ATI 2015 10-Q Q1
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2015
OR
¨
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)
 
Delaware
 
25-1792394
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1000 Six PPG Place
 
 
Pittsburgh, Pennsylvania
 
15222-5479
(Address of Principal Executive Offices)
 
(Zip Code)
(412) 394-2800
(Registrant’s telephone number, including area code)
 
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý    No  ¨
Indicate by check mark whether the Registrant submitted electronically and posted on its corporate Web site, 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  ý    No  ¨
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.
 
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  ý
At April 24, 2015, the registrant had outstanding 109,215,499 shares of its Common Stock.
 

Table of Contents

ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
Quarter Ended March 31, 2015
INDEX
 
Page No.
PART I. - FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Consolidated Statements of Comprehensive Income
 
 
Consolidated Statements of Cash Flows
 
 
Statements of Changes in Consolidated Equity
 
 
Notes to Consolidated Financial Statements
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II. - OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
SIGNATURES
 
 
EXHIBIT INDEX

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(In millions, except share and per share amounts)
(Current period unaudited)
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
238.0

 
$
269.5

Accounts receivable, net of allowances for doubtful accounts of $4.8 as of March 31, 2015 and December 31, 2014
690.9

 
603.6

Inventories, net
1,472.6

 
1,472.8

Prepaid expenses and other current assets
64.1

 
136.2

Total Current Assets
2,465.6

 
2,482.1

Property, plant and equipment, net
2,943.7

 
2,961.8

Cost in excess of net assets acquired
777.9

 
780.4

Other assets
369.6

 
358.3

Total Assets
$
6,556.8

 
$
6,582.6

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
559.5

 
$
556.7

Accrued liabilities
288.8

 
323.2

Deferred income taxes
70.8

 
62.2

Short term debt and current portion of long-term debt
17.9

 
17.8

Total Current Liabilities
937.0

 
959.9

Long-term debt
1,509.1

 
1,509.1

Accrued postretirement benefits
407.1

 
415.8

Pension liabilities
730.2

 
739.3

Deferred income taxes
91.3

 
80.9

Other long-term liabilities
162.0

 
156.2

Total Liabilities
3,836.7

 
3,861.2

Redeemable noncontrolling interest
12.1

 
12.1

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-109,695,171 shares at March 31, 2015 and December 31, 2014; outstanding- 109,172,045 shares at March 31, 2015 and 108,710,914 shares at December 31, 2014
11.0

 
11.0

Additional paid-in capital
1,154.2

 
1,164.2

Retained earnings
2,382.4

 
2,398.9

Treasury stock: 523,126 shares at March 31, 2015 and 984,257 shares at December 31, 2014
(22.2
)
 
(44.3
)
Accumulated other comprehensive loss, net of tax
(930.8
)
 
(931.4
)
Total ATI stockholders’ equity
2,594.6

 
2,598.4

Noncontrolling interests
113.4

 
110.9

Total Equity
2,708.0

 
2,709.3

Total Liabilities and Equity
$
6,556.8

 
$
6,582.6


The accompanying notes are an integral part of these statements.

1
Table of Contents

Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
 
 
Three months ended March 31,
 
2015
 
2014
Sales
$
1,125.5

 
$
987.3

Costs and expenses:
 
 
 
Cost of sales
1,016.0

 
917.1

Selling and administrative expenses
63.1

 
67.7

Income before interest, other income and income taxes
46.4

 
2.5

Interest expense, net
(26.7
)
 
(29.1
)
Other income, net
0.9

 
0.6

Income (loss) from continuing operations before income taxes
20.6

 
(26.0
)
Income tax provision (benefit)
8.0

 
(10.0
)
Income (loss) from continuing operations
12.6

 
(16.0
)
Loss from discontinued operations, net of tax
—

 
(1.9
)
Net income (loss)
12.6

 
(17.9
)
Less: Net income attributable to noncontrolling interests
2.6

 
2.1

Net income (loss) attributable to ATI
$
10.0

 
$
(20.0
)
 
 
 
 
Income (loss) per common share:
 
 
 
Basic
 
 
 
Continuing operations attributable to ATI per common share
$
0.09

 
$
(0.17
)
Discontinued operations attributable to ATI per common share
—

 
(0.02
)
Basic net income (loss) attributable to ATI per common share
$
0.09

 
$
(0.19
)
 
 
 
 
Diluted
 
 
 
Continuing operations attributable to ATI per common share
$
0.09

 
$
(0.17
)
Discontinued operations attributable to ATI per common share
—

 
(0.02
)
Diluted net income (loss) attributable to ATI per common share
$
0.09

 
$
(0.19
)
Dividends declared per common share
$
0.18

 
$
0.18

 
 
 
 
Amounts attributable to ATI common stockholders:
 
 
 
Income (loss) from continuing operations, net of tax
$
10.0

 
$
(18.1
)
Loss from discontinued operations, net of tax
—

 
(1.9
)
Net income (loss)
$
10.0

 
$
(20.0
)
The accompanying notes are an integral part of these statements.


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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
 
Three months ended March 31,
 
2015
 
2014
Net income (loss)
$
12.6

 
$
(17.9
)
Currency translation adjustment
 
 
 
Unrealized net change arising during the period
(21.8
)
 
(3.3
)
Unrealized holding gain on securities
 
 
 
Net gain (loss) arising during the period
—

 
—

Derivatives
 
 
 
Net derivatives gain on hedge transactions
18.5

 
9.3

Reclassification to net income of net realized loss (gain)
(2.7
)
 
2.1

Income taxes on derivative transactions
6.1

 
4.4

Total
9.7

 
7.0

Postretirement benefit plans
 
 
 
Amortization of net actuarial loss
18.7

 
22.0

Prior service cost
 
 
 
Amortization to net income of net prior service cost (credits)
1.5

 
(0.2
)
Income taxes on postretirement benefit plans
7.7

 
8.4

Total
12.5

 
13.4

Other comprehensive income, net of tax
0.4

 
17.1

Comprehensive income (loss)
13.0

 
(0.8
)
Less: Comprehensive income attributable to noncontrolling interests
2.4

 
0.2

Comprehensive income (loss) attributable to ATI
$
10.6

 
$
(1.0
)
The accompanying notes are an integral part of these statements.


