ATI 2014 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, 2014
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 28, 2014, the registrant had outstanding 108,573,206 shares of its Common Stock.
 

Table of Contents

ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
Quarter Ended March 31, 2014
INDEX
 
Page No.
PART I. - FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
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,
2014
 
December 31,
2013
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
837.7

 
$
1,026.8

Accounts receivable, net of allowances for doubtful accounts of $5.1 and $5.3 as of March 31, 2014 and December 31, 2013, respectively
557.5

 
528.2

Inventories, net
1,408.5

 
1,322.1

Prepaid expenses and other current assets
86.9

 
67.6

Current assets of discontinued operations
5.1

 
6.1

Total Current Assets
2,895.7

 
2,950.8

Property, plant and equipment, net
2,889.3

 
2,874.1

Cost in excess of net assets acquired
775.5

 
727.9

Other assets
353.6

 
342.0

Non-current assets of discontinued operations
3.4

 
3.7

Total Assets
$
6,917.5

 
$
6,898.5

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
518.2

 
$
471.8

Accrued liabilities
294.9

 
310.9

Deferred income taxes
15.7

 
3.5

Short term debt and current portion of long-term debt
420.0

 
419.9

Current liabilities of discontinued operations
4.9

 
4.9

Total Current Liabilities
1,253.7

 
1,211.0

Long-term debt
1,526.8

 
1,527.4

Accrued postretirement benefits
432.7

 
442.4

Pension liabilities
361.8

 
368.2

Deferred income taxes
214.6

 
206.6

Other long-term liabilities
148.6

 
148.2

Total Liabilities
3,938.2

 
3,903.8

Redeemable noncontrolling interest
12.2

 
—

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, 2014 and December 31, 2013; outstanding- 108,567,959 shares at March 31, 2014 and 107,983,360 shares at December 31, 2013
11.0

 
11.0

Additional paid-in capital
1,160.2

 
1,185.9

Retained earnings
2,440.7

 
2,490.1

Treasury stock: 1,127,212 shares at March 31, 2014 and 1,711,811 shares at December 31, 2013
(51.3
)
 
(79.6
)
Accumulated other comprehensive loss, net of tax
(694.3
)
 
(713.2
)
Total ATI stockholders’ equity
2,866.3

 
2,894.2

Noncontrolling interests
100.8

 
100.5

Total Equity
2,967.1

 
2,994.7

Total Liabilities and Equity
$
6,917.5

 
$
6,898.5

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 March 31,
 
2014
 
2013
Sales
$
987.3

 
$
1,099.0

Costs and expenses:
 
 
 
Cost of sales
917.1

 
998.5

Selling and administrative expenses
67.7

 
72.4

Income before interest, other income and income taxes
2.5

 
28.1

Interest expense, net
(29.1
)
 
(14.4
)
Other income, net
0.6

 
1.1

Income (loss) from continuing operations before income tax provision (benefit)
(26.0
)
 
14.8

Income tax provision (benefit)
(10.0
)
 
3.5

Income (loss) from continuing operations
(16.0
)
 
11.3

Income (loss) from discontinued operations, net of tax
(1.9
)
 
0.3

Net income (loss)
(17.9
)
 
11.6

Less: Net income attributable to noncontrolling interests
2.1

 
1.6

Net income (loss) attributable to ATI
$
(20.0
)
 
$
10.0

 
 
 
 
Income (loss) per common share:
 
 
 
Basic
 
 
 
Continuing operations attributable to ATI per common share
$
(0.17
)
 
$
0.09

Discontinued operations attributable to ATI per common share
(0.02
)
 
—

Basic net income (loss) attributable to ATI per common share
$
(0.19
)
 
$
0.09

 
 
 
 
Diluted
 
 
 
Continuing operations attributable to ATI per common share
$
(0.17
)
 
$
0.09

Discontinued operations attributable to ATI per common share
(0.02
)
 
—

Diluted net income (loss) attributable to ATI per common share
$
(0.19
)
 
$
0.09

Dividends declared per common share
$
0.18

 
$
0.18

 
 
 
 
Amounts attributable to ATI common stockholders:
 
 
 
Income (loss) from continuing operations, net of tax
$
(18.1
)
 
$
9.7

Income (loss) from discontinued operations, net of tax
(1.9
)
 
0.3

Net income (loss)
$
(20.0
)
 
$
10.0

The accompanying notes are an integral part of these statements.


