ATI Inc (ATI) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the quarter four 2013 Allegheny Technologies earnings conference call. My name is Cheryl and I'll be your operator for today.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Dan Greenfield, Vice President of Investor Relations.

Thank you, Cheryl. And good morning and welcome to the Allegheny Technologies earnings conference call for the fourth quarter and full year 2013. This call is being broadcast on our website at www.atimetals.com. Members of the media have been invited to listen to this call.

Participating on the call today are Rich Harshman, Chairman, President and Chief Executive Officer; and Pat DeCourcy, Senior Vice President of Finance and Chief Financial Officer. All references to net income and earnings in this conference call mean net income and earnings attributable to ATI.

If you have connected to this call via the Internet you should see slides on your screen. For those who have dialed in, slides are available on our website.

After some initial comments we will ask for questions. During the question-and-answer session please limit yourself to two questions to be considerate of others on the line. As always, we will make every attempt to reach everyone in the question-and-answer queue within the allotted conference call time.

Please note that all forward-looking statements this morning are subject to various assumptions and caveats, as noted in the earnings release and on this slide. Actual results may differ materially. Here is Rich Harshman.

Thank you, Dan. And thanks to everyone joining today's call. Our fourth-quarter 2013 results include a large gain on the previously announced sale of our tungsten materials business and several special charges. We have taken actions and will continue to take actions to streamline ATI's business, focus capital deployment on our businesses with the most profitable growth potential, and reduce costs.

Since the fourth-quarter results are significantly impacted by some of these actions, we will spend time this morning discussing the major actions taken in the fourth quarter. I'd like Pat DeCourcy, ATI's Chief Financial Officer, to discuss the fourth-quarter and full-year financial results, including the special charges. Pat?

Thanks, Rich. Turning to slide 3, looking at the fourth-quarter and full-year 2013 results, excluding discontinued operations and special charges, sales were $915 million for the fourth quarter and $4.04 billion for the full year.

Results from continuing operations was a loss of $8.7 million or $0.08 per share, for the quarter, and a loss of $23.7 million or $0.22 per share for the full year. The fourth-quarter charges were $75.1 million or $0.71 per share, resulting in a loss from continuing operations, including charges, of $83.8 million or $0.79 per share.

For the full-year 2013, the loss from continuing operations, including charges, was $98.8 million or $0.93 per share. Fourth-quarter 2013 income from discontinued operations was $257.2 million or $2.41 per share. And for the full year was $252.8 million or $2.37 per share.

Discontinued operations included a $261.4 million after-tax gain on the sale of the tungsten materials business, which was completed in the fourth quarter. The fourth-quarter results from discontinued operations also include charges of $6.1 million or $0.06 per share, primarily related to the additional asset impairment charges in the discontinued fabricated components and iron castings businesses. Full-year results include charges of $11.9 million or $0.11 per share.

Turning to slide 4, several unusual charges that impacted our fourth-quarter 2013 results from continuing operations were asset impairment and other closure costs including severance totaled $67.5 million pretax, and $41.2 million after tax, or $0.39 per share. These charges primarily relate to the decision to permanently close the Albany, Oregon standard-grade titanium sponge facility, and to close older, higher-cost flat-rolled stainless finishing facilities located in Wallingford, Connecticut and New Castle, Indiana. These charges are included as restructuring costs and not reported in segment results.

Weak demand, excess supply and lower selling prices for industrial titanium products resulted in a $20.5 million pretax and $12.5 million after-tax or $0.12 per share lower of cost to market inventory valuation reserve for industrial titanium products. This reserve is included in the flat-rolled products fourth-quarter and full-year 2013 results.

Rapidly falling raw material costs over the last several years, combined with aggressive manufacturing and overhead cost reductions, resulted in a debit LIFO reserve on a consolidated basis at the end of the year. While unusual, this is not unique. However, when combined with lower margins due to challenging business conditions over the last year, this situation creates a potential inventory net realizable value issue.

As a result, a $35 million pretax and $21.4 million after-tax, or $0.20 per share, NRV reserve was recorded in the fourth quarter to eliminate ATI's consolidated debit LIFO reserve balance. This reserve is included in the high performance metals segment's fourth-quarter and full-year 2013 results due to the fact that this segment created the debit LIFO reserve balance. The total impact of these items in the fourth quarter and full year represented charges of $123 million pretax, $75.1 million after-tax, or $0.71 per share.

Now I will turn the call back over to Rich.

Thanks, Pat. As we said in our third quarter 2013 earnings release and conference call last October, we did not expect to see significant signs of improvement in market conditions in the fourth quarter 2013. We also said that we planned to remain aggressive with our restructuring cost reduction and lean manufacturing efforts, and align our cost structure production and inventory levels to the demands of our customers and end markets. We have taken aggressive actions and will continue to do so.

