AMPCO PITTSBURGH CORP - Quarter Report: 2010 September (Form 10-Q)

 

 

 

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Part I - Financial Information:			Page No.
	Item 1 -	Financial Statements
		Condensed Consolidated Balance Sheets – September 30, 2010 and December 31, 2009	3
		Condensed Consolidated Statements of Operations – Nine and Three Months Ended September 30, 2010 and 2009	4
		Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2010 and 2009	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	18
	Item 4 -	Controls and Procedures	18
Part II – Other Information:

	Item 1 -	Legal Proceedings		19
	Item 1A -	Risk Factors		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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		September 30,				December 31,
		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	61,082,351			$	66,440,864
Receivables, less allowance for doubtful accounts
of $188,021 in 2010 and $428,074 in 2009			48,769,956				39,620,966
Inventories			72,004,452				69,974,934
Insurance receivable – asbestos			18,000,000				20,000,000
Other current assets			11,275,950				13,789,664
Total current assets			211,132,709				209,826,428
Property, plant and equipment, net			140,345,298				119,940,117
Insurance receivable - asbestos			87,862,580				95,430,060
Investments in joint ventures			14,400,253				14,867,317
Deferred tax assets			23,383,960				25,953,111
Other noncurrent assets			5,655,093				5,808,024
		$	482,779,893			$	471,825,057
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable		$	18,088,209			$	15,798,457
Accrued payrolls and employee benefits			11,667,062				10,497,091
Industrial Revenue Bond debt			13,311,000				13,311,000
Asbestos liability – current portion			25,000,000				30,000,000
Other current liabilities			21,870,111				19,897,991
Total current liabilities			89,936,382				89,504,539
Employee benefit obligations			48,324,439				52,372,460
Asbestos liability			138,720,330				147,093,191
Other noncurrent liabilities			2,595,630				3,652,411
Total liabilities			279,576,781				292,622,601
Commitments and contingent liabilities (Note 6)
Shareholders' equity:
Common stock - par value $1; authorized
20,000,000 shares; issued and outstanding
10,246,827shares in 2010 and 10,245,927 in 2009			10,246,827				10,245,927
Additional paid-in capital			119,299,066				116,396,355
Retained earnings			136,379,626				116,804,408
Accumulated other comprehensive loss			(62,722,407	)			(64,244,234	)
Total shareholders' equity			203,203,112				179,202,456
		$	482,779,893			$	471,825,057

 

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		2010			2009				2010			2009
Net sales	$	244,720,952		$	232,694,981			$	79,537,134		$	71,961,129
Operating costs and expenses:
Costs of products sold
(excluding depreciation)		168,740,339			157,498,251				56,501,918			47,504,103
Selling and administrative		32,354,403			30,693,639				10,335,512			9,875,768
Depreciation		6,596,206			5,493,962				2,003,471			1,868,158
Gain on disposition of assets		(95,508	)		-				(389	)		-
Total operating expenses		207,595,440			193,685,852				68,840,512			59,248,029
Income from operations		37,125,512			39,009,129				10,696,622			12,713,100
Other income (expense):
Investment-related income		1,158,786			1,009,636				1,113,274			862,821
Interest expense		(235,771	)		(197,373	)			(81,045	)		(50,520	)
Other – net		(49,977	)		(1,747,743	)			(82,164	)		565,478
		873,038			(935,480	)			950,065			1,377,779
Income before income taxes		37,998,550			38,073,649				11,646,687			14,090,879
Income tax provision		(12,594,000	)		(14,247,000	)			(3,946,000	)		(5,376,000	)
Equity earnings in Chinese joint venture		(296,046	)		-				(177,026	)		-
Net income	$	25,108,504		$	23,826,649			$	7,523,661		$	8,714,879
Net income per common share:
Basic	$	2.45		$	2.34			$	0.73		$	0.85
Diluted	$	2.44		$	2.34			$	0.73		$	0.85
Cash dividends declared per share	$	0.54		$	0.54			$	0.18		$	0.18
Weighted average number of
common shares outstanding:
Basic		10,246,621			10,189,008				10,246,827			10,204,997
Diluted		10,281,510			10,193,350				10,290,669			10,205,633

 

