ATI INC [ATI] Filings

10-Q 1 ati-20230930.htm 10-Q ati-20230930

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 30, 2023


☐			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

ATI Inc.

(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.)

2021 McKinney Avenue
Dallas,	Texas	75201
(Address of Principal Executive Offices)		(Zip Code)

(800) 289-7454

(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐

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 13, 2023, the registrant had outstanding 127,577,212 shares of its Common Stock.

ATI INC.

SEC FORM 10-Q

Quarter Ended September 30, 2023

INDEX


			Page No.
PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets			1

Consolidated Statements of 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			25

Item 3. Quantitative and Qualitative Disclosures About Market Risk			40

Item 4. Controls and Procedures			41

PART II. - OTHER INFORMATION

Item 1. Legal Proceedings			41

Item 1A. Risk Factors			42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42

Item 5. Other Information			42

Item 6. Exhibits			43

SIGNATURES			44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATI Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Current period unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	432.9	$	584.0
Accounts receivable, net	683.0		579.2
Short-term contract assets	56.6		64.1
Inventories, net	1,353.9		1,195.7
Prepaid expenses and other current assets	73.3		53.4
Total Current Assets	2,599.7		2,476.4
Property, plant and equipment, net	1,626.3		1,549.1
Goodwill	227.2		227.2
Other assets	277.9		192.9
Total Assets	$	4,731.1	$	4,445.6
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	435.0	$	553.3
Short-term contract liabilities	110.2		149.1
Short-term debt and current portion of long-term debt	37.5		41.7
Other current liabilities	246.6		219.8
Total Current Liabilities	829.3		963.9
Long-term debt	2,147.7		1,706.3
Accrued postretirement benefits	173.2		184.9
Pension liabilities	39.7		225.6
Other long-term liabilities	185.3		207.7
Total Liabilities	3,375.2		3,288.4
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-132,292,666 shares at September 30, 2023 and 131,392,262 shares at December 31, 2022; outstanding-127,576,395 shares at September 30, 2023 and 128,273,042 shares at December 31, 2022	13.2		13.1
Additional paid-in capital	1,689.5		1,668.1
Retained earnings	398.7		176.9
Treasury stock: 4,716,271 shares at September 30, 2023 and 3,119,220 shares at December 31, 2022	(153.6)		(87.0)
Accumulated other comprehensive loss, net of tax	(708.9)		(725.2)
Total ATI stockholders’ equity	1,238.9		1,045.9
Noncontrolling interests	117.0		111.3
Total Equity	1,355.9		1,157.2
Total Liabilities and Equity	$	4,731.1	$	4,445.6

The accompanying notes are an integral part of these statements.

ATI Inc. and Subsidiaries

Consolidated Statements of Operations

(In millions, except per share amounts)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Sales	$	1,025.6	$	1,032.0	$	3,109.7	$	2,825.6

Cost of sales	831.0		848.2		2,512.8		2,297.1
Gross profit	194.6		183.8		596.9		528.5
Selling and administrative expenses	69.8		73.2		235.8		220.7
Restructuring charges (credits)	(0.5)		(2.6)		2.2		(5.0)
Loss on asset sales and sales of businesses, net	0.1		—		0.8		134.2
Operating income	125.2		113.2		358.1		178.6
Nonoperating retirement benefit expense	(16.9)		(6.5)		(50.6)		(18.9)
Interest expense, net	(23.8)		(20.8)		(65.0)		(67.8)
Other income (expense), net	—		(18.5)		1.3		(15.3)
Income before income taxes	84.5		67.4		243.8		76.6
Income tax provision	4.9		3.0		12.9		11.3
Net income	79.6		64.4		230.9		65.3
Less: Net income attributable to noncontrolling interests	3.9		3.3		9.1		11.3
Net income attributable to ATI	$	75.7	$	61.1	$	221.8	$	54.0

Basic net income attributable to ATI per common share	$	0.59	$	0.47	$	1.73	$	0.43

Diluted net income attributable to ATI per common share	$	0.52	$	0.42	$	1.53	$	0.42

The accompanying notes are an integral part of these statements.

