Allegheny Technologies Announces Fourth Quarter Results.Business Editors PITTSBURGH--(BUSINESS WIRE)--Jan. 21, 2004 Allegheny Technologies Allegheny Technologies, Inc. NYSE: ATI is a specialty metals company headquartered in Pittsburgh, Pennsylvania, USA. It is the 17th largest employer in Allegheny County and one of the last "steel" companies with its headquarters in "The Steel City" and major manufacturing Incorporated (NYSE NYSE See: New York Stock Exchange :ATI (ATI Technologies Inc., Markham Ontario, http://ati.amd.com) A leading manufacturer of graphics chips and display adapters. Founded in 1985 by K. Y. Ho, Benny Lau and Lee Lau, ATI chips and boards are widely used by OEMs. ) -- Fourth quarter net loss of $210.2 million, or $2.61 per share, includes special charges of $175.9 million, or $2.18 per share -- Excluding special charges, fourth quarter net loss of $34.3 million, or $0.43 per share, which includes: -- Inventory accounting charges of $11.0 million, or $0.14 per share -- Retirement benefit expense of $20.4 million, or $0.25 per share -- Fourth quarter cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses of $30 million -- 2003 cost reductions of $117 million exceeded plan Allegheny Technologies Incorporated (NYSE:ATI) reported a net loss of $210.2 million, or $2.61 per share, on sales of $484.4 million for the fourth quarter ended December December: see month. 31, 2003. Results included previously announced special charges, after tax, of $175.9 million, or $2.18 per share. Excluding these special charges, the net loss for the fourth quarter 2003 was $34.3 million, or $0.43 per share. Retirement benefit expense, primarily non-cash, was $20.4 million, or $0.25 per share, in the quarter. In addition, fourth quarter 2003 results were negatively impacted by non-cash inventory accounting charges of $11.0 million, or $0.14 per share, primarily due to the effects of rapidly rising raw materials costs under the Company's LIFO (Last In-First Out) A queueing method in which the next item to be retrieved is the item most recently placed in the queue. Contrast with FIFO. LIFO - stack inventory accounting methodology. "During 2003, ATI continued to generate positive cash flow from operations and make important investments in our core businesses. We ended 2003 with $20 million more cash on hand than at the end of 2002 and continued to have no cash borrowings under our secured domestic credit facility," said Pat Hassey, ATI's President and Chief Executive Officer. "Our two major strategic capital investments are on schedule. The first of our two new flat-rolled products electric arc furnaces An electric arc furnace (EAF) is a furnace that heats charged material by means of an electric arc. Arc furnaces range in size from small units of approximately one ton capacity (used in foundries for producing cast iron products) up to about 400 ton units used for secondary successfully began operation in the fourth quarter 2003 and is ahead of its cost savings plan. The upgrade to our long products rolling mill rolling mill: see steel. is on schedule to begin operation in the first half of this year. We expect to further improve operating performance as this new equipment becomes operational. "As a result of actions taken in 2003, we believe ATI should benefit from improving business conditions in 2004. We introduced a number of new alloys This is a list of alloys for which an article exists in Wikipedia (or is proposed but not yet written). They are grouped by base metal, in order of increasing atomic number. Within these headings they are in no particular order. to better serve our customers' needs, demonstrating our ongoing commitment to technology and product development. Through our joint venture Uniti Titanium titanium (tītā`nēəm, tĭ–) [from Titan], metallic chemical element; symbol Ti; at. no. 22; at. wt. 47.88; m.p. 1,675°C;; b.p. 3,260°C;; sp. gr. 4.54 at 20°C;; valence +2, +3, or +4. , we expanded our market presence to participate in global growth for industrial titanium. Our 2003 cost reductions reached $117 million, exceeding our goal of $115 million, and we significantly lowered our fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). as a result of restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). actions taken in 2003. "The ATI Business System is driving lean manufacturing Lean manufacturing is the production of goods using less of everything compared to mass production: less human effort, less manufacturing space, less investment in tools, and less engineering time to develop a new product. throughout the Company. Even though costs of our major raw materials increased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 27% during 2003, gross inventory increased by less than 1% as a result of ATI Business System initiatives. "In 2004, our goal is to achieve profitability in our Flat-Rolled Products segment and improve operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before in our High Performance Metals and Engineered Products segments. Our 2004 cost reduction objective is $104 million. While retirement benefit expense will again be a significant negative to financial results, it will remain largely non-cash. Our current 2004 capital expenditures are expected to be between $60 and $70 million, which is within our forecasted depreciation expense of $72 million. While we are concerned about raw material and energy price volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the , especially for nickel nickel, metallic chemical element; symbol Ni; at. no. 28; at. wt. 58.69; m.p. about 1,453°C;; b.p. about 2,732°C;; sp. gr. 8.902 at 25°C;; valence 0, +1, +2, +3, or +4. and natural gas, we are taking actions to manage the impact of this volatility internally and we are now able to increase selling prices. "As 2004 begins, we are seeing improvement in market conditions, particularly in our Flat-Rolled Products segment. Price increases announced in December for most of our flat-rolled products and the pricing policy revision (programming) revision - A release of a piece of software which is not a major release or a bugfix, but only introduces small changes or new features. for our nickel and cobalt Cobalt, town, Canada Cobalt (kō`bôlt), town (1991 pop. 1,470), E Ont., Canada, NE of Sudbury, near Lake Timiskaming. Once a center for cobalt and silver mining, the area is now economically depressed. alloys and specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. steel long products are in effect. We announced additional price increases for stainless steel stainless steel: see steel. stainless steel Any of a family of alloy steels usually containing 10–30% chromium. The presence of chromium, together with low carbon content, gives remarkable resistance to corrosion and heat. and silicon electrical steel Electrical steel, also called lamination steel, silicon electrical steel, silicon steel or transformer steel, is specialty steel tailored to produce certain magnetic properties, such as a small hysteresis area (small energy dissipation per cycle, or low products last week. Our exotic exotic not native, not indigenous. alloys business continues to do very well. The current valuation of the US dollar provides potential for improved non-domestic sales. We expect overall business conditions for most of our major end markets to steadily improve in 2004."
Three Months Ended Twelve Months Ended
December 31 December 31
In Millions In Millions
------------------- --------------------
2003 2002 2003 2002
--------- --------- ---------- ---------
Sales $484.4 $454.2 $1,937.4 $1,907.8
Net loss (210.2) (39.7) (292.1) (65.8)
Special charges, net (175.9) (29.0) (178.9) (33.5)
Cumulative effect of change
in accounting principle - - (1.3) -
Net loss before special
charges and the
cumulative effect of change
in accounting principle $ (34.3) $ (10.7) $ (111.9) $ (32.3)
Per Diluted Share Per Diluted Share
------------------- --------------------
Net loss $(2.61) $(0.49) $(3.62) $(0.82)
Special charges, net (2.18) (0.36) (2.22) (0.42)
Cumulative effect of change
in accounting principle - - (0.02) -
Net loss before special
charges and the
cumulative effect of change
in accounting principle $ (0.43) $ (0.13) $ (1.38) $ (0.40)
Fourth Quarter 2003 Financial Overview -- Sales of $484.4 million were up 7% compared to fourth quarter 2002. Flat-Rolled Products sales were 11% higher, primarily due to raw materials surcharges. Sales were 3% lower in the High Performance Metals segment and sales were 13% higher in the Engineered Products segment. -- Net loss was $210.2 million, or $2.61 per share, compared to a fourth quarter 2002 net loss of $39.7 million, or $0.49 per share. Results in the fourth quarter 2003 included special charges, largely non-cash, of $175.9 million, or $2.18 per share, which included $130.0 million, or $1.61 per share, to establish a valuation allowance for a portion of the Company's net deferred tax assets. In the same period in 2002, special charges were $29.0 million, or $0.36 per share. -- Retirement benefit expense, after tax, in the fourth quarter 2003 was $20.4 million, or $0.25 per share, compared to $3.5 million, or $0.04 per share, in the fourth quarter 2002. For the year, after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. retirement benefit expense was $83.9 million, or $1.04 per share, in 2003 compared to $13.8 million, or $0.17 per share, in 2002. Substantially all of