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. The following discussion on the Company’s results of operations, financial condition and liquidity for the year ended December 29, 2024 (fiscal year 2024) as compared to the year ended December 31, 2023 (fiscal year 2023) is presented. Information on the Company’s results of operations, financial condition and liquidity for fiscal year 2023 as compared to the year ended January 1, 2023 (fiscal year 2022) is included in our Annual Report on Form 10-K in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” filed on February 23, 2024 and is incorporated herein by reference. ATI Overview ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest markets are aerospace & defense, representing approximately 62% of total sales, led by products for jet engines and airframes. Additionally, we have a strong presence in our other core markets consisting of the specialty energy, medical and electronics markets. In aggregate, these core end markets represent almost 80% 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: HPMC and AA&S. The HPMC segment’s primary focus is on maximizing jet engine materials and components growth, with approximately 86% 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. HPMC has also experienced growth in defense products, which comprise almost 10% of 20 total sales. Other core markets include medical and specialty energy. HPMC produces a wide range of high performance materials, components, and advanced metallic powder alloys. These products are made from nickel-based alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials. HPMC’s 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, with a focus on aerospace & defense and other core markets, which comprise approximately 60 % of its revenue. Industrial markets comprise the remaining 40% of AA&S sales, which includes the conventional energy and automotive end-markets. 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 2024 Financial Performance Sales in fiscal year 2024 increased 5%, to $4.4 billion, and gross profit increased 12%, to $898 million, compared to fiscal year 2023, reflecting increased demand for products within our aerospace & defense and other core markets of medical, electronics, and specialty energy, which was partially offset by softness in industrial end markets. International sales, including both U.S. exports and foreign sales from our foreign manufacturing operations, were $1.8 billion in fiscal year 2024 and represented 42% of total sales, compared to $1.9 billion or 46% of total sales in fiscal year 2023. Results for fiscal year 2024 included $17 million of net pre-tax gains and fiscal year 2023 included $104 million of net pre-tax charges as further described in the Results of Operations section below. The Company’s net income for fiscal year 2024 was $367.8 million, or $2.55 per share. ATI Adjusted EBITDA for fiscal year 2024 was $729.1 million, or 16.7% of sales, compared to $634.6 million, or 15.2% of sales, for fiscal year 2023. See further explanation below for non-GAAP definitions and calculations. A summary of our results is as follows: Fiscal Year (Dollars in millions, except per share amounts) 2024 2023 Sales $ 4,362.1 $ 4,173.7 Gross profit $ 898.2 $ 802.6 Gross profit % of sales 20.6 % 19.2 % Operating income $ 608.9 $ 466.4 Income before income taxes $ 486.1 $ 295.2 Net income attributable to ATI $ 367.8 $ 410.8 Diluted net income attributable to ATI per common share $ 2.55 $ 2.81 Our major accomplishments during fiscal year 2024 include the following: • Year-over-year sales growth of approximately 5%, with ATI’s 2024 sales representing our highest total since 2012. Fiscal year 2024 sales to the aerospace & defense markets increased 10% and represent 62% of our total sales, compared to 59% of total sales in fiscal year 2023. We achieved 15% year-over-year sales growth in our other core markets, including increases of 27% and 22% in the medical and electronics markets, respectively. Sales to our aerospace & defense and other core markets increased 11% compared to fiscal year 2023. • Growth in the aerospace & defense and other core markets drove higher adjusted EBITDA, which improved by 15%, and to 16.7% as a percentage of sales, a 150 basis point improvement compared to 2023, reflecting robust demand that we expect will continue in 2025. • We generated cash flow of $407.2 million from operating activities in fiscal year 2024 as we continued efforts to focus on operational improvements to positively impact the inventory intensity of our business and alleviate the required investment of managed working capital in our growing business. Managed working capital as a percent of sales was 30.9% as of December 29, 2024, compared to 31.0% as of December 31, 2023, despite an increase in 2024 sales of 5%. We ended the year with $721 million of cash on hand and $1.3 billion of total liquidity including the undrawn capacity under our ABL credit facility. • We completed the sale of non-core assets, including our precision rolled strip operations in New Bedford, MA and Remscheid, Germany, generating approximately $65 million in proceeds that will be redeployed to support our strategy to improve operational efficiency. • In 2024, we continued to return cash to our shareholders through the repurchase of our stock. We repurchased 5.3 million shares of ATI stock for $260 million, using all the remaining $150 million under the plan approved by our Board of Directors in November 2023 and $110 million under the $700 million plan approved in 2024. 