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
Date of Report (Date of earliest event reported)
October 24, 2007
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
(412) 394-2800
(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))
Table of Contents
Item 2.02. Results of Operations and Financial Condition.
On October 24, 2007, Allegheny Technologies Incorporated held its third 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; and (g) 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 third 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: October 24, 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 third quarter 2007 earnings conference
call.
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Exhibit 99.1
Q3 2007 Conference Call Script
October 24, 2007 1:00 PM
DAN GREENFIELD:
Thank you. Good afternoon and welcome to Allegheny Technologies’
earnings conference call for the third 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.
Our third quarter results had two divergent story lines:
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On the positive side, strong demand trends
continued for our high-value products. Compared to the same
period last year: |
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Shipments of our High Performance Metals segment in titanium,
nickel, and exotic alloys grew 18%, 5%, and 10%, respectively. |
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Shipments of our flat-rolled titanium, and ATI-produced Uniti
titanium products, grew 25%, and shipments of our grain-oriented
silicon electrical products grew 12%. |
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On the other hand, shipments of our standard
stainless products were extraordinarily low. In fact, we
shipped only 57 thousand tons in the third quarter, the lowest
level in many years. |
Segment operating profit in the third quarter remained over 24% of
sales. A reduction in our LIFO inventory reserve offset most of the
impact of lower raw material surcharges and indices. This resulted
from rapidly falling nickel prices, as well as titanium scrap prices.
Year-to-date 2007 operating profit as a percent of sales in our two
largest segments was within our stated target range:
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High Performance Metals segment operating profit was nearly
35% for the first nine months, which is at the top end of our
30-35% target range. |
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Flat-Rolled Products segment operating profit for the first
nine months was 19.6%, which is also at the top end of our
15-20% target range. |
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As we have said, we are taking action to improve Engineered
Products operating profit to a 12-15% range. So far this
year, operating profit for this segment stands at over 9%. |
Page 2
We remained focused on our performance and execution, resulting in
year-to-date gross cost reductions totaling $82 million. We are on our
way to exceeding our full year 2007 gross cost reduction goal of $100
million.
Other important financial measures remained solid:
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Return on capital employed was 35%; |
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Return on stockholder’s equity was 46%; |
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And, we now have more cash than debt. |
Cash flow from operations for the first nine months was $481 million
even with:
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Further investments of $225 million in managed working
capital. |
In addition, year-to-date capital expenditures totaled $281 million.
Cash on hand was $664 million at the end of the third quarter.
We are investing about $450 million for capital projects
in 2007. This capital supports our growth objectives and reduces our costs. These capital
projects are all self-funded.
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We already have new titanium sponge capacity on line in Albany, OR,
and that facility expansion continues. We are at an annual run
rate of 16 million pounds now, and plan to be at an annual run
rate of 22 million pounds in 2008. |
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We have 3 new VAR furnaces on line for titanium melting, and
plan to have 2 more titanium VAR furnaces customer qualified by
the end of the first quarter 2008. |
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Our third PAM premium titanium melt furnace is up and
in production and has completed initial customer qualifications. We
expect to have this furnace qualified for all products during
the first quarter 2008. |
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The buildings at our new Rowley, UT premium titanium sponge
facility and our new Bakers, NC forging center are both taking
shape. These projects remain on schedule. |
Page 3
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Our 25% increase in nickel-based alloy and super alloy melt
capacity is nearing completion. |
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The building is up and production equipment is beginning to
be installed at our specialty plate expansion in Washington,
PA. We expect to begin production at this facility in the
second quarter 2008. |
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Shipments of our grain-oriented silicon electrical product
have increased by nearly 75% since 2005. We continue to make
incremental capital investments to further increase shipments
of our lightest gauge products, which are the most energy
efficient products for electrical energy transformers ... meeting the new federal regulations. |
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We are increasing our zirconium sponge capacity by
approximately 20%. In addition, we have started 2 new VAR
furnaces for zirconium melting. These furnaces, which are
designed for either zirconium or titanium melting, are being
used to melt zirconium, positioning ATI for the strong
nuclear electrical energy and chemical process markets. |
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We now have the scale and flexibility in our APT plant where
we want it to be. We can use soft scrap, hard scrap, or ore to
meet all of our APT needs. As we have said, this project is 6
to 9 months late. We are now positioned to get the tungsten
products business profitability back on track. |
So, we continue to build for the future. We see growth in demand for
our high-value products from our key growth markets which now are
70% of ATI sales.
During the last few months, our operating companies have added several
long-term agreements with customers from the global aerospace, chemical
process industry, oil and gas, electrical energy, and medical markets.
We expect total revenue from these agreements to total approximately $1
billion during the timeframe of the agreements, which generally ranges
from 2 years to 5 years.
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These agreements include our titanium alloys, nickel-based alloys and
superalloys, vacuum-melted specialty alloys, and our grain-oriented
silicon electrical product. We are working on additional LTAs to
better position ATI for the future ... so, more to come.
Our key global growth markets are strong. ATI direct sales outside the United
States reached nearly 26% of total sales during the first nine months
2007. We believe this number would at least double if it included
export sales of products made by our US customers. In other words, we
think global markets are driving at least one-half of ATI sales. The strong
infrastructure build going on around the world coupled with the value
of the dollar puts ATI, with our broad range of specialty metals, in a
great position.
Last week, we met in Pittsburgh with the leaders of our global sales
and marketing team. They continue to report strong demand for our products,
particularly in China and Korea. This demand is being driven in Asia
by a variety of markets, including power generation, oil and gas
(especially LNG), chemical processing, and shipbuilding.
The first nine months 2007 has been the best in our history. We expect
full-year 2007 earnings per share to be in the range of $7.00 to $7.25,
because the fourth quarter is not as strong as we previously explained in
recent guidance. The full year still represents a 25% to 29% growth in
earnings per share compared to 2006.
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Now let’s deal with the two major questions about ATI:
First, the question of our ability to sustain, over the long term, the
level of profitability achieved so far this year in our Flat-Rolled
Products segment.
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As I have said many times, this business
is more than just standard stainless products. Strong and
growing global demand continues for our specialty and titanium
sheet, and plate products, from aerospace, oil and gas, chemical
processing, as well as marine markets. Strong and growing
global demand continues for our grain-oriented silicon
electrical products from the electrical energy market. Good
demand continues for our highly engineered Precision Rolled
Strip
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and standard strip products from several global markets.
Alloy substitution is growing. Customers continue to
switch to our low nickel products, including our AL 201HP™
stainless and our AL 2003™ lean duplex alloy. All of these
flat-rolled products differentiate ATI and provide excellent
opportunities for additional profitable growth over the next
several years. |
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Demand for our standard stainless products
has been weak for most of 2007. |
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The domestic service center customers have been in a
destocking mode. This market was first impacted by the
rapid increase in the cost of nickel in the first half
2007, and then the rapid decrease in nickel during the
third quarter. As a result, third quarter shipments of
our standard stainless products were only 57,000 tons, or an
annual rate of 228,000 tons. |
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I have said that we need an annual rate of about
350,000 tons of standard grade stainless sheet
to provide a base load in our Flat-Rolled Products
segment. |
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Our Flat-Rolled Products segment’s third quarter
operating profit of $123 million ... over 17% of sales ... during a quarter with such
low volume ...is further evidence of the transformation of
this business. |
Page 6
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What do we think is happening in the domestic
market for standard stainless? Let’s review some statistics. |
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Domestic consumption of stainless sheet and strip was
down nearly 15% through the first seven months of 2007,
even while domestic GDP was positive. |
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Service center inventories of these products fell to
the extremely low level of 3.2 months in September 2007
from 5 months in December 2006. It is noteworthy that
this data does not include mill-owned inventory of
finished goods. Published information indicates that
mill-owned inventory, while an overhang in the third
quarter, is now declining. |
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In addition, our international shipments of stainless
sheet, which had been growing, fell during the third
quarter versus the second quarter 2007 as the European
market also went through an inventory correction. |
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So, where do we go from here? Although there are some
soft spots, end demand for our standard stainless
products appears to be good, particularly for industrial
applications and for commercial food equipment. In
addition, the use of stainless sheet and strip is
penetrating energy efficient appliances, particularly
washing machines and dishwashers. |
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While we have seen some positive signs in standard
stainless order levels over the last several days, at
this time we do not see shipment levels of these products
recovering in the fourth quarter. |
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We believe that our standard stainless sheet business
should begin to improve in early 2008. |
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The other major question is Boeing’s recent announcement that the first flight
and first delivery of the 787 Dreamliner is delayed.
So, what does this mean to ATI? As Boeing publicly said, they plan to
deliver 109 Dreamliners by the end of 2009. This is three fewer than
previously planned. Our titanium shipments lead the airplane build
schedule by roughly 6 to 12 months. So, Boeing’s 2009 build and
delivery schedule involves ATI’s 2008 shipment schedule. Boeing has
confirmed that they plan to continue to order their forecasted amount of
titanium from ATI in 2008. This is expected to be higher than in 2007.
We are pleased with our position on the 787 and our growing relationship
with the Boeing Corporation.
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Another point we must make is that our titanium products
are fungible and are used on most planes. Both Boeing and
Airbus are ramping up assembly lines as they work through
reported record backlogs that are in excess of 6 years. In
addition, our jet engine customers also report record
backlogs for OEM engines. They also report strong demand for
spare parts. Overall, the aerospace and defense market
remains an exceptional profitable growth opportunity for ATI
in 2008 and beyond. |
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With these points made, let’s turn to the other markets
for titanium-mill products. Titanium raw materials costs are
stabilizing, and should be less volatile going forward. Raw
material stability at reasonable costs increases titanium
consumption in the global industrial markets, which are also
strong and growing. Uses for industrial titanium include
marine, for shipbuilding, chemical processing, oil
and gas, and mining. |
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We continue to believe that as we move through this strong
titanium growth cycle, which for the first half of 2008 should be in good balance, but the industry’s production bottleneck
will appear again , and will move from titanium sponge, to melting, then to forging,
hot rolling, cold rolling and finishing of titanium mill
products. Our strategic capital projects that I reviewed earlier provide ATI with not only additional raw materials, but also with
the required balance of capabilities needed throughout the production
process to semi-finished and finished mill products. |
Page 8
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ATI’s third quarter year-to-date total titanium mill
products shipments... these include shipments of our High
Performance Metals and Flat-Rolled Products segment, as well
as ATI’s value-added conversion services for our Uniti
titanium joint venture...in total grew to over 30 million pounds, a
16% increase compared to the same period 2006. We expect to
finish this year with total ATI titanium shipments and
conversion services of approximately 40 million pounds. We
expect this to grow by 25% in 2008 to approximately 50
million pounds. |
As we look ahead, our long-term profitable growth outlook remains intact.
We believe ATI is well-positioned to achieve strong earnings growth in
2008 and beyond.
Operator, may we have the first question, please.
Q&A Portion of Conference Call
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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