Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries, including the Chinese joint venture known as Shanghai STAL Precision Stainless Steel Company Limited (STAL), in which the Company has a
60%
interest. 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. The financial results of STAL are consolidated into the Company’s operating results and financial position, with the
40%
interest of our minority partner recognized in the consolidated statement of operations as net income attributable to noncontrolling interests and as equity attributable to the noncontrolling interest 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), including ATI’s
50%
interest in the industrial titanium joint venture known as Uniti LLC (“Uniti”), are accounted for under the equity method of accounting. Accounts receivable from Uniti were
$1.5 million
and
$0.5 million
at
December 31, 2016
and
2015
, respectively. Significant intercompany accounts and transactions have been eliminated. Unless the context requires otherwise, “Allegheny Technologies,” “ATI” and the “Company” refer to Allegheny Technologies Incorporated and its subsidiaries.
Risks and Uncertainties and Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Management believes that the estimates are reasonable. Certain prior year amounts have been reclassified in order to conform with the
2016
presentation (see Note 5).
The Company markets its products to a diverse customer base, principally throughout the United States. No single customer accounted for more than 10% of sales for any year presented. The principal end markets for the ATI’s products are customers in the aerospace & defense, oil & gas, electrical energy, automotive, construction and mining, food equipment and appliances, and medical markets.
At December 31, 2016, ATI has approximately
8,500
full-time employees, of which approximately
15%
are located outside the United States. Approximately
40%
of ATI’s workforce is covered by various collective bargaining agreements (CBAs), predominantly with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union, AFL-CIO, CLC (USW). The Company has CBAs with approximately
800
full-time employees that expire in 2017.
Cash Equivalents and Investments
Cash equivalents are highly liquid investments valued at cost, which approximates fair value, acquired with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are presented net of a reserve for doubtful accounts of
$7.3 million
and
$4.5 million
at
December 31, 2016
and
2015
, respectively. Trade credit is extended based upon evaluations of each customer’s ability to perform its obligations, which are updated periodically. Accounts receivable reserves are determined based upon an aging of accounts and a review for collectability of specific accounts.
Inventories
Inventories are stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out (FIFO), and average cost methods) or market, less progress payments. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct costs. Most of the Company’s inventory is valued utilizing the LIFO costing methodology. Inventory of the Company’s non-U.S. operations is valued using average cost or FIFO methods.
The Company evaluates product lines on a quarterly basis to identify inventory carrying values that exceed estimated net realizable value. In applying the lower of cost or market principle, market means current replacement cost, subject to a ceiling (market value shall not exceed net realizable value) and a floor (market shall not be less than net realizable value reduced by an allowance for a normal profit margin). The calculation of a resulting reserve, if any, is recognized as an expense in the period
that the need for the reserve is identified. However, in cases where inventory at FIFO cost is lower than the LIFO carrying value, a write-down of the inventory to market may be required, subject to the ceiling and floor. It is the Company’s general policy to write-down to scrap value any inventory that is identified as slow-moving or aged more than twelve months, subject to sales, backlog and anticipated orders considerations. In some instances this aging criterion is up to twenty-four months.
Long-Lived Assets
Property, plant and equipment are recorded at cost, including capitalized interest, and includes long-lived assets acquired under capital leases. The principal method of depreciation adopted for all property placed into service after July 1, 1996 is the straight-line method. For buildings and equipment acquired prior to July 1, 1996, depreciation is computed using a combination of accelerated and straight-line methods. Property, plant and equipment associated with the Company’s Rowley titanium sponge production facility in the High Performance Materials & Components segment (prior to its indefinite idling in August 2016- see Note 17 for further explanation), and the Hot Rolling and Processing Facility (HRPF) in the Flat Rolled Products segment, are being depreciated utilizing the units of production method of depreciation, which the Company believes provides a better matching of costs and revenues. The Company periodically reviews estimates of useful life and production capacity assigned to new and in service assets. Significant enhancements, including major maintenance activities that extend the lives of property and equipment, are capitalized. Costs related to repairs and maintenance are charged to expense in the period incurred. The cost and related accumulated depreciation of property and equipment retired or disposed of are removed from the accounts and any related gains or losses are included in income.
The Company monitors the recoverability of the carrying value of its long-lived assets. An impairment charge is recognized when an indicator of impairment occurs and the expected net undiscounted future cash flows from an asset’s use (including any proceeds from disposition) are less than the asset’s carrying value and the asset’s carrying value exceeds its fair value. Assets to be disposed of by sale are stated at the lower of their fair values or carrying amounts and depreciation is no longer recognized.
Goodwill
Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The review for goodwill impairment requires a comparison of the fair value of each reporting unit that has goodwill associated with its operations with its carrying amount, including goodwill. If this comparison reflects impairment, then the loss would be measured as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities.
Generally accepted accounting standards provide the option to qualitatively assess goodwill for impairment before completing a quantitative assessment. Under the qualitative approach, if, after assessing the totality of events or circumstances, including both macroeconomic, industry and market factors, and entity-specific factors, the Company determines it is likely (more likely than not) that the fair value of a reporting unit is greater than its carrying amount, then the quantitative impairment analysis is not required. The quantitative assessment may be performed each year for a reporting unit at the Company’s option without first performing a qualitative assessment. The Company’s quantitative assessment of goodwill for possible impairment includes estimating the fair market value of a reporting unit which has goodwill associated with its operations using discounted cash flow and multiples of cash earnings valuation techniques, plus valuation comparisons to recent public sale transactions of similar businesses, if any. These impairment assessments and valuation methods require the Company to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital. Many of these assumptions are determined by reference to market participants identified by the Company. Although management believes that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.
Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. While a decline in stock price and market capitalization is not specifically cited as a goodwill impairment indicator, a company’s stock price and market capitalization should be considered in determining whether it is more likely than not that the fair value of a reporting unit is less that its carrying value. Additionally, a significant decline in a company’s stock price may suggest that an adverse change in the business climate may have caused the fair value of one or more reporting units to fall below carrying value. A sustained decline in market capitalization below book value may be determined to require an interim goodwill impairment review.
Environmental
Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve the safety or efficiency of property utilized in current operations are capitalized. Other costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable, but generally not later than the completion of the feasibility study or the
Company’s recommendation of a remedy or commitment to an appropriate plan of action. The accruals are reviewed periodically and, as investigations and remediations proceed, adjustments of the accruals are made to reflect new information as appropriate. Accruals for losses from environmental remediation obligations do not take into account the effects of inflation, and anticipated expenditures are not discounted to their present value. The accruals are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect allocations among potentially responsible parties (PRPs) at Federal Superfund sites or similar state-managed sites after an assessment is made of the likelihood that such parties will fulfill their obligations at such sites and after appropriate cost-sharing or other agreements are entered. The measurement of environmental liabilities by the Company is based on currently available facts, present laws and regulations, and current technology. Such estimates take into consideration the Company’s prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities, and the professional judgment of the Company’s environmental experts in consultation with outside environmental specialists, when necessary.
Foreign Currency Translation
Assets and liabilities of international operations are translated into U.S. dollars using year-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The resulting net translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
Sales Recognition
Sales are recognized when title passes or as services are rendered.
Research and Development
Company funded research and development costs from continuing operations were
$14.7 million
in
2016
,
$14.2 million
in
2015
, and
$17.4 million
in
2014
and were expensed as incurred. Customer funded research and development costs were
$2.2 million
in
2016
,
$1.5 million
in
2015
, and
$2.7 million
in
2014
.
Stock-based Compensation
The Company accounts for stock-based compensation transactions, such as nonvested stock and performance equity awards, using fair value. Compensation expense for an award is estimated at the date of grant and is recognized over the requisite service period. Compensation expense is adjusted for equity awards that do not vest because service or performance conditions are not satisfied. However, compensation expense already recognized is not adjusted if market conditions are not met, such as the Company’s total shareholder return performance relative to a peer group under certain of the Company’s performance equity awards.
Income Taxes
The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback and/or carryforward period available under tax law.
The Company evaluates on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation includes the consideration of all available evidence, both positive and negative, regarding 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.
It is the Company’s policy to classify interest and penalties recognized on underpayment of income taxes as income tax expense.
Net Income Per Common Share
Basic and diluted net income per share are calculated by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding. The calculations of all diluted income/loss per share figures for a period exclude the potentially dilutive effect of dilutive share equivalents if there is a net loss from continuing operations since
the inclusion in the calculation of additional shares in the net loss from continuing operations per share would result in a lower per share loss and therefore be anti-dilutive.
New Accounting Pronouncements Adopted
In December 2016, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to fair value measurement disclosures for investments that calculate net asset value per share. This update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share as a practical expedient. This update also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share as a practical expedient. The adoption of these changes impacts the fair value disclosures presented in Note 12 and requires retrospective application by removing investments measured using net asset value as a practical expedient from the fair value hierarchy in all periods presented.
Pending Accounting Pronouncements
In January 2017, the FASB issued changes to accounting standards to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill, which is currently required if a reporting unit with goodwill fails a Step 1 test comparing the fair value of the reporting unit to its’ carrying value including goodwill. Under this new guidance, an entity should perform its annual, or interim, goodwill impairment test using just the Step 1 test of comparing the fair value of a reporting unit with its carrying amount. Any goodwill impairment, representing the amount by which the carrying amount exceeds the reporting unit’s fair value, is determined using this Step 1 test. Any goodwill impairment loss recognized would not exceed the total carrying amount of goodwill allocated to that reporting unit. This new guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company will early adopt this new guidance in 2017 and does not anticipate that it will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued new guidance to simplify employee share-based payment accounting. The areas for simplification in this guidance involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the consolidated statement of cash flows. This new guidance is effective for the Company’s 2017 fiscal year. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued new guidance on the accounting for leases. This new guidance will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The new lease accounting requirements are effective for the Company’s 2019 fiscal year with a modified retrospective transition approach required, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In July 2015, the FASB issued changes to simplify the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements are effective for the Company’s 2017 fiscal year, and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. This change in the measurement of inventory does not apply to inventory valued on a LIFO basis, which is the accounting basis used for most of the Company’s inventory. The adoption of these changes is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued changes to revenue recognition with customers, which is required to be adopted by the Company in fiscal year 2018. This update provides a five-step analysis of transactions to determine when and how revenue is recognized, along with expanded disclosure requirements. An entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2018. Although the Company is currently evaluating the impact of this standard on individual customer contracts, the Company has evaluated the impact of this standard on the broad categories of its customer contracts, and anticipates the adoption of this guidance will not have a material impact on the consolidated statement of operations but does expect an impact to the consolidated balance sheet for reclassifications to contract assets and liabilities, the magnitude of which is still being determined.
Note 2. Acquisitions
On February 7, 2014, the Company acquired
85%
of Dynamic Flowform Corp. (“Dynamic Flowform”) for
$72.9 million
of cash consideration, net of cash acquired. The Dynamic Flowform acquisition was treated as an asset purchase for tax purposes. The holders of the
15%
noncontrolling interest had a put option requiring the Company to purchase their equity interest, and such interest was purchased by ATI in 2016 (see Note 18 for additional explanation). The Company also incurred
$0.7 million
of pre-tax costs related to the acquisition, consisting primarily of professional fees, which were recorded in selling and administrative expenses in the 2014 consolidated statement of operations.
Based in Billerica, MA, Dynamic Flowform, which has been renamed ATI Flowform Products, uses precision flowforming process technologies to produce thin-walled components in net or near-net shapes across multiple alloy systems, including nickel-based alloys and superalloys, titanium and titanium-based alloys, zirconium alloys, and specialty and stainless alloys. This acquisition has expanded the Company’s capabilities to produce specialty materials parts and components, primarily in the aerospace & defense and oil & gas markets. ATI Flowform Products results are included in the High Performance Materials & Components segment from the date of the acquisition.
The purchase price allocation included technology, trademarks and customer intangible assets of
$21.4 million
, which are being amortized over a
23
year weighted average life, and goodwill of
$46.8 million
, which is deductible for tax purposes. The final allocation of the purchase price was completed in the second quarter of 2014.
In addition, on June 12, 2014, the Company acquired Hanard Machine, Inc. (“Hanard”) for
$20.5 million
of cash consideration, net of cash acquired, including
$20.0 million
paid in 2014 and
$0.5 million
paid in 2015. Located in Salem, OR, Hanard performs precision machining on parts and components made from titanium-based alloys, nickel-based alloys and superalloys, aluminum, specialty steel, and other ferrous and non-ferrous metals. The business operates as ATI Cast Products Salem Operations, and is reported as a part of the High Performance Materials & Components segment from the date of the acquisition. This acquisition has expanded the Company’s capabilities to produce finished specialty materials parts and components and reinforces the Company’s important aerospace supply chain role. The purchase price allocation included technology and customer intangible assets of
$4.3 million
, which are being amortized over a
20
year life, and goodwill of
$8.4 million
, which is deductible for tax purposes. The final allocation of the purchase price was completed in the second quarter of 2015.
Pro forma financial information has not been included because these acquisitions did not meet certain significance thresholds individually or in the aggregate.
Note 3. Discontinued Operations
In April 2014, the Company announced the closure of its iron castings business, as the divestiture of this business through a sale process on commercially acceptable terms was unlikely to be successful. The orderly wind-down of operations was completed by the end of the third quarter 2014. The closure of the iron castings business resulted in
$1.8 million
of cash exit costs in 2014, primarily related to severance benefits, of which
$1.0 million
was paid in 2014 and
$0.8 million
was paid in 2015.
The operating results of the iron castings business have been included in discontinued operations in the Company’s consolidated statements of operations for all periods presented. Results of discontinued operations for 2014 include
$1.8 million
pre-tax of charges associated with the iron castings closure.
The following table presents summarized results for these discontinued operations (in millions):
|
|
|
|
|
|
2014
|
Sales
|
$
|
14.9
|
|
Loss before income taxes
|
$
|
(0.9
|
)
|
Note 4. Inventories
Inventories at
December 31, 2016
and
2015
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Raw materials and supplies
|
|
$
|
149.6
|
|
|
$
|
216.0
|
|
Work-in-process
|
|
837.9
|
|
|
990.3
|
|
Finished goods
|
|
161.7
|
|
|
184.1
|
|
Total inventories at current cost
|
|
1,149.2
|
|
|
1,390.4
|
|
Adjustment from current cost to LIFO cost basis
|
|
97.3
|
|
|
136.4
|
|
Inventory valuation reserves
|
|
(169.0
|
)
|
|
(206.3
|
)
|
Progress payments
|
|
(40.5
|
)
|
|
(48.9
|
)
|
Total inventories, net
|
|
$
|
1,037.0
|
|
|
$
|
1,271.6
|
|
Inventories, before progress payments, determined on the LIFO method were
$736.3 million
at
December 31, 2016
, and
$992.0 million
at
December 31, 2015
. The remainder of the inventory was determined using the FIFO and average cost methods, and these inventory values do not differ materially from current cost. Due to deflationary impacts primarily related to raw materials, the carrying value of the Company’s inventory as valued on LIFO exceeds current replacement cost, and based on a lower of cost or market value analysis, a net realizable value (NRV) inventory reserve is required. In applying the lower of cost or market principle, market means current replacement cost, subject to a ceiling (market value shall not exceed net realizable value) and a floor (market shall not exceed net realizable value reduced by an allowance for a normal profit margin). Impacts to cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31,
|
|
|
2016
|
2015
|
2014
|
LIFO benefit (charge)
|
|
$
|
(39.1
|
)
|
$
|
131.6
|
|
$
|
(24.7
|
)
|
NRV benefit (charge)
|
|
39.9
|
|
(131.5
|
)
|
25.0
|
|
Net cost of sales impact
|
|
$
|
0.8
|
|
$
|
0.1
|
|
$
|
0.3
|
|
During
2016
and
2015
, inventory usage resulted in liquidations of LIFO inventory quantities, increasing cost of sales by
$61.5 million
and
$9.6 million
, respectively. These inventories were carried at differing costs prevailing in prior years as compared with the cost of current manufacturing cost and purchases. There were
no
LIFO liquidations in 2014.
The results for fiscal years
2016
,
2015
and
2014
included
$17.7 million
,
$24.5 million
and
$23.2 million
, respectively, in inventory valuation charges related to the market-based valuation of titanium products. Additionally, in the third quarter of 2016, in conjunction with the indefinite idling of the Company’s Rowley, UT titanium sponge facility (see Note 17 for further explanation), an additional
$11.3 million
charge was taken to revalue titanium sponge inventory based on revised assessments of industrial grade titanium market conditions and expected utilization of this inventory. In December 2015, based on current market prices for non-premium quality (PQ) grades of titanium sponge, the Company recorded an additional
$25.4 million
charge to revalue this inventory. This charge included revised assessments of the non-PQ titanium market conditions and expected utilization of this inventory.
Note 5. Property, Plant and Equipment
Property, plant and equipment at
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
Land
|
|
$
|
31.4
|
|
|
$
|
31.0
|
|
Buildings
|
|
829.6
|
|
|
1,026.6
|
|
Equipment and leasehold improvements
|
|
3,497.2
|
|
|
3,701.5
|
|
|
|
4,358.2
|
|
|
4,759.1
|
|
Accumulated depreciation and amortization
|
|
(1,859.3
|
)
|
|
(1,830.9
|
)
|
Total property, plant and equipment, net
|
|
$
|
2,498.9
|
|
|
$
|
2,928.2
|
|
The 2015 balances were reclassified to conform to the 2016 presentation to remove the original historical costs of buildings and equipment and accumulated depreciation balances for previously impaired assets related to the Flat Rolled Products business segment. There was no change in net property, plant and equipment as a result of this reclassification.
Construction in progress at
December 31, 2016
and
2015
was
$87.4 million
and
$119.6 million
, respectively. Capital expenditures on the consolidated statement of cash flows for the year ended
December 31, 2015
exclude
$35.4 million
of completion payments that were included in property, plant and equipment and accrued at
December 31, 2015
. Depreciation and amortization from continuing operations for the years ended
December 31, 2016
,
2015
and
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Depreciation of property, plant and equipment
|
|
$
|
141.9
|
|
|
$
|
159.6
|
|
|
$
|
146.7
|
|
Software and other amortization
|
|
28.4
|
|
|
30.3
|
|
|
29.9
|
|
Total depreciation and amortization
|
|
$
|
170.3
|
|
|
$
|
189.9
|
|
|
$
|
176.6
|
|
Note 6. Goodwill and Other Intangible Assets
At
December 31, 2016
, the Company had
$641.9 million
of goodwill on its consolidated balance sheet, all of which relates to the High Performance Materials & Components (HPMC) segment. Goodwill decreased
$9.5 million
in
2016
as a result of 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. Quantitative goodwill assessments were performed for all reporting units in 2016. In order to validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization was performed using a reasonable control premium.
No
impairments were determined to exist for the years ended December 31, 2016 and 2014. The HPMC segment has
three
reporting units with goodwill. For the 2016 evaluation, one reporting unit with goodwill of
$470.8 million
has a fair value that exceeds carrying value by
14%
, and one reporting unit with goodwill of
$114.4 million
has a fair value that exceeds carrying value by
12%
. The third HPMC reporting unit with
$56.7 million
of goodwill has a fair value significantly in excess of carrying value.
As a result of the annual goodwill impairment evaluations in 2015, the Company determined that the fair value of the Flat Rolled Products business was below carrying value, including goodwill. During the fourth quarter of 2015, the Company recorded a
$126.6 million
pre-tax impairment charge to write-off all the goodwill in the Flat Rolled Products segment. This was due to challenging market conditions in 2015 in this business, primarily impacting commodity stainless flat-rolled products. This goodwill impairment charge was excluded from the Flat Rolled Products 2015 business segment results. Accumulated impairment losses as of December 31, 2016 and 2015 were
$126.6 million
.
