plus interest at the prevailing rate, is payable in two equal
semi-annual installments beginning in December 2002.
In May 2001, the Corporation sold the net assets, excluding
primarily trade receivables and payables, of its small feed roll
business in England for approximately $1,060,000. A loss of
approximately $490,000 was initially recognized relating
primarily to the release of foreign currency translation losses
previously recorded as a component of accumulated other
comprehensive loss. In the fourth quarter of 2001, the loss was
subsequently revised to $152,000 due to various post-closing
adjustments.
11.Litigation and Environmental Matters
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In
addition, claims have been asserted alleging personal injury
from exposure to asbestos-containing components historically
used in some products of certain of the Corporation's
subsidiaries. As of September 30, 2002, those subsidiaries, and
in some cases, the Corporation, were defendants (among a number
of defendants, typically over 50 and often over 100)in cases
filed in various state and federal courts involving
approximately 6,500 claimants (including derivative spousal
claims). Most of the claims were made in a small number of
lawsuits filed in Mississippi in 2002. The filings do not
typically identify specific products as a source of asbestos
exposure. The Corporation's aggregate gross settlement costs,
including defense costs, in the first nine months of 2002 were
$416,507, substantially all of which was paid by insurance. In
addition, five cases have been dismissed in 2002 without any
payment.
Based on the Corporation's claims experience to date, insurance
coverage and the identity of the subsidiaries that are named in
the cases, the Corporation believes that the pending legal
proceedings will not have a material adverse effect on its
consolidated financial condition or liquidity. The outcome of
any of the particular lawsuits, however, could be material to
the consolidated results of operations of the period in which
the costs, if any, are recognized. There can be no assurance
that the Corporation or certain of its subsidiaries will not be
subjected to significant additional claims in the future or that
the Corporation's or its subsidiaries' ultimate liability with
respect to these claims will not present significantly greater
and longer lasting financial exposure than presently
contemplated. Therefore, although it is probable that future
costs will be incurred, the amounts cannot reasonably be
estimated. Accordingly, the Corporation has not made an accrual
for such costs in its financial statements.
- 11 -
In addition, the Corporation has recently retained a law firm to
advise it on all matters pertaining to these asbestos cases. As
a result, the Corporation will be incurring future uninsured
legal costs in connection with this advice.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection with
the sale of real estate previously owned by discontinued
operations and has been named a Potentially Responsible Party at
one third-party landfill site used by a division which was
previously sold. In the third quarter 2002, the Corporation
accrued an additional amount for estimated costs to be incurred
in connection with the remediation of one of its sites
previously sold. The proposal is still subject to approval by
the regulatory authorities; however, any differences in proposed
procedures are not expected to significantly impact estimated
costs.
Environmental exposures are difficult to assess and estimate for
numerous reasons including lack of reliable data, the
multiplicity of possible solutions, the years of remedial and
monitoring activity required, and identification of new sites.
While it is not possible to quantify with certainty the
environmental exposure, in the opinion of management, the
potential liability for all environmental proceedings, based on
information known to date and the estimated quantities of waste
at these sites, will not have a material adverse effect on the
financial condition, results of operations or liquidity of the
Corporation.
12.Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) continues to
identify and provide guidance on various implementation issues
related to SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended, which are in varying stages
of review and clearance. The Corporation continues to evaluate
the impact of these issues. To date, these items have not had a
material adverse effect on the financial condition or results of
operations of the Corporation.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which is effective for the Corporation
January 1, 2003. SFAS No. 143 establishes standards for
accounting for obligations associated with the retirement of
tangible long-lived assets. Adoption of SFAS No. 143 is not
expected to have a significant impact on the financial condition
or results of operations of the Corporation. In addition, in
August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which became
effective for the Corporation January 1, 2002. SFAS No. 144
requires that long-lived assets be measured at the lower of
carrying amount or fair value, less cost to sell, whether
reported in continuing operations or in discontinued operations.
