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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                      to                     
Commission File Number 1-12001
 ALLEGHENY TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware25-1792394
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
1000 Six PPG Place
Pittsburgh,Pennsylvania15222-5479
(Address of Principal Executive Offices)(Zip Code)
(412) 394-2800
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.10ATINew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  
Indicate by check mark whether the Registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
At April 16, 2021, the registrant had outstanding 127,203,072 shares of its Common Stock.



ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
Quarter Ended March 31, 2021
INDEX
 Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Statements of Changes in Consolidated Equity
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
SIGNATURES



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Allegheny Technologies Incorporated and Subsidiaries
Consolidated Balance Sheets
(In millions, except share and per share amounts)
(Current period unaudited)
March 31,
2021
December 31,
2020
ASSETS
Current Assets:
Cash and cash equivalents$541.7 $645.9 
Accounts receivable, net 423.9 345.8 
Short-term contract assets42.0 38.9 
Inventories, net1,047.8 997.1 
Prepaid expenses and other current assets38.0 38.3 
Total Current Assets2,093.4 2,066.0 
Property, plant and equipment, net1,478.7 1,469.2 
Goodwill241.6 240.7 
Other assets254.8 259.0 
Total Assets$4,068.5 $4,034.9 
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable$324.8 $290.6 
Short-term contract liabilities118.7 111.8 
Short-term debt and current portion of long-term debt15.7 17.8 
Other current liabilities230.0 233.1 
Total Current Liabilities689.2 653.3 
Long-term debt1,598.4 1,550.0 
Accrued postretirement benefits321.7 326.7 
Pension liabilities642.8 673.6 
Other long-term liabilities207.1 189.9 
Total Liabilities3,459.2 3,393.5 
Equity:
ATI Stockholders’ Equity:
Preferred stock, par value $0.10: authorized-50,000,000 shares; issued-none
  
Common stock, par value $0.10: authorized-500,000,000 shares; issued-127,429,740 shares at March 31, 2021 and 126,820,440 shares at December 31, 2020; outstanding-127,203,072 shares at March 31, 2021 and 126,817,768 shares at December 31, 2020
12.7 12.7 
Additional paid-in capital1,580.5 1,625.5 
Retained earnings103.0 106.5 
Treasury stock: 226,668 shares at March 31, 2021 and 2,672 shares at December 31, 2020
(4.7) 
Accumulated other comprehensive loss, net of tax(1,208.6)(1,223.6)
Total ATI stockholders’ equity482.9 521.1 
Noncontrolling interests126.4 120.3 
Total Equity609.3 641.4 
Total Liabilities and Equity$4,068.5 $4,034.9 

The accompanying notes are an integral part of these statements.
1


Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
 
Three months ended March 31,
 20212020
Sales$692.5 $955.5 
Cost of sales606.7 820.7 
Gross profit 85.8 134.8 
Selling and administrative expenses54.0 58.4 
Restructuring charges 8.0 
Operating income 31.8 68.4 
Nonoperating retirement benefit expense(6.8)(11.2)
Interest expense, net(23.4)(21.9)
Other income (expense), net1.5 (0.9)
Income before income taxes3.1 34.4 
Income tax provision 5.5 10.8 
Net income (loss)(2.4)23.6 
Less: Net income attributable to noncontrolling interests5.5 2.5 
Net income (loss) attributable to ATI$(7.9)$21.1 
Basic net income (loss) attributable to ATI per common share$(0.06)$0.17 
Diluted net income (loss) attributable to ATI per common share$(0.06)$0.16 
The accompanying notes are an integral part of these statements.

2


Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three months ended March 31,
 20212020
Net income (loss)$(2.4)$23.6 
Currency translation adjustment
Unrealized net change arising during the period(4.8)(23.4)
Derivatives
Net derivatives gain (loss) on hedge transactions0.4 (12.3)
Reclassification to net income (loss) of net realized (gain) loss(1.7)1.8 
Income taxes on derivative transactions (2.5)
Total(1.3)(8.0)
Postretirement benefit plans
Actuarial loss
Amortization of net actuarial loss22.2 21.3 
Prior service cost
Amortization to net income (loss) of net prior service credits(0.5)(0.7)
Income taxes on postretirement benefit plans 4.9 
Total21.7 15.7 
Other comprehensive income (loss), net of tax15.6 (15.7)
Comprehensive income 13.2 7.9 
Less: Comprehensive income attributable to noncontrolling interests6.1 1.7 
Comprehensive income attributable to ATI$7.1 $6.2 
The accompanying notes are an integral part of these statements.

3


Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three months ended March 31,
 20212020
Operating Activities:
Net income (loss)$(2.4)$23.6 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization36.1 37.3 
Deferred taxes(0.4)8.3 
Net gains from disposal of property, plant and equipment(1.2)(2.5)
Changes in operating assets and liabilities:
Inventories(50.8)(25.8)
Accounts receivable(78.1)(39.2)
Accounts payable34.1 (96.5)
Retirement benefits(16.6)(23.0)
Accrued liabilities and other11.2 2.4 
Cash used in operating activities(68.1)(115.4)
Investing Activities:
Purchases of property, plant and equipment(26.4)(29.1)
Proceeds from disposal of property, plant and equipment1.4 2.9 
Other(0.1)1.0 
Cash used in investing activities(25.1)(25.2)
Financing Activities:
Payments on long-term debt and finance leases(3.0)(2.0)
Net borrowings (payments) under credit facilities(3.3)298.6 
Shares repurchased for income tax withholding on share-based compensation and other(4.7)(7.8)
Cash provided by (used in) financing activities(11.0)288.8 
Increase (decrease) in cash and cash equivalents(104.2)148.2 
Cash and cash equivalents at beginning of period645.9 490.8 
Cash and cash equivalents at end of period$541.7 $639.0 
The accompanying notes are an integral part of these statements.

4


Allegheny Technologies Incorporated and Subsidiaries
Statements of Changes in Consolidated Equity
(In millions)
(Unaudited)


 ATI Stockholders  
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interests
Total
Equity
Balance, December 31, 2019$12.7 $1,618.0 $1,679.3 $(18.2)$(1,201.7)$103.1 $2,193.2 
Net income  21.1   2.5 23.6 
Other comprehensive loss— — — — (14.9)(0.8)(15.7)
Employee stock plans— (25.9) 17.4 — — (8.5)
Balance, March 31, 2020$12.7 $1,592.1 $1,700.4 $(0.8)$(1,216.6)$104.8 $2,192.6 
Balance, December 31, 2020$12.7 $1,625.5 $106.5 $ $(1,223.6)$120.3 $641.4 
Net income (loss)   (7.9)  5.5 (2.4)
Other comprehensive income— — — — 15.0 0.6 15.6 
Cumulative effect of adoption of new accounting standard— (49.8)4.4 — — — (45.4)
Employee stock plans— 4.8  (4.7)— — 0.1 
Balance, March 31, 2021$12.7 $1,580.5 $103.0 $(4.7)$(1,208.6)$126.4 $609.3 
The accompanying notes are an integral part of these statements.
5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1. Accounting Policies
The interim consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries. Unless the context requires otherwise, “Allegheny Technologies”, “ATI” and “the Company” refer to Allegheny Technologies Incorporated and its subsidiaries.
These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2020 Annual Report on Form 10-K. The results of operations for these interim periods are not necessarily indicative of the operating results for any future period. The December 31, 2020 financial information has been derived from the Company’s audited consolidated financial statements.
New Accounting Pronouncements Adopted
In August 2020, the 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 the Company in fiscal year 2022, with early adoption permitted.
The Company 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 the Company’s 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 the Company’s earnings per share calculation as it previously applied the if-converted method to the 2025 Convertible Notes given ATI’s flexibility to settle conversions of the 2025 Convertible Notes in cash, shares of ATI’s common stock or a combination thereof, at ATI’s election.
6



