Allegheny Technologies Announces Fourth Quarter and Full Year 2012 Results
Allegheny Technologies Announces Fourth Quarter and Full Year 2012 Results
Fourth Quarter 2012 Results
* Sales were $1.10 billion
* Segment operating profit of $95.3 million, or 8.7% of sales
* Net income attributable to ATI before a special charge was $19.3 million,
or $0.18 per share
* Net income attributable to ATI was $10.5 million, or $0.10 per share,
including the special charge of $8.8 million, or $0.08 per share
* Gross cost reductions were $26.8 million
* Cash on hand increased $23.6 million during the quarter to $304.6 million
Full Year 2012 Results
* Sales were $5.03 billion
* Segment operating profit of $537.9 million, or 10.7% of sales
* Net income attributable to ATI before a special charge was $167.2 million,
or $1.51 per share
* Net income attributable to ATI including the special charge was $158.4
million, or $1.43 per share
* Gross cost reductions were $113.8 million
* Net debt to total capitalization was 32.2%
* Total debt to total capitalization decreased to 37.4%
Business Wire
PITTSBURGH -- January 23, 2013
Allegheny Technologies Incorporated (NYSE: ATI) reported fourth quarter 2012
sales of $1.10 billion and net income of $10.5 million, or $0.10 per share,
which includes a special charge of $8.8 million, or $0.08 per share. Fourth
quarter 2012 net income excluding the special charge was $19.3 million, or
$0.18 per share. The fourth quarter 2012 special charge reflects asset
write-downs in the Engineered Products segment associated with consolidating
casting facilities.
In the fourth quarter 2011, ATI reported net income of $31.7 million, or $0.29
per share, on sales of $1.25 billion. Fourth quarter 2011 results were
impacted by restructuring and Ladish acquisition expenses, which reduced
earnings by $2.8 million, or $0.02 per share.
For the full year 2012, net income was $158.4 million, or $1.43 per share, on
sales of $5.03 billion. Net income for the full year 2012 excluding the fourth
quarter special charge was $167.2 million, or $1.51 per share.
For the full year 2011, net income was $214.3 million, or $1.97 per share, on
sales of $5.18 billion. Results for 2011 included $29.6 million of charges,
net of tax, for Ladish acquisition expenses, accelerated recognition of equity
compensation due to executive retirements, and restructuring and start-up
expenses, which reduced earnings by $0.26 per share.
“The fourth quarter 2012 was negatively impacted by headwinds resulting from
uncertain global economic conditions,” said Rich Harshman, Chairman, President
and Chief Executive Officer. “We saw continued conservative inventory
management throughout the supply chains of most of our major end markets.
These actions appear to have been driven by near-term concerns about the U.S.
economy related to resolution of U.S. fiscal policy issues and challenging
economic conditions in Europe, Japan, and to a lesser extent China. While
these headwinds are creating challenging short-term conditions, we remain
optimistic about the long-term growth opportunities in many of our global
markets.”
* ATI’s sales to the key global markets of aerospace and defense, oil and
gas/chemical process industry, electrical energy, and medical represented
67% of ATI sales for 2012:
* Sales to the aerospace and defense markets were $1.62 billion and
represented 32% of ATI sales.
* Sales to the oil and gas/chemical process industry were $956 million
and represented 19% of ATI sales.
* Sales to the electrical energy market were $600 million and
represented 12% of ATI sales.
* Sales to the medical market were $224 million and represented 4% of
ATI sales.
* Direct international sales were $1.8 billion and represented 36% of ATI
2012 sales.
“Our fourth quarter 2012 results were impacted by continued low demand and
historically low base prices for our standard stainless products,” said Mr.
Harshman. “In addition, demand for some of our high-value products in both the
High Performance Metals and Flat-Rolled Products segments was impacted by
short-term actions by our customers to keep inventories lean and by delays in
projects.
“While 2012 presented challenging business conditions, we continued to enhance
our competitive position by improving our cost structure, enhancing our
manufacturing capabilities, and growing relationships with our customers.
These actions are aimed at improving our future performance and positioning
ATI to benefit from longer-term growth opportunities. Some examples of our
strategic actions include:
* Our continuing focus on reducing costs, which resulted in gross cost
reductions before the effects of inflation of nearly $114 million in 2012.
* In the first full year as part of ATI, the ATI Ladish high performance
forgings and castings business recorded its best revenue year ever.
Synergy opportunities continue to expand and are gaining momentum. We are
internally sourcing more titanium alloy and nickel-based superalloy mill
products and are achieving other cost reductions and technology
improvements. It is clear that ATI’s vertically integrated capabilities in
nickel, titanium, and specialty alloys provide opportunities for value
creation for our customers and shareholders.
* We further improved our position with both existing and new customers in
the key end markets of aerospace, oil and gas/chemical process industry,
electrical energy, and medical through strategic and long-term agreements
for new alloys and new products.
