Third Quarter 2006 Form 10-Q
FORM
1O-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15 (d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended September 30, 2006
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
Indicate
by
check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
YES
X
NO
On
November
8, 2006, 9,837,497 common shares were outstanding.
-
1
-
AMPCO-PITTSBURGH
CORPORATION
INDEX
Part
I
- Financial Information:
|
Page
No.
|
|
|
|
|
|
Item
1
-
|
Condensed
Consolidated Financial Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets -
September
30, 2006 and December 31, 2005
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations - Nine and Three Months Ended
September 30, 2006 and 2005
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows -Nine Months Ended September
30,
2006 and 2005
|
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
|
19
|
|
|
|
|
|
Item
4
-
|
Controls
and Procedures
|
19
|
|
|
|
|
Part
II
- Other Information:
|
|
|
Item
1
-
|
Legal
Proceedings
|
21
|
|
|
|
|
|
Item
1A
-
|
Risk
Factors
|
21
|
|
|
|
|
|
Item
6
-
|
Exhibits
|
21
|
|
|
|
|
|
Signatures
|
|
22
|
|
|
|
|
|
Exhibit
Index
|
|
23
|
|
|
|
|
|
Exhibits
|
|
|
|
|
|
|
|
|
Exhibit
31.1
|
|
|
|
Exhibit
31.2
|
|
|
|
Exhibit
32.1
|
|
|
|
Exhibit
32.2
|
|
|
|
|
|
-
2
-
PART
I - FINANCIAL INFORMATION
AMPCO-PITTSBURGH
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,559,718
|
|
$
|
7,913,504
|
|
Short-term
marketable securities
|
|
|
37,417,385
|
|
|
31,550,000
|
|
Receivables,
less allowance for
|
|
|
|
|
|
|
|
doubtful
accounts of $725,418 in
|
|
|
|
|
|
|
|
2006
and $681,316 in 2005
|
|
|
56,860,261
|
|
|
47,338,440
|
|
Inventories
|
|
|
53,514,038
|
|
|
48,535,732
|
|
Other
|
|
|
6,959,291
|
|
|
6,252,132
|
|
Total
current assets
|
|
|
165,310,693
|
|
|
141,589,808
|
|
Property,
plant and equipment, net
|
|
|
67,210,558
|
|
|
66,645,190
|
|
Prepaid
pensions
|
|
|
28,399,097
|
|
|
26,418,828
|
|
Goodwill
|
|
|
2,694,240
|
|
|
2,694,240
|
|
Other
noncurrent assets
|
|
|
4,634,485
|
|
|
4,521,072
|
|
|
|
$
|
268,249,073
|
|
$
|
241,869,138
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
14,299,314
|
|
$
|
14,877,426
|
|
Accrued
payrolls and employee benefits
|
|
|
9,963,882
|
|
|
9,169,942
|
|
Industrial
Revenue Bond debt
|
|
|
13,311,000
|
|
|
13,311,000
|
|
Other
|
|
|
21,330,659
|
|
|
16,675,055
|
|
Total
current liabilities
|
|
|
58,904,855
|
|
|
54,033,423
|
|
Employee
benefit obligations
|
|
|
29,039,758
|
|
|
27,610,185
|
|
Deferred
income taxes
|
|
|
18,882,710
|
|
|
16,542,082
|
|
Other
noncurrent liabilities
|
|
|
3,037,359
|
|
|
2,382,185
|
|
Total
liabilities
|
|
|
109,864,682
|
|
|
100,567,875
|
|
|
|
|
|
|
|
|
|
Commitments
and contingent liabilities
|
|
|
|
|
|
|
|
(Note
6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 9,837,497
shares in 2006
|
|
|
|
|
|
|
|
and
9,767,497 shares in 2005
|
|
|
9,837,497
|
|
|
9,767,497
|
|
Additional
paid-in capital
|
|
|
105,428,460
|
|
|
104,425,502
|
|
Retained
earnings
|
|
|
61,116,186
|
|
|
45,293,492
|
|
Accumulated
other comprehensive loss
|
|
|
(17,997,752
|
)
|
|
(18,185,228
|
)
|
Total
shareholders' equity
|
|
|
158,384,391
|
|
|
141,301,263
|
|
|
|
$
|
268,249,073
|
|
$
|
241,869,138
|
|
|
|
|
|
|
|
|
|
See
Notes to
Condensed Consolidated Financial Statements.