Note 2. Revenue from Contracts with Customers

Disaggregation of Revenue
The Company operates in two business segments: High Performance Materials & Components (HPMC) and Advanced Alloys & Solutions (AA&S). Revenue is disaggregated within these two business segments by diversified global markets, primary geographical markets and diversified products. Comparative information of the Company’s overall revenues (in millions) by global and geographical markets for the first quarters ended March 31, 2021 and 2020 were as follows:
(in millions)First quarter ended
March 31, 2021March 31, 2020
HPMCAA&STotalHPMCAA&STotal
Diversified Global Markets:
Aerospace & Defense$179.8 $74.4 $254.2 $358.8 $133.7 $492.5 
Energy*30.5 118.6 149.1 24.1 146.5 170.6 
Automotive2.0 89.5 91.5 2.0 74.5 76.5 
Electronics0.3 55.3 55.6 0.3 32.9 33.2 
Construction/Mining5.1 37.4 42.5 5.3 38.3 43.6 
Food Equipment & Appliances 35.4 35.4  50.4 50.4 
Medical11.2 17.8 29.0 17.0 21.6 38.6 
Other12.0 23.2 35.2 12.8 37.3 50.1 
Total$240.9 $451.6 $692.5 $420.3 $535.2 $955.5 
*Includes the oil & gas, downstream processing, and specialty energy markets.
(in millions)First quarter ended
March 31, 2021March 31, 2020
HPMCAA&STotalHPMCAA&STotal
Primary Geographical Market:
United States$128.3 $271.6 $399.9 $227.3 $378.8 $606.1 
Asia20.1 122.6 142.7 25.1 94.2 119.3 
Europe79.1 34.0 113.1 133.5 37.6 171.1 
Canada8.2 9.1 17.3 11.6 10.4 22.0 
South America, Middle East and other5.2 14.3 19.5 22.8 14.2 37.0 
Total$240.9 $451.6 $692.5 $420.3 $535.2 $955.5 
Comparative information of the Company’s major high-value and standard products based on their percentages of sales is included in the following table. In conjunction with the Company’s announced ongoing exit of standard stainless products, ATI reclassified certain items as High-Value Products within AA&S segment results. Prior period information reflects these reclassifications. Hot-Rolling and Processing Facility conversion service sales in the AA&S segment are excluded from this presentation.
First quarter ended
March 31, 2021March 31, 2020
HPMCAA&STotalHPMCAA&STotal
Diversified Products and Services:
High-Value Products
     Nickel-based alloys and specialty alloys36 %28 %31 %40 %31 %35 %
     Precision rolled strip products %31 %20 % %22 %12 %
     Precision forgings, castings and components43 % %15 %35 % %16 %
     Titanium and titanium-based alloys21 %7 %12 %25 %11 %18 %
     Zirconium and related alloys %15 %10 % %13 %7 %
Total High-Value Products100 %81 %88 %100 %77 %88 %
Standard Products
     Standard stainless products %19 %12 % %23 %12 %
Total100 %100 %100 %100 %100 %100 %
7


