ATI 2013 10-Q Q3
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 September 30, 2013
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 October 28, 2013, the registrant had outstanding 107,982,138 shares of its Common Stock.
 

Table of Contents

ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
Quarter Ended September 30, 2013
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 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)
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
535.7

 
$
304.6

Accounts receivable, net of allowances for doubtful accounts of $5.2 and $5.5 as of September 30, 2013 and December 31, 2012
576.9

 
613.3

Inventories, net
1,344.9

 
1,536.6

Prepaid expenses and other current assets
120.6

 
56.1

Current assets of discontinued operations
115.4

 
—

Total Current Assets
2,693.5

 
2,510.6

Property, plant and equipment, net
2,744.7

 
2,559.9

Cost in excess of net assets acquired
728.1

 
740.1

Deferred income taxes
—

 
71.5

Other assets
348.0

 
365.7

Non-current assets of discontinued operations
85.0

 
—

Total Assets
$
6,599.3

 
$
6,247.8

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
401.9

 
$
499.9

Accrued liabilities
304.9

 
330.5

Deferred income taxes
8.2

 
24.0

Short term debt and current portion of long-term debt
419.9

 
17.1

Current liabilities of discontinued operations
33.7

 
—

Total Current Liabilities
1,168.6

 
871.5

Long-term debt
1,542.2

 
1,463.0

Accrued postretirement benefits
475.0

 
495.2

Pension liabilities
702.4

 
721.1

Deferred income taxes
52.1

 
—

Other long-term liabilities
94.9

 
109.9

Total Liabilities
4,035.2

 
3,660.7

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 September 30, 2013 and December 31, 2012; outstanding- 108,007,487 shares at September 30, 2013 and 107,398,963 shares at December 31, 2012
11.0

 
11.0

Additional paid-in capital
1,181.2

 
1,181.7

Retained earnings
2,335.9

 
2,427.6

Treasury stock: 1,687,684 shares at September 30, 2013 and 2,296,208 shares at December 31, 2012
(78.8
)
 
(111.3
)
Accumulated other comprehensive loss, net of tax
(982.6
)
 
(1,029.4
)
Total ATI stockholders’ equity
2,466.7

 
2,479.6

Noncontrolling interests
97.4

 
107.5

Total Equity
2,564.1

 
2,587.1

Total Liabilities and Equity
$
6,599.3

 
$
6,247.8

The accompanying notes are an integral part of these statements.

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Table of Contents

Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Sales
$
972.4

 
$
1,131.5

 
$
3,128.2

 
$
3,645.5

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
919.3

 
988.8

 
2,886.9

 
3,139.6

Selling and administrative expenses
70.6

 
77.6

 
210.1

 
243.3

Income (loss) before interest, other income and income taxes
(17.5
)
 
65.1

 
31.2

 
262.6

Interest expense, net
(18.2
)
 
(17.2
)
 
(46.5
)
 
(55.7
)
Other income, net
0.4

 
0.2

 
1.3

 
0.6

Income (loss) from continuing operations before income tax provision (benefit)
(35.3
)
 
48.1

 
(14.0
)
 
207.5

Income tax provision (benefit)
(8.5
)
 
14.8

 
(4.4
)
 
66.6

Income (loss) from continuing operations
(26.8
)
 
33.3

 
(9.6
)
 
140.9

Income (loss) from discontinued operations, net of tax
(5.4
)
 
4.0

 
(4.4
)
 
13.4

Net income (loss)
(32.2
)
 
37.3

 
(14.0
)
 
154.3

Less: Net income attributable to noncontrolling interests
1.6

 
2.0

 
5.4

 
6.4

Net income (loss) attributable to ATI
$
(33.8
)
 
$
35.3

 
$
(19.4
)
 
$
147.9

 
 
 
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Continuing operations attributable to ATI per common share
$
(0.27
)
 
$
0.30

 
$
(0.14
)
 
$
1.27

Discontinued operations attributable to ATI per common share
(0.05
)
 
0.03

 
(0.04
)
 
0.12

Basic net income (loss) attributable to ATI per common share
$
(0.32
)
 
$
0.33

 
$
(0.18
)
 
$
1.39

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Continuing operations attributable to ATI per common share
$
(0.27
)
 
$
0.29

 
$
(0.14
)
 
$
1.21

Discontinued operations attributable to ATI per common share
(0.05
)
 
0.03

 
(0.04
)
 
0.11

Diluted net income (loss) attributable to ATI per common share
$
(0.32
)
 
$
0.32

 
$
(0.18
)
 
$
1.32

Dividends declared per common share
$
0.18

 
$
0.18

 
$
0.54

 
$
0.54

 
 
 
 
 
 
 
 
Amounts attributable to ATI common stockholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(28.4
)
 
$
31.3

 
$
(15.0
)
 
$
134.5

Income (loss) from discontinued operations, net of tax
(5.4
)
 
4.0

 
(4.4
)
 
13.4

Net income (loss)
$
(33.8
)
 
$
35.3

 
$
(19.4
)
 
$
147.9

The accompanying notes are an integral part of these statements.


