What changed in this filing

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Item 1A. Risk Factors

2023-02-24 compared with 2022-02-25 · 76 added, 48 removed, 229 unchanged (35% of the section changed)

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A significant portion of our sales represent products sold to customers in the commercial aerospace industry.

Fulfilling contractual arrangements to provide various products to customers in this industry often involves meeting highly exacting performance requirements and product specifications, and our failure to meet those requirements and specifications on a timely and cost efficient basis could have a material adverse effect on our

results of operations, business and financial condition.

The commercial aerospace industry has historically been cyclical due to factors both external and internal to the airline industry.

These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, changes in projected build rates (including, e.g., the suspension in production of the Boeing 737 MAX aircraft and the decline in projected build rates for Boeing’s 737 MAX and 787 Dreamliner and for other commercial aircraft associated with the global COVID-19 pandemic that is expected to impact the industry for several years), price competition, and international and domestic political conditions such as military conflict and the threat of terrorism.

These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, changes in projected build rates, price competition, and international and domestic political conditions such as military conflict and the threat of terrorism.

The length and degree of cyclical fluctuation are influenced by these factors and therefore are difficult to predict with certainty.

Demand for our products, particularly those produced in our HPMC segment, is subject to these cyclical trends.

Demand for our products is subject to these cyclical trends.

Cyclical and event-driven downturns in the commercial aerospace industry have had, and may in the future have, an adverse effect on the prices at which we are able to sell our products, and our results of operations, business and financial condition could be materially adversely affected.

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The oil & gas industry, which historically has been a significant end market for ATI, is highly cyclical and subject to volatility as a result of worldwide economic activity and associated demand for oil and natural gas, anticipated future prices for oil and natural gas, fluctuation in the level of drilling activity, changes in applicable regulation, global geopolitical conditions and numerous other factors.

Demand for our products is likewise subject to these trends.

In recent years, our business has been negatively impacted by a general downturn and slow recovery in the oil & gas industry, which most recently has been further impacted by the COVID-19 pandemic’s negative effect on global economic activity.

Demand for our products is likewise subject to these trends, and in recent years, our business has at times been negatively impacted by depressed demand from the oil & gas industry.

We expect that this end market will remain a highly cyclical industry, and future downturns could have an adverse effect on the prices at which we are able to sell our products, and our results of operations, business and financial condition could be materially adversely affected.

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These factors have had and may have an adverse impact on our revenues, operating results and financial condition.

Although inflationary trends in most of the last few years have been moderate, during most of the same period, certain critical raw material costs, such as nickel, titanium sponge, cobalt, chromium, and molybdenum and scrap containing iron, nickel, titanium, chromium, and molybdenum have been volatile.

While we have been able to mitigate some of the adverse impact of volatile raw material costs through raw material surcharges or indices to customers, rapid changes in raw material costs causes volatility in, and may adversely affect, our results of operations.

Recently, inflationary trends, certain critical raw material costs, such as nickel, titanium sponge, cobalt, chromium, and molybdenum and scrap containing iron, nickel, titanium, chromium, and molybdenum have been volatile.

While we have been able to mitigate some of the adverse impact of volatile raw material costs through various means, including raw material surcharges or indices to customers, rapid changes in raw material costs cause volatility in, and may adversely affect, our results of operations.

We change prices on certain of our products from time-to-time.

The ability to implement price increases is dependent on market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other factors, some of which are beyond our control.

The benefits of any price increases may be delayed due to long manufacturing lead times and the terms of existing contracts.

Our ability to implement price increases is dependent on market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other factors, some of which are beyond our control.

As such, we may be unable to implement price increases to the degree or within the time frame necessary to fully mitigate the impact of inflationary trends or at all, and the benefits of any price increases may be delayed due to long manufacturing lead times and the terms of existing contracts.

Risks Associated with Key Customers.

We have long-term contracts with certain of our customers, some of which are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive supply conditions.

Our failure to successfully renew, renegotiate or favorably re-price such agreements, or a material deterioration in or termination of these or other key customer relationships, could result in a reduction or loss in customer purchase revenue.

Additionally, a significant downturn or deterioration in the business or financial condition or loss of a key customer could negatively impact our business.

Our customers may change their business strategies or modify their business relationships with us, including to reduce the amount of our products they purchase or to switch to alternative suppliers, as a result of which our financial condition and results of operations may be adversely affected.