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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
 
 
Three months ended March 31,
 
2014
 
2013
Net income (loss)
$
(17.9
)
 
$
11.6

Currency translation adjustment
 
 
 
Unrealized net change arising during the period
(3.3
)
 
(13.0
)
Unrealized holding gain on securities
 
 
 
Net gain arising during the period
—

 
0.1

Derivatives
 
 
 
Net derivatives gain on hedge transactions
9.3

 
13.1

Reclassification to net income of net realized loss
2.1

 
0.7

Income taxes on derivative transactions
4.4

 
5.4

Total
7.0

 
8.4

Postretirement benefit plans
 
 
 
Amortization of net actuarial loss
22.0

 
33.5

Prior service cost

 

Amortization to net income of net prior service credits
(0.2
)
 
(3.8
)
Income taxes on postretirement benefit plans
8.4

 
11.5

Total
13.4

 
18.2

Other comprehensive income, net of tax
17.1

 
13.7

Comprehensive income (loss)
(0.8
)
 
25.3

Less: Comprehensive income attributable to noncontrolling interests
0.2

 
2.1

Comprehensive income (loss) attributable to ATI
$
(1.0
)
 
$
23.2

The accompanying notes are an integral part of these statements.


3
Table of Contents

Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
 
Three months ended March 31,
 
2014
 
2013
Operating Activities:
 
 
 
Net income (loss)
$
(17.9
)
 
$
11.6

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
44.0

 
48.5

Deferred taxes
(1.7
)
 
36.0

Changes in operating asset and liabilities:
 
 
 
Inventories
(82.6
)
 
(0.9
)
Accounts receivable
(28.6
)
 
(68.2
)
Accounts payable
45.9

 
(20.4
)
Retirement benefits
4.2

 
16.6

Accrued income taxes
(10.9
)
 
(31.9
)
Accrued liabilities and other
(9.3
)
 
(48.7
)
Cash used in operating activities
(56.9
)
 
(57.4
)
Investing Activities:
 
 
 
Purchases of property, plant and equipment
(39.6
)
 
(86.9
)
Purchase of business, net of cash acquired
(71.1
)
 
—

Asset disposals and other
1.8

 
0.7

Cash used in investing activities
(108.9
)
 
(86.2
)
Financing Activities:
 
 
 
Payments on long-term debt and capital leases
(0.1
)
 
(0.1
)
Dividends paid to stockholders
(19.3
)
 
(19.2
)
Taxes on share-based compensation
—

 
2.6

Exercises of stock options and other
—

 
0.4

Shares repurchased for income tax withholding on share-based compensation
(3.9
)
 
(6.7
)
Cash used in financing activities
(23.3
)
 
(23.0
)
Decrease in cash and cash equivalents
(189.1
)
 
(166.6
)
Cash and cash equivalents at beginning of period
1,026.8

 
304.6

Cash and cash equivalents at end of period
$
837.7

 
$
138.0

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, 2012
$
11.0

 
$
1,181.7

 
$
2,427.6

 
$
(111.3
)
 
$
(1,029.4
)
 
$
107.5

 
$
2,587.1

Net income
—

 
—

 
10.0

 
—

 
—

 
1.6

 
11.6

Other comprehensive income
—

 
—

 
—

 
—

 
13.2

 
0.5

 
13.7

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

 
—

 
(19.2
)
 
—

 
—

 
—

 
(19.2
)
Employee stock plans
—

 
(13.2
)
 
(13.5
)
 
30.2

 
—

 
—

 
3.5

Balance, March 31, 2013
$
11.0

 
$
1,168.5

 
$
2,404.9

 
$
(81.1
)
 
$
(1,016.2
)
 
$
109.6

 
$
2,596.7

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

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 2014 presentation. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2013 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, 2013 financial information has been derived from the Company’s audited consolidated financial statements.
ATI’s strategic vision is to be an aligned and integrated specialty materials and components company. In conjunction with this initiative, in the first quarter of 2014, the High Performance Metals segment was renamed the High Performance Materials & Components segment. Individual business unit names within each segment were also changed to reflect their aligned and integrated product focus. There was no change to the business units that comprise each business segment or the manner in which resources are allocated and performance is assessed for the business units by management. Therefore, there was no change to business segment reporting as a result of this initiative.
New Accounting Pronouncements Adopted
In January 2014, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) that require 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 adoption of these changes had no impact on the consolidated financial statements.
In January 2014, the Company adopted changes issued by the FASB 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. The adoption of these changes had no impact on the consolidated financial statements.
In January 2014, the Company adopted changes issued by the FASB to a parent entity’s accounting for the cumulative translation adjustment (CTA) 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 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 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). The adoption of these changes had no impact on the consolidated financial statements.
Pending Accounting Pronouncements
In April 2014, the FASB issued changes 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 current 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

