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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, 2004
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 8, 2004, 9,724,997 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, 2004 and December 31, 2003 3
Consolidated Statements of Operations -
Nine Months Ended September 30, 2004 and 2003
Three Months Ended September 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 2004 and 2003 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 18
Part II - Other Information:
Item 1 - Legal Proceedings 19
Item 5 - Other Information 19
Item 6 - Exhibits 19
Signatures 21
Exhibit Index 22
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)
September 30, December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $ 37,428,455 $ 35,738,789
Receivables, less allowance for
doubtful accounts of $869,770 in
2004 and $542,594 in 2003 37,812,098 38,801,415
Inventories 52,612,695 48,260,368
Other 8,577,324 11,549,540
Total current assets 136,430,572 134,350,112
Property, plant and equipment,
at cost:
Land and land improvements 4,219,527 4,219,403
Buildings 25,138,643 25,148,729
Machinery and equipment 134,075,071 130,015,316
163,433,241 159,383,448
Accumulated depreciation 94,421,341 89,885,025
Net property, plant and
equipment 69,011,900 69,498,423
Prepaid pensions 24,880,916 24,104,233
Goodwill 2,694,240 2,694,240
Other noncurrent assets 3,528,830 3,500,869
$236,546,458 $234,147,877
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 14,324,649 $ 11,178,162
Accrued payrolls and employee benefits 9,261,471 7,932,751
Other 14,527,086 14,930,841
Total current liabilities 38,113,206 34,041,754
Employee benefit obligations 16,389,201 16,692,099
Deferred income taxes 20,946,281 20,555,776
Industrial Revenue Bond debt 13,311,000 13,311,000
Other noncurrent liabilities 4,713,989 5,002,033
Total liabilities 93,473,677 89,602,662
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 9,714,997 in 2004 and
9,653,497 in 2003 9,714,997 9,653,497
Additional paid-in capital 103,861,130 103,211,130
Retained earnings 36,821,432 39,564,359
Accumulated other comprehensive loss (7,324,778) (7,883,771)
Total shareholders' equity 143,072,781 144,545,215
Total liabilities and shareholders'
equity $236,546,458 $234,147,877
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,
2004 2003 2004 2003
Net sales $151,354,311 $132,383,635 $ 50,922,137 $ 43,358,209
Operating costs and expenses:
Costs of products sold
(excluding depreciation) 124,299,303 103,928,965 44,130,224 34,214,123
Selling and administrative 21,051,749 20,026,474 7,195,319 6,104,016
Depreciation 4,791,466 4,740,501 1,581,508 1,540,738
Loss (gain) on disposition
of assets 23,961 (16,377) 20,228 (7,523)
Total operating expenses 150,166,479 128,679,563 52,927,279 41,851,354
Income (loss) from operations 1,187,832 3,704,072 (2,005,142) 1,506,855
Other income (expense):
Interest expense (207,687) (252,459) (80,029) (89,136)
Other - net 451,736 (264,974) 55,855 (27,504)
244,049 (517,433) (24,174) (116,640)
Income (loss) from continuing
operations before income taxes 1,431,881 3,186,639 (2,029,316) 1,390,215
Income tax provision (benefit) 1,261,409 1,558,000 (151,591) 489,000
Income (loss) from continuing
operations 170,472 1,628,639 (1,877,725) 901,215
Discontinued operations:
Loss from operations, including
loss on disposal of $4,600,212
in 2003 - (5,356,228) - (5,166,425)
Income tax benefit - (234,295) - (184,295)
- (5,121,933) - (4,982,130)
Net income (loss) $ 170,472 $ (3,493,294) $ (1,877,725) $ (4,080,915)
Basic and diluted earnings
per common share:
Net income (loss) from
continuing operations $ 0.02 $ 0.17 $ (0.19) $ 0.09
Net loss from discontinued
operations $ - $ (0.53) $ - $ (0.51)
Net income (loss) $ 0.02 $ (0.36) $ (0.19) $ (0.42)
Cash dividends declared
per share $ .30 $ .30 $ .10 $ .10
Weighted average number of
common shares outstanding 9,699,654 9,633,695 9,708,964 9,636,051
See Notes to Consolidated Financial Statements.
