ATI INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. Actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors, including those described below. Net income and net income per share amounts referenced below are attributable to ATI Inc. and Subsidiaries. During the fourth quarter of fiscal year 2023, we voluntarily changed the method of accounting for recognizing actuarial gains and losses for our defined benefit pension plans. See Note 1 of the Notes to the Consolidated Financial Statements for further explanation. This change has been applied to all pension plans on a retrospective basis for all prior periods presented. ATI Overview ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest markets are aerospace & defense, representing nearly 60% of total sales, led by products for jet engines. Additionally, we have a strong presence in the energy markets, including specialty energy, oil & gas and downstream processing, as well as the medical and electronics markets. In aggregate, these markets represent almost 85% of our revenue. ATI is a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies, including our new product development competence. We operate in two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). The HPMC segment’s primary focus is on maximizing aero-engine materials and components growth, with approximately 85% of its revenue derived from the aerospace & defense markets including nearly 60% of its revenue from products for commercial jet engines. Commercial aerospace products have been the main source of sales and EBITDA growth for HPMC over the last several years and are expected to continue to drive HPMC and overall ATI results in the future. Other major HPMC end markets include medical and energy. HPMC produces a wide range of high performance materials, components, and advanced metallic powder alloys. These are made from nickel-based alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials. Capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished components, and 3D-printed aerospace products. The AA&S segment is focused on delivering high-value flat products primarily to the energy, aerospace, and defense end-markets, which comprise over 60 % of its revenue. Other important end markets for AA&S include electronics, medical and automotive. AA&S produces nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and strip products. Overview of Fiscal Year 2023 Financial Performance Sales in fiscal year 2023 increased 9%, to $4.2 billion, while gross profit increased 12%, to $803 million, compared to fiscal year 2022, reflecting significant increased demand for commercial aerospace products despite softness in general industrial end markets. Results for fiscal years 2023 and 2022 included $104 million and $29 million, respectively, of net pre-tax charges as further described in the Results of Operations section below. The Company’s net income for fiscal year 2023 was $410.8 million, or $2.81 per share. ATI Adjusted EBITDA for fiscal year 2023 was $634.6 million, or 15.2% of sales, compared to $612.8 million, or 16.0% of sales, for fiscal year 2022. See further explanation below for non-GAAP definitions and calculations. Revenues in our largest end markets, aerospace & defense, increased $601 million, or 32%, compared to fiscal year 2022, and represented 59% of our fiscal year 2023 sales. International sales, including both U.S. exports and foreign sales from our foreign manufacturing operations, were $1.9 billion in fiscal year 2023 and represented 46% of total sales. A summary of our results is as follows: Fiscal Year (Dollars in millions, except per share amounts) 2023 2022* 2021* Sales $ 4,173.7 $ 3,836.0 $ 2,799.8 Gross profit $ 802.6 $ 714.2 $ 333.2 Gross profit % of sales 19.2 % 18.6 % 11.9 % Operating income $ 466.4 $ 316.1 $ 117.6 Income before income taxes $ 295.2 $ 354.6 $ 233.4 Net income attributable to ATI $ 410.8 $ 323.5 $ 184.6 Diluted net income attributable to ATI per common share $ 2.81 $ 2.23 $ 1.32 * Fiscal years ended January 1, 2023 and January 2, 2022 reflect the change in accounting principle as described in Note 1 of the Notes to the Consolidated Financial Statements. 20 Our major accomplishments during fiscal year 2023 include the following: • ATI delivered strong results for fiscal year 2023 as demand for our differentiated materials accelerates. We finished the year strong with the highest quarterly revenue for fiscal year 2023 in the fourth quarter, marking the sixth quarter in a row exceeding $1 billion and the highest quarterly revenue since the second quarter of fiscal year 2019. Sales to the aerospace and defense markets reached 59% of our sales for the full fiscal year 2023, up 10 percentage points over the prior year, as we are progressing quickly towards our goal of 65% of sales to these markets. • Growth in the aerospace and defense markets drove strong results in our HPMC segment, with sales up 29% and HPMC EBITDA up 43% in fiscal year 2023 compared to fiscal year 2022. EBITDA margins in this segment improved by 200 basis points to 20.5% in fiscal year 2023. Full fiscal year 2023 commercial airframe product sales in this segment were up 90% year over year, reflecting the strong demand for our materials as the aerospace ramp continues. • Sales of titanium products reached 17% of total sales in fiscal year 2023, up from 11% in the prior year, as these products remain a focal point across the aerospace & defense industry. We restarted a significant amount of titanium melt capacity in Albany, OR in fiscal year 2023, and we are on track for the first melt in the fourth quarter of fiscal year 2024 at our Richland, Washington facility. When our Richland, Washington expansion is at full production in late fiscal year 2025, our total titanium melt capacity is expected to be 80% greater than our fiscal year 2022 titanium melt capacity. • We generated cash flow of $85.9 million from operating activities in fiscal year 2023, despite making contributions of $272 million to our U.S. qualified defined benefit pension plans. Continued efforts to focus on operational improvements are positively impacting the inventory intensity of our business and alleviating the required investment of managed working capital in our growing business. Managed working capital as a percent of sales was 31.1% as of December 31, 2023. We ended the year with $744 million of cash on hand and over $1 billion of total liquidity including the undrawn capacity under our asset-based lending facility. • In the fourth quarter, we transferred approximately 85% of our U.S. qualified defined benefit pension plan obligations and related assets to a third-party insurance company through the purchase of group annuity contracts. Under these contracts, we transferred the pension obligations and associated assets for approximately 8,200 plan participants to the selected insurance company. After these actions, our U.S. qualified defined benefit pension plan includes approximately 1,980 participants. In addition, as of December 31, 2023, our U.S. qualified defined benefit pension plan is 114% funded on a financial reporting basis. As a result, based on current actuarial assumptions, we are not anticipating any significant required cash contributions in at least the next ten years. Our consolidated net pension liability, inclusive of obligations related to our qualified and nonqualified defined benefit pension plans, was $9 million, or 97% funded on a financial reporting basis, a significant improvement compared to a $219 million liability, or 88% funded position, at January 1, 2023. • We repurchased 2 million shares of ATI stock for $85 million in fiscal year 2023, using all the remaining $150 million and $75 million under the plans approved by our Board of Directors in fiscal years 2022 and 2023, respectively. In addition, in November 2023, our Board of Directors authorized the repurchase of an additional $150 million of ATI stock. • In August 2023, we issued $425 million aggregate principal amount of 7.25% Senior Notes due 2030 (2030 Notes). The net proceeds from this issuance were used to fund ATI’s U.S. qualified defined benefit pension plan in order to facilitate the pension derisking strategy discussed above. Results of Operations Fiscal Year 2023 Compared to Fiscal Year 2022 Results for fiscal year 2023 included sales of $4.17 billion and income before tax of $295.2 million, compared to sales of $3.84 billion and income before tax of $354.6 million in fiscal year 2022. Our gross profit was $802.6 million, or 19.2% of sales, an $88 million increase compared to fiscal year 2022. Our results for fiscal year 2023 reflect a significant increase in demand for commercial aerospace products despite softness in general industrial end markets. Gross profit in fiscal year 2022 included $34 million of benefits from management actions to access available grants and other forms of COVID-19 relief available from previously-enacted U.S. legislation. Results for fiscal year 2023 included $104.3 million of net pre-tax charges, which consisted of the following: • $0.6 million loss on the sale of our Northbrook, IL operations. • $35.2 million of restructuring and other charges, consisting of $11.5 million of start up costs, $14.1 million primarily for asset write-offs associated with the restructuring of our European operations and the closure of our Robinson, PA 21 operations, $1.9 million of costs associated with an unplanned outage at our Lockport, NY melt facility, and $7.7 million of severance-related charges primarily for the restructuring of our European operations and involuntary reductions across ATI’s domestic operations in conjunction with our continued transformation. • $41.7 million pension settlement loss associated with actions taken as part of our pension derisking strategy. On October 17, 2023, we completed a voluntary cash out for term vested employees and annuity buyouts covering 8,200 U.S. qualified defined benefit pension plan participants. • $26.8 million of pension remeasurement losses for the immediate recognition in earnings of the actuarial gains/losses from the remeasurement of the projected benefit obligation and plan assets for defined benefit pension plans in accordance with our newly adopted accounting principle. These losses are from the remeasurements of these plans in the fourth quarter of fiscal year 2023. Results for fiscal year 2022 also included $27.9 million of net pre-tax charges which consisted of the following: • $105.4 million in losses, net, primarily associated with the sale of the Sheffield, UK business which was sold in May 2022 for a $112.2 million loss. This loss was partially offset by a gain on the sale of our Pico Rivera, CA operations. • $23.7 million of costs associated with restructuring and other charges, consisting of a $28.5 million charge associated with the settlement of litigation related to the 2016 idling of the Rowley, UT titanium sponge facility, partially offset by severance-related reserve reductions based on changes in planned operating rates and revised workforce estimates. • $100.3 million of pension remeasurement gains from the annual remeasurement of these plans in the fourth quarter of fiscal