What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-02 · 194 added, 176 removed, 295 unchanged (56% 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 57% of sale s for the six months ended June 30, 2023, led by products for jet engines.

Our largest markets are aerospace & defense, representing 58% of sale s for the nine months ended September 30, 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.

2 unchanged sentences

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.

Second quarter 2023 sales increased 9% to $1.05 billion, compared to sales of $959.5 million for the second quarter of 2022, primarily due to a significant recovery in demand for commercial aerospace products.

Total aerospace and defense sales were 58% of total sales for the second quarter 2023.

Our gross profit for the second quarter of 2023 was $209.1 million, or 20.0% of sales, compared to $175.3 million, or 18.3% of sales, for the second quarter 2022.

Third quarter 2023 sales were flat at $1.03 billion, compared to sales for the third quarter of 2022, as increased demand for commercial aerospace products was offset by recessionary softness in general industrial end markets.

Total aerospace and defense sales were 61% of total sales for the third quarter 2023.

Gross profit for the third quarter of 2023 was $194.6 million,

or 19.0% of sales, compared to $183.8 million, or 17.8% of sales, for the third quarter 2022.

This $10.8 million increase in gross profit reflects strong results for our HPMC segment as well as the benefits of our ongoing transformation focused on the key growth markets of aerospace and defense, and our streamlined value-add production capabilities.

Second quarter 2023 gross profit includes $4.5 million of start-up related costs and $2.8 million of other charges primarily related to asset write-offs for the closure of our Robinson, PA operations.

Second quarter 2023 results include a $0.6 million loss on the sale of our Northbrook, IL operations and second quarter 2022 results include a $115.9 million loss on the sale of the Sheffield, UK operations, both of which are reported in loss on asset sales and sales of businesses, net.

Restructuring charges were $2.7 million for the second quarter of 2023 primarily related to severance for involuntary reductions across ATI’s domestic operations in conjunction with our continued transformation, while the second quarter of 2022 included $1.3 million of restructuring-related credits primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

Both the losses on sales and restructuring charges/credits are excluded from segment results.

Also, nonoperating income for the second quarter of 2022 included 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.

In addition, nonoperating retirement benefit expense increased to $16.9 million in the second quarter of 2023 compared to $6.6 million in the second quarter of 2022.

Our pre-tax income was $82.8 million in the second quarter of 2023, compared to a loss of $30.9 million in the prior year period.

Income tax expense for the second quarters of 2023 and 2022 was $3.7 million and $3.4 million, respectively, primarily related to our Asian precision rolled strip business.

Third quarter 2023 gross profit includes $2.8 million of start up costs and $1.9 million of costs associated with an unplanned outage at our Lockport, NY melt facility.

Restructuring charges for the third quarter of 2023 and 2022 were credits of $0.5 million and $2.6 million, respectively, for reductions in severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

Restructuring charges/credits are excluded from segment results.

Also, nonoperating income for the third quarter of 2022 included 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.

In addition, nonoperating retirement benefit expense increased to $16.9 million in the third quarter of 2023 compared to $6.5 million in the third quarter of 2022, and interest expense increased to $23.8 million in the third quarter of 2023 compared to $20.8 million in the third quarter of 2022 as a result of the issuance in August 2023 of $425 million aggregate principal amount of 7.25% Senior Notes due 2030 (2030 Notes).

Our pre-tax income was $84.5 million in the third quarter of 2023, compared to $67.4 million in the prior year period.

Income tax expense for the third quarters of 2023 and 2022 was $4.9 million and $3.0 million, respectively, primarily related to the Company’s foreign operations.

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

deferred tax assets.

Net income attributable to ATI was $76.0 million, or $0.52 per share, in the second quarter of 2023, compared to a loss of $38.0 million, or ($0.31) per share, for the second quarter of 2022.

Adjusted EBITDA was $149.8 million, or 14.3% of sales, for the second quarter 2023, and $143.1 million, or 14.9% of sales, for the prior year second quarter.

Net income attributable to ATI was $75.7 million, or $0.52 per share, in the third quarter of 2023, compared to $61.1 million, or $0.42 per share, for the third quarter of 2022.

Adjusted EBITDA was $148.1 million, or 14.4% of sales, for the third quarter 2023, and $141.1 million, or 13.7% 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.

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GAAP to these non-GAAP measures.

Compared to the second quarter 2022, sales increased 33% in the HPMC business segment and decreased 8% in the AA&S business segment.

In aggregate, ATI’s aerospace & defense markets sales incre ased 39% to $607 million i n the second quarter 2023, compared to $436 million th e second quarter 2022, reflecting increasing demand for commercial aerospace jet engine and airframe products.

In the HPMC segment, second quarter 2023 sales of aerospace and defense products increased 38% c ompared to the prior year period.

The decline in the AA&S segment reflects recessionary softness in general industrial end markets and lingering COVID impacts associated with our Asian precision rolled strip business.

In the AA&S segment, second quarter 2023 sales of commercial aerospace products increased 49% compared to the prior year period.

Results for the first six months of 2023 were sales of $2.08 billion and income before tax of $159.3 million, compared to sales of $1.79 billion and income before tax of $9.2 million for the first six months of 2022.

Our results for the first half of 2023 reflect the ongoing recovery across many of our key end markets, most notably jet engine materials and components, compared to the prior year period.