- 4 -
AMPCO-PITTSBURGH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Sept. 30,
2004 2003
Net cash flows provided by operating
activities $ 7,877,047 $ 7,342,393
Cash flows from investing activities:
Purchases of property, plant
and equipment (5,250,618) (3,686,939)
Proceeds from sale of business 500,000 14,600,000
Proceeds from grant 922,500 -
Proceeds from sale of assets 38,757 818
Investing activities of discontinued
operations - (212,252)
Net cash flows (used in) provided
by investing activities (3,789,361) 10,701,627
Cash flows from financing activities:
Proceeds from the issuance of
common stock 721,500 166,202
Dividends paid (2,907,249) (2,889,749)
Net cash flows used in financing
activities (2,185,749) (2,723,547)
Effect of exchange rate changes on cash
and cash equivalents (212,271) 324,966
Net increase in cash and cash
equivalents 1,689,666 15,645,439
Cash and cash equivalents at
beginning of period 35,738,789 27,788,798
Cash and cash equivalents at
end of period $ 37,428,455 $ 43,434,237
Supplemental information:
Income tax payments $ 570,419 $ 206,591
Interest payments $ 204,171 $ 256,404
Noncash investing activities - see Note 9.
See Notes to Consolidated Financial Statements.
- 5 -
AMPCO-PITTSBURGH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The consolidated balance sheet as of September 30, 2004, the
consolidated statements of operations for the nine and three
months ended September 30, 2004 and 2003 and the condensed
consolidated statements of cash flows for the nine months ended
September 30, 2004 and 2003 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 amounts for the
preceding periods have been reclassified for comparability with
the 2004 presentation. In addition, the Corporation sold the
stock of its Plastics Processing Machinery segment in 2003 (see
Note 9) which was accounted for as a discontinued operation.
Accordingly, the results of operations for this segment for the
prior periods have been reclassified and presented net of tax in
the accompanying consolidated statements of operations.
Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted. 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, 2003. The results
of operations for the nine and three months ended September 30,
2004 are not necessarily indicative of the operating results
expected for the full year.
2. Inventories
At September 30, 2004 and December 31, 2003, approximately 65%
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)
September 30, December 31,
2004 2003
Raw materials $13,583 $11,803
Work-in-process 26,364 23,392
Finished goods 6,539 7,894
Supplies 6,127 5,171
$52,613 $48,260
- 6 -
3. Other Current Liabilities
Other current liabilities were comprised of the following:
(in thousands)
September 30, December 31,
2004 2003
Customer-related $ 4,830 $ 5,675
Forward exchange contracts 1,355 2,335
Accrued commissions 1,891 2,080
Other 6,451 4,841
$14,527 $14,931
Included in customer-related liabilities are costs expected to
be incurred with respect to product warranties. There have been
no significant changes in the liability for product warranty
claims for the nine months ended September 30, 2004.
4. Comprehensive Income (Loss)
The Corporation's comprehensive income (loss) for the nine and
three months ended September 30, 2004 and 2003 consisted of:
(in thousands)
Nine Months Three Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
Net income (loss) $ 170 $(3,493) $(1,878) $(4,081)
Foreign currency translation 140 722 (313) 172
Adjustment to minimum
pension liability (138) - 120 -
Unrealized holding gains
(losses) on marketable
securities 38 6 (23) (20)
Change in fair value
of derivatives 519 (230) (217) 62
Comprehensive income (loss) $ 729 $(2,995) $(2,311) $(3,867)
5. 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 are purchased which are designated as fair value
hedges or cash flow hedges. As of September 30, 2004,
approximately $55,132,000 of anticipated foreign denominated
sales have been hedged with the underlying contracts settling at
various dates beginning in 2004 through September 2009. As of
September 30, 2004, the fair value of contracts expected to
settle within the next 12 months, which is recorded in other
current liabilities, approximated $1,355,000 and the fair value
of the remaining contracts, which is recorded in other
noncurrent liabilities, approximated $1,904,000. 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 $(1,646,000), net of taxes, as of
September 30, 2004.
