ATI INC 10-Q

Item 1. Financial Statements ATI Inc. and Subsidiaries Consolidated Balance Sheets (In millions, except share and per share amounts) (Current period unaudited) September 29, 2024 December 31, 2023 ASSETS Current Assets: Cash and cash equivalents $ 406.6 $ 743.9 Accounts receivable, net 730.2 625.0 Short-term contract assets 90.5 59.1 Inventories, net 1,414.5 1,247.5 Prepaid expenses and other current assets 136.6 62.2 Total Current Assets 2,778.4 2,737.7 Property, plant and equipment, net 1,746.5 1,665.9 Goodwill 227.2 227.2 Other assets 313.7 354.3 Total Assets $ 5,065.8 $ 4,985.1 LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 528.5 $ 524.8 Short-term contract liabilities 146.5 163.6 Short-term debt and current portion of long-term debt 27.9 31.9 Other current liabilities 242.4 256.8 Total Current Liabilities 945.3 977.1 Long-term debt 1,855.5 2,147.7 Accrued postretirement benefits 163.8 175.2 Pension liabilities 37.1 39.7 Other long-term liabilities 152.1 164.9 Total Liabilities 3,153.8 3,504.6 Equity: ATI Stockholders’ Equity: Preferred stock, par value $ 0.10 : authorized- 50,000,000 shares; issued- none — — Common stock, par value $ 0.10 : authorized- 500,000,000 shares; issued- 142,871,688 shares at September 29, 2024 and 132,300,971 shares at December 31, 2023; outstanding- 142,631,508 shares at September 29, 2024 and 126,879,099 shares at December 31, 2023 14.3 13.2 Additional paid-in capital 1,937.8 1,697.1 Retained loss ( 72.8 ) ( 70.1 ) Treasury stock: 240,180 shares at September 29, 2024 and 5,421,872 shares at December 31, 2023 ( 13.3 ) ( 184.0 ) Accumulated other comprehensive loss, net of tax ( 74.6 ) ( 83.2 ) Total ATI stockholders’ equity 1,791.4 1,373.0 Noncontrolling interests 120.6 107.5 Total Equity 1,912.0 1,480.5 Total Liabilities and Equity $ 5,065.8 $ 4,985.1 The accompanying notes are an integral part of these statements. 1 ATI Inc. and Subsidiaries Consolidated Statements of Operations (In millions, except per share amounts) (Unaudited) Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Sales $ 1,051.2 $ 1,025.6 $ 3,189.4 $ 3,109.7 Cost of sales 826.4 831.0 2,539.8 2,512.8 Gross profit 224.8 194.6 649.6 596.9 Selling and administrative expenses 82.4 69.8 253.3 235.8 Restructuring charges (credits) 0.5 ( 0.5 ) ( 1.2 ) 2.2 Loss (gain) on asset sales and sales of businesses, net ( 0.3 ) 0.1 ( 2.5 ) 0.8 Operating income 142.2 125.2 400.0 358.1 Nonoperating retirement benefit expense ( 3.7 ) ( 2.4 ) ( 11.1 ) ( 7.3 ) Interest expense, net ( 28.0 ) ( 23.8 ) ( 83.0 ) ( 65.0 ) Other income, net 4.4 — 5.2 1.3 Income before income taxes 114.9 99.0 311.1 287.1 Income tax provision 28.3 4.9 70.5 12.9 Net income 86.6 94.1 240.6 274.2 Less: Net income attributable to noncontrolling interests 3.9 3.9 9.9 9.1 Net income attributable to ATI $ 82.7 $ 90.2 $ 230.7 $ 265.1 Basic net income attributable to ATI per common share $ 0.64 $ 0.70 $ 1.82 $ 2.06 Diluted net income attributable to ATI per common share $ 0.57 $ 0.62 $ 1.61 $ 1.82 The accompanying notes are an integral part of these statements. 2 ATI Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (In millions) (Unaudited) Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Net income $ 86.6 $ 94.1 $ 240.6 $ 274.2 Currency translation adjustment Unrealized net change arising during the period 17.4 ( 9.2 ) 7.1 ( 14.0 ) Derivatives Net derivatives loss on hedge transactions ( 1.9 ) ( 3.2 ) ( 4.3 ) ( 20.6 ) Reclassification to net income of net realized loss 3.7 1.8 8.0 0.1 Income taxes on derivative transactions 0.5 — 1.7 — Total 1.3 ( 1.4 ) 2.0 ( 20.5 ) Postretirement benefit plans Actuarial loss Amortization of net actuarial loss 1.3 1.5 3.9 4.5 Prior service cost Amortization to net income of net prior service credits ( 0.1 ) ( 0.1 ) ( 0.4 ) ( 0.4 ) Income taxes on postretirement benefit plans 0.3 — 0.8 — Total 0.9 1.4 2.7 4.1 Other comprehensive income (loss), net of tax 19.6 ( 9.2 ) 11.8 ( 30.4 ) Comprehensive income 106.2 84.9 252.4 243.8 Less: Comprehensive income attributable to noncontrolling interests 7.9 1.8 13.1 5.7 Comprehensive income attributable to ATI $ 98.3 $ 83.1 $ 239.3 $ 238.1 The accompanying notes are an integral part of these statements. 3 ATI Inc. and Subsidiaries Consolidated Statements of Cash Flows (In millions) (Unaudited) Year-to-date period ended September 29, 2024 October 1, 2023 Operating Activities: Net income $ 240.6 $ 274.2 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 112.4 106.6 Share-based compensation 26.6 21.5 Deferred taxes 56.5 2.2 Net gains from disposal of property, plant and equipment ( 6.0 ) ( 0.1 ) Loss (gain) on sales of businesses — 0.6 Changes in operating assets and liabilities: Inventories ( 198.4 ) ( 158.2 ) Accounts receivable ( 111.3 ) ( 104.0 ) Accounts payable 20.2 ( 108.2 ) Pension plan contributions — ( 272.0 ) Retirement benefits ( 7.9 ) ( 12.3 ) Accrued liabilities and other ( 106.4 ) ( 81.6 ) Cash provided by (used in) operating activities 26.3 ( 331.3 ) Investing Activities: Purchases of property, plant and equipment ( 191.8 ) ( 147.3 ) Proceeds from disposal of property, plant and equipment 10.6 3.3 Transaction costs for sales of businesses, net of proceeds — ( 0.3 ) Other 3.0 1.1 Cash used in investing activities ( 178.2 ) ( 143.2 ) Financing Activities: Borrowings on long-term debt — 425.0 Payments on long-term debt and finance leases ( 21.9 ) ( 22.0 ) Net payments under credit facilities ( 5.1 ) ( 7.3 ) Receipt of convertible note capped call 76.1 — Debt issuance costs — ( 6.1 ) Purchase of treasury stock ( 190.0 ) ( 55.1 ) Shares repurchased for income tax withholding on share-based compensation and other ( 25.3 ) ( 11.1 ) Cash provided by (used in) financing activities ( 166.2 ) 323.4 Less: Cash held for sale ( 19.2 ) — Decrease in cash and cash equivalents ( 337.3 ) ( 151.1 ) Cash and cash equivalents at beginning of period 743.9 584.0 Cash and cash equivalents at end of period $ 406.6 $ 432.9 The accompanying notes are an integral part of these statements. 4 ATI Inc. and Subsidiaries Statements of Changes in Consolidated Equity (In millions) (Unaudited) ATI Stockholders Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non- controlling Interests Total Equity Balance, July 2, 2023 $ 13.2 $ 1,682.0 $ ( 306.0 ) $ ( 107.9 ) $ ( 87.3 ) $ 115.2 $ 1,309.2 Net income — — 90.2 — — 3.9 94.1 Other comprehensive loss — — — — ( 7.1 ) ( 2.1 ) ( 9.2 ) Purchase of treasury stock — — — ( 45.4 ) — — ( 45.4 ) Employee stock plans — 7.5 — ( 0.3 ) — — 7.2 Balance, October 1, 2023 $ 13.2 $ 1,689.5 $ ( 215.8 ) $ ( 153.6 ) $ ( 94.4 ) $ 117.0 $ 1,355.9 Balance, June 30, 2024 $ 13.4 $ 1,712.9 $ 78.4 $ ( 359.3 ) $ ( 90.2 ) $ 112.7 $ 1,467.9 Net income — — 82.7 — — 3.9 86.6 Other comprehensive income — — — — 15.6 4.0 19.6 Conversion of convertible notes 0.9 140.1 ( 233.9 ) 384.6 — — 291.7 Convertible note capped call — 76.1 — — — — 76.1 Purchase of treasury stock — — — ( 38.8 ) — — ( 38.8 ) Employee stock plans — 8.7 — 0.2 — — 8.9 Balance, September 29, 2024 $ 14.3 $ 1,937.8 $ ( 72.8 ) $ ( 13.3 ) $ ( 74.6 ) $ 120.6 $ 1,912.0 ATI Stockholders Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non- controlling Interests Total Equity Balance, January 1, 2023 $ 13.1 $ 1,668.1 $ ( 480.9 ) $ ( 87.0 ) $ ( 67.4 ) $ 111.3 $ 1,157.2 Net income — — 265.1 — — 9.1 274.2 Other comprehensive loss — — — — ( 27.0 ) ( 3.4 ) ( 30.4 ) Purchase of treasury stock — — — ( 55.5 ) — — ( 55.5 ) Employee stock plans 0.1 21.4 — ( 11.1 ) — — 10.4 Balance, October 1, 2023 $ 13.2 $ 1,689.5 $ ( 215.8 ) $ ( 153.6 ) $ ( 94.4 ) $ 117.0 $ 1,355.9 Balance, December 31, 2023 $ 13.2 $ 1,697.1 $ ( 70.1 ) $ ( 184.0 ) $ ( 83.2 ) $ 107.5 $ 1,480.5 Net income — — 230.7 — — 9.9 240.6 Other comprehensive income — — — — 8.6 3.2 11.8 Conversion of convertible notes 0.9 140.1 ( 233.9 ) 384.6 — — 291.7 Convertible note capped call — 76.1 — — — — 76.1 Purchase of treasury stock — — — ( 190.0 ) — — ( 190.0 ) Employee stock plans 0.2 24.5 0.5 ( 23.9 ) — — 1.3 Balance, September 29, 2024 $ 14.3 $ 1,937.8 $ ( 72.8 ) $ ( 13.3 ) $ ( 74.6 ) $ 120.6 $ 1,912.0 The accompanying notes are an integral part of these statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited Note 1. Accounting Policies The interim consolidated financial statements include the accounts of ATI Inc. and its subsidiaries. Unless the context requires otherwise, “ATI” and “the Company” refer to ATI Inc. and its subsidiaries. The Company follows a 4-4-5 or 5-4-4 fiscal calendar, whereby each fiscal quarter consists of thirteen weeks grouped into two four-week months and one five-week month, and its fiscal year ends on the Sunday closest to December 31. Unless otherwise stated, references to years and quarters in this Quarterly Report on Form 10-Q relate to fiscal years and quarters, rather than calendar years and quarters. These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified in order to conform with 2024 presentation. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K. The results of operations for these interim periods are not necessarily indicative of the operating results for any future period. The December 31, 2023 financial information has been derived from the Company’s audited consolidated financial statements. New Accounting Pronouncements Adopted In September 2022, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to disclosures about supplier finance programs. Supplier finance programs allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary on the basis of invoices that the buyer has confirmed as valid. This new guidance requires a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude, using both qualitative and quantitative information about its supplier finance programs. This new guidance, with the exception of annual disclosures on rollforward information, was effective for the Company in fiscal year 2023, and the Company adopted this new accounting guidance effective January 2, 2023. The annual rollforward information disclosures are effective for the Company in fiscal year 2024, with early adoption permitted. The Company did not early adopt this guidance. The adoption of these changes did not have an impact on the Company’s consolidated financial statements other than disclosure requirements, which are included in Note 7. Pending Accounting Pronouncements In November 2023, the FASB issued new accounting guidance related to segment reporting disclosures. This guidance requires additional disclosures on an annual and interim basis of segment information, including significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and the presentation and composition of other segment items, which is the difference between segment revenue less segment expenses and the measure of segment profit or loss. The guidance also requires that all current segment disclosures required on an annual basis be provided on an interim basis and requires disclosure of the title and position of the CODM and how the CODM uses the reported measure of segment profit or loss in assessing performance and allocating resources. This guidance does not change how an entity identifies its reportable segments. This new guidance includes annual disclosure requirements that will be effective for the Company for fiscal year 2024 and quarterly disclosure requirements that will be effective for fiscal year 2025. The guidance must be applied retrospectively and early adoption is permitted. The Company does not expect to early adopt this guidance and does not expect these changes to have an impact on the Company’s consolidated financial statements other than disclosure requirements. In December 2023, the FASB issued new accounting guidance related to income tax disclosures. This guidance requires an entity to disclose specific categories in its annual rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This guidance also requires additional annual disclosures for income taxes paid and requires disaggregation of income before tax, between domestic and foreign, and income tax expense, between federal, state and foreign. This guidance also eliminates several current disclosure requirements related to: (1) the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months, (2) making a statement that an estimate of the range cannot be made, and (3) disclosing the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures. This new guidance will be effective for the Company for fiscal year 2025 and must 6 be applied on a prospective basis with retrospective application permitted. Early adoption of this guidance is also permitted. The Company does not expect to early adopt this guidance and does not expect these changes to have an impact on the Company’s consolidated financial statements other than disclosure requirements. Note 2. Revenue from Contracts with Customers Disaggregation of Revenue The Company operates in two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). Revenue is disaggregated within these two business segments by diversified global markets, primary geographical markets and diversified products. Comparative information regarding the Company’s overall revenues by global and geographical markets for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023 is included in the following tables. (in millions) Quarter ended September 29, 2024 October 1, 2023 HPMC AA&S Total HPMC AA&S Total Diversified Global Markets: Aerospace & Defense: Jet Engines- Commercial $ 341.9 $ 24.0 $ 365.9 $ 312.5 $ 16.9 $ 329.4 Airframes- Commercial 84.1 96.7 180.8 104.0 99.6 203.6 Defense 48.9 58.2 107.1 39.7 53.1 92.8 Total Aerospace & Defense 474.9 178.9 653.8 456.2 169.6 625.8 Energy: Conventional Energy 2.4 70.2 72.6 2.5 84.5 87.0 Specialty Energy 26.3 43.6 69.9 20.2 41.7 61.9 Total Energy 28.7 113.8 142.5 22.7 126.2 148.9 Automotive 4.6 59.2 63.8 7.2 40.9 48.1 Medical 28.6 24.5 53.1 28.9 18.6 47.5 Electronics — 49.1 49.1 0.6 44.2 44.8 Construction/Mining 4.9 36.9 41.8 7.7 32.3 40.0 Food Equipment & Appliances — 12.9 12.9 — 16.2 16.2 Other 10.7 23.5 34.2 16.2 38.1 54.3 Total $ 552.4 $ 498.8 $ 1,051.2 $ 539.5 $ 486.1 $ 1,025.6 (in millions) Year-to-date period ended September 29, 2024 October 1, 2023 HPMC AA&S Total HPMC AA&S Total Diversified Global Markets: Aerospace & Defense: Jet Engines- Commercial $ 970.6 $ 59.3 $ 1,029.9 $ 914.2 $ 67.0 $ 981.2 Airframes- Commercial 263.5 318.2 581.7 242.0 295.7 537.7 Defense 160.9 180.9 341.8 131.6 157.8 289.4 Total Aerospace & Defense 1,395.0 558.4 1,953.4 1,287.8 520.5 1,808.3 Energy: Conventional Energy 8.3 232.9 241.2 8.6 317.2 325.8 Specialty Energy 67.0 135.6 202.6 75.0 137.8 212.8 Total Energy 75.3 368.5 443.8 83.6 455.0 538.6 Automotive 13.4 177.2 190.6 19.5 140.8 160.3 Medical 97.5 76.4 173.9 70.7 53.7 124.4 Electronics 3.0 139.8 142.8 1.8 113.4 115.2 Construction/Mining 19.9 93.3 113.2 26.9 101.9 128.8 Food Equipment & Appliances — 41.0 41.0 — 58.6 58.6 Other 40.2 90.5 130.7 47.4 128.1 175.5 Total $ 1,644.3 $ 1,545.1 $ 3,189.4 $ 1,537.7 $ 1,572.0 $ 3,109.7 7 (in millions) Quarter ended September 29, 2024 October 1, 2023 HPMC AA&S Total HPMC AA&S Total Primary Geographical Market: United States $ 285.8 $ 339.8 $ 625.6 $ 242.6 $ 314.2 $ 556.8 Europe 201.4 41.6 243.0 217.7 49.7 267.4 Asia 30.3 93.0 123.3 37.8 103.4 141.2 Canada 16.4 15.0 31.4 13.1 10.4 23.5 South America, Middle East and other 18.5 9.4 27.9 28.3 8.4 36.7 Total $ 552.4 $ 498.8 $ 1,051.2 $ 539.5 $ 486.1 $ 1,025.6 (in millions) Year-to-date period ended September 29, 2024 October 1, 2023 HPMC AA&S Total HPMC AA&S Total Primary Geographical Market: United States $ 797.9 $ 1,037.8 $ 1,835.7 $ 661.1 $ 1,052.3 $ 1,713.4 Europe 636.9 146.5 783.4 619.7 137.7 757.4 Asia 106.5 258.5 365.0 132.8 316.4 449.2 Canada 45.4 39.5 84.9 41.7 34.9 76.6 South America, Middle East and other 57.6 62.8 120.4 82.4 30.7 113.1 Total $ 1,644.3 $ 1,545.1 $ 3,189.4 $ 1,537.7 $ 1,572.0 $ 3,109.7 Comparative information regarding the Company’s major products based on their percentages of sales is included in the following table. Hot-Rolling and Processing Facility (HRPF) conversion service sales in the AA&S segment are excluded from this presentation. Quarter ended September 29, 2024 October 1, 2023 HPMC AA&S Total HPMC AA&S Total Diversified Products and Services: Nickel-based alloys and specialty alloys 43 % 50 % 46 % 42 % 52 % 47 % Precision forgings, castings and components 36 % — % 20 % 33 % — % 18 % Titanium and titanium-based alloys 21 % 12 % 17 % 24 % 13 % 19 % Precision rolled strip products — % 21 % 9 % 1 % 19 % 9 % Zirconium and related alloys — % 17 % 8 % — % 16 % 7 % Total 100 % 100 % 100 % 100 % 100 % 100 % Year-to-date period ended September 29, 2024 October 1, 2023 HPMC AA&S Total HPMC AA&S Total Diversified Products and Services: Nickel-based alloys and specialty alloys 41 % 50 % 45 % 45 % 56 % 50 % Precision forgings, castings and components 36 % — % 19 % 33 % — % 17 % Titanium and titanium-based alloys 23 % 13 % 18 % 21 % 11 % 16 % Zirconium and related alloys — % 18 % 9 % — % 15 % 8 % Precision rolled strip products — % 19 % 9 % 1 % 18 % 9 % Total 100 % 100 % 100 % 100 % 100 % 100 % The Company maintained a backlog of confirmed orders totaling $ 3.9 billion and $ 3.6 billion at September 29, 2024 and October 1, 2023, respectively. Due to the structure of the Company’s long-term agreements, approximately 65 % of this backlog at September 29, 2024 represented booked orders with performance obligations that will be satisfied within the next 12 months. The backlog does not reflect any elements of variable consideration. 