21 • We made progress in deleveraging our balance sheet. During the third quarter of 2024, we redeemed the $291.4 million outstanding principal amount of ATI’s 3.5% Convertible Senior Notes due 2025 (2025 Convertible Notes) by issuing 18.8 million shares of ATI stock. In addition, we received cash proceeds of $76 million to settle the capped call associated with these notes. Results of Operations Fiscal Year 2024 Compared to Fiscal Year 2023 Fiscal year 2024 sales increased $188.4 million to $4.4 billion compared to fiscal year 2023, primarily due to increased demand for next generation commercial engine products and for defense applications and commercial airframes. This increase in sales to the aerospace & defense markets was complemented by an increase in sales across our other core markets, primarily for the medical and electronics end markets. These increases were partially offset by softness in certain industrial markets, particularly the conventional energy market. Our gross profit was $898.2 million, or 20.6% of sales, a $96 million increase compared to fiscal year 2023. Gross profit in fiscal year 2024 included a benefit of $16.7 million related to the recognition of previously deferred employee retention tax credits, of which $9.0 million of the benefit was recognized in the HPMC segment and $7.7 million in the AA&S segment. Gross profit in fiscal years 2024 and 2023 was also favorably impacted by tax credits of $22.7 million and $10.1 million, respectively. These tax credits were recognized as a reduction in cost of sales by our AA&S segment and are the result of the Advanced Manufacturing Production Credit (AMPC) that was part of the Inflationary Reduction Act of 2022. Operating income was $608.9 million for fiscal year 2024, compared to $466.4 million for fiscal year 2023. Results for fiscal year 2024 included $16.7 million of net pre-tax benefits, which consisted of the following: • $52.9 million gain on the sale during the fourth quarter of 2024 of our precision rolled strip operations in New Bedford, MA, which was part of the Specialty-Rolled Products business in the AA&S segment, and Remscheid, Germany, which was part of our European business in the HPMC segment. In fiscal year 2023, these operations had external sales of approximately $ 100 million and income before tax of approximately $ 6 million. • $22.1 million of restructuring and other charges, consisting of $11.3 million of start-up costs, $4.6 million of charges for the restructuring of our European operations, $4.1 million for severance-related restructuring charges primarily for cost reduction actions in our domestic operations and $2.1 million of transaction costs. • $14.1 million of pension remeasurement losses for the immediate recognition of actuarial losses from the remeasurement of the projected benefit obligation and plan assets for defined benefit pension plans in the fourth quarter of fiscal year 2024. 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 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. • $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 of actuarial losses from the remeasurement of the projected benefit obligation and plan assets for defined benefit pension plans in the fourth quarter of fiscal year 2023. The items discussed above are included in operating income on the consolidated statements of operations, with the exception of the pension related gains and losses in fiscal years 2024 and 2023. Further, the items discussed above are excluded from segment EBITDA. Fiscal year 2024 results also include charges of $11.8 million, primarily reported in selling & administrative expenses and related to a commercial negotiation with a customer. HPMC segment results reflect $6.3 million of this charge, while the remaining $5.5 million is reflected in the AA&S segment results. Nonoperating retirement benefit expense was $29.0 million, inclusive of a $14.1 million pension remeasurement loss, in fiscal year 2024, compared to $79.7 million in the prior year, inclusive of a $26.8 million pension remeasurement loss. Fiscal year 22 2023 also includes a $41.7 million pension settlement loss, as discussed above. Interest expense increased to $108.2 million in fiscal year 2024 compared to $92.8 million in fiscal year 2023 largely due to the issuance in August 2023 of the $425 million aggregate principal amount of 7.25% Senior Notes due 2030 (2030 Notes), partially offset by the redemption of the 2025 Convertible Notes during the third quarter of 2024. Other nonoperating income for fiscal year 2024 includes a $11.6 million gain on the sale of certain oil and gas rights. Our effective tax rate was 21.3%, resulting in an income tax provision of $103.4 million for the fiscal year 2024. The effective tax rate for fiscal year 2024 includes discrete tax benefits of $6.2 million inclusive of $3.3 million for share-based compensation. Results in fiscal year 2023 include an income tax benefit of $128.2 million, which included a $140.3 million benefit for the reversal of valuation allowances. Net income attributable to ATI was $367.8 million, or $2.55 per share, in fiscal year 2024, compared to $410.8 million, or $2.81 per share, for fiscal year 2023. Adjusted EBITDA was $729.1 million, or 16.7% of sales, for fiscal year 2024, and $634.6 million, or 15.2% of sales, for fiscal year 2023. 