Turning to slide 5 and an overview of our two business segments, in our high-performance metals segment, fourth-quarter 2013 sales were $436.7 million. Compared to the third-quarter 2013, shipments were lower to the jet engine, construction and mining, nuclear energy and oil and gas markets. In addition, lower raw material indices and lower base selling prices negatively affected revenues.

Segment operating profit was $52.1 million or 11.9% of total sales, excluding the $35 million net realizable value charge Pat discussed earlier. Fourth-quarter 2013 segment operating profit included a LIFO inventory valuation reserve benefit of $26.1 million, which was partially offset by higher costs for raw materials, primarily nickel and titanium scrap, resulting from the misalignment of the raw materials surcharge with raw material costs due to the long manufacturing cycle of certain products. Segment results continue to be negatively impacted by our strategic decision to use ATI-produced titanium sponge from our Rowley, Utah facility rather than lower-cost titanium scrap to manufacture certain titanium products.

Turning to slide 6, in our flat-rolled products segment sales were $478.6 million. Segment operating profit was a loss of $7.5 million, or 1.6% of total sales, excluding the $20.5 million lower of cost to market reserve charge related to the market-based valuation of industrial titanium products, which Pat discussed earlier. The fourth-quarter 2013 included a LIFO inventory valuation reserve benefit of $15.7 million, which was partially offset by higher costs for raw materials which did not align with raw material surcharges.

Turning to slide 7, Pat has already discussed the financial impact in the fourth-quarter 2013 from the facility closures. I will expand on the strategic assessments that resulted in our decision to close these facilities. The strategic investments in manufacturing capabilities and process technologies we have made over the last several years enabled the closure of older, higher-cost operations, and streamline our manufacturing processes by reducing our manufacturing footprint.

We continue to operate our new titanium sponge facility in Rowley, Utah at low capacity utilization rates, primarily due to weak demand from industrial markets and the availability of externally purchased titanium sponge and titanium scrap. I'm pleased that, although that operating at less than ideal utilization rates, we continue to achieve significant improvement in cake size, yield, cost and other key operating efficiencies at Rowley. This performance enables the closure of our standby titanium sponge facility in Albany, Oregon.

The Rowley facility is a state-of-the-art vacuum distillation process and is targeted to produce the highest grade of titanium sponge, premium quality, or PQ. PQ titanium sponge can be used in the melting of all titanium products -- industrial grade, standard grade, medical grade and premium grade, which is required for the manufacture of rotating jet engine parts. When it was operating, the Albany facility produced standard quality titanium sponge using a less-advanced and higher-cost asset leach process.

As part of our 2014-2018 strategic planning process, which was completed in the fourth quarter of 2013, we updated our strategic assessment of the likely future use of the Albany sponge facility given forecasted demand for all titanium products and availability of titanium sponge from Rowley and external suppliers, as well as availability of titanium scrap. As a result, we no longer see a reasonable likelihood of operating the Albany sponge facility in the future, which resulted in our decision to permanently close the facility.

In addition, as a result of recent and sustainable operating efficiency improvements in our flat-rolled products operations, we concluded that our less efficient Wallingford, Connecticut and New Castle, Indiana flat-rolled stainless finishing facilities are no longer needed. These are two of our oldest stainless flat-rolled finishing facilities.

Finally, we continue our efforts to divest the iron castings and fabricated components businesses. Additional asset write-downs were recorded in the fourth quarter 2013 in discontinued operations to reflect current realizable values. These restructuring actions and inventory adjustments are expected to result in $25 million of cost reductions in 2014.

We will continue to focus on improving our cost structure even as we expect improved demand from our key global markets and moderate economic growth in 2014. Our initial target is to achieve a minimum of $100 million in new gross cost reductions in 2014.

Moving to slide 8, as much as we would like to, we can't control global macroeconomic conditions, raw material prices, or the underlying global supply of and demand for our products. However, we can and will continue to focus on taking actions within our control to increase our profitability and strengthen our competitive position in the markets we serve.

These actions have been and will continue to be designed to streamline ATI's operations, with a focus on markets and capabilities that are strategically significant to our long-term profitable growth, and continue to improve the competitive cost position of all of our businesses. These actions are intended to improve ATI's cost structure to keep ATI well-positioned for sustainable profitable growth through business cycles over the long-term, as economic and market conditions improve.

Some of the significant accomplishments in 2013 are as follows. We further improved our position with both existing and new customers in the key end markets of aerospace, oil and gas, chemical process industry, electrical energy, medical and automotive through strategic and long-term agreements.