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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
 
Three months ended March 31,
 
2015
 
2014
Operating Activities:
 
 
 
Net income (loss)
$
12.6

 
$
(17.9
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
45.6

 
44.0

Deferred taxes
5.0

 
(1.7
)
Changes in operating asset and liabilities:
 
 
 
Inventories
0.3

 
(82.6
)
Accounts receivable
(87.3
)
 
(28.6
)
Accounts payable
2.7

 
45.9

Retirement benefits
2.5

 
4.2

Accrued income taxes
60.6

 
(10.9
)
Accrued liabilities and other
(30.0
)
 
(9.3
)
Cash provided by (used in) operating activities
12.0

 
(56.9
)
Investing Activities:
 
 
 
Purchases of property, plant and equipment
(22.6
)
 
(39.6
)
Purchases of businesses, net of cash acquired
—

 
(71.1
)
Asset disposals and other
0.1

 
1.8

Cash used in investing activities
(22.5
)
 
(108.9
)
Financing Activities:
 
 
 
Payments on long-term debt and capital leases
(0.3
)
 
(0.1
)
Dividends paid to stockholders
(19.3
)
 
(19.3
)
Shares repurchased for income tax withholding on share-based compensation
(1.4
)
 
(3.9
)
Cash used in financing activities
(21.0
)
 
(23.3
)
Decrease in cash and cash equivalents
(31.5
)
 
(189.1
)
Cash and cash equivalents at beginning of period
269.5

 
1,026.8

Cash and cash equivalents at end of period
$
238.0

 
$
837.7

The accompanying notes are an integral part of these statements.


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Allegheny Technologies Incorporated and Subsidiaries
Statements of Changes in Consolidated Equity
(In millions, except per share amounts)
(Unaudited)
 
 
ATI Stockholders
 
 
 
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests
 
Total
Equity
Balance, December 31, 2013
$
11.0

 
$
1,185.9

 
$
2,490.1

 
$
(79.6
)
 
$
(713.2
)
 
$
100.5

 
$
2,994.7

Net income (loss)
—

 
—

 
(20.0
)
 
—

 
—

 
2.1

 
(17.9
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
18.9

 
(1.8
)
 
17.1

Cash dividends on common stock ($0.18 per share)
—

 
—

 
(19.3
)
 
—

 
—

 
—

 
(19.3
)
Employee stock plans
—

 
(25.7
)
 
(10.1
)
 
28.3

 
—

 
—

 
(7.5
)
Balance, March 31, 2014
$
11.0

 
$
1,160.2

 
$
2,440.7

 
$
(51.3
)
 
$
(694.3
)
 
$
100.8

 
$
2,967.1

Balance, December 31, 2014
$
11.0

 
$
1,164.2

 
$
2,398.9

 
$
(44.3
)
 
$
(931.4
)
 
$
110.9

 
$
2,709.3

Net income
—

 
—

 
10.0

 
—

 
—

 
2.6

 
12.6

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
0.6

 
(0.2
)
 
0.4

Cash dividends on common stock ($0.18 per share)
—

 
—

 
(19.3
)
 
—

 
—

 
—

 
(19.3
)
Redeemable noncontrolling interest
—

 
—

 
(0.1
)
 
—

 
—

 
0.1

 
—

Employee stock plans
—

 
(10.0
)
 
(7.1
)
 
22.1

 
—

 
—

 
5.0

Balance, March 31, 2015
$
11.0

 
$
1,154.2

 
$
2,382.4

 
$
(22.2
)
 
$
(930.8
)
 
$
113.4

 
$
2,708.0

The accompanying notes are an integral part of these statements.

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1. Accounting Policies
The interim consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries. Unless the context requires otherwise, “Allegheny Technologies”, “ATI” and “the Company” refer to Allegheny Technologies Incorporated and its subsidiaries.
These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2014 Annual Report on Form 10-K. The results of operations for these interim periods are not necessarily indicative of the operating results for any future period. The December 31, 2014 financial information has been derived from the Company’s audited consolidated financial statements.
In 2013, the Company sold or announced closures of certain businesses that are reported as discontinued operations. Remaining closure activities were completed in 2014. Financial results for discontinued operations for the first quarter of 2014 were sales of $5.2 million, pretax losses of $2.8 million, and net assets of $2.9 million as of March 31, 2014.
New Accounting Pronouncements Adopted
In January 2015, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the criteria for reporting discontinued operations. Under the new criteria, a disposal of a component of an entity is required to be reported as discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The criteria that there be no significant continuing involvement in the operations of the component after the disposal transaction has been removed under the new guidance. The new guidance also requires the presentation of the assets and liabilities of a disposal group that includes a discontinued operation for each comparative period and requires additional disclosures about discontinued operations, including the major line items constituting the pretax profit or loss of the discontinued operation, certain cash flow information for the discontinued operation, expanded disclosures about an entity’s significant continuing involvement in a discontinued operation, and disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation. The provisions of the new guidance are effective for all disposals that occur for the Company beginning in fiscal year 2015. The adoption of these changes had no impact on the consolidated financial statements.
Pending Accounting Pronouncements

In April 2015, the FASB issued new guidance on presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this guidance. This update will be effective for the Company beginning in fiscal year 2016, with early adoption permitted, and is applied on a retrospective basis. As of March 31, 2015 and December 31, 2014, the Company had $10.6 million and $10.9 million, respectively, of debt issuance costs reported as assets on the consolidated balance sheet that will be reclassified to a reduction of the carrying amount of the debt liability upon the Company’s adoption of this new guidance.