Other intangible assets, which are included in Other assets on the accompanying consolidated balance sheets as of
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
(in millions)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
Technology
|
|
$
|
91.4
|
|
|
$
|
(23.0
|
)
|
|
$
|
91.4
|
|
|
$
|
(18.6
|
)
|
Customer relationships
|
|
35.7
|
|
|
(7.6
|
)
|
|
35.7
|
|
|
(6.2
|
)
|
Trademarks
|
|
64.6
|
|
|
(12.9
|
)
|
|
64.6
|
|
|
(8.6
|
)
|
Total amortizable intangible assets
|
|
$
|
191.7
|
|
|
$
|
(43.5
|
)
|
|
$
|
191.7
|
|
|
$
|
(33.4
|
)
|
Amortization expense from continuing operations related to intangible assets was approximately
$10.0 million
for the years ended
December 31, 2016
,
2015
and
2014
. For each of the years ending December 31, 2017 through 2021, annual amortization expense is expected to be approximately
$10.0 million
.
Note 7. Asset Retirement Obligations
The Company maintains reserves where a legal obligation exists to perform an asset retirement activity and the fair value of the liability can be reasonably estimated. These asset retirement obligations (AROs) include liabilities where the timing and (or) method of settlement may be conditional on a future event, that may or may not be within the control of the entity. At
December 31, 2016
, the Company had recognized AROs of
$23.3 million
related to landfill closures, decommissioning costs, facility leases and conditional AROs associated with manufacturing activities using what may be characterized as potentially hazardous materials.
Estimates of AROs are evaluated annually in the fourth quarter, or more frequently if material new information becomes known. Accounting for asset retirement obligations requires significant estimation and in certain cases, the Company has determined that an ARO exists, but the amount of the obligation is not reasonably estimable. The Company may determine that additional AROs are required to be recognized as new information becomes available.
Changes in asset retirement obligations for the years ended
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
Balance at beginning of year
|
|
$
|
25.0
|
|
|
$
|
25.4
|
|
Accretion expense
|
|
0.7
|
|
|
0.6
|
|
Payments
|
|
(2.0
|
)
|
|
(0.8
|
)
|
Revision of estimates
|
|
(0.4
|
)
|
|
(0.2
|
)
|
Balance at end of year
|
|
$
|
23.3
|
|
|
$
|
25.0
|
|
Note 8. Supplemental Financial Statement Information
Cash and cash equivalents at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
Cash
|
|
$
|
164.1
|
|
|
$
|
149.3
|
|
Other short-term investments
|
|
65.5
|
|
|
0.5
|
|
Total cash and cash equivalents
|
|
$
|
229.6
|
|
|
$
|
149.8
|
|
Accounts receivable are presented net of a reserve for doubtful accounts of
$7.3 million
at
December 31, 2016
, and
$4.5 million
at
December 31, 2015
. During
2016
, the Company recognized expense of
$4.8 million
to increase the reserve for doubtful accounts and wrote off
$2.0 million
of uncollectible accounts, which decreased the reserve. During
2015
, the Company recognized expense of
$1.1 million
to increase the reserve for doubtful accounts and wrote off
$1.4 million
of uncollectible accounts, which decreased the reserve. During
2014
, the Company recognized expense of
$0.5 million
to increase the reserve for doubtful accounts and wrote off
$1.0 million
of uncollectible accounts, which decreased the reserve.
Accrued liabilities included salaries, wages and other payroll-related liabilities of
$54.6 million
and
$50.9 million
and accrued interest of
$40.4 million
and
$31.4 million
at
December 31, 2016
and
2015
, respectively.
Other income (expense) from continuing operations for the years ended
December 31, 2016
,
2015
, and
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Rent and royalty income
|
|
$
|
1.4
|
|
|
$
|
2.0
|
|
|
$
|
4.0
|
|
Net gains on property and investments
|
|
1.0
|
|
|
—
|
|
|
0.1
|
|
Other
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
Total other income, net
|
|
$
|
2.4
|
|
|
$
|
1.6
|
|
|
$
|
4.1
|
|
Note 9. Debt
Debt at
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
Allegheny Technologies $500 million 5.875% Senior Notes due 2023 (a)
|
|
$
|
500.0
|
|
|
$
|
500.0
|
|
Allegheny Technologies $500 million 5.95% Senior Notes due 2021
|
|
500.0
|
|
|
500.0
|
|
Allegheny Technologies $350 million 9.375% Senior Notes due 2019
|
|
350.0
|
|
|
350.0
|
|
Allegheny Technologies $287.5 million 4.75% Convertible Senior Notes due 2022
|
|
287.5
|
|
|
—
|
|
Allegheny Ludlum 6.95% Debentures due 2025
|
|
150.0
|
|
|
150.0
|
|
Term Loan due 2017
|
|
100.0
|
|
|
—
|
|
U.S. revolving credit facility
|
|
—
|
|
|
—
|
|
Foreign credit agreements
|
|
4.4
|
|
|
1.4
|
|
Industrial revenue bonds, due through 2020, and other
|
|
2.2
|
|
|
3.8
|
|
Debt issuance costs
|
|
(17.1
|
)
|
|
(9.5
|
)
|
Total short-term and long-term debt
|
|
1,877.0
|
|
|
1,495.7
|
|
Short-term debt and current portion of long-term debt
|
|
105.1
|
|
|
3.9
|
|
Total long-term debt
|
|
$
|
1,771.9
|
|
|
$
|
1,491.8
|
|
|
|
(a)
|
Bearing interest at
7.875%
effective February 15, 2016.
|
Interest expense was
$125.4 million
in
2016
,
$111.4 million
in
2015
, and
$109.8 million
in
2014
. Interest expense was reduced by
$4.7 million
,
$2.2 million
, and
$5.3 million
, in
2016
,
2015
, and
2014
, respectively, from interest capitalization on capital projects. Interest and commitment fees paid were
$127.2 million
in
2016
,
$113.4 million
in
2015
, and
$113.2 million
in
2014
. Net interest expense includes interest income of
$1.4 million
in
2016
,
$1.2 million
in
2015
, and
$1.1 million
in
2014
.
Scheduled principal payments during the next five years are
$105.8 million
in 2017,
$0.7 million
in 2018,
$350.2 million
in 2019,
no
payments in 2020, and
$500.0 million
payments in 2021.
2023 Notes
The stated interest rate payable on the
5.875%
Senior Notes due 2023 (2023 Notes) is subject to adjustment in the event of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s (S&P). Each notch of credit rating downgrade from the credit ratings in effect when the 2023 Notes were issued in July 2013 increases interest expense by
0.25%
on the 2023 Notes, up to a maximum
4
notches by each of the two rating agencies, or a total
2.0%
potential interest rate change up to
7.875%
.
In February 2016, the 2023 Notes reset one notch to the maximum
7.875%
annual interest rate as a result of a credit rating downgrade by S&P, which resulted in an additional
$1.3 million
of interest expense measured on an annual basis, compared to 2015. Credit rating downgrades in 2015 raised the annual interest expense on the 2023 Notes by
$4.1 million
compared to 2014. Any further credit rating downgrades have no effect on the interest rate of the 2023 Notes, and increases in the Company’s credit ratings from these ratings agencies would reduce interest expense incrementally on the 2023 Notes to the original
5.875%
interest rate in a similar manner.
Credit Agreements
On September 23, 2015, the Company entered into a
$400 million
Asset Based Lending (ABL) Revolving Credit Facility, which includes a letter of credit sub-facility of up to
$200 million
. The ABL facility replaced a
$400 million
revolving credit facility originally entered into on July 31, 2007 (as amended, the “Prior Credit Facility”). Costs associated with entering into the ABL facility were
$1.5 million
, and are being amortized to interest expense over the
5
-year term of the facility. The ABL facility matures in September 2020 and is collateralized by the accounts receivable and inventory of the Company’s domestic operations.
In May 2016, the ABL facility was amended to add an eighteen-month term loan (Term Loan) in the amount of
$100.0 million
million, to support the Company’s restructuring actions and operational needs, and to amend certain of the ABL covenants and related defined terms. The interest rate on this Term Loan is
3.5%
plus a LIBOR spread. Costs associated with amending the ABL facility were
$0.9 million
, and are being amortized to interest expense over the term of the facility. Proceeds of the Term Loan were used to pay down outstanding borrowings under the revolving credit portion of the ABL facility. The Term Loan is due on November 13, 2017 and can be prepaid in its entirety on a one-time basis on or after May 13, 2017 if certain minimum
liquidity conditions are satisfied. The underwriting fees and other third-party expenses for the issuance of the Term Loan were
$1.0 million
and are being amortized to interest expense over the eighteen-month term of the loan.
As amended, the applicable interest rate for borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between
2.0%
and
2.5%
for LIBOR-based borrowings and between
1.0%
and
1.5%
for base rate borrowings. As amended, 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 facility is less than the greater of (i)
12.5%
of the then applicable maximum borrowing amount or (ii)
$40.0 million
. The Company does not meet this required fixed charge coverage ratio at December 31, 2016. As a result, the Company is not able to access this remaining
12.5%
or
$62.5 million
of the ABL facility until it meets the required ratio. Additionally, the Company must demonstrate liquidity, as calculated in accordance with the terms of the agreement, of at least
$500 million
on the date that is
91
days prior to June 1, 2019, the maturity date of the
9.375%
Senior Notes due 2019, and that such liquidity is available at all times thereafter until the
9.375%
Senior Notes due 2019 are paid in full or refinanced. There were
no
outstanding revolving credit borrowings under the ABL facility as of December 31, 2016, and
$25.9 million
was utilized to support the issuance of letters of credit. Average revolving credit borrowings under the ABL facility for the fiscal year ended December 31, 2016 were
$82 million
, bearing an average annual interest rate of
1.757%
. Average borrowings under the ABL and the Prior Credit Facility for the fiscal year ended December 31, 2015 were
$61 million
, bearing an average annual interest rate of
2.0%
.
Convertible Notes
In May 2016, the Company issued and sold
$250 million
aggregate principal amount of
4.75%
Convertible Senior Notes due 2022 (2022 Convertible Notes). The Company granted the underwriters a 30-day option to purchase up to an additional
$37.5 million
aggregate principal amount of 2022 Convertible Notes on the same terms and conditions to cover over-allotments, if any. On June 1, 2016, the Company announced that the underwriters exercised this option in full and on June 2, 2016, the Company completed the offering and sale of the additional
$37.5 million
aggregate principal amount of 2022 Convertible Notes. Interest on the 2022 Convertible Notes is payable in cash semi-annually in arrears on each January 1 and July 1, commencing January 1, 2017. The Company used a portion of the proceeds from the 2022 Convertible Notes to make a
$115 million
contribution in July 2016 to the Company’s U.S. defined benefit pension plan, and expects to use additional 2022 Convertible Note proceeds to meet future pension funding requirements. The underwriting fees and other third-party expense for the issuance of the 2022 Convertible Notes were
$9.4 million
and are being amortized to interest expense over the
6
-year term of the 2022 Convertible Notes.
The Company does not have the right to redeem the 2022 Convertible Notes prior to their stated maturity date. Holders of the 2022 Convertible Notes have the option to convert their notes into shares of the Company’s common stock, at any time prior to the close of business on the business day immediately preceding the stated maturity date (July 1, 2022). The initial conversion rate for the 2022 Convertible Notes is
69.2042
shares of ATI common stock per
$1,000
(in whole dollars) principal amount of Notes (
19.9 million
shares), equivalent to conversion price of
$14.45
per share, subject to adjustment in certain events. Other than receiving cash in lieu of fractional shares, holders do not have the option to receive cash instead of shares of common stock upon conversion. Accrued and unpaid interest that exists upon conversion of a note will be deemed paid by the delivery of shares of ATI common stock and no cash payment or additional shares will be given to the holders.
If the Company undergoes a fundamental change, holders of the 2022 Convertible Notes may require the Company to repurchase the notes in whole or in part for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the repurchase date.
In June 2009, ATI issued
$402.5 million
in aggregate principal amount of
4.25%
Convertible Senior Notes due 2014 (2014 Convertible Notes). Interest was payable semi-annually on June 1 and December 1 of each year. The 2014 Convertible Notes were unsecured and unsubordinated obligations of the Company and ranked equally with all of its existing and future senior unsecured debt. On June 2, 2014, the Company repaid the remaining
$397.5 million
outstanding of the 2014 Convertible Notes. Holders of the 2014 Convertible Notes had the option to convert their notes into shares of ATI common stock at any time prior to the close of business on the second scheduled trading day immediately preceding the June 1, 2014 maturity date. Prior to the maturity date,
$5.0 million
of the 2014 Convertible Notes were converted into
120,476
shares of ATI common stock. The conversion rate for the 2014 Convertible Notes was
23.9263
shares of ATI common stock per
$1,000
principal amount of 2014 Convertible Notes, equivalent to a conversion price of approximately
$41.795
per share. Other than receiving cash in lieu of fractional shares, holders did not have the option to receive cash instead of shares of common stock upon conversion.
Ladish Notes
In conjunction with the acquisition of Ladish Co., Inc. (“Ladish”, now ATI Ladish LLC) in May 2011, the Company assumed the Series B and Series C Notes previously issued by Ladish. During 2015, the Company prepaid
$5.7 million
in aggregate principal amount of its
6.14%
ATI Ladish Series B senior notes due May 16, 2016, representing all of the remaining outstanding Series B Notes. Also during 2015, the Company repaid the
$10.0 million
aggregate principal amount of its outstanding
6.41%
ATI Ladish Series C senior notes, due September 2, 2015.
Foreign and Other Credit Facilities
The Company has an additional separate credit facility for the issuance of letters of credit. As of
December 31, 2016
,
$17 million
in letters of credit were outstanding under this facility.
STAL, the Company’s Chinese joint venture company in which ATI has a
60%
interest, has a separate
$20 million
revolving credit facility entered into in April 2015. Borrowings under the STAL revolving credit facility are in U.S. dollars based on U.S. interbank offered rates. The credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners. The credit facility requires STAL to maintain a minimum level of shareholders’ equity, and certain financial ratios.
The Company has no off-balance sheet financing relationships as defined in Item 303(a)(4) of SEC Regulation S-K, with variable interest entities, structured finance entities, or any other unconsolidated entities. At
December 31, 2016
, the Company had not guaranteed any third-party indebtedness.
Note 10. Derivative Financial Instruments and Hedging
As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges. In general, hedge effectiveness is determined by examining the relationship between offsetting changes in fair value or cash flows attributable to the item being hedged, and the financial instrument being used for the hedge. Effectiveness is measured utilizing regression analysis and other techniques to determine whether the change in the fair market value or cash flows of the derivative exceeds the change in fair value or cash flow of the hedged item. Calculated ineffectiveness, if any, is immediately recognized on the statement of operations.
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 accounted for as cash flow hedges, the price of the item being hedged is fixed at the time that the contract is entered into and the Company is obligated to make or receive a payment equal to the net change between this fixed price and the market price at the date the contract matures.
The majority of ATI’s products are sold utilizing raw material surcharges and index mechanisms. However, as of
December 31, 2016
, 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
28 million
pounds of nickel with hedge dates through
2021
. The aggregate notional amount hedged is approximately
35%
of a single year’s estimated nickel raw material purchase requirements.
At
December 31, 2016
, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas hedges. During the fiscal years ended
December 31, 2016
and 2015, due to changes in expected operating levels, the Company concluded that portions of these natural gas cash flow hedges for 2016 and the first quarter 2017 were ineffective based on forecast changes in underlying natural gas usage. The Company recognized
$1.3 million
and
$3.3 million
of pre-tax losses for the ineffective portion of these cash flow hedges for the years ended
December 31, 2016
and 2015, respectively, which is reported in selling and administrative expenses on the consolidated statement of operations. Approximately
90%
of the Company’s annual forecasted domestic requirements for natural gas for 2017 and approximately
25%
for 2018 are hedged.
While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk, primarily euros. In addition, the Company may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions.
During the fiscal year ended
December 31, 2015
, the Company net settled
211.9 million
euro notional value of foreign currency forward contracts designated as cash flow hedges with 2016 and 2017 maturity dates, receiving cash proceeds of
$56.5 million
which is reported in cash provided by operating activities on the consolidated statement of cash flows. In the fourth quarter 2015, due to management actions in the Flat Rolled Products segment to de-emphasize commodity stainless steel sheet products in 2016, the Company concluded that a portion of these settled euro cash flow hedges for 2016 were ineffective based on forecast changes for euro-denominated sales. The Company recognized a
$14.3 million
pre-tax gain for the ineffective portion of these cash flow hedges, which is reported in selling and administrative expenses on the consolidated statement of operations for the year ended
December 31, 2015
. The portion of the deferred gains on these settled cash flow hedges determined to be effective is currently recognized in accumulated other comprehensive income and will be reclassified to earnings when the underlying transactions occur. In 2015, the Company entered into
244.7 million
euro notional value of foreign currency forward contracts designated as fair value hedges with 2015, 2016 and 2017 maturity dates to replace a portion of the settled euro cash flow hedges, of which
43.2 million
and
139.2 million
euro notional values were outstanding as of December 31, 2016 and 2015, respectively. The Company recorded benefits of
$1.0 million
and
$9.0 million
in costs of sales on the consolidated statement of operations during the fiscal years ended
December 31, 2016
and
2015
, respectively, for maturities and mark-to-market changes on these fair value hedges.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. There were no unsettled derivative financial instruments related to debt balances for the periods presented.
There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts were substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible.
The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterpart or by type of item hedged. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data.
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
Asset derivatives
|
|
Balance sheet location
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
2.4
|
|
|
$
|
1.6
|
|
Natural gas contracts
|
|
Prepaid expenses and other current assets
|
|
0.2
|
|
|
—
|
|
Nickel and other raw material contracts
|
|
Prepaid expenses and other current assets
|
|
2.2
|
|
|
—
|
|
Foreign exchange contracts
|
|
Other assets
|
|
0.2
|
|
|
0.4
|
|
Natural gas contracts
|
|
Other assets
|
|
0.2
|
|
|
—
|
|
Nickel and other raw material contracts
|
|
Other assets
|
|
3.3
|
|
|
—
|
|
Total derivatives designated as hedging instruments:
|
|
|
|
8.5
|
|
|
2.0
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
0.6
|
|
|
0.4
|
|
Total derivatives not designated as hedging instruments:
|
|
0.6
|
|
|
0.4
|
|
Total asset derivatives
|
|
|
|
$
|
9.1
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
Liability derivatives
|
|
Balance sheet location
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Natural gas contracts
|
|
Accrued liabilities
|
|
$
|
2.5
|
|
|
$
|
17.3
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
—
|
|
|
0.1
|
|
Nickel and other raw material contracts
|
|
Accrued liabilities
|
|
6.7
|
|
|
22.2
|
|
Foreign exchange contracts
|
|
Other long-term liabilities
|
|
0.1
|
|
|
0.1
|
|
Natural gas contracts
|
|
Other long-term liabilities
|
|
—
|
|
|
8.5
|
|
Nickel and other raw material contracts
|
|
Other long-term liabilities
|
|
9.4
|
|
|
23.0
|
|
Total liability derivatives
|
|
|
|
18.7
|
|
|
71.2
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
—
|
|
|
0.1
|
|
Total derivatives not designated as hedging instruments:
|
|
—
|
|
|
0.1
|
|
Total liability derivatives
|
|
|
|
$
|
18.7
|
|
|
$
|
71.3
|
|
For derivative financial instruments that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period results. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes, excluding any impacts of changes to income tax valuation allowances affecting results of operations or other comprehensive income (see Note 13 for further explanation).