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 define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges. We define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring and other charges/credits, gains or losses from the sale of accounts receivables, 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. 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. 23 Results by Business Segment As discussed above, we operate in two business segments: HPMC and AA&S. HPMC sales increased 8% in fiscal year 2024 compared to fiscal year 2023, primarily due to higher aerospace & defense market sales. Increased demand for next generation commercial jet engines, defense applications, and commercial airframe products resulted in a 10% increase in sales to the aerospace & defense markets. Full fiscal year 2024 AA&S sales increased 2% due to an 11% increase in aerospace & defense sales, a 47% increase in medical market sales and a 22% increase in electronics market sales partially offset by continued softness in certain general industrial end markets, particularly conventional energy. Total segment EBITDA was $782.3 million, or 17.9% of sales, in fiscal year 2024, compared to total segment EBITDA of $710.2 million, or 17.0% of sales, in fiscal year 2023. Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, 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, gains or losses from the sale of accounts receivables, 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. Results on our management basis of reporting were as follows: (In millions) Fiscal Year Ended December 29, December 31, January 1, 2024 2023 2023 Sales: High Performance Materials & Components $ 2,278.5 $ 2,120.2 $ 1,641.2 Advanced Alloys & Solutions 2,083.6 2,053.5 2,194.8 Total external sales $ 4,362.1 $ 4,173.7 $ 3,836.0 EBITDA: High Performance Materials & Components $ 461.4 $ 433.6 $ 303.4 % of Sales 20.3 % 20.5 % 18.5 % Advanced Alloys & Solutions 320.9 276.6 375.3 % of Sales 15.4 % 13.5 % 17.1 % Total segment EBITDA 782.3 710.2 678.7 % of Sales 17.9 % 17.0 % 17.7 % Corporate expenses (64.0) (62.3) (60.3) Closed operations and other income (expenses) 10.8 (13.3) (5.6) Total ATI Adjusted EBITDA 729.1 634.6 612.8 Depreciation & amortization (151.5) (146.1) (142.9) Interest expense, net (108.2) (92.8) (87.4) Restructuring and other charges (22.1) (31.4) (23.7) Retirement benefit settlement loss — (41.7) — Pension remeasurement gain (loss) (14.1) (26.8) 100.3 Joint venture restructuring credit — — 0.9 Gains (losses) on sale of businesses, net 52.9 (0.6) (105.4) Income before income taxes $ 486.1 $ 295.2 $ 354.6 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 employ several strategies to actively manage our Managed Working Capital, seeking to effectively balance the need to maintain appropriate levels of Managed Working Capital to support our growth and operations, while deploying our cash efficiently. Our strategies to actively manage our Managed Working Capital include, but are not limited to, taking advantage of favorable customer and supplier payment terms, participating in supplier financing programs, accounts receivable factoring arrangements and other customer financing programs, managing the timing of purchases of raw materials, and leveling manufacturing process throughput and shipping to limit periodic increases in Managed Working Capital. We assess 24 Managed Working Capital performance as a percentage of the prior three months’ annualized sales to evaluate the asset intensity of our business. At December 29, 2024, Managed Working Capital was 30.9% of annualized total ATI sales compared to 31.1% of annualized sales at December 31, 2023. Although overall Managed Working Capital increased year over year primarily due to increases in inventory and accounts receivable, such increases were largely in line and due to our increased sales given our fairly consistent Managed Working Capital as a percentage of annualized sales year over year. The $129.4 million increase in overall Managed Working Capital in fiscal year 2024 is detailed in the table below. Days sales outstanding, which measures actual collection timing for accounts receivable, worsened slightly by 2% as of December 29, 2024 compared to fiscal year 2023. Gross inventory turns, which measures how many times we turn over our inventory relative to cost of sales in a year, was consistent in fiscal year 2024 compared to fiscal year 2023. We continue efforts to focus on operational improvements to positively impact the inventory intensity of our business and alleviate the required investment of Managed Working Capital in our growing business. The computations of Managed Working Capital at December 29, 2024 and December 31, 2023 reconciled to the financial statement line items as computed under U.S. GAAP, were as follows. (In millions) December 29, 2024 December 31, 2023 Accounts receivable $ 709.2 $ 625.0 Short-term contract assets 75.6 59.1 Inventory 1,353.0 1,247.5 Accounts payable (609.1) (524.8) Short-term contract liabilities (169.4) (163.6) Subtotal 1,359.3 1,243.2 Allowance for doubtful accounts 15.0 3.2 Inventory reserves 68.5 75.5 Net managed working capital held for sale 8.5 — Managed working capital $ 1,451.3 $ 1,321.9 Annualized prior 3 months sales $ 4,690.5 $ 4,255.8 Managed working capital as a % of annualized sales 30.9 % 31.1 % December 29, 2024 change in managed working capital $ 129.4 Comparative information for our overall revenues by end market, and their