UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2018



¨	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		25-1792394
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1000 Six PPG Place
Pittsburgh, Pennsylvania		15222-5479
(Address of Principal Executive Offices)		(Zip Code)

(412) 394-2800

(Registrant’s telephone number, including area code)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the Registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

At ~~October~~April 20, ~~2017,~~2018, the registrant had outstanding ~~108,863,099~~125,647,226 shares of its Common Stock.

Table of Contents

ALLEGHENY TECHNOLOGIES INCORPORATED

SEC FORM 10-Q

Quarter Ended ~~September 30, 2017~~March 31, 2018

INDEX



	Page No.
PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets	1

Consolidated Statements of ~~Operations~~Income	2

Consolidated Statements of Comprehensive Income ~~(Loss)~~	3

Consolidated Statements of Cash Flows	4

Statements of Changes in Consolidated Equity	5

Notes to Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4337

Item 4. Controls and Procedures	4538

PART II. - OTHER INFORMATION

Item 1. Legal Proceedings	4538

Item 1A. Risk Factors	4639

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6. Exhibits	4640

SIGNATURES	4741

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Current period unaudited)


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	124.9		$	229.6		$	109.9		$	141.6
Accounts receivable, net	525.9			452.1			606.4			545.3
Short-term contract assets							38.6			—
Inventories, net	1,101.1			1,037.0			1,210.8			1,176.1
Prepaid expenses and other current assets	52.2			47.8			86.1			52.7
Total Current Assets	1,804.1			1,766.5			2,051.8			1,915.7
Property, plant and equipment, net	2,490.9			2,498.9			2,490.7			2,495.7
Goodwill	531.9			641.9			534.2			531.4
Long-term contract assets							16.1			—
Other assets	248.2			262.7			257.2			242.6
Total Assets	$	5,075.1		$	5,170.0		$	5,350.0		$	5,185.4
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	350.5		$	294.3		$	424.7		$	420.1
Accrued liabilities	286.7			309.3			205.3			282.4
Short term debt and current portion of long-term debt	36.4			105.1
Short-term contract liabilities							66.2			—
Short-term debt and current portion of long-term debt							63.7			10.1
Total Current Liabilities	673.6			708.7			759.9			712.6
Long-term debt	1,877.7			1,771.9			1,535.3			1,530.6
Accrued postretirement benefits	303.2			317.7			311.4			317.8
Pension liabilities	678.2			827.9			687.2			697.0
Deferred income taxes	14.1			15.6			10.7			9.7
Long-term contract liabilities							19.7			—
Other long-term liabilities	80.8			83.4			62.5			73.2
Total Liabilities	3,627.6			3,725.2			3,386.7			3,340.9
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-109,695,171 shares at September 30, 2017 and December 31, 2016; outstanding-108,863,099 shares at September 30, 2017 and 108,925,254 shares at December 31, 2016	11.0			11.0
Common stock, par value $0.10: authorized-500,000,000 shares; issued-126,695,171 shares at March 31, 2018 and December 31, 2017; outstanding-125,647,226 shares at March 31, 2018 and 125,857,197 shares at December 31, 2017							12.7			12.7
Additional paid-in capital	1,196.4			1,188.8			1,599.5			1,596.3
Retained earnings	1,182.6			1,277.1			1,257.8			1,184.3
Treasury stock: 832,072 shares at September 30, 2017 and 769,917 shares at December 31, 2016	(25.9		)	(28.0		)
Treasury stock: 1,047,945 shares at March 31, 2018 and 837,974 shares at December 31, 2017							(31.7		)	(26.1		)
Accumulated other comprehensive loss, net of tax	(1,016.3		)	(1,093.7		)	(992.2		)	(1,027.8		)
Total ATI stockholders’ equity	1,347.8			1,355.2			1,846.1			1,739.4
Noncontrolling interests	99.7			89.6			117.2			105.1
Total Equity	1,447.5			1,444.8			1,963.3			1,844.5
Total Liabilities and Equity	$	5,075.1		$	5,170.0		$	5,350.0		$	5,185.4

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of ~~Operations~~Income

(In millions, except per share amounts)

(Unaudited)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Sales $ 869.1
$ 770.5
$ 2,615.2
$ 2,338.5

Cost of sales 775.8
720.3
2,296.8
2,273.3
Gross profit 93.3
50.2
318.4
65.2
Selling and administrative expenses 66.2
60.5
192.4
182.4
Impairment of goodwill 114.4
—
114.4
—
Restructuring charges —
488.6
—
498.6
Operating income (loss) (87.3 ) (498.9 ) 11.6
(615.8 )
Interest expense, net (34.2 ) (32.6 ) (102.2 ) (91.2 )
Other income, net 0.2
—
3.7
1.8
Loss before income taxes (121.3 ) (531.5 ) (86.9 ) (705.2 )
Income tax benefit (1.9 ) (4.3 ) (2.0 ) (64.4 )
Net loss (119.4 ) (527.2 ) (84.9 ) (640.8 )
Less: Net income attributable to noncontrolling interests 1.8
3.6
8.7
10.0
Net loss attributable to ATI $ (121.2 ) $ (530.8 ) $ (93.6 ) $ (650.8 )

Basic net loss attributable to ATI per common share $ (1.12 ) $ (4.95 ) $ (0.87 ) $ (6.07 )

Diluted net loss attributable to ATI per common share $ (1.12 ) $ (4.95 ) $ (0.87 ) $ (6.07 )

Dividends declared per common share $ —
$ 0.08
$ —
$ 0.24



	Three months ended March 31,
	2018			2017
Sales	$	979.0		$	865.9

Cost of sales	830.4			741.1
Gross profit	148.6			124.8
Selling and administrative expenses	67.1			57.9
Operating income	81.5			66.9
Nonoperating retirement benefit expense	(8.3		)	(13.6		)
Interest expense, net	(25.5		)	(33.5		)
Other income, net	17.8			3.3
Income before income taxes	65.5			23.1
Income tax provision	5.0			2.0
Net income	60.5			21.1
Less: Net income attributable to noncontrolling interests	2.5			3.6
Net income attributable to ATI	$	58.0		$	17.5

Basic net income attributable to ATI per common share	$	0.46		$	0.16

Diluted net income attributable to ATI per common share	$	0.42		$	0.16

Dividends declared per common share	$	—		$	—

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income ~~(Loss)~~

(In millions)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2018			2017
Net loss	$	(119.4	)	$	(527.2	)	$	(84.9	)	$	(640.8	)
Net income													$	60.5		$	21.1
Currency translation adjustment
Unrealized net change arising during the period	24.2			(4.4		)	39.0			(19.6		)	23.6			10.4
Derivatives
Net derivatives gain (loss) on hedge transactions	9.2			4.8			(1.6		)	21.9			3.3			(2.6		)
Reclassification to net income (loss) of net realized loss (gain)	(1.2		)	0.6			(3.5		)	8.5
Reclassification to net income of net realized gain													(3.0		)	(0.9		)
Income taxes on derivative transactions	4.8			2.0			(0.2		)	11.5			—			—
Total	3.2			3.4			(4.9		)	18.9			0.3			(3.5		)
Postretirement benefit plans
Actuarial loss
Amortization of net actuarial loss	17.8			18.7			53.6			56.2			19.2			17.8
Net gain arising during the period	—			—			—			22.5
Prior service cost
Amortization to net income (loss) of net prior service cost (credits)	(0.4		)	(0.4		)	(1.2		)	—
Amortization to net income of net prior service credits													(0.6		)	(0.4		)
Income taxes on postretirement benefit plans	(11.1		)	6.9			1.9			29.8			—			—
Total	28.5			11.4			50.5			48.9			18.6			17.4
Other comprehensive income, net of tax	55.9			10.4			84.6			48.2			42.5			24.3
Comprehensive loss	(63.5		)	(516.8		)	(0.3		)	(592.6		)
Comprehensive income													103.0			45.4
Less: Comprehensive income attributable to noncontrolling interests	6.8			2.0			15.9			5.4			9.4			5.6
Comprehensive loss attributable to ATI	$	(70.3	)	$	(518.8	)	$	(16.2	)	$	(598.0	)
Comprehensive income attributable to ATI													$	93.6		$	39.8

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine months ended September 30,						Three months ended March 31,
	2017			2016			2018			2017
Operating Activities:
Net loss	$	(84.9	)	$	(640.8	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net income							$	60.5		$	21.1
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	120.7			130.2			39.8			40.3
Deferred taxes	1.7			(78.1		)	(0.2		)	1.2
Impairment of goodwill	114.4			—
Non-cash restructuring charges	—			471.3
Gain on joint venture deconsolidation							(15.9		)	—
Changes in operating assets and liabilities:
Inventories	(64.1		)	192.7			(108.4		)	(14.9		)
Accounts receivable	(73.8		)	(53.7		)	(61.7		)	(52.5		)
Accounts payable	56.2			(60.2		)	79.8			47.2
Retirement benefits (a)	(117.6		)	(94.6		)	0.5			(128.1		)
Accrued income taxes	(4.6		)	7.7			2.4			(0.3		)
Accrued liabilities and other	(1.8		)	13.8			(43.9		)	(24.2		)
Cash used in operating activities	(53.8		)	(111.7		)	(47.1		)	(110.2		)
Investing Activities:
Purchases of property, plant and equipment	(85.3		)	(174.9		)	(41.6		)	(24.8		)
Asset disposals and other	3.2			2.1			0.1			2.6
Cash used in investing activities	(82.1		)	(172.8		)	(41.5		)	(22.2		)
Financing Activities:
Borrowings on long-term debt	8.5			387.5			6.4			—
Payments on long-term debt and capital leases	(1.9		)	(2.4		)	(1.3		)	(0.3		)
Net borrowings under credit facilities	28.0			2.4			50.9			67.7
Debt issuance costs	(0.8		)	(10.4		)
Dividends paid to stockholders	—			(25.8		)
Dividends paid to noncontrolling interests	—			(16.0		)
Acquisition of noncontrolling interests	—			(12.2		)
Sale to noncontrolling interests	2.2			—
Sales to noncontrolling interests							7.4			—
Shares repurchased for income tax withholding on share-based compensation and other	(4.8		)	—			(6.5		)	(4.8		)
Cash provided by financing activities	31.2			323.1			56.9			62.6
Increase (decrease) in cash and cash equivalents	(104.7		)	38.6
Decrease in cash and cash equivalents							(31.7		)	(69.8		)
Cash and cash equivalents at beginning of period	229.6			149.8			141.6			229.6
Cash and cash equivalents at end of period	$	124.9		$	188.4		$	109.9		$	159.8

(a) Includes a $(135) million contribution to the U.S. defined benefit pension plan in ~~2017 and a $(115) million contribution to the U.S. defined benefit pension plan in 2016.~~2017.

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Statements of Changes in Consolidated Equity

(In millions, except per share amounts)

(Unaudited)

ATI Stockholders

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Non-
controlling
Interests

Total
Equity
Balance, December 31, 2015 $ 11.0
$ 1,161.7
$ 1,945.9
$ (21.3 ) $ (1,014.5 ) $ 101.6
$ 2,184.4
Net income (loss) —
—
(650.8 ) —
—
10.0
(640.8 )
Other comprehensive income (loss) —
—
—
—
52.8
(4.6 ) 48.2
Cash dividends on common stock ($0.24 per share) —
—
(25.8 ) —
—
—
(25.8 )
Purchase of subsidiary shares from noncontrolling interest —
—
—
—
—
(0.1 ) (0.1 )
Dividends to noncontrolling interests —
—
—
—
—
(16.0 ) (16.0 )
Employee stock plans —
21.6
(2.2 ) (6.6 ) —
—
12.8
Balance, September 30, 2016 $ 11.0
$ 1,183.3
$ 1,267.1
$ (27.9 ) $ (961.7 ) $ 90.9
$ 1,562.7
Balance, December 31, 2016 $ 11.0
$ 1,188.8
$ 1,277.1
$ (28.0 ) $ (1,093.7 ) $ 89.6
$ 1,444.8
Net income (loss) —
—
(93.6 ) —
—
8.7
(84.9 )
Other comprehensive income —
—
—
—
77.4
7.2
84.6
Dividends to noncontrolling interests —
—
—
—
—
(8.0 ) (8.0 )
Sales of subsidiary shares to noncontrolling interest —
—
—
—
—
2.2
2.2
Employee stock plans —
7.6
(0.9 ) 2.1
—
—
8.8
Balance, September 30, 2017 $ 11.0
$ 1,196.4
$ 1,182.6
$ (25.9 ) $ (1,016.3 ) $ 99.7
$ 1,447.5



	ATI Stockholders
	Common Stock		Additional Paid-In Capital			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests		Total Equity
Balance, December 31, 2016	$	11.0	$	1,188.8		$	1,277.1	$	(28.0	)	$	(1,093.7	)	$	89.6	$	1,444.8
Net income	—		—			17.5		—			—			3.6		21.1
Other comprehensive income	—		—			—		—			22.3			2.0		24.3
Employee stock plans	—		(1.7		)	—		0.9			—			—		(0.8		)
Balance, March 31, 2017	$	11.0	$	1,187.1		$	1,294.6	$	(27.1	)	$	(1,071.4	)	$	95.2	$	1,489.4
Balance, December 31, 2017	$	12.7	$	1,596.3		$	1,184.3	$	(26.1	)	$	(1,027.8	)	$	105.1	$	1,844.5
Net income	—		—			58.0		—			—			2.5		60.5
Other comprehensive income	—		—			—		—			35.6			6.9		42.5
Cumulative effect of adoption of new accounting standard	—		—			15.5		—			—			—		15.5
Sales of subsidiary shares to noncontrolling interest	—		—			—		—			—			2.7		2.7
Employee stock plans	—		3.2			—		(5.6		)	—			—		(2.4		)
Balance, March 31, 2018	$	12.7	$	1,599.5		$	1,257.8	$	(31.7	)	$	(992.2	)	$	117.2	$	1,963.3

The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1. Accounting Policies

The interim consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries. Unless the context requires otherwise, “Allegheny Technologies”, “ATI” and “the Company” refer to Allegheny Technologies Incorporated and its subsidiaries.

These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2016~~2017 Annual Report on Form 10-K. The results of operations for these interim periods are not necessarily indicative of the operating results for any future period. The December 31, ~~2016~~2017 financial information has been derived from the Company’s audited consolidated financial statements.

New Accounting Pronouncements Adopted

In January ~~2017,~~2018, the Company ~~early~~ adopted changes issued by the Financial Accounting Standards Board (FASB) related to ~~simplify how an entity is required~~revenue recognition with customers. See Note 2 for further explanation related to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill, which is currently required if a reporting unit with goodwill fails a Step 1 test comparing the fair value of the reporting unit to its carrying valuethis adoption, including goodwill. Under this new guidance, an entity should perform its annual, or interim, goodwill impairment test using just the Step 1 test of comparing the fair value of a reporting unit with its carrying amount. Any goodwill impairment, representing the amount by which the carrying amount exceeds the reporting unit’s fair value, is determined using this Step 1 test. Any goodwill impairment loss recognized would not exceed the total carrying amount of goodwill allocated to that reporting unit.all newly expanded disclosure requirements.

In January ~~2017,~~2018, the Company adopted changes issued by the FASB related to ~~simplify employee share-based payment accounting. The areas for simplification in this guidance involve several aspects of~~changes to the accounting for ~~share-based payment transactions, including~~defined benefit pension and other postretirement benefit expenses. This new guidance requires the ~~income tax consequences, classification~~disaggregation of ~~awards as either equity or liabilities, and classification~~the service cost component from the other components of net benefit cost. The service cost component of net benefit cost is to be reported in the same line item on the consolidated statement of ~~cash flows, which will~~income as other compensation costs arising from services rendered by the pertinent employees, while the other components of net benefit cost are to be ~~prospectively adopted.~~presented in the consolidated statement of income separately, outside a subtotal of operating income. The amendments also provide explicit guidance to allow only the service cost component of net benefit cost to be eligible for capitalization. With this adoption, the change in presentation of ~~these changes~~net benefit cost in the consolidated statement of income was applied retrospectively, and the change in capitalization for only service cost was applied prospectively. The Company adopted this new guidance using the practical expedient that permits the use of the amounts disclosed in the retirement benefits footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. This required accounting change did ~~not~~ have a material impact onto previously-reported operating income in the ~~Company’s~~consolidated statement of income due to the change in presentation of non-service cost expense components. For the first quarter 2017, applying the practical expedient, operating income was $13.6 million higher with the reclassification of this amount representing the other components of net benefit cost to a newly-created nonoperating retirement benefit expense category. There was no net impact to the reported income before income taxes as a result of this accounting change. This change in presentation of net benefit cost did not affect ATI’s measure of segment operating profit; all defined benefit pension and other postretirement benefit expense attributable to business segment operations remains a component of business segment financial ~~statements.~~performance. The Company did have a one-time, unfavorable impact of $5.4 million to pre-tax reported results in the first quarter of 2018 upon adoption, primarily affecting the Flat Rolled Products business segment, due to the change limiting only the service cost component of net benefit cost to be capitalizable into inventory.

In January ~~2017,~~2018, the Company early adopted changes issued by the FASB related to simplify the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. This change in the measurement of inventory does not apply to inventory valued on a last-in, first-out (LIFO) basis, which is the accounting basis used for most of the Company’s inventory. The adoption of these changes did not have a material impact on the Company’s financial statements.

~~Pending Accounting Pronouncement~~

~~In August 2017, the FASB issued~~ changes to its accounting guidance for derivatives and hedging, which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Some changes resulting from this new guidance include the elimination of the concept of recognizing periodic hedge ineffectiveness for cash flow hedges, changes to the recognition and presentation of changes in the fair value of the hedging instrument, enhancement of the ability to use the critical-terms-match method for the cash flow hedge of groups of forecasted transactions when the timing of the hedged transactions does not perfectly match the hedging instrument’s maturity date, and the addition of new disclosure requirements and amendments to existing ones. ~~This~~The Company applied this new guidance ~~is effective for the Company’s 2019 fiscal year, with early adoption permitted and all transition requirements and elections being applied~~ to hedging relationships existing on January 1, 2018, the date of adoption. The ~~Company is currently evaluating~~adoption of these changes did not have a material impact on the ~~impact~~Company's financial statements, and disclosures in Note 7 reflect the requirements of ~~the new guidance on its consolidated financial statements.~~this adoption.

In March 2017, the FASB issued changes to the accounting for defined benefit pension and other postretirement benefit expenses. This new guidance requires the disaggregation of the service cost component from the other components of net benefit cost. The service cost component of net benefit cost is to be reported in the same line item on the consolidated statement of operations as other compensation costs arising from services rendered by the pertinent employees, while the other components of net benefit cost are to be presented in the consolidated statement of operations separately, outside a subtotal of operating income. The amendments also provide explicit guidance to allow only the service cost component of net benefit cost to be eligible for capitalization. This new guidance is effective for the Company’s 2018 fiscal year, with the adoption of the change in presentation of net benefit cost in the consolidated statement of operations to be applied retrospectively, and the change in capitalization for only service cost applied prospectively. The guidance allows a practical expedient that permits the use of the amounts disclosed in the retirement benefits footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company will adopt this new guidance in the first quarter of fiscal year 2018 using this practical expedient.

The Company expects such adoption to have a material impact to reported operating income due to the change in presentation of non-service cost expense components. For example, applying the practical expedient to fiscal year 2016 results, operating income for 2016 would be $70.6 million higher, with the reclassification of this amount representing the other components of net benefit cost to a newly-created non-operating retirement benefit expense category, with no net impact to the reported 2016 loss before income taxes. The Company expects to have a one-time, unfavorable impact to pre-tax reported results in the first quarter of 2018 upon adoption due to the change limiting only the service cost component of net benefit cost to be capitalizable into inventory. Using expected fiscal year 2017 defined benefit retirement expense and current inventory levels, this impact in the first quarter of 2018 is projected to be approximately $5 million, pre-tax.Pending Accounting Pronouncement

In February 2016, the FASB issued new guidance on the accounting for leases. This new guidance will require that a lessee

recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result

being the recognition of a right of use asset and a lease liability. The new lease accounting requirements are effective for ~~the Company’s~~ATI’s 2019 fiscal year with a modified retrospective transition approach required. The Company is currently in the process of evaluating its existing lease portfolio, including accumulating all of the necessary information required ~~with early adoption permitted.~~to properly account for the leases under the new standard. In addition, ATI is implementing a company-wide lease management system to assist in the accounting and is evaluating additional changes to the processes and internal controls to ensure the standard’s reporting and disclosure requirements are met. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

~~In May 2014, the FASB issued changes to revenue recognition~~Note 2. Revenue from Contracts with ~~customers, which is required to be adopted by~~Customers

Accounting Policy

On January 1, 2018, the Company ~~in fiscal year 2018.~~adopted Accounting Standards Codification Topic 606 (ASC 606), Revenue from Contracts with Customers. This ~~update~~new guidance provides a five-step analysis of transactions to determine when and how revenue is recognized, ~~along with expanded disclosure requirements. An~~and requires an entity ~~should~~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 new five-step analysis for revenue recognition:

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) 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, which typically extend multiple years. 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”.

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 that the Company typically has 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.

Recognize revenue when or as the performance obligation is satisfied: Performance obligations generally occur at a point in time and are satisfied when control passes to the customer. For most transactions, control passes at the time of shipment in accordance with agreed upon delivery terms. On occasion, shipping and handling charges occur after the customer obtains control of the good. When this occurs, the shipping and handling services are considered activities to fulfill the promise to transfer the good. This approach is consistent with our revenue recognition approach in prior years.

The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2018. Although the Company is currently evaluating the impact of this standard on individual customer contracts, the Company has evaluated the impact of this standard on the broad categories of its customer contracts and anticipates the adoption of this guidance will not have a material impact on the consolidated results of operations. The Company is still evaluating a limited number ofseveral customer agreements involving production of parts and components in the High Performance Materials and Components segment ~~representing less than 5% of annualized 2017 revenues,~~ that ~~may~~ require revenue to be recognized over time in accordance with the new guidance 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.

