Exhibit 99.1
Allegheny Technologies Announces Third Quarter Results
PITTSBURGH--(BUSINESS WIRE)--Oct. 22, 2003--Allegheny Technologies
Incorporated (NYSE:ATI)
-- Third quarter net loss of $28.8 million, or $0.36 per share
-- Results include net non-recurring special charges of
$3.0 million, or $0.04 per share
-- Results impacted by retirement benefit expense of
$20.0 million, or $0.25 per share
-- Third quarter cash flow from operations of $35.0 million
-- Third quarter cost reductions of $29 million; cost reductions
year-to-date of $85 million; on target to achieve $115 million
2003 cost reduction goal
Allegheny Technologies Incorporated (NYSE:ATI) reported a net
loss of $28.8 million, or $0.36 per share, on sales of $482.6 million
for the third quarter ended September 30, 2003. Retirement benefit
expense, primarily non-cash, was again the biggest negative to
earnings in the quarter. Continuing weak demand for most of ATI's
specialty metals combined with higher raw material, energy, and
insurance costs also negatively impacted results in the third quarter.
Pat Hassey, ATI's new President and Chief Executive Officer, said,
"The prolonged weakness in most of our major markets has been
challenging. The problems are not only related to the cyclical
economy. Global markets and competitors are shaping how we will change
to compete.
"Our performance for the third quarter is a long way from where we
need to be. On the plus side, we generated $35 million of operating
cash flow in the quarter. Once again, our operating employees did a
good job reducing managed working capital, mainly by reducing
inventories. This is quite an achievement in this environment of
escalating raw material costs and demonstrates the value of ATI's
lean-manufacturing initiatives.
"ATI has great opportunities, people and technology. While the
past three years have been difficult for all U.S. manufacturing
companies, ATI made significant progress in reducing costs and
improving liquidity. Now, we cannot wait for the U.S. or world
economies to make us better. More needs to be done faster to structure
ATI to meet the challenges and take advantage of the opportunities.
"Yesterday, we announced executive management organization changes
to quickly move ATI forward and focus our joint efforts on building
the ATI Business System. Also, we plan additional workforce reductions
in the fourth quarter to further reduce costs, improve productivity
and streamline our organization."
Three Months Ended Nine Months Ended
September 30 September 30
In Millions In Millions
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Sales $482.6 $469.3 $1,453.0 $1,453.6
Net loss (28.8) (7.5) (81.9) (26.1)
Special charges, net (3.0) (4.5) (3.0) (4.5)
Cumulative effect of change
in accounting principle - - (1.3) -
Net loss before special
charges and the
cumulative effect of change
in accounting principle $ (25.8) $ (3.0) $ (77.6) $ (21.6)
Per Diluted Share Per Diluted Share
------------------- -------------------
Net loss $(0.36) $(0.09) $(1.01) $(0.32)
Special charges, net (0.04) (0.05) (0.04) (0.05)
Cumulative effect of change
in accounting principle - - (0.02) -
Net loss before special
charges and the
cumulative effect of change
in accounting principle $ (0.32) $ (0.04) $ (0.95) $ (0.27)
Third Quarter 2003 Financial Highlights
-- Sales of $482.6 million were up 3% compared to the third
quarter 2002. Sales were up 11% in the High Performance Metals
segment and 5% in the Engineered Products segment (formerly
known as the Industrial Products segment). Sales were down 2%
in the Flat-Rolled Products segment.
-- Net loss was $28.8 million, or $0.36 per share, compared to
last year's net loss of $7.5 million, or $0.09 per share.
Results included net non-recurring special charges of $3.0
million, or $0.04 per share. In the same period in 2002,
special charges were $4.5 million, or $0.05 per share.
-- Retirement benefit expense, after tax, in the third quarter
2003 was $20.0 million, or $0.25 per share, compared to $3.0
million, or $0.04 per share, in the third quarter 2002.
Through nine months, retirement benefit expense was $63.5
million, or $0.78 per share, in 2003 compared to $10.3
million, or $0.13 per share, in 2002. Essentially all of the
increase in retirement benefit expense in 2003 compared to
2002 is non-cash.
-- Cash flow from operations was $35 million and cash on hand
increased to $79 million, mainly as a result of inventory
reduction through lean-manufacturing initiatives.
-- Cost reductions, before the effects of inflation, totaled $29
million company-wide, bringing cost reductions to $85 million
for the nine months. Our 2003 cost reduction goal is $115
million.