In May 2014, the FASB issued changes to revenue recognition with customers. This update provides a five-step analysis of transactions to determine when and how revenue is recognized. An entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update will be effective for the Company beginning in fiscal year 2017. This update may be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

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Note 2. Inventories
Inventories at March 31, 2015 and December 31, 2014 were as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Raw materials and supplies
$
234.5

 
$
249.3

Work-in-process
1,186.3

 
1,184.1

Finished goods
177.0

 
172.2

Total inventories at current cost
1,597.8

 
1,605.6

Adjustment from current cost to LIFO cost basis
4.3

 
4.8

Inventory valuation reserves
(66.4
)
 
(68.8
)
Progress payments
(63.1
)
 
(68.8
)
Total inventories, net
$
1,472.6

 
$
1,472.8

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. Most of the Company’s inventory is valued utilizing the LIFO costing methodology. Inventory of the Company’s non-U.S. operations is valued using average cost or FIFO methods. The effect of using the LIFO methodology to value inventory, rather than FIFO, increased cost of sales by $0.5 million for the first three months of 2015, which was offset by a $0.5 million reduction in net realizable value reserves on the carrying value of LIFO-based inventory. The first three months of 2014 results included a $9.0 million increase in cost of sales from using the LIFO costing methodology, which was offset by a $9.0 million reduction in net realizable value reserves on the carrying value of LIFO-based inventory. The first three months of 2015 and 2014 results included $5.3 million and $8.3 million, respectively, in inventory valuation charges related to the market-based valuation of industrial titanium products in the Flat Rolled Products segment.
Note 3. Property, Plant and Equipment
Property, plant and equipment at March 31, 2015 and December 31, 2014 was as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Land
$
30.0

 
$
30.2

Buildings
1,053.1

 
1,048.9

Equipment and leasehold improvements
3,714.6

 
3,702.5

 
4,797.7

 
4,781.6

Accumulated depreciation and amortization
(1,854.0
)
 
(1,819.8
)
Total property, plant and equipment, net
$
2,943.7

 
$
2,961.8

The construction in progress portion of property, plant and equipment at March 31, 2015 was $57.2 million.

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Note 4. Debt
Debt at March 31, 2015 and December 31, 2014 was as follows (in millions): 
 
March 31,
2015
 
December 31,
2014
Allegheny Technologies 5.875% Notes due 2023 (a)
$
500.0

 
$
500.0

Allegheny Technologies 5.95% Notes due 2021
500.0

 
500.0

Allegheny Technologies 9.375% Notes due 2019
350.0

 
350.0

Allegheny Ludlum 6.95% debentures due 2025
150.0

 
150.0

ATI Ladish Series B 6.14% Notes due 2016 (b)
11.7

 
11.9

ATI Ladish Series C 6.41% Notes due 2015 (c)
10.2

 
10.3

Domestic Bank Group $400 million credit facility
—

 
—

Foreign credit facilities
—

 
—

Industrial revenue bonds, due through 2020, and other
5.1

 
4.7

Total short-term and long-term debt
1,527.0

 
1,526.9

Short-term debt and current portion of long-term debt
17.9

 
17.8

Total long-term debt
$
1,509.1

 
$
1,509.1

 
(a)
Bearing interest at 6.375% effective February 15, 2015.
(b)
Includes fair value adjustments of $0.3 million at March 31, 2015 and $0.4 million at December 31, 2014.
(c)
Includes fair value adjustments of $0.2 million at March 31, 2015 and $0.3 million at December 31, 2014.

During the first quarter of 2015, Standard & Poor’s (“S&P”) downgraded the Company’s credit rating one notch to BB+ from BBB-, resulting in an increase of the interest rate on the Senior Notes due 2023 (the “2023 Notes”) from 6.125% as of December 31, 2014 to 6.375% effective with the interest period beginning February 15, 2015. Future downgrades of the Company’s credit ratings could result in additional increases to the interest cost with respect to the 2023 Notes.
There were no outstanding borrowings made under the Company’s $400 million senior domestic credit facility (“credit facility”) expiring May 31, 2018 as of March 31, 2015, although approximately $4.7 million has been utilized to support the issuance of letters of credit. Average borrowings under the credit facility for the first quarter of 2015 were $73.7 million, bearing an average annual interest rate of 1.9%. The credit facility provides for a springing lien on certain of the Company’s accounts receivable and inventory. This springing lien became effective during the first quarter of 2015 as the Company’s credit ratings from both S&P’s and Moody’s are now below investment grade following S&P’s downgrade in the first quarter 2015 discussed above. This springing lien will be subsequently released if the Company’s credit rating returns to investment grade from either rating agency, assuming no event of default condition exists. The credit facility requires the Company to maintain a leverage ratio (measured as consolidated total indebtedness net of cash on hand in excess of $50 million, divided by consolidated EBITDA, defined as earnings before interest, taxes, depreciation and amortization, and non-cash pension expense, with the definition of consolidated EBIT excluding any gain or loss attributable to sale or other dispositions of assets outside the ordinary course of business, for the four prior fiscal quarters) of not greater than 5.00 for the quarter ended March 31, 2015, 4.50 for the quarter ended June 30, 2015, 3.75 for the quarter ended September 30, 2015, and 3.50 for the quarter ended December 31, 2015 and for each fiscal quarter thereafter. The credit facility also requires the Company to maintain an interest coverage ratio (consolidated EBITDA as calculated for the leverage ratio, divided by interest expense) of not less than 2.50 for the quarter ended March 31, 2015, 3.00 for the quarter ended June 30, 2015, 3.25 for the quarter ended September 30, 2015, and 3.50 for the quarter ended December 31, 2015 and for each fiscal quarter thereafter. At March 31, 2015, the leverage ratio was 3.73 and the interest coverage ratio was 3.26. The Company was in compliance with these required ratios during all applicable periods.
The Company has an additional separate credit facility for the issuance of letters of credit. As of March 31, 2015, $32 million in letters of credit were outstanding under this facility.
In addition, Shanghai STAL Precision Stainless Steel Company Limited (STAL), the Company’s Chinese joint venture company in which ATI has a 60% interest, entered into a 125 million renminbi (approximately $20 million at March 31, 2015 exchange rates) revolving credit facility in April 2015, replacing a previous revolving credit facility that expired in 2014. Borrowings may be either in renminbi or U.S. dollars, with interest rates based on published Chinese or U.S. interbank offer rates, respectively. The credit facility is supported solely by STAL’s financial capability without any guarantees from the joint

