10-Q 1 jun3002q.txt JUNE 30, 2002 10-Q 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, 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 August 14, 2002, 9,632,497 common shares were outstanding. - 1 - AMPCO-PITTSBURGH CORPORATION INDEX Page No. Part I - Financial Information: Item 1 - Consolidated Financial Statements Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 3 Consolidated Statements of Operations - Six Months Ended June 30, 2002 and 2001; Three Months Ended June 30, 2002 and 2001 4 Condensed Consolidated Statements of Cash Flows- Six Months Ended June 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 Part II - Other Information: Item 1 - Legal Proceedings 18 Item 4 - Submission of Matters to a Vote of Security Holders 18 Item 6 - Exhibits and Reports on Form 8-K 18 Signatures 20 Exhibit Index 21 Exhibits Exhibit 99.1 Exhibit 99.2 - 2 - PART I - FINANCIAL INFORMATION AMPCO-PITTSBURGH CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 2002 2001 Assets Current assets: Cash and cash equivalents $ 17,050,499 $ 13,514,299 Receivables, less allowance for doubtful accounts of $1,664,777 in 2002 and $1,450,868 in 2001 48,669,829 45,506,326 Inventories 46,414,052 47,277,939 Other 8,049,798 8,373,626 Total current assets 120,184,178 114,672,190 Property, plant and equipment, at cost: Land and land improvements 4,995,699 4,994,502 Buildings 28,950,891 28,921,801 Machinery and equipment 145,293,718 140,975,589 179,240,308 174,891,892 Accumulated depreciation (93,837,524) (88,657,860) Net property, plant and equipment85,402,784 86,234,032 Prepaid pensions 29,013,206 27,527,527 Goodwill 2,694,240 7,146,440 Other noncurrent assets 5,811,540 5,990,769 $243,105,948 $241,570,958 Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 1,350,000 $ 1,350,000 Accounts payable 14,126,959 13,738,636 Accrued payrolls and employee benefits8,402,372 7,596,900 Other 12,813,844 12,438,576 Total current liabilities 36,693,175 35,124,112 Employee benefit obligations 16,863,438 16,951,050 Deferred income taxes 18,278,744 18,404,400 Industrial Revenue Bond debt 13,311,000 13,311,000 Other noncurrent liabilities 511,044 373,551 Total liabilities 85,657,401 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 46,060,584 47,559,557 Accumulated other comprehensive loss (1,250,462) (2,552,212) Total shareholders' equity 157,448,547 157,406,845 $243,105,948 $241,570,958
See Notes to Consolidated Financial Statements. - 3 - AMPCO-PITTSBURGH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended June 30, Three Months Ended June 30, 2002 2001 2002 2001 Net sales $112,222,548 $112,788,448 $ 57,524,192 $ 56,620,664 Operating costs and expenses: Costs of products sold (excluding depreciation) 87,082,146 87,127,679 44,420,829 44,355,905 Selling and administrative 15,252,334 17,275,418 7,703,090 9,321,754 Depreciation 4,098,013 4,148,248 2,045,967 2,063,785 Restructuring charges - 7,280,000 - 360,000 Total operating expenses 106,432,493 115,831,345 54,169,886 56,101,444 Income (loss) from operations 5,790,055 (3,042,897) 3,354,306 519,220 Other income (expense): Interest expense (182,460) (359,651) (110,976) (175,135) Other - net 216,502 (1,447,111) 390,145 (1,242,285) 34,042 (1,806,762) 279,169 (1,417,420) Income (loss)before income taxes 5,824,097 (4,849,659) 3,633,475 (898,200) Income tax provision (benefit) 2,505,000 (1,365,000) 1,533,000 (114,000) Net income (loss) before cumulative effect of accounting change for goodwill 3,319,097 (3,484,659) 2,100,475 (784,200) Cumulative effect of accounting change for goodwill, net of income taxes of $1,558,269 (2,893,931) - - - Net income (loss) $ 425,166 $ (3,484,659) $ 2,100,475 $ (784,200) Basic and diluted earnings per common share: Net income (loss) before cumulative effect of accounting change for goodwill $ 0.34 $ (0.36) $ 0.22 $ (0.08) Cumulative effect of accounting change for goodwill $ (0.30) $ - $ - $ - Net income (loss) $ 0.04 $ (0.36) $ 0.22 $ (0.08) Cash dividends declared per share $ 0.20 $ 0.20 $ 0.10 $ 0.10 Weighted average number of common shares outstanding 9,616,396 9,602,621 9,623,812 9,602,621
See Notes to Consolidated Financial Statements. - 4 - AMPCO-PITTSBURGH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2002 2001 Net cash flows provided by operating activities $ 6,872,545 $ 6,287,394 Cash flows from investing activities: Purchases of property, plant and equipment (3,227,653) (3,685,128) Proceeds from sale of business 1,129,950 1,060,181 Net cash flows (used in) investing activities (2,097,703) (2,624,947) Cash flows from financing activities: Repayment of note payable to bank - (2,000,000) Proceeds from the issuance of common stock 238,925 - Dividends paid (1,921,779) (1,920,325) Net cash flows (used in) financing activities (1,682,854) (3,920,325) Effect of exchange rate changes on cash and cash equivalents 444,212 (582,372) Net increase (decrease) in cash and cash equivalents 3,536,200 (840,250) Cash and cash equivalents at beginning of period 13,514,299 17,861,531 Cash and cash equivalents at end of period $ 17,050,499 $ 17,021,281 Supplemental information: Income tax payments $ 574,211 $ 1,199,095 Interest payments $ 176,081 $ 379,088