Our gross profit was $402 million, or 19.3% of sales, a $58 million or 16.7% increase compared to the first six months of 2022.

Second quarter 2023 gross profit includes $5.7 million of start-up related costs and $2.8 million of other charges primarily related to asset write-offs for the closure of our Robinson, PA operations.

Results in the first six 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.

Compared to the third quarter 2022, sales increased 18% in the HPMC business segment and decreased 15% in the AA&S business segment.

In aggregate, ATI’s aerospace & defense markets sales incre ased 18% to $626 million i n the third quarter 2023, compared to $530 million th e third quarter 2022, reflecting increasing demand for commercial aerospace jet engine and airframe products.

In the HPMC segment, third quarter 2023 sales of aerospace and defense products increased 22% c ompared to the prior year period.

The decline in the AA&S segment reflects recessionary softness in general industrial end markets.

In the AA&S segment, third quarter 2023 sales of commercial aerospace products increased 7% compared to the prior year period.

Results for the first nine months of 2023 were sales of $3.11 billion and income before tax of $243.8 million, compared to sales of $2.83 billion and income before tax of $76.6 million for the first nine months of 2022.

Our results for the first nine months of 2023 reflect significant increased demand for commercial aerospace products despite recessionary softness in general industrial end markets.

Our gross profit was $596.9 million, or 19.2% of sales, a $68.4 million, or 13%, increase compared to the first nine months of 2022.

Gross profit for the first nine months of 2023 includes $8.5 million of start up costs, $1.9 million of costs associated with an unplanned outage at our Lockport, NY melt facility, and $2.0 million primarily for asset write-offs for the closure of our Robinson, PA operations.

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 a $16.8 million grant under the Aviation Manufacturing Jobs Protection (AMJP) program for our operations in the HPMC segment, 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.

The six month 2023 results include a $0.6 million loss on the sale of our Northbrook, IL operations.

The six month 2022 results include a $141.0 million loss on the sale of the Sheffield, UK operations, of which $25.1 million was recorded in the first quarter of 2022 primarily for the impairment of long-lived assets.

Loss on asset sales and sales of businesses, net, for the first six 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.

Restructuring charges were $2.7 million for the six months of 2023 primarily related to severance for the involuntary reductions across ATI’s domestic operations in conjunction with our continued transformation, while the six months of 2022 included $2.4 million of restructuring-related credits primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

The nine month 2023 results include a $0.6 million loss on the sale of our Northbrook, IL operations.

The nine month 2022 results include a $141.0 million loss on the sale of the Sheffield, UK operations, partially offset by 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.

Restructuring charges for the nine months ended September 30, 2023 were a charge of $2.2 million and represent severance for involuntary reductions across ATI’s domestic operations in conjunction with our continued transformation, partially offset by a credit in the

third quarter 2023 discussed above for a reduction in severance-related reserves.

The nine months of 2022 included $5.0 million of restructuring-related credits primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates.

Both the losses on sales and restructuring charges/credits are excluded from segment results.

Other nonoperating income for the first six months of 2022 includes 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, and $8.6 million of expense for a litigation reserve.

In addition, nonoperating retirement benefit expense increased to $33.7 million in the six months of 2023 compared to $12.4 million in the prior year period.

Our pre-tax income was $159.3 million in the first six months of 2023, compared to $9.2 million in the prior year period.

Net income attributable to ATI was $146.1 million, or $1.01 per share, in the first six months of 2023, compared to a net loss attributable to ATI of $7.1 million, or ($0.06) per share, for the first six months of 2022.

Compared to the first six months of 2022, sales increased 35% in the HPMC business segment and 3% in the AA&S business segment.

Sales to the aerospace & defense markets in the HPMC segment were 45% higher than the first six months of 2022, due to improvements in the commercial aerospace market.

AA&S sales reflect a 53% increase in the aerospace & defense markets and 20% increase in the energy market, 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 overall revenues (in millions) by end market and their respective percentages of total revenues for the three and six month periods ended June 30, 2023 and 2022 is shown below.

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.

In addition, nonoperating retirement benefit expense increased to $50.6 million in the nine months of 2023 compared to $18.9 million in the prior year period.

Our pre-tax income was $243.8 million in the first nine months of 2023, compared to $76.6 million in the prior year period.

Income tax expense for the nine months of 2023 and 2022 was $12.9 million and $11.3 million, respectively, primarily related to our foreign operations.

Net income attributable to ATI was $221.8 million, or $1.53 per share, in the first nine months of 2023, compared to $54.0 million, or $0.42 per share, for the first nine months of 2022.

Compared to the first nine months of 2022, sales increased 29% in the HPMC business segment and decreased 4% in the AA&S business segment.

Sales to the aerospace & defense markets in the HPMC segment were 36% higher than the first nine months of 2022, due to improvements in the commercial aerospace market.

AA&S sales reflect recessionary softness in general industrial end markets, offset by a 35% increase in the aerospace & defense markets and 5% increase in the energy market.

Comparative information regarding 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, 2023 and 2022 is shown below.