During 2013 across ATI, we completed more than 20 new or revised long-term agreements, representing an excess of $3 billion of total revenue potential over the terms of these agreements. The largest long-term agreement was the extension of our supply agreement with The Boeing Company that we announced in October. This extension agreement covers value-added titanium milled products, and provides opportunity for greater use of ATI's next-generation and advanced titanium alloys.

Our flat-rolled products segment hot-rolling and processing facility, or HRPF, was placed into service at the end of 2013. This was a major accomplishment by our HRPF team and ATI's flat-rolled products business unit. Cold commissioning has begun and is expected to be completed by the end of the first quarter 2014. We will then move to the hot commissioning phase, which is expected to run through the end of the third quarter 2014.

By the end of 2014, the HRPF is expected to be producing all of ATI's flat-rolled products, all stainless, ferritic, and austinitic grades, grain-oriented electrical steel grades, nickel-based alloys and specialty alloys, and titanium and titanium alloys in all of the product forms -- plate, sheet, strip, precision rolled strip product forms. The HRPF will also be capable of hot-rolling the next generation of advanced lightweight carbon steels for the automotive sheet market and dual-phase carbon steels used in oil and gas applications. This game-changing investment is designed to significantly enhance ATI's flat-rolled products capabilities for all alloys, enhance ATI's flat-rolled products' market position, reduce manufacturing cycle times for all of our flat-rolled products, and significantly reduce production and overhead costs.

In October we began the premium-quality, or PQ, qualification program at our Rowley titanium sponge facility. As we have said, this qualification program is done in coordination with jet engine OEMs. And requires ATI to not only produce a certain volume of titanium sponge specifically for the qualification program, but also requires that the qualification program sponge be melted using all of our melt technologies -- electron beam, vacuum arc remelt, and plasma arc melt.

And then produce the output from these melts into a defect-free round bar product. We remain on track with the qualification. And aim to successfully complete the program in 2015.

Moving to a discussion of our two largest end markets, from our perspective, 2013 is best described as a pause in the ramp to record build rates of new airframes and jet engines. Demand from OEMs continued to digest supply chain inventories that had been built ahead of rate ramps. This was combined with continuing inventory corrections in the supply chains for aftermarket spare parts.

Given this reality, we continue to hear more and more the question from the OEMs -- are you ready to support our production rate ramp? Our response is always a resounding yes.

Although challenging, the aerospace market continued to pick up momentum throughout 2013. Boeing and Airbus enjoyed another strong year of orders and deliveries, moving their backlogs to new record levels. Indications are that jet engine OEM inventory corrections have largely been made. And demand is expected to be more closely aligned with build rates and aftermarket demand as we begin 2014.

Expectations for 2014 are an OEM production rate ramp to record build rates. For example, the Boeing 787 is planned to reach and hold the 10 per month build rate in 2014, including the introduction of the 787-9. The Boeing 737 is scheduled to ramp to a record build rate of 42 a month, with more discussions ongoing of further rate ramps in the future.

The Airbus A350 is on schedule for first delivery. And the Airbus A320 Neo is scheduled for its first flight.

In summary, OEM backlog and build rates for both airframers and engines OEMs are at record levels. Demand from the jet engine aftermarket is improving. And demand from jet engine OEMs is in much better balance with airframe build rates. These are all positive developments and represent long-term growth opportunities for ATI's specialty materials and components businesses, including our new alloys and products needed for the next-generation airframe and jet engines.

Turning to our second largest market, the oil and gas and chemical processing industry market, we are seeing a large number of inquiries for international projects that depend on specialty alloy products made by ATI. In our view, the question is not if this demand growth will occur, it's a question of when it will occur. In our flat-rolled products segment, demand remains strong for our duplex and lean duplex family of alloys used in umbilicals and flowlines and downhole applications.

However, in the near term, we are currently not seeing significant demand from new, large, global megaprojects for our flat-rolled nickel-based alloys and titanium products. Although several large projects are in discussion stages, demand is not likely to impact the first half of 2014. In addition, demand for titanium flat-rolled products from industrial markets, specifically for desalination, CPI and shipbuilding products, remains soft.

A brief comment about our liquidity and 2014 capital spending plans. We remain in a solid liquidity position with cash on hand at the end of the year of over $1 billion. There were no borrowings outstanding in the fourth quarter 2013 under our $400 million domestic borrowing facility. And none are currently contemplated.

Capital expenditures in 2013 were approximately $613 million, mainly associated with the HRPF. We expect 2014 capital expenditures to be approximately $300 million, about two-thirds of which is HRPF related as the spending on that project completes.