6
Table of Contents

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 become effective for all disposals that occur for the Company beginning in fiscal year 2015. The Company does not anticipate a material impact to the consolidated financial statements upon adoption.
Note 2. Acquisition of Business
On February 7, 2014, the Company acquired 85% of Dynamic Flowform Corp. (“Dynamic Flowform”) for $73.1 million of cash consideration, net of cash acquired, including $71.1 million paid in the first quarter of 2014 and $2.0 million that is expected to be paid in the second quarter of 2014. The Dynamic Flowform acquisition will be treated as an asset purchase for tax purposes. The holders of the 15% noncontrolling interest have a put option requiring the Company to purchase their equity interest (see Note 12 for additional explanation). The Company also incurred $0.8 million of pre-tax costs related to the acquisition, consisting primarily of professional fees, which were recorded in selling and administrative expenses in the March 31, 2014 consolidated statement of operations.
Based in Billerica, MA, Dynamic Flowform, which has been renamed ATI Flowform Products, uses precision flowforming process technologies to produce thin-walled components in net or near-net shapes across multiple alloy systems, including nickel-based alloys and superalloys, titanium and titanium alloys, zirconium alloys, and specialty and stainless alloys. Management expects this acquisition to expand the Company’s capabilities to produce specialty materials parts and components, primarily in the aerospace and defense, and oil & gas/chemical process industry markets. ATI Flowform Products results are included in the High Performance Materials & Components segment from the date of the acquisition.
The preliminary purchase price allocation includes technology, trademarks and customer intangible assets of $21.4 million, which will be amortized over a 23 year weighted average life, and goodwill of $47.0 million, which is deductible for tax purposes. The final allocation of the purchase price is expected to be completed by the end of the 2014 second quarter. Pro forma financial information has not been included because the acquisition did not meet certain significance thresholds.
Note 3. Discontinued Operations
On November 4, 2013, the Company completed the sale of its tungsten materials business, which produces tungsten powder, tungsten heavy alloys, tungsten carbide materials, and carbide cutting tools. The operating results for this business have been included in discontinued operations in the Company's consolidated statement of operations for the three months ended March 31, 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 resulting in the closure of the fabricated components business and planned divestiture of the iron casting business in 2013. The net assets of these businesses were classified as held for sale as of March 31, 2014 and December 31, 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.
In April 2014, the Company determined that it will close its iron castings business, as the planned divestiture of this business through a sale process as previously announced was not able to be completed on commercially acceptable terms. The orderly wind-down of operations is expected to be completed by the end of the third quarter 2014 and is expected to result in approximately $3 million of cash exit costs, including approximately $2 million of pre-tax charges that will be recognized through the third quarter 2014, primarily related to severance benefits, as part of the results of discontinued operations.
The following table presents summarized operating results for these discontinued operations (in millions):
 
Three months ended March 31,
 
2014
 
2013
Sales
$
5.2

 
$
80.4

Income (loss) before income tax provision (benefit)
$
(2.8
)
 
$
0.5


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Net assets of discontinued operations were $2.9 million and $4.2 million at March 31, 2014 and December 31, 2013, respectively, and consisted of the following items (in millions):
 
March 31, 2014
 
December 31, 2013
Accounts receivable, net of allowances for doubtful accounts
$
2.6

 
$
2.9

Inventories, net
2.4

 
3.1

Prepaid expenses and other current assets
0.1

 
0.1

Property, plant and equipment, net
3.4

 
3.7

     Total Assets
8.5

 
9.8

Accounts payable
1.6

 
1.8

Accrued liabilities
3.3

 
3.1

Long-term liabilities
0.7

 
0.7

     Total Liabilities
5.6

 
5.6

     Net Assets
$
2.9

 
$
4.2

Note 4. Inventories
Inventories at March 31, 2014 and December 31, 2013 were as follows (in millions):
 
March 31,
2014
 
December 31,
2013
Raw materials and supplies
$
291.2

 
$
277.6

Work-in-process
1,069.3

 
984.9

Finished goods
161.3

 
162.1

Total inventories at current cost
1,521.8

 
1,424.6

Adjustment from current cost to LIFO cost basis
20.4

 
29.4

Inventory valuation reserves
(73.7
)
 
(84.3
)
Progress payments
(60.0
)
 
