What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 141 added, 272 removed, 217 unchanged (66% of the section changed)

1 unchanged sentence

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

Our largest markets are aerospace & defense, representing over 45% of sales for the nine months ended September 30, 2022, led by products for jet engines.

Our largest markets are aerospace & defense, representing 56% of sale s for the three months ended March 31, 2023, led by products for jet engines.

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

In aggregate, these markets represent more than 75% of our 2022 revenue.

In aggregate, these markets represent more t han 80% of our 2023 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.

Our capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished components, including those used in next-generation jet engines and 3D-printed aerospace products.

Third quarter 2022 sales increased 42% to $1.03 billion, compared to sales of $725.7 million for the third quarter of 2021, primarily due to a significant recovery in demand for commercial aerospace products, which is our largest end market.

Our gross profit for the third quarter of 2022 was $183.8 million, or 17.8% of sales, compared to $82.5 million, or 11.4% of sales, for the third quarter 2021, a $101.3 million, or 640 basis point, increase reflecting benefits of our ongoing transformation with a focus on the key growth markets of aerospace and defense, and our streamlined value-add production capabilities.

Third quarter 2021 results included negative impacts from a labor strike of $22.9 million, which are excluded from our segment results and included costs for below-normal operating rates as production returned to normal levels following the end of the strike in mid-July 2021.

Third quarter 2022 and 2021 results include $2.6 million and $2.3 million, respectively, of net credits for previously-recognized restructuring charges, primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

Third quarter 2021 results include a $64.9 million retirement benefit settlement gain related to a plan termination that eliminated certain postretirement medical benefit liabilities, which is recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations.

Other nonoperating income (expense) for the third quarter of 2022 includes a $19.9 million charge for the settlement of litigation with U.S.

Magnesium, LLC related to the closed Rowley, UT titanium sponge production facility.

Other nonoperating income (expense) for the third quarter of 2021 includes a $13.7 million gain on the sale of our Flowform Products business.

All of these items are excluded from segment EBITDA.

Our pretax income was $67.4 million in the third quarter of 2022, compared to $77.2 million in the prior year period.

Income tax expense for the third quarter of 2022 was $3.0 million primarily related to our Asian precision rolled strip business, and income tax expense for the third quarter of 2021 was $22.0 million, including $15.5 million of discrete tax expense related to the retirement benefit settlement gain.

First quarter 2023 sales increased 25% to $1.04 billion, compared to sales of $834.1 million for the first quarter of 2022, primarily due to a significant recovery in demand for commercial aerospace products, which is our largest end market.

Our gross profit for the first quarter of 2023 was $193.2 million, or 18.6% of sales, compared to $169.4 million, or 20.3% of sales, for the first quarter 2022.

This $23.8 million increase in gross profit, reflects the benefits of our ongoing transformation focused on the key growth markets of aerospace and defense, and our streamlined value-add production capabilities.

Results for the first quarter 2022 include $28.7 million of benefits related to U.S.

government-sponsored COVID-19 relief, including the Aviation Manufacturing Jobs Protection (AMJP) Program and employee retention credits.

First quarter 2023 results include a $1.2 million charge for costs to restart our titanium operations in Albany, OR.

First quarter 2022 results include an $18.3 million loss on asset sales and sale of businesses, net, representing a partial loss on the sale of the Sheffield, UK operations, which was finalized in the second quarter of 2022, partially offset by a gain from the sale of assets from our Pico Rivera, CA operations.

Also, other nonoperating income (expense) for the first quarter of 2022 included an $8.6 million charge for a litigation reserve.

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

In addition, nonoperating retirement benefit expense increased to $16.8 million in the first quarter of 2023 compared to $5.8 million in the first quarter of 2022.

Our pretax income was $76.5 million in the first quarter of 2023, compared to $40.1 million in the prior year period.

Income tax expense for the first quarters of 2023 and 2022 was $4.3 million and $4.9 million, respectively, primarily related to our Asian precision rolled strip business.

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

deferred tax assets.

Net income attributable to ATI was $61.1 million, or $0.42 per share, in the third quarter of 2022, compared to $48.7 million, or $0.35 per share, for the third quarter of 2021.

Adjusted EBITDA was $141.1 million, or 13.7% of sales, for the third quarter 2022, and $79.9 million, or 11.0% of sales, for the prior year third quarter.

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.

Net income attributable to ATI was $70.1 million, or $0.48 per share, in the first quarter of 2023, compared to $30.9 million, or $0.23 per share, for the first quarter of 2022.

Adjusted EBITDA was $132.7 million, or 12.8% of sales, for the first quarter 2023, and $125.0 million, or 15.0% of sales, for the prior year first quarter.

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

6 unchanged sentences

GAAP to these non-GAAP measures.

Compared to the third quarter 2021, sales increased 53% in the HPMC business segment and 35% in the AA&S business segment.

In aggregate, ATI’s aerospace & defense markets sales increased 87% to $530 million in the third quarter 2022, compared to $283 million the third quarter 2021, reflecting increasing demand for commercial aerospace jet engine and

airframe products.

In the HPMC segment, third quarter 2022 sales of commercial jet engine products increased 137% compared to the prior year period.

Results for the first nine months of 2022 were sales of $2.83 billion and income before tax of $76.6 million, compared to sales of $2.03 billion and income before tax of $39.9 million for the first nine months of 2021.

Our results for the first nine months of 2022 reflect benefits of our ongoing transformation with a focus on the key growth markets of aerospace and defense, most notably jet engine materials and components, and our streamlined value-add production capabilities.

