UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                      to                     

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

     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 þ   No o

     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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)			Smaller reporting company o

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

     At October 28, 2008, the registrant had outstanding 96,293,252 shares of its Common Stock.

 

 

ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2008

INDEX

		Page No.
PART I. — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets			3
Consolidated Statements of Income			4
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
PART II. — OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 6. Exhibits			35
SIGNATURES			36
EXHIBIT INDEX			37

PART I. FINANCIAL INFORMATION

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)

		September 30,				December 31,
		2008				2007
		(Unaudited)				(Audited)
ASSETS
Cash and cash equivalents		$	272.6			$	623.3
Accounts receivable, net			744.5				652.2
Inventories, net			1,083.9				916.1
Deferred income taxes			—				18.8
Prepaid expenses and other current assets			40.2				38.3
Total Current Assets			2,141.2				2,248.7
Property, plant and equipment, net			1,523.4				1,239.5
Prepaid pension asset			266.4				230.3
Cost in excess of net assets acquired			204.2				209.8
Deferred income taxes			35.2				42.1
Other assets			141.6				125.2
Total Assets		$	4,312.0			$	4,095.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	414.4			$	388.4
Accrued liabilities			290.8				277.3
Accrued income taxes			29.0				17.4
Deferred income taxes			42.7				—
Short-term debt and current portion of long-term debt			20.9				20.9
Total Current Liabilities			797.8				704.0
Long-term debt			495.0				507.3
Retirement benefits			470.1				469.6
Other long-term liabilities			184.4				191.2
Total Liabilities			1,947.3				1,872.1
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-102,404,256 shares at September 30, 2008 and December 31, 2007; outstanding-97,297,760 shares at September 30, 2008 and 101,586,334 shares at December 31, 2007			10.2				10.2
Additional paid-in capital			650.1				693.7
Retained earnings			2,230.4				1,830.7
Treasury stock: 5,106,496 shares at September 30, 2008 and 817,922 shares at December 31, 2007			(280.1	)			(75.4	)
Accumulated other comprehensive loss, net of tax			(245.9	)			(235.7	)
Total Stockholders’ Equity			2,364.7				2,223.5
Total Liabilities and Stockholders’ Equity		$	4,312.0			$	4,095.6

The accompanying notes are an integral part of these statements.

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Sales		$	1,392.4			$	1,335.0			$	4,197.0			$	4,178.9
Costs and expenses:
Cost of sales			1,085.8				968.1				3,267.5				3,024.0
Selling and administrative expenses			74.3				73.5				223.7				224.3
Income before interest, other income (expense), and income taxes			232.3				293.4				705.8				930.6
Interest expense, net			(1.7	)			(0.1	)			(2.8	)			(7.0	)
Other income (expense)			(2.6	)			0.7				(5.0	)			0.9
Income before income tax provision			228.0				294.0				698.0				924.5
Income tax provision			83.9				100.1				243.0				326.3
Net income		$	144.1			$	193.9			$	455.0			$	598.2
Basic net income per common share		$	1.46			$	1.90			$	4.54			$	5.88
Diluted net income per common share		$	1.45			$	1.88			$	4.51			$	5.81
Dividends declared per common share		$	0.18			$	0.13			$	0.54			$	0.39

The accompanying notes are an integral part of these statements.

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

		Nine Months Ended
		September 30,
		2008				2007*
Operating Activities:
Net income		$	455.0			$	598.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			86.7				75.2
Deferred income taxes			64.5				2.0
Change in operating assets and liabilities:
Inventories			(167.8	)			(172.1	)
Accounts receivable			(92.3	)			(37.2	)
Accounts payable			26.1				(17.4	)
Retirement benefits			(16.7	)			4.2
Accrued income taxes, net of tax benefits on share-based compensation			11.6				69.4
Accrued liabilities and other			(22.5	)			8.5
Cash provided by operating activities			344.6				530.8
Investing Activities:
Purchases of property, plant and equipment			(365.1	)			(281.0	)
Asset disposals and other			1.3				(3.8	)
Cash used in investing activities			(363.8	)			(284.8	)
Financing Activities:
Payments on long-term debt and capital leases			(14.8	)			(15.1	)
Net borrowings (repayments) under credit facilities			2.6				(9.7	)
Net decrease in debt			(12.2	)			(24.8	)
Purchase of treasury stock			(241.8	)			—
Dividends paid			(54.1	)			(39.8	)
Shares repurchased for income tax withholding on share-based compensation			(15.5	)			(50.1	)
Tax benefit on share-based compensation			(9.0	)			24.6
Exercises of stock options			1.1				5.4
Cash used in financing activities			(331.5	)			(84.7	)
Increase (decrease) in cash and cash equivalents			(350.7	)			161.3
Cash and cash equivalents at beginning of the year			623.3				502.3
Cash and cash equivalents at end of period		$	272.6			$	663.6

The accompanying notes are an integral part of these statements.

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 1. Accounting Policies

Basis of Presentation

     The interim consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries. Unless the context requires otherwise, “Allegheny Technologies”, “ATI” and “the Company” refer to Allegheny Technologies Incorporated and its subsidiaries.

     These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2007 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, 2007 financial information has been derived from our audited financial statements.

New Accounting Pronouncements Adopted

     In the first quarter 2008, as required, ATI began the adoption process for the change in measurement date provisions of FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”), which amended the standards for defined benefit pension and other postretirement benefit plans accounting. These provisions require plan assets and benefits to be measured at the date of the employer’s statement of financial position, which is December 31 for ATI, rather than the Company’s measurement date of November 30, as was previously permitted. The adoption of these provisions did not have a material effect on ATI’s financial statements.

     In September 2006, the FASB issued FAS 157, “Fair Value Measurements” (“FAS 157”). This Standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. The Standard covers financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. FAS 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities, and for fiscal years beginning after November 15, 2008 for other nonfinancial assets and liabilities. The adoption of FAS 157 for financial assets and liabilities did not have a material impact on ATI’s financial statements.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“FAS 159”), “The Fair Value Option for Financial Assets and Liabilities.” FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. FAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of FAS 159 did not have an impact on ATI’s financial statements.

Pending New Accounting Pronouncements

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“FAS 161”), “Disclosures about Derivative Instruments and Hedging Activities”. FAS 161 amends and expands the disclosure requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal periods beginning after November 15, 2008. The Company will include the required disclosures beginning with its 2009 financial statements.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“FAS 160”), “Noncontrolling Interests in Consolidated Financial Statements.” FAS 160 changes the classification of noncontrolling (minority) interests on the balance sheet and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests. Under the new standard, noncontrolling interests are considered equity and are to be reported as an element of stockholders’ equity rather than within the mezzanine or liability sections of the balance sheet. In addition, the current practice of reporting minority interest expense or benefit also will change. Under the new standard, net income will encompass the total income before minority interest expense. The income statement will include separate disclosure of the attribution of income between the controlling and noncontrolling interests. Increases and decreases in the noncontrolling ownership interest amount are to be accounted for as equity transactions. FAS 160 is effective for fiscal years beginning after December 15, 2008, and earlier application is prohibited. Upon adoption, the balance sheet and the income statement will be recast retrospectively for the presentation of noncontrolling interests. The other accounting provisions of the statement are required to be adopted prospectively. As of September 30, 2008, other long-term liabilities included $67 million for minority interest in the STAL joint venture, which will be reported as an element of stockholders’ equity upon adoption of FAS 160.

