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Table of Contents

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 September 30, 2019
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)

Delaware |  | 25-1792394
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)
1000 Six PPG Place |  |
Pittsburgh, | Pennsylvania |  | 15222-5479
(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 class | Trading Symbol | Name of each exchange on which registered
Common stock, par value $0.10 | ATI | New 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 filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller 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 October 18, 2019, the registrant had outstanding 126,085,348 shares of its Common Stock.

Table of Contents
ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
Quarter Ended September 30, 2019
INDEX

| Page No.
PART I. - FINANCIAL INFORMATION |
Item 1. Financial Statements |
Consolidated Balance Sheets | 1
Consolidated Statements of Income | 2
Consolidated Statements of Comprehensive Income | 3
Consolidated Statements of Cash Flows | 4
Statements of Changes in Consolidated Equity | 5
Notes to Consolidated Financial Statements | 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 45
Item 4. Controls and Procedures | 47
PART II. - OTHER INFORMATION |
Item 1. Legal Proceedings | 47
Item 1A. Risk Factors | 48
Item 6. Exhibits | 49
SIGNATURES | 50

Table of Contents
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)

| September 30, 2019 |  | December 31, 2018
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 511.3 |  |  | $ | 382.0 |
Accounts receivable, net | 596.7 |  |  | 527.8 |
Short-term contract assets | 37.8 |  |  | 51.2 |
Inventories, net | 1,168.5 |  |  | 1,211.1 |
Prepaid expenses and other current assets | 108.1 |  |  | 74.6 |
Total Current Assets | 2,422.4 |  |  | 2,246.7 |
Property, plant and equipment, net | 2,407.5 |  |  | 2,475.0 |
Goodwill | 523.8 |  |  | 534.7 |
Other assets | 275.2 |  |  | 245.4 |
Total Assets | $ | 5,628.9 |  |  | $ | 5,501.8 |
LIABILITIES AND EQUITY |  |  |
Current Liabilities: |  |  |
Accounts payable | $ | 415.8 |  |  | $ | 498.8 |
Short-term contract liabilities | 97.1 |  |  | 71.4 |
Short-term debt and current portion of long-term debt | 12.1 |  |  | 6.6 |
Other current liabilities | 238.3 |  |  | 260.1 |
Total Current Liabilities | 763.3 |  |  | 836.9 |
Long-term debt | 1,541.7 |  |  | 1,535.5 |
Accrued postretirement benefits | 301.4 |  |  | 318.4 |
Pension liabilities | 601.9 |  |  | 730.0 |
Deferred income taxes | 15.8 |  |  | 12.9 |
Other long-term liabilities | 124.9 |  |  | 76.5 |
Total Liabilities | 3,349.0 |  |  | 3,510.2 |
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-126,695,171 shares at September 30, 2019 and December 31, 2018; outstanding-126,085,348 shares at September 30, 2019 and 125,684,396 shares at December 31, 2018 | 12.7 |  |  | 12.7 |
Additional paid-in capital | 1,612.1 |  |  | 1,615.4 |
Retained earnings | 1,622.8 |  |  | 1,422.0 |
Treasury stock: 609,823 shares at September 30, 2019 and 1,010,775 shares at December 31, 2018 | (18.2 | ) |  | (30.6 | )
Accumulated other comprehensive loss, net of tax | (1,061.4 | ) |  | (1,133.8 | )
Total ATI stockholders’ equity | 2,168.0 |  |  | 1,885.7 |
Noncontrolling interests | 111.9 |  |  | 105.9 |
Total Equity | 2,279.9 |  |  | 1,991.6 |
Total Liabilities and Equity | $ | 5,628.9 |  |  | $ | 5,501.8 |

The accompanying notes are an integral part of these statements.
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)

| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Sales | $ | 1,018.7 |  |  | $ | 1,020.2 |  |  | $ | 3,103.9 |  |  | $ | 3,008.7 |
Cost of sales | 859.0 |  |  | 859.8 |  |  | 2,635.4 |  |  | 2,526.0 |
Gross profit | 159.7 |  |  | 160.4 |  |  | 468.5 |  |  | 482.7 |
Selling and administrative expenses | 65.2 |  |  | 65.5 |  |  | 200.9 |  |  | 195.3 |
Operating income | 94.5 |  |  | 94.9 |  |  | 267.6 |  |  | 287.4 |
Nonoperating retirement benefit expense | (18.5 | ) |  | (8.4 | ) |  | (55.2 | ) |  | (25.5 | )
Interest expense, net | (24.2 | ) |  | (24.8 | ) |  | (74.9 | ) |  | (75.8 | )
Other income, net | 67.2 |  |  | 0.8 |  |  | 82.9 |  |  | 22.4 |
Income before income taxes | 119.0 |  |  | 62.5 |  |  | 220.4 |  |  | 208.5 |
Income tax provision | 3.7 |  |  | 6.9 |  |  | 10.3 |  |  | 16.8 |
Net income | 115.3 |  |  | 55.6 |  |  | 210.1 |  |  | 191.7 |
Less: Net income attributable to noncontrolling interests | 4.3 |  |  | 5.1 |  |  | 9.0 |  |  | 10.4 |
Net income attributable to ATI | $ | 111.0 |  |  | $ | 50.5 |  |  | $ | 201.1 |  |  | $ | 181.3 |
Basic net income attributable to ATI per common share | $ | 0.88 |  |  | $ | 0.40 |  |  | $ | 1.60 |  |  | $ | 1.45 |
Diluted net income attributable to ATI per common share | $ | 0.78 |  |  | $ | 0.37 |  |  | $ | 1.44 |  |  | $ | 1.31 |

The accompanying notes are an integral part of these statements.
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)

| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Net income | $ | 115.3 |  |  | $ | 55.6 |  |  | $ | 210.1 |  |  | $ | 191.7 |
Currency translation adjustment |  |  |  |  |  |  |
Unrealized net change arising during the period | (16.3 | ) |  | (13.8 | ) |  | (13.8 | ) |  | (16.4 | )
Derivatives |  |  |  |  |  |  |
Net derivatives gain (loss) on hedge transactions | 14.3 |  |  | (10.8 | ) |  | 19.1 |  |  | 2.4 |
Reclassification to net income of net realized (gain) loss | (0.8 | ) |  | (2.6 | ) |  | 0.6 |  |  | (10.3 | )
Income taxes on derivative transactions | — |  |  | — |  |  | — |  |  | — |
Total | 13.5 |  |  | (13.4 | ) |  | 19.7 |  |  | (7.9 | )
Postretirement benefit plans |  |  |  |  |  |  |
Actuarial loss |  |  |  |  |  |  |
Amortization of net actuarial loss | 21.9 |  |  | 19.2 |  |  | 65.4 |  |  | 57.5 |
Prior service cost |  |  |  |  |  |  |
Amortization to net income of net prior service credits | (0.7 | ) |  | (0.7 | ) |  | (1.9 | ) |  | (1.9 | )
Income taxes on postretirement benefit plans | — |  |  | — |  |  | — |  |  | — |
Total | 21.2 |  |  | 18.5 |  |  | 63.5 |  |  | 55.6 |
Other comprehensive income (loss), net of tax | 18.4 |  |  | (8.7 | ) |  | 69.4 |  |  | 31.3 |
Comprehensive income | 133.7 |  |  | 46.9 |  |  | 279.5 |  |  | 223.0 |
Less: Comprehensive income (loss) attributable to noncontrolling interests | (0.3 | ) |  | (3.9 | ) |  | 6.0 |  |  | 5.2 |
Comprehensive income attributable to ATI | $ | 134.0 |  |  | $ | 50.8 |  |  | $ | 273.5 |  |  | $ | 217.8 |

The accompanying notes are an integral part of these statements.
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Allegheny Technologies Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

| Nine months ended September 30,
| 2019 |  | 2018
Operating Activities: |  |  |
Net income | $ | 210.1 |  |  | $ | 191.7 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |  |
Depreciation and amortization | 114.6 |  |  | 117.1 |
Deferred taxes | 4.1 |  |  | 2.8 |
Gain on joint venture deconsolidation | — |  |  | (15.9 | )
Gains from disposal of property, plant and equipment, net | (90.6 | ) |  | (0.5 | )
Net loss from sales of businesses | 1.8 |  |  | — |
Changes in operating assets and liabilities: |  |  |
Inventories | 12.2 |  |  | (137.2 | )
Accounts receivable | (92.5 | ) |  | (43.0 | )
Accounts payable | (75.2 | ) |  | 71.0 |
Retirement benefits | (86.0 | ) |  | (10.1 | )
Accrued income taxes | 4.2 |  |  | 4.7 |
Accrued liabilities and other | (12.7 | ) |  | (64.0 | )
Cash (used in) provided by operating activities | (10.0 | ) |  | 116.6 |
Investing Activities: |  |  |
Purchases of property, plant and equipment | (98.1 | ) |  | (101.3 | )
Purchase of businesses | — |  |  | (10.0 | )
Proceeds from sales of businesses, net of transaction costs | 155.9 |  |  | — |
Proceeds from disposal of property, plant and equipment | 91.8 |  |  | 1.4 |
Other | (0.2 | ) |  | 0.8 |
Cash provided by (used in) investing activities | 149.4 |  |  | (109.1 | )
Financing Activities: |  |  |
Borrowings on long-term debt | — |  |  | 7.1 |
Payments on long-term debt and finance leases | (5.3 | ) |  | (4.6 | )
Net borrowings under credit facilities | 5.1 |  |  | 4.0 |
Dividends to noncontrolling interests | — |  |  | (10.0 | )
Sales to noncontrolling interests | — |  |  | 14.4 |
Shares repurchased for income tax withholding on share-based compensation and other | (9.9 | ) |  | (6.5 | )
Cash (used in) provided by financing activities | (10.1 | ) |  | 4.4 |
Increase in cash and cash equivalents | 129.3 |  |  | 11.9 |
Cash and cash equivalents at beginning of period | 382.0 |  |  | 141.6 |
Cash and cash equivalents at end of period | $ | 511.3 |  |  | $ | 153.5 |

The accompanying notes are an integral part of these statements.
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Allegheny Technologies Incorporated and Subsidiaries
Statements of Changes in Consolidated Equity
(In millions, except per share amounts)
(Unaudited)

| ATI Stockholders |  |  |  |
| Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Treasury Stock |  | Accumulated Other Comprehensive Income (Loss) |  | Non- controlling Interests |  | Total Equity
Balance, June 30, 2018 | $ | 12.7 |  |  | $ | 1,604.1 |  |  | $ | 1,330.4 |  |  | $ | (30.6 | ) |  | $ | (991.6 | ) |  | $ | 116.9 |  |  | $ | 2,041.9 |
Net income | — |  |  | — |  |  | 50.5 |  |  | — |  |  | — |  |  | 5.1 |  |  | 55.6 |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | 0.3 |  |  | (9.0 | ) |  | (8.7 | )
Dividends to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10.0 | ) |  | (10.0 | )
Employee stock plans | — |  |  | 4.4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4.4 |
Balance, September 30, 2018 | $ | 12.7 |  |  | $ | 1,608.5 |  |  | $ | 1,380.9 |  |  | $ | (30.6 | ) |  | $ | (991.3 | ) |  | $ | 103.0 |  |  | $ | 2,083.2 |
Balance, June 30, 2019 | $ | 12.7 |  |  | $ | 1,604.6 |  |  | $ | 1,511.8 |  |  | $ | (18.3 | ) |  | $ | (1,084.4 | ) |  | $ | 112.2 |  |  | $ | 2,138.6 |
Net income | — |  |  | — |  |  | 111.0 |  |  | — |  |  | — |  |  | 4.3 |  |  | 115.3 |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | 23.0 |  |  | (4.6 | ) |  | 18.4 |
Employee stock plans | — |  |  | 7.5 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 7.6 |
Balance, September 30, 2019 | $ | 12.7 |  |  | $ | 1,612.1 |  |  | $ | 1,622.8 |  |  | $ | (18.2 | ) |  | $ | (1,061.4 | ) |  | $ | 111.9 |  |  | $ | 2,279.9 |

| 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, 2017 | $ | 12.7 |  |  | $ | 1,596.3 |  |  | $ | 1,184.3 |  |  | $ | (26.1 | ) |  | $ | (1,027.8 | ) |  | $ | 105.1 |  |  | $ | 1,844.5 |
Net income | — |  |  | — |  |  | 181.3 |  |  | — |  |  | — |  |  | 10.4 |  |  | 191.7 |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | 36.5 |  |  | (5.2 | ) |  | 31.3 |
Cumulative effect of adoption of new accounting standard | — |  |  | — |  |  | 15.5 |  |  | — |  |  | — |  |  | — |  |  | 15.5 |
Dividends to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10.0 | ) |  | (10.0 | )
Sales of subsidiary shares to noncontrolling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
Employee stock plans | — |  |  | 12.2 |  |  | (0.2 | ) |  | (4.5 | ) |  | — |  |  | — |  |  | 7.5 |
Balance, September 30, 2018 | $ | 12.7 |  |  | $ | 1,608.5 |  |  | $ | 1,380.9 |  |  | $ | (30.6 | ) |  | $ | (991.3 | ) |  | $ | 103.0 |  |  | $ | 2,083.2 |
Balance, December 31, 2018 | $ | 12.7 |  |  | $ | 1,615.4 |  |  | $ | 1,422.0 |  |  | $ | (30.6 | ) |  | $ | (1,133.8 | ) |  | $ | 105.9 |  |  | $ | 1,991.6 |
Net income | — |  |  | — |  |  | 201.1 |  |  | — |  |  | — |  |  | 9.0 |  |  | 210.1 |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | 72.4 |  |  | (3.0 | ) |  | 69.4 |
Employee stock plans | — |  |  | (3.3 | ) |  | (0.3 | ) |  | 12.4 |  |  | — |  |  | — |  |  | 8.8 |
Balance, September 30, 2019 | $ | 12.7 |  |  | $ | 1,612.1 |  |  | $ | 1,622.8 |  |  | $ | (18.2 | ) |  | $ | (1,061.4 | ) |  | $ | 111.9 |  |  | $ | 2,279.9 |

The accompanying notes are an integral part of these statements.
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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. Certain prior year amounts have been reclassified in order to conform with fiscal year 2019 presentation. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2018 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, 2018 financial information has been derived from the Company’s audited consolidated financial statements.
New Accounting Pronouncements Adopted
In January 2019, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) related to leases. See Note 9 for further explanation related to this adoption, including all newly expanded disclosure requirements.
Pending Accounting Pronouncements
In August 2018, the FASB issued new disclosure guidance on fair value measurement. This new guidance modifies the disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be applied prospectively while others must be applied retrospectively. This guidance is required to be adopted by the Company beginning in fiscal year 2020 with early adoption permitted. The Company does not plan to early adopt this guidance. The adoption of these changes is not expected to have an impact on the Company’s consolidated financial statements other than disclosures.
In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to trade receivables, other receivables, and most debt instruments. The CECL model does not have a minimum threshold for recognition of impairment losses, and entities will need to measure expected credit losses on assets that have a low risk of loss. This guidance is required to be adopted by the Company beginning in fiscal year 2020. Management is currently evaluating the potential impact of these changes on the Company’s consolidated financial statements and does not expect these changes to have a significant impact on the Company’s consolidated financial statements.
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Note 2. Revenue from Contracts with Customers
Disaggregation of Revenue
The Company operates in two business segments: High Performance Materials & Components (HPMC) and Flat Rolled Products (FRP). 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 third quarters and nine months ended September 30, 2019 and 2018 were as follows:

(in millions) |  | Third quarter ended
|  | September 30, 2019 |  | September 30, 2018
|  | HPMC | FRP | Total |  | HPMC | FRP | Total
Diversified Global Markets: |  |  |  |  |  |  |  |
Aerospace & Defense |  | $ | 437.9 |  | $ | 65.6 |  | $ | 503.5 |  |  | $ | 446.5 |  | $ | 52.7 |  | $ | 499.2 |
Oil & Gas |  | 13.9 |  | 133.4 |  | 147.3 |  |  | 17.9 |  | 110.3 |  | 128.2 |
Automotive |  | 2.3 |  | 71.3 |  | 73.6 |  |  | 2.0 |  | 83.0 |  | 85.0 |
Energy |  | 36.5 |  | 33.4 |  | 69.9 |  |  | 30.9 |  | 29.0 |  | 59.9 |
Food Equipment & Appliances |  | 0.2 |  | 53.4 |  | 53.6 |  |  | 0.2 |  | 58.6 |  | 58.8 |
Electronics/Computers/Communications |  | 1.7 |  | 42.8 |  | 44.5 |  |  | 1.0 |  | 40.3 |  | 41.3 |
Construction/Mining |  | 5.4 |  | 38.3 |  | 43.7 |  |  | 18.5 |  | 39.9 |  | 58.4 |
Medical |  | 37.7 |  | 3.3 |  | 41.0 |  |  | 44.3 |  | 3.6 |  | 47.9 |
Other |  | 16.1 |  | 25.5 |  | 41.6 |  |  | 24.2 |  | 17.3 |  | 41.5 |
Total |  | $ | 551.7 |  | $ | 467.0 |  | $ | 1,018.7 |  |  | $ | 585.5 |  | $ | 434.7 |  | $ | 1,020.2 |

(in millions) |  | Nine months ended
|  | September 30, 2019 |  | September 30, 2018
|  | HPMC | FRP | Total |  | HPMC | FRP | Total
Diversified Global Markets: |  |  |  |  |  |  |  |
Aerospace & Defense |  | $ | 1,415.3 |  | $ | 186.0 |  | $ | 1,601.3 |  |  | $ | 1,311.7 |  | $ | 131.9 |  | $ | 1,443.6 |
Oil & Gas |  | 49.0 |  | 347.1 |  | 396.1 |  |  | 51.4 |  | 362.1 |  | 413.5 |
Automotive |  | 9.0 |  | 215.1 |  | 224.1 |  |  | 7.4 |  | 237.1 |  | 244.5 |
Energy |  | 97.9 |  | 105.1 |  | 203.0 |  |  | 101.9 |  | 78.4 |  | 180.3 |
Food Equipment & Appliances |  | 0.3 |  | 156.1 |  | 156.4 |  |  | 0.3 |  | 181.0 |  | 181.3 |
Construction/Mining |  | 37.3 |  | 116.9 |  | 154.2 |  |  | 55.1 |  | 114.8 |  | 169.9 |
Medical |  | 119.0 |  | 10.5 |  | 129.5 |  |  | 131.5 |  | 11.3 |  | 142.8 |
Electronics/Computers/Communications |  | 4.0 |  | 112.7 |  | 116.7 |  |  | 4.7 |  | 105.0 |  | 109.7 |
Other |  | 63.5 |  | 59.1 |  | 122.6 |  |  | 74.1 |  | 49.0 |  | 123.1 |
Total |  | $ | 1,795.3 |  | $ | 1,308.6 |  | $ | 3,103.9 |  |  | $ | 1,738.1 |  | $ | 1,270.6 |  | $ | 3,008.7 |