Three months ended Three months ended

Markets June 30, 2023 June 30, 2022

Markets September 30, 2023 September 30, 2022

Aerospace & Defense:

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Automotive 48.1 5 % 69.6 7 %

Construction/Mining 48.4 5 % 39.9 4 %

Medical 47.5 5 % 47.4 4 %

Electronics 44.8 4 % 48.5 5 %

Construction/Mining 40.0 4 % 47.8 5 %

Food Equipment & Appliances 16.2 2 % 45.2 4 %

1 unchanged sentence

Total $ 1,025.6 100 % $ 1,032.0 100 %

Six months ended Six months ended

Markets June 30, 2023 June 30, 2022

Nine months ended Nine months ended

Markets September 30, 2023 September 30, 2022

Aerospace & Defense:

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Total $ 3,109.7 100 % $ 2,825.6 100 %

For the second quarter 2023, international sales of $478 million, or 46% of total sales, increased from $391 million in the second quarter 2022.

For the third quarter 2023, international sales of $469 million, or 46% of total sales, increased from $421 million in the third quarter 2022.

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

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

Nickel-based alloys and specialty alloys 47 % 54 % 50 % 52 %

Precision forgings, castings and components 17 % 15 % 16 % 15 %

Titanium and titanium-based alloys 19 % 11 % 16 % 11 %

Precision forgings, castings and components 18 % 15 % 17 % 15 %

Precision rolled strip products 9 % 12 % 9 % 14 %

1 unchanged sentence

Total 100 % 100 % 100 % 100 %

Segment EBITDA for the second quarter 2023 was $171.3 million, or 16.4% of sales, compared to segment EBITDA of $164.9 million, or 17.2% of sales, for the second quarter of 2022.

Segment EBITDA for the first six months of 2023 was $324.1 million, or 15.6% of sales, compared to segment EBITDA of $308.3 million, or 17.2% of sales, for the first six months of 2022.

Segment EBITDA for the third quarter 2023 was $166.1 million, or 16.2% of sales, compared to segment EBITDA of $161.6 million, or 15.7% of sales, for the third quarter of 2022.

Segment EBITDA for the first nine months of 2023 was $490.2 million, or 15.8% of sales, compared to segment EBITDA of $469.9 million, or 16.6% of sales, for the first nine months 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 June 30, Six months ended June 30,

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

2023 2022 2023 2022

13 unchanged sentences

Interest expense, net (23.8) (20.8) (65.0) (67.8)

Restructuring and other credits (charges) (9.2) 1.3 (10.4) (6.2)

Restructuring and other charges (4.2) (17.3) (14.6) (23.5)

Loss on asset sales and sales of businesses, net — — (0.6) (134.2)

Income (loss) before income taxes 82.8 (30.9) 159.3 9.2

Income before income taxes 84.5 67.4 243.8 76.6

Income tax provision 4.9 3.0 12.9 11.3

Net (loss) income 79.1 (34.3) 151.3 0.9

Net income 79.6 64.4 230.9 65.3

Net income attributable to noncontrolling interests 3.9 3.3 9.1 11.3

Net income (loss) attributable to ATI $ 76.0 $ (38.0) $ 146.1 $ (7.1)

Net income attributable to ATI $ 75.7 $ 61.1 $ 221.8 $ 54.0

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.

We exclude the effects of inventory valuation reserves and reserves for uncollectible accounts receivable when

computing this non-GAAP performance measure, which is not intended to replace Working Capital or to be used as a measure of liquidity.

We exclude the effects of inventory valuation reserves and reserves for uncollectible accounts receivable when computing this non-GAAP performance measure, which is not intended to replace Working Capital or to be used as a measure of liquidity.

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 June 30, 2023, Managed Working Capital increased as a percentage of annualized total ATI sales to 39.0% compared to 30.1% at December 31, 2022.

The Managed Working Capital increase was impacted by increased inventory levels in the second quarter of 2023 as a result of additional melt capacity coming on line, increased production levels, and a strategic nickel purchase to ensure continuity of supply, which was funded by a $50 million draw on our ABL credit facility.

Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 2% as of June 30, 2023 compared to year end 2022.

Gross inventory turns decreased 12% as of June 30, 2023 compared to year end 2022.

The computations of Managed Working Capital at June 30, 2023 and December 31, 2022, reconciled to the financial statement line items as computed under U.S.

At September 30, 2023, Managed Working Capital increased as a percentage of annualized total ATI sales to 39.9% compared to 30.1% at December 31, 2022.

The Managed Working Capital increase was impacted by increased inventory levels in 2023 as a result of additional melt capacity coming on line, increased production levels, and a strategic nickel purchase to ensure continuity of supply, which was funded by a $50 million draw on our ABL credit facility in the second quarter of 2023 that was repaid in the third quarter of 2023.

Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 5% as of September 30, 2023 compared to year end 2022.

Gross inventory turns decreased 12% as of September 30, 2023 compared to year end 2022.

The computations of Managed Working Capital at September 30, 2023 and December 31, 2022, reconciled to the financial statement line items as computed under U.S.

GAAP, were as follows.

June 30, December 31,

September 30, December 31,

(In millions) 2023 2022

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High Performance Materials & Components Segment

Second quarter 2023 sales were $527.1 million, increasing 33% compared to the second quarter 2022, reflecting increasing commercial aerospace demand.

Sales to the commercial aerospace market increased 40%, reflecting a 38% increase in commercial jet engines.

Overall aerospace and defense market sales were 83% of total HPMC sales in the second quarter of 2023.