- 7 -
The change in fair value will be reclassified into earnings when
the projected sales occur with approximately $(616,000), net of
taxes, expected to be released to earnings within the next 12
months. During the nine months ended September 30, 2004 and
2003, approximately $(718,000) and $(551,000), respectively, net
of taxes, were released into earnings and for the three months
ended September 30, 2004 and 2003, approximately $(188,000) and
$(193,000), respectively, net of taxes, were released.
Gains (losses) on foreign exchange transactions approximated
$297,000 and $(301,000) for the nine months ended September 30,
2004 and 2003 respectively, and $10,000 and $(56,000) for the
three months ended September 30, 2004 and 2003, 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 September 30, 2004, approximately 100% or $2,312,000
of anticipated commodity purchases over the next 12 months is
hedged. The fair value of the contracts expected to settle
within the next 12 months approximated $400,000 and the fair
value of the remaining contracts approximated $2,000 as of
September 30, 2004. The change in the fair value of the
contracts is recorded as a component of accumulated other
comprehensive loss and approximated $241,000, net of taxes, as
of September 30, 2004. The change in the fair value will be
reclassified into earnings when the projected sales occur with
approximately $240,000, net of taxes, expected to be released to
earnings within the next 12 months.
6. Pension and Other Postretirement Benefits
No contributions were made to the U.S. pension benefit plans
during the nine months ended September 30, 2004. Contributions
to the foreign pension plan approximated $414,000 and net
payments for other postretirement benefits approximated $669,000
for the nine months ended September 30, 2004.
Net periodic pension and other postretirement benefit costs
include the following components for the nine and three months
ended September 30, 2004 and 2003:
(in thousands)
U.S. Pension Benefits:
Nine Months Ended Three Months Ended
September 30, September 30,
2004 2003 2004 2003
Service cost $ 1,530 $ 1,652 $ 493 $ 578
Interest cost 4,996 5,229 1,681 1,827
Expected return on plan
assets (7,648) (8,321) (2,543) (2,911)
Amortization of prior
service cost 443 423 147 148
Actuarial gain (100) (3) (38) (1)
Net benefit income $ (779) $(1,020) $ (260) $ (359)
- 8 -
(in thousands)
Foreign Pension Benefits:
Nine Months Ended Three Months Ended
September 30, September 30,
2004 2003 2004 2003
Service cost $ 826 $ 590 $ 275 $ 190
Interest cost 1,381 1,000 460 321
Expected return on plan
assets (1,303) (992) (434) (319)
Amortization of prior
service cost 578 412 192 133
Net benefit cost $ 1,482 $ 1,010 $ 493 $ 325
(in thousands)
Other Postretirement Benefits:
Nine Months Ended Three Months Ended
September 30, September 30,
2004 2003 2004 2003
Service cost $ 208 $ 164 $ 89 $ 55
Interest cost 579 586 188 195
Amortization of prior
service benefit (411) (412) (137) (138)
Actuarial loss 111 40 32 13
Net benefit cost $ 487 $ 378 $ 172 $ 125
7. Earnings Per Share
Basic earnings per share are computed by dividing income (loss)
from continuing operations, loss from discontinued operations,
and net income (loss) by the weighted average number of common
shares outstanding for each of the periods. The weighted
average number of common shares outstanding for the nine and
three months ended September 30, 2004 were 9,699,654 and
9,708,964 and for the same periods of the prior year were
9,633,695 and 9,636,051, 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 stock options was 9,758,783 and
9,764,693 shares for the nine and three months ended September
30, 2004, respectively, and 9,692,924 and 9,687,212 for the nine
and three months ended September 30, 2003, respectively.
- 9 -
8. Business Segments
Presented below are the net sales and income (loss) from
continuing operations before income taxes for the Corporation's
two business segments.