respective percentages of total revenues, is as follows: (In millions) Fiscal Year Market 2024 2023 Aerospace & Defense: Jet Engines- Commercial $ 1,457.8 33 % $ 1,333.5 32 % Airframes- Commercial 772.9 18 % 739.4 18 % Defense 490.2 11 % 401.9 9 % Total Aerospace & Defense 2,720.9 62 % 2,474.8 59 % Specialty Energy 284.6 7 % 273.2 7 % Medical 224.9 5 % 176.9 4 % Electronics 194.3 4 % 159.9 4 % Other Core Markets 703.8 16 % 610.0 15 % Core End Markets 3,424.7 78 % 3,084.8 74 % Conventional Energy 302.0 7 % 414.6 10 % Automotive 259.4 6 % 210.7 5 % Construction/Mining 158.5 4 % 162.9 4 % Other 217.5 5 % 300.7 7 % Industrial Markets $ 937.4 22 % $ 1,088.9 26 % Total $ 4,362.1 100 % $ 4,173.7 100 % 25 Comparative information for our major products, 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 2024 2023 Nickel-based alloys and specialty alloys 45 % 49 % Precision forgings, castings and components 19 % 17 % Titanium and titanium-based alloys 18 % 17 % PRS products 9 % 10 % Zirconium and related alloys 9 % 7 % Total 100 % 100 % Sales by geographic area and as a percentage of total sales, were as follows: (In millions) Fiscal Year 2024 2023 United States $ 2,525.2 58 % $ 2,250.8 54 % Europe 1,062.4 24 % 1,051.0 25 % Asia 508.6 12 % 591.9 14 % Canada 116.2 3 % 111.0 3 % Other 149.7 3 % 169.0 4 % Total sales $ 4,362.1 100 % $ 4,173.7 100 % Information with respect to our business segments follows. High Performance Materials & Components Fiscal Year Fiscal Year (In millions) 2024 % Change 2023 Sales to external customers $ 2,278.5 8 % $ 2,120.2 Segment EBITDA $ 461.4 6 % $ 433.6 Segment EBITDA as a percentage of sales 20.3 % 20.5 % International sales as a percentage of sales 50.2 % 56.8 % 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 2024 Compared to Fiscal Year 2023 Sales of $2.3 billion for the HPMC segment in fiscal year 2024 increased 8% compared to fiscal year 2023, primarily due to strong demand in aerospace & defense markets as well as increased medical market sales, which were up 13% compared to fiscal year 2023. Sales to the commercial aerospace market increased 8%, as airframe sales increased 5% and commercial jet engine sales increased 9%, and sales to the defense market increased 24%. Industrial markets sales declined by 23%. 26 Comparative information for our HPMC segment revenues by market, the respective percentages of overall segment revenues for the fiscal years 2024 and 2023, and the percentage change in revenues by market for fiscal year 2024 is as follows: (In millions) Fiscal Year Market 2024 2023 Change Aerospace & Defense: Jet Engines- Commercial $ 1,365.4 60 % $ 1,255.3 59 % $ 110.1 9 % Airframes- Commercial 369.7 16 % 350.6 17 % 19.1 5 % Defense 224.8 10 % 181.0 8 % 43.8 24 % Total Aerospace & Defense 1,959.9 86 % 1,786.9 84 % 173.0 10 % Medical 115.5 5 % 102.6 5 % 12.9 13 % Specialty Energy 96.8 4 % 93.9 4 % 2.9 3 % Electronics 3.0 — % 3.1 — % (0.1) (3) % Other Core Markets 215.3 9 % 199.6 9 % 15.7 8 % Core End Markets 2,175.2 95 % 1,986.5 93 % 188.7 9 % Construction/Mining 26.3 1 % 35.0 2 % (8.7) (25) % Automotive 15.2 1 % 24.6 1 % (9.4) (38) % Conventional Energy 9.8 1 % 10.6 1 % (0.8) (8) % Other 52.0 2 % 63.5 3 % (11.5) (18) % Industrial Markets 103.3 5 % 133.7 7 % (30.4) (23) % Total $ 2,278.5 100 % $ 2,120.2 100 % $ 158.3 8 % 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 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 Boeing. 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. The HPMC segment also includes revenues and profits under our LTA with Airbus for titanium airframe products. We have LTAs with GE Aviation and 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 and with Pratt & Whitney to provide isothermal and conventional forgings for use in jet engines. We also supply products to other important parts of the aircraft 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 and titanium-based alloys for improved performance and more economical operating costs. Boeing and Airbus continue to have multi-year backlogs of orders for both legacy models and next-generation aircraft, and there are approximately 30,000 jet engines with firm orders (Aero Engine News, January 2025). 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. 27 As the number of aircraft in service increases, the need for our materials associated with engine refurbishment is expected to increase. Comparative information for HPMC’s major product categories based on their percentages of the segment’s overall revenue is as follows: Fiscal Year 2024 2023 Nickel-based alloys and specialty alloys 41 % 44 % Precision forgings, castings and components 36 % 33 % Titanium and titanium-based alloys 23 % 22 % PRS products — % 1 % Total 100 % 100 % HPMC segment EBITDA for fiscal year 2024 increased 6% to $461.4 million, or 20.3% of sales, compared to $433.6 million, or 20.5% of sales, in fiscal year 2023. Strength in the HPMC segment continues to be driven by increased volumes on higher margin next-generation commercial aerospace platforms. Results in fiscal year 2024 included $9.0 million of benefits related to the recognition of previously deferred employee retention tax credits, which were partially offset by a charge of approximately $6.3 million due to a commercial negotiation with a customer and higher incentive compensation, maintenance and outsourcing costs. Fiscal year 2023 included a $10.5 million benefit associated with an insurance claim due to an outage at one of our facilities. Advanced Alloys & Solutions Fiscal Year Fiscal Year (In millions) 2024 % Change 2023 Sales to external customers $ 2,083.6 2 % $ 2,053.5 Segment EBITDA $ 320.9 16 % $ 276.6 Segment EBITDA as a percentage of sales 15.4 % 13.5 % International sales as a percentage of sales 33.2 % 35.0 % Fiscal Year 2024 Compared to Fiscal Year 2023 Sales of $2.1 billion for the AA&S segment in fiscal year 2024 increased 2% compared to fiscal year 2023, as an 11% increase in aerospace & defense sales, a 47% increase in medical market sales and a 22% increase in electronics market sales were partially offset by continued industrial markets softness, particularly conventional energy. 