year 2022. • $0.9 million of credits associated with restructuring activities at the A&T Stainless joint venture. All of these items discussed are excluded from segment EBITDA and are included in operating income on the consolidated statements of operations, with the exception of the pension related gains and losses in fiscal years 2023 and 2022 as well as the litigation charge and the restructuring credit for the A&T Stainless joint venture in fiscal year 2022. Operating income was $466.4 million for fiscal year 2023, compared to $316.1 million for fiscal year 2022. Nonoperating items included $79.7 million in nonoperating retirement benefit expense in fiscal year 2023, compared to income of $138.4 million in the prior year. Nonoperating retirement benefit expense/income includes the $41.7 million pension settlement loss in fiscal year 2023, as well as a $26.8 million pension remeasurement loss and $100.3 million pension remeasurement gain in fiscal years 2023 and 2022, respectively, discussed above. Other (nonoperating) income/expense in fiscal year 2022 includes the $28.5 million litigation charge and $0.9 million of credits associated with restructuring activities at the A&T Stainless joint venture discussed above. Other (nonoperating) income/expense in fiscal year 2022 also 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. Results in fiscal year 2023 included a $128.2 million income tax benefit. As of December 31, 2023, we determined that we were no longer in a three year cumulative loss position and a substantial portion of our income tax valuation allowances were no longer required, resulting in a $140.3 million discrete tax benefit. Results for fiscal year 2022 included $15.5 million of income tax expense, primarily attributable to the Company’s foreign operations and state income tax expense associated with states that limit net operating loss utilization. Net income attributable to ATI was $410.8 million, or $2.81 per share, in fiscal year 2023, compared to $323.5 million, or $2.23 per share, for fiscal year 2022. Adjusted EBITDA was $634.6 million, or 15.2% of sales, for fiscal year 2023, and $612.8 million, or 16.0% of sales, for fiscal year 2022. EBITDA and Adjusted EBITDA are measures utilized by ATI that we believe are useful to investors because these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity. Furthermore, analogous measures are used by industry analysts to evaluate operating performance. EBITDA and Adjusted EBITDA are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. generally accepted accounting principles (U.S. GAAP). We categorically define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges. We categorically define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring charges/credits, strike related costs, long-lived asset impairments, pension remeasurement gains and losses, and other postretirement/pension curtailment and settlement gains and losses. EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and capital expenditures. See the Financial Condition and Liquidity section of Management’s Discussion and Analysis for a reconciliation of amounts reported under U.S. GAAP to these non-GAAP measures. 22 Fiscal Year 2022 Compared to Fiscal Year 2021 Results for fiscal year 2022 included sales of $3.84 billion and income before tax of $354.6 million, compared to sales of $2.80 billion and income before tax of $233.4 million in fiscal year 2021. Our gross profit in fiscal year 2022 was $714.2 million, or 18.6% of sales, a $381 million increase compared to fiscal year 2021, as the momentum in our core markets drove profitable growth across the enterprise. Results in fiscal year 2022 included $34 million of benefits from management actions to access available grants and other forms of COVID-19 relief available from previously-enacted U.S. legislation. These benefits included $17 million of a $22 million grant under the Aviation Manufacturing Jobs Protection (AMJP) program for our operations in the HPMC segment, which helped fund ongoing wage and benefit costs for a six-month period through May 2022, and $17 million in employee retention credits applicable across all of ATI’s domestic operations, largely for preserving jobs throughout the global pandemic-related economic downturn. Results for fiscal year 2022 also included $27.9 million of net pre-tax charges which consisted of the following: • $105.4 million in losses, net, primarily associated with the sale of the Sheffield, UK business which was sold in May 2022 for a $112.2 million loss. This business is reported as part of the HPMC segment through the date of sale and had sales of $36 million and a net loss before tax of $7 million in fiscal year 2021. This loss was partially offset by a gain on the sale of our Pico Rivera, CA operations. • $23.7 million of costs associated with restructuring and other charges, consisting of a $28.5 million charge associated with the settlement of litigation related to the 2016 idling of the Rowley, UT titanium sponge facility, partially offset by severance-related reserve reductions based on changes in planned operating rates and revised workforce estimates. • $100.3 million of pension remeasurement gains from the annual remeasurement of these plans in the fourth quarter of fiscal year 2022. • $0.9 million of credits associated with restructuring activities at the A&T stainless joint venture. Results for fiscal year 2021 included $107.7 million of net pre-tax benefits which consisted of the following: • $65.5 million debt extinguishment charge related to the redemption of our $500 million of 5.875% Senior Notes due 2023 (2023 notes). • $63.2 million of strike-related costs arising from the 3 ½ month work stoppage by the USW, following expiration of a CBA, which began in March 2021, and predominantly impacted AA&S segment operations. A new CBA was ratified in July 2021. Strike-related costs primarily consisted of overhead costs recognized in the period due to below normal operating rates, higher costs for outside conversion activities, and signing bonuses for represented employees following CBA ratification. • $64.9 million retirement benefit settlement gain for a plan termination that eliminated certain postretirement medical benefit liabilities as a result of the new USW CBA. • $13.8 million gain on the sale of our Flowform Products business, which was sold for $55 million in cash in August 2021. This business is reported as part of the HPMC segment through the date of sale. Flowform Products’ sales were $26 million in fiscal year 2020. • $10.5 million of net credits for restructuring and other charges, consisting of $11.3 million of restructuring credits primarily for a reduction in severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates, partially offset by $0.8 million for inventory valuation reserves classified in cost of sales on the consolidated statement of operations. • $147.2 million of pension remeasurement gains from the annual remeasurement of these plans in the fourth quarter of fiscal year 2021. All of these items discussed above are excluded from segment EBITDA. The net loss on sale of the businesses in fiscal year 2022, restructuring charges/credits and strike-related costs are included in operating income on the consolidated statements of operations, which was $316.1 million for fiscal year 2022, compared to $117.6 million for fiscal year 2021. Nonoperating items included $138.4 million in nonoperating retirement benefit income in fiscal year 2022, compared to income of $260.0 million in the prior year, reflecting the $100.3 million and $147.2 million of pension remeasurement gains in fiscal years 2022 and 2021, respectively, and the $64.9 million retirement benefit settlement gain in fiscal year 2021. Other (nonoperating) income/expense in fiscal year 2022 includes a $28.5 million litigation settlement charge discussed above partially offset by a $9.9 million benefit from the A&T Stainless joint venture’s settlement of Section 232 claims, which is included in AA&S segment results. Other (nonoperating) income/expense in fiscal year 2021 includes a $65.5 million debt extinguishment charge and the $13.8 million gain on the sale of the Flowform Products business discussed above. 23 Results for fiscal year 2022 included $15.5 million of income tax expense, primarily attributable to the Company’s foreign operations and state income tax expense associated with states that limit net operating loss utilization. ATI continued to maintain a valuation allowance on its U.S. deferred tax assets in fiscal year 2022. Results for fiscal year 2021 include $26.8 million of income tax expense, primarily for $15.5 million in discrete tax effects related to the retirement benefit settlement gain. Net income attributable to ATI was $323.5 million, or $2.23 per share, in fiscal year 2022, compared to a net income attributable to ATI of $184.6 million, or $1.32 per share, for fiscal year 2021. Adjusted EBITDA was $612.8 million, or 16.0% of sales, for fiscal year 2022, and $366.5 million, or 13.1% of sales, for fiscal year 2021. EBITDA and Adjusted EBITDA are measures utilized by ATI that we believe are useful to investors because these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity. Furthermore, analogous measures are used by industry analysts to evaluate operating performance. EBITDA and Adjusted EBITDA are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. generally accepted accounting principles (U.S. GAAP). We categorically define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges. We categorically define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring charges/credits, strike related costs, long-lived asset impairments, pension remeasurement gains and losses, and other postretirement/pension curtailment and settlement gains and losses. EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and capital expenditures. See the Financial Condition and Liquidity section of Management’s Discussion and Analysis for a reconciliation of amounts reported under U.S. GAAP to these non-GAAP measures. Results by Business Segment During fiscal year 2023, we operated in two business segments, HPMC and AA&S, and management evaluates financial results on this basis. Full fiscal year 2023 HPMC sales increased 29% compared to fiscal year 2022, as sales to the aerospace & defense markets in the HPMC segment were 36% higher than fiscal year 2022, due to improvements in the commercial aerospace market. Full fiscal year 2023 AA&S sales decreased 6% reflecting softness in general industrial end markets, offset by a 24% increase in the aerospace & defense markets. Full fiscal year 2022 HPMC sales increased 42% compared to fiscal year 2021, as a 58% increase in the aerospace and defense market sales was partially offset by a 17% decrease in sales to energy markets. Full fiscal year 2022 AA&S sales increased 33% compared to fiscal year 2021 reflecting the benefits of the transformation and the strength of the aerospace and defense markets. 24 Total segment EBITDA was $710.2 million, or 17.0% of sales, in fiscal year 2023, compared to total segment EBITDA of $678.7 million, or 17.7% of sales, in fiscal year 2022 and $417.1 million, or 14.9% of sales, in fiscal year 2021. Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, categorically excludes all effects of income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill and asset impairments, restructuring and other charges, strike-related costs, pension remeasurement gains/losses, debt extinguishment charges and gains or losses on asset sales and sales of businesses. Results on our management basis of reporting were as follows (in millions): Fiscal Year Ended December 31, January 1, January 2, 2023 2023* 2022* Sales: High Performance Materials & Components $ 2,120.2 $ 1,641.2 $ 1,155.1 Advanced Alloys & Solutions 2,053.5 2,194.8 1,644.7 Total external sales $ 4,173.7 $ 3,836.0 $ 2,799.8 EBITDA: High Performance Materials & Components $ 433.6 $ 303.4 $ 170.3 % of Sales 20.5 % 18.5 % 14.7 % Advanced Alloys & Solutions 276.6 375.3 246.8 % of Sales 13.5 % 17.1 % 15.0 % Total segment EBITDA 710.2 678.7 417.1 % of Sales 17.0 % 17.7 % 14.9 % Corporate expenses (62.3) (60.3) (53.7) Closed operations and other income (expenses) (13.3) (5.6) 3.1 Total ATI Adjusted EBITDA 634.6 612.8 366.5 Depreciation & amortization (146.1) (142.9) (143.9) Interest expense, net (92.8) (87.4) (96.9) Restructuring and other credits (charges) (31.4) (23.7) 10.5 Strike related costs — — (63.2) Retirement benefit settlement gain (loss) (41.7) — 64.9 Pension remeasurement gain (loss) (26.8) 100.3 147.2 Joint venture restructuring credit — 0.9 — Debt extinguishment charge — — (65.5) Gains (losses) on asset sales and sale of business, net (0.6) (105.4) 13.8 Income before income taxes $ 295.2 $ 354.6 $ 233.4 *Fiscal years ended January 1, 2023 and January 2, 2022 reflect the change in accounting principle as described in Note 1 of the Notes to the Consolidated Financial Statements. 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 assess Managed Working Capital performance as a percentage of the prior three months annualized sales to evaluate the asset intensity of our business. In fiscal year 2023, Managed Working Capital increased to 31.1% of annualized total ATI sales compared to 30.1% of annualized sales at January 1, 2023. The Managed Working Capital increase was impacted by increased inventory levels in fiscal year 2023 as a result of additional melt capacity coming on line and increased production levels. The $106.7 million increase in overall managed working capital in fiscal year 2023 is detailed in the table below. Days sales outstanding, which measures actual collection timing for accounts receivable, improved by 7% as of December 31, 2023 compared to fiscal year 2022. Gross inventory turns as of December 31, 2023 remained consistent with January 1, 2023 as continued efforts to focus on operational improvements are positively impacting the inventory intensity of our business and alleviating the required investment of managed working capital in our growing business. 25 The computations of Managed Working Capital at December 31, 2023 and January 1, 2023 reconciled to the financial statement line items as computed under U.S. GAAP, were as follows. (In millions) December 31, 2023 January 1, 2023 Accounts receivable $ 625.0 $ 579.2 Short-term contract assets 59.1 64.1 Inventory 1,247.5 1,195.7 Accounts payable (524.8) (553.3) Short-term contract liabilities (163.6) (149.1) Subtotal 1,243.2 1,136.6 Allowance for doubtful accounts 3.2 7.7 Inventory reserves 75.5 70.9 Managed working capital $ 1,321.9 $ 1,215.2 Annualized prior 3 months sales $ 4,255.8 $ 4,041.9 Managed working capital as a % of annualized sales 31.1 % 30.1 % December 31, 2023 change in managed working capital $ 106.7 Comparative information for our overall revenues (in millions) by end market, including divested businesses prior to sale, and their respective percentages of total revenues is as follows: Fiscal Year Market 2023 2022 2021 Aerospace & Defense: Jet Engines- Commercial $ 1,333.5 32 % $ 1,063.5 28 % $ 517.2 19 % Airframes- Commercial 739.4 18 % 468.9 12 % 262.7 9 % Defense 401.9 9 % 341.2 9 % 352.8 13 % Total Aerospace & Defense 2,474.8 59 % 1,873.6 49 % 1,132.7 41 % Energy: Oil & Gas 414.6 10 % 476.7 13 % 332.3 12 % Specialty Energy 273.2 7 % 276.6 7 % 259.6 9 % Total Energy 687.8 17 % 753.3 20 % 591.9 21 % Automotive 210.7 5 % 302.1 8 % 305.1 11 % Medical 176.9 4 % 163.1 4 % 131.5 5 % Construction/Mining 162.9 4 % 176.4 5 % 122.2 4 % Electronics 159.9 4 % 200.0 5 % 215.1 8 % Food Equipment & Appliances 71.9 2 % 158.5 4 % 153.1 5 % Other 228.8 5 % 209.0 5 % 148.2 5 % Total $ 4,173.7 100 % $ 3,836.0 100 % $ 2,799.8 100 % 26 Comparative information for our major products, including divested businesses prior to sale, based on their percentages of revenues is as follows. Hot-Rolling and Processing Facility (HRPF) conversion service sales in the AA&S segment are excluded from this presentation. Fiscal Year 2023 2022 2021 Nickel-based alloys and specialty alloys 49 % 52 % 43 % Precision forgings, castings and components 17 % 15 % 16 % Titanium and titanium-based alloys 17 % 11 % 12 % PRS products 10 % 14 % 19 % Zirconium and related alloys 7 % 8 % 10 % Total 100 % 100 % 100 % Sales by geographic area (in millions), including divested businesses prior to sale, and as a percentage of total sales, were as follows: Fiscal Year 2023 2022 2021 United States $ 2,250.8 54 % $ 2,218.6 58 % $ 1,534.9 55 % Europe 1,051.0 25 % 785.2 20 % 475.1 17 % Asia 591.9 14 % 641.6 17 % 593.8 21 % Canada 111.0 3 % 87.4 2 % 75.9 3 % Other 169.0 4 % 103.2 3 % 120.1 4 % Total sales $ 4,173.7 100 % $ 3,836.0 100 % $ 2,799.8 100 % Information with respect to our business segments follows. High Performance Materials & Components Fiscal Year Fiscal Year Fiscal Year (In millions) 2023 % Change 2022 % Change 2021 Sales to external customers $ 2,120.2 29 % $ 1,641.2 42 % $ 1,155.1 Segment EBITDA $ 433.6 43 % $ 303.4 78 % $ 170.3 Segment EBITDA as a percentage of sales 20.5 % 18.5 % 14.7 % International sales as a percentage of sales 56.8 % 54.7 % 50.5 % Our HPMC segment produces a wide range of high performance materials, including titanium and titanium-based alloys, nickel- and cobalt-based alloys and superalloys, advanced powder alloys and other specialty materials, in long product forms such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tubes, plus precision forgings, components, and machined parts. Fiscal Year 2023 Compared to Fiscal Year 2022 Sales of $2.12 billion for the HPMC segment in fiscal year 2023 increased 29% compared to fiscal year 2022, reflecting increasing commercial aerospace demand. Sales to the commercial aerospace market increased 39%, reflecting a 29% increase in commercial jet engines and 90% increase in airframe sales. Sales to the energy markets decreased 30%, due to both lower oil and gas and specialty energy sales. 27 Comparative information for our HPMC segment revenues (in millions) by market, the respective percentages of overall segment revenues for the fiscal years 2023 and 2022, and the percentage change in revenues by market for fiscal year 2023 is as follows: Fiscal Year Market 2023 2022 Change Aerospace & Defense: Jet Engines- Commercial $ 1,255.3 59 % $ 975.7 59 % $ 279.6 29 % Airframes- Commercial 350.6 17 % 184.1 11 % 166.5 90 % Defense 181.0 8 % 158.2 10 % 22.8 14 % Total Aerospace & Defense 1,786.9 84 % 1,318.0 80 % 468.9 36 % Energy: Oil & Gas 10.6 1 % 35.0 2 % (24.4) (70) % Specialty Energy 93.9 4 % 113.6 7 % (19.7) (17) % Total Energy 104.5 5 % 148.6 9 % (44.1) (30) % Medical 102.6 5 % 73.2 4 % 29.4 40 % Construction/Mining 35.0 2 % 34.1 2 % 0.9 3 % Other 91.2 4 % 67.3 5 % 23.9 36 % Total $ 2,120.2 100 % $ 1,641.2 100 % $ 479.0 29 % We utilize LTAs for our specialty materials, including powders, parts and components, with certain of our customers, including several aerospace market OEMs, to reduce their supply uncertainty. These LTAs, which are expected to drive HPMC’s growth trajectory for the next several years, cover sales of ATI’s specialty materials, parts and components used in both next-generation and legacy aircraft platforms, including jet engines. Our LTAs include a titanium products supply agreement for aircraft airframes and structural components with The Boeing Company (Boeing), which was extended in fiscal year 2021. This LTA covers value-added titanium products and provides opportunity for greater use of ATI’s next generation and advanced titanium alloys in both long product and flat-rolled product forms. The agreement includes both long-product forms that are manufactured within the HPMC segment, and a significant amount of plate products that are manufactured utilizing assets of both the HPMC and AA&S segments. Revenues and profits associated with these titanium products covered by the Boeing LTA are included primarily in the results for the HPMC segment. We have LTAs with GE Aviation and Snecma (Safran) to supply premium titanium alloys, nickel-based alloys, and vacuum-melted specialty alloys products for commercial and military jet engine applications. In addition, we have LTAs with Rolls-Royce plc for the supply of disc-quality mill products and precision forgings for commercial jet engine applications. We also supply products to other important parts of the aviation market such as helicopters and rotary engine fixed wing aircraft. New airframe designs contain a larger percentage of titanium alloys, and the jet engines that power them use newer nickel-based alloys and titanium-based alloys, in both cases for improved performance and more economical operating costs, compared to legacy airframe and engine designs. Boeing and Airbus continue to have multi-year backlogs of orders for both legacy models and next-generation aircraft, and there are over 28,000 jet engines with firm orders (Aero Engine News, December 2023). Due to manufacturing cycle times, demand for our specialty materials leads the deliveries of new aircrafts by approximately 6 to 12 months. Use of these newer materials, particularly for jet engine applications, is expected to continue to increase for several years, with strong growth expected in powder metal alloys, including increased usage of iso-thermal forging and additive manufacturing production processes. In addition, as our specialty materials are used in rotating components of jet engines, demand for our products for spare parts is impacted by aircraft flight activity and engine refurbishment requirements of U.S. and foreign aviation regulatory authorities. As the number of aircraft in service increases, the need for our materials associated with engine refurbishment is expected to increase. 