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Table of Contents

Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
(32.2
)
 
$
37.3

 
$
(14.0
)
 
$
154.3

Currency translation adjustment
 
 
 
 
 
 
 
Unrealized net change arising during the period
12.4

 
15.3

 
3.9

 
10.1

Unrealized holding gain on securities
 
 
 
 
 
 
 
Net gain arising during the period
0.1

 
—

 
0.1

 
0.1

Derivatives
 
 
 
 
 
 
 
Net derivatives gain (loss) on hedge transactions
(18.1
)
 
7.8

 
(21.0
)
 
5.5

Reclassification to net income of net realized gain
4.3

 
0.6

 
5.5

 
3.5

Income taxes on derivative transactions
(5.3
)
 
3.3

 
(6.0
)
 
3.5

Total
(8.5
)
 
5.1

 
(9.5
)
 
5.5

Postretirement benefit plans
 
 
 
 
 
 
 
Amortization of net actuarial loss
33.5

 
29.9

 
100.5

 
89.8

Prior service cost

 

 

 

Amortization to net income of net prior service credits
(3.8
)
 
(2.9
)
 
(11.4
)
 
(8.8
)
Income taxes on postretirement benefit plans
11.4

 
10.3

 
34.3

 
31.0

Total
18.3

 
16.7

 
54.8

 
50.0

Other comprehensive income, net of tax
22.3

 
37.1

 
49.3

 
65.7

Comprehensive income (loss)
(9.9
)
 
74.4

 
35.3

 
220.0

Less: Comprehensive income attributable to noncontrolling interests
1.7

 
2.6

 
7.9

 
6.4

Comprehensive income (loss) attributable to ATI
$
(11.6
)
 
$
71.8

 
$
27.4

 
$
213.6

The accompanying notes are an integral part of these statements.


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Table of Contents

Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
 
Nine months ended September 30,
 
2013
 
2012
Operating Activities:
 
 
 
Net income (loss)
$
(14.0
)
 
$
154.3

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
143.5

 
145.1

Deferred taxes
76.1

 
(32.9
)
Changes in operating asset and liabilities:
 
 
 
Inventories
126.7

 
(75.9
)
Accounts receivable
(11.2
)
 
23.4

Accounts payable
(77.4
)
 
(81.4
)
Retirement benefits
50.5

 
40.4

Accrued income taxes
(82.0
)
 
27.2

Accrued liabilities and other
15.2

 
45.6

Cash provided by operating activities
227.4

 
245.8

Investing Activities:
 
 
 
Purchases of property, plant and equipment
(395.5
)
 
(245.6
)
Asset disposals and other
0.8

 
1.5

Cash used in investing activities
(394.7
)
 
(244.1
)
Financing Activities:
 
 
 
Borrowings on long-term debt
500.0

 
—

Payments on long-term debt and capital leases
(17.0
)
 
(16.7
)
Net payments under credit facilities
(0.1
)
 
(10.3
)
Debt issuance costs
(5.2
)
 
—

Dividends paid to stockholders
(57.7
)
 
(57.3
)
Dividends paid to noncontrolling interests
(18.0
)
 
—

Purchase of subsidiary shares from noncontrolling interest
—

 
(0.1
)
Taxes on share-based compensation
2.6

 
5.2

Exercises of stock options and other
0.4

 
1.3

Shares repurchased for income tax withholding on share-based compensation
(6.6
)
 
(23.4
)
Cash provided by (used in) financing activities
398.4

 
(101.3
)
Increase (decrease) in cash and cash equivalents
231.1

 
(99.6
)
Cash and cash equivalents at beginning of period
304.6

 
380.6

Cash and cash equivalents at end of period
$
535.7

 
$
281.0

The accompanying notes are an integral part of these statements.


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Table of Contents

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, 2011
$
11.0

 
$
1,207.1

 
$
2,361.5

 
$
(162.7
)
 
$
(941.6
)
 
$
96.3

 
$
2,571.6

Net income
—

 
—

 
147.9

 
—

 
—

 
6.4

 
154.3

Other comprehensive income
—

 
—

 
—

 
—

 
65.7

 
—

 
65.7

Cash dividends on common stock ($0.54 per share)
—

 
—

 
(57.3
)
 
—

 
—

 
—

 
(57.3
)
Purchase of subsidiary shares from noncontrolling interest
—

 
—

 
—

 
—

 
—

 
(0.1
)
 
(0.1
)
Employee stock plans
—

 
(23.7
)
 
(8.5
)
 
42.9

 
—

 
—

 
10.7

Balance, September 30, 2012
$
11.0

 
$
1,183.4

 
$
2,443.6

 
$
(119.8
)
 
$
(875.9
)
 
$
102.6

 
$
2,744.9

Balance, December 31, 2012
$
11.0

 
$
1,181.7

 
$
2,427.6

 
$
(111.3
)
 
$
(1,029.4
)
 
$
107.5

 
$
2,587.1

Net income (loss)
—

 
—

 
(19.4
)
 
—

 
—

 
5.4

 
(14.0
)
Other comprehensive income
—

 
—

 
—

 
—

 
46.8

 
2.5

 
49.3

Cash dividends on common stock ($0.54 per share)
—

 
—

 
(57.7
)
 
—

 
—

 
—

 
(57.7
)
Dividends paid to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
(18.0
)
 
(18.0
)
Employee stock plans
—

 
(0.5
)
 
(14.6
)
 
32.5

 
—

 
—

 
17.4

Balance, September 30, 2013
$
11.0

 
$
1,181.2

 
$
2,335.9

 
$
(78.8
)
 
$
(982.6
)
 
$
97.4

 
$
2,564.1

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. Certain prior year amounts have been reclassified in order to conform with the fiscal year 2013 presentation. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 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, 2012 financial information has been derived from the Company’s audited consolidated financial statements.
New Accounting Pronouncements Adopted
In January 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. Other than the additional disclosure requirements, the adoption of these changes had no impact on the consolidated financial statements.
In January 2013, the Company adopted changes issued by the FASB to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. Other than the additional disclosure requirements (see Note 13), the adoption of these changes had no impact on the consolidated financial statements.
Pending Accounting Pronouncements
In July 2013, the FASB issued new accounting guidance that requires an entity to net its liability for unrecognized tax positions against a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. The provisions of this new guidance become effective for the Company in fiscal year 2014. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. This guidance requires an entity that is joint and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of one or more co-obligors. Required disclosures include a description of the nature of the arrangement, how the liability arose, the relationship with co-obligors and the terms and conditions of the arrangement. These changes become effective for the Company in fiscal year 2014. The Company does not anticipate a material impact to the consolidated financial statements upon adoption.
In March 2013, the FASB issued changes to a parent entity’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The amendments specify that a cumulative translation adjustment (CTA) should be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For sales of an equity method investment that is a foreign entity, a pro rata portion of CTA attributable to the investment would be recognized in earnings when the investment is sold. When an entity sells either a part or all of its investment in a consolidated foreign entity, CTA

6
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would be recognized in earnings only if the sale results in the parent no longer having a controlling financial interest in the foreign entity. In addition, CTA should be recognized in earnings in a business combination achieved in stages (i.e., a step acquisition). These changes become effective for the Company in fiscal year 2014. The Company does not anticipate a material impact to the consolidated financial statements upon adoption.

Note 2. Inventories
Inventories at September 30, 2013 and December 31, 2012 were as follows (in millions):
 
 
September 30,
2013
 
December 31,
2012
Raw materials and supplies
$
330.7

 
$
351.6

Work-in-process
900.3

 
1,063.9

Finished goods
164.7

 
209.0

Total inventories at current cost
1,395.7

 
1,624.5

Less allowances to reduce current cost values to LIFO basis
(12.4
)
 
(76.9
)
Progress payments
(38.4
)
 
(11.0
)
Total inventories, net
$
1,344.9

 
$
1,536.6

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, decreased cost of sales by $39.1 million for the first nine months of 2013 compared to a decrease of $28.4 million for the first nine months of 2012.

Note 3. Property, Plant and Equipment
Property, plant and equipment at September 30, 2013 and December 31, 2012 was as follows (in millions):
 
 
September 30,
2013
 
December 31,
2012
Land
$
29.9

 
$
34.4

Buildings
947.3

 
921.0

Equipment and leasehold improvements
3,431.9

 
3,344.4

 
4,409.1

 
4,299.8

Accumulated depreciation and amortization
(1,664.4
)
 
(1,739.9
)
Total property, plant and equipment, net
$
2,744.7

 
$
2,559.9

The construction in progress portion of property, plant and equipment at September 30, 2013 was $900.1 million.

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Table of Contents


Note 4. Discontinued Operations
On September 16, 2013, the Company announced it had entered into an agreement to sell its tungsten materials business, which produces tungsten powder, tungsten heavy alloys, tungsten carbide materials, and carbide cutting tools, for $605 million.  The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to be completed during the fourth quarter 2013. 
Also, during the third quarter of 2013, the Company completed a strategic review of its iron castings and fabricated components businesses. Based on current and forecasted results, these businesses were not projected to meet the Company's long-term profitable growth and return on capital employed expectations. As a result of this review, the Company closed its fabricated components business and recorded $6.4 million of pre-tax exit costs, including $5.6 million of non-cash impairment charges for long-lived assets, and $0.8 million primarily related to lease exit costs. The Company expects the cash requirements associated with lease-related exit costs to be approximately $3.8 - $4.3 million, to be incurred over the next four years. The planned divestiture of the iron castings business, which is held for sale at September 30, 2013, resulted in a $3.1 million pre-tax, non-cash long-lived asset impairment charge based on an analysis of the estimated fair value of the business, which represents Level 3 unobservable information in the fair value hierarchy.
The tungsten materials, iron castings and fabricated components businesses were all previously reported as part of the Company's Engineered Products segment. The net assets of these businesses were classified as held for sale as of the end of the third quarter of 2013 and the operating results of these businesses have been included in discontinued operations in the Company's consolidated statements of operations for all periods presented. Results of discontinued operations include $9.5 million pre-tax ($8.1 million after-tax) of charges associated with the iron castings and fabricated components divestitures.
The following table presents summarized operating results for these discontinued operations (in millions):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Sales
$
77.6