28 Comparative information for our AA&S segment revenues by market, the respective percentages of overall segment revenues, for the fiscal years 2024 and 2023, and the percentage change in revenues by market for fiscal year 2024 is as follows: (In millions) Fiscal Year Market 2024 2023 Change Aerospace & Defense: Jet Engines- Commercial 92.4 4 % 78.2 4 % 14.2 18 % Airframes- Commercial 403.2 19 % 388.8 19 % 14.4 4 % Defense 265.4 13 % 220.9 11 % 44.5 20 % Total Aerospace & Defense 761.0 36 % 687.9 34 % 73.1 11 % Electronics 191.3 9 % 156.8 8 % 34.5 22 % Specialty Energy 187.8 9 % 179.3 8 % 8.5 5 % Medical 109.4 6 % 74.3 4 % 35.1 47 % Other Core Markets 488.5 24 % 410.4 20 % 78.1 19 % Core End Markets 1,249.5 60 % 1,098.3 54 % $ 151.2 14 % Conventional Energy 292.2 14 % 404.0 20 % (111.8) (28) % Automotive 244.2 12 % 186.1 9 % 58.1 31 % Construction/Mining 132.2 6 % 127.9 6 % 4.3 3 % Other 165.5 8 % 237.2 11 % (71.7) (30) % Industrial Markets $ 834.1 40 % $ 955.2 46 % $ (121.1) (13) % Total $ 2,083.6 100 % $ 2,053.5 100 % $ 30.1 2 % 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 2024 2023 Nickel-based alloys and specialty alloys 49 % 54 % PRS products 19 % 19 % Zirconium and related alloys 19 % 15 % Titanium and titanium-based alloys 13 % 12 % Total 100 % 100 % Segment EBITDA was $320.9 million, or 15.4% of sales, a 16% increase from segment EBITDA of $276.6 million, or 13.5% of sales, in fiscal year 2023. The margin increase compared to the prior year was primarily due to a favorable sales mix, as growth in titanium mill products and exotic alloys offset weaker demand for nickel-based alloys. AA&S segment EBITDA in fiscal year 2024 and 2023 included benefits from credits of $22.7 million and $10.1 million, respectively, for the AMPC. Fiscal year 2024 also included $7.7 million of benefits related to the recognition of previously deferred employee retention tax credits, which were partially offset by a charge of approximately $5.5 million due to a commercial negotiation with a customer and higher incentive compensation and maintenance costs. 29 Corporate Expenses Corporate expenses, which are primarily included in selling and administrative expenses in the statement of operations, were $64.0 million in fiscal year 2024 compared to $62.3 million in fiscal year 2023. Increased expenses in fiscal years 2024 compared to fiscal year 2023 were primarily due to higher incentive compensation costs. Closed Operations and Other Income/Expenses Closed operations and other income/expenses are presented primarily in selling and administrative expenses in the consolidated statements of operations and include legal, environmental, retirement benefits and insurance obligations associated with closed operations as well as gains from the sale of non-core assets. Closed operations and other expenses provided income of $10.8 million in fiscal year 2024, compared to expense of $13.3 million in fiscal year 2023. Fiscal year 2024 includes an $11.6 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. Fiscal year 2024 also includes a $2.3 million gain on the sale of assets for our idled Houston, PA facility included within gain on asset sales and sales of businesses, net, on the consolidated statement of operations. We received $3.5 million of proceeds from this sale, which was reported as an investing activity on the consolidated statement of cash flows. Fiscal year 2023 reflects higher insurance costs associated with an outstanding insurance claim involving our captive insurance company. 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) 2024 2023 Depreciation and amortization: High Performance Materials & Components $ 71.6 $ 71.1 Advanced Alloys & Solutions 73.2 67.9 Other 6.7 7.1 $ 151.5 $ 146.1 Interest Expense, Net Interest expense, net of interest income and interest capitalization, was $108.2 million in fiscal year 2024, compared to $92.8 million in fiscal year 2023. The increase in fiscal year 2024 compared to fiscal year 2023 is largely a result of the issuance in August 2023 of the 2030 Notes, partially offset by a decline from the redemption of the 2025 Convertible Notes during the third quarter of 2024. Further, interest expense is presented net of interest income of $16.0 million in fiscal year 2024 and $13.0 million in fiscal year 2023. Interest expense in fiscal years 2024 and 2023 was reduced by $11.8 million and $13.5 million, respectively, related to interest capitalization on large, strategic capital projects. Restructuring and Other Charges/Credits For the fiscal year ended December 29, 2024, restructuring and other charges were $22.1 million and include $11.3 million of start-up costs, $4.6 million of charges associated with our European restructuring, $4.1 million of severance-related restructuring charges primarily related to cost reduction actions in our domestic operation, and $2.1 million of transaction related costs. These costs were recorded in the consolidated statement of operations based on the nature of the charge, with $15.3 million recorded as cost of sales, $2.7 million recorded as selling and administrative expenses and $4.1 million as restructuring charges on the consolidated statements of operations. These restructuring and other charges are excluded from segment and adjusted EBITDA. For the fiscal 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 our European restructuring and headcount reductions in ATI domestic operations. 