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		Nine Months Ended September 30,
			2010			2009
Net cash flows provided by operating activities		$	27,004,515		$	44,248,761
Cash flows from investing activities:
Purchases of property, plant and equipment			(27,676,767	)		(28,348,659	)
Investment in Chinese joint venture			-			(8,820,000	)
Collateral for outstanding foreign currency exchange contracts (Note 8)			-			(4,326,000	)
Return of collateral for outstanding foreign currency exchange
contracts (Note 8)			764,950			2,163,000
Purchases of long-term marketable securities			(435,482	)		(780,339	)
Sales of long-term marketable securities			408,511			689,104
Proceeds from U.K. governmental grant			226,461			-
Other			96,756			1,850
Net cash flows used in investing activities			(26,615,571	)		(39,421,044	)
Cash flows from financing activities:
Dividends paid			(5,533,124	)		(5,499,898	)
Proceeds from the issuance of common stock			9,731			568,198
Excess tax benefits from the exercise of stock options			4,013			163,059
Net cash flows used in financing activities			(5,519,380	)		(4,768,641	)
Effect of exchange rate changes on cash and cash equivalents			(228,077	)		1,324,176
Net (decrease) increase in cash and cash equivalents			(5,358,513	)		1,383,252
Cash and cash equivalents at beginning of period			66,440,864			81,606,793
Cash and cash equivalents at end of period		$	61,082,351		$	82,990,045
Supplemental information:
Income tax payments		$	8,092,569		$	9,164,398
Interest payments		$	235,907		$	208,549
Non-cash investing activities:
Purchases of property, plant and equipment
included in accounts payable		$	1,927,910		$	2,397,033

 

 

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1.	Unaudited Condensed Consolidated Financial Statements

2.	Inventories

		(in thousands)
		September 30,				December 31,
		2010				2009
Raw materials		$	17,917			$	18,274
Work-in-process			39,172				33,178
Finished goods			4,116				8,075
Supplies			10,799				10,448
		$	72,004			$	69,975

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Property, plant and equipment were comprised of the following:

		(in thousands)
		September 30,				December 31,
		2010				2009
Land and land improvements		$	4,766			$	4,766
Buildings			40,149				31,387
Machinery and equipment			207,889				155,528
Construction-in-progress			10,189				45,188
Other			7,426				7,417
			270,419				244,286
Accumulated depreciation			(130,074	)			(124,346	)
		$	140,345			$	119,940

4.	Other Current Liabilities

Other current liabilities were comprised of the following:

		(in thousands)
		September 30,				December 31,
		2010				2009
Customer-related liabilities		$	9,113			$	10,111
Foreign currency exchange contracts			348				1,171
Accrued sales commissions			2,308				1,852
Accrued income taxes payable			1,414				-
Dividend payable			1,844				1,844
Other			6,843				4,920
		$	21,870			$	19,898

		(in thousands)
		Nine Months								Three Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Balance at beginning of the period		$	4,929			$	4,724			$	5,289			$	5,153
Satisfaction of warranty claims			(1,330	)			(1,199	)			(668	)			(448	)
Provision for warranty claims			1,654				1,416				456				527
Other, primarily impact from changes in foreign
currency exchange rates			(56	)			223				120				(68	)
Balance at end of the period		$	5,197			$	5,164			$	5,197			$	5,164

 

 

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		(in thousands)
		Nine Months								Three Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
U.S. Pension Benefits
Service cost		$	2,151			$	2,099			$	717			$	674
Interest cost			6,394				6,302				2,132				2,186
Expected return on plan assets			(7,179	)			(7,696	)			(2,393	)			(2,651	)
Amortization of prior service cost			492				545				164				228
Amortization of actuarial loss			2,613				1,415				871				552
Net benefit cost		$	4,471			$	2,665			$	1,491			$	989

U.K. Pension Benefits
Interest cost		$	1,852			$	1,717			$	623			$	649
Expected return on plan assets			(1,407	)			(1,094	)			(473	)			(414	)
Amortization of actuarial loss			347				342				117				130
Net benefit cost		$	792			$	965			$	267			$	365

Other Postretirement Benefits
Service cost		$	361			$	317			$	135			$	98
Interest cost			693				609				242				189
Amortization of prior service cost			65				65				22				22
Amortization of actuarial loss			105				7				105				4
Net benefit cost		$	1,224			$	998			$	504			$	313

 

 

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(in thousands)
		Nine Months						Three Months
		Ended September 30,						Ended September 30,
		2010			2009			2010			2009

 

Net income		$	25,109			$	23,827			$	7,524			$	8,715
Foreign currency translation adjustments			(1,028	)			4,045				2,528				(1,299	)
Unrecognized components of
employee benefit plans			2,127				1,522				822				583
Unrealized holding gains on marketable securities			148				425				191				216
Change in the fair value of derivatives
(cash flow hedges)			275				367				(450	)			(335	)
Comprehensive income		$	26,631			$	30,186			$	10,615			$	7,880

