Exhibit 99.1
Allegheny Technologies Announces First Quarter 2006 Results
PITTSBURGH--(BUSINESS WIRE)--April 26, 2006--Allegheny
Technologies Incorporated (NYSE:ATI):
-- Sales increased 18% to over $1.0 billion
-- Net income increased 68% to $102.5 million, or $1.00 per share
-- Segment operating profit of $208 million, or 20% of sales:
-- High Performance Metals: 35% of sales
-- Flat-Rolled Products: 9% of sales
-- Engineered Products: 16% of sales
-- Gross cost reductions of $28 million
-- Return on capital employed of 30%
-- Return on stockholders' equity of 48%
-- Net debt to total capitalization improved to 18%
-- Cash on hand was $359 million
Allegheny Technologies Incorporated (NYSE:ATI) reported net income
for the first quarter 2006 of $102.5 million, or $1.00 per share, on
sales of $1.04 billion. Income before tax for the first quarter 2006
was $160.2 million.
In the first quarter 2005, ATI reported net income of $61.0
million, or $0.61 per share, on sales of $879.6 million. Income before
tax in the first quarter 2005 was $63.3 million.
"ATI is off to an outstanding start in 2006, demonstrating strong
after-tax profitable growth results and future earnings power," said
L. Patrick Hassey, Chairman, President and Chief Executive Officer.
"Sales grew to over $1 billion, an increase of 18% compared to the
first quarter 2005, and 16% higher than the fourth quarter 2005.
Segment operating profit increased 83% compared to the first quarter
2005, and reached 20% of sales as operational execution continued to
improve. Net income increased by 68% to $102.5 million, or 10% of
sales. Income before tax increased by 153% to $160 million.
"Our key growth markets, namely aerospace and defense, chemical
process industry, oil and gas, electrical energy, and medical,
remained strong, reaching 62% of ATI's first quarter 2006 sales.
Aerospace and defense was the largest of our markets at 31% of first
quarter 2006 sales.
"Cash flow was strong and we continued to invest in the business.
Capital investments in the first quarter were $52 million, 75% of
which were directed towards our high-value products capabilities. We
also invested $126 million in additional managed working capital due
to significantly higher sales and operating levels. Cash on hand
remained nearly flat at $359 million.
"Key financial ratios were very strong in the first quarter 2006.
Annualized return on capital employed was over 30%, annualized return
on stockholders' equity was over 48%, and net debt to total
capitalization improved to 18%.
"We remain focused on reducing costs in 2006 and achieved gross
cost reductions of $28 million in the first quarter. Our 2006 cost
reduction target is $100 million.
"Demand in our High Performance Metals segment was robust for our
premium titanium alloys and nickel-based superalloys for jet engines,
and we increased shipments of our titanium alloys used in airframe
components. Demand was strong for our exotic alloys, particularly from
global corrosion markets and from the aerospace and defense, medical,
and electrical energy markets. Operating profit benefited from our ATI
Business System (ATIBS) lean manufacturing efforts, which delivered
productivity improvements and faster flow of material through our
operations.
"In our Flat-Rolled Products segment, with sales essentially flat
compared to the first quarter 2005, operating margins improved to over
9% of sales due to cost reductions and an improved product mix. Demand
was strong from the key growth markets for our flat-rolled products
specialty metals, namely chemical process industry, oil and gas,
pollution control for electrical energy, power generation and
distribution, and aerospace and defense. Demand from our service
center customers began to improve, compared to the second half 2005,
as service center inventories returned to better balance and end-use
demand was healthy. As overall business activity improved, first
quarter 2006 order entry in pounds increased by 30% and 64% compared
to the first and fourth quarters 2005, respectively. As a result of
these improved conditions, we announced several price increases during
the first quarter 2006 for many of our flat-rolled products.
"Our Engineered Products segment had an excellent first quarter.
Sales increased 21% due to continued strong demand across most end-use
markets. Operating profit reached 16% of sales due to continued
improvement in operational execution from ATIBS efforts. Demand from
the oil and gas market was very strong, and demand from the
transportation, construction and mining, and electrical energy markets
remained strong. In addition, demand for our titanium precision metal
processing capabilities from the aerospace and defense market remained
at a high level.
"Our strategic investments for growth in titanium and titanium
alloys, and nickel-based alloys and superalloys are on track. The
initial start-up at our Albany, OR upgraded titanium sponge facility
went well. We continue to expect increased shipments of our high-value
products from these strategic investments by the fourth quarter
quarter 2006.
"We expect 2006 to be a year of continuing profitable growth for
ATI. Major markets in our High Performance Metals and Engineered
Products segments continue to be robust. We expect overall results in
our Flat-Rolled Products segment to improve significantly in the
second quarter 2006. We expect cash flow to continue to be strong in
2006 enabling ATI to continue to self-fund our strategic investments
for growth, and to continue to improve our balance sheet.
"In summary, we are ahead of schedule, committed, and focused on
achieving our strategy and profitable growth objectives. We remain
dedicated to our disciplined plan and vision of Building the World's
Best Specialty Metals Company."
Three Months Ended
March 31
In Millions
----------------------
2006 2005
---------- ----------
Sales $1,040.5 $879.6
Net income $102.5 $61.0
Per Diluted Share
Net income $1.00 $0.61
First Quarter 2006 Financial Highlights
-- Sales were a record $1,040.5 million, 18% higher than the
first quarter 2005. Sales increased 57% in the High
Performance Metals segment and 21% in the Engineered Products
segment, and declined about 1% in the Flat-Rolled Products
segment.
-- Segment operating profit was a record $208.3 million, an
increase of $94.4 million, or 83%, compared to the first
quarter 2005, as a result of improved performance across all
three business segments. First quarter 2006 results included a
LIFO inventory valuation reserve charge of $6.9 million, due
primarily to higher titanium scrap costs. The LIFO inventory
valuation reserve charge was $5.7 million in the first quarter
2005.
-- Net income was $102.5 million, or $1.00 per share, compared to
the first quarter 2005 of $61.0 million, or $0.61 per share.
Results for the first quarter 2006 included a provision for
income taxes of $57.7 million, or 36% of income before tax,
compared to a provision of $2.3 million, or 3.6% of income
before tax, for the comparable 2005 quarter. The 2005 first
quarter benefited from a lower income tax provision due to a
reduction in the valuation allowances associated with deferred
tax assets.
-- Cash flow from operations was $35.2 million as improved
operating earnings more than offset a further investment of
$126.0 million in managed working capital.
-- Cash on hand was $359.1 million at the end of the first
quarter 2006.
-- Gross cost reductions, before the effects of inflation,
totaled $27.8 million company-wide for the quarter. Our 2006
gross cost reduction goal is $100 million.
High Performance Metals Segment
Market Conditions
-- Demand for our titanium alloys, nickel-based superalloys, and
vacuum-melted specialty alloys was robust from the aerospace
and defense market, and strong from the medical, and oil and
gas markets. Demand was strong for our exotic alloys from the
global corrosion markets and from the aerospace and defense,
medical, and electrical energy markets.
First quarter 2006 compared to first quarter 2005
-- Sales increased 57% to a record $412.1 million. Shipments
increased 4% for titanium alloys, 6% for nickel-based and
specialty alloys, and 15% for exotic alloys. Average selling
prices increased 82% for titanium alloys and 32% for
nickel-based and specialty alloys, and decreased 5% for exotic
alloys, primarily due to product mix.
-- Segment operating profit reached a record $142.7 million, or
34.6% of sales, a $79.2 million increase compared to the first
quarter 2005. The significant increase in operating profit
primarily resulted from increased shipments for most products,
higher selling prices, and the benefits of gross cost
reductions. In addition, raw material cost inflation and
higher inventory levels resulted in a LIFO inventory valuation
reserve charge of $6.9 million in 2006, compared to a $6.0
million charge in the first quarter 2005.
-- Results benefited from $7.1 million of gross cost reductions.
Flat-Rolled Products Segment
Market Conditions
-- Total first quarter 2006 shipments increased by 24% compared
to the fourth quarter 2005. Demand was strong for our
nickel-based alloys, specialty stainless, grain-oriented
silicon, and titanium products from the chemical process
industry, oil and gas, electrical energy, and aerospace and
defense markets. Shipments of stainless steel to service
centers began to improve in the first quarter 2006, compared
to the second half 2005, as inventories returned to better
balance and demand was healthy from major end markets.
First quarter 2006 compared to first quarter 2005
-- Sales were $517.2 million, 1% lower than the first quarter
2005, as an improved product mix, higher base-selling prices,
and higher raw material surcharges nearly offset a 9%
reduction in pounds shipped. The majority of the decrease in
pounds shipped is due to our focus on improving product mix by
reducing shipments of low-value products. Shipments of
commodity flat-rolled products decreased 15%, while shipments
of high-value flat-rolled products increased 1%. Average
transaction prices, which include surcharges, were 1% higher
for commodity products and 11% higher for high-value products.
-- Segment operating profit increased to $48.0 million, or 9.3%
of sales, primarily as a result of improved product mix,
higher base-selling prices and the benefits of gross cost
reductions. No LIFO inventory valuation reserve charges were
recorded in either the first quarter 2006 or the first quarter
2005.
-- Results benefited from $19.0 million in gross cost reductions.
Engineered Products Segment
Market Conditions
-- Demand for our tungsten and tungsten carbide products was very
strong from the oil and gas market and strong from the
automotive, and construction and mining markets. Demand
remained strong for our forged products from the Class 8
truck, construction and mining, and oil and gas markets.
Demand for our cast products remained strong from the
transportation, wind energy, and oil and gas markets. Demand
remained very strong for our titanium precision metal
processing conversion services.
First quarter 2006 compared to first quarter 2005
-- Sales increased to a record $111.2 million, a 21% increase
over the first quarter 2005, due to increased volume and
higher selling prices.
-- Segment operating profit improved to a record $17.6 million,
or 15.8% of sales, primarily due to higher sales volumes,
improved pricing, and the benefits of gross cost reductions.
No LIFO inventory valuation reserve charges or benefits were
recorded in the first quarter 2006, compared to a LIFO
inventory benefit of $0.3 million for first quarter 2005.
-- Results benefited from $1.7 million of gross cost reductions.
Retirement Benefit Expense
-- Retirement benefit expense was $20.6 million in the first
quarter 2006, compared to $20.2 million in the first quarter
2005.
-- For the first quarter 2006, retirement benefit expense
included in cost of sales was $13.4 million, and in selling
and administrative expenses was $7.2 million. For the first
quarter 2005, the amount of retirement benefit expense
included in cost of sales was $14.2 million, and the amount
included in selling and administrative expenses was $6.0
million.
Other Expenses
-- Corporate expenses for the first quarter 2006 were $13.9
million, compared to $10.3 million in the year-ago period.
This increase is due primarily to expenses associated with
annual and long-term performance-based incentive compensation
programs.
-- Excluding the effects of retirement benefit expense, selling
and administrative expenses as a percentage of sales declined
to 6.3% in the 2006 first quarter from 6.9% in the same period
of 2005.
-- First quarter 2006 interest expense, net of interest income,
decreased to $7.5 million from $10.4 million in the year-ago
period primarily due to increased interest income resulting
from higher cash balances, partially offset by higher interest
rates on floating rate debt.
Income Taxes
Results for the first quarter 2006 includes a provision for income
taxes of $57.7 million, or 36.0% of income before tax, for U.S.
