10-KPeriod: FY2017

ATI INC Annual Report, Year Ended Dec 31, 2017

Filed February 20, 2018For Securities:ATI

Summary

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.

Financial Highlights

53 data points
Beta

Revenue

$3.53B

14.1% Gross Margin

Net Income

-$91.90M

-2.6% Net Margin

EPS (Diluted)

$-0.83

Total Assets

$5.19B

Cash & Equivalents

$141.60M

Free Cash Flow

$22.40M

Financial Statements
Beta
Revenue$3.53B
Cost of Revenue$3.03B
Gross Profit$497.00M
R&D Expenses$13.30M
SG&A Expenses$248.00M
Operating Income$134.60M
Interest Expense$134.90M
Net Income-$91.90M
EPS (Basic)$-0.83
EPS (Diluted)$-0.83
Shares Outstanding (Basic)110.10M
Shares Outstanding (Diluted)110.10M

Key Highlights

  • 1Aerospace & Defense remains the primary market, accounting for 49% of 2017 sales, with a strong focus on next-generation jet engine components.
  • 2HPMC segment operating profit increased by 46% in 2017, reflecting higher aerospace demand and improved product mix.
  • 3FRP segment returned to profitability in 2017 with a segment operating profit of $37.0 million, a significant improvement from a loss in 2016.
  • 4ATI 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.
  • 5The company secured a long-term agreement with Pratt & Whitney to supply isothermal forgings and powder alloys for next-generation jet engines.
  • 6Capital expenditures were $123 million in 2017, with expectations for lower capital expenditures in the coming years as major expansion projects near completion.
  • 7The company ended 2017 with $141.6 million in cash and cash equivalents and $305 million in available borrowing capacity under its ABL facility.

Frequently Asked Questions

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.

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.

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.

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.