Market Overview

ATI Announces Full Year and Fourth Quarter 2018 Results

Share:

Full Year 2018 Results

  • Sales were $4.05 billion, up 15% versus prior year
    • 49% of ATI sales to the aerospace and defense markets
  • Segment operating profit was $413 million, or 10.2% of sales, up
    46% versus 2017
    • High Performance Materials & Components (HPMC) segment
      operating profit was $335 million, or 14.4% of sales
    • Flat Rolled Products (FRP) segment operating profit was $78
      million, or 4.5% of sales
  • Net income attributable to ATI was $222.4 million, or $1.61 per
    share
    • Significant improvement following prior years' restructuring
      actions
  • $382 million of cash on hand at year-end 2018 driven by strong Q4
    cash generation

Fourth Quarter 2018 Results

  • Sales were $1.04 billion, 14% higher than Q4 2017
    • HPMC segment sales of $596 million, up 15% versus Q4 2017
    • FRP segment sales of $442 million, up 13% versus Q4 2017
  • Business segment operating profit was $87 million, or 8.4% of sales
    • HPMC segment operating profit was $76 million, or 12.7% of sales
    • FRP segment operating profit was $11 million, or 2.6% of sales
  • Net income attributable to ATI was $41.1 million, or $0.30 per share

Allegheny Technologies Incorporated (NYSE:ATI) reported 2018 results.
For the full year 2018, sales increased 15%, to $4.05 billion, and
segment operating profit increased by 46%, to $413.2 million, or 10.2%
of sales. Net income attributable to ATI for 2018 was $222.4 million, or
$1.61 per share, compared to a full year 2017 net loss attributable to
ATI of $91.9 million, or $(0.83) per share. On an adjusted basis, full
year 2018 net income was $207.7 million, or $1.51 per share, excluding a
$14.7 million, or $0.10 per share, gain on the sale of a 50% interest
and subsequent deconsolidation of the A&T Stainless joint venture in
March 2018, compared to adjusted 2017 net income attributable to ATI of
$54.6 million, or $0.48 per share, excluding a $37.0 million debt
extinguishment charge, tax legislation impacts and a $113.6 million
net-of-tax charge for goodwill impairment.

For the fourth quarter 2018, sales were $1.04 billion and net income
attributable to ATI was $41.1 million, or $0.30 per share. Prior year Q4
sales were $909.9 million and net income attributable to ATI was $1.7
million, or $0.01 per share, which included a $37.0 million debt
extinguishment charge. Excluding this debt charge and certain tax
legislation impacts, prior year Q4 adjusted net income was $34.6
million, or $0.27 per share.

"We delivered our highest revenues since 2014," said President and CEO
Bob Wetherbee. "Revenues grew in nearly all of our major markets, a
testament to our ability to meet customers' increasing demand for ATI's
unique design and production capabilities. Our commitment to relentless
innovation and disciplined operational performance led both of our
business segments to achieve double-digit sales growth in aerospace and
defense."

"Our HPMC segment finished the year with solid fundamentals as sales
increased 15% in the fourth quarter and 13% for the full year compared
to the prior year periods. These results exceeded the upper-end of our
full year revenue growth guidance range of 10% to 12%," said Wetherbee.
Full year segment operating profit of $335 million, or 14.4% of sales,
represented a 250-basis point improvement over 2017. Sales to the
aerospace and defense markets grew by 15% versus the prior year quarter
and were 77% of total HPMC fourth quarter 2018 sales. Next-generation
jet engine product sales growth remained strong, increasing by over 50%
versus the fourth quarter 2017, and represented 48% of total fourth
quarter 2018 HPMC jet engine product sales. Fourth quarter 2018 HPMC
segment operating profit was $76 million, or 12.7% of sales. Q4 results
reflect higher operating costs (approximately $7 million) including
major maintenance activities, which will enable continued strong
operational execution into 2019, as well as ongoing impacts of a
previously identified nickel powder billet supply issue and higher
energy costs at our facilities in the Pacific Northwest due to supply
disruptions following a natural gas pipeline explosion. "While we
finished the year slightly below our increased HPMC operating profit
margin expectations, I am proud of our teams' efforts to satisfy our
customers' increased demand levels while performing important
maintenance activities that help to position us for future profitable
growth," said Wetherbee.