(in millions) |  | Third quarter ended
|  | September 30, 2019 |  | September 30, 2018
|  | HPMC | FRP | Total |  | HPMC | FRP | Total
Primary Geographical Market: |  |  |  |  |  |  |  |
United States |  | $ | 312.0 |  | $ | 293.4 |  | $ | 605.4 |  |  | $ | 316.7 |  | $ | 290.9 |  | $ | 607.6 |
Europe |  | 150.3 |  | 36.0 |  | 186.3 |  |  | 173.2 |  | 40.5 |  | 213.7 |
Asia |  | 48.4 |  | 116.1 |  | 164.5 |  |  | 60.9 |  | 84.0 |  | 144.9 |
Canada |  | 21.2 |  | 4.4 |  | 25.6 |  |  | 16.3 |  | 7.5 |  | 23.8 |
South America, Middle East and other |  | 19.8 |  | 17.1 |  | 36.9 |  |  | 18.4 |  | 11.8 |  | 30.2 |
Total |  | $ | 551.7 |  | $ | 467.0 |  | $ | 1,018.7 |  |  | $ | 585.5 |  | $ | 434.7 |  | $ | 1,020.2 |

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(in millions) |  | Nine months ended
|  | September 30, 2019 |  | September 30, 2018
|  | HPMC | FRP | Total |  | HPMC | FRP | Total
Primary Geographical Market: |  |  |  |  |  |  |  |
United States |  | $ | 1,005.6 |  | $ | 861.4 |  | $ | 1,867.0 |  |  | $ | 898.6 |  | $ | 839.1 |  | $ | 1,737.7 |
Europe |  | 509.7 |  | 94.8 |  | 604.5 |  |  | 565.4 |  | 104.3 |  | 669.7 |
Asia |  | 161.7 |  | 297.9 |  | 459.6 |  |  | 180.7 |  | 258.7 |  | 439.4 |
Canada |  | 64.8 |  | 16.6 |  | 81.4 |  |  | 51.3 |  | 29.0 |  | 80.3 |
South America, Middle East and other |  | 53.5 |  | 37.9 |  | 91.4 |  |  | 42.1 |  | 39.5 |  | 81.6 |
Total |  | $ | 1,795.3 |  | $ | 1,308.6 |  | $ | 3,103.9 |  |  | $ | 1,738.1 |  | $ | 1,270.6 |  | $ | 3,008.7 |

Comparative information of the Company’s major high-value and standard products based on their percentages of sales is included in the following table. FRP conversion services are excluded from this presentation.

|  | Third quarter ended
|  | September 30, 2019 |  | September 30, 2018
|  | HPMC | FRP | Total |  | HPMC | FRP | Total
Diversified Products and Services: |  |  |  |  |  |  |  |
High-Value Products |  |  |  |  |  |  |  |
Nickel-based alloys and specialty alloys |  | 33 | % | 34 | % | 33 | % |  | 32 | % | 29 | % | 30 | %
Titanium and titanium-based alloys |  | 29 | % | 7 | % | 19 | % |  | 25 | % | 3 | % | 16 | %
Precision forgings, castings and components |  | 29 | % | — | % | 16 | % |  | 33 | % | — | % | 18 | %
Precision and engineered strip |  | — | % | 30 | % | 14 | % |  | — | % | 34 | % | 15 | %
Zirconium and related alloys |  | 9 | % | — | % | 5 | % |  | 10 | % | — | % | 6 | %
Total High-Value Products |  | 100 | % | 71 | % | 87 | % |  | 100 | % | 66 | % | 85 | %
Standard Products |  |  |  |  |  |  |  |
Standard stainless products |  | — | % | 29 | % | 13 | % |  | — | % | 34 | % | 15 | %
Total |  | 100 | % | 100 | % | 100 | % |  | 100 | % | 100 | % | 100 | %

|  | Nine months ended
|  | September 30, 2019 |  | September 30, 2018
|  | HPMC | FRP | Total |  | HPMC | FRP | Total
Diversified Products and Services: |  |  |  |  |  |  |  |
High-Value Products |  |  |  |  |  |  |  |
Nickel-based alloys and specialty alloys |  | 31 | % | 33 | % | 32 | % |  | 31 | % | 29 | % | 30 | %
Titanium and titanium-based alloys |  | 28 | % | 6 | % | 18 | % |  | 24 | % | 5 | % | 16 | %
Precision forgings, castings and components |  | 31 | % | — | % | 18 | % |  | 35 | % | — | % | 20 | %
Precision and engineered strip |  | — | % | 31 | % | 13 | % |  | — | % | 32 | % | 14 | %
Zirconium and related alloys |  | 10 | % | — | % | 6 | % |  | 10 | % | — | % | 5 | %
Total High-Value Products |  | 100 | % | 70 | % | 87 | % |  | 100 | % | 66 | % | 85 | %
Standard Products |  |  |  |  |  |  |  |
Standard stainless products |  | — | % | 30 | % | 13 | % |  | — | % | 34 | % | 15 | %
Total |  | 100 | % | 100 | % | 100 | % |  | 100 | % | 100 | % | 100 | %

The Company maintains a backlog of confirmed orders totaling $2.34 billion and $2.17 billion at September 30, 2019 and 2018, respectively. Due to the structure of the Company’s long-term agreements, approximately 75% of this backlog at September 30, 2019 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.
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Contract balances
As of September 30, 2019 and December 31, 2018, accounts receivable with customers were $601.7 million and $533.8 million, respectively. The following represents the rollforward of accounts receivable - reserve for doubtful accounts and contract assets and liabilities for the nine months ended September 30, 2019 and 2018:

(in millions) |  |
Accounts Receivable - Reserve for Doubtful Accounts | September 30, 2019 | September 30, 2018
Balance as of beginning of fiscal year | $ | 6.0 |  | $ | 5.9 |
Expense to increase the reserve | 0.3 |  | 0.7 |
Write-off of uncollectible accounts | (1.3 | ) | (0.4 | )
Balance as of period end | $ | 5.0 |  | $ | 6.2 |

(in millions) |  |
Contract Assets |  |
Short-term | September 30, 2019 | September 30, 2018
Balance as of beginning of fiscal year | $ | 51.2 |  | $ | 36.5 |
Recognized in current year | 57.0 |  | 66.2 |
Reclassified to accounts receivable | (63.1 | ) | (67.9 | )
Impairment | — |  | — |
Reclassification to/from long-term | — |  | 16.8 |
Divestiture | (7.3 | ) | — |
Balance as of period end | $ | 37.8 |  | $ | 51.6 |
Long-term | September 30, 2019 | September 30, 2018
Balance as of beginning of fiscal year | $ | 0.1 |  | $ | 16.9 |
Recognized in current year | — |  | — |
Reclassified to accounts receivable | — |  | — |
Impairment | — |  | — |
Reclassification to/from short-term | — |  | (16.8 | )
Balance as of period end | $ | 0.1 |  | $ | 0.1 |

(in millions) |
Contract Liabilities |  |
Short-term | September 30, 2019 | September 30, 2018
Balance as of beginning of fiscal year | $ | 71.4 |  | $ | 69.7 |
Recognized in current year | 104.2 |  | 46.9 |
Amounts in beginning balance reclassified to revenue | (43.9 | ) | (40.1 | )
Current year amounts reclassified to revenue | (34.8 | ) | (23.6 | )
Other | 0.2 |  | 1.7 |
Reclassification to/from long-term | — |  | 14.6 |
Balance as of period end | $ | 97.1 |  | $ | 69.2 |
Long-term | September 30, 2019 | September 30, 2018
Balance as of beginning of fiscal year | $ | 7.3 |  | $ | 22.2 |
Recognized in current year | 0.8 |  | 0.5 |
Amounts in beginning balance reclassified to revenue | (0.8 | ) | (0.8 | )
Current year amounts reclassified to revenue | — |  | — |
Other | — |  | — |
Reclassification to/from short-term | — |  | (14.6 | )
Balance as of period end | $ | 7.3 |  | $ | 7.3 |

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Contract costs for obtaining and fulfilling a contract were $5.1 million and $5.2 million as of September 30, 2019 and December 31, 2018, respectively, and are reported in other long-term assets on the consolidated balance sheet. Amortization expense for the the three and nine months ended September 30, 2019 of these contract costs was $0.4 million and $1.0 million, respectively. Amortization expense for the three and nine months ended September 30, 2018 of these contract costs was $0.3 million and $0.9 million, respectively.
Note 3. Inventories
Inventories at September 30, 2019 and December 31, 2018 were as follows (in millions):

| September 30, 2019 |  | December 31, 2018
Raw materials and supplies | $ | 199.6 |  |  | $ | 191.5 |
Work-in-process | 863.5 |  |  | 914.1 |
Finished goods | 180.9 |  |  | 191.1 |
Total inventories at current cost | 1,244.0 |  |  | 1,296.7 |
Adjustment from current cost to LIFO cost basis | 6.7 |  |  | 2.9 |
Inventory valuation reserves | (82.2 | ) |  | (88.5 | )
Total inventories, net | $ | 1,168.5 |  |  | $ | 1,211.1 |

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 NRV inventory valuation reserves to adjust carrying value of LIFO inventory to current replacement cost. These NRV reserves were $6.7 million at September 30, 2019 and $8.0 million at December 31, 2018. Impacts to cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as follows (in millions):

|  | Nine months ended September 30,
|  | 2019 |  | 2018
LIFO benefit (charge) |  | $ | (1.4 | ) |  | $ | (29.5 | )
NRV benefit (charge) |  | 1.3 |  |  | 29.5 |
Net cost of sales impact |  | $ | (0.1 | ) |  | $ | — |

ATI’s overall LIFO inventory valuation reserves also increased above replacement cost by $5.2 million at September 30, 2019 compared to December 31, 2018 due to the second quarter 2019 sale of the industrial forgings business, which used the LIFO costing methodology and maintained a LIFO valuation below current replacement cost.
Note 4. Property, Plant and Equipment
Property, plant and equipment at September 30, 2019 and December 31, 2018 was as follows (in millions):

| September 30, 2019 |  | December 31, 2018
Land | $ | 34.4 |  |  | $ | 31.5 |
Buildings | 821.3 |  |  | 851.7 |
Equipment and leasehold improvements | 3,612.1 |  |  | 3,622.7 |
| 4,467.8 |  |  | 4,505.9 |
Accumulated depreciation and amortization | (2,060.3 | ) |  | (2,030.9 | )
Total property, plant and equipment, net | $ | 2,407.5 |  |  | $ | 2,475.0 |

The construction in progress portion of property, plant and equipment at September 30, 2019 was $123.9 million.
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Note 5. Divestitures
On June 3, 2019, the Company completed the sale of two non-core forging facilities for $37 million. Located in Portland, IN and Lebanon, KY, these operations primarily use traditional forging methods to produce carbon steel forged products for use in the oil & gas, transportation and construction & mining industries. The Company received cash proceeds, net of transaction costs and net working capital adjustments, of $33.0 million on the sale of this business during the nine months ended September 30, 2019, which is reported as an investing activity on the consolidated statement of cash flows. With $10.4 million of goodwill allocated to these operations from ATI’s Forged Products reporting unit, the Company recognized an $8.1 million pre-tax loss in the nine months ended September 30, 2019, $7.7 million in the second quarter of 2019 and an additional $0.4 million in the third quarter of 2019 for the final working capital adjustment, which is recorded in other income, net, on the consolidated statement of income and is excluded from HPMC segment results. This business is reported as part of the HPMC segment through the date of sale. Sales from these two forging facilities in the 2018 fiscal year were $86 million in the aggregate.
On July 22, 2019, the Company completed the sale of its Cast Products business, which produces titanium investment castings that are primarily used by aerospace & defense OEMs in the production of commercial jet airframes and engines. As part of the $127 million transaction, ATI retained a small post-casting machining facility in Salem, OR and continues to provide these services to the buyer and others. The Company received cash proceeds, net of transaction costs and net working capital adjustments, of $122.9 million on the sale of this business during the nine months ended September 30, 2019, which is reported as an investing activity on the consolidated statement of cash flows. The Company recognized a $6.2 million gain in the third quarter ended September 30, 2019, which included a $10.2 million impairment charge on the carrying value of long-lived assets of the retained Salem operation ($4.5 million for property, plant and equipment, $1.4 million for operating lease right of use assets, $1.0 million for finance lease right of use assets, and $3.3 million of finite-lived intangible assets). This long-lived asset impairment charge was based on an analysis of the estimated fair values, including asset appraisals using market approaches, which represent Level 3 unobservable information in the fair value hierarchy. This gain on the sale of the Cast Products business is recorded in other income, net, on the consolidated statement of income and is excluded from HPMC segment results. This business is reported as part of the HPMC segment through the date of sale. Cast Products’ sales were $105 million in fiscal year 2018.
Note 6. Joint Ventures
The financial results of majority-owned joint ventures are consolidated into the Company’s operating results and financial position, with the minority ownership interest recognized in the consolidated statement of income as net income attributable to noncontrolling interests, and as equity attributable to the noncontrolling interests within total stockholders’ equity. Investments in which the Company exercises significant influence, but which it does not control (generally a 20% to 50% ownership interest), are accounted for under the equity method of accounting.
Majority-Owned Joint Ventures
The Company has a 60% interest in the Chinese joint venture known as Shanghai STAL Precision Stainless Steel Company Limited (STAL). The remaining 40% interest in STAL is owned by China Baowu Steel Group Corporation Limited, a state authorized investment company whose equity securities are publicly traded in the People’s Republic of China. STAL is part of ATI’s FRP segment, and manufactures Precision Rolled Strip stainless products mainly for the electronics, communication equipment, computer and automotive markets located in Asia. Cash and cash equivalents held by STAL as of September 30, 2019 were $47.4 million.
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 September 30, 2019 were $6.1 million. During the first quarter 2018, the Company received $2.7 million for the sale of noncontrolling interest related to Next Gen Alloys LLC, which is reported as a financing activity on the consolidated statements of cash flows.
Equity Method Joint Ventures
On March 1, 2018, the Company announced the formation of the Allegheny & Tsingshan Stainless (A&T Stainless) 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 a 50% joint venture interest in A&T Stainless for $17.5 million, of which $12.0 million was received in the first nine months of 2018 and reported as a financing activity on the consolidated statements of cash flows. The A&T Stainless operations include the Company’s previously-idled direct roll and pickle (DRAP) facility in Midland, PA.
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ATI provides hot-rolling conversion services to A&T Stainless using the FRP segment’s Hot-Rolling and Processing Facility. As a result of this sale of a 50% noncontrolling interest and the subsequent deconsolidation of the A&T Stainless entity, the Company recognized a $15.9 million gain during the first quarter of 2018 under deconsolidation and derecognition accounting guidance covering the loss of control of a subsidiary determined to be a business. The gain, including ATI’s retained 50% share, was based on the fair value of the joint venture, as determined by the cash purchase price for the noncontrolling interest, and is reported in other income, net on the consolidated statement of income, and is excluded from FRP segment results. Following this deconsolidation, ATI accounts for the A&T Stainless joint venture under the equity method of accounting.
ATI’s share of A&T Stainless results were losses of $2.6 million and $9.9 million for the three and nine months ended September 30, 2019, respectively, and income/(loss) of $(0.3) million and $0.2 million for the three and nine months ended September 30, 2018, respectively, which is included in the FRP segment’s operating results, and within other income, net, on the consolidated statements of income. 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. The A&T Stainless JV filed a new request for exclusion in October 2019, but will continue to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia pending the outcome of this new request. Results of A&T Stainless have been and will continue to be negatively impacted by these tariffs on imported stainless slab products.
As of September 30, 2019, working capital advances to A&T Stainless were $36.7 million and are reported in prepaid expenses and other current assets on the consolidated balance sheet. ATI’s equity method investment in A&T Stainless at September 30, 2019 was $1.2 million and is reported as part of other long-term assets on the consolidated balance sheet. These balances were evaluated for impairment, as the tariff exclusion denial represents a potential impairment indicator. No impairment exists at this time. The joint venture partners continue to evaluate longer-term solutions to return this strategic initiative to profitability.
ATI has a 50% interest in the industrial titanium joint venture known as Uniti LLC (Uniti), with the remaining 50% interest held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. Uniti is accounted for under the equity method of accounting. ATI’s share of Uniti’s income was $0.2 million and $1.2 million for the three and nine months ended September 30, 2019, respectively, and $0.5 million and $2.3 million for the three and nine months ended September 30. 2018, respectively, which is included in the FRP segment’s operating results, and within other income, net on the consolidated statements of income.
Note 7. Supplemental Financial Statement Information
Other income, net for the three and nine months ended September 30, 2019 and 2018 was as follows:

(in millions) | Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Rent and royalty income | $ | 1.4 |  |  | $ | 0.6 |  |  | $ | 2.8 |  |  | $ | 2.3 |
Gains from disposal of property, plant and equipment, net | 62.3 |  |  | 0.1 |  |  | 90.6 |  |  | 0.5 |
Net equity (loss) gain on joint ventures (See Note 6) | (2.4 | ) |  | 0.2 |  |  | (8.7 | ) |  | 2.5 |
Net gain (loss) from sales of businesses (See Note 5) | 5.8 |  |  | — |  |  | (1.9 | ) |  | — |
Gain on joint venture deconsolidation (See Note 6) | — |  |  | — |  |  | — |  |  | 15.9 |
Other | 0.1 |  |  | (0.1 | ) |  | 0.1 |  |  | 1.2 |
Total other income, net | $ | 67.2 |  |  | $ | 0.8 |  |  | $ | 82.9 |  |  | $ | 22.4 |

Gains from disposal of property, plant and equipment, net for the three and nine months ended September 30, 2019 include a $62.4 million and $91.7 million gain on the sale of certain oil and gas rights in Eddy County, NM, respectively. This cash gain is reported as an investing activity on the consolidated statement of cash flows for the nine months ended September 30, 2019 and is excluded from segment operating results. These oil and gas rights were initially acquired by the Company in 1972 along with land purchased by Teledyne, Inc., which later became part of ATI. The land was subsequently sold, with the Company retaining its underlying oil and gas rights.
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Note 8. Debt
Debt at September 30, 2019 and December 31, 2018 was as follows (in millions):

| September 30, 2019 |  | December 31, 2018
Allegheny Technologies 5.875% Notes due 2023 (a) | $ | 500.0 |  |  | $ | 500.0 |
Allegheny Technologies 5.95% Notes due 2021 | 500.0 |  |  | 500.0 |
Allegheny Technologies 4.75% Convertible Senior Notes due 2022 | 287.5 |  |  | 287.5 |
Allegheny Ludlum 6.95% Debentures due 2025 | 150.0 |  |  | 150.0 |
Term Loan due 2024 | 100.0 |  |  | 100.0 |
U.S. revolving credit facility | — |  |  | — |
Foreign credit facilities | 5.1 |  |  | — |
Other | 19.5 |  |  | 15.0 |
Debt issuance costs | (8.3 | ) |  | (10.4 | )
Total debt | 1,553.8 |  |  | 1,542.1 |
Short-term debt and current portion of long-term debt | 12.1 |  |  | 6.6 |
Total long-term debt | $ | 1,541.7 |  |  | $ | 1,535.5 |

