~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the Quarterly Period Ended ~~September~~June 30, ~~2019~~2020



☐			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.)

~~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~~)

(412) 394-2800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.10	ATI	New York Stock Exchange

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 ☒ 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 ☒ 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		☒			Accelerated filer		☐

~~Large accelerated filer~~		☒	~~Accelerated filer~~	☐

Non-accelerated filer	☐		Smaller reporting company			☐

					Emerging growth company		☐

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

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

At ~~October 18, 2019,~~July 17, 2020, the registrant had outstanding ~~126,085,348~~126,814,081 shares of its Common Stock.

ALLEGHENY TECHNOLOGIES INCORPORATED

SEC FORM 10-Q

Quarter Ended ~~September~~June 30, ~~2019~~2020

INDEX


			Page No.
PART I. - FINANCIAL INFORMATION

			~~Page No.~~
~~PART I. - FINANCIAL INFORMATION~~

Item 1. Financial Statements

Consolidated Balance Sheets			1

Consolidated Statements of ~~Income~~Operations			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			3125

Item 3. Quantitative and Qualitative Disclosures About Market Risk			4541

Item 4. Controls and Procedures			4742

PART II. - OTHER INFORMATION

Item 1. Legal Proceedings			4743

Item 1A. Risk Factors			4843

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45

Item 6. Exhibits			4945

SIGNATURES			5046

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)


	June 30, 2020		December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	539.1	$	490.8
Accounts receivable, net	483.6		554.1
Short-term contract assets	41.6		38.5
Inventories, net	1,103.5		1,155.3
Prepaid expenses and other current assets	33.8		64.3
Total Current Assets	2,201.6		2,303.0
Property, plant and equipment, net	2,455.0		2,450.1
Goodwill	236.4		525.8
Other assets	276.4		355.7
Total Assets	$	5,169.4	$	5,634.6
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	275.8	$	521.2
Short-term contract liabilities	109.8		78.7
Short-term debt and current portion of long-term debt	12.8		11.5
Other current liabilities	216.0		237.8
Total Current Liabilities	614.4		849.2
Long-term debt	1,516.9		1,387.4
Accrued postretirement benefits	303.9		312.5
Pension liabilities	685.0		731.5
Other long-term liabilities	206.9		160.8
Total Liabilities	3,327.1		3,441.4
Equity:
ATI Stockholders’ Equity:
Preferred stock, par value $0.10: authorized-50,000,000 shares; issued-NaN	—		—
Common stock, par value $0.10: authorized-500,000,000 shares; issued-126,813,383 shares at June 30, 2020 and 126,695,171 shares at December 31, 2019; outstanding-126,813,078 shares at June 30, 2020 and 126,085,348 shares at December 31, 2019	12.7		12.7
Additional paid-in capital	1,617.8		1,618.0
Retained earnings	1,277.6		1,679.3
Treasury stock: 305 shares at June 30, 2020 and 609,823 shares at December 31, 2019	—		(18.2)
Accumulated other comprehensive loss, net of tax	(1,172.8)		(1,201.7)
Total ATI stockholders’ equity	1,735.3		2,090.1
Noncontrolling interests	107.0		103.1
Total Equity	1,842.3		2,193.2
Total Liabilities and Equity	$	5,169.4	$	5,634.6

September 30,
2019 December 31,
2018
ASSETS
Current Assets:
Cash and cash equivalents $ 511.3
$ 382.0
Accounts receivable, net 596.7
527.8
Short-term contract assets 37.8
51.2
Inventories, net 1,168.5
1,211.1
Prepaid expenses and other current assets 108.1
74.6
Total Current Assets 2,422.4
2,246.7
Property, plant and equipment, net 2,407.5
2,475.0
Goodwill 523.8
534.7
Other assets 275.2
245.4
Total Assets $ 5,628.9
$ 5,501.8
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 415.8
$ 498.8
Short-term contract liabilities 97.1
71.4
Short-term debt and current portion of long-term debt 12.1
6.6
Other current liabilities 238.3
260.1
Total Current Liabilities 763.3
836.9
Long-term debt 1,541.7
1,535.5
Accrued postretirement benefits 301.4
318.4
Pension liabilities 601.9
730.0
Deferred income taxes 15.8
12.9
Other long-term liabilities 124.9
76.5
Total Liabilities 3,349.0
3,510.2
Equity:
ATI Stockholders’ Equity:
Preferred stock, par value $0.10: authorized-50,000,000 shares; issued-none —
—
Common stock, par value $0.10: authorized-500,000,000 shares; issued-126,695,171 shares at September 30, 2019 and December 31, 2018; outstanding-126,085,348 shares at September 30, 2019 and 125,684,396 shares at December 31, 2018 12.7
12.7
Additional paid-in capital 1,612.1
1,615.4
Retained earnings 1,622.8
1,422.0
Treasury stock: 609,823 shares at September 30, 2019 and 1,010,775 shares at December 31, 2018 (18.2 ) (30.6 )
Accumulated other comprehensive loss, net of tax (1,061.4 ) (1,133.8 )
Total ATI stockholders’ equity 2,168.0
1,885.7
Noncontrolling interests 111.9
105.9
Total Equity 2,279.9
1,991.6
Total Liabilities and Equity $ 5,628.9
$ 5,501.8

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of ~~Income~~Operations

(In millions, except per share amounts)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018				2020		2019		2020		2019
Sales	$	1,018.7		$	1,020.2		$	3,103.9		$	3,008.7		Sales	$	770.3	$	1,080.4	$	1,725.8	$	2,085.2

Cost of sales	859.0			859.8			2,635.4			2,526.0			Cost of sales	695.6		902.7		1,516.3		1,776.4
Gross profit	159.7			160.4			468.5			482.7			Gross profit	74.7		177.7		209.5		308.8
Selling and administrative expenses	65.2			65.5			200.9			195.3			Selling and administrative expenses	44.4		67.7		102.8		135.7
Operating income	94.5			94.9			267.6			287.4
Impairment of goodwill													Impairment of goodwill	287.0		—		287.0		—
Restructuring charges													Restructuring charges	16.7		—		24.7		—
Operating (loss) income													Operating (loss) income	(273.4)		110.0		(205.0)		173.1
Nonoperating retirement benefit expense	(18.5		)	(8.4		)	(55.2		)	(25.5		)	Nonoperating retirement benefit expense	(11.2)		(18.4)		(22.4)		(36.7)
Interest expense, net	(24.2		)	(24.8		)	(74.9		)	(75.8		)	Interest expense, net	(21.7)		(25.9)		(43.6)		(50.7)
Other income, net	67.2			0.8			82.9			22.4
Income before income taxes	119.0			62.5			220.4			208.5
Debt extinguishment charge													Debt extinguishment charge	(21.5)		—		(21.5)		—
Other income (expense), net													Other income (expense), net	0.5		18.6		(0.4)		15.7
(Loss) income before income taxes													(Loss) income before income taxes	(327.3)		84.3		(292.9)		101.4
Income tax provision	3.7			6.9			10.3			16.8			Income tax provision	92.6		5.8		103.4		6.6
Net income	115.3			55.6			210.1			191.7
Net (loss) income													Net (loss) income	(419.9)		78.5		(396.3)		94.8
Less: Net income attributable to noncontrolling interests	4.3			5.1			9.0			10.4			Less: Net income attributable to noncontrolling interests	2.7		3.4		5.2		4.7
Net income attributable to ATI	$	111.0		$	50.5		$	201.1		$	181.3
Net (loss) income attributable to ATI													Net (loss) income attributable to ATI	$	(422.6)	$	75.1	$	(401.5)	$	90.1

Basic net income attributable to ATI per common share	$	0.88		$	0.40		$	1.60		$	1.45
Basic net (loss) income attributable to ATI per common share													Basic net (loss) income attributable to ATI per common share	$	(3.34)	$	0.60	$	(3.18)	$	0.72

Diluted net income attributable to ATI per common share	$	0.78		$	0.37		$	1.44		$	1.31
Diluted net (loss) income attributable to ATI per common share													Diluted net (loss) income attributable to ATI per common share	$	(3.34)	$	0.54	$	(3.18)	$	0.66

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 June 30,						Six months ended June 30,
	Three months ended September 30,						Nine months ended September 30,							2020		2019		2020		2019
	2019			2018			2019			2018
Net income	$	115.3		$	55.6		$	210.1		$	191.7
Net (loss) income													Net (loss) income	$	(419.9)	$	78.5	$	(396.3)	$	94.8
Currency translation adjustment													Currency translation adjustment
Unrealized net change arising during the period	(16.3		)	(13.8		)	(13.8		)	(16.4		)	Unrealized net change arising during the period	14.2		(8.5)		(9.2)		2.5

Derivatives													Derivatives
Net derivatives gain (loss) on hedge transactions	14.3			(10.8		)	19.1			2.4			Net derivatives gain (loss) on hedge transactions	2.0		(5.7)		(10.3)		4.8
Reclassification to net income of net realized (gain) loss	(0.8		)	(2.6		)	0.6			(10.3		)
Reclassification to net income (loss) of net realized loss													Reclassification to net income (loss) of net realized loss	4.2		0.5		6.0		1.4
Income taxes on derivative transactions	—			—			—			—			Income taxes on derivative transactions	2.5		—		—		—
Total	13.5			(13.4		)	19.7			(7.9		)	Total	3.7		(5.2)		(4.3)		6.2
Postretirement benefit plans													Postretirement benefit plans
Actuarial loss													Actuarial loss
Amortization of net actuarial loss	21.9			19.2			65.4			57.5			Amortization of net actuarial loss	21.3		21.8		42.6		43.5
Prior service cost													Prior service cost
Amortization to net income of net prior service credits	(0.7		)	(0.7		)	(1.9		)	(1.9		)
Amortization to net income (loss) of net prior service credits													Amortization to net income (loss) of net prior service credits	(0.8)		(0.6)		(1.5)		(1.2)
Income taxes on postretirement benefit plans	—			—			—			—			Income taxes on postretirement benefit plans	(4.9)		—		—		—
Total	21.2			18.5			63.5			55.6			Total	25.4		21.2		41.1		42.3
Other comprehensive income (loss), net of tax	18.4			(8.7		)	69.4			31.3
Comprehensive income	133.7			46.9			279.5			223.0
Other comprehensive income, net of tax													Other comprehensive income, net of tax	43.3		7.5		27.6		51.0
Comprehensive (loss) income													Comprehensive (loss) income	(376.6)		86.0		(368.7)		145.8
Less: Comprehensive income (loss) attributable to noncontrolling interests	(0.3		)	(3.9		)	6.0			5.2			Less: Comprehensive income (loss) attributable to noncontrolling interests	2.2		(0.2)		3.9		6.3
Comprehensive income attributable to ATI	$	134.0		$	50.8		$	273.5		$	217.8
Comprehensive (loss) income attributable to ATI													Comprehensive (loss) income attributable to ATI	$	(378.8)	$	86.2	$	(372.6)	$	139.5

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,
2019 2018
Operating Activities:
Net income $ 210.1
$ 191.7
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 114.6
117.1
Deferred taxes 4.1
2.8
Gain on joint venture deconsolidation —
(15.9 )
Gains from disposal of property, plant and equipment, net (90.6 ) (0.5 )
Net loss from sales of businesses 1.8
—
Changes in operating assets and liabilities:
Inventories 12.2
(137.2 )
Accounts receivable (92.5 ) (43.0 )
Accounts payable (75.2 ) 71.0
Retirement benefits (86.0 ) (10.1 )
Accrued income taxes 4.2
4.7
Accrued liabilities and other (12.7 ) (64.0 )
Cash (used in) provided by operating activities (10.0 ) 116.6
Investing Activities:
Purchases of property, plant and equipment (98.1 ) (101.3 )
Purchase of businesses —
(10.0 )
Proceeds from sales of businesses, net of transaction costs 155.9
—
Proceeds from disposal of property, plant and equipment 91.8
1.4
Other (0.2 ) 0.8
Cash provided by (used in) investing activities 149.4
(109.1 )
Financing Activities:
Borrowings on long-term debt —
7.1
Payments on long-term debt and finance leases (5.3 ) (4.6 )
Net borrowings under credit facilities 5.1
4.0
Dividends to noncontrolling interests —
(10.0 )
Sales to noncontrolling interests —
14.4
Shares repurchased for income tax withholding on share-based compensation and other (9.9 ) (6.5 )
Cash (used in) provided by financing activities (10.1 ) 4.4
Increase in cash and cash equivalents 129.3
11.9
Cash and cash equivalents at beginning of period 382.0
141.6
Cash and cash equivalents at end of period $ 511.3
$ 153.5


	Six months ended June 30,
	2020		2019
Operating Activities:
Net (loss) income	$	(396.3)	$	94.8
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	72.9		77.6
Deferred taxes	98.1		2.7
Impairment of goodwill	287.0		—
Debt extinguishment charge	21.5		—
Net gains from disposal of property, plant and equipment	(2.5)		(28.3)
Loss from sale of business	—		7.7
Changes in operating assets and liabilities:
Inventories	51.8		(36.6)
Accounts receivable	70.5		(77.7)
Accounts payable	(245.4)		(77.5)
Retirement benefits	(17.0)		(34.2)
Accrued liabilities and other	45.0		(32.9)
Cash used in operating activities	(14.4)		(104.4)
Investing Activities:
Purchases of property, plant and equipment	(66.0)		(51.3)
Proceeds from sale of businesses, net of transaction costs	—		33.4
Proceeds from disposal of property, plant and equipment	3.2		29.4
Other	1.0		(0.1)
Cash (used in) provided by investing activities	(61.8)		11.4
Financing Activities:
Borrowings on long-term debt	385.0		—
Payments on long-term debt and finance leases	(207.2)		(3.3)
Net borrowings under credit facilities	0.7		5.4
Purchase of convertible note capped call	(19.0)		—
Debt issuance costs	(8.1)		—
Debt extinguishment charge	(19.1)		—
Shares repurchased for income tax withholding on share-based compensation and other	(7.8)		(9.9)
Cash provided by (used in) financing activities	124.5		(7.8)
Increase (decrease) in cash and cash equivalents	48.3		(100.8)
Cash and cash equivalents at beginning of period	490.8		382.0
Cash and cash equivalents at end of period	$	539.1	$	281.2

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)~~millions)

(Unaudited)


	ATI Stockholders
	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interests		Total Equity
Balance, March 31, 2019	$	12.7	$	1,599.7	$	1,437.0	$	(19.7)	$	(1,095.5)	$	112.4	$	2,046.6
Net income	—		—		75.1		—		—		3.4		78.5
Other comprehensive income (loss)	—		—		—		—		11.1		(3.6)		7.5
Employee stock plans	—		4.9		(0.3)		1.4		—		—		6.0
Balance, June 30, 2019	$	12.7	$	1,604.6	$	1,511.8	$	(18.3)	$	(1,084.4)	$	112.2	$	2,138.6
Balance, March 31, 2020	$	12.7	$	1,592.1	$	1,700.4	$	(0.8)	$	(1,216.6)	$	104.8	$	2,192.6
Net (loss) income	—		—		(422.6)		—		—		2.7		(419.9)
Other comprehensive income (loss)	—		—		—		—		43.8		(0.5)		43.3
Equity component of convertible note	—		48.7		—		—		—		—		48.7
Convertible note capped call	—		(19.0)		—		—		—		—		(19.0)
Employee stock plans	—		(4.0)		(0.2)		0.8		—		—		(3.4)
Balance, June 30, 2020	$	12.7	$	1,617.8	$	1,277.6	$	—	$	(1,172.8)	$	107.0	$	1,842.3

ATI Stockholders

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Non-
controlling
Interests

Total
Equity
Balance, June 30, 2018 $ 12.7
$ 1,604.1
$ 1,330.4
$ (30.6 ) $ (991.6 ) $ 116.9
$ 2,041.9
Net income —
—
50.5
—
—
5.1
55.6
Other comprehensive income (loss) —
—
—
—
0.3
(9.0 ) (8.7 )
Dividends to noncontrolling interests —
—
—
—
—
(10.0 ) (10.0 )
Employee stock plans —
4.4
—
—
—
—
4.4
Balance, September 30, 2018 $ 12.7
$ 1,608.5
$ 1,380.9
$ (30.6 ) $ (991.3 ) $ 103.0
$ 2,083.2
Balance, June 30, 2019 $ 12.7
$ 1,604.6
$ 1,511.8
$ (18.3 ) $ (1,084.4 ) $ 112.2
$ 2,138.6
Net income —
—
111.0
—
—
4.3
115.3
Other comprehensive income (loss) —
—
—
—
23.0
(4.6 ) 18.4
Employee stock plans —
7.5
—
0.1
—
—
7.6
Balance, September 30, 2019 $ 12.7
$ 1,612.1
$ 1,622.8
$ (18.2 ) $ (1,061.4 ) $ 111.9
$ 2,279.9


																						ATI Stockholders
	ATI Stockholders																					Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interests		Total Equity
	Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity
Balance, December 31, 2017	$	12.7	$	1,596.3		$	1,184.3		$	(26.1	)	$	(1,027.8	)	$	105.1		$	1,844.5
Net income	—		—			181.3			—			—			10.4			191.7
Other comprehensive income (loss)	—		—			—			—			36.5			(5.2		)	31.3
Cumulative effect of adoption of new accounting standard	—		—			15.5			—			—			—			15.5
Dividends to noncontrolling interests	—		—			—			—			—			(10.0		)	(10.0		)
Sales of subsidiary shares to noncontrolling interest	—		—			—			—			—			2.7			2.7
Employee stock plans	—		12.2			(0.2		)	(4.5		)	—			—			7.5
Balance, September 30, 2018	$	12.7	$	1,608.5		$	1,380.9		$	(30.6	)	$	(991.3	)	$	103.0		$	2,083.2
Balance, December 31, 2018	$	12.7	$	1,615.4		$	1,422.0		$	(30.6	)	$	(1,133.8	)	$	105.9		$	1,991.6		Balance, December 31, 2018	$	12.7	$	1,615.4	$	1,422.0	$	(30.6)	$	(1,133.8)	$	105.9	$	1,991.6
Net income	—		—			201.1			—			—			9.0			210.1			Net income	—		—		90.1		—		—		4.7		94.8
Other comprehensive income																					Other comprehensive income	—		—		—		—		49.4		1.6		51.0
Employee stock plans																					Employee stock plans	—		(10.8)		(0.3)		12.3		—		—		1.2
Balance, June 30, 2019																					Balance, June 30, 2019	$	12.7	$	1,604.6	$	1,511.8	$	(18.3)	$	(1,084.4)	$	112.2	$	2,138.6
Balance, December 31, 2019																					Balance, December 31, 2019	$	12.7	$	1,618.0	$	1,679.3	$	(18.2)	$	(1,201.7)	$	103.1	$	2,193.2
Net (loss) income																					Net (loss) income	—		—		(401.5)		—		—		5.2		(396.3)
Other comprehensive income (loss)	—		—			—			—			72.4			(3.0		)	69.4			Other comprehensive income (loss)	—		—		—		—		28.9		(1.3)		27.6
Equity component of convertible note																					Equity component of convertible note	—		48.7		—		—		—		—		48.7
Convertible note capped call																					Convertible note capped call	—		(19.0)		—		—		—				(19.0)
Employee stock plans	—		(3.3		)	(0.3		)	12.4			—			—			8.8			Employee stock plans	—		(29.9)		(0.2)		18.2		—		—		(11.9)
Balance, September 30, 2019	$	12.7	$	1,612.1		$	1,622.8		$	(18.2	)	$	(1,061.4	)	$	111.9		$	2,279.9
Balance, June 30, 2020																					Balance, June 30, 2020	$	12.7	$	1,617.8	$	1,277.6	$	—	$	(1,172.8)	$	107.0	$	1,842.3

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. Certain prior year amounts have been reclassified in order to conform with fiscal year ~~2019~~2020 presentation. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2018~~2019 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, ~~2018~~2019 financial information has been derived from the Company’s audited consolidated financial statements.

Effective January 1, 2020, the Company began operating under 2 revised business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). HPMC is now comprised of the Specialty Materials and Forged Products businesses, as well as the ATI Europe distribution operations. The new AA&S segment combines the Specialty Alloys & Components (SAC) business, including the primary titanium operations in Richland, WA and Albany, OR, with ATI’s former Flat Rolled Products (FRP) business segment, which included the FRP business and the 60%-owned Shanghai STAL Precision Stainless Steel Company Limited (STAL), as well as the Uniti LLC (Uniti) and Allegheny & Tsingshan Stainless (A&T Stainless) 50%-owned joint ventures that are reported in AA&S segment results under the equity method of accounting. See Note 13, Business Segments, for further information. Financial results of aerospace-grade titanium plate products also transferred from HPMC to AA&S effective January 1, 2020. Prior period segment information has been restated to conform to this operating structure.

The Company’s collective bargaining agreements (CBAs) with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union, AFL-CIO, CLC (USW) involving approximately 1,500 full-time represented employees located primarily within the AA&S segment operations expired on February 29, 2020. On March 25, 2020, the Company announced an agreement with the USW that extended the terms of the expired CBAs for one year, to February 28, 2021.

New Accounting Pronouncements Adopted

In ~~January 2019, the Company adopted changes issued by~~March 2020, the Financial Accounting Standards Board (FASB) ~~related~~issued new optional accounting guidance for a limited period of time to ~~leases. See Note 9~~ease the potential burden in accounting for ~~further explanation related~~(or recognizing the effects of) reference rate reform on financial reporting. In response to ~~this~~concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The new accounting guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The new accounting guidance applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments generally do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. Management is continuing to evaluate the issue, and presently does not expect a transition away from LIBOR, primarily involving ATI’s domestic credit facility and an interest rate swap contract, to have any significant financial impact to ATI.

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The areas for simplification in the guidance involve the removal of certain exceptions to the general principals in the current guidance, including intraperiod allocation and the calculation of income taxes in an interim period when a year to date loss exceeds the anticipated loss for the year. The new guidance also simplifies the accounting for income taxes in the area of franchise taxes. This new guidance is effective for the Company in fiscal year 2021, with early adoption ~~including all newly expanded disclosure requirements.~~permitted. This guidance was early adopted by the Company in fiscal year 2020 without significant impact to the consolidated financial statements.

~~Pending Accounting Pronouncements~~

In August 2018, the FASB issued new disclosure guidance on fair value measurement. This new guidance modifies the disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be applied prospectively while others ~~must be applied retrospectively.~~retrospectively depending on the requirement. This guidance ~~is required to be~~was adopted by the Company ~~beginning~~ in fiscal year 2020 ~~with early adoption permitted. The Company does not plan to early adopt this guidance. The adoption of these changes is not expected to have~~without an impact on the Company’s consolidated financial statements other than disclosures.

In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to trade receivables, other receivables, contract assets and most debt instruments. The CECL model does not have a minimum threshold for recognition of impairment losses, and entities will need to measure expected credit losses on assets that have a low risk of loss. This guidance ~~is required to be~~was adopted by the Company ~~beginning~~ in fiscal year ~~2020. Management is currently evaluating the potential impact of these changes on the Company’s consolidated financial statements and does not expect these changes to have a~~2020 without significant impact onto the ~~Company’s~~ consolidated financial statements.

Note 2. Revenue from Contracts with Customers

Disaggregation of Revenue

The Company operates in 2 business segments: High Performance Materials & Components (HPMC) and ~~Flat Rolled Products (FRP)~~Advanced Alloys & Solutions (AA&S). Revenue is disaggregated within these 2 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 ~~third~~second quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


(in millions)	Second quarter ended
	June 30, 2020										June 30, 2019
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Global Markets:
Aerospace & Defense	$	252.3	$	113.3	$	365.6	$	444.8	$	127.4	$	572.2
Energy*	22.8		144.7		167.5		33.4		180.0		213.4
Automotive	1.0		49.8		50.8		3.1		70.5		73.6
Food Equipment & Appliances	0.1		47.1		47.2		—		49.6		49.6
Electronics/Computers/Communications	0.2		39.3		39.5		0.3		37.8		38.1
Construction/Mining	5.0		29.8		34.8		13.4		39.2		52.6
Medical	10.3		19.6		29.9		21.1		21.3		42.4
Other	9.0		26.0		35.0		17.0		21.5		38.5
Total	$	300.7	$	469.6	$	770.3	$	533.1	$	547.3	$	1,080.4


(in millions)	Six Months Ended
	June 30, 2020										June 30, 2019
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Global Markets:
Aerospace & Defense	$	611.1	$	247.0	$	858.1	$	845.4	$	252.4	$	1,097.8
Energy*	46.9		291.2		338.1		61.5		320.4		381.9
Automotive	3.0		124.3		127.3		6.7		143.8		150.5
Food Equipment & Appliances	0.1		97.5		97.6		0.1		102.7		102.8
Construction/Mining	10.3		68.1		78.4		31.9		78.6		110.5
Electronics/Computers/Communications	0.5		72.2		72.7		0.3		71.9		72.2
Medical	27.3		41.2		68.5		45.8		42.7		88.5
Other	21.8		63.3		85.1		38.0		43.0		81.0
Total	$	721.0	$	1,004.8	$	1,725.8	$	1,029.7	$	1,055.5	$	2,085.2

*Includes the oil & gas, hydrocarbon and chemical processing, and electrical energy markets.

(in millions) Third quarter ended
September 30, 2019 September 30, 2018
HPMC FRP Total HPMC FRP Total
Diversified Global Markets:
Aerospace & Defense $ 437.9
$ 65.6
$ 503.5
$ 446.5
$ 52.7
$ 499.2
Oil & Gas 13.9
133.4
147.3
17.9
110.3
128.2
Automotive 2.3
71.3
73.6
2.0
83.0
85.0
Energy 36.5
33.4
69.9
30.9
29.0
59.9
Food Equipment & Appliances 0.2
53.4
53.6
0.2
58.6
58.8
Electronics/Computers/Communications 1.7
42.8
44.5
1.0
40.3
41.3
Construction/Mining 5.4
38.3
43.7
18.5
39.9
58.4
Medical 37.7
3.3
41.0
44.3
3.6
47.9
Other 16.1
25.5
41.6
24.2
17.3
41.5
Total $ 551.7
$ 467.0
$ 1,018.7
$ 585.5
$ 434.7
$ 1,020.2


(in millions)	Second quarter ended
	June 30, 2020										June 30, 2019
	HPMC		AA&S		Total		HPMC		AA&S		Total
Primary Geographical Market:
United States	$	166.2	$	311.0	$	477.2	$	290.2	$	350.3	$	640.5
Europe	92.0		32.4		124.4		160.9		46.3		207.2
Asia	27.6		91.1		118.7		49.4		122.5		171.9
Canada	5.1		11.1		16.2		14.9		14.5		29.4
South America, Middle East and other	9.8		24.0		33.8		17.7		13.7		31.4
Total	$	300.7	$	469.6	$	770.3	$	533.1	$	547.3	$	1,080.4

(in millions) Nine months ended
September 30, 2019 September 30, 2018
HPMC FRP Total HPMC FRP Total
Diversified Global Markets:
Aerospace & Defense $ 1,415.3
$ 186.0
$ 1,601.3
$ 1,311.7
$ 131.9
$ 1,443.6
Oil & Gas 49.0
347.1
396.1
51.4
362.1
413.5
Automotive 9.0
215.1
224.1
7.4
237.1
244.5
Energy 97.9
105.1
203.0
101.9
78.4
180.3
Food Equipment & Appliances 0.3
156.1
156.4
0.3
181.0
181.3
Construction/Mining 37.3
116.9
154.2
55.1
114.8
169.9
Medical 119.0
10.5
129.5
131.5
11.3
142.8
Electronics/Computers/Communications 4.0
112.7
116.7
4.7
105.0
109.7
Other 63.5
59.1
122.6
74.1
49.0
123.1
Total $ 1,795.3
$ 1,308.6
$ 3,103.9
$ 1,738.1
$ 1,270.6
$ 3,008.7

(in millions) Third quarter ended
September 30, 2019 September 30, 2018
HPMC FRP Total HPMC FRP Total
Primary Geographical Market:
United States $ 312.0
$ 293.4
$ 605.4
$ 316.7
$ 290.9
$ 607.6
Europe 150.3
36.0
186.3
173.2
40.5
213.7
Asia 48.4
116.1
164.5
60.9
84.0
144.9
Canada 21.2
4.4
25.6
16.3
7.5
23.8
South America, Middle East and other 19.8
17.1
36.9
18.4
11.8
30.2
Total $ 551.7
$ 467.0
$ 1,018.7
$ 585.5
$ 434.7
$ 1,020.2


(in millions)	Nine months ended												(in millions)	Six Months Ended
	September 30, 2019						September 30, 2018							June 30, 2020										June 30, 2019
	HPMC		FRP		Total		HPMC		FRP		Total			HPMC		AA&S		Total		HPMC		AA&S		Total
Primary Geographical Market:													Primary Geographical Market:
United States	$	1,005.6	$	861.4	$	1,867.0	$	898.6	$	839.1	$	1,737.7	United States	$	393.5	$	689.8	$	1,083.3	$	559.2	$	702.4	$	1,261.6
Europe	509.7		94.8		604.5		565.4		104.3		669.7		Europe	225.5		70.0		295.5		319.5		98.7		418.2
Asia	161.7		297.9		459.6		180.7		258.7		439.4		Asia	52.7		185.3		238.0		92.1		203.0		295.1
Canada	64.8		16.6		81.4		51.3		29.0		80.3		Canada	16.7		21.5		38.2		26.3		29.5		55.8
South America, Middle East and other	53.5		37.9		91.4		42.1		39.5		81.6		South America, Middle East and other	32.6		38.2		70.8		32.6		21.9		54.5
Total	$	1,795.3	$	1,308.6	$	3,103.9	$	1,738.1	$	1,270.6	$	3,008.7	Total	$	721.0	$	1,004.8	$	1,725.8	$	1,029.7	$	1,055.5	$	2,085.2

Comparative information of the Company’s major high-value and standard products based on their percentages of sales is included in the following table. ~~FRP~~Hot-Rolling and Processing Facility (HRPF) conversion ~~services~~service sales in the AA&S segment are excluded from this presentation.


	Second quarter ended
	June 30, 2020										June 30, 2019
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Products and Services:
High-Value Products
Nickel-based alloys and specialty alloys	36	%	26	%	30	%	37	%	30	%	33	%
Titanium and titanium-based alloys	29	%	13	%	19	%	25	%	10	%	18	%
Precision forgings, castings and components	35	%	—	%	14	%	38	%	—	%	19	%
Precision rolled strip products	—	%	19	%	12	%	—	%	21	%	10	%
Zirconium and related alloys	—	%	14	%	8	%	—	%	11	%	6	%
Total High-Value Products	100	%	72	%	83	%	100	%	72	%	86	%
Standard Products
Standard stainless products	—	%	28	%	17	%	—	%	28	%	14	%
Total	100	%	100	%	100	%	100	%	100	%	100	%


	Third quarter ended													Six Months Ended
	September 30, 2019						September 30, 2018							June 30, 2020										June 30, 2019
	HPMC		FRP		Total		HPMC		FRP		Total			HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Products and Services:													Diversified Products and Services:
High-Value Products													High-Value Products
Nickel-based alloys and specialty alloys	33	%	34	%	33	%	32	%	29	%	30	%	Nickel-based alloys and specialty alloys	38	%	25	%	31	%	37	%	26	%	32	%
Titanium and titanium-based alloys	29	%	7	%	19	%	25	%	3	%	16	%	Titanium and titanium-based alloys	27	%	12	%	18	%	25	%	11	%	18	%
Precision forgings, castings and components	29	%	—	%	16	%	33	%	—	%	18	%	Precision forgings, castings and components	35	%	—	%	15	%	38	%	—	%	19	%
Precision and engineered strip	—	%	30	%	14	%	—	%	34	%	15	%
Precision rolled strip products													Precision rolled strip products	—	%	21	%	12	%	—	%	22	%	11	%
Zirconium and related alloys	9	%	—	%	5	%	10	%	—	%	6	%	Zirconium and related alloys	—	%	13	%	8	%	—	%	12	%	6	%
Total High-Value Products	100	%	71	%	87	%	100	%	66	%	85	%	Total High-Value Products	100	%	71	%	84	%	100	%	71	%	86	%
Standard Products													Standard Products
Standard stainless products	—	%	29	%	13	%	—	%	34	%	15	%	Standard stainless products	—	%	29	%	16	%	—	%	29	%	14	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	Total	100	%	100	%	100	%	100	%	100	%	100	%

Nine months ended
September 30, 2019 September 30, 2018
HPMC FRP Total HPMC FRP Total
Diversified Products and Services:
High-Value Products
     Nickel-based alloys and specialty alloys 31 % 33 % 32 % 31 % 29 % 30 %
     Titanium and titanium-based alloys 28 % 6 % 18 % 24 % 5 % 16 %
     Precision forgings, castings and components 31 % — % 18 % 35 % — % 20 %
     Precision and engineered strip — % 31 % 13 % — % 32 % 14 %
     Zirconium and related alloys 10 % — % 6 % 10 % — % 5 %
Total High-Value Products 100 % 70 % 87 % 100 % 66 % 85 %
Standard Products
     Standard stainless products — % 30 % 13 % — % 34 % 15 %
Total 100 % 100 % 100 % 100 % 100 % 100 %

The Company ~~maintains~~maintained a backlog of confirmed orders totaling ~~$2.34~~$1.51 billion and ~~$2.17~~$2.38 billion at ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Due to the structure of the Company’s long-term agreements, approximately ~~75%~~70% of this backlog at ~~September~~June 30, ~~2019~~2020 represented booked orders with performance obligations that will be satisfied within the next 12 months. The backlog does not reflect any elements of variable consideration.

Contract balances

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, accounts receivable with customers were ~~$601.7~~$488.1 million and ~~$533.8~~$558.7 million, respectively. The following represents the rollforward of accounts receivable - reserve for doubtful accounts and contract assets and liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


(in millions)
Accounts Receivable - Reserve for Doubtful Accounts	June 30, 2020		June 30, 2019
Balance as of beginning of fiscal year	$	4.6	$	6.0
Expense to increase the reserve	0.2		0.2
Write-off of uncollectible accounts	(0.3)		(1.0)
Reclassification to held for sale	—		(0.2)
Balance as of period end	$	4.5	$	5.0


(in millions)
Contract Assets
Short-term	June 30, 2020		June 30, 2019
Balance as of beginning of fiscal year	$	38.5	$	51.2
Recognized in current year	37.5		45.1
Reclassified to accounts receivable	(34.5)		(48.0)
Impairment	—		—
Reclassification to/from long-term	0.1		—
Reclassification to held for sale	—		(7.4)
Balance as of period end	$	41.6	$	40.9

Long-term	June 30, 2020		June 30, 2019
Balance as of beginning of fiscal year	$	0.1	$	0.1
Recognized in current year	—		—
Reclassified to accounts receivable	—		—
Impairment	—		—
Reclassification to/from short-term	(0.1)		—
Balance as of period end	$	—	$	0.1


(in millions)
Contract Liabilities
Short-term	June 30, 2020		June 30, 2019
Balance as of beginning of fiscal year	$	78.7	$	71.4
Recognized in current year	97.9		57.1
Amounts in beginning balance reclassified to revenue	(33.9)		(44.8)
Current year amounts reclassified to revenue	(38.5)		(14.4)
Other	(0.2)		—
Reclassification to/from long-term	5.8		—
Balance as of period end	$	109.8	$	69.3

Long-term	June 30, 2020		June 30, 2019
Balance as of beginning of fiscal year	$	25.9	$	7.3
Recognized in current year	12.4		0.5
Amounts in beginning balance reclassified to revenue	(0.5)		(0.5)
Current year amounts reclassified to revenue	—		—
Other	—		—
Reclassification to/from short-term	(5.8)		—
Balance as of period end	$	32.0	$	7.3

(in millions)
Accounts Receivable - Reserve for Doubtful Accounts September 30,
2019 September 30,
2018
Balance as of beginning of fiscal year $ 6.0
$ 5.9
Expense to increase the reserve 0.3
0.7
Write-off of uncollectible accounts (1.3 ) (0.4 )
Balance as of period end $ 5.0
$ 6.2

(in millions)
Contract Assets
Short-term September 30,
2019 September 30,
2018
Balance as of beginning of fiscal year $ 51.2
$ 36.5
Recognized in current year 57.0
66.2
Reclassified to accounts receivable (63.1 ) (67.9 )
Impairment —
—
Reclassification to/from long-term —
16.8
Divestiture (7.3 ) —
Balance as of period end $ 37.8
$ 51.6

Long-term September 30,
2019 September 30,
2018
Balance as of beginning of fiscal year $ 0.1
$ 16.9
Recognized in current year —
—
Reclassified to accounts receivable —
—
Impairment —
—
Reclassification to/from short-term —
(16.8 )
Balance as of period end $ 0.1
$ 0.1
9

(in millions)
Contract Liabilities
Short-term September 30,
2019 September 30,
2018
Balance as of beginning of fiscal year $ 71.4
$ 69.7
Recognized in current year 104.2
46.9
Amounts in beginning balance reclassified to revenue (43.9 ) (40.1 )
Current year amounts reclassified to revenue (34.8 ) (23.6 )
Other 0.2
1.7
Reclassification to/from long-term —
14.6
Balance as of period end $ 97.1
$ 69.2

Long-term September 30,
2019 September 30,
2018
Balance as of beginning of fiscal year $ 7.3
$ 22.2
Recognized in current year 0.8
0.5
Amounts in beginning balance reclassified to revenue (0.8 ) (0.8 )
Current year amounts reclassified to revenue —
—
Other —
—
Reclassification to/from short-term —
(14.6 )
Balance as of period end $ 7.3
$ 7.3

Contract costs for obtaining and fulfilling a contract were ~~$5.1~~$6.1 million and ~~$5.2~~$6.5 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and are reported in other long-term assets on the consolidated balance sheet. ~~Amortization expense for the the three and nine months ended September 30, 2019 of these contract costs was $0.4 million and $1.0 million, respectively.~~ ~~Amortization~~Contract cost amortization expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 of these contract costs~~2020 was $0.4 million and $0.7 million, respectively. Contract cost amortization expense for the three and six months ended June 30, 2019 was $0.3 million and ~~$0.9~~$0.6 million, respectively.

Note 3. Inventories

Inventories at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows (in millions):

September 30,
2019 December 31,
2018
Raw materials and supplies $ 199.6
$ 191.5
Work-in-process 863.5
914.1
Finished goods 180.9
191.1
Total inventories at current cost 1,244.0
1,296.7
Adjustment from current cost to LIFO cost basis 6.7
2.9
Inventory valuation reserves (82.2 ) (88.5 )
Total inventories, net $ 1,168.5
$ 1,211.1


	June 30, 2020		December 31, 2019
Raw materials and supplies	$	202.2	$	164.9
Work-in-process	796.8		899.6
Finished goods	186.5		161.3
Total inventories at current cost	1,185.5		1,225.8
Adjustment from current cost to LIFO cost basis	47.6		33.6
Inventory valuation reserves	(129.6)		(104.1)
Total inventories, net	$	1,103.5	$	1,155.3

Inventories are stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out (FIFO), and average cost methods) or market. 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, the Company maintains ~~NRV~~net realizable value (NRV) inventory valuation reserves to adjust carrying value of LIFO inventory to current replacement cost. These NRV reserves were ~~$6.7~~$47.6 million at ~~September~~June 30, ~~2019~~2020 and ~~$8.0~~$33.6 million at December 31, ~~2018.~~2019. 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,
2019 2018
LIFO benefit (charge) $ (1.4 ) $ (29.5 )
NRV benefit (charge) 1.3
29.5
Net cost of sales impact $ (0.1 ) $ —


	Six months ended June 30,
	2020		2019
LIFO benefit	$	14.0	$	5.8
NRV charge	(14.0)		(5.9)
Net cost of sales impact	$	—	$	(0.1)

ATI’s overall LIFO inventory valuation reserves also increased above replacement cost by $5.2 million at September 30, 2019 compared to December 31, 2018 due to the second quarter 2019 sale of the industrial forgings business, which used the LIFO costing methodology and maintained a LIFO valuation below current replacement cost.

Note 4. Property, Plant and Equipment

Property, plant and equipment at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was as follows (in millions):

September 30,
2019 December 31,
2018
Land $ 34.4
$ 31.5
Buildings 821.3
851.7
Equipment and leasehold improvements 3,612.1
3,622.7
4,467.8
4,505.9
Accumulated depreciation and amortization (2,060.3 ) (2,030.9 )
Total property, plant and equipment, net $ 2,407.5
$ 2,475.0


	June 30, 2020		December 31, 2019
Land	$	34.9	$	34.6
Buildings	876.8		832.7
Equipment and leasehold improvements	3,681.3		3,671.3
	4,593.0		4,538.6
Accumulated depreciation and amortization	(2,138.0)		(2,088.5)
Total property, plant and equipment, net	$	2,455.0	$	2,450.1

The construction in progress portion of property, plant and equipment at ~~September~~June 30, ~~2019~~2020 was ~~$123.9 million~~.$203.5 million.

Note 5. ~~Divestitures~~Goodwill Impairment

At June ~~3, 2019,~~30, 2020, the Company completed the sale of 2 non-core forging facilities for $37 million. Located in Portland, IN and Lebanon, KY, these operations primarily use traditional forging methods to produce carbon steel forged products for use in the oil & gas, transportation and construction & mining industries. The Company received cash proceeds, net of transaction costs and net working capital adjustments, of $33.0 million on the sale of this business during the nine months ended September 30, 2019, which is reported as an investing activity on the consolidated statement of cash flows. With $10.4had $236.4 million of goodwill ~~allocated~~on its consolidated balance sheet, all of which relates to ~~these operations~~

the HPMC segment. Goodwill decreased $289.4 million at June 30, 2020 compared to December 31, 2019, due to a $287.0 million interim impairment charge in the HPMC segment and $2.4 million from ~~ATI’s~~the impact of foreign currency translation on goodwill denominated in functional currencies other than the U.S. dollar.

The Company performs its annual goodwill impairment evaluations in the fourth quarter of each year. During the second quarter of 2020, the Company performed an interim goodwill impairment analysis on the Forged Products reporting unit ~~the Company recognized an $8.1~~and its $460.4 million ~~pre-tax loss in the nine months ended September 30, 2019, $7.7 million in the second quarter~~goodwill balance based on assessed potential indicators of 2019 and an additional $0.4 million in the third quarter of 2019 for the final working capital adjustment, which is recorded in other income, net, on the consolidated statement of income and is excluded from HPMC segment results. This business is reported as part of the HPMC segment through the date of sale. Sales from these 2 forging facilities in the 2018 fiscal year were $86 million in the aggregate.

On July 22, 2019, the Company completed the sale of its Cast Products business, which produces titanium investment castings that are primarily used by aerospace & defense OEMs in the production of commercial jet airframes and engines. As part of the $127 million transaction, ATI retained a small post-casting machining facility in Salem, OR and continues to provide these servicesimpairment, including recent disruptions to the ~~buyer~~global commercial aerospace market resulting from the COVID-19 pandemic, and ~~others. The Company received cash proceeds, net~~the increasing uncertainty of ~~transaction costs~~near-term demand requirements of aero-engine and ~~net working capital adjustments, of $122.9 million~~airframe markets based on government responses to the ~~sale of~~pandemic and ongoing interactions with customers. In the previous 2019 annual goodwill impairment evaluation, this ~~business during the nine months ended September 30, 2019, which is reported as an investing activity on the consolidated statement of cash flows. The Company recognized~~reporting unit had a ~~$6.2 million gain in the third quarter ended September 30, 2019, which included a $10.2 million impairment charge on the~~fair value that exceeded carrying value ~~of long-lived assets of~~by approximately 30%. For the retained Salem operation ($4.5 million for property, plant and equipment, $1.4 million for operating lease right of use assets, $1.0 million for finance lease right of use assets, and $3.3 million of finite-lived intangible assets). This long-lived asset2020 interim impairment ~~charge~~analysis, fair value was ~~based on an analysis of the estimated fair values, including asset appraisals using market approaches,~~determined by a quantitative assessment that used a discounted cash flow technique, which ~~represent~~represents Level 3 unobservable information in the fair value hierarchy. As a result of the second quarter 2020 interim goodwill impairment evaluation, the Company determined that the fair value of the Forged Products reporting unit was below carrying value, including goodwill, by $287.0 million. This ~~gain~~was primarily due to changes in the timing and amount of expected cash flows resulting from lower projected revenues, profitability and cash flows due to near-term reductions in commercial aerospace market demand.Consequently, during the second quarter of 2020, the Company recorded a $287.0 million impairment charge for the partial impairment of the Forged Products reporting unit goodwill, most of which was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes. This goodwill impairment charge was excluded from 2020 HPMC business segment results. Accumulated goodwill impairment losses as of June 30, 2020 and December 31, 2019 were $528.0 million and $241.0 million, respectively.

The $236.4 million of goodwill remaining as of June 30, 2020 on the ~~sale~~Company’s consolidated balance sheet is comprised of $173.4 million at Forged Products and $63.0 million at Specialty Materials. No indicators of impairment were observed in the second quarter 2020 associated with any other of the Cast Products business is recorded in other income, net, on the consolidated statement of income and is excluded from HPMC segment results. This business is reported as part of the HPMC segment through the date of sale. Cast Products’ sales were $105 million in fiscal year 2018.Company’s long-lived assets.

Note 6. Joint Ventures

The financial results of majority-owned joint ventures are consolidated into the Company’s operating results and financial position, with the minority ownership interest recognized in the consolidated ~~statement~~statements of ~~income~~operations as net income attributable to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity. Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50% ownership interest), are accounted for under the equity method of accounting.

Majority-Owned Joint Ventures

STAL:

The Company has a 60% interest in the Chinese joint venture known as ~~Shanghai STAL Precision Stainless Steel Company Limited (STAL).~~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 ~~FRP~~AA&S segment, and manufactures Precision Rolled Strip stainless products mainly for the electronics, communication equipment, computer and automotive markets located in Asia. Cash and cash equivalents held by STAL as of ~~September~~June 30, ~~2019~~2020 were ~~$47.4~~$34.9 million.

Next Gen Alloys LLC:

The Company has a 51% interest in Next Gen Alloys LLC, a joint venture with GE Aviation for the development of a new meltless titanium alloy powder manufacturing technology. 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 ~~September~~June 30, ~~2019~~2020 were ~~$6.1~~$4.2 million. During the first quarter 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~~A&T Stainless:

The Company ~~announced the formation of the Allegheny & Tsingshan~~has a 50% interest in A&T Stainless, ~~(A&T Stainless)~~a joint venture with an affiliate company of Tsingshan Group (Tsingshan) to produce 60-inch wide stainless sheet products for sale in North America. Tsingshan purchased aits 50% joint venture interest in A&T Stainless in 2018 for $17.5 million, of which $12.0 million ~~was~~has been received ~~in the first nine months of 2018 and reported as a financing activity on the consolidated statements of cash flows.~~by ATI. 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 the ~~FRP~~AA&S segment’s Hot-Rolling and Processing Facility. As a result of this sale of a 50% noncontrolling interest and the subsequent deconsolidation of the A&T Stainless entity, the Company recognized a $15.9 million gain during the first quarter of 2018 under deconsolidation and derecognition accounting guidance covering the loss of control of a subsidiary determined to be a business. The gain, including ATI’s retained 50% share, was based on the fair value of the joint venture, as determined by the cash purchase price for the noncontrolling interest, and is reported in other income, net on the consolidated statement of income, and is excluded from FRP segment results. Following this deconsolidation, ATI accounts for the A&T Stainless joint venture under the equity method of accounting.

ATI’s share of A&T Stainless results were losses of $2.6 million and $9.9 million for the three and nine months ended September 30, 2019, respectively, and income/(loss) of $(0.3) million and $0.2 million for the three and nine months ended September 30, 2018, respectively, which is included in the FRP segment’s operating results, and within other income, net, on the consolidated statements of income. In late March 2018, ATI filed for an exclusion from the Section 232 tariffs on behalf of A&T Stainless, which imports semi-finished stainless slab products from Indonesia. In April 2019, the Company learned that this exclusion request was denied by the U.S. Department of Commerce. ~~The~~ATI filed new requests on behalf of A&T Stainless ~~JV filed a new request~~ for exclusion from the Section 232 tariffs in October ~~2019, but will continue~~2019. These requests were denied by the U.S. Department of Commerce in the second quarter of 2020. A&T Stainless continues to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from ~~Indonesia pending the outcome of this new request.~~ Indonesia.

Results of A&T Stainless have been and will continue to be negatively impacted by these tariffs on imported stainless slab products.

On March 31, 2020, ATI announced that A&T Stainless would be idling the DRAP facility in 2020, in an orderly shut down process. Operations at the DRAP facility will continue through early in the third quarter of 2020. A&T Stainless recorded a $4.8 million charge in the second quarter 2020 for contractual termination benefits as a result of the idling decision. ATI’s share of A&T Stainless results were losses of $4.6 million and $8.5 million for the three and six months ended June 30, 2020, respectively, and losses of $4.0 million and $7.3 million for the three and six months ended June 30, 2019, respectively, which is included within other income/expense, net, on the consolidated statements of operations. These equity method results are reported in the AA&S segment, with the exception of ATI’s $2.4 million share of the charge for termination benefits.

During the fourth quarter of 2019, A&T Stainless recorded a $14.2 million impairment charge on its long-lived assets, of which ATI recognized a $7.1 million equity loss for its 50% share. In addition, ATI recorded a $4.3 million reserve during the fourth quarter of 2019 on its net receivables for working capital advances and administrative services from A&T Stainless. No additional impairment charge on the long-lived assets of A&T Stainless or additional reserve on ATI’s receivables from A&T Stainless, based on ATI’s share of the estimated fair value of the joint venture’s net assets, was considered necessary during the first six months of 2020.

As of ~~September~~June 30, 2020 and December 31, 2019, ATI had net receivables for working capital advances toand administrative services, including the $4.3 million reserve, from A&T Stainless ~~were $36.7~~of $17.6 million and ~~are~~$32.5 million, respectively. For the June 30, 2020 net receivables, $2.0 million was reported in prepaid expenses and other current assets ~~on the consolidated balance sheet. ATI’s equity method investment~~and $15.6 million in ~~A&T Stainless at September 30, 2019 was $1.2 million and is reported as part of~~ other long-term assets on the consolidated balance ~~sheet. These balances were~~sheet, while for December 31, 2019, $8.3 million was reported in prepaid expenses and other current assets and $24.2 million in other long-term assets. In addition, ATI evaluated ~~for~~the collectability of its remaining $5.5 million receivable from Tsingshan, which is reported in other long-term assets on the consolidated balance sheet, and concluded that no impairment ~~as the tariff exclusion denial represents a potential impairment indicator. No impairment~~or loss in expected value exists at this time. ~~The joint venture partners continue to evaluate longer-term solutions to return this strategic initiative to profitability.~~

Uniti:

ATI has a 50% interest in the industrial titanium joint venture known as Uniti, ~~LLC (Uniti),~~ with the remaining 50% interest held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. Uniti is accounted for under the equity method of accounting. ATI’s share of Uniti’s income was ~~$0.2~~$0.3 million and ~~$1.2~~$0.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, and $0.5 million and ~~$2.3~~$1.0 million for the three and ~~nine~~six months ended ~~September 30. 2018,~~June 30, 2019, respectively, which is included in the ~~FRP~~AA&S segment’s operating results, and within other ~~income,~~income/expense, net on the consolidated statements of ~~income.~~operations.

Note 7. Supplemental Financial Statement Information

Other income (expense), net for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 was as follows:

(in millions) Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Rent and royalty income $ 1.4
$ 0.6
$ 2.8
$ 2.3
Gains from disposal of property, plant and equipment, net 62.3
0.1
90.6
0.5
Net equity (loss) gain on joint ventures (See Note 6) (2.4 ) 0.2
(8.7 ) 2.5
Net gain (loss) from sales of businesses (See Note 5) 5.8
—
(1.9 ) —
Gain on joint venture deconsolidation (See Note 6) —
—
—
15.9
Other 0.1
(0.1 ) 0.1
1.2
Total other income, net $ 67.2
$ 0.8
$ 82.9
$ 22.4


(in millions)	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Rent and royalty income	$	0.2	$	0.7	$	0.5	$	1.4
Gains from disposal of property, plant and equipment, net	—		29.1		2.5		28.3
Net equity loss on joint ventures (See Note 6)	(1.9)		(3.5)		(5.6)		(6.3)
Joint venture restructuring charges (See Note 6)	(2.4)		—		(2.4)		—
Loss from sale of businesses	—		(7.7)		—		(7.7)
Adjustment to indemnification for conditional ARO costs	4.3		—		4.3		—
Other	0.3		—		0.3		—
Total other income (expense), net	$	0.5	$	18.6	$	(0.4)	$	15.7

Gains from disposal of property, plant and equipment, net for the six months ended June 30, 2020 include a $2.5 million gain on the sale of certain oil and gas rights. Gains from disposal of property, plant and equipment, net for the three and ~~nine~~six months ended ~~September~~June 30, 2019 include a ~~$62.4 million and $91.7~~$29.3 million gain on the sale of certain oil and gas ~~rights in Eddy County, NM, respectively. This~~rights. These cash ~~gain is~~gains are reported as an investing ~~activity~~activities on the consolidated ~~statement~~statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, 2020 and June 30, 2019, respectively, and isare excluded from segment operating results. ~~These oil and gas rights were initially acquired by~~

In the second quarter of 2020, the Company ~~in 1972 along with land purchased by Teledyne, Inc., which later became part of ATI. The land was subsequently sold,~~finalized a settlement agreement for an indemnity claim concerning a conditional asset retirement obligation (ARO) with the buyer of a formerly-owned business and as a result, the Company ~~retaining its underlying oil and gas rights.~~reduced ARO reserves by $4.3 million.

Note 8. Debt

Debt at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was as follows (in millions):


	September 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
Allegheny Technologies 5.875% Notes due 2023 (a)	$	500.0		$	500.0		Allegheny Technologies 5.875% Notes due 2023 (a)	$	500.0	$	500.0
Allegheny Technologies 5.95% Notes due 2021	500.0			500.0
Allegheny Technologies 5.875% Notes due 2027							Allegheny Technologies 5.875% Notes due 2027	350.0		350.0
Allegheny Technologies 3.5% Convertible Senior Notes due 2025							Allegheny Technologies 3.5% Convertible Senior Notes due 2025	285.0		—
Allegheny Technologies 4.75% Convertible Senior Notes due 2022	287.5			287.5			Allegheny Technologies 4.75% Convertible Senior Notes due 2022	84.2		287.5
Allegheny Ludlum 6.95% Debentures due 2025	150.0			150.0			Allegheny Ludlum 6.95% Debentures due 2025	150.0		150.0
Term Loan due 2024	100.0			100.0			Term Loan due 2024	200.0		100.0
U.S. revolving credit facility	—			—			U.S. revolving credit facility	—		—
Foreign credit facilities	5.1			—			Foreign credit facilities	5.6		4.9
Other	19.5			15.0
Finance leases and other							Finance leases and other	21.3		18.8
Debt issuance costs	(8.3		)	(10.4		)	Debt issuance costs	(16.1)		(12.3)
Equity component of convertible debt							Equity component of convertible debt	(50.3)		—
Total debt	1,553.8			1,542.1			Total debt	1,529.7		1,398.9
Short-term debt and current portion of long-term debt	12.1			6.6			Short-term debt and current portion of long-term debt	12.8		11.5
Total long-term debt	$	1,541.7		$	1,535.5		Total long-term debt	$	1,516.9	$	1,387.4

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

Revolving Credit Facility

~~On September 30, 2019, the~~The Company ~~amended and restated its~~has an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s domestic operations. ~~This amendment and restatement extends the~~The ABL facility, ~~through~~which matures in September ~~30,~~ 2024, ~~and~~ includes ~~an increase of $100~~a $500 million ~~in the~~ revolving credit facility, ~~to $500 million,~~ a letter of credit sub-facility of up to $200 million, and as of June 30, 2020, a ~~$100~~$200 million term loan (Term Loan). ~~Additionally, the amendment and restatement gives~~In June 2020, the Company ~~the ability, through June 30, 2020 and as long as no default or event of default has occurred and is continuing,~~exercised its right to borrow an additional $100 million under the term loan portion of ~~up to $100~~the ABL, with the same September 2024 maturity date. The Term Loan has an interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25 million ~~in total, using one or two draws (the Delayed-Draw Term Loan). The~~if certain minimum liquidity conditions are satisfied. In addition, the Company ~~also~~ has the right to request an increase of up to $200 million in the maximum amount available under the revolving credit facility for the duration of the ABL. The ~~Term Loan~~Company has ~~an amended interest rate of 2.0% plus~~ a ~~LIBOR spread and can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In July 2019, the Company amended its~~ $50 million floating-for-fixed interest rate swap which converts ~~half~~a portion of the Term Loan to a 4.21% fixed ~~rate (now 4.21% following the September 30, 2019 ABL amendment and restatement) with a~~interest rate. The swap matures in June ~~2024 maturity.~~2024.