28 Comparative information for HPMC’s major product categories based on their percentages of the segment’s overall revenue is as follows: Fiscal Year 2023 2022 High-Value Products Nickel-based alloys and specialty alloys 44 % 49 % Precision forgings, castings and components 33 % 34 % Titanium and titanium-based alloys 22 % 17 % PRS products 1 % — % Total High-Value Products 100 % 100 % HPMC segment EBITDA for fiscal year 2023 increased 43% to $433.6 million, or 20.5% of sales, compared to $303.4 million, or 18.5% of sales, in fiscal year 2022. Strength in the HPMC segment continues to be driven by increased volumes on higher margin next-generation commercial aerospace platforms. Results in fiscal year 2022 include $27.5 million of benefits from the AMJP program and employee retention credits. HPMC results for fiscal year 2023, which included the highest quarterly EBITDA margins in the third quarter of fiscal year 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. As we closed out fiscal year 2023, backlog and customer agreements continued to build, putting this segment in a position to grow in fiscal year 2024 as we continue to deliver through LTAs and emergent market opportunities. We believe that our HPMC segment is well-positioned for profitable growth from the ramp in commercial aerospace demand, especially in jet engine platforms where LTAs provide significant growth and share gains for ATI on next-generation airplanes and the jet engines that power them. Fiscal Year 2022 Compared to Fiscal Year 2021 Sales of $1.64 billion for the HPMC segment in fiscal year 2022 increased 42% compared to fiscal year 2021. Sales to the aerospace & defense markets, which were 80% of fiscal year 2022 HPMC sales, were 58% higher, reflecting an 89% increase in commercial aerospace sales, partially offset by a 29% decrease in defense sales. Sales of next generation jet engine products represented 54% of total fiscal year 2022 HPMC jet engine product sales and were 131% higher than fiscal year 2021 levels. In May 2022, we sold our Sheffield, UK operations, which included facilities for melting and re-melting, machining and bar mill operations, and had $36 million in sales in fiscal year 2021. This business was reported as part of the HPMC segment through the date of sale. 29 Comparative information for our HPMC segment revenues (in millions) by market, the respective percentages of overall segment revenues for the fiscal years 2022 and 2021, and the percentage change in revenues by market for fiscal year 2022 is as follows: Fiscal Year Market 2022 2021 Change Aerospace & Defense: Jet Engines- Commercial $ 975.7 59 % $ 480.9 42 % $ 494.8 103 % Airframes- Commercial 184.1 11 % 132.8 11 % 51.3 39 % Defense 158.2 10 % 221.8 19 % (63.6) (29) % Total Aerospace & Defense 1,318.0 80 % 835.5 72 % 482.5 58 % Energy: Oil & Gas 35.0 2 % 42.2 3 % (7.2) (17) % Specialty Energy 113.6 7 % 136.1 12 % (22.5) (17) % Total Energy 148.6 9 % 178.3 15 % (29.7) (17) % Medical 73.2 4 % 60.3 5 % 12.9 21 % Construction/Mining 34.1 2 % 24.0 2 % 10.1 42 % Other 67.3 5 % 57.0 6 % 10.3 18 % Total $ 1,641.2 100 % $ 1,155.1 100 % $ 486.1 42 % Comparative information for HPMC’s major product categories based on their percentages of the segment’s overall revenue is as follows: Fiscal Year 2022 2021 High-Value Products Nickel-based alloys and specialty alloys 49 % 43 % Precision forgings, castings and components 34 % 38 % Titanium and titanium-based alloys 17 % 19 % Total High-Value Products 100 % 100 % HPMC segment EBITDA for fiscal year 2022 increased 78% to $303.4 million, or 18.5% of sales, compared to $170.3 million, or 14.7% of sales, in fiscal year 2021, reflecting an improved product mix and benefits from increased operating levels. Stronger operating margins reflect higher sales of next-generation jet engine products and higher facility utilization levels. HPMC’s full fiscal year 2022 sales associated with next-generation platforms were in line with full fiscal year 2019 deliveries. Results in fiscal year 2022 include $27.5 million of benefits from the AMJP program and employee retention credits, partially offset by labor and other costs related to ramp readiness. Strike-related costs of $3.5 million were excluded from HPMC fiscal year 2021 results. Advanced Alloys & Solutions Fiscal Year Fiscal Year Fiscal Year (In millions) 2023 % Change 2022 % Change 2021 Sales to external customers $ 2,053.5 (6) % $ 2,194.8 33 % $ 1,644.7 Segment EBITDA $ 276.6 (26) % $ 375.3 52 % $ 246.8 Segment EBITDA as a percentage of sales 13.5 % 17.1 % 15.0 % International sales as a percentage of sales 35.0 % 32.8 % 41.4 % Fiscal Year 2023 Compared to Fiscal Year 2022 Sales of $2.05 billion for the AA&S segment in fiscal year 2023 decreased 6% compared to fiscal year 2022, reflecting softness in general industrial end markets. Sales to the aerospace & defense markets increased 24%, with a 25% increase in sales of commercial aerospace products, due to a significant increase in commercial airframe demand for various flat-rolled product forms. 30 Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall segment revenues, for the fiscal years 2023 and 2022, and the percentage change in revenues by market for fiscal year 2023 is as follows: Fiscal Year Market 2023 2022 Change Aerospace & Defense: Jet Engines- Commercial 78.2 4 % 87.8 4 % (9.6) (11) % Airframes- Commercial 388.8 19 % 284.8 13 % 104.0 37 % Defense 220.9 11 % 183.0 8 % 37.9 21 % Total Aerospace & Defense 687.9 34 % 555.6 25 % 132.3 24 % Energy: Oil & Gas 404.0 20 % 441.7 20 % (37.7) (9) % Specialty Energy 179.3 8 % 163.0 8 % 16.3 10 % Total Energy 583.3 28 % 604.7 28 % (21.4) (4) % Automotive 186.1 9 % 290.9 13 % (104.8) (36) % Electronics 156.8 8 % 197.6 9 % (40.8) (21) % Construction/Mining 127.9 6 % 142.3 7 % (14.4) (10) % Medical 74.3 4 % 89.9 4 % (15.6) (17) % Food Equipment & Appliances 71.9 3 % 158.3 7 % (86.4) (55) % Other 165.3 8 % 155.5 7 % 9.8 6 % Total $ 2,053.5 100 % $ 2,194.8 100 % $ (141.3) (6) % Our AA&S segment produces zirconium and related alloys including hafnium and niobium, nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and PRS products. AA&S also provides hot-rolling conversion services at its HRPF, including carbon steel products under several LTAs. Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are presented in the following table. HRPF conversion service sales are excluded from this presentation. Fiscal Year 2023 2022 Nickel-based alloys and specialty alloys 54 % 54 % PRS products 19 % 25 % Zirconium and related alloys 15 % 14 % Titanium and titanium-based alloys 12 % 7 % Total 100 % 100 % Segment EBITDA was $276.6 million, or 13.5% of sales, a 26% decrease from segment EBITDA of $375.3 million, or 17.1% of sales, in fiscal year 2022. A stronger mix of titanium mill products was offset by weaker demand for PRS products and higher retirement benefit expense, which contributed to the margin decline year over year. The fiscal year 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. We expect margin expansion for this segment in fiscal year 2024 with a richer sales mix, recovery in industrial demand and improving operating performance. 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 fiscal year 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 fiscal year 2024, reaching a full run-rate in the second half of fiscal year 2024. We continue to right-size our costs to offset the demand softness in markets other than aerospace & defense. While 31 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. Fiscal Year 2022 Compared to Fiscal Year 2021 Sales of $2.19 billion for the AA&S segment in fiscal year 2022 increased 33% compared to fiscal year 2021. The fiscal year 2021 period included impacts from a labor strike that ended in mid-July 2021, which reduced sales in that period. The segment had increased sales to almost all end markets, including an 87% increase in aerospace & defense market sales. In July 2022, ATI announced a new LTA with GKN Aerospace for titanium sheet and plate products for commercial and military airframes. Energy markets sales also increased 46% for both specialty energy and oil & gas applications. Fiscal year 2022 sales of nickel based alloys and specialty steels increased by 67% compared to fiscal year 2021. Additionally, fiscal year 2022 sales of titanium and titanium-based alloys increased by 41% compared to fiscal year 2021. Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall segment revenues, for the fiscal years 2022 and 2021, and the percentage change in revenues by market for fiscal year 2022 is as follows: Fiscal Year Market 2022 2021 Change Energy: Oil & Gas $ 441.7 20 % $ 290.1 18 % $ 151.6 52 % Specialty Energy 163.0 8 % 123.5 7 % 39.5 32 % Total Energy 604.7 28 % 413.6 25 % 191.1 46 % Aerospace & Defense: Jet Engines- Commercial 87.8 4 % 36.3 2 % 51.5 142 % Airframes- Commercial 284.8 13 % 129.9 8 % 154.9 119 % Defense 183.0 8 % 131.0 8 % 52.0 40 % Total Aerospace & Defense 555.6 25 % 297.2 18 % 258.4 87 % Automotive 290.9 13 % 296.4 18 % (5.5) (2) % Electronics 197.6 9 % 213.9 13 % (16.3) (8) % Food Equipment & Appliances 158.3 7 % 153.0 10 % 5.3 3 % Construction/Mining 142.3 7 % 98.2 6 % 44.1 45 % Medical 89.9 4 % 71.2 4 % 18.7 26 % Other 155.5 7 % 101.2 6 % 54.3 54 % Total $ 2,194.8 100 % $ 1,644.7 100 % $ 550.1 33 % Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are presented in the following table. HRPF conversion service sales are excluded from this presentation. Fiscal Year 2022 2021 Nickel-based alloys and specialty alloys 54 % 44 % PRS products 25 % 33 % Zirconium and related alloys 14 % 17 % Titanium and titanium-based alloys 7 % 6 % Total 100 % 100 % Segment EBITDA was $375.3 million, or 17.1% of sales, a 52% increase from segment EBITDA of $246.8 million, or 15.0% of sales, in fiscal year 2021. Results reflect a stronger product mix of nickel-alloy mill products as we completed our exit from production of standard stainless products. Increased sales of exotic materials from our Specialty Alloys & Components business and improved operating performance also drove AA&S segment EBITDA margin growth. The fiscal year 2022 segment EBITDA includes a $9.9 million benefit from the A&T Stainless joint venture’s settlement of Section 232 tariff claims and $6.8 million of employee retention credits, partially offset by labor and other costs related to ramp readiness. Strike related 32 costs of $59.7 million, primarily related to lower productivity and utilization levels, were excluded from AA&S segment fiscal year 2021 results. Corporate Expenses Corporate expenses, which are primarily included in selling and administrative expenses in the statement of operations, were $62.3 million in fiscal year 2023 compared to $60.3 million in fiscal year 2022 and $53.7 million in fiscal year 2021. Increased expenses in fiscal years 2023 and 2022 compared to fiscal year 2021 reflect business transformation initiatives and higher incentive compensation costs. Closed Operations and Other Expenses Closed operations and other expenses are presented primarily in selling and administrative expenses in the consolidated statements of operations, and include legal, environmental, retirement benefit and insurance obligations associated with closed operations. Closed operations and other expenses were $13.3 million in fiscal year 2023, compared to $5.6 million of expense in fiscal year 2022 and $3.1 million of income in fiscal year 2021. The increase in fiscal year 2023 reflects higher retirement benefit expense and higher insurance costs associated with an outstanding insurance claim involving our captive insurance company compared to prior year periods. Depreciation and Amortization The following table shows depreciation & amortization for the relevant periods by each business segment. Depreciation expense in fiscal year 2023 includes $3.8 million