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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 258 added, 519 removed, 392 unchanged (66% of the section changed)

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Actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors, including those described below.

Net income and net income per share amounts referenced below are attributable to Allegheny Technologies Incorporated and Subsidiaries.

Net income and net income per share amounts referenced below are attributable to ATI Inc.

and Subsidiaries.

The following discussion on the Company’s results of operations, financial condition and liquidity for 2022 as compared to 2021 is presented.

Information on the Company’s results of operations, financial condition and liquidity for 2021 as compared to 2020 is included in our Annual Report on Form 10-K in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” filed on February 25, 2022 and is incorporated herein by reference.

Net income and net income per share amounts referenced below are attributable to ATI Inc.

and Subsidiaries.

ATI is a global manufacturer of technically advanced specialty materials and complex components.

Our largest markets are aerospace & defense, representing approximately 40% of total sales, led by products for jet engines.

Our largest markets are aerospace & defense, representing nearly 50% of total sales, led by products for jet engines.

Additionally, we have a strong presence in the energy markets, including specialty energy, oil & gas and downstream processing.

In aggregate, these markets represent about 60% of our revenue.

In aggregate, these markets represent nearly 70% of our revenue.

ATI is a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies, including our new product development competence.

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High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S).

The HPMC segment’s primary focus is on maximizing aero-engine materials and components growth, with approximately 75 % of its revenue derived from the aerospace & defense markets including over 40% of its revenue from products for commercial jet engines.

The HPMC segment’s primary focus is on maximizing aero-engine materials and components growth, with approximately 80 % of its revenue derived from the aerospace & defense markets including approximately 60% of its revenue from products for commercial jet engines.

Commercial aerospace products have been the main source of sales and EBITDA growth for HPMC over the last several years, and are expected to continue to drive HPMC and overall ATI results as demand from these markets recovers from reduced 2020 levels resulting from the COVID-19 pandemic.

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These are made from nickel-based alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials.

Capabilities range from cast/wrought and powder alloy development to final production of highly

engineered finished components, including those used for next-generation jet engine forgings and 3D-printed aerospace products.

The AA&S segment is focused on delivering high-value flat products primarily to the energy, aerospace, and defense end-markets, which comprise approximately 45 % of its revenue.

Capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished components, including those used for next-generation jet engine forgings and 3D-printed aerospace products.

The AA&S segment is focused on delivering high-value flat products primarily to the energy, aerospace, and defense end-markets, which comprise over 50 % of its revenue.

Other important end markets for AA&S include automotive and electronics.

AA&S produces nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and strip products.

On December 2, 2020, we announced a strategic repositioning of our SRP business, which includes exiting lower-margin standard stainless sheet products, streamlining the production footprint of the AA&S segment and making certain capital investments to increase our focus on higher-margin products and our aerospace & defense end markets.

We remain on track to complete our transformation of the SRP business and exit sales of lower-margin standard stainless sheet products in the first half of 2022.

On December 2, 2020, we announced a strategic repositioning of our SRP business, which was substantially completed in 2022 and included exiting production of lower-margin standard stainless sheet products, streamlining the production footprint of the AA&S segment and making certain capital investments to increase our focus on higher-margin products and our aerospace & defense end markets.

Overview of 2022 Financial Performance

Sales in 2021 decreased 6%, to $2.80 billion, while gross profit increased 14%, to $333 million, compared to 2020, as our end-markets begin to show signs of sustained recovery and we continue to recognize the benefits of 2020 cost cutting actions.

Results for 2021 included $40 million of net pre-tax charges as further described in the Results of Operations section.

Results for 2020 included $1.1 billion of restructuring and other charges, $287 million of goodwill impairment charges, and $22 million in debt extinguishment charges.

Results in 2020 also reflect a $78 million income tax provision primarily for valuation allowances on U.S.

federal and state net deferred tax assets.

The Company’s net loss in 2021 was $38.2 million, or ($0.30) per share.

Adjusted EBITDA for 2021 was $290.9 million, or 10.4% of sales, compared to $196.3 million, or 6.6% of sales, for 2020.

See the Financial Condition and Liquidity section of Management’s Discussion and Analysis for non-GAAP definitions and calculations.

Revenues in our largest end markets, aerospace & defense, decreased $227 million, or 17%, compared to 2020, and represented 41% of our 2021 sales.

Sales in 2022 increased 37%, to $3.8 billion, while gross profit increased 114%, to $714 million, compared to 2021, as momentum in our core markets is driving profitable growth across the enterprise.

Results for 2022 and 2021 included $157 million and $40 million, respectively, of net pre-tax charges as further described in the Results of Operations section below.

The Company’s net income for 2022 was $130.9 million, or $0.96 per share.

ATI Adjusted EBITDA for 2022 was $549.3 million, or 14.3% of sales, compared to $290.9 million, or 10.4% of sales, for 2021.

See further explanation below for non-GAAP definitions and calculations.

Revenues in our largest end markets, aerospace & defense, increased $741 million, or 65%, compared to 2021, and represented 49% of our 2022 sales.

International sales, including both U.S.

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Gross profit % of sales 18.6 % 11.9 %

Operating income (loss) $ 117.6 $ ( 1,302.7 ) $ 366.3

Income (loss) before income taxes $ 10.6 $ (1,481.9) $ 236.5

Operating income $ 287.3 $ 117.6

Income before income taxes $ 162.0 $ 10.6

Net income (loss) $ 130.9 $ (38.2)

Diluted net income (loss) per common share $ 0.96 $ (0.30)

*Years ended December 31, 2020 and 2019 reflect the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements.

There were no adjustments to 2020 amounts as a result of this change.

Our major accomplishments during 2022 include the following:

• A return to profitability after a loss in 2020, with operating income of $118 million.

Results for the fourth quarter 2021 were our highest quarterly revenues and margins of the year as demand improved in key end markets, led by commercial jet engine products.

For the full year 2021, Adjusted EBITDA margins were 10.4%, only 30 basis points below full year 2019, despite 32% lower revenues.

We achieved our expected annual cost savings in 2021 from our 2020 restructuring actions and expect continued benefits, primarily to cost of sales and gross margin, from these structural changes in future periods.

• We completed a few significant capital projects that position us for the growth in aero engine demand, including the full qualification of our fourth iso-thermal press at our Iso-Thermal Forging Center of Excellence in Cudahy, WI.

We also expanded heat-treating and machining capabilities in this business.

We continue to make capital investments in support of our strategic growth initiatives, pacing our investments to have the installed asset base in service and qualified when needed for additional production capacity associated with long-term agreements, principally involving aerospace and defense markets customers.

• We continue to transform our SRP business and are on track to complete the footprint consolidation and exit standard stainless sheet product sales by mid-year 2022.

In 2021, 93% of AA&S’s sales were high-value products, a significant increase from 86% in 2020, reflecting an improved product mix and margin benefits from this effort.

Fourth quarter 2021 AA&S sales were 96% high-value products, and we are no longer producing any new standard

stainless sheet products.

Our AA&S sales would have been approximately $250 million lower in 2020, and approximately $110 million lower in 2021 without sales of standard stainless sheet products.

• We generated positive cash from operating activities in 2021, despite an $81 million increase in managed working capital and $67 million in contributions to ATI’s U.S.

• A return to profitability after a net loss in 2021, with 2022 net income of $131 million.

Sales in the fourth quarter 2022 were over $1 billion and net income was $77 million.

These results were driven by improved demand in key end markets, led by commercial jet engine products.

For the full year 2022, Adjusted EBITDA margins were 14.3%, a 390 basis point improvement from full year 2021.

• With the AA&S business transformation and footprint consolidation nearly complete, we are well positioned for continued future profitable growth.

In 2022, AA&S’s sales increased 33% to over $2 billion.

Aerospace and defense related sales in this segment increased 87% to $556 million.

Stronger sales volumes and the improved product mix led to AA&S EBITDA margin expansion exceeding 300 basis points compared to 2021.

• We generated positive cash flow of $225 million from operating activities in 2022, while supporting a $68 million increase in managed working capital and making a $50 million contribution to ATI’s U.S.

defined benefit pension trust.

As a result of our constant focus on our financial condition in another year of significant economic uncertainty, we ended the year with $688 million of cash on hand and over $1 billion of liquidity including our asset-based lending facility.

• In September 2021, ATI issued $675 million of new unsecured senior notes, including $325 million of 4.875% Senior Notes due 2029 (the 2029 Notes) and $350 million of 5.125% Senior Notes due 2031 (the 2031 Notes).

In October 2021, we used $571 million of the proceeds from these debt issuances to retire $500 million of higher cost debt due in 2023, along with accrued interest and required make-whole premium, and recognized an approximately $66 million debt extinguishment charge.

With these actions, we lowered annual interest expense and extended our debt maturity profile, with no significant debt maturities before 2024.

• We made further progress on our risk management strategy for retirement benefit obligations by completing a $70 million pension risk transfer through the purchase of an annuity contract with a nationally recognized insurance company.

This annuity buyout removed 7% of plan participants, bringing the total pension participant reduction to more than 60% over the past nine years.

In addition, we continued to reduce our net pension liability, which was $396 million, or 84% funded on a financial reporting basis as of December 31, 2021, a substantial improvement over the $674 million, or 75% funded position at the end of 2020 due to strong pension asset performance, cash contributions to the pension trust, and benefits from higher discount rates at year-end 2021.

We also recognized a $65 million pretax gain on postretirement medical benefits and reduced our postretirement benefits liability by $43 million as a result of a plan settlement.

• We voluntarily changed accounting methods for our business units that previously used the Last-in, First-Out (LIFO) costing method to a current costing method, which is how we manage these businesses and internally evaluate financial performance.

This change had no impact on our 2021 or 2020 results, and aligns our inventory costing methods with the majority of our industry peers.

Our 2019 results have been restated to reflect this change which had a $5.1 million, or $0.04 per share, unfavorable impact to our 2019 results.

We expect lower earnings volatility in future periods as a result of this accounting method change.

As a result of our constant focus on our financial condition, we ended the year with $584 million of cash on hand and over $1 billion of total liquidity including the undrawn capacity under our asset-based lending facility.

• On May 12, 2022, we completed the sale of the Sheffield, UK operations, which was previously part of the HPMC segment.

With more than 80% of the operation’s $36 million 2021 sales focused on the oil and gas markets, it was not well-aligned with ATI’s strategic focus on the aerospace and defense markets.

This divestiture also removed all obligations for a UK defined benefit pension plan.

• On September 9, 2022, the Company amended and restated its Asset Based Lending (ABL) Credit Facility, which extended the ABL facility, including the $200 million term loan, through September 2027 and included an increase of $100 million in the revolving credit facility, to $600 million, and continued a letter of credit sub-facility of up to $200 million.

• We continued to reduce our net pension liability, which was $219 million, or 88% funded on a financial reporting basis as of December 31, 2022, a substantial improvement over the $396 million, or 84% funded position at the end of 2021 due to cash contributions to the pension trust and benefits from higher discount rates at year-end 2022.

Results of Operations

2022 Compared to 2021

Results for 2021 were sales of $2.80 billion and income before tax of $10.6 million, compared to sales of $2.98 billion and a loss before tax of $1,481.9 million in 2020.

Our gross profit was $333.2 million, or 11.9% of sales, a $40.4 million increase compared to 2020, as our end-markets begin to show signs of sustained recovery and we continue to recognize the benefits of 2020 cost cutting actions.

Results for 2022 included sales of $3.84 billion and income before tax of $162.0 million, compared to sales of $2.80 billion and income before tax of $10.6 million in 2021.

Our gross profit was $714.2 million, or 18.6% of sales, a $381 million increase compared to 2021, as the momentum in our core markets drove profitable growth across the enterprise.

Results in 2022 include $34 million of benefits from management actions to access available grants and other forms of COVID-19 relief available from previously-enacted U.S.

These benefits included $17 million of a $22 million grant under the Aviation Manufacturing Jobs Protection (AMJP) program for our operations in the HPMC segment, which helped fund ongoing wage and benefit costs for a six-month period through May 2022, and $17 million in employee retention credits applicable across all of ATI’s domestic operations, largely for preserving jobs throughout the global pandemic-related economic downturn.

Results for 2022 also included $157.0 million of net pre-tax charges which consisted of the following:

• $134.2 million in losses, net, primarily associated with the sale of the Sheffield, UK business which was sold in May 2022 for a $141 million loss.

This business is reported as part of the HPMC segment through the date of sale and had sales of $36 million and a net loss before tax of $9 million in fiscal year 2021.