Over-time recognition ~~would be~~was a change from ~~current~~the accounting for these products, which was point-in-time, prior to the adoption of the new standard. The Company uses an input method for determining the amount of revenue, and associated standard cost, to recognize over-time revenue, cost and gross margin for these customer agreements. The input methods used for these agreements include costs incurred and labor hours expended, both of which give an accurate representation of the progress made toward complete satisfaction of that particular performance obligation.

Contract assets are recognized when ATI’s conditional right to consideration for goods or services have transferred to the customer. A conditional right indicates that additional performance obligations associated with the contract are yet to be satisfied. Contract assets are assessed separately for impairment purposes. If ATI’s right to consideration from the customer is unconditional, this asset is accounted for as a receivable and presented separately from other contract assets. A right is unconditional if nothing other than the passage of time is required before payment of that consideration is due. Performance obligations that are recognized as revenue at a point-in-time and are billed to the customer are recognized as accounts receivable. Payment terms vary from customer to customer depending upon credit worthiness, prior payment history and other credit considerations.

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 ~~these~~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 ~~however, based~~under the supply arrangement. Contract costs are classified as non-current assets and amortized to expense on ~~ongoing production~~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.

Adoption Method and Impact

The Company applied ASC 606 to all contracts not completed at January 1, 2018 and adopted the accounting standard using the modified retrospective method, with the cumulative effect of initially applying ASC 606 recognized at the beginning of the 2018 fiscal year. Comparative information has not been adjusted and continues to be reported under the previous accounting guidance. The Company recognized a $15.5 million increase to retained earnings at the beginning of the 2018 fiscal year for the cumulative effect of adoption of this standard, representing the favorable impact to prior results had the over-time revenue recognition for several customer agreements, as discussed above, been applied. Contract assets of $49.7 million were recorded, along with a $34.2 million reduction to work-in-process inventory as a result of the ASC 606 adoption using the modified retrospective method. A portion of the cumulative effect impact of over-time revenue recognition related to inventory that is valued utilizing the last-in, first-out (LIFO) costing methodology. As such, an $11.8 million adjustment to the LIFO inventory valuation balance was required, with an equal and offsetting adjustment to net realizable value (NRV) inventory reserves, resulting in no net cumulative effect retained earnings impact for LIFO using the modified retrospective adoption method. See Note 3 for further information on inventory.

In addition, as a result of this over-time recognition of these ~~products,~~customer agreements, first quarter 2018 sales and cost of sales on the ~~impact to the~~consolidated statement of ~~operations is not expected~~income were $0.8 million higher and $1.0 million lower, respectively, as compared to ~~be material. The Company does expect an impact to~~what those amounts would have been under the previous revenue recognition guidance. On the consolidated balance sheet, ~~for reclassifications~~inventories, net, were $1.0 million higher at March 31, 2018 as compared to what this amount would have been under the previous guidance. Also, $50.5 million of contract assets were recognized on the consolidated balance sheet at March 31, 2018 ($34.4 million in short-term contract assets and $16.1 million in long-term contract assets) related to this over-time revenue recognition.

Also, as of January 1, 2018, amounts related largely to cash in advance from customers and progress billings were reclassified on the consolidated balance sheet to contract assets and liabilities in accordance with the ~~magnitude of which is still being determined. The Company also expects~~new accounting guidance. Such reclassification resulted in a $3.9 million increase in accounts receivable, $28.8 million increase in inventories, net, $44.8 million decrease in accrued liabilities, and $10.7 million decrease in other-long term liabilities on January 1, 2018, with an offsetting increase ~~to financial statement footnote disclosures regarding revenues,~~in contract assets and liabilities ($3.7 million in short-term contracts assets, $69.7 million in short-term contract liabilities and $22.2 million in other long-term liabilities). There was no impact to cash flow from operating activities on the consolidated statement of cash flows as a result of this accounting standard ~~update.~~adoption. As of March 31, 2018, accounts receivable were higher by $4.3 million, inventories were higher by $23.5 million, accrued liabilities were lower by $43.6 million, and other long-term liabilities were lower by $10.3 million due to these reclassifications to contract assets and

liabilities ($4.2 million in short-term contract assets, $66.2 million short-term contract liabilities and $19.7 million in long-term contract liabilities).

Disaggregation of Revenue

The Company operates in two business segments; High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). Revenue is disaggregated within these two business segments by diversified global markets, primary geographical markets, and diversified products. Comparative information of the Company’s overall revenues (in millions) by global and geographical markets for the quarters ended March 31, 2018 and 2017 were as follows:



(in millions)	First quarter ended
	March 31, 2018						March 31, 2017
	HPMC		FRP		Total		HPMC		FRP		Total
Diversified Global Markets:
Aerospace & Defense	$	426.7	$	35.7	$	462.4	$	381.4	$	35.8	$	417.2
Oil & Gas	15.2		137.5		152.7		16.5		76.3		92.8
Automotive	2.6		76.5		79.1		2.0		73.9		75.9
Electrical Energy	30.8		21.4		52.2		29.6		22.0		51.6
Medical	41.2		3.7		44.9		47.1		3.1		50.2
Total Key Markets	516.5		274.8		791.3		476.6		211.1		687.7
Food Equipment & Appliances	0.1		58.8		58.9		0.3		58.7		59.0
Construction/Mining	17.6		38.0		55.6		11.5		38.5		50.0
Electronics/Computers/Communications	1.5		31.4		32.9		1.2		33.3		34.5
Other	25.0		15.3		40.3		20.8		13.9		34.7
Total	$	560.7	$	418.3	$	979.0	$	510.4	$	355.5	$	865.9



(in millions)	First quarter ended
	March 31, 2018						March 31, 2017
	HPMC		FRP		Total		HPMC		FRP		Total
Primary Geographical Market:
United States	$	289.8	$	264.5	$	554.3	$	275.2	$	249.8	$	525.0
Europe	197.0		28.5		225.5		161.0		25.4		186.4
Asia	48.3		102.5		150.8		42.1		60.6		102.7
Canada	16.6		10.6		27.2		17.1		6.8		23.9
South America, Middle East and other	9.0		12.2		21.2		15.0		12.9		27.9
Total	$	560.7	$	418.3	$	979.0	$	510.4	$	355.5	$	865.9

Comparative information of the Company’s major high-value and standard products based on their percentages of total sales is as follows:



	First quarter ended
	March 31, 2018						March 31, 2017
	HPMC		FRP		Total		HPMC		FRP		Total
Diversified Products and Services:
High-Value Products
Nickel-based alloys and specialty alloys	29	%	31	%	29	%	30	%	20	%	26	%
Precision forgings, castings and components	38	%	—	%	21	%	31	%	—	%	18	%
Titanium and titanium-based alloys	24	%	5	%	16	%	28	%	4	%	18	%
Precision and engineered strip	—	%	31	%	13	%	—	%	35	%	14	%
Zirconium and related alloys	9	%	—	%	5	%	11	%	—	%	6	%
Total High-Value Products	100	%	67	%	84	%	100	%	59	%	82	%
Standard Products
Stainless steel sheet	—	%	20	%	9	%	—	%	24	%	10	%
Specialty stainless sheet	—	%	9	%	4	%	—	%	12	%	5	%
Stainless steel plate and other	—	%	4	%	3	%	—	%	5	%	3	%
Total Standard Products	—	%	33	%	16	%	—	%	41	%	18	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

The Company maintains a backlog of confirmed orders totaling $2.05 billion and $1.84 billion at March 31, 2018 and 2017, respectively. Due to the structure of the Company’s LTAs, 77% of this backlog represents booked orders with performance obligations that will be satisfied within the next twelve months. The backlog does not reflect any elements of variable consideration.

Contract balances

As of March 31, 2018 and December 31, 2017, accounts receivable with customers were $611.6 million and $550.9 million, respectively. The following represents the rollforward of accounts receivable - reserve for doubtful accounts and contract assets and liabilities for the first quarter ended March 31, 2018:



(in millions)
Accounts Receivable - Reserve for Doubtful Accounts
Balance as of January 1, 2018	$	5.9
Expense to increase the reserve	(0.3		)
Write-off of uncollectible accounts	0.3
Balance as of March 31, 2018	$	5.9



(in millions)
Contract Assets
Short-term
Balance as of January 1, 2018	$	36.5
Recognized in current year	23.4
Reclassified to accounts receivable	(22.1		)
Impairment	—
Reclassification to/from long-term	0.8
Balance as of March 31, 2018	$	38.6

Long-term
Balance as of January 1, 2018	$	16.9
Recognized in current year	—
Reclassified to accounts receivable	—
Impairment	—
Reclassification to/from short-term	(0.8		)
Balance as of March 31, 2018	$	16.1



(in millions)
Contract Liabilities
Short-term
Balance as of January 1, 2018	$	69.7
Recognized in current year	8.4
Amounts in beginning balance reclassified to revenue	(14.1		)
Current year amounts reclassified to revenue	(0.3		)
Other	—
Reclassification to/from long-term	2.5
Balance as of March 31, 2018	$	66.2

Long-term
Balance as of January 1, 2018	$	22.2
Recognized in current year	0.2
Amounts in beginning balance reclassified to revenue	(0.2		)
Current year amounts reclassified to revenue	—
Other	—
Reclassification to/from short-term	(2.5		)
Balance as of March 31, 2018	$	19.7

Contract costs for obtaining and fulfilling a contract were $5.4 million as of March 31, 2018, which are reported in other long-term assets on the consolidated balance sheet. Amortization expense for the first quarter ended March 31, 2018 of these contract costs was $0.3 million.

Note 2.3. Inventories

Inventories at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows (in millions):


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Raw materials and supplies	$	157.4		$	149.6		$	175.7		$	162.8
Work-in-process	887.3			837.9			931.8			955.5
Finished goods	164.8			161.7			181.2			165.0
Total inventories at current cost	1,209.5			1,149.2			1,288.7			1,283.3
Adjustment from current cost to LIFO cost basis	45.8			97.3			23.1			43.1
Inventory valuation reserves	(118.7		)	(169.0		)	(101.0		)	(121.5		)
Progress payments	(35.5		)	(40.5		)	—			(28.8		)
Total inventories, net	$	1,101.1		$	1,037.0		$	1,210.8		$	1,176.1

Inventories are stated at the lower of cost (LIFO, first-in, first-out (FIFO), and average cost methods) or market, less progress payments. 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. 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, a ~~net realizable value (NRV)~~NRV inventory reserve is required. Impacts to cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as follows (in millions):


	Nine months ended September 30,						Three months ended March 31,
	2017			2016			2018			2017
LIFO benefit (charge)	$	(51.5	)	$	(23.1	)	$	(8.2	)	$	(8.1	)
NRV benefit (charge)	51.3			23.5			8.2			8.1
Net cost of sales impact	$	(0.2	)	$	0.4		$	—		$	—

~~The first nine months~~As a result of ~~2016 results included $17.7~~the adoption of ASC 606 on revenue recognition on January 1, 2018, progress payments were reclassified on the consolidated balance sheet from inventories to contract liabilities. In addition, a cumulative effect adjustment for the ASC 606 adoption relating to contracts requiring over-time revenue recognition resulted in a $34.2 million inreduction to work-in-process inventory ~~valuation charges related~~at the January 1 adoption date. A portion of that inventory is valued utilizing the LIFO costing methodology. As

such, an $11.8 million reduction to the ~~market-based~~LIFO valuation ~~of titanium products. Additionally,~~balance was required, with an offsetting $11.8 million adjustment to the NRV reserve, resulting in ~~the third quarter of 2016, in conjunction with the indefinite idling~~no retained earnings impact. See Note 2 for further explanation of the Company’s Rowley, UT titanium sponge facility, the Company recorded an additional $11.3 million charge to revalue titanium sponge inventory based on revised assessments of industrial grade titanium market conditions and expected utilization of this inventory.ASC 606 adoption.

Note 3.4. Property, Plant and Equipment

Property, plant and equipment at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was as follows (in millions):


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Land	$	31.7		$	31.4		$	31.9		$	31.7
Buildings	842.9			829.6			849.1			844.5
Equipment and leasehold improvements	3,562.6			3,497.2			3,618.1			3,597.6
	4,437.2			4,358.2			4,499.1			4,473.8
Accumulated depreciation and amortization	(1,946.3		)	(1,859.3		)	(2,008.4		)	(1,978.1		)
Total property, plant and equipment, net	$	2,490.9		$	2,498.9		$	2,490.7		$	2,495.7

The construction in progress portion of property, plant and equipment at ~~September 30, 2017~~March 31, 2018 was $~~71.8~~111.7 million.

Note ~~4. Goodwill Impairment~~5. Joint Ventures

~~At September 30,~~

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 income as net income attributable

to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity.

Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50%

ownership interest) are accounted for under the equity method of accounting.

Majority-Owned Joint Ventures

The Company has a 60% interest in the Chinese joint venture known as Shanghai STAL Precision Stainless Steel Company

Limited (STAL). The remaining 40% interest in STAL is owned by China Baowu Steel Group Corporation Limited, a state

authorized investment company whose equity securities are publicly traded in the People’s Republic of China. STAL is part of

ATI’s Flat Rolled Products segment, and manufactures Precision Rolled Strip stainless products mainly for the electronics,

communication equipment, computers and automotive markets located in Asia. Cash and cash equivalents held by STAL as of

March 31, 2018 were $40.8 million.

During 2017, the Company ~~had $531.9~~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. Cash and cash equivalents

held by this joint venture as of March 31, 2018 were $12.0 million. During the first quarter of 2018, the Company received $2.7 million for the sale of noncontrolling interest related to Next Gen Alloys LLC which is reported as a financing activity on the consolidated statements of cash flows.

Equity Method Joint Ventures

On March 1, 2018, the Company announced the formation of the Allegheny & Tsingshan Stainless (A&T Stainless) joint venture with an affiliate company of Tsingshan Group (Tsingshan) to produce 60-inch wide stainless sheet products for sale in North America. Tsingshan purchased a 50% joint venture interest in A&T Stainless for $17.5 million, of ~~goodwill on its consolidated balance sheet, all of~~ which ~~relates to the High Performance Materials & Components (HPMC) segment. Goodwill decreased $110.0~~$5.0 million ~~at September 30, 2017 compared to December 31, 2016, resulting from a $114.4 million impairment charge~~was received in the ~~HPMC segment offset by $4.4 million 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~~first quarter of each year. During the third quarter of 2017, the Company performed an interim goodwill impairment analysis on ATI Cast Products, a titanium investment casting business, due to impairment indicators including lower actual results versus projections. This reporting unit had a fair value that exceeded carrying value by 12%2018 and reported as a ~~result~~financing activity on the consolidated statements of ~~our 2016 annual goodwill impairment evaluation. For~~cash flows. The remaining $12.5 million will be paid in installments during the ~~2017 interim impairment analysis, fair value was determined by~~remainder of 2018. The A&T Stainless operations include the Company’s previously-idled direct roll and pickle (DRAP) facility in Midland, PA. ATI provides hot-rolling conversion services to A&T Stainless using ~~a quantitative assessment that used a discounted cash flow technique, which represents Level 3 unobservable information in~~ the ~~fair value hierarchy.~~FRP segment’s Hot-Rolling and Processing Facility. As a result of this sale of a 50% noncontrolling interest and the ~~2017 interim goodwill impairment evaluation,~~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 ~~that~~to be a business. The gain, including ATI’s retained 50% share, was based on the fair value of the ~~Cast Products business was significantly below~~joint venture, as determined by the ~~carrying value, including goodwill. This was primarily due to lower projected revenues, profitability and~~ cash ~~flows associated with revised expectations~~purchase price for the ~~rate~~noncontrolling interest, and is reported in other income, net on the consolidated statement of ~~operational improvement~~income, and ~~profitability~~is excluded from FRP segment results. Following this deconsolidation, ATI accounts for the A&T Stainless joint venture under the equity method of ~~this business based on current customer agreements. Consequently, during the third quarter of 2017, the Company recorded a $114.4 million pre-tax impairment charge to write-off all~~accounting. ATI’s share of the ~~goodwill associated~~A&T Stainless joint

venture results was a $0.6 million loss for the three months ended March 31, 2018, which is included in the FRP segment’s operating results, and within other income, net on the consolidated statements of income.

ATI has a 50% interest in the industrial titanium joint venture known as Uniti LLC (Uniti), with ~~ATI Cast Products, most~~the remaining 50% interest

held by VSMPO, a Russian producer of ~~which~~titanium, aluminum, and specialty steel products. Uniti is accounted for under the

equity method of accounting. ATI’s share of Uniti’s income was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes. This goodwill impairment charge was excluded from 2017 HPMC business segment results. Accumulated goodwill impairment losses as of September 30, 2017 and December 31, 2016 were $241.0$0.5 million and ~~$126.6~~$0.2 million ~~respectively.~~

~~Also during~~for the ~~third quarter~~three months ended March 31, 2018 and 2017, respectively, which is included in the FRP segment’s operating results, and within other income, net in the three months ended March 31, 2018 on the consolidated statements of income. This equity income was previously classified in cost of sales for the three months ended March 31, 2017 ~~management concluded that~~on the ~~goodwill impairment at ATI Cast Products was an impairment indicator to evaluate the recoverability~~consolidated statements of other long-lived assets of this reporting unit, including property, plant, equipment, and intangible assets. No impairment was determined to exist in these long-lived assets as a result of this interim impairment test.income.

Note 5.6. Debt

Debt at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was as follows (in millions):


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Allegheny Technologies 5.875% Notes due 2023 (a)	$	500.0		$	500.0		$	500.0		$	500.0
Allegheny Technologies 5.95% Notes due 2021	500.0			500.0			500.0			500.0
Allegheny Technologies 9.375% Notes due 2019	350.0			350.0
Allegheny Technologies 4.75% Convertible Senior Notes due 2022	287.5			287.5			287.5			287.5
Allegheny Ludlum 6.95% debentures due 2025	150.0			150.0			150.0			150.0
Term Loan due 2022	100.0			100.0			100.0			100.0
U.S. revolving credit facility	25.0			—			50.0			—
Foreign credit facilities	7.7			4.4			7.4			6.3
Other	9.1			2.2			16.6			10.0
Debt issuance costs	(15.2		)	(17.1		)	(12.5		)	(13.1		)
Total debt	1,914.1			1,877.0			1,599.0			1,540.7
Short term debt and current portion of long-term debt	36.4			105.1
Short-term debt and current portion of long-term debt							63.7			10.1
Total long-term debt	$	1,877.7		$	1,771.9		$	1,535.3		$	1,530.6


~~(a)~~	~~Bearing interest at 7.875% effective February 15, 2016.~~

(a) Bearing interest at 7.875% effective February 15, 2016.

Revolving Credit Facility

The Company has ana $500 million 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 February 2022, includes a $400 million revolving credit ~~portion of the ABL~~ facility, ~~is $400 million, which includes~~ a letter of credit sub-facility of up to $200 ~~million. The ABL facility includes~~million, and a $100.0 million term loan (Term Loan). The Term Loan has an interest rate of 3.0% plus a LIBOR spread and can be prepaid in ~~the amount~~increments of ~~$100.0 million.~~$50 million if certain minimum liquidity conditions are satisfied.

interest rate spreads based on available borrowing capacity that range between 1.75% and 2.25% for LIBOR-based borrowings and between 1.0% and 1.5% for base rate borrowings. The ABL facility contains a financial covenant whereby the Company must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10%~~, as amended,~~ of the then applicable maximum borrowing amount under the revolving credit portion of the ABL and any outstanding Term Loan balance, or (ii) $40.0 million. The Company ~~does not meet this required~~was in compliance with the fixed charge coverage ratio covenant at ~~September 30, 2017. As a result, the Company is not able to access $50.0 million of the revolving credit portion of the ABL facility until it meets the required ratio.~~March 31, 2018. Additionally, the Company must demonstrate liquidity, as calculated in accordance with the terms of the ABL facility, of ~~at least $500 million on the date that is 91 days prior to June 1, 2019, the maturity date of the 9.375% Senior Notes due 2019 and~~ at least $700 million on the date that is 91 days prior to January 15, 2021, the maturity date of the 5.95% Senior Notes due 2021, and that such liquidity is available at all times thereafter until the ~~9.375% Senior Notes due 2019 and the~~ 5.95% Senior Notes due 2021 are paid in full or refinanced. Costs associated with entering into the ABL amendment were $1.0 million, and are being amortized, along with any previous unamortized deferred costs, to interest expense over the extended term of the facility ending February 2022.

Also in June 2017, the $100.0 million Term Loan was amended to extend the maturity date from November 2017 to February 2022 and to reduce the interest rate to 3.0% plus a LIBOR spread. The amended Term Loan can be prepaid in minimum increments of $50.0 million on or after the earlier of December 2018 or upon refinancing or retirement of the 9.375% Senior Notes due 2019 if certain minimum liquidity conditions are satisfied. The underwriting costs associated with amending the Term Loan were $0.8 million, and are being amortized, along with any previous unamortized deferred costs, to interest expense over the extended term of the loan ending February 2022.

As of ~~September 30, 2017,~~March 31, 2018, there were ~~$25.0~~$50.0 million of outstanding borrowings under the revolving portion of the ABL facility, and ~~$41.5~~$42.3 million was utilized to support the issuance of letters of credit. Average revolving credit borrowings under the ABL facility for the first ~~nine months~~quarters of 2018 and 2017 ~~and 2016~~ were ~~$46~~$53 million and ~~$109~~$4 million, respectively, bearing an average annual interest rate of ~~3.276%~~3.50% and ~~1.757%~~3.43%, respectively.