8 Contract balances As of September 29, 2024 and December 31, 2023, accounts receivable from customers were $ 732.8 million and $ 628.2 million, respectively. The following represents the rollforward of accounts receivable - reserve for doubtful accounts and contract assets and liabilities for the year-to-date periods ended September 29, 2024 and October 1, 2023: (in millions) Accounts Receivable - Reserve for Doubtful Accounts September 29, 2024 October 1, 2023 Balance as of beginning of year $ 3.2 $ 7.7 Expense to increase the reserve — 0.2 Write-off of uncollectible accounts ( 0.6 ) ( 4.2 ) Balance as of period end $ 2.6 $ 3.7 (in millions) Contract Assets Short-term September 29, 2024 October 1, 2023 Balance as of beginning of year $ 59.1 $ 64.1 Recognized in current year 68.9 66.6 Reclassified to accounts receivable ( 37.5 ) ( 74.1 ) Balance as of period end $ 90.5 $ 56.6 (in millions) Contract Liabilities Short-term September 29, 2024 October 1, 2023 Balance as of beginning of year $ 163.6 $ 149.1 Recognized in current year 75.1 61.4 Amounts in beginning balance reclassified to revenue ( 67.7 ) ( 86.7 ) Current year amounts reclassified to revenue ( 36.9 ) ( 40.9 ) Other — ( 0.1 ) Reclassification to/from long-term 12.4 27.4 Balance as of period end $ 146.5 $ 110.2 Long-term (a) September 29, 2024 October 1, 2023 Balance as of beginning of year $ 39.4 $ 66.8 Recognized in current year 10.8 1.0 Reclassification to/from short-term ( 12.4 ) ( 27.4 ) Balance as of period end $ 37.8 $ 40.4 (a) Long-term contract liabilities are included in other long-term liabilities on the consolidated balance sheets. Contract costs for obtaining and fulfilling a contract were $ 9.8 million and $ 8.1 million as of September 29, 2024 and December 31, 2023, respectively, and are reported in other long-term assets on the consolidated balance sheet. Contract cost amortization expense for the quarter and year-to-date period ended September 29, 2024 was $ 0.2 million and $ 0.8 million, respectively. Contract cost amortization expense for the quarter and year-to-date period ended October 1, 2023 was $ 0.2 million and $ 0.9 million, respectively. 9 Note 3. Inventories Inventories at September 29, 2024 and December 31, 2023 were as follows (in millions): September 29, 2024 December 31, 2023 Raw materials and supplies $ 217.0 $ 234.9 Work-in-process 1,188.2 973.6 Finished goods 81.0 114.5 1,486.2 1,323.0 Inventory valuation reserves ( 71.7 ) ( 75.5 ) Total inventories, net $ 1,414.5 $ 1,247.5 Inventories are stated at the lower of cost (first-in, first-out (FIFO) and average cost methods) or net realizable value. Note 4. Property, Plant and Equipment Property, plant and equipment at September 29, 2024 and December 31, 2023 was as follows (in millions): September 29, 2024 December 31, 2023 Land $ 30.9 $ 32.3 Buildings and leasehold improvements 711.2 692.7 Equipment 3,099.2 3,024.3 3,841.3 3,749.3 Accumulated depreciation and amortization ( 2,094.8 ) ( 2,083.4 ) Total property, plant and equipment, net $ 1,746.5 $ 1,665.9 The construction in progress portion of property, plant and equipment at September 29, 2024 was $ 259.8 million. Capital expenditures on the consolidated statement of cash flows for the year-to-date periods ended September 29, 2024 and October 1, 2023 exclude $ 28.3 million and $ 28.9 million, respectively, of accrued capital expenditures that were included in property, plant and equipment at September 29, 2024 and October 1, 2023, respectively. 10 Note 5. Divestitures During 2024, the Company approved plans to divest of certain immaterial, non-core operations from both the HPMC and AA&S segments. These non-core operations, which are classified as held for sale as of September 29, 2024, do not meet the criteria to be classified as discontinued operations in the consolidated financial statements. The following are the assets and liabilities classified as held for sale that are reported as prepaid expenses and other current assets, other long-term assets, other current liabilities, and other long-term liabilities on the consolidated balance sheet as of September 29, 2024. (in millions) September 29, 2024 Assets Cash $ 19.2 Accounts receivable, net 6.1 Inventories, net 31.4 Prepaid expenses and other current assets 0.3 Total current assets 57.0 Property, plant and equipment, net 5.4 Other assets 6.5 Total long-term assets 11.9 Total Assets 68.9 Liabilities Accounts payable 2.4 Other current liabilities 2.8 Total current liabilities 5.2 Other long-term liabilities 3.9 Total Liabilities 9.1 Net assets held for sale $ 59.8 Note 6. Joint Ventures The financial results of majority-owned joint ventures are consolidated into the Company’s operating results and financial position, with the minority ownership interest recognized in the consolidated statements of operations as net income attributable to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity. Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50% ownership interest), are accounted for under the equity method of accounting. Majority-Owned Joint Ventures STAL: The Company has a 60 % interest in the Chinese joint venture known as STAL. The remaining 40 % interest in STAL is owned by China Baowu Steel Group Corporation Limited, a state authorized investment company whose equity securities are publicly traded in the People’s Republic of China. STAL is part of ATI’s AA&S segment and manufactures Precision Rolled Strip (PRS) stainless products mainly for the electronics and automotive markets located in Asia. Cash and cash equivalents held by STAL as of September 29, 2024 were $ 102.3 million. Next Gen Alloys LLC: The Company has a 51 % interest in Next Gen Alloys LLC, a joint venture with GE Aviation for the development of a new meltless titanium alloy powder manufacturing technology; however, there is no active development at this time. Next Gen Alloys LLC funds its development activities through the sale of shares to the two joint venture partners. Cash and cash equivalents held by this joint venture as of September 29, 2024 were $ 1.0 million. 11 Equity Method Joint Ventures A&T Stainless: The Company has a 50 % interest in A&T Stainless, a joint venture with an affiliate company of Tsingshan Group (Tsingshan) to produce 60-inch wide stainless sheet products for sale in North America. Tsingshan purchased its 50 % joint venture interest in A&T Stainless in 2018 for $ 17.5 million. The A&T Stainless operations included the Company’s previously-idled direct roll and pickle (DRAP) facility in Midland, PA. ATI provided hot-rolling conversion services to A&T Stainless using the AA&S segment’s HRPF. The DRAP facility has been idled since the third quarter of 2020. ATI accounts for the A&T Stainless joint venture under the equity method of accounting. ATI’s share of A&T Stainless results were losses of $ 0.2 million and $ 1.0 million for the quarter and year-to-date period ended September 29, 2024, respectively, and $ 0.5 million and $ 1.3 million for the quarter and year-to-date period ended October 1, 2023, respectively, which are included within other income/expense, net, on the consolidated statements of operations and in the AA&S segment’s operating results. As of September 29, 2024 and December 31, 2023, ATI had net receivables for working capital advances and administrative services from A&T Stainless of $ 0.2 million and $ 1.5 million, respectively. Uniti: ATI had a 50 % interest in the industrial titanium joint venture known as Uniti, with the remaining 50 % interest held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. On March 9, 2022, the Company announced the termination of Uniti, LLC. No impairments were recorded as a result of the decision to terminate the Uniti joint venture. Uniti was accounted for under the equity method of accounting. ATI’s share of Uniti’s results were losses of $ 0.2 million for quarter ended October 1, 2023 and income of $ 0.3 million for the year-to-date period ended October 1, 2023, which were included in the AA&S segment’s operating results, and within other income/expense, net on the consolidated statements of operations. The Company received its final distribution in the first quarter of 2024 as a result of the termination, and formal dissolution occurred in the fourth quarter of 2024. Note 7. Supplemental Financial Statement Information Other income (expense), net for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023 was as follows: (in millions) Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Rent and royalty income $ 0.7 $ 0.7 $ 2.3 $ 2.0 Gains from disposal of property, plant and equipment, net 3.7 — 3.7 0.3 Net equity loss on joint ventures (See Note 6) ( 0.2 ) ( 0.7 ) ( 1.0 ) ( 1.0 ) Other $ 0.2 $ — $ 0.2 $ — Total other income, net $ 4.4 $ — $ 5.2 $ 1.3 Gains from disposal of property, plant and equipment, net for the quarter and year-to-date period ended September 29, 2024 include a $ 3.7 million gain on the sale