2 0 1 9 A N N U A L R E P O R T
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Solving the World’s Challenges Through Materials Science
Allegheny Technologies Incorporated
Corporate Headquarters
1000 Six PPG Place
Pittsburgh, PA 15222-5479
U.S.A.
412-394-2800
ATImetals.com
ATI and Starburst logo are registered trademarks of ATI Properties, LLC
© 2020 ATI.
Our Vision
Solving the World's Challenges Through Materials Science
Our Commitment
Creating Long-Term Value Through Relentless Innovation®
Our Core Values
Integrity: The cornerstone of our business relationships.
We do what we say we will, and we do things the right way.
Safety & Sustainability: We strive for a Zero Injury Culture
committed to the safety of our people, our products, and the
communities in which we operate.
Accountability: We take responsibility and hold ourselves
accountable for our actions, performance and results.
Teamwork and Respect: We work together for ATI’s long-term
success. We welcome and respect others’ views, capabilities
and experiences.
Innovation: We drive sustainable value and meet our
commitments through continuous transformation.
FINANCIAL OVERVIEW
MESSAGE FROM THE PRESIDENT AND CEO
MESSAGE FROM THE BOARD CHAIR
ATI MARKETS & PRODUCTS
SEGMENT INFORMATION
CORPORATE SELF-GOVERNANCE
MANAGEMENT TEAM
BOARD OF DIRECTORS
ANNUAL REPORT ON FORM 10-K
NON-GAAP FINANCIAL MEASURES
INVESTOR INFORMATION
1
2
3
5
5
6
7
8
F1
9
11
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
1000 Six PPG Place
Pittsburgh, PA 15222-5479
412-394-2800
STOCKHOLDER PUBLICATIONS
ATI's Annual Reports, Proxy Statements, Sustainability
Report and other publications are available on our website,
ATImetals.com and also are available upon written request
to the Corporate Secretary at the Corporate Headquarters.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held
on Friday, May 8, 2020 at 11:00 a.m. (Central Time)
The Pfi ster Hotel
424 East Wisconsin Avenue
Milwaukee, WI 53202
For additional information contact:
investorrelations@ATImetals.com
INDEPENDENT AUDITORS
Ernst & Young LLP
Pittsburgh, PA
TRANSFER AGENT AND REGISTRAR
STOCK EXCHANGE LISTING
Computershare Inc.
462 South 4th Street Suite 1600
Louisville, KY 40202
1-800-406-4850
computershare.com/investor
Information about:
• Voluntary purchases of ATI common stock for
new investors and current stockholders
• Safekeeping of stock certifi cates at no charge
The common stock of Allegheny Technologies
Incorporated is traded on the New York Stock Exchange
(symbol ATI).
INTERNET HOME PAGE
ATImetals.com
INVESTOR INFORMATION | ATI | 2O19
11
2O19 FINANCIAL OVERVIEW
In millions, except per share amounts
Sales
Gross profi t
Restructuring and goodwill impairment charges
Operating income
Results attributable to ATI:
Net income (loss)
Per Common Share
Adjusted results:
Net income attributable to ATI, as adjusted*
Adjusted results per common share*
BUSINESS SEGMENT RESULTS
High Performance Materials & Components (HPMC)
Sales
Segment operating profi t
As percentage of segment sales
2019 HPMC by quarter
Sales
Segment operating profi t
Q1
$ 601
$
72
2017
2018
$ 3,525
$ 497
$
$
114
135
$ 4,046
$ 630
$ —
$ 362
$
(92)
$ (0.83)
$ 222
$
1.61
2019
$ 4,122
$ 638
$
5
$ 366
$ 258
$ 1.85
$
55
$ 0.48
$ 208
$
1.51
$
$
165
1.21
2017
2018
2019
$ 2,067
$ 246
11.9%
Q2
$ 642
$
99
$ 2,334
$ 335
14.4%
Q3
$ 552
$
79
$2,398
$ 343
14.3%
Q4
$ 603
$
93
As percentage of segment sales
12.1%
15.4%
14.3%
15.4%
Flat Rolled Products (FRP)
Sales
Segment operating profi t
As percentage of segment sales
2019 FRP by quarter
Sales
Segment operating profi t (loss)
As percentage of segment sales
2017
2018
2019
$ 1,458
$
37
2.5%
Q2
$ 438
$
16
$ 1,712
$
78
4.5%
Q3
$ 467
$
20
$ 1,724
$
38
2.2%
Q4
$ 416
$
13
3.6%
4.4%
3.0%
Q1
$ 403
$
(11)
–2.7%
* Please see pages 9–10 for a reconciliation of adjusted results with the fi nancial results prepared in accordance
with(cid:4)accounting principles generally accepted in the U.S.
FINANCIAL OVERVIEW | ATI | 2O19
1
MESSAGE FROM THE PRESIDENT AND CEO
TO OUR SHAREHOLDERS,
CUSTOMERS AND EMPLOYEES
ATI delivered solid fi nancial results in 2019.
Both of our business segments were profi table, with revenues
increasing year-over-year. We took signifi cant steps to further
strengthen our balance sheet, generating signifi cant free
cash fl ow and ending the year with appreciable liquidity. Our
fundamentals are strong and we are well-positioned for the future,
solidifying our foundation for continued profi table growth via
long-term customer contract extensions and expansions.
Over the past year, my fi rst as President and CEO, our leadership
team and I took a fresh look at our strategy, product off erings and
operations. Through many discussions — with our Board, business
unit leaders, customers and shareholders — we asked ourselves,
“What kind of a company do we want to be? How do we get more
value from our businesses? Where can we grow, and what will
be required?”
The answers set the direction for our future. It starts with a
clear vision: ATI is solving the world’s challenges through
materials science. We do this every day, enabling our customers’
extraordinary end-product performance and earning their long-
term commitment. We’re focused on growing markets with high
barriers to entry — aerospace, defense, energy — and we support
diversifi ed applications in other markets, such as medical and
electronics. We’re achieving this vision through our advanced
process technologies and capabilities, as well as the eff orts of our
relentless and innovative team.
Team Committed to Future Growth
Perhaps our greatest opportunity comes from purposefully
developing and supporting leaders who excel in a world
of accelerating change and challenge. In the past year,
we made three new appointments to our leadership team.
We took steps to further our digital transformation by aligning
information and operations technology resources in an
enterprise-wide Digital Technology team, naming Tim Harris
as our fi rst Chief Digital and Information Offi cer. The Digital
Technology function will deploy technology solutions across the
full company, allowing us to be agile, consistent and cost-eff ective
as we collaborate and grow our capabilities.
At the start of 2020, Don Newman joined ATI as Senior
Vice President of Finance and Chief Financial Offi cer (CFO),
succeeding Pat DeCourcy who retired after a 31-year career
with ATI. Don has an impressive record of driving growth and
generating cash, which he honed while serving as CFO at high-
growth businesses in diff erent industries. Kim, Tim and Don joined
a leadership team that is committed to leading ATI into the future,
and they are helping us to move further faster.
Our 2019 Performance
We again took decisive action to improve ATI’s fi nancial strength
and increase shareholder value. We made signifi cant progress
toward our long-term goal of achieving an investment-grade
balance sheet by reducing long-term debt by $150 million.
g g
During 2019, we sold our Cast Products business and industrial
forging operations, increasing focus on our core specialty
materials and forging businesses,
ge our leading
which leverage our leading
nce capabilities and
materials science capabilities and
ss technologies to
unique process technologies to
e aerospace and
primarily serve aerospace and
markets. We also
defense end markets. We also
egacy oil and gas
sold certain legacy oil and gas
in New Mexico,
drilling rights in New Mexico,
ATI is solving the world’s challenges through
ng
materials science. We do this every day, enabling
mance
our customers’ extraordinary end-product performance
and earning their long-term commitment.
Kim Fields succeeded me as Executive Vice President of
the Flat Rolled Products Group, bringing 20 years of global
experience with a focus on driving revenue growth, innovation
and operational excellence.
Robert S. Wetherbee
erbee
Chief
President and Chief
er
Executive Offi cer
2 MESSAGE FROM THE PRESIDENT AND CEO | ATI | 2019
which had over time grown in value with the introduction of new
drilling techniques. Taken together, these transactions generated
about $250 million of cash for ATI, enabling us to make further
progress on balance sheet improvement initiatives.
Thanks in part to asset sales, we generated nearly $460 million*
in free cash fl ow in 2019, which represents a 60%* improvement
over 2018. We ended 2019 with over $490 million in cash on
hand, and we achieved our managed working capital stretch goal
of 30% of sales.
Both of our business segments, High Performance Materials and
Components (HPMC) and Flat Rolled Products (FRP), delivered
solidly profi table results in 2019.
High Performance Materials and Components: Long-Term
Agreements Fuel Our Future
This technology-driven business segment is a critical supplier
to key aerospace and defense customers, with 78% of revenues
coming from these markets. The HPMC segment increased
revenues and profi ts in 2019 versus the prior year despite an
environment dominated by several key issues, including cash
management actions by a large jet engine customer, a rapid
decline in cobalt prices early in the year and industry turbulence
around the grounding of the 737 MAX.
For the full year, profi t margins were essentially in line with 2018
levels with year-over-year margin growth accelerating in the
second half of 2019. HPMC’s 2019 segment revenue, excluding
divestitures, increased 7%* versus the prior year. While jet engine
product sales were relatively fl at year-over-year,* 2019 commercial
airframe product sales grew by more than 20%* versus 2018,
building on strong prior year growth. Defense market sales saw
robust expansion in 2019, increasing by more than 30%* year-
over-year. This growth was balanced across all of ATI's defense
submarkets led by materials and components for naval nuclear,
military jet engine and space applications.
We are an industry leader in on-time delivery of high quality
materials and components, with our successful execution
on the aerospace ramp earning us customer commitments that
will generate future profi table growth for many years. In 2019,
we expanded these partnerships to include:
• Multiple long-term agreements with GE Aviation totaling
approximately $2.5 billion to supply iso-thermal and hot-die
forgings used in the manufacture of commercial jet engines.
Averaging $300 million per year, these agreements both extend
and expand upon our 60-year relationship with this important
customer.
• A new long-term agreement with BWX Technologies, Inc.
to supply materials used in the manufacture of naval nuclear
reactor components. This agreement runs through mid-2026
with anticipated revenues totaling approximately $600 million
over the multi-year period.
• A 10-year agreement with Rolls-Royce to supply rotating
disc quality specialty materials for their Trent engine family.
This extends our agreement through 2029, powering next-
generation and legacy jet engine supply chains and reliably
securing Rolls-Royce’s supply of critical materials for their
innovative engine portfolio.
MESSAGE FROM THE BOARD CHAIR
Dear Shareholders, Customers and Employees,
As Chair of the ATI Board of Directors, it is
my privilege to share our 2019 year. Although
there is much to be done, we are very proud
of our year.
these new directors add greater depth of experience in fi nancial
and enterprise management, strategic planning and the global
energy and aerospace markets. Our Board experience and
diversity matrix are extremely strong. We are committed to good
stewardship in safety and environmental sustainability.
Diane C. Creel
Board Chair
Over the past year, our Board has supported
the transition of the leadership team, including
our CEO, Robert Wetherbee. We are extremely
pleased with this decision and the decisions Bob has made
in developing his leadership team. Your Board is committed
to being integrally involved in helping to defi ne and implement
the Company’s near- and long-term strategies and participating
with management to develop them.
In 2019, ATI delivered solid performance, despite various
challenges. We all know that challenges don’t go away and
2020 is no exception. We believe the Company’s fundamentals
are strong and leadership is committed and ready to face
whatever opportunities and challenges come our way.
Thank you for your continued support of ATI.
We are also proud of the credentials and dedication of our new
directors — Leroy Ball, Marianne Kah, and David Hess. Together,
Diane C. Creel, Board Chair
* Please see pages 9–10 for a reconciliation of adjusted results with the fi nancial results prepared in accordance
with(cid:4)accounting principles generally accepted in the U.S.
MESSAGE FROM THE PRESIDENT AND CEO | ATI | 2019
3
Late in 2019, Boeing announced a temporary halt in 737 MAX
production. As we adapt to this demand disruption, we recognize
it is growth deferred, not growth lost. The underlying need for
new, fuel-effi cient aircraft has not changed. Both Boeing and
Airbus have strong backlogs that require engines produced from
our materials. We are well-positioned to grow market share and
will be prepared when production resumes.
Flat Rolled Products: Signifi cant Growth in High-Value Products
ATI’s Flat Rolled Products segment recorded its third straight year
of profi tability despite the ongoing negative impacts from global
trade policies and domestic tariff s, as well as weak standard
stainless end-market demand. Striving to achieve sustainable
profi tability and generate cash fl ow regardless of raw materials
or trade policy, this positive result was largely due to growth in
high-value products, along with benefi ts from additional carbon
conversion volumes.
We signed a one-year extension that meaningfully expands
carbon steel hot-rolling conversion services for NLMK USA at
our world-class Hot-Rolling and Processing Facility (HRPF). The
continuation of this relationship is an important element in our
drive to achieve improved and sustainable profi tability. It helps to
increase HRPF capacity utilization in a capital-effi cient manner by
providing a consistent source of operating cash fl ow, helping to
fuel ATI’s longer-term balance sheet improvement initiatives.
ATI’s revenues from nickel alloys and titanium materials increased
by double-digit percentages versus the prior year. Sales of our
standard value stainless products contracted by 9% due to lower
demand in automotive and other consumer-facing markets, but
also due to purposeful actions on our part.
Aerospace and defense continued to expand, growing by 30% for
the year. Since 2017, sales to these end markets have grown by
nearly 70%, complementing the strong HPMC segment growth
and showcasing the success of operating as one unifi ed company.
Revenue from energy markets grew signifi cantly, led by increased
demand for marine scrubbers and fl ue gas desulfurization
materials. Sales to FRP's largest end market, oil and gas, remain
solid, but declined somewhat compared to a strong 2018. Lastly,
our consumer electronics business continued to expand, primarily
in Asia, as we leverage the most recent capacity expansion of our
STAL joint venture.
We continue to operate the A&T Stainless joint venture focused
on minimizing losses driven by Section 232 tariff s as we await the
outcome of our second tariff exclusion request. No decision had
been made at the time of this writing.
Realigning our Business Segments
We began 2020 by taking steps to align our organizational
structure with our strategy, sharpening the focus of our High
Performance Materials and Components business segment and
organizing the newly created Advanced Alloys and Solutions
(AA&S) business segment. AA&S combines our Specialty Alloys
& Components business with the former Flat Rolled Products
segment to optimize key assets and become even more cost-
competitive in the standard stainless portion of our business.
4 MESSAGE FROM THE PRESIDENT AND CEO | ATI | 2O19
Our Priorities
In 2020, we are focused on fi ve priorities that strongly position
us for the future:
1. Maximize aero engine and airframe opportunities. We’ve
earned the right to serve our customers and are driving value
through long-term agreements that will serve the aerospace
and defense markets for years to come.
2. Drive value-over-volume product portfolio, minimizing
standard product exposure. We continue to take deliberate
action to enhance profi tability in our AA&S businesses,
emphasizing growth of high-value products and reducing
exposure to price volatility.
3. Deploy a balanced capital allocation strategy. We continue to
strengthen our balance sheet while prudently making strategic
investments to prepare for the future, secured by customer
commitments.
4. Shape our culture for future competitiveness and growth. Our
achievements are a result of our relentless, innovative people.
As we strategically position ATI to be successful for the long-
term, we are committed to growing our team’s talents through
development, continuous learning and a focus on zero injuries.
5. Expand our competitive advantage through technical
leadership. Thanks in part to our technical capabilities, our
customers make ATI their fi rst call to solve their most diffi cult
challenges. We continue to maintain and grow our capabilities,
constantly pushing the limits of what is possible and expanding
our position.
ATI is a great company with unique capabilities, a terrifi c team
and incredible opportunities. We succeeded in 2019 despite
signifi cant challenges by acting strategically and focusing
on execution.
Our strategy is designed to enhance our velocity — our
acceleration in a specifi c direction — not just our speed. Our
strategic approach keeps us constantly pointed to what we
need to do to achieve our vision as we create value for our
shareholders. Our strong values ensure we’ll do the right things
in the right way to protect the environment, delight our customers,
ensure the quality of our products, and most of all, keep our
people safe.
Thank you for your support as we solve the world’s challenges
through materials science.
Robert S. Wetherbee
President and Chief Executive Offi cer
ATI SALES BY END MARKET
Total ATI Sales
($ in millions )
1 Aerospace – Jet Engines
1 Aerospace – Airframes
1 Government Aerospace & Defense
Total Aerospace & Defense
1 Oil & Gas
1 Automotive
1 Energy
1 Food Equipment & Appliances
1 Construction & Mining
1 Medical
1 Electronics/Computers/Communication
1 Other
TOTAL
2017
$ 956 27%
14%
8%
482
280
1,718 49%
12%
418
$
2018
1,152 29%
13%
537
7%
277
$
2019
1,138 28%
15%
9%
615
377
1,966 49%
13%
546
2,130 52%
511
12%
274
192
226
193
183
152
169
8%
5%
6%
6%
5%
4%
5%
$ 3,525 100%
323 8%
235 6%
245 6%
226 6%
183
157
4%
4%
165
4%
$ 4,046 100%
297
286
206
195
172
163
162
7%
7%
5%
5%
4%
4%
4%
$ 4,122 100%
SEGMENT INFORMATION
High Performance Materials & Components
($ in millions )
$2,398
Flat Rolled Products
($ in millions )
MEDICAL
GOVERNMENT
AEROSPACE &
DEFENSE
AEROSPACE
JET ENGINES
CONSTRUCTION
& MINING
ELECTRONICS/
COMPUTERS/
COMMUNICATION
AEROSPACE
AIRFRAMES
FOOD
EQUIPMENT
& APPLIANCES
Major Markets
1 Aerospace – Jet Engines
1 Aerospace – Airframes
1 Government Aerospace & Defense
Total Aerospace & Defense
1 Medical
1 Energy
1 Oil & Gas
1 Other
44%
20%
14%
78%
7%
7%
3%
5%
Major Markets
1 Oil & Gas
1 Automotive
1 Aerospace & Defense
1 Food Equipment & Appliances
1 Electronics/Computers/Communication
1 Construction & Mining
1 Energy
1 Other
HPMC TOTAL
100%
FRP TOTAL
$1,724
OIL & GAS
AUTOMOTIVE
AEROSPACE
& DEFENSE
26%
17%
15%
12%
9%
9%
7%
5%
100%
ATI MARKETS & PRODUCTS | SEGMENT INFORMATION | ATI | 2O19
5
ATI
EXECUTIVE
COUNCIL
Robert S. Wetherbee
President and
Chief Executive Offi cer
Elliot S. Davis
Senior Vice President,
General Counsel,
Chief Compliance Offi cer
and Corporate Secretary
Kimberly A. Fields
Executive Vice President,
Advanced Alloys & Solutions
Segment
Timothy J. Harris
Senior Vice President,
Chief Digital and Information
Offi cer
Kevin B. Kramer
Senior Vice President,
Chief Commercial
and Marketing Offi cer
Don P. Newman
Senior Vice President,
Finance and Chief Financial
Offi cer
Elizabeth C. Powers
Senior Vice President,
Chief Human Resources
Offi cer
John D. Sims
Executive Vice President,
ATI High Performance
Materials & Components
Segment
OUR COMMITMENT TO INTEGRITY
We at ATI are committed to a strong self-governance program. We have long
believed that honesty and integrity are vitally important to the success of our
Company. The Company’s Corporate Governance Guidelines, along with the
charters of the Board committees, provide the framework for the corporate
governance of ATI. These Guidelines refl ect the Board’s commitment to monitor
the eff ectiveness of decision making at the Board and management levels, with a
view toward achieving ATI’s strategic objectives. This information, and more about
our corporate governance, is available on our website, ATImetals.com.
Our Corporate Guidelines for Business Conduct and Ethics apply to all directors,
offi cers, employees, agents, and consultants and set forth clear standards to
guide the conduct of our daily aff airs. Our commitment is to refl ect the highest
standards of ethical performance in our dealings with all of our stakeholders and
with the public.
Our compliance program incorporates training to address key compliance
concerns, including antitrust, ethics, environmental compliance, anti-bribery,
export compliance, and securities law compliance, as well as training in
cybersecurity matters and various human resources issues, including workplace
respect and safety.
We understand that confi dence in our Company is in large measure dependent
upon the reliability and transparency of our fi nancial statements, including
maintaining eff ective internal control over fi nancial reporting. Accordingly, the
commitment to integrity in fi nancial reporting set forth in our Financial Code of
Ethics recognizes our responsibility for providing timely information that fairly
refl ects our fi nancial position and results of operations.
We encourage employees to communicate concerns before they become
problems. The ATI Ethics HelpLine, which provides confi dential, secure, and
anonymous reporting capability, is available to all employees 24 hours a day.
In addition, our Chief Compliance Offi cer and the ethics offi cers at our operating
companies provide confi dential resources for employees to surface their
concerns without fear of reprisal. Building and maintaining trust, respect, and
communication among our employees are essential to the eff ectiveness of our
self-governance program.
Robert S. Wetherbee, President and Chief Executive Offi cer
Don P. Newman, Senior Vice President, Finance and Chief Financial Offi cer
Elliot S. Davis, Senior Vice President, General Counsel, Chief Compliance
Offi cer and Corporate Secretary
6
CORPORATE SELF-GOVERNANCE | ATI | 2O19
ATI
CORPORATE
MANAGEMENT
Shelly L. Bias
Vice President, Internal Audit
Lauren S. McAndrews
Vice President, Environmental
Aff airs & Sustainability and
Assistant General Counsel
Scott A. Minder
Vice President, Treasurer
and Investor Relations
Mary Beth Moore
Vice President, Human
Resources
Karl D. Schwartz
Vice President, Controller
and Chief Accounting Offi cer
Shelly L. Bias
Lauren S. McAndrews
Scott A. Minder
Mary Beth Moore
Robert S. Wetherbee
Elliot S. Davis
Kimberly A. Fields
Timothy J. Harris
Kevin B. Kramer
Karl D. Schwartz
Don P. Newman
Elizabeth C. Powers
John D. Sims
MANAGEMENT TEAM | ATI | 2O19
7
BOARD OF DIRECTORS
Diane C. Creel
Board Chair of Allegheny Technologies Incorporated,
retired Chairman, Chief Executive Offi cer and President of
Ecovation, Inc., a waste stream technology company 3 | 4
Leroy M. Ball
President and Chief Executive Offi cer, Koppers Holdings,
Inc., a leading integrated global provider of treated
wood products, wood treatment chemicals and carbon
compounds 1 | 4 | 5
Herbert J. Carlisle
President and Chief Executive Offi cer of the National
Defense Industrial Association (NDIA), and retired four-star
general from the United States Air Force (USAF) 1 | 2 | 5
Carolyn Corvi
Retired Vice President, General Manager of Airplane
Programs of The Boeing Company 3 | 4 | 5
James C. Diggs
Retired Senior Vice President and General Counsel
of PPG Industries, Inc., a producer of coatings, glass
and chemicals 1 | 2 | 3
J. Brett Harvey
Retired Chairman and Chief Executive Offi cer of CONSOL
Energy, Inc., a leading diversifi ed energy company in the
United States 2 | 3 | 4
David P. Hess
Retired EVP and Chief Customer Offi cer for Aerospace,
United Technologies Corporation, a global leader
in aerospace and technology; formerly President,
Pratt & Whitney 2 | 3
Marianne Kah
Retired Chief Economist for ConocoPhillips and current
adjunct senior research scholar at Columbia University's
Center on Global Energy Policy 1 | 5
David J. Morehouse
Chief Executive Offi cer and President of Pittsburgh
Penguins LLC, which owns and operates the Pittsburgh
Penguins National Hockey League team 1 | 5
John R. Pipski
Retired tax partner of Ernst & Young LLP, a public
accounting fi rm 1 | 2
James E. Rohr
Retired Chairman and Chief Executive Offi cer of
The PNC Financial Services Group, Inc., a diversifi ed
fi nancial services organization 4
Robert S. Wetherbee
President and Chief Executive Offi cer,
Allegheny Technologies
8
BOARD OF DIRECTORS | ATI | 2O19
Diane C. Creel
Leroy M. Ball
Herbert J. Carlisle
Carolyn Corvi
James C. Diggs
J. Brett Harvey
David P. Hess
Marianne Kah
David J. Morehouse
John R. Pipski
James E. Rohr
Robert S. Wetherbee
STANDING COMMITTEES:
1 Audit Committee
2 Finance Committee
3 Nominating and Governance Committee
4 Personnel and Compensation Committee
5 Technology Committee
Allegheny Technologies Incorporated and Subsidiaries
Non-GAAP Financial Measures
(Unaudited, dollars in millions, except per share amounts)
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However,
management believes that certain non-GAAP financial measures, used in managing the business, may provide users of this financial information with additional
meaningful comparisons between current results and results in prior periods. Non-GAAP financial measures should be viewed in addition to, and not as an
alternative for, the Company's reported results prepared in accordance with GAAP. The following table provides the calculation of the non-GAAP financial
measures discussed in this annual report.
Net income (loss) attributable to ATI
Adjustments:
Gain on sale of oil & gas rights, net of tax (a)
Loss on sale of industrial forgings business, net of tax (b)
Gain on sale of cast products business, net of tax (c)
Restructuring, net of tax (d)
Debt extinguishment charge, net of tax (e)
Joint venture impairment charge, net of tax (f)
Income tax items including valuation allowances (g)
Gain on joint venture deconsolidation, net of tax (h)
Impairment of goodwill, net of tax (i)
Net income attributable to ATI, as adjusted
Net income (loss) attributable to ATI
Adjustments:
Gain on sale of oil & gas rights, net of tax (a)
Loss on sale of industrial forgings business, net of tax (b)
Gain on sale of cast products business, net of tax (c)
Restructuring, net of tax (d)
Debt extinguishment charge, net of tax (e)
Joint venture impairment charge, net of tax (f)
Income tax items including valuation allowances (g)
Gain on joint venture deconsolidation, net of tax (h)
Impairment of goodwill, net of tax (i)
Net income attributable to ATI, as adjusted
Fiscal Year Ended
December 31
2018
2017
2019
$
258
$
222
$
(92)
(88)
8
(6)
4
20
11
(42)
-
-
165
-
-
-
-
-
-
-
(14)
-
208
$
Per Diluted Share
-
-
-
-
37
-
(4)
-
114
55
$
1.85
$
1.61
$
(0.83)
(0.60)
0.05
(0.04)
0.03
0.14
0.07
(0.29)
-
-
1.21
-
-
-
-
-
-
-
(0.10)
-
1.51
$
-
-
-
-
0.29
-
(0.03)
-
1.05
0.48
$
$
$
$
The following adjustments are more fully described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item
8. Financial Statements and Supplementary Data in the 2019 annual report on Form 10-K. This presentation of adjusted results per diluted share includes the
effects of convertible debt, if dilutive.
(a) 2019 results include a $92 million pre-tax gain on the sale of oil & gas rights in New Mexico.
(b) 2019 results include an $8 million pre-tax loss on the sale of the industrial forgings business, including $10 million of allocated goodwill.
(c) 2019 results include a $6 million pre-tax net gain on the sale of the cast products business, which includes a $10 million w rite-down of the carrying value of
long-lived assets of the retained Salem operations.
(d) 2019 results include a $5 million pre-tax restructuring charge to streamline ATI’s salaried workforce primarily to improve t he cost competitiveness of the U.S.-
based Flat-Rolled Products business.
(e) 2019 results include a $22 million pre-tax debt extinguishment charge for the full redemption of the $500 million, 5.95% Senior Notes due 2021. 2017 results
include a debt extinguishment charge of $37 million pre-tax for the full redemption of the $350 million, 9.375% Senior Notes due 2019.
(f) 2019 results include an $11 million pre-tax joint venture impairment charge for the Allegheny & Tsingshan Stainless joint venture, which included ATI's 50%
share of the JV's impairment charge on the carrying value of long-lived assets at the Midland, PA production facility.
(g) 2019 results include a $42 million discrete tax benefit primarily related to the reversal of a portion of deferred tax valuation allowances due to exiting the three-
year cumulative loss condition for U.S. Federal and state jurisdictions at year-end 2019. 2017 results include $4 million of tax benefits from the 2017 Tax Cuts and
Jobs Act legislation.
(h) 2018 results include a gain on deconsolidation of Allegheny & Tsingshan Stainless joint venture following the sale of a 50% noncontrolling interest and
subsequent derecognition. The $16 pretax gain, including ATI's retained 50% share, was recorded at fair value.
(i) During the third quarter of 2017, the Company performed an interim goodwill impairment analysis, as required by accounting standards, for our Cast Products
business and determined that all goodwill assigned to this business unit was impaired. As a result, the Company recorded a $114 million pre-tax non-cash goodwill
impairment charge.
4550_FM10.pdf February 28, 2020 pg 1
NON-GAAP FINANCIAL MEASURES | ATI | 2O19
9
Allegheny Technologies Incorporated and Subsidiaries
Non-GAAP Financial Measures
(Unaudited, dollars in millions, except per share amounts)
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However,
management believes that certain non-GAAP financial measures, used in managing the business, may provide users of this financial information with additional
meaningful comparisons between current results and results in prior periods. Non-GAAP financial measures should be viewed in addition to, and not as an
alternative for, the Company's reported results prepared in accordance with GAAP. The following table provides the calculation of the non-GAAP financial
measures discussed in this annual report.
Free Cash Flow
($ in millions)
Cash provided by operating activities
Cash (used in) provided by investing activities
Add back: cash contributions to ATI Pension Plan
Free Cash Flow as defined
For the Years Ended December 31,
2018
2019
$
$
392.8
(145.1)
40.4
288.1
$
$
230.1
81.7
145.0
456.8
Free cash flow as defined by ATI includes the total of cash provided by (used in) operating activities and investing activities as presented on the consolidated
statements of cash flows, adjusted to exclude cash contributions to the Company’s U.S. qualified defined benefit pension plans.
Adjusted Sales Information
($ in millions)
HPMC Sales- Full Year 2019
HPMC Sales- Full Year 2018
Percentage Change
HPMC Commercial Jet Engine Sales- Full Year 2019
HPMC Commercial Jet Engine Sales- Full Year 2018
Percentage Change
HPMC Commercial Airframe Sales- Full Year 2019
HPMC Commercial Airframe Sales- Full Year 2018
Percentage Change
HPMC Government & Defense Sales- Full Year 2019
HPMC Government & Defense Sales- Full Year 2018
Percentage Change
Reported
$
2,398.1
2,334.2
2.7%
$
1,066.6
1,100.6
-3.1%
$
$
481.0
411.2
17.0%
331.5
259.5
27.7%
Industrial Forgings
and Cast Products
Businesses
Adjusted
$
$
$
$
(95.3)
(182.8)
$
2,302.8
2,151.4
7.0%
(44.5)
(71.4)
(16.1)
(25.4)
(7.4)
(11.3)
$
1,022.1
1,029.2
-0.7%
$
$
464.9
385.8
20.5%
324.1
248.2
30.6%
Adjusted Sales metrics are non-GAAP measures that exclude the impacts of divestitures. These measures are utilized by management to evaluate underlying
business trends of the ongoing businesses.
10 NON-GAAP FINANCIAL MEASURES | ATI | 2O19
4550_FM10.pdf February 28, 2020 pg 2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to
Commission file number 1-12001
ALLEGHENY TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1000 Six PPG Place
Pittsburgh, Pennsylvania
(Address of principal executive offices)
25-1792394
(I.R.S. Employer
Identification Number)
15222-5479
(Zip Code)
Registrant’s telephone number, including area code: (412) 394-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock, par value $0.10
ATI
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
On February 7, 2020, the Registrant had outstanding 126,085,348 shares of its Common Stock.
The aggregate market value of the Registrant’s voting stock held by non-affiliates at June 30, 2019 was approximately $3.2 billion, based on the closing price per share of Common
Stock on June 28, 2019 of $25.20 as reported on the New York Stock Exchange. Shares of Common Stock known by the Registrant to be beneficially owned by directors and officers
of the Registrant subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are not included in the
computation. The Registrant, however, has made no determination that such persons are “affiliates” within the meaning of Rule 12b-2 under the Exchange Act.
Selected portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 8, 2020 are incorporated by reference into Part III of this Report.
Documents Incorporated By Reference
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INDEX
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statements and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
Page
Number
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PART I
Item 1. Business
The Company
Allegheny Technologies Incorporated is a Delaware corporation with its principal executive offices located at 1000 Six PPG
Place, Pittsburgh, Pennsylvania 15222-5479, telephone number (412) 394-2800, Internet website address www.atimetals.com.
Our Internet website and the content contained therein or connected thereto are not intended to be incorporated into this Annual
Report on Form 10-K. References to “Allegheny Technologies,” “ATI,” the “Company,” the “Registrant,” “we,” “our” and
“us” and similar terms mean Allegheny Technologies Incorporated and its subsidiaries, unless the context otherwise requires.
Our Business
ATI’s strategic vision is to be an aligned and integrated specialty materials and components company, solving the world’s
challenges through materials science. Our strategies target the products and global growth markets that require and value ATI’s
technical and manufacturing capabilities. Our largest markets are aerospace & defense, representing approximately 50% of
total sales, led by products for jet engines. Additionally, we have a strong presence in the oil & gas and electrical energy
markets. In aggregate, these markets represent about 70% of our revenue. ATI is a market leader in manufacturing
differentiated products that require our materials science capabilities and unique process technologies, including our new
product development competence.
We operate in two business segments: High Performance Materials & Components (HPMC), and Flat Rolled Products (FRP).
Over 75% of 2019 HPMC business segment sales were to the aerospace & defense markets, and nearly half of HPMC’s total
sales are products for commercial jet engines. Increasing demand for commercial aerospace products has been the main source
of sales and segment operating profit growth for HPMC over the last few years, and is expected to continue to drive HPMC and
overall ATI results for the next several years due to the ongoing expansion in production of next generation jet engines and
airplanes. Other major HPMC end markets include medical and electrical energy. HPMC produces a wide range of high
performance materials and components, including advanced metallic powder alloys, made from titanium and titanium-based
alloys, nickel-based alloys and superalloys, and a variety of other specialty materials. Capabilities range from cast/wrought and
powder alloy development to final production of highly engineered finished components, including those used for next-
generation jet engine forgings and 3D-printed aerospace products.
The FRP segment serves a diverse group of end markets, with sales to the oil & gas market and aerospace & defense markets
collectively representing over 40% of 2019 sales. Other important end markets for FRP include automotive, food processing
equipment and appliances, consumer electronics, and construction & mining. FRP produces nickel-based alloys, specialty
alloys, and titanium and titanium-based alloys, and stainless steel products in a variety of forms including plate, sheet,
engineered strip, and Precision Rolled Strip products.
Strategic end use markets for our products include:
Aerospace & Defense. We are a world leader in the production of specialty materials and components for both commercial and
military jet engines and airframes supporting customer needs for initial build requirements and for spare parts. Through alloy
development, internal growth efforts, and long-term supply agreements on current and next-generation jet engines and
airframes, we are well positioned with a fully qualified asset base to meet the expected multi-year demand growth from the
commercial aerospace market. In 2019, we extended and expanded our long-term agreements (LTAs) with significant
customers in the aero-engine supply chain, including LTAs with GE Aviation and Rolls-Royce. We have LTAs in place with
most major aerospace market OEMs.
Typical aerospace applications for nickel-based alloys and superalloys and advanced metallic powders include jet engine shafts,
discs, blades, vanes, rings and casings. Nickel-based alloys and superalloys remain extremely strong at high temperatures and
resist degradation under extreme conditions. The next generation jet engines use advanced nickel-based superalloys and
metallic powder alloys due to increased fuel efficiency requirements that require hotter-burning engines. Our specialty
materials are also used in the manufacture of aircraft landing gear and structural components.
We are a global industry leader in isothermal and hot-die forging technologies for advanced aerospace components. Capital
investments for our fourth iso-thermal press and heat-treating capacity expansion at our Iso-Thermal Forging Center of
Excellence in Cudahy, WI, which began in 2018, continued through 2019. We produce highly sophisticated components that
have differing mechanical properties across a single product unit and are highly-resistant to fatigue and temperature effects.
Our precision forgings are used for jet engine components, structural components for aircraft, helicopters, launch vehicles, and
other demanding applications. ATI provides a full range of post-production inspection and machining with the certified quality
needed to meet demanding application requirements.
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Products and components made from titanium and titanium-based alloys, such as jet engine components including blades,
vanes, discs, and casings, and airframe components such as structural members, landing gears, hydraulic systems, and
fasteners, are critical in aerospace applications. These materials and components possess an extraordinary combination of
properties that help to increase jet engine fuel efficiency and product longevity, including superior strength-to-weight ratio,
elevated temperature resistance, low coefficient of thermal expansion, and extreme corrosion resistance.
Our specialty materials and components for government aerospace & defense applications include naval nuclear products,
military jet engines, fixed wing and rotorcraft products, and armor applications. We expect to increase our sales in government
defense applications in future years, and in 2019, we announced the expansion and 6.5 year extension of our LTA with BWX
Technologies to supply materials for the manufacture of naval nuclear components.
We continuously seek to develop and manufacture innovative new alloys to better serve the needs of the aerospace & defense
markets. For example, ATI 718Plus® nickel-based superalloy, Rene 65 near-powder superalloy, and our powder alloys have
won significant share in the current and next-generation jet engines. ATI’s metallic powder technology delivers alloy
compositions and refined microstructures that offer increased performance and longer useful lives in high-temperature
aerospace environments as well as improving the efficiency of jet engines. Our metallic powder products deliver the most
uniform grain structure achievable in near-net shapes. We continue to increase our production capacity for advanced metallic
powders for use in next-generation aerospace products, including additive manufacturing applications. In 2018, we acquired
the assets of Addaero Manufacturing, a metal alloy-based additive manufacturer, to expand ATI’s capabilities to provide
comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-
install components. We recently expanded our nickel-based and titanium-based powder manufacturing capabilities in North
Carolina.
Oil & Gas. The environments in which oil & gas can be found in commercial quantities have become more challenging,
involving deep offshore wells, high pressure and high temperature conditions in sour wells and unconventional sources, such as
shale oil & gas, and oil sands. These challenging offshore environments are located further off the continental shelf, including
locations in arctic and tropical waters where drilling is more difficult than previously-sourced locations. They are often more
than one mile below the water’s surface, and up to two miles below the ocean floor. We enable our customer’s success in these
applications by developing and producing specialty materials for equipment that can operate for up to 30 years in these harsh
environments.
Both of our business segments produce specialty materials that are critical to the oil & gas industry. Our specialty materials,
including nickel-based alloys, stainless and duplex alloys, and other specialty alloys, have the strength and corrosion-resistant
properties necessary to meet these challenging operating conditions. Several of our strip, plate and cast products meet
NORSOK qualification standards, which are developed by the Norwegian petroleum industry and are intended to identify
materials used in oil and gas applications that are safe and cost-effective.
Energy. Our specialty materials are widely used in the global electrical power generation and distribution industries. We
believe energy needs, environmental policies and the electrification of developing countries will continue to drive demand for
our specialty materials and products for use in this industry over the long term.
For electrical power generation, our specialty materials, including corrosion-resistant alloys (CRAs), are used in coal, nuclear,
and natural gas applications. In coal-fired plants, our CRAs are used for pipe, tube, and heat exchanger applications in water
systems and in pollution control scrubbers. Our CRAs are also used in water systems, fuel cladding components, and process
equipment for nuclear power plants. For nuclear power plants, we are an industry pioneer in producing nuclear reactor fuel
cladding and structural components utilizing zirconium and hafnium alloys. We are a technology leader for large diameter
components used in natural gas land-based turbines for power generation. Our alloys are also used for alternative energy
generation, in solar, fuel cell and geothermal applications.
Medical. ATI’s advanced specialty materials are used in medical device products that enhance the quality of people’s lives
around the world.
Our specialty alloys are used for replacement knees, hips and other prosthetic devices. The use of our alloys in these
replacement devices offer the potential of longer product lifespans versus previous implant generations.
Our biocompatible nickel-titanium shape memory alloy is used for stents to support collapsed or clogged blood vessels.
Reduced in diameter for insertion, these stents expand post-implant to the original tube-like shape due to the metal’s
superelasticity. In addition, our ultra fine diameter (0.002 inch/0.051 mm) titanium wire is used for screens to prevent blood
clots from entering critical areas of the body.
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Manufacturers of magnetic resonance imaging (MRI) devices rely on our niobium superconducting wire to help produce
electromagnetic fields that allow physicians to safely scan the body’s soft tissue. We have a joint technology development
agreement with Bruker Energy & Supercon Technologies to advance state-of-the-art niobium-based superconductors, including
those used in MRI magnets for the medical industry, and preclinical MRI magnets used in the life-science tools industry.
Business Segments
Our two business segments accounted for the following percentages of total revenues of $4.12 billion, $4.05 billion, and $3.53
billion for the years ended December 31, 2019, 2018, and 2017, respectively.