-
3
-
AMPCO-PITTSBURGH
CORPORATION
CONDENSED
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine
Months Ended
Sept.30, Three
Months Ended Sept.30,
2006 2005
2006 2005
Net
sales
|
|
$
|
223,412,730
|
|
$
|
177,872,725
|
|
$
|
79,068,503
|
|
$
|
56,631,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding depreciation)
|
|
|
164,778,720
|
|
|
141,460,631
|
|
|
58,357,507
|
|
|
44,614,970
|
|
Selling and administrative
|
|
|
26,892,827
|
|
|
22,109,756
|
|
|
9,292,468
|
|
|
7,465,317
|
|
Depreciation
|
|
|
5,067,342
|
|
|
5,038,070
|
|
|
1,618,251
|
|
|
1,640,952
|
|
Loss (gain) on disposition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of assets
|
|
|
4,120
|
|
|
(35,891
|
)
|
|
(8,027
|
)
|
|
(34,548
|
)
|
Total operating expenses
|
|
|
196,743,009
|
|
|
168,572,566
|
|
|
69,260,199
|
|
|
53,686,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
26,669,721
|
|
|
9,300,159
|
|
|
9,808,304
|
|
|
2,944,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(514,964
|
)
|
|
(389,586
|
)
|
|
(186,291
|
)
|
|
(142,601
|
)
|
Other
-
net
|
|
|
1,505,386
|
|
|
275,271
|
|
|
95,334
|
|
|
283,061
|
|
|
|
|
990,422
|
|
|
(114,315
|
)
|
|
(90,957
|
)
|
|
140,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
27,660,143
|
|
|
9,185,844
|
|
|
9,717,347
|
|
|
3,085,457
|
|
Income
tax provision
|
|
|
8,887,000
|
|
|
2,427,000
|
|
|
3,073,000
|
|
|
976,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
18,773,143
|
|
$
|
6,758,844
|
|
$
|
6,644,347
|
|
$
|
2,109,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.91
|
|
$
|
0.69
|
|
$
|
0.68
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
1.88
|
|
$
|
0.69
|
|
$
|
0.67
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
$
|
0.30
|
|
$
|
0.30
|
|
$
|
0.10
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,824,789
|
|
|
9,757,978
|
|
|
9,837,497
|
|
|
9,760,120
|
|
Diluted
|
|
|
9,960,206
|
|
|
9,812,291
|
|
|
9,981,833
|
|
|
9,820,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to
Condensed Consolidated Financial Statements.
-
4
-
AMPCO-PITTSBURGH
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine
Months Ended Sept. 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
cash flows provided by operating activities
|
|
$
|
15,248,948
|
|
$
|
2,003,802
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(4,962,086
|
)
|
|
(3,205,748
|
)
|
Purchases
of short-term marketable securities
|
|
|
(50,850,000
|
)
|
|
(29,200,000
|
)
|
Proceeds
from the sale of short-term
|
|
|
|
|
|
|
|
marketable
securities
|
|
|
45,100,000
|
|
|
25,005,000
|
|
Proceeds
from the sale of assets
|
|
|
850
|
|
|
59,196
|
|
|
|
|
|
|
|
|
|
Net
cash flows used in investing activities
|
|
|
(10,711,236
|
)
|
|
(7,341,552
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock
|
|
|
806,950
|
|
|
178,278
|
|
Dividends
paid
|
|
|
(2,943,449
|
)
|
|
(2,927,249
|
)
|
|
|
|
|
|
|
|
|
Net
cash flows used in financing activities
|
|
|
(2,136,499
|
)
|
|
(2,748,971
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
|
|
|
|
|
and
cash equivalents
|
|
|
245,001
|
|
|
203,181
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
cash
equivalents
|
|
|
2,646,214
|
|
|
(7,883,540
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
7,913,504
|
|
|
11,339,514
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
10,559,718
|
|
$
|
3,455,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
5,491,763
|
|
$
|
1,459,837
|
|
Interest
payments
|
|
$
|
509,960
|
|
$
|
378,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to
Condensed Consolidated Financial Statements.
-
5
-
AMPCO-PITTSBURGH
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
|
Unaudited
Condensed Consolidated Financial
Statements
|
The
condensed
consolidated balance sheet as of September 30, 2006, the condensed consolidated
statements of operations for the nine and three months ended September 30,
2006
and 2005 and the condensed consolidated statements of cash flows for the nine
months ended September 30, 2006 and 2005 have been prepared by Ampco-Pittsburgh
Corporation (the Corporation) without audit. In the opinion of management,
all
adjustments, consisting of only normal and recurring adjustments necessary
to
present fairly the financial position, results of operations and cash flows
for
the periods presented have been made.
The results
of operations for the nine and three months ended September 30, 2006 are not
necessarily indicative of the operating results expected for the full
year.
Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted.
At
September
30, 2006 and December 31, 2005, approximately 58.7% and 64.4%, respectively,
of
the inventories were valued on the LIFO method, with the remaining inventories
being valued on the FIFO method. Inventories were comprised of the
following:
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
12,640
|
|
$
|
11,299
|
|
Work-in-process
|
|
|
25,867
|
|
|
25,228
|
|
Finished
goods
|
|
|
7,899
|
|
|
5,710
|
|
Supplies
|
|
|
7,108
|
|
|
6,299
|
|
|
|
$
|
53,514
|
|
$
|
48,536
|
|
3. Property,
Plant and Equipment
Property,
plant and equipment were comprised of the following:
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Land
and land improvements
|
|
$
|
4,302
|
|
$
|
4,299
|
|
Buildings
|
|
|
25,497
|
|
|
25,211
|
|
Machinery
and equipment
|
|
|
142,872
|
|
|
137,458
|
|
|
|
|
172,671
|
|
|
166,968
|
|
Accumulated
depreciation
|
|
|
(105,460
|
)
|
|
(100,323
|
)
|
|
|
$
|
67,211
|
|
$
|
66,645
|
|
-
6
-
4.