(in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
2004 2003 2004 2003
Net Sales:
Forged and Cast Rolls $ 95,049 $ 78,948 $ 31,764 $ 26,560
Air and Liquid Processing 56,305 53,436 19,158 16,798
Total Reportable Segments $151,354 $132,384 $ 50,922 $ 43,358
Income (loss) from continuing
operations before income taxes:
Forged and Cast Rolls $ 1,571 $ 4,434 $ (1,651) $ 1,637
Air and Liquid Processing 3,819 2,917 1,382 1,054
Total Reportable Segments 5,390 7,351 (269) 2,691
Other expense, including
corporate costs - net (3,958) (4,164) (1,760) (1,301)
Total $ 1,432 $ 3,187 $ (2,029) $ 1,390
Income (loss) from continuing operations before income taxes for
the Air and Liquid Processing segment for the nine months ended
September 30, 2004 and 2003 includes approximately $783,000 and
$1,442,000, respectively, and for the three months ended
September 30, 2004 and 2003 includes approximately $65,000 and
$328,000, respectively, for legal and case management costs
associated with personal injury claims litigation and insurance
recovery litigation related to asbestos-containing products and
indemnity payments not expected to be recovered from insurance
carriers (see Note 10).
9. Acquisitions and Divestitures
The Corporation sold the stock of the New Castle Industries, Inc.
group of companies constituting its small Plastics Processing
Machinery segment on August 15, 2003. A loss on disposal of
approximately $4,600,000 including loss on sale, curtailment and
settlement of existing pension obligations and provision for
environmental remediation (see Note 10) was recognized.
Additionally, results of operations for the nine and three months
ended September 2003 for this segment of approximately $(756,000)
and $(566,000) were reclassified to discontinued operations. Net
sales for this segment approximated $15,002,000 and $2,602,000
for the same periods.
In connection with the sale, the Corporation provided typical
representations and warranties to the buyer, which primarily
expire with the statutes of limitations. Losses suffered by the
buyer as a result of the Corporation's breach of representations
and warranties are reimbursable by the Corporation up to
approximately $2,000,000. The Corporation believes no additional
amounts will become due as a result of a breach.
- 10 -
The Corporation continues to evaluate potential acquisitions to
maximize shareholder value.
10.Litigation and Environmental Matters (claims not in thousands)
The Corporation and its subsidiaries are involved in various
claims and lawsuits incidental to their businesses. In addition,
claims have been asserted alleging personal injury from exposure
to asbestos-containing components historically used in some
products of certain of the Corporation's subsidiaries. Those
subsidiaries, and in some cases, the Corporation, are defendants
(among a number of defendants, typically over 50 and often over
100) in cases filed in various state and federal courts. The
following reflects information about these cases:
Approximate open claims as of September 30, 2004: 25,000
Gross settlement and defense costs (in 000's) for
the nine months ended September 30, 2004: $2,203
Approximate claims settled or dismissed for the
nine months ended September 30, 2004: 260
Of the 25,000 open claims, over 15,000 were six lawsuits filed in
Mississippi in 2002. Substantially all settlement and defense
costs in the above table were paid by insurers.
On February 7, 2003, Utica Mutual Insurance Company ("Utica")
filed a lawsuit in the Supreme Court of the State of New York,
County of Oneida ("Oneida County Litigation") against the
Corporation and certain of the subsidiaries named in the
underlying asbestos actions (the "Policyholder Defendants") and
three other insurance carriers that provided primary coverage to
the Corporation (the "Insurer Defendants"). In the lawsuit,
Utica disputed certain coverage obligations to the Policyholder
Defendants and asserted that the Insurer Defendants also had
defense and indemnity obligations to the Policyholder Defendants.
As of November 24, 2003, the Policyholder Defendants and Utica
had settled the Oneida County Litigation as among themselves,
although the Oneida County Litigation remained pending because
settlement had not been reached with all of the Insurer
Defendants. Pursuant to the settlement, Utica accepted financial
responsibility, subject to the limits of its policies and based
on fixed defense percentages and specified indemnity allocation
formulas, for a substantial majority of the costs of responding
to asbestos personal injury claims arising out of exposure to
alleged asbestos-containing components in products distributed by
the Policyholder Defendants that are subsidiaries of the
Corporation. Utica's agreed share of such defense and
indemnification costs varies depending upon the alleged asbestos-
containing product at issue, whether Utica's primary or umbrella
policies are responsible for the claims and, for indemnification
costs only, the years of the claimant's exposure to asbestos.