Noncash investing and financing activites - 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 June 30, 2002, the consolidated statements of operations for the six and three months ended June 30, 2002 and 2001 and the condensed consolidated statements of cash flows for the six months ended June 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 six and three months ended June 30, 2002 are not necessarily indicative of the operating results expected for the full year. 2. Restructurings In 2001, the Corporation undertook a review of its global roll-making capacity and recorded pre-tax restructuring charges of $7,280,000 ($6,920,000 in the first quarter of 2001 and $360,000 in the second quarter of 2001). At December 31, 2001, outstanding restructuring costs, excluding pension-related liabilities which were reclassified to employee benefit obligations, approximated $1,830,000 including employee severance of $914,000, costs associated with the disposition of the remaining assets of $571,000, and various other costs of $345,000. During the six months of 2002, approximately $799,000 had been incurred of which $719,000 related to employee severance. After consideration of the strengthening of the euro from December 31, 2001 to June 30, 2002, which increases the dollar equivalency of reported amounts, outstanding restructuring costs at June 30, 2002 approximated $1,227,000 including employee severance of $577,000, costs associated with the disposition of the remaining assets of $232,000, and various other costs of $418,000. The remaining assets were sold in July 2002 and it is expected that the majority of the outstanding obligations will be paid in the last six months of 2002. 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 - 6 - 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 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 six and three months ended June 30, 2001 was goodwill amortization of approximately $145,000 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. (in thousands) Six Months Ended Three Months Ended June 30, June 30, 2002 2001 2002 2001 Net income (loss), as reported $ 425 $(3,485) $2,100 $ (784) Add goodwill amortization, net of tax - 94 - 47 Net income (loss), as adjusted $ 425 $(3,391) $2,100 $ (737) Basic and diluted earnings per common share, as reported $ 0.04 $ (0.36) $ 0.22 $(0.08) Goodwill amortization, net of tax - 0.01 - - Basic and diluted earnings per common share, as adjusted $ 0.04 $ (0.35) $ 0.22 $(0.08)
The changes in the carrying amount of goodwill for the six months ended June 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 June 30, 2002 $2,694 $ - $2,694 - 7 - 4. Inventories At June 30, 2002 and December 31, 2001, approximately 72% 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) June 30, December 31, 2002 2001 Raw materials $13,357 $14,853 Work-in-process 23,577 20,915 Finished goods 4,689 6,699 Supplies 4,791 4,811 $46,414 $47,278 5. Other Current Liabilities Other current liabilities are comprised of the following: (in thousands) June 30, December 31, 2002 2001 Customer-related $ 2,893 $ 3,848 Restructuring costs 1,227 1,830 Other 8,694 6,761 $12,814 $12,439 6. Comprehensive Income (Loss) The Corporation's comprehensive income (loss) for the six and three months ended June 30, 2002 and 2001 consisted of: (in thousands) Six Months Three Months Ended June 30, Ended June 30, 2002 2001 2002 2001 Net income (loss) $ 425 $(3,485) $2,100 $ (784) Foreign currency translation 1,404 (730) 1,871 925 Unrealized holding gains (losses) on marketable securities (135) (119) (292) 134 Change in fair value of derivatives 32 (182) (152) (43) Comprehensive income (loss) $1,726 $(4,516) $3,527 $ 232
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 June 30, 2002, approximately $6,864,000 of forecasted foreign denominated sales have been hedged. The fair value of the - 8 - contracts expected to settle within the next 12 months is recorded in other current liabilities and approximates $102,000. The fair value of the remaining contracts is recorded in other liabilities and approximates $144,000. The change in the fair value of these contracts is recorded as a component of comprehensive income (loss) and approximates $160,000, net of taxes. The change in fair value will be reclassified into earnings when the forecasted sales occur with approximately $66,000 expected to be released within the next 12 months. 7. 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 six and three months ended June 30, 2002 equaled 9,616,396 and 9,623,812 shares, respectively. The weighted average number of common shares outstanding for the six and three month periods ended June 30, 2001 equaled 9,602,621 shares. 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 9,647,139 and 9,664,956 shares for the six and three months ended June 30, 2002 and 9,636,843 and 9,625,997 shares for the six and three months ended June 30, 2001, respectively. 8. Business Segments Presented below are the net sales and income (loss) before taxes for the Corporation's three business segments. Six Months Ended Three Months Ended June 30, June 30, 2002 2001 2002 2001 Net Sales: Forged and Cast Rolls $ 49,923 $ 49,054 $ 25,374 $ 24,877 Air and Liquid Processing 49,623 48,658 25,553 24,943 Plastics Processing Machinery 12,677 15,076 6,597 6,801 Total Reportable Segments $112,223 $112,788 $ 57,524 $ 56,621 - 9 - Income (loss) before taxes: Forged and Cast Rolls $ 1,045 $ (6,329) $ 834 $ (220) Air and Liquid Processing 5,524 3,421 2,896 983 Plastics Processing Machinery (779) (135) (376) (244) Total Reportable Segments 5,790 (3,043) 3,354 519 Other income (expense) - net 34 (1,807) 279 (1,417) Total $ 5,824 $ (4,850) $ 3,633 $ (898)
Income (loss) before taxes for the six and three months ended June 30, 2001 for the Forged and Cast Rolls segment includes restructuring charges of $7,280,000 and $360,000, respectively. In addition, income (loss) before taxes for the Air and Liquid Processing segment for the six and three months ended June 30, 2001 includes litigation costs of approximately $1,900,000. Other income (expense) - net for the six and three months ended June 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 9) and environmental costs for a previously discontinued business. 9. Divestitures In June 2002, the Corporation sold the net assets, excluding primarily trade receivables and payables, of its metal forgings business in England for approximately its net book value or $1,428,000. Adjustments to the proceeds may arise based on completion of the closing balance sheet. Of the estimated proceeds approximately $300,000, 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 other comprehensive income (loss). In 2001, the loss was subsequently revised to $152,000 due to various post-closing adjustments. 10.Litigation and Environmental Matters The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses. In addition, claims have been asserted against the Corporation and certain of its subsidiaries for alleged exposure to asbestos- containing components used in certain products primarily produced prior to the subsidiaries' acquisition by the Corporation. Approximately 141 lawsuits are pending, most of which were commenced in 2002, involving approximately 4,084 claimants (including derivative spousal claims). - 10 - The Corporation has been named as co-defendant with one or more of its subsidiaries in six of these lawsuits. Because the Corporation and the subsidiaries named as defendants in these lawsuits are separate corporations, and because the Corporation did not at any time engage in the activities giving rise to these claims, the Corporation believes it has strong defenses to the claims that have been asserted against it. While the Corporation believes it and its subsidiaries have meritorious defenses to the asbestos-related claims against them, to date four claims have been settled. In addition, the Corporation expects that approximately 24 lawsuits involving approximately 40 claimants against one of its subsidiaries will be withdrawn on the ground that this subsidiary is not an appropriate defendant. The Corporation's insurers have been notified and are defending the Corporation and the subsidiaries in each of the remaining cases. To date, substantially all amounts paid by the Corporation and its subsidiaries to defend and resolve these cases have been covered by insurance. The Corporation is currently analyzing its insurance policies to determine the full extent of available coverage. Based on the foregoing and its claims experience to date, 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. With respect to environmental matters, the Corporation is currently performing certain remedial actions in connection with 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. 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. 11.Recently Issued Accounting Pronouncements The Financial Accounting Standards Board (FASB) continues to identify and provide guidance on various implementation issues related to SFAS - 11 - 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. - 12 - ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview While overall results improved, the Corporation continued to be impacted by the slow and uncertain economy. Despite modest improvement, the Forged and Cast Rolls segment was affected by low demand and poor margins. Excluding litigation costs incurred in 2001, operating results of the Air and Liquid Processing group remained level with prior year; however, the slowdown in construction spending and a significant reduction in demand for power generation equipment will have an adverse impact on operations for the remainder of the year. The Plastics Processing Machinery segment incurred losses due to the extremely low activity levels of plastics processor and original equipment customers. The outlook for the Corporation in the second half of the year is expected to be a continuation of weak operating results. Operations for the Six and Three Months Ended June 30, 2002 and 2001 In 2001, the Corporation undertook a review of its global roll- making capacity and recorded pre-tax restructuring charges of $7,280,000 ($6,920,000 in the first quarter of 2001 and $360,000 in the second quarter of 2001). At December 31, 2001, outstanding restructuring costs, excluding pension-related liabilities which were reclassified to employee benefit obligations, approximated $1,830,000 including employee severance of $914,000, costs associated with the disposition of the remaining assets of $571,000, and various other costs of $345,000. During the six months of 2002, approximately $799,000 had been incurred of which $719,000 related to employee severance. After consideration of the strengthening of the euro from December 31, 2001 to June 30, 2002 which increased the dollar equivalency of reported amounts, outstanding restructuring costs at June 30, 2002 approximated $1,227,000 including employee severance of $577,000, costs associated with the disposition of the remaining assets of $232,000, and various other costs of $418,000. The remaining assets were sold in July 2002 and it is expected that the majority of the outstanding obligations will be paid in the last six months of 2002. Net Sales. Net sales for the six months ended June 30, 2002 and 2001 were $112,223,000 and $112,788,000, respectively, and net sales for the three months then ended were $57,524,000 and $56,621,000, respectively. A discussion of the year-to-date and second quarter sales for the Corporation's three segments is included below. Order backlogs approximated $97,655,000 at June 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 Forged and Cast Rolls and Air and Liquid Processing segments. Cost of Products Sold. Cost of products sold, excluding depreciation, equaled 77.6% and 77.2% of net sales for the six months ended June 30, 2002 and 2001, respectively, and 77.2% and 78.3%, for the three months ended June 30, 2002 and 2001, respectively. The decrease for the second quarter is primarily attributable to higher production volumes for the Forged and Cast Rolls operations. - 13 - Income (Loss) from Operations. Excluding 2001 restructuring charges, income from operations approximated $5,790,000 and $4,237,000 for the six months ended June 30, 2002 and 2001, respectively, and $3,354,000 and $879,000, for the three months ended June 30, 2002 and 2001, respectively. A discussion of the year-to-date and second quarter results for the Corporation's three segments is included below. Forged and Cast Rolls. Sales for the Forged and Cast Rolls segment increased by $869,000 to $49,923,000 for the six months ended June 30, 2002 and $497,000 to $25,374,000 for the three months ended June 30, 2002 against the comparable prior year periods. The improvement in sales is attributable to an increase in volume particularly by the U.S. operations offset by depressed pricing and the May 2001 sale of the small feed roll business in the U.K. Operating income, excluding the 2001 restructuring charges, increased $94,000 to $1,045,000 for the six months ended June 30, 2002 and increased $694,000 to $834,000 for the three months ended June 30, 2002. The improvement in operating income is due to a higher volume of shipments and increased production offset by lower gross margins and, for the six months ended June 30, 2002, larger losses by the U.K. operations. Air and Liquid Processing. For the six months ended June 30, 2002, sales for the Air and Liquid Processing segment increased $965,000 to $49,623,000 and for the three months ended June 30, 2002, increased $610,000 to $25,553,000 against the comparable prior year periods. Operating income for the second quarter of 2001 was negatively impacted by litigation costs of approximately $1,900,000. Excluding these costs, operating income improved $203,000 and $13,000 for the six and three months ended June 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, which is principally being impacted by reduced demand and increased price competition. Pumps sales benefited from stronger demand during the first four months 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 six and three-month period ended June 30, 2002 decreased by $2,399,000 to $12,677,000 and $204,000 to $6,597,000, respectively, in comparison to the same periods of the prior year. Earnings decreased $644,000 to an operating loss of $779,000 and decreased $132,000 to an operating loss of $376,000 for the six and three months ended June 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 Income (Expense). Interest expense for the six and three months ended June 30, 2002 decreased due to lower interest rates. Other income (expense) for the six and three months ended June 30, 2001 includes $1,040,000 relating to the loss recognized on the sale of the small feed roll business in May 2001 and additional environmental costs for a previously discontinued business. Excluding these costs, other income of $217,000 and $390,000 for the six and three months ended June 30, 2002, respectively, compares to other expense of $(407,000) and $(202,000) for - 14 - six and three months ended June 30, 2001, respectively. The improvement is due primarily to lower losses on foreign exchange transactions offset by lower interest income resulting from a decrease in interest rates. Income Taxes. The effective tax rate approximated 43.0% and (28.1%)for the six months ended June 30, 2002 and 2001, respectively, and 42.2% and (12.7%) for the three months ended June 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, $4,452,000 of goodwill specific to 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 six and three months end June 30, 2002 of $425,000 and $2,100,000, respectively, in comparison to a net loss of $(3,485,000) and $(784,000), respectively, for the six and three months ended June 30, 2001. Liquidity and Capital Resources Net cash flows from operating activities were comparable for the six months ended June 30, 2002 and 2001 at $6,873,000 and $6,287,000, respectively. Net cash flows used in investing activities approximated $2,098,000 and $2,625,000 for the six months ended June 30, 2002 and 2001, respectively. Capital expenditures for 2002 amounted to $3,228,000 in comparison to $3,685,000 for 2001. Capital expenditures carried forward from June 30, 2002 approximated $3,935,000. 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 metal forgings business in England for approximately its net book value or $1,428,000. Adjustments to the proceeds may arise based on completion of the closing balance sheet. Of the estimated proceeds approximately $300,000, 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 payable of its small feed roll business in England for approximately $1,060,000. - 15 - Net cash flows used in financing activities were $1,683,000 for 2002 and $3,920,000 for 2001 and include payment of quarterly dividends at a rate of $0.10 per share. In 2002, proceeds were received from the issuance of stock under the Corporation's stock option plan. In 2001, the Corporation repaid $2,000,000 of short- term borrowings. The Corporation maintains short-term lines of credit in excess of the cash needs of its businesses. The total available at June 30, 2002 was approximately $4,400,000. Litigation and Environmental Matters See Note 10 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. 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. - 16 - 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. - 17 - PART II - OTHER INFORMATION AMPCO-PITTSBURGH CORPORATION Item 1 Legal Proceedings The information contained in Note 10 (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 23, 2002 at the annual meeting of shareholders, Louis Berkman and Carl H. Pforzheimer, III were elected directors of the Corporation by the following votes: For Withheld Louis Berkman 8,909,901 162,625 Carl H. Pforzheimer, III 8,905,512 167,014 Item 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. - 18 - 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. (b) Reports on Form 8-K None - 19 - 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, 2002 BY: s/Robert A. Paul Robert A. Paul President and Chief Executive Officer DATE: August 14, 2002 BY: s/Marliss D. Johnson Marliss D. Johnson Vice President Controller and Treasurer - 20 - 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 - 21 -