(a) Bearing interest at 7.875% effective February 15, 2016.
Revolving Credit Facility
On September 30, 2019, the Company amended and restated its Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s domestic operations. This amendment and restatement extends the ABL facility through September 30, 2024 and includes an increase of $100 million in the revolving credit facility to $500 million, a letter of credit sub-facility of up to $200 million, and a $100 million term loan (Term Loan). Additionally, the amendment and restatement gives the Company the ability, through June 30, 2020 and as long as no default or event of default has occurred and is continuing, to borrow an additional term loan of up to $100 million in total, using one or two draws (the Delayed-Draw Term Loan). The Company also 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 Term Loan has an amended 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 July 2019, the Company amended its $50 million floating-for-fixed interest rate swap which converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment and restatement) with a June 2024 maturity.
As amended and restated, 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) 12.5% of the then applicable maximum borrowing amount under the revolving credit portion of the ABL and any outstanding Term Loan balance, or (ii) $62.5 million. The Company was in compliance with the fixed charge coverage ratio covenant at September 30, 2019. 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 each of the 5.95% Senior Notes due 2021, 4.75% Convertible Notes due 2022 and 5.875% Notes due 2023.
As of September 30, 2019, there were no outstanding borrowings under the revolving portion of the ABL facility, and $35.3 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 nine months of 2019, and for the first nine months of 2018, average borrowings were $56 million bearing an average annual interest rate of 3.651%.
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Note 9. Leases
On January 1, 2019 the Company adopted Accounting Standards Codification Topic 842 (ASC 842), Leases. This new guidance requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right of use (ROU) asset and a lease liability. 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 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; however, the Company currently has not included the renewal options for these leases in the ROU asset and lease liability because the likelihood of renewal was not determined to be reasonably certain. The Company will reassess 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. The criteria used for a lease to be classified as a finance lease is generally consistent with the criteria under the previous lease accounting guidance, ASC 840, for capital leases. 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 income. Finance leases have front-loaded expense recognition which is reported as amortization expense and interest expense on the consolidated statement of income. 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.
Adoption Method and Impact
The Company applied ASC 842 to all leases in effect at January 1, 2019 and adopted the accounting standard using the alternative transition method, which does not require the restatement of prior years. Comparative information has not been adjusted and continues to be reported under the previous accounting guidance. The Company has elected the package of practical expedients, which allows entities to not reassess (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company has also elected the practical expedient to not separate lease components from non-lease components for all asset classes, and did not elect the hindsight practical expedient to determine the lease term. The Company 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. On January 1, 2019, the Company recognized $51.7 million of ROU assets and $55.6 million of lease liabilities ($12.5 million short-term and $43.1 million long-term) on the consolidated balance sheet for operating leases, with the difference due to deferred rent balances as of December 31, 2018 that reduced the ROU asset balance on January 1, 2019. The adoption did not have a material impact on the Company’s results of operations or cash flows, and had no impact to the net deferred tax position on the consolidated balance sheet due to the Company’s income tax valuation allowances for federal and state purposes (see Note 13).
The Company has entered into finance lease contracts with lenders for progress payments on machinery and equipment that is being constructed at the request and specification of the Company. As of September 30, 2019, the lenders had made $1.7 million of progress payments on behalf of the Company, and $9.5 million of progress payments are scheduled to be paid. Upon payment of the final progress payments by the lenders, finance leases will commence, and $11.2 million, discounted using the applicable discount rates at lease inceptions, of ROU assets and lease liabilities will be recognized by the Company.
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The following represents the components of lease cost and other information for both operating and financing leases for the three and nine months ending September 30, 2019:

($ in millions) |  | Three months ended | Nine months ended
|  | September 30, 2019 | September 30, 2019
Lease Cost |  |  |
Finance Lease Cost: |  |  |
Amortization of right of use asset |  | $ | 0.5 |  | $ | 1.0 |
Interest on lease liabilities |  | 0.1 |  | 0.3 |
Operating lease cost |  | 5.0 |  | 15.4 |
Short-term lease cost |  | 0.7 |  | 2.4 |
Variable lease cost |  | 0.2 |  | 0.6 |
Sublease income |  | — |  | — |
Total lease cost |  | $ | 6.5 |  | $ | 19.7 |
Other information |  |  |
Cash paid for amounts included in the measurement of lease liabilities |  |  |
Operating cash flows from finance leases |  | $ | 0.1 |  | $ | 0.3 |
Operating cash flows from operating leases |  | $ | 5.0 |  | $ | 15.4 |
Financing cash flows from finance leases |  | $ | 0.7 |  | $ | 1.5 |
Right of use assets obtained in exchange for new finance lease liabilities |  | $ | 6.7 |  | $ | 12.6 |
Right of use assets obtained in exchange for new operating lease liabilities |  | $ | 2.8 |  | $ | 20.3 |
Weighted average remaining lease term - finance leases |  |  | 4 years |
Weighted average remaining lease term - operating leases |  |  | 5 years |
Weighted average discount rate - finance leases |  |  | 5.3 | %
Weighted average discount rate - operating leases |  |  | 7.1 | %

The following table reconciles future minimum undiscounted rental commitments for operating leases to the operating lease liabilities recorded on the consolidated balance sheet as of September 30, 2019 (in millions):

|  | September 30, 2019
Remainder of 2019 |  | $ | 5.1 |
2020 |  | 18.5 |
2021 |  | 16.9 |
2022 |  | 13.2 |
2023 |  | 9.0 |
2024 and thereafter |  | 18.9 |
Total undiscounted lease payments |  | $ | 81.6 |
Present value adjustment |  | (15.3 | )
Operating lease liabilities |  | $ | 66.3 |

The following table reconciles future minimum undiscounted rental commitments for finance leases to the finance lease liabilities recorded on the consolidated balance sheet as of September 30, 2019 (in millions):

|  | September 30, 2019
Remainder of 2019 |  | $ | 1.0 |
2020 |  | 4.1 |
2021 |  | 3.9 |
2022 |  | 3.5 |
2023 |  | 2.4 |
2024 and thereafter |  | 0.5 |
Total undiscounted lease payments |  | $ | 15.4 |
Present value adjustment |  | (1.6 | )
Finance lease liabilities |  | $ | 13.8 |

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Note 10. Derivative Financial Instruments and Hedging
As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges.
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 September 30, 2019, 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 9 million pounds of nickel with hedge dates through 2023. The aggregate notional amount hedged is approximately 9% of a single year’s estimated nickel raw material purchase requirements.
At September 30, 2019, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges. At September 30, 2019, the Company hedged approximately 70% of the Company’s forecasted domestic requirements for natural gas for the remainder of 2019, approximately 70% for 2020, and approximately 50% for 2021.
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 designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At September 30, 2019, the Company held euro forward sales contracts designated as cash flow hedges with a notional value of approximately 12 million euro with maturity dates through December 2019.
The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. In July 2019, the Company amended its $50 million floating-for-fixed interest rate swap which converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment and restatement), with a June 2024 maturity. The Company redesignated the existing 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 amendment, will be 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.
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(In millions) Asset derivatives |  | Balance sheet location |  | September 30, 2019 |  | December 31, 2018
Derivatives designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | $ | 0.7 |  |  | $ | — |
Natural gas contacts |  | Prepaid expenses and other current assets |  | — |  |  | 0.8 |
Nickel and other raw material contracts |  | Prepaid expenses and other current assets |  | 13.1 |  |  | 1.2 |
Natural gas contracts |  | Other assets |  | 0.1 |  |  | 0.2 |
Nickel and other raw material contracts |  | Other assets |  | 3.6 |  |  | 0.8 |
Total derivatives designated as hedging instruments |  | 17.5 |  |  | 3.0 |
Derivatives not designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | — |  |  | 0.4 |
Total derivatives not designated as hedging instruments |  | — |  |  | 0.4 |
Total asset derivatives |  |  |  | $ | 17.5 |  |  | $ | 3.4 |
Liability derivatives |  | Balance sheet location |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Interest rate swap |  | Other current liabilities |  | $ | 0.3 |  |  | $ | 0.2 |
Foreign exchange contracts |  | Other current liabilities |  | — |  |  | 0.6 |
Natural gas contracts |  | Other current liabilities |  | 1.7 |  |  | 0.1 |
Nickel and other raw material contracts |  | Other current liabilities |  | 0.3 |  |  | 6.8 |
Interest rate swap |  | Other long-term liabilities |  | 1.7 |  |  | 0.3 |
Natural gas contracts |  | Other long-term liabilities |  | 1.1 |  |  | 0.3 |
Nickel and other raw material contracts |  | Other long-term liabilities |  | — |  |  | 2.1 |
Total derivatives designated as hedging instruments |  | 5.1 |  |  | 10.4 |
Total liability derivatives |  |  |  | $ | 5.1 |  |  | $ | 10.4 |

For derivative financial instruments that are designated as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. There were no outstanding fair value hedges as of September 30, 2019. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes, excluding any impacts of changes to income tax valuation allowances effecting results of operations or other comprehensive income, when applicable (see Note 17 for further explanation).
Assuming market prices remain constant with those at September 30, 2019, a pre-tax gain of $11.5 million is expected to be recognized over the next 12 months.
Activity with regard to derivatives designated as cash flow hedges for the three and nine month periods ended September 30, 2019 and 2018 was as follows (in millions):

| Amount of Gain (Loss) Recognized in OCI on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
| Three months ended September 30, |  | Three months ended September 30,
Derivatives in Cash Flow Hedging Relationships | 2019 |  | 2018 |  | 2019 |  | 2018
Nickel and other raw material contracts | $ | 11.8 |  |  | $ | (8.0 | ) |  | $ | 1.1 |  |  | $ | 1.7 |
Natural gas contracts | (0.9 | ) |  | (0.1 | ) |  | (0.6 | ) |  | — |
Foreign exchange contracts | 0.9 |  |  | 0.2 |  |  | 0.3 |  |  | 0.4 |
Interest rate swap | (1.2 | ) |  | (0.2 | ) |  | (0.1 | ) |  | (0.1 | )
Total | $ | 10.6 |  |  | $ | (8.1 | ) |  | $ | 0.7 |  |  | $ | 2.0 |

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| Amount of Gain (Loss) Recognized in OCI on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
| Nine months ended September 30, |  | Nine months ended September 30,
Derivatives in Cash Flow Hedging Relationships | 2019 |  | 2018 |  | 2019 |  | 2018
Nickel and other raw material contracts | $ | 18.2 |  |  | $ | 1.3 |  |  | $ | 0.5 |  |  | $ | 7.9 |
Natural gas contracts | (3.2 | ) |  | 0.1 |  |  | (0.6 | ) |  | (0.4 | )
Foreign exchange contracts | 1.0 |  |  | 0.7 |  |  | — |  |  | 0.4 |
Interest rate swap | (1.7 | ) |  | (0.2 | ) |  | (0.3 | ) |  | (0.1 | )
Total | $ | 14.3 |  |  | $ | 1.9 |  |  | $ | (0.4 | ) |  | $ | 7.8 |

(a) | The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the interest rate swap, are presented in cost of sales in the same period or periods in which the hedged item affects earnings. The gains (losses) reclassified from accumulated OCI into income on the interest rate swap are presented in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings.

The disclosures of gains or losses presented above for nickel and other raw material contracts and foreign currency contracts do not take into account the anticipated underlying transactions. Since these derivative contracts represent hedges, the net effect of any gain or loss on results of operations may be fully or partially offset.
Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. The Company has no outstanding foreign currency forward contracts not designated as hedges as of September 30, 2019.

(In millions) | Amount of Gain (Loss) Recognized in Income on Derivatives
| Three months ended September 30, |  | Nine months ended September 30,
Derivatives Not Designated as Hedging Instruments | 2019 |  | 2018 |  | 2019 |  | 2018
Foreign exchange contracts | $ | — |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | 0.1 |

Note 11. Fair Value of Financial Instruments
The estimated fair value of financial instruments at September 30, 2019 was as follows:

|  |  | Fair Value Measurements at Reporting Date Using
(In millions) | Total Carrying Amount |  | Total Estimated Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2)
Cash and cash equivalents | $ | 511.3 |  |  | $ | 511.3 |  |  | $ | 511.3 |  |  | $ | — |
Derivative financial instruments: |  |  |  |  |  |  |
Assets | 17.5 |  |  | 17.5 |  |  | — |  |  | 17.5 |
Liabilities | 5.1 |  |  | 5.1 |  |  | — |  |  | 5.1 |
Debt (a) | 1,562.1 |  |  | 1,794.8 |  |  | 1,670.2 |  |  | 124.6 |

The estimated fair value of financial instruments at December 31, 2018 was as follows:

|  |  | Fair Value Measurements at Reporting Date Using
(In millions) | Total Carrying Amount |  | Total Estimated Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2)
Cash and cash equivalents | $ | 382.0 |  |  | $ | 382.0 |  |  | $ | 382.0 |  |  | $ | — |
Derivative financial instruments: |  |  |  |  |  |  |
Assets | 3.4 |  |  | 3.4 |  |  | — |  |  | 3.4 |
Liabilities | 10.4 |  |  | 10.4 |  |  | — |  |  | 10.4 |
Debt (a) | 1,552.5 |  |  | 1,739.4 |  |  | 1,624.4 |  |  | 115.0 |

(a) | The total carrying amount for debt excludes debt issuance costs related to the recognized debt liability which is presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability.

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In accordance with accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards established three levels of a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. No transfers between levels were reported in 2019 or 2018.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents: Fair value was determined using Level 1 information.
Derivative financial instruments: Fair values for derivatives were measured using exchange-traded prices for the hedged items. The fair value was determined using Level 2 information, including consideration of counterparty risk and the Company’s credit risk.
Short-term and long-term debt: The fair values of the Company’s publicly traded debt were based on Level 1 information. The fair values of the other short-term and long-term debt were determined using Level 2 information.
Note 12. Retirement Benefits
The Company has defined contribution retirement plans or defined benefit pension plans covering substantially all employees. Company contributions to defined contribution retirement plans are generally based on a percentage of eligible pay or based on hours worked. Benefits under the defined benefit pension plans are generally based on years of service and/or final average pay. The Company funds the U.S. pension plans in accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code (IRC).
The Company also sponsors several postretirement plans covering certain collectively-bargained salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most retiree health care plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution.
For the three month periods ended September 30, 2019 and 2018, the components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions):

| Pension Benefits |  | Other Postretirement Benefits
| Three months ended September 30, |  | Three months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost - benefits earned during the year | $ | 3.2 |  |  | $ | 4.1 |  |  | $ | 0.5 |  |  | $ | 0.6 |
Interest cost on benefits earned in prior years | 26.4 |  |  | 26.2 |  |  | 3.7 |  |  | 3.2 |
Expected return on plan assets | (32.8 | ) |  | (39.5 | ) |  | — |  |  | — |
Amortization of prior service cost (credit) | — |  |  | 0.1 |  |  | (0.7 | ) |  | (0.8 | )
Amortization of net actuarial loss | 18.5 |  |  | 16.5 |  |  | 3.4 |  |  | 2.7 |
Total retirement benefit expense | $ | 15.3 |  |  | $ | 7.4 |  |  | $ | 6.9 |  |  | $ | 5.7 |

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For the nine month periods ended September 30, 2019 and 2018, the components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions):

| Pension Benefits |  | Other Postretirement Benefits
| Nine months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost - benefits earned during the year | $ | 9.5 |  |  | $ | 12.4 |  |  | $ | 1.4 |  |  | $ | 1.8 |
Interest cost on benefits earned in prior years | 79.1 |  |  | 78.5 |  |  | 11.1 |  |  | 9.5 |
Expected return on plan assets | (98.5 | ) |  | (118.5 | ) |  | — |  |  | — |
Amortization of prior service cost (credit) | 0.2 |  |  | 0.3 |  |  | (2.1 | ) |  | (2.2 | )
Amortization of net actuarial loss | 55.3 |  |  | 49.5 |  |  | 10.1 |  |  | 8.0 |
Curtailment loss | — |  |  | 0.4 |  |  | — |  |  | — |
Total retirement benefit expense | $ | 45.6 |  |  | $ | 22.6 |  |  | $ | 20.5 |  |  | $ | 17.1 |

Note 13. Income Taxes
The Company maintains income tax valuation allowances on its U.S. Federal and state deferred tax assets, and also maintains valuation allowances on deferred tax assets in certain foreign jurisdictions, based upon the examination of all positive and negative evidence as of the reporting date. Results in both 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily related to these income tax valuation allowances. Third quarter 2019 and 2018 results include a provision for income taxes of $3.7 million, or 3.1% of income before taxes, and $6.9 million, or 11.0% of income before taxes, respectively. For the nine months ended September 30, 2019 and 2018, results included a provision for income taxes of $10.3 million, or 4.7% of income before taxes, and $16.8 million, or 8.1% of income before income taxes, respectively, primarily related to the benefit from the valuation allowances mentioned above and income taxes on non-U.S. operations. The Company continues to analyze the impact of the Tax Cut and Jobs Act as additional guidance is finalized. At this time, the Company has not made any material adjustments to the previously presented amounts in the 2018 or 2017 financial statements.
Note 14. Business Segments
The Company operates in two business segments: High Performance Materials & Components and Flat Rolled Products. 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 September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Total sales: |  |  |  |  |  |  |
High Performance Materials & Components | $ | 577.3 |  |  | $ | 615.2 |  |  | $ | 1,875.0 |  |  | $ | 1,806.3 |
Flat Rolled Products | 492.1 |  |  | 452.5 |  |  | 1,381.1 |  |  | 1,330.9 |
| 1,069.4 |  |  | 1,067.7 |  |  | 3,256.1 |  |  | 3,137.2 |
Intersegment sales: |  |  |  |  |  |  |
High Performance Materials & Components | 25.6 |  |  | 29.7 |  |  | 79.7 |  |  | 68.2 |
Flat Rolled Products | 25.1 |  |  | 17.8 |  |  | 72.5 |  |  | 60.3 |
| 50.7 |  |  | 47.5 |  |  | 152.2 |  |  | 128.5 |
Sales to external customers: |  |  |  |  |  |  |
High Performance Materials & Components | 551.7 |  |  | 585.5 |  |  | 1,795.3 |  |  | 1,738.1 |
Flat Rolled Products | 467.0 |  |  | 434.7 |  |  | 1,308.6 |  |  | 1,270.6 |
| $ | 1,018.7 |  |  | $ | 1,020.2 |  |  | $ | 3,103.9 |  |  | $ | 3,008.7 |

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| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Operating profit: |  |  |  |  |  |  |
High Performance Materials & Components | $ | 78.8 |  |  | $ | 76.0 |  |  | $ | 250.3 |  |  | $ | 259.4 |
Flat Rolled Products | 20.4 |  |  | 29.5 |  |  | 25.1 |  |  | 66.5 |
Total operating profit | 99.2 |  |  | 105.5 |  |  | 275.4 |  |  | 325.9 |
LIFO and net realizable value reserves | — |  |  | — |  |  | (0.1 | ) |  | — |
Corporate expenses | (16.0 | ) |  | (14.8 | ) |  | (50.6 | ) |  | (40.9 | )
Closed operations and other expenses | (8.2 | ) |  | (3.4 | ) |  | (19.2 | ) |  | (16.6 | )
Gain on joint venture deconsolidation (See Note 6) | — |  |  | — |  |  | — |  |  | 15.9 |
Gain on asset sales, net | 68.2 |  |  | — |  |  | 89.8 |  |  | — |
Interest expense, net | (24.2 | ) |  | (24.8 | ) |  | (74.9 | ) |  | (75.8 | )
Income before income taxes | $ | 119.0 |  |  | $ | 62.5 |  |  | $ | 220.4 |  |  | $ | 208.5 |

The $68.2 million net gain on asset sales for the third quarter ended September 30, 2019 consists of a $62.4 million gain on the sale of certain oil and gas rights in Eddy County, NM (see Note 7) and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by a $0.4 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. The $89.8 million net gain on asset sales for the nine months ended September 30, 2019 consists of a $91.7 million gain on the sale (in two separate transactions) of oil and gas rights in Eddy County, NM (see Note 7) and a $6.2 million gain on the sale of the Company’s Cast Products business, partially offset by an $8.1 million loss on the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY. See Note 5 for further explanation regarding the sale of business transactions.
Corporate expenses were higher in the third quarter and nine months of 2019 compared to 2018, primarily due to higher incentive compensation expenses. Closed operations and other expenses include higher retirement benefit expense in 2019 and a benefit for property tax adjustments in the prior year for the closed Rowley facility.
Note 15. Per Share Information
The following table sets forth the computation of basic and diluted income per common share:

| Three months ended |  | Nine months ended
(In millions, except per share amounts) | September 30, |  | September 30,
2019 |  | 2018 |  | 2019 |  | 2018
Numerator: |  |  |  |  |  |  |
Numerator for basic income per common share – |  |  |  |  |  |  |
Net income attributable to ATI | $ | 111.0 |  |  | $ | 50.5 |  |  | $ | 201.1 |  |  | $ | 181.3 |
Effect of dilutive securities: |  |  |  |  |  |  |
4.75% Convertible Senior Notes due 2022 | 3.2 |  |  | 3.2 |  |  | 9.7 |  |  | 9.6 |
Numerator for diluted income per common share – |  |  |  |  |  |  |
Net income attributable to ATI after assumed conversions | $ | 114.2 |  |  | $ | 53.7 |  |  | $ | 210.8 |  |  | $ | 190.9 |
Denominator: |  |  |  |  |  |  |
Denominator for basic net income per common share – weighted average shares | 125.9 |  |  | 125.2 |  |  | 125.7 |  |  | 125.1 |
Effect of dilutive securities: |  |  |  |  |  |  |
Share-based compensation | 0.9 |  |  | 0.9 |  |  | 0.8 |  |  | 0.7 |
4.75% Convertible Senior Notes due 2022 | 19.9 |  |  | 19.9 |  |  | 19.9 |  |  | 19.9 |
Denominator for diluted net income per common share – adjusted weighted average shares and assumed conversions | 146.7 |  |  | 146.0 |  |  | 146.4 |  |  | 145.7 |
Basic net income attributable to ATI per common share | $ | 0.88 |  |  | $ | 0.40 |  |  | $ | 1.60 |  |  | $ | 1.45 |
Diluted net income attributable to ATI per common share | $ | 0.78 |  |  | $ | 0.37 |  |  | $ | 1.44 |  |  | $ | 1.31 |

Common stock that would be issuable upon the assumed conversion of the 4.75% Convertible Senior Notes due 2022 and other option equivalents and contingently issuable shares are excluded from the computation of contingently issuable shares, and
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therefore, from the denominator for diluted earnings per share, if the effect of inclusion is anti-dilutive. There were no anti-dilutive shares for the three and nine months ended September 30, 2019 and 2018.
Note 16. Financial Information for Subsidiary and Guarantor Parent
The payment obligations under the $150 million 6.95% Debentures due 2025 issued by Allegheny Ludlum, LLC (the “Subsidiary”) are fully and unconditionally guaranteed by Allegheny Technologies Incorporated (the “Guarantor Parent”). In accordance with positions established by the Securities and Exchange Commission, the following financial information sets forth separately financial information with respect to the Subsidiary, the non-guarantor subsidiaries and the Guarantor Parent. The principal elimination entries eliminate investments in subsidiaries and certain intercompany balances and transactions.
ATI is the plan sponsor for the U.S. qualified defined benefit pension plans, which cover certain current and former employees of the Subsidiary and the non-guarantor subsidiaries. As a result, the balance sheets presented for the Subsidiary and the non-guarantor subsidiaries do not include any U.S. qualified defined benefit pension assets or liabilities, or the related deferred taxes and valuation allowances. These assets, liabilities and related deferred taxes and pension income or expense are recognized by the Guarantor Parent. Management and royalty fees charged to the Subsidiary and to the non-guarantor subsidiaries by the Guarantor Parent have been excluded solely for purposes of this presentation. The effects of income tax valuation allowances on U.S. Federal and State deferred tax assets are excluded from the Subsidiary’s financial results, and are reported by the Guarantor Parent or the non-guarantor subsidiaries, as applicable.
Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
September 30, 2019

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 0.2 |  |  | $ | 9.9 |  |  | $ | 501.2 |  |  | $ | — |  |  | $ | 511.3 |
Accounts receivable, net | — |  |  | 169.0 |  |  | 427.7 |  |  | — |  |  | 596.7 |
Intercompany notes receivable | — |  |  | — |  |  | 4,344.9 |  |  | (4,344.9 | ) |  | — |
Short-term contract assets | — |  |  | — |  |  | 37.8 |  |  | — |  |  | 37.8 |
Inventories, net | — |  |  | 203.4 |  |  | 965.1 |  |  | — |  |  | 1,168.5 |
Prepaid expenses and other current assets | 6.0 |  |  | 52.1 |  |  | 50.0 |  |  | — |  |  | 108.1 |
Total current assets | 6.2 |  |  | 434.4 |  |  | 6,326.7 |  |  | (4,344.9 | ) |  | 2,422.4 |
Property, plant and equipment, net | 6.3 |  |  | 1,531.2 |  |  | 870.0 |  |  | — |  |  | 2,407.5 |
Goodwill | — |  |  | — |  |  | 523.8 |  |  | — |  |  | 523.8 |
Intercompany notes receivable | — |  |  | — |  |  | 200.0 |  |  | (200.0 | ) |  | — |
Investment in subsidiaries | 6,472.4 |  |  | 37.7 |  |  | — |  |  | (6,510.1 | ) |  | — |
Other assets | 54.6 |  |  | 52.3 |  |  | 168.3 |  |  | — |  |  | 275.2 |
Total assets | $ | 6,539.5 |  |  | $ | 2,055.6 |  |  | $ | 8,088.8 |  |  | $ | (11,055.0 | ) |  | $ | 5,628.9 |
Liabilities and stockholders’ equity: |  |  |  |  |  |  |  |  |
Accounts payable | $ | 5.7 |  |  | $ | 144.7 |  |  | $ | 265.4 |  |  | $ | — |  |  | $ | 415.8 |
Intercompany notes payable | 2,339.5 |  |  | 2,005.4 |  |  | — |  |  | (4,344.9 | ) |  | — |
Short-term contract liabilities | — |  |  | 45.1 |  |  | 52.0 |  |  | — |  |  | 97.1 |
Short-term debt and current portion of long-term debt | 1.3 |  |  | 0.2 |  |  | 10.6 |  |  | — |  |  | 12.1 |
Other current liabilities | 36.8 |  |  | 79.3 |  |  | 122.2 |  |  | — |  |  | 238.3 |
Total current liabilities | 2,383.3 |  |  | 2,274.7 |  |  | 450.2 |  |  | (4,344.9 | ) |  | 763.3 |
Long-term debt | 1,284.0 |  |  | 150.4 |  |  | 107.3 |  |  | — |  |  | 1,541.7 |
Intercompany notes payable | — |  |  | 200.0 |  |  | — |  |  | (200.0 | ) |  | — |
Accrued postretirement benefits | — |  |  | 254.3 |  |  | 47.1 |  |  | — |  |  | 301.4 |
Pension liabilities | 555.6 |  |  | 3.5 |  |  | 42.8 |  |  | — |  |  | 601.9 |
Deferred income taxes | 15.8 |  |  | — |  |  | — |  |  | — |  |  | 15.8 |
Other long-term liabilities | 20.9 |  |  | 35.3 |  |  | 68.7 |  |  | — |  |  | 124.9 |
Total liabilities | 4,259.6 |  |  | 2,918.2 |  |  | 716.1 |  |  | (4,544.9 | ) |  | 3,349.0 |
Total stockholders’ equity (deficit) | 2,279.9 |  |  | (862.6 | ) |  | 7,372.7 |  |  | (6,510.1 | ) |  | 2,279.9 |
Total liabilities and stockholders’ equity | $ | 6,539.5 |  |  | $ | 2,055.6 |  |  | $ | 8,088.8 |  |  | $ | (11,055.0 | ) |  | $ | 5,628.9 |

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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Income and Comprehensive Income
For the three months ended September 30, 2019

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Sales | $ | — |  |  | $ | 389.2 |  |  | $ | 629.5 |  |  | $ | — |  |  | $ | 1,018.7 |
Cost of sales | 3.2 |  |  | 361.9 |  |  | 493.9 |  |  | — |  |  | 859.0 |
Gross profit (loss) | (3.2 | ) |  | 27.3 |  |  | 135.6 |  |  | — |  |  | 159.7 |
Selling and administrative expenses | 29.6 |  |  | 8.9 |  |  | 26.7 |  |  | — |  |  | 65.2 |
Operating income (loss) | (32.8 | ) |  | 18.4 |  |  | 108.9 |  |  | — |  |  | 94.5 |
Nonoperating retirement benefit expense | (12.0 | ) |  | (6.2 | ) |  | (0.3 | ) |  | — |  |  | (18.5 | )
Interest income (expense), net | (36.7 | ) |  | (33.3 | ) |  | 45.8 |  |  | — |  |  | (24.2 | )
Other income (loss) including equity in income of unconsolidated subsidiaries | 200.5 |  |  | (2.2 | ) |  | 69.2 |  |  | (200.3 | ) |  | 67.2 |
Income (loss) before income tax provision (benefit) | 119.0 |  |  | (23.3 | ) |  | 223.6 |  |  | (200.3 | ) |  | 119.0 |
Income tax provision (benefit) | 3.7 |  |  | (5.5 | ) |  | 28.7 |  |  | (23.2 | ) |  | 3.7 |
Net income (loss) | 115.3 |  |  | (17.8 | ) |  | 194.9 |  |  | (177.1 | ) |  | 115.3 |
Less: Net income attributable to noncontrolling interests | — |  |  | — |  |  | 4.3 |  |  | — |  |  | 4.3 |
Net income (loss) attributable to ATI | $ | 115.3 |  |  | $ | (17.8 | ) |  | $ | 190.6 |  |  | $ | (177.1 | ) |  | $ | 111.0 |
Comprehensive income (loss) attributable to ATI | $ | 133.7 |  |  | $ | (14.5 | ) |  | $ | 178.9 |  |  | $ | (164.1 | ) |  | $ | 134.0 |

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Income and Comprehensive Income
For the nine months ended September 30, 2019

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Sales | $ | — |  |  | $ | 1,091.4 |  |  | $ | 2,012.5 |  |  | $ | — |  |  | $ | 3,103.9 |
Cost of sales | 9.3 |  |  | 1,007.8 |  |  | 1,618.3 |  |  | — |  |  | 2,635.4 |
Gross profit (loss) | (9.3 | ) |  | 83.6 |  |  | 394.2 |  |  | — |  |  | 468.5 |
Selling and administrative expenses | 88.9 |  |  | 24.3 |  |  | 87.7 |  |  | — |  |  | 200.9 |
Operating income (loss) | (98.2 | ) |  | 59.3 |  |  | 306.5 |  |  | — |  |  | 267.6 |
Nonoperating retirement benefit expense | (35.5 | ) |  | (18.5 | ) |  | (1.2 | ) |  | — |  |  | (55.2 | )
Interest income (expense), net | (112.8 | ) |  | (101.5 | ) |  | 139.4 |  |  | — |  |  | (74.9 | )
Other income (loss) including equity in income of unconsolidated subsidiaries | 466.9 |  |  | (8.8 | ) |  | 90.6 |  |  | (465.8 | ) |  | 82.9 |
Income (loss) before income tax provision (benefit) | 220.4 |  |  | (69.5 | ) |  | 535.3 |  |  | (465.8 | ) |  | 220.4 |
Income tax provision (benefit) | 10.3 |  |  | (16.6 | ) |  | 85.8 |  |  | (69.2 | ) |  | 10.3 |
Net income (loss) | 210.1 |  |  | (52.9 | ) |  | 449.5 |  |  | (396.6 | ) |  | 210.1 |
Less: Net income attributable to noncontrolling interests | — |  |  | — |  |  | 9.0 |  |  | — |  |  | 9.0 |
Net income (loss) attributable to ATI | $ | 210.1 |  |  | $ | (52.9 | ) |  | $ | 440.5 |  |  | $ | (396.6 | ) |  | $ | 201.1 |
Comprehensive income (loss) attributable to ATI | $ | 279.5 |  |  | $ | (43.3 | ) |  | $ | 429.9 |  |  | $ | (392.6 | ) |  | $ | 273.5 |

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Condensed Statements of Cash Flows
For the nine months ended September 30, 2019

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Cash flows provided by (used in) operating activities | $ | 25.4 |  |  | $ | (167.1 | ) |  | $ | 131.7 |  |  | $ | — |  |  | $ | (10.0 | )
Investing Activities: |  |  |  |  |  |  |  |  |
Purchases of property, plant and equipment | (0.5 | ) |  | (15.1 | ) |  | (82.5 | ) |  | — |  |  | (98.1 | )
Net receipts/(payments) on intercompany activity | — |  |  | — |  |  | (167.1 | ) |  | 167.1 |  |  | — |
Proceeds from sale of businesses, net of transaction costs | — |  |  | — |  |  | 155.9 |  |  | — |  |  | 155.9 |
Proceeds from disposal of property, plant and equipment | — |  |  | — |  |  | 91.8 |  |  | — |  |  | 91.8 |
Other | (0.2 | ) |  | — |  |  | — |  |  | — |  |  | (0.2 | )
Cash flows provided by (used in) investing activities | (0.7 | ) |  | (15.1 | ) |  | (1.9 | ) |  | 167.1 |  |  | 149.4 |
Financing Activities: |  |  |  |  |  |  |  |  |
Payments on long-term debt and finance leases | (0.4 | ) |  | (0.1 | ) |  | (4.8 | ) |  | — |  |  | (5.3 | )
Net borrowings under credit facilities | — |  |  | — |  |  | 5.1 |  |  | — |  |  | 5.1 |
Net receipts/(payments) on intercompany activity | (14.3 | ) |  | 181.4 |  |  | — |  |  | (167.1 | ) |  | — |
Shares repurchased for income tax withholding on share-based compensation and other | (9.9 | ) |  | — |  |  | — |  |  | — |  |  | (9.9 | )
Cash flows provided by (used in) financing activities | (24.6 | ) |  | 181.3 |  |  | 0.3 |  |  | (167.1 | ) |  | (10.1 | )
Increase (decrease) in cash and cash equivalents | $ | 0.1 |  |  | $ | (0.9 | ) |  | $ | 130.1 |  |  | $ | — |  |  | $ | 129.3 |

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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2018

| Guarantor |  |  |  | Non-guarantor |  |  |  |
(In millions) | Parent |  | Subsidiary |  | Subsidiaries |  | Eliminations |  | Consolidated
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 0.1 |  |  | $ | 10.8 |  |  | $ | 371.1 |  |  | $ | — |  |  | $ | 382.0 |
Accounts receivable, net | — |  |  | 126.3 |  |  | 401.5 |  |  | — |  |  | 527.8 |
Intercompany notes receivable | — |  |  | — |  |  | 3,968.8 |  |  | (3,968.8 | ) |  | — |
Short-term contract assets | — |  |  | — |  |  | 51.2 |  |  | — |  |  | 51.2 |
Inventories, net | — |  |  | 216.1 |  |  | 995.0 |  |  | — |  |  | 1,211.1 |
Prepaid expenses and other current assets | 12.9 |  |  | 29.3 |  |  | 32.4 |  |  | — |  |  | 74.6 |
Total current assets | 13.0 |  |  | 382.5 |  |  | 5,820.0 |  |  | (3,968.8 | ) |  | 2,246.7 |
Property, plant and equipment, net | 1.7 |  |  | 1,548.4 |  |  | 924.9 |  |  | — |  |  | 2,475.0 |
Goodwill | — |  |  | — |  |  | 534.7 |  |  | — |  |  | 534.7 |
Intercompany notes receivable | — |  |  | — |  |  | 200.0 |  |  | (200.0 | ) |  | — |
Investment in subsidiaries | 6,096.4 |  |  | 37.7 |  |  | — |  |  | (6,134.1 | ) |  | — |
Other assets | 35.6 |  |  | 30.7 |  |  | 179.1 |  |  | — |  |  | 245.4 |
Total assets | $ | 6,146.7 |  |  | $ | 1,999.3 |  |  | $ | 7,658.7 |  |  | $ | (10,302.9 | ) |  | $ | 5,501.8 |
Liabilities and stockholders’ equity: |  |  |  |  |  |  |  |  |
Accounts payable | $ | 3.3 |  |  | $ | 177.5 |  |  | $ | 318.0 |  |  | $ | — |  |  | $ | 498.8 |
Intercompany notes payable | 2,102.8 |  |  | 1,866.0 |  |  | — |  |  | (3,968.8 | ) |  | — |
Short-term contract liabilities | — |  |  | 33.0 |  |  | 38.4 |  |  | — |  |  | 71.4 |
Short-term debt and current portion of long-term debt | 0.2 |  |  | 0.7 |  |  | 5.7 |  |  | — |  |  | 6.6 |
Other current liabilities | 59.1 |  |  | 71.7 |  |  | 129.3 |  |  | — |  |  | 260.1 |
Total current liabilities | 2,165.4 |  |  | 2,148.9 |  |  | 491.4 |  |  | (3,968.8 | ) |  | 836.9 |
Long-term debt | 1,278.8 |  |  | 151.8 |  |  | 104.9 |  |  | — |  |  | 1,535.5 |
Intercompany notes payable | — |  |  | 200.0 |  |  | — |  |  | (200.0 | ) |  | — |
Accrued postretirement benefits | — |  |  | 259.2 |  |  | 59.2 |  |  | — |  |  | 318.4 |
Pension liabilities | 681.6 |  |  | 4.0 |  |  | 44.4 |  |  | — |  |  | 730.0 |
Deferred income taxes | 12.9 |  |  | — |  |  | — |  |  | — |  |  | 12.9 |
Other long-term liabilities | 16.4 |  |  | 17.6 |  |  | 42.5 |  |  | — |  |  | 76.5 |
Total liabilities | 4,155.1 |  |  | 2,781.5 |  |  | 742.4 |  |  | (4,168.8 | ) |  | 3,510.2 |
Total stockholders’ equity (deficit) | 1,991.6 |  |  | (782.2 | ) |  | 6,916.3 |  |  | (6,134.1 | ) |  | 1,991.6 |
Total liabilities and stockholders’ equity | $ | 6,146.7 |  |  | $ | 1,999.3 |  |  | $ | 7,658.7 |  |  | $ | (10,302.9 | ) |  | $ | 5,501.8 |

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Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations and Comprehensive Income
For the three months ended September 30, 2018