On January 23, 2004, Utica sought the court's approval to file an
amended complaint seeking additional relief against the
Policyholder Defendants that is substantially identical to the
relief Utica seeks
- 11 -
against those defendants in a separate lawsuit filed by Howden
Buffalo, Inc. ("Howden") in the United States District Court for
the Western District of Pennsylvania (the "Pennsylvania
Litigation") that is described below. Utica also sought to add
Howden as a defendant in the Oneida County Litigation. On
February 23, 2004, the Policyholder Defendants filed an
opposition to Utica's attempt to seek additional relief against
them in the Oneida County Litigation, and filed a separate motion
to dismiss them from that litigation with prejudice. Both issues
are currently pending before the Court.
On November 25, 2003, Howden filed the Pennsylvania Litigation
against the Corporation, Utica and two of the Insurer Defendants
(with Utica, the "Howden Insurer Defendants"). Howden alleges
that (1) Buffalo Forge Company, a former subsidiary of the
Corporation, or its predecessors (collectively or individually,
"Buffalo Forge") had rights in certain policies issued by the
Howden Insurer Defendants; (2) those rights were transferred in
the 1993 transaction whereby the Corporation sold all of the
capital stock of Buffalo Forge to Howden Group America, Inc. and
Howden Group Canada, Ltd.; and (3) those rights currently reside
in Howden, as successor to Buffalo Forge. In the lawsuit, Howden
is seeking a judicial determination of the rights and duties of
the Corporation and the Howden Insurer Defendants under those
policies with respect to asbestos-related personal injury claims
asserted against Howden arising from the historical operations of
Buffalo Forge, as well as monetary damages from Utica as a result
of its denial of Howden's rights under policies it issued that
allegedly covered Buffalo Forge. The Corporation intends to
defend the lawsuit vigorously, and has asserted a counterclaim
against Howden. If Howden is successful in this lawsuit and
obtains coverage from the Howden Insurer Defendants, however, any
insurance recovery obtained by Howden under those policies could
erode, in whole or in part, the applicable coverage limits, which
would reduce or eliminate coverage amounts that otherwise may be
available to the Corporation under those policies.
As one of the Howden Insurer Defendants, Utica has filed a cross-
claim against the Corporation, and a third-party complaint
against two of its subsidiaries, seeking a declaratory judgment
that, to the extent Utica has defense or indemnity obligations to
Howden: (1) Utica is entitled to contribution, subrogation and
reimbursement from the Corporation or its subsidiaries with
respect to defense and indemnity payments paid on behalf of the
Corporation or its subsidiaries; and (2) the Corporation and its
subsidiaries have no rights under the insurance contracts issued
by Utica to Buffalo Forge. The Corporation believes that Utica's
cross-claim and third party claims, as well as the similar relief
Utica now seeks in the Oneida County Litigation, are barred by a
release provided in the settlement of the Oneida County
Litigation and are otherwise without merit, and has asserted that
position in both lawsuits. If Utica is successful in obtaining
the declaratory relief it seeks, it could eliminate insurance
coverage provided to the Corporation by Utica.
The Corporation believes it has meritorious defenses to the
Howden lawsuit and Utica's cross claims. In addition, based on
the Corporation's claims experience to date with the underlying
asbestos claims, the available insurance coverage and the
identity of the subsidiaries that are named in the cases, the
Corporation believes
- 12 -
that the pending legal proceedings will not have a material
adverse effect on its consolidated financial condition or
liquidity. The outcome of particular lawsuits, however, could be
material to the consolidated results of operations of the period
in which the costs, if any, are recognized.