Note 6.7. 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. In ~~general, hedge effectiveness is determined~~January 2018, the Company early adopted changes issued by ~~examining~~ the ~~relationship between offsetting changes in fair value or cash flows attributable~~FASB related to accounting guidance for derivatives and hedging, which includes, among other things, the item being hedged, and the financial instrument being used for the hedge. Effectiveness is measured utilizing regression analysis and other techniques to determine whether the change in the fair market value or cash flowselimination of the ~~derivative exceeds the change in fair value or~~concept of recognizing periodic hedge ineffectiveness for cash flow ~~of the hedged item. Calculated ineffectiveness, if any, is immediately recognized in the consolidated statements of operations.~~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 ~~September 30, 2017~~March 31, 2018, 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 1715 million pounds of nickel with hedge dates through 2021. The aggregate notional amount hedged is approximately ~~20%~~15% of a single year’s estimated nickel raw material purchase requirements.

At ~~September 30, 2017~~March 31, 2018, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges. ~~In the first nine months of 2016, due to changes in expected operating levels, the Company~~

~~concluded that additional portions of these natural gas hedges for 2016 and the first quarter of 2017 were ineffective based on~~

forecast changes in underlying natural gas usage. The Company recognized $0.4 million and $1.7 million of pre-tax losses for the three and nine months ended September 30, 2016, respectively, for natural gas cash flow hedge ineffectiveness, which is reported in selling and administrative expenses on the consolidated statement of operations. At ~~September 30, 2017,~~March 31, 2018, the Company hedged approximately ~~55%~~35% of the Company’s forecasted domestic requirements for natural gas for the remainder of ~~2017,~~2018, approximately 35% for ~~2018,~~2019, and approximately ~~30%~~15% for ~~2019.~~2020.

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. At March 31, 2018, the Company held euro forward sales contracts designated as cash flow hedges with a notional value of approximately 21 million euros with maturity dates through December 2018. In addition, the Company may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions.

In 2015, the Company net settled substantially all of its foreign currency forward contracts designated as cash flow hedges with 2016 and 2017 maturity dates. The portion of the deferred gains on these settled cash flow hedges determined to be effective is currently recognized in accumulated other comprehensive income and is reclassified to earnings when the underlying transactions occur. As of ~~September 30, 2017~~, the Company held 10.8 million euro notional value of foreign currency forward contracts designated as fair value hedges with maturity dates through 2017. The Company recorded $0.5 million and $2.7 million of charges in the three and nine months ended September 30, 2017, respectively, and $0.5 million and $3.0 million of charges in the three and nine months ended September 30, 2016, respectively, in costs of sales on the consolidated statement of operations for maturities and mark-to-market changes on these fair value hedges.

The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. There were no unsettled derivative financial instruments related to debt balances for the periods presented.

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 are substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible.

The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterparty or by type of item hedged. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data.


(In millions) Asset derivatives		Balance sheet location	September 30, 2017		December 31, 2016			Balance sheet location	March 31, 2018		December 31, 2017
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:						Derivatives designated as hedging instruments:
Foreign exchange contracts		Prepaid expenses and other current assets	$	0.2	$	2.4
Natural gas contacts		Prepaid expenses and other current assets	0.1		0.2			Prepaid expenses and other current assets	0.2		0.1
Nickel and other raw material contracts		Prepaid expenses and other current assets	3.3		2.2			Prepaid expenses and other current assets	10.2		10.5
Foreign exchange contracts		Other assets	—		0.2
Natural gas contracts		Other assets	0.3		0.2			Other assets	0.1		0.3
Nickel and other raw material contracts		Other assets	2.5		3.3			Other assets	5.1		5.5
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments		6.4		8.5		Total derivatives designated as hedging instruments		15.6		16.4
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Foreign exchange contracts		Prepaid expenses and other current assets	0.2		0.6			Prepaid expenses and other current assets	—		0.1
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments		0.2		0.6		Total derivatives not designated as hedging instruments		—		0.1
Total asset derivatives			$	6.6	$	9.1			$	15.6	$	16.5
Liability derivatives		Balance sheet location						Balance sheet location
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:						Derivatives designated as hedging instruments:
Natural gas contracts		Accrued liabilities	$	0.8	$	2.5		Accrued liabilities	$	0.2	$	0.9
Nickel and other raw material contracts		Accrued liabilities	4.8		6.7			Accrued liabilities	1.5		2.1
Foreign exchange contracts		Accrued liabilities	0.7		—			Accrued liabilities	0.6		—
Natural gas contracts		Other long-term liabilities	0.1		—			Other long-term liabilities	0.4		0.3
Nickel and other raw material contracts		Other long-term liabilities	5.7		9.4			Other long-term liabilities	1.6		2.2
Foreign exchange contracts		Other long-term liabilities	—		0.1
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments		12.1		18.7		Total derivatives designated as hedging instruments		4.3		5.5
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Foreign exchange contracts		Accrued Liabilities	0.2		—			Accrued Liabilities	0.2		—
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments		0.2		—		Total derivatives not designated as hedging instruments		0.2		—
Total liability derivatives			$	12.3	$	18.7			$	4.5	$	5.5

For derivative financial instruments that are designated as cash flow hedges, ~~the effective portion of~~ 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. ~~Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period results.~~ 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 March 31, 2018. 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 effecting results of operations or other comprehensive income, when applicable (see Note 1314 for further explanation).

Assuming market prices remain constant with those at ~~September 30, 2017,~~March 31, 2018, a ~~loss~~pre-tax gain of ~~$1.7~~$8.1 million ~~net of tax and excluding income tax valuation allowance changes,~~ is expected to be recognized over the next 12 months.

Activity with regard to derivatives designated as cash flow hedges for the ~~three and~~ ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017 was as follows (in millions):

Amount of Gain (Loss)
Recognized in OCI on
Derivatives
(Effective Portion)

Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion) (a)

Amount of Gain (Loss)
Recognized in Income
on Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing) (b)
Derivatives in Cash Flow Three months ended September 30, Three months ended September 30, Three months ended September 30,
Hedging Relationships 2017 2016 2017 2016 2017 2016
Nickel and other raw material contracts $ 5.6
$ 4.2
$ (0.9 ) $ (2.2 ) $ —
$ —
Natural gas contracts —
(1.2 ) (0.7 ) (1.3 ) —
(0.3 )
Foreign exchange contracts 0.1
—
2.4
3.4
—
—
Total $ 5.7
$ 3.0
$ 0.8
$ (0.1 ) $ —
$ (0.3 )


	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)						Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (a)						Amount of Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (b)					Amount of Gain (Loss) Recognized in OCI on Derivatives						Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
Derivatives in Cash Flow	Nine months ended September 30,						Nine months ended September 30,						Nine months ended September 30,
Hedging Relationships	2017			2016			2017			2016			2017		2016
																		Three months ended March 31,						Three months ended March 31,
Derivatives in Cash Flow Hedging Relationships																		2018			2017			2018			2017
Nickel and other raw material contracts	$	1.2		$	13.0		$	(2.5	)	$	(9.9	)	$	—	$	—		$	3.1		$	0.2		$	2.8		$	(0.6	)
Natural gas contracts	(2.1		)	1.1			(2.8		)	(7.2		)	—		(1.2		)	0.2			(1.6		)	(0.3		)	(1.4		)
Foreign exchange contracts	(0.1		)	(0.5		)	7.5			13.0			—		—			(0.8		)	(0.1		)	(0.2		)	2.6
Total	$	(1.0	)	$	13.6		$	2.2		$	(4.1	)	$	—	$	(1.2	)	$	2.5		$	(1.5	)	$	2.3		$	0.6


(a)	The gains (losses) reclassified from accumulated OCI into income related to ~~the effective portion of~~ the derivatives are presented in cost of sales in the same period or periods in which the hedged item affects earnings.


~~(b)~~	~~The gains (losses) recognized in income on derivatives related to the ineffective portion and the amounts excluded from effectiveness testing are presented in selling and administrative expenses.~~

The disclosures of gains or losses presented above for nickel and other raw material contracts and foreign currency contracts do not take into account the anticipated underlying transactions. Since these derivative contracts represent hedges, the net effect of any gain or loss on results of operations may be fully or partially offset.

The Company has 10 million euro notional value outstanding as of ~~September 30, 2017~~March 31, 2018 of foreign currency forward contracts not designated as hedges, with maturity dates into the ~~second~~fourth quarter of 2018. These derivatives that are not designated as hedging instruments were as follows:


(In millions)	Amount of Gain (Loss) Recognized on Derivatives												Amount of Gain (Loss) Recognized in Income on Derivatives
	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
Derivatives Not Designated as Hedging Instruments	2017			2016			2017			2016			2018			2017
Foreign exchange contracts	$	(0.1	)	$	(0.2	)	$	(0.7	)	$	(0.1	)	$	(0.2	)	$	(0.1	)

Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows.

Note 7.8. Fair Value of Financial Instruments

The estimated fair value of financial instruments at ~~September 30, 2017~~March 31, 2018 was as follows:


			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
(In millions)	Total Carrying Amount		Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Observable Inputs (Level 2)		Total Carrying Amount		Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Observable Inputs (Level 2)
Cash and cash equivalents	$	124.9	$	124.9	$	124.9	$	—	$	109.9	$	109.9	$	109.9	$	—
Derivative financial instruments:
Assets	6.6		6.6		—		6.6		15.6		15.6		—		15.6
Liabilities	12.3		12.3		—		12.3		4.5		4.5		—		4.5
Debt (a)	1,929.3		2,250.7		2,108.9		141.8		1,611.5		1,908.8		1,734.8		174.0

The estimated fair value of financial instruments at December 31, ~~2016~~2017 was as follows:


			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
(In millions)	Total Carrying Amount		Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Total Carrying Amount		Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)
Cash and cash equivalents	$	229.6	$	229.6	$	229.6	$	—	$	141.6	$	141.6	$	141.6	$	—
Derivative financial instruments:
Assets	9.1		9.1		—		9.1		16.5		16.5		—		16.5
Liabilities	18.7		18.7		—		18.7		5.5		5.5		—		5.5
Debt (a)	1,894.1		1,975.0		1,868.4		106.6		1,553.8		1,853.2		1,736.9		116.3


(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.

In accordance with accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards established three levels of a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. No transfers between levels were reported in ~~2017~~2018 or ~~2016.~~2017.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and cash equivalents: Fair value was determined using Level 1 information.

Derivative financial instruments: Fair values for derivatives were measured using exchange-traded prices for the hedged items. The fair value was determined using Level 2 information, including consideration of counterparty risk and the Company’s credit risk.

Short-term and long-term debt: The fair values of the Company’s publicly traded debt were based on Level 1 information. The fair values of the other short-term and long-term debt were determined using Level 2 information.

Note 8.9. Retirement Benefits

The Company has defined contribution retirement plans or defined benefit pension plans covering substantially all employees. Company contributions to defined contribution retirement plans are generally based on a percentage of eligible pay or based on hours worked. Benefits under the defined benefit pension plans are generally based on years of service and/or final average pay. The Company funds the U.S. pension plans in accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code.

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.

For the three month periods ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions):


	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
	Three months ended September 30,						Three months ended September 30,						Three months ended March 31,						Three months ended March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Service cost - benefits earned during the year	$	3.5		$	5.2		$	0.6		$	0.6		$	4.2		$	3.5		$	0.6		$	0.6
Interest cost on benefits earned in prior years	29.2			31.4			3.7			4.0			26.1			29.2			3.1			3.7
Expected return on plan assets	(36.7		)	(37.2		)	—			—			(39.5		)	(36.7		)	—			—
Amortization of prior service cost (credit)	0.3			0.3			(0.7		)	(0.7		)	0.1			0.3			(0.7		)	(0.7		)
Amortization of net actuarial loss	15.6			16.3			2.2			2.4			16.5			15.6			2.7			2.2
Total retirement benefit expense	$	11.9		$	16.0		$	5.8		$	6.3		$	7.4		$	11.9		$	5.7		$	5.8

For the nine month periods ended September 30, 2017 and 2016, the components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions):

Pension Benefits Other Postretirement Benefits
Nine months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Service cost - benefits earned during the year $ 10.5
$ 15.5
$ 1.8
$ 1.9
Interest cost on benefits earned in prior years 87.6
94.1
11.0
12.0
Expected return on plan assets (110.1 ) (111.5 ) —
—
Amortization of prior service cost (credit) 0.9
0.9
(2.1 ) (0.9 )
Amortization of net actuarial loss 46.9
49.0
6.7
7.2
Total retirement benefit expense $ 35.8
$ 48.0
$ 17.4
$ 20.2

~~Effective January 31, 2017, closure of the U.K. defined benefit pension plan to future accruals for service and pay (hard freeze) occurred.~~ In March 2017, the Company made a $135 million cash contribution to the ATI Pension Plan, its U.S. qualified defined benefit pension plan, completing the Company’s funding requirements for 2017. ~~In July 2016, the Company made a $115 million contribution to the ATI Pension Plan.~~

Note 9.10. Income Taxes

The Company maintains income tax valuation allowances on its U.S. Federal and state deferred tax assets due to a three year cumulative loss condition, which limits the ability to consider other positive subjective evidence, such as projections of future results, to assess the realizability of deferred tax assets. Results in both ~~2017~~2018 and ~~2016~~2017 include impacts from income taxes that differ from applicable standard tax rates, primarily related to the income tax valuation allowance. First quarter 2018 results included a ~~standard 35% tax rate,~~provision for income taxes of $5.0 million, or 7.6% of income before income taxes, primarily related to income ~~tax valuation allowance changes. Third~~taxes on non-U.S. operations. The first quarter 2017 ~~results included a benefit~~ provision for income taxes was $2.0 million, or 8.7% of ~~$1.9 million,~~income before income taxes, which ~~includes the impact of $106 million pre-tax non-deductible goodwill impairment and $0.3~~included $1.3 million of discrete tax benefits. The ~~third quarter 2016 benefit~~Company continues to account for ~~income taxes was $4.3 million,~~impacts of the Tax Cuts and Jobs Act (Tax Act) as estimated amounts, pending further information and analysis, which includes ~~a $173.1 million income~~final tax ~~valuation allowance charge on U.S. federal deferred tax assets,~~return filings, analysis of foreign earnings and ~~$4.1 million of~~

~~discrete charges. The third quarter 2016 actions~~profits, and interpretive Internal Revenue Service guidance. At this time, the Company has not made any material adjustments to ~~indefinitely idle~~ the ~~Rowley, UT titanium sponge production facility resulted~~provisional Tax Act impacts recorded in ~~a reassessment of the realizability of U.S. federal deferred tax assets.~~

~~For the first nine months of~~its 2017 the benefit for income taxes was $2.0 million, compared to a benefit for income taxes of $64.4 million, or 9.1% of the loss before income taxes, for the comparable 2016 period. The first nine months of 2017 included discrete tax benefits of $7.0 million, largely for the effects of amending tax returns for prior periods in certain domestic jurisdictions,financial statements, and the ~~first nine months~~Company continues to expect to finalize these provisional amounts by the fourth quarter of ~~2016 included discrete tax expense of $0.5 million.~~

For the three and nine months ended September 30, 2017, the Company determined that it was unable to make a reliable estimate of the annual effective tax rate for the Company's domestic operations, as insignificant changes in projected results for these operations can produce a significant variation in its annual effective tax rate. Therefore, the Company recorded tax expense for these operations for the three and nine months ended September 30, 2017 based on the actual year to date effective rate for these periods.2018.

Note ~~10.~~11. Business Segments

The Company operates in two business segments: High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). The measure of segment operating profit, which is used to analyze the performance and results of the business segments, excludes all effects of LIFO inventory accounting and any related changes in net realizable value inventory reserves which offset the Company’s aggregate net debit LIFO valuation balance, income taxes, corporate expenses, net interest expense, closed operations and other expenses, restructuring and ~~restructuring costs, if any.~~asset impairment charges, and non-operating gains and losses. Management believes segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level. Following is certain financial information with respect to the Company’s business segments for the periods indicated (in millions):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2018		2017
Total sales:
High Performance Materials & Components	$	526.3		$	474.7		$	1,593.3		$	1,493.7		$	579.4	$	523.7
Flat Rolled Products	372.3			321.7			1,118.5			927.2			439.1		373.0
	898.6			796.4			2,711.8			2,420.9			1,018.5		896.7
Intersegment sales:
High Performance Materials & Components	13.4			12.9			43.6			40.5			18.7		13.3
Flat Rolled Products	16.1			13.0			53.0			41.9			20.8		17.5
	29.5			25.9			96.6			82.4			39.5		30.8
Sales to external customers:
High Performance Materials & Components	512.9			461.8			1,549.7			1,453.2			560.7		510.4
Flat Rolled Products	356.2			308.7			1,065.5			885.3			418.3		355.5
	$	869.1		$	770.5		$	2,615.2		$	2,338.5		$	979.0	$	865.9
Operating profit (loss):
High Performance Materials & Components	$	61.7		$	47.0		$	180.6		$	114.9
Flat Rolled Products	(7.3		)	(20.8		)	14.6			(162.2		)
Total operating profit (loss)	54.4			26.2			195.2			(47.3		)
LIFO and net realizable value reserves	(0.1		)	—			(0.2		)	0.4
Corporate expenses	(14.8		)	(9.8		)	(36.9		)	(32.6		)
Closed operations and other expenses	(12.2		)	(15.4		)	(28.4		)	(24.6		)
Impairment of goodwill (See Note 4)	(114.4		)	—			(114.4		)	—
Restructuring and other charges	—			(499.9		)	—			(509.9		)
Interest expense, net	(34.2		)	(32.6		)	(102.2		)	(91.2		)
Loss before income taxes	$	(121.3	)	$	(531.5	)	$	(86.9	)	$	(705.2	)

~~Restructuring~~



	Three months ended March 31,
	2018			2017
Operating profit:
High Performance Materials & Components	$	85.5		$	50.9
Flat Rolled Products	10.9			19.0
Total operating profit	96.4			69.9
LIFO and net realizable value reserves	—			—
Corporate expenses	(13.2		)	(10.3		)
Closed operations and other expenses	(8.1		)	(3.0		)
Gain on joint venture deconsolidation (See Note 5)	15.9			—
Interest expense, net	(25.5		)	(33.5		)
Income before income taxes	$	65.5		$	23.1

Closed operations and other ~~charges~~expenses were higher in the first quarter 2018, compared to the prior year period, primarily due to higher environmental costs, higher real estate costs at closed operations, primarily for the ~~third quarter ended September 30, 2016 primarily relate to the indefinite idling of the~~

Company’s Rowley, UT titanium sponge facility and include $471.3 million of long-lived asset impairment charges, $11.3 million of inventory valuation charges for titanium sponge that are classified in cost of sales, and $17.3 million of facility shutdown, idling and employee benefit costs. The nine months ended September 30, 2016 also include a $9.0 million charge for severance obligations in the FRP operations, and a $1.0 million charge for severance obligations in the HPMC segment.

~~Results for the HPMC segment exclude the~~idled Rowley, UT titanium sponge operations, ~~beginning with~~and negative foreign currency remeasurement impacts primarily related to our European Treasury Center. In addition, the ~~third~~first quarter ~~of 2016, with such operations being reported~~2017 benefited from certain non-routine items involving property tax adjustments, changes to facility closure reserves, and non-operating royalty income.

The reduction in closed operations and other expenses. Reserves for restructuring charges at September 30, 2017 were $9.1 million, of which $3.1 million relates to severance and employee benefit costs and $6.0 million to closure costs. The decline in these reservesinterest expense compared to ~~$33.1 million at December 31, 2016~~the prior year period is ~~primarily~~ due to ~~payments. These restructuring reserves are expected to be substantially paid~~the redemption of the 2019 Senior Notes in the fourth quarter of 2017.

Note ~~11.~~12. Per Share Information

The following table sets forth the computation of basic and diluted ~~loss~~income per common share:

Three Months Ended Nine months ended
(In millions, except per share amounts) September 30, September 30,
2017 2016 2017 2016
Numerator:
Numerator for basic loss per common share –
Net loss attributable to ATI $ (121.2 ) $ (530.8 ) $ (93.6 ) $ (650.8 )
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022 —
—
—
—
Numerator for diluted loss per common share –
Net loss attributable to ATI after assumed conversions $ (121.2 ) $ (530.8 ) $ (93.6 ) $ (650.8 )
Denominator:
Denominator for basic net loss per common share – weighted average shares 107.7
107.3
107.7
107.3
Effect of dilutive securities:
Share-based compensation —
—
—
—
4.75% Convertible Senior Notes due 2022 —
—
—
—
Denominator for diluted net loss per common share – adjusted weighted average shares and assumed conversions 107.7
107.3
107.7
107.3
Basic net loss attributable to ATI per common share $ (1.12 ) $ (4.95 ) $ (0.87 ) $ (6.07 )
Diluted net loss attributable to ATI per common share $ (1.12 ) $ (4.95 ) $ (0.87 ) $ (6.07 )



	Three months ended
(In millions, except per share amounts)	March 31,
(In millions, except per share amounts)	2018		2017
Numerator:
Numerator for basic income per common share –
Net income attributable to ATI	$	58.0	$	17.5
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022	3.2		3.0
Numerator for diluted income per common share –
Net income attributable to ATI after assumed conversions	$	61.2	$	20.5
Denominator:
Denominator for basic net income per common share – weighted average shares	125.0		107.5
Effect of dilutive securities:
Share-based compensation	0.6		0.8
4.75% Convertible Senior Notes due 2022	19.9		19.9
Denominator for diluted net income per common share – adjusted weighted average shares and assumed conversions	145.5		128.2
Basic net income attributable to ATI per common share	$	0.46	$	0.16
Diluted net income attributable to ATI per common share	$	0.42	$	0.16

Common stock that would be issuable upon the assumed conversion of the ~~2022~~4.75% Convertible Senior Notes due 2022 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 ~~20.9 million and 20.7 million~~no anti-dilutive shares for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2018 and 2017. ~~There were 21.0 million and 10.3 million anti-dilutive shares for the three and nine month periods ended September 30, 2016, respectively.~~

Note ~~12.~~13. Financial Information for Subsidiary and Guarantor Parent

The payment obligations under the $150 million 6.95% debentures due 2025 issued by Allegheny Ludlum, LLC (the “Subsidiary”) are fully and unconditionally guaranteed by Allegheny Technologies Incorporated (the “Guarantor Parent”). In accordance with positions established by the Securities and Exchange Commission, the following financial information sets forth separately financial information with respect to the Subsidiary, the non-guarantor subsidiaries and the Guarantor Parent. The principal elimination entries eliminate investments in subsidiaries and certain intercompany balances and transactions.

