UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2005
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From ______to______
Commission File Number 1-12001
ALLEGHENY TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware |
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25-1792394 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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1000 Six PPG Place |
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Pittsburgh, Pennsylvania |
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15222-5479 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
(412) 394-2800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes
þ
No
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
o
No
þ
At
October 28, 2005, the registrant had outstanding 97,750,037 shares of its Common Stock.
ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2005
INDEX
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Page No. |
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PART I. — FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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Consolidated Balance Sheets |
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3 |
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Consolidated Statements of Operations |
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4 |
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Consolidated Statements of Cash Flows |
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5 |
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Notes to Consolidated Financial Statements |
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6 |
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Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
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20 |
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Item 3. Quantitative and Qualitative Disclosures About
Market Risk |
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35 |
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Item 4. Controls and Procedures |
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37 |
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PART II. — OTHER INFORMATION |
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Item 1. Legal Proceedings |
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37 |
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Item 6. Exhibits |
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37 |
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SIGNATURES |
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38 |
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EXHIBIT INDEX |
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39 |
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EX-31.1 |
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EX-31.2 |
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EX-32.1 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
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September 30, |
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December 31, |
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2005 |
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2004 |
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(Unaudited) |
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(Audited) |
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ASSETS |
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Cash and cash equivalents |
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$ |
371.7 |
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$ |
250.8 |
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Accounts receivable, net |
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431.7 |
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357.9 |
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Inventories, net |
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609.4 |
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513.0 |
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Prepaid expenses and other current assets |
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74.1 |
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38.5 |
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Total Current Assets |
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1,486.9 |
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1,160.2 |
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Property, plant and equipment, net |
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705.3 |
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718.3 |
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Cost in excess of net assets acquired |
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202.8 |
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205.3 |
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Deferred pension asset |
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122.3 |
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122.3 |
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Deferred income taxes |
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59.3 |
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53.0 |
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Other assets |
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76.5 |
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56.6 |
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Total Assets |
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$ |
2,653.1 |
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$ |
2,315.7 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
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$ |
270.8 |
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$ |
271.2 |
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Accrued liabilities |
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221.4 |
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192.2 |
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Short-term debt and current portion of long-term debt |
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19.7 |
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29.4 |
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Total Current Liabilities |
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511.9 |
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492.8 |
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Long-term debt |
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546.7 |
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553.3 |
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Accrued postretirement benefits |
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466.7 |
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472.7 |
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Pension liabilities |
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284.3 |
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240.9 |
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Other long-term liabilities |
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111.7 |
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130.1 |
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Total Liabilities |
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1,921.3 |
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1,889.8 |
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Stockholders’ Equity: |
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Preferred stock, par value $0.10: authorized-50,000,000 shares; issued-none |
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¾ |
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¾ |
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Common stock, par value $0.10, authorized-500,000,000
shares; issued-98,951,490 shares at September 30, 2005 and
December 31, 2004; outstanding-97,635,846 shares at
September 30, 2005 and 95,782,011 shares at December 31, 2004 |
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9.9 |
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9.9 |
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Additional paid-in capital |
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508.6 |
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481.2 |
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Retained earnings |
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541.4 |
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345.5 |
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Treasury stock: 1,315,644 shares at September 30, 2005 and
3,169,479 shares at December 31, 2004 |
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(32.9 |
) |
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(79.4 |
) |
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Accumulated other comprehensive loss, net of tax |
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(295.2 |
) |
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(331.3 |
) |
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Total Stockholders’ Equity |
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731.8 |
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425.9 |
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Total Liabilities and Stockholders’ Equity |
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$ |
2,653.1 |
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$ |
2,315.7 |
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The accompanying notes are an integral part of these statements.
