Hello and welcome to the Ampco-Pittsburgh Corporation Fourth Quarter 2016 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note today's event is being recorded. I would like to now turn the conference call over to Melanie Sprowson, Director of Investor Relations and Corporate Communications. Ma'am, please go ahead.

Thank you, Jaime, and good morning to everyone joining us on today’s fourth quarter conference call. I’m joined by John Stanik, our Chief Executive Officer; Rose Hoover, President and Chief Administrative Officer and Mike McAuley, Vice President and Chief Financial Officer and Treasurer. Before we begin, I would like to remind everyone that participants on this call may make statements or comments that are forward-looking and may include financial projections or other statements of the Corporation’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties, many of which are outside of the Corporation’s control. The Corporation’s actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors, including those discussed in the Corporation’s most recently filed Form 10-K and subsequent filings with the Securities and Exchange Commission. We do not undertake any obligation to update or otherwise release publicly any revision to our forward-looking statements. A replay of this call will be posted on our website later today and remain available for two weeks following the conclusion of the call. To access the earnings release or the webcast replay, please consult the Investors section of our website at ampcopgh.com. Now let me turn this call over to Mike, who will provide an overview of the Company’s financial performance for the fourth quarter.

Thank you, Melanie, and good morning, everyone. Before I begin my review of our fourth quarter and financial results, let me remind our listeners today that the results for the fourth quarter and full year 2016 in comparison to prior year in our press release or significantly affected by acquisitions made this year of Åkers AB and certain of its affiliated companies, completed in March 2016, and ASW Steel acquired in early November of 2016. In addition, we've recorded two significant charges on the quarter, which I will highlight in detail as shortly. While our press release this morning provides commentary on both the quarter and year-to-date, I will focus my remarks today primarily on our Q4 2016 results. Sales for the Corporation for the fourth quarter of 2016 were $92.1 million. This compares to sales for the fourth quarter of 2015 of $55.3 million. Sales in the Forged and Cast Engineered Products segment doubled compared to prior year, driven primarily by the inclusion of the acquired Åkers and ASW businesses. Sales for the Air and Liquid Processing segment for the fourth quarter of 2016 increased nearly 5% versus prior year. I'll comment more on the business segment results in a moment. Selling and administrative expenses were $14.4 million for the fourth quarter of 2016 in comparison to $11.9 million for the fourth quarter of 2015. The increase is primarily related to the addition of selling and administrative costs for the acquired businesses, including a reserve of 1.5 million for accounts receivable from a customer who filed for Chapter 11 bankruptcy protection in the fourth quarter of 2016, but offset in part by acquisition related costs in Q4 2015 of $3 million which were higher than those incurred in Q4 of 2016. Depreciation and amortization expense of $5.5 million for…

Thank you, Mike. Good morning. Although, Mike has provided at thorough explanation of our financial results, I want to add some of my comments and perspectives. When evaluating the Company's performance, I look at GAAP and non-GAAP results very closely. GAAP results of course are the reported numbers, but non-GAAP results remove all adjustments, write offs et cetera. What's left is very important because what I'm looking for is, has the Company moved forward and is it improving. The most significant impact for the corporation for the last five years has been the roll market decline. That how long demand has been in this decline and our products price compressed five years and there was further deterioration in 2016. Cast roll demand particularly in Europe diminished significantly. This has had a big negative impact on newly acquired Åkers performance and was a large part of the story which necessitated the goodwill write-off. When studying the underlying results, we also see volume decrease in 2016 for our legacy forged roll business. There was lower than expected volume some of which was due to lost business from price increase attempts. Air and liquid systems had their challenges also; however, they were able to overcome these challenges for the most part and continue their consistent profitable performance. So, what underlying positive exists and what improvements did we make in 2016? Well, I've to begin with the acquisitions. I'm convinced and remain convinced that both Åkers and ASW provide a strong growth platform that should provide increasing profits beginning in the near future. I see further cost reduction accomplished, significant manufacturing efficiency improvements achieved, and for the last six months a growing order intake with increasing roll prices and I see ASW and Union Electric Steel already working closely together to optimize short-term financial…