~~As amended and restated, 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 1.25% and 1.75% for LIBOR-based borrowings and between 0.25% and 0.75% for base rate borrowings. The ABL facility contains a financial covenant whereby the Company must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) $87.5 million, calculated as 12.5% of the then applicable maximum ~~borrowing~~advance amount under the revolving credit portion of the ABL and ~~any~~the outstanding Term Loan balance, or (ii) $62.5 million. The Company was in compliance with the fixed charge coverage ratio covenant at ~~September~~June 30, ~~2019.~~2020. Additionally, the Company must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL facility, during the ~~90 day~~90-day period immediately preceding the stated maturity date of ~~each of~~ the ~~5.95% Senior Notes due 2021,~~ 4.75% Convertible Notes due 2022 and the 5.875% Notes due 2023.

As of ~~September~~June 30, ~~2019,~~2020, there were 0 outstanding borrowings under the revolving portion of the ABL facility, and ~~$35.3~~$35.2 million was utilized to support the issuance of letters of credit. There were 0 average revolving credit borrowings ~~under the ABL facility for the first nine months~~ of ~~2019, and for the first nine months of 2018, average borrowings were $56~~$58 million bearing an average annual interest rate of ~~3.651%.~~2.2% under the ABL facility for the first six months of 2020. There were 0 average revolving credit borrowings for the first six months of 2019.

~~Note 9. Leases~~

Convertible Notes

~~On January 1, 2019~~

In June 2020, the Company ~~adopted Accounting Standards Codification Topic 842 (ASC 842), Leases. This new guidance requires~~issued and sold $285.0 million aggregate principal amount of 3.5% Convertible Senior Notes due 2025 (the 2025 Convertible Notes). The Company granted the underwriters a ~~lessee~~13-day option to ~~recognize assets and liabilities~~purchase up to an additional $40.0 million aggregate principal amount of 2025 Convertible Notes on the ~~balance sheet for all leases, with~~same terms and conditions to cover over-allotments, if any. The underwriters exercised a portion of this option on June 30, 2020, and the ~~result being~~Company completed the ~~recognition~~offering and sale of ~~a right~~an additional $6.4 million aggregate principal amount of ~~use (ROU) asset and a lease liability. The lease liability is equal~~2025 Convertible Notes on July 2, 2020, subsequent to the ~~present value~~end of the ~~minimum lease payments for~~second quarter 2020. Interest on the ~~term of~~2025 Convertible Notes at the ~~lease, including any optional renewal periods determined to be reasonably certain to be exercised, using the discount rate determined at lease commencement. This discount~~3.5% cash coupon rate is ~~the rate implicit~~payable semi-annually in ~~the lease, if known; otherwise, the incremental borrowing rate (IBR) for the expected lease term is used. The Company’s IBRs approximate the rate the Company would have to pay to borrow~~arrears on a collateralized basis over a similar term at lease inception. The ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement dateeach June 15 and ~~any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives received.~~December 15, commencing December 15, 2020.

The Company ~~has lease contracts for real property and machinery and equipment, primarily for mobile, office and information technology equipment. At inception of~~used a ~~contract, the Company determines whether the contract is or contains a lease. If the Company has a right to obtain substantially all~~portion of the ~~economic benefits~~net proceeds from the ~~use~~offering of the ~~identified asset and~~2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of its outstanding 4.75% Convertible Senior Notes due 2022 (the 2022 Convertible Notes), resulting in a $21.5 million debt extinguishment charge, which included a $19.1 million cash make-whole payment related to the ~~right to direct the use~~early extinguishment of the ~~asset, then~~2022 Convertible Notes as required by the ~~contract contains~~applicable indenture, and a ~~lease. Several~~$2.4 million charge for deferred debt issue costs. The Company also used $19.0 million of the ~~Company’s real property lease contracts include options~~net proceeds of the offering of the 2025 Convertible Notes to ~~extend~~pay the ~~lease term; however, the Company currently has not included the renewal options for these leases in the ROU asset and lease liability because the likelihood~~cost of ~~renewal~~capped call transactions, described below, which was not determined to be reasonably certain. The Company will reassess the likelihood of renewal on at least an annual basis. In addition, several real property leases include variable lease payments, for items such as common area maintenance and utilities, which are expensed as incurred as variable lease expense.

~~There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. The criteria used for a lease to be classified~~recorded as a finance lease is generally consistent with the criteria under the previous lease accounting guidance, ASC 840, for capital leases. All other leases not meeting the finance lease criteria are classified as operating leases. Operating lease expense is recognized on a straight-line basis on the consolidated statement of income. Finance leases have front-loaded expense recognition which is reported as amortization expense and interest expense on the consolidated statement of income. ROU assets for operating leases are classifiedreduction to additional paid-in-capital in ~~other long-term assets, and ROU assets for finance leases are classified in property, plant and equipment~~stockholders’ equity on the consolidated balance sheet. For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other long-term liabilities on the consolidated balance sheet. For finance leases, short-term lease liabilities are classified in short-term debt, and long-term lease liabilities are classified in long-term debt on the consolidated balance sheet. On the cash flow statement, payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing activity, with the exceptionThe remainder of the ~~interest component of~~net proceeds from the ~~payment which is classified as an operating activity.~~offering will be used for general corporate purposes.

~~Adoption Method and Impact~~

The Company ~~applied ASC 842~~does not have the right to redeem the 2025 Convertible Notes prior to June 15, 2023. On or after June 15, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, the Company may redeem all ~~leases~~or any portion of the 2025 Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest if the last reported sale price of ATI’s common stock has been at least 130% of the conversion price then in effect for at ~~January 1, 2019~~least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on the trading day immediately preceding the date on which ATI provides written notice of redemption.

The initial conversion rate for the 2025 Convertible Notes is 64.5745 shares of ATI common stock per $1,000 principal amount of the 2025 Convertible Notes, equivalent to an initial conversion price of approximately $15.49 per share. Prior to the close of business on the business day immediately preceding March 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders of 2025 Convertible Notes only upon the satisfaction of specified conditions and ~~adopted~~during certain periods. Thereafter, until the ~~accounting standard~~close of business on the second scheduled trading day immediately preceding the maturity date, the 2025 Convertible Notes will be convertible at the option of holders of 2025 Convertible Notes at any time regardless of these conditions. Conversions of the 2025 Convertible Notes may be settled in cash, shares of ATI’s common stock or a combination thereof, at ATI’s election.

As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option is required to be separately accounted for as a component of stockholders’ equity. The value of the embedded conversion option was determined to be $50.3 million based on the estimated fair value of comparable senior unsecured debt without the conversion feature, using an income approach of expected present value. The equity component will be amortized as additional non-cash interest expense over the term of the 2025 Convertible Notes using the ~~alternative transition~~effective interest method, ~~which does~~and is not ~~require the restatement of prior years. Comparative information has not been adjusted and~~remeasured as long as it continues to bemeet the conditions for equity classification. Offering costs attributable to the debt component totaling $7.3 million are being amortized to interest expense over the term of the 2025 Convertible Notes, and offering costs attributable to the equity component totaling $1.6 million were netted within stockholders’ equity. As a result, $48.7 million of the 2025 Convertible Notes was recorded in additional paid-in-capital in stockholders’ equity ($50.3 million of the gross $285.0 million, net of $1.6 million of allocated offering costs). Including debt issue cost amortization, the 2025 Convertible Notes will have reported interest expense at an 8.4% rate, higher than the 3.5% cash coupon rate.

Holders of the 2025 Convertible Notes may require ATI to repurchase their 2025 Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the ~~previous accounting guidance.~~indenture governing the 2025 Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In connection with certain corporate events or if ATI issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2025 Convertible Notes in connection with such corporate event or during the relevant redemption period.

In connection with the pricing of the 2025 Convertible Notes, ATI entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates (collectively, the Counterparties). The ~~Company has elected~~capped call transactions are expected generally to reduce potential dilution to ATI’s common stock upon any conversion of the ~~package~~2025 Convertible Notes and/or offset any cash payments ATI is required to make in excess of ~~practical expedients, which allows entities~~the principal amount of converted 2025 Convertible

Notes, as the case may be, with such reduction and/or offset subject to ~~not reassess (1) whether contracts are or contain leases, (2) lease classification~~a cap based on the cap price. The cap price of the capped call transactions initially is approximately $19.76 per share, and ~~(3) initial direct costs. The Company has also elected~~is subject to adjustments under the practical expedient to not separate lease components from non-lease components for all asset classes, and did not elect the hindsight practical expedient to determine the lease term. The Company has made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of ~~12 months or less. On January 1, 2019,~~ the ~~Company recognized $51.7 million of ROU assets and $55.6 million of lease liabilities ($12.5 million short-term and $43.1 million long-term) on the consolidated balance sheet for operating leases,~~capped call transactions. ATI entered into additional capped call transactions with the difference due to deferred rent balances as of December 31, 2018 that reduced the ROU asset balance on January 1, 2019. The adoption did not have a material impact on the Company’s results of operations or cash flows, and had no impactCounterparties related to the ~~net deferred tax position~~additional $6.4 million aggregate principal amount of the 2025 Convertible Notes issued on ~~the consolidated balance sheet due~~July 2, 2020, subsequent to the ~~Company’s income tax valuation allowances for federal and state purposes (see Note 13).~~

~~The Company has entered into finance lease contracts with lenders for progress payments on machinery and equipment that is being constructed at the request and specification~~end of the Company. As of September 30, 2019, the lenders had made $1.7 million of progress payments on behalf of the Company, and $9.5 million of progress payments are scheduled to be paid. Upon payment of the final progress payments by the lenders, finance leases will commence, and $11.2 million, discounted using the applicable discount rates at lease inceptions, of ROU assets and lease liabilities will be recognized by the Company.second quarter 2020.

~~The following represents the components of lease cost and other information for both operating and financing leases for the three and nine months ending September 30, 2019:~~

($ in millions) Three months ended Nine months ended
September 30, 2019 September 30, 2019
Lease Cost
Finance Lease Cost:
   Amortization of right of use asset $ 0.5
$ 1.0
   Interest on lease liabilities 0.1
0.3
Operating lease cost 5.0
15.4
Short-term lease cost 0.7
2.4
Variable lease cost 0.2
0.6
Sublease income —
—
Total lease cost $ 6.5
$ 19.7

Other information
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from finance leases $ 0.1
$ 0.3
   Operating cash flows from operating leases $ 5.0
$ 15.4
   Financing cash flows from finance leases $ 0.7
$ 1.5
Right of use assets obtained in exchange for new finance lease liabilities $ 6.7
$ 12.6
Right of use assets obtained in exchange for new operating lease liabilities $ 2.8
$ 20.3
Weighted average remaining lease term - finance leases 4 years
Weighted average remaining lease term - operating leases 5 years
Weighted average discount rate - finance leases 5.3 %
Weighted average discount rate - operating leases 7.1 %

The following table reconciles future minimum undiscounted rental commitments for operating leases to the operating lease liabilities recorded on the consolidated balance sheet as of September 30, 2019 (in millions):

September 30, 2019
Remainder of 2019 $ 5.1
2020 18.5
2021 16.9
2022 13.2
2023 9.0
2024 and thereafter 18.9
Total undiscounted lease payments $ 81.6
Present value adjustment (15.3 )
Operating lease liabilities $ 66.3

The following table reconciles future minimum undiscounted rental commitments for finance leases to the finance lease liabilities recorded on the consolidated balance sheet as of September 30, 2019 (in millions):

September 30, 2019
Remainder of 2019 $ 1.0
2020 4.1
2021 3.9
2022 3.5
2023 2.4
2024 and thereafter 0.5
Total undiscounted lease payments $ 15.4
Present value adjustment (1.6 )
Finance lease liabilities $ 13.8

Note ~~10.~~9. Derivative Financial Instruments and Hedging

As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges.

The Company sometimes uses futures and swap contracts to manage exposure to changes in prices for forecasted purchases of raw materials, such as nickel, and natural gas. Under these contracts, which are generally accounted for as cash flow hedges, the price of the item being hedged is fixed at the time that the contract is entered into, and the Company is obligated to make or receive a payment equal to the net change between this fixed price and the market price at the date the contract matures.

The majority of ATI’s products are sold utilizing raw material surcharges and index mechanisms. However, as of ~~September~~June 30, ~~2019~~,2020, the Company had entered into financial hedging arrangements, primarily at the request of its customers, related to firm orders, for an aggregate notional amount of approximately 95 million pounds of nickel with hedge dates through 2023. The aggregate notional amount hedged is ~~approximately~~ 9%less than 10% of a single year’s estimated nickel raw material purchase requirements.

At ~~September~~June 30, ~~2019~~,2020, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges. At ~~September~~June 30, ~~2019,~~2020, the Company hedged approximately ~~70%~~100% of the Company’s forecasted domestic requirements for natural gas for the remainder of ~~2019, approximately 70% for~~ 2020 and approximately ~~50%~~60% for 2021.

While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk, primarily euro. In addition, the Company may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At ~~September~~June 30, ~~2019,~~2020, the Company ~~held euro~~had 0 significant outstanding foreign currency forward ~~sales contracts designated as cash flow hedges with a notional value of approximately 12 million euro with maturity dates through December 2019.~~contracts.

The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. ~~In July 2019, the~~The Company ~~amended its~~has a $50 million floating-for-fixed interest rate swap which converts ~~half~~a portion of the Term Loan to a 4.21% fixed ~~rate (now 4.21% following the September 30, 2019 ABL amendment and restatement), with a~~rate. The swap matures in June ~~2024 maturity.~~2024. The Company ~~redesignated~~designated the ~~existing~~ interest rate swap as a cash flow hedge of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The ineffectiveness at hedge inception, determined from the fair value of the swap immediately prior to its July 2019 amendment, will be amortized to interest expense over the initial Term Loan swap maturity date of January 12, 2021.

There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts 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,
2019 December 31,
2018
Derivatives designated as hedging instruments:
Foreign exchange contracts Prepaid expenses and other current assets $ 0.7
$ —
Natural gas contacts Prepaid expenses and other current assets —
0.8
Nickel and other raw material contracts Prepaid expenses and other current assets 13.1
1.2
Natural gas contracts Other assets 0.1
0.2
Nickel and other raw material contracts Other assets 3.6
0.8
Total derivatives designated as hedging instruments 17.5
3.0
Derivatives not designated as hedging instruments:
Foreign exchange contracts Prepaid expenses and other current assets —
0.4
Total derivatives not designated as hedging instruments —
0.4
Total asset derivatives $ 17.5
$ 3.4
Liability derivatives Balance sheet location
Derivatives designated as hedging instruments:
Interest rate swap Other current liabilities $ 0.3
$ 0.2
Foreign exchange contracts Other current liabilities —
0.6
Natural gas contracts Other current liabilities 1.7
0.1
Nickel and other raw material contracts Other current liabilities 0.3
6.8
Interest rate swap Other long-term liabilities 1.7
0.3
Natural gas contracts Other long-term liabilities 1.1
0.3
Nickel and other raw material contracts Other long-term liabilities —
2.1
Total derivatives designated as hedging instruments 5.1
10.4
Total liability derivatives $ 5.1
$ 10.4


(In millions) Asset derivatives	Balance sheet location	June 30, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Nickel and other raw material contracts	Prepaid expenses and other current assets	1.2		4.4
Natural gas contracts	Prepaid expenses and other current assets	0.1		—
Nickel and other raw material contracts	Other assets	0.2		1.2
Total derivatives designated as hedging instruments				1.5		5.6
Total asset derivatives		$	1.5	$	5.6
Liability derivatives	Balance sheet location
Derivatives designated as hedging instruments:
Interest rate swap	Other current liabilities	$	1.1	$	0.3

Natural gas contracts	Other current liabilities	2.5		2.5
Nickel and other raw material contracts	Other current liabilities	0.8		2.5


Interest rate swap	Other long-term liabilities	3.1		1.2
Natural gas contracts	Other long-term liabilities	0.2		1.0
Nickel and other raw material contracts	Other long-term liabilities	0.3		—
Total derivatives designated as hedging instruments				8.0		7.5
Total liability derivatives		$	8.0	$	7.5

For derivative financial instruments that are designated as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. There were no outstanding fair value hedges as of ~~September~~June 30, ~~2019.~~2020. 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~~affecting results of operations or other comprehensive income, when applicable (see Note 1716 for further explanation).

Assuming market prices remain constant with those at ~~September~~June 30, ~~2019,~~2020, a pre-tax ~~gain~~loss of ~~$11.5~~$3.1 million 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~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 was as follows (in millions):


	Amount of Gain (Loss) Recognized in OCI on Derivatives						Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
	Three months ended June 30,						Three months ended June 30,
Derivatives in Cash Flow Hedging Relationships	2020		2019		2020		2019
Nickel and other raw material contracts	$	2.0	$	(1.9)	$	(1.8)	$	(0.2)
Natural gas contracts	(0.1)		(1.9)		(1.0)		(0.1)
Foreign exchange contracts	—		(0.2)		(0.1)		—
Interest rate swap	(0.3)		(0.3)		(0.3)		(0.1)
Total	$	1.6	$	(4.3)	$	(3.2)	$	(0.4)


	Amount of Gain (Loss) Recognized in OCI on Derivatives						Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)							Amount of Gain (Loss) Recognized in OCI on Derivatives						Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
	Three months ended September 30,						Three months ended September 30,							Six months ended June 30,						Six months ended June 30,
Derivatives in Cash Flow Hedging Relationships	2019			2018			2019			2018			Derivatives in Cash Flow Hedging Relationships	2020		2019		2020		2019
Nickel and other raw material contracts	$	11.8		$	(8.0	)	$	1.1		$	1.7		Nickel and other raw material contracts	$	(4.2)	$	6.4	$	(2.0)	$	(0.6)
Natural gas contracts	(0.9		)	(0.1		)	(0.6		)	—			Natural gas contracts	(1.3)		(2.3)		(2.0)		—
Foreign exchange contracts	0.9			0.2			0.3			0.4			Foreign exchange contracts	(0.1)		0.1		(0.1)		(0.3)
Interest rate swap	(1.2		)	(0.2		)	(0.1		)	(0.1		)	Interest rate swap	(2.2)		(0.5)		(0.5)		(0.2)
Total	$	10.6		$	(8.1	)	$	0.7		$	2.0		Total	$	(7.8)	$	3.7	$	(4.6)	$	(1.1)

(a)The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the interest rate swap, are presented in cost of sales in the same period or periods in which the hedged item affects earnings. The gains (losses) reclassified from accumulated OCI into income on the interest rate swap are presented in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings.

Amount of Gain (Loss)
Recognized in OCI on
Derivatives

Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income (a)
Nine months ended September 30, Nine months ended September 30,
Derivatives in Cash Flow Hedging Relationships 2019 2018 2019 2018
Nickel and other raw material contracts $ 18.2
$ 1.3
$ 0.5
$ 7.9
Natural gas contracts (3.2 ) 0.1
(0.6 ) (0.4 )
Foreign exchange contracts 1.0
0.7
—
0.4
Interest rate swap (1.7 ) (0.2 ) (0.3 ) (0.1 )
Total $ 14.3
$ 1.9
$ (0.4 ) $ 7.8

~~(a)~~

The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the interest rate swap, are presented in cost of sales in the same period or periods in which the hedged item affects earnings. The gains (losses) reclassified from accumulated OCI into income on the interest rate swap are presented in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings.

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

Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. The Company has 0 outstanding foreign currency forward contracts not designated as hedges as of September 30, 2019.

(In millions) Amount of Gain (Loss) Recognized in Income on Derivatives
Three months ended September 30, Nine months ended September 30,
Derivatives Not Designated as Hedging Instruments 2019 2018 2019 2018
Foreign exchange contracts $ —
$ —
$ 0.1
$ 0.1

Note ~~11.~~10. Fair Value of Financial Instruments

The estimated fair value of financial instruments at ~~September~~June 30, ~~2019~~2020 was as follows:


			Fair Value Measurements at Reporting Date Using
(In millions)	Total Carrying Amount		Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)
Cash and cash equivalents	$	539.1	$	539.1	$	539.1	$	—
Derivative financial instruments:
Assets	1.5		1.5		—		1.5
Liabilities	8.0		8.0		—		8.0
Debt (a)	1,596.1		1,563.8		1,336.9		226.9

The estimated fair value of financial instruments at December 31, ~~2018~~2019 was as follows:


			Fair Value Measurements at Reporting Date Using
(In millions)	Total Carrying Amount		Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)
Cash and cash equivalents	$	490.8	$	490.8	$	490.8	$	—
Derivative financial instruments:
Assets	5.6		5.6		—		5.6
Liabilities	7.5		7.5		—		7.5
Debt (a)	1,411.2		1,676.5		1,552.8		123.7

Fair Value Measurements at Reporting Date Using
(In millions)
Total
Carrying
Amount

Total
Estimated
Fair Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)
Cash and cash equivalents $ 382.0
$ 382.0
$ 382.0
$ —
Derivative financial instruments:
Assets 3.4
3.4
—
3.4
Liabilities 10.4
10.4
—
10.4
Debt (a) 1,552.5
1,739.4
1,624.4
115.0
(a)The total carrying amount for debt for both periods excludes debt issuance costs related to the recognized debt liability which is presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability. The June 30, 2020 debt carrying value includes $50.3 million recorded in stockholders’ equity for a portion of the 2025 Convertible Notes due to the flexible settlement feature of the notes (see Note 8).


~~(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 2019 or 2018.~~

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

Cash and cash equivalents: Fair 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 ~~12.~~11. 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 (IRC).

The Company also sponsors several postretirement plans covering certain collectively-bargained salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most retiree health care plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution. All defined benefit pension and retiree health care plans are closed to new entrants.

For the three month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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
	Three months ended June 30,						Three months ended June 30,
	2020		2019		2020		2019
Service cost - benefits earned during the year	$	3.1	$	3.1	$	0.6	$	0.4
Interest cost on benefits earned in prior years	21.6		26.4		2.7		3.7
Expected return on plan assets	(33.6)		(32.9)		—		—
Amortization of prior service cost (credit)	0.2		0.1		(1.0)		(0.7)
Amortization of net actuarial loss	18.6		18.4		2.7		3.4
Total retirement benefit expense	$	9.9	$	15.1	$	5.0	$	6.8

Pension Benefits Other Postretirement Benefits
Three months ended September 30, Three months ended September 30,
2019 2018 2019 2018
Service cost - benefits earned during the year $ 3.2
$ 4.1
$ 0.5
$ 0.6
Interest cost on benefits earned in prior years 26.4
26.2
3.7
3.2
Expected return on plan assets (32.8 ) (39.5 ) —
—
Amortization of prior service cost (credit) —
0.1
(0.7 ) (0.8 )
Amortization of net actuarial loss 18.5
16.5
3.4
2.7
Total retirement benefit expense $ 15.3
$ 7.4
$ 6.9
$ 5.7

For the ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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
	Six months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Service cost - benefits earned during the year	$	6.3	$	6.3	$	1.1	$	0.9
Interest cost on benefits earned in prior years	43.1		52.7		5.4		7.4
Expected return on plan assets	(67.2)		(65.7)		—		—
Amortization of prior service cost (credit)	0.4		0.2		(1.9)		(1.4)
Amortization of net actuarial loss	37.2		36.8		5.4		6.7
Total retirement benefit expense	$	19.8	$	30.3	$	10.0	$	13.6

Pension Benefits Other Postretirement Benefits
Nine months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Service cost - benefits earned during the year $ 9.5
$ 12.4
$ 1.4
$ 1.8
Interest cost on benefits earned in prior years 79.1
78.5
11.1
9.5
Expected return on plan assets (98.5 ) (118.5 ) —
—
Amortization of prior service cost (credit) 0.2
0.3
(2.1 ) (2.2 )
Amortization of net actuarial loss 55.3
49.5
10.1
8.0
Curtailment loss —
0.4
—
—
Total retirement benefit expense $ 45.6
$ 22.6
$ 20.5
$ 17.1

Note 12. Income Taxes

~~Note 13. Income Taxes~~

The Company maintains income tax valuation allowances on its U.S. Federal and state deferred tax assets, and also maintains valuation allowances on deferred tax assets in certain foreign jurisdictions, based upon the examination of all positive and negative evidence as of the reporting date. Results in both 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily related to these income tax valuation allowances. Third quarter 2019 and 2018 results include a provision for income taxes ~~of $3.7~~for the second quarter and six months ended June 30, 2020 was $92.6 million, or ~~3.1%~~(28.3)%, and $103.4 million, or (35.3)%, respectively, of loss before taxes. In the second quarter 2020, ATI recorded a $99.0 million deferred tax asset valuation allowance on its U.S. federal and state tax attributes. The Company entered into a three-year cumulative loss within the United States as of June 30, 2020, limiting the Company’s ability to utilize future projections when analyzing the need for a valuation allowance therefore limiting sources of income as part of the analysis. The Company continues to be unable to make a reliable estimate of the annual effective tax rate, as significant changes in projected results for the Company’s domestic operations could produce a significant variation in its annual effective tax rate. The tax provision for the second quarter 2019 and the six months ended June 30, 2019 was $5.8 million, or 6.9%, and $6.6 million, or 6.5%, respectively, of income before taxes, and $6.9 million, or 11.0% of income before taxes, respectively. For the nine months ended September 30, 2019 and 2018, results included a provision for income taxes of $10.3 million, or 4.7% of income before taxes, and $16.8 million, or 8.1% of income before income taxes, respectively, primarily relateddue to ~~the benefit from the~~deferred tax asset valuation allowances ~~mentioned above~~in the United States.

The Company has analyzed the impacts of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was enacted on March 27, 2020 and has determined that the impact does not result in a material income ~~taxes on non-U.S. operations.~~tax expense or benefit. The Company continues to ~~analyze~~evaluate the ~~impact~~overall changes between the deferred tax asset classifications of interest, pension and net operating losses resulting from the ~~Tax Cut and Jobs Act as additional guidance is finalized. At this time, the Company has not made any material adjustments to the previously presented amounts in the 2018 or 2017 financial statements.~~CARES Act.

Note ~~14.~~13. Business Segments

~~The~~Effective January 1, 2020, the Company ~~operates in~~began operating under 2 revised business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). HPMC is now comprised of the Specialty Materials and Forged Products businesses, as well as our ATI Europe distribution operations. The updated HPMC segment intensifies its primary focus on maximizing aero-engine materials and components growth, with more than 80% of its revenue derived from the aerospace and defense markets. The new AA&S segment combines our Specialty Alloys & Components (SAC) business, including the primary titanium operations in Richland, WA and Albany, OR, with ATI’s former Flat Rolled ~~Products.~~ Products (FRP) business segment, which included the FRP business, the 60%-owned STAL joint venture, and the Uniti and A&T Stainless 50%-owned joint ventures that are reported in AA&S segment results under the equity method of accounting. AA&S is focused on delivering high-value flat products primarily to the energy, aerospace, and defense end-markets, which comprise over 50% of its revenue. AA&S was created to align melting technologies with hot-rolling capabilities to produce products with faster flow times and lower costs. Financial results of our aerospace-grade titanium plate products also transferred from HPMC to AA&S effective January 1, 2020. All segment reporting information for 2020 and prior periods below reflect these two revised business segments.