As we begin 2014, while challenging conditions remain, global economic conditions appear to be moderately improving, although at lower rates of growth than past recoveries. Again, we begin the year cautiously optimistic that business conditions will gradually improve as we move through 2014.

It has been difficult to forecast demand and pricing trends for most of our products over the last several years, primarily due to the fallout from global economic and fiscal policy uncertainties. As 2013 ended, demand and pricing showed signs of stabilization, and we are seeing early signs of modest growth in demand. However, most customers remain cautious and are showing no significant signs of building inventories in anticipation of a strong recovery.

We will remain focused on actions to enhance ATI's competitive position and improve the cost structure of all of our businesses. We believe that this focus, combined with the capabilities of our strategic investments, including the HRPF, and other strategic actions designed to transform ATI into an aligned and integrated global leader in specialty materials products and components, will keep ATI well positioned for sustainable profitable growth as market conditions improve in 2014 and beyond.

We will maintain our focus on the continued execution of our strategies to enhance our competitive position and create long-term value for our strategic customers and stockholders. These strategies include our efforts to continue on the endless journey to improve the safety performance of all of our operations, reduce costs, improve operating efficiencies, and embrace lean manufacturing principles across ATI, all of which are important elements of improving profitability and returns on capital employed.

Enhance and expand our position with existing customers, and grow our participation at new strategic customers by creating an attractive value opportunity for our customers in a win-win relationship. Make progress to complete the premium qualification program at our titanium sponge facility in Rowley, Utah.

Complete the commissioning and startup of our innovative HRPF in 2014. Our view is that the HRPF is the enabler of future profitable growth for our flat-rolled products business. Continue to introduce and qualifying innovative new products. And continue our strategy to grow our value-added parts and components business.

Operator, we can now go to the first question please.

(Operator Instructions)

Julie Yates Stewart, Credit Suisse.

Rich, in your outlook comments you talked about modest growth in demand for jet engine spares as you move through '14. What are you expecting on the OE side? You just mentioned that there is some stabilization there, but what did you see versus Q3? And are you still expecting a recovery not to happen until H2?

Not to happen until the second half? Okay, sorry, I couldn't hear. I think that the fourth quarter is always an interesting time.

Because we had some customers who pulled ahead into the quarter, some customers who pushed out into the quarter into 2014. Some of that was aftermarket related, and some of that was newbuild related. And some of it is unique in terms of which program you're talking about, which alloy system you're talking about, which customer you're talking about.

So, as we pull all of that input together from our business unit leaders, as well as the overall market comments from our customers, it's a general comment. Remember, we're pretty much across the board in terms of who the engine manufacturers are and where the programs are. A lot of our growth opportunity going forward is on the new engine programs, which are really not in a demand driver point at this point in time.

So, as we gather all that information, we see moderate growth in the first half from a demand standpoint. We don't see any significant opportunity at this point in time for price increases. But that's something that we'll always be focused on because there has been significant base price reductions here over the past 12 to 18 months. I think as we pull it all together, our sense is that the year, once again, looks to be more back-end loaded.

Quite frankly, we felt the same way in 2013. And we started out that way in the first quarter with actually a pretty strong first quarter, and then things began to move and push out to the right as we progressed through 2013. But we'll be ready for whatever direction the customer takes us in. Hopefully they'll want more and they'll want it quicker and earlier. If not, we'll deal with the fallout from push outs, as well.

Okay. And then just separately, regarding the $25 million of cost savings from the restructuring actions you took that are expected in the second half of this year, is that included in the $100 million target for new gross cost reductions?

Yes, Julie, it is. And, remember, we also set a target of $100 million for 2013 and we came in at $142 million. The target is there to be set. In our individual plans, we may take a more conservative approach and may not even build in $100 million worth of gross cost reductions. But our target, as we've said, that's a minimum. And to the extent that we can exceed that I'm confident we will.

Great. Thank you. I'll jump back in the queue.

Chris Olin, Cleveland Research.

I just wanted to run through some of these numbers here. If I look at the changes to the titanium shipments, it looks like it comes out to about 5.2 million pounds on the quarter. And that would be the lowest level, I believe, since 2009. I'm just wondering if there is anything else within that that would drive that kind of change in demand.

You're pretty close. In terms of the high performance metals segment you're pretty close. In the fourth quarter it was about 5.3 million, all-in, in the high-performance metals segment. That does not include the products shipped in flat-rolled or the conversion revenue and value that gets added through the Uniti joint venture.

