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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 June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-898.
AMPCO-PITTSBURGH CORPORATION
Incorporated in Pennsylvania.
I.R.S. Employer Identification No. 25-1117717.
600 Grant Street, Pittsburgh, Pennsylvania 15219
Telephone Number 412/456-4400
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
On August 14, 2003, 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 -
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Operations -
Six Months Ended June 30, 2003 and 2002;
Three Months Ended June 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4 - Controls and Procedures 17
Part II - Other Information:
Item 1 - Legal Proceedings 18
Item 4 - Submission of Matters to a Vote of
Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 20
Exhibit Index 21
Exhibits
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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PART I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $ 26,323,223 $ 27,684,915
Receivables, less allowance for
doubtful accounts of $1,670,021 in
2003 and $1,552,534 in 2002 38,404,589 39,059,424
Inventories 47,891,505 47,054,825
Other 9,574,659 6,685,124
Total current assets 122,193,976 120,484,288
Property, plant and equipment, at cost:
Land and land improvements 5,089,738 5,061,053
Buildings 29,363,425 29,317,286
Machinery and equipment 147,293,416 144,888,313
181,746,579 179,266,652
Accumulated depreciation (99,333,682) (95,535,004)
Net property, plant and equipment 82,412,897 83,731,648
Prepaid pensions 23,839,261 23,039,261
Goodwill 2,694,240 2,694,240
Other noncurrent assets 5,077,737 5,100,065
$236,218,111 $235,049,502
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 11,552,237 $ 12,288,899
Accrued payrolls and employee benefits8,721,328 8,413,650
Other 15,974,306 14,200,883
Total current liabilities 36,247,871 34,903,432
Employee benefit obligations 16,294,821 16,304,604
Deferred income taxes 20,652,597 19,825,065
Industrial Revenue Bond debt 13,311,000 13,311,000
Other noncurrent liabilities 746,365 684,995
Total liabilities 87,252,654 85,029,096
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 2003 and 2002 9,632,497 9,632,497
Additional paid-in capital 103,005,928 103,005,928
Retained earnings 44,631,492 45,970,371
Accumulated other comprehensive loss (8,304,460) (8,588,390)
Total shareholders' equity 148,965,457 150,020,406
$236,218,111 $235,049,502
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, Three Months Ended June 30,
2003 2002 2003 2002
Net sales $101,425,899 $112,222,548 $ 51,746,917 $ 57,524,192
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 79,292,195 87,082,146 40,247,402 44,420,829
Selling and administrative 16,112,757 15,252,334 8,259,642 7,703,090
Depreciation 4,000,033 4,098,013 1,998,512 2,045,967
Loss on disposition of assets 13,500 26,268 4,850 57,321
Total operating expenses 99,418,485 106,458,761 50,510,406 54,227,207
Income from operations 2,007,414 5,763,787 1,236,511 3,296,985
Other (expense) income:
Interest expense (163,323) (182,460) (69,906) (110,976)
Other - net (237,470) 242,770 (85,557) 447,466
(400,793) 60,310 (155,463) 336,490
Income before income taxes 1,606,621 5,824,097 1,081,048 3,633,475
Income tax provision 1,019,000 2,505,000 690,000 1,533,000
Net income before cumulative
effect of change in
accounting for goodwill 587,621 3,319,097 391,048 2,100,475
Cumulative effect of change in
accounting for goodwill, net of
income taxes of $1,558,269 - (2,893,931) - -
Net income $ 587,621 $ 425,166 $ 391,048 $ 2,100,475
Basic and diluted earnings
per common share:
Net income before cumulative
effect of change in
accounting for goodwill $ 0.06 $ 0.34 $ 0.04 $ 0.22
Cumulative effect of change
in accounting for goodwill$ - $ (0.30) $ - $ -
Net income $ 0.06 $ 0.04 $ 0.04 $ 0.22
Cash dividends declared
per share $ 0.20 $ 0.20 $ 0.10 $ 0.10
Weighted average number of
common shares outstanding 9,632,497 9,616,396 9,632,497 9,623,812
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2003 2002
Net cash flows provided by operating
activities $ 2,955,192 $ 6,872,545
Cash flows from investing activities:
Purchases of property, plant and
equipment (2,647,138) (3,227,653)
Proceeds from sale of assets 12,485 1,129,950
Net cash flows (used in) investing
activities (2,634,653) (2,097,703)
Cash flows from financing activities:
Proceeds from the issuance of
common stock - 238,925
Dividends paid (1,926,500) (1,921,779)
Net cash flows (used in) financing
activities (1,926,500) (1,682,854)
Effect of exchange rate changes on cash
and cash equivalents 244,269 444,212
Net (decrease) increase in cash and
cash equivalents (1,361,692) 3,536,200
Cash and cash equivalents at
beginning of period 27,684,915 13,514,299
Cash and cash equivalents at
end of period $ 26,323,223 $ 17,050,499
Supplemental information:
Income tax payments $ 216,217 $ 653,651
Interest payments $ 146,874 $ 176,081
Noncash investing and financing activities - see Note 11.