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, charges for goodwill impairment (see Note 5), restructuring and ~~asset impairment~~other charges (see Note 14), debt extinguishment 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 June 30,						Six months ended June 30,
	2020		2019		2020		2019
Total sales:
High Performance Materials & Components	$	316.7	$	552.8	$	765.2	$	1,069.1
Advanced Alloys & Solutions	506.2		612.8		1,093.8		1,185.0
	822.9		1,165.6		1,859.0		2,254.1
Intersegment sales:
High Performance Materials & Components	16.0		19.7		44.2		39.4
Advanced Alloys & Solutions	36.6		65.5		89.0		129.5
	52.6		85.2		133.2		168.9
Sales to external customers:
High Performance Materials & Components	300.7		533.1		721.0		1,029.7
Advanced Alloys & Solutions	469.6		547.3		1,004.8		1,055.5
	$	770.3	$	1,080.4	$	1,725.8	$	2,085.2

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Total sales:
High Performance Materials & Components $ 577.3
$ 615.2
$ 1,875.0
$ 1,806.3
Flat Rolled Products 492.1
452.5
1,381.1
1,330.9
1,069.4
1,067.7
3,256.1
3,137.2
Intersegment sales:
High Performance Materials & Components 25.6
29.7
79.7
68.2
Flat Rolled Products 25.1
17.8
72.5
60.3
50.7
47.5
152.2
128.5
Sales to external customers:
High Performance Materials & Components 551.7
585.5
1,795.3
1,738.1
Flat Rolled Products 467.0
434.7
1,308.6
1,270.6
$ 1,018.7
$ 1,020.2
$ 3,103.9
$ 3,008.7


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Segment operating profit:
High Performance Materials & Components	$	9.2	$	78.4	$	66.3	$	130.1
Advanced Alloys & Solutions	18.1		36.1		42.2		46.1
Total segment operating profit	27.3		114.5		108.5		176.2
LIFO and net realizable value reserves	—		—		—		(0.1)
Corporate expenses	(7.7)		(18.0)		(20.5)		(34.6)
Closed operations and other income (expense)	2.4		(7.9)		(4.2)		(11.0)
Restructuring and other charges (See Note 14)	(16.7)		—		(24.7)		—
Impairment of goodwill (See Note 5)	(287.0)		—		(287.0)		—
Joint venture restructuring charges (See Note 6)	(2.4)		—		(2.4)		—
Gain on asset sales, net	—		21.6		2.5		21.6
Debt extinguishment charge (See Note 8)	(21.5)		—		(21.5)		—
Interest expense, net	(21.7)		(25.9)		(43.6)		(50.7)
(Loss) income before income taxes	$	(327.3)	$	84.3	$	(292.9)	$	101.4

Corporate expenses were lower for the second quarter and first six months of 2020 compared to 2019 primarily due to lower incentive compensation expense based on expected performance versus targeted metrics, and lower expenses resulting from cost reduction actions. Closed operations and other expenses were lower in the second quarter and first six months of 2020 compared to 2019, as the second quarter of 2020 benefited by $4.3 million from settlements of contract indemnity obligations, along with foreign currency gains and lower legal, environmental, and retirement benefit expense of closed operations, compared to the prior year period.

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Operating profit:
High Performance Materials & Components $ 78.8
$ 76.0
$ 250.3
$ 259.4
Flat Rolled Products 20.4
29.5
25.1
66.5
Total operating profit 99.2
105.5
275.4
325.9
LIFO and net realizable value reserves —
—
(0.1 ) —
Corporate expenses (16.0 ) (14.8 ) (50.6 ) (40.9 )
Closed operations and other expenses (8.2 ) (3.4 ) (19.2 ) (16.6 )
Gain on joint venture deconsolidation (See Note 6) —
—
—
15.9
Gain on asset sales, net 68.2
—
89.8
—
Interest expense, net (24.2 ) (24.8 ) (74.9 ) (75.8 )
Income before income taxes $ 119.0
$ 62.5
$ 220.4
$ 208.5

The ~~$68.2~~$2.5 million ~~net~~ gain on asset sales, net for the ~~third quarter~~six months ended ~~September~~June 30, 2020 consists of a gain on the sale of certain oil and gas rights (see Note 7). The $21.6 million gain on asset sales, net for the three and six months ended June 30, 2019 consists of a ~~$62.4~~$29.3 million gain on the sale of certain oil and gas rights, ~~in Eddy County, NM (see Note 7) and a $6.2 million gain on the sale of the Company’s Cast Products business,~~ partially offset by a ~~$0.4~~$7.7 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. ~~The $89.8~~

Note 14. Restructuring

For the second quarter and six months ended June 30, 2020, the Company recorded restructuring charges of $16.7 million ~~net gain on asset sales~~and $24.7 million, respectively, which are presented as restructuring charges in the consolidated statements of operations. These charges were a result of workforce right-sizing actions to better match the Company’s cost structure to expected demand, primarily as a result of economic challenges created by the COVID-19 pandemic. For the second quarter of 2020, these charges are comprised of severance obligations for the ~~nine~~elimination of approximately 550 positions for both involuntary reductions and voluntary retirement incentive programs related to both salary and hourly employees in the HPMC segment. For the six months ended ~~September~~June 30, ~~2019 consists~~2020, these charges also include severance obligations for the reduction of approximately 90 positions for a ~~$91.7 million gain~~voluntary retirement incentive program completed in the first quarter of 2020 for eligible salaried employees, building on the ~~sale (in two separate transactions)~~previously announced restructuring program in the fourth quarter of ~~oil~~2019.

Reserves for restructuring charges at June 30, 2020 consist of severance costs incurred in the fourth quarter 2019 and ~~gas rights~~the first half of 2020, which are expected to be substantially paid by mid-2021. Restructuring reserves activity is as follows:


	Severance and Employee
	Benefit Costs
Balance at December 31, 2019	$	4.5
Additions	24.7
Payments	(2.8)
Balance at June 30, 2020	$	26.4

Of this $26.4 million restructuring reserve balance at June 30, 2020, $25.6 million is recorded in ~~Eddy County, NM (see Note 7)~~other current liabilities and ~~a $6.2~~$0.8 million ~~gain~~is recorded in other long-term liabilities on the sale of the Company’s Cast Products business, partially offset by an $8.1 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. See Note 5 for further explanation regarding the sale of business transactions.consolidated balance sheet.

Corporate expenses were higher in the third quarter and nine months of 2019 compared to 2018, primarily due to higher incentive compensation expenses. Closed operations and other expenses include higher retirement benefit expense in 2019 and a benefit for property tax adjustments in the prior year for the closed Rowley facility.

Note 15. Per Share Information

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

Three months ended Nine months ended
(In millions, except per share amounts) September 30, September 30,
2019 2018 2019 2018
Numerator:
Numerator for basic income per common share –
Net income attributable to ATI $ 111.0
$ 50.5
$ 201.1
$ 181.3
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022 3.2
3.2
9.7
9.6
Numerator for diluted income per common share –
Net income attributable to ATI after assumed conversions $ 114.2
$ 53.7
$ 210.8
$ 190.9
Denominator:
Denominator for basic net income per common share – weighted average shares 125.9
125.2
125.7
125.1
Effect of dilutive securities:
Share-based compensation 0.9
0.9
0.8
0.7
4.75% Convertible Senior Notes due 2022 19.9
19.9
19.9
19.9
Denominator for diluted net income per common share – adjusted weighted average shares and assumed conversions 146.7
146.0
146.4
145.7
Basic net income attributable to ATI per common share $ 0.88
$ 0.40
$ 1.60
$ 1.45
Diluted net income attributable to ATI per common share $ 0.78
$ 0.37
$ 1.44
$ 1.31


	Three months ended									Six months ended
(In millions, except per share amounts)	June 30,									June 30,
			2020			2019			2020			2019
Numerator:
Numerator for basic (loss) income per common share –
Net (loss) income attributable to ATI	$	(422.6)		$	75.1		$	(401.5)		$	90.1
Effect of dilutive securities:
4.75% Convertible Senior Notes due 2022	—			3.2			—			6.5
3.5% Convertible Senior Notes due 2025	—			—			—			—
Numerator for diluted (loss) income per common share –
Net (loss) income attributable to ATI after assumed conversions	$	(422.6)		$	78.3		$	(401.5)		$	96.6
Denominator:
Denominator for basic net (loss) income per common share – weighted average shares	126.6			125.9			126.4			125.7
Effect of dilutive securities:
Share-based compensation	—			0.6			—			0.6
4.75% Convertible Senior Notes due 2022	—			19.9			—			19.9
3.5% Convertible Senior Notes due 2025	—			—			—			—
Denominator for diluted net (loss) income per common share – adjusted weighted average shares and assumed conversions	126.6			146.4			126.4			146.2
Basic net (loss) income attributable to ATI per common share	$	(3.34)		$	0.60		$	(3.18)		$	0.72
Diluted net (loss) income attributable to ATI per common share	$	(3.34)		$	0.54		$	(3.18)		$	0.66

Common stock that would be issuable upon the assumed conversion of the ~~4.75%~~2022 Convertible ~~Senior~~ Notes ~~due 2022~~and the 2025 Convertible Notes and other option equivalents and contingently issuable shares are excluded from the computation of contingently issuable shares, and

therefore, from the denominator for diluted earnings per share, if the effect of inclusion is anti-dilutive. There were

20.5 million and 20.4 million anti-dilutive shares for the three and six month periods ended June 30, 2020, respectively. There were 0 anti-dilutive shares for the three and ~~nine~~six months periods ended ~~September~~June 30, ~~2019 and 2018.~~2019.

Note 16. ~~Financial Information for Subsidiary and Guarantor Parent~~

~~The payment obligations under the~~ ~~$150 million6.95%~~ 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 U.S. qualified defined benefit pension plans, which cover certain current and former employees of the Subsidiary and the non-guarantor subsidiaries. As a result, the balance sheets presented for the Subsidiary and the non-guarantor subsidiaries do not include any U.S. qualified defined benefit pension assets or liabilities, or the related deferred taxes and valuation allowances. These assets, liabilities and related deferred taxes and pension income or expense are recognized by the Guarantor Parent. Management and royalty fees charged to the Subsidiary and to the non-guarantor subsidiaries by the Guarantor Parent have been excluded solely for purposes of this presentation. The effects of income tax valuation allowances on U.S. Federal and State deferred tax assets are excluded from the Subsidiary’s financial results, and are reported by the Guarantor Parent or the non-guarantor subsidiaries, as applicable.

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Balance Sheets~~

~~September 30, 2019~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Assets:
Cash and cash equivalents $ 0.2
$ 9.9
$ 501.2
$ —
$ 511.3
Accounts receivable, net —
169.0
427.7
—
596.7
Intercompany notes receivable —
—
4,344.9
(4,344.9 ) —
Short-term contract assets —
—
37.8
—
37.8
Inventories, net —
203.4
965.1
—
1,168.5
Prepaid expenses and other current assets 6.0
52.1
50.0
—
108.1
Total current assets 6.2
434.4
6,326.7
(4,344.9 ) 2,422.4
Property, plant and equipment, net 6.3
1,531.2
870.0
—
2,407.5
Goodwill —
—
523.8
—
523.8
Intercompany notes receivable —
—
200.0
(200.0 ) —
Investment in subsidiaries 6,472.4
37.7
—
(6,510.1 ) —
Other assets 54.6
52.3
168.3
—
275.2
Total assets $ 6,539.5
$ 2,055.6
$ 8,088.8
$ (11,055.0 ) $ 5,628.9
Liabilities and stockholders’ equity:
Accounts payable $ 5.7
$ 144.7
$ 265.4
$ —
$ 415.8
Intercompany notes payable 2,339.5
2,005.4
—
(4,344.9 ) —
Short-term contract liabilities —
45.1
52.0
—
97.1
Short-term debt and current portion of long-term debt 1.3
0.2
10.6
—
12.1
Other current liabilities 36.8
79.3
122.2
—
238.3
Total current liabilities 2,383.3
2,274.7
450.2
(4,344.9 ) 763.3
Long-term debt 1,284.0
150.4
107.3
—
1,541.7
Intercompany notes payable —
200.0
—
(200.0 ) —
Accrued postretirement benefits —
254.3
47.1
—
301.4
Pension liabilities 555.6
3.5
42.8
—
601.9
Deferred income taxes 15.8
—
—
—
15.8
Other long-term liabilities 20.9
35.3
68.7
—
124.9
Total liabilities 4,259.6
2,918.2
716.1
(4,544.9 ) 3,349.0
Total stockholders’ equity (deficit) 2,279.9
(862.6 ) 7,372.7
(6,510.1 ) 2,279.9
Total liabilities and stockholders’ equity $ 6,539.5
$ 2,055.6
$ 8,088.8
$ (11,055.0 ) $ 5,628.9

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Statements of Income and Comprehensive Income~~

~~For the three months ended September 30, 2019~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Sales $ —
$ 389.2
$ 629.5
$ —
$ 1,018.7
Cost of sales 3.2
361.9
493.9
—
859.0
Gross profit (loss) (3.2 ) 27.3
135.6
—
159.7
Selling and administrative expenses 29.6
8.9
26.7
—
65.2
Operating income (loss) (32.8 ) 18.4
108.9
—
94.5
Nonoperating retirement benefit expense (12.0 ) (6.2 ) (0.3 ) —
(18.5 )
Interest income (expense), net (36.7 ) (33.3 ) 45.8
—
(24.2 )
Other income (loss) including equity in income of unconsolidated subsidiaries 200.5
(2.2 ) 69.2
(200.3 ) 67.2
Income (loss) before income tax provision (benefit) 119.0
(23.3 ) 223.6
(200.3 ) 119.0
Income tax provision (benefit) 3.7
(5.5 ) 28.7
(23.2 ) 3.7
Net income (loss) 115.3
(17.8 ) 194.9
(177.1 ) 115.3
Less: Net income attributable to noncontrolling interests —
—
4.3
—
4.3
Net income (loss) attributable to ATI $ 115.3
$ (17.8 ) $ 190.6
$ (177.1 ) $ 111.0
Comprehensive income (loss) attributable to ATI $ 133.7
$ (14.5 ) $ 178.9
$ (164.1 ) $ 134.0

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Statements of Income and Comprehensive Income~~

~~For the nine months ended September 30, 2019~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Sales $ —
$ 1,091.4
$ 2,012.5
$ —
$ 3,103.9
Cost of sales 9.3
1,007.8
1,618.3
—
2,635.4
Gross profit (loss) (9.3 ) 83.6
394.2
—
468.5
Selling and administrative expenses 88.9
24.3
87.7
—
200.9
Operating income (loss) (98.2 ) 59.3
306.5
—
267.6
Nonoperating retirement benefit expense (35.5 ) (18.5 ) (1.2 ) —
(55.2 )
Interest income (expense), net (112.8 ) (101.5 ) 139.4
—
(74.9 )
Other income (loss) including equity in income of unconsolidated subsidiaries 466.9
(8.8 ) 90.6
(465.8 ) 82.9
Income (loss) before income tax provision (benefit) 220.4
(69.5 ) 535.3
(465.8 ) 220.4
Income tax provision (benefit) 10.3
(16.6 ) 85.8
(69.2 ) 10.3
Net income (loss) 210.1
(52.9 ) 449.5
(396.6 ) 210.1
Less: Net income attributable to noncontrolling interests —
—
9.0
—
9.0
Net income (loss) attributable to ATI $ 210.1
$ (52.9 ) $ 440.5
$ (396.6 ) $ 201.1
Comprehensive income (loss) attributable to ATI $ 279.5
$ (43.3 ) $ 429.9
$ (392.6 ) $ 273.5

~~Condensed Statements of Cash Flows~~

~~For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Cash flows provided by (used in) operating activities $ 25.4
$ (167.1 ) $ 131.7
$ —
$ (10.0 )
Investing Activities:
Purchases of property, plant and equipment (0.5 ) (15.1 ) (82.5 ) —
(98.1 )
Net receipts/(payments) on intercompany activity —
—
(167.1 ) 167.1
—
Proceeds from sale of businesses, net of transaction costs —
—
155.9
—
155.9
Proceeds from disposal of property, plant and equipment —
—
91.8
—
91.8
Other (0.2 ) —
—
—
(0.2 )
Cash flows provided by (used in) investing activities (0.7 ) (15.1 ) (1.9 ) 167.1
149.4
Financing Activities:
Payments on long-term debt and finance leases (0.4 ) (0.1 ) (4.8 ) —
(5.3 )
Net borrowings under credit facilities —
—
5.1
—
5.1
Net receipts/(payments) on intercompany activity (14.3 ) 181.4
—
(167.1 ) —
Shares repurchased for income tax withholding on share-based compensation and other

(9.9 ) —
—
—
(9.9 )
Cash flows provided by (used in) financing activities (24.6 ) 181.3
0.3
(167.1 ) (10.1 )
Increase (decrease) in cash and cash equivalents $ 0.1
$ (0.9 ) $ 130.1
$ —
$ 129.3

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Balance Sheets~~

~~December 31, 2018~~

Guarantor Non-guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
Assets:
Cash and cash equivalents $ 0.1
$ 10.8
$ 371.1
$ —
$ 382.0
Accounts receivable, net —
126.3
401.5
—
527.8
Intercompany notes receivable —
—
3,968.8
(3,968.8 ) —
Short-term contract assets —
—
51.2
—
51.2
Inventories, net —
216.1
995.0
—
1,211.1
Prepaid expenses and other current assets 12.9
29.3
32.4
—
74.6
Total current assets 13.0
382.5
5,820.0
(3,968.8 ) 2,246.7
Property, plant and equipment, net 1.7
1,548.4
924.9
—
2,475.0
Goodwill —
—
534.7
—
534.7
Intercompany notes receivable —
—
200.0
(200.0 ) —
Investment in subsidiaries 6,096.4
37.7
—
(6,134.1 ) —
Other assets 35.6
30.7
179.1
—
245.4
Total assets $ 6,146.7
$ 1,999.3
$ 7,658.7
$ (10,302.9 ) $ 5,501.8
Liabilities and stockholders’ equity:
Accounts payable $ 3.3
$ 177.5
$ 318.0
$ —
$ 498.8
Intercompany notes payable 2,102.8
1,866.0
—
(3,968.8 ) —
Short-term contract liabilities —
33.0
38.4
—
71.4
Short-term debt and current portion of long-term debt 0.2
0.7
5.7
—
6.6
Other current liabilities 59.1
71.7
129.3
—
260.1
Total current liabilities 2,165.4
2,148.9
491.4
(3,968.8 ) 836.9
Long-term debt 1,278.8
151.8
104.9
—
1,535.5
Intercompany notes payable —
200.0
—
(200.0 ) —
Accrued postretirement benefits —
259.2
59.2
—
318.4
Pension liabilities 681.6
4.0
44.4
—
730.0
Deferred income taxes 12.9
—
—
—
12.9
Other long-term liabilities 16.4
17.6
42.5
—
76.5
Total liabilities 4,155.1
2,781.5
742.4
(4,168.8 ) 3,510.2
Total stockholders’ equity (deficit) 1,991.6
(782.2 ) 6,916.3
(6,134.1 ) 1,991.6
Total liabilities and stockholders’ equity $ 6,146.7
$ 1,999.3
$ 7,658.7
$ (10,302.9 ) $ 5,501.8

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Statements of Operations and Comprehensive Income~~

~~For the three months ended September 30, 2018~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Sales $ —
$ 357.4
$ 662.8
$ —
$ 1,020.2
Cost of sales 3.7
316.3
539.8
—
859.8
Gross profit (loss) (3.7 ) 41.1
123.0
—
160.4
Selling and administrative expenses 24.9
7.3
33.3
—
65.5
Operating income (loss) (28.6 ) 33.8
89.7
—
94.9
Nonoperating retirement benefit expense (3.1 ) (4.9 ) (0.4 ) —
(8.4 )
Interest income (expense), net (34.9 ) (29.5 ) 39.6
—
(24.8 )
Other income (loss) including equity in income of unconsolidated subsidiaries 129.1
0.4
(0.1 ) (128.6 ) 0.8
Income (loss) before income tax provision (benefit) 62.5
(0.2 ) 128.8
(128.6 ) 62.5
Income tax provision (benefit) 6.9
1.4
21.2
(22.6 ) 6.9
Net income (loss) 55.6
(1.6 ) 107.6
(106.0 ) 55.6
Less: Net income attributable to noncontrolling interests —
—
5.1
—
5.1
Net income (loss) attributable to ATI $ 55.6
$ (1.6 ) $ 102.5
$ (106.0 ) $ 50.5
Comprehensive income (loss) attributable to ATI $ 46.9
$ 0.9
$ 97.9
$ (94.9 ) $ 50.8

~~Allegheny Technologies Incorporated~~

~~Financial Information for Subsidiary and Guarantor Parent~~

~~Statements of Operations and Comprehensive Income~~

~~For the nine months ended September 30, 2018~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Sales $ —
$ 1,047.0
$ 1,961.7
$ —
$ 3,008.7
Cost of sales 11.7
962.8
1,551.5
—
2,526.0
Gross profit (loss) (11.7 ) 84.2
410.2
—
482.7
Selling and administrative expenses 73.0
25.2
97.1
—
195.3
Operating income (loss) (84.7 ) 59.0
313.1
—
287.4
Nonoperating retirement benefit expense (9.7 ) (14.6 ) (1.2 ) —
(25.5 )
Interest income (expense), net (102.1 ) (83.3 ) 109.6
—
(75.8 )
Other income (loss) including equity in income of unconsolidated subsidiaries 405.0
19.5
0.6
(402.7 ) 22.4
Income (loss) before income tax provision (benefit) 208.5
(19.4 ) 422.1
(402.7 ) 208.5
Income tax provision (benefit) 16.8
(2.9 ) 66.3
(63.4 ) 16.8
Net income (loss) 191.7
(16.5 ) 355.8
(339.3 ) 191.7
Less: Net income attributable to noncontrolling interests —
—
10.4
—
10.4
Net income (loss) attributable to ATI $ 191.7
$ (16.5 ) $ 345.4
$ (339.3 ) $ 181.3
Comprehensive income (loss) attributable to ATI $ 223.0
$ (9.3 ) $ 334.7
$ (330.6 ) $ 217.8

~~Condensed Statements of Cash Flows~~

~~For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2018~~

(In millions)
Guarantor
Parent
Subsidiary
Non-guarantor
Subsidiaries
Eliminations Consolidated
Cash flows provided by (used in) operating activities $ (102.9 ) $ (126.7 ) $ 361.2
$ (15.0 ) $ 116.6
Investing Activities:
Purchases of property, plant and equipment (1.4 ) (19.2 ) (80.7 ) —
(101.3 )
Net receipts/(payments) on intercompany activity —
—
(236.0 ) 236.0
—
Purchases of businesses —
—
(10.0 ) —
(10.0 )
Proceeds from disposal of property, plant and equipment —
1.3
0.1
—
1.4
Other 0.8
—
—
—
0.8
Cash flows provided by (used in) investing activities (0.6 ) (17.9 ) (326.6 ) 236.0
(109.1 )
Financing Activities:
Borrowings on long-term debt —
—
7.1
—
7.1
Payments on long-term debt and finance leases (0.2 ) (0.6 ) (3.8 ) —
(4.6 )
Net borrowings under credit facilities —
—
4.0
—
4.0
Net receipts/(payments) on intercompany activity 109.2
126.8
—
(236.0 ) —
Dividends paid to stockholders —
—
(15.0 ) 15.0
—
Dividends paid to noncontrolling interests —
—
(10.0 ) —
(10.0 )
Sale to noncontrolling interests —
11.7
2.7
—
14.4
Shares repurchased for income tax withholding on share-based compensation (6.5 ) —
—
—
(6.5 )
Cash flows provided by (used in) financing activities 102.5
137.9
(15.0 ) (221.0 ) 4.4
Increase (decrease) in cash and cash equivalents $ (1.0 ) $ (6.7 ) $ 19.6
$ —
$ 11.9

~~Note 17.~~ 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~~June 30, ~~2019~~2020 were as follows (in millions):


	Post- retirement benefit plans			Currency translation adjustment			Derivatives			Deferred Tax Asset Valuation Allowance			Total				Post- retirement benefit plans			Currency translation adjustment			Derivatives			Deferred Tax Asset Valuation Allowance		Total
Attributable to ATI:																Attributable to ATI:
Balance, June 30, 2019	$	(973.4	)	$	(73.0	)	$	—		$	(38.0	)	$	(1,084.4	)
Balance, March 31, 2020																Balance, March 31, 2020	$	(1,067.4)	$	(99.2)	$	(8.5)		$	(41.5)	$	(1,216.6)
OCI before reclassifications		—			(11.7	)		10.6			—		(1.1		)	OCI before reclassifications		—		14.7		1.6			—	16.3
Amounts reclassified from AOCI	(a)	16.1		(b)	—		(c)	(0.7	)	(d)	8.7		24.1			Amounts reclassified from AOCI	(a)	15.6	(b)	—	(c)	3.2		(d)	8.7	27.5
Net current-period OCI		16.1			(11.7	)		9.9			8.7		23.0			Net current-period OCI		15.6		14.7		4.8			8.7	43.8
Balance, September 30, 2019	$	(957.3	)	$	(84.7	)	$	9.9		$	(29.3	)	$	(1,061.4	)
Balance, June 30, 2020																Balance, June 30, 2020	$	(1,051.8)	$	(84.5)	$	(3.7)		$	(32.8)	$	(1,172.8)
Attributable to noncontrolling interests:																Attributable to noncontrolling interests:
Balance, June 30, 2019	$	—		$	12.7		$	—		$	—		$	12.7
Balance, March 31, 2020																Balance, March 31, 2020	$	—	$	9.0	$	—		$	—	$	9.0
OCI before reclassifications		—			(4.6	)		—			—		(4.6		)	OCI before reclassifications		—		(0.5)		—			—	(0.5)
Amounts reclassified from AOCI		—		(b)	—			—			—		—			Amounts reclassified from AOCI		—	(b)	—		—			��	—
Net current-period OCI		—			(4.6	)		—			—		(4.6		)	Net current-period OCI		—		(0.5)		—			—	(0.5)
Balance, September 30, 2019	$	—		$	8.1		$	—		$	—		$	8.1
Balance, June 30, 2020																Balance, June 30, 2020	$	—	$	8.5	$	—		$	—	$	8.5

The changes in ~~AOCI~~accumulated other comprehensive income (loss) (AOCI) by component, net of tax, for the ~~nine~~six month period ended ~~September~~June 30, ~~2019~~2020 were as follows (in millions):


	Post- retirement benefit plans			Currency translation adjustment			Derivatives			Deferred Tax Asset Valuation Allowance		Total
Attributable to ATI:
Balance, December 31, 2019	$	(1,083.1)	$	(76.6)	$	(0.5)		$	(41.5)	$	(1,201.7)
OCI before reclassifications		—		(7.9)		(7.8)			—	(15.7)
Amounts reclassified from AOCI	(a)	31.3	(b)	—	(c)	4.6		(d)	8.7	44.6
Net current-period OCI		31.3		(7.9)		(3.2)			8.7	28.9
Balance, June 30, 2020	$	(1,051.8)	$	(84.5)	$	(3.7)		$	(32.8)	$	(1,172.8)
Attributable to noncontrolling interests:
Balance, December 31, 2019	$	—	$	9.8	$	—		$	—	$	9.8
OCI before reclassifications		—		(1.3)		—			—	(1.3)
Amounts reclassified from AOCI		—	(b)	—		—			—	—
Net current-period OCI		—		(1.3)		—			—	(1.3)
Balance, June 30, 2020	$	—	$	8.5	$	—		$	—	$	8.5

(a)Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 11).

(b)No amounts were reclassified to earnings.

(c)Amounts related to derivatives are included in cost of goods sold or interest expense in the period or periods the hedged item affects earnings (see Note 9).

(d)Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates.

