Good morning, and welcome to the Allegheny Technologies Incorporated Fourth Quarter and Full Year 2016 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dan Greenfield, Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Keith. Good morning, and welcome to the Allegheny Technologies conference call for the fourth quarter and full year 2016. This conference call is being broadcast on our Web site at atimetals.com. Members of the media have been invited to listen to this call. Participating in the call today are Rich Harshman, Chairman, President and Chief Executive Officer; Pat DeCourcy, Senior Vice President, Finance and Chief Financial Officer; John Sims, Executive Vice President, ATI High Performance Materials and Components Segment; Bob Wetherbee, Executive Vice President, ATI Flat-Rolled Products Group; and Kevin Kramer, Senior Vice President, Chief Commercial and Marketing Officer. All reference to net income, net loss, or earnings in this conference call mean net income, net loss or earnings attributable to ATI. If you have connected to this call via the Internet, you should see slides on your screen. For those who have dialed in, slides are available on our Web site atimetals.com. After some initial comments, we will answer the questions. During the question-and-answer session, please limit yourself to two questions to be considerate of others on the line. As always, we will make every attempt to reach everyone in the question-and-answer queue within the allotted conference call time. Please note that all forward-looking statements this morning are subject to various assumptions and caveats as noted in the earnings release and on the slide. Actual results may differ materially. Here is Rich Harshman.

Thank you, Dan. Good morning to everyone on the call or listening on the Internet. Fourth quarter performance shows the early results of the strategic decisions we have been implementing over the last few years. As a result, ATI's High Performance Materials and Components segment's operating profit improved to 11.3% of sales, and Flat-Rolled Products segment achieved a near breakeven quarter after four years of operating losses. Our largest market at 51% of 2016 sales is Aerospace and Defense. We are into the transition to the next generation aircraft and jet engines from the legacy models, and ATI is benefiting. ATI sales for the commercial jet engine applications increased 13% in 2016 compared to 2015. While sales for airframe applications were essentially flat, titanium mill product shipments remained healthy. During the last several years we have enhanced our capacity and capabilities to make the products that support our customer's needs for next generation engine platforms. Our facilities are qualified. This available capacity enhances our competitive position and our capabilities to create value for our customers and our shareholders over the long-term, and we are. Fourth quarter 2016 results demonstrates steady improvement in operating earnings. This improvement is being driven by revenue growth and improved product mix, primarily in the aerospace and defense markets, and significant cost reduction and restructuring actions that have been taken throughout ATI over the last several years. The improvement is impressive given the fact that demand from our second largest end-market oil and gas remains depressed, specifically 2016 sales to the oil and gas market decreased by 48% compared to 2015 and by 63% compared to 2014. 2016 has been a period of transition for ATI as we made difficult decisions and took significant actions to improve our cost structure and lay the groundwork for sustainable…

Thanks, Rich. Turning to slide 10; we reported fourth quarter 2016 sales of $796 million and net income attributable to ATI of $10 million or $0.09 per share. Fourth quarter 2016 results include $29 million of pretax restructuring charges including $13 million for additional high performance materials and components, segment closure-related actions at the Rowley Utah, Frackville PA, and Albany Oregon titanium operations and $16 million for Flat-Rolled Products segment closure-related costs at the Midland and Baghdad PA facilities and for additional Flat-Rolled Product severance charges. Excluding these restructuring costs and above normal income tax benefit, the net loss attributable to ATI was $4 million or $0.04 per share. At December 31, 2016 cash on hand was $230 million and available liquidity under our asset-based lending facility was approximately $310 million. Cash provided by operations in the fourth quarter 2016 was $68 million as we improved our used of managed working capital. Managed working capital improved by $53 million in the fourth quarter bringing the total 2016 improvement to $92 million. Capital expenditures were $202 million in 2016. We expect 2017 capital expenditures to be approximately $125 million including 2016 carryover and approximately $40 million for the expansion of our 60% owned Chinese joint venture STAL. Beyond 2017, we continue to expect capital expenditures to average no more than $100 million annually for the next several years. We are at the end of our extraordinary capital expenditure cycle that has transformed and modernized ATI. We expect to pay off our short-term debt of our 100 million that is due later this year. Cash generation from operations remains a key focus at ATI. As earnings improved in 2017 and beyond, the resulting annual free cash flow after necessary capital expenditures will be used primarily to reduce debt, improve the funded position…