High Performance Materials & Components
Flat Rolled Products
2019
2018
2017
58%
42%
58%
42%
59%
41%
Information with respect to our business segments is presented below and in Note 18 of the notes to the consolidated financial
statements.
High Performance Materials & Components Segment
Our HPMC segment produces a wide range of high performance specialty materials, parts and components for several major
end markets, including aerospace & defense, medical, and energy. 78% of the HPMC segment’s 2019 revenues were derived
from the aerospace & defense markets. Demand for our products is driven primarily by the commercial aerospace cycle. Large
aircraft and jet engines are manufactured by a small number of companies, such as The Boeing Company, Airbus S.A.S. (an
Airbus Group company) including the former operations of Bombardier Aerospace, and Embraer (Empresa Brasileira de
Aeronáutica S.A.) for airframes, and GE Aviation (a division of General Electric Company), Rolls-Royce plc, Pratt & Whitney
(a division of United Technologies Corporation), Snecma (SAFRAN Group), and various joint ventures that manufacture jet
engines. These companies, and their suppliers, form a substantial part of our customer base in this business segment. The loss
of one or more of our customers in the aerospace & defense markets could have a material adverse effect on ATI’s results of
operations and financial condition (see Item 1A. Risk Factors).
In 2019, we extended supply agreements with GE Aviation that are expected to generate $2.5 billion in revenues and which
begin in January 2021 and are multi-year agreements. Also in 2019, we extended our long-term agreement through 2029 with
Rolls-Royce to supply rotating disc quality specialty materials for their Trent engine family. This agreement covers the
production of a wide-range of critical products used to make Rolls-Royce’s next-generation jet engines as well as spare parts
for in-service engines. It supports ATI’s market-leading alloy development and broad production capabilities, including our iso-
thermal forging operations.
Our products are manufactured from a wide range of advanced materials including metallic powder alloys, made from titanium
and titanium-based alloys, nickel-based alloys and superalloys, and a variety of other specialty materials. These materials are
made into a variety of product forms that include precision forgings, machined parts and others. We are integrated across these
alloy systems in melt, forging, finishing, and machining processes. Most of the products in this segment are sold directly to
end-use customers, and a significant portion of our HPMC segment products are sold under multi-year agreements.
Principal competitors in the HPMC segment include: Berkshire Hathaway Inc., for nickel-based alloys and superalloys and
specialty steel alloys, titanium and titanium-based alloys, and precision forgings through its ownership of Precision Castparts
Corporation and subsidiaries; Arconic Inc., for titanium and titanium-based alloys and precision forgings through its ownership
of RTI International Metals, Inc. and Firth Rixson; Carpenter Technology Corporation for nickel-based alloys and superalloys
and specialty steel alloys; VSMPO-AVISMA for titanium and titanium-based alloys; and Aubert & Duval for precision
forgings.
Flat Rolled Products Segment
Our FRP segment produces nickel-based alloys, specialty alloys, titanium and titanium-based alloys, and stainless steel in a
variety of forms including plate, sheet, engineered strip, and Precision Rolled Strip® products. The major end markets for our
flat-rolled products are oil & gas, aerospace & defense, automotive, food processing equipment and appliances, construction &
mining, electronics, communication equipment and computers. The operations in this segment include our Flat Rolled
Products business and the Chinese joint venture company known as Shanghai STAL Precision Stainless Steel Company
Limited (STAL), in which we hold a 60% interest. Segment results also include our 50% interest in the industrial titanium joint
venture known as Uniti LLC and our 50% interest in Allegheny & Tsingshan Stainless (A&T Stainless).
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Nickel-based alloys, titanium, and stainless steel sheet products are used in a wide variety of industrial and consumer
applications. In 2019, approximately 70% of our stainless sheet products by volume were sold to independent service centers,
which have slitting, cutting or other processing facilities, with the remainder sold directly to end-use customers.
Engineered strip and Precision Rolled Strip products, which are under 0.015 inches thick, are used by customers to fabricate a
variety of products primarily in the automotive, construction, and electronics markets. In 2019, approximately 90% of these
products by volume were sold directly to end-use customers or through our own distribution network, with the remainder sold
to independent service centers. In 2018, we completed the construction of our third Precision Rolled Strip manufacturing
facility at our STAL joint venture in China.
Nickel-based alloy, titanium, and stainless steel plate products are primarily used in aerospace & defense, and corrosion and
industrial markets. In 2019, approximately 65% of our plate products by volume were sold to independent service centers, with
the remainder sold directly to end-use customers.
Competition in the FRP segment includes domestic stainless steel competitors North American Stainless, a subsidiary of
Acerinox S.A., Outokumpu Stainless USA, LLC, and AK Steel Corporation, as well as imports from numerous foreign
producers, including Aperam, based in Europe. Competitors for nickel-based alloys and superalloys and specialty steel alloys
include Haynes International and VDM Metals GmbH.
We have taken important steps toward improving the capacity utilization of our HRPF with the agreement for carbon steel hot-
rolling conversion services with NLMK USA, which was extended and expanded in 2019 for one year through December
2020, as well as with the A&T Stainless joint venture to manufacture 60” wide stainless sheet. In late March 2018, ATI filed
for an exclusion from the Section 232 tariffs on behalf of A&T Stainless, which imports semi-finished stainless slab products
from Indonesia. In April 2019, we learned that this exclusion request was denied by the U.S. Department of Commerce. ATI
filed a new request on behalf of A&T Stainless for exclusion from the Section 232 tariffs in October 2019, and A&T Stainless
continues to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia pending
the outcome of the October 2019 request. Results of A&T Stainless have been and will continue to be negatively impacted by
these tariffs on imported stainless slab products. The joint venture partners have continued to evaluate longer-term solutions to
return this strategic initiative to profitability, and determined during the fourth quarter of 2019 that idling the Midland, PA
facility is probable if a near-term tariff exclusion is not received.
Significant global overcapacity for stainless steel flat-rolled products has intensified the price competition in the FRP segment
over the last several years. Some of our foreign competitors are either directly or indirectly subsidized by governments. In
1999, the United States imposed anti-dumping and countervailing duties on unfairly low-priced and subsidized imports of
stainless steel sheet and strip in coils and stainless steel plate in coils from companies in ten foreign countries. The anti-
dumping and countervailing duty orders were reviewed in 2011 by the U.S. Department of Commerce and the U.S.
International Trade Commission to determine whether the orders should remain in place for another five years. The agencies
decided that eight such orders against five countries would continue in effect. In July 2016, the U.S. Department of Commerce
and the U.S. International Trade Commission initiated a third review of the eight orders. The four orders covering imports of
stainless steel plate in coils from three countries were continued for an additional five years in December 2016. In October
2017, the U.S. Department of Commerce published a notice continuing for an additional five years four orders covering
imports of stainless steel sheet and strip in coils from three countries.
Additionally, in February 2016, ATI and the three domestic stainless steel competitors filed antidumping and countervailing
duty petitions concurrently with the U.S. Department of Commerce and the U.S International Trade Commission, charging that
unfairly traded imports of stainless steel sheet and strip from the People’s Republic of China are causing material injury to the
domestic stainless steel industry. In February 2017, the U.S. Department of Commerce issued its final determinations,
calculating antidumping duties ranging from 64% and 77% percent and countervailing duties ranging from 76% and 191%.
These duties are generally applied in combination. The U.S. International Trade Commission reached a unanimous affirmative
determination in early March 2017. The antidumping duties and subsidy margins, which have remained unchanged since the
Commerce Department published the unfair trade orders in April 2017, are expected to act as a significant deterrent to the
illegal dumping of Chinese government-subsidized imports of stainless steel sheet and strip into the U.S. market. We continue
to monitor imports from foreign producers for appropriate action, including whether imports entering the U.S. are
circumventing or evading the anti-dumping and countervailing duty orders that are being enforced by U.S. Customs and Border
Protection and Department of Commerce.
Raw Materials and Supplies
Substantially all raw materials and supplies required in the manufacture of our products are available from more than one
supplier, and the sources and availability of raw materials essential to our businesses are currently adequate. The principal raw
materials we use in the production of our specialty materials are scrap (including iron-, nickel-, chromium-, titanium-, and
molybdenum-bearing scrap), nickel, titanium sponge, zirconium sand and sponge, ferrochromium, ferrosilicon, molybdenum
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and molybdenum alloys, manganese and manganese alloys, cobalt, niobium, vanadium and other alloying materials. While we
enter into raw materials futures contracts from time-to-time to hedge exposure to price fluctuations, such as for nickel, we
cannot be certain that our hedge position adequately reduces exposure. We believe that we have adequate controls to monitor
these contracts, but we may not be able to accurately assess exposure to price volatility in the markets for critical raw materials.
Over the last several years, significant global capacity has been added to produce titanium sponge, which is a key raw material
used to produce ATI’s titanium products. ATI has entered into long-term cost competitive supply agreements with several
producers of premium-grade and standard-grade titanium sponge.
Other raw materials, such as nickel, cobalt, and ferrochromium, are available to us and our specialty materials industry
competitors primarily from foreign sources. Some of these foreign sources are located in countries that may be subject to
unstable political and economic conditions, which could disrupt supplies or affect the price of these materials.
We purchase our nickel requirements principally from producers in Australia, Canada, Norway, Russia, and the Dominican
Republic. Zirconium raw materials are primarily purchased from the United States and China. Cobalt is purchased primarily
from producers in Canada. More than 80% of the world’s reserves of ferrochromium are located in South Africa, Zimbabwe,
Albania, and Kazakhstan. Niobium is purchased principally from producers in Brazil, and our titanium sponge comes from
sources in Japan and Kazakhstan.
Certain key supplies used in melting and other processing operations, such as graphite electrodes and industrial gases including
helium and argon, are from time-to-time limited in availability and may be subject to significant price inflation. We enter into
long-term supply contracts where possible to ensure an adequate supply of these items, however overall industry shortages may
impact our operations and scheduling.
Export Sales and Foreign Operations
International sales represent approximately 40% of our total annual sales, with direct export sales by our U.S.-based operations
to customers in foreign countries accounting for approximately 30% of our total sales. Our overseas sales, marketing and
distribution efforts are aided by our international marketing and distribution offices, ATI Europe, ATI Europe Distribution, and
ATI Asia, or by independent representatives at various locations throughout the world. We believe that at least 50% of ATI’s
2019 sales were driven by global markets when we consider exports of our customers.
Our HPMC segment has manufacturing capabilities for melting, remelting, forging and finishing nickel-based alloys and
specialty alloys in the United Kingdom, and manufacturing capabilities for precision forging and machining in Poland,
primarily serving the aerospace, construction & mining and transportation markets. Within our FRP segment, our STAL joint
venture in the People’s Republic of China produces Precision Rolled Strip products, which enables us to offer these products
more effectively to markets in China and other Asian countries. Our Uniti LLC joint venture allows us to offer titanium
products to global industrial markets more effectively.
Backlog, Seasonality and Cyclicality
Our backlog of confirmed orders was approximately $2.3 billion at December 31, 2019 and $2.2 billion at December 31, 2018.
We expect that approximately 80% of confirmed orders on hand at December 31, 2019 will be filled during the year ending
December 31, 2020. Our HPMC’s segment backlog of confirmed orders was approximately $2.1 billion at December 31, 2019
and $2.0 billion at December 31, 2018. We expect that approximately 80% of the confirmed orders on hand at December 31,
2019 for this segment will be filled during the year ending December 31, 2020. Our FRP’s segment backlog of confirmed
orders was approximately $0.2 billion at December 31, 2019 and 2018. We expect that all of the confirmed orders on hand at
December 31, 2019 for this segment will be filled during the year ending December 31, 2020.
Demand for our products is cyclical over longer periods because specialty materials customers operate in cyclical industries
and are subject to changes in general economic conditions and other factors both external and internal to those industries. The
HPMC segment typically experiences modest seasonal weakness in the third quarter of each fiscal year due to many European
customers, particularly in the aerospace supply chain, taking plant outages during this summer period. ATI also typically
performs corresponding annual preventative maintenance outages at several facilities during this same period.
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Research, Development and Technical Services
We believe that our research and development capabilities give ATI an advantage in developing new products and
manufacturing processes that contribute to the long-term profitable growth potential of our businesses. We conduct research
and development at our various operating locations both for our own account and, on a limited basis, for customers on a
contract basis. Research and development expenditures for the years ended December 31, 2019, 2018, and 2017 included the
following:
(In millions)
Company-Funded:
High Performance Materials & Components
Flat Rolled Products
Corporate
Customer-Funded:
High Performance Materials & Components
Total Research and Development
2019
2018
2017
$
$
12.3
3.3
2.2
17.8
2.4
20.2
$
$
17.6
2.6
2.5
22.7
2.2
24.9
$
$
9.3
2.7
1.3
13.3
1.4
14.7
Our research, development and technical service activities are closely interrelated and are directed toward development of new
products, improvement of existing products, cost reduction, process improvement and control, quality assurance and control,
development of new manufacturing methods, and improvement of existing manufacturing methods. The increased activity in
2019 and 2018 was largely related to materials and manufacturing methods for products supporting the aerospace & defense
markets.
We own hundreds of United States patents, many of which are also filed under the patent laws of other nations. Although these
patents, as well as our numerous trademarks, technical information, license agreements, and other intellectual property, have
been and are expected to be of value, we believe that the loss of any single such item or technically related group of such items
would not materially affect the conduct of our business.
Environmental, Health and Safety Matters
We are 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 we investigate and remediate the effects of the release or disposal of
materials at sites associated with past and present operations. We could incur substantial cleanup costs, fines, civil or criminal
sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or non-
compliance with environmental permits required at our facilities. We are currently involved in the investigation and
remediation of a number of our current and former sites as well as third party sites.
We consider environmental compliance to be an integral part of our operations. We have a comprehensive environmental
management and reporting program that focuses on compliance with applicable federal, state, regional and local environmental
laws and regulations. Each operating company has an environmental management system that includes mechanisms for
regularly evaluating environmental compliance and managing changes in business operations while assessing environmental
impact.
Our Corporate Guidelines for Business Conduct and Ethics address compliance with environmental laws as well as
employment and workplace safety laws, and also describe our commitment to equal opportunity and fair treatment of
employees. We continued to focus on safety across ATI’s operations during 2019.
Employees
We have approximately 8,100 full-time employees, of which approximately 17% are located outside the United States.
Approximately 40% of our workforce is covered by various collective bargaining agreements (CBAs), predominantly with the
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union,
AFL-CIO, CLC (USW). The Company has CBAs with approximately 1,500 full-time employees that expire on February 29,
2020 involving USW-represented employees located primarily within the Flat Rolled Products segment operations and at two
facilities in the High Performance Materials & Components segment.
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Available Information
Our Internet website address is www.atimetals.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as well as proxy and information statements and other information that we file, are available
free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or
furnish such material to, the United States Securities and Exchange Commission (“SEC”). Our Internet website and the content
contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. The SEC
maintains an Internet website at www.sec.gov, which also contains reports, proxy and information statements and other
information that we file electronically with the SEC.
Item 1A. Risk Factors
There are inherent risks and uncertainties associated with our business that could adversely affect our operating performance
and financial condition. Set forth below are descriptions of those risks and uncertainties that we currently believe to be
material, but the risks and uncertainties described are not the only risks and uncertainties that could affect our business. See the
discussion under “Forward-Looking Statements” in Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, in this Annual Report on Form 10-K.
Cyclical Demand for Products. The cyclical nature of the industries in which our customers operate causes demand for our
products to be cyclical, creating potential uncertainty regarding future profitability. Various changes in general economic
conditions may affect the industries in which our customers operate. These changes could include decreases in the rate of
consumption or use of our customers’ products due to economic downturns. Other factors that may cause fluctuation in our
customers’ positions are changes in market demand, lower overall pricing due to domestic and international overcapacity,
currency fluctuations, lower priced imports and increases in use or decreases in prices of substitute materials. As a result of
these factors, our profitability has been and may in the future be subject to significant fluctuation.
Risks Associated with the Commercial Aerospace Industry. A significant portion of the sales of our HPMC segment represents
products sold to customers in the commercial aerospace industry. Fulfilling contractual arrangements to provide various
products to customers in this industry often involves meeting highly exacting performance requirements and product
specifications, and our failure to meet those requirements and specifications on a timely and cost efficient basis could have a
material adverse effect on our results of operations, business and financial condition. The commercial aerospace industry has
historically been cyclical due to factors both external and internal to the airline industry. These factors include general
economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, changes in projected
build rates (including, e.g., the ongoing suspension in production of the Boeing 737 MAX aircraft), price competition, and
international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of
cyclical fluctuation are influenced by these factors and therefore are difficult to predict with certainty. Demand for our
products, particularly those produced in our HPMC segment, is subject to these cyclical trends. Although the commercial
aerospace industry is currently experiencing a period of production expansion related to the introduction of next-generation
engines and aircraft, we cannot provide any assurance as to the ultimate magnitude or duration of this trend or its impact on our
business. A downturn in the commercial aerospace industry has had, and may in the future have, an adverse effect on the prices
at which we are able to sell our products, and our results of operations, business and financial condition could be materially
adversely affected.
Risks Associated with the Oil & Gas Industry. The oil and gas industry, which historically has been a significant end market
for both our HPMC and FRP segments, is highly cyclical and subject to volatility as a result of worldwide economic activity
and associated demand for oil and natural gas, anticipated future prices for oil and natural gas, fluctuation in the level of
drilling activity, changes in applicable regulation, global geopolitical conditions and numerous other factors. Demand for our
products are likewise subject to these trends. In recent years, our business has been negatively impacted by the downturn and
slow recovery in the oil and gas industry. While we believe that conditions in this end market are improving, and we are
beginning to see positive impacts on our business as a result, we expect that it will remain a highly cyclical industry and future
downturns could have an adverse effect on the prices at which we are able to sell our products, and our results of operations,
business and financial condition could be materially adversely affected.
Volatility of Raw Material Costs. Most of our inventory is valued utilizing the last-in, first-out (LIFO) costing methodology.
Inventory of our non-U.S. operations is valued using average cost or first-in, first-out (FIFO) methods. Under the LIFO
inventory valuation method, changes in the cost of raw materials and production activities are recognized in cost of sales in the
current period even though these material and other costs may have been incurred at significantly different values due to the
length of time of our production cycle. In a period of rising prices, cost of sales expense recognized under LIFO is generally
higher than the cash costs incurred to acquire the inventory sold. Conversely, in a period of declining raw material prices, cost
of sales recognized under LIFO is generally lower than cash costs incurred to acquire the inventory sold. Generally, over time
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based on overall inflationary trends in raw materials, labor and overhead costs, the use of the LIFO inventory valuation method
will result in a LIFO inventory valuation reserve, as the higher current period costs are included in cost of sales and the balance
sheet carrying value of inventory is reduced.
The prices for many of the raw materials we use have been volatile during the past several years. Since we value most of our
inventory utilizing the LIFO inventory costing methodology, a fall in raw material costs results in a benefit to operating results
by reducing cost of sales and increasing the inventory carrying value, while conversely, a rise in raw material costs has a
negative effect on our operating results by increasing cost of sales while lowering the carrying value of inventory.
Due primarily to persistent raw material deflation in prior years, we are in an unusual situation of having a LIFO inventory
balance that exceeds replacement cost. In cases where inventory at FIFO cost is lower than the LIFO carrying value, a write-
down of the inventory to market may be required, subject to a lower of cost or market evaluation. In applying the lower of cost
or market principle, market means current replacement cost, subject to a ceiling (market value shall not exceed net realizable
value) and a floor (market shall not be less than net realizable value reduced by an allowance for a normal profit margin). We
evaluate product lines on a quarterly basis to identify inventory values that exceed estimated net realizable value. The
calculation of a resulting reserve, if any, is recognized as an expense in the period that the need for the reserve is identified.
Due to the long lead times required to manufacture many of our products, volatility in raw material prices exposes us to cash
costs that may not be fully recovered through surcharge and index pricing mechanisms.
Product Pricing. From time-to-time, reduced demand, intense competition and excess manufacturing capacity have resulted in
reduced prices, excluding raw material surcharges, for many of our products. These factors have had and may have an adverse
impact on our revenues, operating results and financial condition.
Although inflationary trends in recent years have been moderate, during most of the same period, certain critical raw material
costs, such as nickel, titanium sponge, cobalt, chromium, and molybdenum and scrap containing iron, nickel, titanium,
chromium, and molybdenum have been volatile. While we have been able to mitigate some of the adverse impact of volatile
raw material costs through raw material surcharges or indices to customers, rapid changes in raw material costs causes
volatility in, and may adversely affect, our results of operations.
We change prices on certain of our products from time-to-time. The ability to implement price increases is dependent on
market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other factors,
some of which are beyond our control. The benefits of any price increases may be delayed due to long manufacturing lead
times and the terms of existing contracts.
Export Sales and International Trade Matters. We believe that export sales will continue to account for a significant
percentage of our future revenues. We also import certain raw materials, and recently formed, together with an affiliate
company of Tsingshan Group, our A&T Stainless joint venture, which imports semi-finished stainless steel slab products from
Indonesia to support its U.S. production of finished 60-inch wide stainless steel sheet products for sale in North America. Risks
associated with such international trade include, among others: political and economic instability, including weak conditions in
the world’s economies; accounts receivable collection; export controls; trade sanctions, changes in legal and regulatory
requirements; policy changes affecting the markets for our products; changes in tax laws; and exchange rate fluctuations (which
may affect sales to international customers and the value of profits earned on export sales when converted into dollars). Any of
these factors could materially adversely affect our results for the period in which they occur.
Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad,
could materially impact our business. For example, in March 2018, the U.S. imposed an additional 25% tariff under Section
232 of the Trade Expansion Act of 1962, as amended, on steel products, including stainless steel, imported into the U.S.
Currently, the semi-finished stainless steel slabs that our A&T Stainless joint venture imports from Indonesia are subject to the
additional tariff. The A&T Stainless joint venture filed for exclusions from the 232 tariff based on the nature of the imported
product, its country of origin, and its lack of availability in the U.S. However, in April 2019, the U.S. Commerce Department
denied the joint venture’s original exclusion request. On October 15, 2019, the A&T Stainless joint venture filed a new
exclusion request, but that request remains pending. Consequently the joint venture continues to be subject to the 25% tariff
levied on its imports of semi-finished stainless steel slab products from Indonesia, which are continuing to negatively impact
the joint venture’s results. There can be no assurance that the joint venture will be successful in its efforts to obtain an
exclusion for the products that it intends to import, or that its operations and results will not continue to be impacted by the
imposition of these tariffs. For the fourth quarter of 2019, ATI recorded an $11.4 million impairment charge for the A&T
Stainless joint venture, including ATI’s share of a long-lived asset impairment charge recognized by the joint venture on the
carrying value of its production facility in Midland, PA.
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Moreover, these new tariffs, or other changes in U.S. trade policy, have resulted in, and may continue to trigger, retaliatory
actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on
certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw
materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or
policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy
or certain sectors thereof and, thus, to adversely impact our businesses.
Goodwill or Long-Lived Asset Impairments. We have various long-lived assets that are subject to impairment testing. We
review the recoverability of goodwill annually, or more frequently whenever significant events or changes in circumstances
indicate that the recorded goodwill of a reporting unit may be below that reporting unit’s fair value. Our businesses operate in
highly cyclical industries, such as commercial aerospace and oil & gas, and as such, our estimates of future cash flows, market
demand, the cost of capital, and forecasted growth rates and other factors may fluctuate, which may lead to changes in
estimated fair value and, therefore, impairment charges in future periods. For the 2019 annual goodwill impairment evaluation,
both of our reporting units with goodwill had fair values that were significantly in excess of carrying value. Additionally, we
have a significant amount of property, plant and equipment and acquired intangible assets that may be subject to impairment
testing, depending on factors such as market conditions, the demand for our products, and facility utilization levels. Any
determination requiring the impairment of a significant portion of goodwill or other long-lived assets has had, and may in the
future have, a negative impact on our financial condition and results of operations.
Risks Associated with Strategic Capital Projects and Maintenance Activities. From time-to-time, we undertake strategic
capital projects in order to enhance, expand and/or upgrade our facilities and operational capabilities. Our ability to achieve the
anticipated increased revenues or otherwise realize acceptable returns on these investments or other strategic capital projects
that we may undertake is subject to a number of risks, many of which are beyond our control, including a variety of market,
operational, permitting, and labor-related factors. In addition, the cost to implement any given strategic capital project
ultimately may prove to be greater than originally anticipated. If we are not able to achieve the anticipated results from the
implementation of any of our strategic capital projects, or if we incur unanticipated implementation costs or delays, our results
of operations and financial position may be materially adversely affected.
Additionally, we periodically undertake maintenance activities, routine or otherwise, involving facilities and pieces of
equipment that are key to our operations, and it is possible that unanticipated maintenance needs, or unanticipated
circumstances arising in connection with planned maintenance activities could result in equipment outages that are longer, or
costs that exceed, those originally anticipated. Significant repair delays or unanticipated costs associated with these activities
could have a negative impact on our results of operations and financial condition.
Dependence on Critical Raw Materials Subject to Price and Availability Fluctuations. We rely to a substantial extent on third
parties to supply certain raw materials that are critical to the manufacture of our products. Purchase prices and availability of
these critical items are subject to volatility. At any given time, we may be unable to obtain an adequate supply of these critical
raw materials on a timely basis, on price and other terms acceptable to us, or at all.
If suppliers increase the price of critical raw materials, we may not have alternative sources of supply. In addition, to the extent
that we have quoted prices to customers and accepted customer orders for products prior to purchasing necessary raw materials,
or have existing contracts, we may be unable to raise the price of products to cover all or part of the increased cost of the raw
materials.
The manufacture of some of our products is a complex process and requires long lead times. As a result, we may experience
delays or shortages in the supply of raw materials. If unable to obtain adequate and timely deliveries of required raw materials,
we may be unable to timely manufacture sufficient quantities of products. This could cause us to lose sales, incur additional
costs, delay new product introductions, or suffer harm to our reputation.
We acquire certain important raw materials that we use to produce specialty materials, including nickel, zirconium, niobium,
chromium, cobalt, and titanium sponge, from foreign sources. Some of these sources operate in countries that may be subject
to unstable political and economic conditions. These conditions may disrupt supplies or affect the prices of these materials.
Dependence on Critical Supplies Subject to Price and Availability Fluctuations. We rely on third parties for certain supplies,
such as graphite electrodes and industrial gases including helium and argon that are critical to the manufacture of our products.
Purchase prices and availability of these critical items are subject to volatility. At any given time, we may be unable to obtain
an adequate supply of these critical supplies on a timely basis, on price and other terms acceptable to us, or at all.
If suppliers increase the price of these items, we may not have alternative sources of supply. The manufacture of some of our
products is a complex process and requires long lead times. As a result, we may experience delays or shortages of critical
supplies. If unable to obtain adequate and timely deliveries of required raw materials, we may be unable to timely manufacture
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sufficient quantities of products. This could cause us to lose sales, incur additional costs, delay new product introductions, or
suffer harm to our reputation.
Availability of Energy Resources. We rely upon third parties for our supply of energy resources consumed in the manufacture
of our products. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile
market conditions. These market conditions often are affected by political and economic factors beyond our control.
Disruptions in the supply of energy resources could temporarily impair our ability to manufacture products for customers.
Further, increases in energy costs, or changes in costs relative to energy costs paid by competitors, has and may continue to
adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive,
increased energy prices may have an adverse effect on our results of operations and financial condition.
Risks Associated with Environmental Matters. We are 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 we investigate and
remediate the effects of the release or disposal of materials at sites associated with past and present operations. We 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 non-compliance with environmental permits required at our facilities. We are
currently involved in the investigation and remediation of a number of our current and former sites as well as third party sites.
We also could be subject to future laws and regulations that govern greenhouse gas emissions and various matters related to
climate change and other air emissions, which could increase our operating costs.
With respect to proceedings brought under the federal Superfund laws, or similar state statutes, we have been identified as a
potentially responsible party (PRP) at approximately 42 of such sites, excluding those at which we believe we have no future
liability. Our involvement is limited or de minimis at approximately 34 of these sites, and the potential loss exposure with
respect to 8 individual sites is not considered to be material.
We are a party to various cost-sharing arrangements with other PRPs at many of the sites. The terms of the cost-sharing
arrangements are subject to non-disclosure agreements as confidential information. Nevertheless, the cost-sharing
arrangements generally require all PRPs to post financial assurance of the performance of the obligations or to pre-pay into an
escrow or trust account their share of anticipated site-related costs. In addition, the Federal government, through various
agencies, is a party to several such arrangements.
We believe that we operate our businesses in compliance in all material respects with applicable environmental laws and
regulations. However, from time-to-time, we are a party to lawsuits and other proceedings involving alleged violations of, or
liabilities arising from, environmental laws. When our liability is probable and we can reasonably estimate our costs, we record
environmental liabilities in our financial statements. In many cases, we are not able to determine whether we are liable or if
liability is probable or to reasonably estimate the loss or range of loss. Estimates of our 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 participation number and financial condition of other PRPs, as well as the extent of their
responsibility for the remediation. We intend to adjust our accruals to reflect new information as appropriate. Future
adjustments could have a material adverse effect on our results of operations in a given period, but we cannot reliably predict
the amounts of such future adjustments. At December 31, 2019, our reserves for environmental matters totaled approximately
$18 million. Based on currently available information, we do not believe that there is a reasonable possibility that a loss
exceeding the amount already accrued for any of the sites with which we are currently associated (either individually or in the
aggregate) will be an amount that would be material to a decision to buy or sell our securities. Future developments,
administrative actions or liabilities relating to environmental matters, however, could have a material adverse effect on our
financial condition or results of operations.
Risks Associated with Current or Future Litigation and Claims. A number of lawsuits, claims and proceedings have been or
may be asserted against us relating to the conduct of our currently and formerly owned businesses, including those pertaining to
product liability, patent infringement, commercial disputes, government contracting, employment matters, employee and retiree
benefits, taxes, environmental matters, health and safety and occupational disease, and stockholder and corporate governance
matters. Due to the uncertainties of litigation, we can give no assurance that we will prevail on all claims made against us in
the lawsuits that we currently face or that additional claims will not be made against us in the future. While the outcome of
litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to
us, we do not believe that the disposition of any such pending matters is likely to have a material adverse effect on our 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 our results of operations for that period. Also, we can give no assurance that any other claims brought in the
future will not have a material effect on our financial condition, liquidity or results of operations.
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Labor Matters. We have approximately 8,100 full-time employees, of which approximately 17% are located outside the United
States. Approximately 40% of our workforce is covered by various CBAs, predominantly with the USW. At various times, our
CBAs expire and are subject to renegotiation. We currently are involved in negotiation on our next significant CBA, which
expires February 29, 2020 involving approximately 1,500 USW-represented full-time employees located primarily within the
FRP segment operations and at two facilities in the HPMC segment. Generally, collective bargaining agreements that expire
may be terminated after notice by the union. After termination, the union may authorize a strike. A labor dispute, which could
lead to a strike, lockout, or other work stoppage by the employees covered by one or more of the collective bargaining
agreements, could have a material adverse effect on production at one or more of our facilities and, depending upon the length
of such dispute or work stoppage, on our operating results. There can be no assurance that we will succeed in concluding
collective bargaining agreements to replace those that expire.
Export Sales. We believe that export sales will continue to account for a significant percentage of our future revenues. Risks
associated with export sales include: political and economic instability, including weak conditions in the world’s economies;
accounts receivable collection; export controls; changes in legal and regulatory requirements; policy changes affecting the
markets for our products; changes in tax laws and tariffs; trade duties; and exchange rate fluctuations (which may affect sales to
international customers and the value of profits earned on export sales when converted into dollars). Any of these factors could
materially adversely affect our results for the period in which they occur.
Risks Associated with Indebtedness. Our substantial indebtedness could adversely affect our business, financial condition or
results of operations and prevent us from fulfilling our obligations under our outstanding indebtedness. As of December 31,
2019, our total consolidated indebtedness was approximately $1.4 billion. This substantial level of indebtedness increases the
risk that we may be unable to generate enough cash to pay amounts due in respect of our indebtedness. Our substantial
indebtedness could have important consequences to our stockholders and significant effects on our business. For example, it
could:
• make it more difficult for us to satisfy our obligations with respect to our outstanding indebtedness;
•
•
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of our cash flow to fund working capital, capital expenditures, our strategic
growth initiatives and development efforts and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
restrict us from taking advantage of business opportunities;
place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service
requirements, execution of our business strategy or other general corporate purposes.
•
•
•
•
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future
indebtedness that we may incur may contain, financial and other restrictive covenants that could limit our ability to engage in
activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of
default that, if not cured or waived, could result in the acceleration of all of our debt.
In addition, our variable rate indebtedness, including loans outstanding from time to time under our Asset Based Lending
(ABL) Credit Facility, may use London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the rate. In 2017,
the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit
LIBOR rates after 2021. It is expected that most, if not all, banks currently reporting information to set LIBOR will stop doing
so at such time, which could either cause LIBOR publication to stop immediately or cause LIBOR’s regulator to announce the
discontinuation of its publication. During any such transition period, LIBOR may perform differently than in the past.
Consequently, LIBOR has been the subject of recent regulatory guidance and proposals for reform that could result in changes
to the method by which LIBOR is calculated or in the use of alternate reference rates. Our ABL credit facility includes
provisions intended to provide for such transitions, but the potential consequences of these changes cannot be fully predicted
and could impact the cost of our variable rate indebtedness or the cost or value of other financial obligations or extensions of
credit held by or due to us from time to time, which could adversely affect our financial condition.
Risks Associated with Retirement Benefits. At December 31, 2019, our U.S. qualified defined benefit pension plans were
approximately 73% funded as calculated in accordance with U.S. generally accepted accounting principles. Based upon current
regulations and actuarial studies, we expect to make approximately $130 million in cash contributions to the U.S. qualified
defined benefit pension plans in 2020, and we currently expect to have average annual funding requirements of approximately
$85 million for the next few years thereafter for these plans, using a 7.16% weighted average expected rate of return on pension
plan assets. However, these estimates are subject to significant uncertainty, including the performance of our pension trust
assets. Depending on the timing and amount, a requirement that we fund the U.S. qualified defined benefit pension plans could
have a material adverse effect on our results of operations and financial condition.
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Risks Associated with Acquisition and Disposition Strategies. We intend to continue to strategically position our businesses in
order to improve our ability to compete. Strategies we employ to accomplish this may include seeking new or expanding
existing specialty market niches for our products, expanding our global presence, acquiring businesses complementary to
existing strengths, and continually evaluating the performance and strategic fit of our existing business units. From time-to-
time, management holds discussions with management of other companies to explore acquisitions, joint ventures, and other
business combination opportunities as well as possible business unit dispositions. As a result, the relative makeup of the
businesses comprising our Company is subject to change. Acquisitions, joint ventures, and other business combinations
involve various inherent risks, such as: assessing accurately the value, strengths, weaknesses, contingent and other liabilities
and potential profitability of acquisition or other transaction candidates; the potential loss of key personnel of an acquired
business; our ability to achieve identified financial and operating synergies, growth or other benefits anticipated to result from
an acquisition or other transaction; and unanticipated changes in business and economic conditions affecting an acquisition or
other transaction. International acquisitions and other transactions could be affected by export controls, exchange rate
fluctuations, domestic and foreign political conditions, changes in tax laws and a deterioration in domestic and foreign
economic conditions.
Risks Associated with Information Technology. Information technology infrastructure is critical to supporting business
objectives; failure of our information technology infrastructure to operate effectively could adversely affect our business. We
depend heavily on information technology infrastructure to achieve our business objectives. If a problem occurs that impairs
this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a
timely manner, or otherwise carry on business in the normal course. Any such events could cause us to lose customers or
revenue and could require us to incur significant expense to remediate.
As we integrate, implement and deploy new information technology processes and information infrastructure across our
operations, we could experience disruptions in our business that could have an adverse effect on our business, financial
condition, results of operations and cash flow.
Cyber Security Threats. Increased global information technology threats, vulnerabilities, and a rise in sophisticated and
targeted international computer crime pose a risk to the security of our systems and networks and the confidentiality,
availability and integrity of our data. We believe that ATI faces the threat of such cyber attacks due to the markets we serve, the
products we manufacture, the locations of our operations, and global interest in our technology. Due to the evolving nature of
cyber security threats, the scope and impact of any incident cannot be predicted. We continually work to strengthen our threat
countermeasures, safeguard our systems and mitigate potential risks. Despite our efforts to fortify our cyber security and
protect sensitive information and confidential and personal data, our facilities and systems and those of our third-party service
providers may be vulnerable to security breaches. This could lead to disclosure, modification or destruction of proprietary and
other key information, production downtimes, operational disruptions, and remediation costs, which in turn could adversely
affect our reputation, competitiveness and results of operations.
Internal Controls Over Financial Reporting. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Insurance. We have maintained various forms of insurance, including insurance covering claims related to our properties and
risks associated with our operations. Our existing property and liability insurance coverages contain exclusions and limitations
on coverage. From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and
limitations on coverage, larger self-insured retentions and deductibles, and significantly higher premiums. As a result, in the
future our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure
insurance may increase significantly, either of which could have an adverse effect on our results of operations.
Global Health Crises. Our business could be adversely affected by the effects of a widespread outbreak of contagious disease,
including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province,
China, which, among other impacts and potential impacts, has directly impacted our STAL joint venture operations located in
Shanghai. Any widespread outbreak of contagious diseases, and other adverse public health developments, could have a
material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to travel or
to distribute our products, as well as temporary closures of our facilities or the facilities of our suppliers or customers, which
could impact our sales and operating results. In addition, a significant outbreak of contagious diseases in the human population
could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn that could affect demand for our products and likely impact our operating results.
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Political and Social Turmoil. The war on terrorism as well as political and social turmoil could put pressure on economic
conditions in the United States and worldwide. These political, social and economic conditions could make it difficult for us,
our suppliers, and our customers to forecast accurately and plan future business activities, and could adversely affect the
financial condition of our suppliers and customers and affect customer decisions as to the amount and timing of purchases from
us. As a result, our business, financial condition and results of operations could be materially adversely affected.
Risks Associated with Government Contracts. Some of our operating units perform contractual work directly or indirectly for
the U.S. Government, which requires compliance with laws and regulations relating to the performance of Government
contracts. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) could be
asserted against us related to our U.S. Government contract work. Depending on the circumstances and the outcome, such
proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments
under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating
divisions or units, can also be suspended or debarred from government contracts based on the results of investigations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal domestic facilities for our HPMC segment include melting operations and production facilities that perform
processing and finishing operations. Domestic melting operations are located in Monroe and Bakers, NC, and Lockport, NY
(vacuum induction melting, vacuum arc re-melt, electro-slag re-melt, plasma melting), Richland, WA (electron beam melting),
and Albany, OR (vacuum arc re-melt). Production of high performance materials, most of which are in long product form,
takes place at our domestic facilities in Monroe and Bakers, NC, Lockport, NY, Richburg, SC, Albany, OR, and Oakdale, PA.
Our production of zirconium and related specialty alloys takes place at facilities located in Millersburg, OR and Huntsville, AL.
Our production of highly engineered forgings and machined components takes place at facilities in Cudahy and Coon Valley,
WI, East Hartford, CT, Irvine, CA, Billerica, MA, and Salem, OR. Metal alloy-based additive manufacturing for the aerospace
and defense industries takes place in New Britain, CT.
Our principal domestic locations for melting stainless steel and other flat-rolled specialty materials are located in Brackenridge
and Latrobe, PA. Hot-rolling is performed at our domestic facilities in Brackenridge and Washington, PA. Finishing of our
flat-rolled products takes place at our domestic facilities located in Brackenridge, Vandergrift, Washington, Rochester, Monaca,
and Zelienople, PA, and in Waterbury, CT, New Bedford, MA, Louisville, OH, and Bridgeview, IL. Substantially all of our
properties are owned.
We also own or lease facilities in a number of foreign countries, including France, Germany, the United Kingdom, Poland, and
the People’s Republic of China. We own and/or lease and operate facilities for melting and re-melting, machining and bar mill
operations, laboratories and offices located in Sheffield, England. We own highly engineered forging and machining operations
in Stalowa Wola, Poland. Through our STAL joint venture, we operate facilities for finishing Precision Rolled Strip products in
the Xin-Zhuang Industrial Zone, Shanghai, China.
Our executive offices, located in PPG Place in Pittsburgh, PA, are leased.
Although our facilities vary in terms of age and condition, we believe that they have been well maintained and are in sufficient
condition for us to carry on our activities.
Item 3. Legal Proceedings
From time-to-time, we become involved in various lawsuits, claims and proceedings relating to the conduct of our current 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 we cannot predict the outcome of any lawsuit, claim or proceeding, our management
believes that the disposition of any pending matters is not likely to have a material adverse effect on our financial condition or
liquidity. The resolution in any reporting period of one or more of these matters, including those described above, however,
could have a material adverse effect on our results of operations for that period.
Information relating to legal proceedings is included in Note 21. Commitments and Contingencies of the Notes to Consolidated
Financial Statements and incorporated herein by reference.