Post-
retirement
benefit plans

Currency
translation
adjustment
Derivatives Deferred Tax Asset Valuation Allowance Total
Attributable to ATI:
Balance, December 31, 2018 $ (1,005.8 ) $ (73.9 ) $ (4.8 ) $ (49.3 ) $ (1,133.8 )
OCI before reclassifications —
(10.8 ) 14.3
—
3.5
Amounts reclassified from AOCI (a) 48.5
(b) —
(c) 0.4
(d) 20.0
68.9
Net current-period OCI 48.5
(10.8 ) 14.7
20.0
72.4
Balance, September 30, 2019 $ (957.3 ) $ (84.7 ) $ 9.9
$ (29.3 ) $ (1,061.4 )
Attributable to noncontrolling interests:
Balance, December 31, 2018 $ —
$ 11.1
$ —
$ —
$ 11.1
OCI before reclassifications —
(3.0 ) —
—
(3.0 )
Amounts reclassified from AOCI —
(b) —
—
—
—
Net current-period OCI —
(3.0 ) —
—
(3.0 )
Balance, September 30, 2019 $ —
$ 8.1
$ —
$ —
$ 8.1


~~(a)~~	~~Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12).~~


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


~~(c)~~	~~Amounts related to derivatives are included in cost of goods sold or interest expense in the period or periods the hedged item affects earnings (see Note 10).~~


~~(d)~~	~~Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates.~~

The changes in AOCI by component, net of tax, for the three month period ended ~~September~~June 30, ~~2018~~2019 were as follows (in millions):


	Post- retirement benefit plans				Currency translation adjustment			Derivatives			Deferred Tax Asset Valuation Allowance			Total				Post- retirement benefit plans			Currency translation adjustment			Derivatives			Deferred Tax Asset Valuation Allowance		Total
Attributable to ATI:																	Attributable to ATI:
Balance, June 30, 2018	$	(926.2	)		$	(59.9	)	$	13.2		$	(18.7	)	$	(991.6	)
Balance, March 31, 2019																	Balance, March 31, 2019	$	(989.7)	$	(68.1)	$	3.9		$	(41.6)	$	(1,095.5)
OCI before reclassifications		—				(4.8	)		(8.1	)		—		(12.9		)	OCI before reclassifications		—		(4.9)		(4.3)			—	(9.2)
Amounts reclassified from AOCI	(a)	14.0			(b)	—		(c)	(2.0	)	(d)	1.2		13.2			Amounts reclassified from AOCI	(a)	16.3	(b)	—	(c)	0.4		(d)	3.6	20.3
Net current-period OCI		14.0				(4.8	)		(10.1	)		1.2		0.3			Net current-period OCI		16.3		(4.9)		(3.9)			3.6	11.1
Balance, September 30, 2018	$	(912.2	)		$	(64.7	)	$	3.1		$	(17.5	)	$	(991.3	)
Balance, June 30, 2019																	Balance, June 30, 2019	$	(973.4)	$	(73.0)	$	—		$	(38.0)	$	(1,084.4)
Attributable to noncontrolling interests:																	Attributable to noncontrolling interests:
Balance, June 30, 2018	$	—			$	21.1		$	—		$	—		$	21.1
Balance, March 31, 2019																	Balance, March 31, 2019	$	—	$	16.3	$	—		$	—	$	16.3
OCI before reclassifications		—		��		(9.0	)		—			—		(9.0		)	OCI before reclassifications		—		(3.6)		—			—	(3.6)
Amounts reclassified from AOCI		—			(b)	—			—			—		—			Amounts reclassified from AOCI		—	(b)	—		—			—	—
Net current-period OCI		—				(9.0	)		—			—		$	(9.0	)	Net current-period OCI		—		(3.6)		—			—	$	(3.6)
Balance, September 30, 2018	$	—			$	12.1		$	—		$	—		$	12.1
Balance, June 30, 2019																	Balance, June 30, 2019	$	—	$	12.7	$	—		$	—	$	12.7

The changes in AOCI by component, net of tax, for the ~~nine~~six month period ended ~~September~~June 30, ~~2018~~2019 were as follows (in millions):


	Post- retirement benefit plans			Currency translation adjustment			Derivatives			Deferred Tax Asset Valuation Allowance		Total
Attributable to ATI:
Balance, December 31, 2018	$	(1,005.8)	$	(73.9)	$	(4.8)		$	(49.3)	$	(1,133.8)
OCI before reclassifications		—		0.9		3.7			—	4.6
Amounts reclassified from AOCI	(a)	32.4	(b)	—	(c)	1.1		(d)	11.3	44.8
Net current-period OCI		32.4		0.9		4.8			11.3	49.4
Balance, June 30, 2019	$	(973.4)	$	(73.0)	$	—		$	(38.0)	$	(1,084.4)
Attributable to noncontrolling interests:
Balance, December 31, 2018	$	—	$	11.1	$	—		$	—	$	11.1
OCI before reclassifications		—		1.6		—			—	1.6
Amounts reclassified from AOCI		—	(b)	—		—			—	—
Net current-period OCI		—		1.6		—			—	$	1.6
Balance, June 30, 2019	$	—	$	12.7	$	—		$	—	$	12.7

Post-
retirement
benefit plans

Currency
translation
adjustment
Derivatives Deferred Tax Asset Valuation Allowance Total
Attributable to ATI:
Balance, December 31, 2017 $ (954.5 ) $ (53.5 ) $ 9.0
$ (28.8 ) $ (1,027.8 )
OCI before reclassifications —
(11.2 ) 1.9
—
(9.3 )
Amounts reclassified from AOCI (a) 42.3
(b) —
(c) (7.8 ) (d) 11.3
45.8
Net current-period OCI 42.3
(11.2 ) (5.9 ) 11.3
36.5
Balance, September 30, 2018 $ (912.2 ) $ (64.7 ) $ 3.1
$ (17.5 ) $ (991.3 )
Attributable to noncontrolling interests:
Balance, December 31, 2017 $ —
$ 17.3
$ —
$ —
$ 17.3
OCI before reclassifications —
(5.2 ) —
—
(5.2 )
Amounts reclassified from AOCI —
(b) —
—
—
—
Net current-period OCI —
(5.2 ) —
—
$ (5.2 )
Balance, September 30, 2018 $ —
$ 12.1
$ —
$ —
$ 12.1

(a)Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 11).


~~(a)~~	~~Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12).~~


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


~~(c)~~	~~Amounts related to derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings (see Note 10).~~


~~(d)~~	~~Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates.~~

(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 9).

(d)Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates.

Other comprehensive income (loss) amounts (OCI) reported above by category are net of applicable income tax expense (benefit) for each year presented. Income tax expense (benefit) on OCI items is recorded as a change in a deferred tax asset or liability. Amounts recognized in OCI include the impact of any deferred tax asset valuation allowances, when ~~applicable, resulting from the Company’s three year cumulative loss position.~~applicable. Foreign currency translation adjustments, including those pertaining to noncontrolling interests, are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

Reclassifications out of AOCI for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Amount reclassified from AOCI
Details about AOCI Components (In millions)	Three months ended June 30, 2020		Three months ended June 30, 2019		Six months ended June 30, 2020		Six months ended June 30, 2019			Affected line item in the statements of operations
Postretirement benefit plans
Prior service credit	$	0.8	$	0.6	$	1.5	$	1.2	(a)
Actuarial losses	(21.3)		(21.8)		(42.6)		(43.5)		(a)
	(20.5)		(21.2)		(41.1)		(42.3)		(c)	Total before tax
	(4.9)		(4.9)		(9.8)		(9.9)			Tax benefit (d)
	$	(15.6)	$	(16.3)	$	(31.3)	$	(32.4)		Net of tax
Derivatives
Nickel and other raw material contracts	$	(2.3)	$	(0.3)	$	(2.6)	$	(0.8)	(b)
Natural gas contracts	(1.3)		(0.1)		(2.6)		—		(b)
Foreign exchange contracts	(0.1)		—		(0.1)		(0.4)		(b)
Interest rate swap	(0.5)		(0.1)		(0.7)		(0.2)		(b)
	(4.2)		(0.5)		(6.0)		(1.4)		(c)	Total before tax
	(1.0)		(0.1)		(1.4)		(0.3)			Tax benefit (d)
	$	(3.2)	$	(0.4)	$	(4.6)	$	(1.1)		Net of tax

(a)Amounts are reported in nonoperating retirement benefit expense (see Note 11).

(b)Amounts related to derivatives, with the exception of the interest rate swap, are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the interest rate swap are included in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings (see Note 8).

(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.

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

Amount reclassified from AOCI
Details about AOCI Components
(In millions)
Three months ended September 30, 2019 Three months ended September 30, 2018 Nine months ended September 30, 2019 Nine months ended September 30, 2018
Affected line item in the
statements of income
Postretirement benefit plans
Prior service credit $ 0.7
$ 0.7
$ 1.9
$ 1.9
(a)
Actuarial losses (21.9 ) (19.2 ) (65.4 ) (57.5 ) (a)
(21.2 ) (18.5 ) (63.5 ) (55.6 ) (c) Total before tax
(5.1 ) (4.5 ) (15.0 ) (13.3 ) Tax benefit (d)
$ (16.1 ) $ (14.0 ) $ (48.5 ) $ (42.3 ) Net of tax
Derivatives
Nickel and other raw material contracts $ 1.5
$ 2.2
$ 0.7
$ 10.4
(b)
Natural gas contracts (0.8 ) —
(0.8 ) (0.5 ) (b)
Foreign exchange contracts 0.4
0.5
—
0.5
(b)
Interest rate swap (0.3 ) (0.1 ) (0.5 ) (0.1 ) (b)
0.8
2.6
(0.6 ) 10.3
(c) Total before tax
0.1
0.6
(0.2 ) 2.5
Tax provision (benefit) (d)
$ 0.7
$ 2.0
$ (0.4 ) $ 7.8
Net of tax


~~(a)~~	~~Amounts are reported in nonoperating retirement benefit expense (see Note 12).~~


~~(b)~~	Amounts related to derivatives, with the exception of the interest rate swap, are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the interest rate swap are included in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings (see Note 10).


~~(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 income.


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

Note ~~18.~~17. 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~~June 30, ~~2019~~,2020, the Company’s reserves for environmental remediation obligations totaled approximately ~~$19~~$15 million,, of which $7$5 million was included in other current liabilities. The reserve includes estimated probable future costs of $3$3 million for federal Superfund and comparable state-managed sites; ~~$14~~$10 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; $1$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 ~~$15~~$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.

A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently and formerly owned businesses, including those pertaining to product liability, environmental, health and safety matters and occupational disease (including as each relates to alleged asbestos exposure), as well as patent infringement, commercial, government contracting, construction, employment, employee and retiree benefits, taxes, environmental, and stockholder and corporate governance matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s consolidated results of operations for that period.

Allegheny Technologies Incorporated and its subsidiary, ATI Titanium LLC (“ATI Titanium”), are parties to a lawsuit captioned US Magnesium, LLC v. ATI Titanium LLC (Case No. 2:17-cv-00923-DB) and filed in federal district court in Salt Lake City, UT, pertaining to a Supply and Operating Agreement between US Magnesium LLC (“USM”) and ATI Titanium entered into in 2006 (the “Supply Agreement”). In 2016, ATI Titanium notified USM that it would suspend performance under the Supply Agreement in reliance on certain terms and conditions included in the Supply Agreement. USM subsequently filed a claim challenging ATI Titanium’s right to suspend performance under the Supply Agreement, claiming that such suspension was a material breach of the Supply Agreement and seeking monetary damages, and ATI Titanium filed a counterclaim for breach of contract against USM. In 2018, USM obtained leave of the court to add Allegheny Technologies Incorporated as a separate party defendant, and ATI Titanium filed a motion to dismiss the claim against Allegheny Technologies Incorporated, which the court denied on April 19, 2019. The case is ~~in the early stages of~~proceeding through discovery, and while ATI intends to vigorously defend against and pursue these claims, it cannot predict their outcomes at this time.



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 markets are aerospace & defense, representing approximately 50% of total sales, led by products for jet engines. Additionally, we have a strong presence in the energy markets, including oil & gas, hydrocarbon and ~~energy markets.~~chemical processing, and electrical energy. In aggregate, these markets represent about 70% of our revenue. ATI is a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies, including our new product development competence. Our capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished components, including those used for next-generation jet engine forgings and 3D-printed aerospace products.

Effective January 1, 2020, we began operating under two revised business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). HPMC is now comprised of the Specialty Materials and Forged Products businesses, as well as the ATI Europe distribution operations. The new AA&S segment combines the Specialty Alloys & Components (SAC) business, including our primary titanium operations in Richland, WA and Albany, OR, with ATI’s former Flat Rolled Products (FRP) business segment, which included the FRP business, the 60%-owned Shanghai STAL Precision Stainless Steel Company Limited (STAL), and the Uniti LLC (Uniti) and Allegheny & Tsingshan Stainless (A&T Stainless) 50%-owned joint ventures that are reported in AA&S segment results under the equity method of accounting. Financial results of aerospace-grade titanium plate products also transferred from HPMC to AA&S effective January 1, 2020. All segment reporting information for 2020 and prior periods presented below reflect these two revised business segments.

ATI reported ~~third~~second quarter ~~2019~~2020 sales of ~~$1.02~~$770.3 million and a loss before tax of $327.3 million, compared to sales of $1.1 billion and income before tax of ~~$119.0 million, compared to sales of $1.02 billion and income before tax of $62.5~~$84.3 million for the ~~third~~second quarter of ~~2018.~~2019. Results in 2019 included $40 million of sales and minimal segment operating profit related to the divested titanium investment castings and industrial forgings businesses. Our gross profit for the ~~third~~second quarter of ~~2019~~2020 was ~~$159.7~~$74.7 million, or ~~15.7%~~9.7% of sales, ~~consistent with the third quarter 2018.~~a $103.0 million decrease, and a 670 basis

During the third quarter of 2019, we completed the sale of our Cast Products business for $127 million. This business produced titanium investment castings that are primarily used by aerospace & defense OEMs in the production of commercial jet airframes and engines. ATI retained a small post-casting machining facility in Salem, OR and continues

point decrease, compared to provide these services to the buyer and others. We received cash proceeds, net of transaction costs and net working capital adjustments, of $122.9 million on the sale of this business and recognized a $6.2 million gain in the third quarter ended September 30, 2019, which included a $10.2 million impairment charge on the carrying value of long-lived assets of the retained Salem operation. This business is reported as part of the High Performance Materials & Components (HPMC) segment through the date of sale. Cast Products’ sales were $105 million in fiscal year 2018.

~~During~~ the second quarter 2019, largely due to weakened market conditions resulting from the COVID-19 pandemic.

Second quarter 2020 results included $327.6 million of ~~2019, we completed~~pretax charges, all of which are excluded from segment results and consisted of the ~~sale~~following:

•$287.0 million for impairment of ~~two non-core forging facilities~~a portion of goodwill at our Forged Products operations,

•$21.5 million for ~~$37 million. Located~~debt extinguishment on $203.2 million, or 71%, of the principal balance of the outstanding 4.75% Convertible Senior Notes due 2022 (the 2022 Convertible Notes),

•$16.7 million of restructuring charges for severance for hourly and salary employees, and

•$2.4 million of severance charges at our A&T Stainless joint venture.

The goodwill impairment and restructuring charges are included in ~~Portland, IN and Lebanon, KY, these operations primarily use traditional forging methods to produce carbon steel forged~~

~~products for use in the oil & gas, transportation and construction & mining industries. We received cash proceeds, net of transaction costs and working capital adjustments, of $33.0 million~~operating income (loss) on the ~~sale~~consolidated statements of ~~this business and recognized~~operations, which was an ~~$8.1~~operating loss of $273.4 million ~~pre-tax loss~~for the second quarter 2020, compared to operating income of $110.0 million for the second quarter 2019.

Nonoperating items included a reduction in ~~the nine months ended September 30, 2019, $7.7~~nonoperating retirement benefit expense of approximately $7 million in the second quarter of2020, compared to the prior year period. Second quarter 2019 ~~and an additional $0.4~~other (nonoperating) income included $21.6 million in ~~the third quarter of 2019 for the final working capital adjustment. This business is reported as part of the HPMC segment through the date of sale. Sales~~gains from ~~these two forging facilities in the 2018 fiscal year were $86 million in the aggregate.~~

Also during the second and third quarters of 2019, we recognized $29.3 million and $62.4 million in cash gains, respectively, on two sales of certain oil and gas rights in Eddy County, NM. These oil and gas rights were initially acquired by the Company in 1972 along with land purchased by Teledyne, Inc., which later became part of ATI. The land was subsequently sold, with the Company retaining its underlying oil and gas rights.

~~Third quarter 2019 results include $68.2 million in net pretax gains reported in other income, net on the consolidated statements of income and excluded from segment operating results from these~~ non-core asset sales, ~~discussed above; the $62.4~~consisting of a $29.3 million gain to monetize oil and gas rights, ~~and~~partially offset by a ~~$5.8~~$7.7 million ~~net gain~~loss on the sale of ~~the Cast Products and~~our industrial forgings ~~businesses. Results in 2019 also include $2.4~~business. In the second quarter 2020, we recorded a $99.0 million ~~of net losses from joint ventures accounted for under the equity method, which are reported in other income, net, compared~~deferred tax asset valuation allowance on our U.S. federal and state tax attributes, due to ~~net gains of $0.2 million in the prior year’s third quarter.~~a three-year cumulative loss position. Net ~~income~~loss attributable to ATI was ~~$111.0~~$422.6 million, or ~~$0.78~~($3.34) per share, in the ~~third~~second quarter of ~~2019,~~2020, compared to net income attributable to ATI of ~~$50.5~~$75.1 million, or ~~$0.37~~$0.54 per share, for the ~~third~~second quarter of ~~2018. Results~~2019. Adjusted EBITDA was $57.6 million, or 7.5% of sales, for the second quarter 2020, and $149.1 million, or 13.8% of sales, for the prior year quarter. See the Financial Condition and Liquidity section of Management’s Discussion and Analysis for these non-GAAP definitions and calculations.

Second quarter results reflect the weakened market conditions resulting from the COVID-19 pandemic. We maintained our solid cash and liquidity positions during the second quarter 2020, and issued $285 million aggregate principal amount of new, five-year convertible debt in June 2020 to partially retire our 2022 Convertible Notes while lowering cash interest costs and reducing future stockholder dilution. We also repaid the $300 million of revolving credit facility borrowings that were outstanding at the end of first quarter 2020, and exercised our option to draw another $100 million term loan within our asset based lending credit facility. These actions are further discussed in the Financial Condition and Liquidity section of Management’s Discussion and Analysis.

As discussed above, at the start of 2020, ATI realigned its business segments to streamline operations and unlock synergies, and proactively implemented workforce reduction initiatives in the fourth quarter 2019 and again in both ~~2019~~the first and ~~2018 include impacts~~second quarters of 2020 to better match our cost structure to expected demand. To date, we have implemented plans to reduce company-wide employment levels by approximately 800 people, or about 10% of our total workforce. To help further mitigate the financial impact from ~~income taxes that differ~~reduced aerospace and consumer demand levels stemming from ~~applicable standard tax~~the COVID-19 pandemic, we also implemented additional cost reduction efforts in the second quarter 2020 including the temporary idling of operations to reduce costs and inventory, salary reductions to a substantial portion of our staff, reductions in 401(k) benefits for nearly all employees, furlough of non-essential positions, and significant reductions in capital expenditures and corporate expenses. Overall, ATI expects $140 million to $160 million of 2020 cost reductions. These actions provide a strong foundation to respond to the economic challenges created by the COVID-19 pandemic. We will continue to evaluate our demand levels and operating rates ~~primarily related to income tax valuation allowances.~~and may take additional actions as warranted.

~~We operate in two business segments, HPMC and Flat Rolled Products (FRP).~~

Compared to the ~~third~~second quarter ~~2018,~~2019, sales decreased 6%44% in the HPMC business segment and ~~increased 7%~~decreased 14% in the ~~FRP~~AA&S business segment. HPMC sales declined by 8%5% as a result of the ~~business divestitures discussed above.~~titanium investment castings and industrial forgings businesses divested in 2019. Sales to the aerospace & defense markets, which represented ~~79%~~84% of ~~third~~second quarter ~~2019~~2020 HPMC sales, were 2%43% lower, asprimarily resulting from a ~~5% decline from~~50% decrease in sales to the ~~divested businesses was~~commercial aerospace market, partially offset by an increase in the government aerospace & defense markets. ~~We recently announced~~Divested businesses accounted for 4% of the ~~expansion and 6.5 year extension of our long-term agreement with BWX Technologies to supply materials for the manufacture of naval nuclear components. FRP~~HPMC aerospace & defense sales ~~increased compared~~decline. Compared to the prior year period, lower AA&S sales were largely due to ~~stronger demand for nickel-based alloys from~~20% declines in both the ~~oil & gas market~~energy and ~~for titanium alloys for~~commercial aerospace markets, as well lower sales to the ~~aerospace & defense markets.~~automotive market.

Results for the first ~~nine~~six months of ~~2019~~2020 were sales of ~~$3.10~~$1.73 billion and loss before tax of $292.9 million, compared to sales of $2.09 billion and income before tax of ~~$220.4 million, compared to sales of $3.01 billion and income before tax of $208.5~~$101.4 million for the first ~~nine~~six months of ~~2018.~~2019. Our gross profit was ~~$468.5~~$209.5 million,

or ~~15.1%~~12.1% of sales, a ~~$14.2~~$99.3 million decline compared to the first ~~nine~~six months of ~~2018,~~2019, reflecting ~~near-term current year headwinds related to one~~COVID-19 impacts. The 2020 results include the $327.6 million of ~~our jet engine customer’s cash management efforts,~~charges recorded in the second quarter 2020 discussed above as well as ~~operational and raw material cost impacts~~an $8.0 million restructuring charge recorded in ~~both business segments affecting~~the first quarter of 2020, which is excluded from segment results, for severance obligations for a voluntary retirement incentive program for eligible salaried employees.

Nonoperating items included a reduction in nonoperating retirement benefit expense of approximately $14 million for the first half ~~2019 results. The 2019 results reflect the $89.8 million in net pretax gains of non-core assets in 2019 discussed above and a $26 million increase in retirement benefit expense~~2020, compared to the prior ~~year.~~ year period. Other (nonoperating) income for the first half 2019 included the second quarter 2019 gains on non-core asset sales discussed above. Results for the ~~first nine~~six months ~~of 2018~~2020 include ~~a $15.9~~the $99.0 million ~~pre-tax gain~~deferred tax asset valuation allowance on our U.S. federal and state tax attributes recorded in the ~~sale of a 50% noncontrolling interest and subsequent deconsolidation of the Allegheny & Tsingshan Stainless (A&T Stainless) joint venture in March 2018.~~second quarter 2020. Net ~~income~~loss attributable to ATI was ~~$201.1~~$401.5 million, or ~~$1.44~~($3.18) per share, in the first ~~nine~~six months of ~~2019,~~2020, compared to net income attributable to ATI of ~~$181.3~~$90.1 million, or ~~$1.31~~$0.66 per share, for the first ~~nine~~six months of ~~2018.~~2019.

Compared to the first ~~nine~~six months of ~~2018,~~2019, sales ~~increased 3%~~decreased 30% in the HPMC business segment and 3%5% in the ~~FRP~~AA&S business segment. Sales to the aerospace & defense markets in the HPMC segment were ~~8% higher~~28% lower than the first ~~nine~~six months of ~~2018, with a 1% unfavorable impact from divestitures, led by growth~~2019, due to declines in the commercial ~~airframe and defense markets. FRP~~aerospace market. AA&S sales reflect ~~higher sales of high-value products, primarily nickel-based and titanium-based alloys, offset by~~ lower sales ~~of standard stainless sheet products.~~in both the energy and automotive markets.

ATI’s sales to the aerospace & defense markets ~~increased 1%~~decreased 36%, to ~~$503.5~~$365.6 million in the ~~third~~second quarter ~~2019,~~2020, compared to the ~~third~~second quarter ~~2018, despite~~2019, with a 5%4% decline from divestitures. HPMC sales of next-generation jet engine products, which represented ~~50%~~41% of total ~~third~~second quarter ~~2019~~2020 HPMC jet engine product sales, decreased 7%64% compared to the ~~third~~second quarter ~~2018~~2019 with 5%4% of this decline from divestitures. The HPMC segment typically experiences modest seasonal weakness in the third quarter of each fiscal year due to many European customers, particularly in the aerospace supply chain, taking plant outages during this summer period. Certain ATI HPMC facilities also performed annual preventative maintenance actions during this same period.

Comparative information for our overall revenues (in millions) by end market, including divested businesses prior to sale, and their respective percentages of total revenues for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Three months ended						Three months ended
Markets	June 30, 2020						June 30, 2019
Aerospace & Defense	$	365.6	47	%	$	572.2	53	%
Energy*	167.5		22	%	213.4		20	%
Automotive	50.8		7	%	73.6		7	%
Food Equipment & Appliances	47.2		6	%	49.6		5	%
Electronics/Computers/Communication	39.5		5	%	38.1		3	%
Construction/Mining	34.8		4	%	52.6		5	%
Medical	29.9		4	%	42.4		4	%
Other	35.0		5	%	38.5		3	%
Total	$	770.3	100	%	$	1,080.4	100	%


	Three months ended				Three months ended					Six months ended						Six months ended
Markets	September 30, 2019				September 30, 2018				Markets	June 30, 2020						June 30, 2019
Aerospace & Defense	$	503.5	49	%	$	499.2	49	%	Aerospace & Defense	$	858.1	50	%	$	1,097.8	53	%
Oil & Gas	147.3		15	%	128.2		13	%
Energy*									Energy*	338.1		20	%	381.9		18	%
Automotive	73.6		7	%	85.0		8	%	Automotive	127.3		7	%	150.5		7	%
Energy	69.9		7	%	59.9		6	%
Food Equipment & Appliances	53.6		5	%	58.8		6	%	Food Equipment & Appliances	97.6		6	%	102.8		5	%
Construction/Mining									Construction/Mining	78.4		4	%	110.5		5	%
Electronics/Computers/Communication	44.5		5	%	41.3		3	%	Electronics/Computers/Communication	72.7		4	%	72.2		4	%
Construction/Mining	43.7		4	%	58.4		6	%
Medical	41.0		4	%	47.9		5	%	Medical	68.5		4	%	88.5		4	%
Other	41.6		4	%	41.5		4	%	Other	85.1		5	%	81.0		4	%
Total	$	1,018.7	100	%	$	1,020.2	100	%	Total	$	1,725.8	100	%	$	2,085.2	100	%

*Includes the oil & gas, hydrocarbon and chemical processing, and electrical energy markets.

Nine months ended Nine months ended
Markets September 30, 2019 September 30, 2018
Aerospace & Defense $ 1,601.3
52 % $ 1,443.6
48 %
Oil & Gas 396.1
13 % 413.5
14 %
Automotive 224.1
7 % 244.5
8 %
Energy 203.0
6 % 180.3
6 %
Food Equipment & Appliances 156.4
5 % 181.3
6 %
Construction/Mining 154.2
5 % 169.9
6 %
Medical 129.5
4 % 142.8
5 %
Electronics/Computers/Communication 116.7
4 % 109.7
3 %
Other 122.6
4 % 123.1
4 %
Total $ 3,103.9
100 % $ 3,008.7
100 %

For the ~~third~~second quarter~~2019~~, 2020, international sales of ~~$413~~$293 million, ~~and~~or 38% of total sales, decreased compared to $440 million, or 41% of total sales ~~were consistent with~~in the ~~third~~second quarter~~2018~~. For the first nine months of 2019, international sales decreased 3% to $1.24 billion and represented 40% of total sales, compared to $1.27 billion, or 42% of total sales, for the first nine months of 2018. 2019. ATI’s international sales are mostly to the aerospace, ~~oil & gas,~~ energy, automotive and medical markets.