Adoption of SFAS No. 144 did not have a significant impact on
the financial condition or results of operations of the Corporation.
In June 2002, SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," was issued and is effective
for the Corporation January 1, 2003. SFAS No. 146 redefines
when a liability is incurred related to exit and disposal
activities and requires it to be measured initially at its fair
value. SFAS No. 146 is not expected to have a significant
impact on the financial condition or results of operations of
the Corporation.
- 12 -
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
In the quarter, sales, operating income and operating levels for
each segment were similar to those in the same quarter of the prior
year. The outlook for the balance of the year is expected to be
much the same for the Plastic Processing Machinery business with a
modest improvement for the domestic Forged and Cast Roll
operations. However,the previously reported reduction in demand
for power generation equipment, together with the slowdown in
construction spending, is expected to have an adverse impact on
results of the Air and Liquid Processing segment.
As part of aggressive efforts to reduce costs and align internal
resources with business demands, the Corporation gave notification
of a permanent reduction in manning levels at several of its
operations and initiated the closure of its leased Plastics
Processing Machinery facility in South Carolina in the third
quarter of 2002. Accordingly, pre-tax restructuring charges of
approximately $1,337,000 were recorded for the nine and three
months ended September 30, 2002.
Despite the reduction in manning levels at several operations,
earnings of the Corporation will likely continue to be weak.
Improvement will be difficult until there is a significant increase
in capital spending levels and a strengthening of the U.S. economy.
In 2001, the Corporation undertook a review of its global roll-
making capacity and recorded a pre-tax charge of $7,280,000
primarily for restructuring costs associated with the permanent
closure of its forged steel roll plant in Belgium. In July 2002,
the land and buildings of the Belgian facility were sold resulting
in a gain of approximately $1,058,000 and unused restructuring
provisions no longer necessary of approximately $662,000 were
reversed to income during the nine and three months ended September 30,
2002.
The net of the third quarter restructuring charges, the gain on the
sale of the land and building in Belgium and the unused
restructuring provisions reversed into income resulted in a net
credit of $383,000 which is reflected as restructuring charges and
gain on sale of land and building in the accompanying statements of
operations for the nine and three months ended September 30, 2002.
Operations for the Nine and Three Months Ended September 30, 2002
and 2001
Net Sales. Net sales for the nine months ended September 30, 2002
and 2001 were $166,201,000 and $166,156,000, respectively, and net
sales for the three months then ended were $53,978,000 and
$53,368,000, respectively. A discussion of the year-to-date and
third quarter sales for the Corporation's three segments is
included below. Order backlogs approximated $95,679,000 at
September 30, 2002 in comparison to $107,608,000 at December 31,
2001. The decrease is due primarily to a decrease in the backlog
for the Air and Liquid Processing segment.
- 13 -
Cost of Products Sold. Cost of products sold, excluding
depreciation, were comparable at 77.8% and 77.4% of net sales for
the nine months ended September 30, 2002 and 2001, respectively,
and 78.3% and 77.7%, for the three months ended September 30, 2002
and 2001, respectively.
Income (Loss) from Operations. Excluding the restructuring charges
and gain on sale of land and building, income from operations
approximated $8,315,000 and $6,307,000 for the nine months ended
September 30, 2002 and 2001, respectively, and $2,525,000 and
$2,070,000, for the three months ended September 30, 2002 and 2001,
respectively. A discussion of the year-to-date and third quarter
results for the Corporation's three segments is included below.
Forged and Cast Rolls. Sales for the Forged and Cast Rolls segment
for the nine months ended September 30, 2002 increased by $828,000
to $74,276,000. The improvement in sales is attributable to an
increase in volume particularly export business by the U.S.
operations offset by the May 2001 sale of the small feed roll
business and the June 2002 sale of the metals forging business.
Sales for the three months ended September 30, 2002 were level with
that of the comparable prior year period.