Other
Current Liabilities
Other
current
liabilities were comprised of the following:
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Customer-related
liabilities
|
|
$
|
7,212
|
|
$
|
5,338
|
|
Accrued
sales commissions
|
|
|
3,949
|
|
|
2,700
|
|
Other
|
|
|
10,170
|
|
|
8,637
|
|
|
|
$
|
21,331
|
|
$
|
16,675
|
|
Included
in
customer-related liabilities are costs expected to be incurred with respect
to
product warranties. Changes in the liability for product warranty claims
consisted of:
|
|
(in
thousands)
|
|
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of the period
|
|
$
|
3
786
|
|
$
|
4,150
|
|
$
|
4,290
|
|
$
|
3,459
|
|
Satisfaction
of warranty claims
|
|
|
(2,101
|
)
|
|
(2,397
|
)
|
|
(757
|
)
|
|
(731
|
)
|
Provision
for warranty claims
|
|
|
2,769
|
|
|
1,798
|
|
|
1,112
|
|
|
665
|
|
Other,
primarily impact from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
changes
in foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
rates
|
|
|
224
|
|
|
(198
|
)
|
|
33
|
|
|
(40
|
)
|
Balance
at end of the period
|
|
$
|
4,678
|
|
$
|
3,353
|
|
$
|
4,678
|
|
$
|
3,353
|
|
5. |
Pension
and Other Postretirement
Benefits
|
Contributions
for the nine months ended September 30, 2006 and 2005 were as
follows:
|
|
(in
thousands)
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
U.S.
pension benefits plans
|
|
$
|
-
|
|
$
|
-
|
|
Foreign
pension benefits plan
|
|
$
|
425
|
|
$
|
415
|
|
Other
postretirement benefits (e.g. net payments)
|
|
$
|
518
|
|
$
|
824
|
|
U.K.
defined contribution plan
|
|
$
|
299
|
|
$
|
253
|
|
-
7
-
Net
periodic
pension and other postretirement costs include the following
components:
|
|
(in
thousands)
|
|
|
|
U.S.
Pension Benefits
|
|
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,771
|
|
$
|
1,532
|
|
$
|
590
|
|
$
|
399
|
|
Interest
cost
|
|
|
5,254
|
|
|
5,123
|
|
|
1,752
|
|
|
1,755
|
|
Expected
return on plan assets
|
|
|
(9,372
|
)
|
|
(7,958
|
)
|
|
(3,124
|
)
|
|
(2,644
|
)
|
Amortization
of prior service cost
|
|
|
463
|
|
|
444
|
|
|
154
|
|
|
148
|
|
Actuarial
gain
|
|
|
(89
|
)
|
|
(84
|
)
|
|
(30
|
)
|
|
(16
|
)
|
Net
benefit income
|
|
$
|
(1,973
|
)
|
$
|
(943
|
)
|
$
|
(658
|
)
|
$
|
(358
|
)
|
|
|
(in
thousands)
|
|
|
|
Foreign
Pension Benefits
|
|
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
1,666
|
|
$
|
1,630
|
|
$
|
573
|
|
$
|
526
|
|
Expected
return on plan assets
|
|
|
(1,620
|
)
|
|
(1,430
|
)
|
|
(557
|
)
|
|
(461
|
)
|
Actuarial
loss
|
|
|
288
|
|
|
276
|
|
|
99
|
|
|
89
|
|
Net
benefit cost
|
|
$
|
334
|
|
$
|
476
|
|
$
|
115
|
|
$
|
154
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
302
|
|
$
|
227
|
|
$
131
|
$
76
|
|
Interest
cost
|
|
|
611
|
|
|
578
|
|
214
|
193
|
|
Amortization
of prior service
|
|
|
|
|
|
|
|
|
|
|
benefit
|
|
|
(335
|
)
|
|
(411
|
)
|
(112)
|
(137)
|
|
Actuarial
loss
|
|
|
207
|
|
|
125
|
|
101
|
41
|
|
Net
benefit cost
|
|
$
|
785
|
|
$
|
519
|
|
$
334
|
$
173
|
|
6. Commitments
and Contingent Liabilities
Outstanding
commercial letters of credit as of September 30, 2006 approximated $20,067,000,
a major portion of which serves as collateral for the Industrial Revenue Bond
debt.
In
connection
with the sale of certain subsidiaries in 2003, the Corporation provided typical
warranties to the buyer (such as those relating to income taxes, intellectual
property, legal proceedings, product liabilities and title to property, plant
and equipment) which primarily expire with the statutes of limitations. Losses
suffered by the buyer as a result of the Corporation’s breach of warranties are
reimbursable by the Corporation up to approximately $2,000,000. No amount has
been paid to date, and based on experience while owning the subsidiaries the
Corporation expects that no amounts will become due.
-
8
-
During
2004,
the Davy Roll operation received $1,498,000 (£800,000) of U.K. governmental
grants toward the purchase and installation of certain machinery and equipment.
Under the agreement, the grants are repayable if certain conditions are not
met
including achieving and maintaining a targeted level of employment through
March
2009. At this date, Davy’s level of employment exceeds the targeted level of
employment; accordingly, no liability has been recorded.
See
Note 10
regarding litigation and Note 11 for environmental matters.