See Notes to Consolidated Financial Statements.
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AMPCO-PITTSBURGH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The consolidated balance sheet as of June 30, 2003, the
consolidated statements of operations for the six and three
months ended June 30, 2003 and 2002 and the condensed
consolidated statements of cash flows for the six months ended
June 30, 2003 and 2002 have been prepared by Ampco-Pittsburgh
Corporation (the Corporation) without audit. In the opinion of
management, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position,
results of operations and cash flows for the periods presented
have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto incorporated by reference in the Corporation's annual
report to shareholders on Form 10-K for the year ended December
31, 2002. The results of operations for the six and three
months ended June 30, 2003 are not necessarily indicative of the
operating results expected for the full year.
2. Restructuring
In the third quarter of 2002, the Corporation made permanent
reductions in manning levels at several of its operations and
initiated the closure of its leased Plastics Processing
Machinery facility in South Carolina. An initial restructuring
provision of $1,337,000 for costs associated with these efforts
was recorded and as of December 31, 2002, approximately $167,000
remained outstanding. Restructuring activity for 2003 was as
follows:
(in thousands)
December 31, June 30,
2002 Paid 2003
Employee costs $ 157 $ ( 88) $ 69
Costs associated with
closure of leased facility 10 (7) 3
$ 167 $ (95) $ 72
The restructuring reserve as of June 30, 2003 represents
primarily remaining severance and insurance costs to be paid
during the remainder of 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" resulting in an
after-tax write off of
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goodwill amounting to $2,894,000 in the first quarter of 2002.
There have been no subsequent changes in the carrying amount of
goodwill. Remaining goodwill relates to the Air and Liquid
Processing segment and approximates $2,694,000.
4. Inventories
At June 30, 2003 and December 31, 2002, approximately 69% and
70%, respectively, of the inventories were valued on the LIFO
method, with the remaining inventories being valued on the FIFO
method. Inventories were comprised of the following:
(in thousands)
June 30, December 31,
2003 2002
Raw materials $13,102 $12,807
Work-in-process 21,624 23,216
Finished goods 7,947 5,943
Supplies 5,219 5,089
$47,892 $47,055
5. Other Current Liabilities
Other current liabilities were comprised of the following:
(in thousands)
June 30, December 31,
2003 2002
Customer-related $ 6,937 $ 6,298
Other 9,037 7,903
$15,974 $14,201
6. Comprehensive Income
The Corporation's comprehensive income for the six and three
months ended June 30, 2003 and 2002 consisted of:
(in thousands)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Net income $ 588 $ 425 $ 391 $2,100
Foreign currency translation 551 1,404 767 1,871
Minimum pension liability - - (7) -
Unrealized holding gains (losses)
on marketable securities 26 (135) 119 (292)
Change in fair value of derivatives (293) 32 (190) (152)
Comprehensive income $ 872 $1,726 $1,080 $3,527
7. Foreign Exchange
Certain of the Corporation's operations are subject to risk from
exchange rate fluctuations in connection with sales in foreign
currencies. To minimize this risk, forward foreign exchange
contracts
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are purchased which are designated as fair value hedges or cash
flow hedges. As of June 30, 2003, approximately $22,800,000 of
anticipated foreign denominated sales have been hedged with the
underlying contracts settling at various dates beginning in
2003 through 2006. As of June 30, 2003, the fair value of
contracts expected to settle within the next 12 months, which
is recorded in other current liabilities, approximated
$1,312,000 and the fair value of the remaining contracts, which
is recorded in other noncurrent liabilities, approximated
$524,000. The change in the fair value of the contracts
designated as cash flow hedges is recorded as a component of
accumulated other comprehensive loss and approximated
$(872,000), net of taxes, as of June 30, 2003. The change in
fair value will be reclassified into earnings when the
projected sales occur with approximately $(691,000), net of
taxes, expected to be released to earnings within the next 12
months.