RISKS RELATED TO THE RAW MATERIALS AND SUPPLIES THAT WE USE

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We rely to a substantial extent on third parties to supply certain raw materials that are critical to the manufacture of our products.

Purchase prices and availability of these critical items are subject to volatility.

Purchase prices and availability of these critical items are subject to volatility, and in some cases, we have supply arrangements with only a limited number of suppliers for a given material.

At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, on price and other terms acceptable to us, or at all.

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This could cause us to lose sales, incur additional costs, delay new product introductions, or suffer harm to our reputation.

The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.

Since February of 2022, Russia and Ukraine have been engaged in active armed conflict.

The length, impact, and outcome of the ongoing conflict and its potential impact on our business is highly volatile and difficult to predict.

It has and could continue

to cause significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser preferences, and increases in cyberattacks and espionage.

Governments in the European Union, the United States, the United Kingdom and other countries have enacted sanctions against Russia and Russian interests.

These sanctions include controls on the export, re-export, and in-country transfer in Russia of certain goods, supplies, and technologies, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia.

In early March 2022, we announced plans to terminate our Uniti, LLC joint venture with Russian-based VSMPO-AVISMA (Verkhnaya Salda Metallurgical Production Association - Berezniki Titanium-Magnesium Works), the purpose of which was to market and sell a range of commercially pure titanium products.

However, conditions in Ukraine and/or existing or future sanctions may disrupt supplies or affect the prices of materials that are necessary to our operations.

For example, we source both nickel and chromium from Russian sources that could be impacted.

If unable to obtain adequate and timely deliveries of required raw materials, we may be unable to timely manufacture sufficient quantities of products.

This could cause us to lose sales, incur additional costs, delay new product introductions, or suffer harm to our reputation.

Further, the broader consequences of the current conflict between Russia and Ukraine may also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business and results of operations.

Such risks include, but are not limited to, adverse effects on global macroeconomic conditions;

increased volatility in the price and demand of oil, natural gas and other commodities, increased exposure to cyberattacks;

disruptions in global supply chains;

and exposure to foreign currency fluctuations and potential constraints or disruption in the capital markets and our sources of liquidity.

Dependence on Critical Supplies Subject to Price and Availability Fluctuations.

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At various times, our CBAs expire and are subject to renegotiation.

We currently are involved in negotiations involving CBAs with approximately 800 full-time employees that expire in 2022.

Generally, collective bargaining agreements that expire may be terminated after notice by the union.

After termination, the union may authorize a strike.

A labor dispute, which could lead to a strike, lockout, or other work stoppage by the employees covered by one or more of the collective bargaining agreements, could have a material adverse effect on production at one or more of our facilities and, depending upon the length of such dispute or work stoppage, on our operating results.

on our operating results.

For example, in 2021, the USW engaged in a 3 ½ month strike primarily affecting our AA&S segment operations, and we incurred approximately $63 million in strike-related costs and had lower revenues during this period while we continued to operate affected facilities with replacement workers.

There can be no assurance that we will succeed in concluding collective bargaining agreements to replace those that expire.

RISKS RELATED TO INFORMATION TECHNOLOGY AND SECURITY

RISKS RELATED TO INTELLECTUAL PROPERTY, INFORMATION TECHNOLOGY AND SECURITY

Risks Associated with our Intellectual Property.

We own valuable intellectual property, including trade secrets, patents, trademarks and copyrights.

Our intellectual property protects our investments in technological innovation, research and development, and plays an important role in maintaining our competitive position in the markets we serve.

Despite efforts to secure our intellectual property, it may be infringed or misappropriated by our employees, our competitors or other third parties.

The pursuit of remedies for infringement or misappropriation of intellectual property is expensive and uncertain.

Additionally, our competitors may develop technologies of their own that are similar or superior to our proprietary technologies, or design around our patents, to lawfully avoid our intellectual property rights.

A failure to sufficiently secure or successfully enforce our intellectual property rights could adversely affect our business and competitive position.

Risks Associated with Information Technology.

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We believe that ATI faces the threat of such cyber attacks due to the markets we serve, the products we manufacture, the locations of our operations, and global interest in our technology.

These risks may be exacerbated by the continuing impact of the COVID-19 pandemic.

Due to the evolving nature of cyber security threats, the scope and impact of any incident cannot be predicted.

