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Article by DailyStocks_admin    (07-30-08 08:49 AM)

Allegheny Technologies Inc. CEO PATRICK L HASSEY bought 50000 shares on 7-28-2008 at $46.56

BUSINESS OVERVIEW

The Company
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. Allegheny Technologies was formed on August 15, 1996 as a result of the combination of Allegheny Ludlum Corporation and Teledyne, Inc. 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.
Our Business
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, zirconium, hafnium and niobium, stainless and specialty steel alloys, grain-oriented electrical steel, tungsten-based materials and cutting tools, carbon alloy impression die forgings, and large grey and ductile iron 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.
We focus our technological and unsurpassed manufacturing capabilities to serve global end use markets with highly diversified and specialized product offerings. Key end use markets for our products include:
Aerospace and Defense . We are a world leader in the production of premium titanium alloys, nickel-based and cobalt-based alloys and superalloys, and vacuum-melted specialty alloys used in the manufacture of both commercial and military jet engines, as well as replacement parts for those engines. We also produce titanium alloys, vacuum-melted specialty alloys, and high-strength stainless alloys for use in commercial and military airframes and airframe components.
Titanium and titanium alloys are critical metals in aerospace and defense applications. Titanium and titanium alloys possess an extraordinary combination of properties, including superior strength-to-weight ratio, good elevated temperature resistance, low coefficient of thermal expansion, and extreme corrosion resistance. These metals are used to produce jet engine components such as blades, vanes, discs, and casings, and airframe components such as structural members, landing gear, hydraulic systems, and fasteners. The latest and next-generation airframes and jet engines use even more titanium and titanium alloys in component parts in order to minimize weight and maximize fuel efficiency.
Our nickel-based alloys and superalloys and specialty alloys are also widely used in aerospace and defense applications. Nickel-based alloys and superalloys remain extremely strong at high temperatures and resist degradation under extreme conditions. Typical aerospace applications for nickel-based alloys and superalloys include jet engine shafts, discs, blades, vanes, rings and casings.
Our specialty alloys include vacuum-melted maraging steels used in the manufacture of aircraft landing gear and structural components, as well as jet engine components.
We continuously seek to develop new alloys to better serve the needs of this end use market. For example, we have developed ATI 425® titanium, a new cold-rollable alloy, as a lower cost alternative to the most popular high-strength titanium alloys, for use in airframe components. We have also developed Allvac® 718 Plus® alloy, a new nickel-based superalloy that can withstand higher temperatures than the standard 718 superalloy, for use in the next generation of fuel efficient jet engines.
Demand for our products by the aerospace and defense market has increased significantly over the last several years, and we expect it to remain strong and continue to grow into the next decade.
Chemical Process Industry and Oil and Gas. Oil and gas prices have reached record levels over the past two years, resulting in increased global oil and gas exploration and development. The environments in which oil and gas can be found in commercial quantities have become more challenging, involving deep offshore wells, high pressure and temperature conditions, sour wells and

unconventional sources, such as oil sands. Sustained high oil and gas prices have also led to increased interest in biofuels, such as ethanol, as an alternative or supplement to gasoline and other fossil fuels, and in liquefied natural gas (LNG).
All of our business segments produce metals that are critical to the chemical process industry and oil and gas industry. Our specialty metals, including titanium and titanium alloys, nickel-based alloys, stainless steel alloys and other specialty alloys, have the strength and corrosion resistant properties necessary in the chemical process industry, and global demand for these materials has been increasing, particularly in rapidly growing industrial markets in Asia. We also provide advanced specialty metals used in offshore oil and gas production, including offshore piping systems and subsea oil and gas fields.
We continuously seek to develop new alloys to better serve the needs of this end use market. For example, we have developed AL 2003™ lean duplex alloy as a low cost substitute for type 316L stainless steel. AL 2003™ lean duplex stainless, AL 2205™ duplex stainless, and AL-6XN® superaustenitic stainless steel in strip and plate product forms are NORSOK qualified. ATI’s titanium castings are also qualified under NORSOK standards. The NORSOK standards are developed by the Norwegian petroleum industry and are intended to identify metals used in oil and gas applications that are safe and cost-effective.
Tungsten is the most dense and heat resistant metal commercially available. One application for our tungsten products is oil and gas drill bit inserts. As drilling methods, including directional drilling, become more complex, our advanced tungsten carbide and diamond matrix materials are often utilized in order to enable faster drilling and longer drill bit life.
Electrical Energy . Our specialty metals are widely used in the global electric power generation and distribution industry. We believe that U.S. and European environmental policies and the electrification of rapidly developing Asian countries will likely result in continuing strong demand for our specialty metals products that we sell for use in this industry.
Coal-fired power plants account for more than one-half of the electricity produced in the United States. Under the Clean Air Interstate Rule adopted by the U.S. Environmental Protection Agency (EPA), power plants in several eastern states will be required, in stages through 2015, to dramatically reduce emissions of sulfur dioxide and nitrous oxide generated from the burning of coal. Most of these plants will be required to install additional filtration systems, or “scrubbers”, which are made of specialty metals we produce, on their smokestacks to comply with the rule. Demand for our specialty metals for pollution control systems is also significant in growing industrial economies, including China. We supply a broad range of alloys, including many proprietary alloys, for these applications. AL-6XN® alloy, a 6-molybdenum super-austenitic alloy, is used in absorber towers, piping, damper doors, ducting and vessels. The nickel-based AL 22™ and AL 276™ alloys are used in the absorber inlet, absorber outlet ducting, damper door seals, and expansion joints.
For electrical power generation, our specialty metals and corrosion resistant alloys (CRAs) and ductile iron castings are used in coal, nuclear, natural gas, and wind power applications. In coal-fired plants, our CRAs are used for pipe, tube, and heat exchanger applications in water systems in addition to the pollution control scrubbers mentioned in the preceding paragraph. For nuclear power plants, we are an industry pioneer in producing reactor-grade zirconium and hafnium alloys nuclear fuel cladding and structural components. Our CRAs are also used in water systems for nuclear power plants. We are a technology leader for large diameter nickel-based superalloys used in natural gas turbines. We are also one of a few producers of very large ductile iron castings used for wind turbines.
For electrical power distribution, our grain-oriented electrical steel (GOES) is used in large and small power transformers, where electrical conductivity and magnetic properties are important. We believe that demand for these advanced specialty metals is in the early stage of an expected long growth cycle as the U.S. rebuilds its electrical energy distribution grid and as developing countries, such as China and India, electrify and build electrical power distribution grids. The U.S. Department of Energy (DOE) published its final rule on distribution transformer efficiency on October 12, 2007, regarding minimum energy efficiency standard levels for electrical energy distribution transformers beginning January 1, 2010. This DOE rule establishes requirements for more efficient transformers, which increases premium grade GOES usage per transformer. ATI is a leading producer of these premium grades of GOES.
Medical . ATI’s advanced specialty metals are used in medical device products that save and enhance the quality of lives.
Our zirconium-niobium, titanium-and cobalt-based alloys are used for knees, hips and other prosthetic devices. These replacement devices offer the potential of lasting much longer than previous implant options.