(47.6
)
Total inventories, net
$
1,408.5

 
$
1,322.1

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 $9.0 million for the first three months of 2014, which was offset by a $9.0 million reduction in net realizable value reserves on the carrying value of LIFO-based inventory. First quarter 2013 results included a $0.5 million increase in cost of sales from using the LIFO costing methodology. First quarter 2014 results included $8.3 million in inventory valuation charges related to the market-based valuation of industrial titanium products in the Flat Rolled Products segment.
Note 5. Property, Plant and Equipment
Property, plant and equipment at March 31, 2014 and December 31, 2013 was as follows (in millions):
 
March 31,
2014
 
December 31,
2013
Land
$
30.1

 
$
30.2

Buildings
1,022.8

 
1,019.1

Equipment and leasehold improvements
3,572.5

 
3,526.0

 
4,625.4

 
4,575.3

Accumulated depreciation and amortization
(1,736.1
)
 
(1,701.2
)
Total property, plant and equipment, net
$
2,889.3

 
$
2,874.1

The construction in progress portion of property, plant and equipment at March 31, 2014 was $125.9 million.

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Note 6. Debt
Debt at March 31, 2014 and December 31, 2013 was as follows (in millions): 
 
March 31,
2014
 
December 31,
2013
Allegheny Technologies 5.875% Notes due 2023
$
500.0

 
$
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)
18.0

 
18.2

ATI Ladish Series C 6.41% Notes due 2015 (b)
20.9

 
21.1

Domestic Bank Group $400 million unsecured credit facility
—

 
—

Foreign credit facilities
—

 
—

Industrial revenue bonds, due through 2020, and other
5.4

 
5.5

Total short-term and long-term debt
1,946.8

 
1,947.3

Short-term debt and current portion of long-term debt
420.0

 
419.9

Total long-term debt
$
1,526.8

 
$
1,527.4

 
(a)
Includes fair value adjustments of $0.8 million at March 31, 2014 and $1.0 million at December 31, 2013.
(b)
Includes fair value adjustments of $0.9 million at March 31, 2014 and $1.1 million at December 31, 2013.
There were no outstanding borrowings made under the Company’s $400 million senior unsecured domestic credit facility expiring May 31, 2018 during the first three months of 2014, although approximately $7 million has been utilized to support the issuance of letters of credit. Under the terms of the facility, the Company may increase the size of the credit facility by up to $100 million without seeking the further approval of the lending group. The facility includes a $200 million sublimit for the issuance of letters of credit. This credit facility requires the Company to maintain a leverage ratio (consolidated total indebtedness net of cash on hand in excess of $50 million, divided by consolidated earnings before interest, taxes, depreciation and amortization, and non-cash pension expense for the four prior fiscal quarters) of not greater than 4.0, which is reduced to 3.75 for the quarter ended March 31, 2015 and is then further reduced to 3.50 beginning with the quarter ended June 30, 2015 and for each fiscal quarter thereafter. The credit facility also requires the Company to maintain an interest coverage ratio (consolidated earnings before interest, taxes, and non-cash pension expense divided by interest expense) of not less than 2.0 for the quarter ended March 31, 2014 and for each fiscal quarter thereafter. At March 31, 2014, the leverage ratio was 1.91 and the interest coverage ratio was 5.57. 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, 2014, $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 March 31, 2014 exchange rates) revolving credit facility with a group of banks, which expires in August 2014. This credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners. As of March 31, 2014, there were no borrowings under this credit facility.
The 4.25% Convertible Senior Notes (Convertible Notes) aggregate principal of $402.5 million are due June 1, 2014. The Convertible Notes are unsecured and unsubordinated obligations of the Company and rank equally with all of its existing and future senior unsecured debt. The Company does not have the right to redeem the Convertible Notes prior to the stated maturity date. Holders of the Convertible Notes have the option to convert their notes into shares of ATI common stock at any time prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date (June 1, 2014). The initial conversion rate for the Convertible Notes is 23.9263 shares of ATI common stock per $1,000 (in whole dollars) principal amount of Convertible Notes (9,630,336 shares), equivalent to a conversion price of approximately $41.795 per share, subject to adjustment, as defined in the Convertible Notes. Other than receiving cash in lieu of fractional shares, holders do not have the option to receive cash instead of shares of common stock upon conversion. Accrued and unpaid interest that exists upon conversion of a Convertible Note will be deemed paid by the delivery of shares of ATI common stock and any applicable cash in lieu of fractional shares upon settlement of a conversion and no other cash payment or additional shares will be given to holders upon settlement of a conversion.