The FRP segment reported fourth quarter 2018 sales of $442 million and
operating profit of $11 million, or 2.6% of sales. FRP's U.S. operations
remained profitable in the fourth quarter 2018 despite the predicted
significant declines in prices for several key raw materials, which
reduced profit margins due to a mismatch between higher input costs for
these materials and raw material surcharges based on falling raw
material indices that are included in selling prices. "These results
demonstrate the benefits of improved product mix and our business
transformation efforts," said Wetherbee. FRP segment results in the
fourth quarter 2018 include a $4 million loss for ATI's share of the A&T
Stainless joint venture operations, which is currently unable to fully
overcome the negative impact of the Section 232 import tariffs. For the
full year 2018, FRP segment operating profit was $78 million, more than
double the 2017 result, with significant growth in key end markets. 2018
sales to the differentiated oil & gas and aerospace & defense markets
were each up approximately 30% versus the prior year.

"Within the FRP segment, we continue to make progress toward our goal of
increasing asset utilization in a capital-efficient manner. Carbon steel
hot-rolling conversion services for NLMK USA continue to ramp-up at our
world-class Hot Rolling and Processing Facility, or HRPF. We expect
ongoing production increases in line with expectations in 2019,"
Wetherbee said. "Regarding our efforts to secure a Section 232 tariff
exclusion on behalf of the A&T Stainless JV, we continue to engage the
U.S. Commerce Department in dialogue and work within their tariff
exclusion framework. We firmly believe the facts underlying this request
are compelling and justify a tariff exclusion," said Wetherbee.

As of December 31, 2018, cash on hand was $382 million and available
additional liquidity under the asset-based lending (ABL) credit facility
was approximately $350 million, with no borrowings under the revolving
credit portion of the ABL. During the fourth quarter 2018, ATI generated
$276 million of cash from operating activities, including a $173 million
decrease in managed working capital, which improved to 31.6% of sales,
representing a 650-basis point reduction compared to the prior year-end.
Capital expenditures were $139 million for 2018, including $38 million
in the fourth quarter primarily related to HPMC growth projects
including the new iso-thermal press and heat-treating capacity expansion
at our Iso-Thermal Forging Center of Excellence in Cudahy, WI.

Strategy and Outlook

In the HPMC segment, ATI expects continued year-over-year revenue and
operating profit expansion in 2019 through focused growth in
highly-differentiated materials and technologies, primarily for the jet
engine market. The Company is leveraging the scale and capabilities
required for its jet engine customers into other highly-demanding
materials and components markets, targeting high-single-digit revenue
growth, and year-over-year segment operating profit margin improvement
of 150 basis points in 2019, including the negative impact of
approximately $8 million of higher retirement benefit expense. "We
remain focused on operational execution and continuous improvement
initiatives to continue to meet our increasing aerospace production rate
requirements," said Wetherbee.

In the FRP segment, significant price declines in several key raw
materials are expected to negatively affect first quarter 2019 results
due to the mismatch between input costs and the surcharge index pricing
mechanism. ATI expects FRP segment results for the full year 2019 to be
in line with 2018, with ongoing high-value product sales growth and the
continued benefits from higher HRPF utilization rates to be offset by
the short-term raw material costs headwinds and approximately $23
million of higher retirement benefit expense in the segment.

In total for ATI, 2019 defined benefit pension and postretirement
benefit plan expenses are expected to be approximately $35 million
higher compared to 2018, mainly due to lower-than-expected returns on
pension trust assets primarily resulting from the December 2018 equity
market decline. Contributions to ATI's U.S. defined benefit pension plan
are now expected to be approximately $145 million in 2019. We continued
to make progress on our defined benefit pension strategy in 2018. In the
fourth quarter 2018, as part of its liability management strategy, ATI
completed a $97 million risk transfer of a portion of the U.S. pension
obligations through the purchase of an annuity contract with a
nationally recognized insurance company. As a reminder, the ATI U.S.
defined benefit pension plan is now closed to new entrants.

ATI expects strong cash flow generation from operations in 2019, with
free cash flow, excluding pension plan contributions, of at least $290
million. Capital expenditures are projected to be at or below our
expected 2019 depreciation levels, or between $165 million and $170
million, including the previously announced HPMC growth projects for
ATI's Iso-Thermal Forging Center of Excellence in Cudahy, WI, as well as
other strategic growth projects. "We will be disciplined in our capital
deployment as we invest for future growth opportunities while continuing
to strengthen the balance sheet," Wetherbee concluded.