There can be no assurance that the Corporation or certain of its
subsidiaries will not be subjected to significant additional
claims in the future or that the Corporation's or its
subsidiaries' ultimate liability with respect to these claims
will not present significantly greater and longer lasting
financial exposure than presently contemplated. The Corporation
has made an accrual in its financial statements to reflect its
estimated share of costs for pending asbestos claims, based on
deductible and similar features of its relevant insurance
policies. In addition, the Corporation incurred uninsured legal
costs in connection with advice on certain matters pertaining to
these asbestos cases including insurance litigation and other
issues. Those costs amounted to approximately $807,000 and
$79,000 for the nine and three months ended September 30, 2004,
respectively, in comparison to $1,610,000 and $340,000 for the
same periods of the prior year.
With respect to environmental matters, the Corporation is
currently performing certain remedial actions in connection with
the sale of real estate previously owned and has been named a
Potentially Responsible Party at two third-party landfill sites
used by a division in one instance and a subsidiary in the other
that were previously sold or discontinued. In addition, as a
result of the sale of the Plastics Processing Machinery segment,
the Corporation retained the liability to remediate certain
environmental contamination at two of the sold locations and has
agreed to indemnify the buyer against third-party claims arising
from the discharge of certain contamination from one of these
locations at a cost estimate of $2,100,000 which will be paid
over several years and was provided for in the third quarter of
2003. Environmental exposures are difficult to assess and
estimate for numerous reasons including lack of reliable data,
the multiplicity of possible solutions, the years of remedial and
monitoring activity required, and identification of new sites.
However, in the opinion of management, the potential liability
for all environmental proceedings based on information known to
date has been adequately reserved.
11.Flood Damage
In September 2004, the Carnegie, Pennsylvania plant of the
Corporation's Union Electric Steel subsidiary was damaged by
flooding as a result of the remnants of Hurricane Ivan. The plant
is the larger of the two forged hardened steel roll finishing
operations. As of September 30, 2004, the Corporation recorded a
receivable from its insurer of approximately $1,000,000 for
estimated clean up costs and recovery of fixed expenses incurred
through quarter end. Property and business interruption
insurance claims will be made when the full extent of lost
shipments and production can be measured. The plant is expected
to be in full production in early November. For the nine and
three months ended September 30, 2004, uninsured costs of
approximately $500,000 were recorded.
- 13 -
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
The Executive Overview of Management's Discussion and Analysis
should be read in conjunction with the consolidated financial
statements and notes thereto incorporated by reference in Ampco-
Pittsburgh Corporation's (the Corporation) annual report to
shareholders on Form 10-K for the year ended December 31, 2003.
The Corporation operates in two business segments - the Forged and
Cast Rolls segment and the Air and Liquid Processing segment. The
Corporation's businesses are cyclical and have been affected by the
severe downturn in the economy including lack of capital spending
by the manufacturing sector. However, during 2004, there has been
an increase in the level of activity in the Forged and Cast Rolls
segment which serves the global steel industry. Unfortunately, in
September, the segment was negatively impacted by lost shipments
and uninsured costs resulting from flood damage at a significant
plant in Pennsylvania caused by the remnants of Hurricane Ivan.
Disruption is expected to continue until early November. Property
and business interruption insurance claims will be made when the
full extent of the losses are determined.
The improvement in demand from the global steel industry for forged
and cast rolls, which began in the latter part of 2003, has created
a strong backlog (unfilled orders on hand). The weakening of the
dollar and the British pound, particularly in relation to the Euro,
has improved export sales. The exception being the weaker dollar
to the British pound which has adversely impacted sales from the
United Kingdom to U.S. customers. Escalation in the price of steel
scrap and alloys to unprecedented levels together with the high
cost of natural gas has significantly reduced margins. Although
raw material and energy surcharges and price increases have been
implemented on new orders, margins will not begin to improve until
the latter part of 2004 due to the existing high level of backlog.
Because of long lead times for certain products, the Air and Liquid
Processing segment was not affected by the weak economy until 2003.
Similarly, any rebound in the economy will not immediately improve
operating results. In particular, demand for lube oil pumps is
expected to remain at low levels for the foreseeable future due to
an oversupply of gas turbines in the market. The segment is also
being impacted by a slow down in demand from the construction
industry and the resultant reduction in margins following
aggressive pricing by competitors as a reduced level of potential
business is pursued. A significant increase in the level of
capital spending by the manufacturing sector is necessary before
earnings are likely to improve.
