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. The financial results of majority-owned joint ventures are consolidated into the Company’s operating results and financial position, with the minority ownership interest recognized in the consolidated statement of operations as net income attributable to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity. Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50% ownership interest) are accounted for under the equity method of accounting, whereby ATI’s carrying value of the equity method investment on the statement of financial position is the capital investment and any undistributed profit or loss, and is classified in Other (noncurrent) assets. The profit or loss attributable to ATI from an equity method investment is included in the results of operations. See Note 5 for further explanation of the Company’s joint ventures. 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
2017
presentation.
The Company markets its products to a diverse customer base, principally throughout the United States. No single customer accounted for more than 10% of sales for any year presented. The 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, 2017, ATI has approximately
8,600
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). CBAs with the USW that cover approximately
600
employees expired in 2017, and operations continue at these facilities while negotiations with the USW are ongoing. In addition, the Company has CBAs with approximately
300
full-time employees that expire in 2018.
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
$5.9 million
and
$7.3 million
at
December 31, 2017
and
2016
, 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. Amounts are written-off against the reserve in the period it is determined that the receivable is uncollectible.
Inventories
Inventories are stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out (FIFO), and average cost methods) or market, 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 include long-lived assets acquired under capital leases. Depreciation is primarily recorded using the straight-line method. 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 16 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 the carrying value over the calculated fair value as required by the new accounting guidance early adopted by the Company in 2017. See New Accounting Pronouncements Adopted section below for further explanation of this new accounting guidance.
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 were
$13.3 million
in
2017
,
$14.7 million
in
2016
, and
$14.2 million
in
2015
and were expensed as incurred. Customer funded research and development costs were
$1.4 million
in
2017
,
$2.2 million
in
2016
, and
$1.5 million
in
2015
.
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. Compensation expense is adjusted for estimated forfeitures over the award measurement period.
Income Taxes
The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback and/or carryforward period available under tax law.
The Company evaluates on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation includes the consideration of all available evidence, both positive and negative, regarding 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 since the inclusion in the calculation of additional shares in the net loss per share would result in a lower per share loss and therefore be anti-dilutive.
New Accounting Pronouncements Adopted
In January 2017, the Company early adopted changes issued by the Financial Accounting Standards Board (FASB) 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.
In January 2017, the Company adopted changes issued by the FASB 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 statement of cash flows, which will be prospectively adopted. The adoption of these changes did not have a material impact on the Company’s financial statements.
In January 2017, the Company adopted changes issued by the FASB to simplify the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. This change in the measurement of inventory does not apply to inventory valued on a last-in, first-out (LIFO) basis, which is the accounting basis used for most of the Company’s inventory. The adoption of these changes did not have a material impact on the Company’s financial statements.
In the fourth quarter 2017, the Company early adopted changes issued by the FASB on classification of cash receipts and cash payments on the statement of cash flows. The adoption of these changes did not have a material impact on the Company’s financial statements other than requiring the classification of the cash portion of the Company’s debt extinguishment charge in 2017 as a financing activity in the 2017 consolidated statement of cash flows. See Note 8 for further discussion of this debt extinguishment charge.
Pending Accounting Pronouncements
In February 2018, the FASB issued limited changes to accounting standards to address the income tax accounting for certain provisions of the Tax Cuts and Jobs Act (the “Tax Act”). Accounting standards require the effect of a change in tax laws or rates on deferred tax assets and liabilities to be included in income from continuing operations in the reporting period that the change was enacted, including tax effects that were initially recognized directly in other comprehensive income at the previous rate. This results in stranded amounts in accumulated other comprehensive income (AOCI) related to the income tax rate differential, as the net-of-tax AOCI balance is not adjusted for the tax rate change. This new accounting guidance provides the option to make a one-time reclassification from AOCI to retained earnings for stranded tax effects resulting from the newly enacted U.S. federal tax rate under the Tax Act, calculated on the basis of the difference between the historical and newly enacted U.S. federal tax rate on deferred tax assets and liabilities related to items within AOCI. Adoption of the new accounting guidance is not required, and the Company has elected not to adopt this new guidance.
In August 2017, the FASB issued changes to its accounting guidance for derivatives and hedging, which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Some changes resulting from this new guidance include the elimination of the concept of recognizing periodic hedge ineffectiveness for cash flow hedges, changes to the recognition and presentation of changes in the fair value of the hedging instrument, enhancement of the ability to use the critical-terms-match method for the cash flow hedge of groups of forecasted transactions when the timing of the hedged transactions does not perfectly match the hedging instrument’s maturity date, and the addition of new disclosure requirements and amendments to existing ones. This new guidance is effective for the Company’s 2019 fiscal year, with early adoption permitted and all transition requirements and elections being applied to hedging relationships existing on the date of adoption. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In March 2017, the FASB issued changes to the accounting for defined benefit pension and other postretirement benefit expenses. This new guidance requires the disaggregation of the service cost component from the other components of net benefit cost. The service cost component of net benefit cost is to be reported in the same line item on the consolidated statement of operations as other compensation costs arising from services rendered by the pertinent employees, while the other components of net benefit cost are to be presented in the consolidated statement of operations separately, outside a subtotal of operating income. The amendments also provide explicit guidance to allow only the service cost component of net benefit cost to be eligible for capitalization. This new guidance is effective for the Company’s 2018 fiscal year, with the adoption of the change in presentation of net benefit cost in the consolidated statement of operations to be applied retrospectively, and the change in capitalization for only service cost applied prospectively. The guidance allows a practical expedient that permits the use of the amounts disclosed in the retirement benefits footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company will adopt this new guidance in the first quarter of fiscal year 2018 using this practical expedient.
The Company expects such adoption to have a material impact to reported operating income in the consolidated statement of operations due to the change in presentation of non-service cost expense components. For example, applying the practical expedient to fiscal year 2017 results, operating income for 2017 would be
$54.3 million
higher, with the reclassification of this amount representing the other components of net benefit cost to a newly-created non-operating retirement benefit expense category, with no net impact to the reported 2017 loss before income taxes. This statement of operations change in presentation of net benefit cost will not affect ATI’s measure of segment operating profit; all defined benefit pension and other postretirement benefit expense attributable to business segment operations remains a component of business segment financial performance. The Company expects to have a one-time, unfavorable impact of approximately
$6 million
to pre-tax reported results in the first quarter of 2018 upon adoption primarily affecting the Flat Rolled Products business segment, due to the change limiting only the service cost component of net benefit cost to be capitalizable into inventory.
In 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 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 will 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. The Company has evaluated the impact of this standard on individual customer contracts and based on this evaluation determined that there are several customer agreements involving production of parts and components in the High Performance Materials and Components segment that require revenue to be recognized over time due to there being no alternative use for the product without significant economic loss and an enforceable right to payment including a normal profit margin from the customer in the event of contract termination. Over-time recognition is a change from current accounting, which is at a point-in-time for these products. As a result, the Company will recognize a
$15.5 million
increase to retained earnings at the beginning of the 2018 fiscal year for the cumulative effect of applying the over-time revenue recognition to prior periods, representing the favorable impact to prior results had the over-time revenue recognition method been applied. Due to certain customer agreements with limited duration, 2018 gross profit is now expected to be lower by approximately
$5 million
as a result of the cumulative effect adjustment for over-time recognition. There is no other significant impact to the Company upon adoption, with the exception of reclassifications to contract assets and liabilities on the consolidated balances sheet. As of January 1, 2018, total assets and total liabilities both increased by approximately
$33 million
, representing the reclassification of amounts recorded previously in accounts receivable and inventory to contract liabilities on the consolidated balance sheet. The Company also expects an increase to financial statement footnote disclosures in 2018 regarding revenues, contract assets and contract liabilities as a result of this accounting standard update.
Note 2. Inventories
Inventories at
December 31, 2017
and
2016
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Raw materials and supplies
|
|
$
|
162.8
|
|
|
$
|
149.6
|
|
Work-in-process
|
|
955.5
|
|
|
837.9
|
|
Finished goods
|
|
165.0
|
|
|
161.7
|
|
Total inventories at current cost
|
|
1,283.3
|
|
|
1,149.2
|
|
Adjustment from current cost to LIFO cost basis
|
|
43.1
|
|
|
97.3
|
|
Inventory valuation reserves
|
|
(121.5
|
)
|
|
(169.0
|
)
|
Progress payments
|
|
(28.8
|
)
|
|
(40.5
|
)
|
Total inventories, net
|
|
$
|
1,176.1
|
|
|
$
|
1,037.0
|
|
Inventories, before progress payments, determined on the LIFO method were
$821.2 million
at
December 31, 2017
, and
$736.3 million
at
December 31, 2016
. 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,
|
|
|
2017
|
2016
|
2015
|
LIFO benefit (charge)
|
|
$
|
(54.2
|
)
|
$
|
(39.1
|
)
|
$
|
131.6
|
|
NRV benefit (charge)
|
|
54.0
|
|
39.9
|
|
(131.5
|
)
|
Net cost of sales impact
|
|
$
|
(0.2
|
)
|
$
|
0.8
|
|
$
|
0.1
|
|
During
2017
,
2016
and
2015
, inventory usage resulted in liquidations of LIFO inventory quantities, increasing cost of sales by
$4.6 million
,
$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.
The results for fiscal years
2016
and
2015
included
$17.7 million
and
$24.5 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 16 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 3. Property, Plant and Equipment
Property, plant and equipment at
December 31, 2017
and
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
Land
|
|
$
|
31.7
|
|
|
$
|
31.4
|
|
Buildings
|
|
844.5
|
|
|
829.6
|
|
Equipment and leasehold improvements
|
|
3,597.6
|
|
|
3,497.2
|
|
|
|
4,473.8
|
|
|
4,358.2
|
|
Accumulated depreciation and amortization
|
|
(1,978.1
|
)
|
|
(1,859.3
|
)
|
Total property, plant and equipment, net
|
|
$
|
2,495.7
|
|
|
$
|
2,498.9
|
|
Construction in progress at
December 31, 2017
and
2016
was
$90.7 million
and
$87.4 million
, respectively. Depreciation and amortization for the years ended
December 31, 2017
,
2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
Depreciation of property, plant and equipment
|
|
$
|
135.2
|
|
|
$
|
141.9
|
|
|
$
|
159.6
|
|
Software and other amortization
|
|
25.6
|
|
|
28.4
|
|
|
30.3
|
|
Total depreciation and amortization
|
|
$
|
160.8
|
|
|
$
|
170.3
|
|
|
$
|
189.9
|
|
Note 4. Goodwill and Other Intangible Assets
At
December 31, 2017
, the Company had
$531.4 million
of goodwill on its consolidated balance sheet, all of which relates to the High Performance Materials & Components (HPMC) segment. Goodwill decreased
$110.5 million
in
2017
as a result of a
$114.4 million
impairment charge in the HPMC segment offset by
$3.9 million
from the impact of foreign currency translation on goodwill denominated in functional currencies other than the U.S. dollar.
The Company performs its annual goodwill impairment evaluations in the fourth quarter of each year. During the third quarter of 2017, the Company performed an interim goodwill impairment analysis on ATI Cast Products, a titanium investment casting business, due to impairment indicators including lower actual results versus projections. This reporting unit had a fair value that exceeded carrying value by
12%
according to our 2016 annual goodwill impairment evaluation. For the 2017 interim impairment analysis, fair value was determined by using a quantitative assessment using a discounted cash flow technique, which represents Level 3 unobservable information in the fair value hierarchy. As a result of the 2017 interim goodwill impairment evaluation, the Company determined that the fair value of the Cast Products business was significantly below the carrying value, including goodwill. This was primarily due to lower projected revenues, profitability and cash flows associated with revised expectations for the rate of operational improvement and profitability of this business based on current customer agreements. Consequently, during the third quarter of 2017, the Company recorded a
$114.4 million
pre-tax impairment charge to write-off all of the goodwill associated with ATI Cast Products, most of which was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes. This goodwill impairment charge was excluded from 2017 HPMC business segment results.