I think some of that is mix sensitive in terms of not being a significant demand for ingot, which will drive higher pounds but lower revenue dollars on a per pound basis, and therefore lower margins. Some of it was, as I said, there's really nobody getting ahead of the market in terms of building inventory. Some of it was because, although on the airframe side and our contract with Boeing we certainly realized at least the volume that was in the long-term agreement, historically, at least over the last three years, that has not been level loaded. So, the fourth quarter and the last three years has always been the lowest shipment volume quarter under our LTA with Boeing.

Would there be any issues or any changes to your market share? I know there's been a new competitor out there. I'm just wondering if pricing or you need to do anything different to maintain the current spot business or contracts?

There's always shifting in market share. There's some share maybe that goes down for us and others that go up for us. I don't really think that there's a dramatic increase or change in share. Where we are a significant supplier, we remain a significant supplier. Quite frankly, we're supplying titanium today and have LTAs today with customers on the aerospace side that two and three years ago we did not have a long-term agreement with. So, one could say that that's a share gain because it is.

There's always push and take. I think it's really an issue of the overall demand. The distribution demand has been muted all of 2013. And some of that may be, quite frankly, because of the change in the supply chain. Historically the distribution markets has always been stronger in airframe than in aeroengine. And the airframe market from a supply chain standpoint today, especially with Boeing in the US, is much different than it was four and five years ago, because most of that is now going direct and they have their own consolidator, and so on. It's a changing market and you have to respond to the changes. And that's what we're doing.

Thanks a lot.

Timna Tanners, Bank of America.

Thank you for the detail. It seems like it's getting a little bit more ample lately, so that's great. I wanted to see if you can help us with the stainless side of things. One of the first things you mentioned, of course, is the pass-through of raw materials costs. And you did mention that the LIFO credit somewhat offset that hit. If we were to look back in 2013 now that it's over, and we were just to assume that nickel prices and titanium prices, scrap prices, were flat, can you give us an idea about the change in your earnings relative to what was reported?

In just flat-rolled or overall?

I was thinking flat-rolled but maybe if you could give it overall, that would be great.

It's certainly not zero. And I would say that it's in the double-digit millions of dollars in flat-rolled. And it really impacts us more not so much on the short-cycle business, like sheet, where the inventory turns are pretty quick. It is more on the longer-cycle business where you get into engineered strip, where you get into precision-rolled strip, where you get into the specialty alloy sheet that has a much longer manufacturing cycle and a slower inventory turn for us.

And that's, quite frankly, an opportunity for us. That gets back into the whole, some of the benefits of the HRPF in terms of the cycle time improvements and our own finishing facility cycle time improvements. But in the flat-rolled products segment, just to put a range on it, a relative range, I think, especially in the first half of the year where there was more of a magnitude of a drop of nickel throughout the first half of the year, I think it's probably in the range of $10 million to $15 million negative impact on a FIFO basis in flat-rolled. And probably at least the same amount when you consider not only nickel but also titanium in the high-performance metals segment.

It's a similar range. So it's in the range for ATI, on a FIFO basis, of $20 million to $30 million because of the volatility and the downward pressure of raw material costs. Now, there's a reverse in there, too. There's a reverse opportunity that, as raw material costs begin to recover, if they move very quickly, you have the advantage for a time period and so you level off. But 2013 was clearly impacted on a FIFO basis because of the volatility.

And the number you gave us was for all of 2013?

Yes.

Okay, thanks. The other question I had was about the HRPF. And I know you've talked in the past about maybe being able to pull out some of that capacity that you may not fully be able to use. Does that have to wait until you're fully qualified? Or what might that look like in terms of time frames or how would that proceed?

We do have those alloys in the qualification or the commissioning program. And I think that it's helpful to get through the commissioning process because it gives confidence to a third party that the HRPF can in fact handle those alloys, which are relatively new in the marketplace. But is that a necessary precursor to having dialogue with someone? The answer to that is no. It's not a necessary precursor. But eventually, in my view, anybody is going to want to do their due diligence that in fact the HRPF can do what we believe it can do.

Okay. Thank you.

Richard Safran, Buckingham Research.

Rich, not to jump the gun here, now that you're talking more positively about free cash flow, CapEx flowing, et cetera, I just want to know if you'd give us some sense of your thoughts on capital deployment for 2014, where you think your priorities are. And maybe just give a bit of a more go-forward answer.

Okay. That's fine. The one place to start, perhaps, is, even though capital spending in 2014 is going to be significantly lower than it was in 2013, it still will be above expected depreciation. Our expected depreciation is about $180 million in 2014 and CapEx is in the $300 million range. So, we're still spending.