Operating income for the nine and three months ended September 30,
2002 includes a gain on the sale of land and building of $1,058,000
and a restructuring credit of $188,000 representing the net of
restructuring charges of $474,000 for severance costs associated
with the permanent reduction in manning levels at its U.K.
operations offset by the reversal of unused restructuring
provisions of $662,000 relating to closure of the Belgian plant in
2001. Operating income for the nine months ended September 30,
2001 includes restructuring charges of $7,280,000. Excluding the
gain on the sale of the land and building and restructuring items,
operating income increased $106,000 to $1,160,000 for the nine
months ended September 30, 2002 against the comparable prior year
period. The improvement in operating income is due to a greater
volume of shipments and increased production offset by a higher
content of export business which generally has lower gross margins
as well as overall depressed pricing levels. Operating income,
excluding gain on sale of land and building and restructuring
items, for the three months ended September 30, 2002 was level with
that of the comparable prior year period.
Air and Liquid Processing. For the nine months ended September 30,
2002, sales for the Air and Liquid Processing segment increased
$1,870,000 to $73,124,000 and for the three months ended September
30, 2002, increased $906,000 to $23,501,000 against the comparable
prior year periods. Operating income for the nine and three months
ended September 30, 2002 was negatively impacted by restructuring
charges of $211,000 for severance costs associated with the
permanent reduction in manning levels at each of its operating
units. Operating income for the nine and three months ended
September 2001 includes litigation costs of approximately
$2,250,000 and $350,000, respectively. Excluding these costs,
operating income improved $397,000 and $117,000 for the nine and
three months ended September 30, 2002, respectively, in comparison
to the same periods of the prior year. The improvement is primarily
attributable to increased activity from the industrial and utility
markets for the heat exchange coil business offset by poorer
results for the air handling business,
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which is principally being impacted by reduced demand and increased
price competition. Pumps sales benefited from stronger demand
during the first part of the year but have begun to be impacted by
a downturn in the power generation industry.
Plastics Processing Machinery. Sales for the Plastics Processing
Machinery segment for the nine and three-month period ended
September 30, 2002 decreased by $2,653,000 to $18,801,000 and
$255,000 to $6,124,000, respectively, in comparison to the same
periods of the prior year. Operating results for the nine and
three months ended September 30, 2002 includes restructuring
charges of $652,000 primarily for severance costs associated with
the permanent reduction in manning levels and the closure of its
feedscrews facility in South Carolina. Excluding these charges,
earnings decreased $745,000 to an operating loss of $1,183,000 and
$34,000 to an operating loss of $413,000 for the nine and three
months ended September 30, 2002, respectively, against the same
periods of the prior year. The decrease is attributable to reduced
selling prices and a significant reduction in demand from plastics
processor and original equipment customers.
Other (Expense) Income. Interest expense for the nine and three
months ended September 30, 2002 decreased due to lower interest
rates. Other (expense) income for the nine and three months ended
September 30, 2002 includes approximately $265,000 for the loss on
the sale of the Corporation's metals forging business whereas other
(expense) income for the nine months ended September 30, 2001
includes $1,040,000 relating to the loss on the sale of the small
feed roll business and additional environmental costs for a
previously discontinued business. Excluding these costs, other
(expense) income would have approximated $212,000 and $366,000 for
the nine months ended September 30, 2002 and 2001, respectively,
and $(4,000) and $773,000 for three months ended September 30, 2002
and 2001, respectively. The decrease in other income for the nine
months ended September 30, 2002 is due principally to lower
interest income resulting from a decrease in interest rates. The
decrease in other income for the three months ended September 30,
2002 is primarily attributable to losses on foreign exchange
transactions of $110,000 for the third quarter 2002 in comparison
to foreign exchange gains of $635,000 for the third quarter 2001
due mainly from the change in value of the euro as well as lower
interest income resulting from a decrease in interest rates.