Federal, foreign and state income taxes. The first quarter 2005
included a provision of $2.3 million, or 3.6% of income before tax,
principally related to foreign and state income taxes. Prior to the
fourth quarter 2005, we maintained a valuation allowance for a major
portion of our U.S. Federal deferred tax assets in accordance with
SFAS No. 109, "Accounting for Income Taxes", due to uncertainty
regarding full utilization of our net deferred tax asset, including
the 2003 and 2004 unutilized net operating losses. In 2005, we
generated taxable income which exceeded the 2003 and 2004 net
operating losses allowing us to fully realize these U.S. Federal tax
benefits. This realization of tax benefits, together with our improved
profitability, required us to eliminate the remaining valuation
allowance for U.S. Federal income taxes in the fourth quarter 2005 in
accordance with SFAS No. 109. As a result, for 2006 and future periods
we expect that our effective tax rate will return to a more normal
percentage rate, such as that reflected in our first quarter 2006
results.
Cash Flow, Working Capital and Debt
-- Cash on hand was $359.1 million at the end of the first
quarter 2006, a decrease of $3.6 million from year end 2005.
-- Cash flow from operations during the first quarter 2006 was
$35.2 million as improved operating earnings were partially
offset by a further investment of $126.0 million in managed
working capital, and payment of a previously accrued judgment
of $26.2 million.
-- The investment in managed working capital resulted from a
$70.4 million increase in accounts receivable, which reflects
the significantly higher level of sales in the first quarter
2006 compared to the fourth quarter 2005, and a $109.0 million
increase in inventory mostly as a result of higher raw
material costs and increased operating volumes, partially
offset by a $53.3 million increase in accounts payable. Most
of the increase in raw material costs is expected to be
recovered through surcharge and index pricing mechanisms.
-- At March 31, 2006, managed working capital improved to 27.2%
of annualized sales, compared to 30.3% of annualized sales at
year-end 2005. We define managed working capital as accounts
receivable plus gross inventories less accounts payable.
-- Cash used in investing activities was $52.5 million in the
first quarter 2006 and consisted primarily of capital
expenditures.
-- Cash provided by financing activities was $13.7 million in the
first quarter 2006 as $16.9 million of proceeds received from
the exercise of stock options, and tax benefits on share-based
compensation of $8.3 million, more than offset dividend
payments of $9.9 million and reduction in foreign borrowings
of $1.6 million.
-- Net debt as a percentage of total capitalization improved to
18.2% at the end of the first quarter 2006, compared to 19.8%
at the end of 2005.
-- There were no borrowings outstanding during the first quarter
2006 or all of 2005 under ATI's $325 million secured domestic
borrowing facility, although a portion of the letters of
credit capacity was utilized during both periods.
Allegheny Technologies will conduct a conference call with
investors and analysts on April 26, 2006, 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 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. 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, performance or
achievements to materially differ from those expressed or implied in
the forward-looking statements. Important factors that could cause
actual results to differ materially from those in the forward-looking
statements include: (a) material adverse changes in economic or
industry conditions generally, including global supply and demand
conditions and prices for our specialty metals; (b) material adverse
changes in the markets we serve, including the aerospace and defense,
construction and mining, automotive, electrical energy, chemical
process industry, oil and gas, and other markets; (c) our inability to
achieve the level of cost savings, productivity improvements,
synergies, growth or other benefits anticipated by management,
including those anticipated from strategic investments and the
integration of acquired businesses, whether due to significant
increases in energy, raw materials or employee benefits costs, or
other factors; (d) volatility of prices and availability of supply of
the raw materials that are critical to the manufacture of our
products; (e) declines in the value of our defined benefit pension
plan assets or unfavorable changes in laws or regulations that govern
pension plan funding; (f) significant legal proceedings or
investigations adverse to us; and (g) the other risk factors
summarized in our Annual Report on Form 10-K for the year ended
December 31, 2005, and other reports filed with the Securities and
Exchange Commission. We assume no duty to update our forward-looking
statements.
Allegheny Technologies Incorporated is one of the largest and most
diversified specialty metals producers in the world with revenues of
$3.7 billion during the most recent four quarters ending March 31,
2006. ATI has approximately 9,300 full-time employees world-wide who
use innovative technologies to offer growing global markets a wide
range of specialty metals solutions. Our major markets are aerospace
and defense, chemical process industry/oil and gas, electrical energy,
medical, automotive, food equipment and appliance, machine and cutting
tools, and construction and mining. Our products include nickel-based
alloys and superalloys, titanium and titanium alloys, stainless and
specialty steels, zirconium, hafnium, and niobium, tungsten materials,
grain-oriented silicon electrical steel and tool steels, and forgings
and castings. The Allegheny Technologies website is
www.alleghenytechnologies.com.
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Income
(Unaudited - Dollars in millions, except per share amounts)
Three Months Ended
March 31
---------------------
2006 2005
---------- ----------
Sales $1,040.5 $879.6
Costs and expenses:
Cost of sales 798.6 738.3
Selling and administrative expenses 72.9 66.8
---------- ----------
Income before interest, other income
(expense) and income taxes 169.0 74.5
Interest expense, net (7.5) (10.4)
Other income (expense), net (1.3) (0.8)
---------- ----------
Income before income tax provision 160.2 63.3
Income tax provision 57.7 2.3
---------- ----------
Net income $102.5 $61.0
========== ==========
Basic net income per common share $1.04 $0.64
========== ==========
Diluted net income per common share $1.00 $0.61
========== ==========
Weighted average common shares
outstanding -- basic (millions) 98.7 95.4
Weighted average common shares
outstanding -- diluted (millions) 102.7 99.9
Actual common shares outstanding--
end of period (millions) 100.0 96.4
Allegheny Technologies Incorporated and Subsidiaries
Sales and Operating Profit by Business Segment
(Unaudited - Dollars in millions)
Three Months Ended
March 31
---------------------
2006 2005
---------- ----------
Sales:
High Performance Metals $412.1 $262.7
Flat-Rolled Products 517.2 524.9
Engineered Products 111.2 92.0
---------- ----------
Total External Sales $1,040.5 $879.6
========== ==========
Operating Profit:
High Performance Metals $142.7 $63.5
% of Sales 34.6% 24.2%
Flat-Rolled Products 48.0 39.2
% of Sales 9.3% 7.5%
Engineered Products 17.6 11.2
% of Sales 15.8% 12.2%
---------- ----------
Operating Profit 208.3 113.9
% of Sales 20.0% 12.9%
Corporate expenses (13.9) (10.3)
Interest expense, net (7.5) (10.4)
---------- ----------
Subtotal 186.9 93.2
Other expense, net of
gains on asset sales (6.1) (9.7)
Retirement benefit expense (20.6) (20.2)
---------- ----------
Income before
income taxes $160.2 $63.3
========== ==========
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(Current period unaudited--Dollars in millions)
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $359.1 $362.7
Accounts receivable, net of allowances for
doubtful accounts of $8.5 and $8.1 at
March 31, 2006 and December 31, 2005,
respectively 512.2 442.1
Inventories, net 701.7 607.1
Deferred income taxes 27.7 22.8
Prepaid expenses and
other current assets 34.3 49.3
------------ ------------
Total Current Assets 1,635.0 1,484.0
Property, plant and equipment, net 742.9 704.9
Cost in excess of net assets acquired 200.6 199.7
Deferred income taxes 156.9 155.3
Deferred pension asset 100.6 100.6
Other assets 88.1 87.1
------------ ------------
Total Assets $2,924.1 $2,731.6
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $368.0 $312.9
Accrued liabilities 220.8 216.1
Accrued income taxes 49.6 18.5
Short term debt and current
portion of long-term debt 18.0 13.4
------------ ------------
Total Current Liabilities 656.4 560.9
Long-term debt 540.9 547.0
Accrued postretirement benefits 459.2 461.5
Pension liabilities 257.8 242.9
Other long-term liabilities 109.8 119.4
------------ ------------
Total Liabilities 2,024.1 1,931.7
------------ ------------
Total Stockholders' Equity 900.0 799.9
------------ ------------
Total Liabilities and Stockholders' Equity $2,924.1 $2,731.6
============ ============
Allegheny Technologies Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited--Dollars in millions)
Three Months Ended
March 31
------------------
2006 2005
--------- --------
Operating Activities:
Net income $102.5 $61.0
Depreciation and amortization 18.8 17.8
Change in managed working capital (126.0) (122.2)
Change in pension assets/liabilities 14.5 14.7
Postretirement benefits (2.3) (2.2)
Accrued liabilities and other 27.7 26.2
--------- --------
Cash provided by (used in) operating activities 35.2 (4.7)
--------- --------
Investing Activities:
Purchases of property, plant and equipment (52.3) (7.2)
Asset disposals and other (0.2) (0.6)
--------- --------
Cash used in investing activities (52.5) (7.8)
--------- --------
Financing Activities:
Net decrease in debt (1.6) (5.8)
Dividends paid (9.9) (5.8)
Exercises of stock options 16.9 4.5
Tax benefits on share-based compensation 8.3 -
--------- --------
Cash provided by (used in) financing activities 13.7 (7.1)
--------- --------
Decrease in cash and cash equivalents (3.6) (19.6)
Cash and cash equivalents at beginning of period 362.7 250.8
--------- --------
Cash and cash equivalents at end of period $359.1 $231.2
========= ========
Allegheny Technologies Incorporated and Subsidiaries
Selected Financial Data
(Unaudited)
Three Months Ended
March 31
-------------------
2006 2005
--------- ---------
Volume:
High Performance Metals (000's lbs.)
Nickel-based and specialty alloys 10,977 10,349
Titanium mill products 6,391 6,137
Exotic alloys 1,177 1,027
Flat-Rolled Products (000's lbs.)
High value 127,758 126,816
Commodity 185,445 218,758
--------- ---------
Flat-Rolled Products total 313,203 345,574
Average Prices:
High Performance Metals (per lb.)
Nickel-based and specialty alloys $12.92 $9.77
Titanium mill products $31.58 $17.37
Exotic alloys $38.30 $40.48
Flat-Rolled Products (per lb.)
High value $2.23 $2.01
Commodity $1.23 $1.22
Flat-Rolled Products combined average $1.64 $1.51
Volume and Average Price data for Flat-Rolled Products includes the
classification of grain-oriented silicon electrical steel and tool
steel as high-value products for all periods presented.
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Managed Working Capital
(Unaudited - Dollars in millions)
March 31, 2006
March 31, December 31, Change in Managed
2006 2005 Working Capital
--------- ------------ -----------------
Accounts receivable $512.2 $442.1
Inventory 701.7 607.1
Accounts payable (368.0) (312.9)
--------- ------------
Subtotal 845.9 736.3
Allowance for doubtful
accounts 8.5 8.1
LIFO reserve 276.6 269.7
Corporate and other 43.0 33.9
--------- ------------
Managed working capital $1,174.0 $1,048.0 $126.0
========= ============ =================
Annualized prior 2 months
sales $4,309.2 $3,461.1
========= ============
Managed working capital as a
% of annualized sales 27.2% 30.3%
As part of managing the liquidity in our business, we focus on
controlling managed working capital, which is defined as gross
accounts receivable and gross inventories, less accounts payable. In
measuring performance in controlling this managed working capital, we
exclude the effects of LIFO inventory valuation reserves, excess and
obsolete inventory reserves, and reserves for uncollectible accounts
receivable which, due to their nature, are managed separately.
Allegheny Technologies Incorporated and Subsidiaries
Other Financial Information
Net Debt to Capital
(Unaudited - Dollars in millions)
March 31, December 31,
2006 2005
----------- ------------
Total debt $558.9 $560.4
Less: Cash (359.1) (362.7)
----------- ------------
Net debt $199.8 $197.7
Net debt $199.8 $197.7
Stockholders' equity 900.0 799.9
----------- ------------
Total capital $1,099.8 $997.6
Net debt to capital ratio 18.2% 19.8%
=========== ============
In managing the overall capital structure of the Company, one of the
measures on which we focus is net debt to total capitalization, which
is the percentage of debt to the total invested and borrowed capital
of the Company. In determining this measure, debt and total
capitalization are net of cash on hand which may be available to
reduce borrowings.
CONTACT: Allegheny Technologies Incorporated
Dan L. Greenfield, 412-394-3004