What changed in this filing

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Item 1A. Risk Factors

2024-02-23 compared with 2023-02-24 · 44 added, 59 removed, 246 unchanged (30% of the section changed)

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

Risks Associated with the Oil & Gas Industry.

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

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

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

Risks Associated with Cyclicality in General Industrial Markets.

Our exposure to general industrial markets is primarily in our AA&S segment, where we have sales to the oil & gas industry, automotive, food equipment & appliances and construction and mining markets.

These markets tend to be highly cyclical and subject to volatility as a result of fluctuations in worldwide economic activity and associated demand, changes in applicable regulation, global geopolitical conditions and numerous other factors.

Demand for our products, particularly within the AA&S segment, is subject to these trends, and in recent years, our business has at times been negatively impacted by depressed demand from general industrial markets.

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

Product Pricing.

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

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

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

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

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Some of these sources operate in countries that may be subject to unstable political and economic conditions.

For example, we source both nickel and chromium from Russian sources that could be impacted by current events involving Russia and the Ukraine and any U.S.

or other international economic sanctions or other actions in response.

These or similar conditions may disrupt supplies or affect the prices of the materials that are necessary to our operations.

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

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

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

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

It has and could continue

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

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

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

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

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

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

If unable to obtain adequate and timely deliveries of required raw materials, we

may be unable to timely manufacture sufficient quantities of products.

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

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After termination, the union may authorize a strike.

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

on our operating results.

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

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

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

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

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

Additionally, our competitors may develop technologies of their own that are similar or superior to our proprietary technologies, or design

around our patents, to lawfully avoid our intellectual property rights.

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

Risks Associated with Information Technology.

Risks Associated with Digital Technology.

Information technology infrastructure is critical to supporting business objectives;

failure of our information technology infrastructure to operate effectively could adversely affect our business.

We depend heavily on information technology infrastructure to achieve our business objectives.

If a problem occurs that impairs this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course.

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As we integrate, implement and deploy new information technology processes and information infrastructure across our operations, we could experience disruptions in our business that could have an adverse effect on our business, financial condition, results of operations and cash flow.

Cyber Security Threats.

Cybersecurity Threats.

Increased global information technology threats, vulnerabilities, and a rise in sophisticated and targeted international computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.

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

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

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

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

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

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

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

This could lead to disclosure, modification or destruction of proprietary and other key information, production downtimes, operational disruptions, and remediation costs, which in turn could adversely affect our reputation, competitiveness and results of operations.

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Physical Risk .

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

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

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

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

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

We are a party to various cost-sharing arrangements with other PRPs at many of the sites.

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Future developments, administrative actions or liabilities relating to environmental matters, however, could have a material adverse effect on our financial condition or results of operations.

RISKS RELATED TO THE COVID-19 PANDEMIC

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

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

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

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

Impacts to Our Supply Chain .

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

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

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

Risk of Operational Disruption .

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

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

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

Impacts on Financial and Credit Markets.

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

OTHER OPERATIONAL AND STRATEGIC RISKS

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We also import certain raw materials that are important to our business, including nickel, zirconium, niobium, chromium, cobalt, vanadium and titanium sponge, among others.

Risks associated with such international trade include, among others:

Risks associated with such international

trade include, among others:

political and economic instability, including weak conditions in the world’s economies;

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economy or certain sectors thereof and, thus, to adversely impact our businesses.

Political and Social Turmoil.

The war on terrorism as well as political and social turmoil could put pressure on economic conditions in the United States and worldwide.

These political, social and economic conditions could make it difficult for us, our suppliers, and our customers to forecast accurately and plan future business activities, and could adversely affect the financial condition of our suppliers and customers and affect customer decisions as to the amount and timing of purchases from us.

As a result, our business, financial condition and results of operations could be materially adversely affected.

Risks Associated with Strategic Capital Projects and Maintenance Activities.

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Risks Associated with Acquisition and Disposition Strategies.

We intend to continue to strategically position our businesses in order to improve our ability to compete.

We intend to continue to strategically position our businesses to improve our ability to compete.

Strategies we employ to accomplish this may include seeking new or expanding existing specialty market niches for our products, expanding our global presence, acquiring businesses complementary to existing strengths, and continually evaluating the performance and strategic fit of our existing business units.

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Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations.

Risks Related to Wide-Spread Public Health Crises.

In general, our facilities continued to operate throughout the pandemic with federal and state government approvals because our facilities were deemed essential and critical.

However, we experienced, and may again in the context of future similar events experience, the temporary shut-down of facilities.

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

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

Political and Social Turmoil.

The war on terrorism as well as political and social turmoil could put pressure on economic conditions in the United States and worldwide.

As a result, our business, financial condition and results of operations could be materially adversely affected.

RISKS ASSOCIATED WITH OUR INDEBTEDNESS;

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As of December 31, 2023, our total consolidated indebtedness was approximately $2.2 billion.

Our subsidiaries had the ability to borrow an additional approximately $530 million under our revolving credit facility as of December 31, 2023.

This substantial level of indebtedness increases the risk that we may be unable to generate enough cash to pay amounts due in respect of our indebtedness.

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Risks Associated with Retirement Benefits.

At December 31, 2022, our defined benefit pension plans were approximately 88% funded as calculated in accordance with U.S.

generally accepted accounting principles.

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

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

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

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

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

On October 17, 2023, we purchased group annuity contacts from an insurer covering approximately 85% of our U.S.

qualified defined benefit plan obligations.

Under these contracts, we transferred the pension obligations and associated assets for the significant majority of our remaining plan participants to the selected insurance company.

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

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

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

Significantly lower than expected returns on our pension assets could result in otherwise unanticipated pension contribution obligations in the future.

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

qualified defined benefit pension plans could have a material adverse effect on our results of operations and financial condition.

qualified defined benefit pension plan could have a material adverse effect on our results of operations and financial condition.

Goodwill or Long-Lived Asset Impairments.

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Our businesses operate in highly cyclical industries, such as commercial aerospace and oil & gas, and as such, our estimates of future cash flows, market demand, the cost of capital, and forecasted growth rates and other factors may fluctuate, which may lead to changes in estimated fair value and, therefore, impairment charges in future periods.

For the 2022 annual goodwill impairment evaluation, both of our reporting units with goodwill had fair values that were in excess of carrying value.

For the fiscal year 2023 annual goodwill impairment evaluation, both of our reporting units with goodwill had fair values that were in excess of carrying value.

Additionally, we have a significant amount of property, plant and equipment and acquired intangible assets that may be subject to impairment testing, depending on factors such as market conditions, the demand for our products, and facility utilization levels.

Any determination requiring the impairment of a significant portion of goodwill or other long-lived assets has had, and may in the future have, a negative impact on our financial condition and results of operations.

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

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

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

Internal Controls Over Financial Reporting.

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

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors