Market Overview

ATI Announces Third Quarter 2018 Results

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Third Quarter 2018 Results

  • Sales were $1.02 billion, 17% higher than Q3 2017 and in line with
    Q2 2018
    • High Performance Materials & Components sales of $586 million,
      up 14% versus Q3 2017, down 1% versus Q2 2018
    • Flat Rolled Products sales of $435 million, up 22% versus Q3
      2017 and up 4% sequentially
  • Business segment operating profit was $106 million, or 10.3% of
    sales
    • HPMC segment operating profit was $76 million, or 13.0% of sales
      • Aerospace and defense market strength continues
    • FRP segment operating profit was $30 million, or 6.8% of sales
  • Net income attributable to ATI was $50.5 million, or $0.37 per share

Allegheny Technologies Incorporated (NYSE:ATI) reported third quarter
2018 results, with sales of $1.02 billion and net income attributable to
ATI of $50.5 million, or $0.37 per share. Prior year results were sales
of $869 million and a net loss attributable to ATI of $121.2 million, or
$(1.12) per share, which included a $113.6 million, or $(1.05) per
share, goodwill impairment charge related to ATI's titanium investment
castings business, which was excluded from business segment results.
Third quarter 2017 results excluding the goodwill charge were a net loss
attributable to ATI of $7.6 million, or $(0.07) per share.

"ATI's third quarter 2018 operating performance was solid and in line
with our expectations, with business segment operating profit nearly
doubling compared to the prior year period. These results built on
strong first-half 2018 financial results," said Rich Harshman, Chairman,
President and Chief Executive Officer. "We expect ongoing year-over-year
operating profit growth as we continue to focus on producing and
delivering highly differentiated products while accelerating development
of advanced production capabilities, such as additive manufacturing. Our
strategy to generate sustainable profitable growth by leveraging ATI's
specialty materials capabilities to provide customers with technically
advanced parts and components is on track," Harshman concluded.

"The aerospace and defense markets continue to drive results in our High
Performance Materials and Components, or HPMC, segment," said Bob
Wetherbee, President and CEO Designate, and current EVP, Flat Rolled
Products Group. "Third quarter HPMC segment sales and operating profit
increased significantly versus the prior year but declined sequentially
due to normal business seasonality and a previously identified nickel
powder billet supply issue. Within our aerospace market results,
commercial airframe product sales were 21% higher compared to the prior
year period. Sales of next-generation jet engine products remained
strong, increasing by 42% versus the prior year and represented 48% of
total third quarter 2018 HPMC jet engine product sales. Our customers
continue to benefit from our on-time execution and relentless product
innovation.

"Our Flat Rolled Products, or FRP, segment had another solid quarter,
generating $30 million in segment operating profit, representing a
margin of nearly 7% of sales. These results benefited from continued
strong market demand, ongoing improvements in asset utilization, and a
better matching of raw material costs and surcharges compared to the
third quarter 2017. Our business transformation efforts are clearly
visible in the 2018 year-to-date financial results, with segment
operating profit of $67 million compared to $15 million for the prior
year-to-date period."

  • ATI's sales to key global markets represented 81% of total ATI sales
    for the first nine months of 2018:
    • Sales to the aerospace and defense markets were $1.44 billion and
      represented 48% of ATI sales: 28% commercial jet engine, 13%
      commercial airframe, 7% government aero/defense.
    • Sales to the oil & gas market were $414 million and represented
      14% of ATI sales.
    • Sales to the automotive market were $244 million and represented
      8% of ATI sales.
    • Sales to the electrical energy market were $180 million and
      represented 6% of ATI sales.
    • Sales to the medical market were $143 million and represented 5%
      of ATI sales.
  • International sales represented 42% of ATI's year-to-date 2018 sales.