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Allegheny Technologies Incorporated and its subsidiary, ATI Titanium LLC (“ATI Titanium”), are parties to a lawsuit captioned
US Magnesium, LLC v. ATI Titanium LLC (Case No. 2:17-cv-00923-DB) and filed in federal district court in Salt Lake City,
UT, pertaining to a Supply and Operating Agreement between US Magnesium LLC (“USM”) and ATI Titanium entered into in
2006 (the “Supply Agreement”). In 2016, ATI Titanium notified USM that it would suspend performance under the Supply
Agreement in reliance on certain terms and conditions included in the Supply Agreement. USM subsequently filed a claim
challenging ATI Titanium’s right to suspend performance under the Supply Agreement, claiming that such suspension was a
material breach of the Supply Agreement and seeking monetary damages, and ATI Titanium filed a counterclaim for breach of
contract against USM. In 2018, USM obtained leave of the court to add Allegheny Technologies Incorporated as a separate
party defendant, and ATI Titanium filed a motion to dismiss the claim against Allegheny Technologies Incorporated, which the
court denied on April 19, 2019. The case is proceeding through discovery, and while ATI intends to vigorously defend against
and pursue these claims, it cannot predict their outcomes at this time.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Common Stock Prices
Our common stock is traded on the New York Stock Exchange (symbol ATI). At February 6, 2020, there were 2,953 record
holders of Allegheny Technologies Incorporated common stock. We paid no cash dividends during 2019, 2018 or 2017.
Effective with the fourth quarter of 2016, our Board of Directors decided to suspend the quarterly dividend. The payment of
dividends and the amount of such dividends depends upon matters deemed relevant by our Board of Directors, such as our
results of operations, financial condition, cash requirements, future prospects, any limitations imposed by law, credit
agreements or senior securities, and other factors deemed relevant and appropriate. Our Asset Based Lending (ABL) Credit
Facility restricts our ability to pay dividends in certain circumstances. For more information on the restrictions under our ABL
facility, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial
Condition and Liquidity - Dividends.”
Cumulative Total Stockholder Return
The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on
our common stock from December 31, 2014 through December 31, 2019, as compared to the S&P 500 Index and the S&P
MidCap 400 Industrials Index. The graph assumes that $100 was invested on December 31, 2014. The stock performance
information included in this graph is based on historical results and is not necessarily indicative of future stock price
performance.
Comparison of Cumulative Five Year Total Return
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
F-16
4550_FINc1.pdf 16 February 28, 2020
ATI
S&P 500 ndex
S&P MidCap 400 Industrials Index
Company / Index
ATI
S&P 500 Index
S&P MidCap 400 Industrials Index
Source: Standard & Poor’s
Item 6. Selected Financial Data
(In millions)
For the Years Ended December 31,
Revenue by Market:
Dec 2014
100.00
100.00
100.00
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
33.26
101.38
96.87
47.86
113.51
124.70
72.53
138.29
154.05
65.41
132.23
131.12
62.08
173.86
175.11
2019
2018
2017
2016
2015
Aerospace & Defense
Oil & Gas
Automotive
Energy
Food Equipment & Appliances
Construction/Mining
Medical
Electronics/Communication/Computers
Other
Total
$
$
2,130.4
510.6
296.6
286.3
205.8
195.0
172.4
163.2
162.2
4,122.5
$
$
1,965.5
546.2
323.4
234.5
244.9
226.0
183.1
156.9
166.1
4,046.6
$
$
1,718.1
418.2
273.7
192.2
226.0
192.9
183.0
151.6
169.4
3,525.1
$
$
1,590.4
280.8
232.8
232.6
172.2
160.6
195.8
109.7
159.7
3,134.6
$
$
1,514.0
538.0
293.8
368.1
217.3
226.3
220.7
126.4
215.0
3,719.6
(In millions, except per share amounts)
For the Years Ended December 31,
Results of Operations:
Sales:
High Performance Materials & Components
Flat Rolled Products
Total Sales
Segment operating profit (loss):
High Performance Materials & Components
Flat Rolled Products
Total segment operating profit (loss)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to ATI
Basic net income (loss) attributable to ATI per common
share
Diluted net income (loss) attributable to ATI per common
share
2019
2018
2017
2016
2015
$ 2,398.1
1,724.4
$ 4,122.5
$ 2,334.2
1,712.4
$ 4,046.6
$ 2,067.4
1,457.7
$ 3,525.1
$ 1,930.4
1,204.2
$ 3,134.6
$ 1,985.9
1,733.7
$ 3,719.6
343.1
37.6
380.7
241.6
(28.5)
270.1
12.5
257.6
$
$
$
$
335.4
77.8
413.2
247.7
11.0
236.7
14.3
222.4
$
$
$
$
$
246.4
37.0
$
283.4
(86.5) $
(6.8)
(79.7)
12.2
(91.9) $
$
168.7
(163.0)
$
5.7
(734.0) $
(106.9)
(627.1)
13.8
(640.9) $
157.1
(241.9)
(84.8)
(478.0)
(112.1)
(365.9)
12.0
(377.9)
2.05
$
1.78
$
(0.83) $
(5.97) $
(3.53)
1.85
$
1.61
$
(0.83) $
(5.97) $
(3.53)
$
$
$
$
$
$
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(In millions, except per share amounts and ratios)
As of and for the Years Ended December 31,
Working capital
Total assets
Long-term debt
Total debt
Cash and cash equivalents
Total ATI Stockholders’ equity
Noncontrolling interests
Total Stockholders’ equity
2019
2018
2017
2016
2015
$
1,453.8
$
1,409.8
$
1,203.1
$
1,057.8
$
5,634.6
1,387.4
1,398.9
490.8
2,090.1
103.1
2,193.2
5,501.8
1,535.5
1,542.1
382.0
1,885.7
105.9
1,991.6
5,185.4
1,530.6
1,540.7
141.6
1,739.4
105.1
1,844.5
5,170.0
1,771.9
1,877.0
229.6
1,355.2
89.6
1,444.8
1,181.1
5,751.7
1,491.8
1,495.7
149.8
2,082.8
101.6
2,184.4
0.62
Dividends declared per common share
$
— $
— $
— $
0.24
$
The information presented in Selected Financial Data should be read in conjunction with the information provided in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Item 8. Financial Statements
and Supplementary Data.
Results of operations include the following items for the years indicated:
2019: Results include a $91.7 million pre-tax gain on the sale of oil and gas rights in New Mexico, an $8.1 million pre-tax loss
on the sale of two non-core forging facilities, a $6.2 million pre-tax gain on the sale of the Cast Products business, a $4.5
million pre-tax restructuring charge to streamline ATI’s salaried workforce, a $21.6 million pre-tax debt extinguishment charge
for the full redemption of the $500 million, 5.95% Senior Notes due 2021 (2021 Notes), and an $11.4 million pre-tax joint
venture impairment charge related to the A&T Stainless joint venture. 2019 results also include a $41.9 million net discrete tax
benefit primarily related to the reversal of a substantial portion of our deferred tax valuation allowances.
2018: Results include a $15.9 million pre-tax gain on the sale of a 50% noncontrolling interest and subsequent deconsolidation
of the A&T Stainless joint venture in March 2018.
2017: Results include a $114.4 million pre-tax goodwill impairment charge, a $37.0 million pre-tax debt extinguishment
charge for the full redemption of the $350.0 million, 9.375% Senior Notes due 2019 (2019 Notes), and $4.1 million of tax
benefits from the 2017 Tax Cuts and Jobs Act legislation.
2016: Results include $538.5 million of pre-tax restructuring and other charges, primarily related to the indefinite idling of the
Rowley, UT titanium sponge production facility. 2016 results also include $171.5 million in deferred tax valuation allowances
which reduced the income tax benefit.
2015: Results include $131.5 million of pre-tax net realizable value inventory reserves, which are required to offset ATI’s
aggregate net debit LIFO inventory balance that exceeds current inventory replacement cost, $216.3 million of pre-tax goodwill
impairment, restructuring and inventory revaluation charges, and $74.5 million of deferred tax valuation allowances, which
reduced the income tax benefit.
Total debt in 2019 reflects the issuance of $350 million of 5.875% Senior Notes due 2027, the proceeds of which were used,
along with cash on hand, to redeem the $500 million 2021 Notes. Total debt in 2017 reflects the redemption of all $350 million
aggregate principal amount of our 9.375% Senior Notes due 2019 (2019 Notes). In 2016, we issued $287.5 million of 4.75%
Convertible Senior Notes due 2022, and added a $100 million term loan to our asset based lending facility. A portion of the
convertible note proceeds were used to make $250 million in contributions to the U.S. qualified defined benefit pension plan in
2016 and 2017.
Total ATI stockholders’ equity in 2018 includes a $15.5 million increase to retained earnings for the cumulative effect of
adoption of ASC 606, Revenue from Contracts with Customers. (see Note 2 in Item 8. “Financial Statements and
Supplementary Data” for further explanation). Total ATI stockholders’ equity in 2017 increased due to our issuance of 17
million shares of common stock at $24.00 per share before expenses in an underwritten registered public offering. This
offering resulted in proceeds of $397.8 million, net of transaction costs, which were used to redeem all of ATI’s outstanding
2019 Notes. Stockholders’ equity changes include net decreases of $139.8 million, $141.4 million, $42.7 million, $60.6
million, and $69.6 million for 2019, 2018, 2017, 2016, and 2015, respectively, related to remeasurements of ATI’s retirement
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benefit obligations. In addition, ATI stockholders’ equity for 2019, 2018, 2017 and 2016 included a $7.8 million increase, a
$20.5 million decrease, a $16.8 million increase and a $45.6 million decrease, respectively, from income tax valuation
allowances on amounts recorded in other comprehensive income.
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 Allegheny Technologies Incorporated and Subsidiaries. The following
discussion on the Company’s results of operations, financial condition and liquidity for fiscal year 2019 as compared to 2018 is
presented. Information on the Company’s results of operations, financial condition and liquidity for fiscal year 2018 as
compared to 2017 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 28, 2019 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 50% of total sales, led by products for jet engines. Additionally, we have a
strong presence in the oil & gas and electrical energy markets. In aggregate, these markets represent about 70% of our revenue.
ATI is a market leader in manufacturing differentiated products that require our materials science capabilities and unique
process technologies, including our new product development competence.
We operate in two business segments: High Performance Materials & Components (HPMC), and Flat Rolled Products (FRP).
Over 75% of 2019 HPMC business segment sales were to the aerospace & defense markets, and nearly half of HPMC’s total
sales are products for commercial jet engines. Increasing demand for commercial aerospace products has been the main source
of sales and segment operating profit growth for HPMC over the last few years, and is expected to continue to drive HPMC and
overall ATI results for the next several years. Other major HPMC end markets include medical and electrical energy. HPMC
produces a wide range of high performance materials, parts and components, and advanced metallic powder alloys made from
titanium and titanium-based alloys, nickel-based alloys and superalloys, and a variety of other specialty materials. Capabilities
range from cast/wrought and powder alloy development to final production of highly engineered finished components,
including those used for next-generation jet engine forgings and 3D-printed aerospace products.
The FRP segment serves a diverse group of end markets, with sales to the oil & gas market and aerospace & defense markets
collectively representing over 40% of 2019 sales. Other important end markets for FRP include automotive, food processing
equipment and appliances, consumer electronics, and construction & mining. FRP produces nickel-based alloys, specialty
alloys, and titanium and titanium-based alloys, and stainless steel products in a variety of forms including plate, sheet,
engineered strip, and Precision Rolled Strip products.
Overview of 2019 Financial Performance
Sales in 2019 increased 2%, to $4.12 billion, despite a 2% negative impact due to the sale of two non-core businesses during
the second and third quarters, and gross profit increased 1%, to $638 million, compared to 2018. Income before taxes in 2019
included $90 million of gains on sales of non-core assets, $22 million in debt extinguishment charges, and $16 million in
restructuring and impairment charges. Results in 2019 also reflect a $29 million net tax benefit primarily related to the reversal
of most of our deferred tax valuation allowances. Net income in 2019 was $258 million, or $1.85 per share, a 15% increase in
per-share results over 2018. In 2019, we generated strong cash flow from operating activities as well as from non-core asset
sales, enabling continued progress on our strategic initiatives while maintaining strong liquidity.
Revenues in our largest end markets, aerospace & defense, increased $165 million, or 8%, over 2018, and represented 52% of
our 2019 sales, despite a 3% negative impact from business divestitures. International sales, including both U.S. exports and
foreign sales from our foreign manufacturing operations, were $1.67 billion in 2019 and represented 40% of total sales.
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A summary of our results is as follows.
(Dollars in millions, except per share amounts)
Sales
Gross profit
Gross profit % of sales
Income before income taxes
Net income
Diluted net income per common share
2019
$ 4,122.5
637.8
$
15.5%
241.6
257.6
1.85
$
$
$
2018
4,046.6
630.3
15.6%
247.7
222.4
1.61
$
$
$
$
$
Our major strategic accomplishments during 2019 include the following:
•
•
•
•
•
•
•
We continued to be an industry leader in on-time delivery of high quality materials and components as indicated by
our ability to secure extensions on various important long-term agreements (LTAs) in the HPMC segment in 2019.
We extended supply agreements with GE Aviation that are expected to generate $2.5 billion in revenues and which
begin in January 2021 and are multi-year agreements. We extended our long-term agreement through 2029 with
Rolls-Royce to supply rotating disc quality specialty materials for their Trent engine family. This agreement covers
the production of a wide-range of critical products used to make Rolls-Royce’s next-generation jet engines as well
as spare parts for in-service engines. We also announced the expansion and 6.5 year extension of our LTA with
BWX Technologies to supply materials for the manufacture of naval nuclear components.
The FRP segment achieved its third straight year of profitability despite the negative impacts from Section 232
tariffs, elevated retirement benefit expense, and soft demand for our standard stainless products and related cost
inefficiencies. We remain focused on continuous improvement and profitable growth in this segment. We extended
and expanded our agreement with NLMK USA for one year, through December 2020, to provide carbon steel hot-
rolling conversion services at our world-class HRFP. This agreement includes significant guaranteed volumes and
fixed fee-per-ton revenues.
We generated $230 million in cash from operating activities in 2019, which included $145 million in contributions
to ATI’s U.S. defined benefit pension trust, and we achieved our long-range managed working capital target at 30%
of annualized sales. We also generated $250 million in cash from non-core asset sales, including two transactions to
monetize some of our long-held oil and gas rights and the divestitures of two non-core carbon steel forging facilities
and our titanium investment castings business. Overall, we ended the year with $491 million of cash on hand.
In the fourth quarter 2019, we reduced our total debt outstanding by $150 million and lowered our Debt to Adjusted
EBITDA ratio to 2.69 at December 31, 2019 compared to 3.07 at year-end 2018 (see the Financial Condition and
Liquidity section of Management’s Discussion and Analysis for this calculation). We issued $350 million of
5.875% Senior Notes due 2027, the proceeds of which, along with cash on hand, were used to early redeem our
$500 million 5.95% Senior Notes due 2021. In recognition of these improving credit metrics, Moody’s upgraded
ATI’s credit rating one notch to B1.
On September 30, 2019, we amended and restated our Asset Based Lending (ABL) Credit Facility, extending the
facility through 2024 and increasing the revolving credit portion of the facility by $100 million. See Financial
Condition and Liquidity for further explanation.
We continued to make capital investments to support our strategic growth initiatives and to have the installed asset
base in service and qualified when needed for additional production capacity associated with extended and
expanded long-term agreements, principally involving customers in the aerospace & defense markets, including our
iso-thermal press and heat-treating capacity expansion at our Iso-Thermal Forging Center of Excellence in Cudahy,
WI.
We made further progress on our risk management strategy for retirement benefit obligations by completing a $96
million risk transfer through the purchase of an annuity contract with a nationally recognized insurance company.
This annuity buyout removed 10% of plan participants, bringing the total pension participant reduction to more than
50% over the past seven years.
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Results of Operations
Sales were $4.12 billion in 2019, compared to $4.05 billion in 2018, a 2% increase, despite a 2% negative impact from business
divestitures. Income before tax was $241.6 million in 2019, compared to $247.7 million in 2018. Net income attributable to
ATI in 2019 was $257.6 million, or $1.85 per share, compared to $222.4 million, or $1.61 per share, in 2018. Results in 2019
include a $28.5 million income tax benefit, while 2018 results reflect $11.0 million of income tax expense. Through December
31, 2019, we continued to maintain valuation allowances for U.S. federal and state deferred taxes, and results in all periods
include impacts from income taxes that differ from the applicable standard tax rate, primarily related to these income tax
valuation allowances. At December 31, 2019, we determined that a substantial portion of these income tax valuation
allowances were no longer required, and a $45.1 million discrete tax benefit was recognized.
In 2019, we completed several strategic actions to improve future financial performance, liquidity and our financial condition.
These items noted below are excluded from business segment results unless otherwise noted.
During the second quarter of 2019, we completed the sale of two non-core forging facilities in our HPMC segment for $37
million. Sales from these two forging facilities in 2018 were $86 million. We received net cash proceeds of $33.0 million on
the sale of this business and recognized an $8.1 million pre-tax loss in 2019, including $10.4 million of allocated goodwill.
During the third quarter of 2019, we completed the sale of our Cast Products titanium investment castings business in our
HPMC segment for $127 million. Cast Products’ sales were $105 million in 2018. We received net cash proceeds of $125.1
million on the sale of this business and recognized a $6.2 million gain in 2019. Results of these businesses are included in
HPMC segment results to the dates of their respective sale. See Note 6 of the Notes to Consolidated Financial Statements for
further information on business divestitures.
During the second and third quarters of 2019, we recognized $91.7 million in cash gains on sales of certain oil and gas rights in
Eddy County, NM. These oil and gas rights were initially acquired in 1972 along with land purchased by Teledyne, Inc., which
later became part of ATI. The land was subsequently sold, with the Company retaining underlying oil and gas rights that it sold
in 2019.
During the fourth quarter of 2019, a $4.5 million restructuring charge was recorded for severance obligations for the reduction
of approximately 70 positions to streamline ATI’s salaried workforce, primarily to improve the cost competitiveness of the
U.S.-based FRP business. The entire $4.5 million will be paid in 2020 upon completion of these reductions. We expect to
generate approximately $8 million in annual savings from this restructuring once fully implemented, with approximately $4
million expected to be recognized in 2020. Also during the fourth quarter of 2019, we recorded an $11.4 million impairment
charge for the A&T Stainless joint venture, including ATI’s share of a long-lived asset impairment charge recognized by the
joint venture on the carrying value of its production facility in Midland, PA.
In the fourth quarter of 2019, we issued $350 million of 5.875% Senior Notes due 2027 (2027 Notes). Proceeds from the 2027
Notes and cash on hand were used to redeem the $500 million 5.95% Senior Notes due 2021 (2021 Notes), which had a
January 15, 2021 maturity date. A $21.6 million debt extinguishment charge was recorded as part of this action.
Results for 2019 include $67.7 million in other (non-operating) income, net on the consolidated statements of operations, which
includes the net loss on the sales of the Cast Products and industrial forgings businesses discussed above, gains to monetize oil
and gas rights, an $11.4 million A&T Stainless joint venture impairment charge, and $10.7 million of net losses from operating
results of joint ventures accounted for under the equity method. Equity method joint venture operating results are included in
the results of the FRP segment. Other (non-operating) income, net in 2018 includes a $15.9 million pre-tax gain on the sale of
a 50% noncontrolling interest and subsequent deconsolidation of the A&T Stainless joint venture in March 2018.
Results by Business Segment
We operated in two business segments during 2019, HPMC and FRP, and management evaluates financial results on this basis.
HPMC sales increased in 2019 by 3%, despite a 4% decline from business divestitures, driven by a 6% increase in sales to the
aerospace & defense markets, which comprises 76% of the sales in this segment. Sales increased 1% in the FRP segment,
primarily due to nearly 30% higher sales to the aerospace & defense markets, and a 25% increase in energy market sales,
partially offset by declines in sales to most general industrial markets for standard stainless products.
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Segment operating profit was $380.7 million, or 9.2% of sales in 2019, compared to segment operating profit of $413.2 million,
or 10.2% of sales, in 2018. Our measure of segment operating profit, which we use to analyze the performance and results of
our business segments, excludes income taxes, corporate expenses, net interest expense, closed operations expenses, the effects
of LIFO inventory accounting and any related changes in net realizable value (NRV) inventory reserves, goodwill impairment
charges, debt extinguishment charges, non-operating gains and losses and restructuring costs, if any. Results on our
management basis of reporting were as follows (in millions):
Sales:
High Performance Materials & Components
Flat Rolled Products
Total external sales
Operating profit:
High Performance Materials & Components
% of Sales
Flat Rolled Products
% of Sales
Total operating profit
% of Sales
LIFO and net realizable value reserves
Corporate expenses
Closed operations and other expense
Restructuring and other charges
Gain on joint venture deconsolidation
Joint venture impairment charge
Gains on asset sales, net
Debt extinguishment charge
Interest expense, net
Income before income taxes
Fiscal Year Ended
December 31,
December 31,
2019
2018
$
$
$
$
$
$
$
2,398.1
1,724.4
4,122.5
343.1
14.3%
37.6
2.2%
380.7
9.2%
(0.1)
(66.8)
(25.5)
(4.5)
—
(11.4)
89.8
(21.6)
(99.0)
241.6
$
$
$
$
$
$
$
2,334.2
1,712.4
4,046.6
335.4
14.4%
77.8
4.5%
413.2
10.2%
(0.7)
(58.1)
(21.6)
—
15.9
—
—
—
(101.0)
247.7
Comparative information for our overall revenues (in millions) by end market, including divested businesses prior to sale, and
their respective percentages of total revenues is as follows:
Market
Aerospace & Defense
Oil & Gas
Automotive
Energy
Food Equipment & Appliances
Construction/Mining
Medical
Electronics/Computers/Communication
Other
Total
2019
2018
$ 2,130.4
510.6
296.6
286.3
205.8
195.0
172.4
163.2
162.2
$ 4,122.5
52% $
12%
7%
7%
5%
5%
4%
4%
4%
100% $
1,965.5
546.2
323.4
234.5
244.9
226.0
183.1
156.9
166.1
4,046.6
49%
13%
8%
6%
6%
6%
4%
4%
4%
100%
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Comparative information for our major high-value and standard products, including divested businesses prior to sale, based on
their percentages of revenues is as follows:
For the Years Ended December 31,
High-Value Products
Nickel-based alloys and specialty alloys
Precision forgings, castings and components
Titanium and titanium-based alloys
Precision and engineered strip
Zirconium and related alloys
Total High-Value Products
Standard Products
Total Standard Products
Grand Total
2019
2018
32%
18%
18%
13%
6%
87%
13%
100%
30%
20%
17%
14%
5%
86%
14%
100%
Sales by geographic area (in millions), including divested businesses prior to sale, and as a percentage of total sales, were as
follows:
For the Years Ended December 31,
United States
Europe
Asia
Canada
Other
Total sales
Information with respect to our business segments follows.
High Performance Materials & Components
(In millions)
Sales to external customers
Segment operating profit
Segment operating profit as a percentage of sales
International sales as a percentage of sales
2019
2018
$ 2,454.6
800.0
638.1
106.3
123.5
$ 4,122.5
58% $ 2,348.1
877.2
22%
602.1
15%
106.5
2%
112.7
3%
100% $ 4,046.6
58%
22%
15%
2%
3%
100%
2019
$ 2,398.1
343.1
$
14.3%
45.0%
% Change
2018
3% $ 2,334.2
335.4
2% $
14.4%
48.0%
Sales for the HPMC segment in 2019 increased 3%, to $2.40 billion, despite a 4% negative impact from business divestitures.
Sales to the aerospace & defense markets, which are the largest end markets for HPMC at 78% of total segment sales, were 6%
higher, despite a 3% decline from divestitures. This was driven by a 17% increase in airframe sales and 28% increase in
defense sales. Total commercial jet engine sales decreased 3% when compared to 2018, despite a 6% increase in next-
generation jet engine products, due primarily to unfavorable product mix and temporary changes in order patterns from a major
aero-engine customer. Energy market sales increased 19% versus the prior year due to export sales into Asia while construction
and mining market sales were 42% lower.
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Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale,
the respective percentages of overall segment revenues for the years ended 2019 and 2018, and the percentage change in
revenues by market for 2019 is as follows:
Market
Aerospace & Defense:
Jet Engines
Airframes
Government Aerospace & Defense
Total Aerospace & Defense
Medical
Energy
Oil & Gas
Construction/Mining
Other
Total
2019
2018
Change
$
1,066.6
44% $ 1,100.6
47% $
481.0
331.5
1,879.1
159.2
156.9
64.3
42.5
96.1
20%
14%
78%
7%
7%
3%
2%
3%
411.2
259.5
1,771.3
168.5
131.4
74.9
72.8
115.3
18%
11%
76%
7%
6%
3%
3%
5%
$
2,398.1
100% $ 2,334.2
100% $
(34.0)
69.8
72.0
107.8
(9.3)
25.5
(10.6)
(30.3)
(19.2)
63.9
(3)%
17 %
28 %
6 %
(6)%
19 %
(14)%
(42)%
(17)%
3 %
We continue to extend and expand LTAs with certain of our customers for our specialty materials, including powders, parts and
components, to reduce their supply uncertainty, including several LTAs with aerospace market OEMs. These LTAs are
expected to continue to drive HPMC’s growth trajectory for the next several years and are for the sale of ATI’s specialty
materials, parts and components that are required for both next-generation and legacy aircraft platforms, including jet engines.
Our LTAs include a titanium products supply agreement for aircraft airframes and structural components with The Boeing
Company (Boeing), which continues through 2022. 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,
including highly engineered titanium forged products. 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 FRP segments. Revenues and profits associated with these titanium products covered by the Boeing long-term agreement
are included primarily in the results for the HPMC segment.
We extended LTAs with GE Aviation in 2019 for the supply of premium titanium alloys, nickel-based alloys, and vacuum-
melted specialty alloys products for commercial and military jet engine applications which begin in January 2021 and are
multi-year agreements, and are negotiating LTA extensions with Snecma (Safran) for the supply of premium titanium alloys,
nickel-based alloys, and vacuum melted specialty alloys for commercial and military jet engine applications. In addition, we
have LTAs with Rolls-Royce plc for the supply of disc-quality products and precision forgings for commercial jet engine
applications. In 2019, we extended our long-term agreement through 2029 with Rolls-Royce to supply rotating disc quality
specialty materials for their Trent engine family. This agreement covers the production of a wide-range of critical products
used to make Rolls-Royce’s next-generation jet engines as well as spare parts for in-service engines. In 2017, we entered into a
new LTA with United Technologies Corporation to supply its Pratt & Whitney subsidiaries with isothermal forgings and
powder alloys for next-generation jet engines, as well as for structural components for airframe applications. We also supply
products to other important parts of the aviation market such as helicopters and rotary engine fixed wing aircraft.
The commercial aerospace market is ramping up production of the next generation of single aisle and large twin aisle aircraft,
and next-generation jet engines. New airframe designs contain a larger percentage of titanium alloys, and the jet engines that
power them use newer nickel-based alloys and titanium-based alloys, in both cases for improved performance and more
economical operating costs, compared to legacy airframe and engine designs. Boeing and Airbus have multi-year backlogs of
orders for both legacy models and next-generation aircraft, and there are over 27,000 jet engines with firm orders (Aero Engine
News, February 2020). Due to manufacturing cycle times, demand for our specialty materials leads the deliveries of new
aircrafts by approximately 6 to 12 months.
Our 2019 HPMC results reflect this demand growth, as the next-generation of aircraft and engines use significantly more of the
products we make. 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 isothermal forging and
additive manufacturing production processes.
Additionally, new entrants to the commercial jet aircraft market for single aisle and regional jets are expected to increase
demand for products made with titanium- and nickel-based alloys over the next several years. 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
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activity and engine refurbishment requirements of U.S. and foreign aviation regulatory authorities. As the number of aircraft in
service increases, the need for our materials associated with engine refurbishment is expected to increase.
Our HPMC segment produces a wide range of high performance materials, including titanium and titanium-based alloys,
nickel- and cobalt-based alloys and superalloys, zirconium and related alloys including hafnium and niobium, 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. In 2019, we also announced the expansion and 6.5
year extension of our LTA with BWX Technologies to supply materials for the manufacture of naval nuclear components.
Stronger demand for titanium and nickel-based products, sales of which were up 12% and 4%, respectively, in 2019 were
partially offset by declines in sales of forged products. Comparative information for HPMC’s major product categories,
including divested businesses prior to sale, based on their percentages of the segment’s overall revenue is as follows:
For the Years Ended December 31,
High-Value Products
Nickel-based alloys and specialty alloys
Precision forgings, castings and components
Titanium and titanium-based alloys
Zirconium and related alloys
Total High-Value Products
2019
2018
32%
30%
28%
10%
100%
31%
34%
25%
10%
100%
HPMC segment operating profit for 2019 increased 2% compared to 2018, to $343.1 million, or 14.3% of sales. As the year
progressed, results reflected a better balance of raw material prices and index-based selling prices, however, the first half of
2019 reflected adverse impacts from a rapid drop in raw material prices, particularly in cobalt, which compressed profit
margins due to the length of the manufacturing cycle compared to index-based selling price changes, offsetting benefits from
higher productivity. Results for 2019 also reflect temporary near-term headwinds related to one of our jet engine customer’s
cash management efforts. Net results of divested businesses were not material to prior period HPMC segment operating profit.
We anticipate significant industry demand growth for advanced powder materials required to satisfy expanding aerospace &
defense market production requirements, and for emerging additive manufacturing of parts and components. To proactively
meet this growing demand for complex powder alloy products, ATI designed and built an all-new nickel and super alloy
powder production facility in North Carolina, which started production in 2018. We also expanded titanium alloys powder
production capabilities at the same North Carolina site, which was completed in early 2019. We acquired assets in 2018 to
accelerate the development of our capabilities in metal alloy-based additive manufacturing to provide comprehensive customer
solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components.
Ongoing strategic capital projects in HPMC to support future growth include the iso-thermal press and heat-treating capacity
expansion at our Iso-Thermal Forging Center of Excellence in Cudahy, WI, which is expected to be placed into service and
begin customer qualification steps in mid-2020.
In the medical market, in 2018 we entered into a joint technology development agreement with Bruker Energy & Supercon
Technologies, to advance state-of-the-art niobium-based superconductors, including those used in MRI magnets for the medical
industry, and preclinical MRI magnets used in the life-science tools industry.
Competition continues to be very strong across most key end markets, particularly within the aerospace & defense, oil & gas,
and medical market supply chains. We believe that our HPMC segment is well-positioned for profitable growth, especially in
the next-generation jet engine platforms through LTAs that provide significant growth and share gains for ATI on next-
generation airplanes and the jet engines that power them. Despite near-term uncertainty posed by the 737 MAX grounding and
associated changes in order patterns in the supply chain for this airframe and related engine program, we believe the long-term
fundamentals driving demand growth in commercial aerospace remain intact across the range of next-generation aircraft and
engines.
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Flat Rolled Products
(In millions)
Sales to external customers
Segment operating profit
Segment operating profit as a percentage of sales
International sales as a percentage of sales
% Change
1 % $
(52)% $
$
$
2019
1,724.4
37.6
2.2%
34.2%
2018
1,712.4
77.8
4.5%
33.8%
Sales for the FRP segment in 2019 increased 1% compared to 2018, to $1.72 billion. Sales to the aerospace & defense markets
increased almost 30% versus the prior year, supported by significantly higher production of titanium armor plate, additional
titanium volumes for commercial airframes, and increased nickel and cobalt-bearing alloy sheet products for jet engines. Sales
to the electrical energy market were 25% higher, driven by demand for marine scrubber products for exhaust systems on ships.
The oil & gas market, including chemical and hydrocarbon processing applications, had slightly lower sales due primarily to
the timing of project-based demand. Sales to the oil & gas, automotive and other industrial markets declined in 2019. Overall,
increased sales of high-value products offset 9% lower sales of standard stainless products, compared to 2018.
Comparative information for our Flat Rolled Products segment revenues (in millions) by market, the respective percentages of
overall segment revenues, for the years ended 2019 and 2018, and the percentage change in revenues by market for 2019 is as
follows:
Market
Oil & Gas
Automotive
Aerospace & Defense
Food Equipment & Appliances
Electronics/Computers/Communication
Construction/Mining
Energy
Other
Total
2019
2018
Change
$
446.3
286.1
251.3
205.5
157.4
152.5
129.4
95.9
$ 1,724.4
26% $
17%
15%
12%
9%
9%
7%
5%
471.3
313.9
194.2
244.5
149.0
153.2
103.1
83.2
100% $ 1,712.4
28% $
18%
11%
14%
9%
9%
6%
5%
100% $
(25.0)
(27.8)
57.1
(39.0)
8.4
(0.7)
26.3
12.7
12.0
(5)%
(9)%
29 %
(16)%
6 %
— %
26 %
15 %
1 %
Our FRP segment produces nickel-based alloys, specialty alloys, titanium and titanium-based alloys, and stainless steel
products, in a variety of forms including plate, sheet, engineered strip, and Precision Rolled Strip products. FRP also provides
hot-rolling conversion services, including titanium products of the Uniti joint venture (JV), and beginning in 2018, standard
stainless sheet products of the A&T Stainless JV and carbon steel products for NLMK USA.
Comparative information for the Flat Rolled Products segment’s major product categories, based on their percentages of
revenue are presented in the following table. Conversion services are excluded.
For the Years Ended December 31,
High-Value Products
Precision and engineered strip
Nickel-based alloys and specialty alloys
Titanium and titanium-based alloys
Total High-Value Products
Standard Products
Total Standard Products
Grand Total
2019
2018
32%
32%
6%
70%
30%
100%
33%
28%
5%
66%
34%
100%
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Comparative shipment volume and average selling price information on the segment’s products for the years ended December
31, 2019 and 2018 is provided in the following table:
Volume (000’s pounds):
High-Value
Standard
Total
Average prices (per lb.):
High-Value
Standard
Combined Average
2019
2018
% change
351,841
361,736
713,577
$3.30
$1.41
$2.34
346,564
400,995
747,559
$3.20
$1.41
$2.24
2 %
(10)%
(5)%
3 %
— %
4 %
Segment operating profit in 2019 was $37.6 million, or 2.2% of sales, a 52% decline from segment operating profit of $77.8
million, or 4.5% of sales, in 2018. FRP segment results for 2019 reflect higher retirement benefit expense of $24 million and a
$12 million loss for ATI’s share of the A&T Stainless JV, primarily due to Section 232 tariffs, compared to a $4 million loss
from the A&T Stainless JV in the prior year. While project-based demand for nickel-based alloys in the U.S. business remained
solid, weaker demand for standard stainless products resulted in lower segment operating profit compared to 2018.
We continue to make progress toward our FRP goal of capital efficient asset utilization improvements as evidenced by our
agreement in 2018 to provide carbon steel hot-rolling conversion services for NLMK USA at our HRFP, which was recently
extended for an additional year through December 2020. We expect 2020 volumes covered under this agreement to
meaningfully increase over 2019 levels. This agreement includes significant guaranteed volumes and fixed fee-per-ton
revenues.
On March 1, 2018, we announced the formation of the A&T Stainless joint venture with Tsingshan to produce 60-inch wide
stainless sheet products for sale in North America. This joint venture utilizes Tsingshan-supplied stainless steel slabs from its
vertically integrated operations in Indonesia. The Tsingshan-supplied stainless steel slabs are hot-rolled into coils on the FRP
segment’s HRPF under a conversion agreement. The hot-rolled coils are finished into stainless steel sheet using ATI’s
previously-idled Direct Roll Anneal and Pickle production facility in Midland, PA, which is ATI’s major investment in the joint
venture. In late March 2018, ATI filed for an exclusion from the Section 232 tariffs on behalf of A&T Stainless, which imports
semi-finished stainless slab products from Indonesia. In April 2019, the Company learned that this exclusion request was
denied by the U.S. Department of Commerce. The A&T Stainless JV filed a new request for exclusion in October 2019, but
will continue to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia
pending the outcome of this new request. Results of A&T Stainless have been and will continue to be negatively impacted by
these tariffs on imported stainless slab products. The joint venture partners have continued to evaluate longer-term solutions to
return this strategic initiative to profitability, and determined during the fourth quarter of 2019 that idling this facility is
probable if a near-term tariff exclusion is not received. ATI recognized an $11.4 million impairment charge in 2019 related to
the A&T Stainless JV, primarily related to ATI’s equity-method share of the JV’s long-lived asset impairment charge for the
Midland facility, that is excluded from FRP segment results.
LIFO and Net Realizable Value Reserves
The net effect of changes in LIFO and NRV inventory reserves was expense of $0.1 million and $0.7 million in 2019 and 2018,
respectively. Falling inventory costs in 2019 resulted in a $25.5 million pretax LIFO inventory valuation reserve benefit, which
was offset by a $25.6 million pretax non-cash charge for NRV inventory reserves that are required to offset the Company’s
aggregate net debit LIFO inventory balance that exceeds current inventory replacement cost. Rising inventory costs in 2018
resulted in a $28.6 million pretax LIFO inventory valuation reserve charge, which was offset by a $27.9 million pretax non-cash
benefit for NRV inventory reserves.
Corporate Expenses
Corporate expenses, which are included in selling and administrative expenses in the statement of operations, were $66.8
million in 2019 compared to $58.1 million in 2018. This increase was due primarily due to higher incentive compensation
expenses.
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Closed Operations and Other Expenses
Closed operations and other expenses are presented primarily in selling and administrative expenses in the consolidated
statements of operations, and include legal, environmental, retirement benefit and insurance obligations associated with closed
operations. Closed operations and other expenses were $25.5 million in 2019, compared to $21.6 million in 2018. These
expenses were higher compared to 2018 primarily due to higher retirement benefit expenses.
Restructuring and Other Gains/Charges
A $4.5 million restructuring charge was recorded in the fourth quarter 2019 to streamline our salaried workforce, primarily to
improve the cost competitiveness of the U.S.-based FRP business. This restructuring charge is excluded from segment
operating results.
Gain on Joint Venture Deconsolidation
On March 1, 2018, we announced the formation of A&T Stainless, in which ATI has a 50% ownership interest. Our joint
venture partner purchased its 50% joint venture interest during the first quarter of 2018, and as a result of this sale and the
subsequent deconsolidation of the A&T Stainless entity, we recognized a $15.9 million gain in the first quarter of 2018. This
gain is reported in other income, net, on the consolidated statement of operations for the year ended December 31, 2018 and is
excluded from FRP segment results.
Joint Venture Impairment Charge
We recorded an $11.4 million impairment charge in 2019 for the A&T Stainless joint venture, including ATI’s share of a long-
lived asset impairment charge recognized by the joint venture on the carrying value of its production facility in Midland, PA.
ATI recognized a $7.1 million equity loss for its 50% share of a $14.2 million long-lived asset impairment recognized by A&T
Stainless. In addition, as of December 31, 2019, ATI had net receivables for working capital advances and administrative
services from A&T Stainless of $36.8 million that were also evaluated for collectability, and a $4.3 million reserve was
recorded in December 2019 based ATI’s share of the estimated fair value of the joint venture’s net assets. This charge is
excluded from FRP segment results.
Gains on Asset Sales, net
During the third quarter of 2019, we completed the sale of our Cast Products business for $127 million. This business produced
titanium investment castings that are primarily used by aerospace & defense OEMs in the production of commercial jet
airframes and engines. We recognized a $6.2 million gain in 2019, which included a $10.2 million impairment charge on the
carrying value of long-lived assets of the retained Salem operation. During the second quarter of 2019, we completed the sale
of two non-core forging facilities, located in Portland, IN and Lebanon, KY, that used primarily traditional forging methods to
produce carbon steel forged products for use in the oil & gas, transportation and construction & mining industries. We
recognized an $8.1 million pre-tax loss in 2019. Both of these divested businesses were previously reported as part of the
HPMC segment. Also during the second and third quarters of 2019, we recognized $91.7 million of total cash gains on sales of
certain oil and gas rights in Eddy County, NM. Results for 2019 include $89.8 million in net pretax gains from these non-core
asset sales which are reported in other income, net, on the consolidated statement of income and are excluded from segment
operating results.
Debt Extinguishment Charge
In December 2019, we redeemed all $500 million aggregate principal amount of the 2021 Notes, resulting in a $21.6 million
pre-tax debt extinguishment charge, which included a $20.9 million cash payment as a make-whole provision on the early
extinguishment of debt, and a $0.7 million charge for previously-unrecognized debt issue costs.
Interest Expense, Net
Interest expense, net of interest income and interest capitalization, was $99.0 million in 2019, compared to $101.0 million in
2018. This decrease primarily reflects lower borrowings in the current year under the Company’s Asset Based Lending Credit
Facility, and increased interest income. Interest expense is presented net of interest income of $5.9 million in 2019, $1.1
million in 2018, and $1.1 million in 2017. Interest expense in 2019, 2018, and 2017 was reduced by $4.7 million, $4.1 million,
and $2.6 million, respectively, related to interest capitalization on major strategic capital projects.
