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Allegheny Technologies Announces Third Quarter 2012 Results

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 $5.2 billion for the last twelve months. ATI has approximately 11,300 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
(Unaudited, dollars in millions, except per share amounts)
         
 
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
 
Sales $ 1,220.5 $ 1,352.6 $ 3,930.4 $ 3,931.6
Costs and expenses:
Cost of sales 1,057.7 1,136.8 3,361.7 3,287.4
Selling and administrative expenses   91.7     96.7     285.8     284.7  

Income before interest, other income and income taxes
71.1 119.1 282.9 359.5
Interest expense, net (17.2 ) (23.4 ) (55.7 ) (70.1 )
Other income (expense), net   0.2     (0.3 )   0.7     0.1  
Income before income tax provision 54.1 95.4 227.9 289.5
Income tax provision   16.8     31.2     73.6     100.6  
 
Net income 37.3 64.2 154.3 188.9
 

Less: Net income attributable to noncontrolling interests
  2.0     1.9     6.4     6.3  
 
Net income attributable to ATI $ 35.3   $ 62.3   $ 147.9   $ 182.6  
 

Basic net income attributable to ATI per common share
$ 0.33   $ 0.59   $ 1.39   $ 1.80  
 

Diluted net income attributable to ATI per common share

$

0.32
  $ 0.56   $ 1.32   $ 1.68  
 

Weighted average common shares outstanding -- basic (millions)
106.2 105.1 106.1 101.6
 

Weighted average common shares outstanding -- diluted (millions)
116.7 116.4 116.6 112.9
 

Actual common shares outstanding -- end of period (millions)
107.2 106.4 107.2 106.4
 

Allegheny Technologies Incorporated and Subsidiaries
Sales and Operating Profit by Business Segment
(Unaudited - Dollars in millions)
       
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Sales:
High Performance Metals $ 539.3 $ 534.7 $ 1,686.8 $ 1,431.3
Flat-Rolled Products 560.2 689.6 1,853.6 2,127.5
Engineered Products   121.0     128.3     390.0     372.8  
 
Total External Sales $ 1,220.5   $ 1,352.6   $ 3,930.4   $ 3,931.6  
 

Operating Profit:
 
High Performance Metals $ 84.5 $ 95.7 $ 290.8 $ 274.2
% of Sales 15.7 % 17.9 % 17.2 % 19.2 %
 
Flat-Rolled Products 26.2 58.8 117.5 195.9
% of Sales 4.7 % 8.5 % 6.3 % 9.2 %
 
Engineered Products 8.8 7.3 34.3 27.5
% of Sales   7.3 %   5.7 %   8.8 %   7.4 %
 
Operating Profit 119.5 161.8 442.6 497.6
% of Sales 9.8 % 12.0 % 11.3 % 12.7 %
 
Corporate expenses (14.9 ) (20.9 ) (52.4 ) (72.5 )
 
Interest expense, net (17.2 ) (23.4 ) (55.7 ) (70.1 )
 

Closed company and other expenses
(2.7 ) (2.9 ) (14.8 ) (7.6 )
 
Retirement benefit expense   (30.6 )   (19.2 )   (91.8 )   (57.9 )
 

Income before income taxes
$ 54.1   $ 95.4   $ 227.9   $ 289.5  
 

Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(Current period unaudited--Dollars in millions)
     
September 30, December 31,
2012 2011
ASSETS
 
Current Assets:
Cash and cash equivalents $ 281.0 $ 380.6

Accounts receivable, net of allowances for doubtful accounts of $5.6 and $5.9 atSeptember 30, 2012 and December 31, 2011, respectively
685.7 709.1
Inventories, net 1,460.2 1,384.3

Prepaid expenses and other current assets
  57.9   95.5
Total Current Assets 2,484.8 2,569.5
 
Property, plant and equipment, net 2,482.3 2,368.8
Cost in excess of net assets acquired 740.3 737.7
Other assets   371.4   370.9
 
Total Assets $ 6,078.8 $ 6,046.9
 
LIABILITIES AND EQUITY
 
Current Liabilities:
Accounts payable $ 409.3 $ 490.7
Accrued liabilities 336.7 320.3
Deferred income taxes 12.9 23.5

Short term debt and current portion of long-term debt
  16.8   27.3
Total Current Liabilities 775.7 861.8
 
Long-term debt 1,462.5 1,482.0
Accrued postretirement benefits 469.6 488.1
Pension liabilities 488.0 508.9
Deferred income taxes 21.8 9.8
Other long-term liabilities   116.3   124.7
Total Liabilities   3,333.9   3,475.3
 
Total ATI stockholders' equity 2,642.3 2,475.3
Noncontrolling interests   102.6   96.3
Total Equity   2,744.9   2,571.6
 
Total Liabilities and Equity $ 6,078.8 $ 6,046.9
 

Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited - Dollars in millions)
      Nine Months Ended
September 30
2012   2011
 
Operating Activities:
 