Our biocompatible nickel-titanium shape memory alloy is used for stents to support collapsed or clogged blood vessels. Reduced in diameter for insertion, these stents expand to the original tube-like shape due to the metal’s superelasticity. Our ultra fine diameter (0.002 inch/0.051 mm) titanium wire is used for screens to prevent blood clots from entering critical areas of the body. In addition, our titanium bar and wire are used to make surgical screws for bone repairs.
Manufacturers of magnetic resonance imaging (MRI) devices rely on our niobium superconducting wire to help produce electromagnetic fields that allow physicians to safely scan the body’s soft tissue. In addition, our tungsten heavy alloy materials are used for shielding applications in MRI devices.
Enhancing and Expanding Our Manufacturing Capabilities and Capacity. Demand for our products from the aerospace and defense, chemical process industry and oil and gas, electrical energy, and medical markets has increased significantly over the last several years, and we expect demand to remain strong and continue to grow into the next decade. We are currently undertaking a multi-phase program to enhance and expand our capabilities and capacities to produce premium specialty metals aimed at these key growth markets. In 2006 and 2007, we announced that we intended to spend at least $950 million of internally generated funds to renew and expand our annual titanium sponge production capabilities to approximately 46 million pounds; expand our premium titanium alloy melt and remelt capacity; expand our nickel-based alloy and superalloy melt and remelt capacity; expand our titanium and specialty alloy plate capacity; and expand our premium titanium and nickel-based superalloy forging capacity. These investments strengthen ATI’s leadership position in the production of technically demanding specialty metals.
Business Segments High Performance Metals Segment
Our High Performance Metals segment produces, converts and distributes a wide range of high performance alloys, including nickel- and cobalt-based alloys and superalloys, titanium and titanium-based alloys, exotic metals such as zirconium, hafnium, niobium, nickel-titanium, and their related alloys, and other specialty alloys, primarily in long product forms such as ingot, billet, bar, rod, wire, and seamless tube. We are integrated from raw materials (sponge) to melt, remelt, and finish processing in our titanium and titanium alloys, and zirconium and hafnium alloys products. The major end markets served by our High Performance Metals Segment are aerospace and defense, chemical process industry, oil and gas, medical, and electrical energy. Most of the products in our High Performance Metals segment are sold directly to end-use customers. A significant portion of our High Performance Metals segment products are sold under multi-year agreements. The operating units in this segment are ATI Allvac, ATI Allvac Ltd (U.K.) and ATI Wah Chang.
Flat-Rolled Products Segment
Our Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based alloys, and titanium and titanium-based alloys, in a variety of product forms, including plate, sheet, engineered strip, and Precision Rolled Strip® products, as well as grain-oriented electrical steel. The major end markets for our flat-rolled products are chemical process industry, oil and gas, electrical energy, automotive, food equipment and appliances, machine and cutting tools, construction and mining, aerospace and defense, and electronics, communication equipment and computers. The operations in this segment are ATI Allegheny Ludlum, our 60% interest in the Chinese joint venture company known as Shanghai STAL Precision Stainless Steel Company Limited (STAL), and our 50% interest in the industrial titanium joint venture known as Uniti LLC. The remaining 40% interest in STAL is owned by the Baosteel Group, a state authorized investment company whose equity securities are publicly traded in the People’s Republic of China. The remaining 50% interest in Uniti LLC is held by Verkhnaya Salda Metallurgical Production Association (VSMPO), a Russian producer of titanium, aluminum, and specialty steel products.

Stainless steel, nickel-based alloys and titanium sheet products are used in a wide variety of industrial and consumer applications. In 2007, approximately 60% by volume of our stainless sheet products were sold to independent service centers, which have slitting, cutting or other processing facilities, with the remainder sold directly to end-use customers.
Engineered strip and very thin Precision Rolled Strip® products are used by customers to fabricate a variety of products primarily in the automotive, construction, and electronics markets. In 2007, approximately 90% by volume of our engineered strip and Precision Rolled Strip products were sold directly to end-use customers or through our own distribution network, with the remainder sold to independent service centers.
Stainless steel, nickel-based alloy and titanium plate products are primarily used in industrial markets. In 2007, approximately 50% by volume of our plate products were sold to independent service centers, with the remainder sold directly to end-use customers.
Grain-oriented electrical steel is used in power transformers where electrical conductivity and magnetic properties are important. Nearly all of our grain-oriented electrical steel products are sold directly to end-use customers.
Engineered Products Segment
The principal business of our Engineered Products segment includes the production of tungsten powder, tungsten heavy alloys, tungsten carbide materials, and tungsten carbide cutting tools. We are now integrated from the raw materials (ammonium paratungstate (APT)) to the manufacture of finished cutting tools. The segment also produces carbon alloy steel impression die forgings, and large grey and ductile iron castings, and provides precision metals processing services. The operating units in this segment are ATI Metalworking Products, ATI Portland Forge, ATI Casting Service and ATI Rome Metals.
We produce a line of sintered tungsten carbide products that approach diamond hardness for industrial markets including automotive, chemical process industry, oil and gas, machine and cutting tools, aerospace, construction and mining, and other markets requiring tools with extra hardness. Technical developments related to ceramics, coatings and other disciplines are incorporated in these products. We also produce tungsten and tungsten carbide powders.
We forge carbon alloy steels into finished forms that are used primarily in the transportation and construction equipment markets. We also cast grey and ductile iron metals used in the transportation, wind power generation and automotive markets. We have precision metals processing capabilities that enable us to provide process services for most high-value metals from ingots to finished product forms. Such services include grinding, polishing, blasting, cutting, flattening, and ultrasonic testing.
Competition
Markets for our products and services in each of our three business segments are highly competitive. We compete with many producers and distributors who, depending on the product involved, range from large diversified enterprises to smaller companies specializing in particular products. Factors that affect our competitive position are the quality of our products, services and delivery capabilities, our capabilities to produce a wide range of specialty materials in various alloys and product forms, our technological capabilities including our research and development efforts, our marketing strategies, the prices for our products and services, our manufacturing costs, and industry manufacturing capacity.
We face competition from both domestic and foreign companies, some of which are government subsidized. In 1999, the United States imposed antidumping and countervailing duties on dumped and subsidized imports of stainless steel sheet and strip in coils and stainless steel plate in coils from companies in ten foreign countries. These duties were reviewed by the U.S. Commerce Department and the U.S. International Trade Commission in 2005 and generally remain in effect. We continue to monitor unfairly traded imports from foreign producers for appropriate action.