of certain oil and gas rights. These cash gains are reported as an investing activity on the consolidated statement of cash flow for the year-to-date period ended September 29, 2024. Restructuring Restructuring charges were $ 0.5 million for the quarter ended September 29, 2024 and represent severance for the involuntary reduction of several domestic employees. Restructuring charges were a credit of $ 1.2 million for the year-to-date period ended September 29, 2024, primarily for a reduction in severance-related reserves for approximately 80 employees based on revised workforce reduction estimates, which includes the ongoing restructuring of the Company’s European operations. Restructuring charges for the third quarter ended October 1, 2023 were a credit of $ 0.5 million for a reduction in severance-related reserves related to approximately 10 employees based on revised workforce reduction estimates. Restructuring charges for the year-to-date period ended October 1, 2023 were a charge of $ 2.2 million and represent severance for the involuntary reduction of approximately 40 employees across the Company’s domestic operations, partially offset by the credit in the third quarter 2023 discussed above. These amounts are presented as restructuring charges (credits) in the consolidated statements of operations and are excluded from segment EBITDA. 12 Restructuring reserves for severance cost activity is as follows: Severance and Employee Benefit Costs Balance at December 31, 2023 $ 15.2 Adjustments ( 1.2 ) Payments ( 5.2 ) Balance at September 29, 2024 $ 8.8 The $ 8.8 million restructuring reserve balance at September 29, 2024 is recorded in other current liabilities on the consolidated balance sheet. Supplier Financing The Company participates in supplier financing programs with two financial institutions to offer its suppliers the option for access to payment in advance of an invoice due date. Under such programs, these financial institutions provide early payment to suppliers at their request for invoices that ATI has confirmed as valid at a pre-determined discount rate commensurate with the creditworthiness of ATI. As of September 29, 2024 and December 31, 2023, the Company had $ 58.4 million and $ 15.6 million, respectively, reported in accounts payable on the consolidated balance sheets under such programs. Note 8. Debt Debt at September 29, 2024 and December 31, 2023 was as follows (in millions): September 29, 2024 December 31, 2023 ATI Inc. 7.25 % Notes due 2030 $ 425.0 $ 425.0 ATI Inc. 5.875 % Notes due 2027 350.0 350.0 ATI Inc. 5.125 % Notes due 2031 350.0 350.0 ATI Inc. 4.875 % Notes due 2029 325.0 325.0 ATI Inc. 3.5 % Convertible Senior Notes due 2025 — 291.4 Allegheny Ludlum 6.95 % Debentures due 2025 (a) 150.0 150.0 ABL Term Loan 200.0 200.0 U.S. revolving credit facility — — Foreign credit facilities — 5.0 Finance leases and other 98.2 102.8 Debt issuance costs ( 14.8 ) ( 19.6 ) Debt 1,883.4 2,179.6 Short-term debt and current portion of long-term debt 27.9 31.9 Long-term debt $ 1,855.5 $ 2,147.7 (a) The payment obligations of these debentures issued by Allegheny Ludlum, LLC are fully and unconditionally guaranteed by ATI. Revolving Credit Facility The Company has an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s operations. The ABL facility also provides the Company with the option of including certain machinery and equipment as additional collateral for purposes of determining availability under the facility. The ABL facility, which matures in September 2027, includes a $ 600 million revolving credit facility, a letter of credit sub-facility of up to $ 200 million, a $ 200 million term loan (Term Loan), and a swing loan facility of up to $ 60 million. The Term Loan has an interest rate of 2.0 % above the adjusted Secured Overnight Financing Rate (SOFR) and can be prepaid in increments of $ 25 million if certain minimum liquidity conditions are satisfied. In addition, the Company has the right to request an increase of up to $ 300 million in the maximum amount available under the revolving credit facility for the duration of the ABL. The Company previously maintained a $ 50 million floating-for-fixed interest rate swap which converted a portion of the Term Loan to a 4.21 % fixed interest rate that matured in June 2024. 13 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 the Company must maintain a fixed charge coverage ratio of not less than 1.00 : 1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10 % of the then applicable maximum loan amount under the revolving credit portion of the ABL and the outstanding Term Loan balance, or (ii) $ 60.0 million. The Company was in compliance with the fixed charge coverage ratio as of September 29, 2024. Additionally, the Company must demonstrate minimum liquidity specified by the facility during the 90 -day period immediately preceding the stated maturity date of its 6.95 % Debentures due 2025 issued by the Company’s wholly owned subsidiary, Allegheny Ludlum LLC. The ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company’s ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of which are more restrictive, at any time during the term of the ABL when the Company’s fixed charge coverage ratio is less than 1.00 : 1.00 and its undrawn availability under the revolving portion of the ABL is less than the greater of (a) $ 120 million or (b) 20 % of the sum of the maximum loan amount under the revolving credit portion of the ABL and the outstanding Term Loan balance. As of September 29, 2024, there were no outstanding borrowings under the revolving portion of the ABL facility, and $ 31.7 million was utilized to support the issuance of letters of credit. There were no revolving credit borrowings under the ABL facility during the year-to-date period ended September 29, 2024. There were average revolving credit borrowings of $ 17 million bearing an average annual interest rate of 6.5 % under the ABL facility for the year-to-date period ended October 1, 2023. The Company also has foreign credit facilities, primarily in China, that total $ 59 million based on September 29, 2024 foreign exchange rates, none of which was drawn as of September 29, 2024 and $ 5.0 million of which was drawn as of December 31, 2023. 2025 Convertible Notes During the third quarter of 2024, the Company notified holders of the $ 291.4 million outstanding principal amount of its 3.5 % Convertible Notes due 2025 (2025 Convertible Notes) that they would be redeemed prior to their maturity date. The holders of any outstanding 2025 Convertible Notes had the right to convert the principal amount of such notes into shares of ATI’s common stock prior to the redemption date. Any 2025 Convertible Notes not tendered for conversion prior to the redemption date were redeemed in cash at a redemption price equal to the principal amount, plus accrued and unpaid interest. As a result, $ 291.0 million principal amount of the outstanding notes was converted at a rate of 64.7178 shares of ATI common stock per $1,000 principal amount, equivalent to a conversion price of $ 15.45 per share or 18.8 million shares of ATI common stock. Due to the early redemption of the 2025 Convertible Notes, the conversion rate was a premium to the conversion rate of 64.5745 shares of ATI common stock per $1,000 principal amount, or approximately $ 15.49 per share, that would have been due at maturity. The remaining $ 0.4 million of outstanding principal balance were not tendered for conversion and, as a result, the Company redeemed those for cash. For those holders who exercised the conversion rights, the terms of the 2025 Convertible Notes provided that any accrued but unpaid interest at the date of conversion was forfeited. As a result, accrued interest from the last interest payment date of June 15, 2024 through the date of conversion, totaling $ 2.3 million, was credited to additional paid-in capital. In addition, the remaining unamortized deferred issuance costs of $ 1.6 million at the date of conversion were charged to additional paid-in capital. Coincident with its redemption of the 2025 Convertible Notes, the Company also settled the capped call transactions initiated as part of the issuance of the 2025 Convertible Notes. The capped call transactions included a cap price of $ 19.76 per share and were settled for $ 76.1 million in cash, which is recorded as additional paid-in capital on the consolidated balance sheet and as a financing activity on the consolidated statement of cash flows. 