* Our Rowley titanium sponge facility completed the standard-grade
qualification (SQ) process during the first half of 2012. We continue to
improve the facility’s cost structure through process and productivity
improvements and technology initiatives, and we expect to begin the
premium-grade qualification (PQ) process in 2013.
* We continued to enhance our capabilities as the world’s leader in titanium
plasma arc melting (PAM) with the qualification during 2012 of our newest
PAM furnace. This is our fourth PAM furnace and ATI remains the world’s
leading PAM melter for the most critical and demanding jet engine
applications.
* Our Flat-Rolled Products segment Hot-Rolling and Processing Facility
(HRPF) project is on schedule and on budget. Construction is expected to
be completed by the end of 2013. While the HRPF is expected to be ready
for service by the end of this year, commissioning is scheduled to occur
during the first half of 2014. This game-changing investment is designed
to significantly enhance ATI’s flat-rolled products capabilities, reduce
manufacturing cycle times, and lower costs.
* We took steps to size our primary zirconium operations to improve its cost
structure in the post-Fukushima Daiichi nuclear electrical energy market.
* To further improve our operating efficiency, we consolidated operations in
our Engineered Products segment resulting in the closure of our iron
casting facility in Alpena, MI, which resulted in a $8.8 million,
after-tax, non-cash special charge in the fourth quarter 2012. In our
Flat-Rolled Products segment, we are consolidating service center
operations, which is on schedule to be completed by the end of the 2013
first quarter.
* Our financial position remains solid with cash on hand of $305 million at
the end of 2012. Cash provided by operations was $182 million in the
fourth quarter and $428 million for the full year 2012.”
Strategy and Outlook
“Although near-term global economic and U.S. fiscal policy uncertainties
remain, we are cautiously optimistic that business conditions will gradually
improve as we move through 2013,” Mr. Harshman continued. “We believe
conditions in the first quarter, and perhaps the first half, of 2013 are
likely to remain challenging.
“Looking beyond these near-term headwinds, we believe market conditions remain
favorable for strong secular growth over the next 3 to 5 years in many of our
key global markets. Aerospace build rates are expected to continue to increase
and OEM backlogs remain at record levels. Demand for ATI’s new products is
expected to grow substantially as new technology airframe and jet engine
deliveries increase. In addition, demand for jet engine spare parts is
projected to begin to modestly improve, compared to the second half of 2012,
as we move through 2013.
“Global oil and gas exploration and production forecasts project spending to
set a new record and upstream capital spending, especially in the U.S., is
expected to grow.
“We also expect continuing solid growth in demand for our high performance
specialty metals from the medical market.
“In the short-term, demand from the electrical energy market is expected to
remain flat for both power generation and power distribution because of tepid
GDP growth in advanced economies and improving, but still weak, new housing
construction in the U.S.
“In our High Performance Metals segment, we expect to benefit from growing
demand from most of our key global markets, increasing demand for our new
products, especially from the aerospace market, and lower costs at our
titanium sponge facility. These benefits are expected to more than offset
continued weakness in demand from the nuclear energy market, softer demand in
the first half of 2013 from industrial markets for forged parts, and reduced
demand from defense markets primarily due to reduced defense spending in the
U.S. and Europe.
“In our Flat-Rolled Products segment, we see improved demand in 2013, compared
to 2012, for our high-value products, particularly titanium, nickel-based
alloys and specialty alloys, and our Precision Rolled Strip® products. Our
backlog of project orders from the oil and gas/chemical process industry
market, including seawater desalination, is beginning to rebuild. We are
seeing modest signs of improvement in the first quarter for our standard
stainless products. However, we remain cautious in the near-term about
domestic GDP-sensitive markets as consumer and business confidence are both
extraordinarily low and the political tone in the U.S. has created headwinds
that are slowing sustainable domestic economic recovery.
“In our Engineered Products segment, we see continued solid demand for our
tungsten-based products. After very strong demand for our industrial forgings
in the first half of 2012, demand decreased in the second half due to slowing
global growth, which impacted the heavy equipment market. We expect these
conditions to continue in the first half of 2013, with improving demand in the
second half.
“We expect 2013 pre-tax retirement benefit expense to be about $130 million,
or approximately $8 million higher than 2012. Essentially all of the 2013
pension expense is expected to be non-cash.
“We currently expect 2013 capital expenditures to be approximately $550
million, which includes approximately $450 million relating to the HRPF
project. We expect 2013 to be our peak year for capital expenditures.
Depreciation expense in 2013 is forecasted to be approximately $195 million.
