AP

AMPCO-PITTSBURGH CORP: 10-Q Summary (Period Ended Sep 30, 2007)

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for AMPCO-PITTSBURGH CORPORATION for the period ended September 30, 2007. The company operates in two primary segments: Forged and Cast Rolls and Air and Liquid Processing. As of November 7, 2007, there were 10,177,497 common shares outstanding.

Key Financial Metrics

Margins: Operating margin for the nine months ended Sep 30, 2007, was approximately 16.5% ($43.5M / $263.6M). Cost of products sold (excluding depreciation) was 70.3% of net sales for the nine months ended Sep 30, 2007, down from 73.8% in the prior year.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 18.0% year-over-year for the nine-month period, driven by higher volumes and better pricing in the Forged and Cast Rolls segment.
• Profitability: Net income increased 54.7% year-over-year. Operating income rose 63.0% due to improved product mix and volume.
• Backlog: Total backlog increased significantly to approximately $730.8 million as of September 30, 2007, compared to $541.6 million in the prior year. The Forged and Cast Rolls segment backlog was $686.6 million.
• Investments: The company shifted investment strategy, resulting in a net increase in short-term marketable securities of approximately $55.5 million, compared to zero in the prior year. This contributed to a decrease in cash and cash equivalents from $56.1 million to $24.2 million.
• Dividends: The quarterly dividend was increased to $0.15 per share from $0.10 per share in the prior year.

Guidance, Outlook, and Risks

• Outlook: Management expects strong sales and income for the remainder of 2007 and into 2008. The Forged and Cast Rolls segment has virtually sold out capacity for 2008 and a substantial portion for 2009 and 2010.
• Joint Venture: A new joint venture with Maanshan Iron & Steel Company Limited was formed in May 2007 to manufacture forged backup rolling-mill rolls. Production is anticipated to begin at the end of 2009. The company will contribute $14.7 million for a 49% interest.
• Capital Expenditures: Future capital expenditures of approximately $50.0 million have been approved, including $38.8 million for a new forge press and ancillary equipment over the next three years.
• Asbestos Litigation: The company maintains a reserve of $140 million for asbestos liability claims projected through 2013, with a corresponding receivable of $114.5 million for insurance recoveries. There is uncertainty regarding future claims beyond 2013 and potential insolvency of insurance carriers.
• Environmental Matters: Potential liability for environmental proceedings is estimated at approximately $2.1 million, which management considers adequate.
• Market Risk: The company uses forward foreign exchange contracts and futures contracts to hedge against currency and commodity (copper) price risks. No material changes in market risk exposure were reported since December 31, 2006.

Key Facts for Investor Verification

• Verify the sustainability of the 18% revenue growth and 55% net income increase, specifically the reliance on the Forged and Cast Rolls segment backlog.
• Confirm the status and solvency of insurance carriers covering the $140 million asbestos liability reserve.
• Monitor the execution of the $50 million capital expenditure plan, particularly the $38.8 million forge press project.
• Track the progress and financial impact of the new joint venture with Maanshan Iron & Steel Company Limited.
• Assess the impact of foreign exchange losses ($752,000 for the nine months) on future earnings given the company's international operations.