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venture partners. The credit facility requires STAL to maintain a minimum level of shareholders’ equity, and certain financial ratios.  
The ATI Ladish Series B and Series C Notes are guaranteed by ATI and are equally ranked with all of ATI’s existing and future senior unsecured debt.
Note 5. 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 most 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 in the consolidated statements of operations.
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. Under these contracts, which are generally 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 ATI’s products are sold utilizing raw material surcharges and index mechanisms. However, as of March 31, 2015, 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 approximately 20% of its estimated annual nickel requirements. These nickel hedges extend to 2020.
At March 31, 2015, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges for approximately 80% of its annual forecasted domestic requirements for 2015, approximately 75% for 2016, and approximately 45% for 2017.
While the majority of the Company’s 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 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, primarily euros. At March 31, 2015, the Company held euro forward sales contracts designated as hedges with a notional value of approximately 375 million euro with maturity dates through February 2018, including approximately 157 million euro with maturities in 2015. In addition, the Company may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions.
During the first quarter of 2015, the Company net settled 126.5 million euro notional value of foreign currency forward contracts designated as cash flow hedges with 2015 maturity dates, receiving cash proceeds of $26.1 million which is reported in cash provided by operating activities on the consolidated cash flow statement. Deferred gains on these settled cash flow hedges currently recognized in accumulated other comprehensive income will be reclassified to earnings when the underlying transactions occur. The Company subsequently entered into 115 million euro notional value of foreign currency forward contracts designated as fair value hedges in the first quarter of 2015, all with 2015 maturity dates, and recorded a $5.0 million benefit in costs of sales on the consolidated statement of operations in the first quarter of 2015 for subsequent mark-to-market changes on these fair value hedges.
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.
There are no credit risk-related contingent features in the Company’s 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 Company’s derivative contracts are 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.

9
Table of Contents

The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterparty or by type of item hedged. 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)
Asset derivatives
 
Balance sheet location
 
March 31,
2015
 
December 31,
2014
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other current assets
 
$
23.1

 
$
23.6

Nickel and other raw material contracts
 
Prepaid expenses and other current assets
 
—

 
1.1

Foreign exchange contracts
 
Other assets
 
46.0

 
28.3

Nickel and other raw material contracts
 
Other assets
 
—

 
0.5

Total derivatives designated as hedging instruments
 
69.1

 
53.5

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other current assets
 
—

 
6.4

Total derivatives not designated as hedging instruments
 
—

 
6.4

Total asset derivatives
 
 
 
$
69.1

 
$
59.9

Liability derivatives
 
Balance sheet location
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Natural gas contracts
 
Accrued liabilities
 
$
12.1

 
$
10.2

Nickel and other raw material contracts
 
Accrued liabilities
 
9.9

 
5.8

Electricity contracts
 
Accrued liabilities
 
—

 
0.1

Natural gas contracts
 
Other long-term liabilities
 
11.8

 
7.9

Nickel and other raw material contracts
 
Other long-term liabilities
 
9.4

 
3.0

Total derivatives designated as hedging instruments
 
43.2

 
27.0

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Accrued liabilities
 
0.4

 
—

Total derivatives not designated as hedging instruments
 
0.4

 
—

Total liability derivatives
 
 
 
$
43.6

 
$
27.0

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. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes.

10
Table of Contents

Activity with regard to derivatives designated as cash flow hedges for the three month periods ended March 31, 2015 and 2014 was as follows (in millions): 
 
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
(Effective Portion)
 
Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion) (a)
 
Amount of Gain (Loss)
Recognized in Income
on Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing) (b)
Derivatives in Cash Flow
Three months ended March 31,
 
Three months ended March 31,
 
Three months ended March 31,
Hedging Relationships
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Nickel and other raw material contracts
$
(9.6
)
 
$
3.0

 
$
(2.2
)
 
$
(1.7
)
 
$
—

 
$
—

Natural gas contracts
(6.0
)
 
2.3

 
(2.4
)
 
1.4

 
—

 
—

Electricity contracts
—

 
0.9

 
(0.1
)
 
0.4

 
—

 
—

Foreign exchange contracts
27.0

 
(0.5
)
 
6.4

 
(1.4
)
 
—

 
—

Total
$
11.4

 
$
5.7

 
$
1.7

 
$
(1.3
)
 