The Company maintained a backlog of confirmed orders totaling $1.5 billion and $2.1 billion at March 31, 2021 and 2020, respectively. Due to the structure of the Company’s long-term agreements, approximately 75% of this backlog at March 31, 2021 represented booked orders with performance obligations that will be satisfied within the next 12 months. The backlog does not reflect any elements of variable consideration.
Contract balances
As of March 31, 2021 and December 31, 2020, accounts receivable with customers were $428.1 million and $350.1 million, respectively. The following represents the rollforward of accounts receivable - reserve for doubtful accounts and contract assets and liabilities for the three months ended March 31, 2021 and 2020:
(in millions)
Accounts Receivable - Reserve for Doubtful AccountsMarch 31,
2021
March 31,
2020
Balance as of beginning of fiscal year$4.3 $4.6 
Expense to increase the reserve0.2 0.1 
Write-off of uncollectible accounts(0.3)(0.3)
Balance as of period end$4.2 $4.4 
(in millions)
Contract Assets
Short-termMarch 31,
2021
March 31,
2020
Balance as of beginning of fiscal year$38.9 $38.5 
Recognized in current year25.7 25.1 
Reclassified to accounts receivable(19.1)(20.2)
Impairment  
Reclassification to/from contract liability(3.5) 
Divestiture 0.1 
Balance as of period end$42.0 $43.5 
Long-termMarch 31,
2021
March 31,
2020
Balance as of beginning of fiscal year$ $0.1 
Recognized in current year  
Reclassified to accounts receivable  
Impairment  
Reclassification to/from short-term (0.1)
Balance as of period end$ $ 
(in millions)
Contract Liabilities
Short-termMarch 31,
2021
March 31,
2020
Balance as of beginning of fiscal year$111.8 $78.7 
Recognized in current year57.1 71.7 
Amounts in beginning balance reclassified to revenue(43.0)(22.1)
Current year amounts reclassified to revenue(4.0)(17.1)
Other (0.3)
Reclassification to/from long-term and contract asset(3.2)3.4 
Balance as of period end$118.7 $114.3 
Long-termMarch 31,
2021
March 31,
2020
Balance as of beginning of fiscal year$32.0 $25.9 
Recognized in current year24.3 7.4 
Amounts in beginning balance reclassified to revenue(0.3)(0.2)
Current year amounts reclassified to revenue  
Other  
Reclassification to/from short-term(0.3)(3.4)
Balance as of period end$55.7 $29.7 
8


Contract costs for obtaining and fulfilling a contract were $5.3 million and $5.4 million as of March 31, 2021 and December 31, 2020, respectively, and are reported in other long-term assets on the consolidated balance sheet. Contract cost amortization expense for the three months ended March 31, 2021 and 2020 was $0.2 million and $0.3 million, respectively.
Note 3. Inventories
Inventories at March 31, 2021 and December 31, 2020 were as follows (in millions):
March 31,
2021
December 31,
2020
Raw materials and supplies$224.1 $207.6 
Work-in-process736.0 690.7 
Finished goods164.0 181.6 
Total inventories at current cost1,124.1 1,079.9 
Adjustment from current cost to LIFO cost basis37.3 44.1 
Inventory valuation reserves(113.6)(126.9)
Total inventories, net$1,047.8 $997.1 
Inventories are stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out (FIFO), and average cost methods) or market. Most of the Company’s inventory is valued utilizing the LIFO costing methodology. Inventory of the Company’s non-U.S. operations is valued using average cost or FIFO methods. Due to deflationary impacts primarily related to raw materials, the carrying value of the Company’s inventory as valued on LIFO exceeds current replacement cost, and based on a lower of cost or market value analysis, the Company maintains net realizable value (NRV) inventory valuation reserves to adjust carrying value of LIFO inventory to current replacement cost. These NRV reserves were $37.3 million at March 31, 2021 and $44.1 million at December 31, 2020. Impacts to cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as follows (in millions):
Three months ended March 31,
20212020
LIFO benefit (charge)$(6.8)$12.0 
NRV benefit (charge)6.8 (12.0)
Net cost of sales impact$ $ 
Note 4. Property, Plant and Equipment
Property, plant and equipment at March 31, 2021 and December 31, 2020 was as follows (in millions):
March 31,
2021
December 31,
2020
Land$34.8 $34.8 
Buildings569.5 564.7 
Equipment and leasehold improvements2,768.4 2,736.9 
3,372.7 3,336.4 
Accumulated depreciation and amortization(1,894.0)(1,867.2)
Total property, plant and equipment, net$1,478.7 $1,469.2 
The construction in progress portion of property, plant and equipment at March 31, 2021 was $252.6 million. Capital expenditures on the consolidated statement of cash flows for the period ended March 31, 2021 exclude $9.2 million of completion payments that were included in property, plant and equipment and accrued at March 31, 2021.

9


Note 5. Joint Ventures

The financial results of majority-owned joint ventures are consolidated into the Company’s operating results and financial position, with the minority ownership interest recognized in the consolidated statements of operations as net income attributable to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity. Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50% ownership interest), are accounted for under the equity method of accounting.