A large part of that, as I said earlier, was related to the timing of the cash outflow on HRPF because there have been significant negotiated withholds with the major contracts on that project until we complete the commissioning process, which really is much later in 2014. So you still have that issue.

There will be some modest rebuilding, probably, of managed working capital because I hope that we're going to see revenue growth. The expectation is we're going to see revenue growth in 2014 compared to 2013, even with an assumption for a relatively level, let's just say, total all-in raw material costs. So, we're not expecting surcharges to be a significant play of that revenue growth. We'll see.

So you have that. We do have, at this point in time, we have scheduled maturity of our convertible, which is $400 million which converts on -- which is scheduled to mature on June 1, if it doesn't convert or if we don't do something else. So, that's certainly an obligation that we have that we will fulfill.

Dividends remain an important component from not only my view, but from our Board's view as part of the total shareholder return. We're in a good position on pension contributions where we don't have any significant contributions in 2014. The income tax situation is probably at a pretty good position from a cash outflow standpoint because we did put a substantial total of the HRPF into service at the end of the year, and therefore qualified for the end of 2013, and therefore qualified for a significant amount of bonus depreciation. So that is helpful from a tax standpoint.

So, when you put all that together, assuming that the convertible matures on June 1, we see a cash balance at the end of 2014 in the range of about $400 million. Maybe a little bit higher.

So, how we deploy that or how we deploy our free cash flow going forward beyond 2014 is really a similar philosophy that we've had in the past. It's a balanced approach. And the approach is first meet your obligations.

And then, second, what actions can be taken that deliver the greatest long-term value to the shareholders. Is that a bolt-on acquisition that strengthens our focus on parts and components? Is that the dividend policy? Is that an internal growth investment? Or is that, as we have done in the past, a share repurchase program? So those are all the things that management would look at and have the conversations with the Board of what's the right actions to take.

Okay. Thanks for that. A quick question on HRPF. In deference to your goals, et cetera, for 2015 for the HRPF, and I heard you mention a couple of events when you were talking about that, is there a single event that we should be watching that would let us know that you've achieved success here, that you're going to be able to meet schedule and your objectives for the HRPF?

Yes. We will be forthcoming in terms of where we are by quarter as we progress through 2014 on the commissioning program. The first significant event, as I said, we've actually started the cold commissioning, which is really just making sure that mechanically the facility works. We've done a little bit more than cold commissioning on the furnaces. We've actually started the furnaces. We did that in December and they're up and running. And the facility has its own power and has had that for a while, and its own water, ad there's testing ongoing in terms of the water treatment facility.

But the real significant first event in the first quarter is to finish the cold commissioning and then begin the hot commissioning. And the hot commissioning will work through the second and the third quarters. In total, as you look at all the products that we intend to commission on this mill, the current plan is in excess of 1,500 pieces, that is slabs, of various alloy systems and various thicknesses that will be part of that hot commissioning process.

So, it is a significant effort. And we will keep the shareholders and the investment community apprised as we move through 2014 in terms of where we are, not only on the progress standpoint but also on -- I'm sure you saw there's startup costs of between $30 million and $35 million that we expect to incur in 2014. Most of that will likely be in the second and third quarter. So, we'll keep you well apprised in terms of where we are.

Thank you.

Steve Levenson, Stifel Nicolaus.

Just a question on your decision to close the Albany, Oregon facility. Do you expect to be a net purchaser of sponge going forward? And how do you think your costs are in producing PQ sponge that it makes sense to use it in standard applications?

Rich, we've always expected to be a net purchaser of sponge. It was part of the strategy even when we presented the Rowley facility investments to our Board. So, we still believe that we will have demand for our titanium products, not only in milled product form, but also in parts and components, that require us to buy more sponge than Rowley is currently constructed to be able to produce. Even though that number is higher today than it was, quite frankly, than we envisioned the facility, because of our ability to push cake size up and things like that.

The Albany facility and investment, when we started that, served our shareholders very well. Quite frankly, without the Albany facility, the kind of financial results we experienced from 2006 through 2008 in titanium -- 2009, really, when we decided to temporarily idle it -- that would not have been possible without the capability of the sponge from Albany. And, actually, when we look back on it, the payback on the investment required to restart the Albany facility was 2.5 years after tax.

So that was a great investment. The market changed. So we adapt. We recognized it was an older technology that was a different process and not as ideal as we would like going forward, certainly in the rotating quality materials side. And that's the whole reason behind Rowley.

But I think as we look at -- and we do a lot of assessment in terms of where we are at Rowley -- if we were operating Rowley at reasonable capacity today, our costs would be very attractive compared to what we can buy sponge for. The fact that we're not operating at that rate because without PQ qualification it's producing more sponge and more material than we can consume because of the demands of the market. We've throttled back that and we're operating at probably around 50% of capacity. There's a cost penalty associated with that. But it's strategically important long term for us to complete the qualification and run that facility at the rate that it needs to be run at to produce cost-effective sponge.