This loss was partially offset by a gain on the sale of our small Pico Rivera, CA operations.

• $23.7 million of costs associated with restructuring and other charges, consisting of a $28.5 million charge associated with the settlement of litigation related to the 2016 idling of the Rowley, UT titanium sponge facility, partially offset by severance-related reserve reductions based on changes in planned operating rates and revised work force estimates.

• $0.9 million of credits associated with restructuring activities at the A&T stainless joint venture.

Results for 2021 included $39.5 million of net pre-tax charges which consisted of the following:

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• $10.5 million of net credits for restructuring and other charges, consisting of $11.3 million of restructuring credits primarily for a reduction in severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates, partially offset by $0.8 million for inventory valuation reserves classified in cost of sales on the consolidated statement of operations.

The 2020 results included $1,443.0 million of pretax charges which consisted of the following:

• $1,132.1 million of restructuring and other charges;

• $287.0 million for impairment of a portion of goodwill at our Forged Products operations;

• $21.5 million for debt extinguishment on $203.2 million, or 71%, of the principal balance of the outstanding 2022 Convertible Notes;

• $2.4 million of severance charges at our A&T Stainless joint venture.

The 2020 restructuring and other charges of $1,132.1 million predominantly related to the Company’s December 2020 announcement that it would cease production of standard stainless sheet products, significantly reducing the operating levels of the Brackenridge, PA operations, including the HRPF, and close various downstream finishing operations that were part of the standard stainless flow path.

These restructuring and other charges consisted of the following:

• $1,107.5 million of restructuring charges recorded on the consolidated statement of operations.

These restructuring charges consist of $1,041.5 million of non-cash long-lived asset impairment charges, primarily for the Brackenridge operations, $60.5 million of employee benefit costs for hourly and salary employees, and $5.5 million of other costs related to facility idlings.

• $17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures from the standard stainless exit.

These costs are classified within nonoperating retirement benefit expense in the consolidated statements of operations.

• $7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to the Albany, OR idled facility.

All of these items discussed above are excluded from segment EBITDA.

The strike related costs, goodwill impairment, restructuring charges/credits and charges for inventory valuation reserves above are included in operating income (loss) on the consolidated statements of operations, which was operating income of $117.6 million for 2021, compared to an operating loss of $1,302.7 million for 2020.

Nonoperating items included $37.2 million in nonoperating retirement benefit income in 2021, compared to expense of $62.1 million in the prior year, reflecting the $64.9 million retirement benefit settlement gain in 2021 and the $17.4 million in termination benefits in 2020 related to facility closures discussed above.

Other (nonoperating) income/expense in 2021 includes the $13.8 million gain on the sale of the Flowform Products business discussed above.

Other (nonoperating) income/expense for 2020 includes $7.0 million of net losses from operating results of joint ventures accounted for under the equity method and $2.4 million of severance charges at our A&T Stainless joint venture.

Results for 2021 included $26.8 million of income tax expense, primarily for $15.5 million in discrete tax effects related to the retirement benefit settlement gain.

The net loss on sale of the businesses in 2022, restructuring charges/credits and strike-related costs are included in operating income on the consolidated statements of operations, which was $287.3 million for 2022, compared to $117.6 million for 2021.

Nonoperating items included $25.4 million in nonoperating retirement benefit expense in 2022, compared to income of $37.2 million in the prior year, reflecting the $64.9 million retirement benefit settlement gain in 2021.

Other (nonoperating) income/expense in 2022 includes a $28.5 million litigation settlement charge discussed above partially offset by a $9.9 million benefit from the A&T Stainless joint venture’s settlement of Section 232 claims, which is included in AA&S segment results.

Other (nonoperating) income/expense in 2021 includes a $65.5 million debt extinguishment charge and the $13.8 million gain on the sale of the Flowform Products business discussed above.

Results for 2022 included $15.5 million of income tax expense, primarily attributable to the Company’s foreign operations and state income tax expense associated with states that limit net operating loss utilization.

ATI continues to maintain a valuation allowance on its U.S.

deferred tax assets.

Results for 2020 include a $77.7 million income tax charge primarily for deferred tax asset valuation allowances on our U.S.

federal and state tax attributes, due to re-entering a three-year cumulative loss position for our U.S.

results during the year.

Net loss attributable to ATI was $38.2 million, or ($0.30) per share, in 2021, compared to a net loss attributable to ATI of $1,572.6 million, or ($12.43) per share, for 2020.

Adjusted EBITDA was $290.9 million, or 10.4% of sales, for 2021, and $196.3 million, or 6.6% of sales, for 2020.

ATI proactively implemented workforce reduction initiatives in the fourth quarter 2019, and throughout 2020 in response to changed market conditions resulting from the COVID-19 pandemic, to better match our cost structure to expected demand.

In 2020, we reduced company-wide employment levels by approximately 1,400 people, or about 17% of our total workforce.

To help further mitigate the financial impact from reduced aerospace and consumer demand levels stemming from the COVID-19 pandemic, we implemented 2020 cost reduction efforts including the temporary idling of operations to reduce costs and inventory, salary reductions for a substantial portion of our staff, reductions in 401(k) benefits for nearly all employees, furlough of non-essential positions, and significant reductions in capital expenditures and corporate expenses.

Our 2021 results reflect the favorable impacts of these 2020 workforce reduction initiatives and the ongoing recovery across many of our key end markets, most notably jet engine materials and components, compared to the prior year.

Additionally, we continued our strategic transformation efforts in 2021 within the AA&S segment to eliminate production of lower-margin standard stainless sheet products in the SRP business.

2020 Compared to 2019

Results for 2020 were sales of $2.98 billion and loss before tax of $1,481.9 million, compared to sales of $4.12 billion and income before tax of $236.5 million in 2019.

Results in 2019 included $95 million of sales and minimal segment operating profit related to the divested titanium investment castings and industrial forgings businesses.

Our gross profit was $292.8 million, or 9.8% of sales, in 2020, a $345.2 million decline compared to 2019, reflecting COVID-19 impacts.

The 2020 results included $1,443.0 million of pretax charges discussed above, all of which are excluded from segment EBITDA and consisted primarily of restructuring and other charges, goodwill impairment, and debt extinguishment charges.

The 2019 results included the following pretax charges, all of which are excluded from segment EBITDA:

• $4.5 million restructuring charge for severance obligations to streamline ATI’s salaried workforce, primarily to improve the cost competitiveness of the U.S.-based SRP business;

• $21.6 million for debt extinguishment on the $500 million 5.95% Senior Notes due 2021 (2021 Notes);

• $11.4 million impairment charge for our A&T Stainless joint venture.

The goodwill impairment, restructuring charges and charges for inventory valuation reserves above are included in operating income (loss) on the consolidated statements of operations, which was an operating loss of $1,302.7 million for 2020, compared to operating income of $366.3 million for 2019.

Nonoperating items included a reduction in nonoperating retirement benefit expense of $11.5 million in 2020, compared to the prior year period, despite the $17.4 million in termination benefits related to facility closures discussed above.

Other (nonoperating) income/expense for 2020 included $7.0 million of net losses from operating results of joint ventures accounted for under the equity method and $2.4 million of severance charges at our A&T Stainless joint venture.

Other (nonoperating) income/expense for 2019 included $84.6 million in net gains from non-core asset sales, consisting of a $91.7 million gain to monetize oil and gas rights and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by an $13.3 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY.

Results for 2019 also include an $11.4 million A&T Stainless joint venture impairment charge and $10.7 million of net losses from operating results of joint ventures accounted for under the equity method.

Equity method joint venture operating results are included in the results of the AA&S segment.

Results for 2020 include a $77.7 million income tax charge primarily related to deferred tax asset valuation allowances on our U.S.

federal and state tax attributes, due to re-entering a three-year cumulative loss position for our U.S.

results during the year.

Results in 2019 included a $28.5 million income tax benefit, as we determined as of December 31, 2019 that we were no longer in a three year cumulative loss position and a substantial portion of our income tax valuation allowances were no longer required, resulting in a $45.1 million discrete tax benefit.

Net loss attributable to ATI was $1,572.6 million, or ($12.43) per share, in 2020, compared to net income attributable to ATI of $252.5 million, or $1.81 per share, for 2019.

Results for 2021 include $26.8 million of income tax expense, primarily for $15.5 million in discrete tax effects related to the retirement benefit settlement gain.

Net income attributable to ATI was $130.9 million, or $0.96 per share, in 2022, compared to a net loss attributable to ATI of $38.2 million, or ($0.30) per share, for 2021.

Adjusted EBITDA was $549.3 million, or 14.3% of sales, for 2022, and $290.9 million, or 10.4% of sales, for 2021.

EBITDA and Adjusted EBITDA are measures utilized by ATI that we believe are useful to investors because these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity.

Furthermore, analogous measures are used by industry analysts to evaluate operating performance.

EBITDA and Adjusted EBITDA are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S.

generally accepted accounting principles (U.S.

We categorically define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges.

We categorically define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring charges/credits, strike related costs, long-lived asset impairments and other postretirement/pension curtailment and settlement gains and losses.

EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and capital expenditures.

See the Liquidity and Financial Condition section of Management’s Discussion and Analysis for a reconciliation of amounts reported under U.S.

GAAP to these non-GAAP measures.

Results by Business Segment

We operated in two business segments during 2021, HPMC and AA&S, and management evaluates financial results on this basis.

HPMC sales in 2021 were consistent with 2020, as 68% and 26% increases in the energy and medical markets, respectively, were offset by a 12% decrease in sales to the aerospace & defense markets, which comprise 72% of the sales in this segment, due to declines in the commercial aerospace market demand resulting from the COVID-19 pandemic.

While full year HPMC 2021 sales were in line with 2020, the prior year included results before the effects of the COVID-19 pandemic.

Fourth quarter 2021 HPMC sales were 41% higher than the fourth quarter 2020, as commercial aerospace end market demand recovers.

Sales decreased 10% in 2021 in the AA&S segment, reflecting the exit of standard stainless sheet products and lower sales across all major markets with the exception of the automotive and electronics markets, particularly a 28% decline in sales to the aerospace & defense markets and a 19% decrease in energy market sales.

HPMC sales decreased in 2020 compared to 2019 by 41%, driven by a 42% decrease in sales to the aerospace & defense markets, which comprised 81% of the sales in this segment, due to declines in demand for products to the commercial aerospace market resulting from the COVID-19 pandemic.

Sales decreased 15% in 2020 compared to 2019 in the AA&S segment, reflecting lower sales across most markets, particularly an 18% decline in sales to the aerospace & defense markets and a 20% decrease in energy market sales.

Total segment EBITDA was $351.6 million, or 12.6% of sales, in 2021, compared to total segment EBITDA of $244.6 million, or 8.2% of sales, in 2020 and $528.8 million, or 12.8% of sales, in 2019.

Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, excludes all effects of income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill and asset impairments, restructuring and other charges, debt extinguishment charges and non-operating gains or losses.

During 2022, we operated in two business segments, HPMC and AA&S, and management evaluates financial results on this basis.

Full year 2022 HPMC sales increased 42% compared to 2021, as a 58% increase in aerospace and defense market sales was partially offset by a 17% decrease in sales to energy markets.

Fourth quarter 2022 HPMC sales were 42% higher than the fourth quarter 2021, as commercial aerospace end markets return to pre-COVID demand levels.

Full year 2022 AA&S sales increased 33% compared to 2021 reflecting the benefits of the transformation and the strength of the aerospace and defense

Fourth quarter 2022 AA&S sales were 25% higher than the fourth quarter 2021 as aerospace and defense sales increased by 100%.

Total segment EBITDA was $623.8 million, or 16.3% of sales, in 2022, compared to total segment EBITDA of $351.6 million, or 12.6% of sales, in 2021.

Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, categorically excludes all effects of income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill and asset impairments, restructuring and other charges, debt extinguishment charges and gains or losses on asset sales and sales of businesses.

Results on our management basis of reporting were as follows (in millions):

Fiscal Year Ended

December 31, December 31, December 31,

2021 2020* 2019*

December 31, December 31,

High Performance Materials & Components $ 1,641.2 $ 1,155.1

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Retirement benefit settlement gain — 64.9

Impairment of goodwill — (287.0) —

Joint venture restructuring and impairment charges — (2.4) (11.4)

Joint venture restructuring credit 0.9 —

Debt extinguishment charge — (65.5)

Gains on asset sales and sale of business, net 13.8 2.5 84.6

Income (loss) before income taxes $ 10.6 $ (1,481.9) $ 236.5

*Years ended December 31, 2020 and 2019 reflect the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements.

There were no adjustments to 2020 amounts as a result of this change.

Gains (losses) on asset sales and sale of business, net (134.2) 13.8

Income before income taxes $ 162.0 $ 10.6

As part of managing the liquidity of our business, we focus on controlling managed working capital, which is defined as gross accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities.

In measuring performance in controlling this managed working capital, we exclude the effects of inventory valuation reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately.

We measure managed working capital as a percentage of the prior three months annualized sales to evaluate our performance based on recent levels of business volume.

In 2022, managed working capital decreased to 30.1% of annualized total ATI sales compared to 37.5% of annualized sales at December 31, 2021, reflecting the Company’s ongoing efforts to improve managed working capital efficiency as well as a higher level of sales.

The $67.5 million increase in overall managed working capital in 2022 is detailed in the table below.

Days sales outstanding, which measures actual collection timing for accounts receivable, modestly improved at year-end 2022 compared to 2021.

Gross inventory turns improved by 13% in 2022 compared to 2021, as improved inventory flow across our operations was an area of significant management focus in 2022.

Accounts payable increased as a result of increased business volumes in 2022 and capital expenditures related to strategic projects that remained in accounts payable at December 31 2022.

The computations of Managed Working Capital at December 31, 2022 and 2021, reconciled to the financial statement line items as computed under U.S.

GAAP, were as follows.

(In millions) December 31,

2022 December 31,

Accounts receivable $ 579.2 $ 470.0

Short-term contract assets 64.1 53.9

Inventory 1,195.7 1,046.3

Accounts payable (553.3) (375.5)

Short-term contract liabilities (149.1) (116.2)

Subtotal 1,136.6 1,078.5

Allowance for doubtful accounts 7.7 3.8

Inventory reserves 70.9 65.4

Managed working capital $ 1,215.2 $ 1,147.7

Annualized prior 3 months sales $ 4,041.9 $ 3,061.5

Managed working capital as a % of annualized sales 30.1 % 37.5 %

December 31, 2022 change in managed working capital $ 67.5

Comparative information for our overall revenues (in millions) by end market, including divested businesses prior to sale, and their respective percentages of total revenues is as follows:

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Electronics 200.0 5 % 215.1 8 %

Food Equipment & Appliances 153.1 5 % 159.2 5 % 205.8 5 %

Medical 131.5 5 % 119.1 4 % 172.4 4 %

Construction/Mining 176.4 5 % 122.2 4 %

Medical 163.1 4 % 131.5 5 %

Food Equipment & Appliances 158.5 4 % 153.1 5 %

Other 209.0 5 % 148.2 5 %

Total $ 3,836.0 100 % $ 2,799.8 100 %

Comparative information for our major high-value and standard products, including divested businesses prior to sale, based on their percentages of revenues is as follows.

In conjunction with its announced ongoing exit from production and sale of standard stainless sheet products, ATI reclassified certain items in the AA&S segment as High-Value Products.

Prior period information reflects these reclassifications.

Comparative information for our major products, including divested businesses prior to sale, based on their percentages of revenues is as follows.

We no longer report standard stainless product sales as a separate product category.

Prior period information includes these sales within the nickel-based alloys and specialty alloys category.

HRPF conversion service sales in the AA&S segment are excluded from this presentation.

We expect to cease production of lower-margin standard stainless sheet products in the first half of 2022.

For the Years Ended December 31, 2022 2021

High-Value Products

Nickel-based alloys and specialty alloys 52 % 43 %

PRS products 19 % 15 % 12 %

Precision forgings, castings and components 15 % 16 %

PRS products 14 % 19 %

Titanium and titanium-based alloys 11 % 12 %

Zirconium and related alloys 8 % 10 %

Total High-Value Products 96 % 91 % 93 %

Standard Products

Total Standard Products 4 % 9 % 7 %

Grand Total 100 % 100 % 100 %

Total 100 % 100 %

Sales by geographic area (in millions), including divested businesses prior to sale, and as a percentage of total sales, were as follows:

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United States $ 2,218.6 58 % $ 1,534.9 55 %

Asia 593.8 21 % 516.6 17 % 638.1 15 %

Europe 785.2 20 % 475.1 17 %

Asia 641.6 17 % 593.8 21 %

Canada 87.4 2 % 75.9 3 %

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High Performance Materials & Components

(In millions) 2021 % Change 2020 % Change 2019

(In millions) 2022 % Change 2021

Sales to external customers $ 1,641.2 42 % $ 1,155.1

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2022 Compared to 2021

Sales for the HPMC segment in 2021 were consistent with 2020 at $1.16 billion.

Sales to the aerospace & defense markets, which were 72% of 2021 HPMC sales, were 12% lower, reflecting a 20% decrease in sales to the commercial aerospace market resulting from the global COVID-19 pandemic, partially offset by a 20% increase in defense sales.

Sales of next generation jet engine products represented 43% of total 2021 HPMC jet engine product sales and were consistent with 2020 levels.

Sales in the energy market were 68% higher, driven by demand for materials for specialty energy applications.

Sales in the medical market also increased by 26% compared to 2020.

In August 2021, we sold our small Flowform Products business, which produces thin-walled components primarily for defense market applications.

This business is reported as part of the HPMC segment through the date of sale.

Flowform Products’ sales were $26 million in 2020.

Sales of $1.64 billion for the HPMC segment in 2022 increased 42% compared to 2021.

Sales to the aerospace & defense markets, which were 80% of 2022 HPMC sales, were 58% higher, reflecting an 89% increase in commercial aerospace sales, partially offset by a 29% decrease in defense sales.

Sales of next generation jet engine products represented 54% of total 2022 HPMC jet engine product sales and were 131% higher than 2021 levels.

In May 2022, we sold our Sheffield, UK operations, which included facilities for melting and re-melting, machining and bar mill operations, and had $36 million in sales in 2021.

This business was reported as part of the HPMC segment through the date of sale.

The divestiture is not expected to have a material impact on future HPMC results.

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Total $ 1,641.2 100 % $ 1,155.1 100 % $ 486.1 42 %

We utilize LTAs with certain of our customers for our specialty materials, including powders, parts and components, to reduce their supply uncertainty, including several LTAs with aerospace market OEMs.

These LTAs are expected to continue to drive HPMC’s growth trajectory for the next several years.

These cover sales of ATI’s specialty materials, parts and components that are required for both next-generation and legacy aircraft platforms, including jet engines.

We utilize LTAs for our specialty materials, including powders, parts and components, with certain of our customers, including several aerospace market OEMs, to reduce their supply uncertainty.

These LTAs, which are expected to drive HPMC’s growth trajectory for the next several years, cover sales of ATI’s specialty materials, parts and components used in both next-generation and legacy aircraft platforms, including jet engines.

Our LTAs include a titanium products supply agreement for aircraft airframes and structural components with The Boeing Company (Boeing), which was extended in 2021.

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New airframe designs contain a larger percentage of titanium alloys, and the jet engines that power them use newer nickel-based alloys and titanium-based alloys, in both cases for improved performance and more economical operating costs, compared to legacy airframe and engine designs.

Even with the production delays and order cancellations that have occurred since the onset of the COVID-19 pandemic, Boeing and Airbus continue to have multi-year backlogs of orders for both legacy models and next-generation aircraft, and there continues to be over 25,000 jet engines with firm orders (Aero Engine News, February 2022).

Boeing and Airbus continue to have multi-year backlogs of orders for both legacy models and next-generation aircraft, and there continues to be almost 26,000 jet engines with firm orders (Aero Engine News, February 2023).

Due to manufacturing cycle times, demand for our specialty materials leads the deliveries of new aircrafts by approximately 6 to 12 months.

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HPMC segment EBITDA for 2022 increased 85% to $296.0 million, or 18.0% of sales, compared to $159.9 million, or 13.8% of sales, in 2021, reflecting an improved product mix and benefits from increased operating levels.

Stronger operating margins from higher production volumes were aided by share gains and the ongoing benefits of 2020 cost cutting actions compared to the prior year, which included pre-pandemic levels for a portion of 2020.

Stronger operating margins reflect higher sales of next-generation jet engine products and higher facility utilization levels.

HPMC’s full year 2022 sales associated with next-generation platforms were in line with full year 2019 deliveries.

Results in 2022 include $27.5 million of benefits from the Aviation Manufacturing Jobs Protection (AMJP) program and employee retention credits, partially offset by labor and other costs related to ramp readiness.

Strike-related costs of $3.5 million were excluded from HPMC 2021 results.

Current year results reflect growing momentum in our business.

The aerospace market continues to recover, and we are seeing an ongoing improvement in demand in many of our key end markets, most notably jet engine materials and components and specialty energy applications, as well as the continued benefits from our aggressive 2020 cost cutting actions and recent share gains.

The aerospace market continues to recover, and we are seeing an ongoing improvement in demand in many of our key end markets, most notably jet engine materials and components.

Worldwide economic recovery is increasing the demand for travel and efficient energy, which benefits ATI, and we believe we are well positioned to capture this growth in the future.

Steady improvement in quarterly EBITDA margins in 2021 demonstrates a focus on lean cost structures and improving our product mix and pricing.

Commercial aerospace continues to expand unevenly across our product portfolio.

Jet engine forgings demand remains strong, bolstered by our 2021 share gains.

Demand for our jet engine specialty materials was mixed, varying by customer and product, largely due to uneven supply chain inventory levels and customer order patterns.

Looking ahead to 2022, we anticipate strong year-over-year revenue and earnings growth primarily driven by the ongoing commercial aerospace recovery.

We anticipate industry demand growth for advanced powder materials to satisfy aerospace & defense market production requirements, and for emerging additive manufacturing of parts and components.

Recently, we added new metal-alloy production capacity for nickel, superalloy, and titanium alloy powders, and we acquired assets in 2018 to accelerate the development of our capabilities in metal alloy-based additive manufacturing to provide comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components.

Strategic capital projects in HPMC to support future growth include the iso-thermal press and heat-treating capacity expansion at our Iso-Thermal Forging Center of Excellence in Cudahy, WI, which was placed into service in 2021.

Despite near-term uncertainty posed by the ongoing COVID-19 pandemic impacts globally, we expect that the long-term fundamentals driving demand growth in commercial aerospace remain largely intact across a range of next-generation aircraft and engines.

We believe that our HPMC segment is well-positioned for profitable growth through the expected recovery in

commercial aerospace demand, especially in the next-generation jet engine platforms where LTAs provide significant growth and share gains for ATI on next-generation airplanes and the jet engines that power them.

2020 Compared to 2019

Sales for the HPMC segment in 2020 decreased 41%, to $1.16 billion, with declines across most major markets.

Sales to the aerospace & defense markets, which were 81% of 2020 HPMC sales, were 42% lower, reflecting a 48% decrease in sales to the commercial aerospace market, partially offset by a 24% increase in government defense sales.

Sales of next generation jet engine products represented 41% of total 2020 HPMC jet engine product sales, a reduction in this sales mix by 13% compared to 2019 levels.

Sales in the medical and energy markets were 44% and 31% lower, respectively.

Results in 2019 included $95 million of sales related to the divested titanium investment castings and industrial forgings businesses, resulting in a 3% unfavorable impact from divestitures.

Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale, the respective percentages of overall segment revenues for the years ended 2020 and 2019, and the percentage change in revenues by market for 2020 is as follows:

Market 2020 2019 Change

Aerospace & Defense:

Jet Engines- Commercial $ 542.7 46 % $ 1,085.7 55 % $ (543.0) (50) %

Airframes- Commercial 219.8 19 % 389.7 20 % (169.9) (44) %

Defense 184.4 16 % 148.7 7 % 35.7 24 %

Total Aerospace & Defense 946.9 81 % 1,624.1 82 % (677.2) (42) %

Oil & Gas 37.3 3 % 46.2 2 % (8.9) (19) %

Specialty Energy 68.9 6 % 107.4 6 % (38.5) (36) %

Total Energy 106.2 9 % 153.6 8 % (47.4) (31) %

Medical 47.7 4 % 85.4 4 % (37.7) (44) %

Construction/Mining 18.6 2 % 42.5 2 % (23.9) (56) %

Other 45.2 4 % 72.9 4 % (27.7) (38) %

Total $ 1,164.6 100 % $ 1,978.5 100 % $ (813.9) (41) %

Comparative information for HPMC’s major product categories, including divested businesses prior to sale, based on their percentages of the segment’s overall revenue is as follows:

For the Years Ended December 31, 2020 2019

High-Value Products

Nickel-based alloys and specialty alloys 38 % 38 %

Precision forgings, castings and components 34 % 36 %

Titanium and titanium-based alloys 28 % 26 %

Total High-Value Products 100 % 100 %

HPMC segment EBITDA for 2020 decreased 64% to $129.6 million, or 11.1% of sales, compared to $356.2 million, or 18.0% of sales, in 2019.

Lower overall demand, including lower sales of higher-margin next-generation jet engine products, and reduced asset utilization rates negatively impacted operating margins.

Cost cutting measures helped to offset these negative impacts.

Jet engine forgings and specialty materials demand remains strong, bolstered by share gains.

Looking ahead to 2023, we anticipate strong year-over-year revenue and segment EBITDA growth primarily driven by the ongoing commercial aerospace recovery.

We believe that our HPMC segment is well-positioned for profitable growth through the continued recovery in commercial aerospace demand, especially in jet engine platforms where LTAs provide significant growth and share gains for ATI on next-generation airplanes and the jet engines that power them.

Advanced Alloys & Solutions

(In millions) 2021 % Change 2020 % Change 2019

(In millions) 2022 % Change 2021

Sales to external customers $ 2,194.8 33 % $ 1,644.7

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2022 Compared to 2021

Sales for the AA&S segment in 2021 decreased 10% compared to 2020, to $1.64 billion.

Declines were noted in almost all end markets, including a 19% decline in energy market sales and a 28% decline in aerospace & defense market sales, due primarily to impacts from the USW strike, as well as the ongoing exit from the lower-margin standard stainless sheet production and sales.

These declines were partially offset by a 21% increase in electronics sales and a 15% increase in automotive market sales.

Sales of high-value products were consistent with the prior year, as a 46% decline in titanium and titanium-based alloys and a 6% decline in nickel-based alloys and specialty alloys were offset by a 21% increase in sales of precision rolled strip products, primarily from our Asian PRS joint venture.

Sales of $2.19 billion for the AA&S segment in 2022 increased 33% compared to 2021.

The prior year period included impacts from a labor strike that ended in mid-July 2021, which reduced sales in that period.

The segment had increased sales to almost all end markets, including an 87% increase in aerospace & defense market sales.

In July 2022, ATI announced a new LTA with GKN Aerospace for titanium sheet and plate products for commercial and military airframes.

Energy markets sales also increased 46% for both specialty energy and oil & gas applications.

2022 sales of nickel based alloys and specialty steels increased by 67% compared to 2021.

Additionally, 2022 sales of titanium and titanium-based alloys increased by 41% compared to 2021.

Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall segment revenues, for the years ended 2022 and 2021, and the percentage change in revenues by market for 2022 is as follows:

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Our AA&S segment produces zirconium and related alloys including hafnium and niobium, nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and PRS products.

AA&S also provides hot-rolling conversion services at its HRPF, including carbon steel products under several LTAs, and titanium products of the Uniti joint venture.

AA&S also provides hot-rolling conversion services at its HRPF, including carbon steel products under several LTAs.

Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are presented in the following table.

In conjunction with its announced ongoing exit from production and sale of standard stainless sheet products, ATI reclassified certain items as High-Value Products.

Prior period information reflects these reclassifications.

We no longer report standard stainless product sales as a separate product category.

Prior period information includes these sales within the nickel-based alloys and specialty alloys category.

HRPF conversion service sales are excluded from this presentation.

For the Years Ended December 31, 2022 2021

High-Value Products

Nickel-based alloys and specialty alloys 54 % 44 %

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Titanium and titanium-based alloys 7 % 6 %

Total High-Value Products 93 % 86 %

Standard Products

Total Standard Products 7 % 14 %

Grand Total 100 % 100 %

Total 100 % 100 %

Segment EBITDA was $327.8 million, or 14.9% of sales, a 71% increase from segment EBITDA of $191.7 million, or 11.7% of sales, in 2021.

Results reflect a stronger product mix of nickel-alloy mill products as we completed our exit from production of standard stainless products.

Increased sales of exotic materials from our Specialty Alloys & Components business and improved operating performance also drove AA&S segment EBITDA margin growth.

The 2022 segment EBITDA includes a $9.9 million benefit from the A&T Stainless joint venture’s settlement of Section 232 tariff claims and $6.8 million of employee retention credits, partially offset by labor and other costs related to ramp readiness.

Strike related costs of $59.7 million, primarily related to lower productivity and utilization levels, were excluded from AA&S segment 2021 results.

Improved EBITDA margins reflect a richer product mix away from lower-margin standard stainless sheet products, higher HRPF conversion services and benefits from actions taken in 2020 to structurally reduce costs, which more than offset prior year-to-date results that included pre-pandemic demand levels for a portion of 2020.

Current year results also include benefits from rising raw material prices, particularly nickel, at our SRP business, and lower retirement benefit expense of approximately $10 million, compared to 2020.

On December 2, 2020, we announced a strategic repositioning of our SRP business, which includes exiting standard stainless sheet products, streamlining the production footprint of the AA&S segment and making certain capital investments to increase our focus on higher-margin products and our aerospace & defense end markets with reduced exposure to underlying raw material volatility.

Although ATI’s 2021 results include negative impacts on our SRP business from the 3 ½ month labor strike by represented employees, this business recovered its production rates by the end of the third quarter of 2021 to pre-strike levels to take advantage of strong demand and favorable pricing in most end-markets, especially for energy and industrial applications.

However, AA&S segment EBITDA for 2021 was also impacted by lower sales resulting from the strike.

We remain on track to complete our transformation of the SRP business and exit sales of lower-margin standard stainless sheet products in the first half of 2022.

2020 Compared to 2019

Sales for the AA&S segment in 2020 decreased 15% compared to 2019, to $1.82 billion.

Sales to specialty energy markets were 3% higher compared to the prior year, while total sales to all energy markets, which also include oil & gas, downstream processing, and specialty energy, were 20% lower.

Declines of 29% and 10% were also noted in the commercial aerospace and automotive markets, respectively, partially offset by higher sales in the defense market and higher HRPF conversion services billings.

Sales in 2019 reflect project-based demand for marine scrubber products within the specialty energy markets.

Sales of high-value products were 15% lower, largely due to a 26% decline in nickel-based alloys and specialty alloys and a 22% decline in titanium and titanium alloys.

Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall segment revenues, for the years ended 2020 and 2019, and the percentage change in revenues by market for 2020 is as follows:

Market 2020 2019 Change

Oil & Gas $ 328.5 18 % $ 464.5 22 % $ (136.0) (29) %

Specialty Energy 184.2 10 % 178.8 8 % 5.4 3 %

Total Energy 512.7 28 % 643.3 30 % (130.6) (20) %

Aerospace & Defense:

Jet Engines- Commercial 58.2 3 % 100.8 5 % (42.6) (42) %

Airframes- Commercial 191.0 11 % 249.6 12 % (58.6) (23) %

Defense 163.9 9 % 155.9 7 % 8.0 5 %

Total Aerospace & Defense 413.1 23 % 506.3 24 % (93.2) (18) %

Automotive 257.7 14 % 286.1 13 % (28.4) (10) %

Electronics 176.8 10 % 162.7 8 % 14.1 9 %

Food Equipment & Appliances 159.2 9 % 205.5 9 % (46.3) (23) %

Construction/Mining 123.4 7 % 152.5 7 % (29.1) (19) %

Medical 71.4 4 % 87.0 4 % (15.6) (18) %

Other 103.2 5 % 100.6 5 % 2.6 3 %

Total $ 1,817.5 100 % $ 2,144.0 100 % $ (326.5) (15) %

Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are presented in the following table.

In conjunction with its announced ongoing exit of standard stainless sheet products, ATI reclassified certain items as High-Value Products.

Prior period information reflects these reclassifications.

HRPF conversion service sales are excluded from this presentation.

For the Years Ended December 31, 2020 2019

High-Value Products

Nickel-based alloys and specialty alloys 35 % 41 %

PRS products 25 % 23 %

Zirconium and related alloys 15 % 11 %

Titanium and titanium-based alloys 11 % 11 %

Total High-Value Products 86 % 86 %

Standard Products

Total Standard Products 14 % 14 %

Grand Total 100 % 100 %

Segment EBITDA in 2020 was $115.0 million, or 6.3% of sales, a 33% decline from segment EBITDA of $172.6 million, or 8.1% of sales, in 2019, as weakened market conditions were partially offset by cost cutting measures.

AA&S segment results for 2020 compared to 2019 reflect lower retirement benefit expense of approximately $20 million.

Results at our Specialty Alloys & Components business improved year-over-year primarily due to defense sales.

Results in 2020 and 2019 also include $8.2 million and $12.2 million, respectively, in losses from the A&T Stainless joint venture operations.

We indefinitely idled the manufacturing operations of the A&T Stainless joint venture in 2020 due to repeated denials by the U.S.

Department of Commerce for exemptions from Section 232 tariffs, which impose a 25% tariff on imported semi-finished stainless slab products from Indonesia.

A $2.4 million charge for ATI’s portion of severance obligations recorded by the A&T Stainless joint venture was excluded from 2020 segment results.

With the AA&S business transformation and footprint consolidation nearly completed, we are well positioned for continued future growth.

Sales of commercial airframe flat-form products in the AA&S segment are projected to increase over the longer-term due in part to the repositioning of the commercial aerospace supply chain in response to the Russia/Ukraine conflict.

While availability of raw materials for our melting processes remains adequate during the ongoing Russia/Ukraine conflict, changes in raw material prices may cause variability in profit margins based on the timing of index pricing mechanisms.

Corporate Expenses

Corporate expenses, which are included in selling and administrative expenses in the statement of operations, were $62.4 million in 2022 compared to $55.9 million in 2021.

This increase in 2021 reflects higher incentive compensation costs compared to the prior year periods based on both current year performance and below-normal 2020 expense resulting from reversals of previously-recognized compensation costs due to changes in expected performance attainment related to

COVID-19 pandemic impacts, as well as from lower structural costs following business transformation initiatives.

Corporate expenses were $65.3 million in 2019.

The current year increases reflect business transformation initiatives and higher incentive compensation costs compared to the prior year period.

Closed Operations and Other Expenses

Closed operations and other expenses are presented primarily in selling and administrative expenses in the consolidated statements of operations, and include legal, environmental, retirement benefit and insurance obligations associated with closed operations.

Closed operations and other expenses were $4.8 million in 2021, compared to $7.4 million in 2020 and $24.0 million in 2019.

This decline from prior periods reflects lower costs at closed facilities, including retirement benefit expense, insurance costs, and real estate and other facility costs, and changes in foreign currency remeasurement impacts primarily related to ATI’s European Treasury operation.

Closed operations and other expenses were $12.1 million in 2022, compared to $4.8 million in 2021.

This increase from the prior period reflects foreign currency remeasurement impacts primarily related to ATI’s European Treasury operation and higher legal costs for closed facilities.

Depreciation and Amortization

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Interest Expense, Net

Interest expense, net of interest income and interest capitalization, was $96.9 million in 2021, compared to $94.4 million in 2020 and $99.0 million in 2019.

Interest expense is presented net of interest income of $0.7 million in 2021, $1.7 million in 2020, and $5.9 million in 2019.

The increase in interest expense in 2021 is primarily due to lower capitalized interest compared to 2020.

Interest expense in 2021, 2020, and 2019 was reduced by $4.3 million, $7.7 million, and $4.7 million, respectively, related to interest capitalization on major strategic capital projects.

Although total debt increased by approximately $235 million at December 31, 2021 compared to year-end 2020, interest costs were largely unchanged as our recent debt issuances carry lower interest costs than the debt extinguished through the 2021 and 2020 capital markets transactions.

Interest expense, net of interest income and interest capitalization, was $87.4 million in 2022, compared to $96.9 million in 2021.

The decrease in interest expense was in part due to the conversion of $82.5 million of the 4.75% Convertible Senior Notes due 2022 (2022 Notes) to 5.7 million shares of ATI stock on the July 1, 2022 maturity date of the 2022 Notes.

Further, interest expense is presented net of interest income of $4.7 million in 2022 and $0.7 million in 2021.

Interest expense in 2022

and 2021 was reduced by $5.1 million and $4.3 million, respectively, related to interest capitalization on major strategic capital projects.

Restructuring and Other Charges/Credits

For the year ended December 31, 2022, restructuring and other charges were $23.7 million, which is excluded from segment results.

This $23.7 million charge consisted primarily of $28.5 million of costs associated with the settlement of litigation related to the 2016 idling of the Rowley, UT titanium sponge facility, partially offset by $4.8 million of restructuring credits for reductions in severance-related reserves related to approximately 110 employees based on changes in planned operating rates and revised workforce estimates.

Cash payments associated with prior restructuring programs were $3.1 million in 2022.

Of the $9.8 million of remaining reserves associated with these restructuring actions as of December 31, 2022, $5.4 million are expected to be paid within the next year.

For the year ended December 31, 2021, restructuring and other charges were a net credit of $10.5 million, which is excluded from segment results.

This was partially offset by a $0.8 million charge for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary titanium facility.

Restructuring charges recorded on the consolidated statement of operations for the year ended December 31, 2020 were $1,107.5 million, comprised of $1,041.5 million of non-cash asset impairment charges, $60.5 million of employee benefit-related costs, and $5.5 million of other costs related to facility idlings.

The long-lived asset impairment charges relate to a $1,032.6 million charge related to the Brackenridge, PA operations, including the HRPF, as well as $8.9 million other long-lived asset impairment charges recognized for various AA&S segment operations identified for closure as part of the standard stainless sheet exit decision.

Restructuring charges also include $60.5 million of employee benefit costs, representing severance, supplemental unemployment and medical benefits for the elimination of approximately 1,400 positions related to the standard stainless sheet exit, as well as for employees impacted by the idling of the Albany, OR primary titanium operations in the fourth quarter of 2020, and workforce right-sizing actions, including both involuntary reductions and voluntary retirement incentive programs implemented throughout 2020 to better match our cost structure to expected demand, primarily as a result of economic challenges created by the COVID-19 pandemic.

We achieved our expected annual cost savings in 2021 from our 2020 charges and expect continued benefits in the future until fully implemented in 2023.

Cash payments associated with these cost reduction programs are expected to be approximately $10 million in 2022.

Other costs of $5.5 million included in 2020 restructuring charges primarily relate to asset retirement and environmental obligations associated with facility idlings.

Other charges for the year ended December 31, 2020 include:

• $17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures from the standard stainless sheet exit.

These costs are classified within nonoperating retirement benefit expense in the consolidated statements of operations.

• $7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary titanium facility.

In addition, the A&T Stainless JV recorded a $4.8 million charge in 2020 for contractual termination benefits, and ATI recognized a $2.4 million charge in 2020 for its equity method share of these termination benefits.

This $10.5 million net credit consisted primarily of $11.3 million of restructuring credits on the consolidated statement of operations, reflecting a $12.0 million reduction in severance-related reserves for approximately 350 employees based on changes in planned operating rates and revised workforce reduction estimates, partially offset by $0.7 million of other costs related to facility idlings and a $0.8 million charge for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary titanium facility.

In addition, the A&T Stainless JV recorded a $1.8 million credit in 2022 for the reversal of restructuring reserves as a result of revised estimates, and ATI recognized a $0.9 million credit in 2022 for its equity method share of these reversals.

These charges are excluded from segment operating results.

A $4.5 million restructuring charge was recorded on the consolidated statement of operations for the year ended December 31, 2019 for severance obligations for the reduction of approximately 70 positions in order to streamline our salaried workforce, primarily to improve the cost competitiveness of the U.S.-based SRP business.

This restructuring charge is excluded from business segment results.

The $4.5 million was substantially paid in 2020 upon completion of these reductions.

Strike Related Costs

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Retirement Benefit Settlement Gain

Fiscal year 2021 results include a $64.9 million retirement benefit settlement gain related to a plan termination that eliminated certain postretirement medical benefit liabilities.

ATI’s 2021 results include a $64.9 million retirement benefit settlement gain related to a plan termination that eliminated certain postretirement medical benefit liabilities.

This was effective upon the July 2021 ratification of the new USW CBA.

This gain, which is recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations and is excluded from segment EBITDA, was comprised of $43.0 million of long-term postretirement benefit liabilities as of July 2021 and $21.9 million of amounts recorded in accumulated other comprehensive income at that date.

Goodwill Impairment Charge

In the second quarter 2020, due to demand disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic and changes in near-term demand requirements of aero-engine and airframe markets, ATI conducted an interim test for goodwill impairment at our Forged Products operations, and recognized a $287.0 million charge for the partial impairment of goodwill, while retaining $173.4 million of goodwill for this profitable business with good long-term growth prospects.

This goodwill impairment charge is excluded from HPMC segment results.

Joint Venture Restructuring and Impairment Charges

The A&T Stainless JV recorded a $4.8 million charge in 2020 for contractual termination benefits, and ATI recognized a $2.4 million charge in 2020 for its equity method share of these termination benefits.

These charges are excluded from AA&S segment results.

We recorded an $11.4 million impairment charge in 2019 for the A&T Stainless JV, including ATI’s share of a long-lived asset impairment charge recognized by the JV on the carrying value of its production facility in Midland, PA.

ATI recognized a $7.1 million equity loss for its 50% share of a $14.2 million long-lived asset impairment recognized by A&T Stainless.

In addition, as of December 31, 2019, ATI had net receivables for working capital advances and administrative services from A&T Stainless of $36.8 million that were also evaluated for collectability, and a $4.3 million reserve was recorded in December 2019 based on ATI’s share of the estimated fair value of the JV’s net assets.

This charge is excluded from AA&S segment results.

Debt Extinguishment Charge

In 2021, ATI recognized a $65.5 million debt extinguishment charge on the redemption of the 2023 Notes, which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and a $1.0 million charge for deferred debt issue costs.

In 2020, ATI issued $291.4 million aggregate principal amount of unsecured 3.5% Convertible Senior Notes due 2025 (2025 Convertible Notes), and used the majority of the proceeds to repurchase approximately $203.2 million aggregate principal amount of the outstanding principal balance of our 4.75% Convertible Senior Notes due 2022 (2022 Convertible Notes).

result, we recognized a $21.5 million debt extinguishment charge, which included a $19.1 million cash payment as a make-whole provision on the early extinguishment of debt, and a $2.4 million charge for previously-unrecognized debt issue costs.

In the fourth quarter of 2019, we issued $350 million of unsecured 5.875% Senior Notes due 2027 (the 2027 Notes).

Proceeds from the issuance of the 2027 Notes and cash on hand were used to redeem the $500 million of 5.95% Senior Notes due 2021 (the 2021 Notes), which had a January 15, 2021 maturity date.

As a result, we recognized a $21.6 million debt extinguishment charge, which included a $20.9 million cash payment as a make-whole provision on the early extinguishment of debt, and a $0.7 million charge for previously-unrecognized debt issue costs.

Gains on Asset Sales and Sale of Business, Net

In 2021, ATI recognized a $65.5 million debt extinguishment charge on the redemption of the 5.875% Senior Notes due 2023 (2023 Notes), which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and a $1.0 million charge for deferred debt issue costs.

Gains/Loss on Asset Sales and Sale of Business, Net

On May 12, 2022, we completed the sale of our Sheffield, UK operations and recognized a loss in 2022 on sale of $141.0 million.

The Sheffield, UK operations were previously part of the Specialty Materials business in the HPMC segment.

The loss on sale is reported in loss on asset sales and sales of businesses, net, on the consolidated statement of operations and is excluded from HPMC segment results.

The loss includes $55.6 million related to the UK defined benefit pension plan, of which $26.1 million was reported as a net pension asset but which was in a deficit funding position for UK statutory reporting purposes, and $29.5 million in accumulated other comprehensive loss on the consolidated ATI balance sheet.

The loss also includes $20.0 million of cumulative translation adjustment foreign exchange losses since ATI’s acquisition of these operations in 1998.

Also in 2022, we completed the sale of the small Pico Rivera, CA operations as part of the strategy to exit standard stainless products.

We received cash proceeds of $6.2 million on the sale of these assets.

We recognized a $6.8 million pretax gain on sale, including de-recognizing certain lease liabilities, which is reported in loss on asset sales and sales of businesses, net, on the consolidated statement of operations and is excluded from AA&S segment results.

In 2021, we completed the sale of our Flowform Products business within the HPMC segment for $55.0 million, and recognized a $13.8 million gain.

This gain is recorded in nonoperating income/expense on the consolidated statement of operations and is excluded from segment EBITDA.

During 2020, we recognized a $2.5 million cash gain for the sale of certain oil and gas rights.

This non-core asset sale gain is reported in other income/expense, net, on the consolidated statement of operations and is excluded from business segment results.

During the third quarter of 2019, we completed the sale of our Cast Products business and recognized a $6.2 million gain.

During the second quarter of 2019, we completed the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY, and recognized an $13.3 million pre-tax loss.

Also during 2019, we recognized $91.7 million on sales of certain oil and gas rights.

The 2019 results include $84.6 million, respectively, in net pretax gains from these non-core asset sales which are reported in other income/expense, net, on the consolidated statement of income and are excluded from business segment results.

Results in 2022 and 2021 include impacts from income taxes that differ from applicable standard tax rates, primarily related to income tax valuation allowances.

The provision for income taxes for fiscal year 2021 was $26.8 million, which was mainly attributable to the $15.5 million in discrete tax effects related to the postretirement medical benefits gain discussed above, in accordance with ATI’s accounting policy for recognizing deferred tax amounts stranded in accumulated other comprehensive income.

While our U.S.

operations remain in a three-year cumulative loss position, we expect our reported tax expense to primarily relate to our profitable PRS joint venture in China.

We will continue to have minimal cash tax requirements in the U.S.

due to the ongoing benefits of net operating loss tax carryforwards for the next several years.

In 2020, ATI’s U.S.

operations returned to a three-year cumulative loss position, limiting our ability to utilize future projections as sources of income when analyzing the need for a valuation allowance.

The consolidated income tax provision of $77.7 million for fiscal year 2020 is primarily due to increases in deferred tax asset valuation allowances based on an analysis of the expected realization of deferred tax assets and liabilities within applicable expiration periods.

At December 31, 2019, our U.S.

results had switched from a three-year cumulative loss position to a three-year cumulative income position, allowing us to utilize forecasts of future profits as a source of income when evaluating the overall need for a valuation allowance.

We determined that valuation allowances on net deferred tax asset balances for federal and certain state jurisdictions are no longer required.

Certain individual tax attributes still require a valuation allowance based on expected utilization.

The change in the overall valuation allowance for 2019 includes amounts utilized during the year as part of the reported effective tax rate, as well as a $45.1 million reduction at December 31, 2019 based on a change in judgment on the realizability of deferred tax assets.

The 2019 income tax benefit was $28.5 million, which included the $45.1 million discrete tax benefit related to the release of U.S.

federal and state valuation allowances, along with the current year benefit related to the release of valuation allowances due to positive income in 2019.

Total discrete tax items including this valuation allowance change were a $41.9 million tax benefit in 2019, and our effective tax rate excluding these items was 5.5% of pre-tax income in 2019.

The provision for income taxes for 2022 was $15.5 million, which was primarily related to our profitable PRS joint venture in China.

We continue to have minimal cash tax requirements in the U.S.

due to the ongoing benefits of net operating loss tax carryforwards.

The provision for income taxes for 2021 was $26.8 million, which was primarily attributable to the $15.5 million in discrete tax effects related to the postretirement medical benefits gain discussed above, in accordance with ATI’s accounting policy for recognizing deferred tax amounts stranded in accumulated other comprehensive income.

Financial Condition and Liquidity

We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the our domestic operations.

The ABL facility, which matures in September 2024, includes a $500 million revolving credit facility, a letter of credit sub-facility of up to $200 million, and a $200 million term loan (Term Loan).

The Term Loan has an interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied.

In addition, we have the right to request an increase of up to $200 million in the maximum amount available under the revolving credit portion of the ABL for the duration of the ABL.

We have a $50 million floating-for-fixed interest rate swap that converts a portion of the Term Loan to a 4.21% fixed interest rate.

On September 9, 2022, we amended and restated our Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our operations.

As amended, the ABL facility also provides us with the option of including certain machinery and equipment as additional collateral for purposes of determining availability under the facility.

This amendment and restatement extended the ABL facility through September 2027 and includes an increase of $100 million in the revolving credit facility, to $600 million.

The ABL continues to include a letter of credit sub-facility of up to $200 million, a $200 million term loan (ABL Term Loan), and a swing loan facility of up to $60 million.

The ABL Term Loan can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied.

In addition, as amended, we have the right to request an increase of up to $300 million in the maximum amount available under the revolving credit facility for the duration of the ABL.