9
Table of Contents

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 7. Derivative Financial Instruments and Hedging
As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for 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, 2014, 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 10% of its estimated annual nickel requirements. These nickel hedges extend to 2020.
At March 31, 2014, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges for approximately 70% of its annual forecasted domestic requirements for 2014, approximately 35% for 2015, and approximately 5% for 2016, 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 March 31, 2014, 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 2017. 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.
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.

10
Table of Contents

(in millions):
Asset derivatives
 
Balance sheet location
 
March 31,
2014
 
December 31,
2013
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other current assets
 
$
0.1

 
$
0.3

Nickel and other raw material contracts
 
Prepaid expenses and other current assets
 
2.1

 
0.1

Natural gas contracts
 
Prepaid expenses and other current assets
 
4.2

 
2.5

Electricity contracts
 
Prepaid expenses and other current assets
 
0.4

 
—

Nickel and other raw material contracts
 
Other assets
 
1.7

 
0.4

Natural gas contracts
 
Other assets
 
0.4

 
1.0

Total derivatives designated as hedging instruments
 
8.9

 
4.3

Total asset derivatives
 
 
 
$
8.9

 
$
4.3

Liability derivatives
 
Balance sheet location
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Natural gas contracts
 
Accrued liabilities
 
$
0.1

 
$
0.4

Nickel and other raw material contracts
 
Accrued liabilities
 
0.8

 
4.5

Foreign exchange contracts
 
Accrued liabilities
 
6.8

 
7.8

Electricity contracts
 
Accrued liabilities
 
0.1

 
0.5

Foreign exchange contracts
 
Other long-term liabilities
 
4.7

 
5.4

Nickel and other raw material contracts
 
Other long-term liabilities
 
0.7

 
1.3

Total derivatives designated as hedging instruments
 
13.2

 
19.9

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign exchange contracts
 
Accrued liabilities
 
1.3

 
1.7

Total derivatives not designated as hedging instruments
 
1.3

 
1.7

Total liability derivatives
 
 
 
$
14.5

 
$
21.6

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.

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Table of Contents

Activity with regard to derivatives designated as cash flow hedges for the three month periods ended March 31, 2014 and 2013 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
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Nickel and other raw material contracts
$
3.0

 
$
(1.4
)
 
$
(1.7
)
 
$
0.1

 
$
—

 
$
—

Natural gas contracts
2.3

 
1.6

 
1.4

 
(1.0
)
 
—

 
—

Electricity contracts
0.9

 
0.1

 
0.4

 
(0.2
)
 
—

 
—

Foreign exchange contracts
(0.5
)
 
7.7

 
(1.4
)
 
0.7

 
—

 
—

Total
$
5.7

 
$
8.0

 
$
(1.3
)
 
$
(0.4
)
 
$
—

 
$
—

(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, 2014, a loss of $0.5 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 March 31,
as Hedging Instruments
2014
 
2013
Foreign exchange contracts
$
0.2

 
$
0.8

Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales.
Note 8. Fair Value of Financial Instruments
The estimated fair value of financial instruments at March 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
$
837.7

 
$
837.7

 
$
837.7

 
$
—

Derivative financial instruments:
 
 
 
 
 
 
 
Assets
8.9

 
8.9

 
—

 
8.9

Liabilities
14.5

 
14.5

 
—

 
14.5

Debt
1,946.8

 
2,102.4

 
2,058.1

 
44.3


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Table of Contents

The estimated fair value of financial instruments at December 31, 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
$
1,026.8

 
$
1,026.8

 
$
1,026.8

 
$
—

Derivative financial instruments:
 
 
 
 
 
 
 
Assets
4.3

 
4.3

 
—

 
4.3

Liabilities
21.6

 
21.6

 
—

 
21.6

Debt
1,947.3

 
2,072.6

 
2,027.8

 
44.8

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.
Note 9. Pension Plans and Other Postretirement Benefits
The Company has defined benefit pension plans and defined contribution plans covering substantially all employees. Benefits under the defined benefit pension plans are generally based on years of service and/or final average pay. The Company funds the U.S. pension plans in accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code.
The Company also sponsors several postretirement plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution. For the non-collectively bargained plans, the Company maintains the right to amend or terminate the plans at its discretion.

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Table of Contents

For the three month periods ended March 31, 2014 and 2013, 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,
 
2014
 
2013
 
2014
 
2013
Service cost - benefits earned during the year
$
7.4

 
$
10.0

 
$
0.7

 
$
0.8

Interest cost on benefits earned in prior years
33.4

 
30.3

 
6.0

 
5.6

Expected return on plan assets
(46.1
)
 
(43.8
)
 
—

 
(0.1
)
Amortization of prior service cost (credit)
0.6

 
0.8

 
(0.8
)
 
(4.6
)
Amortization of net actuarial loss
18.5

 
29.2

 
3.5

 
4.3

Total retirement benefit expense
$
13.8

 
$
26.5

 
$
9.4

 
$
6.0

Other postretirement benefit costs for a defined contribution plan were $0.7 million for the three months ended March 31, 2014.
Note 10. Income Taxes
First quarter 2014 results included a benefit for income taxes of $10.0 million, or 38.5% of loss before tax, compared to a provision of $3.5 million, or 23.6% of income before tax, for the comparable period. The first three months of 2014 included a discrete tax benefit of $2.2 million, primarily associated with adjustments to prior years’ taxes. The first three months of 2013 included a discrete tax benefit of $2.0 million, primarily related to 2013 Federal tax law changes.
For the three months ended March 31, 2014, the Company determined that it was unable to make a reliable estimate of the annual effective tax rate, as relatively small changes in projected results for either the Company's domestic or international operations can produce a significant variation in its annual effective tax rate. Therefore, the Company recorded a tax benefit for the three months ended March 31, 2014 based on the actual effective rate for this period.

14
Table of Contents

Note 11. Business Segments
The Company operates in two business segments: High Performance Materials & Components and Flat Rolled Products. Our 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,
 
2014
 
2013
Total sales:
 
 
 
High Performance Materials & Components
$
504.1

 
$
560.0

Flat Rolled Products
529.6

 
567.8

 
1,033.7

 
1,127.8

Intersegment sales:
 
 
 
High Performance Materials & Components
19.7

 
19.9

Flat Rolled Products
26.7

 
8.9

 
46.4

 
28.8

Sales to external customers:
 
 
 
High Performance Materials & Components
484.4

 
540.1

Flat Rolled Products
502.9

 
558.9

 
$
987.3

 
$
1,099.0

Operating profit (loss):
 
 
 
High Performance Materials & Components
$
69.1

 
$
75.0

Flat Rolled Products
(25.6
)
 
2.5

Total operating profit
43.5

 
77.5

Corporate expenses
(11.5
)
 
(12.4
)
Interest expense, net
(29.1
)
 
(14.4
)
Closed company and other expenses
(5.0
)
 
(3.4
)
Retirement benefit expense
(23.9
)
 
(32.5
)
Income (loss) from continuing operations before income taxes
$
(26.0
)
 
$
14.8

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.
Interest expense, net of interest income, in the first quarter 2014 was $29.1 million, compared to net interest expense of $14.4 million in the first quarter 2013. The increase in interest expense was primarily due to reduced capitalized interest and higher debt levels. Interest expense benefited from the capitalization of interest costs of $2.3 million in the first quarter 2014 compared to $9.6 million in the first quarter 2013. The decrease in capitalized interest is due to a lower construction in progress balance, primarily related to the Flat Rolled Products segment Hot-Rolling and Processing Facility.
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 $5.0 million for the three months ended March 31, 2014 and $3.4 million for the three months ended March 31, 2013.

15
Table of Contents

Note 12. 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 2017 second quarter, 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 redeemable noncontrolling interest was $12.2 million as of March 31, 2014, which was unchanged from the acquisition date value.
Note 13. 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,
2014
 
2013
Numerator for basic income (loss) from continuing operations per common share –
 
 
 
Income (loss) from continuing operations attributable to ATI
$
(18.1
)
 
$
9.7

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

 
—

Numerator for diluted income (loss) from continuing operations per common share –
 
 
 
Income (loss) from continuing operations available to ATI after assumed conversions
$
(18.1
)
 
$
9.7

Denominator for basic net income per common share-weighted average shares
107.0

 
106.6

Effect of dilutive securities:
 
 
 
Share-based compensation
—

 
0.5

4.25% Convertible Notes due 2014
—

 
—

Denominator for diluted net income per common share – adjusted weighted average shares assuming conversions
107.0

 
107.1

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

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

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. There were 10.0 million and 9.6 million anti-dilutive shares for the three month periods ended March 31, 2014 and 2013, respectively.
Note 14. 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.

16
Table of Contents

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
March 31, 2014
 
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9.5

 
$
13.0

 
$
815.2

 
$
—

 
$
837.7

Accounts receivable, net
0.5

 
196.8

 
360.2

 
—

 
557.5

Intercompany notes receivable
—

 
—

 
1,781.3

 
(1,781.3
)
 
—

Inventories, net
—

 
353.8

 
1,054.7

 
—

 
1,408.5

Prepaid expenses and other current assets
38.7

 
9.9

 
38.3

 
—

 
86.9

Current assets of discontinued operations
—

 
—

 
5.1

 
—

 
5.1

Total current assets
48.7

 
573.5

 
4,054.8

 
(1,781.3
)
 
2,895.7

Property, plant and equipment, net
2.6

 
1,430.8

 
1,455.9

 
—

 
2,889.3

Cost in excess of net assets acquired
—

 
126.6

 
648.9

 
—

 
775.5

Intercompany notes receivable
—

 
—

 
200.0

 
(200.0
)
 
—

Investment in subsidiaries
6,208.8

 
37.7

 
—

 
(6,246.5
)
 
—

Other assets
31.1

 
30.2

 
292.3

 
—

 
353.6

Non-current assets of discontinued operations
—

 
—

 
3.4

 
—

 
3.4

Total assets
$
6,291.2

 
$
2,198.8

 
$
6,655.3

 
$
(8,227.8
)
 
$
6,917.5

Liabilities and stockholders’ equity:
 
 
 
 
 
 
 
 
 
Accounts payable
$
4.5

 
$
315.3

 
$
198.4

 
$
—

 
$
518.2

Accrued liabilities
45.2

 
59.4

 
190.3

 
—

 
294.9

Intercompany notes payable
895.8

 
885.5

 
—

 
(1,781.3
)
 
—

Deferred income taxes
15.7

 
—

 
—

 
—

 
15.7

Short-term debt and current portion of long-term debt
403.0

 
0.1

 
16.9

 
—

 
420.0

Current liabilities of discontinued operations
—

 
—

 
4.9

 
—

 
4.9

Total current liabilities
1,364.2

 
1,260.3

 
410.5

 
(1,781.3
)
 
1,253.7

Long-term debt
1,350.7

 
150.4

 
25.7

 
—

 
1,526.8

Intercompany notes payable
—

 
200.0

 
—

 
(200.0
)
 
—

Accrued postretirement benefits
—

 
176.1

 
256.6

 
—

 
432.7

Pension liabilities
317.0

 
5.5

 
39.3

 
—

 
361.8

Deferred income taxes
214.6

 
—

 
—

 
—

 
214.6

Other long-term liabilities
77.6

 
19.3

 
51.7

 
—

 
148.6

Total liabilities
3,324.1

 
1,811.6

 
783.8

 
(1,981.3
)
 
3,938.2

Redeemable noncontrolling interest
—

 
—

 
12.2

 
—

 
12.2

Total stockholders’ equity
2,967.1

 
387.2

 
5,859.3

 
(6,246.5
)
 
2,967.1

Total liabilities and stockholders’ equity
$
6,291.2

 
$
2,198.8

 
$
6,655.3

 
$
(8,227.8
)
 
$
6,917.5



17
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
)

18
Table of Contents

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2013
 
Guarantor
 
 
 
Non-guarantor
 
 
 
 
(In millions)
Parent
 
Subsidiary
 
Subsidiaries
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3.6

 
$
13.5

 
$
1,009.7

 
$
—

 
$
1,026.8

Accounts receivable, net
0.3

 
179.4

 
348.5

 
—

 
528.2

Intercompany notes receivable
—

 
—

 
1,589.4

 
(1,589.4
)
 
—

Inventories, net
—

 
295.5

 
1,026.6

 
—

 
1,322.1

Prepaid expenses and other current assets
26.2

 
6.5

 
34.9

 
—

 
67.6

Current assets of discontinued operations
—

 
—

 
6.1

 
—

 
6.1

Total current assets
30.1

 
494.9

 
4,015.2

 
(1,589.4
)
 
2,950.8

Property, plant and equipment, net
2.9

 
1,397.5

 
1,473.7

 
—

 
2,874.1

Cost in excess of net assets acquired
—

 
112.1

 
615.8

 
—

 
727.9

Intercompany notes receivable
—

 
—

 
200.0

 
(200.0
)
 
—

Investment in subsidiaries
6,170.8

 
37.7

 
—

 
(6,208.5
)
 