"We continue to make progress toward our FRP segment goal of capital
efficient asset utilization improvements as evidenced by our recently
announced agreement to provide carbon steel hot-rolling conversion
services for NLMK USA at our world-class Hot Rolling and Processing
Facility, or HRPF. Slab shipments to ATI will begin in October 2018 and
increase to anticipated levels in the first quarter of 2019. This
agreement is a win-win for both NLMK USA and ATI and we look forward to
working with NLMK on additional growth opportunities," Wetherbee said.
"Lastly, we continue to work within the U.S. Commerce Department's
Section 232 tariff exclusion request process to secure an exclusion on
behalf of the A&T Stainless JV, which imports semi-finished stainless
slab products from Indonesia. We believe that the facts underlying this
request are compelling and justify an approval."

As of September 30, 2018, cash on hand was $154 million and available
additional liquidity under the asset-based lending (ABL) credit facility
was approximately $360 million, with no borrowings under the revolving
credit portion of the ABL. During the third quarter 2018, ATI generated
$82 million of cash from operating activities, including a $28 million
decrease in managed working capital, which improved to 36.4% of sales.
Third quarter 2018 capital expenditures were $31 million, totaling $101
million year-to-date, including the initial down payments for the
previously announced HPMC iso-thermal press and heat-treating
expansions, as well as significant expenditures on the STAL expansion in
China.

Strategy and Outlook

"In the HPMC segment, we expect continued year-over-year revenue and
operating profit growth in the fourth quarter 2018 resulting from
ongoing aerospace market demand growth and improved asset utilization.
We reiterate our guidance for a full year 2018 segment operating profit
margin improvement of approximately 300 basis points compared to 2017.
We remain confident in our customers' elevated order patterns due to
increasing jet engine build rates over the next several years. Our focus
is on strong operational execution and on meeting our aerospace
customer's production requirements regardless of aircraft build rate,"
Wetherbee said.

"In the FRP segment, significant price declines in several key raw
materials are expected to result in weaker fourth quarter 2018 results
due to the short-term mismatch between input costs and the surcharge
index pricing mechanism. We anticipate our U.S. Operations to remain
profitable in the fourth quarter despite these higher input costs. Even
with these short-term headwinds, we continue to expect a 2018
year-over-year operating margin improvement of 150 to 300 basis points
driven by continued strong end-market demand, ongoing growth of our
differentiated product sales, and the benefits from improved HRPF
utilization.

"Year-over-year cost inflation in many raw materials used to manufacture
our products is likely to represent a moderate LIFO expense headwind in
the fourth quarter of 2018 which would be greater than and not fully
offset by our remaining NRV inventory reserves," Wetherbee continued.

"Cash generation from operations remains a key focus, and we intend to
carefully balance our working capital and other cash needs with the pace
of our capital expenditures. We expect strong fourth quarter 2018 cash
generation and reiterate our goal to generate at least $150 million of
free cash flow for the full year 2018, excluding $40 million in
contributions to the ATI Pension Plan. Finally, we expect to end 2018
with zero borrowings under our ABL revolving credit facility," Wetherbee
concluded.

Third Quarter 2018 Financial Results

  • Sales for the third quarter 2018 were $1.02 billion, a 17%
    increase compared to the third quarter 2017. HPMC sales in 2018
    reflect stronger demand for nickel-based and specialty alloy products,
    forgings and components. FRP sales in 2018 include a stronger mix of
    high-value products, particularly nickel-based alloys.
  • Gross profit in the third quarter 2018 at $160.4 million, or
    15.7% of sales, increased more than 50% compared to gross profit of
    $105.3 million, or 12.1% of sales, in the prior year's third quarter.
  • Net income attributable to ATI for the third quarter 2018 was
    $50.5 million, or $0.37 per share. This compares to a third quarter
    2017 net loss attributable to ATI of $121.2 million, or $(1.12) per
    share, and adjusted Q3 2017 net loss of $7.6 million, or $(0.07) per
    share, which excludes a $113.6 million goodwill impairment charge.
    Results in both periods include impacts from income taxes which differ
    from applicable standard tax rates, primarily related to impacts of
    income tax valuation allowances.
  • Cash on hand at September 30, 2018 was $153.5 million. In the
    third quarter 2018, cash provided by operating activities was $81.6
    million, including a $28.3 million reduction in managed working
    capital. Cash used in investing activities in the third quarter 2018
    was $39.3 million, primarily for capital expenditures as well as $10.0
    million for the Addaero acquisition. Cash used in financing activities
    in Q3 2018 was $11.2 million, primarily for $10.0 million of dividends
    to noncontrolling interests from our STAL joint venture.