Our gross profit was $529 million, or 18.7% of sales, compared to gross profit of $211.0 million, or 10.4% of sales, for the first nine months of 2021, a $318 million, or 830 basis point, increase.

Results in the first nine months of 2022 include $34.3 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 $16.8 million of a $22.4 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 $17.5 million in employee retention credits applicable across all of ATI’s domestic operations, largely for preserving jobs throughout the global pandemic-related economic downturn.

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

The 2021 results include the $63.2 million of strike related costs which are excluded from segment results.

The nine month 2022 results include a $141.0 million loss on the May 12, 2022 sale of the Sheffield, UK operations, which is reported in loss on asset sales and sales of businesses, net.

The Sheffield operations were part of the HPMC segment, and were not well-aligned with ATI’s strategic focus.

In 2021, the Sheffield operations had external sales of $36 million, with over 80% of its sales to energy markets, primarily oil & gas, and had a net loss before tax of $9 million.

Loss on asset sales and sales of businesses, net, for the first nine months of 2022 also included a $6.8 million gain from the sale of assets from our Pico Rivera, CA operations as part of the strategy to exit standard stainless products.

Nine month 2022 and 2021 results also include $5.0 million and $8.5 million, respectively, of net credits for adjustments to previously-recognized restructuring charges.

The gains/losses on sale and restructuring credits are excluded from segment results.

Results for the first nine months of 2021 include a $64.9 million retirement benefit settlement gain related to a plan termination that eliminated certain postretirement medical benefit liabilities, which is recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations.

Other nonoperating income (expense) for the first nine months of 2022 includes a $28.5 million charge for the settlement of litigation with U.S.

Magnesium, LLC related to the closed Rowley, UT titanium sponge production facility, 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) for the first nine months of 2021 includes a $13.7 million gain on the sale of our Flowform Products business.

Our pretax income was $76.6 million in the first nine months of 2022, compared to income of $39.9 million in the prior year period.

Income tax expense for the first nine months of 2022 was $11.3 million primarily related to our Asian precision rolled strip business, and income tax expense for the first nine months of 2021 was $31.5 million, including $15.5 million of discrete tax expense related to the retirement benefit settlement gain.

Net income attributable to ATI was $54.0 million, or $0.42 per share, in the first nine months of 2022, compared to a net loss attributable to ATI of $8.4 million, or ($0.07) per share, for the first nine months of 2021.

Compared to the first nine months of 2021, sales increased 42% in the HPMC business segment and 37% in the AA&S business segment.

Sales to the aerospace & defense markets in the HPMC segment were 56% higher than the first nine months of 2021, due to improvements in the commercial aerospace market.

AA&S sales reflect higher sales across most major markets, particularly an 82% increase in the aerospace & defense markets and a 46% increase in the energy market.

Prior year results included impacts from the USW labor strike, which predominantly affected the AA&S segment.

Comparative information for our overall revenues (in millions) by end market and their respective percentages of total revenues for the three and nine month periods ended September 30, 2022 and 2021 is shown below.

Compared to the first quarter 2022, sales increased 38% in the HPMC business segment and 15% in the AA&S business segment.

In aggregate, ATI’s aerospace & defense markets sales incre ased 57% to $576 million i n the first quarter 2023, compared to $367 million th e first quarter 2022, reflecting increasing demand for commercial aerospace jet engine and airframe products.

In the HPMC segment, first quarter 2023 sales of commercial aerospace products increased 64% c ompared to the prior year period.

In the AA&S segment, first quarter 2023 sales of commercial aerospace products increased 72% compared to the prior year period.

Comparative information regarding our overall revenues (in millions) by end market and their respective percentages of total revenues for the three month periods ended March 31, 2023 and 2022 is shown below.

Three months ended Three months ended

Markets September 30, 2022 September 30, 2021

Markets March 31, 2023 March 31, 2022

Aerospace & Defense:

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Automotive 59.4 6 % 91.0 11 %

Electronics 48.5 5 % 56.5 8 %

Construction/Mining 40.4 4 % 52.0 6 %

Medical 35.0 3 % 36.2 5 %

Food Equipment & Appliances 45.2 4 % 43.4 6 %

Other 50.7 5 % 38.8 5 %

Total $ 1,032.0 100 % $ 725.7 100 %

Nine months ended Nine months ended

Markets September 30, 2022 September 30, 2021

Aerospace & Defense:

Jet Engines- Commercial $ 757.9 27 % $ 364.5 18 %

Airframes- Commercial 331.2 12 % 183.9 9 %

Defense 244.2 9 % 269.9 13 %

Total Aerospace & Defense $ 1,333.3 48 % $ 818.3 40 %

Oil & Gas 355.4 13 % 231.0 11 %

Specialty Energy 197.3 7 % 202.6 10 %

Total Energy 552.7 20 % 433.6 21 %

Automotive 236.1 8 % 237.8 12 %

Electronics 34.4 3 % 51.6 6 %

Food Equipment & Appliances 21.5 2 % 34.0 4 %

Construction/Mining 139.7 5 % 89.7 4 %

Medical 123.1 4 % 95.3 5 %

Other 61.5 6 % 42.8 5 %

Total $ 1,038.1 100 % $ 834.1 100 %

For the third quarter 2022, international sales of $421 million, or 41% of total sales, increased from $328 million in the third quarter 2021.

For the first quarter 2023, international sales of $456 million, or 44% of total sales, increased from $356 million in the first quarter 2022.

ATI’s international sales are mostly to the aerospace, energy, electronics, automotive and medical markets.

Comparative information for our major products based on their percentages of revenues are shown below.

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.

Comparative information regarding our major products based on their percentages of revenues are shown below.

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

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Nickel-based alloys and specialty alloys 53 % 50 %

Precision forgings, castings and components 16 % 15 %

15 % 15 % 15 % 16 %

Precision rolled strip products 12 % 19 % 14 % 19 %

Titanium and titanium-based alloys 14 % 10 %

11 % 12 % 11 % 12 %

Precision rolled strip products 10 % 17 %

Zirconium and related alloys 7 % 8 %

Total 100 % 100 %

Segment EBITDA for the third quarter 2022 was $161.6 million, or 15.7% of sales, compared to segment EBITDA of $94.2 million, or 13.0% of sales, for the third quarter of 2021.

Segment EBITDA for the first nine months of 2022 was $469.9 million, or 16.6% of sales, compared to segment EBITDA of $241.7 million, or 11.9% of sales, for the first nine months of 2021.

Segment EBITDA for the first quarter 2023 was $152.8 million, or 14.7% of sales, compared to segment EBITDA of $143.4 million, or 17.2% of sales, for the first quarter of 2022.

Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, categorically excludes income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other income (expense), charges for goodwill and asset impairments, restructuring and other credits/charges, strike related costs, 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):

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

High Performance Materials & Components $ 471.1 $ 341.6

12 unchanged sentences

Interest expense, net (19.9) (23.6)

Restructuring and other credits (charges) (17.3) 2.3 (23.5) 8.5

Strike related costs — (22.9) — (63.2)

Retirement benefit settlement gain — 64.9 — 64.9

Gain (loss) on asset sales and sales of businesses, net — 13.7 (134.2) 13.7

Restructuring and other charges (1.2) (7.5)

Loss on asset sales and sales of businesses, net — (18.3)

Income before income taxes 76.5 40.1

2 unchanged sentences

Net income attributable to noncontrolling interests 2.1 4.3

Net income (loss) attributable to ATI $ 61.1 $ 48.7 $ 54.0 $ (8.4)

Net income attributable to ATI $ 70.1 $ 30.9

As part of managing the performance of our business, we focus on controlling Managed Working Capital, which we define as gross accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities.

1 unchanged sentence

We assess Managed Working Capital performance as a percentage of the prior three months annualized sales to evaluate the asset intensity of our business.

At September 30, 2022, Managed Working Capital decreased as a percentage of annualized total ATI sales to 36.5% compared to 37.5% at December 31, 2021, as the operating efficiency of the business improved.

Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 8% as of September 30, 2022 compared to year end 2021, primarily due to increased foreign sales that generally have a longer collection cycle.

Gross inventory turns improved 13% as of September 30, 2022 compared to year end 2021, as an improvement in the pace of inventory flow across our operations was partially offset by higher overall inventory levels due to both rising raw material values and management actions to secure adequate supplies of key raw materials in response to supply chain uncertainties.

The computations of Managed Working Capital at September 30, 2022 and December 31, 2021, reconciled to the financial statement line items as computed under U.S.

At March 31, 2023, Managed Working Capital increased as a percentage of annualized total ATI sales to 37.6% compared to 30.1% at December 31, 2022.

The timing of sales within the first quarter of 2023 and increasing operating levels contributed to the increase in Managed Working Capital as a percentage of sales.

Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 10% as of March 31, 2023 compared to year end 2022, primarily due to the timing of first quarter sales.

Gross inventory turns decreased 8% as of March 31, 2023 compared to year end 2022.

The computations of Managed Working Capital at March 31, 2023 and December 31, 2022, reconciled to the financial statement line items as computed under U.S.

GAAP, were as follows.

September 30, December 31,

March 31, December 31,

(In millions) 2023 2022

12 unchanged sentences

High Performance Materials & Components Segment

Third quarter 2022 sales were $457.6 million, increasing 53% compared to the third quarter 2021, reflecting increasing commercial aerospace demand.

Sales to the commercial aerospace market increased 116%, reflecting a 137% increase in commercial jet engines, while defense sales declined 27% based on the timing of orders for the next phase of several defense programs.

Overall aerospace and defense market sales were 82% of total HPMC sales in the third quarter of 2022.

First quarter 2023 sales were $471.1 million, increasing 38% compared to the first quarter 2022, reflecting increasing commercial aerospace demand.

Sales to the commercial aerospace market increased 64%, reflecting a 58% increase in commercial jet engines.

Overall aerospace and defense market sales were 84% of total HPMC sales in the first quarter of 2023.

Sales to the energy markets decreased 42%, mainly due to lower specialty energy sales to Asian markets.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended September 30, 2022 and 2021 is as follows:

Three months ended Three months ended

Markets September 30, 2022 September 30, 2021

Aerospace & Defense:

Jet Engines- Commercial $ 285.7 63 % $ 120.4 40 %

Airframes- Commercial 49.8 11 % 35.0 12 %

Defense 38.5 8 % 52.1 17 %

Total Aerospace & Defense 374.0 82 % 207.5 69 %

Oil & Gas 6.9 1 % 10.4 3 %

Specialty Energy 26.4 6 % 47.1 16 %

Total Energy 33.3 7 % 57.5 19 %

Medical 22.3 5 % 16.8 6 %

Construction/Mining 9.5 2 % 5.6 2 %

Other 18.5 4 % 12.6 4 %

Total $ 457.6 100 % $ 300.0 100 %

International sales represented 53% of total segment sales for the third quarter 2022, which was consistent with the prior year period.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the three months ended September 30, 2022 and 2021, is as follows:

Three months ended September 30,

Nickel-based alloys and specialty alloys 52 % 46 %

Precision forgings, castings and components 32 % 35 %

Titanium and titanium-based alloys 16 % 19 %

Total 100 % 100 %

Segment EBITDA in the third quarter 2022 increased to $85.8 million, or 18.8% of total sales, compared to $37.4 million, or 12.5% of total sales, for the third quarter 2021, a 630 basis point improvement in operating margins reflecting higher sales of next-generation jet engine products and higher facility utilization levels.