We continually work to strengthen our threat countermeasures,

safeguard our systems and mitigate potential risks.

We continually work to strengthen our threat countermeasures, safeguard our systems and mitigate potential risks.

Despite our efforts to fortify our cyber security and protect sensitive information and confidential and personal data, our facilities and systems and those of our third-party service providers may be vulnerable to security breaches.

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Climate related changes in prevailing weather patterns may impact, among other conditions, changes in sea levels and the propensity for flooding in coastal and other regions, long-term changes in precipitation patterns leading to flooding, drought or deterioration in water quality, and the frequency and severity of significant storms and other weather events and related natural hazards, such as wildfire risk.

Although we do not believe that our facilities are currently exposed to significant physical risk as a general matter, our operations have at times been, and could in the future be, impacted by adverse climate-related events, such as, for example, the extreme heat and wide-spread wildfires that negatively impacted the Pacific Northwest region in 2021.

Although we do not believe that our facilities are currently exposed to significant physical risk as a general matter, our operations have at times been, and could in the future be, impacted by adverse climate-related events, such as, for example, unanticipated periods of extreme cold or heat, acute flooding and wide-spread wildfires such as those experienced in certain regions in the U.S.

and elsewhere in recent years.

Events such as these could cause damage to critical facilities and equipment, result in significant operational disruption and have meaningfully adverse effects on our employees and the communities in which we operate.

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We have publicly disclosed efforts to reduce the energy intensity, freshwater intake intensity and greenhouse gas (GHG) emission of our operations, working consistently to enhance the environmental sustainability of our business by reducing our reliance on fossil fuel-based energy sources, promoting water reuse and other responsible water management practices, reducing waste and promoting recycling (including extensive use of recycled feedstock in our manufacturing processes) and ensuring our compliance with applicable environmental regulations.

Notably, our announced exit from the production of standard stainless sheet products is expected to meaningfully reduce our use of some of our most energy-intensive melt operations, potentially driving future reductions in energy intensity and GHG emissions.

Nevertheless, new and evolving laws and regulations could mandate different or more restrictive standards, increase operating costs, require (or cause customers to require that we make) capital investments to transition to low carbon technologies or purchase carbon credits, or otherwise adversely impact our ongoing operations.

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It is possible that, over time, due to both regulatory action and/or changing customer and societal norms and expectations regarding the causes and importance of climate change issues, demand for products in one or more of our significant end markets could decline or, if we fail to keep pace with changing demand and technological advancement, shift in favor of products that we do not produce.

If we fail to appropriately adapt to the expectations of our customers or other stakeholders, fail to achieve or properly report progress toward our environmental sustainability goals and targets or otherwise are perceived as failing to adequately addresses climate change concerns, the resulting negative perceptions could adversely affect our business, reputation and access to capital.

If we fail to appropriately adapt to the expectations of our customers or other stakeholders, fail to achieve or properly report progress toward our environmental sustainability goals and targets or otherwise are perceived as failing to adequately address climate change concerns, the resulting negative perceptions could adversely affect our business, reputation and access to capital.

Risks Associated with Other Environmental Compliance Matters.

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We could incur substantial cleanup costs, fines and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or non-compliance with environmental permits required at our facilities.

We are currently involved in the investigation and remediation of a number of our current and former

sites as well as third party sites.

We are currently involved in the investigation and remediation of a number of our current and former sites as well as third party sites.

We also could be subject to future laws and regulations that govern greenhouse gas emissions and various matters related to climate change and other air emissions, which could increase our operating costs.

With respect to proceedings brought under the federal Superfund laws, or similar state statutes, we have been identified as a potentially responsible party (PRP) at approximately 40 of such sites, excluding those at which we believe we have no future liability.

With respect to proceedings brought under the federal Superfund laws, or similar state statutes, we have been identified as a potentially responsible party (PRP) at 43 of such sites, excluding those at which we believe we have no future liability.

Our involvement is limited or de minimis at approximately 20 of these sites, the potential loss exposure with respect to 16 individual sites is not considered to be material, and the potential loss exposure on the remaining 7 sites could be material.

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Impacts on the End-Markets that We Serve and Demand for Our Products.

The COVID-19 pandemic, including governmental and other actions taken or restrictions imposed to contain its spread and impact, has subjected our operations, financial performance and financial condition to a number of risks including, but not limited to, those discussed below.