Note 2. Inventories

     Inventories at September 30, 2008 and December 31, 2007 were as follows (in millions):

		September 30,				December 31,
		2008				2007
Raw materials and supplies		$	222.7			$	179.6
Work-in-process			1,042.6				962.1
Finished goods			159.2				153.1
Total inventories at current cost			1,424.5				1,294.8
Less allowances to reduce current cost values to LIFO basis			(338.3	)			(374.6	)
Progress payments			(2.3	)			(4.1	)
Total inventories, net		$	1,083.9			$	916.1

     Inventories are stated at the lower of cost (last-in, first-out (“LIFO”), first-in, first-out (“FIFO”), and average cost methods) or market, less progress payments. 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. The effect of using the LIFO methodology to value inventory, rather than FIFO, decreased cost of sales by $41.0 million for the 2008 third quarter and $36.3 million for the first nine months of 2008, compared to decreases of $61.2 million for the 2007 third quarter and $18.6 million for the first nine months of 2007.

Note 3. Supplemental Financial Statement Information

     Property, plant and equipment at September 30, 2008 and December 31, 2007 were as follows (in millions):

		September 30,				December 31,
		2008				2007
Land		$	23.6			$	25.5
Buildings			280.4				261.6
Equipment and leasehold improvements			2,430.3				2,102.3
			2,734.3				2,389.4
Accumulated depreciation and amortization			(1,210.9	)			(1,149.9	)
Total property, plant and equipment, net		$	1,523.4			$	1,239.5

     The consolidated statement of cash flows for the nine months ended September 30, 2007 includes a presentation adjustment of $50.1 million pertaining to taxes on share-based compensation. As a result of this presentation adjustment, cash flow from operating activities for the nine months ended September 30, 2007 increased from $480.7 million to $530.8 million, and cash used in financing activities increased from $(34.6) million to $(84.7) million.

     This adjusted presentation is consistent with the Company’s presentation utilized in the 2007 Annual Report on Form 10-K, which presents cash usage related to the repurchase of Company shares to satisfy employee-owed taxes on stock-based compensation for the nine months ended September 30, 2007 as a financing activity rather than an operating activity.

     Fair values of financial instruments included $8.6 million of assets and $29.7 million of liabilities associated with derivative financial instruments accounted for as cash flow hedges for nickel, natural gas and foreign currencies. All fair values for these derivatives were measured using Level 2 information as defined by FAS 157.

Note 4. Debt

     Debt at September 30, 2008 and December 31, 2007 was as follows (in millions):

		September 30,				December 31,
		2008				2007
Allegheny Technologies $300 million 8.375% Notes due 2011, net (a)		$	304.5			$	305.4
Allegheny Ludlum 6.95% debentures, due 2025			150.0				150.0
Domestic Bank Group $400 million unsecured credit agreement			—				—
Promissory note for J&L asset acquisition			30.7				41.0
Foreign credit agreements			21.4				17.7
Industrial revenue bonds, due through 2020			9.0				9.9
Capitalized leases and other			0.3				4.2
Total short-term and long-term debt			515.9				528.2
Short-term debt and current portion of long-term debt			(20.9	)			(20.9	)
Total long-term debt		$	495.0			$	507.3

The Company has a $400 million senior unsecured domestic revolving credit facility (“the facility”), which includes a $200 million sublimit for the issuance of letters of credit. As of September 30, 2008, there had been no borrowings made under the facility, although a portion of the facility was used to support approximately $14 million in letters of credit. In the 2008 third quarter, the Company established a separate credit facility for the issuance of letters of credit. As of September 30, 2008, $28.6 million were outstanding under this credit facility.

     In addition, STAL, the Company’s Chinese joint venture company in which ATI has a 60% interest, has approximately $12 million in letters of credit outstanding as of September 30, 2008 related to the expansion of its operations in Shanghai, China. These letters of credit are supported solely by STAL’s financial capability without any guarantees from the joint venture partners.

Note 5. Per Share Information

     The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Numerator for basic and diluted net income per common share — net income		$	144.1			$	193.9			$	455.0			$	598.2
Denominator:
Denominator for basic net income per common share-weighted average shares			99.0				101.8				100.2				101.7
Effect of dilutive securities:
Option equivalents			0.5				0.6				0.5				0.6
Contingently issuable shares			0.2				0.7				0.2				0.7
Denominator for diluted net income per common share – adjusted weighted average shares and assumed conversions			99.7				103.1				100.9				103.0
Basic net income per common share		$	1.46			$	1.90			$	4.54			$	5.88
Diluted net income per common share		$	1.45			$	1.88			$	4.51			$	5.81

Note 6. Comprehensive Income

     The components of comprehensive income, net of tax, were as follows (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Net income		$	144.1			$	193.9			$	455.0			$	598.2
Foreign currency translation gains (losses)			(25.4	)			3.1				(17.2	)			14.2
Unrealized losses on energy, raw material and currency hedges, net of tax			(17.7	)			(5.0	)			(0.3	)			(12.9	)
Retirement benefits			2.0				5.6				6.1				23.8
Unrealized losses on securities			—				(0.1	)			—				(0.6	)
			(41.1	)			3.6				(11.4	)			24.5
Comprehensive income		$	103.0			$	197.5			$	443.6			$	622.7

Note 7. Income Taxes

     Results for the third quarter 2008 included a provision for income taxes of $83.9 million, or 36.8% of income before tax, compared to an income tax provision of $100.1 million, or 34.0% of income before tax, for the comparable 2007 quarter. The income tax provision for the nine months ended September 30, 2008 was $243.0 million, or 34.8% of income before tax, compared to an income tax provision of $326.3 million, or 35.3% of income before tax, for the comparable prior year period. The year to date 2008 results include a second quarter 2008 discrete benefit of $11.2 million primarily related to tax refunds and credits associated with prior years. The nine months ended September 30, 2007 included a benefit of $12.1 million due to reductions in state deferred tax asset valuation allowances due to increased state taxable income and the probability of realizing the corresponding state deferred tax assets.

     As required, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007. For the quarter ended September 30, 2008, the Company’s liability for unrecognized tax

benefits decreased by $1.2 million, primarily related to the favorable resolution of uncertain tax positions taken in prior periods. The long-term liability for uncertain tax positions as of September 30, 2008 was $33.1 million.

Note 8. Pension Plans and Other Postretirement Benefits

     The Company has defined benefit pension plans and defined contribution plans covering substantially all employees. 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.

     The Company also sponsors several postretirement plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution. For the non-collectively bargained plans, the Company maintains the right to amend or terminate the plans at its discretion.