$
—

 
$
—


(a)
The gains (losses) reclassified from accumulated OCI into income related to the effective portion of the derivatives are presented in cost of sales in the same period or periods in which the hedged item affects earnings.
(b)
The gains (losses) 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 March 31, 2015, a gain of $0.7 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.
During the first quarter of 2015, the Company net settled 40.3 million euro notional value of foreign currency forward contracts that were not designated as hedges, receiving cash proceeds of $11.8 million which is reported in cash provided by operating activities on the consolidated cash flow statement. The Company also entered into 30 million euro notional value of foreign currency forward contracts not designated as hedges in the first quarter of 2015 with maturity dates through February 2016.
Derivatives that are not designated as hedging instruments were as follows:
(In millions)
Amount of Gain (Loss) Recognized
in Income on Derivatives
Derivatives Not Designated
Three months ended March 31,
as Hedging Instruments
2015
 
2014
Foreign exchange contracts
$
3.5

 
$
0.2

Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales.


11
Table of Contents

Note 6. Fair Value of Financial Instruments
The estimated fair value of financial instruments at March 31, 2015 was as follows: 
 
 
 
Fair Value Measurements at Reporting Date Using
(In millions)
Total
Carrying
Amount
 
Total
Estimated
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets(Level 1)
 
Significant
Observable
Inputs
(Level 2)
Cash and cash equivalents
$
238.0

 
$
238.0

 
$
238.0

 
$
—

Derivative financial instruments:
 
 
 
 
 
 
 
Assets
69.1

 
69.1

 
—

 
69.1

Liabilities
43.6

 
43.6

 
—

 
43.6

Debt
1,527.0

 
1,679.6

 
1,652.6

 
27.0

The estimated fair value of financial instruments at December 31, 2014 was as follows:
 
 
 
 
Fair Value Measurements at Reporting Date Using
(In millions)
Total
Carrying
Amount
 
Total
Estimated
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
Cash and cash equivalents
$
269.5

 
$
269.5

 
$
269.5

 
$
—

Derivative financial instruments:
 
 
 
 
 
 
 
Assets
59.9

 
59.9

 
—

 
59.9

Liabilities
27.0

 
27.0

 
—

 
27.0

Debt
1,526.9

 
1,616.0

 
1,589.1

 
26.9

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 availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. No transfers between levels were reported in 2015 or 2014.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents: Fair value was 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 Company’s credit risk.
Short-term and long-term debt: The fair values of the Company’s publicly traded debt were based on Level 1 information. The fair values of the other short-term and long-term debt were determined using Level 2 information.

12
Table of Contents

Note 7. Pension Plans and Other Postretirement Benefits
The Company has defined benefit pension plans or 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 three month periods ended March 31, 2015 and 2014, the components of pension expense and components of other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions): 
 
Pension Benefits
 
Other Postretirement Benefits
 
Three months ended March 31,
 
Three months ended March 31,
 
2015
 
2014
 
2015
 
2014
Service cost - benefits earned during the year
$
5.7

 
$
7.4

 
$
0.7

 
$
0.7

Interest cost on benefits earned in prior years
30.3

 
33.4

 
4.5

 
6.0

Expected return on plan assets
(42.1
)
 
(46.1
)
 
—

 
—

Amortization of prior service cost (credit)
0.3

 
0.6

 
1.2

 
(0.8
)
Amortization of net actuarial loss
15.1

 
18.5

 
3.6

 
3.5

Total retirement benefit expense
$
9.3

 
$
13.8

 
$
10.0

 
$
9.4

Other postretirement benefit costs for a defined contribution plan were $0.7 million for the three months ended March 31, 2014.
Note 8. Income Taxes
First quarter 2015 results included a provision for income taxes of $8.0 million, or 38.8% of income from continuing operations before income tax, compared to a benefit of $10.0 million, or 38.5% of loss from continuing operations before income tax, for the 2014 comparable period. The income tax rate in 2015 is higher than normal due to the Company’s inability to use the federal domestic manufacturing deduction tax benefit due to net operating loss carryforwards. A federal income tax refund of $59.9 million was received in the first quarter of 2015. Income taxes in the first quarter 2014 included discrete tax benefits of $2.2 million primarily associated with adjustments to prior years’ and foreign taxes.

13
Table of Contents

Note 9. Business Segments
The Company operates in two business segments: High Performance Materials & Components and Flat Rolled Products. The measure of segment operating profit, which is used to analyze the performance and results of the business segments, excludes income taxes, corporate expenses, net interest expense, retirement benefit expense, closed company expenses and restructuring costs, if any. Discontinued operations are also excluded. Management believes segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level. Following is certain financial information with respect to the Company’s business segments for the periods indicated (in millions):
 
 
Three months ended March 31,
 
2015
 
2014
Total sales:
 
 
 
High Performance Materials & Components
$
564.9

 
$
504.1

Flat Rolled Products
604.7

 
529.6

 
1,169.6

 
1,033.7

Intersegment sales:
 
 
 
High Performance Materials & Components
22.1

 
19.7

Flat Rolled Products
22.0

 
26.7

 
44.1

 
46.4

Sales to external customers:
 
 
 
High Performance Materials & Components
542.8

 
484.4

Flat Rolled Products
582.7

 
502.9

 
$
1,125.5

 
$
987.3

Operating profit (loss):
 
 
 
High Performance Materials & Components
$
75.9

 
$
69.1

Flat Rolled Products
7.9

 
(25.6
)
Total operating profit
83.8

 
43.5

Corporate expenses
(11.8
)
 
(11.5
)
Interest expense, net
(26.7
)
 
(29.1
)
Closed company and other expenses
(5.4
)
 
(5.0
)
Retirement benefit expense
(19.3
)
 
