Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. Actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors, including those described below. Net income and net income per share amounts referenced below are attributable to Allegheny Technologies Incorporated and Subsidiaries.

ATI Overview

ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest markets are aerospace & defense, representing approximately 40% of total sales, led by products for jet engines. Additionally, we have a strong presence in the energy markets, including specialty energy, oil & gas and downstream processing. In aggregate, these markets represent about 60% of our revenue. ATI is a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies, including our new product development competence.

We operate in two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). The HPMC segment’s primary focus is on maximizing aero-engine materials and components growth, with approximately 75% of its revenue derived from the aerospace & defense markets including over 40% of its revenue from products for commercial jet engines. Commercial aerospace products have been the main source of sales and EBITDA growth for HPMC over the last several years, and are expected to continue to drive HPMC and overall ATI results as demand from these markets recovers from reduced 2020 levels resulting from the COVID-19 pandemic. Other major HPMC end markets include medical and energy. HPMC produces a wide range of high performance materials, components, and advanced metallic powder alloys. These are made from nickel-based alloys and superalloys, titanium and titanium-based alloys, and a variety of other specialty materials. Capabilities range from cast/wrought and powder alloy development to final production of highly

engineered finished components, including those used for next-generation jet engine forgings and 3D-printed aerospace products.

The AA&S segment is focused on delivering high-value flat products primarily to the energy, aerospace, and defense end-markets, which comprise approximately 45% of its revenue. Other important end markets for AA&S include automotive and electronics. AA&S produces nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and strip products. On December 2, 2020, we announced a strategic repositioning of our SRP business, which includes exiting lower-margin standard stainless sheet products, streamlining the production footprint of the AA&S segment and making certain capital investments to increase our focus on higher-margin products and our aerospace & defense end markets. We remain on track to complete our transformation of the SRP business and exit sales of lower-margin standard stainless sheet products in the first half of 2022.

Overview of 2021 Financial Performance

Sales in 2021 decreased 6%, to $2.80 billion, while gross profit increased 14%, to $333 million, compared to 2020, as our end-markets begin to show signs of sustained recovery and we continue to recognize the benefits of 2020 cost cutting actions. Results for 2021 included $40 million of net pre-tax charges as further described in the Results of Operations section. Results for 2020 included $1.1 billion of restructuring and other charges, $287 million of goodwill impairment charges, and $22 million in debt extinguishment charges. Results in 2020 also reflect a $78 million income tax provision primarily for valuation allowances on U.S. federal and state net deferred tax assets. The Company’s net loss in 2021 was $38.2 million, or ($0.30) per share. Adjusted EBITDA for 2021 was $290.9 million, or 10.4% of sales, compared to $196.3 million, or 6.6% of sales, for 2020. See the Financial Condition and Liquidity section of Management’s Discussion and Analysis for non-GAAP definitions and calculations.

Revenues in our largest end markets, aerospace & defense, decreased $227 million, or 17%, compared to 2020, and represented 41% of our 2021 sales. International sales, including both U.S. exports and foreign sales from our foreign manufacturing operations, were $1.26 billion in 2021 and represented 45% of total sales.

A summary of our results is as follows.

(Dollars in millions, except per share amounts) 2021 2020* 2019*

Gross profit % of sales 11.9 % 9.8 % 15.5 %

Diluted net income (loss) per common share $ (0.30) $ (12.43) $ 1.81

*Years ended December 31, 2020 and 2019 reflect the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements. There were no adjustments to 2020 amounts as a result of this change.

Our major accomplishments during 2021 include the following:

•A return to profitability after a loss in 2020, with operating income of $118 million. Results for the fourth quarter 2021 were our highest quarterly revenues and margins of the year as demand improved in key end markets, led by commercial jet engine products. For the full year 2021, Adjusted EBITDA margins were 10.4%, only 30 basis points below full year 2019, despite 32% lower revenues. We achieved our expected annual cost savings in 2021 from our 2020 restructuring actions and expect continued benefits, primarily to cost of sales and gross margin, from these structural changes in future periods.

•We completed a few significant capital projects that position us for the growth in aero engine demand, including the full qualification of our fourth iso-thermal press at our Iso-Thermal Forging Center of Excellence in Cudahy, WI. We also expanded heat-treating and machining capabilities in this business. We continue to make capital investments in support of our strategic growth initiatives, pacing our investments to have the installed asset base in service and qualified when needed for additional production capacity associated with long-term agreements, principally involving aerospace and defense markets customers.

•We continue to transform our SRP business and are on track to complete the footprint consolidation and exit standard stainless sheet product sales by mid-year 2022. In 2021, 93% of AA&S’s sales were high-value products, a significant increase from 86% in 2020, reflecting an improved product mix and margin benefits from this effort. Fourth quarter 2021 AA&S sales were 96% high-value products, and we are no longer producing any new standard

stainless sheet products. Our AA&S sales would have been approximately $250 million lower in 2020, and approximately $110 million lower in 2021 without sales of standard stainless sheet products.

•We generated positive cash from operating activities in 2021, despite an $81 million increase in managed working capital and $67 million in contributions to ATI’s U.S. defined benefit pension trust. As a result of our constant focus on our financial condition in another year of significant economic uncertainty, we ended the year with $688 million of cash on hand and over $1 billion of liquidity including our asset-based lending facility.

•In September 2021, ATI issued $675 million of new unsecured senior notes, including $325 million of 4.875% Senior Notes due 2029 (the 2029 Notes) and $350 million of 5.125% Senior Notes due 2031 (the 2031 Notes). In October 2021, we used $571 million of the proceeds from these debt issuances to retire $500 million of higher cost debt due in 2023, along with accrued interest and required make-whole premium, and recognized an approximately $66 million debt extinguishment charge. With these actions, we lowered annual interest expense and extended our debt maturity profile, with no significant debt maturities before 2024.

•We made further progress on our risk management strategy for retirement benefit obligations by completing a $70 million pension risk transfer through the purchase of an annuity contract with a nationally recognized insurance company. This annuity buyout removed 7% of plan participants, bringing the total pension participant reduction to more than 60% over the past nine years. In addition, we continued to reduce our net pension liability, which was $396 million, or 84% funded on a financial reporting basis as of December 31, 2021, a substantial improvement over the $674 million, or 75% funded position at the end of 2020 due to strong pension asset performance, cash contributions to the pension trust, and benefits from higher discount rates at year-end 2021. We also recognized a $65 million pretax gain on postretirement medical benefits and reduced our postretirement benefits liability by $43 million as a result of a plan settlement.

•We voluntarily changed accounting methods for our business units that previously used the Last-in, First-Out (LIFO) costing method to a current costing method, which is how we manage these businesses and internally evaluate financial performance. This change had no impact on our 2021 or 2020 results, and aligns our inventory costing methods with the majority of our industry peers. Our 2019 results have been restated to reflect this change which had a $5.1 million, or $0.04 per share, unfavorable impact to our 2019 results. We expect lower earnings volatility in future periods as a result of this accounting method change.

Results of Operations

2021 Compared to 2020

Results for 2021 were sales of $2.80 billion and income before tax of $10.6 million, compared to sales of $2.98 billion and a loss before tax of $1,481.9 million in 2020. Our gross profit was $333.2 million, or 11.9% of sales, a $40.4 million increase compared to 2020, as our end-markets begin to show signs of sustained recovery and we continue to recognize the benefits of 2020 cost cutting actions. Results for 2021 included $39.5 million of net pre-tax charges which consisted of the following:

•$65.5 million debt extinguishment charge related to the redemption of our $500 million of 5.875% Senior Notes due 2023 (2023 notes);

•$63.2 million of strike-related costs arising from the 3 1⁄2 month work stoppage by the USW, following expiration of a CBA, which began in March 2021, and predominantly impacted AA&S segment operations. A new CBA was ratified in July 2021. Strike-related costs primarily consisted of overhead costs recognized in the period due to below normal operating rates, higher costs for outside conversion activities, and signing bonuses for represented employees following CBA ratification;

•$64.9 million retirement benefit settlement gain for a plan termination that eliminated certain postretirement medical benefit liabilities as a result of the new USW CBA;

•$13.8 million gain on the sale of our Flowform Products business, which was sold for $55 million in cash in August 2021. This business is reported as part of the HPMC segment through the date of sale. Flowform Products’ sales were $26 million in fiscal year 2020;

•$10.5 million of net credits for restructuring and other charges, consisting of $11.3 million of restructuring credits primarily for a reduction in severance-related reserves based on changes in planned operating rates and revised workforce reduction estimates, partially offset by $0.8 million for inventory valuation reserves classified in cost of sales on the consolidated statement of operations.

The 2020 results included $1,443.0 million of pretax charges which consisted of the following:

•$1,132.1 million of restructuring and other charges;

•$287.0 million for impairment of a portion of goodwill at our Forged Products operations;

•$21.5 million for debt extinguishment on $203.2 million, or 71%, of the principal balance of the outstanding 2022 Convertible Notes; and

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

The 2020 restructuring and other charges of $1,132.1 million predominantly related to the Company’s December 2020 announcement that it would cease production of standard stainless sheet products, significantly reducing the operating levels of the Brackenridge, PA operations, including the HRPF, and close various downstream finishing operations that were part of the standard stainless flow path. These restructuring and other charges consisted of the following:

•$1,107.5 million of restructuring charges recorded on the consolidated statement of operations. These restructuring charges consist of $1,041.5 million of non-cash long-lived asset impairment charges, primarily for the Brackenridge operations, $60.5 million of employee benefit costs for hourly and salary employees, and $5.5 million of other costs related to facility idlings.

•$17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures from the standard stainless exit. These costs are classified within nonoperating retirement benefit expense in the consolidated statements of operations.

•$7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to the Albany, OR idled facility.

All of these items discussed above are excluded from segment EBITDA. The strike related costs, goodwill impairment, restructuring charges/credits and charges for inventory valuation reserves above are included in operating income (loss) on the consolidated statements of operations, which was operating income of $117.6 million for 2021, compared to an operating loss of $1,302.7 million for 2020.

Nonoperating items included $37.2 million in nonoperating retirement benefit income in 2021, compared to expense of $62.1 million in the prior year, reflecting the $64.9 million retirement benefit settlement gain in 2021 and the $17.4 million in termination benefits in 2020 related to facility closures discussed above. Other (nonoperating) income/expense in 2021 includes the $13.8 million gain on the sale of the Flowform Products business discussed above. Other (nonoperating) income/expense for 2020 includes $7.0 million of net losses from operating results of joint ventures accounted for under the equity method and $2.4 million of severance charges at our A&T Stainless joint venture.

Results for 2021 included $26.8 million of income tax expense, primarily for $15.5 million in discrete tax effects related to the retirement benefit settlement gain. ATI continues to maintain a valuation allowance on its U.S. deferred tax assets. Results for 2020 include a $77.7 million income tax charge primarily for deferred tax asset valuation allowances on our U.S. federal and state tax attributes, due to re-entering a three-year cumulative loss position for our U.S. results during the year. Net loss attributable to ATI was $38.2 million, or ($0.30) per share, in 2021, compared to a net loss attributable to ATI of $1,572.6 million, or ($12.43) per share, for 2020. Adjusted EBITDA was $290.9 million, or 10.4% of sales, for 2021, and $196.3 million, or 6.6% of sales, for 2020.

ATI proactively implemented workforce reduction initiatives in the fourth quarter 2019, and throughout 2020 in response to changed market conditions resulting from the COVID-19 pandemic, to better match our cost structure to expected demand. In 2020, we reduced company-wide employment levels by approximately 1,400 people, or about 17% of our total workforce. To help further mitigate the financial impact from reduced aerospace and consumer demand levels stemming from the COVID-19 pandemic, we implemented 2020 cost reduction efforts including the temporary idling of operations to reduce costs and inventory, salary reductions for a substantial portion of our staff, reductions in 401(k) benefits for nearly all employees, furlough of non-essential positions, and significant reductions in capital expenditures and corporate expenses. Our 2021 results reflect the favorable impacts of these 2020 workforce reduction initiatives and the ongoing recovery across many of our key end markets, most notably jet engine materials and components, compared to the prior year. Additionally, we continued our strategic transformation efforts in 2021 within the AA&S segment to eliminate production of lower-margin standard stainless sheet products in the SRP business.

2020 Compared to 2019

Results for 2020 were sales of $2.98 billion and loss before tax of $1,481.9 million, compared to sales of $4.12 billion and income before tax of $236.5 million in 2019. Results in 2019 included $95 million of sales and minimal segment operating profit related to the divested titanium investment castings and industrial forgings businesses. Our gross profit was $292.8 million, or 9.8% of sales, in 2020, a $345.2 million decline compared to 2019, reflecting COVID-19 impacts.

The 2020 results included $1,443.0 million of pretax charges discussed above, all of which are excluded from segment EBITDA and consisted primarily of restructuring and other charges, goodwill impairment, and debt extinguishment charges. The 2019 results included the following pretax charges, all of which are excluded from segment EBITDA:

• $4.5 million restructuring charge for severance obligations to streamline ATI’s salaried workforce, primarily to improve the cost competitiveness of the U.S.-based SRP business;

• $21.6 million for debt extinguishment on the $500 million 5.95% Senior Notes due 2021 (2021 Notes); and

• $11.4 million impairment charge for our A&T Stainless joint venture.

The goodwill impairment, restructuring charges and charges for inventory valuation reserves above are included in operating income (loss) on the consolidated statements of operations, which was an operating loss of $1,302.7 million for 2020, compared to operating income of $366.3 million for 2019. Nonoperating items included a reduction in nonoperating retirement benefit expense of $11.5 million in 2020, compared to the prior year period, despite the $17.4 million in termination benefits related to facility closures discussed above. Other (nonoperating) income/expense for 2020 included $7.0 million of net losses from operating results of joint ventures accounted for under the equity method and $2.4 million of severance charges at our A&T Stainless joint venture. Other (nonoperating) income/expense for 2019 included $84.6 million in net gains from non-core asset sales, consisting of a $91.7 million gain to monetize oil and gas rights and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by an $13.3 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. Results for 2019 also include an $11.4 million A&T Stainless joint venture impairment charge and $10.7 million of net losses from operating results of joint ventures accounted for under the equity method. Equity method joint venture operating results are included in the results of the AA&S segment.

Results for 2020 include a $77.7 million income tax charge primarily related to deferred tax asset valuation allowances on our U.S. federal and state tax attributes, due to re-entering a three-year cumulative loss position for our U.S. results during the year. Results in 2019 included a $28.5 million income tax benefit, as we determined as of December 31, 2019 that we were no longer in a three year cumulative loss position and a substantial portion of our income tax valuation allowances were no longer required, resulting in a $45.1 million discrete tax benefit. Net loss attributable to ATI was $1,572.6 million, or ($12.43) per share, in 2020, compared to net income attributable to ATI of $252.5 million, or $1.81 per share, for 2019. Adjusted EBITDA was $196.3 million, or 6.6% of sales, for 2020, and $439.5 million, or 10.7% of sales, for 2019.

Results by Business Segment

We operated in two business segments during 2021, HPMC and AA&S, and management evaluates financial results on this basis. HPMC sales in 2021 were consistent with 2020, as 68% and 26% increases in the energy and medical markets, respectively, were offset by a 12% decrease in sales to the aerospace & defense markets, which comprise 72% of the sales in this segment, due to declines in the commercial aerospace market demand resulting from the COVID-19 pandemic. While full year HPMC 2021 sales were in line with 2020, the prior year included results before the effects of the COVID-19 pandemic. Fourth quarter 2021 HPMC sales were 41% higher than the fourth quarter 2020, as commercial aerospace end market demand recovers. Sales decreased 10% in 2021 in the AA&S segment, reflecting the exit of standard stainless sheet products and lower sales across all major markets with the exception of the automotive and electronics markets, particularly a 28% decline in sales to the aerospace & defense markets and a 19% decrease in energy market sales. HPMC sales decreased in 2020 compared to 2019 by 41%, driven by a 42% decrease in sales to the aerospace & defense markets, which comprised 81% of the sales in this segment, due to declines in demand for products to the commercial aerospace market resulting from the COVID-19 pandemic. Sales decreased 15% in 2020 compared to 2019 in the AA&S segment, reflecting lower sales across most markets, particularly an 18% decline in sales to the aerospace & defense markets and a 20% decrease in energy market sales.

Total segment EBITDA was $351.6 million, or 12.6% of sales, in 2021, compared to total segment EBITDA of $244.6 million, or 8.2% of sales, in 2020 and $528.8 million, or 12.8% of sales, in 2019. Our measure of segment EBITDA, which we use to analyze the performance and results of our business segments, excludes all effects of income taxes, depreciation and amortization, corporate expenses, net interest expense, closed operations and other expenses, charges for goodwill and asset impairments, restructuring and other charges, debt extinguishment charges and non-operating gains or losses. Results on our management basis of reporting were as follows (in millions):

Fiscal Year Ended

December 31, December 31, December 31,

Sales:

EBITDA:

High Performance Materials & Components $ 159.9 $ 129.6 $ 356.2

Closed operations and other expenses (4.8) (7.4) (24.0)

Restructuring and other credits (charges) 10.5 (1,132.1) (4.5)

Strike related costs (63.2) — —

Retirement benefit settlement gain 64.9 — —

Impairment of goodwill — (287.0) —

Joint venture restructuring and impairment charges — (2.4) (11.4)

Debt extinguishment charge (65.5) (21.5) (21.6)

Gains on asset sales and sale of business, net 13.8 2.5 84.6

Comparative information for our overall revenues (in millions) by end market, including divested businesses prior to sale, and their respective percentages of total revenues is as follows:

Aerospace & Defense:

Energy:

Comparative information for our major high-value and standard products, including divested businesses prior to sale, based on their percentages of revenues is as follows. In conjunction with its announced ongoing exit from production and sale of standard stainless sheet products, ATI reclassified certain items in the AA&S segment as High-Value Products. Prior period information reflects these reclassifications. HRPF conversion service sales in the AA&S segment are excluded from this presentation. We expect to cease production of lower-margin standard stainless sheet products in the first half of 2022.

High-Value Products

Nickel-based alloys and specialty alloys 39 % 36 % 39 %

Precision forgings, castings and components 16 % 14 % 18 %

Titanium and titanium-based alloys 12 % 17 % 18 %

Zirconium and related alloys 10 % 9 % 6 %

Total High-Value Products 96 % 91 % 93 %

Standard Products

Total Standard Products 4 % 9 % 7 %

Sales by geographic area (in millions), including divested businesses prior to sale, and as a percentage of total sales, were as follows:

Information with respect to our business segments follows.

High Performance Materials & Components

Segment EBITDA as a percentage of sales 13.8 % 11.1 % 18.0 %

International sales as a percentage of sales 50.5 % 45.0 % 47.3 %

Our HPMC segment produces a wide range of high performance materials, including titanium and titanium-based alloys, nickel- and cobalt-based alloys and superalloys, advanced powder alloys and other specialty materials, in long product forms such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tubes, plus precision forgings, components, and machined parts.

2021 Compared to 2020

Sales for the HPMC segment in 2021 were consistent with 2020 at $1.16 billion. Sales to the aerospace & defense markets, which were 72% of 2021 HPMC sales, were 12% lower, reflecting a 20% decrease in sales to the commercial aerospace market resulting from the global COVID-19 pandemic, partially offset by a 20% increase in defense sales. Sales of next generation jet engine products represented 43% of total 2021 HPMC jet engine product sales and were consistent with 2020 levels. Sales in the energy market were 68% higher, driven by demand for materials for specialty energy applications. Sales in the medical market also increased by 26% compared to 2020. In August 2021, we sold our small Flowform Products business, which produces thin-walled components primarily for defense market applications. This business is reported as part of the HPMC segment through the date of sale. Flowform Products’ sales were $26 million in 2020. The divestiture is not expected to have a material impact on future HPMC results.

Comparative information for our HPMC segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2021 and 2020, and the percentage change in revenues by market for 2021 is as follows:

Aerospace & Defense:

Energy:

We utilize LTAs with certain of our customers for our specialty materials, including powders, parts and components, to reduce their supply uncertainty, including several LTAs with aerospace market OEMs. These LTAs are expected to continue to drive HPMC’s growth trajectory for the next several years. These cover sales of ATI’s specialty materials, parts and components that are required for both next-generation and legacy aircraft platforms, including jet engines. Our LTAs include a titanium products supply agreement for aircraft airframes and structural components with The Boeing Company (Boeing), which was extended in 2021. This LTA covers value-added titanium products and provides opportunity for greater use of ATI’s next generation and advanced titanium alloys in both long product and flat-rolled product forms, including highly engineered titanium forged products. The agreement includes both long-product forms that are manufactured within the HPMC segment, and a significant amount of plate products that are manufactured utilizing assets of both the HPMC and AA&S segments. Revenues and profits associated with these titanium products covered by the Boeing LTA are included primarily in the results for the HPMC segment.

We have LTAs with GE Aviation and Snecma (Safran) to supply premium titanium alloys, nickel-based alloys, and vacuum-melted specialty alloys products for commercial and military jet engine applications. In addition, we have LTAs with Rolls-Royce plc for the supply of disc-quality products and precision forgings for commercial jet engine applications. We also supply products to other important parts of the aviation market such as helicopters and rotary engine fixed wing aircraft.

New airframe designs contain a larger percentage of titanium alloys, and the jet engines that power them use newer nickel-based alloys and titanium-based alloys, in both cases for improved performance and more economical operating costs, compared to legacy airframe and engine designs.Even with the production delays and order cancellations that have occurred since the onset of the COVID-19 pandemic, Boeing and Airbus continue to have multi-year backlogs of orders for both legacy models and next-generation aircraft, and there continues to be over 25,000 jet engines with firm orders (Aero Engine News, February 2022).Due to manufacturing cycle times, demand for our specialty materials leads the deliveries of new aircrafts by approximately 6 to 12 months.

Use of these newer materials, particularly for jet engine applications, is expected to continue to increase for several years, with strong growth expected in powder metal alloys, including increased usage of iso-thermal forging and additive manufacturing production processes.

In addition, as our specialty materials are used in rotating components of jet engines, demand for our products for spare parts is impacted by aircraft flight activity and engine refurbishment requirements of U.S. and foreign aviation regulatory authorities. As the number of aircraft in service increases, the need for our materials associated with engine refurbishment is expected to increase.

Comparative information for HPMC’s major product categories based on their percentages of the segment’s overall revenue is as follows:

High-Value Products

Nickel-based alloys and specialty alloys 43 % 38 %

Precision forgings, castings and components 38 % 34 %

Titanium and titanium-based alloys 19 % 28 %

Total High-Value Products 100 % 100 %

HPMC segment EBITDA for 2021 increased 23% to $159.9 million, or 13.8% of sales, compared to $129.6 million, or 11.1% of sales, in 2020, reflecting an improved product mix and benefits from increased operating levels. Stronger operating margins from higher production volumes were aided by share gains and the ongoing benefits of 2020 cost cutting actions compared to the prior year, which included pre-pandemic levels for a portion of 2020. Strike-related costs of $3.5 million were excluded from HPMC 2021 results.

Current year results reflect growing momentum in our business. The aerospace market continues to recover, and we are seeing an ongoing improvement in demand in many of our key end markets, most notably jet engine materials and components and specialty energy applications, as well as the continued benefits from our aggressive 2020 cost cutting actions and recent share gains. Worldwide economic recovery is increasing the demand for travel and efficient energy, which benefits ATI, and we believe we are well positioned to capture this growth in the future. Steady improvement in quarterly EBITDA margins in 2021 demonstrates a focus on lean cost structures and improving our product mix and pricing. Commercial aerospace continues to expand unevenly across our product portfolio. Jet engine forgings demand remains strong, bolstered by our 2021 share gains. Demand for our jet engine specialty materials was mixed, varying by customer and product, largely due to uneven supply chain inventory levels and customer order patterns. Looking ahead to 2022, we anticipate strong year-over-year revenue and earnings growth primarily driven by the ongoing commercial aerospace recovery.

We anticipate industry demand growth for advanced powder materials to satisfy aerospace & defense market production requirements, and for emerging additive manufacturing of parts and components. Recently, we added new metal-alloy production capacity for nickel, superalloy, and titanium alloy powders, and we acquired assets in 2018 to accelerate the development of our capabilities in metal alloy-based additive manufacturing to provide comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components. Strategic capital projects in HPMC to support future growth include the iso-thermal press and heat-treating capacity expansion at our Iso-Thermal Forging Center of Excellence in Cudahy, WI, which was placed into service in 2021.

Despite near-term uncertainty posed by the ongoing COVID-19 pandemic impacts globally, we expect that the long-term fundamentals driving demand growth in commercial aerospace remain largely intact across a range of next-generation aircraft and engines.We believe that our HPMC segment is well-positioned for profitable growth through the expected recovery in

commercial aerospace demand, especially in the next-generation jet engine platforms where LTAs provide significant growth and share gains for ATI on next-generation airplanes and the jet engines that power them.

2020 Compared to 2019

Sales for the HPMC segment in 2020 decreased 41%, to $1.16 billion, with declines across most major markets. Sales to the aerospace & defense markets, which were 81% of 2020 HPMC sales, were 42% lower, reflecting a 48% decrease in sales to the commercial aerospace market, partially offset by a 24% increase in government defense sales. Sales of next generation jet engine products represented 41% of total 2020 HPMC jet engine product sales, a reduction in this sales mix by 13% compared to 2019 levels. Sales in the medical and energy markets were 44% and 31% lower, respectively. Results in 2019 included $95 million of sales related to the divested titanium investment castings and industrial forgings businesses, resulting in a 3% unfavorable impact from divestitures.

Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale, the respective percentages of overall segment revenues for the years ended 2020 and 2019, and the percentage change in revenues by market for 2020 is as follows:

Aerospace & Defense:

Energy:

Comparative information for HPMC’s major product categories, including divested businesses prior to sale, based on their percentages of the segment’s overall revenue is as follows:

High-Value Products

Nickel-based alloys and specialty alloys 38 % 38 %

Precision forgings, castings and components 34 % 36 %

Titanium and titanium-based alloys 28 % 26 %

Total High-Value Products 100 % 100 %

HPMC segment EBITDA for 2020 decreased 64% to $129.6 million, or 11.1% of sales, compared to $356.2 million, or 18.0% of sales, in 2019. Lower overall demand, including lower sales of higher-margin next-generation jet engine products, and reduced asset utilization rates negatively impacted operating margins. Cost cutting measures helped to offset these negative impacts.

Advanced Alloys & Solutions

Segment EBITDA as a percentage of sales 11.7 % 6.3 % 8.1 %

International sales as a percentage of sales 41.4 % 35.7 % 34.1 %

2021 Compared to 2020

Sales for the AA&S segment in 2021 decreased 10% compared to 2020, to $1.64 billion. Declines were noted in almost all end markets, including a 19% decline in energy market sales and a 28% decline in aerospace & defense market sales, due primarily to impacts from the USW strike, as well as the ongoing exit from the lower-margin standard stainless sheet production and sales. These declines were partially offset by a 21% increase in electronics sales and a 15% increase in automotive market sales. Sales of high-value products were consistent with the prior year, as a 46% decline in titanium and titanium-based alloys and a 6% decline in nickel-based alloys and specialty alloys were offset by a 21% increase in sales of precision rolled strip products, primarily from our Asian PRS joint venture.

Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall segment revenues, for the years ended 2021 and 2020, and the percentage change in revenues by market for 2021 is as follows:

Energy:

Aerospace & Defense:

Our AA&S segment produces zirconium and related alloys including hafnium and niobium, nickel-based alloys, titanium and titanium-based alloys, and specialty alloys in a variety of forms including plate, sheet, and PRS products. AA&S also provides hot-rolling conversion services at its HRPF, including carbon steel products under several LTAs, and titanium products of the Uniti joint venture.

Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are presented in the following table. In conjunction with its announced ongoing exit from production and sale of standard stainless sheet products, ATI reclassified certain items as High-Value Products. Prior period information reflects these reclassifications. HRPF conversion service sales are excluded from this presentation.

High-Value Products

Nickel-based alloys and specialty alloys 37 % 35 %

PRS products 33 % 25 %

Zirconium and related alloys 17 % 15 %

Titanium and titanium-based alloys 6 % 11 %

Total High-Value Products 93 % 86 %

Standard Products

Total Standard Products 7 % 14 %

Segment EBITDA was $191.7 million, or 11.7% of sales, a 68% increase from segment EBITDA of $115.0 million, or 6.3% of sales, in 2020. Strike related costs of $59.7 million, primarily related to lower productivity and utilization levels, were excluded from AA&S segment 2021 results. Improved EBITDA margins reflect a richer product mix away from lower-margin standard stainless sheet products, higher HRPF conversion services and benefits from actions taken in 2020 to structurally reduce costs, which more than offset prior year-to-date results that included pre-pandemic demand levels for a portion of 2020. Current year results also include benefits from rising raw material prices, particularly nickel, at our SRP business, and lower retirement benefit expense of approximately $10 million, compared to 2020.

On December 2, 2020, we announced a strategic repositioning of our SRP business, which includes exiting standard stainless sheet products, streamlining the production footprint of the AA&S segment and making certain capital investments to increase our focus on higher-margin products and our aerospace & defense end markets with reduced exposure to underlying raw material volatility.

Although ATI’s 2021 results include negative impacts on our SRP business from the 3 1⁄2 month labor strike by represented employees, this business recovered its production rates by the end of the third quarter of 2021 to pre-strike levels to take advantage of strong demand and favorable pricing in most end-markets, especially for energy and industrial applications. However, AA&S segment EBITDA for 2021 was also impacted by lower sales resulting from the strike. We remain on track to complete our transformation of the SRP business and exit sales of lower-margin standard stainless sheet products in the first half of 2022.

2020 Compared to 2019

Sales for the AA&S segment in 2020 decreased 15% compared to 2019, to $1.82 billion. Sales to specialty energy markets were 3% higher compared to the prior year, while total sales to all energy markets, which also include oil & gas, downstream processing, and specialty energy, were 20% lower. Declines of 29% and 10% were also noted in the commercial aerospace and automotive markets, respectively, partially offset by higher sales in the defense market and higher HRPF conversion services billings. Sales in 2019 reflect project-based demand for marine scrubber products within the specialty energy markets. Sales of high-value products were 15% lower, largely due to a 26% decline in nickel-based alloys and specialty alloys and a 22% decline in titanium and titanium alloys.

Comparative information for our AA&S segment revenues (in millions) by market, the respective percentages of overall segment revenues, for the years ended 2020 and 2019, and the percentage change in revenues by market for 2020 is as follows:

Energy:

Aerospace & Defense:

Comparative information for the AA&S segment’s major product categories, based on their percentages of revenue are presented in the following table. In conjunction with its announced ongoing exit of standard stainless sheet products, ATI reclassified certain items as High-Value Products. Prior period information reflects these reclassifications. HRPF conversion service sales are excluded from this presentation.

High-Value Products

Nickel-based alloys and specialty alloys 35 % 41 %

PRS products 25 % 23 %

Zirconium and related alloys 15 % 11 %

Titanium and titanium-based alloys 11 % 11 %

Total High-Value Products 86 % 86 %

Standard Products

Total Standard Products 14 % 14 %

Segment EBITDA in 2020 was $115.0 million, or 6.3% of sales, a 33% decline from segment EBITDA of $172.6 million, or 8.1% of sales, in 2019, as weakened market conditions were partially offset by cost cutting measures. AA&S segment results for 2020 compared to 2019 reflect lower retirement benefit expense of approximately $20 million. Results at our Specialty Alloys & Components business improved year-over-year primarily due to defense sales. Results in 2020 and 2019 also include $8.2 million and $12.2 million, respectively, in losses from the A&T Stainless joint venture operations. We indefinitely idled the manufacturing operations of the A&T Stainless joint venture in 2020 due to repeated denials by the U.S. Department of Commerce for exemptions from Section 232 tariffs, which impose a 25% tariff on imported semi-finished stainless slab products from Indonesia. A $2.4 million charge for ATI’s portion of severance obligations recorded by the A&T Stainless joint venture was excluded from 2020 segment results.

Corporate Expenses

Corporate expenses, which are included in selling and administrative expenses in the statement of operations, were $55.9 million in 2021 compared to $40.9 million in 2020. This increase in 2021 reflects higher incentive compensation costs compared to the prior year periods based on both current year performance and below-normal 2020 expense resulting from reversals of previously-recognized compensation costs due to changes in expected performance attainment related to

COVID-19 pandemic impacts, as well as from lower structural costs following business transformation initiatives. Corporate expenses were $65.3 million in 2019.

Closed Operations and Other Expenses

Closed operations and other expenses are presented primarily in selling and administrative expenses in the consolidated statements of operations, and include legal, environmental, retirement benefit and insurance obligations associated with closed operations. Closed operations and other expenses were $4.8 million in 2021, compared to $7.4 million in 2020 and $24.0 million in 2019. This decline from prior periods reflects lower costs at closed facilities, including retirement benefit expense, insurance costs, and real estate and other facility costs, and changes in foreign currency remeasurement impacts primarily related to ATI’s European Treasury operation.

Depreciation and Amortization

The following is depreciation & amortization by business segment:

Depreciation and amortization:

High Performance Materials & Components $ 75.0 $ 78.1 $ 84.6

Interest Expense, Net

Interest expense, net of interest income and interest capitalization, was $96.9 million in 2021, compared to $94.4 million in 2020 and $99.0 million in 2019. Interest expense is presented net of interest income of $0.7 million in 2021, $1.7 million in 2020, and $5.9 million in 2019. The increase in interest expense in 2021 is primarily due to lower capitalized interest compared to 2020. Interest expense in 2021, 2020, and 2019 was reduced by $4.3 million, $7.7 million, and $4.7 million, respectively, related to interest capitalization on major strategic capital projects. Although total debt increased by approximately $235 million at December 31, 2021 compared to year-end 2020, interest costs were largely unchanged as our recent debt issuances carry lower interest costs than the debt extinguished through the 2021 and 2020 capital markets transactions.

Restructuring and Other Charges/Credits

For the year ended December 31, 2021, restructuring and other charges were a net credit of $10.5 million, which is excluded from segment results. This $10.5 million net credit consisted primarily of $11.3 million of restructuring credits on the consolidated statement of operations, reflecting a $12.0 million reduction in severance-related reserves for approximately 350 employees based on changes in planned operating rates and revised workforce reduction estimates, partially offset by $0.7 million of other costs related to facility idlings. This was partially offset by a $0.8 million charge for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary titanium facility.

Restructuring charges recorded on the consolidated statement of operations for the year ended December 31, 2020 were $1,107.5 million, comprised of $1,041.5 million of non-cash asset impairment charges, $60.5 million of employee benefit-related costs, and $5.5 million of other costs related to facility idlings. The long-lived asset impairment charges relate to a $1,032.6 million charge related to the Brackenridge, PA operations, including the HRPF, as well as $8.9 million other long-lived asset impairment charges recognized for various AA&S segment operations identified for closure as part of the standard stainless sheet exit decision.

Restructuring charges also include $60.5 million of employee benefit costs, representing severance, supplemental unemployment and medical benefits for the elimination of approximately 1,400 positions related to the standard stainless sheet exit, as well as for employees impacted by the idling of the Albany, OR primary titanium operations in the fourth quarter of 2020, and workforce right-sizing actions, including both involuntary reductions and voluntary retirement incentive programs implemented throughout 2020 to better match our cost structure to expected demand, primarily as a result of economic challenges created by the COVID-19 pandemic. We achieved our expected annual cost savings in 2021 from our 2020 charges and expect continued benefits in the future until fully implemented in 2023. Cash payments associated with these cost reduction programs are expected to be approximately $10 million in 2022.Other costs of $5.5 million included in 2020 restructuring charges primarily relate to asset retirement and environmental obligations associated with facility idlings.

Other charges for the year ended December 31, 2020 include:

•$17.4 million of termination benefits for pension and postretirement medical obligations related to facility closures from the standard stainless sheet exit. These costs are classified within nonoperating retirement benefit expense in the consolidated statements of operations.

•$7.2 million of other charges for inventory valuation reserves, classified in cost of sales on the consolidated statement of operations, primarily related to excess raw material and work in process inventory at the idled Albany, OR primary titanium facility.

In addition, the A&T Stainless JV recorded a $4.8 million charge in 2020 for contractual termination benefits, and ATI recognized a $2.4 million charge in 2020 for its equity method share of these termination benefits. These charges are excluded from segment operating results.

A $4.5 million restructuring charge was recorded on the consolidated statement of operations for the year ended December 31, 2019 for severance obligations for the reduction of approximately 70 positions in order to streamline our salaried workforce, primarily to improve the cost competitiveness of the U.S.-based SRP business. This restructuring charge is excluded from business segment results. The $4.5 million was substantially paid in 2020 upon completion of these reductions.

Strike Related Costs

Strike related costs were $63.2 million in 2021, of which $59.7 million were excluded from AA&S segment EBITDA and $3.5 million were excluded from HPMC segment EBITDA. These items primarily consisted of overhead costs recognized in the period due to below-normal operating rates, higher costs for outside conversion activities, and signing bonuses for represented employees.

Retirement Benefit Settlement Gain

Fiscal year 2021 results include a $64.9 million retirement benefit settlement gain related to a plan termination that eliminated certain postretirement medical benefit liabilities. This was effective upon the July 2021 ratification of the new USW CBA. This gain, which is recorded in nonoperating retirement benefit income/expense on the consolidated statement of operations and is excluded from segment EBITDA, was comprised of $43.0 million of long-term postretirement benefit liabilities as of July 2021 and $21.9 million of amounts recorded in accumulated other comprehensive income at that date.

Goodwill Impairment Charge

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

Joint Venture Restructuring and Impairment Charges

The A&T Stainless JV recorded a $4.8 million charge in 2020 for contractual termination benefits, and ATI recognized a $2.4 million charge in 2020 for its equity method share of these termination benefits. These charges are excluded from AA&S segment results.

We recorded an $11.4 million impairment charge in 2019 for the A&T Stainless JV, including ATI’s share of a long-lived asset impairment charge recognized by the JV on the carrying value of its production facility in Midland, PA. ATI recognized a $7.1 million equity loss for its 50% share of a $14.2 million long-lived asset impairment recognized by A&T Stainless. In addition, as of December 31, 2019, ATI had net receivables for working capital advances and administrative services from A&T Stainless of $36.8 million that were also evaluated for collectability, and a $4.3 million reserve was recorded in December 2019 based on ATI’s share of the estimated fair value of the JV’s net assets. This charge is excluded from AA&S segment results.

Debt Extinguishment Charge

In 2021, ATI recognized a $65.5 million debt extinguishment charge on the redemption of the 2023 Notes, which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and a $1.0 million charge for deferred debt issue costs.

In 2020, ATI issued $291.4 million aggregate principal amount of unsecured 3.5% Convertible Senior Notes due 2025 (2025 Convertible Notes), and used the majority of the proceeds to repurchase approximately $203.2 million aggregate principal amount of the outstanding principal balance of our 4.75% Convertible Senior Notes due 2022 (2022 Convertible Notes). As a

result, we recognized a $21.5 million debt extinguishment charge, which included a $19.1 million cash payment as a make-whole provision on the early extinguishment of debt, and a $2.4 million charge for previously-unrecognized debt issue costs.

In the fourth quarter of 2019, we issued $350 million of unsecured 5.875% Senior Notes due 2027 (the 2027 Notes). Proceeds from the issuance of the 2027 Notes and cash on hand were used to redeem the $500 million of 5.95% Senior Notes due 2021 (the 2021 Notes), which had a January 15, 2021 maturity date. As a result, we recognized a $21.6 million debt extinguishment charge, which included a $20.9 million cash payment as a make-whole provision on the early extinguishment of debt, and a $0.7 million charge for previously-unrecognized debt issue costs.

Gains on Asset Sales and Sale of Business, Net

In 2021, we completed the sale of our Flowform Products business within the HPMC segment for $55.0 million, and recognized a $13.8 million gain. This gain is recorded in nonoperating income/expense on the consolidated statement of operations and is excluded from segment EBITDA. During 2020, we recognized a $2.5 million cash gain for the sale of certain oil and gas rights. This non-core asset sale gain is reported in other income/expense, net, on the consolidated statement of operations and is excluded from business segment results. During the third quarter of 2019, we completed the sale of our Cast Products business and recognized a $6.2 million gain. During the second quarter of 2019, we completed the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY, and recognized an $13.3 million pre-tax loss. Also during 2019, we recognized $91.7 million on sales of certain oil and gas rights. The 2019 results include $84.6 million, respectively, in net pretax gains from these non-core asset sales which are reported in other income/expense, net, on the consolidated statement of income and are excluded from business segment results.

Income Taxes

Results in 2021, 2020, and 2019 include impacts from income taxes that differ from applicable standard tax rates, primarily related to income tax valuation allowances. The provision for income taxes for fiscal year 2021 was $26.8 million, which was mainly attributable to the $15.5 million in discrete tax effects related to the postretirement medical benefits gain discussed above, in accordance with ATI’s accounting policy for recognizing deferred tax amounts stranded in accumulated other comprehensive income. While our U.S. operations remain in a three-year cumulative loss position, we expect our reported tax expense to primarily relate to our profitable PRS joint venture in China. We will continue to have minimal cash tax requirements in the U.S. due to the ongoing benefits of net operating loss tax carryforwards for the next several years.

In 2020, ATI’s U.S. operations returned to a three-year cumulative loss position, limiting our ability to utilize future projections as sources of income when analyzing the need for a valuation allowance. The consolidated income tax provision of $77.7 million for fiscal year 2020 is primarily due to increases in deferred tax asset valuation allowances based on an analysis of the expected realization of deferred tax assets and liabilities within applicable expiration periods.

At December 31, 2019, our U.S. results had switched from a three-year cumulative loss position to a three-year cumulative income position, allowing us to utilize forecasts of future profits as a source of income when evaluating the overall need for a valuation allowance. We determined that valuation allowances on net deferred tax asset balances for federal and certain state jurisdictions are no longer required. Certain individual tax attributes still require a valuation allowance based on expected utilization. The change in the overall valuation allowance for 2019 includes amounts utilized during the year as part of the reported effective tax rate, as well as a $45.1 million reduction at December 31, 2019 based on a change in judgment on the realizability of deferred tax assets. The 2019 income tax benefit was $28.5 million, which included the $45.1 million discrete tax benefit related to the release of U.S. federal and state valuation allowances, along with the current year benefit related to the release of valuation allowances due to positive income in 2019. Total discrete tax items including this valuation allowance change were a $41.9 million tax benefit in 2019, and our effective tax rate excluding these items was 5.5% of pre-tax income in 2019.

Financial Condition and Liquidity

We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the our domestic operations. The ABL facility, which matures in September 2024, includes a $500 million revolving credit facility, a letter of credit sub-facility of up to $200 million, and a $200 million term loan (Term Loan). The Term Loan has an interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In addition, we have the right to request an increase of up to $200 million in the maximum amount available under the revolving credit portion of the ABL for the duration of the ABL. We have a $50 million floating-for-fixed interest rate swap that converts a portion of the Term Loan to a 4.21% fixed interest rate. The swap matures in June 2024.

The applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for LIBOR-based borrowings and between 0.25% and 0.75% for base rate borrowings. The ABL facility contains a financial covenant whereby we must maintain a fixed charge

coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) $87.5 million, calculated as 12.5% of the then applicable maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan balance, or (ii) $62.5 million. We did not meet this required fixed charge coverage ratio at December 31, 2021. As a result, we are unable to access this remaining 12.5%, or $87.5 million, of the ABL facility until we meet the required ratio. Additionally, we must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL facility, during the 90 day period immediately preceding the stated maturity date of the 2022 Convertible Notes. The ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of which are more restrictive at any time during the term of the ABL when our fixed charge coverage ratio is less than 1.00:1.00 and our undrawn availability under the revolving portion of the ABL is less than the greater of (a) $150 million or (b) 30% of the sum of the maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan balance.

As of December 31, 2021, there were no outstanding borrowings under the revolving credit portion of the ABL, and $48.3 million was utilized to support the issuance of letters of credit. There were no revolving credit borrowings under the ABL during 2021. Average borrowings under the revolving portion of the ABL for the fiscal year ended December 31, 2020 were $28 million, bearing an average annual interest rate of 2.2%.

On September 14, 2021, ATI issued $325 million aggregate principal amount of 4.875% Senior Notes due 2029 (2029 Notes) and $350 million aggregate principal amount of 5.125% Senior Notes due 2031 (2031 Notes). Underwriting fees and other third-party expenses for the issuance of the 2029 and 2031 Notes were each $4.7 million, and are being amortized to interest expense over the 8-year and 10-year terms of the 2029 and 2031 Notes, respectively. Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes on October 14, 2021, including a make-whole payment and accrued interest, following a 30 day notice of redemption as required by the 2023 Notes indenture. As such, in the fourth quarter 2021, the Company recognized a $65.5 million debt extinguishment charge, which includes a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes and a $1.0 million charge for the remaining unrecognized portion of the 2023 Notes deferred debt issue costs. As a result of these transactions, we significantly extended our debt maturity profile and, with the elimination of $500 million of debt currently bearing interest at 7.875% due to changes in our credit ratings, reduced annual interest expense by approximately $6 million.

In 2020, ATI issued and sold $291.4 million aggregate principal amount of 2025 Convertible Notes. We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes. We also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, which effectively increase the initial conversion price of the 2025 Convertible Notes into ATI stock from $15.49 per share to $19.76 per share. The remainder of the net proceeds from the offering were used for general corporate purposes.

On November 22, 2019, we issued $350 million aggregate principal amount of 2027 Notes. Underwriting fees and other third-party expenses for the issuance of the 2027 notes were $5.5 million, and are being amortized to interest expense over the eight- year term of the 2027 Notes. Net proceeds of $344.5 million from this issuance, as well as cash on hand, were used to retire all $500 million aggregate principal amount of the 2021 Notes in December 2019, resulting in a $21.6 million pre-tax debt extinguishment charge, which included a $20.9 million cash payment as a make-whole provision on the early extinguishment of debt, and a $0.7 million charge for deferred debt issue costs.

At December 31, 2021, we had $688 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $360 million, for total liquidity of more than $1 billion. We do not expect to pay any significant U.S. federal or state income taxes in the next several years due to net operating loss carryforwards.

During the third quarter of 2021, we received approximately $53 million in cash, net of transaction costs and net working capital adjustments, for the sale of the Flowform Products business. During the second and third quarters of 2019, we received approximately $250 million in cash from non-core asset sales, net of closing adjustments and transaction costs, consisting of $33 million for the sale of two non-core forging facilities, $125 million for the sale of the Cast Products business, and $92 million for the sale of certain oil and gas rights in Eddy County, NM.

In 2021, the Company made $67 million in cash contributions to its U.S. qualified defined benefit pension plans, including $50 million of voluntary contributions to improve the plans’ funded position. As a result of the American Rescue Plan Act (ARPA) enacted in March 2021, the rules governing pension funding calculations changed. Based on current actuarial assumptions, we are not required to make any contributions to these pension plans during fiscal year 2022, and our prior contributions have generated a credit balance that may be utilized to offset future minimum required contributions. We currently expect to make voluntary cash contributions of approximately $50 million to these plans in 2022. Using our long-term weighted average expected rate of return on pension plan assets and other actuarial assumptions, we do not to have any minimum cash funding

requirements to these pension plans for the next few years after 2022. However, these funding estimates are subject to significant uncertainty including the actual pension trust assets’ fair value, and the discount rates used to measure pension liabilities. We may elect to contribute additional amounts to these pension plans to improve their funded position, or we may elect to use a portion of our credit balance in lieu of cash contributions based on other capital allocation priorities.

On February 2, 2022, we announced that our Board of Directors authorized the repurchase of up to $150 million of ATI stock. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. Open market repurchases will be structured to occur within the pricing and volume requirements of SEC Rule 10b-18. The stock repurchase program does not obligate the Company to repurchase any specific number of shares and it may be modified, suspended, or terminated at any time by the Board of Directors without prior notice.

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

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

Cash Flow and Working Capital

Cash provided by operations for 2021 was $16.1 million, despite an $81.2 million use of cash from increased managed working capital balances related to higher operating levels in most operations. Other significant 2021 operating cash flow items included $67.5 million in contributions to the U.S. defined benefit pension plans and payment of 2020 annual incentive compensation, partially offset by receipt of advance payments from customers as part of long-term supply agreements in 2021. Cash provided by operations was $166.9 million in 2020, which included a $156.6 million reduction in managed working capital balances. The generation of cash from managed working capital in 2020 reflects alignment with demand levels. Other significant 2020 operating cash flow items included $130.2 million in contributions to the U.S. defined benefit pension plans and payment of 2019 annual incentive compensation.

As part of managing the liquidity of our business, we focus on controlling managed working capital, which is defined as gross accounts receivable, short-term contract assets and gross inventories, less accounts payable and short-term contract liabilities. In measuring performance in controlling this managed working capital, we exclude the effects of inventory valuation reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. We measure managed working capital as a percentage of the prior three months annualized sales to evaluate our performance based on recent levels of business volume. In 2021, managed working capital decreased to 37.5% of annualized total ATI sales compared to 40.5% of annualized sales at December 31, 2020, reflecting the Company’s ongoing efforts to improve managed working capital efficiency as well as a higher level of sales. The $81.2 million increase in managed working capital in 2021 is detailed in the table below. Days sales outstanding, which measures actual collection timing for accounts receivable, improved by approximately 7% at year-end 2021 compared to 2020. Gross inventory turns improved by 10% in 2021 compared to 2020, and improving the pace of inventory flow across our operations is an area of management focus in 2022.

The components of managed working capital were as follows:

Short-term contract assets 53.9 38.9

Short-term contract liabilities (116.2) (111.8)

Allowance for doubtful accounts 3.8 4.3

Managed working capital as a % of annualized sales 37.5 % 40.5 %

December 31, 2021 change in managed working capital $ 81.2

*December 31, 2020 reflects the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements. There were no adjustments to 2020 amounts as a result of this change.

Cash used in investing activities was $77.3 million in 2021, reflecting $152.6 million in capital expenditures primarily related to AA&S transformation projects, and HPMC growth projects including the new iso-thermal press and heat-treating expansion in Cudahy, WI. These investing activity cash outflows were partially offset by $53.1 million of proceeds from the sale of the Flowform Products business and $20.8 million of proceeds from property, plant and equipment sales, which includes $16.2 million from the sale of ongoing construction in progress projects that were converted to leases. We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, by using a portion of the ABL facility. Cash used in investing activities was $128.7 million in 2020, reflecting $136.5 million in capital expenditures partially offset by $5.9 million of proceeds from property, plant and equipment sales, which includes the sale of certain oil and gas rights. Capital expenditures for 2020 were primarily related to HMPC growth projects including the iso-thermal press and heat-treating expansion in Cudahy, WI.

Cash provided by financing activities in 2021 was $103.0 million, and consisted primarily of $675.7 million of net proceeds from the issuance of the 2029 and 2031 Notes and $21.7 million of borrowings under foreign credit facilities. These were offset by the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes, a $64.5 million cash make-whole payment related to the early extinguishment of these 2023 Notes as required by the applicable indenture, and $9.5 million for debt issuance costs associated with the newly-issued 2029 and 2031 Notes. Cash provided by financing activities in 2020 was $116.9 million, and consisted primarily of $291.4 million of borrowings for the 2025 Convertible Notes issued in 2020 and $100.0 million of additional Term Loan borrowings under the ABL. These were offset by a $203.2 million repayment for a portion of the 2022 Convertible Notes and $19.1 million cash make-whole payment related to the early extinguishment of these 2022 Convertible Notes as required by the applicable indenture, as well as $19.4 million to pay the cost of capped call transactions and $9.1 million for debt issuance costs, both associated with the newly issued 2025 Convertible Notes. Cash provided by financing activities in 2020 also reflects a $7.2 million dividend payment to the 40% noncontrolling interest in our PRS joint venture in China.

At December 31, 2021, cash and cash equivalents on hand totaled $687.7 million, a $41.8 million increase from year-end 2020. Cash and cash equivalents held by our foreign subsidiaries was $138.2 million at December 31, 2021, of which $100.2 million was held by our PRS joint venture in China.

Debt

Total debt outstanding of $1,863.7 million at December 31, 2021, increased $234.6 million compared to December 31, 2020, as the issuance in September 2021 of $325 million aggregate principal amount of 2029 Notes and $350 million aggregate principal amount of 2031 Notes were partially offset by the full redemption of the $500.0 million aggregate principal amount outstanding of the 2023 Notes. Total debt outstanding as described above excludes debt issuance costs, and the December 31, 2020 amount includes $46.8 million for the unamortized balance of the portion of the 2025 Convertible Notes recorded in stockholders’ equity due to the flexible settlement feature of the notes. ATI adopted new accounting guidance in 2021 that reclassified this portion of the 2025 Convertible Notes recorded in stockholders’ equity to long-term debt (see below for further discussion).

In managing our overall capital structure, some of the measures on which we focus are (1) debt to EBITDA, which measures our ability to repay our incurred debt, (2) net debt to total capitalization, which is the percentage of our debt, net of cash that may be available to reduce borrowings, to our total invested and borrowed capital, and (3) total debt to total capitalization, which excludes cash balances. We define EBITDA as income from continuing operations before interest and income taxes, plus depreciation and amortization, goodwill impairment charges and debt extinguishment charges for the latest twelve month period. We define Adjusted EBITDA as EBITDA excluding significant non-recurring charges or credits, restructuring charges/credits, strike related costs, long-lived asset impairments and other postretirement/pension curtailment and settlement gains and losses. We believe that EBITDA and Adjusted EBITDA are useful to investors because these measures are commonly used to analyze companies on the basis of operating performance, leverage and liquidity. Furthermore, analogous measures are used by industry analysts to evaluate operating performance. EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and capital expenditures. EBITDA and Adjusted EBITDA are not intended to represent, and should not be considered more meaningful than, or as alternatives to, a measure of operating performance as determined in accordance with U.S. generally accepted accounting principles.

All of these leverage ratios improved in 2021, primarily as a result of higher earnings. At year-end 2021, our debt to Adjusted EBITDA ratio was 6.41, compared to 8.30 at December 31, 2020, and net debt to Adjusted EBITDA ratio was 4.04, compared to 5.01 at December 31, 2020.

Income (loss) before income taxes $ 10.6 $ (1,481.9)

Depreciation and amortization 143.9 143.3

Strike related costs 63.2 —

Impairment of goodwill — 287.0

Retirement benefit settlement gain (64.9) —

Restructuring and other charges (credits) (10.5) 1,132.1

Joint venture impairment charge — 2.4

Debt extinguishment charge 65.5 21.5

Gain on asset sales and sale of business (13.8) $ (2.5)

Debt to Adjusted EBITDA 6.41 8.30

Net Debt to Adjusted EBITDA 4.04 5.01

*Year ended December 31, 2020 reflects the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements. There were no adjustments to 2020 amounts as a result of this change.

At year-end 2021, our net debt to total capitalization was 63.2%, compared to 67.6% at December 31, 2020.

Total ATI stockholders’ equity (b) 685.6 471.3

Net debt to ATI capital 63.2 % 67.6 %

Total debt to total capitalization was 73.1% at December 31, 2021 compared to 77.6% at December 31, 2020.

Total ATI stockholders’ equity (b) 685.6 471.3

Total debt to ATI capital 73.1 % 77.6 %

(a) Excludes debt issuance costs for both periods. The December 31, 2020 debt balance includes $46.8 million for the unamortized portion of the 2025 Convertible Notes recorded in stockholders’ equity due to the flexible settlement feature of the notes. New accounting guidance adopted by ATI on January 1, 2021 eliminated this requirement of separately accounting for this component of the 2025 Convertible Notes in stockholders’ equity. See below for further discussion.

(b) The December 31, 2020 balance excludes $49.8 million recorded in stockholders’ equity for a portion of the 2025 Convertible Notes, net of debt issuance costs.

In 2021, we issued $325 million aggregate principal amount of the 2029 Notes and $350 million aggregate principal amount of the 2031 Notes. Interest on the 2029 Notes at a rate of 4.875% is payable semi-annually in arrears on each April 1 and October 1, commencing on April 1, 2022 and the 2029 Notes will mature on October 1, 2029. Interest on the 2031 Notes at a rate of

5.125% is payable semi-annually in arrears on each April 1 and October 1, commencing on April 1, 2022 and the 2031 Notes will mature on October 1, 2031. Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes on October 14, 2021, including a make-whole payment and accrued interest, following a 30 day notice of redemption as required by the 2023 Notes indenture. As such, in the fourth quarter 2021, a $65.5 million debt extinguishment charge was recognized, which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes and a $1.0 million charge for the remaining unrecognized portion of the 2023 Notes deferred debt issue costs.

In 2020, we issued and sold $291.4 million aggregate principal amount of the 2025 Convertible Notes. Interest on the 2025 Convertible Notes at the 3.5% cash coupon rate is payable semi-annually in arrears on each June 15 and December 15, commencing December 15, 2020. We used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of our outstanding 2022 Convertible Notes, resulting in a $21.5 million debt extinguishment charge, which included a $19.1 million cash make-whole payment related to the early extinguishment of the 2022 Convertible Notes as required by the applicable indenture, and a $2.4 million charge for deferred debt issue costs. We also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’ equity on the consolidated balance sheet. The remainder of the net proceeds from the offering were used for general corporate purposes.

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

The 2025 Convertible Notes are convertible into our common stock at an initial conversion price of $15.49 per share and may be settled in cash, shares of our common stock or a combination thereof, at our election. As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option valued at $50.3 million was required to be separately accounted for as a component of stockholders’ equity in 2020. The value of the embedded conversion option was determined to be $51.4 million based on the estimated fair value of comparable senior unsecured debt without the conversion feature, using an income approach of expected present value. During the 2020 fiscal year, the equity component was amortized as additional non-cash interest expense, commonly referred to as phantom yield, over the term of the 2025 Convertible Notes using the effective interest method. As a result, as of December 31, 2020, $49.8 million of the 2025 Convertible Notes was recorded in additional paid-in-capital in stockholders’ equity ($51.4 million of the gross $291.4 million, net of $1.6 million of allocated offering costs). Due to the non-cash phantom yield and including debt issue cost amortization, the 2025 Convertible Notes had reported interest expense in 2020 at an 8.4% rate, higher than the 3.5% cash coupon rate. Effective January 1, 2021, ATI early adopted new accounting guidance as discussed in Note 1 of the Notes to Consolidated Financial Statements that eliminated the equity component classification of the embedded conversion option, as well as the phantom yield portion of interest expense on a prospective basis. Upon adoption on January 1, 2021, long-term debt increased by $45.4 million, representing the $46.8 million equity component of convertible debt as of December 31, 2020, net of reclassified debt issue costs.

On November 22, 2019, we issued $350 million aggregate principal amount of the 2027 Notes. Net proceeds of $344.5 million from this issuance were used, together with cash on hand, to redeem all $500 million aggregate principal amount outstanding of the 5.95% 2021 Notes in December 2019.

The 5.875% stated interest rate payable on our 2023 Notes was 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 of four notches by each of the two rating agencies, or a total 2.0% potential interest rate change up to 7.875%. The annual interest rate on the 2023 Notes has been at the maximum 7.875% since February 2016 until their redemption in October 2021 as discussed above.

A summary of required payments under financial instruments (excluding accrued interest) and other commitments are presented below.

(In millions) Total Less than 1year 1-3years 4-5years After 5years

Contractual Cash Obligations

Unconditional Purchase Obligations

Other Financial Commitments

Guarantees $ 24.5

(A)Amounts include contractual interest payments using the interest rates in effect as of December 31, 2021 applicable to the Company’s 2022 Convertible Notes, the Term Loan due 2024, the 2025 Convertible Notes, the Allegheny Ludlum 6.95% Debentures due 2025, the 2027 Notes, the 2029 Notes and the 2031 Notes.

(B)Amounts include operating lease obligations at their undiscounted value. These obligations are presented in other current liabilities and other long-term liabilities on the consolidated balance sheets at their discounted value, using applicable interest rates. See Note 11, Leases for further information.

(C)Based on current actuarial studies, amounts include payments for the next 10 years to defined benefit pension plans, assuming the expected long-term returns on pension assets are achieved. Projections of minimum required payments to the U.S. qualified defined benefit pension plans are subject to significant uncertainty based on a number of factors including actual pension plan asset returns, changes in estimates of participant longevity, and changes in interest rates. Amounts also include actuarial projections of payments under other postemployment benefit plans for the next 10 years. In most retiree healthcare plans, our contributions are capped based on the cost as of a certain date. See Note 14, Retirement Benefits for further information.

(D)We have contracted for physical delivery for certain of our raw materials to meet a portion of our needs. These contracts are based upon fixed or variable price provisions. We used current market prices as of December 31, 2021, for raw material obligations with variable pricing.

(E)We have various contractual obligations that extend through 2026 for services involving production facilities and administrative operations. Our purchase obligation as disclosed represents the estimated termination fees payable if we were to exit these contracts.

(F)At December 31, 2021, there was $27.4 million drawn under foreign credit agreements. Drawn amounts on the U.S. facility were $48.3 million utilized for standby letters of credit under the $500 million ABL facility, which renew annually. These standby letters of credit are used to support: $27.4 million in workers’ compensation and general insurance arrangements, $5.4 million related to environmental matters and $15.5 million for performance assurances.

Commitments and Contingencies

At December 31, 2021, our reserves for environmental remediation obligations totaled approximately $13 million, of which $5 million was included in other current liabilities. These reserves included estimated probable future costs of: $3 million for federal Superfund and comparable state-managed sites; $8 million for formerly owned or operated sites for remediation or indemnification obligations; and $2 million for owned or controlled sites at which our operations have been or plan to be discontinued. We continue to evaluate whether we may be able to recover a portion of future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate. The timing of expenditures depends on a number of factors that vary by site. ATI 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.

At December 31, 2021, we had recognized asset retirement obligations (AROs) of $19 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.

Based on currently available information, it is reasonably possible that the costs for active matters may exceed our recorded reserves by as much as $15 million. However, future investigation or remediation activities may result in the discovery of additional hazardous materials, potentially higher levels of contamination than discovered during prior investigation, and may impact costs of the success or lack thereof in remedial solutions. Therefore, future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on the ATI’s consolidated financial condition or results of operations.

Labor Matters

Our prior CBA with the USW involving approximately 1,100 active full-time represented employees located primarily within the AA&S segment operations, as well as a number of inactive employees, expired on February 28, 2021. USW-represented employees continued to work under the terms of the expired CBA until March 30, 2021 when they engaged in a strike. On July 14, 2021, we announced that a new four-year labor agreement with the USW was ratified, ending the strike. As part of an orderly return to work process, employees began returning to active employment during the week of July 19, 2021. The new CBA, which covers the term from March 1, 2021 to February 28, 2025, delivers a competitive wage and benefit package to these represented employees, while securing ATI’s ability to reduce its exposure to health care cost inflation, which is critical for the long-term viability of ATI’s SRP business. We have CBAs with approximately 800 full-time employees that expire in 2022.

Retirement Benefits

All of ATI’s defined benefit pension plans are now closed to new entrants, and at most ATI operations with pension participants, the plans are frozen for all future benefit accruals, with less than 10% of participants in ATI’s U.S. qualified defined benefit plans still earning additional pension service. Additionally, all of the remaining collectively-bargained defined benefit retiree health care plans at ATI’s operations are now closed to new entrants, with cost caps in place for these obligations. As a result of these actions, ATI’s retirement savings and other postretirement benefit programs have largely transitioned to a defined contribution structure. Since 2013, five annuity buyouts of retired participants and two voluntary cash out programs of deferred participants during this period have helped to reduce the total participants in ATI’s U.S. qualified defined benefit pension plans by more than 60%.

At December 31, 2021, our defined benefit pension plans were approximately 84% funded in accordance with generally accepted accounting principles, and were remeasured at that date using a 2.95% discount rate to measure the projected benefit obligation. For ERISA funding purposes, discount rates used to measure pension liabilities for U.S. qualified defined benefit plans are calculated on a different basis using an IRS-determined segmented yield curve, which currently results in a higher discount rate than the discount rate methodology required by accounting standards. Funding requirements are also affected by IRS-determined mortality assumptions, which may differ from those used under accounting standards. As a result of the ARPA enacted in March 2021, the rules governing pension funding calculations changed. Based on current actuarial assumptions, we are not required to make any contributions to these pension plans during fiscal year 2022, and our prior contributions have generated a credit balance that may be utilized to offset future minimum required contributions. However, these estimates are subject to significant uncertainty, including the performance of our pension trust assets and the discount rates used to measure pension liabilities. Pension trust asset performance for both our accounting and ERISA funding calculations is determined using the market value of plan assets at the end of each year.

We have certain CBAs that include participation in a multiemployer pension plan. Under current law, an employer that withdraws or partially withdraws from a multiemployer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. A subsidiary of the Company participates in the Steelworkers Western Independent Shops Pension Plan (WISPP) for union-represented employees of our primary titanium operations in Albany, OR, which is funded on an hours-worked basis. As of December 31, 2020, manufacturing operations at this facility were indefinitely idled, and a limited number of employees that participate in the WISPP remain active in maintenance and other functions. It is reasonably possible that a significant reduction or the elimination of hours-worked contributions due to changes in operating rates at this facility could result in a withdrawal liability assessment in a future period. A complete withdrawal liability is estimated to be approximately $35 million on an undiscounted basis. If this complete withdrawal liability was incurred, ATI estimates that payments of the obligation would be required on a straight-line basis over a 20-year period.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles. When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that is appropriate in our specific circumstances. Application of these accounting principles requires our management to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these consolidated financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality.

Asset Impairment

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

On December 2, 2020, we announced a strategic repositioning of our SRP business within the AA&S segment, with a focus of increasing emphasis on the specialty rolled products portion of its product portfolio, which comprise titanium-based alloys including aerospace-grade titanium plate products, nickel-based alloys, and stainless products with more differentiated characteristics for specialty applications, including thin-gauge PRS. The December 2, 2020 decision to exit production of standard stainless products represented a significant indicator of impairment in the carrying value of certain long-lived assets. Based on projected cash flows of the Brackenridge, PA operations, including the HRPF, we completed a fair value analysis as of the beginning of the fourth quarter of 2020 and recognized a $1,032.6 million impairment charge for this facility based on an estimated fair value of $354 million. This long-lived asset impairment charge was determined using a held in use framework and an income approach, which represents Level 3 unobservable information in the fair value hierarchy. This impairment assessment and valuation method require us to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital. Many of these assumptions are determined by reference to market participants we have identified. For example, the weighted average cost of capital (WACC) used in our discounted cash flow assessment was 9.3% and the long-term growth rate was 2%. Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

Goodwill is reviewed annually in the fourth quarter of each year for impairment or more frequently if impairment indicators arise. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. At December 31, 2021, the Company had $227.9 million of goodwill on its consolidated balance sheet, all of which relates to the HPMC segment. Goodwill decreased $12.8 million in 2021 due to the allocation of $12.2 million to the sale of the Flowform Products business and a $0.6 million decrease from the impact of foreign currency translation on goodwill denominated in functional currencies other than the U.S. dollar.

For our annual goodwill impairment evaluation performed in the fourth quarter of 2021, quantitative goodwill assessments were performed for the two HPMC reporting units with goodwill. Fair values were determined by using a quantitative assessment that may include discounted cash flow and multiples of cash earnings valuation techniques, plus valuation comparisons to recent public sale transactions of similar businesses, if any, which represents Level 3 unobservable information in the fair value hierarchy. These impairment assessments and valuation methods require us to make estimates and assumptions regarding revenue growth, changes in working capital and capital expenditures, selling prices and profitability that drive cash flows, and the WACC. Many of these assumptions are determined by reference to market participants we have identified. For example, our WACC used in our discounted cash flow assessments was 11.3% and long-term growth rates ranged from 3% to 3.5%. The estimated effect of changing the WACC by 0.50% would decrease the fair value of the Forged Products reporting unit in the case of an increase in the WACC, or increase the fair value of the Forged Products reporting unit in the case of a decrease in the WACC, by approximately $70 million. Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

The $227.9 million of goodwill remaining as of December 31, 2021 on our consolidated balance sheet is comprised of $161.2 million at the Forged Products reporting unit and $66.7 million at the Specialty Materials reporting unit. For our annual goodwill impairment evaluation performed in the fourth quarter of 2021, the Specialty Materials reporting unit had a fair value that was significantly in excess of carrying value. The Forged Products reporting unit had a fair value that exceeded carrying value by more than 40%, representing an increase in fair value subsequent to the interim goodwill impairment charge recorded for this reporting unit in the second quarter of 2020 as discussed below, and the annual evaluation as of December 31, 2020.

As a result, no impairments were determined to exist from the annual goodwill impairment evaluation for the years ended December 31, 2021, 2020 and 2019. 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. In addition, no indicators of impairment were observed in 2021 or 2020 associated with any of our long-lived assets in the HPMC segment.

During the second quarter of 2020, we performed an interim goodwill impairment analysis on the Forged Products reporting unit and its $460.4 million goodwill balance based on assessed potential indicators of impairment, including recent disruptions to the global commercial aerospace market resulting from the COVID-19 pandemic, and the increasing uncertainty of near-term demand requirements of aero-engine and airframe markets based on government responses to the pandemic and ongoing interactions with customers. In the previous 2019 annual goodwill impairment evaluation, this reporting unit had a fair value that exceeded carrying value by approximately 30%. As a result of the second quarter 2020 interim goodwill impairment evaluation, we determined that the fair value of the Forged Products reporting unit was below carrying value, including goodwill, by $287.0 million. This was primarily due to changes in the timing and amount of expected cash flows resulting from lower projected revenues, profitability and cash flows due to near-term reductions in commercial aerospace market demand. Consequently, during the second quarter of 2020, we recorded a $287.0 million impairment charge for the partial impairment of Forged Products reporting unit goodwill, most of which was assigned from the Company’s 2011 Ladish acquisition that was not deductible for income tax purposes.

For the 2020 interim impairment analysis, fair value was determined by a quantitative assessment that used a discounted cash flow technique, which represents Level 3 unobservable information in the fair value hierarchy. The impairment assessment and valuation method require us to make estimates and assumptions regarding future operating results, cash flows, changes in working capital and capital expenditures, selling prices, profitability, and the cost of capital. Many of these assumptions are determined by reference to market participants we have identified. For example, our weighted average cost of capital used in our discounted cash flow assessment was 11.6%, and long-term growth rate was 3.5%. Although we believe that the estimates and assumptions used were reasonable, actual results could differ from those estimates and assumptions.

Income Taxes

The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback and/or carryforward period available under tax law. On a quarterly basis, we evaluate the realizability of our deferred tax assets.

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

Results in 2021, 2020 and 2019 include impacts from income taxes that differ from applicable standard tax rates, primarily related to income tax valuation allowances. In 2020, ATI’s U.S. operations returned to a three-year cumulative loss position, limiting our ability to utilize future projections as sources of income when analyzing the need for a valuation allowance. The consolidated income tax provision of $77.7 million for fiscal year 2020 primarily relates to increases to deferred tax asset valuation allowances based on an analysis of the expected realization of deferred tax assets and liabilities within applicable expiration periods. In 2021, ATI continues to maintain income tax valuation allowances on its U.S. Federal and state deferred tax assets. In addition, we have $15.8 million of valuation allowances on amounts recorded in other comprehensive loss on the consolidated balance sheet as of December 31, 2021.

At December 31, 2019, our U.S. results had switched from a three-year cumulative loss position to a three-year cumulative income position, allowing ATI to utilize forecasts of future profits as a source of income when evaluating the overall need for a valuation allowance. We determined that valuation allowances on net deferred tax asset balances for federal and certain state jurisdictions are no longer required. Certain individual tax attributes still require a valuation allowance based on expected utilization. At December 31, 2019, our deferred tax asset valuation allowance was $94.5 million. The change in the overall valuation allowance for 2019 includes amounts utilized during the year as part of the reported effective tax rate, as well as a $45.1 million reduction at December 31, 2019 based on a change in judgment on the realizability of deferred tax assets.

While we remain in a cumulative loss condition, our ability to evaluate the realizability of deferred tax assets is generally limited to the ability to offset timing differences on taxable income associated with deferred tax liabilities. Therefore, a change in estimate of deferred tax asset valuation allowances for federal, state, or foreign jurisdictions during this cumulative loss

condition period will primarily be affected by changes in estimates of the time periods that deferred tax assets and liabilities will be realized, or on a limited basis to tax planning strategies that may result in a change in the amount of taxable income realized.

Beginning in 2020, the U.S. government has enacted various relief packages in response to the COVID-19 pandemic. Due to our valuation allowance in the U.S., the impact to income tax expense has been minimal. We are assessing employee retention tax credits and other available government incentives and may recognize benefits from these various pandemic-related legislative initiatives in future periods.

Retirement Benefits

We have defined contribution retirement plans or benefit pension plans covering substantially all of our employees. We also sponsor several postretirement plans covering certain hourly and salaried employees and retirees. These plans provide health care and life insurance benefits for eligible employees. Company contributions to defined contribution retirement plans are generally based on a percentage of eligible pay or based on hours worked, and are funded with cash. All of ATI’s defined benefit pension plans are closed to new entrants, and at most ATI operations with pension participants the plans are frozen for all future benefit accruals, with less than 10% of participants in ATI’s U.S. qualified defined benefit plans still earning additional pension service. Additionally, all of the remaining, collectively-bargained defined benefit retiree health care plans at ATI’s operations are closed to new entrants, with cost caps in place for these obligations. As a result of these actions, ATI’s retirement savings and other postretirement benefit programs have largely transitioned to a defined contribution structure.