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Sales | $ | — |  |  | $ | 357.4 |  |  | $ | 662.8 |  |  | $ | — |  |  | $ | 1,020.2 |
Cost of sales | 3.7 |  |  | 316.3 |  |  | 539.8 |  |  | — |  |  | 859.8 |
Gross profit (loss) | (3.7 | ) |  | 41.1 |  |  | 123.0 |  |  | — |  |  | 160.4 |
Selling and administrative expenses | 24.9 |  |  | 7.3 |  |  | 33.3 |  |  | — |  |  | 65.5 |
Operating income (loss) | (28.6 | ) |  | 33.8 |  |  | 89.7 |  |  | — |  |  | 94.9 |
Nonoperating retirement benefit expense | (3.1 | ) |  | (4.9 | ) |  | (0.4 | ) |  | — |  |  | (8.4 | )
Interest income (expense), net | (34.9 | ) |  | (29.5 | ) |  | 39.6 |  |  | — |  |  | (24.8 | )
Other income (loss) including equity in income of unconsolidated subsidiaries | 129.1 |  |  | 0.4 |  |  | (0.1 | ) |  | (128.6 | ) |  | 0.8 |
Income (loss) before income tax provision (benefit) | 62.5 |  |  | (0.2 | ) |  | 128.8 |  |  | (128.6 | ) |  | 62.5 |
Income tax provision (benefit) | 6.9 |  |  | 1.4 |  |  | 21.2 |  |  | (22.6 | ) |  | 6.9 |
Net income (loss) | 55.6 |  |  | (1.6 | ) |  | 107.6 |  |  | (106.0 | ) |  | 55.6 |
Less: Net income attributable to noncontrolling interests | — |  |  | — |  |  | 5.1 |  |  | — |  |  | 5.1 |
Net income (loss) attributable to ATI | $ | 55.6 |  |  | $ | (1.6 | ) |  | $ | 102.5 |  |  | $ | (106.0 | ) |  | $ | 50.5 |
Comprehensive income (loss) attributable to ATI | $ | 46.9 |  |  | $ | 0.9 |  |  | $ | 97.9 |  |  | $ | (94.9 | ) |  | $ | 50.8 |

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations and Comprehensive Income
For the nine months ended September 30, 2018

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Sales | $ | — |  |  | $ | 1,047.0 |  |  | $ | 1,961.7 |  |  | $ | — |  |  | $ | 3,008.7 |
Cost of sales | 11.7 |  |  | 962.8 |  |  | 1,551.5 |  |  | — |  |  | 2,526.0 |
Gross profit (loss) | (11.7 | ) |  | 84.2 |  |  | 410.2 |  |  | — |  |  | 482.7 |
Selling and administrative expenses | 73.0 |  |  | 25.2 |  |  | 97.1 |  |  | — |  |  | 195.3 |
Operating income (loss) | (84.7 | ) |  | 59.0 |  |  | 313.1 |  |  | — |  |  | 287.4 |
Nonoperating retirement benefit expense | (9.7 | ) |  | (14.6 | ) |  | (1.2 | ) |  | — |  |  | (25.5 | )
Interest income (expense), net | (102.1 | ) |  | (83.3 | ) |  | 109.6 |  |  | — |  |  | (75.8 | )
Other income (loss) including equity in income of unconsolidated subsidiaries | 405.0 |  |  | 19.5 |  |  | 0.6 |  |  | (402.7 | ) |  | 22.4 |
Income (loss) before income tax provision (benefit) | 208.5 |  |  | (19.4 | ) |  | 422.1 |  |  | (402.7 | ) |  | 208.5 |
Income tax provision (benefit) | 16.8 |  |  | (2.9 | ) |  | 66.3 |  |  | (63.4 | ) |  | 16.8 |
Net income (loss) | 191.7 |  |  | (16.5 | ) |  | 355.8 |  |  | (339.3 | ) |  | 191.7 |
Less: Net income attributable to noncontrolling interests | — |  |  | — |  |  | 10.4 |  |  | — |  |  | 10.4 |
Net income (loss) attributable to ATI | $ | 191.7 |  |  | $ | (16.5 | ) |  | $ | 345.4 |  |  | $ | (339.3 | ) |  | $ | 181.3 |
Comprehensive income (loss) attributable to ATI | $ | 223.0 |  |  | $ | (9.3 | ) |  | $ | 334.7 |  |  | $ | (330.6 | ) |  | $ | 217.8 |

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Condensed Statements of Cash Flows
For the nine months ended September 30, 2018

(In millions) | Guarantor Parent |  | Subsidiary |  | Non-guarantor Subsidiaries |  | Eliminations |  | Consolidated
Cash flows provided by (used in) operating activities | $ | (102.9 | ) |  | $ | (126.7 | ) |  | $ | 361.2 |  |  | $ | (15.0 | ) |  | $ | 116.6 |
Investing Activities: |  |  |  |  |  |  |  |  |
Purchases of property, plant and equipment | (1.4 | ) |  | (19.2 | ) |  | (80.7 | ) |  | — |  |  | (101.3 | )
Net receipts/(payments) on intercompany activity | — |  |  | — |  |  | (236.0 | ) |  | 236.0 |  |  | — |
Purchases of businesses | — |  |  | — |  |  | (10.0 | ) |  | — |  |  | (10.0 | )
Proceeds from disposal of property, plant and equipment | — |  |  | 1.3 |  |  | 0.1 |  |  | — |  |  | 1.4 |
Other | 0.8 |  |  | — |  |  | — |  |  | — |  |  | 0.8 |
Cash flows provided by (used in) investing activities | (0.6 | ) |  | (17.9 | ) |  | (326.6 | ) |  | 236.0 |  |  | (109.1 | )
Financing Activities: |  |  |  |  |  |  |  |  |
Borrowings on long-term debt | — |  |  | — |  |  | 7.1 |  |  | — |  |  | 7.1 |
Payments on long-term debt and finance leases | (0.2 | ) |  | (0.6 | ) |  | (3.8 | ) |  | — |  |  | (4.6 | )
Net borrowings under credit facilities | — |  |  | — |  |  | 4.0 |  |  | — |  |  | 4.0 |
Net receipts/(payments) on intercompany activity | 109.2 |  |  | 126.8 |  |  | — |  |  | (236.0 | ) |  | — |
Dividends paid to stockholders | — |  |  | — |  |  | (15.0 | ) |  | 15.0 |  |  | — |
Dividends paid to noncontrolling interests | — |  |  | — |  |  | (10.0 | ) |  | — |  |  | (10.0 | )
Sale to noncontrolling interests | — |  |  | 11.7 |  |  | 2.7 |  |  | — |  |  | 14.4 |
Shares repurchased for income tax withholding on share-based compensation | (6.5 | ) |  | — |  |  | — |  |  | — |  |  | (6.5 | )
Cash flows provided by (used in) financing activities | 102.5 |  |  | 137.9 |  |  | (15.0 | ) |  | (221.0 | ) |  | 4.4 |
Increase (decrease) in cash and cash equivalents | $ | (1.0 | ) |  | $ | (6.7 | ) |  | $ | 19.6 |  |  | $ | — |  |  | $ | 11.9 |

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Note 17. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) (AOCI) by component, net of tax, for the three month period ended September 30, 2019 were as follows (in millions):

| Post- retirement benefit plans |  | Currency translation adjustment |  | Derivatives |  | Deferred Tax Asset Valuation Allowance |  | Total
Attributable to ATI: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, June 30, 2019 | $ | (973.4 | ) |  | $ | (73.0 | ) |  | $ | — |  |  | $ | (38.0 | ) |  | $ | (1,084.4 | )
OCI before reclassifications |  | — |  |  |  | (11.7 | ) |  |  | 10.6 |  |  |  | — |  |  | (1.1 | )
Amounts reclassified from AOCI | (a) | 16.1 |  |  | (b) | — |  |  | (c) | (0.7 | ) |  | (d) | 8.7 |  |  | 24.1 |
Net current-period OCI |  | 16.1 |  |  |  | (11.7 | ) |  |  | 9.9 |  |  |  | 8.7 |  |  | 23.0 |
Balance, September 30, 2019 | $ | (957.3 | ) |  | $ | (84.7 | ) |  | $ | 9.9 |  |  | $ | (29.3 | ) |  | $ | (1,061.4 | )
Attributable to noncontrolling interests: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, June 30, 2019 | $ | — |  |  | $ | 12.7 |  |  | $ | — |  |  | $ | — |  |  | $ | 12.7 |
OCI before reclassifications |  | — |  |  |  | (4.6 | ) |  |  | — |  |  |  | — |  |  | (4.6 | )
Amounts reclassified from AOCI |  | — |  |  | (b) | — |  |  |  | — |  |  |  | — |  |  | — |
Net current-period OCI |  | — |  |  |  | (4.6 | ) |  |  | — |  |  |  | — |  |  | (4.6 | )
Balance, September 30, 2019 | $ | — |  |  | $ | 8.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 8.1 |

The changes in AOCI by component, net of tax, for the nine month period ended September 30, 2019 were as follows (in millions):

| Post- retirement benefit plans |  | Currency translation adjustment |  | Derivatives |  | Deferred Tax Asset Valuation Allowance |  | Total
Attributable to ATI: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, December 31, 2018 | $ | (1,005.8 | ) |  | $ | (73.9 | ) |  | $ | (4.8 | ) |  | $ | (49.3 | ) |  | $ | (1,133.8 | )
OCI before reclassifications |  | — |  |  |  | (10.8 | ) |  |  | 14.3 |  |  |  | — |  |  | 3.5 |
Amounts reclassified from AOCI | (a) | 48.5 |  |  | (b) | — |  |  | (c) | 0.4 |  |  | (d) | 20.0 |  |  | 68.9 |
Net current-period OCI |  | 48.5 |  |  |  | (10.8 | ) |  |  | 14.7 |  |  |  | 20.0 |  |  | 72.4 |
Balance, September 30, 2019 | $ | (957.3 | ) |  | $ | (84.7 | ) |  | $ | 9.9 |  |  | $ | (29.3 | ) |  | $ | (1,061.4 | )
Attributable to noncontrolling interests: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, December 31, 2018 | $ | — |  |  | $ | 11.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 11.1 |
OCI before reclassifications |  | — |  |  |  | (3.0 | ) |  |  | — |  |  |  | — |  |  | (3.0 | )
Amounts reclassified from AOCI |  | — |  |  | (b) | — |  |  |  | — |  |  |  | — |  |  | — |
Net current-period OCI |  | — |  |  |  | (3.0 | ) |  |  | — |  |  |  | — |  |  | (3.0 | )
Balance, September 30, 2019 | $ | — |  |  | $ | 8.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 8.1 |

(a) | Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12).

(b) | No amounts were reclassified to earnings.

(c) | Amounts related to derivatives are included in cost of goods sold or interest expense in the period or periods the hedged item affects earnings (see Note 10).

(d) | Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates.

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The changes in AOCI by component, net of tax, for the three month period ended September 30, 2018 were as follows (in millions):

| Post- retirement benefit plans |  | Currency translation adjustment |  | Derivatives |  | Deferred Tax Asset Valuation Allowance |  | Total
Attributable to ATI: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, June 30, 2018 | $ | (926.2 | ) |  | $ | (59.9 | ) |  | $ | 13.2 |  |  | $ | (18.7 | ) |  | $ | (991.6 | )
OCI before reclassifications |  | — |  |  |  | (4.8 | ) |  |  | (8.1 | ) |  |  | — |  |  | (12.9 | )
Amounts reclassified from AOCI | (a) | 14.0 |  |  | (b) | — |  |  | (c) | (2.0 | ) |  | (d) | 1.2 |  |  | 13.2 |
Net current-period OCI |  | 14.0 |  |  |  | (4.8 | ) |  |  | (10.1 | ) |  |  | 1.2 |  |  | 0.3 |
Balance, September 30, 2018 | $ | (912.2 | ) |  | $ | (64.7 | ) |  | $ | 3.1 |  |  | $ | (17.5 | ) |  | $ | (991.3 | )
Attributable to noncontrolling interests: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, June 30, 2018 | $ | — |  |  | $ | 21.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 21.1 |
OCI before reclassifications |  | — |  |  |  | (9.0 | ) |  |  | — |  |  |  | — |  |  | (9.0 | )
Amounts reclassified from AOCI |  | — |  |  | (b) | — |  |  |  | — |  |  |  | — |  |  | — |
Net current-period OCI |  | — |  |  |  | (9.0 | ) |  |  | — |  |  |  | — |  |  | $ | (9.0 | )
Balance, September 30, 2018 | $ | — |  |  | $ | 12.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 12.1 |

The changes in AOCI by component, net of tax, for the nine month period ended September 30, 2018 were as follows (in millions):

| Post- retirement benefit plans |  | Currency translation adjustment |  | Derivatives |  | Deferred Tax Asset Valuation Allowance |  | Total
Attributable to ATI: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, December 31, 2017 | $ | (954.5 | ) |  | $ | (53.5 | ) |  | $ | 9.0 |  |  | $ | (28.8 | ) |  | $ | (1,027.8 | )
OCI before reclassifications |  | — |  |  |  | (11.2 | ) |  |  | 1.9 |  |  |  | — |  |  | (9.3 | )
Amounts reclassified from AOCI | (a) | 42.3 |  |  | (b) | — |  |  | (c) | (7.8 | ) |  | (d) | 11.3 |  |  | 45.8 |
Net current-period OCI |  | 42.3 |  |  |  | (11.2 | ) |  |  | (5.9 | ) |  |  | 11.3 |  |  | 36.5 |
Balance, September 30, 2018 | $ | (912.2 | ) |  | $ | (64.7 | ) |  | $ | 3.1 |  |  | $ | (17.5 | ) |  | $ | (991.3 | )
Attributable to noncontrolling interests: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, December 31, 2017 | $ | — |  |  | $ | 17.3 |  |  | $ | — |  |  | $ | — |  |  | $ | 17.3 |
OCI before reclassifications |  | — |  |  |  | (5.2 | ) |  |  | — |  |  |  | — |  |  | (5.2 | )
Amounts reclassified from AOCI |  | — |  |  | (b) | — |  |  |  | — |  |  |  | — |  |  | — |
Net current-period OCI |  | — |  |  |  | (5.2 | ) |  |  | — |  |  |  | — |  |  | $ | (5.2 | )
Balance, September 30, 2018 | $ | — |  |  | $ | 12.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 12.1 |

(a) | Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12).

(b) | No amounts were reclassified to earnings.

(c) | Amounts related to derivatives are included in cost of goods sold in the period or periods the hedged item affects earnings (see Note 10).

(d) | Represents the net change in deferred tax asset valuation allowances on changes in AOCI balances between the balance sheet dates.

Other comprehensive income (loss) amounts (OCI) reported above by category are net of applicable income tax expense (benefit) for each year presented. Income tax expense (benefit) on OCI items is recorded as a change in a deferred tax asset or liability. Amounts recognized in OCI include the impact of any deferred tax asset valuation allowances, when applicable, resulting from the Company’s three year cumulative loss position. Foreign currency translation adjustments, including those pertaining to noncontrolling interests, are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.
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Reclassifications out of AOCI for the three and nine month periods ended September 30, 2019 and 2018 were as follows:

| Amount reclassified from AOCI |  |
Details about AOCI Components (In millions) | Three months ended September 30, 2019 |  | Three months ended September 30, 2018 |  | Nine months ended September 30, 2019 |  | Nine months ended September 30, 2018 |  | Affected line item in the statements of income
Postretirement benefit plans |  |  |  |  |  |  |  |  |
Prior service credit | $ | 0.7 |  |  | $ | 0.7 |  |  | $ | 1.9 |  |  | $ | 1.9 |  | (a) |
Actuarial losses | (21.9 | ) |  | (19.2 | ) |  | (65.4 | ) |  | (57.5 | ) | (a) |
| (21.2 | ) |  | (18.5 | ) |  | (63.5 | ) |  | (55.6 | ) | (c) | Total before tax
| (5.1 | ) |  | (4.5 | ) |  | (15.0 | ) |  | (13.3 | ) |  | Tax benefit (d)
| $ | (16.1 | ) |  | $ | (14.0 | ) |  | $ | (48.5 | ) |  | $ | (42.3 | ) |  | Net of tax
Derivatives |  |  |  |  |  |  |  |  |
Nickel and other raw material contracts | $ | 1.5 |  |  | $ | 2.2 |  |  | $ | 0.7 |  |  | $ | 10.4 |  | (b) |
Natural gas contracts | (0.8 | ) |  | — |  |  | (0.8 | ) |  | (0.5 | ) | (b) |
Foreign exchange contracts | 0.4 |  |  | 0.5 |  |  | — |  |  | 0.5 |  | (b) |
Interest rate swap | (0.3 | ) |  | (0.1 | ) |  | (0.5 | ) |  | (0.1 | ) | (b) |
| 0.8 |  |  | 2.6 |  |  | (0.6 | ) |  | 10.3 |  | (c) | Total before tax
| 0.1 |  |  | 0.6 |  |  | (0.2 | ) |  | 2.5 |  |  | Tax provision (benefit) (d)
| $ | 0.7 |  |  | $ | 2.0 |  |  | $ | (0.4 | ) |  | $ | 7.8 |  |  | Net of tax

(a) | Amounts are reported in nonoperating retirement benefit expense (see Note 12).

(b) | Amounts related to derivatives, with the exception of the interest rate swap, are included in cost of goods sold in the period or periods the hedged item affects earnings. Amounts related to the interest rate swap are included in interest expense in the same period as the interest expense on the Term Loan is recognized in earnings (see Note 10).

(c) | For pretax items, positive amounts are income and negative amounts are expense in terms of the impact to net income. Tax effects are presented in conformity with ATI’s presentation in the consolidated statements of income.

(d) | These amounts exclude the impact of any deferred tax asset valuation allowances, when applicable.

Note 18. Commitments and Contingencies
The Company is subject to various domestic and international environmental laws and regulations that govern the discharge of pollutants and disposal of wastes, and which may require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. The Company could incur substantial cleanup costs, fines, and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or noncompliance with environmental permits required at its facilities. The Company is currently involved in the investigation and remediation of a number of its current and former sites, as well as third party sites.
Environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable. In many cases, however, the Company is not able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss. Estimates of the Company’s liability remain subject to additional uncertainties, including the nature and extent of site contamination, available remediation alternatives, the extent of corrective actions that may be required, and the number, participation, and financial condition of other potentially responsible parties (PRPs). The Company adjusts its accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on the Company’s consolidated results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments.
At September 30, 2019, the Company’s reserves for environmental remediation obligations totaled approximately $19 million, of which $7 million was included in other current liabilities. The reserve includes estimated probable future costs of $3 million for federal Superfund and comparable state-managed sites; $14 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; $1 million for owned or controlled sites at which Company operations have been discontinued; and $1 million for sites utilized by the Company in its ongoing operations. The timing of expenditures depends on a number of factors that vary by site. The Company expects that it will expend present accruals over many years and that remediation of all sites with which it has been identified will be completed within thirty years. The
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Company continues to evaluate whether it may be able to recover a portion of past and future costs for environmental liabilities from third parties and to pursue such recoveries where appropriate.
Based on currently available information, it is reasonably possible that costs for recorded matters may exceed the Company’s recorded reserves by as much as $15 million. Future investigation or remediation activities may result in the discovery of additional hazardous materials, potentially higher levels of contamination than discovered during prior investigation, and may impact costs of the success or lack thereof in remedial solutions. Therefore, future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on the Company’s consolidated financial condition or results of operations.
A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently and formerly owned businesses, including those pertaining to product liability, environmental, health and safety matters and occupational disease (including as each relates to alleged asbestos exposure), as well as patent infringement, commercial, government contracting, construction, employment, employee and retiree benefits, taxes, environmental, and stockholder and corporate governance matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s consolidated results of operations for that period.
Allegheny Technologies Incorporated and its subsidiary, ATI Titanium LLC (“ATI Titanium”), are parties to a lawsuit captioned US Magnesium, LLC v. ATI Titanium LLC (Case No. 2:17-cv-00923-DB) and filed in federal district court in Salt Lake City, UT, pertaining to a Supply and Operating Agreement between US Magnesium LLC (“USM”) and ATI Titanium entered into in 2006 (the “Supply Agreement”). In 2016, ATI Titanium notified USM that it would suspend performance under the Supply Agreement in reliance on certain terms and conditions included in the Supply Agreement. USM subsequently filed a claim challenging ATI Titanium’s right to suspend performance under the Supply Agreement, claiming that such suspension was a material breach of the Supply Agreement and seeking monetary damages, and ATI Titanium filed a counterclaim for breach of contract against USM. In 2018, USM obtained leave of the court to add Allegheny Technologies Incorporated as a separate party defendant, and ATI Titanium filed a motion to dismiss the claim against Allegheny Technologies Incorporated, which the court denied on April 19, 2019. The case is in the early stages of discovery, and while ATI intends to vigorously defend against and pursue these claims, it cannot predict their outcomes at this time.

Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest markets are aerospace & defense, representing approximately 50% of total sales, led by products for jet engines. Additionally, we have a strong presence in the oil & gas and energy markets. In aggregate, these markets represent about 70% 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. Our 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.
ATI reported third quarter 2019 sales of $1.02 billion and income before tax of $119.0 million, compared to sales of $1.02 billion and income before tax of $62.5 million for the third quarter of 2018. Our gross profit for the third quarter of 2019 was $159.7 million, or 15.7% of sales, consistent with the third quarter 2018.
During the third quarter of 2019, we completed the sale of our Cast Products business for $127 million. This business produced titanium investment castings that are primarily used by aerospace & defense OEMs in the production of commercial jet airframes and engines. ATI retained a small post-casting machining facility in Salem, OR and continues to provide these services to the buyer and others. We received cash proceeds, net of transaction costs and net working capital adjustments, of $122.9 million on the sale of this business and recognized a $6.2 million gain in the third quarter ended September 30, 2019, which included a $10.2 million impairment charge on the carrying value of long-lived assets of the retained Salem operation. This business is reported as part of the High Performance Materials & Components (HPMC) segment through the date of sale. Cast Products’ sales were $105 million in fiscal year 2018.
During the second quarter of 2019, we completed the sale of two non-core forging facilities for $37 million. Located in Portland, IN and Lebanon, KY, these operations primarily use traditional forging methods to produce carbon steel forged
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products for use in the oil & gas, transportation and construction & mining industries. We received cash proceeds, net of transaction costs and working capital adjustments, of $33.0 million on the sale of this business and recognized an $8.1 million pre-tax loss in the nine months ended September 30, 2019, $7.7 million in the second quarter of 2019 and an additional $0.4 million in the third quarter of 2019 for the final working capital adjustment. This business is reported as part of the HPMC segment through the date of sale. Sales from these two forging facilities in the 2018 fiscal year were $86 million in the aggregate.
Also during the second and third quarters of 2019, we recognized $29.3 million and $62.4 million in cash gains, respectively, on two sales of certain oil and gas rights in Eddy County, NM. These oil and gas rights were initially acquired by the Company in 1972 along with land purchased by Teledyne, Inc., which later became part of ATI. The land was subsequently sold, with the Company retaining its underlying oil and gas rights.
Third quarter 2019 results include $68.2 million in net pretax gains reported in other income, net on the consolidated statements of income and excluded from segment operating results from these non-core asset sales discussed above; the $62.4 million gain to monetize oil and gas rights and a $5.8 million net gain on the sale of the Cast Products and industrial forgings businesses. Results in 2019 also include $2.4 million of net losses from joint ventures accounted for under the equity method, which are reported in other income, net, compared to net gains of $0.2 million in the prior year’s third quarter. Net income attributable to ATI was $111.0 million, or $0.78 per share, in the third quarter of 2019, compared to net income attributable to ATI of $50.5 million, or $0.37 per share, for the third quarter of 2018. Results in both 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily related to income tax valuation allowances.
We operate in two business segments, HPMC and Flat Rolled Products (FRP). Compared to the third quarter 2018, sales decreased 6% in the HPMC business segment and increased 7% in the FRP business segment. HPMC sales declined by 8% as a result of the business divestitures discussed above. Sales to the aerospace & defense markets, which represented 79% of third quarter 2019 HPMC sales, were 2% lower, as a 5% decline from the divested businesses was partially offset by an increase in government aerospace & defense markets. We recently announced the expansion and 6.5 year extension of our long-term agreement with BWX Technologies to supply materials for the manufacture of naval nuclear components. FRP sales increased compared to the prior year period largely due to stronger demand for nickel-based alloys from the oil & gas market and for titanium alloys for the aerospace & defense markets.
Results for the first nine months of 2019 were sales of $3.10 billion and income before tax of $220.4 million, compared to sales of $3.01 billion and income before tax of $208.5 million for the first nine months of 2018. Our gross profit was $468.5 million, or 15.1% of sales, a $14.2 million decline compared to the first nine months of 2018, reflecting near-term current year headwinds related to one of our jet engine customer’s cash management efforts, as well as operational and raw material cost impacts in both business segments affecting first half 2019 results. The 2019 results reflect the $89.8 million in net pretax gains of non-core assets in 2019 discussed above and a $26 million increase in retirement benefit expense compared to the prior year. Results for the first nine months of 2018 include a $15.9 million pre-tax gain on the sale of a 50% noncontrolling interest and subsequent deconsolidation of the Allegheny & Tsingshan Stainless (A&T Stainless) joint venture in March 2018. Net income attributable to ATI was $201.1 million, or $1.44 per share, in the first nine months of 2019, compared to net income attributable to ATI of $181.3 million, or $1.31 per share, for the first nine months of 2018.
Compared to the first nine months of 2018, sales increased 3% in the HPMC business segment and 3% in the FRP business segment. Sales to the aerospace & defense markets in the HPMC segment were 8% higher than the first nine months of 2018, with a 1% unfavorable impact from divestitures, led by growth in the commercial airframe and defense markets. FRP sales reflect higher sales of high-value products, primarily nickel-based and titanium-based alloys, offset by lower sales of standard stainless sheet products.
ATI’s sales to the aerospace & defense markets increased 1%, to $503.5 million in the third quarter 2019, compared to the third quarter 2018, despite a 5% decline from divestitures. HPMC sales of next-generation jet engine products, which represented 50% of total third quarter 2019 HPMC jet engine product sales, decreased 7% compared to the third quarter 2018 with 5% of this decline from divestitures. The HPMC segment typically experiences modest seasonal weakness in the third quarter of each fiscal year due to many European customers, particularly in the aerospace supply chain, taking plant outages during this summer period. Certain ATI HPMC facilities also performed annual preventative maintenance actions during this same period.
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Comparative information for our overall revenues (in millions) by end market, including divested businesses prior to sale, and their respective percentages of total revenues for the three and nine month periods ended September 30, 2019 and 2018 were as follows:

| Three months ended |  | Three months ended
Markets | September 30, 2019 |  | September 30, 2018
Aerospace & Defense | $ | 503.5 |  |  | 49 | % |  | $ | 499.2 |  |  | 49 | %
Oil & Gas | 147.3 |  |  | 15 | % |  | 128.2 |  |  | 13 | %
Automotive | 73.6 |  |  | 7 | % |  | 85.0 |  |  | 8 | %
Energy | 69.9 |  |  | 7 | % |  | 59.9 |  |  | 6 | %
Food Equipment & Appliances | 53.6 |  |  | 5 | % |  | 58.8 |  |  | 6 | %
Electronics/Computers/Communication | 44.5 |  |  | 5 | % |  | 41.3 |  |  | 3 | %
Construction/Mining | 43.7 |  |  | 4 | % |  | 58.4 |  |  | 6 | %
Medical | 41.0 |  |  | 4 | % |  | 47.9 |  |  | 5 | %
Other | 41.6 |  |  | 4 | % |  | 41.5 |  |  | 4 | %
Total | $ | 1,018.7 |  |  | 100 | % |  | $ | 1,020.2 |  |  | 100 | %

| Nine months ended |  | Nine months ended
Markets | September 30, 2019 |  | September 30, 2018
Aerospace & Defense | $ | 1,601.3 |  |  | 52 | % |  | $ | 1,443.6 |  |  | 48 | %
Oil & Gas | 396.1 |  |  | 13 | % |  | 413.5 |  |  | 14 | %
Automotive | 224.1 |  |  | 7 | % |  | 244.5 |  |  | 8 | %
Energy | 203.0 |  |  | 6 | % |  | 180.3 |  |  | 6 | %
Food Equipment & Appliances | 156.4 |  |  | 5 | % |  | 181.3 |  |  | 6 | %
Construction/Mining | 154.2 |  |  | 5 | % |  | 169.9 |  |  | 6 | %
Medical | 129.5 |  |  | 4 | % |  | 142.8 |  |  | 5 | %
Electronics/Computers/Communication | 116.7 |  |  | 4 | % |  | 109.7 |  |  | 3 | %
Other | 122.6 |  |  | 4 | % |  | 123.1 |  |  | 4 | %
Total | $ | 3,103.9 |  |  | 100 | % |  | $ | 3,008.7 |  |  | 100 | %

For the third quarter 2019, international sales of $413 million and 41% of total sales were consistent with the third quarter 2018. For the first nine months of 2019, international sales decreased 3% to $1.24 billion and represented 40% of total sales, compared to $1.27 billion, or 42% of total sales, for the first nine months of 2018. ATI’s international sales are mostly to the aerospace, oil & gas, energy, automotive and medical markets.
Sales of our high-value products represented 87% of total sales, the majority of which were consumed by our aerospace & defense customers, for the three and nine months ended September 30, 2019. Comparative information for our major high-value and standard products, including divested business prior to sale, based on their percentages of revenues is as follows:

| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
High-Value Products |  |  |  |  |  |  |
Nickel-based alloys and specialty alloys | 33 | % |  | 30 | % |  | 32 | % |  | 30 | %
Titanium and titanium-based alloys | 19 | % |  | 16 | % |  | 18 | % |  | 16 | %
Precision forgings, castings and components | 16 | % |  | 18 | % |  | 18 | % |  | 20 | %
Precision and engineered strip | 14 | % |  | 15 | % |  | 13 | % |  | 14 | %
Zirconium and related alloys | 5 | % |  | 6 | % |  | 6 | % |  | 5 | %
Total High-Value Products | 87 | % |  | 85 | % |  | 87 | % |  | 85 | %
Standard Products |  |  |  |  |  |  |
Standard stainless products | 13 | % |  | 15 | % |  | 13 | % |  | 15 | %
Grand Total | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %

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Segment operating profit for the third quarter 2019 was $99.2 million, or 9.7% of sales, compared to segment operating profit of $105.5 million, or 10.3% of sales, for the third quarter of 2018. For the first nine months of 2019, segment operating profit was $275.4 million, or 8.9% of sales, compared to segment operating profit of $325.9 million, or 10.8% of sales, for the first nine months of 2018. Segment operating profit as a percentage of sales by business segment for the three and nine month periods ended September 30, 2019 and 2018 was:

| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
High Performance Materials & Components | 14.3 | % |  | 13.0 | % |  | 13.9 | % |  | 14.9 | %
Flat Rolled Products | 4.4 | % |  | 6.8 | % |  | 1.9 | % |  | 5.2 | %

Business Segment Results
High Performance Materials & Components Segment
Third quarter 2019 sales decreased 5.8% to $551.7 million compared to the third quarter 2018, due to an 8% decline from business divestitures. Sales to the aerospace and defense markets, which were 79% of third quarter 2019 HPMC sales, were 2% lower, as a 5% unfavorable impact from business divestitures was partially offset by strong demand for titanium products. Sales of next-generation jet engine products, which represented 50% of total third quarter 2019 HPMC jet engine product sales, were slightly lower due primarily to unfavorable product mix and temporary changes in order patterns from a major aero-engine customer. Government aerospace and defense markets sales were 22% higher than the third quarter 2018.
Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale, and their respective percentages of the segment’s overall revenues for the three month periods ended September 30, 2019 and 2018 is as follows:

| Three months ended |  | Three months ended
Markets | September 30, 2019 |  | September 30, 2018
Aerospace & Defense: |  |  |  |  |  |  |
Commercial Jet Engines | $ | 247.9 |  |  | 45 | % |  | $ | 270.1 |  |  | 46 | %
Commercial Airframes | 111.7 |  |  | 20 | % |  | 112.1 |  |  | 19 | %
Government Aerospace & Defense | 78.3 |  |  | 14 | % |  | 64.3 |  |  | 11 | %
Total Aerospace & Defense | 437.9 |  |  | 79 | % |  | 446.5 |  |  | 76 | %
Medical | 37.7 |  |  | 7 | % |  | 44.3 |  |  | 8 | %
Energy | 36.5 |  |  | 7 | % |  | 30.9 |  |  | 5 | %
Oil & Gas | 13.9 |  |  | 3 | % |  | 17.9 |  |  | 3 | %
Construction/Mining | 5.4 |  |  | 1 | % |  | 18.5 |  |  | 3 | %
Other | 20.3 |  |  | 3 | % |  | 27.4 |  |  | 5 | %
Total | $ | 551.7 |  |  | 100 | % |  | $ | 585.5 |  |  | 100 | %

International sales represented 43% of total segment sales for the third quarter 2019. Comparative information for the HPMC segment’s major product categories, including divested businesses prior to sale, based on their percentages of revenue for the three months ended September 30, 2019 and 2018, is as follows:

| Three months ended September 30,
| 2019 |  | 2018
High-Value Products |  |  |
Nickel-based alloys and specialty alloys | 33 | % |  | 32 | %
Precision forgings, castings and components | 29 | % |  | 33 | %
Titanium and titanium-based alloys | 29 | % |  | 25 | %
Zirconium and related alloys | 9 | % |  | 10 | %
Total High-Value Products | 100 | % |  | 100 | %

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Segment operating profit in the third quarter 2019 increased to $78.8 million, or 14.3% of total sales, compared to $76.0 million, or 13.0% of total sales, for the third quarter 2018. Results in the third quarter 2019 reflect a better balance of raw material prices and index-based selling prices. Despite near-term headwinds related to one of our jet engine customer’s cash management efforts, we continue to deliver on our increasing customer commitments as part of the ongoing aerospace industry production ramp. Net results of divested businesses were not material to prior period HPMC segment operating profit.
For the first nine months of 2019, sales increased 3.3% to $1.80 billion compared to the first nine months of 2018, despite a 3% decline from business divestitures. Stronger demand for titanium products, which were up 16%, were partially offset by declines in sales of forged components. Sales to the aerospace and defense markets were 8% higher than the prior year, despite a 1% decline from divestitures, including a 21% increase in airframe sales and a 28% increase in defense sales. Total jet engine sales were comparable to the prior year, with an 11% increase in sales of next-generation jet engine products.
Comparative information for our HPMC segment revenues (in millions) by market, including divested businesses prior to sale, and their respective percentages of the segment’s overall revenues for the nine month periods ended September 30, 2019 and 2018 is as follows:

| Nine months ended |  | Nine months ended
Markets | September 30, 2019 |  | September 30, 2018
Aerospace & Defense: |  |  |  |  |  |  |
Commercial Jet Engines | $ | 799.9 |  |  | 44 | % |  | $ | 813.0 |  |  | 47 | %
Commercial Airframes | 370.5 |  |  | 21 | % |  | 307.4 |  |  | 17 | %
Government Aerospace & Defense | 244.9 |  |  | 14 | % |  | 191.3 |  |  | 11 | %
Total Aerospace & Defense | 1,415.3 |  |  | 79 | % |  | 1,311.7 |  |  | 75 | %
Medical | 119.0 |  |  | 7 | % |  | 131.5 |  |  | 8 | %
Energy | 97.9 |  |  | 5 | % |  | 101.9 |  |  | 6 | %
Oil & Gas | 49.0 |  |  | 3 | % |  | 51.4 |  |  | 3 | %
Construction/Mining | 37.3 |  |  | 2 | % |  | 55.1 |  |  | 3 | %
Other | 76.8 |  |  | 4 | % |  | 86.5 |  |  | 5 | %
Total | $ | 1,795.3 |  |  | 100 | % |  | $ | 1,738.1 |  |  | 100 | %

International sales represented 44% of total segment sales for the first nine months of 2019. Comparative information for the HPMC segment’s major product categories, including divested businesses prior to sale, based on their percentages of revenue for the nine months ended September 30, 2019 and 2018, is as follows:

| Nine months ended September 30,
| 2019 |  | 2018
High-Value Products |  |  |
Precision forgings, castings and components | 31 | % |  | 35 | %
Nickel-based alloys and specialty alloys | 31 | % |  | 31 | %
Titanium and titanium-based alloys | 28 | % |  | 24 | %
Zirconium and related alloys | 10 | % |  | 10 | %
Total High-Value Products | 100 | % |  | 100 | %

Segment operating profit in the first nine months of 2019 decreased to $250.3 million, or 13.9% of total sales, compared to $259.4 million, or 14.9% of total sales, for the first nine months of 2018. Although results in the third quarter 2019 reflect a better balance of raw material prices and index-based selling prices, results in the first half of 2019 reflected adverse impacts from a rapid drop in raw material prices, particularly in cobalt, which compressed profit margins due to the length of the manufacturing cycle compared to index-based selling price changes, which offset benefits from higher productivity. Results for 2019 also reflect temporary near-term headwinds related to one of our jet engine customer’s cash management efforts. Net results of divested businesses were not material to prior period HPMC segment operating profit.
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Flat Rolled Products Segment
Third quarter 2019 sales increased 7.4% compared to the third quarter 2018, to $467.0 million, primarily due to a more than 20% increase in sales to both the oil & gas and aerospace & defense markets. FRP sales to the oil & gas and aerospace & defense markets were nearly 45% of FRP’s third quarter 2019 sales, which is higher than both the prior year’s quarter and the second quarter 2019. Sales of high-value products were 13% higher, with nickel-based and specialty alloys 26% higher and titanium-based alloys 120% higher than the third quarter 2018. This increase more than offset 12% lower sales of standard stainless products, primarily standard stainless sheet, compared to the third quarter 2018.
Comparative information for our FRP segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the three month periods ended September 30, 2019 and 2018 is as follows:

| Three months ended |  | Three months ended
Markets | September 30, 2019 |  | September 30, 2018
Oil & Gas | $ | 133.4 |  |  | 29 | % |  | $ | 110.3 |  |  | 25 | %
Automotive | 71.3 |  |  | 15 | % |  | 83.0 |  |  | 19 | %
Aerospace & Defense | 65.6 |  |  | 14 | % |  | 52.7 |  |  | 12 | %
Food Equipment & Appliances | 53.4 |  |  | 11 | % |  | 58.6 |  |  | 14 | %
Electronics/Computers/Communication | 42.8 |  |  | 9 | % |  | 40.3 |  |  | 9 | %
Construction/Mining | 38.3 |  |  | 8 | % |  | 39.9 |  |  | 9 | %
Energy | 33.4 |  |  | 7 | % |  | 29.0 |  |  | 7 | %
Other | 28.8 |  |  | 7 | % |  | 20.9 |  |  | 5 | %
Total | $ | 467.0 |  |  | 100 | % |  | $ | 434.7 |  |  | 100 | %

International sales represented 37% of total segment sales for the third quarter 2019. Comparative information for the FRP segment’s major product categories, based on their percentages of revenue for the three months ended September 30, 2019 and 2018, are presented in the following table. Conversion services are excluded.

| Three months ended September 30,
| 2019 |  | 2018
High-Value Products |  |  |
Nickel-based alloys and specialty alloys | 34 | % |  | 29 | %
Precision and engineered strip | 30 | % |  | 34 | %
Titanium and titanium-based alloys | 7 | % |  | 3 | %
Total High-Value Products | 71 | % |  | 66 | %
Standard Products |  |  |
Standard stainless products | 29 | % |  | 34 | %
Grand Total | 100 | % |  | 100 | %

Segment operating profit was $20.4 million, or 4.4% of sales, for the third quarter 2019, compared to $29.5 million, or 6.8% of sales, for the third quarter 2018. FRP segment results for the third quarter 2019 include stronger 2019 results from our STAL joint venture (JV) in China reflecting growing benefits from the recent capacity expansion. Results also reflect higher retirement benefit expense of $6 million and a $2.6 million loss for ATI’s share of the A&T Stainless JV, primarily due to the effects of Section 232 tariffs, compared to a $0.3 million loss from the A&T Stainless JV in the prior year. In April 2019, we learned that the A&T Stainless JV’s previously filed Section 232 tariff exclusion request was denied by the U.S. Department of Commerce. The A&T Stainless JV filed a new request for exclusion in October 2019, but will continue to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia pending the outcome of this new request. Results of A&T Stainless have been and will continue to be negatively impacted by these tariffs on imported stainless slab products while the JV partners evaluate longer-term solutions to return this strategic initiative to profitability. While project-based demand for nickel-based alloys in the U.S. business remained solid, weaker demand for standard stainless products resulted in lower segment operating profit compared to the third quarter 2018.
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Comparative shipment volume and average selling price information of the segment’s products for the three months ended September 30, 2019 and 2018 is provided in the following table:

| Three months ended September 30, |  | %
| 2019 |  | 2018 |  | Change
Volume (000’s pounds): |  |  |  |  |
High-Value | 92,161 |  |  | 87,994 |  |  | 5 | %
Standard | 94,019 |  |  | 96,211 |  |  | (2 | )%
Total | 186,180 |  |  | 184,205 |  |  | 1 | %
Average prices (per lb.): |  |  |  |  |
High-Value | $ | 3.48 |  |  | $ | 3.22 |  |  | 8 | %
Standard | $ | 1.38 |  |  | $ | 1.53 |  |  | (10 | )%
Combined Average | $ | 2.42 |  |  | $ | 2.34 |  |  | 3 | %

For the first nine months of 2019, sales increased 3.0% compared to the first nine months of 2018, to $1.31 billion. Sales for high-value products were 7% higher, compared to the first nine months of 2018, due to project-based demand for products in the oil & gas market as well as marine scrubber products within the energy market. Sales to the oil & gas market decreased 4%. Sales to the aerospace & defense markets increased over 40% versus the prior year-to-date period, supported by significantly higher production of titanium armor plate, additional titanium volumes for commerical airframes, and increased nickel and cobalt bearing alloy sheet products for jet engines. Overall, increased sales of high-value products for the first nine months of 2019 more than offset 11% lower sales of standard stainless products, compared to the first nine months of 2018.
Comparative information for our FRP segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the nine month periods ended September 30, 2019 and 2018 is as follows:

| Nine months ended |  | Nine months ended
Markets | September 30, 2019 |  | September 30, 2018
Oil & Gas | $ | 347.1 |  |  | 27 | % |  | $ | 362.1 |  |  | 29 | %
Automotive | 215.1 |  |  | 16 | % |  | 237.1 |  |  | 19 | %
Aerospace & Defense | 186.0 |  |  | 14 | % |  | 131.9 |  |  | 10 | %
Food Equipment & Appliances | 156.1 |  |  | 12 | % |  | 181.0 |  |  | 14 | %
Construction/Mining | 116.9 |  |  | 9 | % |  | 114.8 |  |  | 9 | %
Electronics/Computers/Communication | 112.7 |  |  | 9 | % |  | 105.0 |  |  | 8 | %
Energy | 105.1 |  |  | 8 | % |  | 78.4 |  |  | 6 | %
Other | 69.6 |  |  | 5 | % |  | 60.3 |  |  | 5 | %
Total | $ | 1,308.6 |  |  | 100 | % |  | $ | 1,270.6 |  |  | 100 | %

International sales represented 34% of total segment sales for the first nine months of 2019. Comparative information for the FRP segment’s major product categories, based on their percentages of revenue for the nine months ended September 30, 2019 and 2018, are presented in the following table. Conversion services are excluded.

| Nine months ended September 30,
| 2019 |  | 2018
High-Value Products |  |  |
Nickel-based alloys and specialty alloys | 33 | % |  | 29 | %
Precision and engineered strip | 31 | % |  | 32 | %
Titanium and titanium-based alloys | 6 | % |  | 5 | %
Total High-Value Products | 70 | % |  | 66 | %
Standard Products |  |  |
Standard stainless products | 30 | % |  | 34 | %
Grand Total | 100 | % |  | 100 | %

The segment operating profit was $25.1 million, or 1.9% of sales, for the first nine months of 2019, compared to $66.5 million, or 5.2% of sales, for the first nine months of 2018. FRP segment results for the first nine months of 2019 reflect higher retirement benefit expense of $18 million and a $10 million loss for ATI’s share of the A&T Stainless JV, primarily due to Section 232 tariffs, compared to a $0.2 million profit from the A&T Stainless JV in the prior year. While project-based demand
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for nickel-based alloys in the U.S. business remained solid, weaker demand for standard stainless products resulted in lower segment operating profit compared to the first nine months of 2018.
Comparative shipment volume and average selling price information of the segment’s products for the nine months ended September 30, 2019 and 2018 is provided in the following table:

| Nine months ended September 30, |  | %
| 2019 |  | 2018 |  | Change
Volume (000’s pounds): |  |  |  |  |
High-Value | 264,205 |  |  | 256,601 |  |  | 3 | %
Standard | 279,506 |  |  | 310,466 |  |  | (10 | )%
Total | 543,711 |  |  | 567,067 |  |  | (4 | )%
Average prices (per lb.): |  |  |  |  |
High-Value | $ | 3.35 |  |  | $ | 3.22 |  |  | 4 | %
Standard | $ | 1.39 |  |  | $ | 1.40 |  |  | (1 | )%
Combined Average | $ | 2.34 |  |  | $ | 2.22 |  |  | 5 | %

Corporate Items
There was no net effect on our results of operations for changes in last-in, first-out (LIFO) and net realizable value (NRV) inventory reserves for the third quarter of 2019 and the third quarter and nine months of 2018. The net effect of changes in LIFO and NRV inventory reserves for the nine months of 2019 was expense of $0.1 million. For the third quarter and nine months of 2019, LIFO inventory valuation reserve charges of $7.2 million and $1.4 million, respectively, were offset by reductions of $7.2 million and $1.3 million, respectively, in NRV inventory reserves, which are required to offset the Company’s aggregate net debit LIFO inventory balance that exceeds current inventory replacement cost. For the third quarter and nine months of 2018, LIFO inventory valuation reserve charges of $2.0 million and $29.5 million, respectively, were offset by reductions of the same magnitude in NRV inventory reserves.
Corporate expenses for the third quarter of 2019 were $16.0 million, compared to $14.8 million for the third quarter 2018. For the nine months ended September 30, 2019, corporate expenses were $50.6 million, increasing from $40.9 million for the nine months ended September 30, 2018. These increases in 2019 were primarily due to higher incentive compensation expenses.
Closed operations and other expenses for the third quarter 2019 were $8.2 million, compared to $3.4 million for the third quarter 2018. For the nine months ended September 30, 2019, closed operations and other expenses increased to $19.2 million, compared to $16.6 million for the comparable period. Closed operations and other expenses include higher retirement benefit expense in 2019 and a benefit for property tax adjustments in the prior year for the closed Rowley facility.
During the third quarter of 2019, we completed the sale of our Cast Products business for $127 million. This business produced titanium investment castings that are primarily used by aerospace & defense OEMs in the production of commercial jet airframes and engines. We recognized a $6.2 million gain in the third quarter ended September 30, 2019, which included a $10.2 million impairment charge on the carrying value of long-lived assets of the retained Salem operation. During the second quarter of 2019, we completed the sale of two non-core forging facilities, located in Portland, IN and Lebanon, KY, that used primarily traditional forging methods to produce carbon steel forged products for use in the oil & gas, transportation and construction & mining industries. We recognized an $8.1 million pre-tax loss in the nine months ended September 30, 2019, $7.7 million in the second quarter of 2019 and an additional $0.4 million in the third quarter of 2019 for the final working capital adjustment. Both of these divested businesses were previously reported as part of the HPMC segment. Also during the second and third quarters of 2019, we recognized $29.3 million and $62.4 million cash gains, respectively, on sales of certain oil and gas rights in Eddy County, NM. Third quarter and nine month 2019 results include $68.2 million and $89.8 million, respectively, in net pretax gains from these non-core asset sales which are reported in other income, net, on the consolidated statement of income and are excluded from segment operating results.
On March 1, 2018, we announced the formation of A&T Stainless, in which ATI has a 50% ownership interest. Our joint venture partner purchased its 50% joint venture interest during the first quarter of 2018, and as a result of this sale and the subsequent deconsolidation of the A&T Stainless entity, we recognized a $15.9 million gain in the first quarter of 2018. This gain is reported in other income, net, on the consolidated statement of income for the first nine months of 2018 and is excluded from FRP segment results.
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Interest expense, net of interest income, in the third quarter 2019 was $24.2 million, compared to net interest expense of $24.8 million for the third quarter 2018. On a year-to-date basis, net interest expense was $74.9 million for the first nine months of 2019 compared to $75.8 million for the first nine months of 2018, primarily reflecting lower borrowings in the current year under the Company’s Asset Based Lending Credit Facility, and increased interest income. Capitalized interest reduced interest expense by $1.2 million in the third quarter 2019 and $1.4 million in the third quarter 2018. For the nine months ended September 30, 2019 and 2018, capitalized interest was $2.9 million and $3.5 million, respectively.
Income Taxes
ATI maintains income tax valuation allowances on its U.S. Federal and state deferred tax assets, and also maintains valuation allowances on deferred tax assets in certain foreign jurisdictions, based upon the examination of all positive and negative evidence as of the reporting date. Results in both 2019 and 2018 include impacts from income taxes that differ from applicable standard tax rates, primarily related to these income tax valuation allowances. Third quarter 2019 and 2018 results include a provision for income taxes of $3.7 million, or 3.1% of income before taxes, and $6.9 million, or 11.0% of income before taxes, respectively. For the first nine months of 2019 and 2018, results included a provision for income taxes of $10.3 million, or 4.7% of income before taxes, and $16.8 million, or 8.1% of income before income taxes, respectively, primarily related to the benefit from the valuation allowances mentioned above and income taxes on non-U.S. operations. We continue to analyze the impact of the Tax Cut and Jobs Act as additional guidance is finalized. At this time, we have not made any material adjustments to the previously presented amounts in the 2018 or 2017 financial statements.
Financial Condition and Liquidity
On September 30, 2019, we amended and restated our Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our domestic operations. This amendment and restatement extends the ABL facility through September 30, 2024 and includes an increase of $100 million in the revolving credit facility to $500 million, a letter of credit sub-facility of up to $200 million, and a $100 million term loan (Term Loan). Additionally, the amendment and restatement gives us the ability, through June 30, 2020 and as long as no default or event of default has occurred and is continuing, to borrow an additional term loan of up to $100 million in total, using one or two draws (the Delayed-Draw Term Loan). We also have 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 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 July 2019, we amended our $50 million floating-for-fixed interest rate swap which converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment and restatement) with a June 2024 maturity.
As amended and restated, 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) 12.5% of the then applicable maximum borrowing amount under the revolving credit portion of the ABL and any outstanding Term Loan balance, or (ii) $62.5 million. We were in compliance with the fixed charge coverage ratio covenant at September 30, 2019. 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 each of the 5.95% Senior Notes due 2021, 4.75% Convertible Notes due 2022 and 5.875% Notes due 2023.
As of September 30, 2019, there were no outstanding borrowings under the revolving portion of the ABL facility, and $35.3 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 nine months of 2019, and for the first nine months of 2018, average borrowings were $56 million bearing an average annual interest rate of 3.651%.
At September 30, 2019, we had $511 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $460 million. 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 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, $123 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.
Our fiscal year 2019 and 2020 funding requirements to the U.S. qualified defined benefit pension plans are approximately $145 million each year, of which $117 million was contributed in the first nine months of 2019, and we currently expect to have
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average annual funding requirements of approximately $100 million to these pension plans for the next few fiscal years thereafter. 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 believe that internally generated funds, current cash on hand and available borrowings under the ABL facility will be adequate to meet our liquidity needs, including currently projected required contributions to our pension plans. 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
For the nine months ended September 30, 2019, cash used in operations was $10.0 million, largely due to a $59.1 million use from higher managed working capital balances from increased business activity, $117.1 million in contributions to a U.S. defined benefit pension plan, and payment of 2018 annual incentive compensation. In addition, cash used in operations for both the first nine months of 2019 and 2018 include $29 million and $22 million, respectively, in short-term working capital advances to the A&T Stainless joint venture. The cash provided by operations of $116.6 million for the nine months ended September 30, 2018 included a $15.3 million contribution to a U.S. defined benefit pension plan.
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 managed working capital, we exclude the effects of LIFO and other 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. At September 30, 2019, managed working capital increased to 33.6% of annualized total ATI sales compared to 31.6% of annualized sales at December 31, 2018. The $59.1 million increase in managed working capital at September 30, 2019 from December 31, 2018 resulted from a $67.9 million increase in accounts receivable and an $83.0 million decrease in accounts payable, partially offset by a $52.7 million decrease in inventory, a $13.4 million decrease in short-term contract assets, and a $25.7 million increase in short-term contract liabilities. Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 3% as of September 30, 2019 compared to year end 2018. Gross inventory turns, which exclude the effect of LIFO and any applicable offsetting NRV inventory valuation reserves, remained consistent at September 30, 2019 compared to year end 2018.
The components of managed working capital at September 30, 2019 and December 31, 2018 were as follows:

| September 30, |  | December 31,
(In millions) | 2019 |  | 2018
Accounts receivable | $ | 596.7 |  |  | $ | 527.8 |
Short-term contract assets | 37.8 |  |  | 51.2 |
Inventory | 1,168.5 |  |  | 1,211.1 |
Accounts payable | (415.8 | ) |  | (498.8 | )
Short-term contract liabilities | (97.1 | ) |  | (71.4 | )
Subtotal | 1,290.1 |  |  | 1,219.9 |
Allowance for doubtful accounts | 5.0 |  |  | 6.0 |
Adjustment from current cost to LIFO cost basis | (6.7 | ) |  | (2.9 | )
Inventory valuation reserves | 82.2 |  |  | 88.5 |
Managed working capital | $ | 1,370.6 |  |  | $ | 1,311.5 |
Annualized prior 3 months sales | $ | 4,074.6 |  |  | $ | 4,151.3 |
Managed working capital as a % of annualized sales | 33.6 | % |  | 31.6 | %
Change in managed working capital from December 31, 2018 | $ | 59.1 |  |  |

Cash provided by investing activities was $149.4 million in the first nine months of 2019, reflecting $247.7 million in net proceeds from non-core asset sales consisting of $33.0 million for the sale of two non-core forging facilities, $122.9 million for the sale of the Cast Products business and $91.8 million of proceeds from property, plant and equipment, largely due to the sale of certain oil and gas rights in Eddy County, NM. Capital expenditures for the first nine months of 2019 were $98.1 million
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primarily related to HMPC growth projects including the previously announced new iso-thermal press and heat-treating expansion in Cudahy, WI. 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 financing activities was $10.1 million in the first nine months of 2019 and consisted primarily of income tax withholding on share-based compensation.
At September 30, 2019, cash and cash equivalents on hand totaled $511.3 million, a decrease of $129.3 million from year end 2018. Cash and cash equivalents held by our foreign subsidiaries was $83.3 million at September 30, 2019, of which $47.4 million was held by the STAL joint venture.
Debt
Total debt outstanding of $1,562.1 million at September 30, 2019 increased $9.6 million compared to December 31, 2018.
In managing our overall capital structure, some of the measures on which we focus are debt to EBITDA, which measures our ability to repay our incurred debt, 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 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, for the latest 12 month period. We believe that EBITDA is useful to investors because this measure is 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 is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and capital expenditures. EBITDA is 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.
As of September 30, 2019, our debt to EBITDA ratio was 3.04, compared to 3.07 at December 31, 2018.

|  | September 30, 2019 |  | December 31, 2018
Latest 12 months: |  |  |  |
Income before income taxes |  | $ | 259.6 |  |  | $ | 247.7 |
Interest expense |  | 100.1 |  |  | 101.0 |
Depreciation and amortization |  | 153.9 |  |  | 156.4 |
EBITDA |  | $ | 513.6 |  |  | $ | 505.1 |
Total debt (a) |  | $ | 1,562.1 |  |  | $ | 1,552.5 |
Debt to EBITDA |  | 3.04 |  |  | 3.07 |

Net debt as a percentage of total capitalization was 32.6% at September 30, 2019, compared to 38.3% at December 31, 2018.

(In millions) | September 30, 2019 |  | December 31, 2018
Total debt (a) | $ | 1,562.1 |  |  | $ | 1,552.5 |
Less: Cash | (511.3 | ) |  | (382.0 | )
Net debt | $ | 1,050.8 |  |  | $ | 1,170.5 |
Total ATI stockholders’ equity | 2,168.0 |  |  | 1,885.7 |
Net ATI total capital | $ | 3,218.8 |  |  | $ | 3,056.2 |
Net debt to ATI total capital | 32.6 | % |  | 38.3 | %

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Total debt to total capitalization of 41.9% at September 30, 2019 decreased from 45.2% at December 31, 2018.

(In millions) | September 30, 2019 |  | December 31, 2018
Total debt (a) | $ | 1,562.1 |  |  | $ | 1,552.5 |
Total ATI stockholders’ equity | 2,168.0 |  |  | 1,885.7 |
Total ATI capital | $ | 3,730.1 |  |  | $ | 3,438.2 |
Total debt to total ATI capital | 41.9 | % |  | 45.2 | %

(a) | Excludes debt issuance costs.

Dividends
Effective with the fourth quarter of 2016, our Board of Directors decided to suspend the quarterly dividend. The payment of dividends and the amount of such dividends depends upon matters deemed relevant by our Board of Directors on a quarterly basis, such as our results of operations, financial condition, cash requirements, future prospects, any limitations imposed by law, credit agreements or senior securities, and other factors deemed relevant and appropriate. Under the ABL facility, there is no limit on dividend declarations or payments provided that the undrawn availability, after giving effect to a particular dividend payment, is at least the greater of $150 million and 30% of the maximum revolving credit availability, and no event of default under the ABL facility has occurred and is continuing or would result from paying the dividend. In addition, there is no limit on dividend declarations or payments if the undrawn availability is less than the greater of $150 million and 30% of the maximum revolving credit advance amount but more than the greater of $75 million and 15% of the maximum revolving credit advance amount, if (i) no event of default has occurred and is continuing or would result from paying the dividend, (ii) we demonstrate to the administrative agent that, prior to and after giving effect to the payment of the dividend (A) the undrawn availability, as measured both at the time of the dividend payment and as an average for the 60 consecutive day period immediately preceding the dividend payment, is at least the greater of $75 million and 15% of the maximum revolving credit availability, and (B) we maintain a fixed charge coverage ratio of at least 1.00:1.00, as calculated in accordance with the terms of the ABL facility.
Critical Accounting Policies
Inventory
At September 30, 2019, we had net inventory of $1,168.5 million. Inventories are stated at the lower of cost (LIFO, first-in, first-out (FIFO) and average cost methods) or market. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct costs. Most of our inventory is valued utilizing the LIFO costing methodology. Inventory of our non-U.S. operations is valued using average cost or FIFO methods. Under the LIFO inventory valuation method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these material and other costs may have been incurred at significantly different values due to the length of time of our production cycle. In a period of rising prices, cost of sales expense recognized under LIFO is generally higher than the cash costs incurred to acquire the inventory sold. Conversely, in a period of declining raw material prices, cost of sales recognized under LIFO is generally lower than cash costs incurred to acquire the inventory sold. Generally, over time based on overall inflationary trends in raw materials, labor and overhead costs, the use of the LIFO inventory valuation method will result in a LIFO inventory valuation reserve, as the higher current period costs are included in cost of sales and the balance sheet carrying value of inventory is reduced.
Since the LIFO inventory valuation methodology is designed for annual determination, interim estimates of the annual LIFO valuation are required. We recognize the effects of the LIFO inventory valuation method on an interim basis by projecting the expected annual LIFO cost and allocating that projection to the interim quarters equally. These projections of annual LIFO inventory valuation reserve changes are updated quarterly and are evaluated based upon material, labor and overhead costs and projections for such costs at the end of the year plus projections regarding year end inventory levels.
The prices for many of the raw materials we use have been extremely volatile during the past several years, while labor and overhead costs have been generally stable, with a modest inflationary trend. Raw material cost changes typically have the largest impact on the LIFO inventory costing methodology based on the overall proportion of raw material costs to other inventoriable costs. Since we value most of our inventory utilizing the LIFO inventory costing methodology, a fall in material costs generally results in a benefit to operating results by reducing cost of sales and increasing the inventory carrying value, while conversely, a rise in raw material costs generally has a negative effect on our operating results by increasing cost of sales while lowering the carrying value of inventory. For example, for the nine months ended September 30, 2019 and 2018, the LIFO inventory valuation method resulted in cost of sales that were $1.4 million and $29.5 million higher, respectively, than would have been recognized under the FIFO methodology to value our inventory.
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Due primarily to persistent raw material deflation in prior years, we are in the unusual situation of having a LIFO inventory balance that exceeds replacement cost. In cases where inventory at FIFO cost is lower than the LIFO carrying value, a write-down of the inventory to market may be required, subject to a lower of cost or market evaluation. In applying the lower of cost or market principle, market means current replacement cost, subject to a ceiling (market value shall not exceed net realizable value) and a floor (market shall not be less than net realizable value reduced by an allowance for a normal profit margin). We evaluate product lines on a quarterly basis to identify inventory values that exceed estimated net realizable value. The calculation of a resulting NRV inventory reserve, if any, is recognized in the period that the need for the reserve is identified. Our NRV reserves were $6.7 million at September 30, 2019 and $8.0 million at December 31, 2018. Depending on average raw material costs, primarily related to nickel, we may incur LIFO expense in the fourth quarter of 2019 in excess of our remaining NRV reserve. With the significant volatility in these materials, the potential magnitude of the impact is difficult to predict, however we currently estimate this to be in the range of $0-$5 million.
The impact to our cost of sales for changes in the LIFO costing methodology and associated NRV inventory reserves were as follows (in millions):

|  | Nine months ended September 30,
|  | 2019 |  | 2018
LIFO benefit (charge) |  | $ | (1.4 | ) |  | $ | (29.5 | )
NRV benefit (charge) |  | 1.3 |  |  | 29.5 |
Net cost of sales impact |  | $ | (0.1 | ) |  | $ | — |

It is our general policy to write-down to scrap value any inventory that is identified as obsolete and any inventory that has aged or has not moved in more than twelve months. In some instances this criterion is up to 24 months due to the longer manufacturing and distribution process for such products.
The LIFO inventory valuation methodology is not utilized by many of the companies with which we compete, including foreign competitors. As such, our results of operations may not be comparable to those of our competitors during periods of volatile material costs due, in part, to the differences between the LIFO inventory valuation method and other acceptable inventory valuation methods.
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.
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 September 30, 2019, we had $523.8 million of goodwill on our consolidated balance sheet, a decrease of $10.9 million from December 31, 2018 due to $10.4 million of goodwill allocated from ATI’s Forged Products reporting unit to the sale of a small non-core industrial forgings business, and foreign currency translation on goodwill denominated in functional currencies other than the U.S. dollar. The sale of the industrial forgings business was not considered to be material for interim impairment testing of goodwill at the Forged Products reporting unit. All goodwill relates to reporting units in the HPMC segment.
As part of the divestiture of the titanium investment castings business, which was completed early in the third quarter 2019, ATI retained a small post-casting machining operation in Salem, OR. We recognized a $10.2 million impairment charge on the carrying value of long-lived assets of the retained Salem operation ($4.5 million for property, plant and equipment, $1.4 million for operating lease right of use assets, $1.0 million for finance lease right of use assets, and $3.3 million of finite-lived intangible assets). This long-lived asset impairment charge was based on an analysis of the estimated fair values, including asset appraisals using market approaches, which represent Level 3 unobservable information in the fair value hierarchy. This impairment charge is categorized as part of the net gain on sale of the titanium investment castings business.
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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. On April 24, 2019, we learned that this exclusion request was denied by the U.S. Department of Commerce. Therefore, the joint venture will continue to be subject to the 25% tariff levied on its imports of semi-finished stainless slab products from Indonesia. Results of A&T Stainless have been and will continue to be negatively impacted by these tariffs on imported stainless slab products. As of September 30, 2019, working capital advances to A&T Stainless were $36.7 million and are reported in prepaid expenses and other current assets on the consolidated balance sheet. ATI’s equity method investment in A&T Stainless at September 30, 2019 was $1.2 million and is reported as part of other long-term assets on the consolidated balance sheet. These balances were evaluated for impairment, as the tariff exclusion denial represents a potential impairment indicator. No impairment exists at this time. The joint venture partners continue to evaluate longer-term solutions to return this strategic initiative to profitability.
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 historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. In situations where a three year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. 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.
Since 2015, our results reflected a three year cumulative loss from U.S. operations. As a result, we established deferred tax asset valuation allowances in 2015 and 2016 for certain U.S. Federal and state deferred tax assets. In 2017, 2018 and 2019, ATI continued to maintain income tax valuation allowances on its U.S. Federal and state deferred tax assets. Valuation allowances are also maintained on net deferred tax assets in certain foreign jurisdictions. In addition, we have $29.3 million of valuation allowances on amounts recorded in other comprehensive loss as of September 30, 2019.
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.
We continue to analyze the impact of the Tax Cut and Jobs Act as additional guidance is finalized. At this time, we have not made any material adjustments to the previously presented amounts in the 2018 or 2017 financial statements.
The Company continues to report a lower-than-normal effective tax rate in 2019 as we release deferred tax valuation allowances in conjunction with the current year operating results. Based on projected 2019 results, we expect to exit the three-year cumulative loss condition for U.S. Federal and state jurisdictions at year-end 2019. At that point, accounting guidance permits the use of projected financial results as a source of positive evidence to evaluate the future realizability of deferred tax assets. This event is likely to trigger the release of a portion of the deferred tax valuation allowances as a fourth quarter 2019 item, expected to be in the range of a $25 - $35 million income tax benefit. This benefit is not included within the 2019 effective tax rate and is subject to ongoing additional analysis including the amount of deferred tax assets utilized in the current year related to final operating results.
Retirement Benefits
In accordance with accounting standards, we determine the discount rate used to value pension plan liabilities as of the last day
of each 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 rate of return on high quality, fixed income investments
with maturities matched to the expected future retirement benefit payments. Based on current market conditions, discount rates
are below the rates in effect at the year-end 2018 remeasurement date, when a 4.40% discount rate was used for valuing
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pension liabilities. The estimated effect at the year-end 2018 valuation date of a decrease in the discount rate by 0.50% would
increase pension liabilities by approximately $135 million. The effect on pension liabilities for changes to the discount rate,
the difference between expected and actual plan asset returns, and the net effect of other changes in actuarial assumptions and experience are deferred and amortized over future periods in accordance with accounting standards.
For ERISA (Employee Retirement Income Security Act of 1974, as amended) 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. Our fiscal year 2019 and 2020 funding requirements to the U.S. qualified defined benefit pension plans are approximately $145 million each year, of which $117 million was contributed in the first nine months of 2019, and we currently expect to have average annual funding requirements of approximately $100 million to these pension plans for the next few fiscal years thereafter. 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.
Other Critical Accounting Policies
A summary of other significant accounting policies is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018.
The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for derivatives, retirement plans, income taxes, environmental and other contingencies as well as asset impairment, inventory valuation and collectability of accounts receivable. We use historical and other information that we consider to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our financial statements.
Pending Accounting Pronouncements
See Note 1 of the Notes to Consolidated Financial Statements for information on pending accounting pronouncements.
Forward-Looking and Other Statements
From time to time, we have 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. Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in economic or industry conditions generally, including global supply and demand conditions and prices for our specialty metals and changes in international trade duties and other aspects of international trade policy; (b) material adverse changes in the markets we serve; (c) our inability to achieve the level of cost savings, productivity improvements, synergies, growth or other benefits anticipated by management, from strategic investments and the integration of acquired businesses; (d) volatility in the price and availability of the raw materials that are critical to the manufacture of our products; (e) declines in the value of our defined benefit pension plan assets or unfavorable changes in laws or regulations that govern pension plan funding; (f) labor disputes or work stoppages; (g) equipment outages; and (h) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 31, 2018, and in other reports filed with the Securities and Exchange Commission. We assume no duty to update our forward-looking statements.

Item 3. | 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 which are our counterparties 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-
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traded prices for the hedged items including consideration of counterparty risk and the Company’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. In July 2019, the Company amended its $50 million floating-for-fixed interest rate swap which converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment and restatement), with a June 2024 maturity. The Company redesignated the existing 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 amendment will be 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 September 30, 2019, the net mark-to-market valuation of the outstanding interest rate swap was an unrealized pre-tax loss of $2.0 million, comprised of $0.3 million in other current liabilities and $1.7 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 8 to 10 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 $8 to $10 million. We use several approaches to minimize any material adverse effect on our results of operations or financial condition 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 September 30, 2019, the outstanding financial derivatives used to hedge our exposure to energy cost volatility included natural gas hedges. Approximately 70% of our forecasted domestic requirements for natural gas for the remainder of 2019, approximately 70% for 2020, and approximately 50% for 2021 are hedged. At September 30, 2019, the net mark-to-market valuation of these outstanding natural gas hedges was an unrealized pre-tax loss of $2.7 million, comprised of $0.1 million in other long-term assets, $1.7 million in other current liabilities and $1.1 million in other long-term liabilities on the balance sheet. For the three months ended September 30, 2019, natural gas hedging activity increased cost of sales by $0.8 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 2018, we used approximately 100 million pounds of nickel; therefore, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $100 million. In addition, in 2018, we also used approximately 400 million pounds of ferrous scrap in the production of our flat-rolled products; a hypothetical change of $0.01 per pound would result in increased costs of approximately $4 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 September 30, 2019, we had entered into financial hedging arrangements, primarily at the request of our customers, related to firm orders for an aggregate notional amount of approximately 9 million pounds of nickel with hedge dates through 2023. The aggregate notional amount hedged is approximately 9% 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 September 30, 2019, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax gain of $16.4 million, comprised of $13.1 million in prepaid expense and other current assets, $3.6 million in other long-term assets and $0.3 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 euro. In addition, we may also
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designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At September 30, 2019, we held euro forward sales contracts designated as cash flow hedges with a notional value of approximately 12 million euro with maturity dates through December 2019.
We may also enter into foreign currency forward contracts that are not designated as hedges, which are denominated in the same foreign currency in which export sales are denominated. We have no euro notional value outstanding as of September 30, 2019 of foreign currency forward contracts not designated as hedges.
At September 30, 2019, the net mark-to-market valuation of our outstanding foreign currency forward contracts was an unrealized pre-tax gain of $0.7 million, all of which is in prepaid expense and other current assets on the balance sheet.

Item 4. | Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2019, and they concluded that these disclosure controls and procedures are effective.
(b) Changes in Internal Controls
There was no change in our internal controls over financial reporting identified in connection with the evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2019 conducted by our Chief Executive Officer and Chief Financial Officer, that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION

Item 1. | Legal Proceedings

A number of lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its currently or formerly owned businesses, including those pertaining to product liability, environmental, health and safety matters and occupational disease (including as each relates to alleged asbestos exposure), as well as patent infringement, commercial, government contracting, construction, employment, employee and retiree benefits, taxes, environmental, and stockholder and corporate governance matters. Certain of such lawsuits, claims and proceedings are described in our Annual Report on Form 10-K for the year ended December 31, 2018, and addressed in Note 16 to the unaudited interim financial statements included herein. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.
Allegheny Technologies Incorporated and its subsidiary, ATI Titanium LLC (“ATI Titanium”), are parties to a lawsuit captioned US Magnesium, LLC v. ATI Titanium LLC (Case No. 2:17-cv-00923-DB) and filed in federal district court in Salt Lake City, UT, pertaining to a Supply and Operating Agreement between US Magnesium LLC (“USM”) and ATI Titanium entered into in 2006 (the “Supply Agreement”). In 2016, ATI Titanium notified USM that it would suspend performance under the Supply Agreement in reliance on certain terms and conditions included in the Supply Agreement. USM subsequently filed a claim challenging ATI Titanium’s right to suspend performance under the Supply Agreement, claiming that such suspension was a material breach of the Supply Agreement and seeking monetary damages, and ATI Titanium filed a counterclaim for breach of contract against USM. In 2018, USM obtained leave of the court to add Allegheny Technologies Incorporated as a separate party defendant, and ATI Titanium filed a motion to dismiss the claim against Allegheny Technologies Incorporated, which the court denied on April 19, 2019. The case is in the early stages of discovery, and while ATI intends to vigorously defend against and pursue these claims, it cannot predict their outcomes at this time.
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Item 1A. | Risk Factors

The following is an update to, and should be read in conjunction with Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Risks Associated with the Commercial Aerospace Industry. A significant portion of the sales of our HPMC segment represents products sold to customers in the commercial aerospace industry. Fulfilling contractual arrangements to provide various products to customers in this industry often involves meeting highly exacting performance requirements and product specifications, and our failure to meet those requirements and specifications on a timely and cost efficient basis could have a material adverse effect on our results of operations, business and financial condition. The commercial aerospace industry has historically been cyclical due to factors both external and internal to the airline industry. These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, changes in projected build rates (including, e.g., the recently announced temporary slowdown in production rates for the Boeing 737 Max aircraft), price competition, and international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of cyclical fluctuation are influenced by these factors and therefore are difficult to predict with certainty. Demand for our products, particularly those produced in our HPMC segment, is subject to these cyclical trends. Although the commercial aerospace industry is currently experiencing a period of production expansion related to the introduction of next-generation engines and aircraft, we cannot provide any assurance as to the ultimate magnitude or duration of this trend or its impact on our business. A downturn in the commercial aerospace industry has had, and may in the future have, an adverse effect on the prices at which we are able to sell our products, and our results of operations, business and financial condition could be materially adversely affected.
Export Sales and International Trade Matters. We believe that export sales will continue to account for a significant percentage of our future revenues. We also import certain raw materials, and recently formed, together with an affiliate company of Tsingshan Group, our A&T Stainless joint venture, which imports semi-finished stainless steel slab products from Indonesia to support its U.S. production of finished 60-inch wide stainless steel sheet products for sale in North America. Risks associated with such international trade include, among others: political and economic instability, including weak conditions in the world’s economies; accounts receivable collection; export controls; trade sanctions, changes in legal and regulatory requirements; policy changes affecting the markets for our products; changes in tax laws; and exchange rate fluctuations (which may affect sales to international customers and the value of profits earned on export sales when converted into dollars). Any of these factors could materially adversely affect our results for the period in which they occur.
Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact our business. For example, in March 2018, the U.S. imposed an additional 25% tariff under Section 232 of the Trade Expansion Act of 1962, as amended, on steel products, including stainless steel, imported into the U.S. Currently, the semi-finished stainless steel slabs that our A&T Stainless JV imports from Indonesia are subject to the additional tariff. The A&T Stainless JV filed for exclusions from the 232 tariff based on the nature of the imported product, its country of origin, and its lack of availability in the U.S. However, in April 2019, the U.S. Commerce Department denied the joint venture’s exclusion request and, as a result, the joint venture continues to be subject to the 25% tariff levied on its imports of semi-finished stainless steel slab products from Indonesia, which are continuing to negatively impact the joint venture’s results. On October 15, 2019, the A&T Stainless JV filed a new exclusion request. However, there can be no assurance that the joint venture will be successful in any further efforts to obtain an exclusion for the products that it intends to import, or that its operations and results will not continue to be impacted by the imposition of these tariffs.
Moreover, these new tariffs, or other changes in U.S. trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, thus, to adversely impact our businesses.
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Item 6. | Exhibits

(a) Exhibits

10.1 |  | First Amended and Restated Revolving Credit, Term Loan, Delayed Draw Term Loan and Security Agreement, dated as of September 30, 2019, by and among the borrowers party thereto, the Company and other guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Lender and Agent (filed herewith).
31.1 |  | Certification of Chief Executive Officer required by Securities and Exchange Commission Rule 13a – 14(a) or 15d – 14(a) (filed herewith).
31.2 |  | Certification of Chief Financial Officer required by Securities and Exchange Commission Rule 13a – 14(a) or 15d – 14(a) (filed herewith).
32.1 |  | Certification pursuant to 18 U.S.C. Section 1350 (furnished herewith).
101.INS |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALLEGHENY TECHNOLOGIES INCORPORATED
(Registrant)

Date: | November 1, 2019 |  | By |  | /s/ Patrick J. DeCourcy
|  |  |  |  | Patrick J. DeCourcy
|  |  |  |  | Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer)
Date: | November 1, 2019 |  | By |  | /s/ Karl D. Schwartz
|  |  |  |  | Karl D. Schwartz
|  |  |  |  | Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

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