ATI Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Net income	$	79.6	$	64.4	$	230.9	$	65.3
Currency translation adjustment
Unrealized net change arising during the period	(9.2)		(30.0)		(14.0)		(59.2)
Reclassification adjustment included in net income	—		—		—		20.0
Total	(9.2)		(30.0)		(14.0)		(39.2)
Derivatives
Net derivatives gain (loss) on hedge transactions	(3.2)		7.7		(20.6)		48.4
Reclassification to net income of net realized loss (gain)	1.8		(7.1)		0.1		(32.5)
Income taxes on derivative transactions	—		—		—		—
Total	(1.4)		0.6		(20.5)		15.9
Postretirement benefit plans
Actuarial loss
Amortization of net actuarial loss	16.0		19.1		47.8		57.6
Prior service cost
Amortization to net income of net prior service credits	(0.1)		(0.1)		(0.4)		(0.4)
Settlement loss included in net income	—		—		—		29.5
Income taxes on postretirement benefit plans	—		—		—		—
Total	15.9		19.0		47.4		86.7
Other comprehensive income (loss), net of tax	5.3		(10.4)		12.9		63.4
Comprehensive income	84.9		54.0		243.8		128.7
Less: Comprehensive income (loss) attributable to noncontrolling interests	1.8		(6.1)		5.7		(7.1)
Comprehensive income attributable to ATI	$	83.1	$	60.1	$	238.1	$	135.8

The accompanying notes are an integral part of these statements.

ATI Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine months ended September 30,
	2023		2022
Operating Activities:
Net income	$	230.9	$	65.3
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	106.6		107.1
Share-based compensation	21.5		20.1
Deferred taxes	2.2		2.2
Net gains from disposal of property, plant and equipment	(0.1)		(1.0)
Loss on sales of businesses	0.6		141.0
Changes in operating assets and liabilities:
Inventories	(158.2)		(212.0)
Accounts receivable	(104.0)		(224.4)
Accounts payable	(108.2)		52.2
Retirement benefits	(241.0)		2.4
Accrued liabilities and other	(81.6)		(52.3)
Cash used in operating activities	(331.3)		(99.4)
Investing Activities:
Purchases of property, plant and equipment	(147.3)		(100.5)
Proceeds from disposal of property, plant and equipment	3.3		1.5
Transaction costs from sales of businesses, net of proceeds	(0.3)		(2.8)
Other	1.1		0.8
Cash used in investing activities	(143.2)		(101.0)
Financing Activities:
Borrowings on long-term debt	425.0		—
Payments on long-term debt and finance leases	(22.0)		(16.6)
Net payments under credit facilities	(7.3)		(16.0)
Debt issuance costs	(6.1)		—
Purchase of treasury stock	(55.1)		(104.9)
Sale of noncontrolling interests	—		0.9
Dividends paid to noncontrolling interests	—		(16.0)
Shares repurchased for income tax withholding on share-based compensation and other	(11.1)		(5.6)
Cash provided by (used in) financing activities	323.4		(158.2)
Decrease in cash and cash equivalents	(151.1)		(358.6)
Cash and cash equivalents at beginning of period	584.0		687.7
Cash and cash equivalents at end of period	$	432.9	$	329.1

The accompanying notes are an integral part of these statements.

ATI Inc. and Subsidiaries

Statements of Changes in Consolidated Equity

(In 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, June 30, 2022	$	13.1	$	1,656.6	$	38.9	$	(36.8)	$	(908.9)	$	131.0	$	893.9
Net income	—		—		61.1		—		—		3.3		64.4
Other comprehensive loss	—		—		—		—		(1.0)		(9.4)		(10.4)
Purchase of treasury stock	—		—		—		(15.0)		—		—		(15.0)
Employee stock plans	—		5.6		—		(0.1)		—		—		5.5
Balance, September 30, 2022	$	13.1	$	1,662.2	$	100.0	$	(51.9)	$	(909.9)	$	124.9	$	938.4
Balance, June 30, 2023	$	13.2	$	1,682.0	$	323.0	$	(107.9)	$	(716.3)	$	115.2	$	1,309.2
Net income	—		—		75.7		—		—		3.9		79.6
Other comprehensive income (loss)	—		—		—		—		7.4		(2.1)		5.3
Purchase of treasury stock	—		—		—		(45.4)		—		—		(45.4)
Employee stock plans	—		7.5		—		(0.3)		—		—		7.2
Balance, September 30, 2023	$	13.2	$	1,689.5	$	398.7	$	(153.6)	$	(708.9)	$	117.0	$	1,355.9


	ATI Stockholders
	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interests		Total Equity
Balance, December 31, 2021	$	12.7	$	1,596.7	$	72.7	$	(4.8)	$	(991.7)	$	147.1	$	832.7
Net income	—		—		54.0		—		—		11.3		65.3
Other comprehensive income (loss)	—				—		—		81.8		(18.4)		63.4
Purchase of treasury stock	—		—		—		(104.9)		—		—		(104.9)
Conversion of convertible notes	0.3		45.4		(26.7)		63.5		—		—		82.5
Dividends paid to noncontrolling interest	—		—		—		—		—		(16.0)		(16.0)
Sales of subsidiary shares to noncontrolling interest	—		—		—		—		—		0.9		0.9
Employee stock plans	0.1		20.1		—		(5.7)		—		—		14.5
Balance, September 30, 2022	$	13.1	$	1,662.2	$	100.0	$	(51.9)	$	(909.9)	$	124.9	$	938.4
Balance, December 31, 2022	$	13.1	$	1,668.1	$	176.9	$	(87.0)	$	(725.2)	$	111.3	$	1,157.2
Net income	—		—		221.8		—		—		9.1		230.9
Other comprehensive income (loss)	—		—		—		—		16.3		(3.4)		12.9
Purchase of treasury stock	—		—		—		(55.5)		—		—		(55.5)
Employee stock plans	0.1		21.4		—		(11.1)		—		—		10.4
Balance, September 30, 2023	$	13.2	$	1,689.5	$	398.7	$	(153.6)	$	(708.9)	$	117.0	$	1,355.9

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 ATI Inc. and its subsidiaries. Unless the context requires otherwise, “ATI” and “the Company” refer to ATI Inc. and its subsidiaries.

These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2022 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, 2022 financial information has been derived from the Company’s audited consolidated financial statements.

New Accounting Pronouncements Adopted

In September 2022, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to disclosures about supplier finance programs. Supplier finance programs allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary on the basis of invoices that the buyer has confirmed as valid. This new guidance requires a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude, using both qualitative and quantitative information about its supplier finance programs. This new guidance, with the exception of disclosures on rollforward information, is effective for the Company in fiscal year 2023. The Company adopted this new accounting guidance effective January 1, 2023. The rollforward information disclosures are effective for the Company in fiscal year 2024, with early adoption permitted. The Company did not early adopt this guidance. The adoption of these changes did not have an impact on the Company’s consolidated financial statements other than disclosure requirements which are included in Note 6.

Note 2. Revenue from Contracts with Customers

Disaggregation of Revenue

The Company operates in two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). Revenue is disaggregated within these two business segments by diversified global markets, primary geographical markets and diversified products. Comparative information regarding the Company’s overall revenues (in millions) by global and geographical markets for the third quarters and nine months ended September 30, 2023 and 2022 is included in the following tables.


(in millions)	Third quarter ended
	September 30, 2023						September 30, 2022
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Global Markets:
Aerospace & Defense:
Jet Engines- Commercial	$	312.5	$	16.9	$	329.4	$	285.7	$	26.9	$	312.6
Airframes- Commercial	104.0		99.6		203.6		49.8		81.6		131.4
Defense	39.7		53.1		92.8		38.5		47.6		86.1
Total Aerospace & Defense	456.2		169.6		625.8		374.0		156.1		530.1
Energy:
Oil & Gas	2.5		84.5		87.0		6.9		120.2		127.1
Specialty Energy	20.2		41.7		61.9		26.4		39.2		65.6
Total Energy	22.7		126.2		148.9		33.3		159.4		192.7
Automotive	7.2		40.9		48.1		3.5		66.1		69.6
Medical	28.9		18.6		47.5		22.3		25.1		47.4
Electronics	0.6		44.2		44.8		0.7		47.8		48.5
Construction/Mining	7.7		32.3		40.0		9.5		38.3		47.8
Food Equipment & Appliances	—		16.2		16.2		0.2		45.0		45.2
Other	16.2		38.1		54.3		14.1		36.6		50.7
Total	$	539.5	$	486.1	$	1,025.6	$	457.6	$	574.4	$	1,032.0


(in millions)	Nine months ended
	September 30, 2023						September 30, 2022
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Global Markets:
Aerospace & Defense:
Jet Engines- Commercial	$	914.2	$	67.0	$	981.2	$	696.1	$	61.8	$	757.9
Airframes- Commercial	242.0		295.7		537.7		130.9		200.3		331.2
Defense	131.6		157.8		289.4		120.6		123.6		244.2
Total Aerospace & Defense	1,287.8		520.5		1,808.3		947.6		385.7		1,333.3
Energy:
Oil & Gas	8.6		317.2		325.8		32.1		323.3		355.4
Specialty Energy	75.0		137.8		212.8		88.0		109.3		197.3
Total Energy	83.6		455.0		538.6		120.1		432.6		552.7
Automotive	19.5		140.8		160.3		8.7		227.4		236.1
Construction/Mining	26.9		101.9		128.8		25.8		113.9		139.7
Medical	70.7		53.7		124.4		52.3		70.8		123.1
Electronics	1.8		113.4		115.2		1.9		147.6		149.5
Food Equipment & Appliances	—		58.6		58.6		0.2		141.7		141.9
Other	47.4		128.1		175.5		38.7		110.6		149.3
Total	$	1,537.7	$	1,572.0	$	3,109.7	$	1,195.3	$	1,630.3	$	2,825.6


(in millions)	Third quarter ended
	September 30, 2023						September 30, 2022
	HPMC		AA&S		Total		HPMC		AA&S		Total
Primary Geographical Market:
United States	$	242.6	$	314.2	$	556.8	$	221.6	$	395.5	$	617.1
Europe	217.7		49.7		267.4		147.0		53.2		200.2
Asia	37.8		103.4		141.2		60.7		108.9		169.6
Canada	13.1		10.4		23.5		10.0		9.5		19.5
South America, Middle East and other	28.3		8.4		36.7		18.3		7.3		25.6
Total	$	539.5	$	486.1	$	1,025.6	$	457.6	$	574.4	$	1,032.0


(in millions)	Nine months ended
	September 30, 2023						September 30, 2022
	HPMC		AA&S		Total		HPMC		AA&S		Total
Primary Geographical Market:
United States	$	661.1	$	1,052.3	$	1,713.4	$	557.8	$	1,105.6	$	1,663.4
Europe	619.7		137.7		757.4		403.3		140.6		543.9
Asia	132.8		316.4		449.2		155.4		328.4		483.8
Canada	41.7		34.9		76.6		33.0		29.9		62.9
South America, Middle East and other	82.4		30.7		113.1		45.8		25.8		71.6
Total	$	1,537.7	$	1,572.0	$	3,109.7	$	1,195.3	$	1,630.3	$	2,825.6

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


	Third quarter ended
	September 30, 2023						September 30, 2022
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Products and Services:
Nickel-based alloys and specialty alloys	42	%	52	%	47	%	52	%	57	%	54	%
Titanium and titanium-based alloys	24	%	13	%	19	%	16	%	7	%	11	%
Precision forgings, castings and components	33	%	—	%	18	%	32	%	—	%	15	%
Precision rolled strip products	1	%	19	%	9	%	—	%	22	%	12	%
Zirconium and related alloys	—	%	16	%	7	%	—	%	14	%	8	%
Total	100	%	100	%	100	%	100	%	100	%	100	%


	Nine months ended
	September 30, 2023						September 30, 2022
	HPMC		AA&S		Total		HPMC		AA&S		Total
Diversified Products and Services:
Nickel-based alloys and specialty alloys	45	%	56	%	50	%	50	%	55	%	52	%
Precision forgings, castings and components	33	%	—	%	17	%	34	%	—	%	15	%
Titanium and titanium-based alloys	21	%	11	%	16	%	16	%	6	%	11	%
Precision rolled strip products	1	%	18	%	9	%	—	%	25	%	14	%
Zirconium and related alloys	—	%	15	%	8	%	—	%	14	%	8	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

The Company maintained a backlog of confirmed orders totaling $3.6 billion and $2.7 billion at September 30, 2023 and 2022, respectively. Due to the structure of the Company’s long-term agreements, approximately 70% of this backlog at September 30, 2023 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 30, 2023 and December 31, 2022, accounts receivable with customers were $686.7 million and $586.9 million, respectively. The following represents the rollforward of accounts receivable - reserve for doubtful accounts and contract assets and liabilities for the nine months ended September 30, 2023 and 2022:


(in millions)
Accounts Receivable - Reserve for Doubtful Accounts	September 30, 2023		September 30, 2022
Balance as of beginning of fiscal year	$	7.7	$	3.8
Expense to increase the reserve	0.2		0.7
Write-off of uncollectible accounts	(4.2)		(0.6)
Balance as of period end	$	3.7	$	3.9


(in millions)
Contract Assets
Short-term	September 30, 2023		September 30, 2022
Balance as of beginning of fiscal year	$	64.1