Got it. Thank you. Last question, can you comment a little bit on the order book and lead times for high performance metals particularly?

The order book is better now than it was at the end of the third quarter. Which I think is maybe back to the question Julie asked, the first question, of what gives us some degree of confidence that 2014 will be better? So it will be better and it is better. I think the lead times are still very short, not only from us but from the industry. The capacities have been built to service the growth needs for aerospace and, quite frankly, in some cases the oil and gas market, not only by ATI but by others, especially in titanium and in nickel. So, that results in terms of where we are in the demand profile today, in relatively short lead times for spot or transaction business.

The demand from the LTAs, the long-term agreements, they're there, they're factored in, everybody's capacity utilization rates and everything. So, it's really just the transaction or shorter cycle business. And until those lead times start to move out, it's going to be very challenging to significantly move base prices up from this level.

Maybe I'm being overly conservative. I don't see that necessarily happening in 2014. Maybe it will, but I think that it's more dependent upon other markets outside of aerospace. Aerospace will grow. Aerospace will get its materials because there's no choice. Other markets -- I think oil and gas is going to be a big driver. Will it be in 2014? It will be a driver, but it will be bigger in 2015 and 2016 and 2017, just like aerospace will be.

Got it. Thanks for the additional detail.

Michael Gambardella, JPMorgan.

I have a question. On the cover of your press release this morning, you identified the loss from continuing operations at $0.08 a share loss. And that's backing out the $67.5 million restructuring charge and the component ex the charge that equals $55.5 past million. But if you're backing out the LIFO charges, shouldn't you be backing out the LIFO benefits, since your LIFO reserve went from positive $12.4 million at the end of the third quarter to a negative $29.4 million?

You ran a $41.8 million benefit through your operating profit on LIFO. And you identified the two components of that $15.7 million, I think $26.1 million. I'm just saying, if you back out the benefit of LIFO, just like you back out the expense, your (inaudible) loss from continuing operations would be a $0.62 loss in the quarter.

I know the math, Mike. We just went through it with everybody in quite detailed in a very open and transparent way. How you want to interpret it is going to be how you want to interpret it. How we interpret it is we have inventories that are on LIFO. We do the LIFO calculation in a very rigid way because that's what the requirements are, not only for GAAP but also for tax purposes.

The answer is the answer. And that results in the roughly $42 million LIFO reserve reduction in the fourth quarter. The unique facts and circumstances situation, because we moved on a consolidated basis to a $35 million debit balance in LIFO, was unusual. And it's unusual -- generally speaking, if this were two years ago or three years ago, quite frankly, we wouldn't have established an NRV valuation reserve because we were in a debit balance in LIFO. The debit balance in LIFO on a consolidated basis or on a full basis can happen. And some of our competitors have debit balances, but they have margins that are above an NRV threshold.

So, our view is that we keep the books on LIFO. The unique circumstance was that it moved us to a debit balance on a consolidated basis. Had it not done that, we wouldn't have had the $35 million charge, so therefore it's unusual and we presented it the way we presented it. How you want to interpret it, you can interpret it however you want, Mike.

No. I'm just saying, if you're suggesting that to show continuing operations results at an $0.08 loss if you're backing out LIFO charges, shouldn't you back out the $42 million in LIFO benefit?

No. We're not backing out a LIFO charge. We're backing out a net realizable value reserve, just like we did a lower cost to market reserve. That's a unique facts-and-circumstance point-in-time analysis that I'm sure you didn't have in your forecast, in your model. And neither did anybody else.

But that's not the reason why we backed it out. We backed it out because we believe that it is unusual and we presented it accordingly. So, I think that our approach is very consistent with what we have done in the past, and is very consistent with what we will do in the future.

Philip Gibbs, KeyBanc Capital.

The pickup in the nickel alloy volumes in the fourth quarter versus the third quarter, I think that's seasonally unusual. Is that a sign in your mind of a bottom in the nickel business really? I know it's just a small pickup, but it's just something we noted here.

I think that what we saw, especially through the first three quarters of 2013 is, remember that's not only nickel alloys but it's also specialty alloys. I assume you're talking about -- are you talking about the high-performance metals segment or are you talking about flat-rolled?

High-performance metals.

Yes. And so the first three quarters of 2013 were really significantly impacted by inventory corrections in the oil and gas market, especially downhole. So, some of that played a bigger role in the first three quarters than it did in the fourth quarter. It gets back to some of the pull-ins that we saw in the fourth quarter that I commented earlier on the nickel side. We had some customers pulling in, others pushing out.