(23.9
)
Income (loss) from continuing operations before income taxes
$
20.6

 
$
(26.0
)
Retirement benefit expense represents defined benefit pension expense and other postretirement benefit expense for both defined benefit and defined contribution plans. Operating profit with respect to the Company’s business segments excludes any retirement benefit expense. Costs associated with multiemployer pension plans are included in segment operating profit, and costs associated with defined contribution retirement plans are included in segment operating profit or corporate expenses, as applicable.
Interest expense, net of interest income, in the first quarter 2015 was $26.7 million, compared to net interest expense of $29.1 million in the first quarter 2014. The decrease in interest expense was primarily due to lower debt levels. Interest expense benefited from the capitalization of interest costs of $0.6 million in the first quarter 2015 compared to $2.3 million in the first quarter 2014. The decrease in capitalized interest primarily related to the Flat Rolled Products segment Hot-Rolling and Processing Facility.

14
Table of Contents

Note 10. Redeemable Noncontrolling Interest
The holders of the 15% noncontrolling interest in ATI Flowform Products have a put option to require the Company to purchase their equity interest at a redemption value determinable from a specified formula based on a multiple of EBITDA (subject to a fixed minimum linked to the original acquisition date value). The put option is fully exercisable beginning in the second quarter of 2017, and is also exercisable under certain other circumstances. The put option cannot be separated from the noncontrolling interest, and the combination of a noncontrolling interest and the redemption feature requires classification as redeemable noncontrolling interest in the consolidated balance sheet, separate from Stockholders’ Equity.
The carrying amount of the redeemable noncontrolling interest approximates its maximum redemption value. Any subsequent change in maximum redemption value is adjusted through retained earnings. The adjustment to the carrying amount for the quarter ended March 31, 2015 reduced retained earnings by $0.1 million. The Company applied the two-class method of calculating earnings per share, and as such this adjustment to the carrying amount was reflected in earnings per share. The redeemable noncontrolling interest was $12.1 million as of March 31, 2015 and December 31, 2014, which was unchanged from the acquisition date value.
Note 11. Per Share Information
The following table sets forth the computation of basic and diluted income from continuing operations per common share: 
 
Three Months Ended
(In millions, except per share amounts)
March 31,
2015
 
2014
Numerator for basic income (loss) from continuing operations per common share –
 
 
 
Income (loss) from continuing operations attributable to ATI
$
10.0

 
$
(18.1
)
Redeemable noncontrolling interest (Note 10)
(0.1
)
 
—

Numerator for diluted income (loss) from continuing operations per common share –
 
 
 
Income (loss) from continuing operations available to ATI after assumed conversions
$
9.9

 
$
(18.1
)
Denominator for basic net income (loss) per common share-weighted average shares
107.2

 
107.0

Effect of dilutive securities:
 
 
 
Share-based compensation
0.8

 
—

4.25% Convertible Notes due 2014
—

 
—

Denominator for diluted net income (loss) per common share – adjusted weighted average shares assuming conversions
108.0

 
107.0

Basic income (loss) from continuing operations attributable to ATI per common share
$
0.09

 
$
(0.17
)
Diluted income (loss) from continuing operations attributable to ATI per common share
$
0.09

 
$
(0.17
)
Common stock that would be issuable upon the assumed conversion of the 2014 Convertible Notes (prior to maturity on June 2, 2014) and other option equivalents and contingently issuable shares are excluded from the computation of contingently issuable shares, and therefore, from the denominator for diluted earnings per share, if the effect of inclusion is anti-dilutive. There were no anti-dilutive shares for the three month period ended March 31, 2015 and 10.0 million anti-dilutive shares for the three month period ended March 31, 2014.
Note 12. Financial Information for Subsidiary and Guarantor Parent
The payment obligations under the $150 million 6.95% debentures due 2025 issued by Allegheny Ludlum, LLC (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.
ATI 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.

15
Table of Contents

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
March 31, 2015
 
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2.5

 
$
12.0

 
$
223.5

 
$
—

 
$
238.0

Accounts receivable, net
0.1

 
222.4

 
468.4

 
—

 
690.9

Intercompany notes receivable
—

 
—

 
2,367.9

 
(2,367.9
)
 
—

Inventories, net
—

 
399.6

 
1,073.0

 
—

 
1,472.6

Prepaid expenses and other current assets
3.0

 
8.9

 
52.2

 
—

 
64.1

Total current assets
5.6

 
642.9

 
4,185.0

 
(2,367.9
)
 
2,465.6

Property, plant and equipment, net
2.5

 
1,544.9

 
1,396.3

 
—

 
2,943.7

Cost in excess of net assets acquired
—

 
126.6

 
651.3

 
—

 
777.9

Intercompany notes receivable
—

 
—

 
200.0

 
(200.0
)
 
—

Investment in subsidiaries
6,149.2

 
37.7

 
—

 
(6,186.9
)
 
—

Other assets
23.5

 
27.7

 
318.4

 
—

 
369.6

Total assets
$
6,180.8

 
$
2,379.8

 
$
6,751.0

 
$
(8,754.8
)
 
$
6,556.8

Liabilities and stockholders’ equity:
 
 
 
 
 
 
 
 
 
Accounts payable
$
2.8

 
$
336.9

 
$
219.8

 
$
—

 
$
559.5

Accrued liabilities
31.7

 
60.3

 
196.8

 
—

 
288.8

Intercompany notes payable
1,179.0

 
1,188.9

 
—

 
(2,367.9
)
 
—

Deferred income taxes
70.8

 
—

 
—

 
—

 
70.8

Short-term debt and current portion of long-term debt
0.6

 
0.1

 
17.2

 
—

 
17.9

Total current liabilities
1,284.9

 
1,586.2

 
433.8

 
(2,367.9
)
 