Fourth Quarter and Full Year 2018 Financial Results

  • Sales for the fourth quarter 2018 were $1.04 billion, a 14%
    increase compared to the fourth quarter 2017. Sales for the full year
    2018 increased 15% to $4.05 billion, compared to $3.53 billion in
    2017. HPMC sales in 2018 reflect stronger demand for forgings and
    components for the aerospace and defense markets as well as
    nickel-based and specialty alloy products. FRP sales for the full year
    2018 include a stronger mix of high-value products, particularly
    nickel-based alloys.
  • Gross profit in the fourth quarter 2018 at $147.6 million, or
    14.2% of sales, was $5.0 million higher than the prior year's fourth
    quarter. For the full year 2018, gross profit increased more than $130
    million over 2017, to $630.3 million, or 15.6% of sales.
  • Net income attributable to ATI for the fourth quarter 2018 was
    $41.1 million, or $0.30 per share. This compares to fourth quarter
    2017 net income attributable to ATI of $1.7 million, or $0.01 per
    share. For the full year 2018, net income attributable to ATI was
    $222.4 million, or $1.61 per share, compared to a net loss of $91.9
    million, or $(0.83) per share for the 2017 fiscal year. Results in all
    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 December 31, 2018 was $382.0 million. For the
    full year 2018, cash provided by operating activities was $392.8
    million, including a $74.1 million reduction in managed working
    capital. Cash used in investing activities in 2018 was $145.1 million,
    including $139.2 million for capital expenditures and $10.0 million
    for the acquisition of an additive manufacturing business, partially
    offset by proceeds from equipment disposals and other items. Cash used
    in financing activities was $7.3 million, including a $5.9 million
    reduction in foreign credit facility borrowings.

High Performance Materials & Components Segment

Market Conditions

  • Aerospace and defense sales in the fourth quarter 2018 were $459.6
    million, 3% higher than the third quarter 2018, and represented 77% of
    total segment sales. Compared to the third quarter 2018, commercial
    jet engine sales were 7% higher and government aero/defense sales were
    6% higher, while commercial airframe sales were 7% lower. Total HPMC
    fourth quarter 2018 sales increased 2% compared to the third quarter
    2018. Sales to the oil & gas market were 32% higher, while sales to
    other HPMC end markets including medical and electrical energy were
    lower. Direct international sales represented 47% of total segment
    sales for the fourth quarter 2018.

Fourth quarter 2018 compared to fourth quarter 2017

  • Sales were $596.1 million, a $78.4 million, or 15% increase compared
    to the fourth quarter 2017, primarily due to higher sales of
    next-generation jet engine products. Sales to the commercial aerospace
    market, which represented 66% of fourth quarter 2018 sales, were 21%
    higher than the prior year, including a 26% increase in sales to the
    commercial jet engine market. Sales to the oil & gas market were 67%
    higher from a weak prior year period, and construction and mining
    market sales were 30% higher.
  • Segment operating profit increased to $76.0 million from $65.8 million
    for the fourth quarter 2017. Segment operating profit margins were
    12.7% for both periods. An improved product mix related to
    next-generation forgings, components and nickel-based alloys for the
    aero engine market was partially offset by about $7 million for the
    combined impact from higher operating costs including major
    maintenance, higher energy costs at certain facilities, and the
    negative impact of an ongoing nickel powder billet supply issue.

Flat Rolled Products Segment

Market Conditions

  • Sales increased by 2% in the fourth quarter 2018 compared to the third
    quarter 2018, led by an 18% increase in sales to the aerospace and
    defense markets, including products for titanium armor applications.
    Sales to most other key end markets were lower compared to the third
    quarter 2018, including sales to the oil & gas market which declined
    1%, and sales to the automotive and electrical energy markets which
    declined 7% and 15%, respectively. Shipments increased 2% for
    high-value products, primarily related to stronger demand for
    nickel-alloy and titanium products, compared to the third quarter
    2018. Shipments declined 6% for standard stainless products as falling
    raw material values and year-end inventory management actions affected
    customer order patterns in the distribution channel. Direct
    international sales were 33% of fourth quarter 2018 segment sales.

Fourth quarter 2018 compared to fourth quarter 2017

  • Sales were $441.8 million, a $49.6 million, or 13%, increase compared
    to the prior year period. Sales to the aerospace and defense and
    automotive markets were 62% and 18% higher, respectively, compared to
    the fourth quarter 2017. These increases more than offset a nearly 5%
    decrease in sales to FRP's largest end market, oil & gas, which
    experienced higher 2017 demand levels due to the timing of
    international projects.
  • Segment operating profit was $11.3 million, or 2.6% of sales, compared
    to $22.4 million, or 5.7% of sales, for the fourth quarter 2017.
    Fourth quarter 2018 results were negatively impacted by significant
    price declines in several key raw materials, most notably ferrochrome
    and nickel, which reduced profit margins due to a mismatch between the
    higher input costs for these materials and raw material surcharges
    based on falling raw material indices that are included in selling
    prices, compared to the prior year period. In addition, the FRP
    segment results include a $4 million loss for ATI's share of the A&T
    Stainless joint venture operations, primarily due to Section 232
    tariffs.

Corporate Expenses, Closed Operations and Other Expenses

  • Both fourth quarter and full year 2018 Corporate Expenses include
    higher incentive compensation related to improved company performance
    versus 2017. Closed Operations and Other Expenses in the fourth
    quarter 2018 were $5.0 million, compared to $5.6 million in the prior
    year fourth quarter. For the full year 2018, Closed Operations and
    Other Expenses were $21.6 million, compared to $34.0 million for 2017.
    Changes between periods were primarily the result of foreign currency
    remeasurement gains in 2018 compared to remeasurement losses in 2017,
    along with lower carrying costs for closed facilities in 2018, mainly
    related to the Rowley, UT and Midland, PA locations, compared to the
    prior year.

Income Taxes

  • The fourth quarter 2018 included a tax benefit of $5.8 million
    primarily related to income taxes on non-U.S. operations, including
    the full year benefit in the quarter of a reduced annual tax rate for
    our STAL joint venture in China. For the full year 2018, ATI's tax
    expense was $11.0 million, or 4.4% of pretax income. 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. Based on currently proposed regulations
    related to the 2017 Tax Cuts and Jobs Act and the current 2019
    outlook, we expect our consolidated income tax expense for 2019 to be
    approximately 5% to 7% of pretax income.

Allegheny Technologies will conduct a conference call with investors
and analysts on Tuesday, January 22, 2019, 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.

Forward-Looking Statements

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 $4.0 billion for the
twelve-month period ended December 31, 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 Fiscal Year Ended
December 31 September 30 December 31 December 31 December 31
2018 2018 2017 2018 2017
 
Sales $ 1,037.9 $ 1,020.2 $ 909.9 $ 4,046.6 $ 3,525.1
 
Cost of sales   890.3     859.8     767.3     3,416.3     3,028.1  
Gross profit 147.6 160.4 142.6 630.3 497.0
 
Selling and administrative expenses 72.9 65.5 60.5 268.2 248.0
Impairment of goodwill   -     -     -     -     114.4  
Operating income 74.7 94.9 82.1 362.1 134.6
Nonoperating retirement benefit expense (8.4 ) (8.4 ) (13.4 ) (33.9 ) (54.3 )
Interest expense, net (25.2 ) (24.8 ) (31.6 ) (101.0 ) (133.8 )
Debt extinguishment charge - - (37.0 ) - (37.0 )
Other (expense) income, net   (1.9 )   0.8     0.3     20.5     4.0  
Income (loss) before income taxes 39.2 62.5 0.4 247.7 (86.5 )
Income tax provision (benefit)   (5.8 )   6.9     (4.8 )   11.0     (6.8 )
Net income (loss) $ 45.0 $ 55.6 $ 5.2 $ 236.7 $ (79.7 )
Less: Net income attributable to noncontrolling interests   3.9     5.1     3.5     14.3     12.2  
Net income (loss) attributable to ATI $ 41.1   $ 50.5   $ 1.7   $ 222.4   $ (91.9 )
 
Basic net income (loss) attributable to ATI per common share $ 0.33   $ 0.40   $ 0.01   $ 1.78   $ (0.83 )
 
Diluted net income (loss) attributable to ATI per common share $ 0.30   $ 0.37   $ 0.01   $ 1.61   $ (0.83 )
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 Fiscal Year Ended
December 31 September 30 December 31 December 31 December 31
2018 2018 2017 2018 2017
Sales:
High Performance Materials & Components $ 596.1 $ 585.5 $ 517.7 $ 2,334.2 $ 2,067.4
Flat Rolled Products   441.8     434.7     392.2     1,712.4     1,457.7  
 