Gains (losses) on foreign exchange transactions approximated
$(245,000) and $251,000 for the six months ended June 30, 2003
and 2002 respectively and $(81,000) and $448,000 for the three
months ended June 30, 2003 and 2002 respectively.
In addition, one of the Corporation's subsidiaries is subject
to risk from increases in the price of a commodity used in the
production of inventory. To minimize this risk, futures
contracts are entered into which are designated as cash flow
hedges. At June 30, 2003, approximately 100% or $1,642,000 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 $15,000 and the fair
value of the remaining contracts approximated $(5,000) as of
June 30, 2003. The change in the fair value of the contracts
designated as cash flow hedges is recorded as a component of
accumulated other comprehensive loss and approximated $6,000,
net of taxes, as of June 30, 2003. The change in the fair
value will be reclassified into earnings when the projected
sales occur with approximately $9,000, net of taxes, expected
to be released to earnings within the next 12 months.
8. Earnings Per Share
Basic earnings per share are computed by dividing net income
before cumulative effect of change in accounting for goodwill,
cumulative effect of change in accounting for goodwill, and net
income by the weighted average number of common shares
outstanding for the period. The weighted average number of
common shares outstanding for the six and three months ended
June 30, 2003 equaled 9,632,497 shares and for the six and three
months ended June 30, 2002 equaled 9,616,396 and 9,623,812,
respectively.
The computation of diluted earnings per share is similar to
basic earnings per share except that the denominator is
increased to include 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 9,698,501
and 9,706,863 shares for the six and three months ended June 30,
2003, respectively, and 9,647,139 and 9,664,956 shares for the
six and three months ended June 30, 2002, respectively.
- 8 -
9. Business Segments
Presented below are the net sales and income (loss) before taxes
for the Corporation's three business segments. In the fourth
quarter 2002, the Corporation began evaluating the performance
of its segments based solely on income from operations without
an allocation of corporate expenses to give it the ability to
focus on actual operating performance for each of the segments.
Prior year information has been restated to conform to the 2003
presentation.
(in thousands)
Six Months Ended Three Months Ended
June 30, June 30,
2003 2002 2003 2002
Net Sales:
Forged and Cast Rolls $ 52,388 $ 49,923 $ 27,590 $ 25,374
Air and Liquid
Processing 36,637 49,623 17,905 25,553
Plastics Processing
Machinery 12,401 12,677 6,252 6,597
Total Reportable
Segments $101,426 $112,223 $ 51,747 $ 57,524
Income (loss) before taxes:
Forged and Cast Rolls $ 2,797 $ 1,876 $ 1,840 $ 1,202
Air and Liquid
Processing 1,863 6,691 835 3,492
Plastics Processing
Machinery (189) (391) (270) (200)
Total Reportable
Segments 4,471 8,176 2,405 4,494
Other expense, including
corporate costs - net (2,864) (2,352) (1,324) (861)
Total $ 1,607 $ 5,824 $ 1,081 $ 3,633
10. Investment in Joint Venture
Effective January 2003, the U.K. cast roll operation entered
into an agreement to sell technical know-how to a newly created
joint venture in China. In addition to cash proceeds, the U.K.
operations received an interest in the joint venture, the value
of which is not material.
11. Divestiture
In June 2002, the Corporation sold the net assets, excluding
primarily trade receivables and payables, of its small metals
forging business in England for approximately its net book
value or $1,308,000. A portion of the proceeds plus interest
were payable subsequent to the sale, all of which has since
been collected.
12. Litigation and Environmental Matters
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In
addition, claims have been asserted alleging personal injury
from exposure to asbestos-
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containing components historically used in some products of
certain of the Corporation's subsidiaries. As of June 30, 2003,
those subsidiaries, and in some cases, the Corporation, were
defendants (among a number of defendants, typically over 50 and
often over 100) in cases filed in various state and federal
courts involving approximately 25,600 claimants. Most of the
claims were made in a small number of lawsuits filed in
Mississippi in 2002 and 2003. The filings do not typically
identify specific products as a source of asbestos exposure.
The Corporation's agreed gross settlement costs, including
defense costs, in the second quarter of 2003 were approximately
$553,000 and for the year to date of $903,000, substantially
all of which was paid by insurance. Fifty-five cases, involving
105 claimants, have been settled in the second quarter of 2003
without any payment bringing the total for the year to date to
sixty-nine cases, involving 119 claimants, being settled
without any payment.
On February 7, 2003, Utica Mutual Insurance Company ("Utica")
filed a lawsuit in the Supreme Court of the State of New York,
County of Oneida ("Oneida County Litigation") against the
Corporation and certain of the subsidiaries named in the
underlying asbestos action (the "Policyholder Defendants") and
three other insurance carriers that provided primary coverage
to the Corporation (the "Insurer Defendants"). In the lawsuit,
Utica disputes certain coverage obligations to the Policyholder
Defendants and asserts that the Insurer Defendants also have
defense and indemnity obligations to the Policyholder
Defendants. The lawsuit seeks a declaratory judgment and
recoupment of amounts already paid. The Policyholder
Defendants answered Utica's complaint, denying that Utica was
entitled to the relief it requested against them, and asserting
counterclaims against Utica.
As of June 27, 2003, the Policyholder Defendants and Utica
entered into a Defense and Indemnity Agreement with Respect to
Asbestos-Related Bodily Injury Claims ("Coverage Agreement")
settling most of the issues raised in the Oneida County
Litigation. Under the Coverage Agreement, Utica has accepted
financial responsibility, subject to the limits of its policies
and based on fixed defense percentages and specified indemnity
allocation formulas, for a substantial majority of the asbestos
personal injury claims arising out of exposure to alleged
asbestos-containing components in products distributed by the
Policyholder Defendants. Utica's agreed share of such defense
and indemnification costs varies depending upon the alleged
asbestos-containing product at issue and whether Utica primary
or umbrella policies are responsible for the claims and, for
indemnification costs only, the years of the claimant's
exposure to asbestos.
Under the Agreement, Utica and the Policyholder Defendants will
continue to litigate the effect, if any, of an exclusion
addressing products liability with respect to sales to the
United States government contained in certain primary Utica
policies. Utica has agreed, however, that any claims precluded
from coverage under the
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primary policies containing the exclusion will be covered under
the umbrella policies issued by Utica. Under certain of the
umbrella policies, defense costs expended on covered claims
will erode the policy limits, in contrast to the primary
policies where only indemnity costs erode the policy limits.
Also under the Agreement, Utica has agreed to front, for a
period of one year, all defense and indemnification costs for
the covered claims, subject to a right of recovery from the
relevant subsidiaries, under specified conditions, if the
Insurer Defendants ultimately do not participate in the funding
of such costs. No settlement has been reached by Utica with
the Insurer Defendants.
Based on the Corporation's claims experience to date, insurance
coverage and the identity of the subsidiaries that are named in
the cases, the Corporation believes that the pending legal
proceedings will not have a material adverse effect on its
consolidated financial condition or liquidity. The outcome of
any of the particular lawsuits, however, could be material to
the consolidated results of operations of the period in which
the costs, if any, are recognized.
There can be no assurance that the Corporation or certain of
its subsidiaries will not be subjected to significant
additional claims in the future or that the Corporation's or
its subsidiaries' ultimate liability with respect to these
claims will not present significantly greater and longer
lasting financial exposure than presently contemplated.
Although it is probable that future costs will be incurred, the
amounts cannot reasonably be estimated. Accordingly, the
Corporation has not made an accrual for such costs in its
financial statements. In addition, the Corporation has retained
a law firm to advise it on all matters pertaining to these
asbestos cases including insurance issues. As a result,
together with costs related to the Oneida County Litigation,
the Corporation incurred uninsured legal costs approximating
$670,000 in the second quarter and $1,270,000 year to date.
The Corporation expects the level of these expenses to reduce
towards year end but are likely to aggregate in excess of $1.8
million for 2003.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection
with the sale of real estate previously owned and has been
named a Potentially Responsible Party at one third-party
landfill site used by a division which was previously sold. In
addition, as a result of a potential sale of the Plastics
Processing Machinery segment (see Note 14), subsurface
environmental testing commenced in July 2003 and is still
ongoing at the New Castle Industries group operations. The
Corporation has ascertained that remediation is required at two
of its Pennsylvania locations. The investigation into
remediation is still in progress; accordingly, an amount cannot
be reasonably estimated. Environmental exposures are difficult
to assess and estimate for numerous reasons including lack of
reliable data, the
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multiplicity of possible solutions, the years of remedial and
monitoring activity required, and identification of new sites.
In the opinion of management, although 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 overall
financial condition or liquidity of the Corporation, it may,
however, be material to the results of operations in the
quarter it is recorded.
13. Recently Issued Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46) and
continues to issue interpretive guidance. FIN 46 is effective
July 1, 2003 for the Corporation and requires existing
unconsolidated variable interest entities to be consolidated by
their primary beneficiary if the entities do not effectively
disperse risks among the various parties involved. The
Corporation is currently evaluating the impact FIN 46 will have
on the accounting of its interest in the China joint venture.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" was issued
codifying decisions previously made by the Derivatives
Implementation Group and in connection with other Financial
Accounting Standards Board (FASB) projects relating to
financial instruments. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and is not
expected to have a significant impact on the financial
condition and results of operations of the Corporation.
In May 2003, SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity" was issued which establishes standards for classifying
and measuring certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150
is effective for the Corporation July 1, 2003 and is not
expected to have a significant impact on the financial
condition and results of operations of the Corporation.
14. Subsequent Event
The plastics industry is in its third year of poor demand and
low levels of capital investment. The outlook continues to be
uncertain. Accordingly, subsequent to June 30, 2003, the
Corporation accepted an offer to purchase the stock of the New
Castle Industries, Inc. group of companies constituting the
Plastics Processing Machinery segment for approximately
$17,000,000 resulting in a loss of approximately $2,000,000.
In addition, the Corporation will incur additional costs for
environmental remediation (see Note 12) and a loss of
approximately $500,000 to $1,000,000 primarily for settlement
of existing pension obligations. The transaction is expected
to close on August 15, 2003 and will be accounted for as a
discontinued
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operation in the third quarter of 2003. Of the proceeds,
$15,600,000 will be paid in cash and cash equivalents with the
remainder in the form of a promissory note due no later than
second quarter 2006 with interest at the prime rate, payable
quarterly. As of June 30, 2003, assets for the segment
approximated $24,000,000 and liabilities approximated
$5,000,000.
- 13 -
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operations for the Six and Three Months Ended June 30, 2003 and 2002
Net Sales. Net sales for the six and three months ended June 30,
2003 were $101,426,000 and $51,747,000, respectively, compared to
$112,223,000 and $57,524,000 for the same periods of 2002. A
discussion of year-to-date and second quarter sales for the
Corporation's three segments is included below. Order backlogs
approximated $105,794,000 at June 30, 2003 in comparison to
$106,088,000 at December 31, 2002. The slight decrease is due
primarily to a decline in backlog for the Air and Liquid Processing
segment offset by an improvement in backlog for the Forged and Cast
Rolls segment.
Costs of Products Sold. Costs of products sold, excluding
depreciation, were at 78.2% and 77.6% of net sales for the six
months ended June 30, 2003 and 2002, respectively, and 77.8% and
77.2% of net sales for the three months ended June 30, 2003 and
2002, respectively. The increase is due to product mix as well as
higher raw material and natural gas costs particularly for the
Forged and Cast Rolls segment.
Selling and Administrative. The increase in selling and
administrative expenses for the six and three months ended June 30,
2003 against the same periods of the prior year is primarily
attributable to legal costs of $1,273,000 and $669,000,
respectively, for case management and insurance recovery relating
to lawsuits filed in connection with asbestos-containing products
manufactured decades ago. See further discussion in the Air and
Liquid Processing paragraph below.
Income from Operations. Income from operations for the six and
three months ended June 30, 2003 approximated $2,007,000 and
$1,237,000, respectively, in comparison to $5,764,000 and
$3,297,000 for the same periods of the prior year. A discussion of
year-to-date and second quarter results for the Corporation's three
segments is included below.