The significant macroeconomic impact of the ongoing COVID-19 pandemic and the measures designed to contain its spread impacted several of the Company’s end markets.

Although we are beginning to see improvements in end market demand, we continue to experience lower demand and volume for certain products and services than we generally experienced prior to the onset of the pandemic.

Our sales to customers in markets that are affected by COVID-19 have been negatively impacted, and the possibility exists that there could be ongoing impacts to our operations and financial results.

For example, a significant portion of our sales represent products sold to customers in the commercial aerospace industry, which in general were significantly impacted by the pandemic and took various measures in response, including efforts to reduce inventory and/or downward adjustments to their stated production rates.

As the pandemic subsides and related travel and other restrictions are lifted, we are experiencing improved demand, but demand recovery to pre-pandemic levels may be uneven or generally occur more slowly than anticipated.

Similarly, in recent years, our business has at times been negatively impacted by the downturn and slow recovery in the oil & gas industry, including as a result of the pandemic, and the ultimate strength and pace of recovery in the energy industry is uncertain.

The ultimate breadth and duration of these trends and their impact on our business is difficult to predict.

The COVID-19 pandemic, including governmental and other actions taken or restrictions imposed to contain its spread and impact, subjected our operations, financial performance and financial condition to a number of risks including, but not limited to, those discussed below.

The significant macroeconomic impact of the COVID-19 pandemic and the measures designed to contain its spread negatively impacted several of the Company’s most significant end markets, and our sales to customers in those markets.

The possibility exists that there could be ongoing impacts to our operations and financial results as a result of COVID-19 or a similar future pandemic, and the ultimate breadth and duration of these trends and their impact on our business is difficult to predict.

Impacts to Our Supply Chain .

To date, we have not experienced significant disruption to our supply chain as a result of the pandemic.

However, it remains possible at some point that due to the ongoing impact of the pandemic, one or more of our suppliers may not have the materials, capacity, or capability to supply products that we require according to our schedule and specifications.

However, it remains possible at some point that, in the context of the COVID-19 pandemic or any future similar event, one or more of our suppliers may not have the materials, capacity, or capability to supply products that we require according to our schedule and specifications.

In that case, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our business, results of operations, financial condition and/or cash flows.

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In general throughout the pandemic, our facilities continued to operate with federal and state government approvals due to the qualification of our facilities as essential and critical.

However, we have experienced and may again in the future experience the temporary shut down of facilities in response to employees being impacted by COVID-19 or changes in government policy.

However, we have experienced and may again in the future experience the temporary shut down of facilities in response to employees being impacted by COVID-19, a similar future outbreak or any related changes in government policy.

Currently, widespread COVID-19 impacts in China affecting customer supply chains are expected to impact the near-term results of our Chinese STAL joint venture.

Impacts on Financial and Credit Markets.

Any continued pandemic-related financial market volatility could pose heightened risks to our liquidity, access to capital markets and cost of funds, which could adversely affect our business, financial position, results of operations and/or cash flows.

Financial market volatility as a result of any ongoing impact of the COVID-19 pandemic or any future similar event could pose heightened risks to our liquidity, access to capital markets and cost of funds, which could adversely affect our business, financial position, results of operations and/or cash flows.

OTHER OPERATIONAL AND STRATEGIC RISKS

Risks Associated with Disruptions to our Manufacturing Processes.

The manufacture of many of our products is a highly exacting and complex process.

If we encounter disruptions to our manufacturing processes due to equipment malfunction, failure to follow specific protocols, specifications and procedures, supply chain interruptions, natural disasters, health pandemics, labor unrest, or otherwise, it could have an adverse impact on our ability to fulfill orders or on product quality or performance which could result in significant costs to and liability for us that could have a material adverse effect on our business, financial condition or results of operations, as well as negative publicity and damage to our reputation, which could adversely impact product demand and customer relationships.

Additionally, our operations depend on the continued and efficient functioning of our facilities, including critical equipment.

If our operations, particularly one of our manufacturing facilities, were to be materially disrupted for any reason, we may be unable to effectively meet our obligations to or demand from our customers, which could adversely affect our financial performance.

Export Sales and International Trade Matters.

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From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and limitations on coverage, larger self-insured retentions and deductibles, and significantly higher premiums.

As a result, in the future our insurance coverage may not cover claims to the extent that it has in

the past and the costs that we incur to procure insurance may increase significantly, either of which could have an adverse effect on our results of operations.