ATI is the plan sponsor for the ATI Pension Plan, the Company’s U.S. qualified defined benefit pension plan (the “Plan”) which covers certain current and former employees of the Subsidiary and the non-guarantor subsidiaries. As a result, the balance sheets presented for the Subsidiary and the non-guarantor subsidiaries do not include any Plan assets or liabilities, or the related deferred taxes and valuation allowances. The Plan assets, liabilities and related deferred taxes and pension income or expense are recognized by the Guarantor Parent. Management and royalty fees charged to the Subsidiary and to the non-guarantor subsidiaries by the Guarantor Parent have been excluded solely for purposes of this presentation. The effects of income tax valuation allowances on U.S. Federal and State deferred tax assets are excluded from the Subsidiary’s financial results, and are reported by the Guarantor Parent or the non-guarantor subsidiaries, as applicable.

Allegheny Technologies Incorporated

Financial Information for Subsidiary and Guarantor Parent

Balance Sheets

~~September 30, 2017~~March 31, 2018


(In millions)	Guarantor Parent		Subsidiary			Non-guarantor Subsidiaries		Eliminations			Consolidated		Guarantor Parent		Subsidiary			Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Cash and cash equivalents	$	2.1	$	7.4		$	115.4	$	—		$	124.9	$	1.6	$	5.2		$	103.1	$	—		$	109.9
Accounts receivable, net	0.1		140.1			385.7		—			525.9		0.6		164.5			441.3		—			606.4
Intercompany notes receivable	—		—			3,425.7		(3,425.7		)	—		—		—			3,648.8		(3,648.8		)	—
Short-term contract assets													—		—			38.6		—			38.6
Inventories, net	—		154.2			946.9		—			1,101.1		—		188.5			1,022.3		—			1,210.8
Prepaid expenses and other current assets	9.7		10.0			32.5		—			52.2		5.9		39.3			40.9		—			86.1
Total current assets	11.9		311.7			4,906.2		(3,425.7		)	1,804.1		8.1		397.5			5,295.0		(3,648.8		)	2,051.8
Property, plant and equipment, net	0.9		1,579.6			910.4		—			2,490.9		0.9		1,559.8			930.0		—			2,490.7
Goodwill	—		—			531.9		—			531.9		—		—			534.2		—			534.2
Intercompany notes receivable	—		—			200.0		(200.0		)	—		—		—			200.0		(200.0		)	—
Long-term contract assets													—		—			16.1		—			16.1
Investment in subsidiaries	5,524.0		37.7			—		(5,561.7		)	—		5,853.1		37.7			—		(5,890.8		)	—
Other assets	26.5		18.6			203.1		—			248.2		27.0		33.5			196.7		—			257.2
Total assets	$	5,563.3	$	1,947.6		$	6,751.6	$	(9,187.4	)	$	5,075.1	$	5,889.1	$	2,028.5		$	7,172.0	$	(9,739.6	)	$	5,350.0
Liabilities and stockholders’ equity:
Accounts payable	$	3.7	$	148.8		$	198.0	$	—		$	350.5	$	3.9	$	180.9		$	239.9	$	—		$	424.7
Accrued liabilities	42.9		83.1			160.7		—			286.7		29.8		64.7			110.8		—			205.3
Intercompany notes payable	1,783.8		1,641.9			—		(3,425.7		)	—		1,957.0		1,691.8			—		(3,648.8		)	—
Short term debt and current portion of long-term debt	0.3		0.3			35.8		—			36.4
Short-term contract liabilities													—		29.1			37.1		—			66.2
Short-term debt and current portion of long-term debt													0.2		0.9			62.6		—			63.7
Total current liabilities	1,830.7		1,874.1			394.5		(3,425.7		)	673.6		1,990.9		1,967.4			450.4		(3,648.8		)	759.9
Long-term debt	1,623.8		149.8			104.1		—			1,877.7		1,276.3		151.9			107.1		—			1,535.3
Intercompany notes payable	—		200.0			—		(200.0		)	—		—		200.0			—		(200.0		)	—
Accrued postretirement benefits	—		235.6			67.6		—			303.2		—		247.9			63.5		—			311.4
Pension liabilities	630.5		4.8			42.9		—			678.2		635.1		4.3			47.8		—			687.2
Deferred income taxes	14.1		—			—		—			14.1		10.7		—			—		—			10.7
Long-term contract liabilities													—		—			19.7		—			19.7
Other long-term liabilities	16.7		18.4			45.7		—			80.8		12.8		17.0			32.7		—			62.5
Total liabilities	4,115.8		2,482.7			654.8		(3,625.7		)	3,627.6		3,925.8		2,588.5			721.2		(3,848.8		)	3,386.7
Total stockholders’ equity (deficit)	1,447.5		(535.1		)	6,096.8		(5,561.7		)	1,447.5		1,963.3		(560.0		)	6,450.8		(5,890.8		)	1,963.3
Total liabilities and stockholders’ equity	$	5,563.3	$	1,947.6		$	6,751.6	$	(9,187.4	)	$	5,075.1	$	5,889.1	$	2,028.5		$	7,172.0	$	(9,739.6	)	$	5,350.0

Allegheny Technologies Incorporated

Financial Information for Subsidiary and Guarantor Parent

Statements of ~~Operations~~Income and Comprehensive Income

For the three months ended ~~September 30, 2017~~March 31, 2018

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Sales $ —
$ 287.9
$ 581.2
$ —
$ 869.1
Cost of sales 10.4
283.8
481.6
—
775.8
Gross profit (loss) (10.4 ) 4.1
99.6
—
93.3
Selling and administrative expenses 25.8
8.6
31.8
—
66.2
Impairment of goodwill —
—
114.4
—
114.4
Operating loss (36.2 ) (4.5 ) (46.6 ) —
(87.3 )
Interest income (expense), net (40.1 ) (22.9 ) 28.8
—
(34.2 )
Other income (loss) including equity in income of unconsolidated subsidiaries (45.0 ) 0.3
(0.1 ) 45.0
0.2
Income (loss) before income tax provision (benefit) (121.3 ) (27.1 ) (17.9 ) 45.0
(121.3 )
Income tax provision (benefit) (1.9 ) (8.6 ) 28.3
(19.7 ) (1.9 )
Net income (loss) (119.4 ) (18.5 ) (46.2 ) 64.7
(119.4 )
Less: Net income attributable to noncontrolling interests —
—
1.8
—
1.8
Net income (loss) attributable to ATI $ (119.4 ) $ (18.5 ) $ (48.0 ) $ 64.7
$ (121.2 )
Comprehensive income (loss) attributable to ATI $ (63.5 ) $ (15.5 ) $ (28.5 ) $ 37.2
$ (70.3 )

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Statements of Operations and Comprehensive Income~~

~~For the nine months ended September 30, 2017~~


(In millions)	Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries		Eliminations			Consolidated			Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations			Consolidated
Sales	$	—		$	866.3		$	1,748.9	$	—		$	2,615.2		$	—		$	346.4		$	632.6		$	—		$	979.0
Cost of sales	33.4			822.5			1,440.9		—			2,296.8			4.1			323.2			503.1			—			830.4
Gross profit (loss)	(33.4		)	43.8			308.0		—			318.4			(4.1		)	23.2			129.5			—			148.6
Selling and administrative expenses	70.1			27.0			95.3		—			192.4			23.7			10.3			33.1			—			67.1
Impairment of goodwill	—			—			114.4		—			114.4
Operating income (loss)	(103.5		)	16.8			98.3		—			11.6			(27.8		)	12.9			96.4			—			81.5
Nonoperating retirement benefit expense															(3.1		)	(4.9		)	(0.3		)	—			(8.3		)
Interest income (expense), net	(118.4		)	(66.6		)	82.8		—			(102.2		)	(33.0		)	(25.7		)	33.2			—			(25.5		)
Other income (loss) including equity in income of unconsolidated subsidiaries	135.0			1.1			2.6		(135.0		)	3.7			129.4			16.8			0.5			(128.9		)	17.8
Income (loss) before income tax provision (benefit)	(86.9		)	(48.7		)	183.7		(135.0		)	(86.9		)	65.5			(0.9		)	129.8			(128.9		)	65.5
Income tax provision (benefit)	(2.0		)	(16.3		)	97.4		(81.1		)	(2.0		)	5.0			0.2			20.2			(20.4		)	5.0
Net income (loss)	(84.9		)	(32.4		)	86.3		(53.9		)	(84.9		)	60.5			(1.1		)	109.6			(108.5		)	60.5
Less: Net income attributable to noncontrolling interests	—			—			8.7		—			8.7			—			—			2.5			—			2.5
Net income (loss) attributable to ATI	$	(84.9	)	$	(32.4	)	$	77.6	$	(53.9	)	$	(93.6	)	$	60.5		$	(1.1	)	$	107.1		$	(108.5	)	$	58.0
Comprehensive income (loss) attributable to ATI	$	(0.3	)	$	(27.1	)	$	109.9	$	(98.7	)	$	(16.2	)	$	103.0		$	1.3		$	124.0		$	(134.7	)	$	93.6

Condensed Statements of Cash Flows

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018


(In millions)	Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations			Consolidated			Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations			Consolidated
Cash flows provided by (used in) operating activities	$	(84.2	)	$	(83.1	)	$	113.5		$	—		$	(53.8	)	$	(51.2	)	$	(36.1	)	$	40.2		$	—		$	(47.1	)
Investing Activities:
Purchases of property, plant and equipment	(0.5		)	(27.4		)	(57.4		)	—			(85.3		)	(0.4		)	(7.3		)	(33.9		)	—			(41.6		)
Net receipts/(payments) on intercompany activity	—			—			(205.1		)	205.1			—			—			—			(88.1		)	88.1			—
Asset disposals and other	—			0.1			3.1			—			3.2			—			0.1			—			—			0.1
Cash flows provided by (used in) investing activities	(0.5		)	(27.3		)	(259.4		)	205.1			(82.1		)	(0.4		)	(7.2		)	(122.0		)	88.1			(41.5		)
Financing Activities:
Borrowings on long-term debt	—			—			8.5			—			8.5			—			—			6.4			—			6.4
Payments on long-term debt and capital leases	(0.3		)	(0.2		)	(1.4		)	—			(1.9		)	(0.1		)	(0.1		)	(1.1		)	—			(1.3		)
Net borrowings under credit facilities	—			—			28.0			—			28.0			—			—			50.9			—			50.9
Debt issuance costs	—			—			(0.8		)	—			(0.8		)
Net receipts/(payments) on intercompany activity	89.6			115.5			—			(205.1		)	—			57.7			30.4			—			(88.1		)	—
Sale to noncontrolling interests	—			—			2.2			—			2.2
Sales to noncontrolling interests																—			4.7			2.7			—			7.4
Shares repurchased for income tax withholding on share-based compensation and other	(4.8		)	—			—			—			(4.8		)	(6.5		)	—			—			—			(6.5		)
Cash flows provided by (used in) financing activities	84.5			115.3			36.5			(205.1		)	31.2			51.1			35.0			58.9			(88.1		)	56.9
Increase (decrease) in cash and cash equivalents	$	(0.2	)	$	4.9		$	(109.4	)	$	—		$	(104.7	)
Decrease in cash and cash equivalents																$	(0.5	)	$	(8.3	)	$	(22.9	)	$	—		$	(31.7	)

Allegheny Technologies Incorporated

Financial Information for Subsidiary and Guarantor Parent

Balance Sheets

December 31, ~~2016~~2017


	Guarantor					Non-guarantor							Guarantor					Non-guarantor
(In millions)	Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated		Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated
Assets:
Cash and cash equivalents	$	2.3	$	2.5		$	224.8	$	—		$	229.6	$	2.1	$	13.5		$	126.0	$	—		$	141.6
Accounts receivable, net	0.1		107.8			344.2		—			452.1		0.2		141.6			403.5		—			545.3
Intercompany notes receivable	—		—			2,892.9		(2,892.9		)	—		—		—			3,505.6		(3,505.6		)	—
Inventories, net	—		106.7			930.3		—			1,037.0		—		207.9			968.2		—			1,176.1
Prepaid expenses and other current assets	6.6		5.2			36.0		—			47.8		6.6		4.5			41.6		—			52.7
Total current assets	9.0		222.2			4,428.2		(2,892.9		)	1,766.5		8.9		367.5			5,044.9		(3,505.6		)	1,915.7
Property, plant and equipment, net	1.3		1,583.6			914.0		—			2,498.9		0.9		1,581.6			913.2		—			2,495.7
Goodwill	—		—			641.9		—			641.9		—		—			531.4		—			531.4
Intercompany notes receivable	—		—			200.0		(200.0		)	—		—		—			200.0		(200.0		)	—
Investment in subsidiaries	5,241.2		37.7			—		(5,278.9		)	—		5,645.6		37.7			—		(5,683.3		)	—
Other assets	23.0		25.5			214.2		—			262.7		25.4		18.0			199.2		—			242.6
Total assets	$	5,274.5	$	1,869.0		$	6,398.3	$	(8,371.8	)	$	5,170.0	$	5,680.8	$	2,004.8		$	6,888.7	$	(9,388.9	)	$	5,185.4
Liabilities and stockholders’ equity:
Accounts payable	$	3.1	$	97.4		$	193.8	$	—		$	294.3	$	3.0	$	180.3		$	236.8	$	—		$	420.1
Accrued liabilities	54.6		83.3			171.4		—			309.3		54.1		88.5			139.8		—			282.4
Intercompany notes payable	1,341.1		1,551.8			—		(2,892.9		)	—		1,836.5		1,669.1			—		(3,505.6		)	—
Short term debt and current portion of long-term debt	0.4		0.3			104.4		—			105.1
Short-term debt and current portion of long-term debt													0.3		0.6			9.2		—			10.1
Total current liabilities	1,399.2		1,732.8			469.6		(2,892.9		)	708.7		1,893.9		1,938.5			385.8		(3,505.6		)	712.6
Long-term debt	1,621.7		150.0			0.2		—			1,771.9		1,275.7		150.7			104.2		—			1,530.6
Intercompany notes payable	—		200.0			—		(200.0		)	—		—		200.0			—		(200.0		)	—
Accrued postretirement benefits	—		244.0			73.7		—			317.7		—		250.2			67.6		—			317.8
Pension liabilities	778.5		5.2			44.2		—			827.9		644.3		4.4			48.3		—			697.0
Deferred income taxes	15.6		—			—		—			15.6		9.7		—			—		—			9.7
Other long-term liabilities	14.7		18.1			50.6		—			83.4		12.7		17.2			43.3		—			73.2
Total liabilities	3,829.7		2,350.1			638.3		(3,092.9		)	3,725.2		3,836.3		2,561.0			649.2		(3,705.6		)	3,340.9
Total stockholders’ equity (deficit)	1,444.8		(481.1		)	5,760.0		(5,278.9		)	1,444.8		1,844.5		(556.2		)	6,239.5		(5,683.3		)	1,844.5
Total liabilities and stockholders’ equity	$	5,274.5	$	1,869.0		$	6,398.3	$	(8,371.8	)	$	5,170.0	$	5,680.8	$	2,004.8		$	6,888.7	$	(9,388.9	)	$	5,185.4

Allegheny Technologies Incorporated

Financial Information for Subsidiary and Guarantor Parent

Statements of ~~Operations~~Income and Comprehensive Income

For the three months ended ~~September 30, 2016~~March 31, 2017

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Sales $ —
$ 253.0
$ 517.5
$ —
$ 770.5
Cost of sales 14.0
266.6
439.7
—
720.3
Gross profit (loss) (14.0 ) (13.6 ) 77.8
—
50.2
Selling and administrative expenses 23.8
4.2
32.5
—
60.5
Restructuring charges —
0.5
488.1
—
488.6
Operating loss (37.8 ) (18.3 ) (442.8 ) —
(498.9 )
Interest income (expense), net (36.5 ) (19.3 ) 23.2
—
(32.6 )
Other income (loss) including equity in income of unconsolidated subsidiaries (457.2 ) 0.2
(0.2 ) 457.2
—
Income (loss) before income tax provision (benefit) (531.5 ) (37.4 ) (419.8 ) 457.2
(531.5 )
Income tax provision (benefit) (4.3 ) (9.1 ) (165.8 ) 174.9
(4.3 )
Net income (loss) (527.2 ) (28.3 ) (254.0 ) 282.3
(527.2 )
Less: Net income attributable to noncontrolling interests —
—
3.6
—
3.6
Net income (loss) attributable to ATI $ (527.2 ) $ (28.3 ) $ (257.6 ) $ 282.3
$ (530.8 )
Comprehensive income (loss) attributable to ATI $ (516.8 ) $ (27.0 ) $ (260.0 ) $ 285.0
$ (518.8 )

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Statements of Operations and Comprehensive Income~~

~~For the nine months ended September 30, 2016~~


(In millions)	Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations		Consolidated			Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations			Consolidated
Sales	$	—		$	727.7		$	1,610.8		$	—	$	2,338.5		$	—		$	287.2		$	578.7		$	—		$	865.9
Cost of sales	43.0			852.0			1,378.3			—		2,273.3			4.0			255.6			481.5			—			741.1
Gross profit (loss)	(43.0		)	(124.3		)	232.5			—		65.2			(4.0		)	31.6			97.2			—			124.8
Selling and administrative expenses	66.3			18.8			97.3			—		182.4			20.1			9.5			28.3			—			57.9
Restructuring charges	—			9.5			489.1			—		498.6
Operating loss	(109.3		)	(152.6		)	(353.9		)	—		(615.8		)
Operating income (loss)															(24.1		)	22.1			68.9			—			66.9
Nonoperating retirement benefit expense															(8.1		)	(4.7		)	(0.8		)	—			(13.6		)
Interest income (expense), net	(101.4		)	(51.0		)	61.2			—		(91.2		)	(38.6		)	(21.2		)	26.3			—			(33.5		)
Other income (loss) including equity in income of unconsolidated subsidiaries	(494.5		)	0.6			1.5			494.2		1.8			93.9			0.5			2.8			(93.9		)	3.3
Income (loss) before income tax provision (benefit)	(705.2		)	(203.0		)	(291.2		)	494.2		(705.2		)	23.1			(3.3		)	97.2			(93.9		)	23.1
Income tax provision (benefit)	(64.4		)	(70.1		)	(116.3		)	186.4		(64.4		)	2.0			(1.1		)	35.5			(34.4		)	2.0
Net income (loss)	(640.8		)	(132.9		)	(174.9		)	307.8		(640.8		)	21.1			(2.2		)	61.7			(59.5		)	21.1
Less: Net income attributable to noncontrolling interests	—			—			10.0			—		10.0			—			—			3.6			—			3.6
Net income (loss) attributable to ATI	$	(640.8	)	$	(132.9	)	$	(184.9	)	$	307.8	$	(650.8	)	$	21.1		$	(2.2	)	$	58.1		$	(59.5	)	$	17.5
Comprehensive income (loss) attributable to ATI	$	(592.6	)	$	(114.2	)	$	(199.0	)	$	307.8	$	(598.0	)	$	45.4		$	(0.3	)	$	45.9		$	(51.2	)	$	39.8

Condensed Statements of Cash Flows

For the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017


(In millions)	Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations			Consolidated			Guarantor Parent			Subsidiary			Non-guarantor Subsidiaries			Eliminations			Consolidated
Cash flows provided by (used in) operating activities	$	(73.0	)	$	(183.7	)	$	169.0		$	(24.0	)	$	(111.7	)	$	(40.7	)	$	0.5		$	(70.0	)	$	—		$	(110.2	)
Investing Activities:
Purchases of property, plant and equipment	(0.5		)	(93.0		)	(81.4		)	—			(174.9		)	—			(8.7		)	(16.1		)	—			(24.8		)
Net receipts/(payments) on intercompany activity	—			—			(102.0		)	102.0			—			—			—			(59.1		)	59.1			—
Asset disposals and other	—			—			2.1			—			2.1			—			0.1			2.5			—			2.6
Cash flows provided by (used in) investing activities	(0.5		)	(93.0		)	(181.3		)	102.0			(172.8		)	—			(8.6		)	(72.7		)	59.1			(22.2		)
Financing Activities:
Borrowings on long-term debt	287.5			—			100.0			—			387.5
Payments on long-term debt and capital leases	(0.5		)	(0.2		)	(1.7		)	—			(2.4		)	(0.1		)	(0.1		)	(0.1		)	—			(0.3		)
Net borrowings under credit facilities	—			—			2.4			—			2.4			—			—			67.7			—			67.7
Debt issuance costs	(9.4		)	—			(1.0		)	—			(10.4		)
Net receipts/(payments) on intercompany activity	(176.4		)	278.4			—			(102.0		)	—			45.6			13.5			—			(59.1		)	—
Dividends paid to stockholders	(25.8		)	—			(24.0		)	24.0			(25.8		)
Dividends paid to noncontrolling interests	—			—			(16.0		)	—			(16.0		)
Acquisition of noncontrolling interests	—			—			(12.2		)	—			(12.2		)
Shares repurchased for income tax withholding on share-based compensation																(4.8		)	—			—			—			(4.8		)
Cash flows provided by (used in) financing activities	75.4			278.2			47.5			(78.0		)	323.1			40.7			13.4			67.6			(59.1		)	62.6
Increase in cash and cash equivalents	$	1.9		$	1.5		$	35.2		$	—		$	38.6
Increase (decrease) in cash and cash equivalents																$	—		$	5.3		$	(75.1	)	$	—		$	(69.8	)

Note ~~13.~~14. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) (AOCI) by component, net of tax, for the three month period ended ~~September 30, 2017~~March 31, 2018 were as follows (in millions):

Post-
retirement
benefit plans

Currency
translation
adjustment

Unrealized
holding gains
on securities
Derivatives Deferred Tax Asset Valuation Allowance Total
Attributable to ATI:
Balance, June 30, 2017 $ (943.5 ) $ (72.4 ) $ —
$ (5.7 ) $ (45.6 ) $ (1,067.2 )
OCI before reclassifications —
19.2
—
5.7
—
24.9
Amounts reclassified from AOCI (a) 10.5
(b) —
(b) —
(c) (0.8 ) 16.3
26.0
Net current-period OCI 10.5
19.2
—
4.9
16.3
50.9
Balance, September 30, 2017 $ (933.0 ) $ (53.2 ) $ —
$ (0.8 ) $ (29.3 ) $ (1,016.3 )
Attributable to noncontrolling interests:
Balance, June 30, 2017 $ —
$ 11.9
$ —
$ —
$ —
$ 11.9
OCI before reclassifications —
5.0
—
—
—
5.0
Amounts reclassified from AOCI —
(b) —
—
—
—
—
Net current-period OCI —
5.0
—
—
—
5.0
Balance, September 30, 2017 $ —
$ 16.9
$ —
$ —
$ —
$ 16.9

~~The changes in AOCI by component, net of tax, for the nine month period ended September 30, 2017 were as follows (in millions):~~


	Post- retirement benefit plans			Currency translation adjustment			Unrealized holding gains on securities		Derivatives			Deferred Tax Asset Valuation Allowance			Total			Post- retirement benefit plans			Currency translation adjustment			Unrealized holding gains on securities		Derivatives			Deferred Tax Asset Valuation Allowance			Total
Attributable to ATI:
Balance, December 31, 2016	$	(965.5	)	$	(85.0	)	$	—	$	2.4		$	(45.6	)	$	(1,093.7	)
Balance, December 31, 2017																		$	(954.5	)	$	(53.5	)	$	—	$	9.0		$	(28.8	)	$	(1,027.8	)
OCI before reclassifications		—			31.8			—		(1.0	)		—		30.8				—			16.7			—		2.5			—		19.2
Amounts reclassified from AOCI	(a)	32.5		(b)	—		(b)	—	(c)	(2.2	)		16.3		46.6			(a)	14.3		(b)	—		(b)	—	(c)	(2.3	)		4.4		16.4
Net current-period OCI		32.5			31.8			—		(3.2	)		16.3		77.4				14.3			16.7			—		0.2			4.4		35.6
Balance, September 30, 2017	$	(933.0	)	$	(53.2	)	$	—	$	(0.8	)	$	(29.3	)	$	(1,016.3	)
Balance, March 31, 2018																		$	(940.2	)	$	(36.8	)	$	—	$	9.2		$	(24.4	)	$	(992.2	)
Attributable to noncontrolling interests:
Balance, December 31, 2016	$	—		$	9.7		$	—	$	—		$	—		$	9.7
Balance, December 31, 2017																		$	—		$	17.3		$	—	$	—		$	—		$	17.3
OCI before reclassifications		—			7.2			—		—			—		7.2				—			6.9			—		—			—		6.9
Amounts reclassified from AOCI		—		(b)	—			—		—			—		—				—		(b)	—			—		—			—		—
Net current-period OCI		—			7.2			—		—			—		7.2				—			6.9			—		—			—		6.9
Balance, September 30, 2017	$	—		$	16.9		$	—	$	—		$	—		$	16.9
Balance, March 31, 2018																		$	—		$	24.2		$	—	$	—		$	—		$	24.2


(a)	Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 8)9).


(b)	No amounts were reclassified to earnings.


(c)	Amounts related to derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings (see Note 7).

The changes in AOCI by component, net of tax, for the three month period ended March 31, 2017 were as follows (in millions):



	Post- retirement benefit plans			Currency translation adjustment			Unrealized holding gains on securities		Derivatives			Deferred Tax Asset Valuation Allowance			Total
Attributable to ATI:
Balance, December 31, 2016	$	(965.5	)	$	(85.0	)	$	—	$	2.4		$	(45.6	)	$	(1,093.7	)
OCI before reclassifications		—			8.4			—		(1.5	)		(1.1	)	5.8
Amounts reclassified from AOCI	(a)	10.8		(b)	—		(b)	—	(c)	(0.6	)		6.3		16.5
Net current-period OCI		10.8			8.4			—		(2.1	)		5.2		22.3
Balance, March 31, 2017	$	(954.7	)	$	(76.6	)	$	—	$	0.3		$	(40.4	)	$	(1,071.4	)
Attributable to noncontrolling interests:
Balance, December 31, 2016	$	—		$	9.7		$	—	$	—		$	—		$	9.7
OCI before reclassifications		—			2.0			—		—			—		2.0
Amounts reclassified from AOCI		—		(b)	—			—		—			—		—
Net current-period OCI		—			2.0			—		—			—		$	2.0
Balance, March 31, 2017	$	—		$	11.7		$	—	$	—		$	—		$	11.7


(a)	Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 9).


(b)	No amounts were reclassified to earnings.


(c)	Amounts related to the effective portion of the derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the ineffective portion of the derivatives are presented in selling and administrative expenses on the consolidated statement of ~~operations~~income (see Note ~~6).~~

~~The changes in AOCI by component, net of tax, for the three month period ended September 30, 2016 were as follows (in millions):~~

Post-
retirement
benefit plans

Currency
translation
adjustment

Unrealized
holding gains
on securities
Derivatives Deferred Tax Asset Valuation Allowance Total
Attributable to ATI:
Balance, June 30, 2016 $ (913.7 ) $ (59.8 ) $ —
$ (0.2 ) $ —
$ (973.7 )
OCI before reclassifications —
(2.8 ) —
3.0
—
0.2
Amounts reclassified from AOCI (a) 11.4
(b) —
(b) —
(c) 0.4
—
11.8
Net current-period OCI 11.4
(2.8 ) —
3.4
—
12.0
Balance, September 30, 2016 $ (902.3 ) $ (62.6 ) $ —
$ 3.2
$ —
$ (961.7 )
Attributable to noncontrolling interests:
Balance, June 30, 2016 $ —
$ 16.4
$ —
$ —
$ —
$ 16.4
OCI before reclassifications —
(1.6 ) —
—
—
(1.6 )
Amounts reclassified from AOCI —
(b) —
—
—
—
—
Net current-period OCI —
(1.6 ) —
—
—
$ (1.6 )
Balance, September 30, 2016 $ —
$ 14.8
$ —
$ —
$ —
$ 14.8

~~The changes in AOCI by component, net of tax, for the nine month period ended September 30, 2016 were as follows (in millions):~~

Post-
retirement
benefit plans

Currency
translation
adjustment

Unrealized
holding gains
on securities
Derivatives Deferred Tax Asset Valuation Allowance Total
Attributable to ATI:
Balance, December 31, 2015 $ (951.2 ) $ (47.6 ) $ —
$ (15.7 ) $ —
$ (1,014.5 )
OCI before reclassifications 13.9
(15.0 ) —
13.6
—
12.5
Amounts reclassified from AOCI (a) 35.0
(b) —
(b) —
(c) 5.3
—
40.3
Net current-period OCI 48.9
(15.0 ) —
18.9
—
52.8
Balance, September 30, 2016 $ (902.3 ) $ (62.6 ) $ —
$ 3.2
$ —
$ (961.7 )
Attributable to noncontrolling interests:
Balance, December 31, 2015 $ —
$ 19.4
$ —
$ —
$ —
$ 19.4
OCI before reclassifications —
(4.6 ) —
—
—
(4.6 )
Amounts reclassified from AOCI —
(b) —
—
—
—
—
Net current-period OCI —
(4.6 ) —
—
—
$ (4.6 )
Balance, September 30, 2016 $ —
$ 14.8
$ —
$ —
$ —
$ 14.8


~~(a)~~	~~Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 8).~~


~~(b)~~	~~No amounts were reclassified to earnings.~~


~~(c)~~	Amounts related to the effective portion of the derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the ineffective portion of the derivatives are presented in selling and administrative expenses on the consolidated statement of operations (see Note 6)7).

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 ~~in 2017~~ include the impact of any deferred tax asset valuation allowances, when applicable,

resulting from the Company’s three year cumulative loss position. Foreign currency translation adjustments, including those pertaining to noncontrolling interests, are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

Reclassifications out of AOCI for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ were as follows:


	Amount reclassified from AOCI															Amount reclassified from AOCI
Details about AOCI Components (In millions)	Three months ended September 30, 2017			Three months ended September 30, 2016				Nine months ended September 30, 2017			Nine months ended September 30, 2016				Affected line item in the statements of operations	Three months ended March 31, 2018			Three months ended March 31, 2017				Affected line item in the statements of income
Postretirement benefit plans
Prior service (cost) credit	$	0.4		$	0.4		(a)	$	1.2		$	—		(a)		$	0.6		$	0.4		(a)
Actuarial losses	(17.8		)	(18.7		)	(a)	(53.6		)	(56.2		)	(a)		(19.2		)	(17.8		)	(a)
	(17.4		)	(18.3		)	(c)	(52.4		)	(56.2		)	(c)	Total before tax	(18.6		)	(17.4		)	(c)	Total before tax
	(6.9		)	(6.9		)		(19.9		)	(21.2		)		Tax provision (benefit) (d)	(4.3		)	(6.6		)		Tax provision (benefit) (d)
	$	(10.5	)	$	(11.4	)		$	(32.5	)	$	(35.0	)		Net of tax	$	(14.3	)	$	(10.8	)		Net of tax
Derivatives
Nickel and other raw material contracts	$	(1.5	)	$	(3.5	)	(b)	$	(4.0	)	$	(15.9	)	(b)		$	3.7		$	(0.9	)	(b)
Natural gas contracts	(1.1		)	(2.5		)	(b)	(4.5		)	(13.5		)	(b)		(0.4		)	(2.3		)	(b)
Foreign exchange contracts	3.8			5.4			(b)	12.0			20.9			(b)		(0.3		)	4.1			(b)
	1.2			(0.6		)	(c)	3.5			(8.5		)	(c)	Total before tax	3.0			0.9			(c)	Total before tax
	0.4			(0.2		)		1.3			(3.2		)		Tax provision (benefit) (d)	0.7			0.3				Tax provision (benefit) (d)
	$	0.8		$	(0.4	)		$	2.2		$	(5.3	)		Net of tax	$	2.3		$	0.6			Net of tax


(a)	Amounts are ~~included~~reported in ~~the computation of pension and other postretirement~~nonoperating retirement benefit expense ~~which is reported in both cost of goods sold and selling and administrative expenses~~ (see Note 8)9).


(b)	Amounts related to ~~the effective portion of the~~ derivatives are included in cost of goods sold in the period or periods the hedged item affects ~~earnings. Amounts related to the ineffective portion of the derivatives are presented in selling and administrative expenses on the consolidated statement of operations~~earnings (see Note 6)7).


(c)	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.~~income.


(d)	These amounts exclude the impact of any deferred tax asset valuation allowance, when applicable.

Note ~~14.~~15. Commitments and Contingencies

The Company is subject to various domestic and international environmental laws and regulations that govern the discharge of pollutants and disposal of wastes, and which may require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. The Company could incur substantial cleanup costs, fines, and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or noncompliance with environmental permits required at its facilities. The Company is currently involved in the investigation and remediation of a number of its current and former sites, as well as third party sites.

Environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable. In many cases, however, the Company is not able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss. Estimates of the Company’s liability remain subject to additional uncertainties, including the nature and extent of site contamination, available remediation alternatives, the extent of corrective actions that may be required, and the number, participation, and financial condition of other potentially responsible parties (PRPs). The Company adjusts its accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on the Company’s consolidated results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments.

At ~~September 30, 2017~~March 31, 2018, the Company’s reserves for environmental remediation obligations totaled approximately $14 million, of which $8 million was included in other current liabilities. The reserve includes estimated probable future costs of $23 million for federal Superfund and comparable state-managed sites; $109 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 timing of expenditures depends on a number of factors that vary by site. The Company expects that it will expend present accruals over

many years and that remediation of all sites with which it has been identified will be completed within thirty years. The

Company continues to evaluate whether it may be able to recover a portion of past and future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate.

Based on currently available information, it is reasonably possible that costs for recorded matters may exceed the Company’s recorded reserves by as much as ~~$13~~$16 million. Future investigation or remediation activities may result in the discovery of additional hazardous materials, potentially higher levels of contamination than discovered during prior investigation, and may impact costs of the success or lack thereof in remedial solutions. Therefore, future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on the Company’s consolidated financial condition or results of operations.

See Note ~~21.~~20. Commitments and Contingencies to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2016~~2017 for a discussion of legal proceedings affecting the Company.

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 and 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 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.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest market is aerospace & defense, representing approximately 50% of total sales, ~~and~~ led by products for jet engines. Additionally, we have a strong presence in the oil & gas, electrical energy, medical, and automotive markets. In aggregate, these key markets represent about 80% of our revenue. ATI is a market leader in manufacturing differentiated products that require our unique manufacturing and precision machining capabilities as well as our innovative new product development competence. Our capabilities range from alloy development ~~through~~to final production of highly engineered finished components. We are a leader in producing powders for use in next-generation jet engine forgings and 3D-printed aerospace products.

We anticipate significant industry demand growth for advanced powder materials required to satisfy higher aerospace and defense market production requirements, and for emerging additive manufacturing of parts and components. To proactively meet this growing demand for complex powder alloy products, ATI designed and built an all-new nickel and super alloy powder production facility in North Carolina, which is in the final stages of industry and customer qualifications. Additionally, we recently announced an expansion of our titanium alloys powder production capabilities, which is expected to be completed in early 2019, and in July 2017 we formed a joint venture with GE Aviation for the development of a new meltless titanium alloy powder manufacturing process that eliminates the traditional melt step used prior to converting base material to powder form. The JV will construct a new R&D pilot production facility to focus on increasing the scale of this GE-developed manufacturing process.

ATI reported ~~third~~first quarter ~~2017~~2018 sales of ~~$869.1~~$979.0 million and ~~loss~~income before tax of ~~$121.3~~$65.5 million, compared to sales of ~~$770.5~~$865.9 million and ~~a loss~~income before tax of ~~$531.5~~$23.1 million for the ~~third~~first quarter ~~2016.~~2017. Our gross profit was ~~$93.3~~$148.6 million, or ~~10.7%~~15.2% of sales, a ~~$43.1~~$23.8 million improvement compared to the ~~third~~first quarter ~~2016,~~2017, reflecting the benefits of our growing position on next-generation commercial aerospace ~~programs and the significant restructuring actions taken in 2016 to improve our operating efficiencies and cost structure.~~programs. Results for the ~~third~~first quarter ~~2017~~2018 include a $15.9 million pre-tax ~~non-cash goodwill impairment charge~~gain on the sale of ~~$114.4 million ($113.6 million after-tax,~~a 50% noncontrolling interest and subsequent deconsolidation of the Allegheny & Tsingshan Stainless (A&T Stainless) joint venture in March 2018. Gross profit and operating profit now reflect required accounting changes to classify the non-service cost components of retirement benefit expense as nonoperating expenses. Prior period results were restated for this required reporting change, which did not affect pre-tax or ~~($1.05) per share) for~~net-of-tax results, or how ATI ~~Cast Products, our titanium investment casting~~calculates business ~~in the High Performance Materials & Components segment.~~segment operating profit. Net ~~loss~~income attributable to ATI was ~~$121.2~~$58.0 million, or ~~$(1.12)~~$0.42 per share, in the ~~third~~first quarter ~~2017~~2018 compared to a net ~~loss~~income attributable to ATI of ~~$530.8~~$17.5 million, or ~~$(4.95)~~$0.16 per share, for the ~~third~~first quarter 2016. The third quarter 2016 results included pre-tax restructuring and other charges of $499.9 million ($329.1 million after-tax, or ($3.07) per share) relating primarily to the indefinite idling of the Rowley, UT titanium sponge production facility and consolidation of other higher-cost titanium operations. The 2016 charges included $471.3 million of non-cash impairment charges, $17.3 million of shutdown, idling and employee benefit costs and $11.3 million of titanium sponge inventory valuation adjustments. Results in the third quarter 2016 also included $9.3 million pre-tax ($6.1 million after-tax, or ($0.06) per share) of Rowley excess operating costs. As a result of these charges, ATI also recorded a $173.1 million, or $(1.61) per share, non-cash income tax valuation allowance charge in the third quarter of 2016 related to U.S. federal tax benefits. The total after-tax

~~charges, including the income tax valuation allowance charge, for the third quarter 2016 were $508.3 million, or $(4.74) per share.~~2017. Results in both ~~periods~~2018 and 2017 include impacts from income taxes that differ from aapplicable standard ~~35%~~ tax ~~rate,~~rates, primarily related to the income tax valuation ~~allowance changes as well as a non-deductible goodwill impairment charge for the third quarter 2017.~~allowance.

We operate in two business segments, High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). Compared to the ~~third~~first quarter ~~2016,~~2017, sales increased ~~11%~~10% in the HPMC segment and ~~15%~~18% in the FRP segment. ~~The~~Sales to the commercial aerospace market, which represented ~~63%~~65% of ~~third~~first quarter ~~2017~~2018 HPMC sales, were 9%13% higher than the ~~third~~first quarter ~~2016, with strong growth~~2017, including a 23% increase in sales to the commercial jet engine market. In addition, HPMC ~~third~~first quarter sales included higher demand in the ~~oil & gas~~construction and mining industry, which improved over 50% versus the prior year period. The increase in sales in the FRP segment ~~were~~was due to ~~stronger mix of~~higher shipment volume for high-value products, ~~higher shipments of standard stainless products, and slightly higher selling prices for most standard stainless and Precision Rolled Strip products.~~

ATI reported sales for the first nine months of 2017 of $2.62 billion and loss before tax of $86.9 million, compared to sales of $2.34 billion and a loss before tax of $705.2 million, for the first nine months of 2016. Our gross profit was $318.4 million, or 12.2% of sales, a $253.2 million improvement compared to the first nine months of 2016. ATI’s 2017 results include the third quarter’s $114.4 million pre-tax goodwill impairment charge, and 2016 results include the third quarter’s $499.9 million of pre-tax restructuring and other charges, both discussed above. Results for the first nine months of 2016 also include $48 million of costs associated with the work stoppage and return to work of USW-represented employees in March 2016, a $9.0 million charge for the reduction of approximately one-third of FRP’s salaried workforce and $1.0 million for severance actions in the HPMC segment. Net loss attributable to ATI was $93.6 million, or $(0.87) per diluted share, in the first nine months of 2017 compared to a net loss attributable to ATI of $650.8 million, or $(6.07) per share, for the first nine months of 2016.

~~Compared to the first nine months of 2016, sales increased 20% in the FRP business segment and 7% in the HPMC business segment. HPMC sales reflect stronger demand for~~primarily nickel-based and specialty alloys mill products, and forged components. FRP sales compared to the prior year period include stronger shipments of both high-value and standard products due to higher operating levels following a new labor agreement.for oil & gas projects.

ATI’s sales to the aerospace & defense market increased 9%11%, to ~~$427.7~~$462.4 million in the ~~third~~first quarter ~~2017,~~2018, compared to the ~~third~~first quarter 2017. HPMC sales of ~~2016. HPMC commercial~~next-generation jet engine products, which represented 48% of total first quarter 2018 HPMC jet engine product sales, increased ~~$26 million, or 13%,~~65% compared to the ~~third~~first quarter ~~2016, including a 25% increase in forged products.~~2017.

Demand from the global aerospace & defense, oil & gas, electrical energy, automotive and medical markets represented ~~78% and 79%~~81% of our sales for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2018 and 80% for the three months ended March 31, 2017. Comparative information for our overall revenues (in millions) by market and their respective percentages of total revenues for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017 were as follows:

Three months ended Three months ended
Market September 30, 2017 September 30, 2016
Aerospace & Defense $ 427.7
49 % $ 391.9
51 %
Oil & Gas 98.4
11 % 69.1
9 %
Automotive 61.7
7 % 60.1
7 %
Electrical Energy 48.5
6 % 43.9
6 %
Medical 44.5
5 % 46.4
6 %
Subtotal - Key Markets 680.8
78 % 611.4
79 %
Food Equipment & Appliances 54.5
6 % 43.1
6 %
Construction/Mining 48.3
6 % 45.9
6 %
Electronics/Computers/Communication 42.3
5 % 29.7
4 %
Transportation 24.3
3 % 21.2
3 %
Other 18.9
2 % 19.2
2 %
Total $ 869.1
100 % $ 770.5
100 %


	Nine months ended				Nine months ended				Three months ended				Three months ended
Market	September 30, 2017				September 30, 2016				March 31, 2018				March 31, 2017
Aerospace & Defense	$	1,280.5	49	%	$	1,196.6	51	%	$	462.4	47	%	$	417.2	48	%
Oil & Gas	289.7		11	%	200.5		9	%	152.7		16	%	92.8		11	%
Automotive	206.4		8	%	169.4		7	%	79.1		8	%	75.9		9	%
Electrical Energy	144.2		6	%	182.1		8	%	52.2		5	%	51.6		6	%
Medical	142.7		5	%	150.8		6	%	44.9		5	%	50.2		6	%
Subtotal - Key Markets	2,063.5		79	%	1,899.4		81	%	791.3		81	%	687.7		80	%
Food Equipment & Appliances	168.9		6	%	119.4		5	%	58.9		6	%	59.0		7	%
Construction/Mining	144.6		6	%	119.6		5	%	55.6		6	%	50.0		5	%
Electronics/Computers/Communication	108.2		4	%	76.2		3	%	32.9		3	%	34.5		4	%
Transportation	65.5		3	%	61.2		3	%
Other	64.5		2	%	62.7		3	%	40.3		4	%	34.7		4	%
Total	$	2,615.2	100	%	$	2,338.5	100	%	$	979.0	100	%	$	865.9	100	%

For the ~~third~~first quarter ~~2017~~2018, international sales increased ~~16%~~25% to ~~$363~~$425 million and represented ~~42%~~43% of total sales, compared to ~~$313~~$341 million, or ~~41%~~39% of total sales, for the ~~third~~first quarter ~~2016~~2017. ATI’s international sales are mostly to the aerospace, oil & gas, electrical energy, automotive and medical markets.