Forged and Cast Rolls. Sales and operating income for the six and
three months ended June 30, 2003 were better than the comparable
prior year periods. Strong bookings and backlog contributed
significantly to the increase in sales including an improvement in
the level of export sales byfor the U.S. operations. The expected
contribution to domestic operating income was offset by additional
commission and freight expenses due to the larger content of
foreign sales as well as higher natural gas and raw material costs.
For the U.K. operations, depressed pricing and increases in raw
material and other costs reduced the benefit arising from the third
quarter 2002 restructuring and income from the sale of technical
know-how of approximately $1,000,000 year to date. Backlog of
orders for both the U.S. and U.K. operations has increased from a
year ago, reflective of the improvement of export sales.
Air and Liquid Processing. This segment continues to be affected
by the nationwide reduction in industrial, construction and capital
spending. The extraordinarily high demand for power generation
equipment products over the last several years has fallen to the
lowest level since 1997. Specifically, sales for the six and three
months ended June 30, 2003,
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decreased 26% and 30% to $36,637,000 and $17,905,000, respectively,
against the comparable prior year periods while operating income
decreased over 70% for the same periods. The segment was also
impacted by legal costs incurred for case management and insurance
recovery relating to lawsuits filed in connection with asbestos-
containing products manufactured decades ago. Such costs
approximated $1,188,000 and $651,000 for the year to date and the
quarter, respectively, but are expected to reduce towards year end.
Backlog of orders has declined significantly from a year ago on
lower demand.
Plastics Processing Machinery. Sales and operating results for the
six and three-month periods ended June 30, 2003 and 2002 were
comparable. Operating results in the first half of 2003 improved
slightly on a lower cost structure arising from the restructuring
undertaken in the third quarter 2002. Backlog of orders
approximates the same level as of a year ago.
Other (Expense) Income. Other expense for the six and three months
ended June 30, 2003 approximated $401,000 and $155,000,
respectively, in comparison to other income of $60,000 and $336,000
for the six and three months ended in 2002, respectively. The
change is due primarily to losses on foreign exchange transactions
in 2003 versus gains earned in 2002.
Income Taxes. The effective tax rate for the six months ended June
30, 2003 approximated 63.4% in comparison to 43.0% for the
comparable prior year period and 63.8% for the three months ended
June 30, 2003 against 42.2% for the three months ended June 30,
2002. The increase is due primarily to a lower tax benefit for
operating losses generated in the U.K., reduced export sales tax
benefit, and the effect of 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" resulting in an after-tax write off of goodwill amounting
to $2,894,000 in the first quarter of 2002.
Net Income. As a result of all of the above, the Corporation had
net income for the six and three months ended June 30, 2003 of
$588,000 and $391,000, respectively, in comparison to $425,000 and
$2,100,000 for the six and three months ended June 30, 2002,
respectively.
Liquidity and Capital Resources
Net cash flows provided by operating activities amounted to
$2,955,000 for the six months ended June 30, 2003 in comparison to
$6,873,000 for the six months ended June 30, 2002. The decrease is
due primarily to lower earnings.
Net cash flows used in investing activities approximated $2,635,000
and $2,098,000 for the six months ended June 30, 2003 and 2002,
respectively. Capital expenditures for 2003 amounted to $2,647,000
in comparison to $3,228,000 for 2002. As of June 30, 2003, future
capital expenditures totaling $4,574,000 have been approved. Funds
on-hand, funds generated by future operations and available lines
of credit are expected to be
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sufficient to finance capital expenditure requirements. In June
2002, the Corporation sold the net assets, excluding primarily
trade receivables and payables, of its small metals forging
business in England for approximately its net book value or
$1,308,000. A portion of the proceeds in the form of a note were
payable subsequent to the sale, all of which has since been
collected. The Corporation continues to evaluate potential
acquisitions and/or disposals of existing businesses and on August
15, 2003 expects to sell the stock of the New Castle Industries
group of companies (see Note 14 to the consolidated financial
statements).
Net cash flows used in financing activities were $1,927,000 for
2003 and $1,683,000 for 2002 relating primarily to payment of
quarterly dividends at a rate of $0.10 per share per quarter. In
addition, proceeds were received in 2002 from the issuance of stock
under the Corporation's stock option plan.
The Corporation maintains short-term lines of credit in excess of
the cash needs of its businesses. The total available at June 30,
2003 was approximately $8,000,000.
Litigation and Environmental Matters
See Note 12 to the consolidated financial statements.