7. Comprehensive
Income (Loss)
The
Corporation's comprehensive income (loss) consisted of:
|
|
(in
thousands)
|
|
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
18,773
|
|
$
|
6,759
|
|
$
|
6,644
|
|
$
|
2,109
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
2,705
|
|
|
(2,639
|
)
|
|
391
|
|
|
(472
|
)
|
Adjustment
to minimum pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liability
|
|
|
(1,919
|
)
|
|
1,862
|
|
|
(283
|
)
|
|
342
|
|
Unrealized
holding (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
on marketable securities
|
|
|
(17
|
)
|
|
(96
|
)
|
|
80
|
|
|
57
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
|
|
|
(582
|
)
|
|
2,861
|
|
|
20
|
|
|
451
|
|
Comprehensive
income
|
|
$
|
18,960
|
|
$
|
8,747
|
|
$
|
6,852
|
|
$
|
2,487
|
|
8. Foreign
Exchange and Futures Contracts
Certain
of
the Corporation’s operations are subject to risk from exchange rate fluctuations
in connection with sales in foreign currencies. To minimize this risk, forward
foreign exchange contracts are purchased which are designated as fair value
or
cash flow hedges. As of September 30, 2006, approximately $73,484,000 of
anticipated foreign-denominated sales has been hedged with the underlying
contracts settling at various dates through March 2010. As of September 30,
2006, the fair value of contracts expected to settle within the next 12 months,
which is recorded in other current liabilities, approximated $1,028,000 and
the
fair value of the remaining contracts, which is recorded in other noncurrent
liabilities, approximated $1,150,000. The change in the fair value of the
contracts designated as cash flow hedges is recorded as a component of
accumulated other comprehensive income (loss) and approximated $(944,000),
net
of income taxes, as of September 30, 2006. The change in fair value will be
reclassified into earnings when the projected sales occur with approximately
$(571,000) expected to be released to pre-tax earnings within the next 12
months. During the nine months ended September 30, 2006 and 2005, approximately
$(591,000) and $(692,000), respectively, were released to pre-tax earnings,
and
during the three months ended September 30, 2006 and 2005, approximately
$(221,000) and $(135,000), respectively, were released to pre-tax
earnings.
Gains
(losses) on foreign exchange transactions approximated $665,000 and $(89,000)
for the nine months ended September 30, 2006 and 2005,
-
9
-
respectively,
and $21,000 and $127,000 for the three months ended September 30, 2006 and
2005,
respectively.
In
addition,
one of the Corporation’s subsidiaries is subject to risk from increases in the
price of a commodity (copper) used in the production of inventory. To minimize
this risk, futures contracts are entered into which are designated as cash
flow
hedges. Through May 2006,
futures
contracts approximating copper needs on a rolling 12-month basis were purchased.
In June 2006, due to the volatility of copper prices, the increased
backwardation in the market, and a shortened term for customer acceptance of
a
price quote, the Corporation revised its hedge strategy to a rolling three-month
basis and cancelled various futures contracts resulting in a pre-tax termination
gain of approximately $2,215,000, which will be amortized to pre-tax earnings
when the projected sales occur (through approximately June 2007). The net
unamortized gain is recorded as a component of accumulated other comprehensive
income (loss) and approximated $640,000, net of income taxes, as of September
30, 2006. During the nine and three months ended September 30, 2006,
approximately $618,000 was released to pre-tax earnings.
At
September
30, 2006, approximately 87% or $1,548,000 of anticipated copper purchases over
the next 3 months are hedged. The fair value of these contracts approximated
$9,000. The change in the fair value of the contracts designated as cash flow
hedges is recorded as a component of accumulated other comprehensive income
(loss) and approximated $6,000, net of income taxes, as of September 30, 2006.
The change in the fair value will be reclassified into earnings when the
projected sales occur with approximately $9,000 expected to be released to
pre-tax earnings within the next 12 months. During the nine months ended
September 30, 2006 and 2005, approximately $1,490,000 and $485,000,
respectively, were released to pre-tax earnings and during the three months
ended September 30, 2006 and 2005, approximately $26,000 and $131,000,
respectively, were released to pre-tax earnings.
9. Business
Segments
Presented
below are the net sales and income before income taxes for the Corporation's
two
business segments.
|
|
(in
thousands)
|
|
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged
and Cast Rolls
|
|
$
|
154,897
|
|
$
|
121,435
|
|
$
|
54,468
|
|
$
|
38,152
|
|
Air
and
Liquid Processing
|
|
|
68,516
|
|
|
56,438
|
|
|
24,601
|
|
|
18,480
|
|
Total
Reportable Segments
|
|
$
|
223,413
|
|
$
|
177,873
|
|
$
|
79,069
|
|
$
|
56,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forged
and Cast Rolls
|
|
$
|
26,088
|
|
$
|
10,654
|
|
$
|
9,681
|
|
$
|
3,711
|
|
Air
and
Liquid Processing
|
|
|
4,693
|
|
|
2,617
|
|
|
1,613
|
|
|
728
|
|
Total
Reportable Segments
|
|
|
30,781
|
|
|
13,271
|
|
|
11,294
|
|
|
4,439
|
|
Other
expense, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
corporate
costs - net
|
|
|
(3,121
|
)
|
|
(4,085
|
)
|
|
(1,577
|
)
|
|
(1,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,660
|
|
$
|
9,186
|
|
$
|
9,717
|
|
$
|
3,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
10
-
Income
before
income taxes for the Forged and Cast Rolls segment for the nine months ended
September 30, 2005 includes $2,320,000
of
proceeds from settlement of the Corporation’s 2004 flood-related business
interruption insurance claim (see Note 12).
Income
before
income taxes for the Air and Liquid Processing segment for the periods presented
includes the majority of the legal and case management costs associated with
personal injury claims and insurance recovery litigation related to
asbestos-containing product and indemnity payments not expected to be recovered
from insurance carriers (see Note 10).
10. Litigation
(claims not in thousands)
The
Corporation and its subsidiaries are involved in various claims and lawsuits
incidental to their businesses. In addition, claims have been asserted alleging
personal injury from exposure to asbestos-containing components historically
used in some products of certain of the Corporation’s subsidiaries (“Asbestos
Liability”). Those subsidiaries, and in some cases the Corporation, are
defendants (among a number of defendants, typically over 50 and often over
100)
in cases filed in various state and federal courts. The following table reflects
information about these cases for the nine months ended September 30,
2006:
Approximate
open claims at end of period
|
|
|
15,230
|
|
Gross
settlement and defense costs (in 000’s)
|
|
$
|
8,502
|
|
Approximate
claims settled or dismissed
|
|
|
1,863
|
|
|
|
|
|
|
Substantially
all settlement and defense costs in the above table were 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. For example, approximately 6,700
claims filed in Mississippi were dismissed in 2005 as a result of tort reform
in
that state.
Certain
of
the Corporation’s subsidiaries and the Corporation have an arrangement (the
“Coverage Arrangement”) with insurers responsible for its historical primary and
some umbrella insurance coverage for Asbestos Liability (the “Paying Insurers”).
Under the Coverage Arrangement, the Paying Insurers accept financial
responsibility, subject to the limits of the policies and based on fixed defense
percentages and specified indemnity allocation formulas, for a substantial
majority of the Asbestos Liabilities.
The
Coverage
Arrangement includes an acknowledgement that Howden Buffalo, Inc. (“Howden”), is
entitled to coverage under policies covering Asbestos Liability arising out
of
the historical products manufactured or distributed by Buffalo Forge, a former
subsidiary of the Corporation (the “Products”). The Coverage Arrangement does
not provide for any prioritization on access to the applicable policies or
monetary cap other than the limits of the policies, and, accordingly, Howden
may
access the policies at any time for any covered claim arising out of a Product.
In general, access by Howden to the policies covering the Products will erode
the coverage under the policies available to the Corporation for Asbestos
Liabilities alleged to
-
11
-
arise
out of
not only the Products but also other historical products of the Corporation
and
its subsidiaries covered by the applicable policies. The Corporation is unable
at present to predict the timing or impact on available coverage of Howden’s
rights to access historical insurance coverage of the Corporation and its
subsidiaries with respect to the Products.
Based
on the
Corporation’s claims experience to date with Asbestos Liabilities, the available
insurance coverage, the identity of the subsidiaries that are named in the
cases, and the identity of the Corporation’s and its subsidiaries’ insurers, 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 particular lawsuits, however, could be material to the consolidated results
of operations for the period in which the costs, if any, are recognized. There
can be no assurance that certain of the Corporation’s subsidiaries or the
Corporation will not be subjected to significant additional claims in the future
or that the subsidiaries’ ultimate liability with respect to claims for Asbestos
Liability will not present significantly greater and longer lasting financial
exposure than is represented by the pending claims. The Corporation incurred
uninsured legal costs in connection with advice on certain matters pertaining
to
these asbestos cases including insurance litigation, case management and other
issues. Those costs amounted to approximately $356,000 and $53,000 for the
nine
and three months ended September 30, 2006, respectively, in comparison to
$762,000 and $332,000 for the same periods of the prior year.
The
Corporation has not accrued for settlement or defense costs for pending claims
for Asbestos Liability nor for settlement or defense costs for claims that
may
be asserted against the subsidiaries and the Corporation in the future. The
Corporation has not had sufficient information to make a reasonable estimate
of
pending
or
future claims. In order to assist the Corporation in determining whether an
estimate can be made of the potential liability
for
pending
claims for Asbestos Liability and
for
claims for Asbestos Liability that may be asserted against the subsidiaries
and
the Corporation in the future, and the amount of any estimate, the Corporation
has retained a claim evaluation firm. After
the
evaluation firm’s analysis is completed, if a reasonable estimate can be
made
the
Corporation will accrue a liability
for pending
and future claims that may be asserted against the subsidiaries.
Any such
accrual will cover a period that will be determined after considering the claims
analysis, and is likely to be material in amount.
The
Corporation is unable to predict when the claims analysis will be completed.
At
the same time that any accrual for Asbestos Liability would be made, the
Corporation would accrue a receivable for related insurance proceeds expected
to
be collected when claims are actually paid. The Corporation has retained an
insurance evaluation firm to assist it in analyzing the subsidiaries’ and the
Corporation’s historical insurance as applied to any claims estimate. That
analysis will address, among other things, the gaps in insurance coverage that
could result from exhaustion of insurance subject to the Coverage Arrangement
in
a policy period for which there is no excess insurance, or in a policy period
in
which an insurer that issued excess coverage is insolvent. In the case of
insurer insolvency, the subsidiaries could be required to pay amounts that
would
otherwise have been paid by the insolvent insurer in order to access other
excess coverage. The timing of any such payments on account of insurance
exhaustions would depend upon the magnitude and timing of future claims; the
method in which losses
-
12
-
would
be
allocated to various insurance policies; how settlement and defense costs would
be covered by the insurance policies; and the effect of various policy terms
and
limits. As a result of these gaps in coverage, it is likely that any accrual
for
pending and future Asbestos Liability claims for
the
covered period would
exceed
the accrual for related insurance
proceeds by a material amount.
11. 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 three third-party landfill sites. In addition, as a result
of the 2003 sale of certain subsidiaries, the Corporation retained the liability
to remediate certain environmental contamination at two of the sold locations
and has agreed to indemnify the buyer against third-party claims arising from
the discharge of certain contamination from one of these locations, the cost
for
which was accrued at the time of sale. 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. The potential liability
for
all environmental proceedings was increased as of September 30, 2006 by
approximately $335,000 for additional environmental costs expected to be
incurred relating to the remediation of real estate previously owned by a
discontinued operation. In the opinion of management, the resulting potential
liability for all environmental proceedings of approximately $2,300,000 at
September 30, 2006 is considered adequate based on information known to date.
12. Flood
Damage
In
September
2004, the Carnegie, Pennsylvania plant of the Corporation’s Union Electric Steel
subsidiary was damaged by flooding as a result of the remnants of Hurricane
Ivan. In 2005, the Corporation received approximately $2,320,000 of proceeds
from its business interruption insurance claim which were recorded as a
reduction of costs of products sold (excluding depreciation) in the accompanying
condensed consolidated statements of operations for the nine months ended
September 30, 2005.
13. Recently
Issued Accounting Pronouncements
In
November
2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151,
“Inventory Costs” which confirms that accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage) be
recognized as current period charges and that allocation of fixed production
overheads to inventories be based on normal capacity of the production
facilities. The provisions of SFAS No. 151 became effective for the Corporation
on January 1, 2006 and did not have a significant effect on its financial
condition or results of operations.
In
December
2004, the FASB issued SFAS No. 123(R), “Shared-Based Payment” which requires
companies to recognize compensation cost for stock options and other stock-based
awards based on their fair value. Companies will no longer be permitted to
follow the intrinsic value accounting method. The provisions of SFAS No. 123(R)
became effective for the Corporation on January 1, 2006. The Corporation does
not have any remaining options
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13
-
available
for
grant and granted options are fully vested; accordingly, the standard did not
impact the Corporation’s financial condition or results of operations.
In
May 2005,
the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a
replacement of APB Opinion No. 20 and FASB Statement No. 3” which provides
guidance for the accounting and reporting of a change in accounting principle.
It also applies to changes required by a newly-issued accounting pronouncement
if that pronouncement does not provide such guidance. Previously, most changes
in accounting principles were recognized by including the cumulative effect
of
changing to the new accounting principle in net income of the period of the
change. SFAS No. 154 requires retrospective application to prior periods and
became effective for the Corporation on January 1, 2006. Until the Corporation
makes any such changes, the standard will not impact the Corporation’s financial
condition or results of operations.
In
February
2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial
Instruments”, which provides relief from having to separately determine the fair
value of an embedded derivative that would otherwise be required to be
bifurcated from its host contract. The Corporation is currently evaluating
the
impact of SFAS No. 155, which becomes effective for the Corporation on January
1, 2007.
In
June 2006,
the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109”, which provides guidance
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return as well as subsequent changes in a
tax
position, calculation of interest and penalties, accounting in interim periods,
disclosure, and transition. The Corporation is currently evaluating the impact
of Interpretation No. 48, which becomes effective for the Corporation on January
1, 2007.
In
September
2006, the FASB issued SFAS No. 157, “Fair Value Measures”, which defines fair
value, establishes a framework for measuring fair value under generally accepted
accounting principles, and expands disclosures about fair value measures. It
does not require any new fair value measures. SFAS No. 157 becomes effective
for
the Corporation on January 1, 2008 and is not expected to have a significant
impact on the Corporation’s financial position or results of
operations.
In
September
2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans - an amendment of FASB Statements No.
87,
88, and 132(R)”, which requires companies to recognize the overfunded or
underfunded status of a defined benefit pension plan (other than a
multi-employer plan) or other postretirement plan as an asset or liability,
respectively, in the statement of financial position. The funded status of
a
plan is measured as of year end and generally represents the difference between
the fair value of plan assets and the related benefit obligation, as defined
by
SFAS No. 158. Additionally, unamortized actuarial gains/losses and prior service
costs/benefits will now be required to be recognized as a component of
accumulated other comprehensive income (loss), net of income tax, instead of
as
component of the pension asset or liability. SFAS No. 158 does not change how
net periodic pension and other postretirement benefit costs are calculated
or
reported. The Corporation is currently evaluating the impact of SFAS No.
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14
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158,
which
becomes effective for the Corporation on December 31, 2006. Based on the funded
status of its defined benefit pension plans and other postretirement benefits
plan as of December 31, 2005 (the most recent measurement date), adoption of
SFAS No. 158 would eliminate the pension asset of $26 million, increase
liabilities by approximately $3 million, and, after provision for income tax,
reduce shareholders’ equity by approximately $19 million. These estimates may
vary from the actual impact of implementing this standard as the ultimate
amounts recorded will be dependent on the December 31, 2006 actuarial valuations
and the related assumptions (such as discount rates, rate of increases in
compensation, mortality rates, assumed rates of return) used. Changes in these
assumptions since the last measurement date would increase or decrease the
impact of adopting SFAS No. 158 on the Corporation’s consolidated financial
statements. The majority of the impact is attributable to the Corporation’s U.S.
defined benefit plan. Although this plan was fully funded as of December 31,
2005, unamortized actuarial losses and prior service cost of approximately
$26
million which were recorded as a component of the pension asset will now be
required to be classified as a component of accumulated other comprehensive
loss
and presented net of income tax.
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15
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ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Executive
Overview
The
Corporation currently operates in two business segments - the Forged and Cast
Rolls segment and the Air and Liquid Processing segment. The Forged and Cast
Rolls segment is benefiting from an increased level of steel and aluminum
production and a worldwide shortage of forged-hardened steel rolls and, to
a
lesser extent, certain cast-roll products. The demand arises from the addition
of new steel plants and increased steel production, particularly in China,
India
and other parts of Asia, along with a reduction in the number of roll suppliers.