I think that it certainly supports, in our view, when you connect all the dots of a stabilization in the market, and positioning for a better growth profile in 2014 than we saw in 2013. And I think that there's an opportunity, from what we see on the oil and gas side for specialty alloys, of demand growth in the second half of 2014, as the inventory correction dealing with downhole runs its course.

So I think all in all, when we put everything together and the feedback we're getting from customers and markets, we hope we have seen the bottom in terms of corrections in demand. And what we see in 2014, not only from the aeroengine market but from all markets, including oil and gas, is a growth in nickel and specialty alloys going forward.

Thanks for the color on that. I had a question on just Brackenridge as far as update there. I don't know, Rich, if you commented on it already. But are you still comfortable with the $150 million to $250 million as far as the potential benefits to the organization over the next couple of years?

Yes, I think so. I think the higher end of that is really dependent upon us growing in the markets that we currently can't serve with a 65-year-old hot strip mill. But the lower end of that is really more predicated on cost structure efficiencies, leaner and quicker manufacturing cycles so that we eliminate some of the negative impact of fluctuating raw material costs that we talked about earlier.

So, yes, we haven't seen anything at this point in time that would change our view on that. And we're certainly encouraged by the fact that the HRPF project, which was a really complex, difficult project. And when we do offer a tour to the investment community later this year, you'll see. We have a picture of the facility outside but that doesn't do justice of what a real challenge this was in terms of constructing this mill on that site and also building a mill that had never been built before. So, we're very encouraged with what we see so far. And certainly the next nine months are going to be important.

Gautam Khanna, Cowen and Company.

Just a couple questions on high performance. A lot of volatility in the margins this 2013. With that in mind and some of the competitive landscape changes, what level do you think high-performance operating margins are going to trend to over the next two to three years? And if you could comment on how Ladish margins today compare with that of the alloy businesses.

We're not going to break out the margins of individual businesses. I'll answer it very simply -- higher. (laughter). I think the margins are going to be higher going forward. That's our objective. I think as the aerospace market grows, and the other markets that we serve in that segment grow, the margins will improve.

We will continue to do a lot with cost structure. The efforts on the forging side, the forest products business side, we've taken a lot of costs out of that business in 2013. We had an early retirement program in the fourth quarter of 2013 that resulted in 85 heads coming out. And so there's a lot of work going on on the cost structure of the forging business. The former Ladish was really a forgings, machining and titanium investment castings business.

The investment casting business is growing. And has, since the time we bought it to 2013, has almost doubled in size, and we're not done yet. So, I think the opportunities are certainly there for us to improve high-performance segment margins going forward. The businesses we have in Albany, Oregon, the zirconium business, we've taken a lot of costs out of that business. And that business has had some significant challenges because of the reduction in the demand for nuclear products, as well as a softer market from chemical processing industry. I like where that business sits and the opportunities that we have going forward. It won't be easy, but there are opportunities.

In the nickel alloy and titanium business down at the Carolinas is a leader, and will continue to be a leader and will continue to grow. So I think the near-term challenge we have on the forging side, an important part of the forging business is the industrial market. More specifically, the global mining market. And that underwent a significant downturn in 2013. And promises to be challenging in 2014, as well. I think that the future of the high-performance metals business, not only from a milled product but also from a parts and components business, is very strong. And, quite frankly, that's where a lot of our focus is.

What I was asking, though, is, you mentioned a number of things, like your shutting down of Albany and obviously the Rowley qualification takes some time. We're trending X items. It's in the 12% range. I just wondered, is 15% possible before Rowley is fully qualified in terms of the consolidated high-performance margin? Or is that something that is more a late 2015, early 2016 focus?

No. I think it's possible before Rowley is qualified. If the Rowley qualification was up to us it would be qualified already because we're producing PQ sponge. But it's not. So, we work that issue through with our customers, and we're doing that. The customer feedback thus far is very positive. But I'm not going to pin our objectives for profitable growth in the segment squarely on the shoulders of the Rowley facility, because that would undersell the capabilities we have in the core of the businesses

And just given your comments on Ladish and the lining mining exposure, is the operating margins at that business today above the 12% segment average ex items? Or is that also at below --?

I'm not going to break out -- we report by segment. I'm not going to break out profitability of individual pieces within the segment.

Thank you for your questions. I would now like to turn the call over to Dan Greenfield for closing remarks.

Thank you for joining us on our call today. And thank you for your continuing interest. Thanks to all of the listeners for joining us today. That concludes our conference call.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.