TRANSFORMATION
2020 ANNUAL REPORT
ABOUT ATI
STRONG POSITIONS IN
OUR MARKETS
Aerospace
You can’t fly without
ATI — our materials
are on virtually
every commercial
aircraft flying
today — engines
and structures.
Defense
Our materials
power and protect
the armed services
in the air, sea and
on the ground.
Energy
Our alloys power
electrical energy
in nuclear reactors,
renewables, and
land-based turbines.
Our oil and gas
materials fight heat
and corrosion deep
in the sea.
Medical
Essential for
modern medical
equipment, devices
and implants, our
specialty materials
save and improve
thousands of lives
every day.
Electronics
We give capability
to electronic devices
through our alloys’
unique electrical,
magnetic, cosmetic
and corrosion
resistance properties
and our chemicals for
metal precursors.
Our materials science and advanced process technologies...
ATI is a world leader in production and
R&D of specialty alloys developed through
precise formulas and complex processes
to serve the most demanding markets,
including aerospace. Our fully integrated
additive manufacturing capabilities deliver
customer solutions throughout the supply
chain, from metal powder to finished part.
We were the first U.S. company to handle all
aspects of reactive metal production, and we
have been the leader ever since, producing
commercial high-purity hafnium, niobium
and zirconium and other specialty alloys in all
conventional product forms.
...make amazing achievements possible.
Our ability to work high-strength titanium,
corrosion-resistant nickel, and other
sophisticated alloys into coil, strip, foil and
plate for demanding applications is anchored
by the most powerful roughing mill in the
world, capable of rolling multiple alloy systems
with 1,150 pounds per inch of width.
Our isothermal forging center of excellence
— including one of the world’s largest
isothermal presses — enables larger-
diameter, close-tolerance forgings required
for today’s high-efficiency jet engines and
highly sophisticated components with
differing mechanical properties.
ATI’s materials science expertise improves
fuel efficiency by helping jet engines run
hotter and more quietly, and burn more
fuel efficiently.
Since the U.S. Navy’s first nuclear-powered
submarine, our innovative naval propulsion
materials enable the propulsion systems of
nuclear aircraft carriers and submarines.
Our forgings give heavy-lift helicopter rotor
hub assemblies incredible strength and
durability to hoist 50-ton combat vehicles
in the air and carry them great distances.
In superconducting magnets for MRI
imaging, our niobium-titanium alloys drive
life-changing medical insights by enabling
highly advanced superconductors.
Our nickel alloys for rigid pipelines have the
strength and durability to perform without
fail under extreme heat, pressure and
corrosion for 50 undersea miles.
Our niobium-hafnium-titanium alloys
help spacecraft direct high-velocity, high-
temperature gases to reach the final frontier.
ATIMETALS.COM 1
2O20 FINANCIAL OVERVIEW
In millions, except per share amounts
Sales
Gross profit
2018
2019
2020
$ 4,046
$ 4,122
$ 2,982
$ 630
$ 638
$ 293
Restructuring and goodwill impairment charges
$ —
$ 5
$ 1,395
Operating income (loss)
Results attributable to ATI:
Net income (loss)
Per Common Share
Adjusted results:
EBITDA (a)
$ 362
$ 366
$ (1,303)
$ 222
$ 258
$ (1,573)
$ 1.61
$ 1.85
$ (12.43)
$ 489
$ 439
$ 196
Net income (loss) attributable to ATI, as adjusted (a)
$ 208
$ 165
$ (65)
Adjusted results per common share (a)
$ 1.51
$ 1.21
$ (0.52)
BUSINESS SEGMENT RESULTS (b)
High Performance Materials & Components (HPMC)
2018
2019
2020
Sales
Segment EBITDA
$ 1,963
$ 1,978
$ 1,165
$ 360
$ 356
$ 130
As percentage of segment sales
18.4%
18.0%
11.1%
2020 HPMC by quarter
Q1
Q2
Q3
Q4
Sales
Segment EBITDA
As percentage of segment sales
$ 421
$ 301
$ 221
$ 222
$ 77
18.2%
$ 29
9.5%
$ 17
7.6%
$ 7
3.4%
Advanced Alloys & Solutions (AA&S)
2018
2019
2020
Sales
Segment EBITDA
$ 2,083
$ 2,144
$ 1,817
$ 207
$ 173
$ 115
As percentage of segment sales
9.9%
8.1%
6.3%
2020 AA&S by quarter
Sales
Segment EBITDA
As percentage of segment sales
Q1
Q2
Q3
Q4
$ 535
$ 469
$ 377
$ 436
$ 41
7.7%
$ 33
7.1%
$ 11
2.9%
$ 30
6.8%
(a) Earnings Before Interest, Taxes, Depreciation and Amortization. Please see Pages 9-10 for a reconciliation of adjusted results with the
financial results prepared in accordance with accounting principles generally accepted in the U.S.
(b) Effective January 1, 2020, we began operating under two revised business segments: High Performance Materials & Components (HPMC)
and Advanced Alloys & Solutions (AA&S). In addition, in the fourth quarter 2020, the Company changed its segment performance measure
from segment operating profit to segment EBITDA, based on internal reporting changes. Prior period results have been restated for these
changes. See the Company’s Form 10-K for further explanation of these changes.
ATIMETALS.COM 1
MESSAGE FROM THE PRESIDENT AND CEO
TO OUR SHAREHOLDERS,
CUSTOMERS AND EMPLOYEES
ATI responded to the
unprecedented challenges
of 2020 — marked by
widespread uncertainty
and decreased demand —
by focusing on doing the
right things quickly and
decisively, positioning ATI
to emerge from this crisis
stronger and prepared for
a renewed future.
Responding to the pandemic,
focused on the future
At the onset of the COVID-19 pandemic,
we took immediate action to keep our
people safe. As a critical manufacturing
sector business, we continued to operate
throughout the year. Thanks to our strong
safety value, we quickly put protocols in
place to mitigate the spread of COVID and
limit operational disruption. We thank
our employees for all they did to keep
themselves, each other, and their families
safe and healthy.
While we addressed the unprecedented
consequences of the pandemic, what really
defined our year — and what I believe
defines ATI — is our steady focus on the
future. Our leadership priorities drove the
actions necessary to ensure the long-term
profitability and health of our company:
preserving cash and maintaining liquidity;
optimizing our cost structure to meet
changing customer demand; supporting
our customers through continued strong
execution; and being recovery ready, poised to
leverage market share gains for new growth.
During 2020, we extended our debt maturity
profile and ended the year with nearly a
billion dollars of total liquidity including
$650 million of cash on hand. Due to the
benefit of our close customer relationships,
we proactively and aggressively reduced
costs, nimbly matching capacity with
rapidly declining demand and limiting
impact on our bottom line. We continue to
pursue operational improvements, and we
expect much of our cost savings to become
structural, continuing to benefit ATI as we
return to growth over time.
Moreover, as we worked to implement
these structural changes, we never wavered
from our commitment to strong execution
and operational excellence. Our customers
continue to count on us to deliver the
mission-critical materials and components
to keep their planes flying, vehicles moving,
energy flowing and medical equipment and
electronics working flawlessly. We’ve been
rewarded with more of their business as a
result of our efforts.
2 ATI 2020 ANNUAL REPORT
ATIMETALS.COM 3
MESSAGE FROM THE BOARD CHAIR
Transforming to enhance our
specialty capabilities
Dear Shareholders, Customers and
Employees,
In December 2020, we announced plans to exit
standard stainless sheet products, a low-margin
product line, and streamline our Advanced Alloys
& Solutions (AA&S) segment. We’re redeploying
capital to enhance our specialty capabilities.
We expect to increase our profitability as the
aerospace market — and broad global economy
— recover. Across ATI, our targeted revenue mix
is 70% aerospace and defense, with a meaningful
presence in differentiated applications like
specialty energy, medical and electronics.
Our goal: a product portfolio focused exclusively
on those high-value products that meet the
demanding requirements we’re known for,
supported by our unmatched materials science
capabilities and advanced process technologies.
Team Committed to Future Growth
At the start of 2021, we combined segment
leadership for High Performance Materials &
Components (HPMC) and AA&S under Executive
Vice President Kim Fields, evolving to a leaner,
more focused organization. John Sims, Executive
Vice President of HPMC expressed his intention
to retire after 25 years with ATI. His vision and
dedication have helped position ATI as a critical
supplier of advanced materials and components
for next-generation jet engines. Thanks to his
passion, ATI is set to achieve future success and we
thank John for his leadership and service to ATI.
This new leadership structure is more closely
aligning priorities across the businesses, driving
more integrated actions and faster decision-
making. Kim is a transformational leader and
the organic growth opportunities within our
business segments play to her strengths. Our
entire leadership team is committed to helping us
to move further faster.
Looking ahead to 2021, when I anticipate becoming
Chair of your Board of Directors: I am both honored
and humbled by the confidence placed in me
and look forward to continuing to lead ATI as we
accelerate the creation of significant shareholder
value. I thank Diane Creel for her outstanding
leadership and service to ATI’s Board over many
years, most recently as Board Chair.
When the pandemic emerged
in early 2020, upending many
of our expectations for the
year, our CEO Bob Wetherbee
and his team rose to confront
the many challenges facing
our people, operations and
results. In doing so, they
ensured the safety of our
workforce, consistency of our
ongoing operations, strength
and resiliency of our balance sheet, and kept our focus
firmly on the future. Today, I confidently express my
belief that ATI will emerge from the downturn as a
stronger company with a clear vision.
I will retire from ATI’s Board at the conclusion of the
2021 Annual Meeting. It has been my great privilege to
serve as a member of your Board and as your Board
Chair, and to work hand-in-hand with Bob. I’m honored
to announce that your Board has appointed Bob as
Chairman and CEO, effective with my retirement at
the close of the 2021 Annual Meeting. We believe that
combining the roles of CEO and Chair promotes unified
leadership and direction for the Company, allowing for
a clear, sharp focus on the efficient implementation of
ATI’s strategies to grow shareholder value.
At the same time, we recognize the fundamental
importance of independent Board oversight. Current
Board member J. Brett Harvey will serve alongside
Bob as Lead Independent Director, the principal
liaison between the independent members of your
Board and ATI’s management. We believe we remain
well-positioned to continue ATI’s long tradition of
independent Board leadership and oversight.
I also sincerely thank fellow Board members John
Pipski and Jim Rohr for their many years of service to
ATI as they join me in retiring this year. We leave behind
an experienced board with strong diversity.
The challenges of 2020 have highlighted the rapidly
evolving nature of the global climate for ATI and the
Board’s indispensable role in identifying and overseeing
appropriate responses to the many and varied risks
we face. As we look to 2021 and beyond, your Board
remains committed to doing its utmost to remain
effective custodians of your investment and advocates
for your interests and concerns. Thank you for your
ongoing support of ATI.
Continued on page 4
Diane C. Creel, Board Chair
ATIMETALS.COM 3
MESSAGE FROM THE PRESIDENT AND CEO
“ Our customers continue to count on us to deliver the mission-
critical materials and components to keep their planes flying,
vehicles moving, energy flowing and medical equipment and
electronics working flawlessly.”
Our Priorities
In 2021, we still battle a fair amount of
uncertainty. We have a clear plan and are
boosted by the first signs of favorable trends
in multiple markets.
We are aligned and focused on doing the
right things quickly and decisively, to position
ATI as a stronger company, more focused
on aerospace and defense. As we gain
momentum in 2021, these five priorities will
strongly position us for the future:
1. Grow the core in aerospace and defense;
2. Strategically reposition our assets to
fund growth;
3. Pursue differentiated applications
like specialty energy, medical and
electronics that leverage our core
expertise and deliver value;
4. Drive operational efficiency,
leveraging Digital Technology,
investing in our capabilities and
building transactional shared services;
5. Develop and engage great leaders
who guide our future, bringing out
the best in our teams.
We’re well-positioned to emerge from this
downturn a leaner, more profitable ATI. We’re
gaining velocity: aligned and accelerating
in a clear direction as we move ahead. Our
strong values ensure we’ll do the right things
in the right way to protect the environment,
deliver for our customers, ensure the quality
of our products, create the diverse and
inclusive culture we aspire to lead, and most
of all, keep our people safe.
Thank you for your support as we take
what we do best — our core strengths in
materials science and advanced process
technologies — along with our relentless,
innovative people — to solve the world’s
toughest challenges.
Robert S. Wetherbee
President and Chief Executive Officer
4 ATI 2020 ANNUAL REPORT
ATIMETALS.COM 5
ATI SALES BY END MARKET
Total ATI Sales ($ in millions)
2018
2019
2020
Jet Engines - Commercial
$ 1,198
30%
$ 1,186
29%
$ 601
Airframes - Commercial
Defense
556
212
14%
5%
639
305
16%
7%
411
348
Total Aerospace & Defense
1,966
49%
2,130
52%
1,360
Oil & Gas
Specialty Energy
Total Energy
Automotive
Electronics
Food Equipment & Appliances
Construction & Mining
Medical
Other
546
235
781
323
157
245
226
183
165
13%
6%
19%
8%
4%
6%
6%
4%
4%
511
286
797
297
163
206
195
172
162
12%
7%
19%
7%
4%
5%
5%
4%
4%
366
253
619
263
178
159
142
119
142
20%
14%
12%
46%
12%
9%
21%
9%
6%
5%
5%
4%
4%
TOTAL
$ 4,046
100% $ 4,122
100% $ 2,982
100%
2020 SEGMENT INFORMATION
High Performance Materials & Components Segment Sales ($ in millions)
$ 1,165
81%
Total Aerospace & Defense
46% Jet Engines - Commercial
19% Airframes - Commercial
16% Defense
9% Total Energy
3% Oil & Gas
6% Specialty Energy
4% Medical
6%
Other
Advanced Alloys & Solutions Segment Sales ($ in millions)
Other 9%
Construction & Mining 7%
Food Equipment & Appliances 9%
$ 1,817
28% Total Energy
18% Oil & Gas
10% Specialty Energy
23%
Total Aerospace & Defense
3% Jet Engines - Commercial
11% Airframes - Commercial
9% Defense
Electronics 10%
14%
Automotive
ATIMETALS.COM 5
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 reflect the Board’s
commitment to monitor the effectiveness 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, officers, employees, agents, and consultants and set forth clear
standards to guide the conduct of our daily affairs. Our commitment is to
reflect 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 confidence in our Company is in large measure
dependent upon the reliability and transparency of our financial statements,
including maintaining effective internal control over financial reporting.
Accordingly, the commitment to integrity in financial reporting set forth in
our Financial Code of Ethics recognizes our responsibility for providing timely
information that fairly reflects our financial position and results of operations.
We encourage employees to communicate concerns before they become
problems. The ATI Ethics HelpLine, which provides confidential, secure,
and anonymous reporting capability, is available to all employees 24 hours
a day. In addition, our Chief Compliance Officer and the ethics officers at
our operating companies provide confidential 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 effectiveness of our self-governance program.
Robert S. Wetherbee, President and Chief Executive Officer
Don P. Newman, Senior Vice President, Finance and Chief Financial Officer
Elliot S. Davis, Senior Vice President, General Counsel, Chief Compliance Officer and
Corporate Secretary
6 ATI 2020 ANNUAL REPORT
ATIMETALS.COM 7
ATI EXECUTIVE COUNCIL
Robert S. Wetherbee
Elliot S. Davis
Kimberly A. Fields
Timothy J. Harris
Kevin B. Kramer
President and Chief
Executive Officer,
Chair Elect
Senior Vice President,
General Counsel, Chief
Compliance Officer and
Corporate Secretary
Executive Vice President,
High Performance
Materials & Components
and Advanced Alloys
& Solutions
Senior Vice President,
Chief Digital and
Information Officer
Senior Vice President,
Chief Commercial and
Marketing Officer
Don P. Newman
Elizabeth C. Powers
Senior Vice President,
Finance and Chief
Financial Officer
Senior Vice President,
Chief Human
Resources Officer
ATI CORPORATE MANAGEMENT
Shelley L. Bias
Lauren S. McAndrews
Scott A. Minder
Mary Beth Moore
Karl D. Schwartz
Vice President,
Internal Audit
Vice President,
Environmental Affairs
& Sustainability and
Assistant General
Counsel
Vice President,
Treasurer and Investor
Relations
Vice President,
Human Resources
Vice President,
Controller and Chief
Accounting Officer
ATIMETALS.COM 7
BOARD OF DIRECTORS
Diane C. Creel *
Leroy M. Ball
Herbert J. Carlisle
Carolyn Corvi
Board Chair of Allegheny
Technologies Incorporated,
retired Chairman, Chief
Executive Officer and
President of Ecovation, Inc.,
a waste stream technology
company 3 | 4
President and Chief Executive
Officer, Koppers Holdings, Inc.,
a leading integrated global
provider of treated wood
products, wood treatment
chemicals and carbon
compounds 1 | 4 | 5
President and Chief Executive
Officer of the National Defense
Industrial Association (NDIA),
and retired four-star general
from the United States Air
Force (USAF) 1 | 2 | 5
Retired Vice President, General
Manager of Airplane Programs
of The Boeing Company 3 | 4 | 5
James C. Diggs
J. Brett Harvey
David P. Hess
Marianne Kah
Retired Senior Vice President
and General Counsel of PPG
Industries, Inc., a producer of
coatings, glass and chemicals
1 | 2 | 3
Retired Chairman and Chief
Executive Officer of CONSOL
Energy, Inc., a leading
diversified energy company in
the United States 2 | 3 | 4
Retired EVP and Chief
Customer Officer for Aerospace,
United Technologies
Corporation, a global leader
in aerospace and technology;
formerly President, Pratt &
Whitney 2 | 3 | 4
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
John R. Pipski *
James E. Rohr *
Robert S. Wetherbee
Chief Executive Officer and
President of Pittsburgh
Penguins LLC, which owns
and operates the Pittsburgh
Penguins National Hockey
League team 1 | 5
Retired tax partner of
Ernst & Young LLP, a public
accounting firm 1 | 2
Retired Chairman and Chief
Executive Officer of The PNC
Financial Services Group, Inc.,
a diversified financial services
organization 4
President and Chief
Executive Officer, and
Chair Elect, Allegheny
Technologies Incorporated
* Retirement anticipated at Annual Meeting
8 ATI 2020 ANNUAL REPORT
STANDING COMMITTEES
1 Audit
2 Finance
3 Nominating and Governance
4 Personnel and Compensation
5 Technology
ATIMETALS.COM 8
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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 5, 2021, the Registrant had outstanding 126,827,573 shares of its Common Stock.
The aggregate market value of the Registrant’s voting stock held by non-affiliates at June 30, 2020 was approximately $1.3 billion, based on the closing price per share of
Common Stock on June 30, 2020 of $10.19 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 20, 2021 are incorporated by reference into Part III of this Report.
Documents Incorporated By Reference
F-1
7388_FIN.pdf 1
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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
F-3
F-9
F-16
F-16
F-16
F-17
F-17
F-18
F-19
F-47
F-49
F-100
F-101
F-103
F-103
F-103
F-103
F-104
F-104
F-104
F-106
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F-2
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 energy markets, including oil & gas,
downstream processing, and specialty energy. 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.
Effective January 1, 2020, we began operating under two revised business segments: High Performance Materials &
Components (HPMC) and Advanced Alloys & Solutions (AA&S). All segment reporting information for 2020 and prior
periods in this Form 10-K reflect these two revised business segments. In addition, in the fourth quarter 2020, the Company
changed its segment performance measure from segment operating profit to segment EBITDA, based on internal reporting
changes. Prior period results are presented using the new performance measure. The measure of segment EBITDA is defined
in Note 2 of the notes to the consolidated financial statements. Management believes segment EBITDA, as defined, provides
an appropriate measure of controllable operating results at the business segment level.
HPMC is comprised of the Specialty Materials and Forged Products businesses, as well as our ATI Europe distribution
operations. The revised HPMC segment intensifies its primary focus on maximizing aero-engine materials and components
growth, with approximately 80% of its revenue derived from the aerospace & defense markets and nearly half of its revenue
from products for commercial jet engines. Commercial aerospace products have been the main source of sales and EBITDA
growth for HPMC over the last few years, and are expected to continue to drive HPMC and overall ATI results for the next
several years as demand from these markets recovers from reduced 2020 levels resulting from the COVID-19 pandemic. Other
major HPMC end markets include medical and 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 new AA&S segment combines our Specialty Alloys & Components (SAC) business, including the primary titanium
operations in Richland, WA and Albany, OR, with ATI’s former Flat Rolled Products (FRP) business segment, which included
the FRP business, consisting of the Specialty Rolled Products and Standard Stainless Sheet Products product lines, the 60%-
owned Shanghai STAL Precision Stainless Steel Company Limited (STAL) joint venture, and the Uniti LLC and Allegheny &
Tsingshan Stainless (A&T Stainless) 50%-owned joint ventures that are reported in AA&S segment results under the equity
method of accounting. AA&S is focused on delivering high-value flat products primarily to the energy, aerospace, and defense
end-markets, which comprise approximately 50% of its revenue. AA&S was created to align melting technologies with hot-
rolling capabilities to produce products with faster flow times and lower costs. Financial results of aerospace-grade titanium
plate products also transferred from HPMC to AA&S effective January 1, 2020. Other important end markets for AA&S
include automotive and electronics. AA&S produces nickel-based alloys, specialty alloys, and titanium and titanium-based
alloys, and stainless products in a variety of forms including plate, sheet, and strip products.
On December 2, 2020, we announced a strategic repositioning of our FRP business within the AA&S segment, with a focus of
increasing emphasis on the specialty rolled products portion of its product portfolio, which comprise titanium-based alloys
including aerospace-grade titanium plate products, nickel-based alloys, and stainless products with more differentiated
characteristics for specialty applications, including thin-gauge Precision Rolled Strip® (PRS). As part of this strategic
realignment, we intend to cease production of standard stainless sheet products over approximately a one-year period,
significantly reducing the operating levels of the Brackenridge, PA operations, including the Hot-Rolling & Processing Facility
(HRPF), and close various downstream finishing operations that are part of the standard stainless sheet flow path.
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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 return to multi-year demand growth
from the commercial aerospace market as business conditions impacted by the global COVID-19 pandemic recover to more
normal levels.
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 2020. 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, space propulsion, 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.
Products and components made from titanium and titanium-based alloys, such as jet engine components including blades,
vanes, and discs, and airframe components such as structural members, landing gears, and hydraulic systems, 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 ratios, elevated temperature
resistance, low coefficient of thermal expansion, and extreme corrosion resistance.
Our specialty materials and components for 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 long-term agreement (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.
Energy. This includes oil & gas, downstream processing, and specialty energy markets.
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. 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. We enable our customers’ 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, duplex alloys and other specialty alloys, have the strength and corrosion-resistant properties
necessary to meet these challenging operating conditions.
Our specialty materials are widely used in the global electrical power generation and distribution industries. We believe clean
energy needs, expanding environmental policies and the electrification of developing countries will continue to drive demand
for our specialty materials and products for use in these industries over the long term.
For electrical power generation, our specialty materials, including corrosion-resistant alloys (CRAs), are used in nuclear, natural
gas and other fuel source applications. 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
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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.
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.
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.
Electronics. ATI’s materials perform a variety of important roles in the growing consumer electronics market. Nickel alloys
and PRS from FRP and our STAL joint venture support computers and smart phones. The magnetic properties of nickel alloys
are used in relay cores, magnets and magnetic shielding, while their thermal expansion is useful in glass-to-metal sealing
applications such as monitors. PRS is selected for electronics and communications applications based on corrosion resistance,
strength, wear resistance, electrical resistivity or thermal expansion.
In addition, metal precursors – which use chemicals produced by ATI – have a variety of important applications in consumer
and industrial electronics.
Business Segments
Our two business segments accounted for the following percentages of total revenues of $2.98 billion, $4.12 billion, and $4.05
billion for the years ended December 31, 2020, 2019, and 2018, respectively.
High Performance Materials & Components
Advanced Alloys & Solutions
2020
2019
2018
39 %
61 %
48 %
52 %
49 %
51 %
Information with respect to our business segments is presented below and in Note 2 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. 81% of the HPMC segment’s 2020 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 Raytheon 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. We have
LTAs in place with most major aerospace market OEMs. 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).
Our products are manufactured from a wide range of advanced materials including metallic powder alloys, made from nickel-
based alloys and superalloys, titanium and titanium-based alloys, 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 substantial 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; Howmet Aerospace Inc., for titanium and titanium-based alloys; 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.
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Advanced Alloys & Solutions Segment
Our AA&S segment produces nickel-based alloys, specialty alloys, titanium and titanium-based alloys, and stainless steel in a
variety of forms including plate, sheet, and PRS products. The major end markets for our flat rolled products are energy,
aerospace & defense, automotive, and electronics. The operations in this segment include our FRP business, consisting of the
Specialty Rolled Products and Standard Stainless Sheet Products product lines, our SAC business, including the primary
titanium operations in Richland, WA and Albany, OR and the STAL PRS joint venture in China, in which we hold a 60%
interest. Segment results also include our 50% interest in the Uniti industrial titanium joint venture and our 50% interest in
A&T Stainless.
Significant global overcapacity for stainless flat-rolled products has intensified the price competition in the AA&S segment
over the last several years, despite various anti-dumping and countervailing duties imposed by the United States government in
various forms since 1999. On December 2, 2020, we announced a strategic repositioning of our FRP business, which includes
exiting standard stainless sheet products, streamlining the production footprint of the AA&S segment and making certain
capital investments to increase its focus on higher-margin products and its aerospace & defense end markets. Additionally, in
2020 we indefinitely idled the manufacturing operations of the A&T Stainless joint venture due to repeated denials by the U.S.
Department of Commerce for exemptions from Section 232 tariffs, which impose a 25% tariff on imported semi-finished
stainless slab products from Indonesia.
Nickel-based alloys, titanium, and stainless sheet products are used in a wide variety of industrial and consumer applications.
In 2020, approximately 65% 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.
PRS products, which are under 0.015 inches thick, are used by customers to fabricate a variety of products primarily in the
automotive and electronics markets. In 2020, 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 PRS manufacturing facility at our STAL PRS joint venture in China.
Nickel-based alloy, titanium, and stainless plate products are primarily used in aerospace & defense, and corrosion and
industrial markets. In 2020, approximately 60% of our plate products by volume were sold to independent service centers, with
the remainder sold directly to end-use customers.