Total external sales $ 1,037.9   $ 1,020.2   $ 909.9   $ 4,046.6   $ 3,525.1  
 
Operating profit:
 
High Performance Materials & Components $ 76.0 $ 76.0 $ 65.8 $ 335.4 $ 246.4
% of Sales 12.7 % 13.0 % 12.7 % 14.4 % 11.9 %
 
Flat Rolled Products 11.3 29.5 22.4 77.8 37.0
% of Sales   2.6 %   6.8 %   5.7 %   4.5 %   2.5 %
 
Total operating profit 87.3 105.5 88.2 413.2 283.4
% of Sales 8.4 % 10.3 % 9.7 % 10.2 % 8.0 %
 
 
LIFO and net realizable value reserves (0.7 ) - - (0.7 ) (0.2 )
 
Corporate expenses (17.2 ) (14.8 ) (13.6 ) (58.1 ) (50.5 )
 
Closed operations and other expense (5.0 ) (3.4 ) (5.6 ) (21.6 ) (34.0 )
 
Impairment of goodwill - - - - (114.4 )
 
Gain on joint venture deconsolidation - - - 15.9 -
 
Debt extinguishment charge - - (37.0 ) - (37.0 )
 
Interest expense, net   (25.2 )   (24.8 )   (31.6 )   (101.0 )   (133.8 )
 
 
Income (loss) before income taxes $ 39.2   $ 62.5   $ 0.4   $ 247.7   $ (86.5 )
 

 
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Current period unaudited, dollars in millions)
 
December 31, December 31,
2018 2017
ASSETS
 
Current Assets:
Cash and cash equivalents $ 382.0 $ 141.6

Accounts receivable, net of allowances for doubtful accounts

527.8 545.3
Short-term contract assets 51.2 -
Inventories, net 1,211.1 1,176.1
Prepaid expenses and other current assets   74.6   52.7
Total Current Assets 2,246.7 1,915.7
 
Property, plant and equipment, net 2,475.0 2,495.7
Goodwill 534.7 531.4
Other assets   245.4   242.6
 
Total Assets $ 5,501.8 $ 5,185.4
 
LIABILITIES AND EQUITY
 
Current Liabilities:
Accounts payable $ 498.8 $ 420.1
Accrued liabilities 260.1 282.4
Short-term contract liabilities 71.4 -

Short-term debt and current portion of long-term debt

  6.6   10.1
Total Current Liabilities 836.9 712.6
 
Long-term debt 1,535.5 1,530.6
Accrued postretirement benefits 318.4 317.8
Pension liabilities 730.0 697.0
Deferred income taxes 12.9 9.7
Long-term contract liabilities 7.3 -
Other long-term liabilities   69.2   73.2
Total Liabilities   3,510.2   3,340.9
 
Total ATI stockholders' equity 1,885.7 1,739.4
Noncontrolling interests   105.9   105.1
Total Equity   1,991.6   1,844.5
 
Total Liabilities and Equity $ 5,501.8 $ 5,185.4
 

 
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in millions)
    Fiscal Year Ended
December 31
2018   2017
 
Operating Activities:
 
Net income (loss) $ 236.7 $ (79.7 )
 
Depreciation and amortization 156.4 160.8
Impairment of goodwill - 114.4
Debt extinguishment charge - 37.0
Deferred taxes 2.1 (1.4 )
Change in managed working capital 74.1 (111.8 )
Change in retirement benefits (32.6 ) (110.3 )
Accrued liabilities and other   (43.9 )   13.4  
Cash provided by operating activities   392.8     22.4  
Investing Activities:
Purchases of property, plant and equipment (139.2 ) (122.7 )
Purchases of businesses (10.0 ) -
Asset disposals and other   4.1     3.1  
Cash used in investing activities   (145.1 )   (119.6 )
Financing Activities:
Borrowings on long-term debt 7.1 8.5
Payments on long-term debt and capital leases (6.4 ) (353.0 )
Net (payments) borrowings under credit facilities (5.9 ) 1.6
Debt issuance costs - (0.8 )
Debt extinguishment charge - (35.8 )
Issuance of common stock - 397.8
Dividends paid to noncontrolling interests (10.0 ) (8.0 )
Sale to noncontrolling interests 14.4 3.7
Taxes on share-based compensation and other   (6.5 )   (4.8 )
Cash (used in) provided by financing activities   (7.3 )   9.2  
Increase (decrease) in cash and cash equivalents 240.4 (88.0 )
Cash and cash equivalents at beginning of period   141.6     229.6  
Cash and cash equivalents at end of period $ 382.0   $ 141.6  
 

