UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported):
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July 25, 2007
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Allegheny Technologies Incorporated
(Exact name of registrant as specified in its charter)
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Delaware
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1-12001
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25-1792394
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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1000 Six PPG Place, Pittsburgh, Pennsylvania
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15222-5479
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
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(412) 394-2800
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N/A
(Former name or former address, if changed since last report).
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
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Item 2.02. Results of Operations and Financial Condition.
On July 25, 2007, Allegheny Technologies Incorporated held its second quarter 2007 earnings
conference call, broadcast live by webcast. The conference call script is attached as Exhibit 99.1
and is being furnished, not filed, under Item 2.02 of this Current Report on Form 8-K.
Certain statements in the script contain “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain statements in the script relate to
future events and expectations and, as such, constitute forward-looking statements.
Forward-looking statements include those containing such words as “anticipates,” “believes,”
“estimates,” “expects,” “would,” “should,” “will,” “will likely result,” “forecast,” “outlook,”
“projects,” and similar expressions. Forward-looking statements 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, that may cause our actual results, performance or achievements to
materially differ from those expressed or implied in the forward-looking statements. Important
factors that could cause actual results to differ materially from those in the forward-looking
statements include: (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, including the aerospace and defense, construction and
mining, automotive, electrical energy, chemical process industry, oil and gas, and other markets;
(c) our inability to achieve the level of cost savings, productivity improvements, synergies,
growth or other benefits anticipated by management, including those anticipated from strategic
investments and the integration of acquired businesses, whether due to significant increases in
energy, raw materials or employee benefits costs, the possibility of project cost overruns or
unanticipated costs and expenses, or other factors; (d) volatility of prices and availability of
supply 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) significant legal proceedings or investigations adverse to
us; (g) our ability to replace existing credit arrangements on the terms or timing anticipated; and
(h) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 31,
2006, and in other reports filed with the Securities and Exchange Commission. We assume no duty to
update our forward-looking statements.
Item 7.01. Regulation FD.
The disclosure furnished above under Item 2.02 is hereby incorporated by reference into and
furnished under this Item 7.01.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits.
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Exhibit 99.1
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Script for Allegheny Technologies Incorporated second quarter 2007 earnings
conference call.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ALLEGHENY TECHNOLOGIES INCORPORATED
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By:
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/s/ Jon D. Walton
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Jon D. Walton
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Executive Vice President, Human Resources,
Chief Legal and Compliance Officer
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Dated: July 25, 2007
EXHIBIT INDEX
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Exhibit No.
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Description
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Exhibit 99.1
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Script for Allegheny Technologies Incorporated second quarter 2007 earnings conference
call.
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Exhibit 99.1
Q2 2007 Conference Call Script
July 25, 2007 1:00 PM
DAN GREENFIELD:
Thank you. Good afternoon and welcome to Allegheny Technologies’
earnings conference call for the second quarter 2007.
This conference call is being broadcast live on our website at
alleghenytechnologies.com and on CCBN.com. Members of the media have
been invited to listen to this call.
Participating in the conference call today are Pat Hassey, Chairman,
President and Chief Executive Officer, and Rich Harshman, Executive
Vice President, Finance and Chief Financial Officer.
After some initial comments, we will ask for questions. During the
question and answer session, please limit yourself to two questions to
be considerate of others on the line.
Please note that all forward-looking statements made this afternoon are
subject to various assumptions and caveats as noted in the earnings
release. Actual results may differ materially. Here is Pat Hassey.
Page 1
PAT HASSEY:
Thanks, Dan, and thanks, everyone... for joining us today.
ATI’s diversified global markets, broad product offerings, and
operational execution delivered another quarter of profitable growth in
sales and earnings. Sales increased nearly 22% compared to the second
quarter 2006, and net income increased 43% to $2.00 per share.
Segment operating profit was over 24% of sales.
We remained focused on our performance and execution, resulting in
first-half gross cost reductions totaling $54 million. That puts us on
track to meet or exceed our full year 2007 gross cost reduction goal of
$100 million.
Financial metrics were solid:
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Return on capital employed was 36%;
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Return on stockholder’s equity was 49%;
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And, net debt to total capitalization is now under 1%.
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Cash flow from operations during the first half was $187 million even with:
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Further investments of $319 million in managed working capital.
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In addition, year-to-date capital expenditures totaled $152 million.
Cash on hand was $530 million at the end of the second quarter.
We plan to invest about $450 million in 2007 for capital projects that
support our growth objectives, and reduce our costs. These investments
include new titanium sponge capacity, new titanium and nickel-based
alloy melt capacity, new plate capacity, and improved rolling
capabilities in flat-rolled products. These capital projects are all
self-funded.
To further strengthen our balance sheet, we are in the process of
replacing our existing $325 million secured domestic revolving credit
facility with a new $400 million unsecured domestic revolving credit
facility. We are pleased that this new credit facility has been
extremely well received by our bank group, and the new facility should
be in place by the end of July. The new credit facility provides ATI
with reduced letter of credit and borrowing rates, and removes an
impediment to ATI regaining an investment grade corporate credit
rating.
Page 3
Turning to our Markets:
ATI’s key growth markets remain strong. Over 63% of year-to-date sales
were generated by the aerospace and defense, chemical process industry,
oil and gas, and electrical energy markets.
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Over 25% of ATI’s year-to-date sales were either exports from
our U.S. operations or produced by our non-U.S. facilities. We
believe this number would at least double if it included export
sales of products made by our U.S. customers containing ATI’s
specialty metals. In other words, we think global markets drive
nearly one-half of ATI sales. For example, the current robust
commercial aerospace demand is non-U.S.-centric. In addition,
U.S. fabricators that use our specialty metals are selling to
international infrastructure markets. ATI is becoming more
global. We have spread our market risk, so we are not as
dependent on the US economy as in the past.
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Here is more detail on ATI’s largest market: aerospace and defense. We
think we have good visibility into the demand from the aerospace market,
and we believe ATI is very well positioned to benefit from exciting
growth prospects from the aerospace and defense market for many years.
Two events occurred recently that reinforce this outlook:
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ATI had a very busy Paris Air Show and got a
lot of business done. We had people from our domestic and
international operations at the air show selling our titanium
products, our nickel-based alloys and superalloys, our
flat-rolled products, and our cutting tools. We came away with
additional orders and are excited about the robust build rate
announcements from our airframe and jet engine customers.
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2.
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On July 8, Tom Williams, the president of ATI
Allvac, and I attended the debut of Boeing’s 787 Dreamliner.
One encounter is worth sharing:
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Tom and I were standing next to the first 787 Dreamliner
talking to one of the key executives who is in charge of the
Dreamliner program. Of course, we were talking about
titanium. The Boeing executive said me, “Pat would you like
me to point out where we use titanium on the 787?” I said
absolutely. He then moved his arms in a grand sweeping
motion and said, “all over, it’s all over the plane.”
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We are optimistic about this aerospace cycle, this industry, and
particularly ATI and our potential for growth in airframe and jet
engines.
Page 5
While on the subject of aerospace growth, ATI’s strategic capital
projects remain on track and are expected to contribute significant
profitable growth.
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12 titanium sponge reduction furnaces are now operating at
our Albany, OR facility. This brings our current annual
aerospace quality titanium sponge production capacity to
approximately 16 million pounds.
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The next phase of the Albany sponge expansion is on schedule
and we expect to achieve a 22 million pound annual rate of
capacity by the first half 2008.
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We remain on schedule to begin producing premium-grade
titanium sponge, at our Rowley, UT facility by the end of 2008.
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Our titanium melt expansion is also on schedule. Our third
PAM (Plasma Arc Melt) furnace is in its qualification phase.
We expect this furnace to be qualified and in commercial
operation in this quarter. We also expect 4 additional VAR
(Vacuum Arc Remelt) furnaces to be qualified and in commercial
production by the end of this year and early in 2008.
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On the mill products finishing side, the expansion of our
titanium and specialty plate finishing facility located in
Washington, PA is progressing on schedule. The completion of
this project is expected in June 2008.
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We saw the benefits of our strategic growth initiatives as total
shipments of ATI’s titanium products were 8.8 million pounds in the
second quarter, nearly 14% higher than the second quarter 2006 and 2%
higher than the first quarter 2007. This includes titanium product
shipments by both our High Performance Metals and Flat-Rolled Products
segments.
In addition, shipments from our Uniti Titanium joint venture were strong
during the second quarter. Uniti supplies the global industrial
markets, specifically excluding the aerospace and defense, and medical
markets. As a reminder, ATI converts semi-finished titanium products
into titanium mill products for Uniti. Shipments of conversion titanium
are not included in our reported shipment numbers. ATI converted well
over one million pounds of titanium mill products for Uniti in the
second quarter 2007. So, all together, ATI shipped 10 million pounds of
titanium mill products in the second quarter.
Page 6
Turning to our individual segment performance, first, High Performance
Metals:
Sales were $558 million and operating profit was over 32% of sales.
Segment operating profit of $180 million was near our record
level of $182 million.
Segment operating profit as a percentage of sales was down a few basis
points from the previous quarter primarily from a product mix which
contained more of our nickel-based alloys and specialty alloys.
Sales of our premium titanium alloys and nickel-based superalloys
remained strong to jet engine customers for both OEM applications and
spare parts. The aftermarket spare parts business at our jet engine
customers is growing due to replacement of jet engine rotating parts
made from premium titanium alloys and nickel-based superalloys. This
results from the total number of airplanes in the sky that are flying
and the high utilization of aircraft.
On the airframe side, sales of our titanium alloys to airframe customers
continued to grow with second quarter shipment volumes 43% higher than
the first quarter 2007.
Our exotic alloys shipments grew by nearly 40% compared to last year’s
second quarter with increasing demand from the chemical process industry
and the nuclear electrical energy markets.
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During each quarter’s conference call, I like to emphasize one area of
our business. Today I will highlight the success of our Flat-Rolled
Products segment.
Our Flat-Rolled Products segment has been transformed into a highly
profitable diversified specialty metals business. Second quarter 2007
sales were approximately $805 million and operating profit reached a
record $166 million, or nearly 21% of sales, even while total shipments
were comparatively low. Reflect on that. For those who have covered
this company for several years ask yourself, “How much would the
flat-rolled business have made in such an environment 4 years ago?”
Here are some points to consider about the transformation of our
Flat-Rolled Products segment:
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Productivity has improved by over 40% since 2004.
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Gross cost reductions have totaled nearly $300 million during
the same period.
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New capital investments are paying off with improved yields
and reduced costs.
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We decoupled product pricing from base stainless sheet, and
are more focused on key global growth markets, specifically
chemical process industry, oil and gas, electrical energy, and
aerospace and defense, which together accounted for nearly 50%
of year-to-date segment sales. As a result, sales of our
specialty and titanium sheet and strip, specialty plate, and
grain-oriented silicon electrical steel account for about two
thirds of this segment’s profitability.
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In addition, substitution to lower nickel-bearing alloys continued to
accelerate during the second quarter.
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Many customers in a variety of consumer durable, capital
goods, and non-residential construction markets recognize the
benefits of our AL 201HP™ alloy and our duplex alloys,
particularly our AL 2003™ lean duplex alloy.
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Interest in alloy substitution to lower nickel-bearing alloys
remains high and we continue to pursue numerous opportunities
with existing and new customers who are considering the switch
due to high and volatile raw materials costs.
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Raw material prices, particularly nickel, have indeed been volatile. As
the second quarter ended, nickel prices on the LME began what we think
is a long-overdue correction. As we have been saying since the run up
in nickel began last year, there has never been a shortage of nickel
units. We believe the price of nickel is correcting more as a result of
LME trading dynamics, and less influenced by any pull back on
consumption of stainless steel. At today’s LME cash price of
$14.50, nickel still remains very high by any historical comparison.
This is indicative of a market still demanding high levels of usage.
Many direct customers and distributors have been waiting for nickel to
stabilize, thus they purchase only what is necessary. Some customers
have pushed out, but not cancelled, projects. Inventory levels at our
direct customers and inventory levels at our service center customers
are low and should be getting tighter in the next few months.
Importantly, according to published information, most global stainless
steel producers seem to be demonstrating self-discipline by reducing
production and not building inventory.
So, we expect key growth markets in our Flat-Rolled Products segment to
remain strong in 2007, and we also expect orders and shipments of
stainless to improve once the price of nickel stabilizes.
Page 9
Moving to our Engineered Products segment, operating performance
continued to be lower than the level we expect:
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Results in the tungsten products business were lower than
expected because of the slower than planned ramp up in the
utilization of ore, thus forcing more scrap to be consumed
during the quarter, which drove scrap material costs higher
than expected. This inventory value will carry into the third
quarter. We are now self-sufficient for our APT needs and have
the capability of producing APT from ore and scrap. We expect
to be back to target performance in the fourth quarter 2007.
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The forged products business saw strong demand soften as
anticipated from the transportation market, namely Class 8
trucks.
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The wind energy market is driving further profitable growth
in our castings business for the foreseeable future.
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Demand remains robust in our titanium precision metal
processing conversion services.
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Page 10
In conclusion, the first half 2007 has been the best in our history.
First half 2007 earnings per share was $3.93. That is 60% higher than the
first half 2006.
As we look ahead, we expect ATI’s overall performance in the second half
2007 to be at least as good as that achieved in the first half 2007, with
fourth quarter earnings stronger than the third quarter.
We expect ATI’s third quarter earnings to reflect higher costs of
approximately $0.07 to $0.09 per share associated with our scheduled
normal summer major maintenance outages, and the recently adopted new
accounting standard for these costs to be fully absorbed in the quarter
in which they occur.
The second half outlook could be impacted by continued volatility in raw
material costs...nickel needs to stabilize.
In summary, here are my takeaways:
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Our key growth markets remain strong, and we are well
positioned to benefit from these strong markets.
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Our strategic capital projects are meeting their targeted
schedules and are providing opportunities for further profitable
growth across ATI.
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Titanium and nickel alloy shipments under long-term
agreements have grown and are expected to continue to grow with
the robust aerospace build rate.
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We expect revenue and operating profit growth in the High
Performance Metals segment throughout the remainder of 2007,
accelerating into 2008.
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We also expect the key growth and profit drivers in our
Flat-Rolled Products segment to remain strong, and we expect
orders and shipments for stainless to improve once the price of
nickel stabilizes.
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Operator, may we have the first question, please.
Q&A Portion of Conference Call
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PAT HASSEY:
Thank you for joining us today, and thank you for your continuing
interest in ATI.
Dan Greenfield:
Thank you, Pat. And thanks to all the listeners for joining us this
afternoon. As always, news releases may be obtained by email and are
available on our website, www.alleghenytechnologies.com. Also a
rebroadcast of this conference call is available on our website. That
concludes our conference call.
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