Majority-Owned Joint Ventures

STAL:
The Company has a 60% interest in the Chinese joint venture known as STAL. The remaining 40% interest in STAL is owned by China Baowu Steel Group Corporation Limited, a state authorized investment company whose equity securities are publicly traded in the People’s Republic of China. STAL is part of ATI’s AA&S segment, and manufactures Precision Rolled Strip stainless products mainly for the electronics and automotive markets located in Asia. Cash and cash equivalents held by STAL as of March 31, 2021 were $34.1 million.

Next Gen Alloys LLC:
The Company has a 51% interest in Next Gen Alloys LLC, a joint venture with GE Aviation for the development of a new meltless titanium alloy powder manufacturing technology. The titanium alloy powders are being developed for use in additive manufacturing applications, including 3D printing. Cash and cash equivalents held by this joint venture as of March 31, 2021 were $2.5 million.

Equity Method Joint Ventures

A&T Stainless:
The Company has a 50% interest in A&T Stainless, a joint venture with an affiliate company of Tsingshan Group (Tsingshan) to produce 60-inch wide stainless sheet products for sale in North America. Tsingshan purchased its 50% joint venture interest in A&T Stainless in 2018 for $17.5 million, of which $12.0 million has been received by ATI. The A&T Stainless operations included the Company’s previously-idled direct roll and pickle (DRAP) facility in Midland, PA. ATI provided hot-rolling conversion services to A&T Stainless using the AA&S segment’s Hot-Rolling and Processing Facility. ATI accounts for the A&T Stainless joint venture under the equity method of accounting.

In late March 2018, ATI filed for an exclusion from the Section 232 tariffs on behalf of A&T Stainless, which imports semi-finished stainless slab products from Indonesia. In April 2019, the Company learned that this exclusion request was denied by the U.S. Department of Commerce. ATI filed new requests on behalf of A&T Stainless for exclusion from the Section 232 tariffs in October 2019. These requests were denied by the U.S. Department of Commerce in the second quarter of 2020, and the 25% tariff remains in place.

Due to repeated tariff exclusion denials, the DRAP facility was idled in an orderly shut down process that was completed in the third quarter of 2020. ATI’s share of A&T Stainless results were losses of $0.5 million and $3.9 million for the three months ended March 31, 2021 and 2020, respectively, which is included within other income/expense, net, on the consolidated statements of operations and in the AA&S segment’s operating results.

As of March 31, 2021 and December 31, 2020, ATI had net receivables for working capital advances and administrative services from A&T Stainless of $13.8 million and $14.0 million, respectively. For the March 31, 2021 balance of net receivables, $0.7 million was reported in prepaid expenses and other current assets and $13.1 million in other long-term assets on the consolidated balance sheet, while for December 31, 2020, $0.5 million was reported in prepaid expenses and other current assets and $13.5 million in other long-term assets. In addition, ATI evaluated the collectability of its remaining $5.5 million receivable from Tsingshan, which is reported in other long-term assets on the consolidated balance sheet, and concluded that no impairment or loss in expected value exists at this time.

Uniti:
ATI has a 50% interest in the industrial titanium joint venture known as Uniti, with the remaining 50% interest held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. Uniti is accounted for under the equity method of accounting. ATI’s share of Uniti’s income was $0.5 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively, which is included in the AA&S segment’s operating results, and within other income/expense, net on the consolidated statements of operations.
10


Note 6. Supplemental Financial Statement Information
Other income (expense), net for the three months ended March 31, 2021 and 2020 was as follows:
(in millions)Three months ended March 31,
20212020
Rent and royalty income$0.3 $0.3 
Gains from disposal of property, plant and equipment, net1.2 2.5 
Net equity loss on joint ventures (See Note 5) (3.7)
Total other income (expense), net$1.5 $(0.9)
Gains from disposal of property, plant and equipment, net for the three months ended March 31, 2020 included a $2.5 million gain on the sale of certain oil and gas rights. This cash gain was reported as an investing activity on the consolidated statement of cash flows for the three months ended March 31, 2020 and is excluded from segment operating results.
Reserves for restructuring charges at March 31, 2021 consist of severance costs incurred in the fourth quarter 2019 and throughout the 2020 fiscal year, the majority of which are expected to be paid by the end of 2021. Restructuring reserves activity is as follows:
Severance and Employee
Benefit Costs
Balance at December 31, 2020$43.4 
Additions 
Payments(6.5)
Balance at March 31, 2021$36.9 

The $36.9 million restructuring reserve balance at March 31, 2021 includes $28.4 million recorded in other current liabilities and $8.5 million recorded in other long-term liabilities on the consolidated balance sheet.
Note 7. Debt
Debt at March 31, 2021 and December 31, 2020 was as follows (in millions): 
March 31,
2021
December 31,
2020
Allegheny Technologies 5.875% Notes due 2023 (a)
$500.0 $500.0 
Allegheny Technologies 5.875% Notes due 2027
350.0 350.0 
Allegheny Technologies 3.5% Convertible Senior Notes due 2025
291.4 291.4 
Allegheny Technologies 4.75% Convertible Senior Notes due 2022
84.2 84.2 
Allegheny Ludlum 6.95% Debentures due 2025 (b)
150.0 150.0 
Term Loan due 2024200.0 200.0 
U.S. revolving credit facility  
Foreign credit facilities2.2 5.5 
Finance leases and other51.4 48.0 
Debt issuance costs(15.1)(14.5)
Equity component of convertible debt (46.8)
Total debt1,614.1 1,567.8 
Short-term debt and current portion of long-term debt15.7 17.8 
Total long-term debt$1,598.4 $1,550.0 
 
(a) Bearing interest at 7.875% effective February 15, 2016.
(b) The payment obligations of these debentures issued by Allegheny Ludlum, LLC are fully and unconditionally guaranteed
by ATI.
11


Revolving Credit Facility

The Company has an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s 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, the Company has the right to request an increase of up to $200 million in the maximum amount available under the revolving credit facility for the duration of the ABL. The Company has a $50 million floating-for-fixed interest rate swap which 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 the Company must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL 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. The Company does not meet this required fixed charge coverage ratio at March 31, 2021. As a result, the Company is unable to access this remaining 12.5%, or $87.5 million, of the ABL facility until it meets the required ratio. Additionally, the Company 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 4.75% Convertible Notes due 2022 and the 5.875% Notes due 2023. The ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company’s 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 the Company’s fixed charge coverage ratio is less than 1.00:1.00 and its 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 March 31, 2021, there were no outstanding borrowings under the revolving portion of the ABL facility, and $42.8 million was utilized to support the issuance of letters of credit. There were no average revolving credit borrowings under the ABL facility for the first quarter of 2021. There were average revolving credit borrowings of $53 million bearing an average annual interest rate of 2.6% under the ABL facility for the first quarter of 2020.
2025 Convertible Notes

During 2020, the Company issued $291.4 million aggregate principal amount of 2025 Convertible Notes. The 2025 Convertible Notes have a 3.5% cash coupon rate that is payable semi-annually in arrears on each June 15 and December 15. Including amortization of deferred issuance costs, the effective interest rate is 4.2% for the first quarter ended March 31, 2021. Remaining deferred issuance costs were $7.8 million at March 31, 2021. The Company does not have the right to redeem the 2025 Convertible Notes prior to June 15, 2023. On or after June 15, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, the Company may redeem all or any portion of the 2025 Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest if the last reported sale price of ATI’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on the trading day immediately preceding the date on which ATI provides written notice of redemption.

The initial conversion rate for the 2025 Convertible Notes is 64.5745 shares of ATI common stock per $1,000 principal amount of the 2025 Convertible Notes, equivalent to an initial conversion price of approximately $15.49 per share (18.8 million shares). Prior to the close of business on the business day immediately preceding March 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders of 2025 Convertible Notes only upon the satisfaction of specified conditions and during certain periods. Thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2025 Convertible Notes will be convertible at the option of holders of 2025 Convertible Notes at any time regardless of these conditions. Conversions of the 2025 Convertible Notes may be settled in cash, shares of ATI’s common stock or a combination thereof, at ATI’s election.

As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option was required to be separately accounted for as a component of stockholders’ equity. 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
12


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 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 in the above table, net of reclassified debt issue costs.

ATI entered into privately negotiated capped call transactions with certain of the initial purchasers of the 2025 Convertible Notes or their respective affiliates (collectively, the Counterparties). The capped call transactions are expected generally to reduce potential dilution to ATI’s common stock upon any conversion of the 2025 Convertible Notes and/or offset any cash payments ATI is 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.
2022 Convertible Notes

As of March 31, 2021, the Company had $84.2 million of aggregate principal amount of the 2022 Convertible Notes outstanding, which mature on July 1, 2022. Interest on the 2022 Convertible Notes at 4.75% cash coupon rate is payable semi-annually in arrears on each January 1 and July 1. Including amortization of deferred issuance costs, the effective interest rate is 5.4%. Remaining deferred issuance costs were $0.6 million at March 31, 2021.

The Company does not have the right to redeem the 2022 Convertible Notes prior to their stated maturity date. Holders of the 2022 Convertible Notes have the option to convert their notes into shares of the Company’s common stock, at any time prior to the close of business on the business day immediately preceding the stated maturity date (July 1, 2022). The initial conversion rate for the remaining $84.2 million of 2022 Convertible Notes is 69.2042 shares of ATI common stock per $1,000 (in whole dollars) principal amount of Notes (5.8 million shares), equivalent to conversion price of $14.45 per share, subject to adjustment in certain events. Other than receiving cash in lieu of fractional shares, holders do not have the option to receive cash instead of shares of common stock upon conversion. Accrued and unpaid interest that exists upon conversion of a note will be deemed paid by the delivery of shares of ATI common stock and no cash payment or additional shares will be given to the holders.

If the Company undergoes a fundamental change as defined in the agreement, holders of the 2022 Convertible Notes may require the Company to repurchase the notes in whole or in part for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the repurchase date.
Note 8. Derivative Financial Instruments and Hedging
As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges.
The Company sometimes uses futures and swap contracts to manage exposure to changes in prices for forecasted purchases of raw materials, such as nickel, and natural gas. Under these contracts, which are generally accounted for as cash flow hedges, the price of the item being hedged is fixed at the time that the contract is entered into, and the Company is obligated to make or receive a payment equal to the net change between this fixed price and the market price at the date the contract matures.
The majority of ATI’s products are sold utilizing raw material surcharges and index mechanisms. However, as of March 31, 2021, the Company had entered into financial hedging arrangements, primarily at the request of its customers, related to firm orders, for an aggregate notional amount of approximately 6 million pounds of nickel with hedge dates through 2023. The aggregate notional amount hedged is approximately 10% of a single year’s estimated nickel raw material purchase requirements.
At March 31, 2021, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges. At March 31, 2021, the Company hedged approximately 75% of the Company’s forecasted domestic requirements for natural gas for the remainder of 2021 and approximately 25% for 2022.

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While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk, primarily euro. In addition, the Company may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At March 31, 2021, the Company had no significant outstanding foreign currency forward contracts.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. The Company has a $50 million floating-for-fixed interest rate swap which converts a portion of the Term Loan to a 4.21% fixed rate. The swap matures in June 2024. The Company designated the interest rate swap as a cash flow hedge of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The ineffectiveness at hedge inception, determined from the fair value of the swap immediately prior to its July 2019 amendment, was amortized to interest expense over the initial Term Loan swap maturity date of January 12, 2021.
There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts are substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible.
The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterparty or by type of item hedged. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data.
(In millions)
Asset derivatives
Balance sheet locationMarch 31,
2021
December 31,
2020
Derivatives designated as hedging instruments:
Foreign exchange contractsPrepaid expenses and other current assets$0.1 $