Assuming market prices remain constant with those at
December 31, 2016
, a loss of
$2.7 million
, net of tax and excluding income tax valuation allowance changes, is expected to be recognized over the next 12 months.
Activity with regard to derivatives designated as cash flow hedges for the year ended
December 31, 2016
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
(Effective Portion)
|
|
Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion) (a)
|
|
Amount of Gain (Loss)
Recognized in Income
on Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing) (b)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Nickel and other raw material contracts
|
|
$
|
9.4
|
|
|
$
|
(34.2
|
)
|
|
$
|
(12.1
|
)
|
|
$
|
(10.5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Natural gas contracts
|
|
3.8
|
|
|
(14.1
|
)
|
|
(8.4
|
)
|
|
(9.2
|
)
|
|
(0.8
|
)
|
|
(2.1
|
)
|
Electricity contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
Foreign exchange contracts
|
|
—
|
|
|
27.6
|
|
|
16.4
|
|
|
24.3
|
|
|
—
|
|
|
8.9
|
|
Total
|
|
$
|
13.2
|
|
|
$
|
(20.7
|
)
|
|
$
|
(4.1
|
)
|
|
$
|
4.5
|
|
|
$
|
(0.8
|
)
|
|
$
|
6.8
|
|
|
|
(a)
|
The gains (losses) reclassified from accumulated OCI into income related to the effective portion of the derivatives are presented in cost of sales in the same period or periods in which the hedged item affects earnings.
|
|
|
(b)
|
The gains (losses) recognized in income on derivatives related to the ineffective portion and the amount excluded from effectiveness testing are presented in selling and administrative expenses.
|
The disclosures of gains or losses presented above for nickel and other raw material contracts and foreign currency contracts do not take into account the anticipated underlying transactions. Since these derivative contracts represent hedges, the net effect of any gain or loss on results of operations may be fully or partially offset.
The Company has
10 million
euro notional value outstanding as of
December 31, 2016
of foreign currency forward contracts not designated as hedges, with maturity dates into the second quarter of 2017. These derivatives that are not designated as hedging instruments were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Amount of Gain (Loss) Recognized
in Income on Derivatives
|
Derivatives Not Designated as Hedging Instruments
|
|
2016
|
|
2015
|
Foreign exchange contracts
|
|
$
|
(0.2
|
)
|
|
$
|
3.9
|
|
Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales.
Note 11. Fair Value of Financial Instruments
The estimated fair value of financial instruments at
December 31, 2016
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
|
|
$
|
229.6
|
|
|
$
|
229.6
|
|
|
$
|
229.6
|
|
|
$
|
—
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Assets
|
|
9.1
|
|
|
9.1
|
|
|
—
|
|
|
9.1
|
|
Liabilities
|
|
18.7
|
|
|
18.7
|
|
|
—
|
|
|
18.7
|
|
Debt (a)
|
|
1,894.1
|
|
|
1,975.0
|
|
|
1,868.4
|
|
|
106.6
|
|
The estimated fair value of financial instruments at
December 31, 2015
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
|
|
$
|
149.8
|
|
|
$
|
149.8
|
|
|
$
|
149.8
|
|
|
$
|
—
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Assets
|
|
2.4
|
|
|
2.4
|
|
|
—
|
|
|
2.4
|
|
Liabilities
|
|
71.3
|
|
|
71.3
|
|
|
—
|
|
|
71.3
|
|
Debt (a)
|
|
1,505.2
|
|
|
969.7
|
|
|
964.5
|
|
|
5.2
|
|
|
|
(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
2016
or
2015
.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents: Fair values were determined using Level 1 information.
Derivative financial instruments: Fair values for derivatives were measured using exchange-traded prices for the hedged items. The fair value was determined using Level 2 information, including consideration of counterparty risk and the Company’s credit risk.
Short-term and long-term debt: The fair values of the Allegheny Technologies
9.375%
Senior Notes due 2019, the Allegheny Technologies
5.95%
Senior Notes due 2021, the Allegheny Technologies
4.75%
Convertible Senior Notes due 2022, the Allegheny Technologies
5.875%
Senior Notes due 2023 and the Allegheny Ludlum
6.95%
Debentures due 2025 were determined using Level 1 information. The fair values of other short-term and long-term debt were determined using Level 2 information.
Note 12. 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. defined benefit pension plans in accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code (“Code”).
The Company also sponsors several postretirement plans covering certain collectively-bargained salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most retiree health care plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution.
In December 2014, the Company announced several significant changes to its retirement benefit programs. These changes are part of the Company’s ongoing initiatives to create an integrated and aligned business with a market competitive, cost competitive, and consistent health, welfare and retirement benefit structure across its operations. These changes included:
|
|
•
|
Freezing all future benefit accruals to the ATI Pension Plan, its U.S. qualified defined benefit pension plan, and to the Company’s non-qualified defined benefit pension plans, including the executive Supplemental Pension Plan, effective December 31, 2014.
|
|
|
•
|
Implementing a consistent defined contribution retirement plan with a base
6.5%
company contribution and up to
3%
in Company matching contributions across all U.S. operations effective January 1, 2015.
|
|
|
•
|
Ending Company-provided salaried retiree life insurance benefits effective January 1, 2015.
|
|
|
•
|
Ending all remaining Company-provided salaried retiree medical benefits on January 1, 2016. The salaried retiree medical benefit plan being ended was assumed as part of the 2011 Ladish acquisition. Certain participants in the retiree medical plan had transition provisions through the end of 2016.
|
|
|
•
|
These changes to pension, retiree life insurance and medical benefits do not affect benefits for those employees or retirees covered by collective bargaining contracts or other contractual employment agreements.
|
In 2016, additional changes to the Company’s retirement benefit programs were as follows:
|
|
•
|
On March 4, 2016, the Company announced that it had reached a four-year labor agreement with the USW covering USW-represented employees of its ATI Flat Rolled Products business unit and at two locations in the High Performance Materials & Components business segment. The new labor agreement included a freeze to new entrants to the ATI Pension Plan, the elimination of defined benefit retiree healthcare for new employees, and changes in the levels of profit-based contributions for retiree medical benefits. New hires covered by the new labor agreement participate in a defined contribution plan for both retirement savings and retiree medical benefits.
|
|
|
•
|
In 2016, ATI divested approximately
3,700
retirees from the ATI Pension Plan through an annuity buy-out of small pension balances, reducing future administrative costs to the Plan.
|
|
|
•
|
Closure of the U.K. pension plan to future accruals for service and pay (hard freeze) effective January 31, 2017.
|
Costs for defined contribution retirement plans were
$34.5 million
in
2016
,
$41.2 million
in
2015
, and
$21.9 million
in
2014
. Company contributions to these defined contribution plans are funded with cash. The increases in Company contributions in 2016 and 2015 compared to 2014 were the result of the implementation of the Company’s defined contribution retirement plan across all U.S. operations in 2015 in conjunction with the freeze of the ATI Pension Plan. Other postretirement benefit costs for a defined contribution plan were
$2.6 million
for the fiscal year ended December 31, 2014.
The components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Service cost—benefits earned during the year
|
|
$
|
20.6
|
|
|
$
|
22.8
|
|
|
$
|
29.4
|
|
|
$
|
2.6
|
|
|
$
|
2.7
|
|
|
$
|
2.9
|
|
Interest cost on benefits earned in prior years
|
|
125.4
|
|
|
121.0
|
|
|
133.6
|
|
|
16.0
|
|
|
17.9
|
|
|
24.0
|
|
Expected return on plan assets
|
|
(148.7
|
)
|
|
(168.3
|
)
|
|
(184.2
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
Amortization of prior service cost (credit)
|
|
1.3
|
|
|
1.3
|
|
|
2.3
|
|
|
(1.7
|
)
|
|
4.9
|
|
|
(3.0
|
)
|
Amortization of net actuarial loss
|
|
65.4
|
|
|
60.4
|
|
|
74.0
|
|
|
9.6
|
|
|
14.6
|
|
|
14.1
|
|
Curtailment (gain) loss
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
(25.5
|
)
|
Termination benefits
|
|
1.1
|
|
|
—
|
|
|
0.3
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
Total retirement benefit expense
|
|
$
|
65.1
|
|
|
$
|
37.2
|
|
|
$
|
55.9
|
|
|
$
|
28.7
|
|
|
$
|
40.0
|
|
|
$
|
12.2
|
|
The curtailment loss for pension benefits recorded in 2014 relates to unamortized prior service cost recognized as a result of the freezing of pension benefit accruals in the fourth quarter of 2014, as discussed above. The curtailment gain for other postretirement benefits recorded in 2014 relates to the changes to salaried retiree life insurance and medical benefits in the fourth quarter of 2014, as discussed above. Special termination benefits recorded in 2016 related to both pension and other postretirement benefits for USW-represented employees associated with the permanent idling of the Flat Rolled Products segment’s Midland, PA commodity stainless melt and finishing operations and Bagdad, PA GOES finishing facility that occurred in the fourth quarter of 2016, and these costs were reported in restructuring charges in the consolidated statement of operations and for segment reporting (see Notes 16 and 17). Special termination benefits recorded in 2014 relate to an early retirement benefit in the Forged Products business.
Actuarial assumptions used to develop the components of defined benefit pension expense and other postretirement benefit expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount rate (a)
|
|
4.65
|
%
|
|
4.25
|
%
|
|
5.15
|
%
|
|
4.05 - 4.50%
|
|
|
4.10
|
%
|
|
5.15
|
%
|
Rate of increase in future compensation levels
|
|
3.0 - 3.50%
|
|
|
3.0 - 3.50%
|
|
|
3.0 - 3.50%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expected long-term rate of return on assets
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.25
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
8.3
|
%
|
|
|
(a)
|
Other post-retirement benefits expense for 2016 was initially measured at a
4.50%
discount rate. A portion of the obligation was remeasured using a
4.05%
discount rate as of March 1, 2016, following the new USW labor agreement discussed above.
|
Actuarial assumptions used for the valuation of defined benefit pension and other postretirement benefit obligations at the end of the respective periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rate
|
|
4.45
|
%
|
|
4.65
|
%
|
|
4.35
|
%
|
|
4.50
|
%
|
Rate of increase in future compensation levels
|
|
1.0
|
%
|
|
3.0 - 3.5%
|
|
|
—
|
|
|
—
|
|
A reconciliation of the funded status for the Company’s defined benefit pension and other postretirement benefit plans at
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
2,805.9
|
|
|
$
|
2,953.9
|
|
|
$
|
400.8
|
|
|
$
|
466.1
|
|
Service cost
|
|
20.6
|
|
|
22.8
|
|
|
2.6
|
|
|
2.7
|
|
Interest cost
|
|
125.4
|
|
|
121.0
|
|
|
16.0
|
|
|
17.9
|
|
Benefits paid
|
|
(255.4
|
)
|
|
(207.4
|
)
|
|
(47.7
|
)
|
|
(53.4
|
)
|
Subsidy paid
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
0.7
|
|
Participant contributions
|
|
0.2
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Effect of currency rates
|
|
(17.3
|
)
|
|
(4.8
|
)
|
|
—
|
|
|
—
|
|
Net actuarial (gains) losses – discount rate change
|
|
57.8
|
|
|
(124.4
|
)
|
|
4.6
|
|
|
(14.1
|
)
|
– other
|
|
(3.9
|
)
|
|
44.5
|
|
|
(2.1
|
)
|
|
(19.1
|
)
|
Plan curtailments
|
|
(6.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
(22.5
|
)
|
|
—
|
|
Special termination benefits
|
|
1.1
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
Benefit obligation at end of year
|
|
$
|
2,727.7
|
|
|
$
|
2,805.9
|
|
|
$
|
354.8
|
|
|
$
|
400.8
|
|
A
$6.7 million
plan curtailment for pension benefits as a result of the hard freeze of the U.K. pension plan reduced the pension benefit obligation in 2016. Plan amendments as a result of changes to retirement benefit programs in the 2016 USW labor agreement reduced the other postretirement benefits obligation by
$22.5 million
in 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
1,962.3
|
|
|
$
|
2,204.4
|
|
|
$
|
1.8
|
|
|
$
|
2.9
|
|
Actual returns on plan assets and plan expenses
|
|
79.7
|
|
|
(41.1
|
)
|
|
(0.8
|
)
|
|
(1.0
|
)
|
Employer contributions
|
|
125.1
|
|
|
10.3
|
|
|
—
|
|
|
—
|
|
Participant contributions
|
|
0.2
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Effect of currency rates
|
|
(17.3
|
)
|
|
(4.2
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(255.4
|
)
|
|
(207.4
|
)
|
|
(0.3
|
)
|
|
(0.1
|
)
|
Fair value of plan assets at end of year
|
|
$
|
1,894.6
|
|
|
$
|
1,962.3
|
|
|
$
|
0.7
|
|
|
$
|
1.8
|
|
Benefits paid in 2016 include
$47 million
for the annuity buyout of small pension balances in the ATI Pension Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Current liabilities
|
|
$
|
(5.2
|
)
|
|
$
|
(9.8
|
)
|
|
$
|
(36.4
|
)
|
|
$
|
(39.8
|
)
|
Noncurrent liabilities
|
|
(827.9
|
)
|
|
(833.8
|
)
|
|
(317.7
|
)
|
|
(359.2
|
)
|
Total amount recognized
|
|
$
|
(833.1
|
)
|
|
$
|
(843.6
|
)
|
|
$
|
(354.1
|
)
|
|
$
|
(399.0
|
)
|
Changes to accumulated other comprehensive loss related to pension and other postretirement benefit plans in
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Beginning of year accumulated other comprehensive loss
|
|
$
|
(1,418.2
|
)
|
|
$
|
(1,352.1
|
)
|
|
$
|
(101.4
|
)
|
|
$
|
(152.9
|
)
|
Amortization of net actuarial loss
|
|
65.4
|
|
|
60.4
|
|
|
9.6
|
|
|
14.6
|
|
Amortization of prior service cost (credit)
|
|
1.3
|
|
|
1.3
|
|
|
(1.7
|
)
|
|
4.9
|
|
Remeasurements
|
|
(111.2
|
)
|
|
(127.8
|
)
|
|
19.1
|
|
|
32.0
|
|
End of year accumulated other comprehensive loss
|
|
$
|
(1,462.7
|
)
|
|
$
|
(1,418.2
|
)
|
|
$
|
(74.4
|
)
|
|
$
|
(101.4
|
)
|
Net change in accumulated other comprehensive loss
|
|
$
|
(44.5
|
)
|
|
$
|
(66.1
|
)
|
|
$
|
27.0
|
|
|
$
|
51.5
|
|
Amounts included in accumulated other comprehensive loss at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Prior service (cost) credit
|
|
$
|
(2.3
|
)
|
|
$
|
(3.6
|
)
|
|
$
|
14.6
|
|
|
$
|
(6.9
|
)
|
Net actuarial loss
|
|
(1,460.4
|
)
|
|
(1,414.6
|
)
|
|
(89.0
|
)
|
|
(94.5
|
)
|
Accumulated other comprehensive loss
|
|
(1,462.7
|
)
|
|
(1,418.2
|
)
|
|
(74.4
|
)
|
|
(101.4
|
)
|
Deferred tax effect
|
|
543.4
|
|
|
529.9
|
|
|
28.2
|
|
|
38.5
|
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
(919.3
|
)
|
|
$
|
(888.3
|
)
|
|
$
|
(46.2
|
)
|
|
$
|
(62.9
|
)
|
Amounts in accumulated other comprehensive loss presented above do not include any effects of deferred tax asset valuation allowances. See Note 13 for further discussion on deferred tax asset valuation allowances.
Retirement benefit expense for
2017
for defined benefit plans is estimated to be approximately
$71 million
, comprised of
$48 million
for pension expense and
$23 million
of expense for other postretirement benefits. Amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost in
2017
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
Total
|
Amortization of prior service cost (credit)
|
|
$
|
1.3
|
|
|
$
|
(2.9
|
)
|
|
$
|
(1.6
|
)
|
Amortization of net actuarial loss
|
|
62.6
|
|
|
9.0
|
|
|
71.6
|
|
Amortization of accumulated other comprehensive loss
|
|
$
|
63.9
|
|
|
$
|
6.1
|
|
|
$
|
70.0
|
|
The accumulated benefit obligation for all defined benefit pension plans was
$2,710.7 million
and
$2,767.0 million
at
December 31, 2016
and
2015
, respectively. Additional information for pension plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
(In millions)
|
|
2016
|
|
2015
|
Projected benefit obligation
|
|
$
|
2,727.7
|
|
|
$
|
2,805.9
|
|
Accumulated benefit obligation
|
|
$
|
2,710.7
|
|
|
$
|
2,767.0
|
|
Fair value of plan assets
|
|
$
|
1,894.6
|
|
|
$
|
1,962.3
|
|
In July 2016, the Company made a
$115 million
contribution to the ATI Pension Plan to improve the plan’s funded position. Based upon current regulations and actuarial studies, the Company expects to be required to make a
$135 million
cash contribution to the ATI Pension Plan for
2017
. In addition, for
2017
, the Company expects to fund benefits of approximately
$10 million
for its U.S. nonqualified benefit pension plans and its U.K. defined benefit plan.
The following table summarizes expected benefit payments from the Company’s various pension and other postretirement defined benefit plans through 2026, and also includes estimated Medicare Part D subsidies projected to be received during this period based on currently available information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
Medicare Part
D Subsidy
|
2017
|
|
$
|
194.7
|
|
|
$
|
37.1
|
|
|
$
|
1.0
|
|
2018
|
|
191.8
|
|
|
35.1
|
|
|
1.0
|
|
2019
|
|
189.6
|
|
|
32.6
|
|
|
0.9
|
|
2020
|
|
188.3
|
|
|
30.6
|
|
|
0.9
|
|
2021
|
|
186.5
|
|
|
29.1
|
|
|
0.8
|
|
2022 - 2026
|
|
901.5
|
|
|
121.8
|
|
|
3.5
|
|
The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans was
7.2%
in
2017
and is assumed to gradually decrease to
4.5%
in the year
2038
and remain at that level thereafter. Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans, however, the Company’s contributions for most of its’ retiree health plans are capped based on a fixed premium amount, which limits the impact of future health care cost increases. A one percentage point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
One
Percentage
Point
Increase
|
|
One
Percentage
Point
Decrease
|
Effect on total of service and interest cost components for the year ended December 31, 2016
|
|
$
|
0.3
|
|
|
$
|
(0.3
|
)
|
Effect on other postretirement benefit obligation at December 31, 2016
|
|
$
|
6.9
|
|
|
$
|
(6.1
|
)
|
The plan assets for the ATI Pension Plan represent approximately
96%
of total pension plan assets at
December 31, 2016
. The ATI Pension Plan invests in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include U.S. domestic equities, developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, floating rate debt and real estate. The Company
continually monitors the investment results of these asset classes and its fund managers, and explores other potential asset classes for possible future investment.
ATI Pension Plan assets at
December 31, 2016
and
2015
included
3.0 million
shares of ATI common stock with a fair value of
$47.1 million
and
$33.2 million
, respectively. Dividends of
$0.7 million
and
$1.8 million
were received by the ATI Pension Plan in
2016
and
2015
, respectively, on the ATI common stock held by this plan.