Also during the third quarter of 2017, management concluded that the goodwill impairment at ATI Cast Products was an impairment indicator to evaluate the recoverability of other long-lived assets of this reporting unit, including property, plant, equipment, and intangible assets. No impairment was determined to exist in these long-lived assets as a result of this interim impairment test.
For the Company’s annual goodwill impairment evaluation performed in the fourth quarter of 2017, quantitative goodwill assessments were performed for the
two
HPMC reporting units with goodwill. Both of these reporting units had fair values that were significantly in excess of carrying value, and as a result,
no
impairments were determined to exist from the annual goodwill impairment evaluation for the year ended December 31, 2017. 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.
There were
no
goodwill impairments for the year ended December 31, 2016. 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 goodwill impairment losses as of December 31, 2017 and 2016 were
$241.0 million
and
$126.6 million
, respectively.
Other intangible assets, which are included in Other assets on the accompanying consolidated balance sheets as of
December 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
(in millions)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
Technology
|
|
$
|
91.4
|
|
|
$
|
(27.4
|
)
|
|
$
|
91.4
|
|
|
$
|
(23.0
|
)
|
Customer relationships
|
|
35.7
|
|
|
(9.1
|
)
|
|
35.7
|
|
|
(7.6
|
)
|
Trademarks
|
|
64.6
|
|
|
(17.2
|
)
|
|
64.6
|
|
|
(12.9
|
)
|
Total amortizable intangible assets
|
|
$
|
191.7
|
|
|
$
|
(53.7
|
)
|
|
$
|
191.7
|
|
|
$
|
(43.5
|
)
|
Amortization expense related to intangible assets was approximately
$10 million
for the years ended
December 31, 2017
,
2016
and
2015
. For each of the years ending December 31, 2018 through 2022, annual amortization expense is expected to be approximately
$10 million
.
Note 5. Joint Ventures
The financial results of majority-owned joint ventures are consolidated into the Company’s operating results and financial position, with the minority ownership interest recognized in the consolidated statement of operations as net income attributable to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity. Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50% ownership interest) are accounted for under the equity method of accounting.
Majority-Owned Joint Ventures
The Company has a
60%
interest in the Chinese joint venture known as Shanghai STAL Precision Stainless Steel Company Limited (STAL). The remaining
40%
interest in STAL is owned by China Baowu Steel Group Corporation Limited, a state authorized investment company whose equity securities are publicly traded in the People’s Republic of China. STAL is part of ATI's Flat Rolled Products segment, and manufactures Precision Rolled Strip stainless products mainly for the electronics, communication equipment, computers and automotive markets located in Asia. Cash and cash equivalents held by STAL as of December 31, 2017 were
$26.2 million
.
During 2017, the Company formed Next Gen Alloys LLC, a joint venture with GE Aviation for the development of a new meltless titanium alloy powder manufacturing technology. ATI owns a
51%
interest in this joint venture. The titanium alloy powders are being developed for use in additive manufacturing applications, including 3D printing. Cash and cash equivalents held by this joint venture as of December 31, 2017 were
$7.0 million
.
Equity Method Joint Ventures
ATI has a
50%
interest in the industrial titanium joint venture known as Uniti LLC (Uniti), with the remaining
50%
interest held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. Uniti is accounted for under the equity method of accounting. ATI’s share of Uniti’s income/(loss) was
$0.6 million
in
2017
,
$0.5 million
in
2016
, and
$(0.1) million
in
2015
, which is included in the Flat Rolled Products segment’s operating results, and within cost of sales in the consolidated statements of operations. Sales to Uniti, which are included in ATI’s consolidated statements of operations, were
$38.6 million
in
2017
,
$20.3 million
in
2016
, and
$55.4 million
in
2015
. Accounts receivable from Uniti were
$1.2 million
and
$1.5 million
at
December 31, 2017
and
2016
, respectively.
Stockholders’ equity includes undistributed earnings of investees accounted for under the equity method of accounting of approximately
$10 million
at
December 31, 2017
.
Note 6. 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, 2017
, the Company had recognized AROs of
$23.5 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, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
Balance at beginning of year
|
|
$
|
23.3
|
|
|
$
|
25.0
|
|
Accretion expense
|
|
0.8
|
|
|
0.7
|
|
Payments
|
|
(0.7
|
)
|
|
(2.0
|
)
|
Revision of estimates
|
|
0.1
|
|
|
(0.4
|
)
|
Balance at end of year
|
|
$
|
23.5
|
|
|
$
|
23.3
|
|
Note 7. Supplemental Financial Statement Information
Cash and cash equivalents at
December 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
Cash
|
|
$
|
140.2
|
|
|
$
|
164.1
|
|
Other short-term investments
|
|
1.4
|
|
|
65.5
|
|
Total cash and cash equivalents
|
|
$
|
141.6
|
|
|
$
|
229.6
|
|
Accounts receivable are presented net of a reserve for doubtful accounts of
$5.9 million
at
December 31, 2017
, and
$7.3 million
at
December 31, 2016
. During
2017
, the Company recognized expense of
$0.1 million
to increase the reserve for doubtful accounts and wrote off
$1.5 million
of uncollectible accounts, which decreased the reserve. 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.
Accrued liabilities included salaries, wages and other payroll-related liabilities of
$61.6 million
and
$54.6 million
, and accrued interest of
$36.2 million
and
$40.4 million
at
December 31, 2017
and
2016
, respectively.
Other income (expense) for the years ended
December 31, 2017
,
2016
, and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
Rent and royalty income
|
|
$
|
3.5
|
|
|
$
|
1.4
|
|
|
$
|
2.0
|
|
Net gains on property and investments
|
|
0.5
|
|
|
1.0
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
Total other income, net
|
|
$
|
4.0
|
|
|
$
|
2.4
|
|
|
$
|
1.6
|
|
Note 8. Debt
Debt at
December 31, 2017
and
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
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
|
|
Allegheny Technologies $287.5 million 4.75% Convertible Senior Notes due 2022
|
|
287.5
|
|
|
287.5
|
|
Allegheny Ludlum 6.95% Debentures due 2025
|
|
150.0
|
|
|
150.0
|
|
Term Loan due 2022
|
|
100.0
|
|
|
100.0
|
|
U.S. revolving credit facility
|
|
—
|
|
|
—
|
|
Foreign credit agreements
|
|
6.3
|
|
|
4.4
|
|
Other
|
|
10.0
|
|
|
2.2
|
|
Debt issuance costs
|
|
(13.1
|
)
|
|
(17.1
|
)
|
Total short-term and long-term debt
|
|
1,540.7
|
|
|
1,877.0
|
|
Short-term debt and current portion of long-term debt
|
|
10.1
|
|
|
105.1
|
|
Total long-term debt
|
|
$
|
1,530.6
|
|
|
$
|
1,771.9
|
|
|
|
(a)
|
Bearing interest at
7.875%
effective February 15, 2016.
|
Interest expense was
$134.9 million
in
2017
,
$125.4 million
in
2016
, and
$111.4 million
in
2015
. Interest expense was reduced by
$2.6 million
,
$4.7 million
, and
$2.2 million
, in
2017
,
2016
, and
2015
, respectively, from interest capitalization on capital projects. Interest and commitment fees paid were
$133.8 million
in
2017
,
$127.2 million
in
2016
, and
$113.4 million
in
2015
. Net interest expense includes interest income of
$1.1 million
in
2017
,
$1.4 million
in
2016
, and
$1.2 million
in
2015
.
Scheduled principal payments during the next five years are
$10.1 million
in 2018,
$4.5 million
in 2019,
$1.1 million
in 2020,
$500.5 million
in 2021, and
$387.7 million
in 2022.
2019 Notes
In December 2017, the Company redeemed all
$350 million
aggregate principal amount of the
9.375%
Senior Notes due 2019 (2019 Notes), resulting in a
$37.0 million
pre-tax debt extinguishment charge, which included a
$35.8 million
cash payment as a make-whole provision on the early extinguishment of debt, and a
$1.2 million
charge for previously-unrecognized debt issue costs.
2023 Notes
The
5.875%
stated interest rate payable on the Company’s Senior Notes due 2023 (2023 Notes) is subject to adjustment in the event of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s (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. Any further credit rating downgrades have no effect on the interest rate of the 2023 Notes, and increases in the Company’s credit ratings from these ratings agencies would reduce interest expense incrementally on the 2023 Notes to the original
5.875%
interest rate in a similar manner.
Credit Agreements
The Company has a
$500 million
Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s domestic operations. The ABL includes a
$400 million
revolving credit facility, which includes a letter of credit sub-facility of up to
$200 million
, and a
$100.0 million
term loan (Term Loan).
In June 2017, the ABL facility was amended to extend the maturity date of the Term Loan from November 2017 to February 2022 and to reduce the interest rate on the Term Loan to
3.0%
plus a LIBOR spread from
3.5%
plus a LIBOR spread. The Term Loan can be prepaid in minimum increments of
$50 million
if certain minimum liquidity conditions are satisfied. The underwriting costs associated with amending the Term Loan were
$0.8 million
, and are being amortized, along with the
unamortized portion of the
$1.0 million
of previously recognized deferred fees from the issuance of the Term Loan, to interest expense over the extended term of the loan ending February 2022.
Also in June 2017, the ABL facility was amended to, among other things, extend the duration of the revolving portion of the facility from September 2020 to February 2022. As amended, the applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between
1.75%
and
2.25%
for LIBOR-based borrowings (
2.0%
and
2.5%
prior to amendment) and between
1.0%
and
1.5%
for base rate borrowings. The ABL facility contains a financial covenant whereby the Company must maintain a fixed charge coverage ratio of not less than
1.00
:
1.00
after an event of default has occurred and is continuing or if the undrawn availability under the revolving credit portion of the facility is less than the greater of (i)
10%
, as amended, of the then applicable maximum borrowing amount under the revolving credit portion of the ABL and any outstanding Term Loan balance, or (ii)
$40 million
. The Company does not meet this required fixed charge coverage ratio at December 31, 2017. As a result, the Company is not able to access
$50 million
of the revolving credit portion 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 ABL facility, of at least
$700 million
on the date that is
91
days prior to January 15, 2021, the maturity date of the
5.95%
Senior Notes due 2021, and that such liquidity is available at all times thereafter until the
5.95%
Senior Notes due 2021 are paid in full or refinanced. Costs associated with entering into the ABL amendment were
$1.0 million
, and are being amortized, along with the unamortized portion of
$2.4 million
of previously recognized deferred costs, to interest expense over the extended term of the facility ending February 2022.
There were
no
outstanding revolving credit borrowings under the ABL facility as of December 31, 2017, and
$42.3 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, 2017 were
$37 million
, bearing an average annual interest rate of
3.255%
. Average borrowings under the ABL for the fiscal year ended December 31, 2016 were
$82 million
, bearing an average annual interest rate of
1.8%
.
Convertible Notes
In the second quarter of 2016, the Company issued and sold
$287.5 million
aggregate principal amount of
4.75%
Convertible Senior Notes due 2022 (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 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.
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
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, 2017
, the Company had not guaranteed any third-party indebtedness.
Note 9. Derivative Financial Instruments and Hedging
As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges. 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, 2017
, 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
18 million
pounds of nickel with hedge dates through
2021
. The aggregate notional amount hedged is approximately
20%
of a single year’s estimated nickel raw material purchase requirements.
At
December 31, 2017
, 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. At
December 31, 2017
, the company hedged approximately
40%
of the Company’s annual forecasted domestic requirements for natural gas for 2018, approximately
35%
for 2019, and approximately
15%
for 2020.
While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk, primarily euros. 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. As of December 31, 2017, all of the deferred gains on the effective portion of these settled cash flow hedges, which were previously recognized in accumulated other comprehensive income, have been reclassified to earnings due to the occurrence of the underlying transactions. 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
none
were outstanding as of December 31, 2017 and
43.2 million
and
139.2 million
euro notional values were outstanding as of December 31, 2016 and 2015, respectively. The Company recorded
$2.7 million
of charges during the fiscal year ended
December 31, 2017
and
$1.0 million
and
$9.0 million
of benefits during the fiscal years ended
December 31, 2016
and 2015, respectively, in costs of sales on the consolidated statement of operations for maturities and mark-to-market changes on these fair value hedges.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. There were no unsettled derivative financial instruments related to debt balances for the periods presented.
There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts 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,
2017
|
|
December 31,
2016
|
Asset derivatives
|
|
Balance sheet location
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
$
|
2.4
|
|
Natural gas contracts
|
|
Prepaid expenses and other current assets
|
|
0.1
|
|
|
0.2
|
|
Nickel and other raw material contracts
|
|
Prepaid expenses and other current assets
|
|
10.5
|
|
|
2.2
|
|
Foreign exchange contracts
|
|
Other assets
|
|
—
|
|
|
0.2
|
|
Natural gas contracts
|
|
Other assets
|
|
0.3
|
|
|
0.2
|
|
Nickel and other raw material contracts
|
|
Other assets
|
|
5.5
|
|
|
3.3
|
|
Total derivatives designated as hedging instruments
|
|
|
|
16.4
|
|
|
8.5
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
0.1
|
|
|
0.6
|
|
Total derivatives not designated as hedging instruments:
|
|
0.1
|
|
|
0.6
|
|
Total asset derivatives
|
|
|
|
$
|
16.5
|
|
|
$
|
9.1
|
|
|
|
|
|
|
|
|
Liability derivatives
|
|
Balance sheet location
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Natural gas contracts
|
|
Accrued liabilities
|
|
$
|
0.9
|
|
|
$
|
2.5
|
|
Nickel and other raw material contracts
|
|
Accrued liabilities
|
|
2.1
|
|
|
6.7
|
|
Foreign exchange contracts
|
|
Other long-term liabilities
|
|
—
|
|
|
0.1
|
|
Natural gas contracts
|
|
Other long-term liabilities
|
|
0.3
|
|
|
—
|
|
Nickel and other raw material contracts
|
|
Other long-term liabilities
|
|
2.2
|
|
|
9.4
|
|
Total derivatives designated as hedging instruments
|
|
|
|
5.5
|
|
|
18.7
|
|
Total liability derivatives
|
|
|
|
$
|
5.5
|
|
|
$
|
18.7
|
|
For derivative financial instruments that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period results. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes, excluding any impacts of changes to income tax valuation allowances affecting results of operations or other comprehensive income, when applicable (see Note 12 for further explanation).
Assuming market prices remain constant with those at
December 31, 2017
, a pre-tax loss of
$7.6 million
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, 2017
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)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Nickel and other raw material contracts
|
|
$
|
14.1
|
|
|
$
|
9.4
|
|
|
$
|
(2.1
|
)
|
|
$
|
(12.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Natural gas contracts
|
|
(2.8
|
)
|
|
3.8
|
|
|
(3.3
|
)
|
|
(8.4
|
)
|
|
—
|
|
|
(0.8
|
)
|
Foreign exchange contracts
|
|
(0.2
|
)
|
|
—
|
|
|
9.9
|
|
|
16.4
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
11.1
|
|
|
$
|
13.2
|
|
|
$
|
4.5
|
|
|
$
|
(4.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.8
|
)
|
|
|
(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, 2017
of foreign currency forward contracts not designated as hedges, with maturity dates into the fourth quarter of 2018. 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
|
|
2017
|
|
2016
|
Foreign exchange contracts
|
|
$
|
(0.8
|
)
|
|
$
|
(0.2
|
)
|
Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows.
Note 10. Fair Value of Financial Instruments
The estimated fair value of financial instruments at
December 31, 2017
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
|
|
$
|
141.6
|
|
|
$
|
141.6
|
|
|
$
|
141.6
|
|
|
$
|
—
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Assets
|
|
16.5
|
|
|
16.5
|
|
|
—
|
|
|
16.5
|
|
Liabilities
|
|
5.5
|
|
|
5.5
|
|
|
—
|
|
|
5.5
|
|
Debt (a)
|
|
1,553.8
|
|
|
1,853.2
|
|
|
1,736.9
|
|
|
116.3
|
|
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
|
|
|
|
(a)
|
The total carrying amount for debt excludes debt issuance costs related to the recognized debt liability which is presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability.
|
In accordance with accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards established three levels of a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. No transfers between levels were reported in
2017
or
2016
.
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 2019 Notes (prior to redemption in December 2017), 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 11. Retirement Benefits
The Company has defined contribution retirement plans or defined benefit pension plans covering substantially all employees. Company contributions to defined contribution retirement plans are generally based on a percentage of eligible pay or based on hours worked. Benefits under the defined benefit pension plans are generally based on years of service and/or final average pay. The Company funds the U.S. 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.
The Company instituted several liability management actions over the last few years to effect changes to its retirement benefit programs. As a result of these actions, nearly all of ATI’s operations have defined benefit pensions that are either frozen for all future benefit accruals or closed to new entrants, and remaining collectively-bargained defined benefit retiree health care plans that are capped and closed to new entrants, transitioning ATI’s retirement benefit and other postretirement benefit programs largely to a defined contribution structure.
Costs for defined contribution retirement plans were
$35.5 million
in
2017
,
$34.5 million
in
2016
, and
$41.2 million
in
2015
. Company contributions to these defined contribution plans are funded with cash. Other postretirement benefit costs for a defined contribution plan were
$1.7 million
for the fiscal year ended December 31, 2017.
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)
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Service cost—benefits earned during the year
|
|
$
|
14.1
|
|
|
$
|
20.6
|
|
|
$
|
22.8
|
|
|
$
|
2.4
|
|
|
$
|
2.6
|
|
|
$
|
2.7
|
|
Interest cost on benefits earned in prior years
|
|
116.7
|
|
|
125.4
|
|
|
121.0
|
|
|
14.6
|
|
|
16.0
|
|
|
17.9
|
|
Expected return on plan assets
|
|
(146.9
|
)
|
|
(148.7
|
)
|
|
(168.3
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Amortization of prior service cost (credit)
|
|
1.3
|
|
|
1.3
|
|
|
1.3
|
|
|
(2.9
|
)
|
|
(1.7
|
)
|
|
4.9
|
|
Amortization of net actuarial loss
|
|
62.6
|
|
|
65.4
|
|
|
60.4
|
|
|
9.0
|
|
|
9.6
|
|
|
14.6
|
|
Termination benefits
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
Total retirement benefit expense
|
|
$
|
47.8
|
|
|
$
|
65.1
|
|
|
$
|
37.2
|
|
|
$
|
23.1
|
|
|
$
|
28.7
|
|
|
$
|
40.0
|
|
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 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 15 and 16).
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
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Discount rate (a)
|
|
4.45
|
%
|
|
4.65
|
%
|
|
4.25
|
%
|
|
4.35
|
%
|
|
4.05 - 4.50%
|
|
|
4.10
|
%
|
Rate of increase in future compensation levels
|
|
0.50 - 1.00%
|
|
|
3.0 - 3.50%
|
|
|
3.0 - 3.50%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expected long-term rate of return on assets
|
|
7.75
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
|
(a)
|
Other postretirement 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 a new USW labor agreement.
|
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
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
|
3.85
|
%
|
|
4.45
|
%
|
|
3.80
|
%
|
|
4.35
|
%
|
Rate of increase in future compensation levels
|
|
0.50 - 1.00%
|
|
|
1.00
|
%
|
|
—
|
|
|
—
|
|
A reconciliation of the funded status for the Company’s defined benefit pension and other postretirement benefit plans at
December 31, 2017
and
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
2,727.7
|
|
|
$
|
2,805.9
|
|
|
$
|
354.8
|
|
|
$
|
400.8
|
|
Service cost
|
|
14.1
|
|
|
20.6
|
|
|
2.4
|
|
|
2.6
|
|
Interest cost
|
|
116.7
|
|
|
125.4
|
|
|
14.6
|
|
|
16.0
|
|
Benefits paid
|
|
(220.1
|
)
|
|
(255.4
|
)
|
|
(38.6
|
)
|
|
(47.7
|
)
|
Subsidy paid
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
0.8
|
|
Participant contributions
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
Effect of currency rates
|
|
7.4
|
|
|
(17.3
|
)
|
|
—
|
|
|
—
|
|
Net actuarial (gains) losses – discount rate change
|
|
174.6
|
|
|
57.8
|
|
|
16.6
|
|
|
4.6
|
|
– other
|
|
9.4
|
|
|
(3.9
|
)
|
|
(0.5
|
)
|
|
(2.1
|
)
|
Plan curtailments
|
|
—
|
|
|
(6.7
|
)
|
|
—
|
|
|
—
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22.5
|
)
|
Special termination benefits
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
2.3
|
|
Benefit obligation at end of year
|
|
$
|
2,829.8
|
|
|
$
|
2,727.7
|
|
|
$
|
349.9
|
|
|
$
|
354.8
|
|
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)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
1,894.6
|
|
|
$
|
1,962.3
|
|
|
$
|
0.7
|
|
|
$
|
1.8
|
|
Actual returns on plan assets and plan expenses
|
|
304.1
|
|
|
79.7
|
|
|
0.2
|
|
|
(0.8
|
)
|
Employer contributions
|
|
143.4
|
|
|
125.1
|
|
|
—
|
|
|
—
|
|
Participant contributions
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
Effect of currency rates
|
|
7.6
|
|
|
(17.3
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(220.1
|
)
|
|
(255.4
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
Fair value of plan assets at end of year
|
|
$
|
2,129.6
|
|
|
$
|
1,894.6
|
|
|
$
|
0.6
|
|
|
$
|
0.7
|
|
Pension benefit payments in 2017 include approximately
$22 million
associated with a voluntary lump-sum cash out offer to terminated vested participants in the ATI Pension Plan, the Company’s U.S. qualified defined benefit pension plan. Pension benefit payments in 2016 include
$47 million
for the annuity buyout of small pension balances in the ATI Pension Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (liabilities) recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Noncurrent assets
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
|
(5.3
|
)
|
|
(5.2
|
)
|
|
(31.5
|
)
|
|
(36.4
|
)
|
Noncurrent liabilities
|
|
(697.0
|
)
|
|
(827.9
|
)
|
|
(317.8
|
)
|
|
(317.7
|
)
|
Total amount recognized
|
|
$
|
(700.2
|
)
|
|
$
|
(833.1
|
)
|
|
$
|
(349.3
|
)
|
|
$
|
(354.1
|
)
|
Changes to accumulated other comprehensive loss related to pension and other postretirement benefit plans in
2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Beginning of year accumulated other comprehensive loss
|
|
$
|
(1,462.7
|
)
|
|
$
|
(1,418.2
|
)
|
|
$
|
(74.4
|
)
|
|
$
|
(101.4
|
)
|
Amortization of net actuarial loss
|
|
62.6
|
|
|
65.4
|
|
|
9.0
|
|
|
9.6
|
|
Amortization of prior service cost (credit)
|
|
1.3
|
|
|
1.3
|
|
|
(2.9
|
)
|
|
(1.7
|
)
|
Remeasurements
|
|
(27.3
|
)
|
|
(111.2
|
)
|
|
(15.4
|
)
|
|
19.1
|
|
End of year accumulated other comprehensive loss
|
|
$
|
(1,426.1
|
)
|
|
$
|
(1,462.7
|
)
|
|
$
|
(83.7
|
)
|
|
$
|
(74.4
|
)
|
Net change in accumulated other comprehensive loss
|
|
$
|
36.6
|
|
|
$
|
(44.5
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
27.0
|
|
Amounts included in accumulated other comprehensive loss at
December 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Prior service (cost) credit
|
|
$
|
(1.0
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
11.7
|
|
|
$
|
14.6
|
|
Net actuarial loss
|
|
(1,425.1
|
)
|
|
(1,460.4
|
)
|
|
(95.4
|
)
|
|
(89.0
|
)
|
Accumulated other comprehensive loss
|
|
(1,426.1
|
)
|
|
(1,462.7
|
)
|
|
(83.7
|
)
|
|
(74.4
|
)
|
Deferred tax effect
|
|
525.6
|
|
|
543.4
|
|
|
29.7
|
|
|
28.2
|
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
(900.5
|
)
|
|
$
|
(919.3
|
)
|
|
$
|
(54.0
|
)
|
|
$
|
(46.2
|
)
|
Amounts in accumulated other comprehensive loss presented above do not include any effects of deferred tax asset valuation allowances. See Note 12 for further discussion on deferred tax asset valuation allowances.
Retirement benefit expense for
2018
for defined benefit plans is estimated to be approximately
$52 million
, comprised of
$29 million
for pension expense and
$23 million
of expense for other postretirement benefits. The net actuarial loss is recognized in the consolidated statement of operations using a corridor method. Because all of ATI’s pension plans are inactive, cumulative gains and losses in excess of 10% of the greater of the projected benefit obligation or the market value of plan assets are amortized over the expected average remaining future lifetime of participants, which is approximately
17
years on a weighted average basis. Prior service cost (credit) amortization is recognized in level amounts over the expected service of the active membership as of the amendment effective date. Amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost in
2018
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
Total
|
Amortization of prior service cost (credit)
|
|
$
|
0.4
|
|
|
$
|
(2.9
|
)
|
|
$
|
(2.5
|
)
|
Amortization of net actuarial loss
|
|
65.9
|
|
|
10.6
|
|
|
76.5
|
|
Amortization of accumulated other comprehensive loss
|
|
$
|
66.3
|
|
|
$
|
7.7
|
|
|
$
|
74.0
|
|
The accumulated benefit obligation for all defined benefit pension plans was
$2,810.5 million
and
$2,710.7 million
at
December 31, 2017
and
2016
, respectively. Additional information for pension plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
(In millions)
|
|
2017
|
|
2016
|
Projected benefit obligation
|
|
$
|
2,737.4
|
|
|
$
|
2,727.7
|
|
Accumulated benefit obligation
|
|
$
|
2,718.0
|
|
|
$
|
2,710.7
|
|
Fair value of plan assets
|
|
$
|
2,035.1
|
|
|
$
|
1,894.6
|
|
In March 2017, the Company made a
$135 million
cash contribution to the ATI Pension Plan in order to complete its funding requirements for 2017. 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 make approximately a
$40 million
cash contribution to the ATI Pension Plan in
2018
, and use credit balance from prior years prefunding for the remaining required contribution during the year. In addition, for 2018, the Company expects to fund benefits of approximately
$9 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 2027, and also includes estimated Medicare Part D subsidies projected to be received during this period based on currently available information. Pension benefit payments for the ATI Pension Plan and the U.K. defined benefit plan are made from pension plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
Medicare Part
D Subsidy
|
2018
|
|
$
|
201.0
|
|
|
$
|
32.1
|
|
|
$
|
0.8
|
|
2019
|
|
194.1
|
|
|
31.2
|
|
|
0.8
|
|
2020
|
|
192.0
|
|
|
29.7
|
|
|
0.8
|
|
2021
|
|
188.8
|
|
|
28.1
|
|
|
0.7
|
|
2022
|
|
186.8
|
|
|
26.2
|
|
|
0.7
|
|
2023 - 2027
|
|
891.5
|
|
|
109.0
|
|
|
2.8
|
|
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
6.8%
in
2018
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, 2017
|
|
$
|
0.3
|
|
|
$
|
(0.3
|
)
|
Effect on other postretirement benefit obligation at December 31, 2017
|
|
$
|
5.7
|
|
|
$
|
(5.1
|
)
|
The plan assets for the ATI Pension Plan represent approximately
96%
of total pension plan assets at
December 31, 2017
. The ATI Pension Plan invests in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include U.S. domestic equities, non-U.S. developed market equities, emerging market equities, hedge funds, private equity, 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, 2017
and
2016
included
3.0 million
shares of ATI common stock with a fair value of
$71.3 million
and
$47.1 million
, respectively. Dividends of
$0.7 million
were received by the ATI Pension Plan in
2016
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 10. The fair values at
December 31, 2017
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
|
|
$
|
71.3
|
|
|
$
|
—
|
|
|
$
|
71.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other U.S. equities
|
|
416.0
|
|
|
267.7
|
|
|
148.3
|
|
|
—
|
|
|
—
|
|
International equities
|
|
432.5
|
|
|
385.9
|
|
|
46.6
|
|
|
—
|
|
|
—
|
|
Global debt securities and cash:
|
|
|
|
|
|
|
|
|
|
|
Fixed income and cash equivalents
|
|
501.1
|
|
|
92.6
|
|
|
10.0
|
|
|
398.5
|
|
|
—
|
|
Floating rate
|
|
169.9
|
|
|
122.6
|
|
|
47.3
|
|
|
—
|
|
|
—
|
|
Private equity
|
|
137.5
|
|
|
137.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Hedge funds
|
|
307.4
|
|
|
307.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate and other
|
|
93.9
|
|
|
90.7
|
|
|
—
|
|
|
3.2
|
|
|
—
|
|
Total assets
|
|
$
|
2,129.6
|
|
|
$
|
1,404.4
|
|
|
$
|
323.5
|
|
|
$
|
401.7
|
|
|
$
|
—
|
|
The fair values of the Company’s pension plan assets 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
|
|
225.5
|
|
|
225.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Private equity
|
|
142.6
|
|
|
142.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Hedge funds
|
|
283.9
|
|
|
283.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate and other
|
|
96.5
|
|
|
91.5
|
|
|
—
|
|
|
5.0
|
|
|
—
|
|
Total assets
|
|
$
|
1,894.6
|
|
|
$
|
1,369.0
|
|
|
$
|
191.2
|
|
|
$
|
334.2
|
|
|
$
|
0.2
|
|
In order to conform with current year presentation, approximately
$62 million
was reclassified from private equity investments to floating rate debt for pension plan assets at December 31, 2016. In addition, approximately
$99 million
in floating rate debt securities previously classified as Level 3 was reclassified to net asset value (NAV) at December 31, 2016.
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 NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. These investments are not classified in the fair value hierarchy. In addition, some fixed income instruments are investments in debt instruments that are valued using external pricing vendors and are classified within Level 2 of the fair value hierarchy.
Floating interest rate global debt instruments are both domestic and foreign and include first lien debt, second lien debt and structured finance obligations, among others. These instruments are valued using NAV and are not classified in the fair value hierarchy, or are publicly traded securities and are classified as Level 1.
Private equity investments include both Direct Funds and Fund-of-Funds. Direct Funds are investments in Limited Partnership (LP) interests. Fund-of-Funds are investments in private equity funds that invest in other private equity funds or LPs. Fair value of these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy.
Hedge fund investments are made as a limited partner in hedge funds managed by a general partner. Fair value of these investments is determined utilizing net asset values, and are not classified in the fair value hierarchy.
Real estate investments are made 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.
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.
The fair value of Level 3 pension plan assets for the year ended
December 31, 2017
was not material. 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
|
|
194.3
|
|
|
4.8
|
|
|
(199.1
|
)
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
194.6
|
|
|
$
|
4.8
|
|
|
$
|
(199.2
|
)
|
|
$
|
—
|
|
|
$
|
0.2
|
|
For
2018
, 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 projected annual compound returns. The Company’s actual returns on pension assets for the last five years have been
16.9%
for
2017
,
5.3%
for
2016
,
(1.2)%
for
2015
,
6.5%
for
2014
, and
14.3%
for
2013
.
The target asset allocations for pension plans for
2018
, 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, 2017
, the ATI Pension Plan has outstanding commitments to invest up to
$84 million
in global debt securities,
$72 million
in private equity investments,
$11 million
in hedge funds and
$10 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, 2017
, other postretirement benefit plan assets of
$0.6 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.
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, 2017
,
2016
and
2015
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, 2016, 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
|
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
Steelworkers Western Independent Shops Pension Plan
|
|
90-0169564
/ 001
|
|
Green
|
|
Green
|
|
N/A
|
|
$
|
0.6
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
No
|
|
2/29/2020
|
Boilermakers-Blacksmiths National Pension Trust
|
|
48-6168020
/ 001
|
|
Yellow
|
|
Yellow
|
|
Yes
|
|
2.2
|
|
|
1.8
|
|
|
1.8
|
|
|
No
|
|
9/30/2026
|
IAM National Pension Fund
|
|
51-6031295
/ 002
|
|
Green
|
|
Green
|
|
N/A
|
|
1.7
|
|
|
1.6
|
|
|
1.5
|
|
|
No
|
|
Various between 2018-2022 (4)
|
Total contributions
|
|
|
|
|
|
|
|
|
|
$
|
4.5
|
|
|
$
|
4.6
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
(1)
|
The most recent Pension Protection Act Zone Status available for ATI’s fiscal years
2017
and
2016
is for plan years ending in calendar years
2016
and
2015
, 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
2017
.
|
|
|
(3)
|
The “Surcharge Imposed” column indicates whether ATI’s contribution rate for
2017
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 February 27, 2022.
|
Note 12. 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, 2017
,
2016
and
2015
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, 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
|
|
|
(b)
|
—
|
|
|
(b)
|
—
|
|
|
(c)
|
(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
|
|
|
(b)
|
—
|
|
|
(b)
|
—
|
|
|
(c)
|
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
|
)
|
OCI before reclassifications
|
|
(32.5
|
)
|
|
|
31.5
|
|
|
|
—
|
|
|
|
11.1
|
|
|
|
—
|
|
|
10.1
|
|
Amounts reclassified from AOCI
|
(a)
|
43.5
|
|
|
(b)
|
—
|
|
|
(b)
|
—
|
|
|
(c)
|
(4.5
|
)
|
|
|
16.8
|
|
|
55.8
|
|
Net current-period OCI
|
|
11.0
|
|
|
|
31.5
|
|
|
|
—
|
|
|
|
6.6
|
|
|
|
16.8
|
|
|
65.9
|
|
Balance, December 31, 2017
|
$
|
(954.5
|
)
|
|
$
|
(53.5
|
)
|
|
$
|
—
|
|
|
$
|
9.0
|
|
|
$
|
(28.8
|
)
|
|
$
|
(1,027.8
|
)
|
Attributable to noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
$
|
—
|
|
|
$
|
25.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25.0
|
|
OCI before reclassifications
|
|
—
|
|
|
|
(5.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(5.6
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(b)
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
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
|
|
—
|
|
|
(b)
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Net current-period OCI
|
|
—
|
|
|
|
(9.7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(9.7
|
)
|
Balance, December 31, 2016
|
|
—
|
|
|
|
9.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
9.7
|
|
OCI before reclassifications
|
|
—
|
|
|
|
7.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
7.6
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(b)
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Net current-period OCI
|
|
—
|
|
|
|
7.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
7.6
|
|
Balance, December 31, 2017
|
$
|
—
|
|
|
$
|
17.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17.3
|
|
|
|
(a)
|
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 11).
|
|
|
(b)
|
No amounts were reclassified to earnings.
|
|
|
(c)
|
Amounts related to 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 9).