Competitors for nickel-based alloys and superalloys and specialty steel alloys include Haynes International and VDM Metals
GmbH, a subsidiary of Acerinox S.A. Competition in the AA&S segment includes domestic stainless competitors North
American Stainless, a subsidiary of Acerinox S.A., Outokumpu Stainless USA, LLC, and Cleveland-Cliffs Inc., as well as
imports from numerous foreign producers, including Aperam, based in Europe.
We continue efforts toward improving the capacity utilization of our HRPF for carbon steel hot-rolling third-party conversion
services.
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
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.
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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
2020 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 AA&S segment, our STAL
joint venture in the People’s Republic of China produces PRS 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 $1.4 billion at December 31, 2020 and $2.3 billion at December 31, 2019.
We expect that approximately 75% of confirmed orders on hand at December 31, 2020 will be filled during the year ending
December 31, 2021. Our HPMC segment’s backlog of confirmed orders was approximately $1.0 billion at December 31, 2020
and $1.8 billion at December 31, 2019. We expect that approximately 70% of the confirmed orders on hand at December 31,
2020 for this segment will be filled during the year ending December 31, 2021. Our AA&S segment’s backlog of confirmed
orders was approximately $0.4 billion at December 31, 2020 and $0.5 billion at December 31, 2019. We expect that
approximately 95% of the confirmed orders on hand at December 31, 2020 for this segment will be filled during the year
ending December 31, 2021.
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.
Cybersecurity
The Company recognizes the increasing significance that cybersecurity has to our operations and the success of our business
and the need to continually assess cybersecurity risk and evolve our response in the face of a rapidly and ever-changing
environment. We appointed a Chief Digital and Information Officer in 2019 and, to enhance an already comprehensive
cybersecurity program, appointed a Chief Information Security Officer to lead our efforts to address and mitigate digital
technology risks in partnership with ATI’s business leaders.
In 2020, the need to ensure cybersecurity while enabling a comprehensive and highly reliable remote working environment for
a significant portion of our workforce was a central component of our response to the COVID-19. Throughout 2020, special
attention was and continues to be given to improving and implementing Cybersecurity Maturity Model Certification controls in
support of protecting ATI’s technology and customer data.
Additionally, we have a robust Cybersecurity Incident Response Plan in place which provides a documented framework for
handling high severity security incidents and facilitates coordination across multiple parts of the Company. We routinely
perform simulations and drills at both a technical and management level. We incorporate external expertise and reviews in all
aspects of our program, and all personnel receive regular cybersecurity awareness training.
As part of its program of regular oversight, the Company’s Audit Committee is responsible for overseeing ATI’s cybersecurity
risk. The Audit Committee receives quarterly reports from the Chief Digital and Information Officer and the Chief Information
Security Officer on ATI’s cybersecurity risk profile and enterprise cybersecurity program.
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
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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, 2020, 2019, and 2018 included the
following:
(In millions)
Company-Funded:
High Performance Materials & Components
Advanced Alloys & Solutions
Corporate
Customer-Funded:
High Performance Materials & Components
Total Research and Development
2020
2019
2018
$
$
7.7 $
5.3
1.1
14.1
0.7
14.8 $
8.2 $
7.4
2.2
17.8
2.4
20.2 $
12.0
8.2
2.5
22.7
2.2
24.9
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. The decline in 2020 reflects the weakened market conditions due to the COVID-19 pandemic.
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.
Human Capital Resources
We have approximately 6,500 active employees, of which approximately 20% 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’s CBA with the USW involving approximately 1,100 active full-time represented
employees located primarily within the AA&S segment operations expired on February 29, 2020. On March 25, 2020, the
Company announced an agreement with the USW that extended the terms of the expired CBA for one year, to February 28,
2021.
We believe that world-class leadership and fostering a culture that enables us to build and grow a talented engaged team
through career development and opportunities is foundational to our vision. We recognize that attracting, retaining and
developing members of our workforce is a key to the success and sustainability of our business.
We continuously strive to cultivate and support a highly engaged and productive workforce. As a result, management focuses
on a number of human capital measures and objectives, which include the following:
Talent Acquisition: We partner closely with a targeted number of colleges and universities specifically known for programs
that are relevant to our business in order to identify materials science, STEM expertise and other relevant talent, and have
developed similar partnerships with high schools and relevant trade schools. In addition, we engage with external professional
recruiting firms to enhance our recruiting efforts for key positions. We utilize pre-employment assessment tools to identify
qualified candidates who we believe would adapt well to our culture and be most suited to a particular opportunity. We are also
actively engaged with campus and professional diversity groups. We pride ourselves on our ability to attract and retain U.S.
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military veterans, who comprise approximately 5% of our leadership team and approximately 9% of our total employee
population as of the end of 2020.
Professional Development: We offer a number of programs to our employees intended to support development of the skills
each employee needs for success in his or her current position and for future career growth. One of these programs is our
Global Leadership Development Program, our Company-wide, flagship program designed to build the skills of our employees
across each level of leadership. We also have an Early Career Leadership Development Program, a five-year program designed
for high-potential and motivated college graduates designed to prepare our future leaders.
Engagement and Performance Management: We actively seek opportunities for regular engagement and communication by
our CEO and other senior executive leaders with our broader employee population. Annually, we conduct a confidential
company-wide employee engagement survey with feedback from these surveys reviewed with our Board and used to develop
and refine other aspects of our overall human capital management and other growth strategies. We also maintain a robust
annual performance management process across the organization.
Succession Planning: We maintain a formal succession planning process and career mapping framework that is designed to
work in connection with our performance management processes and ensure a systematic and ongoing dialog regarding career
development and succession planning at both the individual employee level and more broadly at an enterprise level.
Retention: An output of our talent assessment process is a retention toolkit. This toolkit is designed to use both quantitative
and qualitative inputs along with predictive analytics to inform our retention strategies.
Health & Safety: Safety is one of our core values. We strive for a Zero Injury Culture committed to the safety of our people,
our products, and the communities in which we operate. Our 2020 OSHA Total Recordable Incident Rate was 0.87 per 200,000
hours and our Lost Time Case Rate was 0.21 per 200,000 hours, which we believe to be competitive with world-class
performance for our industry. Also, at the end of 2020, 82% of ATI Operations are ISO 18001 or OSHAS 45001 certified. Our
goal is to have every operation certified to ISO 18001 or OSHAS 45001 standards by the end of 2022.
Pandemic Response: In response to the COVID-19 pandemic, ATI formed a COVID-19 task force to respond to the various
government orders, guidance, and issues facing our business and employees. Our operations are critical to ongoing demands
and requirements of our customers and as an essential business, we continued to operate while many businesses were ordered to
close. By quickly implementing plans and protocols for keeping our employees safe, we have had no widespread infection
among our employees in any of our global locations.
Diversity & Inclusion: We recognize the benefits and importance of diversity amongst our board and management. Three of
our 12 current board members, including our Board Chair, are women, and one member of our Board is an ethnic minority.
Additionally, two of our eight Executive Council members are women- our Executive Vice President, HPMC and AA&S
Segments and our Chief Human Resources Officer. We have adopted recruitment strategies to provide outreach and sourcing
of diverse candidates. One of these strategies is to ensure that one-third of the candidate slate is diverse.
Governance: Our Corporate Guidelines for Business Conduct and Ethics address employment and workplace safety laws, and
also describe our commitment to equal opportunity and fair treatment of employees.
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.
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RISKS RELATED TO THE COVID-19 PANDEMIC
Impacts on the End-Markets that We Serve and Demand for Our Products. The COVID-19 pandemic, including
governmental and other actions taken or restrictions imposed to contain its spread and impact, has subjected our operations,
financial performance and financial condition to a number of risks including, but not limited to, those discussed below.
The significant macroeconomic impact of the ongoing COVID-19 pandemic and the measures designed to contain its spread
have impacted several of the Company’s end markets. We are experiencing, and expect to continue to experience, lower
demand and volume for certain products and services. Our sales to customers in markets that are affected by COVID-19 have
been negatively impacted, and the possibility exists that there could be sustained impact to our operations and financial results.
For example, a significant portion of the sales of our HPMC segment represents products sold to customers in the commercial
aerospace industry. Several of our commercial aerospace customers announced cost-cutting and other measures in response to
declining demand stemming from the COVID-19 pandemic, including facility shut-downs, measures to reduce inventory and/or
downward adjustments to their stated production rates. Similarly, the energy market, including oil & gas, historically has been
a significant end market for both our HPMC and AA&S segments. In recent years, our business has at times been negatively
impacted by the downturn and slow recovery in the oil & gas industry. Energy demand, in general, is currently predicted to
remain weak due in part to declines in consumer activity and other demand disruptions attributable to the pandemic. The
ultimate breadth and duration of these actions and trends and their impact on our business is uncertain and difficult to predict.
Impacts to Our Supply Chain. Additionally, it is possible at some point that due to the pandemic, one or more of our suppliers
may not have the materials, capacity, or capability to supply products that we require according to our schedule and
specifications. To date, we have not experienced significant disruption to our supply chain. If our suppliers’ operations were to
be impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in
delays in shipments to us and subsequently to our customers, each of which would affect our business, results of operations,
financial condition and/or cash flows.
Risk of Operational Disruption. In general, our facilities have continued to operate with federal and state government
approvals due to the qualification of our facilities as essential and critical. However, we have experienced and may again in the
future experience the temporary shut down of facilities in response to employees being impacted by COVID-19 or changes in
government policy. Furthermore, we have instituted a number of short-term idlings at certain manufacturing locations, and
future idlings may occur, including as may be necessary to match our production levels to the reduced demand from our
customers.
Impacts on Financial and Credit Markets. The current financial market dynamics and volatility pose heightened risks to our
liquidity. For example, dramatically lowered interest rates and lower expected asset valuations and returns can materially
impact the calculation of long-term liabilities such as our pension. Moreover, there can also be no assurance that we will not
face credit rating downgrades as a result of weaker than anticipated performance of our businesses or other factors including
overall market conditions. Future downgrades could further adversely affect our cost of funds and related margins, liquidity,
competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on
our businesses. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of
funding (including for receivables securitization or supply chain finance programs used to finance working capital) or our
ability to refinance certain of our indebtedness, which could adversely affect our business, financial position, results of
operations and/or cash flows.
RISKS RELATED TO CYCLICAL NATURE OF OUR BUSINESS
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
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build rates (including, e.g., the suspension in production of the Boeing 737 MAX aircraft and the decline in projected build
rates for Boeing’s 737 MAX and 787 Dreamliner and for other commercial aircraft associated with the global COVID-19
pandemic that is expected to impact the industry for several years), 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. Cyclical and event-driven downturns in the commercial aerospace industry
have had, and may in the future have, an adverse effect on the prices at which we are able to sell our products, and our results of
operations, business and financial condition could be materially adversely affected.
Risks Associated with the Oil & Gas Industry. The oil & gas industry, which historically has been a significant end market for
ATI, is highly cyclical and subject to volatility as a result of worldwide economic activity and associated demand for oil and
natural gas, anticipated future prices for oil and natural gas, fluctuation in the level of drilling activity, changes in applicable
regulation, global geopolitical conditions and numerous other factors. Demand for our products are likewise subject to these
trends. In recent years, our business has been negatively impacted by a general downturn and slow recovery in the oil & gas
industry, which most recently has been further impacted by the COVID-19 pandemic’s negative effect on global economic
activity. We expect that this end market will remain a highly cyclical industry, and future downturns could have an adverse
effect on the prices at which we are able to sell our products, and our results of operations, business and financial condition
could be materially adversely affected.
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.
RISKS RELATED TO THE RAW MATERIALS AND SUPPLIES THAT WE USE
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. In particular, we acquire certain important raw materials that we use to
produce specialty materials, including nickel, zirconium, niobium, chromium, cobalt, vanadium 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. 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.
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 sufficient
quantities of products. This could cause us to lose sales, incur additional costs, delay new product introductions, or suffer harm
to our reputation.
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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.
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
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.
OTHER OPERATIONAL AND STRATEGIC RISKS
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 that are important to our business, including nickel,
zirconium, niobium, chromium, cobalt, vanadium and titanium sponge, among others. Risks associated with such international
trade include, among others: 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. Moreover, 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 considered
imposing trade sanctions on certain U.S. goods, or taking action to deny U.S. companies access to critical raw materials, in
response to U.S. trade actions. 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.
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
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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.
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, 2020, our reserves for environmental matters totaled approximately
$14 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.
Labor Matters. We have approximately 6,500 active employees, of which approximately 20% 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 28, 2021 involving approximately 1,100 USW-represented active full-time employees located primarily
within the AA&S segment operations. 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,
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on our operating results. There can be no assurance that we will succeed in concluding collective bargaining agreements to
replace those that expire.
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. These risks may be
exacerbated by the impact of the COVID-19 pandemic. 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.
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.
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 OUR INDEBTEDNESS; OTHER FINANCIAL AND FINANCIAL ACCOUNTING
RISKS
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,
2020, our total consolidated indebtedness was approximately $1.6 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
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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, 2020, our U.S. qualified defined benefit pension plans were
approximately 76% funded as calculated in accordance with U.S. generally accepted accounting principles. Based upon current
regulations and actuarial studies, we expect to make approximately $87 million in cash contributions to the U.S. qualified
defined benefit pension plans in 2021, and we currently expect to have average annual funding requirements of approximately
$50 million for the next few years thereafter for these plans, using a 6.78% 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.
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. Additionally, we have a significant amount of
property, plant and equipment and acquired intangible assets that may be subject to impairment testing, depending on factors
such as market conditions, the demand for our products, and facility utilization levels. Any determination requiring the
impairment of a significant portion of goodwill or other long-lived assets has had, and may in the future have, a negative impact
on our financial condition and results of operations. In connection with our recent announcements regarding our plans to cease
production of certain standard stainless sheet products, our 2020 results include $1,041.5 million of long-lived asset non-cash
impairment charges, primarily related to our HRPF and certain stainless steel melting and finishing operations that are part of
the AA&S segment’s Brackenridge, Pennsylvania operations. We also recognized an interim goodwill impairment charge of
$287.0 million in the second quarter of 2020 for the partial impairment of goodwill at our Forged Products reporting unit in the
HPMC segment based on changes in the timing and amount of expected cash flows resulting from lower projected revenues,
including recent disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic, and the
increasing uncertainty of near-term demand requirements of aero-engine and airframe markets based on government responses
to the pandemic and ongoing interactions with customers.
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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.
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). 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, and Oakdale, PA. Our production of highly engineered forgings and machined components takes place at
facilities in Cudahy and Coon Valley, WI, East Hartford, CT, Irvine, CA, and Billerica, MA. Metal alloy-based additive
manufacturing for the aerospace & defense industries takes place in New Britain, CT.
Within the AA&S segment, our production of zirconium and related specialty alloys takes place at facilities located in
Millersburg, OR and Huntsville, AL. Titanium melting operation are located in Richland, WA (electron beam melting), and
Albany, OR (vacuum arc re-melt). Our principal AA&S 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 Vandergrift, Washington,
Rochester, Monaca, and Zelienople, PA, and in 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, and have laboratories and offices 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 PRS 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. In 2020, various facilities experienced short-term outages in order to match demand
patterns impacted by the COVID-19 pandemic. See Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” for further discussion of these impacts.
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.
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
F-16
7388_FIN.pdf 16
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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. No trial date has been set by the court given the restrictions of the pandemic. 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 5, 2021, there were 2,562 record
holders of Allegheny Technologies Incorporated common stock. We paid no cash dividends during 2020, 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, 2015 through December 31, 2020, as compared to the S&P 500 Index, the S&P MidCap
400 Industrials Index and the Russell 2000 Index. The graph assumes that $100 was invested on December 31, 2015. The
stock performance information included in this graph is based on historical results and is not necessarily indicative of future
stock price performance.
Company / Index
ATI
S&P 500 Index
S&P MidCap 400 Industrials Index
Russell 2000 Index
Source: Standard & Poor’s
Dec 2015
100.00
100.00
100.00
100.00
Dec 2016
143.92
111.96
128.73
121.31
F-17
Dec 2017
218.09
136.40
159.04
139.08
Dec 2018
196.68
130.42
135.36
123.76
Dec 2019
186.65
171.49
180.77
155.35
Dec 2020
151.51
203.04
210.58
186.36
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Comparison of Cumulative Five Year Total ReturnATIS&P 500 IndexS&P MidCap 400 Industrials IndexRussell 2000 IndexDec 2015Dec 2016Dec 2017Dec 2018Dec 2019Dec 2020$80$100$120$140$160$180$200$220$240 Item 6. Selected Financial Data
(In millions)
For the Years Ended December 31,
Revenue by Market:
Aerospace & Defense
Energy*
Automotive
Electronics
Food Equipment & Appliances
Construction/Mining
Medical
Other
Total
2020
2019
2018
2017
2016
$
$
1,360.0 $
618.9
263.2
177.7
159.2
142.0
119.1
142.0
2,982.1 $
2,130.4 $
796.9
296.6
163.2
205.8
195.0
172.4
162.2
4,122.5 $
1,965.5 $
780.7
323.4
156.9
244.9
226.0
183.1
166.1
4,046.6 $
1,718.1 $
610.4
273.7
151.6
226.0
192.9
183.0
169.4
3,525.1 $
1,590.4
513.4
232.8
109.7
172.2
160.6
195.8
159.7
3,134.6
*Includes the oil & gas, downstream processing, and specialty energy markets.
(In millions, except per share amounts)
For the Years Ended December 31,
Results of Operations:
Sales:
High Performance Materials & Components
Advanced Alloys & Solutions
Total Sales
EBITDA
2020
2019
2018
2017
2016
$ 1,164.6 $ 1,978.5 $ 1,963.1 $ 1,704.8 $ 1,547.8
1,586.8
$ 2,982.1 $ 4,122.5 $ 4,046.6 $ 3,525.1 $ 3,134.6
2,083.5
1,817.5
2,144.0
1,820.3
High Performance Materials & Components
Advanced Alloys & Solutions
Total segment EBITDA
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
$
$
129.6 $
115.0
244.6 $
$ (1,481.9) $
77.7
(1,559.6)
13.0
$ (1,572.6) $
356.2 $
172.6
528.8 $
241.6 $
(28.5)
270.1
12.5
257.6 $
360.3 $
206.4
566.7 $
247.7 $
11.0
236.7
14.3
222.4 $
282.7 $
155.6
438.3 $
(86.5) $
(6.8)
(79.7)
12.2
(91.9) $
221.0
(48.1)
172.9
(734.0)
(106.9)
(627.1)
13.8
(640.9)
Basic net income (loss) attributable to ATI per common
share
$
(12.43) $
2.05 $
1.78 $
(0.83) $
(5.97)
Diluted net income (loss) attributable to ATI per common
share
$
(12.43) $
1.85 $
1.61 $
(0.83) $
(5.97)
(In millions, except per share amounts)
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
2020
2019
2018
2017
2016
$
1,412.7 $
1,453.8 $
1,409.8 $
1,203.1 $
1,057.8
4,034.9
1,550.0
1,567.8
645.9
521.1
120.3
641.4
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
0.24
Dividends declared per common share
$
— $
— $
— $
— $
7388_FIN.pdf 18
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F-18
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:
2020: Pre-tax results include $1,132.1 million of restructuring and other charges, consisting primarily of $1,041.5 million of
long-lived asset impairment charges predominantly related to our Brackenridge, PA operations, including the HRPF, $287.0
million for impairment of a portion of goodwill at our Forged Products operations, and $21.5 million for debt extinguishment
on $203.2 million, or 71%, of the principal balance of the outstanding 4.75% Convertible Senior Notes due 2022 (2022
Convertible Notes). 2020 results also include a $77.7 million income tax provision primarily for valuation allowances on U.S.
federal and state deferred tax assets.
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.
Total debt in 2020 reflects the issuance of $291.4 million of 3.5% Convertible Senior Notes due 2025 (2025 Convertible
Notes), a portion of the proceeds of which were used to repurchase $203.2 million aggregate principal amount of the
outstanding 2022 Convertible Notes, and an additional $100 million under the term loan portion of the ABL, which has a
September 2024 maturity date. A portion of the 2025 Convertible Notes is required to be separately accounted for as a
component of stockholders’ equity as a result of the flexible settlement feature of these notes (See Note 12 in Item 8. “Financial
Statements and Supplementary Data” for further explanation). 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 2022 Convertible Notes, 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 2020 significantly declined as a result of the net loss attributable to ATI in 2020 largely due
to the goodwill and long-lived asset impairment charges discussed above. 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 5 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
$128.4 million, $139.8 million, $141.4 million, $42.7 million, and $60.6 million for 2020, 2019, 2018, 2017, and 2016,
respectively, related to remeasurements of ATI’s retirement benefit obligations. In addition, ATI stockholders’ equity for 2020,
2019, 2018, 2017 and 2016 included a $8.8 million decrease, 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.
F-19
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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 energy markets, including oil & gas, downstream processing, and specialty energy. 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.
Effective January 1, 2020, the Company began operating under two revised business segments: High Performance Materials &
Components (HPMC) and Advanced Alloys & Solutions (AA&S). All segment reporting information for 2020 and prior
periods below reflect these two revised business segments. In addition, in the fourth quarter 2020, the Company changed its
segment performance measure from segment operating profit to segment EBITDA, based on internal reporting changes. Prior
period results are presented using the new performance measure. The measure of segment EBITDA is defined further below.
Management believes segment EBITDA, as defined, provides an appropriate measure of controllable operating results at the
business segment level.
HPMC is comprised of the Specialty Materials and Forged Products businesses, as well as our ATI Europe distribution
operations. The revised HPMC segment intensifies its primary focus on maximizing aero-engine materials and components
growth, with approximately 80% of its revenue derived from the aerospace & defense markets and nearly half of its revenue
from products for commercial jet engines. Commercial aerospace products have been the main source of sales and EBITDA
growth for HPMC over the last few years, and are expected to continue to drive HPMC and overall ATI results for the next
several years as demand from these markets recovers from reduced 2020 levels resulting from the COVID-19 pandemic. Other
major HPMC end markets include medical and energy. HPMC produces a wide range of high performance materials, and
components, and advanced metallic powder alloys made from nickel-based alloys and superalloys, titanium and titanium-based
alloys, and a variety of other specialty materials. Capabilities range from cast/wrought and powder alloy development to final
production of highly engineered finished components, including those used for next-generation jet engine forgings and 3D-
printed aerospace products.
The new AA&S segment combines our Specialty Alloys & Components (SAC) business, including the primary titanium
operations in Richland, WA and Albany, OR, with ATI’s former Flat Rolled Products (FRP) business segment, which included
the FRP business, consisting of the Specialty Rolled Products and Standard Stainless Sheet Products product lines, the 60%-
owned STAL joint venture, and the Uniti and A&T Stainless 50%-owned joint ventures that are reported in AA&S segment
results under the equity method of accounting. AA&S is focused on delivering high-value flat products primarily to the energy,
aerospace, and defense end-markets, which comprise approximately 50% of its revenue. AA&S was created to align melting
technologies with hot-rolling capabilities to produce products with faster flow times and lower costs. Financial results of
aerospace-grade titanium plate products also transferred from HPMC to AA&S effective January 1, 2020. Other important end
markets for AA&S include automotive and electronics. AA&S produces nickel-based alloys, specialty alloys, and titanium and
titanium-based alloys, and stainless products in a variety of forms including plate, sheet, and strip products. On December 2,
2020, we announced a strategic repositioning of our FRP business, which includes exiting standard stainless sheet products,
streamlining the production footprint of the AA&S segment and making certain capital investments to increase our focus on
higher-margin products and our aerospace & defense end markets.
Overview of 2020 Financial Performance
Sales in 2020 decreased 28%, to $2.98 billion, and gross profit decreased 54%, to $293 million, compared to 2019, reflecting
weakened market conditions resulting from the COVID-19 pandemic. Loss before taxes in 2020 included $1.1 billion of
restructuring and other charges, $287 million of goodwill impairment charges, and $22 million in debt extinguishment charges.
Results in 2020 also reflect a $78 million income tax provision primarily for valuation allowances on U.S. federal and state net
deferred tax assets. The Company’s net loss in 2020 was $1.57 billion, or ($12.43) per share. Adjusted EBITDA was $196.3
million, or 6.6% of sales, for 2020, compared to $439.4 million, or 10.7% of sales, for 2019. See the Financial Condition and
Liquidity section of Management’s Discussion and Analysis for these non-GAAP definitions and calculations. Despite these
weak market conditions, the Company maintained strong liquidity in 2020, ending the year with $646 million in cash and $950
million of total liquidity.
Revenues in our largest end markets, aerospace & defense, decreased $771 million, or 36%, over 2019, and represented 46% of
our 2020 sales. International sales, including both U.S. exports and foreign sales from our foreign manufacturing operations,
were $1.17 billion in 2020 and represented 39% of total sales.
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F-20
A summary of our results is as follows.
(Dollars in millions, except per share amounts)
Sales
Gross profit
Gross profit % of sales
Income (loss) before income taxes
Net income (loss)
Diluted net income (loss) per common share
Our major accomplishments during 2020 include the following:
2020
$ 2,982.1
$ 292.8
9.8 %
$ (1,481.9)
$ (1,572.6)
$ (12.43)
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
$
$
$
•
•
•
•
•
•
We took decisive steps toward becoming a more profitable, aerospace & defense focused company. On December
2, 2020, we announced a strategic repositioning of our FRP business within the AA&S segment, with a focus on
increasing emphasis on the specialty rolled products portion of its product portfolio, which comprise titanium-based
alloys including aerospace-grade titanium plate products, nickel-based alloys, and stainless products with more
differentiated characteristics for specialty applications, including thin-gauge PRS. As part of this strategic
realignment, we intend to cease production of our low-margin standard stainless sheet products over approximately a
one-year period, significantly reducing the operating levels of the Brackenridge, PA operations, including the HRPF,
and close various downstream finishing operations that were part of the standard stainless flow path. In connection
with these changes, we plan to cease production activities at five locations by year-end 2021. We expect our AA&S
segment revenues to decrease by approximately $450 million, compared to a 2019 baseline, once these strategic
actions to exit standard stainless products are completed.
