ATI Inc: Form 10-Q for the period ended Mar 30, 2025

Overview

ATI is a global manufacturer of technically advanced specialty materials and complex components. Our largest market is aerospace & defense, representing 66% of sales for the quarter ended March 30, 2025, led by products for jet engines and airframes. Additionally, we have a strong presence in the specialty energy, medical and electronics markets. In aggregate, these markets represented 77% of our sales for the quarter ended March 30, 2025. 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 in latest generation jet engines and 3D-printed aerospace products.

ATI follows a 4-4-5 or 5-4-4 fiscal calendar, whereby each fiscal quarter consists of thirteen weeks grouped into two four-week months and one five-week month, and its fiscal year ends on the Sunday closest to December 31. Unless otherwise stated, references to years and quarters in this Quarterly Report on Form 10-Q relate to fiscal years and quarters, rather than calendar years and quarters.

First quarter 2025 sales increased 9.7% to $1.14 billion, compared to $1.04 billion of sales for the first quarter 2024, as increases in sales to the aerospace & defense and industrial markets were offset by softness in the specialty energy, medical and electronics markets. The increase in the aerospace & defense market was primarily a result of increases in commercial jet engines sales. Total aerospace & defense sales were $754.4 million, or 66% of total sales for the first quarter 2025, compared to $615.7 million, or 59% of total sales for the first quarter 2024. Gross profit for the first quarter of 2025 was $235.8 million, or 20.6% of sales, compared to $197.4 million, or 18.9% of sales for the first quarter 2024. First quarter 2025 gross profit includes restructuring and other charges consisting of $4.0 million of start-up and transaction related costs, and $1.6 million of losses on the sale of accounts receivables. First quarter 2024 gross profit includes $2.9 million of start-up costs. These restructuring and other charges were excluded from segment EBITDA.

Restructuring charges for the first quarter of 2024 were $0.2 million, primarily for the involuntary termination of several employees in ATI’s domestic operations. In addition, interest expense decreased to $23.0 million in the first quarter of 2025 compared to $26.6 million in the first quarter of 2024, primarily as a result of the redemption of the 2025 Convertible Notes in the third quarter of 2024.

Our pre-tax income was $121.5 million in the first quarter 2025, compared to $85.3 million in the prior year period. Our effective tax rate was 17.3%, resulting in an income tax provision of $21.0 million for the first quarter of 2025. Our effective tax rate was 19.8%, resulting in an income tax provision of $16.9 million for the first quarter of 2024. Net income attributable to ATI was $97.0 million, or $0.67 per share, in the first quarter of 2025, compared to $66.1 million, or $0.46 per share, for the first quarter of 2024.

Adjusted EBITDA was $194.6 million, or 17.0% of sales, for the first quarter 2025, and $151.0 million, or 14.5% of sales, for the prior year first quarter. ATI utilizes Adjusted EBITDA and Segment EBITDA, which are non-GAAP financial measures, to assist in assessing operating performance on a consistent basis across multiple reporting periods by removing the impact of special items, which can vary from period to period, that management does not believe are directly reflective of the Company’s core operations. The Company defines special items as significant non-recurring or non-operational charges or credits, including restructuring charges or credits, gains or losses on the sale of accounts receivables, strike related costs, goodwill and long-lived asset impairments, debt extinguishment charges, pension remeasurement gains and losses, other postretirement/pension curtailment and settlement gains and losses, and gains or losses on sales of businesses.

We define Adjusted EBITDA as net income, excluding net interest expense, income taxes, depreciation and amortization, and special items. Our measure of Segment EBITDA, which we use to analyze the performance and results of our business segments, excludes net interest expense, income taxes, depreciation and amortization, special charges, corporate expenses, closed operations and other income (expense).

Management believes presenting these non-GAAP financial measures is useful to investors because it (1) provides investors with meaningful supplemental information regarding financial and operating performance by excluding certain items management believes do not directly impact the Company’s core operations, (2) permits investors to view performance using the same metrics that management uses to forecast, evaluate performance, and make operating and strategic decisions, and (3) provides additional information useful to investors on a period-to-period consistent basis that are commonly used to analyze companies’ operating performance. Management believes that consideration of these non-GAAP financial measures, together with our GAAP financial measures and the corresponding reconciliations, provides investors with additional understanding of the Company’s performance and trends that would be absent such disclosures.

