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Allegheny Technologies Inc. Reports Operating Results (10-Q)

November 03, 2010 | About:
Andrew Barrett

10qk

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Allegheny Technologies Inc. (ATI) filed Quarterly Report for the period ended 2010-09-30.

Allegheny Technologies Inc. has a market cap of $5.11 billion; its shares were traded at around $52.89 with a P/E ratio of 53.4 and P/S ratio of 1.5. The dividend yield of Allegheny Technologies Inc. stocks is 1.5%. Allegheny Technologies Inc. had an annual average earning growth of 45.4% over the past 5 years.ATI is in the portfolios of Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Kenneth Fisher of Fisher Asset Management, LLC, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

Segment operating profit for the third quarter 2010 increased to $63.0 million, or 6.0% of sales, compared to $54.0 million, or 7.7% of sales, in the third quarter 2009. For the first nine months of 2010, segment operating profit increased to $268.5 million, or 8.9% of sales, compared to $163.8 million, or 7.3%, in the comparable period 2009. Third quarter 2010 total segment operating profit included a LIFO inventory valuation reserve charge of $35.2 million, which included approximately $33 million of cumulative adjustments due to changes in our estimates of year-end LIFO inventory cost, primarily as a result of the recent significant and unexpected increase in the cost of nickel. Third quarter 2009 results included a LIFO inventory valuation reserve benefit of $4.5 million. For the nine months ended September 30, 2010, the LIFO inventory valuation reserve charge was $40.7 million, compared to a benefit of $59.0 million for the prior year period. Although demand improved across all three business segments compared to the prior year, operating results for the 2010 third quarter and first nine months were adversely affected by idle facility, start-up costs and additional equipment maintenance costs of $27.0 million and $47.0 million, respectively, primarily impacting our High Performance Metals segment. The start-up costs relate mostly to our Rowley, UT premium-titanium sponge facility. The facility is operational and producing sponge, as we work on standardizing the process and improving yields as part of the orderly production ramp up. Idle facility costs relate mostly to our Albany, OR titanium sponge facility, which is positioned to be back in production when warranted by market conditions. The third quarter 2010 results benefited from gross cost reductions, before the effects of inflation, of $30.1 million, bringing gross cost reductions for the 2010 first nine months to $102.4 million.

In June 2009, we completed several proactive liability management actions including the issuance $350 million of 9.375% 10-year Senior Notes and $402.5 million of 4.25% 5-year Convertible Senior Notes. The net proceeds of the debt issuances were used to retire $183.3 million of 8.375% Notes due in 2011, and to make a $350 million voluntary cash contribution to our U.S. defined benefit pension plan to significantly improve the plans funded position, with the balance of the proceeds being used for general corporate purposes. As a result of these actions, results for the nine months ended September 30, 2009 include a charge of $9.2 million pre-tax, or $5.5 million after-tax, for debt retirement expense and a discrete tax charge of $11.5 million, primarily associated with the tax consequences of the $350 million voluntary pension contribution.

Net income attributable to ATI for the third quarter 2010 was $1.0 million, or $0.01 per share, compared to $1.4 million, or $0.01 per share for the third quarter 2009. In the third quarter 2010, we recorded a one-time tax charge of $3.9 million, or $0.04 per share, primarily due to the Small Business Jobs and Credit Act. While this charge had a 2010 third quarter negative impact on ATIs tax provision, we expect to receive a cash refund in the first first half 2011 of approximately $30 million. Excluding this tax charge, net income attributable to ATI was $4.9 million, or $0.05 per share.

For the nine months ended September 30, 2010, net income attributable to ATI, including special charges, was $55.6 million, or $0.56 per share. Results included a 2010 first quarter non-recurring tax charge of $5.3 million related to the Patient Protection and Affordable Care Act, and the third quarter tax charge of $3.9 million discussed above. Excluding these non-recurring tax charges, net income attributable to ATI was $64.8 million, or $0.66 per share. For the nine months ended September 30, 2009, net loss attributable to ATI, including special charges, was $6.1 million, or $0.06 per share. Excluding special charges related to liability management actions described above, results for the nine months ended September 30, 2009 were net income attributable to ATI of $10.9 million, or $0.11 per share.

Retirement benefit expense, which includes pension expense and other postretirement expense, decreased to $22.5 million in the third quarter 2010, compared to $25.5 million in the third quarter 2009. For the third quarter 2010, retirement benefit expense of $16.1 million was included in cost of sales and $6.4 million was included in selling and administrative expenses. For the third quarter 2009, the amount of retirement benefit expense included in cost of sales was $15.9 million, and the amount included in selling and administrative expenses was $9.6 million. Retirement benefit expense decreased to $67.4 million for the nine months ended September 30, 2010, compared to $96.2 million in the third quarter 2009. For the nine months ended September 30, 2010, retirement benefit expense of $48.1 million was included in cost of sales and $19.3 million was included in selling and administrative expenses. For the nine months ended September 30, 2009, the amount of retirement benefit expense included in cost of sales was $67.2 million, and the amount included in selling and administrative expenses was $29.0 million. The decreases in retirement benefit expense for the 2010 three and nine month periods, compared to the prior year periods, were primarily due to higher than expected returns on pension plan assets in 2009 and the benefits resulting from our voluntary pension contributions made over the last several years.

For the nine months ended September 30, 2010, cash used in operating activities was $63.9 million as an investment of $345.2 million in managed working capital, primarily due to improving business activity and higher raw material costs, offset increased profitability. Cash used in investing activities was $132.4 million in the first nine months of 2010 and consisted primarily of capital expenditures. Cash used in financing activities was $69.2 million in the first nine months of 2010 due primarily to dividend payments of $53.0 million. At September 30, 2010, cash and cash equivalents on hand totaled $443.3 million, a decrease of $265.5 million from year end 2009, and a sequential increase of $64.6 million during the 2010 third quarter.

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