“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.
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