These AA&S strategic actions resulted in $1,041.5 million of pre-tax, non-cash long-lived asset charges, primarily
related to the Brackenridge operations, which do not impact the operating capabilities of the HRPF. Restructuring
and other charges in 2020 across all ATI operations also include $60.5 million of employee benefit costs,
representing severance, supplemental unemployment and medical benefits, and $17.4 million for pension and
postretirement medical obligations for workforce right-sizing actions taken to date, and to be completed with the
repositioning of the FRP business into a specialty rolled products portfolio.
We expect annual cost savings from these 2020 charges to be approximately $90 million in 2021 and $100 million
when fully implemented in 2023, with approximately 55% realized in cost of sales, with the remainder in selling,
general and administrative expenses. Including these and other cost reduction actions taken in response to the rapid
decline in demand experienced in 2020, we estimate our total structural cost reductions will be nearly $150 million
annually.
We generated $167 million in cash from operating activities in 2020, including a $157 million reduction in managed
working capital. This strong operating cash flow result in an unprofitable year was accomplished even with $130
million in contributions to ATI’s U.S. defined benefit pension trust. As a result of our constant focus on our
financial condition in a year of significant economic uncertainty, we ended the year with $646 million of cash on
hand and $950 million of liquidity.
In 2020, ATI issued $291 million aggregate principal amount of the 2025 Convertible Notes, and used the majority
of the proceeds to repurchase approximately $203 million aggregate principal amount of the outstanding principal
balance of our 2022 Convertible Notes. With those actions, we extended our debt maturity profile and now have no
significant debt maturities before mid-2023.
We made further progress on our risk management strategy for retirement benefit obligations by completing an $86
million risk transfer through the purchase of an annuity contract with a nationally recognized insurance company.
This annuity buyout removed 8% of plan participants, bringing the total pension participant reduction to more than
55% over the past eight years. In addition, we continued to reduce our net pension liability, which declined by
nearly $60 million from year-end 2019, with strong asset performance and company contributions in 2020 offsetting
declines in interest rates that increased the pension benefit obligation.
Results of Operations
2020 Compared to 2019
Results for 2020 were sales of $2.98 billion and loss before tax of $1,481.9 million, compared to sales of $4.12 billion and
income before tax of $241.6 million in 2019. Results in 2019 included $95 million of sales and minimal segment operating
profit related to the divested titanium investment castings and industrial forgings businesses. Our gross profit was $292.8
F-21
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million, or 9.8% of sales, a $345.0 million decline compared to 2019, reflecting COVID-19 impacts. The 2020 results included
$1,443.0 million of pretax charges, all of which are excluded from segment EBITDA and consisted of the following:
•
•
•
•
$1,132.1 million of restructuring and other charges,
$287.0 million for impairment of a portion of goodwill at our Forged Products operations,
$21.5 million for debt extinguishment on $203.2 million, or 71%, of the principal balance of the outstanding 2022
Convertible Notes, and
$2.4 million of severance charges at our A&T Stainless joint venture.
The 2020 restructuring and other charges of $1,132.1 million predominantly related to the Company’s December 2020
announcement to cease production of standard stainless sheet products. These restructuring and other charges consisted of the
following:
•
•
•
$1,107.5 million of restructuring charges recorded on the consolidated statement of operations. These restructuring
charges consist of $1,041.5 of non-cash long-lived asset impairment charges, $60.5 million of employee benefit costs
for hourly and salary employees, and $5.5 million of other costs related to facility idlings.
$17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures
from the standard stainless exit. These costs are classified within nonoperating retirement benefit expense in the
consolidated statements of operations.
$7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement
of operations, primarily related to the Albany, OR idled facility.
The 2019 results included the following pretax charges, all of which are excluded from segment EBITDA:
•
•
•
$4.5 million restructuring charge for severance obligations to streamline ATI’s salaried workforce, primarily to
improve the cost competitiveness of the U.S.-based FRP business.
$21.6 million for debt extinguishment on the $500 million 5.95% Senior Notes due 2021 (2021 Notes).
$11.4 million impairment charge for our A&T Stainless joint venture.
The goodwill impairment, restructuring charges and charges for inventory valuation reserves above are included in operating
income (loss) on the consolidated statements of operations, which was an operating loss of $1,302.7 million for 2020, compared
to operating income of $366.1 million for 2019.
Nonoperating items included a reduction in nonoperating retirement benefit expense of $11.5 million in 2020, compared to the
prior year period, despite the $17.4 million in termination benefits related to facility closures discussed above. Other
(nonoperating) income/expense for 2020 included $7.0 million of net losses from operating results of joint ventures accounted
for under the equity method and $2.4 million of severance charges for our A&T Stainless joint venture. Other (nonoperating)
income/expense for 2019 included $89.8 million in net gains from non-core asset sales, consisting of a $91.7 million gain to
monetize oil and gas rights and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by an
$8.1 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. Results for 2019 also
include 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 AA&S segment.
Results for 2020 include a $77.7 million income tax charge primarily related to deferred tax asset valuation allowances on our
U.S. federal and state tax attributes, due to re-entering a three-year cumulative loss position for our U.S. results during the year.
Results in 2019 included a $28.5 million income tax benefit, as we determined as of December 31, 2019 that we were no longer
in a three year cumulative loss position and a substantial portion of our income tax valuation allowances were no longer
required, resulting in a $45.1 million discrete tax benefit. Net loss attributable to ATI was $1,572.6 million, or ($12.43) per
share, in 2020, compared to net income attributable to ATI of $257.6 million, or $1.85 per share, for 2019. Adjusted EBITDA
was $196.3 million, or 6.6% of sales, for 2020, and $439.4 million, or 10.7% of sales, for 2019.
Results for 2020 reflect the continued weakened market conditions resulting from the COVID-19 pandemic. We maintained
our solid cash and liquidity positions during 2020, and issued $291.4 million aggregate principal amount of new, five-year
convertible debt in 2020 to partially retire our 2022 Convertible Notes while lowering cash interest costs and reducing future
stockholder dilution. We also exercised our option to draw another $100 million term loan within our asset based lending credit
facility. These actions are further discussed in the Financial Condition and Liquidity section of Management’s Discussion and
Analysis.
As discussed above, at the start of 2020, ATI realigned its business segments to streamline operations and unlock synergies, and
proactively implemented workforce reduction initiatives in the fourth quarter 2019 and again in 2020 in response to changed
market conditions resulting from the COVID-19 pandemic to better match our cost structure to expected demand. To date, we
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7388_FIN.pdf 22
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have reduced company-wide employment levels by approximately 1,400 people, or about 17% of our total workforce. To help
further mitigate the financial impact from reduced aerospace and consumer demand levels stemming from the COVID-19
pandemic, we implemented cost reduction efforts throughout 2020 including the temporary idling of operations to reduce costs
and inventory, salary reductions for a substantial portion of our staff, reductions in 401(k) benefits for nearly all employees,
furlough of non-essential positions, and significant reductions in capital expenditures and corporate expenses. Most of these
cost reduction efforts are expected to continue into 2021. These actions provide a strong foundation to respond to the economic
challenges created by the COVID-19 pandemic. We will continue to evaluate our demand levels and operating rates and may
take additional actions as warranted.
2019 Compared to 2018
Sales were $4.12 billion in 2019, compared to $4.05 billion in 2018. Sales increased 2% in 2019 compared to 2018, despite a
2% negative impact from business divestitures. The continuing sales growth was primarily the result of increased sales to the
aerospace & defense markets. 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 8 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 Flat Rolled Products business. 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 included $67.7 million in other (non-operating) income, net on the consolidated statements of operations,
which included 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 AA&S segment. Other (non-operating) income, net in 2018 included 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.
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F-23
Results by Business Segment
We operated in two business segments during 2020, HPMC and AA&S, and management evaluates financial results on this
basis. HPMC sales decreased in 2020 by 41%, driven by a 42% decrease in sales to the aerospace & defense markets, which
comprise 81% of the sales in this segment, due to declines in demand for products to the commercial aerospace market resulting
from the COVID-19 pandemic. Sales decreased 15% in 2020 in the AA&S segment, reflecting lower sales across most
markets, particularly an 18% decline in sales to the aerospace & defense markets and a 20% decrease in energy market sales.
HPMC sales increased in 2019 compared to 2018 by 1%, despite a 5% decline from business divestitures, driven by a 4%
increase in sales to the aerospace & defense markets, which comprised 82% of the sales in this segment. Sales increased 3% in
2019 compared to 2018 in the AA&S segment, primarily due to 26% higher sales to the aerospace & defense markets, and a
13% increase in medical market sales, partially offset by declines in sales to most general industrial markets for standard
stainless products. Overall, AA&S energy markets sales in 2019 were in line with 2018, with increases in sales of products for
specialty energy offset by declines in sales to the oil & gas market.
Segment EBITDA was $244.6 million, or 8.2% of sales, in 2020, compared to segment EBITDA of $528.8 million, or 12.8% of
sales, in 2019 and $566.7 million, or 14.0% of sales, in 2018. Our measure of segment EBITDA, which we use to analyze the
performance and results of our business segments, excludes all effects of LIFO inventory accounting and any related changes in
net realizable value (NRV) inventory reserves which offset the Company’s aggregate net debit LIFO valuation balance, income
taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other expenses, charges for
goodwill and asset impairments, restructuring and other charges, debt extinguishment charges and non-operating gains or
losses. Results on our management basis of reporting were as follows (in millions):
Sales:
High Performance Materials & Components
Advanced Alloys & Solutions
Total external sales
EBITDA:
High Performance Materials & Components
% of Sales
Advanced Alloys & Solutions
% of Sales
Total segment EBITDA
% of Sales
LIFO and net realizable value reserves
Corporate expenses
Closed operations and other expenses
Total ATI Adjusted EBITDA
Depreciation & amortization
Interest expense, net
Restructuring and other charges
Impairment of goodwill
Joint venture restructuring and impairment charges
Gain on joint venture deconsolidation
Debt extinguishment charge
Gains on asset sales, net
Income (loss) before income taxes
December 31,
2020
Fiscal Year Ended
December 31,
2019
December 31,
2018
$
$
$
$
1,164.6
1,817.5
2,982.1
129.6
11.1 %
115.0
6.3 %
244.6
8.2 %
—
(40.9)
(7.4)
196.3
(143.3)
(94.4)
(1,132.1)
(287.0)
(2.4)
—
(21.5)
2.5
(1,481.9)
$
$
$
$
1,978.5
2,144.0
4,122.5
356.2
18.0 %
172.6
8.1 %
528.8
12.8 %
(0.1)
(65.3)
(24.0)
439.4
(151.1)
(99.0)
(4.5)
—
(11.4)
—
(21.6)
89.8
241.6
$
$
$
$
1,963.1
2,083.5
4,046.6
360.3
18.4 %
206.4
9.9 %
566.7
14.0 %
(0.7)
(57.3)
(19.5)
489.2
(156.4)
(101.0)
—
—
—
15.9
—
—
247.7
7388_FIN.pdf 24
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F-24
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:
Jet Engines- Commercial
Airframes- Commercial
Defense
Total Aerospace & Defense
Energy:
Oil & Gas
Specialty Energy
Total Energy
Automotive
Electronics
Food Equipment & Appliances
Construction/Mining
Medical
Other
Total
2020
2019
2018
$
600.9
410.8
348.3
1,360.0
365.7
253.2
618.9
263.2
177.7
159.2
142.0
119.1
142.0
$ 2,982.1
20 % $ 1,186.4
639.2
14 %
304.8
12 %
2,130.4
46 %
29 % $ 1,197.6
555.9
16 %
212.0
7 %
52 % 1,965.5
12 %
9 %
21 %
9 %
6 %
5 %
5 %
4 %
4 %
510.7
286.2
796.9
296.6
163.2
205.8
195.0
172.4
162.2
100 % $ 4,122.5
12 %
7 %
19 %
7 %
4 %
5 %
5 %
4 %
4 %
546.2
234.5
780.7
323.4
156.9
244.9
226.0
183.1
166.1
100 % $ 4,046.6
30 %
14 %
5 %
49 %
13 %
6 %
19 %
8 %
4 %
6 %
6 %
4 %
4 %
100 %
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. In conjunction with the announced ongoing exit of standard stainless products, ATI
reclassified certain items in the AA&S segment as High-Value Products. Prior period information reflects these
reclassifications. HRPF conversion service sales in the AA&S segment are excluded from this presentation.
For the Years Ended December 31,
High-Value Products
Nickel-based alloys and specialty alloys
Titanium and titanium-based alloys
PRS products
Precision forgings, castings and components
Zirconium and related alloys
Total High-Value Products
Standard Products
Total Standard Products
Grand Total
2020
2019
2018
33 %
17 %
15 %
14 %
9 %
88 %
12 %
100 %
35 %
18 %
12 %
18 %
6 %
89 %
11 %
100 %
33 %
17 %
12 %
20 %
5 %
87 %
13 %
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
2020
2019
2018
$ 1,809.1
479.3
516.6
68.9
108.2
$ 2,982.1
61 % $ 2,454.6
800.0
16 %
638.1
17 %
106.3
2 %
123.5
4 %
100 % $ 4,122.5
58 % $ 2,348.1
22 % 877.2
15 % 602.1
2 % 106.5
3 % 112.7
100 % $ 4,046.6
58 %
22 %
15 %
2 %
3 %
100 %
Information with respect to our business segments follows.
7388_FIN.pdf 25
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F-25
High Performance Materials & Components
(In millions)
Sales to external customers
Segment EBITDA
Segment EBITDA as a percentage of sales
International sales as a percentage of sales
2020 Compared to 2019
2020
$ 1,164.6
129.6
$
11.1 %
45.0 %
% Change
2019
% Change
2018
(41) % $ 1,978.5
356.2
(64) % $
18.0 %
47.3 %
1 % $ 1,963.1
360.3
(1) % $
18.4 %
49.9 %
Sales for the HPMC segment in 2020 decreased 41%, to $1.16 billion, with declines across most major markets. Sales to the
aerospace & defense markets, which were 81% of 2020 HPMC sales, were 42% lower, reflecting a 48% decrease in sales to the
commercial aerospace market, partially offset by a 24% increase in government defense sales. Sales of next generation jet
engine products represented 41% of total 2020 HPMC jet engine product sales, a reduction in this sales mix by 13% compared
to 2019 levels. Sales in the medical and energy markets were 44% and 31% lower, respectively. Results in 2019 included $95
million of sales related to the divested titanium investment castings and industrial forgings businesses, resulting in a 3%
unfavorable impact from divestitures.
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 2020 and 2019, and the percentage change in
revenues by market for 2020 is as follows:
Market
Aerospace & Defense:
Jet Engines- Commercial
Airframes- Commercial
Defense
Total Aerospace & Defense
Energy:
Oil & Gas
Specialty Energy
Total Energy
Medical
Construction/Mining
Other
Total
2020
2019
Change
$
542.7
219.8
184.4
946.9
37.3
68.9
106.2
47.7
18.6
45.2
46 % $ 1,085.7
55 % $
(543.0)
19 %
16 %
389.7
148.7
20 %
(169.9)
7 %
35.7
81 %
1,624.1
82 %
(677.2)
3 %
6 %
9 %
4 %
2 %
4 %
46.2
107.4
153.6
85.4
42.5
72.9
2 %
6 %
8 %
4 %
2 %
4 %
(8.9)
(38.5)
(47.4)
(37.7)
(23.9)
(27.7)
$ 1,164.6
100 % $ 1,978.5
100 % $
(813.9)
(50) %
(44) %
24 %
(42) %
(19) %
(36) %
(31) %
(44) %
(56) %
(38) %
(41) %
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). 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 AA&S 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 LTAs 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
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jet engines as well as spare parts for in-service engines. We also supply products to other important parts of the aviation market
such as helicopters and rotary engine fixed wing aircraft.
New airframe designs contain a larger percentage of titanium alloys, and the jet engines that power them use newer nickel-
based alloys and titanium-based alloys, in both cases for improved performance and more economical operating costs,
compared to legacy airframe and engine designs. Even with the production delays and order cancellations that have occurred
since the onset of the COVID-19 pandemic, Boeing and Airbus continue to have multi-year backlogs of orders for both legacy
models and next-generation aircraft, and there continue to be over 25,000 jet engines with firm orders (Aero Engine News,
February 2021). Due to manufacturing cycle times, demand for our specialty materials leads the deliveries of new aircrafts by
approximately 6 to 12 months.
Use of these newer materials, particularly for jet engine applications, is expected to continue to increase for several years, with
strong growth expected in powder metal alloys, including increased usage of isothermal forging and additive manufacturing
production processes.
In addition, as our specialty materials are used in rotating components of jet engines, demand for our products for spare parts is
impacted by aircraft flight activity and engine refurbishment requirements of U.S. and foreign aviation regulatory authorities.
As the number of aircraft in service increases, the need for our materials associated with engine refurbishment is expected to
increase.
Our HPMC segment produces a wide range of high performance materials, including titanium and titanium-based alloys,
nickel- and cobalt-based alloys and superalloys, advanced powder alloys and other specialty materials, in long product forms
such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tubes, plus precision forgings, components, and
machined parts.
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
Total High-Value Products
2020
2019
38 %
34 %
28 %
100 %
38 %
36 %
26 %
100 %
HPMC segment EBITDA for 2020 decreased 64% to $129.6 million, or 11.1% of sales, compared to $356.2 million, or 18.0%
of sales, in 2019. Lower overall demand, including lower sales of higher-margin next-generation jet engine products, and
reduced asset utilization rates negatively impacted operating margins. Cost cutting measures helped to offset these negative
impacts.
HPMC financial results experienced significant weakness in 2020 due to demand disruptions in the aerospace & defense and
energy markets as a result of the COVID-19 pandemic. Most production facilities operated at lower utilization rates, leading to
cost inefficiencies, along with weaker profit margins due to intense market competition. Although we began to see signs of
commercial aerospace stabilization in the fourth quarter of 2020, these market conditions are presently expected to continue
through at least the first half of 2021 due to the COVID-19 resurgence and low rates of global air passenger travel. For the full
year 2021, we are optimistic that the worst is behind us and demand will begin to rebound as COVID-19 vaccines are
increasingly approved and administered around the world. We expect our demand to improve in the second half of the year, led
by increasing narrow-body engine production volumes enhanced by ATI’s jet engine-related share gains and new business in
airframes.
We anticipate industry demand growth for advanced powder materials to satisfy aerospace & defense market production
requirements, and for emerging additive manufacturing of parts and components, and recently added new metal-alloy
production capacity in 2018 and 2019 for nickel, superalloy, and titanium alloy powders. 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 in 2021.
Despite near-term uncertainty posed by the ongoing COVID-19 pandemic impacts globally, we expect that the long-term
fundamentals driving demand growth in commercial aerospace remain largely intact across a range of next-generation aircraft
and engines. We believe that our HPMC segment is well-positioned for profitable growth through the expected recovery in
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7388_FIN.pdf 27
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commercial aerospace demand, 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.
2019 Compared to 2018
Sales for the HPMC segment in 2019 increased 1% compared to 2018, to $1.98 billion, despite a 5% negative impact from
business divestitures. Sales to the aerospace & defense markets, which are the largest end markets for HPMC at 82% of total
segment sales, were 4% higher, despite a 3% decline from divestitures. This was driven by a 20% increase in airframe sales
and 29% increase in defense sales. Total 2019 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 15% versus 2018 due to export sales into Asia
while construction and mining market sales were 42% lower.
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- Commercial
Airframes- Commercial
Defense
Total Aerospace & Defense
Energy:
Oil & Gas
Specialty Energy
Total Energy
Medical
Construction/Mining
Other
Total
2019
2018
Change
$ 1,085.7
55 % $ 1,121.5
57 % $
(35.8)
389.7
148.7
20 %
7 %
325.9
115.5
1,624.1
82 %
1,562.9
17 %
6 %
80 %
63.8
33.2
61.2
(3) %
20 %
29 %
4 %
(6.1)
(12) %
46.2
107.4
153.6
85.4
42.5
72.9
2 %
6 %
8 %
4 %
2 %
4 %
52.3
81.6
133.9
106.0
72.7
87.6
3 %
4 %
7 %
5 %
4 %
4 %
25.8
19.7
(20.6)
(30.2)
(14.7)
32 %
15 %
(19) %
(42) %
(17) %
1 %
$ 1,978.5
100 % $ 1,963.1
100 % $
15.4
Stronger demand for titanium and nickel-based products, sales of which increased 12% and 4%, respectively, in 2019 compared
to 2018, 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
Total High-Value Products
2019
2018
38 %
36 %
26 %
100 %
37 %
40 %
23 %
100 %
HPMC segment EBITDA for 2019 decreased 1% compared to 2018, to $356.2 million, or 18.0% 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 EBITDA.
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F-28
Advanced Alloys & Solutions
(In millions)
Sales to external customers
Segment EBITDA
Segment EBITDA as a percentage of sales
International sales as a percentage of sales
2020 Compared to 2019
2020
$ 1,817.5
115.0
$
6.3 %
35.7 %
% Change
2019
% Change
2018
(15) % $ 2,144.0
172.6
(33) % $
3 % $ 2,083.5
206.4
(16) % $
8.1 %
34.1 %
9.9 %
34.5 %
Sales for the AA&S segment in 2020 decreased 15% compared to 2019, to $1.82 billion. Sales to specialty energy markets
were 3% higher compared to the prior year, while total sales to all energy markets, which also include oil & gas, downstream
processing, and specialty energy, were 20% lower. Declines of 29% and 10% were also noted in the commercial aerospace and
automotive markets, respectively, partially offset by higher sales in the defense market and higher HRPF conversion services
billings. Sales in 2019 reflect project-based demand for marine scrubber products within the specialty energy markets. Sales of
high-value products were 15% lower, largely due to a 26% decline in nickel-based alloys and specialty alloys and a 22%
decline in titanium and titanium alloys.
Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall
segment revenues, for the years ended 2020 and 2019, and the percentage change in revenues by market for 2020 is as follows:
Market
Energy:
Oil & Gas
Specialty Energy
Total Energy
Aerospace & Defense:
Jet Engines- Commercial
Airframes- Commercial
Defense
Total Aerospace & Defense
Automotive
Electronics
Food Equipment & Appliances
Construction/Mining
Medical
Other
Total
2020
2019
Change
$
328.5
184.2
512.7
58.2
191.0
163.9
413.1
257.7
176.8
159.2
123.4
71.4
103.2
$ 1,817.5
18 % $
10 %
28 %
464.5
178.8
643.3
22 % $
8 %
30 %
(136.0)
5.4
(130.6)
3 %
11 %
9 %
23 %
14 %
10 %
9 %
7 %
4 %
5 %
100.8
249.6
155.9
506.3
286.1
162.7
205.5
152.5
87.0
100.6
100 % $ 2,144.0
5 %
12 %
7 %
24 %
13 %
8 %
9 %
7 %
4 %
5 %
100 % $
(42.6)
(58.6)
8.0
(93.2)
(28.4)
14.1
(46.3)
(29.1)
(15.6)
2.6
(326.5)
(29) %
3 %
(20) %
(42) %
(23) %
5 %
(18) %
(10) %
9 %
(23) %
(19) %
(18) %
3 %
(15) %
Our AA&S segment produces zirconium and related alloys including hafnium and niobium, nickel-based alloys, specialty
alloys, titanium and titanium-based alloys, and stainless products, in a variety of forms including plate, sheet, and PRS
products. AA&S also provides hot-rolling conversion services, including titanium products of the Uniti joint venture (JV) and
carbon steel products.
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F-29
Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are
presented in the following table. In conjunction with the announced ongoing exit of standard stainless products, ATI
reclassified certain items as High-Value Products. Prior period information reflects these reclassifications. HRPF conversion
service sales are excluded from this presentation.
For the Years Ended December 31,
High-Value Products
Nickel-based alloys and specialty alloys
PRS products
Zirconium and related alloys
Titanium and titanium-based alloys
Total High-Value Products
Standard Products
Total Standard Products
Grand Total
2020
2019
29 %
25 %
15 %
11 %
80 %
20 %
100 %
33 %
23 %
11 %
11 %
78 %
22 %
100 %
Segment EBITDA was $115.0 million, or 6.3% of sales, a 33% decline from segment EBITDA of $172.6 million, or 8.1% of
sales, in 2019, as weakened market conditions were partially offset by cost cutting measures. AA&S segment results for 2020
compared to 2019 reflect lower retirement benefit expense of approximately $20 million. Results at our Specialty Alloys &
Components business improved year-over-year primarily due to defense sales. Results in 2020 and 2019 also include $8.2
million and $12.2 million, respectively, in losses from the A&T Stainless joint venture operations. We indefinitely idled the
manufacturing operations of the A&T Stainless joint venture in 2020 due to repeated denials by the U.S. Department of
Commerce for exemptions from Section 232 tariffs, which impose a 25% tariff on imported semi-finished stainless slab
products from Indonesia. A $2.4 million charge for ATI’s portion of a severance charge recorded by the A&T Stainless joint
venture was excluded from segment results.
AA&S financial results experienced significant weakness in 2020 due to demand disruptions in the aerospace, energy and
general industrial markets as a result of the COVID-19 pandemic. Lower utilization rates have resulted at most production
facilities, leading to cost inefficiencies, along with weaker profit margins due to intense market competition. These market
conditions are presently expected to continue through at least the first half of 2021. We continue efforts toward improving the
capacity utilization of our HRPF for carbon steel hot-rolling conversion services.
On December 2, 2020, we announced a strategic repositioning of our FRP business, which includes exiting standard stainless
sheet products, streamlining the production footprint of the AA&S segment and making certain capital investments to increase
our focus on higher-margin products and our aerospace & defense end markets. These actions are expected to accelerate our
future by exiting this low-margin standard stainless sheet product line and redeploying capital to high-return opportunities.
This transformation represents a major step forward to making ATI a more sustainably profitable aerospace & defense-focused
company. We expect our AA&S segment revenues to decrease by approximately $450 million, compared to a 2019 baseline,
once these strategic actions to exit standard stainless products are completed.
2019 Compared to 2018
Sales for the AA&S segment in 2019 increased 3% compared to 2018, to $2.14 billion. Sales to the aerospace & defense
markets increased 26% versus 2018, supported by higher demand for materials for naval nuclear components, and 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 energy markets were flat, as higher specialty energy demand for
marine scrubber products for exhaust systems on ships was offset by lower oil & gas market sales, including downstream
processing applications, due primarily to the timing of project-based demand. In the medical market, sales increased 13% due
in part to higher MRI magnet demand. Sales to the automotive and other industrial markets declined in 2019. Overall,
increased sales of high-value products offset 10% lower sales of standard stainless products, compared to 2018.