Under U.S. generally accepted accounting principles, amounts recognized in financial statements for defined benefit pension plans are determined on an actuarial basis, rather than as contributions are made to the plan. A significant element in determining our pension income or expense in accordance with the accounting standards is the expected investment return on plan assets. In establishing the expected return on plan investments, which is reviewed annually in the fourth quarter, we take into consideration input from our third party pension plan asset managers and actuaries regarding the types of securities the plan assets are invested in, how those investments have performed historically, and expectations for how those investments will perform in the future. Our weighted average expected long-term return on pension plan investments was 6.71% in 2021, and the weighted average expected long-term rate of return on pension plan investments for 2022 will be 6.43%. We apply the assumed rate of return to the market value of plan assets at the end of the previous year. This produces the expected return on plan assets that is included in annual pension expense for the current year. The actual returns on pension plan assets for the last five years have been 12.4% for 2021, 15.2% for 2020, 15.1% for 2019, (4.8)% for 2018, and 16.9% for 2017. The effect of increasing, or lowering, the expected return on pension plan investments by 0.25% would result in additional pre-tax annual income, or expense, of approximately $5 million. The cumulative difference between the expected return and the actual return on plan assets is deferred and amortized into pension income or expense over future periods. The amount of expected return on plan assets can vary significantly from year-to-year since the calculation is dependent on the market value of plan assets as of the end of the preceding year. U.S. generally accepted accounting principles allow companies to calculate the expected return on pension assets using either an average of fair market values of pension assets over a period not to exceed five years, which reduces the volatility in reported pension income or expense, or their fair market value at the end of the previous year. However, the U.S. Securities and Exchange Commission currently does not permit companies to change from the fair market value at the end of the previous year methodology, which is the methodology that we use, to an averaging of fair market values of plan assets methodology. As a result, our results of operations and those of other companies, including companies with which we compete, may not be comparable due to these different methodologies in calculating the expected return on pension investments.

In accordance with accounting standards, we determine the discount rate used to value pension plan liabilities as of the last day of our fiscal year. The discount rate reflects the current rate at which the pension liabilities could be effectively settled. In estimating this rate, we receive input from our actuaries regarding the rates of return on high quality, fixed-income investments with maturities matched to the expected future retirement benefit payments. Based on this assessment, we established a discount rate of 2.95% for valuing the pension liabilities as of December 31, 2021, and for determining the pension expense for 2022. We had previously assumed a discount rate of 2.60% at the end of 2020 and 3.40% at the end of 2019. The estimated effect of changing the discount rate by 0.50% would decrease pension liabilities in the case of an increase in the discount rate, or increase pension liabilities in the case of a decrease in the discount rate, by approximately $145 million. Such a change in the discount rate would decrease pension expense in the case of an increase in the discount rate, or increase pension expense in the case of a decrease in the discount rate, by less than $1 million. The effect on pension liabilities for changes to the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, are deferred and amortized over future periods in accordance with the accounting standards.

As discussed above, gains and losses due to differences between actual and expected results for investment returns on plan assets, changes in the discount rate used to value benefit obligations, and other changes in estimates such as participant life expectancy are deferred and recognized in the consolidated statement of operations over future periods. However, for balance

sheet presentation, these gains and losses are included in the determination of benefit obligations, net of plan assets, included on the year-end consolidated balance sheet. At December 31, 2021, the Company had approximately $1.4 billion of pre-tax net actuarial losses on its pension obligations, primarily related to an extended decline over the last several years in the discount rate used to value the pension obligations. These actuarial losses have been recognized on the consolidated balance sheet through a reduction in stockholders’ equity, and are being recognized in the consolidated statement of operations through expense amortizations over future years. Due to all of ATI’s defined benefit plans being closed to new entrants, with the population predominately frozen for future benefit accruals, the amortization period for accumulated other comprehensive loss recognition for all of these plans is average remaining life expectancy, which is approximately 17 years on a weighted average basis.

With respect to our postretirement plans, under most of the plans, our contributions towards retiree medical premiums are capped based upon the cost as of certain dates, thereby creating a defined contribution. In accordance with U.S. generally accepted accounting standards, postretirement expenses recognized in financial statements associated with defined benefit plans are determined on an actuarial basis, rather than as benefits are paid. We use actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for these plans. The discount rate, which is determined annually at the end of each fiscal year, is developed based upon rates of return on high quality, fixed-income investments. At the end of 2021, we determined the rate to be 2.80%, compared to a 2.45% discount rate in 2020, and a 3.25% discount rate in 2019. The estimated effect of changing the discount rate by 0.50% would decrease postretirement obligations in the case of an increase in the discount rate, or increase postretirement obligations in the case of a decrease in the discount rate, by approximately $12 million. Such a change in the discount rate would decrease postretirement benefit expense in the case of an increase in the discount rate, or increase postretirement benefit expense in the case of a decrease in the discount rate, by less than $1 million. Based upon predictions of continued significant medical cost inflation in future years, the annual assumed rate of increase in the per capita cost of covered benefits of health care plans is 6.5% in 2022 and is assumed to gradually decrease to 4.0% in the year 2047 and remain level thereafter. Assumed health care cost trend rates can have a significant effect on the benefit obligation for 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.

New Accounting Pronouncements Adopted

In August 2020, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to accounting for convertible instruments. Under this new guidance, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. As such, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the reported interest rate of convertible debt instruments typically will be closer to the coupon interest rate. The new guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation, requiring the if-converted method, and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. This new guidance is effective for ATI in fiscal year 2022, with early adoption permitted.

We adopted this new accounting guidance related to accounting for convertible instruments effective January 1, 2021 using the modified transition approach with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. This new guidance is applicable to our 3.5% Convertible Senior Notes due 2025 (the 2025 Convertible Notes) that were issued in June 2020, for which the embedded conversion option was required to be separately accounted for as a component of stockholders’ equity. Upon adoption on January 1, 2021, long-term debt increased by $45.4 million and stockholders’ equity decreased by the same amount, representing the net impact of two adjustments: (1) the $49.8 million value of the embedded conversion, which is net of allocated offering costs, previously classified in additional paid-in capital in stockholders’ equity, and (2) a $4.4 million increase to retained earnings for the cumulative effect of adoption primarily related to the non-cash interest expense recorded in fiscal year 2020 for the amortization of the portion of the 2025 Convertible Notes allocated to stockholders’ equity. Prospectively, the reported interest expense for the 2025 Convertible Notes will no longer include the non-cash interest expense of the equity component as required under prior accounting standards and will be closer to the 3.5% cash coupon rate. There was no impact to ATI’s earnings per share calculation as it previously applied the if-converted method to the 2025 Convertible Notes given our flexibility to settle conversions of the 2025 Convertible Notes in cash, shares of ATI’s common stock or a combination thereof, at our election.

Pending Accounting Pronouncements

In November 2021, the FASB issued new accounting guidance related to disclosures about certain types of government assistance. This new guidance requires business entities that account for transactions with a government by analogizing to a grant or contribution accounting model to make certain annual disclosures. It requires disclosure of the nature and significant terms and considerations of the transactions, the accounting policies used and the effects of those transactions on an entity’s financial statements. This new guidance is effective for ATI in fiscal year 2022, with early adoption permitted. We did not early adopt this guidance. The adoption of these changes is not expected to have an impact on our consolidated financial statements other than the annual disclosure requirements.

Forward-Looking Statements

From time-to-time, the Company has made and may continue to make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in this report relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “believes,” “estimates,” “expects,” “would,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects,” and similar expressions. Such forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause our actual results or performance to materially differ from any future results or performance expressed or implied by such statements. Various of these factors are described in Item 1A, Risk Factors, of this Annual Report on Form 10-K and will be described from time-to-time in the Company filings with the SEC, including the Company’s Annual Reports on Form 10-K and the Company’s subsequent reports filed with the SEC on Form 10-Q and Form 8-K, which are available on the SEC’s website at www.sec.gov and on the Company’s website at www.atimetals.com. We assume no duty to update our forward-looking statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As part of our risk management strategy, we utilize derivative financial instruments, from time to time, to hedge our exposure to changes in energy and raw material prices, foreign currencies, and interest rates. We monitor the third-party financial institutions that are our counterparty to these financial instruments on a daily basis and diversify our transactions among counterparties to minimize exposure to any one of these entities. Fair values for derivatives were measured using exchange-traded prices for the hedged items including consideration of counterparty risk and ATI’s credit risk. Our exposure to volatility in interest rates is presently not material, as nearly all of our debt is at fixed interest rates.

Volatility of Interest Rates. We may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. ATI has a $50 million floating-for-fixed interest rate swap which, as amended and extended to June 2024, converts a portion of the Term Loan to a 4.21% fixed rate. We designated the interest rate swap as a cash flow hedge of our exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The ineffective portion at hedge inception, determined from the fair value of the swap immediately prior to amendment in July 2019, was amortized to interest expense over the initial Term Loan swap maturity date of January 12, 2021. Any gain or loss associated with this hedging arrangement is included in interest expense. At December 31, 2021, the net mark-to-market valuation of the outstanding interest rate swap was an unrealized pre-tax loss of $1.6 million, comprised of $0.9 million in other current liabilities and $0.7 million in other long-term liabilities on the balance sheet.

Volatility of Energy Prices. Energy resources markets are subject to conditions that create uncertainty in the prices and availability of energy resources. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition. We use approximately 6 to 8 million MMBtu’s of natural gas annually, depending upon business conditions, in the manufacture of our products. These purchases of natural gas expose us to risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase in the price of natural gas would result in increased annual energy costs of approximately $6 to $8 million. We use several approaches to minimize any material adverse effect on our financial condition or results of operations from volatile energy prices. These approaches include incorporating an energy surcharge on many of our products and using financial derivatives to reduce exposure to energy price volatility.

At December 31, 2021, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included natural gas hedges. At December 31, 2021, we hedged approximately 70% of our annual forecasted domestic requirements for natural gas for 2022, approximately 35% for 2023 and approximately 5% for 2024. At December 31, 2021, the net mark-to-market valuation of the outstanding natural gas hedges was an unrealized pre-tax gain of $1.6 million, comprised of $2.0

million in prepaid expenses and other current assets, $0.5 million in other assets, $0.7 million in other current liabilities and $0.2 million in other long-term liabilities on the balance sheet. For the year ended December 31, 2021, the effects of natural gas hedging activity decreased cost of sales by $5.3 million.

Volatility of Raw Material Prices. We use raw materials surcharge and index mechanisms to offset the impact of increased raw material costs; however, competitive factors in the marketplace can limit our ability to institute such mechanisms, and there can be a delay between the increase in the price of raw materials and the realization of the benefit of such mechanisms. For example, in 2021 we used approximately 60 million pounds of nickel; therefore a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $60 million. While we enter into raw materials futures contracts from time-to-time to hedge exposure to price fluctuations, such as for nickel, we cannot be certain that our hedge position adequately reduces exposure. We believe that we have adequate controls to monitor these contracts, but we may not be able to accurately assess exposure to price volatility in the markets for critical raw materials.

The majority of our products are sold utilizing raw material surcharges and index mechanisms. However, as of December 31, 2021, we had entered into financial hedging arrangements, primarily at the request of our customers, related to firm orders, for an aggregate amount of approximately 5 million pounds of nickel with hedge dates through 2024. The aggregate notional amount hedged is approximately 10% of a single year’s estimated nickel raw material purchase requirements. Any gain or loss associated with these hedging arrangements is included in cost of sales. At December 31, 2021, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax gain of $4.9 million, comprised of $5.0 million in prepaid expenses and other current assets, $0.1 million in other assets, and $0.2 million in other current liabilities on the balance sheet.

Foreign Currency Risk. Foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates. We sometimes purchase foreign currency forward contracts that permit us to sell specified amounts of foreign currencies expected to be received from our export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk, primarily the euro. In addition, we may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At December 31, 2021, we had no significant outstanding foreign currency forward contracts.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Allegheny Technologies Incorporated and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Allegheny Technologies Incorporated and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and statements of changes in consolidated equity for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, in 2021 the Company elected to change its method of accounting for valuing inventories that previously used the last-in, first-out (LIFO) method to the average cost method for raw materials and to the first-in, first-out (FIFO) method for work-in-process and finished goods inventory for all years presented.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill impairment assessment

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1996.