Non-GAAP financial measures should be viewed in addition to, and not superior to or as an alternative for, the Company’s reported results prepared in accordance with GAAP. The following table provides the reconciliation of net income attributable to ATI to the Adjusted EBITDA and Total segment EBITDA non-GAAP financial measures:

Comparative information regarding our overall revenues (in millions) by end market and their respective percentages of total revenues for the quarters ended March 30, 2025 and March 31, 2024 is shown below.

Sales increased 10% in the first quarter of 2025, compared to the first quarter of 2024, primarily due to increased demand in the aerospace & defense market. In aggregate, ATI’s aerospace & defense market sales increased 23% to $754 million in the first quarter 2025, compared to $616 million the first quarter 2024, reflecting a 25% increase in commercial aerospace and an 11% increase in defense products. These increases were partially offset by declines in other core markets of 28% in medical, 25% in electronics, and 10% in specialty energy.

For the first quarter 2025, international sales increased to $501 million, or 44% of total sales, from $471 million, or 45% of total sales, in the first quarter 2024. ATI’s international sales are mostly to our core end markets.

Comparative information regarding our major products based on their percentages of revenues are shown below. HRPF conversion service sales in the AA&S segment are excluded from this presentation.

Business Segment Results

25

High Performance Materials & Components Segment

First quarter 2025 sales were $584.1 million, an increase of 10% compared to the first quarter 2024, primarily due to a 21% increase in sales to the aerospace & defense market. The increase in aerospace & defense sales was primarily due to increases in commercial jet engine sales of 34%, partially offset by declines in commercial airframe and defense sales of 5% and 3%, respectively. Overall aerospace & defense market sales were 92% of total HPMC sales in the first quarter of 2025.

Comparative information for our HPMC segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the quarters ended March 30, 2025 and March 31, 2024 is as follows:

International sales represented 46% of total segment sales for the first quarter 2025, compared to 55% in the prior year period. Comparative information for the HPMC segment’s major product categories, based on their percentages of revenue for the quarters ended March 30, 2025 and March 31, 2024, is as follows:

Segment EBITDA in the first quarter 2025 was $131.0 million, or 22.4% of total sales, compared to $97.6 million, or 18.4% of total sales, for the first quarter 2024. The increase in segment EBITDA, as a percentage of sales, was primarily due to higher sales and improved sales mix as well as favorable pricing.

The Company’s investments to increase capacity and focus on continuous improvement are driving improvements to our work-flow processes and operations. HPMC results for first quarter 2025 reflected year-over-year improved operating leverage and pricing as we continued to experience increasing demand from the aerospace & defense market. Although macro risks and uncertainty increased during the latter part of the first quarter, we believe our capabilities, strong backlog and long-term agreements (“LTAs”) with aerospace market OEMs for our specialty materials, including powders, parts and components, position the HPMC segment for profitable growth for the next several years. ATI has prepared for the potential risks of tariffs for many years and we have taken actions to minimize the impact of these tariffs in our contracts and supply chains. While we expect continued, near-term challenges, we believe the backlog of commercial aircraft production, increasing requirements for maintenance, repair, and operations, and the current OEM production forecasts support our long-term growth expectations in this end market.

Advanced Alloys & Solutions Segment

First quarter 2025 sales were $560.3 million, an increase of 9% compared to the first quarter 2024, primarily due a 25% increase in sales of aerospace & defense products and a 21% increase in sales to the conventional energy market. These increases were partially offset by a 24% decrease in sales to the electronics market.

Comparative information regarding our AA&S segment revenues (in millions) by market and their respective percentages of the segment’s overall revenues for the quarters ended March 30, 2025 and March 31, 2024 is shown below.

International sales represented 42% of total segment sales for the first quarter of 2025, compared to 36% in the prior year’s first quarter. Comparative information regarding the AA&S segment’s major product categories, based on their percentages of revenue for the quarters ended March 30, 2025 and March 31, 2024, is presented in the following table. HRPF conversion service sales are excluded from this presentation.

Segment EBITDA was $83.4 million, or 14.9% of sales, for the first quarter 2025, compared to segment EBITDA of $71.8 million, or 14.0% of sales, for the first quarter 2024. The margin increase compared to the prior year was primarily due to higher sales and a favorable sales mix on higher demand for nickel-based alloys. First quarter 2025 also included a benefit of $2.6 million due to a customer recovery for previously reserved accounts receivable.

While our margin declined sequentially from the fourth quarter 2024, that quarter included a net benefit of $4.9 million due to the Advanced Manufacturing Production Credit and a customer commercial negotiation. We continue to expect to see margin expansion through improved sales mix and improved operating performance, which was demonstrated by our year-over-year margin expansion. We are also closely monitoring macro risks and uncertainty and have taken actions to minimize the impact of tariffs in our contracts and supply chains.

Corporate Items

Corporate expenses for the first quarter of 2025 were $17.4 million, compared to $17.1 million for the first quarter 2024. Closed operations and other expense for the first quarter 2025 was $2.4 million, compared to $1.3 million for the first quarter 2024.

Interest expense, net of interest income, in the first quarter 2025 decreased to $23.0 million, compared to $26.6 million for the first quarter 2024, due to the conversion of the 2025 Convertible Notes during the third quarter 2024. Capitalized interest reduced interest expense by $3.1 million in the first quarter 2025 and $4.0 million in the first quarter 2024.

Restructuring and other charges of $5.6 million for the first quarter of 2025 include $4.0 million of start-up and transaction related costs, and $1.6 million for losses on sale of accounts receivables. Restructuring and other charges of $3.1 million for the first quarter of 2024 include $2.9 million of start-up costs and $0.2 million of restructuring costs. Start up and transaction related costs are included within cost of sales in the consolidated statements of operations. These restructuring and other charges were excluded from segment EBITDA. Cash payments associated with prior restructuring programs were $1.7 million in the first quarter of 2025. Of the $6.8 million of remaining reserves associated with these restructuring actions as of March 30, 2025, all are expected to be paid within the next year.

Managed Working Capital

As part of managing the performance of our business, we focus on Managed working capital, a non-GAAP financial measure that we define as gross accounts receivable, short-term contract assets and gross inventories, excluding the effects of reserves for uncollectible accounts receivable and inventory valuation reserves, less accounts payable and short-term contract liabilities. We assess Managed working capital performance as a percentage of the prior three months annualized sales. Managed working capital is not intended to replace working capital or other GAAP financial measures or to be used as a measure of liquidity.

Management believes this non-GAAP financial measure focuses on the assets and liabilities most closely attributable to our core operations, allowing Management to quantify and evaluate the asset intensity of our business. Further, Management believes this non-GAAP financial measure provides investors with additional insights into the Company’s effectiveness in balancing the need to maintain appropriate asset levels to support sales growth and operations while deploying our cash effectively.

We employ several strategies to actively manage our Managed working capital, seeking to effectively balance the need to maintain appropriate levels of Managed working capital to support our growth and operations, while deploying our cash efficiently. Our strategies include, but are not limited to, taking advantage of favorable customer and supplier payment terms, participating in supplier financing programs, accounts receivable factoring arrangements and other customer financing programs, managing the timing of purchases of raw materials, and leveling manufacturing process throughput and shipping to limit periodic increases in Managed working capital.

At March 30, 2025, Managed working capital increased as a percentage of annualized sales to 35.9% compared to 30.9% at December 29, 2024. The increase in Managed working capital as a percentage of annualized sales was primarily due to seasonal inventory builds and the timing of shipments and vendor payments in the quarter. Days sales outstanding, which measures actual collection timing for accounts receivable, worsened by 21% as of March 30, 2025 compared to year end 2024. Gross inventory turns, which measures how many times we turn over our inventory relative to cost of sales in a year, worsened by 4% as of March 30, 2025 compared to year end 2024.

The computations of Managed working capital at March 30, 2025 and December 29, 2024, reconciled to the financial statement line items as computed under U.S. GAAP, were as follows. The December 29, 2024 amounts include management working capital balances that are classified as held for sale.

(In millions)

Income Taxes

Our effective tax rate was 17.3%, resulting in an income tax provision of $21.0 million for the quarter ended March 30, 2025. Our effective tax rate was 19.8%, resulting in an income tax provision of $16.9 million for the quarter ended March 31, 2024. The effective tax rate for the quarterly periods ended March 30, 2025 and March 31, 2024 included discrete tax benefits of $5.1 million and $3.0 million, respectively, primarily for share-based compensation in. Excluding discrete tax benefits, the Company’s operating tax rates for the quarters ended March 30, 2025 and March 31, 2024 were 21.5% and 23.3%, respectively.

Liquidity and Financial Condition

We have an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of our operations. The ABL facility also provides us with the option of including certain machinery and equipment as additional collateral for purposes of determining availability under the facility. The ABL facility, which matures in September 2027, includes a $600 million revolving credit facility, a letter of credit sub-facility of up to $200 million, a $200 million term loan (Term Loan), and a swing loan facility of up to $60 million.

As of March 30, 2025, there were no outstanding borrowings under the revolving portion of the ABL facility, and $30.5 million was utilized to support the issuance of letters of credit. At March 30, 2025, we had $476 million of cash and cash equivalents, and available additional liquidity under the ABL facility of approximately $537 million. Our next significant debt maturity are the 6.95% Debentures due 2025 issued by our wholly owned subsidiary, Allegheny Ludlum LLC.s in the fourth quarter of this year.

Periodically, our Board of Directors authorizes the repurchase of ATI common stock (the “Share Repurchase Program”), the most recent of which was $700 million that was announced in September 2024. Repurchases under these programs are made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. Open market repurchases are structured to occur within the pricing and volume requirements of SEC Rule 10b-18. In the quarter ended March 30, 2025, ATI used $70.0 million to repurchase 1.2 million of its common stock under the Share Repurchase Program. In the quarter ended March 31, 2024, ATI used $150.0 million to repurchase 3.4 million shares of its common stock under the Share Repurchase Program. At March 30, 2025, ATI has utilized $180 million of the $700 million currently authorized under the Share Repurchase Program.

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. In the event we decide to obtain additional financing, the cost and 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. As a result, 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.

In managing our overall capital structure, we focus on the ratio of net debt to Adjusted EBITDA, which we use as a measure of our ability to repay our incurred debt. We define net debt as the total principal balance of our outstanding indebtedness excluding deferred financing costs, net of cash, at the balance sheet date. See above for our definition of Adjusted EBITDA, which is a non-GAAP measures and is not intended to represent, and should not be considered more meaningful than, or as an alternative to, a measure of operating performance as determined in accordance with U.S. GAAP. Our ratio of net debt to Adjusted EBITDA (Adjusted EBITDA Leverage Ratio) measures net debt at the balance sheet date to Adjusted EBITDA as calculated on the trailing twelve-month period from this balance sheet date.

Our Total Debt to Adjusted EBITDA Leverage ratio improved in the first quarter of 2025 compared to year end 2024, while our Net Debt to Adjusted EBITDA Leverage ratio worsened in the first quarter of 2025 compared to year end 2024, largely due to a decreased cash balance. The reconciliations of our Adjusted EBITDA Leverage Ratios to the balance sheet and income statement amounts as reported under U.S. GAAP are as follows:

Cash Flow

Cash used in operations was $92.5 million in the first quarter of 2025, compared to cash used in operations of $98.8 million in the first quarter of 2024. Both periods reflect higher accounts receivable and higher inventory balances due to increased operating levels as well as seasonal inventory builds. Working capital balances, and consequently cash from operations, can fluctuate throughout any operating period based upon the timing of receipts from customers and payments to vendors. Other significant first quarter 2025 and 2024 operating cash flow items included payment of the annual cash incentive compensation.

Cash used in investing activities was $50.6 million in the first quarter of 2025, which included $53.3 million for capital expenditures. Cash used in investing activities was $63.8 million in the first quarter of 2024, which included $65.8 million for capital expenditures. We expect to fund our capital expenditures with cash on hand and cash flow generated from our operations and, if needed, borrowings under the ABL facility.

Cash used in financing activities was $107.5 million in the first quarter of 2025, which included $70.0 million to repurchase 1.2 million shares of ATI stock. Cash used in financing activities was $186.9 million in the first quarter of 2024, which included $150.0 million to repurchase 3.4 million shares of ATI stock. All share repurchases were made pursuant to the Share Repurchase Program authorized by our Board of Directors.

At March 30, 2025, cash and cash equivalents on hand totaled $475.8 million, a decrease of $245.4 million from year end 2024. Cash and cash equivalents held by our foreign subsidiaries was $198.8 million at March 30, 2025, of which $71.3 million was held by the STAL joint venture.

Critical Accounting Policies

Our critical accounting policies are 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 29, 2024.

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 new and 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 materials 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; (h) the risks of business and economic disruption associated with extraordinary events beyond our control, such as war, terrorism, international conflicts, public health issues, such as epidemics or pandemics, natural disasters and climate-related events that may arise in the future; and (i) other risk factors summarized in our Annual Report on Form 10-K for the year ended December 29, 2024, and in other reports filed with the Securities and Exchange Commission. We assume no duty to update our forward-looking statements.

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-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. Any gain or loss associated with this hedging arrangement was included in interest expense. There are no outstanding derivative interest rate contracts at March 30, 2025.

Volatility of Energy Prices. Energy resource markets are subject to conditions that create uncertainty in the prices and availability of energy resources. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Increases in energy costs, or changes in costs relative to energy costs paid by competitors, have and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition. We use approximately 6 to 8 million MMBtu’s of natural gas annually, depending upon business conditions, in the manufacture of our products. These purchases of natural gas expose us to the risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase in the price of natural gas would result in increased annual energy costs of approximately $6 to $8 million. We use several approaches to minimize any material adverse effect on our 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 March 30, 2025, the outstanding financial derivatives used to hedge our exposure to energy cost volatility consisted of natural gas hedges covering approximately 75% of our forecasted domestic requirements for natural gas for the remainder of 2025 and approximately 35% for 2026. At March 30, 2025, the net mark-to-market valuation of these outstanding natural gas hedges was an unrealized pre-tax gain of $5.5 million, comprised of $4.6 million in prepaid expenses and other current assets and $0.9 million in other long-term assets on the balance sheet. For the quarter ended March 30, 2025, natural gas hedging activity decreased cost of sales by $0.2 million.

Volatility of Raw Material Prices. We use raw material 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 2024, we used approximately 70 million pounds of nickel; therefore, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $70 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 March 30, 2025, 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 4 million pounds of nickel with hedge dates through 2027. 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 March 30, 2025, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax loss of $2.0 million, comprised of $0.3 million in prepaid expenses and other current assets, $0.1 million in other long-term assets, $2.3 million in other current liabilities and $0.1 million in other long-term 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 we expect to receive from our export sales for pre-established U.S. dollar amounts at specified dates. In addition, we may also hedge forecasted capital expenditures and designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At March 30, 2025, we had no material outstanding foreign currency forward contracts.

We may also use derivative instruments that are not designated as hedges to protect our 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 we recognized $1.8 million of income, net, for settled foreign currency forward contracts that were not designated as hedges during the quarter ended March 30, 2025, which offset foreign currency gains/losses in the relevant currency. We have no significant outstanding hedges that are not designated as of March 30, 2025.

(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 March 30, 2025, 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 March 30, 2025 conducted by our Chief Executive Officer and Chief Financial Officer, that occurred during the quarter ended March 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 29, 2024. 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 29, 2024, 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.

Labor Matters. We have approximately 7,800 active employees, of which approximately 10% are located outside the United States. Approximately 35% of our workforce is covered by various CBAs, predominantly with the USW. At various times, our CBAs expire and are subject to renegotiation. Generally, collective bargaining agreements that expire may be terminated after notice by the union. After termination, the union may authorize a strike. A labor dispute, which could lead to a strike, lockout, or other work stoppage by the employees covered by one or more of the collective bargaining agreements, could have a material adverse effect on production at one or more of our facilities and, depending upon the length of such dispute or work stoppage, on our operating results. There can be no assurance that we will succeed in concluding collective bargaining agreements to replace those that expire. On April 22, 2025, we reached agreements with the USW for new CBAs that cover nearly 1,000 USW represented full-time employees within our AA&S operations for a six-year term that extends through February 28, 2031.

Risks Associated with Current or Future Litigation and Claims. A number of lawsuits, claims and proceedings have been or may be asserted against us relating to the conduct of our currently and formerly owned businesses, including those pertaining to product liability, patent infringement, commercial disputes, government contracting, employment matters, employee and retiree benefits, taxes, environmental matters, health and safety and occupational disease, and stockholder and corporate governance matters. Due to the uncertainties of litigation, we can give no assurance that we will prevail on all claims made against us in the lawsuits that we currently face or that additional claims will not be made against us in the future. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to us, we do not believe that the disposition of any such pending matters is likely to have a material adverse effect on our 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 our results of operations for that period. Also, we can give no assurance that any other claims brought in the future will not have a material effect on our financial condition, liquidity or results of operations.

In August 2024, the Company received notice that it and certain of its affiliates are parties to two lawsuits, filed in federal district court for the Western District of Pennsylvania, that assert various claims associated with the Company’s October 2023 purchase of group annuity contracts to transfer a portion of its U.S. qualified defined benefit pension plan obligations to Athene Annuity and Life Company and Athene Annuity & Life Assurance of New York. These two lawsuits were consolidated in late 2024. In January 2025, we filed a Motion to Dismiss the consolidated claims, and briefing on the Motion has been completed. We intend to vigorously defend against these claims, but given the preliminary nature of these matters, cannot predict their outcome or estimate any range of reasonably possible loss at this time.