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

August 03, 2009 | About:

Allegheny Technologies Inc. (ATI) filed Quarterly Report for the period ended 2009-06-30.

Allegheny Technologies Incorporated is one of the largest and most diversified producers of specialty materials in the world. The company\'s talented people use innovative technologies to offer growing global markets a wide range of specialty materials including stainless steel nickel-based and cobalt-based alloys and superalloys titanium and titanium alloys specialty steel alloys zirconium and related alloys and tungsten-based specialty materials. The goal is to be the low cost high quality supplier to global markets. (PRESS RELEASE) Allegheny Technologies Inc. has a market cap of $2.75 billion; its shares were traded at around $28.1 with a P/E ratio of 10.4 and P/S ratio of 0.5. The dividend yield of Allegheny Technologies Inc. stocks is 2.6%.

Highlight of Business Operations:

The selling prices for many of our products include surcharges or indices by which we attempt to match changes in raw material costs, and in some cases energy costs, with shipments. The second quarter 2009 and the first half 2009 results were adversely impacted by approximately $17 million and $83 million, respectively, in out-of-phase raw material surcharges and indices due primarily to the rapid decrease in the cost of raw materials in late 2008. This was partially offset by a LIFO inventory valuation reserve benefit of $27.0 million in the 2009 second quarter, and $54.5 million in the first half 2009 as a result of a decline in raw material costs in 2009. Results for the second quarter and first half 2008 included a LIFO inventory valuation reserve charge of $3.4 million and $4.7 million, respectively. Second quarter 2009 benefited from gross cost reductions, before the effects of inflation, of $39.2 million bringing gross cost reductions for the first half 2009 to $74.2 million. Segment operating profit (loss) as a percentage of sales for the three month and six month periods ended June 30, 2009 and 2008 was:

In June 2009, we completed several proactive liability management actions including the issuance of $350 million of 9.375% 10-year Senior Notes and $402.5 million of 4.25% 5-year Convertible Senior Notes with the stated intent of repurchasing the existing $300 million of 8.375% Notes due in 2011 and improving the funded position of our U.S. defined benefit pension plan. As a result of the tender offer, in June 2009 we retired $183.3 million of the outstanding 8.375% Notes which resulted in a charge of $9.2 million pre-tax, or $5.5 million after-tax, being recognized in the 2009 second quarter. In addition, we made a $350 million voluntary cash contribution to our domestic pension plan to significantly improve the plans funded position. The second quarter 2009 tax provision included an unfavorable discrete tax charge of $11.5 million, primarily associated with the tax consequences of the $350 million voluntary second quarter 2009 pension contribution. As a result of the $350 million voluntary pension contribution, which was designated to pertain to the 2008 tax year, we received a U.S. Federal tax refund of $108.5 million in the second quarter 2009.

Income before tax for the second quarter 2009 was break-even compared to $252.4 million for the second quarter 2008. For the first half 2009, income before tax was $0.3 million compared to $474.0 million for the comparable period of 2008. In addition to the factors discussed above, income before tax was adversely impacted by an increase in retirement benefit expenses of $30.1 million, and $67.4 million for the three and six months ended June 30, 2009, respectively, resulting from lower returns on benefit plan assets in 2008 notwithstanding the positive impact of the voluntary pension contributions made over the last several years. As a result of the voluntary second quarter 2009 pension contribution, annual pension expense for 2009 is expected to be reduced by $27.5 million to $98.7 million.

Net loss attributable to common stockholders for the second quarter 2009 was $13.4 million, or $0.14 per share, compared to the second quarter 2008 net income attributable to common stockholders of $168.9 million, or $1.66 per share. As discussed above, the second quarter 2009 included non-recurring after-tax charges of $17.0 million, or $0.17 per share, related to debt retirement and the tax implications of the $350 million voluntary pension contribution. Excluding these special charges, net income attributable to common stockholders was $3.6 million or $0.03 per share for the second quarter 2009. The second quarter 2008 included a favorable one-time net tax benefit of $11.2 million, or $0.11 per share. For the six months ended June 30, 2009, net loss attributable to common stockholders, including special charges, was $7.5 million, or $0.08 per share compared to net income of $310.9 million, or $3.06 per share, for the comparable 2008 period. Excluding special charges, for the six months ended June 30, 2009, net income attributable to common stockholders was $9.5 million, or $0.09 per share.

Sales for the second quarter and first half of 2009 were $54.3 million and $119.8 million, respectively, which were 56% and 50% lower than the same periods of 2008. Demand for our tungsten and tungsten carbide products, forged products, and cast products remained weak. Demand for our precision finishing business was good. Segment operating results for the second quarter 2009 was a loss of $9.4 million compared to income of $11.0 million, or 9.0% of sales, for the comparable 2008 period. For the six months ended June 30, 2009, operating loss was $15.5 million, compared to income of $16.7 million, or 7.0% of sales in 2008. The decrease in 2009 operating profit was primarily due to the significantly lower shipments, reduced selling prices, and costs associated with workforce reductions and idle facilities. The segment benefited from a $1.4 million decrease in the LIFO inventory valuation reserve for the 2009 second quarter and a $2.7 million decrease for the first half 2009. The second quarter and first half 2008 included a LIFO inventory valuation reserve charge of $1.7 million.

Retirement benefit expense, which includes pension expense and other postretirement expense, increased to $33.4 million in the second quarter 2009, compared to $3.3 million in the second quarter 2008. This increase is primarily a result of lower returns on plan assets in 2008 partially offset by the positive benefits of voluntary pension contributions made over the last several years. For the second quarter 2009, retirement benefit expense of $23.6 million was included in cost of sales and $9.8 million was included in selling and administrative expenses. For the second quarter 2008, the amount of retirement benefit expense included in cost of sales was $2.1 million, and the amount included in selling and administrative expenses was $1.2 million. Retirement benefit expense increased to $70.7 million for the six months ended June 30, 2009, compared to $3.3 million in the second quarter 2008. For the six months ended June 30, 2009, retirement benefit expense of $51.3 million was included in cost of sales and $19.4 million was included in selling and administrative expenses. For the six months ended June 30, 2008, the amount of retirement benefit expense included in cost of sales was $1.8 million, and the amount included in selling and administrative expenses was $1.5 million.

Read the The complete ReportATI is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC.

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