     For the three month and nine month periods ended September 30, 2008 and 2007, the components of pension (income) expense for the Company’s defined benefit plans and components of other postretirement benefit expense included the following (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Pension Benefits:
Service cost — benefits earned during the year		$	7.1			$	6.9			$	21.1			$	20.7
Interest cost on benefits earned in prior years			32.6				31.9				97.9				95.6
Expected return on plan assets			(50.3	)			(46.7	)			(150.7	)			(140.1	)
Amortization of prior service cost			4.3				4.4				12.6				13.2
Amortization of net actuarial loss			3.3				7.8				9.8				23.4
Total pension (income) expense		$	(3.0	)		$	4.3			$	(9.3	)		$	12.8
Other Postretirement Benefits:
Service cost — benefits earned during the year		$	0.8			$	0.7			$	2.3			$	2.2
Interest cost on benefits earned in prior years			7.9				7.8				23.7				23.3
Expected return on plan assets			(1.4	)			(1.8	)			(4.2	)			(5.4	)
Amortization of prior service cost (credit)			(5.4	)			(5.5	)			(16.0	)			(17.2	)
Amortization of net actuarial loss			1.3				2.1				3.9				7.0
Total other postretirement benefit expense		$	3.2			$	3.3			$	9.7			$	9.9
Total retirement benefit expense		$	0.2			$	7.6			$	0.4			$	22.7

Note 9. Business Segments

     Following is certain financial information with respect to the Company’s business segments for the periods indicated (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Total sales:
High Performance Metals		$	554.1			$	561.9			$	1,639.5			$	1,693.2
Flat-Rolled Products			779.1				717.9				2,390.6				2,350.9
Engineered Products			130.1				112.3				394.3				345.7
			1,463.3				1,392.1				4,424.4				4,389.8
Intersegment sales:
High Performance Metals			43.9				41.4				143.8				137.6
Flat-Rolled Products			14.5				8.7				45.0				53.4
Engineered Products			12.5				7.0				38.6				19.9
			70.9				57.1				227.4				210.9
Sales to external customers:
High Performance Metals			510.2				520.5				1,495.7				1,555.6
Flat-Rolled Products			764.6				709.2				2,345.6				2,297.5
Engineered Products			117.6				105.3				355.7				325.8
		$	1,392.4			$	1,335.0			$	4,197.0			$	4,178.9
Operating profit:
High Performance Metals		$	139.6			$	194.2			$	421.8			$	541.9
Flat-Rolled Products			102.7				123.0				315.2				449.5
Engineered Products			6.1				7.3				22.8				30.6
Total operating profit			248.4				324.5				759.8				1,022.0
Corporate expenses			(13.4	)			(18.5	)			(46.5	)			(56.9	)
Interest expense, net			(1.7	)			(0.1	)			(2.8	)			(7.0	)
Other expense, net of gains on asset sales			(2.8	)			(4.3	)			(6.7	)			(10.9	)
Retirement benefit expense			(2.5	)			(7.6	)			(5.8	)			(22.7	)
Income before income taxes		$	228.0			$	294.0			$	698.0			$	924.5

     Retirement benefit expense represents pension income or expense and other postretirement benefit expense. Operating profit with respect to the Company’s business segments excludes any retirement benefit expense. In April 2008, the Company entered into a new five-year labor agreement with United Steelworkers represented employees at the ATI Wah Chang operation and agreed to establish a Voluntary Employee Benefit Association (VEBA) trust for certain post-retirement benefits. For the quarter and nine months ended September 30, 2008, the Company recognized $2.3 million and $5.4 million, respectively, of expense for this VEBA, which is included in retirement benefit expense as reported above in business segments. As a result, total retirement benefit expense is expected to be $8 million for the full year 2008 including the Company’s defined benefit pension plans and other postretirement benefit plans described in Note 8. Pension Plans and Other Postretirement Benefits.

     In March 2007, the Company reached early resolution on new labor agreements for ATI Allegheny Ludlum and ATI’s Allvac Albany, OR employees. Operating profit for the nine months ended September 30, 2007 for the High Performance Metals and Flat-Rolled Products segments was negatively impacted by $0.7 million and $4.8 million, respectively, of pre-tax, one-time costs related to the new labor agreements.

     Corporate expenses for the three months ended September 30, 2008 were $13.4 million, compared to $18.5 million for the comparable period of 2007. This decrease is due primarily to lower expenses associated with annual and long-term performance-based incentive compensation programs. For the nine months ended September 30, 2008, corporate expenses decreased to $46.5 million compared to $56.9 million primarily due to lower expenses related to annual and long-term performance-based incentive compensation programs.

     Other expense, net of gains on asset sales, includes charges incurred in connection with closed operations, pretax gains and losses on the sale of surplus real estate and other assets, and other non-operating income or expense. These items are presented primarily in selling and administrative expenses and in other expense in the statement of income. The decreases for the three and nine month periods ended September 30, 2008 were primarily related to lower charges for environmental costs at closed operations.

Note 10. Financial Information for Subsidiary and Guarantor Parent

     The payment obligations under the $150 million 6.95% debentures due 2025 issued by Allegheny Ludlum Corporation (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. Investments in subsidiaries, which are eliminated in consolidation, are included in other assets on the balance sheets.

     Allegheny Technologies is the plan sponsor for the U.S. qualified defined benefit pension plan (the “Plan”) which covers 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 Plan assets or liabilities, or the related deferred taxes. The Plan 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.

     Cash flows related to intercompany activity between the Guarantor Parent, the Subsidiary, and the non-guarantor subsidiaries are presented as financing activities on the condensed statements of cash flows. Previously, cash flows related to this intercompany activity were presented as cash flows from operating activities. The condensed statements of cash flows for prior periods have been revised to conform to this current method of presentation. The effect of this presentation change on the Condensed Statements of Cash Flows for the nine months ended September 30, 2007 was to:

	-		Increase cash flow from operating activities for the Subsidiary by $174.6 million with an offsetting decrease to cash flow from financing activities.
	-		Reduce cash flow from operating activities for the non-guarantor subsidiaries by $70.3 million with an offsetting increase to cash flow from financing activities.
	-		Reduce cash flow from operating activities for the Guarantor Parent by $104.3 million with an offsetting increase to cash flow from financing activities.

This change in presentation did not have any impact on consolidated cash flows as the intercompany activity eliminates in consolidation.