“In summary, we are very well-positioned to benefit from improving market
conditions throughout 2013 and beyond. We believe demand from the aerospace,
oil and gas, and medical global markets, and certain chemical processing
industry markets, will improve for our products as we move through 2013. We
expect most short-cycle GDP-sensitive markets will continue to be challenged
in the first quarter of 2013 and perhaps the first half of 2013. Overall,
these economic conditions should provide relatively stable raw material costs
in 2013, compared to current levels. We continue to focus on improving our
cost structure and financial performance and we have targeted a minimum of
$100 million in new gross cost reductions for 2013. Based on these views, we
expect moderate growth in revenue and improvement in segment operating profit
in 2013, compared to 2012, with the first half of 2013 providing greater
uncertainties.”
Three Months Ended Year Ended
December 31 December 31
In Millions
2012 2011 2012 2011
Sales $ 1,101.1 $ 1,251.4 $ 5,031.5 $ 5,183.0
Net income
attributable
to ATI before $ 19.3 $ 34.5 $ 167.2 $ 243.9
special
charges
Special $ (8.8 ) $ (2.8 ) $ (8.8 ) $ (29.6 )
charges*
Net income
attributable $ 10.5 $ 31.7 $ 158.4 $ 214.3
to ATI
Per Diluted Share
Net income
attributable
to ATI before $ 0.18 $ 0.31 $ 1.51 $ 2.23
special
charges
Special $ (0.08 ) $ (0.02 ) $ (0.08 ) $ (0.26 )
charges*
Net income
attributable $ 0.10 $ 0.29 $ 1.43 $ 1.97
to ATI
* For 2012 special charges are comprised of $8.8 million for asset write-downs
associated with a casting facility closure. For 2011, special charges include
non-recurring Ladish acquisition expenses, accelerated recognition of
equity-based compensation expense due to executive retirements, restructuring
costs, and a discrete tax charge.
Fourth Quarter and Full Year 2012 Financial Results
* Sales for the fourth quarter 2012 were $1.10 billion, compared to $1.25
billion in the fourth quarter 2011. Compared to the fourth quarter 2011,
sales decreased 4% in the High Performance Metals segment resulting from
lower shipments of specialty steel alloys and lower raw material
surcharges due to declines in nickel raw material and titanium scrap
costs. In the Flat-Rolled Products segment, sales declined 17% primarily
due to lower raw material surcharges, lower base prices for standard
stainless products, and reduced shipments of titanium products to the
industrial markets due to project delays. Sales decreased 21% in the
Engineered Products segment due to reduced demand for tungsten-based
products and from the electrical energy market.
* Sales for the full year 2012 were $5.03 billion compared to $5.18 billion
for 2011. Direct international sales were $1.80 billion and represented
36% of total sales, compared to 35% for 2011. Compared to the full year
2011, sales increased 12% in the High Performance Metals segment, but
decreased 14% in the Flat-Rolled Products segment and 2% in the Engineered
Products segment.
* Fourth quarter 2012 segment operating profit was $95.3 million, or 8.7% of
sales, compared to $114.4 million, or 9.1% of sales, for the comparable
2011 period. Results include a LIFO inventory valuation reserve benefit of
$47.6 million and $5.9 million for the fourth quarter of 2012 and 2011,
respectively.
* Full year 2012 segment operating profit was $537.9 million, or 10.7% of
sales, compared to $612.0 million, or 11.8% of sales, for 2011. Results
included a LIFO inventory valuation reserve benefit of $76.8 million for
2012 and $9.3 million for the 2011 period.
* Net income attributable to ATI for the fourth quarter 2012 was $10.5
million, or $0.10 per diluted share, compared to $31.7 million, or $0.29
per diluted share, in the fourth quarter 2011. Fourth quarter 2012 net
income was impacted by a special charge for asset write-downs associated
with consolidating operations in the Engineered Products segment, which
reduced earnings by $8.8 million, or $0.08 per share. Net income for the
fourth quarter 2011 was negatively affected by restructuring and Ladish
acquisition expenses, which reduced earnings by $2.8 million, or $0.02 per
share.
* Full year 2012 net income attributable to ATI was $158.4 million, or $1.43
per diluted share, compared to $214.3 million, or $1.97 per diluted share,
for 2011. Full year 2012 results included the $8.8 million, or $0.08 per
share, special charge. Full year 2011 net income included $29.6 million,
or $0.26 per share, of Ladish acquisition expenses and other charges,
including Ladish acquisition-related expenses, accelerated recognition of
equity-based compensation expense due to executive retirements, and
restructuring charges for facility closure costs.
* Cash flow provided by operations for 2012 was $427.5 million, including
$181.7 million in the fourth quarter 2012.
* Cash on hand at the end of 2012 was $304.6 million, an increase of $23.6
million from September 30, 2012 but a decrease of $76.0 million from
year-end 2011.
* Gross cost reductions, before the effects of inflation, totaled $26.8
million company-wide in the fourth quarter 2012. Gross cost reductions for
the full year 2012 totaled $113.8 million.