 
$
89.0

 
$
236.7

 
$
284.9

Income (loss) before income tax provision
$
(7.1
)
 
$
6.0

 
$
(5.4
)
 
$
20.4

Net assets of discontinued operations were $163.4 million at September 30, 2013 and consisted of the following items (in millions):
 
September 30, 2013
Accounts receivable, net of allowances for doubtful accounts
$
47.5

Inventories, net
65.0

Prepaid expenses and other current assets
2.9

Property, plant and equipment, net
72.9

Cost in excess of net assets acquired
11.2

Other long-term assets
0.9

     Total Assets
200.4

Accounts payable
20.6

Accrued liabilities
13.1

Long-term liabilities
3.3

     Total Liabilities
37.0

     Net Assets
$
163.4


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Note 5. Debt
Debt at September 30, 2013 and December 31, 2012 was as follows (in millions):
 
 
September 30,
2013
 
December 31,
2012
Allegheny Technologies 5.875% Notes due 2023
$
500.0

 
$
—

Allegheny Technologies 5.95% Notes due 2021
500.0

 
500.0

Allegheny Technologies 4.25% Convertible Notes due 2014
402.5

 
402.5

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 (a)
18.4

 
24.8

ATI Ladish Series C 6.41% Notes due 2015 (b)
21.4

 
32.5

Domestic Bank Group $400 million unsecured credit facility
—

 
—

Foreign credit facilities
14.3

 
14.2

Industrial revenue bonds, due through 2020, and other
5.5

 
6.1

Total short-term and long-term debt
1,962.1

 
1,480.1

Short-term debt and current portion of long-term debt
419.9

 
17.1

Total long-term debt
$
1,542.2

 
$
1,463.0

 
(a)
Includes fair value adjustments of $1.2 million at September 30, 2013 and $1.9 million at December 31, 2012.
(b)
Includes fair value adjustments of $1.4 million at September 30, 2013 and $2.5 million at December 31, 2012.
On July 12, 2013, ATI issued $500 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “2023 Notes”). Interest on the 2023 Notes is payable semi-annually in arrears at a rate of 5.875% per year and will mature on August 15, 2023, unless redeemed or repurchased earlier. The interest rate payable on the 2023 Notes is subject to adjustment in the event of a change in the credit ratings on the 2023 Notes. A downgrade of the Company's credit ratings could result in an increase to the interest cost with respect to the 2023 Notes. The Company will use net proceeds from the offering of the 2023 Notes for general corporate purposes which may include repurchases, repayment or refinancing of debt, capital expenditures, additions to working capital, the financing of future acquisitions or strategic combinations.
In May and September 2013, the Company amended its $400 million senior unsecured domestic revolving credit facility to, among other things, extend the expiration date of the commitments of the lenders thereunder to May 31, 2018 and to modify the maximum leverage ratio and minimum interest coverage ratio permitted under the facility. 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. As amended, the facility requires the Company to maintain a leverage ratio (consolidated total indebtedness divided by consolidated earnings before interest, taxes and depreciation and amortization for the four prior fiscal quarters) of 4.50 for the quarter ended September 30, 2013. The maximum leverage ratio is reduced to 4.0 beginning with the quarter ended December 31, 2013, then to 3.75 for the quarter ended March 31, 2015 and is further reduced to 3.50 beginning with the quarter ended June 30, 2015 and for each fiscal quarter thereafter. As amended, the credit facility requires that the Company maintain an interest coverage ratio (consolidated earnings before interest and taxes divided by interest expense) of not less than 2.0 for the quarter ended September 30, 2013, 1.75 for the quarter ended December 31, 2013, and 2.0 for the quarter ended March 31, 2014 and for each fiscal quarter thereafter. At September 30, 2013, the leverage ratio was 4.18 and the interest coverage ratio was 2.71. The definition of consolidated earnings before interest and taxes, and consolidated earnings before interest, 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 September 30, 2013, there were no outstanding borrowings made against the facility, although a portion of the facility was used to support approximately $4 million in letters of credit. The facility includes a $200 million sublimit for the issuance of letters of credit.
The Company has an additional separate credit facility for the issuance of letters of credit. As of September 30, 2013, $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, has a 205 million renminbi (approximately $33 million at September 30, 2013 exchange rates) revolving credit facility with a group of banks, which expires in August 2014. This credit facility is supported

9
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solely by STAL’s financial capability without any guarantees from the joint venture partners. As of September 30, 2013, there were no borrowings under this credit facility.
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 6. 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 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. 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 September 30, 2013, 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 7% of its estimated annual nickel requirements. These nickel hedges extend to 2020.
At September 30, 2013, 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 2013, approximately 75% for 2014, and approximately 30% for 2015, and electricity hedges for Western Pennsylvania operations of approximately 10% of its forecasted on-peak and off-peak requirements for 2014.
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. The Company may also enter into foreign currency forward contracts that are not designated as hedges, which are denominated in the same foreign currency in which export sales are denominated. At September 30, 2013, the outstanding financial derivatives, including both hedges and undesignated derivatives, that are used to manage the Company’s exposure to foreign currency, primarily euros, represented approximately 10% of its forecasted total international sales through 2016. 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.
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.

10
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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
 
September 30,
2013
 
December 31,
2012
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other current assets
 
$
0.3

 
$
2.9

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

 
0.6

Natural gas contracts
 
Prepaid expenses and other current assets
 
0.4

 
0.4

Foreign exchange contracts
 
Other assets
 
—

 
0.9

Nickel and other raw material contracts
 
Other assets
 
0.1

 
0.3

Natural gas contracts
 
Other assets
 
0.2

 
0.7

Total derivatives designated as hedging instruments:
 
1.0

 
5.8

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

 
0.4

Total derivatives not designated as hedging instruments:
 
—

 
0.4

Total asset derivatives
 
 
 
$
1.0

 
$
6.2

Liability derivatives
 
Balance sheet location
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Natural gas contracts
 
Accrued liabilities
 
$
2.2

 
$
4.4

Nickel and other raw material contracts
 
Accrued liabilities
 
9.3

 
1.1

Foreign exchange contracts
 
Accrued liabilities
 
4.0

 
1.7

Electricity contracts
 
Accrued liabilities
 
0.4

 
0.3

Natural gas contracts
 
Other long-term liabilities
 
0.3

 
0.6

Electricity contracts
 
Other long-term liabilities
 
0.1

 
0.4

Foreign exchange contracts
 
Other long-term liabilities
 
3.0

 
1.4

Nickel and other raw material contracts
 
Other long-term liabilities
 
1.5

 
0.3

Total derivatives designated as hedging instruments:
 
20.8

 
10.2

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Accrued liabilities
 
1.6

 
1.6

Total derivatives not designated as hedging instruments:
 
1.6

 
1.6

Total liability derivatives
 
 
 
$
22.4

 
$
11.8

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.

11
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Activity with regard to derivatives designated as cash flow hedges for the three and nine month periods ended September 30, 2013 and 2012 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 September 30,
 
Three months ended September 30,
 
Three months ended September 30,
Hedging Relationships
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Nickel and other raw material contracts
$
0.2

 
$
4.8

 
$
(1.3
)
 
$
(1.5
)
 
$
—

 
$
—

Natural gas contracts
0.1

 
1.2

 
(0.6
)
 
(1.8
)
 
—

 
—

Electricity contracts
(0.1
)
 
0.2

 
—

 
(0.5
)
 
—

 
—

Foreign exchange contracts
(11.3
)
 
(1.4
)
 
(0.7
)
 
3.5

 
—

 
—

Total
$
(11.1
)
 
$
4.8

 
$
(2.6
)
 
$
(0.3
)
 
$
—

 
$
—

 
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
Nine months ended September 30,
 
Nine months ended September 30,
 
Nine months ended September 30,
Hedging Relationships
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Nickel and other raw material contracts
$
(8.6
)
 
$
0.1

 
$
(2.3
)
 
$
(2.3
)
 
$
—

 
$
—

Natural gas contracts
(0.2
)
 
(2.1
)
 
(1.5
)
 
(6.8
)
 
—

 
—

Electricity contracts
(0.1
)
 
(0.9
)
 
(0.2
)
 
(1.6
)
 
—

 
—

Foreign exchange contracts
(4.0
)
 
6.3

 
0.6

 
8.6

 
—

 
—

Total
$
(12.9
)
 
$
3.4

 
$
(3.4
)
 
$
(2.1
)
 
$
—

 
$
—

 
(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 September 30, 2013, a loss of $9.4 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:
 
In millions
Amount of Gain (Loss) Recognized
in Income on Derivatives
Derivatives Not Designated
Three months ended September 30,
 
Nine months ended September 30,
as Hedging Instruments
2013
 
2012
 
2013
 
2012
Foreign exchange contracts
$
(0.7
)
 
$
(1.9
)
 
$
(0.3
)
 
$
(2.0
)
Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales.


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Note 7. Fair Value of Financial Instruments
The estimated fair value of financial instruments at September 30, 2013 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
$
535.7

 
$
535.7

 
$
535.7

 
$
—

Derivative financial instruments:
 
 
 
 
 
 
 
Assets
1.0

 
1.0

 
—

 
1.0

Liabilities
22.4

 
22.4

 
—

 
22.4

Debt
1,962.1

 
2,102.1

 
2,042.4

 
59.7

The estimated fair value of financial instruments at December 31, 2012 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
$
304.6

 
$
304.6

 
$
304.6

 
$
—

Derivative financial instruments:
 
 
 
 
 
 
 
Assets
6.2

 
6.2

 
—

 
6.2

Liabilities
11.8

 
11.8

 
—

 
11.8

Debt
1,480.1

 
1,703.2

 
1,625.6

 
77.6

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 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.



13
Table of Contents

Note 8. 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 three month periods ended September 30, 2013 and 2012, 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 September 30,
 
Three months ended September 30,
 
2013
 
2012
 
2013
 
2012
Service cost - benefits earned during the year
$
10.0

 
$
8.8

 
$
0.8

 
$
0.8

Interest cost on benefits earned in prior years
30.3

 
33.1

 
5.6

 
6.5

Expected return on plan assets
(43.8
)
 
(45.4
)
 
(0.1
)
 
(0.2
)
Amortization of prior service cost (credit)
0.8

 
1.6

 
(4.6
)
 
(4.5
)
Amortization of net actuarial loss
29.2

 
26.3

 
4.3

 
3.6

Total retirement benefit expense
$
26.5

 
$
24.4

 
$
6.0

 
$
6.2

For the nine month periods ended September 30, 2013 and 2012, 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
 
Nine months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Service cost - benefits earned during the year
$
30.0

 
$
26.3

 
$
2.4

 
$
2.4

Interest cost on benefits earned in prior years
90.9

 
99.3

 
16.8

 
19.5

Expected return on plan assets
(131.4
)
 
(136.1
)
 
(0.3
)
 
(0.6
)
Amortization of prior service cost (credit)
2.3

 
4.8

 
(13.7
)
 
(13.6
)
Amortization of net actuarial loss
87.6

 
78.9

 
12.9

 
10.9

Total retirement benefit expense
$
79.4

 
$
73.2

 
$
18.1

 
$
18.6

Other postretirement benefit costs for a defined contribution plan were $2.0 million for both the three and nine months ended September 30, 2013.

Note 9. Income Taxes
Third quarter 2013 results included a benefit for income taxes of $8.5 million, or 24.1% of loss before tax, compared to a provision of $14.8 million, or 30.8% of income before tax, for the comparable period. The third quarter of 2013 included a lower than normal tax benefit due to the impacts of income taxes reported in both domestic and foreign jurisdictions.
For the first nine months of 2013, the benefit for income taxes was $4.4 million, or 31.4% of loss before tax, compared to a provision of $66.6 million, or 32.1% of income before tax, for the nine months of 2012. The first nine months of 2013 included a discrete tax benefit of $6.7 million, primarily associated with adjustments to prior years’ taxes and 2013 Federal tax law changes. The first nine months of 2012 included a discrete tax benefit of $4.2 million primarily related to state income taxes.

14
Table of Contents


Note 10. Business Segments
In the third quarter of 2013, the Company restructured its Engineered Products segment due to the planned divestitures of its tungsten materials and casting services businesses and the closure of the fabricated components business (see Note 4). Such restructuring included the integration of the previously standalone specialty steel forgings business into ATI Ladish’s forgings operations in the High Performance Metals segment, and the integration of its precision titanium and specialty alloy flat-rolled finishing business into ATI Allegheny Ludlum’s specialty plate business in the Flat-Rolled Products segment. The segment results for High Performance Metals and Flat-Rolled Products below reflect these changes for all periods presented. The other businesses that comprised the Engineered Products segment are classified as discontinued operations, and are not reported within business segment results.
Following is certain financial information with respect to the Company’s business segments for the periods indicated (in millions):
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Total sales:
 
 
 
 
 
 
 
High Performance Metals
$
481.2

 
$
591.8

 
$
1,561.7

 
$
1,858.0

Flat-Rolled Products
515.6

 
573.1

 
1,644.0

 
1,892.5

 
996.8

 
1,164.9

 
3,205.7

 
3,750.5

Intersegment sales:
 
 
 
 
 
 
 
High Performance Metals
17.3

 
21.2

 
53.6

 
69.1

Flat-Rolled Products
7.1

 
12.2

 
23.9

 
35.9

 
24.4

 
33.4

 
77.5

 
105.0

Sales to external customers:
 
 
 
 
 
 
 
High Performance Metals
463.9

 
570.6

 
1,508.1

 
1,788.9

Flat-Rolled Products
508.5

 
560.9

 
1,620.1

 
1,856.6

 
$
972.4

 
$
1,131.5

 
$
3,128.2

 
$
3,645.5

Operating profit (loss):
 
 
 
 
 
 
 
High Performance Metals
$
48.0

 
$
87.4

 
$
192.0

 
$
303.8

Flat-Rolled Products
(20.4
)
 
26.1

 
(16.7
)
 
118.4

Total operating profit
27.6

 
113.5

 
175.3

 
422.2

Corporate expenses
(8.1
)
 
(14.9
)
 
(32.3
)
 
(52.4
)
Interest expense, net
(18.2
)
 
(17.2
)
 
(46.5
)
 
(55.7
)
Closed company and other expenses
(2.1
)
 
(2.7
)
 
(11.0
)
 
(14.8
)
Retirement benefit expense
(34.5
)
 
(30.6
)
 
(99.5
)
 
(91.8
)
Income (loss) before income taxes
$
(35.3
)
 
$
48.1

 
$
(14.0
)
 
$
207.5

Retirement benefit expense represents defined benefit plan 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 pension plans are included in segment operating profit or corporate expenses, as applicable.
Corporate expenses for the three months ended September 30, 2013 were $8.1 million compared to $14.9 million for the three months ended September 30, 2012. The decrease in corporate expenses was primarily related to lower incentive compensation expenses associated with annual and long-term performance plans, and a favorable litigation settlement.
Interest expense, net of interest income, in the third quarter was $18.2 million, compared to net interest expense of $17.2 million in the third quarter 2012. The increase in interest expense was primarily due the 2023 Notes issued on July 12, 2013, partially offset by increased capitalized interest on major strategic projects. Interest expense benefited from the capitalization of interest costs of $12.7 million in the third quarter 2013 compared to $6.6 million in the third quarter 2012. The increased capitalized interest amounts are primarily related to the Hot-Rolling and Processing Facility.

15
Table of Contents

Closed company and other expenses primarily includes charges incurred in connection with closed operations and other non-operating income or expense. These items are presented primarily in selling and administrative expenses and in other income in the statements of operations. These items resulted in net charges of $2.1 million for the three months ended September 30, 2013 and $2.7 million for the three months ended September 30, 2012.
Retirement benefit expense, which includes pension expense and other postretirement expense, increased to $34.5 million in the third quarter 2013, compared to $30.6 million in the third quarter 2012. This increase was primarily due to the utilization of a lower discount rate to value retirement benefit obligations and increased expense for defined contribution plan other postretirement benefits.
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
 
Nine months ended
(in millions, except per share amounts):
September 30,
 
September 30,
2013
 
2012
 
2013
 
2012
Numerator for basic income (loss) from continuing operations per common share -
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to ATI
$
(28.4
)
 
$
31.3

 
$
(15.0
)
 
$
134.5

Effect of dilutive securities:
 
 
 
 
 
 
 
4.25% Convertible Notes due 2014
—

 
2.1

 
—

 
6.5

Numerator for diluted income (loss) from continuing operations per common share -
 
 
 
 
 
 
 
Income (loss) from continuing operations available to ATI after assumed conversions
$
(28.4
)
 
$
33.4

 
$
(15.0
)
 
$
141.0

Denominator for basic net income per common share-weighted average shares
106.8

 
106.2

 
106.7

 
106.1

Effect of dilutive securities:
 
 
 
 
 
 
 
Share-based compensation
—

 
0.9

 
—

 
0.9

4.25% Convertible Notes due 2014
—

 
9.6

 
—

 
9.6

Denominator for diluted net income per common share – adjusted weighted average shares assuming conversions
106.8

 
116.7

 
106.7

 
116.6

Basic income (loss) from continuing operations attributable to ATI per common share
$
(0.27
)
 
$
0.30

 
$
(0.14
)
 
$
1.27

Diluted income (loss) from continuing operations attributable to ATI per common share
$
(0.27
)
 
$
0.29

 
$
(0.14
)
 
$
1.21

Common stock that would be issuable upon the assumed conversion of the 2014 Convertible Notes 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. Excluded shares for the three and nine month periods ended September 30, 2013 were 10.0 million shares. There were no anti-dilutive shares for the periods ended September 30, 2012.

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 (formerly known as 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.
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

16
Table of Contents

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.
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
September 30, 2013
 
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2.6

 
$
7.3

 
$
525.8

 
$
—

 
$
535.7

Accounts receivable, net
3.4

 
187.5

 
386.0

 


 
576.9

Intercompany notes receivable
—

 
—

 
1,261.4

 
(1,261.4
)
 
—

Inventories, net
—

 
267.1

 
1,077.8

 
—

 
1,344.9

Prepaid expenses and other current assets
82.9

 
9.3

 
28.4

 
—

 
120.6

Current assets of discontinued operations
—

 
—

 
115.4

 
—

 
115.4

Total current assets
88.9

 
471.2

 
3,394.8

 
(1,261.4
)
 
2,693.5

Property, plant and equipment, net
3.2

 
1,211.8

 
1,529.7

 
—

 
2,744.7

Cost in excess of net assets acquired
—

 
112.1

 
616.0

 
—

 
728.1

Intercompany notes receivable
—

 
—

 
200.0

 
(200.0
)
 
—

Investment in subsidiaries
5,605.5

 
37.7

 
—

 
(5,643.2
)
 
—

Other assets
39.5

 
31.3

 
277.2

 
—

 
348.0

Non-current assets of discontinued operations
—

 
—

 
85.0

 
—

 
85.0

Total assets
$
5,737.1

 
$
1,864.1

 
$
6,102.7

 
$
(7,104.6
)
 
$
6,599.3

Liabilities and stockholders’ equity:
 
 
 
 
 
 
 
 
 
Accounts payable
$
4.6

 
$
230.8

 
$
166.5

 
$
—

 
$
401.9

Accrued liabilities
46.9

 
57.0

 
201.0

 
—

 
304.9

Intercompany notes payable
664.5

 
596.9

 
—

 
(1,261.4
)
 
—

Deferred income taxes
8.2

 
—

 
—

 
—

 
8.2

Short-term debt and current portion of long-term debt
402.9

 
0.1

 
16.9

 
—

 
419.9

Current liabilities of discontinued operations
—

 
—

 
33.7

 
—

 
33.7

Total current liabilities
1,127.1

 
884.8

 
418.1

 
(1,261.4
)
 
1,168.6

Long-term debt
1,350.9

 
150.5

 
40.8

 
—

 
1,542.2

Intercompany notes payable
—

 
200.0

 
—

 
(200.0
)
 
—

Accrued postretirement benefits
—

 
183.1

 
291.9

 
—

 
475.0

Pension liabilities
638.1

 
4.7

 
59.6

 
—

 
702.4

Deferred income taxes
52.1

 
—

 
—

 
—

 
52.1

Other long-term liabilities
4.8

 
19.3

 
70.8

 
—

 
94.9

Total liabilities
3,173.0

 
1,442.4

 
881.2

 
(1,461.4
)
 
4,035.2

Total stockholders’ equity
2,564.1

 
421.7

 
5,221.5

 
(5,643.2
)
 
2,564.1

Total liabilities and stockholders’ equity
$
5,737.1

 
$
1,864.1

 
$
6,102.7

 
$
(7,104.6
)
 
$
6,599.3



17
Table of Contents

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Income and Comprehensive Income
For the three months ended September 30, 2013  
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Sales
$
—

 
$
422.3

 
$
550.1

 
$
—

 
$
972.4

Cost of sales
19.4

 
424.3

 
475.6

 
—

 
919.3

Selling and administrative expenses
35.4

 
7.4

 
27.8

 
—

 
70.6

Income (loss) before interest, other income and income taxes
(54.8
)
 
(9.4
)
 
46.7

 
—

 
(17.5
)
Interest expense, net
(17.3
)
 
(9.7
)
 
8.8

 
—

 
(18.2
)
Other income (loss) including equity in income of unconsolidated subsidiaries
36.8

 
0.1

 
0.3

 
(36.8
)
 
0.4

Income (loss) from continuing operations before income tax provision (benefit)
(35.3
)
 
(19.0
)
 
55.8

 
(36.8
)
 
(35.3
)
Income tax provision (benefit)
(8.5
)
 
(6.6
)
 
22.4

 
(15.8
)
 
(8.5
)
Income (loss) from continuing operations
(26.8
)
 
(12.4
)
 
33.4

 
(21.0
)
 
(26.8
)
Income (loss)from discontinued operations, net of tax
(5.4
)
 
—

 
(2.5
)
 
2.5

 
(5.4
)
Net income (loss)
(32.2
)
 
(12.4
)
 
30.9

 
(18.5
)
 
(32.2
)
Less: Net income (loss) attributable to noncontrolling interests
—

 
—

 
1.6

 
—

 
1.6

Net income (loss) attributable to ATI
$
(32.2
)
 
$
(12.4
)
 
$
29.3

 
$
(18.5
)
 
$
(33.8
)
Comprehensive income (loss) attributable to ATI
$
(9.9
)
 
$
(12.2
)
 
$
42.0

 
$
(31.5
)
 
$
(11.6
)
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Income and Comprehensive Income
For the nine months ended September 30, 2013  
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Sales
$
—

 
$
1,375.2

 
$
1,753.0

 
$
—

 
$
3,128.2

Cost of sales
55.5

 
1,359.5

 
1,471.9

 
—

 
2,886.9

Selling and administrative expenses
88.9

 
27.3

 
93.9

 
—

 
210.1

Income (loss) before interest, other income and income taxes
(144.4
)
 
(11.6
)
 
187.2

 
—

 
31.2

Interest expense, net
(45.5
)
 
(27.0
)
 
26.0

 
—

 
(46.5
)
Other income (loss) including equity in income of unconsolidated subsidiaries
175.9

 
0.6

 
0.8

 
(176.0
)
 
1.3

Income (loss) from continuing operations before income tax provision (benefit)
(14.0
)
 
(38.0
)
 
214.0

 
(176.0
)
 
(14.0
)
Income tax provision (benefit)
(4.4
)
 
(9.8
)
 
76.6

 
(66.8
)
 
(4.4
)
Income (loss) from continuing operations
(9.6
)
 
(28.2
)
 
137.4

 
(109.2
)
 
(9.6
)
Income (loss) from discontinued operations, net of tax
(4.4
)
 
—

 
(0.2
)
 
0.2

 
(4.4
)
Net income (loss)
(14.0
)
 
(28.2
)
 
137.2

 
(109.0
)
 
(14.0
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
5.4

 
—

 
5.4

Net income (loss) attributable to ATI
$
(14.0
)
 
$