We have a $50 million floating-for-fixed interest rate swap which converts a portion of the ABL Term Loan to a 4.21% fixed interest rate.

The swap matures in June 2024.

The applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for LIBOR-based borrowings and between 0.25% and 0.75% for base rate borrowings.

The ABL facility contains a financial covenant whereby we must maintain a fixed charge

coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) $87.5 million, calculated as 12.5% of the then applicable maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan balance, or (ii) $62.5 million.

We did not meet this required fixed charge coverage ratio at December 31, 2021.

As a result, we are unable to access this remaining 12.5%, or $87.5 million, of the ABL facility until we meet the required ratio.

Additionally, we must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL facility, during the 90 day period immediately preceding the stated maturity date of the 2022 Convertible Notes.

The ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of which are more restrictive at any time during the term of the ABL when our fixed charge coverage ratio is less than 1.00:1.00 and our undrawn availability under the revolving portion of the ABL is less than the greater of (a) $150 million or (b) 30% of the sum of the maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan balance.

As of December 31, 2022, there were no outstanding borrowings under the revolving credit portion of the ABL, and $39.8 million was utilized to support the issuance of letters of credit.

There were no revolving credit borrowings under the ABL during 2021.

Average borrowings under the revolving portion of the ABL for the fiscal year ended December 31, 2020 were $28 million, bearing an average annual interest rate of 2.2%.

There were no revolving credit borrowings under the ABL during 2022 or 2021.

The ABL, as amended, has interest rates that are consistent with the previous facility, replacing LIBOR with Secured Overnight Financing Rate (SOFR) plus an applicable SOFR adjustment.

The ABL Term Loan, as amended, has an interest rate of 2.0% above adjusted SOFR.

As amended, the applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for SOFR-based borrowings and between 0.25% and 0.75% for base rate borrowings.

The ABL facility contains a financial covenant whereby we must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10% of the then applicable maximum loan amount under the revolving credit portion of the ABL and the outstanding ABL Term Loan balance, or (ii) $60.0 million.

We were in compliance with the fixed charge coverage ratio as of December 31, 2022.

Costs associated with entering into the ABL amendment were $2.4 million, and are being amortized to interest expense over the extended term of the facility ending September 2027, along with $1.7 million of unamortized deferred costs previously recorded for the ABL.

During the second quarter of 2022, $82.5 million of the 2022 Notes were converted into 5.7 million shares of ATI common stock, with the remaining $1.7 million of outstanding principal balance paid in cash for notes that were not converted.

On September 14, 2021, ATI issued $325 million aggregate principal amount of 4.875% Senior Notes due 2029 (2029 Notes) and $350 million aggregate principal amount of 5.125% Senior Notes due 2031 (2031 Notes).

Underwriting fees and other third-party expenses for the issuance of the 2029 and 2031 Notes were each $4.7 million, and are being amortized to interest expense over the 8-year and 10-year terms of the 2029 and 2031 Notes, respectively.

As such, in the fourth quarter 2021, the Company recognized a $65.5 million debt extinguishment charge, which includes a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes and a $1.0 million charge for the remaining unrecognized portion of the 2023 Notes deferred debt issue costs.

Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes on October 14, 2021, including a make-whole payment and accrued interest, resulting in a $65.5 million debt extinguishment charge, which includes a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes and a $1.0 million charge for the remaining unrecognized portion of the 2023 Notes deferred debt issue costs.

As a result of these transactions, we significantly extended our debt maturity profile and, with the elimination of $500 million of debt currently bearing interest at 7.875% due to changes in our credit ratings, reduced annual interest expense by approximately $6 million.

In 2020, ATI issued and sold $291.4 million aggregate principal amount of 2025 Convertible Notes.

We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes.

We also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, which effectively increase the initial conversion price of the 2025 Convertible Notes into ATI stock from $15.49 per share to $19.76 per share.

The remainder of the net proceeds from the offering were used for general corporate purposes.

On November 22, 2019, we issued $350 million aggregate principal amount of 2027 Notes.

Underwriting fees and other third-party expenses for the issuance of the 2027 notes were $5.5 million, and are being amortized to interest expense over the eight- year term of the 2027 Notes.

Net proceeds of $344.5 million from this issuance, as well as cash on hand, were used to retire all $500 million aggregate principal amount of the 2021 Notes in December 2019, resulting in a $21.6 million pre-tax debt extinguishment charge, which included a $20.9 million cash payment as a make-whole provision on the early extinguishment of debt, and a $0.7 million charge for deferred debt issue costs.

At December 31, 2021, we had $688 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $360 million, for total liquidity of more than $1 billion.

We do not expect to pay any significant U.S.

federal or state income taxes in the next several years due to net operating loss carryforwards.

During the third quarter of 2021, we received approximately $53 million in cash, net of transaction costs and net working capital adjustments, for the sale of the Flowform Products business.

During the second and third quarters of 2019, we received approximately $250 million in cash from non-core asset sales, net of closing adjustments and transaction costs, consisting of $33 million for the sale of two non-core forging facilities, $125 million for the sale of the Cast Products business, and $92 million for the sale of certain oil and gas rights in Eddy County, NM.

In 2021, the Company made $67 million in cash contributions to its U.S.

qualified defined benefit pension plans, including $50 million of voluntary contributions to improve the plans’ funded position.

At December 31, 2022, we had $584 million of cash and cash equivalents, and available additional liquidity from the undrawn capacity under the ABL facility of approximately $538 million, for total liquidity of more than $1.1 billion.

We continue to have minimal cash tax requirements in the U.S.

due to the ongoing benefits of net operating loss tax carryforwards.

During 2021, we received approximately $53 million in cash, net of transaction costs and net working capital adjustments, for the sale of the Flowform Products business.

In 2022, the Company made $50 million in voluntary cash contributions to its U.S.

qualified defined benefit pension plans to improve the plans’ funded position.

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 these pension plans during fiscal year 2023, 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 to have any minimum cash funding

requirements to these pension plans for the next few years after 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.

However, these funding estimates are subject to significant uncertainty including the actual pension trust assets’ fair value, and the discount rates used to measure pension liabilities.

We voluntarily contributed $50 million to these plans in early 2023.

We may elect to contribute additional amounts to these pension plans to improve their funded position, or we may elect to use a portion of our credit balance in lieu of cash contributions based on other capital allocation priorities.

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Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs.

Open market repurchases will be structured to occur within the pricing and volume requirements of SEC Rule 10b-18.

Open market repurchases are structured to occur within the pricing and volume requirements of SEC Rule 10b-18.

The stock repurchase program does not obligate the Company to repurchase any specific number of shares and it may be modified, suspended, or terminated at any time by the Board of Directors without prior notice.

We believe that internally generated funds, current cash on hand and available borrowings under the ABL facility will be adequate to meet our liquidity needs.

In 2022, we used $139.9 million to repurchase 5.2 million of our common stock under this program.

We believe that internally generated funds, current cash on hand and available borrowings under the ABL facility will be adequate to meet our liquidity needs, including currently projected required contributions to our pension plans.

We do not expect to pay any significant U.S.

federal or state income taxes in the next several years due to net operating loss carryforwards.

If we needed to obtain additional financing using the credit markets, the cost and the terms and conditions of such borrowings may be influenced by our credit rating.

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We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.

Cash Flow and Working Capital

Cash provided by operations for 2021 was $16.1 million, despite an $81.2 million use of cash from increased managed working capital balances related to higher operating levels in most operations.

Other significant 2021 operating cash flow items included $67.5 million in contributions to the U.S.

defined benefit pension plans and payment of 2020 annual incentive compensation, partially offset by receipt of advance payments from customers as part of long-term supply agreements in 2021.

Cash provided by operations was $166.9 million in 2020, which included a $156.6 million reduction in managed working capital balances.

The generation of cash from managed working capital in 2020 reflects alignment with demand levels.

Other significant 2020 operating cash flow items included $130.2 million in contributions to the U.S.

defined benefit pension plans and payment of 2019 annual incentive compensation.

We measure managed working capital as a percentage of the prior three months annualized sales to evaluate our performance based on recent levels of business volume.

In 2021, managed working capital decreased to 37.5% of annualized total ATI sales compared to 40.5% of annualized sales at December 31, 2020, reflecting the Company’s ongoing efforts to improve managed working capital efficiency as well as a higher level of sales.

The $81.2 million increase in managed working capital in 2021 is detailed in the table below.

Days sales outstanding, which measures actual collection timing for accounts receivable, improved by approximately 7% at year-end 2021 compared to 2020.

Gross inventory turns improved by 10% in 2021 compared to 2020, and improving the pace of inventory flow across our operations is an area of management focus in 2022.

The components of managed working capital were as follows:

(In millions) December 31,

2021 December 31,

Accounts receivable $ 470.0 $ 345.8

Short-term contract assets 53.9 38.9

Inventory 1,046.3 997.1

Accounts payable (375.5) (290.6)

Short-term contract liabilities (116.2) (111.8)

Subtotal 1,078.5 979.4

Allowance for doubtful accounts 3.8 4.3

Inventory reserves 65.4 82.8

Managed working capital $ 1,147.7 $ 1,066.5

Annualized prior 3 months sales $ 3,061.5 $ 2,633.2

Managed working capital as a % of annualized sales 37.5 % 40.5 %

December 31, 2021 change in managed working capital $ 81.2

*December 31, 2020 reflects the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements.

There were no adjustments to 2020 amounts as a result of this change.

Cash used in investing activities was $77.3 million in 2021, reflecting $152.6 million in capital expenditures primarily related to AA&S transformation projects, and HPMC growth projects including the new iso-thermal press and heat-treating expansion in Cudahy, WI.

These investing activity cash outflows were partially offset by $53.1 million of proceeds from the sale of the Flowform Products business and $20.8 million of proceeds from property, plant and equipment sales, which includes $16.2 million from the sale of ongoing construction in progress projects that were converted to leases.

We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, by using a portion of the ABL facility.

Cash used in investing activities was $128.7 million in 2020, reflecting $136.5 million in capital expenditures partially offset by $5.9 million of proceeds from property, plant and equipment sales, which includes the sale of certain oil and gas rights.

Capital expenditures for 2020 were primarily related to HMPC growth projects including the iso-thermal press and heat-treating expansion in Cudahy, WI.

Cash provided by financing activities in 2021 was $103.0 million, and consisted primarily of $675.7 million of net proceeds from the issuance of the 2029 and 2031 Notes and $21.7 million of borrowings under foreign credit facilities.

These were offset by the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes, a $64.5 million cash make-whole payment related to the early extinguishment of these 2023 Notes as required by the applicable indenture, and $9.5 million for debt issuance costs associated with the newly-issued 2029 and 2031 Notes.

Cash provided by financing activities in 2020 was $116.9 million, and consisted primarily of $291.4 million of borrowings for the 2025 Convertible Notes issued in 2020 and $100.0 million of additional Term Loan borrowings under the ABL.

These were offset by a $203.2 million repayment for a portion of the 2022 Convertible Notes and $19.1 million cash make-whole payment related to the early extinguishment of these 2022 Convertible Notes as required by the applicable indenture, as well as $19.4 million to pay the cost of capped call transactions and $9.1 million for debt issuance costs, both associated with the newly issued 2025 Convertible Notes.

Cash provided by financing activities in 2020 also reflects a $7.2 million dividend payment to the 40% noncontrolling interest in our PRS joint venture in China.

At December 31, 2021, cash and cash equivalents on hand totaled $687.7 million, a $41.8 million increase from year-end 2020.

Cash and cash equivalents held by our foreign subsidiaries was $138.2 million at December 31, 2021, of which $100.2 million was held by our PRS joint venture in China.

Total debt outstanding of $1,863.7 million at December 31, 2021, increased $234.6 million compared to December 31, 2020, as the issuance in September 2021 of $325 million aggregate principal amount of 2029 Notes and $350 million aggregate principal amount of 2031 Notes were partially offset by the full redemption of the $500.0 million aggregate principal amount outstanding of the 2023 Notes.

Total debt outstanding as described above excludes debt issuance costs, and the December 31, 2020 amount includes $46.8 million for the unamortized balance of the portion of the 2025 Convertible Notes recorded in stockholders’ equity due to the flexible settlement feature of the notes.

ATI adopted new accounting guidance in 2021 that reclassified this portion of the 2025 Convertible Notes recorded in stockholders’ equity to long-term debt (see below for further discussion).

In managing our overall capital structure, some of the measures on which we focus are (1) debt to EBITDA, which measures our ability to repay our incurred debt, (2) net debt to total capitalization, which is the percentage of our debt, net of cash that may be available to reduce borrowings, to our total invested and borrowed capital, and (3) total debt to total capitalization, which excludes cash balances.

We define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges for the latest twelve month period.

We define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring charges/credits, strike related costs, long-lived asset impairments and other postretirement/pension curtailment and settlement gains and losses.

We believe that EBITDA and Adjusted EBITDA are useful to investors because these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity.

Furthermore, analogous measures are used by industry analysts to evaluate operating performance.

EBITDA and Adjusted EBITDA are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S.

generally accepted accounting principles.

All of these leverage ratios improved in 2021, primarily as a result of higher earnings.

At year-end 2021, our debt to Adjusted EBITDA ratio was 6.41, compared to 8.30 at December 31, 2020, and net debt to Adjusted EBITDA ratio was 4.04, compared to 5.01 at December 31, 2020.

In managing our overall capital structure, we focus on the ratio of net debt to Adjusted EBITDA, which we use as a measure of our ability to repay our incurred debt.

We define net debt as the total principal balance of our outstanding indebtedness excluding deferred financing costs, net of cash, at the balance sheet date.

See the explanations above for our definitions of Adjusted EBITDA and EBITDA, which are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S.

Our ratio of net debt to Adjusted EBITDA (Adjusted EBITDA Leverage Ratio) measures net debt at the balance sheet date to Adjusted EBITDA as calculated on the trailing twelve-month period from this balance sheet date.

Our Debt to Adjusted EBITDA Leverage Ratio improved in 2022 compared to 2021, primarily as a result of higher earnings.

Our Net Debt to Adjusted EBITDA Leverage ratio also improved in 2022 compared to year-end 2021, despite a decreased cash balance, primarily due to higher earnings.

The reconciliations of our Adjusted EBITDA Leverage Ratios to the balance sheet and income statement amounts as reported under U.S.

GAAP are as follows:

2022 December 31,

Income (loss) before income taxes $ 10.6 $ (1,481.9)

Net income (loss) attributable to ATI $ 130.9 $ (38.2)

Net income attributable to noncontrolling interests 15.6 22.0

Net income (loss) 146.5 (16.2)

Interest expense 87.4 96.9

Depreciation and amortization 142.9 143.9

Income tax provision 15.5 26.8

Strike related costs — 63.2

Impairment of goodwill — 287.0

Retirement benefit settlement gain — (64.9)

Restructuring and other charges (credits) 23.7 (10.5)

Joint venture impairment charge — 2.4

Joint venture restructuring credit (0.9) —

Debt extinguishment charge — 65.5

Gain on asset sales and sale of business (13.8) $ (2.5)

Loss (gain) on asset sales and sale of business 134.2 (13.8)

Adjusted EBITDA $ 549.3 $ 290.9

Total debt (a) $ 1,863.7 $ 1,629.1

Debt $ 1,748.0 $ 1,842.9

Debt issuance costs 17.2 20.8

Total debt 1,765.2 1,863.7

Cash (584.0) (687.7)

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Net Debt to Adjusted EBITDA 2.15 4.04

*Year ended December 31, 2020 reflects the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements.

There were no adjustments to 2020 amounts as a result of this change.

At year-end 2021, our net debt to total capitalization was 63.2%, compared to 67.6% at December 31, 2020.

(In millions) December 31,

2021 December 31,

Total debt (a) $ 1,863.7 $ 1,629.1

Cash (687.7) (645.9)

Net debt $ 1,176.0 $ 983.2

Total ATI stockholders’ equity (b) 685.6 471.3

Net ATI capital $ 1,861.6 $ 1,454.5

Net debt to ATI capital 63.2 % 67.6 %

Total debt to total capitalization was 73.1% at December 31, 2021 compared to 77.6% at December 31, 2020.

(In millions) December 31,

2021 December 31,

Total debt (a) $ 1,863.7 $ 1,629.1

Total ATI stockholders’ equity (b) 685.6 471.3

Total ATI capital $ 2,549.3 $ 2,100.4

Total debt to ATI capital 73.1 % 77.6 %

(a) Excludes debt issuance costs for both periods.

The December 31, 2020 debt balance includes $46.8 million for the unamortized portion of the 2025 Convertible Notes recorded in stockholders’ equity due to the flexible settlement feature of the notes.

New accounting guidance adopted by ATI on January 1, 2021 eliminated this requirement of separately accounting for this component of the 2025 Convertible Notes in stockholders’ equity.

See below for further discussion.

(b) The December 31, 2020 balance excludes $49.8 million recorded in stockholders’ equity for a portion of the 2025 Convertible Notes, net of debt issuance costs.

In 2021, we issued $325 million aggregate principal amount of the 2029 Notes and $350 million aggregate principal amount of the 2031 Notes.

Interest on the 2029 Notes at a rate of 4.875% is payable semi-annually in arrears on each April 1 and October 1, commencing on April 1, 2022 and the 2029 Notes will mature on October 1, 2029.

Interest on the 2031 Notes at a rate of

5.125% is payable semi-annually in arrears on each April 1 and October 1, commencing on April 1, 2022 and the 2031 Notes will mature on October 1, 2031.

As such, in the fourth quarter 2021, a $65.5 million debt extinguishment charge was recognized, which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes and a $1.0 million charge for the remaining unrecognized portion of the 2023 Notes deferred debt issue costs.

In 2020, we issued and sold $291.4 million aggregate principal amount of the 2025 Convertible Notes.

Interest on the 2025 Convertible Notes at the 3.5% cash coupon rate is payable semi-annually in arrears on each June 15 and December 15, commencing December 15, 2020.

We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes, resulting in a $21.5 million debt extinguishment charge, which included a $19.1 million cash make-whole payment related to the early extinguishment of the 2022 Convertible Notes as required by the applicable indenture, and a $2.4 million charge for deferred debt issue costs.

We also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’ equity on the consolidated balance sheet.

The remainder of the net proceeds from the offering were used for general corporate purposes.

In connection with the pricing of the 2025 Convertible Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates (collectively, the Counterparties).

The capped call transactions are expected generally to reduce potential dilution to our common stock upon any conversion of the 2025 Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2025 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price.

The cap price of the capped call transactions initially is approximately $19.76 per share, and is subject to adjustments under the terms of the capped call transactions.

The 2025 Convertible Notes are convertible into our common stock at an initial conversion price of $15.49 per share and may be settled in cash, shares of our common stock or a combination thereof, at our election.

As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option valued at $50.3 million was required to be separately accounted for as a component of stockholders’ equity in 2020.

The value of the embedded conversion option was determined to be $51.4 million based on the estimated fair value of comparable senior unsecured debt without the conversion feature, using an income approach of expected present value.

During the 2020 fiscal year, the equity component was amortized as additional non-cash interest expense, commonly referred to as phantom yield, over the term of the 2025 Convertible Notes using the effective interest method.

As a result, as of December 31, 2020, $49.8 million of the 2025 Convertible Notes was recorded in additional paid-in-capital in stockholders’ equity ($51.4 million of the gross $291.4 million, net of $1.6 million of allocated offering costs).

Due to the non-cash phantom yield and including debt issue cost amortization, the 2025 Convertible Notes had reported interest expense in 2020 at an 8.4% rate, higher than the 3.5% cash coupon rate.

Effective January 1, 2021, ATI early adopted new accounting guidance as discussed in Note 1 of the Notes to Consolidated Financial Statements that eliminated the equity component classification of the embedded conversion option, as well as the phantom yield portion of interest expense on a prospective basis.

Upon adoption on January 1, 2021, long-term debt increased by $45.4 million, representing the $46.8 million equity component of convertible debt as of December 31, 2020, net of reclassified debt issue costs.

On November 22, 2019, we issued $350 million aggregate principal amount of the 2027 Notes.

Net proceeds of $344.5 million from this issuance were used, together with cash on hand, to redeem all $500 million aggregate principal amount outstanding of the 5.95% 2021 Notes in December 2019.

The 5.875% stated interest rate payable on our 2023 Notes was subject to adjustment in the event of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s (S&P).

Each notch of credit rating downgrade from the credit ratings in effect when the 2023 Notes were issued in July 2013 increases interest expense by 0.25% on the 2023 Notes, up to a maximum of four notches by each of the two rating agencies, or a total 2.0% potential interest rate change up to 7.875%.

The annual interest rate on the 2023 Notes has been at the maximum 7.875% since February 2016 until their redemption in October 2021 as discussed above.

Cash provided by operations for 2022 was $224.9 million.

Working capital balances, and consequently cash provided by operations, can fluctuate throughout any operating period based upon the timing of receipts from customers and payments to vendors.

However, we actively manage our working capital to ensure the required flexibility to meet our strategic objectives.

Increased cash from operations in 2022 as compared to 2021, resulted from our ongoing efforts to improve efficiency around accounts receivable and inventory levels despite significantly higher sales and operating levels in most operations.

Increased business volumes and expenditures attributable to strategic capital projects contributed to higher accounts payable balances at December 31, 2022.

Other significant 2022 operating cash flow items included $50 million in contributions to the U.S.

defined benefit pension plans, payment of 2021 annual incentive compensation and receipt of $8.5 million for repayment of working capital advances from A&T Stainless.

Cash provided by operations was $16.1 million in 2021, despite higher accounts receivable and inventory balances related to increased business activity and rising raw material costs.

Other significant 2021 operating cash flow items included $67.5 million in contributions to the U.S.

defined benefit pension plans and payment of 2020 annual incentive compensation, partially offset by receipt of advance payments from customers as part of long-term supply agreements in 2021.

Cash used in investing activities was $126.7 million in 2022, reflecting $130.9 million in capital expenditures primarily related to AA&S transformation projects.

We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, by using a portion of the ABL facility.

Cash used in investing activities was $77.3 million in 2021, reflecting $152.6 million in capital expenditures, primarily related to AA&S transformation projects, and HPMC growth projects including the new iso-thermal press and heat-treating expansion in Cudahy, WI.

Cash used in financing activities in 2022 was $201.9 million, and consisted primarily of $139.9 million toward the repurchase of ATI shares and $34.0 million in dividend payments to the 40% noncontrolling interest in our PRS joint venture in China.

Cash provided by financing activities in 2021 was $103.0 million, and consisted primarily of $675.7 million of net proceeds

from the issuance of the 4.875% Senior Notes due 2029 (2029 Notes) and 5.125% Senior Notes due 2031 (2031 Notes) and $21.7 million of borrowings under foreign credit facilities.

These amounts were offset by the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes, a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and $9.5 million for debt issuance costs associated with the newly-issued 2029 and 2031 Notes.

At December 31, 2022, cash and cash equivalents on hand totaled $584.0 million, a $103.7 million decrease from year-end 2021.

Cash and cash equivalents held by our foreign subsidiaries was $102.6 million at December 31, 2022, of which $53.5 million was held by our PRS joint venture in China.

Contractual Obligations

A summary of required payments under financial instruments (excluding accrued interest) and other commitments are presented below.

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Guarantees $ 12.7

(A) Amounts include contractual interest payments using the interest rates in effect as of December 31, 2021 applicable to the Company’s 2022 Convertible Notes, the Term Loan due 2024, the 2025 Convertible Notes, the Allegheny Ludlum 6.95% Debentures due 2025, the 2027 Notes, the 2029 Notes and the 2031 Notes.

(A) Amounts include contractual interest payments using the interest rates in effect as of December 31, 2022 applicable to the Company’s ABL Term Loan due 2027, the 2025 Convertible Notes, the Allegheny Ludlum 6.95% Debentures due 2025, the 2027 Notes, the 2029 Notes and the 2031 Notes.

(B) Amounts include operating lease obligations at their undiscounted value.

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qualified defined benefit pension plans are subject to significant uncertainty based on a number of factors including actual pension plan asset returns, changes in estimates of participant longevity, and changes in interest rates.

Amounts also include actuarial projections of payments under other postemployment benefit plans for the next 10 years.

Amounts also include actuarial projections of payments under other post employment benefit plans for the next 10 years.

In most retiree healthcare plans, our contributions are capped based on the cost as of a certain date.

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Labor Matters

Our prior CBA with the USW involving approximately 1,100 active full-time represented employees located primarily within the AA&S segment operations, as well as a number of inactive employees, expired on February 28, 2021.

USW-represented employees continued to work under the terms of the expired CBA until March 30, 2021 when they engaged in a strike.

On July 14, 2021, we announced that a new four-year labor agreement with the USW was ratified, ending the strike.

As part of an orderly return to work process, employees began returning to active employment during the week of July 19, 2021.

The new CBA, which covers the term from March 1, 2021 to February 28, 2025, delivers a competitive wage and benefit package to these represented employees, while securing ATI’s ability to reduce its exposure to health care cost inflation, which is critical for the long-term viability of ATI’s SRP business.

We have CBAs with approximately 800 full-time employees that expire in 2022.

We have no significant CBAs that expire in 2023.

Approximately 1,100 USW-represented employees engaged in a 3 ½ month strike in mid-2021, following the expiration of a CBA, primarily affecting operations in the AA&S segment.

In July 2021, we announced that a new four-year labor agreement with the USW through February 28, 2025 was ratified, ending the strike.

Retirement Benefits

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For ERISA funding purposes, discount rates used to measure pension liabilities for U.S.

qualified defined benefit plans are calculated on a different basis using an IRS-determined segmented yield curve, which currently results in a higher discount rate than the discount rate methodology required by accounting standards.

qualified defined benefit plans are calculated on a different basis using an IRS-determined segmented yield curve.

Funding requirements are also affected by IRS-determined mortality assumptions, which may differ from those used under accounting standards.

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A subsidiary of the Company participates in the Steelworkers Western Independent Shops Pension Plan (WISPP) for union-represented employees of our primary titanium operations in Albany, OR, which is funded on an hours-worked basis.

As of December 31, 2020, manufacturing operations at this facility were indefinitely idled, and a limited number of employees that participate in the WISPP remain active in maintenance and other functions.

Manufacturing operations at this facility have been idled throughout 2021 and most of 2022, with a limited number of employees that participate in the WISPP remaining active in maintenance and other functions.

It is reasonably possible that a significant reduction or the elimination of hours-worked contributions due to changes in operating rates at this facility could result in a withdrawal liability assessment in a future period.

A complete withdrawal liability is estimated to be approximately $35 million on an undiscounted basis.

A complete withdrawal liability is estimated to be approximately $27 million on an undiscounted basis, based on information for the plan year ended September 30, 2021, which

is the most recent information available from the Plan Administrator.

If this complete withdrawal liability was incurred, ATI estimates that payments of the obligation would be required on a straight-line basis over a 15-year period.

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The accompanying consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles.

When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that is appropriate in our specific circumstances.

When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that is most appropriate in our specific circumstances.

Application of these accounting principles requires our management to make estimates about the future resolution of existing uncertainties;

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Future cash flow value may include appraisals for property, plant and equipment, land and improvements, future cash flow estimates from operating the long-lived assets, and other operating considerations.

In the fourth quarter of each year in conjunction with the annual business planning cycle, or more frequently if new material information is available, we evaluate the recoverability of idled facilities.

On December 2, 2020, we announced a strategic repositioning of our SRP business within the AA&S segment, with a focus of increasing emphasis on the specialty rolled products portion of its product portfolio, which comprise titanium-based alloys including aerospace-grade titanium plate products, nickel-based alloys, and stainless products with more differentiated characteristics for specialty applications, including thin-gauge PRS.

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At December 31, 2022, the Company had $227.2 million of goodwill on its consolidated balance sheet, all of which relates to the HPMC segment.

Goodwill decreased $12.8 million in 2021 due to the allocation of $12.2 million to the sale of the Flowform Products business and a $0.6 million decrease from the impact of foreign currency translation on goodwill denominated in functional currencies other than the U.S.

Goodwill decreased $0.7 million in 2022 due to foreign currency translation on goodwill denominated in functional currencies other than the U.S.

For our annual goodwill impairment evaluation performed in the fourth quarter of 2022, quantitative goodwill assessments were performed for the two HPMC reporting units with goodwill.

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For example, our WACC used in our discounted cash flow assessments was 11.7% and long-term growth rates ranged from 3% to 3.5%.

The estimated effect of changing the WACC by 0.50% would decrease the fair value of the Forged Products reporting unit in the case of an increase in the WACC, or increase the fair value of the Forged Products reporting unit in the case of a decrease in the WACC, by approximately $70 million.

The estimated effect of a 0.50% change in the WACC would result in a 10% change in the fair value of the Forged Products reporting unit.

Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

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For our annual goodwill impairment evaluation performed in the fourth quarter of 2022, the Specialty Materials reporting unit had a fair value that was significantly in excess of carrying value.

The Forged Products reporting unit had a fair value that exceeded carrying value by more than 40%, representing an increase in fair value subsequent to the interim goodwill impairment charge recorded for this reporting unit in the second quarter of 2020 as discussed below, and the annual evaluation as of December 31, 2020.

As a result, no impairments were determined to exist from the annual goodwill impairment evaluation for the years ended December 31, 2021, 2020 and 2019.

The Forged Products reporting unit had a fair value that exceeded carrying value by more than 50% for the 2022 annual assessment, which increased compared to the annual evaluation for 2021.

As a result, no impairments were determined to exist from the annual goodwill impairment evaluation for the years ended

December 31, 2022, 2021 or 2020.

In order to validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization was performed using a reasonable control premium.

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During the second quarter of 2020, we performed an interim goodwill impairment analysis on the Forged Products reporting unit and its $460.4 million goodwill balance based on assessed potential indicators of impairment, 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.

In the previous 2019 annual goodwill impairment evaluation, this reporting unit had a fair value that exceeded carrying value by approximately 30%.

For the 2020 interim impairment analysis, fair value was determined by a quantitative assessment that used a discounted cash flow technique.

As a result of the second quarter 2020 interim goodwill impairment evaluation, we determined that the fair value of the Forged Products reporting unit was below carrying value, including goodwill, by $287.0 million.

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Consequently, during the second quarter of 2020, we recorded a $287.0 million impairment charge for the partial impairment of Forged Products reporting unit goodwill, most of which was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes.

For the 2020 interim impairment analysis, fair value was determined by a quantitative assessment that used a discounted cash flow technique, which represents Level 3 unobservable information in the fair value hierarchy.

The impairment assessment and valuation method require us to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital.

Many of these assumptions are determined by reference to market participants we have identified.

For example, our weighted average cost of capital used in our discounted cash flow assessment was 11.6%, and long-term growth rate was 3.5%.

Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method.

The provision for income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method.

Such temporary differences result primarily from differences in the carrying value of assets and liabilities.

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The consolidated income tax provision of $77.7 million for fiscal year 2020 primarily relates to increases to deferred tax asset valuation allowances based on an analysis of the expected realization of deferred tax assets and liabilities within applicable expiration periods.

In 2021, ATI continues to maintain income tax valuation allowances on its U.S.

In 2021 and 2022, ATI continued to maintain income tax valuation allowances on its U.S.

Federal and state deferred tax assets.

In addition, we have $67.5 million of valuation allowances on amounts recorded in other comprehensive loss on the consolidated balance sheet as of December 31, 2022.

At December 31, 2019, our U.S.

results had switched from a three-year cumulative loss position to a three-year cumulative income position, allowing ATI to utilize forecasts of future profits as a source of income when evaluating the overall need for a valuation allowance.

We determined that valuation allowances on net deferred tax asset balances for federal and certain state jurisdictions are no longer required.

Certain individual tax attributes still require a valuation allowance based on expected utilization.

At December 31, 2019, our deferred tax asset valuation allowance was $94.5 million.

While we remain in a cumulative loss condition, our ability to evaluate the realizability of deferred tax assets is generally limited to the ability to offset timing differences on taxable income associated with deferred tax liabilities.

Therefore, a change in estimate of deferred tax asset valuation allowances for federal, state, or foreign jurisdictions during this cumulative loss

condition period will primarily be affected by changes in estimates of the time periods that deferred tax assets and liabilities will be realized, or on a limited basis to tax planning strategies that may result in a change in the amount of taxable income realized.

Beginning in 2020, the U.S.

government has enacted various relief packages in response to the COVID-19 pandemic.

Due to our valuation allowance in the U.S., the impact to income tax expense has been minimal.

We are assessing employee retention tax credits and other available government incentives and may recognize benefits from these various pandemic-related legislative initiatives in future periods.

Therefore, a change in estimate of deferred tax asset valuation allowances for federal, state, or foreign jurisdictions during this cumulative loss condition period will primarily be affected by changes in estimates of the time periods that deferred tax assets and liabilities will be realized, or on a limited basis to tax planning strategies that may result in a change in the amount of taxable income realized.

Retirement Benefits

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As discussed above, gains and losses due to differences between actual and expected results for investment returns on plan assets, changes in the discount rate used to value benefit obligations, and other changes in estimates such as participant life expectancy are deferred and recognized in the consolidated statement of operations over future periods.

However, for balance

sheet presentation, these gains and losses are included in the determination of benefit obligations, net of plan assets, included on the year-end consolidated balance sheet.

At December 31, 2021, the Company had approximately $1.4 billion of pre-tax net actuarial losses on its pension obligations, primarily related to an extended decline over the last several years in the discount rate used to value the pension obligations.

However, for balance sheet presentation, these gains and losses are included in the determination of benefit obligations, net of plan assets, included on the year-end consolidated balance sheet.

At December 31, 2022, the Company had approximately $1.2 billion of pre-tax net actuarial losses on its pension obligations, primarily related to an extended decline in prior years in the discount rate used to value the pension obligations.

These actuarial losses have been recognized on the consolidated balance sheet through a reduction in stockholders’ equity, and are being recognized in the consolidated statement of operations through expense amortizations over future years.

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The estimated effect of changing the discount rate by 0.50% would decrease postretirement obligations in the case of an increase in the discount rate, or increase postretirement obligations in the case of a decrease in the discount rate, by approximately $7 million.

Such a change in the discount rate would decrease postretirement benefit expense in the case of an increase in the discount rate, or increase postretirement benefit expense in the case of a decrease in the discount rate, by less than $1 million.

discount rate, by less than $1 million.

Based upon predictions of continued significant medical cost inflation in future years, the annual assumed rate of increase in the per capita cost of covered benefits of health care plans is 7.8% in 2023 and is assumed to gradually decrease to 4.0% in the year 2048 and remain level thereafter.

Assumed health care cost trend rates can have a significant effect on the benefit obligation for health care plans, however, the Company’s contributions for most of its retiree health plans are capped based on a fixed premium amount, which limits the impact of future health care cost increases.

New Accounting Pronouncements Adopted

In August 2020, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to accounting for convertible instruments.

Under this new guidance, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital.

As such, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

By removing those separation models, the reported interest rate of convertible debt instruments typically will be closer to the coupon interest rate.

The new guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation, requiring the if-converted method, and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity.

This new guidance is effective for ATI in fiscal year 2022, with early adoption permitted.

We adopted this new accounting guidance related to accounting for convertible instruments effective January 1, 2021 using the modified transition approach with the cumulative effect recognized as an adjustment to the opening balance of retained earnings.

This new guidance is applicable to our 3.5% Convertible Senior Notes due 2025 (the 2025 Convertible Notes) that were issued in June 2020, for which the embedded conversion option was required to be separately accounted for as a component of stockholders’ equity.

Upon adoption on January 1, 2021, long-term debt increased by $45.4 million and stockholders’ equity decreased by the same amount, representing the net impact of two adjustments:

(1) the $49.8 million value of the embedded conversion, which is net of allocated offering costs, previously classified in additional paid-in capital in stockholders’ equity, and (2) a $4.4 million increase to retained earnings for the cumulative effect of adoption primarily related to the non-cash interest expense recorded in fiscal year 2020 for the amortization of the portion of the 2025 Convertible Notes allocated to stockholders’ equity.

Prospectively, the reported interest expense for the 2025 Convertible Notes will no longer include the non-cash interest expense of the equity component as required under prior accounting standards and will be closer to the 3.5% cash coupon rate.

There was no impact to ATI’s earnings per share calculation as it previously applied the if-converted method to the 2025 Convertible Notes given our flexibility to settle conversions of the 2025 Convertible Notes in cash, shares of ATI’s common stock or a combination thereof, at our election.

Pending Accounting Pronouncements

In November 2021, the FASB issued new accounting guidance related to disclosures about certain types of government assistance.

This new guidance requires business entities that account for transactions with a government by analogizing to a grant or contribution accounting model to make certain annual disclosures.

It requires disclosure of the nature and significant terms and considerations of the transactions, the accounting policies used and the effects of those transactions on an entity’s financial statements.

This new guidance is effective for ATI in fiscal year 2022, with early adoption permitted.

We did not early adopt this guidance.

The adoption of these changes is not expected to have an impact on our consolidated financial statements other than the annual disclosure requirements.

Forward-Looking Statements

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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 7. Management’s Discussion and Analysis