High Performance Metals Segment
Market Conditions
* Mill product shipments of our nickel-based and specialty alloys declined
23% and shipments of our titanium and titanium alloys declined 13%, both
compared to the third quarter 2012. Zirconium and related alloys shipments
increased 35% compared to the third quarter 2012 primarily due to improved
demand for our niobium-titanium alloy products from the medical market.
Compared to the third quarter 2012, average selling prices were flat for
nickel-based alloys and superalloys, and increased 14% for specialty
alloys as a better shipment mix offset lower raw material surcharges.
Average selling prices for titanium alloys increased 3% primarily due to
product mix. Average selling prices for zirconium and related alloys
decreased 12% due to product mix.
* Sales of high performance forgings and castings were flat with the third
quarter 2012 as improved demand from jet engine and airframe customers
offset lower demand for construction and mining components.
Fourth quarter 2012 compared to fourth quarter 2011
* Sales decreased by 4% to $503.8 million.
* Mill product shipments of nickel-based alloys and specialty alloys
decreased 6% primarily due to demand from the electrical energy market.
Shipments of titanium and titanium alloy mill products were 1% higher
primarily due to increased shipments to airframe customers which offset
reduced demand from the jet engine aftermarket. Zirconium and related
alloys shipments increased 9% primarily due to improved demand for our
niobium-titanium alloy products from the medical equipment market. Average
selling prices increased 1% for nickel-based and specialty alloys
primarily due to a higher value-add product mix, partially offset by lower
raw material surcharges. Average selling prices decreased 5% for titanium
and titanium alloys due to raw material surcharges. Average selling prices
decreased 1% for zirconium and related alloys primarily due to product
mix.
* Sales for high performance forgings and castings increased 3% due to
better demand for airframe components, which was offset by lower demand
from the jet engine aftermarket and for construction and mining equipment,
and by lower material surcharges.
* Segment operating profit decreased to $80.8 million, or 16.0% of total
sales compared to $90.3 million, or 17.2% of total sales, for the fourth
quarter 2011 primarily as a result of lower shipments. Fourth quarter 2012
segment operating profit included a LIFO inventory valuation reserve
benefit of $27.5 million which was partially offset by higher costs for
raw materials, primarily nickel, resulting from the misalignment of the
raw material surcharge with raw material costs due to the long
manufacturing cycle of certain products. The fourth quarter 2011 segment
operating profit included a LIFO inventory valuation reserve benefit of
$6.0 million.
* Results benefited from $15.3 million of gross cost reductions in the
fourth quarter 2012, bringing the full year 2012 gross cost reductions in
this segment to $62.4 million.
Flat-Rolled Products Segment
Market Conditions
* Demand was soft from nearly all markets and base selling prices for most
standard stainless products were at historically low levels. Compared to
the third quarter 2012, shipments decreased 10% for high-value products,
which includes titanium, nickel-based alloys, Precision Rolled Strip®
products, and grain-oriented electrical steel. Shipments for standard
stainless products (sheet and plate) decreased 3%. Direct international
sales for the fourth quarter 2012 represented 30% of total segment sales.
Fourth quarter 2012 Flat-Rolled Products segment titanium shipments,
including Uniti joint venture conversion, were 3.2 million pounds, a 22%
increase compared to the third quarter 2012 as shipments for
previously-delayed projects began. Compared to the third quarter 2012,
average selling prices for standard stainless products decreased 3%, and
decreased 6% for high-value products, both primarily due to lower raw
material surcharges and lower base prices.
Fourth quarter 2012 compared to fourth quarter 2011
* Sales were $495.6 million, 17.2% lower than the prior year period,
primarily due to lower raw material surcharges and reduced base prices for
most products. Shipments of high-value products declined 12% compared to
the fourth quarter 2011 as higher shipments of our Precision Rolled Strip®
products were offset by reduced shipments of our other high-value
products. Shipments of standard stainless products increased 28%. Average
selling prices for standard stainless products declined 14% due to lower
base prices and lower raw material surcharges. Average selling prices for
high-value products decreased 20% primarily due to product mix and lower
raw material surcharges.
* Segment operating profit declined to $9.4 million, or 1.9% of total sales,
including surcharges, compared to $17.5 million, or 2.9% of total sales,
in the fourth quarter 2011 primarily due to lower base prices for standard
stainless and grain-oriented electrical steel products and reduced
shipments of certain high-value products due to delays of major project
business. The fourth quarter 2012 included a LIFO inventory valuation
reserve benefit of $20.0 million which was partially offset by higher
costs for raw material, primarily nickel, which did not align with raw
material surcharges. In the fourth quarter 2011, a LIFO inventory
valuation reserve benefit of $5.0 million was recognized.
* Results benefited from $9.1 million in gross cost reductions in the fourth
quarter 2012, bringing the full year 2012 gross cost reductions in this
segment to $42.9 million.
Engineered Products Segment
Market Conditions
* Demand was lower from the construction and mining, transportation, and oil
and gas markets.
Fourth quarter 2012 compared to fourth quarter 2011
* Sales were $101.7 million, a decrease of 20.7%, primarily as a result of
weaker demand for tungsten-based products and industrial forgings.
* Segment operating profit declined to $5.1 million from $6.6 million in the
fourth quarter 2011 due to weaker demand. Results for the fourth quarter
2012 included a LIFO inventory valuation reserve benefit of $0.1 million
compared to a $5.1 million LIFO inventory valuation reserve charge for the
comparable 2011 period.
* Results benefited from $2.4 million in gross cost reductions in the fourth
quarter 2012, bringing the full year 2012 gross cost reductions in this
segment to $8.5 million.
Other Expenses
* Corporate expenses for the fourth quarter 2012 were $16.0 million,
compared to $20.0 million in the year-ago period. The decrease in
corporate expenses was primarily related to lower incentive compensation
expenses associated with long-term performance plans.
* Interest expense, net of interest income, for the fourth quarter 2012 was
$15.9 million, compared to $22.2 million in the fourth quarter 2011. The
decrease in interest expense was primarily due to lower debt levels and
increased capitalized interest on major strategic capital projects.
* Capitalized interest on major strategic capital projects reduced interest
expense by $7.8 million and $3.7 million for the 2012 and 2011 fourth
quarters, respectively. Full year 2012 and 2011 capitalized interest was
$24.5 million and $12.1 million, respectively.
* Other expenses for the fourth quarter 2012 totaled $16.7 million, which
include a pre-tax non-cash special charge of $13.0 million related to
asset valuation charges associated with consolidating operations in our
Engineered Products segment and $3.7 million related to closed operations,
compared to $2.3 million in the year-ago period for closed operations.
Retirement Benefit Expense
* Retirement benefit expense, which includes pension expense and other
postretirement expense, increased to $30.6 million in the fourth quarter
2012, compared to $20.0 million in the fourth quarter 2011. This increase
was primarily due to utilization of a lower discount rate to value
retirement benefit obligations and lower than expected returns on plan
assets.
* For the fourth quarter 2012, retirement benefit expense of $22.6 million
was included in cost of sales and $8.0 million was included in selling and
administrative expenses. For the fourth quarter 2011, retirement benefit
expense of $14.3 million was included in cost of sales and $5.7 million
was included in selling and administrative expenses.
* For the full year 2012, retirement benefit expense of $89.3 million was
included in cost of sales, and $33.1 million was included in selling and
administrative expenses, compared to full year 2011 retirement benefit
expense of $55.1 million in cost of sales and $22.8 million in selling and
administrative expenses.
* We currently expect pre-tax retirement benefit expense to be approximately
$8 million higher in 2013 than in 2012 due to the negative effects of
having to utilize a lower discount rate to value retirement benefit
obligations and lower expected returns on plan assets. Pension expense is
expected to be approximately $106 million in 2013 compared to pension
expense of $97.6 million in 2012. As a result, we expect 2013 pre-tax
retirement benefit expense, which includes pension expense and other
postretirement benefits expense, of approximately $130 million compared to
$122.4 million in 2012. We expect nearly all of the 2013 pension expense
to be non-cash. At December 31, 2012, our U.S. qualified defined benefit
plan was approximately 77% funded, as measured for financial reporting
purposes. We are not required to make any contribution to this plan for
2013.
Income Taxes
* The fourth quarter 2012 provision for income taxes was $2.6 million, or
16.1% of income before tax, which included adjustments associated with
prior years’ and foreign taxes, compared to the fourth quarter 2011
provision for income taxes of $15.7 million, or 31.5% of income before
tax.
Cash Flow, Working Capital and Debt
* Cash on hand was $304.6 million at year-end 2012, an increase of $23.6
million from September 30, 2012 but a decrease of $76.0 million from
year-end 2011.
* Cash flow provided by operations in the fourth quarter 2012 was $181.7
million. Cash flow provided by operations for 2012 was $427.5 million and
included a reduction of $22.4 million in managed working capital. The
$22.4 million reduction in managed working capital during 2012 resulted
from a $97.3 million decrease in accounts receivable and a $7.7 million
increase in accounts payable, partially offset by an $82.6 million
increase in inventory as we staged inventory to meet 2013 demand. At
December 31, 2012, managed working capital was 41.1% of annualized sales,
compared to 37.8% of annualized fourth quarter sales at year-end 2011. We
define managed working capital as accounts receivable plus gross
inventories less accounts payable.
