Business Segments

3 Months Ended

Mar. 31, 2020

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

The measure of segment operating profit, which is used to analyze the performance and results of the business segments, excludes all effects of LIFO inventory accounting and any related changes in net realizable value inventory reserves which offset the Company’s aggregate net debit LIFO valuation balance, income taxes, corporate expenses, net interest expense, closed operations and other expenses, restructuring and asset impairment charges, and non-operating gains and losses. Management believes segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level. Following is certain financial information with respect to the Company’s business segments for the periods indicated (in millions):



	Three months ended March 31,
	2020		2019
Total sales:
High Performance Materials & Components	$	448.5	$	516.3
Advanced Alloys & Solutions	587.6		572.2
	1,036.1		1,088.5
Intersegment sales:
High Performance Materials & Components	28.2		19.7
Advanced Alloys & Solutions	52.4		64.0
	80.6		83.7
Sales to external customers:
High Performance Materials & Components	420.3		496.6
Advanced Alloys & Solutions	535.2		508.2
	$	955.5	$	1,004.8



	Three months ended March 31,
	2020			2019
Segment operating profit:
High Performance Materials & Components	$	57.1		$	51.7
Advanced Alloys & Solutions	24.1			10.0
Total segment operating profit	81.2			61.7
LIFO and net realizable value reserves	—			(0.1		)
Corporate expenses	(12.8		)	(16.6		)
Closed operations and other expenses	(6.6		)	(3.1		)
Gain on asset sales, net	2.5			—
Restructuring and other charges	(8.0		)	—
Interest expense, net	(21.9		)	(24.8		)
Income before income taxes	$	34.4		$	17.1

Corporate expenses were lower in the first quarter of 2020 compared to 2019 primarily due lower incentive compensation expense based on expected performance versus target metrics. Closed operations and other expenses in the first quarter 2020 included higher legal-related costs.

The $2.5 million gain on asset sales for the first quarter of 2020 consists of a gain on the sale of certain oil and gas rights (see Note 6).

Restructuring and other charges for the first quarter of 2020 are comprised of severance obligations for the reduction of approximately 90 positions for a voluntary retirement incentive program for eligible salaried employees, building on the previously announced restructuring program in the fourth quarter of 2019. Reserves for restructuring charges at March 31, 2020 consist of severance costs for these programs and are $12.4 million, of which $11.2 million are reported in other current liabilities and $1.2 million in other long-term liabilities on the consolidated balance sheet.