Ampco-Pittsburgh Corporation — Form 10-Q Summary
Reporting period: Three months ended March 31, 2014. Financial statements are unaudited. The company operates through Forged and Cast Rolls and Air and Liquid Processing.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net sales | $62.9 million | $69.6 million | Down 9.6% |
| Income from operations | $0.8 million | $1.7 million | Down 54.6% |
| Operating margin | 1.2% | 2.5% | Down 1.3 percentage points |
| Net income | $0.1 million | $0.1 million | Down $0.05 million |
| Diluted EPS | $0.01 | $0.01 | Comparable |
| Operating cash flow | $(0.7) million | $10.1 million | Down $10.8 million |
| Capital expenditures | $2.8 million | $4.6 million | Down $1.7 million |
- Costs of products sold were 79.6% of sales versus 79.1% in the prior-year quarter. Selling and administrative expenses were $9.0 million, or 14.3% of sales, versus $9.9 million, or 14.2%.
- Cash and cash equivalents were $92.6 million at March 31, 2014, down from $97.9 million at December 31, 2013. Approximately $6.3 million was held by foreign operations.
- Total assets were $495.4 million and total liabilities were $260.7 million. Shareholders’ equity was $234.7 million.
- Industrial Revenue Bond debt was $13.3 million and is classified as current. No other material borrowings are identified in the filing.
- Available short-term lines of credit and an overdraft facility totaled approximately $9.5 million at quarter-end.
- The company paid $1.9 million of dividends, or $0.18 per share. Approved capital expenditures of approximately $6.6 million are expected over the next 12 to 18 months.
Material changes versus the prior comparable period
- Forged and Cast Rolls sales declined to $39.6 million from $45.1 million. Lower selling prices and shipment volume reduced earnings by approximately $1.2 million and $2.1 million, respectively; lower freight and commission costs and improved quality offset approximately $1.7 million.
- Air and Liquid Processing sales were $23.3 million versus $24.5 million, while segment operating performance was described as comparable. Buffalo Pumps benefited from higher U.S. Navy-related shipments, offset by weaker results at Buffalo Air Handling and Aerofin.
- Backlog declined to $180.5 million from $197.5 million at December 31, 2013 and $194.4 million at March 31, 2013. Forged and Cast Rolls backlog was $141.0 million, and Air and Liquid Processing backlog was $39.5 million.
- Operating cash flow shifted from $10.1 million provided to $0.7 million used, primarily because of increased inventories and lower asbestos-related insurance recoveries.
- Comprehensive income was $1.3 million versus a comprehensive loss of $1.3 million, reflecting a $1.2 million favorable change in other comprehensive income, including foreign-currency translation.
Outlook, risks and unusual items
- No formal quantitative earnings or revenue guidance is provided. Management expects traditional roll-product demand to remain weak, with depressed margins, excess industry capacity and pricing pressure from Chinese and Korean suppliers.
- Non-roll products and services are expected to increase, while losses from the Chinese forged-roll joint venture are expected to continue. Management will monitor the joint venture investment for possible future impairment.
- Air and Liquid Processing faces slow institutional construction spending, although fossil-fuel power-generation activity remains encouraging. Management is focused on new product development and strengthening distribution.
- Asbestos liability was $151.7 million at March 31, 2014, offset in part by $105.5 million of asbestos insurance receivables. Approximately 8,601 asbestos claims were pending at quarter-end, and gross settlement and defense costs were $6.6 million during the quarter.
- Asbestos estimates depend on claim volumes, settlement costs, defense costs, insurance coverage, insurer solvency and litigation outcomes. The company states that future adjustments could materially affect earnings, liquidity and financial position, and that costs beyond 2022 have not been reserved.
- Standby and commercial letters of credit totaled approximately $17.9 million, mostly securing the Industrial Revenue Bond debt. A government grant received by UES-UK may be repayable if employment conditions are not maintained; management currently expects compliance.
- Foreign-currency, copper and aluminum exposures are hedged. Approximately 57% of anticipated copper purchases and 38% of anticipated aluminum purchases were hedged at quarter-end. Natural-gas purchase commitments covered 50% of anticipated usage through 2015.
- Management states that funds on hand, expected operating cash flow and available credit facilities should be sufficient for operating and capital requirements. Results for the quarter are not necessarily indicative of full-year results.
Investor verification priorities
- Verify the sustainability of the $92.6 million cash balance relative to current liabilities, capital spending, dividends and asbestos obligations.
- Monitor Forged and Cast Rolls pricing, volume, backlog conversion and margins amid excess capacity and international competition.
- Review the assumptions supporting the $151.7 million asbestos reserve and $105.5 million insurance receivable, including coverage litigation and insurer solvency.
- Track the Chinese joint venture’s losses and any future impairment charges.
- Assess whether operating cash flow improves as inventory levels normalize and asbestos insurance recoveries fluctuate.
- Confirm the timing and funding of the approved $6.6 million capital program and the continued availability of approximately $9.5 million in short-term facilities.