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

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

Commission File Number 1-12001

ALLEGHENY TECHNOLOGIES INCORPORATED

 

(Exact name of registrant as specified in its charter)

Delaware		25-1792394
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1000 Six PPG Place Pittsburgh, Pennsylvania		15222-5479

(Address of Principal Executive Offices)		(Zip Code)

(412) 394-2800

 

(Registrant’s telephone number, including area code)

     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 submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

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

     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 April 30, 2010, the registrant had outstanding 98,541,550 shares of its Common Stock.

 

 

ALLEGHENY TECHNOLOGIES INCORPORATED
SEC FORM 10-Q
Quarter Ended March 31, 2010

INDEX

		Page No.
PART I. — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Income		2
Consolidated Statements of Cash Flows		3
Statements of Changes in Consolidated Equity		4
Notes to Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		27
Item 4. Controls and Procedures		29
PART II. — OTHER INFORMATION
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 6. Exhibits		30
SIGNATURES		31
EXHIBIT INDEX		32
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Balance Sheets
(In millions, except share and per share amounts)
(Current period unaudited)

		March 31,				December 31,
		2010				2009
ASSETS
Current Assets:
Cash and cash equivalents		$	563.5			$	708.8
Accounts receivable, net of allowances for doubtful accounts of $6.4 and $6.5 at March 31, 2010 and December 31, 2009, respectively			472.6				392.0
Inventories, net			971.1				825.5
Prepaid expenses and other current assets			83.1				71.3
Total Current Assets			2,090.3				1,997.6
Property, plant and equipment, net			1,921.3				1,907.9
Cost in excess of net assets acquired			203.9				207.8
Deferred income taxes			11.8				63.1
Other assets			175.7				169.6
Total Assets		$	4,403.0			$	4,346.0
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable		$	396.7			$	308.6
Accrued liabilities			254.3				258.8
Deferred income taxes			8.9				23.7
Short term debt and current portion of long-term debt			32.1				33.5
Total Current Liabilities			692.0				624.6
Long-term debt			1,032.3				1,037.6
Accrued postretirement benefits			415.9				424.3
Pension liabilities			43.8				50.6
Other long-term liabilities			120.5				119.3
Total Liabilities			2,304.5				2,256.4
Equity:
ATI 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 March 31, 2010 and December 31, 2009; outstanding-98,550,032 shares at March 31, 2010 and 98,070,474 shares at December 31, 2009			10.2				10.2
Additional paid-in capital			640.7				653.6
Retained earnings			2,227.2				2,230.5
Treasury stock: 3,854,224 shares at March 31, 2010 and 4,333,782 shares at December 31, 2009			(185.2	)			(208.6	)
Accumulated other comprehensive loss, net of tax			(673.4	)			(673.5	)
Total ATI stockholders’ equity			2,019.5				2,012.2
Noncontrolling interests			79.0				77.4
Total Equity			2,098.5				2,089.6
Total Liabilities and Equity		$	4,403.0			$	4,346.0

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
		March 31,
		2010				2009
Sales		$	899.4			$	831.6
Costs and expenses:
Cost of sales			778.0				750.9
Selling and administrative expenses			74.2				80.8
Income (loss) before interest, other income and income taxes			47.2				(0.1	)
Interest (expense) income, net			(14.6	)			0.1
Other income, net			0.4				0.3
Income before income tax provision (benefit)			33.0				0.3
Income tax provision (benefit)			13.2				(5.0	)
Net income			19.8				5.3
Less: Net income (loss) attributable to noncontrolling interests			1.6				(0.6	)
Net income attributable to ATI		$	18.2			$	5.9
Basic net income attributable to ATI per common share		$	0.19			$	0.06
Diluted net income attributable to ATI per common share		$	0.18			$	0.06
Dividends declared per common share		$	0.18			$	0.18