* Cash used in investing activities was $378.7 million in 2012, including
$382.0 million of capital expenditures, the majority of which was related
to the construction of the new Flat-Rolled Products segment Hot-Rolling
and Processing Facility (HRPF).
* Cash used in financing activities was $124.8 million in 2012 and included
dividend payments of $76.5 million, $27.1 million of net debt retirements,
and $21.2 million of tax payments on share-based compensation associated
with performance-based plans.
* Total debt to total capital decreased to 37.4% at December 31, 2012,
compared to 37.9% at the end of 2011. Net debt as a percentage of total
capitalization was 32.2% at the end of 2012, compared to 31.3% at the end
of 2011.
* There were no borrowings outstanding under ATI’s $400 million unsecured
domestic borrowing facility, although a portion of the letters of credit
capacity was utilized.
Allegheny Technologies will conduct a conference call with investors and
analysts on Wednesday, January 23, 2013, at 1:00 p.m. ET to discuss the
financial results. The conference call will be broadcast live on
www.ATImetals.com. To access the broadcast, click on “Conference Call”. Replay
of the conference call will be available on the Allegheny Technologies
website.
This news release contains “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain statements in
this news release relate to future events and expectations and, as such,
constitute forward-looking statements. Forward-looking statements include
those containing such words as “anticipates,” “believes,” “estimates,”
“expects,” “would,” “should,” “will,” “will likely result,” “forecast,”
“outlook,” “projects,” and similar expressions. Forward-looking statements are
based on management’s current expectations and include known and unknown
risks, uncertainties and other factors, many of which we are unable to predict
or control, that may cause our actual results, performance or achievements to
differ materially from those expressed or implied in the forward-looking
statements. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include: (a) material
adverse changes in economic or industry conditions generally, including global
supply and demand conditions and prices for our specialty metals; (b) material
adverse changes in the markets we serve, including the aerospace and defense,
electrical energy, oil and gas/chemical process industry, medical, automotive,
construction and mining, and other markets; (c) our inability to achieve the
level of cost savings, productivity improvements, synergies, growth or other
benefits anticipated by management from strategic investments and the
integration of acquired businesses, whether due to significant increases in
energy, raw materials or employee benefits costs, project cost overruns or
unanticipated costs and expenses, or other factors; (d) volatility of prices
and availability of supply of the raw materials that are critical to the
manufacture of our products; (e) declines in the value of our defined benefit
pension plan assets or unfavorable changes in laws or regulations that govern
pension plan funding; (f) significant legal proceedings or investigations
adverse to us; and (g) other risk factors summarized in our Annual Report on
Form 10-K for the year ended December 31, 2011, and in other reports filed
with the Securities and Exchange Commission. We assume no duty to update our
forward-looking statements.
Building the World’s Best Specialty Metals Company®
Allegheny Technologies Incorporated is one of the largest and most diversified
specialty metals producers in the world with revenues of approximately $5.0
billion in 2012. ATI has approximately 11,200 full-time employees world-wide
who use innovative technologies to offer global markets a wide range of
specialty metals solutions. Our major markets are aerospace and defense, oil
and gas/chemical process industry, electrical energy, medical, automotive,
food equipment and appliance, machine and cutting tools, and construction and
mining. Our products include titanium and titanium alloys, nickel-based alloys
and superalloys, grain-oriented electrical steel, stainless and specialty
steels, zirconium, hafnium, and niobium, tungsten materials, forgings,
castings and fabrication and machining capabilities. The ATI website is
www.ATImetals.com.