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. 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.
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Comparative information for our AA&S 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
Energy:
Oil & Gas
Specialty Energy
Total Energy
Aerospace & Defense:
Jet Engines- Commercial
Airframes- Commercial
Defense
Total Aerospace & Defense
Automotive
Food Equipment & Appliances
Electronics
Construction/Mining
Medical
Other
Total
2019
2018
Change
$
464.5
178.8
643.3
100.8
249.6
155.9
506.3
286.1
205.5
162.7
152.5
87.0
100.6
$ 2,144.0
22 % $
8 %
30 %
493.9
152.9
646.8
5 %
12 %
7 %
24 %
13 %
9 %
8 %
7 %
4 %
5 %
76.1
230.1
96.4
402.6
313.9
244.5
155.4
153.3
77.1
89.9
100 % $ 2,083.5
24 % $
7 %
31 %
4 %
11 %
5 %
20 %
15 %
12 %
7 %
7 %
4 %
4 %
100 % $
(29.4)
25.9
(3.5)
24.7
19.5
59.5
103.7
(27.8)
(39.0)
7.3
(0.8)
9.9
10.7
60.5
(6) %
17 %
(1) %
33 %
9 %
62 %
26 %
(9) %
(16) %
5 %
(1) %
13 %
12 %
3 %
Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are
presented in the following table. In conjunction with the announced ongoing exit of standard stainless products, ATI
reclassified certain items as High-Value Products. Prior period information reflects these reclassifications. HRPF conversion
service sales are excluded from this presentation.
For the Years Ended December 31,
High-Value Products
Nickel-based alloys and specialty alloys
PRS products
Zirconium and related alloys
Titanium and titanium-based alloys
Total High-Value Products
Standard Products
Total Standard Products
Grand Total
2019
2018
33 %
23 %
11 %
11 %
78 %
22 %
100 %
31 %
23 %
11 %
10 %
75 %
25 %
100 %
Segment EBITDA in 2019 was $172.6 million, or 8.1% of sales, a 16% decline from segment EBITDA of $206.4 million, or
9.9% of sales, in 2018. AA&S segment results for 2019 reflect higher retirement benefit expense of $27 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 2018. 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 EBITDA compared to 2018.
LIFO and Net Realizable Value Reserves
There was no effect on our results of operations for changes in LIFO and NRV inventory reserves for 2020. Falling inventory
costs in 2020 resulted in a $10.5 million pretax LIFO inventory valuation reserve benefit, which was offset by a $10.5 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. The net effect of changes in LIFO and NRV inventory
reserves was expense of $0.1 million in 2019. 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.
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Corporate Expenses
Corporate expenses, which are included in selling and administrative expenses in the statement of operations, were $40.9
million in 2020 compared to $65.3 million in 2019. This decrease was primarily due to lower incentive compensation expense
based on expected performance versus targeted metrics, and lower expenses resulting from cost reduction actions.
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 $7.4 million in 2020, compared to $24.0 million in 2019. This decline
reflects lower legal and retirement benefit expense of closed operations and a $4.3 million gain from settlements of contract
indemnity obligations.
Depreciation and Amortization
The following is depreciation & amortization by business segment:
(In millions)
Depreciation and amortization:
High Performance Materials &
Components
Advanced Alloys & Solutions
Other
Interest Expense, Net
2020
2019
2018
$
$
$
78.1
62.1
3.1
$
84.6
63.5
3.0
143.3
$
151.1
$
90.6
62.9
2.9
156.4
Interest expense, net of interest income and interest capitalization, was $94.4 million in 2020, compared to $99.0 million in
2019. This decrease is primarily due to higher capitalized interest in the current year, as well as the net effects of debt reduction
actions taken by us in the fourth quarter 2019, partially offset by increased debt resulting from the actions taken in 2020.
Interest expense is presented net of interest income of $1.7 million in 2020, $5.9 million in 2019, and $1.1 million in 2018.
Interest expense in 2020, 2019, and 2018 was reduced by $7.7 million, $4.7 million, and $4.1 million, respectively, related to
interest capitalization on major strategic capital projects.
Restructuring and Other Charges
For the year ended December 31, 2020, we recorded restructuring and other charges of $1,132.1 million, predominantly related
to our December 2020 announcement previously discussed to cease production of standard stainless sheet products, which are
excluded from business segment results.
Restructuring charges recorded on the consolidated statement of operations for the year ended December 31, 2020 were
$1,107.5 million, comprised of $1,041.5 million of non-cash asset impairment charges, $60.5 million of employee benefit-
related costs, and $5.5 million of other costs related to facility idlings. The long-lived asset impairment charges relate to a
$1,032.6 million charge related to the Brackenridge, PA operations, including the HRPF, as well as $8.9 million other long-
lived asset impairment charges recognized for various AA&S segment operations identified for closure as part of the standard
stainless sheet exit decision.
Restructuring charges also include $60.5 million of employee benefit costs, representing severance, supplemental
unemployment and medical benefits for the elimination of approximately 1,400 positions related to the standard stainless exit,
as well as for employees impacted by the idling of the Albany, OR primary titanium operations in the fourth quarter of 2020,
and workforce right-sizing actions, including both involuntary reductions and voluntary retirement incentive programs
implemented throughout 2020 to better match our cost structure to expected demand, primarily as a result of economic
challenges created by the COVID-19 pandemic. We expect to generate approximately $90 million in annual savings from these
cost reduction programs in 2021 and $100 million annually once fully implemented in 2023. Cash payments associated with
these cost reduction programs are expected to be approximately $35 million in 2021. Other costs of $5.5 million included in
2020 restructuring charges primarily relate to asset retirement and environmental obligations associated with facility idlings.
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Other charges for the year ended December 31, 2020 include:
•
•
$17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures
from the standard stainless exit. These costs are classified within nonoperating retirement benefit expense in the
consolidated statements of operations.
$7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement
of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary
titanium facility.
In addition, the A&T Stainless JV recorded a $4.8 million charge in 2020 for contractual termination benefits, and ATI
recognized a $2.4 million charge in 2020 for its equity method share of these termination benefits. These charges are excluded
from segment operating results.
A $4.5 million restructuring charge was recorded on the consolidated statement of operations for the year ended December 31,
2019 for severance obligations for the reduction of approximately 70 positions in order to streamline our salaried workforce,
primarily to improve the cost competitiveness of the U.S.-based FRP business. This restructuring charge is excluded from
business segment results. The $4.5 million was substantially paid in 2020 upon completion of these reductions.
Goodwill Impairment Charge
In the second quarter 2020, due to demand disruptions to the global commercial aerospace market resulting from the
COVID-19 pandemic and changes in near-term demand requirements of aero-engine and airframe markets, ATI conducted an
interim test for goodwill impairment at our Forged Products operations, and recognized a $287.0 million charge for the partial
impairment of goodwill, while retaining $173.4 million of goodwill for this profitable business with good long-term growth
prospects. This goodwill impairment charge is excluded from HPMC segment results.
Joint Venture Restructuring and Impairment Charges
The A&T Stainless JV recorded a $4.8 million charge in 2020 for contractual termination benefits, and ATI recognized a $2.4
million charge in 2020 for its equity method share of these termination benefits. These charges are excluded from AA&S
segment results.
We recorded an $11.4 million impairment charge in 2019 for the A&T Stainless JV, including ATI’s share of a long-lived asset
impairment charge recognized by the JV 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 JV’s net assets. This charge is excluded from AA&S segment 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 JV partner
purchased its 50% JV 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 AA&S segment
results.
Debt Extinguishment Charge
In 2020, ATI issued $291.4 million aggregate principal amount of the 2025 Convertible Notes, and used the majority of the
proceeds to repurchase approximately $203.2 million aggregate principal amount of the outstanding principal balance of our
2022 Convertible Notes. A $21.5 million debt extinguishment charge was recognized for this action, which included a $19.1
million cash payment as a make-whole provision on the early extinguishment of debt, and a $2.4 million charge for previously-
unrecognized debt issue costs.
In the fourth quarter of 2019, we issued $350 million of the 2027 Notes. Proceeds from the issuance of the 2027 Notes and
cash on hand were used to redeem the $500 million 2021 Notes, which had a January 15, 2021 maturity date. A $21.6 million
debt extinguishment charge was recorded as part of this action, 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.
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Gains on Asset Sales, net
During 2020, we recognized a $2.5 million cash gain for the sale of certain oil and gas rights. This non-core asset sale gain is
reported in other income/expense, net, on the consolidated statement of operations and is excluded from business segment
results. During the third quarter of 2019, we completed the sale of our Cast Products business and recognized a $6.2 million
gain. During the second quarter of 2019, we completed the sale of two non-core forging facilities, located in Portland, IN and
Lebanon, KY, and recognized an $8.1 million pre-tax loss. Also during the second and third quarters of 2019, we recognized
$29.3 million and $62.4 million cash gains, respectively, on sales of certain oil and gas rights. The 2019 results include $89.8
million, respectively, in net pretax gains from these non-core asset sales which are reported in other income/expense, net, on the
consolidated statement of income and are excluded from business segment results.
Income Taxes
Results in 2020, 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily
related to income tax valuation allowances. In 2020, ATI’s U.S. operations returned to a three-year cumulative loss position,
limiting our ability to utilize future projections as sources of income when analyzing the need for a valuation allowance. The
consolidated income tax provision of $77.7 million for fiscal year 2020 is primarily due to increases in deferred tax asset
valuation allowances based on an analysis of the expected realization of deferred tax assets and liabilities within applicable
expiration periods. While our U.S. operations remain in a three-year cumulative loss position, we expect our reported tax
expense to primarily relate to our profitable STAL PRS joint venture in China. 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 several years.
At December 31, 2019, our U.S. results had 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. 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 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 maintained valuation allowances for certain foreign operations. 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.
Financial Condition and Liquidity
We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the
our domestic operations. The ABL facility, which matures in September 2024, includes a $500 million revolving credit facility,
a letter of credit sub-facility of up to $200 million, and a $200 million term loan (Term Loan). In June 2020, we exercised our
right to borrow an additional $100 million under the term loan portion of the ABL, with the same September 2024 maturity
date. The Term Loan has an 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 addition, we 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. We have a $50 million floating-
for-fixed interest rate swap which converts a portion of the Term Loan to a 4.21% fixed interest rate. The swap matures in June
2024.
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) $87.5 million, calculated as 12.5% of the
then applicable maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan
balance, or (ii) $62.5 million. We did not meet this required fixed charge coverage ratio at December 31, 2020. As a result, we
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are unable to access this remaining 12.5%, or $87.5 million, of the ABL facility until we meet the required ratio. 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 2022 Convertible Notes and 5.875% Notes due 2023. The
ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our
ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and
transactions with affiliates, some of which are more restrictive at any time during the term of the ABL when our fixed charge
coverage ratio is less than 1.00:1.00 and our undrawn availability under the revolving portion of the ABL is less than the greater
of (a) $150 million or (b) 30% of the sum of the maximum advance amount under the revolving credit portion of the ABL and
the outstanding Term Loan balance. On September 30, 2019, we amended and restated the ABL and costs associated with
entering into this amendment were $2.2 million, and are being amortized to interest expense over the term of the facility ending
September 2024, along with $2.1 million of unamortized deferred costs that were previously recorded for the ABL.
As of December 31, 2020, there were no outstanding borrowings under the revolving credit portion of the ABL, and $38.5
million was utilized to support the issuance of letters of credit. Average borrowings under the ABL for the fiscal year ended
December 31, 2020 were $28 million, bearing an average annual interest rate of 2.2%. There were no revolving credit
borrowings under the ABL for 2019.
In 2020, we issued and sold $291.4 million aggregate principal amount of 2025 Convertible Notes. We used a portion of the
net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our
outstanding 2022 Convertible Notes. We also used $19.4 million of the net proceeds of the offering of the 2025 Convertible
Notes to pay the cost of capped call transactions, which effectively increase the initial conversion price of the 2025 Convertible
Notes into ATI stock from $15.49 per share to $19.76 per share. The remainder of the net proceeds from the offering will be
used for general corporate purposes.
On November 22, 2019, we issued $350 million aggregate principal amount of 2027 Notes. 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, 2020, we had $646 million of cash and cash equivalents, and available additional liquidity under the ABL
facility of approximately $310 million, for total liquidity of more than $950 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 2020, the Company made $130 million in cash contributions to its U.S. qualified defined benefit pension plans. Based on
pension trust assets as of December 31, 2020, 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 $87 million in 2021,
and to have average annual funding requirements of approximately $50 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 2020 was $166.9 million, including cash provided by a $156.6 million reduction in managed
working capital balances. The generation of cash from managed working capital in 2020 reflects our alignment with expected
demand levels. Other significant 2020 operating cash flow items included $130.2 million in contributions to a U.S. defined
benefit pension plan and payment of 2019 annual incentive compensation. Cash provided by operations was $230.1 million in
2019, which included an $88.4 million reduction in managed working capital balances. This was despite $29 million in short-
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term working capital advances to the A&T Stainless JV for 2019 and $145 million of cash contributions to ATI’s U.S. qualified
defined benefit pension plans in 2019.
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 2020, managed working capital increased to 40.5% of annualized total ATI sales
compared to 30.0% of annualized sales at December 31, 2019. This increase is a result of annualized three-month sales
declining at a faster pace in 2020 than the decline in overall managed working capital balances versus year-end 2019, due in
part to a first quarter 2020 increase in managed working capital over year-end 2019 levels. The $156.6 million decrease in
managed working capital in 2020 resulted from a $208.6 million decrease in accounts receivable, a $145.9 million decrease in
inventory, and a $33.1 million increase in short-term contract liabilities, partially offset by a $0.4 million increase in short-term
contract assets and a $230.6 million decrease in accounts payable. Days sales outstanding, which measures actual collection
timing for accounts receivable, worsened by approximately 7% at year-end 2020 compared to 2019. No significant accounts
receivable collection issues are expected despite the increase in this metric. Gross inventory turns, which exclude the effect of
LIFO and any applicable offsetting NRV inventory valuation reserves, improved by 28% 2020 compared to 2019 as our level of
operating activity decreased throughout 2020 in response to lower customer demand.
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, 2020 change in managed working capital
$
December 31,
2020
345.8
38.9
997.1
(290.6)
(111.8)
979.4
4.3
(44.1)
126.9
$ 1,066.5
$ 2,633.2
December 31,
2019
$
$
$
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
40.5 %
30.0 %
$
(156.6)
Cash used in investing activities was $128.7 million in 2020, reflecting $136.5 million in capital expenditures partially offset by
$5.9 million of proceeds from property, plant and equipment sales, which includes proceeds from the sale of certain oil and gas
rights. Capital expenditures in 2020 primarily are related to HPMC growth projects including the new isothermal press and
heat-treating expansion in Cudahy, WI. We expect to fund our capital expenditures with cash on hand and cash flow generated
from our operations and, if needed, by using a portion of the ABL facility. Cash 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. Capital expenditures for 2019 were $168.2
million primarily related to HMPC growth projects.
Cash provided by financing activities in 2020 was $116.9 million, and consisted primarily of $291.4 million of borrowings for
the 2025 Convertible Notes issued in 2020 and $100.0 million of additional Term Loan borrowings under the ABL. These were
offset by a $203.2 million repayment for a portion of the 2022 Convertible Notes and $19.1 million cash make-whole payment
related to the early extinguishment of these 2022 Convertible Notes as required by the applicable indenture, as well as $19.4
million to pay the cost of capped call transactions and $9.1 million for debt issuance costs, both associated with the newly
issued 2025 Convertible Notes. Cash provided by financing activities in 2020 also reflects a $7.2 million dividend payment to
the 40% noncontrolling interest in our STAL PRS joint venture in China. 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
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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.
At December 31, 2020, cash and cash equivalents on hand totaled $645.9 million, a $155.1 million increase from year-end
2019. Cash and cash equivalents held by our foreign subsidiaries was $92.9 million at December 31, 2020, of which $38.3
million was held by the STAL joint venture.
Debt
Total debt outstanding of $1,629.1 million at December 31, 2020, increased $217.9 million compared to December 31, 2019, as
$291.4 million of borrowings for the 2025 Convertible Notes issued in 2020, a portion of which is required to be recorded in
stockholders’ equity as discussed further below, and $100.0 million of additional Term Loan borrowings under the ABL were
partially offset by a $203.2 million repayment for a portion of the 2022 Convertible Notes. Total debt outstanding as described
above excludes debt issuance costs and includes the $46.8 million unamortized portion of the 2025 Convertible Notes that is
required to be classified in stockholders’ equity due to the flexible settlement feature available to ATI on conversion. 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, goodwill impairment charges and debt extinguishment charges for the latest 12 month period. We define
Adjusted EBITDA as EBITDA excluding significant charges or credits, restructuring charges, 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.
All of these leverage ratios worsened in 2020, primarily as a result of lower earnings. At year-end 2020, our debt to Adjusted
EBITDA ratio was 8.30, compared to 3.21 at December 31, 2019, and net debt to Adjusted EBITDA ratio was 5.01, compared
to 2.09 at December 31, 2019.
Income (loss) before income taxes
Interest expense
Depreciation and amortization
Impairment of goodwill
Restructuring and other charges
Joint venture impairment charge
Debt extinguishment charge
Gain on asset sales, net
Adjusted EBITDA
Total debt (a)
Less: Cash
Net debt
Debt to Adjusted EBITDA
Net Debt to Adjusted EBITDA
$
$
$
$
December 31,
2020
December 31,
2019
(1,481.9) $
94.4
143.3
287.0
1,132.1
2.4
21.5
(2.5) $
196.3 $
1,629.1 $
(645.9)
983.2 $
8.30
5.01
241.6
99.0
151.1
—
4.5
11.4
21.6
(89.8)
439.4
1,411.2
(490.8)
920.4
3.21
2.09
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F-37
At year-end 2020, our net debt to total capitalization was 67.6%, compared to 30.6% at December 31, 2019, reflecting
significantly lower stockholders' equity as a result of the significant restructuring and other charges recognized in 2020.
(In millions)
Total debt (a)
Less: Cash
Net debt
Total ATI stockholders’ equity (b)
Net ATI capital
Net debt to ATI capital
December 31,
2020
December 31,
2019
$
$
$
1,629.1
(645.9)
983.2
471.3
1,454.5
$
$
$
1,411.2
(490.8)
920.4
2,090.1
3,010.5
67.6 %
30.6 %
Total debt to total capitalization was 77.6% at December 31, 2020 compared to 40.3% at December 31, 2019, also reflecting
significantly lower stockholders' equity in 2020.
(In millions)
Total debt (a)
Total ATI stockholders’ equity (b)
Total ATI capital
Total debt to ATI capital
December 31,
2019
$
$
1,629.1
471.3
2,100.4
December 31,
2019
1,411.2
2,090.1
3,501.3
$
$
77.6 %
40.3 %
(a) Excludes debt issuance costs for both periods. The December 31, 2020 debt balance includes $46.8 million for the
unamortized portion of the 2025 Convertible Notes recorded in stockholders’ equity due to the flexible settlement feature of the
notes.
(b) The December 31, 2020 balance excludes $49.8 million recorded in stockholders’ equity for a portion of the 2025
Convertible Notes, net of debt issuance costs.
In 2020, we issued and sold $291.4 million aggregate principal amount of the 2025 Convertible Notes. Interest on the 2025
Convertible Notes at the 3.5% cash coupon rate is payable semi-annually in arrears on each June 15 and December 15,
commencing December 15, 2020. We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to
repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes, resulting in a $21.5 million
debt extinguishment charge, which included a $19.1 million cash make-whole payment related to the early extinguishment of
the 2022 Convertible Notes as required by the applicable indenture, and a $2.4 million charge for deferred debt issue costs. We
also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call
transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’ equity on the
consolidated balance sheet. The remainder of the net proceeds from the offering were used for general corporate purposes.
The 2025 Convertible Notes are convertible into our common stock at an initial conversion price of $15.49 per share and may
be settled in cash, shares of our common stock or a combination thereof, at our election. As a result of this flexible settlement
feature of the 2025 Convertible Notes, the embedded conversion option valued at $51.4 million is required to be separately
accounted for as a component of stockholders’ equity. This equity component will be amortized as additional non-cash interest
expense, commonly referred to as phantom yield, over the term of the 2025 Convertible Notes. Due to the non-cash phantom
yield and including debt issue cost amortization, the 2025 Convertible Notes have reported interest expense in 2020 at an 8.4%
rate, higher than the 3.5% cash coupon rate. Effective January 1, 2021, ATI early-adopted new accounting guidance that
eliminates the equity component classification of the embedded conversion option, as well as the phantom yield portion of
interest expense on a prospective basis. Upon adoption on January 1, 2021, long-term debt increased by $45.4 million,
representing the $46.8 million unamortized portion of the equity component of convertible debt as of December 31, 2020, net of
reclassified debt issue costs.
In connection with the pricing of the 2025 Convertible Notes, we entered into privately negotiated capped call transactions with
certain of the initial purchasers or their respective affiliates (collectively, the Counterparties). The capped call transactions are
expected generally to reduce potential dilution to our common stock upon any conversion of the 2025 Convertible Notes and/or
offset any cash payments we are required to make in excess of the principal amount of converted 2025 Convertible Notes, as
the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call
transactions initially is approximately $19.76 per share, and is subject to adjustments under the terms of the capped call
transactions.
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F-38
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. Our credit rating from both rating agencies currently remains below the level at which the current 2023 Notes interest
rate would reset to a lower rate. At our present credit rating levels, we would need a two-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%.
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
$
$
$
$
1,629.1 $
386.7
84.0
119.9
568.2
1,050.1
74.9
89.6
4,002.5 $
550.3 $
26.8
17.8 $
90.2
19.6
—
127.9
606.9 $
174.4
29.4
70.6
197.7
654.2 $
81.0
16.9
19.2
114.8
263.8
39.1
49.8
608.2 $
369.1
35.8
25.4
1,509.3 $
253.2
—
12.2
1,151.5 $
350.2
41.1
18.1
30.1
127.8
164.0
—
2.2
733.5
50.3 $
— $
500.0 $
—
(A)
(B)
(C)
(D)
(E)
Amounts include contractual interest payments using the interest rates in effect as of December 31, 2020 applicable
to the Company’s 2022 Convertible Notes, the 2023 Notes, the Term Loan due 2024, the 2025 Convertible Notes,
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 13, 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 16, 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,
2020, for raw material obligations with variable pricing.
We have various contractual obligations that extend through 2026 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.
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(F)
At December 31, 2020, there were no amounts drawn under foreign credit agreements. Drawn amounts on the U.S.
facility were $38.5 million utilized under the $500 million ABL facility for standby letters of credit, which renew
annually. These letters of credit are used to support: $29.4 million in workers’ compensation and general insurance
arrangements, $5.4 million related to environmental matters and $3.7 million for ATI's assurance of performance to
a customer.
Commitments and Contingencies
At December 31, 2020, our reserves for environmental remediation obligations totaled approximately $14 million, of which $4
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; $9 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, 2020, 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 $15 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 28, 2021 involving approximately 1,100 USW-represented active full-time employees located
primarily within the AA&S segment operations.
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, 2020, our U.S. qualified defined benefit pension plans were approximately 76% funded in accordance with
generally accepted accounting principles, and were remeasured at that date using a 2.60% discount rate to measure the projected
benefit obligation. For ERISA funding purposes, discount rates used to measure pension liabilities for U.S. qualified defined
benefit plans are calculated on a different basis using an IRS-determined segmented yield curve, 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 $87 million in cash contributions to the
U.S. qualified defined benefit pension plans in 2021, and we expect to have average annual funding requirements of
approximately $50 million to these pension plans for the next few years thereafter, using a 6.78% 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.
We have certain collective bargaining agreements that include participation in a multiemployer pension plan. Under current
law, an employer that withdraws or partially withdraws from a multiemployer pension plan may incur a withdrawal liability to
the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very
complex actuarial and allocation rules. A subsidiary of the Company participates in the Steelworkers Western Independent
Shops Pension Plan (WISPP) for union-represented employees of our primary titanium operations in Albany, OR, which is
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funded on an hours-worked basis. As of December 31, 2020, manufacturing operations at this facility are indefinitely idled,
and a limited number of employees that participate in the WISPP remain active in maintenance and other functions. It is
reasonably possible that a significant reduction or the elimination of hours-worked contributions due to changes in operating
rates at this facility could result in a withdrawal liability assessment in a future period. As of the WISPP fiscal plan year ended
September 30, 2018, which is the most recent information available from the Plan Administrator, our subsidiary’s liability for a
complete withdrawal was estimated by the Plan Administrator to be approximately $38 million on an undiscounted basis. If the
withdrawal liability was incurred, we estimate that payments of this obligation would be required on a straight-line basis over a
20-year period.
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 sum of the maximum revolving advance amount and the
outstanding principal amount of any term loans (the Maximum Loan Amount), 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 Loan Amount but
more than the greater of $75 million and 15% of the Maximum Loan Amount, if (i) no event of default has occurred and is
continuing or would result from paying the dividend, and (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 Loan Amount, 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, 2020, we had net inventory of $997.1 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 years ended December 31, 2020 and 2019, the LIFO inventory valuation method
resulted in cost of sales that were $10.5 million and $25.5 million, respectively, lower than would have been recognized under
the FIFO methodology to value our inventory. Our NRV reserves were $44.1 million and $33.6 million at December 31, 2020
and 2019, respectively.
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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.
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,
2020
2019
2018
$
$
10.5 $
(10.5)
— $
25.5 $
(25.6)
(0.1) $
(28.6)
27.9
(0.7)
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.
On December 2, 2020, we announced a strategic repositioning of our FRP business within the AA&S segment, with a focus of
increasing emphasis on the specialty rolled products portion of its product portfolio, which comprise titanium-based alloys
including aerospace-grade titanium plate products, nickel-based alloys, and stainless products with more differentiated
characteristics for specialty applications, including thin-gauge PRS. As part of this strategic realignment, we intend to cease
production of standard stainless sheet products over approximately a one-year period, significantly reducing the operating levels
of the Brackenridge, PA operations, including the HRPF, and close various downstream finishing operations that are part of the
standard stainless sheet flow path. The December 2, 2020 decision to exit production of standard stainless products represented
a significant indicator of impairment in the carrying value of certain long-lived assets. Based on projected cash flows of the
Brackenridge, PA operations, including the HRPF, we completed a fair value analysis as of the beginning of the fourth quarter
of 2020 and recognized a $1,032.6 million impairment charge for this facility based on an estimated fair value of $354 million.