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

		Three Months Ended
		March 31,
		2010				2009
Operating Activities:
Net income		$	19.8			$	5.3
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			34.6				32.3
Deferred taxes			24.8				(38.5	)
Changes in operating asset and liabilities:
Inventories			(145.6	)			141.3
Accounts receivable			(80.5	)			81.7
Accounts payable			88.1				(45.9	)
Retirement benefits			5.6				29.5
Accrued income taxes			2.0				(5.9	)
Accrued liabilities and other			(20.8	)			(30.9	)
Cash provided by (used in) operating activities			(72.0	)			168.9
Investing Activities:
Purchases of property, plant and equipment			(51.2	)			(108.6	)
Asset disposals and other			0.6				(0.6	)
Cash used in investing activities			(50.6	)			(109.2	)
Financing Activities:
Payments on long-term debt and capital leases			(5.2	)			(5.2	)
Net borrowings under credit facilities			(1.0	)			(0.4	)
Dividends paid to shareholders			(17.7	)			(17.6	)
Taxes on share-based compensation			1.1				0.3
Exercises of stock options			0.8				—
Shares repurchased for income tax withholding on share-based compensation			(0.7	)			(0.7	)
Cash used in financing activities			(22.7	)			(23.6	)
Increase (decrease) in cash and cash equivalents			(145.3	)			36.1
Cash and cash equivalents at beginning of period			708.8				469.9
Cash and cash equivalents at end of period		$	563.5			$	506.0

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Statements of Changes in Consolidated Equity

(In millions, except per share amounts)
(Unaudited)

		ATI Stockholders
																		Accumulated
						Additional												Other								Non-
		Common				Paid-In				Retained				Treasury				Comprehensive				Comprehensive				controlling				Total
		Stock				Capital				Earnings				Stock				Income (Loss)				Income (Loss)				Interests				Equity
Balance, December 31, 2008		$	10.2			$	651.8			$	2,286.7			$	(244.8	)		$	(746.5	)		$	—			$	71.6			$	2,029.0
Net income (loss)			—				—				5.9				—				—				5.9				(0.6	)			5.3
Other comprehensive income (loss) net of tax:
Pension plans and other
postretirement benefits			—				—				—				—				0.2				0.2				—				0.2
Foreign currency translation gains (losses)			—				—				—				—				(6.0	)			(6.0	)			0.3				(5.7	)
Unrealized gains on derivatives			—				—				—				—				5.1				5.1				—				5.1
Comprehensive income (loss)			—				—				5.9				—				(0.7	)		$	5.2				(0.3	)			4.9
Cash dividends on common stock ($0.18 per share)			—				—				(17.6	)			—				—								—				(17.6	)
Employee stock plans			—				(12.4	)			(14.7	)			33.1				—								—				6.0
Balance, March 31, 2009		$	10.2			$	639.4			$	2,260.3			$	(211.7	)		$	(747.2	)						$	71.3			$	2,022.3
Balance, December 31, 2009		$	10.2			$	653.6			$	2,230.5			$	(208.6	)		$	(673.5	)		$	—			$	77.4			$	2,089.6
Net income			—				—				18.2				—				—				18.2				1.6				19.8
Other comprehensive income (loss) net of tax:
Pension plans and other
postretirement benefits			—				—				—				—				13.1				13.1				—				13.1
Foreign currency translation losses			—				—				—				—				(20.0	)			(20.0	)			—				(20.0	)
Unrealized gains on derivatives			—				—				—				—				7.0				7.0				—				7.0
Comprehensive income			—				—				18.2				—				0.1			$	18.3				1.6				19.9
Cash dividends on common stock ($0.18 per share)			—				—				(17.7	)			—				—								—				(17.7	)
Employee stock plans			—				(12.9	)			(3.8	)			23.4				—								—				6.7
Balance, March 31, 2010		$	10.2			$	640.7			$	2,227.2			$	(185.2	)		$	(673.4	)						$	79.0			$	2,098.5

The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1. Accounting Policies

     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 2009 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, 2009 financial information has been derived from the Company’s audited financial statements.