|
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 and 2017 include the impact of any deferred tax asset valuation allowances (see Note 14 for further explanation), primarily relating to remeasurement of the Company’s postretirement benefit plans. 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, 2017
,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI (c)
|
|
|
|
|
|
Fiscal year ended
|
|
|
|
Details about AOCI Components
(In millions)
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Affected line item in the
consolidated statement of operations
|
Postretirement benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit (cost)
|
|
$
|
1.6
|
|
|
(a)
|
|
$
|
0.4
|
|
(a)
|
$
|
(6.2
|
)
|
(a)
|
|
|
Actuarial losses
|
|
(71.6
|
)
|
|
(a)
|
|
(75.0
|
)
|
(a)
|
(75.0
|
)
|
(a)
|
|
|
|
|
(70.0
|
)
|
|
(c)
|
|
(74.6
|
)
|
(c)
|
(81.2
|
)
|
(c)
|
|
Total before tax
|
|
|
(26.5
|
)
|
|
|
|
(28.3
|
)
|
|
(31.3
|
)
|
|
|
Tax benefit (d)
|
|
|
$
|
(43.5
|
)
|
|
|
|
$
|
(46.3
|
)
|
|
$
|
(49.9
|
)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Nickel and other raw material contracts
|
|
$
|
(3.4
|
)
|
|
(b)
|
|
$
|
(19.5
|
)
|
(b)
|
$
|
(16.9
|
)
|
(b)
|
|
|
Natural gas contracts
|
|
(5.3
|
)
|
|
(b)
|
|
(14.8
|
)
|
(b)
|
(18.2
|
)
|
(b)
|
|
|
Electricity contracts
|
|
—
|
|
|
(b)
|
|
—
|
|
(b)
|
(0.2
|
)
|
(b)
|
|
|
Foreign exchange contracts
|
|
15.9
|
|
|
(b)
|
|
26.4
|
|
(b)
|
53.5
|
|
(b)
|
|
|
|
|
7.2
|
|
|
(c)
|
|
(7.9
|
)
|
(c)
|
18.2
|
|
(c)
|
|
Total before tax
|
|
|
2.7
|
|
|
|
|
(3.0
|
)
|
|
6.9
|
|
|
|
Tax provision (benefit) (d)
|
|
|
$
|
4.5
|
|
|
|
|
$
|
(4.9
|
)
|
|
$
|
11.3
|
|
|
|
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 11.
|
|
|
(b)
|
Amounts related to the effective portion of the derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the ineffective portion of the derivatives are presented in selling and administrative expenses on the consolidated statements of operations (see Note 9).
|
|
|
(c)
|
For pretax items, positive amounts are income and negative amounts are expense in terms of the impact to net income. Tax effects are presented in conformity with ATI’s presentation in the consolidated statements of operations.
|
|
|
(d)
|
These amounts exclude the impact of any deferred tax asset valuation allowances (see Note 14 for further explanation).
|
Note 13. 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, 2017
, there were
no
shares of preferred stock issued.
Common Stock
On November 7, 2017, the Company issued
17 million
shares of common stock at
$24.00
per share before expenses in an underwritten registered public offering. This equity offering resulted in proceeds, net of transaction costs, of
$397.8 million
. In December 2017, the Company used the proceeds from the equity offering to redeem all of the 2019 Notes (see Note 8).
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, and in 2015, the Company adopted the Allegheny Technologies Incorporated 2015 Incentive Plan (the “2015 Incentive Plan”). In May 2017, the Company adopted the Allegheny Technologies Incorporated 2017 Incentive Plan (the “2017 Incentive Plan”).
Upon adoption of the 2017 Incentive Plan, all new awards are being made under the 2017 Incentive Plan. Shares previously remaining available for grant under the 2015 Incentive Plan, or which become available for award due to the forfeiture or cancellation of prior awards under the 2015 Incentive Plan, are available for award under the 2017 Incentive Plan. Shares that are subject to awards under the 2007 Incentive Plan that are canceled or forfeited do not become available for use under the 2017 Incentive Plan. Outstanding grants previously made under the 2015 Incentive Plan or the 2007 Incentive Plan remain in effect in accordance with their terms and the terms of their respective Plan.
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, 2017
,
5.6 million
shares of common stock were available for future awards under the 2017 Incentive Plan. The general terms of each arrangement granted under the 2007 Incentive Plan, the 2015 Incentive Plan or the 2017 Incentive Plan, and predecessor plans, the method of estimating fair value for each arrangement, and award activity is reported below.
Beginning in 2016, the Company implemented a new share-based incentive compensation program, the Long-Term Incentive Plan (LTIP). The LTIP consists of both Restricted Share Units (RSU) and Performance Share Units (PSU).
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 and 2017, 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 and 2017,
587,661
and
320,679
RSUs, respectively, were awarded to employees under the LTIP. In February 2017, one-third of the 2016 RSU award vested, comprising
190,421
shares.
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. At December 31, 2017,
60%
of the operational goals for the 2015 LTSV were attained and
122,882
shares vested. 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, 2014 and 2015 PRSP awards were not met, and performance share forfeitures were
171,083
shares,
244,899
shares,
214,571
shares, and
196,196
shares, respectively. The remaining service portion of the 2012 PRSP, comprising of
166,929
shares, vested in February 2017. The remaining service portion of the 2015 PRSP for all employees except certain senior executives, comprising of
126,585
shares, vested at December 31, 2017. Vesting of the remaining service portion of the 2013 and 2014 PRSP awards and the 2015 PRSP awards for certain senior executives continues over the
five
-year service periods through February 2018, 2019, and 2020, respectively.
Compensation expense related to all nonvested stock awards and units was
$9.8 million
in
2017
,
$11.2 million
in
2016
, and
$5.5 million
in
2015
. Reduced compensation expense in 2015 is primarily the result of changes in estimates that PRSP award performance shares would vest. Approximately
$7.3 million
of unrecognized fair value compensation expense relating to nonvested stock awards and restricted stock units is expected to be recognized through 2020, including
$4.6 million
expected to be recognized in 2018, based on estimated service period forfeitures. Activity under the Company’s nonvested stock awards and restricted share units for the years ended
December 31, 2017
,
2016
, and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in thousands, $ in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
|
Number of
shares/units
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
shares/units
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Number of
shares
|
|
Weighted
Average Grant
Date Fair
Value
|
Nonvested, beginning of year
|
|
1,852
|
|
|
$
|
51.5
|
|
|
1,652
|
|
|
$
|
57.0
|
|
|
1,376
|
|
|
$
|
47.8
|
|
Granted
|
|
378
|
|
|
7.1
|
|
|
682
|
|
|
8.4
|
|
|
669
|
|
|
20.8
|
|
Vested
|
|
(640
|
)
|
|
(18.4
|
)
|
|
(154
|
)
|
|
(4.3
|
)
|
|
(23
|
)
|
|
(0.8
|
)
|
Forfeited
|
|
(270
|
)
|
|
(7.7
|
)
|
|
(328
|
)
|
|
(9.6
|
)
|
|
(370
|
)
|
|
(10.8
|
)
|
Nonvested, end of year
|
|
1,320
|
|
|
$
|
32.5
|
|
|
1,852
|
|
|
$
|
51.5
|
|
|
1,652
|
|
|
$
|
57.0
|
|
Performance awards:
Performance Share Units:
In 2016, the Company established the PSU award. PSU award opportunities are determined at a target number of shares, and the number of shares awarded is based on attainment of two ATI financial performance metrics 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 and 2017, the Company awarded
936,558
and
589,612
share units, respectively, at the target level. The 2016 and 2017 PSU performance, and share units, each have a threshold attainment of
25%
and a maximum attainment of
150%
of the target financial performance metrics and target share units, measured over the applicable
three
-year performance period. At December 31, 2017, a maximum of
2.2 million
shares have been reserved for issuance for the PSU awards, to the
150%
attainment level. Aggregate compensation expense recognized over the
three
year performance periods for the 2016 and 2017 PSU awards could range from
zero
to
$33.3 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
and
$3.8 million
of compensation expense in 2016 and 2017, respectively, for the PSU awards. As of December 31, 2017, ATI estimates achieving financial performance attainment for the 2016 PSU award between the threshold and target levels, and approximately at the target level for the 2017 PSU award. Based on these estimates, there is
$8.8 million
of cumulative unrecognized compensation expense remaining for the PSU awards, including estimated forfeitures, which is expected to be recognized over the remaining performance periods through fiscal year 2019, including
$4.9 million
expected to be recognized in 2018. Activity under the Company’s PSUs at target for the years ended
December 31, 2017
and
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in thousands, $ in millions)
|
|
2017
|
|
2016
|
|
|
Number of
shares/units
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
shares/units
|
|
Weighted
Average Grant
Date Fair
Value
|
Nonvested, beginning of year
|
|
919
|
|
|
$
|
11.3
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
590
|
|
|
12.4
|
|
|
937
|
|
|
11.5
|
|
Forfeited
|
|
(68
|
)
|
|
(1.0
|
)
|
|
(18
|
)
|
|
(0.2
|
)
|
Nonvested, end of year
|
|
1,441
|
|
|
$
|
22.7
|
|
|
919
|
|
|
$
|
11.3
|
|
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. 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 was
$3.6 million
in
2017
,
$6.6 million
in
2016
, and
$10.6 million
in
2015
for the TSR awards.
Based on the Company’s stock price and dividend performance for the three-year period ended December 31, 2017 relative to the peer group, no award for the 2015-2017 TSRP performance period was earned. At December 31, 2017, there are no remaining TSR awards under the LTPP outstanding.
Note 14. Income Taxes
Income (loss) before income taxes for the Company’s U.S. and non-U.S. operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
U.S.
|
|
$
|
(119.8
|
)
|
|
$
|
(782.1
|
)
|
|
$
|
(534.6
|
)
|
Non-U.S.
|
|
33.3
|
|
|
48.1
|
|
|
56.6
|
|
Loss before income taxes
|
|
$
|
(86.5
|
)
|
|
$
|
(734.0
|
)
|
|
$
|
(478.0
|
)
|
The income tax provision (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
(0.8
|
)
|
|
$
|
0.5
|
|
|
$
|
(60.7
|
)
|
State
|
|
(1.3
|
)
|
|
(1.5
|
)
|
|
(0.4
|
)
|
Foreign
|
|
6.2
|
|
|
14.4
|
|
|
9.4
|
|
Total
|
|
4.1
|
|
|
13.4
|
|
|
(51.7
|
)
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
2.4
|
|
|
(115.8
|
)
|
|
(90.9
|
)
|
State
|
|
(14.4
|
)
|
|
(3.5
|
)
|
|
30.4
|
|
Foreign
|
|
1.1
|
|
|
(1.0
|
)
|
|
0.1
|
|
Total
|
|
(10.9
|
)
|
|
(120.3
|
)
|
|
(60.4
|
)
|
Income tax benefit
|
|
$
|
(6.8
|
)
|
|
$
|
(106.9
|
)
|
|
$
|
(112.1
|
)
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
Taxes computed at the federal rate
|
|
$
|
(30.3
|
)
|
|
$
|
(256.9
|
)
|
|
$
|
(167.3
|
)
|
Goodwill impairment
|
|
36.6
|
|
|
—
|
|
|
—
|
|
State and local income taxes, net of federal tax benefit
|
|
—
|
|
|
(26.8
|
)
|
|
(20.6
|
)
|
Valuation allowance
|
|
(14.5
|
)
|
|
171.5
|
|
|
74.5
|
|
Repatriation of foreign earnings
|
|
14.2
|
|
|
2.1
|
|
|
13.4
|
|
Change in federal tax rate and law change
|
|
(4.1
|
)
|
|
—
|
|
|
—
|
|
Foreign earnings taxed at different rate
|
|
(7.2
|
)
|
|
(5.3
|
)
|
|
(11.2
|
)
|
Adjustment to prior years’ taxes
|
|
(5.2
|
)
|
|
3.4
|
|
|
(5.4
|
)
|
Foreign exchange differences
|
|
2.6
|
|
|
—
|
|
|
—
|
|
Withholding taxes
|
|
2.2
|
|
|
—
|
|
|
—
|
|
Other
|
|
(1.1
|
)
|
|
5.1
|
|
|
4.5
|
|
Income tax benefit
|
|
$
|
(6.8
|
)
|
|
$
|
(106.9
|
)
|
|
$
|
(112.1
|
)
|
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. 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. In making such determination, we consider 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. If we determine that we would not be able to realize our deferred tax assets in the future in excess of their recorded net amount, we would make an adjustment to the deferred tax asset valuation allowance.