The fair values of the Company’s pension plan assets are determined using net asset value (NAV) as a practical expedient, or by information categorized in the fair value hierarchy level based on the inputs used to determine fair value, as further discussed in Note 11. The fair values at
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Observable Inputs
|
|
Significant
Unobservable Inputs
|
Asset category
|
|
Total
|
|
NAV
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
ATI common stock
|
|
$
|
47.1
|
|
|
$
|
—
|
|
|
$
|
47.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other U.S. equities
|
|
311.1
|
|
|
204.0
|
|
|
107.1
|
|
|
—
|
|
|
—
|
|
International equities
|
|
375.7
|
|
|
339.2
|
|
|
36.5
|
|
|
—
|
|
|
—
|
|
Global debt securities and cash:
|
|
|
|
|
|
|
|
|
|
|
Fixed income and cash equivalents
|
|
412.2
|
|
|
82.3
|
|
|
0.5
|
|
|
329.2
|
|
|
0.2
|
|
Floating rate
|
|
164.0
|
|
|
64.9
|
|
|
—
|
|
|
—
|
|
|
99.1
|
|
Private equity
|
|
204.1
|
|
|
204.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Hedge funds
|
|
283.9
|
|
|
283.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate and other
|
|
96.5
|
|
|
91.5
|
|
|
—
|
|
|
5.0
|
|
|
—
|
|
Total assets
|
|
$
|
1,894.6
|
|
|
$
|
1,269.9
|
|
|
$
|
191.2
|
|
|
$
|
334.2
|
|
|
$
|
99.3
|
|
The fair values of the Company’s pension plan assets at
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Observable Inputs
|
|
Significant
Unobservable Inputs
|
Asset category
|
|
Total
|
|
NAV
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
ATI common stock
|
|
$
|
33.2
|
|
|
$
|
—
|
|
|
$
|
33.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other U.S. equities
|
|
522.0
|
|
|
267.9
|
|
|
254.1
|
|
|
—
|
|
|
—
|
|
International equities
|
|
239.8
|
|
|
239.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Global debt securities and cash:
|
|
|
|
|
|
|
|
|
|
|
Fixed income and cash equivalents
|
|
369.7
|
|
|
249.0
|
|
|
0.2
|
|
|
120.2
|
|
|
0.3
|
|
Floating rate
|
|
358.0
|
|
|
52.7
|
|
|
—
|
|
|
—
|
|
|
305.3
|
|
Private equity
|
|
201.2
|
|
|
201.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Hedge funds
|
|
51.9
|
|
|
51.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate and other
|
|
186.5
|
|
|
180.6
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
Total assets
|
|
$
|
1,962.3
|
|
|
$
|
1,243.1
|
|
|
$
|
287.5
|
|
|
$
|
126.1
|
|
|
$
|
305.6
|
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments in U.S. and International equities, and Fixed Income are predominantly held in common/collective trust funds and registered investment companies. These investments are public investment vehicles valued using the net asset value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. These investments are not classified in the fair value hierarchy in accordance with the new accounting guidance effective in December 2016. In addition, some fixed income instruments are investments in debt instruments that are valued using external pricing vendors and are classified within Level 2 of the fair value hierarchy.
Floating interest rate global debt instruments are both domestic and foreign and include first lien debt, second lien debt and structured finance obligations, among others. These instruments are generally illiquid and classified within Level 3 of the valuation hierarchy, as the valuations are based on significant unobservable inputs. In some cases, these instruments are valued using NAV and are not classified in the fair value hierarchy in accordance with the new accounting guidance effective in December 2016.
Private equity investments include both Direct Funds and Fund-of-Funds. Direct Funds are investments in Limited Partnership (LP) interests. Fund-of-Funds are investments in private equity funds that invest in other private equity funds or LPs. Fair value of these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy in accordance with the new accounting guidance effective in December 2016.
Hedge fund investments are made either (1) as a limited partner in a portfolio of underlying hedge funds managed by a general partner or (2) through commingled institutional funds (CIFs) that in-turn invest in various portfolios of hedge funds whereby the allocation of the Plan’s investments to each CIF is managed by a third party Investment Manager. Fair value of these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy in accordance with the new accounting guidance effective in December 2016.
Real estate investments are made either (1) as a limited partner in a portfolio of properties managed by a general partner or (2) through a CIF that invests in a portfolio of real estate funds. Fair value of these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy in accordance with the new accounting guidance effective in December 2016.
For certain investments which have formal financial valuations reported on a one-quarter lag, fair value is determined utilizing net asset values adjusted for subsequent cash flows, estimated financial performance and other significant events.
Changes in the fair value of Level 3 pension plan assets for the year ended
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
January 1,
2016 Balance
|
|
Net Realized
and Unrealized
Gains (Losses)
|
|
Net Purchases,
Issuances and
Settlements
|
|
Net Transfers
Into (Out Of)
Level 3
|
|
December 31,
2016 Balance
|
Global debt securities and cash:
|
|
|
|
|
|
|
|
|
|
|
Fixed income and cash equivalents
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
0.2
|
|
Floating rate debt
|
|
305.3
|
|
|
12.1
|
|
|
(218.3
|
)
|
|
—
|
|
|
99.1
|
|
Total
|
|
$
|
305.6
|
|
|
$
|
12.1
|
|
|
$
|
(218.4
|
)
|
|
$
|
—
|
|
|
$
|
99.3
|
|
Changes in the fair value of Level 3 pension plan assets for the year ended
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
January 1,
2015 Balance
|
|
Net Realized
and Unrealized
Gains (Losses)
|
|
Net Purchases,
Issuances and
Settlements
|
|
Net Transfers
Into (Out Of)
Level 3
|
|
December 31,
2015 Balance
|
Global debt securities and cash:
|
|
|
|
|
|
|
|
|
|
|
Fixed income and cash equivalents
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
Floating rate debt
|
|
361.0
|
|
|
4.4
|
|
|
(60.1
|
)
|
|
—
|
|
|
305.3
|
|
Total
|
|
$
|
361.3
|
|
|
$
|
4.4
|
|
|
$
|
(60.1
|
)
|
|
$
|
—
|
|
|
$
|
305.6
|
|
For
2017
, the expected long-term rate of returns on defined benefit pension assets will be
7.75%
. In developing the expected long-term rate of return assumptions, the Company evaluated input from its third party pension plan asset managers and actuaries, including reviews of their asset class return expectations and long-term inflation assumptions. The expected long-term rate of return is based on expected asset allocations within ranges for each investment category, and includes consideration of both historical and projected annual compound returns, weighted on a 65%/35% basis, respectively. The Company’s actual returns on pension assets for the last five years have been
5.3%
for
2016
,
(1.2)%
for
2015
,
6.5%
for
2014
,
14.3%
for
2013
, and
8.0%
for
2012
.
The target asset allocations for pension plans for
2017
, by major investment category, are:
|
|
|
|
Asset category
|
|
Target asset allocation range
|
Equity securities:
|
|
|
U. S. equities
|
|
18% - 40%
|
International equities
|
|
10% - 30%
|
Global debt securities and cash
|
|
15% - 40%
|
Private equity
|
|
0% - 15%
|
Hedge funds
|
|
10% - 20%
|
Real estate and other
|
|
0% - 10%
|
As of December 31, 2016, the ATI Pension Plan has outstanding commitments to invest up to
$124 million
in global debt securities,
$102 million
in private equity investments, and
$11 million
in real estate investments. These commitments are expected to be satisfied through the reallocation of pension trust assets while maintaining investments within the target asset allocation ranges.
At
December 31, 2016
, other postretirement benefit plan assets of
$0.7 million
are primarily invested in private equity investments, which are classified as Level 3 in the valuation hierarchy, as the valuations are substantially based upon unobservable information. For
2017
, the expected long-term rate of returns on these other postretirement benefit assets will be
4.0%
.
The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of single-employer plans, in the following respects:
|
|
a.
|
Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
|
|
|
b.
|
If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
|
|
c.
|
If the Company ceases to have an obligation to contribute to the multiemployer plan in which it had been a contributing employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability.
|
The Company’s participation in multiemployer plans for the years ended
December 31, 2016
,
2015
and
2014
is reported in the following table. The Company’s contributions to the Steelworkers Western Independent Shops Pension Plan exceed
5%
of this plan’s total contributions for the plan year ended September 30, 2015, which is the most recent information available from the Plan Administrator.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Protection Act
Zone Status (1)
|
|
FIP / RP Status
Pending /
Implemented (2)
|
|
in millions
|
|
|
|
Expiration Dates
of Collective
Bargaining
Agreements
|
|
|
EIN / Pension
Plan Number
|
|
|
|
Company Contributions
|
|
Surcharge
Imposed (3)
|
|
Pension Fund
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Steelworkers Western Independent Shops Pension Plan
|
|
90-0169564
/ 001
|
|
Green
|
|
Green
|
|
N/A
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
$
|
1.1
|
|
|
No
|
|
2/29/2020
|
Boilermakers-Blacksmiths National Pension Trust
|
|
48-6168020
/ 001
|
|
Yellow
|
|
Yellow
|
|
Yes
|
|
1.8
|
|
|
1.8
|
|
|
2.0
|
|
|
No
|
|
9/30/2018
|
IAM National Pension Fund
|
|
51-6031295
/ 002
|
|
Green
|
|
Green
|
|
N/A
|
|
1.6
|
|
|
1.5
|
|
|
1.6
|
|
|
No
|
|
Various between 2018-2022 (4)
|
Total contributions
|
|
|
|
|
|
|
|
|
|
$
|
4.6
|
|
|
$
|
4.0
|
|
|
$
|
4.7
|
|
|
|
|
|
|
|
(1)
|
The most recent Pension Protection Act Zone Status available for ATI’s fiscal years
2016
and
2015
is for plan years ending in calendar years
2015
and
2014
, respectively. The zone status is based on information provided to ATI and other participating employers by each plan and is certified by the plan’s actuary. A plan in the “red” zone had been determined to be in “critical status”, based on criteria established by the Code, and is generally less than
65%
funded. A plan in the
|
“yellow” zone has been determined to be in “endangered status”, based on criteria established under the Code, and is generally less than
80%
funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status”, and is generally at least
80%
funded.
|
|
(2)
|
The “FIP / RP Status Pending / Implemented” column indicates whether a Funding Improvement Plan, as required under the Code by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the plan year that ended in
2016
.
|
|
|
(3)
|
The “Surcharge Imposed” column indicates whether ATI’s contribution rate for
2016
included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”, in accordance with the requirements of the Code.
|
|
|
(4)
|
The Company is party to five separate bargaining agreements that require contributions to this plan. Expiration dates of these collective bargaining agreements range between April 22, 2018 and March 25, 2022.
|
Note 13. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) (AOCI) by component, net of tax, for the fiscal years ended
December 31, 2016
,
2015
and
2014
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
retirement
benefit plans
|
|
Currency
translation
adjustment
|
|
Unrealized
holding gains
on securities
|
|
Derivatives
|
|
|
Deferred Tax Asset Valuation Allowance
|
|
Total
|
Attributable to ATI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
$
|
(718.9
|
)
|
|
$
|
15.3
|
|
|
$
|
—
|
|
|
$
|
(9.6
|
)
|
|
$
|
—
|
|
|
$
|
(713.2
|
)
|
OCI before reclassifications
|
|
(266.4
|
)
|
|
|
(32.0
|
)
|
|
|
—
|
|
|
|
28.1
|
|
|
|
—
|
|
|
(270.3
|
)
|
Amounts reclassified from AOCI
|
(a)
|
53.8
|
|
|
(b)
|
0.5
|
|
|
(c)
|
—
|
|
|
(d)
|
(2.2
|
)
|
|
|
—
|
|
|
52.1
|
|
Net current-period OCI
|
|
(212.6
|
)
|
|
|
(31.5
|
)
|
|
|
—
|
|
|
|
25.9
|
|
|
|
—
|
|
|
(218.2
|
)
|
Balance, December 31, 2014
|
|
(931.5
|
)
|
|
|
(16.2
|
)
|
|
|
—
|
|
|
|
16.3
|
|
|
|
—
|
|
|
(931.4
|
)
|
OCI before reclassifications
|
|
(69.6
|
)
|
|
|
(31.4
|
)
|
|
|
—
|
|
|
|
(20.7
|
)
|
|
|
—
|
|
|
(121.7
|
)
|
Amounts reclassified from AOCI
|
(a)
|
49.9
|
|
|
(c)
|
—
|
|
|
(c)
|
—
|
|
|
(d)
|
(11.3
|
)
|
|
|
—
|
|
|
38.6
|
|
Net current-period OCI
|
|
(19.7
|
)
|
|
|
(31.4
|
)
|
|
|
—
|
|
|
|
(32.0
|
)
|
|
|
—
|
|
|
(83.1
|
)
|
Balance, December 31, 2015
|
|
(951.2
|
)
|
|
|
(47.6
|
)
|
|
|
—
|
|
|
|
(15.7
|
)
|
|
|
—
|
|
|
(1,014.5
|
)
|
OCI before reclassifications
|
|
(60.6
|
)
|
|
|
(37.4
|
)
|
|
|
—
|
|
|
|
13.2
|
|
|
|
(45.6
|
)
|
|
(130.4
|
)
|
Amounts reclassified from AOCI
|
(a)
|
46.3
|
|
|
(c)
|
—
|
|
|
(c)
|
—
|
|
|
(d)
|
4.9
|
|
|
|
—
|
|
|
51.2
|
|
Net current-period OCI
|
|
(14.3
|
)
|
|
|
(37.4
|
)
|
|
|
—
|
|
|
|
18.1
|
|
|
|
(45.6
|
)
|
|
(79.2
|
)
|
Balance, December 31, 2016
|
$
|
(965.5
|
)
|
|
$
|
(85.0
|
)
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
(45.6
|
)
|
|
$
|
(1,093.7
|
)
|
Attributable to noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
$
|
—
|
|
|
$
|
27.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27.1
|
|
OCI before reclassifications
|
|
—
|
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2.1
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(c)
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Net current-period OCI
|
|
—
|
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2.1
|
)
|
Balance, December 31, 2014
|
|
—
|
|
|
|
25.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
25.0
|
|
OCI before reclassifications
|
|
—
|
|
|
|
(5.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(5.6
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(c)
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Net current-period OCI
|
|
—
|
|
|
|
(5.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(5.6
|
)
|
Balance, December 31, 2015
|
|
—
|
|
|
|
19.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
19.4
|
|
OCI before reclassifications
|
|
—
|
|
|
|
(9.7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(9.7
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(c)
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Net current-period OCI
|
|
—
|
|
|
|
(9.7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(9.7
|
)
|
Balance, December 31, 2016
|
$
|
—
|
|
|
$
|
9.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.7
|
|
|
|
(a)
|
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12).
|
|
|
(b)
|
Amount in 2014 is included in other income, net.
|
|
|
(c)
|
No amounts were reclassified to earnings.
|
|
|
(d)
|
Amounts related to the effective portion of the derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the ineffective portion of the derivatives are presented in selling and administrative expenses on the consolidated statements of operations (see Note 10).
|
Other comprehensive income (loss) amounts (OCI) reported above by category are net of applicable income tax expense (benefit) for each year presented. Income tax expense (benefit) on OCI items is recorded as a change in a deferred tax asset or liability. Amounts recognized in OCI in 2016 include the impact of any deferred tax asset valuation allowances resulting from the Company’s three year cumulative loss position (see Note 15 for further explanation), primarily relating to remeasurement of the Company’s postretirement benefit plans, which increased deferred tax assets. Foreign currency translation adjustments, including those pertaining to noncontrolling interests, are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.
Reclassifications out of AOCI for the fiscal years ended
December 31, 2016
,
2015
and
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI (d)
|
|
|
|
|
|
Fiscal year ended
|
|
|
|
Details about AOCI Components
(In millions)
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
Affected line item in the
consolidated statement of operations
|
Postretirement benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit (cost)
|
|
$
|
0.4
|
|
|
(a)
|
|
$
|
(6.2
|
)
|
(a)
|
$
|
0.7
|
|
(a)
|
|
|
Actuarial losses
|
|
(75.0
|
)
|
|
(a)
|
|
(75.0
|
)
|
(a)
|
(88.1
|
)
|
(a)
|
|
|
|
|
(74.6
|
)
|
|
(d)
|
|
(81.2
|
)
|
(d)
|
(87.4
|
)
|
(d)
|
|
Total before tax
|
|
|
(28.3
|
)
|
|
|
|
(31.3
|
)
|
|
(33.6
|
)
|
|
|
Tax benefit (e)
|
|
|
$
|
(46.3
|
)
|
|
|
|
$
|
(49.9
|
)
|
|
$
|
(53.8
|
)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
$
|
—
|
|
|
(d)
|
|
$
|
—
|
|
(d)
|
$
|
(0.5
|
)
|
(b) , (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Nickel and other raw material contracts
|
|
$
|
(19.5
|
)
|
|
(c)
|
|
$
|
(16.9
|
)
|
(c)
|
$
|
(1.0
|
)
|
(c)
|
|
|
Natural gas contracts
|
|
(14.8
|
)
|
|
(c)
|
|
(18.2
|
)
|
(c)
|
3.4
|
|
(c)
|
|
|
Electricity contracts
|
|
—
|
|
|
(c)
|
|
(0.2
|
)
|
(c)
|
0.7
|
|
(c)
|
|
|
Foreign exchange contracts
|
|
26.4
|
|
|
(c)
|
|
53.5
|
|
(c)
|
0.5
|
|
(c)
|
|
|
|
|
(7.9
|
)
|
|
(d)
|
|
18.2
|
|
(d)
|
3.6
|
|
(d)
|
|
Total before tax
|
|
|
(3.0
|
)
|
|
|
|
6.9
|
|
|
1.4
|
|
|
|
Tax provision (benefit) (e)
|
|
|
$
|
(4.9
|
)
|
|
|
|
$
|
11.3
|
|
|
$
|
2.2
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses. For additional information, see Note 12.
|
|
|
(b)
|
Amount in 2014 is included in other income, net.
|
|
|
(c)
|
Amounts related to the effective portion of the derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the ineffective portion of the derivatives are presented in selling and administrative expenses on the consolidated statements of operations (see Note 10).
|
|
|
(d)
|
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.
|
|
|
(e)
|
These amounts exclude the impact of any deferred tax asset valuation allowances (see Note 15 for further explanation).
|
Note 14. Stockholders’ Equity
Preferred Stock
Authorized preferred stock may be issued in one or more series, with designations, powers and preferences as shall be designated by the Board of Directors. At
December 31, 2016
, there were
no
shares of preferred stock issued.
Share-based Compensation
During 2007, the Company adopted the Allegheny Technologies Incorporated 2007 Incentive Plan (the “2007 Incentive Plan”), which was amended and restated in 2010 and further amended in 2012. During 2015, the Company adopted the Allegheny Technologies Incorporated 2015 Incentive Plan (the “2015 Incentive Plan”). Upon adoption of the 2015 Incentive Plan, the 2007 Incentive Plan was terminated, although outstanding awards under the 2007 Incentive Plan remain in effect in accordance with their respective terms. Awards earned under the Company’s share-based incentive compensation programs are generally paid with shares held in treasury, if sufficient treasury shares are held, and any additional required share payments are made with newly issued shares. At
December 31, 2016
,
1.4 million
shares of common stock were available for future awards under the 2015 Incentive Plan. The general terms of each arrangement granted under the 2007 Incentive Plan or the 2015 Incentive Plan, and predecessor plans, the method of estimating fair value for each arrangement, and award activity is reported below.
In 2016, the Company implemented a new share-based incentive compensation program, the Long-Term Incentive Plan (LTIP). The LTIP consists of both Restricted Share Units (RSU) and Performance Share Units (PSU).
For years prior to 2016, the Company’s two principal share-based incentive compensation programs were the Performance/Restricted Stock Program (PRSP) of nonvested stock awards and the Long-Term Performance Plan (LTPP). The LTPP was adopted in 2014 and included performance shares under the Total Shareholder Return (TSR) portion and nonvested stock awards under the Long-Term Shareholder Value (LTSV) portion.
Nonvested stock awards/units:
Restricted Share Units:
In 2016, awards of RSUs were granted to employees, with service conditions. RSUs are rights to receive shares of Company stock when the award vests. The RSUs vest over three years based on employment service, with one-third of the award vesting on each of the first, second and third anniversaries of the grant date. No dividends are accumulated or paid on the RSUs. The fair value of the RSU award is measured based on the stock price at the grant date. In 2016,
587,661
RSUs were awarded to employees under the LTIP.
Nonvested stock awards:
Prior to 2016, awards of nonvested stock were granted to employees under the PRSP, with either performance and/or service conditions. Awards of nonvested stock are also granted to non-employee directors, with service conditions. For nonvested stock awards, dividend equivalents, whether in stock or cash form, accumulate but are not paid until the underlying award vests.
LTSV awards vest at the end of a
three
-year measurement period subject to the achievement, in whole or in part, of specified operational goals. As of December 31, 2016,
85%
of the operational goals for the 2015 LTSV award were expected to be attained. All of the operational goals for the 2014 LTSV award were attained at December 31, 2016 and
116,989
shares vested.
The fair value of nonvested stock awards is measured based on the stock price at the grant date, adjusted for non-participating dividends, as applicable, based on the current dividend rate. For nonvested stock awards to employees in 2012, 2013, 2014 and 2015 under the Company’s PRSP, one-half of the nonvested stock (“performance shares”) vests only on the attainment of an income target, measured cumulatively over a
three
-year period. The remaining nonvested stock awarded to most employees under the 2015 PRSP vests over a service period of
three
years; for certain senior executives this service period is
five
years for the 2015 award. The remaining PRSP nonvested stock awarded to employees under the 2012, 2013 and 2014 vests over a service period of
five
years, with accelerated vesting to
three
years if the performance shares’ vesting criterion is attained. Expense for each of these awards is recognized based on estimates of attaining the performance criterion, including estimated forfeitures. The
three
-year cumulative income statement metrics for the 2012, 2013 and 2014 PRSP awards were not met, and performance share forfeitures were
171,083
shares,
244,899
shares and
214,571
shares, respectively. Vesting of the remaining portions of the 2012, 2013 and 2014 PRSP awards continues over the
five
-year service periods through February 2017, 2018 and 2019, respectively. The income target for 2015 PRSP award is not expected to be attained for the performance shares, therefore, no expense was recognized on the performance shares. Expense for the remaining nonvested stock under the 2015 PRSP award is recognized on a straight line basis over the applicable
three
or
five
-year service periods.
Compensation expense in continuing operations related to all nonvested stock awards and units was
$11.2 million
in
2016
,
$5.5 million
in
2015
, and
$2.4 million
in
2014
. Reduced compensation expense in 2015 and 2014 is primarily the result of changes in estimates that PRSP award performance shares would vest. Approximately
$12.9 million
of unrecognized fair value compensation expense relating to nonvested stock awards and restricted stock units is expected to be recognized through 2020, including
$9.5 million
expected to be recognized in 2017, based on estimates of attaining nonvested stock award performance vesting criteria and estimated service period forfeitures. Activity under the Company’s nonvested stock awards and restricted share units for the years ended
December 31, 2016
,
2015
, and
2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in thousands, $ in millions)
|
|
2016
|
|
2015
|
|
2014
|
|
|
Number of
shares/units
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
shares
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Number of
shares
|
|
Weighted
Average Grant
Date Fair
Value
|
Nonvested, beginning of year
|
|
1,652
|
|
|
$
|
57.0
|
|
|
1,376
|
|
|
$
|
47.8
|
|
|
927
|
|
|
$
|
36.9
|
|
Granted
|
|
682
|
|
|
8.4
|
|
|
669
|
|
|
20.8
|
|
|
675
|
|
|
20.3
|
|
Vested
|
|
(154
|
)
|
|
(4.3
|
)
|
|
(23
|
)
|
|
(0.8
|
)
|
|
(18
|
)
|
|
(1.0
|
)
|
Forfeited
|
|
(328
|
)
|
|
(9.6
|
)
|
|
(370
|
)
|
|
(10.8
|
)
|
|
(208
|
)
|
|
(8.4
|
)
|
Nonvested, end of year
|
|
1,852
|
|
|
$
|
51.5
|
|
|
1,652
|
|
|
$
|
57.0
|
|
|
1,376
|
|
|
$
|
47.8
|
|
Performance awards:
Performance Share Units:
PSU award opportunities are determined at a target number of shares, and the number of shares awarded is based on attainment of two ATI financial performance metrics measuring (1) net income to ATI and (2) return on invested capital, over a
three
-year performance period. For certain senior executives, the number of PSUs to be awarded based on the performance criteria is modified up or down by
20%
based on the Company’s relative total shareholder return over the performance measurement period (“TSR Modifier”), but not above the maximum number of PSUs to be vested. The TSR Modifier is measured as the return of the Company’s stock price (including assumed dividend reinvestment, if any) at the end of the performance period as compared to the stock prices (including assumed dividend reinvestment, if any) of a group of industry peers. The fair value of the PSU award is measured based on the stock price at the grant date, including the effect of the TSR Modifier. The fair value of the TSR Modifier is estimated using Monte Carlo simulations of stock price correlation, projected dividend yields and other variables over a
three
-year time horizon matching the TSR performance measurement period.
In 2016, the Company established the 2016 PSU award, with
936,558
share units at the target level, equal to a grant date fair value of
$10.6 million
, including estimated forfeitures. The 2016 PSU performance and share units have a threshold attainment of
25%
and a maximum attainment of
150%
of the target financial performance metrics and target share units, measured over fiscal years 2016-2018. A maximum of
1.4 million
shares have been reserved for issuance for the 2016 PSU award, to the
150%
attainment level, and aggregate compensation expense recognized over the
three
year performance period could range from
zero
to
$15.9 million
, including estimated forfeitures, based on the actual financial performance attained. Compensation expense for the PSUs during the performance period is recognized based on estimates of attaining the performance criteria, including estimated forfeitures, which is evaluated on a quarterly basis. The Company recognized
$1.9 million
of compensation expense in 2016 for this PSU award, and currently estimates achieving performance attainment for the 2016 PSU award between the threshold and target levels, with
$3.9 million
of unrecognized compensation expense remaining for the 2016 PSU award, including estimated forfeitures, which is expected to be recognized over the remaining performance period through fiscal year 2018.
Total Shareholder Return:
Award opportunities under the TSR portion of the formerly-used LTPP incentive compensation program are determined at a target number of shares, and performance equity awards pay out based on the measured return of the Company’s stock price and dividend performance at the end of
three
-year periods as compared to the stock price and dividend performance of a group of industry peers. A maximum of
1.28 million
shares have been reserved for issuance for award periods under the TSR. The actual number of shares awarded at the end of the performance measurement period may range from a minimum of
zero
to a maximum of
two
times target. Fair values for these performance awards were estimated using Monte Carlo simulations of stock price correlation, projected dividend yields and other variables over
three
-year time horizons matching the total shareholder return performance measurement periods. Compensation expense from continuing operations was
$6.6 million
in
2016
,
$10.6 million
in
2015
, and
$9.8 million
in
2014
for the TSR awards.
The estimated fair value of each TSR award, the projected shares to be awarded and future compensation expense to be recognized for these awards, including actual and estimated forfeitures, was as follows:
(Shares in thousands, $ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR Award Performance Period
|
|
Award
Fair Value
|
|
December 31, 2016
Unrecognized
Compensation
Expense
|
|
Minimum
Shares
|
|
Target
Shares
|
|
Maximum
Shares
|
2014 - 2016
|
|
$
|
8.9
|
|
|
$
|
—
|
|
|
—
|
|
|
262
|
|
|
524
|
|
2015 - 2017
|
|
$
|
12.5
|
|
|
4.2
|
|
|
—
|
|
|
276
|
|
|
552
|
|
Total
|
|
|
|
$
|
4.2
|
|
|
—
|
|
|
538
|
|
|
1,076
|
|
An award was earned for the 2014-2016 TSR performance period based on the Company’s stock price and dividend performance for the
three
-year period ended
December 31, 2016
relative to the peer group, which results in the issuance of
164,988
shares of stock to participants in the 2017 first quarter.
Undistributed Earnings of Investees
Stockholders’ equity includes undistributed earnings of investees accounted for under the equity method of accounting of approximately
$9 million
at
December 31, 2016
.
Note 15. Income Taxes
Income (loss) from continuing operations before income taxes for the Company’s U.S. and non-U.S. operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
U.S.
|
|
$
|
(782.1
|
)
|
|
$
|
(534.6
|
)
|
|
$
|
(46.1
|
)
|
Non-U.S.
|
|
48.1
|
|
|
56.6
|
|
|
47.6
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(734.0
|
)
|
|
$
|
(478.0
|
)
|
|
$
|
1.5
|
|
The income tax provision (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Continuing operations:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
0.5
|
|
|
$
|
(60.7
|
)
|
|
$
|
(47.9
|
)
|
State
|
|
(1.5
|
)
|
|
(0.4
|
)
|
|
(4.0
|
)
|
Foreign
|
|
14.4
|
|
|
9.4
|
|
|
9.8
|
|
Total
|
|
13.4
|
|
|
(51.7
|
)
|
|
(42.1
|
)
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(115.8
|
)
|
|
(90.9
|
)
|
|
34.1
|
|
State
|
|
(3.5
|
)
|
|
30.4
|
|
|
(0.2
|
)
|
Foreign
|
|
(1.0
|
)
|
|
0.1
|
|
|
(0.5
|
)
|
Total
|
|
(120.3
|
)
|
|
(60.4
|
)
|
|
33.4
|
|
Income tax benefit from continuing operations
|
|
$
|
(106.9
|
)
|
|
$
|
(112.1
|
)
|
|
$
|
(8.7
|
)
|
Income tax benefit from discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
Total company income tax benefit
|
|
$
|
(106.9
|
)
|
|
$
|
(112.1
|
)
|
|
$
|
(9.0
|
)
|
The following is a reconciliation of income taxes computed at the statutory U.S. Federal income tax rate to the actual effective income tax benefit from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision (Benefit)
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Taxes computed at the federal rate
|
|
$
|
(256.9
|
)
|
|
$
|
(167.3
|
)
|
|
$
|
0.5
|
|
State and local income taxes, net of federal tax benefit
|
|
(26.8
|
)
|
|
(20.6
|
)
|
|
(2.0
|
)
|
Valuation allowance
|
|
171.5
|
|
|
74.5
|
|
|
0.5
|
|
Foreign earnings taxed at different rate
|
|
(5.3
|
)
|
|
(11.2
|
)
|
|
(6.6
|
)
|
Adjustment to prior years’ taxes
|
|
3.4
|
|
|
(5.4
|
)
|
|
0.1
|
|
Tax reserve adjustments
|
|
3.1
|
|
|
3.9
|
|
|
(0.5
|
)
|
Repatriation of foreign earnings
|
|
2.1
|
|
|
13.4
|
|
|
0.3
|
|
Other
|
|
2.0
|
|
|
0.6
|
|
|
(1.0
|
)
|
Income tax benefit
|
|
$
|
(106.9
|
)
|
|
$
|
(112.1
|
)
|
|
$
|
(8.7
|
)
|
Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. In situations where a three year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets.
In 2015, the Company’s results reflected a
three
year cumulative loss from U.S. operations; prior thereto, the Company’s historical domestic results reflected a
three
year cumulative profit. As a result, the Company established
$74.5 million
in deferred tax asset valuation allowances in 2015, of which
$68.4 million
were for certain federal and state deferred tax assets. The
three
year cumulative loss condition continued in 2016, and the actions to indefinitely idle the Rowley, UT titanium sponge production facility (see Note 17 for further information) in 2016 resulted in a reassessment of the realizability of U.S. federal deferred tax assets. In 2016, the Company’s results of operations included an increase to deferred tax asset valuation allowances of
$171.5 million
, including an additional
$165.8 million
valuation allowance on federal and state deferred tax assets. Other valuation allowances recognized in 2016 and prior years affecting the income tax benefit from continuing operations relate to uncertainties of realizing tax attributes unrelated to the U.S. operations cumulative loss impact. These deferred tax valuation allowances in 2015 and 2016 had the effect of significantly reducing the reported income tax benefit applicable to the pre-tax loss in each period. In addition, the Company established a
$45.6 million
valuation allowance on amounts recorded in other comprehensive income in 2016, which are not reflected in the preceding table reconciling amounts recognized in the income tax benefit from continuing operations (see Note 13).
Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse. The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
Deferred income tax assets
|
|
|
|
|
Pensions
|
|
$
|
281.2
|
|
|
$
|
281.0
|
|
Postretirement benefits other than pensions
|
|
122.9
|
|
|
144.7
|
|
Federal and state net operating loss tax carryovers
|
|
400.9
|
|
|
228.1
|
|
Federal and state tax credits
|
|
57.2
|
|
|
52.2
|
|
Deferred compensation and other benefit plans
|
|
25.7
|
|
|
25.9
|
|
Self insurance reserves
|
|
9.7
|
|
|
10.8
|
|
Other items
|
|
106.3
|
|
|
85.2
|
|
Gross deferred income tax assets
|
|
1,003.9
|
|
|
827.9
|
|
Valuation allowance for deferred tax assets
|
|
(322.2
|
)
|
|
(105.1
|
)
|
Total deferred income tax assets
|
|
681.7
|
|
|
722.8
|
|
Deferred income tax liabilities
|
|
|
|
|
Bases of property, plant and equipment
|
|
533.8
|
|
|
664.1
|
|
Inventory valuation
|
|
77.8
|
|
|
62.2
|
|
Bases of amortizable intangible assets
|
|
23.3
|
|
|
25.4
|
|
Other items
|
|
50.4
|
|
|
46.7
|
|
Total deferred tax liabilities
|
|
685.3
|
|
|
798.4
|
|
Net deferred tax liability
|
|
$
|
(3.6
|
)
|
|
$
|
(75.6
|
)
|
The Company had
$322.2 million
and
$105.1 million
in deferred tax asset valuation allowances at
December 31, 2016
and
2015
, respectively, which includes the following:
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
Federal deferred tax valuation allowances
|
|
|
|
|
|
Net operating losses
|
|
$
|
37.8
|
|
|
$
|
—
|
|
|
Tax credits
|
|
40.5
|
|
|
24.8
|
|
|
Temporary differences
|
|
141.2
|
|
|
—
|
|
|
Total federal deferred tax valuation allowances
|
|
219.5
|
|
|
24.8
|
|
State deferred tax valuation allowances
|
|
|
|
|
|
Net operating losses
|
|
77.9
|
|
|
61.8
|
|
|
Tax credits
|
|
13.3
|
|
|
13.8
|
|
|
Temporary differences
|
|
6.5
|
|
|
3.3
|
|
|
Total state deferred tax valuation allowances
|
|
97.7
|
|
|
78.9
|
|
Foreign deferred tax valuation allowances
|
|
5.0
|
|
|
1.4
|
|
Total deferred tax valuation allowances
|
|
$
|
322.2
|
|
|
$
|
105.1
|
|
Income taxes paid and amounts received as refunds were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Income taxes paid
|
|
$
|
8.6
|
|
|
$
|
10.8
|
|
|
$
|
15.1
|
|
Income tax refunds received
|
|
(10.5
|
)
|
|
(63.3
|
)
|
|
(20.2
|
)
|
Income taxes received, net
|
|
$
|
(1.9
|
)
|
|
$
|
(52.5
|
)
|
|
$
|
(5.1
|
)
|
In general, the Company is responsible for filing consolidated U.S. Federal, foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liability by the applicable taxing authorities. No provision has been made for U.S. Federal, state or additional foreign taxes related to approximately
$133 million
of undistributed earnings of foreign subsidiaries which have been permanently re-invested. It is not practical to determine the deferred tax liability on these earnings.
The Company’s income tax payments have benefited over the last several years from provisions under the U.S. tax code allowing companies to immediately deduct a significant portion of the cost of new capital investments placed into service. In 2015 and 2016, the Company received
$59.9 million
and
$7.3 million
, respectively, for federal tax refunds of prior years’ taxes paid. The Company has approximately
$323 million
of tax-effected federal net operating loss carryforwards,
$52 million
of other federal tax credits,
$83 million
of state net operating loss carryforwards, and
$13 million
of state tax credits to offset future federal and state tax liabilities.
For the federal net operating loss tax carryforwards, expiration will generally occur within
20
years of the year generated. For the state net operating loss tax carryforwards, expiration will generally occur within
20
years of the year generated and some utilization of the tax benefit may be limited to
$5 million
per year or
30%
of apportioned income, whichever is greater.
The changes in the liability for unrecognized income tax benefits for the years ended
December 31, 2016
,
2015
and
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
|
$
|
15.0
|
|
|
$
|
73.4
|
|
|
$
|
72.8
|
|
Increases in prior period tax positions
|
|
7.9
|
|
|
4.2
|
|
|
2.0
|
|
Decreases in prior period tax positions
|
|
(0.1
|
)
|
|
(0.6
|
)
|
|
(0.6
|
)
|
Increases in current period tax positions
|
|
0.7
|
|
|
1.3
|
|
|
0.7
|
|
Expiration of the statute of limitations
|
|
(1.1
|
)
|
|
(0.7
|
)
|
|
(0.5
|
)
|
Settlements
|
|
(4.3
|
)
|
|
(62.1
|
)
|
|
(0.7
|
)
|
Interest and penalties, net
|
|
(0.3
|
)
|
|
(0.5
|
)
|
|
(0.3
|
)
|
Balance at end of year
|
|
$
|
17.8
|
|
|
$
|
15.0
|
|
|
$
|
73.4
|
|
The liability at December 31, 2016 includes
$7.6 million
of unrecognized tax benefits that are classified within deferred income taxes as a reduction of net operating loss carryforwards. At
December 31, 2016
, interest and penalties included in the liability for unrecognized tax benefits were
$3.6 million
.
For the year ended December 31, 2014,
$60.9 million
of the liability for unrecognized income tax benefits related to temporary differences, which would not impact the effective tax rate upon resolution of the uncertainty. In 2015, the Company resolved these various uncertain tax position matters related to temporary differences which resulted in this
$60.9 million
long-term liability for uncertain tax positions to be reclassified to a deferred tax liability. Including tax positions for which the Company determined that the tax position would not meet the more-likely-than-not recognition threshold upon examination by the tax authorities based upon the technical merits of the position, the total estimated unrecognized tax benefit that, if recognized, would affect ATI’s effective tax rate was approximately
$15 million
, which would be offset by a corresponding valuation allowance adjustment, resulting in no net impact to the effective tax rate. At this time, the Company believes that it is reasonably possible that approximately
$9 million
of the estimated unrecognized tax benefits as of
December 31, 2016
will be recognized within the next twelve months based on the expiration of statutory review periods.
The Company, and/or one of its subsidiaries, files income tax returns in the U.S. Federal jurisdiction and in various state and foreign jurisdictions. A summary of tax years that remain subject to examination, by major tax jurisdiction, is as follows:
|
|
|
|
Jurisdiction
|
|
Earliest Year Open to
Examination
|
U.S. Federal
|
|
2015
|
States:
|
|
|
California
|
|
2012
|
Ohio
|
|
2012
|
North Carolina
|
|
2010
|
Oregon
|
|
2013
|
Pennsylvania
|
|
2013
|
Foreign:
|
|
|
China
|
|
2013
|
Poland
|
|
2010
|
United Kingdom
|
|
2014
|
Note 16. Business Segments
The Company operates in two business segments: High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). The HPMC business segment produces, converts and distributes a wide range of high performance materials, including titanium and titanium-based alloys, nickel- and cobalt-based alloys and superalloys, zirconium and related alloys including hafnium and niobium, advanced powder alloys and other specialty materials, in long product forms such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tubes, plus precision forgings and castings, components and machined parts. These products are designed for the high performance requirements of such major end markets as aerospace & defense, oil & gas, electrical energy, and medical.
The FRP business segment produces, converts and distributes stainless steel, nickel-based alloys, specialty alloys, and titanium and titanium-based alloys, in a variety of product forms including plate, sheet, engineered strip, and Precision Rolled Strip
®
products. The major end markets for our flat-rolled products are oil & gas, automotive, food processing equipment and appliances, construction and mining, electronics, communication equipment and computers, and aerospace and defense. The business units in this segment include ATI Flat Rolled Products and STAL, in which the Company has a
60%
ownership interest. Segment results also include ATI’s
50%
interest in Uniti, which is accounted for under the equity method. Sales to Uniti, which are included in ATI’s consolidated statements of operations, were
$20.3 million
in
2016
,
$55.4 million
in
2015
, and
$75.3 million
in
2014
. ATI’s share of Uniti’s income/(loss) was
$0.5 million
in
2016
,
$(0.1) million
in
2015
, and
$(8.9) million
in
2014
, which is included in the Flat Rolled Products segment’s operating results, and within cost of sales in the consolidated statements of operations. The remaining
50%
interest in Uniti is held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products.
The measure of segment operating profit excludes all effects of LIFO inventory accounting and any related changes in net realizable value inventory reserves which offset the Company’s aggregate net debit LIFO valuation balance, income taxes, corporate expenses, net interest expense, closed operations expenses, charges for goodwill impairment (see Note 6) and restructuring charges and other costs (see Note 17). Discontinued operations are also excluded. Management believes segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.
Intersegment sales are generally recorded at full cost or market. Common services are allocated on the basis of estimated utilization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Total sales:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
1,979.5
|
|
|
$
|
2,062.7
|
|
|
$
|
2,084.6
|
|
Flat Rolled Products
|
|
1,260.8
|
|
|
1,807.9
|
|
|
2,320.2
|
|
Total sales
|
|
3,240.3
|
|
|
3,870.6
|
|
|
4,404.8
|
|
Intersegment sales:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
49.1
|
|
|
76.8
|
|
|
77.8
|
|
Flat Rolled Products
|
|
56.6
|
|
|
74.2
|
|
|
103.6
|
|
Total intersegment sales
|
|
105.7
|
|
|
151.0
|
|
|
181.4
|
|
Sales to external customers:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
1,930.4
|
|
|
1,985.9
|
|
|
2,006.8
|
|
Flat Rolled Products
|
|
1,204.2
|
|
|
1,733.7
|
|
|
2,216.6
|
|
Total sales to external customers
|
|
$
|
3,134.6
|
|
|
$
|
3,719.6
|
|
|
$
|
4,223.4
|
|
Total direct international sales were
$1,277.1 million
in
2016
,
$1,577.0 million
in
2015
, and
$1,607.5 million
in
2014
. Of these amounts, sales by operations in the United States to customers in other countries were
$971.4 million
in
2016
,
$1,215.8 million
in
2015
, and
$1,201.8 million
in
2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Operating profit (loss):
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
168.7
|
|
|
$
|
157.1
|
|
|
$
|
234.8
|
|
Flat Rolled Products
|
|
(163.0
|
)
|
|
(241.9
|
)
|
|
(47.0
|
)
|
Total operating profit (loss)
|
|
5.7
|
|
|
(84.8
|
)
|
|
187.8
|
|
LIFO and net realizable value reserves (See Note 4)
|
|
0.8
|
|
|
0.1
|
|
|
0.3
|
|
Corporate expenses
|
|
(43.4
|
)
|
|
(44.7
|
)
|
|
(49.6
|
)
|
Closed operations and other expenses
|
|
(34.6
|
)
|
|
(22.1
|
)
|
|
(28.3
|
)
|
Restructuring and other charges (See Note 17)
|
|
(538.5
|
)
|
|
(89.7
|
)
|
|
—
|
|
Impairment of goodwill (See Note 6)
|
|
—
|
|
|
(126.6
|
)
|
|
—
|
|
Interest expense, net
|
|
(124.0
|
)
|
|
(110.2
|
)
|
|
(108.7
|
)
|
Income (loss) before income taxes
|
|
$
|
(734.0
|
)
|
|
$
|
(478.0
|
)
|
|
$
|
1.5
|
|
In the third quarter of 2016, the Company announced the indefinite idling of the Rowley, UT titanium sponge facility and the consolidation of certain titanium manufacturing operations. See Note 17 for further explanation. Results for the HPMC segment exclude the Rowley operations beginning with the third quarter of 2016, with such operations being reported in closed operations and other expenses. In October 2016, the Company announced the permanent closure of the Midland, PA commodity stainless steel melt and sheet finishing facility and the Bagdad, PA GOES finishing facility. These facilities were indefinitely idled earlier in 2016, and management concluded that the facilities cannot be operated at an acceptable rate of return. See Note 17 for further explanation. Results for the FRP segment exclude the ongoing holding costs of these facilities beginning in October 2016, with such costs being reported in closed operations and other expenses.
Restructuring and other charges for the year ended December 31, 2016 are comprised of
$471.3 million
in long-lived impairment charges,
$31.7 million
of facility shutdown and idling costs,
$24.2 million
of employee benefit costs and
$11.3 million
of inventory valuation charges for titanium sponge that are classified in cost of sales (see Note 4 for additional information). The shutdown and idling costs primarily relate to the indefinite idling of the Company’s Rowley, UT titanium sponge facility, and the permanent closures of the Midland, PA commodity stainless steel melt and sheet finishing facility and the Bagdad, PA GOES finishing facility. The employee benefit costs largely relate to FRP severance charges for salaried workforce reductions and costs associated with the previously mentioned facility idlings and closures. Restructuring and other charges for the year ended December 31, 2015 include
$54.5 million
in long-lived asset impairment charges,
$25.4 million
of inventory valuation charges for non-PQ titanium sponge (see Note 4 for additional information) and charges for severance and facility idling costs. See Note 17 for additional information on restructuring charges.
Closed operations and other expenses, which were
$34.6 million
in
2016
,
$22.1 million
in
2015
and
$28.3 million
in
2014
, includes charges incurred in connection with closed operations and other non-operating income or expense. These items are primarily presented in selling and administrative expenses in the consolidated statements of operations. In
2016
, these items included
$23.8 million
for costs at closed facilities, including legal matters and real estate and other facility costs, primarily for Rowley following the announced indefinite idling,
$5.8 million
for closed operations environmental costs, and
$5.0 million
for
retirement benefit expense. In
2015
, the Company recorded
$22.1 million
in other charges primarily related to closed operations, including
$4.5 million
for environmental costs,
$2.3 million
for retirement benefit expense, and
$15.3 million
for other expenses including legal matters and real estate costs at closed operations. In
2014
, the Company recorded
$28.3 million
in other charges primarily related to closed operations, including
$7.1 million
for retirement benefit expense,
$8.0 million
for environmental costs,
$3.8 million
for insurance obligations, and
$9.4 million
for other expenses including real estate costs.
Certain additional information regarding the Company’s business segments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
118.4
|
|
|
$
|
131.8
|
|
|
$
|
124.4
|
|
Flat Rolled Products
|
|
48.8
|
|
|
55.6
|
|
|
49.3
|
|
Corporate
|
|
3.1
|
|
|
2.5
|
|
|
2.9
|
|
Total depreciation and amortization
|
|
$
|
170.3
|
|
|
$
|
189.9
|
|
|
$
|
176.6
|
|
Capital expenditures:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
89.9
|
|
|
$
|
75.8
|
|
|
$
|
51.9
|
|
Flat Rolled Products
|
|
111.8
|
|
|
68.0
|
|
|
172.1
|
|
Corporate
|
|
0.5
|
|
|
0.7
|
|
|
1.7
|
|
Total capital expenditures
|
|
$
|
202.2
|
|
|
$
|
144.5
|
|
|
$
|
225.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
2016
|
|
2015
|
|
2014
|
High Performance Materials & Components
|
|
$
|
2,744.3
|
|
|
$
|
3,355.5
|
|
|
$
|
3,555.8
|
|
Flat Rolled Products
|
|
2,056.4
|
|
|
2,189.5
|
|
|
2,601.6
|
|
Discontinued Operations
|
|
0.4
|
|
|
0.9
|
|
|
1.8
|
|
Corporate:
|
|
|
|
|
|
|
Deferred Taxes
|
|
12.1
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents and other
|
|
356.8
|
|
|
205.8
|
|
|
412.5
|
|
Total assets
|
|
$
|
5,170.0
|
|
|
$
|
5,751.7
|
|
|
$
|
6,571.7
|
|
Identifiable assets for the HPMC segment decreased by
$521 million
from December 31, 2015 as a result of the reporting change and the asset impairment charges for Rowley discussed above. Identifiable assets for the FRP segment decreased by
$32 million
from December 31, 2015 as a result of the reporting change to closed operations for the Midland and Bagdad facilities as discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2016
|
|
Percent
of total
|
|
2015
|
|
Percent
of total
|
|
2014
|
|
Percent
of total
|
External sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,857.5
|
|
|
59
|
%
|
|
$
|
2,142.6
|
|
|
58
|
%
|
|
$
|
2,615.9
|
|
|
62
|
%
|
China
|
|
214.1
|
|
|
7
|
%
|
|
246.9
|
|
|
7
|
%
|
|
249.6
|
|
|
6
|
%
|
United Kingdom
|
|
183.8
|
|
|
6
|
%
|
|
198.2
|
|
|
5
|
%
|
|
228.4
|
|
|
5
|
%
|
Germany
|
|
177.7
|
|
|
6
|
%
|
|
193.3
|
|
|
5
|
%
|
|
207.7
|
|
|
5
|
%
|
Japan
|
|
151.9
|
|
|
5
|
%
|
|
202.3
|
|
|
5
|
%
|
|
89.3
|
|
|
2
|
%
|
France
|
|
142.6
|
|
|
4
|
%
|
|
153.3
|
|
|
4
|
%
|
|
168.1
|
|
|
4
|
%
|
Canada
|
|
97.6
|
|
|
3
|
%
|
|
154.5
|
|
|
4
|
%
|
|
147.0
|
|
|
3
|
%
|
Mexico
|
|
89.7
|
|
|
3
|
%
|
|
78.4
|
|
|
2
|
%
|
|
76.5
|
|
|
2
|
%
|
South Korea
|
|
33.5
|
|
|
1
|
%
|
|
31.9
|
|
|
1
|
%
|
|
42.8
|
|
|
1
|
%
|
Italy
|
|
25.1
|
|
|
1
|
%
|
|
65.0
|
|
|
2
|
%
|
|
160.7
|
|
|
4
|
%
|
Other
|
|
161.1
|
|
|
5
|
%
|
|
253.2
|
|
|
7
|
%
|
|
237.4
|
|
|
6
|
%
|
Total External Sales
|
|
$
|
3,134.6
|
|
|
100
|
%
|
|
$
|
3,719.6
|
|
|
100
|
%
|
|
$
|
4,223.4
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2016
|
|
Percent
of total
|
|
2015
|
|
Percent
of total
|
|
2014
|
|
Percent
of total
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,591.5
|
|
|
89
|
%
|
|
$
|
5,073.1
|
|
|
88
|
%
|
|
$
|
5,868.7
|
|
|
90
|
%
|
China
|
|
249.3
|
|
|
5
|
%
|
|
260.0
|
|
|
5
|
%
|
|
280.5
|
|
|
4
|
%
|
United Kingdom
|
|
122.8
|
|
|
2
|
%
|
|
154.3
|
|
|
3
|
%
|
|
196.3
|
|
|
3
|
%
|
Luxembourg (a)
|
|
67.2
|
|
|
1
|
%
|
|
124.4
|
|
|
2
|
%
|
|
81.8
|
|
|
1
|
%
|
Other
|
|
139.2
|
|
|
3
|
%
|
|
139.9
|
|
|
2
|
%
|
|
144.4
|
|
|
2
|
%
|
Total Assets
|
|
$
|
5,170.0
|
|
|
100
|
%
|
|
$
|
5,751.7
|
|
|
100
|
%
|
|
$
|
6,571.7
|
|
|
100
|
%
|
|
|
(a)
|
Comprises assets held by the Company’s European Treasury Center operation.
|
Note 17. Restructuring Charges
2016
For the year ended December 31, 2016, the Company recorded restructuring charges of
$527.2 million
, which are presented as restructuring charges in the consolidated statement of operations. These charges were comprised of
$471.3 million
in long-lived asset impairment charges,
$31.7 million
of facility shutdown and idling costs, and
$24.2 million
of employee benefit costs.
On August 24, 2016, the Company announced the indefinite idling of the Rowley, UT titanium sponge production facility and the consolidation of certain titanium manufacturing operations in the HPMC segment. Over the last several years, significant global capacity has been added to produce titanium sponge, which is a key raw material used to produce ATI’s titanium products. In addition, demand for industrial-grade titanium products from global markets continues to be weak. As a result of these factors, titanium sponge, including aerospace quality sponge, can now be purchased from qualified global producers under long-term supply agreements at prices lower than the production costs at ATI’s titanium sponge facility in Rowley, UT. ATI has entered into long-term cost competitive supply agreements with several producers of premium-grade and standard-grade titanium sponge. The lower cost titanium sponge purchased under these supply agreements will replace the titanium sponge produced at the Rowley facility. As a result of these actions, the Company recorded a non-cash impairment charge of
$470.8 million
during the quarter ended September 30, 2016 to reduce the carrying value of the Rowley, UT facility to an estimated fair value of
$15.0 million
. The long-lived asset impairment charge was based on an analysis of the estimated fair value, including asset appraisals using cost, income and market approaches, which represent Level 3 unobservable information in the fair value hierarchy. The indefinite idling of the Rowley, UT facility was completed in the fourth quarter 2016, as was the closure of a small titanium wire production facility in Frackville, PA, and the idling of certain titanium manufacturing operations in Albany, OR. In addition, during the fiscal ended December 31, 2016, the Company recognized
$23.8 million
of facility shutdown and idling costs, including contract termination costs, and
$7.5 million
of employee benefit costs including severance obligations for the elimination of approximately
180
positions associated with these and other HPMC restructuring actions. The Rowley facility is being idled in a manner that allows the facility to be restarted in the future if supported by market conditions.
On October 25, 2016, the Company announced the permanent closure of the Midland, PA commodity stainless steel melt and sheet finishing facility and the Bagdad, PA grain-oriented electrical steel (GOES) finishing facility. These facilities, which were part of the Company’s Flat Rolled Products (FRP) operations, were indefinitely idled earlier in 2016, and management concluded that the facilities cannot be operated at an acceptable rate of return. As a result of these actions, the Company recorded
$8.4 million
during the year ended December 31, 2016 of closure-related costs and asset impairments, and
$4.9 million
of employee benefit costs, including
$3.4 million
of special termination benefits for pension and other postretirement benefit plans.
Also during 2016, an
$11.8 million
charge was recorded for severance obligations in the FRP operations, for the reduction of approximately one-third of FRP’s salaried workforce through the elimination of over
250
positions, which was largely completed by the end of 2016.
2015
For the year ended December 31, 2015, the Company recorded restructuring charges of
$64.3 million
, which are presented as restructuring charges in the consolidated statement of operations. These charges were comprised of
$54.5 million
in long-lived asset impairment charges,
$3.5 million
in facility idling costs, and
$6.3 million
in employee severance charges. The long-lived asset impairment charges were based on analysis of the estimated fair values, including asset appraisals using income and market approaches, which represents Level 3 unobservable information in the fair value hierarchy.
|
|
•
|
In December 2015, the Company announced the following rightsizing actions to better align its Flat Rolled Products operations to the challenging market conditions for its commodity products:
|
|
|
•
|
Idling the commodity stainless melt and sheet finishing operations at the Midland, PA facility, which was completed in January 2016. A
$24.2 million
impairment charge was recognized to reduce the carrying value of the Midland facility to estimated fair value.
|
|
|
•
|
Idling GOES operations in Western PA, including the Bagdad, PA finishing facility, which was completed in April 2016. A
$30.3 million
impairment charge was recognized to reduce the carrying value of GOES operations assets to estimated fair value.
|
A
$3.5 million
charge for future idling costs of the Midland and GOES operations was also recognized.
|
|
•
|
As announced in October 2015, in the fourth quarter 2015 the Company implemented a salaried workforce reduction of approximately
100
employees, in response to business conditions, in both the HPMC segment and at ATI’s headquarters. Severance charges of
$6.3 million
were recorded in the fourth quarter for this action.
|
Reserves for restructuring charges at December 31, 2016 consist of severance and employee benefit costs and closure costs incurred in both 2015 and 2016, which are expected to be substantially paid in 2017. Restructuring reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Benefit Costs
|
|
Closure Costs
|
|
Total Restructuring Reserves
|
Balance at December 31, 2015
|
|
$
|
4.5
|
|
|
$
|
3.6
|
|
|
$
|
8.1
|
|
Additions
|
|
20.8
|
|
|
28.0
|
|
|
48.8
|
|
Payments
|
|
(11.4
|
)
|
|
(12.4
|
)
|
|
(23.8
|
)
|
Balance at December 31, 2016
|
|
$
|
13.9
|
|
|
$
|
19.2
|
|
|
$
|
33.1
|
|
Note 18. Redeemable Noncontrolling Interest
During 2016, the
15%
redeemable noncontrolling interest in ATI Flowform Products was purchased by ATI at the
$12.1 million
acquisition date carrying value, resulting in
no
remaining redeemable noncontrolling interest held in ATI Flowform Products as of
December 31, 2016
.
The previous holders of the
15%
redeemable noncontrolling interest in ATI Flowform Products had a put option to require the Company to purchase their equity interest at a specified redemption value. The put option could not be separated from the noncontrolling interest, and the combination of a noncontrolling interest and the redemption feature required classification as redeemable noncontrolling interest in the consolidated balance sheet, separate from Stockholders’ Equity. The carrying amount of the redeemable noncontrolling interest approximated its maximum redemption value. Any subsequent change in maximum redemption value was adjusted through retained earnings. The adjustment to the carrying amount for the year ended
December 31, 2015
reduced retained earnings by
$0.3 million
. The Company applied the two-class method of calculating earnings per share, and as such this adjustment to the carrying amount was reflected in earnings per share. The redeemable noncontrolling interest was
$12.1 million
as of
December 31, 2015
, which was unchanged from the acquisition date value.
Note 19. Per Share Information
The following table sets forth the computation of basic and diluted loss from continuing operations per common share:
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Numerator:
|
|
|
|
|
|
|
Numerator for basic loss from continuing operations per common share -
|
|
|
|
|
|
|
Loss from continuing operations attributable to ATI
|
|
$
|
(640.9
|
)
|
|
$
|
(377.9
|
)
|
|
$
|
(2.0
|
)
|
Redeemable noncontrolling interest (Note 18)
|
|
—
|
|
|
(0.3
|
)
|
|
(0.3
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Convertible Senior Notes (a)
|
|
—
|
|
|
—
|
|
|
—
|
|
Numerator for diluted net loss per common share -
|
|
|
|
|
|
|
Loss from continuing operations attributable to ATI after assumed conversions
|
|
$
|
(640.9
|
)
|
|
$
|
(378.2
|
)
|
|
$
|
(2.3
|
)
|
Denominator:
|
|
|
|
|
|
|
Denominator for basic net loss per common share—weighted average shares
|
|
107.3
|
|
|
107.3
|
|
|
107.1
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
Convertible Senior Notes (a)
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator for diluted net loss per common share—adjusted weighted average shares and assumed conversions
|
|
107.3
|
|
|
107.3
|
|
|
107.1
|
|
Basic loss from continuing operations attributable to ATI per common share
|
|
$
|
(5.97
|
)
|
|
$
|
(3.53
|
)
|
|
$
|
(0.02
|
)
|
Diluted loss from continuing operations attributable to ATI per common share
|
|
$
|
(5.97
|
)
|
|
$
|
(3.53
|
)
|
|
$
|
(0.02
|
)
|
|
|
(a)
|
For 2016, Convertible Senior Notes represent the Company’s
4.75%
Convertible Notes due 2022 and for 2014, the Company’s
4.25%
Convertible Notes due 2014, which were paid off at maturity on June 1, 2014.
|
Common stock that would be issuable upon the assumed conversion of the 2022 Convertible Notes and the 2014 Convertible Notes (prior to maturity on June 1, 2014) and other option equivalents and contingently issuable shares are excluded from the computation of contingently issuable shares, and therefore, from the denominator for diluted earnings per share, if the effect of inclusion would have been anti-dilutive. Excluded shares were
13.1 million
for
2016
,
0.8 million
for
2015
and
4.7 million
for
2014
.
Note 20. Financial Information for Subsidiary and Guarantor Parent
The payment obligations under the
$150.0 million
6.95%
Debentures due 2025 issued by Allegheny Ludlum, LLC (formerly known as Allegheny Ludlum Corporation) (the “Subsidiary”) are fully and unconditionally guaranteed by ATI (the “Guarantor Parent”). In accordance with positions established by the U.S. Securities and Exchange Commission, the following financial information sets forth separately financial information with respect to the Subsidiary, the Non-guarantor Subsidiaries and the Guarantor Parent. The principal elimination entries eliminate investments in subsidiaries and certain intercompany balances and transactions.
ATI is the plan sponsor for the ATI Pension Plan, the U.S. qualified defined benefit pension plan which covers certain current and former employees of the Subsidiary and the Non-guarantor Subsidiaries. As a result, the balance sheets presented for the Subsidiary and the Non-guarantor Subsidiaries do not include any ATI Pension Plan assets or liabilities, or the related deferred taxes. The ATI Pension Plan assets, liabilities and related deferred taxes and pension income or expense are recognized by the Guarantor Parent. Management and royalty fees charged to the Subsidiary and to the Non-guarantor Subsidiaries by the Guarantor Parent have been excluded solely for purposes of this presentation.
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2.3
|
|
|
$
|
2.5
|
|
|
$
|
224.8
|
|
|
$
|
—
|
|
|
$
|
229.6
|
|
Accounts receivable, net
|
|
0.1
|
|
|
107.8
|
|
|
344.2
|
|
|
—
|
|
|
452.1
|
|
Intercompany notes receivable
|
|
—
|
|
|
—
|
|
|
2,892.9
|
|
|
(2,892.9
|
)
|
|
—
|
|
Inventories, net
|
|
—
|
|
|
106.7
|
|
|
930.3
|
|
|
—
|
|
|
1,037.0
|
|
Prepaid expenses and other current assets
|
|
6.6
|
|
|
5.2
|
|
|
36.0
|
|
|
—
|
|
|
47.8
|
|
Total current assets
|
|
9.0
|
|
|
222.2
|
|
|
4,428.2
|
|
|
(2,892.9
|
)
|
|
1,766.5
|
|
Property, plant and equipment, net
|
|
1.3
|
|
|
1,583.6
|
|
|
914.0
|
|
|
—
|
|
|
2,498.9
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
641.9
|
|
|
—
|
|
|
641.9
|
|
Intercompany notes receivable
|
|
—
|
|
|
—
|
|
|
200.0
|
|
|
(200.0
|
)
|
|
—
|
|
Investments in subsidiaries
|
|
5,241.2
|
|
|
37.7
|
|
|
—
|
|
|
(5,278.9
|
)
|
|
—
|
|
Other assets
|
|
23.0
|
|
|
25.5
|
|
|
214.2
|
|
|
—
|
|
|
262.7
|
|
Total assets
|
|
$
|
5,274.5
|
|
|
$
|
1,869.0
|
|
|
$
|
6,398.3
|
|
|
$
|
(8,371.8
|
)
|
|
$
|
5,170.0
|
|
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3.1
|
|
|
$
|
97.4
|
|
|
$
|
193.8
|
|
|
$
|
—
|
|
|
$
|
294.3
|
|
Accrued liabilities
|
|
54.6
|
|
|
83.3
|
|
|
171.4
|
|
|
—
|
|
|
309.3
|
|
Intercompany notes payable
|
|
1,341.1
|
|
|
1,551.8
|
|
|
—
|
|
|
(2,892.9
|
)
|
|
—
|
|
Short-term debt and current portion of long-term debt
|
|
0.4
|
|
|
0.3
|
|
|
104.4
|
|
|
—
|
|
|
105.1
|
|
Total current liabilities
|
|
1,399.2
|
|
|
1,732.8
|
|
|
469.6
|
|
|
(2,892.9
|
)
|
|
708.7
|
|
Long-term debt
|
|
1,621.7
|
|
|
150.0
|
|
|
0.2
|
|
|
—
|
|
|
1,771.9
|
|
Intercompany notes payable
|
|
—
|
|
|
200.0
|
|
|
—
|
|
|
(200.0
|
)
|
|
—
|
|
Accrued postretirement benefits
|
|
—
|
|
|
244.0
|
|
|
73.7
|
|
|
—
|
|
|
317.7
|
|
Pension liabilities
|
|
778.5
|
|
|
5.2
|
|
|
44.2
|
|
|
—
|
|
|
827.9
|
|
Deferred income taxes
|
|
15.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.6
|
|
Other long-term liabilities
|
|
14.7
|
|
|
18.1
|
|
|
50.6
|
|
|
—
|
|
|
83.4
|
|
Total liabilities
|
|
3,829.7
|
|
|
2,350.1
|
|
|
638.3
|
|
|
(3,092.9
|
)
|
|
3,725.2
|
|
Total stockholders’ equity (deficit)
|
|
1,444.8
|
|
|
(481.1
|
)
|
|
5,760.0
|
|
|
(5,278.9
|
)
|
|
1,444.8
|
|
Total liabilities and stockholders’ equity
|
|
$
|
5,274.5
|
|
|
$
|
1,869.0
|
|
|
$
|
6,398.3
|
|
|
$
|
(8,371.8
|
)
|
|
$
|
5,170.0
|
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Sales
|
|
$
|
—
|
|
|
$
|
983.6
|
|
|
$
|
2,151.0
|
|
|
$
|
—
|
|
|
$
|
3,134.6
|
|
Cost of sales
|
|
53.4
|
|
|
1,102.0
|
|
|
1,816.7
|
|
|
—
|
|
|
2,972.1
|
|
Gross profit (loss)
|
|
(53.4
|
)
|
|
(118.4
|
)
|
|
334.3
|
|
|
—
|
|
|
162.5
|
|
Selling and administrative expenses
|
|
89.9
|
|
|
32.3
|
|
|
125.5
|
|
|
—
|
|
|
247.7
|
|
Restructuring charges
|
|
—
|
|
|
25.1
|
|
|
502.1
|
|
|
—
|
|
|
527.2
|
|
Operating loss
|
|
(143.3
|
)
|
|
(175.8
|
)
|
|
(293.3
|
)
|
|
—
|
|
|
(612.4
|
)
|
Interest income (expense), net
|
|
(138.3
|
)
|
|
(70.7
|
)
|
|
85.0
|
|
|
—
|
|
|
(124.0
|
)
|
Other income (expense) including equity in income of unconsolidated subsidiaries
|
|
(452.4
|
)
|
|
1.0
|
|
|
1.4
|
|
|
452.4
|
|
|
2.4
|
|
Income (loss) from continuing operations before income taxes
|
|
(734.0
|
)
|
|
(245.5
|
)
|
|
(206.9
|
)
|
|
452.4
|
|
|
(734.0
|
)
|
Income tax provision (benefit)
|
|
(106.9
|
)
|
|
(85.5
|
)
|
|
(66.7
|
)
|
|
152.2
|
|
|
(106.9
|
)
|
Net income (loss)
|
|
(627.1
|
)
|
|
(160.0
|
)
|
|
(140.2
|
)
|
|
300.2
|
|
|
(627.1
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
13.8
|
|
|
—
|
|
|
13.8
|
|
Net income (loss) attributable to ATI
|
|
$
|
(627.1
|
)
|
|
$
|
(160.0
|
)
|
|
$
|
(154.0
|
)
|
|
$
|
300.2
|
|
|
$
|
(640.9
|
)
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income (loss)
|
|
$
|
(627.1
|
)
|
|
$
|
(160.0
|
)
|
|
$
|
(140.2
|
)
|
|
$
|
300.2
|
|
|
$
|
(627.1
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment arising during the period
|
|
(47.1
|
)
|
|
—
|
|
|
(47.1
|
)
|
|
47.1
|
|
|
(47.1
|
)
|
Net derivative gain on hedge transactions
|
|
19.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19.6
|
|
Pension and postretirement benefits
|
|
(61.4
|
)
|
|
17.2
|
|
|
1.8
|
|
|
(19.0
|
)
|
|
(61.4
|
)
|
Other comprehensive income (loss), net of tax
|
|
(88.9
|
)
|
|
17.2
|
|
|
(45.3
|
)
|
|
28.1
|
|
|
(88.9
|
)
|
Comprehensive income (loss)
|
|
(716.0
|
)
|
|
(142.8
|
)
|
|
(185.5
|
)
|
|
328.3
|
|
|
(716.0
|
)
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
—
|
|
|
4.1
|
|
Comprehensive income (loss) attributable to ATI
|
|
$
|
(716.0
|
)
|
|
$
|
(142.8
|
)
|
|
$
|
(189.6
|
)
|
|
$
|
328.3
|
|
|
$
|
(720.1
|
)
|
Condensed Statements of Cash Flows
For the year ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities
|
|
$
|
(78.5
|
)
|
|
$
|
(232.3
|
)
|
|
$
|
291.1
|
|
|
$
|
(24.0
|
)
|
|
$
|
(43.7
|
)
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(0.5
|
)
|
|
(98.7
|
)
|
|
(103.0
|
)
|
|
—
|
|
|
(202.2
|
)
|
Net receipts (payments) on intercompany activity
|
|
—
|
|
|
—
|
|
|
(160.0
|
)
|
|
160.0
|
|
|
—
|
|
Asset disposals and other
|
|
—
|
|
|
0.2
|
|
|
2.0
|
|
|
—
|
|
|
2.2
|
|
Cash flows provided by (used in) investing activities
|
|
(0.5
|
)
|
|
(98.5
|
)
|
|
(261.0
|
)
|
|
160.0
|
|
|
(200.0
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings on long-term debt
|
|
287.5
|
|
|
—
|
|
|
100.0
|
|
|
—
|
|
|
387.5
|
|
Payments on long-term debt and capital leases
|
|
(0.7
|
)
|
|
(0.2
|
)
|
|
(1.8
|
)
|
|
—
|
|
|
(2.7
|
)
|
Net borrowings under credit facilities
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
|
3.1
|
|
Debt issuance costs
|
|
(9.4
|
)
|
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(10.4
|
)
|
Net receipts (payments) on intercompany activity
|
|
(170.7
|
)
|
|
330.7
|
|
|
—
|
|
|
(160.0
|
)
|
|
—
|
|
Dividends paid to stockholders
|
|
(25.8
|
)
|
|
—
|
|
|
(24.0
|
)
|
|
24.0
|
|
|
(25.8
|
)
|
Dividends paid to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(16.0
|
)
|
|
—
|
|
|
(16.0
|
)
|
Acquisition of noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(12.2
|
)
|
|
—
|
|
|
(12.2
|
)
|
Cash flows provided by (used in) financing activities
|
|
80.9
|
|
|
330.5
|
|
|
48.1
|
|
|
(136.0
|
)
|
|
323.5
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
1.9
|
|
|
$
|
(0.3
|
)
|
|
$
|
78.2
|
|
|
$
|
—
|
|
|
$
|
79.8
|
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0.4
|
|
|
$
|
2.8
|
|
|
$
|
146.6
|
|
|
$
|
—
|
|
|
$
|
149.8
|
|
Accounts receivable, net
|
|
0.1
|
|
|
100.3
|
|
|
299.9
|
|
|
—
|
|
|
400.3
|
|
Intercompany notes receivable
|
|
—
|
|
|
—
|
|
|
2,601.5
|
|
|
(2,601.5
|
)
|
|
—
|
|
Inventories, net
|
|
—
|
|
|
239.9
|
|
|
1,031.7
|
|
|
—
|
|
|
1,271.6
|
|
Prepaid expenses and other current assets
|
|
9.3
|
|
|
3.8
|
|
|
32.8
|
|
|
—
|
|
|
45.9
|
|
Total current assets
|
|
9.8
|
|
|
346.8
|
|
|
4,112.5
|
|
|
(2,601.5
|
)
|
|
1,867.6
|
|
Property, plant and equipment, net
|
|
2.2
|
|
|
1,559.9
|
|
|
1,366.1
|
|
|
—
|
|
|
2,928.2
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
651.4
|
|
|
—
|
|
|
651.4
|
|
Intercompany notes receivable
|
|
—
|
|
|
—
|
|
|
200.0
|
|
|
(200.0
|
)
|
|
—
|
|
Investments in subsidiaries
|
|
5,742.5
|
|
|
37.7
|
|
|
—
|
|
|
(5,780.2
|
)
|
|
—
|
|
Other assets
|
|
13.4
|
|
|
23.0
|
|
|
268.1
|
|
|
—
|
|
|
304.5
|
|
Total assets
|
|
$
|
5,767.9
|
|
|
$
|
1,967.4
|
|
|
$
|
6,598.1
|
|
|
$
|
(8,581.7
|
)
|
|
$
|
5,751.7
|
|
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4.8
|
|
|
$
|
171.1
|
|
|
$
|
204.9
|
|
|
$
|
—
|
|
|
$
|
380.8
|
|
Accrued liabilities
|
|
42.1
|
|
|
74.0
|
|
|
185.7
|
|
|
—
|
|
|
301.8
|
|
Intercompany notes payable
|
|
1,325.4
|
|
|
1,276.1
|
|
|
—
|
|
|
(2,601.5
|
)
|
|
—
|
|
Short-term debt and current portion of long-term debt
|
|
0.7
|
|
|
0.1
|
|
|
3.1
|
|
|
—
|
|
|
3.9
|
|
Total current liabilities
|
|
1,373.0
|
|
|
1,521.3
|
|
|
393.7
|
|
|
(2,601.5
|
)
|
|
686.5
|
|
Long-term debt
|
|
1,341.7
|
|
|
149.7
|
|
|
0.4
|
|
|
—
|
|
|
1,491.8
|
|
Intercompany notes payable
|
|
—
|
|
|
200.0
|
|
|
—
|
|
|
(200.0
|
)
|
|
—
|
|
Accrued postretirement benefits
|
|
—
|
|
|
280.0
|
|
|
79.2
|
|
|
—
|
|
|
359.2
|
|
Pension liabilities
|
|
778.0
|
|
|
5.2
|
|
|
50.6
|
|
|
—
|
|
|
833.8
|
|
Deferred income taxes
|
|
75.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75.6
|
|
Other long-term liabilities
|
|
15.2
|
|
|
20.7
|
|
|
72.4
|
|
|
—
|
|
|
108.3
|
|
Total liabilities
|
|
3,583.5
|
|
|
2,176.9
|
|
|
596.3
|
|
|
(2,801.5
|
)
|
|
3,555.2
|
|
Redeemable noncontrolling interest
|
|
—
|
|
|
—
|
|
|
12.1
|
|
|
—
|
|
|
12.1
|
|
Total stockholders’ equity (deficit)
|
|
2,184.4
|
|
|
(209.5
|
)
|
|
5,989.7
|
|
|
(5,780.2
|
)
|
|
2,184.4
|
|
Total liabilities and stockholders’ equity
|
|
$
|
5,767.9
|
|
|
$
|
1,967.4
|
|
|
$
|
6,598.1
|
|
|
$
|
(8,581.7
|
)
|
|
$
|
5,751.7
|
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Sales
|
|
$
|
—
|
|
|
$
|
1,453.2
|
|
|
$
|
2,266.4
|
|
|
$
|
—
|
|
|
$
|
3,719.6
|
|
Cost of sales
|
|
27.3
|
|
|
1,643.2
|
|
|
1,988.8
|
|
|
—
|
|
|
3,659.3
|
|
Gross profit (loss)
|
|
(27.3
|
)
|
|
(190.0
|
)
|
|
277.6
|
|
|
—
|
|
|
60.3
|
|
Selling and administrative expenses
|
|
88.2
|
|
|
29.4
|
|
|
121.2
|
|
|
—
|
|
|
238.8
|
|
Restructuring charges
|
|
1.6
|
|
|
58.0
|
|
|
4.7
|
|
|
—
|
|
|
64.3
|
|
Impairment of goodwill
|
|
—
|
|
|
126.6
|
|
|
—
|
|
|
—
|
|
|
126.6
|
|
Operating income (loss)
|
|
(117.1
|
)
|
|
(404.0
|
)
|
|
151.7
|
|
|
—
|
|
|
(369.4
|
)
|
Interest income (expense), net
|
|
(117.3
|
)
|
|
(50.9
|
)
|
|
58.0
|
|
|
—
|
|
|
(110.2
|
)
|
Other income (expense) including equity in income of unconsolidated subsidiaries
|
|
(243.6
|
)
|
|
1.1
|
|
|
0.8
|
|
|
243.3
|
|
|
1.6
|
|
Income (loss) from continuing operations before income taxes
|
|
(478.0
|
)
|
|
(453.8
|
)
|
|
210.5
|
|
|
243.3
|
|
|
(478.0
|
)
|
Income tax provision (benefit)
|
|
(112.1
|
)
|
|
(165.7
|
)
|
|
51.6
|
|
|
114.1
|
|
|
(112.1
|
)
|
Net income (loss)
|
|
(365.9
|
)
|
|
(288.1
|
)
|
|
158.9
|
|
|
129.2
|
|
|
(365.9
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
12.0
|
|
|
—
|
|
|
12.0
|
|
Net income (loss) attributable to ATI
|
|
$
|
(365.9
|
)
|
|
$
|
(288.1
|
)
|
|
$
|
146.9
|
|
|
$
|
129.2
|
|
|
$
|
(377.9
|
)
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income (loss)
|
|
$
|
(365.9
|
)
|
|
$
|
(288.1
|
)
|
|
$
|
158.9
|
|
|
$
|
129.2
|
|
|
$
|
(365.9
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment arising during the period
|
|
(37.0
|
)
|
|
—
|
|
|
(37.0
|
)
|
|
37.0
|
|
|
(37.0
|
)
|
Net derivative loss on hedge transactions
|
|
(32.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32.0
|
)
|
Pension and postretirement benefits
|
|
(19.7
|
)
|
|
29.8
|
|
|
3.1
|
|
|
(32.9
|
)
|
|
(19.7
|
)
|
Other comprehensive income (loss), net of tax
|
|
(88.7
|
)
|
|
29.8
|
|
|
(33.9
|
)
|
|
4.1
|
|
|
(88.7
|
)
|
Comprehensive income (loss)
|
|
(454.6
|
)
|
|
(258.3
|
)
|
|
125.0
|
|
|
133.3
|
|
|
(454.6
|
)
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
6.4
|
|
Comprehensive income (loss) attributable to ATI
|
|
$
|
(454.6
|
)
|
|
$
|
(258.3
|
)
|
|
$
|
118.6
|
|
|
$
|
133.3
|
|
|
$
|
(461.0
|
)
|
Condensed Statements of Cash Flows
For the year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities
|
|
$
|
(70.0
|
)
|
|
$
|
(134.8
|
)
|
|
$
|
360.2
|
|
|
$
|
(24.0
|
)
|
|
$
|
131.4
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(0.6
|
)
|
|
(66.9
|
)
|
|
(77.0
|
)
|
|
—
|
|
|
(144.5
|
)
|
Net receipts (payments) on intercompany activity
|
|
—
|
|
|
—
|
|
|
(327.9
|
)
|
|
327.9
|
|
|
—
|
|
Purchases of businesses, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
Asset disposals and other
|
|
—
|
|
|
0.2
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.1
|
)
|
Cash flows provided by (used in) investing activities
|
|
(0.6
|
)
|
|
(66.7
|
)
|
|
(405.7
|
)
|
|
327.9
|
|
|
(145.1
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital leases
|
|
(0.6
|
)
|
|
(0.1
|
)
|
|
(22.9
|
)
|
|
—
|
|
|
(23.6
|
)
|
Net receipts (payments) on intercompany acivity
|
|
137.3
|
|
|
190.6
|
|
|
—
|
|
|
(327.9
|
)
|
|
—
|
|
Dividends paid to stockholders
|
|
(66.5
|
)
|
|
—
|
|
|
(24.0
|
)
|
|
24.0
|
|
|
(66.5
|
)
|
Dividends paid to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(16.0
|
)
|
|
—
|
|
|
(16.0
|
)
|
Other
|
|
(1.4
|
)
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
0.1
|
|
Cash flows provided by (used in) financing activities
|
|
68.8
|
|
|
190.5
|
|
|
(61.4
|
)
|
|
(303.9
|
)
|
|
(106.0
|
)
|
Decrease in cash and cash equivalents
|
|
$
|
(1.8
|
)
|
|
$
|
(11.0
|
)
|
|
$
|
(106.9
|
)
|
|
$
|
—
|
|
|
$
|
(119.7
|
)
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Sales
|
|
$
|
—
|
|
|
$
|
1,878.0
|
|
|
$
|
2,345.4
|
|
|
$
|
—
|
|
|
$
|
4,223.4
|
|
Cost of sales
|
|
45.3
|
|
|
1,874.8
|
|
|
1,924.7
|
|
|
—
|
|
|
3,844.8
|
|
Gross profit (loss)
|
|
(45.3
|
)
|
|
3.2
|
|
|
420.7
|
|
|
—
|
|
|
378.6
|
|
Selling and administrative expenses
|
|
103.9
|
|
|
44.0
|
|
|
124.6
|
|
|
—
|
|
|
272.5
|
|
Operating income (loss)
|
|
(149.2
|
)
|
|
(40.8
|
)
|
|
296.1
|
|
|
—
|
|
|
106.1
|
|
Interest income (expense), net
|
|
(111.0
|
)
|
|
(44.9
|
)
|
|
47.2
|
|
|
—
|
|
|
(108.7
|
)
|
Other income (expense) including equity in income of unconsolidated subsidiaries
|
|
261.7
|
|
|
1.1
|
|
|
2.9
|
|
|
(261.6
|
)
|
|
4.1
|
|
Income (loss) from continuing operations, before income taxes
|
|
1.5
|
|
|
(84.6
|
)
|
|
346.2
|
|
|
(261.6
|
)
|
|
1.5
|
|
Income tax provision (benefit)
|
|
(8.7
|
)
|
|
(29.3
|
)
|
|
116.7
|
|
|
(87.4
|
)
|
|
(8.7
|
)
|
Income (loss) from continuing operations
|
|
10.2
|
|
|
(55.3
|
)
|
|
229.5
|
|
|
(174.2
|
)
|
|
10.2
|
|
Income (loss) from discontinued operations, net of tax
|
|
(0.6
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
0.6
|
|
|
(0.6
|
)
|
Net income (loss)
|
|
9.6
|
|
|
(55.3
|
)
|
|
228.9
|
|
|
(173.6
|
)
|
|
9.6
|
|
Less: Net income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
12.2
|
|
|
—
|
|
|
12.2
|
|
Net income (loss) attributable to ATI
|
|
$
|
9.6
|
|
|
$
|
(55.3
|
)
|
|
$
|
216.7
|
|
|
$
|
(173.6
|
)
|
|
$
|
(2.6
|
)
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income (loss)
|
|
$
|
9.6
|
|
|
$
|
(55.3
|
)
|
|
$
|
228.9
|
|
|
$
|
(173.6
|
)
|
|
$
|
9.6
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment arising during the period
|
|
(33.6
|
)
|
|
—
|
|
|
(33.6
|
)
|
|
33.6
|
|
|
(33.6
|
)
|
Net derivative gain on hedge transactions
|
|
25.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.9
|
|
Pension and postretirement benefits
|
|
(212.6
|
)
|
|
1.8
|
|
|
(28.4
|
)
|
|
26.6
|
|
|
(212.6
|
)
|
Other comprehensive income (loss), net of tax
|
|
(220.3
|
)
|
|
1.8
|
|
|
(62.0
|
)
|
|
60.2
|
|
|
(220.3
|
)
|
Comprehensive income (loss)
|
|
(210.7
|
)
|
|
(53.5
|
)
|
|
166.9
|
|
|
(113.4
|
)
|
|
(210.7
|
)
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
10.1
|
|
|
—
|
|
|
10.1
|
|
Comprehensive income (loss) attributable to ATI
|
|
$
|
(210.7
|
)
|
|
$
|
(53.5
|
)
|
|
$
|
156.8
|
|
|
$
|
(113.4
|
)
|
|
$
|
(220.8
|
)
|
Condensed Statements of Cash Flows
For the year ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities
|
|
$
|
(66.9
|
)
|
|
$
|
(313.8
|
)
|
|
$
|
436.6
|
|
|
$
|
—
|
|
|
$
|
55.9
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(0.1
|
)
|
|
(170.8
|
)
|
|
(54.8
|
)
|
|
—
|
|
|
(225.7
|
)
|
Net receipts (payments) on intercompany activity
|
|
—
|
|
|
—
|
|
|
(1,027.7
|
)
|
|
1,027.7
|
|
|
—
|
|
Purchases of businesses, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(92.9
|
)
|
|
—
|
|
|
(92.9
|
)
|
Asset disposals and other
|
|
—
|
|
|
1.7
|
|
|
0.7
|
|
|
—
|
|
|
2.4
|
|
Cash flows provided by (used in) investing activities
|
|
(0.1
|
)
|
|
(169.1
|
)
|
|
(1,174.7
|
)
|
|
1,027.7
|
|
|
(316.2
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Payments on long-terms debt and capital leases
|
|
(397.9
|
)
|
|
(0.1
|
)
|
|
(16.9
|
)
|
|
—
|
|
|
(414.9
|
)
|
Net receipts (payments) on intercompany activity
|
|
544.4
|
|
|
483.3
|
|
|
—
|
|
|
(1,027.7
|
)
|
|
—
|
|
Dividends paid to stockholders
|
|
(77.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(77.1
|
)
|
Other
|
|
(3.8
|
)
|
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
|
(5.0
|
)
|
Cash flows provided by (used in) financing activities
|
|
65.6
|
|
|
483.2
|
|
|
(18.1
|
)
|
|
(1,027.7
|
)
|
|
(497.0
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(1.4
|
)
|
|
$
|
0.3
|
|
|
$
|
(756.2
|
)
|
|
$
|
—
|
|
|
$
|
(757.3
|
)
|
Note 21. Commitments and Contingencies
Rental expense from continuing operations under operating leases was
$22.6 million
in
2016
,
$23.1 million
in
2015
, and
$22.4 million
in
2014
. Future minimum rental commitments under operating leases with non-cancelable terms of more than one year at
December 31, 2016
, were as follows:
$17.8 million
in
2017
,
$12.5 million
in
2018
,
$10.5 million
in
2019
,
$6.5 million
in
2020
,
$5.6 million
in
2021
and
$17.0 million
thereafter. Commitments for expenditures on property, plant and equipment at
December 31, 2016
were approximately
$14.8 million
.
The Company is subject to various domestic and international environmental laws and regulations that govern the discharge of pollutants and disposal of wastes, and which may require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. The Company could incur substantial cleanup costs, fines, and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or noncompliance with environmental permits required at its facilities. The Company is currently involved in the investigation and remediation of a number of its current and former sites, as well as third party sites.
Environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable. In many cases, however, the Company is not able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss. Estimates of the Company’s liability remain subject to additional uncertainties, including the nature and extent of site contamination, available remediation alternatives, the extent of corrective actions that may be required, and the number, participation, and financial condition of other PRPs. The Company adjusts its accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on the Company’s consolidated results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments.
At
December 31, 2016
, the Company’s reserves for environmental remediation obligations totaled approximately
$16 million
, of which
$8 million
was included in other current liabilities. The reserve includes estimated probable future costs of
$3 million
for federal Superfund and comparable state-managed sites;
$11 million
for formerly owned or operated sites for which the Company has remediation or indemnification obligations;
$1 million
for owned or controlled sites at which Company operations have been discontinued; and
$1 million
for sites utilized by the Company in its ongoing operations. The Company continues to evaluate whether it may be able to recover a portion of future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate.
Based on currently available information, it is reasonably possible that the costs for active matters may exceed the Company’s recorded reserves by as much as
$17 million
. However, future investigation or remediation activities may result in the discovery of additional hazardous materials, potentially higher levels of contamination than discovered during prior investigation, and may impact costs of the success or lack thereof in remedial solutions. Therefore, future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on the Company’s consolidated financial condition or results of operations.
The timing of expenditures depends on a number of factors that vary by site. The Company expects that it will expend present accruals over many years and that remediation of all sites with which it has been identified will be completed within thirty years.
A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently and formerly owned businesses, including those pertaining to product liability, patent infringement, commercial, government contracting, employment, employee and retiree benefits, taxes, environmental, health and safety, occupational disease, and stockholder and corporate governance matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s consolidated financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s consolidated results of operations for that period.
Note 22. Selected Quarterly Financial Data
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
(In millions, except per share amounts)
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2016 -
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
757.5
|
|
|
$
|
810.5
|
|
|
$
|
770.5
|
|
|
$
|
796.1
|
|
Gross Profit (Loss)
|
|
(33.2
|
)
|
|
48.2
|
|
|
50.2
|
|
|
97.3
|
|
Net income (loss)
|
|
(98.1
|
)
|
|
(15.5
|
)
|
|
(527.2
|
)
|
|
13.7
|
|
Net income (loss) attributable to ATI
|
|
(101.2
|
)
|
|
(18.8
|
)
|
|
(530.8
|
)
|
|
9.9
|
|
Basic income (loss) attributable to ATI per common share
|
|
$
|
(0.94
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(4.95
|
)
|
|
$
|
0.09
|
|
Diluted income (loss) attributable to ATI per common share
|
|
$
|
(0.94
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(4.95
|
)
|
|
$
|
0.09
|
|
Average shares outstanding
|
|
109.0
|
|
|
108.9
|
|
|
108.9
|
|
|
108.9
|
|
2015 -
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,125.5
|
|
|
$
|
1,022.5
|
|
|
$
|
832.7
|
|
|
$
|
738.9
|
|
Gross Profit (loss)
|
|
109.5
|
|
|
77.0
|
|
|
(28.7
|
)
|
|
(97.5
|
)
|
Net income (loss)
|
|
12.6
|
|
|
(13.9
|
)
|
|
(141.3
|
)
|
|
(223.3
|
)
|
Net income (loss) attributable to ATI
|
|
10.0
|
|
|
(16.4
|
)
|
|
(144.6
|
)
|
|
(226.9
|
)
|
Basic income (loss) attributable to ATI per common share
|
|
$
|
0.09
|
|
|
$
|
(0.15
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
(2.12
|
)
|
Diluted income (loss) attributable to ATI per common share
|
|
$
|
0.09
|
|
|
$
|
(0.15
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
(2.12
|
)
|
Average shares outstanding
|
|
108.9
|
|
|
109.2
|
|
|
109.2
|
|
|
109.2
|
|
First quarter 2016 results include a
$9.0 million
pre-tax (
$6.7 million
, net of tax) charge for severance obligations in the FRP operations, and
$26.4 million
pre-tax (
$19.7 million
, net of tax) of work stoppage and return-to-work costs primarily affecting FRP operations following the ratification of the new labor agreement for USW-represented employees. First quarter 2016 results also include
$12.0 million
of below-normal income tax benefits compared to those that would apply at a standard
35%
tax rate.
Second quarter 2016 results include
$22.4 million
pre-tax (
$8.4 million
, net of tax) of work stoppage and return-to-work costs affecting FRP operations, and
$11.4 million
of above-normal income tax benefits compared to those that would apply at a standard
35%
tax rate.
Third quarter 2016 results include
$471.3 million
pre-tax (
$310.3 million
, net of tax) long-lived asset impairment charges,
$16.3 million
pre-tax (
$10.7 million
, net of tax) of facility shutdown and idling costs, and
$11.3 million
pre-tax (
$7.4 million
, net of tax) of inventory valuation charges for titanium sponge. These charges primarily related to the indefinite idling of the Company’s Rowley, UT titanium sponge facility. In addition, third quarter 2016 results include a
$173.1 million
charge for income tax valuation allowances recorded on U.S. federal deferred tax assets.
Fourth quarter 2016 results include
$15.4 million
pre-tax (
$10.0 million
, net of tax) of facility shutdown and idling costs primarily related to the indefinite idling of the Company’s Rowley, UT titanium sponge facility, the consolidation of certain titanium manufacturing operations and the permanent closure of the Midland, PA commodity stainless steel melt and sheet finishing facility and the Bagdad, PA GOES finishing facility. In addition, fourth quarter 2016 results include
$13.2 million
pre-tax (
$8.6 million
, net of tax) of employee benefit costs associated with these facility idlings and closures as well as additional FRP severance charges for salaried workforce reductions. Fourth quarter 2016 results also include
$32.4 million
for above-normal income tax benefits compared to those that would apply at a standard
35%
tax rate. The above-normal income tax benefit is due primarily to a
$22.5 million
correcting adjustment to reduce income tax valuation allowances on U.S. deferred tax assets that were established in the third quarter 2016; the correcting adjustment was not deemed material to the third quarter results.
Third quarter 2015 results include a
$76.0 million
pre-tax (
$49.5 million
, net of tax) non-cash charge for net realizable value (NRV) inventory reserves, which are required to offset ATI’s aggregate net debit LIFO inventory balance that exceeds current inventory replacement cost. Third quarter 2015 results also include a
$63.9 million
tax valuation allowance on a portion of ATI’s deferred tax assets as a result of a three year cumulative loss from U.S. operations.
Fourth quarter 2015 results include non-cash charges for goodwill and asset impairments, restructuring, inventory and other items. These charges were comprised of a
$126.6 million
pre-tax (
$79.2 million
, net of tax) non-cash goodwill impairment charge in the Flat Rolled Products segment,
$54.5 million
pre-tax (
$34.1 million
, net of tax) in non-cash long-lived asset impairment charges,
$3.5 million
pre-tax (
$2.2 million
, net of tax) in facility idling costs,
$25.4 million
pre-tax (
$15.9 million
, net of tax) in a non-cash charge to revalue inventory,
$51.2 million
pre-tax (
$32.0 million
, net of tax) in NRV inventory reserve charges and
$6.3 million
pre-tax (
$3.9 million
, net of tax) in employee severance and termination benefit charges arising from a reduction in force among salaried employees within the HMPC segment and the ATI Corporate office.
Net of tax amounts presented above generally use the effective tax rate for the applicable quarterly period which differs from the effective tax rate for the full year. In periods with significant tax valuation allowance adjustments, net of tax amounts use a standard
35%
tax rate, with separate identification by quarter of unusual income tax provision or benefit effects.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures.
In accordance with Securities Exchange Act Rules 13-1-15(e) and 15d-15(e), our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2016 because of the material weakness in our internal control over financial reporting described below.
(b)
Management’s Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) in Internal Control-Integrated Framework.
Based on that assessment, the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2016, the Company’s internal control over financial reporting was not effective, due to the material weakness described below.
Inadequate Controls Over Calculation and Review of Deferred Tax Asset Valuation Allowances
We did not have adequate controls designed and in place to ensure that we correctly calculated deferred tax asset valuation allowances, including having adequate technical review of the deferred tax asset valuation allowances for the third quarter ended September 30, 2016. Prior to issuing the fourth quarter and full year 2016 consolidated financial statements, we determined that there was an error in the required valuation allowance for federal deferred tax assets for the quarter ended September 30, 2016 related to the misapplication of accounting principles. The control deficiency was identified and the deferred tax asset valuation allowance was corrected in the fourth quarter of 2016 prior to issuing our consolidated financial statements for the year ended December 31, 2016. The control deficiency related to the deferred tax asset valuation allowance calculation created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis and therefore we concluded that the deficiency represents a material weakness in the Company’s internal control over financial reporting as of December 31, 2016.
The Company’s independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report issued an adverse report on effectiveness of the Company’s internal control over financial reporting as of December 31, 2016.
(c)
Remediation of the Material Weakness in Internal Control Over Financial Reporting.
The Company has begun to implement changes to the design of controls to separately identify a key control regarding the calculation and review of deferred tax asset valuation allowances, and has begun to implement changes to ensure that income tax controls include specific activities to ensure the proper application of accounting principles related to the deferred tax asset valuation allowance, and to ensure that controls function at an appropriate level of precision. In addition, the Company has begun to implement changes to the income tax process, which include, but are not limited to, supplementing the internal tax team with additional subject matter resources and augmenting the internal review procedures to include consultation and external review procedures over the quarterly and annual income tax calculations that are used to determine the income tax provision or benefit reported in the Company’s consolidated financial statements. The material weakness cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Certain of these controls relate to the quarterly income tax provision process and, as such cannot be tested until the next quarter-end reporting cycle.
(d)
Changes to Internal Control over Financial Reporting.
Other than the ongoing remediation plans described above, there were no changes to our internal control over financial reporting that occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Certifications
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act are included as Exhibits 31 and 32 to this Annual Report on Form 10-K. In addition, in 2016 the Company’s Chief Executive Officer provided to the New York Stock Exchange the annual CEO certification pursuant to Section 303A regarding the Company’s compliance with the New York Stock Exchange’s corporate governance listing standards.