Sales of our high-value products represented 84% of total sales, the majority of which were consumed by our aerospace & defense customers, for the three months ended ~~September 30, 2017.~~March 31, 2018. Comparative information for our major high-value and standard products based on their percentages of our total sales is as follows:


	Three months ended September 30,				Three months ended March 31,
	2017		2016		2018		2017
High-Value Products
Nickel-based alloys and specialty alloys	28	%	26	%	29	%	26	%
Precision forgings, castings and components	19	%	17	%	21	%	18	%
Titanium and titanium-based alloys	17	%	19	%	16	%	18	%
Precision and engineered strip	14	%	15	%	13	%	14	%
Zirconium and related alloys	6	%	7	%	5	%	6	%
Total High-Value Products, excluding GOES	84	%	84	%
GOES (grain-oriented electrical steel)	—	%	—	%
Total High-Value Products, including GOES	84	%	84	%
Total High-Value Products					84	%	82	%
Standard Products
Stainless steel sheet	9	%	8	%	9	%	10	%
Specialty stainless sheet	4	%	5	%	4	%	5	%
Stainless steel plate and other	3	%	3	%	3	%	3	%
Total Standard Products	16	%	16	%	16	%	18	%
Grand Total	100	%	100	%	100	%	100	%

For the first nine months of 2017, international sales increased 12% to $1.06 billion and represented 41% of total sales, compared to $947 million, or 41% of total sales, for the first nine months of 2016. Sales of our high-value products represented 83% of total sales for the nine months ended September 30, 2017. Comparative information for our major high-value and standard products based on their percentages of our total sales is as follows:

Nine months ended September 30,
2017 2016
High-Value Products
Nickel-based alloys and specialty alloys 27 % 27 %
Precision forgings, castings and components 19 % 18 %
Titanium and titanium-based alloys 17 % 20 %
Precision and engineered strip 14 % 13 %
Zirconium and related alloys 6 % 8 %
Total High-Value Products, excluding GOES 83 % 86 %
GOES (grain-oriented electrical steel) — % 1 %
Total High-Value Products, including GOES 83 % 87 %
Standard Products
Stainless steel sheet 9 % 6 %
Specialty stainless sheet 4 % 4 %
Stainless steel plate and other 4 % 3 %
Total Standard Products 17 % 13 %
Grand Total 100 % 100 %

Total titanium mill product shipments, including Uniti joint venture conversion, were 8.4 million pounds in the third quarter 2017, bringing the first nine months 2017 to a total of 25.2 million pounds. These volumes represent a 10% increase compared to the third quarter of 2016 and a 4% increase compared to the first nine months of 2016, with generally stronger demand for sheet and plate products for global industrial markets.

Segment operating profit for the ~~third~~first quarter ~~2017~~2018 was ~~$54.4~~$96.4 million, or ~~6.3%~~9.8% of sales, ~~more than doubling~~compared to the ~~third~~first quarter ~~of 2016~~2017 segment operating profit of ~~$26.2~~$69.9 million, or ~~3.4%~~8.1% of sales. For the first nine months of 2017, segment operating profit was $195.2 million, or 7.5% of sales, compared to segment operating loss of $47.3 million, or (2.0)% of sales, for the first nine months of 2016. Segment operating profit as a percentage of sales for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017 was:


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2017		2016		2017		2016		2018		2017
High Performance Materials & Components	12.0	%	10.2	%	11.7	%	7.9	%	15.2	%	10.0	%
Flat Rolled Products	(2.0	)%	(6.7	)%	1.4	%	(18.3	)%	2.6	%	5.3	%

~~Segment~~HPMC segment operating profit for the ~~third~~first quarter ~~2017 in the HPMC segment~~2018 was ~~$61.7~~$85.5 million, or ~~12.0%~~15.2% of sales, ~~compared~~representing the best quarterly performance in over five years and is comparable to ~~$47~~$50.9 million, or ~~10.2%~~10.0% of sales, for the ~~third~~first quarter ~~2016. The improvement in HPMC segment~~2017. This operating profit improvement reflects higher productivity from increasing aerospace &and defense sales, and an improved product mix of next-generation nickel alloys and forgings for the aero engine ~~market, and the benefits of the 2016 titanium operations restructuring activities, including the Rowley, UT titanium sponge operations idling. Segment~~market.

The FRP segment operating profit for the first ~~nine months of 2017 in the HPMC segment~~quarter 2018 was ~~$180.6~~$10.9 million, or ~~11.7% of sales, compared to $114.9 million, or 7.9% of sales for the first nine months of 2016.~~

~~The FRP segment operating loss for the third quarter 2017 was $7.3 million, or (2.0)%~~2.6% of sales, compared to a segment operating ~~loss~~profit of ~~$20.8~~$19.0 million, or (6.7)% of sales, for the third quarter 2016. FRP 2017 third quarter results were negatively impacted by a steep decline in raw material prices, primarily ferrochrome and nickel, which reduced profit margins due to out-of-phase surcharges. This more than offset the favorable impact of higher operating levels and the benefits of cost reductions and restructuring actions. Segment operating profit for the first nine months of 2017 in the FRP segment was $14.6 million, or 1.4% of sales, compared to a loss of $162.2 million, or (18.3)%5.3% of sales, for the first ~~nine months~~quarter 2017. Results in 2018 included approximately $8 million of ~~2016. FRP results for~~negative impacts from required accounting changes on retirement benefit cost capitalization in inventory, as well as lower foreign currency hedge gains compared to the first ~~nine months~~quarter 2017. Prior year results reflect $6 million of ~~2016 were unfavorably impacted by inefficiencies associated with the work stoppage and return~~higher raw material surcharge benefits related primarily to ~~work of USW-represented employees in addition to higher operating costs as we moved through the process of reducing production levels and then idling our two facilities used~~a change in the ~~production~~ferrochrome surcharge calculation.

On March 1, 2018, we announced the formation of ~~commodity~~the A&T Stainless joint venture with an affiliate company of Tsingshan Group (Tsingshan) to produce 60-inch wide stainless sheet products for sale in North America. The A&T Stainless operations include ATI’s previously-idled direct roll and ~~GOES products.~~

pickle (DRAP) facility in Midland, PA. ATI provides hot-rolling conversion services to A&T Stainless using the FRP segment’s Hot-Rolling and Processing Facility (HRPF). Tsingshan purchased its 50% joint venture interest for $17.5 million, of which $5.0 million was received in the first quarter of 2018. The remaining $12.5 million will be paid in installments during the remainder of 2018. As a result of this sale of a 50% non-controlling interest and the subsequent deconsolidation of the A&T Stainless entity, we recognized a $15.9 million pre-tax gain, which is reported in other income, net on the consolidated statement of income and excluded from FRP segment results.

We expect our HPMC segment results to sustain strong performance levels in commercial aerospace, with fourth quarter HPMC financial results to be modestly improved compared to the third quarter 2017. Looking ahead to 2018, we expect continued year-over-year revenue growth and operating margin improvement in our HPMC segment resulting from ~~continuing~~ongoing aerospace market demand growth and improved asset utilization in ~~demand from~~2018. We continue to expect HPMC segment margins to expand by approximately 200 basis points versus the ~~aerospace market.~~full year 2017. However, the rate of improvement will likely vary by quarter due to the next-generation product sales cadence and other factors. We remain confident ~~about~~in our customers’ continued elevated order patterns due to increasing jet engine build rates over the next several ~~years and related increased demand for mill products, forgings, castings, and components.~~years. Our focus continues to be on operational execution, continuous improvement initiatives, and on meeting the ~~requirements of the~~ aerospace production ~~ramp. We anticipate that the 2017 financial headwinds~~ramp requirements.

~~from our castings business and completion of the start-up and qualification of our new nickel alloys powder facility will provide meaningful profit improvement opportunities in 2018.~~

~~We expect~~In the FRP segment, ~~to benefit~~we see continued strong end-market demand and the benefits from ~~stabilizing and increasing raw material prices in the fourth quarter, and to be modestly profitable for the quarter and for the full year 2017. We anticipate 2017’s operational improvements and~~ product mix ~~benefits~~and operational improvements. On March 26, 2018, we filed for an exclusion from the recently enacted Section 232 tariffs on behalf of the A&T Stainless joint venture, which imports semi-finished stainless slab products from Indonesia. In the absence of an exemption, these slabs will ~~carry over~~be subject to the 25% tariff recently levied on all stainless steel products imported into ~~2018, as we continue our efforts to position~~ the ~~FRP segment for sustainable profitability.~~

Looking beyond 2017, we plan to maintain our continuing focus on enhancing ATI’s technology leadership in differentiated specialty materials products; generating healthy cash flow from operations; improving our competitive cost position; and strengthening our balance sheet.United States. We continue to evaluate the near-term operating pace and ramp-up of the A&T Stainless joint venture as we await a ruling on the tariff exemption.

Cash generation from operations remains a key focus, and we intend to carefully balance our working capital and other cash needs with the pace of our capital expenditure requirements and financing obligations. We do not expect ~~capital expenditures~~ to ~~average approximately $100 million annually for~~pay any significant U.S. federal or state income taxes in the next ~~several years.~~few years due to net operating loss carryforwards.

Business Segment Results

High Performance Materials & Components (HPMC) Segment

~~Third~~First quarter ~~2017~~2018 sales increased ~~11.1%~~9.9% to ~~$512.9~~$560.7 million compared to the ~~third~~first quarter ~~2016. Demand from~~2017, primarily due to higher sales of forged and cast components, which were up by one-third over the ~~aerospace~~prior year. Aerospace & defense market demand continues to drive HPMC results as sales to this market represented 76% of ~~third~~first quarter segment sales: ~~45%~~48% commercial jet engine, ~~18%~~17% commercial airframe, and ~~13%~~11% government aero/defense. Sales to the commercial aerospace market, which represented ~~63%~~65% of ~~third~~first quarter ~~2017~~2018 sales, were 9%13% higher than the ~~third~~first quarter ~~2016,~~2017, with strong growth in the commercial jet engine ~~market and 1% higher airframe sales.~~market. HPMC commercial jet engine sales increased ~~$26 million, or 13%~~23%, compared to the ~~third~~first quarter ~~2016, highlighted by a 25% increase~~2017. Next-generation jet engine products, which represent 48% of ~~forged products sales.~~

~~Sales~~HPMC jet engine product sales, increased 65% compared to the ~~oil & gas~~ prior year. Construction and mining

market ~~improved for the third consecutive quarter, increasing over 50% from prior year levels. Sales~~sales were 52% higher, while sales to the ~~electrical energy~~medical market were 13% lower primarily due to increased ~~17%.~~competition in MRI end uses.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is as follows:


	Three months ended				Three months ended				Three months ended				Three months ended
Market	September 30, 2017				September 30, 2016				March 31, 2018				March 31, 2017
Aerospace & Defense:
Commercial Jet Engines	$	232.4	45	%	$	205.9	45	%	$	267.4	48	%	$	217.0	43	%
Commercial Airframes	93.0		18	%	91.8		20	%	96.1		17	%	104.4		20	%
Government Aerospace & Defense	64.1		13	%	56.7		12	%	63.2		11	%	60.0		12	%
Total Aerospace & Defense	389.5		76	%	354.4		77	%	426.7		76	%	381.4		75	%
Medical	41.8		8	%	43.1		9	%	41.2		7	%	47.1		9	%
Electrical Energy	30.4		6	%	25.9		5	%	30.8		6	%	29.6		6	%
Construction/Mining									17.6		3	%	11.5		2	%
Oil & Gas	14.3		3	%	9.5		2	%	15.2		3	%	16.5		3	%
Construction/Mining	13.5		3	%	7.7		2	%
Transportation	6.6		1	%	5.0		1	%
Other	16.8		3	%	16.2		4	%	29.2		5	%	24.3		5	%
Total	$	512.9	100	%	$	461.8	100	%	$	560.7	100	%	$	510.4	100	%

International sales represented ~~47%~~48% of total segment sales for the ~~third~~first quarter ~~of 2017. Third~~2018. First quarter ~~2017~~2018 reflects higher sales of ~~nickel-based~~specialty alloy products and ~~specialty alloys, and forged and cast~~ components. Comparative information for the HPMC segment’s major product categories, based on their percentages of sales for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ is as follows:


	Three months ended September 30,				Three months ended March 31,
	2017		2016		2018		2017
High-Value Products
Precision forgings, castings and components	33	%	30	%	38	%	31	%
Nickel-based alloys and specialty alloys	30	%	28	%	29	%	30	%
Titanium and titanium-based alloys	26	%	30	%	24	%	28	%
Zirconium and related alloys	11	%	12	%	9	%	11	%
Total High-Value Products	100	%	100	%	100	%	100	%

Segment operating profit in the ~~third~~first quarter ~~of 2017~~2018 increased to ~~$61.7~~$85.5 million, or ~~12.0%~~15.2% of total sales, compared to ~~$47.0~~$50.9 million, or ~~10.2%~~10% of total sales, for the ~~third~~first quarter ~~of 2016. The improvement in segment~~2017. This operating profit improvement reflects higher productivity from increasing aerospace &and defense sales, and an improved product mix of next-generation nickel alloys and forgings for the aero engine ~~market, which represented 39%~~market. Prior year results included $2 million of ~~HPMC jet engine sales in the third quarter of 2017, and the benefits of the 2016 titanium operations restructuring activities, including the Rowley, UT titanium sponge operations idling. Our new~~start-up costs for our nickel-based powder alloys facility in North Carolina which began operations in the first quarter ~~of 2017, and third~~2017.

Flat Rolled Products (FRP) Segment

First quarter ~~2017 results include $2 million of start-up costs for this facility as we continued our commercial qualification process.~~

~~For the nine months ended September 30, 2017, segment~~2018 sales increased ~~6.6%~~17.7% compared to ~~$1.55 billion~~the first quarter2017, to $418.3 million, due to higher shipment volume for high-value products, primarily nickel-based and specialty alloys for oil & gas projects. Sales of standard products were 5% lower, compared to the first nine months of 2016. Sales to the aerospace & defense market were 8% higher than the prior year to date period. This increase was led by commercial jet engine sales which were 11% higher, highlighted by a 27% increase of forged products sales.quarter 2017. Sales to the oil & gas market increased ~~38% from~~80% versus the prior year ~~levels while sales to the electrical energy market decreased 13%.~~

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the nine month periods ended September 30, 2017 and 2016 is as follows:

Nine months ended Nine months ended
Market September 30, 2017 September 30, 2016
Aerospace & Defense:
Commercial Jet Engines $ 686.1
44 % $ 615.7
42 %
Commercial Airframes 290.4
19 % 290.1
20 %
Government Aerospace & Defense 193.2
13 % 173.0
12 %
Total Aerospace & Defense 1,169.7
76 % 1,078.8
74 %
Medical 134.2
9 % 142.0
10 %
Electrical Energy 84.1
5 % 96.5
7 %
Oil & Gas 49.7
3 % 36.1
2 %
Construction/Mining 37.6
2 % 28.4
2 %
Transportation 21.5
2 % 19.0
1 %
Other 52.9
3 % 52.4
4 %
Total $ 1,549.7
100 % $ 1,453.2
100 %

International sales represented 47% of total segment sales for the first nine months of 2017. The first nine months of 2017 reflects higher sales of nickel-based and specialty alloys, and forged and cast components. Comparative information for the HPMC segment’s major product categories, based on their percentages of sales for the nine months ended September 30, 2017 and 2016, is as follows:

Nine months ended September 30,
2017 2016
High-Value Products
Precision forgings, castings and components 32 % 28 %
Nickel-based alloys and specialty alloys 30 % 29 %
Titanium and titanium-based alloys 27 % 30 %
Zirconium and related alloys 11 % 13 %
Total High-Value Products 100 % 100 %

Segment operating profit in the first nine months of 2017 increased to $180.6 million, or 11.7% of total sales, compared to $114.9 million, or 7.9% of total sales, for the first nine months of 2016, reflecting higher productivity from increasing aerospace & defense sales, a richer mix of products for next-generation jet engines, and the benefits of the 2016 titanium operations restructuring activities, including the Rowley, UT titanium sponge operations idling. The first nine months of 2017 includes $6 million of start-up costs for our new nickel-based powder alloys facility in North Carolina. The first nine months of 2016 results included $5.3 million of non-recurring work stoppage and return to work costs for represented employees at two HPMC facilities.

~~Flat Rolled Products (FRP) Segment~~

~~Third quarter 2017 sales increased 15.4% compared to the~~ ~~third quarter2016~~, to $356.2 million, due to higher shipment volume for both high-value and standard stainless products, and slightly higher selling prices for most standard stainless and Precision Rolled Strip products. Sales to the electronics market were 43% higher, and sales to the oil & gas market were 41% higherperiod, which was primarily due to ~~project-based demand for chemical and hydrocarbon processing. Third~~large international pipeline projects. First quarter ~~2017~~2018 FRP segment titanium shipments, including Uniti joint venture conversion, were ~~1.1~~1.5 million pounds, a ~~38%~~5% increase compared to the ~~third~~first quarter ~~2016,~~2017, reflecting stronger project-based demand from industrial titanium markets.

Comparative information for our FRP segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is as follows:


	Three months ended				Three months ended				Three months ended				Three months ended
Market	September 30, 2017				September 30, 2016				March 31, 2018				March 31, 2017
Oil & Gas	$	84.1	23	%	$	59.5	19	%	$	137.5	33	%	$	76.3	21	%
Automotive	59.3		17	%	58.7		19	%	76.5		18	%	73.9		21	%
Food Equipment & Appliances	54.2		15	%	42.4		14	%	58.8		14	%	58.7		17	%
Construction/Mining									38.0		9	%	38.5		11	%
Aerospace & Defense									35.7		8	%	35.8		10	%
Electronics/Computers/Communication	41.2		12	%	28.9		9	%	31.4		8	%	33.3		9	%
Aerospace & Defense	38.3		11	%	37.5		12	%
Construction/Mining	34.8		10	%	38.2		13	%
Electrical Energy	18.1		5	%	17.9		6	%	21.4		5	%	22.0		6	%
Transportation	17.7		5	%	16.2		5	%
Other	8.5		2	%	9.4		3	%	19.0		5	%	17.0		5	%
Total	$	356.2	100	%	$	308.7	100	%	$	418.3	100	%	$	355.5	100	%

International sales represented ~~35%~~37% of total segment sales for the ~~third~~first quarter 2018. First quarter 2018 reflects higher sales of ~~2017.~~high-value products largely due to demand for nickel-based and specialty alloys for large oil & gas projects. Comparative information for the FRP products segment’s major product categories, based on their percentages of sales for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ is as follows:


	Three months ended September 30,				Three months ended March 31,
	2017		2016		2018		2017
High-Value Products
Precision and engineered strip	34	%	37	%	31	%	35	%
Nickel-based alloys and specialty alloys	27	%	23	%	31	%	20	%
Titanium and titanium-based alloys	3	%	3	%	5	%	4	%
Total High-Value Products, excluding GOES	64	%	63	%
GOES (grain-oriented electrical steel)	—	%	—	%
Total High-Value Products, including GOES	64	%	63	%
Total High-Value Products					67	%	59	%
Standard Products
Stainless steel sheet	20	%	20	%	20	%	24	%
Specialty stainless sheet	11	%	11	%	9	%	12	%
Stainless steel plate	5	%	6	%	4	%	5	%
Total Standard Products	36	%	37	%	33	%	41	%
Grand Total	100	%	100	%	100	%	100	%

Segment operating ~~loss~~profit was ~~$7.3~~$10.9 million, or ~~(2.0)%~~2.6% of sales, for the ~~third~~first quarter ~~of 2017,~~2018, compared to a segment operating ~~loss~~profit of ~~$20.8~~$19.0 million, or ~~(6.7)%~~5.3% of sales, for the ~~third~~first quarter 2017. First quarter 2018 FRP results included approximately $8 million of ~~2016. 2017~~negative impacts from required accounting changes on retirement benefit cost capitalization in inventory, as well as reduced benefits of foreign currency hedges. Expected negative impacts from lower ferrochrome surcharges were mostly offset by higher nickel surcharges experienced late in the first quarter 2018. Prior year results ~~were negatively impacted by a steep decline in~~also reflect $6 million of higher raw material ~~prices, which reduced profit margins due~~surcharge benefits related primarily to ~~out-of-phase surcharges, which more than offset~~a change in the ~~favorable impact of higher operating levels and the benefits of cost reductions and restructuring actions.~~

ferrochrome surcharge calculation.

Comparative shipment volume and average selling price information of the segment’s products for the three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is provided in the following table:

Three months ended September 30, %
2017 2016 Change
Volume (000’s pounds):
High-Value 83,637
73,481
14 %
Standard 115,907
102,252
13 %
Total 199,544
175,733
14 %
Average prices (per lb.):
High-Value $ 2.69
$ 2.64
2 %
Standard $ 1.13
$ 1.10
3 %
Combined Average $ 1.78
$ 1.75
2 %

For the first nine months of 2017, sales increased 20.4% compared to the first nine months of 2016, to $1.07 billion, primarily due to higher shipment volume and selling prices for both standard stainless products and high-value products. Sales to the oil & gas market were 46% higher primarily due to project-based demand for chemical and hydrocarbon processing, and sales to the automotive market were 22% higher. Sales to the electrical energy market declined 30%. Prior year results also include sales of unprofitable GOES products and certain commodity standard stainless steel sheet products prior to the idling of the Bagdad, PA and Midland, PA operations. The first nine months of 2017 FRP segment titanium shipments, including Uniti joint venture conversion, were 4.0 million pounds, a 47% increase compared to the first nine months of 2016, reflecting stronger project-based demand from industrial titanium markets.