Sure, John. Let me add little more color on the impairment charge we've recorded this quarter. First, like the asbestos charge in the quarter, this is also a non-cash charge. It represents primarily the write-off of goodwill and the Forged and Cast Engineered Products reporting and it resulting from the Åkers acquisition. In connection with our strategic planning process, the goodwill impairment test completed in the fourth quarter of 2016, we determined that the goodwill in the Forged and Cast Engineered Products reporting unit was fully impaired primarily as a result of further depressed market conditions. Despite no fundamental changes in the steel industry production generally, no fundamental change in the regulatory environment, no loss of major customers and having seen actually favorable changes in tariff regimes aiding western steel mÅkers, the decline in the cast roll market since the acquisition as well as lower margins than we expected in the acquired Åkers businesses and slower demand in other forged engineered products were key factors in our assessment that the fair value of the Forged and Cast Engineered Products reporting unit was less than the carrying value and an episode that the goodwill was fully impaired. Back to you, John.

Thank you, Mike. As Mike mentioned briefly in his presentation, there was also in increase in our asbestos balance sheet liability posted in the fourth quarter and that may cause some of you pause. There's actually embedded some good news in that situation, so I'm going to ask Rose Hoover, Amco-Pittsburgh's President and CAO who is also a resident expert on this topic to provide some clarity and further explanation on what this means, and she'll also be here to take questions about this topic at the end of the call. Rose?

Thank you, John. Beginning in 2006 in an effort to provide total transparency for our investors, we hired experts and began to include valuations in our financial statements of our projected asbestos liability and insurance recovery for that liability. Those valuations are performed every year, but every other year we've updated them to run for a new 10-year period. In 2016, those valuations were updated for the 10 year period 2016 to 2026. This means that two years were added to that valuation from the previous one done in 2014 to 2024. In addition in fourth quarter of 2016 we entered into a settlement agreement with one of our excess insurers for an amount in excess of the estimated insurance receivable for that carrier and it resulted in a gain. The net of the two impacts, the valuation of the liability and the update of the insurance receivable was a $4.6 million charge during the quarter. Actual settlement and defense cost paid for the past five years show a 23% decline in those costs over that five year period. The corporation paid an average of $4 million a year over that same five year period for costs not covered by insurance. We retain experts who use accepted market studies and are able to estimate our share of the market for the continued filing of these claims. Based on that analysis we're told to expect a continuation of a downward trend in a number of malignancies filed through the 10 year period.

Thank you, Rose. So, just to reiterate what Rose just said, we're seeing a decline in the costs and if you look at those five years, you would see that continuous consistent decline. I'd like to now move over to a discussion about ASW's acquisition. A very positive and strategic move for us in November was our acquisition of a specialty steel producer located in Welland, Ontario, named ASW Steel. ASW was acquired for a total of approximately $13 million including debt assumed. With annual revenue of approximately CAD65 million, ASW is a relatively small company having approximately 130 employees. It's located just across the Canadian border due north of Buffalo. The Company provides us with the broad cross section of metals chemistries that we need to expand our penetration into the open-die market. This is a bolt-on acquisition meaning that we don’t expect any significant cost reduction synergies; however, and much more importantly, this capability positions Union Electric Steel to forge different materials and attack new different verticals in the open-die industry. An example regards to the recent strong resurgence in fracking block orders in the first quarter of 2017 that specifies stainless steel material. ASW makes various grades of stainless. Along with our new heat treat capital project that was completed in October, ASW is the last missing resource that we needed for our diversification plan. We have been looking at ASW for almost year and a half and liked their metals capability, so we initiated serious discussions a few months prior and close the deal in November and the timing couldn’t have been better already Union Electric Steel and ASW are working on our growth strategy. In the few months since the acquisition, ASW has generated positive operating income for the Company with the exception of December…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Albert Sebastian from Prospect Advisors. Please go ahead with your question.

First question is just I'm trying to understand the pricing, it seems as though you've initiated price increases and they have not been followed by your competitors. So, I'm trying to understand the industry dynamics here why your competitors seemed to be able to under price you. Is the roll business is it strictly commodity business or is there something that exists in the nature of the business that would allow one to charge a premium price due to the quality of the product or services or something else?

Well, I think that to address the second half of the question first, I think that the market conditions for our customers allow them because of their reduced utilization of their manufacturing facilities to pursue commodity or low performance -- low performing roll purchases because they simply didn't need to run continuously at a high level of utilization. So, a company such as ours who can provide and has historically provided high performing rolls is at a somewhat disadvantaged position from getting price increases, so that's the first point. However, there're still customers who of course do prefer higher performing rolls for less maintenance costs and longer performance. What happened last year was we felt being such as large producer specially in the western part of the world that it was appropriate for us to take the lead when we announce the price increased early in the second quarter last year. We felt that it was very important to serve notice that we were not in a position because of the performance as a company to continue to offer price decreases. If you remember some of the things, I said during the call when we announce that last year we knew that were risks and when you consider how depressed the market was in 2016 and how the cast roll business in particular took another step change downward and decline, our competitors were all struggling for volume. And I suppose early in that period of time, they use that opportunity to get more fixed cost absorption and to take that business. But it began to change in the third quarter and I think it began to change for a couple of reason. I think that the most important reason was that this few companies in the third quarter began to raise prices the tariffs were, put in place and prices began to increase everywhere especially in North America less so in Europe, but and this is important also in Europe including China and that trend by the way has continued. So, once our customers began to show profits and report profits and I think that began in the third quarter of some of them. I think our competition began to understand that they two could improve the situation for themselves and increase price. At that time, we were already beginning to see as I said in the presentation spotty price increases. In the fourth quarter that began to change and the price increase began to get more steady in fact price decreases in the fourth quarter were no longer requested which was the first in five years. So, I think it's a complicated story that took a period of time but I think that now we're in a different situation that we work three quarters of the year-ago and we can expect perhaps even more price increases as time goes on.

Okay, let me just ask one of the quick question on the ASW acquisition. What's the historical EBITDA or operating profit associated with that company?

Yes, Albert. This is Mike. We're not going to really want to disclose much below the segment level, but just to give you a feel the Company ASW when we made the acquisition they were profitable at the EBITDA level. I think we said that on the original disclosure, and we're seeing that as well currently a couple of months in here with the exception of that receivable reserve that we took on an underlying basis the Company has still profitable about the adjusted level. Yes, but let me disclose a little bit more about that Albert. ASW was in a very difficult financial position when we acquired them. They were owned by a couple of investors and there business was suffering from the same market, depressed conditions that the roll industry was suffering from. And because of that sustained period of time, they were beginning to get into a debt position that was limiting them in getting working capital to grow and improve the business. That's why we were able to purchase them basically for $3.5 million plus assume their debt and provide them with working capital that has allowed them to grow. Since that time since we've made the acquisition, we're seeing ASW surpassed the business plan that we put together for them already, and we expect that to get even better probably mostly due to the stainless steel fracking block business that they're providing for us. They've a very attractive cost structure in terms of competition and we expect them to begin to grow now that they have some working capital backing for that position.

Our next question comes from Michael Gaugler from Janney Montgomery Scott. Please go ahead with your question.

John, you had mentioned some positive comments on open-die forged market as it pertains to fracking, and I'm just wondering when you look at where your shipments are headed in that market. Are they primarily to oil and gas basins or are they primarily to gas such as Marcellus? And the reason I'm asking is, the outlook for gas pricing looks relatively good and the rig counts have been improving across the Board for those oil and gas, but the oil markets looking a little weak at the moment. So, I'm wondering what your mix if you can share that as alike?