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Three Months Ended Twelve Months Ended
December 31 December 31
2012 2011 2012 2011
Sales $ 1,101.1 $ 1,251.4 $ 5,031.5 $ 5,183.0
Costs and
expenses:
Cost of sales 976.6 1,082.4 4,338.3 4,369.8
Selling and
administrative 92.0 97.4 377.8 382.1
expenses
Income before
interest, other
income
and income 32.5 71.6 315.4 431.1
taxes
Interest expense, (15.9 ) (22.2 ) (71.6 ) (92.3 )
net
Other income (0.5 ) 0.5 0.2 0.6
(expense), net
Income before
income tax 16.1 49.9 244.0 339.4
provision
Income tax 2.6 15.7 76.2 116.3
provision
Net income 13.5 34.2 167.8 223.1
Less: Net income
attributable to
noncontrolling 3.0 2.5 9.4 8.8
interests
Net income
attributable to $ 10.5 $ 31.7 $ 158.4 $ 214.3
ATI
Basic net income
attributable to
ATI per common $ 0.10 $ 0.30 $ 1.49 $ 2.09
share
Diluted net income
attributable to
ATI per common $ 0.10 $ 0.29 $ 1.43 $ 1.97
share
Weighted average
common shares
outstanding --
basic 106.3 105.1 106.1 102.5
(millions)
Weighted average
common shares
outstanding --
diluted 107.2 116.6 116.6 113.9
(millions)
Actual common
shares
outstanding--
end of period 107.4 106.4 107.4 106.4
(millions)
Allegheny Technologies Incorporated and Subsidiaries
Sales and Operating Profit by Business Segment
(Dollars in millions)
Three Months Ended Twelve Months Ended
December 31 December 31
2012 2011 2012 2011
Sales:
High
Performance $ 503.8 $ 524.6 $ 2,190.6 $ 1,955.9
Metals
Flat-Rolled 495.6 598.5 2,349.2 2,726.0
Products
Engineered 101.7 128.3 491.7 501.1
Products
Total External $ 1,101.1 $ 1,251.4 $ 5,031.5 $ 5,183.0
Sales
Operating
Profit:
High
Performance $ 80.8 $ 90.3 $ 371.6 $ 364.5
Metals
% of Sales 16.0 % 17.2 % 17.0 % 18.6 %
Flat-Rolled 9.4 17.5 126.9 213.4
Products
% of Sales 1.9 % 2.9 % 5.4 % 7.8 %
Engineered 5.1 6.6 39.4 34.1
Products
% of Sales 5.0 % 5.1 % 8.0 % 6.8 %
Operating 95.3 114.4 537.9 612.0
Profit
% of Sales 8.7 % 9.1 % 10.7 % 11.8 %
Corporate (16.0 ) (20.0 ) (68.4 ) (92.5 )
expenses
Interest (15.9 ) (22.2 ) (71.6 ) (92.3 )
expense, net
Closed company
and
other expenses (16.7 ) (2.3 ) (31.5 ) (9.9 )
Retirement (30.6 ) (20.0 ) (122.4 ) (77.9 )
benefit expense
Income before
income taxes $ 16.1 $ 49.9 $ 244.0 $ 339.4
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
December 31, December 31,
2012 2011
ASSETS
Current Assets:
Cash and cash equivalents $ 304.6 $ 380.6
Accounts receivable, net of allowances
for
doubtful accounts of $5.5 and $5.9 at
December 31, 2012 and 2011, respectively 613.3 709.1
Inventories, net 1,536.6 1,384.3
Prepaid expenses and
other current assets 56.1 95.5
Total Current Assets 2,510.6 2,569.5
Property, plant and equipment, net 2,559.9 2,368.8
Cost in excess of net assets acquired 740.1 737.7
Deferred income taxes 71.5 -
Other assets 365.7 370.9
Total Assets $ 6,247.8 $ 6,046.9
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 499.9 $ 490.7
Accrued liabilities 330.5 320.3
Deferred income taxes 24.0 23.5
Short term debt and current
portion of long-term debt 17.1 27.3
Total Current Liabilities 871.5 861.8
Long-term debt 1,463.0 1,482.0
Accrued postretirement benefits 495.2 488.1
Pension liabilities 721.1 508.9
Deferred income taxes - 9.8
Other long-term liabilities 109.9 124.7
Total Liabilities 3,660.7 3,475.3
Total ATI stockholders' equity 2,479.6 2,475.3
Noncontrolling interests 107.5 96.3
Total Equity 2,587.1 2,571.6
Total Liabilities and Equity $ 6,247.8 $ 6,046.9
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Twelve Months Ended
December 31
2012 2011
Operating Activities:
Net income $ 167.8 $ 223.1
Depreciation and amortization 194.0 174.4
Deferred taxes (19.4 ) 52.7
Change in managed working capital 22.4 (273.3 )
Change in retirement benefits 58.9 19.6
Accrued liabilities and other 3.8 100.3
Cash provided by operating activities 427.5 296.8
Investing Activities:
Purchases of property, plant and (382.0 ) (278.2 )
equipment
Acquisition of business - (349.2 )
Asset disposals and other 3.3 2.7
Cash used in investing activities (378.7 ) (624.7 )
Financing Activities:
Borrowings on long-term debt - 500.0
Payments on long-term debt and capital (16.7 ) (143.8 )
leases
Net repayments under credit facilities (10.4 ) (3.1 )
Debt issuance costs - (5.0 )
Dividends paid to shareholders (76.5 ) (74.7 )
Dividends paid to noncontrolling - (7.2 )
interests
Exercises of stock options 2.2 1.6
Taxes on share-based compensation and (23.4 ) 8.4
other
Cash provided by (used in) financing (124.8 ) 276.2
activities
Decrease in cash and cash equivalents (76.0 ) (51.7 )
Cash and cash equivalents at beginning of 380.6 432.3
period
Cash and cash equivalents at end of period $ 304.6 $ 380.6
Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data - Mill Products
(Unaudited)
Three Months Ended Twelve Months Ended
December 31 December 31
Mill Products 2012 2011 2012 2011
Volume:
High Performance
Metals (000's
lbs.)