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 June 30, 2023 and 2022 is as follows:

Third quarter 2023 sales were $539.5 million, increasing 18% compared to the third quarter 2022, reflecting increasing commercial aerospace demand.

Sales to the commercial aerospace market increased 24%, as airframe sales more than doubled and commercial jet engine sales increased 9%.

Overall aerospace and defense market sales were 85% of total HPMC sales in the third quarter of 2023.

Three months ended Three months ended

Markets June 30, 2023 June 30, 2022

Markets September 30, 2023 September 30, 2022

Aerospace & Defense:

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Total $ 539.5 100 % $ 457.6 100 %

International sales represented 58% of total segment sales for the second quarter 2023, compared to 55% 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 June 30, 2023 and 2022, is as follows:

Three months ended June 30,

International sales represented 55% of total segment sales for the third quarter 2023, compared to 53% 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 September 30, 2023 and 2022, is as follows:

Three months ended September 30,

Nickel-based alloys and specialty alloys 42 % 52 %

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Total 100 % 100 %

Segment EBITDA in the second quarter 2023 increased to $108.1 million, or 20.5% of total sales, compared to $60.3 million, or 15.2% of total sales, for the second quarter 2022.

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

Results in the second quarter 2022 included $5.6 million of benefits from AMJP program grants.

Sales for the first six months of 2023 were $998.2 million, increasing 35% compared to the first six months of 2022, reflecting increasing commercial aerospace demand.

Sales to the commercial aerospace market increased 51%, reflecting a 47% increase in commercial jet engines.

Segment EBITDA in the third quarter 2023 increased to $115.7 million, or 21.5% of total sales, compared to $85.8 million, or 18.8% of total sales, for the third quarter 2022.

Strength in the HPMC segment continues to be driven by increased volumes on higher margin next-generation commercial aerospace platforms.

Sales for the first nine months of 2023 were $1.54 billion, increasing 29% compared to the first nine months of 2022, reflecting increasing commercial aerospace demand.

Sales to the commercial aerospace market increased 40%, reflecting a 31% increase in commercial jet engines and 85% increase in airframe sales.

Sales to the energy markets decreased 30%, mainly due to lower oil and gas sales.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the six month periods ended June 30, 2023 and 2022 is as follows:

Six months ended Six months ended

Markets June 30, 2023 June 30, 2022

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, 2023 and 2022 is as follows:

Nine months ended Nine months ended

Markets September 30, 2023 September 30, 2022

Aerospace & Defense:

10 unchanged sentences

Total $ 1,537.7 100 % $ 1,195.3 100 %

International sales represented 58% of total segment sales for the first six months of 2023.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the six months ended June 30, 2023 and 2022, is as follows:

Six months ended June 30,

International sales represented 57% of total segment sales for the first nine months of 2023.

Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the nine months ended September 30, 2023 and 2022, is as follows:

Nine months ended September 30,

Nickel-based alloys and specialty alloys 45 % 50 %

3 unchanged sentences

Total 100 % 100 %

Segment EBITDA in the first six months of 2023 increased to $188.2 million, or 18.9% of total sales, compared to $128.4 million, or 17.4% of total sales, for the first six months of 2022.

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

Results in the first half of 2022 included $27.5 million of benefits from the AMJP program and employee retention credits.

HPMC results for the first half of 2023, which include the highest quarterly EBITDA margins for the second quarter of 2023 since prior to the COVID-19 pandemic, reflect improving operating leverage from higher production volumes as the aerospace and defense markets continue to grow.

We are seeing an ongoing improvement in demand in many of our key end markets, most notably jet engine materials and components.

Segment EBITDA in the first nine months of 2023 increased to $303.9 million, or 19.8% of total sales, compared to $214.2 million, or 17.9% of total sales, for the first nine months of 2022.

Strength in the HPMC segment continues to be driven by increased volumes on higher margin next-generation commercial aerospace platforms.

Results in the first nine months of 2022 included $27.5 million of benefits from the AMJP program and employee retention credits.

HPMC results for the first nine months of 2023, which include the highest quarterly EBITDA margins in the third quarter of 2023 since prior to the COVID-19 pandemic, reflect improving operating leverage from higher production volumes as the aerospace and defense markets continue to grow.

We are seeing an ongoing improvement in demand in many of our key end markets, most notably in commercial aerospace.

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

We are investing in additional capacity to meet growing demand, including our recently announced expansion in Richland, Washington, so that we are well-positioned to capitalize on market opportunities.

We also continue to invest and adjust work-flow processes to de-bottleneck our critical operations.

Advanced Alloys & Solutions Segment

Second quarter 2023 sales were $518.9 million, decreasing 8% compared to the second quarter of 2022, primarily due to recessionary softness in general industrial end markets and lingering COVID impacts associated with our Asian precision rolled strip business.

Sales of commercial aerospace products increased by nearly 50% compared to the prior year period, due in part to a significant increase in commercial airframe demand for various flat-rolled product forms.

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 June 30, 2023 and 2022 is shown below.

Third quarter 2023 sales were $486.1 million, decreasing 15% compared to the third quarter of 2022, primarily due to recessionary softness in general industrial end markets.

Sales of commercial aerospace products increased by nearly 7% compared to the prior year period, due to a significant increase in commercial airframe demand for various flat-rolled product forms.