of accelerated depreciation of fixed assets related to the restructuring of our European operations and the closure of our Robinson, PA operations. Fiscal Year (In millions) 2023 2022 2021 Depreciation and amortization: High Performance Materials & Components $ 71.1 $ 68.3 $ 75.0 Advanced Alloys & Solutions 67.9 67.4 64.5 Other 7.1 7.2 4.4 $ 146.1 $ 142.9 143.9 Interest Expense, Net Interest expense, net of interest income and interest capitalization, was $92.8 million in fiscal year 2023, compared to $87.4 million in fiscal year 2022 and $96.9 million in fiscal year 2021. The increase in fiscal year 2023 compared to fiscal year 2022 reflects the issuance of the 2030 Notes during the third quarter of fiscal year 2023. The decrease in interest expense in fiscal year 2022 compared to fiscal year 2021 was in part due to the conversion of $82.5 million of the 4.75% Convertible Senior Notes due 2022 (2022 Notes) to 5.7 million shares of ATI stock on the July 1, 2022 maturity date of the 2022 Notes. Further, interest expense is presented net of interest income of $13.0 million in fiscal year 2023, $4.7 million in fiscal year 2022 and $0.7 million in fiscal year 2021. Interest expense in fiscal years 2023, 2022 and 2021 was reduced by $13.5 million, $5.1 million and $4.3 million, respectively, related to interest capitalization on major strategic capital projects. Restructuring and Other Charges/Credits For the year ended December 31, 2023, restructuring and other charges were $31.4 million, which are excluded from segment results. These charges include $7.7 million of severance-related restructuring charges and $23.7 million of charges included within cost of sales on the consolidated statements of operations. The $7.7 million of severance-related restructuring charges represent severance for the involuntary reduction of approximately 110 employees primarily for the restructuring of our European operations and across ATI’s domestic operations in conjunction with the continued transformation. The $23.7 million of charges within cost of sales include $11.5 million of start-up costs, $1.9 million of costs associated with an unplanned outage at our Lockport, NY facility, and $10.3 million primarily for asset write-offs for the restructuring of our European operations and the closure of our Robinson, PA operations. Cash payments associated with prior restructuring programs were $2.3 million in fiscal year 2023. Of the $15.2 million of remaining reserves associated with these restructuring actions as of December 31, 2023, $10.9 million are expected to be paid within the next fiscal year. 33 For the fiscal year ended January 1, 2023, restructuring and other charges were $23.7 million, which are excluded from segment results. These charges consisted primarily of $28.5 million of costs associated with the settlement of litigation related to the 2016 idling of the Rowley, UT titanium sponge facility, partially offset by $4.8 million of restructuring credits for reductions in severance-related reserves related to approximately 110 employees based on changes in planned operating rates and revised workforce estimates. For the fiscal year ended January 2, 2022, restructuring and other charges were a net credit of $10.5 million, which is excluded from segment results. This $10.5 million net credit consisted primarily of $11.3 million of restructuring credits on the consolidated statement of operations, reflecting a $12.0 million reduction in severance-related reserves for approximately 350 employees based on changes in planned operating rates and revised workforce reduction estimates, partially offset by $0.7 million of other costs related to facility idlings and a $0.8 million charge for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary titanium facility. In addition, the A&T Stainless joint venture recorded a $1.8 million credit in fiscal year 2022 for the reversal of restructuring reserves as a result of revised estimates, and ATI recognized a $0.9 million credit in fiscal year 2022 for its equity method share of these reversals. These charges are excluded from segment operating results. Strike Related Costs Strike related costs were $63.2 million in fiscal year 2021, of which $59.7 million were excluded from AA&S segment EBITDA and $3.5 million were excluded from HPMC segment EBITDA. These items primarily consisted of overhead costs recognized in the period due to below-normal operating rates, higher costs for outside conversion activities, and signing bonuses for represented employees. Pension Remeasurement Gains and Losses During the fourth quarter of fiscal year 2023, we voluntarily changed the method of accounting for recognizing actuarial gains and losses for our defined benefit pension plans. Under the accounting method change, remeasurement of projected benefit obligation and plan assets for defined benefit pension plans are immediately recognized in earnings through net periodic pension benefit cost. Therefore, as a result of the remeasurements of these plans in the fourth quarter of each fiscal year, we recognized a $26.8 million pension remeasurement loss in fiscal year 2023 and $100.3 million and $147.2 million of pension remeasurement gains in fiscal years 2022 and 2021, respectively, which is excluded from segment EBITDA and recorded in nonoperating retirement benefit income/expense on the consolidated statements of operations. Retirement Benefit Settlement Gains and Losses On October 17, 2023, we completed a voluntary cash out for term vested employees and a large annuity buyout related to approximately 8,200 U.S. qualified defined benefit pension plan participants. As a result of the annuity buyout, ATI recognized a $41.7 million pretax settlement loss, which is excluded from segment EBITDA and recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations. ATI’s fiscal year 2021 results include a $64.9 million retirement benefit settlement gain related to a plan termination that eliminated certain postretirement medical benefit liabilities. This was effective upon the July 2021 ratification of the new USW CBA. This gain, which is recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations and is excluded from segment EBITDA, was comprised of $43.0 million of long-term postretirement benefit liabilities as of July 2021 and $21.9 million of amounts recorded in accumulated other comprehensive income at that date. Debt Extinguishment Charge In fiscal year 2021, ATI recognized a $65.5 million debt extinguishment charge on the redemption of the 5.875% Senior Notes due 2023 (2023 Notes), which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and a $1.0 million charge for deferred debt issue costs. 34 Gains/Loss on Asset Sales and Sale of Business, Net Loss on asset sales and sales of businesses for fiscal year 2023 is related to a $0.6 million loss on the sale of our Northbrook, IL operations, which is excluded from segment EBITDA. On May 12, 2022, we completed the sale of our Sheffield, UK operations and recognized a loss in fiscal year 2022 on sale of $112.2 million. The Sheffield, UK operations were previously part of the Specialty Materials business in the HPMC segment. The loss on sale is reported in loss on asset sales and sales of businesses, net, on the consolidated statement of operations and is excluded from HPMC segment results. The loss includes $26.8 million related to the UK defined benefit pension plan, of which $26.1 million was reported as a net pension asset but which was in a deficit funding position for UK statutory reporting purposes, and $0.7 million in accumulated other comprehensive loss on the consolidated ATI balance sheet. The loss also includes $20.0 million of cumulative translation adjustment foreign exchange losses since ATI’s acquisition of these operations in 1998. Also in fiscal year 2022, we completed the sale of the Pico Rivera, CA operations as part of the strategy to exit standard stainless products. We received cash proceeds of $6.2 million on the sale of these assets. We recognized a $6.8 million pretax gain on sale, including de-recognizing certain lease liabilities, which is reported in loss on asset sales and sales of businesses, net, on the consolidated statement of operations and is excluded from AA&S segment results. In fiscal year 2021, we completed the sale of our Flowform Products business within the HPMC segment for $55.0 million, and recognized a $13.8 million gain. This gain is recorded in nonoperating income/expense on the consolidated statement of operations and is excluded from segment EBITDA. Income Taxes Since fiscal year 2020, ATI’s U.S. operations were in a three-year cumulative loss position, limiting the ability to utilize future projections as verifiable sources of income when analyzing the need for a valuation allowance. This cumulative loss continued until fiscal year 2023 when ATI exited the three-year cumulative loss position and we concluded it was appropriate to consider future projections as a source of income when analyzing the need for a valuation allowance. In fiscal year 2023, the income tax benefit of $128.2 million was associated with the valuation allowance due to the current year income for the U.S. operations and an additional benefit of $140.3 million was recorded related to the valuation allowance release associated with ATI’s ability to utilize projections for future income. We continue to have minimal cash tax requirements in the U.S. due to the ongoing benefits of net operating loss tax carryforwards. Results in fiscal years 2022 and 2021 include impacts from income taxes that differ from applicable standard tax rates, primarily related to income tax valuation allowances. The provision for income taxes for fiscal year 2022 was $15.5 million, which was primarily related to our profitable PRS joint venture in China. The provision for income taxes for fiscal year 2021 was $26.8 million, which was primarily attributable to the $15.5 million in discrete tax effects related to the postretirement medical benefits gain discussed above, in accordance with ATI’s accounting policy for recognizing deferred tax amounts stranded in accumulated other comprehensive income. In 2021, the Organization for Economic Co-operation and Development (OECD) released guidance relating to a 15% global minimum tax known as Pillar Two Tax. Various governments are in the process of enacting the Pillar Two Tax. We are in the process of assessing the tax effects of Pillar Two for the various jurisdictions in which we operate and if triggered will treat the cost as a period cost. Currently, we believe that the enactment of Pillar Two will not materially impact our effective tax rate or cash flow, but we will continue to monitor and evaluate as countries release legislation, which could change our current assessment. Financial Condition and Liquidity We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our operations. The ABL facility also provides us with the option of including certain machinery and equipment as additional collateral for purposes of determining availability under the facility. The ABL facility, which matures in September 2027, includes a $600 million revolving credit facility, a letter of credit sub-facility of up to $200 million, a $200 million term loan (ABL Term Loan), and a swing loan facility of up to $60 million. The ABL Term Loan can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In addition, we have the right to request an increase of up to $300 million under the revolving credit facility for the duration of the ABL. As of December 31, 2023, there were no outstanding borrowings under the revolving credit portion of the ABL, and $31.7 million was utilized to support the issuance of letters of credit. There were average revolving credit borrowings of $13 million 35 bearing an average annual interest rate of 6.5% under the ABL during fiscal year 2023. There were no revolving credit borrowings under the ABL during fiscal year 2022. The ABL Term Loan has an interest rate of 2.0% above adjusted Secured Overnight Financing Rate (SOFR). The applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for SOFR-based borrowings and between 0.25% and 0.75% for base rate borrowings. The ABL facility contains a financial covenant whereby we must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10% of the then applicable maximum loan amount under the revolving credit portion of the ABL and the outstanding ABL Term Loan balance, or (ii) $60.0 million. We were in compliance with the fixed charge coverage ratio as of December 31, 2023. On September 9, 2022, the Company amended and restated the ABL and costs associated with entering into this amendment were $2.4 million, and are being amortized to interest expense over the term of the facility ending September 2027, along with $1.7 million of unamortized deferred costs previously recorded for the ABL. In August 2023, we issued $425 million aggregate principal amount of 7.25% Senior Notes due 2030 (2030 Notes). 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 fiscal year 2022, $82.5 million of the 2022 Notes were converted into 5.7 million shares of ATI common stock, with the remaining $1.7 million of outstanding principal balance paid in cash for notes that were not converted. On September 14, 2021, ATI issued $325 million aggregate principal amount of 4.875% Senior Notes due 2029 (2029 Notes) and $350 million aggregate principal amount of 5.125% Senior Notes due 2031 (2031 Notes). Underwriting fees and other third-party expenses for the issuance of the 2029 and 2031 Notes were each $4.7 million, and are being amortized to interest expense over the 8-year and 10-year terms of the 2029 and 2031 Notes, respectively. Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes on October 14, 2021, including a make-whole payment and accrued interest, resulting in a $65.5 million debt extinguishment charge, which includes a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes and a $1.0 million charge for the remaining unrecognized portion of the 2023 Notes deferred debt issue costs. At December 31, 2023, we had $744 million of cash and cash equivalents, and available additional liquidity from the undrawn capacity under the ABL facility of approximately $530 million, for total liquidity of approximately $1.3 billion. We expect to have minimal cash tax requirements in the U.S. in fiscal year 2024 due to the ongoing benefits of net operating loss tax carryforwards. During fiscal year 2021, we received approximately $53 million in cash, net of transaction costs and net working capital adjustments, for the sale of the Flowform Products business. In the first quarter of fiscal year 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 fiscal year 2023, we made an additional $222 million in voluntary cash contributions to our U.S. qualified defined benefit pension plan to facilitate our 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. After these actions, our U.S. qualified defined benefit plan includes approximately 1,980 participants. Based on current actuarial assumptions, we are not required to make any contributions to our pension plan during fiscal year 2024. 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 the defined benefit pension plan for at least the next ten years. However, these funding estimates are subject to significant uncertainty including the actual pension trust assets’ fair value, and the discount rates used to measure pension liabilities. In February 2022 and April 2023, our Board of Directors authorized the repurchase of up to $150 million and $75 million, respectively, of ATI stock. In fiscal year 2023, ATI used $85.2 million to repurchase 2.0 million shares of its common stock under both programs. In fiscal year 2022, ATI used $139.9 million to repurchase 5.2 million shares of its common stock under the $150 million program. As of December 31, 2023, the total share repurchase authorization under these two programs was utilized. In November 2023, our Board of Directors authorized the repurchase of an additional $150 million of ATI stock. Repurchases under these programs were or may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. Open market repurchases are structured to occur within the pricing and volume requirements of SEC Rule 10b-18. The Company’s ongoing stock repurchase 36 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 fiscal year 2024 due to net operating loss carryforwards. If we needed to obtain additional financing using the credit markets, the cost and the terms and conditions of such borrowings may be influenced by our credit rating. In addition, we regularly review our capital structure, various financing alternatives and conditions in the debt and equity markets in order to opportunistically enhance our capital structure. In connection therewith, we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equity or equity-linked securities, in each case, depending on market and other conditions. We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K. In managing our overall capital structure, we focus on the ratio of net debt to Adjusted EBITDA, which we use as a measure of our ability to repay our incurred debt. We define net debt as the total principal balance of our outstanding indebtedness excluding deferred financing costs, net of cash, at the balance sheet date. See the explanations above for our definitions of Adjusted EBITDA and EBITDA, which are non-GAAP measures and are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. GAAP. 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 and Net Debt to Adjusted EBITDA Leverage ratio worsened in fiscal year 2023 compared to fiscal year 2022, largely due to higher debt balances resulting from the issuance of the 2030 Notes in fiscal year 2023 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. GAAP are as follows: December 31, 2023 January 1, 2023* Net income attributable to ATI $ 410.8 $ 323.5 Net income attributable to noncontrolling interests 12.6 15.6 Net income 423.4 339.1 Interest expense 92.8 87.4 Depreciation and amortization 146.1 142.9 Income tax provision (benefit) (128.2) 15.5 Pension remeasurement loss (gain) 26.8 (100.3) Retirement benefit settlement loss 41.7 — Restructuring and other charges 31.4 23.7 Joint venture restructuring credit — (0.9) Loss on asset sales and sale of business 0.6 105.4 Adjusted EBITDA $ 634.6 $ 612.8 Debt $ 2,179.6 $ 1,748.0 Add: Debt issuance costs 19.6 17.2 Total debt 2,199.2 1,765.2 Less: Cash (743.9) (584.0) Net debt $ 1,455.3 $ 1,181.2 Debt to Adjusted EBITDA 3.47 2.88 Net Debt to Adjusted EBITDA 2.29 1.93 *Fiscal year ended January 1, 2023 reflects the change in accounting principle as described in Note 1 of the Notes to the Consolidated Financial Statements. 37 Cash Flow Cash provided by operations was $85.9 million, $224.9 million and $16.1 million in fiscal years 2023, 2022 and 2021, respectively. Decreased cash from operations in fiscal year 2023 as compared to fiscal year 2022, resulted primarily from $272 million in contributions to the U.S. defined benefit pension plans in fiscal year 2023 as well as higher accounts receivable and inventory balances due to increased operating levels. 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 fiscal year 2023 operating cash flow items included payment of fiscal year 2022 annual incentive compensation. Increased cash from operations in fiscal year 2022 as compared to fiscal year 2021, resulted from our ongoing efforts to improve efficiency around accounts receivable and inventory levels despite significantly higher sales and operating levels in most operations. Increased business volumes and expenditures attributable to strategic capital projects contributed to higher accounts payable balances at January 1, 2023. Other significant fiscal year 2022 operating cash flow items included $50 million in contributions to the U.S. defined benefit pension plans, payment of fiscal year 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 $193.2 million in fiscal year 2023, reflecting $200.7 million in capital expenditures primarily related to AA&S transformation projects and various HPMC growth projects. We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, by using a portion of the ABL facility. Cash used in investing activities was $126.7 million in fiscal year 2022, reflecting $130.9 million in capital expenditures primarily related to AA&S transformation projects. Cash provided by financing activities in fiscal year 2023 was $267.2 million, and included $418.8 million of net proceeds from the issuance of the 2030 Notes during the third quarter of fiscal year 2023, partially offset by $85.2 million of payments for the repurchase of 2.0 million shares of ATI stock under our repurchase programs authorized by our Board of Directors and $16.0 million in dividend payments to the 40% noncontrolling interest in our PRS joint venture in China. Cash used in financing activities in fiscal year 2022 was $201.9 million, and consisted primarily of $139.9 million toward the repurchase of ATI shares and $34.0 million in dividend payments to the 40% noncontrolling interest in our PRS joint venture in China. At December 31, 2023, cash and cash equivalents on hand totaled $743.9 million, a $159.9 million increase from fiscal year-end 2022. Cash and cash equivalents held by our foreign subsidiaries was $141.7 million at December 31, 2023, of which $75.3 million was held by our PRS joint venture in China. Contractual Obligations A summary of required payments under financial instruments (excluding accrued interest) and other commitments are presented below. (In millions) Total Less than 1 year 1-3 years 4-5 years After 5 years Contractual Cash Obligations Total Debt including Finance Leases (A) $ 2,199.2 $ 31.9 $ 483.8 $ 574.9 $ 1,108.6 Interest on Debt (B) 616.0 118.1 208.4 158.2 131.3 Operating Lease Obligations (C) 88.1 17.0 27.6 18.6 24.9 Other Long-term Liabilities 104.0 — 56.0 28.9 19.1 Pension and OPEB Obligations (D) 257.9 32.1 56.2 51.3 118.3 Unconditional Purchase Obligations Raw Materials (E) 1,127.4 605.8 408.1 113.5 — Capital expenditures 86.1 85.4 0.7 — — Other (F) 43.9 27.4 14.5 2.0 — Total $ 4,522.6 $ 917.7 $ 1,255.3 $ 947.4 $ 1,402.2 Other Financial Commitments Lines of Credit (G) $ 658.1 $ 58.1 $ — $ 600.0 $ — Guarantees $ 13.4 (A) Amounts exclude $68 million for certain finance lease contracts the Company has agreed to enter into. See Note 11, Leases for further information. 