14 As of December 31, 2023, the fair value of the 2025 Convertible Notes was $ 864 million based on the quoted market price, which is classified in Level 1 of the fair value hierarchy. The 2025 Convertible Notes had a 3.5 % cash coupon rate that was payable semi-annually in arrears on each June 15 and December 15. Including amortization of deferred issuance costs, the effective interest rate was 4.2 % for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023. Remaining deferred issuance costs were $ 2.9 million at December 31, 2023. Interest expense on the 2025 Convertible Notes was as follows: Quarter ended Year-to-date period ended (in millions) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Contractual coupon rate $ 2.1 $ 2.5 $ 7.2 $ 7.6 Amortization of debt issuance costs 0.3 0.5 1.3 1.4 Total interest expense $ 2.4 $ 3.0 $ 8.5 $ 9.0 Note 9. Derivative Financial Instruments and Hedging As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges. The Company sometimes uses futures and swap contracts to manage exposure to changes in prices for forecasted purchases of raw materials, such as nickel, and natural gas. Under these contracts, which are generally accounted for as cash flow hedges, the price of the item being hedged is fixed at the time that the contract is entered into, and the Company is obligated to make or receive a payment equal to the net change between this fixed price and the market price at the date the contract matures. The majority of ATI’s products are sold under contractual arrangements that include raw material surcharges and index mechanisms. However, as of September 29, 2024, the Company had entered into financial hedging arrangements, primarily at the request of its customers related to firm orders, for an aggregate notional amount of approximately 4 million pounds of nickel with hedge dates through 2025. The aggregate notional amount hedged is approximately 6 % of a single year’s estimated nickel raw material purchase requirements. These derivative instruments are used to hedge the variability of a selling price that is based on the London Metal Exchange (LME) index for nickel, as well as to hedge the variability of the purchase cost of nickel based on this LME index. Any gain or loss associated with these hedging arrangements is included in sales or cost of sales, depending on whether the underlying risk being hedged was the variable selling price or the variable raw material cost, respectively. At September 29, 2024, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility consisted of natural gas cost hedges. At September 29, 2024, the Company hedged approximately 85 % of its forecasted domestic requirements for natural gas for the remainder of 2024, approximately 55 % for 2025 and approximately 10 % for 2026. While the majority of the Company’s direct export sales are transacted in U.S. dollars, it uses foreign currency exchange contracts, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies it expects to receive from its export sales for pre-established U.S. dollar amounts at specified dates. In addition, the Company may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At September 29, 2024, the Company had no material outstanding foreign currency forward contracts. The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. The Company previously maintained a $ 50 million floating-for-fixed interest rate swap which converted a portion of the ABL Term Loan to a 4.21 % fixed rate that matured during the quarter ended June 30, 2024. There are no outstanding derivative interest rate contracts at September 29, 2024. There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contain no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts are substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible. 15 The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterparty or by type of item hedged. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data. (In millions) Asset derivatives Balance sheet location September 29, 2024 December 31, 2023 Derivatives designated as hedging instruments: Interest rate swap Prepaid expenses and other current assets $ — $ 0.7 Foreign exchange contracts Prepaid expenses and other current assets — 0.1 Nickel and other raw material contracts Prepaid expenses and other current assets 0.6 — Natural gas contracts Prepaid expenses and other current assets 0.1 — Nickel and other raw material contracts Other assets 0.2 — Natural gas contracts Other assets 0.1 0.1 Total derivatives designated as hedging instruments $ 1.0 $ 0.9 Liability derivatives Balance sheet location Derivatives designated as hedging instruments: Foreign exchange contracts Other current liabilities 0.1 — Natural gas contracts Other current liabilities 2.7 5.6 Nickel and other raw material contracts Other current liabilities 3.0 7.5 Natural gas contracts Other long-term liabilities 0.3 1.1 Foreign exchange contracts Other long-term liabilities 0.3 — Total derivatives designated as hedging instruments $ 6.4 $ 14.2 For derivative financial instruments that are designated as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results. There were no outstanding fair value hedges as of September 29, 2024. The cash flow impact for all derivative financial instruments is reported in cash flows provided by operating activities on the consolidated statement of cash flows. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes, excluding any impacts of changes to income tax valuation allowances affecting results of operations or other comprehensive income, when applicable (see Note 15 for further explanation). Assuming market prices remain constant with those at September 29, 2024, a pre-tax loss of $ 5.1 million is expected to be recognized over the next 12 months. Activity with regard to derivatives designated as cash flow hedges for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023 was as follows (in millions): Amount of Gain (Loss) Recognized in OCI on Derivatives Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a) Quarter ended Quarter ended Derivatives in Cash Flow Hedging Relationships September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Nickel and other raw material contracts $ ( 0.2 ) $ ( 1.6 ) $ ( 1.4 ) $ ( 0.4 ) Natural gas contracts ( 1.1 ) ( 1.0 ) ( 1.4 ) ( 1.4 ) Foreign exchange contracts ( 0.2 ) 0.1 — 0.1 Interest rate swap — 0.1 — 0.3 Total $ ( 1.5 ) $ ( 2.4 ) $ ( 2.8 ) $ ( 1.4 ) 16 Amount of Gain (Loss) Recognized in OCI on Derivatives Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a) Year-to-date period ended Year-to-date period ended Derivatives in Cash Flow Hedging Relationships September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Nickel and other raw material contracts $ ( 1.3 ) $ ( 8.5 ) $ ( 2.5 ) $ 3.5 Natural gas contracts ( 2.1 ) ( 7.8 ) ( 5.0 ) ( 4.6 ) Foreign exchange contracts 0.1 0.3 0.2 0.2 Interest rate swap — 0.3 1.2 0.8 Total $ ( 3.3 ) $ ( 15.7 ) $ ( 6.1 ) $ ( 0.1 ) (a) The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the interest rate swap, are presented in sales and cost of sales in the same period or periods in which the hedged item affects earnings. The gains (losses) reclassified from accumulated OCI into income on the interest rate swap are presented in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings. The disclosures of gains or losses presented above for nickel and other raw material contracts and foreign currency contracts do not take into account the anticipated underlying transactions. Since these derivative contracts represent hedges, the net effect of any gain or loss on results of operations may be fully or partially offset. The Company may also use derivative instruments that are not designated as hedges to protect the Company’s results from certain fluctuations in foreign exchange rates, as well as to offset a portion of the foreign currency gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies. Changes in the fair value of these foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales or selling, general and administrative expenses on the consolidated statement of operations, and the Company recognized $ 1.0 million and $ 0.5 million of income, net, for settled foreign currency forward contracts that were not designated as hedges during the third quarter and year-to-date period ended September 29, 2024, respectively, which offset foreign currency gains/losses in the relevant currency. We have no significant outstanding hedges that are not designated as of September 29, 2024 . Note 10. Fair Value of Financial Instruments The estimated fair value of financial instruments at September 29, 2024 was as follows: Fair Value Measurements at Reporting Date Using (In millions) Total Carrying Amount Total Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Cash and cash equivalents $ 406.6 $ 406.6 $ 406.6 $ — Derivative financial instruments: Assets 1.0 1.0 — 1.0 Liabilities 6.4 6.4 — 6.4 Debt (a) 1,898.2 1,911.2 1,613.0 298.2 The estimated fair value of financial instruments at December 31, 2023 was as follows: Fair Value Measurements at Reporting Date Using (In millions) Total Carrying Amount Total Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Cash and cash equivalents $ 743.9 $ 743.9 $ 743.9 $ — Derivative financial instruments: Assets 0.9 0.9 — 0.9 Liabilities 14.2 14.2 — 14.2 Debt (a) 2,199.2 2,746.7 2,438.9 307.8 (a) The total carrying amount for debt for both periods excludes debt issuance costs related to the recognized debt liability which is presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability. 