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AP > SEC Filings for AP > Form 10-Q on 9-Nov-2012All Recent SEC Filings

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Form 10-Q for AMPCO PITTSBURGH CORP


9-Nov-2012

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

The Corporation operates in two business segments - Forged and Cast Rolls and Air and Liquid Processing. The Forged and Cast Rolls segment produces and sells forged-hardened steel rolls and cast iron and steel rolls to manufacturers of steel and aluminum throughout the world. For the Forged and Cast Rolls segment, although business activity in North America has remained stronger than in other parts of the world, overall sales volumes are expected to be lower in the current year versus 2011. Demand remains weak in Europe and throughout the Pacific Rim, particularly in China where roll inventories are at high levels and several new mill projects have been deferred. Additionally, lack of demand continues to put pressure on pricing and erode margins. Management expects a continuation of losses by its Chinese forged roll joint venture company (for which it has a 49% interest and accounts for on the equity method of accounting). While losses to date are largely the result of non-cash expense, if conditions deteriorate or other impairment indicators arise, future earnings of the Corporation may be adversely affected by an impairment charge. For the Air and Liquid Processing segment, increased activity in the fossil-fueled utility market has been encouraging while new construction spending by the institutional markets has yet to exhibit any significant signs of improvement.

Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2012 and 2011

Net Sales. Net sales for the three months ended September 30, 2012 and 2011 were $72,190,000 and $74,263,000, respectively, and $215,751,000 and $258,303,000, respectively, for the nine months then ended. Backlog approximated $216,940,000 at September 30, 2012 versus $260,001,000 as of December 31, 2011 and $298,812,000 as of September 30, 2011. A discussion of sales and backlog for the Corporation's two segments is included below.

Costs of Products Sold. Costs of products sold, excluding depreciation, as a percentage of net sales for the three months ended September 30, 2012 and 2011 were comparable at approximately 77.7% and 78.2%, respectively. The increase in costs of products sold, excluding depreciation, as a percentage of net sales for the nine months ended September 30, 2012 of 77.2% versus 73.2% for the nine months ended September 30, 2011 is attributable to the lower volume of shipments, changes in product mix and reduced margins principally for the Forged and Cast Rolls segment as elaborated in the segment discussion.

Selling and Administrative. The decrease in selling and administrative expenses for the three and nine months ended September 30, 2012 against the comparable prior year periods is primarily due to lower commissions and freight costs associated with the lower volume of sales.

Income from Operations. Income from operations for the three months ended September 30, 2012 and 2011 approximated $3,748,000 and $3,835,000, respectively, and $10,793,000 and $29,479,000, respectively, for the nine months then ended. A discussion of operating results for the Corporation's two segments is included below.

Forged and Cast Rolls. While sales for the three months ended September 30, 2012 were less than the three months ended September 30, 2011, operating income benefited from net proceeds of approximately $500,000 for the modification of a 2006 technology sale agreement. The decrease in sales and operating income for the nine months ended September 30, 2012 from the comparable prior year period is attributable to a lower volume of shipments and reduced selling prices which adversely impacted results by approximately $10,300,000 and $9,300,000, respectively. Backlog approximated $170,195,000 at September 30, 2012 against $214,449,000 as of December 31, 2011 and $255,364,000 as of September 30, 2011. The decline from a year ago is due to shipments outpacing new orders and declining profitability in backlog. Approximately $104,594,000 of the current backlog is expected to ship after 2012.

Air and Liquid Processing. Although sales for the three and nine months ended September 30, 2012 exceeded the comparable prior year periods, operating income for each of the periods declined principally due to changes in product mix. For Buffalo Pumps, sales for the quarter benefited from a higher level of shipments of commercial pumps and on a year-to-date basis from increased volume with the fossil-fueled utility market. For Aerofin, sales for the quarter and year to date included improved activity with the fossil-fueled utility market. For Buffalo Air Handling, sales for the quarter decreased from the comparable prior year period due to lower construction spending; however, sales are comparable on a year-to-date basis. Backlog approximated $46,745,000 at September 30, 2012 against $45,552,000 as of December 31, 2011 and $43,448,000 as of September 30, 2011, the increase attributable to additional orders for the fossil-fueled utility market. Approximately $21,245,000 of the current backlog is expected to ship after 2012.

Income Taxes. The increase in the effective income tax rate for the current year-to-date period is primarily attributable to a lower proportion of net income before income taxes anticipated to be generated by the U.K operation which is taxed at a lower statutory rate combined with the prior year benefiting from reversal of unrecognized tax benefits. The tax provision for an interim period is computed as the difference between the estimated tax provision for the year and the amounts reported for previous interim periods. Accordingly, the effective tax rate from quarter-to-quarter or between a quarter and the comparable prior year quarter includes the adjustment necessary to record the year-to-date tax provision at the estimated annual effective tax rate for that year.


Table of Contents

Net Income and Earnings per Common Share. As a result of the above, the Corporation's net income for the three months ended September 30, 2012 and 2011 equaled $1,528,000 or $0.15 per common share and $2,756,000 or $0.27 per common share, respectively, and $5,037,000 or $0.49 per common share and $19,555,000 or $1.90 per common share, respectively, for the nine months ended September 30, 2012 and 2011.

Liquidity and Capital Resources

Net cash flows provided by operating activities for the nine months ended September 30, 2012 were lower when compared to the same period of the prior year resulting from weaker earnings in the current year. The benefit resulting from the reduction in accounts receivable due to lower sales was offset by higher inventory levels.

Net cash flows used in investing activities for the nine months ended September 30, 2012 were less than the nine months ended September 30, 2011 principally attributable to lower capital expenditures by the Forged and Cast Rolls segment. As of September 30, 2012, future capital expenditures approximating $7,740,000, to be spent over the next 12-18 months, have been approved.

Net cash flows used in financing activities were comparable for each of the periods and represented primarily payment of dividends offset by proceeds from the issuance of common stock.

As a result of the above, cash and cash equivalents increased $1,954,023 in 2012 and ended the period at $71,841,862 (of which approximately $8,200,000 is held by foreign operations) in comparison to $69,887,839 at December 31, 2011. Repatriation of foreign funds may result in the Corporation accruing and paying additional income tax; however, the majority of such amounts is currently deemed to be permanently reinvested and no additional provision for income tax has been made.

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, 2012 was approximately $9,400,000 (including 3,000,000 in the U.K. and 400,000 in Belgium).

Litigation and Environmental Matters

See Notes 11 and 12 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, 2011 remain unchanged.

Recently Issued Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements.

Forward-Looking Statements

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 "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 predict accurately or control which may cause actual results to differ materially from expectations expressed or implied by forward-looking statements. Except as required by applicable law, the Corporation undertakes no obligation to update any forward-looking statement whether as a result of new information, events or otherwise.

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