New Accounting Pronouncements Adopted

     In January 2010, the FASB issued changes to disclosure requirements for fair value measurements, including the amount of transfers between Level 1 and 2 of the fair value hierarchy, the reasons for transfers in or out of Level 3 of the fair value hierarchy and activity for recurring Level 3 measures. In addition, the changes clarify certain disclosure requirements related to the level at which fair value disclosures should be disaggregated with separate disclosures of purchases, sales, issuances and settlements, and the requirement to provide disclosures about valuation techniques and inputs used in determining the fair value of assets or liabilities classified as Levels 2 or 3. The Company adopted the disclosure changes effective January 1, 2010, except for the disaggregated Level 3 rollforward disclosures, which will be effective for fiscal year 2011.

Note 2. Inventories

Inventories at March 31, 2010 and December 31, 2009 were as follows (in millions):

		March 31,				December 31,
		2010				2009
Raw materials and supplies		$	184.4			$	158.3
Work-in-process			799.5				673.9
Finished goods			91.5				96.1
Total inventories at current cost			1,075.4				928.3
Less allowances to reduce current cost values to LIFO basis			(102.9	)			(102.8	)
Progress payments			(1.4	)			—
Total inventories, net		$	971.1			$	825.5

     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, had no effect for the first three months of 2010 compared to a decrease to cost of sales of $27.5 million for the first three months of 2009.

Note 3. Property, Plant and Equipment

Property, plant and equipment at March 31, 2010 and December 31, 2009 was as follows (in millions):

		March 31,				December 31,
		2010				2009
Land		$	24.5			$	24.8
Buildings			607.7				590.6
Equipment and leasehold improvements			2,625.1				2,607.8
			3,257.3				3,223.2
Accumulated depreciation and amortization			(1,336.0	)			(1,315.3	)
Total property, plant and equipment, net		$	1,921.3			$	1,907.9

Note 4. Debt

Debt at March 31, 2010 and December 31, 2009 was as follows (in millions):

		March 31,				December 31,
		2010				2009
Allegheny Technologies 4.25% Convertible Notes due 2014		$	402.5			$	402.5
Allegheny Technologies 9.375% Notes due 2019			350.0				350.0
Allegheny Technologies 8.375% Notes due 2011, net (a)			117.8				117.9
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			15.4				20.5
Foreign credit agreements			20.7				22.1
Industrial revenue bonds, due through 2020, and other			8.0				8.1
Total short-term and long-term debt			1,064.4				1,071.1
Short-term debt and current portion of long-term debt			(32.1	)			(33.5	)
Total long-term debt		$	1,032.3			$	1,037.6

The Company did not borrow funds under its $400 million senior unsecured domestic credit facility during the first three months of 2010, although approximately $10 million has been utilized to support the issuance of letters of credit. The unsecured facility requires the Company to maintain a leverage ratio (consolidated total indebtedness net of cash on hand in excess of $50 million, divided by consolidated earnings before interest, taxes, depreciation and amortization, and non-cash pension expense) of not greater than 3.25, and maintain an interest coverage ratio (consolidated earnings before interest, taxes, and non-cash pension expense divided by interest expense) of not less than 2.0. For the twelve months ended March 31, 2010, the leverage ratio was 1.70, and the interest coverage ratio was 5.59.

     The Company has an additional separate credit facility for the issuance of letters of credit. As of March 31, 2010, $30 million in letters of credit was outstanding under this facility.

     In addition, STAL, the Company’s Chinese joint venture company in which ATI has a 60% interest, has a 205 million renminbi (approximately $30 million at March 31, 2010 exchange rates) revolving credit facility with a group of banks. This credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners. As of March 31, 2010, there were no borrowings under this credit facility, although STAL had approximately $2 million in letters of credit outstanding.

Note 5. Derivative Financial Instruments and Hedging

     As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges. In general, hedge effectiveness is determined by examining the relationship between offsetting changes in fair value or cash flows attributable to the item being hedged, and the financial instrument being used for the hedge. Effectiveness is measured utilizing regression analysis and other techniques to determine whether the change in the fair market value or cash flows of the derivative exceeds the change in fair value or cash flow of the hedged item. Calculated ineffectiveness, if any, is immediately recognized on the statement of income.