937.0

Long-term debt
1,351.0

 
150.3

 
7.8

 
—

 
1,509.1

Intercompany notes payable
—

 
200.0

 
—

 
(200.0
)
 
—

Accrued postretirement benefits
—

 
150.9

 
256.2

 
—

 
407.1

Pension liabilities
668.7

 
5.8

 
55.7

 
—

 
730.2

Deferred income taxes
91.3

 
—

 
—

 
—

 
91.3

Other long-term liabilities
76.9

 
20.9

 
64.2

 
—

 
162.0

Total liabilities
3,472.8

 
2,114.1

 
817.7

 
(2,567.9
)
 
3,836.7

Redeemable noncontrolling interest
—

 
—

 
12.1

 
—

 
12.1

Total stockholders’ equity
2,708.0

 
265.7

 
5,921.2

 
(6,186.9
)
 
2,708.0

Total liabilities and stockholders’ equity
$
6,180.8

 
$
2,379.8

 
$
6,751.0

 
$
(8,754.8
)
 
$
6,556.8



16
Table of Contents


Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations and Comprehensive Income
For the three months ended March 31, 2015  
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Sales
$
—

 
$
508.5

 
$
617.0

 
$
—

 
$
1,125.5

Cost of sales
2.2

 
504.0

 
509.8

 
—

 
1,016.0

Selling and administrative expenses
25.8

 
11.7

 
25.6

 
—

 
63.1

Income (loss) before interest, other income and income taxes
(28.0
)
 
(7.2
)
 
81.6

 
—

 
46.4

Interest income (expense), net
(28.0
)
 
(12.2
)
 
13.5

 
—

 
(26.7
)
Other income (loss) including equity in income of unconsolidated subsidiaries
76.6

 
0.4

 
0.6

 
(76.7
)
 
0.9

Income (loss) from continuing operations before income tax provision (benefit)
20.6

 
(19.0
)
 
95.7

 
(76.7
)
 
20.6

Income tax provision (benefit)
8.0

 
(6.6
)
 
34.1

 
(27.5
)
 
8.0

Income (loss) from continuing operations
12.6

 
(12.4
)
 
61.6

 
(49.2
)
 
12.6

Income (loss) from discontinued operations, net of tax
—

 
—

 
—

 
—

 
—

Net income (loss)
12.6

 
(12.4
)
 
61.6

 
(49.2
)
 
12.6

Less: Net income attributable to noncontrolling interests
—

 
—

 
2.6

 
—

 
2.6

Net income (loss) attributable to ATI
$
12.6

 
$
(12.4
)
 
$
59.0

 
$
(49.2
)
 
$
10.0

Comprehensive income (loss) attributable to ATI
$
13.0

 
$
(9.1
)
 
$
37.8

 
$
(31.1
)
 
$
10.6


Condensed Statements of Cash Flows
For the three months ended March 31, 2015  
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows provided by (used in) operating activities
$
(26.3
)
 
$
(42.3
)
 
$
80.6

 
$
—

 
$
12.0

Investing Activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
—

 
(9.1
)
 
(13.5
)
 
—

 
(22.6
)
Net receipts/(payments) on intercompany activity
—

 
—

 
(96.9
)
 
96.9

 
—

Asset disposals and other
—

 
0.1

 
—

 
—

 
0.1

Cash flows provided by (used in) investing activities
—

 
(9.0
)
 
(110.4
)
 
96.9

 
(22.5
)
Financing Activities:
 
 
 
 
 
 
 
 
 
Net receipts/(payments) on intercompany activity
47.4

 
49.5

 
—

 
(96.9
)
 
—

Dividends paid to stockholders
(19.3
)
 
—

 
—

 
—

 
(19.3
)
Other
(1.5
)
 
—

 
(0.2
)
 
—

 
(1.7
)
Cash flows provided by (used in) financing activities
26.6

 
49.5

 
(0.2
)
 
(96.9
)
 
(21.0
)
Increase (decrease) in cash and cash equivalents
$
0.3

 
$
(1.8
)
 
$
(30.0
)
 
$
—

 
$
(31.5
)

17
Table of Contents

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2014
 
Guarantor
 
 
 
Non-guarantor
 
 
 
 
(In millions)
Parent
 
Subsidiary
 
Subsidiaries
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2.2

 
$
13.8

 
$
253.5

 
$
—

 
$
269.5

Accounts receivable, net
0.1

 
209.1

 
394.4

 
—

 
603.6

Intercompany notes receivable
—

 
—

 
2,390.8

 
(2,390.8
)
 
—

Inventories, net
—

 
387.7

 
1,085.1

 
—

 
1,472.8

Prepaid expenses and other current assets
63.7

 
13.2

 
59.3

 
—

 
136.2

Total current assets
66.0

 
623.8

 
4,183.1

 
(2,390.8
)
 
2,482.1

Property, plant and equipment, net
2.2

 
1,545.1

 
1,414.5

 
—

 
2,961.8

Cost in excess of net assets acquired
—

 
126.6

 
653.8

 
—

 
780.4

Intercompany notes receivable
—

 
—

 
200.0

 
(200.0
)
 
—

Investment in subsidiaries
6,149.4

 
37.7

 
—

 
(6,187.1
)
 
—

Other assets
23.7

 
28.0

 
306.6

 
—

 
358.3

Total assets
$
6,241.3

 
$
2,361.2

 
$
6,758.0

 
$
(8,777.9
)
 
$
6,582.6

Liabilities and stockholders’ equity:
 
 
 
 
 
 
 
 
 