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Income Taxes
Beginning in 2015, ATI results reflected a three-year cumulative loss from U.S. operations, and valuation allowances were
established on our federal and state deferred tax assets as accounting standards limit the ability to consider projections of future
results as positive evidence to assess the realizability of deferred tax assets in situations where a three year cumulative loss
condition exists. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code. Certain
sections of the Internal Revenue Code are still being finalized, and our results continue to reflect changes in the interpretive
guidance since the Tax Act was enacted.
In 2018, we reported income before tax of $247.7 million, of which $190.8 million was attributable to the U.S. The overall
income, along with certain taxable income inclusions, resulted in ATI utilizing net operating loss (NOL) deferred tax assets in
2018, causing a U.S. valuation allowance release of $46.3 million for 2018. At December 31, 2018, we continued to maintain a
valuation allowance on the net deferred tax assets for U.S. federal and state income tax purposes, with the exception of the
indefinite lived deferred tax liability related to goodwill and the withholding tax liability associated with our permanent
reinvestment assertion, and also maintaned valuation allowances for certain foreign operations.
At December 31, 2019, our U.S. results have switched from a three-year cumulative loss position to a three-year cumulative
income position, allowing us to utilize forecasts of future profits as a source of income when evaluating the overall need for a
valuation allowance. We determined that valuation allowances on net deferred tax asset balances for federal and certain state
jurisdictions are no longer required. Certain individual tax attributes still require a valuation allowance based on expected
utilization. The change in the overall valuation allowance for 2019 includes amounts utilized during the year as part of the
reported effective tax rate, as well as a $45.1 million reduction at December 31, 2019 based on a change in judgment on the
realizability of deferred tax assets.
Results in 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily related to
income tax valuation allowances which lowered the effective tax rate on pre-tax income. The 2019 income tax benefit was
$28.5 million, which included the $45.1 million discrete tax benefit related to the release of U.S. federal and state valuation
allowances, along with the current year benefit related to the release of valuation allowances due to positive income in 2019.
Total discrete tax items including this valuation allowance change were a $41.9 million tax benefit in 2019, and our effective
tax rate excluding these items was 5.5% of pre-tax income in 2019. In 2018, we reported an income tax provision of $11.0
million, or 4.4% of the pre-tax income in 2018, which also included benefits from NOL utilization and related valuation
allowance changes. Following this change in judgment on deferred tax asset realizability, we expect to report our results in
future periods using a 23-25% tax rate, although we will continue to have minimal cash tax requirements in the U.S. due to the
ongoing benefits of NOL tax carryforwards for the next few years.
Financial Condition and Liquidity
On September 30, 2019, we amended and restated our ABL Credit Facility, which is collateralized by the accounts receivable
and inventory of our domestic operations. This amendment and restatement extends the ABL facility through September 30,
2024 and includes an increase of $100 million in the revolving credit facility to $500 million, a letter of credit sub-facility of up
to $200 million, and a $100 million term loan (Term Loan). Additionally, the amendment and restatement gives us the ability,
through June 30, 2020 and as long as no default or event of default has occurred and is continuing, to borrow an additional term
loan of up to $100 million in total, using one or two draws (the Delayed-Draw Term Loan). We also have the right to request
an increase of up to $200 million in the maximum amount available under the revolving credit facility for the duration of the
ABL. The Term Loan has an amended interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25
million if certain minimum liquidity conditions are satisfied. In July 2019, we amended our $50 million floating-for-fixed
interest rate swap which converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL
amendment and restatement) with a June 2024 maturity.
As amended and restated, 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 LIBOR-based borrowings and
between 0.25% and 0.75% for base rate borrowings. The ABL facility contains a financial covenant whereby we must maintain
a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the
undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 12.5% of the then
applicable maximum borrowing amount under the revolving credit portion of the ABL and any outstanding Term Loan balance,
or (ii) $62.5 million. We were in compliance with the fixed charge coverage ratio covenant at December 31, 2019.
Additionally, we must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL facility, during
the 90 day period immediately preceding the stated maturity date of each of the 4.75% Convertible Notes due 2022 (2022
Convertible Notes) and 5.875% Notes due 2023 (2023 Notes). Costs associated with entering into the 2019 ABL amendment
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were $2.2 million, and are being amortized to interest expense over the extended term of the facility ending September 2024,
along with $2.1 million of unamortized deferred costs previously recorded for the ABL.
There were no revolving credit borrowings under the ABL during 2019, however $35.3 million of available capacity was
utilized to support the issuance of letters of credit at December 31, 2019. Average borrowings under the ABL for the fiscal year
ended December 31, 2018 were $43 million, bearing an average annual interest rate of 3.7%.
On November 22, 2019, we issued $350 million aggregate principal amount of 5.875% Senior Note due 2027. Underwriting
fees and other third-party expenses for the issuance of the 2027 notes were $5.5 million, and are being amortized to interest
expense over the eight year term of the 2027 Notes. Net proceeds of $344.5 million from this issuance, as well as cash on
hand, were used to retire all $500 million aggregate principal amount of the 2021 Notes in December 2019, resulting in a $21.6
million pre-tax debt extinguishment charge, which included a $20.9 million cash payment as a make-whole provision on the
early extinguishment of debt, and a $0.7 million charge for deferred debt issue costs.
At December 31, 2019, we had $491 million of cash and cash equivalents, and available additional liquidity under the ABL
facility of approximately $450 million. We do not expect to pay any significant U.S. federal or state income taxes in the next
several years due to net operating loss carryforwards.
During the second and third quarters of 2019, we received approximately $250 million in cash from non-core asset sales, net of
closing adjustments and transaction costs, consisting of $33 million for the sale of two non-core forging facilities, $125 million
for the sale of the Cast Products business, and $92 million for the sale of certain oil and gas rights in Eddy County, NM.
In 2019, the Company made $145 million in cash contributions to its U.S. qualified defined benefit pension plans. Based on
pension trust assets as of December 31, 2019, and the expected rate of return on pension assets in future years, we currently
expect our funding requirements to the U.S. qualified defined benefit pension plans to be approximately $130 million in 2020,
and to have annual funding requirements of approximately $85 million to these pension plans for the next few years thereafter.
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.
We believe that internally generated funds, current cash on hand and available borrowings under the ABL facility will be
adequate to meet our liquidity needs, including currently projected required contributions to our pension plans. If we needed to
obtain additional financing using the credit markets, the cost and the terms and conditions of such borrowings may be
influenced by our credit rating. In addition, we regularly review our capital structure, various financing alternatives and
conditions in the debt and equity markets in order to opportunistically enhance our capital structure. In connection therewith,
we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equity or equity-linked
securities, in each case, depending on market and other conditions.
We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.
Cash Flow and Working Capital
Cash provided by operations for 2019 was $230.1 million, including cash provided by an $88.4 million reduction in managed
working capital balances. This was despite $29 million in short-term working capital advances to the A&T Stainless joint
venture for 2019 and $145 million of cash contributions to ATI’s U.S. qualified defined benefit pension plans in 2019. Cash
provided by operations was $392.8 million in 2018, which included a $74.1 million reduction in managed working capital
balances and was partially offset by $40 million in cash contributions to ATI’s U.S. qualified defined benefit pension plans and
$11 million in short-term working capital advances to the A&T Stainless joint venture.
As part of managing the liquidity of our business, we focus on controlling managed working capital, which is defined as gross
accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities.
In measuring performance in controlling this managed working capital, we exclude the effects of LIFO and other inventory
valuation reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. We
measure managed working capital as a percentage of the prior three months annualized sales to evaluate our performance based
on recent levels of business volume. In 2019, managed working capital decreased to 30.0% of annualized total ATI sales
compared to 31.6% of annualized sales at December 31, 2018, a 160 basis point reduction despite year-over-year business
growth. The $88.4 million decrease in managed working capital in 2019 resulted from a $12.7 million decrease in short-term
contract assets, a $70.9 million decrease in inventory, a $22.4 million increase in accounts payable and $7.3 million increase in
short-term contract liabilities, partially offset by a $24.9 million increase in accounts receivable. Days sales outstanding, which
measures actual collection timing for accounts receivable, worsened by approximately 3% at year-end 2019 compared to 2018.
Gross inventory turns, which exclude the effect of LIFO and any applicable offsetting NRV inventory valuation reserves,
remained consistent in 2019 compared to 2018.
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The components of managed working capital were as follows:
(In millions)
Accounts receivable
Short-term contract assets
Inventory
Accounts payable
Short-term contract liabilities
Subtotal
Allowance for doubtful accounts
LIFO reserve
Inventory reserves
Managed working capital
Annualized prior 3 months sales
Managed working capital as a % of annualized sales
December 31, 2019 change in managed working capital
December 31,
2019
December 31,
2018
$
$
$
$
554.1
38.5
1,155.3
(521.2)
(78.7)
1,148.0
4.6
(33.6)
104.1
1,223.1
4,047.4
30.0%
(88.4)
$
$
$
527.8
51.2
1,211.1
(498.8)
(71.4)
1,219.9
6.0
(2.9)
88.5
1,311.5
4,151.3
31.6%
Cash provided by investing activities was $81.7 million in 2019, reflecting $250.1 million in net proceeds from non-core asset
sales consisting of $33.0 million for the sale of two non-core forging facilities, $125.1 million for the sale of the Cast Products
business and $92.0 million of proceeds from property, plant and equipment, largely due to the sale of certain oil and gas rights
in Eddy County, NM. Capital expenditures for 2019 were $168.2 million primarily related to HMPC growth projects including
the previously announced new iso-thermal press and heat-treating expansion in Cudahy, WI. Cash used in investing activities
in 2018 was $145.1, consisting primarily of $139.2 million of capital expenditures and $10.0 million for the acquisition of
Addaero, a metal alloy-based additive manufacturer for the aerospace & defense industries.
Cash used in financing activities in 2019 was $203.0 million, with $507.6 million of payments on long-term debt and finance
leases consisting largely of the redemption of all $500 million aggregate principal amount of the 2021 Notes outstanding. The
redemption included a $20.9 million cash make-whole payment related to the early extinguishment of this debt as required
under the applicable indenture. Borrowings on long-term debt were $350.0 million reflecting the issuance of the 2027 Notes.
Such issuance included $5.5 million of payments for underwriting fees and other third-party expenses. Cash used in financing
activities in 2019 also reflects a $14.0 million dividend payment to the 40% noncontrolling interest in our STAL joint venture.
Cash used in financing activities in 2018 was $7.3 million, consisting of $10.0 million in dividend payments to the 40%
noncontrolling interest in our STAL joint venture and a $5.9 million reduction in foreign credit facility borrowings, partially
offset by $2.7 million for the sale of noncontrolling interest related to Next Gen Alloys, our meltless titanium alloy powder
joint venture with GE, and $12.0 million of installment payments from our joint venture partner for the $17.5 million purchase
price of its 50% joint venture interest in A&T Stainless.
At December 31, 2019, cash and cash equivalents on hand totaled $490.8 million, a $108.8 million increase from year-end
2018. Cash and cash equivalents held by our foreign subsidiaries was $52.3 million at December 31, 2019, of which $22.9
million was held by the STAL joint venture.
Debt
Total debt outstanding declined in 2019 to $1,411.2 million at December 31, 2019, due to the $150 net reduction from the
redemption of the 2021 Notes partially offset by the issuance of the 2027 Notes.
In managing our overall capital structure, some of the measures on which we focus are debt to EBITDA, which measures our
ability to repay our incurred debt, net debt to total capitalization, which is the percentage of our debt, net of cash that may be
available to reduce borrowings, to our total invested and borrowed capital, and total debt to total capitalization, which excludes
cash balances. We define EBITDA as income from continuing operations before interest and income taxes, plus depreciation
and amortization. We define Adjusted EBITDA as EBITDA excluding significant non-cash charges or credits, including
goodwill impairment charges, restructuring charges including long-lived asset impairments, and other postretirement/pension
curtailment and settlement gains and losses. We believe that EBITDA and Adjusted EBITDA 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 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. EBITDA and Adjusted EBITDA 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.
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All of these leverage ratios improved in 2019, primarily as a result of lower debt and higher earnings. At year-end 2019, our
debt to Adjusted EBITDA ratio was 2.69, compared to 3.07 at December 31, 2018, and net debt to Adjusted EBITDA ratio was
1.75, compared to 2.32 at December 31, 2018.
Income before income taxes
Interest expense
Depreciation and amortization
Joint venture impairment charge
Debt extinguishment charge
Adjusted EBITDA
Total debt (a)
Less: Cash
Net debt
Debt to Adjusted EBITDA
Net Debt to Adjusted EBITDA
$
$
$
$
December 31,
2019
December 31,
2018
241.6
$
99.0
151.1
11.4
21.6
524.7
1,411.2
(490.8)
920.4
2.69
1.75
$
$
$
247.7
101.0
156.4
—
—
505.1
1,552.5
(382.0)
1,170.5
3.07
2.32
At year-end 2019, our net debt to total capitalization was 30.6%, compared to 38.3% at December 31, 2018.
(In millions)
Total debt (a)
Less: Cash
Net debt
Total ATI stockholders’ equity
Net ATI capital
Net debt to ATI capital
December 31,
2019
December 31,
2018
1,411.2
(490.8)
920.4
2,090.1
3,010.5
$
$
$
1,552.5
(382.0)
1,170.5
1,885.7
3,056.2
30.6%
38.3%
$
$
$
Total debt to total capitalization was 40.3% at December 31, 2019 compared to 45.2% at December 31, 2018.
(In millions)
Total debt (a)
Total ATI stockholders’ equity
Total ATI capital
Total debt to ATI capital
(a) Excludes debt issuance costs.
December 31,
2019
December 31,
2018
$
$
1,411.2
2,090.1
3,501.3
$
$
1,552.5
1,885.7
3,438.2
40.3%
45.2%
On November 22, 2019, we issued $350 million aggregate principal amount of the 2027 Notes. Net proceeds of $344.5 million
from this issuance were used, together with cash on hand, to redeem all $500 million aggregate principal amount outstanding of
the 5.95% 2021 Notes in December 2019.
The 5.875% stated interest rate payable on our $500 million Notes due 2023 (2023 Notes) is subject to adjustment in the event
of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s (S&P). Each notch of credit rating
downgrade from the credit ratings in effect when the 2023 Notes were issued in July 2013 increases interest expense by 0.25%
on the 2023 Notes, up to a maximum of four notches by each of the two rating agencies, or a total 2.0% potential interest rate
change up to 7.875%.
The 2023 Notes presently bear the maximum 7.875% annual interest rate as a result of credit rating downgrades. Any further
credit rating downgrades have no effect on the interest rate of the 2023 Notes, and increases in our credit ratings from these
ratings agencies would reduce interest expense incrementally on the 2023 Notes to the original 5.875% interest rate in a similar
manner. In November 2019, Moody’s increased our credit rating one notch, to B1 with a stable outlook, however our credit
rating from both rating agencies remains below the level at which the current 2023 Notes interest rate would reset to a lower
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rate. At our present credit rating levels, we would need a one-notch ratings upgrade by Moody’s, to Ba3, and a two-notch
increase by S&P, to BB-, before the 2023 Notes interest rate would be lowered in each case by 0.25%.
STAL, the Company’s Chinese joint venture company in which ATI has a 60% interest, has a separate $20 million revolving
credit facility. Borrowings under the STAL revolving credit facility are in U.S. dollars based on U.S. interbank offered rates.
The credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners.
The credit facility requires STAL to maintain a minimum level of shareholders’ equity, and certain financial ratios.
A summary of required payments under financial instruments (excluding accrued interest) and other commitments are
presented below.
(In millions)
Contractual Cash Obligations
Total Debt including Finance Leases
Interest on Debt (A)
Operating Lease Obligations (B)
Other Long-term Liabilities
Pension and OPEB Obligations (C)
Unconditional Purchase Obligations
Raw Materials (D)
Capital expenditures
Other (E)
Total
Other Financial Commitments
Lines of Credit (F)
Guarantees
Total
Less than 1
year
1-3
years
4-5
years
After 5
years
$
$
$
$
$
$
$
1,411.2
444.7
97.8
91.2
713.4
1,245.9
116.5
82.8
4,203.5
566.9
27.9
11.5
95.4
20.0
—
171.8
317.7
105.4
46.4
768.2
66.9
$
$
$
296.3
169.3
33.5
33.9
247.7
374.2
10.6
27.1
1,192.6
$
$
603.4
107.9
19.7
20.5
169.8
308.0
0.3
8.8
1,238.4
— $
500.0
$
$
$
500.0
72.1
24.6
36.8
124.1
246.0
0.2
0.5
1,004.3
—
(A)
(B)
(C)
(D)
(E)
(F)
Amounts include contractual interest payments using the interest rates in effect as of December 31, 2019 applicable
to the Company’s 2022 Convertible Notes, the 2023 Notes, the Term Loan due 2024, the Allegheny Ludlum 6.95%
Debentures due 2025 and the 2027 Notes.
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.
Based on current actuarial studies, amounts include payments for the next 10 years 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 plans 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 postemployment
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.
We have contracted for physical delivery for certain of our raw materials to meet a portion of our needs. These
contracts are based upon fixed or variable price provisions. We used current market prices as of December 31,
2019, for raw material obligations with variable pricing.
We have various contractual obligations that extend through 2025 for services involving production facilities and
administrative operations. Our purchase obligation as disclosed represents the estimated termination fees payable if
we were to exit these contracts.
At December 31, 2019, there were no amounts drawn under foreign credit agreements. Drawn amounts on the U.S.
facility were $35.3 million utilized under the $500 million ABL facility for standby letters of credit, which renew
annually. These letters of credit are used to support: $29.8 million in workers’ compensation and general insurance
arrangements, $5.4 million related to environmental matters and $0.1 million for ATI’s assurance of performance to
a customer.
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Commitments and Contingencies
At December 31, 2019, our reserves for environmental remediation obligations totaled approximately $18 million, of which $7
million was included in other current liabilities. These reserves included estimated probable future costs of: $3 million for
federal Superfund and comparable state-managed sites; $13 million for formerly owned or operated sites for remediation or
indemnification obligations; $1 million for owned or controlled sites at which our operations have been discontinued; and $1
million for sites utilized by the Company in its ongoing operations. We continue to evaluate whether we may be able to recover
a portion of future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate. The
timing of expenditures depends on a number of factors that vary by site. ATI expects that it will expend present accruals over
many years and that remediation of all sites with which it has been identified will be completed within thirty years.
At December 31, 2019, we had recognized asset retirement obligations (AROs) of $24 million related to landfill closures,
decommissioning costs, facility leases and conditional AROs associated with manufacturing activities using what may be
characterized as potentially hazardous materials.
Based on currently available information, it is reasonably possible that the costs for active matters may exceed our recorded
reserves by as much as $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.
Labor Matters
We currently are involved in negotiation on our next significant collective bargaining agreement with the United Steel, Paper
and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union, AFL-CIO, CLC
(USW), which expires February 29, 2020 involving approximately 1,500 USW-represented full-time employees located
primarily within the FRP segment operations and at two facilities in the HPMC segment.
Retirement Benefits
All of ATI’s defined benefit pension plans are now closed to new entrants, and at most ATI operations with pension participants
the plans are frozen for all future benefit accruals, with less than 10% of participants in ATI’s U.S. qualified defined benefit
plans still earning additional pension 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.
At December 31, 2019, our U.S. qualified defined benefit pension plans were approximately 73% funded in accordance with
generally accepted accounting principles, and were remeasured at that date using a 3.40% 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, which currently results
in a higher discount rate than the discount rate methodology required by accounting standards. Funding requirements are also
affected by IRS-determined mortality assumptions, which may differ from those used under accounting standards. Based upon
current regulations and actuarial studies, we currently expect to make approximately $130 million in cash contributions to the
U.S. qualified defined benefit pension plans in 2020, and we expect to have average annual funding requirements of
approximately $85 million to these pension plans for the next few years thereafter, using a 7.16% weighted average expected
rate of return on pension plan assets. 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.
Dividends
Effective with the fourth quarter of 2016, our Board of Directors decided to suspend the quarterly dividend. The payment of
dividends and the amount of such dividends depends upon matters deemed relevant by our Board of Directors on a quarterly
basis, such as our results of operations, financial condition, cash requirements, future prospects, any limitations imposed by
law, credit agreements or senior securities, and other factors deemed relevant and appropriate. Under the ABL facility, there is
no limit on dividend declarations or payments provided that the undrawn availability, after giving effect to a particular dividend
payment, is at least the greater of $150 million and 30% of the maximum revolving credit availability, and no event of default
under the ABL facility has occurred and is continuing or would result from paying the dividend. In addition, there is no limit
on dividend declarations or payments if the undrawn availability is less than the greater of $150 million and 30% of the
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maximum revolving credit advance amount but more than the greater of $75 million and 15% of the maximum revolving credit
advance amount, if (i) no event of default has occurred and is continuing or would result from paying the dividend, (ii) we
demonstrate to the administrative agent that, prior to and after giving effect to the payment of the dividend (A) the undrawn
availability, as measured both at the time of the dividend payment and as an average for the 60 consecutive day period
immediately preceding the dividend payment, is at least the greater of $75 million and 15% of the maximum revolving credit
availability, and (B) we maintain a fixed charge coverage ratio of at least 1.00:1.00, as calculated in accordance with the terms
of the ABL facility.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in conformity with United States generally accepted
accounting principles. When more than one accounting principle, or the method of its application, is generally accepted,
management selects the principle or method that is appropriate in our specific circumstances. Application of these accounting
principles requires our management to make estimates about the future resolution of existing uncertainties; as a result, actual
results could differ from these estimates. In preparing these consolidated financial statements, management has made its best
estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality.
Inventories
At December 31, 2019, we had net inventory of $1,155.3 million. Inventories are stated at the lower of cost (LIFO, FIFO and
average cost methods) or market. Costs include direct material, direct labor and applicable manufacturing and engineering
overhead, and other direct costs. Most of our inventory is valued utilizing the LIFO costing methodology. Inventory of our
non-U.S. operations is valued using average cost or FIFO methods. Under the LIFO inventory valuation method, changes in
the cost of raw materials and production activities are recognized in cost of sales in the current period even though these
material and other costs may have been incurred at significantly different values due to the length of time of our production
cycle. In a period of rising prices, cost of sales expense recognized under LIFO is generally higher than the cash costs incurred
to acquire the inventory sold. Conversely, in a period of declining raw material prices, cost of sales recognized under LIFO is
generally lower than cash costs incurred to acquire the inventory sold. Generally, over time based on overall inflationary trends
in raw materials, labor and overhead costs, the use of the LIFO inventory valuation method will result in a LIFO inventory
valuation reserve, as the higher current period costs are included in cost of sales and the balance sheet carrying value of
inventory is reduced.
The prices for many of the raw materials we use have been volatile during the past several years, while labor and overhead
costs have been generally stable, with a modest inflationary trend. Raw material cost changes typically have the largest impact
on the LIFO inventory costing methodology based on the overall proportion of raw material costs to other inventoriable costs.
Since we value most of our inventory utilizing the LIFO inventory costing methodology, a fall in material costs generally
results in a benefit to operating results by reducing cost of sales and increasing the inventory carrying value, while conversely, a
rise in raw material costs generally has a negative effect on our operating results by increasing cost of sales while lowering the
carrying value of inventory. For example, for the year ended December 31, 2019, the LIFO inventory valuation method
resulted in cost of sales that were $25.5 million lower than would have been recognized under the FIFO methodology to value
our inventory, while in 2018, the LIFO inventory valuation method resulted in cost of sales that were $28.6 million higher than
would have been recognized under the FIFO methodology to value our inventory. Our NRV reserves were $33.6 million and
$8.0 million at December 31, 2019 and 2018, respectively.
Due primarily to persistent raw material deflation in prior years, we are in the unusual situation of having a LIFO inventory
balance that exceeds replacement cost. In cases where inventory at FIFO cost is lower than the LIFO carrying value, a write-
down of the inventory to market may be required, subject to a lower of cost or market evaluation. In applying the lower of cost
or market principle, market means current replacement cost, subject to a ceiling (market value shall not exceed net realizable
value) and a floor (market shall not be less than net realizable value reduced by an allowance for a normal profit margin). We
evaluate product lines on a quarterly basis to identify inventory values that exceed estimated net realizable value. The
calculation of a resulting NRV inventory reserve, if any, is recognized as an expense in the period that the need for the reserve
is identified.
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The impact to our cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as
follows (in millions):
LIFO benefit (charge)
NRV benefit (charge)
Net cost of sales impact
Fiscal year ended December 31,
2019
2018
2017
$
$
25.5 $
(25.6)
(0.1) $
(28.6) $
27.9
(0.7) $
(54.2)
54.0
(0.2)
It is our general policy to write-down to scrap value any inventory that is identified as obsolete and any inventory that has aged
or has not moved in more than twelve months. In some instances this criterion is up to twenty-four months due to the longer
manufacturing and distribution process for certain products.
The LIFO inventory valuation methodology is not utilized by many of the companies with which we compete, including
foreign competitors. As such, our results of operations may not be comparable to those of our competitors during periods of
volatile material costs due, in part, to the differences between the LIFO inventory valuation method and other acceptable
inventory valuation methods.
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. In the
fourth quarter of each year in conjunction with the annual business planning cycle, or more frequently if new material
information is available, we evaluate the recoverability of idled facilities.
Goodwill is reviewed annually in the fourth quarter of each 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. For our annual goodwill impairment evaluation performed in the fourth quarter of 2019, quantitative
goodwill assessments were performed for the two HPMC reporting units with goodwill. Fair values were determined by using
a quantitative assessment that may include 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 future operating results, cash flows, changes in working capital and capital expenditures, selling prices,
profitability, and the cost of capital. Many of these assumptions are determined by reference to market participants we have
identified. For example, our weighted average cost of capital used in our discounted cash flow assessments was approximately
11% and long-term growth rates ranged from 3% to 3.5%. Although we believe that the estimates and assumptions used were
reasonable, actual results could differ from those estimates and assumptions.
For our annual goodwill impairment evaluation, a reconciliation of the aggregate fair values of all reporting units to market
capitalization was performed using a reasonable control premium in order to validate the reasonableness of the estimated fair
values of the reporting units as of the valuation date. No impairments were determined to exist from the annual goodwill
impairment evaluations for the years ended December 31, 2019, 2018 and 2017. For the 2019 evaluation, our two HPMC
reporting units with goodwill had fair values that were significantly in excess of carrying value.
During the third quarter of 2017, we performed an interim goodwill impairment analysis on ATI Cast Products, a titanium
investment casting business, due to impairment indicators including lower actual results versus projections. This reporting unit
had a fair value that exceeded carrying value by 12% as a result of our 2016 annual goodwill impairment evaluation. As a
result of the 2017 interim goodwill impairment evaluation, we determined that the fair value of the Cast Products business was
significantly below the carrying value, including goodwill. This was primarily due to lower projected revenues, profitability
and cash flows associated with revised expectations for the rate of operational improvement and profitability of this business
based on current customer agreements. Consequently, during the third quarter of 2017, we recorded a $114.4 million pre-tax
impairment charge to write-off all of the goodwill associated with ATI Cast Products, most of which was assigned from our
2011 Ladish acquisition that was not deductible for income tax purposes.
As part of the divestiture of the titanium investment castings business, which was completed early in the third quarter 2019,
ATI retained a small post-casting machining operation in Salem, OR. We recognized a $10.2 million impairment charge on the
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carrying value of long-lived assets of the retained Salem operation ($4.5 million for property, plant and equipment, $1.4 million
for operating lease right of use assets, $1.0 million for finance lease right of use assets, and $3.3 million of finite-lived
intangible assets). This long-lived asset impairment charge was based on an analysis of the estimated fair values, including
asset appraisals using market approaches, which represent Level 3 unobservable information in the fair value hierarchy. This
impairment charge is categorized as part of the net gain on sale of the titanium investment castings business.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and
Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code. Changes impacting ATI’s tax
provision for the past three years include the following:
(1) Reducing the U.S. federal current and deferred rate to 21%; The change in the U.S. federal corporate tax rate from
35% to 21% resulted in a $2.6 million benefit, which was recognized in 2017, as it related to the remeasurement of
indefinite lived deferred tax liabilities.
(2) Repeal of the alternative minimum tax, which resulted in a $1.5 million decrease in the deferred tax asset valuation
allowance that was recognized in 2017. This tax benefit, along with the benefit related to the remeasurement of
indefinite lived deferred tax assets is combined for a total benefit of $4.1 million.
(3) Requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, with
$5.9 million included in the 2018 tax provision.
(4) Requiring a current year inclusion in U.S. federal taxable income of certain earnings of controlled foreign
corporations, commonly referred to as Global Intangible Low-Taxed Income (GILTI), for which we are currently
utilizing pre-January 1, 2018 net operating losses (NOLs) to offset the 2019 income inclusion of $16.8 million ($3.5
million net tax effect) and utilized pre-January 1, 2018 losses in 2018 to offset the $25.7 million ($5.4 million net tax
effect) inclusion.
(5) Creating a new limitation on deductible interest expense, for which we have estimated the federal limitation to be
$24 million in 2019, creating an indefinite lived deferred tax asset for which a valuation allowance was not established.
This limitation is affected by the interpretation of the meaning of depreciation in the proposed regulations, which could
change as additional guidance and/or final regulations are issued. We continue to analyze additional planning around the
overall calculation and continue to wait for final regulations.
The provision for, or benefit from, 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. The
verifiable evidence such as future reversals of existing temporary differences and the ability to carryback are considered before
the subjective sources such as estimate future taxable income exclusive of temporary differences and tax planning strategies.
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.
Beginning in 2015, ATI results reflected a three year cumulative loss from U.S. operations, and valuation allowances were
established on its’ federal and state deferred tax assets. In 2017, our results reflected a partial release of the valuation
allowance related to the federal and state deferred tax assets, along with the one-time transition tax inclusion in 2017. In 2018
based upon updated guidance, approximately $28.2 million of available tax credits were used instead of the NOL to offset the
transition tax inclusion. This overall change in presentation was reflected within the 2018 effective tax rate.
In 2018, we reported income before tax of $247.7 million, of which $190.8 million was attributable to the U.S. The overall
income, along with the GILTI inclusion for the year, resulted in ATI utilizing NOL deferred tax assets in 2018, which resulted
in a U.S. valuation allowance release of $46.3 million for 2018. At December 31, 2018, we continued to maintain a valuation
allowance on the net deferred tax assets for U.S. federal and state income tax purposes, with the exception of the indefinite
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lived deferred tax liability related to goodwill and the withholding tax liability associated with its permanent reinvestment
assertion, as well as valuation allowances for certain foreign operations.
At December 31, 2019, our U.S. results have switched from a three-year cumulative loss position to a three-year cumulative
income position, allowing ATI to utilize forecasts of future profits as a source of income when evaluating the overall need for a
valuation allowance. We determined that valuation allowances on net deferred tax asset balances for federal and certain state
jurisdictions are no longer required. Certain individual tax attributes still require a valuation allowance based on expected
utilization. At December 31, 2019, our deferred tax asset valuation allowance was $94.5 million. The change in the overall
valuation allowance for 2019 includes amounts utilized during the year as part of the reported effective tax rate, as well as a
$45.1 million reduction at December 31, 2019 based on a change in judgment on the realizability of deferred tax assets.
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 now closed to new entrants, and at most ATI operations with pension participants the plans are frozen
for all future benefit accruals, with less than 10% of participants in ATI’s U.S. qualified defined benefit plans still earning
additional pension 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.
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 7.52% in 2019, and
the weighted average expected long-term rate of return on pension plan investments for 2020 will be 7.16%. We apply this
assumed rate 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 years
have been 15.1% for 2019, (4.8)% for 2018, 16.9% for 2017, 5.3% for 2016, and (1.2)% for 2015. 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 $5 million. The cumulative difference between the expected return and the actual return on plan
assets is deferred and amortized into pension income or expense over future periods. 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 3.40% for valuing the pension liabilities as of December 31, 2019, and for determining the pension expense for
2020. We had previously assumed a discount rate of 4.40% at the end of 2018 and 3.85% at the end of 2017. 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 $140 million. Such a change in
the discount rate would decrease pension expense in the case of an increase in the discount rate, or increase pension expense in
the case of a decrease in the discount rate, by less than $1 million. The effect on pension liabilities for changes to the discount
rate, as well as the net effect of other changes in actuarial assumptions and experience, are deferred and amortized over future
periods in accordance with the accounting standards.
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As discussed above, gains and losses due to differences between actual and expected results for investment returns on plan
assets, changes in the discount rate used to value benefit obligations, and other changes in estimates such as participant life
expectancy are deferred and recognized in the consolidated statement of operations over future periods. However for balance
sheet presentation, these gains and losses are included in the determination of benefit obligations, net of plan assets, included
on the year-end consolidated balance sheet. At December 31, 2019, the Company had approximately $1.6 billion of pre-tax net
actuarial losses on its pension obligations, primarily related to an extended decline over the last several years in the discount
rate used to value the pension obligations. These actuarial losses have been recognized on the consolidated balance sheet
through a reduction in stockholders’ equity, and are being recognized in the consolidated statement of operations through
expense amortizations over future years. Due to all of ATI’s defined benefit plans being closed to new entrants, and in most
cases frozen for future benefit accruals, the amortization period for accumulated other comprehensive loss recognition for all of
these plans is average remaining life expectancy, which is approximately 18 years on a weighted average basis.
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 2019, we determined the rate to be 3.25%, compared to a 4.35% discount rate
in 2018, and a 3.80% discount rate in 2017. 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 $15 million. Such a change in the discount rate would decrease postretirement
benefit expense in the case of an increase in the discount rate, or increase postretirement benefit expense in the case of a
decrease in the discount rate, by less than $1 million. 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 6.0% in 2020
and is assumed to gradually decrease to 4.5% in the year 2038 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.
New Accounting Pronouncements Adopted
In January 2019, we adopted changes issued by the Financial Accounting Standards Board (FASB) related to leases. See Note
11 for further explanation related to this adoption, including all newly expanded disclosure requirements.
Pending Accounting Pronouncements
In August 2018, the FASB issued new disclosure guidance on fair value measurement. This new guidance modifies the
disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well
as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be
applied prospectively while others retrospectively depending on requirement. This guidance is required to be adopted
beginning in fiscal year 2020, with early adoption permitted. We did not early adopt this guidance. The adoption of these
changes is not expected to have an impact on our consolidated financial statements other than disclosures.
In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is
based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate
of expected credit losses. The CECL model applies to trade receivables, other receivables, contract assets and most debt
instruments. The CECL model does not have a minimum threshold for recognition of impairment losses, and entities will need
to measure expected credit losses on assets that have a low risk of loss. We adopted this guidance in fiscal year 2020 without
significant impact to the consolidated financial statements.
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The areas for simplification in
the guidance involve the removal of certain exceptions to the general principals in the current guidance, including intraperiod
allocation and the calculation of income taxes in an interim period when a year to date loss exceeds the anticipated loss for the
year. The new guidance also simplifies the accounting for income taxes in the area of franchise taxes. This new guidance is
effective fiscal year 2021, with early adoption permitted. We early adopted this guidance in fiscal year 2020 without significant
impact to the consolidated financial statements.
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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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As part of our risk management strategy, we utilize derivative financial instruments, from time to time, to hedge our exposure
to changes in energy and raw material prices, foreign currencies, and interest rates. We monitor the third-party financial
institutions that are our counterparty to these financial instruments on a daily basis and diversify our transactions among
counterparties to minimize exposure to any one of these entities. Fair values for derivatives were measured using exchange-
traded prices for the hedged items including consideration of counterparty risk and the Company’s credit risk. Our exposure to
volatility in interest rates is presently not material, as nearly all of our debt is at fixed interest rates.
Volatility of Interest Rates. We may enter into derivative interest rate contracts to maintain a reasonable balance between
fixed- and floating-rate debt. In July 2019, we amended our $50 million floating-for-fixed interest rate swap which converts
half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment), with a June 2024
maturity. The Company designated the interest rate swap as a cash flow hedge of the Company’s exposure to the variability of
the payment of interest on a portion of its Term Loan borrowings. The ineffectiveness at hedge inception, determined from the
fair value of the swap immediately prior to amendment, will be amortized to interest expense over the initial Term Loan swap
maturity date of January 12, 2021. Any gain or loss associated with this hedging arrangement is included in interest expense.
At December 31, 2019, the net mark-to-market valuation of the outstanding interest rate swap was an unrealized pre-tax loss of
$1.5 million, comprised of $0.3 million in other current liabilities and $1.2 million in other long-term liabilities on the balance
sheet.
Volatility of Energy Prices. Energy resources markets are subject to conditions that create uncertainty in the prices and
availability of energy resources. The prices for and availability of electricity, natural gas, oil and other energy resources are
subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our
control. Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have and may continue to
adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive,
increased energy prices may have an adverse effect on our results of operations and financial condition. We use approximately
8 to 10 million MMBtu’s of natural gas annually, depending upon business conditions, in the manufacture of our products.
These purchases of natural gas expose us to risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase
in the price of natural gas would result in increased annual energy costs of approximately $8 to $10 million. We use several
approaches to minimize any material adverse effect on our financial condition or results of operations from volatile energy
prices. These approaches include incorporating an energy surcharge on many of our products and using financial derivatives to
reduce exposure to energy price volatility.
At December 31, 2019, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included
natural gas hedges. At December 31, 2019, we hedged approximately 70% of our annual forecasted domestic requirements for
natural gas for 2020 and approximately 50% for 2021. The net mark-to-market valuation of the outstanding natural gas hedges
at December 31, 2019 was an unrealized pre-tax loss of $3.5 million, comprised of $2.5 million in other current liabilities and
$1.0 million in other long-term liabilities on the balance sheet. For the year ended December 31, 2019, the effects of natural
gas hedging activity increased cost of sales by $1.2 million.
Volatility of Raw Material Prices. We use raw materials surcharge and index mechanisms to offset the impact of increased raw
material costs; however, competitive factors in the marketplace can limit our ability to institute such mechanisms, and there can
be a delay between the increase in the price of raw materials and the realization of the benefit of such mechanisms. For
example, in 2019 we used approximately 105 million pounds of nickel; therefore a hypothetical change of $1.00 per pound in
nickel prices would result in increased costs of approximately $105 million. In addition, in 2019 we also used approximately
360 million pounds of ferrous scrap in the production of our flat-rolled products and a hypothetical change of $0.01 per pound
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would result in increased costs of approximately $3.6 million. While we enter into raw materials futures contracts from time-
to-time to hedge exposure to price fluctuations, such as for nickel, we cannot be certain that our hedge position adequately
reduces exposure. We believe that we have adequate controls to monitor these contracts, but we may not be able to accurately
assess exposure to price volatility in the markets for critical raw materials.
The majority of our products are sold utilizing raw material surcharges and index mechanisms. However as of December 31,
2019, we had entered into financial hedging arrangements, primarily at the request of our customers, related to firm orders, for
an aggregate amount of approximately 7 million pounds of nickel with hedge dates through 2023. The aggregate notional
amount hedged is approximately 7% of a single year’s estimated nickel raw material purchase requirements. Any gain or loss
associated with these hedging arrangements is included in cost of sales. At December 31, 2019, the net mark-to-market
valuation of our outstanding raw material hedges was an unrealized pre-tax gain of $3.1 million, comprised of $4.4 million in
prepaid expenses and other current assets, $1.2 million in other assets, and $2.5 million in other current liabilities on the
balance sheet.
Foreign Currency Risk. Foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to
changes in currency exchange rates. We sometimes purchase foreign currency forward contracts that permit us to sell specified
amounts of foreign currencies expected to be received from our export sales for pre-established U.S. dollar amounts at
specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated.
These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales
transactions which otherwise would expose the Company to foreign currency risk, primarily the euro. In addition, we may also
hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign
currency transactions. At December 31, 2019, we held euro forward purchase contracts for forecasted capital expenditures
designated as cash flow hedges with a notional value of approximately 2 million euro with maturity dates through May 2020.
In 2015, we entered into 244.7 million euro notional value of foreign currency forward contracts designated as fair value
hedges with maturity dates through 2017. The Company recorded $2.7 million of charges during the fiscal year ended
December 31, 2017 in costs of sales on the consolidated statement of operations for maturities and mark-to-market changes on
these fair value hedges. There were no outstanding fair value hedges as of December 31, 2019, 2018 and 2017.
We may also enter into foreign currency forward contracts that are not designated as hedges, which are denominated in the
same foreign currency in which export sales are denominated. We have no euro notional value outstanding as of December 31,
2019 of foreign currency forward contracts not designated as hedges.
At December 31, 2019, the net mark-to-market valuation of the outstanding foreign currency forward contracts was not
material.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Allegheny Technologies Incorporated and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Allegheny Technologies Incorporated and Subsidiaries (the
Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss),
cash flows, and statements of changes in consolidated equity for each of the three years in the period ended December 31,
2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
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Valuation of goodwill
Description of
the Matter
At December 31, 2019, the Company had $525.8 million of goodwill. As discussed in Note 1 to the
consolidated financial statements, goodwill is tested annually for impairment, or more frequently if
impairment indicators arise. The assessment of goodwill for impairment requires a comparison of the fair
value of each reporting unit that has goodwill associated with its operations to its carrying amount,
including goodwill. If the Company’s carrying amount of a reporting unit exceeds its fair value, an
impairment loss would be recognized in an amount equal to the excess of the carrying amount over the
calculated fair value.
Auditing the Company’s goodwill impairment test was complex and highly judgmental due to the
significant estimation required to determine the fair value of the reporting units. In particular, the fair
value estimate was sensitive to significant assumptions, such as future operating results, cash flows and
the weighted average cost of capital. These significant assumptions are forward looking and could be
materially affected by future market or economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s goodwill impairment testing process, including controls over management’s review of the
significant assumptions described above.
Our audit procedures to test the estimated fair value of the Company’s reporting units included, among
others, evaluating the reasonableness of management’s significant assumptions described above and used
within the fair value methods, involving our valuation specialists to assist in assessing fair valuation
methodologies utilized in the Company’s annual impairment test, and testing the completeness and
accuracy of the underlying data. For example, we evaluated the reasonableness of management’s
significant assumptions by analyzing the general economic environment and the economic environment of
the Company’s industry. We compared certain significant assumptions to existing market information and,
where relevant, to the plans of the Company, including management’s expectations with regard to the
Company’s business model, customer base, product mix and other relevant factors. We assessed the
historical accuracy of management’s projected cash flows, where applicable, and performed sensitivity
analyses of the significant assumptions to evaluate the changes in the fair value of the reporting units that
would result from changes in the assumptions. We involved our valuation specialists to assist in evaluating
the discount rate, which included comparison of the selected discount rate to the Company’s weighted
average cost of capital and the risk associated with projected cash flows. In addition, we tested
management’s reconciliation of the fair value of the reporting units to the market capitalization of the
Company and assessed the adequacy of the disclosures in the consolidated financial statements related to
the matter described above.
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Valuation allowances on deferred tax assets
Description of
the Matter
The Company is subject to various income tax laws in the jurisdictions in which it operates. Beginning in
2015, the Company’s results reflected a three-year cumulative loss from US operations, and valuation
allowances were established on its federal and state deferred tax assets. As described in Note 1 to the
consolidated financial statements, 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. In making such
determination, the Company considers 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. As further discussed in Note
17 to the consolidated financial statements, the Company exited the three-year cumulative loss condition
for US Federal and certain state jurisdictions at December 31, 2019. The Company considered the
reversals of taxable temporary differences and utilized projected financial results as a source of positive
evidence to evaluate the future realizability of deferred tax assets, which triggered the release of $45.1
million of deferred tax asset valuation allowances and recognition of an income tax benefit in the fourth
quarter of 2019. At December 31, 2019, the Company had total deferred tax assets of $537.9 million, net
of $94.5 million of valuation allowances for deferred tax assets.
Auditing the Company’s assertion that it was more likely than not that the deferred tax assets would be
realized and the related measurement of the valuation allowance was complex due to the highly
judgmental nature of the projections of future sources and the amounts of taxable income, which rely on
significant assumptions, such as future reversals of existing temporary differences, impact of tax planning
strategies, and future taxable income. Certain of these significant assumptions are forward looking and
could be materially affected by future market or economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s process to assess the realizability of the deferred tax assets and measurement of the
valuation allowances, including controls over management’s review of the significant assumptions
described above.
To test the realizability of the deferred tax assets and measurement of the valuation allowances, our audit
procedures included, among others, evaluating the methodologies used, the significant assumptions for
each type of evidence discussed above, and testing the completeness and accuracy of the underlying data
used by the Company in its analysis. For example, as part of our evaluation of management’s significant
assumptions, we considered the relevant tax laws and regulations in the various jurisdictions, including
considering whether the estimated future sources of taxable income were of the appropriate character to
utilize the deferred tax assets. We evaluated the cumulative income or loss positions of the Company’s
various jurisdictions, assessed management’s model of estimated future reversals of existing temporary
differences and evaluated the Company’s forecasts of future profits for the purposes of assessing the
reasonableness of the Company’s estimated future taxable income. We inspected historical taxable income
in prior carryback periods and evaluated the projections of future taxable income by analyzing the general
economic environment and the economic environment of the Company’s industry. We compared certain
assumptions to existing market information and, where relevant, to the plans of the Company, including
management’s expectations with regard to the Company’s business model, customer base, product mix
and other relevant factors. We also assessed the accuracy of management’s historical projections,
compared the estimate of future taxable income with other forecasted financial information prepared by
the Company and performed sensitivity analyses of the significant assumptions to evaluate the changes in
realizability of deferred tax assets that would result from changes in the assumptions. In addition, we
evaluated the Company’s income tax disclosures related to the matters described above.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1996.
Pittsburgh, Pennsylvania
February 25, 2020
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
For the Years Ended December 31,
Sales
Cost of sales
Gross profit
Selling and administrative expenses
Impairment of goodwill
Restructuring charges
Operating income
Nonoperating retirement benefit expense
Interest expense, net
Debt extinguishment charge
Other income, net
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to ATI
Basic net income (loss) attributable to ATI per common share
Diluted net income (loss) attributable to ATI per common share
The accompanying notes are an integral part of these statements.
$
$
$
2019
2018
2017
$
4,122.5
$
4,046.6
$
3,525.1
3,484.7
637.8
267.2
—
4.5
366.1
(73.6)
(99.0)
(21.6)
69.7
241.6
(28.5)
270.1
12.5
257.6
2.05
1.85
$
$
$
3,416.3
630.3
268.2
—
—
362.1
(33.9)
(101.0)
—
20.5
247.7
11.0
236.7
14.3
222.4
1.78
1.61
$
$
$
3,028.1
497.0
248.0
114.4
—
134.6
(54.3)
(133.8)
(37.0)
4.0
(86.5)
(6.8)
(79.7)
12.2
(91.9)
(0.83)
(0.83)
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
For the Years Ended December 31,
Net income (loss)
Currency translation adjustment
Unrealized net change arising during the period
Derivatives
Net derivatives gain (loss) on hedge transactions
Reclassification to net income (loss) of net realized loss gain
Income taxes on derivative transactions
Total
Postretirement benefit plans
Actuarial loss
Amortization of net actuarial loss
Net loss arising during the period
Prior service cost
Amortization to net income (loss) of net prior service credits
Income taxes on postretirement benefit plans
Total
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to ATI
The accompanying notes are an integral part of these statements.
2019
2018
2017
$
270.1
$
236.7
$
(79.7)
(4.0)
9.7
(4.1)
(4.7)
10.3
87.2
(180.5)
(2.6)
(20.4)
(75.5)
(69.2)
200.9
11.2
(26.6)
(6.4)
(11.7)
—
(18.1)
76.5
(141.4)
(2.6)
—
(67.5)
(112.2)
124.5
8.1
$
189.7
$
116.4
$
39.1
14.3
(7.2)
—
7.1
71.6
(42.7)
(1.6)
—
27.3
73.5
(6.2)
19.8
(26.0)
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(In millions, except share and per share amounts)
Assets
Cash and cash equivalents
Accounts receivable, net
Shot-term contract assets
Inventories, net
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment, net
Goodwill
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Accounts payable
Short-term contract liabilities
Short-term debt and current portion of long-term debt
Other current liabilities
Total Current Liabilities
Long-term debt
Accrued postretirement benefits
Pension liabilities
Other long-term liabilities
Total Liabilities
Equity:
ATI Stockholders’ Equity:
December 31,
2019
December 31,
2018
$
490.8
$
554.1
38.5
1,155.3
64.3
2,303.0
2,450.1
525.8
355.7
382.0
527.8
51.2
1,211.1
74.6
2,246.7
2,475.0
534.7
245.4
$
$
5,634.6
$
5,501.8
521.2
$
78.7
11.5
237.8
849.2
498.8
71.4
6.6
260.1
836.9
1,387.4
1,535.5
312.5
731.5
160.8
318.4
730.0
89.4
3,441.4
3,510.2
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-
126,695,171 shares at December 31, 2019 and 2018; outstanding-126,085,348
shares at December 31, 2019 and 125,684,396 shares at December 31, 2018
Additional paid-in capital
Retained earnings
Treasury stock: 609,823 shares at December 31, 2019 and 1,010,775 shares at
December 31, 2018
Accumulated other comprehensive loss, net of tax
Total ATI Stockholders’ Equity
Noncontrolling Interests
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
The accompanying notes are an integral part of these statements.
12.7
1,618.0
1,679.3
(18.2)
(1,201.7)
2,090.1
103.1
2,193.2
$
5,634.6
$
12.7
1,615.4
1,422.0
(30.6)
(1,133.8)
1,885.7
105.9
1,991.6
5,501.8
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
For the Years Ended December 31,
Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
2019
2018
2017
$
270.1
$
236.7
$
(79.7)
Depreciation and amortization
Deferred taxes
Gain on joint venture deconsolidation
Impairment of goodwill
Debt extinguishment charge
Gain from disposal of property, plant and equipment, net
Net loss from sales of businesses
Non-cash joint venture impairment charge
Change in operating assets and liabilities:
Retirement benefits
Accounts receivable
Inventories
Accounts payable
Accrued income taxes
Accrued liabilities and other
Cash provided by operating activities
Investing Activities:
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchases of businesses
Proceeds from sales of businesses, net of transaction costs
Other
Cash provided by (used in) investing activities
Financing Activities:
Borrowings on long-term debt
Payments on long-term debt and finance leases
Net borrowings (payments) under credit facilities
Debt issuance costs
Debt extinguishment charge
Issuance of common stock
Dividends paid to noncontrolling interests
Sale to noncontrolling interest
Shares repurchased for income tax withholding on share-based compensation
Cash (used in) provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
151.1
(40.9)
—
—
21.6
(90.6)
1.8
11.4
(103.3)
(52.1)
25.4
30.1
4.9
0.6
230.1
(168.2)
92.0
—
158.1
(0.2)
81.7
350.0
(507.6)
4.9
(5.5)
(20.9)
—
(14.0)
—
(9.9)
(203.0)
108.8
382.0
490.8
$
156.4
2.1
(15.9)
—
—
(1.2)
—
—
(32.6)
16.0
(108.5)
153.7
1.4
(15.3)
392.8
(139.2)
2.8
(10.0)
—
1.3
(145.1)
7.1
(6.4)
(5.9)
—
—
—
(10.0)
14.4
(6.5)
(7.3)
240.4
141.6
382.0
$
160.8
(1.4)
—
114.4
37.0
(0.5)
—
—
(110.3)
(93.2)
(139.2)
125.8
(1.9)
10.6
22.4
(122.7)
2.7
—
—
0.4
(119.6)
8.5
(353.0)
1.6
(0.8)
(35.8)
397.8
(8.0)
3.7
(4.8)
9.2
(88.0)
229.6
141.6
Amounts presented on the Consolidated Statements of Cash Flows may not agree to the corresponding changes in consolidated
balance sheet items due to the accounting for purchases and sales of businesses and the effects of foreign currency translation.
The accompanying notes are an integral part of these statements.
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Allegheny Technologies Incorporated and Subsidiaries
Statements of Changes in Consolidated Equity
(In millions, except per share amounts)
Balance, December 31, 2016
Net income (loss)
Other comprehensive income
Issuance of common stock
Dividends paid to noncontrolling
interest
Sales of subsidiary shares to
noncontrolling interest
Employee stock plans
Balance, December 31, 2017
Net income
Other comprehensive loss
Cumulative effect of adoption of new
accounting standard
Dividends paid to noncontrolling
interest
Sale of subsidiary shares to
noncontrolling interest
Employee stock plans
Balance, December 31, 2018
Net income
Other comprehensive loss
Dividends paid to noncontrolling
interest
Employee stock plans
Balance, December 31, 2019
ATI Stockholders
Additional
Paid-In
Capital
$ 1,188.8
—
—
396.1
Retained
Earnings
$ 1,277.1
(91.9)
—
—
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interests
Treasury
Stock
$
(28.0) $
—
—
—
(1,093.7) $
—
65.9
—
89.6
12.2
7.6
—
Total
Equity
$ 1,444.8
(79.7)
73.5
397.8
—
—
—
—
(8.0)
(8.0)
—
11.4
$ 1,596.3
—
—
—
(0.9)
$ 1,184.3
222.4
—
—
—
15.5
—
—
19.1
$ 1,615.4
—
—
—
(0.2)
$ 1,422.0
257.6
—
—
2.6
$ 1,618.0
—
(0.3)
$ 1,679.3
$
$
$
—
1.9
(26.1) $
—
—
—
—
(1,027.8) $
—
(106.0)
3.7
—
105.1
14.3
(6.2)
3.7
12.4
$ 1,844.5
236.7
(112.2)
—
—
—
(4.5)
(30.6) $
—
—
—
12.4
(18.2) $
—
—
—
15.5
(10.0)
(10.0)
—
—
(1,133.8) $
—
(67.9)
2.7
—
105.9
12.5
(1.3)
2.7
14.4
$ 1,991.6
270.1
(69.2)
—
—
(1,201.7) $
(14.0)
—
103.1
(14.0)
14.7
$ 2,193.2
Common
Stock
$
$
$
$
11.0
—
—
1.7
—
—
—
12.7
—
—
—
—
—
—
12.7
—
—
—
—
12.7
The accompanying notes are an integral part of these statements.
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Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries. 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 statement 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, whereby ATI’s carrying value of the equity method
investment on the statement of financial position is the capital investment and any undistributed profit or loss, and is classified
in Other (noncurrent) assets. The profit or loss attributable to ATI from equity method investments is included in the
consolidated statements of operations as a component of Other (non-operating) income (expense). See Note 7 for further
explanation of the Company’s joint ventures. Intercompany accounts and transactions have been eliminated. Unless the
context requires otherwise, “Allegheny Technologies,” “ATI” and the “Company” refer to Allegheny Technologies
Incorporated and its subsidiaries.
Risks and Uncertainties and Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results could
differ from those estimates. Management believes that the estimates are reasonable. Certain prior year amounts have been
reclassified in order to conform with the 2019 presentation.
The Company markets its products to a diverse customer base, principally throughout the United States. No single customer
accounted for more than 10% of sales for any year presented. The major end markets for the ATI’s products are customers in
the aerospace & defense, oil & gas, energy, automotive, construction and mining, food equipment and appliances, and medical
markets.
At December 31, 2019, ATI has approximately 8,100 full-time employees, of which approximately 17% are located outside the
United States. Approximately 40% of ATI’s workforce is covered by various collective bargaining agreements (CBAs),
predominantly with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers
International Union, AFL-CIO, CLC (USW). The Company is currently involved in negotiation on its next significant CBA
with approximately 1,500 full-time employees that expire on February 29, 2020 involving USW-represented employees located
primarily within the Flat Rolled Products segment operations and at two facilities in the High Performance Materials &
Components segment.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments that are readily convertible to cash with original maturities of three months or
less.
Accounts Receivable
Accounts receivable are presented net of a reserve for doubtful accounts of $4.6 million and $6.0 million at December 31, 2019
and 2018, respectively. Trade credit is extended based upon evaluations of each customer’s ability to perform its obligations,
which are updated periodically. Accounts receivable reserves are determined based upon an aging of accounts and a review for
collectability of specific accounts. Amounts are written-off against the reserve in the period it is determined that the receivable
is uncollectible.
Inventories
Inventories are stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out (FIFO), and average cost methods) or
market. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct
costs. Most of the Company’s inventory is valued utilizing the LIFO costing methodology. Inventory of the Company’s non-
U.S. operations is valued using average cost or FIFO methods.
The Company evaluates product lines on a quarterly basis to identify inventory carrying values that exceed estimated net
realizable value. In applying the lower of cost or market principle, market means current replacement cost, subject to a ceiling
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(market value shall not exceed net realizable value) and a floor (market shall not be less than net realizable value reduced by an
allowance for a normal profit margin). The calculation of a resulting reserve, if any, is recognized as an expense in the period
that the need for the reserve is identified. However, in cases where inventory at FIFO cost is lower than the LIFO carrying
value, a write-down of the inventory to market may be required, subject to the ceiling and floor. It is the Company’s general
policy to write-down to scrap value any inventory that is identified as slow-moving or aged more than twelve months, subject
to sales, backlog and anticipated orders considerations. In some instances this aging criterion is up to twenty-four months.
Inventory valuation reserves also include amounts pertaining to intercompany profit elimination between different subsidiaries.
Long-Lived Assets
Property, plant and equipment are recorded at cost, including capitalized interest, and include long-lived assets acquired under
finance leases. Depreciation is primarily recorded using the straight-line method. Property, plant and equipment associated
with the Hot-Rolling and Processing Facility (HRPF) in the Flat Rolled Products segment is being depreciated utilizing the
units of production method of depreciation, which the Company believes provides a better matching of costs and revenues.
The Company periodically reviews estimates of useful life and production capacity assigned to new and in service assets.
Significant enhancements, including major maintenance activities that extend the lives of property and equipment, are
capitalized. Costs related to repairs and maintenance are charged to expense in the period incurred. The cost and related
accumulated depreciation of property and equipment retired or disposed of are removed from the accounts and any related
gains or losses are included in income.
The Company monitors the recoverability of the carrying value of its long-lived assets. An impairment charge is recognized
when an indicator of impairment occurs and 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. Assets
to be disposed of by sale are stated at the lower of their fair values or carrying amounts and depreciation is no longer
recognized.
Leases
On January 1, 2019 the Company adopted Accounting Standards Codification Topic 842 (ASC 842), Leases. This new
guidance requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the
recognition of a right of use (ROU) asset and a lease liability. The lease liability is equal to the present value of the minimum
lease payments for the term of the lease, including any optional renewal periods determined to be reasonably certain to be
exercised, using the discount rate determined at lease commencement. This discount rate is the rate implicit in the lease, if
known; otherwise, the incremental borrowing rate (IBR) for the expected lease term is used. The Company’s IBRs
approximate the rate the Company would have to pay to borrow on a collateralized basis over a similar term at lease inception.
The ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before
the commencement date and any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives
received.
The Company has lease contracts for real property and machinery and equipment, primarily for mobile, office and information
technology equipment. At inception of a contract, the Company determines whether the contract is or contains a lease. If the
Company has a right to obtain substantially all of the economic benefits from the use of the identified asset and the right to
direct the use of the asset, then the contract contains a lease. Several of the Company’s real property lease contracts include
options to extend the lease term, and the Company reassesses the likelihood of renewal on at least an annual basis. In addition,
several real property leases include variable lease payments, for items such as common area maintenance and utilities, which
are expensed as incurred as variable lease expense.
There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement.
The criteria used for a lease to be classified as a finance lease is generally consistent with the criteria under the previous lease
accounting guidance, ASC 840, for capital leases. All other leases not meeting the finance lease criteria are classified as
operating leases. Operating lease expense is recognized on a straight-line basis on the consolidated statement of income.
Finance leases have front-loaded expense recognition which is reported as amortization expense and interest expense on the
consolidated statement of income. ROU assets for operating leases are classified in other long-term assets, and ROU assets for
finance leases are classified in property, plant and equipment on the consolidated balance sheet. For operating leases, short-
term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other long-term
liabilities on the consolidated balance sheet. For finance leases, short-term lease liabilities are classified in short-term debt, and
long-term lease liabilities are classified in long-term debt on the consolidated balance sheet. On the cash flow statement,
payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing
activity, with the exception of the interest component of the payment which is classified as an operating activity.
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Goodwill
Goodwill is reviewed annually for impairment, or more frequently if impairment indicators arise. The review for goodwill
impairment requires a comparison of the fair value of each reporting unit that has goodwill associated with its operations with
its carrying amount, including goodwill. If this comparison reflects impairment, then the loss would be measured as the excess
of the carrying value over the calculated fair value.
Generally accepted accounting standards provide the option to qualitatively assess goodwill for impairment before completing
a quantitative assessment. Under the qualitative approach, if, after assessing the totality of events or circumstances, including
both macroeconomic, industry and market factors, and entity-specific factors, the Company determines it is likely (more likely
than not) that the fair value of a reporting unit is greater than its carrying amount, then the quantitative impairment analysis is
not required. The quantitative assessment may be performed each year for a reporting unit at the Company’s option without
first performing a qualitative assessment. The Company’s quantitative assessment of goodwill for possible impairment
includes estimating the fair market value of a reporting unit which has goodwill associated with its operations using discounted
cash flow and multiples of cash earnings valuation techniques, plus valuation comparisons to recent public sale transactions of
similar businesses, if any. These impairment assessments and valuation methods require the Company to make estimates and
assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices,
profitability, and the cost of capital. Many of these assumptions are determined by reference to market participants identified
by the Company. Although management believes that the estimates and assumptions used were reasonable, actual results could
differ from those estimates and assumptions.
Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement
dates. While a decline in stock price and market capitalization is not specifically cited as a goodwill impairment indicator, a
company’s stock price and market capitalization should be considered in determining whether it is more likely than not that the
fair value of a reporting unit is less that its carrying value. Additionally, a significant decline in a company’s stock price may
suggest that an adverse change in the business climate may have caused the fair value of one or more reporting units to fall
below carrying value. A sustained decline in market capitalization below book value may be determined to require an interim
goodwill impairment review.
Environmental
Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve the safety
or efficiency of property utilized in current operations are capitalized. Other costs that relate to current operations or an
existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company’s liability
is probable and the costs are reasonably estimable, but generally not later than the completion of the feasibility study or the
Company’s recommendation of a remedy or commitment to an appropriate plan of action. The accruals are reviewed
periodically and, as investigations and remediations proceed, adjustments of the accruals are made to reflect new information as
appropriate. Accruals for losses from environmental remediation obligations do not take into account the effects of inflation,
and anticipated expenditures are not discounted to their present value. The accruals are not reduced by possible recoveries
from insurance carriers or other third parties, but do reflect allocations among potentially responsible parties (PRPs) at Federal
Superfund sites or similar state-managed sites after an assessment is made of the likelihood that such parties will fulfill their
obligations at such sites and after appropriate cost-sharing or other agreements are entered. The measurement of environmental
liabilities by the Company is based on currently available facts, present laws and regulations, and current technology. Such
estimates take into consideration the Company’s prior experience in site investigation and remediation, the data concerning
cleanup costs available from other companies and regulatory authorities, and the professional judgment of the Company’s
environmental experts in consultation with outside environmental specialists, when necessary.
Foreign Currency Translation
Assets and liabilities of international operations are translated into U.S. dollars using year-end exchange rates, while revenues
and expenses are translated at average exchange rates during the period. The resulting net translation adjustments are recorded
as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
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Sales Recognition
The following is the Company’s accounting policy as it relates to Accounting Standards Codification Topic 606 (ASC 606),
Revenue from Customers. This guidance provides a five-step analysis of transactions to determine when and how revenue is
recognized, and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The following is the Company’s accounting policy as it relates to the five-step analysis for revenue recognition:
1.
2.
Identify the contract: The Company has determined that the contract with the customer is established when the
customer purchase order is accepted or acknowledged. Long-term agreements (LTAs), which typically extend
multiple years, are used by the Company and certain of its customers for its specialty materials, in the form of mill
products, powders, parts and components, to reduce their supply uncertainty. While these LTAs generally define
commercial terms including pricing, termination clauses and other contractual requirements, they do not represent the
contract with the customer.
Identify the performance obligation in the contract: When the Company accepts or acknowledges the customer
purchase order, the type of good or service is defined on a line by line basis. Individual performance obligations are
established by virtue of the individual line items identified on the sales order acknowledgment at the time of issuance.
Generally, the Company’s revenue relates to the sale of goods and contains a single performance obligation for each
distinct good. Conversion services that transform customer-owned inventory to a different dimension, product form,
and/or changed mechanical properties are classified as “goods”.
3. Determine the transaction price: Pricing is also defined on a sales order acknowledgment on a line item basis and
includes an estimate of variable consideration when required by the terms of the individual customer contract.
Variable consideration is when the selling price of the good is not known or is subject to adjustment under certain
conditions. Types of variable consideration may include volume discounts, customer rebates and surcharges. ATI also
provides assurances that goods or services will meet the product specifications contained within the acknowledged
customer contract. As such, returns and refunds reserves are estimated based upon past product line history or, at
certain locations, on a claim by claim basis.
4. Allocate the transaction price to the performance obligation: Since a customer contract generally contains only one
performance obligation, this step of the analysis is generally not applicable to the Company.
5. Recognize revenue when or as the performance obligation is satisfied: Performance obligations generally occur at a
point in time and are satisfied when control passes to the customer. For most transactions, control passes at the time of
shipment in accordance with agreed upon delivery terms. On occasion, shipping and handling charges occur after the
customer obtains control of the good. When this occurs, the shipping and handling services are considered activities
to fulfill the promise to transfer the good. This approach is consistent with our revenue recognition approach in prior
years.
Certain customer agreements involving production of parts and components in the High Performance Materials and
Components segment require revenue to be recognized over time due to there being no alternative use for the product
without significant economic loss and an enforceable right to payment including a normal profit margin from the
customer in the event of contract termination. The Company uses an input method for determining the amount of
revenue, and associated standard cost, to recognize over-time revenue, cost and gross margin for these customer
agreements. The input methods used for these agreements include costs incurred and labor hours expended, both of
which give an accurate representation of the progress made toward complete satisfaction of that particular
performance obligation.
Contract assets are recognized when ATI’s conditional right to consideration for goods or services have transferred to the
customer. A conditional right indicates that additional performance obligations associated with the contract are yet to be
satisfied. Contract assets are assessed separately for impairment purposes. If ATI’s right to consideration from the customer is
unconditional, this asset is accounted for as a receivable and presented separately from other contract assets. A right is
unconditional if nothing other than the passage of time is required before payment of that consideration is due. Performance
obligations that are recognized as revenue at a point-in-time and are billed to the customer are recognized as accounts
receivable. Payment terms vary from customer to customer depending upon credit worthiness, prior payment history and other
credit considerations.
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Contract costs are the incremental costs of obtaining and fulfilling a contract (i.e., costs that would not have been incurred if the
contract had not been obtained) to provide goods and services to customers. Contract costs for ATI largely consist of design
and development costs for molds, dies and other tools that ATI will own and that will be used in producing the products under
the supply arrangement. Contract costs are classified as non-current assets and amortized to expense on a systematic and
rational basis over a period consistent with the transfer to the customer of the goods or services to which the asset relates.
Contract liabilities are recognized when ATI has received consideration from a customer to transfer goods or services at a future
point in time when the Company performs under the contract. Elements of variable consideration discussed above may be
recorded as contract liabilities. In addition, progress billings and advance payments from customers for costs incurred to date
are also reported as contract liabilities.
Research and Development
Our research, development and technical service activities are closely interrelated and are directed toward development of new
products, improvement of existing products, cost reduction, process improvement and control, quality assurance and control,
development of new manufacturing methods, and improvement of existing manufacturing methods. Research and development
costs are expensed as incurred. Company funded research and development costs were $17.8 million in 2019, $22.7 million in
2018, and $13.3 million in 2017. Customer funded research and development costs were $2.4 million in 2019, $2.2 million in
2018, and $1.4 million in 2017.
Stock-based Compensation
The Company accounts for stock-based compensation transactions, such as nonvested restricted stock or stock units and
performance equity awards, using fair value. Compensation expense for an award is estimated at the date of grant and is
recognized over the requisite service period. Compensation expense is adjusted for equity awards that do not vest because
service or performance conditions are not satisfied. However, compensation expense already recognized on plans which vest
based solely on the attainment of market conditions, such as total shareholder return measures, is not adjusted based on the
award attainment status at the end of the measurement period. Compensation expense is adjusted for estimated forfeitures over
the award measurement period.
Income Taxes
The provision for, or benefit from, 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.
The Company evaluates on a quarterly basis whether, based on all available evidence, it is probable that the deferred income
tax assets are realizable. 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. 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. The verifiable evidence such as future reversals of existing temporary
differences and the ability to carryback are considered before the subjective sources such as estimate future taxable income
exclusive of temporary differences and tax planning strategies.
It is the Company’s policy to classify interest and penalties recognized on underpayment of income taxes as income tax
expense. It is also the Company’s policy to recognize deferred tax amounts stranded in accumulated other comprehensive
income (AOCI), which result from tax rate differences on changes in AOCI balances, as an element of income tax expense in
the period that the related balance sheet item associated with the AOCI balance ceases to exist. In the case of derivative
financial instruments accounted for as hedges, or marketable securities, ATI uses the portfolio method where the stranded
deferred tax amount is recognized when all items of a particular category, such as cash flow hedges of a particular risk such as a
foreign currency hedge, are settled. In the case of defined benefit pension and other postretirement benefit plans, the stranded
deferred tax balance is recognized as an element of income tax expense in the period the benefit plan is extinguished.
Net Income Per Common Share
Basic and diluted net income per share are calculated by dividing the net income available to common stockholders by the
weighted average number of common shares outstanding during the year. Diluted amounts assume the issuance of common
stock for all potentially dilutive share equivalents outstanding. The calculations of all diluted income/loss per share figures for
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a period exclude the potentially dilutive effect of dilutive share equivalents if there is a net loss since the inclusion in the
calculation of additional shares in the net loss per share would result in a lower per share loss and therefore be anti-dilutive.
New Accounting Pronouncements Adopted
In January 2019, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) related to leases.
See Note 11 for further explanation related to this adoption, including all newly expanded disclosure requirements.
Pending Accounting Pronouncements
In August 2018, the FASB issued new disclosure guidance on fair value measurement. This new guidance modifies the
disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well
as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be
applied prospectively while others retrospectively depending on requirement. This guidance is required to be adopted by the
Company beginning in fiscal year 2020, with early adoption permitted. The Company did not early adopt this guidance. The
adoption of these changes is not expected to have an impact on the Company’s consolidated financial statements other than
disclosures.
In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is
based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate
of expected credit losses. The CECL model applies to trade receivables, other receivables, contract assets and most debt
instruments. The CECL model does not have a minimum threshold for recognition of impairment losses, and entities will need
to measure expected credit losses on assets that have a low risk of loss. This guidance was adopted by the Company in fiscal
year 2020 without significant impact to the consolidated financial statements.
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The areas for simplification in
the guidance involve the removal of certain exceptions to the general principals in the current guidance, including intraperiod
allocation and the calculation of income taxes in an interim period when a year to date loss exceeds the anticipated loss for the
year. The new guidance also simplifies the accounting for income taxes in the area of franchise taxes. This new guidance is
effective for the Company in fiscal year 2021, with early adoption permitted. This guidance was early adopted by the
Company in fiscal year 2020 without significant impact to the consolidated financial statements.
Note 2. Revenue from Contracts with Customers
Adoption Method and Impact
On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers. The Company applied ASC
606 to all contracts not completed at January 1, 2018 and adopted the accounting standard using the modified retrospective
method, with the cumulative effect of initially applying ASC 606 recognized at the beginning of the 2018 fiscal year.
Comparative information has not been adjusted and continues to be reported under the previous accounting guidance. The
Company recognized a $15.5 million increase to retained earnings at the beginning of the 2018 fiscal year for the cumulative
effect of adoption of this standard, representing the favorable impact to prior results had the over-time revenue recognition
requirements under ASC 606 been applied to several customer agreements.
In addition, as a result of this over-time recognition of these customer agreements, fiscal year 2018 sales on the consolidated
statement of operations were lower by $4.3 million and cost of sales were lower by $5.4 million as compared to what those
amounts would have been under the previous revenue recognition guidance. On the consolidated balance sheet, inventories,
net, were $5.4 million higher at December 31, 2018 as compared to what this amount would have been under the previous
guidance. Also, $45.3 million of contract assets were recognized on the consolidated balance sheet at December 31, 2018
($45.2 million in short-term contract assets and $0.1 million in other long-term assets) related to this over-time revenue
recognition. There was no impact to cash flow from operating activities on the consolidated statement of cash flows as a result
of this accounting standard adoption.
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Disaggregation of Revenue
The Company operates in two business segments; High Performance Materials & Components (HPMC) and Flat Rolled
Products (FRP). Revenue is disaggregated within these two business segments by diversified global markets, primary
geographical markets, and diversified products. Comparative information of the Company’s overall revenues (in millions) by
global and geographical markets for the fiscal years ended December 31, 2019, 2018 and 2017 were as follows:
(in millions)
HPMC
2019
FRP
Total
HPMC
2018
FRP
Total
HPMC
2017
FRP
Total
Diversified Global Markets:
Aerospace & Defense
Oil & Gas
Automotive
Energy
Food Equipment &
Appliances
Construction/Mining
Medical
Electronics/Computers/
Communications
Other
Total
$1,879.1 $ 251.3 $2,130.4
510.6
296.6
286.3
64.3
10.5
156.9
446.3
286.1
129.4
$1,771.3 $ 194.2 $1,965.5
546.2
323.4
234.5
74.9
9.5
131.4
471.3
313.9
103.1
$1,568.9 $ 149.2 $1,718.1
418.2
273.7
192.2
354.3
264.9
79.1
63.9
8.8
113.1
0.3
42.5
159.2
205.5
152.5
13.2
205.8
195.0
172.4
0.4
72.8
168.5
244.5
153.2
14.6
244.9
226.0
183.1
1.1
51.1
170.4
224.9
141.8
12.6
226.0
192.9
183.0
5.8
79.5
163.2
162.2
$2,398.1 $1,724.4 $4,122.5
157.4
82.7
7.9
97.5
156.9
166.1
$2,334.2 $ 1,712.4 $4,046.6
149.0
68.6
4.4
85.7
151.6
169.4
$2,067.4 $1,457.7 $3,525.1
147.2
83.7
(in millions)
HPMC
2019
FRP
Total
HPMC
2018
FRP
Total
HPMC
2017
FRP
Total
Primary Geographical Market:
United States
China
Germany
United Kingdom
France
Japan
Rest of World
Total
$1,319.7 $1,134.9 $2,454.6
355.6
219.3
173.8
155.5
147.7
616.0
$2,398.1 $1,724.4 $4,122.5
252.6
41.1
8.9
9.7
43.3
233.9
103.0
178.2
164.9
145.8
104.4
382.1
$1,214.1 $1,134.0 $2,348.1
320.0
247.2
242.1
183.6
214.9
490.7
$2,334.2 $1,712.4 $4,046.6
236.9
54.5
9.7
10.9
78.4
188.0
83.1
192.7
232.4
172.7
136.5
302.7
$1,096.5 $ 974.1 $2,070.6
265.6
217.1
231.6
165.6
131.7
442.9
$2,067.4 $1,457.7 $3,525.1
214.5
46.6
10.7
7.8
36.5
167.5
51.1
170.5
220.9
157.8
95.2
275.4
Comparative information of the Company’s major high-value and standard products based on their percentages of sales is
included in the following table. FRP conversion services are excluded from this presentation.
HPMC
2019
FRP
Total
HPMC
2018
FRP
Total
HPMC
2017
FRP
Total
Diversified Products:
High-Value Products
Nickel-based alloys and
specialty alloys
Precision forgings, castings
and components
Titanium and titanium-based
alloys
Precision and engineered strip
Zirconium and related alloys
Total High-Value Products
Standard Products
Standard stainless products
Total
32 %
32 %
32 %
31 %
28 %
30 %
31 %
24 %
28 %
30 %
— %
18 %
34 %
— %
20 %
32 %
— %
19 %
28 %
— %
10 %
100 %
6 %
32 %
— %
70 %
18 %
13 %
6 %
87 %
25 %
— %
10 %
100 %
5 %
33 %
— %
66 %
17 %
14 %
5 %
86 %
26 %
— %
11 %
100 %
5 %
34 %
— %
63 %
17 %
14 %
6 %
84 %
30 %
13 %
— %
100% 100% 100%
— %
14 %
34 %
100% 100% 100%
— %
16 %
37 %
100% 100% 100%
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The Company maintains a backlog of confirmed orders totaling $2.3 billion, $2.2 billion and $2.1 billion at December 31,
2019, 2018 and 2017, respectively. Due to the structure of the Company’s LTAs, 81% of this backlog at December 31, 2019
represented booked orders with performance obligations that will be satisfied within the next twelve months. The backlog does
not reflect any elements of variable consideration.
Accounts Receivable
As of December 31, 2019 and 2018, accounts receivable with customers were $558.7 million and $533.8 million, respectively.
The following represents the rollforward of accounts receivable - reserve for doubtful accounts for the fiscal years ended
December 31, 2019, 2018 and 2017:
(in millions)
Accounts Receivable - Reserve for Doubtful Accounts
Balance as of December 31, 2016
Expense to increase the reserve
Write-off of uncollectible accounts
Balance as of December 31, 2017
Expense to increase the reserve
Write-off of uncollectible accounts
Balance as of December 31, 2018
Expense to increase the reserve
Write-off of uncollectible accounts
Balance as of December 31, 2019
Contract balances
$
$
7.3
0.1
(1.5)
5.9
1.9
(1.8)
6.0
0.2
(1.6)
4.6
The following represents the rollforward of contract assets and liabilities for the fiscal years ended December 31, 2019 and
2018:
(in millions)
Contract Assets
Short-term
Balance as of beginning of fiscal year
Recognized in current year
Reclassified to accounts receivable
Impairment
Reclassification to/from long-term
Divestiture
Other
Balance as of period end
Long-term
Balance as of beginning of fiscal year
Recognized in current year
Reclassified to accounts receivable
Impairment
Reclassification to/from short-term
Balance as of period end
2019
2018
51.2 $
74.5
(79.9)
—
—
(7.3)
—
38.5 $
2019
2018
0.1 $
—
—
—
—
0.1 $
36.5
92.9
(95.8)
—
16.8
—
0.8
51.2
16.9
—
—
—
(16.8)
0.1
$
$
$
$
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(in millions)
Contract Liabilities
Short-term
Balance as of beginning of fiscal year
Recognized in current year
Amounts in beginning balance reclassified to revenue
Current year amounts reclassified to revenue
Other
Reclassification to/from long-term
Balance as of period end
Long-term
Balance as of beginning of fiscal year
Recognized in current year
Amounts in beginning balance reclassified to revenue
Current year amounts reclassified to revenue
Other
Reclassification to/from short-term
Balance as of period end
2019
2018
71.4 $
126.1
(49.2)
(76.0)
1.9
4.5
78.7 $
2019
2018
7.3 $
24.2
(1.1)
—
—
(4.5)
25.9 $
69.7
76.7
(49.6)
(42.7)
2.7
14.6
71.4
22.2
0.7
(1.0)
—
—
(14.6)
7.3
$
$
$
$
Contract costs for obtaining and fulfilling a contract were $6.5 million and $5.2 million as of December 31, 2019 and 2018,
respectively, which are reported in other long-term assets on the consolidated balance sheet. Amortization expense for the
fiscal years ended December 31, 2019 and 2018 of these contract costs was $1.4 million and $1.2 million, respectively.
Note 3. Inventories
Inventories at December 31, 2019 and 2018 were as follows (in millions):
Raw materials and supplies
Work-in-process
Finished goods
Total inventories at current cost
Adjustment from current cost to LIFO cost basis
Inventory valuation reserves
Total inventories, net
2019
2018
$
$
164.9
899.6
161.3
1,225.8
33.6
(104.1)
1,155.3
$
$
191.5
914.1
191.1
1,296.7
2.9
(88.5)
1,211.1
Inventories determined on the LIFO method were $776.1 million at December 31, 2019, and $794.3 million at December 31,
2018. The remainder of the inventory was determined using the FIFO and average cost methods, and these inventory values do
not differ materially from current cost. Due to deflationary impacts primarily related to raw materials, the carrying value of the
Company’s inventory as valued on LIFO exceeds current replacement cost, and based on a lower of cost or market value
analysis, the Company maintains net realizable value (NRV) inventory valuation reserves to adjust carrying value of LIFO
inventory to current replacement cost. These NRV reserves were $33.6 million and $8.0 million at December 31, 2019 and
2018, respectively. In applying the lower of cost or market principle, market means current replacement cost, subject to a
ceiling (market value shall not exceed net realizable value) and a floor (market shall not exceed net realizable value reduced by
an allowance for a normal profit margin).
Impacts to cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as follows
(in millions):
LIFO benefit (charge)
NRV benefit (charge)
Net cost of sales impact
Fiscal year ended December 31,
2019
2018
2017
$
$
25.5 $
(25.6)
(0.1) $
(28.6) $
27.9
(0.7) $
(54.2)
54.0
(0.2)
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During 2019 and 2017, inventory usage resulted in liquidations of LIFO inventory quantities, increasing cost of sales by $1.8
million and $4.6 million, respectively. During 2018, inventory usage resulted in liquidations of LIFO inventory quantities,
decreasing cost of sales by $0.8 million. These inventories were carried at differing costs prevailing in prior years as compared
with the cost of current manufacturing cost and purchases.
The results for fiscal year 2017 included $17.7 million in inventory valuation charges related to the market-based valuation of
titanium products.
ATI’s overall LIFO inventory valuation reserves also increased above replacement cost by $5.2 million at December 31, 2019
compared to December 31, 2018 due to the second quarter 2019 sale of the industrial forgings business, which used the LIFO
costing methodology and maintained a LIFO valuation below current replacement cost.