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 30 European operations and the closure of our Robinson, PA operations. These restructuring and other charges are excluded from segment and adjusted EBITDA. Pension Remeasurement Gains and Losses The Company recognizes gains and losses from the remeasurement of the projected benefit obligation and plan assets for defined benefit pension plans immediately in earnings through net periodic pension benefit cost. The Company completes the remeasurements of these plans in the fourth quarter of each fiscal year and, as a result, we recognized pension remeasurement losses of $14.1 million and $26.8 million in fiscal years 2024 and 2023, respectively. These losses are excluded from segment and adjusted 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 and adjusted EBITDA and recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations. Gains/Loss on Sale of Businesses, Net Gain on sales of businesses for fiscal year 2024 is related to a $52.9 million gain on the sale of our precision rolled strip operations in New Bedford, MA operations and Remscheid, Germany, for which $48.0 million of proceeds, net of transaction costs, were received and reported as an investing activity on the consolidated statement of cash flows. Loss on sales of businesses for fiscal year 2023 is related to a $0.6 million loss on the sale of our Northbrook, IL operations. These gains and losses on sale of businesses are excluded from segment and adjusted EBITDA. Income Taxes For fiscal year 2024, our effective tax rate was 21.3% resulting in an income tax provision of $103.4 million. The effective tax rate for fiscal year 2024 includes discrete tax benefits of $6.2 million inclusive of $3.3 million for share-based compensation. Results in fiscal year 2023 include an income tax benefit of $128.2 million, which included a $140.3 million benefit for the reversal of valuation allowances. Financial Condition and Liquidity We have an ABL credit facility, which is collateralized by the accounts receivable and inventory of our operations. The ABL credit 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 credit 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 29, 2024, there were no outstanding borrowings under the revolving credit portion of the ABL, and $30.5 million was utilized to support the issuance of letters of credit. There were no revolving credit borrowings under the ABL during fiscal year 2024. There were average revolving credit borrowings of $13 million bearing an average annual interest rate of 6.5% under the ABL during fiscal year 2023. 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 credit 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 credit 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 29, 2024. 31 During the fourth quarter of 2024, we received $48.0 million in cash, net of transaction costs, for the sale of our precision rolled strip operations in New Bedford, MA and Remscheid, Germany. We also received $11.6 million in cash for the sale of certain oil and gas rights. Overall, we received cash for non-core assets sales of over $65 million, which are recorded in investing activities on the consolidated statement of cash flows. During the third quarter of 2024, we notified holders of the $291.4 million outstanding principal amount of our 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 maturity date. Any 2025 Convertible Notes not tendered for conversion prior to the maturity 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 to 18.8 million shares of ATI common stock, with the remaining $0.4 million of outstanding principal balance that was not tendered for conversion paid in cash. We also settled the capped call transactions initiated as part of the issuance of the 2025 Convertible Notes 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. At December 29, 2024, we had $721 million of cash and cash equivalents, and available additional liquidity from the undrawn capacity under the ABL credit facility of approximately $525 million, for total liquidity of approximately $1.3 billion. Our next meaningful debt maturity is $150 million of debentures in the fourth quarter of fiscal year 2025, which we expect to repay with cash on hand at that time. 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 2,000 participants. Based on current actuarial assumptions, we are not required to make any contributions to our pension plan during fiscal year 2025. 