01—Abstract
Summary
Summary of the 10-K filed February 20, 2018. Cited figures are marked; the original filing is the authoritative source.
Allegheny Technologies Incorporated (ATI) reported improved financial performance in 2017 compared to the prior two years, driven by strong demand in its High Performance Materials & Components (HPMC) segment, particularly from the aerospace and defense markets.
The company's strategic focus on high-value products and improved operational efficiency contributed to a significant increase in gross profit margin. ATI continues to invest in capacity for advanced powder alloys for next-generation aerospace products and has secured long-term agreements that are expected to drive future growth. The company also made progress in repositioning its Flat Rolled Products (FRP) segment towards profitability.
Despite a net loss in 2017, largely due to a goodwill impairment charge and debt extinguishment costs, ATI demonstrated positive operational momentum. The company successfully de-levered its balance sheet by redeeming a significant portion of its debt through an equity offering. ATI ended 2017 with a solid liquidity position and is focused on continued operational execution and cost management to achieve long-term profitable growth.
02—Key points
Key Highlights
- Aerospace & Defense remains the primary market, accounting for 49% of 2017 sales, with a strong focus on next-generation jet engine components.
- HPMC segment operating profit increased by 46% in 2017, reflecting higher aerospace demand and improved product mix.
- FRP segment returned to profitability in 2017 with a segment operating profit of $37.0 million, a significant improvement from a loss in 2016.
- ATI completed a public offering of 17 million shares of common stock, raising $397.8 million, which was used to redeem $350 million of its 9.375% Senior Notes due 2019.
- The company secured a long-term agreement with Pratt & Whitney to supply isothermal forgings and powder alloys for next-generation jet engines.
- Capital expenditures were $123 million in 2017, with expectations for lower capital expenditures in the coming years as major expansion projects near completion.
- The company ended 2017 with $141.6 million in cash and cash equivalents and $305 million in available borrowing capacity under its ABL facility.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, ATI Inc lost $0.03.
- Revenue$3.53B100.0%
- Cost of revenue−$3.03B85.9%
- Gross profit$497.0M14.1%
- Operating costs−$362.4M10.3%
- Operating income$134.6M3.8%
- Interest, other & tax−$226.5M6.4%
- Net income−$91.9M2.6%
Where FY2017 revenue went
$3.53B- Cost of revenue: $3.03B, 86% of revenue
- Operating income: $134.6M, 3.8% of revenue
- R&D: $13.3M, 0.4% of revenue
- SG&A: $248.0M, 7.0% of revenue
- Other operating costs: $101.1M, 2.9% of revenue
Kept 3.8% as operating incomeOperating income $134.6M · 3.8%R&D $13.3M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 20, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.53B$3.13B | +12.5% |
| Cost of Revenue | $3.03B$2.91B | +4.0% |
| Gross Profit | $497.00M$222.80M | +123.1% |
| R&D Expenses | $13.30M$14.70M | −9.5% |
| SG&A Expenses | $248.00M$240.80M | +3.0% |
| Operating Income | $134.60M-$541.80M | +124.8% |
| Interest Expense | $134.90M$125.40M | +7.6% |
| Net Income | -$91.90M-$640.90M | +85.7% |
| EPS (Basic) | $-0.83$-5.97 | +86.1% |
| EPS (Diluted) | $-0.83$-5.97 | +86.1% |
| Shares Outstanding (Basic) | 110.10M107.30M | +2.6% |
| Shares Outstanding (Diluted) | 110.10M107.30M | +2.6% |
05—Questions
Frequently Asked Questions
What is ATI's primary end market and how is it performing?
ATI's largest and most important end market is Aerospace & Defense, which accounted for 49% of total sales in 2017. The High Performance Materials & Components (HPMC) segment, which serves this market, saw a 9% increase in sales to the Aerospace & Defense sector in 2017, driven by an 11% increase in commercial jet engine sales, including a notable 35% jump in sales for next-generation engine products.
How did the company's two business segments perform in 2017?
The High Performance Materials & Components (HPMC) segment showed significant improvement, with sales increasing by 7% and operating profit growing by 46% to $246.4 million. The Flat Rolled Products (FRP) segment also improved, achieving profitability for the first time since 2012 with an operating profit of $37.0 million, an increase driven by higher volumes, a better product mix, and cost reductions.
What significant financial actions did ATI undertake in 2017?
In 2017, ATI completed a public offering of common stock, raising approximately $397.8 million, which was used to redeem all $350 million of its 9.375% Senior Notes due 2019. This action helped to de-lever the balance sheet and extend debt maturities. The company also made a significant cash contribution of $135 million to its U.S. qualified defined benefit pension plan.
What are the key risks facing ATI?
ATI faces several risks, including the cyclical nature of its key end markets like aerospace and oil & gas, volatility in raw material costs (especially nickel), dependence on a few major customers in the aerospace sector, and potential for product pricing pressures due to competition and overcapacity. Additionally, the company is subject to environmental regulations and potential liabilities, and has significant ongoing pension obligations.
06—Continue