     The Company sometimes uses futures and swap contracts to manage exposure to changes in prices for forecasted purchases of raw materials, such as nickel, and natural gas. Under these contracts, which are generally accounted for as cash flow hedges, the price of the item being hedged is fixed at the time that the contract is entered into and the Company is obligated to make or receive a payment equal to the net change between this fixed price and the market price at the date the contract matures.

     The majority of ATI’s products are sold utilizing raw material surcharges and index mechanisms. However, as of March 31, 2010, the Company had entered into financial hedging arrangements primarily at the request of its customers, related to firm orders, for approximately 6% of the Company’s total annual nickel requirements in 2010. A minor amount of nickel hedges extend into 2014.

     At March 31, 2010, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges for approximately 50% of its annual forecasted domestic requirements through 2011 and approximately 15% for 2012, and electricity hedges for Western Pennsylvania operations of approximately 35% of its forecasted on-peak and off-peak requirements for 2011 and approximately 20% for 2012.

     While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk. The Company may also enter into foreign currency forward contracts that are not designated as hedges, which are denominated in the same foreign currency in which export sales are denominated. At March 31, 2010, the outstanding financial derivatives, including both hedges and undesignated derivatives, that are used to manage the Company’s exposure to foreign currency, primarily euros, represented approximately 20% of its forecasted total international sales through 2011. In addition, the Company may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions.

     The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. There were no unsettled derivative financial instruments related to debt balances for the periods presented, although previously settled contracts remain a component of the recorded value of debt. See Note 4. Debt, for further information.

     The fair values of the Company’s derivative financial instruments are presented below. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data.

(in millions):				March 31,				December 31,
Asset derivatives		Balance sheet location		2010				2009
Derivatives designated as hedging instruments:
Nickel and other raw material contracts		Prepaid expenses and other current assets		$	24.5			$	14.9
Foreign exchange contracts		Prepaid expenses and other current assets			11.2				3.8
Natural gas contracts		Prepaid expenses and other current assets			—				0.3
Foreign exchange contracts		Other assets			5.4				3.6
Nickel and other raw material contracts		Other assets			1.4				0.5
Natural gas contracts		Other assets			—				0.3
Total derivatives designated as hedging instruments:					42.5				23.4
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Prepaid expenses and other current assets			0.6				—
Foreign exchange contracts		Other assets			3.2				—
Total derivatives not designated as hedging instruments:					3.8				—
Total asset derivatives				$	46.3			$	23.4

Liability derivatives		Balance sheet location
Derivatives designated as hedging instruments:
Natural gas contracts		Accrued liabilities		$	14.3			$	10.2
Electricity contracts		Accrued liabilities			0.5				—
Natural gas contracts		Other long-term liabilities			8.9				7.5
Foreign exchange contracts		Other long-term liabilities			0.1				—
Electricity contracts		Other long-term liabilities			1.6				—
Total liability derivatives				$	25.4			$	17.7

     For derivative financial instruments that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period results. The Company did not use fair value or net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes.

     Activity with regard to derivatives designated as cash flow hedges for the three month periods ended March 31, 2010 and March 31, 2009 was as follows (in millions):

																		Amount of Gain (Loss)
										Amount of Gain (Loss)								Recognized in Income
		Amount of Gain (Loss)								Reclassified from								on Derivatives (Ineffective
		Recognized in OCI on								Accumulated OCI								Portion and Amount
		Derivatives								into Income								Excluded from
		(Effective Portion)								(Effective Portion)(a)								Effectiveness Testing)(b)
		Quarter ended								Quarter ended								Quarter ended
Derivatives in Cash Flow		March 31,								March 31,								March 31,
Hedging Relationships		2010				2009				2010				2009				2010				2009
Nickel and other raw material contracts		$	8.7			$	(0.1	)		$	2.2			$	(6.5	)		$	—			$	—
Natural gas contracts			(5.9	)			(10.0	)			(2.1	)			(4.7	)			—				—
Electricity contracts			(1.3	)			—				—				—				—				—
Foreign exchange contracts			6.7				6.2				1.1				2.1				—				0.6
Total		$	8.2			$	(3.9	)		$	1.2			$	(9.1	)		$	—			$	0.6

     Assuming market prices remain constant with those rates at March 31, 2010, a gain of $12.9 million is expected to be recognized over the next 12 months.