3
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Sales |
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$ |
861.7 |
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$ |
730.6 |
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$ |
2,645.5 |
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$ |
1,954.9 |
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Costs and expenses: |
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Cost of sales |
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698.8 |
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653.7 |
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2,169.6 |
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1,815.0 |
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Selling and administrative expenses |
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64.4 |
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56.8 |
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196.6 |
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168.3 |
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Curtailment gain, net of restructuring costs |
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— |
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— |
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— |
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(40.4 |
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Income before interest, other expense,
and income taxes |
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98.5 |
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20.1 |
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279.3 |
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12.0 |
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Interest expense, net |
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(9.9 |
) |
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(9.3 |
) |
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(30.9 |
) |
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(25.3 |
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Other expense |
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(1.6 |
) |
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(2.2 |
) |
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(3.4 |
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(1.9 |
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Income (loss) before income tax provision (benefit) |
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87.0 |
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8.6 |
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245.0 |
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(15.2 |
) |
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Income tax provision (benefit) |
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(1.3 |
) |
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— |
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4.0 |
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— |
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Net income (loss) |
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$ |
88.3 |
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$ |
8.6 |
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$ |
241.0 |
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$ |
(15.2 |
) |
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Basic net income (loss) per common share |
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$ |
0.91 |
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$ |
0.10 |
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$ |
2.51 |
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$ |
(0.18 |
) |
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Diluted net income (loss) per common share |
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$ |
0.87 |
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$ |
0.09 |
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$ |
2.40 |
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$ |
(0.18 |
) |
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Dividends declared per common share |
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$ |
0.06 |
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$ |
0.06 |
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$ |
0.18 |
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$ |
0.18 |
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The accompanying notes are an integral part of these statements.
4
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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Nine Months Ended |
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September 30, |
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2005 |
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2004 |
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Operating Activities: |
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Net income (loss) |
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$ |
241.0 |
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$ |
(15.2 |
) |
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Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
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Depreciation and amortization |
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55.7 |
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56.4 |
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Non-cash curtailment gain and restructuring charges, net |
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— |
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(45.6 |
) |
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Deferred income taxes |
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6.5 |
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|
— |
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Capital losses on sale of property, plant and equipment |
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0.2 |
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0.2 |
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Change in operating assets and liabilities: |
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Inventories |
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(90.2 |
) |
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(43.2 |
) |
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Accounts receivable |
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(68.1 |
) |
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(84.3 |
) |
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Pension assets and liabilities |
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43.4 |
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1.9 |
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Postretirement benefits |
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(5.9 |
) |
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20.0 |
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Accounts payable |
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(3.1 |
) |
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70.5 |
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Income tax refunds receivable |
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— |
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7.2 |
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Accrued liabilities and other |
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16.1 |
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40.6 |
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Cash provided by operating activities |
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195.6 |
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8.5 |
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Investing Activities: |
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Purchases of property, plant and equipment |
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(41.2 |
) |
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(39.5 |
) |
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Purchases of businesses and investment in ventures |
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(18.3 |
) |
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(7.5 |
) |
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Asset disposals and other |
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(3.3 |
) |
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0.5 |
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Cash used in investing activities |
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(62.8 |
) |
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(46.5 |
) |
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Financing Activities: |
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Payments on long-term debt and capital leases |
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(31.3 |
) |
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(17.3 |
) |
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Borrowings on long-term debt |
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13.3 |
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11.7 |
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Net borrowings under foreign credit facilities |
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3.6 |
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— |
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Net decrease in debt |
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(14.4 |
) |
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(5.6 |
) |
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Exercises of stock options |
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19.9 |
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5.1 |
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Dividends paid |
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(17.4 |
) |
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(9.7 |
) |
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Issuance of common stock |
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— |
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229.7 |
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Proceeds from interest rate swap settlement |
|
|
— |
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1.5 |
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Cash provided by (used in) financing activities |
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(11.9 |
) |
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221.0 |
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Increase in cash and cash equivalents |
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|
120.9 |
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|
183.0 |
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Cash and cash equivalents at beginning of the year |
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250.8 |
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79.6 |
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Cash and cash equivalents at end of period |
|
$ |
371.7 |
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$ |
262.6 |
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|
The accompanying notes are an integral part of these statements.
5
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1. Accounting Policies
Basis of Presentation
The interim consolidated financial statements include the accounts of Allegheny Technologies
Incorporated and its subsidiaries. Unless the context requires otherwise, “Allegheny
Technologies”, “ATI” and “the Company” refer to Allegheny Technologies Incorporated and its
subsidiaries.
These unaudited consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and note disclosures required by U.S. generally accepted accounting principles
for complete financial statements. In management’s opinion, all adjustments (which include only
normal recurring adjustments) considered necessary for a fair presentation have been included.
These unaudited consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s 2004 Annual Report on
Form 10-K. The results of operations for these interim periods are not necessarily indicative of
the operating results for any future period.
Stock-based Compensation
Effective January 1, 2005, the Company adopted Statement of Financial Accounting Standards No.
123(R), “Share-Based Payment” (“SFAS 123R”). Under the revised standard, companies may no longer
account for share-based compensation transactions, such as stock options, restricted stock, and
potential payments under programs such as the Company’s Total Shareholder Return (“TSR”) plans,
using the intrinsic value method as defined in APB Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”). Instead, companies are required to account for such equity transactions
using an approach in which the fair value of an award is estimated at the date of grant and
recognized as an expense over the requisite service period. Compensation expense is adjusted for
equity awards that do not vest because service or performance conditions are not satisfied.
However, compensation expense already recognized is not adjusted if market conditions are not met,
such as the Company’s total shareholder return performance relative to a peer group under the
Company’s TSR plans, or for stock options which expire “out-of-the-money”. The new standard was
adopted using the modified prospective method and beginning with the first quarter 2005, the
Company reflects compensation expense in accordance with the SFAS 123R transition provisions.
Under the modified prospective method, the effect of the standard is recognized in the period of
adoption and in future periods. Prior periods have not been restated to reflect the impact of
adopting the new standard.
Third quarter 2005 compensation expense related to share-based incentive plans was $2.3
million compared to $1.8 million in the third quarter of 2004. For the nine months ended September
30, 2005, share-based compensation expense was $7.5 million, compared to $11.9 million for the
first nine months of 2004. Share-based compensation expense for the first nine months of 2005
includes $2.3 million related to expensing of stock options. Net income for the year ended
December 31, 2004 would have been $9.6 million higher, at $29.4 million, had share-based
compensation expense been accounted for under SFAS 123R, and net income per diluted share for the
year ended December 31, 2004 would have been $0.33 under FAS 123R, rather than $0.22. The
following table illustrates for each quarter of 2004 the effect on operating results and per share
information had the Company accounted for share-based compensation in accordance with SFAS 123R
during those periods.
6
In millions, except per share amounts:
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| |
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Quarter Ended |
|
|
Year Ended |
|
| |
|
3/31/04 |
|
|
6/30/04 |
|
|
9/30/04 |
|
|
12/31/04 |
|
|
12/31/04 |
|
|
Net income (loss) as reported |
|
$ |
(50.4 |
) |
|
$ |
26.6 |
|
|
$ |
8.6 |
|
|
$ |
35.0 |
|
|
$ |
19.8 |
|
|
Add: Share-based compensation
expense included in net income
(loss) under APB 25, net of tax |
|
|
1.2 |
|
|
|
8.9 |
|
|
|
1.8 |
|
|
|
8.7 |
|
|
|
20.6 |
|
|
Deduct: Net impact of SFAS
123R, net of tax |
|
|
(2.4 |
) |
|
|
(2.1 |
) |
|
|
(2.1 |
) |
|
|
(4.4 |
) |
|
|
(11.0 |
) |
|
|
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|
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|
|
|
|
Pro forma net income (loss) |
|
$ |
(51.6 |
) |
|
$ |
33.4 |
|
|
$ |
8.3 |
|
|
$ |
39.3 |
|
|
$ |
29.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic – as reported |
|
$ |
(0.63 |
) |
|
$ |
0.33 |
|
|
$ |
0.10 |
|
|
$ |
0.37 |
|
|
$ |
0.23 |
|
|
Basic – pro forma |
|
$ |
(0.64 |
) |
|
$ |
0.41 |
|
|
$ |
0.09 |
|
|
$ |
0.41 |
|
|
$ |
0.34 |
|
|
Diluted – as reported |
|
$ |
(0.63 |
) |
|
$ |
0.31 |
|
|
$ |
0.09 |
|
|
$ |
0.35 |
|
|
$ |
0.22 |
|
|
Diluted – pro forma |
|
$ |
(0.64 |
) |
|
$ |
0.39 |
|
|
$ |
0.09 |
|
|
$ |
0.39 |
|
|
$ |
0.33 |
|
The Company has provided a full valuation allowance associated with the tax benefits of the
adoption of SFAS 123R.