Sales of our high-value products represented ~~87%~~83% and 84% of total sales, the majority of which were consumed by our aerospace & defense customers, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020, respectively. Comparative information for our major high-value and standard products, including divested business prior to sale, based on their percentages of revenues is as follows:


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
High-Value Products
Nickel-based alloys and specialty alloys	30	%	33	%	31	%	32	%
Titanium and titanium-based alloys	19	%	18	%	18	%	18	%
Precision forgings, castings and components	14	%	19	%	15	%	19	%
Precision rolled strip products	12	%	10	%	12	%	11	%
Zirconium and related alloys	8	%	6	%	8	%	6	%
Total High-Value Products	83	%	86	%	84	%	86	%
Standard Products
Standard stainless products	17	%	14	%	16	%	14	%
Grand Total	100	%	100	%	100	%	100	%

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
High-Value Products
Nickel-based alloys and specialty alloys 33 % 30 % 32 % 30 %
Titanium and titanium-based alloys

19 % 16 % 18 % 16 %
Precision forgings, castings and components

16 % 18 % 18 % 20 %
Precision and engineered strip 14 % 15 % 13 % 14 %
Zirconium and related alloys 5 % 6 % 6 % 5 %
Total High-Value Products 87 % 85 % 87 % 85 %
Standard Products
Standard stainless products 13 % 15 % 13 % 15 %
Grand Total 100 % 100 % 100 % 100 %

Segment operating profit for the ~~third~~second quarter ~~2019~~2020 was ~~$99.2~~$27.3 million, or ~~9.7%~~3.5% of sales, compared to segment operating profit of ~~$105.5~~$114.5 million, or ~~10.3%~~10.6% of sales, for the ~~third~~second quarter of ~~2018.~~2019. For the first ~~nine~~six months of ~~2019,~~2020, segment operating profit was ~~$275.4~~$108.5 million, or ~~8.9%~~6.3% of sales, compared to segment operating profit of ~~$325.9~~$176.2 million, or ~~10.8%~~8.5% of sales, for the first ~~nine~~six months of ~~2018. Segment~~2019. Our measure of segment operating profit, which we use to analyze the performance and results of our business segments, excludes all effects of last in, first out (LIFO) inventory accounting and any related changes in net realizable value (NRV) inventory reserves, income taxes, corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill impairment, restructuring and other charges, debt extinguishment charges and non-operating gains and losses. Results on our management basis of reporting were as ~~a percentage of sales by business segment for the three and nine month periods ended~~ ~~September 30, 2019~~ ~~and~~ ~~2018~~ ~~was:~~follows (in millions):


	Three months ended March 31,									Six months ended June 30,
	2020			2019			2020			2019
Sales:
High Performance Materials & Components	$	300.7		$	533.1		$	721.0		$	1,029.7
Advanced Alloys & Solutions	469.6			547.3			1,004.8			1,055.5
Total external sales	$	770.3		$	1,080.4		$	1,725.8		$	2,085.2

Segment operating profit:
High Performance Materials & Components	$	9.2		$	78.4		$	66.3		$	130.1
% of Sales	3.1		%	14.7		%	9.2		%	12.6		%
Advanced Alloys & Solutions	18.1			36.1			42.2			46.1
% of Sales	3.9		%	6.6		%	4.2		%	4.4		%
Total segment operating profit	$	27.3		$	114.5		$	108.5		$	176.2
% of Sales	3.5		%	10.6		%	6.3		%	8.5		%

LIFO and net realizable value reserves	$	—		$	—		$	—		$	(0.1)
Corporate expenses	(7.7)			(18.0)			(20.5)			(34.6)
Closed operations and other (income) expenses	2.4			(7.9)			(4.2)			(11.0)
Restructuring and other charges	(16.7)			—			(24.7)			—
Impairment of goodwill	(287.0)			—			(287.0)			—
Joint venture restructuring charges	(2.4)			—			(2.4)			—
Gain on asset sales, net	—			21.6			2.5			21.6
Debt extinguishment charge	(21.5)			—			(21.5)			—
Interest expense, net	(21.7)			(25.9)			(43.6)			(50.7)
(Loss) income before income taxes	$	(327.3)		$	84.3		$	(292.9)		$	101.4

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
High Performance Materials & Components 14.3 % 13.0 % 13.9 % 14.9 %
Flat Rolled Products 4.4 % 6.8 % 1.9 % 5.2 %

Business Segment Results

High Performance Materials & Components Segment

~~Third~~Second quarter ~~2019~~2020 sales ~~decreased 5.8% to $551.7~~were $300.7 million, decreasing 44% compared to the ~~third~~second quarter ~~2018, due to an 8%~~2019, with a 5% decline from business divestitures. Sales to the aerospace and defense markets, which were ~~79%~~84% of ~~third~~second quarter ~~2019~~2020 HPMC sales, were 2%43% lower, asreflecting a ~~5% unfavorable impact from business divestitures was~~50% decrease in sales to the commercial aerospace market, partially offset by ~~strong demand for titanium products.~~a 35% increase in government aerospace & defense sales. Aerospace & defense markets sales were 4% lower due to 2019 business divestitures. Sales of next-generation jet engine products, which represented ~~50%~~41% of total ~~third quarter 2019~~first second 2020 HPMC jet engine product sales, ~~were slightly lower due primarily~~decreased 64% compared to ~~unfavorable product mix and temporary changes in order patterns~~the second quarter 2019 with 4% of this decline from ~~a major aero-engine customer. Government aerospace and defense markets sales were 22% higher than the third quarter 2018.~~divestitures.

Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale, and their respective percentages of the segment’s overall revenues for the three month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three months ended						Three months ended
Markets	June 30, 2020						June 30, 2019
Aerospace & Defense:
Commercial Jet Engines	$	141.4	47	%	$	295.8	55	%
Commercial Airframes	62.0		21	%	113.2		21	%
Government Aerospace & Defense	48.9		16	%	35.8		8	%
Total Aerospace & Defense	252.3		84	%	444.8		84	%
Energy*	22.8		8	%	33.4		5	%
Medical	10.3		3	%	21.1		4	%
Construction/Mining	5.0		2	%	13.4		3	%
Other	10.3		3	%	20.4		4	%
Total	$	300.7	100	%	$	533.1	100	%

Three months ended Three months ended
Markets September 30, 2019 September 30, 2018
Aerospace & Defense:
Commercial Jet Engines $ 247.9
45 % $ 270.1
46 %
Commercial Airframes 111.7
20 % 112.1
19 %
Government Aerospace & Defense 78.3
14 % 64.3
11 %
Total Aerospace & Defense 437.9
79 % 446.5
76 %
Medical 37.7
7 % 44.3
8 %
Energy 36.5
7 % 30.9
5 %
Oil & Gas 13.9
3 % 17.9
3 %
Construction/Mining 5.4
1 % 18.5
3 %
Other 20.3
3 % 27.4
5 %
Total $ 551.7
100 % $ 585.5
100 %
*Includes the oil & gas, hydrocarbon and chemical processing, and electrical energy markets.

International sales represented ~~43%~~45% of total segment sales for the ~~third~~second quarter ~~2019.~~2020. Comparative information for the HPMC segment’s major product categories, including divested businesses prior to sale, based on their percentages of revenue for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, is as follows:


	Three months ended September 30,					Three months ended June 30,
	2019		2018			2020		2019
High-Value Products					High-Value Products
Nickel-based alloys and specialty alloys	33	%	32	%	Nickel-based alloys and specialty alloys	36	%	37	%
Precision forgings, castings and components	29	%	33	%	Precision forgings, castings and components	35	%	38	%
Titanium and titanium-based alloys	29	%	25	%	Titanium and titanium-based alloys	29	%	25	%
Zirconium and related alloys	9	%	10	%
Total High-Value Products	100	%	100	%	Total High-Value Products	100	%	100	%

Segment operating profit in the ~~third~~second quarter ~~2019 increased~~2020 decreased to ~~$78.8~~$9.2 million, or ~~14.3%~~3.1% of total sales, compared to ~~$76.0~~$78.4 million, or ~~13.0%~~14.7% of total sales, for the ~~third~~second quarter ~~2018. Results~~2019. Lower overall demand and reduced asset utilization rates negatively impacted operating margins.

HPMC financial results have significantly weakened in the ~~third~~second quarter ~~2019 reflect~~2020 due to demand disruptions in the aerospace & defense and energy markets as a better balance of raw material prices and index-based selling prices. Despite near-term headwinds related to one of our jet engine customer’s cash management efforts, we continue to deliver on our increasing customer commitments as partresult of the ~~ongoing aerospace industry~~COVID-19 pandemic. Most production ~~ramp. Net results~~facilities operated at lower utilization rates, leading to cost inefficiencies, along with weaker profit margins due to intense market competition. These market conditions are presently expected to continue for at least the remainder of ~~divested businesses were not material to prior period HPMC segment operating profit.~~2020.

~~For~~

Sales for the first ~~nine~~six months of ~~2019, sales increased 3.3% to $1.80 billion~~2020 were $721.0 million compared to $1.03 billion for the first ~~nine~~six months of ~~2018, despite~~2019. Declines were noted across most major markets, including a 3%32% decline ~~from business divestitures. Stronger demand for titanium products, which were up 16%, were~~in the commercial aerospace market, partially offset by ~~declines in sales of forged components. Sales to the aerospace and defense markets were 8% higher than the prior year, despite~~ a ~~1% decline from divestitures, including a 21%~~19% increase in ~~airframe sales and a 28% increase in~~government aerospace & defense market sales. ~~Total jet engine~~Energy markets sales were ~~comparable to the prior year, with an 11% increase in sales of next-generation jet engine products.~~24% lower.

Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale, and their respective percentages of the segment’s overall revenues for the ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Six months ended						Six months ended
Markets	June 30, 2020						June 30, 2019
Aerospace & Defense:
Commercial Jet Engines	$	388.5	53	%	$	564.6	55	%
Commercial Airframes	136.8		19	%	208.7		21	%
Government Aerospace & Defense	85.8		12	%	72.1		7	%
Total Aerospace & Defense	611.1		84	%	845.4		83	%
Energy*	46.9		7	%	61.5		6	%
Medical	27.3		4	%	45.8		4	%
Construction/Mining	10.3		1	%	31.9		3	%
Other	25.4		4	%	45.1		4	%
Total	$	721.0	100	%	$	1,029.7	100	%

Nine months ended Nine months ended
Markets September 30, 2019 September 30, 2018
Aerospace & Defense:
Commercial Jet Engines $ 799.9
44 % $ 813.0
47 %
Commercial Airframes 370.5
21 % 307.4
17 %
Government Aerospace & Defense 244.9
14 % 191.3
11 %
Total Aerospace & Defense 1,415.3
79 % 1,311.7
75 %
Medical 119.0
7 % 131.5
8 %
Energy 97.9
5 % 101.9
6 %
Oil & Gas 49.0
3 % 51.4
3 %
Construction/Mining 37.3
2 % 55.1
3 %
Other 76.8
4 % 86.5
5 %
Total $ 1,795.3
100 % $ 1,738.1
100 %
*Includes the oil & gas, hydrocarbon and chemical processing, and electrical energy markets.

International sales represented ~~44%~~45% of total segment sales for ~~the~~ first ~~nine~~six months of ~~2019.~~2020. Comparative information for the HPMC segment’s major product categories, including divested businesses prior to sale, based on their percentages of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, is as follows:


	Six months ended June 30,
	2020		2019
High-Value Products
Nickel-based alloys and specialty alloys	38	%	37	%
Precision forgings, castings and components	35	%	38	%
Titanium and titanium-based alloys	27	%	25	%
Total High-Value Products	100	%	100	%

Nine months ended September 30,
2019 2018
High-Value Products
Precision forgings, castings and components 31 % 35 %
Nickel-based alloys and specialty alloys 31 % 31 %
Titanium and titanium-based alloys 28 % 24 %
Zirconium and related alloys 10 % 10 %
Total High-Value Products 100 % 100 %

Segment operating profit in the first ~~nine~~six months of ~~2019~~2020 decreased to ~~$250.3~~$66.3 million, or ~~13.9%~~9.2% of total sales, compared to ~~$259.4~~$130.1 million, or ~~14.9%~~12.6% of total sales, for the first ~~nine~~six months of ~~2018. Although results in the third quarter 2019~~2019. Results for 2020 reflect ~~a better balance of raw material prices~~lower overall demand and ~~index-based selling prices, results in the~~reduced asset utilization rates which negatively impacted operating margins. The first ~~half~~six months of 2019 ~~reflected adverse impacts from a~~results were impacted by unexpected short-term operational headwinds, including disruption in third party nickel powder billet supply and steep and rapid drop in ~~raw material prices, particularly in~~ cobalt which compressed profit margins due to the length of the manufacturing cycle compared to index-based selling price changes, which offset benefits from higher productivity. Results for 2019 also reflect temporary near-term headwinds related to one of our jet engine customer’s cash management efforts. Net results of divested businesses were not material to prior period HPMC segment operating profit.prices.

~~Flat Rolled Products~~

Advanced Alloys & Solutions Segment

~~Third~~Second quarter ~~2019~~2020 sales ~~increased 7.4%~~were $469.6 million, decreasing 14% compared to the ~~third~~second quarter~~2018, to $467.0 million,~~ 2019, primarily due to ~~a more than~~ 20% ~~increase~~declines in ~~sales to~~ both the ~~oil & gas~~commercial aerospace market and energy markets as well as a 30% decline in the automotive market, partially offset by higher sales in the government aerospace & defense ~~markets. FRP sales to the oil & gas~~market and ~~aerospace & defense markets were nearly 45% of FRP’s third quarter 2019 sales, which is~~ higher ~~than both the prior year’s quarter~~Hot-Rolling and ~~the second quarter 2019.~~Processing Facility (HRPF) conversion services billings. Sales of high-value products were ~~13% higher, with~~8% lower, largely due to an 18% decline in precision rolled strip products and a 6% decline in nickel-based alloys and specialty alloys 26% higher and titanium-based alloys 120% higher than the third quarter 2018. This increase more than offset 12% lower sales of standard stainless products, primarily standard stainless sheet, compared to the third quarter 2018.alloys.

Comparative information for our ~~FRP~~AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three months ended				Three months ended					Three months ended						Three months ended
Markets	September 30, 2019				September 30, 2018				Markets	June 30, 2020						June 30, 2019
Oil & Gas	$	133.4	29	%	$	110.3	25	%
Energy*									Energy*	144.7		31	%	180.0		33	%
Aerospace & Defense									Aerospace & Defense	113.3		24	%	127.4		23	%
Automotive	71.3		15	%	83.0		19	%	Automotive	49.8		11	%	70.5		13	%
Aerospace & Defense	65.6		14	%	52.7		12	%
Food Equipment & Appliances	53.4		11	%	58.6		14	%	Food Equipment & Appliances	47.1		10	%	49.6		9	%
Electronics/Computers/Communication	42.8		9	%	40.3		9	%	Electronics/Computers/Communication	39.3		8	%	37.8		7	%
Construction/Mining	38.3		8	%	39.9		9	%	Construction/Mining	29.8		6	%	39.2		7	%
Energy	33.4		7	%	29.0		7	%
Other	28.8		7	%	20.9		5	%	Other	45.6		10	%	42.8		8	%
Total	$	467.0	100	%	$	434.7	100	%	Total	$	469.6	100	%	$	547.3	100	%

*Includes the oil & gas, hydrocarbon and chemical processing, and electrical energy markets.

International sales represented ~~37%~~34% of total segment sales for the ~~third~~second quarter ~~2019.~~2020. Comparative information for the ~~FRP~~AA&S segment’s major product categories, based on their percentages of revenue for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, are presented in the following table. ~~Conversion services~~HRPF conversion service sales are ~~excluded.~~excluded from this presentation.


	Three months ended September 30,					Three months ended June 30,
	2019		2018			2020		2019
High-Value Products					High-Value Products
Nickel-based alloys and specialty alloys	34	%	29	%	Nickel-based alloys and specialty alloys	26	%	30	%
Precision and engineered strip	30	%	34	%
Precision rolled strip products					Precision rolled strip products	19	%	21	%
Zirconium and related alloys					Zirconium and related alloys	14	%	11	%
Titanium and titanium-based alloys	7	%	3	%	Titanium and titanium-based alloys	13	%	10	%
Total High-Value Products	71	%	66	%	Total High-Value Products	72	%	72	%
Standard Products					Standard Products
Standard stainless products	29	%	34	%	Standard stainless products	28	%	28	%
Grand Total	100	%	100	%	Grand Total	100	%	100	%

Segment operating profit was ~~$20.4~~$18.1 million, or ~~4.4%~~3.9% of sales, for the ~~third~~second quarter ~~2019,~~2020, compared to ~~$29.5~~$36.1 million, or ~~6.8%~~6.6% of sales, for the ~~third~~second quarter ~~2018. FRP~~2019. AA&S segment results for the ~~third~~second quarter ~~2019 include stronger 2019 results from our STAL joint venture (JV) in China reflecting growing benefits from~~2020 compared to the ~~recent capacity expansion. Results also reflect higher~~prior year period reflects lower retirement benefit expense of ~~$6 million and a $2.6 million loss for ATI’s share of the A&T Stainless JV,~~approximately $5 million. Results at our Specialty Alloys & Components business improved year-over-year primarily due to government aerospace & defense sales. Results in the ~~effects of Section 232 tariffs, compared to a $0.3~~second quarter 2020 and 2019 also include $2.2 million ~~loss~~and $4.0 million, respectively, in losses from the A&T Stainless JVjoint venture operations. On March 31, 2020, ATI announced that A&T Stainless would be idling ATI’s previously idled direct roll and pickle (DRAP) facility in Midland, PA in 2020, in an orderly shut down process, due to a lack of relief from Section 232 tariffs. Operations at the DRAP facility will continue through early in the ~~prior year. In April 2019, we learned that~~third quarter of 2020. A $2.4 million charge for ATI’s portion of a severance charge recorded by the A&T Stainless JV’s previously filed Section 232 tariff exclusion request was denied by the U.S. Department of Commerce. The A&T Stainless JV filed a new request for exclusion in October 2019, but will continue to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia pending the outcome of this new request. Results of A&T Stainless have been and will continue to be negatively impacted by these tariffs on imported stainless slab products while the JV partners evaluate longer-term solutions to return this strategic initiative to profitability. While project-based demand for nickel-based alloysjoint venture in the ~~U.S. business remained solid,~~second quarter 2020 was excluded from segment results.

AA&S financial results have significantly weakened in the second quarter 2020 due to demand disruptions in the aerospace, energy and general industrial markets as a result of the COVID-19 pandemic. Lower utilization rates have resulted at most production facilities, leading to cost inefficiencies, along with weaker ~~demand~~profit margins due to intense market competition. These market conditions are presently expected to continue for ~~standard stainless products resulted in lower segment operating profit~~at least the remainder of 2020.

Sales for the first six months of 2020 were $1.00 billion compared to ~~the third quarter 2018.~~

~~Comparative shipment volume and average selling price information of the segment’s products~~$1.06 billion for the ~~three months ended September 30, 2019 and 2018 is provided~~first six month of 2019. The sales decline was primarily due to an 11% decline in the ~~following table:~~commercial aerospace market, a 9% decline in the energy markets and a 14% decline in the automotive market, partially offset by higher sales in the government aerospace & defense market and

Three months ended September 30, %
2019 2018 Change
Volume (000’s pounds):
High-Value 92,161
87,994
5 %
Standard 94,019
96,211
(2 )%
Total 186,180
184,205
1 %
Average prices (per lb.):
High-Value $ 3.48
$ 3.22
8 %
Standard $ 1.38
$ 1.53
(10 )%
Combined Average $ 2.42
$ 2.34
3 %

~~For the first nine months~~higher HRPF conversion services billings. Sales of ~~2019, sales increased 3.0% compared to the first nine months of 2018, to $1.31 billion. Sales for~~ high-value products were 7% ~~higher, compared to the first nine months of 2018,~~lower, largely due to ~~project-based demand for~~a 13% decline in precision rolled strip products and a 12% decline in the oil & gas market as well as marine scrubber products within the energy market. Sales to the oil & gas market decreased 4%. Sales to the aerospace & defense markets increased over 40% versus the prior year-to-date period, supported by significantly higher production of titanium armor plate, additional titanium volumes for commerical airframes,nickel-based alloys and increased nickel and cobalt bearing alloy sheet products for jet engines. Overall, increased sales of high-value products for the first nine months of 2019 more than offset 11% lower sales of standard stainless products, compared to the first nine months of 2018.specialty alloys.

Comparative information for our ~~FRP~~AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Nine months ended				Nine months ended					Six months ended						Six months ended
Markets	September 30, 2019				September 30, 2018				Markets	June 30, 2020						June 30, 2019
Oil & Gas	$	347.1	27	%	$	362.1	29	%
Energy*									Energy*	291.2		29	%	320.4		30	%
Aerospace & Defense									Aerospace & Defense	247.0		25	%	252.4		24	%
Automotive	215.1		16	%	237.1		19	%	Automotive	124.3		12	%	143.8		14	%
Aerospace & Defense	186.0		14	%	131.9		10	%
Food Equipment & Appliances	156.1		12	%	181.0		14	%	Food Equipment & Appliances	97.5		10	%	102.7		10	%
Electronics/Computers/Communication									Electronics/Computers/Communication	72.2		7	%	71.9		7	%
Construction/Mining	116.9		9	%	114.8		9	%	Construction/Mining	68.1		7	%	78.6		7	%
Electronics/Computers/Communication	112.7		9	%	105.0		8	%
Energy	105.1		8	%	78.4		6	%
Other	69.6		5	%	60.3		5	%	Other	104.5		10	%	85.7		8	%
Total	$	1,308.6	100	%	$	1,270.6	100	%	Total	$	1,004.8	100	%	$	1,055.5	100	%

*Includes the oil & gas, hydrocarbon and chemical processing, and electrical energy markets.

International sales represented ~~34%~~31% of total segment sales for the first ~~nine~~six months of ~~2019.~~2020. Comparative information for the ~~FRP~~AA&S segment’s major product categories, based on their percentages of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, are presented in the following table. ~~Conversion services~~HRPF conversion service sales are ~~excluded.~~excluded from this presentation.


	Six months ended June 30,
	2020		2019
High-Value Products
Nickel-based alloys and specialty alloys	25	%	26	%
Precision rolled strip products	21	%	22	%
Zirconium and related alloys	13	%	12	%
Titanium and titanium-based alloys	12	%	11	%
Total High-Value Products	71	%	71	%
Standard Products
Standard stainless products	29	%	29	%
Grand Total	100	%	100	%

Nine months ended September 30,
2019 2018
High-Value Products
Nickel-based alloys and specialty alloys 33 % 29 %
Precision and engineered strip 31 % 32 %
Titanium and titanium-based alloys 6 % 5 %
Total High-Value Products 70 % 66 %
Standard Products
Standard stainless products 30 % 34 %
Grand Total 100 % 100 %

~~The segment~~Segment operating profit was ~~$25.1~~$42.2 million, or ~~1.9%~~4.2% of sales, for the first ~~nine~~six months of ~~2019,~~2020, compared to ~~$66.5~~$46.1 million, or ~~5.2%~~4.4% of sales, for the first ~~nine~~six months of ~~2018. FRP~~2019. AA&S segment results for the first ~~nine months~~half of ~~2019 reflect higher~~2020 compared to the prior year period reflects lower retirement benefit expense of ~~$18 million and a~~approximately $10 ~~million loss for ATI’s share of the A&T Stainless JV,~~million. Results at our Specialty Alloys & Components business improved year-over-year primarily due to ~~Section 232 tariffs, compared to a $0.2 million profit from the A&T Stainless JV~~government aerospace & defense sales. The first half of 2019 results also reflected unexpected short-term operational headwinds, including cost inefficiencies, particularly in our commodity stainless products business in the ~~prior year. While project-based demand~~United States.

~~for nickel-based alloys in the U.S. business remained solid, weaker demand for standard stainless products resulted in lower segment operating profit compared to the first nine months of 2018.~~

~~Comparative shipment volume and average selling price information of the segment’s products for the nine months ended September 30, 2019 and 2018 is provided in the following table:~~

Nine months ended September 30, %
2019 2018 Change
Volume (000’s pounds):
High-Value 264,205
256,601
3 %
Standard 279,506
310,466
(10 )%
Total 543,711
567,067
(4 )%
Average prices (per lb.):
High-Value $ 3.35
$ 3.22
4 %
Standard $ 1.39
$ 1.40
(1 )%
Combined Average $ 2.34
$ 2.22
5 %

Corporate Items

There was no net effect on our results of operations for changes in ~~last-in, first-out (LIFO)~~LIFO and ~~net realizable value (NRV)~~NRV inventory reserves for the ~~third~~second quarter and six months of 2020 and the second quarter of ~~2019 and the third quarter and nine months of 2018.~~2019. The net effect of changes in LIFO and NRV inventory reserves for the ~~nine~~six months of 2019 was expense of $0.1 million. For the ~~third~~second quarter and ~~nine~~six months of ~~2019,~~2020, LIFO inventory valuation reserve ~~charges~~benefits of ~~$7.2~~$2.0 million and ~~$1.4~~$14.0 million, respectively, were offset by ~~reductions~~increases of ~~$7.2 million and $1.3 million, respectively,~~the same magnitude in 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~~second quarter and ~~nine~~six months of ~~2018,~~2019, LIFO inventory valuation reserve charges of ~~$2.0~~$4.0 million and ~~$29.5~~$5.8 million, respectively, were offset by reductions of ~~the same magnitude~~$4.0 million and $5.9 million, respectively, in NRV inventory reserves.

Corporate expenses for the ~~third~~second quarter of ~~2019~~2020 were ~~$16.0~~$7.7 million, compared to ~~$14.8~~$18.0 million for the ~~third~~second quarter ~~2018.~~2019. For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, corporate expenses were ~~$50.6~~$20.5 million, ~~increasing~~decreasing from ~~$40.9~~$34.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018. These increases in 2019 were~~2019. This decrease was primarily due to ~~higher~~lower incentive compensation ~~expenses.~~expense based on expected performance versus targeted metrics, and lower expenses resulting from cost reduction actions.

Closed operations and other income/expenses for the ~~third~~second quarter ~~2019 were $8.2~~2020 was income of $2.4 million, compared to ~~$3.4~~expense of $7.9 million for the ~~third~~second quarter ~~2018.~~2019. For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, closed operations and other expenses ~~increased~~decreased to ~~$19.2~~$4.2 million, compared to ~~$16.6~~$11.0 million for the comparable period. ~~Closed operations~~The second quarter of 2020 benefited by $4.3 million from settlements of contract indemnity obligations, along with foreign currency gains and ~~other expenses include higher~~lower legal, environmental, and retirement benefit ~~expense in 2019 and a benefit for property tax adjustments in~~costs of closed operations, compared to the prior year period.

A $16.7 million restructuring charge for voluntary and involuntary severance programs was recorded in the second quarter 2020. For the six months of 2020, an additional $8.0 million restructuring charge was recorded in the first quarter of 2020 for a voluntary retirement incentive program for eligible salaried employees. These charges are comprised of severance obligations for the ~~closed Rowley facility.~~elimination of approximately 550 positions for both involuntary reductions and voluntary retirement incentive programs related to both salary and hourly employees in the HPMC segment, in the second quarter of 2020, as well as the reduction of approximately 90 positions for a voluntary retirement incentive program for eligible salaried employees in the first quarter of 2020. Once fully implemented, these combined cost reduction programs are expected to generate annualized benefits of approximately $50 million. Costs for these programs are expected to be paid through mid-2021 based on the timing of the benefits provided. In addition, the A&T Stainless joint venture recorded a $4.8 million charge in the second quarter 2020 for contractual termination benefits, and ATI recognized a $2.4 million charge in the second quarter 2020 for its equity method share of these termination benefits. These charges are excluded from segment operating results.

In the second quarter 2020, due to demand disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic and changes in near-term demand requirements of aero-engine and airframe markets, ATI conducted an interim test for goodwill impairment at our Forged Products operations, and recognized a $287.0 million charge for the partial impairment of goodwill, while retaining $173.4 million of goodwill for this profitable business with good long-term growth prospects. This goodwill impairment charge is excluded from HPMC segment operating results.

During the ~~third quarter~~first six months of ~~2019,~~2020, we ~~completed~~recognized a $2.5 million cash gain for the sale of ~~our Cast Products business for $127 million.~~certain oil and gas rights. This ~~business produced titanium investment castings that are primarily used by aerospace & defense OEMs~~non-core asset sale gain is reported in ~~the production of commercial jet airframes and engines. We recognized a $6.2 million gain in the third quarter ended September 30, 2019, which included a $10.2 million impairment charge~~other expense, net, on the ~~carrying value~~consolidated statement of ~~long-lived assets of the retained Salem operation.~~operations and is excluded from segment operating results. During the second quarter of 2019, we completed the sale of two non-core forging facilities ~~located in Portland, IN~~ and ~~Lebanon, KY, that used primarily traditional forging methods to produce carbon steel forged products for use in the oil & gas, transportation and construction & mining industries. We~~ recognized ~~an $8.1~~a $7.7 million pre-tax loss infor the ~~nine months~~second quarter ended ~~September~~June 30, 2019 ~~$7.7 million in~~on the sale of this business. Also during the second quarter of 2019, and an additional $0.4 million in the third quarter of 2019 for the final working capital adjustment. Both of these divested businesses were previously reported as part of the HPMC segment. Also during the second and third quarters of 2019, we recognized a $29.3 million ~~and $62.4 million~~ cash ~~gains, respectively,~~gain on ~~sales~~the sale of ~~certain~~a portion of our oil and gas ~~rights in Eddy County, NM. Third~~rights. Second quarter ~~and nine month~~ 2019 results include ~~$68.2~~$21.6 million ~~and $89.8 million, respectively,~~ in net pretax gains from these non-core asset sales which are reported in other income, net, on the consolidated statement of ~~income~~operations for second quarter ended June 30, 2019 and are excluded from segment operating results.