Since 2015, the Company’s results have reflected a
three
year cumulative loss from U.S. operations. 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. In 2016, the actions to indefinitely idle the Rowley, UT titanium sponge production facility (see Note 16 for further information) 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. In addition, the Company established valuation allowances on amounts recorded in other comprehensive income in 2016 and 2017 of
$45.6 million
and
$28.8 million
, respectively, which are not reflected in the preceding table reconciling amounts recognized in the income tax benefit recorded on the statement of operations (see Note 12).
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to:
(1) reducing the U.S. federal corporate tax rate from
35%
to
21%
;
(2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;
(3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries;
(4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations;
(5) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized;
(6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax;
(7) creating a new limitation on deductible interest expense; and
(8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
In connection with ATI’s initial analysis of the impact of the Tax Act, the following Tax Act impacts within the current year financial statements have been accounted for as provisional estimated amounts, pending further information which includes final tax return filings, and additional analysis of foreign earnings and profits, and the Company expects to finalize adjustments by the fourth quarter of 2018. The change in the U.S. federal corporate tax rate from
35%
to
21%
resulted in a
$2.6 million
benefit as it relates to the re-measurement of indefinite lived deferred tax liabilities. The repeal of the alternative minimum tax resulted in a
$1.5 million
decrease in the deferred tax asset valuation allowance. The
$4.1 million
combination of these items is reflected above in the income tax benefit reconciliation on the line labeled as change in federal tax rate and law change. In addition to these adjustments, the Company calculated an estimate related to the mandatory repatriation of foreign earnings resulting in 2017 federal taxable income of approximately
$100 million
, for which the Company expects to fully offset with the federal net operating loss carryover deferred tax asset.
The Company will finalize the calculation of the mandatory repatriation throughout 2018, but does not anticipate a tax charge. In addition to the items related to the Tax Act, the Company had a current year goodwill impairment charge related to the ATI Cast Products operations which did not have a tax basis, resulting in a
$36.6 million
tax charge included within the net tax benefit for 2017.
The Company continues to maintain a valuation allowance on the federal, state and some foreign net deferred tax assets as of December 31, 2017. 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, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Deferred income tax assets
|
|
|
|
|
Pensions
|
|
$
|
158.0
|
|
|
$
|
294.9
|
|
Postretirement benefits other than pensions
|
|
86.5
|
|
|
129.5
|
|
Net operating loss tax carryovers
|
|
336.1
|
|
|
407.8
|
|
Tax credits
|
|
92.6
|
|
|
56.7
|
|
Deferred compensation and other benefit plans
|
|
13.8
|
|
|
25.7
|
|
Other items
|
|
55.9
|
|
|
107.4
|
|
Gross deferred income tax assets
|
|
742.9
|
|
|
1,022.0
|
|
Valuation allowance for deferred tax assets
|
|
(274.0
|
)
|
|
(291.4
|
)
|
Total deferred income tax assets
|
|
468.9
|
|
|
730.6
|
|
Deferred income tax liabilities
|
|
|
|
|
Bases of property, plant and equipment
|
|
375.3
|
|
|
547.1
|
|
Inventory valuation
|
|
50.0
|
|
|
77.6
|
|
Bases of amortizable intangible assets
|
|
38.7
|
|
|
65.6
|
|
Other items
|
|
7.0
|
|
|
43.9
|
|
Total deferred tax liabilities
|
|
471.0
|
|
|
734.2
|
|
Net deferred tax liability
|
|
$
|
(2.1
|
)
|
|
$
|
(3.6
|
)
|
Federal deferred tax asset and liability balances at December 31, 2017 have been remeasured as a result of the Tax Act legislation, including the impact of the new
21%
U.S. federal tax rate. Additionally, deferred tax balances at December 31, 2016 have been restated to correct classification differences between certain deferred tax assets, liabilities, and the valuation allowance, which was not material to reported results. The correction increased both total deferred income tax assets and liabilities by
$48.9 million
, with no net impact to the ending balance sheet position.
The following summarizes the carryforward periods for the tax attributes related to net operating losses (NOL) and credits by jurisdiction.
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
Jurisdiction
|
Attribute
|
Amount
|
Expiration Period
|
Amount expiring within 5 years
|
Amount expiring in 5-20 years
|
U.S.
|
NOL
|
$980
|
20 years
|
$—
|
$980
|
U.S.
|
Foreign Tax Credit
|
$65
|
10 years
|
$19
|
$46
|
U.S.
|
Research and Development Credit
|
$11
|
20 years
|
$—
|
$11
|
State
|
NOL
|
$168
|
Various
|
$19
|
$149
|
State
|
Credits
|
$23
|
Various
|
$5
|
$18
|
U.K.
|
NOL
|
$6
|
Indefinite
|
$—
|
$—
|
Luxembourg
|
NOL
|
$19
|
Indefinite
|
$—
|
$—
|
Poland
|
Economic Zone Credit
|
$12
|
9 years
|
$—
|
$12
|
Income taxes paid and amounts received as refunds were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
Income taxes paid
|
|
$
|
10.4
|
|
|
$
|
8.6
|
|
|
$
|
10.8
|
|
Income tax refunds received
|
|
(7.1
|
)
|
|
(10.5
|
)
|
|
(63.3
|
)
|
Income taxes paid (received), net
|
|
$
|
3.3
|
|
|
$
|
(1.9
|
)
|
|
$
|
(52.5
|
)
|
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. In 2016 and 2017, the Company received
$7.3 million
and
$3.2 million
, respectively, for federal tax refunds of prior years’ taxes paid.
Deferred taxes of
$2.2 million
have been recorded for foreign withholding taxes on earnings expected to be repatriated to the U.S. parent. The Company does not intend to distribute the approximately
$100 million
taxed under the Tax Act, and has not recorded any deferred taxes related to such amounts. The remaining excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries is indefinitely reinvested, and the determination of any deferred tax liability on this amount is not practicable.
Uncertain tax positions are recorded using a two-step process based on (1) determining whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those positions that meet the more-likely-than-not-recognition threshold, the Company records the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The changes in the liability for unrecognized income tax benefits for the years ended
December 31, 2017
,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of year
|
|
$
|
22.7
|
|
|
$
|
19.6
|
|
|
$
|
76.8
|
|
Increases in prior period tax positions
|
|
—
|
|
|
7.9
|
|
|
4.3
|
|
Decreases in prior period tax positions
|
|
(0.7
|
)
|
|
(0.1
|
)
|
|
(0.2
|
)
|
Increases in current period tax positions
|
|
0.7
|
|
|
0.6
|
|
|
1.3
|
|
Expiration of the statute of limitations
|
|
(0.4
|
)
|
|
(1.1
|
)
|
|
(0.5
|
)
|
Settlements
|
|
(7.6
|
)
|
|
(4.2
|
)
|
|
(62.1
|
)
|
Balance at end of year
|
|
$
|
14.7
|
|
|
$
|
22.7
|
|
|
$
|
19.6
|
|
The liability at December 31, 2017 includes
$11.7 million
of unrecognized tax benefits that are classified within deferred income taxes as a reduction of net operating loss carryforwards. We recognize accrued interest and penalties related to uncertain tax positions as income tax expense. The amounts accrued for interest and penalty charges for the years ended December 31, 2017, 2016 and 2015 were not significant. At December 31, 2017 and 2016, the accrued liabilities for interest and penalties related to unrecognized tax benefits were
$3.2 million
and
$3.6 million
, respectively.
For the year beginning January 1, 2015,
$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. The total estimated unrecognized tax benefit that, if recognized, would affect ATI’s effective tax rate is approximately
$6 million
. At this time, the Company believes that it is reasonably possible that approximately
$1 million
of the estimated unrecognized tax benefits as of
December 31, 2017
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
|
|
2016
|
States:
|
|
|
Pennsylvania
|
|
2014
|
Foreign:
|
|
|
China
|
|
2014
|
Poland
|
|
2011
|
United Kingdom
|
|
2015
|
Note 15. Business Segments
The Company operates in
two
business segments: High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). Over
75%
of 2017 HPMC business segment sales are to the aerospace and defense markets, and nearly half of HPMC’s total sales are products for commercial jet engines. Other key HPMC end markets include medical, oil & gas, and electrical energy. HPMC produces, converts and distributes a wide range of high performance materials, and components, and advanced metallic powder alloys made from titanium and titanium-based alloys, nickel-based alloys and superalloys, and a variety of other specialty metals. These materials are made in a variety of product forms that include precision forgings, castings, machined parts and others.
The FRP segment serves a diverse group of end markets, with the oil & gas market, including chemical and hydrocarbon processing, and the automotive market collectively representing over
40%
of 2017 sales. Other major end markets for FRP include food processing equipment and appliances, construction and mining, electronics, communication equipment and computers, and aerospace & defense. FRP produces, converts and distributes nickel-based alloys, specialty alloys, and titanium and titanium-based alloys, and stainless steel in a variety of product forms including plate, sheet, engineered strip, and Precision Rolled Strip products. 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. See Note 5 for further information on the Company’s joint ventures.
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 and other expenses, charges for goodwill impairment (see Note 4), restructuring charges and other costs (see Note 16) and debt extinguishment charges (see Note 8). 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)
|
|
2017
|
|
2016
|
|
2015
|
Total sales:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
2,127.0
|
|
|
$
|
1,979.5
|
|
|
$
|
2,062.7
|
|
Flat Rolled Products
|
|
1,527.5
|
|
|
1,260.8
|
|
|
1,807.9
|
|
Total sales
|
|
3,654.5
|
|
|
3,240.3
|
|
|
3,870.6
|
|
Intersegment sales:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
59.6
|
|
|
49.1
|
|
|
76.8
|
|
Flat Rolled Products
|
|
69.8
|
|
|
56.6
|
|
|
74.2
|
|
Total intersegment sales
|
|
129.4
|
|
|
105.7
|
|
|
151.0
|
|
Sales to external customers:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
2,067.4
|
|
|
1,930.4
|
|
|
1,985.9
|
|
Flat Rolled Products
|
|
1,457.7
|
|
|
1,204.2
|
|
|
1,733.7
|
|
Total sales to external customers
|
|
$
|
3,525.1
|
|
|
$
|
3,134.6
|
|
|
$
|
3,719.6
|
|
Total international sales were
$1,454.5 million
in
2017
,
$1,277.1 million
in
2016
, and
$1,577.0 million
in
2015
. Of these amounts, sales by operations in the United States to customers in other countries were
$1,078.6 million
in
2017
,
$971.4 million
in
2016
, and
$1,215.8 million
in
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
Operating profit (loss):
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
246.4
|
|
|
$
|
168.7
|
|
|
$
|
157.1
|
|
Flat Rolled Products
|
|
37.0
|
|
|
(163.0
|
)
|
|
(241.9
|
)
|
Total operating profit (loss)
|
|
283.4
|
|
|
5.7
|
|
|
(84.8
|
)
|
LIFO and net realizable value reserves (See Note 2)
|
|
(0.2
|
)
|
|
0.8
|
|
|
0.1
|
|
Corporate expenses
|
|
(50.5
|
)
|
|
(43.4
|
)
|
|
(44.7
|
)
|
Closed operations and other expenses
|
|
(34.0
|
)
|
|
(34.6
|
)
|
|
(22.1
|
)
|
Restructuring and other charges (See Note 16)
|
|
—
|
|
|
(538.5
|
)
|
|
(89.7
|
)
|
Impairment of goodwill (See Note 4)
|
|
(114.4
|
)
|
|
—
|
|
|
(126.6
|
)
|
Debt extinguishment charge (See Note 8)
|
|
(37.0
|
)
|
|
—
|
|
|
—
|
|
Interest expense, net
|
|
(133.8
|
)
|
|
(124.0
|
)
|
|
(110.2
|
)
|
Loss before income taxes
|
|
$
|
(86.5
|
)
|
|
$
|
(734.0
|
)
|
|
$
|
(478.0
|
)
|
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 16 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 closure of the Midland, PA commodity stainless operations and the Bagdad, PA grain-oriented electrical steel (GOES) finishing facility. These facilities were indefinitely idled earlier in 2016, and management concluded that the facilities could not be operated at an acceptable rate of return. See Note 16 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 asset 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 2 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 closures of the Midland, PA commodity stainless operations 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 2 for additional information) and charges for severance and facility idling costs. See Note 16 for additional information on restructuring charges.
Closed operations and other expenses, which were
$34.0 million
in
2017
,
$34.6 million
in
2016
and
$22.1 million
in
2015
, 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
2017
, these items included
$22.7 million
for costs at closed facilities, including legal matters and real estate and other facility costs,
$7.3 million
for negative foreign currency remeasurement impacts primarily related to our European Treasury Center operation,
$2.9 million
for closed operations environmental costs, and
$4.8 million
for retirement benefit expense. These 2017 costs were offset by a
$3.7 million
benefit for reductions in liabilities for legacy employee benefit programs. In
2016
, the Company recorded
$34.6 million
in other charges primarily related to closed operations, including
$5.8 million
for environmental costs,
$5.0 million
for retirement benefit expense, and
$23.8 million
for other expenses including legal matters and real estate costs at closed operations, primarily for Rowley following the indefinite idling. In
2015
, the Company recorded
$22.1 million
in other charges primarily related to closed operations, including
$2.3 million
for retirement benefit expense,
$4.5 million
for environmental costs, and
$15.3 million
for other expenses including legal matters and real estate costs at closed operations.
Certain additional information regarding the Company’s business segments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
Depreciation and amortization:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
109.3
|
|
|
$
|
118.4
|
|
|
$
|
131.8
|
|
Flat Rolled Products
|
|
45.6
|
|
|
48.8
|
|
|
55.6
|
|
Corporate
|
|
5.9
|
|
|
3.1
|
|
|
2.5
|
|
Total depreciation and amortization
|
|
$
|
160.8
|
|
|
$
|
170.3
|
|
|
$
|
189.9
|
|
Capital expenditures:
|
|
|
|
|
|
|
High Performance Materials & Components
|
|
$
|
62.7
|
|
|
$
|
89.9
|
|
|
$
|
75.8
|
|
Flat Rolled Products
|
|
59.1
|
|
|
111.8
|
|
|
68.0
|
|
Corporate
|
|
0.9
|
|
|
0.5
|
|
|
0.7
|
|
Total capital expenditures
|
|
$
|
122.7
|
|
|
$
|
202.2
|
|
|
$
|
144.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
2017
|
|
2016
|
|
2015
|
High Performance Materials & Components
|
|
$
|
2,662.3
|
|
|
$
|
2,744.3
|
|
|
$
|
3,355.5
|
|
Flat Rolled Products
|
|
2,218.4
|
|
|
2,056.4
|
|
|
2,189.5
|
|
Discontinued Operations
|
|
0.2
|
|
|
0.4
|
|
|
0.9
|
|
Corporate:
|
|
|
|
|
|
|
Deferred Taxes
|
|
7.6
|
|
|
12.1
|
|
|
—
|
|
Cash and cash equivalents and other
|
|
296.9
|
|
|
356.8
|
|
|
205.8
|
|
Total assets
|
|
$
|
5,185.4
|
|
|
$
|
5,170.0
|
|
|
$
|
5,751.7
|
|
In 2016, 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. In 2016, 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)
|
|
2017
|
|
Percent
of total
|
|
2016
|
|
Percent
of total
|
|
2015
|
|
Percent
of total
|
External sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,070.6
|
|
|
59
|
%
|
|
$
|
1,857.5
|
|
|
59
|
%
|
|
$
|
2,142.6
|
|
|
58
|
%
|
China
|
|
265.6
|
|
|
7
|
%
|
|
214.1
|
|
|
7
|
%
|
|
246.9
|
|
|
7
|
%
|
United Kingdom
|
|
231.6
|
|
|
6
|
%
|
|
183.8
|
|
|
6
|
%
|
|
198.2
|
|
|
5
|
%
|
Germany
|
|
217.1
|
|
|
6
|
%
|
|
177.7
|
|
|
6
|
%
|
|
193.3
|
|
|
5
|
%
|
France
|
|
165.6
|
|
|
5
|
%
|
|
142.6
|
|
|
4
|
%
|
|
153.3
|
|
|
4
|
%
|
Japan
|
|
131.7
|
|
|
4
|
%
|
|
151.9
|
|
|
5
|
%
|
|
202.3
|
|
|
5
|
%
|
Canada
|
|
99.8
|
|
|
3
|
%
|
|
97.6
|
|
|
3
|
%
|
|
154.5
|
|
|
4
|
%
|
Mexico
|
|
96.1
|
|
|
3
|
%
|
|
89.7
|
|
|
3
|
%
|
|
78.4
|
|
|
2
|
%
|
Other
|
|
247.0
|
|
|
7
|
%
|
|
219.7
|
|
|
7
|
%
|
|
350.1
|
|
|
10
|
%
|
Total External Sales
|
|
$
|
3,525.1
|
|
|
100
|
%
|
|
$
|
3,134.6
|
|
|
100
|
%
|
|
$
|
3,719.6
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2017
|
|
Percent
of total
|
|
2016
|
|
Percent
of total
|
|
2015
|
|
Percent
of total
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,547.7
|
|
|
88
|
%
|
|
$
|
4,591.5
|
|
|
89
|
%
|
|
$
|
5,073.1
|
|
|
88
|
%
|
China
|
|
276.0
|
|
|
5
|
%
|
|
249.3
|
|
|
5
|
%
|
|
260.0
|
|
|
5
|
%
|
United Kingdom
|
|
122.7
|
|
|
2
|
%
|
|
122.8
|
|
|
2
|
%
|
|
154.3
|
|
|
3
|
%
|
Other
|
|
239.0
|
|
|
5
|
%
|
|
206.4
|
|
|
4
|
%
|
|
264.3
|
|
|
4
|
%
|
Total Assets
|
|
$
|
5,185.4
|
|
|
100
|
%
|
|
$
|
5,170.0
|
|
|
100
|
%
|
|
$
|
5,751.7
|
|
|
100
|
%
|
Note 16. 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 had 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 continued to be weak. As a result of these factors, titanium sponge, including aerospace quality sponge, could 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 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 replaced 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 year 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 was 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 closure of the Midland, PA commodity stainless operations 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 could not 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, 2017 and 2016 consist of severance and employee benefit costs and closure costs incurred in both 2015 and 2016, which were 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
|
|
Reversals
|
|
(1.6
|
)
|
|
(1.1
|
)
|
|
$
|
(2.7
|
)
|
Payments
|
|
(11.5
|
)
|
|
(17.3
|
)
|
|
$
|
(28.8
|
)
|
Balance at December 31, 2017
|
|
$
|
0.8
|
|
|
$
|
0.8
|
|
|
$
|
1.6
|
|
Note 17. 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, 2017
and 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 18. Per Share Information
The following table sets forth the computation of basic and diluted net loss per common share:
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
|
Numerator for basic net loss per common share -
|
|
|
|
|
|
|
Net loss attributable to ATI
|
|
$
|
(91.9
|
)
|
|
$
|
(640.9
|
)
|
|
$
|
(377.9
|
)
|
Redeemable noncontrolling interest (Note 17)
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
4.75% Convertible Senior Notes due 2022
|
|
—
|
|
|
—
|
|
|
—
|
|
Numerator for diluted net loss per common share -
|
|
|
|
|
|
|
Net loss attributable to ATI after assumed conversions
|
|
$
|
(91.9
|
)
|
|
$
|
(640.9
|
)
|
|
$
|
(378.2
|
)
|
Denominator:
|
|
|
|
|
|
|
Denominator for basic net loss per common share—weighted average shares
|
|
110.1
|
|
|
107.3
|
|
|
107.3
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
4.75% Convertible Senior Notes due 2022
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator for diluted net loss per common share—adjusted weighted average shares and assumed conversions
|
|
110.1
|
|
|
107.3
|
|
|
107.3
|
|
Basic net loss attributable to ATI per common share
|
|
$
|
(0.83
|
)
|
|
$
|
(5.97
|
)
|
|
$
|
(3.53
|
)
|
Diluted net loss attributable to ATI per common share
|
|
$
|
(0.83
|
)
|
|
$
|
(5.97
|
)
|
|
$
|
(3.53
|
)
|
Common stock that would be issuable upon the assumed conversion of the 2022 Convertible Notes and other option equivalents and contingently issuable shares are excluded from the computation of contingently issuable shares, and therefore, from the denominator for diluted earnings per share, if the effect of inclusion would have been anti-dilutive. Excluded shares were
20.8 million
for
2017
,
13.1 million
for
2016
and
0.8 million
for
2015
.
Note 19. 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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2.1
|
|
|
$
|
13.5
|
|
|
$
|
126.0
|
|
|
$
|
—
|
|
|
$
|
141.6
|
|
Accounts receivable, net
|
|
0.2
|
|
|
141.6
|
|
|
403.5
|
|
|
—
|
|
|
545.3
|
|
Intercompany notes receivable
|
|
—
|
|
|
—
|
|
|
3,505.6
|
|
|
(3,505.6
|
)
|
|
—
|
|
Inventories, net
|
|
—
|
|
|
207.9
|
|
|
968.2
|
|
|
—
|
|
|
1,176.1
|
|
Prepaid expenses and other current assets
|
|
6.6
|
|
|
4.5
|
|
|
41.6
|
|
|
—
|
|
|
52.7
|
|
Total current assets
|
|
8.9
|
|
|
367.5
|
|
|
5,044.9
|
|
|
(3,505.6
|
)
|
|
1,915.7
|
|
Property, plant and equipment, net
|
|
0.9
|
|
|
1,581.6
|
|
|
913.2
|
|
|
—
|
|
|
2,495.7
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
531.4
|
|
|
—
|
|
|
531.4
|
|
Intercompany notes receivable
|
|
—
|
|
|
—
|
|
|
200.0
|
|
|
(200.0
|
)
|
|
—
|
|
Investments in subsidiaries
|
|
5,645.6
|
|
|
37.7
|
|
|
—
|
|
|
(5,683.3
|
)
|
|
—
|
|
Other assets
|
|
25.4
|
|
|
18.0
|
|
|
199.2
|
|
|
—
|
|
|
242.6
|
|
Total assets
|
|
$
|
5,680.8
|
|
|
$
|
2,004.8
|
|
|
$
|
6,888.7
|
|
|
$
|
(9,388.9
|
)
|
|
$
|
5,185.4
|
|
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3.0
|
|
|
$
|
180.3
|
|
|
$
|
236.8
|
|
|
$
|
—
|
|
|
$
|
420.1
|
|
Accrued liabilities
|
|
54.1
|
|
|
88.5
|
|
|
139.8
|
|
|
—
|
|
|
282.4
|
|
Intercompany notes payable
|
|
1,836.5
|
|
|
1,669.1
|
|
|
—
|
|
|
(3,505.6
|
)
|
|
—
|
|
Short-term debt and current portion of long-term debt
|
|
0.3
|
|
|
0.6
|
|
|
9.2
|
|
|
—
|
|
|
10.1
|
|
Total current liabilities
|
|
1,893.9
|
|
|
1,938.5
|
|
|
385.8
|
|
|
(3,505.6
|
)
|
|
712.6
|
|
Long-term debt
|
|
1,275.7
|
|
|
150.7
|
|
|
104.2
|
|
|
—
|
|
|
1,530.6
|
|
Intercompany notes payable
|
|
—
|
|
|
200.0
|
|
|
—
|
|
|
(200.0
|
)
|
|
—
|
|
Accrued postretirement benefits
|
|
—
|
|
|
250.2
|
|
|
67.6
|
|
|
—
|
|
|
317.8
|
|
Pension liabilities
|
|
644.3
|
|
|
4.4
|
|
|
48.3
|
|
|
—
|
|
|
697.0
|
|
Deferred income taxes
|
|
9.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.7
|
|
Other long-term liabilities
|
|
12.7
|
|
|
17.2
|
|
|
43.3
|
|
|
—
|
|
|
73.2
|
|
Total liabilities
|
|
3,836.3
|
|
|
2,561.0
|
|
|
649.2
|
|
|
(3,705.6
|
)
|
|
3,340.9
|
|
Total stockholders’ equity (deficit)
|
|
1,844.5
|
|
|
(556.2
|
)
|
|
6,239.5
|
|
|
(5,683.3
|
)
|
|
1,844.5
|
|
Total liabilities and stockholders’ equity
|
|
$
|
5,680.8
|
|
|
$
|
2,004.8
|
|
|
$
|
6,888.7
|
|
|
$
|
(9,388.9
|
)
|
|
$
|
5,185.4
|
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the year ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Sales
|
|
$
|
—
|
|
|
$
|
1,178.9
|
|
|
$
|
2,346.2
|
|
|
$
|
—
|
|
|
$
|
3,525.1
|
|
Cost of sales
|
|
42.4
|
|
|
1,103.5
|
|
|
1,930.2
|
|
|
—
|
|
|
3,076.1
|
|
Gross profit (loss)
|
|
(42.4
|
)
|
|
75.4
|
|
|
416.0
|
|
|
—
|
|
|
449.0
|
|
Selling and administrative expenses
|
|
91.0
|
|
|
37.6
|
|
|
125.7
|
|
|
—
|
|
|
254.3
|
|
Impairment of goodwill
|
|
—
|
|
|
—
|
|
|
114.4
|
|
|
—
|
|
|
114.4
|
|
Operating income (loss)
|
|
(133.4
|
)
|
|
37.8
|
|
|
175.9
|
|
|
—
|
|
|
80.3
|
|
Interest income (expense), net
|
|
(155.8
|
)
|
|
(90.0
|
)
|
|
112.0
|
|
|
—
|
|
|
(133.8
|
)
|
Debt extinguishment charge
|
|
(37.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37.0
|
)
|
Other income (expense) including equity in income of unconsolidated subsidiaries
|
|
239.7
|
|
|
1.6
|
|
|
2.4
|
|
|
(239.7
|
)
|
|
4.0
|
|
Income (loss) before income taxes
|
|
(86.5
|
)
|
|
(50.6
|
)
|
|
290.3
|
|
|
(239.7
|
)
|
|
(86.5
|
)
|
Income tax provision (benefit)
|
|
(6.8
|
)
|
|
(16.6
|
)
|
|
131.4
|
|
|
(114.8
|
)
|
|
(6.8
|
)
|
Net income (loss)
|
|
(79.7
|
)
|
|
(34.0
|
)
|
|
158.9
|
|
|
(124.9
|
)
|
|
(79.7
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
12.2
|
|
|
—
|
|
|
12.2
|
|
Net income (loss) attributable to ATI
|
|
$
|
(79.7
|
)
|
|
$
|
(34.0
|
)
|
|
$
|
146.7
|
|
|
$
|
(124.9
|
)
|
|
$
|
(91.9
|
)
|
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Comprehensive Income (Loss)
For the year ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net income (loss)
|
|
$
|
(79.7
|
)
|
|
$
|
(34.0
|
)
|
|
$
|
158.9
|
|
|
$
|
(124.9
|
)
|
|
$
|
(79.7
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment arising during the period
|
|
39.1
|
|
|
—
|
|
|
39.1
|
|
|
(39.1
|
)
|
|
39.1
|
|
Net derivative gain on hedge transactions
|
|
7.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.1
|
|
Pension and postretirement benefits
|
|
27.3
|
|
|
(5.8
|
)
|
|
(10.7
|
)
|
|
16.5
|
|
|
27.3
|
|
Other comprehensive income (loss), net of tax
|
|
73.5
|
|
|
(5.8
|
)
|
|
28.4
|
|
|
(22.6
|
)
|
|
73.5
|
|
Comprehensive income (loss)
|
|
(6.2
|
)
|
|
(39.8
|
)
|
|
187.3
|
|
|
(147.5
|
)
|
|
(6.2
|
)
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
19.8
|
|
|
—
|
|
|
19.8
|
|
Comprehensive income (loss) attributable to ATI
|
|
$
|
(6.2
|
)
|
|
$
|
(39.8
|
)
|
|
$
|
167.5
|
|
|
$
|
(147.5
|
)
|
|
$
|
(26.0
|
)
|
Condensed Statements of Cash Flows
For the year ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Guarantor
Parent
|
|
Subsidiary
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities
|
|
$
|
(78.8
|
)
|
|
$
|
(101.5
|
)
|
|
$
|
214.7
|
|
|
$
|
(12.0
|
)
|
|
$
|
22.4
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(0.9
|
)
|
|
(38.5
|
)
|
|
(83.3
|
)
|
|
—
|
|
|
(122.7
|
)
|
Net receipts (payments) on intercompany activity
|
|
—
|
|
|
—
|
|
|
(223.9
|
)
|
|
223.9
|
|
|
—
|
|
Asset disposals and other
|
|
—
|
|
|
0.1
|
|
|
3.0
|
|
|
—
|
|
|
3.1
|
|
Cash flows provided by (used in) investing activities
|
|
(0.9
|
)
|
|
(38.4
|
)
|
|
(304.2
|
)
|
|
223.9
|
|
|
(119.6
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings on long-term debt
|
|
—
|
|
|
—
|
|
|
8.5
|
|
|
—
|
|
|
8.5
|
|
Payments on long-term debt and capital leases
|
|
(350.4
|
)
|
|
(0.3
|
)
|
|
(2.3
|
)
|
|
—
|
|
|
(353.0
|
)
|
Net borrowings under credit facilities
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
1.6
|
|
Debt issuance costs
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
Debt extinguishment charge
|
|
(35.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35.8
|
)
|
Net receipts (payments) on intercompany activity
|
|
72.7
|
|
|
151.2
|
|
|
—
|
|
|
(223.9
|
)
|
|
—
|
|
Issuance of common stock
|
|
397.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
397.8
|
|
Dividends paid to stockholders
|
|
—
|
|
|
—
|
|
|
(12.0
|
)
|
|
12.0
|
|
|
—
|
|
Dividends paid to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(8.0
|
)
|
|
—
|
|
|
(8.0
|
)
|
Sale to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
3.7
|
|
Shares repurchased for income tax withholding on share-based compensation and other
|
|
(4.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.8
|
)
|
Cash flows provided by (used in) financing activities
|
|
79.5
|
|
|
150.9
|
|
|
(9.3
|
)
|
|
(211.9
|
)
|
|
9.2
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(0.2
|
)
|
|
$
|
11.0
|
|
|
$
|
(98.8
|
)
|
|
$
|
—
|
|
|
$
|
(88.0
|
)
|
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) 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 acivity
|
|
(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
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
|
|
Impairment of goodwill
|
|
—
|
|
|
126.6
|
|
|
—
|
|
|
—
|
|
|
126.6
|
|
Restructuring charges
|
|
1.6
|
|
|
58.0
|
|
|
4.7
|
|
|
—
|
|
|
64.3
|
|
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) 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-terms debt and capital leases
|
|
(0.6
|
)
|
|
(0.1
|
)
|
|
(22.9
|
)
|
|
—
|
|
|
(23.6
|
)
|
Net receipts (payments) on intercompany activity
|
|
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
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(1.8
|
)
|
|
$
|
(11.0
|
)
|
|
$
|
(106.9
|
)
|
|
$
|
—
|
|
|
$
|
(119.7
|
)
|
Note 20. Commitments and Contingencies
Rental expense under operating leases was
$21.1 million
in
2017
,
$22.6 million
in
2016
, and
$23.1 million
in
2015
. Future minimum rental commitments under operating leases with non-cancelable terms of more than one year at
December 31, 2017
, were as follows:
$20.0 million
in
2018
,
$13.5 million
in
2019
,
$12.5 million
in
2020
,
$11.3 million
in
2021
,
$6.2 million
in
2022
and
$13.9 million
thereafter. Commitments for expenditures on property, plant and equipment at
December 31, 2017
were approximately
$62.8 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 potentially responsible parties (PRPs). The Company adjusts its accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on the Company’s consolidated results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments.
At
December 31, 2017
, the Company’s reserves for environmental remediation obligations totaled approximately
$12 million
, of which
$7 million
was included in other current liabilities. The reserve includes estimated probable future costs of
$2 million
for federal Superfund and comparable state-managed sites;
$8 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
$15 million
. Future investigation or remediation activities may result in the discovery of additional hazardous materials, potentially higher levels of contamination than discovered during prior investigation, and may impact costs of the success or lack thereof in remedial solutions. Therefore, future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on the Company’s consolidated financial condition or results of operations.
The timing of expenditures depends on a number of factors that vary by site. The Company expects that it will expend present accruals over many years and that remediation of all sites with which it has been identified will be completed within thirty years.
A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently and formerly owned businesses, including those pertaining to product liability, patent infringement, commercial, government contracting, construction, employment, employee and retiree benefits, taxes, environmental, health and safety, occupational disease, and stockholder and corporate governance matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s consolidated financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s consolidated results of operations for that period.
Note 21. Selected Quarterly Financial Data
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
(In millions, except per share amounts)
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2017 -
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
865.9
|
|
|
$
|
880.2
|
|
|
$
|
869.1
|
|
|
$
|
909.9
|
|
Gross Profit
|
|
112.8
|
|
|
112.3
|
|
|
93.3
|
|
|
130.6
|
|
Net income (loss)
|
|
21.1
|
|
|
13.4
|
|
|
(119.4
|
)
|
|
5.2
|
|
Net income (loss) attributable to ATI
|
|
17.5
|
|
|
10.1
|
|
|
(121.2
|
)
|
|
1.7
|
|
Basic income (loss) attributable to ATI per common share
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
$
|
(1.12
|
)
|
|
$
|
0.01
|
|
Diluted income (loss) attributable to ATI per common share
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
$
|
(1.12
|
)
|
|
$
|
0.01
|
|
Average shares outstanding
|
|
108.8
|
|
|
108.9
|
|
|
108.9
|
|
|
118.6
|
|
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
|
|
Third quarter 2017 includes a
$114.4 million
pre-tax (
$113.6 million
, net of tax) non-cash goodwill impairment charge for the Company’s Cast Products business. See Note 4 for further explanation.
Fourth quarter 2017 includes a
$37.0 million
pre-tax and net of tax debt extinguishment charge for the full redemption of the
$350 million
,
9.375%
Senior Notes due 2019. Fourth quarter 2017 also includes
$4.1 million
of tax benefits from the 2017 Tax Cuts and Jobs Act legislation. Fourth quarter 2017 shares outstanding reflect the Company's issuance of
17 million
shares of common stock on November 7, 2017 (see Note 13 for further explanation).
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.
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.