Operations for the Nine and Three Months Ended September 30, 2004
and 2003
Net Sales. Net sales for the nine and three months ended September
30, 2004 were $151,354,000 and $50,922,000, respectively, compared
to $132,384,000 and $43,358,000 for the same periods of 2003. A
discussion of year-to-date and third quarter sales for the
Corporation's two segments is included below. Order backlogs
approximated $133,596,000 at
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September 30, 2004 in comparison to $112,923,000 at December 31,
2003. The increase is attributable to improvements in backlog for
each of the segments, principally the Forged and Cast Rolls
segment.
Costs of Products Sold. Costs of products sold, excluding
depreciation, were 82.1% and 78.5% of net sales for the nine months
ended September 30, 2004 and 2003, respectively, and 86.7% and
78.9% of net sales for the three months ended September 30, 2004
and 2003, respectively. The increase is due to product mix, higher
raw material and natural gas costs, and uninsured costs resulting
from flood damage arising from Hurricane Ivan.
Selling and Administrative. Selling and administrative expenses
for the nine and three months ended September 30, 2004 exceeded the
comparable prior year periods. The increase is attributable to
higher commission expense resulting from improved sales volumes and
significant professional fees relating to the Corporation's efforts
to meet the requirements of the Sarbanes-Oxley Act of 2002.
Income (Loss) from Operations. Income (loss) from operations for
the nine months ended September 30, 2004 and 2003 approximated
$1,188,000 and $3,704,000, respectively, and for the three months
ended September 30, 2004 and 2003, respectively, approximated
$(2,005,000) and $1,507,000, respectively. A discussion of year-to-
date and third quarter results for the Corporation's two segments
is included below.
Forged and Cast Rolls. Although operations for the nine and three
months ended September 30, 2004 were negatively impacted by
Hurricane Ivan, sales continued to improve over the comparable
prior year periods. A stronger demand by the steel industry
contributed to the increase, including an improvement in the level
of export sales which have also been aided by more favorable
foreign exchange rates. The benefit to operating income from the
additional volume was more than offset by higher natural gas, steel
scrap and alloy costs and uninsured flood costs resulting in a loss
for the quarter. Additionally, operating results for the quarter
and year-to-date were negatively impacted by losses at its U.K.
facility in comparison to operating income for the prior year
periods. Raw material and energy surcharges have been added to the
selling price of incoming orders; however, the level of order
backlog is such that it will be towards year end before some of the
escalation in costs will begin to be recovered. Backlog
approximated $103,756,000 as of September 30, 2004 in comparison to
$79,519,000 as of September 30, 2003. The increase is reflective of
the improvement in demand for both the U.S. and U.K. operations,
inclusion of surcharges and closure of several foreign competitors.
Air and Liquid Processing. Sales and operating income improved for
the nine and three months ended September 30, 2004 in comparison to
the same periods of the prior year due primarily to the air
handling business which benefited from one large project and
product mix. While sales and operating income for the heat
exchange business were favorably impacted by a change in product
mix during the quarter and a recent up-tick in the market, a higher
content of OEM orders, which have lower margins, resulted in year-
to-date operating income comparable to that of the prior year.
Results for the pumps operation remain in line with the prior year
periods. Although this segment continues to be adversely impacted
by
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legal and case management costs associated with personal injury
claims and insurance recovery litigation related to asbestos-
containing products and indemnity payments not expected to be
recovered from insurance carriers, these costs decreased by
approximately $659,000 and $263,000 for the nine and three months
ended September 30, 2004 against the same periods of the prior
year. Backlog approximated $29,840,000 as of September 30, 2004 in
comparison to $26,448,000 as of September 30, 2003; the increase is
attributable to additional orders for the heat exchange business,
the majority of which are scheduled to ship in 2005.