Income Taxes. The effective tax rate approximated 45.0% and
(14.8%) for the nine months ended September 30, 2002 and 2001,
respectively, and 49.5% and 38.9% for the three months ended
September 30, 2002 and 2001, respectively. The increase is due
primarily to lower tax benefit for operating losses generated in
the U.K., reduced foreign sales benefit, and state income taxes.
Cumulative Effect of Accounting Change. Effective January 1, 2002,
the Corporation adopted the provisions of Statement of Financial
Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142, requires that goodwill no longer be
amortized but instead tested for impairment at least annually. In
accordance with the requirements of SFAS No. 142, the Corporation
tested the goodwill attributable to each of its reporting units for
impairment as of January 1, 2002. The Corporation's reporting
units are the major product lines comprising its reportable
business segments. Fair value was estimated using discounted cash
flow methodologies and market comparable information. As a result,
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$4,452,000 of goodwill specific to the heat-transfer rolls unit of
the Plastics Processing Machinery segment was written off and is
recorded as a cumulative effect of accounting change, net of income
taxes, in the accompanying consolidated statements of operations.
The impairment arises from the severe downturn in the plastics
processing industry resulting in reduced selling prices and a
significant reduction in demand.
Net Income (Loss). As a result of all of the above, the
Corporation had net income for the nine and three months ended
September 30, 2002 of $1,692,000 and $1,267,000, respectively, in
comparison to a net loss of $(1,844,000) and net income of
$1,641,000, respectively, for the nine and three months ended
September 30, 2001.
Liquidity and Capital Resources
Net cash flows from operating activities were $15,015,000 for the
nine months ended September 30, 2002 against $7,641,000 for the
nine months ended September 30, 2001. The increase is due to
changes in working capital including a reduction in inventories and
an increase in accrued payrolls and employee benefits as well as a
refund of income taxes paid.
Net cash flows used in investing activities approximated $1,767,000
and $5,160,000 for the nine months ended September 30, 2002 and
2001, respectively. Capital expenditures for 2002 amounted to
$4,366,000 in comparison to $6,220,000 for 2001. Capital
expenditures carried forward from September 30, 2002 approximated
$4,214,000. Funds on-hand, funds generated by future operations
and available lines of credit are expected to be sufficient to
finance capital expenditure requirements. In June 2002, the
Corporation sold the net assets, excluding primarily trade
receivables and payables, of its metals forging business in England
for approximately its net book value or $1,395,000. Adjustments to
the proceeds may arise based on completion of the closing balance
sheet; however, such adjustments are not expected to be material.
Of the estimated proceeds approximately $265,000, plus interest at
the prevailing rate, is payable in two equal semi-annual
installments beginning in December 2002. The remaining assets of
the Belgian facility were sold in July 2002 for approximately
$1,447,000. In May 2001, the Corporation sold the net assets,
excluding primarily trade receivables and payables of its small
feed roll business in England for approximately $1,060,000.
Net cash flows used in financing activities were $2,646,000 for
2002 and $4,865,000 for 2001 and include payment of quarterly
dividends at a rate of $0.10 per share. Proceeds were received
from the issuance of stock under the Corporation's stock option
plan of approximately $239,000 in 2002 and $16,000 in 2001. The
Corporation repaid $2,000,000 of short-term borrowings in 2001.
The strengthening of the euro and the pound against the dollar from
December 31, 2001 to September 30, 2002 increased cash and cash
equivalents by $360,000.
The Corporation maintains short-term lines of credit in excess of
the cash needs of its businesses. The total available at September 30,
2002 was approximately $5,250,000.