High Performance Metals segment — Major Competitors
Nickel-based alloys and superalloys and specialty steel alloys

Carpenter Technology Corporation


Special Metals Corporation, a PCC company


ThyssenKrupp VDM GmbH, a company of ThyssenKrupp Stainless (Germany)
Titanium and titanium-based alloys

Titanium Metals Corporation


RMI Titanium, an RTI International Metals Company


VSMPO — AVISMA (Russia)
Exotic alloys

Cezus, a group member of AREVA (France)


HC Stark


Western Zirconium Plant of Westinghouse Electric Company, owned by Toshiba Corporation
Flat-Rolled Products segment — Major Competitors
Stainless steel

AK Steel Corporation


North American Stainless (NAS), owned by Acerinox S.A. (Spain)


Outokumpu Stainless Plate Products, owned by Outokumpu Oyj (Finland)


Imports from

Arcelor Mittal (France, Belgium and Germany)


Mexinox S.A. de C.V., group member of ThyssenKrupp AG


ThyssenKrupp AG (Germany)


Ta Chen International Corporation (Taiwan)


Various Chinese producers
Engineered Products segment — Major Competitors
Tungsten and tungsten carbide products

Kennametal Inc.


Iscar (Israel)


Sandvik AB (Sweden)


Seco Tools AB (Sweden), owned by Sandvik A.B.

Raw Materials and Supplies
Substantially all raw materials and supplies required in the manufacture of our products are available from more than one supplier and presently the sources and availability of raw materials essential to our businesses are adequate. The principal raw materials we use in the production of our specialty metals are scrap (including iron-, nickel-, chromium-, titanium-, molybdenum-, and tungsten-bearing scrap), nickel, titanium sponge, zirconium sand and sponge, ferrochromium, ferrosilicon, molybdenum and molybdenum alloys, manganese and manganese alloys, cobalt, niobium, vanadium and other alloying materials.
Purchase prices of certain principal raw materials have been volatile. As a result, our operating results may be subject to significant fluctuation. We use raw materials surcharge and index mechanisms to offset the impact of increased raw material costs; however, competitive factors in the marketplace may limit our ability to institute such mechanisms, and there can be a delay between the increase in the price of raw materials and the realization of the benefit of such mechanisms. For example, in 2007 we used approximately 80 million pounds of nickel; therefore a hypothetical increase of $1.00 per pound in nickel prices would result in increased costs of approximately $80 million. We also used approximately 500 million pounds of ferrous scrap in the production of our flat-rolled products in 2007 so that a hypothetical increase of $0.01 per pound in ferrous scrap prices would result in increased costs of approximately $5 million.
While we are increasing our manufacturing capacity to produce titanium sponge, the major raw material for our titanium products, a portion of our needs, together with certain other raw materials, such as nickel, cobalt, and ferrochromium, are available to us and our specialty metals industry competitors primarily from foreign sources. Some of these foreign sources are located in countries that may be subject to unstable political and economic conditions, which might disrupt supplies or affect the price of these materials.
We purchase our nickel requirements principally from producers in Australia, Canada, Norway, Russia, and the Dominican Republic. Zirconium sponge is purchased from a source in France, while zirconium sand is purchased from both U.S. and Australian sources. Cobalt is purchased primarily from producers in Canada. More than 80% of the world’s reserves of ferrochromium are located in South Africa, Zimbabwe, Albania, and Kazakhstan. We also purchase titanium sponge from sources in Kazakhstan and Japan.
Export Sales and Foreign Operations
Direct international sales represented approximately 27% of our total annual sales in 2007, 24% of our total sales in 2006, and approximately 25% of our total sales in 2005. These figures include direct export sales by our U.S.-based operations to customers in foreign countries, which accounted for approximately 19% of our total sales in 2007, and 16% of our total sales in each of 2006 and 2005. Our overseas sales, marketing and distribution efforts are aided by our international marketing and distribution offices, ATI Europe, ATI Europe Distribution, and ATI Asia, or by independent representatives located at various locations throughout the world. We believe that nearly 50% of ATI’s 2007 sales were driven by global markets when we consider exports of our customers.

ATI Allvac Ltd has manufacturing capabilities in the United Kingdom. ATI Metalworking Products, which has manufacturing capabilities in the United Kingdom and Switzerland, sells high precision threading, milling, boring and drilling components, tungsten carbide burrs, rotary tooling and specialty abrasive wheels and discs for the European market from locations in the United Kingdom, Switzerland, Germany, France, Italy and Spain. Our STAL joint venture in the People’s Republic of China produces Precision Rolled Strip® products, which enables us to offer these products more effectively to markets in China and other Asian countries. Our Uniti LLC joint venture allows us to offer titanium products to industrial markets more effectively worldwide.

Backlog, Seasonality and Cyclicality
Our backlog of confirmed orders was approximately $1.0 billion at December 31, 2007 and $1.2 billion at December 31, 2006. We expect that approximately 90% of confirmed orders on hand at December 31, 2007 will be filled during the year ending December 31, 2008. Backlog of confirmed orders of our High Performance Metals segment was approximately $683 million at December 31, 2007 and $730 million at December 31, 2006. We expect that approximately 85% of the confirmed orders on hand at December 31, 2007 for this segment will be filled during the year ending December 31, 2008. Backlog of confirmed orders of our Flat-Rolled Products segment was approximately $177 million at December 31, 2007 and $353 million at December 31, 2006. We expect that all of the confirmed orders on hand at December 31, 2007 for this segment will be filled during the year ending December 31, 2008.
Generally, our sales and operations are not seasonal. However, demand for our products is cyclical over longer periods because specialty metals customers operate in cyclical industries and are subject to changes in general economic conditions and other factors both external and internal to those industries.
Research, Development and Technical Services