17 In accordance with accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards established three levels of a fair value hierarchy that prioritize the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: Cash and cash equivalents: Fair value was determined using Level 1 information. Derivative financial instruments: Fair values for derivatives were measured using exchange-traded prices for the hedged items. The fair value was determined using Level 2 information, including consideration of counterparty risk and the Company’s credit risk. Short-term and long-term debt: The fair values of the Company’s publicly traded debt were based on Level 1 information. The fair values of the other short-term and long-term debt were determined using Level 2 information. Note 11. Business Segments The Company operates under two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). The measure of segment EBITDA excludes net interest expense, income taxes, depreciation and amortization, goodwill impairment charges, debt extinguishment charges, corporate expenses, closed operations and other income (expense), restructuring and other credits/charges, strike related costs, long-lived asset impairments, pension remeasurement gains and losses, other postretirement/pension curtailment and settlement gains and losses, and gains or losses on sales of businesses. Management believes segment EBITDA, as defined, provides an appropriate measure of controllable operating results at the business segment level. Following is certain financial information with respect to the Company’s business segments for the periods indicated (in millions): Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Total sales: High Performance Materials & Components $ 612.9 $ 578.1 $ 1,828.6 $ 1,670.5 Advanced Alloys & Solutions 588.4 551.8 1,753.7 1,791.0 1,201.3 1,129.9 3,582.3 3,461.5 Intersegment sales: High Performance Materials & Components 60.5 38.6 184.3 132.8 Advanced Alloys & Solutions 89.6 65.7 208.6 219.0 150.1 104.3 392.9 351.8 Sales to external customers: High Performance Materials & Components 552.4 539.5 1,644.3 1,537.7 Advanced Alloys & Solutions 498.8 486.1 1,545.1 1,572.0 $ 1,051.2 $ 1,025.6 $ 3,189.4 $ 3,109.7 18 Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 EBITDA: High Performance Materials & Components $ 123.2 $ 117.2 $ 334.6 $ 308.5 Advanced Alloys & Solutions 73.6 61.5 232.9 219.3 Total segment EBITDA 196.8 178.7 567.5 527.8 Corporate expenses ( 13.4 ) ( 12.5 ) ( 49.9 ) ( 47.1 ) Closed operations and other income (expense) 2.3 ( 3.6 ) 1.7 ( 6.8 ) Depreciation & amortization (a) ( 38.5 ) ( 35.6 ) ( 112.4 ) ( 106.6 ) Interest expense, net ( 28.0 ) ( 23.8 ) ( 83.0 ) ( 65.0 ) Restructuring and other charges ( 4.3 ) ( 4.2 ) ( 12.8 ) ( 14.6 ) Loss on asset sales and sales of businesses, net — — — ( 0.6 ) Income before income taxes $ 114.9 $ 99.0 $ 311.1 $ 287.1 a) The following is depreciation & amortization by each business segment: Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 High Performance Materials & Components $ 18.6 $ 16.5 $ 52.8 $ 51.8 Advanced Alloys & Solutions 18.2 17.3 54.5 49.6 Other 1.7 1.8 5.1 5.2 $ 38.5 $ 35.6 $ 112.4 $ 106.6 Beginning in 2020, the U.S. government enacted various relief packages in response to the COVID-19 pandemic, including refundable employee retention tax credits. The Company applied for these employee retention tax credits and deferred recognition of a portion of the tax credits pending the completion of any potential audit or examination, or the expiration of the related statute of limitations. During the quarter and year-to-date periods ended September 29, 2024, the Company recognized a benefit of $ 4.8 million and $ 13.4 million, respectively, in cost of sales on the consolidated statement of operations due to the expiration of the statute of limitations for a portion of these credits. For the quarter ended September 29, 2024, the Company recognized $ 2.9 million of the benefit in the HPMC segment and $ 1.9 million in the AA&S segment. For the year-to-date periods ended September 29, 2024, the Company recognized $ 6.4 million of the benefit in the HPMC segment and $ 7.0 million in the AA&S segment. See Note 16 for further explanation. Closed operations and other income (expense) for the quarter ended September 29, 2024 includes a $ 3.7 million gain on the sale of certain oil and gas rights, included within other income, net, on the consolidated statement of operations, and favorable foreign currency transaction impacts as compared to the prior year period. Closed operations and other income (expense) for the year-to-date period ended September 29, 2024 also includes a $ 2.3 million gain on the sale of assets for the Company’s idled Houston, PA facility, which is included within gain on asset sales and sales of businesses, net, on the consolidated statement of operations. The Company received $ 3.5 million of proceeds from this sale that are reported as an investing activity on the consolidated statement of cash flows. Restructuring and other charges of $ 4.3 million for the quarter ended September 29, 2024 include $ 2.5 million of start-up costs, partially offset by a $ 0.4 million credit for adjustments to inventory reserves related to the Company’s ongoing European restructuring, both of which are included within cost of sales on the consolidated statements of operations. These charges also include $ 1.7 million of transaction costs, which are included within selling and administrative expenses on the consolidated statements of operations, and restructuring charges of $ 0.5 million (see Note 7). Restructuring and other charges of $ 12.8 million for the year-to-date period ended September 29, 2024 include $ 7.2 million of start-up costs and $ 5.1 million of inventory write-downs related to the Company’s ongoing European restructuring, both of which are included within cost of sales on the consolidated statements of operations. These charges also include $ 1.7 million of transaction costs, which are included within selling and administrative expenses on the consolidated statements of operations, and restructuring credits of $ 1.2 million primarily for revised workforce reduction estimates (see Note 7). Restructuring and other charges of $ 4.2 million for the quarter ended October 1, 2023 include $ 2.8 million of start-up costs and $ 1.9 million of costs associated with an unplanned outage at the Company’s Lockport, NY facility, both of which are included within cost of sales on the consolidated statements of operations. These charges were partially offset by a $ 0.5 million pre-tax 19 credit for restructuring charges, primarily related to lowered severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates (see Note 7). Restructuring and other charges of $ 14.6 million for the year-to-date period ended October 1, 2023 include $ 2.2 million of severance-related restructuring charges (see Note 7) as well as $ 8.5 million of start-up costs, $ 1.9 million of costs associated with an unplanned outage at the Company’s Lockport, NY facility, and $ 2.0 million primarily for asset write-offs for the closure of the Company’s Robinson, PA operations, all of which are included within cost of sales on the consolidated statements of operations. Note 12. Retirement Benefits The Company has defined contribution retirement plans or defined benefit pension plans covering substantially all employees. Company contributions to defined contribution retirement plans are generally based on a percentage of eligible pay or based on hours worked. Benefits under the defined benefit pension plans are generally based on years of service and/or final average pay. The Company funds the U.S. pension plans in accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The Company also sponsors several postretirement plans covering certain collectively-bargained salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most retiree health care plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution. All defined benefit pension and retiree health care plans are closed to new entrants. For the quarters ended September 29, 2024 and October 1, 2023, the components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions): Pension Benefits Other Postretirement Benefits Quarter ended Quarter ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Service cost - benefits earned during the year $ 1.5 $ 1.5 $ 0.2 $ 0.2 Interest cost on benefits earned in prior years 4.1 24.0 2.5 2.7 Expected return on plan assets ( 4.1 ) ( 25.7 ) — — Amortization of prior service cost (credit) 0.1 0.1 ( 0.2 ) ( 0.2 ) Amortization of net actuarial loss — — 1.3 1.5 Total retirement benefit expense (income) $ 1.6 $ ( 0.1 ) $ 3.8 $ 4.2 For the year-to-date periods ended September 29, 2024 and October 1, 2023, the components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions): Pension Benefits Other Postretirement Benefits Year-to-date period ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Service cost - benefits earned during the year $ 4.4 $ 4.7 $ 0.4 $ 0.5 Interest cost on benefits earned in prior years 12.3 72.0 7.6 8.2 Expected return on plan assets ( 12.3 ) ( 77.0 ) — — Amortization of prior service cost (credit) 0.2 0.3 ( 0.6 ) ( 0.7 ) Amortization of net actuarial loss — — 3.9 4.5 Total retirement benefit expense $ 4.6 $ — $ 11.3 $ 12.5 Note 13. Income Taxes For the quarter and year-to-date period ended September 29, 2024, the Company’s effective tax rate was 24.6 % and 22.7 %, respectively, resulting in an income tax provision of $ 28.3 million and $ 70.5 million, respectively. Discrete tax benefits for the year-to-date period ended September 29, 2024 were $ 4.5 million, which includes $ 3.3 million for share-based compensation and the recognition of a stranded deferred tax valuation allowance in accumulated other comprehensive loss that was associated with the Company’s interest rate swap due to its maturity (see Note 15). For the quarter and year-to-date period ended October 1, 2023, the Company’s effective tax rate was 4.9 % and 4.5 %, respectively, resulting in an income tax provision of $ 4.9 million and $ 12.9 million, respectively. The Company’s effective tax rates for the quarter and year-to-date period ended October 1, 2023 were impacted by the net valuation allowance position in the U.S. and the Company’s foreign earnings. 20 Note 14. Per Share Information The following table sets forth the computation of basic and diluted income per common share: (In millions, except per share amounts) Quarter ended Year-to-date period ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Numerator: Numerator for basic income per common share – Net income attributable to ATI $ 82.7 $ 90.2 $ 230.7 $ 265.1 Effect of dilutive securities: 3.5 % Convertible Senior Notes due 2025 1.7 2.7 6.0 7.9 Numerator for diluted net income per common share – Net income attributable to ATI after assumed conversions $ 84.4 $ 92.9 $ 236.7 $ 273.0 Denominator: Denominator for basic net income per common share – weighted average shares 128.7 128.1 126.5 128.4 Effect of dilutive securities: Share-based compensation 3.7 3.3 3.1 2.9 3.5 % Convertible Senior Notes due 2025 14.4 18.8 17.3 18.8 Denominator for diluted net income per common share – adjusted weighted average shares and assumed conversions 146.8 150.2 146.9 150.1 Basic net income attributable to ATI per common share $ 0.64 $ 0.70 $ 1.82 $ 2.06 Diluted net income attributable to ATI per common share $ 0.57 $ 0.62 $ 1.61 $ 1.82 Common stock that would be issuable upon the assumed conversion of the 2025 Convertible Notes, prior to their redemption during the third quarter of 2024, and other option equivalents and contingently issuable shares are excluded from the computation of contingently issuable shares, and therefore, from the denominator for diluted earnings per share, if the effect of inclusion is anti-dilutive. There were no anti-dilutive shares for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023. Periodically, the Company’s Board of Directors authorizes the repurchase of ATI common stock (the “Share Repurchase Program”), the most recent of which was $ 700 million that was announced in September 2024. Repurchases under these programs are 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. In the quarter and year-to-date period ended September 29, 2024, ATI used $ 40.0 million and $ 190.0 million, respectively, to repurchase 0.7 million and 4.1 million, respectively, of its common stock under the Share Repurchase Program. At September 29, 2024, the Company has utilized $ 40 million of the $ 700 million currently authorized under the Share Repurchase Program. In the quarter ended October 1, 2023, ATI used $ 45.0 million to repurchase 1.0 million shares of its common stock under the Share Repurchase Program, and in the year-to-date period ended October 1, 2023, ATI used $ 55.1 million to repurchase 1.2 million shares of its common stock under the Share Repurchase Program. The Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as part of the cost basis of the shares within treasury stock. The cost of share repurchases may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to these excise taxes. However, for 2024, there was no excise tax due to the impact of the conversion of the 2025 Convertible Notes (see Note 8). 21 Note 15. Accumulated Other Comprehensive Income (Loss) The changes in AOCI by component, net of tax, for the quarter ended September 29, 2024 were as follows (in millions): Post- retirement benefit plans Currency translation adjustment Derivatives Deferred Tax Asset Valuation Allowance Total Attributable to ATI: Balance, June 30, 2024 $ ( 30.7 ) $ ( 77.9 ) $ ( 4.9 ) $ 23.3 $ ( 90.2 ) OCI before reclassifications — 13.4 ( 1.5 ) — 11.9 Amounts reclassified from AOCI (a) 0.9 (b) — (c) 2.8 (d) — 3.7 Net current-period OCI 0.9 13.4 1.3 — 15.6 Balance, September 29, 2024 $ ( 29.8 ) $ ( 64.5 ) $ ( 3.6 ) $ 23.3 $ ( 74.6 ) Attributable to noncontrolling interests: Balance, June 30, 2024 $ — $ 6.5 $ — $ — $ 6.5 OCI before reclassifications — 4.0 — — 4.0 Amounts reclassified from AOCI — (b) — — — — Net current-period OCI — 4.0 — — 4.0 Balance, September 29, 2024 $ — $ 10.5 $ — $ — $ 10.5 The changes in AOCI by component, net of tax, for the year-to-date period ended September 29, 2024 were as follows (in millions): Post- retirement benefit plans Currency translation adjustment Derivatives Deferred Tax Asset Valuation Allowance Total Attributable to ATI: Balance, December 31, 2023 $ ( 32.5 ) $ ( 68.4 ) $ ( 6.4 ) $ 24.1 $ ( 83.2 ) OCI before reclassifications — 3.9 ( 3.3 ) — 0.6 Amounts reclassified from AOCI (a) 2.7 (b) — (c) 6.1 (d) ( 0.8 ) 8.0 Net current-period OCI 2.7 3.9 2.8 ( 0.8 ) 8.6 Balance, September 29, 2024 $ ( 29.8 ) $ ( 64.5 ) $ ( 3.6 ) $ 23.3 $ ( 74.6 ) Attributable to noncontrolling interests: Balance, December 31, 2023 $ — $ 7.3 $ — $ — $ 7.3 OCI before reclassifications — 3.2 — — 3.2 Amounts reclassified from AOCI — (b) — — — — Net current-period OCI — 3.2 — — 3.2 Balance, September 29, 2024 $ — $ 10.5 $ — $ — $ 10.5 (a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12). (b) No amounts were reclassified to earnings. (c) Amounts related to derivatives are included in sales, cost of goods sold or interest expense in the period or periods the hedged item affects earnings (see Note 9). (d) Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates. The income tax provision for the year-to-date period ended September 29, 2024 includes $ 0.8 million of a tax benefit for the recognition of a stranded deferred tax valuation allowance that was associated with the Company’s interest rate swap due to its maturity (see Notes 9 and 13). 22 The changes in AOCI by component, net of tax, for the quarter ended October 1, 2023 were as follows (in millions): Post- retirement benefit plans Currency translation adjustment Derivatives Deferred Tax Asset Valuation Allowance Total Attributable to ATI: Balance, July 2, 2023 $ ( 32.6 ) $ ( 73.6 ) $ ( 1.1 ) $ 20.0 $ ( 87.3 ) OCI before reclassifications — ( 7.1 ) ( 2.4 ) — ( 9.5 ) Amounts reclassified from AOCI (a) 1.0 (b) — (c) 1.4 (d) — 2.4 Net current-period OCI 1.0 ( 7.1 ) ( 1.0 ) — ( 7.1 ) Balance, October 1, 2023 $ ( 31.6 ) $ ( 80.7 ) $ ( 2.1 ) $ 20.0 $ ( 94.4 ) Attributable to noncontrolling interests: Balance, July 2, 2023 $ — $ 6.4 $ — $ — $ 6.4 OCI before reclassifications — ( 2.1 ) — — ( 2.1 ) Amounts reclassified from AOCI — (b) — — — — Net current-period OCI — ( 2.1 ) — — $ ( 2.1 ) Balance, October 1, 2023 $ — $ 4.3 $ — $ — $ 4.3 The changes in AOCI by component, net of tax, for the year-to-date period ended October 1, 2023 were as follows (in millions): Post- retirement benefit plans Currency translation adjustment Derivatives Deferred Tax Asset Valuation Allowance Total Attributable to ATI: Balance, January 1, 2023 $ ( 34.7 ) $ ( 70.1 ) $ 13.5 $ 23.9 $ ( 67.4 ) OCI before reclassifications — ( 10.6 ) ( 15.7 ) — ( 26.3 ) Amounts reclassified from AOCI (a) 3.1 (b) — (c) 0.1 (d) ( 3.9 ) ( 0.7 ) Net current-period OCI 3.1 ( 10.6 ) ( 15.6 ) ( 3.9 ) ( 27.0 ) Balance, October 1, 2023 $ ( 31.6 ) $ ( 80.7 ) $ ( 2.1 ) $ 20.0 $ ( 94.4 ) Attributable to noncontrolling interests: Balance, January 1, 2023 $ — $ 7.7 $ — $ — $ 7.7 OCI before reclassifications — ( 3.4 ) — — ( 3.4 ) Amounts reclassified from AOCI — (b) — — — — Net current-period OCI — ( 3.4 ) — — $ ( 3.4 ) Balance, October 1, 2023 $ — $ 4.3 $ — $ — $ 4.3 (a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12). (b) No amounts were reclassified to earnings. (c) Amounts related to derivatives are included in sales, cost of goods sold or interest expense in the period or periods the hedged item affects earnings (see Note 9). (d) Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates. Other comprehensive income (loss) amounts (OCI) reported above by category are net of applicable income tax expense (benefit) for each period presented. Income tax expense (benefit) on OCI items is recorded as a change in a deferred tax asset or liability. Amounts recognized in OCI include the impact of any deferred tax asset valuation allowances, when applicable. Foreign currency translation adjustments, including those pertaining to noncontrolling interests, are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. 23 Reclassifications out of AOCI for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023 were as follows: Details about AOCI Components (In millions) Three months ended September 29, 2024 Three months ended October 1, 2023 Year-to-date period ended September 29, 2024 Year-to-date period ended October 1, 2023 Affected line item in the statements of operations Postretirement benefit plans Prior service credit $ 0.1 0.1 $ 0.4 $ 0.4 (a) Actuarial losses ( 1.3 ) ( 1.5 ) ( 3.9 ) ( 4.5 ) (a) ( 1.2 ) ( 1.4 ) ( 3.5 ) ( 4.1 ) (c) Total before tax ( 0.3 ) ( 0.4 ) ( 0.8 ) ( 1.0 ) Tax benefit (d) $ ( 0.9 ) $ ( 1.0 ) $ ( 2.7 ) $ ( 3.1 ) Net of tax Derivatives Nickel and other raw material contracts $ ( 1.9 ) $ ( 0.5 ) $ ( 3.3 ) $ 4.6 (b) Natural gas contracts ( 1.8 ) ( 1.8 ) ( 6.5 ) ( 6.0 ) (b) Foreign exchange contracts — 0.2 0.2 0.3 (b) Interest rate swap — 0.3 1.6 1.0 (b) ( 3.7 ) ( 1.8 ) ( 8.0 ) ( 0.1 ) (c) Total before tax ( 0.9 ) ( 0.4 ) ( 1.9 ) — Tax expense (benefit) (d) $ ( 2.8 ) $ ( 1.4 ) $ ( 6.1 ) $ ( 0.1 ) Net of tax (a) Amounts are reported in nonoperating retirement benefit expense (see Note 12). (b) Amounts related to derivatives, with the exception of the interest rate swap, are included in sales or cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the interest rate swap are included in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings (see Note 9). (c) For pre-tax items, positive amounts are income and negative amounts are expense in terms of the impact to net income. Tax effects are presented in conformity with ATI’s presentation in the consolidated statements of operations. (d) These amounts exclude the impact of any deferred tax asset valuation allowances, when applicable. Note 16. Commitments and Contingencies The Company is subject to various domestic and international environmental laws and regulations that govern the discharge of pollutants and disposal of wastes, and which may require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. The Company could incur substantial cleanup costs, fines, and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or noncompliance with environmental permits required at its facilities. The Company is currently involved in the investigation and remediation of a number of its current and former sites, as well as third party sites. Environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable. In many cases, however, the Company is not able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss. Estimates of the Company’s liability remain subject to additional uncertainties, including the nature and extent of site contamination, available remediation alternatives, the extent of corrective actions that may be required, and the number, participation, and financial condition of other potentially responsible parties (PRPs). The Company adjusts its accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on the Company’s consolidated results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments. 24 At September 29, 2024, the Company’s reserves for environmental remediation obligations totaled approximately $ 12 million, of which $ 6 million was included in other current liabilities. The reserve includes estimated probable future costs of $ 3 million for federal Superfund and comparable state-managed sites; $ 7 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; and $ 2 million for owned or controlled sites at which Company operations have been or plan to be discontinued. The timing of expenditures depends on a number of factors that vary by site. The Company 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. The Company continues to evaluate whether it may be able to recover a portion of past and future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate. Based on currently available information, it is reasonably possible that costs for recorded matters may exceed the Company’s recorded reserves by as much as $ 16 million. Future investigation or remediation activities may result in the discovery of additional hazardous materials or potentially higher levels of contamination than discovered during prior investigation, and may impact costs associated with 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 Company’s consolidated financial condition or results of operations and cash flows. A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently and formerly owned businesses, including those pertaining to product liability, environmental, health and safety matters and occupational disease (including as each relates to alleged asbestos exposure), as well as patent infringement, commercial, government contracting, construction, employment, employee and retiree benefits, taxes, environmental, and stockholder and corporate governance matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s consolidated results of operations for that period. Beginning in 2020, the U.S. government enacted various relief packages in response to the COVID-19 pandemic, one of which was the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act included, among other items, provisions relating to refundable employee retention payroll tax credits. The Company applied for these employee retention tax credits and recognized a portion of the benefit from these credits as they were received in the statement of operations in the fiscal year ended December 31, 2022. Due to the complex nature of the employee retention credit computations, the Company deferred recognition of a portion of the tax credits pending the completion of any potential audit or examination, or the expiration of the related statute of limitations. During the quarter and year-to-date period ended September 29, 2024, the Company recognized a benefit of $ 4.8 million and $ 13.4 million, respectively, in cost of sales on the consolidated statement of operations due to the expiration of the statute of limitations for a portion of these credits. As of September 29, 2024, the Company has approximately $ 15 million of remaining deferred retention tax credits, of which the statute of limitations expire for $ 3 million in 2024 with the remaining expirations occurring in 2025 and 2027. There is pending legislation that could extend the statute of limitations, which would impact the timing of the expected recognition of the remaining credits if and when such legislation is passed. In August 2024, the Company received notice that it and certain of its affiliates are parties to two lawsuits captioned (1) William L. Schoen, Mary J. Nesbit, Robin L. Rosewicz, George E. Poole and James E. Swartz, Jr., individually and as representatives of a class of participants and beneficiaries of the Allegheny Technologies Incorporated Pension Plan v. ATI Inc., The Allegheny Technologies Incorporated Pension Plan Administrative Committee, State Street Global Advisors Trust Co., and John Does 1-5 (Case No. 2:24-cv-01109) and (2) J ohn Souza and Karen Souza, individually and as representatives on behalf of a class of similarly situated persons v. ATI Inc. and State Street Global Advisors Trust Co. (Case No. 2:24-cv-01214) , both of which are filed in federal district court for the Western District of Pennsylvania. These lawsuits assert various claims associated with the Company’s October 2023 purchase of group annuity contracts to transfer a portion of its U.S. qualified defined benefit pension plan obligations to Athene Annuity and Life Company and Athene Annuity & Life Assurance of New York. The Company disputes and intends to vigorously defend against these claims, but given the preliminary nature of these matters, cannot predict their outcome or estimate any range of reasonably possible loss at this time. 25