Thank you, Pat. Turning to slide 11, we've used this slide before and we will continue to use it because we think it tells a very important story. The next generation rate ramp has begun and the transition to next generation from legacy is driving ATI's performance. Slide 11 shows how we view this aerospace cycle. The white area shows the number of legacy jet engine. The green area illustrates the projected number of next generation jet engines expected to be delivered. Beginning in 2016 and growing until the end of the decade, there is a pronounced difference in the spread between the declining demand for OEM legacy products compared to the growing demand for the next generation products. As you can see by 2020 nearly -- the chart is nearly all green. This slide demonstrates the significant mix shift taking place in our aerospace business, growing demand for our differentiated next generation alloys as well as growing demand for our isothermal and hot-die forging and titanium investment castings. Most important for ATI through the end of the current decade the OEM build schedules show five new next generation airplanes and eight new next generation engines. We have improved content on nearly all of the next generation airplanes and engines listed as compared to the legacy engine programs being replaced. This content is secured by long-term supply agreements that run into the next decade or some time we have provided you information on the jet engine backlog according to the latest information available the backlog stands at 22,314 engines. Now we turn our focus on the engine delivery schedule. We show a third-party schedule some of you may be more positive, some may be less positive, either way that build schedule represents significant growth opportunity for ATI. As a reminder,…

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Richard Safran from Buckingham Research.

Rich, Patrick, Dan, good morning.

Good morning, Rich.

Good morning, Rich.

So first off, Rich, in your opening remarks, and it went a little quick, you talked about some of the indicators you know like consumer confidence, things like that, improvement that drove 4Q results. Could you discuss what your leading indicators you look at internally and what they're telling you about '17? What they're telling you? And if you would, could you go through your key aerospace end markets and discuss how you see them trending in '17? For example, is OE going to grow in line with new technology build rates, aftermarket notably? And more importantly I was interested on defense since you highlighted that in your remarks.

Yes, well, there's a lot of embedded questions in there, Rich, but we'll do the best we can. I'm going to start really with the latest comment, and that's on defense, and I'm going to ask Kevin Kramer, who -- and Kevin is really at the forefront here of working with our defense market sector team on how we're strategizing, and more importantly what we think, not only about 2017, I think there is growth in 2017 in defense for ATI, but the comments I made are really -- it's a long-term evolving strategy over the next three to five years and beyond, but Kevin, could you just spend a couple of minutes talking about defense?

Sure. And again, good morning, Rich, and as Rich had mentioned earlier…

Good morning.

Good morning. We established an office a little over a year ago in Washington D.C. headed up by Cherry Hartford [ph], and really what we've decided that we have to have a better presence at the DoD with all the primes, with all the platform offices, as well as the labs. So when we look at the opportunities on ground systems, nav sea, nav air force, munitions, ammunitions, missile systems, we really have a very wide array of materials and components to meet the opportunities. As I'm sure you know, the defense cycle is a long cycle, but having a relevant presence against all those touch points I just mentioned, we're very optimistic as to the future across both high performance as well as Flat-Rolled for ATI.