The Company sponsors three principal share-based incentive compensation programs. The general
terms of each arrangement, the method of estimating fair value for each arrangement, and 2005
activity is reported below.
Stock option awards: Options granted to employees vest in one-third increments over three years,
based on term of service. Fair value as calculated under Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation”, is used to recognize expense upon
adoption of SFAS 123R. Fair values for each grant were estimated using a Black-Scholes-Merton
valuation model which utilized assumptions for stock price volatility, estimated life based on
historical option exercise patterns, and projected dividends. The Company has not granted any
stock options, other than grants to non-employee directors, since 2003. In the 2005 second
quarter, the Company granted options to purchase 9,000 shares of Common Stock to non-employee
directors. Compensation expense related to stock option awards was $0.7 million for the third
quarter 2005 and $2.0 million for the nine months ended September 30, 2005. Approximately $0.4
million of unrecognized compensation expense related to unvested stock option awards will be
recognized, in declining amounts, through the first six months of 2006, when all existing grants
will have vested.
Nonvested stock awards: Awards of nonvested stock are granted with either performance and/or
service conditions. In certain grants, nonvested shares participate in cash dividends during the
restriction period. In other grants, dividends are paid in the form of additional shares of
nonvested stock, subject to the same vesting conditions and dividend treatment as the underlying
shares. Fair value is measured based on the stock price at the grant date, adjusted for
non-participating dividends, as applicable, based on the current dividend rate. In the first
quarter 2005, the Company granted 151,902 shares of nonvested stock with a grant date fair value
per share of $22.175, for a total grant date fair value of $3.4 million. Compensation expense
related to all nonvested stock awards was $0.6 million for the 2005 third quarter, and $1.9 million
for the first nine months of 2005. Compensation expense recognized in the prior year under APB 25
for nonvested stock awards was $0.5 million and $1.5 million for the quarter and year-to-date
periods ended September 30, 2004. Approximately $4.2 million of unrecognized fair value
compensation expense relating to nonvested stock awards is expected to be recognized through 2007
based on estimates of attaining performance vesting criteria.
TSR plan awards: Awards under the TSR plans are granted at a target number of shares, and vest
based on the measured return of the Company’s stock price and dividend performance at the end of
three-year periods compared to the stock price and dividend performance of a group of industry
peers. The 2003-2005 and 2004-2006 TSR plans performance periods were in effect at the adoption of
SFAS 123R. In the first quarter 2005, the Company initiated a 2005-2007 TSR plan, with 166,749
shares as the target level award. The actual number of shares awarded may range from a minimum of
zero to a maximum of two times target, in the case of the 2003-2005 TSR plan award, or three times
target, in the case of the 2004-2006 and 2005-2007 TSR plans awards. Fair values for the TSR plans
awards were estimated using Monte Carlo simulations of historical stock price correlation,
projected dividend yields and other variables over three-year time horizons matching the TSR plans’
performance periods. Compensation expense of $1.0 million was recognized in the third quarter 2005 for the fair value of TSR plan
awards, compared to $1.3 million recognized in the third quarter 2004 under APB 25. For the
year-to-date periods ended September 30, 2005 and 2004, compensation expense related to TSR plan
awards was $3.3 million and $10.4 million, respectively.
The estimated fair value of each TSR plan award, including the projected shares to be awarded,
and compensation expense to be recognized subsequent to the adoption of SFAS 123R for TSR plan
awards was as follows:
(In millions, except for numbers of shares.)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
TSR |
|
|
Sept. 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
TSR Award |
|
Award |
|
|
Unrecognized |
|
|
Minimum |
|
|
Target |
|
|
Maximum |
|
|
Grant |
|
Fair Value |
|
|
Compensation |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
2003-2005 |
|
$ |
3.4 |
|
|
$ |
0.3 |
|
|
|
0 |
|
|
|
538,777 |
|
|
|
1,077,554 |
|
|
2004-2006 |
|
$ |
4.6 |
|
|
$ |
1.8 |
|
|
|
0 |
|
|
|
347,042 |
|
|
|
1,041,126 |
|
|
2005-2007 |
|
$ |
4.9 |
|
|
$ |
3.6 |
|
|
|
0 |
|
|
|
166,749 |
|
|
|
500,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
5.7 |
|
|
|
0 |
|
|
|
1,052,568 |
|
|
|
2,618,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards earned under share-based incentive compensation programs will first be paid with shares held
in treasury, and any additional required share payments will be made with newly issued shares.
Recent Accounting Pronouncement
In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47,
“Accounting for Contingent Asset Retirement Obligations” (“FIN 47”), an interpretation of FASB
Statement No. 143, “Asset Retirement Obligations” (“SFAS 143”). FIN 47 clarifies that the term
“conditional asset retirement obligation” as used in SFAS 143 refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the entity. An entity
is required to recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated, even if conditional on a
future event. FIN 47 is effective no later than the end of fiscal years ending after December 15,
2005, or ATI’s fiscal year ending December 31, 2005. For existing contingent asset retirement
obligations which are determined to be recognizable under FIN 47, the effect of applying FIN 47
would be recognized as a cumulative effect of a change in accounting principle. The Company is
evaluating the status of its conditional asset retirement obligations, and has not determined
whether sufficient information exists with regard to the timing and method of settlement to
reasonably estimate the obligations.
Note 2. Acquisitions
On April 5, 2005, a subsidiary of the Company acquired U.K.-based Garryson Limited
(“Garryson”), a leading producer of tungsten carbide burrs, rotary tooling and specialty abrasive
wheels and discs, from Elliott Industries Limited for approximately $18 million in cash. Garryson
had sales of over $30 million in 2004. The transaction was accounted for as a purchase business
combination. The acquired operations were integrated into the ATI’s Metalworking Products
operation, which is part of the Company’s Engineered Products business segment. Under the terms of
the purchase agreement, the final purchase price is subject to adjustment based on the net working
capital acquired. Approximately $0.3 million of additional purchase price was recognized in the
2005 third quarter based on adjustments to net working capital acquired.
8
The following is a summary of the preliminary purchase price allocation of the assets acquired and
liabilities assumed or recognized in conjunction with the acquisition based upon their estimated
fair market values.
| |
|
|
|
|
| |
|
Allocated |
|
| |
|
Purchase Price |
|
| |
|
(in millions) |
|
|
Acquired assets: |
|
|
|
|
|
Cash |
|
$ |
0.3 |
|
|
Accounts receivable |
|
|
4.7 |
|
|
Inventory |
|
|
6.2 |
|
|
Other current assets |
|
|
0.2 |
|
|
Deferred tax assets |
|
|
12.7 |
|
|
Property, plant and equipment |
|
|
0.3 |
|
|
|
|
|
|
|
Total assets |
|
|
24.4 |
|
|
|
|
|
|
|
|
Assumed liabilities: |
|
|
|
|
|
Accounts payable |
|
|
2.7 |
|
|
Accrued current liabilities |
|
|
1.2 |
|
|
Other long-term liabilities |
|
|
1.9 |
|
|
|
|
|
|
|
Total liabilities |
|
|
5.8 |
|
|
|
|
|
|
| |
|
Purchase price — net assets acquired |
|
$ |
18.6 |
|
|
|
|
|
|
The fair value of the Garryson net assets acquired is in excess of the purchase price. In
accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS
141”), the excess of fair value over the purchase price represents negative goodwill, which has
been allocated as a pro rata reduction to the amounts that would otherwise have been assigned to
the acquired noncurrent assets, principally property, plant and equipment. The Company expects to
finalize the purchase price allocation in the 2005 fourth quarter.
On June 1, 2004, a subsidiary of the Company acquired substantially all of the assets of J&L
Specialty Steel, LLC (“J&L”), a producer of flat-rolled stainless steel products with operations in
Midland, Pennsylvania and Louisville, Ohio, for $67.7 million in total consideration, including the
assumption of certain current liabilities, and which is subject to final adjustment. The acquired
operations were integrated into ATI’s Allegheny Ludlum operation, which is part of the Company’s
Flat-Rolled Products business segment. The purchase price included payment of $7.5 million at
closing, the issuance to the seller of a non-interest bearing $7.5 million promissory note that
matured, and was paid, on June 1, 2005, and the issuance to the seller of a promissory note in the
principal amount of $52.7 million, which is secured by the J&L property, plant and equipment
acquired, and which is subject to adjustment on the terms set forth in the asset purchase agreement
and has a final maturity of July 1, 2011. The purchase price is expected to be finalized in 2005,
pending agreement between buyer and seller regarding certain working capital adjustments.
Note 3. Inventories
Inventories at September 30, 2005 and December 31, 2004 were as follows (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
Raw materials and supplies |
|
$ |
118.9 |
|
|
$ |
70.8 |
|
|
Work-in-process |
|
|
635.1 |
|
|
|
573.6 |
|
|
Finished goods |
|
|
129.5 |
|
|
|
99.1 |
|
|
|
|
|
|
|
|
|
|
Total inventories at current cost |
|
|
883.5 |
|
|
|
743.5 |
|
|
Less allowances to reduce current cost
values to LIFO basis |
|
|
(268.0 |
) |
|
|
(223.9 |
) |
|
Progress payments |
|
|
(6.1 |
) |
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
Total inventories, net |
|
$ |
609.4 |
|
|
$ |
513.0 |
|
|
|
|
|
|
|
|
|
9
Inventories are stated at the lower of cost (last-in, first-out (“LIFO”), first-in, first-out
(“FIFO”), and average cost methods) or market, less progress payments. Most of the Company’s
inventory is valued utilizing the LIFO
costing methodology. Inventory of the Company’s non-U.S. operations is valued using average cost
or FIFO methods. Cost of sales expense was $12.1 million higher for the 2005 third quarter and
$44.1 million higher for the 2005 first nine months than would have been recognized if FIFO, rather
than LIFO, methodology were utilized to value inventory. Cost of sales expense was $8.5 million
higher for the 2004 third quarter and $82.7 million higher for the 2004 first nine months than
would have been recognized if FIFO, rather than LIFO, methodology were utilized to value inventory.
Note 4. Supplemental Financial Statement Information
Property, plant and equipment at September 30, 2005 and December 31, 2004 were as follows (in
millions):
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
Land |
|
$ |
23.7 |
|
|
$ |
24.1 |
|
|
Buildings |
|
|
230.0 |
|
|
|
231.4 |
|
|
Equipment and leasehold improvements |
|
|
1,550.7 |
|
|
|
1,562.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,804.4 |
|
|
|
1,817.9 |
|
|
Accumulated depreciation and amortization |
|
|
(1,099.1 |
) |
|
|
(1,099.6 |
) |
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
705.3 |
|
|
$ |
718.3 |
|
|
|
|
|
|
|
|
|
Reserves for restructuring charges recorded in prior years involving future payments were
approximately $5 million at September 30, 2005 and $6 million at December 31, 2004. The reduction
in reserves resulted from cash payments to meet severance and lease payment obligations.
Note 5. Debt
Debt at September 30, 2005 and December 31, 2004 was as follows (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
Allegheny Technologies $300 million 8.375% Notes due
2011, net (a) |
|
$ |
307.7 |
|
|
$ |
308.4 |
|
|
Allegheny Ludlum 6.95% debentures, due 2025 |
|
|
150.0 |
|
|
|
150.0 |
|
|
Promissory notes for J&L asset acquisition |
|
|
52.7 |
|
|
|
59.5 |
|
|
Domestic Bank Group $325 million secured credit agreement |
|
|
— |
|
|
|
— |
|
|
Foreign credit agreements |
|
|
30.2 |
|
|
|
38.6 |
|
|
Industrial revenue bonds, due through 2016 |
|
|
11.9 |
|
|
|
12.8 |
|
|
Capitalized leases and other |
|
|
13.9 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
566.4 |
|
|
|
582.7 |
|
|
Short-term debt and current portion of long-term debt |
|
|
(19.7 |
) |
|
|
(29.4 |
) |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
546.7 |
|
|
$ |
553.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes fair value adjustments for settled interest rate swap contracts of $12.6
million at September 30, 2005 and $13.7 million at December 31, 2004. |
The Company has a $325 million senior secured domestic revolving credit facility (“the
facility”), which is secured by all accounts receivable and inventory of its U.S. operations, and
includes capacity for up to $175 million in letters of credit. As of September 30, 2005, there had
been no borrowings made under the domestic credit facilities, although a portion of the facility is
used to support approximately $128 million in letters of credit.