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 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. Periodically, our 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. In fiscal year 2024, ATI used $260 million to repurchase 5.3 million shares of its common stock under the Share Repurchase Program. As of December 29, 2024, there is $590 million of authorization remaining under the Share Repurchase Program. Repurchases under these programs can 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 current Share Repurchase Program has no time limit, does not obligate the Company to repurchase any specific number of shares, and may be modified, suspended, or terminated at any time by the Board of Directors without prior notice. 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. 32 Our Debt to Adjusted EBITDA Leverage Ratio and Net Debt to Adjusted EBITDA Leverage ratio improved in fiscal year 2024 compared to fiscal year 2023, resulting from higher earnings and lower debt as a result of the redemption of the 2025 Convertible Notes. 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 29, 2024 December 31, 2023 Net income attributable to ATI $ 367.8 $ 410.8 Net income attributable to noncontrolling interests 14.9 12.6 Net income 382.7 423.4 Interest expense 108.2 92.8 Depreciation and amortization 151.5 146.1 Income tax provision (benefit) 103.4 (128.2) Pension remeasurement loss 14.1 26.8 Retirement benefit settlement loss — 41.7 Restructuring and other charges 22.1 31.4 Loss (gain) on asset sales and sale of business (52.9) 0.6 Adjusted EBITDA $ 729.1 $ 634.6 Debt $ 1,895.3 $ 2,179.6 Add: Debt issuance costs 14.2 19.6 Total debt 1,909.5 2,199.2 Less: Cash (721.2) (743.9) Net debt $ 1,188.3 $ 1,455.3 Debt to Adjusted EBITDA 2.62 3.47 Net Debt to Adjusted EBITDA 1.63 2.29 We believe that internally generated funds, current cash on hand and available borrowings under the ABL credit facility will be adequate to meet our liquidity needs, including the scheduled debt maturity in the fourth quarter of fiscal year 2025. 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 and reduce financing costs. As a result, 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. Further, in the event we seek additional or new financing, the cost, terms and conditions of such borrowings would be impacted by our credit rating. As of December 29, 2024, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K. Cash Flow Cash provided by operations was $407.2 million for fiscal year 2024 and $85.9 million fiscal year 2023, which included $272 million in contributions to the U.S. defined benefit pension plans. Both periods reflect higher accounts receivable and higher inventory balances due to increased operating levels, but these conditions impacted 2024 to a much lesser extent than 2023. 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 allow for the required flexibility to meet our strategic objectives. Other significant fiscal year 2024 operating cash flow items included payment of 2023 annual incentive compensation. Other significant fiscal year 2023 operating cash flow items included payment of 2022 annual incentive compensation. Cash used in investing activities was $159.6 million in fiscal year 2024, reflecting $239.1 million in capital expenditures to grow our capacity and capabilities with a focus on core markets, including aerospace & defense. These investing activity outflows were partially offset by $48.0 million of proceeds from the sale of our New Bedford, MA operations and Remscheid, Germany operations and $27.6 million of proceeds from property, plant and equipment sales, which included $11.6 million of proceeds on the sale of certain oil and gas rights and $3.5 million of proceeds received for the sale of assets for our idled Houston, PA facility. We expect to fund our capital expenditures with cash on hand, cash flow generated from our operations and, if needed, by using a portion of the ABL credit facility. 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. 33 Cash used by financing activities in fiscal year 2024 was $260.4 million, which included $260.0 million to repurchase 5.3 million shares of ATI stock under our Share Repurchase Program and $16.0 million in dividend payments to the 40% noncontrolling interest in our PRS joint venture in China, partially offset by $76.1 million in cash received from the settlement of the capped call as a result of the redemption of the 2025 Convertible Notes. 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 toward 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. At December 29, 2024, cash and cash equivalents on hand totaled $721.2 million, a $22.7 million increase from fiscal year-end 2023. Cash and cash equivalents held by our foreign subsidiaries was $210.8 million at December 29, 2024, of which $100.9 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) $ 1,909.5 $ 180.5 $ 550.4 $ 325.0 $ 853.6 Interest on Debt (B) 499.6 109.3 194.4 129.2 66.7 Operating Lease Obligations (C) 83.7 17.4 28.4 19.3 18.6 Other Long-term Liabilities 90.4 — 41.6 16.5 32.3 Pension and OPEB Obligations (D) 217.6 30.1 53.5 46.7 87.3 Unconditional Purchase Obligations Raw Materials (E) 1,052.2 531.1 521.1 — — Capital expenditures 32.0 32.0 — — — Other (F) 163.2 94.9 31.5 25.7 11.1 Total $ 4,048.2 $ 995.3 $ 1,420.9 $ 562.4 $ 1,069.6 Other Financial Commitments Lines of Credit (G) $ 670.4 $ 70.4 $ 600.0 $ — $ — Guarantees $ 16.8 (A) Amounts exclude $95 million for certain finance lease contracts the Company has agreed to enter into. See Note 11, Leases for further information. (B) Amounts include contractual interest payments using the interest rates in effect as of December 29, 2024 applicable to the Company’s ABL Term Loan due 2027, 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 29, 2024, for raw material obligations with variable pricing. (F) We have various contractual obligations that extend through fiscal year 2030 for services involving production facilities, information technology services and administrative operations. Our purchase obligation as disclosed represents the estimated termination fees payable if we were to exit these contracts. 