     The disclosures of gains or losses presented above for nickel and other raw material contracts and foreign currency contracts do not take into account the anticipated underlying transactions. Since these derivative contracts represent hedges, the net effect of any gain or loss on results of operations may be fully or partially offset.

     Derivatives that are not designated as hedging instruments were as follows:

		Amount of Gain
		Recognized in Income
		on Derivatives
		Three Months Ended
Derivatives Not Designated		March 31,
as Hedging Instruments		2010				2009
Foreign exchange contracts		$	2.5			$	—

     Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales.

     There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts were substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible.

Note 6. Fair Value of Financial Instruments

The estimated fair value of financial instruments at March 31, 2010 and December 31, 2009 was as follows:

		March 31, 2010								December 31, 2009
		Carrying				Estimated				Carrying				Estimated
(In millions)		Amount				Fair Value				Amount				Fair Value
Cash and cash equivalents		$	563.5			$	563.5			$	708.8			$	708.8
Derivative financial instruments:
Assets			46.3				46.3				23.4				23.4
Liabilities			25.4				25.4				17.7				17.7
Debt:
Allegheny Technologies 4.25% Convertible Notes due 2014			402.5				594.9				402.5				561.5
Allegheny Technologies 9.375% Notes due 2019			350.0				411.7				350.0				404.6
Allegheny Technologies 8.375% Notes due 2011, net (a)			117.8				123.6				117.9				129.3
Allegheny Ludlum 6.95% debentures due 2025			150.0				143.2				150.0				139.4
Promissory note for J&L asset acquisition			15.4				15.4				20.5				20.5
Foreign credit agreements			20.7				20.7				22.1				22.1
Industrial revenue bonds, due through 2020 and other			8.0				8.0				8.1				8.1

     In accordance with accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards established three levels of a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

     Cash and cash equivalents: Cash fair value was determined using Level 1 information. Cash equivalent fair value was determined using Level 2 information.

     Derivative financial instruments: Fair values for derivatives were measured using exchange-traded prices for the hedged items. The fair value was determined using Level 2 information, including consideration of counterparty risk and the Company’s credit risk.

     Short-term and long-term debt: The fair values of the Allegheny Technologies 4.25% Convertible Notes, the Allegheny Technologies 9.375% Notes, the Allegheny Technologies 8.375% Notes, and the Allegheny Ludlum 6.95% debentures were based on Level 1 information. The fair values of the other short-term and long-term debt were determined using Level 2 information.

Note 7. 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 periods ended March 31, 2010 and 2009, the components of pension (income) expense and components of other postretirement benefit expense for the Company’s defined benefit plans included the following (in millions):

		Three Months Ended
		March 31,
		2010				2009
Pension Benefits:
Service cost — benefits earned during the year		$	7.6			$	6.1
Interest cost on benefits earned in prior years			33.0				34.4
Expected return on plan assets			(45.4	)			(34.7	)
Amortization of prior service cost			3.4				4.1
Amortization of net actuarial loss			19.3				21.6
Total pension expense		$	17.9			$	31.5

		Three Months Ended
		March 31,
		2010				2009
Other Postretirement Benefits:
Service cost — benefits earned during the year		$	0.8			$	0.7
Interest cost on benefits earned in prior years			7.2				8.2
Expected return on plan assets			(0.4	)			(0.4	)
Amortization of prior service credit			(4.5	)			(4.8	)
Amortization of net actuarial loss			1.5				1.6
Total other postretirement benefit expense		$	4.6			$	5.3
Total retirement benefit expense — defined benefit plans		$	22.5			$	36.8

Other postretirement benefit costs for a defined contribution plan were $0.5 million for the three months ended March 31, 2009.

Note 8. Income Taxes

     Results for the first quarter 2010 included a provision for income taxes of $13.2 million, or 40% of income before tax, compared to an income tax benefit of $5.0 million for the comparable 2009 period. The first quarter 2010 included a non-recurring tax charge of $5.3 million associated with the impact of the recently-enacted Patient Protection and Affordable Care Act. This 2010 first quarter tax charge was partially offset by discrete net tax benefits of $3.7 million associated with adjustment of taxes paid in prior years, the settlement of uncertain income tax positions, and other changes. As a result of the settlements of uncertain income tax positions, the liability for unrecognized income tax benefits was reduced by $15.9 million, including $4.2 million related to interest and penalties, and deferred taxes increased $11.7 million. The 2009 first quarter benefited from a lower income tax provision due primarily to $5.1 million of discrete adjustments associated with prior years’ taxes.

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
		March 31,
		2010				2009
Total sales:
High Performance Metals		$	315.7			$	407.0
Flat-Rolled Products			520.9				387.0
Engineered Products			89.9				75.6
			926.5				869.6
Intersegment sales:
High Performance Metals			13.4				19.1
Flat-Rolled Products			4.3				8.8
Engineered Products			9.4				10.1
			27.1				38.0
Sales to external customers:
High Performance Metals			302.3				387.9
Flat-Rolled Products			516.6				378.2
Engineered Products			80.5				65.5
		$	899.4			$	831.6
Operating Profit (Loss):
High Performance Metals		$	55.0			$	54.3
Flat-Rolled Products			31.4				7.7
Engineered Products			1.8				(6.1	)
Total operating profit			88.2				55.9
Corporate expenses			(12.3	)			(14.4	)
Interest (expense) income, net			(14.6	)			0.1
Other expense, net of gains on asset sales			(5.8	)			(4.0	)
Retirement benefit expense			(22.5	)			(37.3	)
Income before income taxes		$	33.0			$	0.3

     Retirement benefit expense represents defined benefit plan pension expense, and other postretirement benefit expense for both defined benefit and defined contribution plans. Operating profit with respect to the Company’s business segments excludes any retirement benefit expense.

     Corporate expenses for the three months ended March 31, 2010 were $12.3 million, compared to $14.4 million for the three months ended March 31, 2009. This decrease is due primarily to lower expenses associated with long-term performance-based incentive compensation programs.

     Other expense, net of gains on asset sales, primarily includes charges incurred in connection with closed operations 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 operations. These items resulted in net charges of $5.8 million for the three months ended March 31, 2010 and $4.0 million for the three months ended March 31, 2009. This increase was primarily related to greater expenses at closed operations and foreign currency losses.

Note 10. 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
		March 31,
		2010				2009
Numerator for basic and diluted net income per common share — net income attributable to ATI		$	18.2			$	5.9
Denominator:
Denominator for basic net income per common share-weighted average shares			97.4				97.2
Effect of dilutive securities:
Share-based compensation			1.3				0.6
Denominator for diluted net income per common share — adjusted weighted average shares and assumed conversions			98.7				97.8
Basic net income attributable to ATI per common share		$	0.19			$	0.06
Diluted net income attributable to ATI per common share		$	0.18			$	0.06

     Common stock that would be issuable upon the assumed conversion of the 2014 Convertible Notes and other option equivalents and contingently issuable shares were excluded from the computation of contingently issuable shares, and therefore, from the denominator for diluted earnings per share for the three months ended March 31, 2010, if the effect of inclusion would have been anti-dilutive. Excluded shares for the three months ended March 31, 2010 were 9.6 million.

Note 11. 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.