This long-lived asset impairment charge was determined using a held in use framework and an income approach, which
represents Level 3 unobservable information in the fair value hierarchy. This impairment assessment and valuation method
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, the weighted average cost of capital used in our discounted
cash flow assessment was 9.3% and the long-term growth rate was 2%. Although we believe that the estimates and
assumptions used were reasonable, actual results could differ from those estimates and assumptions. Other long-lived asset
impairment charges of $8.9 million were also recognized for various AA&S segment operations identified for closure as part of
the standard stainless sheet exit decision.
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. At December 31, 2020, the Company had $240.7 million of goodwill on its consolidated balance sheet, all
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of which relates to the HPMC segment. Goodwill decreased $285.1 million in 2020 due to a $287.0 million interim impairment
charge in the HPMC segment, partially offset by a $1.9 million increase from the impact of foreign currency translation on
goodwill denominated in functional currencies other than the U.S. dollar.
During the second quarter of 2020, we performed an interim goodwill impairment analysis on the Forged Products reporting
unit and its $460.4 million goodwill balance based on assessed potential indicators of impairment, including recent disruptions
to the global commercial aerospace market resulting from the COVID-19 pandemic, and the increasing uncertainty of near-term
demand requirements of aero-engine and airframe markets based on government responses to the pandemic and ongoing
interactions with customers. In the previous 2019 annual goodwill impairment evaluation, this reporting unit had a fair value
that exceeded carrying value by approximately 30%. As a result of the second quarter 2020 interim goodwill impairment
evaluation, we determined that the fair value of the Forged Products reporting unit was below carrying value, including
goodwill, by $287.0 million. This was primarily due to changes in the timing and amount of expected cash flows resulting from
lower projected revenues, profitability and cash flows due to near-term reductions in commercial aerospace market demand.
Consequently, during the second quarter of 2020, we recorded a $287.0 million impairment charge for the partial impairment of
Forged Products reporting unit goodwill, most of which was assigned from the Company’s 2011 Ladish acquisition that was not
deductible for income tax purposes.
For the 2020 interim impairment analysis, fair value was determined by a quantitative assessment that used a discounted cash
flow technique, which represents Level 3 unobservable information in the fair value hierarchy. The impairment assessment and
valuation method 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 assessment was 11.6%, and long-term growth rate was 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 performed in the fourth quarter of 2020, 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 11.7% 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.
The $240.7 million of goodwill remaining as of December 31, 2020 on our consolidated balance sheet is comprised of $173.4
million at the Forged Products reporting unit and $67.3 million at the Specialty Materials reporting unit. For our annual
goodwill impairment evaluation performed in the fourth quarter of 2020, the Specialty Materials reporting unit had a fair value
that was significantly in excess of carrying value. The Forged Products reporting unit had a fair value that exceeded carrying
value by approximately 2%, representing a slight increase in fair value subsequent to the interim goodwill impairment charge
recorded for this reporting unit in the second quarter of 2020 as discussed above. As a result, no impairments were determined
to exist from the annual goodwill impairment evaluation for the years ended December 31, 2020, 2019 and 2018. In order to
validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the
aggregate fair values of all reporting units to market capitalization was performed using a reasonable control premium. In
addition, no indicators of impairment were observed in 2020 associated with any of our long-lived assets in the HPMC segment
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 in
2019 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 impairment charge is categorized as part of the net gain on sale of the titanium investment castings business.
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. On a quarterly basis, we evaluate the realizability of
our deferred tax assets.
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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.
Results in 2020, 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily
related to income tax valuation allowances. In 2020, ATI’s U.S. operations returned to a three-year cumulative loss position,
limiting our ability to utilize future projections as sources of income when analyzing the need for a valuation allowance. The
consolidated income tax provision of $77.7 million for fiscal year 2020 primarily relates to increases to deferred tax asset
valuation allowances based on an analysis of the expected realization of deferred tax assets and liabilities within applicable
expiration periods.
At December 31, 2019, our U.S. results had 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.
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 Global Intangible Low-Taxed Income 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 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.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),
which includes certain income tax changes, in response to the COVID-19 pandemic. We have determined that the CARES Act
changes do not result in a material income tax expense or benefit to ATI. We are currently assessing payroll tax refund
opportunities related to the employee retention credit under the CARES Act.
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 7.16% in 2020, and
the weighted average expected long-term rate of return on pension plan investments for 2021 will be 6.78%. 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 15.2% for 2020, 15.1% for 2019, (4.8)% for 2018, 16.9% for 2017, and 5.3% for 2016. 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
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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 2.60% for valuing the pension liabilities as of December 31, 2020, and for determining the pension expense for
2021. We had previously assumed a discount rate of 3.40% at the end of 2019 and 4.40% at the end of 2018. 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 $155 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.
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, 2020, 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 2020, we determined the rate to be 2.45%, compared to a 3.25% discount rate in 2019, and a
4.35% discount rate in 2018. 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 $17 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 5.6% in 2021 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 March 2020, the Financial Accounting Standards Board (FASB) issued new optional accounting guidance for a limited
period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial
reporting. In response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the
London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate
reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to
manipulation. The new accounting guidance provides optional expedients and exceptions for applying generally accepted
accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
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criteria are met. The new accounting guidance applies only to contracts, hedging relationships, and other transactions that
reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and
exceptions provided by the amendments generally do not apply to contract modifications made and hedging relationships
entered into or evaluated after December 31, 2022. Management is continuing to evaluate the issue, and presently does not
expect a transition away from LIBOR, primarily involving ATI’s domestic credit facility and an interest rate swap contract, to
have any significant financial impact to ATI.
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.
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 the requirement. This guidance was adopted by the Company
in fiscal year 2020 without 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.
Pending Accounting Pronouncements
In August 2020, the FASB issued new accounting guidance related to accounting for convertible instruments. Under this new
guidance, embedded conversion features are no longer separated from the host contract for convertible instruments with
conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums
accounted for as paid-in capital. As such, a convertible debt instrument will be accounted for as a single liability measured at
its amortized cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation
models, the reported interest rate of convertible debt instruments typically will be closer to the coupon interest rate. The new
guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation, requiring
the if-converted method, and requires enhanced disclosures about the terms of convertible instruments and contracts in an
entity’s own equity. This new guidance is effective for the Company in fiscal year 2022, with early adoption permitted.
The Company adopted this new accounting guidance related to accounting for convertible instruments effective January 1, 2021
using the modified transition approach with the cumulative effect recognized as an adjustment to the opening balance of
retained earnings. This new guidance is applicable to the 2025 Convertible Notes that were issued in June 2020, for which the
embedded conversion option was required to be separately accounted for as a component of stockholders’ equity. Upon
adoption on January 1, 2021, long-term debt increased by $45.4 million and stockholders’ equity decreased by the same
amount, representing the net impact of two adjustments: (1) the $49.8 million value of the embedded conversion, which is net
of allocated offering costs, previously classified in additional paid-in-capital in stockholders’ equity, and (2) a $4.4 million
increase to retained earnings for the cumulative effect of adoption primarily related to the non-cash interest expense recorded in
fiscal year 2020 for the amortization of the portion of the 2025 Convertible Notes allocated to stockholders’ equity.
Prospectively, the reported interest expense for the 2025 Convertible Notes will no longer include the non-cash interest expense
of the equity component as required under prior accounting standards and will be closer to the 3.5% cash coupon rate. There
will be no impact to the Company’s earnings per share calculation as it previously applied the if-converted method to the 2025
Convertible Notes given ATI’s flexibility to settle conversions of the 2025 Convertible Notes in cash, shares of ATI’s common
stock or a combination thereof, at ATI’s election.
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,
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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. The Company has a $50 million floating-for-fixed interest rate swap which, as amended and
extended to June 2024, converts a portion of the Term Loan to a 4.21% fixed rate. 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, 2020, the net mark-to-market
valuation of the outstanding interest rate swap was an unrealized pre-tax loss of $3.5 million, comprised of $1.0 million in other
current liabilities and $2.5 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
5 to 7 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 $5 to $7 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, 2020, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included
natural gas hedges. At December 31, 2020, we hedged approximately 70% of our annual forecasted domestic requirements for
natural gas for 2021 and approximately 25% for 2022. There was no gain or loss from the net mark-to-market valuation of the
outstanding natural gas hedges at December 31, 2020, with $0.2 million in prepaid expenses and other current assets, $0.2
million in other assets, $0.3 million in other current liabilities and $0.1 million in other long-term liabilities on the balance
sheet. For the year ended December 31, 2020, the effects of natural gas hedging activity increased cost of sales by $3.7 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 2020 we used approximately 50 million pounds of nickel; therefore a hypothetical change of $1.00 per pound in
nickel prices would result in increased costs of approximately $50 million. In addition, in 2020 we also used approximately
300 million pounds of ferrous scrap in the production of our flat-rolled products and a hypothetical change of $0.01 per pound
would result in increased costs of approximately $3.0 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,
2020, we had entered into financial hedging arrangements, primarily at the request of our customers, related to firm orders, for
an aggregate amount of approximately 3 million pounds of nickel with hedge dates through 2023. The aggregate notional
amount hedged is approximately 5% of a single year’s estimated nickel raw material purchase requirements. Any gain or loss
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associated with these hedging arrangements is included in cost of sales. At December 31, 2020, the net mark-to-market
valuation of our outstanding raw material hedges was an unrealized pre-tax gain of $4.3 million, comprised of $3.7 million in
prepaid expenses and other current assets, $0.7 million in other assets, and $0.1 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, 2020, we had no significant outstanding foreign currency forward contracts.
.
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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, 2020 and 2019, 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, 2020,
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, 2020 and
2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 26, 2021 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, 2020, the Company had $240.7 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
estimated fair value of each reporting unit that has goodwill associated with its operations to its carrying
value, including goodwill. If the Company’s carrying value of a reporting unit exceeds its fair value, an
impairment loss would be recognized in an amount equal to the excess of the carrying value over the
calculated fair value. As discussed further in Note 4, as a result of the second quarter 2020 interim
goodwill impairment evaluation, the Company determined that the fair value of the Forged Products
reporting unit was below carrying value. Consequently, during the second quarter of 2020, the Company
recorded a $287.0 million impairment charge for the partial impairment of the Forged Products reporting
unit goodwill.
Auditing the Company’s interim, and subsequently, annual goodwill impairment analyses 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 evaluation 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 management’s significant assumptions described above and used within the fair value
method, and testing the completeness and accuracy of the underlying data. We engaged our valuation
specialists to assist in assessing fair valuation methodologies utilized in the Company’s goodwill
impairment analyses. For the goodwill impairment analyses performed by the Company, 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 rates, which included comparison of the selected discount rates to the
Company’s weighted average cost of capital and the risk associated with projected cash flows. With
respect to the second quarter 2020 interim goodwill impairment evaluation, we also validated interim
impairment indicator triggers and assessed the arithmetic accuracy of the impairment charge discussed
above. Furthermore, we tested management’s annual reconciliation of the fair value of the reporting units
to the market capitalization of the Company. In addition, we assessed the adequacy of the disclosures in
the consolidated financial statements.
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Long-lived assets and asset impairment valuation
Description of
the Matter
During the fourth quarter of 2020, the Company made the strategic decision to exit the stainless sheet
market to focus on higher performing specialty products. As further described in footnote 3, as a result this
strategic decision, the Company determined that the fair value of a certain long-lived asset group contained
within its Advanced Alloys & Solutions (AA&S) business segment was below carrying value.
Consequently, the Company recorded a long-lived asset impairment charge of $1.03 billion.
Auditing the Company's long-lived asset impairment analysis was complex and highly judgmental due to
the significant estimation required to determine the fair value of the long-lived asset group. In particular,
the fair value estimate was sensitive to significant assumptions, such as future operating results 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 long-lived asset impairment evaluation process, including controls over management's
review of the significant assumptions described above.
Our audit procedures to evaluate the measurement of the Company’s long-lived asset impairment loss
included, among others, evaluating the reasonableness of management’s significant assumptions described
above and used within the fair value method, and testing the completeness and accuracy of the underlying
data. We engaged our valuation specialists to assist in assessing the fair valuation methodology utilized in
the Company’s impairment analysis. For the long-lived asset impairment analysis performed by the
Company we evaluated the reasonableness of management’s significant assumptions by analyzing the
impact of the strategic decision to exit commodity stainless products on the Company’s projected financial
results. For example, we evaluated the projected financial information used within the Company’s
discounted cash flow valuation analysis, which included assessing the reasonableness of the projected
EBITDA margins based on the Company’s capital deployment plans for utilizing the remaining assets as
well as specific cost saving measures. We additionally performed sensitivity analyses of the significant
assumptions to evaluate the changes in the fair value of the long-lived asset group 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 rates to the Company’s weighted average cost of
capital and the risk associated with projected cash flows. In addition, we evaluated the Company’s
disclosures related to the matters described above.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1996.
Pittsburgh, Pennsylvania
February 26, 2021
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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 (loss)
Nonoperating retirement benefit expense
Interest expense, net
Debt extinguishment charge
Other income (loss), 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.
$
$
$
2020
2019
2018
$
2,982.1 $
4,122.5 $
4,046.6
2,689.3
292.8
201.0
287.0
1,107.5
(1,302.7)
(62.1)
(94.4)
(21.5)
(1.2)
(1,481.9)
77.7
(1,559.6)
13.0
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
(1,572.6) $
257.6 $
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
(12.43) $
2.05 $
1.78
(12.43) $
1.85 $
1.61
7388_FIN.pdf 52
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F-52
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
2020
2019
2018
$
(1,559.6) $
270.1 $
236.7
Unrealized net change arising during the period
32.5
(4.0)
(26.6)
Derivatives
Net derivatives gain (loss) on hedge transactions
Reclassification to net income (loss) of net realized (gain) loss
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 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.
(2.8)
6.0
—
3.2
9.7
(4.1)
(4.7)
10.3
85.3
87.2
(128.4)
(180.5)
(3.1)
—
(46.2)
(10.5)
(1,570.1)
24.4
(2.6)
(20.4)
(75.5)
(69.2)
200.9
11.2
$
(1,594.5) $
189.7 $
(6.4)
(11.7)
—
(18.1)
76.5
(141.4)
(2.6)
—
(67.5)
(112.2)
124.5
8.1
116.4
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F-53
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:
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-
126,820,440 shares at December 31, 2020 and 126,695,171 shares at December
31, 2019; outstanding-126,817,768 shares at December 31, 2020 and 126,085,348
shares at December 31, 2019
Additional paid-in capital
Retained earnings
Treasury stock: 2,672 shares at December 31, 2020 and 609,823 shares at
December 31, 2019
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.
December 31,
2020
December 31,
2019
$
645.9 $
345.8
38.9
997.1
38.3
2,066.0
1,469.2
240.7
259.0
490.8
554.1
38.5
1,155.3
64.3
2,303.0
2,450.1
525.8
355.7
$
$
4,034.9 $
5,634.6
290.6 $
111.8
17.8
233.1
653.3
521.2
78.7
11.5
237.8
849.2
1,550.0
1,387.4
326.7
673.6
189.9
312.5
731.5
160.8
3,393.5
3,441.4
—
—
12.7
1,625.5
106.5
12.7
1,618.0
1,679.3
—
(18.2)
(1,223.6)
(1,201.7)
521.1
120.3
641.4
$
4,034.9 $
2,090.1
103.1
2,193.2
5,634.6
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F-54
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:
2020
2019
2018
$
(1,559.6) $
270.1 $
236.7
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 restructuring charges
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
Purchase of convertible note capped call
Debt issuance costs
Debt extinguishment charge
Dividends paid to noncontrolling interests
Sale to noncontrolling interest
Shares repurchased for income tax withholding on share-based compensation
143.3
69.9
—
287.0
21.5
(2.9)
—
1,041.5
—
(91.9)
208.4
158.2
(230.5)
2.4
119.6
166.9
(136.5)
5.9
—
—
1.9
(128.7)
391.4
(212.1)
0.2
(19.4)
(9.1)
(19.1)
(7.2)
—
(7.8)
Cash (used in) provided by financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
116.9
155.1
490.8
645.9 $
$
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
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, 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
Net income (loss)
Other comprehensive income (loss)
Equity component of convertible note
Convertible note capped call
Dividends paid to noncontrolling
interest
Employee stock plans
Balance, December 31, 2020
ATI Stockholders
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
$ 12.7 $ 1,596.3 $ 1,184.3 $
—
—
222.4
—
—
—
(26.1) $
—
—
Accumulated
Other
Comprehensive
Income (Loss)
Total
Equity
Non-
controlling
Interests
(1,027.8) $ 105.1 $ 1,844.5
236.7
(112.2)
—
(106.0)
14.3
(6.2)
—
—
—
—
15.5
—
—
—
—
—
—
15.5
(10.0)
(10.0)
—
—
—
—
19.1
(0.2)
$ 12.7 $ 1,615.4 $ 1,422.0 $
—
—
257.6
—
—
—
—
—
(1,572.6)
—
(0.3)
—
2.6
$ 12.7 $ 1,618.0 $ 1,679.3 $
—
—
—
—
49.8
—
(19.4)
—
—
(0.2)
(22.9)
$ 12.7 $ 1,625.5 $ 106.5 $
—
—
—
—
—
—
—
(4.5)
(30.6) $
—
—
—
12.4
(18.2) $
—
—
—
—
—
18.2
— $
—
—
2.7
—
2.7
14.4
(1,133.8) $ 105.9 $ 1,991.6
270.1
(69.2)
—
(67.9)
12.5
(1.3)
—
—
(14.0)
—
(14.0)
14.7
(1,201.7) $ 103.1 $ 2,193.2
(1,559.6)
(10.5)
49.8
(19.4)
(7.2)
(4.9)
(1,223.6) $ 120.3 $ 641.4
—
(21.9)
—
—
—
—
13.0
11.4
—
—
(7.2)
—
The accompanying notes are an integral part of these statements.
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F-56
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Reporting
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 9 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.
Effective January 1, 2020, the Company began operating under two revised business segments: High Performance Materials &
Components (HPMC) and Advanced Alloys & Solutions (AA&S). HPMC is now comprised of the Specialty Materials and
Forged Products businesses, as well as the ATI Europe distribution operations. The new AA&S segment combines the
Specialty Alloys & Components (SAC) business, including the primary titanium operations in Richland, WA and Albany, OR,
with ATI’s former Flat Rolled Products (FRP) business segment, which included the FRP business, consisting of the Specialty
Rolled Products and Standard Stainless Sheet Products product lines, and the 60%-owned Shanghai STAL Precision Stainless
Steel Company Limited (STAL), as well as the Uniti LLC (Uniti) and Allegheny & Tsingshan Stainless (A&T Stainless) 50%-
owned joint ventures that are reported in AA&S segment results under the equity method of accounting. See Note 2, Business
Segments, for further information. Financial results of aerospace-grade titanium plate products also transferred from HPMC to
AA&S effective January 1, 2020.
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 2020 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, energy, automotive, construction and mining, food equipment and appliances, and medical markets.
At December 31, 2020, ATI has approximately 6,500 active employees, of which approximately 20% 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’s CBA with the USW involving approximately 1,100 active full-
time represented employees located primarily within the AA&S segment operations expired on February 29, 2020. On March
25, 2020, the Company announced an agreement with the USW that extended the terms of the expired CBAs for one year, to
February 28, 2021.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments that are readily convertible to cash with original maturities of three months or
less.
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F-57
Accounts Receivable
Accounts receivable are presented net of a reserve for doubtful accounts of $4.3 million and $4.6 million at December 31, 2020
and 2019, respectively. Trade credit is extended based upon evaluations of each customer’s ability to perform its obligations,
which are updated periodically. The Company adopted new accounting guidance in fiscal year 2020 which requires accounts
receivable reserves to be determined based on expected credit losses rather than incurred losses, as further discussed below in
the section on New Accounting Pronouncements Adopted. Prior to the adoption of this new accounting guidance, account
receivable reserves were 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
(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. Prior to December 2020, property, plant and
equipment associated with the Hot-Rolling and Processing Facility (HRPF) in the AA&S segment was being depreciated
utilizing the units of production method of depreciation, which the Company believed provided a better matching of costs and
revenues. However, based on changed business conditions resulting from the decision to exit production of standard stainless
sheet products and the recognition of an impairment charge on the property, plant and equipment associated with the HRPF in
December 2020 (see Note 3 for further discussion), depreciation of the remaining carrying value of the HRPF now uses the
straight-line method. 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. If an
impairment loss is recognized, the adjusted carrying value of the long-lived asset is its new cost basis and this new cost basis is
depreciated over the remaining useful life of the asset. 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
The following is the Company’s accounting policy as it relates to Accounting Standards Codification Topic 842 (ASC 842),
Leases. This 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.
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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 operations.
Finance leases have front-loaded expense recognition which is reported as amortization expense and interest expense on the
consolidated statement of operations. 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.
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
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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.
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.
Certain customer agreements involving production of parts and components 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.
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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.
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 $14.1 million in 2020, $17.8 million in
2019, and $22.7 million in 2018. Customer funded research and development costs were $0.7 million in 2020, $2.4 million in
2019, and $2.2 million in 2018.
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
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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
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 March 2020, the Financial Accounting Standards Board (FASB) issued new optional accounting guidance for a limited
period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial
reporting. In response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the
London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate
reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to
manipulation. The new accounting guidance provides optional expedients and exceptions for applying generally accepted
accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
criteria are met. The new accounting guidance applies only to contracts, hedging relationships, and other transactions that
reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and
exceptions provided by the amendments generally do not apply to contract modifications made and hedging relationships
entered into or evaluated after December 31, 2022. Management is continuing to evaluate the issue, and presently does not
expect a transition away from LIBOR, primarily involving ATI’s domestic credit facility and an interest rate swap contract, to
have any significant financial impact to ATI.
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 principles 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.
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 the requirement. This guidance was adopted by the Company
in fiscal year 2020 without 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.
Pending Accounting Pronouncements
In August 2020, the FASB issued new accounting guidance related to accounting for convertible instruments. Under this new
guidance, embedded conversion features are no longer separated from the host contract for convertible instruments with
conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums
accounted for as paid-in capital. As such, a convertible debt instrument will be accounted for as a single liability measured at
its amortized cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation
models, the reported interest rate of convertible debt instruments typically will be closer to the coupon interest rate. The new
guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation, requiring
the if-converted method, and requires enhanced disclosures about the terms of convertible instruments and contracts in an
entity’s own equity. This new guidance is effective for the Company in fiscal year 2022, with early adoption permitted.
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The Company adopted this new accounting guidance related to accounting for convertible instruments effective January 1, 2021
using the modified transition approach with the cumulative effect recognized as an adjustment to the opening balance of
retained earnings. This new guidance is applicable to the Company’s 3.5% Convertible Senior Notes due 2025 (the 2025
Convertible Notes) that were issued in June 2020, for which the embedded conversion option was required to be separately
accounted for as a component of stockholders’ equity. Upon adoption on January 1, 2021, long-term debt increased by $45.4
million and stockholders’ equity decreased by the same amount, representing the net impact of two adjustments: (1) the $49.8
million value of the embedded conversion, which is net of allocated offering costs, previously classified in additional paid-in-
capital in stockholders’ equity, and (2) a $4.4 million increase to retained earnings for the cumulative effect of adoption
primarily related to the non-cash interest expense recorded in fiscal year 2020 for the amortization of the portion of the 2025
Convertible Notes allocated to stockholders’ equity. Prospectively, the reported interest expense for the 2025 Convertible
Notes will no longer include the non-cash interest expense of the equity component as required under prior accounting
standards and will be closer to the 3.5% cash coupon rate. There will be no impact to the Company’s earnings per share
calculation as it previously applied the if-converted method to the 2025 Convertible Notes given ATI’s flexibility to settle
conversions of the 2025 Convertible Notes in cash, shares of ATI’s common stock or a combination thereof, at ATI’s election.
Note 2. Business Segments
Effective January 1, 2020, the Company began operating under two revised business segments: High Performance Materials &
Components (HPMC) and Advanced Alloys & Solutions (AA&S). All segment reporting information for 2020 and prior
periods below reflect these two revised business segments.
HPMC is comprised of the Specialty Materials and Forged Products businesses, as well as the ATI Europe distribution
operations. The revised HPMC segment intensifies its primary focus on maximizing aero-engine materials and components
growth, with approximately 80% of its revenue derived from the aerospace & defense markets and nearly half of its revenue
from products for commercial jet engines. Other major HPMC end markets include medical and energy. HPMC produces a
wide range of high performance materials, and components, and advanced metallic powder alloys made from nickel-based
alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials. Capabilities range from
cast/wrought and powder alloy development to final production of highly engineered finished components, including those used
for next-generation jet engine forgings and 3D-printed aerospace products.
The new AA&S segment combines the Specialty Alloys & Components business, including the primary titanium operations in
Richland, WA and Albany, OR, with ATI’s former Flat Rolled Products (FRP) business segment, which included the FRP
business, consisting of the Specialty Rolled Products and Standard Stainless Sheet Products product lines, the 60%-owned
STAL joint venture, and the Uniti and A&T Stainless 50%-owned joint ventures that are reported in AA&S segment results
under the equity method of accounting. See Note 9 for further information on the Company’s joint ventures. AA&S is focused
on delivering high-value flat products primarily to the energy, aerospace, and defense end-markets, which comprise
approximately 50% of its revenue. AA&S was created to align melting technologies with hot-rolling capabilities to produce
products with faster flow times and lower costs. Financial results of aerospace-grade titanium plate products also transferred
from HPMC to AA&S effective January 1, 2020. Other important end markets for AA&S include automotive and electronics.
AA&S produces nickel-based alloys, specialty alloys, and titanium and titanium-based alloys, and stainless products in a
variety of forms including plate, sheet, and strip products. On December 2, 2020, the Company announced a strategic
repositioning of its FRP business, which includes exiting standard stainless sheet products, streamlining the production
footprint of the AA&S segment and making certain capital investments to increase its focus on higher-margin products and its
aerospace & defense end markets. See Note 3 for further discussion of this strategic realignment and its associated asset
impairment, restructuring and other charges recorded in the fourth quarter of 2020.