On August 4, 2005, the Company amended the facility to (1) extend the facility term to August
2010 from its original maturity date of June 2007, (2) enable ATI to execute various corporate
actions without the prior consent of the lending group, so long as, after giving effect to such
corporate action, the Company maintains a minimum undrawn availability (as described in the
facility) of $75 million, (3) reduce the borrowing costs under the facility,
10
and (4) incorporate a
feature that would permit ATI to increase the size of the facility, assuming the Company had
sufficient collateral, by up to $150 million. Under the amended facility, if undrawn availability
as described in the facility were to decline below $75 million, corporate actions that could be
undertaken without the prior consent of
the bank group, including capital expenditures, acquisitions, sales of assets, dividends,
investments in, or loans to, corporations, partnerships, joint ventures and subsidiaries, issuance
of unsecured indebtedness, leases, and prepayments of indebtedness, would be limited. The amended
facility contains a financial covenant, which is not measured unless the Company’s undrawn
availability is less than $75 million. This financial covenant, when measured, requires ATI to
prospectively maintain a ratio of consolidated earnings before interest, taxes, depreciation and
amortization (as defined in the credit facility) to fixed charges of at least 1.0 to 1.0 from the
date the covenant is measured. ATI’s ability to borrow under the amended secured credit facility in
the future could be adversely affected if the Company fails to maintain the applicable covenants
under the agreement governing the facility.
Note 6. Per Share Information
The following table sets forth the computation of basic and diluted net income (loss) per
common share (in millions, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
Numerator for basic and diluted net
income (loss) per common share — net
income (loss) |
|
$ |
88.3 |
|
|
$ |
8.6 |
|
|
$ |
241.0 |
|
|
$ |
(15.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income (loss)
per common share-weighted average shares |
|
|
96.5 |
|
|
|
89.9 |
|
|
|
95.9 |
|
|
|
83.7 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option equivalents |
|
|
1.8 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
–– |
|
|
Contingently issuable shares |
|
|
3.1 |
|
|
|
2.4 |
|
|
|
2.8 |
|
|
|
–– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income (loss)
per common share — adjusted weighted
average shares and assumed conversions |
|
|
101.4 |
|
|
|
94.1 |
|
|
|
100.5 |
|
|
|
83.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
|
$ |
0.91 |
|
|
$ |
0.10 |
|
|
$ |
2.51 |
|
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share |
|
$ |
0.87 |
|
|
$ |
0.09 |
|
|
$ |
2.40 |
|
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarters ended September 30, 2005 and 2004, weighted average shares issuable upon the
exercise of stock options which were antidilutive, and thus not included in the calculation, were
0.5 million and 1.3 million, respectively. For the nine months ended September 30, 2005 and 2004,
antidilutive shares were 0.5 million and 6.6 million, respectively.
11
Note 7. Comprehensive Income (Loss)
The components of comprehensive income (loss), net of tax, were as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
Net income (loss) |
|
$ |
88.3 |
|
|
$ |
8.6 |
|
|
$ |
241.0 |
|
|
$ |
(15.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
(3.8 |
) |
|
|
8.9 |
|
|
|
(12.0 |
) |
|
|
14.0 |
|
|
Unrealized gains (losses) on energy, raw material
and currency hedges, net of tax |
|
|
34.2 |
|
|
|
(3.4 |
) |
|
|
48.0 |
|
|
|
(6.9 |
) |
|
Unrealized holding gains arising during the period |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.5 |
|
|
|
5.5 |
|
|
|
36.1 |
|
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
118.8 |
|
|
$ |
14.1 |
|
|
$ |
277.1 |
|