~~On March 1, 2018, we announced~~

In June 2020, ATI issued $285.0 million of 3.5% Convertible Senior Notes due 2025 (the 2025 Convertible Notes), and used the formation of A&T Stainless, in which ATI has a 50% ownership interest. Our joint venture partner purchased its 50% joint venture interest during the first quarter of 2018, and as a result of this sale and the subsequent deconsolidationmajority of the proceeds to repurchase approximately $203.2 million aggregate principal amount of the outstanding principal balance of our 2022 Convertible Notes. A~~&T Stainless entity, we~~ $21.5 million debt extinguishment charge was recognized ~~a $15.9 million gain in the first quarter of 2018. This gain is reported in other income, net, on the consolidated statement of income~~ for ~~the first nine months of 2018 and is excluded from FRP segment results.~~this action.

Interest expense, net of interest income, in the ~~third~~second quarter ~~2019~~2020 was ~~$24.2~~$21.7 million, compared to net interest expense of ~~$24.8~~$25.9 million for the ~~third~~second quarter ~~2018.~~2019. On a year-to-date basis, net interest expense was ~~$74.9~~$43.6 million for the first ~~nine~~six months of ~~2019~~2020 compared to ~~$75.8~~$50.7 million for the first ~~nine~~six months of ~~2018,~~2019. These declines are primarily ~~reflecting lower borrowings~~resulting from the debt reduction actions taken by the Company in the ~~current year under the Company’s Asset Based Lending Credit Facility, and increased interest income.~~fourth quarter 2019. Capitalized interest reduced interest expense by ~~$1.2~~$2.4 million in the ~~third~~second quarter ~~2019~~2020 and ~~$1.4~~$0.9 million in the ~~third~~second quarter ~~2018.~~2019. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, capitalized interest was ~~$2.9~~$4.5 million and ~~$3.5~~$1.7 million, respectively.

Income Taxes

ATI maintains income tax valuation allowances on its U.S. Federal and state deferred tax assets, and also maintains valuation allowances on deferred tax assets in certain foreign jurisdictions, based upon the examination of all positive and negative evidence as of the reporting date. Results in both 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily related to these income tax valuation allowances. Third quarter 2019 and 2018 results include a

The provision for income taxes ~~of $3.7~~for the second quarter and six months ended June 30, 2020 was $92.6 million, or ~~3.1%~~(28.3)%, and $103.4 million, or (35.3)%, respectively, of loss before taxes. In the second quarter 2020, we recorded a $99.0 million deferred tax asset valuation allowance on our U.S. federal and state tax attributes. We entered into a three-year cumulative loss within the United States as of June 30, 2020, limiting our ability to utilize future projections when analyzing the need for a valuation allowance therefore limiting sources of income as part of the analysis. We continue to be unable to make a reliable estimate of the annual effective tax rate, as significant changes in projected results for our domestic operations could produce a significant variation in our annual effective tax rate. The tax provision for the second quarter 2019 and the six months ended June 30, 2019 was $5.8 million, or 6.9%, and $6.6 million, or 6.5%, respectively, of income before taxes, and $6.9 million, or 11.0% of income before taxes, respectively. For the first nine months of 2019 and 2018, results included a provision for income taxes of $10.3 million, or 4.7% of income before taxes, and $16.8 million, or 8.1% of income before income taxes, respectively, primarily relateddue to ~~the benefit from the~~deferred tax asset valuation allowances ~~mentioned above~~in the United States.

We have analyzed the impacts of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was enacted on March 27, 2020 and have determined that the impact does not result in a material income ~~taxes on non-U.S. operations.~~tax expense or benefit. We continue to ~~analyze~~evaluate the ~~impact~~overall changes between the deferred tax asset classifications of interest, pension and net operating losses resulting from the ~~Tax Cut and Jobs Act as additional guidance is finalized. At this time, we have not made any material adjustments to the previously presented amounts in the 2018 or 2017 financial statements.~~CARES Act.

Financial Condition and Liquidity

~~On September 30, 2019, we amended and restated our~~We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our domestic operations. ~~This amendment and restatement extends the~~The ABL facility, ~~through~~which matures in September ~~30,~~ 2024, ~~and~~ includes ~~an increase of $100~~a $500 million ~~in the~~ revolving credit facility, ~~to $500 million,~~ a letter of credit sub-facility of up to $200 million, and as of June 30, 2020, a ~~$100~~$200 million term loan (Term Loan). ~~Additionally, the amendment and restatement gives us the ability, through~~In June ~~30,~~ 2020, ~~and as long as no default or event of default has occurred and is continuing,~~we exercised our right to borrow an additional $100 million under the term loan of up to $100 million in total, using one or two draws (the Delayed-Draw Term Loan). We also have the right to request an increase of up to $200 million in the maximum amount available under the revolving credit facility for the durationportion of the ~~ABL.~~ABL, with the same September 2024 maturity date. The Term Loan has an interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In ~~July 2019,~~addition, we ~~amended our~~have the right to request an increase of up to $200 million in the maximum amount available under the revolving credit facility for the duration of the ABL. We have a $50 million floating-for-fixed interest rate swap which converts ~~half~~a portion of the Term Loan to a 4.21% fixed ~~rate (now 4.21% following the September 30, 2019 ABL amendment and restatement) with a~~interest rate. The swap matures in June ~~2024 maturity.~~2024.

~~As amended and restated, 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 1.25% and 1.75% for LIBOR-based borrowings and between 0.25% and 0.75% for base rate borrowings. The ABL facility contains a financial covenant whereby we must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) $87.5 million, calculated as 12.5% of the then applicable maximum ~~borrowing~~advance amount under the revolving credit portion of the ABL and ~~any~~the outstanding Term Loan balance, or (ii) $62.5 million. We were in compliance with the fixed charge coverage ratio covenant at ~~September~~June 30, ~~2019.~~2020. Additionally, we must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL facility, during the ~~90 day~~90-day period immediately preceding the stated maturity date of ~~each of~~ the ~~5.95% Senior Notes due 2021,~~ 4.75% Convertible Notes due 2022 and the 5.875% Notes due 2023.

As of ~~September~~June 30, ~~2019,~~2020, there were no outstanding borrowings under the revolving portion of the ABL facility, and ~~$35.3~~$35.2 million was utilized to support the issuance of letters of credit. There were no average revolving credit borrowings ~~under the ABL facility for the first nine months~~ of ~~2019, and for the first nine months of 2018, average borrowings were $56~~$58 million bearing an average annual interest rate of ~~3.651%.~~2.2% under the ABL facility for the first six months of 2020. There were no average revolving credit borrowings for the first six months of 2019.

In June 2020, we issued and sold $285.0 million aggregate principal amount of 2025 Convertible Notes. We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes. We also used $19.0 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, which effectively increase the initial conversion price of the 2025 Convertible Notes into ATI stock from $15.49 per share to $19.76 per share. The remainder of the net proceeds from the offering will be used for general corporate purposes.

At ~~September~~June 30, ~~2019,~~2020, we had ~~$511~~$539 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $460 ~~million.~~million, for total liquidity of $1 billion. We do not expect to pay any significant U.S. federal or state income taxes in the next several years due to net operating loss carryforwards.

During the second and third quarters of 2019, we received approximately $250 million in cash from non-core asset sales, net of closing adjustments and transaction costs, consisting of $33 million for the sale of two non-core forging facilities, $123 million for the sale of the Cast Products business, and $92 million for the sale of certain oil and gas rights in Eddy County, NM.

Our fiscal year ~~2019 and~~ 2020 funding requirements to the U.S. qualified defined benefit pension plans are approximately ~~$145~~$130 million, ~~each year,~~ of which ~~$117~~$28 million was contributed in the first ~~nine~~six months of ~~2019,~~2020. The recently-enacted CARES Act legislation provides for near-term deferral of required qualified defined benefit pension plan contributions from interim 2020 dates until the end of the year. We deferred making a scheduled April 15 contribution during the second quarter 2020, and may elect to defer other scheduled interim contributions within fiscal year 2020 as permitted by the CARES Act. We contributed $17.5 million to our U.S. pension trust as scheduled in July 2020. Using our long-term weighted average expected rate of return on pension plan assets of 7.16%, we ~~currently~~ expect to have

average annual funding requirements of approximately ~~$100~~$85 million to these pension plans for the next few ~~fiscal~~ years ~~thereafter.~~after 2020. However, these ~~funding~~ estimates are subject to significant uncertainty, including the ~~actual~~performance of our pension trust ~~assets’ fair value,~~assets and the discount rates used to measure pension liabilities. Pension trust asset performance for both our accounting and ERISA funding calculations is determined using the market value of plan assets at the end of each year. A significant decline in our pension plans’ funded status at year-end 2020 as measured under ERISA could require additional pension contributions starting in the third quarter of 2021.

We believe that internally generated funds, current cash on hand and available borrowings under the ABL facility will be adequate to meet our liquidity needs, including currently projected required contributions to our pension plans. If we needed to obtain additional financing using the credit markets, the cost and the terms and conditions of such borrowings may be influenced by our credit rating. In addition, we regularly review our capital structure, various financing alternatives and conditions in the debt and equity markets in order to opportunistically enhance our capital structure. In connection therewith, we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equity or equity-linked securities, in each case, depending on market and other conditions.

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

Cash Flow and Working Capital

For the ~~nine~~six months ended~~September~~ June 30, ~~2019~~,2020, cash used in operations was ~~$10.0~~$14.4 million,, a $90 million improvement over the comparable prior year period largely due to ~~a $59.1 million~~lower use of cash from ~~higher~~changes in managed working ~~capital balances from increased business activity, $117.1~~capital. Other significant 2020 items included $27.9 million in contributions to a U.S. defined benefit pension plan and payment of ~~2018~~2019 annual incentive compensation. ~~In addition,~~The cash used in operations of $104.4 million for ~~both~~ the ~~first nine~~six months ofended June 30, 2019 included a $53.0 million contribution to a U.S. defined benefit pension plan and ~~2018 include $29~~$36 million ~~and $22 million, respectively,~~ in short-term working capital advances to the A&T Stainless joint venture. ~~The cash provided by operations of $116.6 million for the nine months ended September 30, 2018 included a $15.3 million contribution to a U.S. defined benefit pension plan.~~

As part of managing the liquidity of our business, we focus on controlling managed working capital, which is defined as gross accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities. In measuring performance in controlling managed working capital, we exclude the effects of LIFO and other inventory valuation reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. We measure managed working capital as a percentage of the prior three months annualized sales to evaluate our performance based on recent levels of business volume. At ~~September~~June 30, ~~2019,~~2020, managed working capital increased to ~~33.6%~~43.2% of annualized total ATI sales compared to ~~31.6%~~30.0% of annualized sales at December 31, ~~2018.~~2019. Annualized three-month sales declined while overall managed working capital balances increased versus year-end 2019. The ~~$59.1~~$106.5 million increase in managed working capital at ~~September~~June 30, ~~2019~~2020 from December 31, ~~2018~~2019 resulted from a ~~$67.9~~$3.1 million increase in ~~accounts receivable~~short-term contract assets and ~~an $83.0~~a $245.4 million decrease in accounts payable, partially offset by a ~~$52.7~~$70.6 million decrease in accounts receivable, a $40.3 million decrease in inventory ~~a $13.4 million decrease in short-term contract assets,~~ and a ~~$25.7~~$31.1 million increase in short-term contract liabilities. Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 3%12% as of ~~September~~June 30, ~~2019~~2020 compared to year end ~~2018.~~2019. No significant accounts receivable collection issues are expected despite the increase in this metric. Gross inventory turns, which exclude the effect of LIFO and any applicable offsetting NRV inventory valuation reserves, ~~remained consistent at September~~improved by 17% as of June 30, ~~2019~~2020 compared to year end ~~2018.~~2019. This working capital balance was a source of $28.2 million in cash for the second quarter of 2020 and is expected to continue to be a source of cash for the rest of 2020 as our level of operating activity decreases in response to lower customer demand.

The components of managed working capital at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:


	June 30,			December 31,
(In millions)	2020			2019
Accounts receivable	$	483.6		$	554.1
Short-term contract assets	41.6			38.5
Inventory	1,103.5			1,155.3
Accounts payable	(275.8)			(521.2)
Short-term contract liabilities	(109.8)			(78.7)
Subtotal	1,243.1			1,148.0
Allowance for doubtful accounts	4.5			4.6
Adjustment from current cost to LIFO cost basis	(47.6)			(33.6)
Inventory valuation reserves	129.6			104.1
Managed working capital	$	1,329.6		$	1,223.1
Annualized prior 3 months sales	$	3,081.2		$	4,074.4
Managed working capital as a % of annualized sales	43.2		%	30.0		%
Change in managed working capital from December 31, 2019	$	106.5

September 30, December 31,
(In millions) 2019 2018
Accounts receivable $ 596.7
$ 527.8
Short-term contract assets 37.8
51.2
Inventory 1,168.5
1,211.1
Accounts payable (415.8 ) (498.8 )
Short-term contract liabilities (97.1 ) (71.4 )
Subtotal 1,290.1
1,219.9
Allowance for doubtful accounts 5.0
6.0
Adjustment from current cost to LIFO cost basis

(6.7 ) (2.9 )
Inventory valuation reserves 82.2
88.5
Managed working capital $ 1,370.6
$ 1,311.5
Annualized prior 3 months sales $ 4,074.6
$ 4,151.3
Managed working capital as a % of annualized sales 33.6 % 31.6 %
Change in managed working capital from December 31, 2018 $ 59.1

Cash ~~provided by~~used in investing activities was ~~$149.4~~$61.8 million in the first ~~nine~~six months of ~~2019,~~2020, reflecting ~~$247.7~~$66.0 million in ~~net proceeds from non-core asset sales consisting of $33.0 million for the sale of two non-core forging facilities, $122.9 million for the sale of the Cast Products business and $91.8~~capital expenditures partially offset by $3.2 million of proceeds from property, plant and equipment sales, largely due to the sale of certain oil and gas ~~rights in Eddy County, NM.~~rights. Capital expenditures ~~for the first nine months of 2019 were $98.1 million~~

in 2020 primarily are related to ~~HMPC~~HPMC growth projects including the ~~previously announced~~ new iso-thermal press and heat-treating expansion in Cudahy, WI. We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, by using a portion of the ABL facility.

Cash ~~used in~~provided by financing activities was ~~$10.1~~$124.5 million in the first ~~nine months~~half of ~~2019~~2020 and consisted primarily of ~~income tax withholding on share-based compensation.~~$285.0 million of borrowings for the 2025 Convertible Notes issued in June 2020 and $100.0 million of additional Term Loan borrowings under the ABL. These were offset by a $203.2 million repayment for a portion of the 2022 Convertible Notes and $19.1 million cash make-whole payment related to the early extinguishment of these 2022 Convertible Notes as required by the applicable indenture, as well as $19.0 million to pay the cost of capped call transactions and $8.1 million for debt issuance costs, both associated with the newly issued 2025 Convertible Notes.

At ~~September~~June 30, ~~2019,~~2020, cash and cash equivalents on hand totaled ~~$511.3~~$539.1 million, ~~a decrease~~an increase of ~~$129.3~~$48.3 million from year end ~~2018.~~2019. Cash and cash equivalents held by our foreign subsidiaries was ~~$83.3~~$69.5 million at ~~September~~June 30, ~~2019,~~2020, of which ~~$47.4~~$34.9 million was held by the STAL joint venture.

Debt

Total debt outstanding of ~~$1,562.1~~$1,596.1 million at ~~September~~June 30, ~~2019~~2020 increased ~~$9.6~~$184.9 million compared to December 31, ~~2018.~~2019, as $285.0 million of borrowings for the 2025 Convertible Notes issued in June 2020, a portion of which is required to be recorded in stockholders’ equity as discussed further below, and $100.0 million of additional Term Loan borrowings under the ABL were partially offset by a $203.2 million repayment for a portion of the 2022 Convertible Notes. Total debt outstanding as described above excludes debt issuance costs and includes the $50.3 million portion of the 2025 Convertible Notes that is required to be classified in stockholders’ equity due to the flexible settlement feature available to ATI on conversion.

In managing our overall capital structure, some of the measures on which we focus are debt to EBITDA, which measures our ability to repay our incurred debt, net debt to total capitalization, which is the percentage of our debt, net of cash that may be available to reduce borrowings, to our total invested and borrowed capital, and total debt to total capitalization, which excludes cash balances. We define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges for the latest 12 month period. We define Adjusted EBITDA as EBITDA excluding significant charges or credits, restructuring charges, long-lived asset impairments and other postretirement/pension curtailment and settlement gains and losses. We believe that EBITDA isand Adjusted EBITDA are useful to investors because ~~this measure is~~these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity. Furthermore, analogous measures are used by industry analysts to evaluate operating performance. EBITDA isand Adjusted EBITDA are not intended to be ~~a measure~~measures of free cash flow for management’s discretionary use, as ~~it does~~they do not consider certain cash requirements such as interest payments, tax payments and capital expenditures. EBITDA isand Adjusted EBITDA are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. generally accepted accounting principles.

All of these leverage ratios worsened in 2020, primarily as a result of lower earnings. As of ~~September~~June 30, ~~2019,~~2020, as calculated on a twelve month trailing basis, our debt to Adjusted EBITDA ratio was ~~3.04,~~3.48, compared to ~~3.07~~2.67 at December 31, ~~2018.~~2019, and net debt to Adjusted EBITDA ratio was 2.30, compared to 1.74 at December 31, 2019.


	Three months ended						Latest 12 months ended		Fiscal year ended
	June 30, 2020		June 30, 2019		June 30, 2020		December 31, 2019

(Loss) income before income taxes	$	(327.3)	$	84.3	$	(152.7)	$	241.6
Interest expense	21.7		25.9		91.9		99.0
Depreciation and amortization	35.6		38.9		146.4		151.1
Restructuring charge	16.7		—		29.2		4.5
Joint venture restructuring and impairment charges	2.4		—		13.8		11.4
Impairment of goodwill	287.0		—		287.0		—
Debt extinguishment charge	21.5		—		43.1		21.6
Adjusted EBITDA	$	57.6	$	149.1	$	458.7	$	529.2

Total debt (a)					$	1,596.1	$	1,411.2
Less: Cash					(539.1)		(490.8)
Net debt					$	1,057.0	$	920.4

Debt to Adjusted EBITDA					3.48		2.67
Net Debt to Adjusted EBITDA					2.30		1.74

September 30, 2019 December 31, 2018
Latest 12 months:
Income before income taxes $ 259.6
$ 247.7
Interest expense 100.1
101.0
Depreciation and amortization 153.9
156.4
EBITDA $ 513.6
$ 505.1
Total debt (a) $ 1,562.1
$ 1,552.5
Debt to EBITDA 3.04
3.07

Net debt as a percentage of total capitalization was ~~32.6%~~38.5% at ~~September~~June 30, ~~2019~~,2020, compared to ~~38.3%~~30.6% at December 31, ~~2018~~.2019.


(In millions)	September 30, 2019			December 31, 2018			(In millions)	June 30, 2020			December 31, 2019
Total debt (a)	$	1,562.1		$	1,552.5		Total debt (a)	$	1,596.1		$	1,411.2
Less: Cash	(511.3		)	(382.0		)	Less: Cash	(539.1)			(490.8)
Net debt	$	1,050.8		$	1,170.5		Net debt	$	1,057.0		$	920.4
Total ATI stockholders’ equity	2,168.0			1,885.7
Total ATI stockholders’ equity (b)							Total ATI stockholders’ equity (b)	1,686.6			2,090.1
Net ATI total capital	$	3,218.8		$	3,056.2		Net ATI total capital	$	2,743.6		$	3,010.5
Net debt to ATI total capital	32.6		%	38.3		%	Net debt to ATI total capital	38.5		%	30.6		%

Total debt to total capitalization of ~~41.9%~~48.6% at ~~September~~June 30, ~~2019~~ ~~decreased~~2020 increased from ~~45.2%~~40.3% at December 31, 2019.


(In millions)	June 30, 2020			December 31, 2019
Total debt (a)	$	1,596.1		$	1,411.2
Total ATI stockholders’ equity (b)	1,686.6			2,090.1
Total ATI capital	$	3,282.7		$	3,501.3
Total debt to total ATI capital	48.6		%	40.3		%

(a) Excludes debt issuance costs for both periods.~~2018~~The June 30, 2020 debt balance includes $50.3 million recorded in stockholders’ equity for a portion of the 2025 Convertible Notes due to the flexible settlement feature of the notes.

(b) The June 30, 2020 balance excludes $48.7 million recorded in stockholders’ equity for a portion of the 2025 Convertible Notes, net of debt issuance costs.

In June 2020, we issued and sold $285.0 million aggregate principal amount of the 2025 Convertible Notes. We granted the underwriters a 13-day option to purchase up to an additional $40.0 million aggregate principal amount of 2025 Convertible Notes on the same terms and conditions to cover over-allotments, if any. The underwriters exercised a portion of this option on June 30, 2020, and we completed the offering and sale of an additional $6.4 million aggregate principal amount of 2025 Convertible Notes on July 2, 2020, subsequent to the end of the second quarter 2020. Interest on the 2025 Convertible Notes at the 3.5% cash coupon rate is payable semi-annually in arrears on each June 15 and December 15, commencing December 15, 2020.

We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes, resulting in a $21.5 million debt extinguishment charge, which included a $19.1 million cash make-whole payment related to the early extinguishment of the 2022 Convertible Notes as required by the applicable indenture, and a $2.4 million charge for deferred debt issue costs. We also used $19.0 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’ equity on the consolidated balance sheet. The remainder of the net proceeds from the offering will be used for general corporate purposes.

The 2025 Convertible Notes are convertible into our common stock at an initial conversion price of $15.49 per share and may be settled in cash, shares of our common stock or a combination thereof, at our election. As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option valued at $50.3 million is required to be separately accounted for as a component of stockholders’ equity. This equity component will be amortized as additional non-cash interest expense over the term of the 2025 Convertible Notes. Including debt issue cost amortization, the 2025 Convertible Notes will have reported interest expense at an 8.4% rate, higher than the 3.5% cash coupon rate.

In connection with the pricing of the 2025 Convertible Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates (collectively, the Counterparties). The capped call transactions are expected generally to reduce potential dilution to our common stock upon any conversion of the 2025 Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2025 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call transactions initially is approximately $19.76 per share, and is subject to adjustments under the terms of the capped call transactions. We entered into additional capped call transactions with the Counterparties related to the additional $6.4 million aggregate principal amount of the 2025 Convertible Notes issued on July 2, 2020, subsequent to the end of the second quarter 2020.

(In millions) September 30, 2019 December 31, 2018
Total debt (a) $ 1,562.1
$ 1,552.5
Total ATI stockholders’ equity 2,168.0
1,885.7
Total ATI capital $ 3,730.1
$ 3,438.2
Total debt to total ATI capital 41.9 % 45.2 %


~~(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 $150 million and 30% of the sum of the maximum revolving ~~credit availability,~~advance amount and the outstanding principal amount of any term loans (the Maximum Loan Amount), and no event of default under the ABL facility has occurred and is continuing or would result from paying the dividend. In addition, there is no limit on dividend declarations or payments if the undrawn availability is less than the greater of $150 million and 30% of the ~~maximum revolving credit advance amount~~Maximum Loan Amount but more than the greater of $75 million and 15% of the ~~maximum revolving credit advance amount,~~Maximum Loan Amount, if (i) no event of default has occurred and is continuing or would result from paying the dividend, and (ii) we demonstrate to the administrative agent that, prior to and after giving effect to the payment of the dividend (A) the undrawn availability, as measured both at the time of the dividend payment and as an average for the 60 consecutive day period immediately preceding the dividend payment, is at least the greater of $75 million and 15% of the ~~maximum revolving credit availability,~~Maximum Loan Amount, and (B) we maintain a fixed charge coverage ratio of at least 1.00:1.00, as calculated in accordance with the terms of the ABL facility.

Critical Accounting Policies

Inventory

At ~~September~~June 30, ~~2019~~,2020, we had net inventory of ~~$1,168.5 million~~.$1,103.5 million. Inventories are stated at the lower of cost (LIFO, first-in, first-out (FIFO) and average cost methods) or market. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct costs. Most of 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~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the LIFO inventory valuation method resulted in cost of sales that were ~~$1.4~~$14.0 million and ~~$29.5~~$5.8 million ~~higher,~~lower, respectively, than would have been recognized under the FIFO methodology to value our inventory.

Due primarily to persistent raw material deflation in prior years, we are in the unusual situation of having a LIFO inventory balance that exceeds replacement cost. In cases where inventory at FIFO cost is lower than the LIFO carrying value, a write-down of the inventory to market may be required, subject to a lower of cost or market evaluation. In applying the lower of cost or market principle, market means current replacement cost, subject to a ceiling (market value shall not exceed net realizable value) and a floor (market shall not be less than net realizable value reduced by an allowance for a normal profit margin). We evaluate product lines on a quarterly basis to identify inventory values that exceed estimated net realizable value. The calculation of a resulting NRV inventory reserve, if any, is recognized in the period that the need for the reserve is identified. Our NRV reserves were ~~$6.7~~$47.6 million at ~~September~~June 30, ~~2019~~2020 and ~~$8.0~~$33.6 million at December 31, 2018. Depending on average raw material costs, primarily related to nickel, we may incur LIFO expense in the fourth quarter of 2019 in excess of our remaining NRV reserve. With the significant volatility in these materials, the potential magnitude of the impact is difficult to predict, however we currently estimate this to be in the range of $0-$5 million.2019.

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,
2019 2018
LIFO benefit (charge) $ (1.4 ) $ (29.5 )
NRV benefit (charge) 1.3
29.5
Net cost of sales impact $ (0.1 ) $ —


	Six months ended June 30,
	2020		2019
LIFO benefit	$	14.0	$	5.8
NRV charge	(14.0)		(5.9)
Net cost of sales impact	$	—	$	(0.1)

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 24 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~~June 30, ~~2019,~~2020, we had ~~$523.8~~$236.4 million of goodwill on our consolidated balance sheet, all of which relates to the HPMC segment. Goodwill decreased $289.4 million at June 30, 2020 compared to December 31, 2019, due to a ~~decrease of $10.9~~$287.0 million interim impairment charge in the HPMC segment and $2.4 million from ~~December 31, 2018 due to $10.4 million~~the impact of ~~goodwill allocated from ATI’s Forged Products reporting unit to the sale of a small non-core industrial forgings business, and~~ foreign currency translation on goodwill denominated in functional currencies other than the U.S. dollar. ~~The sale~~

During the second quarter of ~~the industrial forgings business was not considered to be material for~~2020, we performed an interim goodwill impairment ~~testing of goodwill at~~analysis on the Forged Products reporting ~~unit. All~~unit and its $460.4 million goodwill ~~relates~~balance based on assessed potential indicators of impairment, including recent disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic, and the increasing uncertainty of near-term demand requirements of aero-engine and airframe markets based on government responses to the pandemic and ongoing interactions with customers. In the previous 2019 annual goodwill impairment evaluation, this reporting ~~units~~unit had a fair value that exceeded carrying value by approximately 30%. As a result of the second quarter 2020 interim goodwill impairment evaluation, we determined that the fair value of the Forged Products reporting unit was below carrying value, including goodwill, by $287.0 million. This was primarily due to changes in the ~~HPMC segment.~~

~~As part~~timing and amount of expected cash flows resulting from lower projected revenues, profitability and cash flows due to near-term reductions in commercial aerospace market demand.Consequently, during the ~~divestiture~~second quarter of ~~the titanium investment castings business, which was completed early in the third quarter 2019, ATI retained~~2020, we recorded a ~~small post-casting machining operation in Salem, OR. We recognized a $10.2~~$287.0 million impairment charge onfor the ~~carrying~~partial impairment of Forged Products reporting unit goodwill, most of which was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes.