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
September 30, 2008

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	5.4			$	88.2			$	179.0			$	—			$	272.6
Accounts receivable, net			0.4				325.2				418.9				—				744.5
Inventories, net			—				322.4				761.5				—				1,083.9
Prepaid expenses and other current assets			0.7				5.6				33.9				—				40.2
Total current assets			6.5				741.4				1,393.3				—				2,141.2
Property, plant and equipment, net			1.3				381.2				1,140.9				—				1,523.4
Prepaid pension asset			266.4				—				—				—				266.4
Cost in excess of net assets acquired			—				112.1				92.1				—				204.2
Deferred income taxes			35.2				—				—				—				35.2
Investments in subsidiaries and other assets			4,644.4				1,729.3				1,625.7				(7,857.8	)			141.6
Total assets		$	4,953.8			$	2,964.0			$	4,252.0			$	(7,857.8	)		$	4,312.0
Liabilities and stockholders’ equity:
Accounts payable		$	3.2			$	200.7			$	210.5			$	—			$	414.4
Accrued liabilities			2,141.7				337.6				745.0				(2,933.5	)			290.8
Accrued income taxes			29.0				—				—				—				29.0
Deferred income taxes			42.7				—				—				—				42.7
Short-term debt and current portion of long-term debt			—				10.5				10.4				—				20.9
Total current liabilities			2,216.6				548.8				965.9				(2,933.5	)			797.8
Long-term debt			304.5				371.8				18.7				(200.0	)			495.0
Retirement benefits			10.1				274.1				185.9				—				470.1
Other long-term liabilities			57.9				16.7				109.8				—				184.4
Total liabilities			2,589.1				1,211.4				1,280.3				(3,133.5	)			1,947.3
Total stockholders’ equity			2,364.7				1,752.6				2,971.7				(4,724.3	)			2,364.7
Total liabilities and stockholders’ equity		$	4,953.8			$	2,964.0			$	4,252.0			$	(7,857.8	)		$	4,312.0

Note 10. CONTINUED

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Income
For the nine months ended September 30, 2008

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Sales		$	—			$	2,163.9			$	2,033.1			$	—			$	4,197.0
Cost of sales			(7.6	)			1,832.0				1,443.1				—				3,267.5
Selling and administrative expenses			69.0				29.5				125.2				—				223.7
Interest income (expense), net			(1.2	)			(7.5	)			5.9				—				(2.8	)
Other income (expense) including equity in income of unconsolidated subsidiaries			760.6				21.4				(7.1	)			(779.9	)			(5.0	)
Income before income tax provision			698.0				316.3				463.6				(779.9	)			698.0
Income tax provision			243.0				116.9				157.8				(274.7	)			243.0
Net income		$	455.0			$	199.4			$	305.8			$	(505.2	)		$	455.0

Condensed Statements of Cash Flows
For the nine months ended September 30, 2008

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Cash flows provided by (used in) operating activities		$	(65.7	)		$	117.9			$	292.4			$	—			$	344.6
Cash flows used in investing activities			(0.1	)			(39.2	)			(324.5	)			—				(363.8	)
Cash flows provided by (used in) financing activities			71.2				(178.6	)			(224.1	)			—				(331.5	)
Increase (decrease) in cash and cash equivalents		$	5.4			$	(99.9	)		$	(256.2	)		$	—			$	(350.7	)

Note 10. CONTINUED

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2007

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	—			$	188.1			$	435.2			$	—			$	623.3
Accounts receivable, net			0.4				258.3				393.5				—				652.2
Inventories, net			—				210.4				705.7				—				916.1
Deferred income taxes			18.8				—				—				—				18.8
Prepaid expenses, and other current assets			0.1				6.0				32.2				—				38.3
Total current assets			19.3				662.8				1,566.6				—				2,248.7
Property, plant and equipment, net			1.3				371.2				867.0				—				1,239.5
Prepaid pension asset			230.3				—				—				—				230.3
Cost in excess of net assets acquired			—				112.1				97.7				—				209.8
Deferred income taxes			42.1				—				—				—				42.1
Investment in subsidiaries and other assets			4,143.4				1,266.0				1,411.6				(6,695.8	)			125.2
Total assets		$	4,436.4			$	2,412.1			$	3,942.9			$	(6,695.8	)		$	4,095.6
Liabilities and stockholders’ equity:
Accounts payable		$	3.4			$	165.4			$	219.6			$	—			$	388.4
Accrued liabilities			1,854.0				76.7				841.5				(2,477.5	)			294.7
Short-term debt and current portion of long-term debt			—				10.5				10.4				—				20.9
Total current liabilities			1,857.4				252.6				1,071.5				(2,477.5	)			704.0
Long-term debt			305.4				382.1				19.8				(200.0	)			507.3
Retirement benefits			10.4				274.6				184.6				—				469.6
Other long-term liabilities			39.7				17.5				134.0				—				191.2
Total liabilities			2,212.9				926.8				1,409.9				(2,677.5	)			1,872.1
Total stockholders’ equity			2,223.5				1,485.3				2,533.0				(4,018.3	)			2,223.5
Total liabilities and stockholders’ equity		$	4,436.4			$	2,412.1			$	3,942.9			$	(6,695.8	)		$	4,095.6

Note 10. CONTINUED

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Income
For the nine months ended September 30, 2007

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Sales		$	—			$	2,125.2			$	2,053.7			$	—			$	4,178.9
Cost of sales			7.7				1,666.0				1,350.3				—				3,024.0
Selling and administrative expenses			76.6				31.0				116.7				—				224.3
Interest income (expense), net			(13.4	)			(2.4	)			8.8				—				(7.0	)
Other income (expense) including equity in income of unconsolidated subsidiaries			1,022.2				25.9				(5.7	)			(1,041.5	)			0.9
Income before income tax provision			924.5				451.7				589.8				(1,041.5	)			924.5
Income tax provision			326.3				170.1				197.4				(367.5	)			326.3
Net income		$	598.2			$	281.6			$	392.4			$	(674.0	)		$	598.2

Condensed Statements of Cash Flows
For the nine months ended September 30, 2007

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Cash flows provided by (used in) operating activities		$	(44.6	)		$	338.6			$	236.8			$	—			$	530.8
Cash flows used in investing activities			(0.3	)			(50.5	)			(234.0	)			—				(284.8	)
Cash flows provided by (used in) financing activities			44.4				(185.1	)			56.0				—				(84.7	)
Increase (decrease) in cash and cash equivalents		$	(0.5	)		$	103.0			$	58.8			$	—			$	161.3

Note 11. 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. The Company expects that it will adjust its accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on the Company’s results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments.

     Based on currently available information, the Company does not believe that there is a reasonable possibility that a loss exceeding the amount already accrued for any of the sites with which the Company is currently associated

(either individually or in the aggregate) will be an amount that would be material to a decision to buy or sell the Company’s securities. Future developments, administrative actions or liabilities relating to environmental matters, however, could have a material adverse effect on the Company’s financial condition or results of operations.

     At September 30, 2008, the Company’s reserves for environmental remediation obligations totaled approximately $18 million, of which approximately $7 million were included in other current liabilities. The reserve includes estimated probable future costs of $5 million for federal Superfund and comparable state-managed sites; $8 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; $4 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 Company continues to evaluate whether it may be able to recover a portion of future costs for environmental liabilities from third parties.

     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.

     See Note 13. Commitments and Contingencies to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2007 for a discussion of legal proceedings affecting the Company.

     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, patent infringement, commercial, government contracting, employment, employee benefits, taxes, environmental and health and safety, and stockholder 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 results of operations for that period.

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

Overview

     Allegheny Technologies Incorporated (ATI) is a Delaware corporation with its principal executive offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479, telephone number (412) 394-2800. References to “Allegheny Technologies,” “ATI,” the “Company,” the “Registrant,” “we,” “our” and “us” and similar terms mean Allegheny Technologies Incorporated and its subsidiaries, unless the context otherwise requires.

     Allegheny Technologies is one of the largest and most diversified specialty metals producers in the world. We use innovative technologies to offer growing global markets a wide range of specialty metals solutions. Our products include titanium and titanium alloys, nickel-based alloys and superalloys, grain-oriented electrical steel, zirconium, hafnium and niobium, stainless and specialty alloys, tungsten-based materials, and forgings and castings. Our specialty metals are produced in a wide range of alloys and product forms and are selected for use in environments that demand metals having exceptional hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics.

Results of Operations

     We operate in three business segments: High Performance Metals, Flat-Rolled Products, and Engineered Products. These segments represented the following percentages of our total revenues and segment operating profit for the first nine months of 2008 and 2007:

		Nine Months Ended September 30,
		2008								2007
						Operating								Operating
		Revenue				Profit				Revenue				Profit
High Performance Metals			36	%			56	%			37	%			53	%
Flat-Rolled Products			56	%			41	%			55	%			44	%
Engineered Products			8	%			3	%			8	%			3	%

     Sales for the third quarter 2008 were $1.39 billion, 4.3% higher than the third quarter 2007. Compared to the third quarter 2007, sales increased 8% in the Flat-Rolled Products segment, and 12% for the Engineered Products segment but declined 2% in the High Performance Metals segment. Direct international sales increased to a quarterly record of $402.1 million, and represented 29% of our total sales. We believe that more than 50% of our sales are driven by demand from global markets when we consider exports of our customers.

     The aerospace and defense markets, and the global infrastructure markets, namely chemical process industry, oil and gas, electrical energy, and the medical markets, have been driving our performance. These markets accounted for nearly 70% of sales in the nine months ended September 30, 2008. The aerospace and defense market comprised 28% of sales for the nine months 2008, down slightly from the same period of last year due primarily to declines in average selling prices. There has been a labor strike at The Boeing Company, a significant customer, which commenced in September 2008. On October 27, 2008, it was announced that tentative terms for a labor contract had been reached between Boeing and the International Association of Machinists and Aerospace Workers. These conditions created a period of short-term uncertainty regarding the length of the labor disruption and associated negative impact on demand in the aerospace supply chain for both airframe and aero engine related programs. Long-term demand is expected to be strong in the aerospace market due to the high levels of backlogs at our airframe and jet engine customers. Demand continued to be strong from the global infrastructure markets: chemical process industry, oil and gas, and electrical energy. Demand was weak from the U.S. automotive and housing markets. ATI titanium product shipments, including ATI-produced products for our Uniti titanium joint venture, were over 36 million pounds in the nine months 2008, a 19% increase over the same period of last year, as we leverage our manufacturing capabilities across both our High Performance Metals and Flat-Rolled Products segments and demonstrate our ability to supply diversified global markets with both long and flat-rolled products.

     Segment operating profit for the third quarter 2008 decreased 23%, compared to the third quarter 2007, to $248.4 million, or 17.8% of sales. Segment operating profit for the nine months 2008 decreased 26% compared to the 2007 period, to $759.8 million, or 18.1% of sales. The decreases in operating profit were primarily due to rapidly declining raw material costs, which resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material indices or surcharge pricing mechanisms, as well as more

competitive pricing for certain products, and product mix. Segment operating profit as a percentage of sales for the three month and nine month periods ended September 30, 2008 and 2007 were:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
High Performance Metals			27.4	%			37.3	%			28.2	%			34.8	%
Flat-Rolled Products			13.4	%			17.3	%			13.4	%			19.6	%
Engineered Products			5.2	%			6.9	%			6.4	%			9.4	%

     Our measure of segment operating profit, which we use to analyze the performance and results of our business segments, excludes income taxes, corporate expenses, net interest expense, retirement benefit expense, and other costs net of gains on asset sales. We believe segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.

     Results for the third quarter 2008 included a LIFO inventory valuation reserve benefit of $41.0 million due to declining raw material costs, primarily nickel and nickel-bearing scrap, and titanium scrap. For the same 2007 period, the LIFO inventory valuation reserve benefit was $61.2 million. For the first nine months of 2008, LIFO inventory valuation reserve benefit was $36.3 million, compared to a benefit of $18.6 million for the comparable 2007 period.

     Third quarter and first nine months 2008 gross cost reductions, before the effects of inflation, totaled $35 million and $104 million, respectively, as we remained focused on reducing costs through improving operating efficiencies.

     In the first quarter 2007, we entered into four-year labor agreements with United Steelworkers represented employees at ATI Allegheny Ludlum and at ATI’s Albany, OR titanium operations. As a result of the new agreements, we recognized a non-recurring charge of $5.8 million, or $3.7 million after-tax, in 2007, which is primarily reflected in the year to date 2007 operating results of the High Performance Metals and Flat-Rolled Products business segments.

     Income before tax for the third quarter 2008 was $228.0 million, a decrease of $66 million compared to the third quarter 2007. Net income for the third quarter 2008 was $144.1 million, or $1.45 per share, compared to the third quarter 2007 of $193.9 million, or $1.88 per share. Third quarter 2008 results include an income tax provision of $83.9 million, or 36.8% of income before tax, compared to an income tax provision of $100.1 million, or 34.0% of income before tax, for the comparable 2007 quarter. The 2007 third quarter included a favorable one-time net tax benefit of $8.1 million, primarily related to the reduction of a deferred tax valuation allowance for certain state tax credits expected to be realized in future periods.

     Income before tax for the nine months ended September 30, 2008 was $698.0 million, a 25% decrease compared to the first nine months of 2007. Net income for the nine months ended September 30, 2008 was $455.0 million, or $4.51 per share, compared to $598.2 million, or $5.81 per share for the first nine months of 2007. Results for the first nine months of 2008 include an income tax provision of $243.0 million, or 34.8% of income before tax, which included the favorable one-time net tax benefit of $11.2 million in the second quarter. Results for the first nine months of 2007 include an income tax provision of $326.3 million, or 35.3% of income before tax, and benefited from a $12.1 million reduction in valuation allowances associated with state deferred tax assets.

     In the first nine months of 2008, our strong cash flow supported investments of $185 million in managed working capital, $365 million of capital expenditures, nearly $242 million in share repurchases, and dividend payments of over $54 million. We ended the quarter with nearly $273 million of cash on hand.