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31, 2019 and 2018 was as follows:
(In millions)
Land
Buildings
Equipment and leasehold improvements
Accumulated depreciation and amortization
Total property, plant and equipment, net
2019
2018
$
$
34.6
832.7
3,671.3
4,538.6
(2,088.5)
2,450.1
$
$
31.5
851.7
3,622.7
4,505.9
(2,030.9)
2,475.0
Construction in progress at December 31, 2019 and 2018 was $177.3 million and $83.7 million, respectively. Depreciation and
amortization for the years ended December 31, 2019, 2018 and 2017 was as follows:
(In millions)
Depreciation of property, plant and equipment
Software and other amortization
Total depreciation and amortization
Note 5. Goodwill and Other Intangible Assets
2019
2018
2017
$
$
127.1
24.0
151.1
$
$
131.9
24.5
156.4
$
$
135.2
25.6
160.8
At December 31, 2019, the Company had $525.8 million of goodwill on its consolidated balance sheet, all of which relates to
the HPMC segment. Goodwill decreased $8.9 million in 2019 due to the allocation of $10.4 million to the sale of two non-core
forging facilities (see Note 6), partially offset by a $1.5 million increase from the impact of foreign currency translation on
goodwill denominated in functional currencies other than the U.S. dollar.
On July 12, 2018, the Company acquired the assets of Addaero for $10.0 million of cash consideration. Addaero is a metal
alloy-based additive manufacturer for the aerospace & defense industries, located in New Britain, CT. This business is reported
as part of the HPMC segment from the date of the acquisition. The purchase price allocation included a $2.0 million
technology intangible asset and goodwill of $6.0 million, which is deductible for tax purposes. The final allocation of the
purchase price was completed in the third quarter of 2018.
The Company performs its annual goodwill impairment evaluations in the fourth quarter of each year. For the Company’s
annual goodwill impairment evaluation performed in the fourth quarter of 2019, quantitative goodwill assessments were
performed for the two HPMC reporting units with goodwill. Both of these reporting units had fair values that were
significantly in excess of carrying value, and as a result, no impairments were determined to exist from the annual goodwill
impairment evaluation for the year ended December 31, 2019. 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.
During the third quarter of 2017, the Company performed an interim goodwill impairment analysis on ATI Cast Products, a
titanium investment casting business, due to impairment indicators including lower actual results versus projections. This
reporting unit had a fair value that exceeded carrying value by 12% according to the 2016 annual goodwill impairment
evaluation. For the 2017 interim impairment analysis, fair value was determined by using a quantitative assessment using a
discounted cash flow technique, which represents Level 3 unobservable information in the fair value hierarchy. As a result of
the 2017 interim goodwill impairment evaluation, the Company determined that the fair value of the Cast Products business
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was significantly below the carrying value, including goodwill. This was primarily due to lower projected revenues,
profitability and cash flows associated with revised expectations for the rate of operational improvement and profitability of
this business based on current customer agreements. Consequently, during the third quarter of 2017, the Company recorded a
$114.4 million pre-tax impairment charge to write-off all of the goodwill associated with ATI Cast Products, most of which was
assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes. This goodwill
impairment charge was excluded from 2017 HPMC business segment results.
Accumulated goodwill impairment losses as of December 31, 2019, 2018 and 2017 were $241.0 million.
Other intangible assets, which are included in Other assets on the accompanying consolidated balance sheets as of
December 31, 2019 and 2018 were as follows:
(in millions)
Technology
Customer relationships
Trademarks
Total amortizable intangible assets
December 31, 2019
December 31, 2018
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
$
$
76.8
27.0
52.4
156.2
$
$
(29.7) $
(9.3)
(20.9)
(59.9) $
93.4
35.7
64.6
193.7
$
$
(31.9)
(10.6)
(21.5)
(64.0)
During 2019, total amortizable intangible assets net, decreased $23.8 million due to the sale of the Company’s Cast Products
business. This decrease consists of the sale of $33.2 million gross intangible assets, net of $12.7 million accumulated
amortization, associated with the divested business and the impairment of $4.3 million gross intangible assets, net of $1.0
million accumulated amortization, pertaining to the retained Salem, OR operations. See Note 6 for further information.
Amortization expense related to intangible assets was approximately $9.5 million for the year ended December 31, 2019 and
approximately $10 million for the years ended December 31, 2018 and 2017. For each of the years ending December 31, 2020
through 2024, annual amortization expense is expected to be approximately $8 million.
Note 6. Divestitures
On June 3, 2019, the Company completed the sale of two non-core forging facilities for $37 million. Located in Portland, IN
and Lebanon, KY, these operations primarily use traditional forging methods to produce carbon steel forged products for use in
the oil & gas, transportation and construction & mining industries. The Company received cash proceeds, net of transaction
costs and net working capital adjustments, of $33.0 million on the sale of this business during the fiscal year ended December
31, 2019, which is reported as an investing activity on the consolidated statement of cash flows. With $10.4 million of
goodwill allocated to these operations from ATI’s Forged Products reporting unit, the Company recognized an $8.1 million pre-
tax loss in 2019, which is recorded in other income, net, on the consolidated statement of income and is excluded from HPMC
segment results. This business is reported as part of the HPMC segment through the date of sale. Sales from these two forging
facilities in 2018 were $86 million in the aggregate.
On July 22, 2019, the Company completed the sale of its Cast Products business, which produces titanium investment castings
that are primarily used by aerospace & defense OEMs in the production of commercial jet airframes and engines. As part of
the $127 million transaction, ATI retained a small post-casting machining facility in Salem, OR and continues to provide these
services to the buyer and others. The Company received cash proceeds, net of transaction costs and net working capital
adjustments, of $125.1 million on the sale of this business in 2019, which is reported as an investing activity on the
consolidated statement of cash flows. The Company recognized a $6.2 million gain in 2019, which included a $10.2 million
impairment charge on the carrying value of long-lived assets of the retained Salem operation ($4.5 million for property, plant
and equipment, $1.4 million for operating lease right of use assets, $1.0 million for finance lease right of use assets, and $3.3
million of finite-lived intangible assets). This long-lived asset impairment charge was based on an analysis of the estimated fair
values, including asset appraisals using market approaches, which represent Level 3 unobservable information in the fair value
hierarchy. This gain on the sale of the Cast Products business is recorded in other income, net, on the consolidated statement of
income and is excluded from HPMC segment results. This business is reported as part of the HPMC segment through the date
of sale. Cast Products’ sales were $105 million in 2018.
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Note 7. 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 statement 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. Stockholders’ equity includes undistributed
earnings of investees accounted for under the equity method of accounting of approximately $14.5 million at December 31,
2019.
Majority-Owned Joint Ventures
STAL:
The Company has a 60% interest in the Chinese joint venture known as Shanghai STAL Precision Stainless Steel Company
Limited (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 Flat Rolled Products segment, and manufactures Precision Rolled Strip stainless products mainly for the electronics,
communication equipment, computers and automotive markets located in Asia. Cash and cash equivalents held by STAL as of
December 31, 2019 were $22.9 million.
Next Gen Alloys LLC:
During 2017, the Company formed Next Gen Alloys LLC, a joint venture with GE Aviation for the development of a new
meltless titanium alloy powder manufacturing technology. ATI owns a 51% interest in this joint venture. The titanium alloy
powders are being developed for use in additive manufacturing applications, including 3D printing. Next Gen Alloys LLC
funds its development activities through the sale of shares to the two joint venture partners, and in 2018 the Company received
$2.7 million from sales of noncontrolling interests to its joint venture partner, which is reported as a financing activity on the
consolidated statements of cash flows. Cash and cash equivalents held by this joint venture as of December 31, 2019 were $9.9
million.
Equity Method Joint Ventures
A&T Stainless:
On March 1, 2018, the Company announced the formation of the Allegheny & Tsingshan Stainless (A&T Stainless) 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 a 50% joint venture interest in A&T Stainless for $17.5 million, of which $12.0 million
was received in 2018 and reported as a financing activity on the consolidated statements of cash flows. The A&T Stainless
operations include the Company’s previously-idled direct roll and pickle facility in Midland, PA. ATI provides hot-rolling
conversion services to A&T Stainless using the FRP segment’s Hot-Rolling and Processing Facility. As a result of this sale of a
50% noncontrolling interest and the subsequent deconsolidation of the A&T Stainless entity, the Company recognized a $15.9
million gain during the first quarter of 2018 under deconsolidation and derecognition accounting guidance covering the loss of
control of a subsidiary determined to be a business. The gain, including ATI’s retained 50% share, was based on the fair value
of the joint venture, as determined by the cash purchase price for the noncontrolling interest, and is reported in other income,
net on the consolidated statement of operations, and is excluded from FRP segment results. Following this deconsolidation,
ATI accounts for the A&T Stainless joint venture under the equity method of accounting.
In late March 2018, ATI filed for an exclusion from the Section 232 tariffs on behalf of A&T Stainless, which imports semi-
finished stainless slab products from Indonesia. In April 2019, the Company learned that this exclusion request was denied by
the U.S. Department of Commerce. ATI filed a new request on behalf of A&T Stainless for exclusion from the Section 232
tariffs in October 2019, and A&T Stainless continues to be subject to the 25% tariff levied on its imports of semi-finished
stainless slab products from Indonesia pending the outcome of this new request. Results of A&T Stainless have been and will
continue to be negatively impacted by these tariffs on imported stainless slab products.
As the tariff exclusion denial represents a potential impairment indicator, A&T Stainless evaluated its long-lived assets for
impairment. The joint venture partners have continued to evaluate longer-term solutions to return this strategic initiative to
profitability, and determined during the fourth quarter of 2019 that idling this facility is probable if a near-term tariff exclusion
is not received. In addition, based on the current financial forecast, the undiscounted cash flows of the joint venture indicate
that the carrying value of the long-lived assets is not recoverable. As a result, A&T Stainless recorded a $14.2 million non-cash
impairment charge during December 2019 on its long-lived assets. ATI recognized a $7.1 million equity loss for its 50% share
of this $14.2 million impairment. In addition, as of December 31, 2019 and 2018, ATI had net receivables for working capital
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advances and administrative services from A&T Stainless of $36.8 million and $10.5 million, respectively. For the 2019 net
receivables, $8.3 million was reported in prepaid expenses and other current assets and $28.5 million in other long-term assets
on the consolidated balance sheet, while all $10.5 million for 2018 was reported in prepaid expenses and other current assets.
These balances were also evaluated for collectability, and a $4.3 million reserve was recorded in December 2019 based on
ATI’s share of the estimated fair value of the joint venture’s net assets. The total $11.4 million joint venture impairment charge
for the long-lived asset impairment and receivables reserve is reported within other income, net on the consolidated statement
of operations in December 2019 and is excluded from FRP segment results.
ATI’s share of the A&T Stainless results were losses of $19.3 million and $3.9 million for the fiscal years ended December 31,
2019 and 2018, respectively. For 2019, ATI’s share of A&T Stainless results includes the $7.1 million loss related to the long-
lived asset impairment charge for the joint venture’s Midland, PA operations, which is excluded from segment results. FRP
segment results in 2019 and 2018 include equity method recognition of A&T Stainless operating losses of $12.2 million and
$3.9 million, respectively.
Sales to A&T Stainless, which are included in ATI’s consolidated statement of operations for the 2019 and 2018 fiscal years,
were $14.6 million and $4.1 million, respectively. At December 31, 2019 and 2018, accounts receivable from A&T Stainless
were $0.1 million and $0.6 million, respectively.
Uniti:
ATI has a 50% interest in the industrial titanium joint venture known as Uniti LLC (Uniti), with the remaining 50% interest
held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. Uniti is accounted for under the
equity method of accounting. ATI’s share of Uniti’s income was $1.5 million in 2019, $2.9 million in 2018, and $0.6 million in
2017, which is included in FRP segment’s operating results, and within other income, net in fiscal year ended December 31,
2019 and 2018 on the consolidated statement of operations. This equity income is classified in cost of sales for the fiscal year
ended December 31, 2017 on the consolidated statements of operations. Sales to Uniti, which are included in ATI’s
consolidated statements of operations, were $31.3 million in 2019, $49.4 million in 2018, and $38.6 million in 2017. Accounts
receivable from Uniti were $0.2 million and $1.8 million at December 31, 2019 and 2018, respectively.
Note 8. Asset Retirement Obligations
The Company maintains reserves where a legal obligation exists to perform an asset retirement activity and the fair value of the
liability can be reasonably estimated. These asset retirement obligations (AROs) include liabilities where the timing and (or)
method of settlement may be conditional on a future event, that may or may not be within the control of the entity. At
December 31, 2019, the Company had recognized AROs of $23.7 million related to landfill closures, decommissioning costs,
facility leases and conditional AROs associated with manufacturing activities using what may be characterized as potentially
hazardous materials.
Estimates of AROs are evaluated annually in the fourth quarter, or more frequently if material new information becomes
known. Accounting for asset retirement obligations requires significant estimation and in certain cases, the Company has
determined that an ARO exists, but the amount of the obligation is not reasonably estimable. The Company may determine that
additional AROs are required to be recognized as new information becomes available.
Changes in asset retirement obligations for the years ended December 31, 2019 and 2018 were as follows:
(In millions)
Balance at beginning of year
Accretion expense
Payments
Balance at end of year
2019
2018
$
$
23.1
0.9
(0.3)
23.7
$
$
23.5
0.8
(1.2)
23.1
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Note 9. Supplemental Financial Statement Information
Cash and cash equivalents at December 31, 2019 and 2018 were as follows:
(In millions)
Cash
Other short-term investments
Total cash and cash equivalents
2019
2018
$
$
190.8
300.0
490.8
$
$
264.4
117.6
382.0
Other current liabilities included salaries, wages and other payroll-related liabilities of $94.5 million and $95.8 million, and
accrued interest of $25.0 million and $36.6 million at December 31, 2019 and 2018, respectively.
Other income (expense) for the years ended December 31, 2019, 2018, and 2017 was as follows:
(in millions)
Rent, royalty income and other income
Gains from disposal of property, plant and equipment, net
Equity loss on joint ventures (See Note 7)
Loss on sales of businesses, net (See Note 6)
Gain on joint venture deconsolidation (See Note 7)
Joint venture impairment charge (See Note 7)
Other
Total other income, net
2019
2018
2017
$
$
2.9
90.7
(10.7)
(1.9)
—
(11.4)
0.1
69.7
$
$
3.1
1.3
(1.0)
—
15.9
—
1.2
20.5
$
$
3.5
0.5
—
—
—
—
—
4.0
Gains from disposal of property, plant and equipment, net for the year ended December 31, 2019 includes a $91.7 million gain
on the sale of certain oil and gas rights in Eddy County, NM. This cash gain is reported as an investing activity on the
consolidated statement of cash flows for the year ended December 31, 2019, and is excluded from segment operating results.
These oil and gas rights were initially acquired in 1972 along with land purchased by Teledyne, Inc., which later became part of
ATI. The land was subsequently sold, with the Company retaining the underlying oil and gas rights that it sold in 2019.
Note 10. Debt
Debt at December 31, 2019 and 2018 was as follows:
(In millions)
Allegheny Technologies $500 million 5.875% Senior Notes due 2023 (a)
Allegheny Technologies $500 million 5.95% Senior Notes due 2021
Allegheny Technologies $350 million 5.875% Senior Notes due 2027
Allegheny Technologies $287.5 million 4.75% Convertible Senior Notes due 2022
Allegheny Ludlum 6.95% Debentures due 2025
Term Loan due 2024
U.S. revolving credit facility
Foreign credit agreements
Finance leases and other
Debt issuance costs
Total short-term and long-term debt
Short-term debt and current portion of long-term debt
Total long-term debt
$
$
(a)
Bearing interest at 7.875% effective February 15, 2016.
2019
2018
500.0
—
350.0
287.5
150.0
100.0
—
4.9
18.8
(12.3)
1,398.9
11.5
1,387.4
$
$
500.0
500.0
—
287.5
150.0
100.0
—
—
15.0
(10.4)
1,542.1
6.6
1,535.5
In December 2019, the Company redeemed all $500 million aggregate principal amount outstanding of the 5.95% Senior Notes
due 2021 (2021 Notes), which had a January 15, 2021 maturity date, resulting in a $21.6 million pre-tax debt extinguishment
charge, which included a $20.9 million cash make-whole payment related to the early extinguishment of the Notes as required
by the applicable indenture, and a $0.7 million charge for deferred debt issue costs.
In December 2017, the Company redeemed all $350 million aggregate principal amount outstanding of the 9.375% Senior
Notes due 2019, resulting in a $37.0 million pre-tax debt extinguishment charge, which included a $35.8 million cash make-
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whole payment related to the early extinguishment of the Notes as required by the applicable indenture, and a $1.2 million
charge for deferred debt issue costs.
Interest expense was $104.9 million in 2019, $102.1 million in 2018, and $134.9 million in 2017. Interest expense was reduced
by $4.7 million, $4.1 million, and $2.6 million, in 2019, 2018, and 2017, respectively, from interest capitalization on capital
projects. Interest and commitment fees paid were $105.7 million in 2019, $102.6 million in 2018, and $133.8 million in 2017.
Net interest expense includes interest income of $5.9 million in 2019, $1.1 million in 2018, and $1.1 million in 2017.
Scheduled principal payments during the next five years are $11.5 million in 2020, $4.8 million in 2021, $291.5 million in
2022, $502.7 million in 2023, and $100.7 million in 2024. See Note 11, Leases, for the portion of these payments that are
related to finance leases.
2027 Notes
On November 22, 2019, ATI issued $350 million aggregate principal amount of 5.875% Senior Note due 2027 (2027 Notes).
Interest on the 2027 Notes is payable semi-annually in arrears at a rate of 5.875% per year and will mature on December 1,
2027. Net proceeds of $344.5 million from this issuance, as well as cash on hand, were used to retire the 2021 Notes as
discussed above. Underwriting fees and other third-party expenses for the issuance of the 2027 notes were $5.5 million, and
are being amortized to interest expense over the 8-year term of the 2027 Notes. The 2027 Notes are unsecured and
unsubordinated obligations of the Company and equally ranked with all of its existing and future senior unsecured debt. The
2027 Notes restrict the Company’s ability to create certain liens, to enter into sale leaseback transactions, guarantee
indebtedness and to consolidate or merge all, or substantially all, of its assets. The Company has the option to redeem the 2027
Notes, as a whole or in part, at any time or from time to time, on at least 30 days, but not more than 60 days, prior notice to the
holders of the Notes at redemption prices specified in the 2027 Notes. The 2027 Notes are subject to repurchase upon the
occurrence of a change in control repurchase event (as defined in the 2027 Notes) at a repurchase price in cash equal to 101%
of the aggregate principal amount of the Notes repurchased, plus any accrued and unpaid interest on the 2027 Notes
repurchased.
2023 Notes
The 5.875% stated interest rate payable on the Company’s Senior Notes due 2023 (2023 Notes) is subject to adjustment in the
event of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s (S&P). Each notch of credit
rating downgrade from the credit ratings in effect when the 2023 Notes were issued in July 2013 increases interest expense by
0.25% on the 2023 Notes, up to a maximum 4 notches by each of the two rating agencies, or a total 2.0% potential interest rate
change up to 7.875%.
The annual interest rate on the 2023 Notes has been at the maximum 7.875% since February 2016. Any further credit rating
downgrades have no effect on the interest rate of the 2023 Notes, and increases in the Company’s credit ratings from these
ratings agencies would reduce interest expense incrementally on the 2023 Notes to the original 5.875% interest rate in a similar
manner.
Credit Agreements
On September 30, 2019, the Company amended and restated its Asset Based Lending (ABL) Credit Facility, which is
collateralized by the accounts receivable and inventory of the Company’s domestic operations. This amendment and
restatement extends the ABL facility through September 30, 2024 and includes an increase of $100 million in the revolving
credit facility to $500 million, a letter of credit sub-facility of up to $200 million, and a $100 million term loan (Term Loan).
Additionally, the amendment and restatement gives the Company the ability, through June 30, 2020 and as long as no default or
event of default has occurred and is continuing, to borrow an additional term loan of up to $100 million in total, using one or
two draws (the Delayed-Draw Term Loan). The Company also has the right to request an increase of up to $200 million in the
maximum amount available under the revolving credit facility for the duration of the ABL. The Term Loan has an amended
interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25 million if certain minimum liquidity
conditions are satisfied. In July 2019, the Company amended its $50 million floating-for-fixed interest rate swap which
converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment and restatement)
with a June 2024 maturity.
As amended and restated, 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 LIBOR-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) 12.5% of the
then applicable maximum borrowing amount under the revolving credit portion of the ABL and any outstanding Term Loan
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balance, or (ii) $62.5 million. The Company was in compliance with the fixed charge coverage ratio covenant at December 31,
2019. Additionally, the Company must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL
facility, during the 90 day period immediately preceding the stated maturity date of each of the 4.75% Convertible Notes due
2022 and 5.875% Notes due 2023. Costs associated with entering into the 2019 ABL amendment were $2.2 million, and are
being amortized to interest expense over the extended term of the facility ending September 2024, along with $2.1 million of
unamortized deferred costs previously recorded for the ABL.
There were no revolving credit borrowings under the ABL during 2019, however $35.3 million of available capacity was
utilized to support the issuance of letters of credit at December 31, 2019. Average borrowings under the ABL for the fiscal year
ended December 31, 2018 were $43 million, bearing an average annual interest rate of 3.7%.
Convertible Notes
In 2016, the Company issued and sold $287.5 million aggregate principal amount of 4.75% Convertible Senior Notes due 2022
(2022 Convertible Notes). Interest on the 2022 Convertible Notes is payable in cash semi-annually in arrears on each January 1
and July 1, commencing January 1, 2017.
The Company does not have the right to redeem the 2022 Convertible Notes prior to their stated maturity date. Holders of the
2022 Convertible Notes have the option to convert their notes into shares of the Company’s common stock, at any time prior to
the close of business on the business day immediately preceding the stated maturity date (July 1, 2022). The initial conversion
rate for the 2022 Convertible Notes is 69.2042 shares of ATI common stock per $1,000 (in whole dollars) principal amount of
Notes (19.9 million shares), equivalent to conversion price of $14.45 per share, subject to adjustment in certain events. Other
than receiving cash in lieu of fractional shares, holders do not have the option to receive cash instead of shares of common
stock upon conversion. Accrued and unpaid interest that exists upon conversion of a note will be deemed paid by the delivery
of shares of ATI common stock and no cash payment or additional shares will be given to the holders.
If the Company undergoes a fundamental change as defined in the agreement, holders of the 2022 Convertible Notes may
require the Company to repurchase the notes in whole or in part for cash at a price equal to 100% of the principal amount of the
notes to be purchased plus any accrued and unpaid interest to, but excluding, the repurchase date.
Foreign and Other Credit Facilities
STAL, the Company’s Chinese joint venture company in which ATI has a 60% interest, has a separate $20 million revolving
credit facility. Borrowings under the STAL revolving credit facility are in U.S. dollars based on U.S. interbank offered rates.
The credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners.
The credit facility requires STAL to maintain a minimum level of shareholders’ equity, and certain financial ratios.
The Company has no off-balance sheet financing relationships as defined in Item 303(a)(4) of SEC Regulation S-K, with
variable interest entities, structured finance entities, or any other unconsolidated entities. At December 31, 2019, the Company
had not guaranteed any third-party indebtedness.
Note 11. Leases
Adoption Method and Impact
On January 1, 2019 the Company adopted ASC 842, Leases. The Company applied ASC 842 to all leases in effect at January
1, 2019 and adopted the accounting standard using the alternative transition method, which does not require the restatement of
prior years. Comparative information has not been adjusted and continues to be reported under the previous accounting
guidance. The Company has elected the package of practical expedients, which allows entities to not reassess (1) whether
contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company has also elected the practical
expedient to not separate lease components from non-lease components for all asset classes, and did not elect the hindsight
practical expedient to determine the lease term. The Company has made an accounting policy election to apply the short-term
exception, which does not require the capitalization of leases with terms of 12 months or less. On January 1, 2019, the
Company recognized $51.7 million of ROU assets and $55.6 million of lease liabilities ($12.5 million short-term and $43.1
million long-term) on the consolidated balance sheet for operating leases, with the difference due to deferred rent balances as of
December 31, 2018 that reduced the ROU asset balance on January 1, 2019. The adoption did not have a material impact on
the Company’s results of operations or cash flows, and had no impact to the net deferred tax position on the consolidated
balance sheet due to the Company’s income tax valuation allowances for federal and state purposes (see Note 17).
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The Company has entered into finance lease contracts with lenders for progress payments on machinery and equipment that is
being constructed at the request and specification of the Company. As of December 31, 2019, the lenders had made $5.3
million of progress payments on behalf of the Company, and $8.2 million of progress payments are scheduled to be paid. Upon
payment of the final progress payments by the lenders, finance leases will commence, and $13.5 million, discounted using the
applicable discount rates at lease inceptions, of ROU assets and lease liabilities will be recognized by the Company.
The following represents the components of lease cost and other information for both operating and financing leases for the
fiscal year ending December 31, 2019:
($ in millions)
Lease Cost
Finance Lease Cost:
Amortization of right of use asset
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Right of use assets obtained in exchange for new finance lease liabilities
Right of use assets obtained in exchange for new operating lease liabilities (a)
Weighted average remaining lease term - finance leases
Weighted average remaining lease term - operating leases
Weighted average discount rate - finance leases
Weighted average discount rate - operating leases
$
$
$
$
$
$
$
Fiscal year ended
December 31, 2019
1.7
0.5
20.5
3.1
0.8
—
26.6
0.5
20.8
2.4
14.1
35.9
4 years
6 years
5.3%
7.0%
(a) Several of the Company’s real property lease contracts include options to extend the lease term. During the fourth quarter
of 2019, the Company reassessed the likelihood of renewal and has included $10.2 million for the renewal options for several
of these operating leases in the ROU asset and lease liability because the likelihood of renewal was determined to be
reasonably certain.
Rental expense under operating leases was $24.4 million in 2018 and $21.1 million in 2017.
The following table reconciles future minimum undiscounted rental commitments for operating leases to the operating lease
liabilities recorded on the consolidated balance sheet as of December 31, 2019 (in millions):
2020
2021
2022
2023
2024
2025 and thereafter
Total undiscounted lease payments
Present value adjustment
Operating lease liabilities
F-66
December 31, 2019
20.0
18.2
15.3
11.7
8.0
24.6
97.8
(20.1)
77.7
$
$
$
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The following table reconciles future minimum undiscounted rental commitments for finance leases to the finance lease
liabilities recorded on the consolidated balance sheet as of December 31, 2019 (in millions):
2020
2021
2022
2023
2024
2025 and thereafter
Total undiscounted lease payments
Present value adjustment
Finance lease liabilities
December 31, 2019
4.5
4.2
3.9
2.7
0.7
—
16.0
(1.5)
14.5
$
$
$
Note 12. 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 utilizing raw material surcharges and index mechanisms. However, as of December 31,
2019, 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 7 million pounds of nickel with hedge dates through 2023. The
aggregate notional amount hedged is approximately 7% of a single year’s estimated nickel raw material purchase requirements.
At December 31, 2019, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility
included natural gas cost hedges. At December 31, 2019, the company hedged approximately 70% of the Company’s annual
forecasted domestic requirements for natural gas for 2020 and approximately 50% for 2021.
While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are
used, 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 expected to be received from its export sales for pre-established U.S. dollar
amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are
denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future
export sales transactions which otherwise would expose the Company to foreign currency risk, primarily euros. 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 December 31, 2019, the Company held euro forward purchase contracts for
forecasted capital expenditures designated as cash flow hedges with a notional value of approximately 2 million euro with
maturity dates through May 2020.
In 2015, the Company entered into 244.7 million euro notional value of foreign currency forward contracts designated as fair
value hedges maturity dates through 2017. The Company recorded $2.7 million of charges during the fiscal year ended
December 31, 2017 in costs of sales on the consolidated statement of operations for maturities and mark-to-market changes on
these fair value hedges. There were no outstanding fair value hedges as of December 31, 2019, 2018 and 2017.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate
debt. In July 2019, the Company amended its $50 million floating-for-fixed interest rate swap which converts half of the Term
Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment), with a June 2024 maturity. The
Company designated the interest rate swap as a cash flow hedge of the Company’s exposure to the variability of the payment of
interest on a portion of its Term Loan borrowings. The ineffectiveness at hedge inception, determined from the fair value of the
swap immediately prior to amendment, will be amortized to interest expense over the initial Term Loan swap maturity date of
January 12, 2021.
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There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no
provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s
derivative contracts were 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.
The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts
recognized which are not offset by counterpart 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
Derivatives designated as hedging instruments:
Balance sheet location
December 31,
2019
December 31,
2018
Natural gas contracts
Prepaid expenses and other current assets
$
Nickel and other raw material contracts
Prepaid expenses and other current assets
Natural gas contracts
Nickel and other raw material contracts
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other assets
Other assets
Prepaid expenses and other current assets
Total derivatives not designated as hedging instruments:
Total asset derivatives
Liability derivatives
Derivatives designated as hedging instruments:
Balance sheet location
Interest rate swap
Foreign exchange contracts
Natural gas contracts
Nickel and other raw material contracts
Interest rate swap
Natural gas contracts
Nickel and other raw material contracts
Total derivatives designated as hedging instruments
Total liability derivatives
Other current liabilities
Other current liabilities
Other current liabilities
Other current liabilities
Other long-term liabilities
Other long-term liabilities
Other long-term liabilities
$
$
$
— $
4.4
—
1.2
5.6
—
—
5.6
$
0.3
—
2.5
2.5
1.2
1.0
—
7.5
7.5
$
$
0.8
1.2
0.2
0.8
3.0
0.4
0.4
3.4
0.2
0.6
0.1
6.8
0.3
0.3
2.1
10.4
10.4
Assuming market prices remain constant with those at December 31, 2019, a pre-tax loss of $0.9 million is expected to be
recognized over the next 12 months.
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 and are reported as changes within accrued liabilities and
other on the consolidated statements 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.
The 2019 income tax provision includes $6.0 million of tax expense for the recognition of a stranded deferred tax balance
arising from deferred tax valuation allowances that was associated with a cash flow hedge portfolio that fully settled in the
fourth quarter of 2019 (see Notes 15 and 17 for further explanation on tax impacts within accumulated other comprehensive
income (loss)). This tax impact is also excluded from the table below.
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Activity with regard to derivatives designated as cash flow hedges for the years ended December 31, 2019 and 2018 were as
follows (in millions):
Derivatives in Cash Flow
Hedging Relationships
Nickel and other raw material contracts
Natural gas contracts
Foreign exchange contracts
Interest rate swap
Total
(a)
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income (a)
2019
2018
2019
2018
$
$
11.3
(4.0)
1.0
(0.9)
7.4
$
$
(6.4) $
1.5
0.5
(0.5)
(4.9) $
3.9
(0.9)
0.5
(0.4)
3.1
$
$
7.7
0.4
1.0
(0.2)
8.9
The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the
interest rate swap, are presented in 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.
Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of
sales and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. The
Company has no outstanding foreign currency forward contracts not designated as hedges as of December 31, 2019.
(In millions)
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts
Amount of Gain (Loss) Recognized
in Income on Derivatives
2019
2018
$
0.1
$
0.3
Note 13. Fair Value of Financial Instruments
The estimated fair value of financial instruments at December 31, 2019 was as follows:
(In millions)
Cash and cash equivalents
Derivative financial instruments:
Assets
Liabilities
Debt (a)
Fair Value Measurements at Reporting Date Using
Total
Carrying
Amount
Total
Estimated
Fair Value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
$
490.8
$
490.8
$
490.8
$
—
5.6
7.5
1,411.2
5.6
7.5
1,676.5
—
—
1,552.8
5.6
7.5
123.7
The estimated fair value of financial instruments at December 31, 2018 was as follows:
(In millions)
Cash and cash equivalents
Derivative financial instruments:
Assets
Liabilities
Debt (a)
Fair Value Measurements at Reporting Date Using
Total
Carrying
Amount
Total
Estimated
Fair Value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
$
382.0
$
382.0
$
382.0
$
—
3.4
10.4
1,552.5
3.4
10.4
1,739.4
—
—
1,624.4
3.4
10.4
115.0
(a)
The total carrying amount for debt 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.
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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 prioritizes 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. No transfers between levels were reported in 2019 or 2018.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents: Fair values were 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 2021 Notes (prior to redemption in December 2019), the 2022
Convertible Notes, the 2023 Notes, the Allegheny Ludlum 6.95% Debentures due 2025 and the 2027 Notes (subsequent to
issuance in November 2019) were determined using Level 1 information. The fair values of other short-term and long-term
debt were determined using Level 2 information.
Note 14. 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 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.
ATI instituted several actions over the last few years as part of its retirement benefit liability management strategy. Future
benefit accruals for all participants in the U.S. defined benefit pension plans other than those subject to a CBA were frozen at
the end of 2014, and subsequently CBAs were negotiated to close these plans to new entrants. As a result of these actions, the
Company has now completely closed all defined benefit pension plans to new entrants, and has substantially limited the number
of employees still accruing benefit service to approximately 1,300 participants, or less than 10% of the population in the U.S.
qualified defined benefit pension plans. Additionally, all of ATI’s remaining collectively-bargained, capped defined benefit
retiree health care plans are now closed to new entrants. These liability management actions have transitioned ATI’s retirement
benefit and other postretirement benefit programs largely to a defined contribution structure.
Costs for defined contribution retirement plans were $44.8 million in 2019, $39.9 million in 2018, and $35.5 million in 2017.
Company contributions to these defined contribution plans are funded with cash. Other postretirement benefit costs for a
defined contribution plan were $1.0 million, $1.0 million, and $1.7 million for the fiscal years ended December 31, 2019, 2018
and 2017, respectively.
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The components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the
following:
(In millions)
Service cost—benefits earned during the year
Interest cost on benefits earned in prior years
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of net actuarial loss
Curtailment loss
Total retirement benefit expense
Pension Benefits
Other Postretirement Benefits
2019
2018
2017
2019
2018
2017
$
$
12.7
105.5
(131.3)
0.3
73.7
—
60.9
$
$
16.4
104.8
(157.9)
0.3
65.9
0.4
29.9
$
$
14.1
116.7
(146.9)
1.3
62.6
—
47.8
$
$
1.9
14.8
—
(2.9)
13.5
—
27.3
$
$
2.5
12.7
—
(2.9)
10.6
—
22.9
$
$
2.4
14.6
—
(2.9)
9.0
—
23.1
On June 1, 2018, a new CBA was ratified by USW-represented employees of the Company’s Specialty Alloys & Components
(SAC) operations in Millersburg, OR. The new SAC CBA resulted in changes to retirement benefit programs, including a
freeze to new entrants to the U.S. defined benefit pension plan and to postretirement health care benefits, and a hard freeze for
most current pension plan participants covered by the SAC CBA, effective July 31, 2018. New hires covered by the CBA, and
pension plan participants who are subject to the hard freeze, will receive Company contributions to a defined contribution
retirement plan. The CBA also included pension benefit increases for all current pension plan participants affecting both prior
and future service. The Company recognized a $0.4 million pension curtailment charge in the second quarter 2018 for the prior
service cost of these pension benefit increases in connection with employees being hard frozen in the pension plan.
Actuarial assumptions used to develop the components of defined benefit pension expense and other postretirement benefit
expense were as follows:
Discount rate
Rate of increase in future
compensation levels
Weighted average expected long-
term rate of return on assets
Pension Benefits
Other Postretirement Benefits
2019
2018
2017
4.40%
3.85%
4.45%
2019
4.35%
2018
3.80%
2017
4.35%
0.50 - 1.00% 0.50 - 1.00% 0.50 - 1.00%
—
—
7.52%
7.75%
7.75%
4.0%
4.0%
—
4.0%
Actuarial assumptions used for the valuation of defined benefit pension and other postretirement benefit obligations at the end
of the respective periods were as follows:
Discount rate
Rate of increase in future compensation levels
3.40%
0.50 - 1.00%
4.40%
0.50 - 1.00%
3.25%
—
4.35%
—
Pension Benefits
2019
2018
Other Postretirement Benefits
2019
2018
A reconciliation of the funded status for the Company’s defined benefit pension and other postretirement benefit plans at
December 31, 2019 and 2018 was as follows:
(In millions)
Change in benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid
Subsidy paid
Effect of currency rates
Net actuarial (gains) losses – discount rate change
– other
Plan curtailments
Plan amendments
Benefit obligation at end of year
Pension Benefits
2019
2018
Other Postretirement Benefits
2019
2018
$
$
2,497.7
12.7
105.5
(274.6)
—
2.8
266.0
14.3
—
9.5
2,633.9
$
$
F-71
2,829.8
16.4
104.8
(294.5)
—
(4.5)
(150.4)
(5.7)
0.4
1.4
2,497.7
$
$
359.1
1.9
14.8
(37.7)
—
—
30.5
(18.1)
—
(5.2)
345.3
$
$
349.9
2.5
12.7
(36.5)
—
—
(17.8)
48.3
—
—
359.1
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Pension plan amendments in 2019 pertain to an updated actuarial equivalence evaluation for alternate forms of benefit
payments for certain covered groups. Other postretirement benefit plan amendments in 2019 are the result of converting certain
covered groups to prospectively receive post-age 65 subsidies on a third-party retiree medical plan exchange, rather than
continuing to receive Company-provided health plan benefits. Pension plan curtailments and amendments in 2018 are the
result of changes to retirement benefit programs in the SAC CBA as discussed above. Actuarial effects of changes in discount
rates are separately identified in the preceding table. During 2018, an actuarial loss was recognized on the Company’s other
postretirement benefit obligations due to an updated study on attrition rates of participants in certain retiree medical plans.
(In millions)
Change in plan assets:
Pension Benefits
Other Postretirement Benefits
2019
2018
2019
2018
Fair value of plan assets at beginning of year
$
1,772.2
$
Actual returns on plan assets and plan expenses
Employer contributions
Effect of currency rates
Benefits paid
Fair value of plan assets at end of year
$
248.2
153.4
2.9
(274.6)
1,902.1
$
2,129.6
(107.2)
49.3
(5.0)
(294.5)
1,772.2
$
$
0.1
$
—
—
—
—
0.1
$
0.6
(0.5)
—
—
—
0.1
Pension benefit payments in 2019 include $96 million for the annuity buyout of smaller pension balances in a U.S. defined
benefit pension plan involving approximately 1,800, or 10% of participants. Pension benefit payments in 2018 include $97
million for the annuity buyout of smaller pension balances in a U.S. defined benefit pension plan involving approximately
3,700, or 17% of participants. These actions were also part of ATI’s retirement benefit liability management strategy to reduce
the overall size of the pension obligation and to lower administrative costs.
Assets (liabilities) recognized in the consolidated balance sheets:
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total amount recognized
Pension Benefits
Other Postretirement Benefits
2019
2018
2019
2018
$
$
$
4.8
(5.1)
(731.5)
(731.8) $
$
9.2
(4.7)
(730.0)
(725.5) $
— $
(32.7)
(312.5)
(345.2) $
—
(40.6)
(318.4)
(359.0)
Changes to accumulated other comprehensive loss related to pension and other postretirement benefit plans in 2019 and 2018
were as follows:
(In millions)
Beginning of year accumulated other comprehensive loss
Amortization of net actuarial loss
Amortization of prior service cost (credit)
Remeasurements
End of year accumulated other comprehensive loss
Net change in accumulated other comprehensive loss
Pension Benefits
Other Postretirement Benefits
2019
(1,470.3) $
73.7
0.3
(173.4)
(1,569.7) $
(99.4) $
2018
(1,426.1) $
65.9
0.3
(110.4)
(1,470.3) $
(44.2) $
$
$
$
2019
2018
(107.0) $
13.5
(2.9)
(7.1)
(103.5) $
3.5
$
(83.7)
10.6
(2.9)
(31.0)
(107.0)
(23.3)
Amounts included in accumulated other comprehensive loss at December 31, 2019 and 2018 were as follows:
(In millions)
Prior service (cost) credit
Net actuarial loss
Accumulated other comprehensive loss
Deferred tax effect
Accumulated other comprehensive loss, net of tax
Pension Benefits
2019
2018
Other Postretirement Benefits
2019
2018
$
$
(11.2) $
(1,558.5)
(1,569.7)
555.7
(1,014.0) $
(2.1) $
(1,468.2)
(1,470.3)
536.2
(934.1) $
$
11.0
(114.5)
(103.5)
34.4
(69.1) $
8.8
(115.8)
(107.0)
35.3
(71.7)
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Amounts in accumulated other comprehensive loss presented above do not include any effects of deferred tax asset valuation
allowances. See Note 15 for further discussion on deferred tax asset valuation allowances.
