10-QPeriod: Q3 FY2011

ATI INC Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 4, 2011For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a significant increase in revenue for the nine months ended September 30, 2011, reaching $3.9 billion, a 31% increase year-over-year. This growth was driven by strong performance across its key end markets, including aerospace & defense, oil & gas, and electrical energy, bolstered by the strategic acquisition of Ladish Co., Inc. in May 2011. Net income attributable to ATI also saw substantial improvement, rising to $182.6 million for the nine-month period, compared to $55.6 million in the prior year, translating to $1.68 per diluted share from $0.56. The company's financial position strengthened with total assets growing to $6.1 billion from $4.5 billion at year-end 2010, largely due to the acquisition which added $1.2 billion in assets to the High Performance Metals segment. Despite increased debt levels resulting from the acquisition and new note issuance ($1.6 billion total debt vs. $1.1 billion), ATI maintained a leverage ratio of 2.05, well within its credit facility covenants. The company generated $107.5 million in cash flow from operations for the nine-month period, though this was partially offset by increased working capital investments to support business growth.

Financial Highlights

49 data points
Beta

Revenue

$1.35B

16.0% Gross Margin

Net Income

$62.30M

4.6% Net Margin

EPS (Diluted)

$0.56

Total Assets

$6.13B

Cash & Equivalents

$431.50M

Free Cash Flow

$179.50M

Financial Statements
Beta
Revenue$1.35B
Cost of Revenue$1.14B
Gross Profit$215.80M
SG&A Expenses$96.70M
Operating Income$119.10M
Net Income$62.30M
EPS (Basic)$0.59
EPS (Diluted)$0.56
Shares Outstanding (Basic)106.34M
Shares Outstanding (Diluted)116.40M

Key Highlights

  • 1Revenue increased by 31% to $3.9 billion for the nine months ended September 30, 2011, compared to the same period in 2010.
  • 2Net income attributable to ATI grew significantly to $182.6 million ($1.68 per diluted share) for the nine months ended September 30, 2011, from $55.6 million ($0.56 per diluted share) in the prior year.
  • 3The acquisition of Ladish Co., Inc. on May 9, 2011, significantly expanded the High Performance Metals segment and contributed to overall asset growth to $6.1 billion.
  • 4Total debt increased to $1.6 billion due to the Ladish acquisition and the issuance of $500 million in Senior Notes, yet the company maintained healthy financial covenants.
  • 5Operating profit improved across all three business segments: High Performance Metals, Flat-Rolled Products, and Engineered Products, reflecting increased sales and operational efficiencies.
  • 6Demand from key markets like aerospace & defense and oil & gas/chemical process industry showed robust growth, accounting for 70% of sales in the first nine months of 2011.
  • 7The company's backlog reached $2.2 billion, indicating strong future demand, particularly for high-performance metals.

Frequently Asked Questions

The primary driver of ATI's revenue growth was the acquisition of Ladish Co., Inc. on May 9, 2011, which significantly boosted the High Performance Metals segment. This, combined with strong demand from key end markets such as aerospace & defense and oil & gas/chemical process industry, led to a 31% year-over-year revenue increase.

The acquisition of Ladish added approximately $1.2 billion in assets to the High Performance Metals segment, contributing to a total asset increase to $6.1 billion. It also increased the company's total debt to $1.6 billion and resulted in significant goodwill and intangible asset recognition.

ATI expects revenues of approximately $5.2 billion for 2011, with segment operating profit as a percent of revenues in the range of the year-to-date level. While acknowledging short-term economic uncertainties affecting some product lines, the company anticipates continued strong demand in its key intermediate to long-term markets for 2012, particularly in aerospace, oil & gas, electrical energy, and medical sectors.

ATI financed the Ladish acquisition and other strategic initiatives through a combination of new debt issuance ($500 million in Senior Notes) and assumed debt from Ladish. Despite the increase in total debt, the company's leverage ratio remained healthy at 2.05 (trailing twelve months ended Sept 30, 2011), which is within the covenant limits of its credit facilities, indicating effective management of its capital structure.