High Performance Materials & Components Segment
Market
Conditions

  • Aerospace and defense sales in the third quarter 2018 were $446.5
    million, 2% higher than the second quarter 2018, and represented 76%
    of total segment sales. Compared to the second quarter 2018,
    commercial airframe sales were 13% higher and government aero/defense
    sales were 1% higher, while commercial jet engine sales were 2% lower
    primarily due to seasonal factors. Total HPMC third quarter 2018 sales
    decreased 1% compared to the second quarter 2018, with sales to the
    electrical energy market down 23% across all types of power
    generation, and sales to the construction & mining market 3% lower.
    Direct international sales represented 46% of total segment sales for
    the third quarter 2018.

Third quarter 2018 compared to third quarter 2017

  • Sales were $585.5 million, a $72.6 million, or 14%, increase compared
    to the third quarter 2017, primarily due to higher sales of
    next-generation jet engine products. Sales to the commercial aerospace
    market, which represented 65% of third quarter 2018 sales, were 18%
    higher than the prior year, including a 16% increase in sales to the
    commercial jet engine market. Construction and mining market sales
    were 36% higher, and medical market sales were 6% higher.
  • Segment operating profit improved to $76.0 million, or 13.0% of sales,
    compared to $61.7 million, or 12.0% of sales for the third quarter
    2017. This operating profit improvement reflects higher productivity
    from increasing aerospace and defense sales, and an improved product
    mix of next-generation nickel alloys and forgings for the aero engine
    market.

Flat Rolled Products Segment
Market Conditions

  • Sales increased in the third quarter 2018 in most key end markets,
    including a 21% increase in sales to aerospace and defense markets,
    compared to the second quarter 2018. Sales to the automotive and
    electrical energy markets increased 7% and 4%, respectively, while
    project-based sales to the oil & gas market declined 4%, all compared
    to the second quarter 2018. Sales increased 6% for high-value
    products, primarily related to stronger demand for precision and
    engineered strip products, compared to the second quarter 2018. Sales
    declined 1% for standard products as lower shipment volumes more than
    offset increased selling prices which included higher raw material
    surcharges. Direct international sales were 33% of third quarter 2018
    segment sales.

Third quarter 2018 compared to third quarter 2017

  • Sales were $434.7 million, a $78.5 million, or 22%, increase compared
    to the prior year period. Sales of high-value products were 26%
    higher, primarily for nickel-based and specialty alloys, and sales of
    standard products were 13% higher, compared to the third quarter 2017.
  • Segment operating profit was $29.5 million, or 6.8% of sales, compared
    to a segment operating loss of $7.3 million for the third quarter
    2017. Compared to 2017, results in 2018 included a better matching of
    raw material surcharges with changes in prices for nickel, ferrochrome
    and other metallics, and improved cost absorption through higher
    operating rates.

Closed Operations and Other Expenses

  • Closed operations and other expenses in the third quarter 2018 were
    $3.4 million, compared to $12.2 million in the prior year quarter. The
    third quarter 2018 benefited from lower carrying costs for closed
    facilities, mainly related to property taxes and insurance expenses
    for the Rowley, UT and Midland, PA locations, compared to the prior
    year period.

Income Taxes

  • ATI continues to maintain income tax valuation allowances on its U.S.
    federal and state deferred tax assets, and we do not expect to pay any
    significant U.S. federal or state income taxes for the next few years
    due to net operating loss carryforwards. The third quarter 2018 11.0%
    tax rate primarily relates to income taxes on non-U.S. operations.

Allegheny Technologies will conduct a conference call with investors and
analysts on Tuesday, October 23, 2018, at 8:15 a.m. ET to discuss the
financial results. The conference call will be broadcast, and
accompanying presentation slides will be available, at ATImetals.com.
To access the broadcast, click on "Conference Call". Replay of the
conference call will be available on the Allegheny Technologies website.