38 (B) Amounts include contractual interest payments using the interest rates in effect as of December 31, 2023 applicable to the Company’s ABL Term Loan due 2027, the 2025 Convertible Notes, the Allegheny Ludlum 6.95% Debentures due 2025, the 2027 Notes, the 2029 Notes, the 2030 Notes and the 2031 Notes. (C) Amounts include operating lease obligations at their undiscounted value. These obligations are presented in other current liabilities and other long-term liabilities on the consolidated balance sheets at their discounted value, using applicable interest rates. See Note 11, Leases for further information. (D) Based on current actuarial studies, amounts include payments for the next 10 years, which are not significant, to defined benefit pension plans, assuming the expected long-term returns on pension assets are achieved. Projections of minimum required payments to the U.S. qualified defined benefit pension plan are subject to significant uncertainty based on a number of factors including actual pension plan asset returns, changes in estimates of participant longevity, and changes in interest rates. Amounts also include actuarial projections of payments under other post-employment benefit plans for the next 10 years. In most retiree healthcare plans, our contributions are capped based on the cost as of a certain date. See Note 14, Retirement Benefits for further information. (E) We have contracted for physical delivery for certain of our raw materials to meet a portion of our needs. These contracts are based upon fixed or variable price provisions. We used current market prices as of December 31, 2023, for raw material obligations with variable pricing. (F) We have various contractual obligations that extend through fiscal year 2028 for services involving production facilities and administrative operations. Our purchase obligation as disclosed represents the estimated termination fees payable if we were to exit these contracts. (G) At December 31, 2023, there was $5.0 million drawn under foreign credit agreements. Drawn amounts on the U.S. facility were $31.7 million utilized for standby letters of credit under the $600 million ABL facility, which renew annually. These standby letters of credit are used to support: $22.0 million in workers’ compensation and general insurance arrangements, $5.4 million related to environmental matters and $4.3 million for performance assurances. Commitments and Contingencies At December 31, 2023, our reserves for environmental remediation obligations totaled approximately $13 million, of which $7 million was included in other current liabilities. These reserves included estimated probable future costs of: $3 million for federal Superfund and comparable state-managed sites; $7 million for formerly owned or operated sites for remediation or indemnification obligations; $2 million for owned or controlled sites at which our operations have been or plan to be discontinued; and $1 million for sites utilized by the Company in its ongoing operations. We continue to evaluate whether we may be able to recover a portion of future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate. The timing of expenditures depends on a number of factors that vary by site. ATI expects that it will expend present accruals over many years and that remediation of all sites with which it has been identified will be completed within thirty years. At December 31, 2023, we had recognized asset retirement obligations (AROs) of $18 million related to landfill closures, decommissioning costs, facility leases and conditional AROs associated with manufacturing activities using what may be characterized as potentially hazardous materials. Based on currently available information, it is reasonably possible that the costs for active matters may exceed our recorded reserves by as much as $17 million. However, future investigation or remediation activities may result in the discovery of additional hazardous materials, potentially higher levels of contamination than discovered during prior investigation, and may impact costs of the success or lack thereof in remedial solutions. Therefore, future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on the ATI’s consolidated financial condition or results of operations. Labor Matters We have no significant CBAs that expire in fiscal year 2024. Approximately 1,100 USW-represented employees engaged in a 3 ½ month strike in mid-2021, following the expiration of a CBA, primarily affecting operations in the AA&S segment. In July 2021, we announced that a new four-year labor agreement with the USW through February 28, 2025 was ratified, ending the strike. Retirement Benefits All of ATI’s defined benefit pension plans are closed to new entrants, and at most ATI operations with pension participants, the plans are frozen for all future benefit accruals, with less than 800 participants still accruing benefit service. Additionally, all of the remaining collectively-bargained defined benefit retiree health care plans at ATI’s operations are now closed to new 39 entrants, with cost caps in place for these obligations. As a result of these actions, ATI’s retirement savings and other postretirement benefit programs have largely transitioned to a defined contribution structure. From fiscal years 2013 to 2022, five annuity buyouts of retired participants and two voluntary cash out programs of deferred participants during this period helped to reduce the total participants in ATI’s U.S. qualified defined benefit pension plans by more than 60%. During the fourth quarter of fiscal year 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. 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 fiscal year 2023, to fully fund remaining pension liabilities ahead of this annuity transaction. After these actions, our U.S. qualified defined benefit pension plan includes approximately 1,980 participants. At December 31, 2023, our defined benefit pension plans were approximately 97% funded in accordance with generally accepted accounting principles, and were remeasured at that date using a 5.60% discount rate to measure the projected benefit obligation. For ERISA funding purposes, discount rates used to measure pension liabilities for U.S. qualified defined benefit plans are calculated on a different basis using an IRS-determined segmented yield curve. Funding requirements are also affected by IRS-determined mortality assumptions, which may differ from those used under accounting standards. Based on current actuarial assumptions, we are not required to make any contributions to our pension plan during fiscal year 2024, and we are not required to make any significant contributions for at least the next ten years. However, these estimates are subject to significant uncertainty, including the performance of our pension trust assets and the discount rates used to measure pension liabilities. Pension trust asset performance for both our accounting and ERISA funding calculations is determined using the market value of plan assets at the end of each year. Critical Accounting Policies The accompanying consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles. When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that is most appropriate in our specific circumstances. Application of these accounting principles requires our management to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these consolidated financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. Asset Impairment We monitor the recoverability of the carrying value of our long-lived assets. An impairment charge is recognized when the expected net undiscounted future cash flows from an asset’s use (including any proceeds from disposition) are less than the asset’s carrying value, and the asset’s carrying value exceeds its fair value. Changes in the expected use of a long-lived asset group, and the financial performance of the long-lived asset group and its operating segment, are evaluated as indicators of possible impairment. Future cash flow value may include appraisals for property, plant and equipment, land and improvements, future cash flow estimates from operating the long-lived assets, and other operating considerations. As of April 3, 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 of fiscal year 2022, reported as part of the $112.2 million loss on sale of this business for the fiscal year ended January 1, 2023. This long-lived asset impairment charge was determined using the held for sale framework and represents Level 1 information in the fair value hierarchy. Goodwill is reviewed annually in the fourth quarter of each fiscal year for impairment or more frequently if impairment indicators arise. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. At December 31, 2023, the Company had $227.2 million of goodwill on its consolidated balance sheet, all of which relates to the HPMC segment. For our annual goodwill impairment evaluation performed in the fourth quarter of fiscal year 2023, quantitative goodwill assessments were performed for the two HPMC reporting units with goodwill. Fair values were determined by using a quantitative assessment that includes discounted cash flow and multiples of cash earnings valuation techniques, plus valuation comparisons to recent public sale transactions of similar businesses, if any, which represents Level 3 unobservable information in the fair value hierarchy. These impairment assessments and valuation methods require us to make estimates and assumptions regarding revenue growth, changes in working capital and capital expenditures, selling prices and profitability that drive cash flows, and the WACC. Many of these assumptions are determined by reference to market participants we have identified. For example, our WACC used in our discounted cash flow assessments was 12.0% and long-term growth rates ranged from 3% to 3.5%. The estimated effect of a 0.50% change in the WACC would result in a 10% change in the fair value of the Forged 40 Products reporting unit. Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions. The $227.2 million of goodwill remaining as of December 31, 2023 on our consolidated balance sheet is comprised of $161.2 million at the Forged Products reporting unit and $66.0 million at the Specialty Materials reporting unit. For our annual goodwill impairment evaluation performed in the fourth quarter of fiscal year 2023, the Specialty Materials reporting unit had a fair value that was significantly in excess of carrying value. The Forged Products reporting unit had a fair value that exceeded carrying value by approximately 60% for the fiscal year 2023 annual assessment, which increased compared to the annual evaluation for fiscal year 2022. As a result, no impairments were determined to exist from the annual goodwill impairment evaluation for the fiscal years ended December 31, 2023, January 1, 2023 or January 2, 2022. In order to validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization was performed using a reasonable control premium. In addition, no indicators of impairment were observed in fiscal years 2023 or 2022 associated with any of our long-lived assets. Income Taxes The provision for income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback and/or carryforward period available under tax law. On a quarterly basis, we evaluate the realizability of our deferred tax assets. The evaluation includes the consideration of all available evidence, both positive and negative, regarding the estimated future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, historical taxable income in prior carryback periods if carryback is permitted, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. In situations where a three-year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized. Since fiscal year 2020, ATI’s U.S. operations were in a three-year cumulative loss position, limiting the ability to utilize future projections as verifiable sources of income when analyzing the need for a valuation allowance. Results in fiscal years 2021 and 2022 include impacts from income taxes that differ from applicable standard tax rates, primarily related to these income tax valuation allowances. This cumulative loss continued until fiscal year 2023 when ATI exited the three-year cumulative loss position and we concluded it was appropriate to consider future projections as a source of income when analyzing the need for a valuation allowance. We determined that valuation allowances on net deferred tax asset balances for federal and certain state jurisdictions are no longer required. Certain individual tax attributes still require a valuation allowance based on expected utilization. At December 31, 2023, our deferred tax asset valuation allowance was $60.3 million. In fiscal year 2023, ATI recorded a tax benefit associated with the valuation allowance due to the current year income for the U.S. operations and an additional benefit was recorded related to the valuation allowance release associated with ATI’s ability to utilize projections for future income. In addition, we have $24.1 million of valuation allowances on amounts recorded in other comprehensive loss on the consolidated balance sheet as of December 31, 2023. Retirement Benefits We have defined contribution retirement plans or benefit pension plans covering substantially all of our employees. We also sponsor several postretirement plans covering certain hourly and salaried employees and retirees. These plans provide health care and life insurance benefits for eligible employees. Company contributions to defined contribution retirement plans are generally based on a percentage of eligible pay or based on hours worked, and are funded with cash. All of ATI’s defined benefit pension plans are closed to new entrants, and at most ATI operations with pension participants the plans are frozen for all future benefit accruals, with less than 800 participants still accruing benefit service. Additionally, all of the remaining, collectively bargained defined benefit retiree health care plans at ATI’s operations are closed to new entrants, with cost caps in place for these obligations. As a result of these actions, ATI’s retirement savings and other postretirement benefit programs have largely transitioned to a defined contribution structure. Under U.S. generally accepted accounting principles, amounts recognized in financial statements for defined benefit pension plans are determined on an actuarial basis, rather than as contributions are made to the plan. A significant element in determining our pension income or expense in accordance with the accounting standards is the expected investment return on plan assets. In establishing the expected return on plan investments, which is reviewed annually in the fourth quarter, we take into consideration input from our third-party pension plan asset managers and actuaries regarding the types of securities the plan assets are invested in, how those investments have performed historically, and expectations for how those investments will perform in the future. Our weighted average expected long-term return on pension plan investments was initially 6.57% in 41 fiscal year 2023, and 5.80% upon remeasurement as of October 17, 2023, following the large annuity buyout of retirees. The expected long-term rate of return on pension plan investments for fiscal year 2024 will be 5.80%. We apply the assumed rate of return to the market value of plan assets at the end of the previous year. This produces the expected return on plan assets that is included in annual pension expense for the current year. The actual returns on pension plan assets for the last five fiscal years have been 2.0% for 2023, (14.5)% for 2022, 12.4% for 2021, 15.2% for 2020, and 15.1% for 2019. The effect of increasing, or lowering, the expected return on pension plan investments by 0.25% would result in additional pre-tax annual income, or expense, of approximately $1 million. The cumulative difference between the expected return and the actual return on plan assets is immediately recognized in earnings through net periodic pension benefit cost within nonoperating retirement benefit expense on the consolidated statements of operations when pension plans are remeasured annually in the fourth quarter or on an interim basis as triggering events require remeasurement. This immediate recognition is in accordance with the accounting standards and is a result of our change in accounting principle in the fourth quarter of fiscal year 2023 as discussed in Note 1 to the Consolidated Financial Statements. The amount of expected return on plan assets can vary significantly from year-to-year since the calculation is dependent on the market value of plan assets as of the end of the preceding year. U.S. generally accepted accounting principles allow companies to calculate the expected return on pension assets using either an average of fair market values of pension assets over a period not to exceed five years, which reduces the volatility in reported pension income or expense, or their fair market value at the end of the previous year. However, the U.S. Securities and Exchange Commission currently does not permit companies to change from the fair market value at the end of the previous year methodology, which is the methodology that we use, to an averaging of fair market values of plan assets methodology. As a result, our results of operations and those of other companies, including companies with which we compete, may not be comparable due to these different methodologies in calculating the expected return on pension investments. In accordance with accounting standards, we determine the discount rate used to value pension plan liabilities as of the last day of our fiscal year. The discount rate reflects the current rate at which the pension liabilities could be effectively settled. In estimating this rate, we receive input from our actuaries regarding the rates of return on high quality, fixed-income investments with maturities matched to the expected future retirement benefit payments. Based on this assessment, we established a discount rate of 5.60% for valuing the pension liabilities as of December 31, 2023, and for determining the pension expense for fiscal year 2024. We had previously assumed a discount rate of 5.55% at the end of fiscal year 2022, which changed to 6.40% upon the remeasurement as of October 17, 2023, following the large annuity buyout of retirees, and 2.95% at the end of fiscal year 2021. The estimated effect of changing the discount rate by 0.50% would decrease pension liabilities in the case of an increase in the discount rate or increase pension liabilities in the case of a decrease in the discount rate, by approximately $20 million. Such a change in the discount rate would have an insignificant impact to pension expense. The effect on pension liabilities for changes to the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, are immediately recognized in earnings through net periodic pension benefit cost within nonoperating retirement benefit expense on the consolidated statements of operations when pension plans are remeasured annually in the fourth quarter or on an interim basis as triggering events require remeasurement. This immediate recognition is in accordance with the accounting standards and is a result of our change in accounting principle in the fourth quarter of fiscal year 2023 as discussed in Note 1 to the Consolidated Financial Statements. With respect to our postretirement plans, under most of the plans, our contributions towards retiree medical premiums are capped based upon the cost as of certain dates, thereby creating a defined contribution. In accordance with U.S. generally accepted accounting standards, postretirement expenses recognized in financial statements associated with defined benefit plans are determined on an actuarial basis, rather than as benefits are paid. We use actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for these plans. The discount rate, which is determined annually at the end of each fiscal year, is developed based upon rates of return on high quality, fixed-income investments. At the end of fiscal year 2023, we determined the rate to be 5.40%, compared to a 5.45% discount rate in fiscal year 2022, and a 2.80% discount rate in fiscal year 2021. The estimated effect of changing the discount rate by 0.50% would decrease postretirement obligations in the case of an increase in the discount rate or increase postretirement obligations in the case of a decrease in the discount rate, by approximately $7 million. Such a change in the discount rate would have an insignificant impact to postretirement benefit expense. Based upon predictions of continued significant medical cost inflation in future years, the annual assumed rate of increase in the per capita cost of covered benefits of health care plans is 7.2% in 2024 and is assumed to gradually decrease to 4.0% in the year 2048 and remain level thereafter. Assumed health care cost trend rates can have a significant effect on the benefit obligation for health care plans, however, the Company’s contributions for most of its retiree health plans are capped based on a fixed premium amount, which limits the impact of future health care cost increases. Forward-Looking Statements From time-to-time, the Company has made and may continue to make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in this report relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as 42 “anticipates,” “believes,” “estimates,” “expects,” “would,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects,” and similar expressions. Such forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause our actual results or performance to materially differ from any future results or performance expressed or implied by such statements. Various of these factors are described in Item 1A, Risk Factors, of this Annual Report on Form 10-K and will be described from time-to-time in the Company filings with the SEC, including the Company’s Annual Reports on Form 10-K and the Company’s subsequent reports filed with the SEC on Form 10-Q and Form 8-K, which are available on the SEC’s website at www.sec.gov and on the Company’s website at www.atimetals.com. We assume no duty to update our forward-looking statements.