—

Other assets
35.7

 
32.0

 
274.3

 
—

 
342.0

Non-current assets of discontinued operations
—

 
—

 
3.7

 
—

 
3.7

Total assets
$
6,239.5

 
$
2,074.2

 
$
6,582.7

 
$
(7,997.9
)
 
$
6,898.5

Liabilities and stockholders’ equity:
 
 
 
 
 
 
 
 
 
Accounts payable
$
3.1

 
$
310.5

 
$
158.2

 
$
—

 
$
471.8

Accrued liabilities
51.6

 
56.6

 
202.7

 
—

 
310.9

Intercompany notes payable
825.6

 
763.8

 
—

 
(1,589.4
)
 
—

Deferred income taxes
3.5

 
—

 
—

 
—

 
3.5

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

 
0.1

 
16.9

 
—

 
419.9

Current liabilities of discontinued operations
—

 
—

 
4.9

 
—

 
4.9

Total current liabilities
1,286.7

 
1,131.0

 
382.7

 
(1,589.4
)
 
1,211.0

Long-term debt
1,350.8

 
150.4

 
26.2

 
—

 
1,527.4

Intercompany notes payable
—

 
200.0

 
—

 
(200.0
)
 
—

Accrued postretirement benefits
—

 
179.7

 
262.7

 
—

 
442.4

Pension liabilities
323.0

 
5.6

 
39.6

 
—

 
368.2

Deferred income taxes
206.6

 
—

 
—

 
—

 
206.6

Other long-term liabilities
77.7

 
20.2

 
50.3

 
—

 
148.2

Total liabilities
3,244.8

 
1,686.9

 
761.5

 
(1,789.4
)
 
3,903.8

Total stockholders’ equity
2,994.7

 
387.3

 
5,821.2

 
(6,208.5
)
 
2,994.7

Total liabilities and stockholders’ equity
$
6,239.5

 
$
2,074.2

 
$
6,582.7

 
$
(7,997.9
)
 
$
6,898.5





19
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, 2013  
(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Sales
$
—

 
$
477.1

 
$
621.9

 
$
—

 
$
1,099.0

Cost of sales
17.5

 
466.7

 
514.3

 
—

 
998.5

Selling and administrative expenses
28.5

 
10.4

 
33.5

 
—

 
72.4

Income (loss) before interest, other income and income taxes
(46.0
)
 
—

 
74.1

 
—

 
28.1

Interest expense, net
(11.7
)
 
(2.6
)
 
(0.1
)
 
—

 
(14.4
)
Other income (loss) including equity in income of unconsolidated subsidiaries
72.5

 
(5.4
)
 
9.2

 
(75.2
)
 
1.1

Income (loss) from continuing operations before income tax provision
14.8

 
(8.0
)
 
83.2

 
(75.2
)
 
14.8

Income tax provision (benefit)
3.5

 
(2.5
)
 
29.0

 
(26.5
)
 
3.5

Income (loss) from continuing operations
11.3

 
(5.5
)
 
54.2

 
(48.7
)
 
11.3

Income (loss) from discontinued operations, net of tax
0.3


—


0.3


(0.3
)
 
0.3

Net income (loss)
11.6

 
(5.5
)
 
54.5

 
(49.0
)
 
11.6

Less: Net income attributable to noncontrolling interests
—

 
—

 
1.6

 
—

 
1.6

Net income (loss) attributable to ATI
$
11.6

 
$
(5.5
)
 
$
52.9

 
$
(49.0
)
 
$
10.0

Comprehensive income (loss) attributable to ATI
$
25.3

 
$
(5.4
)
 
$
40.0

 
$
(36.7
)
 
$
23.2


Condensed Statements of Cash Flows
For the three months ended March 31, 2013

(In millions)
Guarantor
Parent
 
Subsidiary
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows provided by (used in) operating activities
$
(25.7
)
 
$
(95.4
)
 
$
63.7

 
$
—

 
$
(57.4
)
Investing Activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
—

 
(75.0
)
 
(11.9
)
 
—

 
(86.9
)
Net receipts/(payments) on intercompany activity
—

 
—

 
(213.1
)
 
213.1

 
—

Asset disposals and other
—

 
0.1

 
0.6

 
—

 
0.7

Cash flows provided by (used in) investing activities
—

 
(74.9
)
 
(224.4
)
 
213.1

 
(86.2
)
Financing Activities:
 
 
 
 
 
 
 
 
 
Net receipts/(payments) on intercompany activity
47.4

 
165.7

 
—

 
(213.1
)