Flat-Rolled Products Segment
Market Conditions
-- Demand from the automotive market was stable, while demand
from the residential construction and remodeling, and home
appliance markets remained strong. Non-residential
construction and most capital goods markets remained at low
levels of demand. Raw material surcharges escalated during the
quarter due to rising LME nickel prices, resulting in higher
average transaction prices, although base-selling prices
remained essentially flat with the second quarter.
Third quarter 2003 compared to third quarter 2002
-- Sales declined 2% to $260.5 million primarily due to continued
weakness in non-residential construction and most capital
goods markets. Total tons shipped decreased 2%. Average
transaction prices were basically flat due to higher raw
material surcharges; however, average base selling prices,
which do not include surcharges, declined by approximately 5%.
-- The segment had an operating loss of $4.8 million compared to
an operating profit of $3.9 million last year due to lower
base prices, reduced demand, and higher energy and raw
material costs, which more than offset lower depreciation
expense.
-- Energy costs increased $3.1 million compared to 2002, net of
approximately $0.2 million in gains from natural gas
derivatives.
-- Results for the third quarter 2003 benefited from $15 million
in cost reductions, before the effects of inflation and higher
energy costs, bringing cost reductions to $43 million through
nine months.
High Performance Metals Segment
Market Conditions
-- Demand for nickel-based alloys and premium titanium alloys
from the commercial aerospace market continued to be weak,
while demand was strong from the government defense and
biomedical markets. In late September, we announced price
increases for this segment's nickel, titanium, and specialty
steel alloys, primarily to offset higher costs. Our exotic
alloys business had another good quarter and continued to
benefit from sustained high demand from government defense and
high-energy physics markets.
Third quarter 2003 compared to third quarter 2002
-- Sales increased 11% to $162.3 million. Shipments were up 13%
for nickel-based and specialty steel alloys, 15% for titanium
alloys and 9% for exotic alloys.
-- Operating profit improved to $9.5 million compared to $9.3
million due to strong demand for our exotic alloys and
benefits from cost reductions, partially offset by higher raw
material costs.
-- Results for the third quarter 2003 benefited from $11 million
of cost reductions, before the effects of inflation, bringing
cost reductions to $33 million through nine months.
Engineered Products Segment (formerly known as Industrial Products
Segment)
Market Conditions
-- While demand from most markets remained weak, demand for
tungsten product materials from the oil and gas market
improved.
Third quarter 2003 compared to third quarter 2002
-- Sales improved 5% to $59.8 million.
-- Operating profit was $1.1 million compared to $1.6 million
last year due to higher raw material costs and lower prices,
which offset higher sales volumes and the benefits from cost
reductions.
-- Results for the third quarter 2003 benefited from $2 million
of cost reductions, before the effects of inflation, bringing
cost reductions to $6 million through nine months.
Retirement Benefit Expense
-- Pre-tax retirement benefit expense was $33.5 million for the
third quarter 2003 compared to $5.4 million for the third
quarter 2002. This increase resulted in a $28.1 million
pre-tax, or $0.21 per share after-tax, reduction in third
quarter 2003 results compared to the same 2002 period.
-- Approximately $25.6 million of the third quarter 2003
retirement benefit expense was non-cash.
-- The higher retirement benefit expense resulted from the severe
decline in the equity markets from 2000 through 2002, lower
expected returns on benefit plan investments and a lower
discount rate assumption for determining liabilities.
-- For the third quarter 2003, retirement benefit expense
increased cost of sales by $23.1 million, and selling and
administrative expenses by $10.4 million. For the third
quarter 2002, retirement benefit expense increased cost of
sales by $1.8 million, and selling and administrative expenses
by $3.6 million.
-- ATI is not required to make cash contributions to its defined
benefit pension plan for 2003 and, based upon current
actuarial studies, does not expect to be required to make cash
contributions to its defined benefit pension plan during the
next several years.
Special Charges
-- Results for the third quarter 2003 included net special
charges of $3.0 million after-tax, or $0.04 per share. These
amounts included:
-- $3.5 million associated with the previously announced
termination of the Stock Acquisition and Retention
Program, which generated approximately $0.5 million in
cash for ATI, and $1.1 million related to CEO transition.
These charges are included in selling and administrative
expenses on the consolidated statements of operations.
-- $0.8 million, or $0.01 per share, of restructuring costs
associated with workforce reductions across ATI during the
2003 third quarter.
-- $2.4 million, or $0.03 per share, of interest income
related to a Federal income tax settlement associated with
prior years. This interest income is netted against
interest expense on the consolidated statement of
operations.
-- Results for the third quarter 2002 included net after-tax
charges of $4.5 million, or $0.05 per share, for salaried
workforce reductions and a non-cash charge related to ATI's
minority interest in New Piper Aircraft, Inc.
Other Expenses
-- Corporate expenses for the third quarter 2003 decreased to
$4.1 million compared to $5.6 million in the year-ago period
primarily due to savings at the corporate office associated
with reductions in staffing and other efforts to control
costs, partially offset by higher insurance costs.
-- The effective tax rate was a benefit of 40.4% and 37.6% for
the 2003 third quarter and nine months, respectively, compared
to 44.9% and 38.0% for the same periods of 2002. The effective
tax rate for the third quarter 2003 was favorably impacted by
the settlement of previous years' tax obligations. As a result
of this settlement, ATI will receive in the 2003 fourth
quarter a tax refund of $17.1 million, including interest. ATI
continues to evaluate the future realization of its deferred
tax assets.
Cash Flow and Working Capital
-- Cash on hand was $78.5 million at September 30, 2003, an
increase of $19.1 million from 2002 year-end.
-- Cash flow from operating activities for the 2003 third quarter
was $35.0 million, and for the first nine months of 2003 was
$52.1 million.
-- At September 30, 2003, managed working capital was 30.6% of
annualized 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 $18.0 million in the third
quarter 2003, primarily due to reduced inventories. However,
managed working capital increased $36.2 million in the first
nine months of 2003 resulting primarily from an increase in
accounts receivable due to a higher level of sales in the 2003
third quarter compared to the fourth quarter 2002, and higher
gross inventories, mostly as a result of higher raw material
costs, primarily nickel. The increase in raw material costs is
expected to be largely recovered through surcharges.
-- Capital expenditures were $51.5 million for the first nine
months of 2003.
-- Cash provided by financing activities was $14.0 million in the
first nine months of 2003 and included proceeds of $15.3
million on the termination of certain interest rate swap
arrangements, primarily in the first quarter 2003, proceeds
from a net increase in debt of $13.3 million, primarily from
capital project financing, less $14.6 million of dividend
payments.
-- There are no borrowings currently outstanding under ATI's $325
million secured borrowing 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" ("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 October 22, 2003, 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
"Third Quarter Conference Call". In addition, the conference call will
be available through the CCBN website, located at www.ccbn.com.
This news release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act 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 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 for the year
ended December 31, 2002, and our Quarterly Reports on Form 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 specialty materials producers in the
world, with revenues of approximately $1.9 billion in 2002. The
Company has approximately 9,600 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, hafnium and niobium, 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
(Unaudited - Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Sales $ 482.6 $ 469.3 $ 1,453.0 $ 1,453.6
Costs and expenses:
Cost of sales 464.4 419.7 1,399.4 1,316.5
Selling and
administrative
expenses 60.3 47.1 161.4 146.9
Restructuring costs 1.2 5.5 1.2 5.5
--------- --------- --------- ---------
Loss before interest,
other expense and
income taxes (43.3) (3.0) (109.0) (15.3)
Interest expense, net 4.1 8.3 19.9 26.1
Other expense, net (0.9) (2.3) (0.2) (0.7)
--------- --------- --------- ---------
Loss before income tax
benefit and cumulative
effect of a change in
accounting principle (48.3) (13.6) (129.1) (42.1)
Income tax benefit (19.5) (6.1) (48.5) (16.0)
--------- --------- --------- ---------
Net loss before cumulative
effect of change in
accounting principle (28.8) (7.5) (80.6) (26.1)
Cumulative effect of
change in accounting
principle - - (1.3) -
--------- --------- --------- ---------
Net loss $ (28.8) $ (7.5) $ (81.9) $ (26.1)
========= ========= ========= =========
Basic and diluted net loss
per common share before
cumulative effect of
change in accounting
principle $ (0.36) $ (0.09) $ (0.99) $ (0.32)
Cumulative effect of
change in accounting
principle - - (0.02) -
--------- --------- --------- ---------
Basic and diluted net loss
per common share $ (0.36) $ (0.09) $ (1.01) $ (0.32)
========= ========= ========= =========
Weighted average common
shares outstanding --
basic and diluted
(millions) 81.1 80.6 80.9 80.5
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
(Unaudited - Dollars in millions)
YTD YTD Q3 Q2 Q1 Q4 Q3
2003 2002 2003 2003 2003 2002 2002
- -------- -------- ------- ------- ------- ------- -------
Sales:
Flat-Rolled
$779.5 $805.2 Products $260.5 $260.2 $258.8 $243.0 $266.4
High
Performance
490.1 473.9 Metals 162.3 166.8 161.0 156.1 146.1
Engineered
183.4 174.5 Products(a) 59.8 62.9 60.7 55.1 56.8
- -------- -------- ------- ------- ------- ------- -------
Total
External
$1,453.0 $1,453.6 Sales $482.6 $489.9 $480.5 $454.2 $469.3
======== ======== ======= ======= ======= ======= =======
Operating
Profit
(Loss):
Flat-Rolled
$(11.9) $4.2 Products $(4.8) $(6.1) $(1.0) $(12.1) $3.9
-1.5% 0.5% % of Sales -1.8% -2.3% -0.4% -5.0% 1.5%
High
Performance
29.4 22.2 Metals 9.5 11.6 8.3 9.0 9.3
6.0% 4.7% % of Sales 5.9% 7.0% 5.2% 5.8% 6.4%
Engineered
5.7 3.1 Products(a) 1.1 3.1 1.5 0.9 1.6
3.1% 1.8% % of Sales 1.8% 4.9% 2.5% 1.6% 2.8%
- -------- -------- ------- ------- ------- ------- -------
Operating
Profit
23.2 29.5 (Loss) 5.8 8.6 8.8 (2.2) 14.8
1.6% 2.0% % of Sales 1.2% 1.8% 1.8% -0.5% 3.2%
Corporate
(14.2) (15.8) expenses (4.1) (5.3) (4.8) (4.8) (5.6)
Interest
expense,
(19.9) (26.1) net (4.1) (8.4) (7.4) (8.2) (8.3)
- -------- -------- ------- ------- ------- ------- -------
(10.9) (12.4) Subtotal (2.4) (5.1) (3.4) (15.2) 0.9
Management
transition
and
restruc-
turing
(8.6) (5.5) costs (8.6) - - - (5.5)
Other costs,
net of
gains
on asset
(7.9) (7.6) sales (3.8) (2.3) (1.8) (41.3) (3.6)
Retirement
benefit
(101.7) (16.6) expense(b) (33.5) (33.4) (34.8) (5.2) (5.4)
- -------- -------- ------- ------- ------- ------- -------
Loss before
income tax
$(129.1) $(42.1) benefit $(48.3) $(40.8) $(40.0) $(61.7) $(13.6)
======== ======== ======= ======= ======= ======= =======
(a) Formerly the Industrial Products Segment
(b) Includes non-cash expenses of $25.6 million, $24.9 million and
$28.2 million for the 2003 third quarter, 2003 second quarter
and 2003 first quarter, respectively.
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(Current period unaudited - Dollars in millions)
September 30, December 31,
2003 2002
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 78.5 $ 59.4
Accounts receivable, net of allowances for
doubtful accounts of $9.8 and $10.1 at
September 30, 2003 and December 31, 2002,
respectively 275.5 239.3
Inventories, net 377.1 392.3
Deferred income taxes 32.9 20.8
Income tax refunds receivable 17.1 51.9
Prepaid expenses and other current assets 25.9 32.0
------------ ------------
Total current assets 807.0 795.7
Property, plant and equipment, net 751.2 757.6
Cost in excess of net assets acquired 194.8 194.4
Deferred pension asset 165.1 165.1
Deferred income taxes 114.7 85.4
Other assets 65.3 95.0
------------ ------------
Total Assets $ 2,098.1 $ 2,093.2
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 175.5 $ 171.3
Accrued liabilities 177.3 161.0
Short term debt and current portion of
long-term debt 12.4 9.7
------------ ------------
Total current liabilities 365.2 342.0
Long-term debt 519.2 509.4
Accrued postretirement benefits 505.0 496.4
Pension liabilities 282.0 216.0
Other long-term liabilities 80.6 80.6
------------ ------------
Total liabilities 1,752.0 1,644.4
------------ ------------
Total stockholders' equity 346.1 448.8
------------ ------------
Total Liabilities and Stockholders' Equity $ 2,098.1 $ 2,093.2
============ ============
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited--Dollars in millions)
Nine Months Ended
September 30
-------------------
2003 2002
--------- ---------
Operating Activities:
Net loss $ (81.8) $ (26.1)
Cumulative effect of change in
accounting principle 1.3 -
Depreciation and amortization 55.7 68.5
Change in managed working capital (36.2) 122.3
Income tax refunds received 48.5 45.6
Income tax refunds receivable (17.1) (22.3)
Change in pension assets/liabilities 66.0 (7.3)
Accrued liabilities and other 15.7 23.6
-------- --------
Cash provided by operating activities 52.1 204.3
-------- --------
Investing Activities:
Purchases of property, plant and equipment (51.5) (35.9)
Asset disposals and other 4.5 2.2
-------- --------
Cash used in investing activities (47.0) (33.7)
-------- --------
Financing Activities:
Net increase (decrease) in debt 13.3 (80.8)
Interest rate swap termination 15.3 -
Dividends paid (14.6) (48.3)
-------- --------
Cash provided by (used in) financing activities 14.0 (129.1)
-------- --------
Increase in cash and cash equivalents 19.1 41.5
Cash and cash equivalents at beginning of period 59.4 33.7
-------- --------
Cash and cash equivalents at end of period $ 78.5 $ 75.2
======== ========
Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data
(Unaudited)
YTD YTD Q3 Q2 Q1 Q4 Q3
2003 2002 2003 2003 2003 2002 2002
- -------- ------- ------- ------- ------- ------- -------
Volume:
Flat-Rolled
359,082 372,532 Products 119,564 120,554 118,964 114,803 122,249
- -------- ------- ------- ------- ------- ------- -------
Commodity
(finished
257,348 267,798 tons) 86,519 87,337 83,492 82,503 87,884
High value
101,734 104,734 (tons) 33,045 33,217 35,472 32,300 34,365
High
Performance
Metals
(000's
lbs.)
Nickel-
based and
specialty
steel
27,114 27,113 alloys 8,965 9,457 8,692 8,719 7,901
Titanium
mill
14,045 14,411 products 4,813 4,617 4,615 4,633 4,186
Exotic
3,144 2,851 alloys 1,052 1,160 932 861 967
Average
Prices:
Flat-Rolled
$2,156 $2,143 Products $2,165 $2,144 $2,159 $2,102 $2,163
Commodity
(per
finished
$1,561 $1,541 tons) $1,570 $1,550 $1,564 $1,490 $1,594
High value
$3,660 $3,682 (per ton) $3,722 $3,708 $3,557 $3,663 $3,617
High
Performance
Metals
(per lb.)
Nickel-
based and
specialty
steel
$6.54 $6.49 alloys $6.44 $6.47 $6.73 $6.09 $6.72
Titanium
mill
$11.68 $11.65 products $11.05 $11.16 $12.85 $12.36 $12.25
Exotic
$38.01 $34.16 alloys $38.16 $38.10 $37.75 $43.33 $35.16
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Managed Working Capital
(Unaudited - Dollars in millions)
Sept. 30,
2003
Change in
Managed
Sept. 30, June 30, March 31, Dec. 31, Working
2003 2003 2003 2002 Capital
--------- --------- --------- --------- ---------
Accounts receivable $275.5 $274.8 $260.4 $239.3
Inventory 377.1 401.5 396.6 392.3
Accounts payable (175.5) (175.1) (178.1) (171.3)
--------- --------- --------- ---------
Subtotal 477.1 501.2 478.9 460.3
Allowance for
doubtful accounts 9.8 9.3 10.3 10.1
LIFO reserve 97.5 87.0 77.7 74.7
Corporate and other 15.5 20.4 18.4 18.6
--------- --------- --------- --------- ---------
Managed working
capital $599.9 $617.9 $585.3 $563.7 $36.2
========= ========= ========= ========= =========
Annualized prior 2
months sales $1,962.0 $1,953.0 $1,992.0 $1,741.0
========= ========= ========= =========
Managed working
capital as a % of
annualized sales 30.6% 31.6% 29.4% 32.4%
Certain amounts from prior periods have been reclassified to conform
with the 2003 presentation.
CONTACT: Allegheny Technologies Incorporated
Dan L. Greenfield, 412-394-3004