Three months ended Three months ended

Markets June 30, 2023 June 30, 2022

Markets September 30, 2023 September 30, 2022

Aerospace & Defense:

6 unchanged sentences

Total Energy 126.2 26 % 159.4 28 %

Electronics 44.2 9 % 47.8 8 %

Automotive 40.9 8 % 66.1 11 %

Construction/Mining 32.3 7 % 38.3 7 %

Electronics 35.3 7 % 48.7 8 %

Food Equipment & Appliances 16.2 3 % 45.0 8 %

1 unchanged sentence

Total $ 486.1 100 % $ 574.4 100 %

International sales represented 33% of total segment sales for the second quarter 2023, compared to 31% in the prior year’s second quarter.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the three months ended June 30, 2023 and 2022, are presented in the following table.

International sales represented 35% of total segment sales for the third quarter 2023, compared to 31% in the prior year’s third quarter.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the three months ended September 30, 2023 and 2022, are presented in the following table.

HRPF conversion service sales are excluded from this presentation.

Three months ended June 30,

Three months ended September 30,

Nickel-based alloys and specialty alloys 52 % 57 %

3 unchanged sentences

Total 100 % 100 %

Segment EBITDA was $63.2 million, or 12.2% of sales, for the second quarter 2023, compared to segment EBITDA of $104.6 million, or 18.6% of sales, for the second quarter 2022.

Reduced deliveries of nickel based alloys and precision rolled strip products in the second quarter 2023 were only partially offset by increases in titanium plate deliveries.

Segment EBITDA was $50.4 million, or 10.4% of sales, for the third quarter 2023, compared to segment EBITDA of $75.8 million, or 13.2% of sales, for the third quarter 2022.

Reduced deliveries of nickel based alloys and precision rolled strip products in the third quarter 2023 were only partially offset by increases in titanium plate deliveries.

Higher retirement benefit costs negatively impacted 2023 operating margins compared to 2022.

Second quarter 2022 AA&S results included a $9.9 million benefit from the A&T Stainless joint venture’s settlement of Section 232 tariff claims.

Sales for the first six months of 2023 were $1.09 billion, increasing 3% compared to the first six months of 2022.

Sales to the aerospace & defense markets increased 53%, with a 60% 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 20% higher than the prior year period, 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 six month periods ended June 30, 2023 and 2022 is shown below.

Six months ended Six months ended

Markets June 30, 2023 June 30, 2022

Sales for the first nine months of 2023 were $1.57 billion, decreasing 4% compared to the first nine months of 2022 reflecting recessionary softness in general industrial end markets.

Sales to the aerospace & defense markets increased 35%, with a 38% increase in sales of commercial aerospace products, due to a significant increase in commercial airframe demand for various flat-rolled product forms.

Comparative information regarding 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, 2023 and 2022 is shown below.

Nine months ended Nine months ended

Markets September 30, 2023 September 30, 2022

Aerospace & Defense:

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Automotive 140.8 9 % 227.4 14 %

Construction/Mining 69.6 6 % 75.6 7 %

Electronics 113.4 7 % 147.6 9 %

Construction/Mining 101.9 6 % 113.9 7 %

Food Equipment & Appliances 58.6 4 % 141.7 9 %

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Total $ 1,572.0 100 % $ 1,630.3 100 %

International sales represented 32% of total segment sales for the first six months of 2023.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the six months ended June 30, 2023 and 2022, are presented in the following table.

International sales represented 33% of total segment sales for the first nine months of 2023.

Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the nine months ended September 30, 2023 and 2022, are presented in the following table.

HRPF conversion service sales are excluded from this presentation.

Six months ended June 30,

Nine months ended September 30,

Nickel-based alloys and specialty alloys 56 % 55 %

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Total 100 % 100 %

Segment EBITDA was $135.9 million, or 12.5% of sales, for the first six months of 2023, compared to segment EBITDA of $179.9 million, or 17.0% of sales, for the first six months of 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 half 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.

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

With our titanium melt shop in Albany, Oregon planning to be fully operational in the third quarter of 2023, we are well positioned to capitalize on the aerospace ramp.

Segment EBITDA was $186.3 million, or 11.9% of sales, for the first nine months of 2023, compared to segment EBITDA of $255.7 million, or 15.7% of sales, for the first nine months of 2022.

A stronger mix of 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.

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.

With the AA&S business transformation and footprint consolidation complete, we believe we are well positioned for 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.

With our titanium melt shop in Albany, Oregon fully operational in the third quarter of 2023, we are well positioned to capitalize on the aerospace ramp.

The modest investment to restart this facility in Albany, Oregon has helped significantly expand our titanium melt capacity.

With customer commitments for ATI titanium being so strong, we are continuing to invest in additional capacity at this facility, bringing online a fourth furnace.

We are on track to ramp capacity of the fourth furnace in the first half of 2024, reaching a full run-rate in the second half of 2024.

We continue to right-size our costs to offset the demand softness in markets other than aerospace & defense.

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 Items

Corporate expenses for the second quarter of 2023 were $18.1 million, compared to $16.7 million for the second quarter 2022.

For the six months ended June 30, 2023, corporate expenses were $35.4 million, compared to $33.7 million for the six months ended June 30, 2022.