I don't -- honestly, Mike I don't know and can't give you a really good definitive answer on that. I am -- I can tell you that our orders are from a broad number of customers. I know that many of those if not all of those customers are selling to the drillers in shale deposits. So, I'll have an answer for you on the next call, but I can tell you that the speed with which this has happened and the fact that fracking has been going on over the past couple of years at a much reduced level, but it's still been going on. And there hasn't been a significant amount of block inventory replacement provided to these drillers. So, we're a little bit concerned that there may be a bubble here too where people are replenishing their inventory so that in the event that oil would continue to drop as it did last week that we expect that some of these ongoing and future shipments and orders would still occur. I think it's just too eaerly Mike.

Understood. I'm very…

But I'll give you an answer for you.

Okay. I'm not very concerned about a tail-off in all because as you know, John in your back market there is a lot of pipeline capacity coming online in Marcellus many, many bcfs of gas with all those pipes and they have been moving forward on those projects, so that should be a net benefit even if oil weakens a bit as long as you are selling into that Marcellus market. And then one other one, you also mentioned you are expecting gross margins improvements in the back half of the year, and I'm wondering if there is a way you can quantify that without giving formal guidance and when I look at your historical cost to sales that maybe somewhere around the 80% level and I'm just wondering are they did they come down into the 75 or 70 level or what kind of a maybe on a basis points perspective what you are thinking the improvements could be in the back half of the year versus the first half?

No it's a good question I think that the fourth quarter except for all the noise that have to occur in December with the miscellaneous adjustments and write-offs that occurred that we were seeing an improvement over 2015 of about little more than 200 basis points. So, our cost reduction programs from 2015 and the early ones in 2016 were starting to take hold, but that was all costs. If you consider the 6 million that I talked about that were of further cost reductions in the two segments and the potential for 8 million from the 2016 synergies that's another 14 million, spread across the sales amount that's another 14 divided by pick a number 350 or 400 just to be round numbers that's another 3 percentage points. And then we're looking for price increase, and I really don’t think I should talk about that, but it would be additional. So, if you add all those things together over the course of let's say 18 months beginning at the early 2015, we should be talking about something that's considerably north of 500 basis points by the second half of the year from 2015.

Our next question comes from the line of John Walthausen from Walthausen & Company. Please go ahead with your question.

My question is about ASW acquisition, you've articulated well how it's working well with Union Electric. I guess there are two questions I have are how big a customer of ASWs is Union and I think if that that was relationship that predated the acquisition. But you've talked about significance cost savings at Union post the acquisition. Can you explain a little bit how that works?

Yes, I think understand that question, we were previously a customer of ASW and we would get certain heats done by them for us primarily for the alloys that we were supplying into the fracking industry in 2015 and some of the products that we were trying through Alloys Unlimited, our small business that we've in Ohio. So, there's been a fairly long standing relationship, but the volumes that we were buying at those periods of time were relatively small. Once, we turn the corner for fracking this year and once the materials of construction for those blocks change from an alloy steel to a stainless steel, we begin to require a consistent weekly production of heats from ASW. ASW is also providing some of that same material for other people in the industry. In fact, they're a very solid, very good stainless steel provider in North America in general. So, I would say that from 2016 prior to the acquisition to where we're now there's almost no comparison, we're probably -- I can't give you a number of tons, but we're a significant purchaser of material but where we expect to go in the future and for the near future as we penetrate other verticals in the open die industry hoping to be somewhat successfully. We'll still be a very small player in that business, but what we lacked was a competitive supply of metal. In other words for anything that we were going to try to accomplish in the open-die business, we were going to have to buy that metal and pay a profit to somebody else who was manufacturing it. When you liked ASW because we like their cost structure and their competitive nature and as you pointed out, we had a fairly long standing relationship and knew the people well. We looked at a bunch of metals providers both in North America and internationally and ASW is the one we chose. We think we got it for an incredible bargain price, and we expect to continue increasing the purchases that we at Union Electric Steel make from them. I hope that answered your question John?

It quite of does, I guess the other part of the question from your filings just a snapshot of how they looked when you acquired them which is kind of discouraging, but if I'm understanding it correctly and in spite of the fact that most small steel mills struggle and ASW seems to have had kind of an on-and-off type of history. You think technically their ability to produce the greatest steel that you and other people want is at a good cost is very good so that well the availability of the steel do helps Union, if we just looked at it as a separate segment and it would also be earning it's cost of capital plus?