Other Income (Expense). Other income (expense) for the nine months
ended September 30, 2004 and 2003 approximated $244,000 and
$(517,000), respectively, and for the three months ended September
30, 2004 and 2003 approximated $(24,000) and $(117,000). The
change is due primarily to gains on foreign exchange transactions
in 2004 versus losses on foreign exchange transactions in 2003.
Income Taxes. The effective tax rate for continuing operations
approximated 88.1% and 48.9% for the nine months ended September
30, 2004 and 2003, respectively. The increase is due primarily to
losses at the Corporation's U.K. operations for which no tax
benefit has been provided. The effective tax rate for continuing
operations approximated (7.5%) and 35.2% for the three months ended
September 30, 2004 and 2003, respectively. The variance arises
from changes in the earnings mix with respect to the Corporation's
US and non-US operations.
Discontinued Operations. Loss from discontinued operations
includes, net of tax, results of operations for the Plastic
Processing Machinery segment which was sold in August 2003, and the
associated loss on disposal. This segment incurred pre-tax losses
of approximately $(756,000) and $(566,000) for the nine and three
months ended September 30, 2003 on sales of $15,002,000 and
$2,602,000 for the respective periods. The loss on disposal
includes the loss on sale, curtailment and settlement of existing
pension obligations and provision for environmental remediation and
approximated $4,600,000.
Net Income (Loss). As a result of all of the above, the
Corporation's net income (loss) for the nine months ended September
30, 2004 and 2003 equaled $170,000 and $(3,493,000), respectively,
and $(1,878,000) and $(4,081,000) for the three months ended
September 30, 2004 and 2003, respectively.
Liquidity and Capital Resources
Net cash flows provided by operating activities of $7,877,000 and
$7,342,000 for the nine months ended September 30, 2004 and 2003,
respectively, were comparable.
Net cash flows (used in) provided by investing activities were
$(3,789,000) and $10,702,000 for the nine months ended September
30, 2004 and 2003, respectively. The decrease is due primarily to
proceeds from the 2003 sale of the Plastics Processing Machinery
segment of which $14,600,000 was received in 2003 and $500,000 was
received in 2004. Capital expenditures approximated $5,251,000 and
$3,687,000, respectively, for the nine months ended September 30,
2004 and 2003, respectively. As of September 30, 2004, future
capital expenditures
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totaling $4,223,000 have been approved. Funds on-hand, funds
generated by future operations, proceeds from U.K. government
grants of which $923,000 has been received to date and available
lines of credit are expected to be sufficient to finance capital
expenditure requirements.
Net cash flows used in financing activities were $(2,186,000) and
$(2,724,000) for the nine months ended September 30, 2004 and 2003,
respectively, and related to the payment of quarterly dividends at
a rate of $0.10 per share offset by the proceeds from the issuance
of stock under the Corporation's stock option plan.
The increase in the value of the British pound against the dollar
reduced cash and cash equivalents by $212,000 for the nine months
ended September 30, 2004.
The Corporation maintains short-term lines of credit in excess of
the cash needs of its businesses. The total available at September
30, 2004 was approximately $8,000,000 (including 2,100,000 GBP in
the U.K. and 400,000 Euros in Belgium).
Litigation and Environmental Matters
See Note 10 to the consolidated financial statements.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by or on behalf of
the Corporation. Management's Discussion and Analysis and other
sections of the Form 10-Q 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, 2003.
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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 10 to the consolidated
financial statements (Litigation and Environmental Matters)
is incorporated herein by reference.
Item 2-4 None
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
3. Articles of Incorporation and By-laws
(i) 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.
(ii) By-laws
Incorporated by reference to the Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996
and June 30, 2001.
Attached hereto as Exhibit 3 is an amendment to
the by-laws adopted by the Board of Directors of
the Corporation as of June 1, 2004 amending
Article II, Section 8 and Article III, Sections 4
and 5.
4. Instruments defining the rights of securities holders
(1) 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.
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10. Material Contracts
(1) 1988 Supplemental Executive Retirement Plan
Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996.
(2) 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.
(3) 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
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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: November 8, 2004 BY: s/Robert A. Paul
Robert A. Paul
Chairman and
Chief Executive Officer
DATE: November 8, 2004 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
- 22 -