Closed operations and other expense for the second quarter 2023 was $3.4 million, compared to $5.1 million for the second quarter 2022.

For the six months ended June 30, 2023, closed operations and other expense was $6.2 million, compared to $6.5 million for the six months ended June 30, 2022.

Corporate expenses for the third quarter of 2023 were $12.9 million, compared to $14.2 million for the third quarter 2022.

For the nine months ended September 30, 2023, corporate expenses were $48.3 million, compared to $47.9 million for the nine months ended September 30, 2022.

Closed operations and other expense for the third quarter 2023 was $5.1 million, compared to $6.3 million for the third quarter 2022.

For the nine months ended September 30, 2023, closed operations and other expense was $11.3 million, compared to $12.8 million for the nine months ended September 30, 2022.

These decreases reflect changes in foreign currency remeasurement impacts primarily related to ATI’s European Treasury operation partially offset by higher costs in 2023 associated with insurance matters at closed operations and increased retirement benefit expense.

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

Depreciation expense in the second quarter and six months ended June 30, 2023 includes $0.8 million of accelerated depreciation on fixed assets for the closure of our Robinson, PA operations.

Three months ended June 30, Six months ended June 30,

Depreciation expense in the nine months ended September 30, 2023 includes $0.8 million of accelerated depreciation on fixed assets for the closure of our Robinson, PA operations.

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

2023 2022 2023 2022

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$ 35.6 $ 35.6 $ 106.6 $ 107.1

Interest expense, net of interest income, in the second quarter 2023 was $21.3 million, compared to $23.4 million for the second quarter 2022.

On a year-to-date basis, net interest expense was $41.2 million for the first six months of 2023 compared to $47.0 million for the first six months of 2022.

Capitalized interest reduced interest expense by $3.3 million in the second quarter 2023 and $0.4 million in the second quarter 2022.

For the six months ended June 30, 2023 and 2022, capitalized interest was $6.7 million and $0.6 million, respectively.

Restructuring and other charges of $9.2 million for the second quarter ended June 30, 2023 include $2.7 million of severance-related restructuring charges for the involuntary reduction of approximately 40 employees across ATI’s domestic operations in conjunction with our continued transformation, as well as $4.5 million of start up costs and $2.0 million primarily for asset write-offs for the closure of our Robinson, PA operations, both of which are included within cost of sales on the consolidated statements of operations.

Restructuring and other charges of $10.4 million for the six months ended June 30, 2023 also include $1.2 million of additional start-up costs related to the Company’s titanium operations in Albany, OR, which are included within cost of sales on the consolidated statements of operations.

Restructuring charges for the second quarter ended June 30, 2022 were a credit of $1.3 million, for a reduction in severance-related reserves related to approximately 30 employees based on changes in planned operating rates and revised workforce reduction estimates.

Restructuring and other charges for the six months ended June 30, 2022 were $6.2 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 $2.4 million restructuring credit for a reduction in severance-related reserves related to approximately 50 employees based on changes in planned operating rates and revised workforce reduction estimates.

Interest expense, net of interest income, in the third quarter 2023 increased to $23.8 million, compared to $20.8 million for the third quarter 2022, reflecting the issuance of the 2030 Notes during the third quarter 2023.

On a year-to-date basis, net interest expense was $65.0 million for the first nine months of 2023 compared to $67.8 million for the first nine months of 2022.

Capitalized interest reduced interest expense by $3.3 million in the third quarter 2023 and $2.0 million in the third quarter 2022.

For the nine months ended September 30, 2023 and 2022, capitalized interest was $10.0 million and $2.6 million, respectively.

Restructuring and other charges of $4.2 million for the third quarter ended September 30, 2023 include $2.8 million of start up costs and $1.9 million of costs associated with an unplanned outage at our Lockport, NY melt facility, both of which are included within cost of sales on the consolidated statements of operations.

These were partially offset by a $0.5 million pre-tax credit for restructuring charges, primarily related to lowered severance-related reserves related to approximately 10 employees based on changes in planned operating rates and revised workforce reduction estimates.

Restructuring and other charges of $14.6 million for the nine months ended September 30, 2023 include $2.2 million of severance-related restructuring charges for the involuntary reduction of approximately 40 employees across ATI’s domestic operations in conjunction with our continued transformation, partially offset by the restructuring credit in the third quarter 2023 discussed above, as well as $8.5 million of start up costs, $1.9 million of costs associated with an unplanned power outage at our Lockport, NY melt facility, and $2.0 million primarily for asset write-offs for the closure of our Robinson, PA operations, all of which are included within cost of sales on the consolidated statements of operations.

Restructuring and other charges 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.

These items were excluded from segment EBITDA.

Cash payments associated with prior restructuring programs were $0.8 million in the first six months of 2023.

Of the $11.7 million of remaining reserves associated with these restructuring actions as of June 30, 2023, $7.2 million are expected to be paid within the next year.

Loss on asset sales and sales of businesses, net, for the second quarter and six months ended June 30, 2023 is related to a $0.6 million loss on the sale of the Company’s Northbrook, IL operations for which no proceeds were received but $0.3 million of transaction costs were paid and reported as an investing activity on the consolidated statement of cash flows.

Loss on asset

sales and sales of businesses, net, for the second quarter of 2022 was $115.9 million for the loss on the sale of the Company’s Sheffield, UK operation.

Loss on asset sales and sales of businesses, net, for the first six months of 2022 was $134.2 million, including a $141.0 million loss on the sale of the Company’s Sheffield, UK operations, of which $25.1 million was recorded in the first quarter of 2022 primarily for the impairment of long-lived assets, and a $6.8 million gain from the sale of assets from our Pico Rivera, CA operations.

Cash payments associated with prior restructuring programs were $1.1 million in the first nine months of 2023.

Of the $10.9 million of remaining reserves associated with these restructuring actions as of September 30, 2023, $6.7 million are expected to be paid within the next year.

Loss on asset sales and sales of businesses, net, for the nine months ended September 30, 2023 is related to a $0.6 million loss on the sale of the Company’s Northbrook, IL operations for which no proceeds were received but $0.3 million of transaction costs were paid and reported as an investing activity on the consolidated statement of cash flows.

Loss on asset sales and sales of businesses, net, for the first nine months of 2022 was $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.

These items are excluded from segment EBITDA.

The provision for income taxes for the second quarter and six months ended June 30, 2023 was $3.7 million and $8.0 million, respectively.

The provision for income taxes for the second quarter and six months ended June 30, 2022 was $3.4 million and $8.3 million, respectively.

The provision for income taxes for the third quarter and nine months ended September 30, 2023 was $4.9 million and $12.9 million, respectively.

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 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.

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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 June 30, 2023.

We were in compliance with the fixed charge coverage ratio as of September 30, 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 June 30, 2023, there were $50 million of outstanding borrowings under the revolving portion of the ABL facility, and $39.4 million was utilized to support the issuance of letters of credit.

At June 30, 2023, we had $267 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximat ely $500 million.

As of September 30, 2023, there were no outstanding borrowings under the revolving portion of the ABL facility, and $31.7 million was utilized to support the issuance of letters of credit.

At September 30, 2023, we had $433 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approxima tely $550 million.

In August 2023, we issued $425 million aggregate principal amount of 7.25% Senior Notes due 2030.

Underwriting fees and other third-party expenses for the issuance of the 2030 Notes were $6.2 million, and are being amortized to interest expense over the 7-year term of the 2030 Notes.

Net proceeds were $418.8 million from this issuance, of which $222 million was used to fund ATI’s U.S.

qualified defined benefit pension plan in order to facilitate a pension derisking strategy (see below for further explanation), and the remaining proceeds were used for liquidity and general corporate purposes.

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.

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.

In the six months ended June 30, 2023 and 2022, we used $10.1 million and $89.9 million, respectively, to repurchase 0.2 million and 3.5 million shares, respectively, of our common stock under the $150 million program.

In addition, on April 28, 2023, our Board of Directors authorized the repurchase of an additional $75 million of ATI stock.

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

qualified defined benefit pension plans to improve the plans’ funded position, and in the third quarter of 2023, we made an additional $222 million in voluntary cash contributions to our U.S.

qualified defined benefit pension plans in order to facilitate a pension derisking strategy.

In October 2023, we purchased group annuity contracts from an insurer covering approximately 85% of our U.S.

qualified defined benefit pension plan obligations.

Under these contracts, we transferred the pension obligations and associated assets for approximately 8,200 plan participants to the selected insurance company.

This transaction had no impact on the amount, timing or form of the retirement benefit payments to the affected retirees and beneficiaries.

To facilitate this pension derisking strategy, we completed a voluntary cash out for term vested employees and contributed $222 million to our pension plan in the third quarter of 2023, to fully fund remaining pension liabilities ahead of this annuity transaction.

After these actions, our U.S.

qualified defined benefit plan will include approximately 1,900 participants.

In connection with this transaction, we expect to recognize a non-cash, non-operating settlement gain in the fourth quarter 2023.

The actual settlement gain will depend on the finalization of the actuarial calculations.

Based on current actuarial assumptions, we are not required to make any further contributions to these pension plans during fiscal year 2023.

In February 2022, our Board of Directors authorized the repurchase of up to $150 million of ATI stock.

In addition, in April 2023, our Board of Directors authorized the repurchase of an additional $75 million of ATI stock.

In the three months ended September 30, 2023, we used $45.0 million to repurchase 1.0 million shares of our common stock under the $75 million program, and in the nine months ended September 30, 2023, we used $55.1 million to repurchase 1.2 million shares of our common stock under both programs.

As of September 30, 2023 total share repurchase authorization available was $30 million.

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 the $150 million program.

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.

The Company’s 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 Company’s 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.

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

federal or state income taxes in 2023.

federal or state income taxes until 2025.

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 in the second quarter of 2023 remained fairly comparable to year end 2022.

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

Our Debt to Adjusted EBITDA Leverage ratio and Net Debt to Adjusted EBITDA Leverage ratio worsened in the third quarter of 2023 compared to year end 2022, largely due to higher debt balances as well as a decreased cash balance, both resulting from actions discussed above to facilitate our pension derisking strategy.