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
March 31, 2010

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	5.6			$	317.6			$	240.3			$	—			$	563.5
Accounts receivable, net			0.4				217.7				254.5				—				472.6
Inventories, net			—				280.4				690.7				—				971.1
Prepaid expenses and other current assets			14.9				11.6				56.6				—				83.1
Total current assets			20.9				827.3				1,242.1				—				2,090.3
Property, plant and equipment, net			3.4				432.1				1,485.8				—				1,921.3
Cost in excess of net assets acquired			—				112.1				91.8				—				203.9
Deferred income taxes			11.8				—				—				—				11.8
Investments in subsidiaries and other assets			3,941.5				1,474.6				1,007.7				(6,248.1	)			175.7
Total assets		$	3,977.6			$	2,846.1			$	3,827.4			$	(6,248.1	)		$	4,403.0
Liabilities and stockholders’ equity:
Accounts payable		$	2.8			$	224.7			$	169.2			$	—			$	396.7
Accrued liabilities			955.4				61.3				712.7				(1,475.1	)			254.3
Deferred income taxes			8.9				—				—				—				8.9
Short-term debt and current portion of long-term debt			—				10.5				21.6				—				32.1
Total current liabilities			967.1				296.5				903.5				(1,475.1	)			692.0
Long-term debt			870.3				356.1				5.9				(200.0	)			1,032.3
Accrued postretirement benefits			—				249.6				166.3				—				415.9
Pension liabilities			12.0				4.8				27.0				—				43.8
Other long-term liabilities			29.7				20.4				70.4				—				120.5
Total liabilities			1,879.1				927.4				1,173.1				(1,675.1	)			2,304.5
Total stockholders’ equity			2,098.5				1,918.7				2,654.3				(4,573.0	)			2,098.5
Total liabilities and stockholders’ equity		$	3,977.6			$	2,846.1			$	3,827.4			$	(6,248.1	)		$	4,403.0

Note 11. CONTINUED

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the three months ended March 31, 2010

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Sales		$	—			$	458.8			$	440.6			$	—			$	899.4
Cost of sales			10.5				424.5				343.0				—				778.0
Selling and administrative expenses			26.2				10.0				38.0				—				74.2
Interest expense, net			(12.1	)			(2.4	)			(0.1	)			—				(14.6	)
Other income including equity in income of unconsolidated subsidiaries			81.8				1.3				1.2				(83.9	)			0.4
Income before income tax provision			33.0				23.2				60.7				(83.9	)			33.0
Income tax provision			13.2				8.3				22.0				(30.3	)			13.2
Net income			19.8				14.9				38.7				(53.6	)			19.8
Less: Net income attributable to noncontrolling interest			1.6				—				1.6				(1.6	)			1.6
Net income attributable to ATI		$	18.2			$	14.9			$	37.1			$	(52.0	)		$	18.2

Condensed Statements of Cash Flows
For the three months ended March 31, 2010

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Cash flows provided by (used in) operating activities		$	9.1			$	(111.9	)		$	51.3			$	(20.5	)		$	(72.0	)
Cash flows used in investing activities			—				(12.3	)			(38.3	)			—				(50.6	)
Cash flows used in financing activities			(10.5	)			(30.4	)			(2.3	)			20.5				(22.7	)
Increase (decrease) in cash and cash equivalents		$	(1.4	)		$	(154.6	)		$	10.7			$	—			$	(145.3	)

Note 11. CONTINUED

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Balance Sheets
December 31, 2009