             
Allegheny Technologies Incorporated and Subsidiaries
Revenue by Market
(Unaudited, dollars in millions)
  Three Months Ended Fiscal Year Ended
December 31 December 31 December 31 December 31
2018 2017 2018 2017
Market
Aerospace & Defense:
Jet Engines $ 301.9 29 % $ 238.8 26 % $ 1,151.4 29 % $ 955.9 27 %
Airframes 142.2 14 % 120.2 13 % 537.0 13 % 482.3 14 %
Government Aerospace & Defense   77.8   7 %   78.6   9 %   277.1   7 %   279.9   8 %
Total Aerospace & Defense $ 521.9 50 % $ 437.6 48 % $ 1,965.5 49 % $ 1,718.1 49 %
Oil & Gas 132.7 13 % 128.5 14 % 546.2 13 % 418.2 12 %
Automotive 78.9 8 % 67.3 8 % 323.4 8 % 273.7 8 %
Food Equipment & Appliances 63.6 6 % 57.1 6 % 244.9 6 % 226.0 6 %
Electrical Energy 54.2 5 % 48.0 5 % 234.5 6 % 192.2 5 %
Construction/Mining 56.1 5 % 48.3 5 % 226.0 6 % 192.9 6 %
Medical 40.3 4 % 40.3 5 % 183.1 4 % 183.0 5 %
Electronics/Computers/Communications 47.2 5 % 43.4 5 % 156.9 4 % 151.6 4 %
Other   43.0   4 %   39.4   4 %   166.1   4 %   169.4   5 %
Total $ 1,037.9   100 % $ 909.9   100 % $ 4,046.6   100 % $ 3,525.1   100 %
 

       
Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data
(Unaudited)
 
Three Months Ended Fiscal Year Ended
December 31 September 30 December 31 December 31 December 31
2018 2018 2017 2018 2017
Percentage of Total ATI Sales
High-Value Products
Nickel-based alloys and specialty alloys 30 % 30 % 31 % 30 % 28 %
Precision forgings, castings and components 19 % 18 % 18 % 20 % 18 %
Titanium and titanium-based alloys 19 % 16 % 16 % 17 % 17 %
Precision and engineered strip 14 % 14 % 14 % 14 % 14 %
Zirconium and related alloys   5 %   6 %   5 %   5 %   6 %
Total High-Value Products 87 % 84 % 84 % 86 % 83 %
Standard Products
Stainless steel sheet 8 % 9 % 8 % 8 % 9 %
Specialty stainless sheet 4 % 4 % 4 % 4 % 4 %
Stainless steel plate and other   1 %   3 %   4 %   2 %   4 %
Total Standard Products   13 %   16 %   16 %   14 %   17 %
Grand Total   100 %   100 %   100 %   100 %   100 %
 
 
Three Months Ended Fiscal Year Ended
December 31 September 30 December 31 December 31 December 31
Shipment Volume: 2018 2018 2017 2018 2017
 
Flat Rolled Products (000's lbs.)
High value 89,963 87,994 90,332 346,564 323,391
Standard   90,529     96,211     100,973     400,995     446,542  
Flat Rolled Products total 180,492 184,205 191,305 747,559 769,933
 
 
Average Selling Prices:
 
Flat Rolled Products (per lb.)
High value $ 3.14 $ 3.22 $ 2.94 $ 3.20 $ 2.81
Standard $ 1.43 $ 1.53 $ 1.23 $ 1.41 $ 1.21
Flat Rolled Products combined average $ 2.28 $ 2.34 $ 2.04 $ 2.24 $ 1.88
 

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 Fiscal Year Ended
December 31 September 30 December 31 December 31

December 31

2018 2018 2017 2018 2017
 
Numerator for Basic net income (loss) per common share -
Net income (loss) attributable to ATI $ 41.1 $ 50.5 $ 1.7 $ 222.4 $ (91.9 )
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022   3.3   3.2   -   12.9   -  
Numerator for Diluted net income (loss) per common share -
Net income (loss) attributable to ATI after assumed conversions $ 44.4 $ 53.7 $ 1.7 $ 235.3 $ (91.9 )
 
Denominator for Basic net income (loss) per common share -
Weighted average shares outstanding 125.2 125.2 117.5 125.2 110.1
Effect of dilutive securities:
Share-based compensation 1.4 0.9 1.1 0.8 -
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   146.5   146.0   118.6   145.9   110.1  
 
Basic net income (loss) attributable to ATI per common share $ 0.33 $ 0.40 $ 0.01 $ 1.78 $ (0.83 )
 
Diluted net income (loss) attributable to ATI per common share $ 0.30 $ 0.37 $ 0.01 $ 1.61 $ (0.83 )
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)
 
December 31 December 31
2018 2017
 
Accounts receivable $ 527.8 $ 545.3
Short-term contract assets 51.2 -
Inventory 1,211.1 1,176.1
Accounts payable (498.8 ) (420.1 )
Short-term contract liabilities   (71.4 )   -  
Subtotal 1,219.9 1,301.3
 
Allowance for doubtful accounts 6.0 5.9
LIFO reserve (2.9 ) (43.1 )
Inventory reserves   88.5     121.5  
Managed working capital $ 1,311.5   $ 1,385.6  
 

 

Annualized prior 3 months sales

$ 4,151.3   $ 3,639.5  
 

 

Managed working capital as a % of annualized sales

31.6 % 38.1 %
 

 

December 31, 2018 change in managed working capital

$ (74.1 )
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)
 
December 31 December 31
2018 2017
 
Total debt (a) $ 1,552.5 $ 1,553.8
Less: Cash   (382.0 )   (141.6 )
Net debt $ 1,170.5 $ 1,412.2
 
Net debt $ 1,170.5 $ 1,412.2
Total ATI stockholders' equity   1,885.7     1,739.4  
Net ATI capital $ 3,056.2 $ 3,151.6
 
Net debt to ATI capital   38.3 %   44.8 %
 
Total debt (a) $ 1,552.5 $ 1,553.8
Total ATI stockholders' equity   1,885.7     1,739.4  
Total ATI capital $ 3,438.2 $ 3,293.2
 
Total debt to total ATI capital   45.2 %   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 January 22, 2019:
  Fiscal Year Ended   Three Months Ended   Fiscal Year Ended
December 31, 2018 December 31, 2017 December 31, 2017
 
Income (loss) attributable to ATI $ 222.4 $ 1.7 $ (91.9 )
Adjust for special items:
Gain on joint venture deconsolidation, net of tax (a) (14.7 ) - -
Debt extinguishment charge, net of tax (b) - 37.0 37.0
Impairment of goodwill, net of tax (c) - - 113.6
Income tax items including valuation allowances (d)   -     (4.1 )   (4.1 )
Income attributable to ATI excluding special items $ 207.7   $ 34.6   $ 54.6  
 
Per Diluted Share * Per Diluted Share * Per Diluted Share *
Income (loss) attributable to ATI $ 1.61 $ 0.01 $ (0.83 )
Adjust for special items:
Gain on joint venture deconsolidation, net of tax (a) (0.10 ) - -
Debt extinguishment charge, net of tax (b) - 0.29 0.29
Impairment of goodwill, net of tax (c) - - 1.05
Income tax items including valuation allowances (d)   -     (0.03 )   (0.03 )
Income attributable to ATI excluding special items $ 1.51   $ 0.27   $ 0.48  
* Presentation of adjusted results per diluted share includes the
effects of convertible debt, if dilutive.
 
(a) First quarter 2018 results include a gain on deconsolidation of
Allegheny & Tsingshan Stainless following the sale of a 50%
noncontrolling interest and subsequent derecognition. The $15.9
pretax gain, including ATI's retained 50% share, was recorded at
fair value.
 
(b) Fourth quarter and fiscal year ended December 31, 2017 results
include a debt extinguishment charge of $37.0 after-tax, or $(0.29)
per share, for the full redemption of the $350, 9.375% Senior Notes
due 2019.
 
(c) 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.
 
(d) Amounts for the three months and fiscal year ended December 31, 2017
include $4.1 of tax benefits, or $0.03 per share, from the 2017 Tax
Cuts and Jobs Act legislation.
 

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 Company's
U.S. qualified defined benefit pension plans.

View Comments and Join the Discussion!