As a result, in the future our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure insurance may increase significantly, either of which could have an adverse effect on our results of operations.

Risks Associated with Acquisition and Disposition Strategies.

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• limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.

A portion of our indebtedness, including amounts outstanding currently or in the future under our ABL, bear interest at variable rates and, accordingly, subject our business to risk, particularly in a rising interest rate environment.

In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants that could limit our ability to engage in activities that may be in our long-term best interests.

Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debt.

In addition, our variable rate indebtedness, including loans outstanding from time to time under our Asset Based Lending (ABL) Credit Facility, may use London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the rate.

In 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

In March 2021, relevant regulators confirmed that the publication of the one-week and two-month U.S.

dollar LIBOR would cease after December 31, 2021, and all remaining U.S.

dollar LIBOR tenors would cease after June 30, 2023.

Our ABL credit facility includes provisions intended to provide for such transitions, but the potential consequences of these changes cannot be fully predicted and could impact the cost of our variable rate indebtedness or the cost or value of

other financial obligations or extensions of credit held by or due to us from time to time, which could adversely affect our financial condition.

Risks Associated with Retirement Benefits.

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As a result of the American Rescue Plan Act (ARPA) enacted in March 2021, the rules governing pension funding calculations changed.

Based on current actuarial assumptions, we are not required to make any contributions to our U.S.

Based on current actuarial assumptions, we were not required to make any contributions to our U.S.

qualified defined benefit pension plans during fiscal year 2022, and our prior contributions have generated a credit balance that may be utilized to offset future minimum required contributions.

We currently expect to make voluntary cash contributions of approximately $50 million to these plans in 2022.

Using our long-term weighted average expected rate of return on pension plan assets and other actuarial assumptions, we do not expect to have any minimum cash funding requirements to these pension plans for the next few years after 2022.

However, these estimates are subject to significant uncertainty, including the performance of our pension trust assets.

We voluntarily contributed $50 million to these plans in both 2022 and early 2023 to improve the plans’ funded position.

However, these estimates are based on various assumptions and are subject to significant uncertainty, including with respect to the performance of our pension trust assets, and our expectations therefore could prove to be inaccurate.

Lower than expected returns on our pension assets could result in great than anticipated pension contribution obligations in the future.

Depending on the timing and amount, a requirement that we fund the U.S.

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In connection with our December 2020 announcements regarding our plans to cease production of certain lower-margin standard stainless sheet products, our 2020 results included $1,041.5 million of long-lived asset non-cash impairment charges, primarily related to our HRPF and certain stainless steel melting and finishing operations that are part of the AA&S segment’s Brackenridge, Pennsylvania operations.

We also recognized an interim goodwill impairment charge of $287.0 million in the second quarter of 2020 for the partial impairment of goodwill at our Forged Products reporting unit in the HPMC segment based on changes in the timing and amount of expected cash flows resulting from lower projected revenues, including recent disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic, and the increasing uncertainty of near-term demand requirements of aero-engine and airframe markets based on government responses to the pandemic and ongoing interactions with customers.

We also recognized an interim goodwill impairment charge of $287.0 million in the

second quarter of 2020 for the partial impairment of goodwill at our Forged Products reporting unit in the HPMC segment based on changes in the timing and amount of expected cash flows resulting from lower projected revenues, including recent disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic, and the increasing uncertainty of near-term demand requirements of aero-engine and airframe markets based on government responses to the pandemic and ongoing interactions with customers.

Internal Controls Over Financial Reporting.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Risks Associated with Our Guidance and Other Targets and Expectations.

From time to time, we may announce earnings guidance and other future targets or goals for our business.

Such information, which consists of forward-looking statements, is based on our then current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which we operate.

Future targets and goals reflect our beliefs and assumptions and our perception of historical trends, then current conditions and expected future developments, as well as other factors appropriate in the circumstances.

As such, while sometime presented with numerical specificity, earnings guidance and other statements regarding our future targets and goals are inherently speculative in nature and subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, including the risks discussed herein.

Our actual results can, and likely will, be different, and those differences could be material.

There can be no assurance that any targets or goals established by us will be accomplished at the levels or by the dates targeted, if at all.

Failure to achieve our targets or goals may have a material adverse effect on our business, financial condition, results of operations or the market price of our securities.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors