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Derivative Financial Instruments and Hedging | 9 Months Ended
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Sep. 29, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging | 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 under contractual arrangements that include raw material surcharges and index mechanisms. However, as of September 29, 2024, 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 4 million pounds of nickel with hedge dates through 2025. The aggregate notional amount hedged is approximately 6% of a single year’s estimated nickel raw material purchase requirements. These derivative instruments are used to hedge the variability of a selling price that is based on the London Metal Exchange (LME) index for nickel, as well as to hedge the variability of the purchase cost of nickel based on this LME index. Any gain or loss associated with these hedging arrangements is included in sales or cost of sales, depending on whether the underlying risk being hedged was the variable selling price or the variable raw material cost, respectively. At September 29, 2024, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility consisted of natural gas cost hedges. At September 29, 2024, the Company hedged approximately 85% of its forecasted domestic requirements for natural gas for the remainder of 2024, approximately 55% for 2025 and approximately 10% for 2026. While the majority of the Company’s direct export sales are transacted in U.S. dollars, it uses foreign currency exchange contracts, 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 it expects to receive from its export sales for pre-established U.S. dollar amounts at specified dates. In addition, the Company may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At September 29, 2024, the Company had no material outstanding foreign currency forward contracts. The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. The Company previously maintained a $50 million floating-for-fixed interest rate swap which converted a portion of the ABL Term Loan to a 4.21% fixed rate that matured during the quarter ended June 30, 2024. There are no outstanding derivative interest rate contracts at September 29, 2024. There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contain no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts are substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible. The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterparty or by type of item hedged. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data.
(In millions) Asset derivatives |  | Balance sheet location |  | September 29, 2024 |  | December 31, 2023
Derivatives designated as hedging instruments: |  |  |  |
Interest rate swap |  | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 0.7 |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | — |  |  | 0.1 |
Nickel and other raw material contracts |  | Prepaid expenses and other current assets |  | 0.6 |  |  | — |
Natural gas contracts |  | Prepaid expenses and other current assets |  | 0.1 |  |  | — |
Nickel and other raw material contracts |  | Other assets |  | 0.2 |  |  | — |
Natural gas contracts |  | Other assets |  | 0.1 |  |  | 0.1 |
Total derivatives designated as hedging instruments |  | $ | 1.0 |  |  | $ | 0.9 |
Liability derivatives |  | Balance sheet location |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Other current liabilities |  | 0.1 |  |  | — |
Natural gas contracts |  | Other current liabilities |  | 2.7 |  |  | 5.6 |
Nickel and other raw material contracts |  | Other current liabilities |  | 3.0 |  |  | 7.5 |
Natural gas contracts |  | Other long-term liabilities |  | 0.3 |  |  | 1.1 |
Foreign exchange contracts |  | Other long-term liabilities |  | 0.3 |  |  | — |
Total derivatives designated as hedging instruments |  | $ | 6.4 |  |  | $ | 14.2 |
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. There were no outstanding fair value hedges as of September 29, 2024. The cash flow impact for all derivative financial instruments is reported in cash flows provided by operating activities on the consolidated statement of cash flows. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes, excluding any impacts of changes to income tax valuation allowances affecting results of operations or other comprehensive income, when applicable (see Note 15 for further explanation). Assuming market prices remain constant with those at September 29, 2024, a pre-tax loss of $5.1 million is expected to be recognized over the next 12 months. Activity with regard to derivatives designated as cash flow hedges for the quarters and year-to-date periods ended September 29, 2024 and October 1, 2023 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)
| Quarter ended |  | Quarter ended
Derivatives in Cash Flow Hedging Relationships | September 29, 2024 |  | October 1, 2023 |  | September 29, 2024 |  | October 1, 2023
Nickel and other raw material contracts | $ | (0.2) |  |  | $ | (1.6) |  |  | $ | (1.4) |  |  | $ | (0.4) |
Natural gas contracts | (1.1) |  |  | (1.0) |  |  | (1.4) |  |  | (1.4) |
Foreign exchange contracts | (0.2) |  |  | 0.1 |  |  | — |  |  | 0.1 |
Interest rate swap | — |  |  | 0.1 |  |  | — |  |  | 0.3 |
Total | $ | (1.5) |  |  | $ | (2.4) |  |  | $ | (2.8) |  |  | $ | (1.4) |
| Amount of Gain (Loss) Recognized in OCI on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
| Year-to-date period ended |  | Year-to-date period ended
Derivatives in Cash Flow Hedging Relationships | September 29, 2024 |  | October 1, 2023 |  | September 29, 2024 |  | October 1, 2023
Nickel and other raw material contracts | $ | (1.3) |  |  | $ | (8.5) |  |  | $ | (2.5) |  |  | $ | 3.5 |
Natural gas contracts | (2.1) |  |  | (7.8) |  |  | (5.0) |  |  | (4.6) |
Foreign exchange contracts | 0.1 |  |  | 0.3 |  |  | 0.2 |  |  | 0.2 |
Interest rate swap | — |  |  | 0.3 |  |  | 1.2 |  |  | 0.8 |
Total | $ | (3.3) |  |  | $ | (15.7) |  |  | $ | (6.1) |  |  | $ | (0.1) |
(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 sales and 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. The Company may also use derivative instruments that are not designated as hedges to protect the Company’s results from certain fluctuations in foreign exchange rates, as well as to offset a portion of the foreign currency gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies. Changes in the fair value of these foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales or selling, general and administrative expenses on the consolidated statement of operations, and the Company recognized $1.0 million and $0.5 million of income, net, for settled foreign currency forward contracts that were not designated as hedges during the third quarter and year-to-date period ended September 29, 2024, respectively, which offset foreign currency gains/losses in the relevant currency. We have no significant outstanding hedges that are not designated as of September 29, 2024.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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