the increase in retirement benefit expense in 2003 compared to 2002 was non-cash. -- Inventory accounting charges, primarily related to the Company's LIFO methodology, were $17.8 million pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern and $11.0 million after tax, or $0.14 per share, in the fourth quarter 2003 compared to $1.1 million pretax and $0.7 million after tax, or $0.01 per share, in the fourth quarter 2002. -- Cash flow from operations in the fourth quarter 2003 was $29.9 million and cash on hand increased to $79.6 million, $20.2 million higher than at the end of 2002. -- Cost reductions, before the effects of inflation, totaled $33 million company wide in the fourth quarter 2003, bringing cost reductions to $117 million for the year. Our 2003 cost reduction goal was $115 million. Flat-Rolled Products Segment Market Conditions -- Demand from consumer durable markets remained good and demand improved from some capital goods Capital Goods Any goods used by an organization to produce other goods. Notes: Examples of capital goods include office buildings, equipment, and machinery. See also: Capital Expenditure, Disinvestment Capital goods markets. Raw material surcharges escalated during the quarter due to rising LME See London Metal Exchange. LME See London Metal Exchange (LME). nickel prices, resulting in higher average transaction prices, although base-selling prices remained substantially the same as in the third quarter. Base-selling price increases for most products were announced in December 2003 and January January: see month. 2004. Fourth quarter 2003 compared to fourth quarter 2002 -- Sales increased 11% to $268.6 million, primarily due to higher raw materials surcharges. Total tons (Transparent Optical Networking Services) A marketing term for providing dark fiber to a customer. The customer is responsible for generating the transmission signal and interpreting it at the other end. See dark fiber. shipped increased 4% as demand increased in some markets. Average transaction prices were 7% higher due to higher raw materials surcharges; however, average base-selling prices, which do not include surcharges, declined by approximately 1%. -- The segment had an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $1.7 million compared to an operating loss of $11.8 million last year. While the benefits of cost reduction initiatives and lower depreciation expense favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. affected results, the segment reported an operating loss for the period due to the effects of higher raw materials and energy costs and lower average base-selling prices. Results for 2002 included the settlement of a labor dispute regarding profit sharing profit sharing, arrangement by which employees receive, in addition to their wages, a share of the net profits of a business. The purpose is to give them an incentive to increase their output through enhanced morale, less wasteful use of materials, better care of for prior years, which resulted in a pretax special charge of $3.9 million. -- The rapid rise in nickel and other raw material costs, combined with continuing efforts to reduce inventory volumes, resulted in a $7.6 million increase in inventory accounting charges, primarily LIFO, in the fourth quarter 2003 compared to the prior year fourth quarter. -- Energy costs, primarily natural gas, increased $0.5 million compared to 2002. -- Results for the fourth quarter of 2003 benefited from $16 million in cost reductions, before the effects of inflation and higher energy costs, bringing cost reductions to $59 million for the year. High Performance Metals Segment Market Conditions -- Demand for nickel-based alloys and titanium alloys Titanium alloys are metallic materials which contain a mixture of titanium and other chemical elements. Such alloys have very high tensile strength and toughness (even at extreme temperatures), light weight, extraordinary corrosion resistance, and ability to withstand extreme from the commercial aerospace market appears to have stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. . A pricing policy revision for this segment's nickel and cobalt alloys and specialty steel products took effect at the end of December 2003. The exotic alloys business had another good quarter and continued to benefit from sustained high demand from high-energy high-energy adj. 1. Of or relating to elementary particles with energies exceeding hundreds of thousands of electron volts. 2. Yielding a large amount of energy upon undergoing chemical reaction. 3. Vigorous; dynamic. physics and government markets, as well as corrosion markets in Asia. Fourth quarter 2003 compared to fourth quarter 2002 -- Sales decreased 3% to $151.6 million. Shipments were up 6% for nickel-based alloys. Shipments were down 30% for specialty steel alloys, primarily due to lower shipments to European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. markets. Shipments were down 5% for titanium alloys due to significant deliveries for the Goro Goro is a term with many meanings:
Excluding Goro shipments, titanium volume increased by 11% in the fourth quarter 2003 compared to the same period in 2002. Shipments increased 28% for exotic alloys. -- The segment had an operating loss of $3.2 million compared to an operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. of $9.0 million due to higher raw material and energy costs and lower sales, which offset the benefits from cost reductions. -- The rapid rise in nickel and other raw materials costs resulted in an $8.7 million increase in LIFO inventory accounting charges. -- Energy costs, primarily natural gas, increased $1.8 million. -- Results for the fourth quarter of 2003 benefited from $12 million of cost reductions, before the effects of inflation, bringing cost reductions to $45 million for the year. Engineered Products Segment Market Conditions -- Demand for our tungsten tungsten (tŭng`stən) [Swed.,=heavy stone], metallic chemical element; symbol W; at. no. 74; at. wt. 183.85; m.p. about 3,410°C;; b.p. 5,660°C;; sp. gr. 19.3 at 20°C;; valence +2, +3, +4, +5, or +6. products remained strong from the oil and gas and medical markets and improved from the automotive market. Demand improved for forged forge 1 n. 1. A furnace or hearth where metals are heated or wrought; a smithy. 2. A workshop where pig iron is transformed into wrought iron. v. and cast products. Fourth quarter 2003 compared to fourth quarter 2002 -- Sales improved 13% to $64.2 million. -- Operating profit improved to $1.6 million compared to $0.6 million last year due to higher sales volumes and the benefits from cost reductions, which offset higher raw material costs and lower prices. -- Results for the fourth quarter 2003 benefited from $3 million of cost reductions, before the effects of inflation, bringing cost reductions to $9 million for the year. Retirement Benefit Expense -- Fourth quarter 2003 pretax retirement benefit expense was $32.7 million compared to $5.2 million in the fourth quarter of 2002. This increase resulted in a $27.5 million pretax and $16.9 million after-tax, or $0.21 per share, reduction in fourth quarter 2003 results compared to the same period of 2002. -- Approximately $24.8 million of the fourth quarter 2003 pretax retirement benefit expense was non-cash. -- The higher retirement benefit expense resulted primarily from the severe decline in the equity markets from 2000 through 2002, lower expected returns Expected Return The average of a probability distribution of possible returns, calculated by using the following formula: on benefit plan investments and a lower discount rate assumption for determining liabilities. -- In the fourth quarter 2003, retirement benefit expense increased cost of sales by $23.6 million, and selling and administrative expenses by $9.1 million. In the fourth quarter 2002, retirement benefit expense increased cost of sales by $8.3 million, and reduced selling and administrative expenses by $3.1 million. -- ATI is not required to make cash contributions to its defined benefit pension plan for 2004 and, based upon current actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin studies, does not expect to be required to make cash contributions to its defined benefit pension plan during the next several years. -- Pension expense is expected to decline to approximately $75 million pretax for 2004 from $92 million for 2003 as actual returns on pension assets in 2003 were higher than expected, partially offset by a lower assumed discount rate to value pension benefit liabilities. The projected rise in medical benefits inflation and the lower assumed discount rate is expected to result in postretirement medical expenses of approximately $68 million for 2004 compared to $42 million for 2003. The projected 2004 postretirement medical expense does not include the expected favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact from the enactment of the new Federal Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, benefit program in December 2003, pending authoritative accounting guidance regarding how the benefit is to be recognized in the financial statements. Special Charges -- Results for the fourth quarter 2003 included previously announced special charges related to actions taken to reduce fixed costs and streamline streamline, path of a fluid flowing steadily and without appreciable turbulence. A body is said to be streamlined if its shape offers the least possible resistance to a current of air, water, or other fluid. operations of $73.4 million pretax and $45.8 million after tax, or $0.57 per share. Substantially all of these charges are non-cash and included: -- $13.7 million pretax and $8.6 million after tax from a reduction in salaried workforce of approximately 10% across ATI operations and corporate headquarters, which was substantially completed in the fourth quarter. -- $52.1 million pretax and $32.5 million after tax for the impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of certain assets in the Flat-Rolled Products segment. The majority of these charges relate to Allegheny Allegheny (ăl`əgā'nē, ăl`əgä'nē), river, 325 mi (523 km) long, rising in N central Pa., and flowing NW into N.Y., then SW through Pa. Ludlum's remaining assets located in Houston Houston, city (1990 pop. 1,630,553), seat of Harris co., SE Tex., a deepwater port on the Houston Ship Channel; inc. 1837. Economy The fourth largest city in the nation and the largest in the entire South and Southwest, Houston is a port of entry; , PA and its Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. Flat Roll coil facility located in Washington, PA. These charges do not impact current operations at these facilities. -- $7.6 million pretax and $4.7 million after tax related to closed company environmental and insurance matters. -- In addition, as previously announced a non-cash accounting special charge of $130.0 million was recognized in the fourth quarter 2003 to establish a valuation allowance for a portion of the Company's net deferred tax assets, as prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". This charge, which resulted from the Company's recent history of losses, does not affect the Company's liquidity or its ability to utilize and realize the deferred tax assets in the future. The charge may be reversed in a future period based on consideration of all available evidence as prescribed in SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 109. It should be noted that as a result of establishing the valuation allowance, the Company does not expect to recognize a tax benefit for any losses in 2004 when reporting after-tax results. Future tax provisions or benefits will be recognized when taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. exceeds the 2003 tax loss, or when future losses, if any, are recoverable as cash refunds. -- Results for the fourth quarter 2002 included net charges of $45.7 million pretax and $29.0 million after tax, or $0.36 per share, for an asset impairment charge related to the indefinite INDEFINITE. That which is undefined; uncertain. INDEFINITE, NUMBER. A number which may be increased or diminished at pleasure. 2. When a corporation is composed of an indefinite number of persons, any number of them consisting of a majority of those idling of the Company's Massillon Massillon (măs`ĭlŏn), city (1990 pop. 31,007), Stark co., NE Ohio, on the Tuscarawas River; inc. 1853. A wheat-shipping center on the Ohio & Erie Canal after 1828, it became an industrial city producing steel, steel products, and , OH stainless steel coil plate facility, the settlement of a labor dispute regarding profit sharing for certain employees of the Flat-Rolled Products segment for prior years, salaried workforce reductions, and a non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. related to ATI's minority interest in New Piper Aircraft Piper Aircraft, Inc., is a manufacturer of general aviation aircraft, located in Vero Beach, Florida. History Originally founded as the Taylor Brothers Aircraft Manufacturing Company in September of 1927 by Clarence Gilbert Taylor and Gordon A. , Inc. Other Expenses -- Corporate expenses for the fourth quarter 2003 increased to $6.3 million compared to $4.8 million in the year-ago period primarily due to non-cash accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. of expenses associated with the Company's stock-based long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. incentive compensation plan as a result of the significant increase in ATI's stock price during the fourth quarter of 2003. This accrual offset cost reductions at the corporate headquarters resulting from reductions in staffing and other efforts to control costs. -- Excluding the effects of postretirement benefits expenses, special charges and non-cash stock-based compensation expense, selling and administrative expenses as a percent of sales declined to 9.6% in the 2003 fourth quarter from 9.8% in the same period 2002. Cash Flow and Working Capital -- Cash on hand was $79.6 million at December 31, 2003, an increase of $20.2 million from 2002 year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. . -- Cash flow from operating activities for the 2003 fourth quarter was $29.9 million, and for the 2003 year was $82.0 million. -- At December 31, 2003, managed working capital was 30.7% of annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. sales compared to 32.4% of annualized sales at 2002 year-end. We define managed working capital as accounts receivable and gross inventories less accounts payable. -- Managed working capital decreased $24.8 million in the fourth quarter of 2003 compared to the third quarter 2003, primarily due to a decline in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying resulting from the timing of shipments. However, for the year managed working capital increased $11.8 million in 2003 resulting primarily from an increase in accounts receivable due to a higher level of sales in the 2003 fourth quarter compared to the fourth quarter of 2002, and a $3.3 million increase in inventory mostly as a result of higher raw material costs, primarily nickel. The increase in raw material costs should largely be recovered through surcharges. -- Capital expenditures were $74.4 million for 2003. Capital expenditures for 2004 are projected to be approximately $60 million to $70 million. -- Cash provided by financing activities was $8.5 million for 2003 and included proceeds of $15.3 million on the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of certain interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. arrangements, primarily in the first quarter of 2003, and net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). primarily from capital project financing Project financing A form of asset-based financing in which a firm finances a discrete set of assets on a stand-alone basis. of $12.6 million, partially offset by $19.4 million of dividend payments. -- There are no borrowings currently outstanding under ATI's secured domestic credit facility, although a portion of the letters of credit capacity is being utilized. New Accounting Pronouncement The adoption of Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. " ("SFAS 143") resulted in an after-tax charge of $1.3 million, or $0.02 per share in the 2003 first quarter. This charge is reported as a cumulative effect of change in accounting principle. Allegheny Technologies will conduct a conference call with investors and analysts on January 21, 2004, at 1 p.m. ET to discuss the financial results. The conference call will be broadcast live on www.alleghenytechnologies.com. To access the broadcast, click on "Conference Call". In addition, the conference call will be available through the CCBN CCBN Central Coast Bancorp CCBN Charles County Business Network website located at www.ccbn.com. This news release contains "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Certain statements in this news release relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as "anticipates," "believes," "estimates," "expects," "would," "should," "will," "will likely result," "forecast," "outlook," "projects," and similar expressions. Such forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results or performance to materially differ from any future results or performance expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by such statements. Various of these factors are described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2002, and our Quarterly Reports on Form 10-Q Form 10-Q See 10-Q. . We assume no duty to update our forward-looking statements. Allegheny Technologies Incorporated (NYSE:ATI) is one of the largest and most diversified diversified (di·verˑ·s specialty materials producers in the world, with revenues of approximately $1.9 billion in 2003. The Company has approximately 8,800 employees world-wide and its talented people use innovative technologies to offer growing global markets a wide range of specialty materials. High-value products include nickel-based and cobalt-based alloys and superalloys, titanium and titanium alloys, specialty steels, super stainless steel, exotic alloys, which include zirconium zirconium (zərkō`nēəm), metallic chemical element; symbol Zr; at. no. 40; at. wt. 91.22; m.p. about 1,852°C;; b.p. 4,377°C;; sp. gr. 6.5 at 20°C;; valence +2, +3, or +4. , hafnium hafnium (hăf`nēəm), metallic chemical element; symbol Hf; at. no. 72; at. wt. 178.49; m.p. about 2,227°C;; b.p. 4,602°C;; sp. gr. 13.31 at 20°C;; valence +4. and niobium niobium (nīō`bēəm), metallic chemical element; symbol Nb; at. no. 41; at. wt. 92.9064; m.p. about 2,468°C;; b.p. 4,742°C;; sp. gr. 8.57 at 20°C;; valence +2, +3, +4, or +5. , tungsten materials, and highly engineered strip and Precision Rolled Strip(R) products. In addition, we produce commodity specialty materials such as stainless steel sheet and plate, silicon and tool steels, and forgings and castings. The Allegheny Technologies website can be found at www.alleghenytechnologies.com.
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Operations
(Quarterly periods unaudited - Dollars in millions,
except per share amounts)
Three Months Ended Twelve Months Ended
December 31 December 31
------------------ -------------------
2003 2002 2003 2002
--------- -------- --------- ---------
Sales $484.4 $454.2 $1,937.4 $1,907.8
Costs and expenses:
Cost of sales 474.2 428.0 1,873.6 1,744.5
Selling and administrative
expenses 64.9 41.4 226.3 188.3
Restructuring costs 61.2 37.3 62.4 42.8
--------- -------- --------- ---------
Loss before interest, other
expense and income taxes (115.9) (52.5) (224.9) (67.8)
Interest expense, net 7.8 8.2 27.7 34.3
Other expense, net (4.9) (1.0) (5.1) (1.7)
--------- -------- --------- ---------
Loss before income tax
provision (benefit)
and cumulative effect of
change in accounting
principle (128.6) (61.7) (257.7) (103.8)
Income tax provision (benefit) 81.6 (22.0) 33.1 (38.0)
--------- -------- --------- ---------
Net loss before cumulative
effect of change in
accounting principle (210.2) (39.7) (290.8) (65.8)
Cumulative effect of change in
accounting principle - - (1.3) -
--------- -------- --------- ---------
Net loss $(210.2) $(39.7) $(292.1) $(65.8)
========= ======== ========= =========
Basic and diluted net loss per
common share before
cumulative effect of change
in accounting principle $(2.61) $(0.49) $(3.60) $(0.82)
Cumulative effect of change in
accounting principle - - (0.02) -
--------- -------- --------- ---------
Basic and diluted net loss
per common share $(2.61) $(0.49) $(3.62) $(0.82)
========= ======== ========= =========
Weighted average common shares
outstanding -- basic and
diluted (millions) 80.6 80.6 80.8 80.6
Actual common shares outstanding--
end of period (millions) 80.7 80.6 80.7 80.6
Allegheny Technologies Incorporated and Subsidiaries
Sales and Operating Profit (Loss) by Business Segment
(Quarterly periods unaudited - Dollars in millions)
2003 2002 Q4 2003 Q3 2003 Q2 2003 Q1 2003 Q4 2002
--------- --------- -------- ------- ------- ------- -------
Sales:
Flat-
Rolled
$1,043.5 $1,040.3 Products $268.6 $258.9 $258.7 $257.3 $241.5
High
Perform-
ance
641.7 630.0 Metals 151.6 162.3 166.8 161.0 156.1
Engineered
Prod-
252.2 237.5 ucts/b 64.2 61.4 64.4 62.2 56.6
--------- --------- -------- ------- ------- ------- ------
Total
External
$1,937.4 $1,907.8 Sales $484.4 $482.6 $489.9 $480.5 $454.2
========= ========= ======== ======= ======= ====== =======
Operating
Profit
(Loss):
Flat-
Rolled
$(14.1) $(8.6) Products $(1.7) $(4.9) $(6.2) $(1.3) $(11.8)
% of
-1.4% -0.8% Sales -0.6% -1.9% -2.4% -0.5% -4.9%
High
Perform-
ance
26.2 31.2 Metals (3.2) 9.5 11.6 8.3 9.0
% of
4.1% 5.0% Sales -2.1% 5.9% 7.0% 5.2% 5.8%
Engineered
7.8 4.7 Products/b 1.6 1.2 3.2 1.8 0.6
% of
3.1% 2.0% Sales 2.5% 2.0% 5.0% 2.9% 1.1%
--------- --------- -------- ------- ------- ------- ------
Operating
Profit
19.9 27.3 (Loss) (3.3) 5.8 8.6 8.8 (2.2)
% of
1.0% 1.4% Sales -0.7% 1.2% 1.8% 1.8% -0.5%
Corporate
(20.5) (20.6) expenses (6.3) (4.1) (5.3) (4.8) (4.8)
Interest
expense,
(27.7) (34.3) net (7.8) (4.1) (8.4) (7.4) (8.2)
--------- --------- -------- ------- ------- ------- ------
(28.3) (27.6) Subtotal (17.4) (2.4) (5.1) (3.4) (15.2)
Management
transition
and restruc-
turing
(69.8) (42.8) costs (61.2) (8.6) - - (37.3)
Other costs,
net of
gains on
asset
(25.2) (11.6) sales (17.3) (3.8) (2.3) (1.8) (4.0)
Retirement
benefit
expense
(134.4) (21.8) /a (32.7)/a (33.5)/a (33.4)/a (34.8) (5.2)
--------- --------- -------- ------ ------ ------ ------
Loss before
income
$(257.7) $(103.8) taxes $(128.6) $(48.3) $(40.8) $(40.0) $(61.7)
========= ========= ======== ======= ======= ======= =======
/a Includes non-cash expenses of $24.8 million, $25.6 million, $24.9
million and $28.2 million for the 2003 fourth quarter, 2003 third
quarter, 2003 second quarter and 2003 first quarter, respectively.
/b Formerly the Industrial Products Segment. In the 2003 fourth
quarter, based upon organization changes Rome Metals became part of
Engineered Products. Rome Metals was previously included in Flat-
Rolled Products. Prior periods have been restated to reflect this
change.
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
December 31, December 31,
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $79.6 $59.4
Accounts receivable, net of allowances for
doubtful accounts of $10.2 and $10.1 at
December 31, 2003 and December 31, 2002,
respectively 248.8 239.3
Inventories, net 359.7 392.3
Deferred income taxes - 20.8
Income tax refunds receivable 7.2 51.9
Prepaid expenses and
other current assets 48.0 32.0
------------ ------------
Total current assets 743.3 795.7
Property, plant and equipment, net 711.1 757.6
Cost in excess of net assets acquired 198.4 194.4
Deferred pension asset 144.0 165.1
Deferred income taxes 34.3 85.4
Other assets 53.8 95.0
------------ ------------
Total Assets $1,884.9 $2,093.2
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $172.3 $171.3
Accrued liabilities 172.1 161.0
Short term debt and current
portion of long-term debt 18.3 9.7
------------ ------------
Total current liabilities 362.7 342.0
Long-term debt 513.8 509.4
Accrued postretirement benefits 507.2 496.4
Pension liabilities 220.6 216.0
Other long-term liabilities 83.4 80.6
------------ ------------
Total liabilities 1,687.7 1,644.4
------------ ------------
Total stockholders' equity 197.2 448.8
------------ ------------
Total Liabilities and Stockholders' Equity $1,884.9 $2,093.2
============ ============
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Twelve Months Ended
December 31
--------------------
2003 2002
---------- ---------
Operating Activities:
Net loss $(292.1) $(65.8)
Cumulative effect of change in accounting
principle 1.3 -
Depreciation and amortization 74.6 90.0
Change in pension assets/liabilities 67.7 (4.2)
Deferred income taxes 72.6 25.6
Income tax refunds received 48.5 45.6
Non-cash restructuring charges and asset write
offs 52.6 39.2
Change in managed working capital (11.8) 155.0
Income tax refunds receivable (3.8) (49.0)
Accrued liabilities and other 72.4 (32.2)
---------- ---------
Cash provided by operating activities 82.0 204.2
---------- ---------
Investing Activities:
Purchases of property, plant and equipment (74.4) (48.7)
Asset disposals and other 4.1 8.9
---------- ---------
Cash used in investing activities (70.3) (39.8)
---------- ---------
Financing Activities:
Net increase (decrease) in debt 12.4 (85.5)
Interest rate swap termination 15.3 -
Dividends paid (19.4) (53.2)
Other 0.2 -
---------- ---------
Cash provided by (used in) financing activities 8.5 (138.7)
---------- ---------
Increase in cash and cash equivalents 20.2 25.7
Cash and cash equivalents at beginning of period 59.4 33.7
---------- ---------
Cash and cash equivalents at end of period $79.6 $59.4
========== =========
Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data
(Unaudited)
2003 2002 Q4 2003 Q3 2003 Q2 2003 Q1 2003 Q4 2002
-------- -------- ------- ------- ------- ------- -------
Volume:
Flat-Rolled
478,353 487,335 Products 119,271 119,564 120,554 118,964 114,803
-------- -------- ------- ------- ------- ------- -------
Commodity
(finished
342,689 350,301 tons) 85,341 86,519 87,337 83,492 82,503
High value
135,664 137,034 (tons) 33,930 33,045 33,217 35,472 32,300
High Performance
Metals
(000's lbs.)
Nickel-based
and specialty
35,168 35,832 steel alloys 8,054 8,965 9,457 8,692 8,719
Titanium
18,436 19,044 mill products 4,391 4,813 4,617 4,615 4,633
Exotic
4,245 3,712 alloys 1,101 1,052 1,160 932 861
Average Prices:
Flat-Rolled
$2,178 $2,134 Products $2,247 $2,165 $2,144 $2,159 $2,102
Commodity
(per finished
$1,581 $1,529 tons) $1,642 $1,570 $1,550 $1,564 $1,490
High value
$3,687 $3,677 (per ton) $3,768 $3,722 $3,708 $3,557 $3,663
High Performance
Metals (per
lb.)
Nickel-based
and specialty
$6.57 $6.39 steel alloys $6.64 $6.44 $6.47 $6.73 $6.09
Titanium mill
$11.50 $11.83 products $10.92 $11.05 $11.16 $12.85 $12.36
Exotic
$37.64 $36.29 alloys $36.56 $38.16 $38.10 $37.75 $43.33
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Managed Working Capital
(Unaudited - Dollars in millions)
Dec. 31,
2003
Change in
Managed
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Working
2003 2003 2003 2003 2002 Capital
--------- --------- --------- --------- --------- --------
Accounts
receivable $248.8 $275.5 $274.8 $260.4 $239.3
Inventory 359.7 377.1 401.5 396.6 392.3
Accounts
payable (172.3) (175.5) (175.1) (178.1) (171.3)
--------- --------- --------- --------- ---------
Subtotal 436.2 477.1 501.2 478.9 460.3
Allowance
for doubtful
accounts 10.2 9.8 9.3 10.3 10.1
LIFO reserve 111.7 97.5 87.0 77.7 74.7
Corporate
and other 17.4 15.9 20.4 18.4 18.6
--------- --------- --------- --------- --------- --------
Managed
working
capital $575.5 $600.3 $617.9 $585.3 $563.7 $11.8
========= ========= ========= ========= ========= ========
Annualized
prior 2
months
sales $1,874.0 $1,962.0 $1,953.0 $1,992.0 $1,741.0
========= ========= ========= ========= =========
Managed
working
capital
as a % of
annualized
sales 30.7% 30.6% 31.6% 29.4% 32.4%
Certain amounts from prior periods have been reclassified to conform
with the 2003 presentation.
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