	Three months ended March 31,				%
	2018		2017		Change
Volume (000’s pounds):
High-Value	84,042		75,333		12	%
Standard	109,249		114,985		(5	)%
Total	193,291		190,318		2	%
Average prices (per lb.):
High-Value	$	3.30	$	2.77	19	%
Standard	$	1.26	$	1.26	—	%
Combined Average	$	2.15	$	1.86	16	%

Comparative information for our FRP segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the nine month periods ended September 30, 2017 and 2016 is as follows:

Nine months ended Nine months ended
Market September 30, 2017 September 30, 2016
Oil & Gas $ 240.0
22 % $ 164.5
19 %
Automotive 200.0
19 % 163.9
19 %
Food Equipment & Appliances 167.9
16 % 118.0
13 %
Aerospace & Defense 110.8
10 % 117.8
13 %
Construction/Mining 107.0
10 % 91.2
10 %
Electronics/Computers/Communication 104.7
10 % 73.8
8 %
Electrical Energy 60.0
6 % 85.5
10 %
Transportation 44.1
4 % 42.2
5 %
Other 31.0
3 % 28.4
3 %
Total $ 1,065.5
100 % $ 885.3
100 %

International sales represented 31% of total segment sales for the first nine months of 2017. Comparative information for the FRP products segment’s major product categories, based on their percentages of sales for the nine months ended September 30, 2017 and 2016, is as follows:

Nine months ended September 30,
2017 2016
High-Value Products
Precision and engineered strip 34 % 35 %
Nickel-based alloys and specialty alloys 23 % 26 %
Titanium and titanium-based alloys 4 % 4 %
Total High-Value Products, excluding GOES 61 % 65 %
GOES (grain-oriented electrical steel) — % 3 %
Total High-Value Products, including GOES 61 % 68 %
Standard Products
Stainless steel sheet 22 % 17 %
Specialty stainless sheet 12 % 10 %
Stainless steel plate 5 % 5 %
Total Standard Products 39 % 32 %
Grand Total 100 % 100 %

Segment operating profit was $14.6 million, or 1.4% of sales, for the first nine months of 2017, compared to a segment operating loss of $162.2 million, or (18.3)% of sales, for the first nine months of 2016. The operating profit improvement primarily reflects benefits of higher operating levels, a greater portion of high-value products, and the benefits of cost reductions and restructuring actions, including the exit from the GOES market and the de-emphasis of certain commodity standard stainless sheet products, as discussed above. Segment operating results in 2016 were primarily driven by lower shipment volumes and selling prices, and also included $43.5 million of costs associated with the work stoppage and return-to-work of represented employees.

~~Comparative shipment volume and average selling price information of the segment’s products, excluding GOES, for the nine months ended September 30, 2017 and 2016 is provided in the following table:~~

Nine months ended September 30, %
2017 2016 Change
Volume (000’s pounds):
High-Value 233,059
217,881
7 %
Standard 345,569
272,846
27 %
Total 578,628
490,727
18 %
Average prices (per lb.):
High-Value $ 2.76
$ 2.61
6 %
Standard $ 1.20
$ 1.04
15 %
Combined Average $ 1.83
$ 1.73
6 %

Corporate Items

There was no net effect of changes in LIFO and net realizable value (NRV) inventory reserves for the first quarter 2018 or 2017. For the ~~third~~first quarter of 2018 and ~~first nine months of~~ 2017, last-in, first-out (LIFO) inventory valuation reserve charges of ~~$33.3~~$8.2 million and ~~$51.5~~$8.1 million, respectively, were offset by ~~$33.2 million and $51.3 million, respectively,~~reductions of the same magnitude in ~~reductions in net realizable value (NRV)~~NRV inventory reserves, which are required to offset the Company’s aggregate net debit LIFO inventory balance that exceeds current inventory replacement cost. For the third quarter and first nine months of 2016, LIFO inventory valuation reserve charges of $18.5 million and $23.1 million, respectively, were offset by $18.5 million and $23.5 million, respectively, in reductions in NRV inventory reserves.

Corporate expenses for the ~~third~~first quarter ~~2017~~2018 were ~~$14.8~~$13.2 million compared to ~~$9.8~~$10.3 million for the ~~third~~first quarter ~~2016. For the nine months ended September 30, 2017, corporate expenses were $36.9 million, increasing from $32.6 million for the nine months ended September 30, 2016. These increases in 2017 are~~2017. This increase was primarily due ~~primarily~~ to higher incentive compensation ~~costs, and also start-up research and development costs~~expense based on estimates of attaining performance measures. In addition, the ~~recently-announced meltless titanium alloy powder joint venture with GE Aviation.~~first quarter of 2017 included a benefit related to company-owned life insurance policies.

Closed operations and other expenses for the ~~third~~first quarter ~~2017~~2018 were ~~$12.2~~$8.1 million, compared to ~~$15.4~~$3.0 million for the ~~third~~first quarter ~~2016, primarily~~2017, mainly due to higher environmental costs, higher real estate costs at closed operations, ~~costs of our~~primarily for the idled Rowley, UT titanium sponge ~~facility in 2016, which were classified in closed~~ operations, beginning in the third quarter of 2016 due to the indefinite idling decision and ongoing shutdown activities. This impact was partially offset in 2017 for idle facility carrying costs due to the additions of the Rowley, UT, Midland, PA and Bagdad, PA facilities as a result of prior year closure actions. For the nine months ended September 30, 2017, closed company and other expenses were $28.4 million, compared to $24.6 million for the comparable period. The increase was largely due to higher idle facility carrying costs in 2017 due to the additions of the Rowley, Midland and Bagdad facilities as a result of prior year closure actions, and negative foreign currency remeasurement impacts primarily related to our European Treasury ~~Center operation.~~

~~During~~Center. In addition, the ~~third~~first quarter 2017 benefited from certain non-routine items involving property tax adjustments, changes to facility closure reserves, and non-operating royalty income, which reduced net costs by approximately $4 million. For the remaining quarters of 2018, we expect closed operations and other expenses to be comparable to the first quarter of ~~2017,~~2018.

On March 1, 2018, we ~~recorded~~announced the formation of A&T Stainless, of which ATI has a ~~$114.4 million goodwill impairment charge to write-off all~~50% ownership interest. Our joint venture partner purchased its 50% joint venture interest during the ~~goodwill assigned to ATI Cast Products, our titanium investment casting business in the HPMC segment. During the third~~first quarter of ~~2017, we performed an interim goodwill impairment analysis on ATI Cast Products due to impairment indicators, including lower actual results versus projections. As~~2018, and as a result of this sale and the ~~2017 interim goodwill impairment evaluation, we determined that the fair value~~subsequent deconsolidation of the ~~Cast Products business was significantly below~~A&T Stainless entity, we recognized a $15.9 million gain. This gain is reported in other income, net on the ~~carrying value, including goodwill. This was primarily due to lower projected revenues, profitability~~consolidated statement of income and ~~cash flows associated with revised expectations for the rate of operational improvement and profitability of this business based on current customer agreements. This goodwill impairment charge was~~ excluded from ~~2017 HPMC business~~FRP segment results.

Business segment results exclude $499.9 million and $509.9 of restructuring and other charges for the three and nine months ended September 30, 2016, respectively. These charges for the third quarter ended September 30, 2016 primarily relate to the indefinite idling of our Rowley facility and include $471.3 million long-lived asset impairment charges, $11.3 million of inventory valuation charges for titanium sponge that are classified in cost of sales, $16.3 million of facility shutdown and idling costs and $1.0 million of employee benefit costs. The nine months ended September 30, 2016 also include a $1.0 million charge for severance obligations in the HPMC segment, and a $9.0 million charge for severance obligations in the FRP operations.

Interest expense, net of interest income, in the ~~third~~first quarter~~2017~~ 2018 was ~~$34.2~~$25.5 million,, compared to net interest expense of ~~$32.6~~$33.5 million in the ~~third~~first quarter~~2016. On a year-to-date basis, the first nine months of 2017 net interest expense was $102.2 million~~

~~compared to $91.2 million for the first nine months of 2016. The year-to-date increase in interest expense was~~ 2017. This decrease is primarily due to ~~interest on~~ the ~~$287.5 million 4.75% Convertible~~redemption of our 9.375% Senior Notes due ~~2022 (Convertible Notes) and~~2019 in the ~~$100.0 million term loan (Term Loan) issued during the second~~fourth quarter of ~~2016.~~2017. Capitalized interest reduced interest expense by ~~$0.4~~$0.9 million in the ~~third~~first quarter of ~~2017~~ 2018 and ~~$1.1~~$0.7 million in the ~~third~~first quarter of ~~2016. For the nine months ended September 30, 2017 and 2016, capitalized interest was $1.9 million and $3.1 million, respectively.~~ 2017.

Income Taxes

ATI maintains income tax valuation allowances on its U.S. Federal and state deferred tax assets due to a three year cumulative loss condition, which limits the ability to consider other positive subjective evidence, such as projections of future results, to assess the realizability of deferred tax assets. Results in both ~~2017~~2018 and ~~2016~~2017 include impacts from income taxes that differ from applicable standard tax rates, primarily related to the income tax valuation allowance. First quarter 2018 results included a ~~standard 35% tax rate,~~provision for income taxes of $5.0 million, or 7.6% of income before income taxes, primarily related to income ~~tax valuation allowance changes. Third~~taxes on non-U.S. operations. The first quarter 2017 ~~results included a benefit~~provision for income taxes was $2.0 million, or 8.7% of ~~$1.9 million,~~income before income taxes, which ~~includes the impact of $106 million pre-tax non-deductible goodwill impairment and $0.3~~included $1.3 million of discrete tax benefits. The third quarter 2016 benefit for income taxes was $4.3 million, which includes a $173.1 million income tax valuation allowance charge on U.S. federal deferred tax assets, and $4.1 million of discrete charges. The third quarter 2016 actionsCompany continues to ~~indefinitely idle~~analyze the ~~Rowley, UT titanium sponge production facility resulted in a reassessment~~impact of the ~~realizability of U.S. federal deferred tax assets.~~

~~For~~Tax Cut and Jobs Act as additional guidance is published. At this time, the ~~first nine months of~~Company has not made any material adjustments to the previously presented amounts in the 2017 the benefit for income taxes was $2.0 million, compared to a benefit for income taxes of $64.4 million, or 9.1% of the loss before income taxes, for the comparable 2016 period. The first nine months of 2017 included discrete tax benefits of $7.0 million, largely for the effects of amending tax returns for prior periods in certain domestic jurisdictions, and the first nine months of 2016 included discrete tax expense of $0.5 million.

For the three and nine months ended September 30, 2017, we determined that we were unable to make a reliable estimate of the annual effective tax rate for our domestic operations, as insignificant changes in projected results for these operations can produce a significant variation in its annual effective tax rate. Therefore, we recorded tax expense for these operations for the three and nine months ended September 30, 2017 based on the actual year to date effective rate for these periods.financial statements.

Financial Condition and Liquidity

We have ana $500 million Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our domestic operations. The ABL facility, which matures in February 2022, includes a $400 million revolving credit ~~portion of the ABL~~ facility, ~~is $400 million, which includes~~ a letter of credit sub-facility of up to $200 ~~million. The ABL facility includes~~million, and a $100.0 million term loan (Term Loan). The Term Loan has an interest rate of 3.0% plus a LIBOR spread and can be prepaid in ~~the amount~~increments of ~~$100 million.~~$50 million if certain minimum liquidity conditions are satisfied.

~~In June 2017, the ABL facility was amended to, among other things, extend the duration of the facility from September 2020 to February 2022. As amended, the~~The applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.75% and 2.25% for LIBOR-based borrowings and between 1.0% and 1.5% for base rate borrowings. The ABL facility contains a financial covenant whereby we must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10%~~, as amended,~~ of the then applicable maximum borrowing amount under the revolving credit ~~potion~~portion of the ABL and any outstanding Term Loan balance, or (ii) ~~$40~~$40.0 million. We ~~do not meet this required~~were in compliance with the fixed charge coverage ratio covenant at ~~September 30, 2017. As a result, we are not able to access $50 million of the revolving credit portion of the ABL facility until we meet the required ratio.~~March 31, 2018. Additionally, we must demonstrate liquidity, as calculated in accordance with the terms of the ABL facility, of ~~at least $500 million on the date that is 91 days prior to June 1, 2019, the maturity date of the 9.375% Senior Notes due 2019 and~~ at least $700 million on the date that is 91 days prior to January 15, 2021, the maturity date of the 5.95% Senior Notes due 2021, and that such liquidity is available at all times thereafter until the ~~9.375% Senior Notes due 2019 and the~~ 5.95% Senior Notes due 2021 are paid in full or refinanced. Costs associated with entering into the ABL amendment were $1.0 million, and are being amortized, along with any previous unamortized deferred costs, to interest expense over the extended term of the facility ending February 2022.

Also in June 2017, the $100 million Term Loan was amended to extend the maturity date from November 2017 to February 2022 and to reduce the interest rate to 3.0% plus a LIBOR spread. The amended Term Loan can be prepaid in minimum increments of $50 million on or after the earlier of December 2018 or upon refinancing or retirement of the 9.375% Senior Notes due 2019 if certain minimum liquidity conditions are satisfied. The underwriting costs associated with amending the Term Loan were $0.8 million, and are being amortized, along with any previous unamortized deferred costs, to interest expense over the extended term of the loan ending February 2022.

issuance of letters of credit. Average revolving credit borrowings under the ABL facility for the first ~~nine~~

~~months~~quarters of 2018 and 2017 ~~and 2016~~ were ~~$46~~$53 million and ~~$109~~$4 million, respectively, bearing an average annual interest rate of ~~3.276%~~3.50% and ~~1.757%~~3.43%, respectively.

At ~~September 30, 2017,~~March 31, 2018, we had ~~$125~~$110 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately ~~$280~~$305 million. We do not expect to pay any significant U.S. federal income taxes in ~~2017 or 2018~~the next few years due to net operating loss carryforwards. Tax law changes in the Tax Cuts and Jobs Act related to a liability for foreign earnings are expected to be offset with these net operating loss carryforwards or other tax attributes.

Based on U.S. Internal Revenue Service regulations regarding mortality table changes for 2018, the current year performance of our pension trust assets through March 31, 2018, and the expected rate of return on pension assets in future years, we currently expect our 2018 funding requirements to the ATI Pension Plan, our U.S. qualified defined benefit pension plan, to be approximately $40 million, and to have annual funding requirements of approximately $85 million to the ATI Pension Plan 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 the ATI Pension ~~Plan,~~Plan. 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 ~~U.S. qualified defined benefit pension plan.~~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. ~~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 March 2017, we made a $135 million cash contribution to the ATI Pension Plan, which completed our funding requirements for 2017. Based on recently-issued IRS regulations regarding mortality table changes for 2018, the current year performance of our pension trust assets through September 30, 2017, and the expected rate of return on pension assets in future years, we currently expect our 2018 funding requirements to the ATI Pension Plan to be approximately $50 million, and to have annual funding requirements of approximately $100 million to the ATI Pension Plan for the next few years thereafter. However, these funding estimates are subject to significant uncertainty including the actual pension trust assets’ fair value on December 31, the annual remeasurement date, and the discount rates used to measure pension liabilities.

We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.

Cash Flow and Working Capital

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018, cash used in operations was $~~53.8~~47.1 million, and included a ~~$135.0~~$63.1 million ~~contribution to the ATI Pension Plan in March 2017.~~use from higher managed working capital balances. Managed working capital balances increased ~~$18.9 million~~ in ~~the third quarter 2017 and $81.5 million for the first nine months of 2017~~2018 as we continue to ~~ramp to higher~~expand production levels to support business growth. In addition, cash used in operations in the first quarter of 2018 includes $16 million in short-term advances for our funding of the A&T Stainless joint venture during its production ramp-up.

As part of managing the liquidity of our business, we focus on controlling managed working capital, which is defined as gross accounts receivable and gross inventories, less accounts payable. In measuring performance in controlling 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. With the adoption of the new revenue recognition accounting standard in 2018, we now include short-term contract assets and liabilities in the calculation of managed working capital. In 2017 and prior periods, portions of contract assets and liabilities were included in managed working capital. Prior managed working capital calculations were not revised for this accounting change. 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. At ~~September 30, 2017~~,March 31, 2018, managed working capital decreased to ~~39.0%~~37.0% of annualized total ATI sales compared to ~~40.0%~~38.1% of annualized sales at December 31, ~~2016~~.2017, as revenue growth continued. The $63.1 million increase in managed working capital at ~~September 30, 2017~~March 31, 2018 from December 31, ~~2016~~2017 resulted from a ~~$72.4~~$61.1 million increase in accounts receivable, $38.6 million in short-term contract assets and a ~~$65.3~~$34.2 million increase in inventory, partially offset by a ~~$56.2~~$4.6 million increase in accounts ~~payable.~~payable and $66.2 million in short-term contract liabilities. Days sales outstanding, which measures actual collection timing for accounts receivable, ~~improved~~declined by ~~12%~~7% as of ~~September 30, 2017~~March 31, 2018 compared to year end ~~2016.~~2017. Gross inventory turns, which exclude the effect of LIFO and any applicable offsetting NRV inventory valuation reserves, remained fairly consistent at ~~September 30, 2017~~March 31, 2018 compared to year end ~~2016.~~2017.

The components of managed working capital at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:


	September 30,			December 31,			March 31,			December 31,
(In millions)	2017			2016			2018			2017
Accounts receivable	$	525.9		$	452.1		$	606.4		$	545.3
Short-term contract assets							38.6			—
Inventory	1,101.1			1,037.0			1,210.8			1,176.1
Accounts payable	(350.5		)	(294.3		)	(424.7		)	(420.1		)
Short-term contract liabilities							(66.2		)	—
Subtotal	1,276.5			1,194.8			1,364.9			1,301.3
Allowance for doubtful accounts	5.9			7.3			5.9			5.9
Adjustment from current cost to LIFO cost basis	(45.8		)	(97.3		)	(23.1		)	(43.1		)
Inventory valuation reserves	118.7			169.0			101.0			121.5
Managed working capital	$	1,355.3		$	1,273.8		$	1,448.7		$	1,385.6
Annualized prior 3 months sales	$	3,476.5		$	3,184.2		$	3,916.1		$	3,639.5
Managed working capital as a % of annualized sales	39.0		%	40.0		%	37.0		%	38.1		%
Change in managed working capital from December 31, 2016	$	81.5
Change in managed working capital from December 31, 2017							$	63.1

Cash used in investing activities was ~~$82.1~~$41.5 million in the first ~~nine~~three months of 2017, with ~~$85.3~~$41.6 million for capital expenditures, ~~partially offset by cash proceeds from sales~~including initial down payments for our recently-announced expansion of ~~assets. Our capital~~iso-thermal forging and heat-treating capacity in our HPMC operations, and payments for the expansion ~~project at~~of our STAL joint venture’s Precision Rolled Strip operation in China. The STAL joint venture ~~in China~~expansion is ~~ongoing~~being funded entirely through joint venture cash and ~~will be fully funded by STAL’s operations. The HPMC segment capital expansion project for our new nickel-based powder alloys facility in North Carolina began~~ operations, with expected start-up in the ~~first~~second quarter ~~2017 and we continued~~of 2018. We are analyzing the impact of potential aerospace production rate increases on our ~~commercial qualification process in the third quarter. We continue to estimate that 2017~~ capital ~~expenditures will be $125 million.~~spending requirements. 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 financing activities was ~~$31.2~~$56.9 million and consisted primarily of ~~$25.0~~$50.0 million of borrowings on the revolving portion of the ABL credit ~~facility.~~ facility, $2.7 million for the sale of noncontrolling interest related to Next Gen Alloys, and $5.0 million for the first installment from Tsingshan of the $17.5 million purchase price for its 50% joint venture interest in A&T Stainless.

At ~~September 30, 2017,~~March 31, 2018, cash and cash equivalents on hand totaled ~~$124.9~~$109.9 million, a decrease of ~~$104.7~~$31.7 million from year end ~~2016.~~2017. Cash and cash equivalents held by our foreign subsidiaries was ~~$77.7~~$79.8 million at ~~September 30, 2017,~~March 31, 2018, of which ~~$40.3~~$40.8 million was held by ~~STAL, the Company’s Chinese joint venture in which ATI has a 60% interest.~~STAL.

Debt

Total debt outstanding increased ~~$35.2~~$57.7 million to ~~$1,929.3~~$1,611.5 million at ~~September 30, 2017~~March 31, 2018 compared to December 31, ~~2016.~~2017. This increase was primarily due to ~~$25.0~~$50.0 million of borrowings on the ABL credit facility in ~~2017.~~2018.

In managing our overall capital structure, some of the measures on which we focus are 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. Net debt as a percentage of total capitalization was ~~57.2%~~44.9% at ~~September 30, 2017~~March 31, 2018, compared to ~~55.1%~~44.8% at December 31, ~~2016~~2017. The net debt to total capitalization was determined as follows:


(In millions)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Total debt (a)	$	1,929.3		$	1,894.1		$	1,611.5		$	1,553.8
Less: Cash	(124.9		)	(229.6		)	(109.9		)	(141.6		)
Net debt	$	1,804.4		$	1,664.5		$	1,501.6		$	1,412.2
Total ATI stockholders’ equity	1,347.8			1,355.2			1,846.1			1,739.4
Net ATI total capital	$	3,152.2		$	3,019.7		$	3,347.7		$	3,151.6
Net debt to ATI total capital	57.2		%	55.1		%	44.9		%	44.8		%

Total debt to total capitalization of ~~58.9%~~46.6% at ~~September 30, 2017~~March 31, 2018 increased from ~~58.3%~~47.2% at December 31, ~~2016~~2017.

Total debt to total capitalization was determined as follows:


(In millions)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Total debt (a)	$	1,929.3		$	1,894.1		$	1,611.5		$	1,553.8
Total ATI stockholders’ equity	1,347.8			1,355.2			1,846.1			1,739.4
Total ATI capital	$	3,277.1		$	3,249.3		$	3,457.6		$	3,293.2
Total debt to total ATI capital	58.9		%	58.3		%	46.6		%	47.2		%


(a)	Excludes debt issuance costs.

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 $100 million and 25% 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 $100 million and 25% of the maximum revolving credit advance amount but more than the greater of $60 million and 15% of the maximum revolving credit advance amount, if (i) no event of default has occurred and is continuing or would result from paying the dividend, (ii) we demonstrate to the administrative agent that, prior to and after giving effect to the payment of the dividend (A) the undrawn

availability, as measured both at the time of the dividend payment and as an average for the 60 consecutive day period immediately preceding the dividend payment, is at least the greater of $60 million and 15% of the maximum revolving credit availability, and (B) we maintain a fixed charge coverage ratio of at least 1.00:1.00, as calculated in accordance with the terms of the ABL facility.

Critical Accounting Policies

Inventory

At ~~September 30, 2017~~March 31, 2018, we had net inventory of $~~1,101.1~~1,210.8 million. Inventories are stated at the lower of cost (LIFO, first-in, first-out (FIFO) and average cost methods) or market, less progress payments. 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.

Since the LIFO inventory valuation methodology is designed for annual determination, interim estimates of the annual LIFO valuation are required. We recognize the effects of the LIFO inventory valuation method on an interim basis by projecting the expected annual LIFO cost and allocating that projection to the interim quarters equally. These projections of annual LIFO inventory valuation reserve changes are updated quarterly and are evaluated based upon material, labor and overhead costs and projections for such costs at the end of the year plus projections regarding year end inventory levels.

The prices for many of the raw materials we use have been extremely 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 ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the LIFO inventory valuation method resulted in cost of sales that were ~~$51.5~~$8.2 million and ~~$23.1~~$8.1 million higher, respectively, than would have been recognized under the FIFO methodology to value our inventory.

Due primarily to persistent raw material deflation ~~over the last several~~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):

Nine months ended September 30,
2017 2016
LIFO benefit (charge) $ (51.5 ) $ (23.1 )
NRV benefit (charge) 51.3
23.5
Net cost of sales impact $ (0.2 ) $ 0.4

We also recorded inventory valuation charges for the market-based valuation of Rowley-produced titanium sponge inventory. These lower of cost or market charges were $17.7 million for the first nine months of 2016. Additionally, in the third quarter of 2016, in conjunction with the indefinite idling of the Company’s Rowley, UT titanium sponge facility, we recorded an additional $11.3 million charge to revalue titanium sponge inventory based on revised assessments of industrial grade titanium market conditions and expected utilization of this inventory.



	Three months ended March 31,
	2018			2017
LIFO benefit (charge)	$	(8.2	)	$	(8.1	)
NRV benefit (charge)	8.2			8.1
Net cost of sales impact	$	—		$	—

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 such products.

The LIFO inventory valuation methodology is not utilized by many of the companies with which we compete, including foreign competitors. As such, our results of operations may not be comparable to those of our competitors during periods of volatile material costs due, in part, to the differences between the LIFO inventory valuation method and other acceptable inventory valuation methods.

Asset Impairment

We monitor the recoverability of the carrying value of our long-lived assets. An impairment charge is recognized when the expected net undiscounted future cash flows from an asset’s use (including any proceeds from disposition) are less than the asset’s carrying value, and the asset’s carrying value exceeds its fair value. Changes in the expected use of a long-lived asset group, and the financial performance of the long-lived asset group and its operating segment, are evaluated as indicators of possible impairment. Future cash flow value may include appraisals for property, plant and equipment, land and improvements, future cash flow estimates from operating the long-lived assets, and other operating considerations. In the fourth quarter of each year in conjunction with the annual business planning cycle, or more frequently if new material information is available, we evaluate the recoverability of idled facilities.

Goodwill is reviewed annually in the fourth quarter of each year for impairment or more frequently if impairment indicators arise. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. At ~~September 30, 2017,~~March 31, 2018, we had ~~$531.9~~$534.2 million of goodwill on our consolidated balance sheet, ~~all~~an increase of ~~which relates to the HPMC segment. Goodwill decreased $110.0~~$2.8 million ~~at September 30, 2017 compared to~~from December 31, ~~2016, resulting from a $114.4 million impairment charge in the HPMC segment offset by $4.4 million from the impact of~~2017 due to foreign currency translation on goodwill denominated in functional currencies other than the U.S. dollar.

~~During the third quarter of 2017, we performed an interim~~ All goodwill ~~impairment analysis on ATI Cast Products, a titanium investment casting business, due~~relates to ~~impairment indicators including lower actual results versus projections. This~~ reporting unit had a fair value that exceeded carrying value by 12% as a result of our 2016 annual goodwill impairment evaluation. As a result of the 2017 interim goodwill impairment evaluation, we determined that the fair value of the Cast Products business was significantly below the carrying value, including goodwill. This was primarily due to lower projected revenues, profitability and cash flows associated with revised expectations for the rate of operational improvement and profitability of this business based on current customer agreements. Consequently, during the third quarter of 2017, we recorded a $114.4 million pre-tax impairment charge to write-off all of the goodwill associated with ATI Cast Products, most of which was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes.

~~For this interim impairment analysis, fair value was determined by using a quantitative assessment that used a discounted cash flow technique, which represents Level 3 unobservable information~~units 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 approximately 11%, and long-term growth rate was 4%. Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

Also during the third quarter of 2017, we concluded that the goodwill impairment at ATI Cast Products was an impairment indicator to evaluate the recoverability of other long-lived assets of this reporting unit, including property, plant, equipment, and intangible assets. No impairment was determined to exist in these long-lived assets as a result of this interim impairment test.HPMC segment.

Management concluded that ~~no other ATI~~none of ATI’s reporting units or long-lived assets experienced any triggering event that would have required an interim impairment analysis at ~~September 30, 2017.~~

March 31, 2018.

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.

The evaluation includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. In situations where a three year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized.

~~Beginning in~~Since 2015, our results reflected a three year cumulative loss from U.S. ~~operations, which continues through the third quarter 2017; prior thereto, our historical domestic results reflected a three year cumulative profit.~~operations. As a result, we established deferred tax asset valuation allowances in 2015 and 2016 for certain U.S. Federal and state deferred tax assets. ~~These deferred~~In 2017 and 2018, ATI continued to maintain income tax valuation allowances on its U.S. Federal and state deferred tax assets, as well as valuation allowances for certain foreign jurisdictions, had the effect of significantly reducing the reported income tax provision/benefit applicable to the pre-tax income/loss in each period.assets. In addition, we have ~~$29.3~~$24.4 million of valuation allowances on amounts recorded in other comprehensive income as of ~~September 30, 2017.~~March 31, 2018.

While we remain in a cumulative loss condition, our ability to evaluate the realizability of deferred tax assets ~~in that jurisdiction~~ is generally limited to the ability to offset timing differences on taxable income associated with deferred tax liabilities. Therefore, a change in estimate of deferred tax asset valuation allowances for federal, state, or foreign jurisdictions during this cumulative loss condition period will primarily be affected by changes in estimates of the time periods that deferred tax assets and liabilities will be realized, or on a limited basis to tax planning strategies that may result in a change in the amount of taxable income realized.

~~Retirement Benefits~~

~~In accordance with accounting standards, we determine~~On December 22, 2017, the ~~discount rate used~~U.S. government enacted comprehensive tax legislation commonly referred to ~~value pension plan liabilities~~ as the Tax Cuts and Jobs Act (Tax Act). We continue to account for impacts of the ~~last day~~Tax Act as estimated amounts, pending further information and analysis, which includes final tax return filings, analysis of ~~each year. The discount rate reflects the current rate at which the pension liabilities could be effectively settled. In estimating~~foreign earnings and profits, and interpretive Internal Revenue Service guidance. At this ~~rate,~~time, we ~~receive input from our actuaries regarding the rate of return on high quality, fixed income investments with maturities matched~~have not made any material adjustments to the ~~expected future retirement benefit payments. Based on current market conditions, discount rates are below~~provisional Tax Act impacts recorded in our 2017 financial statements, and we continue to expect to finalize these provisional amounts by the ~~rates in effect at the year-end 2016 remeasurement date, when a 4.45% discount rate was used for valuing pension liabilities. The estimated effect at the year-end 2016 valuation date~~fourth quarter of a decrease in the discount rate by 0.50% would increase pension liabilities by approximately $150 million. The effect on pension liabilities for changes to the discount rate, the difference between expected and actual plan asset returns, and the net effect of other changes in actuarial assumptions and experience are deferred and amortized over future periods in accordance with accounting standards.2018.

Retirement Benefits

For ERISA (Employee Retirement Income Security Act of 1974, as amended) funding purposes, discount rates used to measure pension liabilities for U.S. qualified defined benefit plans are calculated on a different basis using a 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 on ~~recently-issued~~ IRS regulations regarding mortality table changes for 2018, the current year performance of our pension trust assets through ~~September 30, 2017,~~March 31, 2018, and the expected rate of return on pension assets in future years, we currently expect our 2018 funding requirements to the ATI Pension Plan to be approximately ~~$50~~$40 million, and to have annual funding requirements of approximately ~~$100~~$85 million to the ATI Pension Plan for the next few years thereafter. However, these funding estimates are subject to significant uncertainty including the actual pension trust assets’ fair value, ~~on December 31, the annual remeasurement date,~~ and the discount rates used to measure pension liabilities. ~~In March 2017, we made a $135 million cash contribution to the ATI Pension Plan to improve the plan’s funded position.~~

We currently use a long-term expected rate of return on plan assets of 7.75%. The effect of increasing or lowering the expected return on pension plan investments by 0.25% would result in additional pre-tax income or expense, respectively, of approximately $5 million annually, as a component of net periodic pension cost in the period subsequent to the change in estimate.

Other Critical Accounting Policies

A summary of other significant accounting policies is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for derivatives, retirement plans, income taxes, environmental and other contingencies as well as asset impairment, inventory valuation and collectability of accounts receivable. We use historical and other information that we consider to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our financial statements.

Pending Accounting Pronouncements

See Note 1 of the Notes to Consolidated Financial Statements for information on pending accounting pronouncements.

Forward-Looking and Other Statements

From time to time, we have 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. Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty metals; (b) material adverse changes in the markets we serve; (c) our inability to achieve the level of cost savings, productivity improvements, synergies, growth or other benefits anticipated by management, from strategic investments and the integration of acquired businesses; (d) volatility in the price and availability of the raw materials that are critical to the manufacture of our products; (e) declines in the value of our defined benefit pension plan assets or unfavorable changes in laws or regulations that govern pension plan funding; (f) labor disputes or work stoppages; (g) equipment outages; and (h) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, and in other reports filed with the Securities and Exchange Commission. We assume no duty to update our forward-looking statements.



Item 3.	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 which are our counterparties 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 Energy Prices. Energy resources markets are subject to conditions that create uncertainty in the prices and availability of energy resources. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition. We use approximately 8 to 10 million MMBtu’s of natural gas annually, depending upon business conditions, in the manufacture of our products. These purchases of natural gas expose us to risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase in the price of natural gas would result in increased annual energy costs of approximately $8 to $10 million. We use several approaches to minimize any material adverse effect on our results of operations or financial condition 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 ~~September 30, 2017~~March 31, 2018, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included natural gas hedges. In the first nine months of 2016, due to changes in expected operating levels, we concluded that additional portions of these natural gas cash flow hedges for 2016 and the first quarter of 2017 were ineffective based on forecast changes in underlying natural gas usage. We recognized a $0.4 million and $1.7 million pre-tax loss for the three and nine months ended September 30, 2016, respectively, for natural gas cash flow hedge ineffectiveness, which is reported in selling and administrative expenses on the consolidated statement of operations. Approximately ~~55%~~35% of our forecasted domestic requirements for natural gas for the remainder of ~~2017,~~2018, approximately 35% for ~~2018~~2019 and approximately ~~30%~~15% for ~~2019~~2020 are hedged. The net mark-to-market valuation of these outstanding natural gas hedges at ~~September 30, 2017~~March 31, 2018 was an unrealized pre-tax loss of ~~$0.5~~$0.3 million, comprised of ~~$0.1~~$0.2 million in prepaid expense and other current assets, ~~$0.3~~$0.1 million in other long-term assets, ~~$0.8~~$0.2 million in accrued liabilities and ~~$0.1~~$0.4 million in other long-term liabilities. For the three months ended ~~September 30, 2017~~March 31, 2018, the effects of natural gas hedging activity increased cost of sales by ~~$1.1~~$0.4 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 ~~2016~~2017, we used approximately 80100 million pounds of nickel; therefore, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately ~~$80~~$100 million. In addition, in ~~2016~~2017, we also used approximately ~~300~~400 million pounds of ferrous scrap in the production of our flat-rolled products; a hypothetical change of $0.01 per pound would result in increased costs of approximately $3$4 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 ~~September 30, 2017~~March 31, 2018, we had entered into financial hedging arrangements, primarily at the request of our customers, related to firm orders for an aggregate notional amount of approximately 1715 million pounds of nickel with hedge dates through 2021. The aggregate notional amount hedged is approximately ~~20%~~15% of a single year’s estimated nickel raw material purchase requirements. Any gain or loss associated with these hedging arrangements is included in cost of sales. At ~~September 30, 2017,~~March 31, 2018, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax ~~loss~~gain of ~~$4.7~~$12.2 million, comprised of ~~$3.3~~$10.2 million in prepaid expense and other current assets, ~~$2.5~~$5.1 million in other long-term assets, $~~4.8~~1.5 million in accrued liabilities and ~~$5.7~~$1.6 million in other long-term 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 euros. At March 31, 2018, we held euro forward sales contracts designated as cash flow hedges with a notional value of approximately 21 million euros with maturity dates through December 2018. In addition, we may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions.

In 2015, we net settled substantially all of our foreign currency forward contracts designated as cash flow hedges with 2016 and 2017 maturity dates. The portion of the deferred gains on these settled cash flow hedges determined to be effective is currently recognized in accumulated other comprehensive income and is reclassified to earnings when the underlying transactions occur. As of September 30, 2017, we held 10.8 million euro notional value of foreign currency forward contracts designated as fair value hedges with maturity dates through 2017. We recorded $0.5 million and $2.7 million of charges in the three and nine months ended September 30, 2017, respectively, and $0.5 million and $3.0 million of charges in the three and nine months ended September 30, 2016, respectively, in costs of sales on the consolidated statement of operations for maturities and mark-to-market changes on these fair value hedges.

We may also enter into foreign currency forward contracts that are not designated as hedges, which are denominated in the same foreign currency in which export sales are denominated. We have 10 million euro notional value outstanding as of ~~September 30, 2017~~March 31, 2018 of foreign currency forward contracts not designated as hedges, with maturity dates into the ~~second~~fourth quarter of 2018.

At ~~September 30, 2017,~~March 31, 2018, the net mark-to-market valuation of the outstanding foreign currency forward contracts was an unrealized pre-tax loss of ~~$0.5~~$0.8 million, all of which ~~$0.4 million is included in prepaid expense and other current assets and $0.9 million~~was in accrued liabilities on the balance sheet.



Item 4.	Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

~~As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our~~Our Chief Executive Officer and ~~our~~ Chief Financial Officer ofhave evaluated the ~~effectiveness of the design and operation of our~~Company’s disclosure controls and procedures as(as defined in Rule 13a-15(e) or rule 15d-15(e) under the Securities Exchange Act of ~~1934. Based on~~1934, as amended) as of March 31, 2018, and they concluded that these disclosure controls and procedures are effective.

(b) Changes in Internal Controls

There was no change in our internal controls over financial reporting identified in connection with the evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2018 conducted by our Chief Executive Officer and ~~our~~ Chief Financial Officer, have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.

As disclosed under Item 9A. Controls and Procedures in our Annual Report on Form 10-K for the year ended December 31, 2016, management identified a material weakness in internal control over financial reporting relating to the calculation and review of deferred tax asset valuation allowances.

~~Remediation of Previously Disclosed Material Weakness~~

Management developed a Remediation Plan, which was implemented in the first quarter 2017, which included, but was not limited to, supplementing the internal tax team with additional subject matter resources and augmenting the internal review procedures to include consultation and external review procedures over the income tax calculations that are used to determine the income tax provision or benefit reported in the Company’s consolidated financial statements. In addition, the Company implemented changes to the design of controls to separately identify a key control regarding the calculation and review of deferred tax asset valuation allowances, and implemented changes to ensure that income tax controls include specific activities to ensure the proper application of accounting principles related to the deferred tax asset valuation allowance, and to ensure that controls function at an appropriate level of precision. The Company has completed its testing of the income tax controls through the second quarter of 2017. The material weakness is now considered to be remediated as the applicable controls and procedures implemented through the Remediation Plan have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

~~Changes in Internal Control Over Financial Reporting~~

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated any changes in our internal control over financial reporting that occurred during the ~~third~~ quarter ~~of 2017 and have concluded~~ended March 31, 2018 that other than as discussed above under “Remediation of Previously Disclosed Material Weakness,” there were no changes to our internal control over financial reporting during the third quarter of 2017 thathas materially ~~affect,~~affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



Item 1.	Legal Proceedings

A number of lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently or 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 and occupational disease, and stockholder and corporate governance matters. Certain of such lawsuits, claims and proceedings are described in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017, and addressed in Note 1315 to the unaudited interim financial statements included herein. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.



Item 1A.	Risk Factors

The following is an update to, and should be read in conjunction with Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Labor~~Export Sales and International Trade Matters.We ~~have approximately 8,500 full-time employees. Approximately 40%~~believe that export sales will continue to account for a significant percentage of our ~~workforce is covered by various collective bargaining agreements, predominantly~~future revenues. We also import certain raw materials, and recently formed, together with an affiliate company of Tsingshan Group, our A&T Stainless joint venture, which will import semi-finished stainless steel slab products from Indonesia to support its U.S. production of finished 60-inch wide stainless steel sheet products for sale in North America. Risks associated with such international trade include, among others: political and economic instability, including weak conditions in the ~~United Steel, Paper~~world’s economies; accounts receivable collection; export controls; trade sanctions, changes in legal and ~~Forestry, Rubber, Manufacturing, Energy, Allied Industrial~~regulatory requirements; policy changes affecting the markets for our products; changes in tax laws; and ~~Service Workers International Union (USW)~~exchange rate fluctuations (which may affect sales to international customers and the value of profits earned on export sales when converted into dollars). ~~At various times,~~Any of these factors could materially adversely affect our ~~collective bargaining agreements with unions expire~~results for the period in which they occur.

Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact our business. For example, in March 2018, the U.S. imposed an additional 25% tariff under Section 232 of the Trade Expansion Act of 1962, as amended, on steel products, including stainless steel, imported into the U.S. Currently, the semi-finished stainless steel slabs that our A&T Stainless joint venture intends to import from Indonesia are subject to ~~renegotiation. Our collective bargaining agreement with~~ the ~~USW that covers approximately 500 ATI Specialty Alloys & Components employees that expired~~additional tariff. The A&T Stainless joint venture has filed for exclusions from the 232 tariff based on ~~Apri1 1, 2017 was most recently extended through July 31, 2017, and negotiations with~~ the USW are ongoing. Generally, collective bargaining agreements that expire may be terminated after notice by the union. After termination, the union may authorize a strike. A strike by the employees covered by one or morenature of the ~~collective bargaining agreements could have a material adverse effect on our operating results. There~~imported product, its country of origin, and its lack of availability in the U.S. However, there can be no assurance that wethe joint venture will ~~succeed~~be successful in ~~concluding collective bargaining~~obtaining an exclusion for the products that it intends to import, and to the extent that no exclusion is obtained, the joint venture’s operations could be impacted.

Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements ~~with~~or policies has the ~~unions~~potential to ~~replace those that expire.~~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.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Set forth below is information regarding the Company’s stock repurchases during the period covered by this report, comprising shares repurchased by ATI from employees to satisfy employee-owed taxes on share-based compensation.



Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1-31, 2018	44,396	$	28.25	—	$	—
February 1-28, 2018	120,026	27.10		—	$	—
March 1-31, 2018	78,209	26.10		—	$	—
Total	242,631	26.94		—	$	—



Item 6.	Exhibits

(a) Exhibits



10.1		Form of 2018 Performance-Vested Restricted Stock Unit Agreement (filed herewith).

10.2		Form of 2018 Time-Vested Restricted Stock Unit Agreement (filed herewith).

12.1		Computation of the Ratio of Earnings to Fixed Charges (filed herewith).

31.1		Certification of Chief Executive Officer required by Securities and Exchange Commission Rule 13a – 14(a) or 15d – 14(a) (filed herewith).

31.2		Certification of Chief Financial Officer required by Securities and Exchange Commission Rule 13a – 14(a) or 15d – 14(a) (filed herewith).

32.1		Certification pursuant to 18 U.S.C. Section 1350 (furnished herewith).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements 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.

ALLEGHENY TECHNOLOGIES INCORPORATED

(Registrant)



Date:	~~November~~May 1, ~~2017~~2018	By	/s/ Patrick J. DeCourcy
			Patrick J. DeCourcy
			Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer)

Date:	~~November~~May 1, ~~2017~~2018	By	/s/ Karl D. Schwartz
			Karl D. Schwartz
			Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

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