After some initial comments, we will ask for questions. [Operator Instructions] Please note that all forward-looking statements this afternoon are subject to various assumptions and caveats as noted in the earnings release. Actual results may differ materially.Here is Rich Harshman. Richard J. Harshman Thank you, Dan, and thanks to everyone for joining today's call. Second quarter 2012 results were similar to those achieved in the first quarter of 2012, even though the global economy weakened throughout the second quarter. This performance helps demonstrate the benefits of our diversified products and markets and our continued focus on key global growth markets, which are less driven by near-term economic volatility. Total revenues were essentially flat compared to both the second quarter 2011 and the first quarter of 2012. While volumes increased for many of our products compared to both periods, revenue and operating margins were negatively impacted by falling prices for most raw materials. Revenue was reduced due to lower raw material surcharges and indices, primarily for nickel, nickel scrap and titanium scrap. Operating profit was reduced from the misalignment of raw material surcharges and indices with raw material cost, although most of this was offset by reductions to LIFO inventory valuation reserves. We believe that the long-term secular growth trends in our key global markets remain intact. Looking at each of our key global markets. First half 2012 sales for the aerospace and defense markets were approximately $850 million or 31% of ATI total sales. Sales to the oil and gas and chemical processing industry markets were nearly $540 million or 20% of sales. Sales to the electrical energy market were approximately $315 million or 12% of sales, and sales to the medical market were nearly $115 million or 4% of sales. In addition, we are seeing strong growth and demand from the construction and mining markets with sales of approximately $214 million in the first half of 2012 or nearly 8% of sales. Finally, first half direct international sales were nearly $975 million or just under 36% of sales.
We continued to improve our cost structure with nearly $62 million in gross cost reductions during the first half of 2012. Cost reduction remains a strategic focus, and we expect to exceed our target of a minimum of $100 million in new gross cost reductions in 2012.Our balance sheet remains in good shape with cash on hand of over $210 million and net debt to total capitalization of 33.4% at the end of the second quarter 2012. Capital expenditures were nearly $96 million in the second quarter, bringing total capital expenditures to $166 million in the first 6 months of 2012. The majority of these capital expenditures related to the construction of our Flat-Rolled Products' hot rolling and processing facility, which is progressing on schedule and on budget. This project, which is scheduled for completion in late 2013, with commissioning occurring during the first half of 2014, is expected to significantly improve the cost structure, capabilities and production cycle times and provide growth opportunities for our Flat-Rolled Products business. Production continued to improve at our Rowley, Utah titanium sponge facility. Start-up expense was insignificant in the second quarter 2012. With stable input cost for titanium tetrachloride and magnesium, higher production rates and improved efficiencies, we continue -- we expect to continue to reduce our production cost at the Rowley facility throughout the second half of 2012. Looking at performance by business segment. In our High Performance Metals segment, second quarter sales were $566 million, a 14% increase compared to the second quarter 2011. Segment operating profit increased to $102 million or 18.1% of sales. First half 2012 sales in this segment were $1.15 billion and included sales to the aerospace and defense markets of approximately $740 million or 65% of segment sales. Sales to the oil and gas/chemical process industry markets were over $112 million or 10% of sales. Electrical energy market sales were just under $83 million or 7% of sales, and sales to the medical market were approximately $96 million or 8% of segment sales. The sales to these 4 major global markets represented 90% of the High Performance Metals segment total sales during the first half of 2012. Read the rest of this transcript for free on seekingalpha.com