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

August 04, 2011 | About:
10qk

10qk

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Allegheny Technologies Inc. (ATI) filed Quarterly Report for the period ended 2011-06-30.

Allegheny Technologies Inc. has a market cap of $5.67 billion; its shares were traded at around $53.45 with a P/E ratio of 33.4 and P/S ratio of 1.4. The dividend yield of Allegheny Technologies Inc. stocks is 1.4%.

Highlight of Business Operations:

Segment operating profit for the second quarter 2011 increased 48% compared to the second quarter 2010, to $173.4 million, or 12.8% of sales, compared to $117.3 million, or 11.2% of sales. While operating profit improved in the High Performance Metals and Flat-Rolled Products segments, results for the second quarter 2011 in the High Performance Metals segment were impacted by $13.2 million of inventory fair value adjustments from the acquisition of ATI Ladish and $9.7 million of idle facility and start-up costs associated with our titanium sponge operations. The start-up costs relate mostly to our Rowley, UT premium-titanium sponge facility. The Rowley facility has produced over 5 million pounds of sponge in the first half of 2011. This sponge is being used to produce industrial titanium products. We expect to continue the orderly production ramp during the second half of 2011. We have made good progress in standardizing production practices, which is key to the aerospace grade qualification process. Our focus is to achieve standard grade qualification by early 2012. We will then begin the premium-grade qualification program. We expect reduced start-up costs in the 2011 second half as the production rate increases. 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. In addition, the second quarter 2011 included a LIFO inventory valuation reserve charge of $5.2 million, due primarily to higher titanium and tungsten raw material costs. The second quarter 2010 included a LIFO inventory valuation reserve charge of $5.5 million. The second quarter

Income before tax for the second quarter 2011 was $100.3 million, or 7.4% of sales, compared to $60.6 million, or 5.8% of sales for the second quarter 2010. Income before tax for the second quarter 2011 included Ladish acquisition costs of $18.8 million, including fair value adjustments and transaction costs. Second quarter 2011 results also included higher interest costs as a result of the January 7, 2011 issuance of $500 million, 5.95% Notes due 2021, debt assumed in the ATI Ladish acquisition, and lower interest expense capitalized on strategic projects due to project completions. 2011 results benefited from decreased retirement benefit expenses of $3.0 million due to higher than expected returns on pension plan assets in 2010 and the benefits resulting from our voluntary pension contributions over the past several years. Income before tax for the first half 2011 was $194.1 million, or 7.5% of sales, compared to $93.6 million, or 4.8% of sales for the comparable 2010 period. In addition, year to date 2011 results also included a charge of $4.8 million ($3.1 million, net of tax) related to the accelerated recognition of equity-based compensation expense due to executive retirements.

Net income attributable to ATI for the second quarter 2011 was $64.0 million, or $0.59 per share, compared to $36.4 million, or $0.36 per share for the second quarter 2010. Acquisition-related expenses for ATI Ladish were $12.7 million, net of tax, or $0.11 per share in the 2011 second quarter. For the six months ended June 30, 2011, net income attributable to ATI was $120.3 million, or $1.13 per share, compared to $54.6 million, or $0.54 per share for the first half 2010. Year to date 2011 results also included special charges of $5.8 million, or $0.05 per share, due to executive retirements and a discrete tax charge primarily related to foreign taxes. Excluding these acquisition expenses and special charges, net income attributable to ATI for the first six months 2011 was $138.8 million, or $1.29 per share. Results for the first half 2010 included a non-recurring tax charge of $5.3 million related to the Patient Protection and Affordable Care Act. Excluding this tax charge, net income attributable to ATI for the first half 2010 was $59.9 million, or $0.60 per share.

At June 30, 2011, we had cash on hand of $367.8 million, a decrease of $64.5 million from year-end 2010. Cash flow used in operations for the first half 2011 was $72.0 million. An investment of $455.1 million in managed working capital, due to a significant increase in the level of business activity and higher raw material costs, offset increased profitability. Net debt to total capitalization was 32.3% and total debt to total capitalization was 38.0% at June 30, 2011. At December 31, 2010, net debt to total capitalization was 23.6% and total debt to total capitalization was 34.3%.

With the Ladish acquisition now complete, we expect 2011 revenues of $5.4 to $5.5 billion, compared to our previous expectations of $4.6 to $4.8 billion, and segment operating profit of 13% to 14% of revenues, excluding the impact of inventory fair value adjustments from the acquisition of ATI Ladish. These expectations are based on the strength of our key global markets, improving shipments and higher base prices for many of our high-value products, the expectation of improved demand in the fourth quarter for our standard stainless products, and our expectation that certain raw material costs will moderate slightly or at least remain at current levels.

reductions. Operating profit for the first six months of 2011 was adversely affected by approximately $19.2 million of idle facility and start-up costs associated with our titanium sponge operations, and ATI Ladish acquisition related costs of $13.2 million. Operating profit for the first six months of 2011 and 2010 included $8.4 million and $2.1 million, respectively, of LIFO inventory valuation reserve charges.

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