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Litigation and Environmental Matters
See Note 11 of the notes to the consolidated financial statements.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) continues to
identify and provide guidance on various implementation issues
related to SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, that are in varying stages of
review and clearance. The Corporation continues to evaluate the
impact of these issues. To date, these items have not had a
material adverse effect on the financial condition or results of
operations of the Corporation.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which is effective for the Corporation
January 1, 2003. SFAS No. 143 establishes standards for accounting
for obligations associated with the retirement of tangible long-
lived assets. Adoption of SFAS No. 143 is not expected to have a
significant impact on the financial condition or results of
operations of the Corporation.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," was issued and is effective for the
Corporation January 1, 2003. SFAS No. 146 redefines when a
liability is incurred related to exit and disposal activities and
requires it to be measured initially at its fair value. SFAS No.
146 is not expected to have a significant impact on the financial
condition or results of operations of the Corporation.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by or on behalf of
the Corporation. Management's Discussion and Analysis and other
sections of the Form 10-Q contain forward-looking statements that
reflect the Corporation's current views with respect to future
events and financial performance.
Forward-looking statements are identified by the use of the words
"believe," "expect," "anticipate," "estimate," "projects,"
"forecasts" and other expressions that indicate future events and
trends. Forward-looking statements speak only as of the date on
which such statements are made, are not guarantees of future
performance or expectations and involve risks and uncertainties.
In addition, there may be events in the future that the Corporation
is not able to accurately predict or control which may cause actual
results to differ materially from expectations expressed or implied
by forward-looking statements. The Corporation undertakes no
obligation to update any forward-looking statement, whether as a
result of new information, events or otherwise. These forward-
looking statements shall not be deemed incorporated by reference by
any general statement incorporating by reference this Form 10-Q
into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934 and shall not otherwise be deemed filed under
such Acts.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Corporation's exposure to
market risk from December 31, 2001.
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ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Within 90 days before
filing this report, the Corporation evaluated the effectiveness of
the design and operation of its disclosure controls and procedures.
Disclosure controls and procedures are the controls and other
procedures designed to ensure that the information required to be
disclosed in reports filed with or submitted to the SEC are
recorded, processed, summarized and reported in a timely manner.
Robert A. Paul, Chief Executive Officer, and Marliss D. Johnson,
Vice President, Controller and Treasurer, reviewed and participated
in this evaluation. Based on this evaluation, Messrs. Paul and
Johnson concluded that, as of the date of their evaluation, the
Corporation's disclosure controls were effective.
(b) Internal controls. Since the date of the evaluation described
above, there have not been any significant changes in the
Corporation's internal accounting controls or in other factors that
could significantly affect those controls.
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PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 11 (Litigation and
Environmental Matters) is incorporated herein by reference.
Items 2-5 None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation and By-laws
(a) Articles of Incorporation
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1983,
March 31, 1984, March 31, 1985, March 31, 1987 and
September 30, 1998.
(b) By-laws
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996
and June 30, 2001.
4. Instruments defining the rights of securities holders
(a) Rights Agreement between Ampco-Pittsburgh Corporation
and Chase Mellon Shareholder Services dated as
of September 28, 1998.
Incorporated by reference to the Form 8-K
Current Report dated September 28, 1998.
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
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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.
99. Additional Exhibits
(1) Certification of Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(2) Certification of Vice President, Controller and
Treasurer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
- 20 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMPCO-PITTSBURGH CORPORATION
DATE: November 14, 2002 BY: s/Robert A. Paul
Robert A. Paul
President and
Chief Executive Officer
DATE: November 14, 2002 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
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AMPCO-PITTSBURGH CORPORATION
I, Robert A. Paul, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ampco-
Pittsburgh Corporation ("the registrant");
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
s/Robert A. Paul
Robert A. Paul
Chief Executive Officer
November 14, 2002
- 22 -
AMPCO-PITTSBURGH CORPORATION
I, Marliss D. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ampco-
Pittsburgh Corporation ("the registrant");
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
s/Marliss D. Johnson
Marliss D. Johnson
Vice President, Treasurer and Controller
November 14, 2002
- 23 -
AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit 99 - Additional Exhibits
99.1 Certification of Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Certification of Vice President, Controller
and Treasurer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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