Accounts payable
$
4.5

 
$
302.0

 
$
250.2

 
$
—

 
$
556.7

Accrued liabilities
47.5

 
72.0

 
203.7

 
—

 
323.2

Intercompany notes payable
1,232.6

 
1,158.2

 
—

 
(2,390.8
)
 
—

Deferred income taxes
62.2

 
—

 
—

 
—

 
62.2

Short-term debt and current portion of long-term debt
0.5

 
0.1

 
17.2

 
—

 
17.8

Total current liabilities
1,347.3

 
1,532.3

 
471.1

 
(2,390.8
)
 
959.9

Long-term debt
1,350.6

 
150.3

 
8.2

 
—

 
1,509.1

Intercompany notes payable
—

 
200.0

 
—

 
(200.0
)
 
—

Accrued postretirement benefits
—

 
153.0

 
262.8

 
—

 
415.8

Pension liabilities
675.5

 
6.0

 
57.8

 
—

 
739.3

Deferred income taxes
80.9

 
—

 
—

 
—

 
80.9

Other long-term liabilities
77.7

 
22.5

 
56.0

 
—

 
156.2

Total liabilities
3,532.0

 
2,064.1

 
855.9

 
(2,590.8
)
 
3,861.2

Redeemable noncontrolling interest
—

 
—

 
12.1

 
—

 
12.1

Total stockholders’ equity
2,709.3

 
297.1

 
5,890.0

 
(6,187.1
)
 
2,709.3

Total liabilities and stockholders’ equity
$
6,241.3

 
$
2,361.2

 
$
6,758.0

 
$
(8,777.9
)
 
$
6,582.6





18
Table of Contents

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations and Comprehensive Income
For the three months ended March 31, 2014  
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Sales
$
—

 
$
427.9

 
$
559.4

 
$
—

 
$
987.3

Cost of sales
12.3

 
439.6

 
465.2

 
—

 
917.1

Selling and administrative expenses
27.1

 
10.1

 
30.5

 
—

 
67.7

Income (loss) before interest, other income and income taxes
(39.4
)
 
(21.8
)
 
63.7

 
—

 
2.5

Interest income (expense), net
(28.5
)
 
(10.6
)
 
10.0

 
—

 
(29.1
)
Other income (loss) including equity in income of unconsolidated subsidiaries
41.9

 
0.3

 
0.6

 
(42.2
)
 
0.6

Income (loss) from continuing operations before income tax provision (benefit)
(26.0
)
 
(32.1
)
 
74.3

 
(42.2
)
 
(26.0
)
Income tax provision (benefit)
(10.0
)
 
(11.3
)
 
26.4

 
(15.1
)
 
(10.0
)
Income (loss) from continuing operations
(16.0
)
 
(20.8
)
 
47.9

 
(27.1
)
 
(16.0
)
Income (loss) from discontinued operations, net of tax
(1.9
)

—


(1.9
)

1.9

 
(1.9
)
Net income (loss)
(17.9
)
 
(20.8
)
 
46.0

 
(25.2
)
 
(17.9
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
2.1

 
—

 
2.1

Net income (loss) attributable to ATI
$
(17.9
)
 
$
(20.8
)
 
$
43.9

 
$
(25.2
)
 
$
(20.0
)
Comprehensive income (loss) attributable to ATI
$
(0.8
)
 
$
(18.8
)
 
$
42.5

 
$
(23.9
)
 
$
(1.0
)

Condensed Statements of Cash Flows
For the three months ended March 31, 2014
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows provided by (used in) operating activities
$
(29.7
)
 
$
(125.6
)
 
$
98.4

 
$
—

 
$
(56.9
)
Investing Activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
—

 
(26.3
)
 
(13.3
)
 
—

 
(39.6
)
Purchase of business, net of cash acquired
—

 
—

 
(71.1
)
 
—

 
(71.1
)
Net receipts/(payments) on intercompany activity
—

 
—

 
(208.9
)
 
208.9

 
—

Asset disposals and other
—

 
1.4

 
0.4

 
—

 
1.8

Cash flows provided by (used in) investing activities
—

 
(24.9
)
 
(292.9
)
 
208.9

 
(108.9
)
Financing Activities:
 
 
 
 
 
 
 
 
 
Net receipts/(payments) on intercompany activity
58.9

 
150.0

 
—

 
(208.9
)
 
—

Dividends paid to stockholders
(19.3
)
 
—

 
—

 
—

 
(19.3
)
Other
(4.0
)
 
—

 
—

 
—

 
(4.0
)
Cash flows provided by (used in) financing activities
35.6

 
150.0

 
—

 
(208.9
)
 
(23.3
)
Increase (decrease) in cash and cash equivalents
$
5.9

 
$
(0.5
)
 
$
(194.5
)
 
$
—

 
$
(189.1
)


19
Table of Contents

Note 13. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) (AOCI) by component, net of tax, for the three month period ended March 31, 2015 were as follows (in millions):
 
Post-
retirement
benefit plans
 
Currency
translation
adjustment
 
Unrealized
holding gains
on securities
 
Derivatives
 
Total
Attributable to ATI:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
$
(931.5
)
 
$
(16.2
)
 
$
—

 
$
16.3

 
$
(931.4
)
OCI before reclassifications
 
—

 
 
(21.6
)
 
 
—

 
 
11.4

 
(10.2
)
Amounts reclassified from AOCI
(a)
12.5

 
(b)
—

 
(b)
—

 
(c)
(1.7
)
 
10.8

Net current-period OCI
 
12.5

 
 
(21.6
)
 
 
—

 
 
9.7

 
0.6

Balance, March 31, 2015
$
(919.0
)
 
$
(37.8
)
 
$
—

 
$
26.0

 
$
(930.8
)
Attributable to noncontrolling interests: