e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
OR
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 1-12001
ALLEGHENY TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation
or organization)
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25-1792394
(I.R.S. Employer
Identification Number) |
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1000 Six PPG Place, Pittsburgh, Pennsylvania
(Address of principal executive offices)
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15222-5479
(Zip Code) |
Registrants telephone number, including area code: (412) 394-2800
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Stock, $0.10 Par Value
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New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is well known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes þ No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
On February 14, 2011, the Registrant had outstanding 98,704,553 shares of its Common Stock.
The aggregate market value of the Registrants voting stock held by non-affiliates at June 30, 2010
was approximately $4.3 billion, based on the closing price per share of Common Stock on June 30,
2010 of $44.19 as reported on the New York Stock Exchange. Shares of Common Stock known by the
Registrant to be beneficially owned by directors and officers of the Registrant subject to the
reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended
(the Exchange Act), are not included in the computation. The Registrant, however, has made no
determination that such persons are affiliates within the meaning of Rule 12b-2 under the
Exchange Act.
Documents Incorporated By Reference
Selected portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April
29, 2011 are incorporated by reference into Part III of this Report.
PART I
Item 1. Business
The Company
Allegheny Technologies Incorporated (ATI) is a Delaware corporation with its principal executive
offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479, telephone number (412)
394-2800, Internet website address http://www.atimetals.com. References to Allegheny
Technologies, ATI, the Company, the Registrant, we, our and us and similar terms mean
Allegheny Technologies Incorporated and its subsidiaries, unless the context otherwise requires.
Our Business
Allegheny Technologies is one of the largest and most diversified specialty metals producers in the
world. We use innovative technologies to offer growing global markets a wide range of specialty
metals solutions. Our products include titanium and titanium alloys, nickel-based alloys and
superalloys, zirconium, hafnium and niobium, advanced powder alloys, stainless and specialty steel
alloys, grain-oriented electrical steel, tungsten-based materials and cutting tools, carbon alloy
impression die forgings, and large grey and ductile iron castings. Our specialty metals are
produced in a wide range of alloys and product forms and are selected for use in applications that
demand metals having exceptional hardness, toughness, strength, resistance to heat, corrosion or
abrasion, or a combination of these characteristics.
We focus our advanced specialty metals technology, unsurpassed manufacturing capabilities, and
innovative products to serve global end use markets with highly diversified and specialized product
offerings. Strategic end use markets for our products include:
Aerospace and Defense. We are a world leader in the production of premium titanium alloys,
nickel-based and cobalt-based alloys and superalloys, and vacuum-melted specialty alloys used in
the manufacture of components for both commercial and military jet engines, as well as replacement
parts for those engines. We also produce titanium alloys, vacuum-melted specialty alloys, and
high-strength stainless alloys for use in commercial and military airframes, airframe components
and missiles. ATI produces unique titanium and high-hard steel alloys as well as engineered parts
and castings for the current and next-generation armored vehicles.
Titanium and titanium alloys are critical metals in aerospace and defense applications.
Titanium and titanium alloys possess an extraordinary combination of properties, including superior
strength-to-weight ratio, good elevated temperature resistance, low coefficient of thermal
expansion, and extreme corrosion resistance. These metals are used to produce jet engine components
such as blades, vanes, discs, and casings, and airframe components such as structural members,
landing gear, hydraulic systems, and fasteners. The latest and next-generation airframes and jet
engines use even more titanium and titanium alloys in component parts in order to minimize weight
and maximize fuel efficiency.
Our nickel-based alloys and superalloys and specialty alloys are also widely used in aerospace
and defense applications. Nickel-based alloys and superalloys remain extremely strong at high
temperatures and resist degradation under extreme conditions. Typical aerospace applications for
nickel-based alloys and superalloys include jet engine shafts, discs, blades, vanes, rings and
casings.
Our specialty alloys include vacuum-melted maraging steels used in the manufacture of aircraft
landing gear and structural components, as well as jet engine components.
ATI also offers tungsten cutting tools and machining solutions for difficult-to-machine
specialty metals, such as titanium alloys, nickel-based superalloys, and specialty alloys used in
airframe, jet engine, and armor applications.
We continuously seek to develop innovative new alloys to better serve the needs of this end
use market. For example, we developed ATI 425® alloy sheet, a new cold-rollable titanium alloy,
that is an alternative to the most popular high-strength titanium alloys, for use in airframe
components. ATI 425® MIL titanium is an innovative new armor alloy that has the advantage of
superior formability as compared to conventional high-strength titanium alloys. We also developed
ATI 718 Plus® alloy, a new nickel-based superalloy that can withstand higher temperatures than the
standard 718 superalloy, for use in legacy jet engines and the next generation of fuel efficient
jet engines. ATI 500 MIL high-hard steel armor is an innovative armor material that meets the
demanding specifications for superior ballistic performance and is easier to fabricate than similar
armor materials.
Demand for our products by the aerospace and defense market has increased significantly over
the last several years. Based on current forecasts and existing backlogs reported by the two
manufacturers of large commercial aircraft, we expect to benefit from increased production
schedules for legacy and next-generation aircraft, and increased demand for aftermarket jet engine
spare parts.
Oil and Gas and Chemical Process Industry. The environments in which oil and gas can be found
in commercial quantities have become more challenging, involving deep offshore wells, high pressure
and temperature conditions, sour wells and unconventional
1
sources, such as oil and gas shale, liquid natural gas, oil sands, and enhanced oil recovery
of existing fields. Challenging offshore environments are in remote locations that are further off
the continental shelf, including arctic and tropic locations, often one mile or more below the
waters surface. The metal requirements for equipment, which could operate for up to 30 years in
these environments, require the specialty metals that we produce.
All of our business segments produce specialty metals that are critical to the oil and gas
industry and the chemical process industry. Our specialty metals, including titanium and titanium
alloys, nickel-based alloys, zirconium alloys, stainless and duplex alloys and other specialty
alloys, have the strength and corrosion resistant properties necessary for difficult environments.
Global demand for these materials is increasing, particularly in growing markets in Asia, the
Middle East, North Africa and South America. Demand for these products in the U.S. is growing due
to increased activity in oil and gas shale reserves.
We have developed a family of duplex alloys, including ATI 2003®, ATI 2102, and ATI 2304
lean duplex alloys, for use in deep-water oil and gas applications. Several of our strip, plate and
cast products are NORSOK qualified. The NORSOK standards are developed by the Norwegian petroleum
industry and are intended to identify metals used in oil and gas applications that are safe and
cost-effective. Our Datalloy2® non-magnetic stainless is used for drill collars that enable the
most advanced directional and horizontal drilling techniques to be guided to the exact position
desired for the reservoir.
Tungsten is the most dense and heat resistant metal commercially available. One application
for our tungsten products is in oil and gas drill bit inserts and bodies. As drilling methods such
as directional and horizontal drilling become more complex, our advanced tungsten carbide materials
are often specified in order to enable faster drilling and longer drill bit life.
Electrical Energy. Our specialty metals are widely used in the global electric power
generation and distribution industry. We believe that U.S. and European energy needs and
environmental policies and the electrification of developing countries will continue to drive
demand for our specialty metals products that we sell for use in this industry.
For electrical power generation, our specialty metals, corrosion resistant alloys (CRAs) and
ductile iron castings are used in coal, nuclear, natural gas, and wind power applications. In
coal-fired plants, our CRAs are used for pipe, tube, and heat exchanger applications in water
systems in addition to pollution control scrubbers. Our CRAs are also used in water systems for
nuclear power plants. For nuclear power plants, we are an industry pioneer in producing
reactor-grade zirconium and hafnium alloys used in nuclear fuel cladding and structural components.
We are a technology leader for large diameter nickel-based superalloys used in natural gas
land-based turbines for power generation. For green energy generation, our alloys are used for
solar and geothermal applications. We are also one of a few U.S. producers of very large ductile
iron castings used for wind turbines.
Nuclear power plants are a clean source of electrical energy, and plans to construct and
refurbish nuclear power plants have been announced in many areas of the world. ATI is a premier
supplier of certified nuclear-grade alloys and specialty alloys for applications that range from
the reactor core to steam water systems to spent-fuel storage, transportation and repository
activities. ATI has been a part of the nuclear energy market since the first commercial nuclear
energy reactor was built in the United States. We have expanded our production capabilities and
capacity to support expected growth of the nuclear energy market.
For electrical power distribution, our grain-oriented electrical steel (GOES) is used in large
and small power transformers, where electrical conductivity and magnetic properties are important.
We believe that demand for these advanced specialty metals is in the early stage of an expected
long growth cycle as the U.S. rebuilds its electrical energy distribution grid and as developing
countries electrify and build electrical power distribution grids. In January 2010, the U.S.
Department of Energy (DOE) began requiring more efficient transformers, which increases premium
grade GOES usage per transformer. ATI is a leading producer of these premium grades of GOES.
Medical. ATIs advanced specialty metals are used in medical device products that save and
enhance the quality of lives.
Our zirconium-niobium, titanium-and cobalt-based alloys are used for knees, hips and other
prosthetic devices. These replacement devices offer the potential of lasting much longer than
previous implant options.
Our biocompatible nickel-titanium shape memory alloy is used for stents to support collapsed
or clogged blood vessels. Reduced in diameter for insertion, these stents expand to the original
tube-like shape due to the metals superelasticity. Our ultra fine diameter (0.002 inch/0.051 mm)
titanium wire is used for screens to prevent blood clots from entering critical areas of the body.
In addition, our titanium bar and wire are used to make surgical screws for bone repairs.
Manufacturers of magnetic resonance imaging (MRI) devices rely on our niobium superconducting
wire to help produce electromagnetic fields that allow physicians to safely scan the bodys soft
tissue. In addition, our tungsten heavy alloy materials are used for shielding applications in MRI
devices.
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Enhancing and Expanding Our Manufacturing Capabilities and Capacity. Demand for our products
from the aerospace and defense, oil and gas, chemical process industry, electrical energy, and
medical markets increased significantly over the last several years. We have been undertaking a
multi-phase program to enhance and expand our capabilities and capacities to produce premium
specialty metals aimed at these strategic markets. Over the last seven years we have invested
approximately $2.1 billion of internally generated funds to renew and expand our annual titanium
sponge production capabilities to approximately 46 million pounds; expand our premium titanium
alloy melt and remelt capacity; expand our nickel-based alloy and superalloy melt and remelt
capacity; expand our titanium and specialty alloy plate capacity; expand our premium titanium and
nickel-based superalloy forging capacity; and double our annual reactor-grade zirconium sponge
capacity to 8 million pounds. We believe these investments strengthen and enhance ATIs leadership
position in the production of advanced specialty metals.
Business Segments
We operate in the following three business segments, which accounted for the following percentages
of total revenues of $4.05 billion, $3.05 billion, and $5.31 billion for the years ended December
31, 2010, 2009, and 2008, respectively:
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2010 |
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2008 |
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High Performance Metals |
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33 |
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42 |
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37 |
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Flat-Rolled Products |
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58 |
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50 |
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55 |
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Engineered Products |
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9 |
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8 |
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Information with respect to our business segments is presented below and in Note 13 of the
Notes to the Consolidated Financial Statements.
High Performance Metals Segment
Our High Performance Metals segment produces, converts and distributes a wide range of high
performance alloys, including nickel- and cobalt-based alloys and superalloys, titanium and
titanium-based alloys, exotic metals such as zirconium, hafnium, niobium, nickel-titanium, and
their related alloys, and other specialty alloys, primarily in long product forms such as ingot,
billet, bar, shapes and rectangles, rod, wire, seamless tube, and castings. We also produce
nickel-based alloys and superalloys, titanium alloys, and specialty metal powders, and
semi-finished near-net-shape products from these advanced powder alloys. We are integrated from raw
materials (sponge) to melt, remelt, and finish processing in our titanium and titanium alloys, and
zirconium and hafnium alloys products. The major end markets served by our High Performance Metals
segment are aerospace and defense, oil and gas, chemical process industry, electrical energy, and
medical. Most of the products in our High Performance Metals segment are sold directly to end-use
customers. A significant portion of our High Performance Metals segment products are sold under
multi-year agreements. The operating units in this segment are ATI Allvac, ATI Allvac Ltd (U.K.),
ATI Wah Chang, and ATI Powder Metals.
Approximately 66% of High Performance Metals segment revenue is derived from the aerospace and
defense market. Demand for our products is driven primarily by the commercial aerospace cycle and
the growing use of our specialty metals, particularly titanium alloys, in the latest and future
generations of airframes and jet engines. Large aircraft and aircraft engines are manufactured by
a small number of companies, such as The Boeing Company, Airbus S.A.S. (an EADS company),
Bombardier Aerospace (a division of Bombardier Inc.), and Embraer (Empresa Brasileira de
Aeronáutica S.A.) for airframes, and GE Aviation (a division of General Electric Company), Pratt
& Whitney (a United Technologies Corp. company), Rolls-Royce plc, Snecma (SAFRAN Group), and
various joint ventures for jet engines. These companies and their suppliers form a substantial
part of our customer base in this business segment. ATI supplies the aerospace and defense supply
chain with nickel- and cobalt-based alloys and superalloys, titanium alloys, vacuum-melted
specialty alloys, and advanced powder alloys for commercial and military jet engines, both original
engines and spare parts. For commercial and military airframe and structural parts, ATI
manufactures titanium alloys, vacuum-melted specialty alloys, and high-strength stainless alloys.
The loss of one or more of our customers in the aerospace and defense market could have a material
adverse effect on ATIs results of operations and financial condition.
Flat-Rolled Products Segment
Our Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based
alloys and superalloys, titanium and titanium-based alloys and specialty alloys in a variety of
product forms, including plate, sheet, engineered strip, and Precision Rolled Strip® products, as
well as grain-oriented electrical steel sheet. The major end markets for our flat-rolled products
are oil and gas, chemical process industry, electrical energy, automotive, food equipment and
appliances, machine and cutting tools, construction and mining, aerospace and defense, and
electronics, communication equipment and computers. The operations in this segment are ATI
Allegheny Ludlum, the Chinese joint venture company known as Shanghai STAL Precision Stainless
Steel Company Limited (STAL), in which we hold a 60% interest, and our 50% interest in the
industrial titanium joint venture known as Uniti LLC. The remaining 40% interest in STAL is owned
by the Baosteel Group, a state authorized investment company whose equity securities are
3
publicly traded in the Peoples Republic of China. The remaining 50% interest in Uniti LLC is held
by Verkhnaya Salda Metallurgical Production Association (VSMPO), a Russian producer of titanium,
aluminum, and specialty steel products.
Stainless steel, nickel-based alloys and titanium sheet products are used in a wide variety of
industrial and consumer applications. In 2010, approximately 50% by volume of our stainless sheet
products were sold to independent service centers, which have slitting, cutting or other processing
facilities, with the remainder sold directly to end-use customers.
Engineered strip and very thin Precision Rolled Strip products are used by customers to
fabricate a variety of products primarily in the automotive, construction, and electronics markets.
In 2010, approximately 90% by volume of our engineered strip and Precision Rolled Strip products
were sold directly to end-use customers or through our own distribution network, with the remainder
sold to independent service centers.
Stainless steel, nickel-based alloy and titanium plate products are primarily used in
industrial markets. In 2010, approximately 40% by volume of our plate products were sold to
independent service centers, with the remainder sold directly to end-use customers.
Grain-oriented electrical steel is used in power transformers where electrical conductivity
and magnetic properties are important. Nearly all of our grain-oriented electrical steel products
are sold directly to end-use customers.
Engineered Products Segment
The principal business of our Engineered Products segment includes the production of tungsten
powder, tungsten heavy alloys, tungsten carbide materials, and tungsten carbide cutting tools. We
are integrated from the raw materials (ammonium paratungstate (APT)) to the manufacture of our
tungsten-based products. The segment also produces carbon alloy steel impression die forgings, and
large grey and ductile iron castings, and provides precision metals finishing services. The
operating units in this segment are ATI Tungsten Materials (formerly ATI Metalworking Products),
ATI Portland Forge, ATI Casting Service and ATI Precision Finishing (formerly ATI Rome Metals).
We produce a line of sintered tungsten carbide products that approach diamond hardness for
industrial markets including automotive, oil and gas, chemical process industry, machine and
cutting tools, aerospace, construction and mining, and other markets requiring tools with extra
hardness. Technical developments related to ceramics, coatings and other disciplines are
incorporated in these products. We also produce tungsten and tungsten carbide powders.
We forge carbon alloy steels into finished forms that are used primarily in the transportation
and construction equipment markets. We also cast grey and ductile iron metals used in the
transportation, wind power generation and automotive markets. We have precision metals processing
capabilities that enable us to provide process services for most high-value metals from ingots to
finished product forms. Such services include grinding, polishing, blasting, cutting, flattening,
and ultrasonic testing.
Competition
Markets for our products and services in each of our three business segments are highly
competitive. We compete with many producers and distributors who, depending on the product
involved, range from large diversified enterprises to smaller companies specializing in particular
products. Factors that affect our competitive position are the quality of our products, services
and delivery capabilities, our capabilities to produce a wide range of specialty materials in
various alloys and product forms, our technological capabilities including our research and
development efforts, our marketing strategies, the prices for our products and services, our
manufacturing costs, and industry manufacturing capacity.
We face competition from both domestic and foreign companies. Some of our foreign competitors
are either directly or indirectly government subsidized. In 1999, the United States imposed
antidumping and countervailing duties on dumped and subsidized imports of stainless steel sheet and
strip in coils and stainless steel plate in coils from companies in ten foreign countries. These
duties are under a periodic review by the U.S. Commerce Department and the U.S. International Trade
Commission to determine whether the antidumping and countervailing duty orders will remain in place
for another five years. We continue to monitor unfairly traded imports from foreign producers for
appropriate action.
Major Competitors
Nickel-based alloys and superalloys and specialty steel alloys
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Carpenter Technology Corporation: A |
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Special Metals Corporation, a PCC company: C |
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Haynes International, Inc.: B |
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ThyssenKrupp VDM GmbH, a company of ThyssenKrupp Stainless (Germany): C |
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Titanium and titanium-based alloys
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Titanium Metals Corporation: C |
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RMI Titanium, an RTI International Metals Company: C |
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VSMPO AVISMA (Russia): A |
Exotic alloys
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Cezus, a group member of AREVA (France): A |
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HC Stark: A |
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Western Zirconium Plant of Westinghouse Electric Company, owned by Toshiba Corporation: A |
Stainless steel
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AK Steel Corporation: B |
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North American Stainless (NAS), owned by Acerinox S.A. (Spain): B |
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ThyssenKrupp Stainless USA: B |
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Outokumpu Stainless Plate Products, owned by Outokumpu Oyj (Finland): B |
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Imports from |
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Aperam (formerly part of Arcelor Mittal) (France, Belgium and Germany): B |
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Mexinox S.A. de C.V., group member of ThyssenKrupp AG: B |
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ThyssenKrupp AG (Germany): B |
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Ta Chen International Corporation (Taiwan): B |
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Various Chinese producers: B |
Tungsten and tungsten carbide products
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Kennametal Inc.: D |
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Iscar (Israel): D |
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Sandvik AB (Sweden): D |
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Seco Tools AB (Sweden), owned by Sandvik A.B.: D |
KEY A = Primarily High Performance Metals segment, B = Primarily Flat-Rolled Products segment, C
= Both High Performance Metals and Flat-Rolled Products segments, D = Primarily Engineered
Products segment
Raw Materials and Supplies
Substantially all raw materials and supplies required in the manufacture of our products are
available from more than one supplier and the sources and availability of raw materials essential
to our businesses are currently adequate. The principal raw materials we use in the production of
our specialty metals are scrap (including iron-, nickel-, chromium-, titanium-, molybdenum-, and
tungsten-bearing scrap), nickel, titanium sponge, zirconium sand and sponge, ferrochromium,
ferrosilicon, molybdenum and molybdenum alloys, manganese and manganese alloys, cobalt, niobium,
vanadium and other alloying materials.
Purchase prices of certain principal raw materials have been volatile. As a result, our
operating results may be subject to significant fluctuation. We use raw materials surcharge and
index mechanisms to offset the impact of increased raw material costs; however, competitive factors
in the marketplace may limit our ability to institute such mechanisms, and there can be a delay
between the increase in the price of raw materials and the realization of the benefit of such
mechanisms. For example, in 2010 we used approximately 95 million pounds of nickel; therefore a
hypothetical increase of $1.00 per pound in nickel prices would result in increased costs of
approximately $95 million. We also used approximately 780 million pounds of ferrous scrap in the
production of our flat-rolled products in 2010, so that a hypothetical increase of $0.01 per pound
in ferrous scrap prices would result in increased costs of approximately $8 million.
While we are increasing our manufacturing capacity to produce titanium sponge, the major raw
material for our titanium products, a portion of our needs, together with certain other raw
materials, such as nickel, cobalt, and ferrochromium, are available to us and our specialty metals
industry competitors primarily from foreign sources. Some of these foreign sources are located in
countries that may be subject to unstable political and economic conditions, which could disrupt
supplies or affect the price of these materials.
We purchase our nickel requirements principally from producers in Australia, Canada, Norway,
Russia, and the Dominican Republic. Zirconium sponge is purchased from a source in France, while
zirconium sand is purchased from both U.S. and Australian sources. Cobalt is purchased primarily
from producers in Canada. More than 80% of the worlds reserves of ferrochromium are located in
South Africa, Zimbabwe, Albania, and Kazakhstan. We also purchase titanium sponge from sources in
Kazakhstan and Japan.
5
Export Sales and Foreign Operations
Direct international sales represented approximately 32% of our total annual sales in 2010, 31% of
our total sales in 2009, and 28% of our total sales in 2008. These figures include direct export
sales by our U.S.-based operations to customers in foreign countries, which accounted for
approximately 23% of our total sales in 2010, 22% of our total sales in 2009, and 21% of our total
sales in 2008. Our overseas sales, marketing and distribution efforts are aided by our
international marketing and distribution offices, ATI Europe, ATI Europe Distribution, and ATI
Asia, or by independent representatives located at various locations throughout the world. We
believe that at least 50% of ATIs 2010 sales were driven by global markets when we consider
exports of our customers. Direct sales by geographic area in 2010, and as a percentage of total
sales, were as follows:
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(In millions) |
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United States |
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$ |
2,764.0 |
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68 |
% |
Europe |
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729.2 |
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18 |
% |
Far East |
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336.8 |
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8 |
% |
Canada |
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109.0 |
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3 |
% |
South America, Middle East and other |
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108.8 |
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3 |
% |
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Total sales |
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$ |
4,047.8 |
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100 |
% |
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ATI Allvac Ltd has manufacturing capabilities for melting, remelting, forging and finishing
nickel-based alloys and specialty alloys in the United Kingdom. ATI Tungsten Materials, which has
manufacturing capabilities in the United Kingdom and Switzerland, sells high precision threading,
milling, boring and drilling components, tungsten carbide burrs, rotary tooling and specialty
abrasive wheels and discs for the European market from locations in the United Kingdom,
Switzerland, Germany, France, and Italy. Our STAL joint venture in the Peoples Republic of China
produces Precision Rolled Strip products, which enables us to offer these products more effectively
to markets in China and other Asian countries. Our Uniti LLC joint venture allows us to offer
titanium products to industrial markets more effectively worldwide.
Backlog, Seasonality and Cyclicality
Our backlog of confirmed orders was approximately $1.5 billion at December 31, 2010 and $1.4
billion at December 31, 2009. We expect that approximately 82% of confirmed orders on hand at
December 31, 2010 will be filled during the year ending December 31, 2011. Backlog of confirmed
orders of our High Performance Metals segment was approximately $0.7 billion at December 31, 2010
and $0.5 billion at December 31, 2009. We expect that approximately 95% of the confirmed orders on
hand at December 31, 2010 for this segment will be filled during the year ending December 31, 2011.
Backlog of confirmed orders of our Flat-Rolled Products segment was approximately $0.7 billion at
December 31, 2010 and $0.9 billion at December 31, 2009. We expect that 67% of the confirmed orders
on hand at December 31, 2010 for this segment will be filled during the year ending December 31,
2011.
Generally, our sales and operations are not seasonal. However, demand for our products is
cyclical over longer periods because specialty metals customers operate in cyclical industries and
are subject to changes in general economic conditions and other factors both external and internal
to those industries.
Research, Development and Technical Services
We believe that our research and development capabilities give ATI an advantage in developing new
products and manufacturing processes that contribute to the profitable growth potential of our
businesses on a long-term basis. We conduct research and development at our various operating
locations both for our own account and, on a limited basis, for customers on a contract basis.
Research and development expenditures for each of our three segments for the years ended December
31, 2010, 2009, and 2008 included the following:
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|
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|
|
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|
(In millions) |
|
2010 |
|
2009 |
|
2008 |
|
Company-Funded: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
11.9 |
|
|
$ |
14.5 |
|
|
$ |
10.6 |
|
Flat-Rolled Products |
|
|
1.9 |
|
|
|
1.8 |
|
|
|
2.0 |
|
Engineered Products |
|
|
2.7 |
|
|
|
3.0 |
|
|
|
2.3 |
|
|
|
|
$ |
16.5 |
|
|
$ |
19.3 |
|
|
$ |
14.9 |
|
|
Customer-Funded: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
0.8 |
|
|
$ |
0.3 |
|
|
$ |
0.2 |
|
|
Total Research and Development |
|
$ |
17.3 |
|
|
$ |
19.6 |
|
|
$ |
15.1 |
|
|
6
Our research, development and technical service activities are closely interrelated and are
directed toward cost reduction and process improvement, process control, quality assurance and
control, system development, the development of new manufacturing methods, the improvement of
existing manufacturing methods, the improvement of existing products, and the development of new
products.
We own hundreds of United States patents, many of which are also filed under the patent laws
of other nations. Although these patents, as well as our numerous trademarks, technical
information, license agreements, and other intellectual property, have been and are expected to be
of value, we believe that the loss of any single such item or technically related group of such
items would not materially affect the conduct of our business.
Environmental, Health and Safety Matters
We are subject to various domestic and international environmental laws and regulations that govern
the discharge of pollutants, and disposal of wastes, and which may require that we investigate and
remediate the effects of the release or disposal of materials at sites associated with past and
present operations. We could incur substantial cleanup costs, fines, civil or criminal sanctions,
third party property damage or personal injury claims as a result of violations or liabilities
under these laws or non-compliance with environmental permits required at our facilities. We are
currently involved in the investigation and remediation of a number of our current and former sites
as well as third party sites.
We consider environmental compliance to be an integral part of our operations. We have a
comprehensive environmental management and reporting program that focuses on compliance with all
federal, state, regional and local environmental laws and regulations. Each operating company has
an environmental management system that includes mechanisms for regularly evaluating environmental
compliance and managing changes in business operations while assessing environmental impact.
Our Corporate Guidelines for Business Conduct and Ethics address compliance with environmental
laws as well as employment and workplace safety laws, and also describe our commitment to equal
opportunity and fair treatment of employees. We continued to realize significant progress in safety
across ATIs operations during 2010. As a result of our continuing focus on and commitment to
safety, in 2010 our OSHA Total Recordable Incident Rate was 2.88 and our Lost Time Case Rate was
0.53, which we believe to be competitive with world class performance.
Employees
We have approximately 9,200 full-time employees. A portion of our workforce is covered by various
collective bargaining agreements, principally with the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW),
including: approximately 2,475 Allegheny Ludlum production, office and maintenance employees
covered by collective bargaining agreements that are effective through June 2011, approximately 185
Albany, Oregon (Oremet) employees covered by a collective bargaining agreement that is
effective through June 2011, approximately 525 Wah Chang employees covered by a collective
bargaining agreement that continues through March 2013, approximately 120 employees at our Casting
Service facility in LaPorte, Indiana, covered by a collective bargaining agreement that is
effective through December 2011, approximately 125 employees at our Precision Finishing (formerly
Rome Metals) facilities in western Pennsylvania, covered by a collective bargaining agreement that
is effective through May 2013, and approximately 200 employees at our Portland Forge facility in
Portland, Indiana, covered by collective bargaining agreements with three unions that are effective
through April 2013.
Available Information
Our Internet website address is http://www.atimetals.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as
proxy and information statements and other information that we file, are available free of charge
through our Internet website as soon as reasonably practicable after we electronically file such
material with, or furnish such material to, the United States Securities and Exchange Commission
(SEC). Our Internet website and the content contained therein or connected thereto are not
intended to be incorporated into this Annual Report on Form 10-K. You may read and copy materials
we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549.
You may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet website at http://www.sec.gov, which contains
reports, proxy and information statements and other information that we file electronically with
the SEC.
Executive Management, Including Executive Officers under Federal Securities Laws
The following are members of the Companys executive management, including executive officers under
the federal securities laws, as of February 14, 2011:
7
|
|
|
|
|
|
|
Name |
|
Age |
|
Title |
|
L. Patrick Hassey*
|
|
|
65 |
|
|
Chairman and Chief Executive Officer and Director |
Richard J. Harshman*
|
|
|
54 |
|
|
President and Chief Operating Officer |
Jon D. Walton*
|
|
|
68 |
|
|
Executive Vice President, Human Resources, Chief Legal and Compliance Officer and
Corporate Secretary |
Dale G. Reid*
|
|
|
55 |
|
|
Senior Vice President, Finance and Principal Financial Officer |
Hunter R. Dalton*
|
|
|
56 |
|
|
Group President, ATI Long Products and ATI Allvac Business Unit President |
Terry L. Dunlap*
|
|
|
51 |
|
|
Group President, ATI Flat-Rolled Products and ATI Allegheny Ludlum Business Unit President |
David M. Hogan
|
|
|
64 |
|
|
Group President, ATI Engineered Products |
John D. Sims
|
|
|
51 |
|
|
Group President, ATI Primary Metals and Exotic Alloys and ATI Wah Chang Business Unit
President |
Elliot S. Davis
|
|
|
49 |
|
|
Vice President and General Counsel |
Carl R. Moulton
|
|
|
63 |
|
|
Vice President, International |
Karl D. Schwartz*
|
|
|
47 |
|
|
Controller and Principal Accounting Officer |
|
|
|
|
* |
|
Such individuals are subject to the reporting and other requirements of Section 16 of the
Securities Exchange Act of 1934, as amended. |
Set forth below are descriptions of the business background for the past five years of the
Companys executive officers and management.
L. Patrick Hassey has been Chief Executive Officer since October 1, 2003. Mr. Hassey also
served as President to August 2010. He was elected to the Companys Board of Directors in July
2003 and has served as Chairman since May 2004. Prior to this position, he worked as an outside
management consultant to Allegheny Technologies executive management team. Mr. Hassey was
Executive Vice President and a member of the corporate executive committee of Alcoa, Inc. at the
time of his early retirement in February 2003. He had served as Executive Vice President of Alcoa
and Group President of Alcoa Industrial Components from May 2000 to October 2002. Prior to May
2000, he served as Executive Vice President of Alcoa and President of Alcoa Europe, Inc.
Richard J. Harshman has been President and Chief Operating Officer since August 2010.
Previously, he served as Executive Vice President, Finance and Chief Financial Officer from October
2003 to August 2010. Mr. Harshman has operating responsibility for the Companys High Performance
Metals, Flat-Rolled Products and Engineered Products business segments as well as for the Companys
investor relations, strategic sourcing and information technology. Mr. Harshman was Senior Vice
President, Finance from December 2001 to October 2003 and Vice President, Finance from December
2000 to December 2001. Previously, he had served in a number of financial management roles for
Allegheny Technologies Incorporated and Teledyne, Inc.
Jon D. Walton has served as Executive Vice President, Human Resources, Chief Legal and
Compliance Officer and Corporate Secretary since October 2003. He also served as General Counsel
until August 2010. Mr. Walton was Senior Vice President, Chief Legal and Administrative Officer,
General Counsel and Secretary from July 2001 to October 2003. Previously, he was Senior Vice
President, General Counsel and Secretary.
Dale G. Reid became Senior Vice President, Finance and Principal Financial Officer in August
2010. Previously, Mr. Reid served as Vice President, Controller, Chief Accounting Officer and
Treasurer since December 2003. Mr. Reid was Vice President, Controller and Chief Accounting Officer
from December 2000 through November 2003.
Hunter R. Dalton has served as Group President, ATI Long Products since October 2008, and as
ATI Allvac Business Unit President since April 2008. Mr. Dalton previously served as Senior Vice
President of Sales and Marketing for ATI Allvac since November 2003.
Terry L. Dunlap has served as Group President, ATI Flat-Rolled Products since October 2008,
and as ATI Allegheny Ludlum Business Unit President since November 2002.
David M. Hogan has served as Group President, Engineered Products, since April 1, 2007. Mr.
Hogan also served as ATI Tungsten Materials Business Unit President from 1997 to June 2010.
John D. Sims became Group President, ATI Primary Metals and Exotic Alloys in February 2011 and
has also served as Business Unit President of ATI Wah Chang since October 2008. Mr. Sims advanced
through a variety of positions with technical and operational responsibility since joining the
Company in 1996.
8
Elliot S. Davis became Vice President and General Counsel in August 2010. Previously, he
served as Assistant General Counsel since 2008 when he joined the Company. Mr. Davis had previously
been a partner of K&L Gates LLP, where he practiced for nearly 20 years in their corporate, mergers
and acquisitions and securities group.
Carl R. Moulton has served as Vice President, International since March 2009. Previously, Mr.
Moulton was President of Uniti LLC since its formation in 2003.
Karl D. Schwartz has served as Controller and Principal Accounting Officer since August 2010.
Previously, he served as Assistant Controller from April 2002, when he joined the Company.
Item 1A. Risk Factors
There are inherent risks and uncertainties associated with our business that could adversely affect
our operating performance and financial condition. Set forth below are descriptions of those risks
and uncertainties that we currently believe to be material, but the risks and uncertainties
described are not the only risks and uncertainties that could affect our business. See the
discussion under Forward-Looking Statements in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations, in this Annual Report on Form 10-K.
Risks Associated With Our Business
Cyclical Demand for Products. The cyclical nature of the industries in which our customers
operate causes demand for our products to be cyclical, creating potential uncertainty regarding
future profitability. Various changes in general economic conditions may affect the industries in
which our customers operate. These changes could include decreases in the rate of consumption or
use of our customers products due to economic downturns. Other factors that may cause fluctuation
in our customers positions are changes in market demand, lower overall pricing due to domestic and
international overcapacity, currency fluctuations, lower priced imports and increases in use or
decreases in prices of substitute materials. As a result of these factors, our profitability has
been and may in the future be subject to significant fluctuation.
Worldwide economic conditions deteriorated significantly in the recent past and could remain
weak in the future. These conditions have had, and may continue to have, an adverse effect on
demand for our customers products and, in turn, on demand for our products. If these conditions
persist or worsen, our results of operations and financial condition could be materially adversely
affected.
Product Pricing. From time-to-time, reduced demand, intense competition and excess
manufacturing capacity have resulted in reduced prices, excluding raw material surcharges, for many
of our products. These factors have had and may have an adverse impact on our revenues, operating
results and financial condition.
Although inflationary trends in recent years have been moderate, during most of the same
period certain critical raw material costs, such as nickel, titanium sponge, chromium, and
molybdenum and scrap containing iron, nickel, titanium, chromium, and molybdenum have been volatile
and at historically high levels. While we have been able to mitigate some of the adverse impact of
rising raw material costs through raw material surcharges or indices to customers, rapid increases
in raw material costs may adversely affect our results of operations.
We change prices on certain of our products from time-to-time. The ability to implement price
increases is dependent on market conditions, economic factors, raw material costs and availability,
competitive factors, operating costs and other factors, some of which are beyond our control. The
benefits of any price increases may be delayed due to long manufacturing lead times and the terms
of existing contracts.
Risks Associated with Commercial Aerospace. A significant portion of the sales of our High
Performance Metals segment represents products sold to customers in the commercial aerospace
industry. The commercial aerospace industry has historically been cyclical due to factors both
external and internal to the airline industry. These factors include general economic conditions,
airline profitability, consumer demand for air travel, varying fuel and labor costs, price
competition, and international and domestic political conditions such as military conflict and the
threat of terrorism. The length and degree of cyclical fluctuation are influenced by these factors
and therefore are difficult to predict with certainty. Demand for our products in this segment is
subject to these cyclical trends. For example, the average price per pound for our titanium mill
products was $11.89 for the period 2002 through 2004, $22.75 in 2005, $33.83 in 2006, $30.14 in
2007, $25.60 in 2008, $20.92 in 2009 and $19.37 in 2010, and the average price per pound for our
nickel-based and specialty alloys was $7.19 for the period 2002 through 2004, $11.25 in 2005,
$14.35 in 2006, $19.16 in 2007, $18.14 in 2008, $14.43 in 2009 and $14.03 in 2010. A downturn in
the commercial aerospace industry has had, and may in the future have, an adverse effect on the
prices at which we are able to sell these and other products, and our results of operations,
business and financial condition could be materially adversely affected.
9
Risks Associated with Strategic Capital Projects. From time-to-time, we undertake
strategic capital projects in order to enhance, expand and/or upgrade our facilities and
operational capabilities. For instance, over the past four years we have undertaken major
expansions of our titanium and premium-melt nickel-based alloy, superalloy and specialty alloy
production capabilities, and commenced construction of a new advanced specialty metals hot rolling
and processing facility. Our ability to achieve the anticipated increased revenues or otherwise
realize acceptable returns on these investments or other strategic capital projects that we may
undertake is subject to a number of risks, many of which are beyond our control, including a
variety of market, operational, permitting, and labor related factors. In addition, the cost to
implement any given strategic capital project ultimately may prove to be greater than originally
anticipated. If we are not able to achieve the anticipated results from the implementation of any
of our strategic capital projects, or if we incur unanticipated implementation costs, our results
of operations and financial position may be materially adversely affected.
Dependence on Critical Raw Materials Subject to Price and Availability Fluctuations. We rely
to a substantial extent on third parties to supply certain raw materials that are critical to the
manufacture of our products. Purchase prices and availability of these critical raw materials are
subject to volatility. At any given time we may be unable to obtain an adequate supply of these
critical raw materials on a timely basis, on price and other terms acceptable, or at all.
If suppliers increase the price of critical raw materials, we may not have alternative sources
of supply. In addition, to the extent that we have quoted prices to customers and accepted customer
orders for products prior to purchasing necessary raw materials, or have existing contracts, we may
be unable to raise the price of products to cover all or part of the increased cost of the raw
materials.
The manufacture of some of our products is a complex process and requires long lead times. As
a result, we may experience delays or shortages in the supply of raw materials. If unable to obtain
adequate and timely deliveries of required raw materials, we may be unable to timely manufacture
sufficient quantities of products. This could cause us to lose sales, incur additional costs, delay
new product introductions, or suffer harm to our reputation.
We acquire certain important raw materials that we use to produce specialty materials,
including nickel, chromium, cobalt, and titanium sponge, from foreign sources. Some of these
sources operate in countries that may be subject to unstable political and economic conditions.
These conditions may disrupt supplies or affect the prices of these materials.
Volatility of Raw Material Costs. The prices for many of the raw materials we use have been
extremely volatile. Since we value most of our inventory utilizing the last-in, first-out (LIFO)
inventory costing methodology, a rapid rise in raw material costs has a negative effect on our
operating results. Under the LIFO inventory valuation method, changes in the cost of raw materials
and production activities are recognized in cost of sales in the current period even though these
material and other costs may have been incurred at significantly different values due to the length
of time of our production cycle. For example, in 2009 and 2008, the effect of falling raw material
costs on our LIFO inventory valuation method resulted in cost of sales which were $102.8 million
and $169.0 million, respectively, lower than have been recognized had we utilized the first-in,
first-out (FIFO) methodology to value our inventory. Conversely in 2010, the increase in raw
material costs on the LIFO inventory valuation method resulted in cost of sales which was $60.2
million higher than would have been recognized if we utilized the FIFO methodology to value our
inventory. In a period of rising raw material prices, cost of sales expense recognized under LIFO
is generally higher than the cash costs incurred to acquire the inventory sold. However, in a
period of declining raw material prices, cost of sales recognized under LIFO is generally lower
than cash costs incurred to acquire the inventory sold.
Availability of Energy Resources. We rely upon third parties for our supply of energy
resources consumed in the manufacture of our products. The prices for and availability of
electricity, natural gas, oil and other energy resources are subject to volatile market conditions.
These market conditions often are affected by political and economic factors beyond our control.
Disruptions in the supply of energy resources could temporarily impair the ability to manufacture
products for customers. Further, increases in energy costs, or changes in costs relative to energy
costs paid by competitors, has and may continue to adversely affect our profitability. To the
extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased
energy prices may have an adverse effect on our results of operations and financial condition.
Risks Associated with Environmental Matters. We are subject to various domestic and
international environmental laws and regulations that govern the discharge of pollutants, and
disposal of wastes, and which may require that we investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present operations. We could
incur substantial cleanup costs, fines and civil or criminal sanctions, third party property damage
or personal injury claims as a result of violations or liabilities under these laws or
non-compliance with environmental permits required at our facilities. We are currently involved in
the investigation and remediation of a number of our current and former sites as well as third
party sites. We also could be subject to future laws and regulations that govern greenhouse gas
emissions and various matters related to climate change, which could increase our operating costs.
10
With respect to proceedings brought under the federal Superfund laws, or similar state
statutes, we have been identified as a potentially responsible party (PRP) at approximately 39 of
such sites, excluding those at which we believe we have no future liability.
Our involvement is limited or de minimis at approximately 30 of these sites, and the potential
loss exposure with respect to any of the remaining 9 individual sites is not considered to be
material.
We are a party to various cost-sharing arrangements with other PRPs at the sites. The terms of
the cost-sharing arrangements are subject to non-disclosure agreements as confidential information.
Nevertheless, the cost-sharing arrangements generally require all PRPs to post financial assurance
of the performance of the obligations or to pre-pay into an escrow or trust account their share of
anticipated site-related costs. In addition, the Federal government, through various agencies, is a
party to several such arrangements.
We believe that we operate our businesses in compliance in all material respects with
applicable environmental laws and regulations. However, from time-to-time, we are a party to
lawsuits and other proceedings involving alleged violations of, or liabilities arising from
environmental laws. When our liability is probable and we can reasonably estimate our costs, we
record environmental liabilities in our financial statements. In many cases, we are not able to
determine whether we are liable, or if liability is probable, to reasonably estimate the loss or
range of loss. Estimates of our liability remain subject to additional uncertainties, including the
nature and extent of site contamination, available remediation alternatives, the extent of
corrective actions that may be required, and the participation number and financial condition of
other PRPs, as well as the extent of their responsibility for the remediation. We intend to adjust
our accruals to reflect new information as appropriate. Future adjustments could have a material
adverse effect on our results of operations in a given period, but we cannot reliably predict the
amounts of such future adjustments. At December 31, 2010, our reserves for environmental matters
totaled approximately $16 million. Based on currently available information, we do not believe that
there is a reasonable possibility that a loss exceeding the amount already accrued for any of the
sites with which we are currently associated (either individually or in the aggregate) will be an
amount that would be material to a decision to buy or sell our securities. Future developments,
administrative actions or liabilities relating to environmental matters, however, could have a
material adverse effect on our financial condition or results of operations.
Risks Associated with Current or Future Litigation and Claims. A number of lawsuits, claims
and proceedings have been or may be asserted against us relating to the conduct of our currently
and formerly owned businesses, including those pertaining to product liability, patent
infringement, commercial, government contracting work, employment, employee benefits, taxes,
environmental, health and safety and occupational disease, and stockholder matters. Due to the
uncertainties of litigation, we can give no assurance that we will prevail on all claims made
against us in the lawsuits that we currently face or that additional claims will not be made
against us in the future. While the outcome of litigation cannot be predicted with certainty, and
some of these lawsuits, claims or proceedings may be determined adversely to us, we do not believe
that the disposition of any such pending matters is likely to have a material adverse effect on our
financial condition or liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on our results of operations for that period.
Also, we can give no assurance that any other matters brought in the future will not have a
material effect on our financial condition, liquidity or results of operations.
Labor Matters. We have approximately 9,200 full-time employees. A portion of our workforce is
covered by various collective bargaining agreements, principally with the United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union
(USW), including: approximately 2,475 Allegheny Ludlum production, office and maintenance
employees covered by collective bargaining agreements that are effective through June 2011,
approximately 185 Albany, Oregon (Oremet) employees covered by a collective bargaining
agreement that is effective through June 2011, approximately 525 Wah Chang employees covered by a
collective bargaining agreement that continues through March 2013, approximately 120 employees at
our Casting Service facility in LaPorte, Indiana, covered by a collective bargaining agreement that
is effective through December 2011, approximately 125 employees at our Precision Finishing
(formerly Rome Metals) facilities in western Pennsylvania, covered by a collective bargaining
agreement that is effective through May 2013, and approximately 200 employees at our Portland Forge
facility in Portland, Indiana, covered by collective bargaining agreements with three unions that
are effective through April 2013.
Generally, collective bargaining agreements that expire may be terminated after notice by the
union. After termination, the union may authorize a strike. A strike by the employees covered by
one or more of the collective bargaining agreements could have a materially adverse affect on our
operating results. There can be no assurance that we will succeed in concluding collective
bargaining agreements with the unions to replace those that expire.
Export Sales. We believe that export sales will continue to account for a significant
percentage of our future revenues. Risks associated with export sales include: political and
economic instability, including weak conditions in the worlds economies; accounts receivable
collection; export controls; changes in legal and regulatory requirements; policy changes affecting
the markets for our products; changes in tax laws and tariffs; trade duties; and exchange rate
fluctuations (which may affect sales to international customers and the value of profits earned on
export sales when converted into dollars). Any of these factors could materially adversely affect
our results for the period in which they occur.
Risks Associated with Retirement Benefits. At December 31, 2010, our U.S. qualified defined
benefit plan was fully funded, and we are not required to make any contribution to this plan during
2011. However, we may be required to fund the U.S. qualified defined benefit pension plan in the
years beyond 2011 depending upon the value of plan investments and obligations in the future and
11
changes in laws or regulations that govern pension plan funding. Depending on the timing and
amount, a requirement that we fund our U.S. qualified defined benefit pension plan could have a
material adverse effect on our results of operations and financial condition.
Risks Associated with Acquisition and Disposition Strategies. We intend to continue to
strategically position our businesses in order to improve our ability to compete. Strategies we
employ to accomplish this may include seeking new or expanding existing specialty market niches for
our products, expanding our global presence, acquiring businesses complementary to existing
strengths and continually evaluating the performance and strategic fit of our existing business
units. From time-to-time, management holds discussions with management of other companies to
explore acquisition, joint ventures, and other business combination opportunities as well as
possible business unit dispositions. As a result, the relative makeup of the businesses comprising
our Company is subject to change. Acquisitions, joint ventures, and other business combinations
involve various inherent risks, such as: assessing accurately the value, strengths, weaknesses,
contingent and other liabilities and potential profitability of acquisition or other transaction
candidates; the potential loss of key personnel of an acquired business; our ability to achieve
identified financial and operating synergies anticipated to result from an acquisition or other
transaction; and unanticipated changes in business and economic conditions affecting an acquisition
or other transaction. International acquisitions and other transactions could be affected by export
controls, exchange rate fluctuations, domestic and foreign political conditions and a deterioration
in domestic and foreign economic conditions.
Internal Controls Over Financial Reporting. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Insurance. We have maintained various forms of insurance, including insurance covering claims
related to our properties and risks associated with our operations. Our existing property and
liability insurance coverages contain exclusions and limitations on coverage. From time-to-time, in
connection with renewals of insurance, we have experienced additional exclusions and limitations on
coverage, larger self-insured retentions and deductibles and significantly higher premiums. As a
result, in the future our insurance coverage may not cover claims to the extent that it has in the
past and the costs that we incur to procure insurance may increase significantly, either of which
could have an adverse effect on our results of operations.
Political and Social Turmoil. The war on terrorism and recent political and social turmoil
could put pressure on economic conditions in the United States and worldwide. These political,
social and economic conditions could make it difficult for us, our suppliers and our customers to
forecast accurately and plan future business activities, and could adversely affect the financial
condition of our suppliers and customers and affect customer decisions as to the amount and timing
of purchases from us. As a result, our business, financial condition and results of operations
could be materially adversely affected.
Risks Associated with Government Contracts. Some of our operating companies perform
contractual work directly for the U.S. Government. Various claims (whether based on U.S. Government
or Company audits and investigations or otherwise) could be asserted against us related to our U.S.
Government contract work. Depending on the circumstances and the outcome, such proceedings could
result in fines, penalties, compensatory and treble damages or the cancellation or suspension of
payments under one or more U.S. Government contracts. Under government regulations, a company, or
one or more of its operating divisions or units, can also be suspended or debarred from government
contracts based on the results of investigations. Currently, there is no material portion of our
business with the U.S. Government which might be subject to renegotiation of profits or termination
of contracts or subcontracts at the election of the U.S. Government.
Risks Associated With Our Pending Acquisition of Ladish Co., Inc. (Ladish)
Combining the businesses of ATI and Ladish may be more difficult, costly or time-consuming
than expected, which may adversely affect our results and affect adversely the value of our stock
following the merger. We have entered into a merger agreement to acquire Ladish because we believe
that the acquisition will be beneficial to ATI and its stockholders. The success of the
acquisition will depend, in part, on our ability to realize the anticipated benefits from combining
the businesses of ATI and Ladish. To realize these anticipated benefits, we must successfully
combine the businesses of ATI and Ladish in an efficient and effective manner. If we are not able
to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits
and cost savings of the merger may not be realized fully, or at all, or may take longer to realize
than expected, and the value of our common stock may be affected adversely.
Specifically, issues that must be addressed in integrating the operations of Ladish into our
operations in order to realize the anticipated benefits of the merger include, among other things:
|
|
|
integrating and optimizing the utilization of the properties and equipment of ATI and
Ladish; |
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|
|
integrating the sales and information technology systems of ATI and Ladish; and |
12
|
|
|
conforming standards, controls, procedures and policies, business cultures and
compensation structures between the companies. |
Integration efforts will also divert management attention and resources. An inability to
realize the full extent of the anticipated benefits of the acquisition, as well as any delays
encountered in the integration process, could have an adverse effect upon the revenues, level of
our expenses and operating results, which may affect adversely the value of our common stock after
the completion of the acquisition.
In addition, the actual integration may result in additional and unforeseen expenses, and the
anticipated benefits of the integration plan may not be realized. Actual synergies, if achieved at
all, may be lower than what we expect and may take longer to achieve than anticipated. If we are
not able to adequately address these challenges, we may be unable to successfully integrate
Ladishs operations into ours, or to realize the anticipated benefits of the integration of the two
companies.
Any delay in completing the acquisition of Ladish may substantially reduce the benefits that
we expect to be obtained from the acquisition.
The acquisition of Ladish is subject to a number of conditions
beyond the control of ATI and Ladish that may prevent, delay or otherwise materially adversely
affect its completion. We cannot predict whether or when the conditions required to complete the
acquisition will be satisfied. Moreover, each of ATI and Ladish may terminate the
merger agreement if the acquisition is not consummated by June 30, 2011. Any delay in completing
the acquisition may materially adversely affect the synergies and other benefits that we expect to
achieve if the acquisition and the integration of the companies respective businesses are
completed within the expected timeframe.
Our stock price and business may be adversely affected if the acquisition of Ladish is not
completed. If the acquisition is not completed, we will be required to pay certain costs incurred by us
relating to the acquisition, whether or not the acquisition is completed, such as fees and expenses
of our advisors, litigation related expenses and printing fees. Also, matters relating to the
acquisition may require substantial commitments of time and resources by our management, which
could otherwise have been devoted to other opportunities that may have been beneficial to us as an
independent company.
In addition, we may experience negative reactions from the financial markets and from our
employees, customers, suppliers and other business partners. We are subject to litigation related
to the acquisition and could be subject to additional litigation related to any failure to complete
the merger, or to enforcement proceedings commenced against us to perform our obligations under the
merger agreement. If the acquisition is not completed, we cannot assure you that the risks
described above will not materialize and will not materially affect our business, financial results
and stock prices.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal domestic facilities for our high performance metals include titanium sponge
production, melting operations, and production facilities that include processing and finishing
operations. Titanium sponge production is located at Rowley, UT and Albany, OR. Domestic melting
operations are located in Monroe, NC, Bakers, NC, and Lockport, NY (vacuum induction melting,
vacuum arc re-melt, electro-slag re-melt, plasma melting); Richland, WA (electron beam melting);
and Albany, OR (vacuum arc re-melt). Production of high performance metals, most of which are in
long product form, takes place at our domestic facilities in Monroe, NC, Lockport, NY, Richburg,
SC, Albany, OR, and Oakdale, PA. Our production of exotic alloys takes place at facilities located
in Albany, OR, Huntsville, AL, and Frackville, PA.
Our principal domestic locations for melting stainless steel and other flat-rolled specialty
metals are located in Brackenridge, Midland and Latrobe, PA. Hot rolling of material is performed
at our domestic facilities in Brackenridge, Washington and Houston, PA. Finishing of our
flat-rolled products takes place at our domestic facilities located in Brackenridge, Bagdad,
Vandergrift, Midland and Washington, PA, and in Wallingford and Waterbury, CT, New Castle, IN, New
Bedford, MA, and Louisville, OH. We previously announced plans to construct a new advanced
specialty metals hot rolling and processing facility for our Flat-Rolled Products business segment
at our existing Brackenridge, PA site. This investment, which is expected to be completed by the
end of 2013, is designed to
13
produce exceptional quality, thinner, and wider hot-rolled coils at
reduced cost with shorter lead times and require lower working capital requirements.
Our principal domestic facilities for the production of our engineered products are located in
Nashville, TN, Huntsville, Grant and Gurley, AL, Houston, TX, and Waynesboro, PA (tungsten powder,
tungsten carbide materials and carbide cutting tools and threading systems). Other domestic
facilities in this segment are located in Portland, IN and Lebanon, KY (carbon alloy steel
forgings); LaPorte, IN and Alpena, MI (grey and ductile iron castings), and southwestern
Pennsylvania (precision metals finishing services).
Substantially all of our properties are owned, and four of our properties are subject to
mortgages or similar encumbrances securing borrowings under certain industrial development
authority financings.
We also own or lease facilities in a number of foreign countries, including France, Germany,
Switzerland, United Kingdom, and the Peoples Republic of China. We own and/or lease and operate
facilities for melting and re-melting, machining and bar mill operations, laboratories and offices
located in Sheffield, England. Through our STAL joint venture, we operate facilities for finishing
Precision Rolled Strip products in the Xin-Zhuang Industrial Zone, Shanghai, China.
Our executive offices, located in PPG Place in Pittsburgh, PA, are leased.
Although our facilities vary in terms of age and condition, we believe that they have been
well maintained and are in sufficient condition for us to carry on our activities.
Item 3. Legal Proceedings
In a letter dated May 20, 2004, the United States Environmental Protection Agency (EPA)
informed a subsidiary of the Company that it alleges that the company and forty other potentially
responsible parties (PRPs) are not in compliance with a 2003 Unilateral Administrative Order (UAO)
issued to the company and the PRPs for the South El Monte Operable Unit of the San Gabriel Valley
(California) Superfund Site, a multi-part area-wide groundwater cleanup. At that time, the EPA
indicated that it may take action to enforce the UAO and collect penalties, as well as
reimbursement of the EPAs costs associated with the site. Since that time, the PRPs mediated with
the EPA to resolve their obligations under the UAO on both technical and legal grounds, and
enforcement of the UAO was stayed. On January 13, 2011, EPA and the California Department of Toxic
Substance Control (DTSC) filed a lawsuit in the United States District Court for the Central
District of California against the subsidiary and the remaining PRPs that have not yet settled with EPA. The
complaint asserts a cost recovery claim under CERCLA for EPAs and DTSCs past costs as well as
future response costs. Settlement discussions between the Company, EPA, DTSC and other PRPs are
ongoing.
In November 2007, the EPA sent a subsidiary of the Company a Notice of Violation (NOV)
alleging that the companys Natrona, PA facility is operating in violation of the Clean Air Act.
The notice invited the company to meet with the EPA to discuss a resolution of the NOV. In 2010,
the EPA and the subsidiary of the Company came to an agreement and a penalty of $1.6 million was
paid.
We become involved from time-to-time in various lawsuits, claims and proceedings relating to
the conduct of our current and formerly owned businesses, including those pertaining to product
liability, patent infringement, commercial, employment, employee benefits, taxes, environmental,
health and safety and occupational disease, and stockholder matters. While we cannot predict the
outcome of any lawsuit, claim or proceeding, our management believes that the disposition of any
pending matters is not likely to have a material adverse effect on our financial condition or
liquidity. The resolution in any reporting period of one or more of these matters, including those
described above, however, could have a material adverse effect on our results of operations for
that period.
Information relating to legal proceedings is included in Note 16. Commitments and
Contingencies of the Notes to Consolidated Financial Statements and incorporated herein by
reference.
14
PART II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Common Stock Prices
Our common stock is traded on the New York Stock Exchange (symbol ATI). At February 14, 2011, there
were 4,907 record holders of Allegheny Technologies Incorporated common stock. We paid a quarterly
cash dividend of $0.18 per share of common stock for each quarter of 2009 and 2010. The ranges of
high and low sales prices for shares of our common stock for the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
2010 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
High |
|
$ |
56.23 |
|
|
$ |
58.25 |
|
|
$ |
53.41 |
|
|
$ |
59.41 |
|
Low |
|
$ |
39.00 |
|
|
$ |
44.01 |
|
|
$ |
39.35 |
|
|
$ |
45.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
High |
|
$ |
31.83 |
|
|
$ |
44.09 |
|
|
$ |
36.95 |
|
|
$ |
46.31 |
|
Low |
|
$ |
16.92 |
|
|
$ |
21.22 |
|
|
$ |
25.80 |
|
|
$ |
29.62 |
|
|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Set forth below is information regarding the Companys stock repurchases during the period covered
by this report, including purchases under ATIs publicly announced share repurchase program
described below, and also including shares repurchased by ATI from employees to satisfy
employee-owed taxes on share-based payments.
ATIs Board of Directors approved a share repurchase program of $500 million on November 1, 2007.
Repurchases of Company common stock are made in the open market or in unsolicited or privately
negotiated transactions. Share repurchases are funded from internal cash flow and cash on hand. The
number of shares purchased, and the timing of the purchases, are based on several factors,
including other investment opportunities, the level of cash balances, and general business
conditions. As of December 31, 2010, 6,837,000 shares of common stock had been purchased under this
program at a cost of $339.5 million. All of these purchases were made in the open market. There
were no share repurchases under this program in 2009 or 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Approximate Dollar Value |
|
|
|
|
|
|
|
|
|
|
Purchased as Part of |
|
of Shares that May Yet Be |
|
|
Total Number of Shares |
|
Average Price |
|
Publicly Announced |
|
Purchased Under the Plans |
Period |
|
Purchased |
|
Paid per Share |
|
Plans or Programs |
|
or Programs |
|
January 1-31, 2010 |
|
|
17,097 |
|
|
$ |
41.95 |
|
|
|
|
|
|
$ |
160,505,939 |
|
February 1-28, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
March 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
|
Quarter ended March 31, 2010 |
|
|
17,097 |
|
|
|
41.95 |
|
|
|
|
|
|
|
160,505,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1-30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
May 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
June 1-30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
|
Quarter ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
August 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
September 1-30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
|
Quarter ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
November 1-30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,505,939 |
|
December 1-31, 2010 |
|
|
2,886 |
|
|
|
52.78 |
|
|
|
|
|
|
|
160,505,939 |
|
|
Quarter ended December 31, 2010 |
|
|
2,886 |
|
|
$ |
52.78 |
|
|
|
|
|
|
$ |
160,505,939 |
|
|
15
Cumulative Total Stockholder Return
The graph set forth below shows the cumulative total stockholder return (i.e., price change plus
reinvestment of dividends) on our common stock from December 31, 2005 through December 31, 2010 as
compared to the S&P 500 Index and a Peer Group of companies. We believe the Peer Group of
companies, which is defined below, is representative of companies in our industry that serve
similar markets during the applicable periods. The total stockholder return for the Peer Group is
weighted according to the respective issuers stock market capitalization at the beginning of each
period. The graph assumes that $100 was invested on December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Period |
|
|
|
|
|
|
|
|
|
|
Company / Index |
|
Dec-05 |
|
Dec-06 |
|
Dec-07 |
|
Dec-08 |
|
Dec-09 |
|
Dec-10 |
|
ATI |
|
|
100.00 |
|
|
|
252.90 |
|
|
|
242.32 |
|
|
|
72.73 |
|
|
|
130.43 |
|
|
|
162.98 |
|
S&P 500 Index |
|
|
100.00 |
|
|
|
115.79 |
|
|
|
122.16 |
|
|
|
76.96 |
|
|
|
97.33 |
|
|
|
111.99 |
|
Peer Group |
|
|
100.00 |
|
|
|
134.46 |
|
|
|
183.33 |
|
|
|
78.38 |
|
|
|
111.84 |
|
|
|
129.10 |
|
Source: Standard & Poors
Peer Group companies for the cumulative five year total return period ended December 31, 2010 were
as follows:
AK Steel Holding Corp.
ALCOA Inc.
Brush Engineered Materials
Carpenter Technology Corp.
Castle (A M) & Co.
Commercial Metals
Gerdau Ameristeel Corp. *
Kennametal Inc.
Ladish Co. Inc.
Nucor Corp.
Precision Castparts Corp.
Reliance Steel & Aluminum Co.
RTI International Metals Inc.
Schnitzer Steel Industries CL A
Steel Dynamics Inc.
Timken Co.
Titanium Metals Corp.
United States Steel Corp.
Universal Stainless & Alloy Products
Worthington Industries
|
|
|
* |
|
included through August 2010 |
16
Item 6. Selected Financial Data
The following table sets forth selected volume, price and financial information for ATI. The
financial information has been derived from our audited financial statements included elsewhere in
this report for the years ended December 31, 2010, 2009, and 2008. The historical selected
financial information may not be indicative of our future performance and should be read in
conjunction with the information contained in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations, and in Item 8. Financial Statements and
Supplementary Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
Volume (000s lbs.): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals titanium mill products |
|
|
25,457 |
|
|
|
23,588 |
|
|
|
32,530 |
|
|
|
30,689 |
|
|
|
27,361 |
|
High Performance Metals nickel-based and
specialty alloys |
|
|
37,272 |
|
|
|
32,562 |
|
|
|
42,525 |
|
|
|
44,688 |
|
|
|
42,873 |
|
High Performance exotic alloys |
|
|
4,382 |
|
|
|
5,067 |
|
|
|
5,473 |
|
|
|
5,169 |
|
|
|
4,304 |
|
Flat Rolled Products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High value |
|
|
454,874 |
|
|
|
367,195 |
|
|
|
500,375 |
|
|
|
491,891 |
|
|
|
502,524 |
|
Standard |
|
|
642,255 |
|
|
|
474,950 |
|
|
|
584,389 |
|
|
|
557,016 |
|
|
|
889,105 |
|
|
Flat-Rolled Products total |
|
|
1,097,129 |
|
|
|
842,145 |
|
|
|
1,084,764 |
|
|
|
1,048,907 |
|
|
|
1,391,629 |
|
Average Prices (per lb.): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals titanium mill products |
|
$ |
19.37 |
|
|
$ |
20.92 |
|
|
$ |
25.60 |
|
|
$ |
30.14 |
|
|
$ |
33.83 |
|
High Performance Metals nickel-based and
specialty alloys |
|
|
14.03 |
|
|
|
14.43 |
|
|
|
18.14 |
|
|
|
19.16 |
|
|
|
14.35 |
|
High Performance exotic alloys |
|
|
60.68 |
|
|
|
57.79 |
|
|
|
48.53 |
|
|
|
41.85 |
|
|
|
40.39 |
|
Flat Rolled Products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High value |
|
|
2.83 |
|
|
|
2.49 |
|
|
|
3.26 |
|
|
|
3.22 |
|
|
|
2.50 |
|
Standard |
|
|
1.62 |
|
|
|
1.22 |
|
|
|
2.13 |
|
|
|
2.40 |
|
|
|
1.61 |
|
Flat-Rolled Products combined average |
|
|
2.12 |
|
|
|
1.77 |
|
|
|
2.65 |
|
|
|
2.79 |
|
|
|
1.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions except per share amounts) |
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
1,337.5 |
|
|
$ |
1,300.0 |
|
|
$ |
1,944.9 |
|
|
$ |
2,067.6 |
|
|
$ |
1,806.6 |
|
Flat-Rolled Products |
|
|
2,338.5 |
|
|
|
1,516.1 |
|
|
|
2,909.1 |
|
|
|
2,951.9 |
|
|
|
2,697.3 |
|
Engineered Products |
|
|
371.8 |
|
|
|
238.8 |
|
|
|
455.7 |
|
|
|
433.0 |
|
|
|
432.7 |
|
|
Total Sales |
|
$ |
4,047.8 |
|
|
$ |
3,054.9 |
|
|
$ |
5,309.7 |
|
|
$ |
5,452.5 |
|
|
$ |
4,936.6 |
|
|
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
257.8 |
|
|
$ |
234.7 |
|
|
$ |
539.0 |
|
|
$ |
729.1 |
|
|
$ |
657.2 |
|
Flat-Rolled Products |
|
|
85.9 |
|
|
|
71.3 |
|
|
|
385.0 |
|
|
|
512.0 |
|
|
|
356.1 |
|
Engineered Products |
|
|
12.8 |
|
|
|
(23.8 |
) |
|
|
20.9 |
|
|
|
32.1 |
|
|
|
56.7 |
|
|
Total operating profit |
|
$ |
356.5 |
|
|
$ |
282.2 |
|
|
$ |
944.9 |
|
|
$ |
1,273.2 |
|
|
$ |
1,070.0 |
|
|
Income before income taxes |
|
$ |
125.7 |
|
|
$ |
64.9 |
|
|
$ |
867.7 |
|
|
$ |
1,154.1 |
|
|
$ |
880.7 |
|
Net income |
|
|
78.7 |
|
|
|
38.0 |
|
|
|
573.5 |
|
|
|
753.9 |
|
|
|
582.2 |
|
|
Less: Net income attributable to
noncontrolling interests |
|
|
8.0 |
|
|
|
6.3 |
|
|
|
7.6 |
|
|
|
6.8 |
|
|
|
8.1 |
|
|
Net income attributable to ATI |
|
|
70.7 |
|
|
|
31.7 |
|
|
|
565.9 |
|
|
|
747.1 |
|
|
|
574.1 |
|
|
Basic net income per common share |
|
|
0.73 |
|
|
|
0.33 |
|
|
|
5.71 |
|
|
|
7.35 |
|
|
|
5.76 |
|
|
Diluted net income per common share |
|
|
0.72 |
|
|
|
0.32 |
|
|
|
5.67 |
|
|
|
7.26 |
|
|
|
5.61 |
|
|
17
(In millions except per share amounts and ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended December 31, |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
Dividends declared per common share |
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
$ |
0.57 |
|
|
$ |
0.43 |
|
|
Ratio of earnings to fixed charges |
|
|
2.2x |
|
|
|
1.5x |
|
|
|
19.4x |
|
|
|
25.0x |
|
|
|
18.1x |
|
|
Working capital |
|
$ |
1,324.1 |
|
|
$ |
1,373.0 |
|
|
$ |
1,235.5 |
|
|
$ |
1,544.7 |
|
|
$ |
1,344.8 |
|
|
Total assets |
|
|
4,493.6 |
|
|
|
4,346.0 |
|
|
|
4,170.4 |
|
|
|
4,095.6 |
|
|
|
3,280.5 |
|
|
Long-term debt |
|
|
921.9 |
|
|
|
1,037.6 |
|
|
|
494.6 |
|
|
|
507.3 |
|
|
|
529.9 |
|
|
Total debt |
|
|
1,063.3 |
|
|
|
1,071.1 |
|
|
|
509.8 |
|
|
|
528.2 |
|
|
|
553.6 |
|
|
Cash and cash equivalents |
|
|
432.3 |
|
|
|
708.8 |
|
|
|
469.9 |
|
|
|
623.3 |
|
|
|
502.6 |
|
|
Total ATI Stockholders equity |
|
|
2,040.8 |
|
|
|
2,012.2 |
|
|
|
1,957.4 |
|
|
|
2,222.0 |
|
|
|
1,502.5 |
|
|
Noncontrolling interests |
|
|
88.6 |
|
|
|
77.4 |
|
|
|
71.6 |
|
|
|
57.2 |
|
|
|
37.9 |
|
|
Total Stockholders equity |
|
|
2,129.4 |
|
|
|
2,089.6 |
|
|
|
2,029.0 |
|
|
|
2,279.2 |
|
|
|
1,540.4 |
|
|
In 2009, we completed several proactive liability management actions including the issuance of
$350 million of 9.375% 10-year Senior Notes and $402.5 million of 4.25% 5-year Convertible Senior
Notes. Proceeds from these transactions were used to retire $183.3 million of our outstanding
8.375% Notes due in 2011 and to fund a voluntary pretax $350 million cash contribution to our
domestic pension plan to significantly improve its funded position.
For purposes of determining the ratio of earnings to fixed charges, earnings include pre-tax
income plus fixed charges (excluding capitalized interest). Fixed charges consist of interest on
all indebtedness (including capitalized interest) plus that portion of operating lease rentals
representative of the interest factor (deemed to be one-third of operating lease rentals).
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Certain statements contained in this Managements Discussion and Analysis of Financial Condition
and Results of Operations are forward-looking statements. Actual results or performance could
differ materially from those encompassed within such forward-looking statements as a result of
various factors, including those described below. Net income and net income per share amounts
referenced below are attributable to Allegheny Technologies Incorporated.
Overview of 2010 Financial Performance
We view 2010 as a transition year from the global recession of 2009 to the resumption of secular
growth trends in our global markets. Net income attributable to ATI for the full year 2010
increased to $70.7 million, or $0.72 per share, compared to $31.7 million, or $0.32 per share, for
2009. Sales in 2010 increased 33% to $4.05 billion compared to $3.05 billion for 2009. Direct
international sales for 2010 increased $333.4 million and represented 32% of our total sales. For
2010, the Flat-Rolled Products segment generated 59%, the High Performance Metals generated 34%,
and the Engineered Products segment generated 7% of our direct international sales.
Our 2010 results reflect ATIs position as a globally focused, diversified high-value
specialty metals company with strong cash flow and liquidity, and a solid balance sheet. The
aerospace and defense market and the global infrastructure markets, specifically oil and gas,
chemical process industry, and electrical energy, and the medical market have been driving our
performance for the last several years. For 2010, 25% of our sales were to the aerospace and
defense market, 19% to the oil and gas markets and the chemical process industry, 17% to the
electrical energy market, and 6% to the medical market. These major high-value global markets
represented 67% of ATIs 2010 sales.
In our High Performance Metals segment, year-over-year sales increased 3% to $1.34 billion,
due primarily to improved demand from the commercial aerospace jet engine market, as the supply
chain adjusted to increasing aircraft production schedules and the aeroengine aftermarket improved
as a result of increased flight activity. In addition, demand from the medical market for implants
and imaging equipment increased by 36%. The improvement in these markets was partially offset by
lower demand for our materials from the chemical processing and nuclear energy markets. Operating
profit for the High Performance Metals segment was $257.8 million, a 10% increase compared to 2009,
due primarily to higher shipments for most of our products and the benefits from our gross cost
reductions, which were partially offset by lower average base selling prices as a result of a more
competitive pricing environment for our nickel-based and specialty alloys and our titanium and
titanium alloys. Start-up and idle facility costs of $55.8 million negatively impacted 2010
results. The start-up costs relate mostly to our Rowley, UT premium-titanium sponge facility. The
facility is operational and producing sponge, as we work on standardizing the process and improving
yields as part of the orderly production ramp up. Idle facility costs relate mostly to our Albany,
OR titanium sponge facility, which is positioned to be back in production when warranted by market
conditions.
18
In our Flat-Rolled Products segment, sales increased 54% to $2.34 billion primarily as a
result of increased product shipments due to improvement in the global economy and higher raw
material surcharges. Total product shipments increased 30% for the full year 2010 with shipments of
standard stainless products improving 35% and demand for high-value products improving 24%.
Volatile raw material costs and the resulting impact on surcharges affected customer buying
behavior during the year as they managed inventory levels and the timing of purchases. Operating
profit for the Flat-Rolled Products segment increased to $85.9 million, a 20% increase compared to
2009. The improvement in 2010 operating profit was due primarily to higher shipments and the
benefits from our gross cost reduction efforts. Operating results for 2010 were negatively
impacted by a $70.7 million LIFO inventory valuation charge as a result of higher raw material
costs compared to a LIFO inventory valuation benefit of $60.8 million recognized in 2009.
In our Engineered Products segment, 2010 sales increased 56% to $371.8 million primarily due
to increased demand from all the major markets for our products: oil and gas, transportation,
construction and mining, and cutting tools. The significant sales increase resulted in an operating
profit of $12.8 million for 2010 compared to an operating loss of $23.8 million for 2009. Results for
2009 included idle facility and workforce reduction costs of $5.7 million.
For 2010, total segment operating profit increased 26% to $356.5 million compared to $282.2
million for 2009.
During 2010, we strengthened our positions in key global growth markets, continued to enhance
our manufacturing capabilities, reduced costs, and maintained our strong balance sheet. We also
realized continued success in implementing the ATI Business System, which is continuing to drive
lean manufacturing throughout our operations. Our accomplishments during 2010 from these important
efforts included:
|
|
Continued growth in our global market presence as direct international sales increased $333.4
million to represent 32% of total sales. We believe at least 50% of ATIs 2010 sales were
driven by global markets when we consider exports by our customers. |
|
|
Continued improvement in our positions with key customers in the aerospace, oil and gas,
electrical energy, and medical markets as we entered into new long-term agreements for our
Mission Critical Metallics® , to reduce their supply uncertainty. In
December 2010, our industrial titanium joint venture, Uniti LLC, announced it had been chosen
to supply a significant portion of the commercially pure
(CP) titanium to be used in the worlds
largest seawater desalination plant being built in Ras Az Zawr, Saudi Arabia. Uniti expects to
supply between 5.5 million and 6.0 million pounds of CP titanium over the course of 2011. |
|
|
Continued expansion of our industry leading technology portfolio by making important research
and development investments. Our new products are gaining acceptance in the marketplace and we
are particularly pleased with the acceptance of ATI 425® alloy, an
innovative new titanium alloy, ATI 718 Plus® alloy, our groundbreaking
nickel-based superalloy, and our ATI 500 MIL alloy which is the first new armor plate
product released to the market in over 40 years. These products are aimed at enabling
customers to manufacture near-net-shapes more quickly and at reduced costs. During 2010, we
successfully concluded a year-long program to characterize the mechanical properties of ATI
425® alloy for qualification in aerospace applications and made progress
in commercializing this alloy for armor and defense applications where light weight, strength
and formability are critical. In addition during 2010, we entered into a long-term agreement
to supply ATI 718 Plus® alloy for use in legacy, next-generation, and
future jet engines. |
|
|
We continued to realize significant benefits from our strategic focus on key high value
specialty products, including titanium and titanium alloys, nickel-based alloys and specialty
alloys, exotic alloys, and grain-oriented electrical steel. In 2010, sales of these key high
value products represented 50% of our total sales. |
|
|
We continued to build a foundation for profitable growth. We significantly increased
strategic capital investments in our businesses to support the expected long-term growth in
our markets, especially for titanium and titanium alloys, nickel-based alloys and superalloys,
and vacuum melted specialty alloys. During the past seven years, we have invested $2.1
billion, of which $219 million was spent in 2010, to expand our titanium sponge production,
and our melting, rolling, finishing, and product capabilities. During this same seven year
period, we have generated over $2.3 billion in cash flow from operations which has allowed us
to self-fund these important investments. Our recently completed and on-going major strategic
capital projects include: |
|
|
|
The expansion of ATIs aerospace quality titanium sponge production capabilities.
Titanium sponge is an important raw material used to produce our titanium mill products. Our
greenfield premium-grade titanium sponge (jet engine rotating parts) facility in Rowley, UT,
with a total cost of approximately $500 million, has commenced initial production, and
production is planned to systematically increase during 2011. When this Utah sponge facility
is fully operational, our total annual sponge production capacity, including our Albany, OR
standard grade titanium sponge facility, is projected to be approximately 46 million pounds.
These secure supply sources are intended to reduce our purchased titanium sponge and
purchased titanium scrap requirements. In addition, the Utah facility will have the
infrastructure in place to further expand annual capacity by approximately 18 million
pounds, bringing the total annual capacity at that facility to 42 million pounds, if needed. |
|
|
|
The design and construction of a $260 million titanium alloys and nickel-based alloys and
superalloys forging facility at our operations in North Carolina. This new facility, which
was constructed in phases through 2009, includes a new 10,000 ton |
19
|
|
|
press forge and a new 700mm radial forge, both of which we believe are the largest of their
kind in the world for producing these types of alloys. The facility also includes billet
conditioning and finishing equipment. The conditioning, finishing and inspection assets
commenced operations in the 2008 third quarter and the forging equipment commenced operations
in the third quarter of 2009. |
|
|
|
The design and construction of a new advanced specialty metals hot rolling and processing
facility at our existing Brackenridge, PA site. The project is estimated to cost
approximately $1.1 billion and be completed by the end of 2013.
The primary vendors have been selected,
and equipment orders placed, with engineering and site preparation for the facility
progressing. Our new advanced hot-rolling and processing facility is designed to be the most
powerful mill in the world for production of specialty metals. It is designed to produce
exceptional quality, thinner, and wider hot-rolled coils at reduced cost with shorter lead
times, and require lower working capital requirements. When completed, we believe ATIs new
advanced specialty metals hot rolling and processing facility will provide unsurpassed
manufacturing capability and versatility in the production of a wide range of flat-rolled
specialty metals. We expect improved productivity, lower costs, and higher quality for our
diversified product mix of flat-rolled specialty metals, including nickel-based and
specialty alloys, titanium and titanium alloys, zirconium alloys, Precision Rolled
Strip ® products, and stainless sheet and coiled plate products. It is
designed to roll and process exceptional quality hot bands of up to 78.62 inches, or 2
meters, wide. |
|
|
|
In connection with the new advanced specialty metals hot rolling and processing facility,
in 2010 we completed the consolidation of our Natrona, PA grain-oriented electrical steel
melt shop into ATIs Brackenridge, PA melt shop. This consolidation is expected to improve
the overall productivity of ATIs flat-rolled grain-oriented electrical steel and other
stainless and specialty alloys, and reduce the cost of producing slabs and ingots. The
investment should also result in significant reduction of particulate emissions. |
|
|
|
We increased our capacity to produce zirconium products through capital expansions of
zirconium sponge production and VAR melting. This new zirconium sponge and melting capacity
better positions ATI for the current and expected growth in demand from the nuclear energy
and chemical process industry markets. We believe ATI is now the worlds largest producer of
critical reactor grade zirconium sponge for the nuclear energy market. |
|
|
|
Our Chinese joint venture company known as Shanghai STAL Precision Stainless Steel
Company Limited (STAL), in which ATI has a 60% interest, completed in 2009 an expansion of
its Precision Rolled Strip ® operations in Shanghai, China which nearly
triples STALs precision rolling and slitting capacity. This expansion better positions STAL
to benefit from Chinas electronics and telecommunications manufacturing market for cell
phones and smartphones, as well as Chinas rapidly growing automotive parts manufacturing
market. We believe STAL is the largest producer of these thin strip products in China and
that our new facility gives us a significant competitive advantage in this growing market. |
|
|
|
In October 2009, we acquired the assets of Crucible Compaction Metals and Crucible
Research, a western Pennsylvania producer of advanced powder metal products, for
approximately $39 million. The acquired assets, which have been named ATI Powder Metals,
expand our specialty metals product portfolio. Powder metals are used in the production of
complex alloy chemistries, typically when conventional processes cannot be used. Powder
metals represent a growth opportunity for ATI as more powder metals are used in the
aerospace industry for the latest generation of jet engines and for the production of
near-net-shape parts. Additional markets for these powder metals products include oil and
gas, electrical energy, and medical. |
|
|
|
In 2010, we expanded our capabilities to serve the oil and gas and aero engine markets
with the construction of a $16 million precision machining center at ATIs Sheffield, U.K.
operation which enables us to provide our customers with near-net-shape products. |
|
|
We currently plan to spend $300 million to $350 million for capital expenditures in 2011 and we
expect capital spending to remain in this range for each of the next few years as we complete our
strategic projects. |
|
|
We continued to expand our growth opportunities with the announcement in November 2010 of an
agreement to acquire Ladish Co., Inc. for an aggregate fully distributed equity value of
approximately $778 million ($24.00 per share in cash, or $389 million, and 0.4556 of a share
of ATI common stock for each share of Ladish common stock). The acquisition of Ladish, which
we expect will close in the spring of 2011, will enable us to combine their
technologically advanced forging, investment casting, and machining capabilities with our
unique industry-leading product portfolio to create a more integrated, stable and sustainable
supply chain for aerospace, defense and industrial markets. |
|
|
We realized significant cash generation in 2010 of which we invested $319 million in managed
working capital to meet the needs of the improving business activity, invested $219 million in
strategic capital expenditures, and returned $71 million to stockholders in cash dividends.
Cash on hand at the end of 2010 was $432.3 million, a decrease of $276.5 million from year-end
2009. |
20
|
|
We continued to maintain our strong balance sheet. At the end of 2010, our U.S. defined
benefit pension plan was fully funded and our percentages of net debt to total capitalization
and total debt to total capital were 23.6% and 34.3%, respectively. In January 2011, we sold
$500 million in aggregate principal amount of 5.95% Senior Notes due 2021 and realized net
proceeds of $496 million. We intend to use these proceeds to finance the cash portion of the
merger consideration in the pending acquisition of Ladish Co., Inc. with the remainder to be
used for general corporate purposes. |
|
|
We continued to focus on safety across ATIs operations. In 2010, through the efforts of our
employees, ATI Allegheny Ludlum achieved an impressive milestone: one year since the last lost
time injury was sustained. Across our company, the OSHA Total Recordable Incident Rate was
2.88% and our Lost Time Case Rate was 0.53 per 200,000 hours worked. |
|
|
We realized continued success from the ATI Business System, which continues to drive lean
manufacturing throughout our operations. In addition to the safety performance discussed
above, we realized $135 million in gross cost reductions in 2010, which exceeded our goal of
$100 million. We have targeted additional gross cost reductions of at least $100 million in
2011. |
As we begin 2011, our key global markets are showing signs of strong growth. Our outlook for
commercial aerospace remains bullish. We expect to benefit from increased production schedules for
legacy aircraft and increased demand for aftermarket jet engine spare parts. In addition, both
Boeing and Airbus have reported that they are considering further single-aisle aircraft production
increases beyond 2012. Demand for our products generally leads a change to a production build
schedule by approximately 6 to 12 months.
We expect the global oil and gas and chemical process industries to remain strong due to
increased demand from offshore oil and gas projects, large sour gas pipelines, desalination
projects, and increasing orders for chemical processing projects from several areas of the world.
In the electrical energy market, we expect demand for our grain-oriented electrical steel for
power distribution to remain essentially flat. We also expect demand from the nuclear electrical
energy market to remain flat in 2011, although growth opportunities exist for new nuclear plants
under construction over the next several years. The medical market reached a record of nearly 6% of
sales in 2010. We expect strong demand to continue in 2011. We also expect to benefit from our
ongoing market and product development activities aimed at introducing innovative new ATI alloys
and extending our reach into our key global markets with product forms that are new to ATI. We
intend to use these improving market conditions to continue to positively differentiate ATI as a
uniquely positioned, diversified, technology-driven global specialty metals producer.
Results of Operations
Sales were $4.05 billion in 2010, $3.05 billion in 2009 and $5.31 billion in 2008. Direct
international sales represented approximately 32% of 2010 sales, 31% of 2009 sales and 28% of 2008
sales.
Segment operating profit was $356.5 million in 2010, $282.2 million in 2009, and $944.9
million in 2008. Our measure of segment operating profit, which we use to analyze the performance
and results of our business segments, excludes income taxes, corporate expenses, net interest
expense, retirement benefit expense, other costs net of gains on asset sales and restructuring
costs, if any. We believe segment operating profit, as defined, provides an appropriate measure of
controllable operating results at the business segment level.
Income before tax was $125.7 million in 2010, $64.9 million in 2009, and $867.7 million in
2008. Results in 2009 included after-tax charges of $17.0 million, or $0.17 per share, related to
second quarter 2009 actions to retire debt and the tax consequences of our $350 million voluntary
pension contribution.
Net income attributable to ATI was $70.7 million for 2010, $31.7 million for 2009, and $565.9
million for 2008.
We operate in three business segments: High Performance Metals, Flat-Rolled Products and
Engineered Products. These segments represented the following percentages of our total revenues and
segment operating profit for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
Operating |
|
|
|
|
|
Operating |
|
|
Revenue |
|
Profit |
|
Revenue |
|
Profit (Loss) |
|
Revenue |
|
Profit |
|
High Performance Metals |
|
|
33 |
% |
|
|
72 |
% |
|
|
43 |
% |
|
|
83 |
% |
|
|
37 |
% |
|
|
58 |
% |
|
Flat-Rolled Products |
|
|
58 |
% |
|
|
24 |
% |
|
|
49 |
% |
|
|
25 |
% |
|
|
55 |
% |
|
|
40 |
% |
|
Engineered Products |
|
|
9 |
% |
|
|
4 |
% |
|
|
8 |
% |
|
|
(8 |
%) |
|
|
8 |
% |
|
|
2 |
% |
|
21
Information with respect to our business segments is presented below and in Note 13 of the
Notes to Consolidated Financial Statements.
High Performance Metals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010% |
|
Change |
|
2009% |
|
Change |
|
2008 |
|
Sales to external customers |
|
$ |
1,337.5 |
|
|
|
3 |
% |
|
$ |
1,300.0 |
|
|
|
(33 |
%) |
|
$ |
1,944.9 |
|
|
Operating profit |
|
|
257.8 |
|
|
|
10 |
% |
|
|
234.7 |
|
|
|
(56 |
%) |
|
|
539.0 |
|
|
Operating profit as a percentage of sales |
|
|
19.3 |
% |
|
|
|
|
|
|
18.1 |
% |
|
|
|
|
|
|
27.7 |
% |
|
Direct international sales as a percentage of sales |
|
|
32.8 |
% |
|
|
|
|
|
|
32.8 |
% |
|
|
|
|
|
|
30.0 |
% |
|
Our High Performance Metals segment produces, converts and distributes a wide range of high
performance alloys, including titanium and titanium-based alloys, nickel- and cobalt-based alloys
and superalloys, exotic alloys such as zirconium, hafnium, niobium, nickel-titanium, and their
related alloys, and other specialty metals, primarily in long product forms such as ingot, billet,
bar, rod, wire, shapes and rectangles, seamless tube and castings. These products are designed for
the high performance requirements of such major end markets as aerospace and defense, electrical
energy, oil and gas, chemical process industry, and medical. The operating units in this segment
are ATI Allvac, ATI Allvac Ltd (U.K.), ATI Wah Chang and ATI Powder Metals.
2010 Compared to 2009
Sales for the High Performance Metals segment for 2010 increased 3% to $1.34 billion, due primarily
to improved demand from the commercial aerospace jet engine market, as the supply chain adjusted to
increasing aircraft production schedules and the aeroengine aftermarket improved as a result of
increased flight activity. In addition, demand from the medical market for implants and imaging
equipment increased by 36%. The improvement in these markets was partially offset by lower demand
for our materials from the chemical processing and nuclear energy markets. Shipment volumes
increased for titanium mill products and nickel-based and specialty alloys, while average base
selling prices for these products were lower as a result of a more competitive pricing environment.
Direct international sales as percentage of total segment sales were 32.8% for both periods.
Comparative information on the segments products for the years ended December 31, 2010 and 2009
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2010 |
|
2009% |
|
Change |
|
Volume (000s pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
Titanium mill products |
|
|
25,457 |
|
|
|
23,588 |
|
|
|
8 |
% |
Nickel-based and specialty alloys |
|
|
37,272 |
|
|
|
32,562 |
|
|
|
14 |
% |
Exotic alloys |
|
|
4,382 |
|
|
|
5,067 |
|
|
|
(14 |
%) |
|
Average prices (per pound): |
|
|
|
|
|
|
|
|
|
|
|
|
Titanium mill products |
|
$ |
19.37 |
|
|
$ |
20.92 |
|
|
|
(7 |
%) |
Nickel-based and specialty alloys |
|
$ |
14.03 |
|
|
$ |
14.43 |
|
|
|
(3 |
%) |
Exotic alloys |
|
$ |
60.68 |
|
|
$ |
57.79 |
|
|
|
5 |
% |
|
Aerospace represents a significant market for our High Performance Metals segment, especially
for premium quality specialty metals used in the manufacture of jet engines for the original
equipment and spare parts markets. In 2010, the aerospace market represented 58% of the revenues of
the segment with products for jet engines representing the majority of the sales. In addition, we
have become a larger supplier of specialty metals used in airframe construction. In 2010, sales of
our material into the airframe market represented approximately 36% of our aerospace market sales.
During 2010, we successfully concluded a year-long program to characterize the mechanical
properties of ATI 425® alloy, a new patented cold-rollable titanium alloy, for
aerospace applications qualification. In addition during 2010, we entered into a long-term
agreement to supply ATI 718 Plus® alloy, a new patented nickel-based
superalloy, for use in legacy, next-generation, and future jet engines.
22
Over the past several years, we have entered into long-term agreements with our customers
for Mission Critical Metallics® to reduce their supply uncertainty. In
September 2009, we signed a ten-year sourcing agreement with Rolls-Royce plc for the supply of
nickel-based superalloy disc-quality products for commercial jet engine applications with potential
revenue estimated to be between $750 million and $1 billion. In January 2007, we announced a
long-term sourcing agreement with GE Aviation for the supply of premium titanium alloys,
nickel-based superalloys, and vacuum-melted specialty alloys products for commercial and military
jet engine applications. Historical and anticipated revenues under this agreement plus ATI Allvacs
direct sales to GE Aviation for the period 2007 through 2011 could exceed $2 billion. In addition,
in October 2006 we announced a long-term agreement with The Boeing Company to supply titanium
alloys products for Boeings aircraft airframes and structural components, including Boeings 787
Dreamliner. Total revenues under this contract may be as much as $2.5 billion for the years 2007
through 2015. This long-term agreement includes both long-product forms which are manufactured
within the High Performance Metals segment, and a significant amount of plate products which are
manufactured utilizing assets of both the High Performance Metals and Flat-Rolled Products
segments. Revenues and profits associated with these titanium mill products covered by the
long-term agreement are included primarily in the results for the High Performance Metals segment.
The commercial aerospace markets use of titanium alloys is expected to increase significantly
as new aircraft airframe designs use a larger percentage of titanium alloys. For example, the new
Boeing 787 Dreamliner airframe (excluding engines) is expected to use significantly more titanium
and titanium alloys than any previous commercial aircraft airframe. New aircraft designs from
Airbus, the A380 and A350-XWB, and from defense contractors are also expected to utilize a greater
percentage of titanium alloys. Given the significant current backlogs of Boeing and Airbus, as well
as the engine manufacturers, this increasing demand for titanium alloys mill products is expected
to last for at least the next five years. However, The Boeing Company has experienced production
difficulties with the construction of the new Boeing 787, which have delayed the planned first
delivery of this new aircraft. Boeing has announced an expected first delivery date of the 787 as
the third calendar quarter of 2011, a delay of approximately 3 plus years. These production
difficulties, along with decreased demand in the aeroengine aftermarket due to weakness in the
global economy in the late 2008 and through 2009, resulted in excess availability of materials in
the aerospace supply chain. This excess availability of material had an adverse effect on the
demand and selling prices for certain of the materials we produce, especially titanium alloys and
nickel-based superalloys. This supply condition also resulted in the temporarily idling our
Albany, OR titanium sponge facility at the end of July 2009 to adjust our titanium production and
inventory levels to market demand. During 2010, aerospace market conditions began to improve as
Boeing and Airbus began to ramp up production of legacy single aisle aircraft, such as the 737 and
A320, to meet the demand of increasing backlogs for these aircraft. Both Boeing and Airbus have
announced future production increases over the next several years for legacy and next generation
aircraft which is expected to positively benefit the demand for titanium alloys and nickel-based
superalloys for both jet engine and airframe applications. Due to manufacturing cycle times, demand
for our specialty metals leads the deliveries of new aircraft by between 6 to 12 months. In
addition, as our specialty metals are used in rotating components of jet engines, demand for our
products for spare parts is impacted by aircraft flight activity and engine refurbishment
requirements of U.S. and foreign aviation regulatory authorities. As the number of aircraft in
service increases, the need for our materials associated with engine refurbishment is expected to
increase.
Airline Miles Revenue Passenger
(Worldwide, per year, in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
75
|
|
80
|
|
85
|
|
90
|
|
95
|
|
00
|
|
05
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
433
|
|
676
|
|
849
|
|
1176
|
|
1396
|
|
1887
|
|
2311
|
|
2734 |
Source: International Civil Aviation Organization
Airline Miles Freight
(Worldwide, tons per year, in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
75
|
|
80
|
|
85
|
|
90
|
|
95
|
|
00
|
|
05
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
13
|
|
20
|
|
27
|
|
40
|
|
57
|
|
81
|
|
98
|
|
108 |
Source: International Civil Aviation Organization
23
Commercial Aircraft Engines in Service
(Worldwide, per year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,318
|
|
38,913
|
|
39,974
|
|
41,069
|
|
42,297
|
|
43,684
|
|
44,611
|
|
45,858
|
|
47,083
|
|
48,225
|
|
49,503
|
|
50,714
|
|
52,240
|
|
53,828
|
|
55,400
|
|
57,924 |
Source: Airline Monitor
New Commercial Aircraft Engine Builds
(Worldwide, per year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,312
|
|
2,460
|
|
2,024
|
|
1,900
|
|
1,918
|
|
1,910
|
|
2,088
|
|
2,192
|
|
2,232
|
|
2,372
|
|
2,356
|
|
2,516
|
|
2,842
|
|
3,040
|
|
3,220
|
|
3,300 |
Source: Airline Monitor
24
Commercial & Military Jet Aircraft Build Rate and Forecast
(Worldwide, per year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
Boeing deliveries |
|
|
491 |
|
|
|
527 |
|
|
|
381 |
|
|
|
281 |
|
|
|
285 |
|
|
|
290 |
|
|
|
398 |
|
|
|
441 |
|
|
|
375 |
|
|
|
481 |
|
|
|
462 |
|
|
|
500 |
|
|
|
620 |
|
|
|
670 |
|
|
|
705 |
|
|
|
670 |
|
Airbus deliveries |
|
|
311 |
|
|
|
325 |
|
|
|
303 |
|
|
|
305 |
|
|
|
320 |
|
|
|
378 |
|
|
|
434 |
|
|
|
453 |
|
|
|
483 |
|
|
|
498 |
|
|
|
510 |
|
|
|
548 |
|
|
|
601 |
|
|
|
605 |
|
|
|
605 |
|
|
|
610 |
|
Regional Jet del. |
|
|
293 |
|
|
|
325 |
|
|
|
300 |
|
|
|
315 |
|
|
|
312 |
|
|
|
260 |
|
|
|
185 |
|
|
|
183 |
|
|
|
225 |
|
|
|
183 |
|
|
|
135 |
|
|
|
172 |
|
|
|
149 |
|
|
|
185 |
|
|
|
240 |
|
|
|
320 |
|
Military A/C del. |
|
|
130 |
|
|
|
115 |
|
|
|
128 |
|
|
|
160 |
|
|
|
243 |
|
|
|
243 |
|
|
|
241 |
|
|
|
226 |
|
|
|
231 |
|
|
|
211 |
|
|
|
275 |
|
|
|
287 |
|
|
|
244 |
|
|
|
233 |
|
|
|
244 |
|
|
|
278 |
|
|
Total deliveries |
|
|
1,225 |
|
|
|
1,292 |
|
|
|
1,112 |
|
|
|
1,061 |
|
|
|
1,160 |
|
|
|
1,171 |
|
|
|
1,258 |
|
|
|
1,303 |
|
|
|
1,314 |
|
|
|
1,373 |
|
|
|
1,382 |
|
|
|
1,507 |
|
|
|
1,614 |
|
|
|
1,693 |
|
|
|
1,794 |
|
|
|
1,878 |
|
Airline revenue passenger miles and freight miles increased 8% and 19%, respectively, in
2010 compared to 2009, recovering from decreases of 4.1% and 13.0%, respectively, in 2009 and
exceeding previous peaks in 2008. Since 2004, airline revenue passenger miles and freight miles
have compound annual growth rates of 4.2% and 2.1%, respectively, according to the International
Civil Aviation Organization (ICAO) data. Based on January 2011 forecasts, the ICAO expects growth
of at least 5% annually, for several years, based on the demand for passenger and freight travel
from developing economies, especially in Asia and the Middle East, and expected continuing economic
growth in the rest of the world. New commercial and military jet aircraft deliveries have increased
3.4% annually since 2005. Independent forecasts from both Airline Monitor and Forecast
International project over 6% compound growth of commercial and military jet aircraft deliveries
for the next 5 years.
High Performance Metals segment operating profit for 2010 increased 10% to $257.8 million
compared to 2009 primarily due to higher shipments of titanium and nickel-based and specialty steel
alloys, which were partially offset by lower average selling prices for most of our products, lower
exotic alloys shipment volume, and $55.8 million for idle facility and start-up costs, mainly
involving the primary titanium sponge operations. In addition, operating profit over the past
several years has been affected by volatile raw
25
material costs. Titanium and titanium scrap prices decreased slightly in 2010, following
significant declines in 2009 and 2008. These and other raw material costs are largely recovered in
product selling prices through raw material indices which attempt to match purchased material costs
with shipments. However, in an environment of rapidly declining or increasing costs, these raw
material indices included in product selling prices may not completely match related raw material
costs due to the long manufacturing times for some of our products. Results for 2010 included a
LIFO inventory valuation reserve benefit of $16.3 million. The rapid decrease in raw material costs
in late 2008 had a significant negative effect on 2009 operating profit as shipments produced with
raw material purchased earlier in the year at higher costs were sold based upon raw material
indices which reflected lower raw material prices. These negative impacts on operating profit in
2009 were offset by LIFO inventory valuation reserve benefits of $33.0 million.
We continued to aggressively reduce costs in 2010. Gross cost reductions, before the effects
of inflation, totaled approximately $68 million. Major areas of gross cost reductions included $28
million from procurement savings, $34 million from operating efficiencies, and $6 million from
reductions in compensation and benefit expenses.
2009 Compared to 2008
Sales for the High Performance Metals segment for 2009 decreased 33% to $1.30 billion, due
primarily to reduced demand from the aerospace market, as the supply chain adjusted to aircraft
production delays, and decreased demand from the aeroengine aftermarket and the chemical processing
market as a result of the weak global economy. The declines in these markets were partially offset
by increased demand for our materials from the defense and nuclear energy markets. Direct
international sales as percentage of total segment sales increased to 32.8% primarily due to sales
of exotic alloys. Comparative information on the segments products for the years ended December
31, 2009 and 2008 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2009 |
|
2008 |
|
% Change |
|
Volume (000s pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
Titanium mill products |
|
|
23,588 |
|
|
|
32,530 |
|
|
|
(27 |
%) |
Nickel-based and specialty alloys |
|
|
32,562 |
|
|
|
42,525 |
|
|
|
(23 |
%) |
Exotic alloys |
|
|
5,067 |
|
|
|
5,473 |
|
|
|
(7 |
%) |
|
Average prices (per pound): |
|
|
|
|
|
|
|
|
|
|
|
|
Titanium mill products |
|
$ |
20.92 |
|
|
$ |
25.60 |
|
|
|
(18 |
%) |
Nickel-based and specialty alloys |
|
$ |
14.43 |
|
|
$ |
18.14 |
|
|
|
(20 |
%) |
Exotic alloys |
|
$ |
57.79 |
|
|
$ |
48.53 |
|
|
|
19 |
% |
|
High Performance Metals segment operating profit for 2009 decreased 56% to $234.7 million compared
to 2008 primarily due to lower shipments, lower average selling prices for most of our products,
and $31.2 million for idle facility, workforce reduction, and start-up costs. Improved margins on
our exotic alloys, and benefits from our gross cost reduction efforts partially offset the
profitability decline. In addition, operating profit over the past several years has been affected
by volatile raw material costs. Titanium and titanium scrap prices decreased significantly in 2009
and 2008. The rapid decrease in raw material costs in late 2008 had a significant negative effect
on operating profit as shipments produced with raw material purchased earlier in the year at higher
costs were sold based upon raw material indices which reflected lower raw material prices. These
negative impacts on operating profit were offset by LIFO inventory valuation reserve benefits of
$33.0 million in 2009 and $70.6 million in 2008.
We continued to aggressively reduce costs in 2009. Gross cost reductions, before the effects
of inflation, totaled approximately $81 million. Major areas of gross cost reductions included $33
million from procurement savings, $30 million from operating efficiencies, $11 million from other
fixed cost savings, and $7 million from reductions in compensation and benefit expenses. Cost
reductions include savings from reducing the size of the workforce by approximately 17%.
Flat-Rolled Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
% Change |
|
2009 |
|
% Change |
|
2008 |
|
Sales to external customers |
|
$ |
2,338.5 |
|
|
|
54 |
% |
|
$ |
1,516.1 |
|
|
|
(48 |
%) |
|
$ |
2,909.1 |
|
|
Operating profit |
|
|
85.9 |
|
|
|
20 |
% |
|
|
71.3 |
|
|
|
(81 |
%) |
|
|
377.4 |
|
|
Operating profit as a percentage of sales |
|
|
3.7 |
% |
|
|
|
|
|
|
4.7 |
% |
|
|
|
|
|
|
13.0 |
% |
|
Direct international sales as a percentage of sales |
|
|
32.4 |
% |
|
|
|
|
|
|
30.0 |
% |
|
|
|
|
|
|
26.8 |
% |
|
Our Flat-Rolled Products segment produces, converts and distributes stainless steel,
nickel-based alloys, specialty alloys, and titanium and titanium-based alloys, in a variety of
product forms including plate, sheet, engineered strip, and Precision Rolled Strip products, as
well as grain-oriented electrical steel sheet. The major end markets for our flat-rolled products
are electrical energy, oil and gas, chemical processing, automotive, food processing equipment and
appliances, construction and mining, electronics,
26
communication equipment and computers, and aerospace and defense. The operations in this
segment are ATI Allegheny Ludlum, our 60% interest in the Chinese joint venture company known as
Shanghai STAL Precision Stainless Steel Company Limited (STAL), and our 50% interest in the
industrial titanium joint venture known as Uniti LLC. The remaining 40% interest in STAL is owned
by the Baosteel Group, a state authorized investment company whose equity securities are publicly
traded in the Peoples Republic of China. The financial results of STAL are consolidated into the
segments operating results with the 40% interest of our minority partner recognized in the
consolidated statement of income as net income attributable to noncontrolling interests. The
remaining 50% interest in Uniti LLC is held by VSMPO, a Russian producer of titanium, aluminum, and
specialty steel products. We account for the results of the Uniti joint venture using the equity
method since we do not have a controlling interest.
2010 Compared to 2009
Sales for the Flat-Rolled Products segment for 2010 were $2.34 billion, or 54% higher than 2009,
due primarily to increased shipments, higher raw material surcharges, and improved base-selling
prices for stainless products. Total product shipments increased 30% for 2010, as demand for high
value and standard stainless products improved, and direct international sales continued to
increase. Comparative information on the segments products for the years ended December 31, 2010
and 2009 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2010 |
|
2009 |
|
% Change |
|
Volume (000s pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
High value |
|
|
454,874 |
|
|
|
367,195 |
|
|
|
24 |
% |
Standard |
|
|
642,255 |
|
|
|
474,950 |
|
|
|
35 |
% |
|
|
|
Total Flat-Rolled Products |
|
|
1,097,129 |
|
|
|
842,145 |
|
|
|
30 |
% |
|
Average prices (per pound): |
|
|
|
|
|
|
|
|
|
|
|
|
High value |
|
$ |
2.83 |
|
|
$ |
2.49 |
|
|
|
14 |
% |
Standard |
|
$ |
1.62 |
|
|
$ |
1.22 |
|
|
|
33 |
% |
Total Flat-Rolled Products |
|
$ |
2.12 |
|
|
$ |
1.77 |
|
|
|
20 |
% |
|
The average transaction prices to customers, which include the effect of raw material
surcharges, increased by 20% in 2010, to $2.12 per pound. Direct international sales as a
percentage of total segment sales increased to 32.4% in 2010, surpassing the previous historic high
of 30% in 2009. Sales of standard products, primarily stainless steel cold roll sheet, represented
the largest growth area of international sales.
Our Flat-Rolled Products segment high-value product shipments, which include engineered strip,
Precision Rolled Strip, super stainless steel, nickel-based alloys, specialty alloys, titanium, and
grain-oriented electrical steel products, increased 24% in 2010 while average transaction prices
for these high-value products increased 14%. Demand for our engineered strip and Precision Rolled
Strip improved throughout 2010 as most markets continued to improve. Demand for our titanium
products from the chemical process industry and oil and gas markets rebounded from low 2009 levels,
and shipments of titanium and ATI- produced UNITI titanium products increased 21% to approximately
12.5 million pounds in 2010. Shipments of our grain-oriented electrical steel products, while
negatively impacted by the downturn in residential and commercial construction, benefited from our
long-term supply agreements with key customers.
Shipments of our standard products, which primarily include stainless steel hot roll and cold roll
sheet, and stainless steel plate, increased 35% while average transaction prices for these products
increased by 33%. In 2010, consumption in the U.S. of stainless steel strip, sheet and plate
products increased by 30%, compared to 2009 consumption, according to the Specialty Steel Institute
of North America (SSINA), using annualized November 2010 information. The 2010 annual consumption
of 1.25 million tons, although a return to 2008 levels, still reflects below average demand
compared to historical periods.
27
Source: SSINA
US ADC of Stainless Sheet and Strip (hot rolled and cold rolled)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
|
|
2000 |
|
|
|
2001 |
|
|
|
2002 |
|
|
|
2003 |
|
|
|
2004 |
|
|
|
2005 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
2009 |
|
|
|
2010 |
* |
|
|
|
Millions of Tons |
|
|
1.90 |
|
|
|
1.88 |
|
|
|
1.55 |
|
|
|
1.58 |
|
|
|
1.57 |
|
|
|
1.81 |
|
|
|
1.62 |
|
|
|
1.84 |
|
|
|
1.52 |
|
|
|
1.25 |
|
|
|
0.96 |
|
|
|
1.25 |
|
* 2010 represents Nov YTD annualized
The majority of our flat-rolled products are sold at prices that include surcharges for raw
materials, including purchased scrap, that are required to manufacture our products. These raw
materials include nickel, iron, chromium, and molybdenum. Nickel, which comprises a significant
percentage of our material costs, and where price is influenced by commodity exchange trading,
continued to be volatile during 2010. The cost of nickel increased 53% during the first four months
of 2010 to an average monthly cost of $11.81 per pound in April 2010, only to decline 25% over the
next three months to an average monthly cost of $8.86 in July 2010. During the next last five
months of 2010, the cost of nickel increased 23% to a December 2010 average of $10.94 per pound.
Our other major raw materials were also volatile during 2010 with chromium increasing almost 50%,
and iron and molybdenum each increasing over 40%. Volatility in raw material surcharges affects
customer purchasing trends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
00
|
|
01
|
|
02
|
|
03
|
|
04
|
|
05
|
|
06
|
|
07
|
|
08
|
|
09
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.32
|
|
2.69
|
|
3.26
|
|
6.43
|
|
6.25
|
|
6.09
|
|
15.68
|
|
11.79
|
|
4.39
|
|
7.74
|
|
10.94 |
Source: London Metals Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
00
|
|
01
|
|
02
|
|
03
|
|
04
|
|
05
|
|
06
|
|
07
|
|
08
|
|
09
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
74
|
|
105
|
|
173
|
|
233
|
|
255
|
|
229
|
|
297
|
|
221
|
|
275
|
|
395 |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
00
|
|
01
|
|
02
|
|
03
|
|
04
|
|
05
|
|
06
|
|
07
|
|
08
|
|
09
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.41
|
|
0.29
|
|
0.35
|
|
0.54
|
|
0.69
|
|
0.54
|
|
0.66
|
|
1.71
|
|
1.03
|
|
0.89
|
|
1.33 |
Source: Platts Metals Week
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
00
|
|
01
|
|
02
|
|
03
|
|
04
|
|
05
|
|
06
|
|
07
|
|
08
|
|
09
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.23
|
|
2.36
|
|
3.26
|
|
7.26
|
|
31.24
|
|
26.58
|
|
24.78
|
|
32.38
|
|
9.60
|
|
11.38
|
|
16.19 |
Source: Platts Metals Week
Operating income was $85.9 million, a 20% increase compared to 2009. The improvement in
2010 operating profit was due primarily to increased shipments, higher average base selling prices
for most of our products, $14.3 million lower idle facility costs, and the benefits from our gross
cost reduction efforts. These results were partially offset by a LIFO inventory valuation reserve
charge of $70.7 million in 2010, due to the significant increases in raw material costs. In 2009,
Flat-Rolled Products segment results included a LIFO inventory valuation reserve benefit of $60.8
million.
We continued to aggressively reduce costs and streamline our flat-rolled products operations.
In 2010, we achieved gross cost reductions, before the effects of inflation, of approximately $47
million in our Flat-Rolled Products segment. Major areas of gross cost reductions included $40
million from procurement savings and operating efficiencies and $7 million from reductions in
compensation and benefit expenses. Our melt shop consolidation project, involving the melting of
grain oriented electrical steel in our Brackenridge, PA stainless steel melt shop and the closure
of the Natrona, PA melt shop is expected to result in considerable cost savings beginning in 2011.
2009 Compared to 2008
Sales for the Flat-Rolled Products segment for 2009 were $1.52 billion, or 48% lower than 2008, due
primarily to lower raw material surcharges and lower product shipments as a result of the global
economic recession. Total product shipments decreased 22% for the full year 2009, as demand for
high value and standard stainless products remained at depressed levels. However, shipments of
standard stainless products, after reaching a low in the fourth quarter of 2008, increased
sequentially during 2009 as service center and other customers started to replenish inventory
positions. Comparative information on the segments products for the years ended December 31, 2009
and 2008 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2009 |
|
2008 |
|
% Change |
|
Volume (000s pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
High value |
|
|
367,195 |
|
|
|
500,375 |
|
|
|
(27 |
%) |
Standard |
|
|
474,950 |
|
|
|
584,389 |
|
|
|
(19 |
%) |
|
|
|
Total Flat-Rolled Products |
|
|
842,145 |
|
|
|
1,084,764 |
|
|
|
(22 |
%) |
|
Average prices (per pound): |
|
|
|
|
|
|
|
|
|
|
|
|
High value |
|
$ |
2.49 |
|
|
$ |
3.26 |
|
|
|
(24 |
%) |
Standard |
|
$ |
1.22 |
|
|
$ |
2.13 |
|
|
|
(43 |
%) |
Total Flat-Rolled Products |
|
$ |
1.77 |
|
|
$ |
2.65 |
|
|
|
(33 |
%) |
|
The average transaction prices to customers, which include the effect of lower average raw material
surcharges, decreased by 33% to $1.77 per pound in 2009. Direct international sales as a percentage
of total segment sales increased to 30% in 2009, which represented a historic high. While the
majority of direct international sales were for high-value products, sales of standard products,
primarily stainless steel cold roll sheet, are increasing in significance.
29
Our Flat-Rolled Products segment high-value product shipments, which include engineered strip,
Precision Rolled Strip, super stainless steel, nickel-based alloys, specialty alloys, titanium, and
grain-oriented electrical steel products, decreased 27% in 2009 while average transaction prices
for these high-value products decreased 24%. Demand for our engineered strip and Precision Rolled
Strip, while lower than 2008, improved throughout 2009 as customers restocked inventory positions
and demand improved from the housing market for energy efficient material. Demand for our titanium
products from the chemical process industry and oil and gas markets was negatively impacted
weakness in the global economy and uncertainty in financial markets for project financing.
Shipments of our grain-oriented electrical steel products, while negatively impacted by the
downturn in residential and commercial construction, benefited from our long-term supply agreements
with key customers. Shipments of titanium and ATI-produced Uniti titanium products declined 30% to
approximately 10.3 million pounds in 2009.
Shipments of our standard products, which primarily include stainless steel hot roll and cold
roll sheet, and stainless steel plate, decreased 19% while average transaction prices for these
products decreased by 43%. In 2009, consumption in the U.S. of stainless steel strip, sheet and
plate products decreased by more than 25%, compared to 2008 consumption, according to the SSINA.
The 2009 annual consumption of 960 thousand tons was the lowest level in at least 15 years.
The majority of our flat-rolled products are sold at prices that include surcharges for raw
materials, including purchased scrap, that are required to manufacture our products. These raw
materials include nickel, iron, chromium, and molybdenum. Nickel, which comprises a significant
percentage of our material costs, continued to be volatile during 2009. The cost of nickel
increased 103% during the first eight months of 2009 to an average monthly cost of $8.91 per pound
in August 2009. During the next four months of 2009, the cost of nickel declined 13% to an average
monthly cost of $7.74 per pound in December 2009. Our other major raw materials were also volatile
during 2009 with chromium declining 14%, and iron and molybdenum increasing 29% and 19%,
respectively.
Operating income was $71.3 million, an 81% decrease compared to 2008. The decline in 2009
operating profit was due primarily to lower shipments, lower average base selling prices for most
of our products, and idle facility and workforce reduction costs of $19.3 million, which were
partially offset by the benefits from our gross cost reduction efforts. In addition, operating
profit in 2009 and 2008 was affected by volatile raw material costs. Nickel and nickel-bearing
scrap, iron scrap, chromium, and molybdenum prices decreased significantly in 2008, especially in
the fourth quarter. These material costs are largely recovered in product selling prices through
raw material surcharges which attempt to match purchased material costs with shipments. However in
an environment of rapidly declining, or increasing costs, these raw material indices included in
product selling prices may not completely match our raw material costs due to the long
manufacturing cycle times for some of our products. The rapid fall in raw material costs in 2008
had a significant negative effect on operating profit in 2008, and in the first half of 2009, as
shipments produced with raw material purchased earlier at higher costs were sold based upon raw
material surcharges which reflected lower raw material costs. This negative impact on operating
profit was offset by a LIFO inventory valuation reserve benefit of $60.8 million in 2009 and $89.8
million in 2008.
We continued to aggressively reduce costs and streamline our flat-rolled products operations.
In 2009, we achieved gross cost reductions, before the effects of inflation, of approximately $77
million in our Flat-Rolled Products segment. Major areas of gross cost reductions included $62
million from procurement savings and operating efficiencies and $15 million from reductions in
compensation and benefit expenses. Cost reductions include the savings from reducing the size of
the workforce by approximately 14%.
Engineered Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
% Change |
|
2009 |
|
% Change |
|
2008 |
|
Sales to external customers |
|
$ |
371.8 |
|
|
|
56 |
% |
|
$ |
238.8 |
|
|
|
(48 |
%) |
|
$ |
455.7 |
|
|
Operating profit (loss) |
|
|
12.8 |
|
|
|
154 |
% |
|
|
(23.8 |
) |
|
|
n/m |
|
|
|
20.9 |
|
|
Operating profit (loss) as a percentage of sales |
|
|
3.4 |
% |
|
|
|
|
|
|
(10.0 |
%) |
|
|
|
|
|
|
4.6 |
% |
|
Direct international sales as a percentage of sales |
|
|
23.6 |
% |
|
|
|
|
|
|
29.3 |
% |
|
|
|
|
|
|
28.5 |
% |
|
Our Engineered Products segment includes the production of tungsten powder, tungsten heavy
alloys, tungsten carbide materials and carbide cutting tools. The segment also produces carbon
alloy steel impression die forgings, and large grey and ductile iron castings, and provides
precision metals processing services. The operations in this segment are ATI Tungsten Materials
(formerly ATI Metalworking Products), ATI Portland Forge, ATI Casting Service and ATI Precision
Finishing (formerly ATI Rome Metals).
The major markets served by our products of the Engineered Products segment include a wide
variety of industrial markets including oil and gas, machine and cutting tools, transportation,
construction and mining, electrical energy, aerospace and defense, and automotive.
30
2010 Compared to 2009
Sales for the Engineered Products segment increased 56% to $371.8 million in 2010 as demand
continued to improve from the oil and gas, transportation, aerospace, electrical energy, and
automotive markets, but remained weak from the wind energy market.
The improved demand and better pricing for most products resulted in operating profit of $12.8
million for 2010, compared to an operating loss of $23.8 million for 2009. Operating results were
impacted by idle facility costs of $2.7 million for 2010. Results for 2010 included a LIFO
inventory valuation reserve charge of $5.8 million due to higher raw material costs. In 2009, the
operating loss included idle facility and workforce reduction costs of $5.7 million, and was
partially offset by a LIFO benefit of $9.0 million primarily as a result of lower raw material
costs.
In 2010, we achieved gross cost reductions, before the effects of inflation, of approximately
$20 million in our Engineered Products segment. Major areas of gross cost reductions included $13
million from procurement savings and operating efficiencies, and $7 million from lower compensation
and benefit expenses.
2009 Compared to 2008
Sales for the Engineered Products segment decreased 48% to $238.8 million in 2009 as the global
economic recession severely depressed demand and selling prices of most of our products from all of
our major markets.
The significant sales decline resulted in an operating loss of $23.8 million for 2009 compared
to an operating profit of $20.9 million for 2008. Operating results for 2009 were adversely affected
by idle facility and workforce reduction costs of $5.7 million. The decline in profitability was
partially offset by a LIFO inventory valuation reserve benefit of $9.0 million primarily as a
result of lower raw material costs and the benefits of gross cost reductions. In 2008, operating
profit included a LIFO inventory valuation reserve benefit of $8.6 million.
In 2009, we achieved gross cost reductions, before the effects of inflation, of approximately
$14 million in our Engineered Products segment. Major areas of gross cost reductions included $8
million from procurement savings and operating efficiencies, and $6 million from lower compensation
and benefit expenses. Cost reductions include savings associated with reducing the size of the
workforce by approximately 36%.
Corporate Expenses
Corporate expenses were $64.1 million in 2010 compared to $53.1 million in 2009, and $56.8 million
in 2008. The increase in corporate expenses year over year was primarily the result of corporate
funded R&D, costs associated with the planned acquisition of Ladish Co., Inc. and performance-based
incentive compensation expenses. The decline in corporate expenses in 2009 was primarily due to
lower expenses associated with annual and long-term incentive compensation programs.
Interest Expense, Net
Interest expense, net of interest income and interest capitalization, was $62.7 million for 2010
compared to $19.3 million for 2009 and $3.5 million for 2008. The increase in interest expense in
2010 was due to lower capitalized interest on strategic projects as a result of project completions
as well as the full year of interest costs associated with the debt issuances completed in the 2009
second quarter.
Interest expense is presented net of interest income of $1.1 million for 2010, $2.1 million
for 2009, and $9.8 million for 2008. The decline in interest income over the periods primarily
resulted from lower interest rates on invested cash.
Capital expenditures associated with strategic investments to expand our production
capabilities resulted in interest capitalization in 2010, 2009 and 2008. Interest expense in 2010,
2009, and 2008 was reduced by $12.5 million, $39.0 million, and $25.0 million, respectively,
related to interest capitalization on major strategic capital projects.
In prior years, we entered into receive fixed, pay floating interest rate swap contracts
related to our $300 million, 8.375% 10-year Notes due in 2011 (2011 Notes), which were later
settled, resulting in a gain. The settlement gain is being amortized into income as an offset to
interest expense over the remaining life of the 2011 Notes. Interest expense decreased by $0.9
million in 2010, $1.3 million in 2009, and $2.0 million in 2008 due to these previously settled
interest rate swap agreements.
In June 2009, we completed the issuance of $350 million of 9.375% 10-year Senior Notes and a
tender offer for the 2011 Notes. As a result of the tender offer, in June 2009 we retired $183.3
million of the 2011 Notes, which resulted in a special charge for debt extinguishment of $9.2
million pre-tax, or $5.5 million after-tax, in the second quarter 2009.
31
Other Expenses, Net of Gains on Asset Sales
Other expenses, net of gains on asset sales, includes charges incurred in connection with closed
operations, pretax gains and losses on the sale of surplus real estate, non-strategic investments
and other assets, and other non-operating income or expense. These items are presented primarily in
selling and administrative expenses, and in other income in the consolidated statements of income
and resulted in net charges of $13.9 million in 2010, $13.8 million in 2009 and $8.5 million in
2008. Other expenses for 2010, 2009 and 2008 primarily related to legal costs associated with
closed operations.
Retirement Benefit Expense
Retirement benefit expense, which includes pension and postretirement medical benefits, decreased
in 2010 after increasing in 2009. The decrease in 2010 was primarily due to higher than expected
returns on pension plan assets in 2009 and the benefits resulting from our voluntary pension
contributions made over the past several years. The increase in retirement benefit expense in 2009
was primarily due to lower returns on plan assets in 2008, which was partially offset by the
benefits of voluntary pension contributions made over the past several years. Over the past seven
years, we have made $765.2 million of voluntary pension contributions to our U.S. qualified defined
benefit pension plan, including $350 million in the second quarter of 2009. Retirement benefit
expense was $90.1 million for 2010, $121.9 million for 2009, and $8.4 million for 2008. Retirement
benefit expenses are included in both cost of sales and selling and administrative expenses.
Retirement benefit expense included in cost of sales and selling and administrative expenses for
the years ended 2010, 2009 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2009 |
|
2008 |
|
Cost of sales |
|
$ |
64.6 |
|
|
$ |
85.4 |
|
|
$ |
5.3 |
|
Selling and administrative expenses |
|
|
25.5 |
|
|
|
36.5 |
|
|
|
3.1 |
|
|
Total retirement benefit expense |
|
$ |
90.1 |
|
|
$ |
121.9 |
|
|
$ |
8.4 |
|
|
Total retirement benefit expense for 2011 is expected to decrease to approximately $77
million, a $13 million reduction from 2010. We expect pension expense to decline to approximately
$56.6 million, a decrease of $14.8 million compared to pension expense of $71.4 million in 2010.
This expected decrease is a result of the benefit of higher than expected returns on pension plan
assets in 2010, partially offset by utilizing a lower discount rate to value the plans obligations
and a 25 basis point reduction in the expected return on pension plan assets for 2011.
Income Taxes
Net income for 2010 included a provision for income taxes of $47.0 million, or 37.4% of income
before tax, for U.S. Federal, foreign and state income taxes. The 2010 provision for income taxes
included a non-recurring charge of $5.3 million related to the Patient Protection and Affordable
Care Act. Under this legislation, the tax advantage of the subsidy to encourage companies to
provide retiree prescription drug coverage was eliminated. Although the elimination of this tax
advantage under the new legislation does not take effect until 2013, the Company was required by
U.S. generally accepted accounting principles to recognize the full accounting impact in the period
in which the Act became law. Since future anticipated retiree health care liabilities and related
tax subsidies were already reflected in ATIs financial statements, the change in law resulted in a
reduction of the value of the Companys deferred tax asset related to the subsidy. Results of
operations for 2010 also included a tax charge of $3.9 million primarily due to the Small Business
Jobs and Credit Act, which allows businesses of all sizes to accelerate depreciation on certain
property placed into service during 2010, which increased the Companys ability to recover prior
years cash taxes paid, but reduced the current year tax benefit of the manufacturing deduction.
Net income for 2009 included a provision for income taxes of $26.9 million, or 41.4% of income
before tax, for U.S. Federal, foreign and state income taxes. The 2009 provision for income taxes
included a non-recurring charge of $11.5 million recognized in the second quarter 2009 primarily
associated with the tax consequences of the June 2009 $350 million voluntary cash contribution to
our pension plan. Results of operations for 2008 included a provision for income taxes of $294.2
million, or 33.9% of income before tax. The results for 2008 benefited from a $11.9 million
favorable adjustment of prior years taxes.
Deferred taxes result from temporary differences in the recognition of income and expense for
financial and income tax reporting purposes, and differences between the fair value of assets
acquired in business combinations accounted for as purchases for financial reporting purposes and
their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be
recognized when those temporary differences reverse. At December 31, 2010, we had a net deferred
tax liability of $74.2 million.
Financial Condition and Liquidity
On January 7, 2011, we issued $500 million aggregate principal amount of 5.95% Senior Notes due
2021 (the 2021 Notes). The 2021 Notes will pay interest semi-annually in arrears at a rate of
5.95% per year and will mature on January 15, 2021, unless earlier
32
repurchased. We intend to use net proceeds from the offering of the 2021 Notes to finance the cash
portion of the merger consideration to be paid in our previously announced acquisition of Ladish
and pay related fees and expenses. The additional net proceeds will be used for general corporate
purposes.
We believe that internally generated funds, current cash on hand including the proceeds from
the 2021 Notes, and available borrowings under our existing credit facilities will be adequate to
meet foreseeable liquidity needs, including the continuing expansion of our production capabilities
over the next few years.
We did not borrow funds under our domestic senior unsecured credit facility during 2010, 2009,
or 2008. However, as of December 31, 2010 approximately $7 million of this facility was utilized to
support letters of credit.
If we needed to obtain additional financing using the credit markets, the cost and the terms
and conditions of such borrowings may be influenced by our credit rating. Changes in our credit
rating do not impact our access to, or the cost of, our existing credit facilities.
We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.
Cash Flow and Working Capital
Cash flow from operations for 2010 was $27.1 million, as an investment in managed working capital
of $318.5 million to support increased business activity and higher raw material costs offset
improved profitability. During 2010, we invested $219.1 in capital expenditures. Cash used in
financing activities was $86.8 million in 2010, primarily due to dividend payments of $70.8
million. At December 31, 2010, cash and cash equivalents on hand totaled $432.3 million, a decrease
of $276.5 million from year end 2009.
Cash flow from operations for 2009 was $218.5 million, which included a reduction in managed
working capital of $350.5 million due to lower business activity and raw material costs, partially
offset by a voluntary net cash pension contribution of $241.5 million ($350 million contribution
less $108.5 million U.S. Federal income tax refund). Excluding the voluntary net cash pension
contribution, cash flow from operations was $460 million for 2009. During 2009, we invested $454.3
in capital expenditures, including approximately $39 million for the acquisition of a specialty
powder metals business. Cash provided by financing activities was $474.1 million in 2009 due to
receipt of $734.4 million of net proceeds from the second quarter 2009 debt issuances, partially
offset by debt retirements of $188.8 million and dividend payments of $70.6 million. At December
31, 2009, cash and cash equivalents on hand totaled $708.8 million, an increase of $238.9 million
from year end 2008.
We use cash flow from operations before voluntary pension plan contributions in order to
evaluate and compare fiscal periods that do not include these contributions, and to make resource
allocation decisions among operational requirements, investing and financing alternatives.
Managed Working Capital
As part of managing the liquidity of the business, we focus on controlling inventory, accounts
receivable and accounts payable. In measuring performance in controlling this managed working
capital, we exclude the effects of LIFO inventory valuation reserves, excess and obsolete
inventory reserves, and reserves for uncollectible accounts receivable which, due to their nature,
are managed separately. We also measure managed working capital as a percentage of the prior two
months annualized sales to evaluate our performance based on recent levels of business volume.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03 |
|
04 |
|
05 |
|
06 |
|
07 |
|
08 |
|
09 |
|
10 |
|
|
|
Millions/$ |
|
|
576 |
|
|
|
853 |
|
|
|
1,048 |
|
|
|
1,582 |
|
|
|
1,627 |
|
|
|
1,412 |
|
|
|
1,061 |
|
|
|
1,380 |
|
% of Annualized
Revenue |
|
|
30.7 |
% |
|
|
29.5 |
% |
|
|
30.3 |
% |
|
|
29.0 |
% |
|
|
32.2 |
% |
|
|
35.2 |
% |
|
|
34.5 |
% |
|
|
34.4 |
% |
In 2010, managed working capital, which we define as gross inventory plus gross accounts
receivable less accounts payable, increased by $318.5 million due to increased business activity
and increased costs for certain raw materials. The increase in managed working capital was a use
of cash in 2010, as gross inventory increased $250.8 million and accounts receivable increased
$152.5 million, partially offset by an increase in accounts payable of $84.8 million. Managed
working capital was a source of $350.5 million of cash in 2009 due to declining business levels.
During 2009, gross inventory declined $183.9 million, accounts receivable declined $137.9 million
and accounts payable increased by $28.7 million. In 2008 declining business levels, primarily in
the fourth quarter 2008, and lower raw material costs resulted in managed working capital being a
source of $214.8 million of cash. Managed working capital as a percent of annualized sales was
34.4% at the end of 2010, compared to 34.5% at the end of 2009, and 35.2% at the end of 2008.
Managed working capital as a percentage of sales has increased from historical levels due to a
continuing shift in mix to more value added products, primarily in the High Performance Metals and
Flat-Rolled Products business segments, which have a longer manufacturing process. Days sales
outstanding, which measures actual collection timing for accounts receivable, increased in 2010
compared to 2009 primarily as a result of increased international sales which have longer
collection cycles. Gross inventory turns, which excludes the effect of LIFO inventory valuation
reserves, increased slightly at year-end 2010 in preparation for higher business activity in early
2011.
The Components of managed working capital were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
December 31, |
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Accounts receivable |
|
$ |
545.4 |
|
|
$ |
392.0 |
|
|
$ |
530.5 |
|
Inventory |
|
|
1,024.5 |
|
|
|
825.5 |
|
|
|
887.6 |
|
Accounts payable |
|
|
(394.1 |
) |
|
|
(308.6 |
) |
|
|
(278.5 |
) |
|
Subtotal |
|
|
1,175.8 |
|
|
|
908.9 |
|
|
|
1,139.6 |
|
Allowance for doubtful accounts |
|
|
5.6 |
|
|
|
6.5 |
|
|
|
6.3 |
|
LIFO reserve |
|
|
163.0 |
|
|
|
102.8 |
|
|
|
205.6 |
|
Corporate and other |
|
|
35.3 |
|
|
|
43.0 |
|
|
|
60.2 |
|
|
Managed working capital |
|
$ |
1,379.7 |
|
|
$ |
1,061.2 |
|
|
$ |
1,411.7 |
|
|
Annualized prior 2 months sales |
|
$ |
4,007.7 |
|
|
$ |
3,076.4 |
|
|
$ |
4,008.0 |
|
|
Managed
working capital as a % of annualized sales |
|
|
34.4 |
% |
|
|
34.5 |
% |
|
|
35.2 |
% |
Capital Expenditures
Capital
expenditures, for 2010 were $219.1 million, compared to $415.4 million in 2009, and
$515.7 million in 2008. Over the past seven years, we have generated $2.3 billion in cash provided
by operating activities and invested $2.1 billion in capital projects and for the acquisition of
businesses. At the end of 2010, capital expenditures over the past seven years represented
approximately 60% of total property, plant and equipment before accumulated depreciation. This
percentage is a significant indicator of the modern nature of the Companys productive capacity.
34
We have significantly expanded and continue to expand our manufacturing capabilities to
meet current and expected demand growth from the aerospace (engine and airframe) and defense, oil
and gas, chemical process industry, electrical energy, and medical markets, especially for titanium
and titanium-based alloys, nickel-based alloys and superalloys, specialty alloys, and exotic
alloys. These self-funded capital investments include:
In service:
|
|
|
The expansion of ATIs aerospace quality titanium sponge production capabilities.
Titanium sponge is an important raw material used to produce our titanium mill products.
Our greenfield premium-grade titanium sponge (jet engine rotating parts) facility in Rowley,
UT, with a total cost of approximately $500 million, has commenced production, and
production is planned to systematically increase during 2011. When this Utah sponge facility
is fully operational, our total annual sponge production capacity including our Albany, OR
standard grade titanium sponge facility is projected to be approximately 46 million pounds.
These secure supply sources are intended to reduce our purchased titanium sponge and
purchased titanium scrap requirements. In addition, the Utah facility will have the
infrastructure in place to further expand annual capacity by approximately 18 million
pounds, bringing the total annual capacity at that facility to 42 million pounds, if needed.
At the end of July 2009, we temporarily idled our Albany, OR titanium sponge facility to
adjust production and inventory levels. This facility is positioned to be back in
production when warranted by market conditions. |
|
|
|
|
The expansion of ATIs mill products processing and finishing capabilities for titanium
and titanium-based alloys, nickel-based alloys and superalloys, and specialty alloys. These
projects, which were constructed in phases through 2009 and totaled approximately $260
million, included an expansion of our titanium and superalloy forging capacity at our
Bakers, NC facility through the addition of an integrated 10,000 ton press forge, 700mm
radial forge, and conditioning, finishing and inspection facilities to produce large
diameter products needed for certain demanding applications. Forging is a hot-forming
process that produces wrought forging billet and forged machining bar from an ingot. |
|
|
|
|
The consolidation of our Natrona, PA grain-oriented electrical steel melt shop into ATIs
Brackenridge, PA melt shop in 2010. This consolidation is improving the overall productivity
of ATIs flat-rolled grain-oriented electrical steel and other stainless and specialty
alloys, and is reducing the cost of producing slabs and ingots. The investment should also
result in significant reduction of particulate emissions. We expect to realize considerable
cost savings from this consolidation beginning in 2011. |
|
|
|
|
Our STAL joint venture completed an expansion in 2009 that nearly tripled STALs rolling
and slitting capacity to produce Precision Rolled Strip® products, at a cost of
approximately $100 million. STAL is now much better positioned to benefit from Chinas
electronics and telecommunications manufacturing market for cell phones and smartphones, as
well as Chinas rapidly growing automotive parts manufacturing market. We believe STAL is
the largest producer of these thin strip products in China and that our new facility gives
us a significant competitive advantage in this growing market. |
|
|
|
|
We increased our capacity to produce zirconium products through capital expansions of
zirconium sponge production and VAR melting. This new zirconium sponge and melting capacity
better positions ATI for the current and expected strong growth in demand from the nuclear
energy and chemical process industry markets. We believe that ATI is now the worlds largest
producer of critical reactor grade zirconium sponge for the nuclear energy market. |
|
|
|
|
In October 2009, we acquired the assets of Crucible Compaction Metals and Crucible
Research, a western Pennsylvania producer of advanced powder metal products, for
approximately $39 million. This acquisition, which was named ATI Powder Metals, expanded
our specialty metals product portfolio. Powder metals are used in the production of complex
alloy chemistries, typically when conventional processes can not be used. Powder metals
represent a growth opportunity for ATI as more powder metals are used in the aerospace
industry for the latest generation of jet engines and for the production of near-net-shape
parts. Additional markets for these powder metals products include oil and gas, electrical
energy, and medical. |
|
|
|
|
In 2010, we expanded our capabilities to serve the oil and gas and aero engine markets
with the construction of a $16 million precision machining center at ATIs Sheffield, U.K.
operation which enables us to provide our customers with near net shape parts. |
In process:
|
|
|
A new advanced specialty metals hot rolling and processing facility at our existing
Brackenridge, PA site. The project is estimated to cost approximately $1.1 billion and be
completed by the end of 2013. The mill equipment vendor has been selected, and equipment
orders placed, with engineering and site preparation for the facility progressing. Our new
advanced hot-rolling and processing facility is designed to be the most powerful mill in the
world for production of specialty metals. It is designed to produce exceptional quality,
thinner, and wider hot-rolled coils at reduced cost with shorter lead times, and require
lower working capital requirements. When completed, we believe ATIs new advanced specialty
metals hot rolling and processing facility will provide unsurpassed manufacturing capability
and versatility in the production of a wide range of flat-rolled specialty metals. We expect
improved productivity, lower costs, and higher quality for our diversified product mix of flat- |
35
|
|
|
rolled specialty metals, including nickel-based and specialty alloys, titanium and
titanium alloys, zirconium alloys, Precision Rolled Strip® products, and stainless sheet and
coiled plate products. It is designed to roll and process exceptional quality hot bands of up
to 78.62 inches, or 2 meters, wide. |
We currently expect that our 2011 capital expenditures will be between $300 and $350 million,
and we expect annual capital spending to remain in this range for the next few years.
Debt
Total debt outstanding decreased by $7.8 million, to $1,063.3 million at December 31, 2010, from
$1,071.1 million at December 31, 2009. The decrease in debt was primarily due to scheduled
principal payments made in 2010. In managing our overall capital structure, some of the measures
on which we focus are net debt to total capitalization, which is the percentage of our debt, net of
cash that may be available to reduce borrowings, to our total invested and borrowed capital, and
total debt to total capitalization, which excludes cash balances. At year-end 2010, our net debt to
total capitalization was 23.6%, compared to 15.3% at December 31, 2009, and 2.0% at December 31,
2008. Total debt to total capitalization was 34.3% at December 31, 2010 compared to 34.7% at
December 31, 2009, and 20.7% at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
(In millions) |
|
2010 |
|
2009 |
|
Total debt |
|
$ |
1,063.3 |
|
|
$ |
1,071.1 |
|
Less: Cash |
|
|
(432.3 |
) |
|
|
(708.8 |
) |
|
Net debt |
|
$ |
631.0 |
|
|
$ |
362.3 |
|
|
|
|
|
|
|
|
|
|
Net debt |
|
$ |
631.0 |
|
|
$ |
362.3 |
|
Total ATI stockholders equity |
|
|
2,040.8 |
|
|
|
2,012.2 |
|
|
Net ATI capital |
|
$ |
2,671.8 |
|
|
$ |
2,374.5 |
|
Net debt to ATI capital |
|
|
23.6 |
% |
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
(In millions) |
|
2010 |
|
2009 |
|
Total debt |
|
$ |
1,063.3 |
|
|
$ |
1,071.1 |
|
Total ATI stockholders equity |
|
|
2,040.8 |
|
|
|
2,012.2 |
|
|
Total ATI capital |
|
$ |
3,104.1 |
|
|
$ |
3,083.3 |
|
Total debt to ATI capital |
|
|
34.3 |
% |
|
|
34.7 |
% |
|
In December 2010, the Company amended its $400 million senior unsecured domestic revolving
credit facility to extend the facility term to December 2015. The facility includes a $200 million
sublimit for the issuance of letters of credit. Under the terms of the facility, the Company may
increase the size of the credit facility by up to $100 million without seeking the further approval
of the lending group. The facility requires the Company to maintain a leverage ratio (consolidated
total indebtedness divided by consolidated earnings before interest, taxes and depreciation and
amortization) of not greater than 3.25, and maintain an interest coverage ratio (consolidated
earnings before interest and taxes divided by interest expense) of not less than 2.0. At December
31, 2010, our leverage ratio was 1.81 and our interest coverage ratio was 3.62. The definition of
consolidated earnings before interest and taxes, and consolidated earnings before income, taxes,
depreciation and amortization as used in the interest coverage and leverage ratios excludes any
non-cash pension expense or income, and consolidated indebtedness in the leverage ratio is net of
cash on hand in excess of $50 million. The Company was in compliance with these required ratios
during all applicable periods. As of December 31, 2010, there had been no borrowings made under
the facility, although a portion of the facility was used to support approximately $7 million in
letters of credit.
The Company has an additional separate credit facility for the issuance of letters of credit.
As of December 31, 2010, $30 million in letters of credit were outstanding under this facility.
STAL, our Chinese joint venture company in which ATI has a 60% interest, has a revolving
credit facility with a group of banks which extends through early August 2012. Under the credit
facility, STAL may borrow up to 205 million renminbi (approximately $31 million at December 2010
exchange rates) at an interest rate equal to 90% of the applicable lending rate published by the
Peoples Bank of China. The credit facility is supported solely by STALs financial capability
without any guarantees from the joint venture partners, and is intended to be utilized in the
future for the expansion of STALs operations, which are located in Shanghai, China.
36
The credit facility requires STAL to maintain a minimum level of shareholders equity, and certain financial
ratios. As of December 31, 2010, there had been no borrowings made under this credit facility.
STAL had approximately $0.2 million in letters of credit outstanding as of December 31, 2010.
These letters of credit are supported solely by STALs financial capability without any guarantees
from the joint venture partners.
Interest rate swap contracts have been used from time-to-time to manage our exposure to
interest rate risks. At December 31, 2010, we have no interest rate swap contracts in place. We
have deferred gains on settled receive fixed, pay floating interest rate swap contracts
associated with our outstanding 2011 Notes. These gains on settlement, which occurred in 2004 and
2003, remain a component of the reported balance of the 2011 Notes, and are ratably recognized as a
reduction to interest expense over the remaining life of the Notes, which is approximately one
year. At December 31, 2010, the deferred settlement gain was $0.9 million. The result of the
receive fixed, pay floating arrangements was a decrease in interest expense of $0.9 million, $1.3
million, and $2.0 million for the years ended December 31, 2010, 2009, and 2008, respectively,
compared to the fixed interest expense of the 2011 Notes.
A summary of required payments under financial instruments (excluding accrued interest) and
other commitments are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
1-3 |
|
4-5 |
|
After 5 |
(In millions) |
|
Total |
|
1 year |
|
years |
|
years |
|
years |
|
Contractual Cash Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt including Capital Leases |
|
$ |
1,062.7 |
|
|
$ |
140.7 |
|
|
$ |
15.6 |
|
|
$ |
404.9 |
|
|
$ |
501.5 |
|
Operating Lease Obligations |
|
|
69.7 |
|
|
|
16.9 |
|
|
|
23.5 |
|
|
|
12.6 |
|
|
|
16.7 |
|
Other Long-term Liabilities (A) |
|
|
100.6 |
|
|
|
|
|
|
|
39.2 |
|
|
|
14.9 |
|
|
|
46.5 |
|
Unconditional Purchase Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials (B) |
|
|
1,034.6 |
|
|
|
443.2 |
|
|
|
328.3 |
|
|
|
60.9 |
|
|
|
202.2 |
|
Capital expenditures |
|
|
342.6 |
|
|
|
66.6 |
|
|
|
173.0 |
|
|
|
103.0 |
|
|
|
|
|
Other (C) |
|
|
116.7 |
|
|
|
34.6 |
|
|
|
40.2 |
|
|
|
20.8 |
|
|
|
21.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,726.9 |
|
|
$ |
702.0 |
|
|
$ |
619.8 |
|
|
$ |
617.1 |
|
|
$ |
788.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of Credit (D) |
|
$ |
530.5 |
|
|
$ |
73.9 |
|
|
$ |
56.6 |
|
|
$ |
400.0 |
|
|
$ |
|
|
Guarantees |
|
$ |
20.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) Other long-term liabilities exclude pension liabilities and accrued postretirement
benefits.
(B) We have contracted for physical delivery for certain of our raw materials to meet a
portion of our needs. These contracts are based upon fixed or variable price provisions. We used
current market prices as of December 31, 2010, for raw material obligations with variable pricing.
(C) We have various contractual obligations that extend through 2015 for services involving
production facilities and administrative operations. Our purchase obligation as disclosed
represents the estimated termination fees payable if we were to exit these contracts.
(D) Drawn amounts were $26.6 million at December 31, 2010 under foreign credit agreements, and
drawn amounts are included in total debt. Drawn amounts also include $7.1 million utilized under
the $400 million domestic senior unsecured credit facility for standby letters of credit, which
renew annually, and $30.5 million under a separate letter of credit facility. These letters of
credit are used to support: $28.5 million in workers compensation and general insurance
arrangements, and $9.1 million related to environmental, legal and other matters.
Retirement Benefits
At December 31, 2010, our U.S. qualified defined benefit pension plan was fully funded. The value
of the pension plan investments exceeded the liabilities of the U.S. qualified defined benefit
pension plan as of the end of 2010 by $9 million, or approximately 0.4%. We have not been required
to make cash contributions to this defined benefit pension plan since 1995, and we did not make a
contribution during 2010. However, during the six previous years (2004-2009), we have made $765.2
million in voluntary cash and stock contributions to this plan to improve the plans funded
position. These voluntary contributions were comprised of cash contributions of $350 million in
2009, $30 million in 2008, and $100 million during each of 2007, 2006 and 2005, respectively, plus
$50 million during 2004. Additionally in the fourth quarter of 2008, we contributed 1.5 million
shares of ATI common stock, valued at $35.2 million, to the pension plan. Based on current
regulations and actuarial studies, we do not expect to be required to make cash contributions to
our U.S. qualified defined benefit pension plan for 2011. However, we may elect, depending upon
investment
37
performance of the pension plan assets and other factors, to make additional voluntary
cash contributions to this pension plan in the future.
We fund certain retiree health care benefits for Allegheny Ludlum using investments held in a
Company-administered Voluntary Employee Benefit Association (VEBA) trust. This allows us to recover
a portion of the retiree medical costs. In accordance with our labor agreements, during 2010, 2009,
and 2008, we funded $4.2 million, $13.8 million, and $34.3 million, respectively, of retiree
medical costs using the investments of this VEBA trust. We may continue to fund certain retiree
medical benefits utilizing the investments held in this VEBA. The value of the investments held in
this VEBA was approximately $12 million as of December 31, 2010.
Dividends
We paid a quarterly dividend of $0.18 per share of common stock for each quarter of 2010 and 2009.
The payment of dividends and the amount of such dividends depends upon matters deemed relevant by
our Board of Directors, such as our results of operations, financial condition, cash requirements,
future prospects, any limitations imposed by law, credit agreements or senior securities, and other
factors deemed relevant and appropriate.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in conformity with United
States generally accepted accounting principles. When more than one accounting principle, or the
method of its application, is generally accepted, management selects the principle or method that
is appropriate in our specific circumstances. Application of these accounting principles requires
our management to make estimates about the future resolution of existing uncertainties; as a
result, actual results could differ from these estimates. In preparing these financial statements,
management has made its best estimates and judgments of the amounts and disclosures included in the
financial statements giving due regard to materiality.
Inventories
At December 31, 2010, we had net inventory of $1,024.5 million. Inventories are stated at the lower
of cost (last-in, first-out (LIFO), first-in, first-out (FIFO) and average cost methods) or market,
less progress payments. Costs include direct material, direct labor and applicable manufacturing
and engineering overhead, and other direct costs. Most of our inventory is valued utilizing the
LIFO costing methodology. Inventory of our non-U.S. operations is valued using average cost or FIFO
methods. Under the LIFO inventory valuation method, changes in the cost of raw materials and
production activities are recognized in cost of sales in the current period even though these
material and other costs may have been incurred at significantly different values due to the length
of time of our production cycle. The prices for many of the raw materials we use have been
extremely volatile during the past four years. Since we value most of our inventory utilizing the
LIFO inventory costing methodology, a rise in raw material costs has a negative effect on our
operating results, while, conversely, a fall in material costs results in a benefit to operating
results. For example, in 2010, the effect of rising raw material costs on our LIFO inventory
valuation method resulted in cost of sales which were $60.2 million higher than would have been
recognized had we utilized the FIFO methodology to value our inventory. However, in 2009 and 2008,
the effect of falling raw material costs on our LIFO inventory valuation method resulted in cost of
sales which were $102.8 million and $169.0 million lower than would have been recognized had we
utilized the FIFO methodology to value our inventory. In a period of rising prices, cost of sales
expense recognized under LIFO is generally higher than the cash costs incurred to acquire the
inventory sold. Conversely, in a period of declining raw material prices, cost of sales recognized
under LIFO is generally lower than cash costs incurred to acquire the inventory sold.
The LIFO inventory valuation methodology is not utilized by many of the companies with which
we compete, including foreign competitors. As such, our results of operations may not be comparable
to those of our competitors during periods of volatile material costs due, in part, to the
differences between the LIFO inventory valuation method and other acceptable inventory valuation
methods.
We evaluate product lines on a quarterly basis to identify inventory values that exceed
estimated net realizable value. The calculation of a resulting reserve, if any, is recognized as an
expense in the period that the need for the reserve is identified. At December 31, 2010, no
significant reserves were required. It is our general policy to write-down to scrap value any
inventory that is identified as obsolete and any inventory that has aged or has not moved in more
than twelve months. In some instances this criterion is up to twenty-four months due to the longer
manufacturing and distribution process for such products.
Asset Impairment
We monitor the recoverability of the carrying value of our long-lived assets. An impairment charge
is recognized when the expected net undiscounted future cash flows from an assets use (including
any proceeds from disposition) are less than the assets carrying value, and the assets carrying
value exceeds its fair value. Changes in the expected use of a long-lived asset group, and the
financial performance of the long-lived asset group and its operating segment, are evaluated as
indicators of possible impairment. Future cash flow value may include appraisals for property,
plant and equipment, land and improvements, future cash flow estimates from
38
operating the
long-lived assets, and other operating considerations. There were no significant charges for
impairment of long-lived assets in the periods presented.
Retirement Benefits
We have defined benefit and defined contribution pension plans covering substantially all of our
employees. Under U.S. generally accepted accounting principles, benefit expenses recognized in
financial statements for defined benefit pension plans are determined on an actuarial basis, rather
than as contributions are made to the plan. A significant element in determining our pension
(expense) income in accordance with the accounting standards is the expected investment return on
plan assets. In establishing the expected return on plan investments, which is reviewed annually in
the fourth quarter, we take into consideration input from our third party pension plan asset
managers and actuaries regarding the types of securities the plan assets are invested in, how those
investments have performed historically, and expectations for how those investments will perform in
the future. Our expected long-term return on pension plan investments has been 8.75% for each of
the past five years. We apply this assumed rate to the market value of plan assets at the end of
the previous year. This produces the expected return on plan assets that is included in annual
pension (expense) income for the current year. The actual return on pension plan assets for the
last five years have been 12.2% for 2010, 16.4% for 2009, a negative 25.3% for 2008, 10.9% for
2007, and 18.2% for 2006. Based upon our strategic allocation of pension assets across the various
investments asset classes, and consideration of both historical and projected annual compound
returns our expected long-term return on pension plan investments for 2011 was reduced to 8.50%.
The effect of increasing, or lowering, the expected return on pension plan investments by 0.25%
results in additional pretax annual income, or expense, of approximately $5.4 million. The
cumulative difference between this expected return and the actual return on plan assets is deferred
and amortized into pension income or expense over future periods. The amount of expected return on
plan assets can vary significantly from year-to-year since the calculation is dependent on the
market value of plan assets as of the end of the preceding year. U.S. generally accepted accounting
principles allow companies to calculate the expected return on pension assets using either an
average of fair market values of pension assets over a period not to exceed five years, which
reduces the volatility in reported pension income or expense, or their fair market value at the end
of the previous year. However, the Securities and Exchange Commission currently does not permit
companies to change from the fair market value at the end of the previous year methodology, which
is the methodology that we use, to an averaging of fair market values of plan assets methodology.
As a result, our results of operations and those of other companies, including companies with which
we compete, may not be comparable due to these different methodologies in calculating the expected
return on pension investments.
In accordance with accounting standards, we determine the discount rate used to value pension
plan liabilities as of the last day of each year. The discount rate reflects the current rate at
which the pension liabilities could be effectively settled. In estimating this rate, we receive
input from our actuaries regarding the rates of return on high quality, fixed-income investments
with maturities matched to the expected future retirement benefit payments. Based on this
assessment at the end of December 2010, we established a discount rate of 5.8% for valuing the
pension liabilities as of the end of 2010, and for determining the pension expense for 2011. We had
previously assumed a discount rate of 6.2% at the end of 2009 and 6.85% for the end of 2008. The
estimated effect of changing the discount rate by 0.50%, would decrease pension liabilities in the
case of an increase in the discount rate, or increase pension liabilities in the case of a decrease
in the discount rate by approximately $140 million. Such a change in the discount rate would
decrease pension expense in the case of an increase in the discount rate, or increase pension
expense in the case of a decrease in the discount rate by approximately $12 million. The effect on
pension liabilities for changes to the discount rate, as well as the net effect of other changes in
actuarial assumptions and experience, are deferred and amortized over future periods in accordance
with the accounting standards.
As discussed above, gains and losses due to differences between actual and expected results
for investment returns on plan assets, and changes in the discount rate used to value benefit
obligations are deferred and recognized in the income statement over future periods. However for
balance sheet presentation, these gains and losses are included in the determination of benefit
obligations, net of plan assets, included on the year-end statement of financial position. At
December 31, 2010, the Company had $944 million of pre-tax net actuarial losses, primarily related
to negative investment returns on plan assets in 2008, which have been recognized on the balance
sheet through a reduction in stockholders equity, which are being recognized in the income
statement through expense amortizations over future years.
We also sponsor several postretirement plans covering certain hourly and salaried employees
and retirees. These plans provide health care and life insurance benefits for eligible employees.
Under most of the plans, our contributions towards premiums are capped based upon the cost as of
certain dates, thereby creating a defined contribution. For the non-collectively bargained plans,
we maintain the right to amend or terminate the plans in the future. In accordance with U.S.
generally accepted accounting standards, postretirement expenses recognized in financial statements
associated with defined benefit plans are determined on an actuarial basis, rather than as benefits
are paid. We use actuarial assumptions, including the discount rate and the expected trend in
health care costs, to estimate the costs and benefit obligations for these plans. The discount
rate, which is determined annually at the end of each year, is developed based upon rates of return
on high quality, fixed-income investments. At the end of 2010, we determined the rate to be 5.8%,
compared to a 6.2% discount rate in 2009, and a 6.85% discount rate in 2008. The estimated effect
of changing the discount rate by 0.50%, would decrease postretirement obligations in the case of an
increase in the discount rate, or increase postretirement obligations in the case of a decrease in
the discount rate by approximately $19 million. Such a change in the discount rate would decrease
postretirement benefit expense in
39
the case of an increase in the discount rate, or increase
postretirement benefit expense in the case of a decrease in the discount rate by approximately $0.5
million. Based upon predictions of continued significant medical cost inflation in future years,
the annual assumed rate of increase in the per capita cost of covered benefits of health care plans
is 9.5% in 2011 and is assumed to gradually decrease to 5.0% in the year 2028 and remain level
thereafter.
Certain of these postretirement benefits are funded using plan investments held in a
Company-administered VEBA trust. The December 31, 2010 asset balance is $12 million and consists
primarily of private equity investments. For 2010, our expected return on investments held in the
VEBA trust was 8.3%, and our actual investment return was a negative 3.5%. This assumed long-term
rate of return on investments is applied to the market value of plan assets at the end of the
previous year. This produces the expected return on plan investments that is included in annual
postretirement benefits expenses for the current year. Our expected return on investments in the
VEBA trust is 8.3% for 2011. The expected return on investments held in the VEBA trust is lower
than the return on pension plan investments due to the mix of assets held by the VEBA trust and the
expected reduction of VEBA trust assets due to benefit payments. The effect of increasing, or
lowering, the expected return on postretirement benefit plan investments by 0.25% has a negligible
effect on pretax annual income, or expense, due to the low level of investments held.
New Accounting Pronouncements Adopted
In January 2010, the FASB issued changes to disclosure requirements for fair value measurements,
including the amount of transfers between Levels 1 and 2 of the fair value hierarchy, the reasons
for transfers in or out of Level 3 of the fair value hierarchy and activity for recurring Level 3
measures. In addition, the changes clarify certain disclosure requirements related to the level at
which fair value disclosures should be disaggregated with separate disclosures of purchases, sales,
issuances and settlements, and the requirement to provide disclosures about valuation techniques
and inputs used in determining the fair value of assets or liabilities classified as Level 2 or 3.
The Company adopted the disclosure changes effective January 1, 2010, except for the disaggregated
Level 3 rollforward disclosures, which will be effective for fiscal year 2011.
Forward-Looking Statements
From time-to-time, the Company has made and may continue to make forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in
this report 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
managements current expectations and include known and unknown risks, uncertainties and other
factors, many of which the Company is 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 in Item 1A, Risk Factors, of
this Annual Report on Form 10-K and will be described from time-to-time in the Company filings with
the Securities and Exchange Commission (SEC), including the Companys Annual Reports on Form 10-K
and the Companys subsequent reports filed with the SEC on Form 10-Q and Form 8-K, which are
available on the SECs website at http://www.sec.gov and on the Companys website at
http://www.atimetals.com. We assume no duty to update our forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As part of our risk management strategy, we utilize derivative financial instruments, from
time to time, to hedge our exposure to changes in raw material prices, foreign currencies, and
interest rates. We monitor the third-party financial institutions which are our counterparty to
these financial instruments on a daily basis and diversify our transactions among counterparties to
minimize exposure to any one of these entities. Fair values for derivatives were measured using
exchange-traded prices for the hedged items including consideration of counterparty risk and the
Companys credit risk.
Interest Rate Risk. We attempt to maintain a reasonable balance between fixed- and floating-rate
debt to keep financing costs as low as possible. At December 31, 2010, we had approximately $36
million of floating rate debt outstanding with a weighted average interest rate of approximately
1.5%. Approximately $10 million of this floating rate debt is capped at a 6% maximum interest rate.
Since the interest rate on floating rate debt changes with the short-term market rate of interest,
we are exposed to the risk that these interest rates may increase, raising our interest expense in
situations where the interest rate is not capped. For example, a hypothetical 1% increase in the
rate of interest on the $26 million of our outstanding floating rate debt not subjected to a cap
would result in increased annual financing costs of approximately $0.3 million.
Volatility of Energy Prices. Energy resources markets are subject to conditions that create
uncertainty in the prices and availability of energy resources. The prices for and availability of
electricity, natural gas, oil and other energy resources are subject to volatile market conditions.
These market conditions often are affected by political and economic factors beyond our control.
Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have
and may continue to adversely affect our profitability. To the extent that these uncertainties
cause suppliers and customers to be more cost sensitive, increased energy prices may have an
adverse effect on our results of operations and financial condition. We use approximately 8 to 10
million MMBtus of natural gas annually, depending upon business conditions, in the manufacture of
our products. These purchases of natural gas expose us to risk of higher gas prices. For example, a
hypothetical $1.00 per MMBtu increase in the price of natural gas would result in increased annual
energy
40
costs of approximately $8 to $10 million. We use several approaches to minimize any material
adverse effect on our financial condition or results of operations from volatile energy prices.
These approaches include incorporating an energy surcharge on many of our products and using
financial derivatives to reduce exposure to energy price volatility.
At December 31, 2010, the outstanding financial derivatives used to hedge our exposure to
natural gas cost volatility represented approximately 45% of our forecasted requirements through
2012. The net mark-to-market valuation of these outstanding hedges at December 31, 2010 was an
unrealized pre-tax loss of $17.3 million, of which $16.7 million was presented in accrued
liabilities, $0.8 million was presented in other long-term liabilities and $0.3 million was
presented in other assets on the balance sheet. The effects of the hedging activity will be
recognized in income over the designated hedge periods. For the year ended December 31, 2010, the
effects of natural gas hedging activity increased cost of sales by $17.3 million.
Volatility of Raw Material Prices. We use raw materials surcharge and index mechanisms to offset
the impact of increased raw material costs; however, competitive factors in the marketplace can
limit our ability to institute such mechanisms, and there can be a delay between the increase in
the price of raw materials and the realization of the benefit of such mechanisms. For example, in
2010 we used approximately 95 million pounds of nickel; therefore a hypothetical change of $1.00
per pound in nickel prices would result in increased costs of approximately $95 million. In
addition, in 2010 we also used approximately 780 million pounds of ferrous scrap in the production
of our flat-rolled products and a hypothetical change of $0.01 per pound would result in increased
costs of approximately $8 million. While we enter into raw materials futures contracts from
time-to-time to hedge exposure to price fluctuations, such as for nickel, we cannot be certain that
our hedge position adequately reduces exposure. We believe that we have adequate controls to
monitor these contracts, but we may not be able to accurately assess exposure to price volatility
in the markets for critical raw materials.
The majority of our products are sold utilizing raw material surcharges and index mechanisms.
However as of December 31, 2010, we had entered into financial hedging arrangements primarily at
the request of our customers related to firm orders, for an aggregate amount of less than 2% of our
estimated annual nickel requirements. These nickel hedges extend to 2014. Any gain or loss
associated with these hedging arrangements is included in the cost of sales. At December 31, 2010,
the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax
gain of $4.5 million, comprised of $3.7 million included in prepaid expenses and other current
assets and $0.8 million in other long-term assets on the balance sheet.
Foreign Currency Risk. Foreign currency exchange contracts are used, from time-to-time, to limit
transactional exposure to changes in currency exchange rates. We sometimes purchase foreign
currency forward contracts that permit us to sell specified amounts of foreign currencies expected
to be received from our export sales for pre-established U.S. dollar amounts at specified dates.