Our research, development and technical service activities are closely interrelated and are directed toward cost reduction and process improvement, process control, quality assurance and control, system development, the development of new manufacturing methods, the improvement of existing manufacturing methods, the improvement of existing products, and the development of new products.
We own hundreds of United States patents, many of which are also filed under the patent laws of other nations. Although these patents, as well as our numerous trademarks, technical information, license agreements, and other intellectual property, have been and are expected to be of value, we believe that the loss of any single such item or technically related group of such items would not materially affect the conduct of our business.
Environmental, Health and Safety Matters
We are 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 we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. We could incur substantial cleanup costs, fines, civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or non-compliance with environmental permits required at our facilities. We are currently involved in the investigation and remediation of a number of our current and former sites as well as third party sites.
We consider environmental compliance to be an integral part of our operations. We have a comprehensive environmental management and reporting program that focuses on compliance with all federal, state, regional and local environmental laws and regulations. Each operating company has an environmental management system that includes mechanisms for regularly evaluating environmental compliance and managing changes in business operations while assessing environmental impact.
Our Corporate Guidelines for Business Conduct and Ethics address compliance with environmental laws as well as employment and workplace safety laws, and also describe our commitment to equal opportunity and fair treatment of employees. We continued to realize significant progress in safety across ATI’s operations. As a result of our continuing focus on and commitment to safety, in 2007 our OSHA Total Recordable Incident Rate improved by 5% to 3.02 and our Lost Time Case Rate was 0.52, which we believe to be competitive with world class performance.
Employees
We have approximately 9,700 full-time employees. A portion of our workforce is covered by various collective bargaining agreements, principally with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“USW”), including: approximately 2,750 Allegheny Ludlum production, office and maintenance employees covered by collective bargaining agreements that are effective through June 2011, approximately 325 Allvac Albany, Oregon (Oremet) employees covered by a collective bargaining agreement that is effective through June 2011, approximately 630 Wah Chang employees covered by a collective bargaining agreement that continues through March 2008, approximately 280 employees at our Casting Service facility in LaPorte, Indiana, covered by a collective bargaining agreement that is effective through December 2011, and approximately 200 employees at our Portland Forge facility in Portland, Indiana, covered by collective bargaining agreements with three unions that are effective through April 2008. We are negotiating a collective bargaining agreement with approximately 150 employees at our Rome Metals facilities.
Available Information
Our Internet website address is http://www.alleghenytechnologies.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy and information statements and other information that we file, are available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the United States Securities and Exchange Commission. Our Internet website and the content contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. You may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website at http://www.sec.gov which contains reports, proxy and information statements and other information that we file electronically with the SEC.

CEO BACKGROUND

L . Patrick Hassey has been President and Chief Executive Officer since October 1, 2003. He was elected to the Company’s Board of Directors in July 2003 and has served as Chairman since May 2004. Prior to this position, he worked as an outside management consultant to Allegheny Technologies’ executive management team. Mr. Hassey was Executive Vice President and a member of the corporate executive committee of Alcoa, Inc. at the time of his early retirement in February 2003. He had served as Executive Vice President of Alcoa and Group President of Alcoa Industrial Components from May 2000 to October 2002. Prior to May 2000, he served as Executive Vice President of Alcoa and President of Alcoa Europe, Inc.
Richard J. Harshman has served as Executive Vice President, Finance since October 2003 and Chief Financial Officer since December 2000. Mr. Harshman was Senior Vice President, Finance from December 2001 to October 2003 and Vice President, Finance from December 2000 to December 2001. Previously, he had served in a number of financial management roles for Allegheny Technologies Incorporated and Teledyne, Inc.
Douglas A. Kittenbrink has served as Executive Vice President, Corporate Planning and International Business Development since March 1, 2007. Mr. Kittenbrink was Executive Vice President, ATI Business System and Group President, Engineered Products Segment from October 2003 to March 2007. Mr. Kittenbrink was Executive Vice President and Chief Operating Officer from July 2001 to October 2003 and served as President of Allegheny Ludlum from April 2000 to November 2002.
Jon D. Walton has been Executive Vice President, Human Resources, Chief Legal and Compliance Officer, General Counsel and Corporate Secretary since October 2003. Mr. Walton was Senior Vice President, Chief Legal and Administrative Officer from July 2001 to October 2003. Previously, he was Senior Vice President, General Counsel and Secretary.
Dale G. Reid has served as Vice President, Controller, Chief Accounting Officer and Treasurer since December 2003. Mr. Reid was Vice President, Controller and Chief Accounting Officer from December 2000 through November 2003.
Terry L. Dunlap has served as ATI Allegheny Ludlum Business Unit President since November 2002.
Thomas E. Williams has served as ATI Allvac Business Unit President since 1999. Mr. Williams has announced his retirement from the Company effective March 31, 2008.
Lynn Davis has served as ATI Wah Chang Business Unit President since September 2000.
David M. Hogan has served as ATI Metalworking Products Business Unit President since 1997. Since April 1, 2007, Mr. Hogan has also served as Segment President, Engineered Products.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview of 2007 Financial Performance
In 2007, we strengthened our position in key global growth markets, launched new production facilities, and solidified our balance sheet while achieving record sales and profits. Net income for the full year 2007 increased 30% to $747.1 million, or $7.26 per share, compared to $574.1 million, or $5.61 per share, for 2006. For 2007, return on capital employed was 31.2%, and return on stockholders’ equity was 40.1%. Sales increased 10.5% to $5.45 billion for 2007. Direct international sales increased $294.8 million, or 25%, and represented 27% of our total sales. Our growth is being driven by demand from the aerospace and defense market and strong demand from those markets that are vital to the building and rebuilding of the global infrastructure. For 2007, 31% of our sales were to the aerospace and defense market, 24% to the chemical process industry and oil and gas markets, 13% to the electrical energy market, and 3% to the medical market. These major high-value growing global markets represented 71% of ATI’s 2007 sales.
In our High Performance Metals segment, year-over-year sales increased 14% to $2.07 billion due primarily to demand from the aerospace and defense, and oil and gas markets for our titanium and titanium alloys, nickel-based alloys and superalloys, and vacuum melted specialty alloys. In addition, sales benefited from the continued strong demand for our exotic materials, especially from the aerospace and defense, chemical process industry, and electrical energy markets. Operating profit for the High Performance Metals segment improved to $729.1 million, an 11% increase compared to 2006, due primarily to higher shipments resulting from increased demand, higher average selling prices for nickel-based alloys, specialty alloys and exotic alloys, and benefits from our gross cost reduction efforts. Lower raw material costs, primarily titanium scrap, resulted in a LIFO inventory valuation benefit of $96.3 million for 2007 compared to a LIFO inventory valuation charge in 2006 of $49.4 million.
In our Flat-Rolled Products segment, sales increased 9% to $2.95 billion primarily as a result of improved product mix, higher average base selling prices and raw material surcharges. While demand for our specialty and titanium sheet, and grain-oriented electrical steel products was strong from the global electrical energy, oil and gas, and chemical process industry markets, shipments of our standard stainless products declined primarily due to U.S. and European service center customers’ destocking actions, and concerns by other customers due to the volatility of raw material surcharges as a result of the extreme volatility in the cost of nickel throughout most of 2007. Total Flat-Rolled Products shipments declined 25%, with shipments of standard stainless products declining 37%. Even with the decline in shipments, operating profit for the Flat-Rolled Products segment was a record $505.2 million, a 45% increase compared to 2006. This improvement in 2007 operating profit was due primarily to improved product mix, higher average base selling prices, and the benefits from our gross cost reduction efforts. Increased raw material costs, partially offset by lower inventory quantities, resulted in a LIFO inventory valuation charge of $1.9 million for 2007 compared to a LIFO inventory valuation charge of $147.3 million in 2006.
In our Engineered Products segment, 2007 sales were comparable to prior year at $433.0 million. However, operating profit declined to $32.1 million, compared to $56.7 million in 2006, primarily due to higher purchased raw material costs, and start-up costs associated with our newly expanded ammonium paratungstate (APT) plant, including the slower than planned ramp-up of this plant.
For 2007, total segment operating profit increased 19% to $1.27 billion, an increase of $204.5 million compared to 2006. Total segment operating profit as a percentage of total sales reached a record 23.2% in 2007, compared to 21.5% in 2006.
During 2007, we continued to enhance our leading market positions, reduce costs, and improve our balance sheet. We also realized continued success in implementing the ATI Business System, which is continuing to drive lean manufacturing throughout our operations. Our accomplishments during 2007 from these important efforts included:

We continued to grow our global market presence as direct international sales reached a record $1.47 billion, or 27% of total sales, an increase of $294.8 million compared to 2006. We believe that nearly 50% of ATI’s 2007 sales were driven by global markets when we consider exports of our customers.


We continued to build a foundation for further profitable growth. During second half 2007, we entered into additional long-term agreements with customers for our titanium and titanium alloy, nickel-based alloy, specialty alloy, grain-oriented electrical steel, and iron castings products. These contracts build upon agreements announced earlier in 2007 and in the second half of 2006 with
The Boeing Company and GE Aviation to supply these aerospace and defense customers with titanium and nickel-based superalloys. We believe these agreements indicate that long-term supply of these products remained critically important to our customers.


We continued to realize significant benefits of our strategic focus for high value specialty products, especially titanium. In 2007, shipments of titanium products, including ATI produced products for our Uniti titanium joint venture, increased 15% to approximately 41 million pounds. For 2008, we currently expect shipments of titanium products to increase an additional 25% to over 50 million pounds. These volume increases are being achieved utilizing our manufacturing capabilities across both our High Performance Metals and Flat-Rolled Products segments and demonstrate our ability to supply the marketplace with both long and flat-rolled products.


We significantly increased self-funded strategic capital investments in our businesses to support the growth in our markets, especially for titanium and titanium alloys, nickel-based alloys and superalloys, and vacuum melted specialty alloys. During the past three years, we have invested over $800 million, of which $457.1 million was spent in 2007, to expand our titanium sponge production, and our melting, rolling and finishing capabilities. Our major strategic capital projects include:

A significant upgrade to and restarting of our titanium sponge facility in Albany, OR, at a total capital investment of approximately $100 million, including the announced expansion in February 2007. Titanium sponge is an important raw material used to produce our titanium mill products. The annual production of titanium sponge from our Albany, OR facility achieved an annualized production rate of approximately 16 million pounds at the end of 2007, and is expected to reach approximately 22 million pounds of annualized production by the second half of 2008 when all phases are completed.


The design and construction of a greenfield premium-grade titanium sponge facility in Rowley, UT, which will be the first greenfield titanium sponge facility built in the U.S. in over thirty years. The estimated cost of this facility is expected to be approximately $460 million, including engineering and design for future expansion. Titanium sponge production from the Rowley, UT facility is expected to begin in late 2008 and reach an initial annualized production rate of approximately 24 million pounds in 2009. When the Oregon and Utah facilities are operational in 2009, our total annual titanium sponge production capacity is expected to be approximately 46 million pounds, and is intended to supplement our purchased titanium sponge and purchased titanium scrap requirements. The Utah facility could be expanded to a total annual capacity of 42 million pounds with additional capital investment if market conditions warrant such an investment.


The design and construction of a titanium alloys and nickel-based alloys and superalloy forging facility at our operations in North Carolina at an estimated cost of $237 million. This new facility, which is expected to be constructed in phases through 2009, will include a new 10,000 ton press forge and a new 700mm rotary forge, both of which will be the largest of their kind in the world for producing these types of alloys. It will also include billet conditioning and finishing equipment. We will also add our fourth Plasma Arc Melt (PAM) furnace for cold hearth melting premium titanium alloys, primarily for aeroengine rotating-quality applications, and we will build additional vacuum arc remelt (VAR) capacity to support premium nickel-based superalloy and titanium growth. These investments are expected to commence production in phases through 2009 and into 2010.


A $60 million upgrade and expansion of our titanium and titanium alloys, nickel-based alloys, stainless steel, and specialty alloys plate finishing facility in Washington, PA. This upgrade and expansion is expected to be completed in the second quarter of 2008.


A significant expansion of our capability to produce ammonium paratungstate (“APT”), a raw material used in the production of tungsten powder and tungsten-based cutting tools and other products in our Engineered Products segment. This investment was completed in 2007 and is now fully operational. This investment is expected to position ATI to be self-sufficient for APT, by producing this important raw material from scrap at a much lower cost than purchased APT.


Our Chinese joint venture company known as Shanghai STAL Precision Stainless Steel Company Limited (“STAL”), in which ATI has a 60% interest, commenced an expansion of its Precision Rolled Strip® operations in Shanghai, China. This expansion is expected to more than triple STAL’s precision rolling and slitting capacity when fully operational in 2009.
For 2008, we currently plan to spend approximately $500 million for capital expenditures, excluding the capital expansion underway at our STAL joint venture.


We realized strong cash generation in 2007. Cash on hand at the end of 2007 was $623 million, an increase of $121 million compared to the end of 2006. This increase in cash is after investing $457 million in capital expenditures and purchases of businesses, $44 million in managed working capital due primarily to higher business activity, $100 million in a voluntary cash contribution to our U.S. qualified defined benefit pension plan, $61 million to repurchase ATI stock, and $58 million in dividend payments.


We continued to strengthen our balance sheet. At the end of 2007, ATI had more cash than debt. Therefore, our net debt to total capitalization improved to a negative 4.5% compared to a positive 3.3%, 19.7%, 43.5% and 71.7% at year-end 2006, 2005, 2004 and 2003, respectively. Total debt to total capital declined to 19.2% compared to 26.9%, 41.0%, 57.5%, and 74.9% at year-end 2006, 2005, 2004, and 2003, respectively. At the end of 2007, our U.S. qualified defined benefit pension plan was 111% funded. This is significant as the funded status of the plan prior to 2006 had a significant negative impact on our balance sheet. As a result of the improvement in funding status, total retirement benefit expense is expected to decline by $29 million in 2008, compared to 2007.