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Assets:
Cash and cash equivalents		$	7.0			$	472.2			$	229.6			$	—			$	708.8
Accounts receivable, net			0.2				156.1				235.7				—				392.0
Inventories, net			—				159.9				665.6				—				825.5
Prepaid expenses and other current assets			16.3				7.6				47.4				—				71.3
Total current assets			23.5				795.8				1,178.3				—				1,997.6
Property, plant and equipment, net			3.6				429.7				1,474.6				—				1,907.9
Cost in excess of net assets acquired			—				112.1				95.7				—				207.8
Deferred income taxes			63.1				—				—				—				63.1
Investments in subsidiaries and other assets			3,969.0				1,422.5				999.5				(6,221.4	)			169.6
Total assets		$	4,059.2			$	2,760.1			$	3,748.1			$	(6,221.4	)		$	4,346.0
Liabilities and stockholders’ equity:
Accounts payable		$	4.5			$	135.4			$	168.7			$	—			$	308.6
Accrued liabilities			1,013.4				54.5				696.6				(1,505.7	)			258.8
Deferred income taxes			23.7				—				—				—				23.7
Short-term debt and current portion of long-term debt			—				10.5				23.0				—				33.5
Total current liabilities			1,041.6				200.4				888.3				(1,505.7	)			624.6
Long-term debt			870.4				361.3				5.9				(200.0	)			1,037.6
Accrued postretirement benefits			—				257.6				166.7				—				424.3
Pension liabilities			12.0				5.0				33.6				—				50.6
Other long-term liabilities			45.6				22.6				51.1				—				119.3
Total liabilities			1,969.6				846.9				1,145.6				(1,705.7	)			2,256.4
Total stockholders’ equity			2,089.6				1,913.2				2,602.5				(4,515.7	)			2,089.6
Total liabilities and stockholders’ equity		$	4,059.2			$	2,760.1			$	3,748.1			$	(6,221.4	)		$	4,346.0

Note 11. CONTINUED

Allegheny Technologies Incorporated
Financial Information for Subsidiary and Guarantor Parent
Statements of Operations
For the three months ended March 31, 2009

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Sales		$	—			$	354.2			$	477.4			$	—			$	831.6
Cost of sales			23.0				334.2				393.7				—				750.9
Selling and administrative expenses			32.4				9.3				39.1				—				80.8
Interest income (expense), net			2.5				(2.5	)			0.1				—				0.1
Other income including equity in income of unconsolidated subsidiaries			53.2				0.5				1.8				(55.2	)			0.3
Income before income tax provision (benefit)			0.3				8.7				46.5				(55.2	)			0.3
Income tax provision (benefit)			(5.0	)			3.8				11.7				(15.5	)			(5.0	)
Net income			5.3				4.9				34.8				(39.7	)			5.3
Less: Net income (loss) attributable to noncontrolling interest			(0.6	)			—				(0.6	)			0.6				(0.6	)
Net income attributable to ATI		$	5.9			$	4.9			$	35.4			$	(40.3	)		$	5.9

Condensed Statements of Cash Flows
For the three months ended March 31, 2009

		Guarantor								Non-guarantor
(In millions)		Parent				Subsidiary				Subsidiaries				Eliminations				Consolidated
Cash flows provided by (used in) operating activities		$	(16.1	)		$	92.9			$	92.1			$	—			$	168.9
Cash flows used in investing activities			(0.7	)			(13.8	)			(94.7	)			—				(109.2	)
Cash flows provided by (used in) financing activities			16.6				(47.6	)			7.4				—				(23.6	)
Increase (decrease) in cash and cash equivalents		$	(0.2	)		$	31.5			$	4.8			$	—			$	36.1

Note 12. 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 (“PRPs”). 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 March 31, 2010, the Company’s reserves for environmental remediation obligations totaled approximately $18 million, of which $7 million was included in other current liabilities. The reserve includes estimated probable future costs of $6 million for federal Superfund and comparable state-managed sites; $7 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; $3 million for owned or controlled sites at which Company operations have been discontinued; and $2 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 16. 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, 2009 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 contract work, employment, employee benefits, taxes, environmental, health and safety, occupational disease, 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 is one of the largest and most diversified specialty metals producers in the world. We use innovative technologies to offer 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, advanced powder alloys, 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 applications 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 three months of 2010 and 2009:

		2010								2009
						Operating								Operating
		Revenue				Profit				Revenue				Profit (Loss)
High Performance Metals			34	%			62	%			47	%			97	%
Flat-Rolled Products			57	%			36	%			45	%			14	%
Engineered Products			9	%			2	%			8	%			(11	%)