The forward contracts are denominated in the same foreign currencies in which export sales are
denominated. These contracts are designated as hedges of the variability in cash flows of a portion
of the forecasted future export sales transactions which otherwise would expose the Company to
foreign currency risk. At December 31, 2010, the outstanding financial derivatives used to hedge
our exposure to foreign currency, primarily euros, represented approximately 15% of our forecasted
total international sales through 2011. At December 31, 2010, the net mark-to-market valuation of
the outstanding foreign currency forward contracts was an unrealized pre-tax gain of $7.4 million,
of which $10.0 million is included in prepaid expenses and other assets, $0.5 million is presented
in other long-term assets, $2.0 million in accrued liabilities and $1.1 million in other long-term
liabilities on the balance sheet. In addition, we may also designate cash balances held in foreign
currencies as hedges of forecasted foreign currency transactions.
41
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Allegheny Technologies Incorporated
We have audited the accompanying consolidated balance sheets of Allegheny Technologies Incorporated
as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in
equity, and cash flows for each of the three years in the period ended December 31, 2010. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Allegheny Technologies Incorporated at December
31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted
accounting principles.
As described in Note 9 to the financial statements, the Company changed its measurement date for
pensions and other postretirement benefits in 2008.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board of the United States, Allegheny Technologies Incorporateds internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 28, 2011
42
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2010 |
|
2009 |
|
2008 |
|
Sales |
|
$ |
4,047.8 |
|
|
$ |
3,054.9 |
|
|
$ |
5,309.7 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
3,557.5 |
|
|
|
2,646.5 |
|
|
|
4,157.8 |
|
Selling and administrative expenses |
|
|
304.9 |
|
|
|
315.7 |
|
|
|
282.7 |
|
|
Income before interest, other income and income taxes |
|
|
185.4 |
|
|
|
92.7 |
|
|
|
869.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(62.7 |
) |
|
|
(19.3 |
) |
|
|
(3.5 |
) |
Debt extinguishment costs |
|
|
|
|
|
|
(9.2 |
) |
|
|
|
|
Other income, net |
|
|
3.0 |
|
|
|
0.7 |
|
|
|
2.0 |
|
|
Income before income taxes |
|
|
125.7 |
|
|
|
64.9 |
|
|
|
867.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
47.0 |
|
|
|
26.9 |
|
|
|
294.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
78.7 |
|
|
|
38.0 |
|
|
|
573.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests |
|
|
8.0 |
|
|
|
6.3 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ATI |
|
$ |
70.7 |
|
|
$ |
31.7 |
|
|
$ |
565.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income attributable to ATI per common share |
|
$ |
0.73 |
|
|
$ |
0.33 |
|
|
$ |
5.71 |
|
|
Diluted net income attributable to ATI per common share |
|
$ |
0.72 |
|
|
$ |
0.32 |
|
|
$ |
5.67 |
|
|
The accompanying notes are an integral part of these statements.
43
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
(In millions, except share and per share amounts) |
|
2010 |
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
432.3 |
|
|
$ |
708.8 |
|
Accounts receivable, net |
|
|
545.4 |
|
|
|
392.0 |
|
Inventories, net |
|
|
1,024.5 |
|
|
|
825.5 |
|
Prepaid expenses and other current assets |
|
|
112.9 |
|
|
|
71.3 |
|
|
Total Current Assets |
|
|
2,115.1 |
|
|
|
1,997.6 |
|
Property, plant and equipment, net |
|
|
1,989.3 |
|
|
|
1,907.9 |
|
Cost in excess of net assets acquired |
|
|
206.8 |
|
|
|
207.8 |
|
Deferred income taxes |
|
|
|
|
|
|
63.1 |
|
Other assets |
|
|
182.4 |
|
|
|
169.6 |
|
|
Total Assets |
|
$ |
4,493.6 |
|
|
$ |
4,346.0 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
394.1 |
|
|
$ |
308.6 |
|
Accrued liabilities |
|
|
249.9 |
|
|
|
258.8 |
|
Deferred income taxes |
|
|
5.6 |
|
|
|
23.7 |
|
Short-term debt and current portion of long-term debt |
|
|
141.4 |
|
|
|
33.5 |
|
|
Total Current Liabilities |
|
|
791.0 |
|
|
|
624.6 |
|
Long-term debt |
|
|
921.9 |
|
|
|
1,037.6 |
|
Accrued postretirement benefits |
|
|
423.8 |
|
|
|
424.3 |
|
Pension liabilities |
|
|
58.3 |
|
|
|
50.6 |
|
Deferred income taxes |
|
|
68.6 |
|
|
|
|
|
Other long-term liabilities |
|
|
100.6 |
|
|
|
119.3 |
|
|
Total Liabilities |
|
|
2,364.2 |
|
|
|
2,256.4 |
|
|
Equity: |
|
|
|
|
|
|
|
|
ATI Stockholders Equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $0.10: authorized-
50,000,000 shares; issued-none |
|
|
|
|
|
|
|
|
Common stock, par value $0.10: authorized-500,000,000
shares; issued-102,404,256 shares at December 31, 2010 and
December 31, 2009; outstanding- 98,542,291 shares at
December 31, 2010 and 98,070,474 shares at December 31, 2009 |
|
|
10.2 |
|
|
|
10.2 |
|
Additional paid-in capital |
|
|
658.9 |
|
|
|
653.6 |
|
Retained earnings |
|
|
2,224.8 |
|
|
|
2,230.5 |
|
Treasury stock: 3,861,965 shares at December 31, 2010 and
4,333,782 shares at December 31, 2009 |
|
|
(188.0 |
) |
|
|
(208.6 |
) |
Accumulated other comprehensive loss, net of tax |
|
|
(665.1 |
) |
|
|
(673.5 |
) |
|
Total ATI Stockholders Equity |
|
|
2,040.8 |
|
|
|
2,012.2 |
|
Noncontrolling Interests |
|
|
88.6 |
|
|
|
77.4 |
|
|
Total Stockholders Equity |
|
|
2,129.4 |
|
|
|
2,089.6 |
|
|
Total Liabilities and Stockholders Equity |
|
$ |
4,493.6 |
|
|
$ |
4,346.0 |
|
|
The accompanying notes are an integral part of these statements.
44
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
For the Years Ended December 31, |
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
78.7 |
|
|
$ |
38.0 |
|
|
$ |
573.5 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
141.5 |
|
|
|
132.6 |
|
|
|
118.8 |
|
Deferred taxes |
|
|
102.2 |
|
|
|
123.6 |
|
|
|
129.0 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefits (a) |
|
|
34.3 |
|
|
|
(280.6 |
) |
|
|
(52.9 |
) |
Accounts receivable |
|
|
(153.4 |
) |
|
|
141.4 |
|
|
|
121.7 |
|
Inventories |
|
|
(199.0 |
) |
|
|
67.8 |
|
|
|
28.6 |
|
Accounts payable |
|
|
85.5 |
|
|
|
30.1 |
|
|
|
(109.9 |
) |
Accrued income taxes |
|
|
(32.2 |
) |
|
|
(26.6 |
) |
|
|
(6.9 |
) |
Accrued liabilities and other |
|
|
(30.5 |
) |
|
|
(7.8 |
) |
|
|
(47.4 |
) |
|
Cash provided by operating activities |
|
|
27.1 |
|
|
|
218.5 |
|
|
|
754.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(219.1 |
) |
|
|
(415.4 |
) |
|
|
(515.7 |
) |
Purchases of businesses and investments in ventures |
|
|
|
|
|
|
(38.9 |
) |
|
|
|
|
Asset disposals and other |
|
|
2.3 |
|
|
|
0.6 |
|
|
|
1.8 |
|
|
Cash used in investing activities |
|
|
(216.8 |
) |
|
|
(453.7 |
) |
|
|
(513.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt |
|
|
|
|
|
|
752.5 |
|
|
|
|
|
Payments on long-term debt and capital leases |
|
|
(11.3 |
) |
|
|
(194.6 |
) |
|
|
(14.8 |
) |
Net borrowings (repayments) under credit facilities |
|
|
2.9 |
|
|
|
5.8 |
|
|
|
(3.1 |
) |
Debt issuance costs |
|
|
|
|
|
|
(18.1 |
) |
|
|
|
|
Dividends paid to shareholders |
|
|
(70.8 |
) |
|
|
(70.6 |
) |
|
|
(71.4 |
) |
Shares repurchased for income tax withholding on share-based
compensation |
|
|
(0.9 |
) |
|
|
(1.4 |
) |
|
|
(15.8 |
) |
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
Exercises of stock options |
|
|
1.4 |
|
|
|
0.8 |
|
|
|
1.0 |
|
Taxes on share-based compensation |
|
|
(8.1 |
) |
|
|
0.5 |
|
|
|
(11.6 |
) |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
(278.3 |
) |
|
Cash provided by (used in) financing activities |
|
|
(86.8 |
) |
|
|
474.1 |
|
|
|
(394.0 |
) |
|
Increase (decrease) in cash and cash equivalents |
|
|
(276.5 |
) |
|
|
238.9 |
|
|
|
(153.4 |
) |
Cash and cash equivalents at beginning of year |
|
|
708.8 |
|
|
|
469.9 |
|
|
|
623.3 |
|
|
Cash and cash equivalents at end of year |
|
$ |
432.3 |
|
|
$ |
708.8 |
|
|
$ |
469.9 |
|
|
|
|
|
(a) |
|
Includes annual voluntary cash contributions of $(350) million in 2009 and $(30) million in 2008. |
Amounts
presented on the Consolidated Statements of Cash Flows may not agree to the corresponding changes in balance sheet items due to the accounting for purchases and sales of businesses and the effects of foreign currency translation.
The accompanying notes are an integral part of these statements.
45
Allegheny Technologies Incorporated and Subsidiaries
Statements of Changes in Consolidated Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATI Stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Non- |
|
|
|
|
Common |
|
Paid-In |
|
Retained |
|
Treasury |
|
Comprehensive |
|
Comprehensive |
|
controlling |
|
Total |
(In millions, except per share amounts) |
|
Stock |
|
Capital |
|
Earnings |
|
Stock |
|
Income (Loss) |
|
Income (Loss) |
|
Interests |
|
Equity |
|
Balance, December 31, 2007 |
|
$ |
10.2 |
|
|
$ |
693.7 |
|
|
$ |
1,830.7 |
|
|
$ |
(75.4 |
) |
|
$ |
(237.2 |
) |
|
|
|
|
|
$ |
57.2 |
|
|
$ |
2,279.2 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
565.9 |
|
|
|
|
|
|
|
|
|
|
|
565.9 |
|
|
|
7.6 |
|
|
|
573.5 |
|
Other comprehensive income (loss) net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(426.1 |
) |
|
|
(426.1 |
) |
|
|
|
|
|
|
(426.1 |
) |
Foreign currency translation gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69.3 |
) |
|
|
(69.3 |
) |
|
|
6.8 |
|
|
|
(62.5 |
) |
Unrealized losses on derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.1 |
) |
|
|
(15.1 |
) |
|
|
|
|
|
|
(15.1 |
) |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
565.9 |
|
|
|
|
|
|
|
(510.5 |
) |
|
$ |
55.4 |
|
|
|
14.4 |
|
|
|
69.8 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278.3 |
) |
Contribution of stock to pension plan |
|
|
|
|
|
|
|
|
|
|
(37.2 |
) |
|
|
72.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.2 |
|
Effect of
changing the measurement date for pension plans and other postretirement benefits, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
1.2 |
|
Cash dividends on common stock ($0.72 per share) |
|
|
|
|
|
|
|
|
|
|
(71.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.4 |
) |
Employee stock plans |
|
|
|
|
|
|
(41.9 |
) |
|
|
(1.3 |
) |
|
|
36.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.7 |
) |
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
10.2 |
|
|
$ |
651.8 |
|
|
$ |
2,286.7 |
|
|
$ |
(244.8 |
) |
|
$ |
(746.5 |
) |
|
|
|
|
|
$ |
71.6 |
|
|
$ |
2,029.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
31.7 |
|
|
|
|
|
|
|
|
|
|
|
31.7 |
|
|
|
6.3 |
|
|
|
38.0 |
|
Other comprehensive income (loss) net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.9 |
|
|
|
19.9 |
|
|
|
|
|
|
|
19.9 |
|
Foreign currency translation gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.9 |
|
|
|
21.9 |
|
|
|
0.3 |
|
|
|
22.2 |
|
Unrealized gains on derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
31.2 |
|
|
|
|
|
|
|
31.2 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
31.7 |
|
|
|
|
|
|
|
73.0 |
|
|
$ |
104.7 |
|
|
|
6.6 |
|
|
|
111.3 |
|
Cash dividends on common stock ($0.72 per share) |
|
|
|
|
|
|
|
|
|
|
(70.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.6 |
) |
Cash dividends paid to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.8 |
) |
|
|
(0.8 |
) |
Employee stock plans |
|
|
|
|
|
|
1.8 |
|
|
|
(17.3 |
) |
|
|
36.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.7 |
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
10.2 |
|
|
$ |
653.6 |
|
|
$ |
2,230.5 |
|
|
$ |
(208.6 |
) |
|
$ |
(673.5 |
) |
|
|
|
|
|
$ |
77.4 |
|
|
$ |
2,089.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
70.7 |
|
|
|
|
|
|
|
|
|
|
|
70.7 |
|
|
|
8.0 |
|
|
|
78.7 |
|
Other comprehensive income net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.2 |
|
|
|
24.2 |
|
|
|
|
|
|
|
24.2 |
|
Foreign currency translation gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.6 |
) |
|
|
(8.6 |
) |
|
|
3.2 |
|
|
|
(5.4 |
) |
Unrealized losses on derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.2 |
) |
|
|
(7.2 |
) |
|
|
|
|
|
|
(7.2 |
) |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
70.7 |
|
|
|
|
|
|
|
8.4 |
|
|
$ |
79.1 |
|
|
|
11.2 |
|
|
|
90.3 |
|
|
|
|
|
|
|
|
Cash dividends on common stock ($0.72 per share) |
|
|
|
|
|
|
|
|
|
|
(70.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.8 |
) |
Employee stock plans |
|
|
|
|
|
|
5.3 |
|
|
|
(5.6 |
) |
|
|
20.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
10.2 |
|
|
$ |
658.9 |
|
|
$ |
2,224.8 |
|
|
$ |
(188.0 |
) |
|
$ |
(665.1 |
) |
|
|
|
|
|
$ |
88.6 |
|
|
$ |
2,129.4 |
|
|
The accompanying notes are an integral part of these statements.
46
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allegheny Technologies Incorporated
and its subsidiaries, including the Chinese joint venture known as Shanghai STAL Precision
Stainless Steel Company Limited (STAL), in which the Company has a 60% interest. The remaining
40% interest in STAL is owned by Baosteel Group, a state authorized investment company whose equity
securities are publicly traded in the Peoples Republic of China. The financial results of STAL
are consolidated into the Companys operating results and financial position, with the 40% interest
of our minority partner recognized in the consolidated statement of income as net income
attributable to noncontrolling interests and as equity attributable to the noncontrolling interest
within total stockholders equity. Investments in which the Company exercises significant
influence, but which it does not control (generally a 20% to 50% ownership interest), including
ATIs 50% interest in the industrial titanium joint venture known as Uniti LLC (Uniti), are
accounted for under the equity method of accounting. Significant intercompany accounts and
transactions have been eliminated. Unless the context requires otherwise, Allegheny Technologies,
ATI and the Company refer to Allegheny Technologies Incorporated and its subsidiaries.
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities at the date of the financial statements, as well as the
reported amounts of income and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that the estimates are reasonable.
Cash Equivalents and Investments
Cash equivalents are highly liquid investments valued at cost, which approximates fair value,
acquired with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are presented net of a reserve for doubtful accounts of $5.6 million at
December 31, 2010 and $6.5 million at December 31, 2009. The Company markets its products to a
diverse customer base, principally throughout the United States. Trade credit is extended based
upon evaluations of each customers ability to perform its obligations, which are updated
periodically. Accounts receivable reserves are determined based upon an aging of accounts and a
review for collectability of specific accounts. No single customer accounted for more than 10% of
sales for all years presented. Accounts receivable from Uniti were $7.9 million and $2.9 million at
December 31, 2010 and 2009, respectively.
Inventories
Inventories are stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out (FIFO),
and average cost methods) or market, less progress payments. Costs include direct material, direct
labor and applicable manufacturing and engineering overhead, and other direct costs. Most of the
Companys inventory is valued utilizing the LIFO costing methodology. Inventory of the Companys
non-U.S. operations is valued using average cost or FIFO methods.
The Company evaluates product lines on a quarterly basis to identify inventory values that
exceed estimated net realizable value. The calculation of a resulting reserve, if any, is
recognized as an expense in the period that the need for the reserve is identified. It is the
Companys general policy to write-down to scrap value any inventory that is identified as obsolete
and any inventory that has aged or has not moved in more than twelve months. In some instances this
criterion is up to twenty-four months.
Long-Lived Assets
Property, plant and equipment are recorded at cost, including capitalized interest, and includes
long-lived assets acquired under capital leases. The principal method of depreciation adopted for
all property placed into service after July 1, 1996 is the straight-line method. For buildings and
equipment acquired prior to July 1, 1996, depreciation is computed using a combination of
accelerated and straight-line methods. Property, plant and equipment associated with the Companys
titanium sponge facility in Rowley, UT is being depreciated utilizing the units of production
method of depreciation, which the Company believes provides a
47
better matching of costs and revenues. The Company periodically reviews estimates of useful life
and production capacity assigned to new and in service assets. Significant enhancements, including
major maintenance activities that extend the lives of property and equipment, are capitalized.
Costs related to repairs and maintenance are charged to expense in the period incurred. The cost
and related accumulated depreciation of property and equipment retired or disposed of are removed
from the accounts and any related gains or losses are included in income.
The Company monitors the recoverability of the carrying value of its long-lived assets. An
impairment charge is recognized when an indicator of impairment occurs and the expected net
undiscounted future cash flows from an assets use (including any proceeds from disposition) are
less than the assets carrying value and the assets carrying value exceeds its fair value. Assets
to be disposed of by sale are stated at the lower of their fair values or carrying amounts and
depreciation is no longer recognized.
Cost in Excess of Net Assets Acquired
At December 31, 2010, the Company had $206.8 million of goodwill on its balance sheet. Of the
total, $68.0 million related to the High Performance Metals segment, $112.1 million related to the
Flat-Rolled Products segment, and $26.7 million related to the Engineered Products segment.
Goodwill decreased $1.0 million during 2010, as a result of the impact of foreign currency
translation on goodwill denominated in functional currencies other than the U.S. dollar. Goodwill
and indefinite-lived intangible assets are reviewed annually for impairment, or more frequently if
impairment indicators arise. The impairment test for goodwill requires a comparison of the fair
value of each reporting unit that has goodwill associated with its operations with its carrying
amount, including goodwill. If this comparison reflects impairment, then the loss would be measured
as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of
the fair value of the reporting unit over the fair value of all recognized and unrecognized assets
and liabilities.
The evaluation of goodwill for possible impairment includes estimating the fair market value
of each of the reporting units which have goodwill associated with their operations using
discounted cash flow and multiples of cash earnings valuation techniques, plus valuation
comparisons to recent public sale transactions of similar businesses, if any. These valuation
methods require the Company to make estimates and assumptions regarding future operating results,
cash flows, changes in working capital and capital expenditures, selling prices, profitability, and
the cost of capital. Many of these assumptions are determined by reference to market participants
identified by the Company. Although the Company believes that the estimates and assumptions used
were reasonable, actual results could differ from those estimates and assumptions. The Company
performs the required annual goodwill impairment evaluation in the fourth quarter of each year. No
impairment of goodwill was determined to exist for the years ended December 31, 2010, 2009 or 2008.
Environmental
Costs that mitigate or prevent future environmental contamination or extend the life, increase the
capacity or improve the safety or efficiency of property utilized in current operations are
capitalized. Other costs that relate to current operations or an existing condition caused by past
operations are expensed. Environmental liabilities are recorded when the Companys liability is
probable and the costs are reasonably estimable, but generally not later than the completion of the
feasibility study or the Companys recommendation of a remedy or commitment to an appropriate plan
of action. The accruals are reviewed periodically and, as investigations and remediations proceed,
adjustments of the accruals are made to reflect new information as appropriate. Accruals for losses
from environmental remediation obligations do not take into account the effects of inflation, and
anticipated expenditures are not discounted to their present value. The accruals are not reduced by
possible recoveries from insurance carriers or other third parties, but do reflect allocations
among potentially responsible parties (PRPs) at Federal Superfund sites or similar state-managed
sites after an assessment is made of the likelihood that such parties will fulfill their
obligations at such sites and after appropriate cost-sharing or other agreements are entered. The
measurement of environmental liabilities by the Company is based on currently available facts,
present laws and regulations, and current technology. Such estimates take into consideration the
Companys prior experience in site investigation and remediation, the data concerning cleanup costs
available from other companies and regulatory authorities, and the professional judgment of the
Companys environmental experts in consultation with outside environmental specialists, when
necessary.
Foreign Currency Translation
Assets and liabilities of international operations are translated into U.S. dollars using year-end
exchange rates, while revenues and expenses are translated at average exchange rates during the
period. The resulting net translation adjustments are recorded as a component of accumulated other
comprehensive income (loss) in stockholders equity.
Sales Recognition
Sales are recognized when title passes or as services are rendered.
48
Research and Development
Company funded research and development costs were $16.5 million in 2010, $19.3 million in 2009,
and $14.9 million in 2008 and were expensed as incurred. Customer funded research and development
costs were $0.8 million in 2010, $0.3 million in 2009, and $0.2 million in 2008. Customer funded
research and development costs are recognized in the consolidated statement of income in accordance
with revenue recognition policies.
Stock-based Compensation
The Company accounts for stock-based compensation transactions, such as stock options, restricted
stock, and potential payments under programs such as the Companys Total Shareholder Return Program
(TSRP) awards, using fair value. Compensation expense for an award is estimated at the date of
grant and is recognized over the requisite service period. Compensation expense is adjusted for
equity awards that do not vest because service or performance conditions are not satisfied.
However, compensation expense already recognized is not adjusted if market conditions are not met,
such as the Companys total shareholder return performance relative to a peer group under the
Companys TSRP awards, or for stock options which expire out-of-the-money.
Income Taxes
The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method. Such temporary
differences result primarily from differences in the carrying value of assets and liabilities.
Future realization of deferred income tax assets requires sufficient taxable income within the
carryback, carryforward period available under tax law.
The Company evaluates, on a quarterly basis whether, based on all available evidence, it is
probable that the deferred income tax assets are realizable. Valuation allowances are established
when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset
will not be realized. The evaluation includes the consideration of all available evidence, both
positive and negative, regarding historical operating results including recent years with reported
losses, the estimated timing of future reversals of existing taxable temporary differences,
estimated future taxable income exclusive of reversing temporary differences and carryforwards, and
potential tax planning strategies which may be employed to prevent an operating loss or tax credit
carryforward from expiring unused.
It is the Companys policy to classify interest and penalties recognized on underpayment of
income taxes as income tax expense.
Net Income Per Common Share
Basic and diluted net income per share are calculated by dividing the net income available to
common stockholders by the weighted average number of common shares outstanding during the year.
Diluted amounts assume the issuance of common stock for all potentially dilutive share equivalents
outstanding. The calculation of diluted net loss per share, if any, excludes the potentially
dilutive effect of dilutive share equivalents since the inclusion in the calculation of additional
shares in the net loss per share would result in a lower per share loss and therefore be
anti-dilutive.
New Accounting Pronouncements Adopted
In January 2010, the FASB issued changes to disclosure requirements for fair value
measurements, including the amount of transfers between Levels 1 and 2 of the fair value hierarchy,
the reasons for transfers in or out of Level 3 of the fair value hierarchy and activity for
recurring Level 3 measures. In addition, the changes clarify certain disclosure requirements
related to the level at which fair value disclosures should be disaggregated with separate
disclosures of purchases, sales, issuances and settlements, and the requirement to provide
disclosures about valuation techniques and inputs used in determining the fair value of assets or
liabilities classified as Level 2 or 3. The Company adopted the disclosure changes effective
January 1, 2010, except for the disaggregated Level 3 rollforward disclosures, which will be
effective for fiscal year 2011.
49
Note 2. Inventories
Inventories at December 31, 2010 and 2009 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
Raw materials and supplies |
|
$ |
169.3 |
|
|
$ |
158.3 |
|
Work-in-process |
|
|
892.8 |
|
|
|
673.9 |
|
Finished goods |
|
|
126.5 |
|
|
|
96.1 |
|
|
Total inventories at current cost |
|
|
1,188.6 |
|
|
|
928.3 |
|
Less allowances to reduce current cost values to LIFO basis |
|
|
(163.0 |
) |
|
|
(102.8 |
) |
Progress payments |
|
|
(1.1 |
) |
|
|
|
|
|
Total inventories, net |
|
$ |
1,024.5 |
|
|
$ |
825.5 |
|
|
Inventories, before progress payments, determined on the last-in, first-out (LIFO) method
were $844.2 million at December 31, 2010, and $660.1 million at December 31, 2009. The remainder of
the inventory was determined using the first-in, first-out (FIFO) and average cost methods, and
these inventory values do not differ materially from current cost. The effect of using the LIFO
methodology to value inventory, rather than FIFO, increased cost of sales in 2010 by $60.2 million
and decreased cost of sales in 2009 and 2008 by $102.8 million and $169.0 million, respectively.
During 2010, 2009, and 2008, inventory usage resulted in liquidations of LIFO inventory
quantities. These inventories were carried at differing costs prevailing in prior years as compared
with the cost of current manufacturing cost and purchases. The effect of these LIFO liquidations
was to decrease cost of sales by $1.8 million in 2010, increase cost of sales by $1.8 million in
2009 and decrease cost of sales by $3.7 million in 2008.
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31, 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2009 |
|
Land |
|
$ |
25.8 |
|
|
$ |
24.8 |
|
Buildings |
|
|
638.2 |
|
|
|
590.6 |
|
Equipment and leasehold improvements |
|
|
2,750.8 |
|
|
|
2,607.8 |
|
|
|
|
|
3,414.8 |
|
|
|
3,223.2 |
|
Accumulated depreciation and amortization |
|
|
(1,425.5 |
) |
|
|
(1,315.3 |
) |
|
Total property, plant and equipment, net |
|
$ |
1,989.3 |
|
|
$ |
1,907.9 |
|
|
Construction in progress at December 31, 2010 and 2009 was $184.5 million and $270.6 million,
respectively. Depreciation and amortization for the years ended December 31, 2010, 2009 and 2008
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2009 |
|
2008 |
|
Depreciation of property, plant and equipment |
|
$ |
126.3 |
|
|
$ |
118.1 |
|
|
$ |
104.0 |
|
Software and other amortization |
|
|
15.2 |
|
|
|
14.5 |
|
|
|
14.8 |
|
|
Total depreciation and amortization |
|
$ |
141.5 |
|
|
$ |
132.6 |
|
|
$ |
118.8 |
|
|
Note 4. Asset Retirement Obligations
The Company maintains reserves where a legal obligation exists to perform an asset retirement
activity and the fair value of the liability can be reasonably estimated. These asset retirement
obligations (ARO) include liabilities where the timing and (or) method of settlement may be
conditional on a future event, that may or may not be within the control of the entity. At December
31, 2010, the Company had recognized AROs of $13.2 million related to landfill closures, facility
leases and conditional AROs associated with manufacturing activities using what may be
characterized as potentially hazardous materials.
Estimates of AROs are evaluated annually in the fourth quarter, or more frequently if material
new information becomes known. Accounting for asset retirement obligations requires significant
estimation and in certain cases, the Company has
50
determined that an ARO exists, but the amount of the obligation is not reasonably estimable.
The Company may determine that additional AROs are required to be recognized as new information
becomes available.
Changes in asset retirement obligations for the years ended December 31, 2010 and 2009 were as
follows:
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
Balance at beginning of year |
|
$ |
14.7 |
|
|
$ |
11.8 |
|
Accretion expense |
|
|
1.4 |
|
|
|
2.2 |
|
Payments |
|
|
(2.5 |
) |
|
|
(1.5 |
) |
Revision of estimates |
|
|
(1.0 |
) |
|
|
|
|
Liabilities incurred |
|
|
0.6 |
|
|
|
2.2 |
|
|
Balance at end of year |
|
$ |
13.2 |
|
|
$ |
14.7 |
|
|
Note 5. Supplemental Financial Statement Information
Cash and cash equivalents at December 31, 2010 and December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
Cash |
|
$ |
256.8 |
|
|
$ |
245.1 |
|
Other short-term investments |
|
|
175.5 |
|
|
|
463.7 |
|
|
Total cash and cash equivalents |
|
$ |
432.3 |
|
|
$ |
708.8 |
|
|
Accounts receivable are presented net of a reserve for doubtful accounts of $5.6 million at
December 31, 2010, and $6.5 million at December 31, 2009. During 2010, the Company recognized
expense of $0.5 million to increase the reserve for doubtful accounts and wrote off $1.4 million of
uncollectible accounts, which reduced the reserve. During 2009, the Company recognized expense of
$1.7 million to increase the reserve for doubtful accounts and wrote off $1.5 million of
uncollectible accounts, which decreased the reserve. During 2008, the Company recognized expense of
$2.1 million to increase the reserve for doubtful accounts and wrote off $2.1 million of
uncollectible accounts, which decreased the reserve.
Accrued liabilities included salaries, wages and other payroll-related liabilities of $62.4
million and $49.8 million at December 31, 2010 and 2009, respectively.
Other income (expense) for the years ended December 31, 2010, 2009, and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2009 |
|
2008 |
|
Rent, royalty income and other income |
|
$ |
1.4 |
|
|
$ |
0.9 |
|
|
$ |
1.6 |
|
Gain on insured event |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
Net gains (losses) on property and investments |
|
|
|
|
|
|
(0.2 |
) |
|
|
0.1 |
|
Other |
|
|
(0.4 |
) |
|
|
|
|
|
|
0.3 |
|
|
Total other income |
|
$ |
3.0 |
|
|
$ |
0.7 |
|
|
$ |
2.0 |
|
|
51
Note 6. Debt
Debt at December 31, 2010 and December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2009 |
|
Allegheny Technologies $402.5 million 4.25% |
|
|
|
|
|
|
|
|
Convertible Notes due 2014 |
|
$ |
402.5 |
|
|
$ |
402.5 |
|
Allegheny Technologies $350 million 9.375% |
|
|
|
|
|
|
|
|
Notes due 2019 |
|
|
350.0 |
|
|
|
350.0 |
|
Allegheny Technologies $300 million 8.375% |
|
|
|
|
|
|
|
|
Notes due 2011, net (a) |
|
|
117.3 |
|
|
|
117.9 |
|
Allegheny Ludlum 6.95% debentures due 2025 |
|
|
150.0 |
|
|
|
150.0 |
|
Domestic Bank Group $400 million unsecured |
|
|
|
|
|
|
|
|
credit agreement |
|
|
|
|
|
|
|
|
Promissory note for J&L asset acquisition |
|
|
10.2 |
|
|
|
20.5 |
|
Foreign credit agreements |
|
|
26.3 |
|
|
|
22.1 |
|
Industrial revenue bonds, due through 2020, and other |
|
|
7.0 |
|
|
|
8.1 |
|
|
Total short-term and long-term debt |
|
|
1,063.3 |
|
|
|
1,071.1 |
|
Short-term debt and current portion of long-term debt |
|
|
141.4 |
|
|
|
33.5 |
|
|
Total long-term debt |
|
$ |
921.9 |
|
|
$ |
1,037.6 |
|
|
|
|
|
(a) |
|
Includes fair value adjustments for settled interest rate swap contracts of $0.9
million at December 31, 2010 and $1.8 million at December 31, 2009. |
Interest expense was $63.8 million in 2010, $21.4 million in 2009, and $13.3 million in 2008.
Interest expense was reduced by $12.5 million, $39.0 million, and $25.0 million, in 2010, 2009, and
2008, respectively, from interest capitalization on capital projects. Interest and commitment fees
paid were $72.8 million in 2010, $58.1 million in 2009, and $39.4 million in 2008. Net interest
expense includes interest income of $1.1 million in 2010, $2.1 million in 2009, and $9.8 million in
2008.
Scheduled maturities of borrowings during the next five years are $141.4 million in 2011, $1.0
million in 2012, $14.6 million in 2013, $403.6 million in 2014 and $1.3 million in 2015. The
promissory note for the J&L asset acquisition bears interest at a floating rate capped at 6%,
payable in installments with a final maturity of July 1, 2011, and is secured by the property,
plant and equipment acquired.
Convertible Notes
In June 2009, the Company issued and sold $402.5 million in aggregate principal amount of
4.25% Convertible Senior Notes due 2014 (the Convertible Notes). Interest is payable
semi-annually on June 1 and December 1 of each year. Net proceeds of $390.2 million from the sale
of the Convertible Notes were used to make a $350 million voluntary cash contribution to the
Companys U.S. defined benefit pension plan, and the balance was used for general corporate
purposes including funding of contributions to trusts established to fund retiree medical benefits.
The Convertible Notes are unsecured and unsubordinated obligations of the Company and rank equally
with all of its existing and future senior unsecured debt. The underwriting fees and other
third-party expenses for the issuance of the Convertible Notes were $12.3 million and are being
amortized to interest expense over the 5-year term of the Convertible Notes.
The Company does not have the right to redeem the Convertible Notes prior to the stated
maturity date. Holders of the Convertible Notes have the option to convert their notes into shares
of ATI common stock at any time prior to the close of business on the second scheduled trading day
immediately preceding the stated maturity date (June 1, 2014). The initial conversion rate for the
Convertible Notes is 23.9263 shares of ATI common stock per $1,000 (in whole dollars) principal
amount of notes (9,630,336 shares), equivalent to a conversion price of approximately $41.795 per
share, subject to adjustment, as defined in the Convertible Notes. Other than receiving cash in
lieu of fractional shares, holders do not have the option to receive cash instead of shares of
common stock upon conversion. Accrued and unpaid interest that exists upon conversion of a note
will be deemed paid by the delivery of shares of ATI common stock and no cash payment or additional
shares will be given to holders.
If the Company undergoes a fundamental change, as defined in the Convertible Notes, holders
may require the Company to repurchase all or a portion of their notes at a price equal to 100% of
the principal amount of the notes to be purchased plus any accrued and unpaid interest up to, but
excluding, the repurchase date. Such a repurchase will be made in cash.
52
2019 Notes
In June 2009, the Company issued $350 million in aggregate principal amount of 9.375%
unsecured Senior Notes with a maturity of June 2019 (the 2019 Notes). Interest is payable
semi-annually on June 1 and December 1 of each year. Net proceeds of $344.2 million from the sale
of the 2019 Notes were used to retire $183.3 million of the Companys 2011 Notes, as discussed
below, and for general corporate purposes. The underwriting fees, discount, and other third-party
expenses for the issuance of the 2019 Notes were $5.8 million and are being amortized to interest
expense over the 10-year term of the 2019 Notes. The 2019 Notes are unsecured and unsubordinated
obligations of the Company and rank equally with all of its existing and future senior unsecured
debt. The 2019 Notes restrict the Companys ability to create certain liens, to enter into sale
leaseback transactions, and to consolidate, merge or transfer all, or substantially all, of its
assets. The Company has the option to redeem the 2019 Notes, as a whole or in part, at any time or
from time to time, on at least 30 days, but not more than 60 days, prior notice to the holders of
the Notes at a redemption price specified in the 2019 Notes. The 2019 Notes are subject to
repurchase upon the occurrence of a change in control repurchase event (as defined in the 2019
Notes) at a repurchase price in cash equal to 101% of the aggregate principal amount of the Notes
repurchased, plus any accrued and unpaid interest on the 2019 Notes repurchased.
2011 Notes
In June 2009, the Company completed a tender offer for the Companys 8.375% Notes due in 2011
(the 2011 Notes) of which $300 million in aggregate principal amount was outstanding prior to the
tender offer. As a result of the tender offer, the Company retired $183.3 million of the 2011 Notes
and recognized a pre-tax charge of $9.2 million in the 2009 second quarter for the costs of
acquiring the 2011 Notes. As of December 31, 2010, $116.7 million in face value of the 2011 Notes
remain outstanding.
The 2011 Notes are due December 15, 2011. Interest on the Notes is payable semi-annually, on
June 15 and December 15, and is subject to adjustment under certain circumstances. These 2011 Notes
contain default provisions with respect to default for the following, among other conditions:
nonpayment of interest on the 2011 Notes for 30 days, default in payment of principal when due, or
failure to cure the breach of a covenant as provided in the 2011 Notes. Any violation of the
default provision could result in the requirement to immediately repay the borrowings. The 2011
Notes are presented on the balance sheet net of unamortized issuance costs of $0.3 million, which
are being amortized over the term of the 2011 Notes.
The Company has deferred gains on settled interest rate swap contracts that are recognized as
reductions to interest expense over the remaining life of the 2011 Notes, which is approximately
one year. At December 31, 2010, the unrecognized deferred settlement gain was $0.9 million.
Interest expense had been reduced by $0.9 million, $1.3 million, and $2.0 million for the years
ended December 31, 2010, 2009, and 2008, respectively, in association with amortizing this gain.
Unsecured Credit Agreement
In December 2010, the Company amended its $400 million senior unsecured domestic revolving
credit facility to extend the facility term to December 2015. The facility includes a $200 million
sublimit for the issuance of letters of credit. Under the terms of the facility, the Company may
increase the size of the credit facility by up to $100 million without seeking the further approval
of the lending group. The facility requires the Company to maintain a leverage ratio (consolidated
total indebtedness divided by consolidated earnings before interest, taxes and depreciation and
amortization) of not greater than 3.25, and maintain an interest coverage ratio (consolidated
earnings before interest and taxes divided by interest expense) of not less than 2.0. At December
31, 2010, the leverage ratio was 1.81 and the interest coverage ratio was 3.62. The definition of
consolidated earnings before interest and taxes, and consolidated earnings before income, taxes,
depreciation and amortization as used in the interest coverage and leverage ratios excludes any
non-cash pension expense or income, and consolidated indebtedness in the leverage ratio is net of
cash on hand in excess of $50 million. The Company was in compliance with these required ratios
during all applicable periods. As of December 31, 2010, there had been no borrowings made under
the facility, although a portion of the facility was used to support approximately $7 million in
letters of credit.
Borrowings or letter of credit issuance under the unsecured facility bear interest at the
Companys option at either: (1) the one-, two-, three- or six-month LIBOR rate plus a margin
ranging from 1.50% to 2.25% depending upon the value of the leverage ratio as defined by the
unsecured facility agreement; or (2) a base rate announced from time-to-time by the lending group
(i.e., the Prime lending rate). In addition, the unsecured facility contains a facility fee of
0.25% to 0.50% depending upon the value of the leverage ratio. The Companys overall borrowing
costs under the unsecured facility are not affected by changes in the Companys credit ratings.
53
Foreign and Other Credit Facilities
The Company has an additional separate credit facility for the issuance of letters of credit.
As of December 31, 2010, $30 million in letters of credit were outstanding under this facility.
STAL, the Companys Chinese joint venture company in which ATI has a 60% interest, has a
revolving credit facility with a group of banks that expires in 2012. Under the credit facility,
STAL may borrow up to 205 million renminbi (approximately $31 million based on December 2010
exchange rates) at an interest rate equal to 90% of the applicable lending rate published by the
Peoples Bank of China. The credit facility is supported solely by STALs financial capability
without any guarantees from the joint venture partners, and is intended to be utilized in the
future to support the expansion of STALs operations, which are located in Shanghai, China. The
credit facility requires STAL to maintain a minimum level of shareholders equity, and certain
financial ratios. As of December 31, 2010, there had been no borrowings made under the STAL credit
facility.
In addition, STAL had approximately $0.2 million in letters of credit outstanding as of
December 31, 2010 related to the expansion of its operations in Shanghai, China. These letters of
credit are supported solely by STALs financial capability without any guarantees from the joint
venture partners.
The Companys subsidiaries also maintain other credit agreements with various foreign banks,
which provide for borrowings of up to approximately $39 million, including $13 million of
short-term financing of trade accounts payable at STAL. At December 31, 2010, the Company had
approximately $12 million of available borrowing capacity under these foreign credit agreements.
These agreements provide for annual facility fees of up to 0.20%. The weighted average interest
rate of foreign credit agreements as of December 31, 2010, was 1.25%.
The Company has no off-balance sheet financing relationships as defined in Item 303(a)(4) of
SEC Regulation S-K, with variable interest entities, structured finance entities, or any other
unconsolidated entities. At December 31, 2010, the Company had not guaranteed any third-party
indebtedness.
Note 7. Derivative Financial Instruments and Hedging
As part of its risk management strategy, the Company, from time-to-time, utilizes derivative
financial instruments to manage its exposure to changes in raw material prices, energy costs,
foreign currencies, and interest rates. In accordance with applicable accounting standards, the
Company accounts for all of these contracts as hedges. In general, hedge effectiveness is
determined by examining the relationship between offsetting changes in fair value or cash flows
attributable to the item being hedged, and the financial instrument being used for the hedge.
Effectiveness is measured utilizing regression analysis and other techniques to determine whether
the change in the fair market value or cash flows of the derivative exceeds the change in fair
value or cash flow of the hedged item. Calculated ineffectiveness, if any, is immediately
recognized on the statement of income.
The Company sometimes uses futures and swap contracts to manage exposure to changes in prices
for forecasted purchases of raw materials, such as nickel, and natural gas. Generally under these
contracts, which are accounted for as cash flow hedges, the price of the item being hedged is fixed
at the time that the contract is entered into and the Company is obligated to make or receive a
payment equal to the net change between this fixed price and the market price at the date the
contract matures.
The majority of ATIs products are sold utilizing raw material surcharges and index
mechanisms. However, as of December 31, 2010, the Company had entered into financial hedging
arrangements primarily at the request of its customers, related to firm orders, for an aggregate
notional amount of less than 2% of the Companys estimated annual nickel requirements. These
nickel hedges extend to 2014.
At December 31, 2010, the outstanding financial derivatives used to hedge the Companys
exposure to energy cost volatility included natural gas cost hedges for approximately 70% of its
annual forecasted domestic requirements through 2011 and approximately 15% for 2012, and
electricity hedges for Western Pennsylvania operations of approximately 45% of its forecasted
on-peak and off-peak requirements for 2011 and approximately 30% for 2012.
While the majority of the Companys direct export sales are transacted in U.S. dollars,
foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to
changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The
Company sometimes purchases foreign currency forward contracts that permit it to sell specified
amounts of foreign currencies expected to be received from its export sales for pre-established
U.S. dollar amounts at specified
54
dates. The forward contracts are denominated in the same foreign currencies in which export
sales are denominated. These contracts are designated as hedges of the variability in cash flows of
a portion of the forecasted future export sales transactions which otherwise would expose the
Company to foreign currency risk. At December 31, 2010, the outstanding financial derivatives used
to hedge the Companys exposure to foreign currency, primarily euros, represented approximately 15%
of the Companys forecasted total international sales through 2012. In addition, the Company may
also designate cash balances held in foreign currencies as hedges of forecasted foreign currency
transactions.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance
between fixed- and floating-rate debt. There were no unsettled derivative financial instruments
related to debt balances for the periods presented, although previously settled contracts remain a
component of the recorded value of debt.
The fair values of the Companys derivative financial instruments are presented below. All
fair values for these derivatives were measured using Level 2 information as defined by the
accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are
not active, and inputs derived principally from or corroborated by observable market data.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions): |
|
|
|
|
|
December 31, |
|
December 31, |
Asset derivatives |
|
Balance sheet location |
|
2010 |
|
2009 |
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Prepaid expenses and other current assets |
|
$ |
10.0 |
|
|
$ |
3.8 |
|
Nickel and other raw material contracts |
|
Prepaid expenses and other current assets |
|
|
3.7 |
|
|
|
14.9 |
|
Natural gas contracts |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
0.3 |
|
Electricity contracts |
|
Prepaid expenses and other current assets |
|
|
0.4 |
|
|
|
|
|
Foreign exchange contracts |
|
Other assets |
|
|
0.5 |
|
|
|
3.6 |
|
Nickel and other raw material contracts |
|
Other assets |
|
|
0.8 |
|
|
|
0.5 |
|
Electricity contracts |
|
Other assets |
|
|
0.2 |
|
|
|
|
|
Natural gas contracts |
|
Other assets |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments: |
|
|
|
|
|
|
15.9 |
|
|
|
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Prepaid expenses and other current assets |
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments: |
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives |
|
|
|
|
|
$ |
20.1 |
|
|
$ |
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives |
|
Balance sheet location |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas contracts |
|
Accrued liabilities |
|
$ |
16.7 |
|
|
$ |
10.2 |
|
Foreign exchange contracts |
|
Accrued liabilities |
|
|
2.0 |
|
|
|
|
|
Electricity contracts |
|
Accrued liabilities |
|
|
0.8 |
|
|
|
|
|
Natural gas contracts |
|
Other long-term liabilities |
|
|
0.8 |
|
|
|
7.5 |
|
Electricity contracts |
|
Other long-term liabilities |
|
|
0.5 |
|
|
|
|
|
Foreign exchange contracts |
|
Other long-term liabilities |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives |
|
|
|
|
|
$ |
21.9 |
|
|
$ |
17.7 |
|
|
For derivative financial instruments that are designated as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a component of other
comprehensive income (OCI) and reclassified into earnings in the same period or periods during
which the hedged item affects earnings. Gains and losses on the derivative representing
either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness
are recognized in current period results. The Company did not use fair value or net
investment hedges for the periods presented. The effects of derivative instruments in the
tables below are presented net of related income taxes.
Activity with regard to derivatives designated as cash flow hedges for the year ended December
31, 2010 were as follows (in millions):
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Recognized in Income |
|
|
|
Amount of Gain (Loss) |
|
|
Reclassified from |
|
|
on Derivatives (Ineffective |
|
|
|
Recognized in OCI on |
|
|
Accumulated OCI |
|
|
Portion and Amount |
|
|
|
Derivatives |
|
|
into Income |
|
|
Excluded from |
|
Derivatives in Cash Flow |
|
(Effective Portion) |
|
|
(Effective Portion) (a) |
|
|
Effectiveness Testing) (b) |
|
|
|
Hedging Relationships |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nickel and other raw
material contracts |
|
$ |
6.6 |
|
|
$ |
22.6 |
|
|
$ |
13.3 |
|
|
$ |
(10.2 |
) |
|
$ |
|
|
|
$ |
|
|
Natural gas contracts |
|
|
(10.7 |
) |
|
|
(10.9 |
) |
|
|
(10.6 |
) |
|
|
(15.1 |
) |
|
|
|
|
|
|
|
|
Electricity contracts |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
10.1 |
|
|
|
(1.2 |
) |
|
|
10.1 |
|
|
|
4.0 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5.6 |
|
|
$ |
10.5 |
|
|
$ |
12.8 |
|
|
$ |
(21.3 |
) |
|
$ |
|
|
|
$ |
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The gains (losses) reclassified from accumulated OCI into income related to the
effective portion of the derivatives are presented in cost of sales. |
|
(b) |
|
The gains recognized in income on derivatives related to the ineffective portion and
the amount excluded from effectiveness testing are presented in selling and administrative
expenses. |
Assuming market prices remain constant with those at December 31, 2010, a loss of $3.3 million
is expected to be recognized over the next 12 months.
The disclosures of gains or losses presented above for nickel and other raw material contracts
and foreign currency contracts do not take into account the anticipated underlying transactions.
Since these derivative contracts represent hedges, the net effect of any gain or loss on results of
operations may be fully or partially offset.
Derivatives that are not designated as hedging instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized |
|
(In millions) |
|
in Income on Derivatives |
|
Derivatives Not Designated as Hedging Instruments |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
2.8 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Changes in the fair value of foreign exchange contract derivatives not designated as
hedging instruments are recorded in cost of sales.
There are no credit risk-related contingent features in the Companys derivative contracts,
and the contracts contained no provisions under which the Company has posted, or would be required
to post, collateral. The counterparties to the Companys derivative contracts were substantial and
creditworthy commercial banks that are recognized market makers. The Company controls its credit
exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit
default swap spreads of its counterparties. The Company also enters into master netting agreements
with counterparties when possible.
56
Note 8. Fair Value of Financial Instruments
The estimated fair value of financial instruments at December 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
Total |
|
Total |
|
Active Markets for |
|
Observable |
|
|
Carrying |
|
Estimated |
|
Identical Assets |
|
Inputs |
(In millions) |
|
Amount |
|
Fair Value |
|
(Level 1) |
|
(Level 2) |
Cash and cash equivalents |
|
$ |
432.3 |
|
|
$ |
432.3 |
|
|
$ |
432.3 |
|
|
$ |
|
|
Derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
20.1 |
|
|
|
20.1 |
|
|
|
|
|
|
|
20.1 |
|
Liabilities |
|
|
21.9 |
|
|
|
21.9 |
|
|
|
|
|
|
|
21.9 |
|
Debt (a) |
|
|
1,063.3 |
|
|
|
1,328.4 |
|
|
|
1,284.9 |
|
|
|
43.5 |
|
|
The estimated fair value of financial instruments at December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
Total |
|
Total |
|
Active Markets for |
|
Observable |
|
|
Carrying |
|
Estimated |
|
Identical Assets |
|
Inputs |
(In millions) |
|
Amount |
|
Fair Value |
|
(Level 1) |
|
(Level 2) |
Cash and cash equivalents |
|
$ |
708.8 |
|
|
$ |
708.8 |
|
|
$ |
708.8 |
|
|
$ |
|
|
Derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
23.4 |
|
|
|
23.4 |
|
|
|
|
|
|
|
23.4 |
|
Liabilities |
|
|
17.7 |
|
|
|
17.7 |
|
|
|
|
|
|
|
17.7 |
|
Debt (a) |
|
|
1,071.1 |
|
|
|
1,285.5 |
|
|
|
1,234.8 |
|
|
|
50.7 |
|
|
|
|
|
(a) |
|
Includes fair value adjustments for settled interest rate swap contracts of $0.9 million at
December 31, 2010, and $1.8 million at December 31, 2009. |
In accordance with accounting standards, fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market
participants at the measurement date. Accounting standards established three levels of a fair value
hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities
to maximize the use of observable inputs and minimize the use of unobservable inputs. The three
levels of inputs used to measure fair value are as follows:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. |
|
|
|
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data. |
|
|
|
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets and liabilities. This includes certain pricing
models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs. |
The following methods and assumptions were used by the Company in estimating the fair value of
its financial instruments:
Cash
and cash equivalents: Fair values were determined using Level 1 information.
Derivative financial instruments: Fair values for derivatives were measured using
exchange-traded prices for the hedged items. The fair value was determined using Level 2
information, including consideration of counterparty risk and the Companys credit risk.
Short-term and long-term debt: The fair values of the Allegheny Technologies 4.25% Convertible
Notes, the Allegheny Technologies 9.375% Notes, the Allegheny Technologies 8.375% Notes, and the
Allegheny Ludlum 6.95% debentures were based Level 1 information. The fair values of the other
short-term and long-term debt were determined using Level 2 information.
57
Note 9. Pension Plans and Other Postretirement Benefits
The Company has defined benefit pension plans and defined contribution plans covering
substantially all employees. Benefits under the defined benefit pension plans are generally based
on years of service and/or final average pay. The Company funds the U.S. pension plans in
accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code.
The Company also sponsors several postretirement plans covering certain salaried and hourly
employees. The plans provide health care and life insurance benefits for eligible retirees. In
most plans, Company contributions towards premiums are capped based on the cost as of a certain
date, thereby creating a defined contribution. For the non-collectively bargained plans, the
Company maintains the right to amend or terminate the plans at its discretion. For the year ended
December 31, 2008, as required by accounting standards, the Company changed the date at which the
assets and benefit obligations of pension and other postretirement benefit plans are measured.
Assets and benefits are now measured at the date of the Companys statement of financial position,
which is December 31, rather than the Companys measurement date of November 30, as previously
permitted. The effects of this change are included in 2008 activity.
The components of pension (income) expense and components of other postretirement benefit
expense for the Companys defined benefit plans included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Benefits |
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
2010 |
|
2009 |
|
2008 |
|
Service cost benefits earned during the year |
|
$ |
30.2 |
|
|
$ |
23.3 |
|
|
$ |
28.2 |
|
|
$ |
3.1 |
|
|
$ |
2.9 |
|
|
$ |
3.1 |
|
Interest cost on benefits earned in prior years |
|
|
131.9 |
|
|
|
138.6 |
|
|
|
130.6 |
|
|
|
28.9 |
|
|
|
32.5 |
|
|
|
31.6 |
|
Expected return on plan assets |
|
|
(181.5 |
) |
|
|
(156.4 |
) |
|
|
(200.9 |
) |
|
|
(1.4 |
) |
|
|
(1.5 |
) |
|
|
(5.6 |
) |
Amortization of prior service cost (credit) |
|
|
13.4 |
|
|
|
16.6 |
|
|
|
16.8 |
|
|
|
(18.1 |
) |
|
|
(19.2 |
) |
|
|
(21.3 |
) |
Amortization of net actuarial loss |
|
|
77.4 |
|
|
|
76.5 |
|
|
|
13.1 |
|
|
|
6.0 |
|
|
|
6.4 |
|
|
|
5.1 |
|
|
Total retirement benefit expense (income) |
|
$ |
71.4 |
|
|
$ |
98.6 |
|
|
$ |
(12.2 |
) |
|
$ |
18.5 |
|
|
$ |
21.1 |
|
|
$ |
12.9 |
|
|
Other postretirement benefit costs for a defined contribution plan were $0.2 million and $2.2
million for the years ended December 31, 2010 and 2009, respectively. As discussed in Note 13,
Business Segments, ATIs retirement benefit expense for determining segment operating profit
includes both pension expense and other postretirement benefit expenses.
Actuarial assumptions used to develop the components of defined benefit pension expense (income) and other postretirement
benefit expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
|
|
Other Postretirement Benefits |
|
|
|
2010 |
|
2009 |
|
2008 |
|
2010 |
|
2009 |
|
2008 |
|
Discount rate |
|
|
6.20 |
% |
|
|
6.85 -7.5% |
(a) |
|
|
6.25 |
% |
|
|
6.20 |
% |
|
|
6.85 |
% |
|
|
6.25 |
% |
Rate of increase in future compensation levels |
|
|
2.5% - 4.5 |
% |
|
|
3% - 4.5 |
% |
|
|
3% - 4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Expected long-term rate of return on assets |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.3 |
% |
|
|
8.3 |
% |
|
|
9.0 |
% |
|
|
|
|
(a) |
|
The 2009 expense for the U.S. qualified defined benefit plan initially used a 6.85% discount rate. This plan was remeasured
in the second quarter 2009 upon the Companys $350 million voluntary cash contribution, and a 7.5% discount rate was used to
determine expense for this plan for the remainder of the year. |
Actuarial assumptions used for the valuation of defined benefit pension and other postretirement benefit
obligations at the
end of the respective periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Benefits |
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Discount rate |
|
|
5.8 |
% |
|
|
6.2 |
% |
|
|
5.8 |
% |
|
|
6.2 |
% |
Rate of increase in future compensation levels |
|
|
2.5% - 4.5 |
% |
|
|
2.5% - 4.5 |
% |
|
|
|
|
|
|
|
|
|
58
A reconciliation of the funded status for the Companys defined benefit pension and other postretirement benefit plans at
December 31, 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Benefits |
|
(in millions) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Change in benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
2,220.7 |
|
|
$ |
2,069.3 |
|
|
$ |
509.4 |
|
|
$ |
520.9 |
|
Service cost |
|
|
30.2 |
|
|
|
23.3 |
|
|
|
3.1 |
|
|
|
2.9 |
|
Interest cost |
|
|
131.9 |
|
|
|
138.6 |
|
|
|
28.9 |
|
|
|
32.5 |
|
Benefits paid |
|
|
(176.9 |
) |
|
|
(174.6 |
) |
|
|
(53.5 |
) |
|
|
(57.3 |
) |
Subsidy paid |
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
2.5 |
|
Participant contributions |
|
|
0.7 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
Effect of currency rates |
|
|
(2.7 |
) |
|
|
3.6 |
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses discount rate change |
|
|
94.3 |
|
|
|
147.3 |
|
|
|
15.1 |
|
|
|
22.7 |
|
- other |
|
|
(4.6 |
) |
|
|
12.4 |
|
|
|
(5.5 |
) |
|
|
(14.8 |
) |
|
Benefit obligation at end of year |
|
$ |
2,293.6 |
|
|
$ |
2,220.7 |
|
|
$ |
499.6 |
|
|
$ |
509.4 |
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
2,163.5 |
|
|
$ |
1,686.8 |
|
|
$ |
17.1 |
|
|
$ |
35.0 |
|
Actual returns on plan assets and plan expenses |
|
|
244.7 |
|
|
|
289.8 |
|
|
|
(0.4 |
) |
|
|
(4.1 |
) |
Employer contributions |
|
|
7.5 |
|
|
|
357.5 |
|
|
|
|
|
|
|
|
|
Participant contributions |
|
|
0.7 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
Effect of currency rates |
|
|
(2.1 |
) |
|
|
3.2 |
|
|
|
|
|
|
|
|
|
Benefits paid |
|
|
(176.9 |
) |
|
|
(174.6 |
) |
|
|
(4.2 |
) |
|
|
(13.8 |
) |
|
Fair value of plan assets at end of year |
|
$ |
2,237.4 |
|
|
$ |
2,163.5 |
|
|
$ |
12.5 |
|
|
$ |
17.1 |
|
|
Amounts recognized in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
8.7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Current liabilities |
|
|
(6.6 |
) |
|
|
(6.6 |
) |
|
|
(63.3 |
) |
|
|
(68.0 |
) |
Noncurrent liabilities |
|
|
(58.3 |
) |
|
|
(50.6 |
) |
|
|
(423.8 |
) |
|
|
(424.3 |
) |
|
Total amount recognized |
|
$ |
(56.2 |
) |
|
$ |
(57.2 |
) |
|
$ |
(487.1 |
) |
|
$ |
(492.3 |
) |
|
Changes to accumulated other comprehensive loss related to pension and other postretirement benefit plans in
2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Benefits |
|
(in millions) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Beginning of year accumulated other comprehensive loss |
|
$ |
(1,035.2 |
) |
|
$ |
(1,100.8 |
) |
|
$ |
(66.6 |
) |
|
$ |
(40.4 |
) |
Amortization of prior service cost (credit) |
|
|
77.4 |
|
|
|
76.5 |
|
|
|
(18.1 |
) |
|
|
(19.2 |
) |
Amortization of net actuarial loss |
|
|
13.4 |
|
|
|
16.6 |
|
|
|
6.0 |
|
|
|
6.4 |
|
Remeasurements |
|
|
(25.4 |
) |
|
|
(27.5 |
) |
|
|
(11.3 |
) |
|
|
(13.4 |
) |
|
End of year accumulated other comprehensive loss |
|
$ |
(969.8 |
) |
|
$ |
(1,035.2 |
) |
|
$ |
(90.0 |
) |
|
$ |
(66.6 |
) |
|
Net change in accumulated other comprehensive loss |
|
$ |
65.4 |
|
|
$ |
65.6 |
|
|
$ |
(23.4 |
) |
|
$ |
(26.2 |
) |
|
Amounts included in accumulated other comprehensive loss at December 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Benefits |
|
(in millions) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Prior service cost (credit) |
|
$ |
(26.2 |
) |
|
$ |
(39.6 |
) |
|
$ |
49.4 |
|
|
$ |
67.5 |
|
Net actuarial loss |
|
|
(943.6 |
) |
|
|
(995.6 |
) |
|
|
(139.4 |
) |
|
|
(134.1 |
) |
|
Accumulated other comprehensive loss |
|
|
(969.8 |
) |
|
|
(1,035.2 |
) |
|
|
(90.0 |
) |
|
|
(66.6 |
) |
Deferred tax effect |
|
|
369.6 |
|
|
|
396.5 |
|
|
|
34.7 |
|
|
|
25.6 |
|
|
Accumulated other comprehensive income loss, net of tax |
|
$ |
(600.2 |
) |
|
$ |
(638.7 |
) |
|
$ |
(55.3 |
) |
|
$ |
(41.0 |
) |
|
59
Retirement benefit expense for defined benefit plans in 2011 is estimated to be approximately
$77 million, comprised of $56 million for pension expense and $21 million of expense for other
postretirement benefits. Amounts in accumulated other comprehensive income (loss) that are expected
to be recognized as components of net periodic benefit cost in 2011 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Pension |
|
Postretirement |
|
|
(in millions) |
|
Benefits |
|
Benefits |
|
Total |
|
Amortization of prior service cost (credit) |
|
$ |
11.3 |
|
|
$ |
(18.4 |
) |
|
$ |
(7.1 |
) |
Amortization of net actuarial loss |
|
|
71.3 |
|
|
|
9.8 |
|
|
|
81.1 |
|
|
Amortization of accumulated other comprehensive income (loss) |
|
$ |
82.6 |
|
|
$ |
(8.6 |
) |
|
$ |
74.0 |
|
|
The accumulated benefit obligation for all defined benefit pension plans was $2,239.4 million
and $2,166.0 million at December 31, 2010 and 2009, respectively. Additional information for
pension plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
(in millions) |
|
2010 |
|
2009 |
|
Projected benefit obligation |
|
$ |
123.2 |
|
|
$ |
102.5 |
|
Accumulated benefit obligation |
|
|
119.1 |
|
|
|
98.6 |
|
Fair value of plan assets |
|
|
58.3 |
|
|
|
54.0 |
|
|
Based upon current regulations and actuarial studies, the Company does not expect to be
required to make cash contributions to its U.S. qualified defined benefit pension plan (U.S. Plan)
for 2011. However, the Company may elect, depending upon the investment performance of the pension
plan assets and other factors, to make voluntary cash contributions to this pension plan in the
future. For 2011, the Company expects to fund benefits of approximately $4 million for its U.S.
nonqualified benefit pension plans, and fund contributions of approximately $2 million to its U.K.
defined benefit plan.
The Company contributes on behalf of certain union employees to a pension plan, which is
administered by the USW and funded pursuant to a collective bargaining agreement. Pension expense
and contributions to this plan were $0.9 million in 2010, $1.0 million in 2009, and $1.5 million in
2008.
The plan assets for the U.S. Plan represent approximately 97% of total pension plan assets at
December 31, 2010. The U.S. Plan invests in a diversified portfolio consisting of an array of
asset classes that attempts to maximize returns while minimizing volatility. These asset classes
include U.S. domestic equities, developed market equities, emerging market equities, private
equity, global high quality and high yield fixed income, and real estate. The Company continually
monitors the investment results of these asset classes and its fund managers, and explores other
potential asset classes for possible future investment.
U.S. Plan assets at December 31, 2010 and 2009 included 2.8 million shares of ATI common stock
with a fair value of $154.5 million and $125.4 million, respectively. Dividends of $2.0 million
were received by the U.S. Plan in both 2010 and 2009 on the ATI common stock held by this plan.
The fair values of the Companys pension plan assets at December 31, 2010, by asset category
and by the level of inputs used to determine fair value, were as follows:
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
Significant |
|
Significant |
(in millions) |
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
Asset category |
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATI common stock |
|
$ |
154.5 |
|
|
$ |
154.5 |
|
|
$ |
|
|
|
$ |
|
|
Other U.S. equities (a) |
|
|
519.3 |
|
|
|
185.2 |
|
|
|
334.1 |
|
|
|
|
|
International equities (b) |
|
|
266.7 |
|
|
|
21.5 |
|
|
|
245.2 |
|
|
|
|
|
Fixed income and cash equivalents (c) |
|
|
1,020.3 |
|
|
|
150.6 |
|
|
|
867.3 |
|
|
|
2.4 |
|
Private equity |
|
|
83.0 |
|
|
|
|
|
|
|
|
|
|
|
83.0 |
|
Hedge funds |
|
|
124.0 |
|
|
|
|
|
|
|
|
|
|
|
124.0 |
|
Real estate and other |
|
|
69.6 |
|
|
|
4.2 |
|
|
|
8.6 |
|
|
|
56.8 |
|
|
Total assets |
|
$ |
2,237.4 |
|
|
$ |
516.0 |
|
|
$ |
1,455.2 |
|
|
$ |
266.2 |
|
|
|
|
|
(a) |
|
Includes investments in comingled funds that invest in U.S. equity securities, comprised of
approximately 90% large-cap U.S. companies and 10% small-cap U.S. companies. |
|
(b) |
|
Includes investments in comingled funds that invest in non-U.S. equity securities, comprised
of approximately 80% developed countries and 20% emerging market economies. |
|
(c) |
|
Fixed income investments are comprised of actively managed investments which include U.S.
government and U.S. government agency securities, corporate bonds, mortgage-backed securities
and other fixed income securities. To mitigate risk, investment managers have limitations
regarding the amount of investment in particular securities and the credit quality of such
investments. |
Changes in the fair value of Level 3 pension plan assets for the year ended December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized |
|
Net Purchases, |
|
Net Transfers |
|
|
|
|
January 1, |
|
and Unrealized |
|
Issuances and |
|
Into (Out Of) |
|
December 31, |
(in millions) |
|
2010 Balance |
|
Gains (Losses) |
|
Settlements |
|
Level 3 |
|
2010 Balance |
|
Fixed income and cash equivalents |
|
$ |
3.1 |
|
|
$ |
0.2 |
|
|
$ |
(0.9 |
) |
|
$ |
|
|
|
$ |
2.4 |
|
Private equity |
|
|
81.4 |
|
|
|
1.9 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
83.0 |
|
Hedge funds |
|
|
114.2 |
|
|
|
8.3 |
|
|
|
1.5 |
|
|
|
|
|
|
|
124.0 |
|
Real estate and other |
|
|
49.0 |
|
|
|
7.9 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
56.8 |
|
|
Total |
|
$ |
247.7 |
|
|
$ |
18.3 |
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
266.2 |
|
|
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. Investments in U.S. and
International equities, and Fixed Income are predominantly held in common/collective trust funds
and registered investment companies. These investments are public investment vehicles valued using
the net asset value (NAV) provided by the administrator of the fund. The NAV is based on the value
of the underlying assets owned by the fund, minus its liabilities, and then divided by the number
of shares outstanding. In certain cases NAV is a quoted price in a market that is not active, and
valuation is based on quoted prices for similar assets and liabilities in active markets, and these
investments are classified within level 2 of the valuation hierarchy. Investments that are not
actively traded, such as non-publicly traded real estate funds, are classified within level 3 of
the valuation hierarchy, as the NAV is based on significant unobservable information.
Hedge fund investments are made as either (1) as a limited partner in a portfolio of
underlying hedge funds managed by a general partner or (2) through commingled institutional funds
(CIFs) that in-turn invest in various portfolios of hedge funds whereby the allocation of the
Plans investments to each CIF is managed by a third party Investment Manager. All hedge fund
investments are classified within level 3 of the valuation hierarchy, as the valuations are
substantially based on unobservable information.
Private equity investments include both Direct Funds and Fund-of-Funds. All private equity
investments are classified as Level 3 in the valuation hierarchy, as the valuations are
substantially based upon unobservable information. Direct Funds are investments in Limited
Partnership (LP) interests. Fund-of-Funds are investments in private equity funds that invest in
other private equity funds or LPs.
61
For certain investments classified as Level 3 which have formal financial valuations reported
on a one-quarter lag, fair value is determined utilizing net asset values adjusted for subsequent
cash flows, estimated financial performance and other significant events.
For 2011, the expected long-term rate of returns on defined benefit pension assets will be
8.50%. In developing the expected long-term rate of return assumptions, the Company evaluated input
from its third party pension plan asset managers and actuaries, including reviews of their asset
class return expectations and long-term inflation assumptions. The expected long-term rate of
return is based on expected asset allocations within ranges for each investment category, and
includes consideration of both historical and projected annual compound returns, weighted on a
65%/35% basis, respectively. The Companys actual returns on pension assets for the last five
years have been 12.2% for 2010, 16.4% for 2009, (25.3)% for 2008, 10.9% for 2007, and 18.2% for
2006.
The target asset allocations for pension plans for 2011, by major investment category, are:
|
|
|
|
|
Asset category |
|
Target asset allocation range |
|
Equity securities: |
|
|
|
|
U. S. equities |
|
|
18% - 38 |
% |
International equities |
|
|
7% - 17 |
% |
Fixed income |
|
|
35% - 45 |
% |
Private equity |
|
|
0% - 10 |
% |
Hedge funds |
|
|
0% - 10 |
% |
Real estate and other |
|
|
0% - 10 |
% |
Cash and cash equivalents |
|
|
0% - 10 |
% |
|
At December 31, 2010, other postretirement benefit plan assets of $12 million are primarily
invested in private equity investments, which are classified as Level 3 in the valuation hierarchy,
as the valuations are substantially based upon unobservable information. For 2011, the expected
long-term rate of returns on these other postretirement benefit assets will be 8.3%. The expected
return on other postretirement benefit plan assets is expected to be lower than the return on
pension plan investments due to the mix of investments and the expected reduction of plan assets
due to benefit payments.
Labor agreements with United Steelworkers represented employees require the Company to make
contributions to independently administered VEBA trusts based upon the attainment of a certain
level of profitability. The Company expects to contribute approximately $23 million of
contributions tied to profitability levels to these VEBA trusts in 2011.
Pension costs for defined contribution plans were $18.8 million in 2010, $18.0 million in
2009, and $21.3 million in 2008. Company contributions to these defined contribution plans are
funded with cash.
The following table summarizes expected benefit payments from the Companys various pension
and other postretirement benefit defined benefit plans through 2020, and also includes estimated
Medicare Part D subsidies projected to be received during this period based on currently available
information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Pension |
|
Postretirement |
|
Medicare Part |
(in millions) |
|
Benefits |
|
Benefits |
|
D Subsidy |
|
2011 |
|
$ |
163.9 |
|
|
$ |
65.0 |
|
|
$ |
1.6 |
|
2012 |
|
|
163.9 |
|
|
|
63.4 |
|
|
|
1.7 |
|
2013 |
|
|
163.7 |
|
|
|
44.8 |
|
|
|
1.7 |
|
2014 |
|
|
164.0 |
|
|
|
43.8 |
|
|
|
1.7 |
|
2015 |
|
|
166.5 |
|
|
|
47.3 |
|
|
|
1.7 |
|
2016-2020 |
|
|
845.8 |
|
|
|
202.8 |
|
|
|
7.8 |
|
|
The annual assumed rate of increase in the per capita cost of covered benefits (the health
care cost trend rate) for health care plans was 9.5% in 2011 and is assumed to gradually decrease
to 5.0% in the year 2028 and remain at that level thereafter. Assumed health care cost trend rates
have a significant effect on the amounts reported for the health care plans. A one percentage point
change in assumed health care cost trend rates would have the following effects:
62
|
|
|
|
|
|
|
One |
|
One |
|
|
Percentage |
|
Percentage |
|
|
Point |
|
Point |
(in millions) |
|
Increase |
|
Decrease |
|
Effect on total of service and interest cost components for the year |
|
$0.6 |
|
$(0.6) |
ended December 31, 2010 |
|
|
|
|
Effect on other postretirement benefit obligation at December 31, 2010 |
|
$10.9 |
|
$(9.7) |
|
Note 10. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), net of tax, at December 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
Attributable to ATI |
|
|
|
|
|
|
|
|
Pension plans and other postretirement benefits
|
|
$ |
(655.5 |
) |
|
$ |
(679.7 |
) |
Foreign currency translation
|
|
|
(5.9 |
) |
|
|
2.7 |
|
Derivative financial instruments
|
|
|
(3.7 |
) |
|
|
3.5 |
|
|
Accumulated other comprehensive income (loss) attributable to ATI
|
|
$ |
(665.1 |
) |
|
$ |
(673.5 |
) |
|
|
|
|
|
|
|
|
|
Attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
$ |
16.0 |
|
|
$ |
12.8 |
|
|
Accumulated other comprehensive income attributable to noncontrolling interests
|
|
|
$16.0 |
|
|
$ |
12.8 |
|
|
Other comprehensive income (loss) amounts are net of applicable income tax expense (benefit)
for each year presented. Foreign currency translation adjustments, including those pertaining to
noncontrolling interests, are generally not adjusted for income taxes as they relate to indefinite
investments in non-U.S. subsidiaries.
Note 11. Stockholders Equity
Preferred Stock
Authorized preferred stock may be issued in one or more series, with designations, powers and
preferences as shall be designated by the Board of Directors. At December 31, 2010, there were no
shares of preferred stock issued.
Common Stock
On November 1, 2007, the Companys Board of Directors approved a share repurchase program of $500
million. As of December 31, 2010, 6,837,000 shares had been purchased in open market transactions
under this program at a cost of $339.5 million. There were no share repurchases under this program
in 2010 or 2009. Per share amounts reflect the effect of the shares repurchased on a weighted
average basis for the periods presented.
Share-based Compensation
The Company sponsors three principal share-based incentive compensation programs. During 2007, the
Company adopted the Allegheny Technologies Incorporated 2007 Incentive Plan (the Incentive Plan),
which was amended and restated in 2010. Awards earned under share-based incentive compensation
programs are generally paid with shares held in treasury, if sufficient treasury shares are held,
and any additional required share payments are made with newly issued shares. At December 31, 2010,
approximately 1.4 million shares of common stock were available for future awards under the
Incentive Plan. The general terms of each arrangement granted under the Incentive Plan, and
predecessor plans, the method of estimating fair value for each arrangement, and award activity is
reported below.
Stock option awards: The Company ceased granting stock options to employees in 2003 and to
non-employee directors in 2006. As of December 31, 2010, there were no unvested stock option
awards.
Stock option transactions under the Companys plans for the years ended December 31, 2010,
2009, and 2008 are summarized as follows:
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number of |
|
Average |
|
|
|
|
|
Average |
|
Number of |
|
Average |
(shares in thousands) |
|
shares |
|
Exercise Price |
|
Number of shares |
|
Exercise Price |
|
shares |
|
Exercise Price |
|
Outstanding, beginning of year |
|
|
701 |
|
|
$ |
9.01 |
|
|
|
823 |
|
|
$ |
9.96 |
|
|
|
897 |
|
|
$ |
11.43 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(98 |
) |
|
|
14.21 |
|
|
|
(76 |
) |
|
|
11.43 |
|
|
|
(31 |
) |
|
|
9.69 |
|
Cancelled |
|
|
(3 |
) |
|
|
18.09 |
|
|
|
(46 |
) |
|
|
21.99 |
|
|
|
(43 |
) |
|
|
40.67 |
|
|
Outstanding at end of year |
|
|
600 |
|
|
$ |
8.11 |
|
|
|
701 |
|
|
$ |
9.01 |
|
|
|
823 |
|
|
$ |
9.96 |
|
|
Exercisable at end of year |
|
|
600 |
|
|
$ |
8.11 |
|
|
|
701 |
|
|
$ |
9.01 |
|
|
|
823 |
|
|
$ |
9.96 |
|
|
Options outstanding at December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(shares in thousands, life in years) |
|
Options Outstanding and Exercisable |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
Remaining |
|
Weighted Average |
Range of Exercise Prices |
|
Number of Shares |
|
Contractual Life |
|
Exercise Price |
|
$3.63 - $7.00
|
|
|
291 |
|
|
|
2.1 |
|
|
$ |
4.20 |
|
7.01 - 10.00
|
|
|
191 |
|
|
|
1.8 |
|
|
|
7.26 |
|
10.01 - 15.00
|
|
|
39 |
|
|
|
1.4 |
|
|
|
12.56 |
|
15.01 - 20.00
|
|
|
68 |
|
|
|
0.9 |
|
|
|
17.03 |
|
20.01 - 30.00
|
|
|
4 |
|
|
|
4.3 |
|
|
|
24.38 |
|
30.01 - 72.46
|
|
|
7 |
|
|
|
5.3 |
|
|
|
72.46 |
|
|
|
|
|
600 |
|
|
|
1.9 |
|
|
$ |
8.11 |
|
|
The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2010 was
$28.2 million. The aggregate intrinsic value represents the total pretax intrinsic value (the
difference between the Companys closing stock price on the last trading day of the fourth quarter
of fiscal 2010 and the exercise price, multiplied by the number of in-the-money options) that would
have been received by the option holders had all option holders exercised their options on December
31, 2010.
Nonvested stock awards: Awards of nonvested stock are granted to employees, with either
performance and/or service conditions. Awards of nonvested stock are also granted to non-employee
directors, with service conditions. For nonvested stock awarded in 2009 and 2008 nonvested shares
participate in cash dividends during the restriction period. For nonvested stock awarded in 2010,
dividend equivalents, whether in stock or cash form, are not paid until the underlying award vests.
The fair value of nonvested stock awards is measured based on the stock price at the grant
date, adjusted for non-participating dividends, as applicable, based on the current dividend rate.
For nonvested stock awards to employees in 2010, 2009, and 2008, under the Companys
Performance/Restricted Stock Program (PRSP), one-half of the nonvested stock (performance shares)
vests only on the attainment of an income target, measured over a cumulative three-year period. The
remaining nonvested stock awarded to employees vests over a service period of five years, with
accelerated vesting to three years if the performance shares vesting criterion is attained.
Expense for each of these awards is recognized based on estimates of attaining the performance
criterion, including estimated forfeitures. As of December 31, 2010, the income statement metrics
for the 2010 and 2009 awards were expected to be attained for the performance shares, and expense
for both portions of the awards was recognized on a straight line basis based on a three-year
vesting assumption. The income statement metric for the 2008 PRSP nonvested stock award was not
met, and 66,483 shares were forfeited as of December 31, 2010. Expense for the remaining portion
of 2008 PRSP award is being recognized over the five year service vesting period.
In 2010, the Company made nonvested stock awards to certain executives under the Performance
Equity Payment Plan (PEPP). These stock awards have single year vesting if an income target is
attained, and dividends on these nonvested shares are escrowed and paid in cash when and if the
shares vest. Based on the Companys attainment of predetermined levels of earnings, 65,014 PEPP
nonvested stock awards vested in 2010.
Compensation expense related to all nonvested stock awards was $12.9 million in 2010, $6.2
million in 2009, and $9.4 million in 2008. Approximately $15.7 million of unrecognized fair value
compensation expense relating to nonvested stock awards is
expected to be recognized through 2013 based on estimates of attaining performance vesting
criteria, including estimated forfeitures.
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in thousands, $ in millions) |
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant Date Fair |
|
|
|
|
|
Grant Date Fair |
|
|
|
|
|
Grant Date Fair |
|
|
Number of shares |
|
Value |
|
Number of shares |
|
Value |
|
Number of shares |
|
Value |
|
Nonvested, beginning of year
|
|
|
740 |
|
|
$ |
26.9 |
|
|
|
281 |
|
|
$ |
25.7 |
|
|
|
223 |
|
|
$ |
18.2 |
|
Granted
|
|
|
400 |
|
|
|
17.0 |
|
|
|
590 |
|
|
|
13.7 |
|
|
|
162 |
|
|
|
13.3 |
|
Vested
|
|
|
(78 |
) |
|
|
(4.3 |
) |
|
|
(105 |
) |
|
|
(10.7 |
) |
|
|
(89 |
) |
|
|
(4.6 |
) |
Forfeited
|
|
|
(86 |
) |
|
|
(6.3 |
) |
|
|
(26 |
) |
|
|
(1.8 |
) |
|
|
(15 |
) |
|
|
(1.2 |
) |
|
Nonvested, end of year
|
|
|
976 |
|
|
$ |
33.3 |
|
|
|
740 |
|
|
$ |
26.9 |
|
|
|
281 |
|
|
$ |
25.7 |
|
|
Total shareholder return incentive compensation program (TSRP) awards: Awards under the TSRP
are granted at a target number of shares, and vest based on the measured return of the Companys
stock price and dividend performance at the end of three-year periods as compared to the stock
price and dividend performance of a group of industry peers. In 2010, the Company established a
2010-2012 TSRP, with 243,076 shares as the target award level. The actual number of shares awarded
may range from a minimum of zero to a maximum of three times target. Fair values for the TSRP
awards were estimated using Monte Carlo simulations of stock price correlation, projected dividend
yields and other variables over three-year time horizons matching the TSRP performance periods.
Compensation expense was $14.9 million in 2010, $14.5 million in 2009, and $11.0 million in 2008
for the fair value of TSRP awards.
The estimated fair value of each TSRP award, including the projected shares to be awarded, and
future compensation expense to be recognized for TSRP awards, including estimated forfeitures, was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in thousands, $ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized |
|
|
|
|
|
|
|
|
TSRP Award |
|
Compensation |
|
Minimum |
|
Target |
|
Maximum |
TSRP Award Performance Period |
|
Fair Value |
|
Expense |
|
Shares |
|
Shares |
|
Shares |
|
2008 - 2010 |
|
$ |
11.1 |
|
|
$ |
|
|
|
|
|
|
|
|
87 |
|
|
|
261 |
|
2009 - 2011 |
|
$ |
16.1 |
|
|
|
5.4 |
|
|
|
|
|
|
|
390 |
|
|
|
1,171 |
|
2010 - 2012 |
|
$ |
23.1 |
|
|
|
17.3 |
|
|
|
|
|
|
|
224 |
|
|
|
671 |
|
|
Total |
|
|
|
|
|
$ |
22.7 |
|
|
|
|
|
|
|
701 |
|
|
|
2,103 |
|
|
An award was earned for the 2008-2010 TSRP performance period based on the Companys stock
price performance for the three-year period ended December 31, 2010, which resulted in the issuance
of 75,920 shares of stock to participants in the 2011 first quarter.
Undistributed Earnings of Investees
Stockholders equity includes undistributed earnings of investees accounted for under the equity
method of accounting of approximately $24 million at December 31, 2010.
65
Note 12. Income Taxes
The income tax provision (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(47.3 |
) |
|
$ |
(91.3 |
) |
|
$ |
142.5 |
|
State |
|
|
(4.4 |
) |
|
|
(2.8 |
) |
|
|
14.0 |
|
Foreign |
|
|
8.9 |
|
|
|
(1.8 |
) |
|
|
8.9 |
|
|
Total |
|
|
(42.8 |
) |
|
|
(95.9 |
) |
|
|
165.4 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
83.4 |
|
|
|
115.5 |
|
|
|
114.0 |
|
State |
|
|
6.0 |
|
|
|
3.8 |
|
|
|
12.6 |
|
Foreign |
|
|
0.4 |
|
|
|
3.5 |
|
|
|
2.2 |
|
|
Total |
|
|
89.8 |
|
|
|
122.8 |
|
|
|
128.8 |
|
|
Income tax provision |
|
$ |
47.0 |
|
|
$ |
26.9 |
|
|
$ |
294.2 |
|
|
The following is a reconciliation of income taxes computed at the statutory U.S. Federal
income tax rate to the actual effective
income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision |
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Taxes computed at the federal rate |
|
$ |
44.0 |
|
|
$ |
22.7 |
|
|
$ |
301.0 |
|
State and local income taxes, net of federal tax benefit |
|
|
5.5 |
|
|
|
(0.6 |
) |
|
|
26.7 |
|
Tax law changes |
|
|
5.8 |
|
|
|
|
|
|
|
|
|
Foreign earnings taxed at different rate |
|
|
(4.8 |
) |
|
|
(0.4 |
) |
|
|
(4.7 |
) |
Tax reserve adjustments |
|
|
(6.2 |
) |
|
|
1.6 |
|
|
|
(2.8 |
) |
Valuation allowance |
|
|
1.6 |
|
|
|
5.7 |
|
|
|
|
|
Adjustment to prior years taxes |
|
|
(1.9 |
) |
|
|
(3.0 |
) |
|
|
(11.9 |
) |
Manufacturing deduction |
|
|
|
|
|
|
|
|
|
|
(11.3 |
) |
Other |
|
|
3.0 |
|
|
|
0.9 |
|
|
|
(2.8 |
) |
|
Income tax provision: |
|
$ |
47.0 |
|
|
$ |
26.9 |
|
|
$ |
294.2 |
|
|
Tax law changes include $5.3 million associated with the Patient Protection and Affordable
Care Act. Under this legislation, the tax advantage of the subsidy to encourage companies to
provide retiree prescription drug coverage was eliminated. Although the elimination of this tax
advantage under the new legislation does not take effect until 2013, the Company was required by
U.S. generally accepted accounting principles to recognize the full accounting impact in the period
in which the Act became law. Since future anticipated retiree health care liabilities and related
tax subsidies were already reflected in ATIs financial statements, the change in law resulted in a
reduction of the value of the Companys deferred tax asset related to the subsidy. Tax law
changes due to the Small Business Jobs and Credit Act, which allows businesses of all sizes to
accelerate depreciation on certain property placed into service in 2010, resulted in a taxable loss
for U.S. Federal purposes in 2010, which increased the Companys ability to recover prior years
cash taxes paid, but eliminated the current year tax benefit of the manufacturing deduction.
In general, the Company is responsible for filing consolidated U.S. Federal, foreign and
combined, unitary or separate state income tax returns. The Company is responsible for paying the
taxes relating to such returns, including any subsequent adjustments resulting from the
redetermination of such tax liability by the applicable taxing authorities. No provision has been
made for U.S. Federal, state or additional foreign taxes related to undistributed earnings of
foreign subsidiaries which have been permanently re-invested.
66
Income before income taxes for the Companys U.S. and non-U.S. operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
U.S. |
|
$ |
87.1 |
|
|
$ |
57.9 |
|
|
$ |
815.4 |
|
Non-U.S. |
|
|
38.6 |
|
|
|
7.0 |
|
|
|
52.3 |
|
|
Income before income taxes |
|
$ |
125.7 |
|
|
$ |
64.9 |
|
|
$ |
867.7 |
|
|
Income taxes paid and amounts received as refunds were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Income taxes paid |
|
$ |
28.8 |
|
|
$ |
45.0 |
|
|
$ |
213.5 |
|
Income tax refunds received |
|
|
(20.9 |
) |
|
|
(124.3 |
) |
|
|
(34.2 |
) |
|
Income taxes paid (received), net |
|
$ |
7.9 |
|
|
$ |
(79.3 |
) |
|
$ |
179.3 |
|
|
Deferred income taxes result from temporary differences in the recognition of income and
expense for financial and income tax reporting purposes, and differences between the fair value of
assets acquired in business combinations accounted for as purchases for financial reporting
purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences reverse. The categories of assets and
liabilities that have resulted in differences in the timing of the recognition of income and
expense at December 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Postretirement benefits other than pensions |
|
$ |
177.2 |
|
|
$ |
188.2 |
|
State net operating loss tax carryovers |
|
|
30.2 |
|
|
|
27.9 |
|
Federal and state tax credits |
|
|
30.1 |
|
|
|
27.4 |
|
Deferred compensation and other benefit plans |
|
|
22.1 |
|
|
|
15.7 |
|
Self insurance reserves |
|
|
10.1 |
|
|
|
14.3 |
|
Other items |
|
|
70.5 |
|
|
|
93.1 |
|
|
Gross deferred income tax assets |
|
|
340.2 |
|
|
|
366.6 |
|
Valuation allowance for deferred tax assets |
|
|
(21.4 |
) |
|
|
(19.9 |
) |
|
Total deferred income tax assets |
|
|
318.8 |
|
|
|
346.7 |
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
Bases of property, plant and equipment |
|
|
305.8 |
|
|
|
229.0 |
|
Inventory valuation |
|
|
57.4 |
|
|
|
47.1 |
|
Other items |
|
|
29.8 |
|
|
|
31.2 |
|
|
Total deferred tax liabilities |
|
|
393.0 |
|
|
|
307.3 |
|
|
Net deferred tax (liability) asset |
|
$ |
(74.2 |
) |
|
$ |
39.4 |
|
|
The Company had $21.4 million and $19.9 million in deferred tax asset valuation allowances at
December 31, 2010 and 2009, respectively, related to state deferred tax assets. The valuation
allowance at December 31, 2010 includes $8.8 million for state net operating loss tax
carryforwards, $8.8 million for state tax credits and $3.8 million for state temporary differences,
since the Company has concluded, based on current state tax laws, that it is more likely than not
that these tax benefits would not be realized. For these state net operating loss tax
carryforwards, expiration will generally occur in 20 years and utilization of the tax benefit is
limited to $3 million per year or 20% of apportioned income, which ever is greater.
The changes in the liability for unrecognized income tax benefits for the years ended December
31, 2010, 2009 and 2008 were as follows:
67
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Balance at beginning of year
|
|
$ |
37.3 |
|
|
$ |
34.7 |
|
|
$ |
38.1 |
|
Increases in prior period tax positions
|
|
|
1.5 |
|
|
|
1.2 |
|
|
|
0.1 |
|
Decreases in prior period tax positions
|
|
|
(15.8 |
) |
|
|
|
|
|
|
(7.0 |
) |
Increases in current period tax positions
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
2.1 |
|
Decreases in current period tax positions
|
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
Settlements
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
Interest and penalties, net
|
|
|
(5.1 |
) |
|
|
1.5 |
|
|
|
1.4 |
|
|
Balance at end of year
|
|
$ |
17.1 |
|
|
$ |
37.3 |
|
|
$ |
34.7 |
|
|
For the year ended December 31, 2010, as a result of the settlements of uncertain income tax
positions, the liability for unrecognized income tax benefits was reduced by $18.5 million,
including $5.7 million of interest and penalties. The settlements increased deferred tax
liabilities by $12.8 million, and the interest and penalty component reduced the current years
income tax provision. Additionally, the Companys income tax provision included charges related to
uncertain tax positions in the amount of $1.8 million, and interest and penalties of $0.6 million.
At December 31, 2010, interest and penalties included in the liability for unrecognized tax
benefits were $3.2 million.
Including tax positions for which the Company determined that the tax position would not meet
the more-likely-than-not recognition threshold upon examination by the tax authorities based upon
the technical merits of the position, the total estimated unrecognized tax benefit that, if
recognized, would affect our effective tax rate was approximately $12 million. At this time, the
Company believes that it is reasonably possible that approximately $2 million of the estimated
unrecognized tax benefits as of December 31, 2010 will be recognized within the next twelve months
based on the expiration of statutory review periods.
The Company, and/or one of its subsidiaries, files income tax returns in the U.S. Federal
jurisdiction and in various state and foreign jurisdictions. A summary of tax years that remain
subject to examination, by major tax jurisdiction, is as follows:
|
|
|
|
|
|
|
Earliest Year Open to |
|
Jurisdiction |
|
Examination |
|
|
U.S. Federal |
|
|
2009 |
|
States: |
|
|
|
|
Alabama |
|
|
2007 |
|
Illinois |
|
|
2008 |
|
North Carolina |
|
|
2007 |
|
Oregon |
|
|
2007 |
|
Pennsylvania |
|
|
2007 |
|
Foreign: |
|
|
|
|
China |
|
|
2006 |
|
Germany |
|
|
2006 |
|
United Kingdom |
|
|
2006 |
|
|
Note 13. Business Segments
The Company operates in three business segments: High Performance Metals, Flat-Rolled Products and
Engineered Products. The High Performance Metals segment produces, converts and distributes a wide
range of high performance alloys, including titanium and titanium-based alloys, nickel- and
cobalt-based alloys and superalloys, exotic alloys such as zirconium, hafnium, niobium,
nickel-titanium, and their related alloys, advanced powder alloys, and other specialty metals,
primarily in long product forms such as ingot, billet, bar, shapes and rectangles, rod, wire,
seamless tube, and castings. The companies in this segment include ATI Allvac, ATI Allvac Ltd
(U.K.), ATI Wah Chang, and ATI Powder Metals.
The Flat-Rolled Products segment produces, converts and distributes stainless steel,
nickel-based alloys, specialty alloys, and titanium and titanium-based alloys in a variety of
product forms, including plate, sheet, engineered strip and Precision Rolled Strip® products as
well as grain-oriented electrical steel sheet. The companies in this segment include ATI Allegheny
Ludlum, STAL, in which the Company has a 60% ownership interest, and ATIs 50% interest in Uniti,
which is accounted for under the equity method. Sales to Uniti, which are included in ATIs
consolidated statements of income, were $98.3 million in 2010, $80.5 million in 2009, and $199.1
million in 2008. ATIs share of Unitis income (loss) was $2.5 million in 2010, $(2.7) million in
2009, and $11.3 million in 2008, which is included in the Flat-Rolled Products segments operating
profit, and within cost of sales
68
in the consolidated statements of income. The remaining 50% interest in Uniti is held by
VSMPO, a Russian producer of titanium, aluminum, and specialty steel products.
The Engineered Products segments principal business produces tungsten powder, tungsten heavy
alloys, tungsten carbide materials and carbide cutting tools. This segment also produces carbon
alloy steel impression die forgings and large grey and ductile iron castings, and performs
precision metals processing services. The companies in this segment are ATI Tungsten Materials, ATI
Portland Forge, ATI Casting Service and ATI Precision Finishing.
Intersegment sales are generally recorded at full cost or market. Common services are
allocated on the basis of estimated utilization.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Total sales: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
1,410.5 |
|
|
$ |
1,357.4 |
|
|
$ |
2,134.4 |
|
Flat-Rolled Products |
|
|
2,360.2 |
|
|
|
1,564.9 |
|
|
|
2,968.4 |
|
Engineered Products |
|
|
411.7 |
|
|
|
268.8 |
|
|
|
506.8 |
|
|
Total sales |
|
|
4,182.4 |
|
|
|
3,191.1 |
|
|
|
5,609.6 |
|
|
Intersegment sales: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
|
73.0 |
|
|
|
57.4 |
|
|
|
189.5 |
|
Flat-Rolled Products |
|
|
21.7 |
|
|
|
48.8 |
|
|
|
59.3 |
|
Engineered Products |
|
|
39.9 |
|
|
|
30.0 |
|
|
|
51.1 |
|
|
Total intersegment sales |
|
|
134.6 |
|
|
|
136.2 |
|
|
|
299.9 |
|
|
Sales to external customers |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
|
1,337.5 |
|
|
|
1,300.0 |
|
|
|
1,944.9 |
|
Flat-Rolled Products |
|
|
2,338.5 |
|
|
|
1,516.1 |
|
|
|
2,909.1 |
|
Engineered Products |
|
|
371.8 |
|
|
|
238.8 |
|
|
|
455.7 |
|
|
Total sales to external customers |
|
$ |
4,047.8 |
|
|
$ |
3,054.9 |
|
|
$ |
5,309.7 |
|
|
Total direct international sales were $1,283.8 million in 2010, $950.4 million in 2009, and
$1,493.4 million in 2008. Of these amounts, sales by operations in the United States to customers
in other countries were $950.4 million in 2010, $678.6 million in 2009, and $1,093.6 million in
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Operating profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
257.8 |
|
|
$ |
234.7 |
|
|
$ |
539.0 |
|
Flat-Rolled Products |
|
|
85.9 |
|
|
|
71.3 |
|
|
|
385.0 |
|
Engineered Products |
|
|
12.8 |
|
|
|
(23.8 |
) |
|
|
20.9 |
|
|
Total operating profit |
|
|
356.5 |
|
|
|
282.2 |
|
|
|
944.9 |
|
|
Corporate expenses |
|
|
(64.1 |
) |
|
|
(53.1 |
) |
|
|
(56.8 |
) |
Interest expense, net |
|
|
(62.7 |
) |
|
|
(19.3 |
) |
|
|
(3.5 |
) |
Other expenses, net of gains on asset sales |
|
|
(13.9 |
) |
|
|
(13.8 |
) |
|
|
(8.5 |
) |
Debt extinguishment costs |
|
|
|
|
|
|
(9.2 |
) |
|
|
|
|
Retirement benefit expense |
|
|
(90.1 |
) |
|
|
(121.9 |
) |
|
|
(8.4 |
) |
|
Income before income taxes |
|
$ |
125.7 |
|
|
$ |
64.9 |
|
|
$ |
867.7 |
|
|
Business segment operating profit excludes costs for restructuring charges, retirement benefit
income or expense, corporate expenses, interest expenses, debt extinguishment costs, and costs
associated with closed operations. These costs are excluded for segment reporting to provide a
profit measure based on what management considers to be controllable costs at the segment level.
Retirement benefit expense includes both pension expense and other postretirement benefit expenses.
In April 2008, the Company entered into a new five-year labor agreement with United Steelworkers
represented employees at the Wah Chang operation and agreed to establish a Voluntary Employee
Benefit Association (VEBA) trust for certain postretirement benefits. For the years ended December
31, 2010, 2009 and 2008, the Company recognized $0.2 million, $2.2 million and $7.7 million of
expense, respectively, for this VEBA, which is included in retirement benefit expense as reported
above in business segments.
69
Other expenses, net of gains on asset sales, includes charges incurred in connection with
closed operations, pretax gains and losses on the sale of surplus real estate, non-strategic
investments, and other assets, and other non-operating income or expense, which are primarily
included in selling and administrative expenses, and in other income (expense) in the consolidated
statement of income. In 2010, the Company recorded $13.9 million in other charges primarily related
to closed companies, including $2.1 million for environmental costs, $2.8 million for real estate
costs at closed companies, and $9.0 million for other expenses including legal matters and foreign
exchange losses. In 2009, the Company recorded $13.8 million in other charges primarily related to
closed companies, including $2.8 million for environmental costs, $3.7 million for real estate
costs at closed companies, and $7.3 million for other expenses including legal matters. In 2008,
the Company recorded $8.5 million in other charges primarily related to closed companies, including
$2.6 million for environmental costs, $2.6 million for real estate costs at closed companies, and
$3.3 million for other expenses including legal matters and foreign exchange losses.
Certain additional information regarding the Companys business segments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
2010 |
|
2009 |
|
2008 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
$ |
77.7 |
|
|
$ |
65.3 |
|
|
$ |
57.1 |
|
Flat-Rolled Products |
|
|
48.1 |
|
|
|
47.6 |
|
|
|
44.5 |
|
Engineered Products |
|
|
14.3 |
|
|
|
16.1 |
|
|
|
13.6 |
|
Corporate |
|
|
1.4 |
|
|
|
3.6 |
|
|
|
3.6 |
|
|
Total depreciation and amortization |
|
|
141.5 |
|
|
|
132.6 |
|
|
|
118.8 |
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
|
113.7 |
|
|
|
298.0 |
|
|
|
367.3 |
|
Flat-Rolled Products |
|
|
95.8 |
|
|
|
104.8 |
|
|
|
115.5 |
|
Engineered Products |
|
|
9.1 |
|
|
|
9.6 |
|
|
|
31.4 |
|
Corporate |
|
|
0.5 |
|
|
|
3.0 |
|
|
|
1.5 |
|
|
Total capital expenditures |
|
|
219.1 |
|
|
|
415.4 |
|
|
|
515.7 |
|
|
Identifiable assets: |
|
|
|
|
|
|
|
|
|
|
|
|
High Performance Metals |
|
|
2,283.4 |
|
|
|
2,106.3 |
|
|
|
1,886.9 |
|
Flat-Rolled Products |
|
|
1,362.0 |
|
|
|
1,117.0 |
|
|
|
1,121.7 |
|
Engineered Products |
|
|
295.5 |
|
|
|
259.0 |
|
|
|
308.8 |
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension cost |
|
|
8.7 |
|
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
|
|
|
|
63.1 |
|
|
|
281.6 |
|
Cash and cash equivalents and other |
|
|
544.0 |
|
|
|
800.6 |
|
|
|
571.4 |
|
|
Total assets |
|
$ |
4,493.6 |
|
|
$ |
4,346.0 |
|
|
$ |
4,170.4 |
|
|
Geographic information for external sales based on country of origin, and assets, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
($ in millions) |
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
2008 |
|
|
of total |
|
|
External sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,764.0 |
|
|
|
68 |
% |
|
$ |
2,104.4 |
|
|
|
69 |
% |
|
$ |
3,816.4 |
|
|
|
72 |
% |
China |
|
|
234.5 |
|
|
|
6 |
% |
|
|
185.2 |
|
|
|
6 |
% |
|
|
253.9 |
|
|
|
5 |
% |
Germany |
|
|
183.7 |
|
|
|
5 |
% |
|
|
123.2 |
|
|
|
4 |
% |
|
|
184.1 |
|
|
|
3 |
% |
Italy |
|
|
175.7 |
|
|
|
4 |
% |
|
|
53.8 |
|
|
|
2 |
% |
|
|
52.9 |
|
|
|
1 |
% |
United Kingdom |
|
|
118.1 |
|
|
|
3 |
% |
|
|
118.5 |
|
|
|
4 |
% |
|
|
229.2 |
|
|
|
4 |
% |
Canada |
|
|
109.0 |
|
|
|
3 |
% |
|
|
114.2 |
|
|
|
4 |
% |
|
|
154.1 |
|
|
|
3 |
% |
France |
|
|
94.3 |
|
|
|
2 |
% |
|
|
91.9 |
|
|
|
3 |
% |
|
|
165.2 |
|
|
|
3 |
% |
Mexico |
|
|
56.6 |
|
|
|
1 |
% |
|
|
17.6 |
|
|
|
1 |
% |
|
|
46.2 |
|
|
|
1 |
% |
Netherlands |
|
|
37.9 |
|
|
|
1 |
% |
|
|
12.4 |
|
|
|
0 |
% |
|
|
9.5 |
|
|
|
0 |
% |
Other |
|
|
274.0 |
|
|
|
7 |
% |
|
|
233.7 |
|
|
|
7 |
% |
|
|
398.2 |
|
|
|
8 |
% |
|
Total External Sales |
|
$ |
4,047.8 |
|
|
|
100 |
% |
|
$ |
3,054.9 |
|
|
|
100 |
% |
|
$ |
5,309.7 |
|
|
|
100 |
% |
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
($ in millions) |
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
2008 |
|
|
of total |
|
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
3,853.9 |
|
|
|
86 |
% |
|
$ |
3,759.4 |
|
|
|
87 |
% |
|
$ |
3,582.0 |
|
|
|
86 |
% |
China |
|
|
250.4 |
|
|
|
6 |
% |
|
|
224.0 |
|
|
|
5 |
% |
|
|
189.4 |
|
|
|
4 |
% |
United Kingdom |
|
|
200.4 |
|
|
|
4 |
% |
|
|
175.4 |
|
|
|
4 |
% |
|
|
196.8 |
|
|
|
5 |
% |
Luxembourg (a) |
|
|
97.3 |
|
|
|
2 |
% |
|
|
105.1 |
|
|
|
2 |
% |
|
|
77.5 |
|
|
|
2 |
% |
Other |
|
|
91.6 |
|
|
|
2 |
% |
|
|
82.1 |
|
|
|
2 |
% |
|
|
124.7 |
|
|
|
3 |
% |
|
Total Assets |
|
$ |
4,493.6 |
|
|
|
100 |
% |
|
$ |
4,346.0 |
|
|
|
100 |
% |
|
$ |
4,170.4 |
|
|
|
100 |
% |
|
|
|
|
(a) |
|
Comprises assets held by the Companys European Treasury Center operation. |
Note 14. Per Share Information
The following table sets forth the computation of basic and diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts) |
|
|
|
|
|
|
Years ended December 31, |
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted net income per common share
net income attributable to ATI |
|
$ |
70.7 |
|
|
$ |
31.7 |
|
|
$ |
565.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per common share weighted average shares |
|
|
97.45 |
|
|
|
97.21 |
|
|
|
99.13 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
1.27 |
|
|
|
0.92 |
|
|
|
0.71 |
|
|
Denominator for diluted net income per common share
adjusted weighted average shares and assumed conversions |
|
|
98.72 |
|
|
|
98.13 |
|
|
|
99.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income attributable to ATI per common share |
|
$ |
0.73 |
|
|
$ |
0.33 |
|
|
$ |
5.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income attributable to ATI per common share |
|
$ |
0.72 |
|
|
$ |
0.32 |
|
|
$ |
5.67 |
|
|
Common stock that would be issuable upon the assumed conversion of the 2014 Convertible Notes
and other option equivalents and contingently issuable shares were excluded from the computation of
contingently issuable shares, and therefore, from the denominator for diluted earnings per share,
as the effect of inclusion would have been anti-dilutive. Excluded shares for 2010 and 2009 were
9.6 million and 5.7 million, respectively.
Note 15. Financial Information for Subsidiary and Guarantor Parent
The payment obligations under the $150 million 6.95% debentures due 2025 issued by Allegheny
Ludlum Corporation (the Subsidiary) are fully and unconditionally guaranteed by Allegheny
Technologies Incorporated (the Guarantor Parent). In accordance with positions established by the
Securities and Exchange Commission, the following financial information sets forth separately
financial information with respect to the Subsidiary, the non-guarantor subsidiaries and the
Guarantor Parent. The principal elimination entries eliminate investments in subsidiaries and
certain intercompany balances and transactions. Investments in subsidiaries, which are eliminated
in consolidation, are included in other assets on the balance sheets.
Allegheny Technologies is the plan sponsor for the U.S. qualified defined benefit pension plan
(the Plan) which covers certain current and former employees of the Subsidiary and the
non-guarantor subsidiaries. As a result, the balance sheets presented for the Subsidiary and the
non-guarantor subsidiaries do not include any Plan assets or liabilities, or the related deferred
taxes. The Plan assets, liabilities and related deferred taxes and pension income or expense are
recognized by the Guarantor Parent. Management and royalty fees charged to the Subsidiary and to
the non-guarantor subsidiaries by the Guarantor Parent have been excluded solely for purposes of
this presentation.
71
Cash flows related to intercompany activity between the Guarantor Parent, the Subsidiary, and
the non-guarantor subsidiaries are presented as financing activities on the condensed statements of
cash flows.
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Non-guarantor |
|
|
|
|
|
|
|
(In millions) |
|
Parent |
|
|
Subsidiary |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1.9 |
|
|
$ |
159.1 |
|
|
$ |
271.3 |
|
|
$ |
|
|
|
$ |
432.3 |
|
Accounts receivable, net |
|
|
0.1 |
|
|
|
233.3 |
|
|
|
312.0 |
|
|
|
|
|
|
|
545.4 |
|
Inventories, net |
|
|
|
|
|
|
232.6 |
|
|
|
791.9 |
|
|
|
|
|
|
|
1,024.5 |
|
Prepaid expenses and other current
assets |
|
|
48.6 |
|
|
|
19.2 |
|
|
|
45.1 |
|
|
|
|
|
|
|
112.9 |
|
|
Total current assets |
|
|
50.6 |
|
|
|
644.2 |
|
|
|
1,420.3 |
|
|
|
|
|
|
|
2,115.1 |
|
Property, plant and equipment, net |
|
|
2.8 |
|
|
|
483.5 |
|
|
|
1,503.0 |
|
|
|
|
|
|
|
1,989.3 |
|
Cost in excess of net assets acquired |
|
|
|
|
|
|
112.2 |
|
|
|
94.6 |
|
|
|
|
|
|
|
206.8 |
|
Investments in subsidiaries and
other assets |
|
|
4,249.2 |
|
|
|
1,554.2 |
|
|
|
1,001.0 |
|
|
|
(6,622.0 |
) |
|
|
182.4 |
|
|
Total assets |
|
$ |
4,302.6 |
|
|
$ |
2,794.1 |
|
|
$ |
4,018.9 |
|
|
$ |
(6,622.0 |
) |
|
$ |
4,493.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5.5 |
|
|
$ |
173.3 |
|
|
$ |
215.3 |
|
|
$ |
|
|
|
$ |
394.1 |
|
Accrued liabilities |
|
|
1,179.3 |
|
|
|
62.9 |
|
|
|
704.8 |
|
|
|
(1,697.1 |
) |
|
|
249.9 |
|
Deferred income taxes |
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6 |
|
Short-term debt and current portion
of long-term debt |
|
|
117.3 |
|
|
|
10.4 |
|
|
|
13.7 |
|
|
|
|
|
|
|
141.4 |
|
|
Total current liabilities |
|
|
1,307.7 |
|
|
|
246.6 |
|
|
|
933.8 |
|
|
|
(1,697.1 |
) |
|
|
791.0 |
|
Long-term debt |
|
|
752.5 |
|
|
|
350.8 |
|
|
|
18.6 |
|
|
|
(200.0 |
) |
|
|
921.9 |
|
Accrued postretirement benefits |
|
|
|
|
|
|
236.6 |
|
|
|
187.2 |
|
|
|
|
|
|
|
423.8 |
|
Pension liabilities |
|
|
12.9 |
|
|
|
6.2 |
|
|
|
39.2 |
|
|
|
|
|
|
|
58.3 |
|
Deferred income taxes |
|
|
68.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.6 |
|
Other long-term liabilities |
|
|
31.5 |
|
|
|
20.0 |
|
|
|
49.1 |
|
|
|
|
|
|
|
100.6 |
|
|
Total liabilities |
|
|
2,173.2 |
|
|
|
860.2 |
|
|
|
1,227.9 |
|
|
|
(1,897.1 |
) |
|
|
2,364.2 |
|
|
Total stockholders equity |
|
|
2,129.4 |
|
|
|
1,933.9 |
|
|
|
2,791.0 |
|
|
|
(4,724.9 |
) |
|
|
2,129.4 |
|
|
Total liabilities and stockholders
equity |
|
$ |
4,302.6 |
|
|
$ |
2,794.1 |
|
|
$ |
4,018.9 |
|
|
$ |
(6,622.0 |
) |
|
$ |
4,493.6 |
|
|
72
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Non-guarantor |
|
|
|
|
|
|
|
(In millions) |
|
Parent |
|
|
Subsidiary |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Sales |
|
$ |
|
|
|
$ |
2,056.5 |
|
|
$ |
1,991.3 |
|
|
$ |
|
|
|
$ |
4,047.8 |
|
Cost of sales |
|
|
44.0 |
|
|
|
1,968.4 |
|
|
|
1,545.1 |
|
|
|
|
|
|
|
3,557.5 |
|
Selling and administrative expenses |
|
|
126.2 |
|
|
|
28.8 |
|
|
|
149.9 |
|
|
|
|
|
|
|
304.9 |
|
|
Income (loss) before interest, other income
and income taxes |
|
|
(170.2 |
) |
|
|
59.3 |
|
|
|
296.3 |
|
|
|
|
|
|
|
185.4 |
|
Interest expense, net |
|
|
(52.2 |
) |
|
|
(10.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
(62.7 |
) |
Other income (expense) including
equity in income of unconsolidated
subsidiaries |
|
|
348.1 |
|
|
|
8.5 |
|
|
|
3.8 |
|
|
|
(357.4 |
) |
|
|
3.0 |
|
Income before income tax provision |
|
|
125.7 |
|
|
|
57.6 |
|
|
|
299.8 |
|
|
|
(357.4 |
) |
|
|
125.7 |
|
Income tax provision |
|
|
47.0 |
|
|
|
20.0 |
|
|
|
124.0 |
|
|
|
(144.0 |
) |
|
|
47.0 |
|
|
Net income |
|
|
78.7 |
|
|
|
37.6 |
|
|
|
175.8 |
|
|
|
(213.4 |
) |
|
|
78.7 |
|
Less: Net income attributable to
noncontrolling interest |
|
|
8.0 |
|
|
|
|
|
|
|
8.0 |
|
|
|
(8.0 |
) |
|
|
8.0 |
|
|
Net income attributable to ATI |
|
$ |
70.7 |
|
|
$ |
37.6 |
|
|
$ |
167.8 |
|
|
$ |
(205.4 |
) |
|
$ |
70.7 |
|
|
Condensed Statements of Cash Flows
For the year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Non-guarantor |
|
|
|
|
|
|
|
(In millions) |
|
Parent |
|
|
Subsidiary |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Cash flows provided by (used in)
operating activities |
|
$ |
(23.8 |
) |
|
$ |
(188.9 |
) |
|
$ |
271.2 |
|
|
$ |
(31.4 |
) |
|
$ |
27.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities |
|
|
(0.2 |
) |
|
|
(68.7 |
) |
|
|
(123.0 |
) |
|
|
(24.9 |
) |
|
|
(216.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
financing activities |
|
|
18.7 |
|
|
|
(55.5 |
) |
|
|
(106.3 |
) |
|
|
56.3 |
|
|
|
(86.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents |
|
$ |
(5.3 |
) |
|
$ |
(313.1 |
) |
|
$ |
41.9 |
|
|
$ |
|
|
|
$ |
(276.5 |
) |
|
73
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Non-guarantor |
|
|
|
|
|
|
|
(In millions) |
|
Parent |
|
|
Subsidiary |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7.0 |
|
|
$ |
472.2 |
|
|
$ |
229.6 |
|
|
$ |
|
|
|
$ |
708.8 |
|
Accounts receivable, net |
|
|
0.2 |
|
|
|
156.1 |
|
|
|
235.7 |
|
|
|
|
|
|
|
392.0 |
|
Inventories, net |
|
|
|
|
|
|
159.9 |
|
|
|
665.6 |
|
|
|
|
|
|
|
825.5 |
|
Prepaid expenses and other current
assets |
|
|
16.3 |
|
|
|
7.6 |
|
|
|
47.4 |
|
|
|
|
|
|
|
71.3 |
|
|
Total current assets |
|
|
23.5 |
|
|
|
795.8 |
|
|
|
1,178.3 |
|
|
|
|
|
|
|
1,997.6 |
|
Property, plant and equipment, net |
|
|
3.6 |
|
|
|
429.7 |
|
|
|
1,474.6 |
|
|
|
|
|
|
|
1,907.9 |
|
Cost in excess of net assets acquired |
|
|
|
|
|
|
112.1 |
|
|
|
95.7 |
|
|
|
|
|
|
|
207.8 |
|
Deferred income taxes |
|
|
63.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.1 |
|
Investments in subsidiaries and
other assets |
|
|
3,969.0 |
|
|
|
1,422.5 |
|
|
|
999.5 |
|
|
|
(6,221.4 |
) |
|
|
169.6 |
|
|
Total assets |
|
$ |
4,059.2 |
|
|
$ |
2,760.1 |
|
|
$ |
3,748.1 |
|
|
$ |
(6,221.4 |
) |
|
$ |
4,346.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4.5 |
|
|
$ |
135.4 |
|
|
$ |
168.7 |
|
|
$ |
|
|
|
$ |
308.6 |
|
Accrued liabilities |
|
|
1,013.4 |
|
|
|
54.5 |
|
|
|
696.6 |
|
|
|
(1,505.7 |
) |
|
|
258.8 |
|
Deferred income taxes |
|
|
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.7 |
|
Short-term debt and current portion
of long-term debt |
|
|
|
|
|
|
10.5 |
|
|
|
23.0 |
|
|
|
|
|
|
|
33.5 |
|
|
Total current liabilities |
|
|
1,041.6 |
|
|
|
200.4 |
|
|
|
888.3 |
|
|
|
(1,505.7 |
) |
|
|
624.6 |
|
Long-term debt |
|
|
870.4 |
|
|
|
361.3 |
|
|
|
5.9 |
|
|
|
(200.0 |
) |
|
|
1,037.6 |
|
Accrued postretirement benefits |
|
|
|
|
|
|
257.6 |
|
|
|
166.7 |
|
|
|
|
|
|
|
424.3 |
|
Pension liabilities |
|
|
12.0 |
|
|
|
5.0 |
|
|
|
33.6 |
|
|
|
|
|
|
|
50.6 |
|
Other long-term liabilities |
|
|
45.6 |
|
|
|
22.6 |
|
|
|
51.1 |
|
|
|
|
|
|
|
119.3 |
|
|
Total liabilities |
|
|
1,969.6 |
|
|
|
846.9 |
|
|
|
1,145.6 |
|
|
|
(1,705.7 |
) |
|
|
2,256.4 |
|
|
Total stockholders equity |
|
|
2,089.6 |
|
|
|
1,913.2 |
|
|
|
2,602.5 |
|
|
|
(4,515.7 |
) |
|
|
2,089.6 |
|
|
Total liabilities and stockholders
equity |
|
$ |
4,059.2 |
|
|
$ |
2,760.1 |
|
|
$ |
3,748.1 |
|
|
$ |
(6,221.4 |
) |
|
$ |
4,346.0 |
|
|
74
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Non-guarantor |
|
|
|
|
|
|
|
(In millions) |
|
Parent |
|
|
Subsidiary |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Sales |
|
$ |
|
|
|
$ |
1,380.3 |
|
|
$ |
1,674.6 |
|
|
$ |
|
|
|
$ |
3,054.9 |
|
Cost of sales |
|
|
68.5 |
|
|
|
1,284.2 |
|
|
|
1,293.8 |
|
|
|
|
|
|
|
2,646.5 |
|
Selling and administrative expenses |
|
|
127.7 |
|
|
|
36.5 |
|
|
|
151.5 |
|
|
|
|
|
|
|
315.7 |
|
|
Income (loss) before interest, other income
and income taxes |
|
|
(196.2 |
) |
|
|
59.6 |
|
|
|
229.3 |
|
|
|
|
|
|
|
92.7 |
|
Interest income (expense), net |
|
|
(9.5 |
) |
|
|
(9.8 |
) |
|
|
|
|
|
|
|
|
|
|
(19.3 |
) |
Debt extinguishment costs |
|
|
(9.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.2 |
) |
Other income (expense) including
equity in income of unconsolidated
subsidiaries |
|
|
279.8 |
|
|
|
2.6 |
|
|
|
5.7 |
|
|
|
(287.4 |
) |
|
|
0.7 |
|
|
Income before income tax provision |
|
|
64.9 |
|
|
|
52.4 |
|
|
|
235.0 |
|
|
|
(287.4 |
) |
|
|
64.9 |
|
Income tax provision |
|
|
26.9 |
|
|
|
18.8 |
|
|
|
93.6 |
|
|
|
(112.4 |
) |
|
|
26.9 |
|
|
Net income |
|
|
38.0 |
|
|
|
33.6 |
|
|
|
141.4 |
|
|
|
(175.0 |
) |
|
|
38.0 |
|
Less: Net income attributable to
noncontrolling interest |
|
|
6.3 |
|
|
|
|
|
|
|
6.3 |
|
|
|
(6.3 |
) |
|
|
6.3 |
|
|
Net income attributable to ATI |
|
$ |
31.7 |
|
|
$ |
33.6 |
|
|
$ |
135.1 |
|
|
$ |
(168.7 |
) |
|
$ |
31.7 |
|
|
Condensed Statements of Cash Flows
For the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
Non-guarantor |
|
|
|
|
(In millions) |
|
Parent |
|
Subsidiary |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
Cash flows provided by (used in)
operating activities |
|
$ |
(46.2 |
) |
|
$ |
62.5 |
|
|
$ |
184.3 |
|
|
$ |
17.9 |
|
|
$ |
218.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities |
|
|
(132.8 |
) |
|
|
(48.1 |
) |
|
|
(334.5 |
) |
|
|
61.7 |
|
|
|
(453.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
financing activities |
|
|
182.8 |
|
|
|
176.0 |
|
|
|
194.9 |
|
|
|
(79.6 |
) |
|
|
474.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
3.8 |
|
|
$ |
190.4 |
|
|
$ |
44.7 |
|
|
$ |
|
|
|
$ |
238.9 |
|
|
75
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
Non-guarantor |
|
|
|
|
(In millions) |
|
Parent |
|
Subsidiary |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
Sales |
|
$ |
|
|
|
$ |
2,685.3 |
|
|
$ |
2,624.4 |
|
|
$ |
|
|
|
$ |
5,309.7 |
|
Cost of sales |
|
|
(10.1 |
) |
|
|
2,299.0 |
|
|
|
1,868.9 |
|
|
|
|
|
|
|
4,157.8 |
|
Selling and administrative expenses |
|
|
84.5 |
|
|
|
40.9 |
|
|
|
157.3 |
|
|
|
|
|
|
|
282.7 |
|
|
Income (loss) before interest, other income
and income taxes |
|
|
(74.4 |
) |
|
|
345.4 |
|
|
|
598.2 |
|
|
|
|
|
|
|
869.2 |
|
Interest income (expense), net |
|
|
(0.3 |
) |
|
|
(9.5 |
) |
|
|
6.3 |
|
|
|
|
|
|
|
(3.5 |
) |
Other income (expense) including
equity in income of unconsolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries |
|
|
942.4 |
|
|
|
29.0 |
|
|
|
1.4 |
|
|
|
(970.8 |
) |
|
|
2.0 |
|
|
Income before income tax provision |
|
|
867.7 |
|
|
|
364.9 |
|
|
|
605.9 |
|
|
|
(970.8 |
) |
|
|
867.7 |
|
Income tax provision |
|
|
294.2 |
|
|
|
132.6 |
|
|
|
200.0 |
|
|
|
(332.6 |
) |
|
|
294.2 |
|
|
Net income |
|
|
573.5 |
|
|
|
232.3 |
|
|
|
405.9 |
|
|
|
(638.2 |
) |
|
|
573.5 |
|
Less: Net income attributable to
noncontrolling interest |
|
|
7.6 |
|
|
|
|
|
|
|
7.6 |
|
|
|
(7.6 |
) |
|
|
7.6 |
|
|
Net income attributable to ATI |
|
$ |
565.9 |
|
|
$ |
232.3 |
|
|
$ |
398.3 |
|
|
$ |
(630.6 |
) |
|
$ |
565.9 |
|
|
Condensed Statements of Cash Flows
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
|
|
|
Non-guarantor |
|
|
|
|
(In millions) |
|
Parent |
|
Subsidiary |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
Cash flows provided by (used in)
operating activities |
|
$ |
(60.1 |
) |
|
$ |
374.5 |
|
|
$ |
440.1 |
|
|
$ |
|
|
|
$ |
754.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities |
|
|
(0.5 |
) |
|
|
(65.3 |
) |
|
|
(448.1 |
) |
|
|
|
|
|
|
(513.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
financing activities |
|
|
63.8 |
|
|
|
(215.5 |
) |
|
|
(242.3 |
) |
|
|
|
|
|
|
(394.0 |
) |
|
Increase (decrease) in cash
and cash equivalents |
|
$ |
3.2 |
|
|
$ |
93.7 |
|
|
$ |
(250.3 |
) |
|
$ |
|
|
|
$ |
(153.4 |
) |
|
Note 16. Commitments and Contingencies
Rental expense under operating leases was $21.1 million in 2010, $21.2 million in 2009, and
$21.0 million in 2008. Future minimum rental commitments under operating leases with non-cancelable
terms of more than one year at December 31, 2010, were as follows: $16.9 million in 2011, $13.7
million in 2012, $9.8 million in 2013, $9.0 million in 2014, $3.6 million in 2015 and $16.7 million
thereafter. Commitments for expenditures on property, plant and equipment at December 31, 2010 were
approximately $342.6 million.
The Company is subject to various domestic and international environmental laws and
regulations that govern the discharge of pollutants and disposal of wastes, and which may require
that it investigate and remediate the effects of the release or disposal of materials at sites
associated with past and present operations. The Company could incur substantial cleanup costs,
fines, and civil or criminal sanctions, third party property damage or personal injury claims as a
result of violations or liabilities under these laws or noncompliance with environmental permits
required at its facilities. The Company is currently involved in the investigation and remediation
of a number of its current and former sites, as well as third party sites.
Environmental liabilities are recorded when the Companys liability is probable and the costs
are reasonably estimable. In many cases, however, the Company is not able to determine whether it
is liable or, if liability is probable, to reasonably estimate the loss or range of loss. Estimates
of the Companys liability remain subject to additional uncertainties, including the nature and
extent of site contamination, available remediation alternatives, the extent of corrective actions
that may be required, and the
76
number, participation, and financial condition of other potentially responsible parties
(PRPs). The Company expects that it will adjust its accruals to reflect new information as
appropriate. Future adjustments could have a material adverse effect on the Companys results of
operations in a given period, but the Company cannot reliably predict the amounts of such future
adjustments.
Based on currently available information, the Company does not believe that there is a
reasonable possibility that a loss exceeding the amount already accrued for any of the sites with
which the Company is currently associated (either individually or in the aggregate) will be an
amount that would be material to a decision to buy or sell the Companys securities. Future
developments, administrative actions or liabilities relating to environmental matters, however,
could have a material adverse effect on the Companys financial condition or results of operations.
At December 31, 2010, the Companys reserves for environmental remediation obligations totaled
approximately $16 million, of which $6 million was included in other current liabilities. The
reserve includes estimated probable future costs of $6 million for federal Superfund and comparable
state-managed sites; $6 million for formerly owned or operated sites for which the Company has
remediation or indemnification obligations; $3 million for owned or controlled sites at which
Company operations have been discontinued; and $1 million for sites utilized by the Company in its
ongoing operations. The Company continues to evaluate whether it may be able to recover a portion
of future costs for environmental liabilities from third parties.
The timing of expenditures depends on a number of factors that vary by site. The Company
expects that it will expend present accruals over many years and that remediation of all sites with
which it has been identified will be completed within thirty years.
A number of other lawsuits, claims and proceedings have been or may be asserted against the
Company relating to the conduct of its currently and formerly owned businesses, including those
pertaining to product liability, patent infringement, commercial, government contract work,
employment, employee benefits, taxes, environmental, health and safety, occupational disease, and
stockholder matters. While the outcome of litigation cannot be predicted with certainty, and some
of these lawsuits, claims or proceedings may be determined adversely to the Company, management
does not believe that the disposition of any such pending matters is likely to have a material
adverse effect on the Companys financial condition or liquidity, although the resolution in any
reporting period of one or more of these matters could have a material adverse effect on the
Companys results of operations for that period.
Note 17. Selected Quarterly Financial Data
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
(In millions except share and per share amounts) |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
899.4 |
|
|
$ |
1,052.0 |
|
|
$ |
1,058.8 |
|
|
$ |
1,037.6 |
|
Gross Profit |
|
|
121.4 |
|
|
|
151.8 |
|
|
|
89.8 |
|
|
|
127.3 |
|
Net income attributable to ATI |
|
|
18.2 |
|
|
|
36.4 |
|
|
|
1.0 |
|
|
|
15.1 |
|
|
Basic net income per common share |
|
$ |
0.19 |
|
|
$ |
0.37 |
|
|
$ |
0.01 |
|
|
$ |
0.16 |
|
|
Diluted net income per common share |
|
$ |
0.18 |
|
|
$ |
0.36 |
|
|
$ |
0.01 |
|
|
$ |
0.15 |
|
|
Average shares outstanding |
|
|
98,317,319 |
|
|
|
98,563,774 |
|
|
|
98,576,117 |
|
|
|
98,593,745 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
831.6 |
|
|
$ |
710.0 |
|
|
$ |
697.6 |
|
|
$ |
815.7 |
|
Gross Profit |
|
|
80.7 |
|
|
|
75.2 |
|
|
|
94.1 |
|
|
|
158.4 |
|
Net income (loss) attributable to ATI |
|
|
5.9 |
|
|
|
(13.4 |
) |
|
|
1.4 |
|
|
|
37.8 |
|
|
Basic net income (loss) per common share |
|
$ |
0.06 |
|
|
$ |
(0.14 |
) |
|
$ |
0.01 |
|
|
$ |
0.39 |
|
|
Diluted net income (loss) per common share |
|
$ |
0.06 |
|
|
$ |
(0.14 |
) |
|
$ |
0.01 |
|
|
$ |
0.36 |
|
|
Average shares outstanding |
|
|
97,596,689 |
|
|
|
98,033,663 |
|
|
|
98,074,186 |
|
|
|
98,075,587 |
|
|
The first quarter 2010 included a non-recurring tax charge of $5.3 million associated with the
Patient Protection and Affordable Care Act. Under this legislation, the tax advantage of the
subsidy to encourage companies to provide retiree prescription drug coverage was eliminated.
Although the elimination of this tax advantage under the new legislation does not take effect until
2013, the Company was required by U.S. generally accepted accounting principles to recognize the
full accounting impact in the 2010 first quarter, the period in which the Act became law. Since
future anticipated retiree health care liabilities and related tax subsidies were already reflected
in ATIs financial statements, the change in law resulted in a reduction of the value of
77
the
Companys deferred tax asset related to the subsidy. This 2010 first quarter tax charge was
partially offset by discrete net tax
benefits of $3.7 million associated with adjustment of taxes accrued in prior years, the
settlement of uncertain income tax positions, and other changes.
The third quarter 2010 included a tax charge of $3.9 million primarily due to the Small
Business Jobs and Credit Act, which allows businesses of all sizes to immediately deduct from
taxable income 50% of the cost of depreciable property placed into service during 2010.
The 2009 second quarter includes $17.0 million in after-tax effects related to several
proactive liability management actions including the issuance of $350 million of 9.375% 10-year
Senior Notes and $402.5 million of 4.25% 5-year Convertible Senior Notes with the stated intent of
repurchasing the existing $300 million of 8.375% Notes due in 2011 and improving the funded
position of the Companys U.S. defined benefit pension plan. As a result of the tender offer, in
June 2009 the Company retired $183.3 million of the outstanding 8.375% Notes which resulted in a
charge of $9.2 million pre-tax, or $5.5 million after-tax, being recognized in the 2009 second
quarter. In addition, the Company made a $350 million voluntary cash contribution to its domestic
pension plan to significantly improve the plans funded position. The second quarter 2009 tax
provision included an unfavorable discrete tax charge of $11.5 million, primarily associated with
the tax consequences of the $350 million voluntary second quarter 2009 pension contribution. As a
result of the $350 million voluntary pension contribution, which was designated to pertain to the
2008 tax year, the company received a U.S. Federal tax refund of $108.5 million in the second
quarter 2009.
Note 18. Subsequent Event
On January 7, 2010, ATI issued $500 million aggregate principal amount of 5.95% Senior Notes
due 2021 (the Senior Notes). The Senior Notes will pay interest semi-annually in arrears at a
rate of 5.95% per year and will mature on January 15, 2021, unless earlier repurchased. The Company
intends to use net proceeds from the offering of the Senior Notes to finance the cash portion of
the merger consideration to be paid in its previously announced acquisition of Ladish Co., Inc.
(approximately $389 million) and pay related fees and expenses. The additional net proceeds will be
used for general corporate purposes.
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
78
|
|
|
Item 9A. |
|
Controls and Procedures |
Disclosure Controls and Procedures
Our Chief Executive Officer and Principal Financial Officer have evaluated the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) or
Rule 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of December 31, 2010, and they concluded that these controls
and procedures are effective.
Managements Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial reporting is defined in Rules 13a-15(f )
and 15d-15(f ) promulgated under the Securities Exchange Act of 1934, as amended, as a process
designed by, or under the supervision of, the companys principal executive and principal financial
officers and effected by the companys board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting
can also be circumvented by collusion or improper management override. Because of such limitations,
there is a risk that material misstatements may not be prevented or detected on a timely basis by
internal control over financial reporting. However, these inherent limitations are known features
of the financial reporting process. Therefore, it is possible to design into the process safeguards
to reduce, though not eliminate, this risk.
The Companys management assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2010. In making this assessment, the Companys management
used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway
Commissions Internal Control-Integrated Framework.
Based on our assessment, management has concluded that, as of December 31, 2010, the Companys
internal control over financial reporting is effective based on those criteria.
The Companys independent registered public accounting firm that audited the financial
statements included in this Annual Report issued an attestation report on the Companys internal
control over financial reporting.
Managements Certifications
The certifications of the Companys Chief Executive Officer and Principal Financial Officer
required by the Sarbanes-Oxley Act are included as Exhibits 31 and 32 to this Annual Report on Form
10-K. In addition, in 2010 the Companys Chief Executive Officer provided to the New York Stock
Exchange the annual CEO certification pursuant to Section 303A regarding the Companys compliance
with the New York Stock Exchanges corporate governance listing standards.
79
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Allegheny Technologies Incorporated
We have audited Allegheny Technologies Incorporateds internal control over financial reporting as
of December 31, 2010, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Allegheny Technologies Incorporateds management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Allegheny Technologies Incorporated maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Allegheny Technologies Incorporated as of
December 31, 2010 and 2009, and the related consolidated
statements of income, changes in equity, and
cash flows for each of the three years in the period ended
December 31, 2010, and our report dated
February 28, 2011, expressed an unqualified opinion thereon.
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/s/ Ernst & Young LLP
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Pittsburgh, Pennsylvania |
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|
February 28, 2011 |
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80
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|
Item 9B. |
|
Other Information |
Not applicable.
PART III
|
|
|
Item 10. |
|
Directors and Executive Officers of the Registrant |
In addition to the information set forth under the caption Executive Management, including
Executive Officers under the Federal Securities Laws in Part I of this report, the information
concerning our directors required by this item is incorporated and made part hereof by reference to
the material appearing under the heading Our Corporate Governance and Election of Directors in
Allegheny Technologies Proxy Statement for the 2011 Annual Meeting of Stockholders (the 2011
Proxy Statement), which will be filed with the Securities and Exchange Commission, pursuant to
Regulation 14A, not later than 120 days after the end of the fiscal year. Information concerning
the Audit Committee and its financial expert required by this item is incorporated and made part
hereof by reference to the material appearing under the heading Committees of the Board of
Directors Audit Committee in the 2011 Proxy Statement. Information required by this item
regarding compliance with Section 16(a) of the Exchange Act is incorporated and made a part hereof
by reference to the material appearing under the heading Section 16(a) Beneficial Ownership
Reporting Compliance in the 2011 Proxy Statement. Information concerning the executive officers of
Allegheny Technologies is contained in Part I of this Form 10-K under the caption Executive
Management, including Executive Officers under the Federal Securities Laws.
Allegheny Technologies has adopted Corporate Guidelines for Business Conduct and Ethics that
apply to all employees including its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions. Allegheny
Technologies will provide a copy free of charge. To obtain a copy, contact the Corporate Secretary,
Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
(telephone: 412-394-2800). The Corporate Guidelines for Business Conduct and Ethics as well as the
charters for the Companys Audit, Finance, Nominating and Governance, Personnel and Compensation
and Technology Committees, as well as periodic and current reports filed with the SEC, are
available through the Companys web site at http://www.atimetals.com and are available in print to
any shareholder upon request. The Company intends to post on its web site any waiver from or
amendment to the guidelines that apply to the officers named that relate to elements of the code of
ethics identified by the Securities and Exchange Commission.
|
|
|
Item 11. |
|
Executive Compensation |
Information required by this item is incorporated by reference to Director Compensation,
Executive Compensation and Compensation Committee Interlocks and Insider Participation as set
forth in the 2011 Proxy Statement.
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
Information relating to the ownership of equity securities by certain beneficial owners and
management is incorporated by reference to Stock Ownership Information as set forth in the 2011
Proxy Statement.
Equity Compensation Plan Information
Information about our equity compensation plans at December 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
|
|
|
|
Remaining Available for |
|
|
|
|
|
|
|
|
|
|
Future Issuance Under |
|
|
Number of Shares to be |
|
Weighted Average |
|
Equity Compensation Plans |
|
|
Issued Upon Exercise of |
|
Exercise Price of |
|
(1) (excluding securities |
(in thousands, except per share amounts) |
|
Outstanding Options |
|
Outstanding Options |
|
reflected in column (a)) |
|
Equity Compensation Plans Approved by Shareholders |
|
|
600 |
|
|
$ |
8.11 |
|
|
|
1,438 |
|
Equity Compensation Plans Not Approved by
Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
600 |
|
|
$ |
8.11 |
|
|
|
1,438 |
|
|
|
|
|
(1) |
|
Represents shares available for issuance under the 2007 Incentive Plan, which was amended and
restated in 2010 (which provides for the issuance of stock options and stock appreciation
rights, restricted shares, performance and other-stock-based awards). Of the total number of
shares authorized under the Incentive Plan, a maximum of 2.3 million shares have been |
81
|
|
|
|
|
reserved for issuance for award periods under the Total Shareholder Return Incentive
Compensation Program. See Note 11. Stockholders Equity for a discussion of the Companys
stock-based compensation plans. |
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
Information required by this item is incorporated by reference to Certain Transactions and
Number and Independence of Directors as set forth in the 2011 Proxy Statement.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services |
Information required by this item is incorporated by reference to Ratification of Selection of
Independent Auditors including Audit Committee Pre-Approval Policy and Independent Auditor:
Services and Fees, as set forth in the 2011 Proxy Statement.
PART IV
|
|
|
Item 15. |
|
Exhibits, Financial Statements and Financial Statement Schedules |
(a) Financial Statements, Financial Statement Schedules and Exhibits:
(1) Financial Statements
The following consolidated financial statements and report are filed as part of this report
under Item 8 Financial Statements and Supplementary Data:
(2) Financial Statement Schedules
All schedules set forth in the applicable accounting regulations of the Securities and
Exchange Commission either are not required under the related instructions or are not applicable
and, therefore, have been omitted.
82
(3) Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K are listed below. Documents not
designated as being incorporated herein by reference are filed herewith. The paragraph numbers
correspond to the exhibit numbers designated in Item 601 of Regulation S-K.
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
2.1
|
|
Agreement and Plan of Merger, dated as of November 16, 2010, by and among Allegheny Technologies Incorporated,
LPAD Co., PADL LLC and Ladish Co., Inc. (incorporated by reference to Exhibit 2.1 to the Registrants Current
Report on Form 8-K dated November 17, 2010 (File No. 1-12001)). |
|
|
|
3.1
|
|
Certificate of Incorporation of Allegheny Technologies Incorporated, as amended (incorporated by reference to
Exhibit 3.1 to the Registrants Annual Report on Form 10-K for the year ended December 31, 1999 (File No.
1-12001)). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Allegheny Technologies Incorporated (incorporated by reference to Exhibit 3.2 to
the Registrants Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)). |
|
|
|
4.1
|
|
Indenture dated as of December 18, 2001 between Allegheny Technologies Incorporated and The Bank of New York, as
trustee, relating to Allegheny Technologies Incorporateds 8.375% Notes due 2011 (incorporated by reference to
Exhibit 4.2 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2001 (File No.
1-12001)). |
|
|
|
4.2
|
|
Form of 8.375% Notes due 2011 (included as part of Exhibit 4.1). |
|
|
|
4.3
|
|
Indenture dated as of December 15, 1995 between Allegheny Ludlum Corporation and The Chase Manhattan Bank
(National Association), as trustee, relating to Allegheny Ludlum Corporations 6.95% Debentures due 2025
(incorporated by reference to Exhibit 4(a) to Allegheny Ludlum Corporations Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-9498)), and First Supplemental Indenture by and among Allegheny Technologies
Incorporated, Allegheny Ludlum Corporation and The Chase Manhattan Bank (National Association), as Trustee, dated
as of August 15, 1996 (incorporated by reference to Exhibit 4.1 to Registrants Current Report on Form 8-K dated
August 15, 1996 (File No. 1-12001)). |
|
|
|
4.4
|
|
Indenture, dated June 1, 2009, between Allegheny Technologies Incorporated and The Bank of New York Mellon, as
Trustee (incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated June 3,
2009 (File No. 1-12001)). |
|
|
|
4.5
|
|
First Supplemental Indenture, dated June 1, 2009, between Allegheny Technologies Incorporated and The Bank of New
York Mellon, as Trustee, relating to Allegheny Technologies Incorporateds 9.375% Senior Notes due 2019
(incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated June 3, 2009 (File
No. 1-12001)). |
|
|
|
4.6
|
|
Second Supplemental Indenture, dated June 2, 2009, between Allegheny Technologies Incorporated and The Bank of New
York Mellon, as Trustee, relating to Allegheny Technologies Incorporateds 4.25% Convertible Senior Notes due 2014
(incorporated by reference to Exhibit 4.3 to the Registrants Current Report on Form 8-K dated June 3, 2009 (File
No. 1-12001)). |
|
|
|
4.7
|
|
Form of 9.375% Senior Note due 2019 (incorporated by reference to Exhibit 4.4 to the Registrants Current Report
on Form 8-K dated June 3, 2009 (File No. 1-12001)). |
|
|
|
4.8
|
|
Form of 4.25% Convertible Senior Note due 2014 (incorporated by reference to Exhibit 4.5 to the Registrants
Current Report on Form 8-K dated June 3, 2009 (File No. 1-12001)). |
|
|
|
4.9
|
|
Third Supplemental Indenture, dated January 7, 2011, between Allegheny Technologies Incorporated and The Bank of
New York Mellon, as Trustee, relating to Allegheny Technologies Incorporateds 5.950% Senior Notes due 2021
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated January 7, 2011
(File No. 1-12001)). |
|
|
|
4.10
|
|
Form of 5.950% Senior Note due 2021 (incorporated by reference to Exhibit 4.2 to the Registrants Current Report
on Form 8-K dated January 7, 2011 (File No. 1-12001)). |
|
|
|
10.1
|
|
Allegheny Technologies Incorporated 1996 Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* |
|
|
|
10.2
|
|
Allegheny Technologies Incorporated 1996 Non-Employee Director Stock Compensation Plan, as amended December 17,
1998 (incorporated by reference to Exhibit 10.4 to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-12001)).* |
83
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.3
|
|
Allegheny Technologies Incorporated Fee Continuation Plan for Non-Employee Directors, as amended (incorporated by
reference to Exhibit 10.3 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2004
(File No. 1-12001)).* |
|
|
|
10.4
|
|
Supplemental Pension Plan for Certain Key Employees of Allegheny Technologies Incorporated and its subsidiaries
(formerly known as the Allegheny Ludlum Corporation Key Man Salary Continuation Plan) (incorporated by reference
to Exhibit 10.7 to the Companys Annual Report on Form 10-K for the year ended December 31, 1997 (File No.
1-12001)).* |
|
|
|
10.5
|
|
Allegheny Technologies Incorporated Benefit Restoration Plan, as amended (incorporated by reference to Exhibit
10.8 to the Registrants Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-12001)).* |
|
|
|
10.6
|
|
Employment Agreement dated August 26, 2003 between Allegheny Technologies Incorporated and L. Patrick Hassey
(incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q dated November 4,
2003 (File No. 1-12001)).* |
|
|
|
10.7
|
|
Employment Agreement dated July 15, 1996 between Allegheny Technologies Incorporated and Jon D. Walton
(incorporated by reference to Exhibit 10.5 to the Companys Registration Statement on Form S-4 (No. 333-8235)).* |
|
|
|
10.8
|
|
Allegheny Technologies Incorporated 2000 Incentive Plan, as amended (incorporated by reference to Exhibit 10.9 to
the Registrants Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 1-12001)).* |
|
|
|
10.9
|
|
Amendment to the Allegheny Technologies Incorporated Pension Plan effective January 1, 2003 (incorporated by
reference to Exhibit 10.20 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2003
(File No. 1-12001)).* |
|
|
|
10.10
|
|
Credit Agreement, dated July 31, 2007, by and among the Company, the guarantors party thereto, the lenders party
thereto, PNC Bank, National Association, as Administrative Agent, and PNC Capital Markets LLC, as Lead Arranger
(incorporated by reference to Exhibit 10.6 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010 (File No. 1-12001)). |
|
|
|
10.11
|
|
Form of Amended and Restated Change in Control Severance Agreement, dated as of December 31, 2008 (incorporated by
reference to Exhibit 10.10 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008
(File No. 12001)).* |
|
|
|
10.12
|
|
Summary of Non-Employee Director Compensation Program (incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on Form 8-K dated August 5, 2008 (File No. 1-12001)). |
|
|
|
10.13
|
|
Administrative Rules for the Non-Employee Director Restricted Stock Program, effective as of May 2, 2007, as
amended through May 7, 2010 (incorporated by reference to Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2010 (File No. 1-12001)).* |
|
|
|
10.14
|
|
Key Executive Performance Plan, as amended February 21, 2008 (incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 1-12001)).* |
|
|
|
10.15
|
|
Form of Total Shareholder Return Incentive Compensation Plan Agreement effective as of January 1, 2008
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008 (File No. 1-12001)).* |
|
|
|
10.16
|
|
Form of Performance/Restricted Stock Agreement dated February 21, 2008 (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 1-12001)).* |
|
|
|
10.17
|
|
First Amendment to Credit Agreement, dated May 29, 2009, by and among ATI Funding Corporation, TDY Holdings, LLC,
the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as administrative
agent for the lenders (incorporated by reference to Exhibit 10.7 to the Registrants Quarterly Report on Form 10-Q
dated March 31, 2010 (File No. 1-12001)). |
|
|
|
10.18
|
|
Form of Key Executive Performance Plan Agreement dated February 18, 2009, including Key Executive Performance
Plan, as amended February 18, 2009 (incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009 (File No.1-12001)).* |
|
|
|
10.19
|
|
Form of Total Shareholder Return Incentive Compensation Program Award Agreement effective as of January 1, 2009
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 (File No.1-12001)).* |
|
|
|
10.20
|
|
Form of Performance/Restricted Stock Agreement dated February 18, 2009 (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (File No.1-12001)).* |
84
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.21
|
|
Administrative Rules for the Performance Equity Payment Program, effective as of January 1, 2010 (incorporated by
reference to Exhibit 10.23 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009
(File No. 1-12001)).* |
|
|
|
10.22
|
|
Form of Performance Equity Payment Program Deferred Salary Agreement dated January 4, 2010 (incorporated by
reference to Exhibit 10.24 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009
(File No. 1-12001)).* |
|
|
|
10.23
|
|
Form of Performance Equity Payment Program Restricted Stock Agreement dated January 4, 2010 (incorporated by
reference to Exhibit 10.25 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009
(File No. 1-12001)).* |
|
|
|
10.24
|
|
2010 Annual Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2010 (File No.1-12001)).* |
|
|
|
10.25
|
|
Form of Key Executive Performance Plan Agreement dated February 24, 2010, including Key Executive Performance
Plan, as amended February 24, 2010 (incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2010 (File No.1-12001)).* |
|
|
|
10.26
|
|
Form of Total Shareholder Return Incentive Compensation Program Award Agreement effective as of January 1, 2010
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010 (File No.1-12001)).* |
|
|
|
10.27
|
|
Form of Performance/Restricted Stock Agreement dated February 24, 2010 (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No.1-12001)).* |
|
|
|
10.28
|
|
Allegheny Technologies Incorporated 2007 Incentive Plan As Amended and Restated, effective May 7, 2010
(incorporated by reference to Exhibit 99.1 to the Registrants Registration Statement on Form S-8 dated May 7,
2010 (File No 333-166628)).* |
|
|
|
10.29
|
|
Second Amendment to Credit Agreement, dated December 22, 2010, by and among ATI Funding Corporation, TDY Holdings,
LLC, the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as Administrative
Agent for the lenders (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
dated December 29, 2010 (File No. 1-12001)). |
|
|
|
10.30
|
|
Consulting and Noncompetition Agreement between Allegheny Technologies Incorporated and Lynn D. Davis, effective
as of February 2, 2011 (filed herewith).* |
|
|
|
10.31
|
|
Form of Performance Equity Payment Program Deferred Salary Agreement dated January 3, 2011 (filed herewith).* |
|
|
|
10.32
|
|
Form of Performance Equity Payment Program Restricted Stock Agreement dated January 3, 2011 (filed herewith).* |
|
|
|
12.1
|
|
Computation of Ratio of Earnings to Fixed Charges (filed herewith). |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (filed herewith). |
|
|
|
23.1
|
|
Consent of Ernst & Young LLP (filed herewith). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14(a) or
15d-14(a) (filed herewith). |
|
|
|
31.2
|
|
Certification of Principal Financial Officer required by Securities and Exchange Commission Rule 13a-14(a) or
15d-14(a) (filed herewith). |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350 (filed herewith). |
|
|
|
101.INS
|
|
XBRL Instance Document |
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
* |
|
Management contract or compensatory plan or arrangement required to be filed as an Exhibit to
this Report. |
85
Certain instruments defining the rights of holders of long-term debt of the Company and its
subsidiaries have been omitted from the Exhibits in accordance with Item 601(b)(4)(iii) of
Regulation S-K. A copy of any omitted document will be furnished to the Commission upon request.
86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
ALLEGHENY TECHNOLOGIES INCORPORATED
|
|
Date: February 28, 2011 |
By |
/s/ L. Patrick Hassey
|
|
|
|
L. Patrick Hassey |
|
|
|
Chairman and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and as of
the 28th day of February, 2011.
|
|
|
/s/ L. Patrick Hassey
|
|
/s/ Dale G. Reid |
|
|
|
L. Patrick Hassey
|
|
Dale G. Reid |
Chairman and Chief
|
|
Senior Vice President, Finance |
Executive Officer and Director
|
|
and Principal Financial Officer |
|
|
(Principal Financial Officer) |
|
|
|
|
|
/s/ Karl D. Schwartz |
|
|
|
|
|
Karl D. Schwartz |
|
|
Controller and |
|
|
Principal Accounting Officer |
|
|
(Principal Accounting Officer) |
|
|
|
/s/ Diane C. Creel
|
|
/s/ Michael J. Joyce |
|
|
|
Diane C. Creel
|
|
Michael J. Joyce |
Director
|
|
Director |
|
|
|
/s/ James C. Diggs
|
|
/s/ James E. Rohr |
|
|
|
James C. Diggs
|
|
James E. Rohr |
Director
|
|
Director |
|
|
|
/s/ J. Brett Harvey
|
|
/s/ Louis J. Thomas |
|
|
|
J. Brett Harvey
|
|
Louis J. Thomas |
Director
|
|
Director |
|
|
|
/s/ Barbara S. Jeremiah
|
|
/s/ John D. Turner |
|
|
|
Barbara S. Jeremiah
|
|
John D. Turner |
Director
|
|
Director |
87
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
No. |
|
Description |
2.1
|
|
Agreement and Plan of Merger, dated as of November 16, 2010, by and among Allegheny Technologies Incorporated,
LPAD Co., PADL LLC and Ladish Co., Inc. (incorporated by reference to Exhibit 2.1 to the Registrants Current
Report on Form 8-K dated November 17, 2010 (File No. 1-12001)). |
|
|
|
3.1
|
|
Certificate of Incorporation of Allegheny Technologies Incorporated, as amended (incorporated by reference to
Exhibit 3.1 to the Registrants Annual Report on Form 10-K for the year ended December 31, 1999 (File No.
1-12001)). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Allegheny Technologies Incorporated (incorporated by reference to Exhibit 3.2 to
the Registrants Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)). |
|
|
|
4.1
|
|
Indenture dated as of December 18, 2001 between Allegheny Technologies Incorporated and The Bank of New York, as
trustee, relating to Allegheny Technologies Incorporateds 8.375% Notes due 2011 (incorporated by reference to
Exhibit 4.2 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2001 (File No.
1-12001)). |
|
|
|
4.2
|
|
Form of 8.375% Notes due 2011 (included as part of Exhibit 4.1). |
|
|
|
4.3
|
|
Indenture dated as of December 15, 1995 between Allegheny Ludlum Corporation and The Chase Manhattan Bank
(National Association), as trustee, relating to Allegheny Ludlum Corporations 6.95% Debentures due 2025
(incorporated by reference to Exhibit 4(a) to Allegheny Ludlum Corporations Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-9498)), and First Supplemental Indenture by and among Allegheny Technologies
Incorporated, Allegheny Ludlum Corporation and The Chase Manhattan Bank (National Association), as Trustee, dated
as of August 15, 1996 (incorporated by reference to Exhibit 4.1 to Registrants Current Report on Form 8-K dated
August 15, 1996 (File No. 1-12001)). |
|
|
|
4.4
|
|
Indenture, dated June 1, 2009, between Allegheny Technologies Incorporated and The Bank of New York Mellon, as
Trustee (incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated June 3,
2009 (File No. 1-12001)). |
|
|
|
4.5
|
|
First Supplemental Indenture, dated June 1, 2009, between Allegheny Technologies Incorporated and The Bank of New
York Mellon, as Trustee, relating to Allegheny Technologies Incorporateds 9.375% Senior Notes due 2019
(incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated June 3, 2009 (File
No. 1-12001)). |
|
|
|
4.6
|
|
Second Supplemental Indenture, dated June 2, 2009, between Allegheny Technologies Incorporated and The Bank of New
York Mellon, as Trustee, relating to Allegheny Technologies Incorporateds 4.25% Convertible Senior Notes due 2014
(incorporated by reference to Exhibit 4.3 to the Registrants Current Report on Form 8-K dated June 3, 2009 (File
No. 1-12001)). |
|
|
|
4.7
|
|
Form of 9.375% Senior Note due 2019 (incorporated by reference to Exhibit 4.4 to the Registrants Current Report
on Form 8-K dated June 3, 2009 (File No. 1-12001)). |
|
|
|
4.8
|
|
Form of 4.25% Convertible Senior Note due 2014 (incorporated by reference to Exhibit 4.5 to the Registrants
Current Report on Form 8-K dated June 3, 2009 (File No. 1-12001)). |
|
|
|
4.9
|
|
Third Supplemental Indenture, dated January 7, 2011, between Allegheny Technologies Incorporated and The Bank of
New York Mellon, as Trustee, relating to Allegheny Technologies Incorporateds 5.950% Senior Notes due 2021
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated January 7, 2011
(File No. 1-12001)). |
|
|
|
4.10
|
|
Form of 5.950% Senior Note due 2021 (incorporated by reference to Exhibit 4.2 to the Registrants Current Report
on Form 8-K dated January 7, 2011 (File No. 1-12001)). |
|
|
|
10.1
|
|
Allegheny Technologies Incorporated 1996 Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* |
|
|
|
10.2
|
|
Allegheny Technologies Incorporated 1996 Non-Employee Director Stock Compensation Plan, as amended December 17,
1998 (incorporated by reference to Exhibit 10.4 to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-12001)).* |
|
|
|
10.3
|
|
Allegheny Technologies Incorporated Fee Continuation Plan for Non-Employee Directors, as amended (incorporated by
reference to Exhibit 10.3 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2004
(File No. 1-12001)).* |
88
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.4
|
|
Supplemental Pension Plan for Certain Key Employees of Allegheny Technologies Incorporated and its subsidiaries
(formerly known as the Allegheny Ludlum Corporation Key Man Salary Continuation Plan) (incorporated by reference
to Exhibit 10.7 to the Companys Annual Report on Form 10-K for the year ended December 31, 1997 (File No.
1-12001)).* |
|
|
|
10.5
|
|
Allegheny Technologies Incorporated Benefit Restoration Plan, as amended (incorporated by reference to Exhibit
10.8 to the Registrants Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-12001)).* |
|
|
|
10.6
|
|
Employment Agreement dated August 26, 2003 between Allegheny Technologies Incorporated and L. Patrick Hassey
(incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q dated November 4,
2003 (File No. 1-12001)).* |
|
|
|
10.7
|
|
Employment Agreement dated July 15, 1996 between Allegheny Technologies Incorporated and Jon D. Walton
(incorporated by reference to Exhibit 10.5 to the Companys Registration Statement on Form S-4 (No. 333-8235)).* |
|
|
|
10.8
|
|
Allegheny Technologies Incorporated 2000 Incentive Plan, as amended (incorporated by reference to Exhibit 10.9 to
the Registrants Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 1-12001)).* |
|
|
|
10.9
|
|
Amendment to the Allegheny Technologies Incorporated Pension Plan effective January 1, 2003 (incorporated by
reference to Exhibit 10.20 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2003
(File No. 1-12001)).* |
|
|
|
10.10
|
|
Credit Agreement, dated July 31, 2007, by and among the Company, the guarantors party thereto, the lenders party
thereto, PNC Bank, National Association, as Administrative Agent, and PNC Capital Markets LLC, as Lead Arranger
(incorporated by reference to Exhibit 10.6 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010 (File No. 1-12001)). |
|
|
|
10.11
|
|
Form of Amended and Restated Change in Control Severance Agreement, dated as of December 31, 2008 (incorporated by
reference to Exhibit 10.10 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008
(File No. 12001)).* |
|
|
|
10.12
|
|
Summary of Non-Employee Director Compensation Program (incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on Form 8-K dated August 5, 2008 (File No. 1-12001)). |
|
|
|
10.13
|
|
Administrative Rules for the Non-Employee Director Restricted Stock Program, effective as of May 2, 2007, as
amended through May 7, 2010 (incorporated by reference to Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2010 (File No. 1-12001)).* |
|
|
|
10.14
|
|
Key Executive Performance Plan, as amended February 21, 2008 (incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 1-12001)).* |
|
|
|
10.15
|
|
Form of Total Shareholder Return Incentive Compensation Plan Agreement effective as of January 1, 2008
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008 (File No. 1-12001)).* |
|
|
|
10.16
|
|
Form of Performance/Restricted Stock Agreement dated February 21, 2008 (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 1-12001)).* |
|
|
|
10.17
|
|
First Amendment to Credit Agreement, dated May 29, 2009, by and among ATI Funding Corporation, TDY Holdings, LLC,
the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as administrative
agent for the lenders (incorporated by reference to Exhibit 10.7 to the Registrants Quarterly Report on Form 10-Q
dated March 31, 2010 (File No. 1-12001)). |
|
|
|
10.18
|
|
Form of Key Executive Performance Plan Agreement dated February 18, 2009, including Key Executive Performance
Plan, as amended February 18, 2009 (incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009 (File No.1-12001)).* |
|
|
|
10.19
|
|
Form of Total Shareholder Return Incentive Compensation Program Award Agreement effective as of January 1, 2009
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 (File No.1-12001)).* |
|
|
|
10.20
|
|
Form of Performance/Restricted Stock Agreement dated February 18, 2009 (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (File No.1-12001)).* |
|
|
|
10.21
|
|
Administrative Rules for the Performance Equity Payment Program, effective as of January 1, 2010 (incorporated by
reference to Exhibit 10.23 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009
(File No. 1-12001)).* |
89
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.22
|
|
Form of Performance Equity Payment Program Deferred Salary Agreement dated January 4, 2010 (incorporated by
reference to Exhibit 10.24 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009
(File No. 1-12001)).* |
|
|
|
10.23
|
|
Form of Performance Equity Payment Program Restricted Stock Agreement dated January 4, 2010 (incorporated by
reference to Exhibit 10.25 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009
(File No. 1-12001)).* |
|
|
|
10.24
|
|
2010 Annual Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2010 (File No.1-12001)).* |
|
|
|
10.25
|
|
Form of Key Executive Performance Plan Agreement dated February 24, 2010, including Key Executive Performance
Plan, as amended February 24, 2010 (incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2010 (File No.1-12001)).* |
|
|
|
10.26
|
|
Form of Total Shareholder Return Incentive Compensation Program Award Agreement effective as of January 1, 2010
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010 (File No.1-12001)).* |
|
|
|
10.27
|
|
Form of Performance/Restricted Stock Agreement dated February 24, 2010 (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No.1-12001)).* |
|
|
|
10.28
|
|
Allegheny Technologies Incorporated 2007 Incentive Plan As Amended and Restated, effective May 7, 2010
(incorporated by reference to Exhibit 99.1 to the Registrants Registration Statement on Form S-8 dated May 7,
2010 (File No 333-166628)).* |
|
|
|
10.29
|
|
Second Amendment to Credit Agreement, dated December 22, 2010, by and among ATI Funding Corporation, TDY Holdings,
LLC, the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as Administrative
Agent for the lenders (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
dated December 29, 2010 (File No. 1-12001)). |
|
|
|
10.30
|
|
Consulting and Noncompetition Agreement between Allegheny Technologies Incorporated and Lynn D. Davis, effective
as of February 2, 2011 (filed herewith).* |
|
|
|
10.31
|
|
Form of Performance Equity Payment Program Deferred Salary Agreement dated January 3, 2011 (filed herewith).* |
|
|
|
10.32
|
|
Form of Performance Equity Payment Program Restricted Stock Agreement dated January 3, 2011 (filed herewith).* |
|
|
|
12.1
|
|
Computation of Ratio of Earnings to Fixed Charges (filed herewith). |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (filed herewith). |
|
|
|
23.1
|
|
Consent of Ernst & Young LLP (filed herewith). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14(a) or
15d-14(a) (filed herewith). |
|
|
|
31.2
|
|
Certification of Principal Financial Officer required by Securities and Exchange Commission Rule 13a-14(a) or
15d-14(a) (filed herewith). |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350 (filed herewith). |
|
|
|
101.INS
|
|
XBRL Instance Document |
101.SCH
|
|
XBRL Taxonomy Extension Schema Document |
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
* |
|
Management contract or compensatory plan or arrangement required to be filed as an Exhibit to
this Report. |
Certain instruments defining the rights of holders of long-term debt of the Company and its
subsidiaries have been omitted from the Exhibits in accordance with Item 601(b)(4)(iii) of
Regulation S-K. A copy of any omitted document will be furnished to the Commission upon request.
90