34 (G) At December 29, 2024, drawn amounts on the U.S. facility were $30.5 million utilized for standby letters of credit under the $600 million ABL credit facility, which renew annually. These standby letters of credit are used to support: $20.8 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 29, 2024, our reserves for environmental remediation obligations totaled approximately $15 million, of which $6 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; $6 million for formerly owned or operated sites for remediation or indemnification obligations; $5 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. Asset retirement obligations (AROs) recording by the Company were $8 million at December 29, 2024. These AROs related to landfill closures, decommissioning costs, facility leases and conditional AROs associated with manufacturing activities using what may be characterized as potentially hazardous materials. During fiscal year 2024, we de-recognized $10 million of AROs in connection with the sale of our precision rolled strip operations. Based on currently available information, it is reasonably possible that the costs for active matters may exceed our recorded reserves by as much as $16 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. 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 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 2,000 participants. At December 29, 2024, our defined benefit pension plans were approximately 92% funded in accordance with generally accepted accounting principles, and were remeasured at that date using a 5.85% 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 2025, and will not be required to make significant contributions for at least 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 U.S. 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 35 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, U.K. 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 29, 2024, 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 2024, 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 11.0% 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 7% change in the fair value of the Forged 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 29, 2024 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 2024, 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 95% for the fiscal year 2024 annual assessment, which increased compared to the annual evaluation for fiscal year 2023. As a result, no impairments were determined to exist from the annual goodwill impairment evaluation for the fiscal years ended December 29, 2024, December 31, 2023 or January 1, 2023. 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 2024 or 2023 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. 36 At the end of fiscal year 2023, ATI’s U.S. operations exited a three-year cumulative loss position, which previously limited the ability to utilize future projections as verifiable sources of income when analyzing the need for a valuation allowance. As part of the exit, we concluded it was appropriate to consider future projections as a source of income when analyzing the need for a valuation allowance. With the utilization of projections, 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. We updated our projections at the end of fiscal year 2024 and determined a deferred tax asset valuation allowance of $57.7 million was still needed. In addition, we have $23.3 million of valuation allowances on amounts recorded in other comprehensive loss on the consolidated balance sheet as of December 29, 2024. Results for fiscal years 2023 and 2022 include impacts from income taxes that differ from applicable standard tax rates, primarily related to income tax valuation allowances on the current year income along with the release of the valuation allowance in fiscal year 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 5.80% in fiscal year 2024. The expected long-term rate of return on pension plan investments for fiscal year 2025 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 (2.7)% for 2024, 2.0% for 2023, (14.5)% for 2022, 12.4% for 2021, and 15.2% for 2020. 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. 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 5.85% for valuing the pension liabilities as of December 29, 2024, and for determining the pension expense for fiscal year 2025. We had assumed a discount rate of 5.60% at the end of fiscal year 2023, and initially 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. 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 37 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 the Company’s accounting policy 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 2024, we determined the rate to be 5.60%, compared to a 5.40% discount rate in fiscal year 2023, and a 5.45% discount rate in fiscal year 2022. 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 $6 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 6.6% in 2025 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 “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.