10-QPeriod: Q1 FY2003

ATI INC Quarterly Report for Q1 Ended Mar 31, 2003

Filed April 30, 2003For Securities:ATI

Summary

ATI Inc.'s (ATI) first quarter 2003 results show a net loss of $27.1 million, or $0.34 per diluted share, compared to a net loss of $11.1 million, or $0.14 per diluted share, in the prior year period. This widening loss is largely attributable to a significant increase in retirement benefit expenses, primarily non-cash, which rose from $5.7 million in Q1 2002 to $34.8 million in Q1 2003. Sales declined 3% to $480.5 million, reflecting continued challenging market conditions in key end markets like commercial aerospace and power generation. Despite these headwinds, the company reported an increase in operating profit to $8.8 million from $3.2 million in the prior year, driven by cost reduction initiatives. ATI also ended the quarter with a stronger cash position, with cash and cash equivalents increasing to $111.4 million from $59.4 million at the end of 2002, bolstered by a $48.3 million federal income tax refund. Financially, total assets slightly increased to $2.107 billion, while total liabilities also saw a modest rise to $1.684 billion. Stockholders' equity decreased to $422.2 million from $448.8 million, largely due to the net loss incurred. The company's debt levels remained stable, with total long-term debt at $510.9 million. ATI ended the quarter compliant with its debt covenants, showing an Interest Coverage Ratio of 2.37x and a Leverage Ratio of 37%. Management anticipates capital expenditures of approximately $70 million for 2003, focused on facility upgrades. The company's outlook remains cautious due to persistent economic uncertainty and difficult market conditions.

Key Highlights

  • 1Net loss widened to $27.1 million ($0.34/share) in Q1 2003 from $11.1 million ($0.14/share) in Q1 2002, primarily due to a significant increase in non-cash retirement benefit expenses.
  • 2Total sales decreased by 3% to $480.5 million in Q1 2003, reflecting challenging conditions in end markets such as commercial aerospace and power generation.
  • 3Operating profit improved to $8.8 million in Q1 2003 from $3.2 million in Q1 2002, driven by successful cost reduction initiatives.
  • 4Cash and cash equivalents significantly increased to $111.4 million at March 31, 2003, from $59.4 million at December 31, 2002, aided by a $48.3 million federal income tax refund.
  • 5Total debt remained stable at approximately $510.9 million, and the company was compliant with its debt covenants as of March 31, 2003.
  • 6The company adopted SFAS 143 (Accounting for Asset Retirement Obligations) effective January 1, 2003, resulting in a one-time charge of $1.3 million ($0.02/share).
  • 7The company's High Performance Metals segment saw an increase in backlog to $315 million by quarter-end, driven by demand from medical and government defense markets.

Frequently Asked Questions

The primary driver for the increased net loss was a significant rise in retirement benefit expenses, which increased from $5.7 million in Q1 2002 to $34.8 million in Q1 2003. A substantial portion of this increase was non-cash, resulting from lower expected returns on pension plan investments and a lower discount rate assumption on liabilities due to past equity market declines.

Sales decreased by 3% to $480.5 million in the first quarter of 2003 compared to the same period in 2002. This decline was attributed to continuing difficult business conditions in key end markets such as commercial aerospace, power generation, and capital goods.

The company's liquidity improved significantly, with cash and cash equivalents increasing to $111.4 million from $59.4 million. Cash generated from operations was $45.2 million, which was significantly boosted by a $48.3 million federal income tax refund. Capital expenditures were $11.8 million, and dividends paid were $4.8 million.

Total debt remained largely stable at approximately $510.9 million. ATI was compliant with its debt covenants at March 31, 2003, reporting an Interest Coverage Ratio of 2.37x (required minimum 2.00x) and a Leverage Ratio of 37% (required maximum 50%).