Net income $ 154.3 $ 188.9
 
Depreciation and amortization 145.1 127.2
Deferred taxes (32.9 ) 30.1
Change in managed working capital (112.4 ) (390.3 )
Change in retirement benefits 40.3 12.6
Accrued liabilities and other   51.4     139.0  
Cash provided by operating activities   245.8     107.5  
Investing Activities:
Purchases of property, plant and equipment (245.6 ) (168.8 )
Acquisition of business - (349.2 )
Asset disposals and other   1.5     3.0  
Cash used in investing activities   (244.1 )   (515.0 )
Financing Activities:
Borrowings on long-term debt - 500.0
Payments on long-term debt and capital leases (16.7 ) (26.9 )
Net repayments under credit facilities (10.3 ) (2.0 )
Debt issuance costs - (5.0 )
Dividends paid to shareholders (57.3 ) (55.7 )
Dividends paid to noncontrolling interests - (7.2 )
Exercises of stock options 1.2 1.4
Taxes on share-based compensation and other   (18.2 )   2.1  
Cash provided by (used in) financing activities   (101.3 )   406.7  
Decrease in cash and cash equivalents (99.6 ) (0.8 )
Cash and cash equivalents at beginning of period   380.6     432.3  
Cash and cash equivalents at end of period $ 281.0   $ 431.5  
 

Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data - Mill Products
(Unaudited)
       
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Mill Products Volume:
High Performance Metals (000's lbs.)
Titanium 6,614 6,773 20,195 20,830
Nickel-based and specialty alloys 14,434 11,448 43,211 36,061
Zirconium and related alloys 843 976 2,759 3,046
 
Flat-Rolled Products (000's lbs.)
High value 118,907 122,504 368,204 374,316
Standard   159,810   145,901   500,685   465,955
Flat-Rolled Products total 278,717 268,405 868,889 840,271
 
 
 
Mill Products Average Prices:
High Performance Metals (per lb.)
Titanium $ 21.95 $ 22.13 $ 22.54 $ 21.49
Nickel-based and specialty alloys $ 14.68 $ 16.40 $ 15.01 $ 15.64
Zirconium and related alloys $ 75.86 $ 70.77 $ 72.13 $ 66.06
 
Flat-Rolled Products (per lb.)
High value $ 2.79 $ 3.45 $ 2.97 $ 3.33
Standard $ 1.40 $ 1.78 $ 1.50 $ 1.86
Flat-Rolled Products combined average $ 1.99 $ 2.54 $ 2.12 $ 2.52
 

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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Numerator for Basic net income per common share -
Net income attributable to ATI $ 35.3 $ 62.3 $ 147.9 $ 182.6
Effect of dilutive securities:
4.25% Convertible Notes due 2014   2.1   2.5   6.5   7.5
Numerator for Dilutive net income per common share -

Net income attributable to ATI after assumed conversions
$ 37.4 $ 64.8 $ 154.4 $ 190.1
 
Denominator for Basic net income per common share -
Weighted average shares outstanding 106.2 105.1 106.1 101.6
Effect of dilutive securities:
Share-based compensation 0.9 1.7 0.9 1.7
4.25% Convertible Notes due 2014   9.6   9.6   9.6   9.6
Denominator for Diluted net income per common share -
Adjusted weighted average assuming conversions   116.7   116.4   116.6   112.9
 
Basic net income attributable to ATI per common share $ 0.33 $ 0.59 $ 1.39 $ 1.80
 
Diluted net income attributable to ATI per common share $ 0.32 $ 0.56 $ 1.32 $ 1.68
 

Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Managed Working Capital
(Unaudited - Dollars in millions)
   
September 30, December 31,
2012 2011
 
Accounts receivable $ 685.7 $ 709.1
Inventory 1,460.2 1,384.3
Accounts payable   (409.3 )   (490.7 )
Subtotal 1,736.6 1,602.7
 
Allowance for doubtful accounts 5.6 5.9
LIFO reserve 124.5 153.7
Corporate and other   68.9     60.9  
Managed working capital $ 1,935.6   $ 1,823.2  
 

Annualized prior 2 months sales
$ 4,946.8   $ 4,820.6  
 

Managed working capital as a % of annualized sales
39.1 % 37.8 %
 

Year to date change in managed working capital
$ 112.4
 

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
(Unaudited - Dollars in millions)
   
September 30, December 31,
2012 2011
 
Total debt $ 1,479.3 $ 1,509.3
Less: Cash   (281.0 )   (380.6 )
Net debt $ 1,198.3 $ 1,128.7
 
Net debt $ 1,198.3 $ 1,128.7
Total ATI stockholders' equity   2,642.3     2,475.3  
Net ATI capital $ 3,840.6 $ 3,604.0
 
Net debt to ATI capital   31.2 %   31.3 %
 
Total debt $ 1,479.3 $ 1,509.3
Total ATI stockholders' equity   2,642.3     2,475.3  
Total ATI capital $ 4,121.6 $ 3,984.6
 
Total debt to total ATI capital   35.9 %   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.

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