We continued to realize significant progress in safety across ATI’s operations. As a result of our continuing focus on and commitment to safety, in 2007 our OSHA Total Recordable Incident Rate improved by 5% to 3.02 and our Lost Time Case Rate was 0.52, which we believe to be competitive with world class performance.


We realized continued success from the ATI Business System, which is continuing to drive lean manufacturing throughout our operations. In addition to the improved safety performance discussed above, we realized $112 million in gross cost reductions in 2007 which exceeded our goal of $100 million. We have targeted additional gross cost reductions of $100 million in 2008.


With the continuing strength in our major end markets and confidence in ATI’s ability to continue to generate strong cash flow over the next several years, the Board of Directors increased the quarterly dividend by nearly 40% to $0.18 per share in November 2007. This is the third consecutive year the Board has significantly increased the dividend. Additionally in November 2007, the Board of Directors authorized a $500 million share repurchase program.
As a result of these accomplishments, we believe our long-term profitable growth outlook remains intact. With our new production capabilities and our strong financial position, we believe ATI is well positioned to continue to expand our presence in the growing global markets that have been driving our performance over the last several years. We expect demand from the commercial aerospace market to remain at a high level as our airframe and jet engine customers’ backlogs are at record levels. We also expect demand from the chemical process industry, oil and gas, and electrical energy markets to stay strong as the global infrastructure build and rebuild continues.
Results of Operations
Sales were $5.45 billion in 2007, $4.94 billion in 2006 and $3.54 billion in 2005. Direct international sales represented approximately 27% of 2007 sales, 24% of 2006 sales and 25% of 2005 sales.
Segment operating profit was $1.27 billion in 2007, $1.06 billion in 2006, and $536.7 million in 2005. 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, other costs net of gains on asset sales and restructuring costs, if any. We believe segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.
Income before tax and the cumulative effect of change in accounting principle was $1.15 billion in 2007, $872.6 million in 2006, and $311.1 million in 2005. For 2005, income before tax included a restructuring charge of $23.9 million for asset impairments and a charge of $12.6 million for legal matters.
Net income was $747.1 million for 2007, $574.1 million for 2006, and $362.4 million for 2005. Net income for 2005 included a $20.9 million net special gain, which included a tax benefit associated with the reversal of the Company’s remaining valuation allowance for U.S. Federal net deferred tax assets, partially offset by asset impairment charges in the Flat-Rolled Products segment, charges for legal matters, and the cumulative effect of adopting a new accounting principle for conditional asset retirement obligations.

Our High Performance Metals segment produces, converts and distributes a wide range of high performance alloys, including titanium and titanium-based alloys, nickel- and cobalt-based alloys and superalloys, exotic alloys such as zirconium, hafnium, niobium, nickel-titanium, and their related alloys, and other specialty metals, primarily in long product forms such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tube. These products are designed for the high performance requirements of such major end markets as aerospace and defense, chemical process industry, oil and gas, electrical energy and medical. The operating units in this segment are ATI Allvac, ATI Allvac Ltd (U.K.) and ATI Wah Chang.
2007 Compared to 2006
Sales for the High Performance Metals segment for 2007 increased 14% to $2.07 billion, due primarily to improved volume and higher average selling prices for our nickel-based alloys and superalloys, vacuum-melted specialty alloys, and exotic alloy products driven by increased demand from the aerospace and defense, oil and gas, chemical process industry, and electrical energy markets.

Aerospace represents a significant market for our High Performance Metals segment, especially for premium quality specialty metals used in the manufacture of jet engines for the original equipment and spare parts markets. In addition, we are becoming a larger supplier of specialty metals used in airframe construction. In January 2007, we announced a long-term sourcing agreement with GE Aviation for the supply of premium titanium alloys, nickel-based superalloys, and vacuum-melted specialty alloys products for commercial and military jet engine applications. Total revenues under this agreement plus Allvac’s direct sales to GE Aviation for the period 2007 through 2011 may exceed $2 billion. In addition, in October 2006 we announced a long-term agreement with The Boeing Company to supply titanium alloys products for Boeing’s aircraft airframes and structural components, including Boeing’s 787 Dreamliner. Total revenues under this contract are expected to be approximately $2.5 billion for the years 2007 through 2015. This long-term agreement includes both long-product forms which are manufactured within the High Performance Metals segment, and a significant amount of plate products which are manufactured utilizing assets of both the High Performance Metals and Flat-Rolled Products segments. Revenues and profits associated with these mill products covered by the long-term agreement are included primarily in the results for the High Performance Metals segment.
The commercial aerospace market’s use of titanium is expected to increase significantly as new aircraft airframe production is utilizing a larger percentage of titanium material. For example, the new Boeing 787 Dreamliner airframe (excluding engines), is expected to require approximately 250,000 pounds of titanium alloys mill products per aircraft, a significant increase over any previous commercial aircraft airframe. New aircraft designs from Airbus, the A380 and A350-XWB, and from defense contractors are also expected to utilize a greater percentage of titanium. Given the record backlogs of both Boeing and Airbus, and the engine manufacturers, this increasing demand for titanium alloys mill products is expected to last into the next decade.
Annually, revenue passenger miles and freight miles have increased 8.8% and 7.4%, respectively, since 2003, according to the International Civil Aviation Organization (ICAO). The ICAO expects this growth trend to continue at over 6% annually well into the next decade based on the demand for passenger and freight travel from developing economies, especially in Asia and the Middle East, and continuing economic growth in the rest of the world. Commercial and military jet aircraft deliveries of new aircraft have increased 5.4% annually since 2003. Independent forecasts from both Airline Monitor and Forecast International project continuing growth of commercial and military jet aircraft deliveries into the next decade. Due to manufacturing cycle times, demand for our specialty metals leads the deliveries of new aircraft by 12 to 18 months. In addition, as our specialty metals are used in jet engines, demand for our products for spare parts is impacted by aircraft flight activity and engine refurbishment requirements of U.S. and foreign aviation regulatory authorities.

High Performance Metals segment operating profit for 2007 increased 11% to $729.1 million compared to 2006 primarily due to higher volume, higher average selling prices for many of our products, and improved product mix. Segment results in 2007 and 2006 were affected by volatile raw material costs. Nickel and nickel-bearing scrap, and titanium scrap increased significantly in 2006 and the first half of 2007, but declined sharply in the 2007 second half. These material costs are largely recovered in product selling prices through raw material indices which attempt to match purchased material costs with shipments. However in an environment of rapidly increasing, or declining costs, these raw material indices included in product selling prices may not completely offset purchased material costs. The rapid fall in raw material costs in the 2007 second half had a significant negative effect on operating profit as shipments produced with raw material purchased earlier in the year at higher costs were sold based upon raw material indices which reflected lower raw material prices. This negative impact on operating profit was offset by a LIFO inventory valuation reserve benefit of $96.3 million. In 2006, higher nickel, nickel-bearing scrap, and titanium raw material costs resulted in a LIFO inventory valuation reserve charge of $49.4 million.