     We are focused on delivering solid financial results during this period of uncertainty. We now expect our fourth quarter 2008 results to be in the range of $1.00 to $1.10 per share, resulting in full year 2008 earnings of $5.51 to $5.61 per share. We expect 2008 fourth quarter volumes to be down and pricing to be very competitive for most of our products with the exceptions of grain-oriented electrical steel and our exotic alloys. The strike at The Boeing Company and the delay in their 787 aircraft production program has created uncertainty in the supply chain for both airframe and aero engine products. Demand is weak for our standard stainless sheet and plate products domestically and globally. With the exception of oil and gas, most markets for our standard stainless products are

soft with housing, appliance, and automotive being particularly weak. According to industry reports, service center inventories of standard stainless products were low in the third quarter. These inventory levels could trend lower in the 2008 fourth quarter as some customers take actions to avoid raw material cost risk. However, even in this weak market, we expect to ship approximately 300,000 tons of standard stainless products in 2008, which is the low end of our targeted range. We are proactively adjusting the production levels of some of our products and increasing our 2009 cost reductions to meet this changing economic environment. We expect strong cash flow in the fourth quarter 2008, including a significant reduction in managed working capital.

     We believe the long-term growth opportunities of our major global end markets remain strong. We intend to continue to enhance our leadership position in specialty metals with a focus on near-term and long-term opportunities in the aerospace and defense, chemical processing industry, oil and gas, electrical energy generation and distribution, and medical markets.

High Performance Metals Segment

     Third quarter 2008 sales were $510.2 million, 2% lower than third quarter 2007 primarily due to lower shipments and selling prices for nickel-based and specialty alloys, and lower selling prices for titanium mill products, which was partially offset by increased shipments and higher prices for our exotic alloys, and higher titanium mill products shipments. Demand for our premium titanium alloys was good for jet engine applications. Demand for our titanium alloys was steady from airframe customers and improved from the biomedical market. Demand for our nickel-based alloys and specialty alloys was softer from the jet engine market and improved from the oil and gas and electrical energy markets. Demand for our exotic alloys was strong from the chemical process industry and was good from the aerospace and defense and nuclear energy markets.

     Segment operating profit in the quarter was $139.6 million, or 27.4% of sales, a $54.6 million decrease compared to the third quarter 2007. The third quarter 2008 operating profit was compressed by rapidly declining raw material costs, primarily titanium and titanium scrap, and nickel and nickel-bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material indices included in the selling prices due to the long manufacturing cycle times of some of our products. This compression was partially offset by a $16.7 million reduction in the LIFO inventory valuation reserve, increased shipments and selling prices for zirconium products, higher titanium mill products shipments, and the benefits of gross cost reductions. The third quarter 2007 had a LIFO inventory valuation reserve benefit of $43.1 million. Results for the 2008 third quarter benefited from $18.2 million of gross cost reductions, bringing year to date 2008 gross cost reductions in this segment to $49.6 million.

     Certain comparative information on the segment’s major products for the three months ended September 30, 2008 and 2007 is provided in the following table:

		Three Months Ended
		September 30,								%
		2008				2007				Change
Volume (000’s pounds):
Titanium mill products			8,707				7,815				11	%
Nickel-based and specialty alloys			10,365				10,999				(6	)%
Exotic alloys			1,365				1,113				23	%
Average prices (per pound):
Titanium mill products		$	25.95			$	29.43				(12	)%
Nickel-based and specialty alloys		$	18.82			$	20.49				(8	)%
Exotic alloys		$	49.91			$	45.16				11	%

     The decline in the average selling price for titanium and titanium-based alloys, and nickel-based and specialty alloys was primarily due to lower raw material indices due to lower raw material costs and a more competitive pricing environment.

     For the nine months ended September 30, 2008, segment sales decreased 4% to $1.50 billion. Operating profit was $421.8 million for the nine months ended September 30, 2008, or 28.2% of sales, compared to $541.9 million, or 34.8% of sales, for the comparable prior year to date period. Shipments of titanium mill products increased primarily due to higher aerospace airframe volume. Shipments of nickel-based and specialty alloys declined

primarily due to product mix and inventory management actions at distribution customers. The nine months 2008 operating profit was impacted by a more competitive pricing environment for certain titanium mill products and nickel-based alloys and superalloys. In addition, year to date 2008 margins were compressed by rapidly declining raw material costs, primarily titanium and titanium scrap, and nickel and nickel-bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material indices included in the selling prices due to the long manufacturing cycle times of some of our products. These impacts were partially offset by increased shipments of titanium mill products, a $30.1 million reduction in the LIFO inventory valuation reserve, increased shipments and selling prices for exotic alloys, and the benefits of gross cost reductions. Results for the nine months 2007 included a LIFO inventory valuation reserve benefit of $34.9 million.

     Certain comparative information on the segment’s major products for the nine months ended September 30, 2008 and 2007 is provided in the following table:

		Nine Months Ended
		September 30,								%
		2008				2007				Change
Volume (000’s pounds):
Titanium mill products			25,184				22,692				11	%
Nickel-based and specialty alloys			31,395				33,188				(5	)%
Exotic alloys			4,194				3,524				19	%
Average prices (per pound):
Titanium mill products		$	25.93			$	31.31				(17	)%
Nickel-based and specialty alloys		$	18.55			$	19.42				(4	)%
Exotic alloys		$	47.74			$	42.07				13	%

     In April 2008, we entered into a new labor agreement with the United Steelworkers represented employees at ATI’s Wah Chang operations. The new agreement expires on March 31, 2013. The new agreement provides for profit sharing above specified minimum pre-tax profit for ATI’s Wah Chang operations and is capped to provide for no more than $9 million of profit sharing payments under this provision over the five-year life of the contract.

Flat-Rolled Products Segment

     Third quarter 2008 sales were $764.6 million, 8% higher than the third quarter 2007, due primarily to increased shipments, including higher foreign sales, partially offset by lower raw material surcharges. Direct international sales increased $41.0 million to 26.9% of total 2008 segment sales. Demand was strong for our industrial titanium sheet, grain-oriented electrical steel, and nickel-based and specialty alloy products from the chemical process industry, oil and gas, and electrical energy markets. Shipments of standard stainless products increased 16% while total high-value products shipments increased 10%. Within high-value products, shipments of substantially all products, namely industrial titanium sheet, grain-oriented electrical steel, nickel-based alloys, and Precision Rolled Strip^® products, exceeded year-ago levels. Average transaction prices for all products were 4% lower, primarily due to lower raw material surcharges, product mix, and more competitive prices for standard stainless products.

     Segment operating profit was $102.7 million or 13.4% of sales, a decrease of $20.3 million compared to the third quarter 2007, primarily as a result of lower average base selling prices for standard stainless products and the timing difference between raw material surcharges and costs. Third quarter 2008 operating profit was negatively impacted by lower base prices for standard stainless sheet and plate products. In addition, third quarter 2008 operating profit was compressed by a rapid decline in raw material costs, primarily nickel and nickel bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material surcharges included in the selling prices due to the long manufacturing cycle times of some of our products. This compression was partially offset by increased shipments and higher selling prices for our grain-oriented electrical steel, increased shipments of our flat-rolled titanium products, increased shipments of standard grade sheet products, and the benefits of gross cost reductions. Declining raw material costs, primarily for nickel and nickel scrap, resulted in a LIFO inventory valuation reserve benefit of $25.1 million in the third quarter 2008. The third quarter 2007 included a LIFO inventory valuation benefit of $18.2 million.

     Results benefited from $14.3 million in gross cost reductions, bringing 2008 first nine months gross cost reductions in this segment to $47.5 million.

     Comparative information on the segment’s products for the three months ended September 30, 2008 and 2007 is provided in the following table:

		Three Months Ended
		September 30,								%
		2008				2007				Change
Volume (000’s pounds):
High value			133,322				121,674				16	%
Standard			130,888				113,083				10	%
Total			264,210				234,757				13	%
Average prices (per lb.):
High value		$	3.44			$	3.37				2	%
Standard		$	2.27			$	2.57				(12	)%
Combined Average		$	2.86			$	2.99				(4	)%

     For the nine months ended September 30, 2008, Flat-Rolled Products sales increased 2%, to $2.35 billion, compared to the nine months 2007, however, segment operating profit declined 30%, or $134.3 million, to $315.2 million, or 13.4% of sales, compared to $449.5 million, or 19.6% of sales, for the prior year-to-date period. Average prices for the first nine months 2008, which include surcharges, were 7% lower than the same period of last year. Demand was strong from the segment’s largest markets: chemical process industry, oil and gas, and electrical energy, which accounted for 54% of year-to-date segment sales. 2008 operating profit was negatively impacted by significantly lower base selling prices for standard stainless sheet and plate and by margin compression due to a rapid decline in raw material costs, primarily nickel and nickel bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material surcharges included in the selling prices due to the long manufacturing cycle times of some of our products. These negative impacts were partially offset by increased shipment volumes for most products, higher selling prices for grain oriented electrical steel products and the benefits of gross cost reductions. Segment results for the 2008 year-to-date period included a LIFO inventory reserve benefit of $8.7 million, compared to a prior year LIFO inventory reserve charge of $16.0 million in 2007, due primarily to raw material cost deflation for nickel and nickel-bearing scrap.

     Comparative information on the segment’s products for the nine months ended September 30, 2008 and 2007 is provided in the following table:

		Nine Months Ended
		September 30,								%
		2008				2007				Change
Volume (000’s pounds):
High value			386,113				370,351				4	%
Standard			481,372				424,200				13	%
Total			867,485				794,551				9	%
Average prices (per lb.):
High value		$	3.29			$	3.31				0	%
Standard		$	2.18			$	2.49				(12	)%
Combined Average		$	2.68			$	2.87				(7	)%

Engineered Products Segment

     Sales for the third quarter 2008 of $117.6 million were 12% higher than the third quarter 2007. Demand was solid for our forged products from the construction and mining, and oil and gas markets. Demand for our cast products was good from the electrical energy market, particularly for wind and gas turbine components. Demand for our tungsten and tungsten carbide products was down due to the work stoppage in the aerospace supply chain and shipments were down to the oil and gas and construction and mining markets due to disruptions after Hurricane Ike. Demand from the aerospace market remained good for our titanium precision metal processing conversion services.

     Segment operating profit in the third quarter 2008 was $6.1 million, or 5.2% of sales, compared to $7.3 million, or 6.9% of sales, for the comparable 2007 period. An increase in operating profit due to increased sales was offset by $1.5 million start-up expenses with our Alpena, MI casting operation, and the negative impact of higher raw material costs which resulted in a LIFO inventory valuation reserve charge of $0.8 million. The third quarter 2007 included a LIFO inventory valuation reserve charge of $0.1 million. Prior year results were also impacted by start-up costs of our operation to internally produce ammonium paratungstate (APT), a key raw material of the tungsten and tungsten carbide products. Results benefited from $2.7 million of gross cost reductions, bringing year-to-date gross cost reductions in this segment to $6.7 million.

     For the nine months ended September 30, 2008, sales increased 9% to $355.7 million, and operating profit was $22.8 million, or 6.4% of sales, compared to $30.6 million, or 9.4% of sales in 2007. Operating results for the first nine months of 2008 include LIFO inventory valuation reserve charges of $2.5 million, whereas the first nine months of 2007 include LIFO inventory valuation reserve charges of $0.3 million. Operating results for the first nine months of 2008 were affected by higher raw material costs, operational execution issues, and start-up expenses associated with our Alpena, MI casting operation. Nine months 2007 results were negatively impacted by higher purchased raw material costs and APT plant start-up costs.

     We expect to begin to see some improvement in operating results in the Engineered Products segment. The product mix in our tungsten products business is improving and sales are growing in the aerospace and defense, electrical energy, oil and gas, and mining markets. Also, our new casting shop in Alpena, MI is expected to complete qualifications in the fourth quarter for certain wind energy products, and ramp up production in 2009. Demand for our castings is robust in wind energy applications.

Corporate Items

     Corporate expenses decreased to $13.4 million for the third quarter of 2008, compared to $18.5 million in the year-ago period. For the nine months ended September 30, 2008, corporate expenses were $46.5 million compared to $56.9 million in the prior year-to-date period. Changes in corporate expenses for the quarter and nine month periods are primarily due to lower expenses associated with annual and long-term performance-based cash incentive compensation programs.

     Net interest expense in the third quarter 2008 increased to $1.7 million from $0.1 million for the same period last year. The increase in net interest expense was primarily due to less interest income. For the nine months ended September 30, 2008, net interest expense was $2.8 million compared to $7.0 million in the prior year-to-date period. The declines in net interest expense in the nine months 2008 were primarily due to interest capitalization on capital projects offsetting lower interest income. As a result of capitalization of interest costs, interest expense was reduced by $17.7 million in the first nine months of 2008, and by $6.0 million in the first nine months of 2007.

     Other expense, net of gains on asset sales, includes charges incurred in connection with closed operations, pretax gains and losses on the sale of surplus real estate and other assets, and other non-operating income or expense. These items are presented primarily in selling and administration expenses, and in other income (expense) in the statement of income and resulted in other expense of $2.8 million for the third quarter of 2008 and $4.3 million for the third quarter of 2007. For the nine months ended September 30, 2008, other expense, net of gains on asset sales was $6.7 million, compared to $10.9 million for the comparable 2007 period. The decreases for the three and nine month periods ended September 30, 2008 were primarily related to lower charges for environmental costs at closed operations.

     Retirement benefit expense decreased to $2.5 million in the third quarter 2008, compared to $7.6 million in the third quarter 2007, primarily as a result of higher than expected returns on plan assets in 2007 and the positive benefits of voluntary pension contributions made over the last several years. In April 2008, we entered into a new five-year labor agreement with USW represented employees at our ATI Wah Chang operation. As a result, retirement benefit expense will be approximately $8 million for the full year 2008 due to the establishment of a VEBA for certain post-retirement benefits. This expense is being recognized over the last three quarters of 2008, with $2.3 million included in the third quarter 2008 and $5.4 million recorded year to date. For the third quarter 2008, the amount of retirement benefit expense included in cost of sales was $1.6 million, and the amount included in selling and administrative expenses was $0.9 million. For the third quarter 2007, the amount of retirement benefit expense included in cost of sales was $4.8 million, and the amount included in selling and administrative expenses was $2.8 million.