In the fourth quarter 2020, the Company changed its’ segment performance measure from segment operating profit to segment
EBITDA, based on internal reporting changes. Prior period results are presented using the new performance measure. The
measure of segment EBITDA 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, depreciation and
amortization, corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill and asset
impairments, restructuring and other charges, debt extinguishment charges and non-operating gains or losses. Management
believes segment EBITDA, 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.
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(In millions)
Total sales:
High Performance Materials & Components
Advanced Alloys & Solutions
Total sales
Intersegment sales:
High Performance Materials & Components
Advanced Alloys & Solutions
Total intersegment sales
Sales to external customers:
High Performance Materials & Components
Advanced Alloys & Solutions
Total sales to external customers
2020
2019
2018
$
$
1,235.4 $
1,947.5
3,182.9
2,054.2 $
2,392.2
4,446.4
70.8
130.0
200.8
75.7
248.2
323.9
1,164.6
1,817.5
2,982.1 $
1,978.5
2,144.0
4,122.5 $
2,039.2
2,302.4
4,341.6
76.1
218.9
295.0
1,963.1
2,083.5
4,046.6
Total international sales were $1,173.0 million in 2020, $1,667.9 million in 2019, and $1,698.4 million in 2018. Of these
amounts, sales by operations in the United States to customers in other countries were $812.3 million in 2020, $1,262.6 million
in 2019, and $1,303.8 million in 2018.
(In millions)
EBITDA:
High Performance Materials & Components
Advanced Alloys & Solutions
Total segment EBITDA
LIFO and net realizable value reserves (See Note 6)
Corporate expenses
Closed operations and other expenses
Total ATI Adjusted EBITDA
Depreciation & amortization
Interest expense, net
Restructuring and other charges (See Note 3)
Impairment of goodwill (See Note 4)
Joint venture restructuring and impairment charge (See Note 9)
Gain on joint venture deconsolidation (See Note 9)
Debt extinguishment charge (See Note 12)
Gain on asset sales, net
Income (loss) before income taxes
2020
2019
2018
$
$
129.6 $
115.0
244.6
—
(40.9)
(7.4)
196.3
(143.3)
(94.4)
(1,132.1)
(287.0)
(2.4)
—
(21.5)
2.5
(1,481.9) $
356.2 $
172.6
528.8
(0.1)
(65.3)
(24.0)
439.4
(151.1)
(99.0)
(4.5)
—
(11.4)
—
(21.6)
89.8
241.6 $
360.3
206.4
566.7
(0.7)
(57.3)
(19.5)
489.2
(156.4)
(101.0)
—
—
—
15.9
—
—
247.7
Corporate expenses were lower in 2020 compared to 2019 and 2018 primarily due to lower incentive compensation expense
based on expected performance versus targeted metrics, and lower expenses resulting from cost reduction actions.
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 ATI's European Treasury
Center operation. Closed operations and other expenses were lower in 2020 compared to 2019 and 2018, reflecting lower legal
and retirement benefit expense of closed operations and a $4.3 million gain from settlements of contract indemnity obligations.
The $2.5 million net gain on asset sales in 2020 consists of a gain on the sale of certain oil and gas rights (see Note 11). The
$89.8 million net gain on asset sales in 2019 consists of a $91.7 million gain on the sale of certain oil and gas rights (see Note
11) and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by an $8.1 million loss on the
sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. See Note 8 for further explanation regarding
the sale of business transactions.
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Certain additional information regarding the Company’s business segments is presented below:
(In millions)
Depreciation and amortization:
High Performance Materials & Components
Advanced Alloys & Solutions
Other
Total depreciation and amortization
Capital expenditures:
High Performance Materials & Components
Advanced Alloys & Solutions
Corporate
Total capital expenditures
Identifiable assets:
2020
2019
2018
$
$
$
$
78.1 $
62.1
3.1
143.3 $
83.1 $
45.9
7.5
136.5 $
84.6 $
63.5
3.0
151.1 $
119.9 $
47.4
0.9
168.2 $
90.6
62.9
2.9
156.4
71.7
64.5
3.0
139.2
2020
2019
2018
High Performance Materials & Components
$
1,753.9 $
2,324.6 $
Advanced Alloys & Solutions
Corporate:
Deferred Taxes
Cash and cash equivalents and other
1,548.8
2,621.1
5.1
727.1
64.5
624.4
2,400.7
2,590.4
8.7
502.0
Total assets
($ in millions)
Total assets:
United States
China
United Kingdom
Other
Total Assets
$
4,034.9 $
5,634.6 $
5,501.8
2020
Percent
of total
2019
Percent
of total
2018
Percent
of total
$ 3,356.8
83 % $ 4,956.4
88 % $ 4,859.1
325.5
122.4
230.2
8 %
3 %
6 %
288.1
141.3
248.8
5 %
3 %
4 %
287.3
136.7
218.7
88 %
5 %
3 %
4 %
$ 4,034.9
100 % $ 5,634.6
100 % $ 5,501.8
100 %
Note 3. Restructuring and other charges
For the year ended December 31, 2020, the Company recorded restructuring and other charges of $1,132.1 million,
predominantly related to the Company's December 2020 announcement to cease production of standard stainless sheet products,
which are excluded from business segment results. On December 2, 2020, the Company announced a strategic repositioning of
its FRP business within the AA&S segment, with a focus of increasing emphasis on the specialty rolled products portion of its
product portfolio, which comprise titanium-based alloys including aerospace-grade titanium plate products, nickel-based alloys,
and stainless products with more differentiated characteristics for specialty applications, including thin-gauge Precision Rolled
Strip® (PRS). As part of this strategic realignment, the Company intends to cease production of standard stainless sheet
products over approximately a one-year period, significantly reducing the operating levels of the Brackenridge, PA operations,
including the HRPF, and close various downstream finishing operations that are part of the standard stainless sheet flow path.
Restructuring charges recorded on the consolidated statement of operations for the year ended December 31, 2020 were
$1,107.5 million, comprised of $1,041.5 million of non-cash asset impairment charges, $60.5 million of employee benefit-
related costs, and $5.5 million of other costs related to facility idlings. The December 2, 2020 decision to exit production of
standard stainless products represented a significant indicator of impairment in the carrying value of certain long-lived assets.
Based on projected cash flows of the Brackenridge, PA operations, including the HRPF, the Company completed a fair value
analysis as of the beginning of the fourth quarter of 2020 and recognized a $1,032.6 million impairment charge for this facility
based on an estimated fair value of $354 million. This long-lived asset impairment charge was determined using a held in use
framework and an income approach, which represents Level 3 unobservable information in the fair value hierarchy. This
impairment assessment and valuation method 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 the Company has identified. For
example, the weighted average cost of capital used in the discounted cash flow assessment was 9.3% and the long-term growth
rate was 2%. Although the Company believes that the estimates and assumptions used were reasonable, actual results could
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differ from those estimates and assumptions. Other long-lived asset impairment charges of $8.9 million were also recognized
for various AA&S segment operations identified for closure as part of the standard stainless sheet exit decision.
Restructuring charges also include $60.5 million of employee benefit costs, representing severance, supplemental
unemployment and medical benefits for the elimination of approximately 1,400 positions related to the standard stainless exit,
as well as for employees impacted by the idling of the Albany, OR primary titanium operations in the fourth quarter of 2020,
and workforce right-sizing actions, including both involuntary reductions and voluntary retirement incentive programs
implemented throughout 2020 to better match the Company’s cost structure to expected demand, primarily as a result of
economic challenges created by the COVID-19 pandemic. Other costs of $5.5 million included in 2020 restructuring charges
primarily relate to asset retirement and environmental obligations (see Note 10 for further explanation) associated with facility
idlings.
Other charges for the year ended December 31, 2020 include:
•
•
$17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures
from the standard stainless exit (see Note 16 for further explanation). These costs are classified within nonoperating
retirement benefit expense in the consolidated statements of operations.
$7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement
of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary
titanium facility.
Restructuring charges for the fiscal year ended December 31, 2019 of $4.5 million, which are reported as restructuring charges
on the consolidated statement of operations and excluded from business segment results, 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.
Reserves for restructuring charges at December 31, 2020 and 2019 primarily consist of severance and employee benefit costs
incurred in the fourth quarter 2019 and throughout 2020, the majority of which are expected to be paid by the end of 2021.
Restructuring reserves activity is as follows:
Beginning of year balance
Additions
Payments
End of year balance
Severance and Employee
Benefit Costs
December 31, 2020
December 31, 2019
$
$
4.5 $
60.5
(21.6)
43.4 $
—
4.5
—
4.5
Of this $43.4 million restructuring reserve balance at December 31, 2020, $33.8 million is recorded in other current liabilities
and $9.6 million is recorded in other long-term liabilities on the December 31, 2020 consolidated balance sheet. The $4.5
million restructuring reserve balance at December 31, 2019 is recorded in other current liabilities on the December 31, 2019
consolidated balance sheet.
Note 4. Goodwill and Other Intangible Assets
At December 31, 2020, the Company had $240.7 million of goodwill on its consolidated balance sheet, all of which relates to
the HPMC segment. Goodwill decreased $285.1 million in 2020 due to a $287.0 million interim impairment charge in the
HPMC segment, partially offset by a $1.9 million increase from the impact of foreign currency translation on goodwill
denominated in functional currencies other than the U.S. dollar.
The Company performs its annual goodwill impairment evaluations in the fourth quarter of each year. During the second
quarter of 2020, the Company performed an interim goodwill impairment analysis on the Forged Products reporting unit and its
$460.4 million goodwill balance based on assessed potential indicators of impairment, including recent disruptions to the global
commercial aerospace market resulting from the COVID-19 pandemic, and the increasing uncertainty of near-term demand
requirements of aero-engine and airframe markets based on government responses to the pandemic and ongoing interactions
with customers. In the previous 2019 annual goodwill impairment evaluation, this reporting unit had a fair value that exceeded
carrying value by approximately 30%. For the 2020 interim impairment analysis, fair value was determined by a quantitative
assessment that used a discounted cash flow technique, which represents Level 3 unobservable information in the fair value
hierarchy. The impairment assessment and valuation method require the Company to make estimates and assumptions
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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 the Company has
identified. For example, the weighted average cost of capital used in the discounted cash flow assessment was 11.6%, and the
long-term growth rate was 3.5%. Although the Company believes that the estimates and assumptions used were reasonable,
actual results could differ from those estimates and assumptions. As a result of the second quarter 2020 interim goodwill
impairment evaluation, the Company determined that the fair value of the Forged Products reporting unit was below carrying
value, including goodwill, by $287.0 million. This was primarily due to changes in the timing and amount of expected cash
flows resulting from lower projected revenues, profitability and cash flows due to near-term reductions in commercial
aerospace market demand. Consequently, during the second quarter of 2020, the Company recorded a $287.0 million
impairment charge for the partial impairment of the Forged Products reporting unit goodwill, 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 2020 HPMC business segment results.
The $240.7 million of goodwill remaining as of December 31, 2020 on the Company’s consolidated balance sheet is comprised
of $173.4 million at the Forged Products reporting unit and $67.3 million at the Specialty Materials reporting unit. For the
Company’s annual goodwill impairment evaluation performed in the fourth quarter of 2020, quantitative goodwill assessments
were performed for these 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 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 the
Company has identified. For example, the weighted average cost of capital used in the discounted cash flow assessment was
11.7% and the long-term growth rates ranged from 3% to 3.5%. Although the Company believes that the estimates and
assumptions used were reasonable, actual results could differ from those estimates and assumptions. The Specialty Materials
reporting unit had a fair value that was significantly in excess of carrying value. The Forged Products reporting unit had a fair
value that exceeded carrying value by approximately 2%, representing a slight increase in fair value subsequent to the interim
goodwill impairment charge recorded for this reporting unit in the second quarter of 2020 as discussed above. As a result, no
impairments were determined to exist from the annual goodwill impairment evaluation for the year ended December 31, 2020.
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.
No indicators of impairment were observed in 2020 associated with any of the Company’s long-lived assets in the HPMC
segment. There were no goodwill impairments for the years ended December 31, 2019 and 2018. Accumulated goodwill
impairment losses as of December 31, 2020 were $528.0 million and as of 2019 and 2018 were $241.0 million.
On July 12, 2018, the Company acquired the assets of Addaero Manufacturing for $10.0 million of cash consideration.
Addaero Manufacturing 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.
Other intangible assets, which are included in Other assets on the accompanying consolidated balance sheets as of
December 31, 2020 and 2019 were as follows:
(in millions)
Technology
Customer relationships
Trademarks
Total amortizable intangible assets
December 31, 2020
December 31, 2019
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
$
$
76.8 $
27.0
52.4
156.2 $
(33.4) $
(10.4)
(24.5)
(68.3) $
76.8 $
27.0
52.4
156.2 $
(29.7)
(9.3)
(20.9)
(59.9)
Amortization expense related to intangible assets was approximately $8 million, $10 million and $10 million for the years
ended December 31, 2020, 2019 and 2018, respectively. For each of the years ending December 31, 2021 through 2025, annual
amortization expense is expected to be approximately $8 million.
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Note 5. 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. 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. 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.
Disaggregation of Revenue
The Company operates in two business segments: HPMC and AA&S. 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, 2020,
2019 and 2018 were as follows:
(in millions)
2020
HPMC
AA&S
Total
HPMC
2019
AA&S
Total
HPMC
AA&S
Total
2018
Diversified Global Markets:
Aerospace & Defense
Energy*
Automotive
Electronics
Food Equipment &
Appliances
Construction/Mining
Medical
Other
Total
$ 946.9 $ 413.1 $ 1,360.0 $ 1,624.1 $ 506.3 $ 2,130.4 $ 1,562.9 $ 402.6 $ 1,965.5
133.9 646.8 780.7
106.2 512.7 618.9
9.5 313.9 323.4
5.5 257.7 263.2
643.3 796.9
286.1 296.6
153.6
10.5
0.9 176.8 177.7
0.5
162.7 163.2
1.5 155.4 156.9
— 159.2 159.2
18.6 123.4 142.0
71.4 119.1
47.7
38.8 103.2 142.0
0.4 244.5 244.9
72.7 153.3 226.0
77.1 183.1
89.9 166.1
$ 1,164.6 $ 1,817.5 $ 2,982.1 $ 1,978.5 $ 2,144.0 $ 4,122.5 $ 1,963.1 $ 2,083.5 $ 4,046.6
205.5 205.8
152.5 195.0
87.0 172.4
100.6 162.2
0.3
42.5
85.4
61.6
106.0
76.2
*Includes the oil & gas, downstream processing, and specialty energy markets.
(in millions)
2020
HPMC
AA&S
Total
HPMC
2019
AA&S
Total
HPMC
AA&S
Total
2018
Primary Geographical Market:
United States
China
United Kingdom
Germany
Japan
France
Rest of World
Total
$ 641.0 $ 1,168.1 $ 1,809.1 $ 1,042.6 $ 1,412.0 $ 2,454.6
355.6
31.0 284.5 315.5
173.8
24.6 126.5
219.3
48.8 125.4
147.7
86.2
41.5
155.5
85.0
18.4
202.8 231.6 434.4
616.0
$ 1,164.6 $ 1,817.5 $ 2,982.1 $ 1,978.5 $ 2,144.0 $ 4,122.5
93.9 261.7
17.1
156.7
72.1
147.2
52.7
95.0
132.7
22.8
310.4 305.6
101.9
76.6
44.7
66.6
$ 983.6 $ 1,364.5 $ 2,348.1
320.0
71.2 248.8
242.1
16.5
225.6
247.2
88.2
159.0
214.9
86.8
128.1
183.6
146.3
37.3
249.3 241.4
490.7
$ 1,963.1 $ 2,083.5 $ 4,046.6
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Comparative information of the Company’s major high-value and standard products based on their percentages of sales is
included in the following table. In conjunction with the Company’s announced ongoing exit of standard stainless products, ATI
reclassified certain items as High-Value Products within AA&S segment results. Prior period information reflects these
reclassifications. HRPF conversion service sales in the AA&S segment are excluded from this presentation.
2020
2019
2018
HPMC
AA&S
Total
HPMC
AA&S
Total
HPMC
AA&S
Total
Diversified Products:
High-Value Products
Nickel-based alloys and
specialty alloys
Titanium and titanium-based
alloys
PRS products
Precision forgings, castings
and components
Zirconium and related alloys
Total High-Value Products
Standard Products
Standard stainless products
Total
38 %
29 % 33 %
38 %
33 % 35 %
37 %
31 %
33 %
28 %
— %
34 %
— %
11 % 17 %
25 % 15 %
— % 14 %
9 %
15 %
26 %
— %
36 %
— %
11 % 18 %
23 % 12 %
— % 18 %
6 %
11 %
23 %
— %
40 %
— %
100 %
80 % 88 %
100 %
78 % 89 %
100 %
10 %
23 %
— %
11 %
75 %
17 %
12 %
20 %
5 %
87 %
13 %
— %
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
20 % 12 %
22 % 11 %
25 %
— %
— %
The Company maintains a backlog of confirmed orders totaling $1.4 billion, $2.3 billion and $2.2 billion at December 31, 2020,
2019 and 2018, respectively. Due to the structure of the Company’s LTAs, 75% of this backlog at December 31, 2020
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, 2020 and 2019, accounts receivable with customers were $350.1 million and $558.7 million, respectively.
The following represents the rollforward of accounts receivable - reserve for doubtful accounts for the fiscal years ended
December 31, 2020, 2019 and 2018:
(in millions)
Accounts Receivable - Reserve for Doubtful 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
Expense to increase the reserve
Write-off of uncollectible accounts
Balance as of December 31, 2020
$
$
5.9
1.9
(1.8)
6.0
0.2
(1.6)
4.6
0.2
(0.5)
4.3
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Contract balances
The following represents the rollforward of contract assets and liabilities for the fiscal years ended December 31, 2020, 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
(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
2020
2019
2018
38.5 $
84.2
(83.9)
—
0.1
—
—
38.9 $
51.2 $
74.5
(79.9)
—
—
(7.3)
—
38.5 $
2020
2019
2018
0.1 $
—
—
—
(0.1)
— $
0.1 $
—
—
—
—
0.1 $
2020
2019
2018
78.7 $
170.3
(54.9)
(90.1)
—
7.8
111.8 $
71.4 $
126.1
(49.2)
(76.0)
1.9
4.5
78.7 $
2020
2019
2018
25.9 $
14.9
(1.0)
—
—
(7.8)
32.0 $
7.3 $
24.2
(1.1)
—
—
(4.5)
25.9 $
36.5
92.9
(95.8)
—
16.8
—
0.8
51.2
16.9
—
—
—
(16.8)
0.1
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 $5.4 million and $6.5 million as of December 31, 2020 and 2019,
respectively, which are reported in other long-term assets on the consolidated balance sheet. Amortization expense for the
fiscal years ended December 31, 2020, 2019 and 2018 of these contract costs was $1.4 million, $1.4 million, and $1.2 million,
respectively.
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Note 6. Inventories
Inventories at December 31, 2020 and 2019 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
2020
2019
$
$
207.6 $
690.7
181.6
1,079.9
44.1
(126.9)
997.1 $
164.9
899.6
161.3
1,225.8
33.6
(104.1)
1,155.3
Inventories determined on the LIFO method were $627.5 million at December 31, 2020, and $776.1 million at December 31,
2019. 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 $44.1 million and $33.6 million at December 31, 2020 and
2019, 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,
2020
2019
2018
$
$
10.5 $
(10.5)
— $
25.5 $
(25.6)
(0.1) $
(28.6)
27.9
(0.7)
During 2020 and 2019, inventory usage resulted in liquidations of LIFO inventory quantities, increasing cost of sales by $22.6
million and $1.8 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.
Note 7. Property, Plant and Equipment
Property, plant and equipment at December 31, 2020 and 2019 was as follows:
(In millions)
Land
Buildings
Equipment and leasehold improvements
Accumulated depreciation and amortization
Total property, plant and equipment, net
2020
2019
$
$
34.8 $
564.7
2,736.9
3,336.4
(1,867.2)
1,469.2 $
34.6
832.7
3,671.3
4,538.6
(2,088.5)
2,450.1
The significant declines in the reported balances for buildings, equipment and leasehold improvements, accumulated
depreciation and amortization, and net amounts of property, plant and equipment in 2020 reflect asset impairment charges
predominantly related to the Company’s December 2020 announcement to cease production of standard stainless sheet products
(see Note 3 for further explanation) and the adjustment of the cost basis of these long-lived assets to the carrying value
following these impairments.
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Construction in progress at December 31, 2020 and 2019 was $233.4 million and $177.3 million, respectively. Depreciation
and amortization for the years ended December 31, 2020, 2019 and 2018 was as follows:
(In millions)
Depreciation of property, plant and equipment
Software and other amortization
Total depreciation and amortization
Note 8. Divestitures
2020
2019
2018
$
$
119.5 $
23.8
143.3 $
127.1 $
24.0
151.1 $
131.9
24.5
156.4
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.
Note 9. 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 $12.7 million at December 31,
2020.
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 AA&S segment, and manufactures PRS stainless products mainly for the electronics and automotive markets located in
Asia. Cash and cash equivalents held by STAL as of December 31, 2020 were $38.3 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
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$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, 2020 were $2.7
million.
Equity Method Joint Ventures
A&T Stainless:
The Company has a 50% interest in A&T Stainless, a joint venture with an affiliate company of Tsingshan Group (Tsingshan)
to produce 60-inch wide stainless sheet products for sale in North America. Tsingshan purchased its 50% joint venture interest
in A&T Stainless in 2018 for $17.5 million, 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 included the Company’s previously-idled direct roll
and pickle (DRAP) facility in Midland, PA. ATI provided hot-rolling conversion services to A&T Stainless using the AA&S
segment’s 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 AA&S segment results. Following this deconsolidation, ATI accounted 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-
inished 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 new requests on behalf of A&T Stainless for exclusion from the Section 232
tariffs in October 2019. These requests were denied by the U.S. Department of Commerce in the second quarter of 2020, and
the 25% tariff remains in place.
In 2019, A&T Stainless evaluated its long-lived assets for impairment as the tariff exclusion denial represented a potential
impairment indicator. The joint venture partners had 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 was probable if a near-term
tariff exclusion was not received. 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, ATI had net receivables for working capital advances and administrative
services from A&T Stainless of $36.8 million, of which $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. These balances were also evaluated for
collectability in 2019, 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 was reported within other income, net on the consolidated statement of operations in
December 2019 and was excluded from AA&S segment results.
Due to repeated tariff exclusion denials, ATI announced on March 31, 2020 that A&T Stainless would be idling the DRAP
facility in 2020, in an orderly shut down process that was completed in the third quarter of 2020. A&T Stainless recorded a
$4.8 million charge for contractual termination benefits as a result of the idling decision. ATI’s share of the A&T Stainless
results were losses of $10.6 million, $19.3 million, and $3.9 million for the fiscal years ended December 31, 2020, 2019 and
2018, respectively, which is included within other income/expense, net, on the consolidated statements of operations. AA&S
segment results in 2020, 2019 and 2018 include equity method recognition of A&T Stainless operating losses of $8.2 million,
$12.2 million and $3.9 million, respectively. ATI’s share of the A&T Stainless charges for termination benefits in 2020 and
long-lived asset impairment charges in 2019 were excluded from AA&S segment results.
No additional impairment charges were required during 2020 on the long-lived assets of A&T Stainless or ATI’s receivables
from the joint venture, based on ATI’s share of the estimated fair value of its net assets. As of December 31, 2020, ATI had net
receivables from A&T Stainless for working capital advances and administrative services, including the $4.3 million reserve, of
$14.0 million, of which $0.5 million was reported in prepaid expenses and other current assets and $13.5 million in other long-
term assets on the consolidated balance sheet. In addition, ATI evaluated the collectability of its remaining $5.5 million
receivable from Tsingshan, which is reported in other long-term assets on the consolidated balance sheet, and concluded that no
impairment or loss in expected value exists at this time.
Sales to A&T Stainless, which are included in ATI’s consolidated statement of operations for the 2020, 2019 and 2018 fiscal
years, were $18.4 million, $14.6 million and $4.1 million, respectively. There were no accounts receivable from A&T Stainless
at December 31, 2020 and there were $0.1 million at December 31, 2019.
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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 $1.2 million in 2020, $1.5 million in 2019, and $2.9 million in
2018, which is included in AA&S segment’s operating results, and within other income/expense, net, on the consolidated
statements of operations. Sales to Uniti, which are included in ATI’s consolidated statements of operations, were $36.7 million
in 2020, $31.3 million in 2019, and $49.4 million in 2018. Accounts receivable from Uniti were $1.4 million and $0.2 million
at December 31, 2020 and 2019, respectively.
Note 10. 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, 2020, the Company had recognized AROs of $24.0 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.
In 2020, the Company finalized a settlement agreement for an indemnity claim concerning a conditional ARO with the buyer of
a formerly-owned business and as a result, the Company reduced ARO reserves by $4.3 million, which is recorded in other
income/expense, net, on the consolidated statements of operations (see Note 11). The Company increased ARO reserves by
$4.1 million in 2020 as a result of changes in the expected timing of payments on ARO’s resulting from facility idlings as
discussed in Note 3, which is recorded in restructuring charges on the consolidated statement of operations. Both of these 2020
items are presented as revisions of estimates in the table below.
Changes in asset retirement obligations for the years ended December 31, 2020 and 2019 were as follows:
(In millions)
Balance at beginning of year
Accretion expense
Payments
Revisions of estimates
Balance at end of year
Note 11. Supplemental Financial Statement Information
Cash and cash equivalents at December 31, 2020 and 2019 were as follows:
(In millions)
Cash
Other short-term investments
Total cash and cash equivalents
2020
2019
23.7 $
0.9
(0.4)
(0.2)
24.0 $
23.1
0.9
(0.3)
—
23.7
2020
2019
158.2 $
487.7
645.9 $
190.8
300.0
490.8
$
$
$
$
Other current liabilities included salaries, wages and other employee-related liabilities of $92.8 million and $94.5 million, and
accrued interest of $18.0 million and $25.0 million at December 31, 2020 and 2019, respectively.
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Other income (expense) for the years ended December 31, 2020, 2019, and 2018 was as follows:
(in millions)
Rent, royalty income and other income
Gains from disposal of property, plant and equipment, net
Net equity loss on joint ventures (See Note 9)
Loss on sales of businesses, net (See Note 8)
Gain on joint venture deconsolidation (See Note 9)
Joint venture restructuring and impairment charges (See Note 9)
Adjustment to indemnification for conditional ARO costs (See Note 10)
Other
Total other income (expense), net
2020
2019
2018
0.9 $
2.9
(7.0)
—
—
(2.4)
4.3
0.1
(1.2) $
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
$
$
Gains from disposal of property, plant and equipment, net for the years ended December 31, 2020 and 2019 include a $2.5
million and $91.7 million gain, respectively, on the sale of certain oil and gas rights in Eddy County, NM. These cash gains are
reported as an investing activity on the consolidated statement of cash flows for the years ended December 31, 2020 and 2019,
and are 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 and 2020.
Note 12. Debt
Debt at December 31, 2020 and 2019 was as follows:
$
(In millions)
Allegheny Technologies $500 million 5.875% Senior Notes due 2023 (a)
Allegheny Technologies $350 million 5.875% Senior Notes due 2027
Allegheny Technologies $291.4 million 3.5% Convertible Senior Notes due 2025
Allegheny Technologies $287.5 million 4.75% Convertible Senior Notes due 2022
Allegheny Ludlum 6.95% Debentures due 2025 (b)
Term Loan due 2024
U.S. revolving credit facility
Foreign credit agreements
Finance leases and other
Debt issuance costs
Equity component of convertible debt
Total short-term and long-term debt
Short-term debt and current portion of long-term debt
Total long-term debt
$
2020
2019
500.0 $
350.0
291.4
84.2
150.0
200.0
—
5.5
48.0
(14.5)
(46.8)
1,567.8
17.8
1,550.0 $
500.0
350.0
—
287.5
150.0
100.0
—
4.9
18.8
(12.3)
—
1,398.9
11.5
1,387.4
(a)
(b)
Bearing interest at 7.875% effective February 15, 2016.
The payment obligations of these debentures issued by Allegheny Ludlum, LLC are fully and unconditionally guaranteed
by ATI.
Interest expense was $96.1 million in 2020, $104.9 million in 2019, and $102.1 million in 2018. Interest expense was reduced
by $7.7 million, $4.7 million, and $4.1 million, in 2020, 2019, and 2018, respectively, from interest capitalization on capital
projects. Interest and commitment fees paid were $95.4 million in 2020, $105.7 million in 2019, and $102.6 million in 2018.
Net interest expense includes interest income of $1.7 million in 2020, $5.9 million in 2019, and $1.1 million in 2018.
Scheduled principal payments during the next five years are $17.8 million in 2021, $95.9 million in 2022, $511.0 million in
2023, $208.1 million in 2024, and $446.1 million in 2025. See Note 13, Leases, for the portion of these payments that are
related to finance leases.
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F-75
Debt Extinguishment Charges
In June 2020, ATI recognized a $21.5 million debt extinguishment charge on the partial redemption of the 4.75% Convertible
Senior Notes due 2022 (the 2022 Convertible Notes), which included a $19.1 million cash make-whole payment related to the
early extinguishment of the 2022 Convertible Notes as required by the applicable indenture, and a $2.4 million charge for
deferred debt issue costs, as further discussed below.
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 2021 Notes as
required by the applicable indenture, and a $0.7 million charge for deferred debt issue costs.
2025 Convertible Notes
In June 2020, the Company issued and sold $285.0 million aggregate principal amount of 2025 Convertible Notes. The
Company granted the underwriters a 13-day option to purchase up to an additional $40.0 million aggregate principal amount of
2025 Convertible Notes on the same terms and conditions to cover over-allotments, if any. The underwriters exercised a
portion of this option on June 30, 2020, and the Company completed the offering and sale of an additional $6.4 million
aggregate principal amount of 2025 Convertible Notes on July 2, 2020, subsequent to the end of the second quarter 2020.
Interest on the 2025 Convertible Notes at the 3.5% cash coupon rate is payable semi-annually in arrears on each June 15 and
December 15, commencing December 15, 2020.
The Company used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million
aggregate principal amount of its outstanding 2022 Convertible Notes, resulting in a $21.5 million debt extinguishment charge.
The Company also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of
capped call transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’
equity on the consolidated balance sheet. The remainder of the net proceeds from the offering were used for general corporate
purposes.
The Company does not have the right to redeem the 2025 Convertible Notes prior to June 15, 2023. On or after June 15, 2023
and prior to the 41st scheduled trading day immediately preceding the maturity date, the Company may redeem all or any
portion of the 2025 Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount thereof, plus
any accrued and unpaid interest if the last reported sale price of ATI’s common stock has been at least 130% of the conversion
price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period
(including the last trading day of such period) ending on the trading day immediately preceding the date on which ATI provides
written notice of redemption.
The initial conversion rate for the 2025 Convertible Notes is 64.5745 shares of ATI common stock per $1,000 principal amount
of the 2025 Convertible Notes, equivalent to an initial conversion price of approximately $15.49 per share (18.8 million shares).
Prior to the close of business on the business day immediately preceding March 15, 2025, the 2025 Convertible Notes will be
convertible at the option of the holders of 2025 Convertible Notes only upon the satisfaction of specified conditions and during
certain periods. Thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity
date, the 2025 Convertible Notes will be convertible at the option of holders of 2025 Convertible Notes at any time regardless
of these conditions. Conversions of the 2025 Convertible Notes may be settled in cash, shares of ATI’s common stock or a
combination thereof, at ATI’s election.
As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option is required to be
separately accounted for as a component of stockholders’ equity. The value of the embedded conversion option was
determined to be $51.4 million based on the estimated fair value of comparable senior unsecured debt without the conversion
feature, using an income approach of expected present value. The equity component will be amortized as additional non-cash
interest expense, commonly referred to as phantom yield, over the term of the 2025 Convertible Notes using the effective
interest method, and is not remeasured as long as it continues to meet the conditions for equity classification. Offering costs
attributable to the debt component totaling $7.5 million are being amortized to interest expense over the term of the 2025
Convertible Notes, and offering costs attributable to the equity component totaling $1.6 million were netted within
stockholders’ equity. As a result, $49.8 million of the 2025 Convertible Notes was recorded in additional paid-in-capital in
stockholders’ equity ($51.4 million of the gross $291.4 million, net of $1.6 million of allocated offering costs). Due to the non-
ash phantom yield and including debt issue cost amortization, the 2025 Convertible Notes have reported interest expense in
2020 at an 8.4% rate, higher than the 3.5% cash coupon rate. Effective January 1, 2021, ATI early-adopted new accounting
guidance that eliminates the equity component classification of the embedded conversion option, as well as the phantom yield
portion of interest expense on a prospective basis. Upon adoption on January 1, 2021, long-term debt increased by $45.4
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million, representing the $46.8 million equity component of convertible debt in the above table, net of reclassified debt issue
costs.
Holders of the 2025 Convertible Notes may require ATI to repurchase their 2025 Convertible Notes upon the occurrence of
certain events that constitute a fundamental change under the indenture governing the 2025 Convertible Notes at a purchase
price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to, but excluding, the fundamental
change repurchase date. In connection with certain corporate events or if ATI issues a notice of redemption, it will, under
certain circumstances, increase the conversion rate for holders who elect to convert their 2025 Convertible Notes in connection
with such corporate event or during the relevant redemption period.
In connection with the pricing of the 2025 Convertible Notes, ATI entered into privately negotiated capped call transactions
with certain of the initial purchasers or their respective affiliates (collectively, the Counterparties). The capped call transactions
are expected generally to reduce potential dilution to ATI’s common stock upon any conversion of the 2025 Convertible Notes
and/or offset any cash payments ATI is required to make in excess of the principal amount of converted 2025 Convertible
Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the
capped call transactions initially is approximately $19.76 per share, and is subject to adjustments under the terms of the capped
call transactions.
2022 Convertible Notes
As of December 31, 2020, the Company had $84.2 million of aggregate principal amount of the 2022 Convertible Notes
outstanding. 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 remaining $84.2 million of 2022 Convertible Notes is 69.2042 shares of ATI common stock per $1,000 (in whole
dollars) principal amount of Notes (5.8 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.
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. 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%.
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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
The Company has an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and
inventory of the Company’s domestic operations. The ABL facility, which matures in September 2024, includes a $500 million
revolving credit facility, a letter of credit sub-facility of up to $200 million, and as of December 31, 2020, a $200 million term
loan (Term Loan). In June 2020, the Company exercised its right to borrow an additional $100 million under the term loan
portion of the ABL, with the same September 2024 maturity date. The Term Loan has an 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 addition, the
Company 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 Company has a $50 million floating-for-fixed interest rate swap which converts a
portion of the Term Loan to a 4.21% fixed interest rate. The swap matures in June 2024.
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) $87.5 million, calculated as
12.5% of the then applicable maximum advance amount under the revolving credit portion of the ABL and the outstanding
Term Loan balance, or (ii) $62.5 million. The Company does not meet this required fixed charge coverage ratio at December
31, 2020. As a result, the Company is unable to access this remaining 12.5%, or $87.5 million, of the ABL facility until it
meets the required ratio. 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. The ABL also contains customary affirmative and negative
covenants for credit facilities of this type, including limitations on the Company’s ability to incur additional indebtedness or
liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of
which are more restrictive at any time during the term of the ABL when the Company’s fixed charge coverage ratio is less than
1.00:1.00 and its undrawn availability under the revolving portion of the ABL is less than the greater of (a) $150 million or (b)
30% of the sum of the maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan
balance. On September 30, 2019, the Company amended and restated the ABL and costs associated with entering into this
amendment were $2.2 million, and are being amortized to interest expense over the term of the facility ending September 2024,
along with $2.1 million of unamortized deferred costs that were previously recorded for the ABL.
As of December 31, 2020, there were no outstanding borrowings under the revolving portion of the ABL, and $38.5 million
was utilized to support the issuance of letters of credit. Average borrowings under the ABL for the fiscal year ended December
31, 2020 were $28 million, bearing an average annual interest rate of 2.2%. There were no revolving credit borrowings under
the ABL for 2019.
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, 2020, the Company
had not guaranteed any third-party indebtedness.
Note 13. 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. 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 19).
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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, 2020, the lenders had made $17.2
million of progress payments on behalf of the Company, and $29.0 million of progress payments are scheduled to be paid.
Upon payment of the final progress payments by the lenders, finance leases will commence, and $46.2 million, discounted
using the applicable discount rates at lease inceptions, of ROU assets and lease liabilities will be recognized by the Company.
The following represents the components of lease cost and other information for both operating and financing leases for the
fiscal years ending December 31, 2020 and 2019:
($ 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, 2020
Fiscal year ended
December 31, 2019
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3.5
1.0
20.8
1.9
0.9
(0.1)
28.0
1.0
21.7
6.2
42.3
12.4
4 years
6 years
6.2 %
6.9 %
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 and 2020, the Company reassessed the likelihood of renewal and included $10.2 million for the renewal options in
fiscal year ended December 31, 2019 for several of these operating leases in the ROU asset and lease liability because the
likelihood of renewal was determined to be reasonably certain. No adjustments were required in 2020 as a result of this
reassessment.
Rental expense under operating leases was $24.4 million in 2018.
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, 2020 (in millions):
2021
2022
2023
2024
2025
2026 and thereafter
Total undiscounted lease payments
Present value adjustment
Operating lease liabilities
F-79
December 31, 2020
19.6
16.6
12.8
9.3
7.6
18.1
84.0
(16.1)
67.9
$
$
$
7388_FIN.pdf 79
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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, 2020 (in millions):
2021
2022
2023
2024
2025
2026 and thereafter
Total undiscounted lease payments
Present value adjustment
Finance lease liabilities
December 31, 2020
13.8
13.2
12.2
8.7
4.8
0.1
52.8
(6.4)
46.4
$
$
$
Note 14. 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, 2020, 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 3 million pounds of nickel with hedge dates through
2023. The aggregate notional amount hedged is approximately 5% of a single year’s estimated nickel raw material purchase
requirements.
At December 31, 2020, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility
included natural gas cost hedges. At December 31, 2020, the company hedged approximately 70% of the Company’s annual
forecasted domestic requirements for natural gas for 2021 and approximately 25% for 2022.
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, 2020, the Company had no significant outstanding foreign currency
forward contracts.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate
debt. 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.
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.
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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,
2020
December 31,
2019
Natural gas contracts
Prepaid expenses and other current assets $
0.2 $
Nickel and other raw material contracts
Prepaid expenses and other current assets
Natural gas contracts
Nickel and other raw material contracts
Other assets
Other assets
Total derivatives designated as hedging instruments
Total asset derivatives
Liability derivatives
Derivatives designated as hedging instruments:
Balance sheet location
Interest rate swap
Natural gas contracts
Nickel and other raw material contracts
Interest rate swap
Natural gas contracts
Total derivatives designated as hedging instruments
Total liability derivatives
Other current liabilities
Other current liabilities
Other current liabilities
Other long-term liabilities
Other long-term liabilities
3.7
0.2
0.7
4.8
$
4.8 $
$
1.0 $
0.3
0.1
2.5
0.1
4.0
$
4.0 $
—
4.4
—
1.2
5.6
5.6
0.3
2.5
2.5
1.2
1.0
7.5
7.5
Assuming market prices remain constant with those at December 31, 2020, a pre-tax gain of $2.5 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. There were no outstanding fair value hedges as of December 31, 2020 or
2019. 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 17 and 19 for further
explanation on tax impacts within accumulated other comprehensive income (loss)). This tax impact is also excluded from the
table below.
Activity with regard to derivatives designated as cash flow hedges for the years ended December 31, 2020 and 2019 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
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income (a)
2020
2019
2020
2019
$
— $
11.3 $
(0.6) $
(0.1)
(0.1)
(1.8)
(4.0)
1.0
(0.9)
(2.8)
(0.1)
(1.1)
$
(2.0) $
7.4 $
(4.6) $
3.9
(0.9)
0.5
(0.4)
3.1
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7388_FIN.pdf 81
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(a)
The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the
interest rate swap, are presented in 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.
Note 15. Fair Value of Financial Instruments
The estimated fair value of financial instruments at December 31, 2020 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)
$
645.9 $
645.9 $
645.9 $
—
4.8
4.0
1,629.1
4.8
4.0
1,847.7
—
—
1,594.2
4.8
4.0
253.5
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
(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. The December 31,
2020 debt carrying value includes $46.8 million for the unamortized balance of the portion of the 2025 Convertible
Notes recorded in stockholders’ equity due to the flexible settlement feature of the notes (see Note 12).
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.
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The availability of observable market data is monitored to assess the appropriate classification of financial instruments within
the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of
financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the
reporting period.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents: Fair 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 2022 and 2025 Convertible Notes, the 2023 Notes, the Allegheny
Ludlum 6.95% Debentures due 2025 and the 2027 Notes were determined using Level 1 information. The fair values of other
short-term and long-term debt were determined using Level 2 information.
Note 16. 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.
Beginning on June 1, 2020, in response to the economic challenges created by the COVID-19 pandemic, the Company reduced
its qualified non-elective contribution percentage and suspended all Company match contributions for salaried participants in
the ATI 401(k) Savings Plan, and deferred the funding of Company contributions to this plan until 2021, resulting in $7.3
million reported in other current liabilities for this deferral on the consolidated balance sheet as of December 31, 2020. Costs
for defined contribution retirement plans were $29.9 million in 2020, $44.8 million in 2019, and $39.9 million in 2018.
Company contributions to these defined contribution plans are funded with cash. Other postretirement benefit costs for a
defined contribution plan were $0.7 million, $1.0 million, and $1.0 million for the fiscal years ended December 31, 2020, 2019
and 2018, respectively.
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 (gain)
Termination benefits
Total retirement benefit expense
Pension Benefits
Other Postretirement Benefits
2020
2019
2018
2020
2019
2018
$
$
12.7 $
86.3
(134.5)
0.7
74.5
—
10.9
50.6 $
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 $
2.3 $
10.7
—
(3.8)
10.8
(0.2)
6.7
26.5 $
1.9 $
14.8
—
(2.9)
13.5
—
—
27.3 $
2.5
12.7
—
(2.9)
10.6
—
—
22.9
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In the fourth quarter of 2020, the Company recorded a $17.4 million termination benefits charge for pension and postretirement
medical obligations, net of a $0.2 million curtailment gain, related to facility closures in the AA&S segment resulting from the
Company’s strategic shift to exit standard stainless products. See Note 3 for further explanation.
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
2020
2019
2018
3.40 %
4.40 %
3.85 %
2020
3.25 %
2019
4.35 %
2018
3.80 %
1.0 % 0.5% - 1.0% 0.5% - 1.0% —
—
—
7.16 %
7.52 %
7.75 %
— %
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
2.60 %
1.0 %
3.40 %
0.5%- 1.0%
2.45 %
—
3.25 %
—
Pension Benefits
Other Postretirement Benefits
2020
2019
2020
2019
A reconciliation of the funded status for the Company’s defined benefit pension and other postretirement benefit plans at
December 31, 2020 and 2019 was as follows:
(In millions)
Change in benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid
Subsidy received
Effect of currency rates
Net actuarial (gains) losses – discount rate change
– other
Plan curtailments
Plan amendments
Termination benefits
Benefit obligation at end of year
Pension Benefits
Other Postretirement Benefits
2020
2019
2020
2019
$
$
2,633.9 $
12.7
86.3
(258.0)
—
4.3
235.3
(5.3)
—
—
10.9
2,720.1 $
2,497.7 $
12.7
105.5
(274.6)
—
2.8
266.0
14.3
—
9.5
—
2,633.9 $
345.3 $
2.3
10.7
(30.4)
0.8
—
25.5
(0.8)
(2.5)
—
6.7
357.6 $
359.1
1.9
14.8
(37.7)
—
—
30.5
(18.1)
—
(5.2)
—
345.3
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. Actuarial effects of changes in discount rates are separately
identified in the preceding table.
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(In millions)
Change in plan assets:
Pension Benefits
Other Postretirement Benefits
2020
2019
2020
2019
Fair value of plan assets at beginning of year
$
1,902.1 $
1,772.2 $
Actual returns on plan assets and plan expenses
Employer contributions
Effect of currency rates
Benefits paid
258.9
138.8
4.6
248.2
153.4
2.9
(258.0)
(274.6)
0.1 $
(0.1)
—
—
—
Fair value of plan assets at end of year
$
2,046.4 $
1,902.1 $
— $
0.1
—
—
—
—
0.1
Pension benefit payments in 2020 include $86 million for the annuity buyout of smaller pension balances in a U.S. defined
benefit pension plan involving approximately 1,200, or 8% of participants. 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. 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
2020
2019
2020
2019
$
$
5.4 $
(5.5)
(673.6)
(673.7) $
4.8 $
(5.1)
(731.5)
(731.8) $
— $
(30.9)
(326.7)
(357.6) $
—
(32.7)
(312.5)
(345.2)
Changes to accumulated other comprehensive loss related to pension and other postretirement benefit plans in 2020 and 2019
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
2020
(1,569.7) $
74.5
0.7
(105.8)
(1,600.3) $
(30.6) $
2019
(1,470.3) $
73.7
0.3
(173.4)
(1,569.7) $
(99.4) $
$
$
$
2020
2019
(103.5) $
10.8
(3.8)
(22.6)
(119.1) $
(15.6) $
(107.0)
13.5
(2.9)
(7.1)
(103.5)
3.5
Amounts included in accumulated other comprehensive loss at December 31, 2020 and 2019 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
Other Postretirement Benefits
2020
2019
2020
2019
$
$
(10.6) $
(1,589.7)
(1,600.3)
561.4
(1,038.9) $
(11.2) $
(1,558.5)
(1,569.7)
555.7
(1,014.0) $
7.0 $
(126.1)
(119.1)
38.1
(81.0) $
11.0
(114.5)
(103.5)
34.4
(69.1)
Amounts in accumulated other comprehensive loss presented above do not include any effects of deferred tax asset valuation
allowances. See Note 17 for further discussion on deferred tax asset valuation allowances.
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Retirement benefit expense for 2021 for defined benefit plans is estimated to be approximately $44 million, comprised of $23
million for pension expense and $21 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 2021 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 $
75.6
76.2 $
(2.5) $
13.2
10.7 $
(1.9)
88.8
86.9
The accumulated benefit obligation for all defined benefit pension plans was $2,703.9 million and $2,621.1 million at
December 31, 2020 and 2019, 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
2020
2019
$
$
$
2,611.8 $
2,595.6 $
1,932.8 $
2,538.9
2,526.1
1,802.4
Cash contributions to ATI’s U.S. qualified defined benefit pension plans were $130 million in 2020, $145 million in 2019 and
$40 million in 2018. 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 $87 million in cash contributions to its U.S. qualified defined benefit
pension plans in 2021. In addition, for 2021, the Company expects approximately $10 million of payments for U.S.
nonqualified pension benefits and for contributions to its U.K. defined benefit pension plan. Certain U.K. assets are pledged as
collateral to the trustee of the U.K. defined benefit pension plan to support statutory funding requirements. This security
agreement has a maximum value of approximately $62 million based on year-end 2020 exchange rates.
The following table summarizes expected benefit payments from the Company’s various pension and other postretirement
defined benefit plans through 2030, 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)
2021
2022
2023
2024
2025
2026-2030
Pension
Benefits
Other
Postretirement
Benefits
Medicare Part
D Subsidy
$
167.2 $
30.9 $
165.0
164.1
161.5
158.8
747.4
29.7
30.1
28.5
26.5
107.2
0.1
0.1
0.1
0.1
0.1
0.3
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 5.6% in 2021 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 15. The fair values at December 31, 2020 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)
$
$
452.0 $
477.1
264.7 $
448.7
588.0
47.4
130.0
325.0
26.9
2,046.4 $
306.3
47.4
130.0
325.0
26.9
1,549.0 $
187.3 $
28.4
80.3
—
—
—
—
296.0 $
— $
—
201.4
—
—
—
—
201.4 $
—
—
—
—
—
—
—
—
The fair values of the Company’s pension plan assets 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
254.7 $
299.6
650.7
51.0
129.0
263.9
37.8
1,902.1 $
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 $
—
—
—
—
—
—
—
—
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.
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.
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For 2021, the weighted average expected long-term rate of return on defined benefit pension assets is 6.78%. 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 15.2%
for 2020, 15.1% for 2019, (4.8)% for 2018, 16.9% for 2017, and 5.3% for 2016.
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, 2020. 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 2021, 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% - 10.0%
As of December 31, 2020, the Company’s pension plans had outstanding commitments to invest up to $78 million in global
debt securities, $94 million in private equity investments and $8 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.
A subsidiary of the Company participates in the Steelworkers Western Independent Shops Pension Plan (WISPP) for union-
represented employees of the primary titanium operations in Albany, OR, which is funded on an hours-worked basis. ATI’s
contributions to the WISPP exceed 5% of this plan’s total contributions for the plan year ended September 30, 2019, which is
the most recent information available from the Plan Administrator. As of December 31, 2020, manufacturing operations at this
facility are indefinitely idled, and a limited number of employees that participate in the WISPP remain active in maintenance
and other functions. It is reasonably possible that a significant reduction or the elimination of hours-worked contributions due
to changes in operating rates at this facility could result in a withdrawal liability assessment in a future period. A complete
withdrawal liability is estimated to be approximately $38 million on an undiscounted basis. If this complete withdrawal
liability was incurred, ATI estimates that payments of the obligation would be required on a straight-line basis over a 20-year
period.
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The Company’s participation in multiemployer plans for the years ended December 31, 2020, 2019 and 2018 is reported in the
following table.
EIN / Pension
Plan Number
90-0169564
/ 001
48-6168020
/ 001
51-6031295
/ 002
Pension Fund
Steelworkers
Western
Independent Shops
Pension Plan
Boilermakers-
Blacksmiths
National Pension
Trust
IAM National
Pension Fund
Total
contributions
Pension
Protection Act
Zone Status (1)
2020
2019
in millions
FIP / RP Status
Pending /
Implemented (2)
Company Contributions
2020
2019
2018
Surcharge
Imposed (3)
Expiration Dates
of Collective
Bargaining
Agreements
Green
Green
N/A
$
0.7 $ 0.9 $ 0.8
No
2/28/2021
Yellow
Red
Red
Red
Yes
Yes
2.1
2.5
2.5
No
9/30/2026
2.0
2.2
2.1
Yes
Various between
2021-2022 (4)
$
4.8 $ 5.6 $ 5.4
(1)
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 “deep red” zone had been determined to be in
“critical and declining status”, based on criteria established by the Internal Revenue Code (Code), and is in critical status
(as defined by the “red” zone) and is projected to become insolvent (run out of money to pay benefits) within 15 years
(or within 20 years if a special rule applies). A plan in the “red” zone had been determined to be in “critical status”,
based on criteria established by the 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. In April 2020, the Company
received notification from the IAM Fund that it was certified by its actuary as being in “red” zone status for the plan year
beginning January 1, 2020. A 5% contribution surcharge was 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 notifications 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. In April 2020, the
funding status improved for the Blacksmiths Trust as it was certified by its actuary as being in the “yellow” zone for the
plan year beginning January 1, 2020.
(2)
(3)
(4)
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” or “deep red” zones, is pending or has been implemented as of the end of the plan year that ended in 2020.