For the 2020 interim impairment analysis, fair value of long-lived assets of the retained Salem operation ($4.5 million for property, plant and equipment, $1.4 million for operating lease right of use assets, $1.0 million for finance lease right of use assets, and $3.3 million of finite-lived intangible assets). This long-lived asset impairment charge was ~~based on an analysis of the estimated fair values, including asset appraisals using market approaches,~~determined by a quantitative assessment that used a discounted cash flow technique, which ~~represent~~represents Level 3 unobservable information in the fair value hierarchy. ~~This~~The impairment assessment and valuation method require us to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital. Many of these assumptions are determined by reference to market participants we have identified. For example, our weighted average cost of capital used in our discounted cash flow assessment was 11.6%, and long-term growth rate was 3.5%. Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

The $236.4 million of goodwill remaining as of June 30, 2020 on our consolidated balance sheet is comprised of $173.4 million at Forged Products and $63.0 million at Specialty Materials, both of which are profitable businesses with good long-term

growth prospects. No indicators of impairment were observed in the second quarter 2020 associated with any other of the Company’s long-lived assets. Market conditions and additional changes in the operating rate of our HRPF, including joint venture and third-party conversion volumes, may require an evaluation of impairment and it is possible that an impairment charge ~~is categorized as part~~for this long-lived asset group may be required. The HRPF, located in Brackenridge, PA, and which primarily uses a units-of-production depreciation method, has an approximate carrying value of ~~the net gain on sale of the titanium investment castings business.~~$1.3 billion.

In late March 2018, ATI filed for an exclusion from the Section 232 tariffs on behalf of A&T Stainless, which imports semi-finished stainless slab products from Indonesia. On April 24, 2019, we learned that this exclusion request was denied by the U.S. Department of Commerce. Therefore, the joint venture will continue to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia. Results of A&T Stainless have been and will continue to be negatively impacted by these tariffs on imported stainless slab products. As of September 30, 2019, working capital advances to A&T Stainless were $36.7 million and are reported in prepaid expenses and other current assets on the consolidated balance sheet. ATI’s equity method investment in A&T Stainless at September 30, 2019 was $1.2 million and is reported as part of other long-term assets on the consolidated balance sheet. These balances were evaluated for impairment, as the tariff exclusion denial represents a potential impairment indicator. No impairment exists at this time. The joint venture partners continue to evaluate longer-term solutions to return this strategic initiative to profitability.

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~~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.

~~Since 2015, our results reflected~~ In the second quarter 2020, we recorded a ~~three year cumulative loss from U.S. operations. As a result, we established~~$99.0 million deferred tax asset valuation ~~allowances in 2015 and 2016 for certain~~allowance on our U.S. ~~Federal~~federal and state ~~deferred~~ tax assets. In 2017, 2018 and 2019, ATI continued to maintain income tax valuation allowances on its U.S. Federal and state deferred tax assets. Valuation allowances are also maintained on net deferred tax assets in certain foreign jurisdictions. In addition, we have $29.3 million of valuation allowances on amounts recorded in other comprehensiveattributes. We entered into a three-year cumulative loss within the United States as of ~~September~~June 30, ~~2019.~~

~~While we remain in a cumulative loss condition,~~2020, limiting our ability to utilize future projections when analyzing the need for a valuation allowance therefore limiting sources of income as part of the analysis.

On March 27, 2020, the U.S. government enacted the CARES Act, which includes certain income tax changes, in response to the COVID-19 pandemic. We have determined that the CARES Act changes do not result in a material income tax expense or benefit to ATI. We are continuing to evaluate the ~~realizability of deferred tax assets is generally limited to~~overall changes between 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~~classifications of interest, pension and net operating losses resulting from 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.~~

We continue to analyze the impact of the Tax Cut and Jobs Act as additional guidance is finalized. At this time, we have not made any material adjustments to the previously presented amounts in the 2018 or 2017 financial statements.

The Company continues to report a lower-than-normal effective tax rate in 2019 as we release deferred tax valuation allowances in conjunction with the current year operating results. Based on projected 2019 results, we expect to exit the three-year cumulative loss condition for U.S. Federal and state jurisdictions at year-end 2019. At that point, accounting guidance permits the use of projected financial results as a source of positive evidence to evaluate the future realizability of deferred tax assets. This event is likely to trigger the release of a portion of the deferred tax valuation allowances as a fourth quarter 2019 item, expected to be in the range of a $25 - $35 million income tax benefit. This benefit is not included within the 2019 effective tax rate and is subject to ongoing additional analysis including the amount of deferred tax assets utilized in the current year related to final operating results.CARES Act.

Retirement Benefits

In accordance with accounting standards, we determine the discount rate used to value pension plan liabilities as of the last day

of each year. The discount rate reflects the current rate at which the pension liabilities could be effectively settled. In

estimating this rate, we receive input from our actuaries regarding the rate of return on high quality, fixed income investments

with maturities matched to the expected future retirement benefit payments. Based on current market conditions, discount rates

are below the rates in effect at the year-end ~~2018~~2019 remeasurement date, when a ~~4.40%~~3.40% discount rate was used for valuing

pension liabilities. The estimated effect at the year-end ~~2018~~2019 valuation date of a decrease in the discount rate by 0.50% would

increase pension liabilities by approximately ~~$135~~$140 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.

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 an IRS-determined segmented yield curve, which currently results in a higher discount rate than the discount rate methodology required by accounting standards. Funding requirements are also affected by IRS-determined mortality assumptions, which may differ from those used under accounting standards. Our fiscal year 2019 and 2020 funding requirements to the U.S. qualified defined benefit pension plans are approximately $145 million each year, of which $117 million was contributed in the first nine months of 2019, and we currently expect to have average annual funding requirements of approximately $100 million to these pension plans for the next few fiscal 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.

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, ~~2018.~~2019.

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 new and 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 and changes in international trade duties and other aspects of international trade policy; (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; (h) the risks of business and ~~(h)~~economic disruption related to the currently ongoing COVID-19 pandemic and other health epidemics or outbreaks that may arise; and (i) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, 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~~exchange-traded prices for the hedged items including consideration of counterparty risk and the Company’s credit risk. Our exposure to volatility in interest rates is presently not material, as nearly all of our debt is at fixed interest rates.

Volatility of Interest Rates. We may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. ~~In July 2019, the~~The Company ~~amended its~~has a $50 million floating-for-fixed interest rate swap which converts ~~half~~a portion of the Term Loan to a 4.21% fixed ~~rate (now 4.21% following the September 30, 2019 ABL amendment and restatement), with a~~rate. The swap matures in June ~~2024 maturity.~~2024. The Company ~~redesignated~~designated the ~~existing~~ interest rate swap as a cash flow hedge of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The ineffectiveness at hedge inception, determined from the fair value of the swap immediately prior to its July 2019 amendment, will be amortized to interest expense over the initial Term Loan swap maturity date of January 12, 2021. Any gain or loss associated with this hedging arrangement is included in interest expense. At ~~September~~June 30, ~~2019,~~2020, the net mark-to-market valuation of the outstanding interest rate swap was an unrealized pre-tax loss of ~~$2.0~~$4.2 million, comprised of ~~$0.3~~$1.1 million in other current liabilities and ~~$1.7~~$3.1 million in other long-term liabilities on the balance sheet.

Volatility of Energy Prices. Energy resources markets are subject to conditions that create uncertainty in the prices and availability of energy resources. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition. We use approximately 8 to 10 million MMBtu’s of natural gas annually, depending upon business conditions, in the manufacture of our products. These purchases of natural gas expose us to risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase in the price of natural gas would result in increased annual energy costs of approximately $8 to $10 million. We use several approaches to minimize any material adverse effect on our 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~~June 30, ~~2019~~,2020, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included natural gas hedges. Approximately ~~70%~~100% of our forecasted domestic requirements for natural gas for the remainder of ~~2019, approximately 70% for~~ 2020 and approximately ~~50%~~60% for 2021 are hedged. At ~~September~~June 30, ~~2019,~~2020, the net mark-to-market valuation of these outstanding natural gas hedges was an unrealized pre-tax loss of ~~$2.7~~$2.6 million, comprised of $0.1 million in prepaid expenses and other ~~long-term~~current assets, ~~$1.7~~$2.5 million in other current liabilities and ~~$1.1~~$0.2 million in other long-term liabilities on the balance sheet. For the three months ended ~~September~~June 30, ~~2019~~,2020, natural gas hedging activity increased cost of sales by ~~$0.8~~$1.3 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 ~~2018~~,2019, we used approximately ~~100~~105 million pounds of nickel; therefore, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately ~~$100~~$105 million. In addition, in ~~2018~~,2019, we also used approximately ~~400~~360 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 $4$3.6 million. While we enter into raw materials futures contracts from time-to-time to hedge exposure to price fluctuations, such as for nickel, we cannot be certain that our hedge position adequately reduces exposure. We believe that we have adequate controls to monitor these contracts, but we may not be able to accurately assess exposure to price volatility in the markets for critical raw materials.

The majority of our products are sold utilizing raw material surcharges and index mechanisms. However, as of ~~September~~June 30, ~~2019~~,2020, 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 95 million pounds of nickel with hedge dates through 2023. The aggregate notional amount hedged is ~~approximately 9%~~less than 10% 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~~June 30, ~~2019,~~2020, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax gain of ~~$16.4~~$0.3 million, comprised of ~~$13.1~~$1.2 million in prepaid expense and other current assets, ~~$3.6~~$0.2 million in other long-term assets, ~~and~~ ~~$0.3~~$0.8 million in other current liabilities and $0.3 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 the euro. In addition, we may also

hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At ~~September~~June 30, ~~2019,~~2020, we ~~held euro~~had no significant outstanding foreign currency forward ~~sales contracts designated as cash flow hedges with a notional value of approximately 12 million euro with maturity dates through December 2019.~~contracts.

We may also enter into foreign currency forward contracts that are not designated as hedges, which are denominated in the same foreign currency in which export sales are denominated. We have no euro notional value outstanding as of ~~September~~June 30, ~~2019~~2020 of foreign currency forward contracts not designated as hedges.

At September 30, 2019, the net mark-to-market valuation of our outstanding foreign currency forward contracts was an unrealized pre-tax gain of $0.7 million, all of which is in prepaid expense and other current assets on the balance sheet.



Item 4.			Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or ~~rule~~Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~September~~June 30, ~~2019,~~2020, 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 ~~September~~June 30, ~~2019~~2020 conducted by our Chief Executive Officer and Chief Financial Officer, that occurred during the quarter ended ~~September~~June 30, ~~2019~~2020 that has materially affected, or 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, environmental, health and safety matters and occupational disease (including as each relates to alleged asbestos exposure), as well as patent infringement, commercial, government contracting, construction, employment, employee and retiree benefits, taxes, environmental, and stockholder and corporate governance matters. Certain of such lawsuits, claims and proceedings are described in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~,2019, and addressed in Note 1617 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, ~~2018.~~2019. 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, ~~2018,~~2019, 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.

~~Risks Associated with~~Our business, results of operations, financial condition and/or cash flows could be materially adversely affected by the ~~Commercial Aerospace Industry.~~effects of widespread public health epidemics/pandemics, including COVID-19 and other global economic trends, that are beyond our control.

The recent novel strain of COVID-19 now affecting the global community on a pandemic basis is adversely impacting our operations, and the nature and extent of the impact over time is highly uncertain and beyond our control. The pandemic, including governmental and other actions taken or restrictions imposed to contain its spread and impact, has subjected our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below.

Customer, Supply Chain and Operational Risks: The significant macroeconomic impact of the ongoing COVID-19 pandemic and the measures designed to contain its spread have impacted several of the Company’s end markets. We are experiencing, and expect to continue to experience, lower demand and volume for certain products and services, but we have limited visibility into future demand given the disruptions affecting customers in those markets.

A significant portion of the sales of our HPMC segment represents products sold to customers in the commercial aerospace industry. ~~Fulfilling contractual arrangements~~In recent months, several of our commercial aerospace customers have announced cost-cutting and other measures in response to ~~provide various~~declining demand stemming from the COVID-19 pandemic, including facility shut-downs, measures to reduce inventory and/or downward adjustments to their stated production rates.

Similarly, the energy market, including oil and gas, historically has been a significant end market for both our HPMC segment and FRP business. In recent years, our business has at times been negatively impacted by the downturn and slow recovery in the oil and gas industry. In general, the oil and gas industry is highly cyclical and subject to volatility as a result of worldwide economic activity and associated demand for oil and natural gas, anticipated future prices for oil and natural gas, fluctuation in the level of drilling activity, changes in applicable regulation, global geopolitical conditions and numerous other factors. Demand for our products is likewise subject to these trends. Energy demand, in general, is currently predicted to remain weak due to declines in consumer activity and over-supply issues suppressing oil and gas exploration and production activities, and we expect that oil and gas will remain a highly cyclical industry.

These aerospace market and energy market conditions are presently expected to continue for at least the remainder of 2020, and the ultimate breadth and duration of these actions and trends and their impact on our business is uncertain and difficult to predict. Our sales, particularly to customers in ~~this industry often involves meeting highly exacting performance requirements~~these markets that are affected by COVID-19, have been and ~~product specifications,~~are expected to be negatively impacted, and the possibility exists that there could be a sustained impact to our operations and our ~~failure~~financial results. While we have already begun implementing plans to ~~meet those requirements~~reduce capital expenditures, compensation expense and ~~specifications~~other costs, and to align with current and anticipated changes in customer demand, we cannot predict the duration and longer-term impacts of the pandemic, and over time, its impact on ~~a timely~~demand for our products and ~~cost efficient basis~~other disruptions could have a material adverse effect on our business, results of operations, ~~business and~~ financial ~~condition. The commercial aerospace industry has historically been cyclical due~~condition and/or cash flows.

Additionally, our suppliers may not have the materials, capacity, or capability to factors both external and internal to the airline industry. These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, changes in projected build rates (including, e.g., the recently announced temporary slowdown in production rates for the Boeing 737 Max aircraft), price competition, and international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of cyclical fluctuation are influenced by these factors and therefore are difficult to predict with certainty. Demand formanufacture our products ~~particularly those produced~~according to our schedule and specifications. To date, we have not experienced significant disruption to our supply chain. If our suppliers’ operations were to be impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our ~~HPMC segment, is subject to these cyclical trends. Although the commercial aerospace industry is currently experiencing a period~~customers, each of ~~production expansion related to the introduction of next-generation engines and aircraft, we cannot provide any assurance as to the ultimate magnitude or duration of this trend or its impact on~~which would affect our ~~business. A downturn in the commercial aerospace industry has had, and may in the future have, an adverse effect on the prices at which we are able to sell our products, and our~~business, results of operations, ~~business and~~ financial condition ~~could be materially adversely affected.~~and/or cash flows.

~~Export Sales and International Trade Matters.~~ ~~We believe that export sales will~~Our facilities continue to ~~account for a significant percentage~~operate with federal and state government approvals due to the qualification of our ~~future revenues. We also import certain raw materials,~~facilities as essential and ~~recently formed, together with an affiliate company of Tsingshan Group, our A&T Stainless joint venture, which imports semi-finished stainless steel slab products from Indonesia~~critical. However, it is possible that we may temporarily shut down facilities in response to support its U.S. production of finished 60-inch wide stainless steel sheet products for sale in North America. Risks associated with such international trade include, among others: political and economic instability, including weak conditions in the world’s economies; accounts receivable collection; export controls; trade sanctions,employees being impacted by COVID-19 or changes in ~~legal~~government policy. Furthermore, we have instituted a number of short-term idlings at certain manufacturing locations, and ~~regulatory requirements; policy changes affecting~~future idlings may occur, including as may be necessary to match our production levels to the ~~markets for~~reduced demand from our ~~products; changes in tax laws;~~customers.

Market and ~~exchange rate fluctuations (which may affect sales~~Credit Risks: The current financial market dynamics and volatility pose heightened risks to ~~international customers~~our liquidity. For example, dramatically lowered interest rates and ~~the value of profits earned on export sales when converted into dollars). Any of these factors could materially adversely affect our results for the period in which they occur.~~

~~Additionally, changes in international trade duties~~lower expected asset valuations and ~~other aspects of international trade policy, both in the U.S. and abroad, could~~returns can materially impact the calculation of long-term liabilities such as 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 JV imports from Indonesia are subject to the additional tariff. The A&T Stainless JV filed for exclusions from the 232 tariff based on the nature of the imported product, its country of origin, and its lack of availability in the U.S. However, in April 2019, the U.S. Commerce Department denied the joint venture’s exclusion request and, as a result, the joint venture continues to be subject to the 25% tariff levied on its imports of semi-finished stainless steel slab products from Indonesia, which are continuing to negatively impact the joint venture’s results. On October 15, 2019, the A&T Stainless JV filed a new exclusion request. However,pension. Moreover, there can also be no assurance that we will not face credit rating downgrades as a result of weaker than anticipated performance of our businesses or other factors including overall market conditions. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on our businesses. Conditions in the ~~joint venture~~financial and credit markets may also limit the availability of funding or increase the cost of funding (including for receivables securitization or supply chain finance programs used to finance working capital) or our ability to refinance certain of our indebtedness, which could adversely affect our business, financial position, results of operations and/or cash flows.

General Uncertainty: The COVID-19 pandemic may also exacerbate other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019. We expect that the longer the period of disruption from COVID-19 continues, the more material the adverse impacts will be ~~successful~~on our business operations, financial performance, results of operations and/or cash flows. In addition, the impact of the COVID-19 pandemic is fluid and continues to evolve. Consequently, the pandemic may ultimately affect our operating and financial results in ~~any further efforts~~a manner that is not presently known to ~~obtain an exclusion for the products that it intends to import,~~us or that ~~its~~we currently do not expect to present significant risks to our business, results of operations, ~~and results will not continue~~financial conditions and/or cash flows.


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 ~~be impacted by the imposition of these tariffs.~~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
April 1-30, 2020	2,526	$	8.44	—	$	—
May 1-31, 2020	—	$	—	—	$	—
June 1-30, 2020	—	$	—	—	$	—
Total	2,526	$	8.44	—	$	—

Moreover, these new tariffs, or other changes in U.S. trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, thus, to adversely impact our businesses.



Item 6.			Exhibits

(a) Exhibits



~~10.1~~4.1						~~First Amended and Restated Revolving Credit, Term Loan, Delayed Draw Term Loan and Security Agreement,~~Indenture, dated ~~as of September 30, 2019,~~June 22, 2020, by and ~~among~~between the ~~borrowers party thereto,~~Registrant and The Bank of New York Mellon, as Trustee (Incorporated by reference to Exhibit 4.1 to the ~~Company and other guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Lender and Agent (filed herewith)~~Registrant’s Current Report on Form 8-K dated June 22, 2020 (File No. 1-2001)).
4.2						Form of 3.50% Convertible Senior Note due 2 0 25 (Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 22, 2020 (File No. 1-2001)).
~~31.1~~10.1						Form of Capped Call Confirmation (Incorporated by reference to Exhibit 10-1 to the Registrant’s Current Report on Form 8-K dated June 22, 2020 (File No. 1-2001)).
10.2						Allegheny Technologies Incorporated 2020 Incentive Plan (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement filed on March 24, 2020 (File No. 1-2001)).
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						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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:

August 4, 2020

/s/ Donald P. Newman

Donald P. Newman

Senior Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)

Date:

~~November 1, 2019~~August 4, 2020

~~/s/ Patrick J. DeCourcy~~

~~Patrick J. DeCourcy~~

~~Senior Vice President, Finance and Chief Financial Officer~~

~~(Principal Financial Officer)~~

~~Date:~~

~~November 1, 2019~~

/s/ Karl D. Schwartz

Karl D. Schwartz

Vice President, Controller and Chief Accounting Officer

(Principal Accounting Officer)

5046



($ in millions)	Three months ended		Nine months ended
	September 30, 2019		September 30, 2019
Lease Cost
Finance Lease Cost:
Amortization of right of use asset	$	0.5	$	1.0
Interest on lease liabilities	0.1		0.3
Operating lease cost	5.0		15.4
Short-term lease cost	0.7		2.4
Variable lease cost	0.2		0.6
Sublease income	—		—
Total lease cost	$	6.5	$	19.7

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	0.1	$	0.3
Operating cash flows from operating leases	$	5.0	$	15.4
Financing cash flows from finance leases	$	0.7	$	1.5
Right of use assets obtained in exchange for new finance lease liabilities	$	6.7	$	12.6
Right of use assets obtained in exchange for new operating lease liabilities	$	2.8	$	20.3
Weighted average remaining lease term - finance leases			4 years
Weighted average remaining lease term - operating leases			5 years
Weighted average discount rate - finance leases			5.3		%
Weighted average discount rate - operating leases			7.1		%



	September 30, 2019
Remainder of 2019	$	5.1
2020	18.5
2021	16.9
2022	13.2
2023	9.0
2024 and thereafter	18.9
Total undiscounted lease payments	$	81.6
Present value adjustment	(15.3		)
Operating lease liabilities	$	66.3



(In millions)	Amount of Gain (Loss) Recognized in Income on Derivatives
	Three months ended September 30,				Nine months ended September 30,
Derivatives Not Designated as Hedging Instruments	2019		2018		2019		2018
Foreign exchange contracts	$	—	$	—	$	0.1	$	0.1



(In millions)	Guarantor Parent		Subsidiary			Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Cash and cash equivalents	$	0.2	$	9.9		$	501.2	$	—		$	511.3
Accounts receivable, net	—		169.0			427.7		—			596.7
Intercompany notes receivable	—		—			4,344.9		(4,344.9		)	—
Short-term contract assets	—		—			37.8		—			37.8
Inventories, net	—		203.4			965.1		—			1,168.5
Prepaid expenses and other current assets	6.0		52.1			50.0		—			108.1
Total current assets	6.2		434.4			6,326.7		(4,344.9		)	2,422.4
Property, plant and equipment, net	6.3		1,531.2			870.0		—			2,407.5
Goodwill	—		—			523.8		—			523.8
Intercompany notes receivable	—		—			200.0		(200.0		)	—
Investment in subsidiaries	6,472.4		37.7			—		(6,510.1		)	—
Other assets	54.6		52.3			168.3		—			275.2
Total assets	$	6,539.5	$	2,055.6		$	8,088.8	$	(11,055.0	)	$	5,628.9
Liabilities and stockholders’ equity:
Accounts payable	$	5.7	$	144.7		$	265.4	$	—		$	415.8
Intercompany notes payable	2,339.5		2,005.4			—		(4,344.9		)	—
Short-term contract liabilities	—		45.1			52.0		—			97.1
Short-term debt and current portion of long-term debt	1.3		0.2			10.6		—			12.1
Other current liabilities	36.8		79.3			122.2		—			238.3
Total current liabilities	2,383.3		2,274.7			450.2		(4,344.9		)	763.3
Long-term debt	1,284.0		150.4			107.3		—			1,541.7
Intercompany notes payable	—		200.0			—		(200.0		)	—
Accrued postretirement benefits	—		254.3			47.1		—			301.4
Pension liabilities	555.6		3.5			42.8		—			601.9
Deferred income taxes	15.8		—			—		—			15.8
Other long-term liabilities	20.9		35.3			68.7		—			124.9
Total liabilities	4,259.6		2,918.2			716.1		(4,544.9		)	3,349.0
Total stockholders’ equity (deficit)	2,279.9		(862.6		)	7,372.7		(6,510.1		)	2,279.9
Total liabilities and stockholders’ equity	$	6,539.5	$	2,055.6		$	8,088.8	$	(11,055.0	)	$	5,628.9



	Guarantor					Non-guarantor
(In millions)	Parent		Subsidiary			Subsidiaries		Eliminations			Consolidated
Assets:
Cash and cash equivalents	$	0.1	$	10.8		$	371.1	$	—		$	382.0
Accounts receivable, net	—		126.3			401.5		—			527.8
Intercompany notes receivable	—		—			3,968.8		(3,968.8		)	—
Short-term contract assets	—		—			51.2		—			51.2
Inventories, net	—		216.1			995.0		—			1,211.1
Prepaid expenses and other current assets	12.9		29.3			32.4		—			74.6
Total current assets	13.0		382.5			5,820.0		(3,968.8		)	2,246.7
Property, plant and equipment, net	1.7		1,548.4			924.9		—			2,475.0
Goodwill	—		—			534.7		—			534.7
Intercompany notes receivable	—		—			200.0		(200.0		)	—
Investment in subsidiaries	6,096.4		37.7			—		(6,134.1		)	—
Other assets	35.6		30.7			179.1		—			245.4
Total assets	$	6,146.7	$	1,999.3		$	7,658.7	$	(10,302.9	)	$	5,501.8
Liabilities and stockholders’ equity:
Accounts payable	$	3.3	$	177.5		$	318.0	$	—		$	498.8
Intercompany notes payable	2,102.8		1,866.0			—		(3,968.8		)	—
Short-term contract liabilities	—		33.0			38.4		—			71.4
Short-term debt and current portion of long-term debt	0.2		0.7			5.7		—			6.6
Other current liabilities	59.1		71.7			129.3		—			260.1
Total current liabilities	2,165.4		2,148.9			491.4		(3,968.8		)	836.9
Long-term debt	1,278.8		151.8			104.9		—			1,535.5
Intercompany notes payable	—		200.0			—		(200.0		)	—
Accrued postretirement benefits	—		259.2			59.2		—			318.4
Pension liabilities	681.6		4.0			44.4		—			730.0
Deferred income taxes	12.9		—			—		—			12.9
Other long-term liabilities	16.4		17.6			42.5		—			76.5
Total liabilities	4,155.1		2,781.5			742.4		(4,168.8		)	3,510.2
Total stockholders’ equity (deficit)	1,991.6		(782.2		)	6,916.3		(6,134.1		)	1,991.6
Total liabilities and stockholders’ equity	$	6,146.7	$	1,999.3		$	7,658.7	$	(10,302.9	)	$	5,501.8



	Amount reclassified from AOCI
Details about AOCI Components (In millions)	Three months ended September 30, 2019			Three months ended September 30, 2018			Nine months ended September 30, 2019			Nine months ended September 30, 2018				Affected line item in the statements of income
Postretirement benefit plans
Prior service credit	$	0.7		$	0.7		$	1.9		$	1.9		(a)
Actuarial losses	(21.9		)	(19.2		)	(65.4		)	(57.5		)	(a)
	(21.2		)	(18.5		)	(63.5		)	(55.6		)	(c)	Total before tax
	(5.1		)	(4.5		)	(15.0		)	(13.3		)		Tax benefit (d)
	$	(16.1	)	$	(14.0	)	$	(48.5	)	$	(42.3	)		Net of tax
Derivatives
Nickel and other raw material contracts	$	1.5		$	2.2		$	0.7		$	10.4		(b)
Natural gas contracts	(0.8		)	—			(0.8		)	(0.5		)	(b)
Foreign exchange contracts	0.4			0.5			—			0.5			(b)
Interest rate swap	(0.3		)	(0.1		)	(0.5		)	(0.1		)	(b)
	0.8			2.6			(0.6		)	10.3			(c)	Total before tax
	0.1			0.6			(0.2		)	2.5				Tax provision (benefit) (d)
	$	0.7		$	2.0		$	(0.4	)	$	7.8			Net of tax



	September 30,			December 31,
(In millions)	2019			2018
Accounts receivable	$	596.7		$	527.8
Short-term contract assets	37.8			51.2
Inventory	1,168.5			1,211.1
Accounts payable	(415.8		)	(498.8		)
Short-term contract liabilities	(97.1		)	(71.4		)
Subtotal	1,290.1			1,219.9
Allowance for doubtful accounts	5.0			6.0
Adjustment from current cost to LIFO cost basis	(6.7		)	(2.9		)
Inventory valuation reserves	82.2			88.5
Managed working capital	$	1,370.6		$	1,311.5
Annualized prior 3 months sales	$	4,074.6		$	4,151.3
Managed working capital as a % of annualized sales	33.6		%	31.6		%
Change in managed working capital from December 31, 2018	$	59.1



	September 30, 2019		December 31, 2018
Latest 12 months:
Income before income taxes	$	259.6	$	247.7
Interest expense	100.1		101.0
Depreciation and amortization	153.9		156.4
EBITDA	$	513.6	$	505.1
Total debt (a)	$	1,562.1	$	1,552.5
Debt to EBITDA	3.04		3.07