This news release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Certain
statements in this news release relate to future events and expectations
and, as such, constitute forward-looking statements. Forward-looking
statements, which may contain such words as "anticipates," "believes,"
"estimates," "expects," "would," "should," "will," "will likely result,"
"forecast," "outlook," "projects," and similar expressions, are based on
management's current expectations and include known and unknown risks,
uncertainties and other factors, many of which we are unable to predict
or control. Our performance or achievements may differ materially from
those expressed or implied in any forward-looking statements due to the
following factors, among others: (a) material adverse changes in
economic or industry conditions generally, including global supply and
demand conditions and prices for our specialty metals; (b) material
adverse changes in the markets we serve; (c) our inability to achieve
the level of cost savings, productivity improvements, synergies, growth
or other benefits anticipated by management from strategic investments
and the integration of acquired businesses; (d) volatility in the price
and availability of the raw materials that are critical to the
manufacture of our products; (e) declines in the value of our defined
benefit pension plan assets or unfavorable changes in laws or
regulations that govern pension plan funding; (f) labor disputes or work
stoppages; (g) equipment outages and (h) other risk factors summarized
in our Annual Report on Form 10-K for the year ended December 31, 2017,
and in other reports filed with the Securities and Exchange Commission.
We assume no duty to update our forward-looking statements.

Creating Value Thru Relentless Innovation™

ATI is a global manufacturer of technically advanced specialty materials
and complex components. ATI revenue was $3.9 billion for the
twelve-month period ended September 30, 2018. Our largest markets are
aerospace & defense, particularly jet engines. We also have a strong
presence in the oil & gas, electrical energy, medical, automotive, and
other industrial markets. ATI is a market leader in manufacturing
differentiated specialty alloys and forgings that require our unique
manufacturing and precision machining capabilities and our innovative
new product development competence. We are a leader in producing powders
for use in next-generation jet engine forgings and 3D-printed aerospace
products. See more at our website ATIMetals.com.

         
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Operations
(Unaudited, dollars in millions, except per share amounts)
 
 
Three Months Ended Nine Months Ended
September 30 June 30 September 30 September 30 September 30
2018 2018 2017 2018 2017
 
Sales $ 1,020.2 $ 1,009.5 $ 869.1 $ 3,008.7 $ 2,615.2
 
Cost of sales   859.8     835.8     763.8     2,526.0     2,260.8  
Gross profit 160.4 173.7 105.3 482.7 354.4
 
Selling and administrative expenses 65.5 62.7 64.6 195.3 187.5
Impairment of goodwill   -     -     114.4     -     114.4  
Operating income (loss) 94.9 111.0 (73.7 ) 287.4 52.5
Nonoperating retirement benefit expense (8.4 ) (8.8 ) (13.6 ) (25.5 ) (40.9 )
Interest expense, net (24.8 ) (25.5 ) (34.2 ) (75.8 ) (102.2 )
Other income, net   0.8     3.8     0.2     22.4     3.7  
Income (loss) before income taxes 62.5 80.5 (121.3 ) 208.5 (86.9 )
Income tax provision (benefit)   6.9     4.9     (1.9 )   16.8     (2.0 )
Net income (loss) $ 55.6 $ 75.6 $ (119.4 ) $ 191.7 $ (84.9 )
Less: Net income attributable to noncontrolling interests   5.1     2.8     1.8     10.4     8.7  
Net income (loss) attributable to ATI $ 50.5   $ 72.8   $ (121.2 ) $ 181.3   $ (93.6 )
 
Basic net income (loss) attributable to ATI per common share $ 0.40   $ 0.58   $ (1.12 ) $ 1.45   $ (0.87 )
 
Diluted net income (loss) attributable to ATI per common share $ 0.37   $ 0.52   $ (1.12 ) $ 1.31   $ (0.87 )

Note: Quarterly earnings per share amounts may not add to
year-to-date amounts due to rounding.

 

         
Allegheny Technologies Incorporated and Subsidiaries
Sales and Operating Profit by Business Segment
(Unaudited, dollars in millions)
 
Three Months Ended Nine Months Ended
September 30 June 30 September 30 September 30 September 30
2018 2018 2017 2018 2017
Sales:
High Performance Materials & Components $ 585.5 $ 591.9 $ 512.9 $ 1,738.1 $ 1,549.7
Flat Rolled Products   434.7     417.6     356.2     1,270.6     1,065.5  
 
Total external sales $ 1,020.2   $ 1,009.5   $ 869.1   $ 3,008.7   $ 2,615.2  
 
Operating profit (loss):
 
High Performance Materials & Components $ 76.0 $ 97.9 $ 61.7 $ 259.4 $ 180.6
% of Sales 13.0 % 16.5 % 12.0 % 14.9 % 11.7 %
 
Flat Rolled Products 29.5 26.1 (7.3 ) 66.5 14.6
% of Sales   6.8 %   6.3 %   -2.0 %   5.2 %   1.4 %
 
Total operating profit 105.5 124.0 54.4 325.9 195.2
% of Sales 10.3 % 12.3 % 6.3 % 10.8 % 7.5 %
 
 
LIFO and net realizable value reserves - - (0.1 ) - (0.2 )
 
Corporate expenses (14.8 ) (12.9 ) (14.8 ) (40.9 ) (36.9 )
 
Closed operations and other expense (3.4 ) (5.1 ) (12.2 ) (16.6 ) (28.4 )
 
Impairment of goodwill - - (114.4 ) - (114.4 )
 
Gain on joint venture deconsolidation - - - 15.9 -
 
Interest expense, net   (24.8 )   (25.5 )   (34.2 )   (75.8 )   (102.2 )
 
Income (loss) before income taxes $ 62.5   $ 80.5   $ (121.3 ) $ 208.5   $ (86.9 )
 

         
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Current period unaudited, dollars in millions)
 
September 30, December 31,
2018 2017
ASSETS
 
Current Assets:
Cash and cash equivalents $ 153.5 $ 141.6
Accounts receivable, net of allowances for
doubtful accounts 588.3 545.3
Short-term contract assets 51.6 -
Inventories, net 1,239.8 1,176.1
Prepaid expenses and other current assets   89.2   52.7
Total Current Assets 2,122.4 1,915.7
 
Property, plant and equipment, net 2,472.6 2,495.7
Goodwill 536.4 531.4
Other assets   257.6   242.6
 
Total Assets $ 5,389.0 $ 5,185.4
 
LIABILITIES AND EQUITY
 
Current Liabilities:
Accounts payable $ 416.1 $ 420.1
Accrued liabilities 228.7 282.4
Short-term contract liabilities 69.2 -
Short-term debt and current
portion of long-term debt   16.6   10.1
Total Current Liabilities 730.6 712.6
 
Long-term debt 1,535.3 1,530.6
Accrued postretirement benefits 301.1 317.8
Pension liabilities 652.7 697.0
Deferred income taxes 12.1 9.7
Long-term contract liabilities 7.3 -
Other long-term liabilities   66.7   73.2
Total Liabilities   3,305.8   3,340.9
 
Total ATI stockholders' equity 1,980.2 1,739.4
Noncontrolling interests   103.0   105.1
Total Equity   2,083.2   1,844.5
 
Total Liabilities and Equity $ 5,389.0 $ 5,185.4
 

       
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in millions)
      Nine Months Ended
September 30
2018 2017
 
Operating Activities:
 
Net income (loss) $ 191.7 $ (84.9 )
 
Depreciation and amortization 117.1 120.7
Impairment of goodwill - 114.4
Deferred taxes 2.8 1.7
Change in managed working capital (99.4 ) (81.5 )
Change in retirement benefits (10.1 ) (117.6 )
Accrued liabilities and other   (85.5 )   (6.6 )
Cash provided by (used in) operating activities   116.6     (53.8 )
Investing Activities:
Purchases of property, plant and equipment (101.3 ) (85.3 )
Purchases of businesses (10.0 ) -
Asset disposals and other   2.2     3.2  
Cash used in investing activities   (109.1 )   (82.1 )
Financing Activities:
Borrowings on long-term debt 7.1 8.5
Payments on long-term debt and capital leases (4.6 ) (1.9 )
Net borrowings under credit facilities 4.0 28.0
Debt issuance costs - (0.8 )
Dividends paid to noncontrolling interests (10.0 ) -
Sale to noncontrolling interests 14.4 2.2
Taxes on share-based compensation and other   (6.5 )   (4.8 )
Cash provided by financing activities   4.4     31.2  
Increase (decrease) in cash and cash equivalents 11.9 (104.7 )
Cash and cash equivalents at beginning of period   141.6     229.6  
Cash and cash equivalents at end of period $ 153.5   $ 124.9  
 

       
Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data
(Unaudited)
   
Three Months Ended Nine Months Ended
September 30 June 30 September 30 September 30 September 30
2018 2018 2017 2018 2017
Percentage of Total ATI Sales
High-Value Products
Nickel-based alloys and specialty alloys 30% 30% 28% 30% 27%
Precision forgings, castings and components 18% 20% 19% 20% 19%
Titanium and titanium-based alloys 16% 16% 17% 15% 17%
Precision and engineered strip 14% 13% 14% 14% 14%
Zirconium and related alloys   6%   5%   6%   5%   6%
Total High-Value Products 84% 84% 84% 84% 83%
Standard Products
Stainless steel sheet 9% 9% 9% 9% 9%
Specialty stainless sheet 4% 4% 4% 4% 4%
Stainless steel plate and other   3%   3%   3%   3%   4%
Total Standard Products   16%   16%   16%   16%   17%
Grand Total   100%   100%   100%   100%   100%
 
 
Three Months Ended Nine Months Ended
September 30 June 30 September 30 September 30 September 30
Shipment Volume: 2018 2018 2017 2018 2017
 
Flat Rolled Products (000's lbs.)
High value 87,994 84,564 83,637 256,601 233,059
Standard   96,211   105,006   115,907   310,466   345,569
Flat Rolled Products total 184,205 189,570 199,544 567,067 578,628
 
 
Average Selling Prices:
 
Flat Rolled Products (per lb.)
High value $ 3.22 $ 3.13 $ 2.69 $ 3.22 $ 2.76
Standard $ 1.53 $ 1.42 $ 1.13 $ 1.40 $ 1.20
Flat Rolled Products combined average $ 2.34 $ 2.19 $ 1.78 $ 2.22 $ 1.83
 

         
Allegheny Technologies Incorporated and Subsidiaries
Computation of Basic and Diluted Earnings Per Share Attributable
to ATI
(Unaudited, in millions, except per share amounts)
   
Three Months Ended Nine Months Ended
September 30 June 30 September 30 September 30 September 30
2018 2018 2017 2018 2017
 
Numerator for Basic net income (loss) per common share -
Net income (loss) attributable to ATI $ 50.5 $ 72.8 $ (121.2 ) $ 181.3 $ (93.6 )
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022   3.2   3.2   -     9.6   -  
Numerator for Diluted net income (loss) per common share -
Net income (loss) attributable to ATI after assumed conversions $ 53.7 $ 76.0 $ (121.2 ) $ 190.9 $ (93.6 )
 
Denominator for Basic net income (loss) per common share -
Weighted average shares outstanding 125.2 125.2 107.7 125.1 107.7
Effect of dilutive securities:
Share-based compensation 0.9 0.7 - 0.7 -
4.75% Convertible Senior Notes due 2022   19.9   19.9   -     19.9   -  
Denominator for Diluted net income (loss) per common share -
Adjusted weighted average shares assuming conversions   146.0   145.8   107.7     145.7   107.7  
 
Basic net income (loss) attributable to ATI per common share $ 0.40 $ 0.58 $ (1.12 ) $ 1.45 $ (0.87 )
 
Diluted net income (loss) attributable to ATI per common share $ 0.37 $ 0.52 $ (1.12 ) $ 1.31 $ (0.87 )

Note: Quarterly earnings per share amounts may not add to
year-to date amounts due to rounding.

 

     
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Managed Working Capital
(Unaudited, dollars in millions)
     
September 30 December 31
2018 2017
 
Accounts receivable $ 588.3 $ 545.3
Short-term contract assets 51.6 -
Inventory 1,239.8 1,176.1
Accounts payable (416.1 ) (420.1 )
Short-term contract liabilities   (69.2 )   -  
Subtotal 1,394.4 1,301.3
 
Allowance for doubtful accounts 6.2 5.9
LIFO reserve (1.7 ) (43.1 )
Inventory reserves   86.1     121.5  
Managed working capital $ 1,485.0   $ 1,385.6  
 
Annualized prior 3 months
sales $ 4,080.8   $ 3,639.5  
 
Managed working capital as a
% of annualized sales 36.4 % 38.1 %
 
September 30, 2018 change in managed
working capital $ 99.4
    As part of managing the liquidity in our business, we focus on
controlling managed working capital, which is defined as gross
accounts receivable and gross inventories, less accounts payable. In
measuring performance in controlling this managed working capital,
we exclude the effects of LIFO and other inventory valuation
reserves and reserves for uncollectible accounts receivable which,
due to their nature, are managed separately. With the adoption of
the new revenue recognition accounting guidance in 2018, we now
include short-term contract assets and liabilities in the
calculation of managed working capital. In 2017 and prior periods,
portions of contract assets and liabilities were included in managed
working capital. Prior managed working capital calculations were not
revised for this accounting change.
 

       
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Debt to Capital
(Unaudited, dollars in millions)
         
September 30 December 31
2018 2017
 
Total debt (a) $ 1,563.0 $ 1,553.8
Less: Cash   (153.5 )   (141.6 )
Net debt $ 1,409.5 $ 1,412.2
 
Net debt $ 1,409.5 $ 1,412.2
Total ATI stockholders' equity   1,980.2     1,739.4  
Net ATI capital $ 3,389.7 $ 3,151.6
 
Net debt to ATI capital   41.6 %   44.8 %
 
Total debt (a) $ 1,563.0 $ 1,553.8
Total ATI stockholders' equity   1,980.2     1,739.4  
Total ATI capital $ 3,543.2 $ 3,293.2
 
Total debt to total ATI capital   44.1 %   47.2 %
(a)   Excludes debt issuance costs.
 
In managing the overall capital structure of the Company, some of
the measures that we focus on are net debt to net capitalization,
which is the percentage of debt, net of cash that may be available
to reduce borrowings, to the total invested and borrowed capital of
ATI (excluding noncontrolling interest), and total debt to total ATI
capitalization, which excludes cash balances.
 
 

Allegheny Technologies Incorporated and Subsidiaries
Non-GAAP
Financial Measures

(Unaudited, dollars in millions, except
per share amounts)

The Company reports its financial results in accordance with accounting
principles generally accepted in the United States of America ("GAAP").
However, management believes that certain non-GAAP financial measures,
used in managing the business, may provide users of this financial
information with additional meaningful comparisons between current
results and results in prior periods. Non-GAAP financial measures should
be viewed in addition to, and not as an alternative for, the Company's
reported results prepared in accordance with GAAP. The following table
provides the calculation of the non-GAAP financial measures discussed in
the Company's press release dated October 23, 2018:

     
Three Months Ended
September 30, 2017
 
Net loss attributable to ATI $ (121.2 )
Adjust for special items:
Impairment of goodwill, net of tax (a)   113.6  
Net loss attributable to ATI excluding special items $ (7.6 )
 
Per Diluted Share *
Net loss attributable to ATI $ (1.12 )
Adjust for special items:
Impairment of goodwill, net of tax (a)   1.05  
Net loss attributable to ATI excluding special items $ (0.07 )

* Presentation of adjusted results per diluted share includes the
effects of convertible debt, if dilutive.

(a) During the third quarter of 2017, the Company performed an interim
goodwill impairment analysis, as required by accounting standards, for
our Cast Products business and determined that all goodwill assigned to
this business unit was impaired. As a result, the Company recorded a
$114.4 pre-tax non-cash goodwill impairment charge ($113.6 after-tax),
or $(1.05) per share.

Free cash flow as defined by ATI includes the total of cash provided by
(used in) operating activities and investing activities as presented on
the consolidated statements of cash flows, adjusted to exclude cash
contributions to the ATI Pension Plan, the Company's qualified defined
benefit pension plan.

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