Titanium mill 5,748 5,688 25,943 26,518
products
Nickel-based and 11,118 11,852 54,329 47,913
specialty alloys
Zirconium and 1,142 1,048 3,901 4,094
related alloys
Flat-Rolled
Products (000's
lbs.)
High value 107,604 122,763 475,808 497,079
Standard 155,600 121,693 656,285 587,648
Flat-Rolled 263,204 244,456 1,132,093 1,084,727
Products total
Mill Products
Average Prices:
High Performance
Metals (per lb.)
Titanium mill $ 22.65 $ 23.90 $ 22.56 $ 22.01
products
Nickel-based and $ 15.59 $ 15.41 $ 15.13 $ 15.58
specialty alloys
Zirconium and $ 66.68 $ 67.05 $ 70.54 $ 66.31
related alloys
Flat-Rolled
Products (per lb.)
High value $ 2.61 $ 3.27 $ 2.89 $ 3.32
Standard $ 1.35 $ 1.57 $ 1.46 $ 1.80
Flat-Rolled
Products combined $ 1.87 $ 2.42 $ 2.06 $ 2.49
average
Mill Products volume and average price information includes shipments to ATI
Ladish for all periods presented. High Performance Metals mill product forms
include ingot, billet, bar, shapes and rectangles, rod, wire, and seamless
tubes.
Allegheny Technologies Incorporated and Subsidiaries
Computation of Basic and Diluted Earnings Per Share
(Unaudited, in millions, except per share amounts)
Three Months Ended Twelve Months Ended
December 31 December 31
2012 2011 2012 2011
Numerator for Basic net
income per common share -
Net income attributable $ 10.5 $ 31.7 $ 158.4 $ 214.3
to ATI
Effect of dilutive
securities:
4.25% Convertible Notes - 2.4 8.5 9.9
due 2014
Numerator for Dilutive net
income per common share -
Net income attributable
to ATI after assumed $ 10.5 $ 34.1 $ 166.9 $ 224.2
conversions
Denominator for Basic net
income per common share -
Weighted average shares 106.3 105.1 106.1 102.5
outstanding
Effect of dilutive
securities:
Share-based 0.9 1.9 0.9 1.8
compensation
4.25% Convertible Notes - 9.6 9.6 9.6
due 2014
Denominator for Diluted net
income per common share -
Adjusted weighted
average assuming 107.2 116.6 116.6 113.9
conversions
Basic net income
attributable to ATI per $ 0.10 $ 0.30 $ 1.49 $ 2.09
common share
Diluted net income
attributable to ATI per $ 0.10 $ 0.29 $ 1.43 $ 1.97
common share
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Managed Working Capital
(Dollars in millions)
December 31, December 31,
2012 2011
Accounts receivable $ 613.3 $ 709.1
Inventory 1,536.6 1,384.3
Accounts payable (499.9 ) (490.7 )
Subtotal 1,650.0 1,602.7
Allowance for doubtful accounts 5.5 5.9
LIFO reserve 76.9 153.7
Corporate and other 68.4 60.9
Managed working capital $ 1,800.8 $ 1,823.2
Annualized prior 2 months
sales $ 4,379.6 $ 4,820.6
Managed working capital as a
% of annualized sales 41.1 % 37.8 %
December 31, 2012 change in managed
working capital $ (22.4 )
As part of managing the liquidity in our business, we focus on controlling
managed working capital, which is defined as gross accounts receivable and
gross inventories, less accounts payable. In measuring performance in
controlling this managed working capital, we exclude the effects of LIFO
inventory valuation reserves, excess and obsolete inventory reserves, and
reserves for uncollectible accounts receivable which, due to their nature, are
managed separately.
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Debt to Capital
(Dollars in millions)
December 31, December 31,
2012 2011
Total debt $ 1,480.1 $ 1,509.3
Less: Cash (304.6 ) (380.6 )
Net debt $ 1,175.5 $ 1,128.7
Net debt $ 1,175.5 $ 1,128.7
Total ATI stockholders' equity 2,479.6 2,475.3
Net ATI capital $ 3,655.1 $ 3,604.0
Net debt to ATI capital 32.2 % 31.3 %
Total debt $ 1,480.1 $ 1,509.3
Total ATI stockholders' equity 2,479.6 2,475.3
Total ATI capital $ 3,959.7 $ 3,984.6
Total debt to total ATI capital 37.4 % 37.9 %
In managing the overall capital structure of the Company, some of the measures
that we focus on are net debt to net capitalization, which is the percentage
of debt, net of cash that may be available to reduce borrowings, to the total
invested and borrowed capital of ATI (excluding noncontrolling interest), and
total debt to total ATI capitalization, which excludes cash balances.
Contact:
Allegheny Technologies Incorporated
Dan L. Greenfield, 412-394-3004
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