The “Surcharge Imposed” column indicates whether ATI’s contribution rate for 2020 included an amount in addition to
the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”
or “critical and declining 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 17. Accumulated Other Comprehensive Income (Loss)
The changes in AOCI by component, net of tax, for the fiscal years ended December 31, 2020, 2019 and 2018 were as follows
(in millions):
Post-
retirement
benefit plans
Currency
translation
adjustment
Derivatives
Deferred Tax
Asset
Valuation
Allowance
Total
Balance, December 31, 2017
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2018
OCI before reclassifications
$
(a)
(954.5) $
(107.2)
55.9
(51.3)
(1,005.8)
(b)
(141.6)
(53.5) $
(20.4)
—
(20.4)
(73.9)
(c)
(2.7)
(d)
9.0 $
(4.9)
(8.9)
(13.8)
(4.8)
7.4
Amounts reclassified from AOCI
(a)
64.3
(b)
—
(c)
(3.1)
(d)
Net current-period OCI
Balance, December 31, 2019
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
(77.3)
(1,083.1)
(99.3)
(2.7)
(76.6)
21.1
(a)
62.5
(b)
—
(c)
(36.8)
4.3
(0.5)
(2.0)
4.6
2.6
(d)
(28.8) $ (1,027.8)
(132.5)
—
26.5
(20.5)
(106.0)
(20.5)
(49.3) (1,133.8)
—
7.8
7.8
(136.9)
69.0
(67.9)
(41.5) (1,201.7)
—
(8.8)
(8.8)
(80.2)
58.3
(21.9)
Balance, December 31, 2020
$
(1,119.9) $
Attributable to noncontrolling interests:
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
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
Balance, December 31, 2020
$
$
(b)
(b)
— $
—
—
—
—
—
—
—
—
—
—
—
— $
(b)
21.1
(55.5) $
17.3 $
(6.2)
—
(6.2)
11.1
(1.3)
—
(1.3)
9.8
11.4
—
11.4
21.2 $
2.1 $
(50.3) $ (1,223.6)
— $
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
—
— $
17.3
(6.2)
—
(6.2)
11.1
(1.3)
—
(1.3)
9.8
11.4
—
11.4
21.2
(a)
(b)
(c)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 16).
No amounts were reclassified to earnings.
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 14).
(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.
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.
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Reclassifications out of AOCI for the fiscal years ended December 31, 2020, 2019 and 2018 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,
2020
December 31,
2019
December 31,
2018
Affected line item in the
consolidated statement
of operations
$
3.1
(a)
$
2.6 (a)
$
(85.3) (a)
(82.2) (c)
(19.7)
(62.5)
(0.8) (b)
(3.7) (b)
(0.1) (b)
(1.4) (b)
(6.0) (c)
(1.4)
(4.6)
$
$
$
(87.2) (a)
(84.6) (c)
(20.3)
(64.3)
5.1 (b)
(1.2) (b)
0.7 (b)
(0.5) (b)
4.1 (c)
1.0
3.1
$
$
$
$
$
$
2.6 (a)
(76.5) (a)
(73.9) (c)
(18.0)
(55.9)
10.2 (b)
0.5 (b)
1.3 (b)
(0.3) (b)
11.7 (c)
2.8
8.9
Total before tax
Tax benefit (d)
Net of tax
Total before tax
Tax provision
(benefit) (d)
Net of tax
(a)
(b)
(c)
(d)
Amounts are included in nonoperating retirement benefit expense (see Note 16).
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 14).
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 19 for further explanation).
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Note 18. 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, 2020, there were no shares of preferred stock issued.
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
In May 2020, the Company’s stockholders approved the Allegheny Technologies Incorporated 2020 Incentive Plan (the “2020
Incentive Plan”). Following adoption, all new share-based compensation awards are being made under the 2020 Incentive Plan.
Shares previously remaining available for grant under prior incentive plans, or which become available for award due to the
forfeiture or cancellation of prior awards under those prior plans, are available for award under the 2020 Incentive Plan.
Outstanding grants previously made under prior incentive plans remain in effect in accordance with relevant terms.
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, 2020, 5.3 million shares of common stock were available for future awards under the 2020 Incentive Plan.
The general terms of each arrangement granted under the 2020 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). The Company’s
previous share-based compensation program included a Performance/Restricted Stock Program (PRSP) of nonvested stock
awards for which vesting and expense continued into fiscal year 2020 for certain participants.
Nonvested stock awards/units:
Restricted Share Units: 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. RSU awards to non-employee directors vest in one year. 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.
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.
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 2013, 2014 and 2015
under the Company’s PRSP, one-half of the nonvested stock (“performance shares”) vested only on the attainment of an
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 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 2013, 2014 and 2015 PRSP awards were not met, and the
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performance share portions were forfeited. The remaining service portions of the 2013, 2014 and 2015 PRSP awards vested at
the completion of the applicable service periods.
Compensation expense related to all nonvested stock awards and units was $9.6 million in 2020, $9.8 million in 2019, and $9.7
million in 2018. Approximately $6.5 million of unrecognized fair value compensation expense relating to restricted stock units
is expected to be recognized through 2023, including $4.8 million expected to be recognized in 2021, based on estimated
service period forfeitures. Activity under the Company’s nonvested stock awards and restricted share units for the years ended
December 31, 2020, 2019, and 2018 was as follows:
(Shares in thousands, $ in millions)
2020
2019
2018
Nonvested, beginning of year
Granted
Vested
Forfeited
Nonvested, end of year
Number of
shares/units
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
756 $
647
(450)
(24)
929 $
19.6
10.1
(11.2)
(0.6)
17.9
1,055 $
396
(681)
(14)
756 $
23.7
10.8
(14.5)
(0.4)
19.6
1,320 $
290
(540)
(15)
1,055 $
27.9
7.8
(11.7)
(0.3)
23.7
The beginning of the year 2018 nonvested weighted average grant date fair value in the table above includes a $4.6 million
reduction from the prior year disclosure to correct vesting and forfeiture activity related to dividend equivalents for grants under
the PRSP.
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 and 2020 awards 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 2018, 2019 and 2020, the Company awarded 456,318, 479,364 and 673,962 share units, respectively, at the target level with
a weighted average grant date fair value of $12.9 million, $14.7 million and $13.5 million, respectively. The 2018, 2019 and
2020 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, 2020, a maximum of 2.2 million shares have been reserved for issuance for the PSU awards. At December 31,
2020, the 2018 PSU awards vested between threshold and target attainment, and at -10% for the TSR Modifier, resulting in
301,170 shares being issued in early 2021. At December 31, 2019, the 2017 PSU awards vested above target attainment 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 2019 and 2020 PSU awards could
range from zero to $52 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 evaluated on a quarterly basis. The Company recognized $11.4
million and $14.6 million of compensation expense in 2018 and 2019, respectively, for the PSU awards, and compensation
income of $6.7 million in 2020 due to decreased financial performance attainment estimates, which required reversal of
previously-recognized expense. As of December 31, 2020, ATI projects that performance attainment will be below threshold
for both the 2019 and 2020 PSU awards. Based on these estimates, there is no cumulative unrecognized compensation expense
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remaining for the PSU awards. Forfeited share units in 2018, 2019 and 2020 were 21,848, 48,598 and 50,050, respectively,
with a weighted average grant date fair value of $0.5 million, $1.1 million and $1.4 million, respectively.
Note 19. 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)
2020
2019
2018
(1,505.4) $
23.5
(1,481.9) $
190.2 $
51.4
241.6 $
190.8
56.9
247.7
2020
2019
2018
0.6 $
(1.1)
6.7
6.2
26.6
47.1
(2.2)
71.5
77.7 $
2.2 $
0.2
8.1
10.5
(4.6)
(40.4)
6.0
(39.0)
(28.5) $
1.0
(0.8)
10.1
10.3
1.3
(0.5)
(0.1)
0.7
11.0
$
$
$
$
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 )
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)
2020
2019
2018
$
$
(311.2) $
50.4
(0.2)
335.5
0.2
—
—
1.7
—
2.1
(4.6)
3.8
77.7 $
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
A $287.0 million pre-tax charge for goodwill impairment (see Note 4 for additional information) included a portion that was
non-deductible for tax purposes, resulting in a $50.4 million charge included as a reconciling item in the table above.
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
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differences and tax planning strategies. In situations where a three-year cumulative loss position exists, the ability to consider
projections of future results as positive evidence to assess the realizability of deferred tax assets is subjective. 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.
In 2020, ATI’s U.S. operations returned to a three-year cumulative loss position, limiting the ability to utilize future projections
as verifiable sources of income when analyzing the need for a valuation allowance. The consolidated income tax provision for
fiscal year 2020 includes a $335.5 million increase to the deferred tax asset valuation allowance based on an analysis of the
expected more likely than not realization of deferred tax assets and liabilities within applicable expiration periods, primarily on
U.S. federal and state tax attributes.
Previously, at December 31, 2019, the Company’s U.S. results reported a three-year cumulative income position, allowing the
Company to utilize forecasts of future profits as a verifiable source of income when evaluating whether it was more likely than
not that the deferred tax assets would be realized. The Company determined that a valuation allowance on certain net deferred
tax asset balances for federal and certain state jurisdictions were no longer required. Certain individual tax attributes still
required a valuation allowance based on the expected utilization of the tax attributes was not more likely than not to be realized
by the Company. The change in the overall valuation allowance for 2019 included 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 maintained valuation allowances on deferred tax amounts recorded in accumulated other comprehensive loss
in 2018, 2019 and 2020 of $49.3 million, $41.5 million and $50.3 million, respectively, which are not reflected in the preceding
table reconciling amounts recognized in the income tax provision (benefit) recorded in the statement of operations (see Note
17). 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 14 and 17 for additional information on cash flow
hedge activity.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in
response to the global COVID-19 pandemic. The CARES Act enacted tax credits and various temporary changes to current tax
regulations. Changes impacting the Company’s tax provision include the following:
•
•
As part of the Tax Cuts and Jobs Act (Tax Act) in 2017, a new limitation on deductible interest expense was created,
for which the Company was limited to deductible interest expense based upon 30% of adjusted taxable income. As
part of the CARES Act, the limitation was increased from 30% of adjusted taxable income to 50% of adjusted taxable
income for tax years 2019 and 2020. Additionally, a taxpayer is able to utilize the 2019 adjusted taxable income
calculation for the 2020 tax year. The Company did not have a limitation for the 2019 tax year with the change in
limitation percentage, therefore no limitation was calculated as part of the 2020 tax provision.
Deferral of payments related to payroll taxes. The employer portion of the Social Security payroll tax payments
related to tax year 2020 were deferred beginning in April 2020 and will be paid in two installments: one-half on
December 31, 2021 and the remaining one-half on December 31, 2022. The Company disallowed the expense and
established a deferred tax asset which will be deductible when the payments are made in 2021 and 2022.
In 2018, the Tax Act required 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, shown as “Impact of U.S. tax reform” in 2018.
Additionally, the Tax Act, requires 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). The impact in 2020 related to
GILTI is minimal due to the global COVID-19 pandemic. In 2019 and 2018, the Company utilized 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 to offset the
2018 income inclusion of $25.7 million ($5.4 million net tax effect). The Company has elected to recognize GILTI liabilities as
an element of income tax expense in the period incurred.
In 2018, the Company was granted a preferential tax rate related to the STAL PRS joint venture operations in China for tax
years 2018 through 2020. The preferential tax rate is 15%, compared to the statutory rate of 25%. As of December 31, 2020,
the preferential tax rate has expired and the Company will prospectively utilize the 25% statutory tax rate pending a ruling by
the Chinese government on a new preferential tax rate application.
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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.
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, 2020 and 2019 were as follows:
(In millions)
Deferred income tax assets
Net operating loss tax carryovers
Pensions
Postretirement benefits other than pensions
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)
2020
2019
$
$
309.4 $
153.8
86.5
37.7
82.9
670.3
(461.8)
208.5
119.2
53.3
12.5
35.9
220.9
(12.4) $
264.4
155.5
83.8
42.6
86.1
632.4
(94.5)
537.9
364.2
65.5
23.7
27.0
480.4
57.5
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
Attribute
Amount
Expiration Period
Amount expiring
within 5 years
Amount expiring in
5-20 years
U.S.
U.S.
U.S.
U.S.
State
State
State
U.K.
NOL
NOL
Foreign Tax Credit
Research and
Development Credit
NOL
NOL
Credits
NOL
Poland
Economic Zone Credit
$800
$126
$22
$4
$146
$1
$11
$39
$3
20 years
Indefinite
10 years
20 years
Various
Indefinite
Various
Indefinite
7 years
Income taxes paid and amounts received as refunds were as follows:
$—
$—
$5
$—
$31
$—
$3
$—
$—
$800
$—
$17
$4
$115
$—
$8
$—
$3
(In millions)
Income taxes paid
Income tax refunds received
Income taxes paid, net
2020
2019
2018
$
$
7.8 $
(2.5)
5.3 $
15.1 $
(9.2)
5.9 $
9.7
(1.6)
8.1
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F-96
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 $4.4 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.
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, 2020, 2019 and 2018 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
2020
2019
2018
$
$
14.4 $
—
—
2.7
(1.9)
—
15.2 $
14.7 $
—
—
0.9
(1.2)
—
14.4 $
14.7
—
(0.1)
0.7
(0.6)
—
14.7
For years ended December 31, 2020, 2019 and 2018, the liability includes $13.0 million, $11.5 million and $12.1 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 $2 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, 2020 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, 2020, 2019 and 2018 were not significant. At
December 31, 2020 and 2019, the accrued liabilities for interest and penalties related to unrecognized tax benefits were $2.3
million.and $2.7 million, respectively.
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
Earliest Year Open to
Examination
2019
2017
2017
2014
2018
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F-97
Note 20. 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
3.5% Convertible Senior Notes due 2025
Numerator for diluted net income (loss) per common share -
2020
2019
2018
$ (1,572.6) $
257.6 $
222.4
—
—
12.8
—
12.9
—
Net income (loss) attributable to ATI after assumed conversions
$ (1,572.6) $
270.4 $
235.3
Denominator:
Denominator for basic net income (loss) per common share—weighted average
shares
Effect of dilutive securities:
Share-based compensation
4.75% Convertible Senior Notes due 2022
3.5% Convertible Senior Notes due 2025
126.5
125.8
125.2
—
—
—
0.8
19.9
—
0.8
19.9
—
145.9
1.78
1.61
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
126.5
146.5
$
$
(12.43) $
(12.43) $
2.05 $
1.85 $
Common stock that would be issuable upon the assumed conversion of the 2022 Convertible Notes and the 2025 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 is anti-dilutive. There were
22.8 million anti-dilutive shares for 2020. There were no anti-dilutive shares for 2019 and 2018.
Note 21. Commitments and Contingencies
Future minimum rental commitments under leases are disclosed in Note 13. Commitments for expenditures on property, plant
and equipment at December 31, 2020 were approximately $74.9 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 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, 2020, the Company’s reserves for environmental remediation obligations totaled approximately $14 million,
of which $4 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; $9 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
F-98
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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 $15 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. No trial date has been set by the court given the restrictions of the pandemic. While
ATI intends to vigorously defend against and pursue these claims, it cannot predict their outcomes at this time.
Note 22. Selected Quarterly Financial Data
(Unaudited)
(In millions, except per share amounts)
2020 -
Sales
Gross Profit
Net income (loss)
Net income (loss) attributable to ATI
Basic income (loss) attributable to ATI per common share
Diluted income (loss) attributable to ATI per common share
Average shares outstanding
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
March 31
June 30
September 30
December 31
Quarter Ended
955.5 $
134.8
23.6
21.1
0.17 $
0.16 $
126.3
1,004.8 $
131.1
16.3
15.0
0.12 $
0.12 $
125.8
770.3 $
74.7
(419.9)
(422.6)
(3.34) $
(3.34) $
126.7
1,080.4 $
177.7
78.5
75.1
0.60 $
0.54 $
126.1
598.0 $
38.1
(47.0)
(50.1)
(0.40) $
(0.40) $
126.8
658.3
45.2
(1,116.3)
(1,121.0)
(8.85)
(8.85)
126.8
1,018.7 $
159.7
115.3
111.0
0.88 $
0.78 $
126.1
1,018.6
169.3
60.0
56.5
0.45
0.41
126.1
$
$
$
$
$
$
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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.
First quarter 2020 results include an $8.0 million pre-tax ($5.5 million, net of tax) restructuring charge for a voluntary
retirement incentive program. See Note 3 for further explanation.
Second quarter 2020 results include the following:
•
•
•
•
•
$287.0 million pre-tax ($281.4 million, net of tax) goodwill impairment charge to write-off a portion of the Company’s
goodwill related to its Forged Products reporting unit. See Note 4 for further explanation.
$16.7 million pre-tax ($16.4 million, net of tax) restructuring charge related to severance charges for involuntary
reductions and voluntary retirement incentive programs for the HPMC segment. See Note 3 for further explanation.
$2.4 million pre-tax and net of tax charge for ATI’s 50% portion of severance charges recorded by the A&T Stainless
joint venture. See Note 9 for further explanation.
$21.5 million pre-tax ($21.1 million, net of tax) debt extinguishment charge for the partial redemption of the 2022
Convertible Notes. See Note 12 for further explanation.
$99.0 million discrete tax charge related to deferred tax valuation allowances due to re-entering a three-year
cumulative loss condition for U.S. Federal and state jurisdictions. See Note 19 for further explanation on deferred tax
asset valuation allowances.
Third quarter 2020 results include a $2.3 million pre-tax and net of tax restructuring charge for additional employee severance
actions. See Note 3 for further explanation.
Fourth quarter 2020 results include $1,105.1 million in pre-tax and net of tax restructuring and other charges, including
$1,041.5 million of long-lived asset impairment charges primarily related to the AA&S segment’s Brackenridge, PA operations,
which include the HRPF, as well as stainless melting and finishing operations, $33.5 million of severance-related costs for
hourly and salary employees, $12.7 million of other costs related to facility idlings including asset retirement obligations and
inventory valuation reserves, and $17.4 million in pre-tax charges for termination benefits for pension and postretirement
medical obligations related to facility closures. See Note 3 for further explanation. Fourth quarter 2020 results also include a
$26.0 million net tax benefit associated with the tax impacts of the long-lived asset impairments and other restructuring charges
and associated deferred tax asset valuation allowances. See Note 19 for further explanation on deferred tax asset valuation
allowances.
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 11 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 8 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 11 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 8 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 3 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 12 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 9 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 19 for further explanation.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
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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, 2020.
(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, 2020. 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, 2020, 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, 2020.
(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,
2020 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 2020, 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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and our report dated February 26, 2021 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 26, 2021
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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 2021 Annual
Meeting of Stockholders (the “2021 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 2021 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 2021 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 2021 Proxy Statement.
Equity Compensation Plan Information
Information about our equity compensation plans at December 31, 2020 was as follows:
(In thousands, except per share amounts)
Equity Compensation Plans Approved by Shareholders
Equity Compensation Plans Not Approved by Shareholders
Total
(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))
747 $
—
747 $
—
—
—
5,300
—
5,300
(1)
(2)
Includes stock-settled equity awards previously granted under the Allegheny Technologies Incorporated 2020 Incentive
Plan (the “2020 Incentive Plan”) and prior incentive plans. Amounts reflected for such performance-based awards
represent the maximum number of shares to be awarded at the conclusion of the applicable performance cycle.
Outstanding stock-settled awards are not included in this calculation.
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(3)
Represents shares available for issuance under the 2020 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
18. 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 2021 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 2021 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, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income (Loss) — Years Ended December 31, 2020, 2019, and 2018
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Cash Flows — Years Ended December 31, 2020, 2019, and 2018
Statements of Changes in Consolidated Equity — Years Ended December 31, 2020, 2019, and 2018
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
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)).
7388_FIN.pdf 104
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F-104
Exhibit
No.
4.1
4.2
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
Description
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)).
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)).
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)).
Indenture, dated June 22, 2020, by and between the Company 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 June 22, 2020
(File No. 1-12001))
Form of 3.50% Convertible Senior Note due 2025 (incorporated by reference to Exhibit 4.2 to the Registrant’s
Current Report on Form 8-K dated June 22, 2020 (File No. 1-12001))
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(incorporated by reference to Exhibit 4.13 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2020 (File No. 1-12001)).
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)).*
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)).*
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)).*
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)).*
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)).*
F-105
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Exhibit
No.
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
21.1
23.1
31.1
31.2
32.1
101.INS
101.SCH
Description
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)).*
Allegheny Technologies Incorporated 2020 Incentive Plan (incorporated by reference to Appendix A to the
Registrant’s Definitive Proxy Statement filed on March 24, 2020 (File No 1-12001)).*
Form of Time-Vested Restricted Stock Unit Agreement (Filed herewith).*
Form of Performance-Vested Restricted Stock Unit Agreement (Filed herewith).*
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)).
Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K dated June 22, 2020 (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).
Certification pursuant to 18 U.S.C. Section 1350 (filed herewith).
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data
File because its XBRL tags are embedded within the Inline XBRL document.
*
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.
F-106
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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 26, 2021
By
/s/ Robert S. Wetherbee
Robert S. Wetherbee
President and Chief Executive Officer
ALLEGHENY TECHNOLOGIES INCORPORATED
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 26th day of February, 2021.
/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
7388_FIN.pdf 107
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F-107
This Page Intentionally Left Blank
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3/15/21 7:04 PM
F-108
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.
Fiscal Year Ended December 31
Net income (loss) attributable to ATI
Adjustments, net of tax:
Impairment of goodwill (a)
Restructuring and other charges (b)
Debt extinguishment charge (c)
Joint venture restructuring and impairment charges (d)
Gain on sale of oil & gas rights (e)
Loss on sale of industrial forgings business (f)
Gain on sale of cast products business (g)
Net change in deferred taxes and valuation allowance (h)
2018
$ 222
2019
2020
$ 258
$ (1,573)
-
-
-
-
-
-
-
-
-
4
20
11
(88)
8
(6)
(42)
-
282
1,129
21
3
-
-
-
73
-
Gain on joint venture deconsolidation (i)
(14)
Net income (loss) attributable to ATI, as adjusted
$ 208
$ 165
$ (65)
Per Diluted Share
Net income (loss) attributable to ATI
$ 1.61
$ 1.85
$ (12.43)
Adjustments, net of tax:
Impairment of goodwill (a)
Restructuring and other charges (b)
Debt extinguishment charge (c)
Joint venture restructuring and impairment charges (d)
Gain on sale of oil & gas rights (e)
Loss on sale of industrial forgings business (f)
Gain on sale of cast products business (g)
Net change in deferred taxes and valuation allowance (h)
-
-
-
-
-
-
-
-
-
0.03
0.14
0.07
(0.60)
0.05
(0.04)
(0.29)
Gain on joint venture deconsolidation (i)
(0.10)
-
2.22
8.93
0.17
0.02
-
-
-
0.57
-
Net income (loss) attributable to ATI, as adjusted
$ 1.51
$ 1.21
$ (0.52)
ATIMETALS.COM 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.
Fiscal Year Ended December 31
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Net income (loss)
(+) Depreciation and Amortization
(+) Interest Expense
(+/-) Income Tax Provision (Benefit)
(+) Debt extinguishment charge (c)
(+) Impairment of goodwill (a)
(+) Restructuring and other charges (b)
(+) Joint venture restructuring and impairment charges (d)
(-) Gain on asset sales, net (e,f,g)
(-) Gain on joint venture deconsolidation (i)
2018
$ 237
156
101
11
-
-
-
-
-
(16)
2019
2020
$ 270
$ (1,560)
151
99
(29)
22
-
5
11
(90)
-
143
94
78
22
287
1,132
3
(3)
-
Total ATI Adjusted EBITDA
$ 489
$ 439
$ 196
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 2020 annual report on Form 10-K. This presentation of adjusted results per diluted
share includes the effects of convertible debt, if dilutive.
(a) 2020 results include a $287 million pre-tax goodwill impairment charge to write-off a portion of the Company’s goodwill related to its Forged
Products reporting unit.
(b) 2020 results include $1,132 million in pre-tax restructuring and other charges, including $1,042 million of long-lived asset impairment charges
primarily related to the AA&S segment’s Brackenridge, PA operations, which include the Hot-Rolling and Processing Facility, as well as stainless
melting and finishing operations, $60 million of severance-related costs for hourly and salary employees, $13 million of other costs related to
facility idlings including asset retirement obligations and inventory valuation reserves, and $17 million in pre-tax charges for termination benefits
for pension and postretirement medical obligations related to facility closures. 2019 results include a $5 million pre-tax restructuring charge to
streamline ATI’s salaried workforce primarily to improve the cost competitiveness of the U.S.-based Flat Rolled Products business.
(c) 2020 results include a $22 million pre-tax debt extinguishment charge for the partial redemption of the $288 million, 4.75% Convertible
Notes due 2022. 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.
(d) 2020 results include a $3 million pre-tax charge for ATI’s 50% portion of severance charges recorded by the Allegheny & Tsingshan Stainless joint
venture. 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.
(e) 2019 results include a $92 million pre-tax gain on the sale of oil & gas rights in New Mexico.
(f) 2019 results include an $8 million pre-tax loss on the sale of the industrial forgings business, including $10 million of allocated goodwill.
(g) 2019 results include a $6 million pre-tax net gain on the sale of the cast products business, which includes a $10 million write-down of the
carrying value of long-lived assets of the retained Salem operations.
(h) 2020 results include a $73 million tax charge resulting from a $99 million discrete tax charge recorded in the second quarter 2020 related
to deferred tax valuation allowances due to re-entering a three-year cumulative loss condition for U.S. Federal and state jurisdictions, partially
offset by the $26 million benefit associated with the fourth quarter tax impacts of the long-lived asset impairments and other restructuring
charges. 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.
(i) 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 million pre-tax gain, including ATI’s retained 50% share, was recorded at fair value.
10 ATI 2020 ANNUAL REPORT
ATIMETALS.COM 10
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
STOCKHOLDER PUBLICATIONS
1000 Six PPG Place
Pittsburgh, PA 15222-5479
412-394-2800
ANNUAL MEETING
The Annual Meeting of Stockholders will be held
virtually on Thursday, May 20, 2021 at 11:00 a.m.
Eastern Time (ET)
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.
For additional information contact:
investorrelations@ATImetals.com
Go to ATImetals.com/annualmeeting for details.
INDEPENDENT AUDITORS
TRANSFER AGENT AND REGISTRAR
Ernst & Young LLP
Pittsburgh, PA
Computershare Inc.
462 South 4th Street Suite 1600
Louisville, KY 40202
1-800-406-4850
computershare.com/investor
Information about:
STOCK EXCHANGE LISTING
The common stock of Allegheny Technologies
Incorporated is traded on the New York Stock
Exchange (symbol ATI).
• Voluntary purchases of ATI common stock for new
investors and current stockholders
• Safekeeping of stock certificates at no charge
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We do the right things the right way; it’s
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collaborative work environment.
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We embrace change and unique
perspectives to create sustainable value,
acting with urgency and taking calculated
risks to learn and continuously improve.
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