We continued to aggressively reduce costs in 2007. Gross cost reductions, before the effects of inflation, totaled approximately $42 million. Major areas of gross cost reductions included $26 million from procurement, $11 million from operating efficiencies, and $5 million from salaried and hourly labor cost savings.
To support our strategic growth initiatives in the High Performance Metals segment, we have committed to significantly expand our manufacturing capabilities. Under projects announced in the past three years, we expect to spend approximately $885 million, of which approximately $355 million has been spent as of December 31, 2007. These projects include a multi-phase titanium products expansion that is expected to yield up to 46 million pounds of annual titanium sponge production capacity, an increase in ATI’s annual titanium melt capacity by at least 25 million pounds, and expansion of our forging and finishing operations for titanium and titanium alloys, nickel-based alloys and superalloys, and vacuum-melted specialty alloys. These strategic capital investments are designed to expand and enhance ATI’s capacity and capabilities to meet current and expected demand growth from the aerospace (both engine and airframe), defense, chemical process industry, oil and gas, and medical markets.
In the first quarter 2007, we entered into a new labor agreement, which expires on June 30, 2011, with the United Steelworkers represented at ATI’s Allvac Albany, Oregon operations. As a result of this new agreement, we recognized a non-recurring pre-tax charge of $0.7 million.

CONF CALL

Dan L. Greenfield - Director of Investor Relations and Corporate Communication

Thank you Akiya. Good afternoon and welcome Allegheny Technologies conference call for the second quarter 2008. This conference call is being broadcast live on our website at alleghenytechnologies.com and on ccbn.com. Members of the media have been invited to listen to this call.

Participating in the conference call today are Pat Hassey, Chairman, President and Chief Executive Officer and Rich Harshman, Executive Vice President, Finance and Chief Financial Officer. After some initial comments we will ask for questions. During the question and answer session, please limit yourself to two questions to be considerate of others on the line. Please note that all forward-looking statements made this afternoon are subject to various assumptions and caveat as noted in the earnings release. Actual results may differ materially. Here is Pat Hassey.

L. Patrick Hassey - Chairman, President and Chief Executive Officer

Thanks Dan and thanks to everyone for joining us today. Second quarter demonstrates our ability to deliver good returns during an uncertain time. ATI is benefiting from our ongoing transformation, our product, market and geographic diversification. Our key financial metrics represent outstanding financial performance for any industrial company.

Return on capital employed was over 24%, return on stockholders equity was 30% and net debt to total capitalization was 8.1%. We had $310 million of cash on hand at the end of the second quarter after we invested over $500 million in the business during the first half of 2008. This includes a $271 million increase to managed working capital mostly due to the recovery in the Flat-Rolled Products business and our need to build inventory for third quarter planned equipment outages in the Flat-Rolled Products segment. $257 million was spent on new capital investment.

In addition we spent approximately $88 million to repurchase over 1.3 million shares of ATI stock bringing the total share, repurchase plan to approximately 2 million shares in three quarters. As we have stated we have a balanced view of our cash... use of cash. Our primary focus continues to be investing for sustainable, long-term profitable growth while maintaining a strong balance sheet. We are also focused on creating value for our shareholders through our dividend policy and our share repurchase program.

Gross cost reductions totaled $69 million for the first half as we remained focused on reducing cost to systematically improving operating efficiencies along with benefiting from our new equipment. We are running ahead of our $100 million cost reduction goal for the year.

Segment operating profit was a solid 18.7% of second quarter revenues. In the high performance metal segment, operating profit improved to 29.9% of sales, close to achieving our 30 plus target. Demand for our premium titanium alloys and nickel based super alloys and specialty alloys was good from our jet engine customers. Our customers reported OEM and spare parts demand remains good. Demand was steady for our air frame titanium products. Shipments for our titanium and titanium mill products in this segment declined by 1%, during the second quarter of 2008 compared to the same period last year. However year-to-date shipments are up 11%.

In our exotic alloys business, we had another record quarter. Shipments were driven by strong demand from the chemical process industry for plants that produce the Sialic acid [ph] and urea used for fertilizers. We expect demand in this business to remain strong, as we're currently operating at near capacity and booking business well into 2010.

We're adding new zirconium sponge capacity in anticipation of further increasing demand from the chemical process industry and nuclear electricity, energy markets going forward. In the Flat-Rolled Products segment, operating profit was 13.3% of sales. We continue to benefit from the ongoing transformation of this segment. Product, market, and geographic diversification have greatly improved.

In addition, this segment is benefiting from approximately $400 million in gross cost reduction since 2003. Demand was strong from this segment's largest markets. Chemical process, oil and gas and electrical energy which accounted for 54% of the segment's first half sales. Demand is strong for our grain-oriented electrical steel from the global electrical energy distribution market. We expect demand to be strong for this product for at least the next several years.

Our challenge is to continue to de-bottleneck the operation and to ship more of the higher value product. We have significantly grown our participation in the global industrial titanium market. This product is used primarily in the chemical process industry, electrical energy, desalinization, and transportation markets. Last year we targeted industrial titanium for growth as a way of moving our titanium units to areas of market strength, that strategy is working.

Total ATI titanium mill product shipments grew to nearly 24 million pounds, that's 19% growth during the first six month of 2008 compared to the same period last year. Demand for our specialty sheet and plate products was also strong demonstrating continuous strength in the global infrastructure build and modernization. Shipments of our standard stainless sheet and plate products improved in the second quarter in a flat to declining market. U.S. stainless service center inventories remained low and stable during the second quarter according to industry data.

Shipments of our AL201 high performance family of lean nickel alloys continues to grow. The switch is on continuous. Many of our customers realize no matter the price of nickel 201HP offers savings compared to the conventional 304 standard grades. Our shipments to Europe improved significantly. Demand was good from key capital markets particularly from stainless tube and pipe manufacturers. Our engineered products segment operating profit in the second quarter was 9% of sales. This segment is now getting its performance back on track.

The product mix in our tungsten products business is improving and sales are growing in the aerospace and defense, electrical energy, and mining markets. We also expect to see improved sales in the oil and gas market, beginning in the second half of 2008. Also our new casting shop in Alpena, Michigan is expected to complete qualifications this month for wind energy production, and ramp up in the second half of this year. Demand for our castings is robust in the wind energy applications.