Sales for the first nine months of 2022 were $1.20 billion, increasing 42% compared to the first nine months of 2021, reflecting higher sales across most end markets, led by commercial jet engines.

Consistent with the trends in quarterly results, sales to the commercial aerospace market increased 91%, reflecting a 106% increase in commercial jet engines, while defense sales declined 30% based on the timing of orders for the next phase of several defense programs.

Sales to the energy markets decreased 12% with higher sales for oil & gas applications more than offset by declines in demand for specialty energy applications.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the nine month periods ended September 30, 2022 and 2021 is as follows:

Nine months ended Nine months ended

Markets September 30, 2022 September 30, 2021

Markets March 31, 2023 March 31, 2022

Aerospace & Defense:

10 unchanged sentences

Total $ 471.1 100 % $ 341.6 100 %

International sales represented 54% of total segment sales for the first nine months of 2022.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the nine months ended September 30, 2022 and 2021, is as follows:

Nine months ended September 30,

International sales represented 59% of total segment sales for the first quarter 2023, compared to 54% in the prior year period.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the three months ended March 31, 2023 and 2022, is as follows:

Three months ended March 31,

Nickel-based alloys and specialty alloys 45 % 48 %

1 unchanged sentence

Titanium and titanium-based alloys 20 % 16 %

Precision rolled strip products 1 % — %

Total 100 % 100 %

Segment EBITDA in the first nine months of 2022 increased to $214.2 million, or 17.9% of total sales, compared to $99.2 million, or 11.8% of total sales, for the first nine months of 2021, a 610 basis point improvement in operating margins reflecting higher sales of next-generation jet engine products and higher facility utilization levels.

Results in the first nine months of 2022 include $27.5 million of benefits from the AMJP program and employee retention credits, partially offset by labor and other costs related to ramp readiness.

HPMC first nine months of 2022 results reflect an ongoing recovery with improvements in many of our key end markets, most notably jet engine materials and components, as well as the continued benefits from our aggressive 2020 cost cutting actions and recent share gains.

Looking ahead to the fourth quarter of 2022, we anticipate continued strong demand for commercial aerospace products.

Demand for our commercial airframe long-form products in the HPMC segment is projected to increase over the longer-term due in part to the reordering of the commercial aerospace supply chain in response to the Russia/Ukraine conflict.

While availability of raw material inputs 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.

Segment EBITDA in the first quarter 2023 increased to $80.1 million, or 17.0% of total sales, compared to $68.1 million, or 19.9% of total sales, for the first quarter 2022.

Strength in the HPMC segment continues to be driven by content on next-generation commercial aerospace platforms.

Results in the first quarter 2022 include $21.9 million of benefits from the Aviation Manufacturing Jobs Protection program and employee retention credits, partially offset by labor and other costs related to ramp readiness.

HPMC first quarter 2023 results reflect continued momentum in our business and the ongoing commercial aerospace recovery.

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.

Increasing demand for travel and efficient energy benefits ATI, and we believe we are well positioned to capture this growth in the future.

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

Advanced Alloys & Solutions Segment

Third quarter 2022 sales were $574.4 million, increasing 35% compared to the third quarter of 2021.

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

Sales to the aerospace & defense markets increased 107%, due in part to a significant increase in commercial airframe demand for various flat-rolled product forms.

Sales to the energy markets were 47% higher than the prior year quarter, led by chemical and hydrocarbon industry applications increasing 160%.

Sales at our STAL Precision Rolled Strip facility in China continue to be negatively impacted by Covid-related market interruptions.

Comparative information for our AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended September 30, 2022 and 2021 is shown below.

First quarter 2023 sales were $567.0 million, increasing 15% compared to the first quarter of 2022.

Sales to the aerospace & defense markets increased 65%, with a 72% increase in sales of commercial aerospace products, due in part to a significant increase in commercial airframe demand for various flat-rolled product forms.

Sales to the energy markets were 62% higher than the prior year quarter, with both oil & gas and specialty energy markets seeing stronger demand.

These favorable trends were partially offset by recessionary softness in general industrial end markets and lingering COVID impacts associated with our Asian precision rolled strip business.

Comparative information regarding our AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended March 31, 2023 and 2022 is shown below.

Three months ended Three months ended

Markets September 30, 2022 September 30, 2021

Markets March 31, 2023 March 31, 2022

Oil & Gas $ 125.1 22 % $ 86.0 18 %

8 unchanged sentences

Electronics 33.9 6 % 51.1 10 %

Food Equipment & Appliances 45.0 8 % 43.4 10 %

Construction/Mining 32.2 6 % 43.6 9 %

Other 61.7 11 % 46.2 11 %

Total $ 574.4 100 % $ 425.7 100 %

International sales represented 31% of total segment sales for the third quarter 2022, compared to 40% in the prior year’s third quarter.

Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue for the three months ended September 30, 2022 and 2021, are presented in the following table.

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.

Three months ended September 30,

Nickel-based alloys and specialty alloys 57 % 45 %

Precision rolled strip products 22 % 33 %

Zirconium and related alloys 14 % 15 %

Titanium and titanium-based alloys 7 % 7 %

Total 100 % 100 %

Segment EBITDA was $75.8 million, or 13.2% of sales, for the third quarter 2022, compared to segment EBITDA of $56.8 million, or 13.3% of sales, for the third quarter 2021.

Although results reflect a stronger product mix of nickel-alloy mill products as our exit of standard stainless products was completed, declining raw material surcharges and negative impacts on our STAL Precision Rolled Strip facility in China from Covid-related market interruptions resulted in margins remaining flat to prior year.

Strike related costs of $21.5 million for the third quarter of 2021, primarily related to lower productivity and utilization levels, were excluded from AA&S segment results.

Sales for the first nine months of 2022 were $1.63 billion, increasing 37% compared to the first nine months of 2021, which included impacts from a multi-month labor strike which reduced sales in the prior year period.

Sales to the aerospace & defense markets increased 82%, due in part to a significant increase in commercial airframe demand for various flat-rolled product forms.

Sales to the energy markets were 46% higher led by chemical and hydrocarbon industry applications increasing 104%.

Increased sales prices, resulting from higher base prices and elevated raw material pass-through mechanisms, also drove revenue increases compared to the prior year-to-date period and helped offset inflationary impacts.

Sales at our STAL Precision Rolled Strip facility in China continue to be negatively impacted by Covid-related market interruptions.

Comparative information for our AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the nine month periods ended September 30, 2022 and 2021 is shown below.

Nine months ended Nine months ended

Markets September 30, 2022 September 30, 2021

Oil & Gas 323.3 20 % 202.0 17 %

Specialty Energy 109.3 6 % 95.0 8 %

Total Energy 432.6 26 % 297.0 25 %

Aerospace & Defense:

Jet Engines- Commercial 61.8 4 % 26.2 2 %

Airframes- Commercial 200.3 12 % 88.3 8 %

Defense 123.6 8 % 97.9 8 %

Total Aerospace & Defense 385.7 24 % 212.4 18 %

Automotive 227.4 14 % 232.3 20 %

Electronics 147.6 9 % 154.5 13 %

Food Equipment & Appliances 21.5 4 % 34.0 7 %

Construction/Mining 113.9 7 % 72.9 6 %

Other 63.1 11 % 54.0 11 %

Total $ 567.0 100 % $ 492.5 100 %

International sales represented 32% of total segment sales for the first nine months of 2022.

Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue for the nine months ended September 30, 2022 and 2021, are presented in the following table.

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.

International sales represented 32% of total segment sales for the first quarter 2023, compared to 35% in the prior year’s first quarter.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the three months ended March 31, 2023 and 2022, are presented in the following table.

HRPF conversion service sales are excluded from this presentation.

Nine months ended September 30,

Three months ended March 31,

Nickel-based alloys and specialty alloys 60 % 52 %

3 unchanged sentences

Total 100 % 100 %

Segment EBITDA was $255.7 million, or 15.7% of sales, for the first nine months of 2022, compared to segment EBITDA of $142.5 million, or 11.9% of sales, for the first nine months of 2021.

Compared to the prior year period, results reflect a stronger product mix of nickel-alloy mill products as we completed our exit of standard stainless products.

Sales of exotic materials from our Specialty Alloys & Components business and improved operating performance also drove AA&S segment 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, primarily related to lower productivity and utilization levels, were excluded from AA&S segment results.

We expect AA&S sales to be sequentially lower in the fourth quarter of 2022 based on falling raw material surcharges and planned operating rates to further reduce managed working capital.

Segment EBITDA was $72.7 million, or 12.8% of sales, for the first quarter 2023, compared to segment EBITDA of $75.3 million, or 15.3% of sales, for the first quarter 2022.

A stronger mix of nickel and titanium mill products was offset by weaker demand for precision rolled strip products and higher retirement benefit expense, which contributed to the margin decline year over year.

First quarter 2022 segment EBITDA includes $6.8 million of employee retention credits, partially offset by labor and other costs related to ramp readiness.

With the AA&S business transformation and footprint consolidation nearly complete, we believe 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.

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Corporate Items

Corporate expenses for the third quarter of 2022 were $14.2 million, compared to $12.9 million for the third quarter 2021.

For the nine months ended September 30, 2022, corporate expenses were $47.9 million, compared to $41.0 million for the nine months ended September 30, 2021.

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

Closed operations and other expense for the third quarter 2022 was $6.3 million, compared to $1.4 million for the third quarter 2021.

For the nine months ended September 30, 2022, closed operations and other expenses were $12.8 million, compared to $4.5 million for the nine months ended September 30, 2021.

Increases in closed operations and other expense in 2022 are largely due to changes in foreign currency remeasurement impacts primarily related to ATI’s European Treasury operation and higher legal costs for closed facilities.

The following is depreciation & amortization by each business segment:

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Corporate expenses for the first quarter of 2023 were $17.3 million, compared to $17.0 million for the first quarter 2022.

Closed operations and other expense for the first quarter 2023 was $2.8 million, compared to $1.4 million for the first quarter 2022 reflecting higher costs in the first quarter 2023 associated with environmental remediation project costs at closed operations and retirement benefit expense.

The following table shows depreciation & amortization for the relevant periods by each business segment:

Three months ended March 31,

High Performance Materials & Components $ 17.4 $ 17.9

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$ 35.1 $ 35.5

Interest expense, net of interest income, in the third quarter 2022 was $20.8 million, compared to $25.1 million for the third quarter 2021.

On a year-to-date basis, net interest expense was $67.8 million for the first nine months of 2022 compared to $72.2 million for the first nine months of 2021.

The declines reflect lower debt balances in 2022.

Capitalized interest reduced interest expense by $2.0 million in the third quarter 2022 and $1.3 million in the third quarter 2021.

For the nine months ended September 30, 2022 and 2021, capitalized interest was $2.6 million and $3.8 million, respectively.