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

June 30, 2023 June 30, 2022 June 30, 2023 December 31, 2022

Net income (loss) attributable to ATI $ 76.0 $ (38.0) $ 284.1 $ 130.9

September 30, 2023 September 30, 2022 September 30, 2023 December 31, 2022

Net income attributable to ATI $ 75.7 $ 61.1 $ 298.7 $ 130.9

Net income attributable to noncontrolling interests 3.9 3.3 13.4 15.6

Net income (loss) 79.1 (34.3) 296.9 146.5

Net income 79.6 64.4 312.1 146.5

Interest expense 23.8 20.8 84.6 87.4

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Income tax provision 4.9 3.0 17.1 15.5

Restructuring and other charges (credits) 9.2 (1.3) 27.9 23.7

Restructuring and other charges 4.2 17.3 14.8 23.7

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

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Net Debt to Adjusted EBITDA 3.11 2.15

For the six months ended June 30, 2023, cash used in operations was $217.1 million, primarily related to higher accounts receivable and inventory balances due to increased operating levels and input costs and a strategic nickel purchase in 2023 to ensure continuity of supply.

For the nine months ended September 30, 2023, cash used in operations was $331.3 million, primarily related to $272 million in contributions to the U.S.

defined benefit pension plans as well as higher accounts receivable and inventory balances due to increased operating levels and input costs, and a strategic nickel purchase in 2023 to ensure continuity of supply.

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 six months ended June 30, 2022, cash used in operations was $222.4 million, primarily related to higher accounts receivable and inventory balances, despite improved operating results.

Increased operating levels, higher sales, 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.

Cash used in investing activities was $100.8 million in the first six months of 2023, reflecting $103.3 million in capital expenditures primarily related to AA&S transformation projects and various HPMC growth projects.

For the six months ended June 30, 2022, cash used in investing activities was $55.7 million, reflecting $54.8 million in capital expenditures.

Other significant 2023 operating cash flow items included payment of 2022 annual incentive compensation.

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.

Cash used in investing activities was $143.2 million in the first nine months of 2023, reflecting $147.3 million in capital expenditures primarily related to AA&S transformation projects and various HPMC growth projects.

For the nine months ended September 30, 2022, cash used in investing activities was $101.0 million, reflecting $100.5 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 provided by financing activities was $1.0 million in the first six months of 2023 and included $50 million of borrowings under the Company’s ABL Credit Facility and $10.1 million of payments 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 six months ended June 30, 2022, cash used in financing activities was $135.6 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 June 30, 2023, cash and cash equivalents on hand totaled $267.1 million, a decrease of $316.9 million from year end 2022.

Cash and cash equivalents held by our foreign subsidiaries was $110.7 million at June 30, 2023, of which $70.5 million was held by the STAL joint venture.

Cash provided by financing activities was $323.4 million in the first nine months of 2023 and included $418.8 million of net proceeds from the issuance of the 2030 Notes during the third quarter of 2023 and $55.1 million of payments for the repurchase of 1.2 million shares of ATI stock under our repurchase programs authorized by our Board of Directors.

For the nine months ended September 30, 2022, cash used in financing activities was $158.2 million and included $104.9 million for the repurchase of 4.0 million shares of ATI stock and a $16 million dividend payment to the 40% noncontrolling interest in our PRS joint venture in China.

At September 30, 2023, cash and cash equivalents on hand totaled $432.9 million, a decrease of $151.1 million from year end 2022.

Cash and cash equivalents held by our foreign subsidiaries was $129.6 million at September 30, 2023, of which $85.0 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 six months ended June 30, 2022.

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.

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 June 30, 2023, we had $227.2 million of goodwill on our consolidated balance sheet.

At September 30, 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 none of ATI’s reporting units or long-lived assets experienced any triggering event that would have required an interim impairment analysis at June 30, 2023.

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 September 30, 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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Federal and state deferred tax assets.

In addition, we have $70.4 million of valuation allowances on amounts recorded in other comprehensive loss as of June 30, 2023.

In addition, we have $73.8 million of valuation allowances on amounts recorded in other comprehensive loss as of September 30, 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.

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.

The Company continues to report a lower-than-normal effective tax rate in 2023.

Based on projected 2023 results, we expect to exit the three-year cumulative loss condition for U.S.

Federal and state jurisdictions at year-end 2023.

A portion of the deferred tax valuation allowances would be released if we were to exit the three-year cumulative loss condition due to the Company’s

ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets.

This anticipated benefit is not included within the 2023 effective tax rate and is subject to ongoing additional analysis.

Retirement Benefits

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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.

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.

The effect on pension liabilities for changes to the discount rate, the difference between expected and actual plan asset returns, and the net effect of other changes in actuarial assumptions and experience are deferred and amortized over future periods in accordance with accounting standards.

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

We have certain collective bargaining agreements that include participation in a multiemployer pension plan.

Under current law, an employer that withdraws or partially withdraws from a multiemployer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules.

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.

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, 2022, 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.

The Company is contemplating a voluntarily change in accounting principle for recognizing actuarial gains and losses for its defined benefit pension plans.

Under the current policy, the Company defers the recognition of these gains and losses in accumulated other comprehensive loss on the consolidated balance sheet and amortizes these gains/losses into net periodic benefit costs over the average expected remaining life of plan participants.

Under the contemplated change in accounting principle, the Company would immediately recognize actuarial gains and losses arising from the remeasurement of its pension plans in nonoperating retirement benefit expense (income) on the Company’s consolidated statement of operations.

The Company in contemplating the adoption of this policy change in the fourth quarter of 2023.

Other Critical Accounting Policies

24 unchanged sentences

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