10-Q 1 jjun2003q.txt JUNE 30, 2003 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, 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. - 1 - 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 - 2 - 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. - 3 - 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. - 4 - 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. - 5 - 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 - 6 - 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 - 7 - 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- - 9 - 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 - 10 - 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 - 11 - 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 - 12 - 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, - 14 - 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 - 15 - 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. - 16 - 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. - 17 - 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. - 18 - 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. - 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, 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 - 20 - 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 - 21 -