     For the nine months ended September 30, 2008, retirement expense was $5.8 million, compared to $22.7 million in the same period of 2007. Retirement benefit expense increased cost of sales for the nine months ended September 2008 by $3.4 million, and increased selling and administrative expenses by $2.4 million. For the nine months ended September 2007, retirement benefit expenses increased cost of sales by $14.9 million and increased selling and administrative expenses by $7.8 million.

     As of September 30, 2008, our U.S. defined benefit pension plan was approximately 92% funded which represents a decline in the funding level for this plan from the beginning of the year and results primarily from a significant decline in the value of global equity and fixed income investments held by the pension fund. If the value of the pension plan investments remains at this level at year-end, we would recognize a significant increase in pension expense in 2009 compared to 2008. We are not required to make cash contributions to our U.S. defined benefit pension plan for 2008. However, we expect to make a voluntary cash contribution of approximately $30 million in the fourth quarter 2008 to improve the plan’s funded position.

Income Taxes

     Results for the third quarter 2008 included a provision for income taxes of $83.9 million, or 36.8% of income before tax, for U.S. Federal, foreign and state income taxes. The third quarter 2007 included a provision of $100.1 million, or 34.0% of income before tax. For the first nine months of 2008, the provision for income taxes was $243.0 million, or 34.8% of sales, compared to $326.3 million, or 35.3% of sales, for the same period of 2007. The year to date 2008 tax provision included a favorable one-time net tax benefit of $11.2 million, primarily associated with tax refunds and credits related to prior years. The year to date 2007 tax provision included a benefit of $12.1 million due to reductions in state deferred tax asset valuation allowances due to increased state taxable income and the probability of realizing the corresponding state deferred tax assets.

Financial Condition and Liquidity

     We believe that internally generated funds, current cash on hand, and available borrowings under existing credit lines will be adequate to meet foreseeable liquidity needs, including a substantial expansion of our production capabilities over the next few years. We did not borrow funds under our $400 million domestic senior unsecured credit facility during the first nine months of 2008. However, a portion of this facility is utilized to support letters of credit.

     Our ability to access the credit markets in the future to obtain additional financing, if needed, may be influenced by our credit rating. As of September 30, 2008, Moody’s Investor Service’s senior unsecured debt rating for our Company was Baa3 with a stable outlook. As of September 30, 2008, Standard & Poor’s Ratings Services’ corporate credit and senior unsecured debt rating for our Company was BBB- with a stable outlook. Changes in our credit rating do not impact our access to, or the cost of, our existing credit facilities.

     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, 2008, cash provided by operating activities was $344.6 million, as operating earnings were partially offset by a $185.2 million increase in managed working capital. Investing activities included capital expenditures of $365.1 million. Cash used in financing activities was $331.5 million in the first nine months of 2008, and included purchases of $241.8 million of the Company’s common stock, dividend payments of $54.1 million, cash usage related to the repurchase of shares to satisfy employee-owed taxes on share-based compensation of $15.5 million, reductions in estimated federal and state income tax benefits from share-based compensation of $9.0 million, and a reduction in borrowings of $12.2 million. At September 30, 2008, cash and cash equivalents totaled $272.6 million, a decrease of $350.7 million from year end 2007.

     As part of managing the liquidity of our business, we focus on controlling managed working capital, which is defined as gross accounts receivable and gross inventories, less accounts payable. In measuring performance in controlling this managed working capital, we exclude the effects of LIFO inventory valuation reserves, excess and obsolete inventory reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. At September 30, 2008, managed working capital was 31.8% of annualized sales, compared to 32.2% of annualized sales at December 31, 2007. During the first nine months of 2008, managed working capital increased by $185.2 million, to $1,811.7 million. The increase in managed working capital since December 31, 2007 was due to increased accounts receivable of $92.5 million, which reflects the timing of sales in the third

quarter 2008 compared to the fourth quarter 2007, and increased inventory of $119.7 million, mostly as a result of increased business activity, which was partially offset by increased accounts payable of $27.0 million. While accounts receivable and inventory balances have increased during third quarter 2008, days sales outstanding, which measures actual collection timing for accounts receivable, have stayed relatively constant. Gross inventory turns, which excludes the effect of LIFO inventory valuation reserves, declined compared to year-end 2007, due primarily to a shift in mix to more value-added products and the increase in Flat-Rolled Products segment inventory balances.

The components of managed working capital were as follows:

		September 30,				December 31,
(in millions)		2008				2007
Accounts receivable		$	744.5			$	652.2
Inventories			1,083.9				916.1
Accounts payable			(414.4	)			(388.4	)
Subtotal			1,414.0				1,179.9
Allowance for doubtful accounts			6.4				6.3
LIFO reserves			338.4				374.6
Corporate and other			52.9				65.7
Managed working capital		$	1,811.7			$	1,626.5
Annualized prior two months sales		$	5,703.7			$	5,058.5
Managed working capital as a % of annualized sales			31.8	%			32.2	%
Change in managed working capital from December 31, 2007		$	185.2

Capital Expenditures

     In the 2008 first nine months, we spent $365 million on capital expenditures. We currently expect ATI direct capital expenditures for 2008 to be approximately $470 million, with additional capital expenditures related to STAL, our Chinese joint venture company in which ATI has a 60% interest, to be approximately $70 million. The STAL expansion is expected to be funded through existing cash on-hand and internal cash flow of the joint venture plus bank credit lines of the joint venture. The financial results of STAL are consolidated into our financial statements with the 40% interest of our minority partner recognized as other income or expense in the consolidated statements of income and as a liability in the consolidated statements of financial position.

     We are significantly expanding our manufacturing capabilities to meet expected near-term and long-term demand growth from the aerospace (engine and airframe) and defense, chemical process industry, oil and gas, electrical energy, and medical markets, especially for titanium and titanium-based alloys, nickel-based alloys and superalloys, specialty alloys, and exotic alloys. These self-funded capital investments continue to progress and include:

•

The expansion of ATI’s aerospace quality titanium sponge production capabilities, including our titanium sponge facility in Albany, OR, and our greenfield premium-grade titanium sponge facility in Rowley, UT. The last reduction furnace at our Albany facility went into operation at the end of the first quarter 2008, which was ahead of schedule. With this approximately $100 million capital investment, the Albany facility has the capacity to produce aerospace quality titanium sponge at an annualized rate of 22 million pounds. Primarily due to the announced push-outs in Boeing’s 787 ramp-up schedule, we now intend to begin initial production at the Rowley, UT premium-grade sponge facility in the second quarter 2009. At full production, this facility is expected to produce 24 million pounds of premium-grade titanium sponge annually and will represent a total capital investment of approximately $460 million. Upon completion of these titanium sponge expansion projects, our annual sponge production capacity is projected to be 46 million pounds. In addition, the Utah facility will have the infrastructure in place to further expand annual capacity by approximately 18 million pounds, bringing the total annual capacity at that facility to 42 million pounds, if needed. We expect to supplement our requirements with titanium sponge and titanium scrap purchases from external sources.