 

 

 

 

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(in thousands)
		Quoted Prices in Active Markets for Identical Inputs (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Investments
Other noncurrent assets		$	2,871			$	-			$	-			$	2,871
Foreign currency exchange sales contracts
Other current assets			-				938				-				938
Other noncurrent assets			-				492				-				492
Other current liabilities			-				348				-				348
Other noncurrent liabilities			-				467				-				467

 

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		(in thousands)
		Nine Months								Three Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Net Sales:
Forged and Cast Rolls		$	181,273			$	147,394			$	59,562			$	44,766
Air and Liquid Processing			63,448				85,301				19,975				27,195
Total Reportable Segments		$	244,721			$	232,695			$	79,537			$	71,961
Income before Income Taxes:
Forged and Cast Rolls		$	40,570			$	35,938			$	11,765			$	10,937
Air and Liquid Processing			5,333				10,586				1,366				4,219
Total Reportable Segments			45,903				46,524				13,131				15,156
Other expense, including corporate costs			(7,904	)			(8,450	)			(1,484	)			(1,065	)
Total		$	37,999			$	38,074			$	11,647			$	14,091

 

 

 

Approximate open claims at end of period	8,262(1)
Gross settlement and defense costs (in 000’s)	$ 13,044
Approximate claims settled or dismissed	959

 

(1)	Included as “open claims” are approximately 1,801 claims classified in various jurisdictions as “inactive” or transferred to a state or federal judicial panel on multi-district litigation, commonly referred to as the MDL.

 

A substantial majority of the settlement and defense costs reflected in the above table were reported and paid by insurers. Because claims are often filed and can be settled or dismissed in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period. In 2006, for the first time, a claim for Asbestos Liability against one of the Corporation’s subsidiaries was tried to a jury. The trial resulted in a defense verdict.  Plaintiffs appealed that verdict and in 2008 the California Court of Appeals reversed the jury verdict and remanded the case back to the trial court.

 

 

§	HR&A’s interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos;

§	epidemiological studies estimating the number of people likely to develop asbestos-related diseases;

§	HR&A’s analysis of the number of people likely to file an asbestos-related injury claim against the subsidiaries and the Corporation based on such epidemiological data and relevant claims history from January 1, 2006 to September 30, 2008;

 §   an analysis of pending cases, by type of injury claimed and jurisdiction where the claim is filed;

§	an analysis of claims resolution history from January 1, 2006 to September 30, 2008 to determine the average settlement value of claims, by type of injury claimed and jurisdiction of filing; and

§	an adjustment for inflation in the future average settlement value of claims, at an annual inflation rate based on the Congressional Budget Office’s ten year forecast of inflation.

 

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The amounts recorded by the Corporation for Asbestos Liabilities and insurance receivables rely on assumptions that are based on currently known facts and strategy. The Corporation’s actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Corporation’s or HR&A’s calculations vary significantly from actual results. Key variables in these assumptions are identified above and include the number and type of new claims to be filed each year, the average cost of disposing of each such new claim, average annual defense costs, the resolution of coverage issues with insurance carriers, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Corporation’s Asbestos Liability and ability to recover under its insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of state or federal tort reform legislation.

 

 

13.  Environmental Matters

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

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Forward-looking statements are identified by the use of the words “believes,” “expects,” “anticipates,” “estimates,” “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. For the Corporation, these risks and uncertainties include, but are not limited to, those described under Item 1A, Risk Factors, of Part II of this Form 10-Q. 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.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4 – CONTROLS AND PROCEDURES

 

 

 

 

 

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PART II - OTHER INFORMATION

(a)

Articles of Incorporation

(b)

By-laws

(a)

1988 Supplemental Executive Retirement Plan

Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008.

(b)

Severance Agreements between Ampco-Pittsburgh Corporation and certain officers and employees of Ampco-Pittsburgh Corporation

Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008.

(c)

2008 Omnibus Incentive Plan

Incorporated by reference to the Proxy Statement dated March 6, 2008.

(d)

Retirement and Consulting Agreement between Ampco-Pittsburgh Corporation and Ernest G. Siddons dated April 30, 2009.

Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

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(31.1)	Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32.1)

Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(32.2)

Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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	AMPCO-PITTSBURGH CORPORATION
DATE:  November 5, 2010	BY:  s/Robert A. Paul
	Robert A. Paul
	Chairman and Chief Executive Officer
DATE:  November 5, 2010	BY:  s/Marliss D. Johnson
	Marliss D. Johnson
	Vice President, Controller and Treasurer

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