Recently Issued Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46) and
continues to issue interpretive guidance. FIN 46 is effective July
1, 2003 for the Corporation and requires existing unconsolidated
variable interest entities to be consolidated by their primary
beneficiary if the entities do not effectively disperse risks among
the various parties involved. The Corporation is currently
evaluating the impact FIN 46 will have on the accounting of its
interest in the China joint venture.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" was issued codifying
decisions previously made by the Derivatives Implementation Group
and in connection with other Financial Accounting Standards Board
(FASB) projects relating to financial instruments. SFAS No. 149 is
effective for contracts entered into or modified after June 30,
2003 and is not expected to have a significant impact on the
financial condition and results of operations of the Corporation.
In May 2003, SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity"
was issued which establishes standards for classifying and
measuring certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 is effective for the
Corporation July 1, 2003 and is not expected to have a significant
impact on the financial condition and results of operations of the
Corporation.
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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, 2002.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. As of the end of the period
covered by this Form 10-Q, the Corporation evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures. Disclosure controls and procedures are the
controls and other procedures designed to ensure that the
information required to be disclosed in reports filed with or
submitted to the SEC are recorded, processed, summarized and
reported in a timely manner. Robert A. Paul, Chief Executive
Officer, and Marliss D. Johnson, Vice President, Controller and
Treasurer, reviewed and participated in this evaluation. Based on
this evaluation, Messrs. Paul and Johnson concluded that, as of the
end of the period covered by this Form 10-Q, the Corporation's
disclosure controls were effective.
(b) Internal controls over financial reporting. Since the date of
the evaluation described above, there have not been any significant
changes in the Corporation's internal controls over financial
reporting or in other factors that could significantly affect those
controls.
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PART II - OTHER INFORMATION
AMPCO-PITTSBURGH CORPORATION
Item 1 Legal Proceedings
The information contained in Note 12 to the consolidated
financial statements (Litigation and Environmental Matters)
is incorporated herein by reference.
Items 2-3 None
Item 4 Submission of Matters to a Vote of Security Holders
On April 22, 2003 at the annual meeting of shareholders,
William D. Eberle, Paul A. Gould and Robert A. Paul were
elected directors of the Corporation by the following
votes:
For Withheld
William D. Eberle 9,065,460 64,833
Paul A. Gould 9,089,360 40,933
Robert A. Paul 9,083,345 46,948
Item 5 Other Information
The Corporation's chief executive officer and chief
financial officer have provided the certifications with
respect to the Form 10-Q that are required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002. These
certifications have been filed as Exhibits 31.1 and 31.2
and Exhibits 32.1 and 32.2, respectively.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation and By-laws
(a) Articles of Incorporation
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1983,
March 31, 1984, March 31, 1985, March 31, 1987 and
September 30, 1998.
(b) By-laws
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996
and June 30, 2001.
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4. Instruments defining the rights of securities holders
(a) Rights Agreement between Ampco-Pittsburgh Corporation
and Chase Mellon Shareholder Services dated as of
September 28, 1998.
Incorporated by reference to the Form 8-K Current
Report dated September 28, 1998.
10. Material Contracts
(a) 1988 Supplemental Executive Retirement Plan
Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996.
(b) Severance Agreements between Ampco-Pittsburgh Corporation
and certain officers and employees of Ampco-
Pittsburgh Corporation.
Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30,
1988; the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994; the Annual
Report on Form 10-K for fiscal year ended December
31, 1994; the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997; the Annual Report on
Form 10-K for the fiscal year ended December 31,
1998; and the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
(c) 1997 Stock Option Plan, as amended.
Incorporated by reference to the Proxy Statements
dated March 14, 1997 and March 15, 2000.
31. Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32. Section 1350 Certifications
(1) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Dated July 22, 2003 announcing the Corporation's results
for the six and three months ended June 30, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMPCO-PITTSBURGH CORPORATION
DATE: August 14, 2003 BY: s/Robert A. Paul
Robert A. Paul
President and
Chief Executive Officer
DATE: August 14, 2003 BY: s/Marliss D. Johnson
Marliss D. Johnson
Vice President
Controller and Treasurer
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AMPCO-PITTSBURGH CORPORATION
EXHIBIT INDEX
Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 - Section 1350 Certifications
(1) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Certification of Vice President, Controller and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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