Restructuring and other charges/credits were charges of $17.3 million and $23.5 million for the third quarter and nine months ended September 30, 2022, respectively, reflecting a $19.9 million and $28.5 million charge, respectively, for the settlement of litigation with U.S.

Magnesium, LLC related to the closed Rowley, UT titanium sponge production facility, partially offset by credits of $2.6 million and $5.0 million, respectively, for a reduction in severance-related reserves related to approximately 60 and 110 employees, respectively, based on changes in planned operating rates and revised workforce reduction estimates.

Restructuring charges for the third quarter ended September 30, 2021 were a net credit of $2.3 million for a reduction in severance-related reserves related to approximately 50 employees based on changes in planned operating rate and revised workforce reduction estimates.

Restructuring charges for the nine months ended September 30, 2021 were a net credit of $8.5 million, reflecting a $9.2 million reduction in severance-related reserves related to approximately 250 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.

Interest expense, net of interest income, in the first quarter 2023 was $19.9 million, compared to $23.6 million for the first quarter 2022.

Capitalized interest reduced interest expense by $3.4 million in the first quarter 2023 and $0.2 million in the first quarter 2022.

Restructuring and other charges were $1.2 million for the first quarter of 2023 and related to costs to restart the Company’s titanium operations in Albany, OR.

These costs were included within cost of sales in the consolidated statements of operations.

Restructuring and other charges for the first quarter of 2022 were $7.5 million, as an $8.6 million charge for a litigation reserve relating to our indefinitely idled Rowley, UT titanium sponge production facility was partially offset by a $1.1 million restructuring credit for a reduction in severance-related reserves related to approximately 20 employees based on changes in planned operating rates and revised workforce reduction estimates.

These items were excluded from segment EBITDA.

Cash payments associated with prior restructuring programs were $2.8 million in the first nine months of 2022.

Of the $9.9 million of remaining reserves associated with these restructuring actions as of September 30, 2022, $2.8 million are expected to be paid within the next year.

Strike related costs were $22.9 million and $63.2 million in the third quarter and first nine months of 2021, respectively.

For the third quarter of 2021, $21.5 million were excluded from AA&S segment EBITDA and $1.4 million were excluded from HPMC segment EBITDA.

For the first nine months of 2021, $59.7 million were excluded from AA&S segment EBITDA and $3.5 million were excluded from HPMC segment EBITDA.

These items primarily consisted of overhead costs recognized in the period due to below-normal operating rates, higher costs for outside conversion activities, and ongoing benefit costs for striking employees.

Third quarter 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 collective bargaining agreement.

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.

Gain/loss on asset sales and sales of businesses, net, for the first nine months of 2022 was a loss of $134.2 million, including a $141.0 million loss on the sale of the Company’s Sheffield, UK operations, partially offset by a $6.8 million gain from the sale of assets from our Pico Rivera, CA operations.

Gain/loss on asset sales and sales of businesses, net, for the third quarter and first nine months of 2021 was a $13.7 million gain on the sale of our Flowform Products business within the HPMC segment, which is recorded in nonoperating income/expense on the consolidated statement of operations.

Cash payments associated with prior restructuring programs were $0.2 million in the first quarter of 2023.

Of the $9.6 million of

remaining reserves associated with these restructuring actions as of March 31, 2023, $5.2 million are expected to be paid within the next year.

Loss on asset sales and sales of businesses, net, for the first quarter of 2022 were $18.3 million, including a $25.1 million partial loss on the sale of the Company’s Sheffield, UK operations, which was completed in the second quarter of 2022, and a $6.8 million gain from the sale of assets from our Pico Rivera, CA operations.

These items are excluded from segment EBITDA.

The provision for income taxes for the third quarter and nine months ended September 30, 2022 was $3.0 million and $11.3 million, respectively.

Tax expense in 2022 is mainly attributable to our foreign operations.

The tax expense for the third quarter and nine months ended September 30, 2022 was based on an estimated annual effective tax rate calculation which included foreign, non-valuation allowance, operations combined with the U.S.

jurisdiction.

The provision for income taxes for the third quarter and nine months ended September 30, 2021 was $22.0 million and $31.5 million, respectively.

The 2021 tax expense includes $15.5 million of discrete tax expense 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.

The third quarter and nine months ended September 30, 2021 utilized an annual effective tax rate calculation for its foreign, non-valuation allowance operations, combined with actual year-to-date tax expense related to its U.S.

The provision for income taxes for the quarters ended March 31, 2023 and 2022 was $4.3 million and $4.9 million, respectively.

Tax expense in both periods is mainly attributable to our foreign operations and was based on an estimated annual effective tax rate calculation which included foreign, non-valuation allowance, operations combined with the U.S.

jurisdiction.

In the second quarter 2020, the Company entered into a three-year cumulative loss within the United States, limiting the Company’s ability to utilize future projections when analyzing the need for a deferred tax asset valuation allowance, therefore limiting sources of income as part of the analysis.

ATI continues to maintain valuation allowances on its U.S.

The first quarter of 2022 calculation excluded the results related to our Sheffield, UK operations.

In the second quarter 2020, we entered into a three-year cumulative loss within the United States, limiting our ability to utilize future projections when analyzing the need for a deferred tax asset valuation allowance, therefore limiting sources of income as part of the analysis.

We continue to maintain valuation allowances on our U.S.

federal and state deferred tax assets, as well as for certain foreign jurisdictions.

Liquidity and Financial Condition

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 and a $200 million term loan (Term Loan), and with the amendment now includes a swing loan facility of up to $60 million.

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.

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 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.

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

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.

The ABL facility, which matures in September 2027, includes a $600 million revolving credit facility, a letter of credit sub-facility of up to $200 million, a $200 million term loan (Term Loan), and a swing loan facility of up to $60 million.

The Term Loan has an interest rate of 2.0% above adjusted Secured Overnight Financing Rate (SOFR) 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 $300 million in the maximum amount available under the revolving credit facility for the duration of the ABL.

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 Term Loan balance, or (ii) $60.0 million.

We were in compliance with the fixed charge coverage ratio as of September 30, 2022.

Additionally, we must demonstrate minimum liquidity specified by the facility during the 90-day period immediately preceding the stated maturity date of its 3.5% Convertible Senior Notes due 2025 and the 6.95% Debentures due 2025 issued by our wholly owned subsidiary, Allegheny Ludlum LLC.

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.

The ABL, as amended, also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company’s 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) $120 million or (b) 20% of the sum of the maximum loan amount under the revolving credit portion of the ABL and the outstanding Term Loan balance.

As of September 30, 2022, there were no outstanding borrowings under the revolving portion of the ABL facility, and $40.8 million was utilized to support the issuance of letters of credit.

At September 30, 2022, we had $329 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $550 million.

During the second quarter of 2022, $82.5 million of the 2022 Convertible Senior 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.

The conversion rate for the 2022 Convertible Notes was 69.2042 shares of ATI common stock per $1,000 principal amount of the 2022 Convertible Notes, equivalent to a conversion price of $14.45 per share.

During the third quarter of 2021, we issued $325 million aggregate principal amount of 4.875% Senior Notes due 2029 and $350 million aggregate principal amount of 5.125% Senior Notes due 2031.

Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the redemption of all of the $500 million aggregate principal amount outstanding of the 5.875% Senior Notes due 2023 on October 14, 2021.

We were in compliance with the fixed charge coverage ratio as of March 31, 2023.

Additionally, we must demonstrate minimum liquidity specified by the facility during the 90-day period immediately preceding the stated maturity date of our 3.5% Convertible Senior Notes due 2025 and the 6.95% Debentures due 2025 issued by our wholly owned subsidiary, Allegheny Ludlum LLC.

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) $120 million or (b) 20% of the sum of the maximum loan amount under the revolving credit portion of the ABL and the outstanding Term Loan balance.

As of March 31, 2023, there were no outstanding borrowings under the revolving portion of the ABL facility, and $39.8 million was utilized to support the issuance of letters of credit.

At March 31, 2023, we had $196 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $550 million.

In the first quarter 2023, the Company made $50 million in voluntary cash contributions to its U.S.

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

Based on current actuarial assumptions, we are not required to make any further 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 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.

On February 2, 2022, we announced that our Board of Directors authorized the repurchase of up to $150 million of ATI stock.

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.

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.

In the three and nine months ended September 30, 2022, we used $15.0 million and $104.9 million, respectively, to repurchase 0.5 million and 4.0 million shares, respectively, of our common stock under this program.

In the three months ended March 31, 2023, we used $10.1 million remaining under this authorization to repurchase 0.2 million shares of our common stock under the $150 million progra m.

In addition, on April 28, 2023, our Board of Directors authorized

the repurchase of an additional $75 million of ATI stock.

Repurchases under these programs were or 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 are structured to occur within the pricing and volume requirements of SEC Rule 10b-18.

Our ongoing stock repurchase programs do not obligate the Company to repurchase any specific number of shares and 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, 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.

federal or state income taxes in 2023.

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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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 the third quarter of 2022 compared to year-end 2021, primarily as a result of higher earnings.

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

Our Debt to Adjusted EBITDA Leverage Ratio in the first quarter of 2023 remained fairly comparable to year end 2022.

Our Net Debt to Adjusted EBITDA Leverage ratio worsened in the first quarter of 2023 compared to year end 2022, largely due to a decreased cash balance.

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

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Three months ended Latest 12 months ended Fiscal year ended

September 30, 2022 September 30, 2021 September 30, 2022 December 31, 2021

Net income (loss) attributable to ATI $ 61.1 $ 48.7 $ 24.2 $ (38.2)

March 31, 2023 March 31, 2022 March 31, 2023 December 31, 2022

Net income attributable to ATI $ 70.1 $ 30.9 $ 170.1 $ 130.9

Net income attributable to noncontrolling interests 2.1 4.3 13.4 15.6

Net income (loss) 64.4 55.2 40.7 (16.2)

Net income 72.2 35.2 183.5 146.5

Interest expense 19.9 23.6 83.7 87.4

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Income tax provision 4.3 4.9 14.9 15.5

Restructuring and other charges (credits) 17.3 (2.3) 21.5 (10.5)

Strike related costs — 22.9 — 63.2

Retirement benefit settlement gain — (64.9) — (64.9)

Debt extinguishment charge — — 65.5 65.5

Loss (gain) on asset sales and sale of businesses, net — (13.7) 134.1 (13.8)

Restructuring and other charges 1.2 7.5 17.4 23.7

Joint venture restructuring credit — — (0.9) (0.9)

Loss on asset sales and sale of businesses, net — 18.3 115.9 134.2

Adjusted EBITDA $ 132.7 $ 125.0 $ 557.0 $ 549.3

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Net Debt to Adjusted EBITDA 2.78 2.15

For the nine months ended September 30, 2022, cash used in operations was $99.4 million, primarily related to higher accounts receivable and inventory balances.

Increased operating levels, higher sales including longer collection cycles, increased raw material values and strategic inventory purchase actions to ensure adequate raw material availability all contributed to these operating cash flow uses.

Other significant 2022 operating cash flow items included the payment of 2021 annual incentive compensation and receipt of $8.5 million for repayment of working capital advances from A&T Stainless.

For the nine months ended September 30, 2021, cash used in operations was $244.8 million, primarily due to higher accounts receivable and inventory balances related to increased business activity, rising raw material costs and the lingering strike impacts.

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

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

Cash used in investing activities was $101.0 million in the first nine months of 2022, reflecting $100.5 million in capital expenditures primarily related to AA&S transformation projects and various HPMC growth projects.

For the three months ended March 31, 2023, cash used in operations was $285.2 million, primarily related to higher accounts receivable and inventory balances due to increased operating levels and input costs.

Working capital balances, and consequently cash from 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.

Other significant 2023 operating cash flow items included $50 million in contributions to the U.S.

defined benefit pension plans and the payment of 2022 annual incentive compensation.

For the three months ended March

31, 2022, cash used in operations was $217.2 million, primarily related to higher accounts receivable and inventory balances related to increased operating levels, higher sales including longer collection cycles, increased raw material values and strategic inventory purchase actions to ensure adequate raw material availability.

Other significant 2022 operating cash flow items included the payment of 2021 annual incentive compensation.

Cash used in investing activities was $59.3 million in the first quarter of 2023, reflecting $60.4 million in capital expenditures primarily related to AA&S transformation projects and various HPMC growth projects.

For the three months ended March 31, 2022, cash used in investing activities was $24.2 million, reflecting $26.0 million in capital expenditures.

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 financing activities was $158.2 million in the first nine months of 2022 and consisted primarily of $104.9 million for the repurchase of 4.0 million shares of ATI stock under the $150 million repurchase program authorized by our Board of Directors on February 2, 2022, and a $16.0 million dividend payment to the 40% noncontrolling interest in our PRS joint venture in China.

At September 30, 2022, cash and cash equivalents on hand totaled $329.1 million, a decrease of $358.6 million from year end 2021.

Cash and cash equivalents held by our foreign subsidiaries was $106.6 million at September 30, 2022, of which $65.3 million was held by the STAL joint venture.

Cash used in financing activities was $43.3 million in the first quarter of 2023 and included $10.1 million for the repurchase of 0.2 million shares of ATI stock under the $150 million repurchase program authorized by our Board of Directors on February 2, 2022.

For the three months ended March 31, 2022, cash used in financing activities was $129.6 million and included $89.9 million for repurchase of 3.5 million shares of ATI stock and a $16 million dividend payment to the 40% noncontrolling interest in our PRS joint venture in China.

At March 31, 2023, cash and cash equivalents on hand totaled $196.2 million, a decrease of $387.8 million from year end 2022.

Cash and cash equivalents held by our foreign subsidiaries was $83.5 million at March 31, 2023, of which $52.9 million was held by the STAL joint venture.

Critical Accounting Policies

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As of March 31, 2022, our Sheffield, UK operations were classified as held for sale, and the terms of sale resulted in indicators of impairment in the long-lived assets of this disposal group.

A $22.3 million long-lived asset impairment charge was recorded in the first quarter 2022, reported as part of the $141.0 million loss on sale of this business for the nine months ended September 30, 2022.

A $22.3 million long-lived asset impairment charge was recorded in the first quarter 2022, reported as part of the $25.1 million loss on sale of this business for the three months ended March 31, 2022.

This long-lived asset impairment charge was determined using the held for sale framework and represents Level 1 information in the fair value hierarchy.

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Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates.

At September 30, 2022, we had $227.2 million of goodwill on our consolidated balance sheet.

At March 31, 2023, we had $227.2 million of goodwill on our consolidated balance sheet.

All goodwill relates to reporting units in the HPMC segment.

Management concluded that, other than the Sheffield, UK business, none of ATI’s reporting units or long-lived assets experienced any triggering event that would have required an interim impairment analysis at September 30, 2022.

Management concluded that none of ATI’s reporting units or long-lived assets experienced any triggering event that would have required an interim impairment analysis at March 31, 2023.

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

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On a quarterly basis, we evaluate the realizability of our deferred tax assets.

The evaluation includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

In situations where a three-year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets.

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Federal and state deferred tax assets.

In addition, we have $27.1 million of valuation allowances on amounts recorded in other comprehensive loss as of September 30, 2022.

In addition, we have $66.3 million of valuation allowances on amounts recorded in other comprehensive loss as of March 31, 2023.

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.

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In estimating this rate, we receive input from our actuaries regarding the rate of return on high quality, fixed income investments with maturities matched to the expected future retirement benefit payments.

Based on current market conditions, discount rates are above the rates in effect at the year-end 2021 remeasurement date, when a 2.95% discount rate was used for valuing pension liabilities.

The estimated effect at the year end 2022 valuation date of an increase in the discount rate by 0.50% would decrease pension liabilities by approximately $90 million.

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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.

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 $27 million on an undiscounted basis.

Manufacturing operations at this fac ility were idled throughout 2021 and most of 2022, wi th 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 facili ty could result in a withdrawal liability assessment in a future period.

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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Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for derivatives, retirement plans, income taxes, environmental and other contingencies, as well as asset impairment, inventory valuation and collectability of accounts receivable.

We use historical and other information that we consider to be relevant to make these judgments and estimates.

We use historical and other information that we consider to be relevant to make these

judgments and estimates.

However, actual results may differ from those estimates and assumptions that are used to prepare our financial statements.

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Important factors that could cause actual results to differ materially from those in the forward-looking statements include:

adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty metals and changes in international trade duties and other aspects of international trade policy;

(a) material adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty metals and changes in international trade duties and other aspects of international trade policy;

(b) material adverse changes in the markets we serve;

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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-Q

Item 2. Management’s Discussion and Analysis