And Rich, on commercial aerospace I think as we look –- because your question is more focused on 2017, I think as we look at 2017, the primary growth driver for us is really new builds, right? I mean, it's -- spares is there, the application of spares both from a mill product standpoint as well as from a parts standpoint, primarily forgings are there, but that's really not going to be -- and it's a good market, right, I mean, it's not a weak market, and it really depends on what platform you're on, quite frankly, the single is always really the big driver of spares demand. But as we look at and think about 2017 it's really the new build. It's really the new engine platform. It's the LEAP, it's the XWB. We have significant content on both of those platforms as compared to their predecessor platforms. The CFM engine build rate is still strong obviously. And there is where you'll see some of the spares going, and continuing to grow. So I think it's really -- and the reason why we spent so much time really talking and focusing the comments on the differentiated next generation platforms is those are the real drivers on a year-over-year comparative basis. When you look at isothermal forging, and when you look at alloys like ATI 718Plus, Rene 65, and the powder alloys, those are largely going into the new platforms, which are the ones that are in the highest growth trajectory because of the nature of the backlog. And that's really going to be the big driver, not only quite frankly in 2017, but also beyond. Now, that does not diminish the importance of the legacy platforms. I mean, there is still a significant demand on the legacy platforms especially…

Okay, thanks. And staying on aerospace just real quickly here, Rich, I thought I heard you in your remarks say that your guide assumes narrow-body rates of 42 per month. I think you're also aware that Boeing is planning on raising rates to 47 a month this year on the narrow-body again. So do I take that to mean that if Boeing hits 47 a month maybe there's a little bit of upside here to your guide if they hit that rate? And also, is there any -- is your guide assume same level of conservatism on any of the wide-body rates as well, Boeing staying stable at 12, but maybe on the A350, that sort of thing?

Yes, all of our planning process is really off of the current production rate. So that not only pertains to '17, but also -- we do a five-year detailed plan. It assumes the continuation of the current build rates through that period. I know there is some speculation maybe that given that on a relative basis the weaker demand profile of the wide-body that maybe the two OEMs will have a hard time sustaining the current announced build rate or in the current build rate on the wide-body. We'll see. I mean, a lot can change there, but I think to the extent that that gets lowered it's from the standpoint of our position in the market it's more than offset by the upside potential if the single aisles are built at more than 42 a month. Which I think given the backlog and the macro I think the general consensus is supportive of what the two OEMs have announced in terms of future build rate increases on the single aisle. So we're being purposefully conservative. We're not purposefully conservative in terms of how we think about our capacity. If that capacity and the demand is there at a higher level we have the capability and the capacity to allocate to that stronger demand, not only in 2017, but beyond.

Thank you. And the next question comes from Josh Sullivan with Seaport Global.

Good morning.

Good morning, Josh.

Hey. Can you just comment on some of those, with the new presidential administration here, obviously a lot of trade-related initiatives, are there any specific ones that you're looking at, or is there any way to quantify how they might impact ATI?

Yes, we've been fairly consistent for a very long time that in our view that what needs -- the primary focus should really be on enforcing the existing trade agreements that are in place, including the requirements of being a participant in the WTO. And I think that that has not happened quite frankly, regardless of who has been in the Whitehouse over the past 12 years or longer. And I think if you do that, from our perspective, we are pleased about the decision of TPP. We spend a lot of time looking at and analyzing TPP, and did not think that it was a good, fair trade agreement for American manufacturers. And so we support that. I think that any time that trade is discussed we're not advocating protectionism. What we have always advocated going back to before my predecessor, actually going back 30 years, to Dick Simmons when he was the leader -- the chairman and CEO of Allegheny Ludlum is when you talk about trade and you talk about global trade there are two F-words when you talk about trade, and it's fair and free, so there's two. And I think in many cases the advocacy of free trade did undermine, especially U.S-based manufacturers. And we think that the change in tone and the recognition of that is important. I think it's a journey. I don't think that that happens overnight. I don't think that that's going to be a big impact on the first quarter or maybe even the first half or maybe even 2017. But I think from a long-term strategy standpoint I think it is a very positive development for American manufacturers. We support it. We're not new supporters into that. We're not jumping on the bandwagon, it's something that we have been arguing for and supporting for more than a generation.

Great, thank you. Then just one on aerospace, where do you think you are on the learning curve right now and how does that progress over 2017 as it relates to the high-performance margins?

Are you talking about the segment in total or are you talking about investment castings?

Both or just how it's going to…

Yes, I think on a total basis, we're pretty good at what we do. We've been doing it for a long time. We know how to make forgings, we know how to make milled products, we have outstanding people, not only on the technical side but on the operational side. We have an outstanding asset base. I think that the biggest need -- now when you get into new products, and you get into new alloys, and you get into new parts, especially on the forging side, there is obviously a learning curve. You go through that learning curve when you move from a fat forging into a streamlined forging or a slim-line forging. So depending upon where you are in the history of that new part introduction you go through a learning process. But I think there we're in a very good shape. I think the biggest challenge we have and that we've had is really on the investment casting side because of, not only the nature of some of the new parts, but also some of the more established parts and the volume that has been put in at the timeframe that you're really ramping up on everything else. So we have struggled with that. I'm going to ask John Sims to really comment more specifically about where he thinks we are on the investment casting side and any other comments he wants to add. John?

Yes, thank you, Rich. Hi, Josh. On the investment cast side I guess in general, as Rich said, from a milled product powder forging side I would say we're qualified and rate capable. On the investment casting side we're probably in general about 50% through the learning curve from the new product introduction. And in the world of investment castings, learning curve is a defined part of the agreements that we have. A certain number of parts make up what we define as the learning curve. So we're about 50% of the way through there. Important for us to remember on the investment casting side is, prior to 2015 that business, from a mix standpoint, was predominantly airframe, which are smaller parts, generally a little easier to make. That dramatically changed in 2015 with the engine ramp, to where today the majority of our parts are engine-related, which are typically larger, far more complex castings with a more difficult learning curve. So that in combination with our capacity ramp, the new product introduction as well as some other supply chain issues that have occurred over that time as we drop in orders, et cetera. That's been primarily our challenge as we work our way through that. But as Rich said, making a lot of progress there, and we anticipate continued progress as we work through 2017, and become rate capable on those programs.

Yes, thanks John. One other thing to put everything in perspective, I mean we are spending a significant amount of time, and effort, and resources on supporting the rate ramp at the casting business, when you look at it from an ATI perspective, it's about 5% of our total revenue. So, we are spending much more time than what the size of the business is, and that's important to us because of the impact that it has on our customers in their programs.

Okay, thank you.

Thank you.

Thanks.

Thank you. And the next question comes from Michael Gambardella of J.P. Morgan.

Yes, good morning.

Good morning, Mike.

Good morning.

I have a question, first of all, congratulations on all the restructuring. I know it's been quite a lot of work over the years and good progress and keep it up.

Thank you.

In terms of transforming the company from you know, basic commodity stainless steel with some specialty to more higher value-added product mix, but you talked about the front administration in terms of the benefit for workers in the U.S. and you are certainly going to benefit from that, and maybe some of your customers start to benefit in terms of increasing demand, but -- and the other side of it, your business right now in terms of total sales is about 41% of our sales get exported overseas. Could you give us an idea what percentage of those exports are aerospace, defense, which maybe less likely to retaliatory trade actions and how do you think that's all going to play out in terms of your export activity versus say, you know, some parent countries taking an aggressive reactionary stands to Trump's trade policies?

Yes. Mike, first of all, thank you for your comments, and I know you followed ATI for a long time, going back to you know, one of the legacy companies, Allegheny. So, your comments are appreciated. That's a great question. And I think when you really look at our direct export sales, it is predominantly aerospace. You know, it is 90% aerospace of those numbers. So what do we really export direct, I mean some of that is actually produced outside the U.S. right, I mean a significant part of that. So, and when I answered the question about what gets produced in the U.S. that gets exported outside the U.S. it is predominantly 35% of the total is produced in the U.S. and exported outside of the U.S. The rest of that 6% is manufactured outside of the U.S. and a large part of that's in China with the STAL joint venture, which is primarily for Chinese market alone, but not all necessarily. Some of that gets exported out of China into other Asian countries, specifically. So, of the 35%, 90% is aerospace, right? And it's -- there it is primarily, not totally, but primarily jet engine. So, what else do we export outside of the U.S? What do we consider more of the global products that are serving end markets? Oil and gas is a global market. Is it subject to competition from other countries? Yes, absolutely it is. And it will continue to be so. The medical sales is a global market, right? MRIs are sold globally. It's a subject to competition from China, from European producers? Yes, absolutely. But you compete there, it's not just necessarily price, it's quality, it's capability. I mean, some of these products are going inside the human body, so you don't…

So you feel -- bottom line is you feel pretty confident at any kind of retaliatory trade actions that foreign countries take, probably wouldn't affect you because of the emphasis on aerospace?

Yes, I mean it's hard. You know, how do you replace -- when the airplanes get build, right, the supply chain is pretty defined. When you look at the backlog that exist now, the supply chain is pretty well defined as who is qualified, who has the capabilities of making those, to bring on a -- and we see that -- why it's so critical for us to get up to speed [technical difficulty] on the casting side.

Just a housekeeping question, and now I will let someone else ask the question. Were there any changes for 2017 and your pension discount rates are returns on asset assumptions?

No changes, Mike. We are consistent with the year-over-year.

Okay. Great, thank you.

Thank you, Mike.

Thank you. And the next question comes from Jorge Beristain from Deutsche Bank.

Hi, good morning guys. Just following up on the Trump question, there has also been some talk about discouraging imports of raw materials and favoring -- essentially taking away tax breaks on imported raws. If you could just comment, could that be a potential short-term negative for your titanium business now that you switched back to using imported sponge, and could you comment does Rowley have switchability, how quickly could that facility to be brought back on if the cost differential widened again? And secondly, your long-term contracts out there with those suppliers you have recently renegotiated, what is the duration?

Yes. Well, there has been a duty on imported sponge forever. It's a 15% duty on sponge that gets imported into the U.S. I think that you know, look I mean, I think that as we move beyond the general comments into specifics, I think that there will be you know, lot of listening and a lot of comments in terms of -- fundamentally I don't think there is any desire to do anything for manufacturers who necessarily have to import because we don't have -- I mean, for example where is nickel mined in the U.S? So, I think there will be a thoughtful analysis of what trade agreements and laws are put in place, and the fundamental purposes, right, to grow the U.S. economy, it's not the harm to U.S. economies. So we will stay in touch and in tune with that, but of the things that I kind of worry about and focus on that necessarily isn't one of them as we did say when -- at the time that we idled the Rowley facility, it is an idling that is designed to enable us to restart it on a relatively quick basis, certainly within a year, if market conditions require that, or support that. And we have the capability of doing that in order to meet our demands until it would be restarted, we have inventory as part of the supply agreements. We have consigned inventory on the continent that supports our needs for that period of time, but I'm not anticipating that would really be required. We haven't commented publicly on the lens of the supply agreements other than they pretty -- they extend into the next decade.

Okay, got it. And just on the Flat-Rolled, I'm surprised given all your earlier anecdotal commentary about green shoots in the U.S. economy that you are still guiding to, it sounds like very low single-digit EBIT margins for Flat-Rolled. Could you just comment if there is upside risk to that forecast?

Well, yes, I mean we -- you know, it's depended upon a lot of market conditions; oil and gas is one that I think probably presents the biggest upside in terms of Flat-Rolled. And anyhow we still make Flat-Rolled stainless. So it's less of significant plus today than it ever has been, but the competitive factors and the global supply and demand equation on that, were there significant global excess supply and excess supply really in the U.S. is not lost on. So, if there is an opportunity to outperform in Flat-Rolled, I'm sure Bob and his team will do it.

Okay. With that, we would like to thank everybody for joining us on the call today. And as always, thank you for your continuing interest in ATI.

Thank you Rich, and thanks to all of the listeners for joining us today. That concludes our conference call.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Have a nice day.