Retirement benefit expense for 2020 for defined benefit plans is estimated to be approximately $60 million, comprised of $40
million for pension expense and $20 million of expense for other postretirement benefits. The net actuarial loss is recognized in
the consolidated statement of operations using a corridor method. Because all of ATI’s pension plans are inactive, cumulative
gains and losses in excess of 10% of the greater of the projected benefit obligation or the market value of plan assets are
amortized over the expected average remaining future lifetime of participants, which is approximately 18 years on a weighted
average basis. Prior service cost (credit) amortization is recognized in level amounts over the expected service of the active
membership as of the amendment effective date. Amounts in accumulated other comprehensive loss that are expected to be
recognized as components of net periodic benefit cost in 2020 are:
(In millions)
Amortization of prior service cost (credit)
Amortization of net actuarial loss
Amortization of accumulated other comprehensive loss
Pension
Benefits
Other
Postretirement
Benefits
Total
$
$
0.6
74.5
75.1
$
$
(3.8) $
10.8
7.0
$
(3.2)
85.3
82.1
The accumulated benefit obligation for all defined benefit pension plans was $2,621.1 million and $2,482.5 million at
December 31, 2019 and 2018, respectively. Additional information for pension plans with accumulated benefit obligations and
projected benefit obligations in excess of plan assets:
(In millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pension Benefits
2019
2018
$
$
$
2,538.9
2,526.1
1,802.4
$
$
$
2,420.8
2,405.6
1,686.1
Cash contributions to ATI’s U.S. qualified defined benefit pension plans were $145 million in 2019, $40 million in 2018 and
$135 million in 2017. The Company funds the U.S. defined benefit pension plans in accordance with the Employee Retirement
Income Security Act of 1974, as amended, and the Internal Revenue Code. Based upon current regulations and actuarial
studies, the Company expects to make approximately $130 million in cash contributions to its U.S. qualified defined benefit
pension plans in 2020. In addition, for 2020, the Company expects approximately $9 million of payments for U.S. nonqualified
pension benefits and for contributions to its U.K. defined benefit pension plan.
The following table summarizes expected benefit payments from the Company’s various pension and other postretirement
defined benefit plans through 2029, and also includes estimated Medicare Part D subsidies projected to be received during this
period based on currently available information. Pension benefit payments for the U.S. qualified defined benefit pension plans
and the U.K. defined benefit plan are made from pension plan assets.
(In millions)
2020
2021
2022
2023
2024
2025- 2029
Pension
Benefits
Other
Postretirement
Benefits
Medicare Part
D Subsidy
$
$
174.7
172.0
170.3
168.3
166.0
786.5
$
32.8
34.1
31.6
29.4
27.4
110.1
0.3
0.3
0.2
0.2
0.2
0.7
The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care
plans was 6.0% in 2020 and is assumed to gradually decrease to 4.5% in the year 2038 and remain at that level thereafter.
Assumed health care cost trend rates can have a significant effect on the amounts reported for the 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.
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The fair values of the Company’s pension plan assets are determined using net asset value (NAV) as a practical expedient, or by
information categorized in the fair value hierarchy level based on the inputs used to determine fair value, as further discussed in
Note 13. The fair values at December 31, 2019 were as follows:
(In millions)
Asset category
Equity securities:
U.S. equities
International equities
Debt securities and cash:
Fixed income and cash equivalents
Floating rate
Private equity
Hedge funds
Real estate and other
Total assets
Quoted Prices in
Active Markets for
Identical Assets
Significant
Observable Inputs
Total
NAV
(Level 1)
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
443.6
326.1
650.7
51.0
129.0
263.9
37.8
1,902.1
$
254.7
299.6
419.9
51.0
129.0
263.9
37.8
1,455.9
$
$
188.9
26.5
58.7
—
—
—
—
274.1
$
—
—
172.1
—
—
—
—
172.1
$
—
—
—
—
—
—
—
—
The fair values of the Company’s pension plan assets at December 31, 2018 were as follows:
(In millions)
Asset category
Equity securities:
U.S. equities
International equities
Debt securities and cash:
Fixed income and cash equivalents
Floating rate
Private equity
Hedge funds
Real estate and other
Total assets
Total
NAV
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
362.9
377.4
493.7
90.1
137.1
258.3
52.7
1,772.2
$
219.9
335.7
116.9
68.9
137.1
258.3
52.7
1,189.5
$
$
143.0
41.7
6.3
21.2
—
—
—
212.2
$
—
—
370.5
—
—
—
—
370.5
$
—
—
—
—
—
—
—
—
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. Investments in U.S. and International equities, and Fixed Income are predominantly held in
common/collective trust funds and registered investment companies. Some of these investments are publicly traded securities
and are classified as Level 1, while others are public investment vehicles valued using the NAV provided by the administrator
of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided
by the number of shares outstanding. These investments are not classified in the fair value hierarchy. In addition, some fixed
income instruments are investments in debt instruments that are valued using external pricing vendors and are classified within
Level 2 of the fair value hierarchy.
Floating interest rate global debt instruments are both domestic and foreign and include first lien debt, second lien debt and
structured finance obligations, among others. These instruments are valued using NAV and are not classified in the fair value
hierarchy, or are publicly traded securities and are classified as Level 1.
Private equity investments include both Direct Funds and Fund-of-Funds. Direct Funds are investments in Limited Partnership
(LP) interests. Fund-of-Funds are investments in private equity funds that invest in other private equity funds or LPs. Fair
value of these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy.
Hedge fund investments are made as a limited partner in hedge funds managed by a general partner. Fair value of these
investments is determined utilizing net asset values, and are not classified in the fair value hierarchy.
Real estate investments are made as a limited partner in a portfolio of properties managed by a general partner. Fair value of
these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy.
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For certain investments which have formal financial valuations reported on a one-quarter lag, fair value is determined utilizing
net asset values adjusted for subsequent cash flows, estimated financial performance and other significant events.
For 2020, the weighted average expected long-term rate of return on defined benefit pension assets is 7.16%. In developing
expected long-term rate of return assumptions, the Company evaluated input from its third party pension plan asset managers
and actuaries, including reviews of their asset class return expectations and long-term inflation assumptions. An expected long-
term rate of return is based on expected asset allocations within ranges for each investment category and projected annual
compound returns. The Company’s actual, weighted average returns on pension assets for the last five years have been 15.1%
for 2019, (4.8)% for 2018, 16.9% for 2017, 5.3% for 2016, and (1.2)% for 2015.
The plan assets for the ATI Pension Plan, the Company’s primary U.S. qualified defined benefit pension plan, represent over
90% of total pension plan assets at December 31, 2019. The ATI Pension Plan invests in a diversified portfolio consisting of an
array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include U.S. domestic
equities, non-U.S. developed market equities, emerging market equities, hedge funds, private equity, traditional fixed income
consisting of long government/credit and alternative credit, and real estate. The Company continually monitors the investment
results of these asset classes and its fund managers, and explores other potential asset classes for possible future investment.
The target asset allocations for ATI Pension Plan for 2020, by major investment category, are:
Asset category
U.S. equity
Global equity
Debt securities and cash
Private equity
Hedge funds
Real estate and other
Target asset allocation range
18% - 40%
10% - 30%
15% - 40%
0% - 15%
10% - 20%
0% - 10%
As of December 31, 2019, the Company’s pension plans had outstanding commitments to invest up to $46 million in global
debt securities, $91 million in private equity investments and $51 million in real estate investments. These commitments are
expected to be satisfied through the reallocation of pension trust assets while maintaining investments within the target asset
allocation ranges.
The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that
cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of single-
employer plans, in the following respects:
a.
b.
c.
Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.
If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
If the Company ceases to have an obligation to contribute to the multiemployer plan in which it had been a contributing
employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history
of the Company’s participation in the plan prior to the cessation of its obligation to contribute. The amount that an
employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is
referred to as a withdrawal liability.
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The Company’s participation in multiemployer plans for the years ended December 31, 2019, 2018 and 2017 is reported in the
following table. The Company’s contributions to the Steelworkers Western Independent Shops Pension Plan exceed 5% of this
plan’s total contributions for the plan year ended September 30, 2018, which is the most recent information available from the
Plan Administrator.
EIN / Pension
Plan Number
Pension
Protection Act
Zone Status (1)
2018
2019
in millions
FIP / RP Status
Pending /
Implemented (2)
Company Contributions
2019
2018
2017
Surcharge
Imposed (3)
Expiration Dates
of Collective
Bargaining
Agreements
90-0169564
/ 001
48-6168020
/ 001
51-6031295
/ 002
Green
Green
N/A
$
0.9
$
0.8
$
0.6
No
2/29/2020
Red
Yellow
Red
Green
Yes
Yes
2.5
2.2
2.5
2.1
2.2
1.7
No
Yes
9/30/2026
Various between
2021-2022 (4)
$
5.6
$
5.4
$
4.5
Pension Fund
Steelworkers
Western
Independent
Shops Pension
Plan
Boilermakers-
Blacksmiths
National Pension
Trust
IAM National
Pension Fund
Total
contributions
(1)
(2)
(3)
(4)
The most recent Pension Protection Act Zone Status is based on information provided to ATI and other participating
employers by each plan, as certified by the plan’s actuary. A plan in the “red” zone had been determined to be in “critical
status”, based on criteria established by the Internal Revenue Code (Code), and is generally less than 65% funded. A
plan in the “yellow” zone has been determined to be in “endangered status”, based on criteria established under the
Code, and is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical
status” nor in “endangered status”, and is generally at least 80% funded. Additionally, a plan may voluntarily place itself
into a rehabilitation plan. In April 2019, the Company received notification from the IAM National Pension Fund (IAM
Fund) that its’ actuary certified the IAM Fund as “endangered status” for the plan year beginning January 1, 2019, and
that the IAM Fund was voluntarily placing itself in “red” zone status and implementing a rehabilitation plan. A 5%
contribution surcharge has been imposed as of June 1, 2019 for the rest of 2019, increasing to a 10% surcharge rate
beginning January 1, 2020 in addition to the contribution rate specified in the applicable collective bargaining
agreements. The contribution surcharge ends when an employer begins contributing under a collective bargaining
agreement that includes terms consistent with the rehabilitation plan. In April 2019, the Company received notification
from the Boilermakers-Blacksmiths National Pension Trust (Blacksmiths Trust) that it was certified by its actuary as
being in “red” zone status for the plan year beginning January 1, 2019. A rehabilitation plan has been adopted for the
Blacksmiths Trust, and the Company and the Blacksmiths union agreed to adopt the rehabilitation plan in 2019 prior to a
contribution surcharge being imposed.
The “FIP / RP Status Pending / Implemented” column indicates whether a Funding Improvement Plan, as required under
the Code by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in
the “red” zone, is pending or has been implemented as of the end of the plan year that ended in 2019.
The “Surcharge Imposed” column indicates whether ATI’s contribution rate for 2019 included an amount in addition to
the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”,
in accordance with the requirements of the Code.
The Company is party to five separate bargaining agreements that require contributions to this plan. Expiration dates of
these collective bargaining agreements range between November 14, 2021 and July 14, 2022.
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Note 15. Accumulated Other Comprehensive Income (Loss)
The changes in AOCI by component, net of tax, for the fiscal years ended December 31, 2019, 2018 and 2017 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, 2016
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2017
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2018
OCI before reclassifications
$
(a)
(a)
(b)
(b)
(965.5) $
(32.5)
43.5
11.0
(954.5)
(107.2)
55.9
(51.3)
(1,005.8)
(141.6)
(85.0) $
31.5
— (c)
31.5
(53.5)
(20.4)
— (c)
(20.4)
(73.9)
(2.7)
Amounts reclassified from AOCI
(a)
64.3
(b)
— (c)
Net current-period OCI
Balance, December 31, 2019
Attributable to noncontrolling interests:
Balance, December 31, 2016
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2017
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2018
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2019
$
$
$
(77.3)
(1,083.1) $
(2.7)
(76.6) $
— $
—
— (b)
—
—
—
— (b)
—
—
—
— (b)
—
— $
$
9.7
7.6
—
7.6
17.3
(6.2)
—
(6.2)
11.1
(1.3)
—
(1.3)
9.8
$
$
2.4
11.1
(4.5)
6.6
9.0
(4.9)
(8.9)
(13.8)
(4.8)
7.4
(3.1)
4.3
(0.5) $
(d)
(d)
(d)
—
16.8
16.8
(28.8)
—
(20.5)
(20.5)
(49.3)
—
(45.6) $ (1,093.7)
10.1
55.8
65.9
(1,027.8)
(132.5)
26.5
(106.0)
(1,133.8)
(136.9)
69.0
(67.9)
(41.5) $ (1,201.7)
7.8
7.8
— $
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
—
— $
9.7
7.6
—
7.6
17.3
(6.2)
—
(6.2)
11.1
(1.3)
—
(1.3)
9.8
(a)
(b)
(c)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 14).
No amounts were reclassified to earnings.
For 2018, following the Company’s January 1, 2018 adoption of changes issued by the FASB related to accounting
guidance for derivatives, amounts related to derivatives are included in cost of goods sold or interest expense in the
period or periods the hedged item affects earnings (see Note 12). For 2017, amounts related to the effective portion of
the derivatives were included in cost of goods sold in the period or periods the hedged item affects earnings, and
amounts related to the ineffective portion of the derivatives were presented in selling and administrative expenses on
the consolidated statements of operations (see Note 12).
(d) Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance
sheet dates. The 2019 income tax provision includes $6.0 million of tax expense for the recognition of a stranded
deferred tax balance arising from deferred tax valuation allowances that was associated with a cash flow hedge portfolio
that fully settled in the fourth quarter of 2019.
Other comprehensive income (loss) amounts (OCI) reported above by category are net of applicable income tax expense
(benefit) for each year 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.
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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.
Reclassifications out of AOCI for the fiscal years ended December 31, 2019, 2018 and 2017 were as follows:
Details about AOCI Components
(In millions)
Postretirement benefit plans
Prior service credit
Actuarial losses
Derivatives
Nickel and other raw
material contracts
Natural gas contracts
Foreign exchange
contracts
Interest rate swap
Amount reclassified from AOCI (c)
Fiscal year ended
December 31,
2019
December 31,
2018
December 31,
2017
Affected line item in the
consolidated statement of
operations
$
$
$
$
(a)
(a)
(c)
2.6
(87.2)
(84.6)
(20.3)
(64.3)
$
$
2.6 (a)
(76.5) (a)
(73.9) (c)
(18.0)
(55.9)
5.1
(b) $
(1.2)
(b)
0.7
(b)
(0.5)
(b)
(c)
4.1
1.0
3.1
$
10.2 (b)
0.5 (b)
1.3 (b)
(0.3) (b)
11.7 (c)
2.8
8.9
$
$
$
$
1.6 (a)
(71.6) (a)
(70.0) (c)
(26.5)
(43.5)
(3.4) (b)
(5.3) (b)
15.9 (b)
— (b)
7.2 (c)
2.7
4.5
Total before tax
Tax benefit (d)
Net of tax
Total before tax
Tax provision (d)
Net of tax
(a)
(b)
(c)
(d)
Amounts are included in nonoperating retirement benefit expense (see Note 14).
For 2018, following the Company’s January 1, 2018 adoption of changes issued by the FASB related to accounting
guidance for derivatives, amounts related to derivatives, with the exception of the interest rate swap are included in 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 12). For 2017, amounts related to the effective portion of the derivatives were included in cost of goods sold in
the period or periods the hedged item affects earnings, and amounts related to the ineffective portion of the derivatives
were presented in selling and administrative expenses on the consolidated statements of operations (see Note 12).
For pretax 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.
These amounts exclude the impact of any deferred tax asset valuation allowances, when applicable, including
recognition of stranded balances (see Note 17 for further explanation).
Note 16. Stockholders’ Equity
Preferred Stock
Authorized preferred stock may be issued in one or more series, with designations, powers and preferences as shall be
designated by the Board of Directors. At December 31, 2019, there were no shares of preferred stock issued.
Common Stock
On November 7, 2017, the Company issued 17 million shares of common stock at $24.00 per share before expenses in an
underwritten registered public offering. This equity offering resulted in proceeds, net of transaction costs, of $397.8 million.
In December 2017, the Company used the proceeds from the equity offering to redeem all of the Senior Notes due 2019 (see
Note 10).
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Dividends
Under the ABL facility, there is no limit on dividend declarations or payments provided that the undrawn availability, after
giving effect to a particular dividend payment, is at least the greater of $150 million and 30% of the maximum revolving credit
availability, and no event of default under the ABL facility has occurred and is continuing or would result from paying the
dividend. In addition, there is no limit on dividend declarations or payments if the undrawn availability is less than the greater
of $150 million and 30% of the maximum revolving credit advance amount but more than the greater of $75 million and 15%
of the maximum revolving credit advance amount, if (i) no event of default has occurred and is continuing or would result from
paying the dividend, (ii) the Company demonstrates to the administrative agent that, prior to and after giving effect to the
payment of the dividend (A) the undrawn availability, as measured both at the time of the dividend payment and as an average
for the 60 consecutive day period immediately preceding the dividend payment, is at least the greater of $75 million and 15%
of the maximum revolving credit availability, and (B) the Company maintains a fixed charge coverage ratio of at least
1.00:1.00, as calculated in accordance with the terms of the ABL facility.
Share-based Compensation
During 2015, the Company adopted the Allegheny Technologies Incorporated 2015 Incentive Plan (the “2015 Incentive Plan”).
In May 2017, the Company adopted the Allegheny Technologies Incorporated 2017 Incentive Plan (the “2017 Incentive Plan”).
Upon adoption of the 2017 Incentive Plan, all new awards are being made under the 2017 Incentive Plan. Shares previously
remaining available for grant under the 2015 Incentive Plan, or which become available for award due to the forfeiture or
cancellation of prior awards under the 2015 Incentive Plan, are available for award under the 2017 Incentive Plan. Outstanding
grants previously made under the 2015 Incentive Plan remain in effect in accordance with their terms and the terms of their
respective Plan.
Awards earned under the Company’s share-based incentive compensation programs are generally paid with shares held in
treasury, if sufficient treasury shares are held, and any additional required share payments are made with newly issued shares.
At December 31, 2019, 4.1 million shares of common stock were available for future awards under the 2017 Incentive Plan.
The general terms of each arrangement granted under the 2015 Incentive Plan or the 2017 Incentive Plan, and predecessor
plans, the method of estimating fair value for each arrangement, and award activity is reported below.
Beginning in 2016, the Company implemented a new share-based incentive compensation program, the Long-Term Incentive
Plan (LTIP). The LTIP consists of both Restricted Share Units (RSU) and Performance Share Units (PSU).
For years prior to 2016, the Company’s two principal share-based incentive compensation programs were the Performance/
Restricted Stock Program (PRSP) of nonvested stock awards and the Long-Term Performance Plan (LTPP). The LTPP was
adopted in 2014 and included performance shares under the Total Shareholder Return (TSR) portion and nonvested stock
awards under the Long-Term Shareholder Value (LTSV) portion.
Nonvested stock awards/units:
Restricted Share Units: Beginning in 2016, annual awards of RSUs were granted to employees, with service conditions. RSUs
are rights to receive shares of Company stock when the award vests. The RSUs generally vest over three years based on
employment service, with one-third of the award vesting on each of the first, second and third anniversaries of the grant date.
No dividends are accumulated or paid on the RSUs. The fair value of the RSU award is measured based on the stock price at
the grant date. In 2017, 2018 and 2019, 320,808, 253,393 and 345,400 RSUs, respectively, were awarded to employees under
the LTIP. In February 2019, one-third of the 2016, 2017 and 2018 RSU awards vested, comprising 175,287, 102,188 and
83,312 shares, respectively. In February 2018, one-third of the 2016 and 2017 RSU awards vested, comprising 178,335 and
102,279 shares, respectively. In February 2017, one-third of the 2016 RSU award vested, comprising 190,421 shares.
Nonvested stock awards: Prior to 2016, awards of nonvested stock were granted to employees under the PRSP, with either
performance and/or service conditions. Awards of nonvested stock are also granted to non-employee directors, with service
conditions. For nonvested stock awards, dividend equivalents, whether in stock or cash form, accumulate but are not paid until
the underlying award vests.
LTSV awards vest at the end of a three-year measurement period subject to the achievement, in whole or in part, of specified
operational goals. At December 31, 2017, 60% of the operational goals for the 2015 LTSV were attained and 73,734 shares
vested and 49,148 shares were forfeited. As of December 31, 2017, there were no remaining LTSV awards outstanding.
The fair value of nonvested stock awards is measured based on the stock price at the grant date, adjusted for non-participating
dividends, as applicable, based on the current dividend rate. For nonvested stock awards to employees in 2012, 2013, 2014 and
2015 under the Company’s PRSP, one-half of the nonvested stock (“performance shares”) vested only on the attainment of an
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income target, measured cumulatively over a three-year period. The remaining nonvested stock awarded to most employees
under the 2015 PRSP vests over a service period of three years; for certain senior executives this service period is five years for
the 2015 award. The remaining PRSP nonvested stock awarded to employees under the 2012, 2013 and 2014 vest over a
service period of five years, with accelerated vesting to three years if the performance shares’ vesting criterion was attained.
Expense for each of these awards was recognized based on estimates of attaining the performance criterion, including estimated
forfeitures. The three-year cumulative income statement metrics in 2012, 2013, 2014 and 2015 PRSP awards were not met, and
performance share forfeitures were 171,083, 244,899, 214,571 and 196,196 shares, respectively. The remaining service portion
of the 2014 PRSP, comprising 207,751 shares, vested in February 2019. The remaining service portion of the 2013 PRSP,
comprising 233,896 shares, vested in February 2018. The remaining service portion of the 2012 PRSP, comprising of 166,929
shares, vested in February 2017. The remaining service portion of the 2015 PRSP for all employees except certain senior
executives, comprising of 126,585 shares, vested at December 31, 2017. Vesting of the remaining service portion of the 2015
PRSP awards for certain senior executives continues over the five-year service period through February 2020.
Compensation expense related to all nonvested stock awards and units was $9.8 million in 2019, $9.7 million in 2018, and $9.8
million in 2017. Approximately $5.9 million of unrecognized fair value compensation expense relating to nonvested stock
awards and restricted stock units is expected to be recognized through 2022, including $4.6 million expected to be recognized
in 2020, based on estimated service period forfeitures. Activity under the Company’s nonvested stock awards and restricted
share units for the years ended December 31, 2019, 2018, and 2017 was as follows:
(Shares in thousands, $ in millions)
2019
2018
2017
Number of
shares/units
1,055
396
(681)
(14)
756
$
$
Weighted
Average
Grant Date
Fair Value
Number of
shares/units
Weighted
Average Grant
Date Fair
Value
Number of
shares
Weighted
Average Grant
Date Fair
Value
28.3
10.8
(14.5)
(0.4)
24.2
1,320
290
(540)
(15)
1,055
$
$
32.5
7.8
(11.7)
(0.3)
28.3
1,852
378
(591)
(319)
1,320
$
$
51.5
7.1
(16.9)
(9.2)
32.5
Nonvested, beginning of year
Granted
Vested
Forfeited
Nonvested, end of year
Performance awards:
Performance Share Units: In 2016, the Company established the PSU award. PSU award opportunities are determined at a
target number of shares, and the number of shares awarded is based on attainment of two ATI financial performance metrics.
The metrics for awards through 2018 measured (1) net income attributable to ATI and (2) return on invested capital, over a
three-year performance period. The metrics for the 2019 award measured (1) net income attributable to ATI and (2) return on
capital employed, over a three-year performance period. For certain senior executives, the number of PSUs to be awarded
based on the performance criteria is modified up or down by up to 20% based on the Company’s relative total shareholder
return over the performance measurement period (“TSR Modifier”), but not above the maximum number of PSUs to be vested.
The TSR Modifier is measured as the return of the Company’s stock price (including assumed dividend reinvestment, if any) at
the end of the performance period as compared to the stock prices (including assumed dividend reinvestment, if any) of a group
of industry peers. The fair value of the PSU award is measured based on the stock price at the grant date, including the effect
of the TSR Modifier. The fair value of the TSR Modifier is estimated using Monte Carlo simulations of stock price correlation,
projected dividend yields and other variables over a three-year time horizon matching the TSR performance measurement
period.
In 2017, 2018 and 2019, the Company awarded 589,980, 456,318 and 479,364 share units, respectively, at the target level with
a weighted average grant date fair value of $12.4 million, $12.9 million and $14.7 million respectively. The 2017 PSU
performance, and share units, each have a threshold attainment of 25% and a maximum attainment of 150% of the target
financial performance metrics and target share units, measured over the applicable three-year performance period. The 2018
and 2019 PSU performance, and share units, each have a threshold attainment of 25% and a maximum attainment of 200% of
the target financial performance metrics and target share units, measured over the applicable three-year performance period. At
December 31, 2019, a maximum of 1.8 million shares have been reserved for issuance for the PSU awards. At December 31,
2019, the 2017 PSU awards vested above target and at +20% for the TSR Modifier, resulting in the issuance of 669,898 shares.
At December 31, 2018, the 2016 PSU awards vested with financial performance attainment between threshold and target and at
+20% for the TSR Modifier, resulting in the issuance of 329,897 shares. Aggregate compensation expense recognized over the
three year performance periods for the 2018 and 2019 PSU awards could range from zero to $51 million, including estimated
forfeitures, based on the actual financial performance attained. Compensation expense for the PSUs during the performance
period is recognized based on estimates of attaining the performance criteria, including estimated forfeitures, which is
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evaluated on a quarterly basis. The Company recognized $3.8 million, $11.4 million and $14.6 million of compensation
expense in 2017, 2018 and 2019, respectively, for the PSU awards. As of December 31, 2019, ATI estimates achieving
financial performance attainment for the 2018 and 2019 PSU awards slightly above target levels. Based on these estimates,
there is $12.9 million of cumulative unrecognized compensation expense remaining for the PSU awards, including estimated
forfeitures, which is expected to be recognized over the remaining performance periods through fiscal year 2021. This includes
$7.7 million expected to be recognized in 2020. Forfeited share units in 2017, 2018 and 2019 were 67,521, 21,848 and 48,598,
respectively, with a weighted average grant date fair value of $1.0 million, $0.5 million and $1.1 million, respectively.
Total Shareholder Return: Award opportunities under the TSR portion of the formerly-used LTPP incentive compensation
program were determined at a target number of shares, and performance equity awards paid out based on the measured return
of the Company’s stock price and dividend performance at the end of three-year periods as compared to the stock price and
dividend performance of a group of industry peers. The actual number of shares awarded at the end of the performance
measurement period may range from a minimum of zero to a maximum of two times target. Fair values for these performance
awards were estimated using Monte Carlo simulations of stock price correlation, projected dividend yields and other variables
over three-year time horizons matching the total shareholder return performance measurement periods. Compensation expense
was $3.6 million in 2017 for the TSR awards. As of December 31, 2017, there were no remaining TSR awards under the LTPP
outstanding.
Note 17. Income Taxes
Income (loss) before income taxes for the Company’s U.S. and non-U.S. operations was as follows:
(In millions)
U.S.
Non-U.S.
Income (loss) before income taxes
The income tax provision (benefit) was as follows:
(In millions)
Current:
Federal
State
Foreign
Total
Deferred:
Federal
State
Foreign
Total
Income tax provision (benefit)
2019
2018
2017
$
$
$
$
2019
$
$
$
190.2
51.4
241.6
2.2
0.2
8.1
10.5
(4.6)
(40.4)
6.0
(39.0)
(28.5) $
190.8
56.9
247.7
2018
1.0
(0.8)
10.1
10.3
1.3
(0.5)
(0.1)
0.7
11.0
$
$
$
$
(119.8)
33.3
(86.5)
2017
(0.8)
(1.3)
6.2
4.1
2.4
(14.4)
1.1
(10.9)
(6.8)
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The following is a reconciliation of income taxes computed at the statutory U.S. Federal income tax rate to the actual effective
income tax provision (benefit):
(In millions)
Taxes computed at the federal rate
Goodwill impairment
State and local income taxes, net of federal tax benefit
Valuation allowance
Repatriation of foreign earnings (GILTI starting in 2018)
Restructuring
Impacts of U.S. Tax Act
Foreign earnings taxed at different rate
Adjustment to prior years’ taxes
Withholding taxes
Preferential tax rate
Other
Income tax provision (benefit)
2019
2018
2017
$
$
$
50.7
—
0.3
(90.1)
3.5
4.2
—
2.7
—
2.7
(4.1)
1.6
(28.5) $
52.0
—
(0.5)
(48.0)
5.4
—
5.9
3.2
(5.8)
2.7
(4.8)
0.9
11.0
$
$
(30.3)
36.6
—
(14.5)
14.2
—
(4.1)
(3.5)
(5.2)
2.2
(3.7)
1.5
(6.8)
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and
Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code. Changes impacting the
Company’s tax provision for the past three years include the following:
(1) Reducing the U.S. federal current and deferred rate to 21%; The change in the U.S. federal corporate tax rate from
35% to 21% resulted in a $2.6 million benefit, which was recognized in 2017, as it related to the remeasurement of
indefinite lived deferred tax liabilities. In addition, the reconciliation of income taxes utilized a 35% U.S. federal tax
rate for 2017 compared to 2019 and 2018 which utilized a 21% federal tax rate.
(2) Repeal of the alternative minimum tax, which resulted in a $1.5 million decrease in the deferred tax asset valuation
allowance that was recognized in 2017. This tax benefit, along with the benefit related to the remeasurement of
indefinite lived deferred tax assets is combined for a total benefit of $4.1 million and presented within the 2017 income
tax reconciliation as Impact from U.S. tax reform in the above table.
(3) Requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, with
$5.9 million included in the 2018 tax provision. This is also reported as Impact from U.S. tax reform for 2018.
(4) Requiring a current year inclusion in U.S. federal taxable income of certain earnings of controlled foreign
corporations, commonly referred to as Global Intangible Low-Taxed Income (GILTI), for which the Company is
currently utilizing pre-January 1, 2018 net operating losses (NOLs) to offset the 2019 income inclusion of $16.8 million
($3.5 million net tax effect) and utilized pre-January 1, 2018 losses in 2018 to offset the $25.7 million ($5.4 million net
tax effect) inclusion. The Company has elected to recognize GILTI liabilities as an element of income tax expense in the
period incurred.
(5) Creating a new limitation on deductible interest expense, for which the Company has estimated the federal limitation
to be $24 million in 2019, creating an indefinite lived deferred tax asset for which a valuation allowance was not
established. This limitation is affected by the interpretation of the meaning of depreciation in the proposed regulations,
which could change as additional guidance and/or final regulations are issued. The Company continues to analyze
additional planning around the overall calculation and continues to wait for final regulations.
In 2018, the Company was granted a preferential tax rate related to the STAL joint venture operations in China for tax years
2018 through 2020. The preferential tax rate is 15%, compared to the statutory rate of 25%. The Company has benefited from
past preferential tax rate grants by the Chinese government, and the previous 15% three-year preferential tax rate expired on
December 31, 2017.
In 2019, the Company restructured certain foreign legal entities, including the elimination of entities that were no longer cost-
effective following changes of the Tax Act, which resulted in $4.2 million of tax expense related to previously-recognized net
operating loss carryforwards.
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The Company recognizes deferred tax assets to the extent it believes these deferred tax assets are more likely than not to be
realized. Valuation allowances are established when it is estimated that it is more likely than not the tax benefit of the deferred
tax asset will not be realized. In making such determination, the Company considers 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. The verifiable evidence such as future reversals of existing temporary differences and the
ability to carryback are considered before the subjective sources such as estimate future taxable income exclusive of temporary
differences and tax planning strategies. In situations where a three-year cumulative loss position exists, accounting standards
limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. If
the Company determines that it would not be able to realize its deferred tax assets in the future in excess of their recorded net
amount, an adjustment to the deferred tax asset valuation allowance would result.
Beginning in 2015, the Company’s results reflected a three year cumulative loss from U.S. operations, and valuation
allowances were established on its’ federal and state deferred tax assets. In 2017, the Company’s results reflected a partial
release of the valuation allowance related to the federal and state deferred tax assets, along with the one-time transition tax
inclusion in 2017. In 2018 based upon updated guidance, approximately $28.2 million of available tax credits were used
instead of the NOL to offset the transition tax inclusion. This overall change in presentation was reflected within the 2018
effective tax rate.
In 2018, the Company reported income before tax of $247.7 million, of which $190.8 million was attributable to the U.S. The
overall income, along with the GILTI inclusion for the year, resulted in the Company utilizing NOL deferred tax assets in 2018,
which resulted in a U.S. valuation allowance release of $46.3 million for 2018. At December 31, 2018, the Company continued
to maintain a valuation allowance on the net deferred tax assets for U.S. federal and state income tax purposes, with the
exception of the indefinite lived deferred tax liability related to goodwill and the withholding tax liability associated with its
permanent reinvestment assertion, as well as valuation allowances for certain foreign operations.
At December 31, 2019, the Company’s U.S. results have switched from a three-year cumulative loss position to a three-year
cumulative income position, allowing the Company to utilize forecasts of future profits as a source of income when evaluating
the overall need for a valuation allowance. The Company 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. The change in the overall valuation allowance for 2019 includes amounts
utilized during the year as part of the reported effective tax rate, as well as a $45.1 million reduction at December 31, 2019
based on a change in judgment on the realizability of deferred tax assets.
The Company also established valuation allowances on deferred tax amounts recorded in accumulated other comprehensive
loss in 2017, 2018 and 2019 of $28.8 million, $49.3 million and $41.5 million, respectively, which are not reflected in the
preceding table reconciling amounts recognized in the income tax provision (benefit) recorded on the statement of operations
(see Note 15). Due to the change in judgment on the realizability of deferred tax assets at December 31, 2019, no changes to
the beginning of year balances for U.S deferred tax valuation allowances were recognized in accumulated other comprehensive
loss in 2019. The 2019 income tax provision includes $6.0 million of tax expense for the recognition of a stranded deferred tax
balance in accumulated other comprehensive loss arising from deferred tax valuation allowances that was associated with a
cash flow hedge portfolio that fully settled in the fourth quarter of 2019. See Notes 12 and 15 for additional information on
cash flow hedge activity.
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Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax
reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as
purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax
benefits or costs to be recognized when those temporary differences reverse. The categories of assets and liabilities that have
resulted in differences in the timing of the recognition of income and expense at December 31, 2019 and 2018 were as follows:
(In millions)
Deferred income tax assets
Pensions
Postretirement benefits other than pensions
Net operating loss tax carryovers
Tax credits
Other items
Gross deferred income tax assets
Valuation allowance for deferred tax assets
Total deferred income tax assets
Deferred income tax liabilities
Bases of property, plant and equipment
Inventory valuation
Bases of amortizable intangible assets
Other items
Total deferred tax liabilities
Net deferred tax asset (liability)
2019
2018
155.5
83.8
264.4
42.6
86.1
632.4
(94.5)
537.9
364.2
65.5
23.7
27.0
480.4
57.5
$
$
159.4
87.3
307.5
49.7
69.7
673.6
(194.8)
478.8
371.5
67.1
29.9
14.5
483.0
(4.2)
$
$
The following summarizes the carryforward periods for the tax attributes related to NOLs and credits by jurisdiction.
($ in millions, U.S. and U.K. NOL amounts are pre-tax and all other items are after-tax)
Jurisdiction
U.S.
U.S.
U.S.
State
State
U.K.
Attribute
NOL
Foreign Tax Credit
Research and
Development Credit
NOL
Credits
NOL
Poland
Economic Zone Credit
Amount
Expiration Period
Amount expiring
within 5 years
Amount expiring in
5-20 years
$766
$30
$2
$136
$11
$23
$2
20 years
10 years
20 years
Various
Various
Indefinite
7 years
$—
$7
$—
$30
$3
$—
$—
$766
$23
$2
$106
$8
$—
$2
Income taxes paid and amounts received as refunds were as follows:
(In millions)
Income taxes paid
Income tax refunds received
Income taxes paid, net
2019
2018
2017
$
$
15.1
(9.2)
5.9
$
$
9.7
(1.6)
8.1
$
$
10.4
(7.1)
3.3
In general, the Company is responsible for filing consolidated U.S. federal, foreign and combined, unitary or separate state
income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent
adjustments resulting from the redetermination of such tax liability by the applicable taxing authorities.
Deferred taxes of $3.5 million have been recorded for foreign withholding taxes on earnings expected to be repatriated to the
U.S. The Company does not intend to distribute previously taxed earnings resulting from the one-time transition tax under the
Tax Act, and has not recorded any deferred taxes related to such amounts. The remaining excess of the amount for financial
reporting over the tax basis of investments in foreign subsidiaries is indefinitely reinvested, and the determination of any
deferred tax liability on this amount is not practicable.
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Uncertain tax positions are recorded using a two-step process based on (1) determining whether it is more-likely-than-not the
tax positions will be sustained on the basis of the technical merits of the position and (2) for those positions that meet the more-
likely-than-not recognition threshold, the Company records the largest amount of the tax benefit that is more than 50 percent
likely to be realized upon ultimate settlement with the related tax authority. The changes in the liability for unrecognized
income tax benefits for the years ended December 31, 2019, 2018 and 2017 were as follows:
(In millions)
Balance at beginning of year
Increases in prior period tax positions
Decreases in prior period tax positions
Increases in current period tax positions
Expiration of the statute of limitations
Settlements
Balance at end of year
2019
2018
2017
$
$
14.7
—
—
0.9
(1.2)
—
14.4
$
$
14.7
—
(0.1)
0.7
(0.6)
—
14.7
$
$
22.7
—
(0.7)
0.7
(0.4)
(7.6)
14.7
For years ended December 31, 2019, 2018 and 2017, the liability includes $11.5 million, $12.1 million and $11.7 million,
respectively, of unrecognized tax benefits that are classified within deferred income taxes as a reduction of NOL carryforwards
and other tax attributes. The total estimated unrecognized tax benefit that, if recognized, would affect ATI’s effective tax rate is
approximately $3 million. At this time, the Company believes that it is reasonably possible that approximately $2 million of
the estimated unrecognized tax benefits as of December 31, 2019 will be recognized within the next twelve months based on
the expiration of statutory review periods.
The Company recognizes accrued interest and penalties related to uncertain tax positions as income tax expense. The amounts
accrued for interest and penalty charges for the years ended December 31, 2019, 2018 and 2017 were not significant. At both
December 31, 2019 and 2018, the accrued liabilities for interest and penalties related to unrecognized tax benefits were $2.7
million.
The Company, and/or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and in various state and
foreign jurisdictions. A summary of tax years that remain subject to examination, by major tax jurisdiction, is as follows:
Jurisdiction
U.S. Federal
States:
Pennsylvania
Foreign:
China
Poland
United Kingdom
Note 18. Business Segments
Earliest Year Open to
Examination
2018
2016
2016
2013
2017
The Company operates in two business segments: High Performance Materials & Components (HPMC) and Flat Rolled
Products (FRP). Over 75% of 2019 HPMC business segment sales are to the aerospace & defense markets, and nearly half of
HPMC’s total sales are products for commercial jet engines. Other major HPMC end markets include medical and electrical
energy. HPMC produces a wide range of high performance materials, and components, and advanced metallic powder alloys
made from titanium and titanium-based alloys, nickel-based alloys and superalloys, and a variety of other specialty materials.
Capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished
components, including those used for next-generation jet engine forgings and 3D-printed aerospace products.
The FRP segment serves a diverse group of end markets, with sales to the oil & gas market and aerospace & defense markets
collectively representing over 40% of 2019 sales. Other important end markets for FRP include automotive, food processing
equipment and appliances, consumer electronics, and construction & mining. FRP produces nickel-based alloys, specialty
alloys, and titanium and titanium-based alloys, and stainless steel products in a variety of forms including plate, sheet,
engineered strip, and Precision Rolled Strip products. The business units in this segment include ATI Flat Rolled Products and
STAL, in which the Company has a 60% ownership interest. Segment results also include ATI’s 50% interests in the A&T
Stainless and Uniti joint ventures, which are accounted for under the equity method. See Note 7 for further information on the
Company’s joint ventures.
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The measure of segment operating profit excludes all effects of LIFO inventory accounting and any related changes in net
realizable value inventory reserves which offset the Company’s aggregate net debit LIFO valuation balance, income taxes,
corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill impairment, restructuring
and asset impairment charges, debt extinguishment charges and non-operating gains or losses. Management believes segment
operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.
Intersegment sales are generally recorded at full cost or market. Common services are allocated on the basis of estimated
utilization.
(In millions)
Total sales:
High Performance Materials & Components
Flat Rolled Products
Total sales
Intersegment sales:
High Performance Materials & Components
Flat Rolled Products
Total intersegment sales
Sales to external customers:
High Performance Materials & Components
Flat Rolled Products
Total sales to external customers
2019
2018
2017
$
$
$
2,501.9
1,820.9
4,322.8
$
2,413.6
1,799.0
4,212.6
103.8
96.5
200.3
79.4
86.6
166.0
2,398.1
1,724.4
4,122.5
$
2,334.2
1,712.4
4,046.6
$
2,127.0
1,527.5
3,654.5
59.6
69.8
129.4
2,067.4
1,457.7
3,525.1
Total international sales were $1,667.9 million in 2019, $1,698.4 million in 2018, and $1,454.5 million in 2017. Of these
amounts, sales by operations in the United States to customers in other countries were $1,262.6 million in 2019, $1,303.8
million in 2018, and $1,078.6 million in 2017.