Pittsburgh, Pennsylvania

February 25, 2022

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Operations

(In millions, except per share amounts)

Impairment of goodwill — 287.0 —

Nonoperating retirement benefit income (expense) 37.2 (62.1) (73.6)

Debt extinguishment charge (65.5) (21.5) (21.6)

Income tax provision (benefit) 26.8 77.7 (28.5)

Less: Net income attributable to noncontrolling interests 22.0 13.0 12.5

Net income (loss) attributable to ATI $ (38.2) $ (1,572.6) $ 252.5

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In millions)

Currency translation adjustment

Unrealized net change arising during the period (4.6) 32.5 (4.0)

Derivatives

Net derivatives gain (loss) on hedge transactions 15.5 (2.8) 9.7

Income taxes on derivative transactions — — (4.7)

Postretirement benefit plans

Actuarial loss

Amortization of net actuarial loss 89.5 85.3 87.2

Net gain (loss) arising during the period 155.9 (128.4) (180.5)

Prior service cost

Amortization to net income (loss) of net prior service credits (1.8) (3.1) (2.6)

Settlement gain (21.9) — —

Income taxes on postretirement benefit plans (15.5) — (20.4)

Other comprehensive income (loss), net of tax 236.7 (10.5) (69.2)

Comprehensive income (loss) attributable to ATI $ 193.7 $ (1,594.5) $ 184.6

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Balance Sheets

Assets

Cash and cash equivalents $ 687.7 $ 645.9

Shot-term contract assets 53.9 38.9

Prepaid expenses and other current assets 48.8 38.3

Liabilities and Stockholders’ Equity

Short-term contract liabilities 116.2 111.8

Short-term debt and current portion of long-term debt 131.3 17.8

Accrued postretirement benefits 258.1 326.7

Equity:

ATI Stockholders’ Equity:

Preferred stock, par value $0.10: authorized-50,000,000 shares; issued-none — —

Accumulated other comprehensive loss, net of tax (991.7) (1,223.6)

Total ATI Stockholders’ Equity 685.6 521.1

Total Liabilities and Stockholders’ Equity $ 4,285.2 $ 4,034.9

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

(In millions)

Operating Activities:

Impairment of goodwill — 287.0 —

Gain from disposal of property, plant and equipment, net (2.9) (2.9) (90.6)

Net loss (gain) from sales of businesses (13.8) — 7.1

Non-cash restructuring charges — 1,041.5 —

Non-cash joint venture impairment charge — — 11.4

Change in operating assets and liabilities:

Accrued income taxes (2.6) 2.4 4.9

Investing Activities:

Purchases of property, plant and equipment (152.6) (136.5) (168.2)

Proceeds from disposal of property, plant and equipment 20.8 5.9 92.0

Proceeds from sales of businesses, net of transaction costs 53.1 — 158.1

Cash provided by (used in) investing activities (77.3) (128.7) 81.7

Financing Activities:

Payments on long-term debt and finance leases (515.6) (212.1) (507.6)

Net borrowings under credit facilities 21.7 0.2 4.9

Purchase of convertible note capped call — (19.4) —

Debt issuance costs (9.5) (9.1) (5.5)

Debt extinguishment charge (64.5) (19.1) (20.9)

Dividends paid to noncontrolling interests — (7.2) (14.0)

Cash provided by (used in) financing activities 103.0 116.9 (203.0)

Cash and cash equivalents at beginning of year 645.9 490.8 382.0

Cash and cash equivalents at end of year $ 687.7 $ 645.9 $ 490.8

Amounts presented on the Consolidated Statements of Cash Flows may not agree to the corresponding changes in consolidated balance sheet items due to the accounting for purchases and sales of businesses and the effects of foreign currency translation.

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Statements of Changes in Consolidated Equity

ATI Stockholders

Other comprehensive loss — — — — (67.9) (1.3) (69.2)

Cumulative effect of change in accounting principle — — 5.1 — — — 5.1

Dividends paid to noncontrolling interest — — — — — (14.0) (14.0)

Other comprehensive income (loss) — — — — (21.9) 11.4 (10.5)

Equity component of convertible note — 49.8 — — — — 49.8

Convertible note capped call — (19.4) — — — — (19.4)

Dividends paid to noncontrolling interest — — — — — (7.2) (7.2)

Employee stock plans — 21.0 — (4.8) — — 16.2

*December 31, 2020 and 2019 reflect the change in inventory accounting method, as described in Note 1 of the Notes to the Consolidated Financial Statements. There were no adjustments to December 31, 2020 amounts as a result of this change.

The accompanying notes are an integral part of these statements.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Reporting

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. The results for the Shanghai STAL Precision Stainless Steel Company Limited (STAL) are reported on a one month lag. 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 equity method investments is included in the consolidated statements of operations as a component of Other (non-operating) income (expense). See Note 7 for further explanation of the Company’s joint ventures. 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 2021 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 major end markets for the ATI’s products are customers in the aerospace & defense, energy, automotive, construction and mining, food equipment and appliances, and medical markets.

At December 31, 2021, ATI has approximately 6,300 active employees, of which approximately 20% are located outside the United States. Approximately 40% of ATI’s workforce is covered by various collective bargaining agreements (CBAs), predominantly with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union, AFL-CIO, CLC (USW). The Company’s CBA with the USW involving approximately 1,100 active full- time represented employees located primarily within the AA&S segment operations, as well as a number of inactive employees, expired on February 28, 2021. USW-represented employees continued to work under the terms of the expired CBA until March 30, 2021 when they engaged in a strike. On July 14, 2021, ATI announced that a new four-year labor agreement with the USW was ratified, ending the strike. The Company has CBAs with approximately 800 full-time employees that expire in 2022.

Change in Accounting Principle:

During the fourth quarter of 2021, the Company elected to change its method for valuing its inventories that previously used the last-in, first-out (LIFO) method to a current costing method consisting of the average cost method for raw materials and the first-in, first-out (FIFO) method for work-in-process and finished goods inventory, hereafter referred to as “current cost method”. Total inventories accounted for under the LIFO method represented approximately 65% of the Company’s total inventories prior to this change in method. The Company believes that using the current cost method is preferable as it improves comparability with the Company’s peers, more closely resembles the physical flow of inventory, and aligns with how the Company internally manages the business.

The effects of the change in accounting principle of changing from LIFO to the current cost method have been retrospectively applied to all periods presented. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years ended December 31, 2019 were adjusted as necessary. This change in accounting principle had no impact to any of the consolidated financial statements for 2020.

The following table reflects the effect of the change in the accounting principle on the 2021 consolidated financial statements:

(dollars in millions, except per share data)

Statement of Operations

Income (loss) before income taxes $ (82.0) $ 10.6 $ 92.6

Net loss attributable to ATI $ (130.8) $ (38.2) $ 92.6

Basic net loss per common share $ (1.03) $ (0.30) $ 0.73

Diluted net loss per common share $ (1.03) $ (0.30) $ 0.73

Statement of Comprehensive Income

Comprehensive income attributable to ATI $ 101.1 $ 193.7 $ 92.6

Balance Sheet

Retained earnings (deficit) $ (19.9) $ 72.7 $ 92.6

Total liabilities and stockholders’ equity $ 4,192.6 $ 4,285.2 $ 92.6

Statement of Cash Flows

Adjustments to reconcile net loss to net cash provided by operating activities:

The following tables reflect the impact to the financial statement line items as a result of the change in accounting principle for the prior periods presented in the accompanying financial statements:

For the Year Ending December 31, 2019 As Reported Adjustments As Adjusted

(dollars in millions, except per share data)

Statement of Operations

Net income attributable to ATI $ 257.6 $ (5.1) $ 252.5

Basic net income per common share $ 2.05 $ (0.04) 2.01

Diluted net income per common share $ 1.85 $ (0.04) 1.81

Statement of Comprehensive Income

Comprehensive income attributable to ATI $ 189.7 $ (5.1) $ 184.6

Statement of Cash Flows

Net loss from sales of businesses $ 1.8 $ 5.3 $ 7.1

As a result of the accounting change, retained earnings as of January 1, 2019 increased from $1,422.0 million, as originally reported using the LIFO method, to $1,427.1 million using the current cost method. The change of $5.1 million is reflected as a cumulative change in accounting principle in the consolidated statements of shareholders’ equity.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments that are readily convertible to cash with original maturities of three months or less.

Accounts Receivable

Accounts receivable are presented net of a reserve for doubtful accounts of $3.8 million and $4.3 million at December 31, 2021 and 2020, respectively. Trade credit is extended based upon evaluations of each customer’s ability to perform its obligations, which are updated periodically. The Company’s accounts receivable reserves are determined based on expected credit losses. 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 or net realizable value. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct costs. The term net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. During the fourth quarter of 2021, the Company elected to change its method for valuing its inventories that previously used the LIFO method to the average cost method for raw materials and the FIFO method for work-in-process and finished goods inventory. The Company believes that the current cost method is preferable as it improves comparability with the Company’s peers, more closely resembles the physical flow of our inventory, and aligns with how the Company internally manages the business. Other

inventories, including the inventory of the Company’s non-U.S. operations, will continue to be valued using the FIFO or average cost methods. The effects of the change in accounting principle of LIFO to the current cost method have been retrospectively applied to all periods presented. See above in “Change in Accounting Principle” section for more information.

The Company evaluates product lines on a quarterly basis to identify inventory carrying values that exceed estimated net realizable value. The calculation of a resulting reserve, if any, is recognized as an expense in the period that the need for the reserve is identified. 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. Inventory valuation reserves also include amounts pertaining to intercompany profit elimination between different subsidiaries.

Long-Lived Assets

Property, plant and equipment are recorded at cost, including capitalized interest, and include long-lived assets acquired under finance leases. Depreciation is primarily recorded using the straight-line method. Prior to December 2020, property, plant and equipment associated with the Hot-Rolling and Processing Facility (HRPF) in the AA&S segment was being depreciated utilizing the units of production method of depreciation, which the Company believed provided a better matching of costs and revenues. However, based on changed business conditions resulting from the decision to exit production of standard stainless sheet products and the recognition of an impairment charge on the property, plant and equipment associated with the HRPF in December 2020 (see Note 19 for further discussion), depreciation of the remaining carrying value of the HRPF began using the straight-line method in December 2020. 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. If an impairment loss is recognized, the adjusted carrying value of the long-lived asset is its new cost basis and this new cost basis is depreciated over the remaining useful life of the asset. 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.

Leases

The Company classifies leases as either operating or financing, and records a right-of-use (ROU) asset and a lease liability on the consolidated balance sheets as further discussed below. The lease liability is equal to the present value of the minimum lease payments for the term of the lease, including any optional renewal periods determined to be reasonably certain to be exercised, using the discount rate determined at lease commencement. This discount rate is the rate implicit in the lease, if known; otherwise, the incremental borrowing rate (IBR) for the expected lease term is used. The Company’s IBRs approximate the rate the Company would have to pay to borrow on a collateralized basis over a similar term at lease inception. The ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives received. The Company has elected to not separate lease components from non-lease components for all asset classes, and has made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of 12 months or less.

The Company has lease contracts for real property and machinery and equipment, primarily for mobile, office and information technology equipment. At inception of a contract, the Company determines whether the contract is or contains a lease. If the Company has a right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the asset, then the contract contains a lease. Several of the Company’s real property lease contracts include options to extend the lease term, and the Company reassesses the likelihood of renewal on at least an annual basis. In addition, several real property leases include variable lease payments, for items such as common area maintenance and utilities, which are expensed as incurred as variable lease expense.

There are two types of leases: operating leases and finance leases. Lease classification is determined at lease commencement. A finance lease exists when specific criteria are met that indicate that all the risk and rewards related to the leased assets are transferred to the lessee. All other leases not meeting the finance lease criteria are classified as operating leases. Operating lease expense is recognized on a straight-line basis on the consolidated statement of operations. Finance leases have front-loaded expense recognition which is reported as amortization expense and interest expense on the consolidated statement of operations. ROU assets for operating leases are classified in other long-term assets, and ROU assets for finance leases are

classified in property, plant and equipment on the consolidated balance sheet. For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other long-term liabilities on the consolidated balance sheet. For finance leases, short-term lease liabilities are classified in short-term debt, and long-term lease liabilities are classified in long-term debt on the consolidated balance sheet. On the cash flow statement, payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating activity.

Goodwill

ATI US Equity

ATI · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

ATI US Equity☆

ATI · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

ATI US Equity