10-QPeriod: Q2 FY2014

ATI INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 4, 2014For Securities:ATI

Summary

Allegheny Technologies Incorporated (ATI) reported a net loss attributable to ATI of $4.0 million, or $(0.03) per share, for the second quarter of 2014, a decline from a net income of $4.4 million, or $0.04 per share, in the same period of the prior year. This shift is primarily due to higher costs associated with strategic growth projects, particularly the Hot-Rolling and Processing Facility (HRPF) and the Rowley titanium sponge facility's Premium Quality (PQ) qualification process. Sales increased slightly year-over-year to $1.119 billion, driven by growth in the Flat Rolled Products segment, though this was partially offset by lower selling prices and raw material surcharges. The company continues to invest in its strategic vision of becoming an integrated specialty materials and components provider, evidenced by recent acquisitions in the High Performance Materials & Components segment. Despite the near-term net loss, management anticipates continued improvement in business conditions and operating results in the latter half of 2014, excluding ongoing start-up and qualification costs.

Financial Highlights

48 data points
Beta

Revenue

$1.12B

8.0% Gross Margin

Net Income

-$4.00M

-0.4% Net Margin

EPS (Diluted)

$-0.03

Total Assets

$6.57B

Cash & Equivalents

$355.10M

Free Cash Flow

$19.40M

Financial Statements
Beta
Revenue$1.12B
Cost of Revenue$1.03B
Gross Profit$89.50M
SG&A Expenses$65.70M
Operating Income$23.80M
Net Income-$4.00M
EPS (Basic)$-0.03
EPS (Diluted)$-0.03
Shares Outstanding (Basic)108.63M
Shares Outstanding (Diluted)107.10M

Key Highlights

  • 1Net loss attributable to ATI of $4.0 million for Q2 2014, compared to net income of $4.4 million in Q2 2013.
  • 2Sales increased 2% year-over-year to $1.119 billion in Q2 2014.
  • 3High Performance Materials & Components segment sales increased 2%, while Flat Rolled Products segment sales rose 9% in Q2 2014.
  • 4The company incurred significant costs related to the HRPF and Rowley titanium sponge facility PQ qualification process.
  • 5Cash and cash equivalents decreased significantly to $355.1 million from $1,026.8 million at year-end 2013, partly due to debt repayments and acquisitions.
  • 6Total outstanding debt decreased to $1.538 billion from $1.947 billion.
  • 7ATI acquired two businesses in Q1 and Q2 2014: Dynamic Flowform Corp. and Hanard Machine, Inc., to expand its specialty materials and components capabilities.

Frequently Asked Questions

The primary reason for the net loss in the second quarter of 2014 was the significant costs incurred related to strategic growth projects, including start-up costs for the Hot-Rolling and Processing Facility (HRPF) and qualification costs for the Rowley titanium sponge facility's Premium Quality (PQ) process. These costs, along with lower selling prices and raw material surcharges, offset the modest increase in sales.

Total outstanding debt decreased to $1.538 billion as of June 30, 2014, down from $1.947 billion at December 31, 2013. This reduction was primarily driven by the repayment of the remaining $397.5 million of the 4.25% Convertible Senior Notes.

ATI anticipates continued improvement in business conditions and operating results in the third and fourth quarters of 2014. However, the company expects that ongoing start-up and qualification costs for its strategic growth projects will continue to negatively impact results during this period. Management expects third quarter HRPF start-up costs to increase significantly.

ATI acquired Dynamic Flowform Corp. and Hanard Machine, Inc. in the first and second quarters of 2014, respectively. These acquisitions are part of the company's strategy to expand its capabilities in producing specialty materials parts and components, particularly for the aerospace and defense, and oil & gas/chemical process industry markets.