(In millions)
Operating profit:
High Performance Materials & Components
Flat Rolled Products
Total operating profit
LIFO and net realizable value reserves (See Note 3)
Corporate expenses
Closed operations and other expenses
Restructuring and other charges
Impairment of goodwill (See Note 5)
Debt extinguishment charge (See Note 10)
Gain on joint venture deconsolidation (See Note 7)
Joint venture impairment charge (See Note 7)
Gain on asset sales, net
Interest expense, net
Income (loss) before income taxes
2019
2018
2017
343.1
37.6
380.7
(0.1)
(66.8)
(25.5)
(4.5)
—
(21.6)
—
(11.4)
89.8
(99.0)
241.6
$
$
335.4
77.8
413.2
(0.7)
(58.1)
(21.6)
—
—
—
15.9
—
—
(101.0)
247.7
$
$
246.4
37.0
283.4
(0.2)
(50.5)
(34.0)
—
(114.4)
(37.0)
—
—
—
(133.8)
(86.5)
$
$
Closed operations and other expenses are primarily presented in selling and administrative expenses in the consolidated
statements of operations. These items included costs at closed facilities, including legal matters, environmental, real estate and
other facility costs, and changes in foreign currency remeasurement impacts primarily related to our European Treasury Center
operation.
Restructuring and other charges for 2019 are comprised of severance obligations for the reduction of approximately 70
positions in order to streamline ATI’s salaried workforce primarily to improve the cost competitiveness of the U.S.-based FRP
business. The entire $4.5 million will be paid in 2020 upon completion of these reductions.
The $89.8 million net gain on asset sales for 2019 consists of a $91.7 million gain on the sale of certain oil and gas rights in
Eddy County, NM (see Note 9) and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by
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an $8.1 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. See Note 6 for
further explanation regarding the sale of business transactions.
Certain additional information regarding the Company’s business segments is presented below:
(In millions)
Depreciation and amortization:
High Performance Materials & Components
Flat Rolled Products
Corporate
Total depreciation and amortization
Capital expenditures:
High Performance Materials & Components
Flat Rolled Products
Corporate
Total capital expenditures
Identifiable assets:
High Performance Materials & Components
Flat Rolled Products
Discontinued Operations
Corporate:
Deferred Taxes
Cash and cash equivalents and other
$
$
$
$
$
2019
2018
2017
99.1
49.1
2.9
151.1
132.5
34.8
0.9
168.2
$
$
$
$
106.5
47.0
2.9
156.4
79.8
56.4
3.0
139.2
$
$
$
$
109.3
45.6
5.9
160.8
62.7
59.1
0.9
122.7
2019
2018
2017
2,689.9
$
2,765.4
$
2,255.8
—
64.5
624.4
2,225.7
—
8.7
502.0
2,662.3
2,218.4
0.2
7.6
296.9
Total assets
($ in millions)
Total assets:
United States
China
United Kingdom
Other
Total Assets
$
5,634.6
$
5,501.8
$
5,185.4
2019
Percent
of total
2018
Percent
of total
2017
Percent
of total
$
4,956.4
288.1
141.3
248.8
$
5,634.6
88% $
5%
3%
4%
100% $
4,859.1
88% $
4,547.7
287.3
136.7
218.7
5%
3%
4%
276.0
122.7
239.0
88%
5%
2%
5%
5,501.8
100% $
5,185.4
100%
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Note 19. Per Share Information
The following table sets forth the computation of basic and diluted net income (loss) per common share:
(In millions, except per share amounts)
For the Years Ended December 31,
Numerator:
Numerator for basic net income (loss) per common share -
Net income (loss) attributable to ATI
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022
Numerator for diluted net income (loss) per common share -
2019
2018
2017
$
257.6
$
222.4
$
(91.9)
12.8
12.9
—
Net income (loss) attributable to ATI after assumed conversions
$
270.4
$
235.3
$
(91.9)
Denominator:
Denominator for basic net income (loss) per common share—weighted average
shares
125.8
125.2
110.1
Effect of dilutive securities:
Share-based compensation
4.75% Convertible Senior Notes due 2022
Denominator for diluted net income (loss) per common share—adjusted weighted
average shares and assumed conversions
Basic net income (loss) attributable to ATI per common share
Diluted net income (loss) attributable to ATI per common share
0.8
19.9
146.5
2.05
1.85
$
$
0.8
19.9
145.9
1.78
1.61
$
$
—
—
110.1
(0.83)
(0.83)
$
$
Common stock that would be issuable upon the assumed conversion of the 2022 Convertible Notes 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 would have been anti-dilutive. There were no
anti-dilutive shares for 2019 and 2018. There were 20.8 million anti-dilutive shares for 2017.
Note 20. Financial Information for Subsidiary and Guarantor Parent
The payment obligations under the $150.0 million 6.95% Debentures due 2025 issued by Allegheny Ludlum, LLC (formerly
known as Allegheny Ludlum Corporation) (the “Subsidiary”) are fully and unconditionally guaranteed by ATI (the “Guarantor
Parent”). In accordance with positions established by the U.S. Securities and Exchange Commission, the following financial
information sets forth separately financial information with respect to the Subsidiary, the Non-guarantor Subsidiaries and the
Guarantor Parent. The principal elimination entries eliminate investments in subsidiaries and certain intercompany balances
and transactions.
ATI is the plan sponsor for the U.S. qualified defined benefit pension plans, which cover certain current and former employees
of the Subsidiary and the Non-guarantor Subsidiaries. As a result, the balance sheets presented for the Subsidiary and the Non-
guarantor Subsidiaries do not include any U.S. qualified defined benefit pension assets or liabilities, or the related deferred
taxes. These assets, liabilities and related deferred taxes and pension income or expense are recognized by the Guarantor
Parent. Management and royalty fees charged to the Subsidiary and to the Non-guarantor Subsidiaries by the Guarantor Parent
have been excluded solely for purposes of this presentation. The effects of income tax valuation allowances on U.S. Federal
and State deferred tax assets are excluded from the Subsidiary’s financial results, and are reported by the Guarantor Parent or
the Non-guarantor Subsidiaries, as applicable.
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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2019
(In millions)
Assets:
Cash and cash equivalents
Accounts receivable, net
Intercompany notes receivable
Short-term contract assets
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intercompany notes receivable
Investments in subsidiaries
Other assets
Total assets
Liabilities and stockholders’ equity:
Accounts payable
Intercompany notes payable
Short-term contract liabilities
Short-term debt and current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Intercompany notes payable
Accrued postretirement benefits
Pension liabilities
Other long-term liabilities
Total liabilities
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
0.3
$
4.2
$
486.3
$
— $
—
—
—
—
5.6
5.9
6.5
—
—
6,434.3
98.3
123.7
—
—
213.0
18.5
359.4
1,539.3
—
—
37.7
83.1
$ 6,545.0
$ 2,019.5
$
4.6
$
184.0
2,457.1
1,945.7
$
$
8,144.9
$ (11,074.8) $
5,634.6
332.6
$
— $
521.2
430.4
4,402.8
38.5
942.3
40.2
6,340.5
904.3
525.8
200.0
—
174.3
—
52.3
9.9
118.2
513.0
106.9
—
51.3
48.9
88.4
—
(4,402.8)
—
490.8
554.1
—
38.5
—
1,155.3
—
(4,402.8)
—
—
(200.0)
(6,472.0)
—
64.3
2,303.0
2,450.1
525.8
—
—
355.7
(4,402.8)
—
—
—
(4,402.8)
—
(200.0)
—
—
—
(4,602.8)
(6,472.0)
$ (11,074.8) $
—
78.7
11.5
237.8
849.2
1,387.4
—
312.5
731.5
160.8
3,441.4
2,193.2
5,634.6
26.4
0.2
68.1
2,224.4
150.4
200.0
261.2
3.8
44.1
2,883.9
(864.4)
$ 2,019.5
$
808.5
7,336.4
8,144.9
—
1.4
51.5
2,514.6
1,130.1
—
—
678.8
28.3
4,351.8
2,193.2
$ 6,545.0
F-89
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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended December 31, 2019
(In millions)
Sales
Cost of sales
Gross profit (loss)
Selling and administrative expenses
Restructuring charges
Operating income (loss)
Nonoperating retirement benefit expense
Interest income (expense), net
Debt extinguishment charge
Other income (expense) including equity in
income of unconsolidated subsidiaries
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Less: Net income attributable to noncontrolling
interest
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
1,429.0
$
2,693.5
$
— $
13.5
(13.5)
116.5
4.5
(134.5)
(47.5)
(148.2)
(21.6)
593.4
241.6
(28.5)
270.1
—
1,302.8
126.2
33.2
—
93.0
(24.7)
(131.6)
—
(22.0)
(85.3)
(18.3)
(67.0)
—
(67.0) $
2,168.4
525.1
117.5
—
407.6
(1.4)
180.8
—
90.2
677.2
115.6
561.6
12.5
549.1
$
—
—
—
—
—
—
—
—
(591.9)
(591.9)
(97.3)
(494.6)
—
(494.6) $
4,122.5
3,484.7
637.8
267.2
4.5
366.1
(73.6)
(99.0)
(21.6)
69.7
241.6
(28.5)
270.1
12.5
257.6
Net income (loss) attributable to ATI
$
270.1
$
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended December 31, 2019
(In millions)
Net income (loss)
Other comprehensive income (loss)
Currency translation adjustment arising
during the period
Net derivative gain on hedge transactions
Pension and postretirement benefits
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive income attributable to
noncontrolling interest
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
270.1
$
(67.0) $
561.6
$
(494.6) $
270.1
(4.0)
10.3
(75.5)
(69.2)
200.9
—
—
—
3.8
3.8
(63.2)
(4.0)
—
(15.2)
(19.2)
542.4
4.0
—
11.4
15.4
(479.2)
—
(63.2) $
11.2
531.2
$
—
(479.2) $
(4.0)
10.3
(75.5)
(69.2)
200.9
11.2
189.7
Comprehensive income (loss) attributable to ATI
$
200.9
$
F-90
4550_FIN.pdf 90
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Condensed Statements of Cash Flows
For the year ended December 31, 2019
(In millions)
Cash flows provided by (used in) operating activities
Investing Activities:
Purchases of property, plant and equipment
Net receipts (payments) on intercompany activity
Proceeds from disposals of property, plant and
equipment
Proceeds from sales of businesses, net of transaction
costs
Other
Cash flows provided by (used in) investing activities
Financing Activities:
Borrowings on long-term debt
Payments on long-term debt and finance leases
Net borrowings under credit facilities
Debt issuance costs
Debt extinguishment charge
Net receipts (payments) on intercompany activity
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Shares repurchased for income tax withholding on
share-based compensation and other
Cash flows provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
$
(0.7)
—
—
—
(0.2)
(0.9)
350.0
(500.7)
—
(5.5)
(20.9)
172.0
—
—
(9.9)
(15.0)
0.2
Guarantor
Parent
$
16.1
Subsidiary
$
(109.1) $
Non-guarantor
Subsidiaries
Eliminations
$
(21.0) $
Consolidated
230.1
—
308.0
(168.2)
—
344.1
(134.1)
(308.0)
(33.4)
—
0.1
91.9
—
92.0
—
—
(33.3)
—
(0.2)
—
—
—
136.0
—
—
—
135.8
$
(6.6) $
158.1
—
(192.1)
—
(6.7)
4.9
—
—
—
(21.0)
(14.0)
—
(36.8)
115.2
—
—
308.0
—
—
—
—
—
(308.0)
21.0
—
—
(287.0)
$
— $
158.1
(0.2)
81.7
350.0
(507.6)
4.9
(5.5)
(20.9)
—
—
(14.0)
(9.9)
(203.0)
108.8
F-91
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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2018
(In millions)
Assets:
Cash and cash equivalents
Accounts receivable, net
Intercompany notes receivable
Short-term contract assets
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intercompany notes receivable
Investments in subsidiaries
Other assets
Total assets
Liabilities and stockholders’ equity:
Accounts payable
Intercompany notes payable
Short-term contract liabilities
Short-term debt and current portion of long-
term debt
$
$
Other current liabilities
Total current liabilities
Long-term debt
Intercompany notes payable
Accrued postretirement benefits
Pension liabilities
Other long-term liabilities
Total liabilities
Total stockholders’ equity (deficit)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
0.1
$
10.8
$
371.1
$
— $
—
—
—
—
12.9
13.0
1.7
—
—
6,096.4
35.6
6,146.7
3.3
2,102.8
—
0.2
59.1
2,165.4
1,278.8
—
—
681.6
29.3
4,155.1
1,991.6
126.3
—
—
216.1
29.3
382.5
1,548.4
—
—
37.7
30.7
$
$
$
$
1,999.3
177.5
1,866.0
33.0
0.7
71.7
2,148.9
151.8
200.0
259.2
4.0
17.6
2,781.5
(782.2)
1,999.3
401.5
3,968.8
51.2
995.0
32.4
5,820.0
924.9
534.7
200.0
—
179.1
7,658.7
318.0
—
38.4
5.7
129.3
491.4
104.9
—
59.2
44.4
42.5
$
$
—
(3,968.8)
—
—
—
(3,968.8)
—
—
(200.0)
(6,134.1)
—
382.0
527.8
—
51.2
1,211.1
74.6
2,246.7
2,475.0
534.7
—
—
245.4
(10,302.9) $
5,501.8
— $
(3,968.8)
—
—
—
(3,968.8)
—
(200.0)
—
—
—
(4,168.8)
(6,134.1)
(10,302.9) $
498.8
—
71.4
6.6
260.1
836.9
1,535.5
—
318.4
730.0
89.4
3,510.2
1,991.6
5,501.8
742.4
6,916.3
$
7,658.7
$
Total liabilities and stockholders’ equity
$
6,146.7
$
F-92
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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended December 31, 2018
(In millions)
Sales
Cost of sales
Gross profit (loss)
Selling and administrative expenses
Operating income (loss)
Nonoperating retirement benefit expense
Interest income (expense), net
Other income (expense) including equity in
income of unconsolidated subsidiaries
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Less: Net income attributable to
noncontrolling interest
Net income (loss) attributable to ATI
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
1,410.3
$
2,636.3
$
— $
16.6
(16.6)
101.7
(118.3)
(12.7)
(138.8)
517.5
247.7
11.0
236.7
—
$
236.7
$
1,302.4
2,097.3
107.9
34.2
73.7
(19.5)
(114.6)
16.8
(43.6)
(8.7)
(34.9)
—
(34.9) $
539.0
132.3
406.7
(1.7)
152.4
0.8
558.2
83.9
474.3
14.3
460.0
$
—
—
—
—
—
—
(514.6)
(514.6)
(75.2)
(439.4)
—
(439.4) $
4,046.6
3,416.3
630.3
268.2
362.1
(33.9)
(101.0)
20.5
247.7
11.0
236.7
14.3
222.4
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended December 31, 2018
(In millions)
Net income (loss)
Other comprehensive income (loss)
Currency translation adjustment arising during the
period
Net derivative loss on hedge transactions
Pension and postretirement benefits
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling
interest
Comprehensive income (loss) attributable to ATI
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$ 236.7
$
(34.9) $
474.3
$
(439.4) $
236.7
(26.6)
(18.1)
(67.5)
(112.2)
124.5
—
—
(19.1)
(19.1)
(54.0)
(26.6)
—
0.7
(25.9)
448.4
26.6
—
18.4
45.0
(394.4)
(26.6)
(18.1)
(67.5)
(112.2)
124.5
—
$ 124.5
$
—
(54.0) $
8.1
440.3
$
—
(394.4) $
8.1
116.4
F-93
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Condensed Statements of Cash Flows
For the year ended December 31, 2018
(In millions)
Cash flows provided by (used in) operating activities
Investing Activities:
Purchases of property, plant and equipment
Net receipts (payments) on intercompany activity
Proceeds from disposal of property, plant and
equipment
Purchases of businesses
Other
Cash flows provided by (used in) investing activities
Financing Activities:
Borrowings on long-term debt
Payments on long-term debt and finance leases
Net payments under credit facilities
Net receipts (payments) on intercompany activity
112.5
234.0
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Sale of noncontrolling interests
Shares repurchased for income tax withholding on
share-based compensation and other
Cash flows provided by (used in) financing activities
—
—
—
(6.5)
105.8
—
—
11.7
—
244.8
Increase (decrease) in cash and cash equivalents
$
(2.0) $
(2.7) $
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended December 31, 2017
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
(107.0) $
(223.9) $
738.7
$
(15.0) $
392.8
(2.1)
—
—
—
1.3
(0.8)
—
(0.2)
—
(26.2)
—
2.6
—
—
(23.6)
—
(0.9)
—
(110.9)
(346.5)
0.2
(10.0)
—
(467.2)
7.1
(5.3)
(5.9)
—
(15.0)
(10.0)
2.7
—
(26.4)
245.1
—
346.5
—
—
—
346.5
—
—
—
(346.5)
15.0
—
—
—
(331.5)
$
— $
(139.2)
—
2.8
(10.0)
1.3
(145.1)
7.1
(6.4)
(5.9)
—
—
(10.0)
14.4
(6.5)
(7.3)
240.4
(In millions)
Sales
Cost of sales
Gross profit (loss)
Selling and administrative expenses
Impairment of goodwill
Operating income (loss)
Nonoperating retirement benefit expense
Interest income (expense), net
Debt extinguishment charge
Other income (expense) including equity in
income of unconsolidated subsidiaries
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Less: Net income attributable to
noncontrolling interest
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
1,178.9
$
2,346.2
$
— $
14.6
(14.6)
86.6
—
(101.2)
(32.2)
(155.8)
(37.0)
239.7
(86.5)
(6.8)
(79.7)
—
1,085.5
1,928.0
93.4
36.9
—
56.5
(18.7)
(90.0)
—
1.6
(50.6)
(16.6)
(34.0)
—
(34.0) $
418.2
124.5
114.4
179.3
(3.4)
112.0
—
2.4
290.3
131.4
158.9
12.2
146.7
$
—
—
—
—
—
—
—
—
(239.7)
(239.7)
(114.8)
(124.9)
—
(124.9) $
3,525.1
3,028.1
497.0
248.0
114.4
134.6
(54.3)
(133.8)
(37.0)
4.0
(86.5)
(6.8)
(79.7)
12.2
(91.9)
Net income (loss) attributable to ATI
$
(79.7) $
F-94
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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended December 31, 2017
(In millions)
Net income (loss)
Other comprehensive income (loss)
Guarantor
Parent
Subsidiary
Non-
guarantor
Subsidiaries
Eliminations
Consolidated
$ (79.7) $ (34.0) $
158.9
$
(124.9) $
(79.7)
Currency translation adjustment arising during the period
Net derivative gain on hedge transactions
Pension and postretirement benefits
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
39.1
7.1
27.3
73.5
(6.2)
—
—
(5.8)
(5.8)
(39.8)
39.1
—
(10.7)
28.4
187.3
(39.1)
—
16.5
(22.6)
(147.5)
39.1
7.1
27.3
73.5
(6.2)
Less: Comprehensive income attributable to noncontrolling
interest
—
—
19.8
Comprehensive income (loss) attributable to ATI
$
(6.2) $ (39.8) $
167.5
$
—
(147.5) $
19.8
(26.0)
Condensed Statements of Cash Flows
For the year ended December 31, 2017
(In millions)
Cash flows provided by (used in) operating activities
Investing Activities:
Purchases of property, plant and equipment
Net receipts (payments) on intercompany activity
Proceeds from disposal of property, plant and
equipment
Other
Cash flows provided by (used in) investing activities
Financing Activities:
Borrowings on long-term debt
Payments on long-terms debt and finance leases
Net borrowings under credit facilities
Debt issuance costs
Debt extinguishment charge
Net receipts (payments) on intercompany activity
Issuance of common stock
Dividends paid to stockholders
Dividends paid to noncontrolling interests
Sale to noncontrolling interest
Shares repurchased for income tax withholding on
share-based compensation
Cash flows provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
$
(4.8)
79.5
(0.2) $
F-95
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations
Consolidated
$
(78.8) $
(101.5) $
214.7
$
(12.0) $
22.4
(0.9)
—
—
—
(0.9)
—
(350.4)
—
—
(35.8)
72.7
397.8
—
—
—
(38.5)
—
0.1
—
(38.4)
—
(0.3)
—
—
—
151.2
—
—
—
—
—
150.9
11.0
$
(83.3)
(223.9)
2.6
0.4
(304.2)
8.5
(2.3)
1.6
(0.8)
—
—
—
(12.0)
(8.0)
3.7
—
(9.3)
(98.8) $
—
223.9
—
—
223.9
—
—
—
—
—
(223.9)
—
12.0
—
—
—
(211.9)
— $
(122.7)
—
2.7
0.4
(119.6)
8.5
(353.0)
1.6
(0.8)
(35.8)
—
397.8
—
(8.0)
3.7
(4.8)
9.2
(88.0)
4550_FIN.pdf 95
2/26/20 3:27 PM
Note 21. Commitments and Contingencies
Future minimum rental commitments under leases are disclosed in Note 11. Commitments for expenditures on property, plant
and equipment at December 31, 2019 were approximately $116.5 million.
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.
At December 31, 2019, the Company’s reserves for environmental remediation obligations totaled approximately $18 million,
of which $7 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; $13 million for formerly owned or operated sites for which the
Company has remediation or indemnification obligations; $1 million for owned or controlled sites at which Company
operations have been discontinued; and $1 million for sites utilized by the Company in its ongoing operations. The Company
continues to evaluate whether it may be able to recover a portion of 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 the costs for active 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, 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 Company’s consolidated financial
condition or results of operations.
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.
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, patent infringement, commercial,
government contracting, construction, employment, employee and retiree benefits, taxes, environmental, health and safety,
occupational disease, 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
consolidated 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.
Allegheny Technologies Incorporated and its subsidiary, ATI Titanium LLC (“ATI Titanium”), are parties to a lawsuit captioned
US Magnesium, LLC v. ATI Titanium LLC (Case No. 2:17-cv-00923-DB) and filed in federal district court in Salt Lake City,
UT, pertaining to a Supply and Operating Agreement between US Magnesium LLC (“USM”) and ATI Titanium entered into in
2006 (the “Supply Agreement”). In 2016, ATI Titanium notified USM that it would suspend performance under the Supply
Agreement in reliance on certain terms and conditions included in the Supply Agreement. USM subsequently filed a claim
challenging ATI Titanium’s right to suspend performance under the Supply Agreement, claiming that such suspension was a
material breach of the Supply Agreement and seeking monetary damages, and ATI Titanium filed a counterclaim for breach of
contract against USM. In 2018, USM obtained leave of the court to add Allegheny Technologies Incorporated as a separate
party defendant, and ATI Titanium filed a motion to dismiss the claim against Allegheny Technologies Incorporated, which the
court denied on April 19, 2019. The case is proceeding through discovery, and while ATI intends to vigorously defend against
and pursue these claims, it cannot predict their outcomes at this time.
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Note 22. Selected Quarterly Financial Data
(Unaudited)
(In millions, except per share amounts)
2019 -
Sales
Gross Profit
Net income
Net income attributable to ATI
Basic income attributable to ATI per common share
Diluted income attributable to ATI per common share
Average shares outstanding
2018 -
Sales
Gross Profit
Net income
Net income attributable to ATI
Basic income attributable to ATI per common share
Diluted income attributable to ATI per common share
Average shares outstanding
March 31
June 30
September 30
December 31
Quarter Ended
$
$
$
$
$
$
1,004.8
131.1
16.3
15.0
0.12
0.12
125.8
979.0
148.6
60.5
58.0
0.46
0.42
125.7
$
$
$
$
$
$
1,080.4
177.7
78.5
75.1
0.60
0.54
126.1
1,009.5
173.7
75.6
72.8
0.58
0.52
125.7
$
$
$
$
$
$
1,018.7
159.7
115.3
111.0
0.88
0.78
126.1
1,020.2
160.4
55.6
50.5
0.40
0.37
125.7
$
$
$
$
$
$
1,018.6
169.3
60.0
56.5
0.45
0.41
126.1
1,037.9
147.6
45.0
41.1
0.33
0.30
125.7
Quarterly earnings per share amounts above may not add to year-to-date amounts due to rounding as well as the impact of
dilutive securities for each individual quarterly period versus the year-to-date period.
Second quarter 2019 results include a $29.3 million pre-tax ($27.3 million, net of tax) gain on the sale of oil and gas rights in
New Mexico. See Note 9 for further explanation. Second quarter 2019 results also include a $7.7 million pre-tax ($7.2
million, net of tax) loss on the sale of two non-core forging facilities. See Note 6 for further explanation.
Third quarter 2019 results include a $62.4 million pre-tax ($60.5 million, net of tax) gain on an additional sale of oil and gas
rights in New Mexico. See Note 9 for further explanation. Third quarter 2019 results also include a $6.2 million pre-tax ($6.0
million, net of tax) net gain on the sale of the Cast Products business. See Note 6 for further explanation.
Fourth quarter 2019 results include the following:
•
•
•
•
$4.5 million pre-tax ($4.3 million, net of tax) restructuring charge to streamline ATI’s salaried workforce primarily to
improve the cost competitiveness of the U.S.-based Flat Rolled Products business. See Note 18 for further
explanation.
$21.6 million pre-tax ($20.5 million, net of tax) debt extinguishment charge for the full redemption of the 2021 Notes.
See Note 10 for further explanation.
$11.4 million pre-tax ($10.8 million, net of tax) joint venture impairment charge related to the A&T Stainless joint
venture. See Note 7 for further explanation.
$41.9 million net discrete tax benefit primarily related to the reversal of a significant portion of the Company's
deferred tax valuation allowances. See Note 17 for further explanation.
First quarter 2018 results include a $15.9 million pre-tax ($14.7 million, net of tax) gain on deconsolidation of A&T Stainless
following the sale of a 50% noncontrolling interest and subsequent derecognition. See Note 7 for further explanation.
Net of tax amounts presented above generally use the effective tax rate for the applicable quarterly period which differs from
the effective tax rate for the full year.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
In accordance with Securities Exchange Act Rules 13-1-15(e) and 15d-15(e), our management, under the supervision of our
Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2019.
(b) Management’s Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange
Act of 1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because
of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance
and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting
can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that
material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this risk.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) in Internal Control-Integrated Framework.
Based on that assessment, the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2019, the
Company’s internal control over financial reporting was effective based on those criteria.
The Company’s independent registered public accounting firm that audited the consolidated financial statements included in
this Annual Report issued an attestation report on effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019.
(c) Changes to Internal Control over Financial Reporting.
There were no changes to our internal control over financial reporting that occurred during the quarter ended December 31,
2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Certifications
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act
are included as Exhibits 31 and 32 to this Annual Report on Form 10-K. In addition, in 2019, the Company’s Chief Executive
Officer provided to the New York Stock Exchange the annual CEO certification pursuant to Section 303A regarding the
Company’s compliance with the New York Stock Exchange’s corporate governance listing standards.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Allegheny Technologies Incorporated and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Allegheny Technologies Incorporated and Subsidiaries’ internal control over financial reporting as of December
31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Allegheny Technologies
Incorporated and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements
of operations, comprehensive income (loss), cash flows and statement of changes in consolidated equity for each of the three years
in the period ended December 31, 2019, and the related notes and our report dated February 25, 2020 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 25, 2020
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Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning our directors required by this item is incorporated and made part hereof by reference to the
material appearing under the heading “Our Corporate Governance” and “Election of Directors” and the information concerning
our executive officers required by this item is incorporated and made part hereof by reference to the material appearing under
the heading “Members of ATI's Executive Management,” in the Allegheny Technologies Proxy Statement for the 2020 Annual
Meeting of Stockholders (the “2020 Proxy Statement”), which will be filed with the Securities and Exchange Commission,
pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. Information concerning the Audit
Committee and its financial expert required by this item is incorporated and made part hereof by reference to the material
appearing under the heading “Our Corporate Governance-Board Information- Board Committees” in the 2020 Proxy Statement.
Allegheny Technologies has adopted Corporate Guidelines for Business Conduct and Ethics that apply to all employees
including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions. The Corporate Guidelines for Business Conduct and Ethics as well as the charters for the
Company’s Audit, Finance, Nominating and Governance, Personnel and Compensation, and Technology Committees, as well
as periodic and current reports filed with the SEC, are available through the Company’s website at http://www.atimetals.com
and are available in print free of charge to any shareholder upon request. To obtain a copy, contact the Corporate Secretary,
Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479 (telephone: 412-394-2800).
The Company intends to post on its website any waiver from or amendment to the guidelines that apply to the Company’s
Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer or Controller (or persons performing
similar functions) that relate to elements of the code of ethics identified by the Securities and Exchange Commission in
Item 406(b) of Regulation S-K.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to “Our Corporate Governance- Director Compensation,”
“Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” as set forth in the 2020 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information relating to the ownership of equity securities by certain beneficial owners and management is incorporated by
reference to “Stock Ownership Information” as set forth in the 2020 Proxy Statement.
Equity Compensation Plan Information
Information about our equity compensation plans at December 31, 2019 was as follows:
(a)
Number of
Shares to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights (1)
Weighted
Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (2)
Number of Shares
Remaining Available
for Future Issuance
Under Equity
Compensation Plans (3)
(excluding securities
reflected in column (a))
595
—
595
$
$
—
—
—
4,133
—
4,133
(In thousands, except per share amounts)
Equity Compensation Plans Approved by Shareholders
Equity Compensation Plans Not Approved by Shareholders
Total
(1)
Includes stock-settled equity awards previously granted under the Allegheny Technologies Incorporated 2015 Incentive
Plan (the “2015 Incentive Plan”) and the Allegheny Technologies Incorporated 2017 Incentive Plan (the “2017 Incentive
Plan”). Amounts reflected for such performance-based awards represent the maximum number of shares to be awarded
at the conclusion of the applicable performance cycle.
(2) Outstanding stock-settled awards are not included in this calculation.
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(3) Represents shares available for issuance under the 2017 Incentive Plan (which provides for the issuance of stock options,
stock appreciation rights, restricted shares, restricted stock units, performance and other stock-based awards). See Note
16. Stockholders’ Equity for a discussion of the Company’s stock-based compensation plans.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated by reference to “Related Party Transactions” and “Our Corporate
Governance- Board Information- Board Composition and Independence” as set forth in the 2020 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information required by this item is incorporated by reference to “Ratification of Selection of Independent Auditors” as set
forth in the 2020 Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statements and Financial Statement Schedules
(a) Financial Statements, Financial Statement Schedules and Exhibits:
(1) Financial Statements
The following consolidated financial statements and report are filed as part of this report under Item 8 – “Financial Statements
and Supplementary Data”:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Statements of Operations — Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income (Loss) — Years Ended December 31, 2019, 2018, and 2017
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Cash Flows — Years Ended December 31, 2019, 2018, and 2017
Statements of Changes in Consolidated Equity — Years Ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules set forth in the applicable accounting regulations of the Securities and Exchange Commission either are not
required under the related instructions or are not applicable and, therefore, have been omitted.
(3) Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K are listed below. Documents not designated as being incorporated
herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
Exhibit
No.
3.1
3.2
4.1
4.2
EXHIBIT INDEX
Description
Certificate of Incorporation of Allegheny Technologies Incorporated, as amended (incorporated by reference to
Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No.
1-12001)).
Third Amended and Restated Bylaws of Allegheny Technologies Incorporated (incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K dated August 10, 2016 (File No. 1-12001)).
Indenture dated as of December 15, 1995 between Allegheny Ludlum Corporation and The Chase Manhattan Bank
(National Association), as trustee, relating to Allegheny Ludlum Corporation’s 6.95% Debentures due 2025
(incorporated by reference to Exhibit 4(a) to Allegheny Ludlum Corporation’s Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-9498)).
First Supplemental Indenture by and among Allegheny Technologies Incorporated, Allegheny Ludlum Corporation
and The Chase Manhattan Bank (National Association), as Trustee, dated as of August 15, 1996 (incorporated by
reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated August 21, 1996 (File No. 1-12001)).
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Exhibit
No.
Description
Supplemental Indenture, dated as of December 22, 2011, among Allegheny Ludlum Corporation, ALC Merger,
LLC, and The Bank of New York Mellon (as successor to The Chase Manhattan Bank (National Association)), as
Trustee (incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2011 (File No. 1-12001)).
Indenture, dated June 1, 2009, between Allegheny Technologies Incorporated and The Bank of New Your Mellon,
as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated June 3,
2009 (File No. 1-2001)).
Third Supplemental Indenture, dated January 7, 2011, between Allegheny Technologies Incorporated and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report
on Form 8-K dated January 7, 2011 (File No. 1-12001)).
Form of 5.950% Senior Note due 2021 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report
on Form 8-K dated January 7, 2011 (File No. 1-12001)).
Fourth Supplemental Indenture, dated July 12, 2013, between Allegheny Technologies Incorporated and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated July 12, 2013 (File No. 1-12001)).
Form of 5.875% Senior Note due 2023 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report
on Form 8-K dated July 12, 2013 (File No. 1-12001)).
Fifth Supplemental Indenture, dated May 24, 2016, between Allegheny Technologies Incorporated and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K dated May 24, 2016 (File No. 1-12001)).
Form of 4.75% Convertible Senior Note due 2022 (incorporated by reference to Exhibit A to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K dated May 24, 2016 (File No. 1-12004)).
Form of 5.875% Senior Note due 2027 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report
on Form 8-K dated November 22, 2019 (File No. 1-12001)).
Sixth Supplemental Indenture, dated November 19, 2019, between Allegheny Technologies Incorporated and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report
on Form 8-K dated November 22, 2019 (File No. 1-12001)).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).
Allegheny Technologies Incorporated Fee Continuation Plan for Non-Employee Directors, as amended
(incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2004 (File No. 1-12001)).*
Supplemental Pension Plan for Certain Key Employees of Allegheny Technologies Incorporated and its subsidiaries
(formerly known as the Allegheny Ludlum Corporation Key Man Salary Continuation Plan) (incorporated by
reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997
(File No. 1-12001)).*
Allegheny Technologies Incorporated Benefit Restoration Plan, as amended (incorporated by reference to Exhibit
10.8 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-12001)).*
Amendment to the Allegheny Technologies Incorporated Pension Plan effective January 1, 2003 (incorporated by
reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003
(File No. 1-12001)).*
Allegheny Technologies Incorporated 2007 Incentive Plan As Amended and Restated, effective May 7, 2010
(incorporated by reference to Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 dated May 7,
2010 (File No 333-166628)).*
Form of Clawback Agreement regarding incentive payments under the Annual Incentive Plan dated March 15,
2012 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2012 (File No. 1-12001)).*
Form of Clawback Agreement regarding incentive payments under the long-term incentive plans dated March 15,
2012 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2012 (File No. 1-12001)).*
Amendment No. 1 to the Allegheny Technologies Incorporated 2007 Incentive Plan, as Amended and Restated,
effective May 11, 2012 (incorporated by reference to Exhibit 99.2 to the Registrant’s Registration Statement on
Form S-8 dated May 17, 2012 (File No. 333-181491)).*
Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K dated December 10, 2019 (File No. 1-12001)).*
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Form of Performance/Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (File No. 1-12001)).*
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Exhibit
No.
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
21.1
23.1
31.1
31.2
Description
Allegheny Technologies Incorporated Defined Contribution Restoration Plan, as amended and restated as of January
1, 2015 (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2015 (File No. 1-12001)).*
Allegheny Technologies Incorporated 2015 Incentive Plan (incorporated by reference to Appendix A to the
Registrant’s Definitive Proxy Statement filed on March 20, 2015 (File No 1-12001)).*
Administrative Rules for the Non-Employee Director Restricted Stock Program, effective as of May 1, 2015
(incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 (File No. 1-12001)).*
Form of Long Term Incentive Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (File No. 1-12001)).*
Allegheny Technologies Incorporated 2017 Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 1-12001)).*
Form of Performance-Vested Restricted Stock Unit Agreement (incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (File No. 1-12001)).*
Form of Time-Vested Restricted Stock Unit Agreement (incorporated by reference to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2018 (File No. 1-12001)).*
Form of Performance-Vested Restricted Stock Unit Agreement (incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (File No. 1-12001)).*
Form of Time-Vested Restricted Stock Unit Agreement (incorporated by reference to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2019 (File No. 1-12001)).*
First Amended and Restated Revolving Credit, Term Loan, Delayed Draw Term Loan and Security Agreement,
dated as of September 30, 2019, by and among the borrowers party thereto, the Company and other guarantors
party thereto, the lenders party thereto, and PNC Bank, National Association, as Lender and Agent (incorporated
by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2019 (File No. 1-12001)).
Subsidiaries of the Registrant (filed herewith).
Consent of Ernst & Young LLP (filed herewith).
Certification of Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14(a) or
15d-14(a) (filed herewith).
Certification of Principal Financial Officer required by Securities and Exchange Commission Rule 13a-14(a) or
15d-14(a) (filed herewith).
32.1
101.INS
101.SCH
Certification pursuant to 18 U.S.C. Section 1350 (filed herewith).
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101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
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*
Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Report.
Certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries have been omitted
from the Exhibits in accordance with Item 601(b)(4)(iii) of Regulation S-K. A copy of any omitted document will be furnished
to the Commission upon request.
Item 16. Form 10-K Summary
Not applicable.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2020
By
/s/ Robert S. Wetherbee
ALLEGHENY TECHNOLOGIES INCORPORATED
Robert S. Wetherbee
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and as of the 25th day of February, 2020.
/s/ Robert S. Wetherbee
Robert S. Wetherbee
President and Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Donald P. Newman
Donald P. Newman
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
/s/ Diane C. Creel
Diane C. Creel
Board Chair
/s/ Leroy M. Ball
Leroy M. Ball
Director
/s/ Herbert J. Carlisle
Herbert J. Carlisle
Director
/s/ Carolyn Corvi
Carolyn Corvi
Director
/s/ James C. Diggs
James C. Diggs
Director
/s/ J. Brett Harvey
J. Brett Harvey
Director
/s/ Karl D. Schwartz
Karl D. Schwartz
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ David P. Hess
David P. Hess
Director
/s/ Marianne Kah
Marianne Kah
Director
/s/ David J. Morehouse
David J. Morehouse
Director
/s/ John R. Pipski
John R. Pipski
Director
/s/ James E. Rohr
James E. Rohr
Director
F-104
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Our Vision
Solving the World's Challenges Through Materials Science
Our Commitment
Creating Long-Term Value Through Relentless Innovation®
Our Core Values
Integrity: The cornerstone of our business relationships.
We do what we say we will, and we do things the right way.
Safety & Sustainability: We strive for a Zero Injury Culture
committed to the safety of our people, our products, and the
communities in which we operate.
Accountability: We take responsibility and hold ourselves
accountable for our actions, performance and results.
Teamwork and Respect: We work together for ATI’s long-term
success. We welcome and respect others’ views, capabilities
and experiences.
Innovation: We drive sustainable value and meet our
commitments through continuous transformation.
FINANCIAL OVERVIEW
MESSAGE FROM THE PRESIDENT AND CEO
MESSAGE FROM THE BOARD CHAIR
ATI MARKETS & PRODUCTS
SEGMENT INFORMATION
CORPORATE SELF-GOVERNANCE
MANAGEMENT TEAM
BOARD OF DIRECTORS
ANNUAL REPORT ON FORM 10-K
NON-GAAP FINANCIAL MEASURES
INVESTOR INFORMATION
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INVESTOR INFORMATION
CORPORATE HEADQUARTERS
1000 Six PPG Place
Pittsburgh, PA 15222-5479
412-394-2800
STOCKHOLDER PUBLICATIONS
ATI's Annual Reports, Proxy Statements, Sustainability
Report and other publications are available on our website,
ATImetals.com and also are available upon written request
to the Corporate Secretary at the Corporate Headquarters.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held
on Friday, May 8, 2020 at 11:00 a.m. (Central Time)
The Pfi ster Hotel
424 East Wisconsin Avenue
Milwaukee, WI 53202
For additional information contact:
investorrelations@ATImetals.com
INDEPENDENT AUDITORS
Ernst & Young LLP
Pittsburgh, PA
TRANSFER AGENT AND REGISTRAR
STOCK EXCHANGE LISTING
Computershare Inc.
462 South 4th Street Suite 1600
Louisville, KY 40202
1-800-406-4850
computershare.com/investor
Information about:
• Voluntary purchases of ATI common stock for
new investors and current stockholders
• Safekeeping of stock certifi cates at no charge
The common stock of Allegheny Technologies
Incorporated is traded on the New York Stock Exchange
(symbol ATI).
INTERNET HOME PAGE
ATImetals.com
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Solving the World’s Challenges Through Materials Science
Allegheny Technologies Incorporated
Corporate Headquarters
1000 Six PPG Place
Pittsburgh, PA 15222-5479
U.S.A.
412-394-2800
ATImetals.com
ATI and Starburst logo are registered trademarks of ATI Properties, LLC
© 2020 ATI.