We continue our capital investments to give a state of the art manufacturing capabilities. These investments enable sustainable long-term profitable growth, and build new capabilities for our diversified products in diversified global markets. In June, we commissioned our upgraded specialty and titanium plate facility in Pennsylvania. This facility gives us much needed capacity and capabilities. We continue to transform our plate business from its traditional standard stainless plus some specialty products, to primarily a specialty plate business with some standard stainless.

The new capacity and capabilities allow us to move more strongly into the aerospace, defense, armor, chemical processing, oil and gas, and electrical energy markets. We can now go wider and flatter with additional alloys to greatly enhance this product line.

Primarily due to the announced push outs in Boeing 787 ramp up schedule, we now intend to begin initial production at our premium titanium sponge facility in Utah by the end of the first quarter 2009. This is about three months later than our previous plans. Our titanium and super alloy forging facility in North Carolina remains on schedule, and is expected to begin operations in the third quarter 2009. In addition, the expansion of our precision-rolled strip joint venture facility in China is expected to be fully operational in the first quarter 2009. This expansion is targeted at the growing demand from electronics, communications, and automotive parts in Asia.

Updating our views on the markets, aerospace and defense and the infrastructure markets namely chemical processing, oil and gas, electrical energy, plus the medical market, market have been driving our performance. We believe these markets are in a period of sustained long-term growth. These markets accounted for nearly 70% of sales in the first half of 2008. So far in 2008, we have signed long-term agreements in these same markets that have the potential to deliver over $1.3 billion in revenue to ATI over the life of the long-term arrangements which is generally three to five years and we are working on several additional long-term arrangements, as we speak.

The aerospace and defense, accounted for 27% of first half sales down slightly from last year due to declines in average selling prices. We attended last week's Farnborough Air Show, Boeing and Airbus announced over 450 orders, adding to an already record backlog. Bombardier announced a new fuel efficient original jet.

Three new fuel efficient engine development projects were discussed. The GE snackmerlepax [ph], the patent gear turbo fan and the Rolls Royce open rotor concept could be very good for our premium titanium and nickel-based alloys.

During the air show, we introduced ATI Aerospace, our market sector team. This ATI team has the resources and capabilities to assist our customers in dealing with the mission critical metallics, manufacturing, and certainty of supply challenges they face and providing more fuel efficient aircraft.

Traditionally, we have provided this market with our titanium alloys and nickel-based super alloys. Many of these same customers also use large amounts of high strength stainless and tungsten heavy alloys, which we also produce. In addition, because we have access to our metallurgist, our cutting tool business has developed expertise in difficult to machine metals such as titanium and nickel alloys. These are products where there is no margin for error and where ATI can excel and differentiate through our product technology. During the air show, we had a lot of meetings, lots of activities and lots of interest.

The new market sector team strategy is off to a great start. We think this market sector team can provide ongoing differentiation and growth to ATI. In June, we introduced the ATI Defense to the global industry at the Euro Statutory Trade Event in Paris. ATI defense focuses on ATI's assets and capabilities on non-aerospace defense applications, such as armor for land based vehicles and ships.

Customer interest is strong. Inquiries are growing rapidly and we have booked orders for our titanium and specialty armor products. During the second quarter, we introduced a new product to this market called ATI 500-MIL, a high-hardened steel for armor applications. We are truly encouraged by the prospects for this new market for ATI.

The chemical process, oil and gas industry accounted for 24% of our first half sales. This is the largest market for our exotic alloys and for our flat-rolled products business. Demand remains strong for our products for such things as acetic acid, urea used for fertilizers, sulfuric acid used in mining, producing fertilizers and for oil refining.

This market is being driven by global growth to make a better world and feed the growing population. The oil and gas market is strong and is getting stronger. During the second quarter we signed two important long-term arrangements. We signed a three year agreement for sales for our stainless and duplex alloys used in flexible supply lines in off shore oil and gas applications, primarily in Brazil and Europe.

We signed a seven year agreement for sales of our Tungsten products for down hole drilling applications. In addition as part of this LTA, we have a technology development agreement to create a better drilling system that lasts longer on the whole. We're really excited about the prospects for this new technology.

Rolling out the ATI oil and gas sector team next month at the Off Shore Northern Seas Conference being held at Norway. We expect this team to receive the same reception as we have seen in the aerospace and defense markets, due to our diversified product offerings. Lack of energy accounted for 15% in first half sales. We have already discussed the strong market conditions and extended prospects for our grain-oriented electrical steel.

We continue to add long-term arrangements for this product line, extending out four to five years. Current demand is also strong for conventional power generation, projects that is called Natural Gas. We believe, we are in the beginning of a nuclear renaissance and we see increasing inquiries from this market. We also received orders for nuclear waste applications.

Turning to alternative energy sources, demand for our castings for wind energy applications is also strong. We should benefit from our new Alpine and Michigan facility, in the second half of this year as we ramp up and also enter the first stage machining markets for these products. We are becoming increasingly convinced that solar energy could be a big new market for a stainless plate and procedural strip products.

A final comment on our markets, direct international sales were 27% of ATI sales during the first half. Strong demand continues. For example ATI Asia set a new order entry record for the first six months of 2008. This demonstrates what we mean by global infrastructure growth and our product market and geographic diversification. Here are some examples of key orders; Titanium, for a nuclear power plant in India, industrial zirconium for Chinese fabricators, titanium for new power plants in the Middle East, duplex alloy plat for mining refinery in Australia.

All these are global infrastructure projects where economies continue to grow at double digits. Aerospace and defense and infrastructure continue to drive our results and we believe these markets are in a period of long term growth. Our strategy is to deliver earnings stability and growth as we move through the extended cycle.

Growth and demand for commercial aerospace is slowing as a supply chain adapts to revised schedules for the new air plane program. Air plane backlogs are at a record level and growing. We are taking actions to grow ATI's overall presence in this market through the introduction of ATI Aerospace and ATI Defense market sector teams.

Demand from the global infrastructure markets is strong and we expect this trend to continue. To grow our presence in the oil and gas market, we are introducing the ATI Oil and Gas market sector team next month. We continue to see our new markets and new applications for our uniquely diversified product offerings. We're seeking out these applications. The world is a big place. We have good coverage through our internationally located selling arms. ATI Asia, ATI Europe, and our joint venture in China with Baosteel and our unity titanium joint venture with VSMPO of Esma.

Looking forward in the near term, we expect the normal third quarter seasonal slow down. We believe though we're well positioned to continue to achieve good performance in this uncertain U.S. economy due to our product and market diversification and our global reach. At this point, we expect full earnings 2008 to be in the range of $5.80 to $6.10 per share.

This will be the second best year in ATI's history. We expect return on capital to range from 20% to 21% and return on stockholder's equity to range from 24% to 25%. We also expect strong cash flow in the second quarter of the year. With that kind of update and those kind of descriptions of the business Dan, I think we will open the meeting for questions.


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