AMPCO-PITTSBURGH CORP: 10-Q Summary (Period Ended June 30, 2007)
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for AMPCO-PITTSBURGH CORPORATION for the period ended June 30, 2007. The company operates in two primary segments: Forged and Cast Rolls and Air and Liquid Processing. As of August 1, 2007, there were 10,177,497 common shares outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 |
|---|---|---|
| Net Sales | $176,480,443 | $144,344,227 |
| Net Income | $19,642,286 | $12,128,796 |
| Diluted EPS | $1.96 | $1.22 |
| Operating Cash Flow | $14,155,404 | $11,193,819 |
| Cash & Equivalents (End of Period) | $18,168,104 | $9,322,923 |
| Short-Term Marketable Securities | $51,462,400 | $0 |
| Total Debt (Current IRB) | $13,311,000 | $13,311,000 |
| Asbestos Liability (Total) | $139,873,356 | $140,014,944 |
Margins: Cost of products sold (excluding depreciation) was 70.2% of net sales for the six months ended June 30, 2007, compared to 73.7% in the prior year period.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 22.3% year-over-year, driven by the Forged and Cast Rolls segment due to global steel/aluminum production increases and unprecedented demand.
- Profitability: Net income increased 62% year-over-year. Operating income rose from $16.9 million to $29.3 million.
- Backlog: Total backlog increased significantly to approximately $696.1 million (from $454.2 million in 2006), with the Forged and Cast Rolls segment backlog at $652.4 million.
- Foreign Exchange: Other income decreased due to foreign exchange losses in 2007 compared to gains in 2006.
- Dividends: The quarterly dividend rate was increased to $0.15 per share from $0.10 per share.
Guidance, Outlook, and Risks
Outlook: Management expects sales and income from operations to remain strong for the duration of 2007. The Forged and Cast Rolls segment has virtually sold out capacity for 2008 and a substantial portion for 2009 and 2010. The Air and Liquid Processing segment is expected to see modest increases above 2006 levels.
Joint Venture: In May 2007, a subsidiary entered a joint venture with Maanshan Iron & Steel Company Limited to manufacture forged backup rolling-mill rolls. Production is anticipated to begin in 2009. The company will contribute $14.7 million for a 49% interest.
Risks and Contingencies:
- Asbestos Litigation: The company maintains a reserve of approximately $140 million for asbestos liability claims through 2013, with a corresponding insurance receivable of $114.5 million. There is uncertainty regarding future claims beyond 2013 and potential insurer insolvencies.
- Environmental Matters: Potential liability for environmental proceedings is estimated at approximately $2.1 million.
- Market Risk: The company uses forward foreign exchange contracts and futures contracts to hedge currency and commodity (copper) price risks.
Investor Verification Checklist
- Verify the sustainability of the $696 million backlog and the timing of shipments scheduled beyond 2008.
- Review the assumptions used for the $140 million asbestos liability reserve and the creditworthiness of the insurers covering the $114.5 million receivable.
- Monitor the execution and capital contribution schedule for the new joint venture with Maanshan Iron & Steel.
- Assess the impact of foreign exchange fluctuations on future earnings, given the recent shift from gains to losses.
- Confirm the company's ability to maintain the increased dividend rate of $0.15 per share given the significant cash outflow for short-term marketable securities ($50.5 million purchase in H1 2007).