For
Union
Electric Steel, the shortage of global forged-roll capacity, its current order
backlog, and the broad base of its customers are expected to keep the operations
at capacity for the next several years. Demand for cast rolls from Davy Roll
is
also expected to remain high. The outlook for the segment for the foreseeable
future is good with the expectation of materially improved sales and income
from
operations for the full year ending December 31, 2006 as compared with
2005.
Each
of the
businesses within the Air and Liquid Processing segment is small and provides
limited growth opportunities. The segment is focusing on returning the air
handling operation to profitability and expansion of its distribution networks.
Additionally, it is subject to multiple claims for personal injury alleged
to
result from asbestos-containing products as many as sixty years ago. The
potential long-term impact is described fully in Note 10 to the condensed
consolidated financial statements. The outlook for the segment for the full
year
ending December 31, 2006 as compared with 2005, excluding asbestos
litigation-related expense, is for increased sales with a modest improvement
in
income from operations.
Operations
for the Nine and Three Months Ended September 30, 2006 and 2005
Net
Sales.
Net sales
for the nine months ended September 30, 2006 and 2005 were $223,413,000 and
$177,873,000, respectively, and $79,069,000 and $56,632,000, respectively,
for
the three months then ended. A discussion of sales for the Corporation’s two
segments is included below. Backlog (unfilled orders) approximated $541,606,000
and $289,246,000 at September 30, 2006 and 2005, respectively, and $312,272,000
at December 31, 2005. Although backlog has improved for both of the segments,
the increase is principally attributable to the Forged and Cast Rolls segment.
The September 30, 2006 backlog includes approximately $462,000,000 of orders
scheduled for shipment after December 31, 2006 (with $227,000,000 of this amount
scheduled for shipment after December 31, 2007).
Costs
of
Products Sold.
Costs of
products sold, excluding depreciation, were 73.8% and 79.5% of net sales for
the
nine months ended September 30, 2006 and 2005, respectively, and 73.8% and
78.8%
of net sales for the three months ended September 30, 2006 and 2005,
respectively. The improvement is due primarily to better pricing and additional
volume for the Forged and Cast Rolls segment. Costs of products sold for the
nine months ended September 30, 2005 includes proceeds of $2,320,000 from
settlement of the Corporation’s 2004 flood-related business interruption
insurance claim.
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16
-
Selling
and Administrative.
The
increase in selling and administrative expenses for the nine and three months
ended September 30, 2006 in comparison to the same periods of 2005 is
principally attributable to higher commission expense resulting from increases
in export sales of the Forged and Cast Rolls segment.
Income
from Operations.
Income from
operations for the nine months ended September 30, 2006 and 2005 approximated
$26,670,000 and $9,300,000, respectively, and $9,808,000 and $2,945,000 for
the
three months then ended. A discussion of operating results for the Corporation’s
two segments is included below. Additionally, pension income from the
Corporation’s U.S. defined benefit plan is approximately $1,030,000 and $300,000
higher for the nine and three months ended September 30, 2006, respectively,
against the comparable prior year periods. The increase is attributable
primarily to the higher expected return on plan assets. Income from operations
for the nine months ended September 30, 2005 also includes proceeds of
$2,320,000 from settlement of the Corporation’s 2004 flood-related business
interruption insurance claim.
Forged
and Cast Rolls.
Sales and
operating income for the nine and three months ended September 30, 2006
increased over the same periods of the prior year due primarily to greater
demand for both forged and cast rolls and improved margins. Backlog approximated
$498,234,000 and $256,152,000 as of September 30, 2006 and 2005, respectively,
and $275,597,000 as of December 31, 2005. The increase is reflective of global
demand for products of both the U.S. and U.K. operations with capacity for
certain types of rolls sold out through 2008. The September 30, 2006 backlog
includes approximately $444,000,000 of orders scheduled for shipment after
December 31, 2006 (with $227,000,000 of this amount scheduled for shipment
after
December 31, 2007).
Air
and
Liquid Processing.
Sales
and operating income for the nine and three months ended September 30, 2006
increased over the same periods of the prior year due principally to higher
volumes and elimination of operating losses at the air handling business.
Although margins remain depressed, operating results improved as a result of
higher volumes for this company. Earnings for the pumps and heat-exchange coil
businesses approximated those of the prior year. Backlog approximated
$43,372,000 and $33,094,000 as of September 30, 2006 and 2005, respectively,
and
$36,675,000 as of December 31, 2005. Approximately $18,000,000 of the September
30, 2006 backlog is scheduled for shipment after 2006.
Other
Income (Expense).
Other
income (expense) for the nine months ended September 30, 2006 and 2005
approximated $990,000 and $(114,000), respectively. The improvement is due
primarily to higher interest income and gains on foreign exchange transactions
in 2006 versus losses on foreign exchange transactions in 2005. The increase
is
offset by an additional provision of approximately $335,000 for environmental
costs estimated to be incurred relating to the remediation of real estate
previously owned by a discontinued operation. Other income (expense) for the
three months ended September 30, 2006 and 2005 approximated $(91,000) and
$140,000, respectively. While interest income improved over the comparable
prior
year period, the increase was offset by the additional environmental
provision.
Income
Taxes.
The
effective tax rate approximated 32.1% and 26.4% for the nine months ended
September 30, 2006 and 2005, respectively. The increase is primarily
attributable to provision for income taxes on profitability of the
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17
-
U.K.
operations. Although the U.K. operations were profitable in the prior year,
valuation allowances previously provided against the deferred income tax assets
attributable to net operating loss carryforwards were released as the year
progressed, when the profits were earned, thereby offsetting any resulting
income tax expense. Additionally, as a result of favorable earnings in 2005
and
the expectation of income in future years sufficient to utilize a portion of
the
loss carryforwards, valuation allowances previously provided against deferred
income tax assets attributable to net operating loss carryforwards of the U.K
operation were released in the fourth quarter of 2005.
Net
Income.
As a result
of the above, the Corporation’s net income for the nine months ended September
30, 2006 and 2005 equaled $18,773,000 and $6,759,000, respectively, and
$6,644,000 and $2,109,000, respectively, for the three months ended September
30, 2006 and 2005.
Liquidity
and Capital Resources
Net
cash
flows provided by operating activities approximated $15,249,000 and $2,004,000
for the nine months ended September 30, 2006 and 2005, respectively. The
improvement is attributable primarily to higher earnings. The increase in
accounts receivable, inventories and other current liabilities at September
30,
2006 in comparison to December 31, 2005 relates generally to the higher volumes
of business. Accounts receivable increased as a result of higher sales,
inventories increased due to the larger backlogs, and other current liabilities
increased because of additional customer-related liabilities including
warranties and deposits received on future orders.
Net
cash
flows used in investing activities were $(10,711,000) and $(7,342,000) for
the
nine months ended September 30, 2006 and 2005, respectively. The change is
attributable to higher capital expenditures and additional investments in
short-term marketable securities. As of September 30, 2006, future capital
expenditures totaling approximately $4,528,000 have been approved.
Net
cash
flows used in financing activities were $(2,136,000) and $(2,749,000) for the
nine months ended September 30, 2006 and 2005, respectively. Dividends were
paid
at a rate of $0.30 per share for each of the nine month periods and issuance
of
stock under the Corporation’s stock option plan provided cash of $807,000 and
$178,000 for the respective nine month periods.
The
change in
the value of local currencies against the dollar, principally the British pound,
impacted cash and cash equivalents by $245,000 and $203,000 for the nine months
ended September 30, 2006 and 2005, respectively.
As
a result
of the above, cash and cash equivalents increased $2,646,000 in 2006 and ended
the period at $10,560,000 in comparison to $7,914,000 at December 31, 2005.
Additionally, the Corporation has investments in short-term marketable
securities of approximately $37,417,000 at September 30, 2006 versus $31,550,000
at December 31, 2005. Funds on hand and funds generated from future operations
are expected to be sufficient to finance the operational and capital expenditure
requirements of the Corporation. The Corporation also maintains short-term
lines
of credit and an overdraft facility in excess of the cash needs of its
businesses. The total available at September 30, 2006 was approximately
$10,000,000 (including £3,000,000 in the U.K. and €400,000 in
Belgium).
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18
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Litigation
and Environmental Matters
See
Notes 10
and 11 to the condensed consolidated financial statements.
Critical
Accounting Pronouncements
The
Corporation’s critical accounting policies, as summarized in its Annual Report
on Form 10-K for the year ended December 31, 2005, remain
unchanged.
Recently
Issued Accounting Pronouncements
See
Note 13
to the condensed consolidated financial statements.
Forward-Looking
Statements
The
Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Corporation. Management’s
Discussion and Analysis of Financial Condition and Results of Operations 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. 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
There
were no
material changes in the Corporation’s exposure to market risk from December 31,
2005.
ITEM
4 -
CONTROLS AND PROCEDURES
(a)
Disclosure controls and procedures. An evaluation of the effectiveness of the
Corporation’s disclosure controls and procedures as of the end of the period
covered by this report was carried out under the supervision, and with the
participation, of the management, including the principal executive officer
and
principal financial officer. Disclosure controls and procedures are defined
under Securities and Exchange Commission (“SEC”) rules as controls and other
procedures that are designed to ensure that information required to be disclosed
by a company in reports that it files under the Exchange Act are recorded,
processed, summarized and reported within the required time periods.
Based
on that
evaluation, the Corporation’s management, including the principal executive
officer and principal financial officer, have concluded that the
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19
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Corporation’s
disclosure controls and procedures were effective as of September 30,
2006.
(c)
Changes
in internal control over financial reporting. During the quarter ended September
30, 2006, there have been no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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20
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PART
II - OTHER INFORMATION
AMPCO-PITTSBURGH
CORPORATION
Item
1 Legal
Proceedings
The
information contained in Note 10 to the condensed consolidated financial
statements (Litigation) is incorporated herein by reference.
Item
1A Risk
Factors
There
are no
material changes to the Risk Factors contained in Item 1A to Part I of our
Annual Report on Form 10-K for the year ended December 31, 2005 and Item 1A
to
Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2006.
Items
2-5 None
Item
6 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
September 30, 1994, March 31, 1996, June 30, 2001 and June 30,
2004.
(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.
(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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21
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SIGNATURES
Pursuant
to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly
caused this report to be signed on its behalf by the undersigned thereunto
duly
authorized.
|
|
|
AMPCO-PITTSBURGH
CORPORATION
|
|
|
|
|
|
|
|
|
DATE:
November
8, 2006
|
BY:
s/Robert
A. Paul________
|
|
Robert
A. Paul
|
|
Chairman
and
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
DATE:
November
8, 2006
|
BY:
s/Marliss
D. Johnson_____
|
|
Marliss
D. Johnson
|
|
Vice
President
|
|
Controller
and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
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22
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AMPCO-PITTSBURGH
CORPORATION
EXHIBIT
INDEX
Exhibit
|
(31.1)
|
Certification
of principal executive officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
(31.2)
|
Certification
of principal financial officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
Exhibit
|
(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
|
|
|
|