Yes, I think there was a to run a mini mill to make and steel like ASW does, there is a quite a bit of capital that's required. There is a fairly significant amount of maintenance the price of scrap even though it's lower house and recent history been quite low. There is still a lot of it required. So there is a substantial amount of working capital, if necessary. The owners of the Company since it restarted and it restarted in approximately 2009 have been suffering through this long period of a weak market situation. So, I'm sure that there was a fatigue issue and these investors no longer wanted to provide more capital, and as a result of that ASW was constantly near their debt limit. They had a credit arrangement, but they were bumping against it and they weren’t producing the financial results that would encourage the banks to increase their limit. So, it was a catch-22 for them. And I think their business model was solid I think we're going to prove that instantly or immediately and with the little bit of help from metals, the metals industry in general and North America, I think that they have a real opportunity to grow and provide very positive results in and of themselves without the help of Union Electric Steels frack log orders. So, if the fracking industry suddenly begins to deteriorate, it would have a negative a sizeable negative impact of course on ASW, but I do not think that it would necessarily mean that they would produce losses.

Okay, that's helpful. And then I guess to the last question if I may was you mentioned in the roll business I believe three new product lines that you are introducing over the next couple of quarters. Can you give us a little bit more of an understanding of whether this is just sort of new products and the normal rate that you see Union et cetera has been introducing them or whether this is something it can meaningfully improve your competitive position?

Well, I think the latter part of the question is remains to be seen. I'll characterize these new products as being products that have longer longevity than anything that is out in the market. So, based on the test results that we've been seeing, the Company Ampco-Pittsburgh and Åkers have not released new products that have had much of an impact in at least two years actually for Ampco-Pittsburgh not in line entire term of two and fourth years we haven’t really released anything new. The importance of the new products of course is that they have sufficient performance improvement that we can charge a premium and that's always been the criteria of success that offset for Union Electric Steel one and its R&D organization and now that we have doubled the size of that organization and we have doubled the amount of money that we allow them to spend since the acquisition these guys have been putting out some good work these test rolls have been in place for I believe more than six months. So, this is an area where we expect positive benefits.

[Operator Instructions] Our next question comes from Justin Bergner from Gabelli & Company. Please go ahead with your question.

Most of my questions have been asked just one last question, I mean you talked about increasing price, but clearly as a consumer of steel your costs are going up as well, are these price increases that are going through merely the reflection of increasing steel costs on the input side or they more than that?

Well, let me think about that for a second. For input, things like scrap, transportation if oil prices go up et cetera. There's a standard practice in our industry which involves automatic surcharges. So, I think that and those surcharges while they may lag reality by three to six months and these surcharges are becoming real. I guess at this point in time for alloys and for metals or for scrap and not yet for transportation, but I think the answer to your question is the real, the surcharges will cover the things you're talking about, and we should net the increases that we're getting.

And now you also seen price increases in Europe or is mainly in North America that price increases are sticking?

We're seeing price increases everywhere including Asia, and Europe.

And ladies and gentlemen at this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Yes, thank you. I do have a closing comment. It's been a long two years for you the shareholder as well as for us. I've stressed the people here at Ampco-Pittsburgh to complete all the challenges that were set before them, strategic plans, multiple due diligences for real acquisitions and potential acquisitions, credit agreements, countless action plans to attack costs and efficiencies, and new training. With much regret, I've to say there was a need for some loyal employees to lead the Company during the restructuring when one tries to accomplish a turnaround that usually occurs in the down period, that's when turnarounds are needed. However, in my 13 years as a CEO, I've never seen a down market situation that seemingly introduced a new decline every year that had to be overcome. But I believe that we're very-very close to our goal of turning around the Company. If we can enjoy just some sustained period of the current market activity, I've high hopes for the financial performance of today's Ampco-Pittsburgh Corporation. Thank you very much for your patience and for listening today.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.